The “Kiddie Tax” is Changing: What You Need to Know Now

Saving on taxes, while saving for your child or grandchild’s college education, just got a little trickier thanks to important changes in the “Kiddie Tax”.

The tax bill that was signed into law in December made some significant changes to how Uniform Gifts to Minors Accounts (UGMAs) and Uniform Transfers to Minors Accounts (UTMAs) are taxed.

What is the “Kiddie Tax”?

“The “Kiddie Tax” was first established in 1986 to keep parents from shielding income by placing investment accounts in the names of their children, who typically are in lower income tax brackets,” explains CPA Joshua Harris of Santos, Postal & Company. “The initial Kiddie Tax rules expired when a child turned 14. In 2008, this threshold increased to cover children through age 18 and full time students through age 23.”

How were Uniform Gifts and Transfers Taxed?

UGMAs and UTMAs have been a popular way to save money in a child’s or grandchild’s name precisely because of their significant tax advantages. A portion of the money earned – the first $1,050 of the child’s investment income (including interest, dividends and capital gains distributions) has been tax-free; the next $1,050 has taxed at the child’s rate; and investment income above $2,100 was taxed at the parent’s or grandparent’s “marginal” tax rate, ie the highest rate applied to the last dollar earned.

How is it Changing?

The 2017 Tax Cuts and Jobs Act made an important change to this graduated “Kiddie Tax.”

Instead of a child’s investment income above $2,100 being taxed at the parent or grandparent’s individual tax rate, it will be taxed at the 2018 trust and estate tax rates:

 

Investment Income Trust & Estate Tax Rate
Up to $2,550 10%
$2,551-$9,150 24%
$9,151-$12,500 35%
Over $12,500 37%

Will You Pay More or Less?

How much you will pay depends on the amount of investment income and your own marginal tax bracket. As a rule of thumb, the more you have the more you may be taxed this year.

While the Tax Code changed with this law, it unfortunately did not get simpler. And one alternative, if your rates are going up, may be to consider rolling the UTMA or UGMA into a 529 plan. Because of the complexity, it’s a good idea to speak with your Financial Planner about how the new law affects you, and what your best alternatives are now among the wide array of educational savings plans.

 

Please give us a call if you’d like to schedule a free consultation.

Shocked by the Market’s Drop? Chalk it Up to Recency Bias

Whether you realize it or not, chances are good that you are prone to something called Recency Bias, which is the common tendency to think that what has been happening recently will continue to happen in the near future.

If you, like many investors, are shocked and concerned about February’s sudden market volatility, it’s probably a result of Recency Bias. The last 18 months of smooth sailing without market volatility got many investors lulled into thinking that that trend would continue indefinitely.

We all know that markets experience volatility and, until 18 months ago, it was considered reasonably normal, but no one likes the thought of taking a loss. It’s hard not to panic if your oldest child is in college and her 529 just took a hit or if you’re a year away from retirement and your IRA just lost 15% of it’s paper value.

Although you no doubt know that impulsive trading is one of the least efficient ways to reach your true long-term investment potential, emotions are powerful drivers. In fact, in Robert Shiller’s book “Irrational Exuberance,” he states that the emotional state of investors “is no doubt one of the most important factors causing the bull market” we just recently experienced.

The chart below shows that investor sentiment dropped 30% in the beginning of the year, suggesting that investors’ overall attitude may have been veering from bullish to bearish, although it did bounce back this week.  What it also suggests is that Recency Bias caused investors’ to react more strongly to typical market volatility because it was a-typical during the long period of calm we just experienced.

The key in times of volatility is to keep your eye on your long-term goals rather than reacting impulsively to temporary trends. In Taking The Sting Out Of Investment Loss, Brian Boch advises: “The golden rule is to differentiate between [decisions] based on rational and prudent trading strategies on the one hand and emotionally-based, panicky decisions on the other. The former generally leads to success over time, while the latter tends to lead to failure.”

Here at Sherman Wealth Management we believe there is productivity and security in planning for the unknown by defining what it is you already do know. Knowing yourself, your emotions, and the risk you are willing to take is the first step. The second is creating a long-term financial plan with a conflict-free, Fiduciary advisor.

In a recent post, Ben Carlson wrote:

“The prep time for a market correction or crash comes well before it actually happens by:

  • Setting realistic expectations.
  • Mapping out a course of attack for when losses occur.
  • Making decisions ahead of time about what moves (if any) to make and when depending on what happens.
  • Deciding on the correct level of risk to be taken.
  • Building behaviorally-aware portfolios.”

The best solution to financial and emotional volatility is to work with a financial planner on a plan that will make you feel comfortable through the market’s natural ups and downs. You may not be able to control outside factors but you can control your reactions by recognizing how bias works and by preparing both emotionally and financially to reach the long-term goals that matter to you.

And, as always, if you’d like to review your plan and how your allocations conform to your own risk tolerance and response to volatility, please let me know and we’ll schedule a call.

The End of Low Volatility?

Whether you view Friday’s stock market sell-off as an adjustment to permit the markets to climb higher on a more solid base, or were nervous about the sharp short term “loss” of unrealized gains, it’s clear that the stock market’s meteoric, historically-long winning streak hit a bump in the road this week.

Draw downs and sell-offs are normal, but they are still painful when they occur. The market calls it a “correction” but, to the individual investor seeing their net worth drop, it never feels “correct,” particularly since it’s impossible to accurately predict when the volatility and the draw down in prices will end.

It’s hard for anyone to really anticipate what their own risk tolerance will be until it’s put to the test. In moments of calm, we all want to think we’ll have the presence of mind to remember that the market is cyclical and that downturns and corrections are often an opportunity. Things might look a little different though, if your child’s 529 plan funds just shrank, or if you’re nearing retirement and are counting on an IRA and a 401K, or if you were just about to take some earnings to finance an important project.

Notice how you felt on Monday as the market dropped again: it’s a good insight into your current risk tolerance.

Market values have increased dramatically in the last few years and in 2017 in particular. This current market volatility comes after the longest period in history without a correction and with remarkably low volatility. As a result, Friday’s sell off and Monday’s drop may have been a bit of a shock, even though a 5% drop was not unusual as recently as 2016. That makes it particularly difficult to anticipate what will happen next, in the direct short term, since investors may react unpredictably, including too many people who are driven by how they guess others will react.

There are two important things to remember when the market is volatile. The first is that volatility and risk are not the same thing: volatility is a normal variation in value, risk is the possibility that an investment will fail. The second is that it’s important to look at trends over time, not just yesterday’s news. As I said in this CNBC interview this week, this is a long-term process: you can’t be in it for just the 48-hour cycle.

If you’d like to review your financial plan or discuss  how your allocations conform to your own risk tolerance and response to volatility – please let me know and we’ll schedule a call to review your plan.

This post comes from our Tuesday Newsletter. To never miss Brad’s thoughts on building a successful future through smart planning, sign up here:

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Wants vs. Needs; Simplifying your Financial Plan for a Happier You!

We hear from prospects all the time “ I manage a complex budget for my firm, yet I just can’t seem to sift through my personal finances.” Welcome the financial planner to your life. It may sound like a foreign concept to some, but for many simply having their own emotions attached to their personal finances, make it too close for comfort. They say anytime emotions are involved logic can go out the window. Let us help remind you of the logic of needs vs. wants.

 

What is a need? Human basic needs are as simple as food, water, and shelter, therefore, your monthly mortgage or rent payment, monthly food and beverage expenses, and we can also add transportation i.e. car payment, insurance, and gas all go into this category. What may seem shocking to some is that everything else is a want. In the complicated consumer driven world we live in it may be hard to fathom, but if it isn’t necessary for your survival it is a desire, not a necessity. And furthermore, if it’s a materialistic good rather than an intangible experience, experts say you probably won’t even miss it.

 

Ok now that we’ve defined a want and a need, lets practice an exercise. According to David Bach, author of “The Automatic Millionaire” “Becoming rich requires nothing more than committing and sticking to a systematic savings and investment plan” https://www.cnbc.com/2018/01/17/self-made-millionaire-got-life-changing-money-advice-at-age-7.html Ready to get started now? Take out a piece of paper and pen. Create two categories; wants and needs. Start listing everything you spend money on in a month. Determine whether it is a want or need. Create another list. Write your future goals. Picture yourself taking the vacation you’ve dreamed of for years, or retiring early. Whatever your goals are, visualize yourself completing them. Now return to your list of wants and needs. How can you “trim the fat” on your daily spending habits so you really can save more for the things that will fulfill you later. For example : One easy fat trimmer is to shop around for things you already are paying for. Items such as your cell phone, cable, internet, and insurance can easily be shopped around for a lower price. Visualizing yourself completing your long term goals can help motivate you to sacrifice temporary gratification for something that may lead to a happier you in the long run. Now you can put more towards your retirement, so you can vacation permanently, sooner!

 

Finally, what tools will you need to implement to further achieve your goals? Personally, my wife and I are big fans of technology that track our spending, keep us honest and transparent by categorizing each purchase through linking our credit card spending and automatically deducting the budget category the purchase must be subtracted from. Theres nothing to hide when you make a budget, add all of your credit cards, and promise to stick to it. We’ve also found that being realistic and making achievable goals ensures we are more successful, but you know what makes us the most successful? Having a financial plan! Sherman Wealth Management uses tools that will link users accounts so we have access to your budget and balances and can help you come up with a financial plan right for you. Also by hiring a fee only fiduciary financial advisor whose emotions aren’t involved in our spending habits we’ve no longer clouded our logic.

 

Still have your reservations? A study at Princeton found that every 10% rise in annual income moves people up the life satisfaction ladder the same amount, whether they’re making $25,000. Or $100,000. “High incomes don’t bring you happiness, but they do bring you a life you think is better.” That being said; What if we all gave ourselves a 10% rise in income by trimming the fat in our expenses and adding the profit to our bottom line further assisting us in accomplishing our goals.  What if we found that we possess the power and control to increase our actual happiness by simply living with less, saving more, and reaching our goals by following through with them? And what if by living with less we are more fulfilled.  Studies have proven that having less and living more simply does lead to greater overall life satisfaction.

 

Feeling like you could use some help? Sherman Wealth Management is a fee only firm that specializes in financial planning. Schedule a free consultation via this link and please remember that if you aren’t fulfilled and meeting your goals, neither are we!

How Compound Interest Can Help Build Wealth

“Winning the lottery is crucial to my retirement plan.”

Does it surprise you to hear that this is a real quote from an American worker? Sadly, it’s not just one person’s perspective. It’s a sentiment that is shared by the 40-50% of Americans who believe that winning the lottery is the only way they can get what they need for retirement.

The odds of winning a Powerball have recently been calculated to be 1 in 292,000,000. As a financial advisor, I am frustrated by an investment strategy that is based on a verifiably unrealistic longshot. That frustration is only compounded by the fact that there is a simple solution! The real winning ticket to ensure you can live comfortably in retirement is not a lottery ticket, but rather a concept you likely have heard of but brushed aside: compound interest.

It’s Been Said That Albert Einstein Called Compound Interest the Eighth Wonder of the World

And even if he didn’t, it’s still a brilliant investing tool. Simply put, compounding is a process which generates additional return on an asset’s reinvested earnings. To be effective, it requires two simple things: the reinvestment of earnings, and time. If properly managed, compound interest can help your initial investment grow exponentially. For those of you who enjoy math, here’s the formula:

Ending $$ = Beginning $$ * (1 + return) ^ total time frame of compounding

While this is a useful strategy for all investors, for young investors in particular, it is the greatest investing tool for long-term growth, and the #1 argument in support of starting as early as possible. Just look at the graph below, which represents the growth of $100 over 30 years:

 

You can see that without reinvestment, the return potential is significantly reduced no matter what the rate of return is. This is important to understand because many investors are tempted to capitalize on their gains too early. The results reflected in this graph make it clear that choosing to instead reinvest those gains is going to make a significant difference in the long run.

The best advice for how to implement this strategy and maximize your long-run returns is to (1) postpone gains, and (2) rebalance efficiently. When tempted to take a short-term gain, always ask yourself: do you really need to sell? If not, don’t. Committing to a long-range investment strategy will make a world of difference in your returns. And when rebalancing, instead of creating a tax event by taking gains, consider allocating future proceeds into holdings that have underperformed.

Compounding interest becomes more complicated when the effect of taxes is factored in. Investors are often not able to reinvest all of the money that has been paid out because the government takes its cut. In order to get around this, you should try to minimize the effects of taxes by putting money into tax efficient accounts; ensuring that tax inefficient assets/strategies are in kept in retirement accounts; allocating assets to tax efficient areas of the market such as municipal bonds and real estate; and utilizing ETFs to delay tax events for stock holdings.

You don’t have to be Einstein to understand the power of compounding interest. Instead of putting your fate in the hands of the lottery, take control of your retirement plan through smart, well-thought-out investment decisions. If you have any questions, don’t hesitate to reach out to us here.

Sign of the Times

Sign of the Times

It wasn’t too long ago that every teenager was fawning over the boy-band One Direction.  Now, only a few years later, the band members are all pursuing their own solo careers.  In his 2017 solo debut album, the former One Direction member Harry Styles sings the hook “Just stop your crying, it’s a sign of the times.”  While there are numerous interpretations of what the line is about, when I hear it my mind wanders immediately to investing.  

Maybe that makes me a finance nerd, but I connect these two because the world of investing is changing so rapidly, and that isn’t necessarily a bad thing.  It used to be that mutual funds were the be-all and end-all of getting exposure to diversified equity and fixed income returns.  Modern trends, though, show that millennial investors are increasingly enamored by exchange-traded funds (ETFs) and are pouring more money in these diversified low-cost, passively managed index funds than ever before.  A recent article reported that 66% of millennials say they expect to boost their holdings of ETFs over the next year, up from 61% in last year’s survey.

You can see a similar growth trend in the chart below.  We can see that while asset levels for actively managed mutual funds are still eight times higher than ETF asset levels, there is a staggering difference in their annualized growth rates.  While mutual funds are barely growing at .8%, ETF assets are growing at a pace of 21.4%.  

The conclusion is clear: ETFs took in more than three times the net inflows in the first half of 2017 because the world is changing.  Millennials are seeking out the funds as an alternative to traditional mutual funds in response to the changing environment around them, the preference for low-fees, and the flexibility of being able to trade in and out of the funds as frequently and as quickly as they desire.  The faster that advisors start to recognize and adapt to that changing world, the better they are able to meet the needs and desires of their clients.  

At Sherman Wealth Management, we understand that our clients are seeking low-cost, diversified portfolios and as a fiduciary, we feel it is our responsibility to take advantage of the opportunities posed by ETFs.  We were one of the early adopters of these diversified funds because we saw the value of having a low-cost, tax-efficient portfolio that, if done wisely, can be combined to meet target allocations that have diversification benefits creating worthwhile risk-adjusted returns.  

We see ETFs as an opportunity instead of competition.  Instead of individual stock picking, ETFs give us the ability to spend our time focusing on a top-down approach to asset allocation.  This means assessing where the opportunities lie within different asset classes and combining attractive ETFs in these high-probability sandboxes in a way that we feel will maximize risk-adjusted returns.  Instead of the cookie-cutter allocation achieved by working with robo-advisors, we have real people putting together your portfolio and looking under the hood of these funds to ensure that they are the best pick for you.  

At Sherman Wealth Management, we want to be ahead of the times – not stuck lamenting the past.  

So… just stop your crying, it’s a sign of the times.  

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.

How Will The Proposed Tax-Plan Affect You?

On Wednesday, the Trump Administration released their nine-page tax plan titled “United Framework for Fixing Our Broken Tax Code.”  That’s a mouthful.  The full text of the plan can be found here.  So how will the proposed tax-plan affect you?

The reviews are in, and they suggest that while the plan is considered “finalized,” there is still a high level of uncertainty and vagueness in the plan that makes it difficult to assess how it would impact the average American.  

Some have suggested that President Trump and the Big 6 (Gary Cohn, Steve Mnuchin, Mitch McConnell, Sen. Orrin Hatch, Paul Ryan and Rep. Kevin Brady) might not have learned as much as they could have from the failure to repeal and replace the Affordable Care Act, which arguably was defeated due to a lack of clear details and shortage of bipartisan support.  In a repeat tactic, the push for passing the bill under “budget reconciliation” would require only a simple majority in the Senate to pass the law.  But it should be noted that this can only happen if projections show that the total revenue differential over the next 10 years is $1.5 trillion or less.  Right now, projections place it at $2.5 trillion over the next 10 years.  That means the GOP will either need bipartisan Senate support with 60 votes or find $1 million in reduced projections.  

Here are some of the highlights of the proposed plan and how they could impact your personal income taxes if they should be passed:

  1. Fewer Tax Brackets – Instead of the seven tax brackets we face today ranging from 10% to 39.6%, the new plan proposes only three: 12%, 25%, and 35%.  Because the plan does not specify where these cut-offs will be, though, we can only speculate on how these will impact individuals positively or negatively.  If speculation is correct, those currently facing 28% and 33% tax rates would see a tax cut to the new 25% rate, which would be beneficial.  The idea of adding a fourth bracket for the wealthiest Americans has also been floated. 
  2. Doubles the Standard Deduction, but Eliminates Personal Exemptions – The marketing tactic for the bill is that it is a huge break to middle-class Americans by doubling the standard deduction from $6,350 to $12,000 for single filers and from $12,000 to $24,000 for joint filers. 

    There is a catch, though.  These increases are being offset by the elimination of personal exemptions. The result is what seems like a 50% increase to most taxpayers, in reality, is closer to 15%. 

  3. Reduction of Elimination of Itemized Deductions – If in the past you have chosen to itemize your deductions, you could be getting the short end of the stick here.  The plan calls for reductions or elimination of many itemized deductions, without providing specifics on which ones.  It has only been stated that they will keep the deductions for home mortgage interest and charitable contributions.  It also mentions benefits that encourage work, higher education and retirement savings, but provides no details on these. 

    The largest red flag for many is concerning the elimination of state and local tax deductions.  Currently, you can deduct what you pay in state and local taxes from your federal income bill.  If this is eliminated, it could disproportionately affect those who live in high-tax states such as Connecticut, New York, New Jersey, California, and Maryland.  Only two days after the plan was released, objections from Blue-state Republicans have caused them to reconsider eliminating these deductions.

    Additionally, homeowners or anyone paying real estate taxes will see that their property taxes are no longer deductible under the new plan.  Again, this will have a disproportionately large impact for those living in states with high real estate taxes.
    Below is a breakdown of what the new and old tax brackets could look like for single filers:
    Source: Business Insider 

  4. Changes for Families– There may be some significant changes to the tax code surrounding families as well, including single parents and households with two or more children. 

    Currently, single parents fall into a favorable tax bracket somewhere in between single and married-filing-joint rates as well as a 50% boost to their standard deduction.  The new plan would likely eliminate this, meaning single parents could face higher rates.That being said, these cuts could potentially be offset by an unspecified “significant increase” to the Child Tax Credit.  Depending on the size of this Child Tax Credit, households with a two or more children could also see increased rates because of the elimination of the exemption based on the number of children.

  5. Eliminates the Death Tax and Alternative Minimum Tax – The estate (“death”) tax only currently applies to 0.14% of Americans, whose assets exceeded $10.9 million and did not hire a competent estate planner.  So this likely does not affect you, but it would be eliminated under this plan. 

    The alternative minimum tax forces those who have an outsized number of deductions to pay an alternative tax rate instead.  The truth is, very few people understand it anyway.  This is likely a good thing, especially if the goal is simplicity.

  6. Small Businesses, including ours! – In terms of small-business owners, there is a whole separate set of changes to be considered.  For ‘pass-through’ businesses like ours, the plan wants to lower the maximum rate from 39.6% to 25%, which is particularly appealing to making smaller firms more competitive. 

    Questions still surround this due, though, to Steve Mnuchin’s vague statements regarding limitations on what types of businesses will get this lowered rate as well as how they will distinguish between personal income and business income.  Additionally, many have pointed out that nine in 10 businesses that pass through their income already pay at the 25% rate or less, meaning this change could be ultimately inconsequential. 

    For larger corporations, the plan proposes lowering the tax rate from 35% to 20% and a one-time repatriation of overseas assets at an unspecified lower rate.   

 

If you have any questions related to your specific situation, don’t hesitate to contact us here.  We will keep you updated as more developments are made and the plan evolves.  

 

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions.  They are for information purposes only. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.

If you have any questions regarding this Blog Post, please Contact Us.

Sinking

Imagine this: you are in a car and it is sinking.

You try pulling on the door handles but they won’t open because the pressure on the outside of the car is much greater than the pressure inside the car.  What do you do?  More likely than not, you are now panicking and you can’t think clearly.  If you were thinking clearly, you might remember the driver’s education 101 tip that says stay calm.  If you have patience and wait for the car to fully submerge, the pressure on the inside and outside of the car will be equal and you should be able to open the door.

A similar thing happens in the world of investing.  During times of crisis, our instincts cause us to panic and forget everything we have learned.  When a crisis arises, we tend to take the first action we can think of, even if it is not the best one.  It takes a lot of patience and mental discipline to be able to watch a market dropping without pulling out your cash, but there is a huge difference in your returns if you remain calm.  From November 1, 2015, through February 11, 2016, the global stock market fell about 15% before rallying 31% to today’s level.  If you had sold at this time out of fear, though, you would be up only 4% compared to the 20% cumulative you’d be up if you had remained steady.  

Source: data from Xignite, total returns data for ACWI ETF representing global stock markets, chart from Betterment

 

The best advice you can be given is: understand the level of risk that you are taking in your current portfolio and make sure that you are comfortable taking on that level of risk.  Your risk level is closely tied to your financial plan.  You should ask yourself if you are taking too much or too little risk to accomplish your goals.  Are you saving enough to achieve your goals?  Are you using unreasonable future growth assumptions to accomplish your goals?  If you are honest with yourself and realize you are taking on more risk than you are comfortable with, you should adjust your risk level and financial plan as soon as possible, not as a reactionary measure to a market downturn.  Additionally, regardless of your risk tolerance, everyone should have an emergency fund that is invested conservatively as a fallback.  

If you feel that you are taking a level of risk that you are comfortable with, but are still worried about your own panic getting in the way of your plans – draft a plan now for how you will deal with it.  If you can’t handle seeing the color red, logging into your portfolio every day is probably not recommended. Ask yourself where there is wiggle room in your financial plan.  Prioritizing your goals and figuring out what you would do differently if the need arose is a good way to feel more secure if things are not going well.  

If you think making changes to your portfolio is the right move, make sure get a second opinion from someone with a level-head.  At Sherman Wealth Management, we are committed to answering all of your questions, addressing your concerns and helping you to avoid common behavioral mistakes.  When you imagine yourself in a sinking car, rest assured that we are right there to coach you through it.

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.

I’m New Here

Our summer intern turned part-time associate Dan McKenna wrote a great piece about his experience being new to the biz that I thought was worth sharing.

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I’m new here.  

The best word I can think of for explaining the experience of being a freshly-graduated analyst entering this market is… baffling.  Every week I read the news that markets are hitting new all time highs, that we have shaken off the effects of the global financial crisis and that excellent Q2 earnings reports are the catalyst that will push stocks higher.  There is almost a weekly reminder that markets do not die from old age.  Yesterday, the Dow climbed back above 22000 as investor fears retreated.

On the other hand, every week I also read articles from investors screaming that the end is near, markets cannot possibly keep up with their current pace, P/E ratios are outlandish and we need to be paring back risk.  For example, a month ago, the co-founder and chief executive officer of DoubleLine Capital LP, Jeffrey Gundlach, said that risky assets are overvalued and that investors should be “moving toward the exits.”  Since then, markets have pushed even higher.

No wonder the average client is looking to their advisor with a look of complete confusion and truthfully, a fair amount of fear.  In times like these, the words of my graduate-school mentor (one of the most brilliant finance professionals I know) often ring in my ears.  He always reminded me of a piece of wisdom I want to share with you:

Nobody knows anything in this field.

By that he means… nobody knows for certain what is going to happen.  If we truly did know the future, we’d never have to work again.  We could all leverage up, pick the winners, and make so much money our eyes would glaze over.  But we don’t know the future.  That’s why we spend so much time crafting diversified portfolios and picking the right amount of risk for each individual’s unique tolerance.  Face it: you’re probably not going to achieve your daydream of being the protagonist of The Big Short who calls the financial crisis before it happens.

We have to understand that the difference of opinion is what makes a market exist.  Don’t forget that there is an incremental seller for each and every buyer in the market.  Right when you’re convinced to buy a security, someone else is convinced to sell.  That is just how it works.  

The simplest thing to do is to remain calm and stick to your plan.  At Sherman Wealth Management, we use broad-based financial planning that is designed around your unique risk tolerance and your goals.  Unless it directly affects your financial plan, ignore the noise in the markets and that nagging voice in the back of your mind that screams sell every time you read a negative piece of news.  

I might be new here, but I can predict the future just as well as the next guy.  

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.

Equifax Data Breach

Yesterday, the Wall Street Journal reported that hackers had gained access to some of the systems of Equifax Inc., one of the largest three credit reporting companies, potentially compromising the personal information of 143 million U.S. consumers.  The systems they gained access to contained customers’ names, Social Security numbers, birth dates, and addresses.  These four pieces of information are generally needed for consumers to apply for many forms of consumer credit, including credit cards and personal loans.  This raises the risk of fraud, as it means the hackers could have an easier time getting approved for credit under someone else’s name.  In addition to this information, credit card numbers, driver’s licenses, and dispute documents with sensitive information could have been compromised for some users.  Because Equifax gets its data from credit card companies, banks, retailers and lenders, you could be affected regardless of whether or not you have ever knowingly provided them information.

This is being called one of the largest and most threatening data breaches of recent years.  We encourage everyone to make sure they are protected and to closely monitor their credit for identity theft.  Equifax has set up a website to help consumers determine if their information has been compromised.  One also can call their dedicated call center for consumers at 1-866-447-7559.  The company offers credit-monitoring and identity-theft protection products to guard consumers’ personal information.  Consumers can also protect themselves by immediately placing fraud alerts on their credit reports.  This means that a lender must contact you to verify your identity before it issues credit in your name for the next 90 days.  

If you have any questions, don’t hesitate to reach out to us.

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.