Debt Management – “The DreamWork Way”

by | Jul 6, 2022 | Research

Debt Management the DreamWork Way

At DreamWork Financial Group, our clients’ best interests are at the forefront of every recommendation we make. This can sometimes mean giving our clients advice that doesn’t necessarily affect our bottom line in a positive way, especially when it comes to debt management. To illustrate this, consider the following story about a recent meeting with a potential client.

A young lady walked into my office looking to transfer her investments to DreamWork Financial Group. She had an old 401k and a Whole Life Insurance policy that she was looking to have us manage. As with all appointments, I was very excited to help her out.

During our insurance analysis, we made the determination that she had more than enough term life insurance. With this knowledge, it made sense to transfer the heavily “front-end loaded” Whole Life policy into an “investment” at DreamWork Financial Group.

However, as we proceeded to the debt management portion of the review, she revealed that she had significant outstanding student loan debt – at rate of 8%. In the current market environment, 8% return on a safe investment would be difficult to find. It would be foolish to expect a return higher than 8% without taking on excessive risk. We completed an analysis to determine whether it was a smarter decision to invest the cash and continue paying the loan payments, or to use the insurance funds to pay down the debt. After the detailed analysis, it became evident that investing the newly available funds was not the smartest move for her. Instead, it made much more financial sense to pay down her student loan, even if it meant our firm would not benefit from this decision in the short term.

In the end, she decided to pay off the student loan and began investing her student loan payment (which she no longer owed) into an investment account with us at DreamWork Financial Group. Due to the advice that we provided, our firm will make significantly less from this client in the short-term. But, we believe that by managing her wealth the DreamWork Way, we will grow our relationship and her wealth together. This will result in more wealth for both of us in the long-term.

Hands Shaking after Debt Management Deal at DreamWork Financial Group

Effective Debt Management Considers Interest Rates and Expected Returns

As illustrated above, an effective debt management strategy should be centered around the long-term goals and current financial position of each client. In addition, current market conditions, and the risk tolerance of each client must be taken into account.

In some cases, it makes sense to keep low-cost debt and invest free cash in the markets. This strategy can be effective if expected market returns exceed the interest rate on your debt. But in other instances, high interest payments could exceed your investment returns, and lead to a lower net worth in the long-term. This is why it is important to work with an experienced financial advisor who can forecast different scenarios and help you craft a debt management strategy that helps you achieve your goals.

Effective Debt Management Should Put Clients’ Needs First

At DreamWork Financial Group, growing our clients’ wealth over the long-term is in our best interest. Even when a short-term, “in the moment” decision could make us some quick money, we ALWAYS put our clients’ best interests first. This is our fiduciary responsibility, and we take it very seriously.

We believe that in the long run, we will build a larger client base by keeping this philosophy. Our long-term approach to client building is what we believe will keep DreamWork Financial Group,and our clients, happy and wealthy for many years to come.

Debt Management is Only a Part of the Comprehensive Wealth Management Services at DreamWork

While managing your debt is an important part of your financial journey, it is only a fraction of the services offered by DreamWork Financial Group. In addition to helping you manage your debt, our innovative wealth management program, Investing Gameplan™ can help you detail your goals, create a plan for reaching them, and choose investments that put you on the right path to financial success.

You might think that comprehensive wealth management is reserved for the very wealthy, but there is no minimum investment to participate in Investing Gameplan™ at DreamWork. We believe that all investors, regardless of their account balance, should have access to custom portfolios and fiduciary advice. That’s why we say You Don’t Have to be Wealthy to Have Wealth Management®. To learn more, or get started, contact us today.

Article Topics: Financial Planning