As 2020 draws to an anti-climatic, tired close, we approach Christmas and New Years Eve – good days to end 2020. I want to thank our clients for putting their trust in our services. 2020 was a year of purposeful planning amidst significant client growth, while adjusting to required COVID rules. Our clients and our team worked together to bring success to each client. I sincerely want to acknowledge Keenan Casey, CFP©, our Support Advisor, and Michelle Williamson, our Office Manager. Alpers Financial Planning provides high service levels because our team is willing to go above and beyond to make certain our platinum service goals are achieved. I’m thankful for the unending enthusiasm, experienced and competent output, personal energy, and positive attitudes displayed by everyone in the office, including our off site tech service headed by David Graham. It makes each day a pleasure in our office. This positive office synergy is evidenced with clients frequently attesting to their confidence in our team. Our client appreciation evening in late 2019 culminated a good year, with a very pleasant evening at Biaggis. We hope for a 2021 gathering to more personally show our appreciation. And even with COVID, we emptied our Salvation Army Tree Tags from our tree and delivered 4 shopping carts FULL of gifts for disadvantaged children. Thank you again, everyone.
After this very busy year, it is time for reflection, rest and some preparation for next year. Our office will be closed from noon on Dec 23rd until Jan 4th, 2021. We will be checking email and phone, so if you are a client and an important matter arises, please contact us via through Jan 3rd, and then direct your emails and calls as usual to the appropriate person in our office. Thank you,
Merry Christmas. 🎄
Temporary Reality – Mary R Alpers
It’s a challenge adjusting to this temporary reality. Most are heeding instructions to slow the spread of the CoVID-19 virus: social distancing for two weeks, now for another month, and possibly longer. We encourage parents, relatives, friends, children, and co-workers to take precautions. Precious lives have been lost, the broad economy and personal jobs are affected and at this point most of us know someone or know someone who knows someone affected by the CoVID-19 virus. Our emotional health is strained. Thank goodness for facetime, zoom and other apps that bring loved ones nearer.
Although Alpers Financial Planning is deemed “essential” our office is practicing social distancing. One employee is in the office at a time and the others work from home. We have offered virtual meetings for years and can remote in to continue to serve clients.
Medical professionals are “all hands-on deck.” My niece was pulled from her regular nursing position to the front lines. Nursing students were assigned early to medical facilities. Some residents are sewing masks. Entertainment shows featuring MDs and Nurses donated masks and gowns from costume departments. Many churches accept food and cash donations for those in need. Counselors are available to listen, pray and comfort. Some homeowner associations including my own have opportunities for neighbors to help and seek help, or just to communicate, creating avenues of virtual contact. My sister in law is teaching her kindergarten class online. My daughter became an overnight homeschooler. Our financial planning support organization (ACP) offers a daily virtual meeting to share anything on our hearts as we serve our clients and work through tax season.
Comparing to another historic time when our country banded together: During World War II civilians collected rubber (tires) for the military. Women’s fashion statement included nylons, and they went without for needed parachute material. Diets were restricted for military rations. Civilians sewed uniforms, packed rations and cared for children and their home. They took jobs in factories replacing men. My maternal grandmother became a Red Cross nurse. My paternal grandmother worked in Iceland as a riveter.
Both then and now people wonder(ed) how long this would last and how soon will/would we recover. Constant media coverage heightens emotions and can move us to make emotionally weighted financial decisions. That is where we come in. We are here to discuss any concerns about your financial situation. Fortunately, our clients understand why and how they are invested. For retired or nearly retired clients US Treasury Bonds, Cd’s and highly rated bond funds are comforting, and you understand that the stock portion of your portfolio is for long term growth. Equities (stocks) protect against inflation and create long term wealth. Younger clients have time for recovery while continuing to add to savings. Investors have opportunities for wisely managed growth. We recommend maintaining a comfortable level of cash to offset sudden unemployment or unexpected expenses and avoiding credit card and any other unnecessary debt. This is financial wisdom.
Wise tax planning protects net worth. Clients who attended our appreciation dinner last fall heard more about the value of time, savings, wise investment allocations, and that tax planning enhances overall life planning for each individual or couple.
But it’s been difficult to watch the market’s wild ride. So if you (as our client) were to ask me if you should sell everything now, I would recommend “no” at this time, because we set your target allocation and would instead recommend focusing on tactics such as strategic rebalancing, tax loss harvesting, strategies for IRAs, ROTH conversions, and maintaining a healthy cash balance.
From the March 27, 2020 Cares Act: The tax filing season has been extended to July 15th, delaying taxes owed and the first quarter 2020 estimated payments. July 15th is also the deadline for IRA and ROTH contributions for tax year 2019. Ironically, the second quarter estimates are still due June 15th. This will likely change, so stay tuned.
IRA and Beneficiary IRA Required Minimum Distributions (RMDs) normally taken in 2020 are now suspended. If you took the distribution within the past 60 days, you could deposit the funds back into your IRA provided there were no other indirect rollovers in the past 12 months. If you take your distribution in monthly withdrawals, you can stop those for the balance of the year plus a 60-day lookback. Beneficiary IRA Minimum Required Distributions are also suspended if not already taken for 2020. The last time any Required Distributions were suspended was in 2009 after the 2008 financial crisis.
Suspending these taxable withdrawals and using after tax assets for cash flow allows RMDs calculated based on a higher 12/31/19 balance to remain in the account another year, and this results in less taxable income in 2020. We are discussing this with clients. (UPDATE as of 4/3: The IRS is being pressured to reconsider the 60 days limit and allow any Required Distributions taken in 2020 to be returned to the accounts. So… again stay tuned.
If you are concerned about your cash level or equity balance, please call us to discuss. This is particularly important if you have an unanticipated a life change or are concerned about job security or your health. I don’t have answers as to how long this will last or how quickly the market will recover but I can provide the historical chart below. For the 26 market corrections since World War II it shows the overall average market decline was 13.7% (the max being over 20%). We have topped 23% so far. The average recovery cycle was 4 months down then 4 months up.
For small businesses: As of 4/3 the IRS is on its 4th draft of the PPP (Paycheck Protection Program) application that allows small businesses a 100% forgivable loan up to $10,000 to cover payroll costs to avoid laying employees off. If you apply for this, read the fine print carefully. There are 3 other types of loans for small businesses to sustain them through this period.
https://www.sba.gov/funding-programs/loans/coronavirus-relief-options
Above all, stay healthy, rested, hydrated and while practicing social distancing, communicate with those in your life. Find someone to talk with when this temporary reality starts wearing on you. Last week I called a friend because on a personal note, my father was at “end of life” in a local nursing home and I was allowed in to say “goodbyes.” We’ve been unable to see him for weeks for the residents’ and staff protection. It was surreal to have my temperature taken, complete a health form, don a mask and receive orders of where I could go. I left I worried I might not be allowed back in, and he would pass away without family near him. My father peacefully passed away two days later, and they allowed me to be by his side. They were sensitive and gracious and it meant a lot.
While this is our temporary reality, it affects real life in ways we might not imagine. I’m optimistic things will get better and I’m grateful for the kindness I see in others.
Alpers Financial Planning is available to discuss your concerns because you chose to work with a firm that is interested in more about you than the singular topic of investment rate of return. We are interested in helping you live life to your fullest with solid financial guidance, comprehensive advice and a long-term outlook. Stay Safe.
The Gratification of Organization
Alpers Financial Planning moved recently – to a convenient new location on Gleneagle Drive. Sorting, deciding what to keep, what to upgrade, packing, transporting, unpacking, arranging files, etc. was a 1 week event. Setting up the technology, getting computers to talk to the printers they are supposed to talk to, establishing our network, backup, security, new phone system, furniture delivery, setup and arranging was another week. The ongoing final touches to make it what we have envisioned has been the fun part. A huge thank you to our tech guy, Eric, the voice and data technician, Aaron, the build out crew from the building, and of course, Michelle and Jeff. It was gratifying to see everyone coordinating so well to settle us in. We look forward to meeting our clients in our new space.
This endeavor reminds me of talking with clients about organizing their financial lives. Undoubtedly most everyone has had a few moves, and even between moves, it is wise to survey your overall organization of financial, estate, insurance documents and other legal documents. Briefly, and not inclusive, your tax returns should remain on file for 7 years, longer if they relate to an existing business, installment sale, some active trusts, carryforward losses, etc. Your current insurance policies, mortgage documents and latest Wills and Trusts should be secured with at least one beneficiary or attorney knowing how to access them. Your online passwords should be secured with access available to those someday needing this information. We provide new clients with a home organizer and while some prefer to do all online storage, we encourage physical filing of the most important papers that may need accessing quickly. Many have a home safe or a safety deposit box. The well written article below discusses various password protection options, depending on complexity and security needs. Be certain once you decide how to store passwords that whoever needs access in the event of an emergency, is in the know. https://www.washingtonpost.com/news/the-switch/wp/2014/08/07/how-to-keep-track-of-your-passwords-without-going-insane/
Another thought I had during the move was the importance of balance between simplifying and keeping what will serve a useful purpose or enhance one’s life. In our personal lives, this includes determining the difference between cherished personal property, collections, memorabilia, useful or comfort possessions versus unnecessary clutter or junk. It is a good idea to basically “clean house” every now and then. There is something quite gratifying about simplifying, from giving away old DVDs or even VHS tapes, purging your closets of clothes not worn for several seasons or ones that no longer fit, cleaning out drawers and generously giving away toys no longer used or needed. Remember, they’ve created shows about hoarding. Just be sure it is your possessions you are decluttering, and not another family member’s, unless you have their permission. We hear stories of regret about throwing out someone else’s prized “fill in the blank” rather than giving it to him/her to decide its future.
What I like most about this exercise is that there is strong evidence decluttering lowers tension, refocuses our minds, brings peace, and a sense of order and rejuvenation. I enjoyed reading this blog written by Erin the Organizer. http://www.chicagonow.com/organizing-with-erin/2013/01/the-physical-and-mental-benefits-of-decluttering/
Happy last days of summer, and maybe this fall you can carve out a time for fall cleaning as you contemplate raking leaves. And come by to see our new office.
Getting Couples to Agree on Finances
Voices: Mary Alpers, On Getting Spouses to Agree
Mary Alpers is president of Monument, Colo.-based financial Alpers and Associates.
Too often one of the spouses is responsible for the household finances — such as investing , saving, budgeting or paying bills — and the other is left completely in the dark. A bad dynamic can develop, where one spouse feels overburdened and the other feels anxious because he or she never has an
idea of the family’s actual wealth. This is especially concerning with older couples, because if something happens to the financially responsible party, it can be disastrous to the surviving spouse.
I encourage all my client couples to tackle their finances as a team. At a minimum I urge them to share the following 10 pieces of vital financial information with each other: names of every account, account numbers and PINs; information on all insurance policies; credit card balances; contact information for all attorneys; bills and when they are due; location of any safety deposit boxes; contact information for advisers or brokers; information about retirement plans (including 401(k) plans and 403(b) plans); and finally, access to Social Security entitlements.
Another really helpful way for couples to approach their finances is to share a single checking account. When you’re married, most expenses, such as vacations, new cars and rent or mortgage payments, are family expenses. And if each spouse has his or her own account, neither has a clear picture of their total assets. It then becomes very difficult to create an accurate cash flow plan.
To help get couples on the same page, I have them create individual lists of their values and financial goals. I’m always surprised at how many couples have never discussed these issues with each other. Once they have identified their individual goals, I work with them to create a plan to help them reach those goals.
It’s good to start clients out by identifying their hopes and dreams, but sometimes this process can be a reality check. A couple may realize that at their current income, spending or debt levels, they simply can’t afford to meet any of their goals. It’s in these instances that couples really need to work together as a team.
From VOICES in the Wall Street Journal on February 23 2011.
For instance, it’s usually very important that couples pay down debt together — even if it’s been acquired by only one of them. First of all, married couples share a single credit score. More importantly, out-of-control credit card debt can ruin the finances of the entire household. If couples work together to pay it down, it’s twice as easy to eliminate, and in the end, both parties come out ahead.
Often it takes baby steps to get couples on the same page, financially speaking — but the more they work together, the easier their financial lives become. The bottom line is that financial choices made by either spouse tend to affect the whole family. It’s important that information and values are shared from the get-go. In the long run, I’ve found it makes relationships stronger. ~end
I would add that some couples strongly prefer having separate checking accounts. Ideally all income should flow into a joint account and then an agreed upon amount swept to individual checking accounts. That way both individuals will know what is coming in and going out of the household.
LABOR DAY THOUGHTS…
Politicians have now made “the economy” their main talking point. But I don’t think they yet realize that throwing future tax dollars towards a “stimulus” without disciplined Federal spending cuts is like a shark feeding on its own blood. And why not wait until the last minute? The November elections are still 60 or so days away…even though most Americans have had a heightened concern about the economy since around 2008.
I’m really not gloom and doom as some because I have faith in the resilience of American workers and entrepreneurs and I sense that the upcoming voters will vote more based on their economic comfort than by pure political party. There are glimmers of stabilization in spite of, in my opinion, an ineffective economic team that insists on bigger government as the answer rather than pro business, private enterprise, and a light handed touch by a now massive federal government. I wonder how quickly our economy might have recovered had they been more hands off. Economists will need to sift through what is spun for the sake of politics versus true statistics. History supports smaller government and lower taxes as foundations for sustained economic growth in a free-market society.
Now come several tests: Will the midterm elections make a strong enough statement to BOTH parties that fiscal spending must decrease and private job sectors be treated with due respect? Will we be given a clearer picture of future fiscal policy so private businesses (meaning non-government) can plan for the long term? In other words, whatever the outcome in November, will there be an articulate and intelligent launching pad?
Imagine you were trying to lay out a financial plan for your family and your life. You’d like to set goals and define variables. You might use years to retirement as a goal, or the cost of future college, or the cost to take time off to further education or change careers, or how much to save to cover time doing philanthropic work, or saving for a special trip, or developing a hobby, or starting a business. I have worked with clients to project the approximate costs, savings and time required for all of these goals.
Now, imagine a Company is projecting future goals that include hiring new people, training employees, investing in capital to expand, developing new marketing territories, etc. As much as our politicians would like to think the private business world functions similar to the government, it doesn’t. Without some parameters and level of fiscal certainty, it is difficult to commit to long term expenses. This is because the private world needs to maintain balance and profits to succeed.
Let’s assume that both you and the Company above have defined costs, realistic investment returns or projected growth and plan to make steady, healthy financial decisions. And then…..all momentum ceases. Suddenly you and the Company are left hanging, dangling over the precipice of swirling rumors, speculation and fears of the vast unknown of TAXES. Yes, because our politicians were busy on other issues these past few years (spending future tax dollars) they apparently didn’t pay attention to their calendars or “forgot” that 2011 is nearing. And on January 1, 2011, unless something happens, a plethora of tax changes will occur. Those most affected will be individuals working for companies and individuals running businesses.
To be blunt, the fact that our government (both parties) allowed this to happen is the most irresponsible and narcissistic lapse of consciousness I’ve seen in politics in a long time. It’s as if they can’t walk and chew gum at the same time. It’s as if they just turned up their hearing aids and heard, “It’s the economy, stupid.” It’s as if they haven’t yet realized that a healthy economy is directly tied to deficits – you cannot separate the two. They now see how quickly the November elections are coming and that January 1, 2011 is around the corner. And they’ve looked at our nation’s balance sheets and realized they’ve already spent SO much money trying “fixes” (through expansion of themselves rather than fixing their own mistakes such as Fannie Mae and Freddie Mac), that it will be very hard to throw more money at the economy and collect more from those doggedly hard working Americans. Americans need to work, and the businesses they work for really need clarity regarding their future outlay to this massive government deficit.
It’s like they (both parties) spent the past few years wearing those blinders that let a horse see only straight ahead. They’ve conducted themselves like kids with their first credit card – only theirs has no limit, and they have operated with an attitude of astonishing short sightedness. I almost feel like they are “learning” rules of basic economics 101 on our time and at our expense. Of course we know that agendas play an enormous role in government spending. But someone has to pay for those agendas, eventually.
The truth is if any of us ran our households like this, or any business owner ran his/her company like this, our country wouldn’t survive as we know it. We voted for people (in both parties) who have yet to clarify the two most important “unknowns” for smart personal and business planning. One: Future Individual and Business Income Tax changes after the expiration of the 2003 Tax Cuts, and Two: the looming, gargantuan Healthcare Laws that they were convinced America needed – so much so that they spent a year working to pass it.
They owe clarity to Americans who keep our economy healthy. On this Labor Day, my prayer is that these politicians are thinking hard about how to prevent us from laboring in vain. I define laboring in vain as when more of my earnings go to a government that spends them in ways that magnify the size of government and minimize a private citizens’ independence, liberty, and ability to freely give and invest into their own lives and families. My prayer is that those in office have some conviction about how they view individuals who keep our country humming: the American majority who care about working and conducting their lives with purpose and clear focus. The vast majority of us want no entitlements, just a level of certainty that will allow us to take wise steps. I heard someone on the radio say that when politicians talk about taxes, if they use the word “target” or “targeting” preceding the word “taxes”, it won’t likely benefit the vast majority of those who actually pay taxes. Good point.
Asking Americans to work and conduct businesses without defining necessary variables (Tax law changes and looming Healthcare mandated costs to name a few) is like blindfolding a baseball pitcher and expecting him to throw a strike and not hit the batter.
Meanwhile, as politicians reposition themselves prior to the November election, I would like to honor all hardworking Americans, whether currently working (in and out of the home), looking for work, or retired from working. You and our exceptional military service men and women are the backbone of our nation. You are the generous ones – giving sacrificially of time and service and charitably to those less fortunate and in need. Without your ability to walk and chew gum at the same time our nation would not be the exceptional nation that is still quietly functioning and overcoming in the background, in spite of the loud and confusing “talk” by our elected officials in the foreground. You are the “Doers.”
Thank you.
RISK: THE GOOD, THE BAD, AND THE FOOLISH
Lately I’ve been thinking about risk in areas other than investing. Last week while visiting Yellowstone for the first time, I found myself calculating: “How close should I get to that wild buffalo I’m trying to photograph?” and “What are the odds that the geyser we are approaching might go off? (It did, and we were DRENCHED), and “Why are those families allowing their toddlers so close to the wild elk standing in the river?” and “Should that woman really be out of her car video recording a herd of buffalo crossing the road right in front of my car?”
Later, I had an interesting conversation with a saleswoman in Jackson Hole about the folly we observed. She called it “the Disneyland Syndrome” meaning some tourists are just certain there is a ride operator nearby who can punch a button to stop impending doom. (Maybe our culture is so used to being rescued on so many fronts that this is more common than in the past….I’ll save that for another day.)
In a typical lifetime career, most people take on various levels of risk. They apply for jobs, learn new skills, make career changes, continue education, start businesses, and hire employees. These risks are part of doing business and successful individuals and businesses are rewarded for risks taken. Of course, there is a chance of failure in some or all of the above. But there is little reward without taking some risk.
In sports or outdoor activities such as skiing, risk necessary for success and the “rush” some are seeking. Those who challenge themselves usually excel more than those on the sidelines playing it safe. Those who take on too much risk suffer injuries or worse.
There are risks in every relationship, but most people are more than willing for the expected rewards of loving, close relationships and friendships. Risk is a part of life – the degree varies by both what we can control (endogenous risk factors) and what we cannot (exogenous risk factors).
When it comes to investments, people tend to evaluate risk differently. For one thing, if you ask someone how much investment risk they are willing to take when the market and economy happens to be thriving, most will say they are quite willing to take on risk for the reward of a higher return. When the market is volatile or on a downward spiral, very likely that same person will change their view and become less willing to accept risk.
Investors who understand that adequate and appropriate investment risk should not be emotionally based, but rather methodical and strategic, are able to view risk with both short and long-term mindsets. Good financial planners need to help a client approach risk differently than riding the investment rollercoaster extremes of greed vs. fear. After years of seeing the upside of risk and then sudden downturns in the early 2000’s, many cannot stomach downturns because they took on inappropriate risks in the past. Unfortunately many brokers are untrained in the world of risk and confuse risk with speculation, leaving out the factor of time, as if all of us would remain young with unlimited recovery time.
The lessons from the last decade have led some to read or re-read the 1830 “Prudent Man Rule,” which elegantly says “to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.” My belief is that combining ethical free market capitalism with the prudent rule mindset and understanding the purpose of investment risk, would allow most to experience less investment volatility and more to have confidence. Our financial markets would require less costly, cumbersome government regulation.
Financial planners should spend time with clients clarifying the amount and type of risk needed to meet personal short and long-term goals. They should explain how it is possible to minimize or smooth out some risk over the long-term. Clients should understand how investment risk is different from speculation or forecasting and particularly get rich quick methodologies Comprehensive financial planners use many variables including: time, stage of life, immediate, near and future needs, proper asset allocation, planned increases in assets (savings), estimated decrease these assets (retirement draw downs), and of course a client’s change in lifestyle. Some risks can be minimized, some can be avoided, and some risk is there for the purpose of long-term growth/reward.
It is important that my clients understand why we are recommending each investment. This allows them to relax and not react daily to market movements. When we review and rebalance, they know why. We don’t jump in and out of investments because each is serving a purpose, and it has been proven time and again that this doesn’t benefit the net worth of a portfolio. We carefully and methodically invest for their personal plan. With investment risk properly defined and assets allocated accordingly, they should experience less volatility than most of their neighbors and friends, and understand each investment’s function within their portfolio.
Not only does this allow clients the sleep they need and the energy to focus on other matters in life, our planner/client relationship invites open communication because we are both have the same goals: THEIRS.
The Cart or the Horse?
You’d have to be unplugged from all media sources to not hear debates on “…the economy…” by academically refined “experts” and screeching emotional hot heads. Is it getting worse, is it beginning to recover, is it stagnate, are there are hopeful signs?
I’ve been wondering if changes to our economy precede or follow political beliefs – on both sides of the house. Which is the cart and which is the horse? What is reactionary and what is proactive and when should either tactic be used? It’s been awhile since I’VE seen strategic non-partisan proactive economic policies but maybe I missed a few along the way. Where does the role of government begin and end during shifts in our economy? What a lot to debate!
It is important to come to some sort of conclusion to the questions above to feel confident about the way our country is being led – either confident in the policies or confident that you want significant change at the next election season.
Our conclusions depend on how we define economic health. Regardless of differences in economic camps (there are big disparities), I personally do not know anyone who doesn’t include in their definition of a healthy economy: 1. low unemployment and 2. a healthy housing market. Maybe I have purely capitalist friends – but no, I do have friends with far more big-government instincts who also want healthy job markets and a healthy housing market. Really, what more affects us personally than our ability to earn a living, and where we sleep? With the American tradition of home ownership and a God given desire to plant roots and secure our place in this world, to convince a majority of Americans that this idea is outdated would be a very hard sell.
I liken it to Maslow’s Hierarchy of Needs: The philosopher determined that until basic needs are met (physiological and safety,) more ecclectic needs such as self esteem and self actualization (whatever that personally means) aren’t important. It is odd in the world’s most advanced country to think of Maslow’s heirarchy of needs in general terms. Third World Countries come to mind when you think of food and shelter, although without a doubt this crisis also exists in America. The point is – to be discussing this in American majority terms says something to me. The phrase: “It’s the Economy, Stupid” rings true. Call me simple, but our government’s MAIN goals, actually pledged outloud are preventative: Defend and Protect the Constitution of the United States of America. This includes our economic strength. When all is well on the fronts of security and economy, THEN we can focus on other aspects of quality of life for us and the world in general. Sounds simple, doesn’t it? Of course we all know it is far from simple.
Terms are thrown around regarding our economy: inflation, deflation, stagnation, stagflation, depression, recession, debt vs. GDP growth. Defining a few of these terms:
During the depression, something called DEFLATION occurred: too few dollars for too many goods, translated simply: no one could buy what was for sale. This occured partially because businesses had a hard time getting credit and could not expand and weather slow downs, and because our economy was out of balance: not enough solid businesses to employ enough people. The result was a drastic slowing of the economy: prices dropped and production slowed – causing high unemployment. The government stepped in and created programs to stimulate the economy. The hope was to get people back to work. Many did go back to work, but most jobs created were for the government. Since the government has to make payroll for government jobs and they get their funds by taxing citizens or increasing US debt, it is seriously debatable that their actions really grew the economy in the LONG run. They did in the short run, with permanent government expansion being a consequence. Many respected economists argue that necessary production for World War II actually brought our nation out of deflation and the depression. So if we want to avoid a deflationary pattern, what long term policies will actually impact our nation’s economic growth? This is the million dollar question. Economists seem to know less about the causes and fixes of deflation than they do inflation. If we are headed towards deflation, then this is the CART that must be directed. It is usually harder for a society to recover from severe deflation than inflation – there are less variables to “tweak.” Interest rates are already very low, which is a typical way the Federal Reserve Board “tweaks” the economy. What is needed are JOBS and demand for supplies.
On the flip side, INFLATION can occur when prices rise quickly(due to rapid growth) and and it takes more dollars to buy necessary things. Raw materials begin to cost too much for businesses to expand. Some level of inflation means the economy is growing. There is a precarious balance to keeping inflation in check that is largely controlled by interest rates. When inflation surpasses the health zone, unemployment increases, just as with deflation, and the vicious cycle of high unemployment and high cost of living seriously affects quality of life. The Federal Reserve Board’s ultimate responsibility is to regulate the supply of money in accordance with the needs of the economy as a whole. They do this through interest rates and money supply. The US Treasury is in charge of money policies, tax policies (the IRS) and is an arm of the administration. Easing up money allows businesses to expand, but the money supply can’t be too loose or money loses intrinsic value as inflation creeps in. Just as in our personal finances, BALANCE is key. Overcorrection can bounce the economy from one extreme to another. There are actually 3 types of inflation that yield similar results but are based on different realities of our economy and corrective actions depend on understanding inflationary issues.
So where are we today? Low interest rates, high unemployment, increasing US Debt, increased government spending and regulations. Add to this mix that we are part of a global society – with economic stability of other countries affecting our economy and vice versa. In the near term, if our policies do not focus on JOBS, meaning business friendly activity, we could shift to deflationary times. Inflation could also occur with increased government spending and loose money policies that diminish purchasing power of goods. Much of this depends on how well our leaders balance our economy and put this balance ahead of political ideals.
Think about what matters most to Americans and what you think of our economy. Do you see glimpses of recovery? Further challenges? Personally, I see hope based on more than financial decisions. I think our economy is a filter to view our nation’s heart and what we stand for. Economic policies are a reflection of the values of those making them. That is what makes economics interesting. My hope is that as good economic decisions align with most American’s hearts and values, our economy will improve. Uncertainty is a stumbling block to a healthy economy. Taken to a personal level: how we handle our finances often reveals our hearts and values. Amidst Maslow’s hierarchy of needs in this economy, we as individuals can make a big difference in other’s lives. It has been demonstrated time and again that individuals and private citizens make the most significant and cost effective changes in other’s lives. How many dollars does it take for the government to feed the hungry vs. how many dollars does it take for individuals or private charitable organizations to help those less fortunate in their community and elsewhere?
The saying goes: there is an economist within each of us, whether we know it or not. Because in the end, we all have to deal with money in one form or another. That is why we, as individuals, should buffer both extremes of inflation and deflation when managing our personal finances. As a comprehensive financial planner using functional asset allocation, we help clients lay out individual life plans. We consider future streams of income, investments poised for growth, and identifiable standards of living that bring peace of mind to our clients. I’ve not yet seen a more complete and cost effective way to approach an individual, couple, or family with financial recommendations.
What is happening out there and how does this affect personal financial health?
I’m beginning a series (I started to write “short blog posts” but realized that “short” is somewhat relative) to review financial and economic topics and highlight choices and possible action plans. Admittedly, it is disturbing to see some changes and decisions that have occured within our US and global markets and current US economic philosophies and strategies. But as a Comprehensive Fee-Only Financial Planner and student of economics, I tenaciously look for silver linings (vs. hype).
To maintain CFP®, Enrolled Agent and NAPFA requirements, there are significant continuing education requirements. I recently completed 3 days of education focusing on personal finances and taxes. One thing is clear: our world is changing, and tax and financial changes are part of the fallout. I’ll be attending a conference this fall that includes top economic and financial planning commentators/practitioners. But I don’t have to wait for that: facts are surfacing that allow for planning strategies. I’ll take requests – meaning if you would like a topic covered, ask me. I’ll touch on Economic Theories and how to identify what is being applied with certain government proposals. More importantly what does this means for families and individuals? I will aim towards the practical steps and decisions after understanding the larger picture.
I begin with this truth, which should not be glossed over: Most wise financial decisions are static regardless of our world changes. As the founder of the Alliance of Cambridge Advisors, Bert Whitehead says, know the difference between “endogenous” versus “exogenous” factors. This means: what can you most control about your personal finances (endogenous) versus what may be happening out there that alarms you but that really you cannot do much to control or change, financially speaking (exogenous).
Knowing the difference helps clear the clutter from our minds – as I don’t know about you, but sometimes the amount of information coming in via media and internet, is overwhelming. Some information is relevant to individuals, and some is not. And of course, since media often speaks with “biased tongue”, we also need to decipher truth from persuasion and agendas. So it is good to put into practice the ability to segregate out the Endogenous factors – those that we can control either immediately or in the future from those that may alarm us, but leave us dumfounded as to what actions to take. The endogenous issues are things I would put on the “A” list. They most affect how to improve our financial health.
Exogenous issues (issues outside of our personal control) may or may not provide opportunities or defensive action. If you are financially prepared and ready become the operative words. It’s interesting that most “get rich quick” methodologies are rooted in exogenous factors, meaning since such and such is going to happen, we need to do this – in a hurry. I encourage clients and when speaking or teaching to first understand the root of an idea or prospect and whether it is feasible, ethical, practical, and personally applicable before jumping into any new venture. Included in the analysis of exogenous “opportunities” are: What are my PERSONAL risks? What do I stand to lose either in money, time (which has a monetary value), other opportunities, friendships, reputation, momentum, ethical lifestyle and peace of mind? Is this something that fits you and your family?
Stay tuned. I’ll email and post update information on twitter and facebook. I look forward to your input as well.
Staying on Track
In 1999, my neighborhood housed a nice, but eccentric family who was convinced the world was going to end at the stroke of midnight December 31, 1999 or Y-2K. They did extensive research and calculated that technology to keep our lights on, gas pumped, food stocked, and computers operating couldn’t possibly sustain January 1, 2000. They made this decision based on partial information about how computers would need to adapt, and how global systems need to talk to each other. Consequently they stacked their garage with food and sold emergencies supplies for nearly 9 months. Their entire lives adjusted to this certainty – to the point of leaving jobs and scaring some people half to death. By December they couldn’t shut their garage door. It looked like a yawning, gaping smile in front of their home, much to the dismay of those around them. I asked them why they were so certain and they never said anything like “God told me” such as Noah heard (which is hard to argue with, except I would have wished He had also warned me about Y-2K.) It was a compilation of information and worrisome acquaintances and meetings they attended about the threat of technology on our earth. Needless to say in 2000 they did not need to grocery shop for awhile.
I’m writing this because our volatile markets and our economy are uncertain. So we should take reasonable precautions. However we shouldn’t lose sight of the larger picture and the fact that the media spouts only partial information depending on which station you are tuned to. Some in the media blame the volatility on the European economy including Greece and other countries overwhelmed with locked-in entitlement programs and no money to fund them. (I happen to view this as a serious warning Americans should recognize and prevent asap.) Some in the media blame our expanding government bailouts for the skittish markets. Some put the blame solely on politics, reasoning that if we all just “get along” the economy would straighten itself out. Some may even blame global warming. Everyday, since I am a financial planner, I read a “reason” for a change in the market. Most of the time, there is more than one. One indicator happens to outweigh another depending upon what is on the minds of investors. As we saw recently, trades errors can trigger a tsunami that has nothing to do with anything but a glitch.
I am attaching to this blog an article that describes in layman’s terms how fiscal spending and debt play into the long term economic health of our nation. Why? Because it is good to know, and there are slivers of answers in this article. Now, after reading this, some might reason they should put their money under the mattress or in a bank or gold. Others may think it is great to move in the other direction, believing the economy will recover sooner than later and this is an opportune time to take chances for big returns. This is because people operate somewhere between the extreme personalities of fear and greed. They do. Extreme emotions can be devastating to growing long term wealth.
I caution against any extreme action. Here is why: If you are wrong – you stand to lose a lot, either the purchasing power of your cash and gold, or the amount of assets you are left with if you risk it all. Those who miss out on a market recovery usually take years, if ever, to catch up. They wrestle with when to “get back in.” By the time the average American hears investment information, institutional traders handling large amounts of money have bought or sold, minimizing the “deal” or raising the price. What a dollar can buy, the supply and demand of money and goods, unemployment, and global activity change quickly. Regulatory oversight can be healthy or it can truly stifle a country’s economic growth, depending upon who is regulating, what they are regulating and for what purpose. Our ties to foreign governments both as strategic allies AND through our debt obligations are forever complicated and affect global markets, which is our reality.
Simply put, it isn’t simple. It’s extremely complex. If it was simple, we would have consistent and convincing advice being thrown towards the White House. And we don’t operate in a purist society – some stand to lose big politically and economically if we race down the “fix it” track. While it may be good solution for the U.S.A. in general, those who stand to lose may be the ones controlling the outcome and pace (little cynicism implied.) In personal finances, radical actions based on partial information leave one at risk that unknown information negates your entire purpose.
The beauty of fee-only comprehensive financial planning using functional asset allocation is that without assuming to know the future, we design and implement a logical plan that minimizes emotions. This involves understanding a lot about our clients: their goals, their present reality, their tax situation, what we can improve and what matters most to them. This helps us make calculated recommendations for investments and other aspects of their financial life. We focus on what matters most to our personal situation. Bert Whitehead, the founder of Alliance of Cambridge Advisors, points out that choices are either exogenous or endogenous based. We should understand what we CAN control and change through our own behavior, action and decisions (endogenous) without ignoring or dismissing exogenous realities.
Our recommendations include maintaining an adequate ”emergency” fund. They include preparing for a potentially long life that allows important choices: re: careers, choices about how much you will depend upon government programs such as social security to determine your quality of life, charitable and legacy planning, protecting your assets, good and bad debt management, long and short term financial needs and goals, tax planning, and others. We understand that peace of mind frees clients to a great extent from worrying about what the market does each day. Clients know their plan is logical, understandable and takes into account the appropriate risk for them. We help them to live smart with the goal of minimizing risk and positioning for growth as it fits their needs and life plan. An important endogenous factor is SAVING. Being prepared and ready for opportunities by saving and living beneath your means creates a wide path towards peace of mind. Your financial decisions should include keeping an eye on the big picture, long and short term goals and considering your financial stage of your life.
Signing off with the following article, written by Thomas Friedman, courtesy of the New York Times, May 8, 2010: http://nyti.ms/b9x9hO
10 Things That Matter More to your Financial Health Than Investment Returns
There are at least 10 things that matter more to your financial health than strictly investment returns. Clients of our practice well know this, but for others this is a good concept to review. The best way to financially plan is to pay attention to all aspects of long-term financial health, including investments. Focusing strictly on investment returns puts you in a short-term thinking mode, void of the big picture of your financial life and without a Plan B to balance and regroup if an investment portfolio suffers in an economic downturn or geopolitical crisis. It is important that your investment strategy fits your personal financial life cycle. This is why strict money managers don’t always recognize the full picture of a client’s overall financial health (or lack of) and their clients can end up at the least, disappointed.
Below are 10 OTHER things besides investment returns that really matter to your financial health:
1. How much you earn and how long you work (knowing when to improve skills & earning power, your work ethic, career decisions, and knowing your strengths and weaknesses).
2. Wise shopping and spending (includes living within your means & philanthropy).
3. How much you save annually in permanent savings and your emergency or liquidity level (understanding the time value of money).
4. Your tax burden (probably increasingly important in the future).
5. The diversity of your investment portfolio across asset classes according to your personal financial life cycle.
6. The stability of your relationships.
7. Making the most of your investment in your home.
8. Your physical and mental health.
9. Bad habits, past financial mistakes, and working through them. (i.e. debt, poor spending habits, investment get rich quick schemes, lack of direction or knowledge, greed, fear, impatience, etc.).
10. Understanding the path towards your short, mid and long-term goals, expectations, and understanding where you can be flexible.
AND: The rate of return on your investments.
We are working through client year-end reviews where we take time to discuss open issues, goals, changes in direction, investment strategy and short and long-term planning. This sets the stage for the next year and forward – keeping us partnered with our clients, on track and in sync with their present situation and life plan. Since life is fluid, especially in the past few years, it’s important to ground ourselves wherever possible.
If you evaluate the above for your own life, you are well ahead of most Americans and better prepared to adjust to unknowns and improve the quality of your life now and in the future. Tools are available over the internet to evaluate some of the above.
Although we can’t know the future and shouldn’t spend a lot of time guessing at it, we can and should take steps to weather “rainy” days, stepping purposefully forward. It’s good to remember that what matters to our present and future is more than simply “how are my investments doing?”
