Financial Planning in a Crisis: At Home

Echoes at Home…

It’s been another couple of weeks “at home” willing to do our part complying with the shelter-in-place order.  Then, on Tuesday we heard the decision to close all public schools for the remainder of the academic year.  Let me count… that’s another six weeks at home for the kids and an end to my son’s first year of school baseball before it ever really got started.  You likely have a very similar story.

To follow up my last post, with this extra time I’ve already been able to “learn things.”  Here are a few of them: I don’t read as much as I should, my prayer list is way too short, and we have become much too dependent on technology.  Therefore, it was a nice surprise yesterday when my daughter received – get ready for this – a hand-written note from a friend across town.  She immediately wrote her back.  Sure, there’s technology they use to get online and see each other in a much faster and “easier” way.  But it was fun to see them communicate the way we used to when I was a child – one that, dare I say, took a little more effort.

We’ve also seen other changes.  It’s been nice talking with neighbors we seldom, if at all, talked to before this pandemic.  I’ve seen the opportunity cost associated with failing to read more.  But I’m not blind to the fact that these things take time – as does prayer, or anything else worthwhile.  Given these extra-long days at home let me encourage you to “take inventory” and, perhaps, even reshuffle priorities.

In doing this myself I also came across some good advice that I wanted to share.  Each quote was like an echo from the past that helped take away any lingering emotions.  If we are honest, staying objective can be a difficult task, especially when making investment decisions.  So, while you are also “at home” maybe these timely quotes from Sir John Templeton will help you:

Sir John Templeton

  • If you begin with a prayer, you can think more clearly and make fewer mistakes.
  • An investor who has all the answers doesn’t even understand all the questions.
  • Don’t panic. The time to sell is before the crash, not after.
  • The only way to avoid mistakes is not to invest—which is the biggest mistake of all.
  • The investor who says, “This time is different,” when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.
  • If you do not know what you want to achieve with your life, you may not achieve much.
  • The best investment with the least risk and the greatest dividend is giving.


Financial Planning in a Crisis: Learn

Learn Things…

I admit it, during this self-quarantine lockdown called the Coronavirus Crisis (or pandemic) I’ve become a NCIS: New Orleans junkie.  Very quickly after binge-watching a few seasons, my favorite quote is one by Dwayne Cassius “King” Pride in just about every episode: “Let’s learn things.” A great way to motivate his team of agents working on a new case.


Thing is, the case we are currently faced with – the coronavirus – isn’t a new one.  Sure, the cause is new (the virus) and presents a challenge in and of itself.  But the idea of a ‘crisis’ isn’t new.  We have seen crisis after crisis hit Wall Street.  And time after time, investors tell us the some of the same things:

“What do I do?”
“Should I sell everything and protect what I have left?”
“It just feels different this time…”
“I’m going to lose everything!”

I could go on and on with similar quotes or headlines.  But let me challenge you to think a little differently about this.  It’s like we are sitting in MTAC or the squadroom and Agent Pride is telling us to, “Go! Learn things!”.

Falling stock markets have a way of teaching us a lot about our risk tolerance, our patience, and our goals.  So, what have you learned about yourself over the last two weeks?  Maybe it’s that you aren’t as risk averse as you once thought.  Maybe it’s that you’re more of an opportunist than you once thought, and are ready to invest to take advantage of lower prices.  Whichever the case, what needs to be different this crisis is what you choose to learn about yourself.

So, stop and reassess your reasons for investing.  Then write it down!  Remember, “The faintest ink is more powerful than the strongest memory.”  As you go through this process, one of two things are likely to happen: 1) you may just learn something new about yourself, or 2) you confirm what you already knew about yourself.  Either way, take this information and use it to reinforce your personal investment plan.

Turn off the TV?

In a recent article by Bryce Sanders in a commentary written for ThinkAdvisor magazine, we were reminded that “Television programming is funded by advertising.  Advertisers want viewership.  One of the best ways TV news programs can keep people watching is to make everything a crisis.”  While news is important, it’s still necessary to step back and put things into perspective.  For example, with the Dow Jones Industrial Average trading around 25,000 it’s important to realize a decline of -799.36 (as we saw on Tuesday, Dec 4) is a -3% drop.  Did you know that for all of 2018 we have seen four daily declines of greater than -3% and this was the smallest of them?  These were on Feb. 5th, Feb. 8th, Oct. 10th and then again on Tuesday, Dec. 4th.  To the contrary, we have seen five days with returns greater than +2% and 26 days with a positive return greater than +1%.  The market will fluctuate.  But remember from each of the previous declines we eventually recovered.  The amount of time varies.  Sometimes it was within a week and as we saw in 2008 it took a handful of years.  The important thing to put into perspective is not every decline is a “crisis” and investors who stuck to their plan and didn’t panic eventually recovered, often going on to new investment highs.  Talk to your financial advisor to help put today’s volatile markets into perspective.

Heard on the Street…

True story: this week my 7-year old son and I were driving home from church in a silent truck.  Then, all of a sudden, he yelled out “Everybody knows that!”.   Of course I replied asking, “Everybody knows what?”  His answer: “In 15 minutes you can save 15% or more on car insurance.”  Admittedly, this was not quite what I expected.  Then a few seconds later came his follow-up, “Dad, what’s a percent?

Many times we believe something just because we hear it over and over, regardless of whether we fully understand it or take time to research its validity.  Believe it or not, this happens in the investment world as investors buy into the “hottest stock tip” or become frightened after listening over and over to doomsday predictions.  Regardless of their specific situation or well developed plan, it somehow becomes easier to stray off path when the “noise” gets louder – whether from family, a friend’s so-called “successful investment story” or the news and media.  Remember, you must maintain faith in your plan.

Playing the “what-if” game can be dangerous just like following the latest trend can leave you at risk.  There’s a time to turn down the volume… and when things seem just too good to be true, don’t hesitate to ask your advisor.  It can be good to get a second opinion or an objective viewpoint before making a clouded or emotional decision that you come to regret down the road.

Saving early enough?

I attended a brief seminar last week that featured a former Department of Labor investigator.  As current trends in the qualified retirement plan area were discussed, the following statistic came up among pre-retirees: “the largest regret about my retirement is that I didn’t save enough (or at all) during the first five years I worked” – Did you know that by beginning to save when you get your first job, especially during the first 5 years, you can dramatically increase your retirement success rate?  Two key factors come into play: 1) your investments have longer to compound and grow, and 2) most who do so develop a positive habit of disciplined saving.  If this window has passed by, do you have loved ones you need to encourage to start investing now?  And if you are late, why not start now anyway?  Call us and we can help.

A look back

A look back reveals how far we have come since 2008 – consider these eight event-driven headlines that were seen in the 4th quarter of 2008:

  1. Dow falls below 10,000 (Oct. 6)
  2. Dow finishes worst weekly slide (Oct. 10)
  3. U.S. to buy preferred stake in 9 Financial Institutions (Oct. 13)
  4. Obama Elected President (Nov. 4)
  5. Auto Execs ask Congress for help (Nov. 18)
  6. Madoff charged with fraud (Dec. 11)
  7. Fed cuts Fed Funds rate to a range of 0%-0.25% (Dec. 16)
  8. Oil closes at $30.28 per barrel (Dec. 23)

Considering these and other major headwinds we have recovered from since the crash of 2008, we’ve survived some major events.  Sometimes it’s beneficial to look back can consider what we’ve been through as we continue to look ahead and plan for the future. [Source: Morningstar, Inc.]

Well-equipped for retirement?

According to the Population Reference Bureau, 76.4 million Americans were born in the period 1946–1966.  For retirement, a majority of these Baby Boomers must rely on the 401(k) system or equivalent defined-contribution plans (where the worker does a majority of the savings and, in many cases, may receive matching contributions from their employer).  This is because the key retirement predecessors, “defined-benefit” plans (such as pensions), have increasingly become a thing of the past.

What’s troubling is the Quantitative Analysis of Investor Behavior 2014 DALBAR survey results indicate that investors are not very effective in managing their own investment portfolios.  And among other things, the survey shows that workers aren’t saving enough for retirement.  To quote Dr. Olivia Mitchell, Executive Director of Wharton’s Pension Research Council “more than half of U.S. retirees will rely on Social Security for more than 50% of their total income.”  This will sadly leave them with the painful choice of a significant drop in their standard of living, or even more concerning, the risk of outliving their retirement savings.  One simple conclusion, workers should seek help to review and plan for their retirement – a second set of eyes to help them get, or even stay, on track.

Unused 529 Contributions

From time to time concerned parents share that they don’t want to save toward college in a tax-free 529 savings plan because they don’t want to incur any penalties if their child gets a full scholarship or doesn’t use all of the savings in the plan account.  Many times the potential penalties are misunderstood.  Below are a few things to consider regarding unused 529 account savings that may help you determine if the 529 plan is appropriate for you:

  • Federal law imposes a 10% penalty on “earnings” (not principal) for non-qualified withdrawals.  These distributions are allocated between principal and earnings on a pro-rata basis.
  • If you withdraw funds not needed for college because the beneficiary has received a scholarship, you may be able to qualify for an exception to the IRS penalty on non-qualified distributions.
  • There is an exception on non-qualified distributions if you terminate the account because the beneficiary has died or is disabled.
  • Remember that any earnings portion of non-qualified distributions come back to the 529 account owner (typically the parent) as ordinary income and taxed at the owner’s tax rate.
  • When the original beneficiary (the student) doesn’t need the funds in the account, don’t forget that you can change the “beneficiary” to another qualifying family member in order to maintain the account and avoid or delay taking a non-qualified withdrawal.

Remember to review current tax law with your financial advisor, CPA or accountant prior to making any non-qualified withdrawals from a 529 account to help determine what penalty or negative tax consequences you may incur.  Source:

Keeping the summer financially sound

The summer months typically include vacation, a little time off from work, or hopefully some time to just relax.  You can use these moments to refuel and even travel a bit.  However, the summer can also lead to increased expenditures, and for many, a time when they prefer to “take a break” from their finances.  Here are some practical tips that can help you stay the course with your finances during the summertime:  1) utilize automatic bank drafts to invest regularly, 2) set up automatic bill pay to avoid late charges or missing bills, and 3) avoid making unnecessary impulse purchases.  It’s also a good time to review your semi-annual statements and call ahead to schedule a future appointment with your advisor or Certified Financial Planner™ to review your accounts after the break.

Life expectancy and retirement

There are a lot of factors to consider when it comes to retirement planning.  If you’ve ever plugged in assumptions on a retirement calculator to try to determine “your number” then you know what I’m talking about.  One thing you want to avoid underestimating is your average life expectancy.  This is a key number telling you how many years your retirement income will need to last.  You will need to take into consideration factors such as your family medical history, your current health, etc.  While people are generally living longer, your family history plays a primary role in how you should view your life expectancy.  Remember, if you live into your 90’s you may need to plan for a lower investment withdrawal rate over your golden years.