A client recently asked me if the converging of short term and long term interest rates, or as better known, the flattening of the yield curve, is an indication that the stock market is headed for a correction. The quick and easy answer is no, but maybe. Before you stop reading, let me give you […]
1) Giving is Living
Malachi 3:10 Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this,” says the LORD Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that there will not be room enough to store it.
Now giving is not typically where financial planners start conversations, but my clients and target clients are primarily Bible believing Christians. In my own life, I’ve seen firsthand the above verse come to life! And, because I’ve experienced the truth of this verse, I want all of my clients and potential clients to experience this truth. As a church goer and someone who tries to stay adept to financial trends in churches, the article below shows that 25% of church goers give regularly and a much smaller number actually tithe (give 10%). In my own practice, I can corroborate this story as I see client’s budgets and tax returns. I’m often asked “What account should I invest more money in right now?” My answer to some clients is “your eternal account”. I believe so strongly in the promise above that I want every person possible to experience the blessings that come from it. In addition to working with Christian clients, I have the opportunity to work with clients who don’t have a particular faith belief. Would you believe I see some of these clients, without faith, adhering to a tithing principle through organizations like the Red Cross or Salvation Army? When I ask them why they do it, their answers are “because it makes me feel good”, “I don’t need all this money”, “I’d rather help those who need it, than be a Scrooge”. Now, that’s amazing. We could all take a cue from some of our secular friends in this regard! I’ve never regretted my decisions to up my giving and you won’t either.
2) Pay Off Debt
Proverbs 22:7 The rich rule over the poor, and the borrower is slave to the lender.
The second item on your financial agenda for 2018 should be to devise a plan to eliminate your debt. Yes, I know you can leverage your debt and utilize debt in such a way as to capitalize on potential investment opportunities. Yes, I know that major corporations borrow money, so they can create future opportunities. However, there are dangers to implementing this financial strategy as part of your regular financial planning. Number one is that you aren’t a major financial corporation like Coca Cola or Microsoft. Companies like this who borrow money to finance opportunities generally have ample sums of cash to cover their debt positions should something go awry. A business might measure their debt exposure by comparing their cash flow to debt ratio or their debt to asset ratio. What are your ratios? Do you have too much debt exposure? In a time of a potentially maturing market expansion, a Fed ready to steady the increase of interest rates, & a historic extended period of low interest rates, how much more do you think your debt is going to cost you in this next market cycle? Something else to consider… What are the trends of these financial corporations? Do you see smart companies taking on more debt right now or creating a better balance sheet?
3) Update Your Risk Assessment & Reallocate Your Portfolio Accordingly
Ecclesiastes 5:13-14 13 I have seen a grievous evil under the sun: wealth hoarded to the harm of its owners, 14 or wealth lost through some misfortune, so that when they have children there is nothing left for them to inherit.
The part of this verse I want to focus on is misfortune. What misfortunes could lie ahead for you if you don’t know what kind of risk you’re assuming in your portfolio? One of the greatest misfortunes I witnessed was during the market crash of 2000-2002. I only caught the tail end of this crash as a financial advisor, but I will never forget the people I met who lost their entire life savings because they invested all of their money in Ford or GM. At the time, I was an advisor in the Motor City. The hurt and devastation these folks experienced was unforgettable and unnecessary. If only they had someone who could have advised them before the crash…. I saw the same for clients who were heavily invested in technologies and the same for clients who only had Large Cap stocks. What is your allocation? How much risk exposure do you have right now?
Below is a quick link to determine how much risk you are assuming. I’d be glad to talk it over with you.
4) Create A Plan
Proverbs 21:5 The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.
The verse above speaks for itself. You have to have a plan! Everyone’s plan looks a bit different. Maybe you need a tax plan or an estate plan. Whether it’s a financial plan or an investment plan, creating a document that gives you a roadmap to your destination will help ensure you arrive utilizing the most efficient route possible. I won’t beat this point to death. I have a free goal plan you can test out by clicking here https://connect.emaplan.com/ai.
Thanks for reading and please share this article with your friends.
This is a common question we face as financial planners. Popularity doesn’t necessarily make something a good financial decision for your personal situation. There are a few important factors to consider when determining if a Roth Conversion is for you.
1) What is your current tax bracket?
A big consideration of whether or not to convert your Traditional IRA to a Roth Ira should be dependent on your current tax circumstances. With clients having widely varying effective tax rates, it’s important to know your current tax rate and your potential tax rate should you decide to convert your IRA. All conversion proceeds from your IRA will be considered taxable dollars. When you contributed to your 401k, IRA or other qualified plan, you were given a tax deduction for your contribution. So, you never paid taxes on the money you invested. Now as you move funds out of your traditional IRA you will begin to pay taxes. If you have a tax rate of 15%, then maybe the conversion could be beneficial to you. If you have a tax rate of 25%, then maybe it won’t be. The best advice is for you to gain an understanding of the tax consequences pertinent to you.
2) What is your future tax bracket going to be?
This is much more difficult to determine. However, most people will find themselves in a lower tax bracket when they retire than their current tax bracket. This is the primary reason a person would consider not converting the Traditional IRA to a Roth IRA. If you have to pay more money today than you would pay in the future, why would you want to pay the extra tax? In the words of one of my clients, “Who said, yes I’d like to pay more taxes please? Nobody Ever!” Her words, not mine.
3) What is the growth difference between my traditional IRA and potential Roth IRA after taxes?
Now that we know your current tax bracket and your potential future tax bracket, we can begin to make calculations that will determine the potential value of both decisions for the future and for today. Here is a sample scenario for you:
Kate (65) has $300,000 in her Traditional IRA which she rolled over from her former employer’s 401K plan. Kate lives a fairly simple life, has no debt and she anticipates being able to live off her social security and supplement income from her IRA as she needs it. We’ll assume she needs $20,000 of extra income every year from her IRA. This extra income is to ensure Kate can do the special things she like to do like traveling, attending trade shows, and spoiling her grandchildren.
In our current scenario, Kate is mostly in the 15% tax bracket. She is earning a return of about 6.5% on her investments and has already begun withdrawing the $20,000 from her IRA.
If Kate were to convert her entire IRA today, then she would find herself in the 33% tax bracket paying almost $90,000 in taxes to the IRS. Since Kate is only withdrawing $20,000 per year from her Traditional IRA, it probably doesn’t make sense for Kate to convert this IRA at this time. The future compounding growth of her Traditional IRA is worth more than taking the tax hit today for the potential tax savings tomorrow. Maybe the conversion makes sense if Kate had 30 years to allow her money to grow, but for today’s illustration, she’s better off leaving the money in her account.
Is the Roth Conversion a financial strategy you’ve been considering? If so, let’s talk.
In varying forms we’ve repeatedly heard this question asked over the last several months. When I hear the question, I tell clients, “well, it’s a good idea to ensure you are properly diversified, you review your financial plan and consider your current risk tolerance”. If you find yourself asking this question, contact me so I can give you a complimentary risk assessment. In this blog I wanted to share a perspective of diversification and continued perseverance that you might not have considered. When I analyze the markets and all of the available information to me, I have absolutely no idea what’s going to happen tomorrow, a week from now or a year from now.
When I look at what the Bible has to say about this question, I find my answer in the book of Ecclesiastes. Ecclesiastes 11 starts off saying:
“Cast your bread upon the waters, for you will find it after many days. Give a portion to seven, or even to eight, for you know not what disaster may happen on earth. If the clouds are full of rain, they empty themselves on the earth, and if a tree falls to the south or to the north, in the place where the tree falls, there it will lie. He who observes the wind will not sow, and he who regards the clouds will not reap.”
Most of the commentaries I come across indicate Solomon is trying to teach about giving. And, maybe that’s true. When I read these texts I see a practical lesson about working hard and diversification. The first verse starts by saying “cast your bread upon the waters, for you will find it after many days”. I think of a fisherman using bread to catch fish. If the fisherman doesn’t cast his bread out into the water, he’s not going to catch any fish. The second half of the verse shares that you will find your bread again after many days. If you invest in the supplies necessary to earn, then your return will come back to you in time.
The next line says “Give a portion to seven, or even to eight, for you know not what disaster may happen on earth”. Continuing with the analogy of our fisherman, maybe he should have 7 or 8 lines in the water or fish at different lakes… In the world of investments, I see how this applies to asset allocation. An investor shouldn’t just invest in stocks or gold. An investor should have her money properly diversified amongst stocks, bonds, cash, real estate and commodities. Then within these five different asset classes, there are subsets of investments that an investor should consider. Maybe if investors and asset managers were utilizing this ancient advice during the dot-com crash, they wouldn’t have lost so much money. In 1999 diversification meant Large Cap stocks and bonds… That was it.
The verse clearly says a disaster is going to come, it’s just a matter of when. I think the next verse gives us an indication of what kinds of disasters could come. “If clouds are full of rain, they empty themselves on the earth and if a tree falls to the south or to the north, in the place where the tree falls, there it will lie”. I think Solomon is saying, you never know when a flood will come. When it’s time for the clouds to empty, they will empty. I’m not so sure about the tree falling, but I imagine the tree is an impediment for you to continue traveling down a path. I imagine a tree blocking your route and you needing to exert more work to move the tree to continue in your regular work. I may be entirely wrong, but just a thought. In the investment world, floods and forest fires are absolutely disrupting people’s lives at this very moment. The wild fires in California have destroyed wine crops and flooding in Puerto Rico has eliminated the ability for the tourism industry to earn money right now. We know these disasters are going to come. We must diversify our risk and be prepared for them.
The last verse shares that in spite of these natural disasters, we must keep working. “He who observes the wind will not sow, and he who regards the clouds will not reap.” If you stand outside staring at the wind all day instead of making a move, working hard, and diversifying your work, you will not earn. You will not reap your reward if you haven’t done the work necessary to win. So, if we think the market is at a high, the stock market that is, you can’t just sit idly by on the sideline and watch the wind. You need to review your portfolio, assess your risk tolerance and keep steady on your plan to accomplish the goal you’ve set forth.
I hope this short post is helpful to your thought process about the current market high.
Disclosure: I am not a Bible Scholar. The views expressed in this blog are my own.
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I can’t tell you how many times I’ve heard a variation of the phrases “I’m trying, but he isn’t”, “I’m sticking to my budget but she’s not”, and “I’m ready to retire, but he’s not”. There are many things my spouse and I don’t agree on. As an example, I am a risk-taker and my wife is not. My wife doesn’t like to look at the budget but I do. She is perfectly fine shopping cheap and I’m not. The list can go on and on. But, one thing we do as we navigate through some of life’s most difficult challenges, is talk and come up with a plan. Marital unity is absolutely critical when making important financial decisions and also dealing with the day to day minutiae of budgeting, shopping & other daily spending decisions.
For many of us, we weren’t modeled how to manage money well as children. Worse yet, we weren’t modeled how to talk about money with our significant others. Some of us may even have searing images implanted in our brains of our parents screaming and fighting in the kitchen over money. So, it’s no surprise that many of us don’t know how to talk with our spouses about money. For that matter, some of us don’t really know how to talk to our spouses at all. If this is true, how do we begin to have dialogue with our husbands and wives that will be beneficial for the whole family.
It’s no secret to some of you reading this article that I’m going to quote the Bible. And, for some of you who don’t know that I do that…YES!!! The Bible!. 🙂 I think the first thing I will share is that if your spouse “doesn’t want to listen to you”, you should probably consider what you’ve been saying and how you’ve been saying it. Sometimes your spouse just feels too much pressure from you when it comes to accomplishing the goals you’ve set forth. Maybe you come across as a dictator. Maybe you’re an Ephesians 22-24 guy and you love these verses:
“Wives, submit yourselves to your own husbands as you do to the Lord. 23 For the husband is the head of the wife as Christ is the head of the church, his body, of which he is the Savior. 24 Now as the church submits to Christ, so also wives should submit to their husbands in everything”.
But, if you’re forgetting Ephesians 5:25 that goes along with these verses, then maybe you should consider re-reading this passage.
25 Husbands, love your wives, just as Christ loved the church and gave himself up for her.
Last time I checked, Christ’s love is the most absolutely sacrificial kind of love ever demonstrated to mankind. Are you showing your wife this kind of love when “she’s not submitting” to what you say? Just a thought…
Now, maybe your the wife saying “My husband just won’t lead. He should be taking charge of this.” I find no scripture verse that says your husband has to be perfect at everything and take the lead on every single matter that comes up in your house. As a partner in your marriage you are capable to take the lead in many areas and help manage the finances. I say finances as that is what I’m writing about today. What’s the point of all this? Using the title of a new tv drama…., THIS IS US. This is how we sometimes relate to each other. This is how we sometimes speak to each other. When it comes to goal planning, I’m quite certain God’s intention wasn’t for one person to handle everything and the other person to be completely in the dark or complacent about matters.
So, what can you do? What can you say? The answer is I have absolutely no idea! I don’t know you. I don’t know your financial situation and I don’t know exactly why “you’re trying, but your spouse isn’t”. But, I could recommend a few ideas that you might find helpful. First, we must speak kindly to each other and not blame one another when things don’t go right. When it comes to making good money decisions and being on the same page as your spouse, it’s important to have clear and peace filled dialogue. Ask your spouse questions like “what’s important to you right now about our finances?”, “where do you see us in 5 years and how do we get there together?”, “how does this purchase help us with our goal of funding education for our children?” “what do you think about talking to a financial planner?”. I had to throw that one in….;-) Kidding aside, you must find a way to communicate with your spouse about money in a way he or she understands. A couple of resources I could recommend… Find a “Financial Peace University” class in your area. Find a good counselor who can help you process some of the issues you need to address with marriage and finances. I’m partial to good Christian counseling and I can recommend a few good counselors if you’d like. Go have a talk with your Pastor. Read Randy Alcorn’s book “Money, Possessions, and Eternity”. There is so much you can do.
Most importantly, you aren’t alone. I’m writing about this topic today because it’s been a recurring theme in my practice lately. I’ve sat with couples as tears have overflowed because one spouse has plan A while the other spouse is focused on plan B. I’ve sat and heard stories of marriages on the brink of divorce because the two couldn’t agree on a financial direction. It doesn’t have to be that way. There are things you can do to make your marriage and your financial situation better! If you need help, please don’t hesitate to reach out and ask. Please share with us a story of how your marriage and finances have improved! We’d love to hear it.
As a Christian, you should examine your giving. You should pray about what God has asked you to give and follow through. I have no doubt your life will be abundantly blessed because of it. If you are a Christian and when it comes to your giving, you are solely focused on how much you are saving for retirement or for your child’s education, you are completely missing the point of the life we have been called to live. If you were one of my clients, I would be obligated to have a conversation with you about your giving. In fact, I’ve done so on a number of occasions. If you are a Christian and you are seeking Christian advice, you might not like what you hear from time to time. I know I will lose clients because I talk about giving, but I believe we all have a bigger calling in our lives than just saving and earning money. As I’ve given advice to the clients who have followed through, the success stories happening will be a great testimony to the proof of the truth of God’s Word.