Kathy A. Jones, SVP, Chief Fixed Income Strategist

There are few things that are as stressful as money, particularly today. Millennials are worried about college debt. Tweeners are squeezed between taking care of their kids and their parents. Baby boomers are facing skyrocketing medical costs. His Holiness, the 14th Dalai Lama of Tibet, talks about a Tibetan saying that “a sore in the mouth must be healed inside the mouth.” Addressing the source of our financial challenges, and healing those, will allow us to achieve greater Zen in our lives.

Liz Ann and Kathy have been at the top of the brokerage industry for decades, and have a lot of wisdom to share in this area. In my interview with each (separately) earlier this month, they were candid, helpful and shared personal experiences.

Below are 10 tips to start strengthening your money muscles and lead a more fiscally fit life, gleaned from my conversations with Liz Ann and Kathy in July. If you’re interested in more of their wisdom, check out Schwab’s Insights page. Schwab.com offers financial education, ongoing market analysis and more for free, even if you are not their customer. It’s a great place to start up the path to financial wisdom. You can also listen to my full conversation with Liz Ann Sonders on my BlogTalkRadio show. 

1. Learn the Basics.

2. Get a Plan.

3. Get a 2nd and 3rd Opinion on Your Plan.

4. Never Reach for Yield (Without Full Awareness of the Risk).

5. Protect Your Parents.

6. Look at Risk and Performance.

7. Diversify.

8. Rebalance (Instead of Buy and Forget About It)

9. Lock in a Fixed Rate on Your Home.

10. Consider a Health Savings Plan.

And here is more information on each item.

1. Learn the Basics. Don’t just open a brokerage account and wing it. While investing does have it’s own jargon, there is ample opportunity to start learning the language, from qualified sources. As Liz Ann Sonders says, “Financial fitness gives you peace of mind because you are on a path of reaching your long-term goals. You don’t have the stress that comes from falling behind.”

2. Get a Plan. Whether you design the plan yourself (after you learn the basics), or with a financial professional, having a plan is essential for your future and for your peace of mind. As Kathy A. Jones reminds us, “Having a plan actually reduces the stress. When you hide from it, it’s out there like this dark cloud. You try to pretend it’s not there, but you know it’s going to rain on you.”

3. Get a 2nd and 3rd Opinion on Your Plan. Kathy recommends having three professionals who you trust look at your plan, so that you can be more assured that it is a good one. If someone is approaching you with a new opportunity, particularly if that opportunity is offering a high return, then it’s important to get those opinions before you sign on the dotted line.

4. Never Reach for Yield (Without Full Awareness of the Risk). It’s tempting to want a guaranteed rate of return that is far above the 1% you’re getting in your savings account. As Kathy Jones warns, “If the risk-free rate is 1¼% and they are offering you 8%, there is some risk involved that is many magnitudes greater than a Treasury bond.” Liz Ann Sonders recommends that you have a healthy level of skepticism, that you do your homework before investing and that you work with reputable firms.

5. Protect Your Parents. Studies show that retirees are at greater risk for financial exploitation. Even seasoned professionals like Liz Ann and Kathy admit that talking to their parents about money isn’t always easy. However, both are now involved in making sure that their parents’ financial future is secure.

6. Look at Risk and Performance. When looking for the perfect financial partner, most people are attracted to performance. However, as Kathy Jones reminds us, higher risk is often the partner of high performance. A plan that is right for you includes a sober look at your risk tolerance. Liz Ann points out that many investors mistakenly think that risk tolerance is closely aligned with age. In fact, if you’re 22 and a 5% drop in your stocks means you can’t sleep at night, then you don’t have much of a stomach for risk.

7. Diversify. Asset allocation and keeping enough “safe,” is important all of the time, and even more so as you get closer to retirement. As Kathy points out, “The older you get, usually the more fixed income you have because there is a risk that you can’t recover. You just don’t have the time.”

8. Rebalance (Instead of Buy and Forget About It). According to Liz Ann, “Rebalancing is a great discipline that forces you to abide by that old adage of “Buy low; sell high.” When you’ve seen a dramatic rise in the value of your equity side, then your portfolio is telling you that it is time to do something to get back in balance. That’s selling high. Though we all aspire to this, when we don’t have a plan, we are often riding our emotions, which will prompt us to do the opposite – buying high (because everyone is doing it) and selling low after the investment has already lost money, because the losses are stressing us out.

9. Lock in a Fixed Rate on Your Home. Interest rates are rising. So, according to Kathy Jones, “If you have the option to refinance into a fixed mortgage, it might be a good time to think about doing that right now. There is probably some upside risk to your mortgage rate if you have an ARM or a floating rate.”

10. Consider a Health Savings Plan. Health care costs are one of the biggest challenges when you retire. Health savings plans can offer immediate savings on your health insurance (particularly if you’re young and healthy), while also providing for tomorrow. According to Kathy Jones, “If you are fortunate enough not to get ill, you can tap into that as tax-exempt retirement savings down the road as well. They generally are a good idea.”

Kathy A. Jones and Liz Ann Sonders offer regular market updates and insights on Schwab.com. I have three bestselling personal finance books. Call 310-430-2397 to learn more about my Investor Educational Retreats and free Nest Egg pie chart and Thrive Budget web apps