VENTEUR spoke with Marcos Segrera, Wealth Manager & Principal at Evensky & Katz / Foldes Wealth Management, about how we can manage our personal finances. Segrera, a Certified Financial Planner™, helps individuals, families, and institutions achieve their investment and financial planning goals. He also serves on Evensky & Katz / Foldes Wealth Management’s Investment and 401(k) committees. Segrera belongs to the Miami-Dade County Financial Planning Association (FPA) and works as a volunteer with the Parkinson’s Foundation and Legal Services of Greater Miami.
Before joining Evensky & Katz / Foldes Financial in 2018, Segrera worked as a financial planner for more than six years at a multi-family registered investment advisor in Miami, where he was part of the advisory team reviewing and analyzing the personal finances of high-net-worth families, corporate executives, and companies. He was also a member of the firm’s investment and planning committees.
Personal Finance Generally
What is financial literacy, why do so many people struggle with it, and how can we become more financially literate?
I define financial literacy as having confidence and understanding when addressing issues that relate to your financial planning. Money is shorthand for happiness, power, and personal efficacy, so it can be terrifying to address. Most people struggle with it because money is seen as a taboo and is, therefore, rarely addressed directly. The easiest way to improve your financial literacy is to stop avoiding it, allow yourself to be confused, educate yourself as you would for any other topic, and seek guidance from those you trust.
How can we manage our money more confidently, and what would this look like in practice?
By increasing your awareness, you will increase your confidence. Avoidance is the single biggest issue.
How does our health affect our wealth, and what can we do to ensure we’re on track to a prosperous future?
Peace of mind and health go hand in hand. A proper understanding of your finances will increase your ability to directly address any deficiencies, bringing additional peace of mind and assisting with overall well-being. Additionally, though easier said than done, it’s healthier to think about one’s progress rather than ranking ourselves by another’s measuring stick.
Budgeting and Saving
What strategies should we use to save more, and why might these be the most effective?
Automation! Add to this that no amount is too small to start with. Every financial professional has heard someone say they can’t start saving because $x is insufficient. $1 or $1,000,000 – just start.
What should we look for in a bank account, how might this change based on our financial situation, and why?
You want a reputable institution that pays you a fair rate of interest. If you need private banking services, you will need help avoiding big-name banks. Usually, the big names pay the smallest rates of interest. If you do not require personal banking services, look to an online bank that generally provides the most competitive rates. You can also consider putting a portion of your cash savings in both institutions should you need private banking services but find yourself with considerable cash savings.
Why is a 401K not the best vehicle to prepare you for retirement?
Your company 401k is a great place to begin your retirement savings. Precisely because it is automated, you may be getting a matching contribution from your employer (free money), and you usually have a healthy mix of diversified funds to invest in.
The biggest mistake we see with 401k investing is forgetting to invest your contributions. Make sure they are not sitting in cash.
Does your company 401k allow for ROTH contributions? This type of contribution lets you pay income taxes now so that the funds grow tax-free and can be distributed tax-free. Make sure to discuss this with your CPA before making the decision.
What steps should we take to reduce our current debts, and why?
First, stop using credit cards until the balances are paid off. Implement this rule: don’t resume using the cards until you (or you and your partner) decide to consistently pay off the balance at the end of each month. Until that happens, card use is not allowed; no exceptions. Use behavioral guard rails like this to help avoid dire circumstances.
Second, begin by paying off the card with the smallest balance. The momentum this brings can get you energized to continue. Yes, the math says to pay the balance with the highest rate first, but behaviorally, we all love to see progress, so the quick win can keep you motivated.
What are some commonly made debt reduction mistakes, and how can these mistakes be avoided?
You have to start with the balance that has the highest rate. While that is the mathematically optimal thing to do, getting started is the most important step. As mentioned above, momentum can be incredibly powerful.
Also, allowing cash to sit in a savings account, earning 2%, while your credit card balance accrues 18%. That math is not in your favor. Use the cash to pay down the debt. You always have a credit card if you need funds in a pinch.
What out-of-the-box tips can you share to help us better approach personal investing, and why these three?
Stop getting investment advice from your social media feed and read a book. You can start with “Stocks for the long run” by Jeremy Siegel or “The Little Book of Common-Sense Investing” by John Bogle. Also, remember, for every “great stock pick” someone tells you about, they probably had four duds they aren’t talking about.
What are intelligent places to park cash, and why?
This question is highly dependent on what the ultimate use of the cash will be. Some obvious contenders on the list are high-yield savings accounts, CDs, money market mutual funds, and checking accounts.
Should investments into VC funds be included in one’s portfolio?
We are getting this question more and more from our UHNW clients. From our perspective, it can make sense to allocate a portion of your investable assets to the VC space, assuming you have the proper partner, experience, and expectations. The most sophisticated VC investors would tell you this is not an area of the market for “part-timers.”
VC investing requires heavy levels of due diligence and expertise. Without the proper partner or requisite experience, most investors should approach VC with caution. The ability to access this space is venturing (pun not intended) beyond ultra-high-net-worth investors. This should add to overall transparency for all investor types.
What tax complications can entrepreneurship present, and how can entrepreneurs protect themselves from the beginning?
Make sure your financial advisor, CPA, and attorney are properly coordinated. What business structure makes the most sense? Do you want to offer a retirement plan? If so, what type? What costs are you allowed to expense?
Put yourself in a position where you can focus on your business and delegate the other items to your team of professionals. This is more about avoiding mistakes than seeking brilliance.
What types of insurance should we consider being covered by, and why?
This is a very user-specific question, but here are some prominent areas to start:
If you pass away today, are you leaving anyone reliant on your earnings to live? This is the purpose of life insurance. It also makes sense to include the balance of any debts, like mortgages, in the amount of life insurance coverage you select.
Remember, you are more likely to become disabled than die. So, if you have life insurance, you should, at the very least, consider disability insurance. The purpose of disability insurance is to protect and replace a portion of your income if you suffer a disabling injury or illness that keeps you from earning a living. Your employer may offer very inexpensive coverage. If you have life insurance, you can most likely discuss disability insurance with the person that helped you get your life coverage.
This insurance protects the existing limits and coverages of other policies. Umbrella insurance can cover injuries, property damage, certain lawsuits, and personal liability situations.
Long-Term Care Insurance
This coverage provides nursing-home care, home-health care, and personal or adult day care for individuals age 65 or older or with a chronic or disabling condition that needs constant supervision. Sixty-five may seem like a long way off, but you may be locking in very reasonable costs for a type of coverage that will make everyone’s life around you much more manageable. Usually, by age 50, you will want to have this coverage secured if you plan on ever having it.