This article is reprinted by permission from NextAvenue.org.
The first thing I learned in my retirement was that they sure don’t make backpacks like they used to. In 2013, when I officially retired after 25 years as a professor of finance and 15 years as director of research and co-director of investment management at an institutional investment company, one of my first stops was at the outdoor retailer, REI.
I crafted for myself the kind of retirement we often read about or see depicted in books and movies. I would do some wish list items, including hiking near my retirement home in Colorado and on the Appalachian Trail. I would enjoy my grown children and, as time has gone on, their children. I would create a home near the outdoors I love and relax.
And for a while, it went as planned.
But you can’t retire from who you are or what you know. As an expert in finance, I have always been on the receiving end of questions about friends’ and family members’ investments and portfolios and now I had more time than ever to respond to these requests.
Their portfolios troubled me. Often, principles I knew about the market, and the rich details I knew about my friends, family members and their retirement goals, weren’t evident in the poorly constructed portfolios their advisers had crafted for them. In sum, I was seeing many nest eggs in positions of risk and costing their owners far too much in fees for far too little in return.
A conversation with my family members
Not everyone understands intricacies of financial management, but some basics in critical thinking and math – like tax implications, interest rates and even when your adviser is making more on your account than it’s earning – are available to everyone. Too often, people don’t trust themselves to manage their own wealth or financial situation and what I saw when I retired was how much that had to change.
In 2016, I was having a multi-generational discussion with my family concerning the complexity of managing investments for a dual-income family in their 30-40s with children. The discussion moved from the purchase of their first home to saving for their children’s education to funding a satisfactory retirement.
Each family had at least two 401(k)s with investment restrictions, two IRA rollovers, two brokerage accounts and two custodial accounts. How to manage the risk dimensions and tax implications across all these accounts is not obvious.
That’s what prompted me to explore how to bring my knowledge forward in such a way that my children, Rachel, the oldest and the first to bring her portfolio to me, Josh and David, could be empowered to manage their accounts, their children’s and our family’s current and future nest eggs.
Two other things changed in the last decade besides my work status. First, we’ve seen nearly a decade of incredibly low interest rates. This matters to your managed portfolio because a portfolio advisor charges a percentage fee to manage your money, but that fee is often more than the interest your accounts could be yielding.
How access to data has impact
Yet, in an economy with historically low interest rates, adviser fees weren’t changing. The ratio of fees to account interest were no longer satisfactory. In the portfolios I was studying, customers were losing portfolio value just to have it managed by someone else.
The reasons the investment advisory business has been able to maintain this fee structure are comparative advantages in knowledge, data access, an expensive technology infrastructure and economies of scale. Yet their model of providing expensive “cookie-cutter” portfolio strategies to the masses is not in their customer’s best interest.
The second major change in the past decade is availability of and inexpensive access to data. Today, we can measure everything, store it in the cloud and access it in real time. No longer does the advisory business have a stronghold on knowing the markets or the real time status of the portfolios they manage. Each of us can have access to sufficient information if only we wanted a stronger hand in our own wealth picture.
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The usual complaint I hear from people is that the combination of acquiring knowledge about financial markets, gathering data and the effort involved in managing a portfolio of investments is too complex and extremely time consuming. This no longer has to be true — access to data makes the work simpler and our current technology creates the impetus and will to redefine “too complex.”
The value of financial health
When I went to gear up for my hiking adventure, it was clear things had changed in the 30 years since I’d last donned new hiking and backpacking gear, much of it related to new technologies and innovation. I realized the same should hold true for financial management and when I continued to talk to my family about this, we began moving closer and closer to crafting a marketable solution.
Josh, a software engineer and David, a chief data officer, both had a clear view of the power of data and the abilities technology could deliver. Together, we formed Ripsaw LLC, named for the iconic black diamond ski run near our Colorado home.
I know I’m not alone in worrying about how my family fares when I’m gone. And it was important to me that we make this accessible and valuable to all. That’s why it’s an independent service — the only interest at stake is our members’, we aren’t profiting from their asset choices. I would argue, however, we all benefit when more of us have a true picture of our wealth and teach financial wellness to ourselves and our families.
I’m proud to say that from the beginning, our entrepreneurism was not built as Dr. Stanley Kon and sons. Rather, we are three equal co-founders in the enterprise, and I learn as much from them and their ambition in the company as they have learned from me. Each of us has a distinct skill set that brings a thoroughness and value to what Ripsaw offers.
It’s important to me, too, that our business is aiding my goal of having my children and grandchildren be able to have a platform to manage their standard of living during their lifetimes.
Good financial decision-making is a life skill. Like your physical health, your financial health is a major contributor to your lifetime standard of living. Financial education is the only way people can alleviate the stress that comes with finances. Only you can make decisions in your own best interest. Even if you pay someone for advice, you are still responsible for monitoring them. The mission to make this possible for multiple generations is a worthwhile goal.
Today, nearly eight years after my initial retirement adventure, I’m now working again as the co-founder of a wealth management system that has at its core, the principles that brought me to it – financial education as empowerment. I can do the most for my family by helping them care for their nest egg.
Stanley J. Kon is the editor of the Journal of Fixed Income (2001-present) and Chairman of Ripsaw LLC. He has taught at University of Michigan, NYU, University of Chicago and Duke. He also served on several bank and holding company boards and was also a consultant to government, business and financial institutions.
This article is reprinted by permission from NextAvenue.org, © 2022 Twin Cities Public Television, Inc. All rights reserved.
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