Risk Factors

I was recently interviewed by Emily Stewart (Vox) for The stock market can be an emotional roller coaster. It shouldn’t be.

She asked about the emotions surrounding investments, trying to outsmart the market, risky investments, who they make sense for, and for some broader reflections. It’s well worth a read!

People often ask us if they should invest in specific high-volatility investments, like a friend’s new business, various crypto currencies, a startup, etc. The right answer will depend on the circumstances. But it can still be helpful to know some of the factors to consider before making a high-risk investment. Here’s my high-risk investment “checklist” or “score card”.

Questions To Ask Before Investing

Investments with high upsides, the sort that might lead us to dream big, also tend to have a greater chance to lose money due to greater volatility. For most people who need the money soon, it’s a bad idea to invest in something where there is a decent chance of losing money.

Everybody’s situation is different but as you think about investment in what you hope will be the next big thing (but might be a debacle), here are a few reflections you might consider:

  • Can you afford to lose the money?
  • The more fun/exciting the investment is, the more skeptical you should be
  • Read A Short History of Financial Euphoria
  • Are you smart? If so, that’s a risk factor too.
  • Do you understand it?


Can you afford to lose the money?

So, should you invest in a volatile investment like cryptocurrency, a private business, or a small company? For someone who doesn’t have a stable financial foundation the answer is usually no. If you don’t have things like an adequate emergency fund, properly-funded retirement accounts, college savings for any kids who are likely to attend college, adequate insurance, and so forth, then you don’t have much capacity to take on risk.

If you have a long-term plan that is on track, and the money you are considering investing is not required for that plan, you can afford to lose the money. And finally, even if you have the capacity to take on risky investments, you still want to be sure the investment is likely to be profitable enough to justify the increased risk.


Beware of fun!

Mary Oliver famously challenged each of us as to what we would do “with your one wild and precious life”. Of course, for most people, having fun and doing exciting things is part of how we spend our precious little time here. So “Avoid Fun!” is very strange advice. And yet, investing isn’t meant to be fun. If you are having fun with it, that’s a warning sign that things could go wrong.

Why is that?

When investments are fun, more people want to participate. When more people participate, the terms tend to become less beneficial to investors. And that’s if it really is a proper investment at all.

When investments are fun, people have a tendency to get caught up in the excitement and reduce their skepticism.

Investment should usually be boring–that’s an indication you are doing it right. Are all boring investments good? Of course not. Just as not all exciting investments are bad. But if you feel excitement about a specific investment, notice that feeling and increase your skepticism to match.


Read
A Short History of Financial Euphoria

We so often assume that a situation we are in is novel. Cryptocurrency seems so unprecedented! And yet, there have been speculative bubbles for centuries. John Kenneth Galbraith, a giant of 20th century economics and politics, was one of the first to study this area, reviewing centuries worth of bubbles to trace patterns and understand them better. His history begins with an amazing example, the Dutch Tulip Mania in the 17th century. During the bubble’s peak, in 1637, some single tulip bulbs sold for more than 10x the annual income of a skilled artisan. Looking back at historical examples and seeing the patterns helps us understand contemporary phenomenon better.

Though there have been significant advances in understanding the cognitive biases that contribute to bubbles, none of the subsequent works on the subject is nearly as interesting or fun to read as Galbraith’s A Short History of Financial Euphoria.

No one should make a speculative investment before reading it– and perhaps not afterwards either!


Are you smart? That may be a bigger risk factor than you realize.

Once I was asked to speak to a group of union retirees about avoiding scams. As I was reading to prepare, I ran across a surprising finding, physicians are a common target of fraud. Why? Because they tend to be busy, smart, have wealth, not trained in finance, used to being in settings where they are knowledgeable, and embarrassed to appear foolish or unknowledgeable. 

Some doctors are savvy investors, of course, but many are also fleeced. If you are smart, you are probably used to getting better outcomes than people who aren’t as bright. This might make you think you can apply your better-than-average brain to a new challenge: investing. 

You might be right but you (like most people) are subject to overconfidence bias. I am not sure it has ever been studied methodically, but I suspect people who are used to succeeding are more prone to making poor investments on a large scale. Are you smarter than average? Then be extra wary!


Do you understand it?

This may seem obvious but if you don’t understand it, it’s probably a bad idea to invest in it. In 2006, I lived in a modest rented house in Mount Pleasant, a nice neighborhood in DC. Real estate hype was everywhere. On a lark, I looked up prices for similar houses to mine. We paid $2000 a month in rent for a 3BR row house. My share was $735. Similar houses were going for about $800k, sometimes more. I did the math. My monthly costs would more than double. I didn’t get it. 

Why would anyone want to pay twice as much in order to buy a house?

It didn’t make sense to me. I thought I must be missing something, but I didn’t understand it, so I didn’t move forward. I felt worried, and like I might be missing out. It turned out that my math was right! The market was overheated, and it doesn’t make sense to pay twice as much to own. The next year the real estate meltdown started, and since then rental prices and ownership prices have equalized to a much greater extent. 

Similarly, when I first heard about Bitcoin, I didn’t understand it and, frankly, like most people, I still don’t completely understand it. I knew that people who had invested early made a lot of money, but that didn’t mean it was a good investment now, just that it had worked out previously. As I learned more about Bitcoin (BTC) I became more and more skeptical. I am glad I worked to understand it *before* investing. The buyers of tulips during the 17th century Dutch golden age would have been wise to do the same. 


Remember: Hit Pause Before Diving In

Regardless of whether or not these “red flags” apply to the investment you’re exploring, it’s wise to hit the pause button before jumping in feet first. Take time to carefully evaluate the investment you’re considering, how volatile it is, whether you’re well-positioned to accept that volatility, and possibly running it by a fee-only financial planning team to get a non-biased, third-party opinion. When it comes to investing, moving slowly and thinking critically is an important way to insulate yourself against risk.

You should always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.

Welcoming Kathryn Kubiak-Rizzone

Kathryn Kubiak-Rizzone

We are excited to announce that Kathryn Kubiak-Rizzone has joined the Values Added team as an associate financial advisor!

Kathryn loves helping women and families navigate the many financial decisions they face on the path to financial freedom, with a specific focus on serving the intersectional needs of women, people of color and LGBT+ folx. Her background in physical therapy and higher education highlights her passion for helping others understand complex topics and implement the changes they seek to reach their goals. 

Kathryn lives in Rochester, New York with her family, where she is a parent leader with a strong commitment to educational equity and anti-racist advocacy. She has served on multiple nonprofit boards and strategic planning committees, is a member of her town and school districts’ Diversity and Equity committees, and is a grassroots activist in her community. When she’s not sharing financial guidance or working toward systems change, Kathryn can be found reminding adolescents to complete their chores and keeping a toddler from destroying the house. Her favorite ways to strive for work-life balance are family hikes, cooking, high-intensity workouts with good music, and traveling with her wife.

Kathryn has a BS in Physical Therapy from SUNY at Buffalo, an MS in Human Movement Science from UNC Chapel Hill, and a Certificate in Financial Planning from NYU School of Professional Studies. She is a member of the Financial Planning Association. 

We know you’ll love Kathryn and can’t wait for you to meet her!

2020 Giving Suggestions From Clients

As 2020 finally draws to a close, Bridget, Ari, and I have been finding ourselves extremely grateful to do meaningful work with clients we admire and love to serve. This year has made us more aware than ever before of what a privilege this is. 

We’ve been looking for ways to give back to our communities, alleviate human suffering, and increase the amount of justice in the world. Earlier this month, we published a five-part giving guide that encapsulates some of the key principles and recommendations we have for clients and others who are trying to make a more intentional giving plan. We encourage you to check it out and share it with people you know who may find it useful.

We also launched a new year-end giving project to support organizations recommended by Values Added clients. We learn so much from the wisdom of our clients and appreciate knowing what organizations they support and why. Several of our clients gave us permission to share their recommendations more broadly, so those are listed below. We hope this great list will be helpful to those of you who are still catching up on your end of year giving.

Thanks so much to all of our clients and to our broader communities for doing so much to help others, to fight for justice, and to improve our world.

 

District Alliance for Safe Housing (DASH)

Recommender: Patti DeBow

“As a board member at DASH, I’ve been constantly impressed with the incredible leadership and staff who provide exceptional, caring support for survivors of domestic violence. Their low-barrier, innovative programs make services accessible to people who often can’t access housing through other providers.”

 

One Can Help

Recommender: Stephanie Singer

“One Can Help provides immediate and essential resources to under-served kids and families in Massachusetts.  Small grants (usually a few hundred dollars) for specific needs, overseen by the recipients’ lawyers and social workers, make a huge difference in the recipients’ lives.”

 

EmpowerEd DC

Recommender: Mark Simon

“In just four years, they’ve become one of the most dynamic, agile organizations advocating for changes and improvements in public education in DC. It was founded and built by teachers in both DCPS and the charter sector to elevate the voices of classroom teachers in the city and in each school, and to train a racially diverse cadre of teacher leaders in the city so that decision makers would hear from them. Faced with incompetent closing and opening plans by the city in response to the Covid pandemic, EmpowerEd’s teachers quickly proposed specific solutions to protect students before closing in March, and again for safely opening in the Fall. Their campaigns on the teacher turnover crisis, the need for charter school transparency, and recruiting, retaining and supporting LatinX teachers have led to legislation and broad participation. Racial equity, quality teaching, collaboratively run schools, and accountability to the public have been hallmarks of EmpowerEd’s work.”

 

Global Regeneration CoLab 

Recommender: David Witzel

“They are helping create the capacity to create a new, Regenerative economy.”

 

Mary’s Center for Maternal and Childcare & Latin American Youth Center

Recommenders: Nancy Garruba & Chris Hornig

“Each has done remarkable work over the last 25-30 years, serving mothers, families, and youth in otherwise underserved populations. They each began as small DC-based operations and have since expanded to the suburbs, while still delivering excellent programs of care, medical support, educational support, housing, and job training.”

 

Osher Lifelong Learning Institute (OLLI) at American U., DC

Recommender: Rita Hadden

“OLLI provides purpose, meaning, and joy to those entering retirement.”

 

Boston Healthcare for the Homeless Program

Recommender: David Goldstein

“They provide healthcare to this underserved population in shelters and clinics in the Boston-area. I fundraised for them and provided them with a donation when they sponsored my run in the 2019 Boston Marathon. I visited with them, met some of their clients and was very impressed with the organization.”

 

Movement for Black Lives

Recommender: Anonymous Client

  

National Network of Abortion Funds

Recommender: Anonymous Client

“We give to the National Network of Abortion Fund (NNAF) because we believe abortions should be accessible to every person who needs it regardless of where they live or how much money they make. NNAF distributes money across the US to help people pay for abortions who otherwise may not be able to. Moreover, they also work to empower their members to fight for a future where everyone’s reproductive rights are protected and all people have control over their own bodies.”

 

Upcycle Parts Shop

Recommender: Josiette White

“This organization was started by a close friend of mine.  It takes discarded but still useable materials out of the waste stream and gives them new life with art.  The organization creates jobs and brings art to facilitate community building in an economically disadvantaged area of Cleveland.  They’ve facilitated art events between the community and police, worked with students in Cleveland public schools to turn plastic bottles into art (and help keep them out of Lake Erie), and so much more.”

 

Miriam’s Kitchen

Recommender: Josiette White

“I was introduced to the organization by a friend who works there.  They work to move people who need it into permanent housing.  They have a series of services including setting up sanitation stations to meet this moment and crafting innovative ways to keep some of DC’s most vulnerable fed and in community.”

 

National Resources Defense Council

Recommender: Akiva Fishman

“In its role as legal watchdog and litigator, the NRDC provides one of the more important mechanisms for holding the government accountable to implement America’s critical environmental legislation.”

 

Jewish Family and Children’s Services

Recommender: Janine Bempechat

“I appreciate that they provide parenting assistance/education to new parents, support for aging individuals and their families, and that they address food insecurity through their Family Table initiative.”

We are giving to the above organizations, in some cases for the first time and we hope you’ll consider them as well.

Zinn Education Project

Recommender: Mark Simon

“When Trump attacked Howard Zinn for being anti-traditional American white southern culture in The People’s History of the US, states like Misissippi tried to ban the book this year. ZEP is shipping books to teachers there as a counter-attack. “

We are giving to the above organizations, in some cases for the first time and we hope you’ll consider them as well.

Discussing Investing During Political Turmoil with Ron Lieber (NYT)

Ron Lieber, at the New York Times, is one of my favorite personal finance writers. His commitment to consumers is unerring and his ability to make complex issues understandable and actionable is exceptional. Given my admiration for his work, I was especially honored when he reached out to discuss financial planning and investing during moments of political tumult for his recent piece Investing for the Future in the United States of Agita. The question he raised is enormously consequential. How should we take action when a major potential political change is immediate but the outcome is uncertain? In his piece, the presenting issue was the election, but there are a lot more moments of importance and uncertainty than just presidential elections. The right approach in moments of uncertainty in the world is to review an excellent plan that was hewn in moments of clarity and when emotions were less intense. Take that plan, review it, ask if your goals have changed since then. If they haven’t, make sure you are still on target. If you were going on a road trip, that would be the time to check the air pressure in your tires, consider an oil change, and maybe even get a tuneup. Likewise, check if your emergency fund is adequately funded and check if your asset allocation (percentage of your investments in stock indexes, bond indexes, etc) is within the target range. Ron was succinct and spot-on in his discussion of asset allocation in the piece and I suggest you read it if you haven’t already.

I’d like to expand a bit on a couple of quotes of mine that Ron included in the piece:

First, a maxim of sorts about our collective state of anxiety — whether you’re pulling for four more years or a new occupant in the Oval Office. “Emotions are really good at raising questions and really bad at answering them,” said Zach Teutsch, a financial planner in Washington, D.C. It’s true in life, and it’s certainly true with financial decisions. Try not to make any big ones anytime soon.

Emotions arise every day in our work, usually many times and I’ve thought a lot about how they help and hurt our ability to act in our best short- and long-term interest (however we define that). Just as I said, I think they are great at raising themes and not great at wisely navigating technical questions. For instance, feelings of anxiety can be very motivating. The way anxiety tends to gnaw at us, reminds us to make sure we are doing the right things to protect ourselves, families, and communities, now and in the future. The problem is that anxiety isn’t a very good tool to figure out how to do that. If we rely too much on anxiety, those with investments might end up putting too much of their portfolio into stability-oriented investments. The result would tend to be not having enough money later in life and possibly outliving one’s money (not having enough to donate along the way, etc). Accepting too much volatility in pursuit of long-term growth could also cause problems. Balancing these two priorities (long-term growth and stability) is a hard problem. Anxiety isn’t a great tool to mediate these complicated questions and identify the proper balance. The right answer has to consider those emotions and how they will impact the client’s long-term well-being and fulfillment but that is just one of several important considerations. Like with anxiety, guilt can doggedly raise important questions, causing us to feel we aren’t doing enough. It isn’t likely to be very useful to adjudicating between which uses of capital have the highest social impact. For instance, one could give more money away via tax-deductible or non-tax-deductible giving, accepting lower returns for social impact-oriented investments, making direct loans or gifts to people in need, or many other approaches. Guilt may weigh-in but is unlikely to have a very technically-sound contribution. I suggest that in these situations we thank the emotion for inspiring a robust and important conversation and invite it to continue to monitor the outcomes (it was going to with or without an invitation).

“After an election can be a great time to assess your social impact plan, especially around charitable strategies,” he said. “Because the world is going to need very different things depending on who wins.”

Thankfully, the election turned out in a way that will slow or reverse our movement away from democracy. But all is not well. People should squeeze to figure out how to help set a course toward a better more just world. We will be sharing a guide to giving soon, which is a bit part of most people’s social impact plans.

Zach was featured in the Brown Alumni Magazine

The May/June edition of the Brown Alumni Magazine features Zach and Values Added (link)!

“Brown’s alumni ranks are full of people who aim to do well and also do good. Zach Teutsch ’05 has made it his mission to help others do the same.”

What would you do if you missed two paychecks?

What would you do if you missed two paychecks?

I wrote an article for Vox on:

  1. why emergency funds are important,
  2. how big they should be,
  3. how to get started even (especially) if it seems daunting,
  4. why this a weirdly American problem, and
  5. some hacks to keep you on track.

I hope this helps you or people you know. I also hope we see that the need for large emergency funds indicates a policy failure and that we fix it soon!

 

We’re hiring! Join us and help progressives build thoughtful, prosperous financial lives!

picture of trees, skyline with title of we're hiring

Values Added Financial (VAF) is growing and we’d love to add a third team member in DC.
It’s a great opportunity to learn financial planning in a mission-driven context with people who care deeply about clients. In the job description, you can learn a lot more about the role, what skills might help someone succeed in it, and also who might enjoy working at VAF.

It is essential for anyone joining the team to be able to participate in several meetings per week in-person at our office in Petworth (DC). Team members could work remotely several days per week.

As a small firm, we know that the time to build a diverse staff is now. Given that, we strongly encourage women, people of color, and all members of other historically disadvantaged groups to apply. Having a diverse team is important to us and to the firm’s success.

If you have any questions, email joinus@valuesaddedfinancial.com.

[fusion_button link=”https://docs.google.com/document/d/1eqplBGODTSIalxNxxUOH5e33Nruh6lSCFCbysEMEiGg/edit” title=”” target=”_self” alignment=”” modal=”” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=”” color=”custom” button_gradient_top_color=”” button_gradient_bottom_color=”” button_gradient_top_color_hover=”” button_gradient_bottom_color_hover=”” accent_color=”” accent_hover_color=”” type=”” bevel_color=”” border_width=”” size=”” stretch=”default” shape=”” icon=”” icon_position=”left” icon_divider=”no” animation_type=”” animation_direction=”left” animation_speed=”0.3″ animation_offset=””]Apply Today[/fusion_button]

 

Welcoming Ari Weisbard to the team

I am delighted to announce that Ari Weisbard has joined Values Added as a financial advisor. I’ve known him for decades and have often turned to him for advice myself. Like mine, his first career was in public service (DC Council, DC Employment Justice Center, and SEIU). Ari will be using his expertise in estate planning, tax planning, employment matters, investing, buying a home, and many other topics to help clients make wise financial decisions and live more fulfilling lives.

Ari lives with his family in Petworth, just a few doors down from our house. When he’s not providing financial advice, he’s usually playing with his son, baking, sharing communal dinners, volunteering with Jews United for Justice, or advising on employment and estate issues at the Law Office of Ari Weisbard.

Ari graduated from Harvard College in 2003 and Yale Law School in 2008. He clerked on the Ninth Circuit Court of Appeals for the Hon. Michael Daly Hawkins. He is a member of the District of Columbia and New York Bars.

I love working with Ari (he’s my financial advisor!) and I bet you will too.

Ari is a talented and wise advisor

You might be able to save tens of thousands of dollars on a mortgage–shop around

If you are going to get a mortgage, shop around first! Those simple words might be worth tens of thousands of dollars to you.

Whenever I advise clients who are planning to buy a home, I always encourage them to shop for a mortgage. Most people initially say things like “I have a great rate already!” Sometimes that is so but often the rates have fallen and they’d never know. Sometimes they didn’t have a great rate to begin with.

Among the last few people I’ve worked with on this, the advice to shop around and helping them do so has made a huge difference. In a pair of recent cases the rate they paid was so much lower that over the course of a mortgage, they will save *$90k* and *$100k* respectively.

Anyone getting a mortgage should shop around! This often saves more than all the comparison shopping at the supermarket anyone will ever do in their lifetime and takes just an hour or two. You can read more in the CFPB’s guide to buying a house. They have a great mortgage rate checking tool.

Easy Steps to Take in Response to the Equifax Breach

A major credit reporting company, Equifax, had a large-scale breach. It has effected lots of us. Even those whose data wasn’t compromised should still use this as an opportunity to think about data security and whether everything in our credit reports is correct.

Check out this great resource on what to do in response to the breach. It is from my former colleague Rohit Chopra  who is now doing terrific work at the Consumer Federation.

This piece will answer a lot of your questions. If you have more questions, be in touch!