Finish Lines Matter

DAVID MUNN, CFP

If you’re a runner, you know the feelings of excitement, encouragement, and relief when the finish line comes into sight at the end of a long race. 

A builder, or craftsman, understands the sense of accomplishment and fulfillment upon the completion of a project. And every student, past and present, can appreciate the celebration of a graduation after years of hard work and study. 

Finish lines matter.  They bring closure to one chapter and the commencement to another.

John D. Rockefeller was once the wealthiest individuals in modern history.  When asked, “How much money is enough money?”  He famously replied, “Just a little bit more.” In other words, his working life--his wealth building--did not have a finish line.  It was arbitrary and endless.

Imagine applying this philosophy to the aforementioned ventures of life.  A race that extends just a little bit farther.  A project that requires just a little more work.  A class that will last just a little longer.

The lack of a finish line robs the participant of accomplishment, rest and, ultimately, enjoyment, because the current endeavor is never enough.  Instead, the continual pursuit of an objective that will never be achieved leads to frustration, discontentment and exhaustion.

Unfortunately, this is the way far too many people approach their finances, especially in lifestyle and income.  Without an end objective in mind, the focus becomes simply, “a little bit (or a lot) more”.

Applying finish lines to each of these financial areas can be extremely liberating and satisfying, much like the completion of a race, project, or academic pursuit.

Lifestyle - Because there is always someone with a more opulent lifestyle, most people will at some point fall into a comparison trap.  Seeing the houses, cars, or vacations of others allows discontentment and envy to take over and become our driving motivation for a pursuit of “more” that will never be achieved.  Comparison rarely enjoys what one has but instead dwells on what someone else has and, consequently, obsesses over what one lacks.

There is nothing wrong with working to afford a particular purchase or lifestyle. But when that goal has been achieved, it will be most satisfying if it is seen as a finish line--even a temporary one--rather than a stepping stone to something bigger or better.   And having an attitude of gratitude for the comforts we are able to enjoy is key to appreciating what has been achieved, without concern or regard for those who may appear to have more.  

Not to mention that research has shown that overindulging on lifestyle expenses often actually leads to lower levels of personal satisfaction and happiness, even when increased levels of debt are not involved (which they often are).  We may attempt to fill a perceived void with physical objects, when the vacuum is itself relational, emotional, or spiritual in nature.

Once a lifestyle finish line has been reached, a greater focused can be placed on savings (if needed) or giving.

Income - Imagine a recent college graduate earning $30,000/yr receives a $20,000 pay raise to $50,000/yr. Now suppose a businesswoman earning $500,000/yr receives the same $20,000 increase.  Who would you expect to gain the most pleasure from their good fortune? The recent, college grad, of course.

Multiple studies over the years have shown that as income increases, individuals gain a correspondingly smaller increase in satisfaction and happiness.  Yet many people will sacrifice relationships, time with friends and family, hobbies, leisure, and personal health just to make more money than they would ever need and will never take the time to enjoy.  They adopt the same attitude of John Rockefeller in their endless pursuit for, “Just a little bit more”.

Conversely, establishing a finish line for income will both motivate hard work and allow the worker to enjoy the accomplishment and fruits of his labor.  Recognizing that earning more income does not necessarily equate to more personal happiness is key to avoiding the discontenment that so often drives the pursuit of “more”.  

Even in our daily lives, we apply finish lines on a regular basis: driving to a destination, eating a meal, having a conversation.  We encourage you to consider how this practice can be applied in your finances. When utilized mindfully, finish lines lead to contentment, balance and satisfaction. I know of nothing more despicable and pathetic than a man who devotes all the hours of the waking day to the making of money for money's sake. John D. Rockefeller

If your only goal is to become rich, you will never achieve it. John D. Rockefeller

Smart Money Moves for your 20s and 30s

GRANT SIMS, CFP

When you are in your 20’s and 30’s it seems like you have endless financial demands that are pulling your hard earned money in every direction. Take comfort that you are not alone: your friends, your family and your co-workers have the same struggles. This is a time in life when life events pile on one after another. Starting families, purchasing a first home or a first car, starting to save for retirement, managing debt from student loans and credit cards, starting a college savings plan, all the while trying to enjoy life with an active lifestyle. Regardless of your particular situation, here are 10 smart money moves for millennials:

1.      Set financial goals – Decide what it is that you really want your money to accomplish for you, determine how much it will cost and how much you need to dedicate each month to reach your goals. Setting goals gives meaning and purpose to each spending and saving decision. When you have assigned purpose for the money in your possession, it becomes easier to make a good decision when you would otherwise spend money on that extra tool when you know that money is helping you accomplish your personal or family goals. 

2.      Revisit your spending plan (Notice we did not call it a budget) – Yes, it is great that you made a spending plan, but how long has it been since you have reviewed it? It is best to get in the practice of revisiting your spending plan every year or every time you have a major life change. Here are some good questions to ask yourself as you evaluate:

• Does your current spending plan support your goals?
• When is the last time you shopped for better prices on recurring expenses such as internet and insurance? 
• What items are you spending money on each month that can be eliminated? 
• How much can we increase what we automatically deposited into our savings each month? 

Ignoring this can extend how long it takes to accomplish your goals.  

3.    Take the free money – Most employer retirement plans offer some level of match when you are contributing, if you haven’t taken the time to enroll, you are leaving free money on the table. If your employer doesn’t offer a plan, look to set up a Roth or Traditional IRA where you can start saving for your retirement with regular scheduled deposits each pay period. At least annually, review how your money is invested in your retirement account.  Remember, you still have 30+ years before you need this money in retirement, so look to take advantage of more aggressive funds that carry the potential of bigger returns. 

4.     Plan for the worst- Estate planning may sound like something you address when you are old and have extra money but it is a foundational component for people in every stage of life. If you have not met with an attorney to talk through and put into writing who you would like to make your financial or health care decisions if you were disabled or incapacitated, or who will take care of your family and assets if you passed away, this should be one of your top priorities.  

5.    Pay off debt and increase emergency fund –Start by writing down each of your debts with its minimum monthly payment and interest rate. Now, create a debt repayment plan by ordering the loans you will pay off first either by highest interest rate or lowest balance. Put your plan into action by committing all your extra cash to paying off that first loan on your list. Once it is paid off, commit the same level of money to the next loan, moving down the list until all the loans are paid off. 

Once your loans are paid off continue to use all your extra money on building your emergency fund until you have three – six months of monthly expenses in savings. This will keep you afloat when an unexpected hardship comes your way. 

6.    Re-evaluate your career trajectory – Whether you love where you work, are miserable or somewhere in between, it is always good to be thinking about the future. The most valuable asset a young professional has is their future earnings potential. Talk with a trusted advisor or mentor to consider your options. Maybe you like what you do but need to take more initiative with your boss or projects to experience the desired growth with your current company.  You might have always wanted to try a certain career but you need more training/schooling. Come up with a detailed plan and commit to accomplishing each step that will get you to the position and income you want to have.  

7.    Evaluate insurance coverage – It is always important to have the proper amount of health, personal liability, auto and renter’s or homeowners insurance. Find an insurance agent you trust to review if your coverage is adequate for all areas of your life and if you can benefit from lower prices. If others depend on your income, you need life insurance to replace it should you die. Term life is an inexpensive way to provide a high level of protection for your loved ones. Also, if you are the main breadwinner you should strongly consider disability insurance to replace your income in the event you can’t work.

8.    Monitor and improve your credit - Each year check your credit report for free at AnnualCreditReport.com. This allows you to see your credit report from each of the three credit bureaus. While this doesn’t give you access to your credit score, checking your report could help you correct errors, discover an identity thief at work or spot delinquent accounts. If you would like a free look at your estimated score you can use a site like creditkarma.com. Bad credit can affect your insurance rates, mortgage rate or even your job application. 

9.     Save on your taxes –As your taxes graduate beyond just your own W-2, it is wise to seek a tax professional that can help you plan for your tax situation. Seek out a reasonably priced CPA – not a chain store who will help you take advantage of things like the savers credit, deducting student loan interest, mortgage interest and sales tax on big ticket items.  Your CPA can help you decide the appropriate deductions to claim on your W-4 and to evaluate special circumstances you might have like an adoption credit. Taxes should be planned for throughout the year, not just rushed through before April 15th. 

10.  Keep your eye on the prize - It is hard not to compare your situation to your friends, your neighbors or your co-workers. Stay grounded and devoted to accomplishing your personal and family goals. You can easily derail your progress when you start to compare your life to others and feel the pressure to live life more like them. Keep in mind that their family’s goals can be much different than yours and chances are your light years ahead of them with even having goals and a plan on how to accomplish them. Keep revisiting your goals and tracking your progress. Celebrating milestones will help you push through feelings of comparison when you know you’re living the life you work hard to enjoy.  

This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Munn Wealth Management can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.  1323AZS

2nd Quarter Market Commentary

BY DARREN MUNN, CHIEF INVESTMENT OFFICER

What's a Brexit & Why does it Matter?

by Darren Munn, CFA

Just three months later, the pain and anguish of the first quarter seem like a distant memory.  The recovery that started in mid-February continued through the second quarter, with parts of the stock market ending the quarter near record highs and bond yields near record lows.  

But the last couple weeks of the quarter brought the greatest volatility as the people of Britain voted to leave the European Union, a surprise result.  Thus, the “Brexit” has been dominating recent headlines.  While Britain leaving the EU is likely to be positive for Britain (in our opinion), the uncertainty created by this move rattled the markets and more volatility is likely as the details of the exit are negotiated.  It also opens the door for other countries to leave the EU, which could lead to the unraveling of the entire arrangement and even more uncertainty.

Predictions regarding the ramifications of Brexit are all across the spectrum, from utter collapse of the British Empire and EU to positive ramifications of new economic freedoms & less restriction.  

The fact is, the market hates uncertainty.  Uncertainty is to the market what kryptonite is to Superman.  Even if none of the likely potential outcomes are particularly bad, the market still panics in the face of uncertainty.  Even if the likely potential outcome is bad, the market loves the certainty.  But the reality for long-term investors is not all uncertainty is bad.  In fact, some of it is very good, especially when it gives us great investing opportunities.  

Positives

• Employment continued to be steady with the unemployment rate dipping below 5% even though job growth has slowed the last few months.
• Low oil & gas prices continue to save money for consumers.
• Oil & gas rig counts have been increasing over the last few weeks, which will help jobs numbers if the increase continues.
• Housing has continued moderate but choppy growth.  There still seems to be plenty of pent-up demand.

Challenges & Risks

• Oil prices declines are still working through the system and we are seeing the expected defaults from many energy companies.  
• Oil continued its rise, hitting over $50 in recent weeks.  This likely spells the end of sub-$2.00 gas in the near future.
• Interest rates – the Federal Reserve still did not raise interest rates in June and now only expects one or two increases for the year.  Either way, it is uncertainty for the market.
• Corporate earnings have been weaker than expected & tough weather is not a good excuse this year.

The first half of the year has been quite the roller coaster ride.  We believe this volatility is actually more “normal” than what we have experienced over the last several years and is likely here to stay.  

As Peter Lynch said, “A stock market decline is as routine as a January blizzard in Colorado.  If you’re prepared, it can’t hurt you.  A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.”

Warning: Dangerous Predictions Ahead

Josh Mudse, CFP

It is inevitable. During Presidential election cycles the financial punditry cannot resist publishing articles and stories that suggest future market performance will somehow be dependent on what party wins the White House. With the Presidential Primary season drawing to a close, these articles are going to come out fast and furious as each of the major parties confirms their candidate for President. Is there any merit to these predictions? Does an examination of performance following past elections provide any discernable insight to this election? 

The simple answer is no. The complex answer is no. Every other answer is no, the results of the Presidential election are not predictive of future market returns. No matter how convincing a pundit may be with colorful charts and tables full of data, there is no direct connection between election results and stock market performance.  Even if we could find a study that shows any degree of correlation between election results and future market performance, correlation does not equal causation. If it was possible to show you a chart that proves a negative, it would be inserted [HERE].

I caution you to question and dismiss any article that tries to predict future market returns with any specific data that the author correlates to past performance. That certainly includes election results, but also includes any other issue that a prognosticator might use in order to draw a conclusion from a supposed correlation. Let me use two examples to illustrate why correlation does not equal causation.

Tyler Vigen published these charts about spurious correlations on his website tylervigen.com.