How to Accumulate Your Most Precious Asset

What is it in life that is most valuable to each of us, yet we cannot touch it or save it? Time. To provide a value for time ask anyone who has suffered an illness and expired before reaching age 70. Time is the most important commodity in life and many of us utilize it in a very inefficient manner.

How can a person accumulate time? By planning each day to focus on your most important people, projects and places. Let us start with people. One of my favorite hobbies is to travel with my family. We have shared vacations in Europe, Hawaii and other exotic locations that are reflected in my memory as the photos are shared during Christmas in a review of our year. 

The excitement your children exhibit when you inform them that you are taking them to Atlantis on vacation is evident on their faces –  smiles so big all their teeth are shining through, and eyes squinted so tight they cannot see the camera in front of them! During our stay in the luxurious Atlantis resort, we had an opportunity to snorkel with and feed the cow-nose rays in the hotel’s aquarium. Our daughters thought this sounded fantastic! So, being the dad that I am, concierge was contacted, and the activity planned.

When we arrived at the aquarium, everything was peaceful. Our younger daughter decided to express her displeasure in the cuisine to be fed to the rays but otherwise we were in good spirits. It was not until the feeding process started that I witnessed a reaction that stopped time and empower our daughter with the ability to walk on water. There are only two people in my memory that walked on water – Jesus and Peter in the New Testament. Now, add Gabrielle to the list! To stimulate the person feeding them to drop their food in their water, the rays will bump your leg or thigh with their sandpaper-like nose. It is a gentle nudge and nothing to alarm you (this is what the guide told us).

Gabrielle was doing well until she was the subject of a gang of rays coming at her and bumping all at the same time. This was more than she could contemplate, and she dropped her food bucket in the water. To understand the next few events that took place, imagine if you were dropping steaks into a crocodile pit. The water began to thrash, and great commotion commenced with much noise. When I finally gained my eyesight from the water splashing, I watched our daughter walk across the top of the water as she headed to dry land while screaming at the top of her lungs!

How does this story relate to time? It is a memory that continues to prove that time well spent is time invested in family. The rest of the trip was less chaotic for our daughter, but the family had one of the most wonderful times spent focusing on each other.

One of the best projects one can utilize their time is the act of giving to their community. Find a civic group and offer to assist in a project to gain perspective about life. What you will find is that your life is secure compared to those you may be assisting for the project. One inhospitable summer a heatwave stifled the air in our community to a point of 115 degrees heat index. Some of our fellow citizens were suffering from heat strokes and required hospitalization. Our local Lions Club jumped into action! We raised money and installed cooling fans in the homes that did not have air conditioning. The hugs and words of gratitude from these individuals remain in my memory as one of the humblest moments in my life.

In a commencement address to the graduates of Stanford University, Steve Jobs, the founder of Apple, gave sage advice to those in attendance, “Your time is limited, so do not waste it living someone else’s life. Do not be trapped by dogma – which is living with the result of other people’s thinking. Do not let the noise of others’ opinions drown out your own inner voice. A most important, have the courage to follow your heart and intuition. They somehow already know what you genuinely want to become. Everything else is secondary.”

Time is an irreplaceable asset. Use it wisely and spend it with those that truly bring you happiness. If you want to live a life maximizing your opportunities and memories, consider meeting with a Certified Financial Planner™ professional to create your plan for the future. Whether you are ready or not, the future will arrive.

Related Podcasts

Failing to Prepare Does Cost More

The old adage of “failing to plan is planning to fail” is particularly true when it comes to your future.  It is most difficult to hit a goal in life that you do not set.  I am a big believer in goals for all aspects of life.  When I began my professional career in accounting in 1987, I wrote down my goals and some of them were long-term that took me thirty-five years to accomplish.  These are called “marathon goals.”

To illustrate the importance of goals, think about the times in your life that you had thoughtfully planned for an event – buying your first home, birth of your first child, buying your new car, etc.  Each of these events required you to define what you desired in the outcome and establish a plan of action to achieve the steps that led to the goal.  For example, you wanted a new home while in your 20’s.  You realized a down payment of 20% of the cost of the home may be necessary to achieve the level of funding and the interest rate you preferred.

While you were working hard in your early career, you set the goal down on paper and placed it in an area of your apartment where you would see the goal daily.  This simple act of visualizing the day you walk into your new home served as a motivator for you to save for the down payment.  Finally, the day of closing on your new home has arrived!  You are excited and overwhelmed by the process.  

After moving your small amount of furniture in your new home, you realize that more furnishings are needed.  You identify another goal and set it to paper.  Within twelve months you have reached this new goal of purchasing your furniture throughout the new home.  This process continues throughout life.

Consequently, many individuals work extremely hard in accumulating their wealth only to fail to carefully plan for the distribution of their net worth when they expire.  Over my thirty-five-year career as a CPA and Certified Financial Planner® professional, I have witnessed more individuals fail to carefully plan for the transition of their estates and cause their heirs significant hardship and avoidable costs.

Two areas of primary challenge during retirement are healthcare and income.  To rigorously evaluate each of these areas it is critical that you understand the application of your resources to resolve these challenges.  First, healthcare costs continue to rise more than 8% per year.  According to, retirees will spend $315,000 on healthcare costs during retirement after age 65. These costs include co-pays, prescriptions, mobility aids, etc.  Due to the size of this cost in comparison to your total budget, it is critical that you maintain a healthy lifestyle if you wish for your retirement assets to last you longer.

The second area of challenge is income.  Many of us estimate we will spend fewer dollars during retirement than we did during our working years.  This assumption is invalid.  Our clients spend an equal amount of funds during retirement as they did while working because they have more time to travel and enjoy the activities, they were unable to do while employed.  A plan for cash flow is critical to your facing retirement with all the costs that may arise in life.  I often tell clients that one of the worst outcomes would be that you lived longer than your assets lasted.

Retiring for the first time is unnerving for many people.  It is possible to feel confident about the process and increase your probability for success by collaborating with a Certified Financial Planner™ professional to create a plan.  Make informed decisions and do not guess your future.  

Related Podcasts

Predicting Your Future

Prior to starting the new year, many of us sat down with a pen and paper to develop our desired goals for 2023. Well, some of us did. Gallup, a national polling organization, studied goal setting by U.S. citizens and the results are encouraging.  The findings were that 79% of adults age 18 – 34 and 72% of adults age 35 – 54 are most likely set new goals for 2023.

Based on the annual study, more Americans are setting goals for improvement of life in 2023 than in prior years.  Why is it important to set goals for your life?  Because it is very difficult, if not impossible, to hit a target you do not set.  In other words, you will become a wandering generality rather than a meaningful specific to use the phrase of the late Zig Ziglar.  I often hear people complain about life but do nothing to improve their quality of life.

Goals are far more than simply writing down aspirations and unattainable ideas.  To be successful in goal achievement, you must become effective in goal setting.  One of my annual tasks is to take time in November each year to evaluate my progress on current year goals and set the new year’s goals.  The outcomes in life have been phenomenal! For example, I address goals in all the aspects of my life – financial, educational, spiritual, vocational, physical and familial.  To gain a better understanding of this process, an example of one of my “go up” goals may be “To read and implement the learning from twelve books on my reading list by reading one per month.”  

Setting goals is only one step in the process.  To monitor my progress, I perform a weekly review and check on various projects, activities and appointments for each week.  If I haven’t made progress on a goal, say the monthly book reading one, I can quickly correct my course and spend time reading to catch up on this important goal.  This process each week takes less than fifteen minutes.  Generally, I will perform such review on Friday afternoon (unless it is a beautiful day and the golf course is open, but I digress).

When you analyze your ambitions and desires in life, your goals will rise from your thoughts and inspire you to grow as a person.  Success is the accomplishment of your goals but more than a checkmark beside a written statement it is the person you are becoming that you desire to see in the mirror.  I am often asked what the definition of success is to me.  My reply is a consistent one. Success is the freedom to live where you wish, to control your time as you desire and to live a life of abundance.  Nowhere in my statement do I mention wealth or money as a definitional term for success.

Standard of living and quality of life are two different statements.  Most people who chase only after a standard of living (i.e., money and wealth) do not experience a quality of life.  However, with certainty, the people who seek a better quality of life achieve a better standard of living.  Attitude is critical to achieve success. Gratitude is the fuel of passion that empowers you to achieve the proper attitude to reach success.

If you feel you are not making the progress you desire in life, it’s time you made a new plan.  Seek out a Certified Financial Planner™ professional to assist you in forming a new plan in life that accomplishes your definition of success. At the end of life’s journey you will be more happy to say “I’m glad I did” rather than “I wish I had”.  

Related Podcasts

How Successful People Gain and Retain Their Wealth

There is a TV show that I witnessed a couple of times that is titled, How Winning the Lottery Ruined my Life, or something to that effect.  While watching the “lucky” family discuss their travails and trials of winning such a large sum of money when they previously were considered poor or bankrupt was interesting to me. The reason for suffering from winning such large amounts of money is that the person was attempting to apply their current capabilities and philosophy of life to a much larger asset base.

Having served as an advisor to wealthy individuals for many years, it gave me perspective to understand the devastation of which the lottery winner spoke.  We all experience a stage in life that we are most comfortable.  This level of living has given us the lifestyle we feel is good, or good enough, to provide us some comforts of life.  The challenge is to understand that, as people, we must grow our philosophy toward money and wealth as we grow our lifestyle or trouble is on the horizon.

In simple terms, the person who has dominion over a few things must grow in mindset, knowledge and understanding about wealth to retain dominion over significantly more assets.  The Bible tells us that the person who has much wealth, much is expected.  That is a tremendous philosophical point about wealth.  Another statement I often use is that self-preservation leads to mediocrity while charity leads to wealth.  By giving away, in a reasonable and responsible manner, the assets you currently possess, you will receive greater assets from the marketplace.

To help you think like a wealthier individual, you should learn from those that possess great wealth.  Read biographies of Cornelius Vanderbilt, Andrew Carnegie and John D. Rockefeller.  What inspiration these men’s stories give me as I realize their generosity in developing the modern culture you and I benefit from.  Libraries, hospitals and universities all over our great country bear their names as a testament to the great blessing we possess of being American citizens.

One of the common themes I discerned from reading their biographies is that they thought differently than most people.  Their time was sacred and they didn’t waste it on trivial matters.  Most of them created, for themselves, an approach to capturing the best information to make critical decisions that contained considerable risk. To accurately describe their approach to managing their time, they eliminated, delegated or elevated activities which became their goals for success.

Many menial tasks that would arise during the day would be disregarded unless they had some relationship to the important goals set by the entrepreneur.  Business studies of behaviors inform us that most people major in minor things to the detriment of the business production they are seeking.  In simple terms, I call this “busy work”.  This type of activity has no sustained value or progress contribution toward your big goals for which you are seeking to attain.  According to Gallup, a considerable number of employees polled report they are simply disengaged from the act of contributing their skills to their employer at some point during each day.  That is startling when you realize these employers are paying significant amounts of money for training, retention and benefits for these “less than productive” employees.

Another strategy used by wealthy individuals is that they delegate tasks to others more capable or experienced in certain functions.  For example, many didn’t write or type their own letters but utilized a personal assistant.  Most of them didn’t drive themselves to destinations but used the skills of drivers and focused on their important tasks during the drive time.  Delegation is not restricted to business professionals. Many of us delegate our lawn work and flower beds to companies that specialize in such services.  Cleaning our homes and performing laundry are delegated activities for which others are most helpful.  You should be focusing on those activities that create and retain your most passionate areas of life.

Lastly, the wealthy are excellent at scaling their process for producing wealth.  They create a unique process and elevate it to capture market share or other investors.  By concentrating on your unique abilities to create value for others, you will quickly realize that a “better mousetrap” is in your possession.

Each day, plan your activities and review them to note what should be eliminated, delegated or elevated to give you the greatest opportunity to serve others and grow your wealth in life.

The world needs you to show up everyday to contribute your talents to helping others. It is only when we all find our purpose in this world and implement a means to using that purpose to help others that we truly are wealthy.  Mark Twain, one of my favorite authors, stated it well when he said, “The two most important days in your life are the day you are born and the day you find out why.”  

Related Podcasts

The One Constant is Change

Remember as a younger person when you first heard the phrase, “the only constant in life is change”? At the time you, perhaps, thought the person to be either a great philosopher or speaking gibberish. As I am approaching the inspirational age of 60 years young, the aforementioned statement of change has been proven true more times than I can recall. To provide additional truth to this historic statement, the IRS does its part by changing the laws governing your annual filing of income tax returns.

The standard deduction is the allowance of a certain amount to accommodate your lifestyle needs such as food, shelter, and clothing without the need to itemize these deductions on your individual income tax return. Each year the IRS considers the inflation rate in the United States to determine if adjustments should be made to the standard deduction amount for the various filing statuses. In recent years, the IRS simplified this process by combining the original standard deduction with the exemptions a filer could claim to reduce his taxable income. 

Due to the altitudinous inflation experienced in the United States in the past two years, most recent rate provided by the U.S. Bureau of Labor Statistics to be 8.2%, the IRS recently issued the increased standard deduction amounts for the 2023 tax year (i.e., your return you will file in 2024). For those filing jointly, the standard deduction has increased $1,800 over the 2022 amount to a deduction of $27,700. If you qualify as a single filer or choose to file as married but filing separate from your spouse, the standard deduction is $13,850 which is $900 higher than the previous allowed deduction. For those individuals who are single and maintain a household for a minor or special dependent, the head of household status allows a greater deduction than a single filer. Their amount for 2023 standard deduction will be $20,800 which is $1,400 higher than in 2022.

For taxpayers that owe little or nothing for a residence, contribute smaller amounts to charities and have medical coverage for major illnesses or infirmities, the standard deduction provides a benefit. Time is a considerable savings for filers who do not meet the standard deduction limit with their itemized deductions. To simplify the process of filing your individual return each year, consider the standard deduction amount allowed and perform a quick mathematical equation to confirm your potential deductions are more than your standard deduction.

The United States Tax Code provides seven tax rates, or brackets, for purposes of calculating your annual income tax liability. From a rate as low as 10% on taxable income of $11,000 or less to a maximum rate of 37% for filers with taxable income above $578,125 for single individuals and above $693,750 for married filing joint taxpayers. To add a little complexity to the process, the Congress assesses a surtax on certain filers to assist in the funding of the Medicare and Social Security programs. 

One of the easiest methods of completing your annual tax filing obligation is to start early. Employers are required to mail Forms W-2 to employees on or before January 31, 2023. Start now by gathering your potential itemized deduction receipts and as income documents are sent you, begin the process of completing your returns. It is recommended that you file electronically to facilitate the processing of your returns and, hopefully, the electronic deposit of a refund check to your bank account.

A quote attributed to one of the greatest planners of the last one hundred years, President Dwight D. Eisenhower, as the commanding general in WWII, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” applies to tax “battles.”  The planning for targeted outcomes is critical to the realization of your goals.

Tax planning is necessary for you to prepare yourself for the best results possible in filing and paying your annual income taxes. If you need assistance achieving your retirement planning goals, one of which should be the lessened impact of taxation on your wealth, seek the assistance of a CERTIFIED FINANCIAL PLANNERprofessional to guide you through this important planning process. Go play in the Autumn breeze this weekend!

Related Podcasts

Medicare Benefits Planning

One of the most critical benefits affecting American citizens is the Medicare Program.  For those individuals who qualify at age 65, this program provides health coverage for inpatient care (Part A), outpatient care (Part B), prescriptions (Part D) and other areas.  This article will focus on these three most common areas of care.

To qualify for Medicare benefits, you must have worked in a job that withheld Medicare contributions from your paycheck while working at least forty quarters (i.e., 10 years).  This is a very low bar to meet eligibility for such a comprehensive medical plan.  Of course, as with many federal laws, exceptions apply to the general guidelines.

The important concept of medical coverage through Medicare is that it functions similar to the private insurance you may have received while employed in your career.  For example, Medicare covers 80% of your covered qualified medical charges for inpatient care.  This means your hospital stay may be covered but you will be expected to pay the remaining 20% unless you purchase a Medicare Supplement Plan.

Supplement plans are relatively inexpensive and can be the difference between destroying your lifetime savings and the security your family needs.  There are many carriers of such plans and each state may differ as to the carriers available.  It is critical that you determine the appropriate Medicare Supplement Plan you desire that is contracted with your various medical providers.  Supplement plan consultants are often helpful to narrow the field of possible plans and to assist in the selection of a plan that meets your budget.

To enroll, or to change plans, you should be aware of the upcoming Open Enrollment Period.  For 2022, the period is October 15 through December 7.  It is critical that you review your current plan for potential savings as new plan changes and plan providers are introduced into the marketplace.  Often people will purchase a supplement plan and, like the infomercial, “set it and forget it”.  This is a big mistake that could cost you thousands of dollars.

Let’s review the outcomes of such a person who failed to obtain a supplement plan and suffered a significant health issue.  While in the Intensive Care Unit of a major hospital, the medical care she received was excellent.  She left the hospital after 10 days of care and felt so much better… until she started receiving the bills!  The total cost of the hospital stay was more than $120,000 for all the medical care provided her.  Without a supplemental plan, she was responsible for more than $24,000 of the total cost.

Medicare Part D is a complicated area of law.  It is vital that you seriously consider enrolling in this program when you are first eligible or you will be penalized for each month you delay enrollment.  This sounds rather harsh but the method of funding the program is through premiums assessed individuals who utilize the benefit.  Considering that most people may live a relatively healthy life until age 75, the ten-year period of qualification to election date may cause you to incur a significant penalty at a time when you may need your savings for other priorities.  

The cost of medical care continues to rise at an unprecedented pace in the United States.  We highly recommend those individuals enrolling for their Medicare Benefits to seriously consider purchasing a supplement plan.  Monthly premiums vary depending upon the level of care and the carrier issuing the policy.

If you are approaching your 65th birthday, it is critical that you file for your Medicare Benefits approximately 60 – 90 days prior to your birthday.  It will be a lot easier to blow the candles off your cake if you aren’t worrying about medical bills.  Seek the assistance of a CERTIFIED FINANCIAL PLANNER™ professional to guide you through this critical and difficult process. Make it a wonderful week!

Related Podcasts

What Is Your Net Worth?

As a result of the economic disruption of the past two years, many people are becoming confused and concerned as to the sufficiency of their financial wealth in maintaining their lifestyle. Fear has a means of causing one to doubt previously acceptable strategies and financial reserves as supportive of your future. By focusing on the factors, you can control, you will regain your confidence and build competence to achieve your future no matter the market conditions.

First, it is critical that you understand your current financial state. To do this it is necessary that you look earnestly at your overall finances in a manner that provides you the most information. One document that will help you capture this information in a succinct manner is a personal financial statement. This report is a snapshot of your assets (the items you own), your liabilities (the amounts you owe to others) and your net worth (an arithmetic function of assets minus liabilities). Let’s assume you own assets valued at $3,000,000 and have liabilities of $1,000,000. Your current net worth, in the most simplistic of terms, would be $2,000,000.

By understanding what you own and how much you owe others, you may now start the planning process for the future. You know the old saying, “It is hard to get to where you wish to go if you don’t where you are.” This document can be a very useful tool for an individual planning for her future. Exam the personal financial statement and notice those assets that may create income and those that simply grow in value. Perhaps on your financial statement there are assets that are idle and incur expenses without generating income to offset their maintenance.

Examining the liabilities, you may calculate several important ratios or factors that will help you achieve greater net worth. For example, if your indebtedness is secured by collateral, what is the value of the asset? Is it sufficient to allow the indebtedness to be liquidated by selling the asset? What is my weighted average cost of borrowing? These are important questions to consider when creating a financial plan.

Taxes are often overlooked on a personal financial statement. This is one liability that must be considered in the statement since it is prevalent in our country and will require assets to achieve the payment. Taxes are owed in many forms – estate, sales, income, property, etc. I am reminded of the poem authored and published by the Adam Smith Institute that reads in part, “Tax his cigars, tax his beers, if he cries then tax his tears. Tax all he has, then let him know, that you won’t be done til he has no dough. When he screams and hollers, then tax him some more, tax him til he’s good and sore.” A little levity is always good when talking about a portion of one’s lifetime income being sent to a taxing authority.

The final step is to analyze the change in your net worth. Are you growing in net worth or are you losing ground? It is critical to understand the net worth you possess so that you can work with this amount for purposes of funding your future lifestyle. Review your net worth over the past ten years and note the growth trend you experienced. Are you consistently increasing in net worth prior to retirement? If not, adjustments must be made in your assets that you purchase and the indebtedness you incur.

To fully understand the development and uses of a personal financial statement, seek the assistance of a CERTIFIED FINANCIAL PLANNER™ professional. To create a pathway to success, you must first establish your current point in time and net worth. You owe it to your family and yourself to be as capable as you can possibly be to direct your efforts to the future of your design. See you on the gridiron!

Related Podcasts

Lifetime Decisions on Social Security Benefits

Perhaps one of the “Top 10” retirement questions we receive is when to elect social security benefits. The question is one that is complicated to answer due to the fact that many unknown variables exist within this question. Just a few considerations are: 1) How long will I live? 2) How can I maximize my benefits? 3) What is the best strategy to gain the most household benefits? 

Let’s tackle the first question since it is preeminent to the prediction of mortality. The answer to the question of “How long will I live?” requires greater analysis than a simple number presented as the target date. What age were your parents and grandparents at their deaths? Do you have any comorbidities or systemic health issues? What are your current cash flow needs? Are you married? Widowed? Do you have a dependent child that has been diagnosed special needs? All of these factors, and many more, give rise to a greater amount of analysis to properly estimate your date of filing for benefits.

According to the U.S. Centers for Disease Control, in a study published in 2019, men enjoy a life expectancy, at birth, of 75.1 years and women 80.5 years. Of course, these are averages and many of us will live to 100 years of age and beyond. Curiously, the projected ages for men and women declined in the past year by approximately 0.9 to 1.2 years. Was this due to the effects of the pandemic or is this a normal fluctuation of the population cycle? 

The most important election many of us will make that has a lifetime impact is the election to receive social security benefits. Much confusion exists around the timing of this election. We highly recommend that each client examine their needs, lifestyle and circumstances when determining the filing date for benefits. For example, if your lifetime savings is not projected to meet your cash flow needs due to the lower returns from the current market cycle, you may wish to analyze the lifetime loss of SSA benefits by electing earlier than your Full Retirement Age (FRA). It is not ideal to make lifetime decisions based on short-term needs. For an individual who is age 62 and would reach FRA at age 67, if benefits are elected at any time from age 62 to 66 years and 364 days (provided it is not leap year), his or her benefits will be reduced permanently by 30%. Depending on your lifetime earnings report, this may be a significant loss of benefit.

Lastly, the best strategy for your household is to determine the ages of each spouse and then review the earnings reports for each by obtaining them on . If the higher earned benefit spouse were to delay benefits until reaching age 70, instead of claiming at age 67, a 24% increase in monthly benefits would be availed to the surviving spouse upon the death of the higher earner. The bonus earned by the higher-earning spouse is material in the fact that many spouses may live to be 90 years of age or more which allows significant time for the collection of the bonus payments. Upon the death of the higher benefit spouse, the survivor would “step in the shoes” of the deceased and receive their benefit (while forgoing the survivor’s original earned benefit).

It is critical that you make the best decision for your family. A proper analysis of the hundreds of options of benefit elections is necessary to give you confidence in this lifetime decision. If you wish to plan appropriately for your SSA benefits, contact a CERTIFIED FINANCIAL PLANNERTM professional to assist you in this important lifetime decision.

Today is another 24-hour period for you to find gratitude and happiness. Spread your smiles to those around you and you will reap what you sow. I have a saying that may be appropriate – “If smiles were contagious, would you start a pandemic?” See you on the walking trail!

Related Podcasts

Thriving in Volatile Markets

Do you dread challenging markets?  Do you break out into a cold sweat when your investment statement arrives in the mail?  Many of us don’t understand the positives, yes, I said “positives”, of the opportunities that present themselves in volatile markets.  Retail investors exhibit several common traits.  First, they typically like to “buy high” and “sell low” based on fear and not sound research.  Second, their idea of diversification is to own several different accounts with a myriad of investment positions in each one.  This is not only a complicated method of living but fraught with issues such as investment overlap and possible sector concentration.

A better method of achieving your long-term investment goals is to develop a plan of investing that does not change with market cycles.  This type of approach will serve you well in the long-term since you are dollar-cost averaging by investing each month (or some predictable cycle).  In a market expansion, your constant investment amount will buy fewer shares or units of a particular investment.  However, in a declining market, such as the one being experienced in the United States at this time, your consistent investment amount will buy more shares of a particular investment due to the lowered buy price.

Dollar-cost averaging doesn’t guarantee success of your portfolio but it does utilize the natural market cycles to help you achieve a potential lower average cost in the shares/units you purchase over time.  For example, if you are investing $1,000 each month in your portfolio and the shares are $50.00 each, you may buy 20 shares during the month.  However, if the market is declining and shares are now $40.00 each, you may buy 25 shares during the period.  Over time you may experience a lower average cost of investment in each share.

In our previous example, assume the investment is a company that has a history of paying excellent dividends and has weathered many difficult business cycles.  The company’s management gives you confidence that it will, once again, keep the company moving in a positive trajectory despite the economic hardships.  By focusing on facts and not emotions, the probability that you will achieve your investment goals is much greater.  Remember the quote from the “Oracle of Omaha” Warren Buffett, “If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.”

I understand it is difficult and takes great courage to weather some of the more difficult economic cycles the United States has suffered.  However, remember that you will be using the totality of your investments for supporting your lifestyle in retirement and it took you many years to accumulate the funds.  One or two negative market cycles will give way to more positive cycles at some point.  The future isn’t hard to predict if you create it yourself. 

Establish your investment plan based on sound logic and economics.  Don’t attempt to time or “outsmart” the markets.  Many bankrupt individuals have attempted these approaches.  If you have questions on establishing an appropriate strategy for your lifetime accumulation of retirement funds, contact a CERTIFIED FINANCIAL PLANNERTM professional.  The best counter to emotional disruption during a negative market cycle is to think long-term and stay with the plan you developed. Now, go out and enjoy your day.  You got this!

Related Podcasts

Why Your Loan Interest Rate Is Going Up

If you have attempted to purchase a new car, new home or pay on your credit cards, you may notice the interest rates being charged you are higher than you experienced earlier this summer. Inflation has been a tremendous force on the budge of families in the United States in the past year. Currently, the year-over-year inflation rate is 8.5%. This number impacts most financial matters where lenders are involved.

The Federal Reserve Board is the responsible agency for establishing a monetary policy and to promote stability in the banking system of the United States. Based on the money supply in the country, as we are currently experiencing, demand for consumer goods and real estate are higher but the supply of these same goods is limited. This is the definition of inflation. Although you can’t see “inflation”, you experience it everyday when buying groceries, filling up the tank of your automobile, borrowing money on a home or requesting a credit card.

The rate controlled by the Federal Reserve is known as the discount rate. This is the rate of interest charged to banks to borrow from the Federal Reserve. If the rate of borrowing rises for your community banks, the rate of interest charged on loans to you by the bank might be higher than you previously experienced. Loan rates to consumers (you and I) are based on manner factors:  your credit score, your debt-to-income ratio, collateral offered for securing the loan and general payment history with the lender.

In the past several years, the Federal Reserve allowed the discount rate to remain near zero percent. This fueled an aggressive amount of lending and money supply to become more liberal for borrowers while rates charged the borrowers were exceptionally low. For example, to some of the most credit-worthy borrowers, automobile financing companies such as General Motors Acceptance Corporation would loan funds to buy automobiles with terms such as no interest for sixty months. Why would the lender extend such a loan to anyone? The reason is that the inventory of automobiles was increasing, and manufacturers (and the related dealers) needed to sell more inventory.

Credit card companies were maintaining extremely low interest rates during the past several years as well.  I am not a fan of credit cards as a means of borrowing unless the full payment of the card will be paid each month. Interest rates for unsecured, personal credit can be as high as 22% – 25% annually. 

When the Federal Reserve raises the discount rate, it impacts the prime rate (the rate of interest that banks loan its customers with good credit) by causing an increase approximately a few weeks after the Federal Reserve announcement. Shortly, after the prime rate increases, mortgage rates and other lending will increase commensurately. 

Unless it is necessary, purchases of large items on credit during a time of rising rates is not recommended.  For example, your home may be valued much higher today than it was two years ago. However, the home you would need to buy for your family, if you sold the primary residence, would cost you more for the same home than it would have two years earlier. It is the natural cycle of value and borrowing. 

As the money supply in the United States begins to tighten (less money in circulation), inflation will begin to lower. It is an economic certainty that the U.S. markets will expand and contract. This is the manner in which it has always performed.  The hardest questions to answer are: When will the economy expand (boom)? When will the economy contract (recession)? The person that knows the answers to these futuristic questions may sell you some ocean-front property in Arizona. 

Economics is a difficult subject for many of us. It is critical that risk be considered in all financial transactions, including loans. For additional information, and planning for your future, contact a CERTIFIED FINANCIAL PLANNERTM professional. Be careful, it’s a jungle out there!

Related Podcasts