This report on financial styles and choices involved interviewing two individuals: a financially well-off lawyer from Mission, Texas, Richardo Lozano, and an upper-middle class history teacher from Ann Arbor, Michigan, Brian Lincourt. In terms of their financial strategies, they have contrasting styles. While Mr. Lozano prefers to invest in real estate and low-risk assets such as CDs, Mr. Lincourt considers himself “moderately aggressive” when it comes to investments. In Mr. Lozano’s case, investing in CDs means he does not stand to lose anything (since CDs are FDIC insured), but, on the other hand, his returns are relatively low. In fact, if inflation outpaces the interest rate of his CDs (which is possible since banks are currently issuing CDs at extremely low-interest rates), he would end up facing losses. Coupled with the fact that CDs are generally non-liquid, it means Mr. Lozano would not have access to cash unless he were willing to forego any interest income that he had accumulated, which defeats the purpose of owning a CD in the first place. By contrast, Mr. Lincourt’s decision to invest in a diverse portfolio of mutual funds is a sound one, especially since, historically, the stock market has always produced a rate of return over the long run, in some cases, in the double digits. In an economic downturn, Mr. Lincourt’s investments would be negatively affected and his choice to invest in municipal bonds also means he faces the risk of losing his investment if the municipality were to default, even if the risk is generally low.
Both of them have Roth IRAs. In regards to life insurance policies, both men have opted for term policies. In explaining their reasons for choosing term policies over whole life insurance, they both based on financial considerations (it is more affordable to possess term life insurance). However, from Mr. Lincourt’s perspective, there is also a practical aspect in that since he has already received benefits from his investment portfolio and has planned his retirement income strategy. Whatever additional income that he would gain from a whole life insurance policy would likely be less compared to the alternative. Mr. Lincourt also believes that while the contributions are non-deductible for tax purposes, the income that he will receive from it upon retirement will be tax-free. “Frankly, I don’t miss that tax deduction anyway,” Mr. Lincourt noted. This decision appears to be a sound one, especially since it would shield him from whatever tax rate he would otherwise be responsible for paying (“10 Reasons to Convert to a Roth IRA”).
In terms of land and property, Mr. Lincourt does no possess either. Since he is not married, he says he sees no point in owning a home right now. Instead, he rents an apartment. He adds that someday down the road he would not mind owning a duplex and renting it out to generate income, but at the moment he does not have the money to invest in one. On the other hand, Mr. Lozano owns quite a few real estate assets, including one house each in Monterrey, Mexico and Mission, Texas, respectively. He also rents out four properties, which amounts to a nice, tidy income.
When discussing alternative investments, Mr. Lozano notes that he possesses gold collectible coins, paintings, and jewelry. Mr. Lincourt says that he collects autographed sports memorabilia such as baseballs and jerseys. However, he does not consider it to be anything that would generate substantial income if sold. In both cases, these investments appear to be more about keeping hobbies more so than generating income. When asked whether he had thought about investing in gold (especially in light of all the TV commercials that exhort the viewer to think about the precious metal’s limitless possibilities), Mr. Lincourt responded, “If the value of gold were really about to skyrocket as they claim, would you seriously expect them be so eager to sell it to you?” He makes a good point. The price for an ounce of gold as of February 2015 is around $1,200. When adjusted to inflation, the average price 35 years ago was $1,950 on average, or $750 more than today (“Inflation Adjusted Annual Average 2014).
As it relates to inheritance, Mr. Lozano does not expect to receive anything nor does he make it part of his financial plan. Mr. Lincourt, however, is anticipating that he and his three siblings will each be left with something from his father, a retired county judge. Beyond guessing that it will probably be in the amount of “high 5-figures,” Mr. Lincourt confesses that he has not gone through the numbers nor has he factored this into his financial plan. “I’ve made a deliberate decision not to get involved in issues related to my inheritance because I don’t want to be beholden to it.” Mr. Lozano, who is married with two sons, plans to pass his assets onto them once he passes away. As for Mr. Lincourt, he is already preparing for that even though he has not yet started a family. “For the time being, I’ve listed my youngest sister as my benefactor in the event that something happens to me. She would not be getting much from me at this stage, but she’s the one who could use it most. Once I get married and have children, they would obviously inherit my money instead.”
Both of the interviewees facttor taxes into their investment decisions, highlighted by the fact that they both invest in Roth IRA funds. According to Mr. Lozano, “This certainly factors into my investment decisions since taxes reduce my total net income. So, before making an investment plan, the first thing I consider is how much the government is going to tax me.” Mr. Lincourt adds some insight as well, stating, “I'm willing to pay a little more now if it means paying less to the IRS down the road. I'm still relatively young and able bodied, so I can handle the tax burden. I also donate to charity and write off the interest on my loans.”
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An interesting point of comparison is their drastically different methods of managing their investments. Mr. Lincourt works with a financial advisor whom he has known since his days in college. They set up two formal meetings per year to assess his portfolio and schedule additional meetings in the event that the circumstances (such as a financial emergency) merit one. By contrast, Mr. Lozano makes his investment choices based solely on discussions with his wife and sons. While it would certainly make sense to discuss budget issues with the family and even ask for input on investment decisions, the strategy of not involving a financial advisor in the process appears rather questionable, especially since Mr. Lozano possesses a lot of assets and is presumably too occupied in his work as an attorney to be able to focus all of his energies on his investments. Thus, it can be concluded that Mr. Lincourt’s decision to consult with a financial advisor seems to make far more sense.
Finally, as for debts and liabilities, Mr. Lincourt mentions that beyond the student loans that he is paying off, he has no debts to speak of. Meanwhile, Mr. Lozano is entirely free of debt. Both of them own credit cards but make sure to pay off the balance so that they do not have to pay interest. These points bode well for both of them because this is an indication that they are not spending or investing beyond their means.
In summary, Mr. Lozano has accumulated a lot of wealth from his work as an attorney and chooses low-risk investment options, which involves consulting his family. Meanwhile, Mr. Lincourt makes less money as a teacher but is making a series of sound investment and financial decisions by balancing out his aggressive investment strategy with a diverse portfolio to protect against heavy losses in an economic downturn. He is also smart to be regularly consulting with his financial advisor. He has no unnecessary debts and seems to be spending his money wisely. Both gentlemen have chosen styles that, although different, seem to suit them perfectly.