How to be certain in uncertain times

The new year has not been kind to investors. In fact, to put it bluntly, it’s been downright brutal from the very start. The only bright spot is that we know what fueled the sudden downturn. Just take a look at what’s going on around the world.

There were the North Koreans testing a nuclear weapon. Or at least they’re claiming to. In China, a steadily sagging economy is perpetuating a staggering slide in their stock market. And in the rarely stable Middle East, tensions remain high between Iran and Saudi Arabia.

All this uncertainty has spurred an economic slowdown, which, in turn, has lead to dramatic drops in commodity prices. Oil prices have been the most visible; we see them every day at the pumps. But copper and steel have also taken terrific tumbles.

Yes, there’s no doubt about it. The world has been dealing with an onslaught of unsettling news.

In the midst of the uncertainty, there is a bit of good news. At least domestically. Our own auto companies are reaching unprecedented heights. In 2015, car sales were 17.5 million. While it wasn’t by much, it was enough to break the record of 17.4 million set in 2000. But bright spots notwithstanding, the pervasive mood is still one of caution and apprehension.

As a financial advisor who has guided many households through unsettling times, I suggest everyone keep a level head. Yes, it’s upsetting to see your daily account values tumble, but changing your financial course in the middle of a downturn may hurt your nest egg in the long run.

Of course, you could sell all your investments now and buy them back when things get better. But while this strategy may work for a rare few, in my experience not many investors ever get it right on both ends. They typically sell at the bottom and re-enter near the top.

Most are better served by developing a diversified strategy and maintaining it throughout economic cycles. Generally, it’s a good idea leave things to the money managers you had confidence to manage your funds in the first place

They follow your investments and the economic climate daily, affording them the opportunity to jump on opportunities that can add to the value of your portfolio.

Unfortunately, in the investment world it’s too easy to pull the plug on your well-thought-out plans. More often than not bad things happen when fear takes control.

Imagine you’re on a commercial flight and your plane suddenly encounters some severe turbulence. Would you consider asking the pilot if you could take over and land the plane?

That doesn’t make any sense, but that’s exactly what some are doing with their money. Modifications in your portfolio may be appropriate during a review. Tweaking a portfolio periodically may be in order. But total abandonment? It seldom turns out well.

Abandoning your strategy may make you feel better initially. But in the long term, the odds are your nest egg will suffer. I understand that it’s difficult to see account values fall. But I’m confident that investors who stick with their strategy will be rewarded for their commitment.
I don’t know when the slide will stop or the market will turn around. But I do know both events will happen.

Is your investment portfolio out of control?

From my perspective, time is moving at the speed of light. I’m continually reminded that we cannot control time. We can only manage it. To a certain degree, the same principle applies to investing. You can’t dictate your results; you can only manage your investments and hope for the best.

Let’s take a look at the conservative portion of your portfolio. You’ve likely got your money earning interest in a bank or credit union. You can- and certainly should- shop banks for the highest interest rate available. But other than that there’s not much you can do. You can’t control the interest rate; you can only manage it.

On the growth side of your portfolio, you can choose virtually any stock or mutual fund. The choice is almost limitless. Common, preferred. Domestic, foreign. By sector, by country. You name it.
Whatever you choose, your investments can move up or down on any given day. You can’t totally control outside events that affect the direction. But you can keep a close watch and manage your investments accordingly. And since it’s still early in the year, the good news is that you have more than eleven months to do just that.

Let’s take a look at some activities you can control. First, you can review the IRA rules to determine if you’re eligible to make a contribution.

If you don’t already have an IRA account, you can open one now, or contribute to an existing account and deduct the contribution on your 2015 tax return. This applies to a regular IRA account. Contributions to a Roth IRA are not deductible, but are withdrawn tax-free.

You can also manage your retirement plan contributions. The beginning of a new year is always a good time to review your previous year’s contributions. For example, if you were contributing five percent of your pay last year and it was relatively painless on your cash flow, now might be an opportune time to up that contribution to six or seven percent.

If five percent was leaving you feeling a bit squeezed, you could do some number crunching on the spending side of your ledger and find a way to do some trimming. Either way, it’s something you can control.

And while there’s much in the world that we can’t control, it’s not always a bad thing. Prices at the pump, for example, are down substantially. Conversely, health care costs continue to rise.
This past Christmas I received a fit-bit. For those that are not familiar, it’s a device that measures your daily steps. Clearly, I can manage that number; set and meet a daily goal. But, while it may help my health, it can’t assure good health.

The bottom line is that you can manage activities but you can’t control results. In order to do that you need to establish measurable investment goals and objectives. Carefully monitor your progress and make any adjustments that may be necessary.

When it comes to finances, nobody can ever guarantee results. That’s why it’s up to you to put your self in the best possible situation for success.

Knowing that you can’t dictate results, you need to manage the elements that lead to them. Save and invest and periodically review. That’s the best you can do.

Do you have the patience to be wealthy? Success takes more than wishing

I’m always amazed at how busy the gym is at the beginning of a new year. I doubt this year will be an exception. The locker room will almost certainly be packed, but by mid February the crowd will be back to normal.

Everybody wants to be fit, healthy and wealthy, but attaining these goals takes a lot of effort and a little luck. As with almost every aspect of life, success doesn’t come just because you wish for it.
Except for rare occasions, you have to work for success and in most cases that means a lot of hard work and sacrifice

For example, you can’t simply wish to become a doctor. It’s an admirable goal to be sure, but it requires countless hours of schoolwork. And that means long nights at the library, exams that need to be passed and, of course, residency at a hospital with long hours and minimal salary.

Many other professions follow a comparable path, but at the end of the day success is not achieved just by wishing for it.

Goal setting is also a huge part of your financial journey through life. You don’t achieve financial independence just by wishing and hoping for it. Again, there are rare occasions when that could happen. You could win a lottery, get lucky at a casino or inherit a fortune from a rich uncle.

But those are not things you can count on. The vast majority of wealth is achieved by saving and investing on a regular basis. You have to follow a well thought out plan and basically stick with it regardless of circumstances.

My experience as an advisor leads me to believe that many investors act a little bit like those people that come to the gym and soon disappear.

Because they didn’t achieve their desired results, they either quit or change direction. I’m not a fitness expert, but I do know it’s difficult to change your physique in a short period of time. You shouldn’t expect financial success to happen overnight either.

In the financial world, many investors become impatient too easily. In the course of a lifetime they might get discouraged and either give up or change strategies far too often. This is an especially important point to keep in mind today.

I can’t tell you not to be disappointed if you look at your year-end values and realize that 2015 was a down year. But I will tell you not to be discouraged. A bump in the road doesn’t necessarily mean you need to change your strategy entirely.

Might some reviews and modifications be in order? Of course. But wholesale changes are often nothing more than an indication of impatience. Patience is a common trait of many successful investors I know. That and a good, firm grasp of your financial goals.

As we begin a New Year, I want to remind everyone that setting goals is important. But just setting them is the easy part. The journey to achieve your goals entails a lot of hard work and commitment.
One of the greatest dangers along the way is becoming impatient during trying times and making wholesale changes to your strategy.

I’ve often said that successful investors need to have an iron stomach. I’m saying it again.

The difference between a gift and a loan

Like many of you, I’m looking forward to spending time and catching up with family members I haven’t seen very often during the year. With all the disastrous world events and the never-dull political season heating up, I’m certain there will be some interesting conversations, not just at my house, but also across the nation.
It seems like every January I receive a phone call from a client who learned over the holidays that their son or daughter was having some sort of financial issue. They want to discuss dipping into their nest egg to help out their loved ones.
For the most part, I have no problem with this. After all, family is family. And if you’ve been fortunate enough and are financially comfortable in retirement, I certainly understand why you would want to help family members.
However, I think it’s important to put defined parameters on the financial assistance. If you don’t, experience leads me to believe that misunderstandings over money can result in fractured family relations.

I miss my late father a great deal, but he imparted to me a piece of advice I will always treasure. He was adamant that he never wanted our family to have disagreements over money.
As a financial adviser I’ve witnessed many financial arguments among family members. I’ve seen long-time family businesses break up because the kids running the inherited company disagreed over money issues. Often to the point that the children totally disassembled the family business their parents had built.
You might not own a business, but when a family member corners you during the holiday and asks for financial help, you probably will if you’re able. That being said, if you do help a son, daughter or other family member, it’s important to have your money, your heart and your documents in order.
For example, I’ve had some clients complain to me months later that their loan wasn’t being repaid. When I ask if the recipient knew it was a loan and not a gift, the typical response is, “I thought they did.”
The lesson is clear. When money is involved, make certain both parties understand exactly what’s expected. If it’s a gift, make clear it’s a gift. If it’s a loan, I suggest an amortization table, and a signature acknowledging the loan.
I know. You might think giving a loved one a loan table and asking for a signature is cold and unnecessary. As a seasoned financial adviser, however, I’ve witnessed more than one family splintering over money issues. Defining the financial assistance will minimize potential issues.
My hope is that you will enjoy the warmth and beauty of the season free of financial concerns. But if they do arise, don’t just pull out your checkbook. Find out what created the problem. After all, if someone asks you for money, you should be allowed to ask questions.
A little due diligence might enable you to get to the cause of the financial problem and maybe even find a way to solve it. As a concerned parent, you don’t want to throw money at a reoccurring issue. You want the issue resolved for the long term.
In the meantime, I want to wish all my clients, readers and their families a Merry Christmas.

A healthy dose of technology provides peace of mind

By no means am I a technology expert. In fact, I’m often kiddingly ridiculed at the office for my lack of expertise. Recently, when I had an issue with an Excel spreadsheet, I contacted one of my sons to guide me through the problem.

I remember spending a fortune for an IBM computer several years ago. It came with two floppy discs and I proudly upgraded to an Amber monitor. It was the beginning of a trend.
Every time I have upgraded hardware or installed new software, no matter how easy the experts claimed it was to install, I’ve had issues. That being said, I still learned to embrace technology early in my career.

New technology is expensive, but as it rapidly evolves the price goes down. A few decades ago you could pay upwards of $100 for a desktop calculator. Today, they fit in your shirt pocket, and if you don’t want to pay a few dollars, your local insurance guy probably gives them away.

Just last week I wrote about cell phones and the add-on taxes that seem to keep creeping up. Today, I want to make my clients and readers aware of a relatively new technology that could be of great benefit.

As a financial advisor, many of my clients are in or near retirement. Not surprisingly, with today’s healthcare advances, quite a few of them are caring for an elderly parent. And believe me, shouldering both the financial and health care responsibilities of an elderly loved one is no easy task.
Fortunately, recent technological advances have made it much easier to keep track of your elderly loved ones. I’m not talking about something as “outdated” as putting an online camera on grandma’s fireplace mantel. It’s far more sophisticated than that.

You may or may not have heard of the Internet of Things (IoT), but you probably have noticed that a large segment of our population is wearing rubber wristbands to keep track of their steps every day.
In fact, many people compete against one another and actually have the daily results posted online for all the competitors to review. Some of these wristbands not only count steps, but also have emergency features that are activated in the event of a fall and are programmed to contact loved ones or even call for an ambulance.

In the not too distant future, I believe there will be a lot of wearable technology that will help you care for and monitor your loved ones without invading their personal space. Technology already exists to monitor pulse rate and blood pressure. GPS tracking systems are available to help in case a loved one becomes disoriented. And experts estimate that the IoT will consist of almost 50 billion interconnected objects by 2020.

I think it’s reasonable to assume that, as the technology improves, prices will ultimately decrease. Initial prices, that is. As with home alarms and cell phones you’ll need to factor in monthly fees to determine the actual overall cost.

Healthcare planning is an integral part of financial planning. Helping aging loved ones with their healthcare issues is a huge responsibility, but new — and affordable — technology coming onto the market can help provide peace of mind; For your elderly loved ones and for you

Holiday shopping can be very taxing

This is the time of year when people shop for gifts in the malls, downtown shopping districts and on the Internet.  They’re in spending mode, searching for the perfect gift for everyone on their list. 

Many economists are forecasting deep discounts for a variety of reasons, but the bottom line is that it there will be a lot of bargains out there.  I’m going to go out on a limb and predict that a good many gift packages are going to contain cell phones.  Or as I like to call them, outboard brains. 

As with everything else in our great nation, there are taxes on cell phones.  Lots of them.  Taxes that I guess most people are unaware of, and if they even were, would likely not understand them without doing some research. 

Frequent travelers have become accustomed to unanticipated taxes.  The kind you see at airports and hotels, for example.  You aren’t aware of them until you get to the airport or check out of the hotel. 

In the financial services industry, I have to pay a licensing fee to each state where I’m licensed.  The licensing fees in most states are generally around $50 to $100.  And for the most part I have no objection to such fees.  I consider them to be reasonable.  

The state of Tennessee, however, is an exception.  For the privilege of buying a $50 state license, you have to pay a Tennessee privilege tax.  That means ponying up $500.  Every year.

The good news for Michigan residents is that, although we pay plenty of taxes on cell phones, thirty-six other states pay more.  We rank thirty-seventh nationally, one of those rare circumstances where being near the bottom of the list is a good thing.

In total, the combined tax rate comes to 14.74 percent.  The breakdown is as follows: six percent sales tax; state wireless 911 comes in at .41 percent; county wireless is 1.45 percent; the Intrastate switched toll restructuring statement -- whatever that is -- is a mere .43 percent; and the Federal Universal Service Fund comes to a whopping 6.46 percent.  Check my math, but I’ve got the grand total at 14.74 percent. 

If fifteen percent appears to be somewhat excessive, be thankful you don’t live in the state of Washington.  The tax there is more than 25 percent.

I don’t want to put a damper on giving cell phones as a gift, but they do cost more to own than just the advertised price.  And while I don’t want to be a Scrooge either, I do want to point out that there’s a fine line between being generous and putting your finances at risk.  Not to mention the gift recipient’s finances.

Cell phones and tablets are certainly a part of our nation’s landscape.  But, they’re not inexpensive.  And with all the taxes factored in, they just might be more than you initially realize. 

According to Investor’s Business Daily, consumers with cell phones are paying $5.8 billion in excessive state and local taxes, and another $5 billion goes to Uncle Sam.  That’s a lot of money for those “little” items that many don’t even notice on their bill. 

If you do look, don’t be surprised to see even more taxes added in the very near future.

The financial ramifications of Paris and keeping your loved ones in the loop

In mid-November I felt the pendulum swing of emotion. Like so many people I was saddened and angered over the horrific attacks on innocent people in Paris. A few days later I was thrilled when our unpredictable Detroit Lions finally won a game in Green Bay.

By no means am I implying that the thrill cancelled out the sadness and anger. As we’re all aware, sports results are not matters of life and death.

To put the events into proper perspective, sports are really nothing more than a sort of escape from the realities of life, a vicarious diversion.

The events in Paris were beyond horrific and caused unimaginable grief for so many families. Grief that will never go away and will forever haunt those who lost loved ones.

It just goes to show you that in this crazy world anything can happen to anyone at anytime, regardless of age and circumstances.

As an adviser, though, I was pleased to see the world’s markets open and functioning normally after the Paris attacks. Not because I’m callous or insensitive to the victims of terrorism.

From my viewpoint, the markets — on Wall Street and throughout the world — represent order and civilization. By order, I mean that, even though prices fluctuate, at the end of the day they’re determined by the free markets. Not by having someone’s or some entity’s will forced upon the people.

I’ve often written that investors need an iron stomach and that they need to keep their emotions out of their investment choices. The events in Paris are the most recent example of why both attributes are necessary.

Again, I don’t want to sound callous, but in today’s world anticipating the unexpected and unimaginable is an integral part of financial planning. I don’t pretend to have an answer to all of the world’s issues and problems. But I believe the recent events in Europe should serve as a reminder why it’s so important to not only have your own financial house in order, but also to be involved in the financial order of your extended family.

I mention this because I’m an adviser to clients of various ages. And it’s fascinating to see how different age groups handle their financial transactions differently.

For example, I have many seasoned clients that continue to receive hard copies for all of their investment and bank statements. That means loved ones can easily access their pertinent data.
On the other hand, many of my younger clients opt out of paper statements and essentially do their banking from a smart phone. Which means all their financial data is digital.

Naturally, you want all of your online activities to be secure, but you also want your loves ones to know how to access your data in the event of illness or tragedy.

Financial technology may be convenient and secure, but if that’s how you handle your finances, it’s important to make certain that trusted family members know how to access this information if you’re no longer able to do so.

Unfortunately, the unexpected can happen at any time. Recent events should serve as a reminder to keep your financial house in order. And if you’re a “high tech” household, be sure to keep your loved ones in the loop.