Nothing highlights the insignificance of the direction of the next thousand Dow points like the loss of a spouse. This truth is only magnified if that loss is unexpected.
Sadly, we have seen this situation a few times recently here at the office.
We all work hard for decades to try to secure our retirement and better the lives of our loved ones and for future generations. We endure the volatility of financial markets so we can eventually reap the reward of having our investments outpace inflation to help us achieve our goals. We sacrifice in so many ways to show our love for the people closest to us; the same people that come to rely on us as they consider their own futures.
And because we know people we love are relying on us, we want every detail of our financial lives to be perfect for their benefit.
Ironically, this often leads us to put too much emphasis on the smaller details and neglect recognizing the importance of the truly big picture. Our thoughts, for example, might focus on debates about when the best times to invest our money are, or when it is perhaps time to be more cautious. Or, are we going to see a quarter point rate hike from the Federal Reserve and what would it mean? But these rarely are the needle moving data points of our overall financial lives.
Throughout this past year I have seen a number of reminders of our mortality, unfortunately punctuated by too many lives cut short. The circumstances have wide ranges: A young man not yet 30 years old dying suddenly of an aneurysm. The father of two teenagers losing his battle with cancer in his mid-40s. A businessman in his mid-50s unable to avoid the error of a pilot of a small aircraft and crashing to the ground a month before his daughter’s college graduation, and less than a year after the birth of his first grandchild. A scientist and entrepreneur in his early 70s who succumbed to complications from a routine surgery. A retired banker who passed away of natural causes in his 80s and another with the same background in his early 90s.
From this incomplete list you can see how our mortal end can come at any age and from just about all imaginable circumstances. Knowing that we will pass away is obvious, but when and how can be completely unexpected.
I am not trying to trivialize the risks of the investment world nor am I trying to dramatize the deaths that I have been close to lately. What I am trying to do this illustrate that “risk” can be defined in so many different ways, and that sometimes we can weigh or prioritize various risks inaccurately.
This is different for each of us. It depends on where we each are in our lives relative to our family goals, financial goals, and health status.
So I’d like to take this opportunity to make an appeal that you take some time to consider where you are in relation to your estate plan. By this I mean, what is your answer to the simple question of “what happens to my loved ones when I am gone”?
There was a range of outcomes for each of these situations I mentioned above.
Obviously there is no way to measure the emotional impact on the family, so in this context I am only talking about the financial impacts.
In some cases, good planning was in place and financial ramifications were minimal. But in others, an already difficult situation is made harder as families are scrambling to figure out how to move ahead financially.
In some cases it is purely a matter of lost income of the breadwinner. In other cases there is the added complication of business administration and/or ownership interests needing to be resolved. Or of illiquid assets needing to be possibly sold at any price to raise cash for taxes and other ongoing expenses.
While our office has dispersed millions of dollars in life insurance claim payments this past year, I’d say that more was likely needed.
This is not a ‘pitch’ for life insurance.
It is an appeal for all of us to be sure we have taken care of the necessary business of our inevitable death.
Have we thought through succession plans for business interests? Do we have key man coverage on the people we should, ourselves included? Do we have plans for how to replace the years of lost income? Have we created plans for the necessary cash to be available so assets we own don’t need to be sold in a hurry by our executors? Have we thought about who will care for minor children? Have we maximized estate planning techniques to reduce the tax burden on our assets? Are all of our medical wishes understood by the person we have made our healthcare surrogate?
A crucial follow-up question to each of these above is if your partner, significant other, or trusted family members are aware of your particular circumstances and in a position to address matters when you cannot? Not only will they be able to find the proper documents, but have as little ambiguity as possible about the desires for how you’d like to distribute what you’ve worked your whole life to provide?
Recently we heard the news that music icon Prince died without so much as a will in place. This sheds light on the results of a 2014 survey performed by Rocket Lawyer that showed that 64% of Americans do not have a will, including 55% of Americans with children. Forget about the bigger picture items I listed above, more than 6 out of 10 of us don’t even draft a simple will. We’re all going to die; that’s just the way it is. Why make it harder on those we love? If you believe you have all these ducks in a row, that’s wonderful. Please make a habit of reviewing your documents, your coverage, and even you current thinking about your wishes every two or three years.
If you don’t think you’ve adequately addressed these issues, please don’t hesitate. My team and I would be more than happy to help you think through these things and get the proper plans in place. And if you don’t have those items addressed by us, please do have them addressed by someone.
Update on the Plow Horse Economy
As for the current state of the markets and the economy, things are probably much quieter than what you’d imagine. The financial press has a way (a job, really) of making things seem larger than life. Combine this with the ramping up of election season, and the volume will be up on all fronts.
I haven’t written an edition of Worth Considering in a while because I wanted to keep my promise of not writing just for the sake of writing and junking up your already crowded Inbox. From my vantage point, outside of the typical noise of financial markets, not much has been worth noting.
But then it dawned on me that something important actually is happening – you are being inundated by negativity.
From the emails I receive, from the questions I am asked, and certainly from whatever I see on TV or read online, I get the distinct impression that the loudest voices these days are the doomsayers.
My daily commute is typically 20-25 minutes. On just one drive home last week there were three sixty-second ads on the radio for how to protect yourself from the impending doom of the financial world. They accounted for more than half of every moment of commercial time. It’s important to note that these commercials were not just on the business channels.
I literally couldn’t relax on the drive home and listen to the songs of my bygone youth without being subjected to yet another End of Days-style ad!
I had to find the humor in it all by noticing that this same stump speech of fear was only updated by the website you needed to visit to learn how to escape the apocalypse. I’d imagine you’ve heard a few versions of these yourself. I get a kick out of how “fearmonger16.com” is the same as “fearmonger11,12,13,14,15.com” and that “whateverwarning7″ is the dressed up version of “whateverwarning1 through 6″. I didn’t use real names here because I don’t want to pick on anyone in particular. I also don’t want to sound as if I’m naïve to the serious nature of some of the points these warnings try to put forth.
What I differ with is the extremist nature of things like this. They speak just to one side of each economic point and then catastrophize every potential outcome. I also don’t have respect for the way they allow themselves to always be right no matter how wrong the outcome might be for you. Just think of all the “we told you so” pieces you’ll hear when the markets dip 20% – even if they go up 50% first!
It is important to remember that negativity is a wonderful thing for investors. After all, if everyone is already positive, who is left to convert? Who are the next buyers if everyone has already gotten on board? Without some degree of negativity, prices get pushed up to unsustainable levels and there is no potential to invest in things of true value.
For the vast majority of our clientele we are managing investment strategies for multi-year outcomes. As such, the natural aspect of market volatility is needed; it creates the only way to buy growth oriented assets like stocks at better prices. Pullbacks and corrections are the mother’s milk of future returns. So we need to be most alert when there’s excessive optimism – times when we hear about Goldilocks or New Paradigms.
If extreme optimism is the worst situation and extreme pessimism is the best, where do we stand now?
One barometer comes from the familiar Gallup Poll folks. Their recent research published on 4/10/16 shows that just 52% of Americans say they have money invested in the stock market. This is the lowest reading in decades. For what it’s worth, the highest readings were in 2000 and 2007.
But going beyond the everyday Americans and looking at the professional segment, we see more of the same. Barron’s magazine recently conducted its famous “Big Money” poll. The results? In their words: “The current reading is perhaps one of the least bullish in the poll’s more than 20-year history…” 68% of the poll’s respondents answered “no” to the question of whether or not they thought stocks would rise 10% or more in the next 12 months. But 66% of them said “yes” to whether or not they’d expect stocks to fall by 10% or more during that same period.
In short, I sure don’t see a lot of optimism in these findings. And that’s good.
A Plow Horse economy like the one we have now doesn’t really conjure up a lot of enthusiasm by its very nature. When things move slowly, they just aren’t very exciting. So be it.
For investors, the danger isn’t in the slowly forward plodding economy; it is in the response of moving lower down the quality spectrum to try to boost returns when in reality all they’re boosting is risk.
Higher risks make better sense when we have a Race Horse economy. But it looks like this Plow Horse I’ve been talking about for so long is still the only horse in the field. He’s not pretty to look at and he isn’t graceful whenever he tries to pick up his pace. But he does still move forward and take care of business.
In my view, the magical water he needs to transform into a Race Horse is fiscal policy from Washington, not just monetary maneuvering from the Federal Reserve. I am not holding my breath.
The Political Impact
This is an era in which candidates believe they need to convince you of just how bad things are and that, unless you elect them, there’s no way to keep the ship off the rocks. This adds fuel to the negative sentiment I mentioned earlier and I don’t think it’s a coincidence that historically markets don’t tend to do very well in the six months leading up to elections. But they don’t historically fall apart either; instead they just tend to mark time as the drama of the moment plays out.
This particular election has the potential to be a little more interesting given the polarizing aspect of the presumed candidates. One pundit I heard said to “fasten your seatbelts; this one gets into the gutter early as Insulting Trump goes after Shouting Hillary”. So yes, the personalities are unusually big this time around and the promises of big changes after he or she is elected are likely to be big as well. But we all know reality is likely very different given the splinters in DC. Governing is quite a bit different than campaigning. Perhaps as we see more substantive policy discussions I will be able to comment on how things might actually shift in the financial markets. But that seems premature at the moment.
- Please take the time to give thought to your estate plan. We put so much thought, and rightfully so, into retirement plans and investment themes; but I’ve recently been face to face with the stark differences between complete and incomplete planning. Please don’t be one of the folks that miss the biggest picture of all. It might be as simple as pricing life insurance or figuring out how to reposition some assets to pay for it. Thankfully super low interest rates have made life insurance coverage less expensive than any other time in my 20+ year career. Or it might be a matter of having some honest conversations with family members or colleagues about assets and intentions. It could certainly mean a trip to a lawyer’s office to get things done properly and efficiently. It won’t be fun, and it might not be easy, but it certainly will be valuable.
- Be leery of what is known as “info-tainment”. Fear and greed are the hotbed of sales; it’s just how we humans are wired. This is how get-rich-quick schemes find their prey and even moreso how a lot of media outlets make their money selling solutions to oftentimes exaggerated problems. Negativity is healthy in many ways. We always need a dose of skepticism within ourselves to provide balance, and we also need both bulls and bears in a market to ultimately reach longer term goals.
- As I began this writing, I overheard there are 175 days until the election. They won’t go quickly. Politics and election cycles have an impact on markets, but it isn’t anywhere as big as you might think. So be prepared for bombshells to be tossed and potentially pivotal economic matters to be hotly debated. But keep in mind that a lot of things are said in campaigns that don’t bear out in practice. You can probably “read my lips” on that one………
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