Archives for December 2014

15 Financial Resolutions for 2015

Image courtesy of FreeDigitalPhotos.net/noppasinw

Image courtesy of
FreeDigitalPhotos.net/noppasinw

As 2014 comes to a close, it’s time to start thinking about how to make 2015 a success for you and your loved ones. Though there’s little consensus about their origins, we know that Americans have been making New Year’s resolutions since at least the 1770s. In 2013, 54% of Americans made resolutions about their finances.

Here are 15 financial resolutions to help make 2015 healthy, happy, and successful:

  1. Set aside emergency savings

Emergencies are unpredictable, and a serious illness or sudden financial need can derail your finances. Prepare for unpredictable expenses by putting aside three to six months of expenses in an easily accessible cash-equivalent account.

  1. Make a budget and stick to it

Budgets may sound like a lot of unnecessary work, especially if you’re financially comfortable, but it’s quite easy to let your spending go off the rails if you’re not tracking it in some way. Contact us if you’d like some tips on making budgeting hassle-free.

  1. Spend less and save more for the future

Most Americans could stand to put more money away for the future. We recommend keeping separate “buckets” of savings for short-term and long-term goals and leveraging tax-advantaged accounts where possible. Let us know if you’d like help saving for specific goals so that we can help ensure you have the right strategy for your needs and timeline.

  1. Make retirement plan contributions regularly

We believe that “time in the market” is critical to long-term investing success. Instead of waiting until the last minute to make your annual contributions, give your money more time to grow by making automatic contributions to your accounts every month.

  1. Maximize your retirement plan contributions

Tax-advantaged retirement accounts are one of the most powerful tools in your financial arsenal. Make the most of them by contributing as much as you can each tax year. We usually recommend maxing out employer-sponsored plans first in order to take advantage of any matching contributions your employer may offer. Give us a call if you need help understanding your retirement account options.

  1. Pay down debt, especially high-interest credit card debt

High-interest debt can make it very hard to get ahead financially. If you’re carrying significant debt, make it a priority to pay down the debt and get out from underneath high interest payments.

  1. Set goals for the future and work with a professional to create strategies to help you work towards them

In our experience, people who set goals for themselves and create strategies to pursue them are much more likely to see success. One study found that investors who leveraged specific financial strategies saw greater long-term financial success. Sit down with your loved ones to discuss your financial goals; when you’re ready to discuss your thoughts, call our office to schedule a no-obligation consultation.

  1. Create a legacy that makes a difference in the world

We believe that a rich life is about more than financial success and a comfortable lifestyle. Whether you want to leave something to your loved ones, or contribute to causes close to your heart, take time to think about the legacy you will leave for the future.

  1. Review your estate planning and legal documents

Your core legal documents should be reviewed regularly to make sure that they keep up with your life. If it’s been a few years since you took a look at your documents, dust them off and make sure that they still represent your wishes.

  1. Review the beneficiaries of your financial accounts and insurance policies

Most Americans have a significant number of financial accounts that they have accumulated over the course of their life. Take the time to gather up your account documents and make sure that the beneficiary information is still current; remember, beneficiary provisions are independent of your will or other estate provisions.

  1. Take care of your health

Healthcare is a major expense for many Americans, especially when serious illness strikes. Take steps to protect your health (and your wallet) by living a healthy lifestyle and being proactive about preventative care. 

  1. Protect your credit

Identity theft and financial fraud are serious threats that can compromise your financial wellbeing. Protect yourself by reviewing financial statements and bills carefully for unauthorized activity. Check your credit report for free at www.annualcreditreport.com.

  1. Review your tax strategies for potential savings

Recent changes to tax laws mean that you may be paying too much in taxes this year. Give us a call to discuss tax strategies that may help you reduce your tax burden.

  1. Involve your spouse and loved ones in your finances

If you (or your spouse) don’t get involved in the family finances, it’s time to start. Work together to make financial decisions and make sure that each of you understands the overall game plan for your finances. At a minimum, make sure that your loved ones know the location of financial accounts and understand your wishes.

  1. Keep your resolutions!

One study found that just 8% of New Year’s resolutions are actually kept. Improve the chances that you will keep your resolutions by making your goals simple, concrete, and actionable. Instead of saying: “I will save more for the future in 2015,” say: “I will contribute $4,500 to my retirement accounts by December 31, 2015” or “I will pay off $2,000 of credit card debt by April 15.”

As 2014 draws to a close, we would like to extend our thanks for the trust and confidence our clients have placed in our firm. Our clients made this year one to remember and we are sincerely grateful for the privilege and opportunity to serve. We look forward to serving you and yours for many years to come.

If you have questions about your future or would like some support in keeping your financial resolutions, please give us a call. Together, let’s make 2015 a success.

S&P 500 Gain: Biggest In Nearly 2 Years. Erases December Losses. Weekly Update – December 22, 2014

Image courtesy of FreeDigitalPhotos.net/sscreations

Image courtesy of
FreeDigitalPhotos.net/sscreations

Markets ended a rollercoaster week on an upbeat note, giving the S&P 500 its biggest weekly gain in nearly two years and erasing December losses.1 Markets were pulled in different directions by several factors, including central bank actions, a deep slide in the Russian ruble, and further gyrations in oil markets. For the week, the S&P 500 gained 3.41%, the Dow grew 3.03%, and the Nasdaq added 2.40%.2

Falling oil prices stoked additional volatility last week as investors grappled with the potential effects of cheap oil. Oil fell for the fourth straight week, ending with U.S. benchmark WTI at under $60/barrel.3 Gasoline prices followed the decline, putting the national average at $2.409 on Sunday.4 Domestically, low gas prices are a net win for U.S. consumers who suddenly have more discretionary income to spend.

However, Russia, one of the world’s major oil producers, felt the sting of falling oil prices. The Russian economy, which has been battered by economic sanctions over Ukraine, is in real trouble. Nervous currency traders caused a run on the Russian ruble, which fell an alarming 19% within one 24-hour period last week.5. Russia’s sinking economy is potentially a threat to its major trading partners, who depend on Russian demand for their goods. One report indicates that one in eight German companies are considering a withdrawal from Russia because of the risk represented by its unstable economy.6 A deteriorating economic situation could also escalate geopolitical tensions over the Ukraine.

Investors cheered at the news that the Federal Reserve is likely to hold interest rates low for at least the first few months of 2015.7 Though the Fed feels confident enough about economic growth to raise rates next year, policymakers intend to remain “patient” by taking a slow approach to rate hikes.8 To translate: The Fed thinks that the economy is on track but doesn’t want to spook investors by hiking up rates too soon.

Looking ahead, it’s hard to know which way markets will go in the final weeks of the year. Historically, December has been a good month for equities, and stocks could be poised to go higher.9 In the plus column, the Fed promises continued low rates, plunging gas prices are putting more dollars in consumers’ wallets, and spirits about the future are high. In the minus column, investors could be jittery about the knock-on effects of falling oil and may be feeling uncertain about 2015.

As 2014 draws to a close, we want to thank you for the privilege of serving you this year. We are honored by the trust you place in our firm and sincerely appreciate the opportunity to work with you. We are excited about what 2015 will bring and look forward to continuing to support you and your family for many more years to come.

ECONOMIC CALENDAR:

Monday: Existing Home Sales

Tuesday: Durable Goods Orders, GDP, Personal Income and Outlays, FHFA House Price Index, Consumer Sentiment, New Home Sales

Wednesday: Jobless Claims, EIA Petroleum Status Report

Thursday: U.S. Markets Closed for Christmas Holiday

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HEADLINES:

Weekly jobless claims fall. Claims for new unemployment benefits and the four-week moving average both fell last week, indicating that the labor market is doing well in the fourth quarter.10

Service sector growth slows in December. Activity in the service sector – which contains industries like financial services, retail, and food service – grew at the slowest rate since February. Slow growth could take a bite out of fourth-quarter economic growth.11

Inflation falls most in six years in October. Domestic prices for goods and services fell by the most in six years as gasoline prices plummeted. However, stripping out volatile food and fuel prices, core consumer prices edged slightly up.12

Mortgage rates fall, but buyers don’t bite. Mortgage rates dropped to their lowest level since May 2013, but homebuyers don’t seem to be interested. The takeaway? Though interest rates may rise next year, lower mortgage rates can still be found.13

Special Update: The Oil Price Decline in 4 Charts Weekly Update – December 15, 2014

Image courtesy of FreeDigitalPhotos.net/Jetkasettakorn

Image courtesy of
FreeDigitalPhotos.net/Jetkasettakorn

Markets were jarred by plummeting oil prices last week, giving the Dow and S&P 500 their worst weeks of 2014.1 For the week, the S&P 500 lost 3.52%, the Dow fell 3.78%, and the Nasdaq dropped 2.66%.2

Markets reacted badly to crude oil’s slide largely because of its economic implications for oil producers like Russia. What’s bad for Russia is bad for its largest trading partner – Europe. Though the U.S. economy is doing well, economic troubles in Europe could be potentially bad for U.S. companies.3

Though it can be depressing to experience a market drop so close to the end of the year, there may be a silver lining to oil’s decline. In this week’s update, we’re taking a look at some of the short- and long-term factors behind the drop in oil prices.

Since June, the price of Brent crude, one of the most commonly used crude oils, has fallen from a high of $115.19 to the current low of $65.64.4

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In the short term, the rise of the United States as an oil-producing power has pushed up global oil supplies, thus depressing oil prices.

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In November, the Organization of the Petroleum Exporting Countries (OPEC), an international group that coordinates oil production between members to stabilize prices, met to determine production quotas. While the group, whose members control 40% of global oil supplies, could have acted to reduce the oil glut by cutting production, they voted to maintain current production levels, sending oil prices even lower.5 While it may seem crazy, it’s likely that OPEC members are seeking to drive smaller producers out of the market.

On the other side of the equation, economic growth in many major oil markets is stalling, reducing the demand for oil. Developed countries have also made major strides in reducing energy use and increasing efficiency. All this spells declining demand in many markets. Global oil consumption estimates have been cut four times this year as the oil industry struggles to come to grips with changing fundamentals.6

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Other long-term factors may affect future oil demand. Economists predict that U.S. gasoline consumption will flatten and contract in coming years.7 Demographic trends in the U.S. suggest that domestic demand may fall as baby boomers retire and reduce their driving; Millennials, members of the largest generation in U.S. history, are moving to cities and using alternative transportation in increasing numbers. Use of renewable energy sources is also on the rise and expected to continue, though cheap oil may make alternative energy less fiscally appealing.

What does cheap oil mean for the U.S.?

On the positive side, lower prices will likely boost consumer sentiment and increase discretionary spending, which is great news for U.S. businesses. Based on U.S. Highway Administration estimates, this year’s gas price drop has translated into over $1,000 in annual savings for the average American household.8

On the other hand, the U.S. is becoming a serious oil producer and low prices are bad news for domestic oil producers. The economic viability of U.S. shale oil production (the source of its recent oil boom) relies on high oil prices to offset expensive extraction. One metric used by energy analysts is the “breakeven price,” which is the oil price needed for projects (or producers) to make a healthy return. Can shale oil producers survive in a world of dirt-cheap oil? Opinions differ; the chart below shows the estimated breakeven price for several shale oil projects.

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While some projects may be able to survive low oil prices, one estimate puts the average breakeven price of U.S. shale projects around $65-$70/barrel, indicating that many are vulnerable to low oil prices.9

Globally, oil price instability and continued downward pressure could mean bad news for major producers like Saudi Arabia and Russia that depend on oil revenues to make debt payments. While some countries have large cash reserves that will help cushion the effects of cheap oil, the long-term economic effects could be serious.

Bottom line: How Low Can Oil Go?

Well, that’s the trillion-dollar question and everyone has a guess. Government energy economists are currently forecasting an average price of $68/barrel on Brent Crude, though they admit there’s a great deal of uncertainty in price forecasts right now.10

Are oil and gasoline prices going to remain this low? Hard to know. The prices we are seeing are partially the result of speculation and bearish sentiment on oil. While fundamentals suggest oil prices will remain depressed in 2015, it’s unlikely that $2.00 gas is here to stay.11 Let’s make the most of it while we can.

Looking ahead, we can expect additional market volatility as traders take a look at their portfolios after last week’s rout. Wednesday’s Federal Reserve Open Market Committee meeting will also be in focus; analysts hope that the Fed will address how the recent drop in oil prices may affect the timing of future interest rate increases.

 

ECONOMIC CALENDAR:

Monday: Empire State Mfg. Survey, Industrial Production, Housing Market Index

Tuesday: Housing Starts, PMI Manufacturing Index Flash

Wednesday: Consumer Price Index, EIA Petroleum Status Report, FOMC Meeting Announcement, FOMC Forecasts, Chair Press Conference 2:30pm

Thursday: Jobless Claims, Philadelphia Fed Survey

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HEADLINES:
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Congress passes $1.1 trillion spending bill. After weeks of closed-door haggling and bitter partisanship, Congress passed a budget bill, funding most government agencies through September 2015 and avoiding a government shutdown.12

Retailers bounce back from Black Friday. Despite a slow Thanksgiving shopping period, new data shows that November sales increased by 5.4% over last year for brick-and-mortar stores.13

China’s economy may slide to 7.1% growth in 2015. The Chinese central bank announced that a slack domestic real estate sector could cause China to miss growth forecasts. Though China’s export sector is still growing, it’s not enough to offset the weak property sector.14

Weekly jobless claims fall. Initial claims for state unemployment benefits fell again, though continuing claims increased. The four-week moving average edged upward, though it remained below 300,000 for the 13th straight month.

December 2014 Monthly Video Update

The Clues Within November Jobs Report Weekly Update – December 8, 2014

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Image courtesy of
FreeDigitalPhotos.net/jscreationzs

Markets ended the first week of December with a bang, rallying for the seventh straight week, though the Nasdaq gave in to selling pressure and closed slightly down. Investors used an upbeat November jobs report as an excuse to rally, giving the Dow another record close for the year. For the week, the S&P 500 added 0.38%, the Dow grew 0.73%, but the Nasdaq fell 0.23%.1

The November jobs report showed that the economy gained 321,000 new jobs last month, though the unemployment rate held steady at 5.8%. Job growth was widespread, showing improvement in several sectors of the economy.2

Another report supported the view that the labor market is making great strides. Americans quit their jobs in greater numbers in September than in any period since April 2008. Voluntary separations are a sign of increased dynamism in the labor market as workers quit to take advantage of better opportunities. Young employees are among the most aggressive job-switchers; many that were forced to take low-paying jobs early in the recovery are taking better positions. Employers, who have long held the upper hand, are scrambling to keep key workers, and recruitment for many in-demand areas is up.3

What does this mean for the economy? Hopefully, higher incomes, increased upward mobility, and higher consumer spending. We may also see increased demand in the housing market as household formation among young Americans – which dropped precipitously during the recession – picks up.4

Black Friday numbers came in last week and showed that spending over the Thanksgiving weekend unexpectedly dropped about 12% over last year.5 While the results are quite puzzling, given the general improvement in consumer fundamentals, research shows that Black Friday trends are not strongly correlated with overall holiday season shopping.6 Though the early numbers are a bit of a disappointment, there’s still room for a solid retail season.

 

ECONOMIC CALENDAR:

Tuesday: JOLTS

Wednesday: EIA Petroleum Status Report, Treasury Budget

Thursday: Jobless Claims, Retail Sales, Import and Export Prices, Business Inventories

Friday: PPI-FD, Consumer Sentiment

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HEADLINES:
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Gas prices fall below $2.00/gallon. Pump prices for regular unleaded plummeted across the nation, dropping below $2.00/gallon in Oklahoma. With prices this low, the spread between area prices is growing; Hawaiians have the highest average prices at $3.883.7

Factory orders fall for third straight month. New orders for factory goods fell in October for the third month in a row, indicating that manufacturing activity may have slowed down in the fourth quarter.8

Federal Reserve Beige Book report optimistic about economy. The Fed’s assessment of economic conditions across the country in October and November shows important gains in business conditions and employment, though the housing market remains an area of concern.9

Black Friday deal making drives auto sales. U.S. sales of light vehicles grew 5% year-over-year in November, driven by attractive deals, lower gas prices, and increasing wages. Though the November volume may chip away at December sales, the fundamentals are in place for a solid quarter for automakers.10

How much income do you actually need in retirement?

One of the most common questions that we get from clients nearing retirement is, “How much income am I going to need to be comfortable?” It’s an important question that gets right at the heart of the retirement puzzle.

Although we wish we could give you a round number right here, that just isn’t possible. Too much depends on your personal situation. What is possible is to think ahead about your lifestyle and financial needs and come up with some approximations that can be used to develop a personalized retirement strategy.

We developed this blog post to be used in tandem with our Retirement Budget WorksheetClick here to get your copy of our Retirement Budget Worksheet now.

We recommend that you set aside a few hours with your spouse or loved ones, gather your bills and statements, and complete the worksheet together. Just the process of developing some income estimates can give you more confidence and a sense of control over your finances. We can arrive at an approximation of your target retirement income by answering a few broad questions:

How much are you spending each month right now?

The easiest place to start when developing a retirement budget is to understand where your money is currently being spent. Our detailed worksheet breaks down your expenses by category. The most accurate way to gauge your household spending is to look at your bills, bank statements, credit card statements, and other financial accounts to see where your money is actually going.

How will certain expenses change in retirement?

Your spending patterns will change in retirement. For example, many homeowners pay off their mortgages by retirement, significantly reducing their fixed housing costs. Research shows that food and job-related costs tend to drop because retirees have more time to shop and prepare meals, and no longer pay for a professional wardrobe or commuting costs. On the other hand, many retirees see increases in discretional spending as they take advantage of more time for hobbies, travel, and fun.

What major expenses should you plan for?

Once you have a handle on your monthly budget, the next step is to think about any large, one-off purchases that you will likely make in retirement. Buying a new car, updating your appliances, or taking on major home improvement projects may require extra cash at some point in the future. You should also think about the big items on your bucket list: a once-in-a-lifetime vacation, a new boat or RV, or large philanthropic gifts will definitely need to be considered in your income strategies.

What’s the next step?

The work doesn’t stop once you have developed your initial retirement income estimate. There’s a lot of additional analysis to be done to help determine how much income you will need at different stages of your retirement and where that income will come from. We take a look at many other important factors in your personal retirement income calculations, including:

Longevity & health history: Advances in medicine and healthcare mean that many Americans can expect to spend 30 years or more in retirement. According to actuarial tables, there’s an 18% chance that at least one member of a 65-year-old couple will live to see 95. We take a look at your personal situation and health history to help ensure your income lasts as long as you need.

Inflation: Increases in the price of goods and services mean that your expenses will rise over time. 3.2% inflation, the long-term average annual price increase, will cause prices to double in just 22.5 years. We also consider other types of inflation; many simple inflation calculators don’t account for increases in food, gas, and healthcare costs since these volatile categories are usually excluded from the headline Consumer Price Index. However, do they affect your personal bottom line? You bet they do.

We hope that you have found this blog post to be informative, educational, and – most of all – reassuring. If you’re worried about retirement, we want you to know that you’re not alone. We have helped many people just like you protect their lifestyles and develop a personalized strategy for their future income needs. If you have questions about retirement and would like to speak to an experienced financial advisor, please contact us for a complimentary consultation. We are here to be a resource.

Click here to get your copy of our Retirement Budget Worksheet now

Holiday Season Kicks Off With Bang Weekly Update – December 1, 2014

Image courtesy of FreeDigitalPhotos.net/stockimages

Image courtesy of
FreeDigitalPhotos.net/stockimages

After a choppy October, November was a very good month for stocks. Falling oil prices, new moves by central banks, and solid domestic fundamentals gave both the Dow and the S&P 500 new record highs. For the month, the S&P 500 gained 4.29%, the Dow grew 5.03%, and the Nasdaq added 5.33%.1 Last week was packed with economic data and despite the shortened trading week, stocks managed a win. For the week, the S&P 500 edged up 0.20%, the Dow added 0.10%, and the Nasdaq grew 1.67%.

The second Gross Domestic Product estimate came out Tuesday and showed revised growth of 3.9% in the third quarter, significantly higher than the original 3.5% estimate. The second release is based on more complete data and reflects increased growth in multiple sectors of the economy.2 This is good news for the fourth quarter if the growth can be maintained.

The critical holiday shopping season kicked off with a bang, with retailers starting their Black Friday deals as early as Wednesday or Thursday. Early estimates suggest that 55% of consumers shopped online or in stores over the Thanksgiving weekend and spent an average of $380.95 per person.3

Since the holiday season accounts for about 20% of total 2014 retail business, retailers are understandably anxious to keep the ball rolling. The CEO of Macy’s, one of the nation’s largest retailers, is cautiously optimistic about the holiday season as consumers take advantage of a burlier economy to unleash pent-up demand.4 Can the strong retail trend continue? Let’s take a look at some of the factors that may affect holiday shopping:

Petroleum prices are still falling precipitously; last week, crude oil fell to its lowest price since 2009 when the Organization of Petroleum Exporting Nations (OPEC) declined to cut production.5 In a few short months, oil has fallen from $100/barrel to $70/barrel, and it doesn’t appear that we’ve seen the bottom yet.6 Gas prices have followed oil, and a nationwide drop in gas prices are leaving consumers with more money at the holidays.

Consumer confidence, an indicator of how optimistic Americans are about their current and future financial prospects, reached its highest level in seven years as low gas prices and a strong job market boosted spirits.7 Though the correlation isn’t perfect, confidence readings are often seen as a gauge of future spending.

The latest data shows that consumer spending rebounded modestly in October after falling in September. However, the October data may not yet show the effects of the steep decline in gas prices, meaning we may see a bigger jump in November.8 All told, the fundamentals are in place for a strong holiday shopping season, which will hopefully spur additional economic growth.

ECONOMIC CALENDAR:

Monday: PMI Manufacturing Index, ISM Mfg. Index

Tuesday: Motor Vehicle Sales, Construction Spending

Wednesday: ADP Employment Report, Productivity and Costs, ISM Non-Mfg. Index, EIA Petroleum Status Report, Beige Book

Thursday: Jobless Claims

Friday: Employment Situation, International Trade, Factory Orders

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HEADLINES:

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Durable goods orders mixed in October. Orders for long-lasting manufactured goods increased unexpectedly in October following two months of decline. However, core goods, which exclude volatile transportation orders, actually fell 1.3%, indicating that companies are uncertain about growth next year.9

New homes sales slow.  Sales of new homes edged up in October, but the slow pace of growth underlines how slow housing demand is. Taken together with last week’s existing home sales, analysts believe that the sector is moving into a more stable  growth phase.10

Jobless claims reach near three-month high. After weeks of improvement, weekly claims for new unemployment benefits reached the highest level since early September. Though weekly results are volatile, the number could indicate that businesses are cooling off their hiring near the end of the year.11

Energy sector hit by low petroleum prices. The recent decline in oil prices has hit energy producers hard, particularly shale extractors whose margins depend on higher oil prices. Continued softness in oil prices could cause significant consolidation in 2015.12