Portfolio Returns are Only One Piece of Your Planning Puzzle
Monday, 20 July 2020
You max out your 401(k) contributions, you contribute regularly to your IRA and you’ve diversified your portfolio in order to reduce your overall risk. This is a thoughtful and strategic financial plan, right?
Well, not exactly. Although many people believe a consistent investment strategy sets them up for their desired financial future, the truth is that investing is only one piece of the puzzle when it comes to financial planning. If your investments are the only thing you’re being thoughtful and strategic about, you’re missing several crucial steps in protecting your financial future. Below we’ll discuss a three-part plan to help you discern where you may have holes in your current financial plan.
Part 1: Goal Planning
Regardless of what stage of life you’re in, you have short- and long-term goals. Maybe you want to get married and buy your first home, maybe you’re focused on getting the kids through college debt-free and buying a vacation home, or perhaps it’s your dream to retire early and travel the world. In any scenario, you can’t properly plan for the future until you know what you want. Once you’ve clarified your goals, you can devise a strategy to achieve them.
Wednesday, 08 July 2020
This year, investors have been treated to a rare real-world lesson in the mathematics of investing—namely, the fact that after a market decline, it takes a greater market recovery to get back to even. The first quarter saw a frightening downturn that delivered 20% losses across the U.S. and developed foreign markets. Then we experienced a breathtaking 20% gain in the second quarter, the fourth-best quarterly rise since 1950. Work out the mathematics, and virtually all indices are still showing a loss for the year.
You can see this dynamic everywhere you look. The Wilshire 5000 Total Market Index—the broadest measure of U.S. stocks—fell 20.70% in the first three months of the year, then gained 22.69% in the ensuing quarter. By the mathematics of the market, investors in the index are still down 2.88% so far this year. The comparable Russell 3000 index is down 3.48% in the first half of 2020.
Monday, 15 June 2020
While the recent volatility in the stock market, the likelihood of an economic recession, and the proliferation of a global pandemic has had a deep impact on nearly everyone’s portfolio, our clients experienced little to no impact on their retirement income due to our three-bucket investment approach.
Here’s how: our number one focus at TriCapital is to put plans in place to help make sure our clients never run out of money. One of the tools we use to accomplish that goal is our three-bucket approach to asset allocation. Since 1926, large stocks have returned about 10% per year while government bonds have returned between 5% and 6%i so we want our clients to have a significant allocation to stocks in order to benefit from the higher return. However, stocks are also more volatile than bonds and we don’t want to have to sell stocks in order to produce the income our clients need when they are down a lot. To deal with this challenge, we divide our clients’ portfolios into three “buckets”. Here’s a description of each bucket and the process we use to manage our clients’ retirement income.
Wednesday, 20 May 2020
Just when we thought we had finally seen it all, the COVID-19 pandemic forced oil prices into the negative for the first time in history. Producers were paying as much as $37.63 per barrel as of April 20 to get buyers to take oil off their hands. While one might think finding buyers willing to be paid to accept free oil might be easy, the sharp drop in demand in recent months has lead to a massive oversupply of oil such that buyers have nowhere to physically store it. Some producers have reportedly paid nearly $100,000 per day to lease oil tankers that enable them to store their oversupply at sea.
How We Got Here
How did we go from peak oil prices of $150 per barrel 15 years ago to negative pricing recently? In short, coronavirus has acted like a lead foot on the brakes of a car and air travel worldwide, with safety restrictions severely limiting flights, requiring workers to stay home and non-essential businesses to temporarily close. At the same time, both China and India – two of the world’s largest importers of crude – shut their borders in attempts to contain the coronavirus outbreak.
Monday, 20 April 2020
By now, you’ve heard reports that the White House has announced federal guidelines for the easing of social distancing orders that have been put in place to slow the spread of the coronavirus. The leadership of different states will have the final say, of course, but the guidelines offer some indication of when we can expect to start congregating again without gloves and masks.
There are three phases in the proposed guidelines. (We are apparently in Phase 0 currently.)
Sunday, 29 March 2020
On March 27 the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to address the unprecedented public health and economic crisis related to COVID-19.
This $2 trillion bill is meant to impact both individuals and businesses and contains significant tax-savings measures. It could affect prior tax years while also creating immediate cash-flow.
Impact on Individuals
Perhaps the most impactful provision for American citizens is the CARES Act’s promise of cash payments of up to $1,200 per single individual and $2,400 for a married couple. Parents will also receive an additional $500 per qualifying child. Payments are phased-out for individuals with incomes greater than $75,000 and for married couples filing jointly with income greater than $150,000.
Provisions are such that payments will be based on 2018 tax returns, though, like the Affordable Care Act’s tax premium credit, there is a true-up related to the amount for which you are eligible on your 2020 tax return. Nonresident aliens, dependents and estates and trusts are not eligible for a stimulus check.
Retirement Plan Rules
Since this bill aims to generate more access to cash, it loosens retirement fund rules. In particular, it waives the 10 percent early withdrawal penalty for distributions up to $100,000 for coronavirus-related use. It also allows for the federal income tax on such distributions to be paid over a three-year term. Finally, these distributions can be contributed back into the retirement fund within three years with no impact on that year’s contribution limit.
The CARES Act also adds flexibility regarding loans from certain retirement accounts when used for coronavirus-related needs. The loan maximum is now the lesser of $100,000 or 100 percent of the accrued benefit. Repayment is also now delayed.
Friday, 27 March 2020
As I sit here in my home office looking out at so many beautiful plants just beginning their gorgeous annual blooming ritual, I am reminded of the new awakening we Americans are experiencing. Americans have a long history of pulling together when needed, from 9/11 to numerous world military conflicts and now to the global COVID-19 virus pandemic. Amid the drumbeat of constant bad news these days there are also many good things happening--one just has to look around a little.
Americans Can Defer Filing & Payments for 90 Days
Friday, 20 March 2020
As we continue to face uncertain times, the IRS has made a welcome announcement.
Treasury Secretary Steven Mnuchin has announced that the IRS has decided to extend the filing and payment deadline for 2019 tax returns, allowing taxpayers to defer until July 15. Mnuchin indicated this move will put $300 billion into the economy during a time of great economic concern over the consequences of the COVID-19 pandemic.
The payment deferment is subject to certain caps, however. Individuals may defer tax payments of up to $1 million, while corporations may defer up to $10 million. The limits were purposefully selected to benefit small businesses that report income through S corporations, partnerships or other pass-through entities.
Tuesday, 17 March 2020
We are facing something we have never faced before in our lifetimes. That is a fact and, in a time, when the news of the pandemic is spreading and the recommendations on social distancing are getting broader by the day, it can be hard to feel certain or safe about anything.
As troubling as it is to watch the unprecedented market decline and as hard it is to tune out the fact that you know you are losing a lot on your investments, we need to maintain our health and the health and safety of our family, friends and neighbors as the number one priority. Covid-19 which emerged late in 2019 in China has spread rapidly worldwide since then and is a global pandemic. The measures taken by leaders around the globe have been drastic leaving most children without a classroom to go to, parents working from home or without a job altogether and investors panicking about what is to come.
This disruption to daily life and to our psyches is substantial and it’s terrible. The coming weeks will not be easy, but these measures are practical and prudent.
Yesterday – March 9 – was the eleventh anniversary of the crescendo of global panic that marked the bottom of the bear market of 2007-09.
Tuesday, 10 March 2020
It is, to me, a thing of the most irony that the world elected to celebrate this iconic anniversary with – you guessed it – another epic global panic attack.
At yesterday’s closing level of 2,747, the S&P 500 is down over 18% from its all-time high, recorded on February 19. Declines of that magnitude are common occurrences – indeed the average annual drawdown from a peak to a trough since 1980 is close to 14%*. But such a decline in barely a month is noteworthy, not for its depth but for its suddenness.
As we all know by now, the precipitants of this decline have been (a) the outbreak of a new strain of virus, the extent of which can’t be predicted, (b) the economic impact of that outbreak, which is equally unknown, and (c) most recently, the onset of a price war in oil. (That last one is surely a problem for everyone involved in the production of oil, but it’s a boon to those of us who consume it.)
The common thread here is unknowability: we simply don’t know where, when or how these phenomena will play out. And in my experience, the thing in this world that markets hate and fear the most is uncertainty. We have no control over the uncertainty; we can and should, however, have perfect control over how we respond to it.
Volatile Markets and the Ongoing Spread of the Virus are Causing Economic Uncertainty
Monday, 09 March 2020
Beginning last week and continuing into yesterday we saw the worst week on Wall Street since 2008, as the Dow fell into correction due to the outbreak and spread of COVID-19 (and other factors), commonly called novel coronavirus. A market correction is a nerve-wracking event for investors, but the current uneasiness in the markets is no cause for panic.
While the spread of COVID-19 is atypical, market corrections are not. In fact, it’s an entirely normal process, especially after experiencing such strong performance in recent years. There have been 22 market corrections since 1974, and they are aptly named because the market usually “corrects” itself and returns prices to their longer-term trends. While the coronavirus is likely to cause economic impact into at least the second quarter of 2020, historically, including in the recent past, Wall Street’s reaction to these types of epidemics has been short-lived.
It Pays to Be Financially Prepared
Wednesday, 04 March 2020
Are you worried you and your spouse aren’t saving enough for retirement? It’s a growing concern among many Americans, and rightly so. With new medical advances, retirees are living longer than ever before – meaning their retirement savings need to stretch further.
According to the 2017 Lincoln Retirement Power® Participant Study by Lincoln Financial Group, most Americans will need to save a minimum of 10 percent of their income each year – more if they plan to work for fewer than forty years. However, only 4 in 10 workers are currently meeting that savings goal.
Luckily, it’s possible to build a secure financial future, even if you feel behind. Follow the eight steps below to master your savings plan and set yourself up for retirement success.
Rising Health Costs Remain a Barrier for Many Americans
Wednesday, 19 February 2020
Do you dream of the day when work becomes an option, rather than a necessity? If so, you’re not alone. Many Americans in their thirties, forties, and fifties are working hard to save and invest with the hope of achieving financial independence and leaving the working world behind. This is no small feat, what with concerns like boomerang children, inflation, college costs and caring for aging parents. It’s health care costs, however, that act as the biggest hurdle.
Learn Whether Retiring Early is the Right Move for You
Wednesday, 05 February 2020
The dream of early retirement is a common one, but is it really all it’s cracked up to be? Like anything else, there are pros and cons to this major life decision, as well as alternatives that may be worth considering. So, before you set your sites on saying sayonara to the working world, read on.
Monday, 03 February 2020
We at TriCapital take seriously the high degree of trust placed in us by our valued clients and I thought it would be appropriate for me to take a minute to address the current global viral epidemic that is impacting the markets.
On Friday, January 17 – after a spectacular 40% runup that started the day after Christmas 2018 – the Standard & Poor’s 500-Stock Index closed at 3,329.62.
Two weeks later to the day – last Friday, January 31 – the Index closed a little over three percent lower, at 3,225.52. (Indeed, more than half that damage was done on Friday.)
As a result, we have been invited by financial media to suspect that the blended value of 500 of the largest, best-financed, most profitable businesses in America, and indeed the world, has “lost” three percent – with more “losses” to come – due to the outbreak in China of a new strain of coronavirus.
Please permit me to doubt this, and to suggest that you – as goal-focused long-term investors – join me in doubting it.