Wealth Management Blog

Posts published in October 2018

I Came Down with a Chronic Illness. Now What?

By JJ Burns

October 23, 2018

If you've been diagnosed with a chronic illness, you already know that it affects more than just our physical health. Digesting the news and coming to terms with this new reality often takes a toll on our mental health, relationships, family life, career and finances.

The latter is particularly important. Chronic illnesses account for 86% of our nation's $2.7 trillion annual health care expenditures. What's more, researchers say it isn't uncommon for folks with chronic health conditions to spend hundreds—or even thousands—every year, on top of their regular insurance premiums. Things obviously vary widely depending on the type and severity of the condition, but the main takeaway is that if you aren't prepared, a chronic illness could do a number on your finances.

Like anything else, knowledge is the key to empowerment. At JJ Burns & Company, we’re no stranger to serving clients who are living with chronic conditions. Our first order of business is restoring your financial confidence and putting you back in the driver's seat. Here's how.

Get a Handle on Your New Health Care Expenses

Understanding your outgoing expenses is the foundation of every financial plan. This is especially true for those with a chronic illness. Depending on your diagnosis, you may find yourself up against a long list of new health care expenses. The average person battling Parkinson's disease, for example, spends close to $23,000 every year in medical expenses. Connect with your health care providers to get a clear idea of what you can expect. Between medications, doctor visits, therapies, medical equipment, home health care aides and the like, is it possible to ballpark your annual medical needs and expenses? (Joining a support group is a great way to connect with those who are in the trenches and can provide some valuable perspective.) From there, it's time to take a deep dive into your health insurance policy to project your out-of-pocket costs.

There are a lot of numbers to crunch, which is why it's always wise to sit down with your financial advisor to map out a big-picture plan before making any moves. (We'll touch on this more in a moment.)

Leverage Tax-Advantaged Accounts

Tax-friendly funds like health savings accounts (HSAs) and flexible spending accounts (FSAs) can go a long way in easing the financial burden of a chronic illness. Each lets participants earmark pre-tax money to be spent on eligible medical expenses. FSAs have a use-it-or-lose-it setup (funds don't roll over from year to year), whereas HSAs stay with you over the long haul.

An HSA is particularly good to have in your arsenal because not only can you withdraw from it for medical expenses tax-free at any time, those funds become 100% yours, no strings attached, once you turn 65. You can spend the balance any way you wish. Just keep in mind that HSAs are only available to those who have a high-deductible health plan. They also have contribution limits ($3,450 for single folks under 55; $6,850 for families). That said, it's worthwhile to check in with your employer about whether they offer an HSA. If not, you can open one on your own if you meet the eligibility requirements.

Continue Honoring Your Life

A new diagnosis, while certainly life-changing, doesn't have to derail your dreams. Instead, it's about balancing your life with this new reality. Once you've connected with your medical team and have a firm handle on what to expect, take the time to really revisit your bucket list. What experiences stand out to you the most? Which line items ignite a sense of excitement within you?

Let this intuition guide you and your financial advisor so that your financial plan stays aligned with your values. Sometimes a chronic illness can be a blessing in disguise in that it reminds you what's really important in life. Taking an extended family vacation and making memories together, for instance, may suddenly feel like the best use of your money.

Reevaluate Your Investment Strategy

This really underscores the importance of having an in-depth conversation with your financial advisor as early as possible. A chronic illness complicates your finances, which is why our clients never have to go it alone. Depending on your health situation, your advisor may suggest reallocating your assets to free up more liquidity. If your illness is preventing you from working, whether temporarily or permanently, responsibly bridging that income gap becomes priority number one.

At JJ Burns & Company, we don't believe in making rash decisions. Instead, we take the long view and consider your overall financial health before tweaking your investment strategy. Remember: Our goal is to set you up for long-term success and stability. This is where estate planning comes in.

Despite the misconception, this isn't reserved only for those knocking on death's door. On the contrary, it's a simple way for anyone, regardless of where they are in life, to preserve their wealth and safeguard their family's future. After all, this is what financial planning is all about.

Recent Market Volatility

By JJ Burns

October 12, 2018

After a period of relative calm in the markets, in recent days the increase in volatility in the stock market has resulted in renewed anxiety for many investors. From September 30–October 10, the US market (as measured by the Russell 3000 Index) fell 4.8%, resulting in many investors wondering what the future holds and if they should make changes to their portfolios. While it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself.

Intra-Year Declines

Exhibit 1 shows calendar year returns for the US stock market since 1979, as well as the largest intra-year declines that occurred during a given year. During this period, the average intra-year decline was about 14%. About half of the years observed had declines of more than 10%, and around a third had declines of more than 15%. Despite substantial intra-year drops, calendar year returns were positive in 33 years out of the 39 examined. This goes to show just how common market declines are and how difficult it is to say whether a large intra-year decline will result in negative returns over the entire year.

Reacting Impacts Performance

If one were to try and time the market in order to avoid the potential losses associated with periods of increased volatility, would this help or hinder long-term performance? If current market prices aggregate the information and expectations of market participants, stock mispricing cannot be systematically exploited through market timing. In other words, it is unlikely that investors can successfully time the market, and if they do manage it, it may be a result of luck rather than skill. Further complicating the prospect of market timing being additive to portfolio performance is the fact that a substantial proportion of the total return of stocks over long periods comes from just a handful of days. Since investors are unlikely to be able to identify in advance which days will have strong returns and which will not, the prudent course is likely to remain invested during periods of volatility rather than jump in and out of stocks. Otherwise, an investor runs the risk of being on the sidelines on days when returns happen to be strongly positive.

Exhibit 2 helps illustrate this point. It shows the annualized compound return of the S&P 500 Index going back to 1990 and illustrates the impact of missing out on just a few days of strong returns. The bars represent the hypothetical growth of $1,000 over the period and show what happened if you missed the best single day during the period and what happened if you missed a handful of the best single days. The data shows that being on the sidelines for only a few of the best single days in the market would have resulted in substantially lower returns than the total period had to offer.

Conclusion

While market volatility can be nerve-racking for investors, reacting emotionally and changing long-term investment strategies in response to short-term declines could prove more harmful than helpful. By adhering to a well-thoughtout investment plan, ideally agreed upon in advance of periods of volatility, investors may be better able to remain calm during periods of short-term uncertainty.