was successfully added to your cart.

Category

2016

Financially Empowering Your Adult Children

By | 2016, Money Moxie, Newsletter | No Comments

With life expectancy increasing each year, saving for retirement is becoming more important. You’ve worked hard your entire life, sacrificed to take care of others, and now, as you’re nearing retirement or are in retirement, it’s your time to live out your retirement dreams!

Sounds great, right? But then you realize the amount you’ve planned to live on each month is not enough because you are helping your adult child out each month financially. You could be helping them out with their mortgage, car loan, student loan, or the emergencies that come up each month; and you realize your retirement dreams will either have to wait or be downsized.

According to Consumer Credit, 31 percent of parents financially support an adult child on a monthly basis.1 If you find yourself in this situation, it’s time to set yourself free of the financial burden and empower your children to stand on their own feet.

Here are some ideas to empower your child:

Set boundaries
Let your child know you love and support them and want them to be able to take care of themselves without relying on you.

Have a candid conversation about your retirement plans and how your independence is impacted because of the money required to support them.

Explain that if something major does come up, you will be there for them. Define what those issues are and are not. For instance, compare medical emergencies to their kids’ need for new clothes. One you cannot plan for and the other you can.

For more information, the book, Boundaries: When to Say Yes, How to Say No to Take Control of Your Life by Henry Cloud is a great resource.

Create a game plan
Whether your adult child has just graduated from college or has a family of their own, it is critical to come up with a plan that will enable you to live your retirement dreams and allow your child to achieve financial independence.
Create a timeline long enough that your child will be able to get their finances under control.

Help them create a budget that will enable them to live on their current income. If expenses are higher than take-home pay, sit down and work through it by looking at their needs versus wants.

Budgeting is a great way to know how much money can be spent on items such as groceries, gas, clothing, etc. Once money is used up for the month, they will have to wait until the next month to purchase certain items.

Use personal growing experiences
Transparency can demonstrate to your child where you are financially and why it is important for your child to prosper without relying on you.

Use examples from your past where you wish you would have made better financial choices. Be sure to include what you learned and how the experience changed you. Your children will see that they too can make it out of a tough financial situation.

Financial conversations can be difficult. Yet, they are crucial to both your financial freedom and your child’s financial success!

1. http://www.consumercredit.com/financial-education/infographics/the-cost-of-supporting-adult-children-or-elders.aspx

Tags: , ,

The Family Bank

By | 2016, Money Moxie, Newsletter | No Comments

Many clients have wondered how to give money to adult children without creating dependence. Financial dependence can be an “addiction that is as serious as dependence on alcohol or drugs.”

This becomes even more problematic when you start looking to give assets to grandchildren and successive generations. One simple yet sophisticated tool to create a financial pool that can be self-perpetuating is a family bank.

The main purpose of the family bank is to use assets to improve the human and intellectual capital of each successive generation.

Rather than just gifting assets away, you create a “bank” where the children or grandchildren can apply for a loan through a formal process. There is a board of trustees, formed of family members, that reviews the application and approves or denies the loan. The loan is then repaid over time at an interest rate that is slightly lower than the prevailing interest rates. The repayment of the loan replenishes the family bank for future family members to use.

The benefit of using a family bank is that it promotes a sense of accountability as the recipient has to first prove the merits of their request and second return the capital based on the returns they receive from their endeavors.

Frequently, family banks are used to help pay for college, provide mortgages, or provide seed capital for a start-up business.
Again, the goal should be to improve the human and intellectual capital of each family member. It should be more than just a son asking his mom for $20. It should not be a gift that has no purpose and no expectation of repayment.

To set up a family bank you can use a legal document like a trust or a Limited Liability Company (LLC) to dictate how the family bank is operated.

As you work with an attorney to create these documents, be sure to include a mission statement. The purpose of the mission statement is to explain your intent and goals to help guide future generations in the administration of the family bank.

Once the governing documents are created, you can open an investment account that is titled in the name of the trust, LLC, or family limited partnership. It can be invested according to the restrictions in the documents.

If it is planned and implemented correctly, a family bank “can be a powerful mechanism to put wealth to good use for the benefit and development of the family.” If you have questions about how to set up a family bank, please contact one of our private wealth managers.

*Smedley Financial and its employees do not provide tax advice; therefore it is important to coordinate with your tax advisor regarding your specific situation.

Tags: , , , , ,

Election Impact

By | 2016, Money Moxie, Newsletter | No Comments

President-elect Donald Trump made a lot of promises to Americans on the campaign trail. Yes, he proposed building a wall on the Mexican border and blocking certain groups from immigrating to the United States, but none were more important to voters than how the candidate would impact their money.

Trump believes his economic plans will double U.S. growth, which is currently at 2.9 percent. He plans to focus on cutting taxes for the rich, increasing government spending, and negotiate better trade deals with foreign countries. If necessary, he has even suggested imposing tariffs on imports of goods to the United States.

Republicans will control the Senate and House of Representatives, so the next president may find it easier to get things done, especially at first. Here are a few of the promises made during Trump’s campaign.

Jobs

The foundation of the United States is firm and its economy is strengthening. Unemployment numbers cannot get much better than current levels. Wage growth may be a more valuable measure of economic health. Infrastructure spending of $500 billion may help by boosting productivity of Americans in the long-term.

Education and Family

  • Require paid maternity leave for 6 weeks.
  • Make child care expenses tax deductible.
  • Allow “dependent care savings accounts.”

Healthcare

    When it comes to healthcare, any president faces an aging population and rising costs of new medical technology. Trump plans to repeal the Affordable Care Act and replace it with something different.
  • Make health insurance premiums tax deductible.
  • Encourage health insurance to be sold across state lines (something already allowed by federal law).
  • Allow imports of foreign drugs where prices are cheaper.

Taxes

    Trump has proposed many changes to the tax code. The greatest impact will be on the top one percent of earners who are estimated to save about $100,000 in taxes every year.
  • Increase the standard deduction to $30,000 for joint filers from its current level of $12,600.
  • Eliminate the personal exemption of $4,050 per dependent that parents use.
  • Eliminate estate tax.
  • Eliminate alternative minimum tax.
  • Lower corporate tax to 15 percent.

Investments

In the coming months very little should change. Increased government spending on infrastructure combined with tax cuts roughly the same size could boost growth in the coming year or two. It would also increase the national debt significantly. This could depress the value of existing bonds as interest rates rise on U.S. debt.

If we raise tariffs and other countries do the same then global trade could decrease and the cost of goods could rise. Less trade would also decrease profitability for U.S. exporters. This could even cost workers their jobs.

Our advice? Vote with your ballot, not your portfolio. Think of all the missed opportunity if one withdrew whenever there was uncertainty. Whether your favored candidates were elected or not, we want to reinforce the importance of sticking to your long-term plans.

Tags: , , , , , , ,

The Promise of Prosperity

By | 2016, Money Moxie, Newsletter, Viewpoint | No Comments

Americans want a strong country and growing economy. That much we agree on. Of all the promises we heard this election year, none may be more difficult to keep than the commitment to boost growth up to levels last seen decades ago.

Since 2009, the U.S. economy has increased at a rate of 2 percent. Many countries envy that number, but Americans expect more. Our increases were twice as big 20 years ago.

In all of human history I know of no other time with such miraculous growth as post World War II. We have come to accept boom times as normal.

From 1948 to 1973 the average economic output of an American worker doubled. That productivity trend continued until the early 2000s when it suddenly slowed.

prosperity

Consumers Carried the Economy
The “Great Recession” of 2008-2009 complicated things further by drastically altering Americans’ perception of stability and diminishing their tolerance for government debt.

This led to tighter limits on government spending, which has been a huge drag on economic growth. The federal government has cut spending 4 of the last 5 years. This is good short-term because it reduces debt. The long-term impact is less certain.

How much can our economy grow when the government is cutting spending? Who picks up the slack? Businesses have been hesitant to reinvest large amounts in long-term projects. So the responsibility for economic growth has fallen on the shoulders of the U.S. consumer.

Politicians Turned to Spending
Today, politicians and economists are calling for stimulus. What form this takes is yet to be seen, but the popularity of such an idea is rising. Both presidential candidates announced plans to increase government spending to improve infrastructure and stimulate an atmosphere of growth. Donald Trump plans to increase spending by $500 billion. (Hillary Clinton proposed bumping it up by $275 billion.)

Will Stimulus Work?
The answer for decades following the Great Depression was “yes.” The theory is that for every dollar the government spends it can boost the economy by several dollars—creating more wealth than was spent as the dollars circulate through the country.

It fell out of favor in the 1980s and 1990s. Now it’s back.

If stimulus is going to work then it should be concentrated on “fiscal multipliers.” These are the best places and they are often described as levers that can be pulled to actually create growth in the economy.

For stimulus to work it should be focused on the most effective area: infrastructure. Why?
1. Immediate creation of jobs
2. Jump in demand for construction materials
3. Greater efficiency for the entire economy
4. Investment in the future of America

Our bridges, airports, and freeway systems are in need of repair. Our electric grid is outdated and vulnerable as well. Technological advancements have redefined living. It may be time to apply some innovative American ingenuity to our infrastructure.

If there ever was a time that Americans could benefit from this stimulus it would be following a lack of spending—a situation we now find ourselves in.

 

*Research by SFS. Data from the Federal Reserve Bank of St Louis. Past performance does not guarantee future results.

Tags: , , , ,

The Attitude of Gratitude

By | 2016, Executive Message, Money Moxie | No Comments

Season’s Greetings Dear Friends and Financial Partners,

Recently, I heard a man talk about being cut off in traffic. Rather than complaining, the man surprised me by saying that less than one percent of the world’s population will own or even be in a car. He had the attitude of gratitude. Now, I don’t know how to test the veracity of the man’s statistic, but his point was well received by me.

In the United States of America, so many of us are blessed to live like kings and queens. A little over one hundred years ago, our forefathers did not enjoy the conveniences of indoor plumbing, hot water on demand, carpeting, microwave ovens, refrigeration or air conditioning. These modern-day conveniences are quite remarkable and only made possible by the hard work and sacrifice of those who have gone before.

Perhaps you are familiar with this phrase by the English mathematician Sir Isaac Newton some 340 years ago in 1676: “If I have seen further than others, it is by standing upon the shoulders of giants.” Sir Isaac Newton was just 34 years old when he uttered those words.

What Sir Isaac Newton meant—while pondering his life as a physicist, astronomer, alchemist, inventor, natural philosopher, and mathematician—was that by using the understanding gained by major thinkers, who had gone before, he was able to make the intellectual progress that he did.

In a similar way, each generation of Americans has sought to make the lives of their children and grandchildren better than their own. Today, we are the beneficiaries of those who have gone before. (FYI: From Latin, the prefix, “bene,” means well or good.)

We have all heard of someone who has survived a horrific disaster, such as an earthquake, flood, major automobile accident, or household fire. It is not uncommon to hear him or her say, “Thankfully, I have my family and what else matters?”

Everything that is ultimately important comes back to our family and friends. It all comes down to our personal relationships with each other. At Smedley Financial, you become not only our friends, but more like family. We are so grateful for you.

Please have a safe, wonderful Thanksgiving and Christmas, and a Happy and Prosperous New Year!

Bullish Best Wishes,

Roger M. Smedley, CFP®
President

Tags: , ,

Subzero Rates Freeze Growth and Hold Back Your Portfolio

By | 2016, Money Moxie, Newsletter | No Comments

Crazy things are happening in the world! There is a chronic shortage of demand for goods in global economies. For years, governments have been fighting back—fighting back by dropping interest rates. Recently, rates overseas have fallen to subzero levels.

Negative rates—where lenders pay the borrowers—seemed unimaginable and foolish a few years ago. Now, they are beginning to feel like the new normal. How can individuals and countries flourish in such an environment? They can’t!

What is it like to live in a subzero-rate world?

1. The subzero world is so crazy that global interest rates are at their lowest level in 500 years of recorded history.1

2. The subzero world is so crazy that if you want the German government to borrow your money you have to pay! Hold that bond for ten years until it matures and the government promises to pay you back less than it borrowed.

3. The subzero world is so crazy that many homeowners in Denmark are no longer paying interest to banks for their mortgages. The banks are paying interest to them!

Hans Peter Christensen, a recipient of a check from his mortgage company in Denmark, said this after receiving his first payment: “My parents said I should frame it, to prove to coming generations that this ever happened.”2

The biggest borrowers in the world include the United States, United Kingdom, Germany, and Japan. The figure below shows how low these rates have become.

rates

Negative Rates Matter to Americans.
Low rates overseas make positive rates in the United States more attractive for investors, which pushes U.S. rates down as well. This makes it less expensive for us to take out a mortgage or a car loan. It creates opportunities for businesses to borrow and grow. On the surface, these low rates seem like a benefit.

Low Rates May Have Helped. Now They Hurt.
During the recession of 2008-2009, there was an economic emergency that required extraordinary effort to infuse calm and confidence.

The emergency is over. The economy should come off life support. The reluctance to move forward is now harming the very confidence it was meant to create.

Artificially low rates are also destroying natural incentives to borrow and lend.

Consumers and businesses do better when banks are healthy, but banks are not healthy. There is little profit to be made and a low incentive to offer loans when interest rates are so low. Why take the risk when the potential reward is so low?

Subzero and near-zero rates also encourage transactions that would not take place in a rational world. For example, many corporations now borrow just to pay dividends. Of the 500 largest companies in the country, 44 have paid more in dividends in the last year than their respective net income.3 This financial engineering helps investors now, but does nothing to strengthen a company or its employees.

End the Pessimism.
Despite all the positives in the economy, consumer confidence is low. Investor sentiment is terrible. Most Americans believe we still have not recovered from a recession that officially ended over six years ago.

Look around. Americans are in a good financial place. Most people who want to work have a job. Unemployment is at just 4.9 percent. In Salt Lake City, where SFS is located, that rate is just 3.6 percent.4

then-and-now

A Day of Reckoning Will Come.
The next financial scare could come after fantastic economic growth, leading to inflation and central banks would have to rapidly raise rates—shocking the economy. Or the storm could blow in from the opposite direction: economic slowdown.

If the Fed and other central banks don’t normalize rates now then there will be fewer options in the future to help keep the world economies going in a real emergency.

It’s Time to Begin Moving Back to Normal.
Central banks around the world should stop experimenting. The United States is strong enough to handle a more normal business environment. The Fed can do that by slowly bringing U.S. interest rates up.

The U.S. economy is not perfect, but it is good enough to handle borrowing one quarter of one percent higher. It could even help by sending a signal of confidence to the world—confident workers, businesses, and consumers.

Higher rates may cause the U.S. dollar to strengthen, and that could hurt American businesses that export. However, the United States has the best economy in the world and we are growing faster than any other developed country. Keeping our dollar artificially low may not be a good idea.

We can allow the dollar to rise a little as we bump up interest rates from their near-zero levels. This message of confidence may help increase demand worldwide—giving investors something to cheer about as well.

 

1. Bill Gross, “Negative Interest Rates a Supernova,” Janus Funds, June 2, 2016.
2. Charles Duxbury and David Gauthier-Villars, “Negative Rates Around the World,” Wall Street Journal, April 14, 2016.
3. Mike Bird, Vipal Mongaand, Aaron Kuriloff, “Dividends Eat Up Bigger Slice of Company Profits,” Wall Street Journal, August 18, 2016.
4. Federal Reserve Bank of St Louis.

Research by SFS. One cannot invest directly in an index. Diversification does not guarantee positive results. Past performance does not guarantee future results. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based upon changing conditions. This is not a recommendation to purchase any type of investment.

Tags: , , , ,

Stocks Predict Elections

By | 2016, Money Moxie, Newsletter | No Comments

Yes, stocks can help predict who will be the next President of the United States. While this particular election season has been filled with an unusual amount of conflict, the stock market has been surprisingly calm.

What does this calm predict? Very little, so far. Direction of the market in the final 90 days is what matters.

election-prediction

In 19 of the 22 presidential elections the change in the stock market in the 90 days preceding the election has correctly revealed the winner.

When the market rises during these 90 days then the incumbent’s political party wins. When the market falls then the opposite occurs.

In August, the market was flat, which means that this election may be closer than some polls currently predict. Of course, there are no guarantees.

Tags: , , , , , ,

3 Medicare Minefields

By | 2016, Money Moxie, Newsletter | No Comments

Simple missteps when choosing your Medicare and Supplemental Plans can cost you greatly if you are not careful. Here are a few to watch out for:

1. Prescription drugs
When it comes to paying for your prescriptions, all plans are not equal. In fact, plans can change the lineup of drugs they cover each year.

According to Kaiser Family Foundation, your costs for a prescription may increase ten times between formulary and non formulary drugs. Screen the plans to see how much each insurer will pay for the drugs you are taking.

You can visit Medicare.gov (under drug coverage, find health & drug plans) to search for plans that offer coverage for the drugs you take. Make a point to compare your drug plan with others each year to assure you are getting the best bang for your buck.

2. Medigap coverage
Getting the right plan for your specific needs can be tricky. If you choose Original Medicare Part A, you need a Medigap or supplemental policy – Part B to pick up where Medicare coverage leaves off. You also need to choose a separate Part D – prescription drug plan.

You can simplify by choosing a Medicare Advantage Plan – Part C which combines all of the coverages together and handles all claim processing through one carrier.

Some Advantage Plans still require you to pick up a separate policy for prescription drug coverage. In 2016, 69 percent of enrollees went with Original Medicare Plans while 31 percent chose Medicare Advantage Plans.

Medicare Advantage Plans generally require you to use a specific list of doctors and medical facilities through either a Health Maintenance Organization (HMO) or Preferred Provider Organization (PPO).

When choosing an Advantage Plan check to make sure your favorite doctors and the facilities you most often visit are covered on the list of providers.

3. Important deadlines
Harsh financial penalties can be avoided by knowing your deadline dates. Failure to sign up during the enrollment period could mean your Part B premium may be 10 percent higher – for life – for each full year you are late signing up for Medicare Part B.

If you are 65 or older, still an active employee and covered under your employer’s health insurance plan you are not required to sign up at 65 unless your company has 20 or fewer employees. If this is the case, you may be required to sign up for Medicare Part A and Medicare Part B, which will become the primary payer when you have a claim and your employer’s plan will become the secondary payer.

Once the clock starts ticking, there is only a seven-month window to avoid permanent penalties. Call our office if you have questions regarding the deadlines or need more information about the requirements.

Tags: , , , , ,

4 Open Enrollment Facts Health Savings Accounts

By | 2016, Money Moxie | No Comments

#1: 72 Percent of Employers Offered This Year

Health Savings Accounts have gained in popularity among employers who use them with high deductible insurance plans – shifting medical expenses to employees. HSAs allow employees to pay for medical expenses with pre-tax dollars.

#2: No Use It or Lose It Rules

Money stays in the HSA and rolls over year-after-year until you need it. Medical expenses can be reimbursed at any time as long as the HSA existed at the time of the expense and you retained receipts.

#3: Extended Contribution Time-Frame

Like an IRA, you can contribute to your HSA up until April 15 for the prior year. For 2016 the limit is $3,350 for individuals or $6,750 for families. If you are 55 or older you can save an additional $1,000.

#4: Cover Medical Expenses in Retirement

At retirement your HSA continues to grow
and you can access your money tax-free to cover medical expenses. The rising costs of healthcare make the HSA a valuable retirement asset.

Tags: , ,

Tax Harvest

By | 2016, Money Moxie | No Comments

Tax Harvest

The fall harvest is in full swing and will shortly be coming to an end. This is also a great time of year to do some financial harvesting to help you pay less in taxes.

If you are the owner of a non-retirement account, you could stand to benefit from a concept we call “tax-loss harvesting.”

If you have a well-diversified portfolio, you in essence have different “crops” inside your account. Each year one crop may do better than another. You can use the proceeds from the well performing crop to offset the losses in the poorly performing crop. In investing we use the losses from the poorly performing crop to offset the taxes that you would normally pay on the crop that had a bountiful harvest.

Without getting too technical, here is an explanation of how taxation works in non-retirement accounts. Keep in mind this doesn’t apply to retirement accounts like an IRA or a 401(k), which are only taxed on the amounts withdrawn.

Each year in non-retirement accounts you are taxed on dividends and interest, just like you are taxed on interest you earn in the bank. There may also be a capital gain; for example, selling a piece of land for more than you bought it. Capital gains like this are only taxed in the year in which the asset is sold. Where tax-loss harvesting helps is using capital losses in some investments to offset the gains in other investments.

Let’s say you have an investment that made $10,000 this year. First of all, congratulations! If you sell that investment you may pay $1,500 in taxes. However, if you have other investments that have lost $10,000, you can sell those investments to offset the gains in the other investment. This would save you $1,500 in taxes. The proceeds can then be invested in a third investment for future growth.

If you have a bad stock-market year and you only have losses, there is still a silver lining: each year you can still offset your ordinary income by up to $3,000 in losses. If your losses are greater than $3,000 you can carry the losses to the next year, or until you have capital gains that will offset the losses.

There are some limitations imposed by the IRS to prevent people from selling and repurchasing the same investment to realize a gain or loss. If this transaction is done within 30 days it is considered a “wash-sale” and your purchase/tax benefit will be disallowed. You can, however, purchase a separate, unrelated investment to avoid the wash-sale rule. Much of the time, this isn’t necessary as an individual will have enough investments with gains and losses to offset each other.

As the fall harvest comes to a close, be sure to look at your non-retirement accounts to see if there is some harvesting you can do to save yourself on taxes. As always, you can contact one of the friendly representatives at Smedley Financial to see if tax-loss harvesting would benefit you.

Tags: , , ,