Equifax is Paying for their Data Breach, Collect Your $125.

After a terrible data breach, Equifax has been fined $575MM by the Federal Trade Commission. The breach affected 148 million Americans, who had their SSN and addresses stolen. It was a situation that was easily preventable, had Equifax been taking some moderate precautions (or listened to the advice they were given months before the breach). And it led to the departure of several of the companies execs, including Richard Smith, the CEO.

As part of the settlement, it was agreed that Equifax would repay you $125 for the breach. Or you can select to get 4 years of protection against future problems, with credit reporting. In all likelihood, you have this protection built into your current banking. So take the money and run.

Its super simple, and takes less than 1 minute to complete the process:
https://www.equifaxbreachsettlement.com/

So go collect your cash. And spread the word!! The more people who collect, the more expensive it is for the company, and the less likely this is to happen in the future.

The Financial Pitfall of Making Six Figures

My Partner And I Make 6 Figures, Where the Hell Does It All Go?!

There’s a common refrain I’ve come across with many of the families I meet with in Decatur and surrounding neighborhoods: We make a good living, our family is thriving, but we don’t have any money at the end of the month? After I review their spending accounts, I see big pay checks coming in. I see nice sized chunks of cash going out for nice cars and houses. And then 75-ish seemingly “insignificant charges” of between $50 and $250 throughout the month. This is the beginnings of an archetype, I am starting to call “We make enough money, that we don’t have to worry about our spending”.

You may fit into this category if:

• Your family income is greater than $175k/year

• You have 2 to 3 kids that have expensive extracurriculars and/or tutoring

• You go on a week long vacations 4 to 5 times/year

• You may have a stay at home partner

• When you see something interesting, you just buy it

• You emphasize convenience over cost

• You contribute money to your kid’s school and class all year long

• You don’t really check your bank/credit card statements

• You are well respected in your professional career

This is an interesting group, and something that seems to happen much, around Decatur and other in town neighborhoods. The amount of income you make, lulls you into thinking you don’t need to be intentional with your finances. That is, until something happens that causes you to reevaluate your situation: A friend gets laid off, you decide you hate your job and want to make less money and contribute more, a major housing renovation or project, a friends kid heads off to college, you want a pool in your backyard, etc.

Which inevitably leads to a quick analysis of the family’s current situation, and you realize:

“Dang!! Where does it all go?” or “I am too busy to deal with this, I am going to punt for some time in the future when I have more time”.

If you are in this situation, with just a little bit of work, you can make a big difference in your family’s long term outcomes. Let me help you:

• Consolidate your credit cards

• Set up automated bill pay

• Set up automated investments

• Pre-plan and budget for your family vacations

• Check out your car/home owners insurance for the best price and coverage

• Prioritize and fix the things in the house that need to be addressed

• Get the kids set up for college savings

• Land a new job that matters to you

• Sell your RSU’s

• Minimize your tax bill

A good financial planner does so much more for your family, than just manage your investments. They are an advocate and partner, working in lock step, to make sure that you are living your best life, NOW and IN THE FUTURE. **But you can’t afford to wait. Guess what? You will never have “enough time” to get this work done. It is all about prioritizing the work, and getting started.

Let’s set up some time to get your family moving intentionally towards your goals.

Financial Planning for Young Professionals

Not long ago, a young couple set up a meeting with me to discuss some of their finances. I called to learn more about what problem they were trying to solve, and learned that they wanted to make sure that their investment portfolio was appropriately diversified. As we were setting up time for the meeting, I asked how they were doing with debt, credit cards and if they had extra spending money at the end of the month. There was a pause. Then she said “You work with clients on that sort of thing?”

“Of course I do. In fact, it’s what I spend a lot of my initial client time working through.”

In our first meeting we spent ten minutes reviewing their stock allocation, and then the next 70 minutes working on an approach to better manage their monthly spending and consolidating their credit cards.

I have a fundamental belief that everyone needs a financial advisor. Millennials have a huge advantage over their elders when it comes to investing, but they have to take advantage of it now:

1. Time is on your side - Money grows over time and it makes a profound difference over a long period of time. As an example, if you invest $2k from 19 years old to 26 (8 years) when you retire, you will have $1MM. If you wait until you are 27 to start saving, you would have to put away $2k each year until you are 65 (39 years), and still only have $900k. So start early!

2. Setting up good habits - It is always easier to start with a strong and thoughtful foundation, rather than reseting in the future, due to bad behavior. Lets set up good habits now so that you will benefit in the long term.

Whether it is helping to budget/monthly spending, set goals, mediate differences between partners, set up investments, talk taxes or buying a car, a financial planner can be a steady hand to help.

If you are a young professional, you may think a financial advisor doesn’t make sense for you because you likely

• Don’t have much of an investment nest egg

• Don’t own a house, and are very likely renting

• Live paycheck to paycheck

• Have debt due to student loans and/or credit cards

• Don’t have kids and thus have fewer variables in your life equation

• Have long time before retirement

• You use an online tools/service for budgeting or saving

If some subset of that list resonates with you, here are some things to be thinking about:

• Am I successfully balancing my short/mid/long term goals?

• Am I saving enough?

• Am I spending too much?

• Do I love what I do at my job?

• Do I have disability, term life and health insurance?

• Am I accessing all of the amazing array of benefits my company offers (ESPP, anyone?)

• Does my partner see eye to eye with me on spending and saving?

• Is there harmony between my spending and my values and goals?

• Should I be consolidating your debt?

Too often it seems that young professionals make their decisions in isolation, without seeking advice from someone with more experience. Perhaps there is information around the internet that could be gleaned from a quick google search. A financial advisor, who gets to know your background and experiences, can provide much of the needed support to help get your financial house in order for the long run. Helping you set up much of the foundation, so that you can answer the questions above, with certainty and confidence.

You don’t need a small fortune to start this process and to get competent help, Chamberlain Financial Advisors is here to help! I spend the time getting to know you. I understand your context, so that the advice I give you, meets your specific needs. Lets create a plan that will help you build to that fortune, so that your future self is delighted to meet you. And don’t worry, I get that you are busy, I work to make your life easy. We can meet for lunch, after work for a drink, or I can come by your house for consultations.

The Difference between RSU's and Stock Options

If you work in today’s big technology industry, it is very likely that you are getting some form of stock based incentive, as part of your compensation. The two most common forms of compensation are restricted stock units (RSUs) and stock options. These two programs both offer very nice incentives for employees, but they are slightly different, and should potentially be treated differently. Also, any time that you hold some form of company stock, you should view your exposure to the company from a holistic perspective, to your overall portfolio.

What is an RSU?

RSUs, are awarded to employees at some date, and typically have a vesting period at some point in the future. Often the vesting will be 25% at the current date, and 25% in one year, 25% in 2 years … etc. At the time of vesting, the company buys a share, and gives it to you. In this way, it is much like a cash bonus. And like cash bonuses, the company will withhold taxes at that time of vesting (commonly, they will just keep shares from your award).

For example, you just received 100 RSU’s that have vested. The company stock is $1. You will received 100 shares of your company at $1 = $100 of compensation. Assuming you are in a 25% tax bracket, the company will hold 25 of your shares. Which means you net out 75 shares.

What do you do with an RSU?

You have 2 options with RSU’s … you can either sell them immediately or hold them. If you sell them immediately, since you just paid the taxes on them, and they likely have not appreciated much, you will not have to pay any capital gains taxes, and you will just receive the cash. if you decide to hold them, and they appreciate, then you will have to pay the capital gains on them.

One major advantage of RSUs

They almost always have value, even if the price of the stock has dropped. For the certainty of that value, RSU are commonly deemed more valuable than stock options. Which brings us to …

What is a stock option?

A stock option, gives the holder the right to purchase a stock in the future at a predetermined price. Like RSUs, options are given out as performance incentives, and typically have a vesting period.

For example, you have the option to purchase your company stock in 1 year’s time at $1. If the stock goes up $1.50, then it would make sense for you to purchase the option at $1, because you would have a built in .50 return. If the stock dropped to $.90, you would not exercise the option, b/c you would be better off to buy it on the market for $.90 than through your options at $1.

**Note that exercising the option is a purchase, but not a sale. Which means that you will not pay any taxes at the point of the exercise. You will only pay taxes upon your sale of the stock.

What do you do with an option?

You should have no more than 5% of your portfolio in single stock.

You can either sell it immediately and pay the capital gains equal to difference b/w the current price and the price at exercise. Or you can hold it. There are advantages to holding it for greater than a year, since you will pay the long term capital gains tax (as opposed to short term capital gains, assessed at your ordinary tax rate).

Advantages of options

You have greater control over taxes with options, since you decide when to sell them (and thus when to pay taxes on them). And since they are riskier, companies typically give you more options.

How do options and RSUs play into your overall portfolio?

Most people just let both their RSU’s and options sit and collect over time. They don’t manage them, they don’t sell them, they don’t really think about them until they move to another company, or they grow big enough to force a conversation. This is a BIG problem. From a simple portfolio diversification perspective, you should have no more than 5% in single stock. And your vested options/RSUs are part of your portfolio. If you have 100k sitting in RSU’s or options from your company, you are very likely way over-allocated. Second, you already have plenty of exposure to the results of the company. Just check your bank account every other week, who is making auto deposits?

If you have “new” RSUs just sell them, you won’t (likely) have to deal with any major tax consequences. If you have older RSUs then you will need to check for capital gains exposure, and make sure you factor that into your savings for next year. Since you had to exercise your options, that means, that very likely you have some major capital gains exposure. So beware, when you sell them.

After selling them, increment into a low cost ETF, rinse and repeat next year.

How and When to Invest in an IPO

2019 is primed to be a very compelling year for initial public offerings (IPOs) for interesting companies. We are about to have a whole cast of new unicorns entering the prime grazing ground of the US markets. There are plenty of opportunities to get involved, as well as pitfalls you should be aware of. You have likely heard of recent newcomers including:

• Lyft (LYFT), the new age transportation (taxi?) company

• Pinterest (PINS), a next generation sales and marketing platform

• ZOOM (ZM), a new comer to video conferencing world, with a killer application

• BEYONDMEAT (BYND), pushing the boundaries, providing a better way to feed the planet

As well as a few big ones, yet to come:

In complete transparency

I own a number of stocks discussed in this article: LYFT, PINS, AMZN, and FB.

• Uber, the ride hailing company, looking to push into autonomous driving, food delivery, smart cities and more.

• Slack, the future of business communication: beyond email

Here is the thing, about IPOs:

IPOs are RISKY!

1. If you buy on the opening day, you only “think” you are getting in early. Most of the “early” shares are allocated to big players.

2. You may think that you understand the business model, and the goals of the company. But often the long term strategy has not been fully vetted (think Amazon coming out as an online book store, Google as a hopped up search engine and Facebook as a way for college students to connect). Or the long term strategy has not been fully broadcast and understood.

3. The real numbers behind the business, while private, have not been fully vetted by the market at large.

4. There are just as many examples of short term flame outs, after IPOs, as there are successes. Recent examples include:

   1. lyft - down from high $80’s to low $60’s in the first month;

   2. Spotify - launched in May 2018 at around $160 and is now at $136;

   3. Remember Facebook’s bumpy first year? It launched in May 2012 at $38 and closed one year later $27.50.

But there are wonderful opportunities in buying stocks of companies at an early point and then holding them for the long term.

Nobody, still holding FB, from the beginning, is fretting about the first year decline, given the current price of $195. Nor are people worried about Amazon starting at $18, now worth $1,900.

The best long term strategy for building wealth is

to invest in a few widely diversified, low cost ETFs.

So how do you approach this delicate situation?

First Know this: The best long term strategy for building wealth, is to invest in a few widely diversified, low cost ETFs. Then continue to buy through the short term, ups and downs of the market.

If your risk tolerance is low, stay away.

Wait until things shake out over the course of the first year or so. This will give analysts the opportunity to dig through the numbers, the business strategy and company leadership. These stocks will also end up in your broad based ETFs. So don’t worry, you will gain exposure.

If your risk tolerance is high,

meaning you can deal with wild swings, you can afford to risk a total collapse in the company and you have some money not currently allocated to your long term goals. I believe there is a way to tip toe into the situation.

How to determine if you should invest in an IPO

1. You need to have a strong conviction in the company’s business strategy. For example, you believe that meat production, on a world wide scale, is going to lead to a long term detrimental impact to the Earth. And you believe over time, that people will become more open to alternative sources of protein, then BYND may tick this box for you.

2. You need to have a long time horizon, for the market to completely factor in all of the unknown variables into your company. In the short term, these stocks are going to trade wildly. And are actually a perfect example of how irrational the market is SHORT TERM. For example, it is inexplicable why lyft traded between $58 and $62 last week … there has been NO real new data, at all.

3. You need to determine how much of your portfolio you are willing to BET on this strategy. You should be thinking < 1%.

4. You need to have an entry and exit strategy for buying/selling the stock.

   How I Invest in IPOs

   1. I buy 1/3 of my allocation, based on #3 above, at the end of the first trading day. NOT at the beginning. The bid/ask will be too wide early, with all of the jockeying. By the end of the day, the day traders looking to cash in on the first day volatility, will be ready to sell. So around 3:30pm, put in a buy order.

   2. Sit tight for, either some set time frame (2 - 5 months), or until there is a major slide in the stock. Many times, reality will set in, people will come to understand that they need to gather some additional information on the company. At that point, the stock will take a breather and potentially drop 10-25%. If that happens, buy 1/3. If the stock goes up or trades side ways, just plan to buy at a set future date.

   3. Set a third time frame, well into the future, like 1 or 2 years. This will have allowed all of the institutional/inside money to exit after the lock up period has expired. And there will have been several quarters of legit reports, that can be used to determine just how serious the company is. Buy your final 1/3 at that date.

   4. Buy and hold. If you believe that the company has a good strategy, and is in a growing market, and has good leadership, your holding period should be indefinite.

   5. When to Sell

      Each year, when evaluating your asset allocations, it is a good time to consider how this investment is playing out. Sell if the stock has appreciated and is now a much higher percentage of your overall portfolio, than makes sense.

      Sell if the company has taken a strategic direction that is different than your original understanding.

      Sell if the company leadership proves unable to keep up with the challenge.

      Sell at some set date into the future.

      Sell if the stock reaches some percentage of gain/loss, that you are happy/unhappy to have achieved.

If you have a plan, your outcomes will be set and understood, and you will have an opportunity to take the emotion out of this investment.

*** Please, Please PLEASE, don’t check this stock on a daily or weekly basis. The more you check it out, the more likely you will be to get emotional and make a decision counter to your above strategy.

Questions? If you want to talk more, drop me a line, I am happy to provide further clarifications.

What Types of Property and Casualty Insurance Do You Need?

In life, it’s inevitable that things sometimes takes an unexpected turn — or just plain go wrong. That’s why planning for the unexpected is a key part of any financial plan. In this post we will discuss Property and Casualty (P&C) insurance. P&C coverage basically covers your stuff, and any liability that might come from you and yours being legally responsible for someone else’s injuries or damages. The most common forms of this type of coverage for a family are: Homeowners, auto, personal articles and umbrella.

“When reading this, know that I am a fee-only financial advisor. I don’t get any commissions for recommending or connecting you with an insurance agent or policies. My goal is to provide the best advice possible, in order for your family to grow towards your goals.”

— Josh

Property & Casualty insurance

any stuff you own except for your cars, motorcycles (vehicles) or boats

Homeowners Insurance

What do homeowners property and casualty provisions cover?

Here are some scenarios where homeowners insurance would come into play:

1. A visitor falls and breaks their leg at your home.

2. A worker gets hurt while working on your property and cannot perform their job due to the injury.

3. You are sued by a visitor after they were injured at your home.

4. You were robbed.

5. Your home was damaged due to weather —like a tree falling on your house.

The key components of a homeowners policy are:

1. Dwelling value - This is the amount that will be reimbursed should you have to repair or rebuild your home. This is a tricky number, and it is the basis for your yearly premiums. This is a classic Goldilocks problem, not too high, not too low … just right. I use several different methods to narrow the number. I start by checking out zillow to get a feel for the total value of the house (this sets a top limit) as well as the square footage of the house. Then I multiply the sqft by a local building multiplier. In Decatur, I see building costs between $175 and $200/sqft. So for a 2000 sqft house * $200 sqft = $400k for the dwelling value. Then I will subtract from the zillow total value, the cost of a tear down. In Decatur, typical tear downs (IE, land) costs around $400k. So if the total value of the house according to zillow is $800k, I subtract $400k and come up with a dwelling value of $400k.

2. Other structures - are buildings on your property, not connected to the main building, Eg, a detached garage. Other structures are typically covered as a percentage of the dwelling value coverage, like 10% of dwelling.

3. Personal property - this is all of the stuff inside your home. If you lose your home to a fire, after you rebuild, you will need to replace all of the furniture that was lost. This provision will take care of that as a percentage of the dwelling value. Typically this will be in the neighborhood of 75% of dwelling. It as also smart to walk around with your phone and take a video of the contents of your house, and store the video in the cloud.

4. Liability - this is the amount that would be covered if you were found liable for someone being hurt. The more, the better. This is typically between $300 and $500k.

When buying insurance, you need to decide on a deductible, the amount that you will need to pay should you file a claim. The deductible is meant to keep you from constantly making claims. So the deductible needs to be an amount that you can come up with in an emergency. The deduct typically falls around $1000-2500. The higher the deductible, the lower the premium. A good deal I helped a client secure was a homeowners quote on a $500k dwelling cost for around $1500/year.

Auto Insurance

The key components of an auto policy are:

1. Bodily injury liability - This is described by an amount per person / per accident. Eg, 250k/500k means that each person will get a max of $250,000 of liability with a total coverage of $500,000 in an accident. For example, if you are in a car accident and are at fault (liable), and you have a $250k/$500k limit, then each person in the car you hit can get paid a maximum of $250k. Your insurance will pay a maximum of $500k to the people in the other car. If the amount is greater than $500k — then you would need umbrella insurance (which I highly recommend and I find is often neglected) see below.

2. Property damage - The amount that is covered to replace your car.

3. Uninsured motorist -This will cover you (the insured) should you have an accident with someone who has no insurance, or is underinsured.

“For auto insurance, pay attention to the deductible. You are much more likely to file an auto claim than a homeowners claim. Which means you likely need a smaller deductible.”

Auto insurance is highly variable and will depend on the type of car, the age of the car (and the drivers) and your driving record. A good deal I helped a client secure was 250k/500k/100k coverage on two (15k valued) cars, with good driving record for $2k/year.

Personal Articles

Personal articles coverage is typically for expensive, hard to value items that are dear to you. You would normally see this on your wife’s engagement and wedding rings and guns/stamps/coin collections. The coverage is not super expensive, typically costing around $100 for every 8-10k of valuables.

Umbrella Insurance

is for providing extra liability coverage, should something happen that causes you to exceed the limits on your other coverage.

Umbrella Insurance

Umbrella insurance is for providing extra liability coverage, should something happen that causes you to exceed the limits on your other coverage. Typically umbrella comes into play when you get into a car accident. Eg, you have 250/500/100 coverage. You cause a car accident that involves a family of 5, who all end up with extended hospital stays. They will rapidly use the 500k limit that is available to you. An umbrella policy will cover the difference. Generally I see these around $1MM, and cost around $200/year. I highly recommend having umbrella insurance. It’s inexpensive and if you don’t have it and wind up hitting a minivan family of 4 with a $1MM liability, you could lose everything. For ~$200 that’s an easy price for security and peace of mind.

Insurance Guiding Principles

1. Insure against low probability, high cost issues.

2. Think about your coverage limits,. This is a classic goldilocks scenario, you want the number to be just right, not too high, not too low.

3. Shop your rates every 2 to 3 years. Insurers change their rates based on their market.

4. Know that if you make a claim, your insurance company is going to raise your rates or maybe even drop you.

5. Bundling your insurance with one company can offer you nice discounts.

6. If you have insurance through a company that you have seen on ads during the Super Bowl, you may not be getting the best rate.

If you fell asleep several paragraphs ago, or have not shopped your rates in the last few years, contact me. I am most assuredly NOT an insurance agent, but I can give you some recommendations. I have also been having really good luck with a local independent agent, who has been finding clients less expensive rates while getting higher limits! Send me your policies, I am glad to shop them.

**Thanks to everyone who gave me feedback on topics. Insurance was the top choice.

2 New Apple Products That Could Save You Money

Apple held its annual spring event at its headquarters in Cupertino, California, on Monday, March 25th. Two of their new products are particularly interesting from a personal finance perspective and could save you some money.

Apple News+

I am an apple snob and stockholder.

We have too many apple devices in our household.

Apple News+ is a new service that allows you access to a large number of magazines and newspapers, as well as their standard news content. This comes at a set monthly subscription rate of $10/month. At first blush this seemed like an interesting deal for $120/year. I’m skeptical of monthly subscriptions but I love magazines, and I get my news mostly from The Wall Street Journal and The New York Times. So I figured I would run a quick audit in our house to see how much we spend on annual new/magazine subscriptions. I used magazines.com to determine pricing.

• GQ - $20/year

• Bon Appetite - $20/year

• Fortune - $20/year

• The Economist - $95/year

• ESPN the Mag - $30/year

• WSJ - $467/year

A total of $652 in reading material!

Holy crap … I was slightly horrified to realize that total. The vast majority of my reading is on a screen, so News+ seems like a bit of a no brainer for our family. Do you know how much you are spending on this category? Add it up!

Apple Card

I am generally opposed to credit cards as a means to pay for your typical monthly expenses. I prefer to spend out of my checking account, so that I know exactly what I have available. And it forces me not to over spend. When I really want to nail down my monthly discretionary spending, I like to load my weekly cash on the Cash app card. I also think that cash back rewards and sky miles bonus points are gimmicks meant to entice your lizard brain to spend more.

If you decide that you need a credit card, if you travel at all, you will, or that you can control your spending urges, and want to get the cash back rewards. Apples Card is a pretty cool product.

• It is tightly tied to your apple wallet

• it gives daily 2% cash back rewards

• it allows you to control your payment options

• it provides some visibility into you budgeting/category spending

• it gives you a physical version, made of titanium

• there are no annual charges

So all in all the new card (which is not yet available), looks like an interesting product. I am curious to see how things play out when it is available. I like the easy integration with the wallet. And I like visibility it provides for your spending.

*Note that there are currently cards available that offer a nice cash back option. So you don’t have to wait for this card to get cash back.