Shaun Scott No Comments

Rates Govern Finance, May Have Just Reversed


I think the single biggest factor governing a winter mountain expedition is the weather, and the biggest weather factor is the wind. A 105 MPH gust will throw a 200 pound climber like a leaf, forcing the humiliating crawl. An 80 MPH wind will cause such exertion staying vertical that exacerbated breathing can freeze the goggles, a potential deathblow. The wind is always a primary concern for mountaineers, not only direction and velocity now, but where these forces may be in an hour, and every attempt to move on the mountain evaluates them. If there is a single comparable governing factor in finance to the mountain wind, it is interest rates. Rates represent the cost of capital, and capital is the lifeblood of every financial entity; your family is a financial entity. Rate assumptions factor into computing the time value of money, so every decision pertaining to any use of capital is impacted by interest rates, at all levels. In a highly indebted society, the impact rates have on finance is even more dynamic. So where are interest rates heading, and what are the primary implications?

Following one of the most aggressive inflation-fighting, rate-hike  campaigns in the Fed’s 110 year history in 2022 and early 2023, the recent failure of Silicon Valley Bank caused a stampede of capital into the largest perceived safe-haven asset on earth, U.S. Treasury Bonds. Frenzied buying caused the rate on the closely watched 2 Year T-Bond, which peaked at 5.07% on March 8, 2023, to crash to below 4% in just three trading days, one of the biggest three day drops on record.¹ I liken the drop, which has occurred only ten times in fifty years, to a sudden calm in the midst of sustained 90 MPH mountain winds! All ten of these occurrences took place in the 1980’s, and consistently indicated a reversal in the direction of rates. Any remaining contagion from recent bank failures likely means additional concentrated demand for T-Bonds, which would further reduce rates. Economic weakness associated with the oncoming recession would apply further downward pressure. These factors, combined with the fact today’s 5% Fed Funds Rate is the highest in 15 years, suggest rates may be reversing and can drop significantly from here.²

We’ll be wise to consider the implications of falling rates:

  • The U.S. dollar will likely weaken against foreign currencies, and especially against real assets.

  • Recent declines in price inflation may moderate, and inflation may resurge.

  • Existing bond values may rise as new bonds offer lower yields, especially those with longer maturities.

  • Investors who recently bought 2-3 year T-Bonds look smarter than those who bought 3-12 month T-Bills.

  • Gold, which pays no interest, may look more attractive as compared with treasury bonds, and could get an additional “push” from resurging inflation.

  • Stocks may come under pressure initially as the capital ‘flight to safety’ plays out, but ultimately lower rates tend to push stock prices higher.

  • The Fed is trapped between fighting inflation, which is far higher than its desired 2%, by raising interest rates, and fighting crises instigated by those rate hikes. There is no indication the Fed will escape this trap anytime soon.     

  • Given the shortage of homes in America, residential real estate may find a footing and recover with a reduction in interest rates

Think about it, Shaun.

“A slack hand causes poverty, but the hand of the diligent makes rich.”~ Proverbs 10:4 ESV

1,2  Daily Wealth, “Market Turmoil Could Signal a Top in Interest Rates”, by Brett Eversole, March 28, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.  

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

Any economic forecasts set forth in this material may not develop as predicted. 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

Bank Failures: The Issues and Indications


Fear is one of the most powerful human emotions, and for this reason, negativity sells. Successful investing, however, involves a consistent, phlegmatic practice of sound principles over time, and in a broad range of investing environments. While ratings-driven news stories can show us where the emotionally-charged herd is stampeding at the moment, in order to grasp the indications that can help us make wise investing decisions for the mid and long-terms, we need to get past (or avoid) the entertainment, and thoughtfully consider primary forces. Here are a few factors I believe are worthy of our consideration.

Systemically important banks are far better capitalized today than in the 2008 financial crisis. Fed-mandated regulations applicable to banks with consolidated assets exceeding $50billion, including stress tests, resolution planning, stricter liquidity and capital requirements, and enhanced oversight,¹ suggests a crisis similar to The Great Recession is unlikely at this time. While mass fear in a highly indebted society (practicing fractional reserve banking) is alone capable of introducing a systemic crisis, both the Treasury Department and the Fed proved during the 2020 Covid19 lockdown they will go to any length necessary to stabilize the economy and financial markets in a time of crisis, and unless and until the U.S. dollar loses global confidence, they have the power to succeed. That said, the move by federal regulators this week to backstop all Silicon Valley Bank deposits² virtually guarantees a more significant banking crisis will emerge down the road, as it no longer makes sense for banks to consider risk when allocating depositor funds.

While a recession appears imminent (or already here), the U.S. economy is not unraveling in a disorderly manner. Unemployment remains low at 3.6%,³ job openings are robust, and layoffs outside the tech sector are unmentionable. Nothing systemically significant is broken in the U.S. economy at this time, but do not forget inflation remains three times the 2% desired by the Fed!

A Fed policy shift is probably much closer than most investors understand in their present fearful state. For many months the Fed has been aggressively raising interest rates to combat 40 year high inflation, and Jerome Powell has been clear that only a drop in inflation near the desired 2% range, or a crisis, will cause a change in the direction of rates. The Fed’s goal was to raise rates until something big broke, and big things are starting to break.  

These are the relevant factors, and I believe they suggest the following:

  • The Fed will likely pivot to easy money policies near term.

  • The U.S. dollar will likely weaken against foreign currencies, and gold and other chaos hedges will likely outperform, in this process.

  • Investors should favor established, capital-efficient businesses, and build a watch list for the Fed pivot.

  • High inflation continues to place a premium on present streams of income, and discount future streams of income.

  • The credit market is tightening, which may induce further casualties before regulators take policy action. Look for great businesses to get “thrown out with the bathwater”, and buy them!

  • Cash is required to capitalize on these dynamic opportunities.

Think about it, Shaun.

 

“Only when the tide goes out do you find out who has been swimming naked” ~Warren Buffet

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2

 

1 McKinsey & Company, “A decade after the global financial crisis: What has (and hasn’t) changed?”, August 29, 2018 https://www.mckinsey.com/industries/financial-services/our-insights/a-decade-after-the-global-financial-crisis-what-has-and-hasnt-changed

2 NBC News, “US moves to protect all deposits at Silicon Valley Bank in a bid to stem a wider fallout”, March 12, 2023 https://www.nbcnews.com/business/business-news/treasury-says-will-back-silicon-valley-bank-deposits-rcna74570

3 U.S. Bureau of Labor Statistics, March 10, 2023 https://www.bls.gov/news.release/empsit.nr0.htm

 

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

Compounding Wealth Production


Vegetable gardening fascinates me in both its simplicity and productivity. Mix dirt with nutrition, balance the PH, add sunshine and water, and you can grow anything! And as you encounter problems, there are only four conditions to investigate. Compounding the dividends of great businesses over time is one of the simplest, and historically one of the most effective ways to build wealth. Many of the greatest investors America ever produced would attest to this, and this strategy may be most responsible for the great Warren Buffet’s investing success. What makes the compounding of wealth a wonder, and why don’t more people do it? What are the critical dynamics of this investing strategy?

Albert Einstein declared compounding returns to be the 8’th wonder of the world, and he was smart enough that, when placing something on that scale, we should find out what it is. Reinvested dividends buy additional shares of a stock, which increases next quarter’s dividend, which will buy more shares over time, and so on. This process also compels dividends to buy fewer shares at higher prices, and more shares at lower prices, a key component of long-term returns. Apply this process to a business that increases its dividend annually, and dollar cost average into the position each month, and you have started the engine of a wealth production machine. Einstein discovered the chart on this process mirrors the bottom right quarter of a standard circle, consisting of three stages: 1) share accumulation with slow, methodical growth, 2) lift-off, as returns on investment escalate, and 3) parabolic growth of the value of the position with expanding returns.

The two likely reasons why investors don’t more often apply this incredible strategy, at least as part of their overall investment approach, are ignorance and impatience. Either they don’t know about it, and Wall Street has no vested interest in sharing it with them, or they are too impatient to consistently apply it over sufficient time to experience the wonder. Don’t let that be you! The three associative conditions to this investing strategy are as follows:

  • Invest only in businesses of such high quality that, short of a fundamental change in the company or industry, you’ll never sell. This means capital efficiency, industry domination, large and increasing free cash flow, a moat against competition, dividend payment, and ideally, annual dividend increases.

  • Exercise disciplined buying. Have strict parameters for when to buy with a lump sum. Never buy unless those parameters are met, but when they are met, always buy. Keep individual positions to 5% or less of the total account value.

  • Understand the time component. Your timeframe is your lifespan. Do not delay unnecessarily. Make sure dividends are reinvesting (without cost), and try to never stop dollar cost averaging into the position, either with dividends, or new dollars, or both, but remember the 5% rule mentioned above!

Three issues, that’s it! It’s even simpler than vegetable gardening, and far more productive, at least financially. May God bless the allocation of your hard-earned capital. Think about it, Shaun.

 

“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” ~Warren Buffet

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” ~Warren Buffet

“You should have invested my money with the bankers, and at my coming I should have received what was my own with interest.” ~Matthew 25:27

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

 

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

Revelations Courtesy of the U.S. Consumer


The great first ascent of Meru, a shark fin-shaped peak found at 20,000 feet in the Himalaya Mountains, formerly thought to be unclimbable, was preceded by the infamous trio’s failed attempt. After being confined to their hanging tent through a multi-day storm, Conrad Anker and Jimmy Chin, to the shock and befuddlement of Renan Ozturk, proceeded not down, but up the mountain, and with no food! As Conrad later candidly admitted, they were not far from eating portions of their own boots. The U.S. consumer is no less vital to the domestic economy than food is to the mountaineer, and recent data confirms two things, 1) U.S. consumers better be wearing leather boots, and 2) certain investment and market trends are entrenched.  

A recent Federal Reserve report concluded the following:

  • U.S. household debt surged to a record $17 trillion in the final quarter of 2022.

  • The number of mortgage loans in “serious delinquency” (90 days overdue) nearly doubled in the past 12 months.¹

  • Delinquency rates on consumer and auto loans are also up sharply.

If you had been tracking the initial (failed) attempt on Meru, you’d have known when the food ran out that the expedition, one way or another, would soon end. We will be wise to acknowledge the following economic and market trends, confirmed by the above consumer data:

  • Consumers are no longer funding purchases with pandemic handouts, but with debt.

  • Persistent high inflation, in the face of a tapped consumer, proves inflation is not ‘demand-driven’; it is driven by supply constraints, which are fueled by the Russia-Ukraine war and de-globalization.

  • There is no end in sight for either the ongoing war, or the reconfiguration of the global supply chain. The impetus’ for higher than normal inflation are firmly entrenched.

  • The global reversion to domestic production will present numerous investing opportunities for astute investors. We should be thinking about formerly imported goods that will now be produced domestically, and the materials this will require.

  • A tapped U.S. consumer suggests we may already be in the widely anticipated recession indicated by the inverted yield curve. 

  • The economy will struggle until consumers get relief, which can’t happen until ‘the Fed’ lowers rates, which it won’t do before admitting we’re in recession, which it rarely does prior to the recession ending.

Consumer data reveals a weak economy is also entrenched. This is STAGFLATION, and history suggests it favors the following investment themes:

  • Concentration on present income (interest, dividends, and rents).

  • Careful industry selection (concentration on outperforming, and avoidance of underperforming industries).

  • Nimble allocation (adjusted more frequently than in other investing environments).

  • Dollar cost average the whole market cycle.

The Conrad Ankor-led team did that which everyone thought was impossible. Investors can succeed investing in this environment. The above strategies are few and simple, but can be profoundly helpful. Think about it, Shaun.

“Be wise as serpents and innocent as doves.” ~Matthew 10:16

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2

1 Chaikin Analytics Power Feed, “The ‘Bearish’ Side of Relative Strength Says Ski Season is Over”, by Pete Carmasino, February 23, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

~ Persistent High Inflation (PHI) ~ 


Babe Ruth was dynamic to baseball in that, with unparalleled frequency he would change the score with a swing, and in any ballpark. His presence meaningfully changed the game. Hakeem Olajuwon, a former soccer player, and the greatest shot-blocker in NBA history, changed the game with his presence in the paint. This week the U.S. Bureau of Labor Statistics released CPI index data showing a .5% increase in prices for December, and a 6.4% increase over 12 months, as opposed to the widely expected .4% and 6.2% respective readings.¹ Persistent high inflation (PHI) changes the landscape and forecast for both the U.S. economy and financial markets, and due to the following implications, must be on your financial radar:

  • Rising prices diminish the purchasing power of cash savings. While fiscal responsibility requires emergency savings, inflation nibbles on the kitty, and PHI consumes it! Avoid excess cash savings, and maximize earned interest (without assuming solvency risk). Use excess savings to pay down high interest debt, and to thoughtfully pre-purchase future necessities at today’s lower prices.

  • PHI disrupts normal business valuation metrics due to its effect on cash flows, and redirects investment. Inflation places a premium on present, and discounts future streams of income. Don’t get caught chasing growth in a high inflation environment! Fight PHI with interest, dividends, and rents.

  • Due to the redirection of capital and the general inefficiencies of the market system, PHI causes increased market volatility. Vigilance is required! Never chase prices higher; rather, hunt like an alligator with limit orders. Focus on bullish industries and sectors. Favor dividends. Dollar cost average constantly. Have an exit plan on all non-forever holdings from the date of purchase, and follow it judiciously.

  • PHI exposes central bank fallacies and induces major policy errors. When fighting PHI, ‘the Fed’ has never failed to raise rates sufficiently high to cause economic recession. Don’t expect this to be the lone exception! The financial markets are forward looking, but recessions are identified in hindsight, so don’t get too bearish, either. Portfolio cash should exist to capitalize on ‘Fed’ blunders, but don’t forget PHI is consuming it while opportunity delays. 

  • PHI is a life-threatening foe to those in every class of wealth. The second essential principle (to establishing streams of income) in fighting PHI is strict budgeting. Every dollar not spent frivolously can be used towards the higher price of necessities. Shopping is fun, but financial peace is far superior. Choose financial peace, and get busy cutting unnecessary expenses. Be creative, and exchange ideas with others. 

Think about it. Shaun

 

“Unequal weights and unequal measures are both alike an abomination to the Lord.” ~Proverbs 20:10

“Inflation is the most universal tax of all.” ~Thomas Sowell

 

1 CNBC, “Inflation is higher than expected at 6.4%, with the ‘most important’ measure remaining elevated”, February 14, 2023 https://www.cnbc.com/2023/02/14/inflation-higher-than-expected-in-january.html

 

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets.

 

 

 

 

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

Stock Market Breadth Improves Notably


Just as the vitality and sustainability of any nation’s economy is tied to the condition of its middle class, the direction and momentum of the stock market is tied to the health of the average stock from which it is comprised. Market breadth is always a key indicator of the market’s general health, and many successful trading algorithms are built on breadth alone. What is market breadth telling us today, and what concerns remain?

For the 19th time since 1950, the market recently flashed a critical buy signal known as a ‘thrust’ signal. A thrust signal occurs when the 10-day total of advancing stocks divided by declining stocks exceeds 2, and in every one of the 18 occurring instances over 73 years, it has been a very bullish setup for the stock market.¹ While this is a strong indication of where stocks may be heading this year, enthusiasm for risk ought to be tempered with the following ongoing concerns:

  • Major bear markets, like the one in 2022, have historically not ended until the Fed began lowering interest rates, or until broad capitulation occurred in the stock market, or both, neither of which has yet occurred in the ongoing bear market.

  • Pullbacks of 5% to 8% have frequently preceded the advancement of prices following the thrust signal.²

  • The inverted yield curve is likely warning of an oncoming recession, which could bring an earnings recession, which would be punishing for stock prices.

  • Inflation is likely to remain well north of the Fed’s desired 2% range when it is forced to lower interest rates to battle the coming recession. This will likely fuel inflation again, especially with China re-opened for business. Continue to favor present streams of income.

  • Be sure to account for withdrawals before committing additional capital to equities.  

  • When my climbing buddy and I are committed to a fair weather adventure, we carefully pack…and then wait for the weather window. Maintain a cash position as ‘dry powder’ for any remaining pullbacks in stock prices.

  • Maintain an adequate level of diversification, but continue to focus on prospering, and avoid suffering industries as the economy and financial markets adjust to new dynamics.

History rhymes, but it does not exactly repeat. We don’t need to see the Fed lower rates for stocks to change course, and with inflation easing, and the Fed indicating additional reductions in rate hikes, and knowing it would be extraordinarily rare for the stock market to decline in this post-mid-presidential election year, and knowing stock prices and valuations are significantly lower than 12-18 months ago, it is time to adjust our thinking and posture as investors. As Sir John Templeton wisely said, “never stay bearish for long”.

Think about it. Shaun

 

“He who had received the five talents came forward, bringing five talents more, saying, ‘Master, you delivered to me five talents; here, I have made five talents more’. His master said to him, ‘Well done, good and faithful servant. You have been faithful over a little; I will set you over much. Enter into the joy of your master’.”  ~Matthew 25:20-21

1,2 Insights by Chaikin Analytics, “Stocks Just Triggered a Critical Buy Signal…..And a New Bull Phase Could Be Here”, January 17, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

 

 

 

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

Wealth Building Principles & Practices


There are two ways to climb a world class mountain, heavy and slow, which is laborious and time consuming, but safe, and light and fast, which is relatively easy and requires a fraction of the time, but it is extraordinarily dangerous. I’d call the former a principle for successful mountaineering, and the latter, a rare exception pursued by the reckless. Accumulating the wealth required to fund a lengthy retirement and leave a meaningful inheritance to one’s children and grandchildren isn’t easy, but it isn’t complicated, either. Only the consistent application of tested financial principles over time brings reliable success to a feat precious few Americans ever attain. Perhaps this is because we weren’t taught financial principles in school, but the deficit needn’t prevent our careful apprehension, and practice of the principles! Do more than consider the following:

  • Don’t place too high a value on money or it will betray you and leave you empty and broken. It’s not the end; it’s only a means. Hold it loosely and give it generously, especially to those who can’t pay you back. Wealth building is simply the right thing to do, nothing more.

  • Torch your excuses and take responsibility for your financial life. You are a distinct financial entity, and your family, a micro-economy. Your success or failure is the result of nothing more or less than the sum total of your decisions. Purpose to consistently make wise decisions, and gain the knowledge fitted to the venture.

  • Climbers who don’t launch from a base of strong conditioning suffer, and often die for the mistake. The financial world is no different. Begin by building your foundation: 1) adequate emergency savings, 2) a specific schedule of payments to pre-retirement debt freedom, and 3) term life insurance sufficient to give your family opportunity to carry-on the mission in your absence.

  • Maintain a strict budget to maximize net positive cash flow (net income exceeds gross expenses). This reveals your potential for investing and giving. Purpose to make prudent decisions with this critical resource.

  • Invest in a primary career consistent with your talents and abilities. Work hard, place honor above gain, and advance yourself with specialization in your field. This is the bread and butter of your financial life; don’t forfeit it without deep consideration.

  • Allow compounding returns to build your investment portfolio for you. This is the most important wealth building principle. Own primarily boring businesses with steady cash flows, and reinvest dividends for decades. Seldom invest in non-income-producing ventures, and require speculations to be tiny and infrequent.

  • Apply the logistical trio of dollar cost averaging, diversification, and maintaining an exit plan on all non-forever holdings (from the date of purchase). The most conditioned climber in the world needs to frequently eat and drink. Feed your portfolio with automatic purchases, try to keep each holding to less than 5% of the whole, and confidently run with your winners while cutting your losers with ruthless expediency. Keep unproductive capital on the same leash you would a spastic puppy.

Financially speaking, the world consists of two types of people, wealth producers, who apply the above (and other) principles and practices, and wealth consumers, who don’t. Determine to be a wealth producer, practice the principles, and be thankful to the One from whose hand every good thing comes. Think about it. Shaun

 

“A wise man leaves an inheritance to his children’s children.”

~Proverbs 13:22

 

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities.  An investor should consider their ability to continue purchasing through fluctuating price levels.  Such a plan does not assure a profit and does not protect against loss in declining markets.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.  Diversification does not protect against market risk.

All investing includes risk including possible loss of principal.

 

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

Late Life Financial Planning Best Practices


We’ve all heard the cliché “if you fail to plan, you are planning to fail”. Many former mountaineers can attribute their unnecessary demise to this simple truth. At Old Forge Wealth Management, we seek to teach investors how to apply financial principles towards effective wealth building, and then help them teach their children how to retain and grow that wealth multi-generationally. While the planning required to accomplish such high goals is noteworthy, it’s also true the consequences of failing to plan rivals those presented to negligent mountaineers, albeit in the financial realm. What are the issues and best practices of late life financial planning, and how might you improve your own family’s financial plan?

  • Teach your heirs to become wealth builders (see Financial Planning Principles). Test beneficiaries with small advance gifts, use your observations as teaching opportunities, and either control distributions, or allocate small portions to gluttonous individuals. One wealth consumer can devour what it took you a lifetime to build in a few short years, and even destroy them-self in the process. Be careful not to enable this tragedy unwittingly.    

  • Be a meticulous record keeper. Store an updated and comprehensive summary of your financial life (and other important documents) in a safe place, notify executors and trustees of its location, and include a brief mission statement to reiterate purpose. Feel free to request a copy of our Estate Tax Information Checklist here: Jennifer.carreiro@oldforgewealth.com.

  • Have a formal plan to fund the high expense of late life care. Whether it includes payments to an unskilled healthcare provider while at home, self-funding from your large estate, payments by a Long-Term Care insurance policy or annuity, or devoted care from your loving children, have a specific plan, and share it with immediate family members.

  • Name primary and contingent beneficiaries on every asset that affords it (cars and homes do not). It’s easy, free, and carries comparable legal authority to an expensive trust. Store a beneficiary list with other important documents, and update it periodically.

  • Have a specific plan to fund final expenses. Whether it be pre-payment to a funeral home, a small permanent life insurance policy, or a designated portion of your estate, make sure your kids are on board, and that they don’t get stuck with the tab contrary to your wishes!

  • Plan for the management of your estate in your incapacity or absence. Health proxies, POA’s, and trustees should be selected according to trustworthiness and ability over age or proximity. Make sure they understand what will be required of them and agree to it, and then incorporate them into the process early.

  • Make sure there is sufficient liquidity immediately accessible to your executors and trustees at your passing, so they can manage the distribution of your estate with your money and not their own, which could greatly complicate matters. The above practices should help in this.          

I hope these practices bless your family. Shaun

“A wise man leaves an inheritance to his children’s children.”

~Proverbs 13:22

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

 

 

     

  

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Shaun Scott No Comments

Financial Planning Principles


Guiding principles are vital in that in any endeavor they maximize the probability of survival, even in threatening circumstances, and when consistently practiced over time, typically add success to the experience. These principles are applied positively, with actions to execute, and negatively, with mistakes to avoid. Three of my close friends started kayaking in the last couple years, and all three have already experienced dangerous capsizes; I’m not familiar with the principles of kayaking, but I hope to be before trading my crampons in for a small boat! What powerful principles can maximize the probability of your financial success, and supply wonderful things to impart to your children?

Financial planning involves having a plan, so begin by putting your goals to paper. Secondly, understand how your numerical assumptions flesh-out over time, given conservative estimates on variable factors, like Social Security, rates of return, and inflation. You are unlikely to modify your approach if you’re unaware you are off-track. Thirdly, realize financial planning is really “a way of living financially”, so don’t place too much emphasis on the goal; do apply the principles and enjoy the process. Sadly, some of the members of our Denali climbing team considered our effort a failure because we didn’t summit. The truth is we just enjoyed the grand adventure of our lives! And to the three, add these:

  • Know who your Provider is and avoid placing too high a value on money, for money can “sprout wings and fly like an eagle toward heaven”.

  • Have a detailed budget, including incomes and expenses. You must know the cost of running your household, and your potential for saving, investing, and giving.  

  • Identify your Net Positive Cash Flow, or the extent to which net income exceeds gross expenses, and determine to appropriate this valuable resource wisely.

  • Be vigilant with debt. Maintain a low debt/equity ratio. Avoid unproductive debt, especially consumer debt, and never fully retire while in debt.

  • Use insurance for protection against catastrophic risks only. Avoid being “insurance poor”. Never think of insurance as an investment. Use temporary insurance to cover temporary risks (and permanent insurance to cover permanent risks). Always price shop.

  • Build your financial foundation first: a) ample emergency savings, b) ample term insurance to protect your loved ones and give them a fresh start in your absence, and c) a specific plan to become debt free, including a scheduled mortgage burning party!

  • Make wise investment decisions. Keep expenses low. Never miss an employer-matched contribution to a company retirement plan. Buy great businesses when they sell at reasonable prices. Avoid catastrophic losses by investing in different industries, keeping individual positions to less than 5%, never buying aggressively into a bull market peak, never capitulating near a bear market bottom, and having an exit plan on every non-forever holding.

  • Start dollar cost averaging immediately, and never stop unless you have to, even in retirement. Remember, reinvesting dividends also constitutes dollar cost averaging!

  • Put your affairs in order with proper estate planning. Why should only the rich enjoy the benefits of multi-generational wealth building?

In short, when the weather allows you to kayak, KAYAK! Regarding money, this means earning it, spending it, saving and investing it, holding it loosely, and giving it away freely. Teach these things to your children while they are young. Think about it, Shaun.   

“A wise man leaves an inheritance to his children’s children.” ~Proverbs 13:22

 

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy assures success or protects against loss.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

 

 

     

  

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