‘I would hate to see their efforts evaporate’: How do I help my adult sons manage their finances — without being an interfering parent?
My two sons are in their 30s and both well educated and have rewarding jobs. They save well and spend within their means, for which I’m very grateful. They each want to buy a home, for which saving is an almost Sisyphean effort, as one lives in Boston and the other in San Francisco — both of which are great places for real-estate investment but terrible for first-time home buyers.
Both of my sons invest in equities, and they are excited about some of their high-flyers.
I am reluctant to give them investment advice as they’ve been so successful on paper. I would hate to see their efforts evaporate just as they’re ready to buy a home. How should I advise them or help them balance their portfolio to conserve their investing achievements? As a parent, I know advice can be ignored until hard lessons are learned. So if you have recommendations for reading or council, that would be much appreciated.
Reluctant to Interfere with Success
The answer, at its core, is in the question. You can best help your sons avoid making big mistakes by maintaining a constant dialogue with them and building trust.
A healthy relationship with the people in your life will help you have a healthy relationship with money. If you maintain a good relationship with your sons, they are more likely to keep you in the loop about their major financial decisions, whether it’s buying a house, spending on what they need and what they want, betting on a single stock, tax planning, potentially falling for a crypto scam, budgeting, living within their means, contributing to an employer-sponsored retirement plan or putting money aside for a rainy day. An early, regular, boring investor and saver is often a successful investor and saver.
You can also teach by example. If the market tanks, instead of saying, “Omigod! My 401(k) has lost 30% of its value. My retirement is up in smoke. Your father will be destitute if this keeps up. There goes your inheritance, boys!” you can call them up and say, “I’m in this for the long game. The percentage of my portfolio in equities has been gradually reduced over the last decade and that has helped shield me from the worst of this. It may be rougher for those who have recently retired, but you’re lucky because you’re in this for the long game.”
About that long game. We can invest and save, but there’s only so much we can control. “The problem facing investors is that no one knows in advance whether they’ll have good luck or bad luck on the timing of their retirement,” Ben Carlson, who manages portfolios for institutions and individuals at Ritholtz Wealth Management LLC, wrote in this blog post. “A bear market at the outset could severely dampen your ability to spend while a bull market could actually improve your standing and give you more money than you ever could have planned for.”
“‘The people who tell you they have all the answers — be they friends, family members or financial advisers — are usually the ones best avoided. ‘”
He advises diversification, rebalancing and having a financial plan in place. “When taking distributions from a portfolio, you can intelligently rebalance your portfolio to avoid selling any assets that are experiencing losses or relatively poor gains,” he wrote. And as to the latter: “The perfect portfolio only exists in hindsight and every retiree is going to face a unique market, spending, tax and withdrawal circumstances. Therefore, the best and simplest way to hedge the sequence of return risk is to have a flexible financial plan that allows for the occasional course correction.”
Maintaining a healthy perspective and cool detachment from their investments while not being afraid to correct their course is something your sons can learn over time — courtesy of the advice and knowledge of a financial adviser, and of your good self. It’s not just one conversation. It’s a years-long process of sharing information, showing an interest and asking your sons questions, too, including “What do you think I should do?” The people who tell you they have all the answers — be they friends, family members or financial advisers — are usually the ones best avoided.
Help your sons think outside the box when it comes to real estate. They can invest in other towns and cities even if they can’t afford to be first-time buyers in Boston or San Francisco. Over the past five years, for instance, real-estate markets from upstate New York to Austin, Texas, and Palm Springs, Calif., have all experienced incredible gains. For those who bought rentals there or who moved to those places, it certainly paid off. In 2019, the median-priced home in Palm Springs sold for less than $400,000. Today, Redfin estimates it’s $715,000.
April is Financial Literacy Month, so your letter is a timely one. People don’t often learn financial literacy at home, and less than a third of public schools have courses in financial literacy. Tim Ranzetta — a San Francisco-based entrepreneur who co-founded Next Gen Personal Finance, a nonprofit with a mission to bring personal-finance education to all schools — told me last year that the number one financial lesson is to invest in index funds at as young an age as possible. For you, your sons and Moneyist readers, that means today.
We have an emotional response to our family members, but we also have similar reactions to money. Remembering that can help when times get tough.
You can email The Moneyist with any financial and ethical questions at [email protected], and follow Quentin Fottrell on Twitter.
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