THE FINANCIAL CRISIS: 10 YEARS LATER

On September 15, 2008, Lehman Brothers imploded; filing a $691 billion bankruptcy that sent stock markets into a deep dive of 40% or more. The global financial crisis ultimately would destroy trillions of dollars in wealth- $70,000 for every single American. The deep financial trough produced the Great Recession.

Now, 10 years later, how are we doing and what lessons have we learned?

How are we doing?

Official economic statistics would say that the American economy is fully recovered. We are in a 9+ year bull market with a cumulative total return of 350%. The total combined output of the American economy, known as our gross domestic product (“G.D.P.”) has risen 20% since the Lehman crisis. The unemployment rate is lower than it was before the financial crisis. These key measurements, now a century old tradition, however, don’t tell the whole story. The official numbers are accurate, but not that meaningful.

For many Americans, the financial crisis of 2008-2009 isn’t over. It left millions of people-who were already just “getting by”- even more anxious and angry about their future. The issue is inequality. A small, affluent segment of the population receives the bulk of the economy’s harvest. It was true 10 years ago and is even more so today. So, while major statistics look good, they really don’t measure our country’s “human well-being.”

The stock market is now 60% higher than when the crisis began in 2007. While the top 10% of Americans own 84% of the stocks, the other 90% are much more dependent on their homes for their overall net worth. The net worth of the median (not the “average”) household is still 20% lower than it was in 2007, despite the record highs for the stock markets.

The unemployment rate, currently at 3.9%, does not take into account two major items. First, the number of idle working-age adults has swelled. Many of them would like to work, but they can’t find a decent job and have given up looking. Currently, 15% of men aged 25-54 are not working and not even looking; therefore, they are not considered “unemployed.” Second, many Americans are working at or near the federal minimum hourly wage- which has been $7.25 per hour since July 2009. Neither group is benefitting from low, low unemployment rates.

There is a movement to change these metrics to something more meaningful.   A team of economists, Messrs. Zucman, Saez and Piketty, have begun publishing a version of G.D.P. that separates out the share of national income flowing to rich, middle class and poor. At the same time, the Labor Department could modify the monthly jobs report to give more attention to other unemployment numbers. The Federal Reserve could publish quarterly estimates of household wealth by economic class. Such reports could change the way the country communicates about the economy. Economist and Nobel Laureate Simon Kuznets, who oversaw the first G.D.P. calculation in 1873, cautioned people not to confuse G.D.P. with “economic welfare.”

What lessons have we learned?

Mohammed A. El-Erian, the chief economic adviser at Allianz, the corporate parent of PIMCO, recently summarized, in the “Investment News,” some key lessons learned from the crisis.

Accomplishments:

  • A safer banking system due to strengthened capital buffers, more responsible approaches to balance sheets and better liquidity management
  • A more robust payment and settlement system to minimize the risk of “sudden stops” in counterpart payments
  • Smarter international cooperation including improved harmonization, stronger regulation and supervision and better monitoring

Still outstanding issues:

  • Long-term growth still relying on quick fixes rather than structural and secular components
  • Misaligned internal incentives encouraging some institutions who are still taking pockets of improper risk-taking
  • The big banks got bigger and the small got more complex through the gradual hollowing out of the medium-sized financial firms
  • Reduced policy flexibility in the event of a crisis because interest rates in most of the advanced world, outside of the U.S., are still near zero and world-wide debt is significantly higher than 10 years ago.

Yes, we’ve made some good progress in the last 10 years since the financial crisis. But, there’s still plenty of room for improvement.

Financial Literacy: Money Matters!

As you all know, we provide proactive financial advice on matters such as investment management and value-added services such as tax planning, risk management and estate planning to name a few.  Something you probably didn’t know is that earlier this year, we launched a campaign to promote financial literacy for children and young adults!  It is called the Young Investors program.  Some of our clients have recently become the first recipients of this new program!

Financial literacy is a person’s ability to recognize and use the money and other resources he or she has to get what is needed and wanted.  Another way of saying this is that financial literacy is being able to set goals for using financial resources, make plans, and use the plans to meet financial demands and achieve goals.  To achieve financial literacy, a person needs to have experiences with money.  That is why it is important that children begin to learn about money and its use when they are young.

You might not know this, but financial literacy availability for young children is scarce, primarily because the school systems lack time and budget resources to incorporate financial education into the curriculums.  In fact, only 16 states require any instruction in economics between Kindergarten and 12th grade.  Even worse, only 7 states require students to take courses in personal finance.

There’s been a greater awareness of this educational need in the past 10 years and some financial-literacy advocacy groups have begun to take some steps to fill this educational void.  Some have responded by offering summer camps to young children whose parents want to teach their children the basics of money management.  Feedback from many of the attendees is that, believe it or not, they had fun!  Of course, we want to join in on the fun, and we are also excited to be a part of the solution.

We know that a financial foundation is best achieved when started early, reviewed, as well as reinforced often.  It’s important to teach young children even before they are in school about the concept of money, and that it’s not all about spending!  For example, something simple that a parent can start as early as age 3 can have lasting effects for the future.  Consider this:

Activity: Tell your toddler that you’ll give him a cookie now if he wants it, but you’ll give him two cookies if he waits an extra ten minutes. See what he chooses and try to encourage him to wait for the extra cookie.

Lesson Learned: Be patient and wait for a bigger payoff, rather than always going for instant gratification.

Although it might not look like much, it sets the stage for a less impulsive, more thoughtful response, and hopefully not just one involving money in the future!

Thinking about the scenario above, in an article I read the other day from the Wall Street Journal on personal finance summer camps, a 12 year old boy cited some camp attendance takeaways such as stopping and pausing before making purchases and long term planning!  I suppose it’s true that small things do matter!  And more interesting feedback from the camp directors is that many children ages 10-14 didn’t know what stock and bonds were.  Some thought the investments were a form of real estate.  Clearly, more attention needs to be given to this area.

We love the opportunities these summer camps offer and hope to provide some of our own financial education to our client families year round.  With our financial literacy agenda, our Young Investor program is structured with several tiers of age appropriate interactions and dialogue starters on financial matters for our clients to have with their children or grandchildren.  Age appropriate financial suggestions, tools, links to pertinent financial articles and fun activities to engage their minds are some of the content we will be sharing.  With the importance of starting as early as possible, we literally start at the very beginning, with newly born children/grandchildren, and capture all ages through the early 20s.  Specifically, we break out the tiers in roughly 5 year intervals, so age 0-5 years is the first group, 5-10 years is next, then 10-15 years, with 15-20ish years being the last group.  Our goal is that by age 25, the child or grandchild will be more than ready to begin a lifetime of investing!

Even after your children and grandchildren start their careers, it is our hope that they will join our Emerging Investor program, where they can establish their own brokerage accounts with Charles Schwab and have some of the same great DWM advantages and services as their parents and grandparents.  We are happy to help them by protecting and growing a diversified portfolio to preserve assets and provide moderate growth with minimal risk.

With our help, the young children of today will come to ask for financial assistance and have some of the best mentors in their lives, YOU!  And we all know that money is not an elective in life, so let’s keep the dialogue going with our young generation and keep providing them with good ‘sense’!  We hope you find this program to be a valuable experience.  As always, please let us know your thoughts or if you need financial assistance with a young investor in your life.

Tax Efficient Investing

Think of these opposites:  Good/Bad.  Rich/Poor.  Gain/Loss. Joy/Sadness.  Investment Returns/Income Taxes.  Yes, Uncle Sam is happy to take all the joy out of your investment returns and tax them.  That’s why tax efficient investing is so important.

You have three types of investment accounts: taxable, tax deferred or tax exempt.  For taxable accounts, you must pay taxes in the year income is received.  Retirement accounts, IRAs and annuities are examples of tax deferred accounts, in which you pay tax on the income when you take it out. Tax-exempt accounts, like Roth IRAs and Roth 401ks, are not taxed even at withdrawal.

Strategy #1:  Know Your Bracket.  The tax brackets have changed for 2018.  The top federal marginal rate of 37% will hit taxpayers of $500,000 and higher for single filers and $600,000 for married couples filing jointly.  There can be a huge difference between taxes on current ordinary income and taxes on long-term capital gains. Capital gains are the appreciation on your holdings over time and often represent a very significant portion of your total investment return.  Securities held for over a year generally qualify for long-term capital gain taxes, which are taxed at 0% to 20%, with most investors paying 15%. The difference between ordinary and capital gains taxes on your investment income can be substantial.

Strategy #2:  Asset Allocation includes Asset “Location.”  Tax efficient investments should be in taxable accounts, tax inefficient investments should be in tax deferred or tax-exempt accounts.  For example, bonds are tax inefficient.  Interest earned on bonds in taxable accounts is income in the year received and is taxed at ordinary income tax rates.  However, bond interest earned in a tax deferred account is also taxed as ordinary income, but only at withdrawal, when presumably you might be at lower income and tax levels.  Hence, bonds should generally be located in tax deferred accounts, such as IRAs and 401ks.

Stocks are more tax efficient. First, the qualified dividends received on stocks are taxed at the capital gains tax rate, which is likely less than your ordinary income tax rate. And, second, the largest part of your investment return on equities is often your capital gain, which is also generally at 15% tax and is only paid when you sell a security.  Hence, stocks and equity funds are tax efficient and generally should be located in taxable accounts.  Conversely, holding equities in retirement accounts is not generally a good idea because even though the tax is deferred, the ultimate withdrawals will be taxed at ordinary rates, not capital gains.

Alternative investments, which are designed to be non-correlated with bonds and stocks, may generate more ordinary income than tax-efficient income.  Hence, they should generally be located in tax deferred accounts.  Tax-exempt accounts, such as Roth accounts, can hold tax efficient and tax inefficient holdings. Hence, tax-exempt accounts are already tax efficient and can hold all three asset classes; equity, fixed income and alternatives, in appropriate asset allocations without any income tax cost.

Strategy #3:  Grow your Roth Assets.  Because Roth assets are tax-exempt and, therefore, 100% tax efficient, they are the most valuable investment asset you can own; both in your lifetime and your heirs.  Roths only have investment returns, no taxes.  Furthermore, Roth accounts, unlike traditional IRA accounts, do not require minimum distributions when you and/or your spouse reach 70 ½.  Upon your passing, the beneficiaries of your Roth assets can “stretch them” by allowing them to continue to grow them tax-free. However, the heirs will be required to take minimum distributions.

Roths can be funded in a number of ways.  If you have earnings, you can make Roth contributions of $5,500 per year ($6,500 if you are 50 or over) if your income is below a certain threshold.  In addition, if you are working for a company with a 401k plan, that plan may allow Roth 401k contributions. In this case, there are no earnings limitations and you can contribute $18,500 ($24,500 if you are 50 or over.)  You can also convert IRAs to Roths.  This is done by paying income tax on the difference between the amount converted and the cost basis of the IRA. There is no limit of the amount you can convert.  The concept is “pay tax once, have the Roth grow tax-free forever.” Oftentimes this conversion takes place after retirement but before age 70 ½ and is done in an annual installment amount to keep the tax implications within a given tax bracket.   We encourage you and/or your CPA to look at this possibility.

Strategy #4:  Do an Income Tax Projection.  Tax projections are really important, particularly in 2018, with all the new changes brought on by tax reform.  The projection provides information as to your income, deductions, tax bracket, estimated taxes (to minimize surprises and penalties) and, hopefully, also possibilities for tax savings.  We prepare “unofficial” tax projections for our clients for these very reasons.  Investment management must consider income taxes.

Ultimately, your return on investments is your gross return less the income taxes.  Therefore, we encourage you to make your investment portfolio operate as tax efficiently as possible and accentuate the positive; good, rich, gain, joy and investment returns.  Rather than the negative; bad, poor, loss, sad and income taxes.  You should make yourself happy, not Uncle Sam.

Some Cures for Procrastination

While most of us are having a super summer, maybe traveling a little bit, maybe kicking back a little, 60 psychologists were in Chicago last week attending the 10th Procrastination Conference. Their goal:  to better understand who procrastinates and discuss how the dreaded loop of perpetual delay can be altered.

Amazing.  20% of people are true procrastinators.  It seems of all countries surveyed, including the U.S., to Poland, Britain, Germany, Japan, Saudi Arabia, Turkey, and Peru, all have about 1 in 5 residents who are chronic procrastinators, or “procs.”  They delay in completing a task to the point of experiencing subjective discomfort, such as anxiety or discomfort.  A proc is usually consistent; procrastinating in multiple areas of her or his life- work, personal, financial and social.  Procs often lose jobs, have broken marriages, suffer deflated dreams, have self-esteem issues and are in financial disarray. Procrastination can be a real problem.

Hopefully, though, we have none or only few chronic procs in our readership.  However, for those who are in the other 80% who “on occasion” delay making decisions until it is too late, find themselves saying “I’ll do it tomorrow,” putting things off until the last minute or simply neglecting important items, here are some ideas on ways to get more things done.

  • Begin by forgiving yourself for being a part-time procrastinator.
  • Break down tasks into smaller pieces. For example, “select your blog topic,” as opposed to “write the blog.”
  • Consider using the Pomodoro technique. Plan your day in 25 minute intervals with a 5 minute break after each.  Complete small tasks throughout the day which will produce a huge cumulative effect and a wonderful feeling of accomplishment.
  • Adopt the “Seven Minute Rule.” If you have a task that requires seven minutes or less, just get it done now.  No need to put it on a to-do list or waste energy thinking about it over and over again, just knock it out.
  • Minimize distractions. One key area is emails.  Consider being email free for 15-25 minutes at a stretch to be able to concentrate and complete a project rather than getting sidetracked every other minute.
  • Deal with problems now. Remember the following saying:  “If you have to swallow a toad, it’s best not to look at it too long.”
  • Seek external help for your goals.

It’s no surprise that many people procrastinate on getting their financial matters in order.  Making decisions for what happens to your estate when you die isn’t all that much fun.  Reviewing insurance coverage for when your house is destroyed or your dog bites your neighbor isn’t extremely enjoyable.  Income tax planning isn’t a bowl of cherries.  Planning for retirement and making choices about needs, wants and wishes is not like having a birthday party.  Trying to make investment decisions by yourself with so much information available and so many  conflicting, self-proclaimed “experts” is difficult and frustrating.

However, all of these items are very important and do need to be put in order. Wealth management is one of those key areas where seeking external help can break your procrastination and help you reach your goals.  Consider working with a full-service fee-only fiduciary like DWM.  Not only will you get an experienced, competent team to guide you and provide information and choices so you can make decisions on all aspects of your finances.  In addition, with firms like DWM, who have a proprietary and prudent process in place, you receive regular, consistent follow-up on all investment, financial planning, insurance, income taxes and estate planning matters for years to come.

So, don’t procrastinate.  Consider some of these ideas for getting more things done. And, if you need external help on your finances in order, please give us a call.

Feliz Jubilación!

We loved recently learning the word for retirement in Spanish …Jubilación!  It has a much more festive ring to it than “retirement” or even “financial independence”, as we say in the U.S.  In France, they use the word for retreat or “retraite” to define this time of life.  We don’t think many of us want to retreat, exactly, or hide away from anything!  And in England or Italy, they use a derivative of pension to describe a ‘retiree’ – ‘pensioner’ or ‘pensionato’, while in Spanish, you are a ‘jubilado’!  While they all mean the same general thing, we think this transition in life should be celebratory and warmly anticipated without any anxiety or trepidation.  As wealth managers at DWM, our goal is to make this transition so easy that you are indeed… jubilant!

So how can this transition truly be smooth and worry-free?  We do think that there are some things that you can do for yourself and then some things where your financial advocate, like DWM, can be very helpful.  Let’s start with some of the administrative items that come up at “a certain age”.  In fact, at DWM, we keep track of the important dates and significant milestones in our clients’ lives so we can remind them of the things that they will soon want to do.  For example, at age 50, you can start increasing your IRA or 401(k) contributions each year.  At 55, we like to discuss the pros and cons of long term care for you and your family and around age 60 or 62, we like to discuss Social Security strategies and help you with plans to start thinking about Medicare sign-ups.  We are always available to help analyze the proper benefits, help you schedule sign-ups or meet with professionals to assist you.  We also help with tax strategies and account transitions as you leave your job and need to understand your employer retirement benefits packages.  And when you hit 70 and it is almost time to start taking your required minimum distributions from your IRA’s, we are also here to guide you and manage this.  There are a few things that need to be done, but we like to educate our clients on the process and then help to guide them through it.

It is also important to make sure that your resources are protected and wisely invested to maximize your success in achieving your goals.  Assessing your resources and making a realistic plan will allow you to make the best choices for your future.  As wealth managers, we are always mindful of taxes, asset allocations, estate planning and risk management, as we look for ways to make the most of what you have.  We want to help you realize your goals with a comprehensive financial plan and a roadmap to success.  Money certainly isn’t everything, but having your finances in order and the details understood can make this transition much more worry-free and enjoyable.  Looking at all of your goals and assets with honest and realistic expectations will allow your plan to reach its highest potential.

The other question to ask yourself is what is your passion?  How would you like to spend your time, now that it is yours to spend?  Will you continue working?  Will you travel? Will you move to a new home?  Some people find that they can now spend their time doing exactly what they have always wanted to be doing, but just aren’t sure what that may be!  There are many things to investigate and you can now take some time to explore your options – whether it is continuing to work, volunteer, travel or take up a hobby that might have always interested you.  The goal here is to look at it as a wonderful opportunity where you embrace the change and get excited to find a happy “new normal”.  It may take some time and some patience to make this adjustment smoothly.  Staying healthy, active and engaged with others are all great tips to helping with the emotional transition.  You may have to adjust to your new identity and staying busy and connected with others can definitely support you through this process.

This should be a wonderful time in your life and we are here to help in any way we can as you move forward into “retirement”.  Just remember, you have earned the ability to celebrate – this is your lifetime achievement award!   As your financial advisor, we look forward to helping you look at this time with joyous and resounding JUBILATION!

Winning the Super Bowl and Achieving Long-Term Financial Success

Clemson and Alabama know it.  The Super Bowl contenders-Patriots, Steelers, Falcons and Packers- know it.  There are many factors and lots of hard work that contribute to success.  You need consistent, effective blocking and tackling.  You need excellent offense, defense and special teams.  You need a super game plan.  And, you need to be able to make modifications as conditions change.  It’s the same thing with achieving your long-term financial goals. This “elephant” needs to be eaten in “smaller bites.”  Wealth management requires attention to the key building blocks, a disciplined process and likely an accountability buddy and coach to be successful.

Here are the main building blocks to achieving your long-term financial goals:

  • Goals– establishing the financial and personal goals for your lifetime and your legacy; separate them into needs, wants and wishes.
  • Financial Plan– developing the road map for your future; showing how you get from point A to point B and accomplish all of your goals.
  • Investments– identifying your investment objectives, constraints, risk tolerance, asset allocation, and rebalancing and other procedures to protect and grow your assets.
  • Income Taxes– determining strategies to minimize your income taxes and make sure your investments and financial planning strategies are tax efficient.
  • Insurance/Risk Management- making sure your coverage is appropriate (like Goldilocks, “not too much and not too little”) and the premiums are as low as possible.
  • Estate Planning- ensuring that your estate will be distributed in the manner you wish, that you pay the least amount of estate tax and that estate administration is inexpensive and hassle-free.

At DWM, we review these key areas with new clients using our DWM “Boot Camp” process.  This is a series of four to six meetings, typically over a 4-12 week period.  For you ex-athletes, our clients tell us these meetings are like “two a day” practices:  “It feels great when they are over.”

Next is monitoring.  Again, you need a process.  In today’s world, “set it and forget it” just doesn’t work.

On a daily basis, you need to track activity in your investment accounts.  You need to keep up to date with the news, the investment environment and the financial information that could be impacting you and your goals.  At least monthly, you need to review investment performance by asset class and compare to benchmarks.  On a quarterly basis, you need to review your investment portfolio for performance and asset allocation.

You should review your financial and personal goals at least a couple of times per year and update your financial plan.  You should review your prior year income tax returns in May, determine what new strategies might apply for the current year and obtain a current year projection.  You should review and update this tax projection in the fall.  You should carefully examine your insurance premium statements when received and, at least every couple of years, go out for quote again.  You should review the key points of your estate plan every year, including executors, trustees and agents and their successors. Based on updated current assets, you need to review if your estate is taxable and the distributions and their timing based on your current plan.

Monitoring is a big job. And, then add to that some of the key life events for you and your family (that may also require changes to your game plan) including:

  • Birth of a child or grandchild
  • Educational matters
  • Child/grandchild reaches majority
  • Weddings
  • Job and career changes
  • Moving
  • Major illnesses
  • Inheritance
  • Divorce
  • Onset of physical incapacity in old age
  • Death of a spouse, parent, sibling or other significant person

Is it any surprise that with all you need to do to achieve financial success and manage your wealth that you might consider an accountability buddy and coach, perhaps someone like DWM?

At DWM, we use a proprietary process to help you develop, monitor and modify your financial plan and manage your wealth over time.  Our Boot Camp is a great way to develop your plan.  Our daily, weekly, bi-monthly, and monthly processes which we refer to as “Increasing Wealth by Adding Value” are designed to monitor your plan and provide suggestions to improve your plan.  Personal meetings with you are times to review both progress and status of your building blocks and changes (including key life events) so we can help you keep your plan current.  And, most importantly, as your independent friend and coach, we are accountable to you and help you be accountable to yourself and your family in achieving your long-term goals.  When you accomplish all of that, it’s like you (and we) have won the Super Bowl.

Happy Halloween!

halloween-moneyHappy Halloween! Halloween can be one of the best times of the year, especially if you’re creating memories with your family and friends. We all love to watch scary movies and get a little spooky on Halloween, but do you know what’s even scarier than a creepy clown on Halloween? Having poor financial habits. My name is Grant Maddox and I am a new Service Associate with DWM.  As a recent College of Charleston Business graduate with a concentration in Finance, I have learned a thing or two about spending while on a “college budget”. I have also learned through my course work how important it is to stay on your budget and not over spend.

Americans love to spend!  The 2015 Bureau of Labor Statistics reported that average spending in the U.S. across all types of expenses increased in 2015. Expenditures for food, housing, apparel and services all rose between 3.4% and 3.9%. We know the Consumer Price Index remained largely unchanged at 0.73% last year. In other words, the increase in spending was principally not the result of inflation. Instead it shows American households simply spent more in 2015.

There are many reasons why Americans may spend more – for one thing, technology has made it so much easier. As accessibility to online retail and credit options increases, so do our spending habits. You can pay with a swipe of a card or by hovering your phone over a machine!  It is eerie how easy you can spend your hard-earned dollars!  In fact, kicking off the end of year spending season is Halloween. Just how much do Americans spend on trick-or-treating and other Halloween festivities? The National Retail Federation (NRF) forecasts total Halloween spending—including candy, costumes, and decorations—to come to $7.4 billion this year. We are inundated with eye-catching campaigns to encourage excessive spending, especially during the holidays.

Establishing a budget that includes life’s essentials such as rent, utilities, food, and transportation is important for setting up yourself or your child for success. It is crucial to encourage saving early and often to gain the benefits of compounding. While many young professionals may see saving for future goals, such as a down payment on a house, as a non-priority, saving, in fact, can certainly make a huge difference. As a parent, you can even encourage your child’s saving by offering to match a percentage of their contributions to a designated savings account. These lessons can be invaluable to them as they grow older. Having direct deposits of paychecks, direct deposits to savings vehicles and automated payment schedules help us manage our bill payments and savings potential more easily.  Technology can be a wonderful attribute to our society and for our spending, when we use it wisely.

At DWM, we encourage you to plan for your major purchases and be sure that your goals are all part of a larger successful financial plan.  Looking for ways to right size your spending isn’t just about planning ahead for luxury items.  Reviewing all household expenditures to determine if they are needs, wants, or wishes is also a great practice. I look forward to learning all I can about total wealth management and helping our clients and others to achieve their financial goals.

aaeaaqaaaaaaaafdaaaajgvhztrjmmuxlwniytatnguwmy1hnjg5lwfjzdq0mjexmji0nqEditor’s Note:  Please join us in welcoming Grant Maddox to our DWM team.  Grant joined our firm in October as a service associate and is training/learning/working toward becoming a junior advisor. Welcome aboard, Grant!

Consumer Sentiment: “Good, but Concerned About the Future”

Measuring-Consumer-ConfidenceOverall, Americans are feeling pretty good. Their total net worth is now $88 trillion.  That’s a major increase since 2009 when total wealth bottomed at $55 trillion.

In simple math, that’s an average of about $270,000 of wealth per person, obviously impacted in a major way by the 1% at the top.  The median amount (half the people have more and half have less) is about $50,000 per person.  And, on average, roughly 75% of that wealth is in one’s home.  The Federal Reserve report last week showed that mortgage balances are growing slowly, while home prices are increasing steadily.  Many homeowners who were underwater seven years ago now have some equity.

In fact, rising home prices have set off fears that real estate will become more expensive.  In the year ended March 31, 2016, cities like Denver, Seattle and Portland had employment growth more than 3% and double-digit increases in home prices.  At the same time, according to the Case-Shiller indexes, Boston, Cleveland and New York have had subdued growth and home price increases.  Pittsburgh and Dallas are facing housing affordability challenges as demand lately has moved toward central cities, where land is scarce, rather than more spacious distant suburbs. This month, McDonald’s announced its move from Oakbrook to the West Loop in Chicago to appeal to the younger, metropolitan workforce.

Despite a weak May labor report showing only 38,000 nonfarm jobs and some politicians claiming the economy is a disaster, overall consumer sentiment is up.  Home prices and wages are up, interest rates and gas prices are low and people are starting to spend more.  Consumer spending jumped 1% in April, the fastest pace in nearly 7 years.

In addition, everyone likes to hear that the stock markets are rallying, which they have done since February. And, daily media blasts about approaching or hitting new market highs, which are happening lately, prompt positive consumer sentiment as well.

The University of Michigan’s next “Index of Consumer Sentiment” due on Friday, is expected to be good.  Economists have forecasted it to come in at 93.5, down slightly from May.  However, it would still be above average for economic expansions.  What we are seeing, though, is a growing gap between the favorable Current Economic Conditions sentiment and the renewed downward drift of the Expectations Index.

Since the late 1940’s U of M has been interviewing households.  In early June, the 500 respondents who answered the 50 core questions, rated their current financial situation as the best since 2007.  And, their prospects for gains in inflation-adjusted income for the year ahead were also most favorable in 9 years.  However, these respondents did not think the economy was as strong as a year ago nor do they expect the economy to do as well in the year ahead as it has done.

The next six months will be quite interesting.  While the economy has posted steady job growth for most of the past six years, May’s disappointing labor report begs the question:  “Have things changed?”  In addition, what happens if the UK decides on June 23rd to leave the EU, and Brexit occurs? And, how about China’s big slowdown from double digit economic growth just a few years ago?

Certainly, there are lots concerns and uncertainties.  So, what’s new?  We all deal with uncertainty and change every day.

As our regular readers know, our advice is to focus on what you can control:

Investments-

  • Create an investment plan to fit your needs and risk tolerance
  • Identify an appropriate asset allocation target mix
  • Structure a diversified portfolio
  • Reduce expenses and turnover
  • Minimize taxes
  • Rebalance regularly
  • Stay invested

Other Key Metrics-

  • Separate your goals into needs, wants and wishes
  • Review your expected longevity
  • Target a date of financial independence
  • Use realistic targets for investment returns and inflation in your planning
  • Review all assets and make sure they are performing appropriately
  • Review all debt and determine if it is appropriate
  • Review all insurance for coverage and cost
  • Review your estate plan to make sure it meets your wishes and that assets are titling appropriately
  • Monitor your plan regularly and make appropriate changes

We encourage you to focus on the above.  And, of course, if you need some help or have a question, give us call.  At DWM, we’re here to increase family wealth by adding value.

“The Future Depends on What You Do Today”- Mahatma Gandhi

100-candlesNo one has a crystal ball.  If we did, we might ask three important questions:

-How long will I live?

-Will I have enough money if I live to age 100?

-How will I spend the time I have on this earth?

As wealth managers dedicated to increasing families’ wealth and legacies, we consider these questions and the related answers as extremely important.

We Americans are living longer.  From 1980 to 2020, the number of Americans 90 years of age and older tripled to 1.9 million. And, by 2050, it is expected there will be 8 million 90 and over.  This is a new paradigm.  Historically, people retired in their 50s and early 60s and lived their last few years retired in comfort during the “golden years”.   These days, someone retiring in their early 60s could live 30 or 40 more years.  If so, will they have enough money and what will they do for that time period (perhaps 1/3 or more of their lifetime on earth)?

Life Expectancy. There are some good tools to help you estimate when your “plan will end.”  Here are three: https://www.livingto100.com/, https://www.bluezones.com/ (click on tools), and https://www.myabaris.com/tools/life-expectancy-calculator-how-long-will-i-live/, (Note: each site will require you entering your email address) These tools can take 5-10 minutes.  All look at personal health, family history and socioeconomic status.

Will My Nest Egg Hold Out?  Next, it’s time to calculate your expected “financial independence” date.  See our blog of April 21, 2015 http://www.dwmgmt.com/plan-for-financial-independence-not-retirement/  This is the date at which you have enough assets for the rest of your life without needing to work for money.  Recently this “independence” date has been extended for many due to three principal factors; increased expected longevity, lower expected returns, and reductions in and uncertainty about pensions and social security. The financial independence calculation requires a review and monitoring of key current and expected metrics: assets, additions to assets, longevity, retirement income, inflation, investment returns, tax rates, and spending goals.  Of course, all results must be stress tested and regularly monitored and revised as appropriate.

Meaning, Identity and Purpose in Remaining Years.  Planning for the “golden years” goes well beyond money.   Happiness, of course, is more than that.  We discussed it in our September 9th blog http://www.dwmgmt.com/how-would-you-rate-your-life/.  We ask our clients not only about their financial priorities, but also about their visions for their family, career, health, dreams, legacy, education and charity.

These days, more and more seniors are taking inventory on who they are, their accumulated skills and experience and want to stay engaged in the broader society and economy, continuing to be useful, active and “keep going”.  Here are some recent inspiring examples in the news:

  • Gerry Marzorati, former editor of the New York Times and author of the new book “Late to the Ball” has immersed himself in tennis since taking it up in his mid-50s. Mr. Marzorati recognizes that “Sixty is not the new 40. Fifty isn’t either.  Your lung capacity in late middle-age is in steady decline as are your fast-twitch muscle fibers that provide power and speed. Your sight, senses and balances are getting worse.”  Yet, undaunted, Mr. Marzorati concluded that for him, his “golden years” would be spent on “finding something new, something difficult- to immerse yourself in and improve at.”  He threw himself into his new passion, hiring a coach, practicing for hours and hours and even entering competitions in his new love.  No trophies yet, but fulfillment.
  • Alan Page, the leader of Vikings’ Purple People Eaters, is about to start his third career at age 70.  After his Hall of Fame NFL career, Mr. Page finished law school and became a Justice in the Minnesota State Supreme Court for 24 years until recent mandatory retirement.  Now he and his wife will commit their full-time efforts to their Page Foundation, focused on educating young children, through money and mentoring.
  • At 100, Ida Keeling is still running for her life. She has the fastest time for American women aged 95-99 in the 60-meter “dash” at 29.86 seconds.  She is 4’6” and weighs 83 pounds.  She said she was fast as a girl, though back then there were few opportunities for girls.  What makes her faster now is that “everyone has slowed down.”  She became a single parent of four when her husband died at age 42.  Ms. Keeling’s daughter, Shelley, herself a track coach, got Ida back into running when Mom was 67.  Her one hour of daily running gives Ms. Keeling a sense of serenity: “Time marches on, but I keep going.”

Go ahead.  Take the test!  See how long you will be at life’s party.   Then, by yourself, or with help from a wealth manager like DWM, develop, monitor and maintain a financial, personal and family plan for the future that meets your priorities and visions. The future depends on what you do today.  Go for it!

MGP 4 – The Next Generation of Financial Planning

MGP logo onlyThe financial industry is seeing some interesting changes spurred by the recently-enacted DOL fiduciary rule (see our recent blog at http://www.dwmgmt.com/fiduciary-standard-closing-in-on-reps-and-brokers/ ). At DWM, we welcome these changes as it now requires financial advisors to adhere to a rule that we have been following from the beginning…which is to make investment and planning recommendations with the client’s best interests in mind.  We always put the client first and always remain committed to this philosophy.

 

Last week, MoneyGuidePro, our chosen software provider, came out with a new version of their financial planning tool called MGP 4.  It is the next generation of financial planning software and the updates are specifically intended to help the financial advisor stay in line with the new rules.  The changes have made the software more “conversational” so advisor and client can spend more time discussing goals and retirement requirements, something we have always focused on.  We have spent some time reviewing the new features and there is a small learning curve with it.  We do think in the long run, it’s a nice update.  If you have recently logged on and were surprised or frustrated with it, you are not alone.  We want to describe some of the basics to you and, of course, we are always available for questions.

 

The biggest change is in the presentation and some of the familiar indexes are set up in new locations.  The updated format takes you to a My Plans landing page where you will have access to your financial plan.  Once the plan is selected, you will be on the page with personal information, similar to the previous version.  If you look at the top of this page, there is a progression line with three circles on it. The circle on the left is marked “About You” and is green at this stage. Once you click on the circle, the dropdown has all the items from the previous version grouped in four categories- Personal, Goals, Money and Risk and Allocation.  Click on each of these for details. ‘Personal’ shows personal information and has a new area for expectations and concerns.  ‘Goals’ has a retirement schedule and a place to include your goals, including one for health care, a newly-established feature to help us understand and track the costs that health care may have on your financial plan.  When you click on ‘Money’, you will see the familiar drop-down categories from the old version – including investments, retirement income and net worth.  Finally the ‘Risk and Allocation’ section will help us evaluate your risk tolerance and allocation strategy so we can see if they are in line with your goals.  You can always skip a category by returning to the “progression line” at the top and selecting your choice.   Everything is here, it just may take an extra step to get there.

 

*Tech Tip:  If you want to have an abbreviated look at your plan, you can select the ‘My Snapshot’ tab on the first page to have quick access to some of the most popular features like net worth, goals and results.

 

Once you finish ‘Risk & Allocation’, you are ready to move to the ‘Results’ circle.  You’ve seen these headings before. We suggest you click on ‘recommended scenario’.  Once on that page, look at the left side and you’ll see blue rectangles with personalized strategy tabs based on your goals.  One new, exciting feature is the Social Security tab which allows you to calculate your best strategy drawing benefits, if you haven’t already begun.  You can also choose the “What if Worksheet”. Here is where we modify certain predictors for the future like rates of return, inflation or living longer.  You can look under the recommended scenario or under the ‘What if worksheet’ Monte Carlo simulation graphs and you will see the blue rectangle “explore”.  Click on explore and then scroll down to “combined details.”    You’re now into the results page and graph, which all of our clients have seen before and shows the annual and linear progression of the value of your future portfolio.  This chart starts with the current value of your investment portfolio and shows how the additions, earnings, taxes and spending or goals might impact it going forward.  You can follow it to the wonderfully euphemized “end of your plan”!  We always find that amusing…

 

There are many other features hidden in this financial planning software and we invite you to “play” with this program any time. There is something for everyone in here.  In the play zone, you can add any number of crazy or exciting goals to see if you can make them come true.  Or if you want to prepare for the worst, you can stress test for challenges in the “what are you afraid of” feature. There are strategy tools, a budget feature and you can print your net worth report anytime. The ‘Finish’ tab includes the reports area which is not as intuitive as before, so if you have questions, please call us.  We are always glad to help…or run them for you!  And don’t worry, when you are finished playing with your plan, we always keep the original copy that is our constant.  DWM wants you to understand and participate in your financial planning and be as educated and knowledgeable as possible.  After all, that is our fiduciary responsibility and we always put our clients first!