Over the next twenty years, there will be a wealth transfer that exceeds $30 trillion as the Baby Boomer generation passes the remainder of their wealth to the Millennials and subsequent generations. 

The Great Wealth Transfer

Over the next twenty years, there will be a wealth transfer that exceeds $30 trillion as the Baby Boomer generation passes the remainder of their wealth to the Millennials and subsequent generations.  The Baby Boomers (born 1946-1964) are considered the wealthiest generation, currently controlling 70% of all the disposable income in the United States. Its imperative families develop a plan to transfer assets since the transfer of wealth is inevitable.  For most families, the transferring wealth was acquired during this lifetime and not inherited from the previous generation. 

When starting to plan for wealth transfer pre-retirees should prepare for their retirement first, healthcare costs second, and the remaining transferring assets last.  Although some individuals choose not to involve their family members that will become the beneficiaries of their assets, including qualified tax and legal professionals are important.  But don’t write off including your heirs in all aspects of wealth transfer planning if you’d like more than just one generation to benefit.  

Preparing your heirs to take over your estate eventually passing their remaining assets on to their beneficiaries is equally important.  Heirs that are unprepared in managing money, investments or seeking financial guidance from qualified professionals seldom have enough inheritance left over for their heirs.  Some families choose to ‘train’ heirs by teaching how to wisely invest so they can give some away through philanthropy.  Without financial education, frequent investment decision making and a purpose to preserve the inherited wealth, many estate transfers rarely survive.  The complexities of wealth preservation are not taught in school or other institutions and can only demonstrate through modeling, professional guidance, and the generation’s intention to pass their wealth forward.

If the generation set to inherit from the Baby Boomers does a good job preserving what they inherit, it’s possible it could easily provide financial benefits to others for the next thirty to forty years.  And that’s worth planning.

As financial advisors, we spend a lot of time preparing for building wealth, but not passing it on to subsequent generations.  If you would like guidance on The Great Wealth Transfer and my working with your beneficiaries, I welcome a meeting with all of you.

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Tariffs and Trade Wars: The Impact into Q3

After months of verbal threats between the EU, China and the US, tariffs, and counter-tariffs started in July 2018, leaving American consumers and investors wondering how much of an impact it will have on them.  Already three months into the trade war, consumers are not swaying from buying imports despite the increasing costs.  In July, the US Trade Deficit increased to $50.1 billion, a 9.6 percent increase from the previous month (according to the U.S. Census) while imports increased .9% to a record $261.2 billion, proving that Americans’ demand for imports remains strong.  August’s data is expected to be out the first week of October and indications are it will be higher than the July’s. It’s notable that the EU and China exported the most goods into the US of any of the trade partners during this time.

What will the impact be as the tariffs continue?  Increased costs of goods (including food, clothing and other necessities) may cause households to have the less discretionary cash to spend on other items considered non-essential, such as electronics, entertainment, automobiles or even events.  If costs continue to rise, Americans may eventually choose to not spend on goods produced in the United States either.

The counter-tariffs imposed to hurt foreign buyers will impact American companies, farmers and workers, and eventually overall company profits as countries impose their tariffs on US goods.  Many retirement savings accounts invest in US-based companies which may see decreased earnings and share values as tariffs apply to their products.  Eventually this could reflect in the account values of American investors. Retaliation has started from other countries by the US being left out of new trade agreements as the current administration considers pulling out of the World Trade Organization.

Despite the tariffs and trade war, it is positive that the American economy has remained strong  throughout the latest quarter. 

Because we are in the early stages of the trade war economists are unable to predict how prices and portfolios will fare in the future.  The trade war landscape is changing day-by-day which is why now may be a good time to review your portfolio if you have concerns.

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The trade war landscape is changing day-by-day which is why now may be a good time to review your portfolio if you have concerns.

Whatever type of investor you are, no single investor knows everything about the stock market.  Even from time to time, knowledgeable investors ask for advice. 

Calling All Investor Types

Some investors are the do it yourself type and manage their accounts with minimal assistance from a financial advisor.  Other people are eager to have an advisor manage their investments for them.  Whatever type of investor you are, no single investor knows everything about the stock market.  Even from time to time, knowledgeable investors ask for advice. 

Working with a financial advisor can benefit both types of investors.  An advisor is a resource for what you may not know about your investments, other types of investments or additional information you may need to make an informed decision.  Working with an advisor doesn’t mean you have to hand over control of your finances.  Always be upfront about you expect from working with an advisor.  Open communication is essential for both parties to understand what the preferred way for you to receive investment advice.

The best way to avoid problems is to understand what type of investor you are through your investor profile.  Your Investor Profile or style is determined by:

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

Subjective Attitudes- Part of the emotions and beliefs you have

Balancing Risk vs. Reward- Are you able to tolerate more significant risk to have a greater reward or prefer less risk and are content with a reasonable return?

Area of Focus- The types of investments (ex. stocks, bonds) and sectors of investments (ex. Technology) in your portfolio.

Investment Strategies- Help to shape your investor profile by the types of investing you prefer (ex. ethical, growth, index)

Valuation Methods- Help to develop your investor profile through valuation methods (ex. Fundamental analysis, technical analysis, quantitative analysis).

I can help you with specific accounts, or help with your entire portfolio.  It’s really up to you, and you always have choices.

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Happy Retirement, LIBOR

There’s a number that is going away soon that has an impact on your life; it’s called LIBOR.  LIBOR (London Interbank Offered Rate) is used to determine the interest rates banks charge each other for overnight, one-month, three-month, six-month, and one-year loans.  LIBOR is a substantial number because it decides, in part, the interest rate you will pay for loans, credit cards, and even your mortgage or refinance.  Banks add their markup (another percentage) to LIBOR to calculate what to charge consumers.  LIBOR has been the benchmark for banks throughout the world since 1969 but will be phased out worldwide by the end of 2021.

LIBOR seemed to work well until the financial crisis when inaccurate bank reporting to LIBOR made way for rate manipulation.  Unlike a stock price which calculates on the buying and selling of the public, LIBOR compiles information from a bank’s observation or reporting of their daily rate, which is voluntary.  By making up false information during the financial crisis, some banks profited illegally.  For this reason, regulators worldwide are phasing out LIBOR.

In the United States, LIBOR is being replaced by SOFR (Secured Overnight Financing Rate), which is already approved for rate calculation.  SOFR has compiled information back to 2014 and began publishing earlier this summer.  SOFR uses the Federal Reserve’s fed funds rate and the yield on the ten-year Treasury note and others, using real data on the previous day’s trading on our currency.

Currently, traders in the United States have already started to see the LIBOR-SOFR rate as we transition toward LIBOR’s retirement.

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LIBOR has been the benchmark for banks throughout the world since 1969 but will be phased out worldwide by the end of 2021.

SAI October 2018 Newsletter Approval 2253542.1

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