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Why Women Need to Plan Their Estate

The harsh truth is that we all leave this world eventually. What we do in our time here matters, and certain actions are crucial to protecting ourselves and our loved ones in the event of our death or incapacitation. 

No matter your net worth or marital status, everyone should plan their estate. Here, we take a look at four critical reasons this is especially important for women.

1. Women Typically Live Longer Than Men

Women outlive their male counterparts by several years, on average. This means that they need to make their assets last longer. It also means that wives tend to outlive their husbands, which results in them likely inheriting their husband’s estate and leaving them to make final decisions on their heirs. These are major financial decisions that impact women’s lives.

2. Most Custodial Parents Are Women

Approximately 84% of custodial parents are women. Parents of young children should plan for their continued care in the event of the unforeseen. Additionally, parents should plan for who will handle the child’s property until they are of age to make their own decisions.

3. Women are Business Owners and Professionals

Women blaze their own career paths and are dynamic business owners and leaders. Whether they are the top earners in their households or not, career-driven women contribute significantly to their household’s income and should be involved in the decision making of their assets. 

4. Some Women Take Career Breaks to Raise a Family

Not all women have an uninterrupted career history. It is still very common for family responsibilities to fall on women, leaving some to take a break from work to raise children. This break in work can reduce the amount of savings these women accumulate for their retirement. Therefore, an organized estate plan can help with transferring of assets. 

5. What Documents Should Every Woman Have in Place?

Essentially, estate planning is the process of creating documents that reflect how individuals want their personal and financial assets to be distributed after their death, or if someone becomes physically or mentally unable to make decisions while still alive.

Every woman should have these basic documents in place:

As trusted financial advisors, we want to help empower women to make these important financial decisions. If you don’t know where to start and are looking for guidance, please contact us today.

4 Retirement Options for Small Business Owners

There’s nothing like owning a business and being in charge of your own destiny. The freedom, the potential, the drive. Any successful business owner will tell you it comes down to having a good business plan. And if you want your business to succeed, shouldn’t you want the same for your retirement?

 

You might not have an employer-provided 401(k) plan, but that doesn’t mean you don’t have options to plan for your future. Here are four retirement strategies for small business owners.

  1. SIMPLE IRA

The savings incentive match plan for employees, or SIMPLE IRA, is one retirement plan available to small businesses. If your business has employees, this is a great option. In 2020, employees can defer up to $13,500 of their salary, pretax, and those who are 50 or older can defer up to $16,500 by taking advantage of a $3,000 catch-up contribution.

 

Employers can match employee contributions to a SIMPLE IRA up to 3% of the employee’s compensation. Additionally, employers can contribute 2% of each eligible employee’s compensation of up to $285,000 in 2020. Employer contributions are tax-deductible.

  1. SEP IRA

A simplified employee pension (SEP) is another type of individual retirement account to which small businesses and their employees can contribute. In 2020, employees can make pretax contributions of up to 25% of income or $57,000, whichever is less. Similar to a SIMPLE IRA, a SEP allows small business owners to make tax-deductible contributions on behalf of eligible employees, and employees won’t pay taxes on the amounts an employer contributes on their behalf until they take distributions from the plan when they retire.

  1. Roth or traditional IRAs

If you don’t have employees besides yourself, or your business doesn’t offer employee retirement benefits, Roth or traditional IRAs are options for you to save for your own retirement.

 

Roth IRAs let you contribute after-tax dollars and take tax-free distributions in retirement, while traditional IRAs allow you to contribute pretax dollars, but you’ll pay tax on the distributions. The most you can contribute to an IRA in 2020 is $6,000, or $7,000 if you’re 50 or older. You’re also able to contribute to an IRA on your spouse’s behalf.

  1. Solo 401(k)

Solo 401(k) plans, often referred to as SBO 401(k) plan, is a retirement savings option for small businesses whose only eligible participants in the plan are the business owners (and their spouses, if they are employed by the business too). It can be a great way for someone who is a sole proprietor or an independent consultant to set aside a decent-sized nest egg for retirement. These plans are popular options because they are relatively simple and inexpensive to set up. 

 

There are two components to the SBO 401(k) plan: employee elective-deferral contributions and profit-sharing contributions.

 

 

 

Unlike being an employee at a company, owning your own business doesn’t always come with a quitting time – business owners seem to be constantly working in some way or another. And some business owners might feel like retirement will be the same. Maybe they want to work in some capacity and never fully retire. Even so, saving and planning for your future is a good idea and could help relieve some stress should your retirement plan change down the road.

If you’re struggling with what retirement option to choose as a small business owner, give us a call. We’d love to discuss your options further and create a plan that’s best for you.

3 Tips to Help Women Kick Start Their Investment Strategy

The wealth gap between men and women is an issue we are passionate to change at Hiley Hunt Wealth Management. We want to empower women to be breadwinners and exceed their financial goals. 

Historically, women have invested far less than their male counterparts, and tend to save less as well. This is unfortunate because women tend to live longer than men, are disproportionately more likely to care for their children and aging relatives, and earn less from their careers thanks to the gender pay gap – which may affect retirement benefits from Social Security.

The irony of it all is that studies show that women are actually better at investing than men, but do it much more infrequently. Let’s take a look at ways to get started investing. 

1. Start investing in employer-supported 401(k)s and IRAs

One of the easiest first steps to investing is taking advantage of employer-offered 401(k) plans. Many workplaces also offer a contribution matching program. This is free money offered to you that you should take advantage of. 

Self-employed? You still have retirement options. The most common retirement accounts for freelancers and those that are self-employed are SEP IRAs, Simple IRAs, and Individual 401(k)s. Similar to retirement accounts offered by employers, these retirement plans have two factors in common: up-front tax breaks and tax-deferred saving, meaning you don’t pay taxes until you withdraw the money years later in retirement (the Roth version of the individual 401(k) is slightly different.) Talk with your tax professional to determine which type of qualified plan is the best fit for you!

2. Diversify your portfolio

At HHWM, we believe that putting all your eggs in one basket isn’t a great way to grow your investments. To help minimize risk while continuing to grow your investments, it’s typically advised to diversify your investment portfolio. There are many options for investing. Here are just a few popular choices. 

 

 

Of course, your investment strategy will likely look different than someone else’s. If working with a financial advisor, they will be able to explain your options and match you with the right investment strategy for you and your financial goals.

3. Look for an advisor you feel comfortable with

This is a critical step in your investment journey. You wouldn’t feel comfortable going to a doctor you don’t trust, so use that same judgment when looking for an advisor in charge of your financial health. Look for someone who aligns with your values and can help provide the framework for your financial plan. You want someone who will understand your life situation and can set you on a path to meet your financial goals. 

 

Knowledge is the key to gaining control of your financial life. We help women understand their current financial situation, define their values and goals, and create a plan to begin moving forward.

The Financial Lessons Grandparents Can Teach Their Grandchildren

Teaching our children the importance of financial responsibility is one of the most important life lessons that will follow them into adulthood. It’s never too early to show kids the habit of saving money and spending it wisely. It’s important to show children that money should not control you and that being financially responsible can be very empowering. 

 

As parents, we typically have a very disciplined approach to raising our children. As kids get older, they naturally become less receptive to this guidance, which can make teaching life lessons challenging. Other relationships children may have, like with their grandparents, can sometimes produce better opportunities for teaching important lessons like financial management. And likewise, grandparents tend to be less disciplined with their grandchildren than they were when raising their children. 

 

If you’re a grandparent that has a good relationship with your grandchild(ren), you have a good opportunity to instill this life lesson onto them. So what can you teach them about fiscal responsibility? 

 

Here are three things to teach grandchildren about money.

1. Saving

Encouraging children to save money at an early age is one of the best ways to teach them about financial management. Rather than just telling them they should save money, share with them a personal story about how you saved money when you were younger. Did you work a summer job during your school years that helped you save up for a new bike or car? Did you stash away birthday money for something special? Your grandkids will love hearing these personal stories and it will give them a more memorable lesson of saving money.

2. Cutting costs

This may be especially top of mind right now as we currently live through the coronavirus pandemic. Cutting costs and finding thriftier ways of living may remind you of another time in your life when your family had to do the same. Talk to your grandchildren about times when it was important to control expenses and how that affected you in your life. Again, sharing personal stories will connect them more strongly with the lesson being taught.

3. Social responsibility

It should also be taught that having wealth and being financially responsible means it is an opportunity to help those less fortunate. Helping others by alleviating their needs is an important component of being socially responsible. Share with your grandchildren about ways you have helped others and organizations you are a part of that focus on helping others. It’s a lesson in empathy to teach children that being financially responsible can put them in a position to help others.

 

Being a family steward doesn’t need to rest solely on a working parent. Grandparents can play an important role in teaching children empowerment and how financial responsibility plays into that. By practicing good money habits, we put ourselves in charge, which is a powerful thing. 

 

We are strong advocates of family stewards and we can help set goals around planning for a family’s future and leaving a legacy for your family. Connect with us today so we can help you on your mission to focus on the well-being of your family.

Getting Real with Your Retirement Planning: Understanding Sequence Risk

 

Clearly, there is a lot to think about when planning for retirement. While we have a degree of control over many of the choices involved, there’s one big wild card called sequence risk.

 

Sequence risk is the risk that you’ll encounter negative investment returns in early retirement. This is an important consideration, because the random sequence – or order – in which you earn your returns early in retirement can have a significant impact on your lasting wealth. Simply put, a retirement portfolio that happens to experience positive returns early in retirement will outlast an identical portfolio that must endure negative returns early in retirement … even if their long-term rates of return end up the same.

 

Since nobody can predict which return sequence they’ll experience early in their retirement, every family should prepare for a range of possibilities in their realistic retirement planning.

 

The Significance of Sequence Risk

It’s no secret that global stock markets are volatile. While long-term average annual returns may be in the range of 7%, markets rarely deliver this exact average any given year. Soaring one year, plummeting the next; we never know for sure how far above or below average each year will be.

 

During your career, you’re mostly spending earned income, while adding to your retirement reserves as aggressively as your plans call for. As long as you stay the course – benefiting from the upswings and enduring the downturns – tolerating market volatility is just part of the plan.

 

In fact, when you’re still accumulating wealth, market downturns give you the opportunity to buy more shares than you otherwise could when prices are higher. When the market recovers, you then have more shares to recover with, which ultimately strengthens your portfolio.

 

But then, you stop working, and start spending your reserves. This has an opposite effect. Now, when stock markets decline, you may need to sell shares at low prices, which means you’ll have to sell more of them to withdraw the same amount of cash. Even though the market is expected to eventually recover and continue upward, your portfolio will have fewer shares with which to participate in the recovery. This hurts your portfolio’s staying power. It won’t be able to bounce back as readily as when you were adding shares to it, or at least not taking them away.

 

Sequence Risk Illustrated

Consider two hypothetical retirees, Joan and Jane:

 

With so much in common, you might assume their portfolios would perform similarly. But what if Joan happens to enter into retirement during a horrible market? Let’s imagine her portfolio returns –30% and –20% in her first two years, while Jane earns 7% both years, and (implausibly) every year thereafter.

 

Markets recover nicely for Joan after two years so, again, she ultimately earns the same average 7% annual return as Jane. But sequence risk takes a heavy toll on Joan’s remaining shares. She ends up with only about $150,000, while Jane’s portfolio grows nicely to around $2 million.

 

 

If we take the same two portfolios and same two sequences of returns – but eliminate the $50,000 annual withdrawals –Joan and Jane would both end up with about $5.4 million after 25 years. This illustrates why sequence of returns is usually not nearly as significant when you’re still accumulating wealth, but can matter quite a bit in the early years of depleting your portfolio.

 

Managing the Sequence Risk Wild Card

Sequence risk should NOT change your overall approach to investing. As 2020 has clearly shown us, you never know what’s going to happen next. Crashes usually occur without warning, while some of the strongest rebounds arrive amidst the darkest days.

 

So, whether you’re 20, 40, 60, or 102, we still recommend building and maintaining a low-cost, globally diversified portfolio that reflects your personal goals and risk tolerances. We still advise against trying to pick individual stocks or react to current market conditions. We still suggest you only change your portfolio’s asset allocations if your personal goals have changed – never in raw reaction to changeable market moods.

 

What can you do to mitigate sequence risk if it happens to you?

 

Keep working. If you are willing and able, you might postpone retirement, or even return to the workforce. Even part-time employment can help offset an ill-timed sequence of negative market returns. If your circumstances allow, you may be able to not only avoid spending retirement reserves during down markets, but even add more in (buying at bargain prices).

 

Spend less. Were you planning for higher investment returns than reality has delivered? Since your portfolio is most vulnerable to negative sequence risks early in retirement, you may want to initially spend less than planned, to give your portfolio the fuel it needs to replenish itself.

 

Tap other assets. When you retire, you typically have several sources of income to draw from. You may have traditional investment accounts, retirement accounts, Social Security, or pension plans. Your investments are usually divided between stocks and bonds. You may have equity in your home. You may have, or be in a position to create an annuity. You may have cash reserves. If you encounter stock market sequence risk early in retirement, you might be able to tap a combination of your non-stock assets for initial spending needs. This can mitigate the hit your portfolio will otherwise have to take if you must liquidate shares of stock.

 

Consult with a financial advisor. Sequence risk is usually not the only consideration at play in retirement planning. There are taxes to consider. Estate plans to bear in mind. Carefully structured investment portfolios to maintain. Logistics to learn. All this speaks to the value an experienced advisor can add before, during, and after this pivotal time in your financial journey.

 

At Hiley Hunt, we help our clients prepare for and mitigate sequence risk within the greater context of their goals for funding, managing, spending, and bequeathing their lifetime wealth. Please be in touch today if we can help you with the same.

5 Time Management Tips for Single Working Parents

Being a parent is hard. Being a single working parent can feel insurmountable. Feelings of guilt about not being able to dedicate as much time as you’d like to either your work or your family is common and can be frustrating and leave some feeling helpless. We aim to support single working parents on their financial journey and want to see them succeed in all aspects of their lives. 

 

Here are five tips to help single working parents better manage their time.

1. Find a family-friendly employer.

With advancements in technology, people can stay connected to their work virtually anywhere. This has helped some workplaces adopt a work-from-home policy. Whether they allow their employees to work remotely on a regular basis, or as needed in case of a sick child or other circumstance, employers who understand the needs of a family and can be flexible enough to support employees in this way is tremendously valuable. 

2. Let Go of Perfection

All parents should adopt this tip. It’s easy to think you’re going to be a perfect parent before you have kids. Then reality hits. Technology can be great, but the rise of social media has led to impractical standards and unrealistic expectations. You don’t need to strive for perfection as a parent. Messes will be made, cereal can be served for dinner, and skipping bath night is just fine.

3. Outsource What You Can

Grocery shopping is one of those time-consuming activities that we all have to do. Between making a grocery list, driving to the store and shopping, and then returning home to unload groceries, you could spend hours every week on this chore. There are many stores and apps that offer grocery delivery. If this is within your budget, it’s a valuable service to give you back some time. Other services you can outsource house cleaning and lawn care.

4. Prepare Ahead of Time

Mornings for a working parent can be stressful. Between getting yourself ready for work and your children off to school, there’s a lot to do. Take some of the stress out of the mornings and prepare what you can the night before. Layout clothes for you and your children (if you are still dressing them). Pack lunches and round up work/school supplies. If you’re able, load bags into the car the night before. It may only save you 15-30 minutes in the morning, but it will ease a lot of stress. 

5. Set Attainable Goals

It’s important to remember that you can’t do all the things for everyone. So when it comes to planning your daily to-dos, keep things achievable. Don’t overload your schedule so that you know you won’t get to everything, which only makes you feel like a failure. Schedule in family time and time for yourself. 

 

While we support all of our clients on their financial journey, we are especially attuned to the challenges and dynamics of women. We want to help women in transition make positive financial decisions that will impact their future. If you’re in this place and you don’t know where to start with your financial investments, contact us and we’d love to guide you through.

How To Be Positively Skeptical Part 4: Check the Facts Before You Act

“You can outsource expertise but never your understanding, especially when it comes to your finances.”

— Ben Carlson, “Don’t Fall For It”

 

As we covered in the most recent installment in our “How To Be Positively Skeptical” series, there are only so many hours in the day to do all the fact-checking you’d like to when deciding who and what to believe.

How do you approach this never-ending challenge? We suggest conducting your due diligence like a tournament. First, eliminate the weakest contenders, then conduct deeper due diligence on the finalists.

 

Truths and Dares

This does NOT mean you should disregard all opposing viewpoints. As you may recall from our last piece, confirmation bias causes us to favor information that supports our beliefs and ignore that which contradicts them. But what if your beliefs are mistaken? One of our goals is to combat confirmation bias by considering any reasoned argument that:

  1. Is well-informed, with an objective perspective and minimal conflicts of interest
  2. Prioritizes judicious decision-making over strident calls to immediate action
  3. Inspires a thoughtful approach to touchy topics, instead of feeding fervent fires

 

In other words, when considering whether a claim is credible, it doesn’t matter whether or not you agree with it. What matters is whether it represents a genuine pursuit of the truth.

Be particularly wary when you come across startling information – good or bad – filled with superlatives. As this Wall Street Journal article reports, we are all subject to extremity bias, or “our tendency to share the most extreme version of any story, to keep our listeners rapt.” Thus, even if a provocative claim contains an element of truth, it may be overblown.

Once you’ve eliminated the weakest claims, you can fact-check the rest.

 

Start With a Reality Check

Does a claim make you wonder, “Really?” Especially if it’s a relatively extreme position, a good first step is to refer to one or more fact-checking resources, such as Snopes, Vote Smart, or FactCheck.org. While none of these are infallible, you should be able to at least filter out any flagrantly false claims before sharing them with others or acting on them yourself.

 

Just Google It

Next, use your favorite search engine to learn more. Don’t just depend on the most popular hits. Just as you wouldn’t turn to tabloids to tell you whether aliens really exist, you should avoid the tabloids’ virtual equivalents and turn to reputable sources offering educated insights.

Examples of more robust sources include academic and similar philanthropic institutions, respected journalists, government publications, quality trade organizations, and subject matter experts with appropriate credentials.

As we’ve covered before, be sure to consider the source’s dominant motivations, their depth of experience, and their thoughtful vs. emotional approach. Ideally, identify multiple credible sources to substantiate, strengthen, and/or clarify any given claim.

 

Seek the Source

Merely stating a fact does not make it so! When sharing facts and figures, the author should explain how they came up with them, and/or cite a reputable source. Beware if it’s instead left unclear just where the claim came from.

Whenever possible, take the time to verify and confirm the validity of original sources. If the author has not provided the links, an Internet search often uncovers them. By the way, don’t be too daunted to read through academic studies or similar reports. Like any skill, it gets easier over time. Plus, cited information is often found in the study’s abstract, introduction, or conclusion.

 

Academically Speaking

While we’re on the subject of academic research, let’s take a closer look at its use, and potential abuse. At least in theory, academics are motivated by discovering and publishing their most objective findings. As such, their findings are typically the gold standard for evidence-based understanding.

That said, even academics are human. They are subject to the same biases and misjudgments as the rest of us. Highest priority should be given to studies that exhibit a disinterested outlook; are based on robust data sets; can be reproduced by others and repeated across multiple environments; and have been published and rigorously peer-reviewed.

That last point is important, since an academic’s peers are best positioned to spot any flaws the author(s) may have overlooked. Consider this Scientific American report, describing how a set of psychologists peer-reviewed a series of studies on how social media impacts our youth. While it may be headline-grabbing to publish evidence suggesting smartphones are bad for children, this peer review suggested that misleading data analyses and overstated results needed to be replaced with “a much more nuanced story.”

 

The Advisor’s Essential Role: Separating Fact from Fiction

If we’ve not made it clear by now throughout this series, our own and others’ behavioral biases present among your greatest hurdles in separating fact from fiction.

As information consumers, we’re inherently susceptible to falling for fake news (especially when we’re tired, by the way). Our challenge is further aggravated by the droves of information out there that is unwittingly or deliberately false.

We hope this series has strengthened your “B.S. detector” as you make your way in the world. At least when it relates to financial planning and investment management, we also consider it among our greatest roles as a financial advisor to help families strengthen their financial literacy, see past their factual blind spots, and separate wealth-building facts from fantasy.

Please let us know if we can help you with the same.

Jason and Andrew Reflect on the Past Few Months

The past three months has been a time of reflection for both Andrew and Jason, personally and professionally. Here are our latest thoughts.

Andrew Gets a New Perspective on Daily Life and the Power of Words

The past three months has offered me a tremendous time of reflection, both personally and professionally. With Landry turning two in July, it made me realize how the major life change of having a child has changed my perspective and how I experience everyday life.

 

One of the true joys of being a father is getting to experience things through a child’s eyes, no matter how routine. For example, there is a pond in our neighborhood that I have jogged around countless times but never have I thought about jumping in and swimming in it. But with the pools closed, neighbor kids have taken to swimming in the pond. And I decided this is an experience I want to have with my daughter, so I strap on her lifejacket and jump in the murky water experiencing such a simple joy.

 

Another reflection I have had during this time is how much words matter. As your children grow and start speaking words, it makes you realize how speaking to your kids and how speaking in general produces an effect. Speaking is an informed way to communicate. When you have kids in your home, it’s like having a little mirror that shows you how much words matter.

 

Reflecting on our business, even though it’s been a challenging time to navigate the market cycle of a recession, it’s given me a proud fatherhood moment to watch how our clients have responded to the situation. It’s been the culmination of over a decade of work of how we’ve counseled our clients and laid out a financial strategy to see it worked out in real life. The recession tests the mettle of our resolve, and it’s been satisfying to watch our clients taking our counsel. It gives me reassurance that they trust us as advisors and our commitment to their financial wellbeing.

Jason Enters Into a New Phase of Parenting and Finds Silver Lining During Pandemic

It’s strange to say that I’ve found some bliss during such a scary and challenging time of the current health crisis and volatile cultural climate, but me and my family have found joy in this time of togetherness. Don’t get me wrong, we’ve had hard days. But the delight has come from hitting the pause button of our everyday lives in which we were running from one activity to the next and just living in the togetherness.

 

During this increased time together, it has made me realize how my children have transitioned from blissfully naive youngsters into questioning young minds. Over the past few weeks, our family has had intentional conversations about what is going on politically and in the news and it has made me realize that I’ve taken on a new role within fatherhood. My job as their father is to help them understand the situation by laying out the facts and my input, but also giving them space to form their own opinions and apply critical thinking. It’s been a realization of just how quickly our kids are growing up and that I’ve been grateful for these past few months to have the time together to have these meaningful moments. Without so much competing for their attention, it’s been nice to just enjoy this time as a family.

 

One hobby that the family has gravitated towards during this time is cycling. With the weather turning nicer, it’s been nice to get out on the trails for longer bike rides. It’s fun to see my son overcome the challenge of a long ride and accomplish something new. Our family is looking forward to a trip to Colorado at some point this summer to enjoy the outdoors and hit some bike trails out there.

 

When thinking about Hiley Hunt Wealth Management, for me, it’s been gratifying to watch the relationships that we’ve built with our clients thrive during this time. We’ve had a consistent process and message from the beginning, and to watch that click with our clients and even be repeated back to us has been very validating to me that our partnership is meaningful.

 

One of the greatest compliments I receive from clients is when they tell me they aren’t worried or feel good about what is going on economically because of the relationship they have with us and the plan we’ve provided them. Our mission is to help people have a better relationship with their money and the best way to do that is to help them understand what is happening and to have a plan so that thinking about your finances doesn’t dominate your day-to-day thinking. It’s been very fulfilling to watch our client relationships and mentorship flourish during this time.

 

How To Be Positively Skeptical Part 2: Understanding Your Emotions

“[T]he challenge for all investors is to consume the news without being consumed by it.”

— Jason Zweig

 

In a recent post, we introduced our multipart series on the importance of separating fact from fiction – as an investor, as well as in your everyday life. Today, let’s talk about your emotional reaction to unfolding news, and the impact that can have on your financial well-being.

The Usual Emotions in Unusual Times

As fate would have it, we introduced this series earlier this year, before COVID-19 seized almost every headline around. If anything, current events have made this series even more important. Thoughtful, sober answers to our most pressing questions must now compete against a deluge of emotional misinformation that can be as virulent as the ailment itself.

First of all, there’s nothing wrong with having emotions – even strong ones.

For example, many of us may be grieving the loss of the “normal” life we used to have just a few months ago. It’s important to acknowledge these feelings. In a recent National Public Radio piece, behavioral counselor Sonya Lott explains how unattended grief can impair “every aspect of our being – physically, cognitively, emotionally spiritually …” and financially, we might add. Lott says, “We can’t heal what we don’t have an awareness of.”

In other words, emotions are not only unavoidable, they’re essential. But remember:

 

When you put your feelings in the financial driver’s seat, they will steer you toward what your instincts would prefer, rather than what reason might dictate.

 

Behavioral Finance and Emotional Investing

There is an extensive field of study dedicated to understanding how our instincts and emotions often interfere with our ability to make rational financial decisions. This study is called behavioral finance. We’ve written a separate report describing key findings from behavioral finance. Suffice it to say here, every investor faces strong, hardwired temptations to:

 

On that last point, words alone can create a potent brew of emotions. Guns, abortion, climate change, and immigration probably generate a rise out of you, one way or the other. The same goes for financial catchwords: crashing, soaring, crisis, and opportunity.

Strong feelings, while natural, WILL create cognitive blind spots in your reasoning. Add the speed and omnipresence of the Internet, and it becomes even easier to lead with your emotions.

 

“There’s no room for facts when our minds are occupied by fear.”

— Hans Rosling, Factfulness

 

Emotional Marketing for Better and for Worse

The power of people’s emotional response is so strong, academics like Wharton School’s Jonah Berger have written books on how marketing teams can appeal to them – for better or worse.

In his book “Contagious,” Berger describes six triggers companies can use to amplify their marketing messages, including playing to your emotions. In this podcast, he observes: “Companies recognize, ‘Hey, if we can get people to feel emotional, we’ll get them to talk and share.’ … You need to design content that’s like a Trojan horse. There’s an exterior to it that’s really exciting, remarkable and has social currency or practical value. But inside, you hide the brand or the benefit.”

Emotion-triggering communications aren’t inherently wrong or bad. Your favorite causes use them to nudge you into giving more generously. We ourselves use them in messages just like this one, to encourage you to embrace your own best investment interests. You may not realize it, but you probably use them as well, to advance your own heartfelt beliefs.

Unfortunately, not every application is as well-intended. Profit-hungry wolves on Wall Street won’t think twice about preying on your hopes and fears. Popular and social media alike are forever awash in fervent calls to action. Identity thieves are the ultimate masters of emotional trickery in their quest to rob you of your wealth.

Powering Past Your Emotions

So, as an evidence-based investor, how do you navigate past these and many other emotional traps? It can help to have an objective advisor point out your own behavioral blind spots. But you can help yourself as well.

Has something you’ve seen, heard, or read left you “stirred up”? Again, we’re not suggesting you should repress every feeling. But the more aggressively an appeal tugs at your emotions – in fear, anger, excitement, or elation – the more important it is to avoid being consumed by it.

Especially if it involves your financial well-being, we strongly recommend hitting the pause button before making any next move. Take your emotional “temperature.” Wait for the heat to subside. Most importantly, take some time to conduct extra due diligence before taking the bait.

 

What kind of due diligence? That’s what we’ll cover in part 3 of this series.

 

 

1st Quarter 2020 Update

“What the imagination can’t conjure, reality delivers with a shrug.”

—Trumbo (movie voice-over)

Brace yourself. Quarterly reports are highly, highly likely to leave you feeling at least a little disheartened. No matter how much we’ve blathered on about preparing for perilous times like these, planning for it versus actually enduring it is about the same as watching a tornado on YouTube versus being swept into one in real time.

And yet, we stand by our advice: For emotional and financial turbulence alike, your best bet when you’re in the eye of a storm is to hunker down, and trust in preparations already made.

If you’re comfortable with how we’ve been managing your wealth so far, expect more of the same. As your steadfast fiduciary advisor, we will continue to help you implement the kinds of investment opportunities that make sense for you and your portfolio. These may include:

If, on the other hand, you’ve begun to seriously question your course, think of current conditions as a stress test. Is the risk tolerance you thought you had holding up for you, for real?

Ask yourself objectively: Can I tough out the fears I’m feeling right now? If so, we encourage you to stick with your existing investment allocations despite the angst.

What if you decide your portfolio is no longer appropriate for you? If that’s the case, let’s get together promptly to plan your next steps. Above all, your wealth should be structured to enhance your personal well-being. If that’s not what’s happening, we welcome the opportunity to help you adjust your portfolio accordingly.

Another question often asked during market extremes goes something like this: I’m okay with my portfolio mix, but why not get out of the markets temporarily until the worst is over?

Whether we leave your portfolio as is, or help you permanently reduce some of its risk exposure, we will never recommend trying to accurately time when to cleverly get out of, and safely jump back into volatile markets. While nobody knows exactly when a recovery will occur, history has informed us of what typically happens when it does. This recent Wall Street Journal piece explains, using the bull market that began back in 2009 as an illustration (emphasis ours):

 

“A surprising share of a new bull market’s returns pile up in its very early stages when people are most fearful. Take the one that ended last month. Putting $100,000 into an S&P 500 index fund on the day the bull began on March 9, 2009 and selling at last month’s peak would have seen that turn into $630,000 including dividends. Waiting just three months to make sure it wasn’t yet another head fake would have earned you only $450,000.”

In other words, while most of us are still assuming there’s no hope in sight, the markets can quietly and often dramatically make their big come-back … at least for those who have kept a portion of their wealth invested in them.

As always, without the ability to see what is only apparent in hindsight, we encourage you to focus instead on that which we can control. Right now, that is mostly doing all you can to keep yourself and your loved ones out of harm’s way. Please let us know how we can help.

Work Looks a Little Different These Days

Like the rest of the country, our lives at Hiley Hunt Wealth Management have shifted from the weight of COVID-19. Our office doors have closed and we are working remotely from our homes like so many others across the country. While being confined inside, we are grateful for the technology that allows us to continue to provide excellent service and communication to our clients, and stay abreast of the financial impact of the coronavirus. 

We wanted to give you an update on how we are functioning now that COVID-19 restrictions are being felt by everyone in the Omaha community. 

 

Life at the Hiley Office

Jason has been enjoying the view of the walking trail around Memorial Park from his home office, and shares his workday with his wife, Susie, who continues to assist in her capacity at Hiley Hunt Wealth Management, along with her mindfulness initiatives with schools and other organizations around Omaha. His children, Carter (age 12) and Elena (age 10), have transitioned to e-learning as they wrap up sixth grade and fourth grade. Willow, their 10-month-old bichon puppy brings a level of entertainment during this quarantine time, and can sometimes be heard on calls with clients!

While Jason and his family adjust to a new normal, some of the highlights of working from home are family lunches, tennis breaks in the driveway, and walks around the neighborhood with his wife once the markets close.

 

A New “Coworker” in the Hunt Office

Andrew’s home office is set up perfectly to support his work, complete with an extra monitor and comfortable chair. But, given that his wife, Liz, is also working from home, she has laid claim to that location. Instead, Andrew has settled into the dining room table, working from his laptop, but finding the silver lining in all the natural sunlight coming through the bay windows. 

Parents to an almost-two-year old, The Hunts are fortunate in that their childcare has not been affected. Grandma lives just a few blocks away, so Landry has been able to continue her routine by having grandma watch her during the workday. As anyone with toddlers at home can attest, work would be nearly impossible to get done with a little one running around. 

 

Technology Keeps Us Connected

Even though our work environment looks a little different these days, we both agree that technology is what empowers us to be able to stay up to date on the news, the economic environment, and manage the portfolios of our clients. Just a handful of years ago it would have been so much more difficult to provide seamless service to our clients in this type of situation. With the advent of accessible and affordable video conference technology, many of our clients might not even notice that we are not in the physical office! 

While technology has been an incredible resource for our business, we both miss the in-person meetings with clients that we look forward to resuming again when it is safe to do so. Until then, we are always available via phone, email, or video conference. Stay safe and be well!

16 Things You Can Do To Prepare for the Next Recession

Why are people more afraid of flying than driving, even though car wrecks are far more frequent? As one academic suggests, “in a car, at least I know when to brake. In a plane, I have no control.”

This might also explain why many investors want to hit the brakes if they fear a recession is on the way. We’ve got no control over when the next one may occur, or how markets will react when it does. Still, even though your best bet is to buckle in and ride out this sort of market turbulence, it’s hard to do absolutely nothing in response.

Rather than trying to react to market mood swings by switching up your investments, here are 16 actions you can take instead. Each is within your control, and any of them can add real value to your financial well-being. As the late, great financial economist Peter L. Bernstein once said, “it’s not your wealth today, but it’s your future that you’re really managing.”

 

Preserve

  1. Reduce debt. Pay off credit card balances and other high-interest loans.
  2. Cut unnecessary costs. Cancel subscriptions or services you haven’t used in months (magazines, streaming services, club memberships, credit cards, etc.).
  3. Negotiate on the rest. Manage insurance and other ongoing costs by seeking periodic competitive bids. Negotiate with vendors to reduce “fee creep.” Be a squeaky wheel!

 

Protect

  1. Freeze your credit. Shut out identity thieves with a freeze on your credit reports. It’s now free to freeze, and temporarily unfreeze your credit reports when needed.
  2. Freeze your kids’ credit. Unfortunately, kids are prime targets for identity thieves. Create and lock down their Social Security Number and credit reports, before anyone else does.
  3. Keep an eye on things. Order and review your free annual credit and Social Security reports.
  4. Establish a Trusted Contact Person (TCP). Name a TCP as an extra line of defense for your investment accounts. If your account custodian feels you are being financially exploited, they then have a back-up person they can talk to about some of their concerns.

 

Prepare

  1. Establish or increase your retirement plan contributions. The more you invest toward retirement (or similar goals), the better you can employ compound interest and market returns to accelerate your efforts – especially if your employer matches your contributions.
  2. Set up or beef up your emergency/rainy-day fund. It’s great to be investing toward tomorrow. But in an emergency, you may need cash today. Be sure to set enough aside, so you won’t need to take costly loans or sell holdings at inopportune times.
  3. Revisit your estate plans. Even if you’ve already established your estate plans, if it’s been a year or more since you’ve looked at them, odds are they’re due for a refresh.

 

Simplify

  1. Declutter your portfolio management. Over time, most families end up with a confusing array of investment accounts across multiple custodians. Where possible, organize your accounts across fewer platforms, so you can better manage your moving parts.
  2. Unsubscribe from something. You may also have accumulated hordes of e-newsletters through the years. Some may be useful, but many others may merely distract. Pick a few you never read anyway, and unsubscribe (or, if the source is suspicious, mark them as junk).

 

Learn

  1. Advance your financial literacy. Books, podcasts, classrooms … financial literacy pays for itself, and then some. (Do beware of mass-mailed sales pitches, posing as “educational” forums.) Want some recommendations? Let us know. We’ll share some of our favorites!
  2. Educate your kids. Budgeting, goal-setting, spending … instill the financial basics early on to strengthen your kids’ future financial independence, as well as your own.
  3. Talk to your aging parents or adult children. A few simple conversations can enhance your understanding of one another’s goals and values, and reduce unnecessary expenses when making multigenerational financial decisions.

 

Delegate

  1. Hire a fiduciary advisor. There are so many effective actions you can take to contribute to your total wealth, we’ve barely scratched the surface. None of them are terribly time-consuming in isolation, but it can feel overwhelming to consider them as a whole. Plus, a coordinated effort usually yields the best results.

 

That last point is exactly why we founded Hiley Hunt Wealth Management. Managing your investment portfolio through thick and thin is part of it. But our greater goal is to help you oversee all the variables we can control in your financial journey. In so doing, we’re also preparing you to move more smoothly past the market’s inevitable – and uncontrollable – rough spots.

What else can you do to “recession-proof” your wealth? Contact us today to learn more.