MP spoke with Michelle Connell, CFA, and owner of Portia Capital Management, LLC, a registered Investment Advisory firm specializing in the investments of foundations, charities, and high-net-worth individuals. Portia Capital Management is the only investment management firm in the Dallas-Fort Worth area to be owned by a female CFA charter holder -- an essential resource in a world where 60% of women retire in poverty. Connell’s expertise is backed by over 20 years of financial experience in management positions with prominent investment boutiques and private banks.
Connell is also one of the highest-rated finance professors in the U.S., currently serving as an adjunct professor at The University of Texas at Dallas. She works with her students and clients to understand the value of crafting a portfolio that includes conventional products and alternative assets, including private equity, private debt, and real estate, and allows investment portfolio creation with greater downside protection and more consistent returns. In addition to her work with students and clients, Connell teaches the CFA Review through the DFW CFA Society. The Chartered Financial Analyst Designation is considered the highest designation in the investment management profession.
Connell also founded “Portia’s Children,” though which up to 10 percent of her company’s profits are donated to the North Texas Charity, Educational First Steps.
Personal Finance Generally
What is financial literacy, why do so many people struggle with it, and how can we become more financially literate?
Financial literacy is the ability to understand the short-term and long-term consequences of any financial decision.
Examples of this range from not having a budget for regular expenses, buying an extravagant item, or purchasing a new car or home. It also includes the inability to delay today’s consumption for the ability to invest in one’s future or old age.
Most people struggle with financial literacy because money and personal finances are not mainstream topics that are discussed in homes or schools. While more wealthy people are teaching their children about money and investing, personal finance remains taboo for the rest of the population.
In particular, women are not empowered to take control of their finances and become knowledgeable about the subject.
It’s still not “lady-like.”
Minority families are far behind as well.
Even when minorities are encouraged to become professionals, they often lack the presence of someone teaching them how to spend and save their money.
Financial literacy should be taught starting in all elementary schools.
It should not be limited to the upper class.
In high school, discussions should begin around potential careers, the lifestyles that may come with them, and the basics of investing, including the power of financial compounding. This should include stories of some of the country’s best investors and entrepreneurs.
How can we manage our money more confidently, and what would this look like in practice?
Confidence increases when one is knowledgeable about a subject, and the likelihood of losing money (or making a mistake) is less.
Do your best to become an expert regarding YOUR money and financial future.
Start reading the financial columns or financial websites regularly.
Organize a list of questions or items standing in your way of a brighter economic future.
Put target dates or goals for finding the answers to these questions.
Becoming financially stable means understanding what you don’t know, determining the answers, and then moving forward with your knowledge.
How does our health affect our wealth, and what can we do to ensure we’re on track to a prosperous future?
Health and wealth have a symbiotic relationship.
One cannot truly be realized without the other.
If your health is not in good order, your finances will be negatively affected.
For instance, if you're not getting enough sleep or are depressed, you cannot make good decisions regarding your finances.
However, the same can be said regarding your finances. If your finances are not sound or in good order, it will make you depressed and anxious and probably affect your sleep.
In summary, an individual needs to attend to their financial and physical health to have a peaceful and happy life.
Budgeting and Saving
What three out-of-the-box strategies can you share to help us improve our personal budgeting, and why these three?
1. Have Short-Term and Long-Term Financial Goals
For example, plan to spend so much on a yearly vacation and have a certain amount in investments before you retire.
2. Give Yourself a Fixed Budget
Give yourself a fixed dollar amount where the expenditure would harm your budget, and before you spend it, walk away.
For example, $100 would not be suitable for your current finances. However, you see a pair of shoes in a store that cost $200. Instead of buying the shoes, go home and think about them.
Are those shoes going to change your life, or would it be better to put the $200 into a savings account?
3. Create Separate Budgets
Give yourself separate budgets for the most significant household expenditures and track them.
For example, $150 a week for food, $75 for gas, and $50 for miscellaneous expenditures.
Give yourself the $50 in currency for the money allocated toward miscellaneous. Any miscellaneous expenditure should be taken out of the hard currency. Once you're out of money, you're done with spending on the small stuff.
All the above strategies will help you spend less and save more.
What should we look for in a bank account, and how might this change based on our financial situation?
Make sure you understand any fees associated with the bank account.
For instance, if the bank covers your overdrafts, what are the costs for that? Also, are you charged for using the ATM and your debit card?
Look for accounts that can be linked to one another not only internally but externally to other banks and investment firms.
Do you pay annual or regular fees on the accounts?
The more money you have at a particular financial institution, the more leverage you have.
Ask about lower fees, including interest charges on any credit outstanding, if your entire banking relationship is at one institution.
What steps should we take to reduce our current debts, and why?
Pay off your credit card bills as quickly as possible.
Due to increasing interest rates, as of August 2022, the average credit card interest rate was more than 19%!
Here’s an example of the math of a $10,000 balance:
Say you have a credit card account that charges 18% interest and a $10,000 balance in credit card debt. If the minimum payments are equal to the interest plus 1% of the balance, it will take you 342 months to pay off the debt by making minimum payments alone. That's 28.5 years!
Remember that the stock market makes much less annually than banks or credit card companies. So, while your pension or IRA would be lucky to make 8 to 10% in a year, any outstanding credit card balances will accrue at almost double the rate of your investment account!
What are three commonly made debt reduction mistakes, and how can these mistakes be avoided?
1. Not Paying Off the Cards With the Highest Interest Rates First
Always pay the debt with the highest interest rates first.
2. Consolidating Many Card Balances Into One or a Few Credit Cards
The result can be maximizing your credit limits and exceeding them over time as their interest payments accrue.
The result may be additional fees for exceeding your credit limits, having to pay the entire amount(s) exceeding your credit limit, and potentially negatively impacting your credit score.
3. Use a New Credit Card With an Introductory Period That Initially Charges You 0% Interest
Remember that the 0% interest is typically for 20 months or less.
Then the interest rate may exceed the rate you paid on the card to which you transferred the balance.
Also, there is typically a 3% fee to transfer the balance over to the new credit card.
What three out-of-the-box tips can you share to help us better approach personal investing, and why these three?
1. Take Advantage of 401K Plans
From the earliest age possible, take advantage of any 401K that is open to you through an employer.
Also, maximize all your IRA options according to your tax bracket and age. Through the power of compounding and fully invested in the investment markets, you will be able to retire at an early age with at least $1,000,000. Probably a lot more.
2. Don’t Sit on Cash
According to US Trust, 65% of women sit on a large amount of cash compared to 51% of men. When asked, most individuals said they had no plans to invest the money.
Maybe they just wanted the safety of knowing that it was sitting in cash.
However, cash does not maintain its purchasing power against inflation, something extremely critical now.
3. Invest in the Stock Market and Diversify Your Portfolio Against the Risk of Individual Companies
According to NerdWallet, less than 50% of women are invested in the stock market!
What are smart places to park cash, and why?
For cash that you need in the next 6 to 12 months, there are ultrashort bond funds that are paying 1 to 2% to their investors.
Make sure that the investment quality of the underlying investments is pristine or high-grade paper.
For cash that you need over 12 months, consider private credit mutual funds.
These funds pay more than five percent (annualized), and interest is paid monthly.
Funds can typically be withdrawn once a quarter.
Again, research the fund company, its portfolio management team, and the underlying securities.
Should investments into VC funds be included in one’s portfolio? If yes, why? If not, why not?
As someone who used to work at a firm that’s specialties included private equity and venture capital AND who currently allocates client money to them, I have strong opinions regarding this question:
The potential upside for venture capital can be very rewarding. It has not been unusual for VC returns to be double that of the stock market, where stocks are publicly traded.
However, the range of potential returns for venture capital is quite extensive. Also, it’s not unusual for venture capital investment to lose a lot of money.
With this type of investment, the underlying investment manager is more critical than ever. You need to understand their backgrounds and review their prior funds’ returns and the individual company returns within each fund. You're not interested if they don't provide you with that information.
Venture capital investment requires locking up your money for an extended period. It's not unusual for the vestment period of these funds to be more than ten years. Some late-stage venture funds have a shorter time horizon. However, even these have a lock-up period of three to five years. You need to be sure that you will not need these funds during the investment period when monies cannot be liquidated.
Typically, these funds are not used by someone close to retirement.
Finally, venture capital is limited to people with a minimum net worth of $1 million or with an annual income of more than $200,000. Unfortunately, you need to have money before you can make money!
What tax complications can entrepreneurship present, and how can entrepreneurs protect themselves from the beginning?
Taxes are incredibly complicated for business owners.
There are so many tax rules and cutoffs at the federal and sometimes at the state level.
The only true tax expert is the individual who files returns for a living.
My best advice would be to hire a good CPA who understands your business/industry at the onset.
This person will be worth the money you pay them, so you don't have to worry about this arduous and potentially expensive area!
What types of insurance should we consider being covered by, and why?
In my prior life, I held insurance licenses and was responsible for selling these products to wealthy clients.
I've never been comfortable with the number of fees that can be charged.
My best advice would be to have an excellent whole life policy and any business insurance that will keep you out of hot water (for example, an umbrella policy, an errors and omissions policy).
As someone who has watched some insurance professionals profit more than their customers, I would also be very wary of annuities.
If you're using them as a bond substitute, understand the potential range of investment returns.
Also, understand the fees embedded in any insurance product and the compensation of the person selling you the product.
You also need to know if there would be any penalties for an early liquidation or the costs of borrowing against the policy.
Some of the costs could even be tax consequences.
Responses provided by Michelle Connell, CFA, and owner of Portia Capital Management, LLC.
Questions based in part on topics and comments provided by:
- Jen Hemphill, Accredited Financial Counselor at Association for Financial Counseling and Planning Education (AFCPE®)
- Herman Thompson, Jr., CFP®, ChFC®, Certified Financial Planner® at Innovative Financial Group
- Leslie H. Tayne, Esq, Financial Attorney and Founder/Managing Director at Tayne Law Group
- Linda Hamilton, Executive Vice President and Chief Operating Officer at Iroquois Federal
- Ann-Marie Anderson, Financial Advisor at PHP Agency
- Paul Dilda, Head of Retail Strategy, Products and Segments at BMO Harris Bank at BMO Financial Group
- Matthew Benson, CFP® Owner and Certified Financial Planner™ at Sonmore Financial
- Josh Richner, Outreach and Marketing Coordinator at National Legal Center
- Ken Tumi, Founder at DepositAccounts.com and expert at LendingTree
- Martin A. Federici, Jr., Chief Executive Officer at MF Advisers, Inc.
- Ba Minuzzi, Founder and Chief Executive Officer at UMANA