Financial Literacy – Important Now More Than Ever

As the coronavirus pandemic changes our view on normalcy amidst global economies, the ramifications of inadequate financial knowledge may display a population that is underprepared to face unprecedented financial challenges. Nearly three months ago, we were seeing a thriving economy, presidential debates, NBA teams spearing for a playoff position, and more, but all of that came to an unexpected end when the COVID-19 pandemic took hold of our day-to-day lives. Now is all the more reason why our societies should refresh on financial literacy skills to navigate uncharted economic uncertainty.

According to Investopedia, financial literacy is the ability to understand and properly apply financial management skills. Characteristics of financial literacy include but are not limited to properly managing debt, savings goals, accurately calculating interest, and understanding compounding interest. To many, financial literacy is always important, but during a time of widespread economic ambiguity, it can be important to almost everyone.

It should be noted that a lack of financial literacy does not discriminate against income levels. Even those with higher salaries are subject to inadequate financial education. As stated by CareerBuilder, of those making over $100,000, nearly one in every ten Americans live paycheck to paycheck. The National Financial Educators Council found that lack of financial illiteracy costs the average American, regardless of income, $1,279 in 2019. For comparison, that is more than many received from recent stimulus checks from Congress!

Why is it important to touch-up on your basic financial knowledge during a pandemic?

  • Financial literacy can make people habitual budgeters who are willing to save for their goals and potentially provide a cushion during a pandemic.
  • Financially literate people better understand and research financial assistance programs that federal, state, and local governments are now rolling out in response to the pandemic.
  • If needed, understanding the importance of prioritizing the liquidating of assets can benefit your long-term planning. Giving thought to and reviewing potential tax consequences as well as considerations of liquidating liquid versus illiquid assets can be important in preserving your overall net worth.
  • According to the NerdWallet, organizations that implement effective financial wellness programs have shown employees perform better if they are not distracted by the stress of personal financial issues.

What steps can you take to make sure you are “in the know”?

  • Consider taking an online class to better round off your current understanding of financial matters. Many resources are offering discounted pricing during the current pandemic. Popular resources include the likes of MasterClass, Udemy, and Dave Ramsey.
  • Educate yourself on the importance of your credit score. Improving your current credit worthiness may significantly increase your ability to access credit if needed. Our previous blog on this matter may be of assistance:
  • Organization, while not solely pertaining to financial matters, is especially important during emergency situations. Knowing where your financial records are and what they mean can help improve your efficiency in financial decision making.
  • For business owners, taking the time to educate your employees on financial matters may significantly improve productivity and retention.

At Detterbeck Wealth Management, continuing education is important to all of our team members and required for many of our designations. We consider ourselves to be life-long learners. For example, I recently completed the College for Financial Planning’s Chartered Sustainable, Responsible, and Impact Investing Counselor designation, CSRIC(TM), to be more adept in answering questions and providing input on this growing field. To learn more on this designation, please visit:

In addition to being life-long learners, we also consider ourselves to be educators for all of our clients. We hold this role to the highest of standards. Educating our clients, particularly during these trying times, is critical. While we may not be meeting with you in person just yet, we are always a phone call/video call away to assist in your current and future financial considerations.


Finding the Good

Covid-19 has flipped the world upside down and people are having trouble finding positivity in a time that is so uncertain, lonesome, and frightening. In the beginning of 2020, when the Coronavirus started secluding people into their homes, all anyone could see was the negatives. How will people work? What will happen to our economy? Where is the good? And as time went on, billions of people being plucked from their normal public life into a more solitary one, we have seen something the world has never seen… Earth healing itself, with our help.

One of the first positive environmental impacts the world recognized occurred early March before the US even went on strict lockdown. China had been dealing with Covid-19 since late 2019 and had already quarantined its population for several weeks at that time. News got out that their air pollution was down to almost a quarter of what it was, same time the year before. It has even been related to what states like Ohio emit a year, which is amazing! China is the biggest producer of greenhouse gases in the world, and tainted air pollution can lead to residents having lung and cardiovascular health issues. With air pollution limited, people can breathe healthier air and potentially live a healthier life, hopefully air is clear for a long period of time, and continue so all around the world.

The Venice canals have been populated by boats and tourists for decades as Italy has become one of the top 10 places to travel in the world. Videos hit the internet in late March of fish and dolphins swimming in the Venice canals for the first time in a long, long time. When people travel these canals, sediment is brought up from the bottom giving the water a murky look, and now it is a clear blue transparent to the life filling it. Oh, and not to mention less litter in these waters from lack of travel on them.

Another positive impact that hits close to home with some of us beach lovers, is that sea turtles are thriving! South Carolina, along with many East Coastline states, deem ‘Nesting Season’ from May 1st to October 31st every year. This is when turtles come upon shore, incubate their eggs for 60 days, and let them hatch peacefully. This process can be tampered with by beachgoers leaving plastic and waste, making it difficult for the baby turtles to push their way into the ocean, artificial light, like flashlights, leading them astray, and people digging the eggs up, even if they are closed off from the public. Since beaches have been closed for months, and some still on curfew, less foot traffic has saved many turtle nests and allowed for more sea turtles to hatch. A few articles even said that most SC beaches have documented 25-30% more nests in the past few months. Click here to view the ‘Sea Turtle Nest Monitoring System’ for South Carolina beaches, online!

This impact can be perceived as both positive and negative depending on the safety of people, and where your heart is regarding animals, but, animals have been seen roaming the streets more than ever! Our world is crawling with important wildlife, and our homes are just as much animals, as they are our own. Frequently throughout history, we have invaded their territory for our benefit and made it completely our own. There have been photographs posted of lions sleeping in the middle of the road in South Africa, when there are usually Safari Tour buses

traveling there. Monkeys have taken over streets in places like India and Thailand, even searching for food in front of stores and restaurants. Thousands upon thousands of birds have flocked to Agua Dulce Beach in Lima, Peru since beachgoers are not staking out on the sand. Deer have been seen sleeping in people’s front yards at night, goats roaming around town, and even our beloved sea turtles fit into this. Click here to view photographs of these examples, and spot a few more!

Many other positive environmental impacts include being able to see Mount Everest and the Taj Mahal from the smog clearing, less waste in our oceans due to boat and cruise travel halting, and many people donating clothes/home goods to charities after de-cluttering during stay at home orders. But, there are also negative effects of the world staying at home and quarantining. Stray animals and wildlife are having a hard time finding food because tons of restaurants feed strays with left overs, and some animals even go dumpster diving. The Brazilian Amazon’s deforestation has increased more than 50% for the first few months of 2020, as it did in 2019. Rainforests around the world have shrank over 6500 kilometers since Covid-19 as nature preserves have not been patrolled or assisted in being taken care of. Migration has also been halted, for people and animals, which is great for the environment and is a pivotal part of nature working its course.

So, what can we do? How can we keep up the good things happening from the pandemic as life goes back to ‘normal,’ and how do we pick up the slack of things that aren’t going so well?

  1. Carpool. Carpooling to and from work, extracurriculars, or even using public transportation will help with emitting carbon dioxide into our air and contributing to the oil crisis, when social distancing is over of course.
  2. Recycle. Recycling has taken a turn for the worst in this pandemic, especially with how much medical waste has occurred. Recycle in your house, reuse some cups or dishes, DIY plastic objects, get a reusable water bottle, and be sure to separate your trash from recyclables. Recycling helps us preserve our natural resources, saves energy, decreases pollution and creates jobs!
  3. Let animals be animals. The world will be a very beautiful place if we help animals and wildlife survive, especially in their own homes like the ocean, rainforests and safari.
  4. Clean up after yourself. Beaches and water streams around the world are cleaner than ever helping wildlife live and even making it more aesthetically pleasing to look at. There have already been tons of viral posts showing absolutely trashed and wrecked beaches after people were allowed back on. That has to end.
  5. Donate. Like our blog last week, many great causes have been put on hold due to the pandemic, and we must do our part to keep the world going round.
  6. Educate yourselves on products you’re purchasing and what company it is from. You won’t believe the morality of some companies of what they are doing to our people, animals and Earth. Shop wisely.
  7. Volunteer your time. Recycling takes time. Saving water in your home, or printing less takes time. Cleaning up your trash takes time. That can be a start that can eventually lead you to volunteering more time and assets.

It is beautiful to see that during this crazy time, the world has some positivity in it from healing itself all the way to helping heal each other. This pandemic has shown us some areas that the Earth has been lacking in, and it is our job as caretakers to keep the world healthy for generations to come. Although Covid-19 has flipped everything upside down, it is on us how we react to it. Let’s do our part, one step at a time! And always, find the good!

It’s the Perfect Time to Help Your Community

The Coronavirus crisis has decimated lives and livelihoods across the globe.  Charities are struggling to help the most vulnerable and are having a hard time keeping up, while many not-for-profits across the company are in precarious financial situations.   For example, there are now more than 36 million Americans unemployed; many of them without enough money for food or shelter.  The Food Bank network is distributing 100 times more food than normal, yet is currently receiving 50% less food from manufacturers.

Scores of charities across the country are sounding the alarm that they could go under if they cannot find alternative funding. Nonprofits large and small have shut down temporarily, cancelled essential fundraising events and watched helplessly as funds have dried up from both individual and corporate donors.  The reality is that many people who would normally donate are now in the need of help themselves.

Furthermore, even before the COVID-19 pandemic, donations to charity were declining.  20 million fewer households donated to charity in 2016 than did in 2000.  In the United States, the charity sector makes up for some 10% of the workforce; making it the third largest industry behind retail and manufacturing according to John Hopkins research.  Even as the economy starts to open up again and reports of potential vaccines are front page news, there’s deep concern that the contraction in giving to charity may last for years.

Fortunately, you readers of the DWM blog are generally in a financial position to make charitable donations and we expect that most of you do, particularly during fundraisers, giving days and at year-end.  We would like to encourage you to consider providing donations and/or your skills to a charity now.

The CARES Act signed into law on March 27th, provides incentives for giving.  Since 90% of taxpayers use the standard deduction, the CARES act provides a specific tax deduction in 2020 for up to $300 in cash contributions.  Furthermore, in 2020, you can deduct all of your contributions up to 100% of your adjusted gross income (normally 60% is the limit). Also, the CARES act eliminated Required Minimum Distributions (RMDs) for IRAs for 2020. However, if you are 70 ½ or older, you can take money from your IRA and make a Qualified Charitable Distribution (QCD) and, therefore, help the charity and not have to claim any income on the distribution.  Lastly, the CARES Act provided a $1,200 economic stimulus to taxpayers with incomes below certain levels. Some recipients of those funds, who don’t need it, are using that money for charity.

Another tax efficient way of giving are Donor-Advised Funds (DAFs), which we have spoken about before.  You fund DAFs and get tax deductions in one year and then “grant” the money to charities in future years.  This allows you to “bunch” your donations and to reduce income taxes in years when you are in high tax brackets. Furthermore, you can use cash for funding or appreciated securities and therefore eliminate the capital gains tax on the donated securities. Funds in a DAF can be invested and grow and there are no minimum distribution requirements.  DAFs are a great planning tool for both income tax and estate taxes.

DAFs have been stepping up grants during the pandemic.  Grants given in March 2020 from DAFs were 36% higher than March 2019.  Donor advised funds are really a sustaining factor at times like this because people have already irrevocably set this money aside for charity so at a time, like now, it can be used.

Here are a few other comments and ideas on how you might be able to help your community:

  • Support the arts. Across the U.S., institutions have closed their doors and many have had to lay off staff. The American Alliance for Museums estimates that museums are losing some $33 million a day and it predicts 30% of them will never reopen without help.
  • Don’t forget animals. Many animal shelters are facing reduced staff and volunteer support.
  • Donate blood. 13,000 blood drives were canceled in the first three months of 2020 resulting in 375,000 fewer blood donations.
  • Put your skills to work. Your organization may be putting together programs to help American families who are struggling. The Foundation for Financial Planning, for example, is raising $1 million and will be providing pro bono financial planning and advice to low-income workers and other groups. I’ve participated in that pro bono work and it is very fulfilling.
  • For those SC taxpayers, consider a donation to help “exceptional needs” students with dyslexia, autism, ADHD or physical and emotional needs. There are 90,000 exceptional students in SC, one out of 12 children. And donations to the, a 501(c)(3), provides a tax credit to SC taxpayers, up to 60% of their tax liability. As such, this amount is currently considered taxes for your federal tax return.

It’s the perfect time to help your community with your money and/or your skills.  Each of us have our favorite organizations and causes.  Please consider doing something now! In a time of significant need like now, it will definitely be appreciated.
























Traditional vs. Roth 401(k): Where Should I Be Putting my Money?

Recently, we have had quite a few conversations reviewing the age-old debate of whether Roth 401(k)s or Traditional 401(k)s are better. Well perhaps not age-old considering Roth 401(k)s came out in 2006, but still a common question with no quick answer. To start, let’s clarify exactly what a 401(k) is and how a Roth 401(k) compares and contrasts to a Traditional version.

Starting in 1980, the first 401(k) program was established through Johnson Companies. This retirement program provides employees the ability to shift their income straight from payroll into an investment account just for them. In a Traditional 401(k) plan, this shift comes in the form of deferred payment. Previously being reliant on company-set pension schedules, 401(k) plans transfers the legwork and adoptability of retirement savings away from company management and into the hands of workers themselves. Through this vehicle, employees can take a portion of their pay on a regular schedule that would normally be included in their check and instead deposit it into a corporate-structured, employee-managed investment account. These plans quickly became a company favorite, with over 50% of current companies either already providing these plans or considering it today.

Additionally, 401(k)s provide employees with an additional benefit: Tax-deferral for contributions. While contribution amounts to this account are capped annually ($19,500 for 2020 without catch-up), all amounts transferred are considered tax-deferred, i.e., employees can directly reduce their taxable income in the year contributed by their total contribution amount for that year. For example, if you were paid $100,000 in 2020 and deferred $19,000 into your 401(k), your total taxable income for 2020 would be $81,000.

For years, Traditional 401(k)s (and by proxy extremely similar accounts such as 403bs or 457s), dominated the market of employer retirement plans as they were one of the only real players in the game. However, in 2006, Roth 401(k)s (which are modeled after Roth IRAs created in 1997) shook all of that up. Why? Because these Roth plans offer up no current year tax deduction, but once contributed, the principal is never taxed again and the earnings are never taxed. Not to mention that since the contributions are already taxed, if rolled into a Roth IRA upon retirement, there are no required minimum distributions (“RMD”s) during the account owners lifetime, and beneficiaries are not taxed as well which provides some extra incentive for individuals who look to provide significant inheritances to their loved ones.

The addition of this designation to retirement plans opened up a lot of questions that we’ve seen over the past few years as more and more employers begin to offer the option. The most prevalent one being the titular “How much should I be investing in my Roth 401(k) vs my Traditional 401(k)?”. And the answer may not be as simple as it seems at first glance.

The taxability of the contributions to each is the driving factor behind deciding which form of retirement plan works the best for each client. The long term understanding of tax rates can help clear up this picture. Take the situation below for example:

Chart 1: Value of Roth vs. Traditional 401(k)

As stated in the blurb above the figures given in Chart 1, the calculations hinge based on tax rates over time. In theory, both accounts end up holding the same net value. However, the idea that tax rates over time will remain the same is highly unlikely. The 2017 Tax Act cut rates initially but they gradually ascend back to the former, higher rates. Further, with trillions of dollars of U.S. debt hanging over our heads, tax rates look to go up in the coming years. The result of this expected increase in tax rate indicates that the tax on the Traditional (also known as “regular”) 401(k) column shown in Chart 1 should be bumped up to something like 32% or higher, resulting in 4% less overall value of Traditional 401(k) assets than that of the Roth 401(k). While that may be only $1,200 dollars less in the example above, the larger the 401(k) value at retirement age the more significant this difference will be. Then again, this example assumes you stay at the same income now and in the future which may not be realistic. For many retirement will likely drop them into a lower tax bracket. As such, the Traditional 401(k) may make more sense. For a fun analysis to play around with this idea, try using this calculator.

One additional consideration not shown in the above chart is that additional taxable income in retirement years can also cause Traditional 401(k)s to have less appeal than Roth 401(k)s. If you expect to get a sizeable pension, annuity payout, or other income stream during retirement, the tax-deferral of the Traditional 401(k) contributions works less in your favor as you’ll likely be taxed at a similar or (in rare circumstances) higher rate than that of when you were working.

Further, the younger an individual is, the more likely that they will be in a lower tax bracket than when they look to retire. For this reason, we generally hope to see young individuals contributing at least 50% of their 401(k) contributions towards their Roth 401(k).

Here’s a different situation in which Traditional 401(k)s may be a better option. For example, if your current year income totals slightly above the current year tax bracket, it would likely be more beneficial to contribute more to a Traditional 401(k) in order to drop down a bracket and have all your income taxed at a lower current year rate.

At the end of the day, there are many variables to consider when choosing between a Traditional or Roth 401(k). One needs to make assumptions about one’s current and future financial situation. Frankly, those can be tough assumptions to make, but fortunately the argument over Roth vs Traditional is not an exclusive debate! In actuality, a significant number of workers will find that a mix of these savings, for example 50% of 401(k) contributions being allocated to Traditional and 50% to a Roth 401(k) can work out to receive the benefits of both sides, slightly lower taxes now as well as slightly lower taxes in the future!

Here at DWM we work with our clients to ensure that proper analysis through financial planning and tax planning provides us insight into the benefits that each type of 401(k) plan can offer on a case-by-case basis. If you would like to review this information and how it may apply to you in more detail, please feel free to reach out!

Are Offices Becoming Extinct?

Berkshire Hathaway held their annual meeting on Saturday- via live stream from an empty arena.  For the event, Warren Buffet put on a tie for the first time in seven weeks. During the four hours of the presentation, Mr. Buffet questioned the need for office space and predicted a significant change in the supply and demand.

This week, the Economist’s Catherine Nixey put it more bluntly in her article titled “Death of the Office.”  Even before the coronavirus hit, office space use was changing.  A combination of the digital revolution, increasing rents and increased demand for more flexibility had resulted in over half of the U.S. workforce working remotely, at least some of the time.  Across the globe, working from home (“WFH”) has been increasing as well.  Now, COVID-19 has dramatically accelerated the trend.

Ms. Nixey believes the first large push into offices was started by the East India Company (founded in 1600 and dissolved in 1874).  Their offices, inside of buildings featuring Palladian pillars and marble steps, were not simply to get work done, but also to demonstrate East India’s profitability, strength and efficiency.  Large organizations, like East India and governments, required a lot of “paper to be pushed” and managing proved easiest when all the workers were in one spot.  The Industrial Revolution (1760-1830) produced an explosion in business and a huge increase in demand for office workers.  New steam team trains brought needed office workers into the city to sit behind desks to fill the growing needs of the developing professions of finance, law and retail.

Mary Beard, professor classics at Cambridge, believes that the amount of time our generations have spent in offices would have been unheard of in earlier societies.  Today, most of us spend more time working than at leisure.  For the Romans, it was the opposite- primarily leisure and only sometimes business.  Romans didn’t need to go to an office. Their tablets and styluses were very portable and the Romans were able to spend much of their time outside and never behind a desk.

Fred Taylor, who pioneered time-and-motion studies in the 1890s, determined that workers performed best when seated at lines of desks with flat tops.  He is considered the father of the “open-plan office.”  Fast forward 130 years, and current time-and-motion studies have found that office work not only takes up the bulk of our time, but the best part of it; when we are most alert.  Furthermore, most managers have been spending at least 20 hours per week in meetings.

It’s no surprise that writers including Balzac, Dickens, Flaubert, Melville and Kafka have satirized the office and office workers.  T. S. Eliot, who once worked in a bank, saw of the crowds of commuters crossing London Bridge similar to Dante’s vision of hell: “I had not thought death had undone so many.”  Walt Whitman sneered of clerks as men “of minute leg, chalky face and hollow chest.”

In the last few decades, to make the experience of an office worker more palatable, changes have been made.  There are many different new designs-office buildings shaped like beehives, baskets, rocket ships, and fish.  Inside there may be ping pong tables and other amenities; many of them brightly colored.  Some companies provide free food.  Designer Thomas Heatherwick suggests that the office building needs to be an inspiring “temple in which to toil, places of beauty that we can admire, even love.”

Love may be going a little far, but there are some key advantages of going to the office.

Lucy Kellaway, who wrote a newspaper column about the “absurdities” of office life, has written about the “great artificiality” we embrace when we step into an office.  We become professionals.  That’s not exactly how it feels at home; particularly if the children are there, you are unshaven in sweat clothes and living in chaos. Ms. Kellaway says that “putting on our business clothes and going to the office allows us to become a different person.”

The escape to the office has been out of reach for many for almost two months.  Online encounters are fine and save driving time.  But, it’s not the same as being together in the office. The relationships and collaborations we have in person, whether with family, team members and clients, are different than those by phone or online.  Yes, humans need offices.  Certainly, there will be changes in how companies use offices, but working from home, for many, is not feeling quite as great as they thought it might be.

The situation reminds us of Mark Twain.  When asked by a reporter about his obituary which was mistakenly reported in a newspaper, Mr. Twain quipped: “The reports of my death are greatly exaggerated.”  No one can predict the future, yet it seems that while office space and use will continue to change, offices will not become extinct any time soon.

The Health IRA

Health savings accounts (HSAs) are tax-deductible savings plans that allow you to put aside savings for future health care expenses. HSAs were introduced in 2004 as part of the Medicare Prescription Drug, Improvement, and Modernization Act, which was signed into law by President George W. Bush. Since their creation, advancements in technology and popularity have allowed investors to not only access their HSAs more efficiently but also grow their accounts considerably.

While HSAs are primarily known as a tax-advantage plan for paying medical expenses, they can also help you save for retirement. Although it has become common practice that we income earners should contribute to our respective company-sponsored retirement plans or similar workplace defined contribution plans and other IRAs as the best way to save or invest our way towards retirement, recent developments in HSAs have created new strategies to help work towards financial independence and retirement expenses.

Before getting into potential strategies for Health Savings Accounts, let’s first look at who is eligible to open a Health Savings Account:

  • Must be 18 years of age or older
  • Must be covered under a qualified high-deductible health plan (HDHP). For 2020, the IRS defines an HDHP as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family.
  • May not be covered under any health plan that is not a qualified HDHP
  • May not be claimed as a dependent on another individual’s tax return
  • Cannot be over the age of 65

Now, if you meet the criteria listed above, you are eligible to set up a Health Savings Account. Here is where the fun begins. HSA holders in 2020 can choose to contribute up to $3,500 for an individual and $7,000 for a family (HSA holders 55 and older get to save an extra $1,000). HSAs are considered ‘triple tax-free’ assets. 1) All contributions to your HSA account are tax-deductible. 2) All funds in your account grow tax-free. 3) Withdrawals to pay for qualified medical expenses are tax-free. Unlike a 401(k) or IRA, an HSA does not require the account-holder to begin withdrawing funds at a certain age. However, funds taken out for non-qualified expenses are both taxed and incur a 20% penalty if made before age 65. After age 65, non-qualified withdrawals are still taxed but have no penalty.

As the popularity of these accounts has increased over the years, we have seen more and more HSA providers include investment options as an added benefit to their services, which gives investors all the more reason to take advantage of the benefits of HSAs. What we suggest as a long-term strategy to turn your HSA from a healthcare plan to a retirement strategy is:

  1. To max out your contribution every year.
  2. Don’t spend it! This may sound counterintuitive, but we’re looking at an HSA primarily as an investment tool and tax-exempt future bucket of money. Let it grow!
  3. Keep all of your medical receipts. That $900 invoice for physical therapy in 2019 can be used anytime in the future; for example, you can pull that $900 out in 2059 tax-free!
  4. The key to maximizing your unspent contributions, of course, is to invest them wisely. Don’t leave your HSA account in cash!
  5. It may be wise to set up a separate savings account for unplanned future medical expenses so that you aren’t scrambling to find funds to pay for these expenses out of pocket.

In golf, we are all familiar with the main clubs in our bag. Our woods, irons, and (eventually) the putter. However, every once in a while we need a little extra help getting our ball to the green. That’s where the rescue club comes into play. If your woods and irons are your 401(k) and IRAs, then the HSA is kind of like your rescue club to give you that extra push towards the green. The HSA can be a great addition to your long-term planning.

Do you still have questions about HSAs and how they fit into your overall plan? Please do not hesitate to reach out to your dedicated DWM team members to learn about new developments in this area, and how an HSA may fit into your overall planning.

The Coronavirus Hits Home-Now is the Perfect Time to Review Your Estate Planning

The Coronavirus health emergency is a huge reminder that life is fragile, precious and unpredictable. The daily increasing numbers of COVID-19 cases and deaths remind us that we are all mortal and we all need to be prepared. We continue to hope that you, your family and your loved ones are doing well through this pandemic that has turned the world upside down and changed our daily routines.  What better time than now to create or review your estate plan?

Here are some questions for you (and your spouse if you are married) to review:

  • Does your will or trust reflect your current wishes?
  • Are your digital assets covered in your estate plan?
  • Are your powers of attorney for property and health care up to date?
  • Who gets your money, when and how?
  • Who are the fiduciaries (executrix, trustee, other) who would handle your estate?
  • If you have minor children, who are your guardians?
  • Who are the beneficiaries of your retirement assets and life insurance contracts?
  • Is the titling of your assets up to date?
  • Will your estate avoid or minimize probate?
  • Are taxes minimized or eliminated?

Let’s spend some time on taxes.  Two keys points.  First, the current lifetime gift and estate tax exemption for federal purposes is $11,580,000 per person.  However, with the National debt already high and ballooning due to the economic stimulus, the government might look to estate taxes for much-needed revenue. Changes in your plan might be made now before the exemption changes.

The second point is state estate taxes, particularly for our clients and friends who reside or own property in Illinois.  In 2011, when the federal lifetime estate exemption rose to $5 million per person, Illinois “de-coupled” its state estate tax exemption from the federal exemption.  Since, 2013, a lower exemption of $4 million per person applies to Illinois residents.  Those with Illinois assets who haven’t updated their estate planning documents since 2011 could be subject to a potentially avoidable and unnecessary payment of Illinois estate tax.

Here’s an example from our estate planning attorney friends at Bischoff Partners, LLC in Chicago.  “If an Illinois couple passes with combined estates of $5 million with no trusts planning, the surviving spouse’s estate could owe an Illinois estate tax payment of $285,714.  If the couple had used trusts to plan for each of their $4 million exemptions, which essentially doubles their applicable Illinois tax exemption to $8 million, the couple’s tax of $285,714 could have been avoided entirely.”  Planning and continual review is so important.  The “bad result” above of owing Illinois $285,714 would be the result from no planning or planning that was done pre-2011 and not updated.

The Illinois estate tax rate is advertised as a graduated rate between 8% to 16% of assets over $4 million.  So, you would guess that the tax on a $ 5 million IL estate might be $120,000.  However, the fine print doesn’t work that way.  It’s 28% on the first $1 million taxable in Illinois.

Depending on the size of the estate, Illinois clients may want their attorney to review the advisability of an “Illinois QTIP Election” which can defer payment of the possible Illinois estate tax to the death of the surviving spouse.  In addition, it is our understanding the Illinois QTIP election allows couples to double the $4 million Illinois exemption to $8 million and still plan for using each individual’s Federal Estate Tax Applicable Exclusion as much as possible.

Lots to review and lots to think about.  Again, we say: “What better time than now?”

At DWM, clients know that we are not attorneys and don’t give legal advice. However, we have collaborated with estate attorneys on hundreds of estates in Illinois, South Carolina and elsewhere.  Part of our “Boot Camp” process for new clients is working with them and their attorneys to create or update their estate plan. This includes our review of the documents, preparation of an “Estate Flow”, a review of their titling and beneficiary designations and providing recommendations.  As a follow-up to this blog, we’ll be sending out existing “Estate Flows” to all clients to help kickstart their review process.  If you are not a client, please contact us and we’ll be happy to discuss how we can help you get started.

Conclusion:  Life is fragile, precious and unpredictable.  Yet, working with your attorneys and your wealth managers you can plan, implement, monitor, and revise your estate plan to prepare you and your family for the future. No time like the present to get it done!

Zoom – A Saving Grace During the Covid-19 Crisis

When Social-Distancing was first announced, a lot of people did not take it seriously. As the weeks went on, and we headed into March, we realized this Covid Crisis was not letting up anytime soon. Businesses were panicking, schools were moving to online classes, vacations were cancelled, and families were not recommended to go visit each other. Here at DWM, we were devastated by the news that it would be safer for our clients not to walk through our doors, as we love having face-to-face relationships. We are quite familiar with webcam applications that let you video conference with people, as we have used one for years with our clients around the US, but Zoom came into our horizon at DWM at just the right moment!

Zoom is a leading application software that specializes in online meetings, video webinars, virtual conference rooms, phone systems, and cross-platform messaging with file sharing abilities. Their online meetings are quick and easy to access from any type of device; phone, ipad, computer, with simple applications for each that enable quick use. Their video webinar tool allows you to host up to 100 video participants with interactive capabilities with emojis and chat options. Zoom’s chat feature is available in any package. This makes collaboration easier during meetings by having a chat box where people can silently communicate and even ask questions to the host without interrupting. The chat feature is great for team communication and saves time by having all messages related to the topic in one place. For more information, please visit the Zoom website!

We are grateful to have already experienced great Zoom meetings with some clients here. The video quality is very clear and the voice quality is exceptional. When in a Zoom meeting, there is a section where a participant can share their screen, showing other members what is on their computer. This is really neat and helps when discussing documents all together, like we do here at DWM! We have pulled up investment documents on one screen, shared it to the meeting, and everyone is looking at the exact same picture, every scroll and every mouse change! In the chat box, you can also share files there to where everyone in the meeting has access of opening it up individually and personally looking at it, with the option of saving it straight to someone’s personal computer. This is an easy tool that saves time by not having to email documents to people, just drop them in the chat box! These feature have really made a difference in the efficiency of our tele-meetings here at DWM.

Here are the steps to having an amazing Zoom meeting…

  1. Be on the lookout for an email from us at DWM with the Zoom information. It will look something like this…

Join Zoom Meeting

Meeting ID: 756 525 649
Password: 274689

  1. From there you will click on the ‘https//’ and it will ask you to download and run the Zoom application.
  2. Once you have the application open, it should direct you straight to our Meeting, if not, enter in the ‘Meeting ID’ shown in the email.
  3. Enter in the password we provided
  4. Enable your microphone and video camera to utilize our Zoom meeting to the fullest.
  5. Enjoy face-to-face conversation!

We are aware of some articles released recently exposing Zoom for issues regarding customer service, data-mining strategies and intruders in meetings. Zoom’s customer service has been deemed almost useless as Zoom has grown over 1000% since mid-February. They are trying as hard as they can to post resources and FAQ’s on their website to tackle their booming clientele with limited employees, when hiring is on the backburner during COVID-19. Their data-mining strategies with Linkedin and Facebook put them underfire. Zoom was linking user’s names and emails so they were able to be found on Linkedin if you had the Sales Navigator premium Linkedin package (mostly used for sales prospecting) and also sent that information to Facebook. Zoom has disabled these features. Lastly, Zoom had a huge issue with hackers joining public Zoom meetings and posting inappropriate content on the screens and chat, also known as ‘Zoom-Bombing.’ Zoom created password protection on meetings and a ‘waiting room,’ where every user has to be admitted in by the host, to prevent that, after the FBI started investigating the issues. These are only some of the issues that Zoom has claimed and reacted to, click here to read a full statement by CEO Eric Yuan.

Here are some tips of what DWM does, and what you can do to help make your Zoom meeting as efficient and safe as possible…

  • Operate Zoom on trusted Wifi
  • Password Protect Zoom Meetings
  • Keep an eye out for unrecognizable people in the ‘Waiting Room’ area asking to join
  • Closely watch for new articles and news regarding tips, safety and even flaws
  • Limit confidential information in the chat section of a meeting

Millions of people have downloaded Zoom as Covid-19 has unfolded, for different uses. Local dance studios are teaching interactive classes over Zoom, colleges are maintaining that face-to-face interaction between student and teacher on Zoom, bands are hosting live concerts and people are doing home workouts and yoga classes with the guidance of their instructor. One of the best reasons for Zoom during social-distancing is being able to talk to multiple family members at once and all feeling connected regardless of being in separate spaces.

Here at DWM, we believe that Zoom is going to be a ‘Saving Grace’ for us to meet with clients during this crazy time. While we are aware of some of some of the security issues Zoom is currently working through, we are comfortable and excited to use it with our clients with the safety precautions mentioned above. If you are not comfortable with Zoom, a speaker phone meeting will also do the trick, but face-to-face meetings help keep that personal relationship we all desire and strive for, successful. We are looking forward to seeing our favorite, familiar faces over Zoom in the upcoming weeks. Stay safe, and stay healthy!

DWM 1Q20 Market Commentary

Obviously, our market commentary’s purpose is to address the state of the markets, economy, and all things financial; but it goes without saying that our first and foremost concern is that of your health. One’s wealth takes a back seat to health. As of this writing, there are over 1.380 million world-wide infections and over 76,000 deaths. This is a public health crisis and it’s traumatic.

Amazingly, this wasn’t even on the radar when we wrote our last commentary and frankly blindsided pretty much all of us. It was only a little over a month ago when stocks were setting all-time record highs. The economy was actually accelerating in the early weeks of the quarter, with unemployment still at all-time lows and consumer confidence near all-time highs. After an 11 year bull market run, it only took a record-setting 16 days for the S&P500 to fall into bear market territory, meaning a fall of 20%+ from the peak. And it got worse from there before bottoming out on March 23 and the market rallying 9% the next day. This quarter brought us unprecedented volatility, with the last month experiencing trading days with moves of 3%+, creating further anxiety amongst participants and usually passive onlookers.

As normal, we will showcase how the different asset classes did, with the theme being “trying to run to safety” during this unprecedented period.

Equities: Pretty much the worse quarter on record since 1987. Equities, as evidenced by the MSCI AC World Index, fell 22.5%. Small cap fared ridiculously worse than large cap as evidenced by the Russell 2000 dropping over 30% and the S&P500 “only” down 20%. In a flight to safety, the biggest companies with the most solid balance sheets performed relatively better. The style box graph below tells a tale of which we’ve never seen before with the relative performance amongst those boxes at extreme levels. For what it’s worth, international equity* and emerging markets** were down over 23% for the quarter.

Equity QTD Percentages

Fixed Income: Again, only the perceived safest havens did relatively well. The Barclays US Aggregate Bond Index was up 3.15% thanks to its significant exposure to Treasuries which was one of the only bright spots in bond land. The stand-out area within fixed income per the graph below was that part of the style box which focuses on higher quality and higher duration. Those with low quality experienced double-digit declines. For the record, the Barclays Global Aggregate Bond Index was down 0.33%, and the Markit iBoxx USD Liquid High Yield Index down 12%.

Fixed QTD Percentages

Alternatives: In a “baby being thrown out with the bath water” theme, alts still felt the pain as evidenced by the Morningstar Diversified Alternatives Index, off 13.82%. Much better relatively to equities but still in the red. Oil***, typically listed as an alternative, was the biggest story, falling over 65% amid a price war breakout between Saudi Arabia and Russia. Gold*** was a bright spot, +3.15%, in the rush to safety.

Cash: those that didn’t stay the course and tried to time the market by going to cash have lost out on double-digit moves up by the major stock indices since the 3/23/20 bottom.

So, yeah, it was a brutal quarter for portfolios with many investors suffering significant paper loses. A multi-asset class portfolio like the ones at DWM helped soften the blow, but values are considerably lower than last quarter’s statements. And the virus and its negative headlines aren’t going away any time soon. Most of this country has yet to experience their “New York moment”. It’s stressful for all. Further, damage on the economic front is going to be significant. It’s not a matter of if this is a recession but how deep? With millions out of jobs and still maybe a couple weeks away from receiving stimulus relief, this is a dire time.

Fortunately, governments, skilled professionals, caregivers, and many others around the world are stepping up in many ways to battle the virus. In the US, the Fed has done an amazing job with monetary policy to keep our markets liquid. And the government is providing unprecedented fiscal stimulus, including last week’s CARES Relief Act, in an attempt to keep this economy from cardiac arrest. A “Phase Four” and probably “Phase 5” Act are already being discussed to keep the heartbeat going. Further, there’s been some recent optimism driven by encouraging signs that things are starting to return to normal in China, fewer deaths per day compared to a week ago in Italy and Spain, and hospitalization rates in New York showing signs of slowdown.

No one alive will ever forget this pandemic – that’s for sure. But we’ve recovered from multiple shocks before this, each time with the market going higher. Long-term investors will see similar new highs in the not-so-far out future. It won’t be a smooth ride with most likely lots of suffering and changes to normal lifestyle along the way, but we’ll all get through this collectively. As our recent blog on what not to do now explained, try to remain disciplined and refrain from drastic knee-jerk reactions. Let us know if you need assistance – we’re always here to help, particularly in such challenging times like these.

As always, don’t hesitate to contact us with any questions or comments.

Brett M. Detterbeck, CFA, CFP®


*represented by the MSCI AC World Index Ex USA

**represented by the MSCI Emerging Markets

***represented by Crude Oil WTI Front Month

***&represented by the iShares Gold Trust

Perhaps a Silver Lining – Time to Refinance?

The coronavirus has been brutal. There are now over 1 million cases and 54,000 deaths worldwide.  Left to itself, the covid-19 pandemic doubles every few days. Millions have lost their jobs. Most of America is on lockdown. We’re certainly in a recession right now. Worse yet- there continues to be a huge uncertainty as to when the coronavirus will stop its path of destruction and when we can all start to return to some form of normalcy.

We sincerely hope you and your family are safe and healthy. And, we hope all the other Americans and fellow citizens of Planet Earth that have been impacted will get through this crisis quickly and successfully.

At the same time, the equity markets have crashed since February 19th, ending an 11 year bull run. We were probably due for a pullback or correction after the huge run-up in 2019. The coronavirus seemed to provide the tipping point.  Economic growth in 2020 will certainly be less than 2019, though we don’t know how much less.

With all of this gloom, here is one possible “Silver Lining.”

With many investors running for safety into bonds and the Fed dropping rates, the fixed income markets are showing huge drops in interest rates.  10 year treasuries are near .6%.  30 year U.S. treasuries are at 1.25% interest.  These rates foretell less economic growth and lower inflation in the future.

The Mortgage Bankers Association is forecasting lots of business this year for new purchases and refinancings.  They expect $2.6 trillion in new mortgages this year, a 20% gain over 2019. Refinancings are the key drivers of the change and are expected to be up 37% in 2020.  Bloomberg reported yesterday that the average rate for a 30-year mortgage loan was 3.33%, down from 3.5% last week.

Because there are typically costs to refinancing, doing so makes the most sense for people who plan to stay in their house for some time and where the cost to refinance is less than the interest expense that can be saved.  In addition, if inflation will be lower in the future, then nominal investment returns should be lower as well.  For example, if your nominal investment return is 6% and inflation is 3%, then your “real” return is 3% (the amount above inflation).  If inflation is 1.5%, then a 4.5% nominal return produces the same 3% real return.

If you have a mortgage with an interest rate of 4% or more, you likely should be looking at refinancing it or paying it off.  Because of the increase in the standard deduction and the limitations on state and local income taxes, 90% of households no longer itemize deductions. If you are in that 90%, you get no tax benefit from your mortgage interest.

So, if it is time to look into refinancing, check around and keep your eyes open for low mortgage rates.  At this point, there is no reason to believe that rates will be going up anytime soon.  And, if you would like a second set eyes to help you determine if it is time to refinance, give us at DWM a call.  We are always happy to talk.  Stay well.

Stay safe and stay healthy during this pandemic. And, if appropriate, take advantage of one of the few silver linings of the pandemic by refinancing at a new low rate.