Tips from the State Bar of New Mexico about working from home...

Here is a recent post by the State Bar of New Mexico about resources for working remotely:

Resources for Working Remotely

·    USA Today: Have to work from home? 5 quick things you can do to prepare your space

·    Federal Trade Commission: Online security tips for working from home

·    Zapier: 10 Tips and Tricks for Zoom

·    State Bar of Texas: "Zoom"ing Into a New Era

·    NPR: 8 Tips To Make Working From Home Work For You

·    State Bar of Michigan: Practice Management Resource Center

·    BBC News: Coronavirus: Five ways to work well from home

·    FlexJobs: How to Work from Home During the Coronavirus Outbreak: What Your Boss Wants

·    USA Today: Working from home? Mind your manners in online meetings by following these tips

If you have questions about recent market volatility and its effects upon your retirement plan or investment portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).

Well, the SECURE Act was signed into law yesterday (20Dec2019)...

What is the SECURE Act? Beyond the acronym (Setting Every Community Up for Retirement Enhancement), it is the most sweeping retirement legislation that Congress has enacted within the past decade. Is this new legislation good or bad? While there are potentially some benefits, I am not the hugest proponent of it. Let’s cover why.

Here are some of the major provisions of the SECURE Act:

• Required Minimum Distributions will now begin at age 72 (versus 70.5 years of age), as long as you turn 70.5 years of age after 01Jan2020 - I LIKE this provision!!;

• You can contribute to your traditional IRA after age 70.5 as long as you have earned income - I LIKE this provision, but it does mean folks are working longer;

• Most inherited IRAs will now need to be distributed within 10 years - I really DISLIKE this provision (the SECURE Act funds its passage through this revenue provision);

• You may see more annuity options through your 401k provider - I generally dislike this provision because annuities often carry high charges and expense ratios, which benefit the insurance companies and NOT the investor (although annuities can have their place for a select few investors).

With the elimination of the stretch IRA and the addition of higher cost annuity options for 401k participants, some of the beneficial SECURE Act provisions are seeming outweighed by these less beneficial provisions.

If you have questions about the effects of the SECURE Act upon your retirement plan or investment portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).

Vanguard's Market Perspectives for 2020

What does Vanguard see for 2020? Here are a few highlights:

• Global growth slows in 2020 and sets the stage for a potential shallow recession in the US with growth around 1%;

• With a shallow recession possible, the Federal Reserve will need to cut interest rates once or twice in 2020;

• US-China trade tensions will continue as some larger scale structural trade issues still remain unresolved;

• Global and US inflation will remain muted due to slowing economic and wage growth; and

• US unemployment rates should remain stable or rise slightly due to a slowing labor market and muted wage pressures.

What do the above macro-economic perspectives mean for your portfolio going forward? Vanguard provides the following 10-year annualized nominal return projection estimates as a gauge:

Equities

Global equities ex-U.S. (unhedged) 6.5%–8.5%

U.S. equities 3.5%–5.5%

U.S. real estate investment trusts 2.5%–4.5%

Fixed income

U.S. bonds 1.5%–3.5%

U.S. Treasury bonds 1.0%–3.0%

Global bonds ex-U.S. (hedged) 1.0%–3.0%

U.S. credit bonds 2.0%–4.0%

U.S. high-yield corporate bonds 3.0%–5.0%

U.S. Treasury inflation-protected securities 1.0%–3.0%

U.S. cash 1.0%–3.0%

With US equities potentially returning between 3.5% and 5.5% and US bonds forecasted to return between 1.5-3.5%, it is a good time to make sure you have sufficient international exposure in your portfolio.

To see a mid-year 2020 Vanguard Economic Outlook update, click here.

If you have questions about your investment portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).

Are not all bond funds the same?

There are a lot of different bond funds available to investors. But, are they the same or are they really different? Morningstar broke down bond funds into four (4) major categories (sure, there are more, but this is a good start). The four (4) bond categories are as follows:

Intermediate Core

• Invests primarily in investment-grade U.S. fixed income issues including government, corporate, and securitized debt.

• Holds less than 5% in below-investment-grade exposures.

Intermediate Core-Plus

• Invests primarily in investment-grade U.S. fixed income issues including government, corporate, and securitized debt.

• Has greater flexibility than core offerings to hold non-core sectors such as corporate high-yield, bank loan, emerging markets debt, and non-U.S. currency exposures.

Multi-sector

• Seeks income by diversifying their assets among several fixed-income sectors, usually U.S. government obligations, U.S. corporate bonds, foreign bonds, and high-yield U.S. debt securities.

• Typically holds 35% to 65% of their assets in securities that are not rated or are rated BB and below by a major agency such as Standard & Poor's or Moody's Investors Service.

Nontraditional

• Seeks returns uncorrelated with those of the overall bond market.

• Has the flexibility to invest tactically across a wide swath of individual sectors, including high-yield and foreign debt, in addition to the potential for significant usage of derivatives.

It goes without saying that most individuals would do best if they placed the majority (if not the vast majority) of their bond portfolio holdings within an Intermediate Core Bond Fund. This type of bond fund generally exhibits a correlation that protects investors during a down stock market - as noted below by the graphic from Morningstar about bond fund correlations with the S&P 500 Index. Please also note that a correlation value of 1.00 means the fund perfectly matches the S&P 500 Index, while a correlation value of 0.00 means there is no correlation and a correlation value of -1.00 means they are inversely correlated (as one goes down, the other goes up).

Ten-year return correlation of Morningstar bond categories with the S&P 500 Index

S&P 500 Index 1.00

U.S. High-Yield Bond 0.72

U.S. Nontraditional Bond 0.50

U.S. Multisector Bond 0.56

U.S. Intermediate Core-Plus Bond 0.15

U.S. Intermediate Core Bond –0.03

Sources: Vanguard and Morningstar, Inc. as of July 31, 2019.

So, the next time you are thinking about stretching out on the yield curve to obtain a little more return from you bond fund portfolio, don’t forget why you invested in bonds in the first place (to smooth out the ride of your investment returns over your portfolio’s lifespan).

To learn more about dividend paying stocks versus bonds, see my earlier post (Dividend Paying Stocks versus Bonds).

If you have questions about how to invest your bond portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).

The "Risk-Off" Investing Environment Continues . . .

Investors continue to be risk-averse in 2019. Simultaneous readings by Vanguard’s three (3) “Risk Speedometers” have only been this low 4% of the time in the last fifteen (15) years. That means folks do not have a lot of appetite for risk, i.e., equities or stocks.

This is borne out by the fact that US equity, US ETF’s, and active equity funds all suffered net cash outflows, while taxable bond funds and ETF’s experienced large net inflows of cash. The category receiving the largest cash inflows over the last 1, 3, and 6 months, as well as, the last 1, 3, and 5 years has been Money Market Funds.

Notably, while Money Market Accounts and Intermediate Core Bond portfolios are receiving the largest cash inflows over the last month, their returns placed them 66 out of 103 fund categories and 61 out of 103 fund categories, respectively.

If you have questions about how to invest in this “risk-off” environment, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).

Can you fix a missing beneficiary designation?

If your loved one failed to name a beneficiary on their retirement plan, must the assets revert to the estate? Short answer, not always.

Unfortunately, this mistake still happens. A loved one or spouse passes and it comes to light that they forget to name their husband/wife as the primary beneficiary or their children as contingent beneficiaries on their 401k plan or their IRA. This is a mistake you should never make. Always name your beneficiaries on retirement plans, bank accounts, investment accounts, etc.

But, what if your loved one has already passed and beneficiaries were not designated. You may still have some options:

• Check the “default beneficiary” provisions of your retirement plan or your IRA documents - the Employee Retirement Income Security Act (ERISA) of 1974 requires qualified employer plans to automatically name a surviving spouse as the beneficiary after one (1) year of marriage;

• Consider a spousal rollover if the “estate” was the named beneficiary or the default provision under the plan documents names the “estate” - in such cases, if the surviving spouse is the sole or residuary beneficiary of the estate, the IRS will allow the surviving spouse to rollover the account to their own IRA; and/or

• Consider a disclaimer if two spouses die within a relatively short period of time for IRA assets - that way a contingent (younger) beneficiary can utilize their longer life expectancy payout period for the IRA assets.

If you have questions about the effects of a missing beneficiary designation, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).

Recent market volatility got you worried?

Click on the title above to watch a quick video about what to do (and what not to do).

If you have questions about market volatility, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).

Taxes (and Rebalancing)!

We all should rebalance our portfolios at least annually or when they deviate from our desired asset allocation by a set percentage. I know, I know … portfolio rebalancing is right up there with pulling out the refrigerator and cleaning behind it. However, may I propose that rebalancing your portfolio is much more financially rewarding from a risk reduction perspective than one might imagine.

Now that we are entering our eleventh year of a bull market, an individual’s stock allocation could be off by more than 20% from their original 2009 asset allocation. For example, if your asset allocation in 2009 was 50% stock and 50% bonds, your stock exposure could exceed 60% or even 70% stock at this point (if you have not been rebalancing along the way). And, if you are on the cusp of entering retirement, this level of stock exposure is just too high for most investors.

If this sounds familiar, then the question you should be asking yourself is not “if” the stock market will experience a correction, but “when.” Since a decline in the stock market is inevitable at some point in the future, it then becomes a question about your sequence of returns risk (i.e., the order of your annual investment returns and withdrawals) and do these sequence of returns forecast a statistically successful retirement. Stated another way, if your stock allocation is too high and you experience a significant market decline in the early years of your retirement, you may be going back to work. Yuck.

With the before mentioned premise in mind, some folks might still balk at rebalancing because they are worried about triggering tax consequences. As such, here are some ways to rebalance while minimizing tax consequences:

• Rebalance inside of your tax advantaged accounts first (think IRAs and your 401k) because these trades will not trigger taxable events;

• If you are still directing money into your portfolio, use the “new” money to purchase additional shares of your underweight asset class(es);

• If you are subject to a Required Minimum Distribution (RMD), use the RMD to sell assets from the appreciated or overweight asset class(es);

• Rebalance by selling assets with a high cost basis, thereby reducing your tax liability; and/or

• Gift low cost basis assets to a charity, thereby removing these high capital gain assets from your portfolio while receiving the full appreciated value as a deductible donation.

If you have question about rebalancing your portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).

Dividend Paying Stocks or Bonds?

When considering this investment decision, you may want to ask yourself:

“What purpose do bonds serve in my portfolio”?

Typically, core bond positions within a portfolio are designed provide non-correlated returns when viewed against equity positions, thereby providing a ballast to ones overall portfolio during turbulent market times. However, in order to achieve this non-correlation, your bond portfolio needs to comprise higher quality bonds and would need to avoid below investment grade debt (generally speaking). Unfortunately, higher quality bonds do not yield a high payout but, instead, yield a relatively low payout due to their perceived low risk (as with equities, less risk within the bond market means less reward or yield). Hence, why investors ask themselves if they should use dividend paying stocks in place of bonds because some dividend paying companies have similar or higher yields than commonly employed bond funds, are typically deemed more stable (or less risky) than other stock investments, and may additionally benefit from the upside potential of the stock price. Sounds reasonable, doesn’t it?

Why might dividend paying stocks in place of bonds not be a good idea? Here are two potential considerations:

• stocks (including dividend paying stocks) exhibit a much higher standard deviation than high quality bonds, i.e., their returns can vary greatly from one year to the next - stated another way, stock returns are much more volatile than bond returns (and volatility is not your friend in a down market); and

• dividend paying stocks exhibit a higher correlation with stock market movements than do bonds, i.e., dividend paying stocks are more likely to lose value when the overall stock market declines, whereas high quality bonds should lose less value (and possibly even gain value).

If you have question about whether it is better to purchase dividend paying stocks or bonds, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

Why Does Warren Buffett Prefer a "Wide" Economic Moat?

Because it leads to investing success, that’s why! Companies with an economic advantage or “moat” around their business have an edge over their competitors that helps to protect their market share and profitability. Furthermore, companies exhibiting a “wide” economic moat are usually even more difficult to challenge or duplicate because their distinct advantage essentially creates an effective barrier to entry for other market participants, i.e., other competing companies.

What types of distinct advantages or barriers create these “wide” economic moats:

• markets or businesses with exceptionally high start-up costs (think Intel and the cost of creating multiple semiconductor manufacturing facilities);

• businesses utilizing scale advantages that lower operating costs (think Wal-Mart’s ability to pressure a supplier’s pricing versus a smaller retailer);

• businesses with strong brand recognition (think Coke or Gucci); and/or

• businesses with a strong patent portfolio (think Pharmaceutical Companies or Apple).

Companies that exhibit some of these advantages for Mr. Buffett include: Geico (due to their low operating costs), Coke (brand recognition), and Burlington Northern Santa Fe Railway (high start-up costs). The next time you are looking for a good stock, don’t forget to think about that company’s economic advantage or “moat.”

If you have question about whether or not a company seems to exhibit a “wide” economic moat, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

Do you know how your bond portfolio should perform under different market scenarios?

Bonds are an important part of your overall investment portfolio. Their intended purpose is to smooth out your returns by exhibiting non-correlative behavior with stocks (provided you have chosen a high quality bond portfolio). However, is that always the case and how should you expect your bonds to act under Federal Reserve tightening or Federal Reserve loosening policy environments? Here are two different scenarios and how they may affect your bond holdings:

• What happens if the Fed lowers interest rates

  • cash holdings will suffer in a rate lowering environment while bond prices will rise, with the longest duration bonds seeing the largest increases.

• What happens if the Fed increases interest rates

  • cash holdings will benefit from a rising rate environment;

  • bond funds, while initially falling in value, will eventually reward bond investors with higher yields; and

  • lower quality bonds and bonds with a longer duration will likely suffer greater losses.

If you have questions about what role bonds should play in your portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For more information about bond funds, see my earlier post here.

For additional information about this topic, please click on the title above.

What happens to your Social Security Benefit when you claim early?

A recent article by FOX Business provided the below listed percentages for how much your Social Security Benefit is reduced by claiming early. Before you claim early, it is important to realize that these reductions can be pretty significant. For example, in the case of someone claiming Social Security at age 62, their benefit can be reduced by as much as 25%. That’s a lot money lost towards your annual income. So, accordingly, think carefully before taking your benefit early.

Percent of Social Security Benefit lost by claiming early:

• at age 62 - benefit reduced by about 25%

• at age 63 - benefit reduced by about 20%

• at age 64 - benefit reduced by about 13.3%

• at age 65 - benefit reduced by about 6.7%

Now, when you contrast this with the fact that each year you wait past your full retirement age your benefit will increase by 8% a year, you can see why it pays to delay taking Social Security. Not only by waiting to claim at age 70 did you gain 8% per each year you delayed, but you did not lose 25% of your full retirement age benefit. To provide a rough example, if your benefit was $2,000 per month at full retirement age, it would be reduced to $1,500 per month if you claim at age 62, or rise to approximately $2,600+ if you wait to age 70.

If you have questions about when it is best to claim your Social Security Benefit, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

A financial to-do list for the surviving spouse (3rd post in a series) . . .

In our last post (click here for prior post) we talked about making funeral arrangements, notifying employers and setting up a system to handle the household bills.

This post will cover the next steps of dealing with banks, insurance companies, and creditors. At this point, you may begin to feel overwhelmed by the sheer volume of things to handle. And, when you do (it is OK, as it is bound to happen), don’t forget to do this one thing: make a master “to-do” list in a notebook.

Keep your “to-do” list/notebook with you at all times, as it will act not only as your log of events “to-do,” but also as your record of the events completed. Keep notes on this master “to-do” list, such as: names of people you spoke with, dates, notes from the conversation, and any resolution, if achieved. Keep this notebook as a reference, as you can easily flip back through the pages at a later date to verify what you have done and who you spoke with.

As for the next steps regarding banks, insurance, and creditors:

• Contact all banks/credit unions about changing account holder information;

• Contact administrators of spousal investment and/or retirement accounts about transferring assets to beneficiaries - consult with a financial advisor before cashing out any investments;

• Contact the providers of active life insurance policies held by you and your spouse to initiate the death benefits process, as well as, to determine any continued needs for life insurance;

• Contact other insurance providers (e.g., auto, home, disability, etc.) to either close, modify coverage, or change the name on the policy;

• Procure necessary health insurance coverage for yourself and any dependents;

• Contact creditors to close any accounts that were in your spouse’s name only;

• Contact creditors to remove your spouse’s name from joint accounts;

• Destroy any credit cards issued in your spouse’s name; and

• Send a letter to TransUnion, Experian, and Equifax requesting your spouse’s credit report, as well as, a request to no longer issue credit to you spouse.

The next post in the series called “A financial to-do list for the surviving spouse” will cover applying for benefits, beneficiary designations, and various odds-and-ends. Although there are a lot of things to keep track of, your master “to-do” list will act as your North Star during this difficult journey. Please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients if you have questions about “what to do next” after the loss of a significant other.

A financial to-do list for the surviving spouse (2nd post in a series) . . .

As mentioned in my prior post, the difficulty of losing a significant other can fill one’s life with almost limitless sorrow. So, don’t face it alone. Reach out to a close friend and/or trusted family member for help. When doing so, share this checklist as it is meant to help with questions like: “What do I do next”? It is natural to feel confused, grief stricken, and uncertain about your next steps. But, just remember, a journey of a thousand steps begins with the very first one.

After coalescing your important documents (see prior post about Important Documents), you will need to handle the following.

Next Steps:

• consider organ donation wishes (check driver’s license or advanced health care directive)

• contact a funeral home (enlist the help of a pragmatic confidant to avoid overly elaborate funeral plans)

• ask the funeral director for help in obtaining 10-15 death certificates

• contact immediate family and those close to you about the loss

• contact employers about your spouse’s passing (check with your spouse’s Human Resources Department about benefits and healthcare coverage continuation)

• allow/assign close family and friends to grocery shop, answer the phone, and prepare food

• have a trusted family member remain at home during the funeral (as burglars are known to read the obituaries)

• contact an attorney to begin reviewing the will (have the attorney explain the probate process and any liability for outstanding debts)

• prepare their obituary and post-funeral gathering plans

• put a plan in place to handle household bills (e.g., mortgage, utilities, car loans, insurance premiums, etc.); consider automatic bill payment options, place necessary bills in your name, and print out a bills checklist (at least for the first few months)

The next post in the series called “A financial to-do list for the surviving spouse” will cover handling banks, creditors, and insurance. A burdensome next step, but a critical one. Please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients if you have questions about “what to do next” after the loss of a significant other.

A financial to-do list for the surviving spouse (1st post in a series) . . .

Losing a spouse can be one of the most traumatic events in one’s life. The ensuing checklist is meant as a guide that hopefully helps to ease some of the unrelenting heartache that can accompany the loss of a spouse by providing an organized process for handling the next steps during this time of sorrow, grief, and transition.

First things, first:

• find a helping hand, a good friend or family member can help ease the burden of your loss, as well as, help to keep you focused on the necessary/required tasks at hand

• gather all important documents and keep them together (e.g., purchase a large accordion file to retain the suggested documents below)

• Some important documents might include:

  • any will or trust documents

  • life insurance policies

  • birth/marriage/death certificates

  • funeral arrangements and/or instructions

  • social security cards

  • recent tax returns

  • retirement/investment/bank account statements

  • mortgage and loan documents

  • titles and deeds

  • safety deposit box information (and key)

Although the above list of necessary documents is not exhaustive, it will provide a good start and you can add to it as you see fit. The next post in the series called “A financial to-do list for the surviving spouse” will cover handling funeral arrangements, employers, and necessary bills. If you, or someone you may know, is in a time of transition after losing a spouse and you (or they) desire guidance during this period, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

Social Security and when to claim?

This is a common question that many people have: “When should I claim Social Security”? Understandably so, as there are many factors that go into making this decision, even excluding your overall lifetime benefit received. Sure we all want to maximize our Social Security money, but do we want to do this at the cost of losing some financial freedom (read as cash flow) early-on in retirement? So why is this decision so complex?

Let’s take a look at some of the factors that go into making this decision:

• Am I (or is my spouse) going to work past the age of 62 - noting that if an individual works and claims Social Security, part of their benefit can be withheld if income rises to high

• How long are you planning on living - this is a tough one to answer as none of us know how long we are going to live; however, if longevity runs within your family and you are the epitome of health, you may want to consider the longevity annuity aspect of delaying Social Security

• How much do you have saved and what are your goals or plans in retirement - if goals and money saved align correctly, you may be able to fund your early years of retirement with only your retirement savings, thereby, allowing your Social Security benefit to grow

• Are you invested correctly and what do the market’s sequence of returns project for your portfolio - you need to make sure you are not assuming too much or too little risk with your portfolio’s allocation to stocks and bonds, thereby permitting your retirement savings their best chance at funding your goals

• What is your marital status - can you take of advantage of claiming strategies, e.g., allowing the higher earner’s benefit to grow by delaying claiming

Are these some of the questions you are asking about when to claim Social Security? If so, you are on the right track. These are the very questions that we answer every day at Intelligent Investing. If you have questions like these, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients to begin your Social Security claiming discussion.

Are Target Date funds OK?

Lifecycle, all-in-one, and “set-it and forget-it” are all common names for Target Date funds (an investment vehicle usually comprised of a fund of funds invested in stocks, bonds, and cash, whose percentages of each dynamically vary as you approach your intended retirement age). When investing in these Target Date funds, an investor typically chooses the fund with the name closest to the date they plan to retire. For example, if you are a 45 year old and plan to retire at 65, you would choose a Target Date fund with a date close to 20 years in the future.

The fact that these funds provide immediate diversification, semi-appropriate risk allocation, and automatic rebalancing, hearkens to their allure. And investors are putting their money where there desires lay because Target Date fund assets have been increasing rapidly the past ten years. It is hard to say if this is due to the fact that Target Date funds became a Qualified Default Investment Alternative within 401k plans in 2006 for plan fiduciaries, or do investors really crave the simplicity of “set-it and forget-it”? It’s probably a little bit of both.

But back to the question. Are Target Date funds OK? Simply put, YES.

Are Target Date funds infallible, no; but, do their diversification, risk allocation, and rebalancing go a long way to serving a disinterested investor well, YES.

Since you may be considering a Target Date fund if you are reading this post, here are two (2) things to consider when choosing your Target Date fund:

1. Low fees - look for expense ratios/fees below 0.25% or 25 basis points; expense ratios or fees charged by your Target Date fund are insidious headwinds to the overall return of your portfolio, reduce these fees and watch your money grow

2. Glide path - this is the funds gradual shift to a more conservative investment allocation as you approach retirement, e.g., as you approach retirement, most funds dynamically transition to a higher percentage of bonds and cash while reducing the funds stock percentage; a funds glide path is generally designed to reduce investment risk as you approach retirement.

For more information on figuring out if a target date fund is right for you - click here to see an article by Forbes.

If you have questions about whether a Target Date fund is right for you or about your 401k investment options, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

Ideas of what to do with last year's bonus or your 2019 pay raise . . .

Well, first off, maybe purchase yourself a one-time item that is not that terribly expensive. This helps to get the urge to spend out of your system and also helps to commemorate your achievement, i.e., the reason of your bonus or pay raise. It sounds kind of silly, but I used to purchase a painting or something that I needed for my office to make it more comfortable, e.g., a couch. You spend eight hours a day there, so you might as well enjoy it :-).

Once you’ve gotten that out of your system, it’s time to really decide what to do with the bulk of your windfall. Initially, it is very important to sock away 80% or more of this additional income. Don’t let the additional income lead to lifestyle creep, as can easily happen. Once you’ve cleared this hurdle, you can begin considering the following options:

• If you don’t have an emergency fund, start one, now! (try to set aside at least 6-12 months of household expenses in a savings account);

• Pay off any outstanding debts - focus on high interest debt first and move your way down til you are debt free; or

• Open or contribute to an IRA or a Taxable Investment Account - the earlier you start saving for retirement, the harder your money will work for you (noting compound interest is your friend).

If you have questions about how to best utilize your bonus or new pay raise, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients.

An interesting article about the "FIRE" (Financial Independence Retire Early) lifestyle! Frugality to the MAX?

Do you want to retire early? Do you have what it takes to retire early? Can you live (extremely) frugally while preparing for retirement? If so, and beans and rice for dinner 5 out of 7 nights a week seems acceptable for such a cause, then read on.

This “frugal” lifestyle can be best summed up as a minimalist lifestyle. If you don’t have a lot of possessions and/or expenses when heading into retirement, then your overhead (or cost of living) in retirement should be pretty minimal as well. Stated another way, if your household expenditures heading into retirement are around $100K annually, then your retirement investment portfolio may need to be somewhere between $1M and $2M to support your lifestyle (assuming a 4% withdrawal rate). However, if you overhead heading into retirement is $40K per year, then you may be able to retire with a nest egg of less than $1M and some intermittent part-time work sprinkled in throughout the year. This may not be an ideal retirement for everyone, but for some, it sure beats putting in 2,000+ work hours a year, in addition to their commute.

Here are some ideas for achieving such a goal:

1) Cut existing expenses to a bare minimum (no cable TV, streaming services, lattes, new clothes, etc.); during this phase your debt should decrease while your savings increase; utilize budget tracking software to help find unnecessary expenses and to help track your newly growing savings.

2) Now that you have cut all unnecessary expenses (and I mean ALL), you will need to find a second job or additional sources of income (added bonus, since you will have even less free time with your second job, you will probably spend less money); also, as you make more money, do not spend it, but save it (this part is key)!

3) Continue to learn as much as you can about the “FIRE” modus vivendi and join one or more groups that espouses such a lifestyle, as you may need their support and/or knowledge at some point.

Above all persevere. It won’t be easy and there will be some tough times but if it truly resonates with you, it can be done. A minimalist lifestyle is not for everyone, but for those individuals that it does appeal to, it is a way to financial independence and early retirement.

If you have questions about retirement or the minimalist lifestyle, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients.

For more information about this topic, click on the title above.