Frequently Asked Questions

Sea Oats at Beach

question1 What is your definition of financial planning?

Financial planning involves defining and setting financial goals, implementing and monitoring your financial plan then making the necessary adjustments as needs or circumstances change.

Financial planning not only focuses on investment advice but includes insurance, tax, estate, retirement and cash-flow planning.

question1 How much should I hold in savings?

Any funds needed in less than two to three years should be invested only in money market funds, savings accounts, Treasury Bills, short term bond funds or cash.   An emergency fund should be a top priority and you should keep at least three months of essential living costs in it.

question1 How much should I save?

Use the 50-30-20 approach.   Save most of your next raise and make debt your mortal enemy. Hint: You probably aren’t saving enough.

question1 How do you screen mutual funds?

The best way to screen mutual funds is by annual expenses. Morningstar found “investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance”.

Ignoring costs means an investor leaves money on the table.   Livingston Financial Planning uses low-cost mutual funds primarily from Vanguard, DFA Advisors and T. Rowe Price. Exchange Traded Funds from iShares, Vanguard and State Street have low expense ratios so we also use those.

question1 How do you manage risk?

Risk is part of the investment world. It is impossible to avoid risk.  At Livingston Financial Planning we know the best way to manage risk is through a diversified portfolio.   However, a portfolio has to be constructed with the client’s risk tolerance and their goals in mind.

question1 What is your opinion on market timing?

Hmm… as a University of Georgia Livestock Judging Team (Spring 1978) member, I am reminded of the ruminant by-product of a bull.

I am sure there are some people who successfully time the market but I am also sure they are rare birds indeed. Market timing is not simply a Wall Street gimmick. Locals call it “tactical asset allocation”.

It is tempting to adjust investments based on your best guess of where financial markets are heading. Resist the temptation and stick with your allocation targets. Nobody really knows where the market is going to go, but you do know where you want to go, and the best way to get there is to stick to your plan…assuming you have one.

Think about it for a minute. If someone could consistently time the market, why are they wasting time with you?   The logical thing to do if<insert sarcasm emoticon> you knew how to time the market would be to invest all your money, then open a hedge fund and become a billionaire.

question1 Define Livingston Financial Planning’s investment philosophy.

Bland defines our investment style. An online dictionary defines bland as characterized by a moderate, unperturbed and tranquil quality. Other traits include no personal worry or concern. Successful investing includes all those characteristics. Jim Cramer I’m not.

For most clients, passively managed Vanguard or DFA funds work best. In some situations, we recommend individual bonds (corporate or municipal), closed end funds, preferred stocks and actively managed bond funds.   Periodic reviews and evaluations of your portfolio are essential.   Investment plans don’t fail, investors fail. Investors take too much risk during boom times and “panic sell” during rough patches.

question1 Do you recommend individual stocks?

No, we do not recommend individual stocks. Generally individual stock ownership is too risky due to A. High degree of business risk and B. Lack of diversification. We do, however, work around individual stock positions. Sometimes clients have emotional ties to certain stocks. I own Berkshire Hathaway because I admire Warren Buffett. I own Coca-Cola (correctly pronounced “ko-ko lur”) because my granddaddy, Joe Laslie, bought it, the only stock he ever owned. Sometimes it is more appropriate to hold low basis stock to minimize tax liability.   Each case should be evaluated individually.

question1 What’s the deal with “free” financial planning?

“Free” financial planning means you overpay for investment management. Add up all your costs. Some use asset management fees (AUM) others use 12-B (1) fees, you pay either way. Just because someone is paid based on your asset totals don’t mean their interests align with yours. Be careful about billing for retirement plan assets not held directly by the advisor. Adding an AUM fee on top of your 401K plan can be hazardous to your wealth.

Like a lighthouse to a ship at sea, we guide our clients to their financial goals.