Investing in alternative investments such as cryptocurrency and the cannabis market may result in a significant loss of capital, and like other markets has no guarantee of profit.  

Bitcoin, Cannabis, and Other Alternative Investments

If you’re considering alternative investments this year, you should thoroughly think through the consequences of investing in some of the most popular ones in the media.  Although Bitcoin and the Cannabis business may be on Wall Street’s radar, it’s not necessarily for good reasons.  Both are still considered speculative and are not investable asset classes; they are not categorized as alternative investments in the stock market, and may not ever be.  However, Blockchain technology is something that many financial institutions are investing in due to the security benefits it provides.  Bitcoin doesn’t pay dividends, the tokens have no cash flows, and there is no way to determine demand growth or provide valuation measures.  And then there is cannabis, which still has its hands full with the federal government regardless of states deciding to go rogue on allowing sales to the public.

Cryptocurrency exchanges (such as Bitcoin) have come through technology development, and are virtual, digital (website) exchange that can reside in any country, or countries, and managed by multiple individuals.  Traders have to be ‘verified’ but are not limited to number of times they trade, etc.; as traders in the US market are.  There is no regulation, and no knowledge of who the ‘currency trader’ is.  For this reason, cryptocurrency investing may result in a significant loss of capital, and just like other markets has no guarantee of profit.  Time and technology development will weed out fraudulent cryptocurrency exchanges, but we advise waiting to see how the US financial sector will view cryptocurrency in the coming year.

Last month the State of California legalized the sale of Cannabis^t which has increased Interest in this alternative investment.  The resulting media commentary regarding other states following California may be speculation, but California is being viewed by many Americans as being leader in opening up of cannabis business nationwide.  Regardless if a state allows medical or recreational cannabis sales, one thing is clear; investing in this type of business may just go up in smoke!  Because Cannabis and drug sales are on the ‘naughty list’ for traditional lenders, many dispensaries look to private investors.  There is no regulation or legal process if your lenders default; this business is viewed as illegal at the federal level which is why we caution you on this alternative investment.

Alternative investments may have a place in your portfolio with other types of investments that are meeting a specific need you have.  If you are curious about alternative investments, you are invited to make an appointment to discuss them.  Together we can determine which ones may be a legitimate alternative that meets an investment objective you have.

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Tips for 2018 to be Money Savvy While Saving for Retirement

Start Saving More NOW!   If you started saving for retirement early, chances are you’ll hit your retirement goal.  If you’re like most Americans, you didn’t start right away and are playing ‘catch-up’!  Don’t put off saving later, start now!  If you didn’t start in your 20s, it’s time to start maximizing your savings now because you still have time to make a difference in what you will accumulate.

Don’t Spend More Than You Make.  Overspending, credit card debt, and debt in general, will hamper your saving if you’re putting all of your extra income into paying down debt.  The important thing is to not live beyond your means; easier said than done, right?  Controlling your spending and developing a budget should be a priority for you in 2018.

Max Out Your Retirement Contributions.  Roth IRA contributions are $5500 if you’re under 50, $6500 if you’re over 50.  In your Pre-Tax retirement accounts, max your contributions at $18,500 and if you’re over 50, $24,500.

Save Extra Unexpected Money.  Maybe you’ve received a bonus at work or inherited money recently.  Instead of spending it on things you don’t need, or a lavish vacation, save some of it!  And for those of you expecting a tax return, add it to your emergency fund, start or max-fund a Roth IRA, or invest it into another investment.  If you have debt, pay it off using that refund!

Get Your Employer Retirement Account Match.  Make sure you’re putting enough into your retirement plan at work to get the matching dollars from your employer.  If you’re not saving enough to receive a matching contribution from your employer (commonly a 2-4% match), you’re throwing away ‘free money.’

Take Some Risk.  If you have all of your retirement savings in an interest only account, you will not keep up with inflation in retirement.  Visit with your financial advisor about having some of your portfolios in the stock market, after having an investor profile completed.

Be Aware of Tax Implications.  Part of your retirement savings should be in tax-sheltered accounts.  Discuss account options and tax benefits with your financial advisor and your tax professional so you fully understand how taxes will affect your retirement savings now and when you retire.  If you’re anticipating retiring in the next 1-2 years, this is crucial as many new retirees don’t realize that their tax brackets may change as a result of liquidating too much from their pre-tax retirement accounts the first five years of their retirement.

Monitor Your Investments.  Always meet for a financial review at least yearly to determine if your risk tolerance, fund choices, and timeline until retirement are still on target.  Getting financial help is never a bad investment.

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If you started saving for retirement early, chances are you’ll hit your retirement goal.  If you’re like most Americans, you didn’t start right away and are playing ‘catch-up’!  

Numbers give us a baseline to help you financially plan for today and the future.

Is Retirement Really About Numbers?

For some people retirement is all about the numbers; the age you plan to retire, how much money you need, and so forth.  We have built our planning processes in financial services based on numbers and algorithms in financial planning software to help us contrive a number or group of numbers that are uniquely yours.  But is retirement really about numbers? 

Numbers give us a baseline to help you financially plan for today and the future.  Your numbers can change throughout your life.  Maybe you’re already retired or are within ten to twenty years of retiring, but one thing is clear; numbers play a role in all aspects of your financial life:

Economic conditions affect your retirement savings.  This includes inflation and the economy.  Inflation determines how much it costs you to live today and how much things will cost when you retire.  The economic conditions that affect your employer decide whether if you will have a job.   Both of these are caveats in financial planning since both are unknown; we can only make assumptions based on today’s information and can’t guarantee anything in the future.  If that leaves you concerned, you’re not alone.  The best option is to plan for the unknown and put yourself in a position that if a job loss happens, it doesn’t wreak havoc on your finances while you’re looking for work.  There’s not much we can do about the economy, but keeping expenses low will help you if prices dramatically rise or if you suddenly are without a job.

The age you retire relates to two things, your health, and your financial resources.  According to the RAND Corporation Center for the Study of Aging, when people are in their late 50’s they start to consider if they should continue working or collect social security as early as possible.  This decision is related to their health, and if they’re economically stressed.  These individuals tend to retire as soon as possible.  Healthy people continue to want to work because of the financial reward of growing their retirement savings and maintaining their current lifestyle.  They start to look forward to other jobs they always wanted to do later in life or advance in the career they’re currently in.

Accumulating retirement savings and developing a spending plan is beneficial at any age.  Accumulating assets is important prior to retirement.  If you don’t have a spending plan during the accumulation stage it may be more difficult for you to save for your retirement.  A spending plan in retirement is important as you will not be able to accumulate assets due to no longer working and be on a limited income.

Retirement uses numbers to plan your financial future.  This is the best way for advisors to give clients something to understand in theory but also show through software, written financial plans, and concrete information.  Retirement really is about numbers when you use them to set realistic goals and stick to them.  Our firm is ready to assist you in finding and managing your numbers.

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Fear, Greed, and Your Portfolio

Finance, in general, has been based on rational and logical theories, and for most part, tends to be somewhat ‘predictable.’  Early financial theories assumed that people behave rationally and predictably, and that outside factors and emotions do not influence people when it comes to making financial decisions.  However, behavioral finance has proven people behave irrationally and differently in the real world.  The human brain has difficulty assessing risk (fear) and possibility (greed), which causes our emotions to affect our decision-making process.  Investors make irrational decisions when it comes to their own investments.  Investors react stronger (it’s painful) to financial loss, than to gain.  This is what has the most impact on our portfolio aside from investment performance.  Fear and greed are such powerful emotions that there is now a Fear & Greed Index that tracks what is driving the stock market today!

In thinking about yourself, do you react to televised market commentary or to ‘Herd Instinct’ causing you invest in something because everyone else is?  When the market declines are you fearful of loss and sell or invest or hold onto an investment in a down market?  Fear and greed can be beneficial to your portfolio or have the opposite effect.

As Warren Buffet said, "Be fearful when others are greedy and greedy when others are fearful."

Discussing your fears and financial dreams can give both the investor and financial advisor a better understanding of what may cause bad decisions leading to errors that you may not recover from.

Hearing the term ‘greed’ isn’t bad unless it leads to thoughts of confusion, questioning decisions, or changes in behavior similar to ‘gambling’ on an investment.  As an investor, you can have a ‘financial crisis’ by not fully thinking about what you want and how you will react to changes in the markets.  You need to know yourself before you can determine your goals and start to invest.

How much market fluctuation can you tolerate?  Are you comfortable with separating money into different investment options to help fund each goal you have?  Are you comfortable with investment advice and the monitoring of your portfolio?  The best way to harness fear and greed to your benefit is by understanding your investor profile:

Objective Traits- Personal or social traits such as gender, age, income, family, even tax situation

Subjective Attitudes- Part of the emotions and beliefs of the investor.

Balancing Risk vs. Reward- Tolerating more risk in order to have the higher reward or less risk and contentment with a reasonable return.

Area of Focus- Types of investments (ex. Stocks, bonds) and sectors of investments (ex. Technology).

Investment Strategies- Helps to shape the investor profile by the type of investing the investor uses (ex. ethical, growth, indexes)

Valuation Methods- Helps to develop the investor profile through the valuation method (ex. Fundamental analysis, technical analysis, quantitative analysis).

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"Be fearful when others are greedy and greedy when others are fearful."- Warren Buffet

SAI February 2018 Newsetter Approval 1994731.1

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