Your first act is school, your second act is work, but have you thought about what you’re going to do in your third act? Join host Liz Tinkham, a former Accenture Senior Managing Director, as she talks to guests who are happily “pretired” – enjoying their time, treasure, and talent to pursue their purpose and passion in the third act of their life.
Inspire others to get more and to do more later in life.
Athena helps women achieve executive-level leadership expertise, polish their boardroom and executive knowledge, get closer to board seats, and make leaps in their careers.
This week, we’re doing things a little differently. This podcast is brought to you by Athena Alliance, an executive education SaaS platform and network for executive women. Athena offers live Salons for its members with relevant knowledge for their executive and board careers. For this episode, we’ve repurposed one of these Salons—Women & Wealth: Money & Relationships.
The Salon is hosted by Coco Brown, CEO of Athena Alliance, and features Tama Smith, a financial planning advisor with Brighton Jones. She’s also the founder of their division called Women Living a Richer Life. She’s joined by Manisha Thakor, the author of Get Financially Naked: How to Talk Money with Your Honey.
In this Salon, you’ll learn five tips that will relieve 90% of your financial stress. They teach you how to bucket your money to get a better handle on your financial health, and the three money metrics couples tend to disagree on.
(2:48) Athena Founder Coco Brown’s story navigating wealth management
(6:50) Women will control 2/3 of wealth in the next decade
(9:39) The importance of financial and emotional stewardship
(16:03) 1: What is your monthly spending & savings?
(18:19) 2: Is your net worth on an upward trajectory?
(19:29) 3: How much do you need to reach vocational freedom?
(21:12) 4: What is your current investment mix?
(22:23) 5: What is your cash buffer plan?
(24:00) Bucketing your investments
(34:43) Financial opposites attract: Common disagreements on money management
(39:46) Five things to focus on when looking for a financial advisor
Athena is the secret weapon for women looking to level up their careers. Members have access to live learning three times per week, as well as on-demand access to hundreds of executive and board topics. Learn more here.
Liz Tinkham (00:33):
Today we’re doing something a little bit different—call it “brought to you by our sponsors.” This podcast is brought to you by Athena Alliance, which is an executive education SaaS platform and network for executive women. I’m a member, and if you’re a senior woman who’s interested in getting involved in board service or just up-level her career, I highly recommend joining Athena Alliance. As part of Athena’s services, members host live Salons that have been wildly popular because they offer relevant, smart knowledge brought by members, to members.
Liz Tinkham (1:03):
Today we’re repurposing one of my favorite Salons, Women & Wealth Part 1. I love this Salon because it addresses what happened in my house—I earned the money and my husband managed the money. And if you would have asked me three years ago how much money we had or where we stood financially, I would’ve probably given you an embarrassing stare. Fortunately I got my financial act together, but this Salon is gold in terms of great advice. If you’re a man listening to this, don’t worry—you’re invited, too. The advice applies equally to men and women. The Salon is hosted by Coco Brown, CEO of Athena Alliance, and features Tama Smith, a financial planning advisor with Brighton Jones. She’s also the founder of their division called Women Living a Richer Life. She’s joined by Manisha Thakor, who’s the author of—you’re going to love this title—Get Financially Naked: How to Talk Money with Your Honey. They cover a wide range of topics, most notably the five key numbers you need to know to manage your money and alleviate your financial stress. So here we go. Let me know what you think by leaving a review or send me a comment on LinkedIn. Enjoy the show.
Coco Brown (02:15):
What we’re talking about is a topic that I find near and dear to my own heart, which is whether you have $5 or $5 million or $50 million or whatever it happens to be, if you are a senior woman and you’re trying to figure out how to preserve and extend what nest egg you’d have and what you are building and how to create more out of what you’ve got, historically, that’s not a domain that women have really been primary and front and center in, I’ll say. As my career extended back… I became a vice president when I was 28 years old and my husband and I had our first baby when I was 31 and, 30 actually, technically, very quickly decided that I would be the breadwinner and he would stay at home with our child. And within a very short period of time, he was the money manager and I was the moneymaker.
Coco Brown (03:13):
And that always stayed. And I never really fully understood what was going on with what we were investing. And it’s only more recently that we’ve become really partners in that process. And I realized how important it is for me to really understand the dynamics of the financial security and health of a family from everything from 401(k) to retirement planning to 529 plans and the kids’ education to parents aging and making sure that they have what they need to be able to age comfortably.
Coco Brown (03:49):
So, anyway, we talked a bit about that a couple of weeks ago, and now we’re going to keep it going. And I’m thrilled that we have such a great group with us. In 2017, Tama Smith partnered with financial planning and advisory firm, Brighton Jones, to launch the Women Living a Richer Life division. That’s a centerpiece of our conversation today. That division is focused on empowering women to meet their unique financial challenges. She’s a graduate of Wharton Business School and UC Berkeley, and her research over the past three years into the relationship that whip-smart highly successful professional women have with their money uncovered some strong and sometimes surprising themes.
Coco Brown (04:30):
So Tama is going to share these powerful insights. And then joined in with her is Manisha Thakor, author of Get Financially Naked: How to Talk Money with Your Honey. They will uncover a wide range of topics, including investing, pay equity, having the money talk with your partner, your aging parents, your young adult children, and how to invest in your emotional wealth in tandem with your financial health. So with that, I want to pass the baton to these lovely ladies and make sure that we’ve got you all ready to go.
Tama Smith (05:03):
Good morning fellow Athena Alliance members. I’m a proud Athena Alliance member, and so is Manisha here. I am Tama Smith, and I have the pleasure of leading Women Living a Richer Life at Brighton Jones. We’re a very unique type of wealth management firm with a national reach. I have the pleasure of being joined by my colleague, and I like to call Manisha my sister-friend. She is my sister. We just have different moms, but we’re kindred spirits. And so I’m excited that Manisha is joining me this morning in this very important talk.
Tama Smith (05:43):
We’re very lucky to have Manisha this morning. I love to brag about her. She is a nationally renowned personal finance expert who has been on the CNBC Television panel, she’s had a column in the Wall Street Journal, but she is the go-to for finance media experts looking for opinions. And she’s the author of two books, On My Own Two Feet, and as Coco mentioned, the one that’s relevant for our talk this morning is entitled Get Financially Naked: How to Talk Money with Your Honey. So let’s kick this off.
Tama Smith (06:26):
I want to first share a little bit before we jump into the relationship and money talk that Manisha will be driving in a second. Two years ago when I joined Brighton Jones, it was because I had created a business plan very much around the key steps that UBS kicked off with last week. And I want to share some additional ones. But essentially, Women Living a Richer Life was created because number one, we as women in the United States, over the next 10 years, we will be in control of two-thirds of our nation’s wealth. And there are a lot of reasons for that. More and more of us are, as Coco mentioned, the income producer or the wealth generator in our family, either solely, primarily, equally, or in some part. We’re also the recipients of spousal wealth, whether it’s due to death or divorce, and we are the recipients of intergenerational inheritance and many other factors.
Tama Smith (07:32):
And so when you look at all those wealth channels and combine them all, we as women, all of us on this call and beyond, will be responsible for managing two-thirds of our country’s wealth. We make up 51% of the world’s population, a little bit over 50% here in the United States, and 95% of us at some point in our lives will be the primary financial decision-maker in our household. We will have to be. Typically, we tend to outlive our spouses. More and more of us are single or widowed or divorced at some point in our lives. And so, there’s this huge responsibility to be able to understand and be able to manage our personal finances.
Tama Smith (08:19):
I also wanted to share two key stats that the UBS team brought up last week. And that is 81% of women do not feel financially comfortable and confident. And one out of two women who are married or in partnerships are deferring to their spouses for long-term financial decisions. And so we began to see at Brighton and Jones, some of these emerging stats back in 2017 and 2018. And that’s why we created this initiative, Women Living a Richer Life, to empower women by closing the readiness gap. And so today’s talk is one more step towards empowering each of you to whatever degree that you feel empowered right here right now but to empower you one more notch towards being able to close the readiness gap and to assume this tremendous responsibility going forward.
Tama Smith (09:22):
Jumping into this, on this call, the majority of us are members of the Athena Alliance. We’re executive and professional women either currently or retired for some. Many of us are on corporate boards and others are wanting to be on corporate boards. So this whole notion of stewardship for each of us on this call this morning is critical. Merriam Webster defined stewardship as the careful and responsible management of something entrusted to one’s care. And so stewardship is what unites all of us right here on this call. And when we think of stewardship as business people, we think of corporate stewardship, which is critical. And we’re learning through Athena about corporate board stewardship, but there’s also another form of stewardship, stewardship of personal finances, where we think about our financial health and our emotional wealth. And this is one area that we’re seeing women struggling with, and that is stewardship of personal finances.
Tama Smith (10:41):
We want to explore this morning, the intersection of these three forms, other forms of stewardship, of self, of stewardship around your relationship with your significant other, your partner and spouse, and your stewardship of money as it relates to yourself, your significant other, and your children, and your elderly parents and your community. So from this conversation going forward, it’s really around stewardship of money. And to this end, I’m going to turn it over to Manisha to talk about financial stewardship as it relates to these three areas.
Manisha Thakor (11:21):
Thanks, Tama. So, I’ve been working in financial services for the entirety of my career, over 25 years now, and the stats that Tama highlighted that 81% of women not feeling confident, one out of two women differing financial decisions to partners or significant others is a trend that I’ve just seen over and over again. And I did my undergrad at Wellesley and my MBA at Harvard, and I cannot tell you how many of my friends who have kick butt executive jobs tell me, “Oh my God, Manisha, I feel such financial shame and embarrassment that I neglected this area. It’s not because I’m stupid. I was busy. I was the one bringing in the money, or I just felt like I needed to understand it all before I made a decision and I didn’t have time to understand it all because I’m climbing up the ladder.”
Manisha Thakor (12:23):
And the sense of shame and guilt really has been to me the most surprising commonality that I have seen across my whip-smart gal pals that are now approaching or in the upper echelons of the corporate world. And if it were a sundae of guilt and… Shame and guilt, I would say, it’s sprinkled with overwhelm and just feeling complexity.
Manisha Thakor (12:52):
And so to give you a couple of examples of the kind of things that I’ve seen, I have one friend who was a very senior executive at a top 10 global financial services firm. She works in the strategy area. So not dealing day-to-day necessarily with the company’s finances in a technical sense, but she has chosen… She has two kids. She’s chosen to let her husband manage the money, partially because she’s crazy busy, but also partially to keep peace in the marriage. His career just never really got off the ground, despite him also going to the same prestigious business school. And so she handed it over for that reason and now she’s feeling just lost that she doesn’t know their numbers. How close they are to retirement, whether they can keep affording to send their kids to private school in New York, et cetera.
Manisha Thakor (13:49):
Another example is this amazing woman who is a general counsel at a biotech firm, and she was struggling with two decisions. She had an amazing offer to be a general counsel at another firm, but the offer package was complex. It had ISOs and NQs and restricted stocks, and it also came with a deferred option for your bonus so that you can do the tax arbitrage. And she’s like, “What are non-qualified options? What are these ISO things? And how do I compare it, importantly, to my existing job where my company that I’ve been at for 20 years is about IPO? How do I think about the arbitrage and negotiate my package?”
Manisha Thakor (14:39):
And then another example that sadly, as a divorced woman, I am starting to see more and more is high net worth powerful couples getting divorced and then trying to figure out on their own how-to, especially in community property states, divide up assets. And it’s not the simple example of the wife wants the house so the kids don’t change. It’s that we have private equity investments and venture capital investments and angel investments, and these aren’t liquid, and how do we parse them out? And so the questions are wide and varied.
Manisha Thakor (15:15):
So when it comes to stewardship of money with yourself, I personally believe that if you can know these five numbers, you will relieve yourself of 90% of financial stress. And on the surface, the items may seem very straightforward, but I can’t emphasize enough. I would say two out of 10 of my friends from undergrad or business school know all five of these. And most of those are working in wealth management. And that’s the only reason why. So I’ll just say it one last time, shame and guilt over not understanding these numbers is so pervasive. So if you’re feeling any of that, I just want to say knock it out. Put it aside.
Manisha Thakor (16:03):
So the first thing is, what is your monthly spending and savings? Again, sounds comically obvious, but most people don’t know. And the reason you need to know this is all the other numbers build on this. And a lot of times, it feels overwhelming because you think about like the shoebox of receipts and how do I figure out what I spent in the past or with my budget going forward? But actually, it’s pretty darn simple to figure out what your household is spending on an annual basis because most of us charge things to a credit card. We write checks, or we have direct ACH transfers out to pay bills from our checking account, or we’re using something like Mint.
Manisha Thakor (16:48):
And so you can look in aggregate to see what you are spending, and then you know what you’re earning. You can then see what you’re saving in aggregate. And roughly speaking, you want to be at our stage in life, saving at least 20% for retirement. By the stage of our career, most of us will have our emergency funds built and near term needs pre-funded, whether it’s 529s for kids or so forth. And so if we’re not saving 20%, then you can dive down and get more granular around what areas of the monthly spending may be out of whack.
Manisha Thakor (17:33):
A really rough rule of thumb you can use comes from Elizabeth Warren. She is the first person to talk about this back when she was a bankruptcy professor at Harvard Law. She came up with a framework called 50/30/20. That roughly speaking, 50% of your take-home pay goes towards needs, housing, transportation, food, mandatory childcare to work, insurance, 30% goes to wants, and 20% goes to savings. And when that balance gets out of whack, we don’t have to be perfect. If you live on the East or West Coast, many of us will spend a little more than 50%. But that broadly speaking is a set of numbers that you really want to know. What does it cost to live a month?
Manisha Thakor (18:19):
And then that leads me down to the second point, which is net worth. And net worth, we know it’s your assets minus your liabilities equals your net worth. Why count it? I strongly recommend that people track their net worth as an end of the year exercise and keep it year over year. Your net worth won’t always grow because as you get to our stage in careers, more and more of our net worth is in investments, which are more volatile than home equity, which is what the majority of Americans net worth is in.
Manisha Thakor (19:00):
But generally speaking, if your net worth is not on an upward trajectory, that is a signal. And for most of us, it is, but oftentimes, I’ll meet people and they will have been on a downward trajectory for two or three years, and they don’t realize it. And sometimes it’s because of investments, sometimes it’s because they bought much more home than they could truly comfortably afford. So that’s the second one.
Manisha Thakor (19:29):
The third one is your vocational freedom numbers. And I love this term because retirement is so outdated. For my 50th birthday, I hit my vocational freedom numbers. So I gifted myself vocational freedom instead of retirement. So vocational freedom is the ability to work when you want to work, but not because you have to work. And so people used to think about that as their retirement number, but as more and more of us are hitting it and living longer earlier in our lives, it’s a super important number to know. And the vocational freedom number is the number at which you’re able to meet your monthly spending, your desired monthly spending without having to work because you’re withdrawing from a sufficiently large enough asset base.
Manisha Thakor (20:19):
I don’t know if you remember a couple of years, five years ago or so, ING was doing these funny ads where they had people walking around with these signs and they were their numbers, and they were asking, “Do you know your number? Do you know your number?” And I wish the ad had continued because that’s the exact point. Most people don’t know what exactly they’re aiming for. And if you don’t know what you’re aiming for, what happens is you do not then know each month or year, how much you need to be saving and what return that investment of those savings needs to generate in order for you to get to vacation or freedom at the time you want. It’s like a Rubik’s Cube. So these three numbers all come together to give you the power to step away from a job that you don’t like, or a relationship that isn’t working or to move towards spending more time on stuff that brings you joy.
Manisha Thakor (21:12):
And then that brings me to the fourth number, which is your current investment mix. I can’t tell you how many people I’ve met who work in financial services in investing areas even, who don’t know their investment mix. What specifically is their allocation between. We can start with stocks, bonds, and cash at the high level, then we can move into liquid and illiquid investments, or within bonds, how much are you in government versus corporates of the corporates? How much are high quality versus the high yield? On the myriad way to slice and dice publicly traded equities, we look at domestic, developing, or large-cap, small-cap growth value.
Manisha Thakor (19:43):
I’m not so worried about those areas as I am that so many people literally do not know in aggregate, what their overarching mix is. Why that matters is if you don’t have the right overarching mix, your ability to take all the hard work you did in one and two, and get your number three, your vocational freedom number achieved, will depend on whether you’ve got the right mix.
Manisha Thakor (22:23):
And then last and finally, your cash buffer or your cash buffer plan. And of all of these, this quite well may be the most important. We’ve all had or have three to six months in emergency fund. That’s not what I’m talking about here. What I’m talking about is a concept of how to think about your money. And I first learned about this from the chief investment officer at Brighton Jones, and I’ve never been able to… I can’t think about money any other way now that this has been presented to me. So let me explain.
Manisha Thakor (23:07):
I meet people who will say to me, “Manisha, 2007, 2009 destroyed my retirement. My ex-husband is 20 years older than me and many of his friends would say that it just ruined us.” Well, I’m thinking actually, if you had a cash buffer plan, what you’re telling me when you say ’07, ’09 ruined your retirement is that you didn’t have a cash buffer, which I’ll explain in a minute what exactly that entails, or you got scared and you panicked and you sold. Because if you had had a cash buffer plan, you should have moved right through ’07, ’09 without any change in your standard of living and your prospects for hitting vocational freedom.
Manisha Thakor (23:56):
Why? How does this work? So think about three buckets. Number one, I like to call it your cash buffer. And you can think of it as the money that you know you’re going to need to spend in the next five years. Depending on where you are and how close you are to your vocational freedom, it could be that you count that just as your essential… The very essential needs. If you lost your job, what are the absolute costs that your household would have to maintain? Having five years of that in cash equivalents, I call it cash, but you could have it in ladder CDs. You could have it in ladder treasuries. You could have it in a high-quality intermediate-term bond fund. But the idea is you have five years of money that no matter what happens in the market, and we’ve never had a market downturn that exceeded a four year period, including the Great Depression. So by using five years, you’re giving yourself statistically a big wiggle room.
Manisha Thakor (25:03):
That bucket then enables you to know that your life will go on no matter what happens. As you get closer to vocational freedom, you want that bucket not to reflect five years of the essential living expenses, but literally, five years of your life the way you want it to be. And that’s why somebody in retirement in ’07, ’09 should have had their first five years of retirement money lined up right there taking no risk.
Manisha Thakor (25:31):
Then you have bucket three, and that’s your legacy bucket. Add it size will vary as your career, your net worth expands, but also depending on your personal values. Bucket three is typically in the industry called legacy. And that is the money that you know want to pass on to charity, to causes you believe in, to the next generation. And typically, for most people, their legacy bucket starts off small with a DAF often, the donor-advised fund, and then may grow even more complicated down the road to things like SLATs or GRATs or dynasty trusts as you do estate planning to have money out of your state and still pass it on. Legacy is that long-term money.
Manisha Thakor (26:20):
Bucket two is your bridge. And the way bucket two works is that every… When you start needing to draw out of bucket one, bucket two replenishes it. So each year that money comes out of bucket one, bucket two is replenishing it. So you always have a full five-year bucket. And then the way bucket two is managed depends on your total assets and how close you are to vocational freedom. For some people, they’re able to have enough in assets such that they can take bucket two and use 10 years of it with ladder bonds or high yield bonds, get a little more juju. And that way, they always know where the next 15 years, once they’re in retirement, is coming from.
Manisha Thakor (27:05):
And then the remainder is invested for growth, which may end up going into bucket one or may end up going into bucket three. But my point is not nearly enough time is spent in the traditional financial advisory relationship talking about the cash buffer, and as a result, it either doesn’t exist for a lot of families even if they are getting financial advice or two, if it does, it’s not being explained clearly enough because if it is, you have immunized yourself from whatever happens in the markets and in your own career. That’s the power of these five numbers.
Tama Smith (27:48):
Someone asked the question, are all three buckets invested? So if you can just clarify the-
Manisha Thakor (27:54):
No, go on.
Tama Smith (27:56):
Different risk levels.
Manisha Thakor (27:57):
It depends on your personality. I will tell you what I personally am doing. So I’ve hit my vocational freedom number, my bucket one is crazy conservative. I have it in a treasury money market fund. So it’s essentially the equivalent of cash. My goal with bucket one is simply to more or less keep pace with inflation. That’s all I want bucket one to do. My bucket three, which is legacy, I’ve got that fully invested. In my case, as aggressive as I like to go is with publicly traded stocks. Other people might want to use private equity, venture capital because that’s a super long time horizon.
Manisha Thakor (28:41):
Bucket two, the investment mix of bucket two is a bit of a scientific art. In other words, if your bucket two is large enough, you can invest it in such a way that half of it is used to replenish one each year it goes down, but those investments instead of being a really conservative treasury money market fund might be a laddered high yield, a laddering of higher yield bonds. So each year, one bond matures and it goes back into bucket number one to replenish what was spent that year, but it’s in a higher growth investment. I personally do municipal bonds in my ladder, but you’re just pretty conservative. But the other portion, so I know where the next 15 years of my money is going to come from and everything else that’s not 15-year plus, I’ve got invested in publicly traded stocks. That’s just what I’ve done.
Manisha Thakor (29:41):
But other people… So, yes, all three buckets are invested, but the key is the bucket one is essentially some form of a cash equivalent and it only needs to be five full years if you’re actually in vocational freedom, in retirement, not pulling in an income. If you are pulling in an income, then it’s just the minimum that you need to maintain your lifestyle. If everything went to hell in a handbag, you would just cut back on the fun stuff for a little bit.
Tama Smith (30:16):
Someone said, can you address how you think about real estate investments, primary home plus the second home as an investment.
Manisha Thakor (30:25):
Real estate, highly debated point. My personal view is that your primary home you should never consider as an investment. You should just enjoy the heck out of it. If worse comes to worst and for some reason, everything else was up and you end up having to use it or you do a reverse mortgage on it because you lived to 110, great. It’s a little bit of an investment. You can think about it as a potential bond in the out years. But I don’t think thinking about your primary investment should be part of your net worth, but I consider it an asset, not an investment.
Manisha Thakor (31:00):
Your second home can be either truly thought of as an investment. We’re going to have this, we’re going to be renting it out when we’re not using it. We’ve got a property management company. Because somebody is managing it for us, it literally is an investment for us. Other people say, “Screw it. I work 100 hours a week it feels like, between the kids and commuting and work and thinking and I just want the fun.” If that’s the way you’re viewing your second home, then I consider it an asset but not an investment. So really the answer is it depends how active you are in managing that second property and trying to extract an income out of it or if you feel like you have bought into an area that’s about to explode and you’re going to have an amazing return on it, in which case it’s a speculative investment.
Tama Smith (31:52):
Is the assumption here that if you overweight bucket one with 10 years of your monthly burn that you’re not doing that until you’re actually retired?
Manisha Thakor (32:02):
Yeah, that’s the… I would never put ten years in bucket one if I were working because you want that money to keep growing. If I were working, what I would want to know is that if I lost my job, the key things that needed to happen, the tuition payments over the next two years, the mortgage payments, the things that absolutely had to happen could happen without having to sell stocks at a low point. And it doesn’t mean that that money all has to be in cash because you can ladder it in bonds if that feels too conservative to you so that a bond is coming due each year to match the expenses.
Manisha Thakor (32:52):
That’s why knowing these five numbers are so important because then you can know what of your burn rate you need to immunize. Just like in the old days in defined benefit pension plans when they actuarially knew how much money would go out each year and then they invested in fixed income to match that. That really conceptually is what this, I call it cash, but that’s what it is. It’s immunizing your standard of living and it grows, it gets bigger as you get closer to retirement. And five years out from retirement or vocational freedom is considered the red flag period. That’s where you want to really start building it out.
Tama Smith (33:34):
One more question here. How do all alternative investments such as private equity, hedge funds, and venture fit into the growth bucket?
Manisha Thakor (33:43):
Great pieces of growth bucket. They can be in your bridge. They can be in bucket two, they can be in bucket three. The key issue with these types of investments is they tend to be illiquid. So, again, that’s the benefit of having a cash buffer appropriate for your individual circumstance. If you are working and you’ve got a really steady job and you feel great with that and you love venture capital and private equity and you feel fine with the illiquid investments, your main goal is not to have to borrow money or liquidate those illiquid investments at fire-sale prices if something goes wrong. So the whole goal of the cash bucket is to enable you… The cash buffer is to enable you to take as much risk as you want with everything else, just little risk with everything else, knowing that you will never be forced to sell in a down market to meet your known needs.
Manisha Thakor (34:43):
Okay, let me move to significant others. In a really ironic cool twist of fate, studies have shown over and over again that opposites attract particularly financial opposites. Studies literally show that there is something intoxicating about being around a financial other. I can remember when I got married and my ex-husband went to the movies and asked me if I wanted a Diet Coke with my popcorn. And I thought, “Oh my God, you actually buy the food at movie theaters? You don’t sneak it in in your purse?”
Manisha Thakor (35:17):
And he thought this is before TSA days, that it was just the cutest thing on earth that I would take through a refillable water bottle when I went to the airport because everyone spends three bucks on bottled water. And then what happened was we got married and it turned out that my goal was to be able to ultimately lived on my dividends and interests and be able to pass my principle on to my nephews, niece, and charity, and his goal was to die with exactly zero dollars in his bank account. So we had some competing viewpoints.
Manisha Thakor (35:54):
And that’s what prompted me to write Get Financially Naked. And what I’ve discovered is when we get in a relationship, people ask us if we’re intellectually compatible and religiously compatible. And we have no problem discussing the physical compatibility point, but rarely does anybody ask if we’re financially compatible, yet longitudinal studies of happily married couples show that shared values is the number one thing that keeps a marriage together. And amongst those shared values, one key area is around finances.
Manisha Thakor (36:26):
So how do you assess financial compatibility? It’s awkward right? Because you don’t want to sit down and start interviewing someone. And then it’s really awkward if you’ve been married to them for 15 years already and you’ve never had the conversation. So in Get Financially Naked, I came up with a financial compatibility worksheet that has three metrics. And I’ve discovered that these were the three metrics in my research that people tended to have disagreements on. It was either behavior around money, it was interest in dealing with money, and/or it was knowledge about money.
Manisha Thakor (37:07):
And so the way that the worksheet is set up is that it has 10 different questions in each of the three areas, and you rate yourself on a one to ten how you feel about those. And the way you use it is you fill out one, your other fills out one, and then you come together with a blank one and you each discuss like, “I put a three for this one. This is why I did it.” And the other one says, “I put a seven.” And then you switch. So no one is always the first one and you’re simply describing why you rated things the way you rated them. And it makes the conversation so much less confrontational.
Manisha Thakor (37:49):
Women will often say to me like, “Okay, that’s nice, Manisha, but that’s not the talks we’ve been having for the last 15 years. How do I bring this up?” And the simple answer is you use the Athena Alliance as your wing woman. You simply say, “I attended this webinar and they brought up this point that financial incompatibility is one of the top reasons for divorce.” It is every single year, and also life stress. The American Psychological Association is always number one or two financial stress. And you don’t want this to happen in your household. So let’s do this and figure out so we can identify where we might need to change things.
Manisha Thakor (38:29):
And I wanted to be able to email it all out, send it to Coco and have it sent to you, but my publisher won’t allow a group distribution, but they did agree to allow me to distribute it one-on-one. So if you reach out to Tama, and she’ll give you her contact information at the end, she can send it out to you on a one-on-one basis. But it’s crazy powerful. And if you don’t have a significant other, it’s still useful to do on yourself.
Manisha Thakor (39:06):
The other thing that I want to say about significant others as you’re assessing financial compatibility, behavior interests, and knowledge, is about financial advice. All of that… The first two points may lead you to say like, “Wow, we are golden. We’re set. We don’t need any outside help.” For others, it may be, “Oh F, we’ve got some trouble here and a third party can really be helpful.” But the only problem is many, many, many women have told me cringing that trying to find a financial advisor feels like shopping for a used car. You quite literally feel like you are being taken for a ride. The opaqueness of the pricing is just awful and you do something… It feels slimy.
Manisha Thakor (39:46):
So I wanted to give you, this is like the second most important thing that you can take away from my talk here or my comments here, the five things that I think you need to focus on when looking for a financial advisor if you choose to think that you need one. The first is you ask them, “Are you a fiduciary or do you operate under suitability?” This is the dirty secret of the financial services industry. Unlike the law world where everybody takes the Bar or in medicine there is the Hippocratic Oath, in the financial services industry, there are two standards to which advisors can adhere to, and they’re divided by legal structures.
Manisha Thakor (40:27):
About 20% of the industry as it currently stands is set up under a legal structure where the company is a registered investment advisor and it reports up to the Securities and Exchange Commission. Under that structure, legally, the advisor has to put… The advice they give has to be in the best interest of the client. They may not put it ahead of themselves or their firm’s best interest. Most of us think we’re getting that. But 80% of the industry operates under something called suitability. This is a legal structure that reports up conveniently to a self-regulating organization, FINRA, and it does enable an advisor to give advice that puts their interests first or their firm’s interests first so long as the advice is suitable. Suitable is a fuzzy word.
Manisha Thakor (41:19):
I have friends who work on the suitability side and they are freaking amazing people, and they just personally apply the fiduciary standard because they’re just stand up human beings. But when you hear of people feeling there’s an awkward conflict of interest sometimes. Almost always, it’s because they’re with an advisor on the suitability side. And the example I like to give is if you have allergies and the drug that works best for you comes from Pfizer but your doctor’s practice is essentially funded by Merck because Merck will give them bonus points for the number of Merck scripts they write. And they give you a prescription for the Merck drug even though the Pfizer one is better for your body. And it’s okay because it’s suitable. It’s still an asthma drug.
Manisha Thakor (42:07):
The first question you ask is simple, do you operate as a fiduciary or under the suitability standard? They don’t have to tell you, but if you ask, they have to answer honestly. I personally would never go with somebody who’s under suitability because the pressures of that model are so tough. But there are good people there. I just believe why take the risk? Always go with fiduciary.
Manisha Thakor (42:32):
The second thing when it comes to advisors, ask what their investment strategy is. Some firms only do one type of investing. Other firms have a menu you can choose from. No right or wrong. But if a firm is just doing one type of strategy, you want to make sure you’re aware of it. If they’re doing a multi-layer strategy, you want to make sure they’re discussing with you which pieces they’re choosing.
Manisha Thakor (42:56):
The third thing is you want to make sure that they have a conversation with you when they’re setting your investment mix, your asset allocation that incorporates your cash needs. I can remember my ex-husband, who I feel like I’m talking about an awful lot. I obviously have unresolved issues there. I remember taking him, he’s a lawyer, terrible with money, intellectual property trial lawyer. So he’d win a ton of money in a case and then nothing for 10 years. He’d have to eat off that carcass of money. And I can remember taking him in before I learned about fiduciary and suitability into a firm that was suitability, and the advisor made the investments for him without asking about his cash flow. So he ended up with a portfolio of purely illiquid events and his next paycheck wasn’t coming for 10 years when the next case settled.
Manisha Thakor (43:46):
So fiduciary versus suitability, you want to know what their investment strategies are, you want to make sure they do not make an asset allocation for you without discussing your cash flow needs. The fourth is you want somebody who’s talking to you about vocational freedom. They can call it retirement, whatever they want, but you want them to show you the calculations they use, it’s a Monte Carlo model. Everybody has access to them in the financial services provider world where they show you given the different spending levels and different expectations of inflation, how much you need to be striving towards to retire at various different ages, and then specifically, how much you need to be saving now and what returns that savings needs to generate.
Manisha Thakor (44:33):
And then the last piece is you want somebody who’s talking to you in whatever language they use in their firm, about this three-bucket cash buffer plan. That’s what you want from a financial advisor.
Tama Smith (44:49):
Should you stick with one firm or is it okay to have more than one? And then someone asked a similar question, can you do it without an advisor?
Manisha Thakor (45:00):
Should you stick with one or have multiple firms? I would say 80% of the time I recommend going with one firm. And the reason for that is you want air traffic… If you’re hiring… If you’re getting professional financial advice and you’re paying for it, you want an air traffic control center. You want somebody who’s paying attention to the entire picture. When you have two managers, what I find happens is things fall into the crevice. Where is it a good idea to have two managers? If you are sufficiently asset-heavy that you have, let’s say, a legacy bucket that you want to be leaving for charity and you’ve really funded a large donor-advised fund or you’ve really put aside money in a trust that’s going to be going to various different causes down the intergenerational legacy span. And therefore, that’s a bucket that can take much more risk because it has some cases almost a perpetual life span. That could go separately to a firm that just specializes in these types of more aggressive long-term investments.
Manisha Thakor (46:17):
But I have just seen over and over again, and I’ll give you some examples of mistakes. People have two firms and one firm is thinking, “I’ve added a whole lot of value here, so I’m going to be doing tax-loss harvesting,” which means the market’s gone down. I’m going to be selling stocks that are down and locking in those losses so that in future years, that means that you can carry those losses forward and offset realized investment gains against them. In fact, some people used that strategy in 2008 and were able to carry out those tax benefits for 10 years.
Manisha Thakor (46:58):
That’s a great benefit of using that strategy. But if they didn’t talk to their other firm, there’s this thing called the wash sale rule, which means if you buy back that same security or a substantially similar security within 31 days of the sale, it negates the tax benefit. So you got one firm over here like, “Woo-hoo, we got you these huge… We’ve walked in $500,000 of losses to carry forward.” But the other firm is buying something substantially similar because they don’t know this is happening. You lost the whole strategy.
Manisha Thakor (47:34):
So I am a fan of one for that reason. There are other examples I can give you which is when you have one, they also are focused on other sorts of things like making sure trusts are funded. Many, many, many people create unbelievably wonderfully complex smart trusts, but then don’t remember to fund them. In other words, don’t put the assets in accounts that are now titled to match the trusts and make sure the financial institution has a copy of the trust paperwork. And when you have two firms, oftentimes, one assumes the other one’s doing it.
Manisha Thakor (48:14):
Can you do it on your own? Absolutely. I do it on my own. My dad is a retired former chief financial officer of a company. He does it on his own. My two cousins are crazy smart doctors. They’re actually clients of Brighton Jones. They just don’t have the time or the interest. So you can do it either way. And we’ll talk about this I think in part two because I really want to go into it in more detail, but the financial services industry has changed dramatically. If you are only getting investment advice, you’re not in the right place unless it is for that legacy only long-term bucket.
Manisha Thakor (48:58):
For your personal family’s money, you should be receiving financial life planning services, which are so much more encompassing than what the industry offered when we all started our careers. So, yeah, you can do it yourself. And I would say probably 20% of executive women should be doing it themselves because of the interest level and the desire to do it. And probably 80% will be much better served by using financial advice either to resolve spousal battles and disputes, advisors are great at helping with that, or just because there’s not an interest in doing it, or you want to learn and the advisors can be teaching you as you go along.
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