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Executive Message

What does a Biden presidency mean for the economy and investing?

By | 2021, Executive Message, Money Moxie, Newsletter | No Comments

The recent election has some people elated and others in the depths of despair. While we don’t focus on the political ramifications, we can consider some of the financial impacts that may come. There is no guarantee that any of these will happen, but here are some possibilities:

We get more stimulus: In the short-run, this is a great thing for our economy and the market. There are too many Americans and businesses that are still struggling and need help to get through this pandemic. The long-term challenge is how to pay down the government debt.

Taxes go up: Even before the election, we knew that taxes needed to go up because of the massive amount of government debt. We have been at historically low tax rates. While tax rates seem unlikely to go up soon, don’t plan on them staying this low forever. Depending on your situation, you may want to realize taxation of some assets now to avoid paying taxes in the future. Consult with your financial and/or tax advisor.

Interest rates go up: They will probably still stay low for a while (i.e. 1-2 years). However, they will probably start going up after that. Increasing rates are good for savers and bad for borrowers. CD’s may pay a decent rate in the future, but affording a home will get harder.

Investing in ESG goes up: ESG stands for Environmental, Social, and Governance, also known as sustainable investing. With the Democrats in power, companies that are ESG friendly should get a boost. Examples of companies that will benefit include green energy, health and safety, and companies that promote diversity.

The economy will grow: The economy will probably start to recover quickly at first as we accelerate out of the global pandemic. However, growth will probably be slowed down by taxes and inflation after that, but it will still go in the right direction.

The market may go up: In the long-run, this is certainly likely. Over the coming months, the market could go up because of the recent stimulus and the prospect of more stimulus. A great deal of this money is likely to go directly into investments, while some will boost the economy through spending.

There may be some softness after that. But, as the economy fully recovers from the global pandemic, the market should continue its march higher. The market has shown that it doesn’t matter which political party is in power. It still does what it is going to do.

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Market Resiliency Overcomes Biases

By | 2020, Executive Message, Money Moxie, Newsletter | No Comments

As we near the end of 2020, we can look back on what we have experienced over the last 12 months, and more importantly, what we have learned from our experiences. Good and bad, we have all been impacted by the events brought on by COVID-19.

Evaluating the past is helpful in looking forward to a new year and the seasons of life ahead. Unfortunately, it is easy for our perspective to be swayed by biases we have developed. Biases are subconscious thoughts that shape our opinions and drive our behaviors. A bias might cause us to make assumptions about the future, such as “The market has changed and will never be the same again,” or, “Life as we know it has changed forever.” These are examples of Recency Bias. Our brain takes a recent experience and uses it as an atlas for all future decisions. It is almost like tunnel vision; we can only see one outcome.

Over the past 26 years, I have learned that every experience is different. Each is driven by a new set of circumstances – always changing. Our personal situations, the economy, and financial markets are fluid, ever-shifting. No one can predict what will happen in the future, positive or negative.

The market has faced many headwinds in the past – the dot com bubble, the Great Recession, Brexit – and has recovered from each. The economy has ebbed and flowed through market cycles while dealing with inflation pressures, political change, unemployment, and many other factors.

When I think of these hurdles, which seemed insurmountable at the time, I cannot help but be awed by the resiliency that followed the hard times. It is that perspective that gives me hope and a positive outlook for what lies ahead.

While the next six months may look fuzzy and hard to predict, the longer-term picture appears more defined, clear, and encouraging.

I am grateful for you, our clients, and the opportunity to help shape your financial future. I wish you and your family health, happiness, and prosperity in the years to come.

Wishing you a safe and happy holiday season.

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The Pendulum Swings

By | 2020, Executive Message, Money Moxie, Newsletter | No Comments

There is a giant pendulum that swings ever so slowly. When it gets to one extreme, the gravitational force pulls it back the other direction. Because of the Great Depression and World War II, the pendulum of national debt rose to an astounding 106% of GDP* in 1946.1 The pendulum took until 1974, or 28 years, to swing the other direction and get down to 23% of GDP.

With the back-to-back economic crises of the Great Recession in 2008 and COVID-19 in 2020, the debt to GDP ratio has swung dramatically back in the wrong direction. We now sit at 100% debt to GDP with a projection to get to 106% of GDP by 2023.2

What will be the long-term impact? Undoubtedly, taxes will go up. I recently heard it said, “The politicians that are telling you they can cut taxes are just bad at math.” If you look at history, tax rates shot up to 94% in 1944 for the highest tax bracket.3 That’s right, 94%! This was done with more marginal tax brackets. There were 24 brackets back then compared to just 7 today.

In 1965, the highest rate declined to 70%. It stayed around there until 1982 when the highest rate became 50%. Currently, our highest tax bracket is 37%.

I’m not a doomsday predictor. I don’t believe a new tax bracket will send rates up to 94%. However, I do worry about taxes going up for almost everyone. You can’t tax the “rich” enough to cover the current deficit and make the pendulum swing the other direction.

Thankfully, I believe there are prudent tools we can use to help protect you against future taxes. If you aren’t retired, you can contribute to a Roth IRA or Roth 401(k), depending on your income. If your income is below $139,000 (single) or $206,000 (married), consider a Roth conversion from your IRA or 401(k). If you are over age 70½, you can make tax free donations to a charity from your IRA.

These are just a few options to help protect against future taxes. For our clients, we will continue to review your personal financial plan to make sure you are prepared for the future regardless of what may come. If you want to schedule a review appointment, please contact us.

*GDP or Gross Domestic Product is the total output of the economy for one year. SFS and its representatives do not provide tax advice; it is important to coordinate with your tax advisor regarding your specific situation.
(1) https://www.washingtonpost.com/opinions/2020/05/27/this-is-not-your-grandfathers-debt-problem/
(2) https://www.bloomberg.com/graphics/2020-debt-and-deficit-projections-hit-records/
(3) https://fred.stlouisfed.org/series/IITTRHB

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Living In Unprecedented Times

By | 2020, Executive Message, Money Moxie | No Comments

The last five months have been record-setting in more ways than we could have imagined. The impact has been wide-reaching – and I am not referring to the COVID-19 virus numbers.

Technology has provided opportunities that have businesses, including ours, to service clients and continue to run their operations while working from home. It allowed students to continue their studies remotely and check in with their teachers when needed. We have access to almost anything: news, shopping, connecting with family and friends, and investment markets, all of which are amazing. In fact, it is hard to imagine what we would have done without technology.

Newer technology has opened the doors for people to save and invest at entry levels without barriers, such as minimum investments. Apps have become popular among the DIY crowd, which are too often young and inexperienced investors.

Securities regulators have spent countless hours creating Regulation Best Interest, as explained in Mikal’s article. Regrettably, they have done little to educate and protect DIY investors who are not prepared for the leveraged risks and hidden fees of this new world. One of these investors even paid the ultimate price.

An app on a phone gives anyone fingertip access to investing. One of these apps offers game-like screen appearances, prompts users to place trades when looking up a stock ticker, and displays falling confetti to make them feel good when placing a trade. These apps even allow investors to leverage their investment through options – something professionals are required to have tested and trained for before offering them to their clients. What these apps do not offer is common sense or an advisor to help investors understand the associated risks of specific investments. They lack education and risk assessment before making speculative, high-risk investments.

We have heard disastrous reports of investors borrowing on credit cards and accessing home equity loans to invest, only to lose the lion’s share of their investment. As financial advisors, we find this very disheartening.

All investors should be educated about their investment options, risks, and costs. Smedley Financial makes a concerted effort to provide you with information and education regarding investing through our Money Moxie and Money Matters newsletters, regular webinars, seminars, and, most importantly, one-on-one meetings with clients. If you have questions or need more information regarding finances or investing, please reach out to our wealth management advisors.

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Facing Coronavirus Uncertainty, Think Long Term

By | 2020, Executive Message, Money Moxie | No Comments

I often include the phrase, “Past performance does not guarantee future results,” to remind us that uncertainty will always be an integral part of investing. I also repeat the words, “Long term,” frequently to help keep perspective in the face of uncertain times.

Warren Buffett understands uncertainty and long-term investing. He is one of the wealthiest individuals on the planet and one of the best investors of all time. Recently he gave us a glimpse into how he is viewing the extreme pessimism and optimism on Wall Street. On May 2, 2020, Warren Buffett conducted a virtual shareholder meeting. In the discussion, we learned that Buffett has been selling some and holding much of his investment portfolio during the Covid-19 pandemic. With around $137 billion in cash, many people thought Buffett would be buying aggressively. We also learned how he is viewing short-term and long-term investing now that he is 89 years old:

I hope I’ve convinced you to bet on America. Not saying that this is the right time to buy stocks if you mean by “right,” that they’re going to go up instead of down. I don’t know where they’re going to go in the next day, or week, or month, or year. But I hope I know enough to know, well, I think I can buy a cross section and do fine over 20 or 30 years. And you may think, for a guy, 89, that that’s kind of an optimistic viewpoint. But I hope that really everybody would buy stocks with the idea that they’re buying partnerships.

At the age of 89, Buffett is still thinking 20 to 30 years into the future. That’s an important lesson for all of us because the likelihood of making money increases with time.

The Dow Jones index is made up of 30 stocks, so it’s not a comprehensive example, but it is perhaps the oldest index. Over the last 100 calendar years, the probability of a positive return in any given year was 69%. That’s not bad, but that means that 31% were negative. Now that’s uncertainty. At the extremes, the Dow lost over 50% (1931) and gained 63% (1933). That’s what we call short-term.

I would define long-term as 10 years or more. It makes a big difference. The Dow was positive 83% of the 10-year periods and 96% of the 20-year periods. Only during the Great Depression were the 20-year numbers negative, but any investor who could have stayed invested would have done well in the latter half of the Depression and in the decades to come. Through these 100 years, the Dow averaged a 5.7% annual return (and that does not even include dividends).

So, while uncertainty will probably always be difficult to embrace, time can be our ally. Warren Buffett is choosing to think this way at the age of 89. I firmly believe that the same perspective will be beneficial to us as we continue through the 2020 Coronavirus pandemic and beyond.

*The Dow Jones index is often used to represent the U.S. stock market. One cannot invest directly in an index and of course, past performance does not guarantee future results.

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Investing Is Not Like Buying A Refrigerator

By | 2020, Executive Message, Money Moxie, Newsletter | No Comments

Some people think that investing has been simplified so much that it is like buying a refrigerator: You spend a few hours researching the options and then select a product that will last for 10 years. While there have been significant improvements to simplify investments, there is still a world of knowledge that is needed to select the right investments for your personal goals and time horizon. Buying the wrong refrigerator won’t wreck your retirement, but buying the wrong investment might.

Inside of a 401(k), the participant is the money manager. Because of this, the options had to be simplified. This has given rise to retirement-ready investments that have target dates based on when a participant will retire. We applaud this because most investors don’t know the nuances of investing in large-cap companies vs. small-cap companies, etc. The closer you get to retirement, and the more assets you have, the more important investment selection becomes.

Investment selection is less like picking out a fridge and more like being the forecaster for a home improvement store. That forecaster must determine beforehand how much is needed of each product, for each department, at the right time of year. If the quantity or timing is significantly off, then it puts the store in jeopardy of decreasing revenue and potential bankruptcy. Because of this complexity, a forecaster needs to have advanced training, education, and experience.

With investments, not only do you have to understand the individual investment, but you also must understand how it is impacted by the different market sectors, business cycle movements, politics, and the world economic environment.

At SFS, we are lucky to have a chief investment strategist, James Derrick, who has his MBA, CFA, and two decades of money management experience. He managed investments through the downturns of 2000-2003 and 2007-2009 when the S&P 500 lost 55% and 57%, respectively.* In fact, other financial advisors hire James and SFS to manage their clients’ money.

Don’t risk your retirement nest egg. You aren’t buying a refrigerator. Choose a money manager with the foresight, knowledge, and experience to help protect you against the downturns while allowing your assets to grow in the good times.

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Your Success Is Our Success

By | 2019, Executive Message, Money Moxie | No Comments

I was asked by a prospective client why it was so hard to find a good financial advisor. They had been around the valley visiting several of the financial advisors they heard on the radio. They heard about us through a friend and decided to give us a chance.

My response was, “Just because someone screams the loudest, doesn’t mean they’re the best.” Many firms rely on high marketing budgets to keep new people coming in the door. However, these large expenses can often lead to higher expenses for the clients and often leads to high turnover.

We strive to keep our costs low and to maintain our client relationships for the long run. With this intent we don’t spend a lot of money on marketing. We strive to provide incredible service, holistic financial plans, and elite active management. We realize that if we take great care of our clients, they may tell their friends about us, and those friends may become clients. Ninety percent of our growth comes from client referrals.

We realize that trust is not easily earned and harder to keep. Thank you for choosing Smedley Financial as your private wealth manager.

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Federal Reserve Is Expecting Winter In July

By | 2019, Executive Message, Money Moxie, Newsletter | No Comments

Last February, St. George, Utah had its biggest snowstorm in 20 years. Nearby, Zions National Park closed. Local schools did a late start. Motorists on the freeway were asked to use snow chains. The storm total? 3.8 inches! So, not that much . . . if one is prepared.

Without a doubt, the greatest risk in such a situation is overconfidence. The same could be said about investing. And even though it is summer, the Federal Reserve is going to start spreading salt on the roads for wintery conditions.

As I write, the Fed is preparing for its 5th meeting of 2019, which will be held July 30th–31st. The overwhelming majority of experts believes the Fed will lower interest rates for the first time in a decade. It would do this to encourage greater borrowing and give the economy a boost.

Celebrating a rate decrease this July is like increasing your speed on a sunny day while the snowplow drivers are starting their engines. Why are the plows heading out?

The U.S. economy has been growing at just over 2 percent for a decade. Tax cuts provided a short-term bump, but it looks like the growth is headed right back to the 10-year trend. That’s not so bad, but it has the Fed nervous.

If the Fed lowers rates at the end of this month, it is sending a signal to the rest of us that the experts believe there may be some rougher weather ahead. They will be dropping the salt on the roads in anticipation. Only time will tell how the forecast and driving conditions will change.

Are you driving too fast for the conditions with your investments? Stocks and bonds have been wildly positive this year, which has some investors too excited. Most of these gains just brought market prices back to where they were before a negative overreaction last December. That drop has had a lasting impact on how most investors feel. In other words, the market data is neither hot nor cold right now, but investors are too focused on one or the other. So, when it comes to your investments, I recommend going the speed you and your advisor decided on in your last review.

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Women Face Unique Challenges. Good Decisions are Essential.

By | 2019, Executive Message, Money Matters, Newsletter | No Comments

This year marked the 4th anniversary of our Just for Women conference and the launch of Smedley Financial’s Just for Women community. Hooray!

We want to thank the women who have participated in our community. Together, we have created a meaningful experience that engages, empowers, and educates women of all ages and from all social and economic backgrounds.

Women face many unique challenges when it comes to financial security: longer life expectancies; the likelihood that they will be in the driver’s seat, financially speaking; reduced pension payouts and retirement account balances due to periods away from the workforce to raise children or care for an aging parent. This reality makes it even more important that they set precedence regarding finances. Women should become more educated, build financial confidence, and most importantly–make good financial decisions.

Good decision-making will have a more significant impact on financial success than skill and talent combined, regardless of your gender. Dalbar, an independent research firm, has confirmed this. Their 25 years of research has found that investors’ performance has suffered significantly due to poor decision-making. Decisions which have been emotionally based or made in the “heat of the moment” tend to end with poor results.

This issue recaps some of the highlights of our Just for Women conference. If you were not able to attend, please make it a priority to join us next year — mark your calendar for May 8, 2020. Hopefully, our women’s community will help ignite a financial passion in everyone who participates.

If you would like to receive our Just for Women – Money Matters email, send us a request at [email protected] Provide your name and email, and we’ll make sure you receive the next issue.

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Your Personal Inflation Rate Versus Published Inflation Rates

By | 2019, Executive Message, Money Moxie, Newsletter | No Comments

The cost of daily living, especially health care and long-term care, are not going down. But your ability to pay for them will drop once you retire. In fact, the longer you live, the higher the impact of inflation will be.

A case in point: The cost of a first-class forever stamp jumped 10 percent from 50 cents to 55 cents on January 27, 2019. On January 1, 1952, a first-class stamp only cost 3 cents for the first ounce.

People are living longer, much longer. A couple, both age 65, have a 50 percent chance that at least one of them will live to age 92.1 The government’s published CPI is for everything and everyone in general. Your personal inflation rate will be higher because, as you age, rising health care and long-term care costs will be a more significant proportion of your spending.

Health care costs are escalating. According to the U.S. Bureau of Labor Statistics, health insurance experienced an average inflation rate of 2.63 percent between 2005 and 2019. The overall inflation rate was 1.84 percent during this same period. What cost $20.00 in 2005, cost $28.76 in 2019. That’s 43.78 percent higher 14 years later.

Seventy percent of people 65 and older will need long-term care.2 However, Medicare will only pay for a limited number of days of skilled nursing care and only after hospitalization.

Unfortunately, these long-term care costs are rising at historic levels–much faster than other expenses. While the cost of living increased by 1.7 percent, long-term care rose 4.5 percent.3

Early planning for a longer life and a higher personal inflation rate is critically important. That’s why we at Smedley Financial create and build plans for our clients to live to age 95 as well as develop a realistic, personal inflation rate for you to help you prepare for the coming surprises of retirement.

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