HERE COME THE MILLENNIALS!

In only 12 years, 75% of American employees will be Millennials.  By then, even the last of the Baby Boomers will be 66 and on social security (though a few of us might still be working).  Generation X is a smaller cohort and some of its 54-65 year olds will already be retired.  The oldest Generation Zers will only be 34 at that time.   Yes, in 2030, the Millennials, aged 35 to 53, will be the backbone of the economy and country.

What an exciting time to be alive!  Can you imagine all the changes that may occur in the next 12 years?  Just consider that just 14 years ago Blockbuster Video had 9,000 stores and is now down to one last store in Oregon. 2004 was also the year Facebook was launched.

Yes, new reality can be exciting and challenging.  The Millennials bring with them their own expectations of life, work and values.  Those organizations and communities that embrace generational diversity will undoubtedly thrive in a volatile, uncertain, complex and ambiguous future.

Jennifer Brown, author of “Reversing the Generation Equation: Mentoring in the New Age of Work,” indicates that Millennials “possess the most diverse attitudes, tendencies and requirements of any preceding generation and they are bringing that to work and life and demanding to be welcomed, valued, respected and heard.”  They’ve grown up with being in the center of the activity and expect to stay there.

The Pew Research Center’s “Millennials in Adulthood” takes a look at just how unique this generation is and how the social, political and economic realities in their formative years have shaped them.  Due to a disconnect between Millennials and many organizations not willing to meet them half-way, it’s no surprise that Millennials have experienced greater job dissatisfaction than Generation X and Baby Boomers.

A study conducted by Deloitte showed that 56% of Millennials have “ruled out working for a particular organization because of its values or standard of conduct.”  49% have declined a task assigned to them that was thought to go against personal values or rules of ethics.  According to the study, Millennials are seeking a good work/life balance (more than monetary compensation), their own homes, a partner, flexible working conditions and financial security.  Furthermore, this group does not necessarily defer to seniority as seen in previous generations. For them, respect must be earned.  Which brings us to the concept of “Reverse Mentoring.”

Jack Welch of GE was one of the early pioneers of reverse mentoring.  Twenty years ago, as technological changes were sweeping our country, Mr. Welch encouraged 500 top-level executives at GE to reach out to people younger than them to learn about the internet.  Since then, reverse mentoring has gone beyond technological learning and expanded into ideas, advice and insights.  Organizations such as PWC and AARP are among those who have launched programs.

At PWC, the young mentors are in their early 20s and have been working long enough to understand how it works and short enough to still have a fresh perspective.  The AARP Foundation created a Mentor Up program in 2013 where teens and young adults come together with older generations to keep them current and connected with the younger world.  The young mentor the older mentees on technology and health and fitness.  They also exchange Valentine’s Day cards.  In short, intergenerational connections were made, skills exchanged, understanding obtained and mutual respect and admiration were achieved.

At DWM, we have two excellent young team members; Grant Maddox in Charleston and Jake Rickord in Palatine.  We are just starting a reverse mentoring program at DWM where Grant and Jake will be the mentors and Brett, Jenny, Ginny and I will be the mentees.  Once a month, we set aside lunch time for the mentor to share a topic, theme or idea they are interested in sharing and to explain two-way learning opportunities.  We invest time to learn, get to know one another better and increase our trust and respect for each other.  We are also starting to dismantle the old paradigm that “seniority always knows best.”

Our goal is generational diversity and respect for all.  Yes, the Millennials are coming. And, yes, they come with the most diverse attitudes, tendencies and requirements of any preceding generation.  As they say in World Cup Champion France, “Vive la Difference.”

DWM 2Q18 MARKET COMMENTARY

‘Confusing’. If you look that word up in a dictionary, you’ll see something like “bewildering or perplexing” as its definition. Confusing could be a good way to describe the state of the market. On the one hand, you have a U.S. economy that may have come off one of its strongest quarters in years. On the other hand, there is continued threat of higher interest rates and a tumultuous trade war.

Before looking ahead, let’s see how the major asset classes fared in 2Q18:

Equities: Stocks were mixed in 2q18. Certain pockets did well whereas certain ones did not. For example, the Dow Jones Industrial Average Index was down 0.7% on the quarter and now in the red for the 2018 calendar year (-1.8%). The Dow’s multinational holdings are more prone to trade-related swings, whereas small caps*, up 7.8% for 2q18 & 7.7% YTD (Year-to-date as of 6/30/18), are not. Emerging stocks**, -8.0% 2q18 & -6.7% YTD, did not fare well. This brewing trade war between the U.S. and China, along with rising interest rates and the rising U.S. dollar, are causing many investors to flee from these so-called riskier areas. We think a good general proxy for global equities is represented by the MSCI AC World Index, which was up a modest 0.72% for the quarter, and now about flat (-0.2%) for the year.

Fixed Income: Yields continued to go up, boosted by the same concerns as last quarter: increasing expectations for growth and inflation in the wake of the recent $1.5 trillion tax cut. The Barclays US Aggregate Bond Index, dropped a modest 0.16% for the quarter and now down 1.6% YTD. TheBarclays Global Aggregate Bond Index fell 2.8% (and now down 1.5% YTD) as emerging market bonds suffered for same reasons as mentioned above for emerging market equities.

Alternatives: The Credit Suisse Liquid Alternative Beta Index, our chosen proxy for alternatives, registered a +0.4% for 2q18 and now off only 1.3% for the year. Gold*** suffered, -3.5%, however REITs**** and MLPs† had nice quarter returns of 5.8 and 11.5%, respectively.

Like others, you may be thinking something like this right now: “Thank you for providing color on the various assets classes, but I’m still confused. How did a balanced investor fare overall? And where do we go from here?”

Overall, most balanced investors had modest gains for 2q18 and are pretty close to where they were when they started the year.

As for looking forward, we think the area causing the most confusion and uncertainty is the tariff trade war issue. A lot of this is political noise which has weighed down stock prices. What has been, or will be, enacted is quite different than what is being discussed. We are hopeful that the countries can eventually reach a compromise on trade.

In the meantime, the US economy is red hot, with GDP nearing 5.0% and unemployment levels near lows not last seen since 1969. The upcoming earnings season should be exquisite! But all of these positives get analysts worried that the economy may overheat. The Fed’s goal is to raise interest rates enough to keep enough pressure on the brakes of this economy to control inflation, but not too much where it comes to a screeching halt. That being said, inflation is a little bit above the Fed’s target level and as such we would expect to see the Fed continue to raise rates gradually, perhaps for the next 4 -5 quarters. They’ll most likely need to stop at some point as the economy cools when some of the Tax Reform stimulus wears off in the second half of 2019. It’s not an easy job.

“I’m still confused – should we be worried about a recession in the near future?” While we don’t see it happening any time soon, it definitely is an increased possibility, and at some point, will inevitably occur. The goal is to be prepared for it. Don’t let emotions get in the way. Stay diversified and stay invested. Trying to time the market is a losing proposition. A good wealth manager can help you stay disciplined.

The good news is that the next recession will most likely be milder than the last couple for a few reasons including the following:

  • Economies, both here and abroad, are simply more stable than in the past.
  • Valuations are fine today. The forward 12-month PE (Price-to-Equity Ratio) of the S&P500 is right in-line with its 25-yr average of 16.1. International stocks, as represented by the MSCI ACW ex-US Index are even cheaper, trading at a 13.0 forward PE.
  • The Fed certainly does not want another 2008 on its hands. They will continue to be friendly to market participants.

SP GRAPH EDITED

 

Still confused? Hopefully not. But if you are, talk to a wealth manager like DWM. If you look at antonyms for confusion, you will see words like “calm”, “peace”, and “happiness”. That’s what our clients want and what we seek to provide them.

Brett M. Detterbeck, CFA, CFP®

DETTERBECK WEALTH MANAGEMENT

 

**represented by the Russell 2000 Small Cap Index

**represented by the MSCI Emerging Markets Index

***represented by the iShares Gold Trust

****represented by the iShares Global REIT

† represented by the UBS AG London BRH ETracs Alerian MLP ETF

At DWM, our job is wealth management. We look to help our clients secure their financial futures through comprehensive financial planning and prudent investment management. Today, I’d like to focus on the investment management part which adheres to our philosophy of protection first, growth second.

Some readers may be familiar with DWM’s approach to investment management. At its core, it starts with the identification of our clients’ goals and constraints. We do this by identifying their goals, risk tolerance, return objectives, income needs, time horizon, and other special requirements. As every client is unique, so is each client portfolio.

We then match the characteristics of their goals and constraints with a specific Asset Allocation mix tailored to them. For example, x% equities via the DWM Core Equity Portfolio, y% fixed income via the DWM Core Fixed Income Portfolio, and z% alternatives via the DWM Liquid Alternatives Portfolio.

But many of our readers may not know the logistics of building those three DWM exclusive portfolios. Here is a little bit of the secret sauce:

The three major asset classes of equities, fixed income, and alternatives are further broken down into subclasses, which also have different exposures, risks, and potential returns. For example, we divide the equity portfolio into different sectors and market capitalizations, as well as between domestic and foreign stocks. We also pay attention to value vs growth. Then, in the fixed income portfolio, we split out exposure into government debt, corporate debt, and international debt, while paying special attention to credit risk and duration.

From there, there are several ways to go about choosing the securities to fulfill the subclasses. Our affiliation with Charles Schwab & Co- and its investment platform which makes most of the public investment universe available to us, there are lots of securities – some great, some not so great – to choose from.We further filter by looking at the following:

  • What type of exposure do we want to have in that subclass (for example, is market-cap weighted okay or is better to use a different methodology like factor-weighting)?
  • Total price to own and trade that security (e.g. the Operating Expense Ratio “OER” and ticket charge if applicable)
  • Volume: does the security trade enough for our firm to take a position for our clients’ portfolios
  • Security vehicle (ETF or Mutual Fund): both come with different characteristics
  • How do the securities complement one another, keeping in mind that non-correlating assets maximize your diversification benefits

It should be noted that from a risk management perspective we aren’t big fans of individual stocks. In fact, we began phasing out the use of individual stocks within our DWM-managed portfolios over a decade ago. Why?

  1. Company-specific risk: When allocating percentages of your portfolio to individual stocks, you run the possibility of the company represented by said stock going bankrupt or having a similar setback that can greatly increase the overall risk of your portfolio.
  2. More diversification with low-cost mutual funds and exchange-traded funds: With MFs and ETFs, we can incorporate the exposures to different individual stocks in one bundle, without having to have the aforementioned company-specific risk.

As you can now see, a lot goes into building and maintaining a portfolio. Once the initial portfolio is established with the appropriate weights to various investment style exposures, it is anything but “set and forget”. These “weights” or allocations to asset classes and the underlying investment styles can significantly fluctuate and will need to be rebalanced. Or we may find that we want more or less exposure to a specific area and thus adjustments are needed. Furthermore, new products – some great, some not so great – come to the market every day. If we identify one that is potentially a better fit to our model and it passes our due diligence process, we will make changes accordingly, whereby we execute trades via our sophisticated channels.

In conclusion, portfolio management is constantly evolving. Ongoing education and research is paramount to a solid investment management practice. At DWM, we don’t take that responsibility lightly. Through diligence and care, we seek to help our investors make their money work harder by eliminating the unforeseen landmines in their portfolio. Diversification, low-cost mutual funds/ETFs, and consistent portfolio monitoring are wonderful tools that DWM implements to help accomplish this hefty task, and keep our clients on track to meeting their financial goals.

TAX REFORM: THIS YEAR’S CHRISTMAS GIFT OR A FUTURE CHRISTMAS COAL?

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:

Individual

  • 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.

 

 

Business

  • 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:

Recommendations:

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.

DWM 3Q17 Market Commentary

“Train Kept A Rollin’ All Night Long…” The US economic expansion continued on during the third quarter of 2017. It is the third longest expansion since World War II and is now closing in on 100 months.  There were plenty of negatives that tried to slow it down. Politically, we had the debt ceiling deadline, a failed attempt to repeal Obamacare, and a war of words with North Korea. Even the lives and economic losses from the likes of Hurricane Harvey, Irma, Maria, western wildfires and two Mexican earthquakes – amounting to what could be the most expensive year for natural disasters ever – couldn’t slow this train down.

Thing is: the positives outweigh those negatives. At the end of the day, the market is powered by companies’ earnings. And those earnings have been robust and are expected to continue to be! And it’s not just domestically; growth is accelerating at a global level with Eurozone businesses and households more confident about their prospects than at any time in more than a decade. Japan has shown decent growth and inflation this year. And emerging markets are enjoying better fundamentals with more credible politics. Choo! Choo!

We are big believers in asset allocation which is why we showcase the major asset classes each quarter. Here’s how each fared:

Equities: The S&P500 rose 4.5% on the quarter and is now up 14.2% year-to-date (“YTD”). Sounds excellent, but actually a more diversified benchmark, the MSCI All Countries World Index, which includes US large cap stocks, US smaller cap stocks AND international stocks, did much better, up 5.3% quarter-to-date (“QTD”) and now up 17.3% YTD. We’ve been saying for some time that domestic large cap stocks in general look pretty “frothy” and hence it’s not surprising to see this rotation out of domestic large cap stocks into other cheaper equities. The other thing at play is the renewed interest in the so-called “Trump trade”. The areas that moved post-Trump Presidential Election, like small cap and value, have ‘steamed ahead’ in the last few weeks from the renewed hope of possible tax cuts. In just September, the Russell 2000 outperformed the S&P 500 by 4.2% and the Russell 3000 Value outperformed the Russel 3000 Growth by 1.6%.

Fixed Income:  During the quarter, the Fed announced that they are pushing ahead with an aggressive schedule for rate increases. We are happy to see the Fed take this path toward “normalization” while the economy is strong. The US needs to get back to higher rates so that the Fed has “some coal for their engines” if things go bad. That said, this announced path has succeeded in boosting inflation expectations, which has pushed up yields in both the 2-year and 10-year US Treasury notes, with the latter closing the quarter at 2.3%, its first quarterly gain of 2017. For the record, the Barclays US Aggregate Bond Index gained 0.9% in the third quarter and is now up 3.1% for the year. The inclusion of global fixed income assets led to better results with the Barclays Global Aggregate Bond Indexregistering +1.8% for 3Q17 and +6.3% YTD.

Alternatives:  Let’s take a look at a few ‘alts’ we follow. Gold gave back a little in September, but registered a +3.1% 3Q17 return represented by the iShares Gold Trust. With 2017 going down as one of the worst natural disasters year on record, the alternative exposure to reinsurance-linked securities (sometimes referred to as ‘catastrophe’ securities) took a hit. One would have thought oil would have suffered from the hurricanes as well, but demand was strong and with slowing US production, oil prices (WTI) ended the quarter up 12.2%. For the record, the Credit Suisse Liquid Alternative Beta Index, our chosen proxy for alternatives, was up 1.6% for the third quarter and 2.8% YTD.

For balanced investors, It’s been a pretty nice three quarters to start 2017. Looking forward, this bull market train can continue to roll, and a case can be made that returns can even get stronger given the great economic fundamentals around the globe. If Washington can get something done relative to a tax cut, look for stocks to accelerate into year-end.

Of course, there will always be (rail) road blocks. We are thrilled to see inflation measures move toward the Fed target range around 2%, but there are many out there concerned that inflation might ‘chug’ right through those target levels and create havoc on the back-end. Furthermore, the announced and about-to-start-very-soon Federal balance sheet reduction is an unprecedented experiment. And it’s not just the US attempting this.  Global central banks at some point need to do some house-cleaning and will be reducing their balance sheets as well. There is a huge risk something can go wrong and send this train off track. Lastly, we don’t think the markets are adequately pricing in the geopolitical risk out there, which some would say is approaching multi-decades high. Frankly, when a small probability risk is hard to price in, the market usually just shrugs it off. With trading activity so light recently and little risk currently priced into the market, things could get ugly very quickly if anything goes wrong.

In conclusion, these are challenging times. It’s not easy to navigate the terrain out there. So make sure you have good direction and management. Don’t fall victim to a bad conductor and wind up like Ozzy Osbourne “going off the rails of a crazy train!” Make sure that your engineer is keeping you on track. At DWM, we engineer our clients’ portfolios to ride safely through the peaks and valleys that this train has and will travel through. With the right team at the controls, you can make your journey a pleasant one.

Brett M. Detterbeck, CFA, CFP®

DETTERBECK WEALTH MANAGEMENT

DWM SAYS THANKS – LAST WEEKEND AT ARLINGTON PARK!

This past Saturday, many clients/family/friends attended our annual Chicagoland Friends of DWM Appreciation Event at Arlington Park Race Track in Arlington Heights, IL. We were blessed with a warm, sunny day under the shade of one of Arlington Park Race Track’s marquee tents!

A great time was had by all!

IMG 4743 Aimee  Buchalos

Don the Handicapper educated us aka “Arlington Park Betting 101”.

IMG 4455 group pic w Don

And we had some lucky winners!

Capture

Then again not all of us were old enough to bet, but still had fun!

IMG 4739 Mikayla betterIMG 4751 felllows kids 2Capture2

Some just wanted to chill…in a tree!

IMG 4457 kid in tree

Some of us – both young and old – even had a roll down the hill match! (Thanks for organizing, L.M.)

rolling

For those that attended, thank you very much for coming and partaking in what was a truly special day for our Detterbeck Wealth Management team. And to both those that did attend and to those that couldn’t make it, let us reiterate that we are honored to have you all as our friends and look forward to a continued great relationship! Thank you!!!

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Lastly, for those in Charleston area, we look forward to hopefully seeing you at our October appreciation event!

“An Ounce of Prevention is Worth a Pound of Cure”- B. Franklin

Millions of Americans are being impacted by two Category 5 disasters- Hurricane Irma and the Equifax data breach!!  Certainly, we’re all watching Irma spread through FL and our hearts and prayers are with all those in Irma’s path.  But don’t discount the Equifax high-tech heist as something small.  Last Thursday, Equifax announced that personal and confidential information for 143 million Americans.  This included names, social security numbers, birth dates, addresses and, in some instances, driver’s license numbers and other information.

This epic breach is a really big deal and a great concern.  Equifax, Experian and Transunion warehouse the most intimate details of Americans’ financial lives, from credit cards to medical bills.  Once security is breached, the hackers typically sell the stolen information to sophisticated identity thieves.  Last year, 15.4 million Americans were victims of identity theft, which totaled $16 billion.  In most cases, the money was recovered, but only after a tremendous amount of time, money and stress.  One man said the thieves so ruined his credit that he was unable to secure a needed mortgage refinance.  One lady’s social security number was used by others to file her income taxes and get a refund before she even filed her own return.  It took her over a year to get it straight with the IRS.  In the first half of 2017, there were a record 791 data breaches in the U.S., up 29% from last year.  Victims have recounted what a terrifying experience it is to have your identity stolen.  “You’re worried about the tremendous implications this could have and the possibility of it going on for years.”

Here’s the really bad part of the Equifax breach. We now know that the breach occurred six weeks ago, July 29th.  The hackers probably sold the information shortly thereafter.  We’ve likely all been compromised for six weeks and we didn’t know it.  Equifax is now under investigation for the breach and their lack of transparency by Congress, New York’s attorney general and the Consumer Financial Protection Bureau. If you call Equifax, it’s another frustration.  Their “hot line” is staffed with people who really can’t tell you if your information was taken or not.  You should assume that it was.  Ouch!!

It’s time for us to play defense.  Step one- put a credit freeze on all three reporting services immediately.  It’s your only hope.  A credit freeze prevents existing creditors and new creditors from using your information.  It prevents new accounts being opened in your name.  When you contact the sites listed below you will receive a PIN that allows you to temporarily lift or “thaw” your freeze.  Put that number in a very safe place (see below).  Yes, you may be delayed a day or two to get your information released when you need to apply for new credit, but that’s a small problem compared to potential identity theft.

Here are the sites:

Equifax – https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp

Experian – https://www.experian.com/freeze/center.html

TransUnion – https://freeze.transunion.com/sf/securityFreeze/landingPage.jsp

I froze Elise and my accounts yesterday in about 20 minutes.

 

Step two-you need to create strong passwords and store them in a secure spot. The bad guys have two pieces of information, your social security number (which you don’t want to change) and your address.  Don’t help them with the next step by having weak passwords.

Updating your passwords will take some time.  Focus first on the key ones; your credit cards, financial institutions, and key retailers like Amazon and Apple; anywhere there is money or where thieves could get merchandise or services.  If a site offers additional security with a two-factor authentication, enable it.   Once you’ve got the key sites, start knocking out the others.

You should use a password manager like 1Password or LastPass.  It’s always important to update your password every so often. These sites create a unique random number password for every website you visit and stores them in a database that you create.  This makes it much more difficult for the thieves to decode your password. Further, these are great places for all of your passwords and your PINs.  Of course, you need to keep your master password in a special spot and share that with your spouse and/or another trusted person.

No question, this is a real pain!!  But, the alternative is possible identity theft which could be a 100 times worse.  We live in an age of Big Data.  We have all allowed the emergence of huge detailed databases full of information about us.  Thanks to technology, financial companies, tech companies, medical organizations, advertisers, insurers, retailers and the government can maintain and access this information.  Unfortunately, companies like Equifax are only lightly regulated and there’s not much punishment for breaches.  Hence, breaches will keep happening.  Even with new technology, like Apple’s new iPhone8 which includes face recognition to unlock it, the consumer credit bureaus are not going away anytime soon.

Please do yourself a favor and freeze your credit, change your passwords and store everything securely this week.  The process will certainly feel like more than an “ounce” of prevention, but if it saves you from identity theft, it will be far more than a “pound” of cure.

My, How Jobs Have Changed

Hope you had a super Labor Day weekend!  Wonderful to be with family and friends.  It’s amazing how jobs have changed over the years.  The NYT over the weekend illustrated how life is so much different for workers by comparing two janitors working for two top companies then and now.

Gail Evans was a janitor for Eastman Kodak in Rochester, NY almost forty years ago.  She was a full-time employee, received 4 weeks paid vacation, reimbursement for some tuition costs to go to college and bonuses. And, when the Kodak facility was temporarily closed, the company kept paying her and had her perform other work.  Ms. Evans took computer classes at night, got her college degree in 1987 and ultimately became chief technology officer for Kodak.

Marta Ramos cleans floors for Apple in Cupertino, CA.  She isn’t on Apple’s payroll. She works for one of Apple’s contractors.  Ms. Ramos hasn’t had a vacation in years-she can’t afford the lost wages.  Going back to school is out of the question. There are no bonuses and no opportunities for some other role at Apple.  Ms. Ramos earns $16.60 per hour, about the same as Ms. Evans did in inflation-adjusted terms.  But her only hope for advancement is to become a “team leader”, which pays an extra $.50 per hour.

Over the last 35 years, American corporations have increasingly focused on improving their bottom line by focusing on their core competency and outsourcing the rest. Part of the success of the Silicon Valley giants of today has come from their ability to attain huge revenues and profits with relatively few workers.  It’s led to huge profits for shareholders, helped grow the U.S. economy, but also has fueled inequality.

In 1993, three of the then tech giants – Kodak, IBM and AT&T – employed 675,000 employees to produce $243 billion of revenue in inflation-adjusted dollars.  Today, Apple, Alphabet and Google produce $333 billion in annual revenue with less than 1/3 of that number, employing only 205,000 employees.

Apple is quick to point out that its products generate many jobs beyond those who receive an Apple paycheck.  It estimates that 1.5 million people work in the “app economy.” However, research shows that the shift to a contracting economy has put downward pressure on compensation.  Many corporations hire full-time employees only for the most important jobs and outsource the rest; obtaining contractors at the time and place needed for the lowest price possible. It’s not just janitors and security guards that are outsourced.  There are also people who test operating systems, review social media posts and screen job applicants, for example.  It’s understandable: companies face really tough competition and if they don’t keep their work force lean, they risk losing out to a competitor that does.

In addition, outsourcing often results in a culture of transience.  Contracted workers are often changing jobs every 12 to 18 months, which obviously can be stressful to them and their family.  Contractors generally don’t receive stock options nor robust health insurance.  Also, retirement plans, even for full-time employees, have changed considerably in the last 35 years. In 1979, 28% of workers were covered by a company paid pension program and 7% had a 401(k). In 2014, only 2% of workers were covered by a pension plan and 34% had a 401(k) plan, which of course, means that most of the funding now is coming from the worker.

Here’s what’s really amazing.  With all these changes, job satisfaction has gone up.  For the first time since 2005, more than half of U.S. workers say they’re satisfied with their jobs.  This optimism has led to consumer spending increasing every month this year and a strong economy.  Apparently, after a decade of job cuts, minimal raises and reduced benefits, workers have lowered their expectations.  Rick Wartzman, author of “The End of Loyalty: The Rise and Fall of Good Jobs in America,” feels that young workers today “don’t even know what they are missing.”

On Monday, we celebrated Labor Day, honoring working people.  That’s particularly important these days as many workers don’t have it nearly good as it was 30-40 years ago.  Even so, American values, spirit and resiliency continue to be very evident in these ever-changing times. Perhaps we need another holiday, “Resilience Day.”  Time to get the grill heated up again!

How Much do You Know About Labor Day?

We are all aware that Labor Day signifies the end of a summer filled with backyard BBQs, family and sunshine. It is the one long weekend of the year when families come together to say goodbye to summer, unwind and prepare for the changing seasons ahead. However, many of us don’t take the time to consider the true origin of Labor Day.

The concept of Labor Day dates back all the way to the Industrial Revolution in the U.S. during the late 1800s. The typical work day was 12 hours long, and the typical work week was seven days. Working conditions were far from ideal, and even children as young as four or five years old were commonly seen working in mills and factories to help their struggling families scrape by.

Many workers began organizing protests and strikes across the U.S. Unfortunately, many of these demonstrations turned violent and, in some cases, deadly. In 1894, Eugene V. Debs, with the support of the American Railroad Union, organized a strike and boycott of the Pullman Palace Car Company in Chicago. This strike effectively crippled all railroad traffic in the U.S., leading then President Grover Cleveland to deploy 12,000 troops to the area to dissolve the strike.

The use of military force on behalf of the U.S. government essentially poured gasoline on the already burning fire of discontent with current labor wages and conditions. Several people were killed during the Pullman strike altercation, and although the strike did come to an end, American workers were still unhappy and began to condemn President Cleveland’s aggressive response.

Meanwhile, union workers in New York City had been organizing and going on strike one day of the year in support of the idea of a national Labor Day that had been circulating around the U.S.

Later in 1894, which happened to be an important election year, President Cleveland decided to implement a nationally recognized annual celebration of American workers to appease his critics – and thus Labor Day as we know it was born.

Fast forward to 2017, where we at Detterbeck Wealth Management are fortunate enough to do what we are passionate about everday in a constructive and collaborative environment. We choose to use this year’s Labor Day as an opportunity to reflect on and appreciate how far the U.S. economy and workforce has come since those historic strikes in 1892.

From everyone here at DWM, have a great Labor Day Weekend and enjoy some time with the family!

“The Markets are going to Fluctuate”

Last Thursday, August 17, the equity markets took a hit of 1-1.5%.  In overall terms, it wasn’t a pullback (5% drop) or a correction (10%) yet some were concerned this might be the “start of the end” of the long-term bull market.  Yes, stock valuations have been high for some time, but many people wondered “Why now?” Various reasons were given to “explain” the causes of Thursday’s decline.  Let’s take a look at some of these:

“Terrorism.”  The first reports of the attack in Barcelona were posted in New York around noon last Thursday.  The markets were already in a decline and gold and bonds were moving higher.  Though the attack was dreadful and disgusting, it likely didn’t move the markets.

“Corporate America abandons the White House.”  Kenneth Frazier, CEO of Merck, resigned Monday, August 14.  Others followed and the major business councils disbanded on Wednesday, August 16.  However, participation on President Trump’s councils is voluntary and the first priority of each of the CEOs is their “day job,” which involves working with their customers, employees, suppliers and investors.  Their departure shouldn’t have been a surprise.

“All Donald Trump all the time has worn out people’s patience.”   Certainly, many may be exhausted by the almost singular focus of the news being the White House for the last seven months.  However, impatience is unlikely to cause the markets to move lower.  It was only two weeks ago that we all were worried about the possibility of a nuclear war starting in the Korean peninsula. And, that scare didn’t move the markets.  Therefore, it’s hard to believe the daily White House news would be a source of concern for the markets.

“The White House Economic Team is Leaving.”  Early last Thursday, a rumor floated through Wall Street that Gary Cohn, the Director of the National Economic Council, was resigning.  Mr. Cohn, along with Treasury Secretary Steven Mnuchin are leading the all-important tax reform and infrastructure initiatives.  The S&P 500 began a sharp move down around 10 am last Thursday exactly the time the false tweet came out.  Fortunately, the rumor was squelched almost immediately but the markets, nevertheless, continued to fall.   Hence, the rumor seems not to have been the catalyst for the sale, though the loss of either Mr. Cohn or Mr. Mnuchin would, in fact, be a major concern.

In short, these “explanations” given after last Thursday’s market drop really don’t identify why it happened.  Even so, story lines will continue.  We humans want them.  We are wired to try to understand why and how things happen and use that information to guide our future.

Legend has it that about a century ago, an alert young man found himself in the presence of John Pierpont Morgan, one of the most successful investors of all time.  Hoping to improve his fortune, the young man asked Mr. Morgan’s opinion as to the future course of the stock market.  The alleged reply has become a classic:  “Young man, I believe the market is going to fluctuate.”

Yes, there are many things we cannot control and, fortunately, some we can.  At DWM, we focus on helping you to create and maintain an investment portfolio that is designed to participate in good times and protect in bad times by:

  • Identifying and implementing a customized asset allocation based on your goals and risk tolerance
  • Diversifying the holdings by asset class and asset style
  • Using the lowest cost investments wherever possible
  • Striving to make the portfolio tax efficient
  • Rebalancing regularly
  • Staying fully invested
  • Providing discipline to keep you on track and, for example, making sure you are not trying to time the markets or chase performance

Yes, the markets are going to fluctuate.  We can’t control that.  But, at DWM we can help you control those key metrics that, over the long run, can produce higher expected returns with lower risk.