Is 70 the New 60?

I’ve been fortunate enough to be in the investment business for nearly a quarter century at this point, and I’ve made an observation over the past few years about the changing demographics in our country.  These changes have had a profound impact on quality of life, when people retire, and in turn on the workforce.

When I was growing up, I distinctly remember people being bound to wheelchairs or using walkers because they had arthritis and could not walk.  Now, through artificial joints and physical therapy, it’s rare to see this situation any more.  How many of us have friends or relatives (or ourselves!) who have artificial knees or hips?  This is an astounding improvement in quality of life, in just the past twenty or so years.

Also, through innumerable improvements in medicine, life expectancy is well into the eighties now.  I have plenty of clients who are in their late seventies and early eighties and are totally involved in the management decisions on their accounts.

But here is the major shift I’ve seen over the last ten or so years: people are working longer.  They are doing this for the reasons I’ve already mentioned; they’re healthier, for the most part they seem happier, and so they feel like continuing to work for a longer time, particularly if they own the business.  This has had a ripple effect down the line through many industries, however.  I recently had lunch with a couple of attorneys who have been out of law school for about ten years.  When they got out of school, the market for new attorneys was relatively good.  Now, many of the older attorneys are still working.  They are the partners (owners) of the firm, so they can’t be fired or forced out, and they make the majority of the earnings.  This has resulted in newly minted attorneys being hired as clerks or attorneys at very low salaries.  This is happening in many industries. 

As an aside, there are a couple of lessons to be learned here.  One is that it is imperative for graduates to have some sort of advanced degree to earn a higher salary coming out of school, and even then it is sometimes difficult.  The flip side (and happy part of the story) is that many people who are happy with their work are able to keep chugging along.

One of my big takeaways in working with retirees over the years has been that people who retire and have some sort of project or small “job” they are dedicated to seem to be much happier and also much healthier than those who retire and “go home and sit on the couch”.  I’ve seen these activities range from church involvement, helping to raise grandchildren, managing real estate holdings, volunteering for various organizations throughout the week, and board memberships.  The point is, they all have something that keeps them going on a regular basis, gives them social interaction, and challenges them mentally. 

Life expectancy is much longer than it was even twenty-five years ago, and so as people approach retirement age, they face a much happier choice than in years past—if they are healthy and happy in what they do for a living, should they continue to work, or retire, and make sure that they have plenty of activities to keep them occupied and give them a sense of worth and value.

Do you feel it’s time to start planning for your retirement?  Schedule a no-obligation appointment to review your present plan, your investment allocation, and strategy for retirement income, as well as discuss how you plan to efficiently pass on your estate and receive the Survivor’s Notebook—a sixteen- page workbook that is designed to help your survivors identify your advisors, accounts, where key documents are located, and so forth.  Feel free to contact me if you feel I may be of assistance at (865)474-8115 or monte@crestpointwealth.com.

Alternative Investments: What You Need to Know

For many years, the concept of asset allocation was pretty simple; figure out the ratio of stocks and bonds that makes sense for the investor, and then break up the stocks into domestic and some international, and a mix of short, intermediate, and long-term bonds, and you’re done.  I think there have been some fundamental changes in investing over the last twenty years that make things a little more complicated than just this simple approach.

When I first got in the business, people still looked at the paper the next day to see how their stocks or mutual funds had fared the day before.  Now, news and information are instantaneous.  And for better or worse, a tweet or false claim made about a company on line can affect a stock before a company has an opportunity to respond, sometimes having negative consequences for long periods of time.

There is a concept known as “efficient markets”, which suggests that the stock market will perform optimally (that doesn’t mean it will go up, it just means it will perform as it is supposed to) when everyone has the same information at the same time, and can act on it at the same time.  With today’s lightning-fast information, I’m not so sure our markets are as efficient as they once were.

But the markets have performed very well over the past few years despite these challenges.  Are we due for a pullback?  I don’t really know, but it helps to be prepared in case we do have a dip in the stock market.

We also have some risk with bonds; if interest rates go up, the value of your bond holdings can go down.  We try to reduce this risk by shortening the maturity of bond holdings so that they are not affected by rising yields as much as long-term bonds would be.

For the past several years, I’ve been using another asset class to try and further reduce risk in clients’ portfolios: alternatives.  Alternatives are investments that typically do not fit in the categories of stock or bonds; these could be commodities such as oil and natural gas and precious metals, currencies, real estate, and so forth.  These types of investments usually have what we call “low correlation” with the stock and bond markets—they do not normally rise and fall in lockstep with the other asset classes.  In addition, there are several types of alternatives, particularly the natural resources and real estate investments, that often pay dividends that can complement other investments in a portfolio.

It’s important to note that alternative investments are not for everyone; most alternatives have minimums that are a little higher than typical investments, and sometimes they are not designed to be as liquid as, say, a typical mutual fund, and so the requirements for investor liquidity are typically a little higher.

If alternatives are used as part of an investor’s overall investment strategy, I typically use them for about 7-12% of the investor’s portfolio.  Using analysis tools, we can see how introducing alternative investments can many times reduce the overall volatility (up and down swings) the investor sees in their portfolio.  This becomes very helpful to the investor who is interested in taking income, but does not want to see a lot of fluctuation in their accounts.  Alternatives won’t get rid of fluctuations, but they may help smooth out the rough spots.

If you would like to learn more about alternatives or see if alternative investments may be a good option for you, please feel free to give me a call at (865) 474-8115 or email me at monte@crestpointwealth.com.

Stay-At-Home Spouses: Too Valuable to Underestimate

For single-income families, financial planning usually focuses on the breadwinner, and with good reason.  This is the person who brings the income into the household.  Without this economic engine, the family would be sunk.  In the financial planning process, we assess employee benefits and personal coverage to assure that if this person dies or is too sick or hurt to work, there will be enough income for the family to maintain their standard of living.  “Standard of living” is a broad term.  In a single-income family, we want to assure that the stay-at-home spouse is able to continue staying at home.  Imagine the tragedy of losing a parent, but then losing the other because they had to go back to work to support the family.  Also, maintaining those aspects of life we take for granted—sports, school activities, vacations, weekend activities with friends—these are what a properly designed and implemented financial plan can help protect for a family.

But what happens if the stay-at-home parent dies?  Have you as the breadwinner stopped to consider how much your spouse does for your family?  In my experience, in a single-income family, the working (outside the home) spouse averages about fifty hours a week at work.  This doesn’t leave a lot of time for getting kids back and forth to school, preparing meals, doing the laundry, going grocery shopping, cleaning the house, taking kids to the doctor…the list goes on and on.

In short, if a dollar figure were put on it, your stay-at-home spouse would probably make much more than you would first imagine.  For this reason, in our planning we want to assure that the spouse is properly insured for the same reasons as the breadwinner—so the family can continue to maintain their normal lives.  The working spouse will need to hire help for many things that need to get done around the house so they can have the flexibility to spend time with their family.  In the long run, it helps the surviving spouse focus on making a living for his or her family, but in the short term (and much more importantly), it provides financial flexibility to spend extra time with the children.

In the following video, WVLT Local 8 News reporter Chynna Greene takes a look at what the salaries of two stay-at-home moms might be if they were being paid a salary.  The numbers may surprise you.  If you would like further information on financial planning for your family, or to briefly discuss your situation in general, feel free to call me at 865 776-5577 or email me at monte@crestpointwealth.com.

The Chimney Sweep and Financial Planning: Are You Taking Care of Your Family?

When my mother died I was very young, 

And my father sold me while yet my tongue

Could scarcely cry " 'weep! 'weep! 'weep! 'weep!" 

So your chimneys I sweep & in soot I sleep. 

 Excerpt from the William Blake poem “The Chimney Sweep”

(Note: If you are viewing this on a mobile device, tilt your screen to the horizontal position to optimize your experience.)

This poem was written by Blake in 1789 to draw attention to the plight of boys (many of them orphans) as young as four and five years old being forced to work as chimney sweeps in the factories of the industrial revolution.  You may notice parallels with the Charles Dickens classic Oliver Twist, which was written several decades later in 1838.  Unfortunately, this was reality for children who lost their parents in those earlier times.    

What does the tragic story of chimney sweeps in Victorian England have to do with financial planning, you ask?  The foundation of responsible financial planning is assuring that your family is financially stable if you die or if you are too sick or hurt to work. 

While it is admittedly rare to see children become orphaned, it does happen—my father-in-law was orphaned at six years old and was raised by his oldest of eight siblings, and two of my high school friends (brother and sister) were orphaned at ages fifteen and seventeen when their parents died within six months of one another.

As we build a financial plan for our clients, we discuss what would happen in the scenario if a breadwinner is no longer there.  What would it take to maintain the family’s lifestyle?  What about keeping children in sports or music lessons, or private school?  Do you want the family to still be able to travel like they always have?

Another consideration that should not be devalued is a stay-at-home spouse and the contributions they make to keeping the household running.  I’ve had dozens of conversations with single income families and the working spouse invariably has a look of panic on their face when I pose the question of how they would juggle their job, along with cooking, laundry, taking the kids to school, soccer practice, gymnastics, and everything else their spouse does all day.  Proper planning helps assure money is in place to help pay for needed support.

The financial considerations may seem obvious, but they should be bolstered with proper estate planning.  The friends I mentioned became wards of the state until they were eighteen because their parents had no guardians designated for them.  Having proper documents in place is critical in order to make sure your children are going to be in the custody of the people you want, and that the money you have left behind is being handled according to your wishes.

Obviously, these are not the most enjoyable subjects to discuss, but if you have children, planning for their wellbeing is an obligation that in my opinion you just can’t overlook.  If this is something you would like to discuss or if you would like more information on planning for your family’s financial security, feel free to contact me at 865 474-8115 or monte@crestpointwealth.com.

If navigating the waters of finance seems troubling, CrestPoint Wealth would love to schedule an annual review with you!

What Return Do You Really Need to Earn on Your Investments?

When thinking about your investments, what is one of the first things that pops into your head?  I’d be willing to bet that investment return is right up there at the top of considerations.  Obviously, return is a huge deal, but from the advisor side of the table, I’m also concerned with how much risk (fluctuation for a certain amount of return) the investment has, and how the investment interacts with the other investments held by the client.  In other words, if a client has an investment with a great track record, but three other holdings that are very similar (same industry, size, etc), she may be taking on more risk than she realizes by buying this new investment.

I’ve been coaching clients to look at return in a different way—in what I call a “Family Rate of Return”.  Basically, this is the rate of return a client needs to accomplish their unique goals, and frees them from the burden of chasing an arbitrary “best they can possibly do” number.  Using tools such as eMoney, we can hone-in on what a client truly needs, and in most cases, we find out that they do not need to take as much risk as they may have previously thought to reach their retirement goals.  This analytical approach gives clients great peace of mind, and it also gives us more options to spread clients’ investments among various options with a goal to protect downside, rather than chase unrealistic returns.

Studies show that having a plan greatly increases your odds of success in retirement planning.  If you’re interested in finding out what your Family Rate of Return is, or if you want to know if you’re on the right track for retirement, let us know. 

Four Simple Ways to Teach Kids About Money

I had the privilege of growing up in a stable, middle class family in Memphis, Tennessee.  I could go to my parents and talk about anything—any troubles, any concerns…but there was one subject we didn’t discuss.  Money.  You just didn’t talk about money.  Not about how much the bills were, or how much the new (used) car cost, or things like saving for college, or my dad’s retirement savings.

I’ve been an investment advisor for twenty-three years, and I’ve seen countless examples over the years of younger investors who have a very limited degree of financial literacy.  This goes for people with advanced degrees as well—think about your experience in college; did you have any classes in general finances?  Chances are, your classes were predominantly geared toward your major.  Colleges across America have been churning out graduates with high rates of debt, and in most cases no formal education in how to manage their finances.

As parents, we can help our children gain financial literacy as they are growing up, rather than letting them repeat some of the same mistakes we’ve made.  Here are some suggestions:

1.     Have them help with the bills.  Discuss what the power bill is and how it gets calculated, how much you’re spending on healthcare, and what the house payment is, just to name a few.  This helps kids learn about how the household operates, and their place in it.

2.     Discuss large purchases.  If you are negotiating for a large purchase such as a car, this can be an incredibly valuable learning experience.  Take them with you to the dealership so they can see the process of buying a car.  When it’s time for them to make that first purchase, they know what it’s all about.

3.     Talk about your investing experiences.  I can’t count how many times I’ve had clients say to me, “I wish I had started earlier”.  That’s good information for me to know, but it’s much more valuable to your kids!  Tell them what you would have done differently to get an earlier start on saving, or to start saving more, earlier.

4.     Talk about credit.  Discuss the uses and pitfalls of credit, rather than letting them learn on their own.  Prepare them before they leave for college that they will be bombarded by credit card companies, and how these offers of “easy money” can plague them for years.

Of course, the timing of these action items needs to begin at the appropriate age, but including children in your household’s financial dealings can have a lifetime impact.  Learning these lessons at home, and over the course of years, can turn your youngster into a financially-savvy young adult.

The Life Cycle of Bull Markets

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”

— Sir John Templeton

I first heard these words of wisdom from the legendary investor Sir John Templeton early on in my career.  They have held true through many market cycles.  We find ourselves in a bull market that began in March of 2009, and since the lows in the Dow Jones Industrial Average of around 6500 at that point, we have enjoyed a stock market that has outlasted most bull markets in terms of length, and certainly in terms of percentage gains.

Do I get a sense that investors are in a state of euphoria?  No, not really; certainly not like the dot-com bubble of the early 2000s.  At that time, I heard things like "this time it's different" and "we're in a new economy"--phrases certainly indicative of an optimistic mindset to say the least.  When I had widows coming in to my office and wanting to cash in CDs because they felt they were missing out on the action, I had a feeling we may be in trouble.

I say all this to simply say we've had a tremendous run-up in the stock market, and if part of your allocation is in stocks, it is probably a good idea to contact your advisor to assess your risk tolerance.  We all tend to forget the tough times when the tough times have been so far in the distant past.