Our Blog

DWM is committed to learning for its team, clients and friends. In this changing world, it’s extremely important to stay current in all areas impacting your financial future.

We encourage all of team members to “drill down” on current topics important to you and contribute to our weekly blogs.  Questions from our clients and their families are often featured in our blogs.  

Financial literacy for clients and their families is very important to us.  We generally hold an annual wealth management seminar for all of our clients.  We encourage regular, at least semi-annual, meetings in person with our clients to review family updates, progress on financial goals, asset allocation and performance of investments.  We’re happy to assist younger members of the family as part of our total wealth management program.

Here’s our latest blog:

 

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Big Macs and Donald Trump

Written by Nick Schiavi.

mcdonalds big mac-6Big Macs are becoming a real bargain everywhere in the world… except for the United States. This is because most emerging market currencies have taken a big hit since the election of Donald Trump, whereas, the dollar is as strong as it has been in almost 20 years. Not only has Trump raised expectations of an increased strength of the dollar, but many foreign countries have had problems of their own as well, leaving emerging markets lagging behind.  The Turkish Lira, for example, is one of the worst performing currencies so far this year due to terrorist bombings, economic slowdowns, and a central bank reluctant to raise interest rates to defend the currency (The Economist, Big Mac Index of Global Currencies). Emerging market struggles paired with a surging US dollar has led the Lira to be undervalued by 45.7% according to the Big Max Index.

You may be asking yourself “what on Earth is the ‘Big Mac Index?’” At least that’s what I asked myself the first time I heard it. You may be surprised to hear the Big Mac index is exactly what it sounds like: the cost comparison of a McDonalds Big Mac burger from one country to another. It is a fun, educational, and interesting way to learn how the world is valuing cost of goods on a country by country basis. The Big Mac index is built on the idea of purchase-power parity, meaning in the long run currencies will converge and rates should move towards equalization of an identical basket of goods & services.

Big Mac Index picIn the United States a Big Mac costs $5.06 versus 10.75 Lira, or $2.75, in Turkey. The Mexican peso is even more undervalued at 55.9% versus the US dollar, meaning, a Big Mac only costs $2.23 in Mexico as of January 15th, 2017. The Big Mac index allows us to take complicated subjects, such as international commerce, and make it relatable and understandable.

One drawback of the Big Mac index is it does not take account of labor costs. Of course, a Big Mac will cost less in a country like Mexico because workers earn lower wages than workers in the US. So, in a slightly more sophisticated version of the Big Mac index, labor is included. This typically devalues the US Dollar (USD) compared to other countries around the world because our income is higher. For example, in the traditional Big Mac index, the Chinese yuan is 44% undervalued to the greenback, but after labor adjustments, it is only 7% undervalued. When this adjustment of labor cost is made, it makes it nearly impossible for the USD to trade at a premium against the Euro. This is because Europeans have a higher cost of living and lower incomes than Americans (The Economist, Big Mac Index of Global Currencies). Typically, the Euro trades around a 25% premium against the USD according to the Big Mac index. However, since the election of Donald Trump, even with the labor cost adjustment, the Big Mac index currently finds the Euro UNDERVALUED to the dollar. The US dollar is so strong, it is currently trading at a 14 year high in trade-weighted terms.

 A strong dollar may sound great, but it has many disadvantages. In the United States specifically, a strengthening USD can lead to a widening trade deficit with decreased exports and increased imports. This has a negative result on domestic businesses that operate in foreign countries as well as anyone servicing debts tied to the US dollar. President Trump has publically stated he feels international commerce is rigged against the United States. Whether he is right or wrong, as the trade deficit grows, so does the likelihood of him imposing tariffs on imports from China and Mexico in hopes of bringing balance to trade. If we put a tax on imports, it will lead to something called “protectionism,” or the practice of shielding the United States’ domestic industries from foreign competition. Some feel this is a strong policy because it will keep businesses in the United States and, according to Trump, will prevent us from being taken advantage of. However, it is fairly accepted in macroeconomics that protectionism is a poor/outdated policy because corporate globalization has led to international supply networks that promote convergence and integration throughout the world. Simply put, the countries that are the best at developing goods, develop them, and other countries benefit from the best products at the lowest prices. When something like protectionism takes place, it disintegrates these networks and adversely affects trade-dependent states and the domestic country itself (in this case the United States). The import tax will ultimately drive up prices for domestic consumers who would otherwise benefit from world prices that are significantly lower. This will lead to an increase in trade of intermediate goods and inward investing into value chain niches.

The reason the Big Mac index is so interesting is because it can explain a complex subject like macroeconomics with something as simple as the cost of a hamburger. By knowing the price of a Big Mac on a country by country basis, we are able to understand a significant amount about the world economy and the repercussions the US will face based on the actions we take moving forward.

The Big Mac index is telling us one thing for certain: the US dollar is abnormally strong, which makes the near future uncertain. It is important to have a well-diversified portfolio with an appropriate asset allocation and a competent, experienced fiduciary like DWM to help guide you through times like this. 

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Winning the Super Bowl and Achieving Long-Term Financial Success

Written by Les Detterbeck.

0643042001467695633 filepickerClemson 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.

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New Year’s Resolutions- How Do You Eat an Elephant?

Written by Les Detterbeck.

Elephant eatingCollege football playoff national champion coach, Dabo Swinney, has the answer:  "One bite at a time."  His Clemson Tigers did it Monday night when they scored in the last second of regulation to edge Alabama's Crimson Tide.  Fantastic game!  Kudos to both teams and their coaches!

Both teams are champions.  Both have high goals and have a process in place to accomplish these goals.  For those of us in the second week of our New Year's resolutions there are some real lessons to be learned by the way Clemson and Alabama go about putting together their championship seasons.  They don’t do it the same way, yet both have had great success.

Alabama coach, Nick Saban, has created the “Elephant” of college football, guiding Alabama to four of the last eight national college football championships.  He's all about process. Coach Saban is often called a control freak who is never satisfied. Here are some of his great quotes:

"There are two pains in life. The pain of discipline and the pain of disappointment. If you can handle the pain of discipline then you'll never have to deal with the pain of disappointment."

"What happened yesterday is history.  What happens tomorrow is a mystery.  What we do today makes a difference-the precious present moment."

Coach Saban knows that “discipline is about changing behaviors.”  His players know that the process is accomplished one step at a time. That’s certainly a key point toward keeping New Year’s resolutions.

Dabo Swinney's process is different, though every bit as successful.  Nick emphasizes the journey, Dabo focuses on the joy in the journey.  It’s no surprise that Coach Swinney loves Chicago Cub skipper Joe Maddon’s style.  Dabo visited Wrigley field last summer and was “blown away” by the disco ball, drum set and celebration room in the Cubs’ clubhouse.  Of course, Clemson's new football facility includes miniature golf, a bowling alley and a movie theater. Joy needs to be part of the journey. Perhaps it is not by coincidence that both Dabo and Maddon have celebrated recent championships.

Now, let's take these championship lessons and apply them to the setting and keeping of your New Year's resolutions.  Approximately 50% of Americans make resolutions each New Year.  The top ones include weight loss, exercise, stopping smoking, better money management and debt reduction.  You're probably still doing well on your 2017 resolutions after only two weeks. Historically, by February most people start backsliding.  And by the end of the year, people are generally back to where they started or often even further behind, due to another year of “failure.”    Keeping resolutions isn't easy.  We're talking about changing behaviors and changing your thinking.

Here are some suggestions on making and keeping your resolutions:

Be realistic.  Don't resolve to “eat an elephant.” Break up your long-term goals into smaller “bites.”

Focus on the process, not the outcome.  If you want to run a marathon, don't be disappointed if you can't run 26 miles initially. Simply resolve to run a little farther each time and gradually work your way up to longer distances.

Rework your thinking.  You have to create new neural pathways in your brain to change habits.

Set positive goals.  For example, don't verbalize the goal as losing 50 pounds but, rather, reinforce how good you'll feel, in many small ways, once you've done that.

Celebrate successes.  Add joy and fun to the process.  Focus on your wonderful journey at hand and the milestones your reach, not the distant outcome.

Use an Accountability Buddy and Coach. You need a trusted friend to help you set your objectives, help you monitor your progress, provide suggestions and criticism and encourage you to meet and exceed your goals. 

Saban and DaboNext week’s blog will continue this New Year’s Resolution theme by focusing on your financial goals and how a trusted friend, such as DWM, can help.

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