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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FIREd up about Early Retirement

Written by Ginny Wilson.

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There is a recent trend among Millennials and younger Gen Xers that is generating a great deal of interest. The concept is defined by the acronym FIRE – financial independence/retire early. A WSJ article from November follows the rigid budget and sacrifices of Sylvia, who wants to retire in 2020 with $2 Million at age 40. The current rage to extreme early-retire by using frugality, intense saving and/or investment strategies to achieve financial independence is becoming a popular notion. This purportedly comes from the 20 to 40 somethings who have a ‘burning’ desire to not be chained to a job, but rather want to freely choose how they spend their time. The FIRE followers want the freedom of financial independence to allow comfortable “retirement” at an earlier than usual age.

FIRE and the discussion around it has inspired many recent blogs, podcasts, articles, books and even a documentary coming out this year called “Playing with FIRE”. Playing with Fire follows a family as they “test their willingness to reject the standard narrative of adult life, which basically prescribes: go to college, take out tons of student loans, buy a new car, take on a mortgage, buy another car and lots more stuff you don’t need, then work for 40+ years to pay for it all. If you’re lucky, you might be able to retire at 65 and not have to eat cat food.” Now that is cynical!

On the surface, however, retiring early sounds like a reasonable goal… we are all striving for some level of financial independence, after all. At DWM and as financial advisors, we definitely believe that controlling spending and sticking to savings goals are the keys to reaching financial independence. Most of us would consider these good money habits to be a common sense approach to life – live below your means, save more, be less materialistic- but what does it take to actually achieve an extreme early retirement in your early 40s or even 30s and make sure you have enough money for the rest of your life? FIRE followers believe extreme saving and frugality is the path. As the Investment News article describes it “Followers of FIRE amass savings voraciously and live on bare-bones budgets. They aim to stockpile enough money to fund a retirement lasting roughly double that of the average American.” Apparently, the retirement savings number that they strive for is based on a future 3-4% percent withdrawal rate that might have to last 60 years!

FIRE followers advocate aggressive savings goals of 50-75% of earnings and following strict budgets to achieve this. They focus on cutting back or even cutting out all non-essential spending like going out to eat, vacations or bigger houses and newer cars. Or like Sylvia from theWSJ article reportedly does, search for the brown bananas and borrow Netflix passwords. This might be where we should talk about quality of life!

On top of that, the unknowns in this strategy could wreak havoc on the best-laid plans. Some in the FIRE movement live austere lives now and plan to continue the austerity into the future to maximize
their savings. All well and good as long as nothing unexpected happens. How about the often unforeseen or underestimated expenses that come from having kids or running into health problems? We can try to predict the impact on our portfolios from inflation, the economy, the markets, investments, but we really can’t say absolutely what will happen in the future. We know that healthcare costs are increasing and becoming a large spending item in normal retirement, especially before Medicare begins. We know that we can’t predict what will happen to Social Security. We certainly can’t predict our life spans – whether short or long – nor are we ever as ready as we would like for emergencies and crises like natural catastrophes, death of a loved one or chronic illness. We just don’t have a crystal ball!

There is also an underlying degree of cynicism in this mindset that our working life is focused solely on the goal of amassing “more stuff”. What about the satisfaction and connection that comes from building a career and a level of accomplishment and expertise in a field? Many of us have had several varying career paths and, had we jumped off after the first one, what would we have missed? What inventions or discoveries or achievements would humanity miss out on if the productivity and challenges that are gained from a lifelong career were cut short?

Successful financial independence does come from hard work, discipline and a measure of frugality and sacrifice – we can all agree on this. At DWM, our goal is to help guide you toward achieving your goal of financial independence, whether you keep “working” or spend your time in other ways - as you wish. We try to minimize some of the risks by planning for as many of the “What Ifs” as we can and hope that, by charting a course, we can help you breathe easier as you plan for the future. We want you to be “fired up” for your whole life and find satisfaction and quality of life during your saving and accumulating days, as well as your spending and legacy days. We think this is possible by following a balanced, moderate and careful financial plan. We can certainly get fired up about that!

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The Pioneer of Index Investing: John Bogle's Legacy

Written by Jake Rickord.

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John C. Bogle was one of the most recognized and respected names in the investment community when he passed away this January. His research and intellect drove him to found one of the world’s largest investment companies, Vanguard, which operates as a leader in cost-efficient, diversified mutual fund and ETF markets.

And how did Vanguard get to be such an influential company in the marketplace? Among many other factors, it stemmed from John Bogle’s view of the financial landscape, and how he could make it better for investors. In 1974, when John first started Vanguard, he brought with him a passion for affordable, smart investing; he theorized that in a market that consisted solely of active managers seeking to beat benchmarks, he could succeed by simply being the benchmark (or closely following it). From this, he would generate the strategy of index investing, which consists of passively managing a fund that closely mirrors a common index, such as the S&P 500, the Bloomberg Barclays Global Aggregate, or many others. This development revolutionized the investment industry by letting investors participate in the market without paying expensive management fees that go towards attempting to beat the market. Instead of paying operating expense ratios (which represents all management fees and operating expenses for a security) of somewhere on average of 0.5% to 2.5% or higher for an actively managed mutual fund, these passive index funds on average have operating expense ratios of only 0.2%! As a result, investors returns would no longer be dulled from these high management costs.

           His unique and interesting idea soon caught on. In fact, as of today, these index followers now make up 43% of all stock funds in the market! Index funds seemingly create an opportunity for anyone to jump in and be a part of the markets with little to no investment costs, almost complete transparency, and simplicity, which has led to their widespread popularity, all because of John Bogle’s innovative mind.

           Beyond this, John was an active member in the community, often sharing his opinion and advice through his speeches and TV appearances, and brought with him a great deal of philanthropy through his service work and his charity (notably donating much of his salary to charities).

           All encompassing, John Bogle was a great man that will be missed in the world as a whole. However, he did leave behind a legacy of inspirational writings, teachings, and actions that we can all learn from. He also left behind the core ideas of his investment philosophy: 

  • A focus on simplicity in investment strategy
  • The reductions of costs and expenses
  • Consideration of the long-term investment horizon
  • A reliance on rational analysis and an avoidance of emotions in the investment decision-making process
  • The universality of index investing as an appropriate strategy for individual investors

At DWM, we keep all of these, as well as many other factors, in mind when we develop our portfolios and investment strategies. While we always attempt to keep transaction costs down, we are also always looking at the other options in the market to reduce costs, increase portfolio simplicity, and maximize diversity to protect our clients first and participate in market earnings second.

Furthermore, we analyze all holdings as well as client allocations to ensure their long-term goals are achievable not only through their portfolios, but also through our various other value-added DWM services such as tax planning, estate planning collaboration, risk management reviews, etc. Through these, we hope to put our clients’ long-term financial plans in focus, and help ease their worries about the market and their economic situation.

 While we and countless others inside and outside of this industry mourn John’s passing, we also seek to celebrate his life and his impact on our lives. And we believe the best way we can do this is to embrace some of these ideals John shared with us, through helping our clients manager their financial plans and keep their long-term goals on track through simple, low-cost, efficient investment choices.

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U.S. Housing Market: Not Hot Everywhere

Written by Lester Detterbeck.

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Zillow just reported that the U.S. Housing Market is up 49% overall since 2012. That’s roughly 6% per year in that time period-though, to be fair, 2012 was when the housing market hit bottom after the 2008-2009 financial crisis. The U.S. Housing Market is huge- $33 trillion (“T”). It’s larger than the value of all U.S. stocks and is about equal to the Gross Domestic Products (GDPs) of the U.S. ($19T), China ($12T) and Canada ($2T). Commercial real estate, including retail, hotels, office buildings, apartment buildings and industrial is about $6T.

The U.S. housing market has had some big winners and some big losers in the last 7 years. Almost 1/3 of the gain of $11T since 2012 has occurred in California. Four of the country’s 10 most valuable markets are in California; LA (5% increase in value in 2018), San Francisco (9.6% increase), San Jose (10% increase) and San Diego (3% increase). New York Metro itself has $3T of housing. The Washington, D.C. metro housing is worth $900 billion. DC itself has more housing value than 40 states, including Colorado, Arizona, Ohio and Oregon.

Unfortunately, housing in some areas hasn’t done so well. Illinois has many state-specific issues which makes it one of the worst housing markets areas. In fact, among the nation’s top 100 metro areas, Chicago is expected to be the weakest housing market of them all in 2019. With mortgage interest rates possibly causing a likely national homes sales slowdown of 2% in the U.S. in 2019, Chicago metro, including Naperville and Elgin, is expected to have an 8% decline in home sales this year. Taxes are a big problem in Illinois. Illinois homeowners are subject to the highest overall tax burden in the country, including the second highest property taxes in the U.S. Since 1996, Illinois property taxes have grown 43% faster than home values and 76% faster than home values in Cook County (Chicago). Worse yet, less than 50% of the tax increases have gone to pay for services. Most of the increase has gone for teacher and other governmental pensions and debt service on bonds.

In 2017, Illinois raised income taxes- the largest permanent state hike in history. Add in a sluggish state economy and outbound migration and the Illinois housing market is hurting. Even so, the Illinois Association of Realtors expects the median value of houses in IL to rise in 2019 by 4%, to roughly $196,000 for the state and $241,000 for Chicago.

The Lowcountry in SC is faring much better. Charleston Metro is now home to 700,000 people. Ongoing job growth means continued housing demand. The median home value in Charleston is now about $320,000 and Charleston home values went up 8% in 2018. The forecast for 2019 is 3% growth. Buyers outnumber sellers. A typical home in Charleston receives only one offer. However, homes sell for only 3% less of the listing price on average with 73 days on the market.

Charleston has many reasons for its housing growth:

  • A booming job market with an unemployment rate under 3% and one of the least unionized states in the nation
  • Wages are low
  • South Carolina’s overall tax burden is among the lowest, particularly for retirees.
  • Huge Tourism industry including being the most sought after wedding destination in the country
  • Home Appreciation is strong- 31% over the last 10 years

Overall, the U.S. Housing market is strong for now. Many winners, but some losers. Mortgage rates, after jumping to 5% and more on 30 year mortgages just a few months ago, are now down in the low 4% range. If they stay there, 2019 could be a pretty good year again for the U.S. Housing Market. But, with many areas coming off a strong run overall the last several years, a cool-down on housing prices wouldn’t be surprising. We’ll continue to watch how the events unfold and keep our clients and readers informed as conditions warrant.

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