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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Money and Time

Written by Grant Maddox.

 

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As the old saying goes, "Time is Money." One of the great laws of business is that time equals money: The more time you can efficiently utilize, the less time you waste and the more money you make. Some may call this the opportunity cost of laziness. By being lazy you essentially give up the opportunity to make money. You've likely heard the phrase in some form or another a thousand times before, and it makes sense. However, have you ever considered it the other way around?

It may feel strange saying it out loud at first, but the saying can go both ways. Money is time. Time is one of the most valuable resources on earth. Thinking of money in terms of time is one of the best ways to adopt a healthy attitude about spending and stop splurge spending. If you know the true cost of your dollar you may be more inclined to save it.

To start, you must factor in all hours spent at or around the office, commuting, and at seminars over the course of a year. Once you've established the number of hours spent on work-related items, you will then have the denominator for your true hourly wage calculation.

The next step will be establishing any costs associated with your work. There are a lot of people who are unaware their job may actually have costs associated with it. Aside from the amount of time spent at work, most spend a considerable amount in preparation for their job. The cost associated with job preparation includes gas and care repairs for daily commuting, daycare costs, coffee, work clothes, and some may even include the occasional happy hour after work. Once you've established the amount of money you spend on your job on a weekly or annual basis, then subtract this number from your weekly or annual salary. Now subtract taxes to arrive at your net salary.

Now we are ready to calculate your true hourly wage. Take your net salary, add back any retirement plan contributions you may have been making, and divide this by the number of hours spent on work-related items to arrive at your true hourly wage.

Example:

Let's assume an employee works 40 hours per week, spends 10 hours on work-related items. This employee gets paid $40,000 a year, spends $8,000 per year on work-related items, and pays about 20% ($8,000) in taxes between state and federal per year. The true hourly wage of this employee would be $9.23 per hour ($24,000 divided by 2,600 work hours per year). Compare this to a naked eye analysis of this employee's salary, $19.23 per hour, and you will notice a $10 per hour difference for this employee. This means each dollar this employee spends costs him or her more than 6 minutes at work.

Knowing the true cost of your dollar, you may find yourself reluctant to splurge on that next big item. It's important to remember that the relationship between your money and your time isn't always that straightforward. While you can certainly calculate the cost per hour of use for a given splurge item, (a $160 chair used for 480 hours a year and used for five years will have a cost per hour of $0.06), this should not be the only consideration in spending. For both spending your time and your money, there is always at least one item we can all spend it on: That which makes you happy.

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What will be Your Legacy?

Written by Lester Detterbeck.

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In the last few years, Elise and I have really gotten into our own family histories. Both sides of Elise’s family came from England, one in the 1830s and one at the turn of the century. My family tree is more diverse. I am 25% German, 25% Finnish, 25% Italian, and, I just recently found out, 25% Jewish. My German ancestors came to America in 1855 and the others came at the turn of the century.

As Elise and I looked back at not only the DNA of our forefathers and foremothers, but also the culture, traditions, stories and values passed on to us, we realize what wonderful legacies we have been given. In a way, we’re all standing on the shoulders of our ancestors.

In the past few years, there’s been a huge increase in people exploring their family history. Ancestry.com sold 1.5 million DNA kits a year ago on Black Friday. The DNA test uncovers your origins. And, Ancestry.com and others have huge online databases and have put together family trees that you can review and expand. This search has caused us to again look at our potential legacy and what it will be. Do you wonder what your legacy will be?

Legacy is defined as “something transmitted by or received from an ancestor or predecessor from the past.” In the simplest terms, it is everything you have worked for in your life. Certainly, that includes money and property, but it’s much more than that. It includes what you have achieved in your work life and your family life, as well as other social relationships and achievements that you ultimately leave behind.

Your estate, on the other hand, is the sum total of everything you own-all of your property (real, tangible and intangible). Your estate requires an “estate plan” to provide for your desired succession of assets, while minimizing taxes and administrative hassles.   If you desire to pass on more than just your assets and transfer your spiritual, intellectual, relational and social capital, you need a “legacy plan.”

The question is not “Will you leave a legacy,” but “What kind of legacy will you leave?” Why not be proactive and intentional in creating your legacy? Why not structure your life in a manner that helps you achieve your purpose and greatest success and safeguards those accomplishments for transfer to future generations? Why not develop and maintain your legacy plan?

If we think of our legacy as a gift, it places an emphasis on the thoughtful, meaningful, and intentional aspects of legacy, as the consequences of what we do will outlive us. What we leave behind is the summation of the choices and actions we make in this life and our spiritual and moral values.

What do you want to leave for your family, the community, your partner or the world? Your legacy can be huge; perhaps a world-changing cause. But it doesn’t need to be a grandiose concept. Instead of wanting to leave a legacy that inspires people to help starving children in the world, you, for example, may relate more with leaving a legacy with your family and friends of how you were kind, accepting and open to others, which might help inspire them to do the same.

A good place to start is to think about the ancestors, mentors and associates whose legacy you admire. What actions can you take to inspire others in the same way?

We encourage you to give some thought to your legacy plan. We’re all creating our legacy every day, whether we realize it or not. And, here at DWM, we’re focused on protecting and enhancing not only your net worth, but your legacy as well.

 

 

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“The Two Most Powerful Warriors are Time and Patience”- Leo Tolstoy

Written by Lester Detterbeck.

 

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Good investing can be boring, yet effective! Specifically, investors with a long investing timeline should build a diversified, low-cost portfolio with an appropriate asset allocation and stick with it. Rebalance regularly to sell high and buy low. Don’t try to time the markets by getting in and out. Yes, this is boring, particularly with the volatility we are enduring, but it’s what it takes to generate solid returns over the long haul. Patience and time are powerful warriors and our friends.

Take a look at the average risk and returns for various asset styles over the last 20 years, which includes the 2008-09 financial crisis and 2018. The best performers, with higher returns and lower risk, are in the upper left hand corner:

 

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Bonds have relatively low risk and have produced decent returns over the period, particularly the first 15 years. Small cap and mid cap stocks have outpaced large cap stocks (e.g. Dow Jones and S&P 500) over time, with better returns and similar volatility (risk). Non-US stocks have trailed US stocks. Emerging markets stocks have produced very good returns, but with larger volatility swings. REITs have produced a 10% annual return with a risk factor about equal to U.S. stocks. The diversified composite “12 Index Portfolio” has produced a nice return of 6.8% annually (better than large cap stocks with 5.6%) with about 2/3 the risk of stocks.  Please note that during this 20 year period, the inflation rate was 3.2% per year. So, the 12 Index Portfolio produced an annual “real return” of 3.6% over the last 20 years.

Investors get in trouble when they lose faith in the markets and their allocation, react to the current market pain and go all cash or move to the “hot” asset classes for better returns. That approach generally ends badly for investors as the markets will correct themselves over time (as we have seen December 2018 losses recovered in January 2019) and hot asset classes go “cold” as the pendulum swings to the next “hot” asset style right after they jump in.

The 12 Index portfolio in this chart is composed of all the asset styles shown, equally weighted. Overall, this allocation is 50% equities, 33% fixed income and cash, and 17% alternatives; what we would term a “balanced asset allocation,’ appropriate for a “balanced risk profile.”

This balanced allocation will never be the top performer in any year. And, it won’t be the worst. It is designed to deliver middle-of-the-road, steady returns. Patience and time produce the results.

Investors need to also understand that time is their friend. “Time in the market beats timing the market.” Here’s another chart showing the growth of $1 since 1990, all invested in the S&P 500:

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The black line represents an investor who stayed in the market every day and turned her $1 into $14. The red line represents the investor who missed the 25 best days (roughly one a year) and turned her $1 into $4. The gray line represents the return an investor could have received by simply investing in five-year treasury notes, turning $1 into $4.

Getting out of the market is easy; getting back in at the right time is very difficult. In the last couple of months, for example, the equity markets (using the MSCI AC World Index) are about level from December 1, 2018 until last Friday, February 8th. However, if an investor got cold feet and got out in mid-December and waited to get back in until mid-January, they would have lost 3.5% on their equity returns. Timing the market is not a good idea- unless you own a crystal ball, can implement perfect end of day execution on buys and sells, have no transaction costs, and don’t mind paying taxes on realized gains.

Patience and Time are two powerful warriors-they are your friends. Let them do the heavy lifting.  Invest for the long-term. Yes, slow and steady wins the race. It may not make for great cocktail conversation, but boring investing can be very effective.

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