Category

Newsletter

Living a Financially Balanced Life

By | 2020, Money Matters, Newsletter | No Comments

Applying a balanced perspective has an impact in many areas of our lives, from eating to working to playing. Finances, today and in the future, should receive the same balanced approach.

When thinking of our financial plans, we tend to look to the future, but what about today? It is important to establish financial goals and work towards them, but it is also essential to live your current life with joy.

We work hard and save wherever possible with a goal to enjoy life in retirement. This is commendable and vital if we want to maintain our lifestyle into retirement. However, it is too often that people plan for future adventures and then are not able to enjoy them because of health issues or even death.

Keep in mind the little things.
To stay balanced within your budget, or spending plan, be sure to give yourself some mad money. I am not proposing that you throw caution to the wind, but within your monthly budget, permit yourself to spend a predetermined amount on something that brings you joy even if that means getting an ice cream cone or pedicure. Nothing can take the wind out of your sails or blow up your spending plan quicker than eliminating all of the little things that make you happy.

Enjoy adventure along the way.
Rather than thinking you will take a huge trip when you retire, include adventure and fun in your life now. When you look back on your life, the memories you have with your family and friends will be what you remember. I can honestly say I have not had a client reminisce about days they spent in the office or attending business meetings, or cleaning the house. They talk about time spent with family, traveling, charity work, or doing something they love.

One of our motivations is to help our clients create Life Centered Plans. This is different from a typical financial plan because it focuses not only on saving for future goals but also helping clients use the money they currently have to do things that bring them joy now.

We all have a limited time left to live our lives. I challenge you to spend that time living a financially balanced life!

If you would like more information on Life Centered Planning, contact us at 801-355-8888.

Tags: , , , , , , , ,

Unprecedented Times

By | 2020, Newsletter | No Comments

It is unprecedented times like these that bring people together with a common focus and a shared desire. Protecting the lives of our family, friends, and community has become top of mind, and our daily efforts reflect that devotion.

While times have changed, our commitment has not waivered. Your financial success and well-being are our top priorities. We are diligently working to stay abreast of the changing financial landscape and keep you on track to meet your financial goals.

When creating financial plans, we are continually watching for bumps in the road that could prevent our clients from reaching their goals. Financial markets and the associated volatility are not unexpected. In fact, market volatility, as a risk, is built into every plan we create, whether you are working toward future retirement or enjoying retirement now.

Having had the opportunity to help clients through multiple bear markets, and numerous market corrections, we know that sticking with your plan delivers the best opportunity to achieve financial success.

We will continue to use email and social media to stay connected and keep you informed. We will resume sending postal mailings when COVID-19 restrictions have been lifted.

I invite you to contact one of our wealth managers to discuss your situation, get answers to your questions, and hear what Smedley Financial is doing to help protect your financial future. We are working remotely and are still available.

I want to thank those who have reached out to us, concerned about our well-being. Your thoughtfulness is very much appreciated.

It is our greatest hope that you and your loved ones stay healthy and safe.

Tags: , , , , , , ,

What You Need to Know About the CARES Act

By | 2020, Newsletter | No Comments

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES) stimulus bill was passed. It will provide relief and assistance to millions of Americans affected by the pandemic. This article will highlight some of the most important parts of the recently passed bill.

No Required Minimum Distributions for 2020

This year you will not have to take a required minimum distribution (RMD) from your qualified retirement accounts. The waiver for this year also includes any inherited IRAs or 401ks. RMDs are calculated based on your account value on December 31st of the previous year. Last year was a great year for the stock market, meaning your 2020 RMD was based on your account value at the end of a great year when the Dow was around 28,000.

With the recent events due to COVID-19, the market has taken a tumble, and you would now be forced to take money out at a low point, which is the opposite of what you want to do when investing. No RMDs in 2020 can end up being helpful for many retirees and could save them money on their taxes this year.

If you already took your RMD for this year, you won’t benefit from the waiver, but there is a bright side. You probably took your distribution when the market was at a high point, and that is a good thing.

We know many of our clients also like to take advantage of qualified charitable distributions to donate their required distributions from their IRA to a charity, tax-free. If you are over age 70 ½, you can still do that this year and it may still be advantageous for you to donate money from your IRA to a charity. This year, since you won’t be required to take money out, it will require more evaluation than in previous years to determine if it is still beneficial for you.

Payments to Individuals

Most individuals will receive a direct payment from the federal government. This is technically a refundable tax credit for 2020. It will be based on 2019 taxes (2018 if you haven’t filed yet). You must have a Social Security number and not qualify as a dependent of another individual.

The amount is $1,200 per adult plus $500 for each qualifying child under age 17. Rebates will be phased out for those with adjusted gross income above $75,000 ($150k if married filing jointly, $112k if filing as head of household). The rebate will be reduced by $5 for every $100 in income over the threshold.

Unemployment Benefits

Individuals will be eligible for an additional $600 weekly benefit through July 31, 2020. Additionally, individuals will have 13 weeks of federally funded benefits through 2020 for people who exhaust state benefits.

People who would not normally qualify for unemployment benefits like independent contractors, part-time workers, and self-employed individuals will be eligible for benefits.

Penalty-free Withdrawals from Retirement Accounts

The 10% early-distribution penalty tax that normally applies to distributions made before age 59 ½ is waived for distributions up to $100k relating to coronavirus. While you’ll still have to pay income tax on any withdrawal, you’ll be able to spread the payment of those taxes over three years. If you decide to repay the withdrawal back into your account within three years, you will not owe income tax, and it will not be counted toward yearly contribution limits.

*Remember to speak to your financial advisor before deciding to tap into your retirement account.

No Charitable Contribution Limits for 2020

For those who itemize deductions, this act suspends charitable contribution limits for 2020. To benefit from this, you need to donate to a qualified charity and not a donor-advised fund. Usually, deductible contributions are capped at 60% of your adjusted gross income, but the new bill allows you to deduct 100% of the contribution.

Student Loans

If you have a student loan held by the federal government, you will automatically get a six-month payment suspension (ends September 30, 2020), and interest will not accrue during that time.

If you have any questions about how this stimulus bill will affect you, please reach out to us, and we will be happy to help you!

Tags: , , , , , , , ,

Year of the Coronavirus

By | 2020, Money Moxie, Newsletter, Travel | No Comments

Coronavirus was difficult to recognize and impossible to track when first contracted around November 17, 2019. It was misunderstood in China. Dismissed in America. Many said, “it’s just the flu.” But Covid-19 is no ordinary flu. Those infected are contagious days before symptoms show. Some may never have symptoms as they spread the disease. It is a novel strand of the Cornovirus, and that means it’s new, and there is no immunity to it. Most of us are likely to catch it sometime in the next 12 months.

The healthcare system is ill-prepared for an outbreak. We have the expertise, equipment, and medicine. We do not have the capacity. This is where flattening the curve comes in. The goal of the government is to slow the spread of the virus to buy time to help those infected and those researching prevention and treatments.

In 2020, the stock market lost 20% in roughly 20 days. Historically, it has taken 400 days from the market top for it to fall by 20%. The 12-year-old bull market is over.

Over the last few years, we have had a smooth run interrupted by violent drops. The S&P 500 dropped roughly 19% in 2016 and twice in 2018. This week, it finally reached 20% and then kept going.

There is so much we don’t know, so we will focus on what we do know. American consumers will continue to spend. We are resilient. However, there is a shift in where we spend. This has led to a lack of global demand for oil. OPEC producers prefer stable prices and would like to cut oil supplies to push prices higher. Russia refused to cooperate, which has driven prices sharply lower. The United States is now a major world producer, so we find our country caught in the middle of this unexpected consequence of the current pandemic.

Falling energy prices are both bad and good. The immediate impact is bad. Energy suppliers feel the financial pinch. Some may default on debt payments, which could domino through the economy. Eventually, these lower prices reach consumers. I have never heard a friend complain about low prices at the gas pump. This leads to more flexible spending and more growth. It takes about 18 months for the low price of oil to show up in higher economic growth. Of course, the financial markets anticipate.

Don’t fight the Fed. The Federal Reserve lowered its overnight interest rate to zero and announced it will inject $1.5 trillion into the financial system to keep the markets functioning properly. This is more money than the Fed has put into the markets in the last 5 years combined. The entire Federal Government budget is $3.8 trillion. So, while the Fed can’t fight the virus, it is doing what it can to prevent a breakdown as we experienced in 2008.

When will financial markets come back up? (1) Investors need to wrap their minds around all the sudden changes to everyday life, and (2) The growth of Coronavirus cases must slow. Problems don’t have to disappear. Investors just need less uncertainty.

When all the news turns negative, any sign of hope could be the turning point. That’s what makes predicting the future so difficult. And this is why we work so hard to manage risk and be invested to participate in long-term growth.

*Research by SFS. Data from the Federal Reserve Bank of St. Louis. Investing involves risk, including the 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 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: , , , , ,

A Neglected Tax-Saving Strategy: Qualified Charitable Distributions

By | 2020, Money Moxie, Newsletter | No Comments

There are two types of people who complain about paying taxes, men and women. We all recognize the importance of taxes, but Gerald Barzan said it best, “Taxation with representation ain’t so hot either.” Yes, tax evasion is illegal, but tax avoidance…that’s wisdom. Tax avoidance should also be a financial advisor’s specialty. This is precisely why I’m so surprised by the number of financial and tax professionals who are unfamiliar with, or do not utilize, the Qualified Charitable Distribution.

The Qualified Charitable Distribution, or QCD, is a powerful tax savings strategy available to individuals age 70.5 and older who donate to 501(c)(3) organizations. Examples of 501(c)(3) organizations include religious, educational, and scientific organizations, public charities, and private foundations.

When you take a distribution from a tax-deferred retirement account, the distribution will be taxed at your marginal tax rate. However, if the distribution is from an Individual Retirement Account (IRA) and is sent directly to a 501(c)(3) organization, it qualifies as a QCD and becomes tax-free.

For example, Elliott has a required minimum distribution from her IRA of $3,000. Her tax rate is 20% federal and 5% state. Elliott plans to donate $3,000 to a 501(c)(3) organization this year. If Elliott takes the $3,000 distribution and pays the tax, she’ll receive $2,250 from her IRA. When she makes her $3,000 donation, she will be $750 short.

However, Elliott has a wise financial advisor who tells her about the QCD. So, she sends her $3,000 IRA distribution directly to the charity, and Elliott doesn’t pay tax on the distribution at all. Elliott’s required minimum distribution is satisfied for the year, she donates the desired $3,000 to charity, and her wise financial advisor saved her $750 in taxes.

Every year, we educate financial and tax professionals regarding the QCD and how to report it on the form 1040. Too often, we see it reported incorrectly. If you make a QCD and do not report it accurately, you won’t receive the benefit. If Elliott or her CPA doesn’t understand how to report her $3,000 QCD, she’ll pay an extra $750 to the IRS, and the QCD won’t save her anything.

On tax form 1040, line 4a asks for “IRA distributions,” and line 4b asks for the “taxable amount” as shown below.

Elliott took a $3,000 distribution from her IRA and will write $3,000 on line 4a. She will then subtract her QCD amount from 4a and write the balance on line 4b. In Elliott’s case, she will write $0 on line 4b, and no tax will be due from her IRA distribution. A tax penny saved is a tax-free penny earned.

Please help us get the word out regarding the Qualified Charitable Distribution. If you, your CPA, or your friends have questions about QCDs or other tax-saving strategies, please contact us. Tax planning is our specialty, and tax avoidance is the goal.

Tags: , , , , , ,

A Newlywed’s Guide to Financial Success

By | 2020, Money Moxie, Newsletter | No Comments

I’m sure most people reading this article have heard that money is one of the leading causes of divorce. That can be disheartening to hear when you’re planning a wedding. Being a newlywed myself, I have thought a lot about myself and my husband’s financial success and how to achieve our personal financial goals. I also know from observing friends and former classmates that young people often don’t even know where to start when it comes to making good money choices, especially when you add another person to the picture. As I’ve thought about all of this, I have come up with a list of things that will help newlyweds be successful in their financial endeavors.

1. Talk about it – This first one is arguably the most important. Money is often a taboo subject, but it is important to have open communication about money, especially in marriage. It is best to talk about money before you get married, but if you haven’t, talk about it as soon as possible. Make sure you both understand each other’s expectations for your money. For example, let your spouse know if you expect them to talk to you before making purchases over a certain amount. It is essential to be honest with your spouse, especially about any debt you may have.

2. Build an emergency fund – Having an emergency fund should be a top priority for newly married couples. The general rule of thumb is to have 3-6 months’ worth of living expenses saved up for emergencies such as a lost job, family illness, natural disaster, or major home repairs. This will bring security in case disaster strikes.

3. Design and track a budget – Start by reviewing your joint budget for the last few months and assigning dollar limits to each spending category. Remember, a budget is a work in progress. It is okay to make adjustments, especially in the first few months. Tracking your spending after creating a budget is just as important as making the budget. There are many ways to track your spending. Some people use apps; some people use spreadsheets; some people use the envelope method. The envelope method is primarily just using cash for your budget, and once the cash is gone, you’re done spending in that category for the month. This is especially helpful in areas in which you tend to overspend. Try out a few different methods and find the one you like best.

4. Save for retirement – This one is not something newlyweds often think about. Retirement can seem like it is so far in the future you don’t need to worry about it. However, starting to save for retirement when you are young really gives you a leg up. Having time on your side helps you take advantage of compounding interest. Even if you start small, saving something toward your retirement early on can have a big impact. Contributing to your employer-sponsored 401k plan is an excellent place to start.

Tags: , , , ,

Election Years: Positively Volatile

By | 2020, Money Moxie, Newsletter | No Comments

It may turn out to be a typical election year. I expect stocks to be up in 2020, but in the single digits—much less than in 2019. Investors dislike uncertainty, and 2020 will be filled with plenty of political unknowns. Despite some extra ups and downs, election years tend to be positive for stocks. Hang in there.

A lot of Republicans could have missed out from 2009 to 2016. Similarly, Democrats would have missed the 2017-2020 markets. The rule for election volatility is that it comes sooner than most investors expect. Most summers have a bit of a slowdown. In election years, that drop usually hits in spring.

The classic October drop is typical even in election years, but don’t get caught saying, “I’ll invest when the election is over.” The market usually begins to climb a couple of weeks before the final vote.

Some rotation in the markets may develop as we learn who the candidates will be. Still, the most likely outcome is gridlock in Washington, with the Republicans staying in control of the Senate and the House controlled by Democrats. Regardless of your political opinions, gridlock is usually good for stocks because large companies plan 10+ years ahead of time and prefer a predictable business environment.

*Research by SFS. Data from the Federal Reserve Bank of St. Louis. Investing involves risk, including the 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 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: , , , , ,

Climbing a Wall of Worry

By | 2020, Money Moxie, Newsletter | No Comments

Climbing a wall of worry is a common phrase in the investment world. The implication is that the market will move higher as it overcomes uncertainty. In 2018, the U.S. stock market had its worst December since 1931. It followed with the best returns since 2013. The American consumer kept things going in the economy at just above 2 percent while interest rate cuts and asset purchases by the Federal Reserve made all the difference for the markets.

Don’t Fight The Fed

In 2018, the Federal Reserve (Fed) was on auto-pilot: raising interest rates unless something went wrong. By December 2018, the Fed’s actions spooked investors.

By July 2019, the 2-year government bond paid a higher interest rate than the 10-year. That is what we call an inverted yield curve. The short-term rates are somewhat controlled by the Fed. The long-term rates are more driven by investors. So, the inverted curve is the result of investors believing that the Federal Reserve is making a mistake by keeping short-term rates too high. Over the last 50 years, the Fed has never been so quick to react as it was in 2019. This very well could have helped us avoid a recession in 2019-2020.

The Fed seems willing to do whatever it takes to keep this steady economy going, but the Fed is also going to try to stay out of the way in an election year. I expect it will take a large change in the economy to entice the Fed to make any changes to interest rates.

After three interest rate cuts last year, the Fed really may not have to engage in more stimulus in 2020. The impact of those cuts is likely to trickle down into the U.S. economy this year.

More Slow Growth: No Recession

The U.S. economy has averaged 2-3% economic growth for the last 10 years. This trend is likely to continue. Corporate earnings in the United States ended 2019 near zero. Expect a bounce. However, uncertainty over global demand, trade, and politics will probably continue. Once again, economic growth will rely heavily on American consumers.

Coronavirus: Watch For a Peak

Coronavirus has spread incredibly quickly through China, and around 2.3 percent of those who become infected, die of the disease. The World Health Organization (WHO) declared it a global health emergency on January 30, 2020.

Of recent outbreaks (Ebola, Zika, & SARS), SARS seems the best comparison. SARS spread more slowly. The World Health Organization did not declare it a global crisis until the number of people infected peaked (March 12, 2003).

In 2020, the Chinese government and the WHO have acted more quickly to contain Coronavirus. If successful, infections should peak in February. If efforts fail immediately, it seems likely that, just as with SARS, Coronavirus will be on the decline by March.

*Research by SFS. Investing involves risk, including the potential loss of principal. Dow and S&P 500 indexes are widely considered to represent the overall 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 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: , , , , , ,

How Do You Stack Up?

By | 2020, Money Moxie, Newsletter | No Comments

It is no secret that Americans need to save more for retirement. The amount of money an individual or couple will need to carry them through their retirement years varies based on numerous factors, including age, standard of living, location, expected fixed income sources – like a pension and Social Security – and more. Everyone needs to know where they stand based on their specific needs. Have they saved enough, or do they need to save more? Here are some shocking statistics that illustrate that Americans are falling short.

Source: Federal Reserve’s Survey of Consumer Finances

This chart shows the average retirement savings account balance of active savers. Averages can be deceiving as there are many balances far above the number shown. The issue lies in the realization that there are a significant number of accounts with balances far below the average. This creates a future financial crisis for these savers. Living today on the income they receive is doable. However, it will be almost impossible for these savers to maintain their standard of living in their elder years if they continue at the same rate of saving.

We are not proponents of Rule of Thumb planning. We prefer planning using actual key information specific to each client’s situation. But, in this situation, it helps us illustrate a reality. This chart shows how much someone should have in their retirement savings based on age. The amount shown is a multiple based on a $100,000 income.

Rule of thumb would say, based on the desired income amount you want in retirement, you should have saved a multiple of your current income. The amounts illustrated are multiples of a $100,000 income. For example, if you are age 45, you should have already saved 3 to 4 times your income. If you are 65, you should have saved 9 to 11 times your income. How are you doing?

The good news is there is always hope. If you are not on track, regardless of your age or situation, we can help create a roadmap to get you back on track, one step at a time. Contact one of our Wealth Advisors for more information.

Tags: , , , ,

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.

Tags: , , , ,