​When investors rebalance their portfolios, the influence of their decisions is usually determined by media outlet research. If you’ve been listening to most news sources then you are hearing recession, recession, recession. But, if you are looking at the data and trying to find a way back into the market: here are some tips you’ll want to review.
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When do you know it’s the bottom?
Many people associate a bear market with a recession. A recession is typically defined as 2 consecutive quarters of negative gross domestic product (GDP). However, a bear market is a drop from the peak to the bottom of greater than 20%. Our peak was December of 2021 (S&P 4766.18) and our most recent bottom is October of 2022 (S&P 3583.07). While this may not be the bottom, an average bear market is 9-13 months. Since our recent low, markets have been bouncing around influenced by the latest interest rate increases and other economic data point decreases. 

Source: LPL Research, CFRA Fact Sheet 05/20/22.​
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How can you invest?
After you’ve evaluated where the market stands you can move in two different directions. The first is the path to recovery and the other is expansion. The path to recovery means we may have some turbulent times ahead but investing in sectors that have lower beta than the S&P should limit the drawdown your portfolio is exposed to. Common investment sectors include  utilities, consumer staples, healthcare, and real estate. Keep in mind, this strategy doesn’t guarantee against loss but it creates an inverse reaction to the general stock market.

If you are under the impression that we are likely to move towards expansion, you’ll be looking for options that have a higher beta than the S&P (e.g., greater than 1.0). These are not guaranteed to produce a gain and are subject to more volatility. Sectors you’ll commonly see aligned with those portfolios are energy, consumer discretionary, financial, and technology.

Stepping away from sector focused investing another traditional train of thought is to move more money into bonds but with the rising interest rates. Though, it might be best to table that for a little while. You’ll also notice that the best performing indices might not be the Dow or S&P, and in many cases have been NASDAQ and Russell. 

Having the right balance between market knowledge and understanding your investment style is imperative to making sure your portfolio is meeting your goals. Book your appointment below and take the first step to put a plan in place.
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Mass layoffs in the tech industry are becoming a regular occurrence and if you’ve experienced a recent layoff, you might not be as prepared as you thought. Now, what do you do? Below are some simple steps you can take today and start preparing for the future you want.

First, file for unemployment; this will give you some room in your budget. People being laid off are often eligible for unemployment when your position is not being replaced. Each state agency is different but some common examples are the Employment Security Department, Workforce Commission, or  Employment Development Department. The eligibility for unemployment varies by state, but typically requires that you worked a specific amount of hours over a set time period. 

Second, it’s necessary to get your financial bearings. Start by creating a budget and reviewing your assets and liabilities. These figures will be a compass on how to move forward. As you analyze your financials, try to shave off any unnecessary expenses which may include: dining out, subscriptions, and personal care.

Third, do you have enough savings to make up for the deficit in your budget? If so, make sure your savings accounts are optimized and in high yield savings accounts. The national average annual percentage yield (APY) on savings accounts is at 0.33 percent; however, online banks often offer a higher rate. I like using Investopedia’s list of the “Best High-Yield Savings” to compare the different product offers. If you struggle with savings, it’s time to evaluate your budget and find the best solutions with the fewest tax implications - this might be an in-depth look at investment accounts and cash value life insurance. 

Finally, if you had a 401k with your previous employer, look into moving it to a self-directed IRA. Employers are often limited on the securities you can invest in and this will give you a much wider range of options. A simple call or submitting paperwork to your new custodian can help establish your account. Although, keep in mind, some firms will send the check directly to you and it is imperative you deposit the funds within 60 days to avoid major tax penalties.

Being laid off is plenty stressful but I’ve outlined a few steps above to help you get started. As a Master Registered Financial Consultant (MRFC®), I can assist you in analyzing your finances and implementing the right strategy to navigate unexpected life events. Take a moment to book an appointment with me to understand your options and make the best decision for your future.

It’s the most wonderful time of the year and everyone around me is in the giving spirit! If you’re looking at donating this season, it’s important for you to research the organizations that you’d like to help. I’ve come up with a few things to check, before you write the check.

The first step is simple. Go to the Internal Revenue Service (IRS) website and find the Tax Exempt Organization search. Use the EIN or company name to ensure the organization is a valid charity with a 501(c)3 status. While using the same search function, take time to pull up the company’s tax Form 990 and compare financials with other charitable organizations in the same category. For example, review expenses to see how the charity spends their donations or if the wages for top employees align with the average. Comparing benchmarks can give you a good idea of how efficient the organization is running and where the money is really going.

Next, visit the company's website and search for their annual report. These reports offer engaging graphics with the organization’s mission statement, progress on future fundraising initiatives, and outcomes from past events. In addition, the report often includes top contributors and a list of the board of directors. By reviewing the annual reports, you are able to see if the organization is a good fit.

As you went through your selection process, you probably were drawn to a foundation because it aligned with your aspirations. To ensure your intent is recognized, you should decide if you want your contribution to be unrestricted or restricted. Restricted funds are donations made and earmarked for a specific purpose by the donor - meaning your money goes where you want it to go.

Now that you have done your research, it’s time to give. Remember, donating to a charitable organization isn’t all about the money - you can donate securities out of your portfolio too. If you need some help navigating tax advantaged gifting, book your appointment with KJ Dykema, MRFC® and we can help design a plan with your values in mind.

Since July we’ve tracked key metrics that often lead to a recession. Month over month we’ve seen housing permits, money supply, and profit margins start to lag which typically leads to cautious or recession territory. However, other indicators lead us to believe there isn’t a recession including jobless claims and gross domestic product (GPD). But this past week the yield curve inverted, making the 3-month Treasury Bond at 4.04% surpass the 10-Year Note at 4.01%. This new information often means a recession will follow within six to eighteen months. So, with the possibility of a recession, what can you do to prepare?

First, evaluate your time horizon to make a strategic withdrawal. A traditional recession will last approximately 10-18 months. So, create a new plan where you withdraw a lump sum and deposit into a high-yield savings account. Oftentimes online accounts are offering higher rates than brick and mortar. For instance, bankrate.com has an online offer of 3 percent and most brick and mortar are closer to .05 percent. The purpose is to stop the dreaded sequence of returns and earn interest during declining market conditions. 

Second, if you are contributing to your retirement accounts, adjust future contributions to a stable value fund rather than auto investing. A stable value fund is a portfolio of bonds that are insured to protect the investor against a decline in yield or a loss of capital. This will help protect your incoming investments from loss during more volatile periods. Once you make the switch, you’ll also need a plan to reenter the market. Your risk tolerance can help guide you or you can reach out to a financial advisor for additional assistance.

Lastly, if you haven’t already started a savings fund, do it now! During a recession, lending processes become more scrupulous and it’s more difficult to get funds in a crunch. Many people save using their bonuses but start to save more regularly with your base paycheck. These regular transfers to a savings account will help you in the long run.

The last time the yield curve inverted was in March of 2020, however, it was abnormal as it only lasted two months and it’s unlikely that we will be that lucky again. What makes this difference this time is inflation and interest rates, a past we’ve known all too well. If you need help with a plan for your income stream or investable assets, book an appointment with KJ Dykema, MRFC® today. I can customize a plan to make sure you weather this inevitable storm.

After two agonizing years of waiting, the big wedding day is finally near. But before you say your “I do’s” there is one more thing you need to check off your list - planning the financial journey you will take as a married couple. With finances being one of the leading causes for arguments and divorce, it is crucial you take this step together before walking down the aisle. Here are the three questions to ask before you get married.
 
The first question you should ask, will you be signing a prenuptial agreement? For some, the answer is simply “no” and they can move to the next question. But for others this is a complex and delicate process where both parties must seek individual counsel. In these agreements, topics to cover range from establishing a plan for their existing net worth and inheritance to the custody of a shared pet. How comprehensive an agreement is depends on the couple but the best thing to do is find a plan that benefits both parties.
 
The second question to ask, how will you set up your accounts? Surveys have found that 49% of baby boomers and 48% of Gen Xers join their accounts together (1 Konish). Whereas, the trend for millennials and younger generations are opting for entirely separate accounts. Some things to assess when making a decision to join or separate accounts include saving and spending habits, as well as the joint goals you want to reach together. There are pros and cons to each strategy but your priority should be regularly assessing your spending and savings to ensure it’s in line with your family goals.
 
The last question to ask, how will you save for large financial expenses? The national average savings for individuals under the age of 35 is $11,200 but the average cost of a wedding in the U.S. is $29,200 (2 McCain). Now, that doesn’t leave much wiggle room for your emergency expenses. As a couple, you will need to discuss your saving and spending habits to gain understanding of each other. Finding the strengths of each partner and utilizing them strategically is essential to get the most out of your conversation.
 
Teaching couples how to grow together and build wealth is one of the most rewarding parts of being a financial advisor. In fact, the journey I took with my partner started with simple budgeting conversations which grew into acquiring businesses and real estate - none of this would be possible without starting on the same page and consistently reviewing our goals together. If you find these questions are too difficult to ask or want some assistance, we are here to help. To start your financial journey together, use our complimentary Budgeting Workbook and book an appointment with KJ Dykema, MRFC® today.
 
References
 
1 Konish, L. (2022, March 7). Joint vs. separate accounts: How couples choose to handle finances could impact their financial success. CNBC. Retrieved June 28, 2022, from https://www.cnbc.com/2022/03/07/joint-vs-separate-accounts-how-couples-choose-to-handle-money.html#:~:text=Baby%20boomers%20are%20most%20likely,versus%20just%2031%25%20of%20millennials.&text=Meanwhile%2C%2045%25%20of%20younger%20millennial,boomers%20who%20do%20the%20same.
 
2 McCain, A. (2022, June 7). U.S. Wedding Industry Statistics [2022]: Wedding services market trends and facts. Zippia. Retrieved June 28, 2022, from https://www.zippia.com/advice/wedding-industry-statistics/#:~:text=The%20American%20wedding%20industry%20is,of%20over%2062%25%20since%202020.%203%20https://www.sofi.com/learn/content/average-savings-by-age/ 

In case you haven’t heard, May is Mental Health Awareness month and it comes as no surprise to learn that financial wellness and mental health can be directly related. In fact, “One study found that individuals with depression and anxiety were three times more likely to be in debt. Other studies have even found a link between debt and suicide.” (Morin, 2019) Now, I’m a financial advisor and not a mental health expert but I think it’s important to provide you a way to connect with mental health resources since the search alone can be overwhelming.

First and foremost, if you or someone you know is struggling with suicidal thoughts please use the National Suicide Prevention Lifeline at 1-800-273-TALK (8255) or TTY 1-800-799-4889. The free and confidential Lifeline is available 24 hours every day in the U.S. Sometimes it will take a moment to speak with someone and if you can’t wait, call 911.

Washington state offers 24-Hour Crisis Lines (see numbers below) that provide immediate help to individuals, families, and friends of people in emotional crisis. The Crisis Line will help you determine if you or a loved one needs professional consultation and link you to the appropriate services.

King County
1-866-427-4747

North Central WA
1-800-852-2923

Pierce & Southeast WA
1-800-576-7764

The WA Warm Line at 1-877-500-WARM (9276) offers peer support for people living with emotional and mental health challenges. Their office is open everyday between 12:30 pm and 9:00 pm and helps with people experiencing anxiety, depression, loneliness, problems with family or friends, and other emotional or mental health challenges.

These are only a few of the phone numbers I found online and oftentimes the crisis lines will provide you with more information and additional resources. If you want to learn more about the correlation between financial wellness and mental health read “How Mental Health Affects Your Financial Health”. To start taking control of your financial journey, book your appointment with KJ Dykema, MRFC® today.

Resources

Morin, A. (2019, September 10). How Your Mental Health Affects Your Financial Health. Psychology Today. Retrieved May 18, 2022, from https://www.psychologytoday.com/us/blog/what-mentally-strong-people-dont-do/201909/how-your-mental-health-affects-your-financial-health. 

​We often talk about diversification in your investment portfolios but focusing on different tax treatments in your retirement accounts is equally important. The type of account(s) you can contribute to are based on many factors including income, age, and filing status. Each investment account type (i.e., Roth, Traditional, Brokerage, etc.) offers unique ways to save with your taxes. Some common account types include:

Traditional 401(k), 403(b), or IRA: A tax deduction at the time you contribute but you will pay taxes when you withdraw funds during retirement.

Roth 401(k), 403(b), or IRA: Funds are taxed when contributions are made, gains are not taxed, and qualified withdrawals are tax-free.

Taxable Savings or Brokerage: Taxes are paid on dividends, interest earned, and capital gains.

As you can see, Roth IRA account contributions are made in after-tax dollars, which means you pay for the taxes upfront. When you reach retirement age and withdraw the funds, it is tax-free. Compared to a tax-deferred Traditional IRAs where distributions are taxed at your ordinary income tax rate during retirement.

In addition to choosing the best account types, it is beneficial to create a strategy for how and when you will withdraw your funds. Distributions are almost always considered income and can bump you into a higher tax rate. By staggering distributions, you can maximize savings by keeping taxable income below the next tax-bracket rate increase. 

There are several strategies you can implement to reduce lifetime taxes and our list is certainly not comprehensive. Take some time to consult with your tax professional or book your appointment with KJ Dykema, MRFC® today and find new ways to save.