Financial Resolutions for 2020

The majority of Americans are setting financial resolutions now. According to a survey by Fidelity Investments, the most popular resolutions are saving more money (53 percent of respondents), paying down debt (51 percent) and spending less (35 percent). Whether you take New Year’s Resolutions seriously or deem them as folly, here are some ways to review and refresh your personal finances along with some lessons I’ve learned over time.

5 Planning Areas

Your financial goals are unique. However, there are general planning areas that apply to most people. Here are five that were outlined in a recent planning article called “New Year’s Financial Resolutions: Get Your Finances in Shape for 2020” and some specific planning implications for you to explore with your family and advisors.

1. Creating a budget for life

Set a budget and create a balance sheet annually to hold yourself accountable. Also, establish cash reserves for big expenses that happen infrequently throughout the year (property taxes and car insurance), planned expenditures (vacations or home improvements) and emergency funds (car repairs or a broken arm).

Implication: How will your budget change as you move through various life cycles or patterns of saving and spending?

2. Managing your debt

Maintain an appropriate and affordable level of debt, and develop the right debt reduction plan.

Implication: Is debt consolidation right for you? Use caution with “consolidating” a five-year car loan and a new refrigerator into a 30-year home refinance or using adjustable rate loans in a rising interest rate market.

3. Optimizing investment portfolios

Have a prudent investment strategy and rebalance investment accounts periodically.

Implication: How to use tools available to you in your 401(k) plan (e.g. savings calculators, “off-the-shelf” target date or life cycle funds, and automatic rebalancing versus customized strategies)?

4. Being prepared for the unexpected

Maintain the right insurance protection including health, life and disability, and casualty coverage.

Implication: Are you reviewing your coverage for adequacy and price competitiveness? How does your income protection change (life and disability) over time? Should you get umbrella liability coverage?

5. Protecting your estate

Update beneficiary designations for retirement accounts and insurance; and review your will, powers of attorney, trusts and titling of assets.

Implication: Planning for death is one thing. How are you planning for living with dignity and independence as you age?

And finally, some lessons I have learned over time:

  1. You’ve got to be the most serious person on the planet about your personal finances.
  2. Run your personal finances like a business.
  3. Time and health are infinitely more valuable than money.
  4. Don’t be afraid of saying “I don’t know” and stay within your circle of competence.
  5. Diversification protects us from the inability to predict the future.
  6. Learn to love what you do (versus doing what you love).
  7. Be humble or life will find a way to humble you.

And I’ll close with one of my favorite quotes from Denis Waitley: “Expect the best, plan for the worst and prepare to be surprised.”

May the new year be a turning point for you. Secure your future wisely.

Posted in Planning Tips and Goals | Comments Off on Financial Resolutions for 2020

Financial New Year’s Resolutions for 2020

The tradition of making New Year’s resolutions originated with the ancient Babylonians about 4,000 years ago. Promises were made to their gods to pay debts and return all borrowed objects. If these promises were kept, they believed their gods would grant them favorable health in the new year. They were also the first to host New Year’s celebrations with a 12-day festival called Akitu when they planted their crops – although their new year began mid-March. As we wait to ring in 2020, I recommend those of us who have not yet retired to save more and follow the teachings of Arkad in George S. Clason’s book titled The Richest Man in Babylon – a classic personal finance book made up of a collection of ancient Babylonian parables. In his book, Clason states that saving at least 10 percent of your earnings is one of the cornerstones of financial independence.

Clason’s book highlights the following Five Laws of Gold:

Save – Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.

Make money work for you and compound – Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.

Be cautious and seek expert advice – Gold clingith to the protection of the cautious owner who invests it under the advice of men wise in its handling.

Don’t invest in something you don’t understand – Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.

All that glitters is not gold – Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers.

New Year’s Budgeting Resolutions

Budgeting is a valuable life skill. There are numerous methods including putting pen to paper, creating spreadsheets, and using software. Some of the most popular personal budget software programs include You Need A Budget (YNAB), Quicken, Mint, Acorns, and Every Dollar, among others. The key is to find one that matches your needs and that you will consistently use.

As an example, here are four rules of budgeting used by YNAB:

  1. Give every dollar a job – Where does the money you earn need to go versus where it goes when you emotionally spend?
  2. Save for a rainy day – Debt is not the only option. Set goals for your big and infrequent expenses, including holiday gifts, vacations, property taxes, etc., and fund them monthly.
  3. Roll with the punches – Overspending in some categories does occur. Be flexible and move funds from other categories.
  4. Live on last month’s income – You’ll break the paycheck-to-paycheck cycle by following the other rules. This way, it’ll be easier to pay your bills as they come in.

As you begin to set your financial goals for 2020, we hope you consider saving as one of the top priorities on your list. May your list of worries be shorter than your New Year’s resolutions.

Secure your future wisely.

Posted in Personal Financial Planning, Planning Tips and Goals | Comments Off on Financial New Year’s Resolutions for 2020

Year-End Financial Review: How to Avoid Financial Complacency

It’s that time of the year again, and while you may have had a strong financial year, don’t fall into the financial complacency trap. The U.S. stock market is up with the S&P 500 and Wilshire 5000 recently posting their highest weekly closes in history. Bonds are having their best year since 2002. US jobs growth soared in November. According to Labor Department numbers, hiring was robust, and the unemployment rate fell to its lowest level in fifty years. So, while holiday shopping might be a priority, it’s pivotal to take a moment to plan and check your future.

Here are three areas that you should focus on before you ring in the new year:

Review Account Statements

  • Diversify Your Accounts – Are your 401(k) plans and other investment accounts properly diversified to achieve the returns required for your goals and are comfortable with the level of risk? Often times, having all cash accounts or stable value funds (SVF) can be jeopardize your future, as can all growth stocks accounts. All cash (too safe) can result in too little return. All stocks can expose you to excess volatility. Successful investing is as much about making money when markets advance, as it is losing less when they decline. It’s best to adjust (and have protection in place) before market corrections occur.
  • Adequate Savings – Contribute enough to your 401(k) to earn matching company contributions. If you max out your 401(k) contribution limits, contributing after-tax to your 401(k) plan is unlimited, and it allows you to benefit from additional tax deferral earnings, capital gains and interest of your investments.
  • Simplify – What accounts can you consolidate? According to the Bipartisan Policy Center, there are an estimated 25 million orphan 401(k) accounts that aren’t being monitored. Orphan accounts are abandoned accounts left with former employers. Avoid leaving accounts behind and always tend to your funds.
  • Cash Reserves – You should have an emergency fund, which is equal to three to six months’ worth of living expenses if you’re working, and one to two years of savings if you’re retired. Ask your banker for competitive interest-bearing accounts or consider on-line Federal Deposit Insurance Corporation (FDIC) insured money market accounts.

Paycheck Review

  • Adjust Tax Withholding – Do a quick forecast of your 2019 income taxes and adjust your withholding as needed for your remaining December paychecks. Your accountant or enrolled agent would appreciate the opportunity to act before the end of the year.
  • Automatic Transfers – It’s a lot easier to save money before you have a chance to spend it. Take the time to review and update your 2020 budget.

Risk Management

  • Insurance Review – Do you have adequate coverage, and is it competitively priced? Talk to your advisors, insurance agent and get bids as needed. Also, if you have a Flexible Spending Account (not a health savings account), file for any remaining 2019 balances.
  • Update Your Beneficiaries – Review and update your life insurance, annuities and retirement accounts, as needed. And consider charities as potential retirement account beneficiaries – that’s a tax-efficient way to transfer your wealth.
  • Estate Plan – Is it time to schedule an estate plan review with your attorney? Schedule a meeting with your attorney to start the new year off on the right foot.

Reflect and celebrate what you’ve accomplished in 2019. Whether it was sticking to your savings and investment plan, getting your debt under control or being promoted in your career – don’t forget to celebrate your victories.

Secure your future wisely.

Posted in Personal Financial Planning, Planning Tips and Goals | Comments Off on Year-End Financial Review: How to Avoid Financial Complacency

The Season of Charitable Giving

The year is almost over, and it’s time to make a few important decisions before 2020 begins. According to Cerulli Associates, a research firm that specializes in global asset management, a significant wealth transfer is expected to occur over the next 25 years. During this time period, an estimated $68 trillion will transfer from 45 million U.S. households to heirs and charities.

Naming your kids, nieces, nephews or other family as heirs is natural. It’s projected that Generation X will replace Baby Boomers as the wealthiest generation within 25 years. Some Boomers will leave their wealth to their kids outright, some may attach strings (trusts), while others hesitate to name their kids as sole heirs. These donors ask themselves, “how much is enough?” or, “we’ve invested in education and training—the kids will make their own way in the world.” And some fear the “Shirtsleeves to shirtsleeves in three generations” curse – the Scottish version goes “The father buys. The son builds. The grandson sells. And his son begs.” These types of discussions are not uncommon. Warren Buffett plans to “Leave them enough so they feel they can do anything, but not so much they could do nothing.”

While some people’s future may be left to their family, many find their gifts have great value with their alma mater, church, community health center and other favorite charities. As we find ourselves in the season of giving, we’re sharing some tips to plan for your next charitable donation.

Why Do People Give?

  • It makes them feels good
  • Their personal beliefs – making a difference, helping their fellow man
  • Personal experience – they or a loved one had a life-changing experience
  • Image and recognition – a way of being remembered
  • Reduce tax liability

There are also reasons why people don’t give. Maybe there are simply too many choices, they lack the funds, or they’re saving the money for the future or an emergency.

There are approximately 1.5 million non-profits in the U.S., so how do you pick one to donate to? What can you do to feel confident that you won’t run out of money in your retirement?

Charitable Giving Planning Tips

You can take better care of others once you’ve taken care of yourself. Before making a donation, meet with your advisors and implement a plan for a well-funded and secure future. This includes having contingency plans for life’s surprises.

Questions to Consider About Where to Give

  • What issues are important to me, and where do I volunteer my time?
  • How do I structure my giving (budget and means)?
  • How do I find and vet organizations?
  • Is it time to expand or refine my giving?

Year-End Giving Strategies

  • Get started early. Be aware of year-end deadlines from the Internal Revenue Service (IRS), charities or financial institutions. Plan ahead for illiquid assets, operational requirements, holidays, weather delays and vacations.
  • Review your appreciated assets – they can be good candidates for funding outright gifts, donor-advised funds and other gifting vehicles by avoiding or minimizing the capital gains tax.
  • Qualified Charitable Distribution (QCD) – individuals 70-years-old or older may contribute some of their Individual Retirement Account (IRA) to charity. The distribution goes directly to the qualified charity and can count towards satisfying your required minimum distribution.
  • Consider naming a charity as a beneficiary of your IRA. It could be more advantageous than naming them as a beneficiary of your trust.
  • Consult with your tax expert – share your intentions with your Certified Public Accountant (CPA) or enrolled agent and seek their advice in advance. Sometimes it’s better to make your donation in January rather than December because you aren’t planning to itemize, you’ll have more donations or taxable income next year, etc.

Leo Rosten says, “The purpose of life is not to be happy – but to matter, to be productive, to be useful, to have it make some difference you have lived at all.” Money can be a tool to help you have an impact on the things that matter most.

Secure your future wisely.

Posted in Philanthropy, Planning Tips and Goals | Comments Off on The Season of Charitable Giving

Everything You Need to Know About Medicare

Retirement can spur more life satisfaction, relaxation, freedom, free time and travel opportunities. In retirement, however, health often replaces money as the number one priority. As we age, healthcare becomes more expensive, and it’s important to have the right plan in place to keep health expenses manageable. Now through Dec. 7 is the annual Medicare Open Enrollment period. Medicare recipients can now make changes to their coverage for 2020. Rather than rushing through the process, be in-the-know on these essential Medicare facts so you can make a more informed decision.

What is Medicare and who is eligible?

Medicare and Medicaid first became available in 1966 after President Lyndon B. Johnson signed the Medicare Act of 1965. They are the government’s second-largest expenditure after Social Security. Medicare is the national health insurance program for people age 65 or older and people with qualifying disabilities and medical conditions. Medicaid is a joint federal and state program providing healthcare for qualified low-income individuals.

Medicare Parts and Costs

Medicare consists of four different parts, and each helps cover specific services. Part A is for hospital services, Part B covers doctor visits and outpatient services, Part C is Medicare advantage plans and Part D covers prescription drug costs. Part A is generally free if you or your spouse paid Medicare taxes for 10 years or more. The 2020 cost for Part B is approximately $145 per month (7 percent higher than 2019), and Part D depends on the prescription plan you choose (the national average is about $33 per month).  Seniors can also elect to purchase a Medicare supplement policy from private insurance companies to help fill the gaps of Part A and B (e.g., copayments, co-insurance and deductibles). According to recent studies, the average health insurance cost for single coverage premiums ranges from $200 to $400 a month. Finally, Part C is an Advantage Plan where you get coverage for Part A and B through a private insurance company with possible options, including prescription drugs, dental and vision insurance, and more.

Income Related Costs

You may have to pay additional costs for Parts B and D based on your income through an income-related monthly adjustment amount (IRMAA). Medicare claims that less than 5 percent of insureds are affected. The additional costs start at a modified adjusted gross income (MAGI) of $87,000 for single taxpayers and $174,000 for joint taxpayers for the upcoming year. Your MAGI is calculated by adding your Adjusted Gross Income and municipal bond income – consult your tax expert. Your cost is determined by your income two years ago. Depending on your income, the additional costs could range from about $500 to $4,000 annually for Part B and $150 to $500 annually for Part D.

Tips to Reduce IRMAA Costs

One of the biggest IRMAA planning opportunities considers your income levels before and after you retire. Medicare’s two-year look-back period could involve your highest income-earning years. But you can appeal Medicare’s IRMAA calculation if you’ve had a “life-changing event that significantly reduced your income” including the death of a spouse, work reduction or stoppage (including retirement), and more. Discuss eligibility with your tax expert and, if necessary, contact the Social Security Administration and appeal to use your current income instead of the two-year look-back income. Form SSA-44 might save you thousands of dollars.

Deciding which Medicare plan options are best for you can be confusing. Other issues you may encounter include when to enroll and how to incorporate other assets like health spending accounts. Be sure to consider needs like assisted living or custodial care. Keep a pulse on health policy developments like the recent executive order pushing for medical savings accounts and high deductible Medicare Advantage plans. Talk with your family and your trusted advisors to determine what’s best for you.

Secure your future wisely.

Posted in Planning Tips and Goals | Comments Off on Everything You Need to Know About Medicare

Aging Parents: How to Prepare for Their Financial Future

In our adult years, we may encounter two distinctly memorable moments. The first is the moment we realize we sound like our parents when speaking with our children or friends. It’s usually funny because you scratch your head and say to yourself, “I just repeated something my old man would say.” Hopefully, the second moment doesn’t happen to you – becoming your parent’s parent. We switch roles as a result of aging, dementia or chronic illness, and we’re tapped on the shoulder to step in, step up, and help with our parent’s care.

Planning is the topic of Denis Waitley’s quote, “Expect the best, plan for the worst, and prepare to be surprised.” Our parents deserve to live with quality and dignity, and we don’t want to see them fall victim to financial elder abuse or fraud. However, it’s also a difficult topic because we were taught not to question our parents’ authority. Below, you will find key information about helping our parents or aging relatives prepare for their future, myths about eldercare, and actionable steps.

Financial Myths:

Myth: It’s not going to happen to me, and I’m not going to need help.

Currently, 13 percent of the population is age 65 or older, and by 2050, one out of five Americans will be 65 or older. According to the U.S. Census Bureau, we’ll have more seniors (age 65+) than children (under 18) by 2035, and the fastest-growing population segment will be those 85 and older. Unfortunately, the cost of health care doesn’t get better with age. Fidelity Investments, a multinational financial services corporation, estimates an average couple at 65-years-old will spend approximately a quarter-million dollars for medical costs for the remainder of their lives; that excludes the cost of assisted living. The annual cost of Alzheimer’s care is estimated to be $203 billion or about twice the cost of cancer.

Myth: I’ll be covered by Medicare.

The Centers for Medicare and Medicaid Services (CMS) estimates health spending accounts for about 20 percent of gross domestic product (GDP) and that the government (Federal, state and local) pays about half that cost (the balance paid by self-pay and private insurance). However, Medicare generally does not cover assisted living costs. An alternative is Medicaid, however, it’s considered a resource of last resort. The Federal/State program is for low-income, needy families.

So, how do you approach your parents or aging loved ones about making sure they’re going to be ok in retirement in both financial and non-financial issues? Planning is best done when they are healthy and clear-headed, rather than guessing what they want should a medical emergency strike or their mental condition fades.

Actionable Steps:

Prepare in Advance

Prepare a list of questions in advance and document their answers. Do your parents pay their own bills, and what are the passwords and access codes to their online accounts? Who are the key people in their lives, including legal, medical, financial, home maintenance, veterinarians, lunch, and play buddies? If something unfortunate happens to them, how do they want their personal effects handled, how do they want to be cared for, and by whom? Plan to stay put in their home (possible age-in-place modifications and future caregivers) or move to retirement community/assisted living facility? Where are their legal documents? How do they want their end-of-life to look, and what do they want to be remembered for?

Develop a plan

This may require the engagement of professionals including legal, medical, caregivers, property management, professional trustees, etc. Have a family meeting with your parents and other key members to secure your parents’ wishes.


Periodically review and update the plan, as needed. Document life changes, including your parents’ needs, service providers, and family dynamics. You have challenging duties taking care of your parents, so build a supportive team of resources and practice good communication.

In many ways, helping our parents or aging relatives prepare for their future is parallel to planning for our own. Secure your future wisely.

This article can be viewed at the Reno Gazette Journal.

Posted in Planning Tips and Goals | Comments Off on Aging Parents: How to Prepare for Their Financial Future

Top Alternative Funding Sources for College or Vocational School

Time flies, and before you know it, our children grow up to begin their careers as young adults. We don’t know what career they may pursue or if that future career even exists today. However, one of our duties as parents is to assist our children in making smart financial decisions to help them secure a brighter financial future.

Higher education may involve four-year college and possibly post-graduate studies. However, not everyone is cut out for the traditional approach, nor does every profession require it. Some students prefer or can benefit from the one or two-year programs that provide them vocational training and fast track them into the workforce.

Whichever path your child decides to take, they all require a financial commitment. Here are alternative funding sources for college or vocational school for parents and young adults:

Commit to Your Personal Savings

Kudos to the parents who start saving while their children are toddlers or some, even younger. Other parents find it easier to start saving later, and budget daycare and preschool costs towards college savings. How much do you need to budget for a five-year-old? Say the cost of daycare/preschool averages $200 a week. If you start applying that towards savings when the kid is five, you should accumulate enough to fund four years of state college costs assuming moderate investment returns and education cost increases.

Explore Investing Strategies

One option is to personally invest the funds in an individual or joint account. This gives the parents the most control in managing and distributing the funds to their children. 529 accounts are another option. They are state-operated investment plans for college savings, and they provide tax benefits. If your child doesn’t need all the money in the account, you might designate another beneficiary or withdraw the money and pay the penalty. Some states also offer another 529 account option, known as a prepaid tuition plan, which enables you to pay for state university education at today’s prices. However, it might not cover other costs such as room and board, computers and more.

Apply for Financial Aid

It’s estimated that three out of four full-time students receive some type of financial aid, including scholarships, grants and loans. The office of Federal Student Aid is a good resource for grants, loans and work-study programs. Federal programs may offer lower fixed rates and more flexible repayment loan terms than private student loans. Even if you think your child won’t qualify, apply anyway – You might be pleasantly surprised!

Regular Income

Your peak earning years often occur later in life and after many child-related costs have ended. Parents may have more disposable income and may handle college costs out of pocket. However, have a set plan if this were not to work out.

Student Contributions

Get your children involved in the financial aspect of their education. Apply for student scholarships – even the smaller ones add up fast. They can enhance their resume by taking special classes and working. Advanced Placement (AP) courses during high school may provide college credits, and vocational courses can help steer the student.

Tuition-Free Colleges

There’s a handful of schools that don’t require tuition. A few states, including Maryland, New York, Oregon and Tennessee, offer tuition-free schools with restrictions based on residency, household income or other factors. Other colleges waive tuition; however, they require some form of service requirements and may bill for room and board.

Enlist in the Military

The military offers a range of benefits. These include job training, enlistment bonuses, and academies that combine higher education and officer training.

It’s never too early to start saving for your toddler or teenager. Learn your options and discuss with your advisors the best course of action for you. Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

Posted in College Preparation, Planning Tips and Goals | Comments Off on Top Alternative Funding Sources for College or Vocational School

The Financial Stages of Life

Life and money are entwined and it’s important that they are addressed together. Financial planning should be specific to personal financial goals and priorities. Yet there are common areas for most people – three major financial life stages that are defined more by financial, career and family situations. These life transitions are outlined below, along with relevant planning and investment strategies to discuss with your family and trusted advisors.

Starting Out

Typically, from the ages of 25 to 35, life’s journeys have just begun and this is where most encounter their first major life events. A challenge can be learning to develop priorities among competing goals. These include paying off school debt, exploring career paths and saving funds for a wedding, buying a home or car and planning to have a child.

Planning and investment strategies include:

  • Develop good financial habits – Budgeting, starting a savings account and deciding how you/your partner will make the financial decisions.
  • Debt reduction – Free yourself from school and credit card debt possibly using the “debt snowball strategy.” You payoff the smallest debt first and make minimum payments on the rest. Then you move on to the next smallest, and so on, until you’re debt-free.
  • Cash reserves – Build a rainy-day fund for emergencies equivalent to three to six months’ of living expenses.
  • Enroll in company benefit programs – These include insurance, retirement and education programs. An important investment strategy is diversification. This can be conservative or more aggressive, possibly using a target date or life cycle funds.
  • Network – Now is the time to find others who can help you with your decisions and planning. They include professional organizations, mentors and financial advisors.

Peak Earning Years

A person will generally earn more money from the ages of 35 to 55. Life events might include kids graduating, career advancement and personal development. This is the time to build your retirement accounts, business value and protect you and your family from future financial hurdles.

Planning and investment strategies include:

  • Funding college and trade school accounts – One of your options is including 529 plans or personal accounts to help fund your children’s schooling.
  • Minimizing income taxes – Take advantage of tax reductions using tax-free or tax-deferred investment vehicles such as 401k and HSA plans. Make effective use of your business structure and consult with your accountant.
  • Protection – Estate planning includes working with financial advisors and attorneys for wills, trusts, powers of attorney, entity structures and beneficiary designations. Review insurance for adequate coverage and cost competitiveness, income replacement, and property and risk exposure/liability.

Nearing Retirement and Retirement

People get serious about retirement planning around 55 to 65. Some life changes you will encounter are a career change, downsizing your home and being debt-free. Retirement can last two or three decades, and goals include maintaining your lifestyle, not running out of money, independence and transferring wealth.

Planning and investment strategies include:

  • Retirement assets – Accumulate sufficient wealth to last your lifetimes. Prepare forecasts of various scenarios including travel and discovery, maintenance and repairs, relocation, healthcare and assisted living with aging.
  • Business considerations – Develop and execute exit strategies if you own any businesses.
  • Maximize your Golden Years – Explore, enjoy and reflect. Prepare for the process and changes from aging. Share your wishes and expectations with family, build a network for living assistance and navigate healthcare. Prepare for the potential of losing your spouse.
  • Transferring wealth – Plan for transfers during your lifetime and after your death. Coordinate and collaborate with your advisors. Review and update trust provisions and successor trustee designations. Review your wishes for charitable giving.

Personal financial planning is an on-going process. These stages aren’t always performed in sequence, and some people might find themselves “starting over” depending on windfalls, career resets, divorce, etc. To avoid major complications, have a financial plan ready and stick to it, and review and adjust along the way.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

Posted in Personal Financial Planning, Planning Tips and Goals | Comments Off on The Financial Stages of Life

Four Fundamental Investment Principles in a Down Market

We are currently in the longest U.S. economic expansion in history going on 122 months. We have had 107 consecutive months of job growth and the unemployment rate of 3.7 percent sits around the lowest level since 1969. The stock market measured by the S&P 500, the stock market index that tracks the stocks of 500 large-cap U.S. companies, is up approximately 20 percent year to date and home values are up. The stock market also has its risks – it can be volatile in the short run.

I’m not predicting a market decline but it’s in best practice to always be prepared. September 15 marked the 11th anniversary of the bankruptcy of Lehman Brothers and the beginning of the Financial Crisis. Angst and fear of the stock market falling by half crushed some investors, yet the S&P 500 now stands near record highs and has increased 450 percent since the March 2009 lows. So, while the sun’s shining and the seas are relatively calm, let’s do a lifeboat drill and discuss four principles that can help you manage in times of market turmoil.

Fear Can Drive Decisions

Why do some people sell their stock investments when markets decline and duck for cover, then wait for a magical whistle to blow signaling the coast is clear and buy after markets rise – sell low, buy high? It’s because we hate losing. Daniel Kahneman, a Nobel Prize winning psychologist, introduced the loss aversion theory in which he explains that people fear the pain of loss more than they enjoy the gains. This means that shying away from investments that are bad for our financial health is part of our innate survival skills. But it’s not all bad. We cannot ignore our fears and emotions, however, we can recognize that they can impact our investment decision making process.

Market Declines are Part of Investing

The capital markets have shown a permanent upward trend interrupted temporarily by market declines. This is part of the natural cleansing process. The good news is that based on the S&P 500 since 1949, corrections (10 percent or more declines) and bear markets (20 percent or more) don’t last forever. Declines of five percent or more occur about three times a year and last about 44 days, 10 percent declines occur about once a year and last about 114 days, and 20 percent or more declines occur once every seven years and last about 431 days. Market gains have historically been longer and higher, but bear markets and bad news tend to get more attention in the media.

Stay the Course – Be Prepared for Volatile Markets

Today, a young investor in her 30s and a mature investor in his 70s face the same market conditions. Yet why are their investment strategies different? They have different goals and stages of their lives. Setting a course is an important part of any journey and goals drive the investment strategy, not market conditions. It’s best to stick to the game plan, unless of course, your goals have changed requiring a possible reset of your financial plan and investment strategy.

Shop the Sales

Good “savers” know the benefits of saving early and consistently. A good example is deferring 10 percent or more of your pay into your 401(k) plan. If you’re making $4,000 per month, then $400 goes into your 401(k) (plus matching employer contributions). When market levels are high, you’re buying less shares. However, in down markets, you’re acquiring more shares (they’re cheaper). Over the long term, you pay less on average per share – this is called dollar cost averaging. A similar opportunity occurs for retirees. Some retirees tighten their belts and spend less when economic conditions weaken. Prudent investors are diversified and view their wealth similar to a pension plan. They can maintain their lifestyle regardless of economic conditions.

Successful investing is part art and part science. On one hand, modern investment strategy is rules-driven or evidence-based, whereby you diversify a portfolio to achieve an expected return given the desired level of risk. But it’s also an art. Earlier we introduced how emotions and biases can impact our decision making (e.g. most people hate to lose) and that we’re not always rational.  Also “risk tolerance” is an ambiguous term, it fluctuates with our mood (e.g. great date night versus driving by an accident) and it tends to decline as we age.

Two successful strategies include patience and riding them out and the other is to lose less when they decline and participate on the upside when they advance. Build confidence in your strategies and talk with your trusted advisors.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

Posted in Economy and Markets, Personal Financial Planning | Comments Off on Four Fundamental Investment Principles in a Down Market

Essential Tips to Boost your Retirement Savings

When planning for retirement, it’s easy to say you will save more money, follow a budget or even invest. Yet, if there is no set plan in place, it can be the perfect procrastination recipe which often leads to financial stress.

Fidelity Investments, a leading workplace benefits provider, reported in their second quarter Retirement Analysis that a record number of account balances continued to increase across more than 30 million retirement accounts. The average 401(k) balance rose to $106,000 and the Individual Retirement Account (IRA) balance rose to approximately $110,000, which were both a two percent increase from the first quarter of 2019.

This is good news. It reflects the opportunity to impact the future. More and more American workers focus on funding their retirement, especially since most of us aren’t inheriting the Taj Mahal, some may be pensionless or fear Social Security benefits will change.

Here are some smart ways to increase your 401(k) balance.

Stay the Course

Retirement planning is for the long haul. Your money has to last approximately 20 to 30 years in retirement. Step one is to set a course – How much do you need to save to maintain your desired standard of living through retirement? That roadmap serves as a financial GPS (Global Positioning System). The second step is proceeding with your plan even when times get tough. Fidelity Investments reports that those who remained invested in their 401(k) plans for the 10 years following the Great Recession of 2008 saw their balances grow fivefold from an average balance of $59,900 to $305,900.

Start with the Defaults Then Adjust to Fit your Needs

How do you start? Many 401(k) plans automatically enroll new employees at a contribution rate of at least four percent and the funds are invested in a target date fund or managed account. This is to help reduce the chance the employee does nothing due to the uncertainty of how much to contribute or given a menu of unfamiliar investment options. 401(k) plans offer many benefits including tax advantages and providing you a “forced savings” plan by getting the funds into your retirement account before you have a chance to spend them.

Time Is One of Your Greatest Allies

The power of compound interest comes from your investment generating earnings which are reinvested to generate their own earnings. The earlier you start the better. For example, a 25-year-old investing $75 per month accumulates more funds by age 65 than a 35-year-old investing $100 a month – the projected accumulations at six percent annual return are approximately $149,000 versus $100,000.

Meet Your Employer’s Match

At a minimum, take advantage of matching contributions. For example, an employer might match 50 percent of contributions up to five percent of your pay. If you contribute $2,500 or five percent of your $50,000 salary, they’d match it with $1,250. That’s a 50 percent return on your contribution.

Save More

Increase your 401(k) deferral. Fidelity Investments reported that the average deferral rate is 8.8 percent. The maximum employee deferral limit for 2019 is $19,000 and workers age 50 and older can save an extra $6,000 for retirement. You may need to save more than the 401(k) limits to achieve your retirement goals. There’s no limit to saving and investing after-tax funds.

High Frequency Job Changers

Job hoppers may find they’re ineligible to participate in a 401(k) plan (e.g. the plan might require to be employed for at least 12 months). Their option might be to fund Individual retirement accounts (IRA), which have lower maximum contribution limits of $6,000 plus a $1,000 catch up if age 50 or older.


Do you have scattered retirement accounts possibly from former employers? Consider herding them up and consolidate them to an IRA or your current 401(k) plan. This reduces clutter and helps you give your retirement assets the attention they deserve.

Minimize Retirement Leakage

Avoid borrowing from your 401(k) plan. These funds are for your future versus your personal ATM. Repayment amounts can be expensive – a maximum of a five-year repayment period. Also, if you change employers, unpaid 401(k) loan balances might generate a tax bill. Fidelity Investments reported that approximately one in five participants has a loan balance and some of the common reasons are paying down debt (31 percent), home improvements (24 percent), buying a home or refinancing (21 percent) and paying outstanding bills (19 percent).

Ask for Help

Congratulations for recognizing the need to save money for retirement. The process can be overwhelming and it’s tempting to bury your head in the sand. Your plan might have 20 investment options. How much in savings is enough given the uncertainties of investment returns, inflation rate, taxes, life expectancy, other sources of retirement income, and the challenges of aging? How do you avoid common retiree regrets such as starting too late or saving too little? Don’t be afraid to ask for help. Use your resources including DIY (do it yourself) calculators and allocation tools, plan representatives and trusted advisors, and never lose sight of the goal in mind.

Secure your future wisely.

This article can also be viewed at the Reno Gazette Journal.

Posted in Personal Financial Planning, Retirement Planning | Comments Off on Essential Tips to Boost your Retirement Savings