Congressional midterms tend to have lower voter turnout than presidential elections, but the current partisan nature of the electorate could have far-reaching repercussions, particularly in light of recent felony convictions of members of President Trump’s campaign and inner circle.

If Democrats take control of one of the lawmaking groups, the legislative branch will be divided, which puts things in a stalemate. Interestingly, this is generally good news for the investment markets. The markets hate uncertainty, and a stalemate helps ensure there will be no major legislation for the foreseeable future.

If Democrats take control of both sides of the legislature, it is likely significant changes could be made — including possible removal of the president and perhaps members of his Cabinet. Impeachment proceedings are likely to unsettle the market, at least temporarily. However, the first order of business is likely to be a restoration of many of the previous administration’s policies and an end to the current trade war. These are all known outcomes that are not likely to shake the investment markets significantly.

If the Republicans retain control of both houses in Congress, this will strengthen GOP resolve and likely lead to more changes in both social and economic policies moving forward. More tax cuts, a stronger stance on immigration and trade, and renewed confidence among the majority of Americans could propel the historically long bull market even further. However, these activities represent a significant departure from past administrations so, again, how the markets react to uncertainty remains uncertain.

“Although a Republican majority in Washington, D.C., historically has been accompanied by strong equity-market performance, a potential split in Congress is unlikely to derail the U.S. equity bull market (in our view).” – Wells Fargo Bank

Historical Perspective

Historically, the S&P 500 has experienced a correction averaging about 18 percent during mid-term election years. However, the markets tend to rally immediately after the election once clarity of leadership is re-established. As a result, every mid-term election year since the 1940s has yielded a positive return.


1930-2014: Midterm Election Outcomes and Stock Performance

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Presidential Election Cycle

Investment analysts have accrued data and made observations about patterns that tend to emerge during election years. One of the trends is termed the Presidential Election Cycle, which projects the following trends based on historical patterns:

  • Years 1 and 2 – Returns are lowest in the first half of a president’s term, based on the premise that a president moves quickly to implement new policies to make good on campaign promises and to front-load any negative repercussions so as not to impact his/the party’s chances for re-election. 
  • Years 3 and 4 – The stock market typically produces its best returns in response to those policies or in anticipation of replacing the president.

Halloween Indicator

This pattern is also known as “Sell in May and Go Away.” It purports that the stock market produces higher returns between Halloween and May — presumably when both companies and investors are more active and productive (whereas people tend to take their vacation time during summer months). This seasonal trend is usually more conspicuous during the winter of a president’s third year. For President Trump, the cycle would begin this November.


Some market analysts predict gridlock no matter how the midterm elections pan out, mainly because both the Republican and Democratic parties incorporate a significant range of policy stances. No matter which party takes the majority, the idea of heavy infighting actually favors market performance. Otherwise, consensus could trigger significant legislative changes, and Wall Street does not like change.

It is worth noting that the U.S. markets have not experienced a negative third year of a president’s term since 1939. In fact, with the exception of World War II, since the 1920s, stocks have risen 87 percent of the time in each of the three quarters that followed a midterm.

Risk Factors

While history can be a helpful guide in anticipating how the markets will react after the midterm elections, it is important to view the upcoming midterm elections in context of the current economic environment. Over the past six months, President Trump has embarked on highly unpopular trade tariffs that threaten potential corporate profitability in certain industries. Furthermore, continued low unemployment and the threat of rising inflation increases the likelihood of more Fed interest rate hikes.

Additional risk factors to market performance include:

  • The rising dollar poses a potentially negative environment for earnings
  • Geopolitical risks
  • Rising oil prices and a possible shortfall given U.S. sanctions on Iran
  • Consumer confidence could drop in the midst of a political crisis

Sector Strengths and Weaknesses

If Republicans retain their majority, the party is poised to support Trump’s effort to prop up the coal industry, with further gains likely in cyclically oriented sectors including consumer discretionary, financials and industrials.

If Democrats achieve a majority in both Houses, their focus is likely to be in the health care sector in an effort to improve upon the current Affordable Care Act. They also are likely to ramp up policies supporting alternative energy companies, while market under-performers would likely be in the financial, energy and defense sectors.

Final Thoughts

There are a couple of key points worth considering with this year’s midterm elections. First, this hasn’t been a normal, run-of-the-mill presidency, so country and party divisions point to a highly combative period of uncertainty. The second issue has to do with putting too much emphasis on historical applications in general, and cause and effect applications in particular.

In other words, just because two scenarios correlate doesn’t mean they are linked. One financial industry executive pointed out that “the annual number of people who drowned by falling into a swimming pool is highly correlated with the number of films Nicolas Cage appeared in during that year. ... One must remember that there is a dramatic difference between correlation and causality.”

With that said, one trend that does tend to be consistent is that political uncertainty leading up to a midterm election generally generates greater market volatility. If you have concerns, don’t hesitate to contact your financial advisor for specific advice. As for general recommendations, remember that past performance is not indicative of future results; periods of volatility often present good buying opportunities; and broad portfolio diversification can help mitigate temporary declines. In addition, since November signals the approach of year-end, a discussion with your advisor about rebalancing your portfolio to harvest gains and reposition some assets for better stability in the future may be worth considering.



Lifetime income sources generally provide minimum payouts to help cover everyday expenses. In most cases, these benefits are not impacted by fluctuations in the investment markets.

For example, Social Security benefits are based on one’s lifetime earnings, so they reflect a proportionate amount of income based on your assumed standard of living. To maximize benefits, it’s best to delay drawing them until full retirement age or later. It’s also important for married couples to strategize on the best way to maximize spousal benefits. In 2018, the highest Social Security benefit — based on earning the maximum-taxable earnings since age 22 and waiting until age 70 to draw benefits — is $3,698 a month ($44,376/year).

In post-World War II America, many employers began offering defined benefit pensions to workers at age 60 who had given at least 20 years of service. By 1960, approximately half of the private sector workforce had one.

Today, only 23 percent of private-sector, state and local government workers have pension plans. According to the Pension Rights Center, the following are annual median pension benefits (2016) for adults over age 65:

  • Federal government: $22,172
  • State and local government: $17,576
  • Private sector: $9,262

For those seeking a higher level of lifetime income throughout retirement, they may need to use their own savings and investments to create additional streams of income. Those who opt to supplement income from interest and dividends from their portfolio will need to accumulate significant assets to produce a high level of income. Even then, this income may be subject to market and economic factors that could cause those streams to fluctuate. This strategy also poses the risk of outliving assets.

Currently, the only other vehicle available to produce lifetime income during retirement is an annuity, which offers guarantees based on the financial strength of the insurer. Depending on the type of annuity contract purchased, the owner has options as to when and how much of the annuity value to convert into a lifetime income stream.

“A recent academic study — “Putting the Pension Back in 401(k) Plans” — shows how taking a piece of your nest egg and deferring it into a lifetime annuity is a cost-effective way to hedge longevity risk, and that overall it provides people with substantially higher consumption levels, particularly at older ages.”

Annuities for Lifetime Income

There are two main categories of annuities: fixed and variable. A fixed annuity earns a guaranteed rate of interest and, once income payments are started, guaranteed income amount for a certain time period or for life, depending on the options selected

A variable annuity provides income subject to underlying investment performance, so even though the interest credits may not be guaranteed during the accumulation phase, it does offer the potential for higher payouts over time. Once income payments start, they are guaranteed for either the time period or for life, depending on the options selected.

There are also annuities that offer both fixed and indexed interest crediting. For example, depending on the interest crediting options chosen, an indexed annuity provides a guaranteed interest crediting rate with the opportunity to enhance accumulation and therefore income payouts based on the performance of a market index, such as the S&P 500. If the S&P has a good year, the annuity owner will receive higher interest credits, up to a predetermined limit, based on a proportionate calculation of index earnings. If the S&P performs poorly, there will be no additional interest credit, but the annuity owner will continue to receive the guaranteed minimum benefit. Unlike variable annuities, fixed index annuities do not actually participate in the market; they only track the index as a means of determining interest credits.

It is important to note that all annuities offer the option of guaranteed payouts. The type of annuity chosen dictates the type of interest credits the account value will receive, and ultimately, the amount of interest credited combined with the underlying principal determines income payouts once income is elected.


Annuity Misperceptions

Opinions vary regarding annuities. For a long time, they were considered effective vehicles for only a select group of investors. Now, however, many retirement strategists are recommending them more widely to help retirees secure an additional stream of lifetime income.

Annuities have evolved over time to meet the needs of a broader population. As such, there are still some misperceptions about what they offer. Things that used to be true aren’t necessarily in force anymore, or only in limited circumstances

For example, there’s the practice of an insurance company keeping your money if you pass away before receiving a full return of premium via income payouts. First of all, this only happens if you “annuitize” your contract, which isn’t all that common. These days, many annuities offer a lifetime income rider (in some instances for an additional fee), which allows you to select a lifetime income payout option without giving up control of your account. In many cases, the annuity will offer a guaranteed death benefit to the contract beneficiary (which, in some cases, may be offered for an additional fee).

There is also a perception that the annuity owner may not make withdrawals from his annuity the way he can an investment or savings account. And while annuities do have surrender charges associated with them during an initial period, in most cases, the annuity merely caps the amount the owner can withdraw, such as no more than 10 percent a year. Bear in mind that withdrawals will impact the amount of benefit the annuity pays out at a later date.


Annuity Realities

One common perception is that annuities are difficult to understand. This, in fact, is true — largely because there are so many options available in today’s market. Bear in mind that annuity strategies are not designed to be one-size-fits-all; many offer a plethora of options and features to help individuals and couples tailor a retirement income plan suited for their specific needs. Because of this, it’s important to work with an experienced insurance professional to help navigate which type of annuity to choose and which options are most appropriate for your financial situation.


Lifetime Guarantee

Another reality is that despite an annuity’s guarantee, it is possible to miss out on lifetime income. This feature is determined by actuarial calculations based on the amount of money initially used to purchase the contract. Therefore, if the owner violates any of the withdrawal limits or other contract rules, it could result in a reduction of benefits or even void the guarantee altogether. This is another reason to work with a qualified advisor and read the policy literature to understand the features, risks, charges and expenses — including the tax status for when you receive distributions.

Also be aware that all annuity guarantees are subject to the claims-paying ability of the issuing company.



There is also the perception that annuities are expensive. In reality, there are low-cost annuities and others with more expensive bells and whistles. In many cases, an annuity can be tailored so you pay only for features and benefits that match your needs.



This is one of the areas where annuities shine. Unlike 401(k) plans and IRAs, the IRS does not impose contribution limits on a non-qualified annuity (although some insurers may require pre-approval for extremely high purchase premiums). This means you can maximize post-tax income contributions to grow tax-deferred until you are ready to withdraw income. And although Social Security and pension payouts are capped, an annuity can help you develop a higher stream of guaranteed income using personal assets.


Final Thoughts

Lifetime income is not an easy thing to provide. In recent years, there has been increasing concern about the ability for both underfunded pension plans and Social Security to provide guaranteed lifetime income at their current levels. People looking for more predictability during retirement may need to be proactive about developing their own stream of guaranteed income using a portion of their savings and/or invested assets.

Annuities offer important retirement planning features such as tax-deferred growth opportunity, guaranteed income riders and a death benefit for beneficiaries — but it’s important to choose the appropriate type of annuity for your situation. For many people, designing a personally funded plan for guaranteed lifetime income is certainly worth exploring.



At the heart of President Trump’s policy is his conviction that China has used predatory tactics to challenge American technological dominance. He has accused the country of obliging U.S. corporations to trade technology for access to the Chinese market, as well as outright cybertheft.

Initially, the Trump administration placed tariffs on industrial products so that American consumers would not be impacted. However, the list of Chinese imports has subsequently expanded to a wide range of household products, from electric lamps to fish sticks.

Note that import tariffs affect entire supply chains in addition to the specific goods taxed. Ultimately, this could lead to the distribution of cheaper raw materials that could impact the quality of consumer goods and manufactured commercial products.

“Although tariffs could cause prices for consumer products ranging from cars to washing machines to rise, ‘the U.S. does not need China as much as China needs the U.S.’”

— Barry Bannister, head of institutional equity strategy at Stifel

Hardball Strategy With China

It is fortunate for the current administration that the U.S. economy is performing extremely well. Corporate profits were projected to increase by more than 20 percent for two quarters in a row this year, yielding the best consecutive performance since 2010. Unemployment is at an 18-year low, and wages are starting to pick up. GDP growth hit 4.1 percent for the second quarter of 2018, reflecting the fastest pace in four years. All of this gives Trump the advantage to negotiate with other nations from a position of strength.

On the other side of the bargaining table, China, Europe and Japan are all experiencing slowing growth. China is particularly vulnerable because the country exports three times more goods to the U.S. than the U.S. sends to China (measured in dollars). Given its $280 billion trade surplus with the U.S., China has much more to lose in the current trade dispute.

While a trade war could escalate to the point of slowing global growth and inhibiting confidence among businesses and investors worldwide, many Wall Street analysts believe that Trump’s tariff strategy to position the U.S. ahead of trade deficits will be successful.

Global Trade Response

Although China may be the primary trade partner in Trump’s crosshairs, his initial proposal called for global tariffs across the board pending new agreements negotiated with individual trade partners. While the knee-jerk reaction by some countries has been to retaliate with their own import tariffs, this may not be the most prudent response from both a political and financial perspective. In fact, smaller countries are likely to feel the most impact, as they lack the bargaining power of, for example, 500 million consumers in the European Union (EU).

To wit, President Trump and European Commission chief Jean-Claude Juncker announced an agreement to stay tariffs until they negotiate a more mutually amenable trade agreement. This follows a heated exchange over Trump’s initial steel and aluminum tariffs and the EU’s threat for subsequent countermeasures.

Although Canada is one of the more vulnerable smaller economies, it has already responded with 25 percent tariffs on $12 billion in U.S. imports. One analyst has suggested that Canada could take the extreme step of barring trade in banking and insurance services, restricting foreign investments or energy exports, or denying U.S. patent protection for intellectual property.

Mexico is actually in a stronger walk-away position than Canada, as its foreign investment is growing due to separate trade deals with countries that have expanded export markets in recent years.

South Korea has already accepted restricted import quotas in order to avoid steel tariffs and modified its bilateral trade deal with U.S.-placed quotas on Korean cars.

Several emerging-market countries play an active role in global supply chains and are most impacted by the tariffs on imports from China. Consequently, collective export volumes year-to-date are down by about 6 percent from a year ago.

Impact on Investment Markets

Despite turbulence in the global trade market, U.S. stocks have remained resilient. There is currently $3.4 trillion invested in S&P 500 index funds across a myriad of 401(k) plans, IRAs, mutual funds and ETFs.

Should Trump’s trade gambit prove successful, especially with China and/or the EU, enhanced trade agreements would be a boon for the already booming health of U.S. companies, with residual benefits for investors. In the meantime, much of U.S. growth is driven by sectors such as health care, which are less impacted by trade disputes.

Final Thoughts

Trade wars involving significant tariffs can produce several trickle impacts. First, higher costs are passed on to consumers, which can cause higher overall inflation. Higher prices also can bring about reduced demand for goods, which can lead to lower production and job losses. Ultimately, higher tariffs on U.S. imports and retaliatory tariffs on exports could slow global growth.

However, that’s a worst-case scenario. Trump is using America’s economic dominance as a tool to threaten tariffs in order to negotiate trade agreements that position the U.S. for more expansive growth in the future. Should his strategy pay off, U.S. investors are well-positioned to benefit.



Life insurance policies fall under two broad categories: term and permanent. With a term policy, you purchase a death benefit amount and determine how long you want to hold the policy; it pays out a death benefit if the owner passes away during the specified term. Permanent insurance policies, in addition to providing a death benefit, feature a cash value account that, over time, builds up a balance you can access.

While a term life policy offers a death benefit only during the selected term, a permanent life policy provides a death benefit that covers your entire life, as long as you keep paying the premiums. Neither term nor permanent life insurance death proceeds are subject to the beneficiary’s income tax, but they may be subject to federal estate taxes.

It’s worth mentioning that older life policies, generally prior to 2001, may actually mature when the policy owner turns 100 and will pay out the face value of the policy — which is taxable to the extent it exceeds the sum of after-tax premiums paid into the policy — while he or she is still alive. Newer policies, generally after 2001, extend to a maximum age of 121.

“What type of life insurance is best for you depends on a variety of factors, including how long you want the policy to last and how much you want to pay.”

Term Insurance

Term insurance is a temporary policy, generally sold in durations of five, 10, 15, 20, 25 or 30 years. Once the period ends, premiums end as does the death benefit.

Term life insurance is suitable for most people looking to help provide financial protection to loved ones should they pass away. As a general rule, it is easier to understand and tends to be a less expensive form of life insurance. However, it’s important to point out that you can outlive your policy. If you still need to provide financial protection after the term expires, you’ll need to purchase a new policy. Since premiums are based on age, health and competitive rates at the time, it’s very likely you will pay more for a new policy purchased later.

Term life insurance is sold by what’s called the “face value,” which is how much the policy will pay out upon your death. Policies can vary dramatically in face value coverage, from less than $50,000 into the millions.

“Level premium” term life insurance policies offer fixed payments, meaning you’ll pay the same premium amount throughout the term. The premium will not increase. You may have the option to renew or extend the policy term, but the premium amount is no longer locked in at that point.

Permanent Insurance

Permanent insurance remains in force until the policy owner either dies, cancels the policy or allows it to lapse by no longer paying premiums. Because this type of policy is designed for a longer time horizon and potential cash value accumulation, this type of policy generally costs more than a term policy.

There are several types of permanent life insurance. Below is a brief synopsis of each type and the benefits provided.

Whole Life Insurance

Whole Life insurance (WL) provides permanent coverage that is guaranteed to remain in force for the policy owner’s lifetime, provided premiums are paid, or to the maturity date. Premium payments are fixed, based on the policy owner’s age at issuance, and usually do not increase with age. In addition to providing a death benefit, whole life policies build cash value that grows on a tax-deferred basis and can be accessed during your lifetime. Policy loans accrue interest, and policy loans may reduce the available cash value and death benefit.

Universal Life Insurance

Universal life insurance (UL) is a form of permanent coverage with more flexibility than regular whole life. The policy owner can choose to increase (or reduce) the death benefit and even the amount and frequency of premium payments, subject to policy limits. A portion of the premium is allocated for tax-deferred growth and credited to the policy as cash value. You can use this accumulated cash value to pay premiums or to take out a loan. With this type of policy, it is important to make sure the policy is funded correctly and to review your annual statements to make sure the product is performing as intended; if not, evaluate your options with your financial professional.

Variable Life Insurance

Variable life insurance (VL) is a permanent life insurance policy with an investment component that features premium payment flexibility. The cash value portion of the premium payment can be invested in a range of options (e.g., fixed-income investments, stocks, mutual funds, bonds, money market funds, etc.). The cash value and death benefit can fluctuate based on performance of the investment portfolio. Some policies offer a guaranteed death benefit, which will not fall below a minimum amount, for an additional premium. Similar to other permanent life insurance policies, your accumulated cash value grows on a tax-deferred basis and can be borrowed against, however there may be some restrictions due to market volatility.

Variable Universal Life Insurance

Variable universal life insurance (VUL) combines the premium payment and death benefit flexibility of universal life with the cash account investment growth options of variable life.

Indexed Universal Life Insurance

An indexed universal life insurance (IUL) policy is a permanent life insurance policy that features a cash value account, which is linked to a stock market index like the Standard & Poor’s 500. The cash account grows in step with the market index and accrues a portion of its gains, without the risk of loss of premium due to market downturns or fluctuation. If the linked index declines in any given year, the cash value does not drop. In some policies, the insurer offers a low guaranteed interest rate to ensure there is always some growth.

An IUL offers the potential for the cash value to grow significantly over time. The policy owner can access the cash for his or her own needs and even use it to cover premiums.

This type of policy features significant flexibility, as the cash value enables the owner to reduce or even skip a premium payment. Some policies allow the owner to adjust the death benefit, as well, when family needs change.

Compare Benefits

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Final Thoughts

Both term and permanent life insurance options have their advantages, and depending on your situation you may benefit from one or the other.

If you’re looking to minimize your spending and cover yourself when you need it most, a term insurance policy could be a good option. This tends to be a better option for younger people who may not want to be locked in to premium payments for 60 or 70 years.

On the other hand, if you’re looking to make a long-term investment and guarantee that your beneficiaries will receive a legacy after you die, a permanent insurance policy might make more sense.



Basically, life insurance is there in case you ever are not. In exchange for a one-time or ongoing premium, a beneficiary(s) receives proceeds upon the death of the policy owner. This money can be used in any way the recipient sees fit. For the policy owner, life insurance can provide a sense of confidence that his or her loved ones will be financially provided for should something happen to him or her. Although life insurance can be used to address a wide variety of financial issues, family financial well-being is generally its most important feature.

When determining whether you should purchase life insurance to replace income, ask yourself this question: “Does anyone rely on me financially?” If the answer is yes, then you should own life insurance. If the answer is no, then you don’t necessarily need life insurance for this purpose.

When you purchase life insurance, you are essentially making a deal with an insurance company to trade payment — known as a premium — for the guarantee that it will pay your beneficiaries a set amount upon your passing. This is known as the death benefit, and all guarantees are based on the claims-paying ability of the insurer.

One of the primary questions a buyer should address is how much life insurance to purchase. The best way to determine this is to work with a qualified insurance professional. If your goal is long-term financial well-being for your loved ones, be sure to consider leaving enough money for them to:

  • Maintain their current lifestyle
  • Pay off debt, such as the mortgage
  • Attend college
  • Have a retirement nest egg

Every situation is different. Working with a licensed insurance professional is the best way we know of to balance the coverage you need at a cost that you can afford.

“We love our spouses, we love our children, we love our grandchildren, so obviously we should care about what happens to them if we die.”

How Life Insurance Needs Can Change Over Time

 Here Are Three Reasons to Own Life Insurance:

Here Are Three Reasons to Own Life Insurance:

Here Are Three Reasons to Own Life Insurance:

No. 1: Replace Lost Income in the Future

As much as we’d like to believe life is invaluable, it is possible — and prudent — to attach an economic value to our lives — both breadwinners and caregivers. The term “economic lifetime value” (ELV) refers to the lifetime sum of earned income you would receive if you do not pass away before retirement. Replacing lost future income is probably the No. 1 reason someone would consider buying life insurance.

For example, if you make $60,000 a year and plan to work for another 30 years, your base ELV is $60,000 x 30 years, which equals $1.8 million. While that level of earned income is a base ELV, you may have more expenses to consider. To get an accurate idea of the amount of life insurance coverage you may need, consider additional variables such as long-term inflation, future raises and other available assets you may have.

No. 2: Pay Off Expenses

The next reason to consider purchasing life insurance is to pay o liabilities after you pass away. Initially, you should have enough coverage to pay for final expenses. Funeral arrangements can easily run to $11,000 or more, so life insurance can leave your heirs with a hefty sum to handle those expenses and more.

Besides final expenses, you may wish for your beneficiary to pay off the mortgage or fund the purchase of a home. Maybe you’d like to pay for college tuition for your children or grandchildren. Perhaps you had always planned to pay for your daughter’s wedding — or your four daughters’ weddings. Calculate the sum of all of these extra costs to determine the face value of your life insurance policy.

Another common scenario is for business owners to use life insurance to pay off business debts in the event of their passing. Business partners will often create what’s called a buy-sell agreement. This agreement simply asserts that if one partner were to pass away, the other one would buy the deceased’s portion so that the business can remain viable.

By using a life insurance policy to facilitate that transaction, not only can the surviving partner continue to earn a living, but proceeds from the sale go to the deceased’s loved ones to help secure their financial future. It also avoids the situation of the partner trying to co-manage the business with the deceased’s family.


No. 3: Asset Management Tool

A third reason to purchase life insurance is one of the most overlooked and lesser-known uses. Life insurance can be used as an asset management tool as part of your savings or investment portfolio.

When most people think of accumulating wealth, they think of stocks, bonds, mutual funds, ETFs, etc., but life insurance can be used to enhance wealth as well. Here is a hypothetical example in which a 65-year old woman uses a life insurance policy to augment her financial portfolio.

Let’s say she has accumulated roughly $1 million in her investment portfolio. She decides to withdraw $15,000 a year to pay annual premiums toward a $1 million life insurance policy.

Imagine this woman lives for another 20 years and therefore pays a total of $300,000 in premiums ($15,000 x 20). Bear in mind that when she passes away after 20 years, her beneficiaries will receive $1 million from this policy alone.

If it seems questionable to withdraw that much money over 20 years, consider what she might have otherwise done with the money. In fact, had she contributed the $15,000 every year into a traditional investment, she would have needed about an 11 percent annualized rate of return to reach $1 million after 20 years. To reach that sum after taxes and fees, she would need to earn an even higher rate of return.

First of all, while possible, that’s not an entirely realistic rate of return. Historically speaking, rolling 20-year returns of the S&P Index from January 1979 to December 2016 ranged from 6.4 percent to 18 percent a year.

Second, her investment performance is by no means guaranteed. Not only are life insurance proceeds not subject to income taxes (although they may be included as part of the policy owner’s estate for estate tax purposes) but they also are guaranteed by the insurance company.

So as you can see, life insurance can be leveraged to expand the return on an investment portfolio. This strategy is best utilized by people with excess wealth who would like to increase the value of their estate or increase the amount of money they can pass on to heirs.


Concerns and Caveats

When it comes to purchasing life insurance, there are caveats. The older you are, the more expensive the premiums. Life insurance also requires medical underwriting, so people who suer from certain health conditions may be denied coverage. Premium rates are determined by the applicant's age, lifestyle and current health status. For permanent life insurance policies, there could be penalties should you need to withdraw or access the funds prior to beneficiaries receiving the death benefit. Withdrawals or surrenders made during a surrender charge period may be subject to surrender charges and may reduce the ultimate death benefit and cash value.

Many employers offer life insurance coverage, generally at competitive group rates. However, the coverage is typically limited to one to three times the employee’s annual salary. Therefore, it is recommended that most households purchase an additional policy separate from work. This also is a good idea because employer coverage almost always terminates when you leave your job.


Final Thoughts

If you do not currently own life insurance, consider the many reasons why it may be a good idea for your situation. If you do have a policy, recognize that this is a complex financial tool that should be monitored and potentially adjusted periodically to reflect your changing life circumstances and objectives.

Consult with an experienced life insurance professional for advice and recommendations. It is critical not only to identify any gaps in your coverage, but also to discover ways different forms of life insurance could potentially help increase your family’s financial well-being — both now and in the future.



Things to Consider About Mutual Funds

American capitalism boomed in the early part of the 20th century. The nation was smack dab in the middle of the Industrial Revolution, ordinary citizens enjoyed newfound wealth and the stock market soared. Everyone wanted a piece of the action.

There was just one problem though: Investing wasn’t that accessible. Online brokerage companies like E-Trade didn’t exist in the 1920s. Good money managers were hard to find and typically had high account minimums. Trading took place on the floors of stock exchanges, and big-ticket orders went to the top of the stack. So, the ordinary investor had very few options.

This changed in 1924, when Massachusetts Investment Trust had an idea for normal investors to “mutually” pool their money together in a common “fund.” Collective buying power meant they could hire a top-notch money management team and get stock traders to take them seriously.

Voila! Just like that, the first mutual fund was born.

Today, mutual funds are one of the most widely held investment vehicles in the world. In the U.S. alone, over $18 trillion is held in mutual fund accounts. As with any investment, there are pros and cons to mutual funds.

The Good

1. You Get Help

If you are not sure what investments you want to buy or sell, or when to buy or sell them, there is help. A mutual fund comes with a seasoned team of analysts, traders and money managers to guide those decisions on your behalf. Sure, they charge a fee for this service, but it is usually charged as a percentage of assets, so smaller investors can get on board without some of the excessive fixed costs.

2. Investment Boundaries

Mutual funds all come with a clear directive the management team must follow while running the fund. For example, one fund might have a directive to find the best U.S. large company stocks. Another might only invest in short-term government bonds. This gives the investor a level of comfort surrounding the decisions made on behalf of his or her money. For example, conservative investors might feel more comfortable with a government bond fund manager who can’t buy risky stocks.

3. Quick Access to Cash

It’s important to be able to turn your investments back into cash when you need the money. Some investments can be easily sold, and others are tougher to liquidate. Mutual funds are highly liquid and can provide daily access from the mutual fund parent company. However, for all the great aspects of mutual funds, there is a downside filled with hidden costs and potential conflicts of interest.

The Bad

1. Closet Indexers

There are two primary types of mutual funds: indexed and active. Indexed funds are built to mimic a major market index like the S&P 500 or the DOW. They don’t bet on individual investments — they just follow the index.

The internal fees are generally low, as the management team doesn’t have to do much when they take this passive approach. The majority of mutual funds, however, are “active,” meaning the team is actively looking for investments that have the opportunity to beat their corresponding index. Logically, these funds should have a higher fee to cover the cost of these additional efforts.

Here’s the problem. Many of the active mutual funds on the market today are really just “closet indexers,” meaning you are overpaying for what is essentially an index fund. How can you tell if this is happening to you? Ask to see the “tracking error and ”active share of your mutual fund. The higher these numbers are, the more active the management. Our investment monitoring process is always mindful of these numbers to help ensure active funds stay active.

2. Hidden Fees

You might assume that all the costs of owning a mutual fund are fully disclosed. After all, that’s what the fund management fee is, right? Well, it isn’t quite that simple. Mutual funds are legally allowed to charge expenses to the fund over and above the standard expense ratio. The fees must be disclosed in the prospectus, but to the average investor, it could be difficult to pinpoint all the associated fees.

One such expense is the cost of trading securities inside the fund. Research by the University of California, Davis showed the average fund on the market has 1.44 percent of additional trading costs on top of the standard management fee. This is significant. As an investor, you might think you are only paying .5 percent to a fund when in fact you are paying nearly four times this amount.

Part of our due diligence process is to combine what we believe to be the best funds moving forward at the absolute best cost available.

3. Share Classes

This is one commonly misunderstood aspect of mutual funds. Each individual fund can be packaged up into different “share classes.” It is the same fund, just packaged multiple different ways. Imagine a 12-ounce can of Coca-Cola. It could be packaged in a standard can, a Christmas collection can, an Elvis memorabilia can, etc., but, regardless of its packaging, it’s still a Coke.

Mutual funds work in a similar way and can have a significant expense to the investor. Take, for example, the American Funds Growth Fund of America. It is offered in 17 different share classes, at a wide variety of costs. Remember, this is the same fund, with the same investments, with the same management team. So, why would you pay more? A common answer is because you didn’t know any different, and someone told you it was the best thing since salted pretzels.

An important item to consider is that each class will have different services, distribution arrangements, fees and expenses, which will result in different performance results. Our investment management team is always focused on accessing the best share class available for our investors. There is no reason to overpay for nearly the exact same service.

Final Thoughts

Knowing how to identify these potential issues may help you benefit from the good funds while avoiding the bad ones. It will help you know where to look in order to make sure that your interests are best represented at all times.



Every investor has an asset allocation within his or her investment portfolio, whether intentional or not. This basically describes how the invested funds are divided among various asset classes — broadly, stocks, bonds and cash. An investor’s asset allocation is designed to help manage risk and work toward certain performance goals.

A sample allocation might be a 50/50 allocation: 50 percent invested in stocks and 50 percent invested in bonds. Within this allocation, funds may be categorized into domestic or international stocks, and subdivided further into large, medium or small capitalization companies, or growth and value-oriented equities. The following pie chart illustrates how a sample strategic asset allocation might break down.


Traditional Recommendation

Because stocks tend to be more volatile, the typical advice in the past was to move money predominantly into cash and fixed income holdings as an investor approached retirement.

In fact, one potential recommendation would be to determine an investor’s asset allocation by his or her age. Specifically, subtract the investor’s age from 100 to determine the percentage of his or her portfolio that should be invested in stocks. For example, under this scenario, a 30-year-old would invest 70 percent of his or her portfolio in stocks. By the time the investor turned age 70, the stock allocation would be reduced to 30 percent.

Today’s Challenges

However, today’s investors face a different set of circumstances from previous generations. There is the concern that Social Security will become underfunded in the future and forced to reduce benefits. Furthermore, fewer companies offer pension plans to retirees, so workers must diligently save on their own to provide retirement income.

Perhaps the biggest threat to income security during retirement is that people are living longer than ever. This means they may need to adjust their asset allocation more slowly than in the past. Instead of moving assets to more conservative holdings before or at retirement, they may want to keep a substantial allocation in equities throughout their 60s and even 70s. After all, if an investor (and/or spouse) lives to 90 and beyond, he or she may need this portfolio to continue growing to provide income throughout his or her lifetime.

In addition, the impact of inflation over three decades of retirement can create a higher cost of living. And finally, people who live longer may incur more health care expenses, so their income needs to stretch even further to help cover these costs.

“It’s good to use 30 years of retirement as a general guideline. And when you are making projections, you should always err on the conservative side — maybe even going all the way to 100 or 110.”

Reliability Allocation

While investors may spend most of their time thinking about performance returns, retirees are generally more focused on income. Stock market returns are prone to move up and down, but that’s the last thing retirees want to experience with their household budget.

That’s why it may be important for retirees to consider different ways to diversify their asset allocation to include growth opportunity, steady sources of regular income and even the potential for income growth among those payout streams.

To help minimize volatility within a portfolio, it may be worth considering investments that provide income regardless of share price fluctuation, such as dividend stocks. These stocks are generally offered by well-established companies in low-growth sectors such as utilities, energy, telecom and real estate. Dividend stocks typically offer reasonably high yields and tend to increase shareholder payouts over time.

Another option may be to reposition a portion of assets to provide a guaranteed stream of income by purchasing an income annuity. There are a wide variety of annuity types depending on investor need, and all guarantees are backed by the issuing company. In fact, indexed and variable annuities are two types that provide the opportunity for income growth throughout retirement.

Tax Allocation

Another consideration for retirement allocations is the mix of taxable, tax-deferred and tax-free investments. It may be a good idea to diversify portfolio allocations across these options so that all of your retirement income is not taxable, which could push you into a higher tax bracket.

Bear in mind that although a general portfolio of stocks and bonds is taxable, investments made through a traditional IRA or employer-sponsored retirement plan are tax-deferred. Both of these allocations will contribute to your tax bill when you withdraw funds during retirement. Even if you don’t need the money, tax-deferred accounts will require you to withdraw a certain minimum amount each year after age 70½, and those distributions will be taxable.

Therefore, it may be worth considering placing some of your retirement assets in tax-free accounts. One such investment is the Roth IRA, in which withdrawals, including earnings, are generally tax-free in retirement.

Another option is to maximize contributions to a Health Savings Account (HSA) if one is available as part of your health insurance options while you’re still working. Interest on money within an HSA grows tax-free. Withdrawals made to pay for qualified medical expenses are tax-free, and after age 65, withdrawals made for any reason other than medical expenses — even just regular household income — will not incur a 20 percent penalty tax but will still be considered taxable income. And unlike a tax-deferred account, there are no required minimum distributions as you age, so interest can continue compounding tax-free.

By diversifying your retirement asset allocation across a variety of accounts, you can optimize the tax efficiency of your overall portfolio. According to an analysis conducted by Morningstar, a well-executed tax allocation strategy can boost your bottom line each year by as much as a half-percent. In dollar terms, that’s $500 a year for every $100,000 invested.

Strategic Allocation Adjustments

Some people follow the traditional advice and transfer investments to more conservative holdings when they retire. Others don’t bother; they maintain the same equity-rich allocation throughout retirement in hopes of ramping up gains, making up for previous losses, or maybe they just don’t bother to make changes at all.

Given the challenges of today’s longer-living seniors, it’s a good idea to work with a financial advisor to develop a pre-retirement asset allocation strategy. But the work doesn’t end there. Once you retire, you should continue to monitor your portfolio’s performance and adjust the allocation periodically to reflect your age, health status and income needs.

Over time, you may want to transfer investments to a more conservative allocation. However, it’s important to do this strategically. For example, use periodic rebalancing opportunities to evolve your allocation.

Final Thoughts

One reason it may be helpful to make these allocation decisions with a financial advisor is that there may come a time when you are less interested in your portfolio and/or incapable of making allocation decisions on your own. If you are the primary investment manager in your household, these may not be decisions your spouse can take over. It’s important to appoint someone fairly early in the process to be your proxy in this situation, whether it’s your trusted investment advisor or perhaps an informed family member.

The key is to make this decision while you still can, for the sake of loved ones and maintaining the household income. After all, when we get to the point where we’re no longer able to make investment allocation decisions, we may be at the point that we don’t even realize it.



The Trump Administration is poised to reimpose sanctions on Iran six months from its May decision to withdraw from the Iran nuclear deal. The agreement stated that Tehran would curb its nuclear activities in exchange for removing previous sanctions by the U.S. and Europe. Once the U.S. sanctions are back in play, they have the potential to disrupt oil shipments from Iran by as much as 1 million barrels a day.

This constraint in oil supply will likely send prices even higher. In fact, some analysts are predicting prices could rise as high as $100 a barrel — nearly a 300 percent increase from $26 a barrel just two years ago.

“Europe and China will not fight against the U.S. sanctions. They will grumble and accept it. There is no one who will realistically choose Iran over the U.S.”


Iran currently produces about 4 percent of global oil supplies. Although the U.S. sanctions have a 180-day grace period, the Department of the Treasury predicts other countries will begin reducing their Iranian oil purchases sooner, as this will increase their chances of obtaining a waiver from U.S. sanctions. The present assumption is that the U.S. will try to isolate Iran from global oil sales by potentially hundreds of thousands of barrels per day.


The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 14 nations founded in 1960. As of May 2018, OPEC member nations were Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador, Angola, Gabon and Equatorial Guinea.

OPEC’s objectives are to: 

  • Coordinate and unify petroleum policies among member countries
  • Secure fair and stable prices for petroleum producers
  • Provide an efficient, economic and reliable supply of petroleum to consuming nations
  • Offer a profitable return to investors who help support the oil industry

Note that the intent of the OPEC agreement is to not have any one country dominate the market, controlling both prices and output. Should any one OPEC member step up its current distribution to replace all of the oil that Iran currently supplies, it would likely violate the spirit of the pact.


The key to maintaining lower oil prices is to replace the Iranian supply line. There are several nations poised to do this. For example, the United States is now considered the fastest-growing energy superpower, largely due to the prevalence of the fracking process used to drill for oil domestically. In fact, the U.S. Energy Information Administration (EIA) recently raised its forecast for U.S. production to 12 million barrels per day by late next year. This level of output would catapult the United States to becoming the world’s largest producer, ahead of both Russia and Saudi Arabia.

However, the United States is not likely to bear the brunt of replacing Iranian oil supplies.

Russia and Saudi Arabia

Russia is the No. 1 producer of oil in the world, and it also stands poised to benefit from increased oil prices. Together, Russia and Saudi Arabia have been working to tighten the oil market for the express purpose of increasing prices.

In fact, the biggest beneficiary of Trump’s decision could be Saudi Arabia, which has the largest capability to meet demand once Iran’s oil is out of the market. Supplementing the market will help reduce the chance of further price hikes. Regardless, prices are expected to increase to some extent, and those countries picking up the slack in oil production will realize the most benefit.

Saudi Arabia is in favor of higher oil prices to help its flailing economy, with rumors circulating that it is targeting $80 to $100 per barrel. However, some analysts believe that the U.S. abandoned the Iran deal in an arrangement with Saudi Arabia to step up its volume of oil distribution but keep prices restrained.

Consumer Impact

As a general rule, consumers end up paying higher prices at the pump and for air travel, cruises, etc. when oil prices rise. However, thanks to the increase in U.S. oil production in recent years, we have become less reliant on petroleum imports. As a result, higher oil prices aren’t likely to have as significant an impact on the U.S. economy as in the past.

Unfortunately, Americans who’ve experienced little wage growth and maintain high debt may find even a marginal increase in gas prices hard to manage. According to AAA, the national average in May was about $2.81 a gallon, up from $2.34 a year ago. The Oil Price Information Service predicts that the typical American family will spend about $200 more on gas this summer. While this is a jump from what we’ve been paying over the last couple of years, so far no one is predicting the $3.50-gallon range from six or seven years ago.

Another caveat is that when a higher portion of the household budget is spent at the gas pump, less money is spent elsewhere. This lower consumer spending can have an impact on the country’s overall economic growth.

Investor Impact

On the flip side, higher gas prices tend to benefit oil producers, distributors, equipment manufacturers and related companies in the supply chain. Investments in big oil stocks have ramped up in expectation of higher profits and bigger share buybacks. In May, the price of oil reached $70 per barrel, leading the stock market to its best week in two months.

Both in the U.S. and all over the globe, higher oil prices are a positive for the highly volatile oil industry and its millions of workers.

Final Thoughts

Investors interested in the oil industry should recognize that it can be both lucrative and volatile. It is one of those sectors in which high risk teeters with the opportunity for high reward — but it’s difficult to capture that balance.

It’s important to work with an experienced financial advisor to find appropriate ways to invest in oil stocks, often by taking a balanced approach and diversifying appropriately across a wide range of assets — international and domestic — to help offset risk.

As always, consider your tolerance for high-risk volatility, your investment timeline and your ultimate financial objectives.



In the U.S., interest rates have remained relatively low for about a decade — since the Great Recession. Low rates are a problem for conservative bonds, traditionally a preferred investment for retirees. Because of low income yields, retirees have sought supplementary income from more aggressive holdings. One such security is the dividend stock.

The typical profile for a dividend stock investor is someone seeking income payouts over the long term, with principal preservation and modest growth.

On the scale of risk, dividend stocks rank pretty low for equities. They tend to be offered by well-established companies in low-growth sectors such as utilities, energy, telecom real estate. They feature relatively high yields and a general increase in shareholder payouts over time. This has enabled income-seeking retirees to have a means to keep pace with long-term inflation.

“Although retirees should have less exposure to equities than, say, a 35-year-old, stocks are an important component of a well-rounded portfolio for investors of any age.”

Principal Preservation

There are two main advantages to investing in dividend stocks: principal preservation and current income. However, dividend stocks may represent a high-risk allocation for a retirement portfolio and should be carefully considered as part of a well-diversified strategy.

When evaluating specific dividend stocks, check out their long-term track record for dividend growth in addition to the quality of the issue and current price. Companies that issue dividend stocks tend to be more focused on providing long-term shareholder value than growth and expansion.

Passive Income

The primary goal of dividend stocks is current income; equity growth is secondary. Therefore, one of the key components to measure is the stock’s track record for dividend growth.

  • First, see if the stock has a strong track record for issuing payouts.
  • Next, evaluate whether the stock’s current yield is “timely” — paying out income that is meaningfully above its five-year average.
  • Finally, assess if the company itself is positioned for long-term growth.

When a dividend stock meets these three criteria, it may be a good candidate to provide passive income in a retirement portfolio.

Capital Appreciation

Companies that issue high-dividend stocks tend to be well-established and more value than growth oriented. As a result, they tend to sell at a discount compared to other stocks. Generally speaking, when an investor purchases the stock and holds on to it for the long-term, he has a better chance of building up price equity.

It’s important to remember, however, that the true measure of performance includes both capital appreciation and income payouts to gauge total return. Also, be aware that dividend stocks are just as likely to experience periodic fluctuations as more growth-oriented securities.

DRIP Strategy

More than 650 companies offer their current investors a Dividend Reinvestment Plan (DRIP). This plan enables dividends to be automatically reinvested instead of distributed to the investor. The investor can then continue building his or her stock position in the company without having to invest new money. The DRIP program automatically purchases fractional or additional shares of the same stock with little to no trading fees. This strategy offers the potential to generate higher dividend payouts in the future, as well as greater capital appreciation.

Once the investor retires, he or she can stop the DRIP program and begin taking dividend payouts as retirement income.

Hypothetical Long-Term Investment Example

Let’s say Karen is 28 years old with a high-paying job and low cost of living. She is able to invest $20,000 a year in dividend-paying stocks that yield 5 percent annually and grow by the same amount each year. However, instead of taking this income, she reinvests all of her dividends back into those same stocks. Assuming a 4 percent average annual return and an average inflation rate of 3.2 percent, she will have nearly $1.7 million by age 60. (Note that this illustration does not factor in capital gains taxes).

Interest Rates

Given increasing economic growth and consistently low unemployment levels, the Federal Reserve is anticipating higher levels of inflation in the near future. As such, committee members have already voted for one interest rate hike this year and are projecting at least two more incremental increases in 2018 and three in 2019.

It’s important to consider current and future dividend stock investments as they relate to a rising interest rate environment. Higher interest rates tend to increase the yield on new bond issues, which in turn makes bonds more appealing. Both government and corporate bonds tend to be less risky than stock holdings and traditionally have been considered more appropriate for a retirement portfolio. Thus, retirees may wish to reconsider their asset mix in the wake of higher bond yields going forward.

Bear in mind that a changing interest rate environment is a good time to consider rebalancing your portfolio. If, in search of income over the last decade, your investment portfolio has become more heavily tilted toward equities than may be appropriate for your age and timeline, it could be a good time to sell and rebalance with a heavier bond allocation.

However, before making any changes to portfolio composition, consider a couple different factors. First, consider whether your personal financial goals have changed. Second, consider whether your current allocation strategy is providing the income you need at the level of risk with which you are comfortable. If both of these objectives are being met, it may not be necessary to make any changes, particularly if your retirement portfolio is well diversified.

Final Thoughts

As always, it’s best to consult with an experienced financial advisor who is familiar with your personal situation. Remember that dividend stocks are typically very stable income providers, with long-term potential for income growth. They may well be appropriate for retirees who continue to need a growth component in addition to income.



There’s no question that 2017 was the year of the bitcoin. In just 12 months, the digital currency rose from under $1,000 in price to nearly $20,000. Before its meteoric rise in value that year, most people had never heard of the digital currency and probably thought it was a gaming app you could download on a smartphone.

Now, however, it seems everyone is talking about bitcoin. You hear stories of people who threw away a hard drive years ago containing bitcoins, when the cryptocurrency was almost worthless. At one point last year, that junked-out hard drive would have been worth millions. Conversely, though, the currency had a dicult first quarter in 2018, falling 48 percent in value.

Just what is bitcoin? Bitcoin is an electronic currency. Without getting too far into the technical aspects, a bitcoin is created by a computer (or a bank of computers) completing an extremely complex algorithm in a process called “bitcoin mining.” The number of bitcoins that are created depends on how quickly the computer can complete this process — it is lengthy and takes a lot of computer processing power. Bitcoin mining is being done around the clock by people all over the world, and you could even do it yourself if you were so inclined — although there is a lot of technical know-how involved.

What makes bitcoin a unique currency is that it is decentralized and completely digital. There are no physical coins. There’s no central bank like the Federal Reserve or administrator like a commercial bank that controls how many bitcoins are created; no one is backing them up with gold or something of actual value. In fact, there’s no guarantee that the bitcoin you just bought or produced holds any value at all. The value is arbitrary, and it can change in the blink of an eye — which it does, constantly.

“You can’t value bitcoin because it’s not a value-producing asset.” — Warren Buffett

Emotional Decision Making

Certainly, bitcoin has gained a lot of popularity recently with its astronomical rise (and fall) in value. What has fueled this fame? Analysts could probably write master’s level theses on that question, so we won’t really get into that here.

But this is what we think: People become emotionally driven in their decision making. Many thought bitcoins would make them rich, and they didn’t even understand what they were buying. When this kind of thinking happens, we start to get into bubble territory, where prices are moving upward not for fundamental reasons but for emotional reasons.

And at some point, the fundamentals return.

So, if you want to try to make money in these bubbles, it’s a bit like musical chairs. You might hop in, ride the wave for a little bit and then get out before the music stops. But this isn’t being an investor — this is being a speculator.

And sometimes speculating is OK. But you must understand what you’re putting your money into, and you must be willing to lose all of the money that you put in. In the same vein, you also must be ready to potentially miss out on a lot of money. For example, you may have decided to pull out of bitcoin a week before it doubled in value. You just missed out on a lot of potential money because you sold too early. It can be nerve-wracking.

Importance of Fundamentals

Let’s take our bitcoin example and compare it with investing in an actual company — a tried-and-true company like Coca-Cola. This is a company that’s been around for a long time and makes products that people consume on a regular basis — soft drinks, bottled water, fitness drinks, etc.

Coca-Cola is more than 125 years old. The people who run the company bring in real revenue, they operate their business effectively, and most of the time, they generate a profit. They’ve been doing this for a while; they know the drill.

When you buy stock in Coca-Cola, you know what you’re getting into. You’re making a fundamental decision that is based on a lot of information. You’re coming into it with a certain degree of confidence that the company will do what it says it will do. Of course, there are no guarantees, but this is a fundamental investment that is based on logic, research, and high-quality information.

When it comes to bitcoin, it’s nearly impossible — no, it’s actually impossible — to get the same level of confidence as you would when investing in a company like Coca-Cola.

In other words, as an investor, you need to be careful. You are going to see many opportunities like bitcoin. Maybe it’s a “no-lose” business opportunity your brother-in-law is pitching to you; maybe it’s a penny stock tip you got at work hanging out by the water cooler; maybe it’s something you heard on a late-night infomercial. But remember, don’t get so emotionally sucked in that you become blind to the fundamentals. Know what you’re looking at. You should be saying to yourself, “Can I make a good decision to buy this based on sound information?”

Warren Buffett once said, “The market is there to serve you and not instruct you.” What he meant is that a smart investor doesn’t look at a price — say, for example, $11,000 for one bitcoin — and say, “Well, that must be what it’s worth.” He looks at what the actual value is according to his own fundamental research.

If he knows that the value of a bitcoin is $1,000, he will never buy it at $11,000 because it’s overpriced. He believes it will eventually fall to its real value of $1,000. At the same time, if he knows the value of a bitcoin is $30,000, he will buy a ton of them at $11,000 because he is confident that it will continue to rise in price, and then he can sell them at a profit.

But that is probably why a guy like Warren Buffett — an investor, not a speculator — has gone on record saying he doesn’t own bitcoins. He says he can’t determine what the value of a bitcoin truly is — it’s all speculation. If Buffett can’t determine the value, he doesn’t invest. He has to know the value of the investment before he invests, and if he can’t, he’s going to stay away. There are plenty of other more logical and predictable investments to consider.

So just be careful. If you feel as if you have a handle on things and you have some money to lose, speculation can be fine now and then — just as going to a casino might be fun every once in a while. But if it starts to consume you and you’re spending money that you can’t afford to lose, then it is becoming a problem. And that’s what speculation ultimately is — it’s glorified gambling.

Don’t get sucked in. Make sure you’re sticking with the fundamentals of investing before you start going out on a limb. Slow and steady is the way to financial freedom.

Be an investor. Don’t be a speculator.



In an effort to establish a new global trade policy, the Trump Administration announced it would impose a 25 percent tariff on imported steel and 10 percent on aluminum. That dictum was shortly followed up with an additional 25 percent tariff on approximately 1,300 Chinese exports worth about $50 billion annually.

Free Trade

These new policies mark a departure from the global free trade movement over the last two decades. Free trade enables goods and services worldwide to compete with domestic products and services without imposing taxes. The increased competition is designed to lower prices and enhance productivity and efficiency, creating better value for both manufacturers and consumers. Free trade has long been a favored policy within the Republican party.

However, when the global economy started taking off around the turn of the millennium, many facets of American industry began to suffer. In an effort to reduce costs and generate higher profit margins, some U.S. companies moved their manufacturing operations to other countries for reduced labor and overhead costs. This resulted in the loss of many American jobs, particularly those represented by labor unions.

The goal of the Trump Administration is to reduce the number of imported goods — via high tariffs — in an effort to return manufacturing jobs to the U.S.

“I don’t think people should overreact right now. This is a negotiation using all the tools.” - Larry Kudlow, White House chief economic adviser

Impact of Tariffs

For context, note that a tari is simply a tax levied on foreign imports. For example, if imported steel normally costs $10 per pound, it would cost $12.50 per pound once the tariff is imposed. Major steel and aluminum consumers include auto, heavy equipment, and airline manufacturers, among others.

According to The Brookings Institution, there are several possible outcomes that could emerge from the U.S. levying these tariffs.

To date, other countries are taking a wait-and-see approach before initiating efforts to negotiate new trade agreements with the U.S. or launch their own retaliatory tariffs.

1. The tariffs are designed to thwart foreign producers of aluminum and steel from continuing to flood the U.S. market, and thus may provide a boost to American companies that produce these products.

2. However, American companies do not produce enough steel and aluminum to meet domestic demand across a wide spectrum of industries. Therefore, tariffs will likely create a ripple effect in terms of higher prices charged to consumers to make up the difference. Higher prices on American products also will make them less competitive with foreign rivals.

3. Texas, California, Illinois, Michigan, Louisiana, Pennsylvania, Ohio and New York combined import more than $2 billion annually in steel and aluminum products, representing more than half (60 percent) of the nation’s total consumption. Given the size of these state economies, trade disruptions could result in lower national economic growth in key industries such as automotive manufacturing, chemicals, and oil and gas production.

4. Retaliatory tariffs from other countries would serve to increase consumer prices on key American export industries, notably agriculture. Canada, China and the European Union (EU) have indicated that they plan to respond with their own retaliatory measures on American-made products, potentially curbing the export market.

Retaliation: Chinese

Imports The Trump Administration is particularly focused on reversing the U.S. trade deficit with China. In 2017, Chinese goods imported into the U.S. totaled $505 billion, while U.S. goods exported to China totaled $130 billion, leaving the U.S. with a $375 billion deficit on goods. A portion of that is further offset by America’s surplus in services trade of about $38.5 billion, shrinking our total deficit to about $336.5 billion.

By early April, China’s finance ministry announced it would impose tariffs on $50 billion in American exports to China, escalating the trade war. The list of more than 200 affected products includes soybeans, automobiles and certain types of beef, corn, and wheat.

Economic Impact

Tariffs are nothing new in America or other countries. In recent history, Presidents Richard Nixon, Ronald Reagan, George W. Bush and Barack Obama all instituted tariffs with varying degrees of effectiveness. Part of President Trump’s strategy is to use tariffs as a negotiating tool with our largest trading partners for the North American Free Trade Agreement (NAFTA) and with other countries to procure trade agreements that are more beneficial for the U.S.

As for the initial steel and aluminum tariffs, Trump indicated he was open to excluding certain countries willing to strike a deal with the U.S. There also have been indications that China is in talks with U.S. officials to create a mutually beneficial accord that would ease the impact of the trade war, if not eliminate tariffs altogether.

To date, other countries are taking a wait-and-see approach before initiating efforts to negotiate new trade agreements with the U.S. or launch their own retaliatory tariffs.

Investment Impact

The investment markets experienced some initial fluctuation, but volatility eased, and trading returned to normal levels in the first days and weeks of the tariff announcements. It is important to be aware that, as tariffs are implemented, there likely will be an impact in market performance, with some industries more affected than others.

With that said, the equity markets have proven remarkably resilient despite a slew of political shocks over the last year and a half, demonstrating that fundamentals remain strong. The bond market, however, could see more impact. The recent tax cut bill was designed to stimulate consumer spending and spur higher economic growth. The Federal Reserve Board has already responded with small interest rate hikes. However, the new tariffs and the threat of a global trade war could push prices up further, causing higher inflation. This could lead the Fed to accelerate its planned increase for interest rates.

In this scenario, new bond issues will have higher coupon rates, so existing bonds with lower yields would then sell at a discount rate. Note that as long as an investor holds on to his bond investment until maturity, it will continue to pay out its current yield and will receive 100 percent of its original value.

Final Thoughts

The United States economy generally relies little on exports and, as the world’s largest consumer of final goods, tariffs have been effective at reducing imports in certain instances. In the past, America’s largest trading partners usually paid them without responding in kind.


However, as we have seen in recent months, the market is waking up to the fact that trade spats may become more frequent. While we don’t want to understate the potential risks of trade disputes in the long run, it’s important to recognize that all of these moves have played out in the past.

What is most important for today’s investors, particularly retirees, is to stay on course with their long-term investment strategy. Appropriate asset allocations and vetted investment managers should be able to manage tariff and trade war risks over the long run.

In other words: Stick to your plan.



Widespread tax cuts generally result in a marked decline in government revenues and/or cutbacks in services or other areas. One area Congress considered cutting back was the amount of tax-deferred contributions that workers could make to employer-sponsored retirement plans. One proposal recommended scaling back contributions from the current limit of $18,000 a year to as little as $2,400.

As one recent survey confirmed, it is likely that Americans would save even less for retirement than current levels if not for the tax-deferred status of their 401(k) plan contributions. Indeed, proposals that discourage retirement savings are probably not in the best interest of Americans or the government itself — which would inevitably bear the burden of providing more Social Security benefits for those who do not save enough.

With that being said, there are several ways in which the new tax legislation could impact retirement plans moving forward.

“The Wells Fargo/Gallup Investor and Retirement Optimism Index found nearly half of U.S. investors would save less or stop saving if the tax-deferred status of their 401(k) plans was removed.”

Roth IRA

Conversion Recharacterization

The Tax Cuts and Jobs Act eliminated Roth IRA conversion recharacterizations, which permitted Roth assets to be returned to a traditional IRA before the tax return date (plus extensions) in the year of the original conversion. The conversion recharacterization rule enabled an investor to basically change his mind about transferring pre-tax savings to a Roth IRA and paying income taxes in the year converted. Going forward, investors who convert a traditional IRA to a Roth IRA no longer have the option to reverse that decision.

Note, however, that conversions made in 2017 can still be recharacterized by as late as Oct. 15, 2018.

IRA recharacterizations in the past were used as a tool to convert just enough assets to stay within an investor’s current income bracket. A traditional IRA owner could transfer a portion of assets to a Roth IRA in order to offet his future tax bill during retirement. However, if his income at the end of the year tipped over into the next tax bracket, he could recharacterize some of those IRA assets so as to walk back to a lower income bracket.

Now that recharacterizations are no longer permitted, investors need to be more precise in the amount converted in any one year, possibly waiting till the end of the year — but before the deadline of Dec. 31.

Roth Contributions

One reason a Roth IRA can be an attractive alternative to a traditional IRA is because it enables income tax diversification during retirement. So many retirement savings vehicles are qualified — meaning the investor defers paying taxes on contributions and/or earnings until retirement. As a result, retirees who have saved diligently may be surprised at how big their tax bill is after they stop working.

Because of the new Tax Cuts and Jobs Act, more investors may find they are paying lower taxes on their income. With current taxes less of an issue, it may be worth considering stashing more money in a Roth at this point in order to reduce the future tax burden in retirement.

Presently, about 52 percent of retirement plan sponsors in the U.S. offer a Roth 401(k) investment option.4 Note that by diverting after-tax income to a Roth 401(k), investors can take advantage of a higher annual contribution limit (in 2018: $18,500; $24,500 for age 50 and up) than a separate Roth IRA.

Qualified Retirement Plans

Loan Repayment

The new tax law also extends the time required to repay money borrowed from a 401(k) plan before it becomes taxed as immediate income. Prior to this year, if a participant left his employer before paying of the loan, he would have only 60 days to repay the loan before it became taxable. The new law extends that window to the tax return deadline — plus any extensions filed — for the tax year the employee terminated employment.

Charitable Distributions

People who make charitable contributions can claim a deduction for those amounts by itemizing on their tax return. The new tax law, however, has raised the standard deduction to the point where itemizing may no longer be an advantage.

IRA owners age 70½ or older are still permitted to make qualified charitable distributions (QCDs) directly from their IRAs to charities. Not only does this strategy exclude the distribution from the owner’s taxable income, but it also qualifies as all or a part of the IRA’s required minimum distribution (RMD).

In light of fewer people itemizing going forward (estimated between 5 and 10 percent of filers), these qualified distributions may become more popular. That’s because the QCDs are shielded from taxes and do not impact the taxpayer’s reported AGI. In turn, this keeps his tax bracket low, possibly avoiding taxes on Social Security benefits and keeping Medicare premiums down.

Medical Deduction

The new tax law extended the 7.5 percent medical deduction for seniors and increased the deduction to 10 percent in 2019. However, with the increase in standard deduction, it is estimated that fewer seniors will be able to use the deduction because they no longer need to itemize.

Estate Taxes

Under the new law, the estate tax exemption increased from $5.6 million to $11.2 million per individual until 2025, indexed for inflation. Each person may gift up to $15,000 each year without intruding on that “lifetime” (2025) gift tax exemption.

This means that ultra high net worth households may want to take advantage of this window to give away up to $22.4 million (for a married couple) to heirs before 2025. Strategic gifting tactics may include:

  • Gifts to existing or new irrevocable trusts, including generation-skipping trusts
  • Leveraging a gift to fund a life insurance policy
  • Using a gift to leverage an inheritance with philanthropy, via vehicles such as a charitable lead trust

Final Thoughts

The new tax law went into effect on Jan. 1, 2018, which means it will impact our 2018 tax returns — to be filed by April 15, 2019. While there are no major changes required for retirement planning as a result of the new legislation, the provisions and strategies discussed in this report could impact your situation, such as:

  • Improved opportunities for tax diversification
  • Decisions related to itemizing
  • Leveraging charitable contributions to keep income taxes low
  • Taking advantage of the seven-year window to gift substantial wealth to heirs without triggering estate taxes

As always, it’s a good idea to consult with your financial advisor and/or tax professional before making any significant moves. When it comes to assets and taxes, it’s always best to view your financial picture holistically because one move can impact others.



The fact that there is increased focus on volatility this year comes as no surprise. In 2017, the equity markets experienced the lowest volatility levels in 90 years — a scenario that is hardly sustainable.

A common measure of stock market volatility is the Chicago Board Options Exchange (CBOE) Volatility Index, referred to by its ticker symbol VIX. This index tracks expectations of future price fluctuation (called “implied volatility”) in the S&P 500 Index option over the next 12 months. High VIX values indicate high expected volatility, while low values correspond to expectations for stable share prices.

In early February, amid fears of rising inflation, the Dow Jones Industrial Average (DJIA) experienced its biggest one-day drop (4.6 percent) since 2011. At that point, the VIX index rose by more than double, to 37.

Trade Disruptor

After regaining more than half of those February losses, the markets roiled again in early March on news of a potential global trade war. President Trump announced that the U.S. would begin imposing a global-wide 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. When the tariffs were first announced — followed by the resignation of the White House chief economic advisor, Gary Cohn, in opposition to higher tariffs — the event set off a multiday stock market slump:

  • DJIA dropped 420.22 points (1.7%)
  • S&P 500 SPX dropped 36.16 points (1.3%)
  • Nasdaq Composite Index COMP dropped 92 points (1.3%)

One week later, Trump signed a formal executive order to implement the tariffs in 15 days. At that time, Canada and Mexico were excluded pending a successful NAFTA treaty renegotiation.

Many economists believe that imposing higher tariffs could lead to serious damage in large sectors of the economy. A tariff, which is essentially a tax on imported goods from other countries, is designed to discourage sales to the U.S. in order to give domestic manufacturers a more competitive edge. Unfortunately, a smaller supply of U.S. materials and/or higher-priced imported materials generally leads to higher prices passed on to consumers.

This, in turn, is likely to spur higher inflation. That, in turn, will lead the Fed to increase interest rates to make it more expensive to borrow money. Ultimately, higher borrowing costs discourage business investment and expansion, which can change the dynamics of the investment markets — sparking higher volatility.

Frequently enough, the mere hint or speculation of any of these events is enough to trigger market volatility — even before the events happen.

It also is worth noting that when one country imposes higher tariffs, other countries tend to retaliate with tariffs on goods exported from the U.S. When domestic manufacturers must pay more to export goods overseas, the cost is often offset — again — by higher prices to consumers. This rapid-fire chain of events is what is referred to as a trade war and, often enough, consumers are the ones who suffer the most from higher inflation.

Another point worth noting is that Trump has always been a proponent of higher taxes on imports. Therefore, his announcement did not come as a complete surprise. However, what may continue to rattle the markets is the high amount of the steel tariff and ongoing uncertainty over who will replace the top White House economic advisor.

Market Resilience

Despite this “man-made” threat, there are reasons to be optimistic about market stability this year. For starters, the economy has maintained its mid-cycle position and does not appear to be on the brink of another bear market. In fact, thanks to recent tax legislation and the potential for expansion in many industries, the prospects for domestic growth remain positive. Second, the recent price volatility experienced in the equity markets has not managed to infect the credit markets.

And finally, at the moment, inflation appears to remain subdued relative to the plethora of growth factors at play. As long as inflation runs below or around 2 percent, the Fed is expected to maintain its course of raising interest rates slowly and incrementally — which is good news for investment markets.

“During the 2008-2009 stock market rout, boomers on the cusp of retiring called their financial advisers in a panic. … Many investors pulled out. … It took more than five years, but the market did recover, and the boomers who sat tight have gotten their money back — and more.”

Historical Perspective

The accompanying table demonstrates how quickly and dramatically the stock market tends to react to incendiary news events. However, check out the last column — which indicates the relatively swift and often impressive recovery rate within a year.


It’s worth reiterating that market volatility is not always a bad thing. It can sometimes work as a catalyst to reset overvalued stocks and provide room for subsequent growth. Resilient investors who choose to stay the course during volatile times are frequently rewarded with outperformance over the long term.

Final Thoughts

If there is one thing the investment markets do not like, it’s uncertainty. If there’s one trait that predominantly characterizes the Trump administration, it’s uncertainty. The key thing to remember is that while day-to-day market fluctuations can be influenced by headlines, rumors and investor sentiment, long-term performance is generally driven by fundamentals. From a fundamental perspective, economic growth and the number of companies meeting or surpassing their quarterly expectations remain positive.

The lesson here is to expect volatility to continue throughout 2018, but work with your financial advisor to determine if the underlying reasons are superficial or have the potential to change long-term fundamentals. Even then, consider your personal circumstances and financial goals before making any alterations to your portfolio.



Often enough, when we lose a job it comes as a sudden shock. If we have more time to plan, to get used to the idea, we can be more prepared — both emotionally and financially. That’s why it’s a good idea to consider the loss of a job a constant reality, just like we know we want our children to go to college and we plan to retire one day.

Devising a financial plan for job loss isn’t much different. The more prepared we are, the less likely we are to be caught off guard or suffer long-term consequences. The following are tips to help you create a pre-emptive plan:

  • Save an emergency fund equal to three to six months of household expenses.
  • Try to maintain low or no credit card debt (use a credit card but pay off the balance every month).
  • Maintain a good credit score.
  • If you own a home, it may be a good idea to have an approved but unused home equity line of credit (HELOC).
  • Establish a strong relationship with a financial advisor who understands your complete financial situation in order to provide trustworthy advice during both good and bad times.

Once you have these components in place, they can create a safety net to help cushion the fall of a job loss. However, despite preparations, a day may come when you need to adjust your financial plan to account for the lack of income for the foreseeable future. The balance of this report is focused on what to do once you become unemployed.


There are several areas in which you must proactively apply your skills. First, research whether you are eligible for unemployment benefits and, if so, how much you are eligible to receive and how long payments will continue. These factors vary by state.

For example, some states allow for benefits even if a worker is fired or quits voluntarily, depending on the circumstances. Eligibility regarding unemployment compensation can be found on the unemployment office website of the state where you live. As a general rule, payouts continue for a maximum of 26 weeks and equal 50 percent of earnings up to a certain limit. However, specifics vary by state.

Note that unemployment benefits are taxable and may take several weeks to start after you’ve applied for them, so it’s something you don’t want to put off. If you were on your employer’s health insurance plan, another thing you need to apply for is a COBRA extension plan. Your former company is required to provide you with this information, but you also may want to shop for a health insurance plan at a marketplace exchange. Unemployment constitutes one of the exceptions that enable you to purchase a plan outside of the annual enrollment period. Be aware, too, that when you purchase your insurance plan from an exchange, it is yours to retain — you are no longer dependent on an employer to provide for your health insurance needs.

If you do not have a HELOC or an available credit card you can potentially tap for funds going forward, there may be a small window of opportunity to apply for one pending your job loss. For example, if you are given notice two weeks to several months ahead of time, you may be able to cite and verify your current income to qualify for these types of loan accounts.


One of the first things you want to do once your income is reduced or eliminated is establish how much money you need to live on. This means tracking and analyzing expenses to determine how much you must spend and where you can reduce spending. Even though your paychecks or unemployment benefits may continue initially, it is better to reduce spending as quickly as possible. Any money you save now can be used to help defray costs once your income is reduced further.

Here are some ideas to help lower monthly household expenses:

  • Stop dining out, and prepare meals at home. n Consider canceling cable television (just keep internet service).
  • Consider switching your cell phone contract to a cheaper “pay as you go” plan (as long as you don’t incur a contract cancellation fee, in which case you’ll need to figure out which is cheaper).
  • Consider cutting ancillary fees, like canceling a gym or YMCA membership and start working out at home or a local park.
  • Cancel monthly subscription services.
  • Eliminate regular perks, like gourmet coffee runs, hair salon appointments and shopping sprees.
  • Get creative — make homemade items for birthday and holiday gifts.


If you’ve prepared well, hopefully you won’t need to go into debt during a period of unemployment. However, if you’re carrying debt when you lose a job, one thing you might consider is contacting creditors to make arrangements to temporarily reduce payments, including credit cards and auto lender, mortgage company and personal bank loans. It’s best to be honest about your situation and prospects for future income. This is a situation in which a strong, long-term, timely payment record and good credit score will work well in your favor.

How successful you are will depend on your financial situation, policies and tendencies of creditors, and how well you present your case. Bear in mind that the goal for creditors is to get paid, so they may be willing to reduce or defer payments or tack on interest to the back end of a loan rather than have you default.

Finally, recognize that you may need to rely on borrowed funds during your period of unemployment. It is a good idea to evaluate the credit cards you own and determine which are the best to use in terms of interest rates charged on purchases and cash withdrawals. If you have monthly debt, it is very important that you find a way to pay at least the minimum due each month.


If you have an investment portfolio, you should consult with a trusted financial advisor as to whether you should tap investment funds for cash to stay afloat. There are many factors to consider, such as income taxes, capital gains and early withdrawal penalties.

Some investment accounts are better for withdrawals than others. For example, while a Roth IRA is earmarked for retirement, the investor makes contributions with taxed income. This means he can withdraw his contributions tax- and penalty-free at any time, for any reason. Only earnings are subject to a tax penalty under certain circumstances, but they are considered withdrawn last.

However, it’s also worth noting that some investments may be poised for higher gains while others have already achieved gains. This analysis could create a scenario in which a withdrawal is basically a way to rebalance your portfolio. Or, selling certain shares could provide cash while at the same time constitute a loss on paper, which you can claim as a capital loss to offset income taxes.

Again, it’s wise to consult with your investment and/or tax advisor before making any moves.


Bear in mind that if you pick up a temporary job for income while looking for another full-time position, you won’t be able to collect unemployment benefits at the same time. This is a good reason to apply for unemployment as soon as possible — since you may want to look for a part-time position down the road.

Thanks to the “gig” economy, you may be able to use contract work to keep income flowing. If it seems feasible, you might ask the employer you just left if you can continue doing your job on a contract basis. If not, offer your skills and expertise to a competitor.

Or, consider other jobs that can help bring in income without hampering your job search, like bartending or waiting tables at night.

If health insurance is a priority, consider employers that offer coverage to part-timers, such as Starbucks, Whole Foods, Lowe’s and The Home Depot.

Other ways to earn money include selling items, starting a service business like cleaning, child care, etc., or becoming a driver for Uber or Lyft.

“A little financial planning may keep you from having to settle for a job you don’t want simply because you’ve run out of money.”

Final Thoughts

One thing that can sabotage your finances quicker than anything is getting discouraged. Fight negative feelings that can lead to anger, self-doubt and even compromised personal relationships. The ways to combat these feelings do not have to cost much — such as regular exercise, eating healthy, spending quality time with friends and family, and taking time for yourself.

The time between jobs also enables you to take stock of your career and figure out what you want to do next. The more control you exert over your life, the better you’ll feel. Creating a financial plan and career path can provide a strategic road map to help you get back on track without losing ground on your long-term financial goals.



The performance of an individual stock may be driven by company fundamentals, a corporate announcement or developments within its industry. However, broader movements within the stock market more often are driven by changes in the economy, investor sentiment and widespread trends across various market sectors. Dozens of key economic indicators signal changes in the direction of the economy. These regular reports are monitored to help investors, market analysts and wealth managers make day-to-day decisions about when, where and how to invest money.

Leading economic indicators, which include data for employment, company profits, and supply and demand, can forecast the rise and fall of the business cycle. For example, corporate profits tend to increase during an economic expansion, slow down once the economy peaks and decrease as the economy shrinks. By reviewing the economic indicators that reveal when these events begin to take place, investors can decide whether and when to sell as the market ticks upward, hold steady or buy when prices decline.

The following is an overview of the regular data releases generally considered the most reflective of the current economy with indications for the future.

Gross Domestic Product (GDP)

Used as one of the primary indicators to measure the health of a country’s economy, gross domestic product (GDP) reflects the sum total monetary value of all finished goods and services produced within the country during a specific time period.

Price Indexes

The Consumer Price Index (CPI) is published each month by the Bureau of Labor Statistics to gauge inflation by tracking the prices of some of the most common goods and services purchased by urban consumers — such as food, transportation, clothing and medical care.

The Producer Price Index (PPI) measures the price changes of products from a broader cross section of industries in the goods-producing sectors of the U.S. economy.

Jobless Claims Report

The jobless report, published each week by the Department of Labor, also acts as an indicator of the economy. For example, unemployment filings tend to increase when the economy weakens. While released weekly, the reports are generally assessed as a four-week moving average (MA) to balance out variances from week to week. Note, too, that the report does not track job losses by part-timers, self-employed people and contract employees because they do not qualify for unemployment benefits.


We often hear about a report referred to as “housing starts.” This is the New Residential Housing Construction Report, which is released by the Census Bureau and the Department of Housing and Urban Development (HUD). It details the number of new building permits issued, which serves as an economic indicator in terms of an increase or decrease in new construction activity (supply). For example, new construction tends to pick up early in the expansion phase of the business cycle.

Another leading economic indicator from the real estate sector is the Existing Home Sales Report, compiled by the National Association of Realtors. This report reflects new demand for home sales, with considerable seasonal variance. Together, the two provide a general picture of the housing sector as well as mortgage interest rates and overall consumer confidence.

Consumer Confidence Index (CCI)

Speaking of confidence, the Consumer Confidence Index (CCI) measures perceptions and attitudes of the general population. Although it relies on a small sampling of consumers (5,000 U.S. households), it has proved surprisingly accurate in projecting consumer spending. The CCI is considered a valuable measure because consumer spending represents 70 percent of the economy. A continuing uptick in confidence can be a positive indicator for stronger economic growth.

Purchasing Managers’ Index (PMI)

Another indication of consumer confidence and buying patterns is reflected in the Purchasing Managers’ Index (PMI). This report compiles data (new orders, inventory levels, production, supplier deliveries and employment) from purchasing executives at approximately 300 companies in the manufacturing sector. A surge in new orders may indicate a pending increase in customer prices, and vice versa. For context, a PMI of more than 50 demonstrates that the manufacturing sector has expanded compared to the prior month. The PMI has a strong historical track record for predicting GDP growth.

Stock Market Indices

While investors have access to the broader stock market, performance benchmarks are generally composed of a representative collection of stocks with similar traits, such as market capitalization or sector. A particular stock market index is computed into a weighted average representing the underlying stocks and used to compare returns of specific investments or sectors. The following are some of the most popular stock market indices:

  • Dow — The Dow Jones Industrial Average (DJIA) is represented by the stocks of 30 of the largest and most well-known companies in the United States. Large swings in this index are generally a strong indicator of movement throughout the entire market.
  • S&P 500 — The Standard & Poor’s 500 Index is more diverse and is composed of 500 of the most widely traded stocks in the U.S. across an assortment of sectors. Because it represents about 80% of the total value of the U.S. stock market, the S&P 500 index represents much of the movement in the U.S. stock market as a whole.
  • Wilshire 5000 — The Wilshire 5000 is composed of almost all publicly traded companies with headquarters in the U.S. It is extremely diverse and includes stocks from every industry.
  • Nasdaq — The Nasdaq Composite Index is best known for representing technology stocks, although it also includes stocks from the financial, industrial, insurance and transportation industries, with some companies based outside the U.S. The index hosts both small and large firms as well as many speculative companies with small market capitalizations.
  • Russell indices — The Russell 3000 is an index of the U.S. stock market’s 3,000 largest publicly traded companies. The Russell 2000 is a market-capitalization-weighted index that is composed of the 2,000 smallest stocks in the Russell 3000.
“Nothing has more impact on the direction of asset prices than economic conditions and how central banks respond to those conditions. Period.”

Final Thoughts

As consumers and investors, we are continually bombarded with news and information designed to help us make better decisions. Unfortunately, there’s such a thing as information overload, which can make it impossible to analyze so much data. As a result, we often end up doing nothing. When it comes to being a data-informed investor, it’s important to remember that the leading economic indicators and other analyses support just one of the three components related to our investment success.

The primary component is determining our investment goals, which is guided by more subjective data such as how much money we would like to accumulate, by when and how much risk we’re willing to take to achieve those goals. Next, it’s a good idea to work with an experienced financial advisor to determine an asset allocation strategy designed to help meet those goals. This not only encompasses different asset classes, such as stocks, bonds and cash instruments, but also various types of products such as annuities or other insurance-based contracts that can provide a guaranteed payout.

Finally, it’s important to monitor investment decisions on an ongoing basis to ensure that your strategy remains on target to meet your objectives. For this, staying abreast of data-driven reports may give us the best opportunity to predict how the economy and stock markets will perform in the future and further guide our investment decisions.



When a marriage ends in divorce, it can take a long time for one or both spouses to recover their emotional stability — but they generally do. About 40 percent of today’s marriages involve one partner who has been married before.1 However, the financial impact of a divorce can last for quite a long time — even a lifetime. In fact, the financial pressures of going it alone without a satisfactory safety net may be an underlying reason why many people decide to remarry.

For the sake of healthy relationships in the future — for ex-spouses, their children and even potential future spouses — it’s very important to resolve financial issues during a divorce to help secure the financial future of both parties. This is especially true when children are involved, because they shouldn’t have to see one parent suffer financial consequences.

It’s a good idea to work with a financial advisor from the outset of a marriage to put plans in place to help a couple build significant net worth during the span of their union. However, there is perhaps no better time to involve a financial advisor than during a divorce. After all, divorce attorneys are not trained to provide comprehensive financial planning advice.

Divorce, unfortunately, is seldom quick or neat. In terms of money, it can be expensive and leave spouses in dire financial straits. Therefore, it is a critical time for all assets to be identified and divided between spouses appropriately and efficiently in order to meet short- and long-term goals for both parties. Indeed, this is no small feat.

Property Division

Division of property in a divorce depends largely on where the couple lives. In a common law property state, an asset that is acquired and titled by one member of a married couple is owned exclusively by that person. If a title or deed for property lists the names of both spouses, that property belongs to both spouses — with each owning a one-half interest.

In the event of a divorce, the couple can enter an agreement on how to divide assets. However, if the case goes to trial, the court will decide how marital property is divided. By contrast, there are nine community property states in the U.S.:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

In a community property state, all assets acquired during the marriage are considered owned equally (50/50) by both spouses, regardless of how they are titled. This includes all debts, earnings and property purchased with income or earnings accumulated during the marriage. However, assets acquired before the marriage and any property given to or inherited by only one spouse before or during the marriage are considered to be separate and owned exclusively by that spouse.

In a divorce, the separate property of each spouse is distributed to the spouse who owns it, and the rest is divided evenly (50/50). If an asset, such as a house, is granted to one spouse, the other spouse will receive assets equal to its total economic value.

Potential Problems

Let’s say the ex-wife is granted majority custody of the children and also full ownership of the family home. The ex-husband then receives an investment portfolio equal to the home’s value. While this may appear equitable on its face, consider that the house will require insurance payments, upkeep and maintenance costs, and perhaps even a significant tax burden when it is sold. The costs associated with the investment portfolio may not be nearly as onerous.

Sometimes, it may make sense to consult with a financial advisor before even broaching the idea of splitting up a marriage. Understanding state laws and the potential impact of dividing assets can help a couple determine whether they can even “afford” a divorce.

QDRO: Qualified Asset Division

For older couples, assets accumulated in retirement accounts and/or pension plans may account for a large part of their net worth. Be aware that federal law states that assets earned through participation in an employer-sponsored retirement plan can be divided between ex-spouses only by a qualified domestic relations order (QDRO).

A QDRO must be submitted to and accepted by the plan sponsor before a divorce is finalized. Note that a QDRO applies only to a retirement plan sponsored by a private employer. Other types of retirement plans may require a different form that performs the same function. For example, retirement plans for federal government employees require a “Court Order Acceptable for Processing (COAP).

Be cautioned that if the appropriate form is not on file by the time the divorce is finalized, a former spouse may have no rights to the participant’s retirement benefits — a fact that often does not come to light until years later when the ex-spouse retires.


IRA accounts are divided according to state law and agreements pertaining to divorce proceedings. However, it is important to understand that when IRA assets are to be split into separate accounts, the IRA custodian must be notified that a transfer or rollover is part of a divorce decree in order to avoid taxes and/or an early withdrawal penalty. This is another reason to work with a financial advisor to help ensure assets are transferred correctly.

“In the modern era, a good divorce is better than a bad marriage.”

New Financial Planning

Remarkably, there can be a silver lining to divorce. Each spouse has the opportunity to develop a financial plan specific to his or her new lifestyle and goals. If money was a constant issue during the marriage, as it often is, a single person generally has control of his or her income, saving, spending and investment decisions from the divorce on. This fresh start also presents an ideal time to work with a financial advisor to identify goals, savings and investment vehicles, an allocation strategy, risk profile and timeline to meet those goals.

Bear in mind these tips when developing a new solo financial plan:

  • Update beneficiaries for personal investments, bank accounts and qualified retirement plans.
  • Update the beneficiaries for all other financial assets, such as annuities and life insurance.
  • Develop a new estate plan that includes choosing a person to be your health care proxy, asset beneficiaries and, if necessary, a guardian for your children.

As troublesome as divorce can be, there is always a tomorrow and a new opportunity to secure a brighter financial future.

Final Thoughts

As a couple enters divorce proceedings, it’s important to consult with an experienced financial advisor to help navigate issues related to dividing assets and ongoing alimony and/or child support payments.

As a final thought, when engaged in a contentious separation in which both spouses have their own divorce lawyers, they should perhaps consider having their own professional financial advisors, too. While an attorney may understand legal issues, a financial advisor is better prepared to analyze and understand the performance potential, tax implications and long-term outcomes of financial assets and — perhaps most important — represent the individual client’s best interests.



According to a study sponsored in part by Bank of America and Merrill Lynch, approximately 50 percent of current retirees have worked during retirement or are considering it. Moreover, nearly three-quarters of pre-retirees over age 50 say that their ideal retirement would include paid work of some sort. It’s interesting to note that among them, 35 percent say the ideal scenario for retirement is part-time work.

Some folks may need the extra income. However, even high-net worth professionals who are more than prepared for retirement — financially speaking — also indicate that they’d like to work at least part time in retirement. For some, it’s a matter of maintaining social relationships and/or having intellectual challenges and responsibilities.

Unfortunately, some people retire earlier than they would like to, often a result of losing their jobs or just plain being unhappy with them. Others suffer from health conditions that make work unsustainable, while some find they have to quit in order to spend more time caring for loved ones.

And yet, even for caregivers and people with disabilities, there may be opportunities to work part-time. While there are challenges to working as we age, bear in mind the benefits to be gained as well.

Investment Strategies

Even for people who believe they have enough money saved for retirement, it never hurts to add more to the coffers. Those who work part time during retirement are less likely to drain their income each month, possibly using excess earnings to continue contributing to retirement investment accounts.

Unlike the traditional IRA, which does not permit contributions after age 70½, there are no age limits to contributing to a Roth IRA as long as you are earning income. It’s also worth noting that after age 70½, a worker may contribute to a traditional or Roth IRA on behalf of a non-working spouse as long as the spouse is younger.

Those who embark on a career as an entrepreneur or independent contractor may be eligible to set up a solo 401(k) plan. In 2018, the employee contribution limit to an individual 401(k) plan is $24,500 for people age 50 and up. Furthermore, their “business” can contribute an additional percentage of earned income for a combined total maximum of $55,000 per year.

Even if a working retiree doesn’t contribute to a savings account, earnings can help delay withdrawals from retirement investments and allow more time for growth opportunity.

Income Strategies

Another benefit to working part-time in retirement is the ability to delay drawing Social Security. While benefits may begin at age 62, delaying enables a higher permanent payout amount. Not only does the extra income contribute to wages calculated for the Social Security benefit, but delaying until age 70 allows the benefit to accrue by 8 percent each year beyond full retirement age.

Part-time workers also should be aware that earning income may reduce Social Security benefits, as detailed below:

  • Before full retirement age: Benefit is deducted by $1 for every $2 earned above an annual limit of $17,040 (2018)
  • The year of full retirement age: Benefit is deducted by $1 for every $3 earned above $45,360 (2018)
  • After full retirement age: No benefit deduction

On-Demand Economy

You don’t need a special skill like pottery or woodwork to earn a part-time living. Many retirees have found fulfilling work using skills they've had their entire adult lives — like driving for Uber or Lyft, making coffee at Starbucks or answering the phone at a local dentist office. Retirees can even earn income doing whatever it is that led them to retirement — such as providing caregiving services for others in addition to a grandchild or elderly parent.


Some retirees consider starting their own businesses for part-time work. In fact, according to a report on startup business activity, the demographic between 55 and 64 years old accounted for nearly a quarter of all new entrepreneurs in 2015.

Thanks to the internet, web-savvy seniors can create new businesses without a lot of capital or complexity. Many have found avenues to sell wares based on a passion or hobby. For example, a retired financial services manager pursued her long-held dream to become a fashion designer. She opened a niche business online taking orders to convert fabrics from used wedding dresses into pillowcases and other keepsake items.

“I don't really need the money. I really do it more for fun. It just makes me feel good about me.”

Plan Ahead

If you’re considering working part time during retirement, think about what that might look like while you’re still gainfully employed. Depending on your post-retirement aspirations, you may need to take classes, get another degree, get certified or engage in some other type of training that requires funding. You can either work on getting that training while still employed full time or start setting aside some money to pay for it once you retire, letting you avoid dipping into retirement savings.

It’s a good idea to discuss these plans with a financial advisor to help determine the best way to make the transition from full- to part-time work. If a startup is in your future, it may require transitioning investment funds to help pay for the venture. The earlier you start making plans, the better — even if that day is years away.

Health Care Options

Health insurance is nearly always a factor when it comes to working part time because employers typically do not provide health care benefits for part-timers. If you plan to retire before qualifying for Medicare at age 65, you’ll need to consider ways to procure health insurance.

One option may be coverage under a working spouse’s plan. Another is to purchase an individual policy on the marketplace exchange. Note that in the past, not having a health insurance option was a real deal-breaker for retirees who wanted to start their own businesses or take part-time jobs. Health insurance premiums for pre-Medicare retirees with pre-existing conditions ran as high as $30,000, $40,000 or $50,000 a year before the enactment of the Patient Protection and Affordable Care Act (better known as Obamacare).

Presently, one of the advantages of the individual exchanges is that some applicants qualify for premium and/or cost subsidies based on low income — which may prove beneficial for a retiree working part time. In certain scenarios, a retiree even may pay a lower premium via the exchange than under a previous employer plan.

Final Thoughts

Another finding of the Bank of America/Merrill Lynch study was that more retirees ranked staying mentally and physically active and having social connections above earning money among their reasons to keep working. Many career professionals look forward to the opportunity to try their hand at something else, even if they don’t need the money.

In fact, staying active and engaged in the workforce — even if it’s just part time — can help retirees stay healthy and upbeat as they age. Which brings us to our final thought: Have you thought about what you want to do next?

While it’s great to aspire to a higher income, our lifestyles should fit our current income. If we can learn to be content with what we have, any additional funds are a bonus. There are few negative consequences to living below our means but quite a few advantages. One, of course, is that we have money available for those periodic big-ticket items without disrupting long-term plans for financial security.



Two roads diverge when we become adults, and the path we choose is frequently influenced by the opinions and lessons of our parents. When it comes to saving and financial security, do you start right away or take a bit of time to enjoy yourself?

That’s one of the factors considered by students who take a “gap year” before or just after college — before getting “a real job.” In fact, some seasoned parents will advise their children to go ahead and enjoy their financial freedom while they’re young before getting tied down to the responsibilities of a mortgage and raising a family.

However, just because young adults want to live a little doesn’t mean they don’t eventually want to own a house or start a family. By the same token, midcareer professionals and families with children who juggle a mortgage, education expenses, vacations, automobiles, braces, summer camps and other expenses know that each financial decision could impact their lifestyle during retirement. It’s a constant battle to decide where and how much money we can spend without jeopardizing our long-term goals.

The key is to balance a saving and spending strategy that allows for a satisfactory standard of living today without sacrificing our lifestyle tomorrow.

Automatic Saving

One time-tested strategy is to use a household budget. By tracking the money that comes in and goes out of the household, it is possible to develop a budget that covers expenses while allowing for entertainment and a few luxuries — without compromising the future.

An important tactic is to make saving and investing a line item in the household budget. Financial advisors often refer to this tactic as “paying yourself first.” In other words, allocating money for saving should be considered just as important and automatic as paying your car loan and electric bill.

There are two roads that diverge here as well. Some people pay all the necessary bills and save whatever they have left. Unfortunately, a lot of discretionary expenses tend to creep into that regular household budget, frequently leaving little to no money for saving. The second road is to make saving and investing part of those necessary expenses, leaving any leftover money available for discretionary spending.


A second strategy is to compartmentalize savings goals. For example, if you participate in a company 401(k) or another employer-sponsored plan, then money is drafted from your paycheck and invested before it even hits your checking account. This is the most efficient and effective way to save for retirement.

However, most people have other big-ticket things they want in addition to retirement savings. One tactic is to create separate accounts earmarked for those goals rather than throw all leftover savings into one account. A key reason for this is that it helps measure progress toward a specific goal, which can be very motivating.

The opposite is true of a catch-all savings account. That’s because this account will rise and fall based on a variety of expenses you must pay throughout the year, such as annual property taxes, auto and homeowners insurance, homeowners association fees, home maintenance and repair, vacations or cash for an emergency.

It is a good idea to maintain a catch-all savings account for these types of one-o" expenses. However, if you have a specific goal in mind — such as a new car — consider opening a separate account and contributing to it regularly. Even if you need to stop contributing for a month or two to pay other expenses, that’s OK. It is psychologically comforting to know that you don’t have to deplete this account to pay regular expenses. Eventually, you’ll meet your financial goal and can purchase the item without sacrificing short- or long-term financial obligations.

Due Diligence
Another tip is to plan and research while you save so that once you have the funds, you know exactly what to buy. This can help you determine the true expense of that item. For example, if your goal is to buy a boat, consider where you will keep it. If you keep it in your driveway, will your homeowners' association object? If you rent a marina slip, what will be the ongoing cost? What expenses are involved in gas, maintenance, and upkeep?

It’s important to know all of the ancillary costs involved now and in the future before you make a big purchase. Not only does this due diligence help you get the most value from your big-ticket item, but it also provides a high level of confidence in making the right decision and a strong feeling of satisfaction for having saved for it.

Saving For “Come-What-May”
Another part of the compartmentalization strategy is to save regularly in a savings account for unexpected expenses. Even if you don’t have a specific goal, that money creates a safety net for unknowns and emergencies, such as a new roof or car repair. Consider keeping at least
$1,000 or $2,000 in this account so you can cover these unexpected needs without running up a credit card balance or siphoning money from other accounts.

Equity Builder

As a general rule, some purchases increase in value while others decline. Therefore, consider whether your big-ticket purchase will be an asset or liability. For example, your mortgage and your auto loan may both fall into the high-debt, liability column. However, houses generally increase in value over time while cars decrease.

When making a large purchase, consider whether it has the potential to offer a return on your investment. Second, consider whether it will replace a current cost. For example, buying a home may cost more, but it will replace the cost of renting. Buying a new or at least newer car may replace the cost of one that is paid o" but generates ongoing repair bills. In both cases, the new purchase may build equity or at least forestall higher expenses in the future.

On the other hand, a vacation doesn’t replace costs — it adds to it. In some cases, however, a little outside-the-box thinking can help counteract additional expenses. For example, if a couple in Minnesota want to spend half the year in Florida, perhaps they can offset that expense by renting out their home while they’re away.

Using invested funds to pay for high-ticket purchases can be tricky. Investors may want to work with an experienced advisor to determine whether withdrawals will trigger capital gains, income taxes or an early withdrawal penalty. It’s also important to consider whether depleting that account would unduly sacrifice potential gains and/or derail the potential for long-term financial security.

Bear in mind that investment accounts specifically designed for a certain goal, such as a 529 college savings account or IRA, generally have barriers intended to deter the investor from using those funds for any other purpose. Some may provide exceptions, however, such as waiving an early withdrawal penalty for a qualified first-time homebuyer.

Consult with your advisor on the most suitable way to fund a large-ticket item to help you evaluate the pros and cons of each available option.

Potential Funding Sources

  • Bank savings account
  • Life insurance cash value account
  • Certificate of deposit
  • Annuity withdrawal
  • Securities or mutual funds
  • Credit card
  • Traditional IRA
  • Home equity
  • Roth IRA
  • Sell an item of value
  • 401(k) loan
  • Part-time job
“Generally, early distributions are those you receive from an IRA before reaching age 59 ½. Ne additional 10 percent tax applies to the part of the distribution that you have to include in gross income. It’s in addition to any regular income tax on that amount.”

Lifestyle Should Fit Income

Probably the most significant strategy for making an expensive purchase is to determine whether you can afford it. This is not as simple as it may appear. In other words, your income may justify a higher expense than normal — but does your lifestyle?

For example, perhaps you can afford to buy an expensive foreign sports car. However, consider that it may be costly to insure, maintain and repair. Furthermore, does it reflect your values? If you’ve taken pains to live within your means in terms of your housing and other choices, perhaps it is more prudent to buy a car aligned with the rest of your lifestyle choices and save what you might have otherwise spent.

While it’s great to aspire to a higher income, our lifestyle should fit our current income. If we can learn to be content with what we have, any additional funds are a bonus. There are few negative consequences to living below our means but quite a few advantages. One, of course, is that we have money available for those periodic big-ticket items without disrupting long-term plans for financial security.

Final Thoughts

When you consider making a high-expense purchase beyond the usual household budget, differentiate between a predetermined goal and an impulse. This distinction may force you to weigh, for example, whether your sudden desire to buy a boat after a fun-filled week at a friend’s lake house is worth derailing your plans to buy a house in two years.

Even when you establish a specific financial goal worth saving for, remember that you also must address your sequence of priorities. Establishing an order for which goals are most important can be very helpful when it comes time to make a decision about whether (and when) to make an expensive purchase.

We’ve always known that patience is a virtue. But we may not always recognize that it is a financial virtue, as well.



Behavioral finance is a relatively new field that explores how human behavior and thought patterns influence our financial decisions and therefore, on a larger scale, our economy and financial markets. It’s basically this: Human nature meets economic principles. What we have found through the study of behavioral finance is that people do not always behave rationally when addressing different market environments.

For example, we may sell stocks when share prices drop in order to limit our losses, when it may make more sense to buy when prices are low. We are motivated to stock up on consumer products when there is a shortage even though we may have to pay much higher prices. In short, what we think and feel drives actions that may work to our disadvantage.

The practical reason for the study of behavioral finance is that we live in the real world. Our thoughts and actions are motivated by what’s happening in our lives, so we don’t always take a step back and think like an economics professor. When we need something now — be it money or peace of mind — we react quickly to get it. We do it to fix a short-term problem. We do it to alleviate stress. And we frequently do it without putting a lot of thought into how it might hurt our finances in the long run.

Wealth Allocation

Wealth allocation is a strategy that can help investors meld fundamental economic principles with the urgency of real-world problems. It’s simply a way to stratify where our money is located so that when we feel the need to react, either to a financial emergency or to relieve financial anxiety, we know which accounts are best to tap for certain situations.

A wealth allocation strategy divides our net worth into three separate categories of financial goals, each with a representative risk level.

Safe Assets

Safe assets are the ones that aren’t going to go away. These include cash savings, quality fixed income, our primary residence, Social Security benefits, guaranteed pensions and highly rated life insurance policies. The purpose of safe assets is to maintain our standard of living. However, they may not be able to sustain that level indefinitely. Early- and mid-career workers may have greater long-term needs, such as saving to buy a home, pay off debt, fund children’s education and plan for retirement. Even retirees living on a fixed income should have a cache of additional funds available for an emergency.

The amount and location of safe assets will be different for each household, based on need. It’s important to consider how long you may be able to sustain your lifestyle if you lost your current income. This means liquid funds available to pay for housing, food, transportation, health care and basic entertainment. Depending on your circumstances, how long would it take to restore your income — would you need six months of reserve living expenses? One year? Three years?

Growth Assets

Safe assets should be accessible for the here and now. The next step up is growth assets. This is money you tuck away for the future. Most people invest a portion of their income automatically through an employer-sponsored retirement plan, IRA or other type of vehicle, such as a personal portfolio of stock, bonds and/or mutual funds.

Growth assets are designed to grow over time, so they are not the first funds you’ll want to tap if you need money. In fact, there may be a cost associated with having to tap these quickly, such as a capital loss, income taxes or an early withdrawal penalty. This money should be allocated to securities and asset classes that align with specific investor goals, the timeframe for reaching those goals and the investor’s tolerance for market risk.

Ambitious Assets

For investors who either have sufficient funds in the first two categories, or need to allocate a portion of assets to higher-risk, potentially higher-reward options to make up for lost ground, the third wealth allocation category is for ambitious assets. In a sense, these assets are invested to “swing for the fences” in an attempt to make lots of money with a financial home run.

However, even in this category, investments should be balanced between risk and reward to reflect the asset owner’s personal circumstances — and interests. In some cases, this could mean purchasing a higher stake in a concentrated sector or company stock. It could mean buying real estate for ongoing rental income and the opportunity for growing equity. It could mean purchasing mispriced securities for a long-term bet that they will reach their true value. The placement, and amount, of ambitious assets will vary among each investor, but the goal is the same: Above average investment success.

Note, however, that an investor should never invest more in ambitious assets than she can afford to lose. 

“A clear understanding of how a family’s wealth is invested increases
everyone’s conviction to stay the course when an unforeseen event
occurs. One of the greatest risks to sustaining wealth is letting emotions
drive a change in strategy at the wrong time.”

The Wealth Allocation Conversation

The thing is, most investors already have these types of “buckets” where their assets are stowed. The purpose of the allocation strategy is to identify the buckets ahead of time that are best tapped for certain situations. In other words, if today’s long-running bull market suddenly experienced a correction, an investor should ask himself how that impacts his current financial situation. For example:

  • Does it impact his income and ability to sustain his current lifestyle? If so, how long can he continue paying current expenses before he needs to make a change?
  • If it doesn’t impact his current lifestyle, what is the potential impact on his long-term goals? How long should he wait before considering a change?
  • Does it devastate his more ambitious goals? Will waiting longer help recover any losses? Will accessing those assets quickly solve an immediate problem without sacrificing long-term financial security?

There are two reasons these questions are important. First, if an investor needs cash right away, this stratification of assets can help her determine where to go quickly if cash is needed without compromising long-term goals.

Second, it helps facilitate the conversation among household members to help them arrive at the same conclusion. In other words, if the rental lake house property was placed in the growth assets category, both spouses may agree it is a critical component for their long-term financial goals. However, if the lake house was a “swing to the fences” asset, it may be easier to agree that it’s the less crucial asset in an investment portfolio.

Applying the wealth allocation strategy to current assets helps investors rely more on rational reasoning to solve short-term problems with less panic and emotion. The household portfolio is essentially allocated for protection of current lifestyle, growth for future lifestyle and risk-taking for an ambitious lifestyle.

Final Thoughts

By allocating wealth into these three risk groups, it’s easier for family members to discuss how to address real-life situations with predetermined solutions. By identifying where the household wealth is invested and the target purpose of each asset, it is easier to stay the course when unforeseen events occur. It also helps to avoid allowing our fears and emotions to drive decisions that could jeopardize long-term financial security.



One day in the future we may have genetic tests that can accurately determine who will develop dementia and by approximately what age. For now, it’s largely guesswork.

However, while we may not know who will develop a cognitive condition such as Alzheimer’s, we do have a pretty good understanding of the potential financial burden of this progressive disease.

Today, Alzheimer’s disease is the most common form of dementia, representing up to 80 percent of all cases, and a third of seniors die with the disease.1 However, the key numbers for the sake of financial planning is that while people with Alzheimer’s live, on average, four to eight years after diagnosis, they can live as long as 20 years.2

Consider then, that the average coverage of a long-term care insurance policy is three years — less than the average duration of the disease.3 Clearly, given the statistics we do know about age-related cognitive impairment, it is prudent for retirees to include this possibility as part of their financial plan.

While dementia may take years for a progressive decline, studies show that one of the first symptoms to appear is the deterioration of financial management skills. This means three things are important:

  1. Early diagnosis for ease of transferring money management responsibilities with the help of the patient.
  2. Ensure the responsibility is transferred to a person with sufficient experience handling money and managing financial issues.
  3. Consider if the person taking over finances is trustworthy and/or could potentially develop dementia in the near future — which would, of course, require another subsequent transfer of financial responsibilities.

Stage Planning

Dementia is a progressive disease, but the Alzheimer’s form can be even more severe and progress more rapidly. It generally follows three basic stages: mild, moderate and severe.

It is during the mild decline stage that financial skills begin to deteriorate. This may be evident as the patient starts to have trouble paying bills and managing bank statements. It’s a good idea to utilize bank services such as direct deposit for all incoming sources of income and automatic bill pay for outgoing payments. The mild stage may last several years.

Also during this time, it is important to establish a legal authority as power of attorney to take over financial management on the patient’s behalf when necessary. It is critical to take this action while the patient is still capable of understanding and agreeing to the decision.

During the moderate decline stage, the patient may lose the ability to manage daily finances altogether. This often causes anger and frustration, leading to irrational thoughts and behaviors — which is why it is important to transfer money management to another person before this stage. Depending on the person’s living situation, it may be necessary to hire a caregiver to shop, cook and even help the patient dress.

During the final stage of severe decline, patients tend to lose short-term memory, including the ability to hold conversations and make decisions. Caregiving duties may range, progressively, from helping the patient eat and use the toilet to complete 24-hour monitoring. The patient may become completely bed-ridden, unable to sit without support, and may no longer recognize loved ones, speak or understand words.

Financial Options

Once a family receives a diagnosis of progressive cognitive impairment, the trajectory of expenses will change. Instead of travel and transportation, assets will increasingly be allocated to pay for prescription drugs, personal care supplies, adult day care, full-time in-home or residential care services.

It’s important to be aware that if a family hires an independent professional caregiver to work inside the home, the household may be responsible for the caregiver’s Social Security and unemployment taxes.

The following are some of the resources and financial options available    to help develop a plan for a person facing dementia and its related expenses.4

Medicare & Medicaid

  • Medicare pays only for acute care in a skilled nursing facility and only for the first 100 days.
  • To qualify for Medicaid long-term care coverage, beneficiaries must spend down assets that could be used to fund their care.
  • Not all nursing homes accept Medicaid and ones that do may have limited availability.

Veterans Benefits

  • Certain government benefits, including health and long-term care, may be available for people who served in the military.

 Long-Term Care Insurance (LTC)

  • An LTC policy needs to be purchased before a dementia or Alzheimer’s diagnosis.
  • Pay attention to the amount of the daily benefit and if it is adjusted annually for inflation.
  • Understand how long benefits will be paid and if there is a maximum lifetime payout.
  • Check what type of care is covered (e.g., skilled nursing home, assisted living, licensed home care, etc.).
  • Check if there is an elimination period before coverage begins.

Life Insurance

  • Life Insurance should be discussed prior to any hint of dementia or Alzheimer's. Once a diagnosis is made or symptoms have begun coverage will be declined.
  • Policy owners may be able to borrow or withdraw from the cash value account of certain types of life insurance contracts.
  • May offer accelerated death benefits (e.g., 80-85% of policy face value and tax-free income), paid out if the insured person is not expected to live beyond the next six to 12 months due to a  terminal illness.
  • May offer a rider that waives premium payments if the owner becomes disabled.

Long-Term Care Annuity

  • Fully funded by the initial premium.
  • Coverage typically valued at 200 to 300 percent of the initial premium amount (the higher the initial premium paid, the more coverage received).
  • If and when long-term care is required, a specific monthly amount is paid from the annuity’s coverage until the value is depleted.
  • The policy owner may be able to access cash value from the account even if he or she never requires care.
  • Once the annuity contract matures, any remaining cash value may be passed on to named beneficiaries.

Asset-Based Long-Term Care Insurance

  • Offers coverage for long-term care expenses as well as a death benefit.
  • If the policy owner depletes the LTC coverage, the death benefit may be used to continue paying for expenses.
Please work with a qualified financial professional and attorney before making any purchasing decisions to ensure you fully understand all of the benefits, features and limitations of the above-referenced programs and financial products.

 Financial Planning Checklist

  1. Identify all assets (bank accounts, investment accounts, property, household items, real estate).
  2. What is their estimated value?
  3. How is the main residence titled?
  4. Review all insurance policies – what is covered (e.g., cognitive conditions, long-term care), benefits payable, named beneficiaries.
  5. Review all income sources, including Social Security, disability payments and required minimum distributions from retirement accounts.
  6. Research if penalty-free distributions are allowed from qualified retirement accounts.
  7. Consider government resources, such as Medicare, Medicaid, Social Security and veteran's benefits.
  8. Consider what tax deductions and/or credits the patient or caregiver may be able to claim.
  9. Seek out free or low-cost community resources for meals, transportation, respite and adult daycare.
  10. Consider how personal property and work-related benefits can be utilized, such as a flexible spending account, family, and Medical unpaid leave or paid time-off.
  11. Who will manage the patient’s money and tax returns?
  12. Consult with experienced financial and legal advisors.
“Knowing intentions about care, living arrangements and desire to protect income for other family members will better prepare you and a financial professional to design an effective plan.”

Final Thoughts

As a final consideration, it’s worth mentioning the financial plight of a family caregiver for a person with Alzheimer’s or other type of dementia. While it is recognized that most family caregivers are not compensated for this role, what is less evident is that they spend an average of $5,155 a year of their own money toward this aid — which  can put their own financial security at risk.7

Retirement planning is difficult enough, but planning for the possibility of cognitive impairment adds a whole new dimension to the issue. It’s a good idea to work with a trusted financial advisor and attorney to develop a comprehensive plan to help protect your financial security and that of a spouse and other family members.