How Long Will the Market Stay Strong?

As of fall 2019, the bull market was officially the longest on record, but this doesn’t stop skeptics from asking when it will end. And this leads to the question: How long will any market stay strong?

Most financial analysts use 20 percent thresholds to label bull or bear markets. A bear market begins, for example, when an index falls 20 percent from its peak.

So, as of this writing, we are in a bull market. The S&P 500 index is up more than 300 percent since its closing low on March 9, 2009.

But is it a bubble that will burst?

Market bubbles, such as the housing-market bubble that burst in 2008 and the dot-com bubble that burst in 1999, are fairly regular occurrences. They occur when an economy or market has become unbalanced due to a flawed outlook. And bursting bubbles typically hurt all investors, even those who do not own the inflating asset, because they can affect more than just the inflating asset. Recall that the housing-market bubble that burst in 2008 affected the broad stock market.

Although there are no clear asset-class bubbles today (equities are up broadly), there is concern that at some point the market will have to recalibrate and take a downturn. But we cannot know when that will happen.

How do you prepare, then? One option is de-risking with diversification. It cannot protect you from a decline in all markets, but stock and bond markets often perform differently, so diversifying into stocks, bonds, cash, and possibly even real estate and commodities may help protect you in a down market.

Remember, de-risking does not mean removing all equity risk from your portfolio, because equities play an important role in any portfolio by facilitating growth. The idea, if you are concerned, is to allocate more assets to less volatile asset classes, such as fixed income. Bonds tend to be much less risky than stocks.

For assistance with this diversification process, please contact my office. I’m here to help.

How to Start Your End-of-Year Financial Planning

As December approaches, many of us give thought to getting our houses in order, and that includes our financial houses. Here are some things to look at as you “clean house.”

Review your financial accounts. Look at your bank accounts, retirement accounts, credit cards, and other financial accounts. Gather statements, performance reports, and any other documents that will provide information about the accounts.

Ask if your accounts still meet your needs. With this information in hand, ask if your accounts are still valuable. If not, should you consolidate some, or close them? Should you open others?

Update your account information. Ensure that your accounts have accurate contact and beneficiary information. If you haven’t changed your beneficiaries in some time, you may want to review them (and make all possible accounts transfer on death, or TOD, so they avoid probate in the event of your death).

Review your budget. How is your spending? If it is not on budget, determine why. Are you spending too much money on luxury items?

Review your debts. Are you overwhelmed with debt? If so, develop a strategy for keeping your spending on track and eliminating debt (perhaps by consolidating loans).

Consider estate planning. Estate planning isn’t just for the wealthy; everyone should have a will. If you don’t, get one. If you have an existing will, review it to ensure it still protects your loved ones in the manner you intended.

Contact a financial planner. For assistance with any of these items, please contact me. I can help you put a solid financial plan in place to head into 2020 with confidence.

Stock Market Secrets: Is Bigger Always Better?

With the stock market soaring this summer, you likely read a lot about a number of mega-cap companies: the largest companies in the investment universe as measured by market capitalization. But when it comes to investing, bigger may not always be better.

While the exact thresholds change with market conditions, mega-cap companies generally have market capitalizations above $200 billion. The so-called FAAMG stocks (Facebook, Apple, Amazon, Microsoft, and Google) are good examples, but there are many others.

The total number of mega-cap stocks varies with market conditions, but there are generally 25 to 30 in the United States. Bank of America, Berkshire Hathaway, The Walt Disney CO., and Johnson & Johnson have also made the list. The massive value of these companies can attract investors who think the businesses are too big to fail. Mega-cap companies tend to have recognizable brands as well as steady revenue, earnings, and dividend streams. These qualities appeal to investors who are seeking less volatility than smaller stocks generally offer.

But are mega-caps necessarily good investments because of their size? To answer that question, you may have to look deeper.

While each of the FAAMG companies was initially a single business, for example, they are now much more.

Amazon began as an online retailer of books, but is now in the business of cloud-based web hosting and even owns brick-and-mortar grocery stores. Google started as an internet search engine, but now has a mobile phone operating system and even a self-driving car enterprise.

Diversification in a business model is good, but it can present challenges. No company can succeed at everything. So, it takes an experienced analyst to determine if size is good or bad.

The moral of the story: Bigger may or may not be better. When analyzing mega-cap stocks like these, an investor should look beyond size and consider many other factors.

We can help you navigate these factors to determine what investments are best for your current and future financial goals.

Four Questions to Ask Any Financial Advisor

Are you looking for referrals for the right financial planner? Are you wondering which financial adviser will meet your needs? To determine if a financial advisor is right for you, use the following four-step process.

1. Check your advisor’s background. Make sure you check the background of your advisor using BrokerCheck, a free service provided by the Financial Industry Regulatory Authority. The service is private (your advisor won’t know you checked), and any violation you find is worth thinking about. Depending on the results of this search, you may want to find another financial advisor.

2. Ask what he or she charges (and how). Ask what your advisor charges, and how the fee is structured (a fee based on assets under management, commission, etc.). Your advisor will not be offended. In fact, he or she likely expects this question and is used to discussing it.

3. Find out what services you will be receiving. Once you understand what you are paying and how the fee is charged, it’s time to find out what you’re buying. In addition to providing continual portfolio monitoring services, your financial advisor may conduct in-person reviews with clients each year.

4. Get references. Ask the advisor for professional references. Established professionals can point you to others who have used their services and can provide feedback on their experience. A personal referral is worth a lot.

Have questions about our services? I’d be happy to review our offerings, provide answers, and discuss your options. Just give me a call.

Are You Saving Enough for Retirement?

Will your savings be enough to see you through retirement? This is a key question in planning, but many people still don’t know how to determine the appropriate amount they need to accumulate for a retirement-worthy nest egg.

Financial planners often recommend that you save between 10% and 15% of your income for retirement, beginning when you are in your 20s. But what if you are older? How do you know how much you will need then?

Saving between 10% and 15% is just a general guideline. When talking about your specific retirement, it pays to consider more personalized numbers. Another guideline, promoted by J.P. Morgan Asset Management, involves looking at your age and income together.

For example, if you are age 55, and your annual income is $50,000, J.P. Morgan recommends you have 4.7 times your income saved ($235,000); if your annual income is $100,000, have 6.9 times your income saved ($690,000); and if your annual income is $150,000, have 8.1 times your income saved ($1,215,000).

The main concept is to factor age and income into your retirement planning because they are the significant factors that will determine how much you need to live comfortably at your current lifestyle when you retire. In other words, when you start saving and how much you make are just as important (if not more so) than tucking away a flat percentage each month.

Of course, how you will achieve and grow your savings is another topic. Depending on your situation, we might recommend diversification or other strategies.

And remember, these are just broad guidelines. We can help you decide if your current savings numbers are on point based on your circumstances and goals.

Three Costly Insurance Mistakes to Avoid

When you are looking to save money on insurance, you may be tempted to reduce your coverage; but focusing on the numbers instead of your goals could leave you dangerously underinsured. This could lead to much bigger bills in the event of a disaster.

Here are three mistakes to avoid when it comes to insurance coverage.

Insuring a home for its value instead of the cost of rebuilding

Real estate prices fluctuate, and when they do, some people think they can reduce the amount of homeowners’ insurance they maintain. But that ignores a fundamental principle of homeowners’ insurance: it is designed to cover the cost of rebuilding your home, not the sale price of your home. As a result, your homeowners’ policy should be robust enough to ensure you can completely rebuild your home and replace your belongings. If you need to save money on your homeowners’ policy, consider raising your deductible instead.

Purchasing only the legally required amount of automotive liability insurance

Different states require different amounts of automotive liability insurance coverage. But the requirements are minimums. Buying only the minimum could mean you pay more out of pocket later, especially if you are sued, in which case the costs could be significant enough to jeopardize your financial well-being. Consumer groups generally recommend at least $100,000 in bodily injury protection per person and $300,000 per accident.

If you need to save money on your automotive policy, consider dropping collision and/or comprehensive coverage on older cars.

Choosing an insurance company by price alone

We all want to choose an insurance policy with competitive prices. But we also want to be paid in an efficient manner when a claim is filed. So we recommend you make sure that the carrier you choose is on stable financial footing and provides good customer service.

Tactical Allocation for Tough Markets

Today’s economy may be booming and the markets rising (with some bumps here and there), but that doesn’t mean investors do not face challenges. Balancing growth with risk is always a concern, especially as you near retirement. Where can you turn for help?

According to traditional investing wisdom, the solution is diversification. Holding investments from different asset classes, including equities, bonds, and cash, allows you to increase your chances of obtaining a compelling total return.

Some diversification strategies are passive, meaning they buy and hold securities for the long term regardless of market fluctuations. A mutual fund, for example, may have a prescribed allocation mix of 60 percent equity, 30 percent bonds, and 10 percent alternatives. This would not change, even as the equity market rallies and the fixed-income market flounders.

Other diversification strategies are active, meaning they adjust to evolving market conditions by moving assets as the markets change. Portfolio managers using strategies such as these may have the flexibility to shift entire asset classes in response to market fluctuations, for example. If alternatives perform badly, the portfolio manager may exit alternatives altogether. These are also called tactical allocation strategies.

Advocates of tactical allocation strategies believe these strategies may benefit investors in volatile markets. When market risk is low, a portfolio manager can increase exposure to growth by allocating assets to the market’s top-performing sectors and countries; when market risk is high, the portfolio manager can preserve capital by shifting to bonds and cash.

Does it work? No investing strategy is appropriate for every investor. You have to find the one that balances your desire for growth with your tolerance for risk.

We can provide you with more information about what might be suitable for you given your individual financial circumstances, goals, and risk tolerance; please reach out to us for more information.

The Importance of Duration When Buying Bonds

Equity market volatility drives some investors out of stocks and into bonds, which are often perceived to be less risky. Certainly, bonds do not have the same kind of risk equities have.

But bonds also have risks, and perhaps the greatest such risk is interest rate risk. This risk can be managed by looking at something called duration.

First, it is important to understand how bond prices work. Typically, bond prices move in the opposite direction of interest rates. Higher interest rates drive bond prices down, and lower interest rates drive bond prices up.

The risk that your bond price will fall because interest rates rise is called interest rate risk. And when purchasing shares of a bond fund, you can help manage this interest rate risk by paying attention to the fund’s duration.

Duration may sound complicated, but it is just a number that indicates the percentage change in the price of a bond fund for each 1 percent change in interest rates. So, if the bonds in a particular fund have an average duration of five years, for each 1 percent change in interest rates, the bond fund’s price should move 5 percent in the opposite direction.

The lower the average duration of a bond fund, the less price sensitivity the bond should experience. So, if you are a risk-averse investor, you may want to consider bond funds with shorter durations.

It is typically easy to obtain this information from a bond fund’s website or prospectus. You can also ask us. Feel free to contact our office with any questions about bond investing.

5 Powerful Personal Finance Strategies

Getting your finances in order can feel overwhelming, but a few key strategies can help. Here are five.

1. Pay Off Debt

From mortgages to credit card debt, eliminating the high interest that you pay on loans allows you to invest that money elsewhere. Pay off your credit cards each month, and make more than the minimum payments on all other debt.

2. Build Multiple Income Streams 

Maximizing your income from multiple income streams brings in extra cash now and provides a backup in hard times. So even if you have the steadiest of jobs, you may want to assess your skills and consider starting your own small side business.

3. Buy Insurance in the Right Amount 

At times, it can seem like we have a lot of insurance: life insurance, medical insurance, home insurance, auto insurance, umbrella insurance. But insurance is an important part of any long-term personal finance strategy. Many people have too little coverage, while others pay high premiums to cover moderate or minimal risks.

Review your true needs to get the right coverage for your lifestyle and portfolio.

4. Watch Your Credit Score 

A good credit history will help you obtain a mortgage or some other loan at a lower interest rate. So, keep it clean.

In addition to maintaining regular loan payments, review your credit report periodically to identify and address any potential errors.

You can request a free credit report each year from the three leading credit bureaus: Experian, Equifax, and TransUnion.

5. Save the Entire Salary of One Spouse

This a stretch goal for most of us, but if you can swing it, you can see significant financial growth. If you and your spouse are both earning, develop a household budget that lets you live on one spouse’s income while saving the other’s income. You’ll have to be frugal, but you’ll be rewarded in retirement.

How Life Expectancy Should Shape Your Retirement Plan

Of all the questions when planning for retirement, two are crucial: How long will you live? And how healthy will you be? Estimating the answers to these questions will help you decide how to prepare for retirement.

Your lifespan determines how much you should save for retirement and how much you can spend once retired. It can also affect how you decide to take Social Security benefits (sooner or later), whether you buy or forgo annuities, and if you choose to obtain long-term care insurance.

Most people rely on wild guesses to determine how long they will live. In one survey by AIG Life & Retirement, more than half of people surveyed said they plan to live to 100 (an unrealistic expectation). The standard life expectancy for a 65-year-old woman today is 83, according to the Social Security Administration.

But what if you’re very healthy and you have a family history of longevity? Some calculators, such as the American Academy of Actuaries’ Longevity Illustrator atLongevity Illustrator, give you an assessment of the probability of living to different ages based on your age and health.

But life expectancy is just a part of longevity. Another important side of the equation is the number of years you have left in relatively good health. To answer this nuanced question, new technologies – from saliva-based tests to facial analysis software – offer some guidance.

Fundamentally, though, we just can’t know for sure. The healthiest among us could face a fatal car accident tomorrow. This uncertainty makes it important for would-be retirees to consider all possible scenarios when developing a financial plan.