In study after study, over many decades, Americans have been shown to fear two things more than they fear death itself; public speaking, and running out of money. Most people suffer from one or the other, we suspect, and many are likely afflicted by both.
Van Wie Financial is not prepared to train people to speak confidently in front of crowds. We are equipped, however, to assist people with preparing comprehensive financial plans that have at their core the goal of financial independence. Integral to that is the exercise of Estate Planning.
Assets left behind at death comprise estates, and preparing for the disposition of estate assets is called Estate Planning. There is no estate too small for Estate Planning. Everyone has some combination of family, friends, real estate, financial assets, and digital presence. We should all care what will happen to our “stuff” when we are gone, regardless of how long we live. In actuality, Estate Planning should begin when people are young.
Most people know about the basic Will, which is technically called a Last Will and Testament. This fundamental document directs the disposition of assets, generally through a judicial process called Probate. The purpose of Probate is to determine subsequent ownership of your remaining assets, and to effect the disposition of those assets. A Living Revocable Trust (“LRT”) is a slightly more complicated form of asset distribution. Essentially, it works like a complex Will, but avoids the lengthy and costly Probate process. Further, it is a private, rather than a public, process. Making a Will should be a priority for newly-married people, and especially as they start families.
60% of Americans are intestate, meaning that they have neither a Will nor a Living Revocable Trust. When intestate people pass on, the governments of their states of residence determine final distribution of remaining assets. To us, this possibility is far more distasteful than actually discussing mortality and planning asset distribution. Would you be comfortable leaving your minor children’s care to the whim of a court if you pass away before they reach the age of majority in your state?
Proper preparation for life’s contingencies requires certain other documents to be legally prepared and executed. Privacy laws dictate that we put our wishes in writing as to our health care, incapacitation, and anything else that may impair our ability to act independently and rationally as we age. We all need to choose other people to assist us if we become incapable of doing everything alone.
While planning and implementing investments is flashier and more exciting than discussing mortality and asset distribution, the other aspects of Comprehensive Personal Financial Planning (insurance, taxes, etc.) are also vital to a financially successful life. We can help by working with you and your other chosen professionals to guide the comprehensive process.
Van Wie Financial is fee-only. For a reason.
Last year at about this time, we wrote a blog stating that it was a near-perfect time to buy a home. Looking back, we were spot on at the time. The last thing we expected was that one year later, even better conditions would be prevalent. “Better” is a tough thing to prove, but conditions are at least as favorable for home-buyers now, and buyers should pay attention. We have included some of last year’s highlights, with our updated comments supporting the premise. From 2019, here’s what we said:
“As young people, Baby Boomers often opined that if we could ever just lock in our parents’ mortgage rates, life would be grand. After all, our Moms and Dads only paid around 5% for fixed 30-year mortgages. A few decades ago, Baby Boomers were being charged up to and including 18% for mortgages. We all “knew” that we would never be so fortunate as to see those old 5% rates.”
By last March (2019), our old assumptions had been proven incorrect, because mortgage rates had actually dropped well below 5%. Today, a comprehensive look at the housing market elicits an unexpected conclusion; now could be an even better “buyer’s market.” There are, however, some limitations.
The national inventory of homes for sale is currently tight. Price appreciation generally results from scarcity, so conditions are likely to change relatively soon. Current conditions are providing an opening for anyone thinking of selling and/or buying a new or used home at a reasonable price, and with excellent financing terms. It is a “Goldilocks” market for both buyers and sellers. Not too hot, and not too cold; it is “just right.”
Anyone contemplating a home purchase, or a home sale and purchase, should act quickly. Market conditions are virtually unprecedented in our lifetimes. No reasonable person would expect this situation to be anything other than short-lived. In our opinion, conditions today present a unique opportunity for those who have been contemplating real estate transactions.
Van Wie Financial is not a licensed real estate brokerage, and our expectations are based solely on experience, coupled with knowledge of financial markets and interest rates. Consult a real estate professional if you are contemplating a change in your housing situation.
Van Wie Financial is fee-only. For a reason.
I put together this graph of active known coronavirus cases worldwide since 1/20/2020 using the data from this Johns Hopkins website:
https://www.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6
I am not a doctor, an expert in infectious disease, or a scientist, just a data nerd. I had not seen the data presented this way yet and thought it was interesting. This data is as of 8:00 AM on 2/28/2020.
When market conditions become unusually disrupted, it warrants a communication with our clients and friends, we broadcast an email summing up what we have discussed and analyzed. This week those conditions became apparent on Monday morning, and today we’ll share what was sent:
We won’t try to sugar coat this morning’s market futures – they are ugly. It appears that the general market perception regarding coronavirus is that world governments (particularly China) are neither handing the problem well, nor are they telling us the whole truth. Only in due time will we know.
Our concentration is always on the outlook for the business environment and corporate profits, which have been doing very well. How much impact will ultimately be felt on Q1, 2020 profits is unknown. Some companies, such as Apple, have warned about their supply chains being interrupted, which will dent their operating results for the near term.
With a product-oriented company, the result will mostly be felt in delayed sales, rather than lost sales. Some service businesses, in particular, restaurants and bars with large international sales, will incur actual lost sales. Bottom line – there will be some impact on profits.
Looking at the positive side, Americans have been finding out (the hard way) that diversification in supply chains is as important as diversification in portfolios. Whether computer parts, generic medicines, or auto parts, one delay in the wrong country can interrupt an entire process. For decades now, components have been outsourced to the lowest cost suppliers around the world. This process was often supported by trade deals that heavily favored developing countries.
Changes had already begun when the coronavirus was announced. Production is being spread around, including bringing a large segment back onshore. Ultimately, the big winners will be us. Add to that process our domestic production of oil and gas, which has rendered the U.S. the largest producer in the world. We are finally energy independent, something I remember being promised back in the 1070s.
What will happen in the equity market today is anyone’s guess. Likewise, how long it takes for the market to attain another new high is unknown. In the interim, we look at the fundamentals, and we see strength. As upsetting as it is to see that about 80,000 people worldwide have been diagnosed with coronavirus, and over 2,000 have died, we also look at the flu, which affects about 120,000 Americans annually, killing about 10,000.
Our suggestion is to ride this out, even if a market correction occurs. After all, a correction is about a 10% drop in equities, and we have gains over the past 14 months far in excess of that number. Also, our portfolios have components of bonds, cash, and alternatives, which will not fall like the equities. Market volatility has been at an all-time low, spoiling all of us along the way. A return to regular, normal volatility will not necessarily feel good, but it will ultimately do good.
Should anyone feel that they will lose too much sleep, please call us to discuss. Otherwise, enjoy a good book and avoid the fearmongers. We appreciate your business and look forward to seeing each of you in the near future.
Adam and Steve
Did you know that a Hard Fork occurs when one group within a network changes the rules, while another group in the network stays with the old rules. The two groups are then no longer compatible. An Airdrop, on the other hand, occurs when distributions are made to one or more individuals in a network. Both are fully taxable events. Got it?
“What in the world is he talking about?” you could reasonably ask. The simple answer is virtual currencies (a/k/a: “crypto-currencies”). Most of us know about Bitcoin, but there are in excess of 1,900 cryptocurrencies in the world today. There are also several cryptocurrency billionaires, and they are now all subject to scrutiny by various taxing authorities. Crypto transactions are often intentionally “off-the-books,” and are rarely reported to taxing authorities. Those authorities understand that fact, and they are not letting it go unnoticed.
Over the years, many of you have heard us explain that Van Wie Financial does not invest money, whether our own or that of our clients, in any vehicle that we cannot explain to a 12-year old in 5 minutes. From the start, we were suspicious of the very cryptocurrency concept, and our intuition cautioned us that IRS was going to get very interested in what was going on in the crypto world. Our feeling has long been that taxes were being conspicuously avoided through crypto transaction secrecy, and that IRS would eventually begin a deep dive into crypto-currency tax evasion. It has begun.
As financial advisors, we would never even consider crypto as a suitable investment. A client or potential client who wants to dabble in crypto will have to do so on their own. We have no expectation that this situation will change any time soon.
If you can explain the difference between a Hard Fork and an Airdrop, and if you believe that you can make money from cryptocurrency, approach it cautiously. But if you believe that crypto transactions will benefit your tax situation, whether federal, state, local, or international, please take our advice — divulge every transaction that you make to your tax preparer.
For anyone who is on the fence regarding crypto “investments,” we have a suggestion. Find a 12-year old and attempt to explain cryptocurrency to him or her. If they look at you with a blank stare, concentrate on more traditional investments. Meanwhile, until you can distinguish between a Hard Fork and an Airdrop, we suggest that you avoid the cryptocurrency temptation.
Van Wie Financial is fee-only. For a reason.
February 1, 2020 brought the emergence of a United Kingdom newly freed from the stranglehold imposed by membership in the European Union (EU). The severing process, dubbed “Brexit,” took well in excess of 3 years after a 52%-48% approval in the popular vote. It was completed on January 31, 2020, to surprisingly little fanfare in the American media. I believe there will be more Brexit-style departures from the EU, starting relatively soon.
As usual, my humble opinion is not shared by all. The usual suspects are already posing several hypotheses that would result in undoing the will of the people. The naysayers have dubbed their new movement “Breturn.” I do not believe that it will ever see the light of day. Quite the opposite, in fact.
Spearheaded by the United Nations, governments around the world have been expanding their size and power for decades under the euphemism “globalism.” For citizens, having one’s own central government become too large is bad enough, but imagine being subjected to big government in another country! That is NOT the same as living in Florida and having a State government, while concurrently being governed by a Federal government in Washington, D.C. Ours is one country with one nationality; the European Union is not.
Our several European friends identify themselves as Portuguese, Spanish, German, Italian, Dutch, or whatever the specific country of their birth and residence. We identify ourselves as American citizens, residing in whatever state, regardless of birthplace. Never have I talked to anyone who claims to be a citizen of the European Union.
The origin of the EU was, in my opinion, a noble venture with reasonable goals. Since European geography is small and inter-country travel is frequent, the EU allowed Europe to function in a manner similar to our states. Unrestricted passage among and between countries similar in size to our states seemed reasonable and prudent, at least in pre-9/11 days. Its origins go back to 1951, and the EU we know today was finalized in 1993.
Central governments tend to have some characteristics of cancer cells. Left to their own accord, they grow, spread, and metastasize. So it went with the EU, slowly at first. In time, the EU wanted to exert its collective economic power, and a bad idea was born. The Euro currency was hyped to the various EU members, and several of them took the bait. Bad idea.
The Euro, an optional common monetary unit, began in 1999 as an accounting currency (not circulated). Printing and distribution began in 2002. Not all European countries adopted the Euro, preferring their own currencies to the collective. Chief among them was England. As a result, Brexit was less complicated than it otherwise would have been. Notable others not adopting the EURO include Denmark, Sweden, Romania, Poland, and a few others.
Individual differences among and between people, nationalities, countries and currencies have always existed, and will always exist. Comparisons are a necessary consequence of those differences. Obscuring those differences under a common currency does not change that. Look for the next “Brexits” to be from other countries that avoided adopting the Euro.
Brilliant economist Milton Friedman predicted in the early 1990s that Europe would adopt a common currency, and that common currency would ultimately fail. In 2004, he stated that there was a “strong possibility” that the 12-member (at the time) Euro Zone could collapse “in the next few years.” Once again, Dr. Friedman appears to have been spot-on.
Stifling individualism, identity and creativity in search of equality tends to limit the power of superior ideas to create better societies and economies. 52% of the voters in the UK seem to understand that premise. We will be watching the UK for signs of economic change, whatever direction it may take. I’m predicting success.
Van Wie Financial is fee-only. For a reason.
Ask a number of Americans of all ages how they are progressing toward financial independence, and most will admit that they believe themselves to be woefully behind. Others will likely be mistaken about their own progress. But the fun really begins when you ask unprepared people what their plan is to become financially independent.
Here are some of our favorite actual responses from our financial planning practice:
- I buy Lottery tickets every payday
- I am planning to start saving soon
- I am waiting for my inheritance
It probably goes without saying that we consider these “planning tools” insufficient. Perhaps the Lottery concept has the worst odds, and although the actual winners always have purchased a ticket, most Lottery ticket purchases make people poorer, rather than wealthier. The Lottery is aptly dubbed a “regressive tax.”
The surest method of planning personal financial independence is to take responsibility for yourself through saving and investing. Tax laws favor retirement savers, and the financial markets have always rewarded long-term investors. Savers will also make a more positive impression on others who may name them as beneficiaries.
We refer to inheritance as the ultimate “bad news, good news” situation. When gaining an inheritance, the beneficiary has lost someone important, but has also gained ground financially. Because expected inheritance is so uncertain, it is not a suitable financial planning tool. In our day jobs, we use an expression that says, “Never plan on an inheritance (even if it is known to be happening), always plan for it.”
Waiting for an inheritance is dangerous at best, even if your extended family is reasonably well-off. In their later years of life, Americans tend to spend enormous sums of money on health care and maintenance. These expenses escalate after most people have stopped earning income, making asset draw-downs more significant.
Even relatives who retain significant wealth until end of life have the ability (and tendency) to become generous to charities and favorite causes. Their gifts may reduce the anticipated value of any estates that will be left to heirs.
There is no substitute for planning prior to receiving a windfall. Improper wealth planning (and especially no planning at all) may result in newly acquired assets being squandered. Financial independence (retirement) requires accumulation of wealth. Even a Lottery ticket of significant magnitude compels planning prior to collecting the cash. If you become one of the fortunate few to experience Sudden Wealth, either through inheritance or other windfall, we can help. For most people, orderly and well-planned saving is the most reliable method of wealth accumulation. Stay safe and smart — avoid risky outcomes through planning.
Van Wie Financial is fee-only. For a reason.
Those of you old enough to remember the NASDAQ Composite Index run-up in the 1990’s, and subsequent meltdown in early 2000, probably have not yet gotten over your “losses,” nor regained 100% confidence in the markets. I placed the term “losses” in quotations simply because most people were gaining paper wealth on very small actual investments, and when the bottom fell out, it was primarily paper losses that made many investors grieve.
In my early career in financial advising and doing live radio, I predicted that it would be many years before the NASDAQ regained its lofty high of 5,048.62, where it peaked on March 10, 2000. In fact, it did not achieve that level again until April 23, 2015 – a recovery period of over 15 years. Factoring in the inflation rate during that period, the NASDAQ Index was still effectively 37.6% lower than its high of 2000.
Today the seemingly unstoppable NASDAQ Composite Index has been setting new records, most recently 9,402.48 on January 23, 2020. This level reflects a gain of over 86% from the highs set in 2000, and a whopping 641% since the beginning of our current Bull Market in early 2009. “Is it sustainable?” is one of our most frequently asked questions.
“Sustainability” is not a particularly useful word to describe the level of the stock market. Financial markets are risky (which in this context means “variable”), and as such are always prone to a rise and/or fall of some magnitude. However, decades of history teach us that markets are also resilient, meaning they have always come back to, and then exceeded, any and all prior high levels.
The 1990s brought proliferation of the Internet into private homes all across America and the world. Home use, coupled with the burgeoning capability of innovators to provide new concepts, produced exponential growth of interest among potential investors.
Today’s NASDAQ Composite Index is computed the same as the 1990’s NASDAQ. However, individual valuations of companies in the Index is vastly different. In the 90s, startups (dubbed the “Dot-Coms”) were popping up every day. None had yet made a penny of profit, but the exciting new world of online investing did not care.
We all know the ugly result, when in early 2000 the NASDAQ (along with other market indices) made a stunning reversal. Companies ran out of cash, investors were left with little or nothing, and the sour taste in people’s mouths remains to this day.
“It’s different this time.” Those are some of the scariest words in the language. Yet, this time things really are different, and today’s successful NASDAQ companies are valued on more traditional attributes, such as actually making a profit. In a nutshell, that’s what took the recovery so long to produce new highs in the Index. It was worth the wait to regain sensibility in today’s market valuation formula.
In the “Dot-Com” era, too many “investors” were only invested in the fledgling NASDAQ companies. Perhaps the best takeaway from all the subsequent pain is the constant need for long-term investors to diversify among various asset classes and to stay diversified. We can help.
Van Wie Financial is fee-only. For a reason.
Once in a while, the government acts in the best interests of its citizens. On the rare occasions that this happens, we like to bring it to everyone’s attention. Governor Ron DeSantis recently announced that they are lowering rates on all of the Florida Prepaid College Savings Plans. This announcement is slated to save Floridians $1.3 Billion in college costs, including refunds of about $500 million to existing customers. This is truly great news for our Florida families.
In addition to the refunds, new and existing plan prices are being reduced, and existing plans may be paid off earlier than anticipated with he price reductions. These changes are the result of lower than anticipated increases in tuition and fees.
This is not the first time the plans costs have been lowered. In 2014, Governor Rick Scott dramatically lowered the price of all plans. Some plans were cut nearly 50%, going from $40,000 down to $20,000 per student in some cases.
Florida, as well as many other states, offers a 529 college savings plan in addition to the prepaid plan. The 529 plan is a way to save money for education expenses which grows tax-free (like a Roth IRA) until you use it. As long as the money is used for education-related expenses, the growth is never taxed. The Prepaid Plan is also purchased with after-tax dollars, but the benefit of that plan is that you are paying today’s tuition rates for college in the future. Both plans have great benefits, and many people use them in tandem with each other.
If you want more information about these college savings options, please call our office at 904.685.1505 during normal working hours and we would be happy to discuss college savings strategies with you.
Several years ago, I published a magazine article called, “Woulda, Coulda, Shoulda Financial Planning.” While the title may seem a bit strange, the intent should be quite clear.
A recently-released study by TD Ameritrade (conducted by Harris Poll) found that a majority of Americans ages 40 to 79 would grade their own readiness for financial independence (retirement or otherwise) at a “C” or below. Nearly everyone “woulda” done some things differently, and most “coulda” done exactly that. When pressed, most say that they “shoulda” done things differently.
Here are a few of the findings:
- 53% of people in their 50s have less than $100,000 saved for retirement
- 81% are aware that longer life expectancies require a modified approach to financial independence
- Nearly half of respondents in their 40s have withdrawn money from retirement accounts to cover unexpected events
- Only a third of respondents age 50 and older take advantage of “catch-up” (increased) contributions to retirement accounts
- About 60% have no plans to reduce spending
- Nearly 70% wish they had started saving earlier
- 70% of people in their 70s regret having gone into personal debt for their children
- Half of respondents say they retired sooner than they expected, due to unforeseen circumstances
What if you understand your own shortcomings, but have no idea what changes to make? There’s an app for that, so to speak. Working with a qualified, fee-only, Certified Financial Planner®, you can establish new goals, chart a new course, and improve your chances for success.
Don’t find yourself in that unwanted majority when you are older, having financial regrets. You might fall into the trap of deferred corrective action, when you realize that you “woulda,” “coulda,” and “shoulda” done things differently and earlier. Planning and flexibility are the keys to a more satisfying later life. We can help.
Van Wie Financial is fee-only. For a reason.