J Scott Foster CFP RICP Pacific Advisors

10/14/2024

Life is filled with unexpected twists and turns.

So how can you protect not only yourself, but those you care about?

First, remember that financially your life runs on cash flow.

Because of that permanent loss of income is your greatest financial threat.

There’s three ways this could happen:

- An injury or illness that permanently impairs your ability to make an income you’ve adjusted to.

- Dying.

- Retirement.

The last one you can calendar. The first two you want to always be prepared for.

If one of those two happened, how would it impact your family?

When you have loved ones dependent on you for their wellbeing it might leave you a little frightened.

Will they be okay?

Because we care about our loved ones, most families buy some form of life insurance.

We want our family to be safe, even if the worst happens.

There’s much discussion around the type of insurance you should own. Term or some form of permanent insurance.

Before you decide what kind of insurance though the first question should be how much.

The priority should be making sure your family is safe in the event of the unthinkable.

Unfortunately, there’s often a struggle between wanting to care for your family if you die and having money to spend with your family if you don’t.

With that kind of thinking, you might try to figure out what’s the least amount you “need” to spend to keep them safe.

If that’s how you view all life insurance, you could be placing yourself and your family in unnecessary financial danger.

“Need” is a dangerous word in finance, because it’s impossible to figure out.

So, take “need” out of the equation and focus on the best possible outcome.

Here’s something to think about instead.

If your house was to burn down, would you want the insurance company to pay for what was lost? Or pay you less?

What would be lost if you were to die?

That is incalculable.

But your death would mean your cashflow would stop.

Life insurance companies calculate how much your lifetime earnings are likely to be worth.

That gives them the amount of life insurance coverage that you qualify for.

When it comes to your life would you want the insurance company to pay for what was lost (i.e. your lifetime earnings)?

Or pay less?

Would you like to review how much of your lifetime earnings are fully insured today? Send me a direct message for an appraisal.

10/11/2024

Ideally, you’ve laid the foundation of protecting your cashflow.

You’re an elite saver.

You’re protecting your cash flow from devastating threats.

You have a well-stocked emergency fund that is quickly accessible.

And you are reducing any unnecessary debts and expenses.

Now you might be contemplating where to put that money.

If you’re planning on starting a family, one of the first places you might be looking at is a home.

Real estate can be a valuable asset.

Saving money in a high yield savings account has its perks. There’s no market risk that could lead to potential major losses. It’s highly liquid, so you don’t have to worry about selling anything to access its value.

But it has downsides too. Savings accounts generally have lower long term returns. And the returns are usually taxable.

Downsides that real estate can balance out nicely.

Property tends to appreciate in value, but this typically just keeps the value a little ahead of the curve of inflation. And the appreciation is on the entire value of the property, not just your equity.

Mortgage interest and property taxes can also be used for tax deductions, meaning it’s more tax favored.

And if the property isn’t being used by you personally it can generate an income through rents.

But all these benefits need to work together both strategically and synergistically.

Here’s some keys to keep in mind.

First, real estate is a big investment. You don’t want to cripple your cashflow for a new house. The goal should be a mortgage payment no greater than 15% of your monthly gross income.

Second, it’s also illiquid. Imagine you suddenly need access to your money and most of it is locked up in a house. You can’t say I’ll sell one of the bathrooms but keep two bedrooms and the living room. You have to sell the whole thing.

Third, it’s subject to market volatility. If that sudden need for liquid cash comes at a bad time in the real estate market, you might have to sell it for much less than it’s actually worth. Potentially less than you even spent on it.

And if it’s an investment property you have property management issues to care for.

This isn’t meant to scare you from buying a home, but instead to empower you by keeping you informed.

Taking on such a heavy investment when you aren’t ready can lead to a lot of headaches. Be sure you’re able to continue the foundational principles of optimal protection, savings and liquidity.

With great power comes great responsibility. Be sure you’re taking it on wisely.

10/07/2024

How do you pack your clothes for vacation?

If you’re a traveler like me, you know how annoying it is when you forget something. Especially when the thing you forget is critical to you enjoying the trip – a sweater to keep you warm, swimsuits for the ocean, etc.

As a kid, your parents did it for you. But as you grew up, you needed to care for your own bag. Otherwise you’d start every vacation anxious, unprepared, unable to enjoy the experience.

The same principle applies to your very first financial transition – going from being provided for to being self-sufficient.

Growing up, you didn’t have to think about things like whether the car was insured, how much money to set aside for bills, what you would do in a crisis, etc. Now you have to. And you may feel a little constrained and anxious about it. Your income as a young adult may not feel robust enough to do all the things you want or care for all the matters that need your attention.

There’s a key order of operations that every financially independent person must have in place. Practices and procedures that ensure you can start your money journey and safeguard your lifetime wealth opportunity.

Here’s what I recommend for your “financial packing,” from most important on down:

SAVINGS: Are you consistently setting aside at least 20% of your income every month? Without a consistent mechanism that captures your earnings and prevents frivolous spending, your wealth opportunity will drain away rapidly.

PROTECTION: Do you have protection mechanisms in place that can restore or replace your cash flow? Some things can’t be defended against by your cash alone. Invest in a stronger shield that someone else can deploy for you during disasters.

LIQUIDITY: Have you built a reserve of liquid cash equal to one year’s salary? The deeper your pool is filled with water, the more confident you will be jumping in and playing around.

DEBT: Work to reduce debt and increase the efficiency of your expenditures. The more you plug the leaks that your money gets siphoned off to, the more you can put it to work somewhere else.

Order is important here. Without an effective savings system, your liquidity will never build up enough to cushion you. Without protection measures, your cash flow could be significantly hampered by a single calamity. And without enough liquidity, your efforts to reduce debt may not make enough of a dent.

With a well-packed suitcase, gas in the car, and a solid plan, you are ideally positioned to start your journey and enjoy all the places you’ll go along the way.

Want to learn how you can build powerful financial practices for your journey through life? Watch our whiteboard series on the “Ten Principles of Optimal Financial Wellness” below!

10/04/2024

Q3 saw a Fed-fueled rally, but what's next? Our Quarterly Market Insights for October explores the latest economic indicators and what investors may be talking about in Q4.

Investors welcomed the Fed’s decision regarding short-term interest rates, causing stocks to post solid gains in the third quarter.

10/02/2024

What comes to your mind when you hear the word “craft”?

I think of personal attention and care. Precision and meticulous detail. A work of art where its creator puts a part of themselves into their work.

What would it mean to you if your life was that crafted work of art?

Unfortunately, that can feel like an uphill battle. Our lives are always in flux.

“Life moves pretty fast. If you don't stop and look around once in a while, you could miss it.”

For something so precious to fall through your fingers is unconscionable.

This month we’ll be looking at the unique financial personality of each chapter of life, beginning to end.

By the end of the month, you’ll see how your money can help craft the life you want to live.

Chances are you aren’t living in just one chapter. And your money should only be a tool for the more important things.

It’s my hope that the upcoming emails will help clarify your dreams, stabilize your footing, and empower you to act so that your life can be that work of art!

09/27/2024

How safe would a world without unpredictability be?

Do you know what the safest car in the world is?

How about the safest way to travel?

Racecars are equipped with roll cages, harnesses, fire suppression systems, and neck support devices.

In fact, some safety features we enjoy in our cars today are all because of the innovations of racecars from the past. The next time you use your rearview mirror or slam on your disk brakes, you can thank a racecar designer.

For all the safety features cars have though, statistically you’re safer flying than driving.

Why are racecars and airplanes inherently safer than your ordinary car?

One reason is unpredictability.

The designers wanted to push what's possible.

Doing that would mean taking on new unexpected risks.

They didn't just design with speed in mind.

They scientifically took into account the risks they were aware of and crafted these amazing machines to withstand the pressure.

They didn’t want to be held back by what they knew was possible. They wanted to see what was actually possible.

Financially, you can pretend the dangers don’t exist.

“You don’t know what’ll happen, so why bother protecting against it.”

Or you can acknowledge the possible dangers and design a financial system around them.

You can scientifically design your personal financial system both for speed and safety.

And then explore just how far that system can take you. Even beyond what you dreamed could happen.

Without some unpredictability your world would be fragile and constrained, focused just on getting by instead of exploring the wonders beyond the horizon.

Risk is a part of life.

Embracing it doesn’t bring success but ignoring it will bring disaster.

The better you fortify against it the more thrilling opportunities you can explore!

What exciting unknowns would you love to discover in your financial journey?

09/20/2024

When it comes to financial damage there are three areas it can hurt us.

-It can hurt our present, destroying our foundation.

-It can hurt our future, destroying our opportunities.

-It can hurt our legacy, destroying our impact.

None are pretty but learning what to prioritize is key. Especially because certain products protect different areas.

Let’s look at an example.

As of June 2022, here in California any business with more than 5 employees has to provide a qualified retirement plan.

Preparing for retirement is never a bad thing.

I like to say, “Every financial decision you make is a retirement decision.”

CalSavers means you’re better prepared for an unpredictable future... but what if something happens right now?

Nobody expects a car accident, a major illness, or even a basketball injury.

But unexpected health problems can leave you not only hurting physically, but financially as well.

You can’t write the hospital an IOU payable when your retirement plan starts kicking in.

And depending on the severity of the problem you might not be able to work for some time.

The key here is that while protecting your future is good, protecting your present is VITAL.

With an unstable present, there’s no guarantee you’ll get to your future.

Make sure your income can be replaced for as long as possible in the event of disaster.

Make sure you have a steadily growing reservoir of funds always at the ready.

Make sure you know the purpose of every dollar you’re spending.

Easier said than done? Absolutely.

Can it make the difference? Without a doubt.

09/18/2024

Have you heard of Black Swan events?

How about Gray Swan events?

Both can hurt you irrecoverably. And both will come out of nowhere.

They’re like the knockout punch in a boxing match – fast, shocking, and with the power to end you.

Let me explain the difference.

A Black Swan event is a rare, devastating financial event that cannot be anticipated by anyone or anything. COVID19, 9/11, the Great Depression were all major crises that shook the world and destroyed people economically. No one could ever know that those events would happen.

A Gray Swan event is similar, except for one thing – you can anticipate them to a greater degree.

A universal example of a Gray Swan event is knowing at some point you’re going to die. That’s an undeniable fact. You may not know how, when, where, or why, but you do know it can and will happen.

In both cases, the danger is great enough that it could end your financial world. And you won’t know when it will happen.

So how do you protect yourself against such threats that are so unknowable and overwhelming?

There are two ways: powerful defense and optionality.

Because Gray Swan events can, to a degree, be anticipated, you can measure how severe the risk is and build a wall of financial protection. Knowing that you’re going to die at some point in the future means you can structure insurance measures that secure your family’s cash flow. Whatever the scale of the threat, your protection must exceed it to endure.

09/18/2024

Have you heard of Black Swan events?

How about Gray Swan events?

Both are going to hurt you. And both will come out of nowhere.

They’re like the knockout punch in a boxing match – fast, shocking, and with the power to end you.

Let me explain the difference.

A Black Swan event is a rare, devastating financial event that cannot be anticipated by anyone or anything. COVID19, 9/11, the Great Depression were all major crises that shook the world and destroyed people economically. No one could ever know that those events would happen.

A Gray Swan event is similar, except for one thing – you can anticipate them to a greater degree.

A universal example of a Gray Swan event is knowing at some point you’re going to die. That’s an undeniable fact. You may not know how, when, where, or why, but you do know it can and will happen.

In both cases, the danger is great enough that it could end your financial world. And you won’t know when it will happen.

So how do you protect yourself against such threats that are so unknowable and overwhelming?

There are two ways: powerful defense and optionality.

Because Gray Swan events can, to a degree, be anticipated, you can measure how severe the risk is and build a wall of financial protection. Knowing that you’re going to die at some point in the future means you can structure insurance measures that secure your family’s cash flow. Whatever the scale of the threat, your protection must exceed it to endure.

Black Swan events need a different tactic. Since you can’t anticipate them, your only option is to respond when they occur. That requires flexibility. Just like a boxer needs good footwork to dodge a knockout punch, your financial resources need to be positioned ideally to give you the highest degree of optionality. The stronger your positioning, the more ideally you can navigate whatever crisis life throws your way.

Want more help preparing for the Black/Gray Swan events of the future? Click the link below to schedule a complimentary consultation.

09/16/2024

Imagine you’re in an arena with a martial artist.

Where is he going to punch next?

Will he go for a jab to the face?

A rabbit punch to the gut?

A kick to the legs?

To the audience watching the fight, his moves might look like they’re coming out of nowhere with blinding speed.

But a trained fighter can tell.

A twitch in the shoulder, a quick glance, a slight shift in his stance can signal where the punch will land.

With enough training and observation, you can begin to reasonably anticipate how your opponent tends to fight and defend yourself.

How does this apply financially?

Unpredictability is, by its definition, unpredictable. Which means you can never fully know how it's going to strike.

But you can, over time, identify common avenues it can hurt you.

Financial unpredictability typically hurts us in three ways:

By stealing accumulated wealth rapidly

By confusing us into making bad decisions

By impairing our cash flow

Which of the three do you feel the most vulnerable?

That’s the area to fortify.

By identifying your greatest vulnerabilities, you minimize the shock and surprise. You can spot little warning signs of something bad coming your way and make moves to avoid it or reduce it. And you can build barriers that block these common avenues, allowing you to pay more attention to dealing with the unexpected.

You can’t anticipate every punch. But the better you recognize where you’re more likely to be hit, the longer you’ll stay in the fight.

What do you think are some common ways that unpredictability strikes? Leave a comment below!

09/13/2024

The financial world is a strangely interconnected web.

Sometimes we can get so caught up in what isn’t working that we don’t notice what is.

Take your mortgage. You’ll probably hear a lot of people complaining about how much the rates have gone up, even up to 7%.

Not fun.

But now look at your savings account, or even a CD.

A high-yield savings account may be providing as much as 4.5% interest.

You’re probably happy about that. Especially since in 2020 you were happy if you were earning even 1%.

Back then, chances were your mortgage might have been under 3%.

These numbers don’t move at identical rates, but they do show a connection.

When interest rates go up, mortgage rates will likely go up. When mortgage rates go down, interest rates go down.

We may have been complaining about how pitiful interest our bank accounts were getting and ignoring just how remarkable those mortgage rates were.

Or we might be distracted by something that seems to be outperforming us.

A TRULY well-diversified portfolio is always going to underperform whatever is its highest performing asset.

That doesn’t mean it isn’t the most balanced and prudent choice.

Someone who puts all their money on 30 red on the roulette wheel and wins is going to make a lot more money in one go. That doesn’t mean it was the smart choice.

And it doesn’t mean it’s going to last.

We might think these tricks are obvious.

That we’d never fall for them.

But when we’re in the heat of the moment, that can all change.

Maybe you feel like you're on a winning streak or you see someone else winning big and wonder if you're missing out.

We have a tool designed to cool panic and anxiety, so you can make smarter decisions. Just comment “ANXIETYEXTINGUISHER” to get exclusive access.

Unpredictability will mess with your head. But only if you let it.

09/09/2024

Jackpot!

Flashing lights, bells and beeps, cheering and shouting, cash flooding out of the slot machine into the lap of a lucky winner

The casino takes their picture and parades it around, saying “Look how much money we gave this man!”

Someone’s won alright. They win every night, without fail.

Danny Ocean said it best in Ocean’s Eleven: the house always wins. Even when you win, every dime you dropped into the machine or put on black went into the casino’s pocket.

And casinos love big winners. Big winners mean more customers. More customers mean a lot more opportunities to lose. And that means more money for the casino.

When they take that photo, what they’re really saying is “Look how much money this man is making us!”

On the other hand, the player feels smart: he beat the house, he beat the odds, he came out on top.

Now everyone wants to know his secret. Everyone wants to know how he did it.

The market, and really the financial world, is not unlike that casino.

The house is the market. If you were to look at the market as a whole, you’d see that it’s been growing steadily over the years.

But the question is - when, where, and by how much?

If a thousand people each flipped a coin ten times, chances are around five hundred are going to land heads.

But there’s over a .01% chance that one individual is going to flip heads ten times in a row. About one in a thousand people. So one person in that group of one thousand people is feeling really good about themself.

Does that mean that he has a better chance of getting heads if he were to flip it an eleventh time?

That’s what the house would like you to think. And they're probably willing to take that bet.

They love to celebrate their winners. And the winners love to share their advice.

- A portfolio has a really good year, and suddenly everyone wants to invest in it.
- Someone times the market JUST right to win big. Do exactly what they did, and you’ll win big too!
- A mutual fund has a solid 10-year streak. Surely the fund managers will keep that streak going another decade.

Look at most financial magazines and news programs. Who do they interview? The winners.

Do you notice how often and in how many ways they ask the winners to predict the future?

Your odds of good, actionable advice from those guys are worse than a coin flip.