Q3 Financial Checklist
In 2004, a NASA pilot named David Oberhettinger was flying himself and two passengers toward Palm Springs in California. Just as he was about to radio the nearest airport for permission to land, a “dense black smoke” began to fill his cockpit.1 It was immediately clear what was wrong: An electrical fire had broken out in his plane.
Nobody wants to panic at 8,000 feet above the ground. Luckily, Oberhettinger kept his head and immediately swapped his Descent for Landing checklist for the In-Flight Electrical Fire checklist. It listed five specific steps for averting disaster: (1) Master Switch to Off (2) Other Switches (Except Ignition) to Off (3) Close Vents/Cabin Air (4) Extinguish Fire (5) Ventilate Cabin.
As Oberhettinger later described it, completing the checklist “took maybe 90 seconds.” 1 The rest of the flight was a smooth, uneventful landing. For Oberhettinger, the crisis “hardly caused a significant increase in heart rate, because I just followed the checklist.” 1
There is a real power in checklists. They can prevent us from panicking, or from having to rely on our memory more than we have to. They prevent us from making the wrong decision at the worst time. And while the checklists we create as financial advisors don’t usually involve the life-or-death drama of a pilot checklist, they are vital all the same.
With that in mind, we’ve created a new checklist specifically for the third quarter of the year. This checklist has six steps. Don’t worry, they’re not difficult! You may have handled some already. Others may not even apply to you. But each task is important in its own way. Put them all together and you will be more likely to enjoy a smooth and uneventful flight towards your financial goals. And while you won’t be able to complete the checklist in 90 seconds, 90 days should be more than ample. As always, if you need help or have questions about any of these, please let me know. In the meantime, we hope you have a great third quarter…and a wonderful summer!
Q3 Financial Checklist for 2024
Tip: Print this out and stick it on the fridge or somewhere else it will be seen. That way, you can check off the items one by one as you complete them!
- Reprioritize Your Goals
With the year now half over – where did the time go? – you may find that you have already accomplished some of the goals you set for yourself this year. Others may be behind schedule; some may still just be words on paper. That’s okay! Working towards our goals should always be a marathon, not a sprint. That makes this a good time to reprioritize your goals. Do you have new goals that you didn’t have in January? If so, write them down. Are there older objectives that need to be given more attention? If so, determine where they need to be placed on your schedule. By doing these things, you can ensure that the back half of 2024 is as productive and fruitful as possible.
- Fund Your Child/Grandchild’s Education
It’s summer vacation now, but Back-to-School season will be here before you know it. If you have any children or grandchildren whom you want to ensure receive a higher education, use Q3 to either set up a new education funding account or contribute to one you already have. From 529 Plans to Coverdell Education Savings Accounts, you have many options to choose from. The key is choosing the right one for you, and then contributing to it consistently. Please let us know if you need any guidance on this – we’d be happy to help!
- Check Your Credit Reports
Credit reports aren’t just for getting loans – they’re a handy early-warning system for fraud and identity theft. A good rule of thumb is to check your credit reports at least once per year. If you haven’t checked yours yet in 2024, now is the best time to do so. Be on the lookout for recent changes that don’t look familiar to you as well as “hard inquiries.” This is when a business checks your credit report because they received a new application for credit or services. These can impact your score and stay on your reports for two years or so. They can also show you when people are trying to use your information illicitly.
- Review Your Beneficiaries
If you’ve had any major life changes – or if anyone in your family has – it’s a good idea to conduct a “beneficiary audit.” Is everything still accurate and up to date? If not, adjust your will and estate plan now so that your loved ones will always be taken care of, and your legacy ensured.
- Pay Off Any Debts Incurred Earlier This Year
It’s not uncommon to rack up debts during the first half of the year. From vacations to home renovations to new purchases, it’s easier than ever to reach for the nearest credit card. There’s nothing wrong with that – so long as those debts don’t linger and grow. Pay them off now, if possible — or at least make a dent — so they don’t weigh you down as you work toward your long-term goals.
- Evaluate Your Auto-Pay Bills
Finally, if you’ve placed bills on autopay, be sure that the card or bank account the various companies have on file is correct. Review whether certain bills have gone up, and whether there are less expensive options to consider. And be sure to cancel any subscriptions you no longer need!
“Why do I love checklists? Because in 2004 a checklist helped avert what could have been some serious unpleasantness. And because rather than letting my imagination run amok to my detriment (otherwise known as “panicking”), effective use of checklists allow me to direct my imagination to more productive purposes.”
— David Oberhettinger, former NASA Pilot and Chief Knowledge
Officer Emeritus at the Jet Propulsion Laboratory1
1 David Oberhettinger, “Why I Love Checklists,” NASA, appel.nasa.gov/2015/08/26/my-best-mistake-david-oberhettingers-why-i-love-checklists/
Election Misconceptions
The noise can be deafening. It seems to come from everywhere, all the time. It can cause headaches, frustration, even anxiety. Sometimes, you wish you could turn it off altogether.
No, we’re not referring to whatever music the kids are listening to these days. We’re referring to the noise surrounding the upcoming presidential elections.
Election season is one of the most important aspects of our political system, but there’s no doubt that getting through it can be stressful. All of us, at some point, will wonder things like, “What if my preferred candidate doesn’t win?” “Who is my preferred candidate, anyway?” “Does so-and-so really mean this?” “Did so-and-so really say that?” “What’s fact and what’s fiction?”
One thing you shouldn’t have to worry about is how the elections will affect the markets. Every four years, many misconceptions arise about the impact of presidential contests on your portfolio. These often lead to unnecessary anxiety for investors. As financial advisors, our goal is to ensure our clients feel confident about their financial future, not worried. That’s why we send educational messages like this one. Let’s explore three common misconceptions about election season and the markets.
The first misconception is that presidential elections lead to down years in the markets. It’s understandable why we might feel this way. When we look back at past elections, the first things we remember are probably the controversies, uncertainties, and negativity. Election years feel volatile in our minds and memories, usually because there’s so much drama and so much at stake.
But statistics prove this misconception is a myth. Since 1944, there have been twenty presidential elections. In sixteen of those, the S&P 500 experienced a positive return for the year.1 In fact, the median return for presidential election years is 10.7%.1 Of the four election years that saw a negativereturn, two did occurin this century – in 2000 and 2008 – but on both occasions, the nation was either entering or in the midst of a significant recession.
Now, we do sometimes see increased volatility in the months leading up to an election. If we just look at how the S&P 500 performed from January through October in a presidential election year, the median return drops to 5.6%.1 That’s not bad, but it is nearly 50% lower. This suggests the uncertainty over who will triumph in the election – and the debate over what each candidate’s policies will mean for the economy – does tend to have at least some effect. Then, as the victor is announced and the picture becomes a little clearer, volatility tends to subside, and investors move on to other things. So, in that sense, election season does matter, but nowhere near what the media may have you believe. Elections are just one of the many ingredients in the gigantic stew that is the stock market…and they’re far from the most important.
The second misconception is that if one candidate wins, the markets will plummet. This narrative is, frankly, driven by pure partisanship. The fact of the matter is that the markets have soared under both Republican and Democratic presidents. Naturally, they’ve occasionally soured under both parties, too. Since 1944, the median return for the S&P 500 in the year after a presidential election is 9.8%.1 Since 1984? The median return rises to over 24%.
The reason for this is because of that gigantic stew we mentioned. You see, the markets are driven by the economy more than by elections. By the ebb and flow of trade, the law of supply and demand, by innovation and invention, by international conflict and consumer confidence. And while the president does have an influence on all this, it’s just one of many, many influences. As a result, the markets are far more likely to be affected by inflation and whether the Federal Reserve will cut interest rates than by the election.
When you think about it, the markets are like life. The course our lives take isn’t determined by one gigantic decision, but by the millions of small decisions we make every day. The same is true for the markets. We don’t know about you, but we find this comforting.
The third misconception is that we have no control over any of this, and thus, no control over what happens to our portfolio.
It’s true. We can’t dictate who the president will be. We can’t determine how the markets will react. But what we can control is what we will do. And that, is a mighty power indeed.
There’s a reason we began this email by referencing noise. As investors, one of the keys to long-term success is filtering out the noise and focusing on what reallymatters. You see, the goal of all political campaigns – and the media that covers them – is to create noise. That’s because noise provokes emotions. Fear. Anxiety. Anger. A greater emotional response leads to more clicks, more views, more shares, more engagement…and, yes, more money. It’s understandable why campaigns and the media want these things. But what we must guard against is letting those emotions drive our financial decisions. Emotions promote the urge to do something – buy, sell, get in, get out, take on more risk, less risk, you name it. They prompt us to make short-term decisions to alleviate what is, when you think about it, a short-term concern.
A presidential term lasts four years. But the goals you have saved for, and the time horizon you have planned for, lasts much longer than that. That’s why our investment strategy is built around the long-term. It’s designed to help you not just tomorrow, or next month, but years and years from now. It’s designed so that the president of the United States, as important as he or she may be, is only a passing mile-marker on the much longer road to your goals and dreams.
As we approach another election, keep this in mind: tune out the noise. Be aware of these misconceptions and avoid them. Our team is here to answer your questions and provide any assistance you need. If you’d like help planning for your financial future, give us a call. We’re always here to help.
Have a great summer!
1 “Election year market patterns,” ETRADE, us.etrade.com/knowledge/library/perspectives/daily-insights/election-stock-patterns
5 Financial Regrets
This is about common financial regrets. It lists five specific regrets that many people have, three of which were found to be especially common in a recent Forbes study. The infographic also covers how to avoid these regrets, and we you can help.
Questions You Were Afraid to Ask #13
The only bad question is the one left unasked. That’s the premise behind many of our recent posts. Each covers a different investment-related question that many people have but are afraid to ask. In our last post, we discussed what it means to invest in commodities and how regular investors do so. So, without further ado, let’s break down:
Questions You Were Afraid to Ask #13:
What are the pros and cons of investing in commodities?
As we covered in Question #12, a commodity is a physical product that is either consumed or used to produce something else. For example, corn, sugar, and cotton are all agricultural commodities. Pork, poultry, and cattle are livestock commodities. Oil, gas, and precious metals like gold and silver are commodities, too.
A commodity is generally seen as an alternative investment. Traditionally, large institutions and professional traders are the most likely to invest in commodities, but regular people can, too. Like every type of investment, though, there are both potential benefits and risks that come with commodities. Some of these are very specific to commodities.
First, let’s look at some of the pros of investing in commodities:
Diversification. As you know, all types of investments will rise and fall in value at different times. That’s why it’s important that your portfolio consists of diverse asset classes, each driven by different factors. (Financial advisors like us refer to this as having low correlation, meaning price changes in one asset don’t affect the price of another asset.)
Typically, commodities have a low correlation to stocks and bonds. Every type of commodity is affected by different economic factors. Most of those don’t usually affect, say, stocks. For example, while changing interest rates can have a major impact on stocks, they don’t have a direct effect on cotton prices. And though a hurricane in the Gulf of Mexico can dramatically impact oil prices, it usually doesn’t mean much to the overall stock market.
For these reasons, investing in commodities can add valuable diversification to your portfolio.
Diversification is important because it can help cushion your portfolio from major volatility. If one asset class takes a hit, the others could help compensate. However, it is important to note that diversification doesn’t eliminate risk.
Hedge Against Inflation. During periods of high inflation, the price of most consumer goods and services will go up. While that can make for an unpleasant-looking receipt at the grocery store, it can be a boon to commodity investors. That’s because the price of many commodities tends to go up with inflation. As a result, investing in commodities can help “hedge” – or lessen – the risk of investing in other asset classes that may be negatively affected by inflation.
Potential for Significant Returns. Commodities can also – potentially – produce meaningful returns. Certain types of commodities will occasionally rise drastically in demand, taking their price up with them. As a result, investing in the right commodity at the right time can certainly help investors generate a significant profit!
Of course, that same potential is also behind some of the downsides to investing in commodities:
Volatility. Commodities can be extremely volatile. As you’ve no doubt seen, the price of any commodity (say, oil, or gold) can fall remarkably fast if the demand for those products falls far below their supply. For these reasons, you should only invest in commodities if you can afford to take on the…
Multiple Risks. As we mentioned, all types of investments come with risks. However, the risks associated with commodities are particularly large and varied. For example, some commodities – especially agricultural ones – are vulnerable to weather. Others can be affected by natural disasters, military conflicts, or changing government regulations. While these same factors can certainly drive prices up, they are also just as likely to drag prices down if the wrong conditions arise. Furthermore, investors have no control over these types of risks…and they are notoriously difficult to predict in advance.
No Income. Finally, commodities do not produce any income for investors the way bonds or dividend-paying stocks do. So, investors seekingincome – especially retirees – may find that the pros of commodities are just not worth the risks when it comes to fulfilling their needs.
In the end, there’s simply no “one size fits all” type of investment, and that’s especially true of commodities. While they can be a viable fit for some portfolios, every investor must look carefully at whether commodities are right for their needs, and whether the risks associated with them are more than they can afford.
So, now you know the “how” and the “why” of investing in commodities. In our next few posts, we’re going to demystify common investment–related jargon you may hear bandied about by the media. In the meantime, have a great month!
Questions You Were Afraid to Ask #12
The only bad question is the one left unasked. That’s the premise behind many of our recent posts. Each covers a different investment-related question that many people have but are afraid to ask. In this post, let’s cover a specific type of investment that people often wonder about:
Questions You Were Afraid to Ask #12:
What does it mean to invest in commodities?
In an investing context, a commodity is a physical product that is either consumed or used to produce something else. For example, corn, sugar, and cotton are all commodities. We generally refer to products like these as agricultural commodities. Pork, poultry, and cattle are livestock commodities. Energy products, like oil and gas, are commodities, too. So are precious metals like gold, silver, and platinum.
A commodity is generally seen as an alternative investment. Alternative investments are called that because they trade less conventionally than more traditional stocks and bonds. Despite this, many people find the idea of investing in commodities to be an attractive one. For some, it’s because it makes more intuitive sense than owning shares in a company (buying stock) or lending money to an organization (buying bonds). There’s something tangible about the idea of investing in things we see and use daily. By comparison, stocks and bonds can feel a little more abstract. For others, investing in commodities is a way of adding even more diversification to a portfolio.
That said, the question of how to invest in commodities can be an overwhelming one. Most people – including experienced investors – don’t even know how to get started! So, let’s discuss some of the potential ways to invest in commodities. Then, in our next post, we’ll cover some of the pros and cons of this particular asset class.
The oldest and most basic way to invest in commodities is to physically own them. This is what traders have been doing for most of human history. Person A buys a herd of cattle from Person B, and then sells some or all of them to Person C, hopefully for a profit. Person X buys a stack of gold bars from Person Y and then sells them to Person Z. You get the idea.
This, of course, is still done today. But for most retail investors – regular folks like you and me – taking physical ownership just isn’t feasible. When you buy commodities, you must also have a way to store them. Unlike stocks and bonds, commodities take up space… usually a lot of it! You must also have a way to deliver the commodities to and fro. You’d also want to purchase insurance on the product in case something went wrong. And of course, you would need to have a lot of technical expertise to know how to trade those commodities for a fair price.
For these reasons, most investors choose one of two avenues: Buying stock in companies that produce commodities or by investing in commodity-based funds. Let’s start with the first.
Let’s say you wanted to invest in a certain type of precious metal that you feel will rise in value in the future. Obviously, for reasons we’ve already covered, you don’t want to own the metal itself. So, instead, you buy stock in a company that specializes in mining or extracting that particular metal. Should the price of that metal go up, it’s quite possible that the stock price for the company that specializes in that metal will go up, too.
Another way to invest in commodities is through commodity-based funds. You may remember our previous post on the different types of investment funds. Commodity-based funds are very similar, except they are centered around specific commodities. The fund may be comprised of a number of companies that specialize in the commodity. Some funds may even purchase and store the physical product itself if they have the means to do so. Either way, these types of funds – which can be mutual funds or exchange-traded funds – can give you exposure to whatever commodities you’d like to invest in.
There is another way that some investors participate in commodities called future contracts. These are “contracts in which the purchaser agrees to buy or sell a specific quantity of a physical commodity at a specified price on a particular date in the future.”1 So, let’s say an investor purchases a contract to buy X barrels of oil for $75 per barrel at some later date. By doing so, they anticipate the price of oil will rise above that, so their price affectively becomes a bargain. Then, when the specified date arrives, the investor accepts a cash settlement. This means the investor is credited with the difference between the initial price they paid and the current market price. This is instead of receiving physical ownership of the oil. Of course, if the price of oil goes below $75 per barrel, the investor would have to pay back that difference themselves.
Commodity futures are a complex topic, and to be honest, individual investors rarely turn to them. They are more often used by institutional investors like commodity-based funds.
So, that’s the how of investing in commodities! In our next post, we’ll get more into the why by discussing the pros and cons of commodities. As you know, all types of investments come with risks, and commodities are no exception. They’re certainly not right for everyone!
In the meantime, now you know what it means to “invest in commodities.” We look forward to diving even deeper into this topic in our next post.
1“Futures and Commodities,” FINRA, https://www.finra.org/investors/investing/investment-products/futures-and-commodities