Diversify, But With One Advisor! | Series 6.7 - Enjoy More 30s: Family Finance

Episode 7

Diversify, But With One Advisor! | Series 6.7

Published on: 14th February, 2022

Spoiler alert: it doesn't mean having a bunch of accounts in a bunch of different places, making your life really difficult.

  • So diversifying means that you're using a variety of different holdings across a variety of different areas. (04:24)
  • ...this is why when we spread things out, we're doing this because we don't want all of our investments to be dependent on how one area of the market happens to perform. (06:22)
  • If you have two people putting together separate first aid kits, "Hey, Bob, and hey, Jane, each of you guys design your own first aid kit and bring it on the ship with us", they're going to have no idea what the other person has already packed. (08:07)

Quote for the episode: "Do you have one advisor with a unified diversified strategy? Or do you have a lot of random first aid kits that may all just be packed with different brands of the same gauze?" (08:56)

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
Voiceover Audio:

Welcome to the Enjoy More 30s 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 thanks for joining me once again here

Joseph Okaly:

on the Enjoy More 30s Family Finance podcast. Every week here

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I'm talking to you about money, about your finances, help you

Joseph Okaly:

take steps forward, gain confidence, remove financial

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anxiety, all that good stuff so you can focus solely on making

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your life more enjoyable. This series that we've been focusing

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on is all about the new year and the new you and setting the

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compass for the New Year.

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As always, if you like what you hear, I always ask to click

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subscribe, click Follow us on Apple podcasts, wherever you

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listen. Those stars those reviews, they really really help

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us reach the literally millions of other young families out

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there that are really just like you.

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So far this season, we've covered quite a lot. So we

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started off by setting your compass with your spouse. So

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joint goal setting, then we discussed the importance of

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actually paying yourself first, giving yourself some of that

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hard earned money every month to go towards goals to make you and

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your family happy. We covered bucketing for goals. So setting

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separate accounts for each goal that helps tracking them that

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helps achieving them. And then the extension of that was money

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blocking. So setting funds aside on a smaller daily level, to do

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more of those things that make you happy, whether that might be

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more, you know, football games, more massages more, you know,

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whatever it might be kind of on a more daily, smaller scale

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level. The importance of using the right fit investment for

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each of those buckets, we also covered. Shouldn't be too

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conservative shouldn't be too aggressive, it should be

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appropriate for each one of those buckets, appropriate for

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each of those goals and that time horizon that's with it. And

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then finally, last week, so far we talked about insuring for the

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catastrophic, versus insuring for the inconvenient. So if you

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missed any of those episodes yet, definitely check them out

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soon.

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Today's episode is titled Diversify, But With One Advisor

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exclamation point, where we're going to cover why you've likely

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heard the word diversification, it gets thrown around a lot. But

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what it actually means and the best way to go about doing it in

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my opinion, and the spoiler alert is it does not mean having

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a bunch of accounts in a bunch of different places and making

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your life really difficult. The goal for today's episode then is

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for you to be able to look at what you have now and say, you

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know, "hey, I'm spread out in a way that really reduces my

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investment risk". Or "hey, now I see I just have a bunch of

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similar stuff, but in a lot of different places, making my life

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unnecessarily difficult, while maybe not likely reducing much

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of my investment risk". So going back to our fun nautical

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examples, which I know everybody loves, we obviously need to pack

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a lot of different things on this ship for this trip that

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we're going on. And one of those items that any ship needs, if

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So diversifying means that you're using a variety of

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it's going out into the middle of the ocean by itself would be

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a first aid kit. Now we probably are going to pack it with a

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variety of medical items, right? So maybe something for colds,

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maybe some medicine that helps with a fever or something to

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clean cuts, bandages, you know, so on and so forth all different

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things. We don't know what we may need so we are going to

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bring a variety of items to reduce the risk of not having

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something that we may need available if something happened.

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We are essentially diversifying our first aid kit, spreading out

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the types of things we are bringing. What we wouldn't do is

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bring 10 first aid kits, but pack them all only with gauze.

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We would have 10 boxes only with gauze that would not reduce the

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different holdings across a variety of different areas.

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risk for our potential medical needs. If we have a cut that

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There are small companies out there, large companies, mid

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needs to be cleaned out, every single first aid kit will not be

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sized companies, US companies, foreign companies, corporate

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bonds, government bonds, and many many more that you keep

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helpful because none of them have anything to clean out a

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breaking it down into. So if you have Apple stock with advisor

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cut. What many people think when it comes to investments is that

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one and more Apple stock with advisor two you haven't

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they need a lot of different first aid kits, a lot of

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diversified yourself at all. You've just made things more

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complicated. You have two accounts, but you are not at all

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different accounts with different people, and they don't

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any more diversified as if you had all that Apple stock with

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spend enough time making sure that all of those medical kits

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one account.

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Now, sometimes this can be hard to see, because instead of Apple

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or all those first aid kits that they took all that time to

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stock, maybe advisor one has the ABC large growth fund, and

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advisor two might have the 123 large growth fund. She may say,

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create aren't all just packed with very very similar gauze.

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"hey, you know, I have two different funds, so I must be

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spread out. I must be diversified". If both of those

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funds though are large growth funds, just from different

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companies, then studies have shown that over 90% of the

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returns will likely just overlap because they're in the same

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categories. And the most famous of those was called the Brinson

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study, but yea most of the return is just due to what area

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of the market you tend to be in. If one goes up, in this example

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of ABC fund goes up, then 123 is very likely to go up as well. If

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ABC fund goes down, then 123 fund is again very, very likely

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to do the same thing, because they're in the same area of the

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market, large growth type companies. Again, it may feel

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like you're talking to two people, it may feel like you

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have two, you know, differently titled funds, so you just, you

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know, you must be spread out and diversified. But in reality, if

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that one area does terribly, you will also do terribly, because

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all your eggs are in that same large growth basket. And this is

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why you know, when we diversify, this is why when we spread

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things out, we're doing this because we don't want all of our

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investments to be dependent on how one area of the market

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happens to perform.

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Now I totally get the traditional way of thinking, you

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know, hey, I don't want all my money with this one guy or gal,

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because what if they're not on the up and up and I may, you

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know, lose it all I see stuff on TV. I watch movies, things like

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that. You know, investments are something that no one is really

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taught about in school. So it's an unknown, which I've talked

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about before, and unknowns are scary. And so I totally

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understand that. If the advisor though is following a

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diversified strategy, so spreading your money out in

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different areas all the time, you know, not trying to time the

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market, then it's a kind of a bit of a different story, in my

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opinion. A diversified portfolio then would be spread out among

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10 to 15 different funds, let's say. And each one of those funds

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might be comprised of a few 1000 holdings. So overall, you could

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have a few 1000 holdings that make up your portfolio. So what

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that means is to lose it all would require all of those

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holdings to simultaneously go out of business or become

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worthless. So you can kind of see the difference between

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having one advisor in the traditional sense, that's buying

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or selling and dabbling in a couple of individual stocks,

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versus an advisor that is spreading your money over, you

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know, a variety of different funds, and funds that each have

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several 100, or in some cases 1000s of holdings. So it's a

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very different scenario when you compare those two things.

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In order to actually implement this though, let's say we're on

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board with a diversified strategy, which I hope you are,

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you really need to be using one advisor again, in my opinion.

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Let's go back to our first aid kit example. If you have two

Joseph Okaly:

people putting together separate first aid kits, Hey, Bob, and

Joseph Okaly:

hey, Jane, each of you guys design your own first aid kit

Joseph Okaly:

and bring it on the ship with us, they're going to have no

Joseph Okaly:

idea what the other person has already packed. Did the other

Joseph Okaly:

person already pack a bunch of gauze or extra cold medicine or

Joseph Okaly:

whatever else? So having one person in charge of the first

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aid kit means that one person now has enough information to

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make sure that the first aid kit is well diversified. You know,

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we often say having two advisors is like having two dentists. And

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again, in our opinion, you don't have one dentist for the top of

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your mouth and one for the bottom. You have one dentist and

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make sure your whole mouth is in order. So take a look at what

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you have right now when it comes to investments. And remember the

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goal for today. Do you have one advisor with a unified

Joseph Okaly:

diversified strategy? Or do you have a lot of random first aid

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kits that may all just be packed with different brands of the

Joseph Okaly:

same gauze?

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Thanks as always for tuning in today and join us for next

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week's episode, which is the Series Recap. So this is the

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last individual episode of this series and next week, we'll be

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recapping all the episodes for you. I sincerely hope that these

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episodes can help as you take that sail into the New Year,

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give you more direction, give you more confidence in your

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finances so you can focus more on the goal that we always have

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despite the name of the series, which is making life more

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enjoyable for us and for our families.

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Overall as I always say if you're able to implement these

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things, then that's fantastic. If you do want help, if you do

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have questions, please do not hesitate to reach out. The Ask

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Joe section on my website enjoymore30s. That's

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enjoymore30s.com is always there to reach out. Overall until next

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week, thanks for joining me today and I look forward to

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connecting with you again soon.

Voiceover Audio:

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.