Category: Learn

It is now four weeks since the March market lows. We have more information on how the pandemic will impact our lives and the economy and we have seen both bad and good come out during this unprecedented time.

Sadly, we have seen the virus spread quickly to every state in our nation.  Nationwide there have been over 750,000 cases and over 40,000 deaths. Many of our favorite local businesses have temporarily closed or dramatically scaled back their services, all of us know at least a few people who have lost their jobs and most of us have been sheltering in place for over four weeks.

There has also been uplifting news. Many of our neighbors have become local heroes by opening their hearts to help others – whether that be through grocery runs for others, celebrating a child’s birthday with a drive-by parade or health care workers continuing to risk their own well-being every day to help those infected. In addition, we have seen positive news on vaccines (J&J, Moderna, and others) and potential drug therapeutics (Gilead).

While the current situation remains scary, many of us have settled into our new temporary reality. And, the stock market has done the same. Since the March 23 lows, the market has made up roughly half of its losses and rebounded approximately 30%. As we adjust and get a bit more comfortable with our new daily routine, some people are asking “If I have additional capital, should I invest more in stocks?” As with most questions, the answer is – it depends. Below are a few of the factors to consider if you are contemplating investing new money into the stock market:

What is the purpose of each of my accounts? 

Most people have several accounts, each with different goals, and you want to make sure your investments match your goals. For example, you may have several college savings accounts for your children or grandchildren, an emergency fund with 6 months to 2 years of living expenses and your retirement accounts. The right answer for one account likely will not be the right answer for all of your accounts. For instance, your emergency account should be held in cash or high-quality liquid investments (like US treasuries). Adding equity exposure to this type of account likely does not make sense. For college savings accounts, it depends on how soon the beneficiary will need the money and your ability to add additional funds should the need arise. If the college funding is needed in the next 1-3 years, adding equity exposure likely does not make sense. However, if the child does not need the funds for 7-10 years, adding some equity exposure might make sense. For retirement accounts, if you have 5-7+ years of living expenses in bonds and/or cash, it might make sense to consider investing any new money in stocks.

Timeline – Strategy: What is the investment timeline for this new money?

Each market correction is different. In some cases, new highs are reached after just a few months. In other cases, it can take a few years. And, occasionally, it can take longer. Only invest new money in the stock market that you don’t need for several years, preferably 5 years or more.

Timeline – Tactical: How quickly should I make new investments?

Trying to call “the bottom” is an expensive exercise in futility. Yes, you might get lucky but, more likely, you will miss your opportunity. Most investors are far better off splitting their money into 4-6 tranches and investing regularly over a period of time. For example, invest 1/6 ^th  of the new money on the first trading day of each month for the next 6 months. This allows you to dollar cost average into new investments. A quick side note. If you believe the market will be higher in several years than it is today, you actually want the market to continue to fall as you invest as it will give you a lower average cost basis for your new investment.

What is my personality?

For investing, it helps if you are an optimist who believes in a better tomorrow. Yes, the next few months, and possibly years, will be challenging. Some companies will miss their earnings estimates, unemployment will almost certainly continue to rise to previously unthinkable levels, new coronavirus infections and deaths will continue, some cities and states will have setbacks after reopening their economies and there will be other expected and unexpected challenges. However, there will also be unforeseen positive developments such as promising news about vaccines and drug therapies, success stories from hospitals, cities, and states, additional fiscal policy support from the state and federal government and more. The point is, can you weather the bad news and a declining stock market if it continues over many months? Remember, your timeline for any new money invested in the stock market should be 5 or more years. That can be a  very  long time in a negative or flat market.

What is my goal?

I would argue that your goal should be to make a series of good financial decisions over several years. You will not get every decision “right”. But, if the vast majority of your decisions are sound and your mistakes are modest, you will likely do very well over time.

Is now the right time to start?

As I write this note (Sunday evening 4/19/2020), the S&P500 is at 2,875 – down just 11% year-to-date and very close to levels last seen in October of 2019. Think about that. If six months ago you had perfect clairvoyance and knew a global pandemic was coming and it would halt the world’s economies (and many of the small businesses in your neighborhood) what would you have predicted the stock market would do? “Flat” would not have been my prediction. Yet here we are.

At these levels, it feels as though there is a fair amount of optimism regarding the re-opening of the economies around the world, the power of unprecedented fiscal and monetary policies from various governments and the progress on drug therapies and vaccine candidates. Yes, I am optimistic on what the world looks like in 2 years. However, I am also a realist on what the path to get through this likely entails. The reality is that we will have some tough weeks and months in front of us as well as some heartbreaking setbacks in our fight against this virus.  It is impossible to know when the market bottom will happen.

Given the fear and uncertainty, a course of action could be to wait and start your first tranche of investing should the market fall another 5-10% from these levels.  But be clear this carries two big risks; first, the market may not correct the amount you’ve defined as your entry point causing you to leave you funds on the sideline. Second, you can be certain the headlines will look dreadful if/when the downdraft occurs. Will you be willing to buy in the face of really bad news?

In summary, is now a good time to invest new money? Maybe. But it is definitely a good time to plan how you intend to add to your equity exposure regardless of what the market does over the next several months.

On a similar note, if you found your portfolios a bit too aggressive in your current asset allocation, it makes sense to reevaluate and possibly de-risk some of your investment accounts. Your aim is for your asset allocation to match the specific account’s goals. With the market down just 11% year-to-date and at levels close to those seen in as recently as October of 2019, it may be a good time to evaluate a change like this.

Our goal is to help you make good financial decisions; often this includes helping you avoid short-term thinking with long-term assets (or, conversely, long-term thinking with short-term assets). Please reach out to your Senior Wealth Adviser if you would like to discuss any of the ideas shared in this note and how they might relate to your specific situation. Also, if any of your colleagues, friends or family are struggling to make good financial decisions during this stressful time, please feel free to let them know about Albion. We would be honored to have a conversation with them to see if Albion can be of service.

Doug Wells
Partner
Albion Financial Group

At Albion Financial Group, we believe in the importance of quality advising where financial success is a result of a series of good decisions over time. Multi-year financial advice on investments, tax planning, retirement savings, college education, Social Security and estate planning strategies can help protect income and grow wealth.

The start of a New Year is a good time to review your financial strategies to ensure they are aligned with your goals – an expertise we bring to bear for our many client families. We aspire to be a financial resource to you and in that spirit this blog post contains our 2019 Planning Guide to assist you in making informed choices. This guide is designed to be a quick reference for tax rates, savings and retirement contributions, college savings strategies, as well as Social Security and Medicare information. We hope this infographic is a helpful resource as you navigate many of life’s financial decisions.

Everyone’s financial situation is unique – the information found in the 2019 Planning Guide should only be used as a foundation for discussing your individual circumstances with a CERTIFIED FINANCIAL PLANNER™ practitioner, legal or tax professional.

The wealth advising team at Albion Financial Group understands the complexities of the current wealth management environment and would be honored to discuss your financial situation and strategies that may help you reach your personal financial goals. Please give us a call at (801) 487-3700 or email dpope@albionfinancial.com.

We wish you a prosperous 2019.

Financial decisions were once much simpler. Let’s rewind the clock to a time when, after graduating from high school or college, individuals would begin a job at a company where they would remain for the entirety of their career. Cash inflows were simply a pay check while working, followed by a pension in the golden retirement years. Employers would fully cover the cost of health insurance, and, upon retirement, Medicare would substitute. Banking would occur at a local bank where tellers were identified by their first name, and interest was paid on cash savings. If there was excess cash in a checking account, conservative investing would take advantage of the power of compounding.

Let’s now fast forward to today where it is the responsibility of each individual to decide how much to save for retirement, where to save, how to invest, when to pay off various debts, as well as what to do about health insurance and healthcare costs. In a time where endless information can be found on the internet at the click of a button and where the choices available to consumers are infinite, individuals must have a solid financial literacy base in order to make good financial decisions.

Now, more than ever, it is essential to teach financial literacy skills to our children. Here are some financial literacy building blocks:

As a family, craft a clear set of values regarding spending, investing, and philanthropy in your home. What does it cost to run a household? What percentage of monthly pay checks are saved each month? Are donations made to charities in volunteer hours or dollar gifts? Which particular charities are supported?

Make time for family discussions about money. It’s very important to talk with children about why you do things the way that you do them in your household. As parents, practice what you preach. If you teach your children about the importance of saving, and then children see you spending all of the money entering your household, you are sending a mixed message. Children will pay attention to the action rather than the verbal message.

Young children can begin to learn about money and adopt early skills needed for a lifetime of currency use. Teach young children about different currencies. Practice counting and exchanging coins and bills with them: four quarters for a dollar bill, a five dollar bill for five one dollar bills. Simple games such as “store” or setting up a lemonade stand are fun ways for children to gain comfort with money. Help kids understand prices, purchases, and how to make change. Have your child open their own library card and explain the library trusts the child to return borrowed books or they will owe a fine. This is a way for kids to begin their first credit relationship.

Giving children a chance to practice money skills while the stakes are relatively low is critical. Using an allowance as a financial teaching tool is a great place to start a financial education. A good rule of thumb for allowance is a dollar a week for each year of age. For example, an eight-year-old would receive eight dollars paid in cash on the same day each week, and then going up to nine dollars after her next birthday, and so on.

It’s a good idea to separate allowance from household duties like making the bed, keeping the bedroom clean, and emptying the dishwasher—in other words, expected household contributions that do not warrant compensation. Create opportunities for children to earn money by doing jobs around the house that are above and beyond expected household duties. Make a chart that shows the monetary value of each of those other household jobs: mowing the lawn earns five dollars or organizing the pantry earns four. When you pair allowance with work, you show children the relationship between performing a job and earning a wage.

Be consistent and clear with when allowance will be paid and how their money can be used according to parameters decided upon as a family. Families may determine that allowance should be split into thirds: a third saved, a third given to charity, and a third to spend. Give children the freedom to spend the money that is set aside for spending. Encourage comparison shopping and thinking twice before making purchases. It is also helpful to talk about needs versus wants. Clothing is a need, while the fancy new t-shirt designed by a skateboard professional is a want.

As your children mature, begin to pay allowance in advance. By paying allowance monthly or quarterly, you allow older children to practice long term budgeting. Work with kids to create an itemized budget and track expenses. Overtime, talk about what is working in their budget as well as where they have over-spent or under-estimated. The goal is to help children shift from relying on their parents to relying on themselves.

With age, financial literacy activities can become more complex. Have your ten-year-old track a utility bill for six months. A good example is the cell phone bill. Look at how many minutes each person uses and how much data is used in a given month. How does the expense change month-over-month? What can be done to decrease the bill when the expense is high? How much of your household monthly budget is this cell phone bill?

Encourage children to think about what they would like to be when they grow up and facilitate research on the average salary for the desired profession. Let’s say they chose a circus performer. How much does one earn each year? If the circus performer had to save one third of earnings, how much is left to spend on new circus props? Have them look at different career paths and study the level of education or training needed for a particular career. Then, look for schools that specialize in this training and find the cost associated with the training. Children also love stories of entrepreneurs. Share entrepreneurial stories about professionals working in areas that your children are passionate about.

It is never too late to begin discussions about financial literacy. To be successful, we need to educate both ourselves and our children. Financial literacy skills are critical and they can also be a lot of fun.

Sarah Bird, CFP® / Senior Wealth Advisor
Albion Financial Group
sbird@albionfinancial.com
(801) 487-3700