Email : jude@upperlinefinancial.comPhone: 504-610-5833


Are Bonds Safe Investments? – Financial Rules of Thumb series

[This post is part of the Financial Rules of Thumb series.  Check out the rest here!]

“Bonds are safe”.  ”You can’t lose money in bonds”.  These and other similar statements are often made about investing in Bonds, but are they true?  Are bonds safe investments?

The Upperline: You can lose money in bonds. They’re not without risk. They have different kinds of risks than stocks, that need to be understood if you’re going to invest in them.

The price of bonds can fluctute up and down. While the prices of bonds may not move as much or as often as stocks, they do still move.  This post explores some of the risks associated with bonds.  While not a list of every risk that bonds face, below are a few basics that should be understood by the general public.

Interest Rates. If I own a bond that is paying 5%, and a similar bond is issued that now pays 6%, who would buy my 5% bond?  Would you rather get paid 5% or 6%?  When interest rates go up, prices on existing bonds tend to go down so that the yield is similar to new bonds.  The opposite is true, too.  If interest rates go down, your existing bond paying a higher interest rate is probably worth more than you initially paid for it.

Default Risk.  When you buy a bond, you’re effectively lending money to a company or government, that they pay you interest on and ultimately they repay the principal to you with the final payment.  If a company (or government) goes bankrupt, they may not be able to repay that principal to you.  Ratings agencies like Fitch and Moody’s asses the risk of a company which then affects the interest rates the company must pay to borrow money (Think of this like a credit score.  If you have a good credit score, you might pay less on your mortgage than somebody with a poor credit score).  The risk right now as interest rates are low, is that some might be tempted to purchase bonds of a lower credit quality to get higher interest payments, when they’re not aware of the extra risk they’re taking.  Risk and return are eternally linked.

Duration.  If you were going to lend somebody money for 10 years, you’d probably want a higher return on your money than if you lent them money for 3 months.  Bonds work the same way.  Bonds that are longer carry higher interest rates, and might be attractive with yields on short-term bonds as low as they are.  The risk here is that we’re near historical lows in the bond market.  It’s at least likely that interest rates will start to rise at some point and longer-term bonds will be affected more than short term bonds.  If you own a bond mutual fund, a measure of portfolio length is “duration”.  The longer the duration, the more risk of price fluctuation inside of that portfolio.

I have add this last paragraph or my friends who are financial planners will lose their mind.  Just because the value of a bond goes up or down doesn’t mean you’ve lost money.  You don’t recognize that loss as long as you don’t sell.  It’s quite possible that you can hold a bond that is trading for less than its face value, and you hold it to maturity and get the entire principal back.  This is certainly true if you own bonds directly, but it’s not as straightforward with bond funds.  If you own a bond fund and interest rates start to rise, the values of the bonds may decline, causing others to sell their shares in the fund.  That fund then may need to sell some of its bonds at lower prices than they might otherwise hope to meet those distribution requests.  It’s not a certainty, but it’s a risk that must be understood.

Want to read more?  Here’s an extensive overview of other Bond Risks from CNNMoney.

Always Take the Match on Your 401(k)?

[This post is part of the Financial Rules of Thumb series.  Check out the rest here!]

The 401k match is incentive offered by many companies to encourage retirement savings by their employees.  During the latest financial downturn, some companies eliminated their match but they’re coming back as corporate earnings recover.  So should you participate in the 401k and take the match that is offered?

The Upperline: Unless you’re severely in debt or unable to meet your regular bills on a monthly basis, I can’t think of a reason why you wouldn’t want to take the 401k match.

I bet you’d probably like a raise, right?  Here’s the easiest one you’ll ever get.  Save in your company’s 401k, at least to the amount of the match.  Whatever they match is money that your employer is willing to pay you, but you’re just not claiming it.  This is as close to a no-brainer that I can think of when it comes to your money.  This money gets saved, for your benefit, with additional contributions from your employer, automatically from your paycheck, without you having to do anything.  What’s not to like?

When should you not take advantage of this?  

  • Overspending - If you’re spending more than you’re taking in every month leading to rising credit card balances, saving for your retirement isn’t going to do you any favors.  Don’t allow this to continue unchecked.  Get your spending under control so this doesn’t continue forever, and then you should start saving.
  • High interest credit card debt – This is a tough call. If you’ve got some high interest debt, I can understand delaying your savings to put additional funds towards eliminating that debt.  This requires discilpine and focus, so make sure that you’re actually putting those funds towards repaying the debt and not just spending it.
A few other questions I’ve heard from retirement plan particpants:

“I don’t know anything about investing so I’ll probably just make bad choices, so what does it matter?”

I’ve actually heard this statement in 401k enrollment meetings for company retirement plans.  There have never been more resources to help you with this decision, from abundant information online, resources from your plan sponsor, and from outside advisors.  We learn best by doing, and starting with your own money will give you incentive to learn.  Even if you make bad decisions, when you factor in the money from the match it’s tough to come out behind.  Who knows, something good might even happen, like being able to retire one day.

“I don’t think I’ll be at this job for very long, so it might not vest”  

I suppose that’s true.  However, the money you contribute is always your own and I’ve never heard anybody regret saving some of their own money.  Maybe you will get a new job and not leave with any of the employer match (each plan is unique with these rules, so talk to your HR team about what the specifics are at your company).  However, it’s harder to find new jobs in this economy.  For plans that use a vesting schedule, you often get a percentage at the end of your first year so even a short stretch can give your savings a boost.  If a few months stretches into a few years, you’re in the habit of saving as well as benefiting from more and more of your employer’s contributions.

What other questions do you have about 401k plans and matching?

Your Summer Vacation Budget – 6 Tips to Make the Most of It.

The summer vacation is a time-honored tradition for many families.  The summer Vacation Budget is a tougher subject.  We all look forward to a break and want to get the most out of our trip without breaking the bank.  Here are 6 tips to help you before, during, and after your vacation.

Anguilla Beach Panorama - Karen Boudreaux All Rights Reserved

1. Pay up front.   A study in the Journal of Consumer Research (April 2011 – Elizabeth Dunn, Daniel Gilbert & Timothy Wilson) shows that we are happier with purchases that we make up front, and then experience later.  If you can, pay for your hotel and other arrangements in advance (from your savings, not on credit!) and then go happily on your trip.  You’ll certainly have expenses while there, but having paid for the trip in advance keeps your account balances from taking a big hit all at once.

2.  Decide what’s important and spend your money on that. Our vacation budgets aren’t unlimited, so how can we make the most of our money?  Spend on what is most important to you.  If you’re a foodie, spend on dinners out and save on your hotel.  If walking around and taking pictures is important, spend on a hotel in a great neighborhood (and a great camera too), and save on meals out by going to the grocery story and making sandwiches in your room or otherwise eating cheaply.

While on your trip:

3. Don’t skip the extras.  It’s easy to think of what you’ve spent on the entire trip and stop yourself from spending another $10 or $20 on an experience. You’ll get more bang for your happiness buck if you make those small extra purchases. Plan and save for them in advance, but don’t skip those extras. Our Emotional Experiential Memory remembers these vacation expenses, often more fondly than everyday expenses.

4. Track what you’re spending.  Every penny. This isn’t to beat yourself up about your spending after the fact. Rather, it serves as a really effective trip journal (what was the name of that great restaurant?) and an important planning tool for your next trip. By getting a sense of how much you’re spending now, you’ll be better able to plan effectively for your next trips.

And when you get home:

5. Pay your travel bills off in full. Just like paying for experiences in advance, then enjoying them later boosts our happiness, having experiences and having to pay for them on our credit cards afterwards decreases our enjoyment. No matter how much fun that trip will be, you’ll beat yourself up about it if you’re stuck paying the bills on it for months afterwards.   Don’t let your summer vacation affect your fall household budget, pay for it now.

6. Go back through that trip journal, total everything up, and make some notes. You may not head back to the same place again, but your friends and family will. Having good notes to share (where to stay/not stay, eat, tips, etc) will make you a happy you wrote everything down. Revisiting those experiences while they’re fresh in your mind will help you cement those family memories for years to come as well. And, you’ll have a good idea of how much you (not some guideline) actually spends on vacation so you can plan and pay for (in advance) next summer’s trip.

Are there any tips you would add to my list of vacation budgeting ideas?

Emergency Fund – Is 3 Months of Expenses the Right Amount?

[This post is part of the Financial Rules of Thumb series.  Check out the rest here!]

I’m sure you’ve heard the term Emergency Fund in the financial media, but might not be certain what it means.  Here’s a quick definition, and then my take on the topic.

Definition: Emergency Fund – Money that you can get your hands on quickly in the event of an emergency.

The Upperline:  An Emergency Fund is one of the best things you can create, financially speaking.  It sets a solid financial foundation and protects you from using high-interest debt.  The question is, how much?

Your Emergency Fund can be in a savings account, money market, extra money in your checking account, whatever works for you. The important thing is that you have money available in case the transmission falls out of your car, the AC for your home goes out, or your home is temporarily damaged by a natural disaster. (But that probably won’t ever happen, right?)

If you don’t have money that you can access easily when bad things happen, you’ll have to

a) rely on friends/family/strangers


b) spend on credit cards or lines of credit.

If you’ve got these resources it’s not the end of the world if you rely on them in your time of need, but better for you if you can take care of the problem in advance by having sufficient cash. As I’ve said before, Cash is King not because it’s a great investment, but because it allows you to take advantage of opportunity or survive a small or large catastrophe.

“How much should I have in an emergency fund?”  That’s up to you. This has more to do with you and your comfort with risk than anything else. If you have a stable, steady income and prospects don’t seem to be changing, then 2 to 3 months of expenses might make sense. If you have an income that can fluctuate, own a business, or are generally more conservative, then having 6 months or more of expenses makes sense.

“It’s going to be hard to save that much money.”  Just because it’s hard doesn’t mean it isn’t the right thing to do.   Set aside what you can every month, and create a visual tracking aid (like the thermometer that United Way uses) to chart progress towards your goal.  Find a way to celebrate when you reach your goal.

If you don’t find a way to save small, regular amounts then you’ll never reach your goal without a big windfall of some kind.

But when that windfall comes, there’s another chance to do the right thing. Set aside some money for fun things, and use a big chunk to get closer to (or meet) your emergency fund goal.

With your emergency fund, you’ll have a resource that you can use, without high interest charges to pay for that new air conditioner.  Then, you can then repay yourself rather than your credit cards.

Buying vs Renting a Home? – Financial Rules of Thumb Series

[This post is part of the Financial Rules of Thumb series.  Check out the rest here!]

It’s not uncommon to hear statements like “Renting is throwing your money away” or “A home is your best investment” but are those statements true?  The decision of buying vs renting a home has many factors that should be explored.

The Upperline:  There are lots of reasons to rent rather than buy.  Buying can be a great deal, but only if you plan to stay in the home for quite a while.

Like most financial decisions, this one isn’t really about the money.  It’s more about personal preferences like:

  • How long do you plan to live in this home?  (If less than 5 years, it’s hard to overcome the initial costs of purchasing and early years of financing)
  • How do you feel about renting?  Do you feel like you’re wasting your money?  Do you feel like you need to be able to make permanent changes to the structure or yard?
  • How do you feel about borrowing a large sum of money?  How do you feel about debt in general?
  • Is stability, knowing that you’ll be in once place for a long stretch, important to you?

Now that you’ve checked in with your feelings, here’s a short list of factors you should weigh when considering buying vs renting a home:

  • Costs of buying and selling – There are several expenses that happen with most home sales and purchases.  There are Filing fees (with the banks and local governments), Real Estate Commissions, Title fees, Appraisal Fees, etc.  All of these costs take a bite out of the proceeds of the sale (or add on to the purchase price if you’re the buyer).
  • Financing costs – Most homes in the US are purchased with a traditional 30 year mortgage.  If we assume a $200,000 mortgage and a 5% interest rate, at the end of 5 years you would have paid just over $16,000 in principal and $48,000 in interest.
  • Taxes & Insurance – Typically, the cost of renting is lower than the cost of owning a similar home.  That’s partially due to insurance (renter’s insurance is less expensive than homeowner’s insurance) and property taxes.  Be sure you get a good estimate of the annual property tax bill you’ll need to pay in your new home, and account for that on a monthly basis.
  • Maintenance – This is the hidden cost of home ownership.  Cleaning the gutters, painting the house, and cutting the grass are just a few of the things you’re responsible for as a homeowner.  There’s a financial cost, as well as a time cost to taking care of these chores.
  • Lack of flexibility – This is another hidden cost of ownership.  Once you buy, you’re locked in, and your money is locked in.  Banks are requiring higher down payments than in recent years (which is probably a good thing) but that also means you’ll have to save a healthy sum, and then see that money get swapped for equity in your home limiting your access to it.

Home ownership can still be a great deal, but the math isn’t as clear these days as it has been in the past.  Be sure to have some good conversations about what your home means to you, run the numbers, and make the best decision you can.

I hope this is helpful!  Please let me know if you have any follow-up questions or tips for things I left out in the comments below.

Upperline Financial Planning – News for June 2011

June 2011 was  big month for Upperline!  I was featured in the Wall Street Journal, Journal of Financial Planning, and Financial Planning Magazine, among other places.  We had our strongest month in terms of new clients, and continued providing what I hope is useful content here, including the launch of our first series exploring Financial Rules of Thumb.
Upperline Financial Planning - Words Written June 2011

Upperline Financial Planning - Words in Blog Posts June 2011

Most Viewed Posts for June 2011

  1. Creating a Digital Trust Fund for your Child
  2. Joyful – A Father’s Day Reflection
  3. Financial Rules of Thumb – a Financial Planner’s Perspective – Series
  4. Upperline Financial Planning – Big News Week
  5. How Entrepreneurs can Actually Take a Vacation
  6. Why You Should Work with a Small Financial Planning Firm
  7. 6 Books for Recent College Graduates
  8. Five Years From Now, Five Years Ago. What Advice Would You Give Yourself?
  9. A Difference Between and Employee and an Entrepreneur
  10. 7 Financial Tips for Newlyweds

Financial Rules of Thumb – A Planner’s Perspective

Financial rules of thumb.  We all know several, and have based our decisions off of them for most of our financial lives.  But how much truth is behind the common wisdom?

This post will serve as a table of contents for this series as I write and publish the content for you.  View the list below, and please suggest other rules of thumb in the comments that you’d like to see addressed.  I’ll link each new post back to this one and write one post per week until the series is complete.  If you want to be sure you get all of them, please subscribe to my blog and you can get them as they’re published either by email or in your RSS reader.

One last note – I don’t agree with some most of these the way they’re written.  The problem with general advice is that as my friend Tim Maruer likes to say, “Personal finance is more personal than finance.”



Home Ownership



  • “Life insurance should equal 5 times your income (or 8 or 12 times)”

What other Financial Rules of Thumb should I address?  Please let me know in the comments!

Joyful – a Father’s Day reflection

Father’s Day for me has been much more reflection than celebration.  It’s my first Father’s Day, and it’s been a great weekend.

We were out yesterday with our daughter Lucy, who has been my happy girl since the day she was born.  She loves seeing other people walking around, and loves to smile and wave at them.  She was being her usual self yesterday, when a kind woman remarked that she was so Joyful, and such a blessing.

I’ve been thinking of that word ever since.  Joyful is what Lucy is, and she’s made me more joyful as well.  I think that most of you know that I’m primarialy a stay-at-home dad, and working from home launching a new company while caring for your infant isn’t the optimal situation.  But the more I think about it, the less I think I could have gotten as far as I have without her.

It’s tough to launch a new company and a new idea.  For every thing that goes right, there are a few that don’t.  Lucy is my constant reminder of what is (and what isn’t) truly important.  I’ve never laughed more during the day than I have since she’s been around.  And I’ve never been as thankful for her mother as I have since she nurtured and brought Lucy into our world.  Joyful is what she has made us.

For you fathers, I’ll leave you with a reflection that John Warnick posted on his wonderful blog earlier this week.

Did you grow up with the tradition of a visit from the tooth fairy every time you lost a tooth?  Remember the excitement you felt when you woke up and discovered the Tooth Fairy had brought you a shiny Silver Dollar or a treat.

What if you write notes from your heart to each of your children, and place them under their pillows after they have gone to sleep the night before Father’s Day.  When they proudly give you your Father’s Day present, you can surprise them by telling them there is something lying under their pillow.  Make sure you preserve a copy of your note.  Someday your child will be extremely happy you remembered them on Father’s Day and you preserved that special note for them to share with their family.

So my wish to all of you, is to have a Joyful Father’s Day, and to celebrate that bond you have with your children and your father.   I have to go and work on my Father’s Day note to Lucy.

Upperline Financial Planning – Big News Week!

As a small business owner, you work to generate good press for your firm.  Sometimes it feels like those efforts are going nowhere.  Other times, you have a week of incredible results.  It’s been one of those incredible weeks.

I was featured on the Wall Street Journal’s Financial Adviser blog.  I still can’t believe it myself.  I’m also really proud of the points that I made in the interview, specifically about working with clients outside of the typical asset management arrangement.  It’s a really critical issue for young professional clients, and one that I’m proud to be on the leading edge of.

Yesterday, my latest issue of the Journal of Financial Planning arrived with my first article.  I was invited last year to start contributing as a regular columnist for the Money and Soul column and I’m really honored to be asked.  My article is about Succession Planning for Financial Planning Firms, which I believe is a critical issue as the industry matures.

On the same day, my interview in Financial Planning Magazine was published.  It covers many of the same topics mentioned in the Wall Street Journal article, but also a little more in depth about the reasons behind starting my own firm.  It’s really exciting to build a business based on your values, focused on expanding the access to Fee-Only Financial Planning beyond its traditional boundaries.

It’s a great honor to be in these publications at all, and just an amazing coincidence that it all happened at the same time.  Thanks to all of you who are out there reading and cheering us on as we try to show that a new model in financial planning can work!


A Difference Between an Employee and an Entrepreneur

I like to write at coffee shops.  Something about being out of my office allows me to focus on writing and not the many other things that are on my to-do list.

One of my favorites is connected to a hotel, and it has a large seating area that faces a row of floor to ceiling windows.  You can see the tourists walking around, and the cab stand where drivers wait to pick up fares. It’s a large hotel so there is a fairly steady flow of taxis and clients.

Many of the taxis are “company owned” meaning the driver is an employee.  These drivers pull up, come inside and order a coffee, and then stand outside with the other cab drivers waiting.

The other cabs are “driver owned”, where the driver is a contractor for the larger company.  They own their cab and are responsible for it entirely.  Their name is generally stenciled onto the passenger side of the cab, just above the front wheel.

Even if their name wasn’t on the side, you could probably tell the difference.  They park their cab, remove any trash left by previous passengers, wipe off the windows, the headlights, the grill, and the taillights.  Then, they will get a cup of coffee and talk to the other drivers.

This pattern continues over and over, no matter what day I am here.

There are lots of places you can work with a “company owned” advisor, but I hope you’ll chose to work with a “driver owned” advisor.  I think you’ll find that you’ll get where you want to go just as well with a “driver owned” company, but the experience of getting there will be more enjoyable.

Support an entrepreneur.  Buy Local.


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