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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Can Money Buy You Happiness?

Written by Lester Detterbeck.

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Happy New Year!! We hope you had a fantastic holiday season. Now, it’s on to 2019 with planning and resolutions for the New Year. What are your goals? More money? More Happiness? More Joy? As you tackle these huge questions of money and meaning, we’d like to offer you some ideas.

Does money buy happiness? King Midas was rich, but his gold didn’t bring him happiness.   That’s because there’s a difference between being rich and being wealthy. Brian Portnoy, in his book, “The Geometry of Wealth,” articulates this well: “Being rich is having ‘more.’ The push for more is a treadmill of which satisfaction is typically fleeting. Wealth, by contrast, is funded contentment. It is the ability to underwrite a meaningful life- however one chooses to define that.”

Money, of course, is a huge part of our daily lives. Our life cycle with money includes earning, spending, saving and investing. Our first paycheck shows us our ability to earn and sustain ourselves. Next, where do we spend the money and how much do we save? Lastly, as we accumulate money, we choose to put our financial capital at risk to grow at a higher rate of return than cash. Money is like the oil in your car; without it, the car grinds to a halt, but with it, YOU still have to steer the car in the right direction.

Sonja Lyubomirsky in “Pursuing Happiness,” identifies three factors which determine happiness/human fulfillment. These are disposition (who you are), circumstances (what you face) and intentions (what you do). Her research shows that outcomes are impacted as follows: 50% comes from disposition, 40% from intentions and 10% from circumstances. The good news is that we can control our intentions; which, of course, is our review, planning, implementation and monitoring of our life planning.

As Daniel Kahneman (featured in earlier DWM blogs) has proven, how well we handle our intentions and planning has a lot to do with “Thinking Fast and Slow.” The fast brain is the home of impressions, impulse, and feelings. The slow brain is engaged when we are deliberately thinking and making informed choices. The two systems work together; the key is using our slow brain as we shape a life of money and meaning. The process of building and executing a plan can be, in itself, a source of happiness.

In 2015, the Dalai Lama and Archbishop Desmond Tutu met and discussed life; recapped in “The Book of Joy.” They separated happiness into two categories; one, experienced happiness, which comes and goes with daily pleasures, and, two, reflective happiness, the achievement of joy, which takes work. Dr. Portnoy identifies the four pillars of joy:

  • Connection-the need to belong
  • Control-the need to direct one’s own destiny
  • Competence-the need to be good at something worthwhile
  • Context-need for a purpose outside of one’s self

These “Four C’s” are at the heart of funded contentment. And while contentment can be achieved by all, including those in lower levels of income, money helps.

Dr. Kahneman found in his research that happiness directly increases as income increases. However, after about $75,000 of annual income (per person), experienced happiness levels out. The concept is that good and bad moods come and go at the same pace for someone making $100,000 per year as compared to someone making $1 million per year. However, reflective happiness, or funded contentment, does increase with higher incomes for many people. This is because at higher levels of income, money, allocated wisely, can underwrite the Four C’s, which constitute reflective happiness. Money can be used for both experienced and reflective happiness and, by using both our fast brain and our slow brain, we can achieve both.

In our crazy, chaotic world, it’s important not to let our fast brain guide all of our intentions. We need to have a plan and a process and be ready to adapt it as the world changes. True happiness takes work. Our goal, as wealth managers, is to assist you with a process not only to protect and grow your money, but also to help you achieve “funded contentment”- the ability to underwrite a meaningful life- however you choose to define that.

Good luck on your planning for 2019. Please let us know if you would like us to help.

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Nowhere to Hide for Investors

Written by Lester Detterbeck.

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Most years, financial markets are a mixed bag; some asset classes are up and some are down. Some years, like 2017, everything is up. And then there are years, like 2018, when everything is down. It’s been decades since stocks, bonds, commodities and gold all have reported negative results. Even though the American economy remains strong, with low unemployment and steady growth, expectations for the future have diminished. Rising trade tensions, a sharp slowdown in Chinese spending, rising interest rates and no additional tax reform have reduced the outlook for economic growth and corporate profits worldwide.

So, what’s an investor to do? We suggest you go back to the basics and review your financial and investment strategy for the future:

1)Determine how much risk you need to take on to meet your financial goals. What is the annual real rate of return you need to have enough money for your lifetime(s) and the legacy you wish to leave? When we say real return, we mean the nominal return less inflation. You, perhaps with help from your financial adviser, need to determine your expected investment portfolio at your time of “financial independence,” the annual amount you expect to withdraw from the portfolio to cover your needed and wanted expenses (any annual amount over 4% of the portfolio could be a problem), estimated inflation and estimated longevity. The calculation will produce a rate of return needed to meet your financial goals.

2)Next, determine how much risk you want to take on. Your “risk profile” is based on your risk capacity (your financial assets), your risk tolerance (your attitudes about risk), and your risk perception (your current feelings about risk). We’re all hard-wired with certain attitudes about risk. Some of us are aggressive and some of us are conservative or even defensive. Some of us are victims of the “recency bias,” which means that we think that whatever direction the markets have moved recently will continue (forever). At a minimum, we need to take on the risk we earlier determined necessary to meet our goals. If that seems too aggressive then we need to revise our financial goals downwards. If we want to take on more risk than is needed to reach our goals, that’s a personal choice.

3)Your risk profile should be based on the long-term, but may need to be adjusted. Once you, perhaps with help from your financial adviser, have determined you long-term risk profile as defensive, conservative, balanced, growth or aggressive, you should maintain that profile for the long-term and not move up or down due to short-term market conditions. Don’t try to time the markets’ ups and down. Staying invested for the long-term in an appropriate risk profile is your best strategy. However, life events can result in major changes in a person’s life. Death of a family member or loved one, marriage, relationship issues, changes in employment, illness and injury are all examples. At these times, your risk profile should be reviewed and, if appropriate, adjusted.

4)Determine an asset allocation based on your risk profile. There are three major asset classes; stocks (equity), bonds (fixed income), and alternatives (gold, real estate, etc.). Your risk profile will determine how much of your portfolio would be in each of these categories. A defensive investor would likely have little or no equity, substantial fixed income, and some alternatives. An aggressive investor could have most or all in equity, some or no fixed income and some or no alternatives. A balanced investor might have 50% equity, 25% fixed income and 25% alternatives.

5)Compare the real return you need to the asset allocation. Let’s use a balanced investor, for example. If equities have an expected net long-term return of 8-10%, fixed income 2-4%, and alternatives 2-4%, a balanced investor would have a hypothetical long-term net return of 6%. (9%x.5 + 3%x.25 +3%x.25). A 6% nominal return during times of 3% inflation produces a 3% real return. Compare this real return to your return needed in exercise one. A defensive investor who has no equities will be fortunate to have a hypothetical return equal to inflation. Someone who sits in cash will not even keep up with inflation. An aggressive investor, with all or mostly equities, will, over time, have the greatest return and will experience the greatest volatility. Aggressive is not for the faint of heart, aggressive investors generally lost 30-45% of their portfolio value in 2008.

6)Diversify your portfolio. After selecting your asset allocation, you need to look at your “investment styles” within each asset class. You should consider a global allocation for diversification. In 2018, while all equities are down, the S&P 500, led by Facebook, Apple, Netflix and Google, has been down the least. But, it doesn’t always work that way. The S&P 500 index was down 9.1% cumulatively from 2000-2009, while international stocks were up 17% cumulatively including emerging markets, which were up 154%. In the 11 decades starting in 1900 and ending in 2010, the US market outperformed the world market in 5 decades and underperformed in the other six. Consider perhaps having 20-30% of your equities in international holdings and make sure you have exposure to mid cap and small stocks domestically.

Conclusion: 2018 has been a tough year, particularly after 2017 was so good. We sometimes forget that even with the 10% and more corrections in the markets since October 1, equities have been up 7-10% per year, fixed income and alternatives up about 2% per year over the last three years ending this Monday, December 17th. If you need/want a real return above zero, you will likely need to invest in equities in some proportion. Determine how much risk you need/want and stick with it for the long-term, subject to life events changing it. Stay diversified and stay invested. Focus on what you can control, including enjoying the holiday season. Happy Holidays.

 

 

 

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It’s beginning to “Cost” a Lot Like Christmas!

Written by Grant Maddox.

 

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It’s beginning to “cost” a lot like Christmas! It’s a fun play on the popular holiday song, "It’s beginning to look a lot like Christmas", originally written by Meredith Wilson in 1951. Though times have certainly changed since the 1950s, the spirit of gifting and giving during the holidays has always remained the same. According to the National Retail Federation, the average American spends an average of $1,000 during the holiday season!

It’s not uncommon, as we approach the holiday season, that you might find yourself feeling grateful, compassionate and more charitable than any other time of the year. Now is the time people eagerly give to their loved ones and generously give back to those in need. Here’s a look into new and exciting ways people are giving and gifting in 2018:

529 College Savings Plans

As the total student loan debt in the U.S. approaches the $1.5 trillion mark, 529 college saving plans have grown in popularity. Unlike ordinary gift checks, a 529 savings plan can an act as an investment in a child's future that has the ability to grow, tax-free, for the use of qualified educational expenses (K-12 tuition included under the new tax law). While college savings may not be the most riveting gift for a young child to receive at the time, the potential to alleviate the future burden of student loans, all or in part, will be one gift they won’t soon forget.

Custodial Investment Accounts

There are two main forms of custodial investment accounts, UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) accounts. They are virtually identical aside from the ability of UTMA accounts to hold real estate. Custodial accounts can be a great way to teach children about investments while limiting their access to investment funds. Depending on your state, access to custodial accounts is limited to minors until the child has obtained ages 18-21.

In 2018, individual gifts are limited to the annual $15,000 gift-tax-exemption limit ($30,000 for married couples). Family and friends can contribute directly to custodial accounts of another person. If these accounts are properly titled as retirement accounts, such as a Custodial Roth Account, contributions must be made indirectly, limited to $5,500 for 2018, and the donee must have earned an income equal to or greater than the contribution made.

Charitable Gifts

Did you know you can complete charitable gifts in the name of a friend or family member and still capture the tax deduction? Assuming you itemize, funds given to charity can come from any taxable account (or qualified, see below) of your choosing and may list a donor of your choosing. For example, one can give to St. Judes Children's Hospital using their own personal funds, receive a tax deduction for doing so, and list the donor as someone other than themselves, like a grandson or other relative. So long as you can prove the funds used came from you, i.e. your name is listed on the account used, you should receive a deduction for these forms of charitable contributions.

There are several ways to give back to charity, one of the more tax efficient ways is by way of Qualified Charitable Distributions (QCDs). This is an alternative to Required Minimum Distributions (RMDs) that you are required to take from your IRA upon obtaining age 70 1/2. A QCD allows you to give a portion or all of the amount that you otherwise would be required to take from your IRA to charity. The benefit of doing so is to exclude these funds from your taxable income. This process can be especially beneficial if, under the new tax reform, you will be using the new increased standard deduction, $12,000 for individuals and $24,000 for married filing jointly, as opposed to itemizing.

There are many forms of giving. Integrating both charitable giving and family giving can be an intricate part of your overall plan, and it doesn't always have to "cost you an arm and a leg." Ensuring your gestures are both sustainable and tax-efficient are good questions to ask. At DWM we are always looking for new ways to give back to our clients and friends by assisting in these areas. Please, never hesitate to reach out to us in regards to new ways to give back to your family, friends and charitable organizations.

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