I’ve been in the investment advising business for almost six years now. During that time, my role in this business changed. I started as an office assistant and learned the ropes for 2 years.

Since then I’ve been in charge of other people’s money. Sometimes it’s someone’s brokerage account that they have with me to diversify among financial institutions.

Sometimes it’s someone’s life savings.

Obviously, when I started, I was in charge of very little until I gained enough experience and was able to prove myself as a capable advisor and investor.

From then until now, my investment philosophy changed. How I view investing and my approach to managing clients’ money is different from when I started.

When I started

In the beginning, it was very straight forward. I was a value stock picker. I charged a 1% fee (industry average) for that service, but the client also got unlimited access to me during business hours and other financial planning services.

Then I figured out, picking stocks was not a good use of my time. The research and analysis took far too long, and my time could be better spent engaging with clients and prospects.

Meaningful change

I changed my method of doing business. Instead of picking stocks, I would utilize passive ETFs. Because I was not putting in as much time with client accounts, I charged them less. It seemed fair and logical.

I still offered the same “extra” services, but I didn’t have to spend nearly as much time researching stocks. Instead, I had a basket of investment options to pick from and would allocate clients’ portfolios according to their age, risk tolerance, and time horizon.

Don’t get me wrong, I still believed in active management, but being able to do that and grow my book of business was extremely difficult.

Yeah…passive has outperformed active for the last decade (source). That’s because we haven’t had anything to, really, panic about. Since the Great Financial Crisis, the market has been up and to the right with minimum volatility. Certainly, well below average (source).

I thought low fees and passive ETFs were going to be the way forward.

My mind was blown

That was until I watched a video on Real Vision. In the video, the guest being interviewed brought to attention the danger of passive ETFs.

He explained that once passive overtook active, in terms of net assets, we’re in trouble.

And it began to make sense. ETF custodians (Blackrock, for instance) need to sell underlying securities when investors sell the ETF. They don’t have a significant amount of cash on the side at the ready for redemptions.

The lightbulb came on. When the market actually crashes and we experience a recession, there’s going to be a barrage of selling. Everyone is going to try and get out of the market and minimize the damage.

That’s the problem. If half of investors are in passive funds, then those funds will have to sell loads and loads of securities to meet client demands.

Selling will exacerbate and the sell-off will intensify until we have a 1987 type moment. Thankfully, there are “circuit breakers” now in place.

What’s a circuit breaker?

If the S&P 500 index falls enough, trading will halt. There are three levels of circuit breakers. Level 1 is a fall of 7% and trading halts for 15 minutes. Level 2 is a fall of 13% and, again, trading halts for 15 minutes. Level 3 is a fall of 20% and trading ceases for the remainder of the day.

After that video, my philosophy shifted. Instead of utilizing passive funds, I use active and smart-beta ETFs. I get the best of both worlds. Active management and low fees.

What’s the point?

I wanted to make two points when writing this.

1. I wanted to highlight my thought process, my investment philosophy, and how it changed.
2. I needed to get across an important message. One that we seem resistant to. You HAVE to be willing to adapt. To change. Not only that, you have to challenge your own ideas.

I’ve made two changes in my process so far and I hope there are more changes coming, but those changes didn’t happen overnight.

I poured over hours of research, reports, and charts. I needed to make sure that the change I made would benefit my clients.

One last thing I wanted to mention. When my philosophy changes, I don’t make sweeping changes to my clients’ portfolios.

That would a) be incredibly annoying as a client to have your portfolio transform because my ideas changed, and b) selling and buying could incur fees and taxes. Clients shouldn’t be penalized for that.

Related reading:

The Difference Between Mutual Funds and ETFs

Are You Taking Too Much Investment Risk?

Client Experiences

Jacob Sensiba

My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com

 

www.crgfinancialservices.com/

Credit is important. We all know this by now, so we’re constantly looking for ways to improve our score. If you find yourself in a less than desirable situation, there might be a solution for you; enter the secured loan.

In this article, we’re going to explore what a secured loan is, what types exist, how it one can help, and what to be wary of.

Let’s go.

What’s a secured loan?

A type of lending, whether it’s a traditional loan set up or a credit card, where you put up collateral. Collateral is an asset that you own, which could include, but isn’t limited to your home, car, artwork, jewelry, stock, and money.

There are several different types of secured loans. Let’s look at a few of them.

Types of secured loans

• Mortgages – When you purchase a home (unless you pay for it with cash) you take out a mortgage and agree to pay back that loan over a period of time. In this instance, the home you purchase is collateral. If you fail to make good on your promise, the lending institution can take ownership of your home and sell it in order to pay off your loan.
• Car loans – Exact same set up as a mortgage, although on a much smaller scale. If you take out a loan to buy a vehicle, you’re promising to pay the loan back over a period of time. In this case, the car is your collateral. If you fail to make payments, the lender will take possession of your car and sell it in order to pay off your car loan.
• Secured credit cards – A secured credit card is my general recommendation for someone that has bad credit and wants to rebuild it. With a secured credit card, you have to put down money in the form of a deposit. That deposit effectively functions as your credit limit. If you put down $1,000, then your credit limit is $1,000. If you don’t make payments on what you borrowed, the lender will take your deposit and pay off your card.
• Title loans – If you own an asset outright (specifically, your home or your car), you can take out a title loan. The owned asset acts as your collateral. If you don’t make payments on the loan, the lender will take possession of your asset and sell it to pay off your loan.
• Other secured loans – Anything that you can put up as collateral gives you the ability to take out a secured loan. Artwork, jewelry, stocks, etc. all fit that profile.

How it can help

Unsecured loans, like personal loans or standard credit cards, like to see good credit scores. If you don’t have a good score, a secured loan could help you build yours back up.

I’d like you to refer back to the secured credit card section. The lender is out, literally, nothing by giving you a secured credit card. You put the money down. If you don’t make the payments, they’ll take the card back and keep your deposit to pay off the outstanding balance.

The most important point to be made here, however, is when you’re building your credit score, you HAVE to make payments on time. This is the number 1 factor considered when calculating your credit score.

Things to watch out for

The biggest concern with a secured loan is the lender has the ability to take ownership of your asset if you’re not making the payments.

When you’re borrowing money, whether it’s secured or not, you have to make sure you’re making your payments on time. Another thing, don’t borrow more than you need to and stay within your means.

Related reading:

Strategies for Improving Your Credit Score

How to Pay Off Credit Card Debt

Diving Deep Into Debt

What Affects Your Credit Score

Diving Deep Into Credit Cards

Jacob Sensiba

My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com

 

www.crgfinancialservices.com/

As I’ve gotten older, my relationship with money has changed. I’ve made mistakes, learned some things, and I found a new dynamic that works for me and suits my goals.

What I was taught

To be perfectly honest, my memory isn’t great, so if I was taught anything about money and how to handle it, I don’t recall it.

It wasn’t something that was openly discussed in our family. My folks took a fairly hands-off approach when it came to teaching us, besides our morals, character, and work ethic. Other than that, they let my siblings and I figure things out on our own.

Over this past year, as I’ve explored my upbringing I went through a phase of being angry with them for not being more hands-on, but after having an opportunity to really reflect, I’m incredibly grateful.

Because of their approach, I’m a very fast learner and a very good problem solver. I wouldn’t change a thing.

Past experiences

During the last two years of high school and a few years after, my buddies and I would always go get fast food, bring it back to one of our respective homes, and hang out.

Because of that, part of socializing I attributed to getting food, and as a result, spending money.

I also went through a period of “keeping up with the Joneses”, so I often spent money on things I didn’t need or I agreed to things I couldn’t afford because I didn’t want to be left out.

The last mistake I made was charging, darn near, everything when we went on our honeymoon. A very costly mistake at that.

What I learned

The lessons I learned I pretty remedial in terms of financial common sense, but it took making those mistakes in order to learn:

• You don’t need to spend money to hang out with your people. Whether that’s food or entertainment. You can have a good time with the right company, no matter the circumstances.
• Spending more than you ought to on material things in order appear to have the same social status as your peers is a recipe for disaster. To quote Dave Ramsey, “We buy things we don’t need with money we don’t have to impress people we don’t like.”
• Stay within your means – I wanted to “do it up” on the honeymoon, so I spent WAY more than I should have. Had I known what I do now then, we would’ve planned things differently, and spent MUCH less.

Me and money now

My relationship with money has changed a lot over the last few years. I think as I’ve matured (and had a child) I’ve realized what is more important, and that spending on frivolous things, and gifts for that matter, is wasteful.

Money isn’t everything, but it’s an important tool. It’s a tool that deserves to be used in a thoughtful way.

I pay my bills, I pay down debt, I save, and set aside a little for fun. The money I save goes into three buckets: retirement savings, short-term savings, and emergency savings.

The short-term bucket is broken down further. Holiday spending, college savings, and experiences.

Spending money on experiences and precious time with my son has taken precedence over spending it on stuff.

He doesn’t get a lot of gifts from his mother or me (Santa) for Christmas, as he gets spoiled by the rest of our families.

More importantly, however, we would rather spend the money on things that create memories, which could include trips or a day at the zoo.

I’d rather him remember the time he spent with myself and others, rather than playing with toys. That’s what creates a happy, memorable childhood.

Related reading:

Psychology and Finance

Financial Mistakes to Avoid

My House and What Brought Me Here

Different Ways to Think About Your Finances

Jacob Sensiba

My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com

 

www.crgfinancialservices.com/