Building Personal Wealth with Lisa Erickson
March 3, 2022
As Head of the Traditional Investments Group, Lisa Erickson is responsible for directing all aspects of traditional investment research and fund manager selection for U.S. Bank Wealth Management. She is a frequent spokesperson for Wealth Management and regularly appears on CNBC, Reuters, Bloomberg TV, Fox Business, and print media such as The Wall Street Journal.

Lisa has more than 25 years of experience in the financial services industry. Prior to joining U.S. Bank, she led research teams at Russell Investments and Altura Capital. She also served in numerous other roles, including capital markets analysis, creation of investment infrastructure, product development and management and institutional client service. Here, Lisa breaks down financial planning and investing to help us build personal wealth.

What are some of the current statistics around women and financial wealth?

Over 40% of women feel that they are in a better spot in terms of managing financial wealth than their parents were. That's a very positive thing. Only 16% of women worry about making ends meet compared to men. And yet, almost 50% of women associate very negative words with thinking about finances and investing. They use words like fear, inadequacy, and stress. I am here to boost women's confidence by shedding more light on the topic. Finances may never be your favorite thing to do; however, once you have a better understanding, it can be a very straightforward process.

Finances may never be your favorite thing to do; however, once you have a better understanding, it can be a very straightforward process.

What are the key financial concepts all women should be aware of?

Financial planning and investing. Let me start by sharing a bit about both. When people find out that I do investment work, the first question asked is, "What stock should I buy?" It's a very natural question and a good one. But I try to back them up and ask about their plans and goals.

The first step in investing is always defining goals. What are you aiming for? What timeframe do you hope to achieve those goals? Most of us have multiple goals - what's your priority? Retirement, buying the next car, taking the next vacation are all good goals - which comes first? What are your needs versus your wants? That informs not only your time horizon but your ability to potentially take a little bit more risk to get a little bit more return.

Your goals are critical. Contrast that with investing, which is the step you take once you make a financial plan.

What is the difference between debt and equity?

I'll use myself as an example. Let's say I've come up with a great new widget, and I'm convinced this is the next thing to storm the nation. I need some capital to get started, so I use debt investing. Debt investing is simply a loan from a potential investor who is willing to loan me some of their hard-earned capital so that I can go out and start my business. In exchange, I agree to pay at least a monthly interest rate. The primary characteristic of this type of investment is it tends to be more driven by the income component of return, making it less risky than equities.

Contrast that with equities. Let's say that instead of you giving me capital in the form of a bond, you are also convinced that I've come up with the most amazing widget, and you want to become a co-owner. That's where equity and stocks come in. Stock owners essentially own all the company's residual value once they pay its other obligations like bondholders, rent, utilities, and manufacturing costs. Equity owners have the opportunity for many upsides in return for assuming more risks. Equity securities are the type of investments best utilized in longer-term time horizon situations.

Can you share a little more about how to take advantage of one's debt? Are there specific obvious tax breaks we should look out for, particularly as a business founder-owner?

Thank you for bringing up using debt advantageously. Most of the time, we talk about debt as something to be avoided. That still holds true, yet it's just a matter of your particular goals.

As a company owner, in some cases, if the debt interest rate is low enough to produce a future return and there is a comfortable enough margin to the bottom line interest rate, it makes sense to use the debt. There are some cases where we will advise our clients that taking out a lower interest rate loan makes sense as part of their greater financial plan.

What is the minimum amount in savings you'd recommend having in order to start investing?

An emergency savings fund is always critical to ensure you have enough backbone resources should unexpected events happen. Once emergency savings are established, you can commence on your investing plan. Generally, we recommend having at least three to six months of your income in your emergency savings. Then you'd want to begin thinking about other goals like retirement or the next car.

Should one invest while having a mortgage or focus on paying that off first before diving into something new?

Generally, you want to minimize your debt. But nowadays, with housing prices the way they are, it's more typical that most of us will have to take on a mortgage to afford a house. Our best advice would be to make sure you have the most advantageous mortgage you can in terms of interest rates but to go ahead and save alongside that for some of your other goals.

Which investment has the highest interest rate?

Generally, riskier bonds have higher interest rates. Riskier bonds are things like higher-yielding bonds. These are issued by companies that aren't as financially strong as your standard company. Amazon's a great example. Amazon has a lot of cash flow, so they typically repay their bonds, but you may have another company where they've been stretched. So that's what we would call a high yield bond, because the credit quality of that bond is not as stable. Maybe their cash flows aren't as consistent, or they're not as successful in executing their investment.

Make sure you have a diversified portfolio because if you use some of those, you certainly want to have some steadier investments in there as well.

Is it ever too late to begin investing? How do I build when I'm over 50?

It is never too late, I encourage everyone just to get started. If you have fewer years to reach your goal, you have a little less time to make compounding work in your favor, but you'll be surprised if you sit down and spend a little time on a plan, how much progress you can make.

Make some good trade-offs because the return could be better than you expect. Part of financial planning is making adjustments to the goals you have. Maybe as you go through the process, you'll decide something isn't as important anymore, which can be a freeing experience. So just get started. It's never too late.

It is never too late to start investing, I encourage everyone just to get started.

Can you explain why it's important to rebalance your portfolio? And how often should you do it?

Let me redefine what rebalancing is. Start by setting up your portfolio - 50% in stocks, 30% in bonds, and 20% in tangible assets is a good mix. Once your portfolio is set up, rebalancing is the process of occasionally trading to move your portfolio back to those long-term targets because that's what you determine makes the most sense for your portfolio. Let's say stocks have a strong period, and suddenly they become 60% of your portfolio. To rebalance your portfolio, you'd sell-off that net 10% of stocks and reinvest in bonds and tangible assets to bring you back to your long-term targets.

Rebalancing is important because that is the right mix to help you reach your "return and risk" goals relative to your financial target. How often you do that is probably something that's best handled with your particular financial advisor. However, I would recommend looking at it once or twice a year.

Investing and saving go hand in hand, and they should be handled simultaneously.

What are some objective sources to research when choosing financial advisors?

I'd start with the recommendations of friends who have had good experiences. Especially if you know their style may be similar to what you want. Ask for references, then meet with the advisors to see if they fit. A sound financial advisor would always want you to have a good fit.

The other thing is, to the extent you're not sure who to ask, start with reputable firms and explain what you're looking for. I don't want to put in a plug in for us too much, but we'd love it.

What is your opinion on C.D.s? Are we better with stocks and bonds?

C.D.s, or certificates of deposit, are just a form of very short-term bonds. If you invest money, you'll be paid a certain amount of interest. If a company would ever go bankrupt, C.D.s are first in line to be repaid. Since they're first in line always to be paid, they tend to offer lower returns because you're taking on less risk.

They fall in that bond category in the form of almost cash, but because you get a little more interest than cash you can't just withdraw right away. C.D.s certainly can be a very valuable part of an investment portfolio as an anchor if you need just a little bit of return and less risk.

How should one balance investing versus saving?

They are hand in hand, and they should be handled simultaneously. Once you have that portion of your savings set aside for emergency cash, that's when you would start building out the other parts of your investment portfolio.



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