Pascal’s Wager: The 0.1 Percent Risk

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

Playing Russian roulette with a thousand-chamber gun might not seem so risky, until you consider the consequence of that 0.1 percent risk.

I’ve been working with Linda, my client, for the last hour entering data into MoneyGuide, our planning program. We’re now discussing the plan’s time horizon—how long her nest egg needs to last so she can keep groceries on the table.

“Linda,” I asked her, “one of the major guesses we need to make is how long you will need money.” (That’s my tactful way of asking what age she thinks she’ll die.)

Years ago, we used a standard actuarial table to estimate how long someone might live. Unfortunately, as a thoughtful friend pointed out, that means you’d have a 50 percent chance of outliving your nest egg, so today we use an age that, based on your current health, your family’s health history, and if you are or are not a smoker, represents a 30 percent chance of your reaching that age. (Chapter 15, Life Timing. What Lynn Hopewell Teach Us?”)

“Linda,” I continued, “based on your current health and your family health history, we should consider using age ninety-three for planning.”

“Harold, you must be kidding. I’ll never make it to ninety-three! Let’s use eighty-five.”

“Sounds like a nice number. How did you decide on eighty-five?”

“Well, actually no particular calculation. It just seems like a reasonable age to use and I want to be reasonable in my planning.”

“Tell me, Linda, are you familiar with Pascal’s wager?”

“Pascal’s what?”

“Pascal’s wager is a philosophical construct devised by the seventeenth-century mathematician, Blaise Pascal. Here’s my version: If you knew for certain there was only a 10 percent chance that God exists, you would have two ways to live your life: You could conclude the probability of God’s existence was so low you’d elect to ignore morals and ethics and live a totally outrageous life. If, when you died, it turned out that there really is no God, hence no consequences for your immoral life, you lucked out. Of course, if, when you died, you discovered God was not a myth and you found yourself chest high in fire and brimstone, where you’d be roasting for eternity, you might not be very pleased with your choice.

“On the other hand, suppose you decided that, even with the low odds, you would live a moral and ethical life. If, when you died, you discovered there is no God, you would still have lived a comfortable life. If there is a God and you’re rewarded in heaven for your exemplary life, you will have won the eternal lottery.”

“So, what’s this got to do with retirement planning?”

The answer is everything! All too often in planning, we get caught up with the power of probability. Live until ninety-three? Possible, but not likely, so I want to make plans based on living until age eighty-five. Based on probabilities, that’s not an unreasonable response. However, as Pascal taught us, that conclusion is missing an important half of the equation, namely, the consequences. Often the terrible negative consequence of coming out on the short side of the probability overwhelms the low probability.

Let’s suppose Linda does live only until age eighty-five. That means she can spend more between now and then because her money doesn’t have to last for another seven years. Good outcome.

Suppose she lives well beyond eighty-five. If we use eighty-five, as a planning age, that means by eighty-six, if her plan works out as expected, her nest egg will be approaching $0! The consequences of living another seven years supported solely by her Social Security income? That means reducing her standard of living by about two-thirds, which may not be on a par with fire and brimstone forever but it’s high on the quality-of-life disaster scale. The moral? Don’t just consider probabilities when planning—consider the consequences.

“Still want to plan only to eighty-five, Linda?”

This blog is a chapter from Harold Evensky’s “Hello Harold: A Veteran Financial Advisor Shares Stories to Help Make You Be a Better Investor”. Available for purchase on Amazon.

Navigating the Death of a Loved One

Josh Mungavin

Josh Mungavin CFP®,  Principal, Wealth Manager

Click Here to download a PDF of this check-list.

The death of a loved one can be devastating and emotionally overwhelming. Over the coming weeks and months, you will be faced with unfamiliar but important decisions. Employ the help of loved ones and trusted advisors to assist with these responsibilities. Please remember that many people, such as family, friends, and professional and spiritual advisors, are here to support you and allow you to focus on the most immediately important issue — the well-being of yourself and your family.

Unfortunately, you will almost certainly encounter financial or other decisions that require urgent attention. This guide will help you organize and prioritize matters that are in direct need of resolution and suspend those issues that can wait until you are personally better prepared to overcome challenges that now seems daunting. We want to encourage you to give this list to anyone it may be able to help. Please do not hesitate to reach out to Josh Mungavin and Evensky & Katz / Foldes Financial Wealth Management at (305) 448-8882 or, if you have any questions or if you have any suggested changes/additions to this document that you think may help improve navigating other families through this difficult time.

Within the First 48 Hours

  • Arrange care. Should the deceased have dependents, pets, or a need for security at his or her premises, establish who will tend to these responsibilities.


  • Keep records and notes. Keep a log with detailed notes of people you speak to, including their contact information and pertinent conversations regarding your loved one’s passing. This will help the process proceed smoothly and completely. Keep all receipts! You may also find it helpful to keep records of people who lend assistance or send gifts, flowers, cards, donations, or food to your home so you can thank these supporters at a later time.
    • You may find it helpful to keep all post-death matters in a dedicated account or find a way to separate these expenses in order to maintain organized records to settle the estate.


  • Provide notice. Those you wish to contact may include family, friends, employer, executor, powers of attorney, or religious advisors.
    • Lean on family during this time. Allow others to help you make the decisions that follow in the days and months to come; you do not have to take on all duties alone.


  • Locate documents.
    • The deceased’s attorney, CPA, or financial planner may be an invaluable resource in helping to locate documents such as deeds, titles, tax returns, will, and estate plan.
    • Remember to consider where the deceased typically kept important papers such as a safe-deposit box, file folder, or electronic storage device.
    • Other helpful or necessary documents are the birth and marriage certificates, military discharge papers, etc. Hopefully you can easily access an Emergency Binder that the deceased had compiled.


  • Refer to the deceased’s wishes. Consult any wishes the deceased may have provided for his or her passing such as organ donation, cremation, or location of burial, which you can also find in the documents section of his or her Emergency Binder.


  • Preparing for the remembrance. Depending on the detail of instruction left, the initial matters may be left to your discretion. These include:
    • Bereavement leave may be available from your employer. If so, notify your employer and arrange for care of children and pets in order to give yourself time to focus on the arrangements that need to be made.
    • Prepare and arrange for an obituary for those who would like to pay their last respects.
      • Depending on the known wishes of the deceased, you may indicate that donations to a specific charity can be made in lieu of flowers or other gifts.
    • If the deceased didn’t document his or her wishes for final resting, with the assistance of family and friends, contact funeral homes and plan final arrangements. Set up appointments to research various funeral home options to evaluate and compare services and costs.
      • Be aware that funeral homes can vary drastically in cost and funeral costs often are shockingly high. If you feel uncomfortable with a decision, do not feel rushed or pushed into deciding. Just sign nothing, walk away, and either ask for the assistance of a loved one or take time to think before deciding. It may help to ask around to see how other peoples’ experiences have been with specific funeral homes.
    • Check for potential VA burial benefits. Veterans may be eligible for funeral benefits that can drastically reduce cost, such as burial at a national cemetery or financial assistance toward burial elsewhere.
    • If your loved one was a veteran, please visit the website and follow the instructions provided. This website will go into further detail about the claim process. You will notice there are different burial compensations the surviving spouse, children, or executor may or may not be eligible for, so read carefully. The heirs will need to locate the veteran’s original or certified copy of the DD-214, Award Letter (list of service/nonservice connected disabilities), and username and password for eBenefits (applying through eBenefits is the most efficient way to file a claim), an original death certificate, and a funeral receipt that has the veteran’s name on it. If you cannot locate the eBenefits information or have any other questions, please contact your local VA Disabled American Veterans office (DAV) to help you file a burial claim.
      • Steps if you have the eBenefits information:
        • Visit the eBenefits homepage at and log in.
        • Click on Apply for Benefits.
        • Scroll to the bottom and open burial benefits to start the claim process.
        • NOTE: The burial compensation is a reimbursement and depending on if the circumstances of the death (service or nonservice-connected), the benefits will only cover a portion of the funeral expenses. The reimbursement process could take up to six months.


  • Be cautious of cost. Final resting arrangements can prove costly. Carry a note pad during this time to keep a current accounting of cost; many services will ask for a deposit in advance. If, at any time, you feel uncomfortable with deciding immediately, do not feel forced into any decisions, especially a potentially costly one; take your time and ask a trusted advisor for assistance.
    • PLEASE BE AWARE: When financial institutions obtain proof of death, in almost all cases, the institution will freeze the assets owned by the deceased, so plan accordingly.


  • Temporary death certificates. Official death certificates can take a few weeks or months to receive. Temporary certificates are sufficient to deal with many pressing matters. An official copy, however, will likely be required to process insurance claims. Ask the funeral director to assist you with this matter. The funeral home also has the ability to prepare and issue a statement of death; obtain at least ten of these as well.


Within the First Week

  • Household Matters.
    • All expenses such as mortgage, taxes, insurance, utilities, and maintenance must remain current if the deceased owns real estate. If no one is living in the house for the immediate future, it may be sensible to suspend unused services and utilities.
      • Should your family be faced with the decision to sell assets, you may choose to consult an attorney first.
    • Check the deceased’s mail for items that may require immediate attention.


  • Contact the Deceased’s Employer. Collect all belongings that may remain at the work place and inquire about outstanding wages and group insurance plans.
    • If the deceased was self-employed, locate related ownership documents and arrange for short-term business continuation. The deceased’s business partners or attorney may be able to help facilitate this transition.


  • Evaluate Contents of Safe-Deposit Box. Assets held in this fashion should be distributed to the intended beneficiary quickly, as the printed death notice will trigger a hold on the contents to be used to satisfy debts of the deceased’s estate. Should you not be an authorized key holder or you are unable to access the box, you may need to petition the court to issue an order to open the box if it contains important documents.
    • Although creditors of the deceased must be paid, do not pay for or sign anything without obtaining a professional opinion on the matter.


  • Take Care of Yourself. Don’t forget to take time for yourself. Find a way to rest; everyone must grieve in his or her own way and on his or her own time.


Within the First Month

  • Official Death Certificates. Order a minimum of ten — but as many as twenty is advisable — original certified copies of the deceased’s death certificate. You will be asked for an official death certificate in countless instances such as transferring bank accounts or safe-deposit boxes, transferring title to vehicles and real estate, claiming insurance proceeds, redeeming investable assets, and filing final tax returns. The funeral home can ensure the forms are filed with the state. Your state’s vital statistics office can help you obtain as many duplicates as needed, for a fee.


  • Submit the Will to Probate. An estate attorney can assist you with submitting the will to probate or state district court. Because probate is governed by state law, states vary on the permitted time period for filing, but often this must be done within thirty days following death.
    • If a will exists, identify the executor to distribute the property and assist with other instructions for the estate.
  • If the party died intestate (without a will), state law will often govern who can manage the distribution of the estate.
  • Probate does not encompass those assets that are owned by a trust, held as property of tenants-in-common, or pass by operation of law. Consult your attorney regarding assets not included in the probate process, but common examples are:
    • life insurance proceeds,
    • retirement accounts that have named beneficiaries, pension distributions, and unpaid wages,
    • trust-owned property,
    • assets specified as transfer-on-death (TOD) or payable-on-death (POD), or
    • property held in joint tenancy with right of survivorship, community property with right of survivorship, or tenants by the entirety with a spouse.


  • Life Insurance. Remember that proceeds from life insurance are probably not part of the probate process. Often, collecting death benefits can be as simple as completing the necessary claims forms and submitting them with an original or certified copy of the death certificate. Each company will have a slightly different process for claiming death benefits. Therefore, attached you will find a letter template that you can use to notify the insurance company of the death and request specific instructions on how to properly file the claim.
    • If you are unsure of a potential group policy provided by an employer, you may need to contact companies in the deceased’s employment history to inquire. Additionally, in the case of a group policy, you will find a sample letter attached to use for your convenience.
  • Medical Bills. If an ailment preceded the passing of your loved one, health insurance may cover part or all of the medical costs. Begin by contacting the business office at the hospital or clinic where he or she was treated and request outstanding balances. Then compare bank records and insurance to determine which have been reimbursed or paid. Reconciling all billing and payment information will help in completing the required claim documents.
  • Discontinue Amenities. Cancel those services that are no longer necessary or were only utilized by the deceased (e.g., cable and Internet service or gym, club, or fraternity memberships) while continuing certain services (e.g., electricity, water, or lawn service) that may be necessary to maintain his or her property.
  • Social Security. Contact the Social Security Administration at or 800.772.1213 to report the death and file for survivor benefits. Additional or different benefits may be available for the surviving spouse or minor children. You must, however, contact the Social Security office to request information as these benefits are not automatically issued. Be sure to have Social Security numbers on hand before calling and, should you qualify for benefits, it may be necessary to make an appointment to visit the Social Security office. Be sure to get explicit instructions on what you will need to bring with you to your appointment. The funeral director will often inform the Social Security office of your loved one’s passing as the Social Security Administration needs to know as soon as possible to ensure the relatives of the deceased receive all benefits to which they are entitled. Keep in mind that not all survivors are eligible for benefits, so do not accept benefits that you are not certain about after the death of your loved one.
  • Notify Financial and Lending Institutions. (The following will all likely require a death certificate and letters testamentary.)
    • Pension administrators; be sure to ask about specific survivor benefits of which you may not be aware.
    • Banks, savings, and investment institutions and custodians (notification needs to be provided for all joint and individually-owned accounts).
      • Be aware that the contents of these accounts may be frozen, so you should plan accordingly so as to avoid the need for such funds.
      • New accounts in the names of the heirs will likely be required.
    • Credit card companies
      • Occasionally credit cards offer accidental death insurance which will relieve any outstanding balance upon the cardholder’s death.
    • Mortgage or other debt obligations
      • Debts are now the responsibility of the estate and outstanding balances must be paid utilizing the assets of the estate. In the case of a married survivor, the debts often transfer to the surviving spouse, so consult an attorney with questions about potential creditor claims and protection.
    • If the deceased’s child is at a university, the school may be able to offer different financial aid options due to the change in circumstances.


Within the First Three Months

  • Notify credit bureaus, the Veterans’ Administration (if you have not done so already for burial benefits), and other government agencies for potential death benefits.
    • Credit bureaus: it is a good idea to request a copy of the descendant’s credit report and notify each entity of the individual’s passing. If the Social Security Administration has been notified of the passing, his or her Social Security number will be flagged to help prevent identity theft.
      • Equifax,
      • Experian, or
      • Trans Union
    • Cancel the deceased’s driver’s license.


  • File Final Tax Returns. An estate attorney or accountant can help you with filing the deceased’s final state and federal tax returns. Final tax returns are typically due within nine months of the date of death.
  • Evaluate Your Financial and Estate Situation. If not already resolved with the estate or probate proceedings, now is the time to approach potentially selling real or personal assets. Should you decide to keep real estate or other titled assets, you will need a death certificate to transfer the assets into the new owner’s name. This process may begin by evaluating and cataloging what the deceased owned.
    • For all assets that you will retain, such as real property, vehicles, or valuable personal property, you will need to transfer the insurance on those items to the new owner’s name. Occasionally, the insurance company will not allow changes to the owner of the policy but instead will require an entirely new policy.
      • The estate executor may need to catalog and appraise certain assets within ninety days of death to distribute on behalf of the estate.
    • Meet with your financial advisors and lawyers. Review all aspects of your own estate such as your estate plan, will, inheritance, financial needs, and investment options.
    • Try to organize your affairs to the best of your ability to help the next generation deal with your passing.
  • Send thank-you notes to those who have supported you since the loss of your loved one.


Other sources of helpful information include:

  1. County Clerk’s office for birth and marriage certificates
  2. National Personnel Record Center (for military discharge records)


  1. Department of Veterans’ Affairs


Feel free to contact Josh Mungavin CFP®, CRC® with any questions by phone 305.448.8882 ext. 219 or email:


Taxes: It Pays to Treat Them Right

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

I know how most people feel about taxes: don’t tax me, don’t tax thee, tax the man behind the tree. Unfortunately, ultimately we gotta pay. Everyone’s interested in minimizing the pain and that’s why I’m sitting here trying to put together a talk on tax planning for our local Rotary Club. It’s a great group of sophisticated professionals, and I don’t want to talk down to them, but I do want to provide some useful information.

Trying to balance those issues reminded me of a complaint one of my client’s accountant had about how we had selected some of his bond investments. I remembered that sophisticated doesn’t necessarily mean knowledgeable. So here’s what I came up with:

Don’t Let the Tax Tail Wag the Dog

The accountant’s complaint about our choice of bonds was a result of his focusing on the tax tail. Our client was in a moderately high tax bracket; however, we had his short-term, fixed-income investments in corporate bonds. “Move ’em to tax-free municipals” was the accountant’s advice. Well, it’s true, our clients would have paid less tax if we’d invested them in municipal bonds, but they would also have had a lower after-tax return. Why? At the time, taxable bonds were paying 5 percent and similar quality and maturity municipals were paying 3¼ percent. That meant our 30 percent marginal tax bracket client had a choice of earning 3¼ percent with no tax obligation or 5 percent with the obligation of paying 30 percent of his interest payments to Uncle Sam. Which would you choose? I hope the 5 percent.

Even if you peel off the 30 percent tax bite, that would leave 3½ percent in your pocket. It’s not rocket science to see that 3½ percent is better than 3¼ percent. The moral? When choosing between equivalent-quality taxable and tax-free investments, don’t worry about how much you’ll have to pay Uncle Sam (even if painful). Instead, keep your eye focused on how much you’ll have after paying taxes.

Turnover Doesn’t Tell All

It’s common for investors to use turnover as a measure of tax efficiency. Don’t do it. When you look at an investment’s turnover number, it’s natural to think it represents a pro-rata turnover of all the securities in the portfolio. For example, a 60 percent turnover would mean that 60 percent of the positions in the portfolio are sold in one year. Sound reasonable? As my brother, the economist, would say, au contraire. A 60 percent turnover doesn’t necessarily mean that 60 percent of the stocks have been traded. It might well mean 20 percent of the stocks have been traded three times. All of those trades may have been the sale of stocks with losses, not gains, so the manager not only generated no tax bite, he also realized losses that can shelter future gains.

And the Rest of the Story (the Most Important Part)

Taxes are a function of something called a holding period, not turnover. The holding period is the average number of years it would require to turn over all of the positions in the portfolio. To explain: let’s assume that the manager has a portfolio chock full of stocks with taxable gains and he is trading all of the stock in his portfolio pro rata. So a 20 percent portfolio turnover would mean one-fifth of the stocks would be sold each year, or 100 percent in five years. That means, on average, the manager holds stocks for two and a half years.

Obviously, a portfolio with a 90 percent turnover would realize pretty much all of the gains in the first year, which means lots of taxes; consequently, a 50 percent turnover sounds a lot better. But if you think about it, 50 percent means selling one-half this year and paying the taxes, and one-half next year with more taxes. The difference between paying all of the taxes in year one versus one-half of them in year one and one-half in year two is negligible. The graph below shows the relationship. Unless turnover is very low—less than 10–15 percent, there is no real tax efficiency.

The moral? Avoid the murky middle. A few years ago, my partner, Deena Katz, and I co-edited a book called the Investment Think Tank (Bloomberg Press). We invited several friends (practitioners and academics) to contribute chapters on subjects they believed were of vital importance for advisors.

Recognizing the importance of the holding period, Jean Brunel, managing principal of Brunel Associates, introduced the concept of the murky middle. He noted that the more active the manager, the more you’d expect him to add value. After all, why would you want to pay the trading cost and suffer the tax inefficiency of active trading if you weren’t rewarded with extra net returns? He also noted the reality of the elbow graph above: no matter the manager’s intention, as turnover increases a tax-efficient manager will be no more tax efficient than a tax-oblivious manager.

Brunel’s excellent advice is to avoid the murky middle—hire very low-turnover managers (indexes and ETFs) when you want to just capture market returns. Hire go-go, active managers with the funds you’re prepared to invest at higher risk to earn better-than-market returns. Stay away from those managers who, for marketing purposes, try to straddle the fence, going for both tax efficiency and extra return. They may have performance numbers that look good before taxes, but after taxes, the numbers don’t look so good. Here’s how Brunel depicts the murky middle:

I think my Rotary audience will like this talk. For more on the murky middle, check out Chapter 3, “Net, Net, Net: Expenses, Taxes, and Inflation Can Eat Your Nest Egg – What To Do?”

This blog is a chapter from Harold Evensky’s “Hello Harold: A Veteran Financial Advisor Shares Stories to Help Make You Be a Better Investor”. Available for purchase on Amazon.

Real Cash Flow: A Fix for the Fixed Income

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

Charlie Jacobs (CJ): Hello, Harold. May I call you Harold?

Harold Evensky: I guess it depends. Who are you and how did you end up in my office?

CJ: My name is Charlie Jacobs. I’m a wholesaler for the Special Income Portfolio.

HE: Charlie, I have to ask you this: how did you get past the receptionist? I don’t normally take cold meetings with mutual fund wholesalers or fund salespeople. I prefer to speak to them after I’ve done my own preliminary analysis.

CJ: Actually, I waited until your receptionist was distracted by another guest, and then I crawled along the floor until I reached the hallway and slipped past the doors of your other coworkers as soon as they turned their heads away from the door.

HE: That’s quite remarkable. All right, Ninja wholesaler, now that you’re here, have a seat. What can I do for you?

CJ: I’m here to convince you to recommend the Special Income Portfolio to all of your clients. I even brought some golf balls as a nice gift to get the conversation started.

HE: You can keep the golf balls. Just tell me the facts about your fund. This could turn into a very quick visit.

CJ: It’s an income fund. Some of your clients are retired, aren’t they?

HE: Yes, they are.

CJ: And they need income from their investments to supplement their pension and Social Security to support their lifestyle. By the way, if you don’t play golf, I brought candy. Or maybe you’re interested in one of these cute little jump drives with our company’s logo on it.

HE: My retired clients need cash flow from their investments to supplement their other income sources, and I don’t want or need candy or one of those jump drives.

CJ: Well, the Special Income Portfolio is carefully designed to give your clients exactly what they need in the form of dividends and interest. It’s invested in companies that pay high dividends and bonds that pay high income. I have a little form you can fill out so you can start moving your clients’ assets over right away—

HE: Hold on a minute. You just hit one of my hot buttons. Maybe you should sit back and relax. This could take longer than either of us expected.

CJ: What do you mean?

HE: I have to confess that I’ve got a lot of pet peeves about the kind of nonsense that gets foisted on the public as good investment advice. But one of my biggest is what I call the myth of dividends and interest.

CJ: I can assure you that our portfolio manager doesn’t invest in myths.

HE: What you’re saying probably sounds plausible to 99 percent of the investing public. Of course, many investors need cash flow from their portfolio. So you put the words income fund in the name of a mutual fund, and it sounds exactly like what people need.

CJ: It is what people need.

HE: I disagree. We plan for a lot more than a fixed income. We plan for a consistent real income.

CJ: I’m not sure I follow you.

HE: I’ll make it easy. Does the carton of milk you bought last week, your last doctor’s visit, or your last new car cost more than it did five, ten, or fifteen years ago?

CJ: Of course.

HE: And do you think all those things and everything else will cost more in the next twenty to thirty years?

CJ: Probably lots more.

HE: Today’s dollar isn’t what it used to be and tomorrow it won’t be worth what it is today. Do you agree? Don’t you think you and I and everyone else will need more of those greenbacks in the future just to hold our own?

CJ: Yes, I suppose we will.

HE: How long have you been doing this work as a wholesaler?

CJ: Oh, I have weeks of experience. I know my way around, let me assure you.

HE: Somewhere in your sales training, you heard that professionals use the term real dollars to mean an amount of money that will buy the same goods and services (milk, doctor’s visits, and cars) in the future as it will today. A real dollar means the same purchasing power going forward.

CJ: I think I have that somewhere in my notes, yes. But I think you’re missing the point. When someone retires, he or she needs a fixed income.

HE: What horsepucky!

CJ: Excuse me?

HE: Dangerous advice like that really infuriates me. If people plan a retirement based on a fixed income, they had better be planning on changing their diet from steaks to cat food throughout the balance of their lifetime. What retirees need is an income that will increase every year by the inflation rate. Other than winning the lottery, that’s the only way people can maintain their standard of living.

CJ: We also have a lottery fund that invests in a diversified portfolio of state lottery tickets that I could show you—

HE: Let’s go back to deciding what kind of investments my clients need to make in order to supplement their pension and Social Security income. Suppose they buy into this myth you’re selling and construct an “income” portfolio.

CJ: Great idea! That’s exactly the fund I want to talk to you about.

HE: Now they have a portfolio bond/stock allocation that is largely fixed by design—inappropriate design. In almost all cases, it will cause an inferior portfolio for two reasons: Not only will the portfolio not allow them to accomplish their goals in real dollars, but it will also be inefficient.

CJ: Okay, I understand that you have objections.

HE: What do you mean?

CJ: The sales training said that I should overcome your objections, and the first step is to get your objections out in the open. So tell me your objections.

HE: With pleasure. In fact, I’ll draw you a picture. Here’s an example I use when discussing this issue with my clients. Consider a simple world in which you have only three investment choices—a money market, Bond Fund A, and Stock Fund B. In this world, the investments will provide exactly the returns I’m writing down in this simple table:

Does that look right?

CJ: It could be.

HE: Now suppose you’ve saved $200,000 for retirement and you need $14,000 a year from your savings to add to your Social Security and pension income. If you planned to get your needed $14,000 cash flow from dividends and interest, you would have to invest 100 percent in the Bond Fund. The reason is because, as you can see from this table I’m now drawing, the cash flow from Stock Fund B’s dividend payments is so low, any amount invested in stocks would drop your cash flow to an amount less than the $14,000 you need.


Bond A Cash Flow Stock B Cash Flow

Allocation from Bond Allocation from Stock Total Cash Flow

90 percent $12,600 10 percent $ 600    $13,200

50 percent $7,000   50 percent $3,000  $10,000

40 percent $5,600   60 percent $3,600  $9,200

CJ: Doesn’t that make my point?

HE: No. Because if you look at the future, then the purchasing power of that $14,000 starts to decline. Let’s say you’re retired, and I recommend the all Bond Fund. You might feel good today receiving the $14,000 you need; however, how would you feel ten years later if inflation had been 3 percent and your $14,000 only bought $10,417 worth of stuff?

CJ: I’d be calling my attorney to see if I had grounds for a lawsuit against you.

HE: And what happens twenty years later, when your diet has switched from steak to cat food, because that’s all you can afford?

CJ: I don’t like where this is going.

HE: I don’t want to give my clients fixed income when they need real income from a long-term portfolio that has an allocation to investments that are likely to rise in value and provide protection against inflation. In other words, I don’t want to guarantee that my clients will suffer losses in real-dollar terms. And that’s what you’re offering me.

CJ: Is that your objection?

HE: My objection is that investors do not need dividends or interest—they need real cash flow. So they shouldn’t fall for this myth that you’re selling about dividends and interest. Now you can feel free to overcome my objections, if you want. And please put those golf balls away.

CJ: Actually, I was wondering if I should move my money out of the fund.

HE: If you’re planning to live more than a couple of years, you might think about it.

CJ: Thanks, Harold. Thanks for the advice. Are you sure you don’t want one of these jump drives?

This blog is a chapter from Harold Evensky’s “Hello Harold: A Veteran Financial Advisor Shares Stories to Help Make You Be a Better Investor”. Available for purchase on Amazon.



Pay Taxes Now or Later? Traditional 401k vs. Roth 401k

Katherine Sojo

Katherine Sojo, CFP® Financial Advisor

If your employer offers you a traditional 401k and a Roth 401k, you might find yourself wondering what the difference is and why it matters. Traditional and Roth 401ks have several similarities such as that they are only offered by employers, the contribution limits are the same ($18,000 for 2017 plus $6,000 if you are over the age of 50), and the employer match is always pretax regardless of which option you choose. The biggest difference between a Traditional 401k and a Roth 401k is the timing of payment of taxes. In a Traditional 401k, your contribution is termed as pre-tax dollars; you receive an upfront tax break, reduce your taxable income, and pay the taxes when you take the funds out during retirement. The money withdrawn at retirement from a Traditional 401k is taxed as ordinary income using your tax rate at that time. A contribution to a Roth 401k is termed as after-tax dollars; this means you pay taxes on the contribution now, at your current tax rate, and therefore during retirement you withdraw the money and the earnings tax-free.

How do I decide? Ask yourself the following questions:

  1. Do I want to pay taxes now or later? What is my tax rate differential? If you believe you are in a lower tax bracket today and will be in a higher tax bracket during retirement, then paying the taxes now by funding a Roth 401k is a good option. If you believe you are in a higher tax bracket today and will be in a lower tax bracket during retirement, then funding a Traditional 401k and paying the taxes later is a good option.
  2. Can you afford to pay the taxes now? Knowing what the actual tax dollar benefit of a pre-tax or after-tax contribution means for your pocket is also a deciding factor (your tax advisor can help with this calculation). If you pay the tax now (Roth 401k), then your paycheck will decrease; therefore, you will have less money to cover expenses and/or less money for additional outside savings. A traditional 401k provides for a current tax deduction that results in some extra cash in your pocket now.
  3. Do you distrust future tax regulations? Do you believe taxes will increase in the future? If so, then taking advantage of a lower tax bracket now will signify contributing to a Roth 401k. Do you believe taxes will decrease in the future? If so, then hold off on paying taxes on the contribution until retirement and utilize a Traditional 401k.

There is also an argument for using a combination of both a traditional 401k and a Roth 401k to diversify your tax exposure. A combination of the two can provide some upfront tax benefit and also some protection on any tax rate changes in the future. It is not a simple decision, but truly thinking about your answers to the questions above can help you make the best decision possible for your retirement planning.

Feel free to contact Katherine Sojo, CFP® with any questions by phone 305.448.8882 ext. 243 or email:

Advisors: Who’s Who Anyway?

HRE PR Pic 2013

If you decide you’d like to get some professional advice, it would probably be nice to have some idea where to begin.


John Smith (JS): Hello, Harold.

Harold Evensky (HE): Hi, and who am I speaking with?

JS: I’m John Smith, a reporter with the Florida Times Journal Gazette. I need a sentence or two on who provides investment advice to consumers.

HE: A sentence or two? This is a pretty big topic. It’s often confusing even to us professionals.

JS: Maybe you can give me the gist of it.

HE: Well, I guess we could start with professionals known as money managers. They’re the people who know all about picking stocks and bonds. They may not know what kinds of stocks or bonds you should be buying or even if you should be invested in stocks or bonds at all, but if you need to make those investments, money managers are the experts to hire.

JS: Okay. Where would you go to find these people?

HE: For most investors, the best place to find an experienced money manager is a mutual fund.

JS: A what?

HE: If you’re a financial reporter, you must have heard of them. They’re portfolios of stocks or bonds or international stocks or sometimes other assets, sometimes in combination, managed by some of the world’s best money managers. They might not know a thing about you, the actual investor, but the better ones sure know about their portfolio.

JS: Okay, so I hire one of those—

HE: You don’t want just one. You need to diversify sectors and styles. The good news is you can hire lots of these managers, each one a specialist in a different area of the economy: one for big U.S. companies, another to pick stocks in small U.S. companies, a third to find you the best foreign stocks, and then others who specialize in government bonds, or municipal bonds, or different flavors of corporate bonds. When you check out those managers, keep an eye out for a CFA designation. That stands for Chartered Financial Analyst and is an internationally respected credential for money managers.

JS: I see. Okay. I want to thank you—

HE: Wait. That’s only one of many types of professionals you may need.

JS: What else could I want?

HE: Knowing how to pick stocks and bonds is terrific, but for individuals the most important question is how you decide how much to invest in stocks versus bonds.

JS: The money manager won’t help me with that?

HE: That’s the job of the expert known as the financial planner. That’s a professional who is educated and experienced in helping individuals—such as your readers—make good financial decisions.

JS: Let me write this down. This is good stuff. So how does this financial planner decide if I should be in whatever those international or small things were?

HE: Financial planners follow a six-step process to help advice their clients. A credentialing body called the CFP Board of Standards—which I chaired some years back—defines this process. Basically it means that the financial planner gathers your personal and financial data, helps you define your goals, and analyzes where you are today financially. Only then will this person make recommendations and give you alternatives. When do you want to retire? What kind of lifestyle do you want to be able to afford when you do?

JS: And then I hire the money manager?

HE: Again, it’s not manager but managers, and, yes, you could hire them on your own. However, with thousands of choices, most investors are better served letting a professional do the hiring for them. The financial planner will usually recommend a portfolio that will include several money managers in which he or she has confidence, in various investment sectors. Then the planner will monitor your progress toward your goals and watch over the money managers to make sure they’re doing the best possible job for you.

JS: I’m not totally sure I understand the difference.

HE: The money manager is an expert on portfolios, but doesn’t know a thing about you. For example, are you in a low or high tax bracket?

JS: I think I’m in a low one.

HE: Do you already have other investments that might overlap with the money manager’s stocks? Do you need current cash flow from the investments? Are you comfortable with market volatility?

JS: Even I don’t know the answer to these questions.

HE: The financial planner helps you understand and answer these questions. I could go on and on, but you get the point. It’s the financial planner—the expert on people’s financial needs—who will know all of that and much more about you.

JS: Do these financial planners also get the CFA designation?

HE: No, that’s the professional designation for a money manager. In my opinion, the certified financial planner (CFP®) credential represents financial planning’s highest standard. A professional holding the CFP mark has demonstrated not only knowledge of investments and planning but also an ability to apply that knowledge for your benefit.

JS: Does that mean that you’re a CFP planner?

HE: Yes. But in fairness, there are two other respected credentials in the profession: the insurance industry’s ChFC (chartered financial consultant) and the accounting profession’s PFS (personal financial specialist).

JS: I think I have more than my two sentences. If there’s anything else—

HE: There’s a lot else.

JS: [Sigh.]

HE: Tell me about it. It’s amazingly confusing for the poor consumer. Other types of designations reflect statutory registration or licensing requirements.

JS: Licensing? You mean like a licensed hair stylist?

HE: Some of these are actually sales licenses. Examples are the Series 7 licenses, which are required for advisors who earn commissions for selling investments, and the RIA (Registered Investment Advisor), a registration required of individuals who charge fees for providing investment advice. Depending on the business model used, a professional might be registered as an investment advisor as well as holding a securities license.

JS: I hope we’re finished. Please tell me we’re finished.

HE: Well, we haven’t actually talked about what kind of professional I happen to be.

JS: Sigh. Which is?

HE: A wealth manager. The term wealth manager, as we use it, was introduced in a book, by that same name that I wrote for other professionals in the late 1990s. I defined it as a financial planning professional whose business specializes in a client’s needs regarding investment and retirement planning.

JS: So that means you are—

HE: I’m a CFP licensee, and my firm is a financial planning firm specializing in what we call wealth management.

JS: I don’t think any sane person could keep track of all this.

HE: If you have to remember only one thing, then understand that current laws do not ensure that all professionals providing investment advice are looking out for your best interests.

JS: Don’t I want somebody serving my best interests? I don’t want to pay somebody to convince me to buy something that earns more for their company than it does for me.

HE: Now you’re getting it.

JS: So what do I do?

HE: If you want my best advice, no matter who you ultimately select to guide you, your best protection is to ask the advisor to sign a simple, “mom-and-pop” commitment acknowledging that they’re really looking out for your best interest.

JS: Can you send me a copy?

HE: I will. Be sure and use it for your own protection.

And I did. Below is the document I sent.


I believe in placing your best interests first. Therefore, I am proud to commit to the following five principles:

  1. I will always put your best interests first.
  2. I will act with prudence—with the skill, care, diligence, and good judgment of a professional.
  3. I will not mislead you, and I will provide conspicuous, full, and fair disclosure of all important facts.
  4. I will avoid conflicts of interest.
  5. I will fully disclose and fairly manage, in your favor, any unavoidable conflicts.


This blog is a chapter from Harold Evensky’s “Hello Harold: A Veteran Financial Advisor Shares Stories to Help Make You Be a Better Investor”. Available for purchase on Amazon.

How to Start Happily Ever After…


Your wedding day was beautiful, you married your one true love, and everything was perfect. You are back from your honeymoon, and reality is setting in. How do you proceed to finalize all the remaining details to start your lives together, things like name changes, employee benefits, and estate planning?

Name Change

Will you be changing your name? Traditionally, one spouse takes the last name of the other spouse; however, it is not required. When I got married a few years ago I used a checklist2 from as a starting place for what I needed to do to change my name.

But whatever you decide, make sure that you follow the requirements for your state since each state’s laws differ. Most states require that you have your marriage license/certificate prior to any changes. It may take up to six weeks up from filing for your marriage license for you to receive it.

Places to change your name:

Employee Benefits

Employee benefits should be considered at this time. Marriage is a qualifying life event that allows you to have a special open enrollment period (normally 60 days) to add your spouse to your employer benefits for health insurance. Whether you are both employed and have benefits to look into, or one of you has benefits for the other to be added to, it’s a great time to review what is available. If you both have health benefits, you can have primary and secondary insurance if it makes financial sense or change over to your spouse’s plan.

Other employee benefits to consider reviewing if they are applicable:

  • Life and disability insurance (Do you have dependents to care for now?)
    • Review terms
    • Update beneficiaries for life insurance
  • Child and elder care benefits
  • Retirement plans – look to maximize benefits and update beneficiaries
  • Other available options through cafeteria plans

Estate Documents/Update Beneficiaries

Each major life event is an optimal time to review and update your estate plan. Review and update any beneficiaries on retirement plans, life insurance, or other investment accounts. Accounts that have beneficiaries listed do not go through probate, and your will does not determine who receives the assets unless you list your estate as the beneficiary.

If you do not have any estate documents such as a will or power of attorney, this maybe a good time to consider having them drafted and executed, especially when there are dependents involved. An attorney will help you answer the necessary questions and draft the documents for you.

Many couples also seek legal counsel for post-nuptial agreements as a precaution in case things don’t work out in the marriage, particularly if either spouse comes into the marriage with a significant amount of property or an uneven earning potential. If needed, ask your personal financial planner for a recommendation.

Common Law Property vs. Community Property

Most states are common law states, which in layman’s terms means that marital property remains separate unless you title it differently. However, there are nine states that are community property states (show in blue below — Alaska is an optional community property state1).

5.b After-Marriage_AB - Image file.

Community property means any property acquired during the marriage is owned jointly. This would include work income and investment earnings. Property owned prior to the marriage such as inherited assets or gifts received is generally considered separate property. It is a common practice for individuals in community property states to keep any separate property that was either obtained prior to the marriage or received as a gift/inheritance during the marriage in separate accounts in their individual name.


Another topic to discuss, if you haven’t already, is the management of household expenses. Will the responsibility be split or will one spouse take on the majority of the responsibility? Will your accounts be comingled or separate?

Student loans are usually a topic of discussion in terms of the best way to pay them down. By consolidating the loans you would strip away necessary characteristics that could qualify the student loan for forgiveness later in life. Proceed cautiously when looking to combine debt, and consult with your financial planner as to the best way to reduce debt.

Also, in this day and age many, if not all, of our accounts have a way to access them online. It may be helpful to use a password management system to help keep access to your accounts available to each other. Especially if one of you does the management of household accounts or expenses on a frequent basis, you want to make sure your spouse has access just in case something happens to you and you are unable to access the accounts.

May you each learn to live with each other’s quirks and enjoy each day with one another. Who knows what this adventure will hold for you?

Disclosure: This list is not exhaustive, but a basic starting place to combine separate financial lives.

Feel free to contact Anne Bednarz, CFP® with any questions by phone 806.747.7995 or email:

1 Bishop, S. (n.d.). Dividing Property in Alaska. Retrieved December 27, 2016, from

2 Black, A. (n.d.). How to Change Your Last Name After the Wedding. Retrieved December 27, 2016, from

3 Change or Correct a Passport. (n.d.). Retrieved December 27, 2016, from

4 Change Your Name with the Texas DPS & DOT. (n.d.). Retrieved December 27, 2016, from

5 Perez, W. (n.d.). Community Property States. Retrieved December 27, 2016, from

6 Social Security. (n.d.). Retrieved December 27, 2016, from

You’re Engaged! Let the planning begin…


Anne Bednarz, CFP®, AIF® Financial Advisor

Congratulations on your upcoming marriage! It’s an exciting time in your life, with a new chapter to begin with your love and your lives together. Let the planning begin for the big day; it is also a good time to tackle a topic that will affect you long after your wedding day. This is an essential time to discuss your finances. Where are you currently? Where will you be after your wedding day? What are your long-term goals for the next five to ten years and beyond? By setting the tone prior to your wedding day and knowing what your goals are, you can work together as a team to accomplish them.

Where are you each currently?

How much do each of you bring to the marriage? Is it in a bank account, a retirement account, other assets, or debt? Bring it all to the table so each of you knows exactly what you’re stepping into. What are your spending habits? Do you live paycheck to paycheck, or are you a saver? Often opposites attract, so this could be an important discussion point for you.

Do you live in a common law state or a community property state? (Community property states are Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico and Wisconsin.) This is particularly important for those in community property states. Anything that you own prior to marriage will remain your own in a community property state, and anything that is earned, purchased, or comingled during the marriage could be considered joint property. Will you keep these assets separate or combine them?

If you bring debt to the table, what type of debt is it? Do you own your own business and have business debt that you are personally responsible for, or do you have consumer or student loan debt? If it is student loan debt, there are several ways to approach how to pay it off, and a personal financial planner can help you understand the best way for you and your spouse to approach it. Some types of student loans can lose their potential loan forgiveness characteristic if not treated properly. Tread carefully.

How to conquer everyday living

How will you approach your everyday living situation… will you divide and conquer, or will you both take it on jointly? This is also a good time to sit down and make a joint spending plan. What items are essential for each of you beyond basic living expenses?

There are several approaches when setting up your finances together:

  1. You can combine everything and have a joint account from which you both spend.
  2. You can keep separate accounts. Each of you is responsible for one-half of the bills, or depending on earnings, keep it proportional to the income you earn.
  3. A combination approach. Have a joint account to pay for the basic joint bills, utilities, rent/mortgage, insurance, etc. Then have your separate accounts to pay for any separate debt obligations, or separate spending money for what you consider essential.

It is also a good idea to set boundaries for what amounts are okay to spend without seeking your spouse’s consent versus making an expensive purchase without consulting your spouse and possibly damaging your financial trust. As many of us have read, the divorce rate in the US is roughly 40 to 50%,1 and a common issue is money. If one of you handles the money most of the time, then set aside a time each month to review what is happening so you both are in the loop.

Future Goals — Do a little dreaming…

What would you each like to accomplish in the future? Write down the goal, the amount it is expected to cost, and the estimated time horizon. Revisit your goals each year, and modify them as needed. Life happens, and the best laid plans get interrupted, but being able to adjust and move on is essential in life.

For example:

Year 1:

  1. Start retirement savings accounts.
  2. Maximize the amount that your employer contributes.
  3. Set up an adequate emergency fund.
    1. 3–6 times your monthly expenses
  4. Set up a debt reduction schedule.

Year 3: Pay off all your student loan(s) by your third anniversary.

Year 5: Purchase your first home for $X.

Year 10: Purchase a boat or recreational vehicle for $X.

As uncomfortable as it may be, it’s also a good time to discuss your current financial situation now, rather than later. You will both be able to have a better understanding of where you were coming from and where you are going in the future. Enjoy your engagement and prepare for your life together.

Feel free to contact Anne Bednarz, CFP® with any questions by phone 806.747.7995 or email:

1 American Psychological Association: Marriage & Divorce,

Umbrellas and Bumbershoots: How Risky Investments Can Make for a Safer Portfolio

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

Harold Evensky: Good morning, class.

Class: Good morning, Professor Evensky.

Andrew: Professor Evensky, why are you carrying that umbrella? The temperature outside is 110 degrees and it hasn’t rained in the past three months!

HE: Andrew, that’s an excellent question. And this umbrella is what we call a prop. It will help introduce one of the most important issues in wealth management: diversification and asset allocation, and why they’re so important in helping our clients meet their goals.

Elizabeth: Professor Evensky, will this be on the test?

HE: So I’ve prepared a little exercise to help all of us think through how to make investment recommendations in light of client goals. Is everybody ready?

Class: Yes.

HE: In this exercise, our clients live in a simple world where they have a choice of only three investments. Two of them are risky. I’ll write the choices here on the whiteboard:

HE: Everybody got that? As a sophisticated planner, you recognize that the swimsuit and umbrella company stocks are very risky, since an investor will either make a great return or no return, depending on the weather. So you’ve consulted with some of the world’s greatest meteorologists and arrived at the following:


Meteorologists’ Predictions

80 percent probability that it will be rainy 90 percent of the time

60 percent probability that it will be rainy 70 percent of the time

30 percent probability that it will be rainy only 20 percent of the time


How would you recommend my clients allocate their investments? Where do you start?

Andrew: Well, you say we should always start with what we know about our clients.

HE: Great start, Andrew. And what important things do we know about them?

Andrew: To achieve their goals, they need at least a 10 percent return. We also know they are not very tolerant of investment volatility. They don’t like their investments to bounce around a lot.

HE: Good so far. Kiran, where does that take us?

Kiran: Only now should we look at the investments. We should look at the possible investment outcomes—which, in this case, seem to depend on the weather.

Nicholas: Professor Evensky, while everybody else was chattering on about the clients, I made up a little table that shows all the different possible portfolio returns based on the weather data you gave us.

HE: Thank you, Nicholas.

Nicholas: I also created a neat little algorithm that will do these same calculations if we ever run into a problem like this again. I could show you after class.

HE: Nicholas, I’m going to go out on a limb and predict that you have a bright future as an investment analyst.

Nicholas: Whatever. Wait. That doesn’t mean I’ll have to talk to actual people, does it?

Carly: Professor Evensky, I’ll check Nicholas’s math.

HE: Thank you, Carly. So does everybody see where the numbers come from?

Suppose, for example, you have 90 percent allocated to umbrellas and it rains 70 percent of the time. That means you will profit from all of the 70 percent rainy days. That’s a net of 14 percent to 20 percent, maximum, times 70 percent, right, Nicholas?

Nicholas: Obviously.

HE: Okay, now let’s consider how we did with our swimsuit company investment. Since only 10 percent is invested in the swimsuit company, and there are 30 percent sunny days, the swimsuit company can profit from only some of those sunny days. So my return is 20 percent, maximum, times the 10 percent I have invested in swimsuits, which equals 2 percent. Add 2 percent return from swimsuits to 14 percent return from umbrellas, and you get a total of 16 percent. If this turns out to be the real weather pattern, I didn’t get the full 20 percent because I owned too many umbrellas and not enough swimsuits.

Kiran: And that’s where all the other possibilities came from?

HE: Correct. You can use the same process to calculate the other figures in the chart. So now what? Do you have an answer to the proper allocation for these clients who need 10 percent a year and don’t like a lot of volatility?

Alicia: Well, I guess we have to toss out the safe investment.

HE: Good, Alicia. Why?

Alicia: At a fixed 8 percent, the CD is a nonstarter. For someone who needs 10 percent, only receiving 8 percent, no matter how guaranteed, would be a failure.

HE: Good thinking. Of course, when you present the alternatives, our client might elect to revise the goals so that 8 percent would suffice. But before we recommend that, let’s look at the risky alternatives. What do you see here?

Kiran: I’d apply Modern Portfolio Theory, and come up with a blend of the risky investments. If you blend investments that respond differently to different investment climates, then the result is a portfolio with less volatility.

HE: Very good. And did y’all get my joke? Investment climate—rain or sun—pretty funny, right?

Kiran: Professor Evensky, maybe you shouldn’t try to be funny in class.

HE: Yes, well, the important thing is that we can blend these risky investments. And in this simplified investment world we’ve created, what do you notice immediately?

Alicia: The risk and return patterns are exactly the opposite. You make money in swimsuits when it’s sunny, and when it rains, your return comes from umbrellas. It either rains or it doesn’t.

HE: Right. So?

Alicia: So in that simplified investment world, if we put half in swimsuits and half in umbrellas, we’d always be making 20 percent on half of our portfolio and 0 percent on the other half.

HE: And?

Andrew: For these clients, if they invest half of their money in swimsuits and half in umbrellas, no matter what happens, even if it never rains again or the deluge never ends, or anything in between, the clients will get a guaranteed 10 percent return—which is exactly what the client needs.

HE: Excellent. Of course, in the real world, you probably have thousands of different drivers of the profits of tens of thousands of different companies. If you were to bet on any one of them, there’s the possibility that whatever you were betting on, just the opposite would happen and you could lose a lot of money. But if you spread your bets around, and the economy grows—which it has done since people were living in caves—then all of those bets across all of those different drivers will smooth out some of the ups and downs. And there’s a high probability, based on history, that your clients will get returns commensurate with their willingness to wade into the world of market risk. Diversification really works.

Kiran: But there’s still risk, right?

HE: Of course. The moral here is not that you can eliminate risk; but in designing your portfolio and evaluating risk, you need to consider the risk of the combined investments, not the risk of each individual investment. And let’s not miss something equally important: you need to consider the risk of not achieving your goals by confusing certainty and safety. Does everybody get it?

Class: Yes, Professor Evensky.

HE: And yes, Elizabeth, this will be on the test.

Elizabeth: What’s that?

HE: But I wanted to get back to something we talked about earlier. Who thought that my investment climate joke was funny? And try to keep in mind that your grade might depend on it.

This blog is a chapter from Harold Evensky’s “Hello Harold: A Veteran Financial Advisor Shares Stories to Help Make You Be a Better Investor”. Available for purchase on Amazon.

Credit Card Benefits

Josh Mungavin

Josh Mungavin CFP®, CRC® Principal, Wealth Manager

Credit cards can come with significant benefits, many of which are commonly overlooked. As significant value can be derived from credit card benefits, it’s important to understand the benefits both of currently owned credit cards and potential new and better credit cards. Having the best credit card for personal use and taking advantage of everything it offers can add substantial value over time. Obviously, one of the most focused-on benefits is the reward program that is advertised with a card, but that is not everything that you get when you use a credit card to its full potential.


Some credit cards protect your purchases and provide options if anything should go wrong with a purchase, or if the price of your purchase is reduced in the near-term future. Here is a list of some of the different types of purchase protections that credit cards can have.

Price Protection — This benefit allows you to buy something and get a partial refund if the item goes on sale during a set period of time. This generally requires that you register the purchase with the credit card on the credit card’s website and then petition the credit card company to refund the difference in price. Obviously, you would not want to do this for every small purchase, but for some large purchases, especially those purchases that have a history of price volatility, it may very well be worth your while to put them under the price watch for your credit card and to check during the time price protection is available on that item to see if the price decreases.

Purchase Protection Insurance — This benefit covers you in the case of theft or damage of a newly-purchased item within a given period of time. This can be used strategically. For example, this coverage could be used if you intend to purchase a new phone and have a trip coming up in an area of the world that is prone to pickpocketing and theft. You can coordinate the purchase of a new phone with the Theft Protection coverage on your credit card so that you don’t have to take an old phone or worry about your new phone being stolen while you are on vacation.

Extended Warranty Protection — This benefit extends the manufacturer warranty on purchases for a certain amount of time. This may mean the offer to purchase an extended warranty may be of much lower value than it would have been otherwise, had you not had the coverage from your credit card. Obviously, you need to know the details of how this type of coverage works before making any warranty decision for any large purchases. It is always worth checking on any potential insurance coverage from your credit card before you purchase an extended warranty or a replacement product at your own expense, as you may have a warranty that you did not know you had through your credit card company.

Some credit cards will even refund the amount of a purchase if the store where the purchase was made will not accept a return.

Travel Benefits

One of the areas in which credit cards can add a significant benefit is travel. Below are a few of the benefits the travel cards have that may be of use to you, but that you may not know about.

Travel Insurance — This insurance can include medical and dental coverage within certain limits if you’re traveling outside of a certain radius of your home.

Car Rental Insurance — It is important to know whether the insurance provided by the card is primary or secondary insurance. Primary insurance means the card’s insurance covers the incident up to the benefit amount without factoring in any existing auto insurance coverage you may have. Secondary insurance requires that your personal auto insurance policy pay any claim up to your personal auto insurance limit first, then the secondary insurance will cover the remainder up to the secondary insurance limit amount.

Access to Airplane Lounges — This can be access to a particular network or provider of lounges and will often include free showers, food, drinks, WIFI, and a quieter place in the airport to relax and wait for your flight. The airline-specific lounges may also be able to help you with any ticket changes without the need to wait in the normal check-in lines in the case of a canceled or delayed flight. This may also allow the card holder to bring a certain number of guests into the lounge for free or for an added charge.

Trip Cancellation Insurance — This insurance will give you a refund for any eligible non-refundable trip expenses if certain emergencies arise that mandate a trip cancellation.

Trip Interruption Insurance — This provides a stipend if your trip is delayed by a certain amount of time. For instance, the card may give a certain dollar amount credit per person on the trip if your flight is delayed by more than four or five hours. This credit can generally be used for lodging or dining.

Baggage Delay Insurance — This insurance provides a stipend if your baggage from a flight is delayed for a certain amount of time so that you have money to replace essential items while you wait for your bags to be delivered to your hotel or home.

Lost Luggage Reimbursement — This is similar to baggage delay insurance as it provides you with a certain amount of money if your bags are lost and never recovered. This is intended to allow you to replace the items in your baggage up to a certain dollar limit.

No Foreign Transaction Fees — This can be meaningful as some credit cards charge 1 to 3% in foreign transaction fees on any purchase paid for in a foreign currency; often, paying for things in U.S. dollars while in foreign countries comes with hidden expenses.

Credit for Global Entry or TSA Pre-Check Fee — This may be provided to cover the cost for the owner of the card to get Global Entry or TSA Pre-Check, both of which help in getting through airport lines much more quickly.

Accidental Death and Dismemberment Insurance — This provides for a certain amount of insurance if an accidental death or serious injury should occur while you are in transit paid for with the credit card. This amount can range from around $100,000 to $1,000,000 per person.

Emergency Evacuation and Transportation Insurance — This is used to help you leave a country you are visiting if there is a medical emergency, and may provide help ranging from special flight accommodations to being escorted by a doctor so that you can get medical care in your home country.

Special Arrangement with Travel Providers — This can include priority boarding, free checked bags on flights, frequent customer or preferred customer status with a travel company, free upgrades if available, free nights at hotels if you booked for a certain number of nights, free Internet access, resort credits, or free breakfast.

Other Benefits

Many credit cards come with a concierge service. Generally speaking, the low quality of help provided never ceases to amaze me regarding these services. That’s not to say that value cannot be derived by using these services, but the value varies greatly depending upon the request and the individual working for the concierge service assisting you. The best uses of these services, in my experience, tend to be along the lines of a very basic task-oriented personal assistant. It is unusual to be able to get any reservations or tickets from these services that you would not be able to get on your own. It can be very useful to call the service before leaving for vacation and ask for a city guide for the city that you are visiting to include things along the lines of best restaurants, entertainment, things to see, any special events happening in town while you are there, best hotels in town, or a list of available tours. The service can also be used to coordinate with companies in other countries that only have an international phone number so that you do not have to make an international call in order to do business with the company in the other country, for instance, buying a product or making a restaurant reservation.

Some credit cards arrange for special access or discounts on tickets for sporting, music, or entertainment events.

It has become more common for credit cards to provide you with access to your credit score so that you can monitor it for free on a regular basis.

Roadside assistance is a benefit that is often overlooked by those with credit cards that have the coverage and may be paying for roadside assistance unnecessarily.

Some of the higher-end credit cards also provide annual credits. These can be for any travel-related expenses, a particular named airline and the associated fees, or for some specific service such as Uber. These credits, if available, generally amount to hundreds of dollars per year. The way that these credits are given may also lead to some opportunities. Often, the credits are given on a calendar-year basis. This means that each January the credit resets. Membership fees, however, are usually charged on a membership-year basis, in other words, twelve months from the date you sign up for the card. This means you may be able to sign up for a credit card in June so the first year’s fee covers the timespan between June and December, get a new credit in January and use the new credit before June, then cancel the card having only paid for one year’s worth of membership but receiving two years’ worth of credits.

Special Considerations

Credit card fees can range from nothing to hundreds, or even thousands, of dollars per year. These fees may be worth paying if the benefits are substantial enough to justify the cost and in fact you may end up making a profit from owning a high-fee card if the card is a good choice for you and the way you use credit and the benefits involved. The signup bonus provided by the card may good be enough to justify the first few years of fees, regardless of any other benefits.

Credit Card Rewards

Credit card rewards and redemptions are a benefit that can add some of the highest value if used strategically. Often, it seems that credit card rewards schemes are built to be intentionally misleading or confusing which can cause people to get a far smaller return than that which is possible. This section could go very in-depth and certainly the more time someone spends understanding these rewards, the more they are able to get a good or very good return from the rewards that they have earned. The purpose of this section is not to teach you how to maximize rewards, as that is a constantly-changing field, but to help you at least get an acceptable level of return from the rewards you are earning. For our purposes, a 2% return is what should be expected as a minimum from your credit card purchases. The reason for this is that there are cards available that provide you with 2% cash back in every category with no yearly fees.

If you are not getting at least 2% back from your purchases, a cash back card may be the best card for you on a day-to-day spending basis. As a general rule, it is less beneficial to use rewards for products, cash back, or cheap airline tickets. An easy way to tell if you are getting at least 2% back is to look at the price of the airline ticket or other benefit you would be redeeming and compare it to the number of miles or points you must redeem to get the same ticket. Here is an example: let’s say you earn 1 point per dollar spent. The ticket you want to book is either $300 or 30,000 points. We would calculate your percentage return by dividing the $300 cost of the ticket by 30,000 points, which gives us 1%. Because you were only earning 1 point per dollar spent, you would multiply the 1 point per dollar spent by the 1% and get a final return on your reward of 1%. In this case, you would have earned twice as much money just by having a cash back reward card that gave you 2% cash back and you would be able to book any airline ticket or other benefit you wanted with the money earned from the cash back. In the case of an airline ticket, you would also have the benefit of earning frequent flyer miles on the airline for the miles flown during the flight.

It is not uncommon for me to see people receiving less than half of a percent back from their rewards. Keep in mind, there are some cards that will pay you multiple points for every dollar spent in certain categories. This means that if you earn 3 points per dollar spent in the situation mentioned above, you would multiply the 1% redemption by the 3 points per dollar spent to give you a 3% return. Returns can significantly exceed 2 or 3% if you are willing to spend the time to maximize them, but it will take some time and research in order to be able to learn to do so. The reason to perform the calculation is to know what you are actually getting in rewards so that you know if you should switch to a cash back card, that will not provide the most optimal rewards, but will provide ease of use and at least the minimum amount of rewards back, or if you should choose to learn more about rewards and how to maximize them.

One last point to mention on rewards is the Rewards Network. This is a service that is at the center of many airlines’ dining programs and Upromise college cash back. You can add any credit card to one of these services online, and if you dine at one of the participating restaurants, you earn either additional airline rewards or cash back for college savings automatically. These services are free and only require a one-time sign up on the program’s website, though you can only choose one of the programs for each card. You might be surprised at how often you dine at one of the participating restaurants and earn miles or dollars just for going through a one-time sign up.

The intent of this article is not to encourage the use of a particular card or type of card, but to make you aware of some of the lesser-known benefits of using a credit card. That being said, there are a few cards that are among my favorites, which include Fidelity Rewards Visa Signature, Citibank Double Cash, Citibank Prestige, Chase Sapphire Reserve, and American Express Platinum. If you fly often on the same airline and have checked luggage, it may also be worthwhile to have that airline’s credit card so that you can check bags for free and receive priority boarding. The yearly cost of the card may be more than made up for by the amount of money that would have otherwise been spent on checked baggage.

Feel free to contact Josh Mungavin CFP®, CRC® with any questions by phone 305.448.8882 ext. 219 or email: