Year: 2019

We have been sharing some non-financial lessons we’ve learned in a series of articles called, “Things Most Advisors Don’t Tell You.”  There are many habits and behaviors that, while not directly related to finance, can spell the difference between reaching your goals or not.  But in our experience, people rarely hear about these things from their financial advisor.    

Let’s look at:

Things Most Advisors Don’t Tell You #6:
The Importance of Gratitude

When it comes to achieving success in life, our actions are not the only thing that matters.  Equally important is our attitude.  

Everyone knows how powerful a “can-do” attitude can be.  And we’re all familiar with how far a “never quit” attitude will take us.  A positive attitude is usually necessary just for basic happiness.  But in order to reach our goals and achieve a rich, fulfilling life, perhaps the most important attitude we can have is an attitude of gratitude.  

Science itself has proven how important gratitude is.  For example, here are the results of one study that we think is particularly enlightening.¹

1. Those who kept gratitude journals on a weekly basis exercised more regularly, reported fewer physical symptoms, felt better about their lives as a whole, and were more optimistic about the upcoming week compared to those who recorded hassles or neutral life events.
2. Participants who kept gratitude lists were more likely to have made progress toward important personal goals (academic, interpersonal, and health-based) over a two-month period compared to subjects keeping the other kinds of lists.
3. Participants in a daily self-guided exercise focusing on gratitude, compared to those who focused on hassles or on ways they were better off than others, were more likely to report having helped someone with a personal problem or having offered emotional support to another.
4. In a sample of adults with neuromuscular disease, a 21-day gratitude intervention resulted in greater amounts of high-energy positive moods, a greater sense of feeling connected to others, more optimistic ratings of one’s life, and better sleep duration and sleep quality, relative to a control group.

Another study found that having an attitude of gratitude can help us make better financial decisions as well.²  

In [a] study, 75 participants were assigned to one of three groups: The first was asked to spend five minutes writing about an experience that made them feel grateful, the second was tasked with writing about something that left them feeling happy, and the third was asked to focus on the events of a typical day.

Next, they were asked to make a series of choices that would either result in receiving an amount of cash immediately or a greater sum in the future.

Those in a happy or neutral mood opted for instant gratification: On average, they required $55 up front to forgo receiving $85 in three months. However, the grateful group exhibited significantly more patience and self-control, needing $63 to give up future gain—a 12% difference over the other groups.²

In essence, people who focused on gratitude showed more patience and foresight than those who did not.  

Our own experience as financial advisors have confirmed this.  Throughout our careers, the people we’ve worked with who focused on being thankful, giving back, and counting their blessings over simply counting their money were far more likely to reach their financial goals.  We think the reason for this is that an attitude of gratitude helps us feel better about ourselves, our situation, and our future.  That, in turn, makes us more likely to do the things we already know lead to success: 

• Asking for help when we need it
• Creating financial harmony in our homes
• Managing our time more effectively
• Managing stress and avoiding burnout

As we already mentioned, an attitude of gratitude also helps us have more patience and foresight.  It helps us “see the big picture.”  It helps us know what’s truly important – which means we can focus on working towards what we want most as opposed to what we only want right now.  

Most advisors won’t tell you this, but it’s true: Gratitude for what we have is one of the best ways to achieve what we want.  

We hope you’ve enjoyed our thoughts on the habits and behaviors that can help us achieve our financial goals.  We wish you nothing but success in pursuing yours!      

¹ Robert A. Emmons & Michael E. McCullough, “Highlights from the Research Project on Gratitude and Thankfulness:  Dimensions and Perspective of Gratitude,” http://local.psy.miami.edu/faculty/mmccullough/Gratitude-Related%20Stuff/highlights_fall_2003.pdf

² Molly Triffin, “How Practicing Gratitude Can Transform Your Finances,” Forbes, https://www.forbes.com/sites/learnvest/2014/11/25/how-practicing-gratitude-can-transform-your-finances/#7b50b357397f

Check out other articles
Things Most Advisors Don’t Tell You #4	Veterans Day
Three Financial Principles Our Mothers Taught Us	Weekly Wire Special Edition – Dow hits 20,000
Totaling the car over a flat tire – Sector rotation a big picture look	Weekly Wire Special Edition: Interest rates
Trending Now: Interest Rates & Inflation	Weekly Wire UPDATE – Understanding the Market Drop
Twenty-Nine Things to Do on February 29th	Weekly Wire: Tax Refunds
Why You Shouldn’t Worry about the Election	We’re moving – but not that far.

We’ve been sharing some inspirational stories we’ve recently come across.  To us, these stories show that, despite all the doom and gloom we see on the news, there are still a lot of reasons to have…

Hope in Humanity
Story #3: The Radisson Rock Museum

This is a story of hard work, perseverance, generosity, and many other traits we all cherish.  But most of all, it’s a story of the role communities play in our lives.  

You’ve probably heard the saying that it takes a village to raise a child. It also takes a village to restore a child’s ransacked rock museum.   

Judah Tyreman is a young boy in Radisson, Saskatchewan. Like many kids, Judah loves collecting rocks and gems. But unlike most kids, his collection was so large that he decided to open his very own “Mineral and Gem Museum and Rock Shop.”¹

For years, Judah would mow lawns, sell jewelry, and do other odd jobs to build his collection. He would scour the internet for specimens to buy, usually on eBay. During one of these searches, he found a local farmer who had his own rock collection. Judah formed a deep friendship with the farmer – so deep that when the farmer died, he left his entire collection to Judah and his sister.

That’s when Judah decided it was time to open his very own rock museum. His vast assembly of stones was so special to him, he felt he couldn’t just leave them buried in his attic or garage. No, this was something the entire world should be able to enjoy.

So, Judah got to work. He plowed all his money into the museum, and even launched a Kickstarter campaign to raise more funds. Incredibly, he never asked his parents for money.² The entire project was due to his own savvy and determination – along with support of his community.

Soon, the word got out. People from as far away as Australia and Thailand began visiting his museum.¹ Every day after school, Judah would open his shop and greet his patrons. Whenever he sold a gem, he reinvested the money right back into the museum – minus 10% that he donated to charity.² Eventually, Judah was even able to get his hands on various meteorites and dinosaur fossils. He made enough money to put billboards up so that tourists passing through would stop and see his amazing array of stones. In fact, if you search for Judah’s museum online, you’ll see that it has a five-star rating on Google!  Quite a feat for a boy who, as of this writing, is only 13 years old.²

But then, disaster struck.

One morning, Judah arrived to open his museum when he saw much of his collection littering the sidewalk outside. He knew in an instant that someone had broken into the shop.  Inside, the scene was even worse. The museum had been ransacked, with over $6,000 worth of gems taken.³ 

Now, you’re probably thinking, how does this story have anything to do with hope in humanity? Doesn’t the fact that some terrible person would do this to a kid show how far humanity has fallen?

It would – if it weren’t for what happened next.

Despite the break-in, the thirteen-year-old was far from crushed.  He cleaned up as best he could, then re-opened his museum later that same day.  He also vowed to “put [the collection] back together and make it great again.”³  But this time, he wouldn’t have to do it alone.  

Before Judah knew it, calls and emails started pouring in from members of the community.  Which community, you ask?  Take your pick:

Neighbors, friends, and former museum patrons donated money for Judah to rebuild his collection – so much that he was able to raise $7,000 in a single day!²  Meanwhile, his fellow rock collectors – many who lived thousands of miles away– heard about what happened and decided to help, too.  Each offered to donate some of their own specimens and artifacts.  

Even the local government stepped up. Less than 24 hours later, officials contacted the Royal Saskatchewan Museum and asked if there was anything they could do to help their young colleague.³ The scientists wasted no time, sending Judah a package of amber from all around the world. Then, they invited him to come and pick what he wanted from their inventory of duplicate minerals and gems. As you can imagine, the young geologist was thrilled. As he put it, “Something good came out of something bad.”²

Now, thanks to all the help he’s received, he plans to expand the museum to a second floor – as soon as he’s saved enough money to buy the building.  It may sound like a tall order, but he’s already one of the world’s youngest museum curators.  Would you bet against him?    

If there’s one thing we take from this story, it’s how important our communities are.  Communities come in many different forms.  Some are big, some are small.  Some are based on where we live.  Some are based on our dreams and interests.  Some are based simply on the fact that we are all human.  But they all have one thing in common: They are a group of people who support each other when disaster strikes.  Who look out for each other when times are hard.  A group of people who, as Judah would put it, make something good out of something bad.

We hope we all take time to cherish our own respective communities.  To think about how we can give back and support each other.  To remember, as we pursue our own goals in life, to help the Judahs of the world with theirs.  

¹ “Saskatchewan kids launch Radisson rock museum,” CBC, https://www.cbc.ca/news/canada/saskatoon/judah-tyreman-launches-radisson-rock-museum-1.3651518

² “Community support surges after theft,” Regina Leader-Post, https://leaderpost.com/news/local-news/community-support-surges-after-theft-from-radisson-teens-rock-museum/wcm/631f1aef-cc2e-4a67-8492-76930fb9a373

³ “Community rallies to help 13-year-old,” CBC, https://www.cbc.ca/news/canada/saskatoon/community-rallies-to-help-13-year-old-rock-star-in-radisson-after-gem-museum-break-in-1.4576204

When you turn on the evening news, every broadcast seems to bring more stories of tragedy, fighting, and petty politics.  But if we take the time to look a little closer, we often find that amidst the doom and gloom, people all around the world are constantly demonstrating courage, charity, and sacrifice.  So, over the next few months, we’d like to share some inspirational stories we’ve come across that show how even a little bit of kindness can make a big difference.  

To us, these stories show that there are still a lot of reasons to have…

Hope in Humanity
Story #2: Kids Today

“Kids today,” the saying goes.  It’s something every generation seems to say about the next one, usually with an accompanying eye-roll or sigh.  But in fact, kids often do as much good in this world as anyone.  As a great philanthropist once put it, “You don’t have to be a certain age to make a difference.”¹  

That philanthropist’s name is Ethan King, and when he said it, he was fourteen years old.  

Now twenty, Ethan is a college student from Michigan who likes to play soccer.  He’s also the founder of a global charity, who decided to ignore the fact that kids don’t normally found charities, and that people can’t singlehandedly fix the world.  Instead, he decided to focus on what he could do, what he could fix, and that the word normally means absolutely nothing.  

As Ethan himself tells it, it all started in 2009 in a village in Mozambique.²  Ethan had traveled to the southern African country with his Dad, who was working to repair water wells in the area.  Before the trip started, Ethan decided to bring a soccer ball along, thinking he might get the chance to play pick-up games with local kids.  

When he went out into the street, little did he know that a simple kick-about with a ball would lead to so much more.  

“When we arrived at the village,” Ethan says, “there were a few boys standing around, so I tossed them my ball.  In a matter of seconds, dozens of kids were playing and having a good time.”²  

Soccer is the most popular sport in the world, but the irony is that there are millions of children all over the globe who don’t get a chance to play it.  Kids in rural or impoverished countries often don’t have the access to real soccer balls, or the money to pay for them.  As a result, they’re forced to improvise.  

“I’ve discovered that many kids in poor countries want to play soccer,” Ethan explains, “but they can’t because they don’t have a ball.  If they do have a ball, it’s typically a bunch of plastic garbage bags wadded up and wrapped with twine and it doesn’t last very long.”  Even the legendary Pelé learned to play using a stock stuffed with newspaper, or by playing with a grapefruit.  (Yes, a grapefruit.)  

While playing with the local kids, Ethan noticed how delighted they were to play with a real ball.  When it was time to go, he decided to leave the ball with them.  “As I watched the kids play, it was hard for me to think that I would be heading back to the States where I had several soccer balls in my garage just sitting there.  These kids in the village had none.”  

So, Ethan decided to leave the ball as a gift.  

As he walked away, one of the boys took the ball and ran up to him, offering it back.  “I said to him, ‘No, this is yours.  I’ve given it to you.’  Immediately they ran, laughed, and cheered like they had just won the lottery!” Ethan recalls.²  The gift of a simple, actual ball was enough to bring joy to their lives.  

Then Ethan decided, why stop at one?  

When he returned home, he personally began to call up corporations, asking for donations.²  He spoke to other kids and parents while at soccer games.  His own organization, Charity Ball, was born.  Thanks to donations, Charity Ball delivers brand new soccer balls to kids around the world who can’t afford to buy any.  In the past four years, thousands of balls have been delivered in 45 countries.³  

When Ethan launched his charity, he was just ten years old.

Some people may ask, “Why start a charity based on delivering soccer balls when there are so many other causes that deserve attention?”  Simple – because it brings joy.  And joy is a commodity the world can never have too much of.  Furthermore, children in many countries must contend with disease, war, and other hardships.  While there are many charities helping to combat these miseries, not all provide an escape from them.  The simple act of playing soccer, of having fun, is that escape.  

Joy can’t remove hardship.  But sometimes, it can help people cope with hardship.  Sounds like a worthy cause to us.  

Not all of us will have the ability to start our own charity, but we can all follow this young man’s example.  Spreading joy is as valuable an endeavor as anything else we do in this life.  And as a wise philanthropist once said, “You don’t have to be a certain age to make a difference.”  

Kids today, right?

P.S.  If you would like to learn more about Ethan and his organization, visit www.charityball.org. 

¹ Sharon Cotliar, “Teen Gives 4,000 Soccer Balls to Kids Around the World,” People Magazine, March 13, 2014.  http://www.people.com/people/article/0,,20796491,00.html 

² “Charity Ball Founder, Ethan King.”  Accessed September 18, 2019.  https://charityball.org/about/charity-ball-founder/

³ “Recipient Map,” accessed September 18, 2019.  https://charityball.org/about/recipient-map/

Earlier this year, the House of Representatives passed a new bill called the Setting Every Community Up for Retirement Enhancement Act, aka the SECURE Act.  (Acronyms are kind of a thing in Congress.)  As the name implies, the bill has important ramifications for people’s retirement savings.  In this article, we want to give you a preview of what the bill is designed to do.

Now, before we do that, it’s important to note that the SECURE Act must first be passed by the Senate and then signed by the president before it actually goes into effect. Many things in the bill could change before that happens, though, so it’s impossible to know exactly what the final law will look like. And of course, it’s always possible the Senate could choose not to pass the bill or make so many changes that the House decides to rework their version.

That said, the SECURE Act enjoys bipartisan support. In fact, only three members of the House voted against it, with 417 members voting for.¹ So it’s expected the Act will become law sometime soon. As financial advisors, it’s our job to get familiar with the bill now so we can help you prepare for the changes it will bring.

What is the SECURE Act?

The SECURE Act does many things, but at its core, it’s designed to help more Americans save for retirement. Many of the bill’s provisions are designed specifically for businesses, which we won’t get into in this article. But there are also provisions that impact regular individuals, including pre-retirees, the recently retired, and even their children. None of these changes are particularly dramatic, but they are important nonetheless.

Changes to IRAs and 401(k)s²

One of the changes the bill makes is lengthening the time people can contribute to their IRAs. Currently, retirees can only contribute to an IRA up to age 70½.  Once they hit this milestone, they are required to begin making withdrawals, called required minimum distributions. Under the SECURE Act, that age would increase to 72. That means retirees have an additional 18 months to benefit from the tax advantages that come with IRAs. 

Another change the bill makes is for new parents.  Under current law, you must be 59½ years old to make withdrawals from a traditional IRA or 401k. If you withdraw money earlier than that, you would have to pay a penalty of 10% on the amount you took out. There are a few exceptions, such as if you need the money to pay large medical bills, buy a home, or manage a disability. But, generally speaking, the government wants the money you contribute to your retirement accounts to be saved for retirement. 

Under the SECURE Act, new parents will also be able to withdraw funds penalty-free. This is to help cover birth and adoption expenses, and it’s especially helpful for younger parents who have high deductible insurance plans. There is a $5,000 cap on withdrawals, though, and they would need to be made within one year of the birth or adoption.

Changes to inherited IRAs²

Another important change – especially from an estate planning perspective – regards inherited IRAs.

For years, one of the more popular estate planning strategies has involved the use of Stretch IRAs.  When a parent or grandparent dies, they can leave their IRA to their children, grandchildren, or other heirs.  Under current law, the beneficiary can take distributions from their inherited IRA based on their official life expectancy.  This allows them to “stretch out” the value of the IRA – and the tax advantages that come with it – for a longer period of time.  For example, if a 50-year old with a life expenctacy of 85 inherited her mother’s IRA, she could stretch out her distributions over the next 35 years.  

If the SECURE Act goes into law, this will no longer be possible.  Instead, the beneficiary must take out 100% of the IRA’s assets within 10 years of the original owner’s death.  As distributions are taxable income, this could have a major impact on the beneficiary’s tax situation.  

Planning ahead

As you’ve probably guessed, we are sending this article to all of our clients and friends.  Some are older, some younger; some nearing retirement, some far away; and some already there.  That’s because, while no single provision will affect everyone, almost everyone will be affected in some way.    

As we mentioned, the SECURE Act has not yet become law, and it’s uncertain when the Senate will vote on it.  That said, it’s important that we start planning ahead.  If you have any questions about the SECURE Act, please let us know.     

If any of the changes you just read about don’t affect you, but could affect someone you know, please share this article with them.  Or, please let us know so we can reach out to them if and when the bill becomes law.  As financial advisors, we want to ensure our clients are prepared for any changes coming down the pike – and we want to ensure your family is prepared, too.

In the meantime, our team will keep a close eye on Washington as this bill makes its way through Congress.  As soon as the situation is clearer, we will let you know.  As always, please let me know if there is ever anything we can do for you.          

¹ “Congressional Leaders Want SECURE Act Passage in 2019,” Plan Sponsor, October 7, 2019.  https://www.plansponsor.com/congressional-leaders-want-secure-act-passage-2019/

² “Text of H.R. 1994,” Congress.gov, 6/3/2019.  https://www.congress.gov/bill/116th-congress/house-bill/1994/text

 “Markets are flashing deep red as investors worry about the health of the economy”
– CNN Business

“S&P and Dow Slide as Evidence of Global Slowdown Mounts”
– The New York Times

“Stocks Drop on Worries About Growth”
– The Wall Street Journal

The markets hit turbulence last week, with the Dow dropping almost 500 points on Wednesday, October 2.¹  Since recent reports have stoked new fears of a coming recession, we decided to write down our thoughts about what’s happening and why.  

For over a year now, economists have fretted about the possibility of a recession.  The amount of evidence for one has waxed and waned, as good news and bad have jockeyed for attention.  But recently, the signs in favor of a coming recession have started to light up in neon.  

Before we get into that, though, it’s useful to remember what a recession actually is – and what it isn’t.  Since the media tends to report every bit of news with breathless urgency, it’s easy to let the word “recession” transform into a scary, supernatural boogie man come to gobble up our economy.  But what is a recession, really?

Economists define a recession in different ways, but here’s the simplest way to look at it: 

A recession is a significant decline in economic activity over an extended period of time.²

Let’s break that down with a little Recession 101.  

When economists refer to economic activity, they usually mean a country’s gross domestic product, or GDP.  This is a measure of the value of all goods and services a country produces every year.  When a nation produces less, or when the value of what it produces drops, so too does the GDP.  With that drop often comes a drop in employment, wages, corporate profits – and stock prices.  As a result, consumers tend to spend less, which means less business is being done, which means less economic activity is happening.  In other words, everything tends to slow down.  Spending, lending, selling, making, building, investing.  If this goes on for too long – usually at least two consecutive quarters – we’re in a recession.  Make sense?    

The tricky thing about recessions is that it’s almost impossible to know when they’ll occur until we’re already in one.  After all, GDP is a measure of what has been produced, not what will be produced.  That’s why we tend to get a lot of false alarms when it looks like a recession may happen – and little warning when one does happen.  

So.  That’s what a recession is.  But why are experts worried about one now?  

First, it has been a long time since the last recession.  In fact, it’s been over a decade!  Since then, we’ve enjoyed one of the longest bull markets in history.  Since the economy tends to move in cycles – a period of growth, followed by a period of stagnation, followed by a decline, rinse and repeat – many analysts have felt we’re long overdue for the next one.  

More important is the preponderance of data that suggests the economy is already slowing down.  For example, on Tuesday, October 1, a new report showed that American manufacturing had slowed down for the second month in a row, dropping to its lowest level since 2009.¹  Other reports suggest the economy is adding far fewer jobs than in previous years.  Combined with volatility in bonds, trade war uncertainty, and slower growth across the globe, and you can see why the horizon looks stormy.  

That said, we’ve heard these tunes before.  While parts of the economy are slowing, that doesn’t guarantee a recession is coming next month, next quarter, or even next year.  Consumer spending – perhaps the single biggest driver of the economy – has remained strong all year, and the unemployment rate remains very low.  

When it comes to fears of a recession, none of these signs are catastrophic on their own.  All these smaller issues just seem to be piling up on top of each other, enough to make everyone sit up and take notice.  Here’s how we look at it.  Imagine you’ve had a very nice, reliable car for a long time.  It’s been strong, steady, and always gets you where you want to go.  

Recently, though, you’ve noticed that the miles on your car are starting to show a bit.  Your odometer is now over 100,000, a reminder that you’ve had your car for a long time.  Furthermore, little problems are starting to pop up.  That check engine light keeps coming on, even though you’ve had a mechanic look at it.  The engine makes a funny noise whenever you turn the ignition, and is it just you, or are your brakes less responsive than usual?  

None of these problems, on their own, would make you think your car is anything less than reliable.  But put them all together…

That’s where we’re at with the economy.  We may yet be able to wring a few more family trips out of it – but it’s also time to start preparing for when it inevitably breaks down.  

The effects of a recession

For the sake of discussion, though, let’s say a recession is going to happen soon.  What does that mean?  How long do recessions last?  And how bad do they get?  

Every recession is different, but it’s important to remember that we’re not talking about another Great Depression here, or even another 2008-2009.  If a recession happens, it doesn’t mean everything will collapse.  And if it happens, it certainly won’t catch anyone unawares.  Remember, experts have been stressing about this for a while.  

Most recessions also tend to be mild in the grand scheme of things.  Since 1940, the average recession has lasted just under eleven months, with the shortest being six months and the longest, eighteen.³  On the other hand, make no mistake: Recessions can cause real economic pain for people.  A slower economy means less spending, which means less profits, which means lower stock prices, which means lower wages, and worst of all, lower employment.  And sometimes, even when a recession is technically over and the markets recover, it can take much longer for employment to get back to normal.   

So, if a recession is coming, what should we do to prepare?  

Great question!  We love the word “prepare.”  You know what the definition is, right?  

Prepare
verb
To make someone ready or able to do or deal with something.⁴

So, how do we make ourselves ready to deal with a possible recession?  

First, even the wealthiest of people should always have enough in emergency savings to cover at least six months’ worth of expenses.  This is also a good time to prioritize paying off short-term, high interest debts and evaluating your career security.  If you need help with any of these things, please let us know.  

Second, we need to remember that even though a recession will have an impact on the markets in the short term, we must always treat your portfolio for what it is: a long-term investment in your long-term future.  That means we must not start making panicked decisions because we’re afraid of short-term losses.  

That said, if you are nearing the horizon on some of your long-term goals – like retirement, starting a business, building a house, whatever – then it may be prudent to start thinking more conservatively with your investments.  After all, no one wants to get knocked off track right before the finish line.  With 2019 winding down, it’s time for us to have a complete review of your portfolio and your goals so we can update your financial plan as appropriate.  

In other words, if a storm is coming, let’s determine whether you can weather it, or whether it’s time to “batten down the hatches.”  

Here’s what we want you to do.  If you have any questions or concerns about the markets, the economy, or a possible recession, please let us know!  We want to address them, so that you’ll continue to feel confident about working towards your goals.    

It’s impossible to know whether a recession is coming or not.  There are signs for, and there are signs against.  But regardless of when the next recession hits, let’s remember that it’s not a scary boogie man.  It’s a slowdown in the economy – and it’s not uncommon.  Most importantly, let’s remember that when it comes to the future, prediction is futile…but planning is not.  

Have a great October!    

¹ “U.S. Stocks Drop on Worries About Growth,” The Wall Street Journal, October 2, 2019.  https://www.wsj.com/articles/global-stocks-fall-amid-rising-fears-of-economic-slowdown-11570004904

² “Recession,” Investopedia.com, May 6, 2019.  https://www.investopedia.com/terms/r/recession.asp

³ “List of recessions in the United States,” Wikipedia.org, https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States#Great_Depression_onward

⁴ “Definition of prepare,” Lexico, https://www.lexico.com/en/definition/prepare