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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Paychecks 101

Written by Grant Maddox.

 

GetFile.jpgEveryone always remembers their first paycheck and asking themselves, “Who’s FICA, and why is he taking all of my money?” If you’re like most people, the number that really matters to you is the bottom line: money in the bank! You may even throw out the rest of your pay stub. However, it is so important to review your pay stub and be able to analyze the information you find there to spot potential errors.

While your paycheck may not always give you the physical wealth you were looking for, it will give you a wealth of knowledge about your finances. Carefully reviewing pay stubs is a step we at DWM take with all of our clients to ensure they’re clear on available benefits, tax rates, employer matches, withholdings, and more.

So, without further ado, here’s a comprehensive guide to reviewing and analyzing your pay stub.

 

Important Terms and Definitions

 

First, to help you better understand the different acronyms within your pay stub, let’s take a look at a few of them and their definitions:

 

YTD: Year-to-date

PPD: Pay period

REG: Regular hours worked

OT: Overtime hours worked

HOL: Paid holiday hours

VAC: Paid vacation hours

PTO: Paid time off

FT or FTW: Federal tax withheld

ST or STW: State tax withheld

LT: Local tax withheld

SS: Social Security tax

MED: Medicare tax withheld

FICA: Your employer’s portion of the Social Security and Medicare taxes

WC: Workers’ compensation contribution, typically paid by your employer

 

Additionally, there are a number of terms you will need to know:

 

Gross pay: This is the total amount you earned during the given pay period (pay period discussed below). It includes your wages or salary, plus bonuses and tips if applicable. Most pay stubs will also include how much you’ve earned year to date.

 As almost all areas of your pay stub relate to gross earnings, this number is usually located on the first line of your pay stub with the remaining figures telling you how much of those earnings were withheld for taxes and other uses.

 Pre-tax benefits: Some benefits may appear on your pay stub as pre-tax income. For example, if your employer pays for some or all of your childcare expenses, travel expenses, or your parking pass, these may show up as taxable benefits.

 Net pay: Also known as “money in the bank,” this number is what you receive as your paycheck after taxes, insurance premiums, retirement contributions, and other deductions have been taken out.

 Pay Period: By looking at the dates on your pay stub (usually located at the very top of your pay stub), you can tell if you’re being paid monthly, weekly, or bi-weekly. This helps to know if you need to multiply your current pay by 12, 52, or 26 to determine annual salary. If you are using a mid-year pay stub, you may multiply your current pay by the number of pay periods remaining and add this to your year-to-date figure, mentioned earlier.

 Federal income tax: Your pay stub will show how much money was taken out of your gross pay for federal taxes. The exemptions you claimed on your W-4 form determine the amount withheld for federal taxes.

 With recent changes to income tax brackets in 2018, federal income tax withholding is an area you should review thoroughly. To see if you are currently withholding enough or too much, go to https://www.irs.gov/individuals/irs-withholding-calculator.

 State income and local tax: If you live in a state that requires that you pay an income tax, that number will also be determined based on your W-4 exemptions.

 Social Security tax: The federal government requires that every employee and employer pay a tax for Social Security purposes. You, as the employee, pay 6.2 percent of up to $128,400 in wages for 2018. So, if you earn $100,000 per year, your Social Security tax comes out to $6,200 for the year. This tax makes it possible for you to receive Social Security benefits when you retire.

 Medicare tax: Similar to the Social Security tax, the Medicare tax is mandatory for employees and employers alike. You’ll pay a 1.45 percent tax on wages up to $200,000 ($250,000 if married) for 2018. There is an additional 0.90 percent, 2.35 percent overall, tax on wages over $200,000 ($250,000 if married). Medicare tax exists so that you can benefit from the program when you come of age.

 

Understanding Your Benefits

 

Now that the hard part (taxes) is out of the way, it’s time to understand your benefits.

 Insurance premiums: If your benefits include insurance like health, dental, vision, life or disability, your employer may require that you pay for at least a portion of the plans’ premiums. That cost will come out of your gross pay automatically, and how much you pay shows up on your pay stub. Be sure to take some time to understand your insurance policies, as well!

 Flex spending account (FSA) or health savings account (HSA): If you opted to participate in an employer-sponsored FSA or HSA, you’d typically see a deduction for these on your pay stub and also note whether your employer has made a contribution (free money!).

 Contributions to your retirement plan: This figure is how much you agreed to contribute to your employer-sponsored retirement plan. Common retirement plans include 401(k), 403(b), and 457 plans. If you get a match (more free money!), this number is on your pay stub, too, which shows you how much your employer contributed.

 You can divide your employer’s contribution by your gross pay to determine what percentage they’re contributing to your retirement. If you know your employer matches your contributions up to a certain percentage limit, this is a good area to see if you are reaching your full contribution potential and whether you need to adjust accordingly.  

 

Now What?

 

Final step! Now that you’ve reviewed each aspect of your pay stub, you have probably come across one or two items you’d like to change. Unfortunately, you can’t do anything about Social Security and Medicare taxes, but you can increase or decrease your federal and state tax withholdings by updating your W-4 form. This can be done by contacting your HR department.

 If you’d like to review your pay stub, DWM is always happy to be your second set of eyes and ensure that your pay stub reflects your best interest.

 

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Here Come the Millennials!

Written by Les Detterbeck.

Millennial Meeting

In only 12 years, 75% of American employees will be Millennials.  By then, even the last of the Baby Boomers will be 66 and on social security (though a few of us might still be working).  Generation X is a smaller cohort and some of its 54-65 year olds will already be retired.  The oldest Generation Zers will only be 34 at that time.   Yes, in 2030, the Millennials, aged 35 to 53, will be the backbone of the economy and country.

What an exciting time to be alive!  Can you imagine all the changes that may occur in the next 12 years?  Just consider that just 14 years ago Blockbuster Video had 9,000 stores and is now down to one last store in Oregon. 2004 was also the year Facebook was launched.

Yes, new reality can be exciting and challenging.  The Millennials bring with them their own expectations of life, work and values.  Those organizations and communities that embrace generational diversity will undoubtedly thrive in a volatile, uncertain, complex and ambiguous future.

Jennifer Brown, author of “Reversing the Generation Equation: Mentoring in the New Age of Work,” indicates that Millennials “possess the most diverse attitudes, tendencies and requirements of any preceding generation and they are bringing that to work and life and demanding to be welcomed, valued, respected and heard.”  They’ve grown up with being in the center of the activity and expect to stay there.

The Pew Research Center’s “Millennials in Adulthood” takes a look at just how unique this generation is and how the social, political and economic realities in their formative years have shaped them.  Due to a disconnect between Millennials and many organizations not willing to meet them half-way, it’s no surprise that Millennials have experienced greater job dissatisfaction than Generation X and Baby Boomers.

A study conducted by Deloitte showed that 56% of Millennials have “ruled out working for a particular organization because of its values or standard of conduct.”  49% have declined a task assigned to them that was thought to go against personal values or rules of ethics.  According to the study, Millennials are seeking a good work/life balance (more than monetary compensation), their own homes, a partner, flexible working conditions and financial security.  Furthermore, this group does not necessarily defer to seniority as seen in previous generations. For them, respect must be earned.  Which brings us to the concept of “Reverse Mentoring.”

Jack Welch of GE was one of the early pioneers of reverse mentoring.  Twenty years ago, as technological changes were sweeping our country, Mr. Welch encouraged 500 top-level executives at GE to reach out to people younger than them to learn about the internet.  Since then, reverse mentoring has gone beyond technological learning and expanded into ideas, advice and insights.  Organizations such as PWC and AARP are among those who have launched programs.

At PWC, the young mentors are in their early 20s and have been working long enough to understand how it works and short enough to still have a fresh perspective.  The AARP Foundation created a Mentor Up program in 2013 where teens and young adults come together with older generations to keep them current and connected with the younger world.  The young mentor the older mentees on technology and health and fitness.  They also exchange Valentine’s Day cards.  In short, intergenerational connections were made, skills exchanged, understanding obtained and mutual respect and admiration were achieved.

At DWM, we have two excellent young team members; Grant Maddox in Charleston and Jake Rickord in Palatine.  We are just starting a reverse mentoring program at DWM where Grant and Jake will be the mentors and Brett, Jenny, Ginny and I will be the mentees.  Once a month, we set aside lunch time for the mentor to share a topic, theme or idea they are interested in sharing and to explain two-way learning opportunities.  We invest time to learn, get to know one another better and increase our trust and respect for each other.  We are also starting to dismantle the old paradigm that “seniority always knows best.”

Our goal is generational diversity and respect for all.  Yes, the Millennials are coming. And, yes, they come with the most diverse attitudes, tendencies and requirements of any preceding generation.  As they say in World Cup Champion France, “Vive la Difference.”

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DWM 2Q18 Market Commentary

Written by Brett Detterbeck.

‘Confusing’. If you look that word up in a dictionary, you’ll see something like “bewildering or perplexing” as its definition. Confusing could be a good way to describe the state of the market. On the one hand, you have a U.S. economy that may have come off one of its strongest quarters in years. On the other hand, there is continued threat of higher interest rates and a tumultuous trade war.

Before looking ahead, let’s see how the major asset classes fared in 2Q18:

Equities: Stocks were mixed in 2q18. Certain pockets did well whereas certain ones did not. For example, the Dow Jones Industrial Average Index was down 0.7% on the quarter and now in the red for the 2018 calendar year (-1.8%). The Dow’s multinational holdings are more prone to trade-related swings, whereas small caps*, up 7.8% for 2q18 & 7.7% YTD (Year-to-date as of 6/30/18), are not. Emerging stocks**, -8.0% 2q18 & -6.7% YTD, did not fare well. This brewing trade war between the U.S. and China, along with rising interest rates and the rising U.S. dollar, are causing many investors to flee from these so-called riskier areas. We think a good general proxy for global equities is represented by the MSCI AC World Index, which was up a modest 0.72% for the quarter, and now about flat (-0.2%) for the year.

Fixed Income: Yields continued to go up, boosted by the same concerns as last quarter: increasing expectations for growth and inflation in the wake of the recent $1.5 trillion tax cut. The Barclays US Aggregate Bond Index, dropped a modest 0.16% for the quarter and now down 1.6% YTD. The Barclays Global Aggregate Bond Index fell 2.8% (and now down 1.5% YTD) as emerging market bonds suffered for same reasons as mentioned above for emerging market equities.

Alternatives: The Credit Suisse Liquid Alternative Beta Index, our chosen proxy for alternatives, registered a +0.4% for 2q18 and now off only 1.3% for the year. Gold*** suffered, -3.5%, however REITs**** and MLPshad nice quarter returns of 5.8 and 11.5%, respectively.

Like others, you may be thinking something like this right now: “Thank you for providing color on the various assets classes, but I’m still confused. How did a balanced investor fare overall? And where do we go from here?”

Overall, most balanced investors had modest gains for 2q18 and are pretty close to where they were when they started the year.

As for looking forward, we think the area causing the most confusion and uncertainty is the tariff trade war issue. A lot of this is political noise which has weighed down stock prices. What has been, or will be, enacted is quite different than what is being discussed. We are hopeful that the countries can eventually reach a compromise on trade.

In the meantime, the US economy is red hot, with GDP nearing 5.0% and unemployment levels near lows not last seen since 1969. The upcoming earnings season should be exquisite! But all of these positives get analysts worried that the economy may overheat. The Fed’s goal is to raise interest rates enough to keep enough pressure on the brakes of this economy to control inflation, but not too much where it comes to a screeching halt. That being said, inflation is a little bit above the Fed’s target level and as such we would expect to see the Fed continue to raise rates gradually, perhaps for the next 4 -5 quarters. They’ll most likely need to stop at some point as the economy cools when some of the Tax Reform stimulus wears off in the second half of 2019. It’s not an easy job.

“I’m still confused - should we be worried about a recession in the near future?” While we don’t see it happening any time soon, it definitely is an increased possibility, and at some point, will inevitably occur. The goal is to be prepared for it. Don’t let emotions get in the way. Stay diversified and stay invested. Trying to time the market is a losing proposition. A good wealth manager can help you stay disciplined.

The good news is that the next recession will most likely be milder than the last couple for a few reasons including the following:

  • Economies, both here and abroad, are simply more stable than in the past.
  • Valuations are fine today. The forward 12-month PE (Price-to-Equity Ratio) of the S&P500 is right in-line with its 25-yr average of 16.1. International stocks, as represented by the MSCI ACW ex-US Index are even cheaper, trading at a 13.0 forward PE.
  • The Fed certainly does not want another 2008 on its hands. They will continue to be friendly to market participants.

SP GRAPH EDITED

 

Still confused? Hopefully not. But if you are, talk to a wealth manager like DWM. If you look at antonyms for confusion, you will see words like “calm”, “peace”, and “happiness”. That’s what our clients want and what we seek to provide them.

Brett M. Detterbeck, CFA, CFP®

DETTERBECK WEALTH MANAGEMENT

 

**represented by the Russell 2000 Small Cap Index

**represented by the MSCI Emerging Markets Index

***represented by the iShares Gold Trust

****represented by the iShares Global REIT

† represented by the UBS AG London BRH ETracs Alerian MLP ETF

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