Victoria: I’m still going in, talking to my folks who handle my stocks, investments, the same as before. And now just now the conversation’s different because it’s a different financial picture.
Jamie: Meet Victoria. She’s in her 50s, from the Carolinas, and she works in tech. Throughout her life, Victoria's relationship with money has gone through many stages. One, was during her marriage.
Victoria: We were married a little later, I guess, in life – if you think about being 35 and 36 – so had built up our own investment portfolios and bank accounts.
Jamie: Victoria and her husband kept some of their finances separate while married -- like their investments. But her ex works in finance and so took on the role of managing what they shared – like the house they owned and a joint bank account.
Victoria: I found at a time I was like, wait a second. I can't see that joint account. I did think about that, about how much I had a say in what we did and how we spent money. And if you lose trust, that becomes a big problem.
Jamie: Now divorced, Victoria's in charge of all her assets. Being financially independent again is a change, but it's not new to her. It's something she was raised to do, specifically from the women in her family. Her mother would take her along to meetings with her broker. And her grandmother would often give stocks and bonds as gifts.
Victoria: We would get like bonds, for Christmas.
Jamie: Victoria's Dad, on the other hand, had a very different experience with money. He ran out of it at the end. Luckily, Victoria and her sister were able to step in to help.
Victoria: My father, had one relationship with money, which was, don't have a lot, never will. I remember we were standing at the cancer center when he found out he had cancer and he looked at me and my sister and said, well, you're in charge now. And all of a sudden, I thought, oh my gosh, I'm in charge of him. And all that that entailed. My dad didn't have any assets of any kind. So I'm, I'm really afraid of, of that. Um, I don't know what that looks like for me.
Jamie: Without children of her own who could help, the way she and her sister did for their Dad, Victoria knows she needs to save well to be able to take care of herself. She also knows she needs some kind of retirement plan that doesn't involve leaving work entirely -- because she enjoys it -- but allows for more travel and hobbies, things like home renovations. Victoria is successful and has a lot to work with. Her annual income is about $350,000. She has $2 million in an investment portfolio and owns 3 properties -- 1 outright, and 2 with mortgages. It can be a lot to manage, though. To keep track of. And to feel confident and secure making financial decisions – big and small.
Victoria: Like, I'm scared that I'm gonna get advised in the wrong way. So, you know, I'm not ignorant, I'm a smart person, but I know certain things and some things I don't know, I really don't and that's okay. Like I have blind spots. And so I think it would be nice to just get a general picture.
Jamie: And that's where we'll start today.
Intro
I'm Jamie Roo and welcome to What Should I Do With My Money? an original podcast from Morgan Stanley. We match real people asking real questions about their money with experienced financial advisors. Here at Morgan Stanley, we work with a range of clients. Some, are experienced investors. Others, are new to working with a financial advisor. On this show, you get a front row seat to hear what these initial conversations are like. And get answers to some of the questions you might have yourself. All of us come to managing our money at different stages in our lives. Under different circumstances. With bigger and lesser complexity. But a change, a transition, can be hard to manage. Especially on your own. For Victoria, she wants to know: How should she update her budget now that she's working with a single income? Does she have the right kind of life insurance, given her situation? What about retirement -- how should she map out what she'll need? And given the various financial professionals she works with, who is working with her to advise on it all?
Joining us to help answer these questions is Stephen, a senior portfolio management director. Stephen is a family wealth advisor and can appreciate the financial example Victoria's mother and grandmother set for her. He also works with clients throughout their lives and so transitions -- like divorce -- are all part of his ongoing conversations.
Stephen: People go to their physician to talk about their medicine. People go to their spiritual leader to talk about their spiritual life. People go home to talk about family things. Um, and those worlds don't touch each other. And then clients come to us and they talk about all of those things because all of those aspects have a bearing on their decisions they make about money.
Someone a lot smarter than me in the early part of my career taught me that, uh, clients really don't care how much, you know, until they know how much you care. And so asking questions and getting to the root of what makes you tick, what’s keeping you up at night? I figure I have two ears and one mouth, so I should probably use 'em in that proportion.
Jamie: And with that, let’s let these two get into their session.
Conversation
(music and some low convo indicates we're jumping into the conversation)
Victoria: I'm not a big budget person. I'm not, I've not got that muscle built up. I don't think it's something I can't do, but I don't, you know, I just kind of rely on putting as much in my bank account as I can, so that I'm always covered, never run out of cash, but I do have a budget now, um, and a spreadsheet. I really need to like get focused. Cuz there's just the little things of like, am I, should I be paying for that or do I really have everything accounted for?
Stephen: I think my affinity for you went through the roof when you talked about your spreadsheets, so keep at it, please. It's okay to be an Excel junkie. Budgeting can definitely, uh, be considered the four letter word of financial planning. And so I don't think anybody enjoys doing it, but you have a pretty good rough idea of what it costs to be Victoria on a month to month basis.
What we try to engage with clients after a financial plan has been put into place is the conversation of cash and cash management. So that good night's sleep, that cash buffer. Um, while it doesn't perhaps command the same set of returns that say stocks or bonds do over the long run, uh, it, it does provide something that stocks and bonds won't on the short term, which is provide security. Typically everyone will have a different number. How much do you need in cash to have a good night's sleep right now?
Victoria: If you're talking monthly budget, cause we talked about that…
Stephen: mm-hmm
Victoria: I have two mortgages, so the vacation mortgage and the, and the home mortgage. Um, but yeah, so right now I've determined, you know, the budget is 8,000 a month is about where I am. Uh, that includes both mortgage payments. Of course. So could I whittle that down? Could I cut things out? I imagine I would like to get maybe one of those mortgages down further, or have a plan to pay that down more, a little, maybe an aggressive payment plan.
Stephen: Okay. And, and, you know, the good news is we can model that. Because it's much safer to do that in a laboratory than in real life. So I definitely consider your ongoing financial planning process as your laboratory. What we would want to do in your financial planning process is carve out your cushion. Now, granted, you wouldn't want 90% of your portfolio in cash because inflation that silent killer is going to steal it away from you. However, zero can present some real pitfalls as well, because if you need to sell into a 10% decline in the market, and on average, we have a, a 20% decline every three years. it can impair your long term plan. So perhaps consider this short term issues will usually address with short-term assets and long-term issues will address with long-term assets.
I'd like your reaction to this, if something were to happen in your life right now, today, that would cost you an extra. $20,000, $30,000 would you have to sell assets that are long-term nature, like stock, or would you have cash resources to tap into?
Victoria: Right now I have cash. I usually don't. And I think that's a problem because a lot of times when you get advice from different people, wherever your money is with those people, that's where they want you to go. So buy the bigger house or do this, you know? So it could be, Nope, you need to have everything invested as much as possible. Who is that person that tells you to have a financial cushion? You don't always run into that person? Is it your banker?
Stephen: It's great to meet you, Victoria. My name's Stephen.
Victoria: Exactly.
Jamie: In all seriousness, it can be really tough to know who to listen to when you've got a few advisors for various financial investments in your life. This is one of Victoria's big concerns and questions:
Victoria: I've got my, you know, my real estate agent. I've got my accountant. Um, I've got my, uh, brokerage, and maybe an insurance person. How do you bring all that together?
Stephen: Can you imagine going to multiple physicians, uh, and having one physician only give you counsel on the left side of your body, and then another physician give you counsel on the right side of your body and they can't talk about what they find. And, and they're both trying to sell you something and do better than the other physician in hopes that you bring over the whole person and your best interest really isn't in mind. So a financial advisor’s job is to help you make a plan that serves you – a purpose driven plan that is curated and maintained by the person who knows your whole financial body, and that person should always be operating in your best interest.
Victoria: Yeah, that's great. Thank you. That's a big question for me.
Transitional music cue
Victoria: Sometimes I think about life insurance as, well, that means that I don't have to worry about what I have now because I have insurance for, you know, uh, and have a little bit of a cushion there, but then, you know, in talking with others, a couple of other family members have said, we don't need that. Like, just get rid of it. It's fine. You know, so I just maybe need to understand the policy a little more and that it was kind of a joint decision for marriage. And now that I'm single, maybe I need to think about it in that context.
Stephen: Have you built up any cash value in your life insurance policy?
Victoria: You know, I don't think much. I've had it for about three or four years now.
Stephen: Okay. The reason I ask is we, we spend a good portion of our life worrying about dying too early, and then a greater portion of our life worrying about taking too long to die, for different reasons. I think it would probably be good to reframe the question around life insurance, as opposed to, how can I best take care of myself when no one else can?
I think sitting down and having, uh, like a formal insurance review and just trying to discover if there's a way to reposition this to perhaps benefit you, uh, later on in life in your living years, if you can, take some of those, uh, premiums that you've paid and turn around and use it later on in life in a tax free format in taking care of yourself in long term care. I think having insurance without purpose can, can be difficult. So, uh, finding that purpose,could answer the question pretty easily. Should I have this or should I let go of it?
Victoria: That makes sense. I, one of the things I didn't understand and just have learned, having friends going through it is that long term care insurance typically only pays for about three or four years. I think a lot of times in your mind you think, oh, it's from when I'm 80 to when I'm a hundred, you know, and it, and, but that's actually, when that critical care is needed.
Stephen: So needed. So needed. Taking care of that part of the Victoria life, in, those very vulnerable years, while you're young, while you can make these decisions while you have good health or a fantastic time to have that conversation with your team.
Victoria: That's really helpful. Thank you.
Stephen: You're welcome.
Victoria: I definitely needed that advice.
Jamie: The answer to Victoria's question about needing life insurance or not was reframing the question. It's now: What kind of insurance do I need in my life? And long term care is something Victoria can further explore. Her next question is to find some clarity around how to think through a budget for retirement.
Victoria: I think a lot about how much I should have to retire. I spend a lot of time thinking about that and I don't think I ever expect an exact number but I'm interested in your perspective.
Stephen: Just from a rough standpoint, the things that you'll have later on that you don't have now, let's factor in social security. Um, that that's one thing that's on the horizon, that the next part of your life you'll you'll have coming in, uh, to, to augment, uh, what what you've already created, which is a good base of assets to, to make, to make those assets last, um, over the course of your life, in, into a part of your life that might get a lot more expensive health wise. Just, as a rule of thumb, we try to advise clients to imagine not crossing a threshold of about three and a half percent of the value of their, their principle each year. If you find yourself spending, uh, four or 5% on an annual basis, it can become problematic. If you budget in your retirement for your basic living expenses and healthcare, you'll have done a great job and you'll be bored. So going beyond that, if you wanna leave the house and, actually go out into the world and do things, Put those in as budget items. Now, the have tos are basically living expenses and healthcare, put those as a need.
And definitely in our planning process, let's use wants as travel and, and home renovations. Those are things that you can toggle around the board. And if we can stress test your financial plan, Throughout the course of your life and build it for imperfection. So when the market's down 30%, does your portfolio break, it'll be great to know that now, before you make decisions, as opposed to later on.
Victoria: Thank you. It gives me a lot of things to go back to, a lot of homework to do, but that's a good thing.I actually have an assignment and I'm not just making it up.
Jamie: With her retirement budget homework in hand, Stephen and Victoria wrap up their conversation.
Victoria: I remember back in the day, my mom taught me a little bit about what dollar cost averaging was, which was basically don't work the market, just know that it will go up and down and so will your buy and your sell. I really hate the mentality of, well, the stock market's down. Everything's terrible. For me, I've thought about this since I was pretty young, only because I had a family that thought about this.
Stephen: You've had some of the best matriarchs in your life. You've had some of the best influences in your life. They would be so proud of you.
Victoria: I will tell you they would be, they would take that compliment and say, yes, she has. So I know they, those are the kind of women I was raised by.
Stephen: That's excellent. That's excellent.
Wrap and Recap
Jamie: I think this is the perfect time to jump back in. What a great conversation between the two of you. I'm so glad that you had a chance to talk today.
Stephen: You're so welcome.
Victoria: Yeah, for sure. Thank you.
Jamie: Stephen, we appreciate you being with us today and we're gonna let you go while I check in with Victoria and get her thoughts on the session, but thank you so much.
Stephen: Thanks for having me
Jamie: Okay. So, Victoria, how was that for you? How were you feeling after that conversation?
Victoria: Well, I wanna say thanks to Steven because, you know, it's, uh, I appreciate the perspective. I feel like, uh, it's really important to talk about these things. I think one of the things I thought about coming into this was how people don't talk about money or finances, or if they do it's very general. And so there's always these questions of, wait, what about me? And my, like, everything feels very specific. And so to have Stephen talk to me I think he's got really good rules of thumb that I had not thought of before. I think when you go through life change, you're so used to being in, you know, panic mode whether it's birth, life, death, divorce, you're in this mode of, oh, you know, just, uh, almost like a survival instinct kicking in. And so one of the things I really need to teach myself is just also, enjoy the moment. And so it was weird how that converged with what Stephen was telling me, my life advice and my financial advice sort of came together today.
Jamie: What are you thinking in terms of your next steps? Are there any big changes you think you're gonna make or any new things on your to do list?
Victoria: I am going to look back at my budget, uh, my monthly budget and I'm gonna make myself dig in, even though I'm not de oriented, I'm going to look at that budget and really spend time with it. Focus. Get my two cups of coffee and think about it, uh, with, and without income, um, and maybe make decisions on where I could, easily make changes that can, uh, make that budget work better for me. Like if you just really get that right, a lot of things will fall into place and you'll feel better. You'll know that everything is documented and planned.
Jamie: Well, Victoria, thank you so much for joining us today. It's really been a pleasure getting to talk to you and getting to know you and hear your story. So thank you for taking the time and sharing all that with us. Please stay in touch and let us know how things go.
Victoria: Sure. I will. Thank you.
Extro
Jamie: That's it for this episode of What Should I Do With My Money? an original podcast from Morgan Stanley. If you enjoyed this episode, follow us wherever you listen to your favorite shows. If you would like a deeper dive on what was discussed today, come see us@morganstanley.com / my money. I'm Jamie Roo. Talk to you soon.
