Can We Renovate Our Kitchen?

Summary

Podcast Summary: "Can We Renovate Our Kitchen?"
Jill on Money with Jill Schlesinger
Release Date: December 20, 2024

In this episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger delves into the financial intricacies of home renovations, particularly kitchen upgrades. The episode features insightful discussions on managing financial advisor fees, selecting fee-based financial planners, making significant home improvement decisions, and strategies for portfolio rebalancing. Through listener questions and expert guidance, Jill and her team provide actionable advice to help listeners make informed financial decisions.

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1. Managing Financial Advisor Fees

Listener Question from Rich:
Rich expresses concerns about his financial planner reducing his fee from 1% to 0.8% of his IRA account but simultaneously increasing his investment in mutual funds from 15% to gain access to specific markets.

Expert Response:
Jill addresses Rich's unease by highlighting the importance of understanding what services are being provided for the fees charged. She states:

“If you're just paying 80 basis points or 1% and you're not getting any financial planning, you're just getting money management. All of it's a ripoff.”
— Jill Schlesinger [04:00]

Jill advises Rich to question his advisor about the necessity of the fees and whether ongoing financial planning is part of the service. She emphasizes the importance of transparency and ensuring that fees align with the value received.

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2. Seeking Fee-Based Financial Advice After Receiving Life Insurance Proceeds

Listener Question from Brenda:
Brenda seeks recommendations for a fee-based financial firm after her mother inherited $111,000 from a life insurance policy. She is unsure whether to choose a wirehouse or another type of firm.

Expert Response:
Jill outlines the different compensation models for financial advisors:

1. Commission-Based Model: Typically older and often involves selling specific financial products.
2. Asset Under Management (AUM) Model: Fees based on the total assets managed, usually requiring ongoing financial planning.
3. Fee-Only Advisors: Charge a flat fee and do not receive commissions, focusing solely on providing unbiased financial advice.

She suggests that Brenda determine her needs—whether it's asset management, investment, or comprehensive financial planning—and choose a firm that aligns with those requirements. Jill highlights the benefits of fee-only advisors for unbiased advice:

“We don't take commissions, we're not selling stuff. It is just a flat fee or some, some way to compensate people for the advice that they are getting that is not linked to a product or an asset under management model.”
— Mark [07:00]

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3. Deciding on a Kitchen Renovation

Listener Question from Ronald:
Ronald and his wife, both in their early 40s with substantial savings and a stable income, contemplate a $75,000 kitchen renovation. They are concerned about whether this expenditure is financially prudent given their long-term goals and current mortgage balance.

Expert Response:
Jill and her guests analyze Ronald's financial situation, considering their savings, investment accounts, and mortgage. Mark offers a candid perspective:

“You have this beautiful sub 4% loan. No, you should use your brokerage account. That is how you're going to pay for it.”
— Mark [12:11]

He advises against pausing contributions or taking out a loan, emphasizing the importance of utilizing available brokerage funds to finance the renovation. However, he cautions that the final cost may exceed the initial estimate, potentially reaching $100,000.

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4. Strategies for Rebalancing a Balanced Fund

Listener Question from an Anonymous Caller:
A listener inquires about the necessity and method of rebalancing a balanced fund, specifically the Vanguard Wellington Fund, which maintains a roughly 2/3 stock and 1/3 bond allocation.

Expert Response:
Jill examines the characteristics of the Vanguard Wellington Fund, noting its balanced nature and low expense ratio compared to other balanced funds. She reassures the listener:

“You are paying more for that balance. But it's easy. And so like I'm fine with it. I'm totally fine. I would keep it. You're all good.”
— Jill Schlesinger [13:30]

She concludes that for those comfortable with their current balanced fund setup, extensive rebalancing may not be necessary. However, she suggests monitoring the fund's performance and being open to adjustments if allocations shift significantly.

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Conclusion

Throughout the episode, Jill Schlesinger and her team provide nuanced financial advice tailored to individual circumstances. Whether it's evaluating financial advisor fees, selecting the right financial planning services, making informed home renovation decisions, or managing investment portfolios, listeners gain valuable insights to navigate their financial journeys confidently.

For more personalized advice, listeners are encouraged to visit jillonmoney.com and reach out with their financial questions.

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Notable Quotes:

• Jill Schlesinger: “If you're just paying 80 basis points or 1% and you're not getting any financial planning, you're just getting money management. All of it's a ripoff.” [04:00]
• Mark: “We don't take commissions, we're not selling stuff. It is just a flat fee or some, some way to compensate people for the advice that they are getting that is not linked to a product or an asset under management model.” [07:00]
• Mark: “You have this beautiful sub 4% loan. No, you should use your brokerage account. That is how you're going to pay for it.” [12:11]
• Jill Schlesinger: “You are paying more for that balance. But it's easy. And so like I'm fine with it. I'm totally fine. I would keep it. You're all good.” [13:30]

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This comprehensive discussion equips listeners with the knowledge to assess their financial strategies effectively, ensuring that their decisions align with both their immediate needs and long-term financial aspirations.

Transcript

[Jill Schlesinger]

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[Mark]

Welcome to the Jill on Money Show. It's Friday, December 20th. Oh my goodness. We are so excited here at Jill on Moneyland because this is the last day that we are working which doesn't really mean anything for you guys because you will see that your feed will be populated every single day until December 31st. But it does mean that Mark and I pre recorded a bunch of stuff. So this is the second to last weekend of shows. I'm just going to bring Mark on the microphone for a moment to see how you're feeling about no longer producing weekend Jill on Money shows.

[Rich]

Very much looking forward to that.

[Mark]

Yes, it's just the beginning.

[Rich]

I know it sounds people. Ah, it's just two shows. Yes, it is just two shows but it does make a difference. It'll really make a difference when we're making planning our vacations and stuff like that.

[Mark]

Yeah, of course. And you know it's the beginning of the process of the art of subtraction so Mark's just waiting for me to get out of my world of CBS News so that I can just 100% concentrate on our world here at Jill on Money. I only have two more years to go, Mark, unless the new owners come in next year and blow me out, in which case we'll be very hyper focused on this show. I think of that as a very high possibility. Just going to say gang? Well, I don't know, but it is certainly a possibility. Anyway, if you're someone like me in an industry that's consolidating and you're worried about getting blown out, you might want to check in with us. You may want to start to think about what does your plan look like if you don't make the decision about retirement, that that decision is made for you. You know, labor economist Teresa Gillard Ducci, who wrote that wonderful book and joined us a while back, work, retire, repeat has said one of the big problems about retirement planning is that a lot of people presume, oh, I'm just going to keep working till I'm 70 years old. That's great as long as you keep your job. A lot of people are retired, meaning their bosses blow them out before they're ready to actually call it quits. So if that's your situation or you're worried about that, go to our website jillonmoney.com click the contact us button, write us a note and if you don't want to come on the air live, that's fine. But if that's the case, make sure you give us a lot of detail if you are going to come on the air live, just check the box. Mark will do everything else and we encourage you to do come on the air live. I know there's shy people out there and we're going to do an email episode today. But you know, it's so much better. We get to ask follow up questions. I love it when you guys come on live. I know that people really enjoy, enjoy the, the interaction and so do we. While you're on the website, don't forget to sign up for the free weekly newsletter. Comes out every Friday. Mark does a great job with that. Okay, Mark, we are going to take some emails. This is Rich who writes hi Jill and Mark. I love the show and listen every day. I'm hoping that you can provide me with some guidance. I'm meeting with my financial planner. He's at one of those huge firms and until recently I've been happy with his guidance. But earlier this year we agreed to reduce my fee from 1% to 8, 10 of 1%. So, right, we're going down by 20 basis points. Since then, he put 15% of my IRA account into mutual funds. My total account value is $1.6 million. I don't know if I'm right for feeling this way, but I wonder why I would need to pay 8, 10 of 1% to have money in mutual funds. It makes me wonder if they get paid by the funds and is it just a way to get some of the 20 basis points? My advisor told me they did this as a good way to get access to certain markets, like small caps, that they weren't focused on for me in the past. To me it seems like a huge coincidence. And he tells me what the funds are. Okay, can I just say one thing, Rich? The idea that you are paying 8/10 of 1%, so 80 basis points and that, you know, you think, oh, why am I paying somebody to. You should. If you're just paying 80 basis points or 1% and you're not getting any financial planning, you're just getting money management. All of it's a ripoff. I mean, I hate to be so bold and pointing that out to you, but if this person is putting you into individual stocks, it's not like this man or woman who is managing your money is picking those stocks. They're putting you into something called a separately managed account. And so to me, if you're not getting financial advice, I don't even know why we're paying for asset management. In fact, I would feel a lot better if you said to me, the advisor has me all in exchange traded funds with a cost of zero and my fee has gone from 1% to 0.8%. And they're doing full blown financial planning. I feel fine with that. I think we might be worrying about the wrong problem here, Rich. I would ask first and foremost the question to the advisor and I would also ask whether they're doing ongoing financial planning for you and if not, why not? I would ask for that, absolutely. Okay, next question. This is from Brenda, who writes, my mother received $111,000 from my dad's life insurance policy. We are looking for a no fee based firm in our area. I don't think there you'd mean no fee, but we're going to talk about that in a second. My sister suggested she names a wirehouse. She says, I believe they're fee based. What do you suggest? All right, this is actually a great question coming after the question we just answered, and that is if you are seeking financial advice, it is important to figure out what it is you need. So let's give you the example. Mom inherits $111,000 from dad. What does mom need? Does she need asset management? Does she need someone to invest her money because she doesn't want to do it? Does she need financial planning? What is it that mom needs that we. What's the problem we're solving for? So there are three basic ways that people get paid for financial advice, right? Number one is the old commission based model. So that's like, oh, somebody who sells me an insurance product will do some financial planning. I don't love that model. I think it's pretty old fashioned.

[Jill Schlesinger]

Yes.

[Mark]

When I started in the business, we all charge commission. Don't need to do that anymore, thank you very much. Let's move on. The second is an asset under management model where somebody will charge you based on the total assets under management. So in the previous question, $1.6 million, 1% or 0.8%, that charge is called an asset under management fee. It is charged every single year. And usually in this day and age, as I said to the previous questioner, Rich, you wouldn't pay for that unless you were getting ongoing financial planning advice as well. The third way to pay for financial advice and financial planning is to get someone who charges a flat fee and takes no commissions. Essentially someone who is a fee only advisor, which is the national association of personal financial advisors, Napa.org has that on their like their mantra, we don't take commissions, we're not selling stuff. It is just a flat fee or some, some way to compensate people for the advice that they are getting that is not linked to a product or an asset under management model. But at the end of the day, for both Brenda and Rich, I think the question becomes who is doing what. If you want to pay for advice, then you are absolutely going to have to pay some fee or flat fee. And it may not be, it may be a lot more money than you think. If you want to have someone just manage your money, you're probably better off using a robo advisor. Whether it's with Betterment or Vanguard Personal Service Advisor or Schwab or Fidelity, whatever it is, that's what you would do. Otherwise you're going to pay a fee. Either it's going to be a flat fee or it's going to be some other amount of money, like just a one time planning fee. And then you're going to have to decide what of of the service you need. So I hope that explains it for you. Brenda, give me a shout back if you've got a follow up question. Oh, I love this question. Mark, you ready? Can we renovate our kitchen? Here's the background. This is from Ronald. My wife and I are in our early 40s. We own our forever home. We want to renovate our kitchen. We are nervous about spending the money and making a dumb financial decision as we build our nest egg. The kitchen definitely needs an upgrade, but I feel like the renovation falls into the nice to have category as opposed to the must do. All right, the renovation will be about $75,000. They must not live in New York City because that seems like a low number for a renovation. And here's the financial breakdown. He has $430,000 in his 401k. She has 225,000 in her 401. She's got 60 grand in a rollover. They've got $140,000 in a brokerage account. Wow. They have $40,000 in cash. So they like right now in their 40s, their early 40s. They look great. They've got 529 accounts. They've got a three year old and a one year old, and it's about $30,000 combined. Here's the important part. They earn a combined 315 grand a year. Wow. They max out both of their 401ks. And they also put $1,700 a month into the brokerage account and 800 into the 529. So they're saving $2,500 a month for their future goals.

[Rich]

Okay, wait till you get to the last line.

[Mark]

With the kids. And just moving into this home, we spend a good chunk of money each month. We have roughly $500,000 left on the mortgage at three point. Does a renovation make sense given our financial breakdown? Ready for the answer, mark in three, two, one. Yes. You got 140 grand in your brokerage account. That's how you're gonna. Oh, no, no.

[Rich]

Keep reading, keep reading.

[Mark]

I don't like he. Okay, I understand you. So Ronald says, I don't like the money. Taking the money out of the brokerage account. Should we pause our contributions and. No, stop this. Take the money out of the brokerage account, pay the tax that's due, and then rebuild your brokerage account and stop being so silly.

[Rich]

Then why. Why have a brokerage account if you're not going to use it? Why have it?

[Mark]

Okay.

[Rich]

You'd rather take out a loan and pay interest.

[Mark]

There's. And. And by the way if you buy, if you take out a loan, it's going to kill you. It's like that. You have this beautiful sub 4% loan. No, you should use your brokerage account. Okay? That is how you're going to pay for it. Stop it, stop it, stop it. The answer is, by the way, and I can almost guarantee it's not going to be 75 grand, it's going to be 100 grand. I'm just going to say that right now, putting myself out there. Hey, this is from somebody. The subject is, am I a lazy ass rebalancer? Hello. I love your show. You already know that. Here's my question. Everyone says rebalance, have a stock, have a bond, then rebalance and you're good. I have the Vanguard Wellington fund and they rebalance for me. Right. Someone said, okay, but when the market tanks, how do you just sell the bonds? Since selling shares of Wellington, sell both. Okay. Wellington is a balanced fund. Right. And you know, I guess that there is. Let me just look at the allocate. I haven't looked at this fund in so long. So this is Vanguard Wellington, right? Let me look at it. Okay, so the Vanguard Wellington Fund has about 2/3 in stock and one third in bonds. And yeah, I think that they're rebalancing. It's a balanced portfolio. So yeah, I mean, I don't think you have to do much with that. You don't have to get involved. I guess the point is that if you have any, one of the nice things is that a lot of people will not have a balance fund like this. You do. On one hand it's great because you don't have to really worry about. On the other hand, you don't get a chance to rebalance and take tax loss harvesting. But so be it. You're doing fine. You can, you can do fine. If you feel like you are over allocated in one area because all of a sudden Wellington has doing some, is doing something different, then you might use other stuff around it. But sure, that's fine. I have no issue with this. I also would not really get too nutty about it. It's funny because most balance funds are expensive. The Wellington fund has a, an expense ratio that's a quarter of a percentage point a year. So that is more than say having the Vanguard stock index and the Vanguard bond index. So you are paying more for that balance. But it's easy. And so like I'm fine with it. I'm totally fine. I would keep it. You're all good. Okay. Hey, Mark. That's it. That's the show. Went by so fast. If you've got a question for us, just give us a Holler. Go to jillonmoney.com and click the Contact Us button. Write us a note and we'll answer that as quickly as we possibly can. While you're on the website, don't forget to sign up for the free weekly newsletter comes out today. It's amazing and you should also check out all the great content that lives on the website. You can subscribe to us on the Odyssey app or wherever you find your favorite podcast. It's Friday. We like to do our thank yous. Our music is composed by Joel Goodman. Mark Dalecio is our executive producer and king of all things web and we are distributed by the fine folks at Odyssey. Try to do something nice for someone else today. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow.

[Jill Schlesinger]

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[Angela Kinsey]

And I'm Angela Kinsey. We are best friends and together we have the podcast Office Ladies where we rewatched every single episode of the Office with insane behind the scenes stories, hilarious guests and lots of laughs. Guess who's sitting next to me? Steve is my girl in the studio. Every Wednesday we'll be sharing even more exclusive stories from the Office and our friendship with brand new guests. And we'll be digging into our mailbag to answer your questions and comments. So join us for brand new Office Ladies 6.0 episodes every Wednesday. Plus on Mondays we are taking a second drink. You can revisit all the Office Ladies rewatch episodes every Monday with new bonus tidbits before every episode. Well, we can't wait to see you there. Follow and listen to Office Ladies on the free Odyssey app and wherever you get your podcasts.