Being prepared

Blog post #432

We strive to design a financial plan for you.

We recommend and build a portfolio for you, that will help you reach your financial goals.

But sometimes the unexpected happens.

A crisis. A health emergency. A death in your family.

Are you and your loved ones prepared?

We are not talking about whether you have life insurance…we are focusing on the more mundane, but critically important ability to handle basic financial tasks, in our high-tech society.

Are you and your family adequately prepared?

If something were to happen to your parent or spouse, does someone know how to access bank accounts and pay bills?

Do you know how to log into all of their devices, such as their cell phone, tablet (iPad), and/or desktop or laptop computer?

As we talk to clients, there are a significant number of families where one person handles all the financial matters….and the other person or children would not know how to handle these important tasks, or does not know the logins and passwords needed to get access or pay bills.

We want to stress to you the importance of talking to your spouse or other family members (children or even grandchildren) about these things so they are informed and prepared, in advance.

We know that many of you are resistant to using password manager programs, even though we have strongly recommended these many times in the past. The issue we are addressing here goes far beyond using a program.

It’s about information…..whether you or others know how to do things, and do multiple people that are close to you have the knowledge, ability and data (logins and passwords) to handle important financial tasks, if you or another family member are not capable of doing these things?

Do a practice drill. Spend 15 minutes with your parents or loved ones. Talk about this. It will be beneficial.

Can your close family members access your computer or cell phone, your primary bank account, pay some bills and view your credit card accounts?

Do you each have credit cards in your own name? Every couple should have at least one major credit card that is not a joint credit card account.

Just the opposite, every couple should have at least one bank account that is joint, or have an individual bank account that can be accessed in an emergency with at least $10,000 in it.

We plan for you. We help to build your wealth.

But you must take responsibility to do these things, for you and your loved ones.

The 15-30 minutes that you spend now to do this could save you a lot of problems one day in the future.

Talk to us about your family. We want to help you, your children, (and even your grandchildren), with any financial matter that is important to you and your family.

If you know of family or friends who could benefit from this type of advice and guidance, please share this post with them, and let them know we are available to help them as well.

Investing implications of Coronavirus outbreak

Blog post #431

As of now, the coronavirus has not had a material impact on the investments of our clients.

US and global stock markets have generally been quite resilient and have held up well so far, despite the ongoing health issues, which have led to various consequences in China and are impacting other parts of the world.

We cannot make any predictions or forecasts of what the future will hold or what the full impact of the coronavirus will be. As global health officials are not able to do this, we certainly cannot anticipate what will occur in the coming weeks or months.

We do not recommend making any specific investment changes due to the coronavirus outbreak. As we have discussed in the past, to try to “trade” or “time the market” based on a specific event, you must be correct in your timing…twice. As markets react to news and information so quickly, as well as rumors, this is not likely to be a successful strategy.

While it is very possible that global stock markets may incur losses or more volatility due to the coronavirus, we feel a strategy of adhering to your long-term investment plan and asset allocation makes the most sense.

Companies based in the US and globally will be impacted, but to varying degrees. Companies are not able to anticipate or determine what the impact will be, or very few companies have released specific statements or changed their earnings guidance. It is likely that some firms, and their stocks, could be affected, such as companies that have major businesses in China (such as Starbucks and luxury retailers), companies that rely on travel to or from China (such as certain airlines, hotels, luxury retailers and the gaming industry), or companies based in China or that rely on China for the manufacturing and supply of products (Apple, for example).

We want our clients to know that they have very little direct exposure to companies that are actually based in China. For example, if you have a 60/40% stock/fixed income allocation, Chinese-based companies account for approximately 2-3% of the globally diversified portfolio that we recommend.

However, it is important to note that the impact of the coronavirus may globally extend beyond companies that have historically relied upon Chinese consumers, Chinese tourism and spending for a significant part of their revenue and profits. The virus may lead to issues for companies on a global basis that rely on Chinese companies as part of their supply chain. These companies would be held throughout a typical portfolio and the impact cannot be determined.

There may be short-term impacts and stock market swings based on health reports, either positive or negative, due to the coronavirus. Volatility may increase if the coronavirus outbreak persists in China or spreads in a more significant manner to other parts of the world, or the US. The stocks of individual or groups of companies may begin to be impacted more as they are better able to assess and report changes in revenue and future earnings expectations due to the impact of coronavirus on their business.

Interest rates have dropped in the US, due to the coronavirus. This has created another opportunity for mortgage refinancing, or low rates if you are looking to purchase a house, as mortgage rates for 15 and 30 years are extremely low. The price of oil and some other commodities have dropped significantly due to the reduced demand, because of the major shutdowns occurring in China.

We want to emphasize that if you have specific financial concerns or want to discuss the impact of this situation to your portfolio or financial future, please contact us.

While we stress a long-term approach to investing, if you have short term concerns, now is the time to talk to us about that. That is what we are here for.

Are you improving your habits?

Blog post #430

For most of us, wealth or a successful career does not happen overnight.

Growing your wealth or accomplishing almost anything, such as improving your health or building a business, takes time. Success in these types of endeavors rarely happens quickly. Massive success does not always require massive action. In reality, most successes are usually the result of changes that seem small and incremental, which accumulate over months and years and then compound into remarkable results…..if you’re willing to stick with good habits for years.

In the book Atomic Habits by James Clear, he explains how very small changes in your habits and routines can have a significant long-term positive impact on your life. Although I have only started the book, I highly recommend it already.

Clear explains his title….” atomic” means an extremely small amount of a thing which is the source of immense energy or power. “Habit” is a routine or practice performed regularly.

Improving by 1% per day or per year does not seem like much, and may not even be noticeable at the time, but over the long run, can be very meaningful.

Likewise, small declines or mistakes here and there hinder progress and can eventually lead to a problem. Think of your daily food decisions, fast food visits or poor financial decisions, such as if you tried to time the stock market and failed at it. Did you ever get out of the market and then miss a huge recovery before you got back in?

If you are working and trying to build your retirement, are you increasing your retirement plan contribution % every year, when you get a raise?

  • If you did that, you would be saving more every year, and still taking home more money.
  • If you increased your retirement contribution every year, say from 5%, to 6%, to 7% and continuing each year…..that would have a huge impact on your savings and wealth accumulation over 5-10-15 years.

When my three children were young, we saved a few hundred dollars per month for each of them for college. Along with the habit of saving gift money they received from relatives, such as grandparents, and sacrificing some trips to ensure that we continued to save, we were able to save enough for each of their college costs. The growth of these accounts did not happen overnight….it was the result of starting at birth and continuing to save for more than 15 years for each of them. Also, we were disciplined and stuck with the investments, regardless of the ups and downs of the stock market.

In his bookClear stresses that “habits are the compound interest of self-improvement. The same way that money multiplies through compound interest, the effects of your habits multiply as you repeat them. They seem to make little difference on any given day and yet the impact they deliver over the months and years can be enormous. It is only when looking back two, five, or perhaps 10 years later that the value of good habits and the cost of bad ones becomes strikingly apparent.” **

If you save money each month or regularly, you don’t become a millionaire overnight. If you go to the gym or workout a few days in a row, you are not suddenly in great shape. For most of us, we make a few changes, try to change our habits….but don’t see quick results, so we don’t make the change a permanent habit for the long term.

Clear empathizes over and over that success is the product of daily habits that you stick with, not a once in a lifetime transformation, such as one great stock pick or starting the latest fad diet for a few days or weeks. You should be more focused on your trajectory. Are you moving in the right direction? We can help you with your financial planning, financial habits and trajectory. A personal trainer can help you with your health trajectory.

  • Are you spending less than you are earning?
  • Are you saving regularly?
  • Are you exercising regularly, doing both aerobics and strength training?

Your outcomes (results) are a lagging measure of your habits (what you have done in the past for many years). Your net worth is a lagging measure of your financial habits (which we can help you with). Your weight is a lagging measure of your eating habits. Your clutter (and mine) is a lagging measure of your cleaning habits and organizational skills (and mine). You get what you repeat.

Clear introduces two concepts that I found very instructive late in the first chapter. He said we all go through a “Valley of Disappointment” when we adopt new habits. We start exercising and don’t see quick results. It is frustrating. So, we get disappointed and don’t stick with it long enough to see the compounding benefits. Most of us quit the new habit when we are in the Valley of Disappointment. We want to see the results and impact, but the key of the compounding process is that the most powerful outcomes and changes are delayed into the future. And this is part of the reason that so many new habits are started and not adhered to for the long term, let alone for weeks or months.

To see a meaningful difference, we must adhere to new habits and practices long enough to reach the breakthrough, or what he calls the “Plateau of Latent Potential.” When you are saving monthly for college or retirement, the account may not grow much month to month, but then you realize at some point, which may be years into the future, that your monthly or quarterly habit of savings is becoming real money. The account has grown to a significant level. The habit is/was worth sticking to!

While I didn’t know about the “Valley of Disappointment” or the “Plateau of Latent Potential” until this week, I experienced exactly these feelings over the past few months. I hurt my back, which also caused pain down one leg and behind my knees in mid-November. After seeing my internist and a physical medicine doctor, I began physical therapy in mid-December. He prescribed a series of exercises I was to do three times daily, which took 20-25 minutes each time, as well as go in for physical therapy visits 2-3 times per week.

I started the exercises and was very frustrated around Christmas and New Years. I was spending about 60-75 minutes per day doing the exercises, plus office visits….and was not feeling much improvement. In Clear’s terms, I was in the “Valley of Disappointment.”

Fortunately, I am disciplined. I wanted to feel better. I didn’t give up. I made these exercises a new habit. Three times a day, almost every day, regardless of whatever other activities and early morning meetings I had, I did these exercises and went to see the physical therapist as directed, 2-3 times per week. (If anyone needs a great PT recommendation in the Southfield, MI area, I will gladly provide you his name).

Then it happened. All of a sudden, I started to see real improvement. I hit the “Plateau of Latent Potential.” The daily exercises showed signs of paying off. My legs felt better. My back pain was progressively diminishing. That was even more motivating. So, I have continued doing all these new habits, the regular PT exercises and office visits, and the progress has continued.

And unexpectedly, I realized that I was also getting stronger, which was a great side benefit. This is another benefit of adhering to good habits. Sticking to good habits leads to continual improvement, which leads to self-improvement in other parts of your life.

For me and our firm, we have always been dedicated to self-improvement and continual learning. I have been a member of a study group for over 15 years that meets with other financial advisors from across the country a few times a year and have monthly peer telephone calls.

This dedication and habit of self-improvement had another benefit last week. I decided to begin reading Atomic Habits after a Q & A session I participated in last week in Austin, Texas, with the co-CEO of Dimensional Fund Advisors. I had heard of the book previously, but had not read it. Dave Butler, the co-CEO was asked about his habits, as a successful leader. He said he is a huge believer in the power of habits and that successful people develop small habits on a regular basis. And they are successful because they stick to them as long-term habits.

I have a habit of listening to others I respect, and Dave Butler is one of those people. When someone like that recommends a book, I usually go directly into my Amazon app and put the book into my cart. Habit. It then becomes an immediate reminder to consider reading that book. Another habit. Then I read a lot. Habit.

We want to help you develop and continue to have good financial habits.

If you spend less than you earn, you can save.

If you save and invest wisely over the long term, you can have financial success.

You can retire in a comfortable manner. You can travel if you choose. You can provide financial assistance to your children and grandchildren, as well as charitable causes.

A lifetime of good things can come from having good financial habits.

Talk to us about your family. We want to help you, your children, (and even your grandchildren), with any financial matter that is important to you and your family.

If you know of family or friends who could benefit from this type of advice and guidance, please share this post with them, and let them know we are available to help them as well.

** Source, Atomic Habits, James Clear, page 16 (italics added for emphasis)

Dow Nearing 30,000: The Implications

Blog post #429

The Dow Jones Industrial Average (DJIA) is close to the 30,000 mark for the first time in its history, as it exceeded the 29,000 level in mid-January.

This is historic because it represents the continued increase in the worth of large US companies and their respective stocks.

It has taken only 3 years for the DJIA to increase from 20,000 to nearly 30,000, though there is no way to know when it will reach 30,000, as it is now trading below 29,000, as of Wednesday, January 29, 2020. Last week, prior to the reports of the Coronavirus outbreak in China and other parts of the world, the DJIA was above 29,300.

The DJIA first crossed 20,000 on January 25, 2017, a little over 3 years ago. While that is very fast for a 50% rise, from 20,000 to nearly 30,000, the increase was not straight up…there were a few significant, sharp periods of decline in the past three years.

However, it took almost 18 years for the DJIA to double from 10,000 to 20,000, which was a 100% increase. The DJIA first closed over 10,000 in March 1999. It went back and forth 33 times above and below that 10,000 level until August 27, 2010, the last time it was around 10,000. This emphasizes the patience which is needed to reap the rewards of investing in stocks.

While the DJIA and US stocks have risen dramatically since 2017, it is important to remember some of the key factors which cause stock market changes: changes in real earnings and future earnings expectations. Stocks have also been helped over the past decade by continued very low interest rates.

We encourage you to understand the perspective of the DJIA nearing this milestone. The DJIA is composed of only 30 stocks. The DJIA at times may perform similarly to the S&P 500, an index of 500 US based large companies, but these two major indices may perform differently for many reasons.

The DJIA gets a lot of media attention, so it is important for that reason. However, the DJIA is calculated in an old-fashioned manner which is not considered an accurate representation of how investors are really doing.

The DJIA is calculated based on share price, not based on a stock’s market capitalization. This means that an increase or decrease of $1 in the share price of Apple, with a share price of around $325, impacts the DJIA approximately 2 ½ times more than a $1 increase in the price of Proctor & Gamble, which is priced around $126. Thus, stocks with higher share prices affect the DJIA more than the price changes of lower priced stocks, such as GE today.

As the DJIA gets to even higher levels, we want to encourage you to put DJIA “number headlines” in the proper perspective. If the Dow is at 30,000, a 100 point increase or decrease is only a 0.33% change. A 250 point change would be less than 1%, at 0.83%. So even a 250 point increase or decrease is really not that significant.

  • When the Dow was at 10,000, a 250 point daily change was over a 2.5% change.
Please keep actual DJIA point moves in the proper perspective. It is better to think of the changes in percentage terms, which are more relevant.

What do these levels mean to you? With various US major stock indices reaching new highs in January 2020, we want to remind you that we focus on long term global portfolios and your personal investment plan. We recommend a globally diversified portfolio, which includes both US and non-US stocks, with a tilt towards small and value stocks.

We regularly monitor your exposure to stocks and we will rebalance (sell or buy stocks) if your stock allocation increases (or decreases) significantly from your agreed upon stock allocation.

In real terms, if you have a $3 million portfolio with a 60% stock allocation, your stock holdings target would be $1.8 million. If because of stock market increases, your total portfolio grew to $3.4 million with $2.2 million in stocks, your stock allocation would now be 65%, which is more risk than we agreed was necessary for your risk tolerance or to meet your financial goals. We would review and likely sell about $160,000 of stocks, to bring the stock allocation back to 60% (based on tax and other considerations). This is how we are disciplined and rational in our long-term approach to investment management.

Stock market indices nearing new highs gives us confidence in our long term approach to investing, by maintaining consistent and appropriate allocation to stocks.

Talk with us. If you know of family or friends who could benefit from this type of advice and guidance, please share this post with them, and let them know we are available to help them as well.

 

Talking About Your Family’s Financial Future

Blog post #428

If you are a client of our firm, you have decided there is value in having a financial advisor.

We are pleased that more than 130 individuals and families in 18 states have made the decision to work with our firm, for guidance in investing and comprehensive financial planning.

We help you with investing.

We can assist in guiding you through many decisions and the financial complexities you face.

We can help to provide you with a sense of comfort, in an unpredictable and constantly changing financial world.

But what about your children? How are they managing their financial future?

How are they making their financial decisions?

Are they getting good advice? Are they making decisions on their own?

We can help them, as well as assist you.

If you have a significant legacy to be passed on to your children, are your children prepared to handle the decisions related to a future inheritance that you have built, and one day, will pass on to them?

We can begin working with your children today, to provide them with investing guidance which will be useful now and well into their future, as their assets grow.

Depending on the ages of your children, we can assist them with advice for the wide range of needs and issues they face. If your children are in their 40s and 50s, we can assist them with their retirement planning and how to best invest for retirement. We can provide guidance and help them manage their 401(k) retirement plan and IRA rollovers they may have from any prior jobs.

If you have younger children, they may be at a stage in their life where they have student loan debt, a mortgage and young children of their own. They may have some or all of these issues and challenges. They may have student loan debt, want to buy a house and want to be able to manage it all.

And, along with all of this, you and your children may want to save or help pay for college for their kids, in the most tax efficient method possible.We have experience in helping future generations with all of these issues, and many more financial planning topics.

Do you talk to your children about financial issues? Some of you may be comfortable with these types of conversations, and some of you may not be comfortable.

Either way, we can have conversations with your children (and even your grandchildren – depending on how old they are!).

Talk to us about your family. We want to help you, your children, (and even your grandchildren), with any financial matter that is important to you and your family.

If you know of family or friends who could benefit from this type of advice and guidance, please share this post with them, and let them know we are available to help them as well.

Getting Personal….Hope is not a plan

Blog post #427

I took some time this week and wrote a list of items that I called “2020s…Hopes and Thoughts.”

The idea to do this came from a set of lists I saw on Twitter around New Years, where many financial people that I follow posted lists of things they had accomplished or how their life had changed from 2010 to 2020.

I took that idea and wrote a list of things that I want to occur in the next decade, from now to 2030.

As I was sending this list to my executive coach for our monthly call, I realized that I had made a mistake.

The mistake was not in my list. The mistake was what I called my list.

The mistake was the title. I should not have called the list Hopes and Thoughts.” I should have called it “Plans and Thoughts.”

There is a big difference between “hopes” and “plans.” In reality, most of the things that I wrote are items that I can control, at least to some degree, so I can take future actions and plan to make it much more likely for each item to occur.

This is really a list of plans or goals, of what I want to do or accomplish, of what may happen if I do certain things and be pro-active.

This is not really a list of hopes. Hope does not imply planning or that I have any control about the outcome.

Hope means that you want and desire something to happen in the future. But hope, on its own, implies that you cannot influence the outcome.

I want to be financially secure. I want to travel extensively. Both of these are hopes, but I have a significant ability to ensure that both will be a reality. If I want to visit NewYork annually and go to London and Paris in the future, planning and thinking about this now, and again in the future, make it much more likely for these to occur.

While I cannot control how the stock market will do in the short term, which has a direct impact on my financial security, I am confident that in the long run, if I continue to save on a regular basis, that I will be financially secure.

One of the major changes for our firm this year, later this spring, will be the introduction of new comprehensive financial planning software, that will make planning, goal setting and then tracking each of our clients’ progress more of a reality. We want to do more to make your plans, as well as your hopes, something that together you will have a greater sense of control over.

One of the items on my list was to ensure that my wife and children are properly taken care of, if I die, as well as bequests to charities that are important to me. While I certainly hope I am living 10 years from now, I can make the financial security of my family a reality by regularly reviewing my estate plan and making sure that it reflects my wishes and the financial circumstances of my family members. I can also regularly review my asset allocation, my life insurance and the titling of my investment accounts, as tax laws change.

Plans can also change. Earlier this week, I made a list of some places that I want to visit over the next 10 years. And then at lunch with a client on Wednesday, he talked about the incredible experience he had visiting South Africa and the safaris he went on. I came back to the office and added this to my travel list.

My priorities just changed, days after writing my list. My priorities will continue to change in the future. That is a reality in life, as there are always new opportunities, experiences, uncertainty and adversity.

I am much more likely to accomplish these things and make these goals a reality, by having a list and by spending time thinking about the future.

I encourage each of you to take an hour and think about the past 10 years and the next 10 years. Take 30 minutes for each, together, or at different times.

Look back over the past decade. Where did you live 10 years ago? What has changed? What did you accomplish? What have your kids done? Graduations, weddings, births, deaths? Where have you gone? Write it down somewhere.

Then look forward 10 years. What does that look like? What changes do you want to make? How can you improve your health? (Making time for more regular exercise and sleep are definitely on my list!). What is important to you? Are you doing it? What do you want to do? What do you want to stop doing? Write these down somewhere.

While past investment performance is no guarantee about the future, I can almost guarantee that if you do this, and look back 10 years and look forward 10 years, you will find this to be time well spent.

And you will find that hope is not a plan. Having a plan, or plans, leads to actions, accomplishments….hopefully, positive outcomes.

Talk to us. We want to help you with any financial matter that is important to you.

If you know of family or friends who could benefit from this type of advice and guidance, please share this post with them, and let them know we are available to help them as well.

The Value of having an Investment Plan

Blog post #426

If 2018 and 2019 taught investors anything, it is the value of having an investment plan and the importance of adhering to it.

In late 2018, the US and Global stock markets declined significantly, as the S&P 500, which consists of large US based companies, dropped by almost 20%.

What were you thinking then? Did you want to stay in the market or get out? Were you fearful or concerned?

Hopefully, with the advice and counsel of your financial advisor, such as our firm, you decided that it made sense to stay invested in stocks and adhere to your long-term investment plan.

For clients who remained invested, we viewed such a downturn as a buying opportunity and would have purchased stocks in late 2018 or early 2019. Buying stocks when others were selling and when markets look ominous takes discipline. That is one of the values of working with our firm, as we don’t react with emotion, we react with sticking to your long term asset allocation between stocks and fixed income.

By sticking to your plan, by remaining disciplined or allowing us the discretion to be disciplined for you, you were rewarded in 2019 with strong stock performance across asset classes, in the US and Internationally.

Stock markets do not have a memory. Don’t try to time the markets. Don’t try to figure out when to get in and when to get out. It is too hard to consistently be correct – and you need to be accurate twice, trying to time when to get out and when to get back in.

It makes much more sense to develop an investment plan, which we call an Investment Policy Statement (IPS).  An IPS provides for the allocation percentage to stocks that helps you reach your financial goals and the level of risk that you can be comfortable with, which enables you to remain invested during down markets and times of uncertainty (which is really always!).

It may seem easy today to invest or remain invested, after a year of significant gains in a diversified portfolio. But when volatility or an extended down period returns, we hope that you see the value of our advice and guidance.

Providing you with regular and timely information and guidance can help you to be a better long-term investor. Being out of the market for a few key days or during a quick upturn can have a dramatic impact on your long-term finances. As our blog post in November, 2019 showed, Importance of Staying in the Game, missing out on only the top 5 days of the S&P 500 between 1970 and August 2019, over 29 years, reduced the return of $1,000 invested in 1970 from $138,908 to $90,171.

That is incredible and reinforces the importance of remaining invested, regardless of the news, forecasts or other future concerns. There will always be uncertainties to deal with, such as politics, recessions or world turmoil. We will never know the best time to get into or out of the market because we cannot predict the future. That makes sense, as global stock markets offer you greater potential for returns than investments that don’t have as much risk and volatility. As the saying goes, risk and return are related. No risk, no reward.

So what should you do in 2020? These lessons and strategies are the same as we would advise in almost any year.

  • Be a long-term investor in a globally diversified portfolio.
  • Work with an advisor to determine a portfolio and a comprehensive financial plan that makes sense for your financial situation and goals.
  • Accept the market’s inevitable ups and downs, so you can reduce your anxiety about it, when the down times occur. And they will.
  • Stop trying to time the markets.
  • Try not to worry about current events and their potential impact on the markets. You can’t predict what will occur and how it will impact stocks.
  • Instead, focus more on your family, the people and things that you care about and you love to do.

Talk to us. We want to help you with any financial matter that is important to you.

If you know of family or friends who could benefit from this type of advice and guidance, please share this post with them, and let them know we are available to help them as well.

Source: This blog post was inspired by “The Market Has No Memory,” by David Booth, Executive Chairman and Founder of Dimensional Fund Advisors, dated January 3, 2020.

New Year….New Retirement planning and tax changes

Blog post #425

In late December, as part of major spending legislation, Congress passed what is called the SECURE Act, which makes numerous changes to retirement plans, particularly regarding distributions after an account owner dies.

There are many detailed items in this legislation. We will provide you with an overview of changes that will affect most people.

The SECURE Act did not change how much you can contribute to a 401(k), IRA or planning opportunities for those who own business or are self-employed. We encourage you to consult with us about your retirement planning, investment choices and related matters.

Changes to distributions….end of the Stretch IRA, mostly

If you inherited retirement assets from someone who died prior to 2020, the SECURE Act changes do not impact those inheritance distribution rules at all.

For someone who dies after 2019, fewer beneficiaries will be able to stretch the IRA/retirement assets over their life expectancy, as you could under the prior law.

Going forward, most beneficiaries, other than a surviving spouse, will have to take inherited retirement distributions by the end of the 10th year following the year of inheritance. If you inherit such assets, there are no required distributions for years 1-9, but you will need to distribute all the assets by the end of the 10th year.

There could be planning opportunities to evaluate, as the tax impact on when you take these taxable distributions could change depending on the year, your other income, and decisions like when you begin receiving Social Security. Thus, if this impacts you, this should be something to discuss and get advice from your financial and tax advisors.

If you are a surviving spouse, you will continue to be able to take retirement distributions over your life expectancy and you will not be subject to this new 10 year rule.

Have you named a Trust as a retirement beneficiary?

If you have not named people (such as a spouse, child or other relative), but have named a Trust as an IRA, 401(k) or other retirement plan beneficiary, or successor beneficiary, you should review this, as the SECURE Act may limit your distribution flexibility. It is possible a Trust may only provide for distribution in the last year, and not earlier, depending on your Trust document wording.

This could be a bad result, as it potentially limits the beneficiaries from being able to receive the inherited assets earlier, in years 1-9, even if they need the money.

If you have named a Trust as a retirement plan or IRA beneficiary or successor beneficiary, you should consult with your estate planning attorney.

Required Minimum Distribution Age change

Prior law was that you had to begin taking retirement plan distributions by April 1st after the year in which you turned 70 1/2. Yes, that’s simple and logical. Not really!

Under the new law, you must begin taking the required minimum distribution (RMD) by age 72. Simpler. But it’s actually by April 1st in the year after you turn age 72. And if you wait until the year after you turn age 72, then you have to take a 2nd RMD in that year, the year you turn 73. Again, more potential opportunities for planning, so talk to us about these issues.

And, if you turned 70 1/2 by December 31, 2019, you will follow the old rules, not the new age 72 rule. You would need to take an RMD for 2020 and years after.

Qualified Charitable Distributions (QCD) still allowed

For those who do not need all of their retirement money for their living expenses, up to $100,000 of your Required Minimum Distribution each year can be directed to a charity and it is not considered taxable income.

The SECURE Act keeps the age at which you are eligible to make QCDs at age 70 1/2, so if you fall within the 70 1/2 to age 72 group now, and have the financial ability and charitable intent, this could be planning opportunity for you.

Other Items

  • The new law removes the age limit for contributing to a traditional IRA. If you have earned income and are older than 70 1/2, you are now eligible for further IRA contributions.
  • If you incur birth or adoption expenses, you and your spouse, as applicable, will each be eligible for a $5,000 qualified distribution from a retirement plan or IRA. The distribution would be taxable, but not subject to the additional 10% early withdrawal penalty.
  • The SECURE Act changed the tax law related to the kiddie tax, lowering the tax rate back to the parent’s rate. The Act also reduced the threshold for medical expenses to be deductible, back to 7.5% of your Adjusted Gross Income for 2019 and 2020 only.

Concluding thoughts

As you can see, laws and rules are always changing, and these changes can impact your financial future. Change can lead to opportunities and pitfalls.

Please contact us if you have questions about any of these matters. That is what we are here for and the value we provide to you.

Also, please feel free to share this information with others who you think would benefit from reading this information, as well as our advice and guidance.

Gratitude during the holiday season

Blog post #424

The Holidays can be different for each one of us. We might spend the holidays with our immediate family members, extended family or just with our spouses if your children are grown and have schedules of their own or live out of town.

You might bake cookies, decorate a tree, have dinner as a family, go to a religious service, buy gifts for loved ones, or help those in need.

Maybe you celebrate Hanukkah or Christmas and the traditions that accompany these holidays. You may not celebrate the holidays at all.

We often focus on buying presents, hosting our families for the holidays, or trying to please our family and friends. We often find ourselves stressed out during the holidays instead of just enjoying the time with our loved ones.

So, whether you take part in any of the above activities or not, let’s take time to be grateful, appreciative and acknowledge all the opportunities we have in our lives.

Let’s take the time to reflect on the moments both special and ordinary and be in the present with others.

Every Monday, we hold a weekly firm meeting. Over the past few months, we have started our firm meetings by having each WWM team member state something they are thankful for. I know not all members are comfortable sharing with everyone. It’s become a nice personal way to start our firm meetings and get to hear what each WWM team member is thankful for that week.

It has helped our firm grow. We may learn something new about a team member and appreciate the value each WWM team member contributes to the firm.

Just as we take the time to say what we are thankful for each week, we hope you set aside time for reflection and discover what you have gratitude for, at this time of year.

From all of us at WWM:

We appreciate EVERY client and the relationships we get to build with each one of you.

We hope you have a good holiday season and we wish you all the best for a healthy and happy 2020!

This week’s blog written by: Michelle Graham

Note: There will not be a blog post Friday, 12/27/2019.

Looking back and forward, Part 2

Blog post #423

As this decade draws to a close in a few weeks, we are providing a series of blog posts of our thoughts and reflections, lessons and guidance.

Last week we discussed how interest rates changed dramatically over the past decade, and in the opposite direction of what most people would have expected to occur in 2010, for the next 10 years.

This week, we will provide some of the traits, philosophies and attitudes that can help you to be more successful, as an investor and for your financial future.

Having a written investment plan. We feel that developing a written document with our clients, that discusses their long term asset allocation plan, as well as the potential of how such an allocation could perform during a significant market decline, is vital to your future success, as it helps you adhere to the plan during down markets.

To be a successful investor, you need to be patient. You need to have the psychological ability, with our assistance if needed, to ride out market declines, to be able to reap the rewards of positive bounce backs. Staying in the market during and after the significant declines of late 2018, and at other times in the past decade, are great examples of this. By staying in the markets in late 2018, this enabled the stock portion of your portfolio to grow during the positive markets of 2019.

Be willing to listen to others and get advice. Due to changes in financial markets, the economy, tax laws and the speed of change in general, we feel that using a financial advisor can help you reach your financial goals. Using an advisor that adheres to a fiduciary standard, as our firm does, so that the advisor’s interest is aligned with your financial interests is important. One aspect of an advisor that adheres to a fiduciary standard is we try to keep your costs minimal, by using very low cost institutional mutual funds. We cannot control many things, but costs are something we and you can control.

Having a consistent investment philosophy that you believe in and can adhere to over the long term, is vital. This philosophy should provide you with a solid chance for financial success. Rather than continuously changing approaches and underlying investment managers, sticking with a consistent, long term philosophy should provide you with confidence and peace of mind. An important aspect of our philosophy is the belief that, for most investors over the long-term, utilizing asset class mutual funds should outperform those who buy and sell individual stocks, as well as active money managers who try to guess which stocks and sectors will do the best in the future.

We believe that for the long term, being broadly and globally diversified is the proper strategy for your stock portfolio. We also believe that having a portfolio tilted towards small and value stocks, as well as including International stocks, should provide you better expected returns and a smoother ride over the long-term.

 

  • We may have the right long-term strategy, but this does not mean this will result in an optimal outcome every year or even for a number of years. You can have a good strategy, and still incur an outcome that is not as good as another strategy over certain time periods. But that does not mean you should change your strategy in a significant manner, unless you have evidence which supports your change, or that your current strategy is no longer valid.
  • To use a sports analogy, if you are going into the Super Bowl and could pick any quarterback, choosing Tom Brady may be the correct strategy. He may not win that one game, but your plan was valid. Over the longer term, he has proven to be a winner. Likewise, in investing, one could develop a sound strategy and recommend investing in a diversified set of asset classes (mutual funds).  If one of those asset class mutual funds underperforms other asset categories for a period of time, this does not mean the strategy was bad.  Patience is likely to prove that in the long term, continuing to hold a currently underperforming asset class to be rewarding in the future.  We just don’t know exactly when.

We think having a positive attitude helps you to be a more successful investor. You should believe in capitalism and that over the long-term, companies will succeed and grow their earnings.

Having realistic expectations of the financial markets is vital. You should know that stocks go down at least 20% in one of every 5 years, on average, since World War II. We want you to be prepared emotionally and financially for such downturns. At the same time, know that stocks go up far more years than they go down. When you are in retirement mode, you should plan to withdrawal 4-5% of your portfolio, which gives you a better chance of not running out of money during your lifetime and be able to maintain your standard of living.

We know that the financial markets and the world are continually changing, and we will change and adopt new strategies, investments and concepts, if they are valid, sound and we expect them to be beneficial to our clients. We are independent. We do not get compensated by mutual funds or other investment providers. We gather information from many sources, but we make our own decisions and recommendations.

We have used the same general investment philosophy since our inception in 2003. We still strongly believe in these major concepts and beliefs. Within that framework, however, we have not been static. We have made changes and modifications over time and will continue to do so, as we feel they should be made, as long as we expect them to be in our client’s best interest.

We cannot predict the future. We do not know what the next decade will bring. We do know that we have a set of philosophies and beliefs, as well as a team of professionals and industry relationships, that you can be confident in.

Talk to us.