Let's Talk Robo


Have you seen the TV commercials about a machine or robot as your investment advisor?  As funny as they may be, they may be giving you the wrong idea of what a robo-advisor really is.  A robo-advisor is technology (an automation platform) that allows automation for certain aspects of portfolio management.  One of the misnomers in the industry about automated platforms (robo-advisor) is that they constitute advice. This has led to the misunderstanding that a robo-advisor provides advice.  They do not advise but instead provide a way to implement the customized advice of a human adviser through technology. 

There are two uses of robo-advisors in the financial services industry.  The first one is online shops where an investor uses the technology on their own to make their investment decisions through automation.  There is no human advisor involved, and technology has given options for you to select based on the information you inputted into the technology platform.  In the ‘robo shop’ life changes you experience are unknown to the technology, and it remains on its trajectory unless you make a selection yourself to change it.  This option is for those ‘do it yourself’ investors that usually don’t work with a human advisor.

Another way robo-advisors (aka the technology) are active is through real financial advisors.  This robo technology used by financial advisors is highly efficient, low cost, and allows transparent investment management and client communication through the use automated platforms. If properly utilized, robo technology promotes engagement between the client and the advisor, and assists in monitoring and adjusting client portfolios to keep the client moving forward to their financial future. It is this second benefit that opens the door for using automated platforms for all clients under the direction of a human advisor.  In this instance, robo platforms make the advisor more efficient and allow the client access to better financial offerings.


Planning for The New Tax Plan


Many Americans have already filed their taxes for 2017, but the majority will be filing this month and finding out how the new tax plan is impacting them (if at all) for this spring’s filing.  Some changes have already taken place such as the adjusted withholding in February’s paychecks resulting in slightly higher take-home pay.  However, the impact is expected to be felt next tax season when filing for 2018.  If you haven’t already done so, now is a great time to visit with your tax professional and do some strategic tax planning.

The New Tax Cuts and Jobs Act of 2017 keep the seven individual tax brackets but lower tax rates.  Due to inflation over time income levels will rise and will move people into higher tax brackets.  One way to lower your tax rate is by contributing more to your pre-tax retirement accounts to reduce your personal income.  Visit with your tax professional regarding if this will make a difference going forward and adjust your contribution accordingly. The deduction for retirement savings remain in place so use it to your advantage while you can.  Saving more is never a bad idea, and when you need to offset taxes due by maximizing contributions you benefit twice.  The new plan doubles the standard deduction but eliminates personal exemptions which should encourage pre-tax retirement savings.

Next year’s tax filing will be unusual for those that were utilizing the mortgage interest deduction for homes valued over $1 million; the limit for the deduction is on loans of $500,000 or less.  As home prices increase, those entering the housing market will be impacted in many areas of the country.

Some ‘oddball’ changes in the plan affect those divorcing in 2018 and paying alimony; it will no longer be a deduction for the payer but will be for the receiver.  Additional changes are the doubling of the child care tax credit, and expansion of medical expenses to 7.5% of adjusted gross income for all age groups. 

Due to the complexity of the new tax plan, it will become imperative for you to seek professional advice to make sure you’re aware of all the changes going forward.  Keep your tax professional aware of all tax-related personal changes, pre-tax retirement savings contributions, and other factors such as inheritance or upcoming plans for retiring in the next one to three years.  If our office can be of assistance in this area, please let us know.


The Cost of Credit


2017 was a bad year for the credit industry- data breaches and multiple lawsuits.  But it’s becoming apparent that Americans overall are going to have a worse 2018 compared to last year as the trend of acquiring more debt increases.  Aside from having to shell out money for damages caused in 2017, the credit industry will have a very lucrative 2018 even after paying fines and settlements thanks in part to the American consumer.

Factors contributing to increasing credit card debt among Americans includes more access by those considered ‘subprime borrowers,’ increased costs for food and housing and continuous spending on unnecessary items.  After all, we are a society that values keeping up with the Jones’ which causes many to borrow to achieve the lifestyle they desire.  But at what expense?

If your debt level has outpaced your savings, it may be time you take a serious look at your financial picture.  You should be decreasing your debt and increasing your savings (retirement, personal, emergency) over time.  The latest Financial Security Index Survey from Bankrate  shows the opposite is happening.  Surprisingly 17% of Americans indicated that they have no credit card debt, but also have no savings to show for it!  Americans are failing to realize that their savings need to outpace their debt.  Preparing by having an emergency fund to offset a health-related condition that prevents working or retirement planning to someday retire without decreasing lifestyles can only happen when debt is under control or eliminated. 

Here are a few facts about credit you need to consider:

1.  Having your credit score accessed frequently will affect your score.  You will lower your score due to multiple inquiries if the inquiries are to obtain credit, not for other reasons such as employment. Avoid accepting every credit offer you’re getting at the check-out.

2.  Only paying the minimum payment each month will hurt you.  The higher the balance and the length of time you carry a balance has a negative effect on your financial health and credit score over time. 

3.  Not every credit score that you access online is a true FICO score and may not be the one your lender uses.  If you apply for credit, the lender has to provide you a copy of the score they received when they pulled your credit; don’t be fooled into believing credit cards are the access point to bank lending for home, auto, and other loans.

4.  Late payments lower your score.  Even one a year has a negative result on your ability to secure loans.

5.  Employment history doesn’t affect credit scores, but some lenders look at employment history to determine if you’re financially stable enough to make monthly payments.

6.  The more you make and save doesn’t help a credit score.  Your bank accounts and investment accounts are not a part of the FICO (debt) calculation, but if you don’t have anything left over at the end of the month because of your debt, you can’t save and invest.

7.  Bad Credit never goes away.  It takes seven years to remove bankruptcy and collections on credit, but over time it does go away, and your score can improve if you’ve managed your credit positively.


The Inflation Factor


Despite the fallout to investor’s portfolios, job losses, and the overall downward turn of the American economy during the recession, we have benefitted from relatively low inflation rates. While the US and other countries control monetary policy, there is never a way to avoid inflation after a recession; it’s part of the economic cycle. Borrowing and buying power become expensive and our dollar doesn’t go as far during a period of high inflation. We are already starting to see inflation creeping up- food costs, housing, durable goods, as well as the reaction of the stock market to impending inflation (and other factors). Remember how much a candy bar cost when you were a kid? That’s the perfect illustration of inflation; things overtime become more expensive.

How does inflation affect your portfolio as you enter retirement and can it withstand future inflation hikes? If you’re unsure, having a financial plan run with a high rate of inflation can give you an idea how your portfolio may be hurt. Some investors have the misconception that once you retire, financial planning and keeping part of your portfolio in the stock market should stop. When you retire, you are no longer working or contributing toward retirement savings accounts and still need to generate income inside your portfolio. During retirement, it becomes even more critical to continue to monitor and restructure your portfolio so that it continues to make gains the remainder of your life. This includes being invested enough in the stock market so that your portfolio outperforms the inflation rate.

There are two things investors can do if they’re opposed to keeping their retirement portfolios in the stock market to adjust to inflation; cut back on what you buy or return to work so you can continue accumulating retirement assets. Even the best-constructed retirement portfolios are not completely ‘bullet-proof’ when it comes to inflation. Inflation is one of the unknowns in financial planning; we have no idea until we get there how it will impact us. Like everything else, inflation is an ever-changing and needs tending to throughout retirement planning and spending down retirement assets.


SAI April 2018 Newsletter Approval 2065474.1