By Cark Trevison and Stephen Bearce A primary reason investors own bonds is because their values have historically remained relatively stable over time. In other words, they’ve been less risky than stocks. (Of course, their returns have been lower as well.) So you might want to have bonds in your portfolio in case the stock market takes a hit. If that happens, the bonds could stabilize your portfolio’s overall value. And that may help you avoid making emotional (and sometimes costly) heat-of-the-moment choices. Lower risk is different than no risk Bonds are considered less risky than stocks, but they’re certainly not risk-free (no investment is). Although some investors may believe bonds are as safe as cash, that’s not the case. In fact, bond investors face a number of risks, including: Interest rate risk. The chance of a change in a bond’s price in response to movements in interest rates. It’s important to understand this risk because bond market prices and interest rates are negatively correlated. In other words, if interest rates increase, existing bond prices are likely to decrease. Conversely, when rates are higher and begin to decrease, bond prices will tend to increase. Credit risk. The prospect that an issuer may suffer a relative decline in credit quality or outright default. The lower the credit risk, the fewer credit-related price fluctuations there should be. Default risk. When you purchase a bond, you face the risk that the issuer may be unable to pay the interest or par value when it’s due. Opportunity risk. The possibility of missing out on potentially better returns you may be able to get from other investments, like stocks. Consider your big picture Whether you’re talking about bonds or stocks or any other investment, it’s important to remember that the amount you own should be…
By Carl Trevison and Stephen Bearce Economic difficulties, political unrest, and natural disasters can all present challenges. Investors may wonder what effect these types of events, and others, could have on their investments. That’s why it’s helpful to focus on three fundamental actions that could help investors work toward their goals — know yourself, build a plan, and keep an eye on the long term. Know Yourself When stocks drop by 20% or more, some investors might ignore the drop, others might feel the urge to sell, while still others might see it as a good time to buy. This range of reactions illustrates different levels of risk tolerance, or how sensitive investors are to market volatility. Risk tolerance varies from one investor to another, and no level of tolerance is considered the “right” level — there’s only the right risk tolerance for each investor. Talking with financial advisors or completing online questionnaires can help investors determine their risk tolerance. While understanding risk tolerance is essential, it should not be considered in isolation. Risk tolerance, goals, and time horizon all play a role in setting an investment plan. Investing more aggressively may yield more rewards, but the length of time available for investing also plays a part. A longer time horizon could give investors the potential for compound growth. And setting specific goals can help to determine how much an investor should accumulate to support their goals. Build a Plan Dwight D. Eisenhower may have said it best — “Plans are worthless, but planning is everything.” Even though a plan may need to be modified to adapt to changes, the very process of setting a plan can help investors to discover and focus on their most important investment goals. For a plan to be useful, it’s important for investors to…
By Carl Trevison and Stephen Bearce Market volatility, painful as it can be, can actually provide an important lesson for investors about why it’s important to stick to the fundamentals, such as having an asset allocation strategy and reviewing your plan. With that in mind, here are suggestions for turbulent times that may help you turn today’s worries into tomorrow’s good habits. Remembering asset allocation When market volatility occurs, investors have the opportunity to get back to fundamentals they may have forgotten. This is especially true for asset allocation — the strategy financial professionals return to time and again when investors want help dealing with volatile markets. At its most basic level, asset allocation is how you diversify your investments across different asset classes (stocks, bonds, cash alternatives, etc.). This varies based on a number of factors, primarily: What you want your investments to help you achieve (objectives) How comfortable you are with market volatility (risk tolerance) How long it will be before you will need to access your investments (time horizon) The asset allocation model that best suits any given investor depends on where they land in regard to these three factors. It’s important to remember that asset allocation offers investors a trade-off. During good times, a diversified portfolio’s return will lag the best performing asset class. On the other hand, during down periods, it will do better than the worst performing asset class. It’s up to each investor to decide what’s more important — participating more in the good times by holding more stock or avoiding the worst of the bad by holding less. Reviewing your plan regularly If you have an asset allocation plan and still find yourself lying awake at night, volatility is a chance to revisit your plan for possible adjustments. It’s possible you overestimated…
By Carl Trevison and Stephen Bearce We plan our weekends. We plan our weddings, careers, and futures. Planning not only helps set us up for successful outcomes in the future but can also help immensely in the present. It helps us define and refine our goals, align tactics, proactively address risks, and chart our progress. Too often, however, the planning that could be the most valuable is overlooked. The same people who would not dream of embarking on a two-week vacation to Italy without an hour-by-hour itinerary may have just a basic outline of a plan for their retirement, which could last 20 to 30 years. What drives this disconnect? Many of us are intimidated by the thought of putting our plans on paper. Others fail to grasp the value of the planning process. One common mistake is thinking your situation is very simple and straightforward so you don’t need a plan. This misconception can stem from a misunderstanding of exactly what constitutes a plan and an assumption that planning ought to be comprehensive enough to meet the needs of the rest of your life. Planning should meet you where you are and reflect your current situation. Your investment goals and your plan will evolve with you over time. Effective plans are generally the ones that take your individual circumstances and those of your family into account. They should start with your goals and objectives and may encompass planning for investments, retirement, taxes, and wealth transfer. As you map out your goals, consider the following: Are you thinking of starting a business? Are you exploring buying a second home or is there another big purchase that you would like to make at some point in the future? Do you want to travel extensively after you retire? Have you promised your…
By Carl Trevison and Stephen Bearce Consider these three suggestions if you inherit a trust. David “Chico” Esparza, senior fiduciary strategist with Wells Fargo Wealth & Investment Management, remembers meeting two clients, a brother and sister whose parents had passed away. “Unfortunately, their parents had not discussed their estate plans with the adult children. When the siblings learned they were the beneficiaries of a sizable trust,” Esparza recalls, “they had no idea what to do next.” The brother and sister had many questions. Who handles the estate? What are the terms of the trust? And what should their next steps be? “The bank was appointed as successor trustee, so we explained the timeline and process for settling the trust estate,” Esparza says. “It helped to ease their minds to know that professionals would be handling the numerous tasks required for an orderly estate settlement.” As Esparza’s clients found, stepping into the role of beneficiary can feel a bit like stepping into the unknown. Here, Esparza offers three suggestions for those in similar situations. Build an advisory team A good first step for the beneficiary is to meet with the trustee who is tasked with executing the terms of the trust. It may be an individual, such as a CPA or lawyer, family member, or potentially a corporate trustee such as Wells Fargo Bank. “There will be a lot of questions, so it’s important to establish a communication plan and outline tasks that need to be accomplished along with a general timeline for how long it will take to settle the estate,” Esparza says. In some instances, once the estate is settled, a new trust is funded with the beneficiary’s share of the estate; in other cases, assets will be distributed outright to the beneficiary. If the assets will be…
By Carl M. Trevisan and Stephen M. Bearce A donor-advised fund offers a middle ground between participating in simple “checkbook charity” and starting a nonprofit foundation. Often considered smaller and nimbler cousins of private foundations, donor-advised funds offer many of the benefits of foundations, including the ability to: Involve multiple members of the family, friends, or other advisors Research potential recipients Recommend how funds are distributed But, unlike foundations, donor-advised funds require less legal and financial paperwork, such as an annual tax filing that is subject to public inspection, regulatory requirements, and excise taxes. How do you contribute? Donor-advised funds allow you to contribute cash, stock, real estate, or other assets, such as business interests. These contributions can be bunched to combine multiple calendar years’ worth of gifts into one year, which may offer tax benefits if you are close to your standard deduction limit. You may partner with a donor-advised fund sponsor or the sponsor may run your fund. A fund sponsor can be a financial institution or a community, educational, or religious institution. Grants may then be recommended by you or your designee to your charities of choice. Rather than keeping track of gift receipts from multiple charities, a donor-advised fund serves as your single source for tax receipts and grant-recipient information. Keep in mind, your potential deduction is based on your contribution(s) to the fund itself, not the individual grants distributed from the fund. More potential considerations for donors and recipients Donor-advised funds are gaining popularity for other reasons, including: Anonymity. When you give gifts to a charity through a private foundation, those gifts become public record through IRS form 990-PF. In contrast, you can choose to make your gifts from a donor-advised fund anonymously. Recurring gifts. Many donor-advised funds have recurring gift options so you can…
By Carl Trevison and Stephen Bearce When it comes to Social Security and retirement, you may have conflicting viewpoints: On one side, you may hope to collect your benefits as soon as you are eligible due to cash flow needs or other goals. On the other side, you know that if you wait, your monthly benefit amount will be greater. While it may make sense to wait as long as you can, Sherman Hohenberger, lead business growth strategy consultant at Wealth & Investment Management, Wells Fargo Bank, N.A., recommends you reevaluate your situation every year in retirement before deciding whether to continue delaying the beginning of Social Security benefits. “Because each individual, couple, widow, and widower has a unique lifestyle and unique income needs, I believe a year-by-year evaluation prior to beginning benefits is the best approach,” Hohenberger says. One item you need for that annual retirement review is a current copy of your Social Security benefit estimate from ssa.gov. This provides personalized estimates of future benefits based on your real earnings and lets you see your latest statement and your earnings history. Here, Hohenberger outlines a comparison of claiming now vs. later and offers key considerations as you review your strategy each year. Comparison: Claiming sooner vs. later Let’s start with a hypothetical example: John Doe was born in 1960, is retired, and he decided to claim benefits as soon as he became eligible at age 62, or five years before his full retirement benefit age of 67. His monthly benefit in today’s dollars is $2,106. If he had delayed receiving benefits until he was 70, he’d receive $1,625 more a month, or $3,731. And he would make up for the eight-year delay in not taking any benefits in about 10 years. “Unlike personal assets that can be exhausted,…
Courtesy of TFCU The economic environment has shifted dramatically in recent years. Inflation, higher interest rates, and uncertain markets are putting pressure on household budgets. Many people are struggling with rising auto loan payments, credit card balances and mortgage costs. Against this backdrop, credit unions have never been more relevant. Unlike traditional banks, credit unions are not-for-profit, member-owned financial cooperatives. Their mission is to serve members rather than generate shareholder profits. This difference translates directly into lower loan rates, better savings returns, and fewer fees—benefits that can provide crucial relief for families right now. One credit union standing out in this regard is Transportation Federal Credit Union which began by serving the employees, retirees, and families connected to the U.S. Department of Transportation but that now serves all residents of the DMV area. The Credit Union Advantage Lower Borrowing Costs With the Federal Reserve maintaining higher rates to fight inflation, banks have passed those costs onto consumers. According to the Consumer Financial Protection Bureau Credit, many consumers have higher than normal credit card debt with APRs now averaging 20%–25%. Couple that with the increased cost of living and high personal debt, credit unions offer financial solutions that could save a household hundreds—even thousands—of dollars over the life of a loan. For example, refinancing a $5,000 credit card balance from 22% to 11% could cut your monthly payments nearly in half and help you keep more of your hard-earned money. Higher Returns on Savings As households work to rebuild emergency funds drained during the pandemic and recent inflation spikes, where you save matters. Credit unions offer above market rates and help you to build meaningful ways to grow money faster while keeping it liquid. Fewer and Lower Fees Fees may seem small, but in a tight budget, they add up fast….
By Carl Trevison and Stephen Bearce Single parents often face unique challenges, not just raising kids, but also creating a financial path toward success. With the cost of health care, food, school, and more ever increasing, being successful on one income is a huge barrier for more than 37 million parents — or roughly 30% of households in the United States.¹ While many moms and dads report struggles with finances, there are ways to help improve your finances and be proactive with your financial future in the short- and long-term. Live Within Your Means No one really enjoys creating a budget, but it can help you manage your current situation with recurring expenses as well as plan ahead for unexpected costs or emergencies. Creating a budget can be stressful, but when you have one, it can help minimize stress over time. Start with your monthly income, after tax, then plan for your essentials like groceries, gas, mortgage/rent, and utilities. Don’t forget any spousal support, child support payments, or other sources of income. Once you have those covered, branch out and look at things you want to do within your budget, like eating out, taking a trip, or buying gifts. Make sure your budget allows for saving. Rainy days will come as well as eventual retirement down the road. Along with budgeting, consider applying for a credit card to help establish a credit history. Create a Wealth Management Plan Another key to your financial health is creating a plan to manage some of the risk and uncertainty about the challenges ahead. Start with goals, short-, medium-, and long-term. One-third of single parents don’t have life insurance or disability insurance.2 These products help protect your loved ones and provide comfort should the unexpected happen. Don’t be afraid to ask for help. Single…
By Carl Trevison and Stephen Bearce How much thought do you give your charitable giving? Do you simply write some checks, or do you visit organizations’ websites, make donations, and then get on with your day? If so, you’re not alone. But is that really the most fulfilling way to do it? Here are some insights from Meredith Camp, philanthropic services senior regional trust manager with Wealth & Investment Management, Wells Fargo Bank, N.A.: Having supported the philanthropic efforts of many clients over the years, I have seen clients enjoy so many incredible benefits of giving, but not without obstacles that need to be overcome to get the most out of the experience. First the benefits: I have seen first-hand how giving one’s time, money, and energy on behalf of others can enrich personal and cultural relationships, enhance well-being, and build stronger, more vibrant communities. Now the obstacles: Making meaningful decisions about how, when, and how much to give is not always easy. With over 1 million charities in the U.S. and social, environmental, and economic uncertainty, the choices can be overwhelming, even stressful. As a result, I have seen some individuals restrain their charitable activity despite their strong desire to give back. Others I encounter worry that their giving is scattered, often reactive, and as a result, only moderately satisfying. Fortunately, there are ways to enhance the process of giving so that it’s a more rewarding and joyful experience for both donors and the recipients of their generosity. When my clients ask how to make the most of their charitable giving, I tell them it starts with meaning (not money). Together, we explore their values, passions, and objectives to help bring focus and intention to their philanthropy. How can you transform your giving into a more meaningful, fulfilling endeavor?…
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