Black women pride ourselves on being resourceful.
When we have a question about our health, we’ll talk to our doctor. If our car is making a strange sound, we’ll haul it to the mechanic. Yet, when it comes to our finances, we often try to figure out all the answers on our own.
“We believe that we are superwomen and that we should be able to do everything,” says Patricia Stallworth, personal finance expert and author of Minding Your Money: Personal, Money Management and Investment Strategies (BookPartners).
However, our financial choices aren’t always in our best interest.
In 2013, the median net worth among Black households was $11,000 compared with $141,900 for Whites, according to a Pew Research Center survey. Black Americans are also underrepresented in the stock market, with 67 percent of African-Americans investing compared with 86 percent of Whites, according to Ariel Investments’ 2015 Black Investor Survey.
A financial adviser can help us maximize our dollars so they start to work for us. But, according to Fidelity Investments, only 47 percent of women are comfortable speaking with a financial professional about their funds compared with 77 percent who are comfortable talking to a medical professional about their health. The wisest people don’t know everything, but they do know where to look for answers.
Here are six mistakes you may be making with your money and how a financial adviser can show you a better way.
Amassing cash without a plan. As we move up in our careers, it’s natural for us to focus on earning more money. But earning is just the first part of that equation, says Stallworth. The second part is “having a plan for what you want your money to do.” Without a strategy, we may have a closet full of shoes and an empty bank account, or let our money languish in a savings account when it could be earning 7 percent in the stock market.
Whether your goal is retiring, adopting a child or traveling internationally once a year, an expert can assess the current picture and tell you what you need to do to bring your dream to fruition. The advice can range from adjusting your budget to investing disposable income in a particular fund so you can benefit from compound interest. “We’ve seen examples of janitors who have left millions of dollars to schools,” Stallworth says. “It’s not necessarily how much you make, it’s what you do with what you make that really determines the outcome.”
Focusing on finances too late. Time is your greatest ally when you want to grow your money. JP Morgan Asset Management’s 2014 Guide to Retirement gives an example of a person who invested $5,000 per year from age 25 to 65 ending up with $1,142,811 compared with a person who invested $5,000 per year from 35 to 65 finishing with only $540,741. That’s why Diane Brown, 52, of Bowie, Maryland, first hired a financial adviser when she was 25. “I felt the earlier I started, it would maximize my dollars on the back end,” she says.
While some women believe they don’t have enough money to warrant consulting a professional, “even if you can’t implement everything in your plan, at least you’ll know what you need to do. So when you get those extra dollars, you can go back and say, “Now I can do that,”” Stallworth says.
Being unprepared for life’s big transitions. We can’t avoid the seismic shifts in our lives, whether it’s a happy occurrence like the birth of a child or a challenging one such as the death of a spouse. But a financial adviser can help us anticipate them. If a woman is getting a divorce, an expert can help her avoid leaving valuable assets on the table. If she’s changing jobs, an adviser can help her determine what to do with the 401(k) or stock options from her previous employer. “My goal, in working with my clients, is to try to provide a safety net,” says Zaneilia Harris, president of Harris & Harris Wealth Management Group in Upper Marlboro, Maryland. “I help clients think about things they wouldn’t think about.”
A pro can also help with long-term planning, such as preparing for health care expenses and life insurance needs and securing premature death protection, says Marina Buatti, vice-president of Women Investors at Fidelity Investments.
Taking the wrong approach to tackling debt. Many of us believe that if we are saddled with college loans or owe too much on our credit cards, we don’t have money to invest. Even if we are in the red, “we still need a plan, because sometimes we can’t see our way out of it,” says Sheila Jacobs, a certified financial planner with Wells Fargo Advisors. “In the same way that there are steps to investing to get to your goal, there are steps to getting out of that debt.” Also it may not be wise to put off saving and investing entirely until you’re debt-free. A financial adviser can show you how to do it all at once.
Losing money on fees. When it comes to choosing the funds to invest in through our 401(k) plans, some of us use the “eenie, meenie, miny, mo” method. But the funds we select can make a huge difference in earnings over time because of the hidden fees, which average investors don’t know how to spot, Stallworth says. Then years down the line, “they get that final statement and say, “My gosh! Where’d my money go?””
A financial adviser can help you identify investments that may be costing you more than they’re worth. “There are so many little tricks inside of your 401(k) that most people don’t even realize,” Stallworth adds.
Underestimating the value of knowledge. Some of us have a do-it-yourself mind-set, but there are tens of thousands of investment options. How long would it take for you to research all the different stocks, bonds and mutual funds on your own? That’s the value of going “to somebody who does this all day, every day,” says Jacobs. Not only does a financial adviser understand how the markets work but she or he can also help you determine, based on your goal and time frame, what type of investment is most appropriate for you.
Experts also keep up with changing regulations, which can impact the growth of your money. For example, years ago, the maximum amount you could put in an IRA was $2,000. Today it’s $5,500 for both a Traditional and Roth IRA. If you’re 50 and over, you can add another $1,000 to what’s called a catch-up contribution. If you weren’t aware of the change, you could have missed out on putting away an additional $3,500 or $4,500 toward your retirement.
Bottom Line: A financial adviser is a partner who’s invested in your success. Says Jacobs, “One of my best days ever at work was telling a single female client, ‘Congratulations. You’re a millionaire.'”
The Three Times You’ll Really Need an Advisor
• To Create a Financial Plan
Good For: The woman who is starting out or doesn’t have a lot to invest, but wants to get the most out of her money and move toward her goals
• To Manage Your Investments
Good For: The woman who is investing, and wants someone to select funds and stocks that will bring her the results that are in alignment with her objectives
• To Get a Second Opinion on Money
Good For: The woman who chooses to manage her money herself, but wants the insight and expertise of a professional
Finding the Right Fit
When picking an adviser, don’t just go with the first person you meet. Instead, interview at least two or three professionals to get a feel for whether their approach to money management matches yours and to determine whether you are comfortable sharing your personal financial information with them.
Wondering What To Ask?
Patricia Stallworth’s suggestions:
• “What kind of clients do you specialize in?”
• “How do you work with clients?”
• “How do you make decisions?”
• “How do you decide what stocks to put clients in?”
• “How do you get paid?”
Stallworth’s questions when soliciting referrals from others:
• “How did the financial adviser work with you?”
• “If you could change one thing about that adviser, what would it be?”
Ways to Pay
One of the first things you should ask financial advisers is how they charge (many will offer a free consultation). They will likely be paid in one of the following ways:
• Fee-Only: These experts provide advice and work with you either via an hourly rate, a retainer fee or a flat fee for a range of services. For example, depending upon how complicated your situation is, a financial plan might run you anywhere from $300 to $1,000, says personal finance expert Patricia Stallworth. Some pros charge a fee based on the amount of money they are managing. For example, an adviser might charge 3 percent of your total investments.
• Commission-Only: These advisers are paid via commissions they make for selling you certain investment products.
• Commission and Fees: These professionals may receive a fee for certain services, such as developing a financial plan, but they can also get commissions when they sell you specific investment products.
Some Web-based companies provide financial advice and money management services at a lower cost. Check out these two:
• Learnvest.com: It charges a $299 one-time setup fee and $19 per month for a financial plan you can follow and ongoing support via e-mail.
• Wealthfront.com: It will manage your first $10,000 in investments for free. The business charges .25 percent of your investment balance per year after that.
Tamara E. Holmes is a writer based in Washington, D.C.