Consistent growth in net worth is an indicator of positive
financial health, but when liabilities grow faster than assets, or the value of
assets drop, the result is negative net worth. Net worth calculate by
subtracting liabilities (owed debt) from assets owned. Net worth is estimated
for both individuals and companies and is an accurate determination of how much
something (or someone) is worth. Net worth can fluctuate based on assets decreasing
or increasing in value, or acquiring more or paying off debt.
Before investing in a company tied to the stock market,
financial analysts examine the stability of a company by evaluating the net
worth of the company and other factors; profits and earnings, leadership, years
in business, etc. Your retirement and investment accounts can be impacted if
the company you’ve invested in has a decline in net worth or the stock
valuation changes. This decline can directly affect your net worth.
People tend to compare what they have to their peers; they
examine the house or the car, but net
worth and financial success is something that is not always visual. Doing
your net worth calculation can help determine if you are moving toward a
positive net worth or not.
It’s easy to get caught up in ‘stuff’ especially if you have
to finance purchases. Remember that the purchases may lose value over time as
they become older. Automobiles and sometimes homes can lose value based on geography,
economic conditions, and aging neighborhoods. Whether you’re trying to become a
millionaire before you retire or pay off all your debt, net worth matters
because it’s a tool to measure your progress.
Discussing your net worth at your financial planning meeting
can be beneficial and provide you with information to help keep you on track
with your financial goals. Remember that
net worth is always an accurate indication of financial health for better or
worse.
Due to the duration risk of holding assets over time, a
normal yield curve shows that bonds with a longer maturity have a higher yield and
pay more interest than short-term bonds. Investors usually demand higher rates
of return if their money is invested for a more extended period.
An inverted yield curve occurs when long-term yields fall
below short-term yields. Under these circumstances, investors will settle for
lower returns associated with low-risk long-term debt if they think the economy
will enter a recession soon.
Shorter-dated securities are more sensitive to interest rate
changes, whereas longer-dated securities are sensitive to an investor’s willingness
to participate in the bond market during an increasingly inflationary period.
Higher inflation equates to higher borrowing costs and stifles the bond market.
The yield curve bases on Treasury bond performance and an
inverted yield curve historically link to economic recessions. The spread on yields
between U.S. two-year and U.S. ten-year notes inverts for the first time since
2007. An inverted yield curve for U.S. Treasury bonds is the most consistent
indicator of a recession and signals to investors a recessionary period is
approaching or is already underway. Since 1950, an inverted yield curve has preceded a recession signaling trouble ahead for Wall Street.
What’s to be expected
when an inverted yield curve occurs?
Although an inverted yield curve usually signals a recession
in the upcoming months, there is no indication of duration and how the U.S.
economy or your investments will be affected. If you’re approaching retirement,
it’s imperative to consider how your fixed-income investments will fare and if
it is time to consider others. If the stock market declines, drawing from
fixed-income investments until the market rebounds will be essential for your portfolio’s
preservation.
The financial services industry has classified “advice”
as financial planning, not investment advice (the selection of investments),
which is just one part of wealth management. If Robo-advisors have done nothing
else, they have revealed that much of the investment
advice in selecting investments can be automated. With technology doing
much of the work as it relates to the investment selection part of the
equation, investors need to think more broadly about their financial planning.
Financial planning includes estate planning, tax planning, and philanthropy needs to be managed through wealth management services provided by a financial advisor. Wealth management isn’t exclusive to only high net worth individuals but is best suited for investors with complex situations and financial goals. This is where a financial professional can help make an impact for their clients.
The human side of wealth management
focuses on the relationship the client has with the financial professional and how much time
and commitment they can provide. Managing the relationship is not
customer service, but a crucial element involving other professionals to help
preserve the client’s wealth and ensure the desired outcome.
At times wealth management encompasses
helping the client work through psychological decision making, whether it be to
correct past investing mistakes, prevent new ones, or plan their legacy.
“Money” tends to be emotional and requires human interaction to grow appropriately. A financial professional’s advanced skills determine how to best manage
the client’s wealth through human attributes outside of technology:
If you would like to find out more
about wealth management services to determine if it is right for you, please
contact our office for a consultation.
A 529 plan is a state-sponsored tax-advantaged plan designed
for saving for future education expenses that are authorized by Section 529 of
the Internal Revenue Code. If used for education, the assets grow tax-free.
Since 529 plans came into existence in 1996, they have grown to $328 billion in 31.1 million accounts according to Strategic Insight.
There are two types of 529 plans, pre-paid tuition plans and education savings plans. Pre-paid tuition plans
allow the account owner to purchase credits for later use at participating
colleges or universities to pay for tuition. Education savings plans tend to be
more popular since the federal government guarantees them (but not against loss
due to the investment’s performance). Education savings plans utilize an
investment account to save for the beneficiary’s future qualified higher
education expenses, including room and board, fees, and qualified equipment
expenses. 529 plans can now be used in every state to pay for K-12 education
expenses at private schools.
Now, 529 plans are becoming
popular in estate planning thanks to the 2017 Tax Reform Act.
Under the act, an individual contributing to a 529 savings plan can frontload
$75,000 (or five years’ worth of contributions) into one year without incurring
federal gift taxes. A married couple, who are grandparents, could contribute
$150,000 into their grandchild’s 529 plan. It’s a unique way for those who wish
to make education a part of their estate plan legacy that allows them a tax
deduction and no federal gift taxes. The bonus is that this can be for each
child or grandchild. Another positive feature is the contributor/account owner
retains control of the assets and rights to the dollars in the 529 plan inside
their estate plan.
Changing the beneficiary of a 529 account held inside an
estate or trust can breach the trust and caution is advised. 529 plans allow
the contributor/account owner to change the beneficiary of the account at any
time. However, if the 529 plan is used inside a trust or as part of an estate
plan, changing the beneficiary can have adverse effects if the trust or estate
plan is ever contested. Therefore, due diligence in using a 529 plan within
estate planning should involve an investment professional, attorney, and tax
professional. There are many 529 plans sponsored by various states, research to
find one that meets your expectations and needs.