Unfamiliar with the Hong Kong protests? Read more about it here.
Many folks who have just begun working with us are surprised by how our planning process starts. We don’t begin by talking about IRAs, 401(k)s, or how much you’re saving. Instead, we begin by talking about you, not your money.
Putting your life before your financial plan.
As Life-Centered Planners, our process begins with understanding your life plan. We start by asking you about your family, your work, your home, your goals, and the things that you value the most.
Our job is to build a financial plan that will help you make your life plan a reality.
Of course, building wealth that will provide for your family and keep you comfortable today and in retirement is a part of that plan. So is monitoring your investments and assets and doing what we can to maximize your return on investment.
But we believe maximizing your Return on Life is just as important, if not more so. People who view money as an end in and of itself never feel like they have enough money. People who learn to view money as a tool start to see a whole new world of possibilities open in front of them.
One of the most important things your money can do for you is provide a sense of freedom. If you don’t feel locked into chasing after the next dollar, you’ll start exploring what more you can get out of life than just more money.
Feeling free to use your money in ways that fulfill you is going to become extremely important once you retire. Afterall, you’re going to have to do something with the 40 hours every week you used to spend working! But you’re also going to have to allow yourself to stop focusing on saving and start enjoying the life that your assets can provide.
Again, having money and building wealth is a part of the plan. But it’s not THE plan in and of itself.
The earlier you start thinking about how you can use your money to balance your vocation with vacation, your sense of personal and professional progress with recreation and pleasure, and the demands of supporting your family with achieving your individual goals, the freer you’re going to feel.
And achieving that kind of freedom with your money isn’t just going to help you sleep soundly at night – it’s going to make you feel excited to get out of bed the next morning.
What’s coming next?
So, when does the planning process end?
If you’re like most of the people we work with, never.
Life-Centered Planning isn’t about hitting some number with your savings, investments, and assets. And we’re much more concerned about how your life is going than how the markets are performing.
Instead, the kinds of adjustments we’re going to make throughout the life of your plan will be in response to major transitions in your life.
Some transitions we’ll be able to anticipate, like a child going to college, a big family vacation you’ve been planning for, and, for many of you, the actual date of your retirement. Other transitions, like a sudden illness or a big out-of-state move for work, we’ll help you adjust for as necessary.
In some cases, your life plan might change simply because you want something different out of life. You might start contemplating a career change. You might decide home doesn’t feel like home anymore and start looking for a new house. You might lose yourself in a new hobby and decide to invest some time and money in perfecting it. You might decide it’s time to be your own boss and start a brand new company.
Planning for and reacting to these moments where your life and your money intersect is what we do best. Come in and talk to us about how Life-Centered Planning can help you get the best life possible with the money you have. Visit Our Website to learn more.
How Are You Feeling About Financial Markets?
Heritage Insider Weekly November 12, 2018
Before you get too excited about the rise in optimism, you should know pessimism also remains at historically high levels. According to AAII:
Let’s take a look at some performance figures…
Data as of 11/9/18
Standard & Poor’s 500 (Domestic Stocks)
Dow Jones Global ex-U.S.
10-year Treasury Note (Yield Only)
Gold (per ounce)
Bloomberg Commodity Index
DJ Equity All REIT Total Return Index
- A gaggle of geese
- A crash of rhinoceros
- A glaring of cats
- A stack of librarians
- A groove of DJs
What is a unicorn company?
If you were to choose a collective noun to describe investors, what would it be? An exuberance? A balance? An influence?
Empower Yourself by Recognizing Your Freedom to Choose
“When we are no longer able to change a situation, we are challenged to change ourselves.”
We may not always be able to control the circumstances of a given situation we find ourselves in. But we always have the freedom to choose how we respond. The choice we make – and how we make it – often determines how well we survive the situation, and if we go on to thrive.
If challenges in your family life, your career, or your finances are making you feel powerless, try approaching the challenge from a new angle. This simple three-step process can put you back in touch with your freedom to choose how and why you live your life.
Consider your reaction.
Step back from the problem. Take a breath. Take a walk. Pour yourself a cup of coffee.
By creating some space, you’ll be able to ask yourself, “Why am I reacting the way that I’m reacting? Is there a better perspective I could be taking? Am I letting past experiences influence my reaction for better? For worse?”
When we feel overwhelmed by a challenge, we often fall back on established patterns in our thinking. Often these default reactions are negative. If we’re arguing with our spouse, we might replay past arguments in the back of our heads. Financial difficulty might trigger memories of our parents struggling with money as we were growing up.
Identifying the negative experiences and perspectives that create our immediate reactions to challenges can help us find ways to create more positive and empowering reactions.
Consider your purpose.
Instead of allowing the situation to dictate how you’re responding, push back. Refocus how you choose to respond around the goal that you are trying to accomplish.
For example, if your business partner backs out of the new company you’ve been planning to start, that loss of manpower and capital could make you feel defeated and powerless. But the reality is that you are choosing to dwell on negatives that you can’t control.
So, what can you control?
If you’re really committed to starting your new company, you can choose instead to focus on alternative funding sources. You can reach out to other friends, family, and colleagues about potential partnerships. You can choose to work on Plan B.
Another example is the investor who feels powerless as market volatility chips away at his nest egg for a quarter. No, you can’t control the natural disaster or political spat that’s giving the market fits right now. But you can choose to focus on your long-term purpose: a secure retirement for you and your family. That positive thinking and big-picture perspective could prevent a costly knee-jerk reaction.
Consider your values
One of the best ways to drive negative thinking from our reactions is to focus on the things that matter the most to us. Reconnecting our decision making to our values can lead to solutions that make life more fulfilling.
Work might be the most common source of challenges in our lives. And while no one loves absolutely everything about their job all the time, it’s worth considering how your job affects your sense of freedom. Do those 40 hours per week give you the financial resources to spend your free time doing what you want with the people you love? Are your skills and talents utilized in ways that make you feel like you’re making positive contributions? Does your employer have a mission bigger than profit that’s important to you?
If your answers are no, no, and no, you can choose to keep dragging yourself out of bed every Monday, resigned to the uninspiring week ahead. Or you can follow your values towards a more empowering choice. Consider a career change. Learn a new skill that will bolster your resume or line you up for a better job at your current employer.
If switching careers is really out of the question right now, choose to appreciate the parts of your job that you do well because of your unique skillset. And when you’re not working, make time for the hobbies, interests, and experiences that do fully engage your core values. Who knows? One day these pursuits might lead to exciting new opportunities for you and your family. If you’ve been committed to your values all along, you’ll be ready to make the right choice.
Are you choosing your best possible life?
If you’d like more insights on how you approach challenges and choices in your life, CLICK HERE to take our free ROL Index assessment. It will help you identify the areas of your life where you’re feeling good and those areas where you might want to make some enhancements.
After you’ve worked through the tool, you’ll receive a free, personalized report.
You may be surprised by the results! We’re here to answer your questions and to help you work towards a greater feeling of financial empowerment.
What Did You Learn Today?
“In a world of change, the learners shall inherit the earth, while the learned shall find themselves perfectly suited for a world that no longer exists.”
― Eric Hoffer
It’s never been easier for adults to continue to learn after completing their formal education. Online universities, TED talks, “master classes,” podcasts, and even curated YouTube playlists put world-class professionals, teachers, and thinkers literally at our fingertips.
Are you taking advantage?
One common attribute of successful, happy people is that they are intensely curious. They never feel like the world has passed them by because they have made learning and self-improvement a lifelong process. In fact, Bill Gates places such a high value on continuous learning that he schedules annual “Think Weeks” where he holes himself up in a private study with books, magazines, and scientific papers.
Whether you want to stay ahead of the curve or just cultivate a curious mind, daily learning can have some major personal and professional benefits.
Upgrade your job.
Technology, automation, and the global marketplace have disrupted many jobs and career paths. Learning a new skill is a great way to “future-proof” yourself or even reposition yourself for a new job that you’ll find more fulfilling.
If you have an interest in tech, consider learning how to “code” by studying a programming language. If you’re a pen-and-paper artist, translate those skills to the digital world by learning website or graphic design.
Or, if you want to make yourself a little more global, why not learn a new language? Is your company preparing to expand into Europe or China? Do you have a large customer base that speaks Spanish? Learning the language of your business will prepare you for where that business is travelling next.
Think outside the office.
Learning can make life more exciting outside of the office as well. When we challenge ourselves to learn new things, we step outside of our comfort zones. We bring ourselves in contact with new cultures, new ideas, and new experiences.
French lessons might be your passport to a month vacationing in Paris. Signing up for a cooking class could improve your family’s health, or lead you to farmer’s markets that strengthen your connection to your community. Golf lessons could improve your enjoyment of the game and turn you into a better first coach for your young children.
Of course, learning doesn’t just mean signing up for formal classes. We spend so much of our lives on social media these days that it bears repeating: you can do a whole lot more with your phone and PC than get sucked into the latest tweetstorm. When was the last time you closed that Facebook app and opened up an ebook reader or audiobook player? You could also make your morning commute or exercises more stimulating if you cue up a podcast for some on-the-go learning.
Get ready for the long run.
One of the ways that your financial planning experience will be very different from your parents’ or grandparents’ is how we will account for your plan’s longevity. People today are healthier, living longer, and staying active later in life. In fact, Andrew Scott, Professor of Economics at London Business School and a fellow of All Souls, Oxford University, and the Center for Economic Policy Research, believes that hundred-year lifespans will soon become much more normal.
A commitment to learning and self-improvement will create positive attitudes and habits that will serve you well as you near retirement and prepare to enjoy your golden years. According to Professor Scott, “in a hundred-year life, leisure time will be used not just for recreation, but also, if you’ll excuse the pun, re-creation. You’re going to have to use leisure time not just as a consumption activity by watching Netflix, but as an investment activity. Using your leisure time to invest in yourself and not just rest we think will be crucial to deal with these changes.”
So, why not start making daily learning a part of your routine today?
Make a list of two or three things you’ve always wanted to know more about, or skills you wish you had, or talents you’d like to develop. If any of your learning goals are big enough that they might have an impact on your financial planning, we’d love for you to come in and tell us about them.
for more info on this topic and others, visit us at Heritage Financial Advisory Group
Why Delay? You Can Start Improving Your Health Right Now!
A Common Scenario.
A busy 40- to 50-hour work week, kids that need shuttling to and from school and extracurriculars … and a gradually decreasing metabolism.
Young, working couples with no kids may have more time to be active and healthy. Long morning walks. Three trips to the gym every week. Playing organized sports with friends. Cooking their way through gourmet recipes.
Then life happens. Children. Promotions at work that lead to more responsibility and longer hours.
A couple’s free time together begins to dry up. Softball night turns into crashing on the couch for a few hours before bed. Weekend bike trips or trivia nights turn into weekend rushes to and from kids’ soccer tournaments. Gourmet cookbooks are replaced by fast food menus.
Then there’s the money crunch. Even couples with a financial plan in place tend to worry more about money once a mortgage, car payments, and children enter the picture. Many couples start pinching pennies at the expense of their creature comforts and well-being. New clothes and a replacement for that worn-out mattress aren’t as important as saving for college tuition or eventual retirement. Frozen meals and take-out are quick fixes when there’s so little time to cook a good meal before your daughter’s dance lessons.
The risks involved when we start neglecting our health are real, and harder to correct as we continue to age. But there are emotional consequences as well, especially if one spouse slips out of shape faster than the other. Innocuous suggestions like, “Let’s take a trip to the farmer’s market” or “How about we re-start our gym membership?” can feel laced with criticism. A loss of confidence, feelings of depression, and inattentiveness to basic hygiene and appearance can follow. Money – already the most common source of marital friction – will continue to be a barrier to self-improvement. Unhealthy people don’t like being told they’re unhealthy, and will often put off preventative care, like annual checkups.
If you or your spouse are struggling with a similar scenario, take a moment to work through the following questions and suggestions together:
Questions to Ask
Are you and your spouse able to maintain your health without any financial stress?
Do you and your spouse regularly confirm your health and overall well-being with your doctors?
Is your level of physical activity higher or lower now than it used to be? If you’re about to retire, do you anticipate a more or less active lifestyle?
What are some physical recreational activities that you enjoy?
What is a recreational activity you’ve never tried, but deep down always wanted to try?
How old is your furniture, especially your bed and mattress?
How many fresh meals do you and your spouse cook and eat at home every week?
Steps to Take
- Get up and get out there! Admitting that you need to get moving is the first step! Hopefully, many more will follow!
- Hate going to the gym? You’re not alone. Instead, incorporate some daily exercise into your routine. How about a bike ride through your neighborhood or a local park every morning? Carve a few hours out of your schedule for a weekly tee time or tennis lessons. Take small breaks during the day to stand, get away from your computer, stretch, or take short walks.
- Don’t ignore your creature comforts! The cost of a new mattress you’ll sleep on for the next ten years will be a lot less than the cost of braces and trips to the chiropractor.
- You are what you eat! Planning out a week’s worth of healthy, fresh meals will make your grocery bills much more manageable. You might even find that healthy organic and farm-fresh items aren’t as expensive as they seemed.
- The best medicine is preventative. Spotting potential health concerns as early as possible will keep both you and your bank account from hurting.
A Better Return on Life
The better you and your spouse feel individually, the better you’re going to feel together. An interest in improving your health can lead to new activities and interests that you’ll enjoy pursuing together well into your retirement years. After all, when you finish working and the kids are out of the house, you’ll need to find a whole new routine. Sports and active recreation are great places to start, both to keep you moving every day and as inspiration to see more of the world once you have more time to do so. Today’s daily walk around the block might lead to a hiking trip in Yosemite one day that neither of you will ever forget.
If you’re struggling to stay active as you age, or worried that you can’t afford a healthier lifestyle, come talk to us. We’ll help you review your budget, analyze your long-term financial plan, and offer suggestions on how to get the best life possible with the money you have.
Are You Financially and Emotionally Prepared for Life’s Big Transitions?
Financial planning is more than just a series of savings and investments you lock away and forget about. Your money doesn’t exist in a vacuum. Your financial needs are going to fluctuate in response to the transitions that we all go through as we work, raise our families, and look ahead to retirement.
Managing these transitions is one of the keys to maximizing your finances and to achieving a greater Return on Life™ (ROL).
It’s Better to Prepare Than Repair
When it comes to your financial future, it’s easier to prepare for what’s ahead than it is to repair mistakes. With that in mind, we have a tool called The $Lifelineä. It’s designed to help you prepare for life’s transitions by asking you to anticipate what’s coming up and the age at which you expect the transition to happen.
You can then plot the applicable transitions on your $Lifeline, and use a color-coded system to rate the transition based on whether it is a High, Medium, or Low priority. If you’re married, you and your spouse can plot both shared transitions and transitions that are unique to each of you on the same $Lifeline for a complete picture of all the milestones that will affect your household, and your finances. Each transition also includes links to additional resources that you can consult for more information.
Let’s take a look at the six $Lifeline categories, and a few of the important transitions we can help you map out and prepare for:
- Expecting a child
- Special family event
- Assistance to a family member
- Child going to college
- Child getting married
- Empty nest
- Worried about an aging parent
- Concern about the health of child
- Possible concern about the health of spouse
- Family member with disability or illness
- Recent death of a family member
- Create end of life medical directive
- Contemplating career change
- Job re-structuring
- Expand business
- Start a new business
- Acquire / purchase a business
- New job training / education
- Downshift worklife
- Full retirement
- Changing residence
- Start receiving Social Security income
- Eligible for Medicare.
- Start receiving retirement distributions
- Refinancing mortgage
- Reconsidering investment philosophy
- Significant investment gain
- Significant investment loss
- Considering investment opportunity
- Receiving inheritance
- Stipend to family member
- Gift to children / grandchildren
- Develop / review estate plan
- Create a foundation
- Create or fund a scholarship
- Fund a cause or event
Transitions Change Over Time
Once we’ve plotted your anticipated life transitions on your $Lifeline, we can start discussing the transitions that are most important to you from an immediate planning standpoint. Maybe you need to understand the financial implications of taking care of an aging parent. Perhaps it’s figuring out how to pay for your kids’ education. Or you may want to know the best time to start receiving pension payments.
Over time, as new transitions arise and old ones get completed, we can add, remove, and reprioritize transitions as necessary.
The easiest way to throw off your financial plan is to make a rash, emotional decision in the middle of a difficult moment. The $Lifeline, and our Life-Centered Planning process, will help you avoid reacting – or overreacting – to the ebbs and flows of your life by putting you into a more proactive mindset about your financial future.
You’ll be less likely to take on a risky second mortgage to pay for your son’s freshman year of college and your daughter’s wedding if you plan for those events in advance—something the $Lifeline helps you visualize.
As you prepare to go through the $Lifeline exercise, take a look at the categories and transitions listed above. If you’re married, talk to your spouse about them. Write out a list of transitions that you know you’ll want to plot on your $Lifeline. When we meet, we’ll fire up the tool and create your personalized $Lifeline so you can start preparing for life’s big transitions.
Giving: How To Do The Most Good Without Disrupting Your Financial Plan
Many studies have shown that charitable giving provides greater happiness than buying more stuff. Eventually, you get used to your fancy new car, and the enjoyment it provides goes down. But giving forges feelings of connectedness and community that don’t fade away.
Incorporating charitable giving into your financial plan is a great way to make sure that your generosity is aligned with the things that are most important to you. Some forethought about these key issues will also make sure that your good intentions don’t throw off the rest of your long-term planning:
Have a purpose.
The most effective charitable giving is thoughtful and intentional. It may be helpful for you and your spouse to ask yourselves some questions that will narrow your focus, such as:
- Do we want to give to a national or local cause?
- Are there pressing issues in our community that we feel we can help impact?
- Do we have any personal connections to causes, such as medical research or support for the arts?
- Want to support friends or family by contributing to causes that impact their lives or fulfill their passions?
- Do we want to support a religious organization, such as our church?
- Are our charitable impulses motivated by on-going problems, such as education or homelessness, or would we rather position ourselves to react to events such as natural disasters
Do your homework.
Once you’ve settled on a cause, do some research on potential recipients. Visit the local nonprofit you’d like to support and meet with its leadership team. Is the organization running itself responsibly? Are there good, competent people in charge? Will these people get the job done? Don’t sink your money into a well-intentioned black hole.
If you’re looking to give to a national organization, keep in mind that even some of the biggest names have come under fire lately from watchdog groups for misusing donations. Make sure you’re giving to an organization that’s doing what it says it’s going to do with your money.
Also, remember that big organizations – even non-profits – have to manage things like overhead, salaries, and insurance. Are you happy supporting the organization itself? If you want to see your money in action more visibly, you might be happier giving locally.
Beware the internet.
Whenever something bad happens in the world, our inboxes and social media are flooded with donation links. Read before you click. Be especially wary of crowd-funded campaigns on sites like GoFundMe. The cause may sound worthy, but these sites do not provide meaningful oversight on every campaign. Your money could be going to a cause, or it could be going straight into a scam artist’s pocket. You’ll never know for sure unless you know the person organizing the campaign.
Find out what will do the most good.
There’s more than one way to give. Maybe the local adult literacy center needs volunteer tutors as much as it needs money. Perhaps you’d feel more fulfilled helping out at your church’s food bank than you would feel by writing a check. Taking a more active role in a cause that’s important to you might be the most valuable thing you can give.
However, if you want to help with large-scale problems outside your own community, like hurricane recovery on the other side of the country, money is usually the most effective way to contribute. Unlike toiletries or canned goods, money doesn’t have to be boxed and shipped. You’re better off contributing to large, trustworthy organizations that already have systems and pipelines in place.
Know your limits.
Especially as you near retirement age, your giving should be a planned part of your budget. Don’t make a large one-time contribution that’s going to force you to dip into an emergency savings fund. Don’t sign up for a recurring gift that’s going to put a strain on your monthly bills. If you can’t give as much money to a cause as you’d like, think about supplementing a smaller contribution with regular volunteering.
Sometimes our best intentions get us into the most trouble. It’s great that you and your spouse want to use your money to try to make the world a better place. But your comfort and happiness are important too. Even the wealthiest people have to say no.
If you are ever in doubt, let your core values be your guide. Apply the same principle to your giving as you do to the rest of your life-centered financial plan: use the money you have to get the best life possible. With a little planning, you’ll make life better for those around you as well.
Three Overlooked Keys to Being a Successful Investor
Does investing strike “fear” in you? We once heard somebody say the word “fear” stands for “False Evidence Appearing Real.” That seems to apply to investing. Here’s why.
The stock market makes some people nervous. This can be especially true for young people who grew up during the Great Recession. Not only did these folks see market volatility at its worst, but they also came away with negative impressions about the financial markets in general.
The truth is that the market is neither a one-way ticket to instant riches nor a dangerous game for insiders only. There is risk involved in any kind of investment, but if you understand how the market operates in the long run, then the rewards can be significant.
By understanding the following three important facts about the market, you might be able to turn “fear” into “False Evidence Appearing Real” and not get scared out of letting your money work hard for you in the market.
The market tends to move in long cycles.
The amount of info we have at our fingertips makes it tempting to check in on our investments weekly, daily, or even hourly. As a financial professional, though, we take a much wider view of the markets. And while past performance is no guarantee of future returns, the history of the market continues to trend upwards.
Consider the S&P 500 Index. If we go back and look at all the bull (upwards) and bear (downwards) markets from 1926 to 2017, the average bear lasted 1.4 years and resulted in a 41% loss on average. However, the average bull lasted 9 years, and gave investors a 480% gain on average, according to First Trust.
When volatility strikes, patience is usually a good course of action. Your financial plan is designed to provide for the rest of your life, not for one bull or bear cycle. Instead of panicking when the market dips, try to think of volatility as a tax that investors pay on the wealth that the market can create.
And if you do find yourself checking in on your investments as regularly as you check your email, maybe think about uninstalling that app—or calling us.
Make consistent contributions to your portfolio.
Besides struggling to accept volatility, many people are skittish about the markets because they feel powerless. Money goes in, and decades later, who knows what’s going to come out. They feel that politicians, corporations, and geopolitical tumult will have the final say in how big their retirement nest egg grows.
However, often times the biggest factor that determines the success of your investments is simply contributing new money on a consistent basis. As discussed above, the market will most likely trend upwards in the long run. The more of your money that’s along for the ride, the bigger those eventual gains will be.
For example, suppose that you decide to invest $10,000 every year for 10 years into your portfolio. In a flat market returning 0%, that $10,000 would account for 100% of your portfolio’s gains. In a modest market returning 6% per annum, that $10,000 would account for 73% of your portfolio’s gains. And even in a bull market, charging ahead at a rate of 12%, your $10,000 would STILL account for more than half of your portfolio’s gains, according to Invesco.
Focus on what you can control.
To be sure, part of investing involves accepting things you can’t control. A hurricane on the other side of the world might rattle the markets for a couple days. A large company might become embroiled in an accounting scandal. The Federal Reserve might make an unexpected interest rate move. Market corrections might follow.
But if you understand volatility and continue to focus on the big picture, you’ll start paying more attention to the things you can control, like a monthly budget that allows for automatic contributions to your investment and retirement accounts.
Better yet, think about setting a goal to ramp up the size of those contributions. Many people try to save or invest 10% of their income. Can you shoot for 15%? 20%? The bigger the contributions, the bigger the payoff when you retire. And if retirement isn’t on your radar, that big investment cushion will go a long way toward giving you a feeling of freedom.
If you’re still unsure about investing in the markets, make an appointment to talk to us. We can help clear away any misconceptions you might have about investing and craft a plan that makes you comfortable about how your money is working for you.
Tariffs & Trade Wars
By Emmet Sullivan , Guest Blogger
Many consumers, investors, and ordinary citizens often worry when the word “tariff” is thrown around. Instantly signaling an increase in price in imported goods, the word is almost synonymous with a negative economic impact. Thinking in terms of the big picture, we need not jump to such hasty, and often misguided conclusions.
What is a Tariff?
First, it is important to understand what tariffs are, and what they hope to accomplish. A tariff is an additional tax imposed on imported goods. By imposing these taxes on imports, national governments hope to discourage large-scale outsourcing. As a result they hope to spur domestic production by driving import prices up. When the prices of imports go up, the hope is that consumers will look to domestic suppliers for goods they would normally obtain from international sellers.
The current tariff talks in the U.S. are based around metals. Specifically, President Trump wants to impose a 25% tariff on imported aluminum and steel. The levy is intended to increase demand of domestically manufactured metals by increasing the price of their international substitutes. This in turn might create a number of job opportunities in U.S. metal production related to the surge in demand.
Many worry that this tariff may result in an international trade war between the U.S. and countries like China and South Korea. There is speculation that trading partners might retaliate with similar tariffs. Therefore, this would make it harder for U.S. producers to export their goods. However, Canada (the U.S.’s largest supplier of both aluminum and steel) and Mexico (the U.S.’s third largest trading partner) are both exempt from the tariff as part of the ongoing re-negotiation of the NAFTA agreement.
In summation, the tariff should not be an immediate cause for worry. As stated, some of the U.S.’s largest trading partners are exempt from its effects, and some speculate that it has been implemented as a negotiation tool for international agreements like NAFTA. The tariff’s long term effects remain to be seen, but we caution against fear of an economically-harmful trade war at present.
What is a stock market correction? And a few other facts you need to know
It’s been a crazy few days on Wall Street.
On Tuesday, the Dow plunged 567 points at the opening bell and briefly sank into correction territory before roaring back. On Monday, the Dow took its biggest single day point plunge in history.
Here’s what you need to know about what’s going on in the stock market.
What is a stock market correction?
A correction is a 10% decline in stocks from a recent high. In this case, that was less than two weeks ago, when the Dow closed at a record high of 26,616. A correction is less severe than a bear market, when stocks decline 20% from their recent highs. The stock market’s last correction began in the summer of 2015 and ended in February 2016.
Why is this happening?
The most immediate reason is a fear of inflation.
Last Friday’s jobs report was strong. Wages are rising, and unemployment is historically low. That’s great news for Main Street. But on Wall Street, it raises fears that inflation will finally pick up, and that the Federal Reserve will have to raise interest rates faster to fight it.
How are global markets reacting?
Overnight, world markets followed the United States’ lead and dropped. The Nikkei in Japan closed down 4.7%, China’s main stock index closed down 3.3%, and Australia’s closed down 3.2%. European markets were lower, but not as much as Asia. Stocks were down about 2% in Britain, Germany and France.
What does this mean for the rally?
From Election Day to the record high on January 26, the Dow climbed more than 8,000 points — a remarkable 45%. Many factors were behind the rapid rise: The ever-improving economy and job market, business optimism, record corporate profits, and the big business tax cut, which Republicans made law. The losses in the market since the beginning of last week wiped out about a quarter of that gain. The Dow began Tuesday up about 6,000 points since the election.
Is this the worst decline ever?
Monday’s decline of 1,175 points on the Dow was, by far, the biggest point decline in history. The Dow had never lost more than 777 points in a single day. But in percentage terms, the declines of Friday and Monday are nowhere near the worst. On Black Monday in 1987, the Dow dropped an incredible 22%. That’s the equivalent of a 5,300-point decline today. And on several days during the financial crisis in 2008, the Dow dropped 6% or 7%. Monday’s decline was 4.6%. That was the worst for the Dow since August 2011.
Does all of this mean we’re entering a recession?
Stock market declines don’t cause recessions, and they do a pretty poor job of predicting whether one is coming. So while the market plunge might rattle investors and ding consumer confidence, it is not a sign that the economy is in trouble. Unemployment is at a 17-year low. Average hourly wages went up last month the most in eight years. Consumer and business confidence are near record levels. Economists say it would take a much bigger stock market move than Monday’s plunge to change that.
For more information visit us at Heritage Financial Advisory Group and check out the latest episode of The #AskTheAdvisor Show.
Heritage Weekly Market Insights
January 30, 2018
This Week In The Markets
The numbers are coming in.
Publicly-traded companies report their earnings and sales numbers for the previous quarter in the current quarter. For example, fourth quarter’s sales and earnings are reported during the first quarter of the year, and first quarter’s sales and earnings will be reported during the second quarter, and so on.
Through last week, about one-fourth of the companies in the Standard & Poor (S&P)’s 500 Index had reported actual sales and earnings for the fourth quarter of 2017. As far as sales go, a record number – 81 percent – of companies sold more than expected during the fourth quarter. That was quite an improvement. FactSet reported:
“During the past year (four quarters), 64 percent of the companies in the S&P 500 have reported sales above the mean estimate on average. During the past five years (20 quarters), 56 percent of companies in the S&P 500 have reported sales above the mean estimate on average.”
The mean is the average of a group of numbers.
The money a company makes through sales is called revenue. For instance, if a lemonade stand sells 100 glasses of lemonade for $1 each, then the proprietors have earned $100. That is the stand’s ‘revenue.’ Of course, as every parent who has financed a lemonade stand knows, revenue doesn’t include the cost of the product. ‘Earnings’ are what the company has left after expenses – the bottom line. If every glass of lemonade cost 50 cents, then the stand’s earnings are $50.
Companies in the S&P 500 are doing pretty well on earnings, too. About three out of four companies have reported earnings higher than expected. Overall, earnings are 4.5 percent above estimates.
Through Friday, annual earnings growth for S&P 500 companies was 10.1 percent. It’s still early in the fourth quarter earnings season, but the data so far seem likely to confirm that 2017 was a bright, sun-shiny year for U.S. companies.
Let’s Take A Look at Performance
|Data as of 1/26/18||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor’s 500 (Domestic Stocks)||2.2%||7.5%||25.1%||11.8%||13.9%||7.8%|
|Dow Jones Global ex-U.S.||1.9||7.0||28.2||7.8||5.5||1.6|
|10-year Treasury Note (Yield Only)||2.7||NA||2.5||1.8||2.0||3.6|
|Gold (per ounce)||1.4||4.4||13.7||1.8||-4.0||3.9|
|Bloomberg Commodity Index||2.6||3.0||2.9||-3.4||-8.4||-7.1|
|DJ Equity All REIT Total Return Index||1.7||-2.8||4.6||2.8||8.2||7.4|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
certain parts of the circular economy
probably adapt to cities and towns better than they do to rural areas.
What is the circular economy?
It is “a system that reduces waste through the efficient use of resources. Businesses that are part of the circular economy seek to redesign the current take/make/dispose economy, a model which relies on access to cheap raw materials and mass production. For example, car sharing addresses the inefficiency of privately owned cars – which are typically used for less than one hour a day,” explains Morgan Stanley.
Imagine not owning a car.
Clearly, it’s not something that would work everywhere. However, if you live in a city or town that has public transportation, ride sharing, car rentals, and bicycles, it’s possible. If you’re retired and you can organize your days in the way you like, it may even be sensible because owning a car is expensive. Transportation costs are the second highest budget item for most households, reports U.S. News. Housing costs top the list.
Giving up a car could help households save a lot of money.
According to AAA
owning and operating a new car in 2017 cost about $8,469 annually, on average, or $706 a month. Small sedans are the least costly ($6,354 per year), on average, and pickup trucks are the most expensive ($10,054 per year), on average, of the vehicles in the study. The calculations include sales price, depreciation, maintenance, repair, and fuel costs.
AAA’s estimate does not include insurance. In 2017, the national average premium for a full-coverage policy was $1,318 annually, according to Insure.com. Auto insurance premiums are highest in Michigan ($2,394) and lowest in Maine ($864).
Combining the averages, the cost of auto ownership is almost $10,000 a year. It’s food for thought.
Weekly Focus – Think About It
“Conservation is a state of harmony between men and land.”
–Aldo Leopold, American author and conservationist
The Heritage Team
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* Consult your financial professional before making any investment decision.
The 2018 Personal Finance Roadmap
By Mike Desepoli, Heritage
Ah Spring time. Warm weather and longer days.
People also tend to be more motivated in the Spring to organize, clean, and go through their stuff.
While it’s always good to get rid of old stuff and clean your house or apartment, I think it’s also a perfect time to leverage your motivation to give your personal finances a good deep cleaning as well.
Regularly checking up on your finances is important. There are many things you can do to improve your personal finances. However, a majority of them are really easy to put on the back-burner. Trust me – “buy life insurance” was on my to do list for two years before I finally got around to it.
Carve out some time this Spring to go through this spring cleaning personal finance checklist. It will help you start doing some things you’ve been meaning to do, as well as give you a check-up on certain things you are already doing to ensure you are still in a good spot.
Check your Net Worth
Checking your net worth can be a painful experience, especially for those who are in student loan or other debt. Even if you fall in this group, though, it’s still better to know where you stand than to be ignorant of your situation.
I have said in the past that for a large majority of people, especially millennials, it’s more important to focus on income than net worth. That’s exactly why it took me so long to get around to utilizing online platforms to track my finances. But once I did it felt good to know exactly where I stand at any point in time.
Review your Budget or Start Budgeting
One of the things I stress in personal finance lunch and learns or coaching sessions is to not only budget, but to regularly review your budget.
If you haven’t started a budget yet, that’s the first thing you should do. Budgeting can be as hands-on or hands-off as you want. Some people hold themselves to a specific spending threshold while others (myself included) just track the monthly trend and make sure they aren’t spending too much on things they don’t care about.
If you already budget, take some time to review your monthly spending. Ask yourself these questions:
• Is my spending in alignment with my values?
• Are there areas I can cut back spending on (i.e. restaurants, cable, cell phone, entertainment)?
• Is my current spending habits allowing me to pay down debt or prohibiting me from paying down or incurring more debt?
• What changes can I make to create more cash flow?
Review your Debt
While Personal Capital does a good job of pulling in your debt, I think it can be valuable to lay out all your debt in a spreadsheet as well.
When I’m looking at my debt I focus on a couple things: what type of debt it is and what the interest rate is?
There are different strategies you can use depending on the type of debt, but the first goal should always be to get a lower interest rate. If you have high interest credit card debt it can make a lot of sense to refinance it through a personal loan. It it’s student loan debt there is also opportunities to refinance at a lower rate.
Debt can be overwhelming, and I always encourage people to be action-oriented with their debt. Sometimes no action is needed, for example if you have it on auto-payment and it will be done at a specific date in the future (assuming you are happy with the interest rate). Others may want to be more proactive, such as refinancing, increasing their income through their 9-5 or a side hustle, or cutting expenses to pay it off faster.
Analyze your Income
It’s easy to get comfortable in a job and lose a pulse on whether or not you are getting paid fairly. Take some time to review your 9-5 income and give your resume a refresh. Some specific things you can do include:
• Review and compare salary data on sites like glassdoor
• Review job listings on an app like indeed to see what sort of skills employers are looking for
• Update your LinkedIn Profile
• Update Your Resume
Perhaps you are happy with where you are at with your 9-5 and the prospect of switching employers – even if it meant a higher pay – isn’t attractive. Or perhaps you are already maxed out at your 9-5 but still want to increase your income.
Check your Emergency Fund
Now you probably don’t need to check your emergency fund. If you have one, you likely know how much it is. If you don’t have one, you also know how much you have.
But when I say check your emergency fund I want you to actually think about whether or not your emergency fund is sufficient. How many months could you live off of it? If your answer was less than three months, it’s time to make building your emergency fund a priority. If you really want to challenge yourself make a plan of hitting somewhere in the six to twelve month range.
Now, if you don’t have an emergency fund then it’s time to get one. I will be the first to admit that building an emergency fund is not easy, especially when you have debt and other things that you want to put your income towards. But I can also tell you that it’s one of the best things you can do for your peace of mind.
Start by setting a realistic goal like saving $100. Then challenge yourself to increase that to $500, and so on. Eventually you will want to have the equivalent of three or more months of monthly expenses set aside. The important thing is to get started.
Review your Retirement & Health Savings Account
Another thing you should review is your retirement and Health Savings Account. A few things to check are:
• Are you contributing up to your company match for your 401k?
• Whether you have a company match or not, how much money are you actually putting into your 401k and/or IRA?
Are you able to contribute more?
• What investments do you haven in your 401k and/or IRA? Do you need to re-balance it?
I’m all about the “set it and forget it” approach to investing, especially when it comes to retirement accounts, but it is important to check up on them every once in a while, even if it’s just once a year.
Review your Insurance
The last thing on the Spring Cleaning Personal Finance Checklist is review your insurance. Insurance isn’t the most exciting thing in the world, but it serves an important function and can protect you from expensive, unexpected bills – or even bankruptcy.
Take an inventory of your current insurance coverage. How much do you pay in premiums? What are you actually getting in return? Is your coverage adequate?
Many times people don’t realize how much they are paying for insurance because it’s baked into their paycheck, mortgage payment, or is on auto-pay. Understanding the true cost of your insurance is important, if not just to have it as a reference point.
Insurance isn’t all about cost. You can oftentimes get cheaper insurance, but if the coverage is bare-bones you are going to regret it if something big happens. One of my former manager’s house burnt down right after he switched to a cheaper home insurance company. They ended up being very difficult to deal with and caused much more hassle than a different company likely would have. That’s not always the case, but I think it’s important to balance cost with quality of coverage.
Besides reviewing your current coverage it might make sense to add some additional coverage as well. Up until a little over a year ago I did not have any life insurance, but I decided to open a million dollar policy at age 27. There’s are many reasons to consider life insurance. In general, if others depend on your income and would be impacted if it were to go away, you should look into getting life insurance.
The Economy Will Survive This Presidential Election
Americans see a threat in the election that doesn’t exist — except in the headlines
The Election. Many Americans are concerned about how the presidential election will turn out. But nowadays people’s gloom about the post-election economy and the financial markets is being unduly influenced by headlines.
Six of every 10 Americans say the outcome of the presidential election represents the biggest threat to the U.S. economy over the next six months. This according to a recent BankRate.com survey.
Moreover, this was the majority view regardless of major political party affiliation — Republican, Democrat, or Independent. It was shared by most of every demographic group studied. No matter the age, gender, income level, ethnicity, or level of education. Indeed, the number of people fixated on the election as the economy’s biggest threat was five times greater than the second-biggest concern, terrorism.
Truth is, people are sorely misjudging the short-term threat that any presidential election presents.
Markets and Economies
Markets and economies do not implode around elections. Yes, the presidential election brings plenty of uncertainty to the market. But whatever troubles you see looming won’t be coming to roost in the next six months. In all likelihood, it will take six months just to have an idea of the economic impact the election could have in the long term.
Do yourself a favor: resist the temptation to get so caught up in the round-the-clock news cycle that it blurs rational thought.
You hear about the election 24-7 but yet the unanswered questions about what’s going to change. The president can’t change everything overnight. Once that realization comes to light, the uncertainty and anxiety people feel today will greatly dissipate.
It’s not that people should adopt “Don’t Worry, Be Happy” as their theme song, it’s just that fears about the election blowing up the economy in the short run are misplaced. Acting on those fears as an investor would be a significant mistake.
For as much credit or blame as we want to give any president for the economic conditions during their tenure, there’s only so much the commander-in-chief actually controls.
The Role of the Federal Reserve
For example, plenty of people believe that the market and economy will suffer when the Federal Reserve raises interest rates. This is now widely expected to happen shortly after the election, regardless of which candidate wins.
If a rate hike makes the stock market stall, it’s not really related to the new occupant at 1600 Pennsylvania Avenue. Neither is either candidate likely to be able to talk the Fed governors out of a hike (if they even would want to).
Another relevant, recent example involves Brexit. Brexit was the vote in Great Britain to leave the European Union. While the move itself has direct links to the British economy, it upset the market only for a matter of hours before it was shrugged off. We will see if the real economic consequences will be settled in the months or even years to come.
But the real reason for investors to avoid acting on nerves is that the timing is off. “There is some validity to the idea that there is a threat to the economy, but it is more in the post-election year. This essentially means the time frame that people are worried about is wrong.
In post-election years — regardless of which party wins — there is a sell-off after the inaugural ball. A lot of it has to do with the way whoever comes into office is going to try to push through their most difficult and unsavory policy initiatives. I have to admit that I feel the same kind of nervousness as everyone else. But, if the election is going to lead to trouble for the economy, it’s going to be further out.
The President’s Effect
No president can put the brakes on the market, nor wants to. Whoever wins in November inherits a market that has a long bull rally and the potential to keep going. If only because Wall Street tends to climb a proverbial wall of worry.
Moreover, no winning candidate in this year’s election is going to trigger any sort of market euphoria. The market’s long-term trends typically are unaffected by which party holds the White House. Post-election years tend to be a bit worse when a Republican has been elected. That trend is seen reversing in mid term years.
You can understand why everyone is worried about it, but you have to hope people act rationally. All of the talk and all of the news don’t have people acting on anything right now. That would be how the election becomes a real problem, and not just a worry.