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Special Coverage Wealth Management

Learning Opportunities

By Barbara Trombley, MBA, CPA

One of my most frustrating issues with being a parent is the lack of school education regarding money and personal finance. My children were required to take history, trigonometry, English, and numerous other courses, but they were never required to take a class about personal finance. I would argue that this knowledge is just as important.

This oversight leaves the instruction about personal finance to parents, and many parents are not good with their own money, resulting in generational problems with financial matters.

How can we teach our kids to have good financial habits? What does that mean? Obviously, modeling good financial behavior is an obvious start. Have a budget and stick to it. Contribute regularly to a retirement plan. Do not be afraid to discuss money in front of your kids. Talk about your household income and household bills and how much of your paycheck goes to taxes, retirement savings, and your emergency fund. Discuss vacations, how much they cost, and how you are saving for them.

One of my favorite ways to involve my children in money talks was to take them with me to the grocery store. I would show them how to shop for generic items, compare unit costs and sizes of items, and use coupons. In general, we should take the stigma out of money discussions and make spending and saving discussions easier to have.

Discussions with your children are not the only way to teach them about good financial practices. Here is a list of eight ways to teach good financial habits.

 

• Let your teen earn money. They don’t need to get an actual job, although I would recommend this at some point. Your teen can work around the house, cut the grass, do odd jobs, etc. The idea is to get them used to managing their own money. Once they are regularly earning, you can teach them to set aside money for short-term saving (maybe to purchase a big item), long-term saving (maybe for college), and spending now. If they are receiving a paycheck, it is a great opportunity to discuss taxes and Social Security and Medicare withholdings.

• Open a bank account. It’s a great idea to have a child manage their own savings account. Many little ones start with a piggy bank for odd change. When the birthday or allowance money starts to accumulate, it is time for a bank account. Make sure to have access so that you can monitor the account. When the teen gets their first job, they can have their paycheck deposited in a checking account.

• Get a debit card. When your teen gets a checking account, it is the perfect time to get a debit card. They can practice using it and seeing purchases impact the account balance. Your child can get an online login to their bank account and learn to watch the activity.

• Help them set a budget. Teens are notoriously frivolous. Starbucks, dining out, shopping, video games — there are so many more ways for our teens to spend their money than we had as young adults. Discuss with your teens how many hours they would need to work to buy a grande Frappuccino at Starbucks. Talk about how long they would need to save to go to a big concert. If it is easier to illustrate, find an app for budgeting. There are many available.

• Consider credit cards. This is a tricky one. Each of my children was given an additional card on our account when they were 16. This card came with explicit instructions (from mom and dad) on how and when it was to be used, as my husband and I were ultimately responsible for the bill. Our kids understood that the card could easily be taken away if misused. This was a gentle introduction to credit and allowed them to establish a credit score (see the next tip). You could also start with a pre-paid credit card on which you put a certain amount. When each of our children were juniors in college, we helped them apply for their own credit cards. By this time, their money skills were good, and they understood the importance of paying the bill monthly.

“In general, we should take the stigma out of money discussions and make spending and saving discussions easier to have.”

Barbara Trombley

Barbara Trombley

• Explain credit score. Many teens and young adults do not understand the need to build credit. Emphasize that, by using credit responsibly, your teen will build credit and increase their credit score, which is imperative when it is time to finance a car or a house. Explain how people with the best scores are given the lowest interest rates when looking to make large purchases.

• Discuss compound interest. This topic can apply to both credit cards and investments. Explain to your teen how compound interest (paying interest on the interest from last month’s bill) can make a large credit card balance even bigger over time. Consequently, compound interest is your friend when dealing with investment accounts. Earning interest on the interest generated year over year is how many people grow their investments.

• Discuss paying for college. Another hot topic that too many parents avoid is who is going to pay for college and how. Teens need to be included in the discussion about college tuition and debt from an early age. If expectations are set about how much college costs and how much you can contribute, disappointment with a college choice can be managed. Also, one of the absolute worst financial mistakes a parent can let their teen make is to choose a college without regard to the financial burden on both the parents and the student. Letting an 18-year-old be unknowingly responsible for college debt can set them up for a lifetime of money troubles.

If your teen is really interested, find online classes that teach financial literacy. Also, look for books in your library. Particularly savvy teens can open investment accounts easily online and start investing with a minimum deposit. There are many ways to educate our children, and we need to take the responsibility for their financial education.

 

Barbara Trombley, MBA, CPA is a principal with Wilbraham-based Tromblay Associates; (413) 596-6992. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. This material was created for educational and informational purposes only and is not intended as ERISA tax, legal, or investment advice.

Special Coverage Wealth Management

It’s a Time to Stay Focused and Think Strategically

By Barbara Trombley, CPA

If you have a retirement account, as many of us do, it is hard not to follow what is going on in the financial markets today. We are officially in a bear market, defined by a drop of 20% or more in a broad market index.

The Dow Jones Industrial Average crossed into bear market territory on June 13 of this year. Unfortunately, bear markets may plummet even deeper than the 20% threshold and may do so over a prolonged period. It is a tough time to be an investor during this scenario but, eventually, the market finds a bottom and investors feel comfortable once again to begin buying, putting an end to the bear market.

Bear markets are usually the result of a recession or some other financial strain. We are not officially in a recession, but many experts think that one is coming. A recession is defined as a significant decline in economic activity that lasts for months or years. This often means that unemployment rises as companies fail or shrink to control costs. Corporate profits fall causing a decline in stock market prices.

Usually, a bear market signifies tougher economic times ahead. Unfortunately, bear markets are ‘normal’ and happen periodically. We actually experienced a short bear market at the beginning of the pandemic. Bear markets tend to be much shorter than bull markets (when stocks rise over a period of time). They also tend to be less statistically severe, with average losses of 33% compared with bull market average gains of 159%, according to data compiled by Invesco.

“It is a tough time to be an investor during this scenario but, eventually, the market finds a bottom and investors feel comfortable once again to begin buying, putting an end to the bear market.”

What should an investor do during a bear market? Risk tolerance, asset allocation and your age really come in to play right now. The percentage of equities in your portfolio should match your risk tolerance and age. For instance, if you are in your thirties and forties and are investing in your 401(k), you could be very aggressive and have a large percentage of equities.

If this is the case, then you should be thrilled to make your monthly deposit into your account. You are buying stocks ‘on sale’ and you have many years to make up any temporary losses in your account. Even if you are a few years from retirement, and depending upon you situation, a bear market could be seen as an opportunity to purchase stocks at a discount.

A prolonged bear market for someone approaching retirement or a new retiree could mean making some changes to your lifestyle. For example, you could limit withdrawals from your investment account and/or eliminate panic selling. When you withdraw money or sell in a bear market it is considered “locking in the losses.” Perhaps you can cut spending or pick up an extra job for the short term, until the economy is on more stable footing.

There are financial products available that could potentially be suitable in many portfolios. In some cases when determined appropriate, an annuity could be used to create more stable income, a REIT (Real Estate Investment Trust) could be used to help diversity a portfolio and many insurance companies offer products with downside protection. Consult your financial advisor for different ideas to help address the volatility in your portfolio.

Perspective is key to a good night’s sleep when dealing with market volatility. Downturns are a normal occurrence in the stock market. Since 1932, bear markets have occurred, on average, every 56 months (about four years and eight months), according to S&P Dow Jones Indices. Make sure to keep emergency funds in the bank to keep market withdrawals to a minimum. Do not make rash changes to your portfolio. There is a saying that ‘time in the market beats timing the market.’ It is very hard to predict the exact best day to sell a stock or to buy a stock. Missing the best days in the stock market, over time, can seriously undermine your performance. Having a plan and sticking to it could yield the best results in the long term.

If you are a new investor, you may want to proceed cautiously. One potential strategy is to dollar cost average any funds that you have into the market (spread the investment over a period of time). This way you are buying at different price points in the market. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

No one is predicting when the market bottom will happen, and it is nearly impossible to time. I believe you should see to have a well-diversified portfolio with a mixture of asset classes, though there is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Always remember the adages “This too shall pass” and “Time is on your side.” Those people that have been investing for a while have been through many economic downturns and have survived and, most likely, thrived if they have stayed the course and stuck to their plan!

 

Barbara Tromblay is a financial advisor and CPA with Wilbraham-based Tromblay, CPA: (413) 596-6992. Securities offered through LPL Financial. Member FINRA/SIPC. Advisory services offered through Trombley Associates, a registered investment advisor and separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Local Business Advice

The Wealth Technology Group

By: Gary F. Thomas, JD, LLM, CLU, ChFC, AIF, CDFA

A couple of weeks ago I spoke with a potential client on the phone who had recently purchased some trusts through an online service, and had questions about them. To create the trusts he spoke with an individual on the phone and filled out a short questionnaire listing his wishes, assets and beneficiaries. A short time later received the documents. He was told that the trusts would accomplish his three primary objectives:

Probate Avoidance

Estate Tax Reduction

Asset Protection

I responded that without reading the trusts carefully as well as knowing more about his current financial situation, it would be impossible for me to answer his concerns. We agreed to meet.

Bill arrived carrying a handsome, two-inch thick leatherette folio with his family name embossed in gold lettering on the cover. The binder included two trusts: a Revocable Living Trust and an Irrevocable Asset Protection Trust. Neither trust was funded. In addition, there was a “pour-over” will, designed to fund the Living Trust with probate assets at the time of Bill’s passing.

After chatting with Bill, I learned that he was seventy-three years old, and had two adult sons who were comfortable financially. Up until the creation of his trusts, he had a simple Will leaving all his assets to Martha, his wife of 40 years. She had recently passed after a lengthy illness, motivating Bill to reconsider his estate planning options.

Bill’s major assets included a sizable conservatively invested 401k which listed his children as beneficiaries. Bill’s other assets consisted of a couple of CDs, a modest checking account and a three-bedroom ranch built in the 1960s. Although Bill would be considered to be financially comfortable, his combined assets were only slightly above the one million dollar threshold for Massachusetts estate taxes, with no likelihood of approaching the Federal limits.

The trusts would not serve to avoid probate or to protect Bill’s assets. His major asset, the 401k, was already set up to avoid probate as it had named beneficiaries. As a retirement account it is protected from creditors under both Massachusetts and Federal law. Transferring his 401k to the Irrevocable Trust would necessitate cashing it out, resulting in an income tax disaster.

Bill asked what course he should take regarding the CDs and his home. He could, if he chose, transfer his CDs into either trust but as they were only a modest portion of his assets, the net effect of doing so would be marginal. And although he could transfer his home to the Irrevocable Trust in the hopes of protecting it from the high cost of long-term care, he would still be required to spend down his other assets to qualify for care.

Properly structured, drafted and funded, trusts are valuable tools for probate avoidance, asset protection and estate tax avoidance, but they are not needed by everyone. Basic estate planning documents such as a Will and a Durable Power of Attorney, with careful selection of beneficiaries plus proper insurance planning often produces the desired outcome.

Please consult a qualified professional who can assess your situation and guide you properly through your estate planning journey.

Social Security Informational Workshop: June 11, 13, 18, & 20th • 6:30 pm

Wealth Technology Conference Center – 130 Southampton Rd, Westfield, MA

 


Gary F. Thomas

JD, LLM, CLU, ChFC, AIF, CDFA

“Because it’s not what you make … it’s what you keep!”

Gary is the President of The Wealth Technology Group, with offices in Pittsfield and Westfield. His company serves over a thousand individuals and businesses in Massachusetts, Connecticut, and across the country, helping them reduce taxes, diversify their portfolios, and keep more of what they have.

Gary is a native of Pittsfield and is a graduate of the Massachusetts College of Liberal Arts and Western New England University Law School. He is a member of the Massachusetts Bar and holds the prestigious Master of Laws in Taxation degree from Boston University Law School. Gary is a Chartered Life Underwriter and a Chartered Financial Consultant. He is also certified as an Accredited Investment Fiduciary, having met the ethical and education standards of a prestigious network of forward-looking investment professionals dedicated to advancing fiduciary responsibility.

Gary has conducted courses on retirement planning, financial management, and estate planning at General Dynamics Corporation, Tubed Products, the Massachusetts Nurse’s Association, Plumbers and Pipefitters Locals 4 and 104, Westfield State University, Berkshire Community College and the Massachusetts College of Liberal Arts, and has lectured financial planning and insurance professionals throughout the U.S. and internationally on best practices and customer service. He specializes in education about safe money management and the maximization of pension and Social Security benefits, so that his clients enjoy a stress-free retirement.

Gary is a member of the Massachusetts Bar Association, the Financial Planning Association, the National Association of Insurance and Financial Advisors, and the International Association of Financial Planners; he sits on the Board of Directors of the MCLA Foundation. Last year, Gary was honored to be appointed a member of the Board of Trustees for Western New England University. He also underwrites programming for WHMP, Channel 57, and is a member of the Westfield Chamber of Commerce and the Better Business Bureau. He was chosen Outstanding Philanthropist of the Year for 2013 by the Western Mass Association of Fundraising Professionals.

Gary is a presence on local media and is sometimes called upon to comment on financial news. Every few weeks Gary also has some fun talking about financial topics with Bax & O’Brien on Rock102. His programs are available on the station websites, and are podcast on iTunes and at www.wealthtechnology.com. He has appeared nationally on Fox Business News, and has been quoted on the Forbes and CNN Money websites.

(800) 266-6793

[email protected]

www.wealthtechnology.com