Wealth management can be a full-time job if you have a lot of investments. Investing family money can be stressful. At some point, you might want to hire a money manager to help you with your finances.
When I sold my rental house, I thought my stress would go down at least 80%. After all, my tenants and the maintenance issues were really bumming me out.
But what I didn't anticipate was the rise in stress from having to reinvest a sum 4X greater than I had ever invested before. The last thing I wanted to do was turn a strong performing investment since 2005 into a poor one going forward.
I went through many hours of deliberation regarding where to invest the proceeds. I wrote quarterly investment reports to track my progress. I stayed glued to the laptop during market hours for months trying to buy stocks and bonds during pullbacks.
Further, I went out to dinner with the Fundrise team twice to do more due diligence on their investment process before deciding to invest in one of their funds. I really believe real estate crowdfunding is the real estate investment wave of the future given it is passive and seeks higher returns.
As someone who worked in the finance industry, consulted with a couple digital wealth advisors, and who has been investing his own money for over 20 years, I was familiar withthe entire process of managing money. However,I've finally reached an inflection point.
When To Hire A Money Manage: Too Many Investment Accounts
Because I'm actively working from home and helping take care of my little ones, my time is stretched. When you earn money, the path of least resistance is to simply hoard cash. At least by doing nothing, you won't lose money. But hoarding cash since 2009 has been a huge mistake.
What happens as you get older is that your finances tend to get more complicated. Job changes create dilemmas for whether you should rollover your 401(k) into an IRA or not. You might start a business and launch your own SEP-IRA or Solo 401(k). Or you might have some nice liquidity windfall after selling your company. The list goes on and on.
Financial Accounts Grow Over time
If I was just managing one family investment account, staying on top of our investments would be a piece of cake. Having just a 401(k) or an IRA where you max it out and that's it for one year is like a walk in the park.
But as a middle age parent who feels its important to diversify, I've had a lot of investment changes and opportunities since college. I also save and invest the large majority of my cash flow each month, so there's always something to do. Hence the thought of hiring a mont manager.
I currently manage or keep track of 17 financial accounts at multiple financial institutions. Each financial institution has something different to offer. Further, we spread out risk, partly due to the $500,000 FDIC insurance cap for money market accounts and CDs. Our net worth is complicated!
Financial Institution 1 – Sam
- After-tax investment account
- SEP-IRA
- Profit Sharing Keough (Solo 401k)
- Son's 529 Plan
- 20-year life insurance policy through Policygenius
Financial Institution 1 – Wife
- After-tax investment account
- SEP-IRA
- Rollover IRA
Financial Institution 2 – Sam
- Rollover IRA
- After-tax investment account
Financial Institution 2 – Wife
- After-tax investment account
- Roth IRA
Financial Institution 3 – Sam
- CD (used to have 3 CDs to track)
Financial Institution 4 – Sam
- After-tax investment account
Venture Debt – Sam
- Fund 1
- Fund 2
Real Estate Crowdfunding – Sam
- Real estate crowdfunding eREIT
- Conshy, PA Commercial Property
Every single account requires the following:
- Keeping track of asset allocation
- Keeping track of cash balance
- Researching investments
- Selecting the right investments
- Reducing commission fees
- Meeting capital calls from private investments
- Keeping track of when capital is returned
- Redeploying capital
- Figuring out how each piece fits into a passive income target
- Optimizing for tax efficiency
As you can see, doing everything right for all accounts can take a lot of time. Further, the more money you have to manage, the more time you will naturally spend because there's simply more at stake to lose and win. As a result, hiring a money manager may make sense.
Here is the perfect example where more money does not bring financial peace of mind. When I had just $100,000 to manage, I couldn't care less if the market corrected 20%+. I had nobody to support and a job that could easily make up for any losses and then some.
With a sudden $1.8M liquidity event from selling my home on top of managing my existing investments and investing most of my cash flow every month, I was forced to dedicate a lot more brain power to money management.
My Latest Money Management Error
After the market meltdown in early February 2018, I asked my wife to cut three checks: one to my SEP-IRA, one to her SEP-IRA, and one to our son's529 account.
As business owners, a business can contribute 25% of oursalariestoour individualSEP-IRAaccounts, e.g.,$120,000 salary = $30,000contribution.AsIhadalready superfunded my son's 529 plan in 2017,only my wife and othersare eligible tocontributeupto$15,000 a year (for 2018).
I invested some of the proceeds based on our agreed upon investment framework in all accounts when I realized about 25% of my wife's SEP-IRA had been sitting in cash for who knows how long. I was completely surprised because I try to keep all our investment accounts 100% invested. Our cash needs aremetseparatelythroughvarious savings accounts.
Due to too much cash in my wife's SEP-IRA account, her account lost out on potentially thousands of dollars in lost paper profits in 2017. But I'm not sure exactly how much she lost because I don't remember how long the cashhadbeen sitting there!
Related: Strong Reasons To Hire A Financial Advisor
Refocusing My Efforts On Money Management
From now on, I need to go through each account and not only check the holdings and asset allocation, but also make sure there is no excess cash sitting around doing nothing. I've got to put on my money manager hat again more often, especially now that stocks are at frothy levels.
What's also important is making sure my investments makes sense in each account. For example, I'm more inclined to invest and trade more aggressively in my pre-tax investment accounts because I know I won't be touching them until age 60 and there are no taxes to file.
For my after-tax investment accounts, they are more conservative as they are accounts that will be first accessed during a liquidity crunch or when I finally buy that Hawaiian dream home.Since I've got to pay taxes on any dividends or capital gains, my after-tax investment accounts have lower turnover and house all my tax-free municipal bonds.
Finally, I've got to do a top down asset allocation of all my accounts to make sure the overall investment asset allocation fits my risk profile and investment objectives. I used to do this manually, but since 2012 I've linked my investment accounts to Empower's dashboard and can just click their Investment Checkup tab to get a snapshot. Below is an example:
When Is It Worth Paying A Money Manager?
I'm close to paying a money manager to manage our finances, but Iamstillreluctanttopull the trigger because I'vealways managedmy money, dislike paying fees, and realize a wealth manager can only manage some of my accounts, not all.
The only accounts a wealth manager can manage are our four after-tax investment accounts. Thismeans Iwouldstill have to manage 13 other investment accounts.As a result, I presently don't think it'sworth hiring a money manager. Only ifthemoney managercouldmanage the large majority of my investment accounts would I consider hiring one.
Some considerations for when you should hire a money manager:
1) When they can manage most of your investments.
2) When you have no desire to manage your money.
3) When you have no understanding of investing.
4) When investing stresses you out and keeps you up at night.
5) When your job, business, or family keep you too busy to even review your investments.
6) When you can do a much better job making money elsewhere.
7) When they've showed a fantastic long-term track record.
8) When you calculate the estimated annual fee and feel you'd happily pay the amount to not have to manage your own money.
9) When you have a significant amount of assetsand wouldfeel better if someone or some teamwerekeeping watch every day.
If I had a hybrid digital money manager like Empower managingmy investments, I never would havehada 25% cash weighting in my wife's SEP-IRA for months.
They would have automatically investedmy cash based on a pre-determined investment asset allocation, whichI'dagreed upon. I would havehadto pay a <0.89% fee, but I wouldn't have missed out on 20% gains on the cash balance in 2017.
No Longer Enjoy Managing My Money
As I conclude this post, I realize that I no longer enjoy managing our investments. They give me unwanted stress, even in good times. I get bent out of shape when I don't buy at the low of the day.
When the stock market corrects 32%, like it did in March 2020, it's hard for me to think of anything else until I see stabilization. When an investment soars 50%, I don't get pleasure either because I'm not using the profits for anything.
Maybe it's better to outsource my money management responsibilities and the stress it comes with after all. If I'm not happy with managing money during good times, I definitely won't be happy managing our family's money during bad times.
It's kind of sad the wealthier you get, the sometimes more stressed you will get about money. Your net worth gets more complicated and you simply have more money to lose. Hiring a money manager makes sense so you can stress less and focus your time on better things.
Stay On Top Of Your Money
If you don't hire a money manager, at least sign up forEmpower. It is the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use theirRetirement Planning calculatorthat pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Your retirement is too important to not get right.
Less Stress Investing In Real Estate
Real estate is a core asset class that has proven to build long-term wealth for Americans. Real estate is a tangible asset that provides utility and a steady stream of income if you own rental properties. If you like less volatility, real estate is more attractive than stocks.
To reduce stress and diversify your net worth, take a look at my two favorite real estatei investment platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. They potentially have higher growth due to job growth and demographic trends.
I've personally invested $810,000 in real estate crowdfunding across 18 projects. My goal is to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
Invest In Private Growth Companies
Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out theInnovation Fund, which invests in the following five sectors:
- Artificial Intelligence & MachineLearning
- Modern DataInfrastructure
- Development Operations(DevOps)
- Financial Technology(FinTech)
- Real Estate & Property Technology(PropTech)
Roughly 35% of the Innovation Fund is invested inartificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
