Money Goals
FINANCIAL Q&A WITH JEREMY PORCHA,
CHARLES SCHWAB FINANCIAL CONSULTANT
By Nick Blevins
Let’s improve our fiscal fitness, shall we? Some currency calisthenics, if you will. As we begin the new year in earnest, let’s take a look at some sage financial wisdom from one of the professionals. Scene In SA sat down with Jeremy Porcha, VP Financial Consultant at Charles Schwab, who provided savvy saving and investing tips, useful financial tools you should know, and best practices for keeping your accounts safe going into this year and beyond.
Jeremy Porcha, VP Financial Consultant at Charles Schwab
What features make a particular savings account more attractive than another?
“If we're looking at, let's say a savings account or a checking account, outside of what the APY would be for the account, let's take a look at the fees. That's something we could very easily manage. Are there monthly services, overdraft fees, foreign transaction fees? Are you getting ATM fee rebates for cash withdrawals when using a different bank's ATM? Are there any kind of security guarantees if anything were to happen?”
What financial instruments offer the best return on investment (ROI), and how can that change depending on somebody's savings goals?
“I know that when investing, a lot of people like to focus on how much they can make, and not really think about whether they can afford to lose, and that's risk capacity.The way that we like to approach it is: always start by establishing a financial plan.
By putting together a plan, you can visually see your goals and illustrate factors like time and risk tolerance that we can reverse engineer to say, ‘This is what we're looking to accomplish.’ This is the comfort level of ROI that is gonna help you fund or support your goals in the future.”
What are some useful financial instruments?
“Direct indexing has been around for decades, but previously, it was only available to ultra-high net worth or institutional investors. Now, it's broadly available to everyone, and there's essentially four key benefits for direct indexing that I really want to illustrate.
When we're thinking about direct indexing, it's not like you're owning a share of the index or a share of the fund of the index—you own the individual stocks that make up the index. Being able to see the individual holdings within the actual index [gives the] advantage [of] transparency. Another benefit is you can customize it. Let's say that you don't want to have exposure to a particular sector or a particular industry; the tobacco industry, for example—nothing against tobacco at all, but let's just say it's a personal value. You have the ability to say, ‘I don't want that inside my portfolio. Let's remove that.’ Or let's say you're overly concentrated in another individual industry or sector in your portfolio. You can exclude that from the index by customizing it.
Now, and what I would say is one of the most beneficial things, is being able to potentially outperform the index on an after-tax basis. I'll break that down for you because I'm not sure if that's gonna…” [laughs]
Yes, please.
“Let's look at it like this. When we think of investors, a lot of times they focus on one item, and that's the amount before: did it go up or did it go down? When we're looking at direct indexing, as far as outperforming an index on an after-tax basis, we're viewing the portfolio in two layers.
Looking at layer one, [for example,] we had a million dollars in the portfolio and let's say the portfolio was up 20%. Well, by the end of the year, the portfolio would be valued at $1.2 million, right?
Now, layer two—and this is where we start to look at the outperforming on an after-tax basis—let's say we also locked in 8%, or $80,000, in losses. So, you get the performance of the 20% growth, but you're also getting 8% in losses. What does that mean?
Let's say you sold real estate and you have a capital gain [or] you're selling other securities outside of the direct index itself. You can use those losses [from the direct index] to offset those taxable gains, or you can carry those losses forward indefinitely.”
So, for people who haven't engaged with stocks or investing with stocks, is there a particular reason they should start now?
“Equities and stocks [have] historically been great defenses against taxes and inflation. Let's dig in a little deeper there. The average annualized total return from [something like the S&P 500] from 1970 to 2020 after taxes and inflation has been about 4.7%.
Now, let's [compare] bonds using the Bloomberg Government Bond Index: [in] the same time frame between 1970 to 2020, bonds after taxes and inflation are only up 0.1%.”
Ooh.
“You're starting to see it. Now, let's look at cash based upon the U.S. 30-Day Treasury Bill Index. During the same timeframe between 1970 to 2020, that yield for cash after taxes and inflation has been negative 1.4%.”
Uh-oh.
“Yeah. So, then it circles back to your question: why should I start now?”
I think for folks who don't typically engage with the stock market, they think about potential big gains, but also potential huge losses. How do you square that with it being a great defense against inflation? Do you just hold onto it? How do equities work for you long-term?
“Well, in all honesty, you’ve got to expect some form of risk to be associated with investment. But that's why I think it's so important to start off with something like a financial plan, because we want to understand what your risk tolerance is and your risk appetite first.
The best investment strategy is the one that allows you to sleep at night. If you can't sleep at night, maybe you're taking on too much risk.”
It seems like there are a lot of scams out there, and they’re becoming increasingly sophisticated. Are you aware of any schemes that people are trying lately to relieve people of their savings?
“It's something that's been on the rise here for years, and we’ve got to be very vigilant about it.
Clients [tell us], ‘Hey, I got an email about an investment,’ and it has exaggerated high returns with minimal risk, the first thing we say is: let's be skeptical. Instant returns or yields with no risk: probably not realistic.
We're also saying, well, ’Let's get all the information on this investment in writing.’ Anytime you feel like you're being pressured to make a decision quickly, you should see a red flag going off.
When you're getting links in the email, verify them. Maybe you want to hover over the link to see exactly where it's taking you to. Or you can copy and paste it into the browser to see exactly what pops up. But in all things, in essence, do your research before you run directly into any kind of things you're receiving via email.”
Are there any hard and fast rules that you go by, regarding when it’s “okay” to use your savings?
“Let's take a step back and redefine the purpose of a savings account, where we want to define it as maybe a rainy day or an emergency fund. Essentially, it’s a way to protect yourself financially in case of illness, injury, or unexpected events.
What that's gonna be made up of, let's try to keep it around three to six months of essential living expenses. Keep in mind, maybe you want a little bit more in your emergency fund [because] you might be changing jobs maybe within a year, or [you’re] anticipating any other significant life changes. [Your savings] is there to access immediately for any of those major life events.”
Personally, what helped make wise money decisions important to you?
“Well, this is actually a really good question. And in all honesty, it's one of the reasons why I'm in this industry as well. In 2013, my grandmother passed away from ovarian cancer, leaving her estate to her only child, of course, my mother. My mother was an assistant principal and my father was an engineer at a local nuclear plant, and just thinking back, I can still recall the feeling of hopelessness that my family experienced through selling my grandmother's estate.
My mom worked in education and my dad was an engineer; [they] never had any financial education or experience to lean on at all. So, at that moment, I made the decision to develop the skillset to become a resource of financial guidance and literacy for my family [and other] families in need—one of the most empowering parts of my job.”
What has been the most valuable piece of advice, or rule that you live by that maybe you didn't expect to be?
“It's two things [that I learned from playing collegiate golf]: the first thing is understanding the difference between what you feel and what is real. The second thing is the importance of developing a strategy.”
What you feel and what is real. Is that research? How does that play in finance?
“Let's say, for example, we're all looking at our portfolios and we feel we're doing fantastic jobs, or we feel that this is gonna be a great investment, or we feel that we need our ROI of twenty percent: What's real? What do we really need to do? What do we really need to accomplish? What are our real goals?
And that also leans into the second part, the importance of developing a strategy. You know, if I want to use an analogy of playing golf, when you look at tour players, they're not out on the course just putting the tee in the ground and firing off at the flag, or firing off at the fairway for 18 holes. Whoever does it the best wins the tournament. They're putting together a strategy, saying, well, I'm gonna be on this side of the fairway, attacking this part of the green to hit this pin, and if the wind changes, or there's changes in humidity, or whatever it may be, we're gonna adjust our plan, our strategy. That's what investing is.”
It's all the stuff that they don't show you.
“100%. And if you look at it, even the conversations going on between the professional and the caddy, they're a lot more in-depth than two guys out just having a good time on a round of golf, right? It's the same thing for a finance consultant and a client.
We're not just investing. We're saying, I want to retire at age 65. And I want to make sure I leave an estate to my kids, and I want to have an estate at X amount of dollars, so I can travel to Bora Bora three times a year. Let's do that and develop our strategy to reverse engineer this, go back to the portfolio, and say, what do we need to do to accomplish these goals? Let's get the strategy together. Let's be very strategic and disciplined in our approach.”
Is it ever too late to start saving?
“The key is really to develop a financial plan, get invested, [and] remain disciplined in your approach. Because there's a lot of different strategies, a lot of different solutions that we can piece together to help you in achieving your goals. So no, it's never too late.”
This interview was edited for conciseness and clarity.
Disclaimer: This article is for informational and educational purposes only and should not be considered financial, investment, or tax advice. Investing involves risks, including the potential loss of principal. Consult with a qualified financial advisor before making any investment decisions. The authors and publishers of this article do not assume any responsibility for any losses or damages incurred as a result of reliance on the information presented herein. Past performance is not indicative of future results.
