You’ve probably heard the phrase “you have to retire TO something, not FROM something,” but what does that mean? Whether you are preparing for or currently in retirement, most people focus only on the financial aspects and miss the emotional side. In this interactive virtual event, we discussed how you can live your best life in retirement.
Author: Alyssa Goodling
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If you’ve ever listened to public radio’s “Marketplace” with Kai Ryssdal, you may have noticed the songs they play when they “do the numbers.” On days the market is up, it’s “We’re in the Money.” On down days, they cue up “Stormy Weather.”
These musical accompaniments are a way to acknowledge the emotion listeners may be feeling when they learn whether markets have spiked or sunk on any given day. Ultimately, it’s lighthearted stuff. But it’s one example of how the media uses all sorts of tactics to play to your emotions and make the financial market news more compelling. Some of these ploys are more devious than others.
Consider, for example, how the media discusses market volatility using magnitude versus percentage. While both ultimately describe the same thing, magnitude—the number of points a given index rises or falls—is often more sensational.
For example, on Monday, August 5, 2024, the Dow Jones Industrial Average fell 1,033.99 points from the previous week’s close. To many people, that number sounds big and scary, quickly grabbing their attention. And that’s what news sources often want to do.
Unfortunately, this number doesn’t account for the index’s starting point. On August 2, the Dow Jones closed at 39,737.26 points. Divide 1,033.99 by 39,737.26, and you’ll discover that this roughly 1,000-point plunge represented a 2.6% drop in the index. That’s a sizable one-day decline, but we’d wager it sounds far less scary by that measure.
Why Magnitude vs. Percentage Matters
Unfortunately, as human beings, we are prone to behavioral tendencies that don’t always work in our favor. When we see or hear information—especially if it comes across as alarming—we may fixate on it in counterproductive ways.
For instance, how information is presented can have a bigger impact on how we feel about it than the facts themselves. This framing bias is what convinces you to see a glass as half full or half empty. In this case, seeing a 1,000-point drop in a market index might lead you to panic and sell investments, or at least feel nervous about sitting tight. It might help your emotional and fiscal well-being to remember that “big” point drop is also a much smaller 2.6% decline.
So, what’s an investor to do? First, recognize the role your emotions play in processing this kind of information. When you encounter what seems like a scary statistic, ask yourself whether it’s actually that scary. Is it being used to sensationalize a story to snag your valuable attention? If so, it may pay to be suspicious of it.
Once you understand how your biases and information presentation can work against you, you can focus on the most important thing: The market has always eventually risen over the long-term. Sticking to your long-term plan can help you take advantage of this historical pattern. Case in point: After that early-August 2024 decline, the markets roared back; within a week and a half, Investors who stayed the course quickly recouped their losses—and then some.
If you ever have questions about the market and how to make best use of it to achieve your financial goals, please drop us a line.
Conrad Siegel’s Tracy Burke, CFP® takes a look at what the market did over the last month, what we can expect moving forward, and what it means for you.
Conrad Siegel’s Tracy Burke, CFP® takes a look at what the market did over the last month, what we can expect moving forward, and what it means for you.
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Earlier in the month, you were likely bombarded with news of the latest market downturn. By Monday, August 5th, the S&P 500 had fallen more than 8% from its all-time high in mid-July—putting it a little bit shy of correction territory. By Tuesday, August 6th, the market had already staged an uptick. And by the time you’re reading this, much of the market decline has been erased.
Since we haven’t seen as much market volatility recently, this one may have left you feeling a bit shaken. Why here? Why now?
To be blunt, we don’t know for sure. Some investors might be worried the U.S. economy has weakened based on news of rising unemployment. Maybe it’s because the Federal Reserve didn’t cut interest rates in July, as many investors had hoped. Maybe it’s fears of a U.S. recession or an uncertain election year.
If we look for them, we can always find reasons the markets might have taken a turn for better or worse. Unfortunately, there’s no way to know in advance. But the good news is we don’t need to know. Instead, we know this: Markets have always climbed upward eventually.
This is a far more important message to bear in mind—and a comforting one for long-term investors like us.
So, what’s the best course of action? Sit tight and let your long-term investment plan continue to work for you. Instead of worrying about interest rates, the job market and strength of the U.S. dollar, consider focusing on enjoying the last few weeks of summer. Catch up on beach reads, barbecue in the backyard or simply relax by your favorite body of water. Read the daily financial news if you’d like—and let us know if we can answer any questions. But remember, the long-term planning we’ve done in the past means you’re not required to keep up with it all, if you’d rather spend your time elsewhere.
We’ve crafted hundreds of financial plans over the years.
Here are some of the most overlooked opportunities we see during our financial planning meetings.
Not fully understanding different accounts/their roles
- Employee benefits – Your employer retirement plan is likely one of the best benefits you have access to during your working years. We often see people not fully understanding their plan or not fully utilizing the plan(s). This can also be said about Roth 401(k) options, Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs).
- Tax implications – Your employer 401(k) is a tax-deferred account and is one of a few savings buckets you can utilize for big life goals like buying a second home or retiring. Would it make sense to funnel money into the taxable and/or tax-free buckets? From there, additional tax-planning may revolve around things like tax loss harvesting in the taxable bucket or making Qualified Charitable Contributions (QCDs) from the tax-deferred (IRA) bucket, when appropriate.
Not having a cohesive investment strategy
This is a big one. It’s why investment management is such a big part of our work.
- Asset allocation – Most often, we find people utilizing an approach that is too aggressive given their stage of life. Occasionally we’ll run into a family that is too conservative. Remember “Goldilocks and the Three Bears?” We’re looking to craft portfolios that aren’t too “hot” or too “cold”, but just right!
- Poor advice – You’d be amazed how often we run into poor investments because “their neighbor told them it was a good pick” or they’re chasing past performance!
- Ignoring fees – There are many investments (and advisors) that come with hidden fees. These fees can eat away at returns, and they can be very hard to find!
Some of the fees we look out for include: 12b-1 fees, front-end load, back-end load, annuity fees, etc. We push clients to ask outside advisors: “How do you get paid?” and “What are all of my fees?”
- Ask the question – When all else fails, it’s always a good idea to ask, “Does this account and its investments fit my long-term goals?”
Not fully understanding when (and how) to retire
- By far, the most common question we get – “Do I have enough to retire?” It’s understandable and there are a lot of factors to consider. Even those with large amounts of savings are asking this question – they may not have a good handle on how much their household is actually spending.
- Transitioning from saving to spending – We save, save, save, for so many years. People often struggle with the idea of flipping that switch from saving to spending (and how to do so tax efficiently).
Getting the family on the same page
- How do I balance retirement savings with helping my children? – Many people struggle with how to balance their own retirement savings/spending with sharing their wealth with children for things like college, cars, weddings, homes, etc.
- Only one family member knows about the finances – Oftentimes one person in the family handles the money, and that’s okay. But it’s important for multiple family members to be educated and aware of the financial situation, accounts, and planning information. This ensures your legacy wishes are adhered to and that there are no (burdensome) surprises for the survivors after your passing.
Of course, every person and family are different. These are simply some of the more commonly overlooked opportunities we see.
If you work with us, we may have talked about one (or multiple) of these items.
If you haven’t worked with us and you think you may be falling into one of these missed opportunities, reach out to us!
“What should we have for dinner tonight?”
Do you ever find yourself asking that question? It’s a dilemma that we face regularly, whether we’re cooking for ourselves, our families, or even planning a dinner party for friends.
In this article, we’re talking about cooking and investing. Why? We’ve found that most people are quite passionate about both food and money. Both require a blend of art and science, a touch of creativity, and a lot of planning.
Getting Started: Setting Your Goals
Before cooking can begin, you need to decide what you’re making. Are you in the mood for something quick and easy, or do you want to challenge yourself with a gourmet recipe? Do you have dietary restrictions or specific nutritional goals?
In the financial world, this is equivalent to deciding your goals. What do you hope to accomplish by investing? Are you saving for retirement, building an emergency fund, or aiming for a major purchase like a home? Just like in cooking, where the end goal determines the choice of dish, your investment goals will shape your financial strategy.
Selecting Ingredients: Asset Allocation
Once you’ve decided what you’re making, the next step in the kitchen is to gather the right ingredients in the right amounts. Are you baking a cake, roasting a chicken, or preparing a salad? Each requires a unique set of ingredients and proportions.
In investing, this step is called “asset allocation.” It’s one of the most important decisions an investor can make. Just as you wouldn’t want too much salt in your dish, you need to balance your investments appropriately. What combination of stocks, bonds, and cash makes sense for your situation?
Crafting the Recipe: Portfolio Construction
A recipe is a set of instructions for preparing a meal. It outlines the right ingredients in the right proportions, combined and cooked in a specific way. Similarly, portfolio construction involves selecting investments based on their expected return and risk characteristics and how they interact together.
Imagine you’re making a complex dish. Each ingredient needs to complement the others, creating a harmonious final product. Investments work the same way. A well-constructed portfolio is a blend of different assets that together aim to achieve your financial goals while managing risk.
Our US Stock Recipe: A Balanced Approach
When creating a US stock portfolio, one of Conrad Siegel’s main ingredients would be the S&P 500. This index represents a broad spectrum of large, established companies across various industries.
To add diversity and potential for higher returns, we might add a dash of smaller stocks (Mid Caps and Small Caps) and sprinkle in some Value stocks. Academic and financial market research has shown that there is a long-term premium associated with value and smaller stocks. These additions can enhance the flavor of your portfolio, much like how spices can elevate a dish.
The Influence of Culture: Global Diversification
One of the best parts about cooking is the influence that culture has on what ends up on our plates. Our culinary experiences are enriched by global ingredients, spices, and techniques. Similarly, your portfolio should have global exposure to benefit from opportunities outside your home market.
Our global portfolio follows a similar recipe. We add exposure to smaller stocks and value stocks and sprinkle in emerging markets. This diversification helps manage risk and can offer growth opportunities as different markets may perform well at different times.
The Importance of Fresh Ingredients
Just as fresher ingredients typically result in a better entrée, high-quality investments can enhance your portfolio’s performance. Staying informed about market trends, economic conditions, and company performance can help you make better investment choices.
Conclusion: The Art and Science of Cooking and Investing
Cooking and investing share many parallels. Both require careful planning, thoughtful selection of ingredients, and a balanced approach to achieve the desired outcome. Whether you’re crafting a delicious meal or building a robust portfolio, the right recipe can make all the difference.
So, next time you find yourself asking, “What should we have for dinner tonight?” remember that the principles you apply in the kitchen can also guide you in the financial world.
The internet is all abuzz about Artificial Intelligence (AI). If you’ve tuned into any news show, website, or podcast in the last few months, chances are you’ve heard a story about AI. The clickbait titles range the gamut from the negative to the positive:
“AI Will Take Your Job!”
“AI: The Future of Healthcare”
“AI Could Be Humanity’s Last Invention”
“How AI is Revolutionizing Education”
This hot topic seems to have captured our collective imagination in a big way. But is AI going to save us or destroy us?
It shouldn’t surprise you to hear that our answer is “neither.” As with most issues the media blows up into larger stories, the answer is somewhere in the middle. No question, AI has some positive applications, and these are surely going to be a game-changer in certain fields. For example, AI-driven medical diagnostics have the potential to catch diseases earlier and more accurately than human doctors. In the realm of climate science, AI can help model and predict changes more precisely, aiding in the fight against global warming.
On the other hand, there are risks involved with AI. Concerns range from job displacement due to automation to ethical issues surrounding surveillance and privacy. High-profile voices in tech, such as Elon Musk and the late Stephen Hawking, have warned about the existential risks AI could pose if not properly managed. But that doesn’t mean it will sound the death knell for humanity.
What about AI and investing? One area where AI has not shown incredible promise is that of picking stocks. Don’t believe us? David Booth, from Dimensional Advisors, asked ChatGPT about investing, and the answer was basically “Do Not Trust ChatGPT.” This highlights a crucial point: while AI can process vast amounts of data and identify patterns that humans might miss, it doesn’t possess the intuitive judgment and foresight that experienced investors bring to the table.
Additionally, the stock market is influenced by a multitude of factors that are often unpredictable and driven by human emotions. AI, despite its advanced algorithms, can’t account for the whims and irrational behaviors of human investors. This is why, despite the potential of AI in many areas, it hasn’t revolutionized stock picking as some might have hoped.
How should we feel about AI and the future? Whatever your feelings are on AI, we believe it’s neither a reason to panic nor a reason to go all-in on an untested technology. There is an old saying in the investment world that the four most dangerous words are “This Time Is Different.” All the hype surrounding AI includes claims along those lines. It usually does not behoove investors to make big bets on the latest trends but rather to stay the course with one’s well-diversified portfolio, incorporating an overall asset allocation that matches their risk tolerance and time horizon.
AI represents a significant technological advancement with the potential to transform many aspects of our lives. Its impact will likely be complex, with both positive and negative elements. As we navigate this new landscape, it is crucial to approach AI with a balanced perspective, recognizing its capabilities while remaining vigilant about its risks. Just as with any other major innovation, the key lies in thoughtful and measured integration rather than succumbing to hype or fear.
Conrad Siegel’s Tracy Burke, CFP® takes a look at what the market did over the last month, what we can expect moving forward, and what it means for you.
Our team got together with Blake Brewer, founder of Legacy Letter, for a workshop webinar where we explored an ethical will, learned how to craft a legacy letter to share, and how to gift your letter to those that matter most to you.