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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The Money Talk

Written by Grant Maddox.

 

 

kidsmoney.jpgIt’s no secret that today’s standard high school and college curriculums are missing a few very important details. One of the most overlooked areas is basic financial education. Discussing finances with your children can be a difficult topic to broach, but it is critical to their success in the long run.

 

One common misconception of having “the money talk” is the idea that kids must be sheltered from financial issues. In some instances this is absolutely true, but having a basic discussion about finances and instilling good values in your children is important. “The money talk” shouldn’t be seen as taboo, but rather as an opportunity to guide your kids and help them navigate potentially tricky financial issues and decisions that arise.

 

Here are some tips to help as you approach “the money talk."

 

1.Be honest.

 

Chances are that at some point in your life, you’ve experienced highs and lows in your finances. No need to hide it! These experiences provide a learning opportunity for your kids and allow you to be open and frank about the reality of financial decisions—they can handle it.

If you ran up debts in your past and had difficulty paying these back, this serves as an excellent teaching moment. Learning from those you respect can be just as effective as learning the lesson on your own.

Also, this may go without saying, but be careful not to spread falsehoods about your current financial situation. Remember, your kids can handle it and will almost always know when you’re not being completely honest with them.

 

2. Talk in values, not figures.

 

If you’re hesitant to share your financial situation with your children, that is normal. You are certainly not alone on this, but it doesn’t have to be scary. The good news is your kids don’t always want to know (or need to know) every detail of your financial life. Don’t sweat the small stuff—instead, focus on teaching them the basics. Ask yourself, what do they need to know, and what is often missed in standard education? Children should have a solid understanding of concepts such as saving, budgeting, paying down debt, developing healthy spending habits, and compounding interest.

 

3. Use real-world experiences.

 

Life is full of sporadic but important financial lessons that can be found in everyday experiences. It’s up to you to look for these opportunities and expand on them with your children.

If you’re going to the bank, you may consider taking your children with you. This is a great time to demonstrate how transactions work and, if applicable, how an ATM works. To take it a step further, you may even begin the discussion on how money can generate interest.

 

When your children start their first jobs and start receiving paychecks, this is a convenient time to discuss the importance of budgeting, paying bills, and taxes. Talk through what their goals are for each paycheck and how much they may need to save in order to accomplish these goals.

 

If you are planning a family trip, consider letting them in on the budgeting. Showing them your budget, planning activities you want to accomplish with this budget, and building a trip around this information will help make financial planning seem tangible to them. This may also be a good time to remind your kids that goals often require sacrifice, and not every trip activity will be accomplished.

 

Try giving your kids an allowance and taking them to the grocery store. The grocery store can be a clear example of “needs” vs. “wants.” Your children need nutrients but most certainly would like to have a few candies as well. However, with a set allowance, they won’t be able to afford them all!

 

In closing, whether you realize it or not, you play an important role in your children’s financial future. In their early years, they rely heavily on you for financial advice to help them form healthy financial habits (and the occasional $20 bill for the movies). At DWM, we feel it is essential to educate your children about finances early on, so they can be better prepared for the future. That’s why we created our new Emerging Investor program to help younger folks invest early on and get started on the path to financial freedom! To learn more about this exciting new program, check out the full description here: http://dwmgmt.com/blogs/123-2017-11-29-20-49-47.html.

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Put Longevity into Your Planning

Written by Les Detterbeck.

 

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We’re living longer. Back in 1935, when Social Security was started, there were 8 million Americans 65 or older. Today, there are 50 million and by 2060 there will be 100 million 65 and older. It is projected that in 2033, the population of 65 and older will, for the first time, outnumber those under 18.

In addition, there is a better than average chance that 65 year old investors with at least $1 million of investable assets will reach age 100. These folks not only have enough money to cover rising costs, they are also generally more physically fit, healthier and engaged. BTW- May is Older Americans Month, with a theme of “Engage at Every Age.”

Longevity is having and will have a huge impact not only on social security but also on long-term financial planning. The trust fund for social security retirement benefits is expected to be depleted by 2034. After that, the program is projected to pay out about 75% of benefits. At that time, the ratio of workers paying into Social Security, as compared to those receiving benefits, is projected to drop from 2.8 now to 2.1 then. Last month, Ginny provided information on social security including possible fixes http://www.dwmgmt.com/blogs/142-happy-national-social-security-month-.html. We hope Washington will enact some appropriate changes soon, though we can’t control that process.

We can, however, control our own financial planning. Here are some general tips on incorporating longevity into your planning

1.Plan based on living longer. For those of you in great health, use an eventual age past the actuarial age, perhaps even age 100. Your plan may end sooner, but let’s make sure the plan is designed for you to have sufficient funds during your life time.

2.Plan on your normal retirement expenses continuing until at least age 90. Most older Americans we know are engaged. They are working and volunteering, traveling, mentoring, learning, and participating in activities that enrich their physical, mental and emotional well-being. Don’t expect your normal expenses to start declining before age 90.

3.Plan on health care costs escalating faster than inflation. Investors worldwide agree that health expenses are their biggest financial concern related to longevity. This worry is most acute in the U.S. with 69% listing it as their number one worry, versus 52% globally. We are currently using 6% as the estimated annual increase in health care costs in our planning for clients.

4.Review your long-term care strategy early. Long-term care costs can be huge. On the other hand, your plan might “end” without you ever needing long-term care. What would be the cost and best way to insure? Should you self-insure? Should you keep your current policy? Should you modify it? Every financial plan needs to address long-term care and develop an appropriate strategy.

5.Use an ample estimate for inflation. Inflation can have a huge impact on expenses over a long period of time. You should stress test the plan at inflation rates above 2%, such as 3% or higher.

6.Use a realistic real return for investments. The real return for your investments is defined as your total return (which is the price change over the period + dividends/interest) less inflation. From 1950 to 2009, the real return was 7%; composed of an 11% total return less 4% inflation. Of course, the 50s, 80s and 90s all had double digit real returns. Today, it’s a good idea for you to stress test your plan projections using lower real return assumptions like 2.5% to 4%, depending on your time horizon and asset allocation.

7.Consider separating travel goals into two parts. When you are retired and mobile, your travel will likely be primarily for you (and your significant other) and may include your children and/or grandchildren. As you get older and can’t travel easily yourself, you might still provide a second travel goal to cover transportation of the kids and grandkids to come visit you.

8.Don’t count on too much from Social Security. We work with successful people of all ages. We think that long-term social security benefits may be subject in the future to some “means test,” perhaps the same way that Medicare Part B premium costs are tied to taxable income. The younger you are now and more financially successful you are in your life will likely reduce the amount of social security you will eventually receive. If you are not starting social security soon, consider using discounted values of future social security benefits in your planning.

9.Work to have a planning graph that doesn’t go “downhill.” Our financial goal plans show a graph of portfolio value over time, beginning now until your plan ends. If expenses and taxes exceed income and investment earnings in any year, then the portfolio declines. If that situation continues, then the graph looks as if it is heading “downhill.” A solid plan results in the graph moving uphill over time or at least staying level. A solid plan therefore reduces anxiety about longevity as, year by year, the portfolio value stays “solid” without diminishing.

Just like possible changes in social security, none of us can control our future health or when our plan will end. We can however, develop, monitor and maintain a long-term financial plan that will provide us with the best chances for financial success by recognizing the possibilities of longevity and incorporating it into all aspects of our planning. We can also adopt and/or confirm an objective to “Engage at Every Age” for our own well-being, as well as making a difference in other’s lives. If you have any questions, please give us a call.

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Building A Portfolio For Today's Challenging Marketplace

Written by Jake Rickord.

Port mgmt gameplanAt 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.

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