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Jordan R. Hadfield

Are You Retired and Have a 401(k)? Read This!

By | 2019, Money Moxie, Newsletter | No Comments

As financial advisors, our job is to help clients create wealth. Most people expect us to accomplish this through market investments. Although that does play an important role, advice regarding financial decisions outside of the market can often amount to significant savings and wealth creation. The topic covered here is one that has amounted to significant savings for many of our clients. If you are currently retired or are approaching retirement and have a 401(k), this article is for you.

When talking about financial planning, there are two main phases of life: the accumulation phase (pre-retirement) and the distribution phase (post-retirement). The 401(k) is a fantastic savings vehicle for those in the accumulation phase. If you are currently working, a 401(k) is great! Employers often contribute to this type of account by way of a company match or profit-sharing because the 401(k) annual contribution limit is higher than that of other retirement accounts. Plus, paycheck deductions make saving easy.

If you are already retired, a 401(k) has some weaknesses that you should be aware of. The cost associated with these may be a lot more than you realize.

• When you take a distribution from a 401(k), you do not have the ability to choose which assets you sell. A distribution will require selling from all investments equally. This is a huge disadvantage as you may be forced to sell from the wrong investment at the wrong time. Proper distribution planning requires one to analyze the individual investments and sell those that make sense based on current market conditions and performance expectations. Unfortunately, the 401(k) does not give you this ability.

• If you have Roth 401(k) contributions, you will be forced to take a distribution at age 70.5. This can have large negative consequences to both future tax-free earnings and your ability to pass on wealth tax free. Roth IRA accounts will not force a distribution regardless of age.

• If you are over age 70.5 and donate to 501(c)(3) organizations, you cannot take advantage of a great tax-savings strategy called a Qualified Charitable Distribution (QCD). The tax savings from QCD’s can be thousands of dollars every year. Examples of qualified organizations are churches, universities, humane societies, hospitals, etc.

In many cases, we recommend that clients roll their 401(k)’s into IRA’s at retirement. An IRA is a much better retirement distribution vehicle given its flexibility and its greater selection of investment options. It also does not suffer from the weaknesses mentioned above. 401(k) rollovers are tax-free and easy.

We work hard to ensure our clients make good financial decisions. Often, small changes have a large impact. We have seen investors greatly benefit from a 401(k) rollover. If you have a 401(k) that you can’t contribute to due to separation of service or retirement, we highly recommend you meet with us to discuss if a rollover is in your best interest.

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The Recession Obsession

By | 2019, Money Moxie, Newsletter | No Comments

Over the last 18 months, I have heard more, read more, and been asked more about recession than any other financial topic. Many people were scarred by the great recession of 2008, and fear similar suffering may be coming. I understand the concern, but is this recession obsession helping investors reach their financial goals, or is it inadvertently hurting portfolio returns?

Misbehavior motivated by fear of downturn is far more costly than the downturns themselves, and that includes the great recession of 2008. When it comes to investing, we are truly our own worst enemy.

The economy cycles through phases of growth, peak, recession, and trough. Then it repeats. On average, a recession comes every 5.6 years and lasts 11 months.

Too much of a good thing?
Economic positives often turn into financial imbalances that are so excessive they need to be corrected (tech stocks in 2000, housing in 2008). When balance is restored, business and people should get back to normal and economic growth will turn positive again. This makes recessions, in hindsight, like relatively small speed bumps on the economic highway.

When is our fear of recession damaging?
The recession obsession can cause investors to try to avoid losses by sitting on the sidelines. Nobody knows when the market will drop or how far it will fall. Likewise, the upward bounces catch those sitting out by surprise. That’s why the best days in the market typically follow large pullbacks.

Since 1980, investors that stayed in the market 99.9 percent of the time and missed only the best five days would have missed out on a massive 35 percent! Increase the best days missed to just ten, and returns are cut in half!

What about the best days? Since 1998, six of the ten best days occurred within two weeks of the ten worst days. Thinking you can get one while avoiding the other is not reasonable.

As we enter the 11th year of the current economic expansion, it is helpful to know that some of the strongest market increases have occurred during the late stages of the cycle.

Those who avoid the market under the pretense of protection inadvertently keep themselves from receiving that potential growth. Investors who stay fully invested through entire cycles, including recessions, experience greater growth.

The best advice I can give, for your portfolio and your sanity, is to create a financial plan that works for you. Stick to that plan and don’t worry too much about economic cycles. The financial plans we create for clients account for pullbacks, downturns, and recessions. Although every year in the market won’t be positive, your long-term outlook will be.

(Secret recession tip: After the stock market has dropped significantly, it’s usually better to buy than to sell; think of it as a long-term buying opportunity.)

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2019 Outlook: Patience Will Pay Off

By | 2019, Newsletter | No Comments

“The stock market is a device for transferring money from the impatient to the patient.”

This statement by Warren Buffett is educational and relevant today. When markets move downward, investors become uncomfortable. But during recessionary times, investors may panic. Companies pull back, people lose jobs, and stock declines can become sharp.

The U.S. is now late in that cycle, meaning we are coming closer to the end of a growth period. But if we look at the big picture, how damaging are recessions? How often do they occur? And how should investors handle them?

Since 1950, the average expansion lasted 67 months (5.6 years) and had an average GDP growth of 24 percent. The current expansionary period is one of the longest in history, currently 10 years in length. But it has also had one of the slowest average growth rates and is still far from the largest in total growth. Capital Group believes this has prevented the major imbalances that cause recessions from materializing. However, they do admit that the risk of recession will continue to grow until its inevitable arrival.

The average recession has lasted only 11 months and had a GDP decline of 1.8 percent. The contrast, as you can see in the graph provided, is immense. Yet the fear that those relatively small declines bring is often greater than their positive counterpart. The truth is, opportunities are developing in declining markets, and the strongest rallies are generally found right after a recession.

The general rule is this: Stay invested. Those who deviate from their financial plans are those who Warren Buffett calls “impatient investors.” If you stick with your plan, the odds of success will greatly be in your favor and the money transferring from the impatient will be to you, the patient investor.

Presented by Max McQuiston (American Funds) at the Just for Women conference. Recap by Jordan R. Hadfield.

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Deceitful Guise of Financial Demise

By | 2019, Money Moxie | No Comments

Grace Groner was born in Lake County, Illinois, in 1909. She was orphaned at the age of twelve. Although she lived to be 100 years old, Grace never married or had children. Most of her life was lived in a small one-bedroom cottage. She shopped at rummage sales and never owned a car. She worked her entire career as a secretary, earning a modest income.

When Grace Groner passed away in 2010, she left over $7 million dollars to a foundation established for the benefit of students at Lake Forest College. How did she become so wealthy? She invested in stocks at a young age, reinvested her dividends, and stayed invested so compounding interest could work its magic.

Richard Fuscone was an ambitious man. He received an education at Harvard and the University of Chicago. He then went on to become a vice chairman for Merrill Lynch. He was so successful in the investment industry that he retired at the age of 40 to pursue other interests.
Richard owned two homes, one of which carried a mortgage of $66,000 a month. Richard Fuscone declared bankruptcy in the same year Grace Groner donated millions to charity.
Richard had a top-shelf education and an impressive background in finance. Grace had neither. How is that possible?

The answer is behavioral finance. Financial knowledge does not prevent bad financial decisions. Richard had an expert understanding of how markets and investments work, but behavioral finance is an entirely different animal, one he did not understand.

We, as wealth managers, are often judged by our investment management. However, that is only part of our service. The financial and behavioral advice we offer can make a more significant economic impact than people realize.

We work hard to ensure sound financial decisions are made and protect against bad ones, which are not always obvious and are usually made unknowingly.

We wouldn’t suggest one live like Grace, but we certainly wouldn’t recommend one live like Richard, who might have saved millions with a behavioral financial advisor and some quality advice.

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Market Fear and a New Approach

By | 2019, Money Moxie, Newsletter | No Comments
A sad businessman stands on a red decreasing arrow while another man runs up a green upwards arrow. Corporate ladder. Competition rules. Winners and losers.

The Dow is down 600 points! The S&P falls 7 percent! Five straight days of market decline! Sell! Sell! Sell!

During times of volatility, we see headlines like this on the news, read them on the Internet, and hear them on the radio. But before we buy the fear and sell the stock, let’s take a step back.

The most obvious fact about the stock market is this: Buy low and sell high. This gem of information is simple to understand and promises positive returns. Yet, it is during tough times that investors often forget what they know is best. Instead of buying low and selling high, investors often buy fear and sell stock.

A focus on negative market movement can cause worry, even panic. This leads investors to act irrationally and break the second rule of investing, which is: Don’t let emotion overpower logic.

Times of smooth appreciation are the exception and not the rule. In fact, 2017 was the first year in history that the S&P index closed higher every month. Volatility is the norm. Sometimes markets are up. Sometimes they’re down. Historically, the long-term trend, is up.

The average annualized return on the S&P 500 since its beginning in 1928 is approximately 10 percent. This means that those who stayed invested in diversified portfolios long-term made money.

Despite all the positive statistics I could type, watching your investment accounts decline is scary. Maybe the key to investment comfort (and success) is not a change in investments, but a change in paradigm.

My advice is this: Hire a qualified financial advisor whom you trust. Then shift your focus from market performance (something you can’t control) to your financial goals (something you can control).

When we create a plan for a client, we base it on their goals. Goal-based investing puts the emphasis on the objective, not the performance. This offers advantages.

First, it gives us a target. When we know what we’re aiming for, it becomes much easier to determine the probability of success. Changes we need to make to improve the likelihood of success also come into focus.

Second, it can produce higher returns. Focusing on the goals rather than the short-term performance can reduce emotional overreactions to market volatility. It also decreases the temptation to chase high returns, which often leads to poor performance.

Third, it brings stability and creates confidence in your financial future. Knowing you’re on track to meet your goals brings comfort regardless of which direction the market is moving.

I believe goal-based investing is a favorable approach to planning for your future. It will also consider your current financial situation, risk tolerance, and time horizon. Make sure to meet with your financial advisor regularly to review your goals and update your financial plan.

Before you buy the fear and sell the stock, please call us. We would love to talk more about goal-based investing and how it can benefit you.

*Data from public sources. Investing involves risk, including potential loss of principal. The S&P 500 index is widely considered to represent the overall U.S. stock market. 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.

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You Can Contribute More to Your Retirement in 2019

By | 2018, Money Moxie, Newsletter | No Comments

Good news is coming for those looking to max out their retirement plans. In 2019, the contribution limits will be raised on most retirement accounts. This opens the door to higher tax deductions, more tax-deferred growth, and better savings ratios.

Employee contribution limits for the 401(k), 403(b), and 457 plans will be raised to $19,000 annually. For those individuals age 50 and older, an extra $6,000 contribution is allowed. The ceiling on SIMPLEs climbs to $13,000 with an additional $3,000 for those 50 and older. Both traditional IRAs and Roth IRAs will jump to a $6,000 annual limit with a $1,000 extra contribution for those born before 1970.

Deduction phaseouts for traditional IRAs of active plan participants will also start at higher levels in 2019, from adjusted gross incomes of $103,000 – $123,000 for married couples filing jointly and $64,000 – $74,000 for single filers. Roth IRA AGI phaseouts will increase to $193,000 – $203,000 for couples and $122,000 – $137,000 for individuals.

If you have questions about how these changes can impact your financial plan, please call us to schedule a review with one of our Wealth Managers.

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What is the Risk of being too Conservative

By | 2018, Money Moxie | No Comments

Are your conservative investments at risk? What about the cash you are keeping in your savings account or in the safe downstairs? “No,” you might be thinking, “I keep cash because it’s safe.” If these are your thoughts, I have some bad news. In an effort to avoid risk, you could be taking on a different kind of risk. I’m talking about inflation risk and it’s a silent killer that preys on the innocent.

Inflation can cause damage too small to be seen until it’s too large to be avoided. And the more conservative the investment, the greater the risk. “But wait,” you might be saying, “I thought conservative investments were safer and risk increased only as I invested more aggressively.” That is generally true with market risk, but it does change when considering inflation risk.

According to inflationdata.com, inflation has historically averaged just over 3%. This means on average a dollar will buy 3% less than it did 12 months earlier. A product that costs $100 dollars today will cost over $2,000 dollars 100 years from now. When my father was young, a candy bar cost 5 cents. I remember paying 50 cents as a child. Today, a candy bar is $1.25. That’s inflation.

If our money is not earning at least the rate of annual inflation, our purchasing power is decreasing. My father could’ve bought almost 20 candy bars with a dollar when he was young. With the same dollar, a child today couldn’t even buy one.

As you can see in the Risk vs. Reward graph I’ve provided, the more aggressive the investment, the greater the potential should be for gain, especially over long periods of time. However, I want to call your attention to the left side of the graph, the conservative side. This side of the graph shows little to no risk being taken and yet there is a loss. That is the risk of being too conservative. This loss isn’t a loss of principal, but a loss of purchasing power.

Keeping up with inflation should be an investor’s number one goal, and some conservative investments struggle to do that. Conservative investments do serve an important purpose and are a great choice for short term goals and emergency funds. But if your goal is long-term, adding a little more risk may actually reduce inflation risk. Investing in a diversified portfolio that includes stock market and bond market risk may help protect you from inflation risk.

A real area of concern for inflation risk is in retirement. If these investors don’t keep up with inflation, they could risk living longer than their money. At a 3.5% inflation rate, the cost of goods will double every 20 years. This means an 85 year-old couple who keep their investments in cash will have half the purchasing power they did when they retired at 65. Although the principal amount would be the same, it would be like a 50% loss. That is a risk I hate to see investors take.

For more information on inflation risk, market risk, and the risks taken in your current portfolio, please call us and schedule an appointment. We would love to answer any questions you have and help you to reduce unnecessary risk.

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Smedley Financial’s New Advisors

By | 2018, Money Moxie, Newsletter | No Comments

We are pleased to introduce two new advisors at Smedley Financial, Jordan Hadfield, and Leah Nelson. In our search for new advisors, we focused on people who had an in-depth education in all facets of financial planning and advising and demonstrated a high level of integrity. We were fortunate to find two amazing individuals with these sought-after qualities. If you have not had the opportunity to meet them yet, we hope you will over the next several months.

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Jordan Hadfield

On May 27th, 2012, I climbed into the right seat of a small aircraft next to a student pilot and took off down the runway. I was flying a Diamond DA20, and this trip was taking me from Provo to Lake Havasu to Catalina Island then up the coast to San Francisco and over to Lake Tahoe before heading back home. We flew low and slow, trying to take in the changing scenery and beautiful landscapes.

I was well on my way to becoming a professional pilot and hoped to land a full-time job flying very soon. That plan changed when I met my beautiful wife and realized a career in aviation would require constantly flying away from what matters most to me, my family. I now have two amazing boys and a little girl who rule my world. I have a bachelor’s degree in Personal Financial Planning from Utah Valley University and I am working towards my Certified Financial Planner® designation. Although I miss flying, I couldn’t be happier with what I’m doing now.

I used to chart my way across the United States and experience the freedom of flying. I now chart investments and retirement accounts to bring financial freedom to others. I find both activities to be exciting, but the latter gives me a sense of gratification that flying never did. I’m also a drummer. I love photography. And I work as a professional skydiver.

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Leah Nelson

For my whole life, I have watched many people around me struggle and make bad financial decisions. Seeing this inspired me to make the decision to become a financial advisor.

I graduated from Utah Valley University with a bachelor’s degree in Personal Financial Planning and successfully passed my Certified Financial Planner® (CFP®) exam.

I want to be on the client’s side helping them make good financial decisions to lessen the stress they feel because of their finances. I have always had a desire to serve people, and I’m glad I’ve chosen the financial services industry to help people reach some of their most important life goals.

In my free time, I am involved in musical theater. Music is one of my favorite things, and I enjoy passing the time by playing the piano, ukulele, or singing. I also love traveling. I’m lucky to have a sister that is willing to be my travel buddy! I love spending time with my family as well. They are fun to be around, and I love seeing what silly thing my nephew will do next. I am so excited to be part of Smedley Financial!

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Just for Women – Raising Financially Aware Children

By | 2018, Money Moxie | No Comments

Being financially savvy has a massive impact on our lives, as well as those of our children and grandchildren. Kelly Ness, of American Century Investments, focused on improving our family’s finances.

The principles of financial responsibility are not well taught in schools. According to a recent study, high school children claim 88% of their financial education came from their parents.

Where do children learn money management? Statistically, children are far more likely to be savers than spenders if their parents or grandparents talk to them about money. So, what should we say?

First, we need to understand our own money habits. Which behaviors do we want our children to replicate? Which should they not follow?

Next, we need to open a dialogue. Discuss saving, investing, debt dangers, and charitable gifting. It is also important to be open about household income and budgeting. In this way, they can learn from real and personal experience.

An allowance is a great way for young children to learn. Kids who receive an allowance tend to save more than those who do not. Children should also have financial goals. This can be a great opportunity to teach them about working for income and saving for purchases. When it comes time to buy, they will have an understanding of its worth.

Creating the time to teach your children or grandchildren about financial responsibility will pay dividends. It’s never too early, or too late. Bring your older children or grandchildren to your next appointment at SFS and allow them to ask questions. This will help to reinforce the value of planning, investing, and saving for the future. If you have questions regarding family financial education, please reach out to us. We would love to help you help them.

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Stocks Stand Alone

By | 2018, Money Moxie | No Comments

If you could go back in time 100 years and pick an asset in which to invest, which would you choose? Knowing of events like the Wall Street Crash of 1929 and the Great Depression, 7% inflation in the 1970’s, and the stock market crash of 2008, would you still choose to put your money in stocks? If so, you would be making a wise decision.

I recently came across an article posted in the March 2018 issue of The Wall Street Journal regarding the average annual returns of 10 popular investments over the last century. (I included a graph showing these investments and their average historical returns above inflation.)

At first glance, I noticed the negative returns of diamonds. Although diamonds are quite popular, especially on the finger of a loved one, they have been a poor investment if appreciation is the goal.

Bonds, which happen to be fifth on the list behind collectable stamps and high-end violins, show an average annual return of 2%.

Gold, a popular investment among some investors, has historically fallen short when compared to fine art and fine wine; the latter of which post returns over 500% more than that of gold.

Stocks have had the highest returns, and by a large margin. Despite the crashes, recessions, and economic contractions, stocks have had the best return in the last 117 years.

As we face volatility in the markets in 2018, we know that a diversified portfolio of stocks and bonds has weathered the storms of years past.

Despite the risks of recession and downturn in the future, I plan to keep my diamonds on my wife’s finger and my long-term investments in stocks.

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