Is the a better way?

Blog post #396

How do you make key financial decisions?

Are you up to date on all the issues you need to know?

The world keeps changing at a seemingly faster pace.

Decision making, especially in regards to financial matters, can be complex to begin with. Then factor in the rapid pace of change and it is clear that using a financial advisor, and sometimes a team of advisors, should help you make better and more informed decisions.

Let’s consider some of the financial issues that you may have to deal with during your life and how they have changed over the years.

Saving for Retirement: Decades ago, most workers had pension plans, which provided income for retirement. Now, this type of plan is almost extinct within corporate America, except for some government employees and teachers.

Today, most people are primarily responsible for their own retirement planning. You can save through 401(k) and 403(b) plans, for non-profit organizations, as well as IRAs, Roth IRAs, and Roth 401(k)s. These plans come with many choices. You must decide how much you should save, to fund your retirement. You should consider whether your employer provides a match and whether your contribution maximizes this match.

You need to decide how to invest this money, as your employer does not provide investment advice. Some plans come with many choices, dozens or more than a hundred is not uncommon. Do you coordinate your retirement savings allocation with your other investments? Do you realize that certain asset classes would be best to invest in a tax-deferred account? Do you consider the investment costs of the retirement plan investment choices and how they compare with your other investment choices?

Consulting with us as your financial advisor about how best to save and plan for retirement could be quite valuable, providing you with clarity and useful information.

Saving for college: A few decades ago, when my children were young, we saved money for their college education in what was known as UGMA accounts (Uniform Gift to Minor Accounts). These accounts are subject to Federal and possibly state kiddie taxes, which have become more burdensome in recent years.

Today, most states offer tax-deferred college savings plans called “529 plans.” Using a 529 Plan is more advantageous, as under current tax laws the UGMA accounts would likely incur taxes, whereas a 529 plan may avoid all income taxes.

However, you still must decide which plan to use, and how to invest the money. There are major differences between plans and just using an age-based allocation may not be the best strategy from birth until your child reaches college.

Consulting with us as your financial advisor about college savings strategies could be quite valuable, providing you with clarity and useful information.

 

Other examples of financial issues and topics which have changed dramatically over the past years are….

• Mortgages and home equity loans
• Life insurance
• Long term care insurance
• Estate planning and estate tax laws
• Tax laws, which are constantly changing
• Charitable giving
• Social security distribution planning
• Retirement plan distribution planning

Consulting with us as your financial advisor about these topics could be quite valuable, providing you with clarity and useful information.

Investing: It is obvious that the economy and the investment world is always changing. The rate of change is rapid. It is hard to predict which companies, and therefore their stocks, will succeed or not.

How can you determine which investments to choose? Which investments have the best chance to help meet your short and long term goals? How should you react to news, market predictions and swings in the stock market? How much of your money should be invested in stocks versus safer investments, such as fixed income? How do you decide how much of your money should be invested in the US and how much overseas? How much risk do you need to take? And what are the tax ramifications of all these investment decisions?

Working with us as your financial advisor for your investments can be quite valuable, provide you with clarity and a greater chance of long term investment success.

We feel there is a better way….which is to work closely with a financial advisor, such as our firm, on all the various financial decisions you face during your lifetime. By working with us, these matters can be discussed, analyzed and coordinated in a rational and effective manner.

We look forward to helping you, and others you know, make decisions like these.

When the unexpected occurs….are you prepared?

Blog post #395

Are you and your loved ones protected if the unexpected occurs?

Do you need life insurance? What kind? How much?

These are important questions and the answers can be complex. We can provide you with valuable and useful guidance, both in this blog and discussing this with you.

The most common purpose of life insurance is to provide replacement of income or earnings for family members who survive a spouse or parent who dies prematurely, or before the family had built up adequate resources.

If you have loved one(s) who depend on you monetarily and you do not have adequate savings or investment accounts if you were to die, then you likely have a need for some form of life insurance. Good financial planning would guide you to have savings and life insurance to cover living costs in excess of what your survivors can generate, to cover basic living expenses, such as housing, clothing, everyday expenses, as well as what your family may want to provide for college education, if you have children who will likely be attending college. Life insurance can also cover funeral expenses and other items, such as outstanding debts, including car loans and car lease obligations.

How much life insurance coverage do you need?

Everyone will have different needs for life insurance, based on their assets, age, stage of life and other specific issues. If you are in your 30s or 40s, have children and are just beginning to save for college and retirement, you may have a significant need for life insurance. If your children are grown and on their own, and you have significant assets, you may have much less need, or no need, for life insurance.

You should consider how much money your loved ones would need in both the short and long term. Ask yourself what are the immediate expenses they would need to cover if you passed away and how much money they would need for the future? Especially if you have children. You should consider your housing costs, property taxes and insurance, as the later items likely increase over time.

Calculating your need for life insurance is where our guidance, along with an insurance professional, can begin to provide you with answers, as determining the amount of coverage that is needed is difficult. Then, once the cost of insurance premiums are obtained, we would work with you to see what is an appropriate balance of insurance coverage and premium cost that could fit into your family’s budget.

Beyond determining how much life insurance you and your family may need, and then the cost of insurance, there are many types of life insurance. To keep things simple, let’s focus on the two major types of life insurance….term and permanent (whole life) life insurance policies.

Term life insurance policies provide insurance for a certain period of time and the premium paid into the policy provides a death benefit to your beneficiaries if you pass away during that stated term. Most common is a renewable term policy, for a certain period of time, say 20 years. With such a policy, you pay the same premium every year, and any health changes in your life do not impact the premiums, as long as you pay the annual premium on time each year. Term life insurance policies are generally more affordable than whole life policies because the insurance is only for the specified term. Term policies usually do not cover you late in life and there are no other features, such as investment aspects of these policies.

Term policies are generally best for younger people, as the cost is less and more insurance can be obtained. These policies are best to cover you and your family into your 50s and 60s, as your children may become independent and you build your family savings. However, the cost of term insurance, especially if the premium is not fixed, can become prohibitively expensive as you get older, certainly beyond 70-80 years old.

Permanent life insurance policies can be useful when you want to provide coverage for later in your life, well past your 60s. There are many types of permanent life insurance, such as Whole life, Universal and Variable Universal life insurance, each which can have many different and sometimes, complicated and/or expensive features.

Whole life insurance can provide coverage for up to a lifetime (a term that you need to verify within each policy, as the policy states an expiration age, such as age 95 or 100), if you stay current on your premium payments. Some whole life insurance policies build cash value or pay dividends during the life of the policy. You can borrow against the cash value, if needed. We would not advise this, unless you carefully weigh your alternatives, as if you do not pay the borrowed cash value back, your loved one(s) will get a reduced death benefit due to the unpaid loan, at the time of death.

In general, we feel that insurance policies should provide you with insurance only, and not offer investment aspects, as the investment features of those types of policies can be quite expensive. Universal life insurance can offer flexible premiums and have the potential to build account value and Variable Universal life insurance can also offer flexible premiums, investment options and the potential to build account value.

As you consider various types of insurance policies, they can get quite complicated. We recommend that you consult with a licensed life insurance advisor, who can help you navigate which life insurance policy and company you should use, review with you which life insurance policy you should consider and help you decide on the amount of coverage that works best for you and your family.

We are independent investment advisors, meaning we are not compensated by any investment firm. The insurance industry is quite different, as most life insurance professionals are paid by commissions for the products they sell. We recommend you consult with an independent insurance professional, who works with more than one company. That does not mean you should not talk with an insurance agent who only represents one company, but make sure that you talk with multiple agents or at least one independent insurance professional.

As part of the comprehensive financial planning that we provide to clients, we can provide you with a referral to an independent insurance planning firm that we have worked with, that has been vetted by our back-office firm. They can provide you with independent, expert analysis and advice, as well as work with us to coordinate the planning, decisions and process with you. We do not receive any compensation by working with them.

Together with this outside firm, we can help to guide you through the complex maze of life insurance policies and terminology.

In the past, life insurance was also a key part of estate planning, as many more families were subject to estate taxes. As the estate tax exemption is now over $11.4 million per person (almost $23 million for a couple), unless you have assets in excess of that amount, you would not have estate tax obligations and would not need life insurance for the liquidity that life insurance provided to pay for estate taxes, if the bulk of your assets were illiquid.

If you have older life insurance policies which you obtained many years ago, for estate tax or just general coverage purposes, please contact us if you would like this outside insurance firm to review your existing policies. This may be helpful if you have a policy with cash value or to confirm the age at which your policy may expire.

Life insurance can be another place to find financial comfort and security for your future. It can also be a very complicated area. While we are not experts, we are knowledgeable and can work with you and other experts to help you through this process.

Please contact Brad or Keith if you would like to further discuss life insurance related matters.

 

 

Different choices, same end goal

Blog post #394

What do you do to be healthy? 

Have you tried different diets?

Do you take vitamins or supplements?

Have you tried different workouts?

Do you use a coach, trainer, fitness tracker or attend a regular class? 

Have any of those led to greater success?

To stay healthy, there are so many different options and choices we can and need to make. There is not a “one size fits all” fitness category. As with investment choices, which can be overwhelming, not all fitness levels and activities are appropriate for each person. Every WWM firm member has their own way that we choose to exercise to maintain our idea of a healthy lifestyle, such as walking, intense exercise classes, running, lifting weights, yoga, play a sport and biking, to name a few.

Just like our health, there are many choices or decisions for your financial road map to retirement and beyond. You know or you may have an idea or a vision of when and what you want your retirement lifestyle to look like. To get there it takes planning and making many decisions. This is where a financial advisor, just like a fitness trainer or nutritionist, can be helpful. 

If you have a fitness or eating routine in place, sometimes you go off course. You stop exercising. You add a few pounds. Even though it is easy to “not get back on the bike,” we all know it is in our best interest to resume with our fitness routine or eating best practices, to stay healthy. It is the same with investing, as even if there is volatility in the stock market, it is best to just continue with your long-term investment plan. 

Similarly, like investing, real life sometimes gets in the way. Even though you have a plan, there can be small or large bumps in that plan. Unplanned job changes. Illness. Unexpected expenses. Stock market declines.

It’s our job as financial advisors to help you navigate through real world circumstances and to help you reach your individual and family retirement goals, which are different for every person. We want to listen, learn and help you develop an investment strategy to help you reach your goals. 

When you become a client, we put together an Investment Policy Statement (IPS) that allocates your current assets, while considering your expected future savings and retirement goals. It is our goal to meet with you on a regular basis to make sure your goals are in line with the Investment Policy Statement put in place when you first became a client. 

If your plans change, or other outside factors change, we review and possibly revise your plan by amending your Investment Policy Statement, to make sure your asset allocation is in line with your goals. These adjustments could be due to changes in your goals, where you want to live or when you want to retire. Changes could also be for financial reasons, if you need to take more risk or less risk, based on how the financial markets have performed over time and your projected life expectancy.

Your Investment Strategy should be as important as your health. We all want to be the best versions of ourselves. 

If you have concerns about your health, you may visit your preferred health care professional to get help. If you have financial concerns or need guidance regarding your investments and financial planning topics, why not reach out to your advisor.

If this makes sense to you, please contact us to schedule a conversation.  We want to learn more about you and your goals, and how we can help you reach them.

A Key to Financial Success

Blog post #393

It can seem easy to remain invested in stocks when they are increasing.

You likely don’t feel worried or stressed when your assets are increasing, when you are making money. 

Your real test occurs when financial markets are down…when you are losing money. 

As your advisor, some key information can be helpful to your financial success. 

We want to help you to have reasonable expectations of the stock market. 

If you have reasonable expectations of the stock market, in advance, both positive and negative, this should help you to be a better long term investor. 

The US stock market, as defined by the S&P 500 Index**, has delivered an average annual return of around 10% since 1926. 

While we recommend investing in a globally diversified stock portfolio, using the S&P 500 Index as a base for discussing the stock market in general is appropriate for purposes of this post, even though the Index consists of only US based large companies. 

How often has the S&P 500 Index’s annual returns actually delivered returns near 10%? Actually, quite infrequently. 

The results are surprising! In Exhibit 1 below, there is a shaded band which represents the 10% historical average, plus or minus 2%. Thus, the band represents annual returns between 8-12%. As Exhibit 1 below shows, the S&P 500 Index has had returns of between 8-12% in only 6 of the past 93 calendar years, between 1926-2018. 

In most years, the Index’s return was outside of the 8-12% range, often above or below by a wide margin, with no clear pattern or predictability. 

The Index was down in 24 of the 93 years. That is 26% of the years. That means that 74% of the years, or almost 3 of every 4 years, the Index has been positive. That should help you to remain invested when the down years do occur. 

This emphasizes the point that while investing in stocks comes with significant volatility, the downward fluctuations are temporary. You need to have the emotional ability to stick with your asset allocation to stocks during the down years, to reap the long term positive rewards which stocks have provided in the past and are expected to in the future. 

You can potentially increase your chances of having a positive financial outcome by maintaining a long term focus. As Exhibit 2 documents, the longer you invest, your odds of success improve. While positive performance is not guaranteed, the past evidence is very strong. 



This data is for 12 month rolling time periods, not calendar years, between 1926-2018. For example, the first period starts in January, 1926. The second period starts in February, 1926. 

As the chart shows…
* 95% of the 10 year rolling periods were positive
* 88% of the 5 year rolling periods were positive and
* 75% of the one year rolling periods were positive. 

What can help you endure the ups and downs of the stock market?

There are no easy or simple answers. We feel that working with an advisor that provides you with this type of data, and explanations, can be a valuable starting point. 

If you are aware of the range of potential outcomes of the stock market, it should help you to remain disciplined. In the long term, this can increase your odds of a successful financial experience. 

We want to help you to be prepared for stock market volatility, as no one knows when that will occur. 

We want to help you to react rationally, and not emotionally, to the stock market, so that you can focus on the long term and strive to reach your long term financial goals. 

We strive to provide you with clarity and guidance, so you can have a greater sense of financial security, comfort and success

If you are not a client, we would be pleased to talk with you.  Call or email us.

If you are a client and have friends or relatives that could benefit from this type of guidance which you have received, please let them know about our firm.  We would be pleased to help them as well.  You can start the conversation.

For more reading on this topic, see our prior blog post, “When Average is Not Average.”

Source: The Uncommon Average, White Paper published by Dimensional Fund Advisors, May 2019 

**The Standard & Poor’s Composite 500 Index consists of 500 of the largest companies based in the U.S. The companies in the Index change over time. You should also realize that the companies within the S & P 500 have changed frequently over this period, as companies grow, fail, merge and get acquired.


Changing Perspectives

Blog post #392

After my three-day learning group session ended with fellow advisors from across the country in Monterrey, California, I went for a walk before heading north towards the airport. 

As I walked along the jagged, rocky Pacific Coast, I came upon a group of people peering into the Pacific Ocean. 

I took the following picture…..as I was focused on the ocean waves crashing into the rocks. 

As I got closer to this gathering, it seemed like some of them had pretty extensive photography equipment. Some were talking, others just looking out. But I didn’t listen carefully enough. I took this next picture….still focusing on the water. I was looking for sea lions, but didn’t see any in the water. But I kept looking…..

Then I heard what the others were saying. I listened better. Then I realized my focus was wrong. I had the wrong perspective.

I was looking out too far. My focus was incorrect. 

Much closer to me, but not in the water, were many sea lions or sea otters warming themselves on the beach… not in the water. This is what the others were focused on, which I did not see at all. 

*******

As investors, you may sometimes be focused on the wrong thing. It is our role, as your guide and financial advisor, to help you to focus on the right things. We want you to have the proper perspective.

You may be focused on political concerns or that the US or other International economies may be slowing. 

However, we feel that it is vital to remain invested, as appropriate to your personal Investment Policy Statement (asset allocation plan). We feel that this discipline is important to help you reach your long term financial goals. We think this is the best perspective for your financial future. 

So while it may be true that the US or International economies may be slowing, with that perspective, you may not realize that US and globally diversified stock funds are up double digits for the year. 

Is your focus and perspective on the right things? Are you focusing on the long-term or what you can control?

*******

For the past 15 years, I have been privileged to be part of an incredible learning group. We started in 2005, with a core group of advisors who were willing to try something new and join a program led by a financial industry expert, for a significant fee. The group’s members and how it has been run has gradually changed and evolved over the years, but the focus has always been on learning from each other and from the many speakers we brought in.

These meetings and the discussions, and during regular calls between meetings, gave us new perspectives. It helped to make sure we were focused and had the right perspective….what were the best ways to serve and advise our clients. We wanted to keep current and exchange ideas, so we could be better for you, our clients. 

Since the very first session in the summer of 2005 in Santa Monica, CA, I have not missed what became an annual Spring meeting, as well as October sessions, and for the past few years, a few days in January. 

For a multitude of reasons, I will likely be part of a new learning group starting this fall.I have mixed emotions about this transition, as I have developed great personal relationships with the members of my group. However, many of these advisors are older than me and will become part of a group which will have a greater focus on issues related to their own retirement transitioning. Their perspective is different than mine, as I am not retiring anytime soon. 

As we discussed the group’s transition Monday morning, one member from Nashville stated “this is about business. It’s not personal.” And he is right. I need to do what is best for my clients, which is what we always strive to do. 

While I may miss some of these personal connections that I have made, I will surely develop new ones….and that is exciting and invigorating to me. It is an opportunity to learn and exchange ideas with a new group of outstanding advisors. 

And that is really the primary goal of these learning groups. My responsibility, focus and perspective is always to strive to be a better advisor, to continually learn and develop a better firm, so we can better serve, guide and advise you, our clients, as best as we can. 

*******

As I write this on the plane back from California Wednesday morning, I have many pages of notes, ideas and concepts. I look forward to digging deeper and implementing the ideas that were presented and discussed, which will benefit you, our valued clients. 

From the broadest perspective, I remain very confident in our long- term investment strategy. 

As I tighten the focus, our mission is to strive to provide each of you with an excellent financial experience, hopefully for your lifetime.

And we will have a far better chance of providing you with a successful financial experience by participating in these learning groups, as well as other ways to learn and strive to always get better. 

******

If you have worked with other financial advisors, you may (or may not) realize that many of them likely do not participate in these types of learning experiences. Ours are not trips provided as a reward for selling a certain mutual fund or reaching some sales/commission target. 

If you have friends or relatives that could benefit from the advice and guidance which you have received, and from the dedication to continuous learning that we have, please let them know about our firm. We would be pleased to help them as well. You can start the conversation.