We hope everyone had a great Memorial Day Weekend filled with fun, sun and lots of good food and pool time.  We took our kids to Washington DC to pay respects and educate them on the brave men and women that lost their lives fighting for our freedom.  As parents, lots of the chatter we’ve heard this past Memorial Day weekend centered around our kids. Whether exhausted from all the spring sports (both physically and financially) or trying to figure out what to do with the kids this summer, many of us are all in the same boat.   For those of us that work full-time or part-time, it is necessary to find coverage for our kids during the summer without breaking the bank – certainly no easy feat! Most summer camps do offer before and after care, but it’s an at an additional cost after already paying the pricey sticker price of a week of camp. For those that have a parent that stays home with the kids, there is the question of “how much camp can we justify spending on” or “what activities can we do with our kids each week without spending a fortune?”  There are no right answers to these questions, but there are ways to help reduce the stress of the financial burden of summer break. First, making a family budget that includes setting aside money for whatever your summer plans are is a MUST, and don’t forget to include some vacation funds too. Another way to save is to browse sites like Living Social, Certifikid and Groupon for deals on summer camps and other activities. There are also many great free or inexpensive options through your local recreation departments – look into classes offered at nature centers, libraries and aquatic facilities. These things may not take the  financial stress out of summer, but with a little proactive planning, you might just be able to make the costs a little easier to swallow.

Another of the major kid/life stressors that was a topic of conversation this past weekend is the growing cost of keeping our kids involved in sports.  A new survey finds that 27% of “sports parents” are spending $500 or more each month on their children’s activities.  Even though most of us realize our kids aren’t likely going to be the next LeBron James or Tom Brady, we still want to give them every opportunity to succeed with any sport they might have interest in. Whether that means enrolling them in specialized pitching clinics or joining the club soccer team, the bottom line is that it means spending hundreds, if not thousands, each month in registration fees, uniforms and new equipment, not to mention the gas and wear & tear on our cars getting them to practice, tournaments and team-bonding events throughout the season.

A recent survey finds that sports parents spend twice as much time on their children’s activities than they do on financial planning. To keep money priorities straight, it is recommended that parents commit to a plan.  According to Dara Luber, senior manager of retirement at TD Ameritrade, you should “start by identifying your financial goals and creating savings buckets for each of them — your retirement, your children’s education, vacations and sports, to name a few. Be sure to fund those priorities in order of importance, putting your retirement first, Luber said. Then, have regular budget meetings with your family, so that your children understand the trade-offs of participating in costly sports programs, such as forgoing a family vacation.” There is nothing wrong with helping your son or daughter realize their sports dreams, but it definitely shouldn’t come at the expense of your own retirement or understate your family’s needs,” Luber said. (Read full article here

https://www.cnbc.com/2019/05/06/your-childs-sports-could-be-sabotaging-your-financial-health.html)

We all want to be able to provide every opportunity for our children to succeed in life, whether that comes in the form of sports, dance, art class or any other activity they have interest in. We’d also love to be able to send them to whatever camp they desire, for weeks on end, but that’s not always realistic either.   Before we spend more money than necessary on these types of things, we must be honest with ourselves with what our future goals are. Teaching our children the importance of saving over spending and wants vs. needs. will benefit everyone in the family. With some strategic planning, you might just be able to take the vacation of your dreams or send them to that special once in a lifetime camp that they’ve been begging for.

Yesterday, the Federal Reserve held its benchmark rate at 2.5%.  It only took one word from Fed Chair Jerome Powell on inflation to send the markets reeling, and that word was “transitory.” According to this CNBC article “Traders have been speculating that recent weaker inflation readings would concern the Federal Reserve so much that it would cut interest rates later this year. Powell knocked that idea, by explaining that the central bank still sees the weakness as the result of “transitory” factors, such as portfolio management services, lower apparel prices and airfares.  The Fed’s target on inflation is 2%, and the core PCE rate watched by the Fed fell to a surprising 1.6% in the first quarter.”   President Donald Trump, who earlier this week urged the Fed to cut the rate by 1 percentage point was most likely frustrated with the Fed chair as well.

Since the Fed did not indicate which direction the next move may be, this is a good time to review any variable interest rates you have (student loans, etc.). Use this opportunity to pay down these types of
debts and boost your savings cushions. And, for those of you who might be getting tax refunds,
you may want to think about using that money to add to your savings or pay down debt.
As your April 30 bank statements come in, this is an opportune time to re-evaluate your
checking and savings accounts. If you aren’t earning at least 2% for your short-term goals, you
should be looking into some new options.

With some mortgage rates are at a low of 3.125%, there are hopes that this will continue to
stimulate the housing market. It’s also a good time to look at your current mortgage rate. If
you have an ARM that’s expiring (adjustable rate mortgage), now is good time to consider
whether it might be worth converting that to a fixed rate mortgage. Now is the time to take advantage of lower long term rates that may not be here forever.

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As the son of a Montgomery county school teacher,  I was so honored to mentor a group of hard- working students from Albert Einstein High School in Montgomery County rise to success in giving an incredible pitch to the judges at the Business Pitch Challenge. As the month of April is Financial Literacy Month, this was a great time for me to help make an impact in increasing the financial literacy among students. These students have the privilege of taking a business and finance course at the high school level. They are already much more advanced in their understanding of business operation and level of financial understanding than the majority of this country. As of 2019, 19 states require high school students to study financial literacy before earning a diploma, which is up from 17 in 2018 and 13 in 2011. It is great to see this progress year to year. At the business Pitch challenge, I listened to the students’ pitch which included a deep analysis of revenue, profit margin, and expenses of their business idea: a drone delivery service, which would deliver packages from door to door.

I encouraged the students to deepen their analysis by cutting costs through changing their business model from serving as a manufacturing company to serving as a software as a service business. This way, the company would be able to cut down on high fixed costs and focus on driving recurring revenue. The important thing to note is that the students were able to hold a discussion on cost-benefit analysis, while most high school students could not due to their limited understanding of financial metrics. Whether the Drone package delivery service would become a million -dollar company or not, these students have won the lottery by attending a school that would allow them to study finance before the rest of their peers across the country. The earlier students start to understand this material, the better. As they reach college and beyond, it is crucial that they become financially literate, which will make them financially smarter. It is crucial that young adults are able to make potentially complex decisions about student loans, mortgages, credit, and managing retirement-savings accounts. According to research studies, on average, students in states that require financial literacy courses in high school have lower credit card balances and pay for college using lower cost student loans than students living in states without this mandate. States with the mandate to incorporate financial literacy courses into the curriculum have seen an overall improvement in credit scores and a lower rate of late payments on credit cards among young adults. This shows how important it is for students to begin increasing their financial literacy as early as high school.

As a financial advisory firm, Sherman Wealth is a big proponent of starting to increase financial literacy at an early age. We are excited that students in Montgomery county are working to increase their understanding of business strategy and financial information, which is what we think will help them long term. This is why I was excited to be a part of the business pitch competition and help coach the students into developing strategic ideas and better their business model

It’s very unfortunate that school teachers, arguably one of the largest value-ads to communities across this nation, are getting taken to the woodshed on their retirement options. It’s 2019 and public school districts still haven’t found a way to properly help these individuals build a nest egg. We hear and see it all the time. In fact, we met with a 66-year old teacher yesterday from right here in Montgomery Country. As we wrapped up the introductory meeting, we already knew what would be uncovered as we began going over her statements.  Sure enough, we were correct. To be frank, seeing this stuff is really frustrating, especially to me, a son of a public school teacher, who learned all of this first hand.

Most Americans who save for retirement at work have a basic 401(k) plan. These are offered at most companies and provide a decent selection of investment opportunities. The fees may be a little high, but these employees can build a properly diversified portfolio and it’s a win-win in the end for everyone involved. But there is a whole other sub-set of Americans who do not get to participate in a 401(k) plan. These include public school teachers, clergy members, employees of religious institutions or nonprofits, etc. These individuals are allowed to invest in what is known as a 403(b) plan. As a result, the people who do the most good in the world, spending their careers assisting others for below-average pay, often get screwed the most.

But it’s not their fault. They have to invest in something, right? And if this is their only option, what else are they to do? Most 403(b) accounts are peppered with complex, expensive products that usually cost their owners tens of thousands of dollars over their careers. How is this possible? One reason is that the 403(b) accounts that many workers contribute to are not held to the same rules and regulations as a 401(k). When these employees are told that these are approved products, they automatically assume the school district did some due diligence on it. Think again. We hate to be the bearer of bad news, but the district you work in doesn’t pay any attention to these plans or products. To them, it’s just another hassle.

Be wary of any adviser who takes commissions of any sort from investment or insurance companies. Ask whether any adviser your organization hires will be on call for one-on-one advice, too. We once talked to a teacher who said she literally called around to vendors in her state, looking for anything with a fee under 1.50%. What’s the worst part? No one could meet those (very simple) requirements. In fact, according to the analysis prepared by Aon Hewitt, the average fees charged on variable and fixed annuities and mutual funds included in a 403(b) plan look like this:

• Variable annuities: 2.25%.
• Fixed annuities: 1.15%.
• Mutual funds: 0.97%.

By contrast, the average expense ratio of an ETF is just 0.44%. Unfortunately, ETFs rarely appear as an investment option in 403(b) plans.

So, who’s fault is this? Ultimately, it falls on the individual school districts to properly vet the companies and salesman who are finding their ways into schools, like cockroaches in the night. We wrote a piece recently on why it’s an employer’s responsibility to ensure that their employees are being properly educated and informed on their retirement options. It is not the individuals responsibility to research the best choices. In all honesty, these individuals wouldn’t even know where to start in regards to due diligence between various products and funds.

In the end, 403(b) plans in the modern world are outdated compared to their for-profit employer 401(k) plan peers by roughly 20 years. Most importantly, their existing multi-provider record keeper platforms, incredibly long investment menus, and inability to employ proper, institutionally-focused investment options have created an environment that impairs retirement outcomes for participants. It’s a sad reality for those who contribute to our society in such a respectable and positive way.

If you are school teacher and are having trouble navigating your 403(b) plan and are unsure of where to turn for conflict free advice, please feel free to reach out to us and we’d be happy to assist you and any manner.

The White House announced yesterday that tax refunds would be processed even though the government is still shut down. Which reminded me that now is a great time to revisit your W-4. Why? Because t’s very, very likely that the W-4 form on file with your employer is off. Last year, the Treasury Department and the IRS released updated withholding tables (below) to reflect the new Tax Cuts and Jobs Act. The legislation resulted in lower individual income tax rates, a doubled standard deduction and the elimination of personal exemptions.

As we know, taxes can be somewhat finicky: if not enough is withheld, you’ll owe money come tax time. Pay too much, and you end up with a large refund. On top that, while earning a bigger paycheck twice a month sounds awesome, it could come back to hurt you come April. With all this being said, we obviously want to be as close to zero as possible. But how do we accomplish this in a changing tax environment?

Prior to 2019, it was common to withhold less from your pay if you had deductions that were itemized. However, that may no longer hold true considering the fact that the standard deduction is nearly twice what it previously was. Due of these new tax laws, a high percentage of households who itemized in previous years will no longer be able to do so (another reason to check up your withholding). Previous laws also allowed income earners to withhold less in taxes if you they had dependents. Going forward, these types of exemptions are gone, so those filers should review their pay stub to ensure that they’re not under-withheld.

Another reason to make sure your refund isn’t “too big” is because you will, more or less, be giving the government an interest-free loan. With cash accounts now paying above 2%, that money is better off working for you in your own account. This would allow you to pay off debt, add to your savings, or a multitude of things that are better than simply giving it to the US government for a year, which we have covered before.

If you are retired, one option is to use your Form W-4V to withhold a flat rate from your Social Security earnings. Further, use your Form W-4P to withhold from your pension. Additionally, there are new limits on deductions for state and local taxes and home mortgage interest, a big item for many in the DC Metro and other locales.

If you’re feeling confused about the upcoming tax season (which is almost upon us), please feel free to reach out to us. We have worked with many CPAs in the DC Metro area and would love to further assist you in finding the best fit for your tax questions.

Staying in theme, it was another wild week for stocks. Investors, who are probably over the volatility from 2018, were unfortunately required to sit through a couple more brutal sessions on Wednesday and Thursday, as the Dow Jones Industrial Average notched its worst start a year since 2000. However, following a reassuring tone from Fed Chairman Jerome Powell on Friday, large indices will actually finish the week in positive territory.

Earlier this week, President Trump seemingly doubled down on his willingness to let the government shutdown continue. The President is staying solid on his refusal to sign any funding bill that does not include $5 billion for a wall on the U.S.-Mexico border. Democrats remain insistent they will not provide the votes to give him that funding as the shutdown now stands at fourteen days.

Much of the worry in stocks began on Wednesday, when Apple had its worst day in 5 years, moving down almost 10% at one point. The company slashed its quarterly revenue outlook (almost a month before it’s scheduled earnings report), blaming its lowered projections on soft iPhone sales in Asia, with CEO Tim Cook publicly attributing some of the weakness to U.S.-China trade tensions.

Financial markets have been in turmoil over the past several months, in part over concern whether the Fed was being too aggressive in its stance on hiking rates. In fact, Chairman Powell himself has helped to fuel some of that speculation. On Friday, Powell did offer remarks to show that Fed policy will take into account economic conditions and be adjusted accordingly. Powell also noted that the economy still looks quite strong.

According to the data release this week, U.S. employers added 312,000 new jobs last month, nearly double the Street consensus of 177,000. Average hourly wages also rose, to an annual rate of 3.2%, while the headline unemployment rate bumped higher, to 3.9%. The strong December jobs report is a net positive for stocks because investors’ biggest concern has been slowing growth. On top of this, recent data shows that 2018 saw the most manufacturing job growth since 1988, with a net 264,000 jobs added over the previous twelve months.

Oil futures had their first weekly gain in a month, as the previously mentioned (and positive) economic data boosted the outlook for global growth in general. Prices also climbed Thursday as separate surveys showed December crude output from major producers saw their biggest monthly declines since January 2017.

U.S. retail sales were up 5.1% last year to reach than $850 billion, according to a Mastercard report that looks at consumer purchases from December 1 through 24. It was the strongest performance in six years. The National Retail Federation had projected that consumers, on average, planned to spend $1,007 for decorations, candy, gifts, and other purchases for themselves. It was also a great year for online retail, with sales jumping 19.1% over 2017 according to the same study. Apparel sales were up 7.9% year over year as well, showing the best growth since 2010.

Are you aware of what you’re paying in fees? Is your portfolio truly in line with your risk profile? You’d be surprised at the number of people who have never asked their advisor these questions. If you’d like to explore further, please feel free to schedule a meeting by clicking here!

As we sit down to reflect on 2018 and prepare for the coming year, no doubt that for many stress over financial issues comes to mind quickly. Year after year we see the same types of studies and the alarming statistics they produce in regards to savings and retirement planning (or lack thereof).

Almost half of Americans (44% to be exact) list money as the largest contributor to stress in their lives. To make matters worse, the stress isn’t confined to the household. A recent John Hancock study found that 72% of us take our money worries into the workplace with us, clearly affecting more of our daily lives than we would like. That same study claims that this stress causes physical and psychological problems (anxiety, sleeplessness, etc.) for nearly 60% of us. Many will say that American’s simply cannot afford to save money anymore. Medical expenses are high. Housing is expensive. Short-term burdens make it hard to plan for long-term goals. Many work at a company that doesn’t offer a retirement plan. Rising number of single-parent households. The list is endless. And trust me, I get it. I totally understand these hurdles can be intimidating.

But at the end of the day, these are all just excuses. Just like they were excuses last year and the year before that. We constantly spend our time fretting over these topics, but ironically never put a plan together to actually get ahead. It’s the same scenario as the person who feels they are overweight, goes to the gym for two weeks each January, and then eventually gives up on their weight loss plan. You need a plan. And better yet, you need someone that is going to hold you accountable to that plan. Without a well-established roadmap, how are you going to reach your final destination? No one ever accomplished anything without executing a plan! And it’s not just about a retirement plan. Having a plan for weekly and monthly expenses will build the mental consistency that is required for longer term goals.

Don’t let 2019 be another year of day-to-day stress, secretly praying that no unexpected expenses pop up between now and your next paycheck. It’s a vicious cycle that is hard to remove yourself from unless you come up with a concrete plan of action and stick with it. Making more money is not the key to living a financially stress-free life. It can help, sure. But with out a plan you will eventually fall back into the same, undisciplined routine.

If you are having trouble developing a plan or are unsure where to start, please feel free to reach out to us. That’s what we are here for: to help build a strong financial roadmap for you, your family and your future. We want to you to know you are not alone. Our technology and planning tools can assist in creating a robust, tax-conscious plan that you can carry forward with confidence.

Here’s to getting off to a great start in 2019 with your financial goals!