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.

The Underwater Beach Ball Effect

beach ball underwaterRemember as a kid holding a beach ball underwater, then letting it go? It’s fun. It’s also quite unpredictable as it returns to equilibrium.

The Federal Reserve is now facing the same task with long-term interest rates. Rates have been artificially submerged since the financial crisis in 2008. Can the Fed curtail their unprecedented monetary stimulus program without major fallouts to the economy and the financial markets?

On May 22nd, Chairman Bernanke told a congressional panel that he did not foresee an immediate reduction to easy money. However, hours later, the minutes from the last Fed meeting were released. These showed a growing number of governors want to start to “taper off” as early as next month. The markets have been rattled since then. The concern is: can the Fed “taper” off the quantitative easing without damage? It would be quite a balancing act. And, we, of course, are in uncharted waters.

Things had been going swimmingly since last September. The Fed has been buying $85 billion in bonds every month, lowering the long-term interest rates and boosting economic growth. The strategy appears to be working. The economy is growing, unemployment is shrinking, the housing market is recovering and the stock market has been soaring. The Fed had promised to keep the program going until there was a “substantial improvement” in the job market. We’re getting close. However, the markets have been spooked for the last seven trading days.

On Friday, U.S. Treasuries posted their biggest losses in more than two years, pushing yields to twelve month highs. The 30-year mortgage rate rose to 3.81% nationwide. Fixed income investments of all types declined in value, particularly currencies and emerging markets.

The S&P 500 has been down over 2% since May 22 and other equity subclasses, such as international, small cap and emerging markets are down even more. Many of the liquid alternative holdings have been flat, however, global real estate is down significantly, and gold is up in the last seven trading days. It’s one of those short periods of time when almost every investment is down.

The good news is that the economy has in fact recovered sufficiently that the Fed is considering tapering off easy money. That’s great. However, at this stage, we have no idea of the timing or the results of tapering. Bond interest and stock prices are connected, though not in a simple way. If bond interest rates rise too rapidly or too high, they will raise the cost of credit for companies and stock prices will be hurt. However, if interest rates are able to return to, let’s say, 5% or 6% that might have little impact on stocks.

focus

So what’s an investor to do? Should you do something or nothing? During periods of stress and volatility we suggest you focus on what you can control and learn to roll with what is out of your control. For example, none of us can control what the Fed does, what the major media report as front page news, interest rates or market actions. What we can control is our long – term investing plan, our asset allocation and the wealth manager we use.

It’s especially important at these times to review your long-term financial goals, risk profile (risk tolerance, risk capacity, and risk perception) and asset allocation. Most portfolios need a diversified mix of stocks, bonds and alternative investments. And, they need an experienced, proactive, trusted wealth manager like DWM, who has protected and grown client assets through volatile periods, just like the one we may be encountering now. Give us a call.