Personal finance and wealth management may seem like daunting tasks, but Erik Lie says that at their core, the principles of doing it well are fairly simple.
Lie is a professor of finance at the Tippie College of Business who recently published “Wealth Management,” a book that gives readers practical knowledge about improving their finances, from their first job through retirement and estate planning.
He said the book started out as notes for his wealth management class, which has seen increasing enrollment recently because the wealth management sector is growing, and people are increasingly responsible for their own retirement savings. But he realized along the way that there are few comprehensive books for people who understand the basics about personal finance (like the virtue of paying off credit card debt) and would like to learn more, but don’t need the technical knowledge of more advanced books (like valuing securities or short selling, neither of which he said non-professionals need to know).
Much of the basics of sound wealth management is simple enough to fit on an index card. None of this is radical advice, he said, though some wealth managers may disagree with some.
—Contribute the maximum possible to retirement accounts, and if those are topped out, consider allocating more to Roth IRAs.
—Invest in a diversified portfolio of mostly low-fee index funds, supplemented with individual stocks in non-retirement accounts to give more tax strategy flexibility.
—Invest mostly in stocks, especially if your investment window is 10 years or more.
—Sell only if you’re harvesting losses to minimize your tax bill, or if you desperately need cash.
—Buy health insurance.
—Buy term life insurance if you have dependents.
—Start a 529 college savings account if you have children.
Most wealth management experts will tell beginning investors to avoid single stocks and stick to mutual funds and exchange traded funds (ETFs), but Lie disagrees with that advice for those who have picked up a few more skills from the book. He recommends investors who have learned tax strategies to supplement with individual stocks that can be sold strategically to harvest losses and reduce tax bills.
On the other hand, what are some things people should stay away from with their money?
—Avoid reverse mortgages.
—Don’t buy life insurance before you have dependents or after your dependents are grown.
—Avoid annuities and permanent life insurance as investments in all life stages.
—Don’t buy extended car warranties and insurance products that only cover expenses that savings can readily cover.
Lie said these products are either unnecessary or don’t provide the return that other investments do.
The book also tackles more complex material that does not fit neatly on an index card. For example, Lie explains why investors should keep all target date funds and mutual funds inside retirement accounts, and if they wish to invest in an index fund outside a retirement account, they should use ETFs. Also, the book explains why and how individuals can avoid probate for their estate.
He said all royalties from the sale of his book will be donated to the International Rescue Committee.
Media contact: Tom Snee, 319-384-0010 (o); 319-541-8434 (c); firstname.lastname@example.org