Our First 6 Months Working with a Financial Planner

Will Robins, Co-Founder at Wise Growth

I'd prefer to start this post by saying “how do you plan for your future?” is a frequently asked question, but that would be a lie. Talking about finances is pretty taboo in the US. Personal finance is rarely covered in school. It’s uncomfortable to ask someone else about their budget, or their will, or their student loans. As a result, many people figure it out on their own, patching together insights they gather on the web and lessons they’ve learned from their family.

That’s too bad, because I actually think working with a financial planner is really fun, especially as someone in their late 20s or 30s. For someone nearing retirement who’s putting together a financial plan for the first time, I imagine they may feel a sense of urgency or anxiety. But for a person in their 20s or 30s, there are a lot of opportunities ahead, and a lot of runway to fix any problems. The questions are exciting and strategic: how do I preserve optionality? Do I want to buy a house, and if so, when? What budget puts me on track to make this possible? What career choices should I consider to make this possible? It’s a feeling of being in command.

And I think more people in their late 20s and 30s would work with a financial planner if they better understood what a planner actually does. So I’d like to share some of my experiences from my first 6 months working with a financial planner.

In May of 2019, my wife (Megan) and I got married. We were combining finances, I was leaving my job in June, and I was beginning a 2-year graduate degree in the fall. We began working with our financial planner closely in July. I’ll save the details of the onboarding process for another blog, and instead I’ll focus on 3 areas where we moved the needle in our first 6 months.

Student Loans

My first priority was student loans for a 2-year graduate school program that started in the fall. I had found a creditor with the best rates available to me, and was contemplating 4 decisions:

• Should Megan co-sign the loans? Maybe this could get us a better rate.
• How much should we borrow, versus pay from savings and Megan’s income?
• What should be the term of the loans? We were was deciding between a 7-year and a 10-year.
• What should be the payment plan? Should we defer payments until after graduation, or make payments while in school?

Our planner shared some perspectives with us that helped us have confidence: 

• Given that my credit score was healthy, it would be unlikely that having her as a co-signer would result in a better interest rate. In addition, if we went to get a mortgage in a few years, less-sophisticated creditors could accidentally double count the loans when running our credit history, impacting our eligibility. So no, in my case she shouldn’t be a co-signer.
• With the possibility of buying a house sometime in the next several years, it would be wise to preserve capital, as long as the interest rate on the loans was attractive (it was). In other words, save our cash and pay with loans. At present, we also only needed to decide how much to borrow for Year 1 of the degree, so if needed we could change our strategy for Year 2.
• For the term, we felt like we could handle the payments on the 7-year (about 40% higher than the 10-year), the interest rate was a little better, and I was attracted to the ambitious timeline. But our planner advised that if times got tough, we would appreciate the lower payment on the 10-year. If times were good, we could just pay it down. So we went with the 10-year.
• We chose to make interest-only payments while in school. This meant we’d pay a couple hundred dollars in interest each month, and then full payments would begin after graduation. This was purely an economic decision. Over the life of the loan, paying interest while in school saved several thousand dollars.

Portfolio

Our second priority was to diversify our investable assets. I had accumulated about 20 stocks in my brokerage account, mostly the result of water-cooler conversations at work. They were heavily concentrated in tech. Megan had accumulated a volume of her employer’s stock through her compensation, which had grown to represent about half our assets. And lastly, we had some extra cash that we wanted to put to work. With our planner, we aligned that:

• By accumulating stock through Megan’s equity compensation, we’d become overexposed to risk in her employer. So in the coming quarters, it would be wise to sell some of those shares.
• We should diversify the stock we own outside of tech. This didn’t mean selling the positions I already had -- in fact I still have most of them -- but it did mean entrusting our planner to select a well diversified set of mutual funds for any new positions.
• We would benefit from some fixed income in our portfolio. Between my brokerage account and Megan’s equity compensation, the majority of our assets were tech equities. History showed that balancing our portfolio with some fixed income would help smooth the curve in the event the equities market turned. 
• Roll over my 401K. I had 2 different jobs before graduate school, each with their own 401K. It sounds silly, but 4 years after I left the first job, I still hadn’t taken the time to roll them over into 1 account.

In the 6 months that followed, we: 

• Pared down the percentage of our assets that are invested in Megan’s employer. When we started, about 50% of our assets were in her employer and now we are now down to about 25%. We’ll probably reduce that even more, because we have lots of exposure to her employer through her stock that has not yet vested. We typically sell new tranches of stock as it vests.
• Allocated another 25% of our portfolio to a diversified set of mutual funds, so we weren’t so concentrated in tech.
• Converted about 25% of our portfolio to fixed income and 10% to alternative investments. We were happy that we made this decision when, in February, the stock market began to sell off.
• Rolled over my 401K (finally!).

These figures are blended across our taxable and tax-advantaged retirement accounts. The target allocations for taxable vs retirement accounts are different.

Benefits

Our third priority was to ensure we were taking full advantage of the health, insurance, and retirement benefits available to us through Megan’s employer. By going through the details of her benefits and spending time on the phone with HR, our planner discovered:

• Her employer offered some unusual 401K benefits that allowed her to contribute to an after-tax 401K once her pre-tax limit had been reached. This allows her to have more tax-advantaged savings for retirement, which she’s doing for 2020.
• We weren’t taking full advantage of their generous long-term disability benefits. Megan isn’t disabled, but there were some very affordable options in her benefits plan that would help us live comfortably in the event she became disabled. We’ve since opted in to this benefit, which helps us have peace of mind.

We never would have discovered these benefits on our own.

It’s also worth adding that, when you’re in a committed or marital relationship, it’s helpful to have an expert voice in the room to help guide financial decision making. Neither Megan nor I are financial experts, so we sometimes find ourselves at an impasse on how to move forward. Getting the input of our financial planner has been an effective way for us to get to a decision. A good example is when Megan and I were figuring out how to structure our joint bank accounts and credit cards. There’s no right answer, but our planner asked us some thought provoking questions and provided helpful validation that our plan made sense. This gave us the confidence to move forward.