Retirement Planning Challenges for Women: How to Face Them and Take Action

Contributed by: Sandra Adams, CFP®

If we are being completely honest, planning and saving for retirement seems to be more and more challenging these days – for everyone.  No longer are the days of guaranteed pensions, so it’s on us to save for our own retirement.  Even though we try our best to save…life happens and we accumulate more expenses along the way.  Our kids grow up (and maybe not out!).  Our older adult parents may need our help (both time and money).  Depending on our age, grandchildren might creep into the picture.  Add it all up and the question is: how are we are supposed to retire?  We need enough to potentially last 25 to 30 years (depending on our life expectancy). Ughhh!

While these issues certainly impact both men and women, the impact on women can be tenfold.  Let’s take a look at some of the major issues women face when it comes to retirement planning.

1. Women have fewer years of earned income than men

Women tend to be the caregivers for children and other family members.  This ultimately means that women have longer employment gaps as they take time off work to care for their family.  The result: less earned income, retirement savings, and Social Security earnings. It can also halt career trajectory. 

Action Steps

• Attempt to save at a higher rate during the years you ARE working. It allows you to keep pace with your male counterparts. Take a look at the chart below for an estimated percentage of what working women should save during each period of their life.

• If you are married you may want to save in a ROTH IRA or IRA (with spousal contributions) each year, even if you are not in the workforce.

• If you are serving as the caregiver for a family member, consider having a Paid Caregiver Contract drawn up to receive legitimate and reportable payment for your services. This could potentially help you and help your family member work towards receiving government benefits in the future, if and when needed.

2. Women earn less than men

For every $1 a man makes, a woman in a similar position earns 82¢ according to the Bureau of Labor Statistics.  As a result, women see less in retirement savings and Social Security benefits based on earning less.

Action Steps

• Again, save more during the years you are working.  Attempt to maximize contributions to employer plans. Also, make annual contributions to ROTH IRA/IRAs and after-tax investment accounts.

• Invest in an appropriate allocation for your long term investment portfolio, keeping in mind your potential life expectancy.

• Be an advocate for yourself and your women cohorts when it comes to requesting equal pay for equal work.

3. Women are less aggressive investors than men

In general, women tend to be more conservative investors than men.  Analyses of 401(k) and IRA accounts of men and women of every age range show distinctly more conservative allocations for women.  Especially for women, who may have longer life expectancies, it’s imperative to incorporate appropriate asset allocations with the ability for assets to outpace inflation and grow over the long term.

Action Steps

• Work with an advisor to determine the most appropriate long term asset allocation for your overall portfolio, keeping in mind your potential longevity, potential retirement income needs, and risk tolerance.

• Become knowledgeable and educated on investment and financial planning topics so that you can be in control of your future financial decisions, with the help of a good financial advisor.

4. Women tend to live longer than men

Women have fewer years to save and more years to save for.  The average life expectancy is 81 for women and 76 for men according to the Centers for Disease Control and Prevention.  Since women live longer, they must factor in the health care costs that come along with those years. 

Action Steps

• Plan to save as much as possible.

• Invest appropriately for a long life expectancy.

• Work with an advisor to make smart financial decisions related to potential income sources (coordinate spousal benefits, Social Security, pensions, etc.)

• Make sure you have a strong and updated estate plan.

• Take care of your health to lessen the cost of future healthcare.

• Plan early for Long Term Care (look into Long Term Care insurance, if it makes sense for you and if health allows).

5. Women who are divorced often face specific challenges and are less likely to marry after “gray divorce” (divorce after 50)

From a financial perspective, divorce tends to negatively impact women far more than it does men.  The average woman’s standard of living drops 27% after divorce while the man’s increases 10% according to the American Sociological Review. That’s due to various reasons such as earnings inequalities, care of children, uneven division of assets, etc.

The rate of divorce for the 50+ population has nearly doubled since the 1990s according to the Pew Research Center. The study also indicates that a large percentage of women who experienced a gray divorce do not remarry; these women remain in a lower income lifestyle and less likely to have support from a partner as they age.

Action Steps

• Work with a sound advisor during the divorce process, one who specializes in the financial side of divorce such as a Certified Divorce Financial Analyst (CDFA) (Note:  attorneys often do not understand the financial implications of the divorce settlement).

6. Women are more likely to be subject to elder abuse

Women live longer and are often unmarried or alone.  They may not be as sophisticated with financial issues.  They may be lonely and vulnerable. 

Action Items

• If you are an older adult, put safeguards in place to protect yourself from Financial Fraud and abuse. For example: check your credit report annually and utilize credit monitoring services like EverSafe.

• Have your estate planning documents updated, particularly your Durable Powers of Attorney documents, so that those that you trust are in charge of your affairs if you become unable to handle them yourself.

• If you are in a position of assisting an older adult friend or relative, check in on them often. Watch for changes in their situations or behavior and do background checks on anyone providing services.

While it is unlikely that the retirement challenges facing women will disappear anytime soon, taking action can certainly help to minimize the impact they can have on women’s overall retirement planning goals. I have no doubt that with a little extra planning, and a little help from a quality financial advisor/professional partner, women will be able to successfully meet their retirement goals. 

If you or someone you know are in need of professional guidance, please give us a call.  We are always happy to help.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

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Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Raymond James is not affiliated with EverSafe.

The cost and availability of Long Term Care insurance depend on factors such as age, health, and the type and amount of insurance purchased. These policies have exclusions and/or limitations. As with most financial decisions, there are expenses associated with the purchase of Long Term Care insurance. Guarantees are based on the claims paying ability of the insurance company.

The Trillion-Dollar Stimulus On The Way – What You Need To Know About The CARES Act

Contributed by: Kali Hassinger, CFP®

 

As more states implement quarantine tactics, lawmakers in Washington struck a compromise on a major fiscal stimulus package to help combat the effects of the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 packs in a lot, with upwards of $2 trillion slated to provide critical support for the economy. In comparison, the American Recovery and Reinvestment Act of 2009 was $831 billion.

While we don't know the short or long term effects of this pandemic on the economy, the combination of monetary and fiscal stimulus efforts will hopefully serve as a bridge until regular economic activity can continue. Even with the largest spike in single-week unemployment claims ever, the optimism surrounding this stimulus helped the S&P 500 post its largest three-day rally (+17.6%) since April 1933.

Lawmakers put together this bipartisan package much more quickly than initially anticipated with crucial provisions to expand unemployment eligibility and benefits, small business relief, and even direct financial support to some US citizens. Here's what we know so far:

Checks Are Coming

Based on income and family makeup, some Americans can expect to receive a refundable tax credit as a direct payment from the government now!

Who is eligible? Eligibility is based on Adjusted Gross Income with benefits phasing out at the following levels:

• Married Filing Jointly: $150,000

• Head of Household: $112,500

• All other Filers: $75,000

The rebates are dispersed based on your 2018 or 2019 income (whichever is the most recent return the government has on file) but are actually for 2020.  This means that if your income in 2018 or 2019 phases you out of eligibility, but your 2020 income is lower and puts you below the phase-out (for example, lose your job in 2020, which many are experiencing), you won't receive the rebate payment until filing your 2020 taxes in 2021!  The good news is that those who do receive a rebate payment based on 2018 or 2019 income and, when filing 2020 taxes, find that their income exceeds the AGI thresholds, taxpayers won't be required to repay the benefit.

How much can I expect to receive?

• Married Filing Jointly: $2,400

• All other Filers: $1,200

• An additional credit of up to $500 for each child under the age of 17

If income is above the AGI limits shown above, the credit received will be reduced by $5 for each $100 of additional income.

When will I receive my benefit? The Timeline isn't clear at this point.  The CARES Act mandates that these payments be processed as soon as possible, but that term doesn't provide a firm deadline. 

Where will my money be sent?  The CARES Act authorizes payments to be sent to the same account where recipients have Social Security benefits deposited or where their most recent tax refund was deposited. Others will have their payment sent to the last known address on file.

Retirement Account Changes

• Required Minimum Distributions are waived in 2020

• Distributions due to COVID-19 Financial Hardship – Distributions up to $100,000 from IRAs and employer-sponsored retirement plans that are due to COVID-19 related financial hardships will receive special tax treatment. There will be no 10% penalty for individuals under the age of 59 ½ and the usual mandatory 20% Federal tax withholding will be waived.  Income, and therefore the taxes due from these distributions, can be spread over three tax years (2020, 2021, and 2022), and there is even the option to roll (or repay) distributions back into the retirement account(s) over the next three years.

• Loans from Employer-sponsored Retirement Plans – The maximum Loan amount was increased from $50,000 to $100,000 and allows account holders to borrow from 100% of their vested balance.  Repayment of these loans can be delayed one year.

Charitable Giving Tax Benefits 

• The CARES Act reinstates a possible above-the-line tax deduction for charitable donations up to $300.  This deduction is only available for taxpayers who do not itemize.

• For those who do itemize, the charitable deduction limit on cash gifted to charities is increased from 60% of Adjusted Gross Income to 100% of Adjusted Gross Income for 2020.  If someone gifts greater than 100% of their AGI, they can carry forward the charitable deduction for up to 5 years.  This does not apply to Donor Advised Fund contributions.

Student Loan Repayments

• Student loan payments are deferred, and loans will not accrue interest until the end of September.  Although the interest freeze will occur automatically, borrowers will have to contact their loan servicers and elect to stop payments during this period.

Expanded Unemployment Benefits

• Unlimited funding for Temporary Federal Pandemic Unemployment Compensation to provide workers laid off due to COVID-19 an additional $600 a week, on top of state benefits, for up to four months. This includes relief for self-employed individuals, furloughed employees, and gig workers who have lost contracts during the pandemic.

Small Businesses Support

• In the form of more than $350 billion, the CARES Act offers forgivable loans to help keep the business afloat, a paycheck protection plan, grants, and the ability to defer payment of payroll tax, to name a few.

Individual Healthcare

• HSAs and FSAs will now enable the purchase of over the counter medications as qualified medical expenses.  Medicare Part D participants must be allowed to request a 90 day supply of prescription medication, and if/when a COVID-19 vaccine becomes available, it must be free to those on Medicare.

Additional Healthcare Support

• $150 billion is allocated to hospitals and community health centers to provide treatment and equipment to fight coronavirus.

Education Funding

• $30 billion will be allocated to bolster state education and school funding.

State And Local Government Funding

• $150+ billion will be allocated to "state stabilization funds" to support reduced state and local tax receipts.

Other Provisions

• The CARES Act provides an additional $500 billion buffer for impacted and distressed industries, including the airlines, mass transit, and the postal service.

Depending on the length and impact this pandemic, lawmakers are already talking about another round of intervention in a phased approach.

Life may feel a little chaotic these days, but we hope you take comfort in knowing your financial plan was tailored to your risk tolerance, ability to handle market volatility, and overall financial goals. As always, we are here to answer your questions.

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

Taxpayer Relief Amid Coronavirus Crisis

Contributed by: Allison Bondi

Americans now have an extra 3 months to file their 2019 federal income taxes.

President Trump issued an Emergency Declaration on March 13, 2020 to provide relief from tax deadlines to Americans who have been impacted by the COVID-19 emergency.

The new deadline is July 15.

If you’re expecting a refund, consider filing sooner. However, for those with a large tax liability, the new deadline provides some extra time to develop a thoughtful strategy for paying the taxes due.

According to guidance from the IRS, individuals will be able to defer up to $1 million and corporations will be able to defer up to $10 million for 90 days without penalties and interest for taxes due. The $1 million limit applies both to single filers and to married couples filing joint returns.

Does this apply to state income tax payment deadlines?

• No. The extension is for federal income tax, not state income tax. Consult your tax professional for more details about your state’s policies.

What do I need to do to elect the deferral?

• Nothing. Any interest or penalty from the IRS from April 15 to July 15 will automatically be waived. Penalties and interest will begin to accrue on any remaining unpaid balances as of July 16, 2020. 

Does this mean I can make 2019 IRA contributions until July 15?

• Yes. Per IRS publication 590-A: “Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions.” The due date for filing the 2019 return is now July 15, 2020, so you have until that date to make 2019 IRA contributions.

Stay up to date with COVID-19-related changes. Visit irs.gov/coronavirus to explore related resources, and reach out to your tax professional and financial advisor with any questions you have about your specific tax situation and financial plan.

Allison Bondi is a Marketing Administrator at Center for Financial Planning, Inc.® She facilitates marketing initiatives and communications.

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Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Harvesting Losses in Volatile Markets

Contributed by: Robert Ingram, CFP®

In times of market volatility and uncertainty there are still financial strategies available as part of a sound long-term investment plan. One example to keep in the toolbelt can be the use of tax-loss harvesting. It’s when you sell a capital asset at a loss in order to reduce your tax liability.

While this sounds counter-intuitive, taking some measures to harvest losses strategically allows those losses to offset other realized capital gains. In addition, remaining excess losses can offset up to $3,000 of non-investment income, with remaining losses carrying over to the next tax year. This can go a long way in helping to reduce tax liability and improving your net (after tax) returns over time. So, how can this work?

Harvesting losses doesn’t necessarily mean you’re giving up on the position entirely. When you sell to harvest a loss you cannot make a purchase into that security within the 30 days prior to and after the sale.  If you do, you are violating the wash sale rule and the loss is disallowed by the IRS.  Despite these restrictions, there are several ways you can carry out a successful loss harvesting strategy.

Tax-Loss Harvesting Strategies

• Sell the position and hold cash for 30 days before re-purchasing the position. The downside here is that you are out of the investment and give up potential returns (or losses) during the 30 day window.

• Sell and immediately buy a position that is similar to maintain market exposure rather than sitting in cash for those 30 days. After the 30 day window is up you can sell the temporary holding and re-purchase your original investment.

• Purchase the position more than 30 days before you try to harvest a loss. Then after the 30 day time window is up you can sell the originally owned block of shares at the loss. Being able to specifically identify a tax lot of the security to sell will open this option up to you.

Common Mistakes To Avoid When Harvesting

• Don’t forget about reinvested dividends. They count. If you think you may employ this strategy and the position pays and reinvests a monthly dividend, you may want to consider having that dividend pay to cash and just reinvest it yourself when appropriate or you will violate the wash sale rule.

• Purchasing a similar position and that position pays out a capital gain during the short time you own it.

• Creating a gain when selling the fund you moved to temporarily that wipes out any loss you harvest. You want to make the loss you harvest meaningful or be comfortable holding the temporary position longer.

• Buying the position in your IRA. This violates the wash sale rule. This is identified by social security numbers on your tax filing.

As with many specific investment and tax planning strategies, personal circumstances vary widely.  It is critical to work with your tax professional and advisor to discuss more complicated strategies like this. If you have questions or if we can be a resource, please reach out!

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Bob Ingram and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Think Portfolio Diversification is Overrated – Read This

Contributed by: Jaclyn Jackson

Let’s face it, the S&P 500 has consistently beat diversified portfolios since 2009.  Demonstrated below, a diversified portfolio of bonds, domestic stocks, and international stocks (crimson bar) was edged out by the S&P 500 nine of the last ten years. With the S&P’s winning streak, why would investors consider putting money to work anywhere else but US equities?

What The Fund?

For decades, investment professionals have preached the merits of portfolio diversification and asset allocation, but lately, performance hasn’t supported their conviction.  So why are investment professionals adamant about diversification? It began in 1952 when Harry Markowitz (a graduate student who became a

Nobel Prize winning economist) published an article in the Journal of Finance where he outlined the premise of his popularized Modern Portfolio Theory.  Essentially, the theory highlights the relationship between risk and reward for different types of investments. It then mathematically assesses investors’ ability to take on risks with performance expectations to create an optimal portfolio.  In other words, Markowitz laid the groundwork to help investors discover the right combination of investment products to achieve a certain level of performance without taking unnecessary risks.  

A Case for Portfolio Diversification

If you were looking to maximize portfolio growth over the last decade, you could have easily been tempted to scrap diversification in favor of the S&P 500.  Yet, there is evidence that Markowitz’s theory is still relevant for today’s investors. Craig L. Israelsen, PhD and Executive-in-Residence in the Personal Financial Planning Program at Utah Valley University, did compelling research around portfolio diversification worth reviewing. He compared five portfolios that represent different risks levels and asset allocations over 50-years, from 1970-2019.  While there is much to glean from his research, I’d like to zoom in on his comparison of two moderately aggressive portfolios because it shows the value of portfolio diversification. 

The first Moderately Aggressive Portfolio has a traditional 60% US Stock, 40% Bond asset allocation. The second Moderately Aggressive Portfolio has a 14.3% allocation to seven different asset classes.  In 2019, a year dominated by the S&P 500, the first portfolio (having a larger composition of the S&P 500) predictably outperformed the second portfolio.  On the other hand, over the 50-year period the second portfolio had similar annualized gross return with a lower standard deviation.  An investor in the second, 7-Asset Diversified Portfolio, had similar returns without taking as much risk as an investor in the first portfolio.  

There is another point worth spotlighting here.  Imagine if you only invested in the S&P 500, as represented by the Very Aggressive 100% US Stock portfolio, over that 50-year period. Compared with the 7-Asset Diversified Portfolio, the 100% US Stock portfolio had a 7% greater standard deviation for just under a percent greater return.  The diversified portfolio would have given you most of the return for half the headache.

Complex Portfolios for Complex Living

Investors don’t invest in a bubble or just for kicks.  In reality, investors use portfolios to serve needs and meet financial goals. Digging deeper into Israelsen’s research, he explores a real-life need and a common portfolio use: supplementing retirement.  His research evaluates a $250,000 initial investment for each portfolio over 26 rolling 25-year periods from 1970-2019 and assumes a 5% initial end-of-year withdrawal with 3% annual cost of living adjustment taken at the end of each year.

Again, looking at the two Moderately Aggressive Portfolios, the 60% US Stock, 40% Bond Portfolio had a median ending balance of $1,234,749 after 25 years compared to the 7-Asset Diversified Portfolio median ending balance of $1,806,565.  Likewise, if someone had aggressively invested in US Stock over that time, (s)he would still end up with less money than the diversified portfolio at $1,500.554.  This best illustrates why Modern Portfolio Theory (limiting risk through diversification) still matters.  Retirees want to avoid choppy investment experiences as they pull money from their accounts and create even returns through diversification that extend the longevity of their portfolios.

Pulling it all together, life is complex and investors use their investment portfolios to manage those complexities.  Investor needs and financial goals punctuate the necessity of investing in ways that diminish excessive risk-taking and extend the life of portfolios. Everything considered, risks mitigation through portfolio diversification stands true today, even for investors who’ve witnessed an S&P 500 tear over the last decade. 

Jaclyn Jackson is a Portfolio Administrator at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author, and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Standard deviation measures the fluctuation of returns around the arithmetic average return of investment. The higher the standard deviation, the greater the variability (and thus risk) of the investment returns.

Performance of hypothetical investments do not reflect transaction costs, taxes, or returns that any investor actually attained and may not reflect the true costs, including management fees, of an actual portfolio. Changes in any assumption may have a material impact on the hypothetical returns presented. Illustrations does not include fees and expenses which would reduce returns.

Beware of Social Security Phone Scams

Contributed by: Nick Defenthaler, CFP®

Identity theft scams threaten millions of Americans. Reports of phony phone calls continue to flood into the Social Security Administration (SSA) and its Office of the Inspector General (OIG). Scammers claim to be Social Security employees and mislead victims into giving out personal information or making cash/gift card payments. But don’t worry, with our tips you can stay sharp and protect yourself.

Social Security employees WILL occasionally contact people. The SSA contacts those who have ongoing business with the agency, by telephone. However, they will NEVER threaten you. They will NEVER promise a Social Security benefit approval or increase in exchange for information or money. In those cases, the call is 100% fraudulent and your only option is to hang up.

You will receive a legitimate call from the SSA if you recently applied for a benefit, require a record update, or, of course, had requested a phone call from the agency. Otherwise, it’s abnormal to receive a call from the agency.

Social Security employees will NOT:

• Suspend, revoke, or freeze your Social Security number

• Demand an immediate payment

• Ask you for credit or debit card numbers over the phone

• Require a specific means of debt repayment, like a prepaid debit card, a retail gift card, or cash

• Demand that you pay a Social Security debt without the ability to appeal the amount you owe

If there is a problem with your Social Security number or record, the SSA will, in most cases, mail a letter. If you need to submit payments to Social Security, the agency will send a letter with instructions and payment options. NEVER provide information or payment over the phone or Internet unless you are certain of who is receiving it.

There is also an email scam to lookout for. Victims have received emails that appear to be from the SSA or the OIG with attached letters and reports. These documents may seem real at first glance and may include official letterhead and government jargon. But look closer for spelling and grammar mistakes.

Unfortunately in today’s world, you need to have your guard up. Feel free to contact us at any time if you’re weary of a potential scam related to your financial plan – we are here to help any way we can.

If you’re interested in learning more, the SSA addresses the telephone impersonation scheme here.

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® He contributed to a PBS documentary on the importance of saving for retirement and has been a trusted source for national media outlets, including CNBC, MSN Money, Financial Planning Magazine, and OnWallStreet.com.

The Importance of Staying Invested

Contributed by: Angela Palacios, CFP®, AIF®

While trying to time the market may seem tempting during times of volatility, investors who attempt to, run the risk of missing periods of quality returns, likely leading to significant adverse effects on the ending value of a portfolio.

The image below illustrates the value of a $100,000 investment in the stock market during the 2007–18 period, which included the global financial crisis and the recovery that followed. The value of the investment dropped to $54,381 by February 2009 (the trough date), following a severe market decline. If an investor remained invested in the stock market over the next nine years, however, the ending value of the investment would have been $227,993. If the same investor exited the market at the bottom, invested in cash for a year, and then reinvested in the market, the ending value of the investment would have been $148,554. An all-cash investment at the bottom of the market would have yielded only $56,122. The continuous stock market investment recovered its initial value over the next three years and provided a higher ending value than the other two strategies. While all recoveries may not yield the same results, investors are well advised to stick with a long-term approach to investing.

Sometimes it can feel very difficult to stay invested!

Crises and Long-Term Performance

Economies and markets tend to move in cycles, and any stock market can have a downturn once in a while. Most investors lose money when the stock market goes down, but some people may think they can time the market and gain. For example, an investor may aim to buy in when the market is at the very bottom and cash out when the recovery is complete, thus enjoying the entire upside.

The problem with this type of reasoning is that it’s impossible to know when the market hits bottom. Most investors panic when the market starts to decline, then they decide to wait and end up selling after they have already lost considerable value. Or, on the recovery side, they buy in after the initial surge in value has passed and miss most of the upward momentum.

The graph illustrates the growth of $1 invested in U.S. large stocks at the beginning of 1970 and the four major market declines that subsequently occurred, including the recent banking and credit crisis. Panic is understandable in times of market turmoil, but investors who flee in such moments may come to regret it.

Each crisis, when it happens, feels like the worst one ever (the most recent one in 2008, as evidenced by the image, actually was). When viewed in isolation on the lower-tier graphs, each decline appears disastrous. However, historical data suggests that holding on through difficult times can pay off in the long run. For example, $1 invested in January 1970 grew to $117.05 by December 2018, generating a 10.2% compound annual return. And in the past, when looking at the big picture, every crisis has been eclipsed by long-term growth.

Please don’t hesitate to reach out to us when you are feeling uneasy during market volatility.  We are here, working for you!

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

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Returns and principal invested in stocks are not guaranteed. Stocks have been more volatile than bonds or cash. Holding a portfolio of securities for the long term does not ensure a profitable outcome and investing in securities always involves risk of loss. About the data: Stocks are represented by the Ibbotson® Large Company Stock Index. An investment cannot be made directly in an index. Four market crises defined as a drop of 25% or more in the index. Return is represented by the compound annual return. Recession data is from the National Bureau of Economic Research. The market is represented by the Ibbotson® Large Company Stock Index. Cash is represented by the 30-day U.S. Treasury bill. An investment cannot be made directly in an index. The data assumes reinvestment of income and does not account for taxes or transaction costs. Performance of a hypothetical investment does not reflect transaction costs, taxes, or returns that any investor actually attained and may not reflect the true costs, including management fees, of an actual portfolio. Changes in any assumption may have a material impact on the hypothetical returns presented. Illustration does not include fees and expenses which would reduce returns. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Angela Palacios, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Market Performance and Viral Outbreaks

Contributed by: Angela Palacios, CFP®, AIF®

Recent market volatility caused by the spread of the coronavirus and a fear of a global economic slowdown has left many wondering if this has happened before and if so, is it different this time?  There have been numerous outbreaks in recent history that we can look at.  Below is a list of different outbreaks (many of which were far deadlier than the coronavirus) that occurred. Check out the return of the S&P 500 6 and 12 months after the epidemic.

But how about a short term global impact?  The chart below shows 1 month, 3 month, and 6 month returns of the MSCI World index.  Again, not the extreme reaction that we are feeling right now in markets. 

While there may have been short term volatility, in most cases it was short lived.

But you may still be thinking that it is different this time.   The world is far more dependent on global trade than it was during SARS in 2003 for example.  There will be some supply chain disruptions and we may not be able to source these goods from other locations quickly enough.  For example, Coca-Cola recently announced that there may be some supply disruptions in the artificial sweetener used in Diet Coke and Zero Sugar Coke…this could be devastating!  I may have to switch to drinking regular coke! Actually, I don’t drink very much pop but now that I know there could be a shortage I’m craving it!  Jokes aside, many industries may face this challenge until China is back up and running around the globe.  The trade war has actually done more to prepare us for this situation than, I think, anything could have.  Companies were already searching for supply sources outside of China or bringing production back into the U.S. after the implementation of tariffs last year.

The severity of the virus will dictate the eventual outcome. Right now investors are taking a “sell first and ask questions later” mentality. We have a lot to learn from the individuals in the U.S. under care of physicians here in the U.S. as to exactly how deadly this flu is under our system of healthcare which is one of the best in the world. Markets are selling off on a guess, right now, of where this could head. If history is any indicator, by this time next year, this should be a distant memory.

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

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There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past Performance does not guarantee future results. One cannot invest directly in an index. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI World is a free float-adjusted market capitalization index that is designed to measure large and mid cap performance across 23 developed markets countries. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Markets Flash Fear as COVID-19 Approaches Pandemic Status

Contributed by: Raymond James

U.S. equity indices fell over 3% on continued news of the coronavirus’ spread.

As coronavirus cases continue to escalate in several new regions, like South Korea, Italy, Japan, Iran, Singapore and the United States, Raymond James Healthcare Policy Analyst Chris Meekins believes we are now in the midst of a COVID-19 pandemic. The word itself isn’t intended to cause panic, but rather to prompt increased awareness of the potential economic and health effects of this rapidly spreading virus. Meekins believes the United States now faces a 1 in 3 chance of a widespread outbreak given recent events.

Unfortunately, the illness – thought to have originated in Wuhan, an important Chinese manufacturing hub – has taken its toll on equity markets, causing disruption in several industries, including travel and energy, as well as major supply chains in India and China. Amid the trade war, supply chains generally migrated away from China to places like Vietnam, Thailand and Mexico; however, global supply chains are deep and complex, and disruptions have already led to halts in motor vehicle production in Japan and South Korea, explains Chief Economist Scott Brown. U.S. firms also face a loss of sales to the Chinese market, he notes.

In addition, oil fell on concerns over weakened Chinese demand and the risk of further demand impact outside the Asia-Pacific region. However, Raymond James energy equity research analyst Pavel Molchanov believes oil prices should recover by year’s end, overcoming the virus-related demand headwinds. The current production outage in Libya is also helping to “cancel out” some of the demand headwinds.

While volatility is likely to continue to weigh on certain sectors until the virus is contained, any pullback could be viewed as a potential buying opportunity within favored sectors as the overall fundamental backdrop remains supportive of equities, according to Chief Investment Officer Larry Adam. Opportunities to add fundamentally sound positions to your portfolio may present themselves over the near term. Your advisor will continue to monitor the news for indications of broader impacts and share any developments with you.

It’s hoped that the global response to contain the deadly respiratory disease proves effective soon and that increased public awareness will deter the spread of the virus. To learn more about how to protect yourself and your family, please visit cdc.gov for updates.

Investing involves risk, and investors may incur a profit or a loss. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation, and may not be suitable for all investors. All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc., and are subject to change. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

The Most Important Question for Every Divorcing Client: How much do you spend?

Contributed by: Jacki Roessler, CDFA®

How much money did you and your spouse earn last year? I bet you can come up with an answer or a pretty close approximation at a moment’s notice. Now, what if I ask you how much you spent last year?

Long pause and nothing more than a vague idea, right? Let me assure you, you are not alone.

When I sit down with clients who are contemplating or in the process of divorce, the most important question I ask is “have you completed a budget yet?” It’s extremely rare for someone to say yes. No one likes the dreaded “b” word. Yet, after nearly 25 years of being a divorce financial planner, creating a budget (let’s call it a spending plan) for the future is the one foolproof way I know for clients to take control of their financial well‐being and have less stress and money anxiety in the future.

On a global level, if you don’t know what you spend every year, how can you make the big decisions that will be facing you in your divorce such as “should I keep the house” or “what amount of alimony can I agree to?”

On a smaller scale, sometimes we don’t realize we’re overspending on discretionary items such as dining out, holiday gifts and personal care. Seeing it on paper is an eye‐opening experience and a powerful tool to get spending under control.

Where should you begin?

Follow this link for my favorite budgeting worksheet or find one online that you like. If you pay for most expenses with credit cards, you have a simple place to start. Pull out a years’ worth of statements and tally up the totals in each category; housing, medical, food, groceries, dining out, vehicle costs, travel, etc.

Next, consider items you don’t charge on credit cards, for example, mortgage, tax and insurance payments which are generally automatically debited from a bank account. Other items that can be overlooked are those that are deducted directly from your paycheck such as Federal and State taxes, FICA, health insurance premiums, retirement account contributions and healthcare savings accounts.

Another place to look for spending “clues”? Not sure what your annual property taxes are on your home or what you donated to charities in the past? Look at your income tax returns for the past 3 years to give you some insight.

Once you’ve completed this time consuming task, stop and give yourself a high‐five! Creating a spending plan is a lot of work.

Next, give your completed spending plan to your divorce financial advisor and your attorney. They’ll provide valuable feedback about items you’ve missed and/or things you may need to scale back on. Discussing your spending plan together is also a good way to share your financial priorities with your professional team. Most importantly, your spending plan is a necessary tool your attorney needs in order to advocate for you in your divorce.

Jacki Roessler, CDFA®, is a Divorce Planner at Center for Financial Planning, Inc.® and Branch Associate, Raymond James Financial Services. With more than 25 years of experience in the field, she is a recognized leader in the area of Divorce Financial Planning.