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Lauren’s blog covers topics that impact your finances, your family, and your future. Is there a topic you’d like Lauren to tackle? We’d love your suggestions and feedback.

Wall Street has gone wild! Is it finally time to change your investment strategy?

Wall Street has gone wild! Is it finally time to change your investment strategy?

It’s a strange time for investors.

Consider this: Just last week Gerry, a 65-year-old recent retiree, asked me if she should take on more risk in her portfolio. “The market is doing so well,” she said. “I feel like I’m missing out on all that growth.” My answer was simple. “No!” I explained that her strategy had been very carefully built to support her long-term financial goals—not just to grow her invested funds. It was an important conversation, and wow, is it a good thing she has an advisor to talk her out of emotional decision-making! Just imagine if she’d decided to gamble with her assets and take on more risk just a few days ahead of Monday’s volatility.

Of course, in the face of this week’s rather wild ride in the stock market, you may be asking yourself the opposite question: “Have I taken on too much risk?” My answer to you is the same today as it was for Gerry just one week ago. No! That is, of course, if you have a well-constructed financial plan already in place.

Whether the market is flying high or taunting your emotions with new lows and some bumpy volatility, here are four things every investor should keep in mind:

  1. Investing is not a stand-alone activity.  When the stock market is in the news (which it almost always is), it’s easy to forget that investing is just one piece of your overall financial life. A good financial advisor will work with you to look at that and everything else. What are your goals? What does your personal balance sheet look like? If you haven’t already, how soon do you plan to retire? How long can your existing portfolio provide a reasonable income? How much debt do you have? Do you have a sufficient emergency fund? The answers to these questions determine how much risk you can afford to take when investing. When a new client tells me she only wants to talk about investments and not the rest of her financial life, I know we have some important work to do! (Learn more about focusing on your financial big picture in my blog, Cold, hard cash! (Are you paying attention?).
     
  2. A balanced portfolio will rarely perform as well as the DJIA—or as poorly.  The Dow Jones Industrial Average (DJIA) is an average comprised of just 30 stocks out of a universe of thousands. In contrast, your portfolio includes a diverse menu of different asset types that each play a particular role within your portfolio. Stocks address your need for growth. Bonds address your need for stable income. Cash addresses your need for liquidity. How those assets are balanced—or allocated—in your portfolio depends on how long it will have to serve as your retirement paycheck, how much you’ll have to draw each month to sustain your lifestyle, how many years your assets have to grow, your legacy goals, and more. If your IRA goes down as stocks go up, don’t despair. Rest assured that your portfolio is balanced and diversified to meet your needs.
     
  3. Your best investment in any market is to pay off debt.  Debt is a huge problem in the US. According to this study by WalletHub, the average indebted household held $8,600 in outstanding credit card debt in 2017, and total household debt broke a new record of just under $13 Trillion.[1] If your portfolio is what makes your financial life secure, debt is what does the opposite. While “good debt” such as a home mortgage, student loans, and business loans generate benefits over time, “bad debt” poses serious risk to your financial health. Credit cards, auto loans, and other revolving debt reduce your income, add no value to your wealth, and force you to pay more every month for an item that is losing value. If you are carrying bad debt, use a debtsnowball to reduce and eliminate the debt you have today and avoid taking on more debt in the future. (For more on how debt can impact your future, read my blog There’s no such thing as an unexpected expense.)
     
  4. Your goal is to make work optional and sleep peacefully at night—not make as much money as possible.  It’s so easy to forget the endgame. We see the stock market hitting record highs or taking record dives, and it distracts us from the real goal of financial planning. Ultimately, everyone wants to have enough assets to support themselves and their family comfortably for the rest of their lives. While the definition of “enough” varies widely (check out John C. Bogle’s fantastic book, Enough: True Measures of Money, Business, and Life, for more on that important topic), a comprehensive financial/life plan can remove money stress by giving you the confidence that work will be optional someday and you can sleep peacefully knowing that your finances are secure today and tomorrow—independent of market volatility.

I have a colleague who likes to joke that he has the gift of “20/20 hindsight.” Don’t we all? It’s so easy to say, “I knew it all along!” Knew that the market was overvalued. Knew that you should have held on to Apple stock. Knew that your friend’s new boyfriend was a creep. The truth is you didn’t know it all along; you only feel as though you did now that the outcome is in plain sight.

No one—not even Warren Buffett—knows which way the stock market will go tomorrow. One thing we can anticipate is that we may have returned to more “normal” volatility. After years of historically low volatility and record highs, it may feel a bit unfamiliar, but with a solid plan in place, you can trust that you are safe. If you’re not certain you have a smart plan that’s working toward your long-term goals, let’s chat. As always, we’re here to help.



[1]The Center for Center for Microeconomic Data, Q3 2017

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Life happens. Plan today to make every transition easier.

Life happens. Plan today to make every transition easier.

Change. For some of us, the word alone can send a wave of panic. And it’s no wonder. Any change means transition, and any transition—whether happy or sad—begins with an ending. In all cases, something or someone fundamental in your life is gone. Marriage brings the end of complete independence. Retirement brings the end of decades of camaraderie, achievement, and a steady paycheck. Divorce brings the end of a relationship, and often years of hopes and dreams. Death of a loved one brings the end of companionship and a huge shift in how you live each day moving forward. Sending a child to school brings the end of one phase of parenting. While every stage of life has its own of transitions, for many women, it’s the 40s that seem to bring on the perfect storm.

In my own life, my 40s were an utter whirlwind. Jamie and Adam both graduated from high school and moved out of the house. Both of my parents died. My husband had a major stroke. And I lost my job. All in a tiny, 5-year window of my life. And like anyone facing such transitions, I didn’t know which way was up. In his seminal book Transitions: Making Sense of Life's Changes, Bill Bridges talks about the period following a significant life change as our “time in the wilderness.” I was the perfect example. As Bridges explains it, it’s a time when we’re forced to separate ourselves from the everyday and digest and respond to the immense change within us. And all of this must happen before we can return to the world, transformed.

While you’re in the wilderness, it’s normal to feel off-balance and uncertain. It can feel like survival is impossible, and the unending stream of questions won’t stop flooding every thought. How will I live? How will I pay the bills? How can I move on? While it may seem impossible at the time, it’s important to recognize that you will find your way. But even as you’re struggling, you must make sure the rest of the pieces of your life don’t fall apart.

I often say that when it comes to your money, there’s no such thing as an unexpected expense. The same is all too true when it comes to “unexpected” changes. Once you reach your 40s, 50s, and beyond, big changes come flying at you, fast and furious. Your children grow up. Your parents get elderly. Your aging body begins to throw you curve balls. You get sick. Your spouse gets sick. Life happens! The good news is that because you know all these things are going to happen, you can prepare for what’s to come—long before you’re thrown into the wilderness. Here’s how to start planning for tomorrow’s changes today:

  • Identify your “person.” In times of crisis, it’s vital to have someone who can give you an outside perspective and help guide your way. It may be an adult child, a colleague, a neighbor, a family member, or a best friend. Whoever you choose, your person is the one you know you can trust to be there when you need help and is the one who makes you feel safe—even when you’re in the wilderness.
     
  • Create a solid financial plan. All transitions create an imbalance in your life. By working with a trusted advisor now to create a solid financial plan that is stress tested for change, money will be one thing you don’t need to worry about when life happens. Even more, you won’t be starting from scratch after the storm. Instead, you’ll know precisely what your resources are moving forward. That alone can help breathe easier throughout the transition process.
     
  • Prepare for the inevitable. Like it or not, change is going to happen and your life will be filled with a series of transitions. The kids grow up, move out, get married, and have babies of their own. Parents get old and pass on. Jobs come and go. Marriages shift. Be honest with yourself about what changes you’ll face in the next decade… and the next… and prepare yourself emotionally and practically for what’s to come.
     
  • Create a community of friends. Emotionally you may feel isolated in the wilderness between the end of one thing and an eventual new beginning. Isolation leaves you vulnerable, so prepare now to engage in community by being a friend, a volunteer, or a member of a church, book club, or card group. The circle of friends you build will be your emotional life raft in the future.

Of course, you cannot anticipate every transition. The worst day of my life was when my first husband left me. My kids were three and five years old. I was a recent West Coast transplant and a stay-at-home mom. I had no job. I had no future. I couldn’t breathe. I couldn’t swallow. I had been thrown into the wilderness and trapped inside a bell jar. When my attorney Sheila Sonenshine told me to breathe, I listened. I inhaled. I exhaled. Again and again. She told me to get a haircut and get a job, and I did that too. Before I even realized it, I was putting one foot in front of the other and moving forward. With her guidance, I found my way out of my wilderness.

When the big changes hit—whether you’ve prepared for them or not—remember to make these your top three priorities:  

  1. Breathe. You’ll feel stuck. You’ll feel blinded. You’ll feel off-balance. But if you can remember to keep breathing, you can (and will) keep moving forward.
     
  2. Identify what’s urgent. Pay your bills. Be realistic about your finances. Take care of the necessities and put everything else on hold. And wait to make any irrevocable decisions until you’re able to see straight again.
     
  3. Get “up on the balcony. ”Count on “your person” to help you scan the environment, see the realities of your situation more clearly, and keep you rooted in what’s real. Don’t forget about your financial advisor. She can help you circle back to your plan so you can rise above your emotions and make rational decisions.

No matter what life throws at you—and no matter how unexpected the expected can feel—you too will find your way through the wilderness. The best thing you can do until you get to that next fork in the road is to put plans in place that help make even the toughest transitions easier. And when life happens and you need a guide to help find your way, we’re always here to help. 

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In Your Best Interest: Our Winter 2018 Newsletter

Click here to view the full newsletter, including recent news, important dates, financial tips & tools, and more.


MARKET HIGHLIGHTS: Q4 2017

If we looked only at the numbers, 2017 was golden. The stock market hit an incredible 71 new highs this year (no, that is not a typo!) and closed the year up 21% on average. The S&P index gained 19%, the Dow Jones index of 30 stocks gained 25%, and the tech-heavy NASDAQ gained 28%. For investors, it was a year to celebrate. 

 

There was lots of other good news as well. Congress tried—and failed—to repeal the ACA, ensuring continued healthcare access for millions of Americans. If anything, the publicity around the repeal helped increase enrollment, with December enrollment breaking records and beating all expectations. The labor market added 2 million new jobs, the Federal Reserve raised interest rates three times during the year (a sign of a strong economy), GDP increased to an annual growth rate of 3.2%, and demand for new housing remained strong.

On the less favorable side, the US trade deficit increased (something that will only get worse under the new tax plan) and inflation rates remained below the Federal Reserve’s target rate of 2%. Today, there seems to be one question on everyone’s lips: How long will this market last? 

By now, most of us have invested our funds in the market. And as the numbers continue to climb, it’s easy to fall into the trap of trying to “play the market.” Instead, I urge you to stick to your long-term flight plan and accept that the market cycle will work through any volatility. Strong corporate profits, low interest rates, and positive investor sentiment provide good tailwinds, although rich valuations could provide a headwind. In this environment, your best option is to invest strategically and focus on your personal balance sheet, paying close attention to your cash and debts. Be sure you have cash reserves to insulate you from being a forced seller in a down market, and reduce your debt and other fixed obligations. Doing so will put you in position to face the future with confidence—no matter which way the winds blow in the year ahead. 

 

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What’s today’s best investment? Here’s your answer.

What’s today’s best investment? Here’s your answer.

If you have investments in stocks (and I hope you do!), you know that the markets climbed in 2017. And climbed. With an incredible 71 new highs, the markets closed the year up 21% on average, with Emerging Market Stocks (MSCI EM index) leading the pack at 38%. For investors, it was a year to celebrate. But the question now is: where do we go from here?

If you listen to the media, the answers run the gamut from moving everything (yes, everything!) to cash to throwing everything you have (again, everything!) into the high-flying market and cashing in on the rewards. The reality is a lot less exciting. For long-term investors (which I hope you are!), excitement is rarely a good thing. Here’s why:

  • Investing should not be a thrill ride.
    If you want a thrill, go take a spin in a sports car. Let your investments be the reliable sedan that gets you where you want to be, when you need to be there. Investors are paid to take risks. Anticipate the ups and downs, but trust that your well-constructed portfolio will grow at an average of 5% to 7% over the long term. When your neighbor brags about her tremendous gains, don’t fret if yours aren’t quite so amazing. Chances are your portfolio is more conservatively allocated, which means that when the market does turn (which it will, eventually) you’ll continue to be reliably moving forward—with just the right amount of risk for you.

     
  • Toying with a portfolio does not deliver better results.
    On Monday, the news broke that Warren Buffet won his $1 million bet with a top hedge fund manager that he could do better than a hedge fund with a passive, low-cost stock index fund over 10 years. Instead of trying to time the market like his rival, he simply rode out the market—even during the depth of the recession. The result: Buffett’s stock fund achieved a 7.1% compound average return. The hedge fund return: just 2.2%. The US stock market has delivered positive returns in 29 of the last 38 years, delivering gains of more than 20% in 14 of those years. That’s the only information Warren Buffett needed to know to win the bet.

     
  • Even if the market does take a turn, a diversified portfolio won’t get very exciting.
    Again, that lack of excitement is a good thing. In 2017, the stock market saw amazingly low volatility—just 3% at its most volatile point. That’s shockingly low considering that most years, even great ones, usually see pullbacks of 10 to 15%. That means your diversified portfolio didn’t need to rely on its bond holdings last year to protect it from stock volatility. But while your bond holdings likely delivered portfolio returns that were under those of the S&P 500, they’ll be there to calm the waters when the cycle changes in the future.

You get it. A well-constructed, diversified portfolio delivers stable, reliable results over the long term. But what about new investments? With the market so high, what is today’s best investment?

My client Susan got quite the surprise this Christmas when her mother gifted her $14,000. Plus, she received an unexpected work bonus of $50,000. (Cheers to the improving economy!) She called me last week with the big question: “With the market where it is now, should I just hold $64,000 in cash? I don’t want to put it into a market that everyone says is about to turn.”

Susan is not alone. It’s easy to believe the headlines and assume that stocks can’t possibly continue to rise. And yet, historically, that’s precisely what they do. Market analysts and the media have been shouting about an inevitable downturn for years now, and while that grabs a lot of “eyeballs” (which publications both online and off need to sell advertising), they can predict the future as well as you or I can. In other words, they can’t. The one thing we can predict is that the market will continue to rise… over time.

So should Susan take the money that’s burning a hole in her pocket and invest it in stocks today? My answer was not that simple.

I told Susan that before we even began to think about investing, I wanted to review her overall finances. Susan and her husband have an emergency fund, so they have that fundamental element solidly in place. They’d had some home repairs in November and paid for them with a $10,000 check from her HELOC. Plus, they had racked up some holiday debt to the tune of $5,000. The total: just over $15,000 in debt on which she would have to pay interest until it was paid off. Plus, her daughter is a junior in college, and between tuition and room and board, those costs are putting a strain on the family budget.

My recommendation: use the money to pay off the debt entirely, and fully fund the remainder of her daughter’s college, minus what is now in her 529. Once all that was subtracted from the $64,000 windfall, $6,000 remained. Susan would be out of debt, and her daughter’s college expenses would be paid in full through graduation, eliminating that added financial stress each month. We agreed to invest the remaining $6,000 in her portfolio, allocating the money according to her existing strategy.

So what is today’s best investment? My answer is the same as it was for Susan. Your best investment is you.

You’re much more than an investor. You are living your own life. You have your own tax bracket, legacy wishes, and dreams for the future. Whether you have $5,000 to invest or $500,000, look at your financial big picture and make money decisions that help you live your best life—with greater financial confidence than ever. That’s a return the stock market will never, ever deliver. If you have questions or need guidance, know that no matter what the market brings tomorrow, we’re here to help today.

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Finding joy in January: 4 simple steps to sidestepping the post-holiday blues

Finding joy in January: 4 simple steps to sidestepping the post-holiday blues

Ah, December. It can be a whirlwind of activity filled with friends and family, and it seems the whole month is fueled by the motto of “Eat, drink, and be merry!” Even as I write, the flood of wonderful food and delicious drink is flying at me fast and furious. Last week alone I had a holiday party on Saturday, my daughter Jamie’s birthday celebration on Sunday, Hanukkah with the kids on Monday, dinner with a friend Tuesday, my bridge group on Wednesday—and the indulgence didn’t stop there. At home and at work, I’ve been giving and receiving food gifts galore. Latkes. Cookies. Candies. That Harry & David popcorn! And bottles (and bottles) of wine. It seems our culinary generosity goes hand in hand with our generosity of spirit this time of year, and I wouldn’t trade either for the world.

Of course, we all know the party can’t go on forever. Here are four simple steps—starting today—that can help you make the merriness of the holidays last all year round:

  1. Give experiences to make your holidays merry.
    Instead of buying costly gifts for his children this year, my friend Mark opted to take his family to Escape the Place, an “escape room” in Lake Forest for a special holiday adventure. CaroleAnne (our favorite marketing consultant!) gave her mom a day of singing together at the Holiday Sing-Along at Disney Hall. Jamie and I celebrated her birthday with an evening at a special restaurant. Celebrate with experiences that are meaningful to you, and the memories of your time together will last much longer than even the “hottest gift of 2017.”

     
  2. Take actions that deliver generosity—without breaking the bank.
    It’s easy to think that generosity requires spending (and often over-spending) money. But there are many other ways to be kind and giving. On Christmas Day this year, I volunteered to serve meals to the residents at Heritage Pointe while the staff enjoyed a day off. Rather than buying expensive hostess gifts for every party, my friend Laura bakes her “family secret” biscotti, seals a few in a mason jar, and includes a note: “Do not open until January 2!” What a great way to stretch her budget and extend the holiday joy into the New Year!

     
  3. Get moving—and get still.
    The mind/body connection is powerful, and even if you managed to fend off those extra pounds during the holidays, a routine of something—anything!—physical could keep the blues away as well. Walk. Swim. Hike in nature. Head to a yoga class. And if you aren’t already a fan, try meditating. My Sangha meditation group has helped me learn how to reap the benefits of stillness and mindfulness, and there are even mediation apps for your phone (check out Buddhify or Headspace). Whatever change you choose, try to make it your favorite new habit in 2018.

     
  4. Be intentional about changing your state of mind—especially after the holiday excesses.
    Rather than merely accepting the holiday blues, take steps to change your state of mind. I’m a lifelong journaler, and I plan to include gratitudes in my morning pages. Have a date with yourself for a drive up the coast. Visit a museum. Or just relax with a great cup of coffee at a new bistro. Even the simplest things can change your state in a heartbeat: read, move, meditate, laugh, or hang out in nature. With a little intention, you can cultivate a state of mind that exudes positivity.

We celebrate in ways that make the post-holiday holiday blues seem inevitable. It doesn’t have to be that way. Like any habit, creating a joyful state of mind takes planning and practice. With these simple steps and a good dose of clear intention, you really can get there! And if post-holiday finances are creating a bit of less-than-joyful stress, let’s talk. After you finish off that last glass of New Year’s Eve bubbly, remember, as always, I’m here to help!

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Index

09 November 2016

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Disclosure

All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >