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.

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Your Choice- $1 Million or $5,000 per Month for Life?

Written by Les Detterbeck.

dollarsMost of our readers will likely have to make that type of decision someday.  From our perspective, it’s a pretty easy answer.  As Cuba Gooding, Jr. famously told Tom Cruise in “Jerry Maguire”:  “Show me the money!!”

Yet, an article in the WSJ on Monday tried to make the decision sound really tough, with losers on both sides.  It would have you believe that many will suffer from either an “illusion of poverty” or an “illusion of wealth” and are likely going to experience a disappointing retirement.  Really?

Researcher Daniel Goodwin at Microsoft Research asked people how adequate they would feel if they have $1 million at the time they retired.  He used a seven-point system with one being “totally inadequate” and seven being “totally adequate.”  Then, he asked them to rate instead an income each month in retirement of $5,000.

In theory, the choices are similar based on pricing of annuities. If a 65 year old paid $1 million for a “single premium immediate annuity” they could receive payments of $5,000 each month for their life.  Actuarially, a 65 year-old is expected to live 18-20 years.  So, 19 years of monthly payments of $5,000 would be $1,140,000 and represent a 1.4% annual return on the investment.

Yet, believe it or not, many people, feel that $5,000 per month is more adequate than the $1 million lump sum.  Mr. Goldstein says that this group suffers from the “illusion of poverty.”  Apparently, these folks are “inclined to think about wealth in terms of monthly income” and don’t want the “burden” of a lump sum which could run out someday.  Hence, they dial down their expenses, eliminate any wants or wishes and make do on their $5,000 per month.

Mr. Goldstein then suggests that I and most people may suffer from the “illusion of wealth.”  He thinks that those selecting the lump sum, through a false sense of security, may spend too much and run out of money. In fact, the larger the lump sum, the more likely the “extra millions will lose their meaning.”  Really?  Do we all suffer from illusions, as Mr. Goldstein suggests?  Are we all on the road to an unsuccessful retirement regardless of our choices?  It certainly doesn’t have to be that way.

Perhaps I should contact Mr. Goldstein and invite him (and his wife) to go through the DWM Boot Camp.  First, we’d sit down and help them with their goal setting. We’d help them identify their needs, wants and wishes.  We’d look at their assets, health care costs, income taxes, expected inflation and investment returns, and insurance and estate matters.  Ultimately, we’d help them design a financial plan.

If Mr. Goldstein was under an “illusion of poverty,” we’d show him that his $5,000 per month program is a poor choice.  To begin with, his $5,000 per month would lose its purchasing power each month due to inflation.  With 3% inflation, after 15 years of retirement, his $5,000 would only buy $3,200 worth of goods in today’s dollars.  Second, if he did a “personal annuity” by simply taking the lump sum, investing it, earning 6%, e.g., and withdrawing the $5,000 per month, his family would still have the $1 million in principal when he passed away.  No need for an illusion of poverty here.

On the other hand, if Mr. Goldstein was under an “illusion of wealth”, the plan would help him identify his needs, wants and wishes and would have helped evaluate whether those potential expenses were affordable based upon his assets, expected investment returns and the other metrics.  We would have created numerous scenarios to ultimately result in a plan that was successful.  The plan would be stress tested for items that could negatively impact that plan and monitored and modified over time.  In short, the plan would not suffer from an illusion of poverty nor of wealth.

We’re glad contributors Shlomo Benartzi and Hal Hershfield ran the article Monday focusing on Mr. Goldstein’s findings. Retirement/financial independence planning is extremely important.   However, we don’t agree that it has to be a dire situation with poor choices, lots of suffering and disappointments.   It’s simple: take the lump sum and put together your realistic plan with a fee-only adviser like DWM and then have us help you monitor it for the changes that will undoubtedly occur in the future. You’ve worked hard for your money, the time will come to enjoy it. As Ginny’s blog http://www.dwmgmt.com/blogs/82-2017-02-07-23-30-00.html pointed out a few weeks ago, retirement/financial independence should be a time for “jubilation” not illusions or disappointments.  Proper planning with the right team can make that happen.

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What’s Ahead for the Global Economy and Financial Markets?

Written by Les Detterbeck.

2017-0318-global economy 002Last week, the Federal Reserve raised rates- the third increase since the financial crisis.  Yet, despite world economic growth and the stock markets surging since President Trump’s election (until yesterday), the Fed is still cautious about the future.

The world economy has been picking up.  The Economist reported last week that “today, almost ten years after the most severe financial crisis since the Depression, a broad-based economic upswing is at last underway.”  This is a big change from the early months of 2016 when stocks were down 10% or more due in part to anxiety about China’s economy and related plunging raw material prices.  Fortunately, China, through controls and stimuli, turned things around and by the end of 2016, China’s nominal GDP was growing again.

At the same time, global manufacturing has gotten stronger.  Factories are much busier in the U.S., Europe and Asia.  Taiwan and South Korea are rocking.  Worldwide equipment spending is up; growing at an estimated annualized rate of 5.5% in 4Q16.  American companies, excluding farms, added 235,000 workers in February.  The European Commission’s economic-sentiment index is at its highest since 2011.  Japan, whose growth has been anemic, has revised their 2017 forecast from 1% to 1.4%.

The stock markets have, until yesterday, risen dramatically based on both current economic growth stats and expectations about the future.  With Mr. Trump’s election, there has been hope that taxes and regulations will be reduced which would help businesses and increase corporate profits.  Further, the expected return of $1 trillion of untaxed cash held overseas by American companies could be coming back (repatriated) at new low tax rates.  These funds could produce a big boom in business investment.  And, then add to this the possibility of a $1 trillion private-public infrastructure push for America. Mr. Trump has been talking about growth of 3.5-4%.  There’s been lots of optimism.

Yet, Fed officials forecast growth of only 2.1% this year; about where it has been for 8 years.  So, what’s their cause for relative skepticism?

The list of concerns includes fears about protectionism stifling trade, political disruption in Europe, China’s ability to sustain strong growth, and closer to home, whether or not the White House and Congress can work together to get legislation passed.  If the repeal of Obamacare gets sidetracked, there is concern that tax reform and infrastructure will endure the same fate.  And, of course, we haven’t even talked about a black swan- an unexpected event of large magnitude and consequence.  All bets are off in the case of major problems such as war, terrorism or some other major catastrophe.

We could be on the precipice of a new era with the cutting of taxes and regulations and a huge infrastructure boom creating a turbocharged economy.   Or, we could have a repeat of the many times in the past decade when optimism at the start of the year faded as the year progressed.  No one knows what the future holds.

Yesterday’s stock market declines of roughly 1% were, in large part, a concern about the ability of the White House and Congress to enact their legislative agenda, starting with the repeal of Obamacare.  People are nervous that if the health-care bill doesn’t pass or gets delayed, what will that mean for other policies.    Tax cuts could be delayed and even face a tougher fight in Congress.  Treasury Secretary Steven Mnuchin had earlier thought that tax reform would pass Congress by August and now he is hoping for early next year.  And, infrastructure would come after that.

With all of that in mind, the Fed understandably is cautious and we at DWM are as well.

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Why is Alphabet Soup Important to You?

Written by Nick Schiavi.

GettyImages-155361454-56a636d83df78cf7728bdb9aWhen I first joined the Detterbeck Wealth Management team, I knew it would not be long until I started my designation pursuit. Three of the most respected designations in the financial services industry are the CFA (Chartered Financial Analyst), CPA (Certified Public Accountant), and the CFP® (Certified Financial Planner). Each of these designations are considered to be the best of the best in their niche. “The CFA designation is considered the gold standard among financial professionals worldwide (Finance Professional Post, New York Society of Security Analyst); meaning someone who holds this designation is a chartered professional when it comes to portfolio and investment management. If the CFA is considered the gold standard of finance, it is easy to see the CPA has the same importance with respect to accountancy. Where the CFA and CPA focus on portfolio management and accountancy/tax, respectively, the CFP® focuses on comprehensive financial planning as a whole.  Someone who holds a CFP® designation has proven competence in all areas of the financial planning process including: financial statement preparation and analysis, investment planning, income tax planning, education planning, risk management, retirement planning and estate planning. DWM founders, Brett and Les Detterbeck, understand the importance of continuing education and have set the bar high for the rest of the team. Brett holds his CFA, CFP®, and AIF; while Les holds his CPA/PFS, MBA, CFP®, CFA, and AIF®. They understand what it takes to become true financial planning experts and help pave the way for the rest of the DWM team.

The CFP® or CERTIFIED FINANCIAL PLANNER™ certification is the most respected financial credential for financial planners, financial firms, and those seeking the advice of a financial planner. Therefore, the CFP® is a designation new DWM team members set their sights to obtain, however, there are many other well respected designations in the industry as well. Rather than jumping right into the CFP®, the team and I decided to go after a different designation; one that is specific to our clients and is a great stepping stone to the CFP®. I decided to pursue becoming an Accredited Wealth Management AdvisorSM (AWMA®).

“The AWMA® professional education program is the nation’s original and most well-respected designation for providing financial advice to high net worth clients”. The coursework consists of roughly 2,000 pages of material, 25 hours’ worth of video sessions, and a 4 hour examination that must be taken within 6 months of signing up for the class. DWM team member Grant Maddox is also pursuing the AWMA® and will be sitting for his test later this month.

While the AWMA® is a great program and allows a individual to become specialized in working with high net worth clientele, it is not the only path to becoming a financial planning professional. For example, DWM team member Ginny Wilson took a different path by obtaining the CRPC® or Chartered Retirement Planning Counselor℠. The CRPC® is the nation’s premier retirement planning credential and someone who holds it is considered to have mastered every step of the retirement process and can create a “roadmap to retirement” for almost any client.

As the entire DWM team knows, it is a bit of an adjustment working during the day and studying at night/mornings/on the weekends, but most of the information is very interesting and gives us the knowledge to help clients on their path to financial freedom. I learn something new every time I sit down to study. While I find investment strategies to be the most interesting coursework topics, I probably benefitted the most from learning all of the different estate planning techniques, as I had zero experience with this aspect of financial planning prior to joining DWM. The most eye-opening part of this entire process is just how complicated financial planning can be. If someone does not have the correct asset allocation funded in the proper kind of account, proper estate planning, or doesn’t fully understand all of the different tax ramifications that can come with financial planning, etc., it is possible they could hamper or damage their plan. Planning for your money must be done thoroughly and correctly.  The entire DWM team has dedicated thousands of hours on continuing education, and we are still all learning every day. Working with an advisor who lacks the proper credentials could end up costing you money.

Even though I am still just starting my wealth management journey, I am thrilled I was able to obtain my first designation, AWMA®, two weeks ago. On top of that, I realize now more than ever how important it is to work with a firm like DWM because the alternative could mean working with someone who is not as qualified, thus, costing the client money, servicing and care.  Continuing education is a valued process at DWM and we recognize its importance to our clients. All designations require continuing education classes, seminars, etc., which we welcome as an opportunity to expand our knowledge and be in a position to provide even greater value to our clients.

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