Gambling – with Your Retirement?

To encourage better investment behavior, the Nasdaq stock exchange plans to reward investors willing to commit. In 2016, the exchange introduced plans for an “Extended Life Order.” In today’s fast-paced world, how long a commitment does the Nasdaq want for an extended life trade? One second!

Information travels fast in 2017 and the stock market seems to hit highs every week. Nevertheless, I believe it is the patient, long-term investors that should benefit the most.

It’s hard to define long-term perfectly, but it is a lot more than one second–possibly somewhere above 315 million seconds, which is around ten years.

With this in mind, I think it is a good time to consider what kind of investor we want to be and what attributes we need to be successful.

Speculator/Gambler
Investing is different than gambling in many fundamental ways. However, it is still possible for investors to speculate with their savings. A speculator trades often based on short-term events hoping that a price will continue to rise or fall—anticipating a quick exit in a couple months, weeks, days, or less.

Investor
An investor purchases ownership in a company to help it raise money for profitable projects. As an owner, investors may even receive dividends.

Attributes for Success
To help determine what kind of investor you are, ask yourself, “How much would you accept in a year instead of $1,000 right now?”

Let’s hope your answer isn’t too far off one thousand dollars. The greater your number, the less financial patience you have—and patience is crucial to gaining wealth. It impacts spending, savings, and investing.

Combine patience with a little courage and then an investor truly has a chance at participating in the long-term opportunities that the markets have to offer.

Warren Buffett is one of the wealthiest individuals in the world. He built his fortune by being greedy when others were fearful and fearful when others were greedy. He purchased stocks in some of the most frightening times like during the Great Recession of 2008-2009.

Is Buffett a speculator or an investor? He certainly has patience and courage. When asked about his ideal time frame for holding an investment, Warren Buffett replied: “Forever!” Now that is an “extended life” commitment!

 

Sources: “Enhancing Long-Term Liquidity-Nasdaq Introduces the Extended Life Order” Nelson Griggs, Nasdaq.com, August 18, 2016
“Investor or Speculator: Which One Are You?” Jason Zweig, WSJ, December 10, 2016

Research by SFS. The Dow Jones index is often considered to represent the U.S. stock markets. 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.

Department of Labor Benefit to SFS Investors

The full impact of the new Department of Labor (DOL) ruling is hard to determine. But for investors, the positive impact is beginning now. Over the last year the financial industry has been befuddled by the proposed, and now final, ruling.

The goal of the DOL is to simplify the investment process for investors, giving them resources to easily determine costs associated with their investments and the cost of services provided by their financial professional. While the notion to help investors is without question a good one, changes will take months to implement and will not be in full effect until May 2017.

The good news – our investors are benefiting from the changes now. In an effort to level the playing field for all investors, investment companies are working to reduce the costs to use their investments. Low cost shares have been available to institutional investors for years. These low cost shares will now be available in the Smedley Financial managed portfolios.

We are excited about this change as the lower costs are directly reflected in your investment return.

Over the next several months we will be in contact with our investors to explain changes to the investment program and how they will benefit from the new investment platform. Watch for information in your monthly statement regarding the changes in your portfolio(s).

We welcome your questions and feedback and invite you to contact us at 800-748-4788.

Election Impact

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.

Women Should Save 2 Percent More Than Men

In an age where women have an increased influence in the workforce, it doesn’t seem right that women have to save more than men for retirement. However, that is what the research from Hewitt Associates suggests.

There are several contributing factors to this need, some inherent and some that can be corrected. An inherent factor for women is a longer lifespan—living an average of three years longer than men after retirement. The extra 2 percent is needed for the additional insurance cost for a longer life. The lower average yearly salary for women ($57,000) compared to a man’s ($84,000) indicates that a woman should save a higher percentage to match the dollar amount men save. Some correctable factors include: waiting longer to start saving for retirement, investing more conservatively, and not taking advantage of the company match in a 401(k).

Women are able to close the retirement gap by taking a few simple steps.

• Invest early and increase contribution rates. One goal should be to contribute 10-20 percent of gross income into a retirement account. This doesn’t have to be done at once; contributions can be marginally increased each year.

• Ask for advice. Many women feel insecure about managing finances. A wealth management professional can help determine personal risk tolerance and how aggressively to invest money.

• Leave a 401(k) invested. If suspending work due to family reasons, don’t cash out a 401(k)—this avoids taxes and hefty penalties. A 401(k) can be rolled-over into an IRA or professionally managed account.

• Put off retirement for a few years. This may be painful but could mean a great deal down the road. Don’t sacrifice the future for the present.

Women have several challenges that make retirement preparation more difficult. Recognizing these issues and making small changes in their saving and investing habits can have a significant impact.

Worst-Case Planning May Be Your Best Financial Tool

Dear Valued Financial Partners and Friends,

You may profit by learning how we, as wealth managers at Smedley Financial, engage in two different processes on your behalf. Both on the financial planning side and on the investment management side, we strive to turn the tables upside down by asking the tough “What if” questions.

Regarding your financial planning with us, we first look at the positive side of helping you plan your financial future. But then we flip things upside down and strive to plan for worst-case scenarios as well.

What if you needed more money in your emergency fund? Where will the money come from? What if you or your spouse became disabled? What if you or your spouse died prematurely? What if the younger or healthier spouse dies first? Would you or your survivors be financially okay? What if one or both of you lives 10 or 15 years longer than you expect? What if one or both of you have to go to an assisted living facility? Where will the funds come from? What if you die without a will and possibly a trust? What will happen to your estate?

We hope you can see how this type of reverse thinking in your financial planning is not only beneficial, but essential.

Regarding our investment management philosophy, we strive to emulate this same type of reverse thinking. Rather than being persuaded by best investment case scenarios, the Smedley investment management team continually seeks to ask
itself the tough questions. Over the past 34 years, we at Smedley Financial have seen many people make financial mistakes–some serious and some not so serious.

What if high returns, you know, too good to be true, are promised? Many people lose much of their life savings and perhaps their homes because of the promise of high returns. What if you change your mind and want your money back the next day? Can you get your money back without severe penalties? What if something goes wrong in the future with a proposed investment? What if an investment stops performing? What if an investment drops in value? Who is minding your portfolio and continually looking out for your best interest? When someone boldly states how much money he or she made on an investment ask, “How much risk did you take to get that return?” Are you properly diversified and allocated?

Keep in mind the Will Rogers adage, “I am not as concerned about the return on my money as the return of my money.”
As a nationally recognized Wealth Manager, Smedley Financial’s motto is, “Your financial success is our passion!”

Bullish Best Wishes,

Roger M. Smedley, CFP®
President

IRA Rollover versus 401(k)

Money BrainIf you have ever left a 401(k) at a previous job, you are probably wondering what you should do with your money. If you have over a certain amount, many 401(k)s will allow you to leave the money there or you could roll the money over to an IRA. Below is a list of seven questions you should ask yourself to determine where your money should be.

1. Do you want to be the financial advisor on your account?
Do you feel comfortable answering these questions: Am I saving enough? Am I taking the appropriate amount of risk for my age and time horizon? Which investments should I hold? How do I make my money last for all of my retirement? If you already know the answers to those questions and are competent at deciding the asset allocation of your 401(k), then your current 401(k) may be sufficient. If you don’t know the answers to those questions, then you may want to roll out your 401(k) into an IRA at Smedley Financial where we can help answer these important questions.

2. How much do I value regular feedback and personalized advice?
Most 401(k) plans are limited in the advice they can render because of fiduciary liability. If you have ever asked a 401(k) advisor where you should invest your money, you may have received a response like: “Where you feel comfortable.” 401(k)s also can’t handle non-retirement investments, real estate, or life insurance. In addition, 401(k) advisors are typically servicing too many participants to provide personalized advice. Seek out a private wealth manager, like those here at SFS, that can advise you on your whole financial situation and align your investments with your goals and values.

3. Is the investment choice important?
Many 401(k)s offer a limited number of investment choices, typically 10 to 20. They may be lacking the ability to diversify into many other investment options that could boost return or diversify risk. IRAs tend to offer a much broader choice of investment selections. For example, our brokerage account has access to over 3,000 different investments. Review the investment options available and determine if they allow for appropriate diversification and if they have had good investment performance in relation to their benchmarks.

4. Do I understand how to compare fees and expenses?
Thanks to recent laws, 401(k)s are now required to disclose their annual fees, which makes this comparison easier. Compare the fees for the 401(k) and the IRA by looking at the total fee and what services are provided for that fee.

5. Am I between ages 55 and 59½?
For employees that separate service between the ages of 55 and 59½, some 401(k)s allow penalty-free withdrawals. IRAs on the other hand only allow penalty-free withdrawals after the age of 59½. Determine when you may need your 401(k)/IRA money and whether you have other sources that can bridge the gap between retirement at an earlier age and age 59½.

6. Am I concerned about creditor protection?
Both 401(k)s and IRAs generally offer substantial credit protection. 401(k)s are typically excluded entirely from bankruptcy proceedings while IRAs are typically excluded up to a maximum of $1 million. Check with your state to verify any state specific rules.

7. Do I own employer stock in my 401(k) plan?
Before cashing out your company stock in your 401(k), consult with a tax advisor to determine if a tax strategy called Net Unrealized Appreciation could benefit you. Depending on your individual circumstance, the company stock may be taxed at a lower rate. Once company stock is transferred to an IRA, it is treated like the rest of the IRA money and is taxed as ordinary income when it is withdrawn.

Before making these or any important financial decisions, talk to the Wealth Management Consultants at Smedley Financial so they can help you reach your goals.