Americans’ attitudes about money have shifted as a result of the 2008 Great Recession[i]. Many people either experienced financial hardships firsthand or saw loved ones struggle, making financial literacy more important than ever. Fast-forward nine years, and those financial conditions are still affecting money management methods used by many today.
In this post, we will shed some light on how a many Americans are managing their money, and what you can do to safeguard your personal finances.
Spending less and saving more is a financial priority for most Americans. According to a recent Gallup poll, 59 percent of people report that they enjoy saving money more than spending it[ii]. In fact, 27 percent of people say that spending less money, and saving more is their “new normal” money management practice. Of those who are currently spending more money than in previous years, two-thirds responded that the change in their spending patterns is only temporary, implying that they will revert to saving more when they are able.
While 85 percent of Americans say they are watching their spending very closely[iii], 56 percent of households have at least $15,000 of credit card debt, according to the National Foundation for Credit Counseling[iv]. At an average interest rate of 15.59%[v], this means that a majority of households are at a minimum paying in excess of $2,243 a year in credit card interest. Credit card debt and accumulating interest on that debt can interfere with savings, so it is important to pay off debt as quickly as possible.
A majority of a family’s income is spent on three essential categories: housing, transportation, and food[vi]. To follow the mantra of saving more, moving may be one way to free up additional funds, as the average person spends 32 percent of their income on housing alone.
Investing can be an effective way to grow savings over an extended period of time. There are several types of investment accounts that are solid options based on your financial goals, including a variety of IRAs (individual retirement accounts), as well as non-retirement brokerage accounts offering stocks, bonds, mutual funds and exchange-traded funds. However, most people are not currently leveraging this money management tactic.
The 2017 TIAA IRA Survey reveals that only 31 percent of Americans have any type of IRA, but of those, only 5 percent fully utilize the benefits by contributing more than $5,000 annually to their accounts. Approximately 45 percent of people do not have any type of IRA because they either don’t understand how these accounts work or find them too complicated[vii].
According to Bankrate’s Money Pulse survey, 52 percent of people are not taking advantage of stocks or stock-based investing at all[viii]. Not having enough to invest is the most common reason for the lack of investing. A major misconception about investing in stocks is that one must invest large amounts of money at a time, when in fact, steadily investing smaller amounts of money over time can be an effective strategy.
Taking the time to research investment options or consult with a financial advisor to better understand investing could empower many Americans to efficiently grow savings for large purchases and retirement.
Tips to Manage Your Money
To improve your financial literacy and money management skills, here are a few tips to consider:
- Create a budget. Look at how much money you have coming in each month, and allocate funds for known expenses, such as mortgage, groceries, phone bill, and car insurance. Next, set aside funds for a savings account that you can access in case of an emergency, such as an unexpected medical bill. Any money leftover can then be used as discretionary income
- Pay off debt. If you carry credit card debt, try to pay more than the minimum payment each month in an effort to pay it off completely. As mentioned earlier, debt and interest from that debt can cut into potential savings.
- Look at investment options to grow retirement savings. Research investment options that can help grow your retirement savings. Remember that it doesn’t take a lot to begin investing, and that you will reap the biggest benefits of starting early, and investing over time.
- Consult with a wealth advisor. A financial advisor can work with you to create a financial plan that is easy to follow. A qualified advisor can help ensure that you have money going into savings and investment accounts that will work for your financial goals, including buying a house or retiring by a certain age.
[i] Gallup Poll. May 2017. “Americans Still Say They Like Saving More Than Spending.” Web log. Gallup. http://www.gallup.com/poll/209432/americans-say-saving-spending.aspx?g_source=ECONOMY&g_medium=topic&g_campaign=tiles.
[ii] Gallup Poll. May 2017. “Americans Still Say They Like Saving More Than Spending.” Web log. Gallup. http://www.gallup.com/poll/209432/americans-say-saving-spending.aspx?g_source=ECONOMY&g_medium=topic&g_campaign=tiles.
[iii] Gallup Poll. May 2017. “Americans Still Say They Like Saving More Than Spending.” Web log. Gallup. http://www.gallup.com/poll/209432/americans-say-saving-spending.aspx?g_source=ECONOMY&g_medium=topic&g_campaign=tiles.
[iv] National Foundation for Credit Counseling. “More Than Half of Households Surveyed Have Credit Card Debt Over $15,000.” 2017. Web log. National Foundation of Credit Counseling. https://www.nfcc.org/half-households-surveyed-credit-card-debt-15000/.
[v] CreditCards.com Weekly Credit Card Rate Report. “Rate survey: Average card APR rises to all-Time high of 15.59 percent.” 2017. Web log. CreditCards.com. http://www.creditcards.com/credit-card-news/interest-rate-report-32217-up-2121.php.
[vii] Teachers Insurance and Annuity Association of America. “2017 TIAA IRA Survey.” 2017. Web log. Teachers Insurance and Annuity Association of America. https://www.tiaa.org/public/pdf/ira_survey_executive_summary.pdf.
[viii] Bankrate Money Pulse Survey, “Did you miss the stock market rally? You’re not alone.” 2015. Web log. Bankrate. http://www.bankrate.com/investing/did-you-miss-the-stock-market-rally-youre-not-alone/.
Dallas firm celebrates work anniversary of senior financial planner, former baseball pro
DALLAS ─ RGT Wealth Advisors congratulates Senior Financial Planner Brian Cloud for his five years of providing excellent client service at the Dallas-based wealth management firm.
As a certified financial planner, Mr. Cloud works with high net worth clients to develop a variety of wealth management options to best suit their complex planning needs.
“These five years have passed quickly,” Mr. Cloud said. “It’s an honor and pleasure to work with the clients of RGT Wealth Advisors, providing them with personalized advice for their specific financial needs. I look forward to continue growing the strong relationships I have with them.”
Mr. Cloud has always been interested in numbers. Before joining RGT Wealth Advisors, he worked as an analyst managing budgets for a construction company, and he focused on statistics when he played baseball with the Seattle Mariners. For more information on Mr. Cloud visit: https://rgtadvisors.com/bio/brian-cloud/.
“Brian’s background as a baseball player gave him a strong understanding of teamwork, one of our firm’s core values,” said Chuck Thoele, Managing Director at RGT Wealth Advisors. “He successfully collaborates with teams across our firm to provide his clients with excellent service and ensure that they have an integrated wealth management portfolio.”
RGT Wealth Advisors is a financial planning and investment advisory firm based in Dallas, Texas, with more than 30 years of experience in managing finances and investments for high net worth individuals and families.
The White House recently outlined its tax reform plan the administration hopes to officially roll out later this year. According to the outline[i], the reform plan provides “the biggest individual and business tax cut in American history,” but what exactly does that mean for you?
In this post, we’re breaking it down and explaining how it could potentially impact your investment strategy.
Tax Reform Goals
The current administration has identified tax reform as a tactic to grow our domestic economy amidst heavy reliance on economic globalization. By simplifying the tax code, the rationale is that middle-income Americans will be able to keep more money in their pocket, thus spending more, and businesses will be enticed with lower tax rates to keep operations stateside rather than overseas.
Individual Tax Reform
Middle-income families, those with an annual household income that is two-thirds to double the national median after incomes have been adjusted for household size[ii], may benefit from tax reform more than any other group. The proposed plan seeks to get this group of Americans to increase domestic spending by reducing tax brackets from seven to only three, and doubling current standard deductions of $6,300 for individuals and $12,600 for married couples[iii]. The proposed reform also provides for additional tax relief for child care expenses, a growing expense for many families.
Additional tax simplifications listed in the outline include protecting homeownership and charitable gift tax deductions, and repealing the so-called “death tax,” which can be more of a burden than a blessing for heirs by shrinking the size of an inheritance.
Tax reform could benefit individuals in this group by providing additional finances for savings and investment accounts. As people are living longer, retirement savings are being stretched further[iv], so extra money being invested can go a long way.
Business Tax Reform
As previously stated, the aim for business tax reform is to entice companies to bring operations back to the United States and keep them stateside. The proposed outline includes lowering the corporate tax rate from 35 percent to 15 percent, and establishing a one-time tax on trillions of dollars held overseas.
The cost savings companies experience from the proposed tax breaks could benefit stockholders of public companies from the short-term savings. However, there are still many unknowns, as attempting to separate from a globalized economic system such as factories and systems that are in place overseas and moving domestically, and hiring a new workforce takes time and could be costly.
What is Next?
It is difficult to predict if the proposed tax reform will pass through Congress later this year, but it is good to be mindful of how it has potential to impact your financial savings and investing plan.
[i] “2017 Tax reform for Economic Growth and American Jobs.” White House Tax Plan Handout. 26 April 2017.
[ii] America’s Shrinking Middle Class: A Close Look at Changes within Metropolitan Areas. Pew Research Center. 11 May 2016.
[iii] “In 2016, Some Tax Benefits Increase Slightly Due to Inflation Adjustments, Others Are Unchanged.” Internal Revenue Service. 21 October 2015.
[iv] Thoele, Chuck. Bulls, Bears & Basketball. 2014.
For Investors it’s Important to Know the Difference Between Scary and Dangerous
An annual rite of late spring/early summer is the outpouring of articles written by someone with “life experience” (i.e., someone, like me, whose youth is solidly in their rear view mirror) aimed at recent graduates and young adults. These articles, often transcripts of commencement speeches, are a noble attempt to impart a bit of hard-earned wisdom to those just starting out on their life’s journey. Last May, the Wall Street Journal published an article titled “A Dad’s-Eye View of Scary vs. Dangerous” written by Jim Koch, the founder of the Boston Beer Co. (brewer of Samuel Adams), which fit neatly into this mold. In the article Mr. Koch wrote that it is important for both parents and children to learn the difference between taking risks that are scary, but worthwhile, and risks that are dangerous. While this article is focused more on making big life decisions, it struck me while reading it that this way of looking at the world has some real application for investors as well.
It seems worthwhile to spend some time pondering issues that often make investors anxious or concerned and asking the question; is this simply scary or is it truly dangerous?
The idea of selling an investment that has gone up in value and using the proceeds to buy an investment that has gone down in value is often a scary one for investors. Investors often state that they want to buy more of the mutual fund or invest more in the asset class that has gone up. And it’s often difficult to get them to invest in mutual funds or asset classes that have suffered from recent poor performance. However, if there is a sound and well thought out investment plan in place, this sort of rebalancing enforces the discipline of buying when prices are low (after poor performance) and selling when prices are high (after strong performance). Over time a disciplined approach to rebalancing a portfolio will provide a better result for investors. So disciplined rebalancing is sometimes scary, but definitely worthwhile. Failure to rebalance effectively can actually be dangerous, as it may result in a portfolio that is inappropriate relative to the investors’ long-term goals, objectives and risk tolerance.
Selecting the appropriate investment vehicles with which to execute an investment plan is an important part of effective asset management. Oftentimes these decisions are difficult to make. If a manager or fund has performed well recently will it continue to be a good selection in the future? If it has a recent record of poor performance does that imply that it is a poor choice? Even though relying on an investment manager’s track record may provide a sense of comfort, overreliance on performance, particularly recent and short-term performance, in making investment decisions can be very dangerous for investors (hence the well-known disclaimer that past performance is not an indicator of future results). However, utilizing a more comprehensive approach to due diligence which focuses on an investment manager’s process, their people, operational effectiveness, compliance history, investment merits of their approach, and the consistent application of all of these variables over time should lead to better decisions. And sometimes these decisions may be scary, such as the decision to stick with an underperforming manager or investment when recent performance has been bad due to adverse market conditions despite the manager’s continued adherence to their investment mandate. The decision to sell an investment despite strong recent performance due to personnel changes at the manager level or asset bloat inside a mutual fund may cause fear of regret and compromise the decision making process. Having a disciplined investment selection process with a long-term perspective can be quite scary, but it is the appropriate approach to making investment decisions.
It should be apparent that a lack of transparency is not just scary, but also dangerous. The idea of transparency should apply to many facets of the portfolio. Investors should know what they own and they should understand the risks of their investments. They should also know what fees they are being charged and have a full understanding of how their advisors and portfolio managers are compensated. All potential conflicts of interest should be disclosed upfront by investment advisors. There should be transparency around the liquidity provisions of all investments. And investment performance should be reported in a clear and timely manner. The investment industry, like all industries, is rife with insider language and jargon. This can often be confusing, and scary, and will sometimes require an explanation. But if your investment advisor is not willing to take the time to answer your questions, clarify confusing terms, and provide clear and concise answers to your questions, then you should begin to question their commitment to providing adequate transparency.
Most of us know that a modest amount of debt, artfully applied, can be a useful financial tool. Using an appropriately sized mortgage with manageable payments make the home buying process much better for everyone. The same can be true for the use of debt on a company’s balance sheet. A thoughtful approach to capital structure can help companies grow and help them manage the uneven cash flows that most businesses face as they move through the business cycle. However, an improper use of leverage can become dangerous and scary for investors. Sometimes this leverage is apparent, as when margin is used on investment or brokerage accounts. Other times excessive levels of leverage can sneak into portfolios in more subtle ways. This can occur within investments that have inadequate levels of transparency, such as with hedge funds that use excessive leverage to boost returns on “hedged” arbitrage trades. It can also occur with real estate investments that use aggressive amounts of leverage, particularly if that leverage is based on inflated property values.
In today’s oversaturated world of the 24-hour news cycle being beamed to us constantly across multiple media platforms, the “News” is probably the scariest thing investors face today. This is only compounded when investment markets react quickly and violently to a news event. There are many examples of this overreaction every year. A great example from 2016 would be Brexit, Great Britain’s unexpected decision to leave the European Union. Markets across the world reacted negatively to the news. While Brexit may indeed have long long-term economic consequences, the long-term implications of Brexit will have far more of an impact on UK citizens than US investors. Given that well diversified portfolios are not dominated by investments that will be directly and adversely impacted by Brexit, these events seem to fall more into the scary category than the dangerous category.
We can think back to events like the “Taper Tantrum” or the “Flash Crash” to see markets that react violently and quickly but ultimately rebound in fairly short order. We should acknowledge that when big events lead to market corrections it is definitely scary. Anytime there are wild swings in markets over short periods of time investors should take the time to assess exactly how dangerous these swings are to the long term health of their portfolio.
The ability to distinguish the dangerous from the merely scary is a valuable skill for investors to have. Developing a well thought out investment plan will help will help provide perspective and hopefully lend some perspective to help you determine if something is truly dangerous, or merely scary. And having a trusted financial advisor with whom you can discuss these issues will provide even more help working through difficult market environments. Using these steps to distinguish between the scary and the dangerous should help you make more informed decisions and will hopefully will lead to better long-term financial results.