1st Quarter Report – Investment Shock Absorbers

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Ever ridden in a car with worn-out shock absorbers? Every bump is jarring, every corner stomach-churning, and every red light an excuse to assume the brace position. Owning an undiversified portfolio can trigger similar reactions.

QMR_Q117_Portrait

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Many Blessings,

Jose Cuevas

jose@wisdominvestments.com

847-290-0753

www.wisdominvestments.com

10 Books to Help You Make Smart Choices With Your Money

The Christian Financial Planner

money book Books are valuable, expecially books about money.

When you think about successful money management, what comes to mind? Where do you receive good information? How do you know what books to read to help guide you down the right path?  Most people don’t just obtain wealth out of the blue sky.  If you were to ask most successful people how they obtained their money, they would tell you they worked hard, had some luck/blessing, and they read voraciously. When I first entered the financial planning business, my mentors assigned me a list of books to read to help me understand more about money and how it works.  Since that time 15 years ago, I’ve come across many great financial books and I’d like to share ten books to help you make smart choices with your money. I’m sure 15 years from now, I’ll have a different list of…

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10 Books to Help You Make Smart Choices With Your Money

 

money book

Books are valuable, expecially books about money.

 

When you think about successful money management, what comes to mind? Where do you receive good information? How do you know what books to read to help guide you down the right path?  Most people don’t just obtain wealth out of the blue sky.  If you were to ask most successful people how they obtained their money, they would tell you they worked hard, had some luck/blessing, and they read voraciously. When I first entered the financial planning business, my mentors assigned me a list of books to read to help me understand more about money and how it works.  Since that time 15 years ago, I’ve come across many great financial books and I’d like to share ten books to help you make smart choices with your money.  I’m sure 15 years from now, I’ll have a different list of books that every successful investor should read, but for now, please enjoy.

Disclosure: While I find these books helpful, I don’t agree with every concept illustrated in every book. On your quest for knowledge, you need to determine what works for you and your family.  These book recommendations are not considered to be a solicitation of advice.

If you need help making smart choices with your money, please email me at jose@wisdominvestments.com

Visit our website at www.wisdominvestments.com

 

10) Rich Dad Poor Dad By Robert Kiyosaki:

This was the first book I read when I entered the financial planning industry. Robert Kiyosaki describes how he had two dads. He takes the time to describe each father’s financial and life philosophies and how each dad is deemed with the names Rich Dad and Poor Dad.  The book does a great job of detailing financial ideas and concepts that allow Rich Dad to be rich and Poor Dad to be poor.  The book would be great for the person who is paying their bills first and feels like there is nothing left to save at the end of the paycheck.

RichDadPoorDad

9) The 7 habits of highly effective people By Stephen Covey:

While this book isn’t necessarily about money, I believe this book gives a great blueprint of how to achieve success in your life.  The 7 habits help you to obtain structure to achieve the goals you are looking to achieve in life.  I have found that while the 7 habits aren’t necessarily financial principles, they can be used in almost any financial situation.

7Habits

8) The Millionaire Next Door By Thomas Payne

The Millionaire Next Door is one of the best books I’ve read that smacks American Consumerism right in the face.  This book details for you what a normal Millionaire looks like, what she might drive, and how he might live.  With today’s images of what it looks like to be a millionaire, this book is a breath of fresh air describing how most millionaires are made and live.

millionairre next door

7) The Investment Answer By Daniel Goldie & Gordon Murray

The Investment Answer helps give every investor an idea of what they should be looking for when they invest money. The book addresses concerns such as how to understand the markets, how to pick a financial advisor, & how to make great financial choices. We love to give this book to potential clients.  Even if a client doesn’t choose to work with us, this book will help them make the best decision possible about whom they should hire.

The Investment Answer

6) How to Think Like Benjamin Graham and Invest Like Warren Buffet By Lawrence Cunningham

This again is one of my personal favorites. This book showcases some of the great ideas of Benjamin Graham and Warren Buffet.  If you don’t have time to sit down and read the 725 page book Security Analysis by Benjamin Graham, then this book is for you. This book challenges some of the stereotypical types of investing methods and dives into value investing.  We again like this book because it compliments some of our own investment management philosophies.

How to think like benjamin graham and invest like warren buffet

“Wisdom Investments has been helping individuals and businesses make smart choices with their money since 1999”.

5) Values-Based Financial Planning By Bill Bachrach

This book describes the need for financial planning according to your unique values. Investing according to your unique values allows you to determine what is really most important to you when planning for your future. We all have values that are important to us. Why would you not consider those values when you are planning for your most important goals in life?

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4) Total Money Makeover By Dave Ramsey

Dave’s advice focuses on living a life free of debt and investing money for the long-term. Many people focus on utilizing debt to achieve the things they want in life.  Dave’s radical concepts of approaching all situations without debt can help the individual who has become too reliant on credit cards and bank loans.

totalmoneymakeover

3) The Financial Wisdom of Ebenezer Scrooge By Ted Klontz, Rick Kahler, & Brad Klontz

The Five principles to transform your relationship with money” will help you understand the love affair you’ve had with money and how to change it.  Some people tend to focus on attaining more of this and more of that. This book suggests that if we are constantly seeking for more when it comes to money, we may need to start doing some things differently.

financial wisdom of ebeneezer scrooge

2) The Treasure Principle By Randy Alcorn

Where is your treasure? What kind of riches are you seeking? We’ve all heard it is better to give than to receive. The Treasure Principle seeks to show you how to experience joy through the giving of your money.  Maybe many of us haven’t thought about giving as being a gift, but some people have an inborn desire to give of their resources. How much better could your life be if you decided to “Discover The Secret of Joyful Giving”.

the treasure principle

1) Master Your Money By Ron Blue

Ron’s book shows individuals how to manage their money with a Biblical perspective in mind. Many of us who believe in the teachings of Christ already know the Bible has a great blueprint for money management. Master Your Money looks to describe those concepts in detail while giving real world applications and scenarios to help you understand how you can Master Your Money.

Master Your Money

 

I hope you make time to read some of these great books about money.

“My people are dying because of lack of knowledge”.    

If you need help making smart choices with your money, please give us a call.

Jose Cuevas
Vice President
Wisdom Investments
http://www.wisdominvestments.com
847-290-0753

Three ways to lower your taxable estate

estate-tax

Three ways to lower your taxable estate:

The financial planning cycle is an all-encompassing process that includes Investment planning, Insurance Planning, Tax Planning and Estate Planning among other areas. In one form or another your investment planning affects your estate planning which affects your tax planning which affects your insurance planning.  Clients tend to think about these areas separately. Clients tend to think in terms of going to their Lawyer for their estate planning, their financial planner for their investment planning, their CPA for their tax planning and their insurance person for their insurance.  A good financial planner will be able to direct clients to the professional who makes the most sense for their situation, but a financial planner can be viewed as the Quarterback for this process.  Financial advisors who provide comprehensive financial planning services need to identify areas of a client’s financial picture that require more attention and in-depth analysis.  Such is the case for clients looking to lower their taxable estate. These clients will certainly need the help of the financial planner, the insurance sales-woman, the CPA and the Attorney at all once.  Knowing which professional to employ could have a significant affect on your assets.  Without further ado, here are three ways you can lower your taxable estate:

Gifting Money to your Children and Grandchildren:

Current tax laws allow you to give away $14,000 per year to anyone you would like. However, most people aren’t interested in giving their money away to just anyone. A majority of clients will leverage the tax code to gift money to their children and grandchildren. Whether through cash or investment vehicles such as 529 plans, a parent can gift money to as many people as they would like for as many years as they would like. If your adult child is married, you can double the $14,000 and give $14,000 per year tax free to your children.  If both Mom and Dad are giving money away, you can double that number again to $56,000 if giving to both the Adult child and the spouse.  $56,000 might not be a large enough amount of money on it’s own to make a difference, but over a ten year period of time, that is $560,000.  If you have another married child, over a ten year period of time you and your spouse can give away over $1,000,000. 

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Upfront gifting to a 529 plan:

529 plans offer a special feature that allow you to gift 5 years of assets all at once. Using the numbers from above for planning for one child’s education, you can upfront gift up to $140,000 for a married couple.  For a single individual, again the gift amount is $14,000 per year multiplied by five and you get a $70,000 upfront gift to your child’s 529 account.  Assuming you and your spouse have three grandchildren you’d like to help pay for college, that’s $420,000 you can eliminate from your estate in one year.  Now we are talking significant assets being eliminated from your taxable estate. The cherry on top for this option is you are able to deduct the contributions to the 529 plan from your state taxes. With a tax rate of 5% in Illinois, contributions to a 529 plan could be a considerable deduction to consider. There are some caveats if you pass away before the 5 year period is over. We recommend you work with us and your CPA to understand the full ramifications of this option.

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Establishing an Irrevocable Life Insurance Trust:

Establishing an Irrevocable Life Insurance Trust (ILIT) will require the help of an Estate Planning Attorney.  An ILIT can be used to purchase a life insurance policy or transfer the ownership of an existing policy to the ILIT. The first word of this product/strategy is Irrevocable. That’s an important word.  When you transfer assets into an ILIT, you lose control of managing those assets and making changes to the assets.  By assigning the assets to the ILIT, you are saying “This money no longer belongs to me”.  ILIT’s allow you to pass a significant sum of money to the next generation and avoid estate taxes.  After the life insurance is purchased or transferred, the trust becomes the beneficiary of the policy.  Upon your death, the life insurance proceeds are paid out and held in trust for the trustees of the trust.  For more information, we recommend you talk with us an estate planning attorney.

There are many other ways financial professionals work to lower your estate tax liability. These are just three ideas to help you on your journey.  For more ways to lower your estate tax liability, please call us at 847-290-0753.  You may email me at jose@wisdominvestments.com. 

Jose Cuevas
Vice President
Wisdom Investments
jose@wisdominvestments.com
http://www.wisdominvestments.com
847-290-0753

A Client’s Question: “Where is the safest place for me to invest?”

safety

This question is power packed with many different potential answers.  At it’s core, this question is about risk. This question is “me” focused.  The safest place for me to invest might not be the safest place for you to invest. What does the word safe mean? Does it mean I don’t want to lose any money today? Or, does it mean “I want my future to be safe”.  At the root of most investor questions is some type of psychological unknown the client wants light shed upon. Since this question can cover both product and asset allocation, I will cover product for the moment.

In the financial world, there are many types of products you can purchase or invest in to achieve your goals. All of those products can be put into 5 buckets; stocks, bonds, cash, real estate & commodities.

The first product you can buy is an individual stock. Stocks represent ownership in a company and the return you receive is dependent upon the profit of the company you purchased.  If you buy stock in Microsoft, then you are an owner of Microsoft. If Microsoft goes out of business, you lose all of the money you invested in Microsoft. Out of the five buckets, of course a stock would fall into the Stock bucket.

Next you can buy a bond.  With bonds you are simply loaning your money to the government or to a corporation and they pay you interest in return.  With bonds, if the company goes out of business, you are at least higher on the priority list to get money back over other investors. However, when investing in an individual bond, you still run the risk of losing money. The individual bond goes into the bond bucket.

Savings Accounts: Savings accounts are a cash bucket product and are offered by banks, credit unions and savings & loan institutions. Savings accounts offer a high amount of liquidity. If you need your money withdrawn from a savings account, you are able to walk into the bank or go online and withdraw your money. Due to the high liquidity factor, savings accounts won’t pay you much interest. To see a few available rates for savings accounts, click here.

Money market mutual funds are similar to savings accounts, but the value of money market mutual funds can fluctuate. The price of the money market is targeted for $1, but moves slightly throughout the trading day. Money markets are pools of money brought together by fund companies for the benefit of the account holders to try and achieve a return slightly higher than that of a savings account.  A money market account offers liquidity, however you may have to wait a couple of days for money to transfer from your brokerage account to your bank account. Typically for our clients, the transfer is next day. The money market account goes into the cash bucket.

CD’s might be a bit trickier for most people. To many a cd is considered cash.  However, if you look back at the definition of a bond, you will see the cd is similar.  With a cd, you are loaning your money to the bank, the bank pays you interest, and when your cd expires you get your funds back. The only real difference between the bond and the cd is the cd is guaranteed. In most cases, the cd is FDIC insured. Wisdom Investments would categorize the cd to go into the bond bucket.

Next we have mutual funds. Mutual funds can be a bit tricky as there are many different types of mutual funds. For simplicity sake I will categorize the bond funds into four types: stock funds, bond funds, specialty funds & asset allocation funds. Stock funds would go into the stock bucket, bond funds would go into the bond bucket and allocation funds would hit all of the buckets. The specialty bonds would be focused on the commodities and Real Estate buckets. With most mutual fund portfolios you will have different types of funds that allow you to broadly diversify your money across the multiple markets available to you.  With a mutual fund portfolio, you purchase multiple different types of funds and these funds have underlying securities that make up the value of the mutual fund. For example, if you have a large cap blend fund in your portfolio, you are investing in many different large companies like Microsoft, Coca Cola, & Google. When you invest in a bond fund, you are buying a portfolio of bonds that might include treasury bonds, municipal bonds, & corporate bonds. Within the mutual fund space you can also buy REITS which allows you to invest in real estate and you can buy commodity funds that allow you to invest in the commodities market. Exchange traded funds are similar to mutual funds but offer a lower cost since they are not professionally managed.

Fixed annuities are put together by insurance companies utilizing a portfolio of bonds. The insurance company buys bonds using your money and pays you a fixed return far below what they expect to yield on the bond portfolio. The trick is the insurance company guarantees your return while they bear the risk of the bond portfolio. In today’s market fixed annuities do not typically pay a high enough interest rate to warrant the length of time you will commit to the product. Fixed annuities are also a great way to achieve tax deferral and can be helpful in estate planning. Fixed annuities are part of the bond bucket.

Variable annuities are annuities that have an underlying portfolio typically consisting of mutual funds. The variable annuity company charges the clients for death benefits and guarantees while the client has some peace of mind with their investment. In my view, most variable annuities are too expensive and unnecessary for most clients. If a variable annuity is needed, it’s typically to help transfer a client out of an overpriced annuity that was purchased in the past. These products do offer a death benefit which guarantees a beneficiary would not receive less than a specified amount, but you pay for this feature. As I’ve mentioned in the past, I’ve seen clients paying almost 4% per year for one of these products! In the investment industry, there is a debate going on as to whether or not a portfolio can be sustained while distributing 4% of the portfolio every year. Imagine trying to withdraw 4% and pay 4% per year…..

At Wisdom Investments, we take a managed mutual fund approach utilizing a balance of conventional and academic based investment strategies. We believe having a diversified, low-cost, & changeable portfolio is in most investors best interests.  The safest place for you to invest is the product with the risk tolerance that helps you strive towards accomplishing your goals. If you’d like to learn more about how we help you “Make Smart Decisions With Your Money”, please call us at 847-290-0753 or email me at jose@wisdominvestments.com.

Jose Cuevas
Vice President
Director of Financial Planning
www.wisdominvestments.com
847-290-0753

 

 

 

In Response To President Trump’s Latest Executive Orders

 

executive-order

In Response To President Trump’s Latest Executive Orders: 

Today, President Trump signed two executive orders that will significantly impact the current state of financial regulation in our country. Due to the financial crisis that took place between 2008 and 2010, massive regulations contained within the Dodd-Frank Act were imposed on the financial system. These regulations were designed to help protect the public from potential abuse by financial institutions. While we believe some measures of the regulations were well intended, we believe there have been some unintended negative consequences.  The financial industry was already a heavily regulated industry prior to Dodd-Frank.  

The second executive order President Trump signed is in response to the Department of Labor’s Fiduciary rule, that was scheduled to be effective in April of 2017.  The rule states that retirement advisors must act in the best interest of their clients. This is an enhancement to the  suitability rule currently in place.  Under suitability, advisors are obligated to recommend investments that are suitable, or appropriate for clients, based on the client’s income, investment knowledge and risk tolerance.Under the Fiduciary rules, financial professionals are legally obligated to put their client’s best interest’s first rather than simply finding “suitable” investments.The Fiduciary rule would have resulted in many advisors no longer being able to receive commissions on the sale of retirement products as such commissions would have been deemed to be a conflict of interest.   

At Wisdom Investments, we believe in fiduciary responsibilities and many of you already know we act in a Fiduciary capacity for our clients. This executive order will delay the fiduciary rule until the current administration has the opportunity to review and amend the rule. Clearly these two executive orders send the signal that the Trump administration feels the current regulatory state is unnecessarily burdensome.  These moves by President Trump are another indication that he intends to follow through on his campaign promises. While loosening regulations will ultimately help benefit business, the executive orders will face backlash from the Democrats arguing the decrease in regulation will negatively affect middle class investors.   

In summary, the status quo for investors remains the same. At Wisdom, we believe the Fiduciary standard will eventually be passed and we are supporters of the standard. We currently do business under that standard because we believe the fiduciary standard is beneficial for clients. The fiduciary proposal did have many ambiguous provisions and we are hopeful the postponement and review will provide clarity.   

In the meantime, if you know someone who is upset about the postponement or just know someone who is interested in working with a firm that always puts their clients’ interests first, in a fiduciary manner, have them call us or send us their name and we will contact them.  We place great value in the confidence you show in us and will do our very best to earn that continued confidence.   

Bill Kmiecik & Jose Cuevas 
Wisdom Investments
www.wisdominvestments.com
847-290-0753