Digital Legacy

With all of the various accounts, passwords and files that make up our digital identity today, it is easy to see why organization of this information is essential. While this is a subject that many do not like to discuss, it brings up the interesting concept of digital legacy and how important it is to maintain and preserve your digital identity in the event of incapacity or death.  

It is becoming a more and more common practice for financial advisors, including DWM, as well as estate planning attorneys, to advise their clients on a plan to preserve their digital legacy. According to a survey conducted by NAPFA, two-thirds of NAPFA members said that they do in fact advise their clients on digital legacy.

As part of our DWM “Total Wealth Management” process, we provide our clients with an “Estate Flow.”  This has three parts. First, a concise and easy to read recap of all of their estate documents to make it easier to review so that they can assess whether their documents outline their current wishes or if changes need to be made.  Second, a review of titling and beneficiary designations, to make sure the disposition of the estate is as desired and its administration is as hassle-free as possible.  And, third, our recommendations. We have recently added a review of our clients’ digital legacy as part of this process.

It is vital that all information is stored in one designated place to ensure that your entire estate is transitioned smoothly and easily.    There are many applications and services that can help you store passwords to preserve digital legacy. Having a password manager for your passwords so that someone can log in to your accounts in the event of your incapacity or passing and take care of your digital assets is essential. Many cloud-based digital services will actually wipe your data after an account is closed, so it is imperative that your loved ones have a way to access this information before that occurs. Some of the more useful password tools that enable the user to assign heirs include PasswordBox and Zoho Vault.

Aside from password protection, there are other steps individuals can take to ensure their digital legacy is properly handled, such as the introduction of “digital heirs.” As digital legacies begin to become a common hindrance in postmortem estate processes, more companies, such as Google’s Gmail, are instituting ways to improve the flow of digital legacies. Through Gmail’s Inactive Account Manager, found in your account settings page, you can now specify what you would like to have done upon account inactivity. After three, six, nine, or twelve weeks, the user can choose to have his or her data automatically deleted or have a notification email sent to trusted contacts. By enabling a contact email to be sent, the user is allowing this contact to access his or her account, which may contain sensitive information, so it is important to choose this contact selectively. 

The bottom line is this: It is necessary to develop and implement a plan to preserve your digital legacy and ease the transition for your loved ones, making it as simple as possible for them to take care of your digital assets, including financial accounts.  Specifically, at DWM, we would recommend three key components:

  1. Take and record an inventory of all of your digital assets including your user names and passwords and store that information in a secure place.
  2. Work with your estate planning attorney to make sure that digital asset provisions are included in your estate documents. These provisions should allow your successor Trustees or executor/executrix the power to access, view, modify and make use of any electronic accounts including online financial accounts.
  3. Consider providing your successor trustee or executor/executrix now with information about your digital assets.

At DWM we believe your digital assets are a very important part of your legacy.  Getting things in order now can significantly help your loved ones in the future.

Computers and Technology- A Current Potpourri

Gary Kasparov

Gary Kasparov has always interested me.  Born in the Soviet Union, he was a world champion chess player from 1985-2005.  He has long been a vocal activist opposing Putin’s policies. Today Mr. Kasparov is the chairman of the Human Rights Foundation in NY.  But perhaps he is best remembered for what happened on May 11, 1997.  That day he “resigned” and became the first world chess champion to be beaten by a machine-IBM’s Deep Blue.

Newsweek’s cover article the next week called the match “The Brain’s Last Stand.”  As no surprise, Mr. Kasparov hated losing, but over the last twenty years, after learning more, he became convinced that we need to stop “seeing intelligent machines as our rivals.”  They are not a threat, but help provide great opportunities to extend our capabilities and improve our lives.

While most of us won’t face head-to-head competition with a computer the way Mr. Kasparov did, many Americans will be challenged, surpassed and replaced by automation.  Every profession will eventually feel the pressure and that’s what we should expect as humanity makes progress.  We shouldn’t fight it.  Here’s Mr. Kasparov’s analogy: “Waxing nostalgic about jobs lost to technology is little better than complaining that antibiotics put too many gravediggers out of work.”

The human vs. machine narrative was a major topic during the Industrial Revolution.  In the 60s and 70s, robots starting replacing union workers and then in the 80s and 90s the information revolution eliminated millions of jobs in the service and support industries.  There is no going back.

Learning to Think Like a Computer

President Obama’s “Computer Science for All” initiative was launched in 2016 and focuses on expanding computer science knowledge by learning how to code.  Kindergarten students are now learning using wooden blocks.  The blocks have bar codes with the instructions such as “forward,” “spin” and “shake” that are used to program robots.  By sequencing the blocks and having the robot scan in information, the children are directing the actions of the robot.  Studies show that after the kids have learned to program the robots, they become better at sequencing picture stories, or even listing the steps required to brush their teeth.

The job market is hungry for coders.  Since 2011, computer science majors have doubled. At Stanford, Tufts and Princeton, it’s the most popular major.  And, even non-majors are cramming into computer science classes.  Learning to think like a computer can help all of us in our daily lives. In addition, the digital age has brought us great access to information.

Steve Ballmer’s Treasure Chest of Real Data

You may remember Steve Ballmer as Bill Gates’s right hand man and CEO at Microsoft from 2000-2014. Or as the high bidder ($2 billion) of the LA Clippers basketball team in 2014.   A few years ago, he started a website, USAFacts.org designed to answer in detail the question:  “What does government do with all the money we taxpayers send it?”  He wanted to create a fully integrated look at revenue and spending across federal, state and local governments.  The site, USAFacts.org, went live yesterday.

In an age of fake news and accusations about manipulating data to fit biases, Mr. Ballmer’s website is a welcome resource. Certainly, people can come to different opinions on the same subject, but shouldn’t they at least start with the same believable common data?  USAFacts.org was designed to do that.

There is lots of interesting data from 70 government sources.  Want to know how much revenue is brought in from parking tickets?  And what percentage of Americans suffer from depression? It’s there. Here’s a good one: how many people do you think work for government in the U.S.?  Remember, this includes those in education, the military, law enforcement, government hospitals, etc.  Answer: 24 million.  Take a look.  You’ll like it.

Think Like a 94-year Old

Lastly, many over the age of 70 think that they were born too late to be part of the computer/tech revolution.  Someone forgot to tell that to 94-year-old John Goodenough.  Mr. Goodenough’s team at the University of Texas has just filed a patent application for a new battery that would be so cheap, lightweight, and safe it would revolutionize electric cars and put an end to petroleum-fueled vehicles.  This is not Mr. Goodenough’s first major patent. In 1980, at age 57, he co-invented the tiny lithium-ion battery.

As a society, we often tend to assume creativity declines with age.  Yet, some people actually become more creative as they grow older.  In the U.S., the highest-value patents often come from inventors over the age of 55.  Mr. Goodenough figures it this way: “You have to draw on a fair amount of experience in order to put ideas together.”  He also said that his old age gave him intellectual freedom.  At 94, he said, “You no longer worry about keeping your job.”

Conclusion

For those of us of all ages, computers and technology should be our friends, not our enemies.  With the information it provides and our continued learning and lifetime experiences, hopefully we will all benefit from the great digital age in which we live.  Here at DWM, we embrace technology and strive to make our processes as automated, robust and efficient as possible.  However, we recognize that some of the most important aspects of our work are accomplished through personal interactions with our clients and friends.  Don’t worry-we have no plans to have one of Deep Blue’s cousins doing that favorite part of our job for us.

Health Savings Accounts – Understanding the Benefits

Health care is a very hot topic in 2017.  The new administration made it their leading agenda item, though we have yet to see a plan agreeable to both sides of the aisle.  As Republicans contemplate how to replace the Affordable Care Act (ACA) with a good alternative, Health Savings Accounts or HSAs are expected to figure prominently.  President Trump has made the expansion of access to HSAs an important measure for his health-care plan and conservative proposals are using expanded eligibility and increased contribution limits as key elements in their plans.   We think it is a good time, therefore, to understand how these plans might fit into an overall health care and investment strategy.

Health care costs are rising and the costs and inflation associated with health care are a tremendous consideration for retirement planning.  There are varying estimates of costs for retirement health care –some estimates show that a 65 year old couple will need an average of $260,000 for 20 years of healthcare spending.  At DWM, we actually look at health care as a separate spending goal in our financial plans because of the higher inflation and importance of adequately preparing for these costs. 

Here is where an HSA may come in.  HSAs offer an opportunity to take advantage of triple tax benefits to pay for some of this cost.  HSA contributions can be deducted or paid pre-tax, there is tax-free compounding while in the account and no tax is paid on qualified withdrawals for health care.  It’s a trifecta of tax advantage!  After age 65, you can make withdrawals for any reason and pay regular income tax just like you would for an IRA, but there are no required minimum distributions.  However, using the funds for non-qualified expenses before you are 65 results in a stiff 20% penalty plus the normal taxes.

 Let’s look at how HSAs currently operate.  You are eligible to contribute to a Health Savings Account if you are part of a high-deductible health plan (HDHP) and as long as you have not signed up for Medicare.  There is an annual contribution maximum and, for 2017, it is $3,400 for an individual and $6,750 for families.  A HDHP, in 2017, means your deductibles must be at least $1,300 for an individual and $2,600 for a family with maximum out-of-pocket expense requirements of $6,550 for an individual or $13,100 for a family policy.  The lower premiums charged for this kind of coverage have attracted consumers and employers alike.  Given the ACA’s requirements that certain preventive screenings, annual visits or prescription drugs be covered regardless of deductibles, these policies are now more attractive and palatable to average health care consumers.  These plans are also becoming more popular as employers look for ways to manage their employee benefit costs. 

You can make withdrawals from the Health Savings Account for many traditional healthcare expenses and the qualified expenses can also include things that you normally pay for with after-tax dollars, like vision or dental care and supplies.  It might be a good way to pay for braces for your child or eye exams that might not be otherwise covered.  This might be one way to use HSAs – as a tax-free payment for the costs of the deductibles on the HDHP, as well as some additional medical expenses.  The other beneficial use is as an extra savings vehicle to be used in retirement for those future retirement health costs, including some of the long-term care costs that Medicare doesn’t pay. Also, the pre-tax contributions that you are allowed to make to these accounts can be in addition to your contribution maximums for other qualified accounts.  You can also, like IRAs at age 50, make $1,000 “catch-up” contributions to your HSA at age 55.  

There are some downsides to these accounts.  High deductible plans might not be the right choice for everyone; each individual or family will have to evaluate their situation carefully.  Also, the HSAs are not offered by every financial institution and the investment choices and administrative costs should be investigated before committing to one.  It also takes disciplined saving to make the most of the tax advantages. 

We do think there could be a place for these accounts in certain circumstances and, as the political negotiations continue to unfold, it is good to understand their pros and cons. We recognize the importance that health care costs play in preparing for financial independence.   As your holistic financial advocate, we would be glad to help you evaluate how a health savings account might fit into your overall plan to help you reach your goals.  

DWM 1Q17 Market Commentary

Did you know that after 146 years, the Ringling Bros and Barnum & Bailey Circus is shutting down? No worries. It seems our friends in Washington are taking it over as it has been a circus-like atmosphere filled with noise for the last few months. Ironically, for the market, it’s been just the opposite, with 1Q17 going down on record as one of the “quietest” quarters in the last 30 years, as represented by the S&P500 posting an average daily move of just 0.32%. But even though the stock market was calm, that does not mean it didn’t produce. Because it did, with the three major asset classes – equities, fixed income, and alternatives – all up.

What’s interesting is that it was not a continuation of the “Trump trade” that has powered the recent advance. After the November election, shares of financials and smaller US stocks jumped based on hopes that looser regulations and tax cuts would benefit banks and more domestically oriented companies. However, so far the Trump administration has not lived up to the campaign hype. The failure of the Republicans’ health-care bill has led investors to question if this administration can push anything through, including any significant shift in U.S. trade policy. That has led to a sector rotation within the equity asset class. Things that were strong post-election like financials and small caps are being sold for US multinationals, particularly those in the trade-sensitive technology sector, and emerging markets. This shows in the following results:

Equities: The MSCI AC World Equity Index had a great start to 2017, up 6.9%. Domestic large cap stocks as represented by the S&P500 came in at a solid 6.1% as large caps dominated small caps*, up only 2.5%. The big winner was emerging markets**, up 11.5%.

Fixed Income: The Fed lifted rates during the first quarter based upon promising US economic forecasts. The personal consumption expenditures price index, which is the Fed’s preferred inflation gauge, ticked in at over 2% for the first time in over five years. It wasn’t too long ago that people were worried about deflation, so this achievement is very good news. The Barclays US Aggregate Bond Index gained 0.8% in the first quarter. The Barclays Global Aggregate Bond Index enjoyed slightly better returns, +1.8%, thanks to stronger results overseas. Again, emerging markets was the place to be, up 4.2% as represented by the PowerShares Global Emerging Mkts Sovereign Debt ETF.

Alternatives:  The Credit Suisse Liquid Alternative Beta Index was just above break-even, +0.1%.  The handful of liquid alternatives (which could be an alternative asset or strategy) that DWM follows fared better. Alternative assets like gold*** surged 8.4% and MLPs**** advanced 2.6%. An alternative strategy like the RiverNorth DoubleLine Strategic Income Fund, which takes positions in the inefficient closed-end space, registered a 1.4% return. The only real losing alternative category we follow were managed futures funds (an example of alternative strategy), like the AQR Managed Futures Fund which lost 1.0%. These funds struggled from the rotation change mentioned above. It should be noted that these type of funds exhibit extremely low correlation to other assets and can provide huge protection in down times.

Put it together and it was a very handsome start to 2017 for most balanced investors.

Looking forward, we are encouraged as we believe economic growth will continue to advance not only in the US but also globally. Consumer and business owner sentiment is very strong. American factory activity has expanded significantly in recent months.

Concerns include:

  • Elevated US equity valuations: Current valuations of 29x cyclically-adjusted price-to-earnings (CAPE) are much higher than the long-term average of 18x. This doesn’t necessarily mean a huge pullback is in front of us, but it could be pointing to a much more muted return profile. Frankly, we would view a small pullback as a healthy development.
  • Pace of Fed rate hikes: We think the Fed has done a decent job handling and communicating rate changes. They need to continue this practice and avoid further acceleration to avoid making investors nervous.
  • The return of volatility: After the record “calmness” mentioned above, volatility most certainly will rise. Hopefully, it advances in a manageable fashion.
  • Heightened Political risk: 2016 was full of political surprises and more are possible in 2017 given the rise in populism and the heavy global calendar. See below.

I’ve written a lot of these quarterly market commentaries and I cannot remember one so consumed with political policy. There’s a lot of uncertainly right now. But what is certain is that we live in some interesting times. Every day brings a new headline, and a lot of them are political. So far, the market has worked through it handsomely. Let’s hope our strong economic outlook continues to offset any ugliness coming out of the Barnum & Bailey Circus…err, I mean, Washington.

Brett M. Detterbeck, CFA, CFP®

DETTERBECK WEALTH MANAGEMENT

 

*represented by the Russell 2000 Index

**represented by the MSCI Emerging Markets Index

***represented by iShares Gold Trust

***represented by the ALPS Alerian MLP ETF