I’m now 30 months into my new career, and I’m loving every single day.

As a lifelong learner, I find the nuanced topics of financial planning and investment management to be a limitless sandbox, or perhaps more like an underground cave system. Where’s the bottom?! Nobody knows!

Despite that complexity, my colleagues and I help clients with many common issues that are not the strict domain of experts. These are topics you don’t need CFPs, CPAs, or attorneys to help you with. And that fact – that even experts focus on getting the basics correct – is an important lesson.

Let’s dive into some examples.

Cash Flow Management

Cash flow management is the single biggest financial fundamental that most people overlook. I see examples of this daily, both good and bad.

I’ve seen people earning $600,000 and spending $625,000 yearly. They’re drowning (though usually unaware of it).

I’ve seen people earn $300,000 and spend $200,000, or earn $120,000 and spend $80,000. They are thriving. If you’re saving 20%+, you’re killing it. Great work.

Yes, it is so simple: Spend less than you earn and, ideally, measure it. Despite its simplicity, this idea is the foundation upon which the rest of our finances are built. Cash flow management is a vital part of every financial planning conversation.

Portfolio Complexity

Prospective clients or new clients typically prioritize portfolio reconstruction. I get to see the peculiar, the zany, the intriguing…somebody call P.T. Barnum!

The most common theme, though, is that many outside portfolios have come to me far more complex than they needed to be.

The most frequent complexity is to see 4 or 8 or 15 mutual funds in a single portfolio that are performing the same exact role. Who needs 15 mutual funds that are all 60% stocks, 40% bonds, and actively managed? The answer, of course, is nobody. But why, then? Why do investors get in this situation in the first place?

The reason is what I call “flavor of the month.”

With about 97% accuracy, I can tell these portfolios were built by a financial advisor who was financially incentivized to buy specific funds for their clients. The “mothership” will tell such advisors, “Our NBNHX mutual fund is undercapitalized. If you put your clients in NBNHX this quarter, we’ll double your commission on it.”

That’s a flavor of the month. Not for the client, mind you. But for the advisor. It’s a conflict of interest, for sure, but not all advisors are required to act as fiduciaries. We call on Uncle Charlie to remind us, “Show me the incentives, I’ll show you the outcomes.” Next thing you know, NBBHX has entered the portfolio.

The portfolio fills up with these various flavors of the month until – voila! – you have a Baskin Robbins. But despite the “flavors” having different ticker symbols, they all taste the same. Imagine if Baskin Robbins sold 31 flavors of vanilla! That’s what these portfolios look like. “Could I get a scoop of vanilla, a scoop of French Vanilla, and one of Vanilla Bean? Sprinkles? Never…”

Instead, we should make specific investment choices to answer specific portfolio problems—in layman’s terms, put the “right tools for the jobs” into your portfolio.

Each “job” might require its own specialty “tool.” We each have many tools in our garages and toolboxes. There’s nothing wrong with having multiple funds in a portfolio. But you don’t want or need redundant assets, just like a homeowner doesn’t need nine shovels. 

You should be able to point to each fund or asset in your portfolio and describe the unique reason it’s there or the specific portfolio problem the asset is solving.

It’s hard to find a picture that combines “ice cream” and “tools,” so I asked A.I. to help me out. I’ve seen plenty of weird A.I. images at this point, but it’s still disorienting to see such real-looking objects (that ice cream isn’t real?!) juxtaposed with a computer’s misguided interpretations (what kind of dental torture device is that in the lower right? and why do the screwdrivers all have wooden popsicle sticks?).

Too Much Cash 

Nobody should complain about 5% risk-free rates. However, cash is not a long-term Investing strategy. Risk-free rates cannot, and should not, outperform inflation over the long run. You need to take some risk.

While cash is an important buffer to ensure short-term liquidity and an emergency fund safety net, your long-term assets should be in a risk-bearing, higher-Growth asset class.

Stocks and bonds are wonderful.

Further reading: How Much Time Does It Take for Stocks to Outperform Bonds?

Goal Setting

Whether you realize it or not, your financial plan has specific branches and pitstops and end-points. My financial plan does too. But mine are much different than yours.

The reason is because each of those branches and pitstops and end-points are related to specific goals. My goals for my plan, your goals for your plan.

You don’t need a professional’s intervention to ask yourself, “What are our financial goals? What do we want life to look like, and by when, and how much might that particular life cost us?”

Consolidation

A common financial Stress I hear rhymes with, “We have Money all over the place. Too many accounts, too many statements, we need help!”

There’s not always a financial impact from consolidation (though sometimes it will save you annual or monthly account charges). But a significant mental burden lifts when you go from 24 disparate accounts down to 5.

Scary Stuff 

People out there have scary stuff in their financial lives. The more stones I overturn, the more interesting scenarios I find. Some examples include: 

• Keeping large amounts of credit card debt to “improve our credit scores.” Credit scores don’t work that way.
• Saving large sums ($25,000+ per year) while carrying huge credit card debt ($50,000+). Bad priorities. No investment is going to outperform paying down a 25% debt.
• Tapping into a 401(k) prematurely (though quite intentionally) without awareness of the extremely stiff penalty. There’s a 10% early withdrawal penalty plus your marginal Federal tax rate (22% to 37% for most of you) plus your marginal state tax rate (6-8% here in NY). For hire earners, it sums to north of 50%. That $50,000 withdrawal? You keep $24,000 of it. The rest goes to the IRS.
• Unrealistic spending plans. Both irrationally optimistic and irrationally pessimistic. Two families each want to spend $100,000 a year throughout their Retirement. The first family has a $500,000 nest egg, which works out to a 20% withdrawal rate. The 4% rule is squealing. The second family has $15 million, or a 0.67% withdrawal rate. They are crippled with Anxiety over running out of money. Neither family is living in reality.
• No communication. Family finances are a deeply personal topic. There are many ways to skin the cat. But there aren’t infinite ways to skin a cat. Some methods are plain stupid. It shouldn’t take a meeting with a CFP for one spouse to tell the other spouse they still have $120,000 of student loans. Communication, communication, communication.

Ok, you spelunkers. It’s fun to dive deep into the financial planning cave, where the Social Security salamanders and the Roth conversion crayfish lurk. But the professionals care deeply about the “surface-level” stuff too, and it’s perhaps more important to get those simple ideas right.

Thank you for reading! If you enjoyed this article, join 8000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.

-Jesse

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Jesse Cramer Writer & Financial Planner

Jesse Cramer is the writer of The Best Interest blog, the voice behind The Best Interest Podcast, and works full-time as a fiduciary financial planner for Cobblestone Capital Advisors in Rochester, NY.