LaToya’s Blog

Where is Your Financial Emergency Kit?

first aid case on wall
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Floods, hurricanes, wildfires, earthquakes, extreme winds, and tornadoes. They all have the potential to create treacherous conditions and cause devastation.

We prepare with insurance, but it is often inadequate. It covers many, but not all natural disasters. Flooding requires flood insurance. And a standard homeowners policy won’t cover damages caused if the ground shakes violently.

Disaster can strike with little or no warning. Early preparation is the key.

Today, I want to focus on the importance of building a financial emergency kit. The time to create an emergency kit is today, when the skies are blue and the winds are calm.

What do I need?

Consider purchasing a box or safe that is fireproof and waterproof. You can’t guarantee it won’t be damaged during a disaster, but it will go a long way in safeguarding important papers. A safety deposit box is also an option.

Store electronic copies of important documents on a USB drive. Even better, upload them to a password-protected, cloud-based system. And be sure to create a strong password that is unique. Include letters (some caps, some lower case), numbers, and special characters. If two-factor authentication is an option, enable it.

Cash and keys. Make a duplicate of house keys and auto keys. You may also need cash in the immediate aftermath of a disaster. ATM cards may not work and not everyone is prepared to take a credit card. Still, it wouldn’t hurt to include a duplicate credit card.

Contacts. Who are the important people in your life–family, friends, medical, and professional. Create a list with telephone numbers, emails, or other contact information.

You may store the information electronically, with the appropriate security precautions, but it’s recommended that you place a paper copy inside your kit.

Identification. If disaster strikes, you may be asked to confirm your identity to obtain disaster relief services, file insurance claims, or get access to your property and financial assets.

Your kit should contain essential documents, including extra originals or copies of a passport, driver’s license, birth certificate, marriage certificate, adoption records, Social Security card, green card, any military records, and pet ID tags.

These will allow you to establish your identity, the identify of immediate family members, and eliminate the need to replace important ID markers.

Important records. We have copies of your financials, but this doesn’t preclude you from safe harboring your records.

A short list of financial documents that can fit into your kit includes mortgages, property deeds, and legal documents such as a power of attorney, estate planning, wills, and insurance policies.

Also include recent bank and credit card statements, brokerage accounts records, and statements related to investments that might be held outside a brokerage firm (such as mutual funds or 529 college savings).

If you access accounts or documents online, include a list of password hints. Also, pack recent retirement account statements and your most recent tax return.

A password-protected flash drive or file might be safer than hard copies—as long as you have a way to access the files. If you receive electronic copies of bank and brokerage statements, it is advisable to place recent copies in your kit.

What are your valuables? Create an inventory of your personal belongings. Assemble a paper, photo or video inventory, and put it into your emergency kit.

Be sure to save receipts for major items, home upgrades, or any appraisals of valuable belongings. For your household items, record what’s in each room. For major items, write down serial numbers.

While you’re at it, record the cost. Take closeup pictures of valuables, including details such as serial number tags. You can also videotape your belongings with a narrative description of the relevant information.

If the project seems overwhelming, you may start by tackling one room at a time. If it’s ever needed, it will help you maximize benefits from your insurance policies and expedite the claims process.

(Sources: Ready.gov–Financial Preparedness, Finra.org–Lock down your Financial Emergency Kit, IRS: Prepare for Natural Disasters)

Your kids

A disaster will take an enormous mental toll on you. Having your financial house and records in order will remove one burden. But what about your children?

Your children’s wellbeing will largely be dependent on you. Kids look to Mom and Dad for their security.

Here is a checklist for your kids obtained from UNICEF USA;

  • Pack their essentials such as medicine and clothes.
  • Pack their toys, favorite books, music, electronics, and have fresh batteries.
  • Talk to your kids about what to expect at a shelter.
  • Develop a system with your children that will allow them to be identified if they are separated from you.
  • Learn basic first aid skills in case you are your child becomes sick and medical supplies are scarce.

Chat with your kids in ways they will understand. Be honest, reassure them, but don’t make promises that aren’t realistic. Just as important, let them know there are resources available that will assist your family.

While I sincerely hope you never experience the pain that comes with the loss of property or worse, we are here to assist. Taking proactive steps in advance can help eliminate one source of uncertainty in the event disaster strikes.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor. If you have any concerns or questions, please feel free to reach out to me at latoya@latoyamaddox or call me at 678-821-2968 and we can talk. That’s what I’m here for.

 

Trends of the Wealthy

Let’s talk about some trends that are changing how private investors and especially the ultra-wealthy families worth $100 Million plus are allocating their capital.

While the mass affluent and billionaires are studied and talked about relentlessly in the media and by the general public, there are very few resources or facts available on those who are worth $100 million up to $2 billion.

These individuals are sometimes called Centimillionaires, a term rarely used.  This was similar to the use of the term “family office” used prior to 2000, and I think in the future the mass media, wealth managers, and dozens of other types such as industry service providers are going to sit up straight and realize that while there are only around 3,000 billionaires depending on what sources you trust, there are between 40,000 and 60,000 centimillionaires.

The families in the $100 million to $2 billion range need a lot of help, do not have as many gatekeepers as other 2 plus billionaires, and are less “famous” so they aren’t being pinged hundreds of times an hour with offers, pitches, requests and other inquiries.

Below are two trends we are seeing among Centimillionaires:

Transferring of Values (Not Capital): While the general public talks about baby boomers and the transfer of that wealth being central to their aging, Centimillionaire families seem to worry more about transferring values, responsibilities, family stories, and know-how being passed on to the next few generations.  Transferring of wealth in a tax efficient matter is important, but not much of that matters if the family tears themselves apart, wastes the money, embarrasses the family name, and squanders what past generations worked so hard to build as a family culture and legacy.  Many families are afraid that their family stories, governance structures, experience, etc. in creating the wealth is going to get lost between generations, and the true loss is either the family staying connected and/or the principles that lead to the wealth being created in the first place.  The wealth is truly transferred within the family values – not just a “warm fuzzy family emotions are more important than money” approach, but truly the only preservation and growth of the capital long-term is via the values/mission of the family.

Outsourcing: Most family offices are realizing that the only thing they should be doing in-house is what they did to create their wealth in the first place, the space where they believe there is great cross-over in a rising tide opportunity, using their experience and skills where they actively want to be 100% focused.  Trying to “recreate the wheel” just does not make sense.

Many single family offices, whether they hire a private bank or multi-family office or not, are leaning towards full outsourcing of their managers/stock/bonds/market exposure, a full in-house deployment of their investment back into the niches where they are playing offense, and then an in-between strategy of going through independent sponsors and some direct investments when it comes to real estate allocations.

This outsourcing trend with varying levels of accountability, control and transparency is likely to continue increasing with those with over $100 million in assets.

At NAMCOA we focus on adding real value, resources and peer connections to centimillionaires is one of those areas where those positioning now, building relationships now, and adding value now will do well long-term just as they will in the growing family office space.

 

The Legacy of Lehman

September 15th marked an ominous anniversary. Ten years prior, Lehman Brothers declared bankruptcy, sparking a financial crisis that engulfed the global economy.

Lehman’s failure could easily be described as a “systemic event.” That’s financial jargon for an event that triggers severe financial instability and sends shockwaves through the economy.

Economically, we’ve recovered from the downturn. Unemployment is low, and GDP is above pre-crisis levels. Major U.S. market indexes have topped pre-recession highs, but the crisis left an indelible mark on investors. For some, the scars remain.

While today’s bull market pushes higher, some investors fear a repeat. You see it every time the market experiences a correction, or a decline of at least 10%. One day, I believe the memory of the crisis will recede. It may take another downturn that doesn’t lead to severe losses, but I believe it will eventually fade.

Can it happen again?

We cannot unequivocally say “Never.”

Gone are the days when a borrower need only a pulse to obtain a mortgage. OK, that’s a bit of an exaggeration, but I think you understand what I’m trying to convey. Whether you blame it on the banks or blame it on borrowers, too many folks jumped into or were placed into loans they couldn’t afford or didn’t understand.

Today, banks are much better capitalized than in 2007. The major banks have a much bigger cushion to absorb loan losses. And underwriting standards for home loans are more realistic.

During the Fed’s quarterly press conference, Fed Chief Jerome Powell was asked about financial conditions.

Powell, said, “The single biggest thing I think that we learned was the importance of maintaining the stability of the financial system.” It’s something “that was missing” back then.

“We’ve put in place many, many initiatives to strengthen the financial system through higher capital, and better regulation, more transparency, central clearing, margins on unclear derivatives, all kinds of things like that, which are meant to strengthen the financial system,” Powell said.

These measures won’t prevent another recession, and systemic risks haven’t completely abated, but the financial system is in a much better position to withstand a shock than it was in 2008.

Table 1: Key Index Returns

MTD % YTD % 3-year* %
Dow Jones Industrial Average 1.9 7.0 18.2
NASDAQ Composite -0.8 16.6 21.0
S&P 500 Index 0.4 9.0 15.7
Russell 2000 Index -2.5 10.5 15.9
MSCI World ex-USA** 0.5 -3.8 6.4
MSCI Emerging Markets** -0.8 -9.4 9.8
Bloomberg Barclays US Aggregate Bond TR -0.6 -1.6 1.3

Source: Wall Street Journal, MSCI.com, MarketWatch, Morningstar

MTD returns: Aug 31, 2018—Sep 28, 2018

YTD returns: Dec 29, 2017— Sep 28, 2018

*Annualized

**in US dollars

Takeaways

It’s not about timing the market. It’s about time in the market, diversification, and the balance between riskier assets (such as stocks) that have long-term potential for appreciation, versus safer, less volatile assets that are less likely to appreciate.

Headlines can create short-term volatility. We saw that earlier this year, and we’ve seen it at various times in recent years. But patient investors who stuck with a disciplined approach were rewarded. Longer term, stocks historically have had an upward bias.

While heading to the safety of cash during volatility may bring short-term comfort, opting for the sidelines can have long-term costs.

Let me repeat a Fidelity study I recently quoted. “Investors who stayed in the markets (during 2008) saw their account balances—which reflected the impact of their investment choices and contributions—grow 147%” between Q4 2008 and the end of 2015.

“That’s twice the average 74% return for those who moved out of stocks and into cash during the fourth quarter of 2008 or first quarter of 2009.” Even worse, over 25% who sold out of stocks during that downturn never got back into the market.

Yes, the safety of cash during volatility may bring short-term comfort but opting for the sidelines can have long-term costs.

The opposite is also true. Don’t become overconfident when stocks are surging. Some folks feel an aura of invincibility and are tempted to take on too much risk.

That gets them into trouble, too.

I hope you’ve found this review to be educational and helpful. As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor. If you have any concerns or questions, please feel free to reach out to me at latoya@latoyamaddox or call me at 678-821-2968 and we can talk. That’s what I’m here for.

 

401(k) and Retirement Plan Limits for the Tax Year 2018

On October 19, 2017, the Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for the tax year of 2018.

Highlights of Changes for 2018

The contribution limit for employees who participate in 401k, 403b, most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2018.

Click here to view the 2018_plan_limits

What is a Privately Managed Account?

Also known as a SMA (“Separately Managed Account”), is a single investment account comprised of individual stocks, bonds, cash or other securities, tailored to achieve specific investment objectives.

Your portfolio manager oversees the investments according to your specific investment objectives and in an investment style with which you are comfortable.  Put simply, a SMA is for demanding investors who:
  • Seek the comfort of professional investment guidance and a heightened level of personal service
  • Still want to take an active role in their financial life
  • Desire the flexibility to invest in different strategies or styles, while seeking the liquidity and potential tax benefits that come from owning individual securities in separate accounts, versus mutual funds
  • May want a single fee to cover ALL account costs, including trading costs and performance reporting.
  • Low-cost, transparency and 24/7 online access

For those with more than $100,000 a SMA may be the smart way to manage portfolio assets, due to lower costs, greater tax efficiency and transparency.

Why the growth in Cash Balance Plans?

The Pension Protection Act of 2006 (PPA) is long and hard to read, but it played a crucial role in establishing cash balance plans as a viable and legally recognized retirement savings option. Before 2006, cash balance plans faced frequent legal challenges. Those bringing the suits argued that cash balance plans violated established rules for benefit accrual and discriminated against older workers. The rulings on these cases were inconsistent, and many business owners were reluctant to risk establishing a plan that just didn’t have firm legal footing.

The Pension Protection Act ended this uncertainty about the legality of cash balance plans. The legislation set specific requirements for cash balance plans, including:

  • A vesting requirement: Any employee who has worked for their company for at least three years must be 100% vested in their accrued benefits from employer contributions.
  • A change in the calculation of lump sum payments: Participants in a cash balance plan can usually choose to receive a lump sum upon retirement or upon the termination of employment instead of receiving their money as a lifetime annuity. Before 2006, some plans used one interest rate to calculate out the anticipated account balance upon retirement, but, when participants opted to receive an earlier lump sum, the plan called for using a different interest rate to discount the anticipated retirement balance back to the date of the lump sum payment. This could lead to discrepancies between the hypothetical balance of the account (as determined by employer contributions and accumulated interest credits) and the actual lump sum payout, an effect known as “whipsaw”. The PPA eliminated the whipsaw effect by allowing the lump sum payout to simply equal the hypothetical account balance.
  • Clarification on age discrimination claims: A cash balance plan does not violate age discrimination legislation if the account balance of an older employee is compared with that of a similarly situated younger employee (i.e. with the same length of employment, pay, job title, date of hire, and work history), and the older employee’s balance is equal to or greater than the younger employee’s.

There are, of course, many other points included in this lengthy piece of legislation, but the takeaway is this: the Pension Protection Act of 2006 removed the legal uncertainty surrounding cash balance plans and made them a much more appealing option for small business owners. The number of cash balance plans in America more than tripled after the implementation of the PPA. Additional regulations in 2010 and 2014 made these hybrid plans an even better option, and we anticipate that their popularity will continue to grow. There are thousands of high-earning business owners out there who can reap huge, tax-crushing benefits from implementing cash balance plan – they just have to know about them first.

400% Top-line Deductions?

Despite the explosive growth and substantial tax benefits of cash balance plans, most Americans are unfamiliar with one of the best tax-deferred savings opportunities in existence. When combined with a 401(k) profit-sharing plan, cash balance plans substantially increase the contribution limits for retirement plans, sometimes increasing available top-line deductions by over 400%. This means that participants, particularly older contributors, can accelerate their retirement savings and simultaneously take advantage of significant tax savings.

Cash balance plans are classified as “hybrid” retirement plans: defined benefit plans (think traditional pension plan) that function like defined contribution plans (think 401(k)). Like a defined benefit plan, the ultimate benefit received is a fixed amount, independent of investment performance. The plan sponsor directs investments and ultimately bears investment risk. What sets a cash balance plan apart, though, is its flexibility and hybrid nature that makes its function appear similar to that of a 401(k).

When businesses choose to add a cash balance plan, they generally do so on top of an existing 401(k) profit-sharing plan. This allows high-earning employees to put away more money for retirement at a much faster rate while providing significant tax savings.

Those who stand to benefit the most from a cash balance plan include:

• Professionals with high incomes such as doctors, engineers, lawyers, orthodontists, etc.

• Business owners over 45 looking to substantially increase their retirement savings in the coming years

• Highly-profitable companies

• Business owners wanting to contribute more than the traditional 401(k) limits to their retirement while accruing substantial tax savings

For Americans earning over $400,000 per year, cash balance plans are a game-changer. With the potential for hundreds of thousands of dollars in annual tax savings, a closer look is well worth the time.