Woman_with_wealth.jpgLast week, we celebrated International Women’s Day. Adopted by the UN in 1975, we recognize this global day of advocacy to celebrate women’s work and to promote women’s rights. It has been a troubling year hearing women’s stories of facing sexual harassment in the workplace and elsewhere, but yet a momentous year of watching women gain a collective voice against this treatment. The #Me Too movement has catapulted women’s rights to one of the top national conversations and focused attention on the goal to removing gender bias in many aspects of our culture. You’ve come a long way, baby, indeed!!

This conversation has also put the spotlight on the gender gap for pay and hiring practices. According to an article in Businessweek, working women still earn between 57% – 80% of the salary of a working man, depending on whether they are white, black or Hispanic. Women’s pay is catching up, but is predicted not to achieve equal status until 2058. This affects all of us, as women have less opportunity to save, contribute to Social Security and participate in the economy. Saving adequate retirement savings is harder for women. Women are able to save less for several reasons, the gap in pay being one of them. There may be career interruptions for children, a need to pay for child care while in the workplace, higher healthcare costs and, of course, women live longer, which all puts a strain on women’s ability to save for retirement and have adequate means when older.

Adding to the difficulty in obtaining adequate saving levels, research has shown that women are, on average, less risk tolerant in their financial decisions than men. According to Associate Professor from the University of Missouri Rui Yao, women and men do not think of investment risk differently, but income uncertainty affects women differently from men. That uncertainty may result in women keeping funds in asset allocations with lower expected returns to “buffer the risk of negative income shocks”. This can be a concern for any investor with low levels of risk tolerance, as they might have greater difficulty reaching their financial goals and building adequate retirement wealth because they are less likely to invest in more growth-oriented asset classes with bigger returns, like equities. “Risk tolerance is one of the most important factors that contributes to wealth accumulation and retirement,” said Rui Yao. At DWM, we review the risk tolerance of all of our clients very carefully. We make sure that their investment strategy matches well with their capacity for risk, as well as their tolerance for it, while making sure that they can achieve their goals for financial independence.

Despite fighting issues of sexual harassment and glass ceilings in the workplace, women have made some remarkable gains in their financial status. In 40% of American families, the primary breadwinner is a woman and, for the first time in history, women control the majority of personal wealth in the U.S. In fact 48% of all millionaires are women. Also, women will benefit immensely in the future transfer of wealth – from husbands who are older and die sooner or parents who now bestow equal inheritances to sons and daughters. Breadwinner women may control more wealth, but there is still a shortfall in other areas.

There are many arguments for equalizing our gender dynamics at home and at work – there is no doubt that enabling women to achieve their full potential is certainly better for women and their families. There is also a universal financial argument to be made. By some estimates, according to Sallie Krawchek of Ellevate Network, if women were fully engaged in the economy, GDP would increase by 9%! Ms. Krawchek’s article also cites multiple studies that conclude “companies with diverse leadership teams” outperform other companies on metrics including higher returns on capital, lower risk and greater innovation. This translates into healthier corporate environments that are rewarded on the bottom line. That is good for men, women and families! All of the reasons for closing the gender gap are important, but the financial benefits for everyone are significant and certainly can’t be considered controversial. As someone once said, “It’s the economy, stupid”!

While there remain roadblocks to women achieving equality in their financial status with men, we do think having these national conversations and educating both women and men on the benefits of empowering women will begin to make progress. We agree that deficiencies in retirement savings and the economic engagement of women are highly related and we hope changes are coming. At DWM, we look at the total wealth management for all of our clients equally and with consideration for every one of their life situations. We know that anything that has a positive effect on the financial success of women is good for us all.


Did your paycheck get a nice bump in the last few weeks? Employers are just starting to use the newly issued IRS withholding tables for 2018. All things being equal, employees may see a 5%-15% reduction in their federal tax withholding, resulting in a boost in their take home pay. Who doesn’t love that? However, the question is, when you file your 2018 tax return a year from now, will you owe a substantial amount? Has your withholding been reduced too much? How do you avoid a tax shock?

The various changes of tax reform passed in December plus lower withholding may lead to unexpected results. Itemized deductions were generally reduced; in some cases, in major ways. Standard deductions were doubled. Income tax rates were lowered. Exemptions were eliminated. Lots of moving pieces to consider.

Let’s take a look at an example, as presented by the WSJ last Saturday. Sarah is a New York resident. For 2017, she had $200,000 of wages and other income and $33,000 of itemized deductions, including $28,000 for state and local income taxes. Her federal tax, including AMT, was $41,400. Her withholding was set at $41,500, so that she would receive a tax refund of about $100.

For 2018, Sarah has the same income and deductions, and she doesn’t adjust her withholding certificate, even though her itemized deductions are reduced by $18,000 to $15,000. Using the 2018 withholding tables and her withholding certificate (W-4) from 2017, her employer reduces her withholding and increases her take-home pay by $5,300, about $100 per week.

Here’s the problem: Because her deductions were greatly reduced and she lost her personal exemption, her income taxes will only be reduced by $500 in 2018. She’ll owe $4,700 (plus a penalty for underpayment) come April 2019.

All taxpayers, even those that don’t get paychecks, need to get ahead of curve and project their income taxes for 2018 and review how tax reform is going to impact them. You need to do it early. Sarah can change her withholding now (by increasing withholding $100 per week-back to what it was) to avoid a big tax shock in April 2019. In addition, as you and your tax professional review the elements of your 2018 projection, you may identify some changes that made now could reduce your ultimate 2018 income taxes.

The IRS has put together a withholding calculator, https://www.irs.gov/individuals/irs-withholding-calculator that seems to work fairly well with simple returns. It’s a “black box” with little detail of the calculations.

At DWM, we consider our role in tax planning a very important element of the value we provide to our Total Wealth Management clients. We don’t prepare returns. However, since our inception, we’ve been doing projections focused on eliminating surprises and often finding potential tax savings ideas to review with our clients and their CPAs. This year we are using BNA Income Tax Planner software to make sure that all the new tax provisions are being considered and calculated properly as we are doing the projections. We’ve done about dozen so far.

We’ve already seen some major eliminations of itemized deductions on projections we’ve done. One couple lost over $100,000 of itemized deductions, primarily due to the new $10,000 cap on state and local income taxes and elimination of miscellaneous deductions. Similar to the example above, without a change in their W-4s and, therefore, a change in their withholding, they would have owed over $30,000 in federal taxes in April 2019.

Tax reform didn’t have much impact on IL income taxes, as taxes are passed primarily on adjusted gross income. However, the full year tax rate of 4.95% in IL is roughly 16% more than the effective 2017 rate. In SC, where the state tax is based on taxable income, the tax will generally be going up for those taxpayers with large itemized deductions in the past. SC tax in 2018 will likely rise at the rate of 7% of the amount of lowered deductions and exemptions as compared to 2017, all other items being equal.

We encourage you to prepare or get assistance to prepare a 2018 income tax projection now and check it in the fall as well. Even if you haven’t received a larger paycheck recently, it’s really important to go through this process to avoid tax shocks and, maybe, even find some opportunities to reduce your taxes for 2018.

College Funding Solutions

Last night, our Palatine team at DWM performed a presentation for the parents of students attending Quest Academy, a private K-12 school right here in Palatine, IL. The focus of the night was putting a spotlight on two important topics, tax reform and college savings. We’ve covered the effects of tax reform quite a bit in blogs from the past few weeks, so we wanted to focus in on the savings portion of the presentation for our blog this week.

College costs are rising, with no end in sight. Tuition prices for public and private universities increase yearly by approximately 4-8% consistently, which put them right up there with housing and gas prices as the leaders of inflation (though college costs experience much less volatility then either of the others). Per Figure 1, we can see the effect of this inflation, with tuition at an in-state public university costing parents over $100,000 over the four years of collegiate study. With inflation rates as they are, these numbers are only going to get larger.


Figure 1: College Tuition Costs

So, as we presented last night, how can parents of children expect to be able to pay these high price tags?

Luckily, there are several different options available to parents and children alike that can help offset the huge costs of college. These different solutions vary from federal financial aid, merit-based scholarships, savings, and loans.

Let’s start with federal financial aid. The path to being awarded federal financial aid starts at the same spot for each family, the Free Application for Federal Student Aid, commonly referred to as the FAFSA form. This document helps many domestic colleges determine how much, if any, federal aid your child should be allotted. To determine this, the FAFSA form interprets your financial situation based on their calculated Expected Family Contribution (EFC), or essentially how much money the parents of a student will be able to contribute to their child’s college tuition. To determine the EFC amount, many factors including the family’s taxed and untaxed income, assets, and benefits (such as unemployment or social security) are evaluated. Retirement assets are not considered in this calculation. For example, any money held in an IRA or 401k plan will not be counted towards the EFC, since those funds cannot be used for college tuition. However, money held in a checking or brokerage account will factor into the EFC when calculating federal financial aid. One important caveat to this is that any funds held in the student’s name will be weighted more heavily towards the EFC calculation than those assets held in the parent’s name. For a quick reference, please see Figure 2 below, which gives an approximate federal aid allotment based upon your EFC and the number of children you have.


Figure 2: https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/troyonink/2017/01/08/2017-guide-to-college-financial-aid-the-fafsa-and-css-profile

Another college funding solution is the use of merit-based scholarships, which are awarded by the schools themselves, based on a student’s academic, athletic, music, or other merits. If a student shows exceptional talents, colleges are likely to offer these students grants in order to entice them to coming to their college. These scholarships tend to be offered for at least four years of college depending on their eligibility, and can often be a hefty sum of the tuition costs (some being the full amount)! Besides the colleges themselves offering these scholarships, there are various online sources that have private funding that is given out to students who apply to them. We have done some research on these websites, and have included some of the most popular ones at the bottom of this blog. Please feel free to check them out with your student!

One of the major college funding methods that students and their parents utilize is through savings. Besides holding assets in a bank or brokerage account to pay for their child, parents have some other ways of saving money specifically for college funding that can be great resources also for tax purposes! One of the best of these vehicles is a 529 plan. In Illinois, we like the Illinois Bright Start and Bright Directions 529 platforms, and in South Carolina, our team likes the Future Scholar 529 platform. What these programs offer is a method for holding college funds and investing them, allowing for compounding tax-free growth! By contributing to these accounts, taxpayers can annually take advantage of a $10,000 state tax deduction ($20,000 for married couples) for Illinois, and can utilize the $15,000 dollar gift tax exclusion on the transfer as well, helping to lower the taxes for the parents, and save a lot of money for their child quickly. In comparison, South Carolina offers an unlimited state deduction for all contributions to a 529 plan. In conjunction with this, in all states parents are able to take advantage of a “Five-Year Forward” funding method, which allows for up to $150,000 to be contributed to a 529 plan in one year, and as long as no extra contributions are made in the following four years, the entire amount qualifies for five years of the gift-tax exclusion, a fantastic strategy for savings and estate planning, for parents and grand-parents alike! As part of the recent tax reform, the government has expanded the use of these plans to allow parents to use these funds to pay for K-12 private schooling, though this could prohibit the use of the state tax deduction, which is still a grey area. Stay alert for more updates on this particular change.

Lastly, there are loans. Most students and parents have come to a modern consensus that student loans are extremely hard to pay off, and as of 2018, student loan debt does indeed sit at approximately $1.5 trillion, so whenever loans are taken, it is extremely important that parents take into account how these will be paid off. There are many different options when it comes to taking these loans as well, including federal versus private loans (government vs. banks), and deferral timings (“subsidized” start payments once graduated, “unsubsidized” start payments immediately). Some important aspects of loans to look at when researching them is to ensure that they have no application fee, a soft hit on credit pulls, and no fees for paying off loans early, so you get out with the least interest accrued as possible.

All in all, paying for college is a daunting task for any parent and student. However, by planning early and utilizing the many different methods of funding, both can find peace of mind and focus on the challenges presented in reaching a higher education, and less on how they are going to pay for it.

If you have any questions on any of the above information, please do not hesitate to reach out!

Scholarship resources to check out:




The last week hasn’t been kind to investors. The S&P500 and Dow officially entered “correction” territory, which signifies a decline of at least 10% from a recent high, after all-time record highs only a couple weeks ago.   What’s going on???


The culprit: things were too good!  Recent stronger than expected reports on wages and jobs means growth may be “overheating” and that can lead to inflation and rising interest rates. Rising rates equal higher bond yields, which can make bonds more attractive than stocks, and – VOILA! – now traders don’t want to own stocks, many of which have become quite expensive on a valuation perspective from the nine-year Bull run. Then, in this worst-case scenario, stocks go down and that causes consumer confidence to wane which means Joe Investor won’t want to be another 4G TV. Consumer spending slows, corporate earnings suffer, and recession takes place.


Vicious circle, huh? It doesn’t have to be exactly like that. Furthermore, cycles can take a long time to play out – years, not days. In this fast-paced, information at your fingertips society we’re in, we forget that.

Last Friday’s jobs report showed the largest annual increase in wages since 2009. In hindsight, this wasn’t surprising given that 18 states pushed up minimum wages to start 2018. Furthermore, many major corporations, raking it in from the recent tax cuts, have provided one-time Tax Reform-related bonuses to workers. So these government reports, that some traders obsess over, may have been amplified for January and most likely will come down to earth in the ensuing months.


It was just a couple of years ago when many were concerned about DEFLATION and hoped of the day when the Fed could raise rates back to “normalcy”. This schizophrenic market is now focused on the fear of INFLATION. The threat of inflation and higher bond yields – evidenced by the Ten-Year Bond reaching four-year highs yesterday at 2.85% – has some worried. But frankly, a 3% or even 4% Ten-Year Bond environment shouldn’t be so concerning. For the last several decades, the 10-Year was higher than that and could be nice “fresh powder” for a Fed when recessionary times come.


The “buy the dip” mentality that has been so common place the last few years has not shown up this time around, or at least not until today. Some contend that “buy the dip” investors didn’t have enough time as the quants and hedge funds with big volatility-related bets work through the crash in that subsector.

After a very calm 2017 where we didn’t see any stock markets daily moves of over 2%, we’ve already had a few this year. Volatility is back to “normal” – not 2017 normal, but normal when we are comparing to the last 100 years or so. It was only February of 2016 when we had our last correction, which really isn’t that long ago. But complacency is unfortunately an easy characteristic to exhibit after such a long period of subdued volatility. Hopefully it didn’t lead to overconfidence.

So we’re in a correction…what do we do now?


There have been over a dozen market pullbacks of 5% or more since March 2009. This is another one! According to Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer within a January 29 report, “The average bull market ‘correction’ is 13% over four months and takes four months to recover.” Which tells you that generally when the market comes back, it does so relatively quickly, as we’ve already seen today.


So, it’s a fool’s game to try to time the market and jump in and out of it. No one has a crystal ball. Furthermore, we know that over time that staying invested is your friend. Studies show that just missing a few days of strong returns (which we could very well get next week or later this month), can drastically impact overall performance.

So avoid any emotional mistakes by staying invested and staying disciplined. Don’t be making any short-term knee-jerk reactions; instead think long-term and focus on the things that can be controlled:


§  Create an investment plan to fit your needs and risk tolerance

§  Identify an appropriate asset allocation target mix

§  Structure a well-balanced, diversified portfolio

§  Reduce expenses through low turnover and via passive investments where available

§  Minimize taxes by using asset location, tax loss harvesting, etc.

§  Rebalance on a regular basis, taking advantage of market over-reactions by buying at low points of the market cycle and selling at high points

§  Stay Invested


In closing, a pullback / correction like this one is needed to allow the market to recalibrate. It can be a very healthy event because it may signify that the underlying assets’ valuations are getting back in line with fundamentals. So don’t get anxious over this return of long overdue market volatility. We should all get used to this “new normal” and not let our emotions cause us to take irrational actions that could lower our long-term chances of financial success.


Don’t hesitate to contact us to further discuss your portfolios and your overall wealth management.


[1] Cheng, Evelyn. “The stock market is officially in a correction… here’s what usually happens next.” CNBC, 8 February 2018, https://www.cnbc.com/2018/02/08/the-stock-market-is-officially-in-a-correction–heres-what-usually-happens-next.html. Accessed 12 February 2018.

The Mighty Dollar

With tax cuts and tax returns on everyone’s minds, we think it is a good time to look closely at our favorite currency!  We might call it “dough”, “bread” or “cheddar”, we have “bean”-counters to keep track of it and we use simple, gastronomic valuations, like the Big Mac Index, to compare it to its peers.  Thinking about the US dollar and its’ value might just make you hungry!   The dollars’ worth is determined by the foreign exchange market, but investors and economists alike are always looking for ways to value the currencies and look for explanations or even monetary conspiracies, to explain currency fluctuations.

In 1986, The Economist came out with the Big Mac Index as a simple way to discuss exchange rates and purchasing-power parity (PPP), which compares the amount of currency needed to buy the same item in different countries, in this case a Big Mac. The Wall Street Journal came up with their own modernized version of this same idea with their Latte Index, which compares the price of a Starbucks tall latte in cities around the world.  For example, in New York City, the WSJ reporter could buy a tall latte at Starbucks for $3.45.  Other WSJ reporters would need to spend $5.76 in Zurich, $4.22 in Shanghai, $3.40 in Berlin (almost the same as the U.S.), $2.84 in London and $1.53 in Cairo.  These simple comparisons of the price of a good that is available in many countries can be an indicator of whether foreign currencies are over-valued or under-valued relative to the US dollar.

There are some criticisms of these simple tools.  Costs of these products can depend on local wages or rents, which are generally more expensive in richer countries and can add to the cost of the product.  The price for a Starbucks Latte can even fluctuate amongst American cities or specific locations, like airports, which may have higher rents.  And adjusting these indices for GDP will change the data and perhaps improve their accuracy.  Some also have pointed to the ingredients in these particular items as causing value differences.  McDonald’s, for example, must use strictly British beef in the U.K.  Starbucks can be a little more consistent, as coffee beans are not generally grown in most of the countries they operate in, so the imported price is pretty standard.


What these indices don’t tell us about the currency market is why fluctuations occur.  For example, why has the U.S. dollar hit a recent three-year low?  According to an article in yesterday’s WSJ, one simple explanation for a weakened dollar is that “the economies in the rest of the world are finally growing again, so their currencies are strengthening. The U.S. economy isn’t improving as fast—because it was stronger to start with—so the dollar’s falling.”  The Chinese yuan has gained 3.8% so far in January after gaining 6.7% in 2017, which has the officials at the People’s Bank of China concerned about their exports.  President Trump and the U.S. have been critical of any Chinese central bank policies that would devalue the Chinese currency and cheapen goods coming into the U.S.  This trade friction complicates China’s management of their currency, particularly as they attempt to make the yuan a more market-driven currency.

Adding to the currency gap with China and the drop in US currency values overall were comments made last week by the U.S. Treasury Secretary signaling Administration support for a weaker U.S. dollar as being “good for trade.”   Such overt comments are traditionally avoided by the Treasury Department, but may spotlight the Administration goals to reduce the trade deficit and allow currencies to float freely.  President Trump reiterated his stance on trade imbalances in his State of the Union address, pledging to “fix bad trade deals” and that he expects trade deals to be “fair” and “reciprocal”.  Another factor that may weaken the dollar is the belief that 2018 will bring a tightening of monetary policy by the international banks.  Some banks, like the Bank of Canada and Bank of England, have already raised rates.

A weaker dollar makes U.S. goods cheaper to foreign markets, but there is a risk of undermining confidence in an array of U.S. assets, like the U.S. Treasury market.  As the WSJ article explained, as the new tax law expands the federal budget deficit, the government will look to sell the debt to foreign investors.  Those investors may demand higher rates to compensate for the risks of a weaker currency and those costs could fall onto the U.S. taxpayers.

So, we should think about our American dollar today and perhaps look at our paychecks or tax returns to see what has changed.  At DWM, we are always careful to think about each and every one of your dollars – the ones you invest, the ones you save, the ones you spend and the ones you pay in tax.  Using the simple Big Mac or Starbucks Latte indices might help us remember all the factors that go into the value of a dollar around the world.  For me, I certainly prefer to imagine buying a tall latte in Zurich over a Big Mac!




With U.S. stocks at all-time highs, now is the perfect time to review your risk profile and then make sure the asset allocation within your investment portfolio matches it.  Equity markets have been on a tear.  In 2017, the average diversified US stock fund returned 18%, while the average international stock fund returned 27%.  In the first three weeks of 2018, the MSCI World Index of stocks has increased 5.6%. With low interest rates and inflation, accelerating growth and the recent passage of the Tax Cuts and Jobs Act, it looks like this streak could continue in 2018.

During the current nine year bull market, investor emotions about stocks have gone from optimism to elation and many investors now are not only complacent, but overconfident. Yet, with valuations soaring, we are approaching the point of maximum financial risk.  Certainly, at some point, we will have a pullback, correction or crash.

It always happens.  It could be a conflict in N. Korea or Iran or somewhere else.  It could be a worldwide health scare.  It could be higher interest rates negatively impacting our rising national and personal debt.  It could be something none of us even consider today.  History shows it will happen.  We need to be ready for it by having an asset allocation in our portfolios that matches our risk profile.

What exactly is a risk profile?  There are three components of your risk profile.  First, your risk capacity, or ability to withstand risk.  Second, your risk tolerance, or willingness to accept large swings in investment returns.  It’s the way we are hard-wired to respond to volatility.  Third, your risk perception, or short-term subjective judgment about the characteristics and severity of risk.

We classify your risk profile into one of five categories of risk: defensive (very low), conservative (low), balanced (moderate), growth (high) and aggressive (very high).  As a general rule, younger investors are more willing to take on a higher level of risk.  However, that’s not always true.  Investors in their 80s and 90s who know that they have ample funds for their lifetimes and beyond, and who can emotionally handle high risk, may have an aggressive risk profile, particularly when they plan to leave most of their money to the beneficiaries.  Everyone’s circumstances and emotions are different.  Profiles can change over time, particularly when there are life changing events, such as marriage, birth of a child, loss of job, retirement, changes in health or other matters.  Therefore, it’s important to regularly assess your risk profile.

Here’s the process:


Step 1. Quantify your lifetime monetary goals and compare those with your expected lifetime assets. During your accumulation years, how much will you add to your retirement funds per year?  How many years until retirement?  How much money will you need to withdraw annually during retirement for your needs, wants and wishes?  What are your sources of retirement income?  What’s your realistic life expectancy?  What market return is required to provide the likely outcome of success- not running out of money?  Do the goals require a high rate of return just to have a chance of success or is the goal so low risk that even a bad market outcome won’t cause it to fail?

Risk capacity isn’t simply the amount of assets you have; rather it is the comparison of those assets to your expected withdrawal rate from your portfolio.  A low withdrawal rate from your portfolio, e.g. 1% or 2% a year, means you have high risk capacity. A high withdrawal rate, such as 6% or more, means you have low risk capacity.

Step 2.  Evaluate your tolerance for risk.  What’s your comfort level with volatility?  Are you aggressive? Moderate?  Defensive? How does that compare to the risk needed in your portfolio to meet your goals?  If the risk needed to meet your goals exceeds your risk tolerance, you need to go back and modify your goals.  On the other hand, if your risk tolerance exceeds the risk level to meet your goals, does that mean you need to take on more risk just because you can or because you can afford it? You need to go through the numbers and make important decisions.

Step 3. Compare the risk in your portfolio to your risk tolerance.  Separate your assets into all three classes: equities, fixed income (including cash) and alternatives and determine your asset allocation.  A balanced portfolio might have roughly 50% equities, 25% fixed income and 25% alternatives.  An aggressive (very high risk) portfolio could have 80% equities and a defensive (very low risk) portfolio might have only 10-35% equities.  If your portfolio is riskier than your risk tolerance, changes need to be made immediately.  If your portfolio risk is lower than your risk tolerance, you still need to make sure it is of sufficient risk for you to meet your goals, considering inflation and taxes.

Step 4.  Rebalance your portfolio to a risk level equal to or less than your risk tolerance and sufficient to meet your goals.  Make sure you diversify your portfolio within asset class and asset style. Diversification reduces risk.  Reducing portfolio expenses and taxes increases returns. Alternatives are designed to reduce risk and increase returns. Trying to time the market increases your risk. Set your asset allocation for the long-term and don’t change it based on feelings of emotion. Stay invested.

Step 5.  Most importantly, regularly review and monitor your goals, risk profile and the asset allocation within your portfolio.  The results: Improved lifetime probability of financial success and peace of mind.


Ah, winter…colder temps, snow (even in the Carolinas)…it’s a good time for the annual ski trip. But if there are words for caution when skiing, it’s always: “Don’t get too far out over your skis!” Something for investors to think about as we talk about how the markets fared in 2017 and where they might go in 2018.

Equities: “Fresh powder!” In concerted fashion around the globe, equities rallied in 2017, thanks to strong economic fundamentals and friendly central bankers. Almost like Goldilocks’s time, where the porridge is not too hot nor too cold, so is the pace of this economic expansion: fast enough to support corporate earnings growth, but slow enough to keep the Fed from putting the brakes on too quickly. This led to a magic carpet ride for equity investors, with returns of 5.1% for 4q17 & 18.3% YTD for the average diversified US stock fund* and a 4.1% fourth quarter return and a hearty 26.8% YTD for the average international stock fund*. “Gnarly!” Growth outperformed value, with a handful of tech stocks (Apple, Microsoft, Alphabet, and Facebook) leading the way. But it should be noted that this won’t last forever. In fact, a 2016 study** showed that the average annual price return for growth stocks to be only 12.8% vs 17.0% for value stocks. Another reason to be diversified.

Fixed Income: It was also a positive time for bond investors, as evidenced by the Barclays US Aggregate Bond Index gaining 0.4% in the fourth quarter and 3.5% for the year. The inclusion of global fixed income assets led to better results with the Barclays Global Aggregate Bond Index registering +1.1% for 4Q17 and +7.4% YTD. Yields on the ten-year bond pretty much finished the year where they started, with investors content with the Fed’s pace of raising rates.

Alternatives: The Credit Suisse Liquid Alternative Beta Index, our chosen proxy for alternatives, was up 1.7% for 4q17 and 4.6% YTD. Two of the most well-known alternative exposures, gold and real estate, had solid showings for both the quarter and the full year. Gold***: +1.6% and 12.9%, respectively. Real Estate****: +3.5% and 7.8%, respectively.

2017 proved to be another rewarding year for the balanced investor. But how do the slopes look for 2018? Will it be another plush ride up the mountain again? Gondola, anyone?!?

Indeed the same items – low interest rates, low inflation, accelerating growth, strong earnings – that propelled the global economy in 2017 should remain in 2018. The risk of recession seems nowhere in sight. Furthermore, the Republican tax overhaul is also expected to be a boost, at least in the near-term. But not sure if that represents “eating tomorrow’s lunch”. Moreover, two key drivers of economic growth, productivity gains and labor force expansion, have been on the downtrend. So is now the time to be thinking about the “vertical drop”???

With the bull market in its ninth year, many areas of the stock market at record highs, and volatility near record lows, it can be easy to become not only complacent but overconfident. Now is not the time to get too far out over your skis and take on more than you can chew! At some point, the fresh powder will turn into slush. Don’t be a “hot dog” or a “wipe-out” may just be in your future.

At DWM, we see ourselves as ski instructors, helping our skiers traverse the green, blue, and even black diamond runs by keeping them disciplined to their long-term plan, including the allocation and risk profiles of their portfolios. Rebalancing, the act of selling over-weighted asset classes† and buying underweighted asset classes in a tax-conscious manner, is part of our ongoing process and prudent in times like these. There are few signs of financial excess like ten years ago, but the market can only be predictable in one fashion: that it’s always unpredictable.

In conclusion, may your 2018 be a ‘rad’ one, with fresh powder on the slopes and fireside smiles in the cabin. Don’t hesitate to contact us if you want to talk or ‘shred’ the nearest run.

Brett M. Detterbeck, CFA, CFP®


*according to Thomson Reuters Lipper

**study by Michael Hartnett of Merrill Lynch

***represented by the iShares Gold Trust

****represented by SPDR Dow Jones Global Real Estate

†versus your initial investment target


On top of the regular holiday season’s festivities, this year we’re watching the proposed “Tax Cuts and Jobs Act” likely making its way to the President’s desk for signature. The “joint conference committee” announced yesterday that they have a “final deal” and Congress is scheduled to vote on this next week.  Before we review what we specifically know about the bill (not all details have been released as of this morning) and provide some recommendations concerning it, let’s step back and review it from a longer-term perspective.

Since last year’s election, stock markets have been on a tear- up over 20%, mostly driven by increased corporate profits, both here and abroad.  U.S. GDP is growing and unemployment is close to 4%.  Most economists believe that now is not the time for a tax cut, which could heat up an already expanding economy to produce some additional short-term growth and inflation. The Fed reported yesterday that the tax package should provide only modest upside, concentrated mostly in 2018 and have little impact on long-term growth, currently estimated at 1.8%.  So, tax cuts now will not only likely increase the federal deficit by $1.5-$2 trillion over the next decade, but will take away the possibility of using tax cuts in the future, needed to spur the economy when the next recession hits.  Certainly, we would all like lower ta

xes and even higher returns on our investments, but we’d prefer to see longer-term healthy economic growth with its benefits widely shared by all Americans and steady investment returns, rather than a boom-bust scenario and huge tax cuts primarily for the wealthy that may not increase long-term economic growth.

As of this morning, December 14th, here are the current major provisions:


  • Income Tax Rates.  The top tax rate will be cut from 39.6% to 37%.
  • Standard deduction and exemptions.  Double the standard deduction (to $24,000 for a married couple) and eliminate all exemptions ($4,050 each).
  • State and Local Income, Sales and Real Estate Taxes.  Limit the total deduction for these 

    to $10,000 per year.

  • Mortgage Interest.  The bill would limit the deduction to acquisition indebtedness up to $750,000.
  • Limitations on itemized deductions for those couples earning greater than $313,800.  Repeals this “Pease” limitation.
  • Roth recharacterizations.  No longer allowed.
  • Sale of principal residence exclusion.  Qualification changed from living there 2 of 5 years to five out of eight years.
  • Major items basically unchanged.  Capital gains/dividends tax rate, medical expense deductions, student loan interest deductions, charitable deductions, investment income tax of 3.8%, retirement savings incentives, Alternative Minimum Tax, carried interest deduction (though 3 yr. holding period required.)
  • Estate Taxes.  Double the estate tax exemption from $5.5 million per person to $11 million.




  • Top C-Corporation Tax Rate.  Reduce to 21% from 35%.
  • Alternative Minimum Tax.  Eliminated.
  • Business Investments.  Immediate expensing for qualified property for next five years.
  • Interest Expense.  Limit on expense to 30% of business interest income plus 30% of adjusted EBITDA.  Full deduction for small businesses (defined as $25 million sales by House, $15 million by Senate).

Another key issue, the top rate on pass through organizations (such as partnerships and S Corps), is yet to be determined. However, it appears that a reduction of 20% to 23% will be available to pass-through income, subject to W-2 minimums and adjusted gross income maximums. This would produce an effective top rate of 29.6% on pass through income.

If all of that see


ms confusing, you’re not alone.  Lots of moving parts and lots of details still to be clarified. Even so, if the bill passes, you will have been smart to consider the following:


1) Because the bill would limit deductions for local income, sales and real estate taxes, you should make sure that you have paid all state income tax payments before December 31, 2017. If you are not sure, pay a little extra.

2) Also, make sure you pay your 2017 real estate taxes in full before 12/31/17. Because Illinois real estate taxes are paid in “arrears” it will be necessary to obtain an estimated 2017 real estate tax bill (generally due in 2018) by g


oing to your county link and then paying this before 12/31/17.  Let us know if you need help on this.  In the Low country, while our CPA friends indicate that paying 2018 real estate taxes in 2017 should be deductible, as a practical matter, there appears to be no way to get an estimated tax bill for 2018 and prepay your 2018 real estate taxes in 2017.

3) Meet with us and/or your CPA in early 2018 to review the impact of the Act, assuming it becomes law, on your 2018 income tax planning. It will be important to review the various strategies that may be available to make sure you are paying the least amount of taxes. 

Yes, tax reform may be here before Christmas. Not sure what it will be: a wonderful gift for this year’s holiday or perhaps a lump of coal in our stockings for Christmases to come.  Stay tuned.

The Other Side of the Bitcoin

With the rise of new technologies, each one more advanced than the last, a new form of electronic payment has emerged.
Bitcoin is a decentralized digital currency created for efficient electronic payments. It is run and controlled by what is known as a ‘blockchain’, a public ledger of all transactions in the bitcoin network. A ‘blockchain’ is essentially a company-wide spreadsheet that can be accessed by all. The purpose of the ‘blockchain’ is to determine legitimate transactions and deter attempts to re-spend coins that have already been spent.
Bitcoin works similarly to a check in that there are two different numbers per transaction: your personal private key (or account number) and a signature that confirms your transaction on the above mentioned ‘blockchain’. The digital currency can be spent in a number of different ways, but can only be held in two forms. A bitcoin user can hold an electronic wallet (e-wallet) via a web wallet or a software wallet by using a downloadable software. An e-wallet is essentially an online bank account that allows you to receive bitcoins, store them, and send them to others. A software wallet is a downloadable software that allows the consumer to be the custodian of their bitcoins. Often the latter leads to more liability for the consumer.
It all sounds pretty enticing, and maybe you are wondering if you should jump into this next innovative technological trend. But the rapid growth of bitcoin has many people concluding that it’s just another bubble waiting to burst.
Markets have seen many different financial bubbles over the years, and none of them have ended particularly well. A financial bubble occurs when market participants drive prices above market value. This investment behavior can be attributed to herd mentality, where people think that because everyone else is investing in a certain entity and seeing short-term success, that means it’s a good investment. Inevitably, these financial bubbles can’t be sustained long term and they burst.
The first documented economic bubble in history occurred in the 17th century, when Dutch tulips were all the rage. The contract prices of the newly introduced and popular bulbs grew to an outrageous high, eventually leading to a dramatic collapse or “burst” in February of 1637. Today this is known as “tulipmania.” More recent examples include the dot-com bubble of the late ‘90s and the housing bubble in the 2000s. I’m sure we all remember how those financial bubbles ended, and the repercussions that followed those bursts.
Looking back on all of these events, it’s easy to see now how these bubbles formed, so we can use these prior experiences to better predict financial bubbles. Today, the cause for concern is bitcoin, and it’s more the question of when the bubble will burst rather than if it will.
Bitcoin got its humble start six years ago at $2. Three years later it was at $300 and last week it topped off at $11,000. With a 1000% increase so far this year alone, it’s easy to see why many people are raising the alarm or joining the frenzy, depending on the person!
With its frequent surges and sharp price moves, bitcoin is as volatile as they come. In other words, if you think you want to give bitcoin a shot, it’s best to assume that you’ve already lost that money. Everything we’ve learned about financial bubbles over the past four centuries points to an imminent burst in this digital currency’s future, and you and your money don’t want to be caught in a tight spot when it does.
There is also speculation that regulators will step in at some point because of the potentially disastrous economic consequences associated with the runaway bitcoin prices. The first concern is as we’ve outlined above, the bubble will burst and cause devastating losses. Additionally, future contracts are opening bets for bitcoin, and some funds are set to take form in early 2018 to pitch bitcoin to more mainstream investors. The more bitcoin gets wrapped up in our financial system, the worse it will be for everyone when it bursts.
The other major consequence presents the other side of the “bitcoin”: what if the bubble doesn’t ever burst, and bitcoin becomes an alternative, or worse, a replacement for standard U.S. currency? We cannot see regulators allowing what to happen, so it’s safe to say that even if this bubble miraculously doesn’t burst, it will most likely lose traction one way or another.
As many of you know, at DWM we don’t try to time the markets, and when it comes to speculative investments that require you to do so, it’s best to avoid them altogether.

Plant the Seed & Let It Grow: How DWM is Helping Emerging Investors

Coming out of college can be a very stressful time for an individual. One goes from the structured and carefree life of being a student to someone bewildered with what is often their first glimpse of responsibility, trying to grab the wheel and get some control on their future. For a lot of recent graduates, it’s not an easy transition.

Having graduated from Carthage College in Wisconsin last May, I understand what some of these sobering realizations feel like. Fortunately, my family relationship with DWM team member, Jenny Coletti, earned me an interview at Detterbeck Wealth Management and, fast forward a few weeks, I’m proud to be a new part of the DWM team!

Even though I majored in mathematics, as a young person fresh out of college, it is extremely daunting on how to get your hands around your financial wherewithal and start planning for your future. DWM is guiding me through that process and in the near future will be doing this for other “emerging investors”!

  • Automated investment management utilizing DWM investment strategies via the Schwab IIP Platform

  • Emerging Investor On-Boarding – Financial assistance geared directly toward an Emerging Investor needs, which could include the following:

    • Budgeting/cash flow planning

    • Debt Management

    • Asset Allocation including assistance with your employer-based plan

    • Assistance with other work benefit options

    • Access to nifty financial tools

    • Educational planning (for those with kids or planning to have them soon)

    • Access to the DWM Emerging Investor Relationship Managers

      • In Charleston: Ginny Wilson & Grant Maddox

      • In Palatine: Me, Jake Rickord!

  • The ability to graduate to DWM’s Total Wealth Management (“TWM”) Platform – the one that our current clients benefit from – when their account value reaches a certain level

This platform can serve many needs, but Brett and Les are very excited about this being a nice spot for children of TWM clients and other select younger people looking to grow their portfolios, where they become their own investor and spread their own wings!

It should be noted that this Emerging Investor program is a different service package than our more sophisticated Total Wealth Management experience. Given that it is geared toward a younger audience, which have different – typically less complicated, but still important – needs, the areas of focus are much different. For example, my recently graduated college friends are more interested in cash flow/budgeting management and making sure that their 401k through work is getting the most bang for the buck, given the employer’s match and investment choices, and less interested in retirement, estate, tax planning, etc. The investment management portfolios are still constructed by the same team at DWM, but do not utilize the more sophisticated alternative investments. Also, from an administrative perspective, reporting is completely handled through the Schwab IIP Client portal – no custom Orion/DWM reports like our TWM clients receive. In fact, with this EI program, everything is on-line and paperless, which to a Millennial sounds fantastic, but may be daunting to the older generations. A co-browsing session between the new EI client and one of our team members can be scheduled to make on-boarding a piece of cake. And whereas this new EI program has many differences from our traditional TWM program, the main theme remains the same: we will help select investors make their money work harder by addressing the unforeseen landmines hidden within their financial plans by equipping them with education, knowledge, tools, and sound advice.

Overall, I am extremely excited to be a part of the DWM family. I’ve learned a great deal and met some great people since joining several weeks ago. I look forward to meeting all of the clients in due time. And I cannot wait to help roll-out this new Emerging Investors platform. We still have plenty of work to do, but stay tuned for the official launch!