Don't Worry, We Are All Emotional Investors | Series 4.7 - Enjoy More 30s: Family Finance

Episode 7

Don't Worry, We Are All Emotional Investors | Series 4.7

Published on: 23rd August, 2021

Investing & emotions can go hand in hand - learn how to overcome this all too common problem.

Securities offered through TFS Securities, Inc., and Advisory Services through TFS Advisory Services, an SEC Registered Investment Advisor Member FINRA / SIPC. TFS Securities, Inc. is located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.

Transcript
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Welcome to the EnjoyMore30s Family Finance

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podcast. The only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

Joseph Okaly:

Hello, and welcome to the seventh episode of the

Joseph Okaly:

Your Major Money Misnomers series. As always, if you like

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what you're hearing, please make sure to subscribe or follow us

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on Apple podcasts or wherever you listen. Clicking that star,

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leaving a review, it really really does help other young

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families out there find us.

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So last week, we discussed Long Term Disability...MORE Likely to

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Happen? that covered what i actually worse than deat

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financially and that is lon term disability as well as what

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you needed to know about protecting yourself against it.

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So really make sure to check that out if you have not

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already. Today our title is Don't Worry, We Are All

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Emotional Investors, where we are going to discuss why

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emotions tend to play such a big unwelcomed part in investing and

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what you can do to try and not have it really work to your det

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iment. So as I got older, I wou d up turning into a person who

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doesn't have much of a sweet too h. Some of that was just mor

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of a healthy eating kind of a f cus but things like ya know cake

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cupcakes, icing, I actually nev r enjoyed them really at any poi

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t in my life. And that, you kno , makes me a big weirdo. Right?

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o if it's something that sal y though, I'll gladly partake

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o complete excess. So that brin s me at least a little bit ba

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k towards normal. Anyway, despi e that, there are some notab

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e exceptions when it comes o sweets for me that still exist

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Ice cream from m hometown, Denville Dairy an

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frozen key lime pie. Now whil I'll go to my grave with th

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strong and correct, I might ad , assertion that Denville D

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iry makes the best ice cream ou of anywhere on the planet, whic

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is a bold statement, it is just ice cream. The frozen key lime

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pie may also sound a bit kin of specific. And the reasons

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for both continuing past my s eet tooth phase, let's say is

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the emotional attachment that I ave for each of them. Denville D

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iry was the place we always ent growing up. So when good th

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ngs happened, we went to Den ille Dairy. We had ice cream

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akes there for our birthday , a lot of birthdays, I still d

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drive out and get another one. nd I fully realized that a la

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ge part of that nostalgi emotional connection I have is

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hat drives that. And the same thing goes for the frozen ke

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lime pie, except instead of childhood connection, it's the

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treat that Lauren and I ate on our anniversary trip

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own in the Florida Keys when we found out she was pregnant with

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our first child Avery. So remember exactly where I was,

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remember going out and celebr ting like that. I know that

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I'm being influenced by my emo ions but in this case, it's

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okay. It feels you know, feels g od. What you need to know thoug

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when it comes to investing is t at we're also extremely emotiona

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. But it often doesn't really re ult in a good feeling. Making

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r losing money makes us emoti nal and when we get emotional,

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we tend not to take the best app oaches. As we discussed in t

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e first series 1.6 Investments hould Be Boring, we recommend

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preading out your money in ifferent areas all the time

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because while every market a ea will generally go up over

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ime, in the short term, no one i really sure what area is goi

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g to do the best. So essential y, what does the best this

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ear may likely not do the b st next year. And that make

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sense, right? However, when you look at your account, and fund A

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went up 20% last year and fun B went down 5%, I'm guessing y

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ur first reaction won't be to ay, 'hey, let me take money o

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t of that fund A which was so great and put into fun B th

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t kind of stunk?' No, of course ot, you're much more likely t

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say 'well, you know, forget und B, let's put it all into fun

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A! Let's go!', right? So you can see there's easily a discon

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ect between the logical "every year a different area tends

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to lead" with the practical "ta e money out of the ones that d

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d the best and put into the ones that did the worst" action off o

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that, because your emotions ca quickly get in the way. And you

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may be surprised to hear ther 's actually a whole invest

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ng approach that's called he odd lot theory that's base

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on doing exactly the opposite f what individual or wha

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they call retail investors do, s opposed to what institutional

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ype investors are doing. So when normal people buy stock, they do

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't buy in a flat, even kind o a quantity. They might b

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y 17 shares or 31 shares, what ver they can kind of afford is

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hat they buy. And it comes out t this random kind of odd num

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er. Institutional Investors n the other hand, they buy

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n what are called round lots. o say 1000 shares 2000 sh

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res. So with this approach essen ially looks at is what are all t

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e 17 and 31 share type transac ions or odd lots. What are the

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doing? And let's simply do the opposite. Because we're goi

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g to go ahead and assume that normal individual investors are

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robably doing the wrong th ng. So, where the emotions t

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nd to be the most debilitati g though, is when there are

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arge drops in the market. You he r about it on TV, the radio, the

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bring in experts about how fas the sky is going to fall. My fa

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orite though, is the pict re of the disheveled stockbroke

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on the floor of the exchange you know, you could picture h

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m kind of pulling on his face wi h just papers flying everywhe

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e behind them, they, they see to always have that

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ne ready to go. This environment though, where things are

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ropping, it makes it exceedingly difficult to not act emotiona

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ly. What makes it so bad here, t ough, is that if you say sell af

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er everything drops, because y u're afraid, so fear and emoti

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n, and you're afraid that it' going to drop more, you h

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ve put yourself in a position th t you can't recover now. You c

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n't regain what you lost if ou aren't invested. What you ca

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do, though, to try and counte act this is to plan emotionally

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ahead of time, both for the da to day and the big drops. It's

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almost assured that there will be another and more likely man

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of these events in your li etime. Historically speaking, t

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ey happen every six years or s on average. So the 12 years be

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ween 2008 financial crisis and 2020's COVID was actually

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uite a large spread. So the q estion you should be asking you

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self is really more, 'wh t are you going to do emotional

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y to prepare yourself for whe , not if, the next one comes?'

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he first thing to know, you will most likely be emo

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ional. Just like I know emotio s are influencing me to drive

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out and buy that Denville Dai y birthday cake still. So don'

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tell yourself, you'll be les emotional next time, you a

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most certainly will. It's going o be a new situation with new

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causes. Same drop, maybe. But it s very, very difficult to no

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act emotionally. So just expect ng yourself to not be the same

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xact way in this upcoming scenario, whatever it may happen

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is probably not a likely way hat it's going to unfold. Second

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is you shouldn't have any money nvested that you're going to nee

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in this next, say one to two ears anyway. So remember, you ha

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e years of time for these i vestments to come back up again

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when you're going to need them. ny short term money again s

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ould never be put into an investment. Next, whether thr

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ugh an advisor or on your own hrough an allocation type

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of a fund, having someone outsid of yourself managing the fund

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on a mathematical basis making those rebalancing decisi

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ns so selling areas that have one well and reinvesting into a

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eas that haven't done as well lately removes your emoti

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ns as having an input in thos day to day. Lastly, for thos

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particularly big drops, remem er what makes the market go up

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and down. In series 2, 2.5 to be specific, we talked about S

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ocks Lead, Don't Follow and h w the stock market is a leading

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ndicator. Investors are acting on what they think will happen a

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d if they have no idea what wil happen, so if there'

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a very high degree of uncertain y, things tend to drop very

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apidly. So think COVID before we knew what it was or had

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much of a plan, or the financi l crisis back in 2008,

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before we knew how the governmen was going to respond. Once inv

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stors believed they had some i ea of where things were going a

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ain, you started to

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So as a recap for today, realize that you're not at all alone,

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when it comes to mixing emotions with investing. Everyone out

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there does that to some degree. Those who manage it, though more

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successfully are the ones who set up a proper system and

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mindset,. They acknowledge it will almost certainly happen

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again, multiple times over, they only invest funds they are not

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going to need for the next few years. And they use an outside

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resource whether through an allocation fund or a diversified

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program through an advisor. So they're not in direct control

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for emotional decision making. Finally, they realize that

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uncertainty tends to be the biggest market driver and as

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that changes, so things become less uncertain, the direction of

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the market will likely change as well.

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So as always, thank you very much for tuning in today. If you

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are able to implement what we're talking about in this episode,

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or any episode that's just fantastic. You have less to

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worry about than before. You can just focus on what we're all

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wanting to do, which is enjoying life. If you are wanting help

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with these things though, or you have questions you need help in

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clarifying, check out the Ask Joe section on the show's

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website www.EnjoyMore30s.com. That's EnjoyMore30s.com and if

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you did enjoy today's episode specifically, make sure to again

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jump on, review, follow, subscribe on Apple podcasts,

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wherever it might be. There are literally millions of young

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families out there I'm trying to reach and help just like you.

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We've now come to the final episode already of this series

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and it's called Advisors Aren't Hershey Bars where we're going

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to discuss what you need to know about the many different types

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of advisors out there. You might be surprised about how many

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differences there can be and what you can do to make sure you

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find one that's a good fit for you if you are wanting one.

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Until next week thanks for joining me today as always, and

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I look forward to connecting with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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Registered Investment Advisor member FINRA/SIPC.

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About the Podcast

Enjoy More 30s: Family Finance
Family Finance for Young Professionals.
Young families receive little to no personal finance help. We all grow up to have jobs and money, yet our education system focuses on Shakespeare and Algebra. Even professional advice can be hard to come by, with the majority of the industry chasing retirees and existing wealth.

Joe Okaly's podcast is aiming to change this, providing personal financial advice geared specifically to professionals with young families. This podcast is dedicated to making life more enjoyable for young families, by hitting on the financial topics that tend to weigh on us, stress us out, and distract our focus from simply enjoying life.

Joseph P Okaly is a CFP Certified Financial Advisor who fits directly in with who this podcast is focused on - a young professional with a family. With over a decade of experience as an advisor, there is passion and knowledge to make a difference.

Securities offered through TFS Securities, Inc., Advisory Services through TFS Advisory Services, a SEC Registered Investment Advisor Member FINRA / SIPC. TFS Securities, Inc. located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.