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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DWM 2Q19 Market Commentary

Written by Brett Detterbeck.

Carnival Pic

Summer is finally upon us! Weather is steamy, kids are out of school, and it’s the midst of carnival season. Merriam Webster has several definitions of carnival including:

  • An instance of merrymaking, feasting, and masquerading
  • An instance of riotous excess
  • An organized program of entertainment or exhibition

Sounds a little bit like the markets we’ve seen in 2019 so far: it’s certainly been an entertaining program with all asset classes parading higher. But does this Fun House continue or is it all just a House of Mirrors….

Equities: You win a small prize! Equities continue to be the most festive part of the fairground, with many stock markets up over 2-4% on the quarter and now up around 12-18% on the year! Domestic and large cap stocks continue to outperform value and smaller cap stocks, which is typical of a late-stage bull market, this one being over a decade-long!

Fixed Income: You can trade in that small prize for a medium prize!  Like a Ferris Wheel where one side goes up, the other side comes down; yields and bond prices operate the same way. With the 10-yr Treasury now down to around 2.06% at the time of this writing compared to 3.2% last November, it’s no surprise to see strong returns in bond land. In fact, the Barclays US Aggregate Bond Index & the Barclays Global Aggregate Bond Index popped another 3.1% and 3.3%, respectively for the quarter and 5.6 & 6.1%, respectively year-to-date (“YTD”).

Alternatives:  You can trade in that medium prize for the largest prize! The merrymaking continues as most alternatives we follow had good showings in 2Q19, evidenced by the Credit Suisse Liquid Alternative Beta Index, our chosen proxy for alternatives, up 1.3% and now up 5.7% YTD.

It almost feels like you could go over to the Duck Pond and pick up a winner every time. There are indeed a lot of positives out there:

  • US stocks near record highs
  • A stock-market friendly Fed
  • Historically low unemployment with inflation that appears totally under control
  • Americans’ income and spending rising, leading to relatively strong consumer confidence

But this carnival has some roller coasters in the making given some riotous issues including:

  • US-China trade tensions most likely not ending with a solid deal anytime soon, which will fuel anxiety
  • A weakening European economy due to tariffs and other issues, which could bleed over to all markets
  • Slowing US economic growth here as the Tax Reform stimulus wears off
  • A relatively expensive US stock market, evidenced by the S&P500’s forward PE ratio now at 16.7 times versus its 25-year average of 16.2

It definitely wouldn’t be fun if the yummy funnel cake turns into spoiled fried dough…Yuck! We don’t know exactly when or what will happen, but we do know that at some point this bull market will indeed end. You cannot time the market so forget about getting out of the Cliff Hanger before the time comes. That said, you want to stay invested and continue to control what you can control. Don’t wind up being on the bottom end of a Whack-A-Mole game; make sure your portfolio is prepared for the next downturn, which includes making sure your risk level within is appropriate for your risk tolerance.

So don’t wind up being a carny clown. If you want to continue hearing “winner-winner-chicken-dinner!”, work with a proven wealth manager and you’ll be the one controlling the Zipper!

 

Zipper

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Real Estate: Time to Sell that Large House?

Written by Les Detterbeck.

McMansions for Sale

American homes are a lot larger than they used to be.  In 1973, the median size of a newly built house was 1,500 square feet.  In 2015, that figure was 2,500 sq. ft. - 67% more. Plus, with smaller families, there is lots more room per person: 507 sq. ft./person in 1973, and, almost double, 971 sq. ft./person in 2015.

In addition, Americans aren’t any happier with bigger houses.  A study by PhD Clement Bellet found that “house satisfaction in the American suburbs has remained steady for the last four decades.”  His reasoning is based on the premise that people compare their houses to others in the neighborhood-particularly the biggest ones.  The largest homes in the neighborhood seem to be the benchmark.  Dr. Bellet tracked the “one-upmanship” by owners of the biggest homes from 1980 to 2009.  He found that the size of largest 10% of houses increased 40% more than the size increase of median houses.  Apparently, the competition never ends.

Fifty years ago, a one bathroom house or a bedroom that slept 3 siblings might have felt cramped- but it also probably felt normal.  Today, many Americans can afford more space and they’ve bought it. They just don’t appear to be any happier with it.

Dr. Robert Shiller, the noted Nobel Prize winner and co-author of the Case-Shiller index of housing prices, was interviewed recently by the WSJ for an article titled “The Biggest Ways People Waste Money”.  Dr. Shiller opined that “Big houses are a waste.”  He believes that modernization has reduced our space needs.  However, he recognizes, that for some, a big house is a symbol of success. Your neighbors may not know about your finances and achievements, but they can see your big house.

Dr. Shiller suggests books such as “The New Small House”- that talk about designing houses to look impressive as well as function on a smaller scale. Living smaller can be easier on the pocketbook, the owner’s time and the environment.  He concludes: “Just like Uber and Lyft and Airbnb, using resources more efficiently, we can also build houses that are better at serving people’s needs without being big”.

As a result, we’re seeing that fewer people want to buy large, elaborate dream houses.  We know that in the high-end suburbs of Chicago that prices today, in some cases, are ½ of what they were 10-15 years ago. In the Southeast and the Sunbelt, McMansions are sitting on the market, enduring deep price cuts to sell.  For example, Kiawah Island currently has 225 houses for sale, which is a 3-4 year supply.  Of these, the largest and most expensive are the hardest to sell, especially if they haven’t been renovated recently.

The problem is expected to get worse in the next decade.  Baby Boomers currently own 32 million houses, 40% of all the homes in America, and many of these homes are big ones. As the Boomers advance into their 70s and 80s, many will be looking to downsize and/or move to senior housing and therefore will attempt to offload their big house.

When we at DWM talk with clients about housing, we generally ball park a figure of 5-7% of the market value of the house as the annual net cost.  The costs include interest, if there is a mortgage, the opportunity costs of not investing the equity in the house, real estate taxes, insurance, and maintenance and repairs. From this total we subtract the expected appreciation.  For example, a $500,000 house with a $200,000, 4.5% mortgage, might have $9,000 in interest, $18,000 in opportunity costs, $5,000 in real estate taxes, $3,000 in insurance and $5,000 in repairs. Total costs of $40,000 less 2% appreciation of $10,000 nets $30,000 in annual net costs or 6% of the market value.  Of course, values differ across the country and by house. Furthermore, there are some sections of the country experiencing excellent appreciation and some that are experiencing deprecation in value.

As we look at our spending, it’s always good to compare the value received to the cost and, if the cost exceeds the value, a change might be in order.  In our example, if the couple owning the $500,000 house feels they are getting $30,000 or more per year of value from the house, that’s great.  If they are not, particularly if they have a bigger house that may not be appreciating and may be hard to sell in the future, they may want to think about a change now.  Give us a call if you would like to discuss this very important topic.

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Your Digital Legacy: How to Protect your Virtual Footprint

Written by Jake Rickord.

Digital w Keyboard

                The new digital age has seen the onset of countless new conveniences whether through online shopping, banking, entertainment, or social networking. We can now order food and have it delivered to our door, transfer money at the push of a button, and video chat with friends and family that are halfway around the world. Through all these advancements, however, one thing stays the same, the necessity of virtual security. With all these new apps and websites to use comes the addition of endless different passwords to ensure the safety of personal information, with some sites even forcing you to make a new password every x months as an extra layer of security. All in all, this builds up quite the “portfolio” of digital “assets” that can sometimes get confusing. Now, it may not be a comfortable topic, but in the case of the death or incapacity of the owner of these digital accounts, add another layer of complication, as family members now have to weed through various accounts to consolidate their estate.

                The good news is that the same advancements in technology that brought around all these security features, questions, passwords, etc. are the same ones that provide a solution here. Available widely on the web are numerous different password vaults and managers that will allow users to store all of this information in one spot. Applications such as LastPass, True Key, Zoho Vault, 1Password and many others all can accomplish this purpose of simplifying this complicated web of components down to something that is easily manageable. Any new website or service you use can easily add log-in information or notes so that if you ever need to log-in and can’t remember your information, the application will do it for you!

                These applications also offer the option to designate “digital heirs” that in the case something happens to the user, these vaults can be passed along and not locked permanently! In this manner, those handling the estate can easily gain access to all the accounts necessary all in one place.

                In the case that you’d prefer to simply write down all of your log-in information and other important online details in a notebook or binder, which is sufficient, just make sure to let someone know where that "book" is and how to access it! We at DWM have actually put together a document that can help to organize this all in one written location including other important estate information such as the location of trust documents, powers of attorney, etc. Please feel free to use it if you'd prefer the traditional paper copy!

                One additional step beyond providing access to your accounts to your digital “executor” is actually letting them know what to do with the accounts. For instance, if you’d prefer your Facebook to be set to “memorialized” which will effectively make the account inactive, but allow family and friends to continue to post memories and stories on the page versus closing it out entirely. Also actively selecting if you’d like certain digital assets to go to certain heirs, for example if you would want your grandson to receive your illustrious Fortnite account or your daughter to receive the log-in for your online knitting chat group, you can designate those wishes either in the password manager app or in your notebook. That way there will be no confusion or argument over who gets what when the time comes to distribute those assets.

                As an added layer of protection, the right to digital assets can be specified in a trust document drawn up by an estate planning attorney for those with more complicated situations that need specific direction. These specifications usually outline the power of the successor trustees to access, view, modify or make use of any electronic accounts including those financial sites that are used.

                To summarize, from Uber to Schwab to Amazon to Facebook and many, many more, the necessity to build a plan to preserve our digital legacy for when “the time comes” is imperative. Using these plans can ease the transition for your loved ones to get their arms around your digital assets and secure your legacy properly. At DWM, we would encourage you to get these items in order to make things easier on you and your loved ones in the future, hopefully a long time down the road.

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