Hope for the Best, Prepare for the Worst

grieving womanAutumn is here and the new season brings cooler temperatures and, perhaps, a change in routines. Life is all about change… it can be exciting change or unwelcome change and both kinds can be challenging. As wealth managers, DWM’s goal is always to maximize the positive and minimize the impact of anything negative that may occur. Becoming single, by death or divorce, is one of life’s most difficult challenges. Grief can cause emotional and physical distress and, sometimes, even cognitive impairment. Your resilience during this time can be directly affected by the stability of your financial resources. Though we all certainly hope that you never have to face the loss of a spouse or significant other, there are things that you can do now and guidelines to follow if necessary that will reduce the burden if something does happen.

A very important part of preparation is to collect all your financial data and keep it current and organized. Haphazard record-keeping can cause an agonizing and time-consuming chore in the midst of a stressful situation. Keep an accurate inventory of all your assets, accounts and property. Have a physical or electronic file of your most recent statements from your checking and savings accounts, credit cards, mortgages or home equity lines, as well as all investment accounts. You will need copies of your most current insurance policy declaration pages, policies and statements. These might include your life, homeowners, auto, disability, long-term care and any other property or casualty policies. Also, it is important to keep marriage and birth certificates together. Keep at least 2 years of tax returns available and a current paystub or income information. You will also need wills, trust documents or other pertinent legal paperwork. And it is good to have a current Social Security benefit statement, which you can access online. Finally, keep a record of ALL your password information for both financial and social accounts. Consider telling a close confidante where your information is available. DWM offers a safe and secure electronic “vault” on its servers for storing copies of all of your financial information for you.

If something does happen and you are faced with a loss or separation, be sure to first take some time to grieve and don’t feel like you must rush into any decisions. Once you are ready, you should contact your financial advisor, hopefully DWM, and your attorney to guide you through this process. Start notifying all financial institutions to change names or close accounts. Contact the insurance companies, credit bureaus, credit card companies and any other creditors. Consider closing accounts, memberships and subscriptions that are unnecessary. Start retitling all the assets and be sure to keep a list of who you have talked to and what needs to be done, as it can be a lot to remember. Be sure to pay all final bills, with a priority on mortgages and utilities. If need be, transfer bills, like utilities, into the new payer’s name. Also, notify the Social Security Administration, the Post Office and your or your spouse’s employer, if need be. Be sure to destroy old cards and shred any unnecessary financial paperwork. Try to avoid putting too much detail on social media pages or in obituaries to protect your security.

It is very important to have a proactive financial advisor, like DWM, before and after you become single. We can assist with getting everything organized and advise you on all the requirements during this difficult time. We will work with you to evaluate your net worth and review all your assets and liabilities. It is also a good time to re-assess your risk profile and investment strategies. We can help you look at your goals and budget and adjust your financial plan to accommodate new needs and changing situations. You might be thinking about some lifestyle changes… perhaps moving to a different home, getting a new job, or doing some travelling. Life’s challenges may bring some changes in your life. DWM welcomes the opportunity to be the leader of your transition team.

TOTAL RETURN: Don’t Focus Solely on Price Change

Dollar up downHumans, especially those of us “number people”, are wired to focus on price change. And when it comes to investments, price change is certainly a gauge of how an investment is doing. But is it the only factor? Absolutely not.

Price change is just one-half of the components that dictates total return. Here’s the formula you need to know when it comes to performance:

TOTAL RETURNPRICE CHANGE + YIELD

What this means is that Total Return equals not only the return on investment due to price appreciation/ depreciation but also due to reinvested dividends or income. Frankly, price change alone can be a really poor gauge of how an investment is doing particularly one with regular distributions such as bonds. So, let’s talk about bonds.

We’ve discussed the inverse relationship between rising interest rates and bond prices before. Assuming the economy continues to heal and rates continue to rise, bond prices will go down on paper. In that case:

?

=

+

?

TOTAL RETURN

=

PRICE CHANGE

+

YIELD

We still don’t know what that does to total return. But let’s say we have a bond yielding 6% then we know:

?

=

-?

+

+6

TOTAL RETURN

=

PRICE CHANGE

+

YIELD

If the yield is bigger than the price change, then total return is still positive. As I mentioned in my last quarterly market commentary, a bond typically will lose 1% in price for every year of duration that it has left for every percentage point rise in interest rates. Hence, let’s assume a one-year time frame and if interest rates go up 1% for a fund that has 4 years of duration (meaning time to maturity) with a 6% coupon, then we know:

+1

=

-5

+

+6

TOTAL RETURN

=

PRICE CHANGE

+

YIELD

Even though the price went down 5%, the total return on the investment was actually up because of the positive-ness of the investment’s yield.

So don’t get caught up in just one part of the formula, folks. Total return is what matters.

BTW, this doesn’t only apply to just bonds. Yield (in the form of dividends) make a difference to equities as well.

Did you know that the S&P 500 has gained +9.8% per year over the last 50 years (1963-2012) on a total return basis? If you remove the impact of reinvested dividends, the raw index is only up +6.4% annually, HENCE dividends make up 35% of the index’s total return in the last half century. Wow!

(source: BTN Research)

Mind-blowing Technologies Expected in 20 Years

AI handKeeping up with all the change in the world is not easy. Futurist George Dvorsky wrote a very interesting article this month in which he outlined 10 futuristic technologies that he believes will appear by the 2030s. These include artificial intelligent personal assistants, anti-aging intervention, megascale geoengineering to combat climate change, personal fabricators and industrial scale desalination. They blew my mind. Here’s why:

AI personal assistants. Many of us have used SIRI on our Apple iphone. It responds to specific language cues and can access the internet. According to Mr. Dvorsky, that’s nothing compared to what will be available twenty years from now. Our personal assistants will be available 24/7 and exhibit an uncanny level of general intelligence. They will know everything about us and be our virtual clones. They’ll write emails for us, book appointments, perform menial tasks and even anticipate our needs.

Computers Everywhere. Computers are getting smaller and will be everywhere, but for the most part, completely invisible-absorbed into our surroundings. They will be in our clothes, our fashion accessories and even our contact lenses. And, these devices will have a certain amount of “ambient intelligence” to help them perform autonomously under specific conditions. Mr. Dvorsky believes that in the 2030s, we will be completely surrounded by computers, but unaware of their presence.

Anti-Aging Intervention. There is nothing available today to slow down or reverse the effects of aging. But, there may be in 20 years. Futurists and gerontologists are not sure what form this intervention will take. It may be a genetic tweak. Today, there are studies being conducted to map the genetic constitutions of supercentenarians to isolate the factors that extend their lives. It might involve therapy on our telomeres, which are like plastic tips on shoelaces because they prevent chromosome ends from fraying and sticking to one another. Or, says Mr.Dvorsky, it could be an initiative to replenish our mitochondria, the cell’s power producers. Perhaps I should start thinking about inviting folks to my 120th birthday party. Could be a wild event.

Megascale Geoengineering Project. Historically low levels of sea ice, rampant wildfires, superstorms, and record breaking are hard to ignore. The climate is changing. Already some scientists are working on a geoengineering solution to reverse the effects of rampant carbon emissions. Their solution is cloud whitening- the seeding of marine stratocumulus clouds with a generous supply of tiny sea water particles. Other techniques include artificial trees, enhanced weathering, ocean fertilization and alkalinity enhancement.

Personal Fabricators at Home. Most everyone knows that Jay Leno owns lots of antique cars and motorcycles. But, did you know that he uses 3D printing to produce parts to repair them? With 3D printing, you download specs, or scan a part and produce the finished product at home. 3D printing can be used for day-to-day items and electronics, vaccines, self-assembling robots and more. As more blueprints are available online, 3D printing will likely be quite disruptive to traditional manufacturing.

The Oceans Will Quench the World’s Thirst. Mr. Dvorsky suggests that industrial-scale desalination is expected by the 2030s. Using advancements in solar power, we will be able to build massive concentrated solar power plants that utilize the residual heat to strip ocean water of its salt. Experts predict that growing freshwater deficits could be increasingly covered sometime in the next 10-20 years. These desalination plants could produce most of the safe drinking water by the year 2030 and afterwards.

Yes, change is everywhere. At DWM, we embrace change. We are committed to understanding the new economy, the ever-changing investment options and all the other tools available to give every client better information and better choices to protect and enhance their legacies.