John Gardner

2020 Global Outlook

February 5, 2020 by John Gardner Leave a Comment

As promised with last month’s column highlighting my 2020 Outlook for the U.S. markets and economy, this month’s Investor’s Edge column is about my insights for the rest of the world this year. Welcome to my 2020 Global Outlook.

My global outlook for 2020 is positive with an asterisk. My forecast is for a 3.2% global GDP (Gross Domestic Product) growth rate. However, this growth will not occur if the trade talks do not go as expected, and worse yet, if additional tariffs are enacted. (As I write this, we are just a couple of days from “Phase-1” of the U.S. – China trade deal being signed at the White House by President Trump and Chinese officials.) Cheap money is the main driver behind what I expect to be a solid global economy in 2020. The world’s economy is awash in easy money. Including the three rate cuts by the U.S. FOMC, 20 central banks have eased monetary policy over the past 12 months. And, there is no reason to expect that changing in the next 12 months. Like in America, another bright spot for global economic growth will be the continuation of consumer spending.

Europe: Europe’s exposure to trade and reliance on manufacturing made it a casualty of the trade war and the global downturn in automobile production. 2019 saw the European Central Bank (ECB) take policy rates further negative and re-start quantitative easing. The Eurozone should benefit in 2020 from easier monetary conditions, the recovery in global manufacturing, the lifting of trade-war uncertainty and Chinese policy stimulus that increases import demand from emerging markets. The easing of political risk is also a boost to my outlook. This time last year, Italian 10-year government bond (BTP) yields were heading toward 4% and creating concerns about the solvency of Italian banks. BTP yields are under 1.2% in now, mirroring declines across Southern Europe and supporting financial conditions. This is being reflected in declining non-performing bank loans across Spain and Italy. The potential lifting of Brexit uncertainty is also a positive. Overall, I expect a gradual pick-up in growth across the Eurozone during 2020. The absence of inflation pressure means the ECB is unlikely to consider lifting interest rates.

Japan: Japan’s economy is suffering the after-effects of the consumption tax hike on October 1 and its exposure to the global manufacturing downturn. The uncertainty around the China-U.S. trade negotiations as well as Japan’s own tensions with South Korea have weighed on economic sentiment. Easing trade tensions and an improvement in global manufacturing should support Japan’s economy, as will a boost to spending and tourism from hosting the 2020 Olympics. There is also speculation that Prime Minister Shinzo Abe’s administration will launch a sizeable fiscal stimulus. Japan, however, is likely to remain an economic laggard relative to other developed economies. I expect persistent disinflationary pressures will keep the Bank of Japan in ultra-accommodative mode.

Emerging Markets: Emerging markets (EM) will walk a tightrope in 2020. They will benefit the most from a weaker dollar but be hurt most by trade tensions. First, China. Chinese policy makers are balancing the short-term requirement for stimulus against the medium-term necessity to reduce leverage in the economy. Credit growth is unlikely to accelerate sharply, but the authorities have already reduced bank reserve requirements and cut policy rates. They are also likely to increase local government bond issuance to boost infrastructure spending. GDP growth, however, is unlikely to rebound and should remain near 6%. As I said in my 2018 Outlook, China remains positive. Now, India. As one of the largest and fastest-growing markets for digital consumers, India is a market where disruptive technology is driving productivity and deflation more than generally expected. Key reforms, including the recent reduction in corporate tax rates, measures to improve the regulatory environment and monetary easing, will likely steady the economy. And, a third noteworthy EM country is Taiwan. Taiwan is seeing some spillover benefits from the trade war as its companies start onshoring some operations. Government incentives to attract operations back to Taiwan mean that this will have ripple effects on its domestic economy.

While my global economic outlook for 2020 envisions an upward path, there is a high degree of uncertainty around the forecast given unpredictability around trade and other policies. Mitigating these tensions could prove my positive forecast correct, or stimulate economic growth higher than anticipated.

WISHING YOU A GREAT 2020!

Contact me if you have any questions. I am always happy to help. Email me at jg@blackhawkweathadvisors.com. Visit my website: blackhawkwealthadvisors.com.

2020 Outlook – The US: Resiliency Amongst Uncertainty

December 31, 2019 by John Gardner Leave a Comment

With another year and decade in the history books, 2020 has a tough act to follow, as 2019 was a big surprise for the financial markets. They did what was least expected—they went up a lot. For the economy, another surprise: no recession. However, after 35 years of Wall Street experience, I’ve learned that 2019’s results shouldn’t be a total surprise. The market’s nature is to “climb the wall of worry,” doing what is least expected. Market action is often counter-intuitive and usually confounds consensus forecasts. To be fair, it is hard to fault analysts’ gloomy predictions for 2019. Just as they were undertaking their assessment of the stock market for the year ahead, the market was in a steep sell-off. December of 2018 was the worst December since 1931. In the midst of that steep fall it was difficult to foretell 2019 being the best year for stocks since 1997. By now you have likely read and heard many market pundits’ take on the investment markets and economies for the new year. Below are my forecasts for the U.S. markets, and next month will be my forecasts for the 2020 Global Outlook.

My outlooks always begin with what I know, then to what I think, and finish with what I will do. So, what do we know? For starters, we all know 2020 will bring with it myriad market-moving events, most obvious the 2020 presidential election and the next phases in U.S.-China trade relations. Also well-known is the age of the bull market, which is now the longest stock market run ever. In addition, the U.S. economy is in the longest expansion in history. It is known that interest rates were unexpectedly cut three times last year and the Fed has clearly telegraphed it has no plans to move on interest rates for now. With near “goldilocks” market conditions and a “TINA” (There is No Alternative) mentality to stocks, market volatility has collapsed to a record low. The historical post-world War II average price-to-earnings ratio for the S&P 500 is 17.3. With the major index PE ratio now about 19.5 (based on trailing earnings of $163), we know the market is not “cheap.” What I also know is big gains for the stock market is often good news for the next. The S&P 500 has jumped 20% or more in a year 24 times in its history since 1928. In the years that followed those winning years, the index rose 66% of the time (with an average of 6.6%). Lastly on the stock market, next year bodes well for stocks as 2020 will be the fourth year of the presidential election cycle. Historically, the third year has been the best of the four for the stock market. Stocks performed second best in the cycle’s fourth year. Moreover, while the U.S. economy avoided a recession in 2019, it is growing at a slowing rate. And, we know a government shutdown in 2020 was averted with $1.4 trillion spending agreement, which keeps the government going through its 2020 fiscal year ending in September.

What I Think: Resiliency Amongst Uncertainty

As I quoted in my 2019 Outlook: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria,” said Sir John Templeton. Bull markets do not end from old age. As mentioned, the current bull market that began in March of 2009 is now the oldest ever. While it may not be young, this bull market is far from euphoric. Remember Alan Greenspan’s warning in 1996 that “irrational exuberance” could have inflated stock prices? Or, late 1999 and early 2000 when people were quitting their jobs to day-trade stocks? That’s market euphoria. More simply, the fact that this market is known as the, “Most hated bull market ever” speaks to anti-euphoria. It is a mistake to say, “Last year the stock market went up so much it can’t possibly do it again this year.” No correlation between one year’s gains and the next exists. Don’t assume 2020 must drop because 2019 rose. Looking ahead, I have summed up 2020 thematically as a year of Resiliency Amongst Uncertainty. I expect earnings, which I have always believed to be the single most important factor determining stock prices, to be resilient this year. They will increase over 2019, supported by lower-for-longer interest rates and a weaker dollar, and driven by efficiencies achieved through corporation’s innovative fiscal management. Working through my analysis, 3488 is my S&P 500 price prediction for 2020. The resilient earnings and higher stock market will occur in the face on abnormally high global uncertainty. Beginning with impeachment proceedings, which history has shown can derail the stock market temporarily, 2020 will offer investors a full plate of FUD (Fear Uncertainty & Doubt).

Beyond Wall Street and on to Main Street, the U.S. economy will be recession free and continue to grow in 2020. With employment at its strongest in 50 years, interest rates still near record lows, and a big bump in wealth through increased home values and investment portfolios, the American consumer will keep on consuming. Consumer consumption has been, and will continue to be in 2020, the biggest contributor to economic growth. Low interest rates and tame inflation are further reasons to be optimistic about the U.S. economy in 2020. Contra to uncertainties from Asia to Europe, and the rest of the world, the U.S. economy will be resilient. Consumers, and manufacturers alike, had their confidence tested repeatedly in 2019 by global uncertainties from Saudi oil infrastructure to tariffs and trade. Expect more of the same in 2020: resiliency amongst uncertainty.

Look for part 2 of my outlook next month: 2020 Global Outlook.

Wishing you a healthy and happy New Year and Decade!

Review & Preview

December 5, 2019 by John Gardner Leave a Comment

With another new year only days away, it’s that time when you will likely read about the many highlights (and low-lights) of 2019, and predictions of things to come in 2020. So, I thought it would be timely to write my “Review and Preview” article this month; a lookback at this year’s market and expectations for next.

Review

It’s a toss up to decide which is more surprising about this year in review—what happened, or what didn’t happen. It could easily be what didn’t happen because there was so much market fear and anxiety over what was widely expected to happen that just turned out the other way. Imagine the bull stock market walking into a dark room on its 10th birthday and upon flipping the light switch hears, “Surprise!” That’s what happened this year. The U.S. stock market had one of its best gains in history this year, scoring over 20 new record closing highs. Not expected. In early October 2018, many of the world’s stock indices were making new all-time highs, only to see all the year’s increases wiped away in a severe decline that didn’t end until December 26. During that plunge, the Dow Jones Industrial Average dropped over 19%. Entering this year, three to four rate hikes were expected. Earnings weakness was expected to continue, spiraling into an earnings recession. Worsening global economic slowdown expectations were widespread. Scares of U.S. recession were seen on magazine covers. Forecasts flashed trade a war with China would stall the U.S. economic engine. It did not happen! Instead, well, you know… the unexpected things that did happen.

There has been over $6 trillion in wealth created in the stock market this year. The majors U.S. stock indexes are all up well over 20%–one of the best years in history. Away from stocks, the U.S. bond market was fueled by a dramatic drop in interest rates and had a bull market of its own in 2019. Nothing speaks louder to falling interest rates then the estimated $17 trillion earning less-than-zero interest in global bonds issued by countries paying negative interest. No recession. Global economic slowdown appears over. No earnings recession. Surprise!

Preview

Firing on all cylinders, the U.S. economy and financial markets are soon to enter 2020 full throttle. Capital spending is increasing. Productivity is rising along with the strongest labor market in over 50 years. Trade tensions with China are loosening. And the icing on the cake, the lag effect of the monetary easing of the past year is now kicking in. Today is the first time in more than 15 years that unemployment rates and mortgage rates are both below 4%. That is a great set up for borrowing, business profit expansion, and consumer spending. The stage is now set for a turn to the upside for 2020 corporate profits as the global economy begins the fourth mini-cycle rise of this record-long expansion. This situation could be called the Goldilocks Economy. But there is no perfect porridge. Let’s not throw caution to the wind.

Some caution about the year ahead is warranted. There are potentially big hurdles to clear for financial markets and the economy in 2020. Geopolitical risks and uncertainty, and the U.S.-China trade war are high on the list. Almost 8 in 10 investors polled in a recent survey expect higher volatility next year and nearly 3 in 4 investors believe the investment environment is more challenging than it was five years ago. The 2020 Presidential Election is likely to keep the markets in its grip for the first 10 months and three days of next year. The election effect will likely impact markets beyond November 3, especially if the markets react anything like they did in 2016. Already, many analysts and market mavens are predicting a 25 – 30% drop for stocks should Sen. Elizabeth Warren win White House residence. Conversely, others forecast that a Trump re-election would trigger a 20% jump in the S&P 500.

Everyone has the brainpower to make money in stocks. Not everyone has the stomach. Peter Lynch.

With most of 2019 behind us and 2020 ahead, it may helpful to borrow from 2019’s playbook: Expect the unexpected.

Wishing you a Merry Christmas and a Happy New Year!

Investing Alphabet Soup

November 13, 2019 by John Gardner Leave a Comment

There is no doubt that the impactful and important realm of investing is pullulating with abbreviations and acronyms. A recent poll indicated that 69% of adults found investing, and the accompanying jargon, complex and confusing. I call this investing Alphabet Soup. Retirement planning, investment products, investment analysis, and even investment professional certifications and designations are laden with it. When speaking of retirement planning for example, you hear: IRA, ROTH, SEP, 401k, and RMD. My hope is here is to help you make sense of “Wall Street Speak” and all the abbreviations.

Investors are confused because investing is confusing.

In another investor survey I read recently, which polled 1,000 employees regarding their retirement investing, a highlight stated, “More Likely to Get Help Changing Their Oil Than Managing Their Investments.” According to the survey, on average, participants spend roughly the same amount of time reviewing and choosing investments for their 401(k) as they do researching cell phones. The survey further showed they spend more than twice as much time shopping for cars before buying than they do evaluating their 401(k) options.

An investment in knowledge pays the best interest. – Benjamin Franklin

I agree with Mr. Franklin. When it comes to investing, absent great luck, perhaps nothing will pay off more than educating yourself. It’s critical to do the work necessary before making investment decisions. The research and analysis are worth the effort. Even more important than the cell phone and the car. So, let’s start with some of the most often used, spoken and in print, acronyms and the rest of the soup.

First, my favorites. If you have heard them already, I’m not surprised. Wall Street’s lingo gets around fast. For years I have referenced (and heard reference to) FUD, FOMO, FANG, and TINA. These represent: “Fear, Uncertainty & Doubt,” “Fear Of Missing Out,” “Facebook, Amazon, Netflix and Google,” and TINA stands for “There Is No Alternative.” You surely do not need to know those to demystify the language of investing, they’re just some of my favorites. My least favorite is EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization. Analysts say it all the time, just like it sounds, “E – Bit – Da.” Now, on to the universe of investment alphabet soup you should know. There are far too many to list and define in this space, so I think these most common are noteworthy. Many are used so frequently; they may be familiar. For context, I will list these categorically. Here are the acronyms that generally relate to investment instruments:

ETF: Exchange Traded Fund. An exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. ETF’s hold assets such as stocks, commodities, or bonds and therefore are generally similar to mutual funds.

IPO: Initial Public Offering. IPO’s often grab headlines. This is the process of a private corporation offering its shares to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. Most recently, think Uber.

REIT: is an organization with that acquires, manages and sells real estate. An investment in a REIT gives you a share of the company that is overseeing the real estate assets, rather than actual real property ownership. Think of a REIT as a stock investment in real estate.

A,B,C Shares:

“A” shares typically carry front-end sales charges, or loads, which come right off the top of your investment when you buy. Some can exceed 5%. So, if you invested $100,000 into an ‘A’ share fund, only $95,000 would be invested in the fund. Over, the longer term, though, A shares are usually the most cost-effective.

“B” shares typically carry deferred sales charges, often called back-end loads. You won’t pay anything upfront, but you might pay a charge when you sell your shares, depending on how long you hold them. B shares aren’t usually the most economical option due to high ongoing annual fees.

“C” shares, commonly known as “level-load” shares, are the “don’t pay to buy, or sell, just pay to own” option. The maximum sales charge is usually 1.0% if sold in the first year. But C shares typically have the highest annual expenses.

TAI: Tax Advantaged Investment. These are investments or accounts that provide unique tax benefits such as tax-free interest or tax-deferred returns. Typically, these are retirement savings accounts, municipal bonds and annuities.

UITs, CEFs, LPs & Vas: These are investment products commonly referred to by their acronyms. They are “Unit Investment Trusts,” “Closed-End Funds,” “Limited Partnerships,” and, “Variable Annuitys.”

Here’s more that fall under the category of investment evaluation:

GARP: “Growth at a Reasonable Price” is a stock investment strategy that seeks to combine growth investing and value investing to select individual stocks.

CAGR: “Compounding Annual Growth Rate.” This is one of the most accurate ways to calculate and determine returns for investments that rise or fall in value over time.

EPS: “Earnings Per Share” is a key fundamental expression of company’s earnings on a per share basis simply derived by dividing earnings for a given period by outstanding shares.

PE: “Price: Earnings.” This is a simple ratio of a company’s stock price per share divided by its earnings per share.

PEG: “Price to Earnings Growth.” This ratio is a widely used stock valuation metric of a stock’s possible true value. It evaluates a stock’s price, EPS, and the company’s expected earnings growth.

Then there’s the long list of often confusing certifications and designations earned by investment professionals. Common ones are:

CFP: “Certified Financial Planner”

CFA: “Chartered Financial Analyst”

CPM: “Certified Portfolio Manager”

RIA: “Registered Investment Advisor”

The skill sets and expertise of these professionals differ significantly.

I hope this made some sense of investment alphabet soup. Investing may be confusing, but you do not have to be confused.

Estate Planning

October 13, 2019 by John Gardner Leave a Comment

Welcome to the Investor’s Edge column and the last article in my six-part series on the financial planning process. Last, but not least, Estate Planning is the sixth essential part of the process. All six steps are equally critical to the success of the financial planning process, and while I have not addressed them in any particular order, estate planning may be the best to discuss last in this series because it is ultimately the sum of all the parts of your financial plan. If estate planning conjures up thoughts of the fame and fortune such as the vast wealth of Bruce Wayne, the billionaire with a butler (remember Batman?), think again. Estate planning is a method that enables you to decide how the things you own should be handled after your death or incapacitation.

The best way to predict the future is to plan for it.—Abraham Lincoln

Sadly, many people put off creating an estate plan or think they don’t have enough assets to need one. Sadder still are the uber-rich that just put off estate planning. Well-known people have died intestate, meaning without a valid will. Ironically, President Abraham Lincoln was one of those. Lincoln was a respected and esteemed lawyer, but he didn’t even have the legal services needed to create a will for himself. It is estimated that his estate was worth about $100,000 at his death in 1865, which would be several million dollars today. The lack of a will created over two years of delay in his estate going to his surviving wife and two sons. Likely an early end to his life at 56 was a reason. Sonny Bono, Pablo Picasso, Howard Hughes, James Brown, and John Denver, all passed away intestate. More recently, Aretha Franklin and Prince are among the wealthy people who died without wills or estate plans. This tied up Franklin’s $80 million estate and Prince’s $200 million estate as both landed in probate.

YOU DON’T HAVE TO BE RICH TO HAVE AN ESTATE PLAN

At a minimum, an estate plan allows you to select someone you trust to make decisions on your behalf after your death or if you become incapacitated. This enables your wishes to be carried out quickly and smoothly to avoid probate. Many mistakenly believe estate planning as a technique to minimize taxes. True, a blunt way to refer to “estate tax” is “death tax.” Your estate tax liability, if you have one, is the tax you pay when you die. It is a tax owed on the value of all the things you own at your demise. The good news is, the IRS gave us all a Unified Tax Credit to apply to our estate at death. This year it is $11.4 million (you get $22.8 million if married). Therefore, after applying that credit to the value of your estate when you die, only any amount above the credit is taxed. So, while it would be a nice problem to have, most people won’t pay an estate tax. Reducing your estate tax bill, then, is probably not the primary reason to have an estate plan.

Estate planning is about making sure your wishes are carried out. It gives you “post-mortem control”—the ability to be the boss of what you earned and saved over your lifetime after you die. An estate plan can also cover the extent of medical treatment you desire.

So, while not all of us will have an estate tax bill to pay, there are several estate planning steps that everyone should take. Here are five:

Write a Will: If you die without a will—or intestate—state laws, and not your wishes, will decide who gets your assets. Even if your assets do go to the people you intended, it could cost your heirs more time and money to get their inheritance in the probate process.

Consider Tax Issues: It’s said that there are no sure things in life except death and taxes, and the two also often go together. Depending on the value of the estate and other issues, there may be steps you can take, such as establishing a trust or making gifts while you’re still living, that can help lower the taxes your heirs will pay on their inheritance.

Create a Durable Power of Attorney: These documents designate someone to manage your financial, legal or business affairs in case you are incapacitated.

Address Medical Decision Making: A living will can establish how you would like your medical care to be handled in case you are unable to speak for yourself. A medical power of attorney names someone to make sure your wishes are followed.

Fill Out and Regularly Update Your Beneficiary Forms: When you sign up for life insurance or create a retirement account, you are asked to name beneficiaries who would inherit your money if you die. After an important life change—such as marriage, birth of a child or divorce—consider whether you need to update your beneficiaries.

Now is better than later to establish your estate plan. You never know what can happen. Remember Lincoln. With minimal planning, you will have assurance that your estate and all your assets go to the beneficiaries you choose and on the terms you want.

Please see my November Investor’s Edge column: Understanding the Alphabet Soup of Investing.

Retirement Planning

September 16, 2019 by John Gardner Leave a Comment

Part Five of the six-step process

This month’s Investor’s Edge column continues my 6-part series on the financial planning process. Someone recently asked me if this series was in any particular order. The answer is “no.” All six steps are equally critical to the success of the process and are not addressed in any order. However, we might all agree that this step is most effective the sooner we begin. It is never too soon to begin your retirement planning. The basic question one must answer is: How much money will you have to have when you want to retire that will allow you to afford what you will need and want during retirement, and that you will not outlive?

Retirement is like a long vacation in Las Vegas. The goal is to enjoy it the fullest, but not so fully that you run out of money. – Jonathan Clements

Jonathon Clements is a longtime Wall Street Journal personal-finance columnist. His quote on retirement is a good and important one. He is saying, essentially, “Do not run out of money while retired.” After nearly 35 years of asking people soon to retire, or newly retired, what their biggest concern is, the most frequent response has been, “Outliving my money.” What’s interesting about that is they had money and had spent a reasonable amount of time on retirement planning. That is less and less the case today. Recent findings in the 2019 Retirement Confidence Survey (RCS) conducted by the Employee Benefit Research Institute are shocking. A sizable percentage of workers say they have no or very little money in savings and investments. The RCS survey showed 40% of worker’s total value of their household’s savings and investments, excluding the value of their primary home and any pension plans, is less than $25,000. This includes 19% who say they have less than $1,000 in savings. Approximately one in ten report having $25,000–$49,999 and another 9% say they have between $50,000–$99,999. About two in ten report having $100,000–$249,999, and lastly, 23% said they have saved $250,000 or more.

“Retirement is wonderful if you have two essentials—much to live on and much to live for,”is one of my favorite quotes on retirement. Retiring should be a wonderful, easy, and relaxing time of your life. I teach people how to retire securely. Whether you’re far from it, or long retired, I can help you invest for retirement. I have many useful tools to help. My RACE program is a proprietary planning tool I devised to help both future retirees and those already in their retirement years. Blackhawk Wealth Advisors provides a Retirement Analysis & Cash-flow Evaluation service to help you determine when you can retire, how much you can spend during your retirement, and how long your retirement savings are expected to last. This helps determine the amount of money you need to plan to save and invest in order to retire comfortably. In my career counseling people wanting to retire soon, I have often determined the best advice is to keep working.

Retirement planning, with all its inherent considerations, all unique to every individual, is virtually impossible to capture in this limited space. Age, life expectancy, health conditions, marital status, employment circumstances, risk tolerance, family matters, tax consequence, and many more important variables need to be addressed. There are, though, three key elements of retirement planning we should all be aware of: time, taxes and spending.

Timing your retirement can be critical to your long-term financial life—especially when it comes to taking withdrawals from your retirement account. The month and year you choose to start taking income can make a huge difference. People who retired in 2007 or 2008 are all too aware how a bad investment market combined with portfolio withdrawals can diminish the sustainability of those withdrawals by several years. In cases of bear markets, those able to delay retirement and continue working, receiving earned income rather than living on retirement savings, are in much better shape to avoid running out of money during their lifetimes.

Know your tax bracket. Staying in a low tax bracket can help retirees minimize the tax they pay on their retirement savings. When your income reaches specified thresholds, you pay gradually higher amounts of tax on the additional income. Be aware of the tax rate schedules, tax tables and cost-of-living adjustments for certain tax items for the tax year of your retirement and the year after. If you have taxable investment accounts, or ROTH IRA’s, blending withdrawals from these other accounts with retirement accounts will usually lower your income tax liability.

Know what you spend. Many people believe their expenses will go down in retirement, but the reality depends on the type of lifestyle you want to have. Do you plan to travel? Start a new hobby? Help out your children and grandchildren? These all cost money, and usually more than you expect. And don’t forget about healthcare costs. It’s important to understand what Medicare and supplemental health policies will provide and what you’ll be paying out of pocket. Once you have a firm grasp on your expenses, you can strategically plan your withdrawals from taxable accounts.

Take control of your financial future with a sound retirement plan. Don’t expect Social Security to provide for your retirement life needs. Social Security is rarely enough to cover more than the most basic living needs. And with the average monthly Social Security benefit coming in around $1,250 and growing slowly, this fact isn’t going to change anytime soon.

I hope you enjoyed part 5 of my 6-part series on the financial planning process. Look for the last part, Estate Planning, in the October issue of ALIVE Magazine’s Investor’s Edge column.

Financial Planning Part 4: Tax Planning

August 12, 2019 by John Gardner Leave a Comment

Welcome to part four of my series on the financial planning process. This six-part series kicked off in May’s Investor’s Edge column. As I wrote then, financial planning is a dynamic process comprised of six steps. As you consider how best to manage your financial future, it will help to have an understanding of this process. Tax planning, an essential element of the six-step process, is highlighted this month.

Taxes are a constant. They are also a certainty, as Benjamin Franklin put it best, “…but in this world, nothing can be said to be certain, except death and taxes.”And, for the extremely wealthy, taxes are even certain at death, in the form of their estate (death) tax. So, with the constant certainty of taxes in our lives, it is simply prudent that we include tax planning in the construction of our comprehensive financial plan.

I am not a CPA (Certified Public Accountant). I am a CFP however. While there are many differences between the two professionals, a primary one is as basic as the difference between “tax planning” and “tax preparation”. Over my career as a Certified Financial Planner, I have made tax-efficient investment planning a cornerstone of my wealth advisory approach. Unlike a CPA, I cannot prepare a tax return for a taxpayer. Tax planning looks forward, seeking opportunities and strategies to reduce your tax liabilities in the future. In contrast, tax preparation requires looking in the rear-view mirror, and gathering and organizing your information from a past year, primarily for compliance with tax laws.

While the goal of tax preparation is to avoid leaving money on the table, the goal of tax planning is to have more money on the table in the first place. My hope in this article is to share some tax planning concepts that will help you with optimizing your financial plan.

Here are some tax planning strategies you might consider now and every year, not just each April as the 15th nears. By no means is this brief column intended to be an exhaustive, be-all, answer-all to effective tax planning. This important financial planning discussion cannot be summed up in such a limited space. Tax planning is as unique to an individual or family as any other component of the financial planning process.

Most of us, regardless of work status or age, can benefit from some tax planning strategies. One is “harvesting losses.” This is done in taxable investment accounts. Basically, a tax planning technique is a matter of realizing investment gains and offsetting them with realized losses to minimize capital gain taxes. Other tax planning concepts, such as timing income and deductions across different tax years, choosing the best retirement plan options, or converting IRAs and 401(k)s into “Roths”, are advisable on a case-by-case basis and highly dependent on one’s age and work situation.

Here’s another example of what I think is an effective tax planning opportunity, and unfortunately, often misunderstood, or worse yet, unknown. This is the savings plan with a “Triple Tax Advantage.” They are called “HSAs” (Health Savings Accounts). These are a type of savings accounts that allow you to set aside money on a pre-tax basis to pay for qualified medical expenses. Saving—and investing—for medical expenses in HSAs can provide valuable tax benefits. As I noted above, they can deliver a triple tax break.

First, all contributions are tax-deductible, second, withdrawals to pay qualified medical expenses are never taxed, and third, interest (gains) on savings in an HSA accumulate and compound tax-deferred. The 2019 HSA contribution limit is $3,500 for individuals and $7,000 for families. Individuals age 55 or older not yet enrolled in Medicare may make a catch-up HSA contribution of up to $1,000 per person—an amount that remains unchanged from last year’s “catch-up” limit. This means that the maximum contribution limit to an HSA in the 2019 tax year is $8,000. I wrote an article about HSAs in June of 2017 when the individual maximum contribution was $3400 and the family limit was $6750 (you also had the $1,000 catch-up allowance then). So, they have only gotten better. Nothing new here. HSAs have been around for over 15 years.

With the impacts of the Tax Cuts and Jobs Act taking full effect this tax season, 2019 may become the most talked-about tax filing time in a generation. Now is as good a time as ever to collaborate with your tax preparer professional and your tax planner professional. This will help you to optimize all your opportunities and take all appropriate new laws into account as you move forward this year and ahead.

I hope you enjoyed part four. Look for part five of the financial planning process in my Investor’s Edge column in the September issue of ALIVE Magazine.

Investment Planning

July 10, 2019 by John Gardner Leave a Comment

To repeat how I opened this 6-part series in May, imagine you are watching the game show Family Feud. The always smiling Steve Harvey asks a contestant to, Name a strategy that household decision makers use to improve their lifestyles. We then learn that the “Survey says: Financial Planning!”

I’m sure if that were one of the game show’s questions, the “survey” would answer that question that way.

This month’s Investor’s Edge column begins where last month’s ends, with the third part of a six-part series. The series is about the 6 steps of the financial planning process. The make-up of a comprehensive financial plan includes six elements. “Investment Planning” is the third element of the process.

As an investment advisor and financial planner, I am frequently asked, “How is the market doing?” That is especially true lately with volatility creating more FUD (Fear Uncertainty & Doubt) among investors, and the U.S. stock market indexes back near all-time highs. While I generally answer the general question with a general answer, I have often wanted to answer the question with the question, “How is your plan doing?” That’s the question to ask and have an answer to. Sure, the day’s tweet, merger, political news, or economic development can (and does) move the stock market—and does in a big way, both up and down. Your financial plan, though, should be rooted in stronger soil than the stock market alone.

Financial planning, as I want to emphasize with this series, is so much larger than just investing. It involves a wide range of topics such as education and retirement planning, tax planning, estate planning and more. Hence, the word “planning.” So, while financial planning and investing are often misunderstood and sometimes thought of synonymously, they are different.

Then there are investments and the work required in the selection and investment management process. Think of a road map—or nowadays, WAZE, your GPS—and a car. Your financial plan is your map. You program it with where you want to go. Your car is your investment plan. A suitable investment plan will drive your assets with the guidance of your map, your financial plan. Together, they will get you where you want to be financially. Then think of the car’s model. Is it a Chevy Suburban, Cadillac or Corvette? The “model” is your investment portfolio. Those stocks, bonds, properties, mutual funds, etc., will determine how safely, comfortably and quickly you get where you want to go. Like your GPS system or map, your investment plan is a navigational aid. It should identify your destination and show how to plan to get there by specifying the asset classes and security types you will use. It should establish the “rules of the road.” Essentially, your GPS should be driven by your IPS—your Investment Policy Statement. So, your investment plan, governed by your IPS, will clearly reflect your unique investment parameters and constraints, such as your risk tolerance, time horizon, income needs, and tax consequences.

Concepts of investment parameters and constraints are unique to you. They reflect you as an investor and will serve to govern how your money should be managed. Combined, your investment constraints and parameters are determining components of your IPS, guiding your investment plan. An investment constraint, for example, is time. Your investment time horizon is a factor that may limit suitable investments for you. Funds from investment needed in 3 – 5 years would preclude you from investing that money in long-term bonds. Your tolerance for risk is also an investment constraint. Another common investment constraint is investment tax consequences. Separately, investment parameters, or investment criteria, should also impact your investment selection. Your need for investment income is an example. Your investment plan, written and guided by your IPS, which state your investment parameters and constraints, should be your focus. Your question when concerned about the market should be, “How is my plan doing?”

As with all goals, committing them to writing is essential. This applies to investment planning. Your investment plan must be written down. That document is your IPS. Make your investment goals S-M-A-R-T. Specific, Measurable, Actionable, Realistic, and Timely. And, put it in writing.

Hope you enjoyed part 3. Look for part 4 of the financial planning process in my Investor’s Edge column in the August issue of ALIVE Magazine.

Insurance & Risk Management

June 11, 2019 by John Gardner Leave a Comment

This month’s Investor’s Edge column begins where last month’s ends…with the second part of a six-part series. The series is about the six steps of the financial planning process. The make-up of a comprehensive financial plan includes six elements. “Insurance planning and risk management” is the second element of the process (see part 1, “Financial statement preparation and analysis” here). My hope is that from this six-part series, you will gain a greater understanding of and appreciation for the financial planning process. The process, by definition, is never-ending as life-long monitoring is required to ensure a successful plan. It can serve you beyond your lifetime, continuing throughout the lives of your beneficiaries.

Only a select group of planners have met the rigorous education, examination, experience and ethics requirements set forth by the Certified Financial Planner Board of Standards, necessary to be a Certified Financial Planner™ professional (CFP^®). For me, I recall this part, Insurance planning and risk management, as the most robust and far-reaching element of my studies of the financial planning process. Your life, assets and financial arrangements can be equally complex. Planning for preserving and passing on your estate is far from simple.

As you know in life, the only thing certain is that life is uncertain. There are many risks and uncertainties that can occur to disrupt your well-being and financial security at any time. Only proper prior planning can minimize, NOT AVOID, unexpected life events. Not fun to think about, but death, disability, or other potential hardships are necessary considerations in your financial plan and essential to the success of the process. Assessing and attempting to minimize and manage the risks associated with life’s unwanted surprises, or even the inevitable events, is a critical success factor to ensure that you and your loved ones can live desired lifestyles. Below are just a few common considerations to help with the notion of insurance planning and risk management as they relate to financial planning.

Life Insurance: This is an important component of financial planning. With prudent counsel, you can ensure you have enough insurance coverage to care for your loved ones should an unexpected tragedy occur, or just to efficiently pass on your estate at the time of your eventual demise. As much as everyone’s circumstances, and needs and desires are different, life insurance is not needed by everyone. Still, it’s an important factor to consider within your overall financial plan. The coverage delivers the opposite of my investment tenet, Don’t risk a lot to gain a little. I view life insurance as returning a lot for spending a little.

Long Term Care: Long Term Care (LTC) insurance coverage plans are now widely accepted as a helpful financial planning product. LTC, though, has various features and benefits that come with a cost and confusion. With people living longer, and in many cases with medical complications that require a high level of medical attention, LTC insurance is gaining in appeal to offset soaring healthcare costs. These costs must come out of pocket if you’re not prepared (insured). In many families, being “self-insured” is an intentional choice. Others find this insurance planning technique is key to managing the risk of estate assets being eroded by costly long-term medical care needs.

College Funding: Americans are facing a mountain of debt with over $1.4 trillion in student loans. Why? Because college is expensive! And, it’s getting more so every year. I know; with one kid in college in Hawaii and another getting an education abroad, it’s “heigh-ho, heigh-ho, it’s off to work I go.” Educational costs are rising at an alarming rate. The CollegeBoard in its recent, Trends in College Pricing, published many helpful stats and insights. It showed that between 2007-08 and 2017-18, in-state tuition and fees at public four-year institutions increased at an average rate of 3.2% per year beyond inflation. If you have kids or are planning on going back to college yourself, then you need to plan to finance it. Borrowing a little is okay, but student loans should not be the solution to planning for college costs.

Market Risk: Simply put, this is the risk of losses in investments arising from movements in market prices. The foundation of my investment philosophy is soundly built on two convictions: Investing is a process, and two, a disciplined approach is required to manage risk and succeed in the investment process. Hence, Investing is a process that must be based on a disciplined approach to manage risk. The “risk” referred to here is market risk. “Black Monday,” the “Dot-com Bubble,” the 2008 “Worldwide Financial Crisis,”—these are just the biggest market crashes since 1987. As you know, there were many before that. And, you can bet there are more to come. In my 35 years I have learned all too well what market risk means, and how to handle it. Understanding how what’s happening in the world can impact your portfolio over the short, medium, and long terms, is critical to the success of your investing efforts and your overall financial plan. Risk management is present and visible daily with respect to market risk. Investing is difficult and often an emotional experience. Ultimately, emotions lead to poor decision making. The third of my top ten investment tenets is “Control Emotions.” Achieving long-term investing success, requires a high “EQ” (“Emotional Intelligence”). Greed and fear (and other emotions) have no place in the investment decision making process. Instead, sensible strategies intended to minimize market risk is essential to the financial planning process.

Death: Does anyone like this subject? Probably not. I don’t think even my estate planning friends who talk to people every day about planning for their eventual death “like” the topic. Your financial plan, though, cannot ignore your death. A proper plan takes advantage of techniques and strategies that can not only benefit you now, while alive, but provide you post mortem control over your estate and allow you to provide for your beneficiaries for generations to come. Estate tax just sounds better than what it really is. It’s really death tax. The estate tax you pay, those taxes paid based on and from what you have when you die, can be minimized… unless you don’t plan for your death in your financial plan. Estate planning professionals can help you get your affairs organized so that your financial plan is structured to pass to your beneficiaries seamlessly as you wish at your death as if you were still alive.

I hope part 2 of the financial planning process was helpful. Look for part three: “Investment Planning,” in ALIVE Magazine’s July issue.

Financial Planning: The Six Step Process

May 7, 2019 by John Gardner Leave a Comment

Name a strategy that household decision makers use to improve their lifestyles. Survey says: “Financial Planning!”

Financial planning is a dynamic process comprised of six steps. Though your financial goals may evolve over the years due to shifts in your lifestyle or circumstances such as an inheritance, career change, marriage, house purchase, or a growing family, the financial planning process remains the same. As you consider how best to manage your financial future, it will help to understand the process. The make-up of a comprehensive financial plan includes six elements. By definition, the process is never-ending. Your financial plan, if established completely, will outlive you, not ending with your demise.

This month’s Investor’s Edge column kicks off a six-part series. Each part will hopefully help you gain a greater understanding and appreciation of the financial planning process. From what I learned in my studies with the College for Financial Planning in 1989 and 1990 to become a CFP®, here are the six subject areas of the process:

Financial statement preparation and analysis
Insurance planning and risk management
Investment planning
Income tax planning
Retirement planning
Estate planning

Step one is: “Financial statement preparation and analysis.” For the next five months, I will share the other steps to comprehensive financial planning. One of my favorite quotes on financial planning is: “Planning is bringing the future into the present so that you can do something about it now.” Alan Lakein said that in his classic book, How to Get Control of Your Time and Your Life.

Planning helps people build savings for life goals, makes them comfortable with their lifestyle and more confident in managing their money, and better prepared to face the future. It doesn’t necessarily take a lot of money to garner these benefits, and both high- and low-income individuals, or net worth, find that the homework involved in financial planning is worth the effort and leaves them better off financially. The process of financial planning begins with step one, “Financial statement preparation and analysis.” Author and educator Stephen Covey said two things, among many others, that we can apply to this process: “Start with the end in mind,”and, “The main thing is to keep the main thing the main thing.” My favorite book of Mr. Covey’s is, First Things First. Here’s the first thing to the financial planning process:

Step 1: Financial statement preparation and analysis.

This step includes cash flow analysis/planning and budgeting. Many may recall from basic accounting how to determine “Net Worth.” Simply subtracting total liabilities from total assets. Hopefully, the result is “in the black,” or a positive number. This would be an amount that your assets exceed your liabilities. In summary, your net worth is the difference between what you own and what you owe. This provides a snapshot of your financial situation at any point in time. With this, you have your personal balance sheet. As the CEO, Compliance Chief and head of Internal Audit of YOU, Inc., that is one financial statement you should insist on regularly reviewing.

There are many reasons why knowing your net worth is important and beneficial. A few essential benefits are this awareness will help you to spend wisely, help develop a plan to pay down debt, and encourage you to save and invest more. Regardless of your financial situation, knowing your net worth can help you evaluate your current financial health and plan for your financial future. You will be closer to living by the wisdom of Messrs. Lakein and Covey. By knowing where you stand financially, you will be more mindful of your financial activities, better prepared to make sound financial decisions and more likely to achieve your short-term and long-term financial goals. We all have financial parameters and constraints unique to us. An honest assessment of your asset and debt picture is necessary to identifying your constraints and avoid unwanted financial pitfalls.

An effective financial plan should be regularly updated to reflect any changes that will affect your financial life to keep you on track to achieving your goals.

I hope you enjoyed part one. Look for part two in the June issue of ALIVE Magazine.