Start the new year right by reviewing and revamping your financial plan.
Instead of hauling out those familiar New Year’s resolutions about eating less and exercising more, how about focusing on something that’s also very good for you in the long run – and even sooner? We’re talking about your financial plan – your fiscal health, if you will. The approach of 2017 is a great time to review your plan and make any necessary revisions. With that in mind, here are 12 suggested resolutions that, if followed, can help ensure that your later years will be financially secure.
You can’t realistically expect to reach a goal without knowing where you’re starting from. Using 12/31/16 as the effective date, update your personal balance sheet (assets versus liabilities, broadly speaking). You should already have (or develop if you don’t) an idea of what you’re going to need to reach important financial goals. If you’re already retired, you also need to know if the income you receive from Social Security, pensions, retirement plan assets or other sources is still going to support your current lifestyle. Either way, you’ve got to have a scorecard. Everything else really proceeds from this, so take the time to bring all these numbers up to date.
How close did you come to what you had planned to spend last year? Where did you go off track, and what can you do about that? Has something fundamental changed in your life that affected your expenses, and is that a one-time item or an ongoing cost? Where can you trim expenses? Although some budget items are fixed, a sharp pencil can produce significant savings on other costs. Some businesses engage in a process called zero-based budgeting in which every anticipated expense must be justified again every year (at the personal level, this approach is sometimes called zero-sum budgeting). In other words, the $2,500 you spent last year on travel would have nothing to do with what you budget for travel this year. Instead, you start with what you realistically expect to have as income, then assign those dollars to your various expense categories, while also maintaining flexibility to account for cost areas such as healthcare that can’t be pinned down precisely.
Account titling often occurs haphazardly – an individual opens a bank or brokerage account, meets Mr. or Miss Right, they live together or get married and … down the line there’s a problem. If one partner dies and that bank or brokerage account is still titled only in the original holder’s name, those assets can’t be readily accessed by the survivor. The solution may be as straightforward as changing to joint accounts, but it’s not always that simple. In fact, titling has implications across a wide range of estate planning issues, as well as other situations such as Medicaid eligibility and borrowing power, to mention just a few. Account titling is more than just using the right form; it can also be a tool for estate planning. Review your account titling and determine if that’s still the arrangement you want.
If you don’t correctly document and update your beneficiary designations, who gets what may be determined not according to your wishes, but by federal or state law, or by the default plan document used in your retirement accounts. When did you last update your beneficiary designations? Has something changed in your life (divorce, remarriage, births, deaths, state of residence) that necessitates changing your beneficiaries? You should update your beneficiaries on anything that affects your heirs (wills, life insurance, annuities, IRAs, 401(k)s, qualified plans … the list goes on). If you’ve designated a trust as a beneficiary, has anything changed in the tax laws regarding trusts that could affect your heirs? Have you provided for the possibility that your primary beneficiary may die before you? Have you provided for the simultaneous death of you and your spouse? You need a good estate planner to walk you through the various scenarios.
Everyone should have a certain amount of their assets – six or more months of living expenses is a common rule of thumb – set aside in cash accounts that can be quickly and easily accessed. The cash portions of your brokerage and/or retirement accounts serve a different purpose and shouldn’t be counted as emergency reserves. Think about where your cash reserves are located. Keep in mind that only banks that are members of the Federal Deposit Insurance Corp. can offer FDIC coverage, and only up to a maximum of $250,000 per accountholder. For example, if you have CDs worth $200,000 and an IRA with $200,000 in assets in the same bank, only $250,000 of that $400,000 total is covered by the FDIC. There are some complexities – and opportunities – within the FDIC rules, so be sure you understand them completely.
The ups and downs of the markets will affect your asset allocation over time. Appreciation in one asset class or underperformance in another can leave your portfolio with an asset allocation and risk profile that differs from what you originally intended. It’s important to revisit both your current and ideal asset allocation at least annually and rebalance as needed (Tip: Instead of selling appreciated securities, consider rebalancing with new contributions to help avoid capital gains taxes). This also gives you an opportunity to determine if you are comfortable with the current level of risk in your portfolio. Risk tolerance isn’t static – it changes based on your net worth, age, income needs, financial goals and various other considerations. The most recent recession has made many investors more risk-averse. That’s certainly understandable, but it may be that you need to – very carefully – take on slightly more risk to keep pace with your goals. You want to make informed decisions here. Review your holdings and your overall asset allocation with your financial advisor and make whatever adjustments are indicated.
Asset allocation does not guarantee a profit nor protect against loss. The process of rebalancing may result in tax consequences.
Most retirees have several sources of income such as Social Security, pension(s), retirement portfolios, rental properties, notes receivable, inheritances, etc. Every individual picture is different. Think about how secure each source is. Can you really count on that inheritance, are there likely to be vacancies in your properties that would interrupt the cash flow, are the notes receivable backed up by collateral? The point is to know which income sources are reliable and which are less certain, and how much of your total income each category represents. If too much of your retirement income is from sources you consider less than solid, it may be time to reposition your assets.
If you’re not yet retired, you need to go online and establish an account with the Social Security Administration – the SSA isn’t going to be sending individual statements of accrued benefits in the mail anymore. Review your statement, and be sure all your earnings over the years have been recorded. Use the SSA’s online calculator to compute your benefits at various retirement ages (it’s generally best to wait as long as possible to begin collecting). Revise your spousal plan if indicated – this won’t apply to everyone.
Think strategically about your contributions – donate low-basis stocks rather than cash, for example. Consider establishing a Donor-Advised Fund, which enables you to take an upfront deduction next year for contributions made over the next several years – and provides other benefits. Give, but do so with an eye toward reducing your tax liability.
Many investors have delayed their retirement plans for various reasons. The important thing is to respond and determine – promptly and realistically – what changes might be needed given your current lifestyle and market environment. In evaluating the current state of your plan, don’t fixate solely on a number – “We’ll be fine when our retirement portfolio is worth $X” – that just isn’t the way retirement works anymore, if it ever did. You need to drill down into what types of assets you have, what your cash flow situation is and is going to be, what your contingency plans are, what rate of return you’re assuming, what inflation rate you’re assuming, how long you’re planning for, and all the other important details that go into achieving a successful retirement. The truth is that retirement has a lot of moving parts that must be monitored and managed on an ongoing basis.
By now you should have a good idea of where you stand overall, what your cash flow situation is (including whether you’re saving enough), what your retirement income picture looks like, and where the shortfalls or other challenges are. Do you need to adjust your contributions to your IRA or other retirement plans? Do you need to adjust your tax withholding? If you’re due for a raise, how about channeling the extra money into a retirement account? Are you taking full advantage of your employer’s retirement plan options, particularly any contribution match program? Regardless of whether you’re years away from retirement or fairly close, the effects of compounding can be very significant – if you take advantage of them. Go after any problems areas – or opportunities – systematically and promptly.
Your advisor can help you with specialized tools, with impartiality, and with the experience earned by dealing with many market cycles and many different client situations. It’s vital that you communicate fully with your advisor, telling him or her not only what’s happening in your life today but what’s likely to happen or might happen in the future. Are you going to move, change jobs, send kids to college, face the possibility of significant medical expenses? Advisors can’t help you manage what they don’t know, so err on the side of over-communicating. Establish a regular schedule to get together and review your portfolio, your financial and retirement plans, and what’s happening in your life.
Since we all know that many New Year’s resolutions don’t survive that long, add one more to make this a baker’s dozen. Resolve to really follow through on these – and give yourself permission to spend a day lazing around watching movies and eating ice cream when you’re done! Just one day, though.
Learn more about the Federal Open Market Committee’s decision to increase the federal funds target rate.
At their December 14 meeting, the Federal Open Market Committee raised the federal funds target rate to between 0.50% and 0.75%. The 25 basis point increase was widely expected by financial market participants. Senior Federal Reserve officials revised their projections for future rate increases. There’s still a wide range of opinion, but the median forecast for the number of rate hikes in 2017 edged up to three (versus two in September). Raymond James’ Chief Economist Scott Brown cautions investors that the dots in the dot plot are not a plan. They are but an expectation. Actual Fed policy moves will depend on the economic data, with a focus on the job market and the inflation outlook.
After extraordinary monetary stimulus, many view the fact that rates are headed higher, albeit gradually, as a sign of the Fed’s confidence in the job market, the pace of inflation and the “remarkably resilient economy,” which Fed Chair Janet Yellen acknowledged in Wednesday’s press conference. The Federal Reserve’s move appears to be largely factored into the financial markets. And domestic equity markets seem agreeable to the idea. For now, the equity markets are on an upward path with the Dow Jones Industrial Average within reach of an all-new high of 20,000. Speculation has it that scaling back regulation and expansionary fiscal policy could drive earnings growth. Yields on long-term Treasuries moved up and the dollar strengthened. Oil is also showing signs of strength.
The vote on Wednesday was the first time the Fed chose to raise rates this year and only the second since 2006. Brown maintains that investors shouldn’t see a great deal of change after this rate hike either. Deposit rates generally lag behind the Fed’s changes. Of course, longer-term rates, such as mortgages, should move up but Brown expects the rise in bond yields to be checked by low long-term rates abroad. Bond investors should be reminded that while rate increases do have an inverse relationship with bond prices, the reality is much more nuanced. Long-term investors recognize that carefully selected fixed income instruments are a valuable component of a diverse portfolio, providing capital preservation and income in any rate environment.
With the uncertainty about rates and the election cleared, investors may shift their focus to the outlook for 2017, which is likely to include additional fiscal easing. Chief Investment Strategist Jeff Saut remains bullish (his models suggest domestic indices will climb higher into late January or early February).
Raymond James will continue monitoring factors that could influence the markets, particularly paying attention to future fiscal policy, proposed legislation and tax changes, the strength of the U.S. dollar, earnings growth, global economic growth and geopolitical news. In the meantime, please contact your advisor if you have any questions.
Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. Past performance is not an indication of future results and there is no assurance that any of the forecasts mentioned will occur. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Asset allocation and diversification do not guarantee a profit nor protect against a loss. Material prepared by Raymond James.
Relax and recharge on your next getaway by taking a break from technology.
The value of getting away from the work routine is apparent to every leisure time and mental health expert who studies the issue. Overextending yourself to stay connected takes a real toll mentally, physically and financially. Individuals benefit greatly when they take time to recharge, refocus and replenish mind, body and spirit by periodically letting go of everyday professional responsibilities.
Yet, in a country where people tend to define their identities by their job titles, where toiling away for long hours is seen as a measure of true worth – and where there exists a palpable fear that someone might slip into a temporarily vacated position – less than half take true vacations. Even among that number, many are reluctant to sever the technological umbilical cord to their workplace. It’s all too common to see so-called vacationers on the beach, in mountain cabins or on a cruise staring intently at smartphones, laptops or tablets instead of the vistas before them.
You know the feeling. You hear a buzz or a ding and you automatically reach for your phone or tablet. It’s almost Pavlovian, this urge to check the alert as soon as you become aware of it. For many, it’s the new norm. But it doesn’t have to be. Those digital distractions may have you missing out on something more important: work-life balance.
While pulling the plug on our digital addiction may not be easy, it will likely be worth the effort, especially when you’re on vacation. Disconnecting, thoughtfully, gives you back more quality time for yourself and your family and allows you to mentally and spiritually recharge. And do so – this is key – without those nagging thoughts that something desperately requires your attention back home.
Cut the Cord
Commit to no (OK, maybe limited) technology on your trip. Research and plan important details ahead like day trips, vehicle rentals, accommodations, and restaurants so you don’t feel you need a technological lifeline.
Get off the grid in remote locations, where cell towers are few and internet connections spotty. National parks in the American and Canadian West (not to mention remote parts of the planet) have wireless dead spots. You will be unplugged – naturally. Just make sure everyone knows you intend to stay that way.
The average American spends more than half of their waking life staring at a screen.
Delegate a Proxy
Tag one trusted person with your vacation information to let you know if there is a real emergency back home. At work, delegate time-sensitive matters to someone before you leave.
Work, Then Play
Many who don’t take vacations (or won’t unplug while away from home) fear the volume of work that will greet them upon return. Finish known projects ahead of time and delegate others. Let your vacation be an actual vacation.
Use Technology for Good
Since you’ll be unavailable, use technology to let everyone know. Turn on your phone messaging service and email auto reply. Don’t even think about peeking while you’re in vacation mode.
Do not answer queries – not one; unless, of course, it is a true emergency. Reinforce the idea that “unavailable” means unavailable. Even as you’re learning what it means to be “out of touch,” ensure that your co-workers understand it, too.
Nor post on Facebook, Instagram or whichever platform you habitually use. Put them all on lockdown. Become “antisocial” at least in terms of social media. FOMO, fear of missing out, only arises if you’re watching from the sidelines. Don’t.
Step Back in Time
If constant communication is such a part of you that you can’t sleep, opt for a real camera for picture taking (ditch the cellphone) and surprise friends and family by sending some postcards the old-fashioned way (with real postage stamps).
Prepare for Re-Entry
Even if you’ve had a truly refreshing and relaxing vacation, it will end at some point. In a quiet moment, perhaps at the airport or on the plane, take an hour or two to check emails, keeping only those you need to take action on. It may help to know what you’re facing when you head back to everyday life.
Have Good Intentions
But know your limitations. If you can’t go cold turkey on tech for some reason (e.g., you are a key player, an entrepreneur or have other responsibilities that you believe simply won’t allow you to seriously unplug), do your best to let clients, employees and others know of your intention to unplug on vacation. Should something need your attention, allow yourself to check in once a day, but attempt to keep it to that.
November 9, 2016
So now we know. After a seemingly unending election cycle, there will be a new president and some new faces in Congress. But the question remains, what could that mean for investors and the markets? Historical data doesn’t offer much guidance. Analysts can look for patterns, but the data can be sliced and diced in myriad ways. What we do know is that the markets don’t like uncertainty. Global markets have experienced losses overnight in response to the unexpected results and U.S. stock markets are poised to open lower this morning. Generally, it is difficult to find meaningful correlations between parties in power and stock market performance over time, but it is possible that we could see some additional volatility in the coming days.
Here’s where we stand now that the election is over:
- The U.S. economy appears poised for continued moderate growth.
- Consumer balance sheets are strong. Inflation and interest rates are on a gradual upward path.
- The federal debt is now equal to about 80% of the gross domestic product (GDP), which means the federal government has promised far more than it can pay.
- This election is a non-event for global oil market fundamentals. There will be some oil-related regulatory decisions with local impact – for example, pipeline permits and offshore drilling approvals – but in general, what happens in Washington is irrelevant for oil supply, demand and therefore prices.
- Investors should adhere to a disciplined, balanced approach in order to participate in any upside, while feeling confident that their diversified portfolio can weather any potential downside.
- The election results do not justify drastic action for long-term investors. Our economy is on a steady path to growth and remains one of the most dynamic in the world.
- Short-term volatility could be a buying opportunity for investors poised to buy fundamentally sound companies at a potential discount.
- As always, we caution investors to separate emotion from their financial decisions.
An election of this magnitude certainly warranted your attention. It was probably hard to ignore. But, it’s important to remember that even major elections don’t often influence the markets – one way or the other – over the long term. Time should prove that disciplined investors who stay the course are likely to be the real winners.
We will continue monitoring any legislative changes or economic shifts that could affect your financial plan. In the meantime, remember that you should review your portfolio in light of your goals or any major life changes – not the current resident of the White House.