On a recent Van Wie Financial Hour live radio program, we had a phone call from a listener with an excellent question. The caller was in his 80s and owned a profitable Variable Annuity (VA) that he had moved into cash when the market got rough late last year. His essential question was whether to get back into the market, and if so, when and how to do that.
We generally start our discussion by asking questions. From our line of questioning, we deduced that the caller had no foreseeable use for the money in the annuity. He has children, and they are the named beneficiaries on the account. From there, we determined that his investment priorities were not actually those of a typical person in his or her 80s. In fact, the objective of the account was to provide for his children.
Had the caller’s priorities been determined to be those of a typical 80-something, we would have advised an investment plan that was oriented toward income and preservation of capital. However, knowing that this money was most likely going to help fund the later years of his children, we suggested a somewhat more aggressive investment plan.
Without the luxury of a long and detailed discussion, we suggested dividing the money in the VA into a 1/3, 1/3, 1/3 allocation among Target Retirement Funds with varying target dates. This plan is simple, well-diversified, and carries enough market risk that the possibility of growth is solid.
When advising older investors, it is essential to discover the true objectives of their investments. Things are not always exactly what they seem on the surface. The purpose of having a thorough Discovery (an element of the overall Personal Financial Planning process) is to individualize financial advice. This is not possible on a short phone call, so our goal on the radio is to tell people what can be done, rather than what to do. There is only so much that can be done on a limited telephone call.
If your situation is in any way non-standard (and whose isn’t?), it may benefit you to have a thorough and confidential discussion in our office. We offer a free conversational meeting in our office just for the asking. We call that process “Suitability,” the purpose of which is to determine if we all believe there may be value in establishing an ongoing relationship.
Van Wie Financial is fee-only. For a reason.
This past weekend, our radio show fell on 4/20, and for those of you not familiar with the term, that number is commonly used by consumers of marijuana to signify using the product. The roots of the term are traced back to a San Rafael, California high school in the 1970’s. Over the years, April 20th has morphed into a counter-culture holiday that has grown in size and scope to include festivals across the United States, and the world. It also has an activist tilt, as the day is used to push for marijuana legalization, although one has to assume that this takes place earlier in the day, as motivation might be lacking in the afternoon.
The marijuana industry in America is still in its infancy, as technically it is still illegal at the Federal level. Obviously, the push is towards legalization on a state by state basis, but the industry is still hampered by the legal status at the federal level. The industry would benefit if things were reversed, and the Feds made it legal, and then it was illegal on a state to state basis. There are currently 10 states where marijuana is legal for recreational use. There are an additional 23 states, including Florida, where marijuana is legal for medicinal use, but not recreational. There are only 15 states left where marijuana is still fully illegal, and the rest have seen it at least decriminalized.
Marijuana has two main extracts, which are THC and CBD. THC is the extract that causes the feeling of getting “high”. CBD does not cause this feeling, but still has the health benefits, and therefore has grown in popularity in recent months so much that Walgreens plans on selling it in certain markets. CBD is used for a large variety of ailments, from depression to pain relief to lowering anxiety and blood pressure.
Medical Marijuana is the next step up from CBD, and it has a variety of uses as well. The most common is pain relief caused by different conditions including headaches, cancer, or glaucoma. Medical Marijuana is sold in stores called dispensaries, and is only available with a marijuana card prescribed by a doctor. Other uses for medical marijuana include muscle spasms, nausea, and weight loss caused by disease. Medical marijuana can be smoked, vaporized, eaten , or taken as a liquid extract.
Recreational marijuana is primarily used for pleasure, inducing the “high” feeling that is frequently referenced by pop culture. It is also used for medical issues, although a marijuana card is not needed to purchase it. Retail stores in states that have legalized marijuana are abundant, and in many cases are serious businesses that aim to maximize the overall customer experience. These aren’t the shady back room deals that you may or may not have experienced in your youth.
The point of all this is that Marijuana is now a serious industry in the US, with some major money backing it and some serious retail operations and serious consumers. The industry is in its infancy, but the competition level is already quite high (no pun intended). However, buying publicly traded companies that are in the industry is quite risky, and there is a better way to participate. Two ETF’s are now available, the first being MJ, which is offered by Tierra Funds and has grown to more than a billion in assets. The other, which was just released on 4/19, trades under the ticker YOLO, and is offered by Advisorshares. The largest holding in MJ is Aurora Cannabis, followed by GW Pharmaceuticals and Canopy Growth. Other names you may have heard of include Cronos and Tilray, both of which have been in the news lately. As with most ETF’s this is a great, cheap way to diversify in the industry and avoid single-stock risk.
The Ways and Means Committee of the U.S. House of Representatives passed the SECURE Act (Setting Every Community Up for Retirement Enhancement Act of 2019)earlier this year in a supposed attempt to help workers save more for retirement. A provision included in this lofty-sounding moniker works directly against the goal of increasing retirement income security.
A provision in the bill would force the distribution of an inherited Retirement Account within 10 years for most non-spouse beneficiaries. This would throw cold water on a strategy known as the “Stretch IRA,” which currently allows beneficiaries to withdraw the funds over their own life expectancy.
The House version of the bill would force a distribution of the account’s value within 10 years. The Senate version would force distribution of the account in five years if the beneficiary is not a spouse and if the account value exceeds $400,000 as of the date of death of the original account owner. Both proposals make exceptions for spouses and a few other special cases.
Why would Congress include contradictory concepts in this supposedly well-meaning proposal? The only reason we can see is that requiring inherited accounts to be distributed faster accelerates collection of income taxes on the distributions. Once again, Congress is placing its excessive spending priorities ahead of what is good for American citizens. This time, they are trying to hide their ulterior motive in plain sight.
Fortunately, should this provision of the SECURE Act be passed into law, there are alternative planning strategies to delay distribution of the inherited funds. Unfortunately, these techniques are complex and expensive. We see no compelling reason to alter the “Stretch” provisions that were welcomed by financial advisers and their clients when Congress voted them into law several years ago.
Most Americans have woefully little retirement savings. Congress repeatedly indicates a willingness to encourage saving for retirement, while at the same time testing the political climate for raising taxes. These concepts cannot peacefully co-exist.
We at Van Wie Financial have a better idea. Why not raise contribution limits for retirement savings plans, including IRAs, 401(k)s, and 403(b)s? After all, a wealthier retired population will pay more in taxes throughout their retired years. That would be a more responsible long-term goal for our elected officials.
Van Wie Financial is fee-only. For a reason.
April was designated “Financial Literacy Month” by the U.S. Senate in March of 2004. First conceived by the National Endowment for Financial Education in 2000 as Financial Literacy Day, over the next few years, it was recognized by the House of Representatives and President George W. Bush, it was expanded to include the entire month of April. More importantly, in our opinion, it was expanded to include all age groups.
Financial Literacy has gone from bad to worse in America. Most high school graduates could not balance a checkbook. Remember the old joke, “How can I be out of money – I still have checks left?” Great humor is usually based in truth.
The Van Wie Financial Hour radio program is devoted to the furtherance of financial literacy. Every week we present current events and news to the audience, but we also explain concepts and practices in personal financial topics. We like to believe that our small contribution to literacy makes a difference. Florida now ranks 23rd best among the 50 states.
We are publishing this blog on April 15th, the due date for individual tax return filing) as a reminder of the importance of learning more about personal finance. Start with your 2018 Tax Return – examine it and see if you can understand the line items. How the line items work together determines what you owe (or the refund you will receive). Does it make sense to you?
Most people would rather watch paint dry (or, possibly, get a root canal) than to make a critical assessment of their own Income Tax Returns. But what could be more important to your financial health than to understand your own tax situation? See if you can grasp the concepts of “Above-the-Line Deductions,” and “Below-the-Line Deductions,” as well as Itemized Deductions or Standard Deductions. Understanding how these work may save you actual cash by reducing your taxes. Remember that the best way to make money is to save it.
If you use a professional tax preparer, feel free to ask questions of him or her. Start with the qualifications of the person assisting you; is your preparer a Certified Public Account (CPA), an Enrolled Agent, or a lower-level tax preparer? Ask him or her about any line items that leave you confused.
Most preparers will include a page at the end of your tax return comparing your 2018 tax data to the past year or two of returns. We had a big change in tax law beginning in 2018. How did it affect you? What could you do to positively affect your 2019 tax burden? Knowing the answers to these questions can only improve your ability to minimize your tax liability.
With the Internet, financial talk radio, 24/7 cable news, and the myriad other sources of financial information, there is no longer any excuse for remaining financially illiterate. You never know for sure, but just maybe you will actually enjoy learning more about personal finance.
Van Wie Financial is fee-only. For a reason.
The Van Wie Financial Hour has entered into its fifth year on WBOB, 600AM and 101.1 FM radio. Where the time goes is a mystery, but how much we have learned and the fun we’ve had is tangible. Both the fun and the learning are products not of what we say and teach, but rather what we hear from live callers, coupled with the discussions that follow.
We envisioned the Van Wie Financial Hour radio show over four years ago. The format for the Van Wie Financial Hour had to be a live, call-in show encouraging listeners to participate. Content had to be current, and it had to be educational.
Over the years we have taken calls on a wide variety of topics. The most memorable calls were those which could never be reproduced by doing a pre-recorded radio monologue. Among our most memorable moments:
- Our favorites (these have happened a few times) are when callers tell us they are inheriting money, and they want to know how much tax they will owe.With these callers, we say something like, “You’d better sit down. Do you take good news on Saturdays?” Of course, they do, and we tell them there will be no tax due. The reason is that estate tax, if any, is paid by the estate prior to asset distribution. It doesn’t get any better than that; spreading happiness creates happiness.
- Virtually nothing compares to the annuity-related calls we get periodically. The best of these happened when a caller (we’ll call him “Dad”) was about 40 years old. He was beginning to explore investing options to help with expenses of post-secondary education for his 12-year-old son. He had recently discussed the subject with an “advisor,” who had suggested a Variable Annuity (VA) as the ultimate investment tool for the occasion. Dad sounded uncomfortable with the (so-called) advice. Here is an outline of our response:
- VAs carry the highest commissions of virtually all financial products
- VAs carry a Surrender Charge on withdrawals during what is generally a several-year period while the commission is being amortized
- All distributions of investment gains from annuities are taxable as ordinary income
- VAs have among the highest internal costs in the investment world
- VA performance is general underwhelming, partly because of high internal fees
- Most VAs require paying a separate fee if you want to ensure that your heirs get your unused money back (otherwise, it stays with the insurance company when you die)
- Depending on the VA and the age of the owner, there may be a 10% penalty tax on withdrawals
- A 529 College Savings Plan (our advice) has low internal costs, grows tax-free, and is not subject to any taxation when withdrawals are used for qualified expenses
Through hundreds of live phone calls over many years, the inter-reaction between callers and hosts is what drives interest in the program. Listening to pre-recorded shows doesn’t have the same impact.
Do you have any questions about your own financial situation, either now or upcoming? We invite any and all calls during the show, and if we don’t know the answer, we will get it for the next weekly show. For a strictly confidential answer to your question, you can email us through the website or at info@vanwiefinancial.com. Alternatively, we provide a complementary meeting in our office, which can be scheduled by calling us at (904)-685-1505, or directly through our website.
Look for an independent, fiduciary, qualified Registered Investment Advisor (RIA). That company should be owned and operated by a Certified Financial Planner™, or CFP® . (We would suggest finding a CFP® that is proficient and willing to answer questions during a live phone call.) A good place to start is www.strivuswealth.com.
Van Wie Financial is fee-only. For a reason.
On last week’s Van Wie Financial Hour radio program, we received a phone call late in the hour from a listener obviously concerned (as we all should be) about our rapidly-escalating national debt. Trillion Dollar annual deficits and the rising national debt have become commonplace, but elected officials in Washington, D.C. don’t seem to care. Spending is a nonpartisan problem, as Republicans and Democrats are equally guilty.
While we frequently agree with our concerned callers, we also have a duty to advise clients and listeners as to what we believe is their best financial course of action. Theory and good practice have not always aligned themselves. An organization that grows its debt far more quickly than it grows revenues will eventually run into financial difficulty.
Under George W. Bush, our debt grew substantially. Under Obama, the total debt of all prior Presidents debts doubled. President Trump’s deficits are approximating those of Obama’s. Should a rational financial advisor predict that this time will different, and that the country will collapse soon? Our experience and recent history would dictate otherwise.
Whether an investor should avoid equity markets, hide cash in the mattress, and ruin his or her daily life is a personal decision, but would be a colossal waste. Market corrections will happen; when, and of what magnitude, are impossible to predict. Intelligent investors, along with their advisors, make a plan, monitor the results, and make changes as needed.
In the long run, there are three ways for a country to get out of debt.
- One, it can spend less than its own revenues. This concept has no support among the elected class.
- Two, it can print money to cover its own overspending. This has so much support in Washington that they created the Federal Reserve to do the dirty work for them. Of course, this ultimately becomes highly inflationary.
- Three, it can default on its debts, but of course this is unacceptable to nearly everybody.
Another idea gathering steam these days is the creation of a new, fully-electronic currency (a form of crypto-currency). We believe that this would be dangerous to the American economy.
None of these debt “solutions,” except less spending, is palatable to us, either as investors or as financial advisors. At Van Wie Financial, we recommend prudent investing, including diversification.
Van Wie Financial is fee-only. For a reason.
As young people, Baby Boomers often opined that if we could ever get our parents’ mortgage rates, life would be grand. After all, Mom and Dad only paid around 5% – 6% for fixed 30-year mortgages. A few decades ago, Boomers were paying up to and including about 18% for mortgages. We all “knew” that we would never be so fortunate as to see those old 5% rates.
Guess what. It not only happened, but we actually beat that 5% rate over the past few years. Forgetting, for now, the unpleasant economic reasons why that happened, it was fun and profitable for those of us who fixed our mortgage rates, many under 4%.
Our recent economic upturn has caused the FED to gradually tighten monetary policy. Mortgage rates rose back up to the (once-desirable) 5% range. Then, a strange thing happened. When the calendar turned over to 2019 rates began to fall, even in the absence of any easing FED policy.
Suddenly, we again find ourselves in an era of (nearly-forgotten) low mortgage rates. In many geographic areas, 30-year fixed-rate mortgages are once again under 4% for qualified buyers. Further, although home prices have risen, the increase in home values remains manageable. In short, we have perfect conditions for purchasing a home right now.
Perhaps strangely, the national inventory of homes for sale is very small. This would generally result in rapid price appreciation, but price appreciation seems to be lagging. This has provided an opening for anyone who is thinking of changing homes to both sell their current home and buy a new home at a good price, and with great 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/purchase, should move 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, now is an excellent time for those who have been contemplating action to execute their plan.
Van Wie Financial is not a licensed real estate brokerage, and our expectations are based solely on experience and knowledge of financial markets and interest rates. Consult a real estate professional if you are contemplating a change in your housing situation. You may well be glad that you did it — right now.
Van Wie Financial is fee-only. For a reason.
The Journal of Financial Planningis the monthly publication for members of the FPA® (Financial Planning Association®). The Journal publishes scholarly articles regarding our profession, our clients, and the public at large, as well as statistics and practice tips. Adam is an officer of the local FPA® Chapter, and both of us have been dues-paying members for years.
In the current (March) issue of the Journal, there appeared a list of statistics regarding public opinion and preferences relating to selecting a financial adviser. I found them fascinating, and decided to summarize the statistics for our audience, along with my comments in italics.
Let’s see if anything here surprises you, or if these insights will cause you to re-think using an adviser, or a change in your current adviser.
- 65% of people surveyed say they mistrust the financial services industry. We have discussed for years whether the less trustworthy practitioners in the financial services arena are our best friends (for making us look good) or our enemies (for ruining the reputation of the industry). They jury is still out.
- A whopping 2% of people say that they trust financial advisers “a lot.” Looking back to the first point, it seems that the bad guys are bad for the industry-wide reputation. I can assure you that more than 2% of financial advisers are worthy of your trust. How many more than 2%, I really couldn’t say.
- Only slightly better than the 2% of people who trust advisers “a lot” is the 15% of people who trust advisers “a little.” This one confirms my opinion that untrustworthy practitioners and salespeople actually taint the profession.
- 21% of people understand the difference between an adviser who is a fiduciary and one who is not. This is perhaps the most important distinction you should learn, know and practice. The next point illustrates this perfectly.
- 93% of people believe that a financial adviser should be legally required to place the client’s interests ahead of their own. This the very definition of a fiduciary. See the connection? (We are fiduciaries.)
- Adding insult to injury, 53% of people mistakenly believe that all financial advisers are legally required to put the best interests of the client ahead of their own. THIS IS NOT TRUE.
- 50% of investors who work with an adviser know for certain if their adviser is a fiduciary.The rest of you – ASK!!!
- 45% of people who don’t work with a financial adviser say they don’t because they believe advisers are not trustworthy. What a disgrace! You should not be afraid to consult an adviser, but you’d better know how to arm yourself with facts.
Selecting a financial adviser who will ultimately become a good fit for you and your family does not have to be difficult and time-consuming. Go to the website NAPFA.org (website of the National Association of Personal Financial Advisers®) and click the link for “Find an Adviser.” There, you can search by City or Zip Code. There you will find a list of fee-only, fiduciary advisers.
The final statistic surprised me, because only 28% of people say that their personal definition of wealth is living stress-free with peace of mind. Really? Only 28%? Got a better idea?
Van Wie Financial is fee-only. For a reason.
In lieu of making this the shortest blog post in history (one word), I thought it best to contradict some of the current “wisdom” surrounding this recent liberal proposal. Precedent for voting age reduction was sent back in 1971, when President Nixon lowered the age from 21 to 18. The argument was that at 18 a person could be drafted and sent to Vietnam to protect us from the enemy.
I was part of that argument at the time, and to this day I stand by my support. Not that I am 100% happy with the results, but it seemed fair and reasonable at the time. One could argue today that the age should be upped to 21 until a draft is reinstated, but that genie is out of the bottle.
Today, there are some factions making their case for another reduction in the Federal voting age. Most of it involves payment of taxes, and almost all of that argument is fallacious. At age 16 or 17, it is true that many teenagers hold jobs while completing high school. The vast majority of them do not pay Federal taxes. Rather, the monies withheld from their pay (by law) is for Social Security and Medicare. These are not Federal tax payments; they are contributions to the individual’s own Social Security and Medicare accounts. In other words, insurance premiums.
With the passage of the Tax Cuts and Jobs Act of 2017, every taxpayer is granted a Standard Deduction in the amount of $12,000. How many teenagers earn more than that with a part-time, low-wage job? Very few, I’d estimate. In fact, any high school “student” earning more than $12,000 is likely be a high school dropout, who will remain a low earner for decades.
Politics seem to be driving the voting age reduction push. On balance, younger people tend to be more liberal, and many have fallen for the sales pitch of today’s “Democratic Socialists.” Liberals naturally seek to expand their voting base, and this proposal would likely do exactly that. Common sense suggests that this would be harmful to the Republic.
Understanding the impassioned pleas of today’s self-proclaimed “Social Justice Warriors” requires careful consideration and analysis. Their concepts of “fairness” and “economic equality” require healthy skepticism.
As good as it may sound, further lowering the voting age just doesn’t pass the “smell test.”
Van Wie Financial is fee-only. For a reason.
Two weeks ago, we discussed the problems faced by Social Security. To be blunt, the Social Security System is running out of money, and there is no cure in sight. Worse yet, there has been no actual money available for years, as incoming payroll withholding dollars go out immediately to current recipients. It is virtually impossible not to draw a comparison to the original Ponzi Scheme.
The original Trust Fund, created long ago to hoard cash for future benefits, was spent by an insatiable Congress. America’s demographics are exacerbating the problem, as recipients live (and collect benefits) longer, while fewer younger workers are available to pay into the System. It gets worse.
Even an attempt to discuss solutions to the problem is political suicide for elected officials.
Some degree of political discourse will be required to sustain the system as we know it. That leaves the American public in a quandary, wondering if they will receive promised benefits, either in whole or in part. What role will Social Security play in retirement planning? There is no easy answer.
As financial planners, we consider age a major factor in planning the role of Social Security for guaranteed lifetime income. Dividing the public into general age groups, we believe that anyone who is currently 55 or over will receive benefits according to the published schedule. Below that age, nothing is a certainty, as the probability of reductions in benefits looms large, as described by the Social Security Administration itself.
“The concepts of solvency, sustainability, and budget impact are common in discussions of Social Security, but are not well understood. Currently, the Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75 percent of scheduled benefits.”
Americans under the age of 55 should be able to include 75% of planned benefits in their retirement planning calculations. However, unless demographics change in the workforce, the System is likely to encounter even greater problems in later decades. People entering the workforce today would be well served by planning on a totally self-funded retirement. Anything Social Security provides later on could be considered a lifestyle enhancement.
All of this depends on the long-term solvency of the United States of America. While the current trajectory of American debt is ominous, that is a discussion for another day. In military parlance, you go to war with the army you’ve got. We plan our futures (and yours) using parameters we can control.
Van Wie Financial is fee-only. For a reason.