With Eric Hutchinson, CFP, Managing Director of Hutchinson Financial, Author of The Financial Briefing: Answers to Life’s Most Important Money Questions
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From the first coin or dollar you get in exchange for a lost baby tooth, money plays a big role in your life. You will need it, enjoy it, worry about it, work for it, and, if you play the game correctly, never run out of it. Eric Hutchinson, Managing Director of Hutchinson Financial, knows the rules of the game and has written a book, The Financial Briefing: Answers to Life’s Most Important Money Questions, that can guide you all the way to the finish line.
It’s important to begin your relationship with money early in life, by developing and understanding how to acquire, save, and invest your money. The first step is formulating a plan designed around your own specific needs and priorities, writing down your goals, and then putting everything in place to begin achieving those goals. It’s a different template for everyone: are you looking forward to an early retirement so you can sail around Cape of Good Hope in your 50s, do you want to provide your children and grandchildren with a legacy, or do you want to have a second home at the beach? And how about priorities? Do you long for a Patek Philippe or are you happy as a clam wearing a Timex?
After you define your goals, Eric advises working with a Certified Financial Planner, a trained money professional, who can act as a coach to put you on your individual track and, most importantly, can keep you on that track, especially when life’s inevitable curveballs come your way.
Choosing a trusted CFP can be the most crucial step in the process, and Eric’s book includes the resources available to help you make the right choice. Once that’s done, your CFP can help you with the smart choices for your financial future. Do you need to set up a trust, is life insurance a necessity, do you have adequate retirement savings? As far as investments, do you need a strategy that produces income or one that increases in value over the long term? A CFP can wade through the varied and complex available options to create your personalized and balanced portfolio.
The Financial Briefing: Answers to Life’s Most Important Money Questions is a thoughtfully written guidebook for anyone wanting to live a life of financial security and independence. And who doesn’t?
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: My guest is Eric Hutchinson. He’s a managing director or Hutchinson Financial now a division of United Capital. He’s a CFP with over 30 years of experience in financial planning and investments, etc. I’ve asked him to join me today because he’s written a book. The book is The Financial Briefing: Answers to Life’s Most Important Money Questions. Just as a little bit of a disclaimer, I’ll let you know I also work with United Capital. Hey, Eric, welcome to the show.
Eric Hutchinson: Great to be here. Thanks so much.
Steve Pomeranz: I understand your book is a big overview of the financial planning process. Give us some idea as to the scope of the book.
Eric Hutchinson: Steve, it really covers everything from the early days of a young person learning how to save all the way to developing a financial plan, developing an estate plan, getting insurance right, and maybe even downsizing as you get to empty-nest stage of life. It really covers a full range of the lifetime. The idea for it is as questions come up in folks lives, they’ll be able to have a resource.
Steve Pomeranz: It’s a resource. Somebody says, “Maybe you need a trust,” you could take a look at the book. “Maybe you should look at some life insurance,” look at the book. That kind of a thing.
Eric Hutchinson: Exactly.
Steve Pomeranz: Let’s talk about personal planning. How does one begin to develop a personal plan?
Eric Hutchinson: It really starts with a thought process and getting clear about what’s really important to you. You have to ask yourself some searching questions about what do you really want? What’s important to you? Are you looking to retire at a certain age? Do you know how much income you’re going to need? What about the family, do you want to provide for the education of the children or grandchildren? How’s that going to come about, what do you need to be doing? These are things to think about. If you want to have the lake house or the beach house, when do you want to have it and what are the steps we’re going to take to help us get there.
Steve Pomeranz: It’s really sitting down and thinking about what you want your financial life to look like and then writing down your goals and starting to put everything in its place for you to begin achieving your goals. At what point in the process does one need to consider bringing in a professional, like a certified financial planner?
Eric Hutchinson: Really, early in the process would be ideal because the financial planner is trained in such a way to help you think through these issues at perhaps a deeper level than you might be able to do on your own. It’s a good idea to have professional guidance because so many times I see people try to do this on their own or they ask their neighbor over barbecue and they really get off track and they have no idea how far off track they really are.
Steve Pomeranz: I guess a financial planner will also keep you on track. It’s one thing to start the process, to gather all the paperwork, start to do the plan, but in a few months it needs to be revisited, making sure you stay on track.
Eric Hutchinson: Absolutely. In fact, one way of looking at the financial planner or the financial advisor is they are a coach. They’re the doctor. They are the resources to help keep things on track so we don’t get too far off track. And if we are off track, what do we have to do to steer back on track.
Steve Pomeranz: How do you look for a financial advisor? What qualities do you look for, what questions should you ask?
Eric Hutchinson: At the risk of sounding self-serving, I certainly would start with looking for someone who is a Certified Financial Planner. The reason is that the body of training and certification process for a Certified Financial Planner is extensive enough that you can be reasonably assured that this person has some idea of what they’re doing.
Steve Pomeranz: I’m going to interrupt just for a second, I don’t think it’s self-serving for you to recommend a Certified Financial Planner. That is a must. Anyone who does not have the CFP designation and is calling themselves a financial planner really doesn’t have the necessary training and the continuing education. What questions should you ask when you’re looking for a planner?
Eric Hutchinson: I think a place to start would be to talk to family and friends, people that you trust, as to who they’re using. You can look on industry websites, there are search functions on the financial planning association website, on CFP website. You can use background checks with government websites, they’re listed in the book. When you begin to talk to and interview some potential financial planners, you want to find out about their educational history. What professional credentials they have, what are they doing to keep up with their professional credentials, what services they provide, what services the firm provides, how they charge their fees, and so on.
Steve Pomeranz: My guest is Eric Hutchinson and the book is The Financial Briefing: Answers to Life’s Most Important Money Questions. Let’s move on to investments. A lot of people who listen to this show are just starting out, they’re just finally saving some money, and they’re thinking “how can I put this money away for long-term?” Maybe it’s in a 401K or some other kind of retirement plan. In terms of allocation, how should one start to think about investing their money?
Eric Hutchinson: Well, it really starts with understanding how investments work. If you look broadly at all of the different possibilities for investing money, they really fall in two broad categories. They’re either things that grow in value over time or things that produce income over time. The more you have of the growth oriented investments, the more likely you are to have a higher return over a long period of time. The more you have things in income oriented investments, the less likely you are to have much return over time. For most people, they end up needing a balance for those. So it’s finding how much should I have in this kind of thing and why. That’s a pretty extensive process, pretty important process.
Steve Pomeranz: You think that people should become stock pickers and if they have no knowledge of stocks or investing they should start listening to the financial media or buy a newsletter and start investing in individual stocks?
Eric Hutchinson: For most people, that is a dangerous path. For most people, using some managed products, mutual funds, exchange traded funds, getting some professional help, it is too complex an arena to try and do this on your own without extensive study and constant research and monitoring. I don’t think stock picking is a good activity for the average person unless they want to devote a lot of time to it.
Steve Pomeranz: Very quickly, I was speaking with a woman the other day and she said, “I invested in Dunkin Donuts.” And I said I had looked at that stock and that company and the CEO and I wasn’t really that crazy about. I looked at their balance sheet and their growing pattern and their growth rate and all of that. I started talking and I said I never really felt comfortable about this x, y, z stock and it happened to be Dunkin Donuts. She looked at me and she said, “I just like the donuts.” It was like, “oh, okay I get it.” That is not a reason to invest in any company whether you like their clothes or donuts. I want to briefly switch to this idea of insurance. A lot of insurance is sold—insurance is sold by the way, it’s not something that’s done necessarily by an advisory. It has to be sold. It’s a commissional product. So a lot of it is sold like an investment. Eric, what do you think about insurance? How it should be considered? Is insurance an investment?
Eric Hutchinson: No, for the most part, although many insurance salesmen would try to make you believe that. It is just simply not an investment vehicle, per say. What it’s designed to do, different kinds of insurance… it’s all about transferring risk to the insurance company rather than you taking on the risk individually and basically self-insuring, you’re transferring risk to the insurance company. If it’s life insurance, what happens if I die early and I don’t have enough time to save enough money to take care of my family, the life insurance kicks in. Automobile insurance, if you have a bad automobile accident and have to replace the car, pay for medical expenses, and so on, where is that money going to come from? You’re transferring that risk to the insurance company.
Steve Pomeranz: And all kinds of insurance, whether it be home insurance, long-term care insurance, it’s exactly the same purpose. There’s a premium, there’s a cost to it, there is a benefit because the insurance company is aggregating all these lives together to try and get a fair price for what they’re selling, but it is never ever ever an investment product.
Eric, we’re out of time. Eric Hutchinson, his book is The Financial Briefing: Answers to Life’s Most Important Money Questions. More information can be found at thefinancialbriefing.com
Eric Hutchinson: Thank you.