Baby Boomers, Know Thy Self

Many Boomers have saved their hard-earned money for years with plans of being able to retire. Some have faced job loss and various circumstances that have led them to not be able to retire – or at least not when planned.

For those who do have plans to retire soon or already are retired, having a plan to maintain their lifestyle without running out of money is the goal. We have found that many hopeful retirees may have a plan for how to have fun but may lack a plan to dole out their savings during retirement.

An income strategy can prove to be tremendously helpful, however, there is an essential aspect of a plan that can make or break it; sticking to the plan.

Many folks enjoy investing, but many more are forced to be investors out of necessity. The reality is that our money may not last the rest of our lives if we stop growing it once we retire. Could you handle a 15 to 30-year runway of no growth? How about if you were withdrawing assets? Most can’t, which is why many retirees need to have at least a portion of their assets invested to maintain lifestyle over the long haul in retirement.

An important task in the investing process is finding the appropriate level of risk to take.  The level of risk needs to be able to deliver plan success, but also needs to be one that you can live with (and not lose sleep over). Once that task is completed, the even harder job begins – sticking to your plan.

Sticking to your plan can prove to be easier said than done.  Many investors are still nursing some investment induced “Post Traumatic Stress Disorder” from the market gyrations of 2008-09, the dot com bust and the 3 years in a row the stock market was down from 2000-2002.

Through many discussions over the years we have found some investors were under diversified, which resulted in devastating losses equal to that of the market indices and sometimes even worse.  Understanding proper diversification and what protection it may provide, and what it cannot, is imperative. This can be an integral part of a successful retirement plan, because it helps give us the confidence to stay invested.

Even a well-diversified portfolio could probably go down if the stock market drops sharply, however, diversification may help mitigate risk depending on what’s inside. It is important to understand diversification and what to expect from your portfolio when facing volatility. It is also important to understand if volatility is affecting the ability of your long-term plans to be successful.   Fortunately, there are now financial planning programs that can help answer this question.

The confidence that an understanding of the markets and how/if it will affect your retirement plans may help you stick to your plan or make sensible changes to stay on track. It all starts with knowing thyself.

 The opinions expressed in this article are those of author and should not be construed as specific investment advice.  All information is believed to be from reliable sources, however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees. One cannot directly invest in an index. 
Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through Valmark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc. 

August 2018 Market Letter

This letter will serve as a bit of a departure from most of my missives since I won’t be opining about politics at all. Frankly, there was so much in the way of political news flow this month that I wouldn’t know where to begin or end. Let’s simply suffice it to say that we live in very interesting times.

Besides, the markets had their own massive headlines in July. The proverbial dog days of summer are generally a bit slow on Wall Street since many traders take elongated vacations during this time. However, this month had plenty going on – some of it quite good, some not so much, and some signifying equity sea change. In no particular order, here are the high points:

  1. Equities had a positive month overall. The major averages were in the black, although the past few trading days have been difficult. Still, a decent start to the third quarter.
  2. Second quarter GDP came in at 4.1%, a mark not seen since 2014. It’s unclear how much of this is related to tax reform, deregulation, countries purchasing products before tariffs took effect, or simply business optimism. If anything close to this number is sustainable in the next few quarters to come, it should continue to be a tailwind for stocks.
  3. The ten year Treasury closed near the 3% level. This rise may be attributed to the GDP number, which may lead the Federal Reserve to enact two additional rate hikes in 2018. If so, the fixed income market would possibly continue to decline in value (interest rates go up, the value of bonds we already hold goes down).
  4. Oil prices continued their stealthy upward movement. Crude reached the $70/barrel mark. While this is good for GDP and oil producers/refiners, it’s inflationary for consumers. Some of the price action may be attributed to the summer active driving and flying season… we’ll need to see whether the trend lasts into the fall.
  5. Volatility began to pick up in the last week of trading. The VIX in and of itself was relatively placid, and nowhere near any level of short-term panic. However, individual stock volatility was quite significant. Companies that had strong earnings reports were generally treated well, with some upside revisions. However, those corporations that missed their numbers were taken to the woodshed with outsized losses.

The biggest story of July as far as the markets were concerned, though, had to do with sector and asset class rotation. While the major averages didn’t do much in the first half of 2018, a few stocks showed extremely strong performance. The “FANG” stocks – Facebook, Amazon, Netflix, and Google – led the parade. Honestly, a case can be made that without these four stocks, equities would have been in for a negative performance from January through June. Because of the large market capitalization of these companies, they are heavily weighted in index funds and exchange-traded funds. It seemed as though every fund manager had to own these names.

Unfortunately, July saw a massive reversal with regard to FANG and most other technology companies. Both Facebook and Netflix had lackluster subscriber growth, and traders punished them severely. Since gains were so prominent on NASDAQ through 20 July or so, once the selling began, the volume in these high flyers was intense. The last week of July equity trading displayed a definite shift from growth names to the value sector.

This is potentially a move of some consequence. In many prior bull cycles throughout history, a focus toward dividend paying stocks has signaled a more conservative outlook for equities. This becomes particularly more interesting since the 3% level of the ten year Treasury is getting to be more attractive for yield hungry investors.

I honestly don’t know at this juncture whether this shift is algorithm driven via machine trading or if there is substantive human direction. I’ve been waiting for a change of this type for a while, and I’m a value guy by nature. Dividends in this environment are good, and I’ve never been crazy about chasing performance in a limited number of issues.

2018 continues to be a challenging environment for asset performance. There are daily cross currents at work, and markets seem to be overloaded with decision-making information. I know that I am… had I talked about the political landscape at all, this letter would have been five pages instead of two.

We continue to monitor events closely, and will keep you apprised of major changes in the markets. In the meantime, please feel free to e-mail or call with questions or comments. Thanks as always for your trust and support.

Sincerely,

Bill Schiffman

Registered Representative

 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.  Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

 

 

The Health Care Conundrum

Retirement is supposed to be glorious, a time to cross off items on your bucket list. One problem however, is that rising health care costs are tipping the buckets over on many retirees.   

According to HealthView Services, health care expenses are projected to increase at a rate of 5.47% per year. This is more than double the 2% cost-of-living adjustment Social Security benefits provide in 2018. Those retirees that only budget for their Medicare premiums might be in for a rude awakening. Fidelity estimates the average 65-year old couple on Medicare will need $280,000 earmarked for healthcare. Add in items Medicare won’t cover such as dental work and long-term care, and Vanguard believes that number is closer to $500,000.  

Those figures assume you retire at 65, but what if you want to retire before you qualify for Medicare? In Mahoning and Trumbull county, Medical Mutual is your only option for major medical coverage. Anthem recently left our market. A 60-year old retiree can expect to pay between $700 and $800 dollars per month for coverage that has a $7,250 deductible. Add your spouse, and that’s $16,800 to $19,200 per year on premiums alone! According to Ohio Health Benefits, this is a 34% increase in pre-Medicare premiums from 2017.  

The fact of the matter is many people approaching or entering retirement underestimate how much they need to save/budget for health care expenses. The good news is that there are resources available to help. Online calculators, like the one offered by Fidelity, can help provide estimates. Most sophisticated financial planning software is capable of building in health care expenses and allows you to customize the inflation rate to match industry projections. Financial advisors and health insurance brokers can provide valuable input as well. 

Another option to consider for those building towards retirement is a Health Savings Account. HSA’s have become increasingly popular since they were first introduced in 2003. HSA contributions are tax-deductible, account growth is tax-free, and what you spend on qualified medical expenses is tax-free. It’s a triple tax benefit, however, you must be enrolled in a High Deductible Health Plan to contribute to an HSA. You may access your HSA for non-medical expenses but would have to pay income tax on those distributions. Non-medical withdrawals prior to age 65 also incur an additional 10% penalty. Families can contribute $6,900 per year in 2018 and an additional $1,000 per year if the family plan holder is 55 or older bringing the total contributions to $7,900. Although designed to help with annual health care costs, HSA balances can be carried over from one year to the next. This is unique because HSA’s do not have to be held in cash. They can be invested just like an IRA or 401(k). Over time, an invested HSA can become a substantial bucket of money.  

The moral of the story is that health care is an integral component of retirement. It’d be wise to consider your health and family history when building your financial plan. 

*https://www.cnbc.com/2017/10/06/health-care-is-an-even-bigger-part-of-retirement-planning.html  
**http://ohiohealthbenefits.net/  
The opinions expressed in this article are those of author and should not be construed as specific investment advice.  All information is believed to be from reliable sources, however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through Valmark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc.