Chicken Little

The sky is falling! The sky is falling!

 

Or is it?

 

We just got the latest numbers on inflation. The data show that inflation increased 6.2% for the 12 month period ending in October of this year. That’s WAY beyond the historical average of 3% annually and stirred up the inflation ghosts of the 80s.  While we take inflation pressures seriously, we find there are some mitigating factors here and some variables that mean these numbers will moderate.

 

First, this is being measured against the twelve months ending in October, 2020, when we were, mostly, in pandemic mode. Much of the twelve months from November, 2019, through October, 2020, were spent in full or partial lockdown. That means we are measuring from a low point. The previous inflation rate for that period is 1.2%, much lower than the historical average.

 

And what determines prices? Supply and demand. And we have some weird things going on for both sides of the equation.

 

On the supply side, we our seriously bogged down. Factories are trying to gear back up to full steam. Ships are backed up at ports. There are not enough drivers to deliver goods. There is a multitude of variables contributing to the mess, but it’s not permanent. Gradually, we will see  the chain unkink, but, right now, inventory levels are low. Want the hottest Christmas toy? You’re going to pay big bucks.

 

And what of the demand side? We’ve all been hunkered down, spending less and accumulating more. As my mother used to say, “The money is burning a hole in our pockets.” And we’re not just buying stuff. Now, we are buying experiences—booking travel like there’s no tomorrow.

 

More people chasing fewer goods/services. It’s a recipe for classic inflation. But will we keep spending like drunken sailors? Probably not. Things will slow down. We’ll get it all out of our system and settle back into normal patterns.

 

And what about the biggest cost of business? Labor. Well, we are waiting to see how this pans out. Yes, the labor market is tight, and wages are increasing. Will they stick? In some cases, yes. In areas with a lot of turnover, maybe not.

 

Ultimately, we believe prices will moderate, but don’t expect to go all the way back down to earth. For the last decade, inflation has been in the 2% range or less. We expect it to go above historical levels in the next year or two and hover in the mid 3% range. That’s highER inflation but not HYPER inflation.

 

So, when it comes to inflation, it’s a little cloudy, but we don’t think the sky is falling.

Why might you not hire us?

A prospective client asked me the other day to tell them why they might not want to hire us as their financial advisors. I thought that was such an interesting question that it kept resurfacing in my mind over the next several days. Had he asked me to tell him what value we could provide, well, I'd have probably a dozen or so ready answers. As a financial expert, I like to think that everyone needs good financial advice, but what kind of person genuinely should not hire an expert? That's such a great question that it deserves a thoughtful response. Here are a few potential replies:

You absolutely love DIY investing (and you're good at it). My first thought was of the staunch do-it-yourselfers. If you're one of these guys, you love investments so much that you will happily spend hours digging into the details surrounding a particular stock or bond, a specific fund or market sector, or a distinct investment strategy or even a series of investment strategies. You will have read enough of the right things to understand how the market works and where to invest your money to achieve pretty decent returns. You will pore over statements looking for where you may can eke out a few extra fractions of a percentage point. You'll watch the market throughout the day, make slight adjustments to your portfolio here and there, and will generally come out doing pretty well. The caveat? Despite all of the hours you put in (and despite how much fun this can be), there will be missed opportunities for realizing value.

The trouble is, investing and financial management may not be your day job. For us it is. While I do enjoy a day off and a vacation from time to time, our staff are more than capable of keeping things running smoothly. We provide continuous service, even when you decide that you don't want to handle it anymore.

There's also tremendous value in having an objective, outside perspective on your finances. Money is a very personal and often emotional business to navigate. Even the most logical and stoic among us can get tripped up by our emotions and our biases and may find ourselves making financial choices that are not ultimately in our own best interest. A professional advisor whom you trust can help here. 

Your wealth is income, fixed and you are pretty satisfied with your life. You have a known, fixed source of income, and the money it will generate is enough to meet your needs and wants throughout the remainder of your life. If you have truly maximized your wealth and well being, you may feel pretty well set.

What value can we add as financial advisors? For one, we can help you with not just your investments, but rather with the whole financial planning process. We can help you to take a step back and look at the various pieces of your financial life as a whole: income, expenses, insurance, tax strategy, investing, retirement planning, gifting, and estate planning. What we hope to do for each client is to help him or her craft a life that is enjoyable, sustainable, and in line with that particular client's values. 

You enjoy doing the research to see if a particular bit of advice applies to you. Not only do you understand and enjoy investing, you enjoy all of the other pieces of the personal finance puzzle. You've read the instructions to the 1040, the WeWork S-1 and a few annuity contracts. Nothing makes you happier than to spend hours researching all of the minutia related to your financial situation, weighing the pros and cons of various options, and choosing and implementing the best course of action. If this is you, you're your own financial planner. Congratulations!

For many people, this may be where we provide the most value. Even for the most curious puzzle solver, an objective third party can help with research and help you confirm that your decisions are appropriate and free from hidden risks. We can also help with many of the details that may be overlooked or just unknown by the DIY investor. With a combined 40 years of experience, we are knowledgeable across a wide variety of personal and financial circumstances. In addition to this, products, services, and regulations change regularly and we work diligently to stay on top of these changes. 

I tell my clients all of the time that all of the knowledge that I have is available to the public, there are no secrets and no magic. The trick is getting the right information. With so much out there, the vast majority of what you read online is either inappropriate for your situation or directly harmful to you. I see too often thoughtful, well educated people making great decisions that simply are not appropriate for their situation or goals. Having a professional on your team, who's interests are aligned with growing your wealth is valuable for any level of involvement.

You have high return expectations. We are investment advisors. Nancy and I are CFA charterholders. We have spent years studying, exploring and participating in financial markets. We are finance nerds. From all of our knowledge, I can tell you exactly one thing for sure: the future is uncertain. That means that when you reach for higher return, you are taking higher risk. If your expectations for your portfolio are significantly higher than market returns, we may not be able to help you.

You are so focused on keeping costs "low" that you are willing to lose sight of the bigger picture. Some people are extremely cost-conscious. They cringe at the thought of paying management fees, advisory fees, even hourly fees. If the thought of handing over $1,000 in fees makes you feel sick to your stomach, I completely understand! I've felt that way plenty of times myself. What I don't want you to do, though, is hold onto that $1,000 but miss learning about and taking advantage of a tax strategy that could save you, oh say, $90,000. That's not good math.

As Warren Buffet says - "price is what you pay, but value is what you get."

Helping you to increase the number on your balance sheet is great, but we like to think that our value is broader than that. We connect your portfolio with your values and goals. When the market turns, we have calculated that as a risk that you can bear. When you are depending on your portfolio for income, we take care to keep the money you need tomorrow available and safe from the near-term swings of the stock market. We help you and your family to live the life you envision with minimal stress, worry, and hassle. It's difficult to put a price on that.

Insurance Series Post 2: Medicare Week!

 Calling all Medicare enrollees or potential enrollees!

Please remember Medicare Open Enrollment began on October 15th and continues through December 7th. If you are currently eligible for Medicare, or will be soon, this is the time to make changes to your coverage or plan your future coverage. 

Not sure you are eligible? Generally, you are eligible for Medicare at age 65 and if you have paid Medicare taxes for 10 years of your working life. 

When can you enroll initially? Generally, three months before the month of your 65th birthday; during the month of your 65th birthday; and three months after the month of your 65th birthday.

A few basic facts about Medicare:

• Original Medicare covers hospital visits, inpatient (Medicare Part A) and outpatient (Medicare Part B). You receive Part A automatically, but must elect and pay for Part B, which covers doctor visits, radiology/lab tests, etc., in addition to outpatient visits.
• Original Medicare will NOT cover all your expenses. You will be responsible for a portion. If you don't already have a Medicare supplement policy, Open Enrollment is the time to get one! Medicare supplement policies (Medigap) will help pay for expenses that Original Medicare will not cover.
• Original Medicare and Medicare Replacement Policies are NOT the same. Please read your policy carefully to understand what is covered.
• Overnight hospital visits are not always inpatient visits. Ask your doctor or nurse if you are inpatient or outpatient (this can also change during a hospital visit). This will help you understand how Medicare and any other insurance will pay.

Have questions? Call us! We can help you navigate your health insurance coverage! 

How can we help?

• If you are enrolling in Medicare or are interested in changing your Medicare coverage
• If you have questions deciding which Medigap policy you need
• If you need assistance in deciphering your Medicare explanation of benefits

We are happy to help with these questions and more!

Insurance Series - Post 1: More Than a Mystery

I love mysteries, and yes, that includes murder mysteries. Many times on tv, to solve the whodunit, you only have to follow the money - insurance money. Who benefits from a big life insurance? Probably not the butler!

Do you have life insurance? Do you need life insurance? The answer is, maybe. Everyone's situation is different. Life insurance should be used as a tool, not a retirement plan. Life insurance should be used as protection to replace lost earnings due to the death of a loved one.

Generally, there are two types of life insurance:  Term and Whole Life.

A Term (temporary) policy should be a tool to replace the earnings your family depends on, and you would have collected had you lived and worked. Term policies generally should cover you through your working life. Ideally, you would have enough money/investments/savings in reserves to take you through retirement. For example, if you are 45 years old, with a spouse and children at home, and you are the family breadwinner, you may want a 20 year term life policy to replace your income for the remainder of your working life, and ensure your family's lifestyle will not be altered financially upon your death. Term policies are usually very affordable, especially when purchased at a younger age, because younger people are not expected to die.

A Whole Life Policy is a permanent policy that you pay for your whole life. Some people are more comfortable to buy a whole life policy, because it will follow you through retirement, and it will build a cash value over time. These policies can eventually be cashed in, borrowed against, or may result in a larger benefit for your survivors. However, these premiums are usually more expensive. You might be interested in a whole life policy if you have a dependent (maybe a disabled family member) who will need additional financial support should you pass away during your retirement years, and they are dependent on your retirement income for their needs.

There are numerous variations of these two policies. To determine what best fits your needs, talk to your favorite insurance agent to see what is offered, then sit down with the New Perspectives staff to decide which best fits in your overall financial picture and future plans. We can help you solve the insurance mystery!

Crossing Over

I've spent a lot of time and energy trying to keep my work life and my personal life separate. There are times when the two merge and there's nothing you can do about it. Sometimes, I'm grateful for this type of crossing over.

At work, I'm beginning to study for the CFP - Certified Financial Planner designation. I've truly enjoyed the material, because it allows me to use my past experiences in my present work. It makes me feel like everything I've been through will be put to good use - to help someone else. 

One of the areas I am studying is insurance. I'm sure someone reading this post just rolled their eyes! I don't blame you. It's not a glamourous topic. But, insurance has been a huge part of my personal life while taking care of my family, and my work life, since my background is in hospital and clinic finance and accounting. Insurance was always a necessary evil to navigate and to know.

My husband and I are in the adoption process and have been for some time. Right now, we are reviewing what kind and how much life insurance we need before we become parents. I'm very glad to enjoy tedious work, because my husband hates such. So, the insurance review tasks are mine at home. But I can share them at work!

Are you more like my husband and the thought of pulling out those old policies gives you an instant headache? Or maybe, like him, the world has stopped turning because college football season has priority over anything else. 

I really can't blame you. It's not the most fun in the world. But, do you know that if you are a managed client at New Perspectives, you don't have to review your insurance alone? We do not sell any products, insurance or otherwise, but we always want to get as complete a picture of your finances as possible. Your insurance protects the wealth we are advising you on.

In the coming weeks, I will be blogging about some general insurance topics that we should all be aware of and knowledgeable about. 

Do you know what insurance you are paying for? Do you really know what benefits you have? Do you have a conversational relationship with your agent, so that you can ask questions anytime? My job, thankfully, is not to sell these products - a saleswoman, I am not. My job is to help you become  knowledgeable about the products and services you pay for with your hard-earned money. Will that policy be a help or a hindrance when you need it? If you haven't looked at the details in a while, chances are good in favor of the latter.

Join me as we take a deeper dive into the world of insurance. A world that our world may depend on one day. More information to come!