Wealth Management Blog

Posts tagged Investing

Are Your Politics Influencing Your Investment Strategies?

By JJ Burns

August 31, 2016

Whether you’re in the Trump or Hillary camp—or for the possible candidate in between—some have been asking, ”Are there financial strategies to take to protect your investments before, during and after election day comes around?”

We understand that it’s fun to banter with your friends around the dinner table about the merits of this or that candidate, what’s even more interesting is to examine how investors react to political change. Behavioral researchers have found over the years that if an investor’s favored candidate becomes elected, the investor experiences an increased market confidence and tends to take on more portfolio risk. Conversely, if the candidate-of-choice loses, investors expect fallout from the new administration and look for investment safety. 

Take the recent Brexit vote for example. Investors needed to be prepared for market risks if the vote went either way. Thankfully it didn’t create the significant market losses many predicted, but the impending vote had people on edge for a bit.

In the case of the U.S. presidency, researchers from the University of Miami, Brigham Young University and the University of Colorado at Denver conducted a study on how politics impacted investor behavior, reviewing three presidential-election years from 1991 through 2002.

Their behavioral research found that after the 1992 and 1996 elections when Bill Clinton won the presidency, Democratic voters tended to invest more in domestic stocks and to stay invested for a longer time. Conversely, Republicans felt less confident at that time about the economy and invested in foreign stocks and traded more frequently.

Then when George W. Bush won the presidential election in 2000, Republican voters did the same thing the Democrats did when their party representative was in office—they took on more risk, invested in domestic companies and traded less frequently.

The outcome from the researchers’ study was that both Republican and Democratic voters seemed to be influenced more by their political beliefs to help guide their investment choices than by listening to the logic and the advice of a financial advisor.

Voting—like investing—is a very personal act. And there’s no right or wrong way to cast your vote. The only thing that’s certain is it’s going to be quite a journey leading up to November.

The takeaway from studying investor behavior during election seasons is identical to why many investors fail to achieve reasonable returns…their own behavior is their most significant risk. We believe that investors who have a “true” diversified asset allocated portfolio will experience the variable returns from each asset class. Don’t be swayed by popular opinion or what you hear from the media about a certain candidate’s platform to make immediate portfolio changes.

Your financial situation is unique and needs an individual review to cover all potential scenarios. No matter what is happening in the world, a solid financial strategy should have the foundation of objective analysis. Whether you lean toward the Republican, Democratic, Independent—or any other political philosophy—our role is to help you create a solid financial plan.

Women’s Finance: There’s a Difference?

By JJ Burns

June 29, 2016

It’s not that women are from one planet and men are from another. It’s just that women tend to end up with different life circumstances than men. Top that off with lower salaries, and there’s a greater need for taking a closer look at financial strategies.

In my 25 years’ experience serving women clients, I find that they can multitask far more than men. They make the family’s social plans, maintain relationships, take care of kids, parents and in-laws—all while juggling their careers. This presents enormous challenges to their time.

It’s true that women control about half of household finances. That means they are watching the bank account, paying the bills, making large purchases, putting something in the savings account, and paying off the credit card.

But they often don’t understand the inner workings of investing. Some of them do, but they just have a lot on their plates. Looking from the outside, investing can appear to be a world of complicated strategies and men making deals.

Seeing Things Another Way

Of course having kids changes everything—finances and all the other aspects of your life. But even without kids, women can have cultural biases toward money, who handles finances, and how to save.

When attending financial workshops, our firm has noticed many men often ask about the best tips for investing. Many women, however, ask about balancing saving for retirement, sending the kids to college, and taking care of elderly parents.

They want to enjoy life while their kids are younger. Women feel some of the most precious gifts are right now in the present.

We often see men wanting tips on when to buy and sell. Women want to know how to support their daughter who’s moving home from college, and their elderly father who needs assistance to stay in his home a few more years. They wish to live a richer life, and at the same time successfully manage the relationships that are important to them.

Saving More, Having Less

Women tend to save a larger percentage of their salaries. They also contribute to their 401(k)s in greater numbers than men.

Despite putting more money away, we often see women ending up with less at retirement.  Salary disparities can take a toll on investing over the long run.

But for those women who started saving early, the benefits of compounding can help make up some of the difference in the total amount saved.

Life Happens

We have found women who have children might take some time off during pregnancy or after the kids are born. For some families, they’ve had to make the difficult decision of balancing childcare vs. going back to work. Re-entering the workforce can often lower wages and position.

When parents get older and need help, women are often the ones to take on the added responsibility. When kids are also in the mix, that makes those women part of the “sandwich generation.”

Life expectancies are increasing for men and women, but women still tend to live longer. That means women need more money for living out their retirement dreams.

Women also are usually the ones initiating divorce. They’re willing to be on their own, and want to know what they can get for themselves and their children, and can they be happy with that.

Risky Business

Getting help from a professional can help in many situations. Developing a financial strategy is one.

Women are often not as comfortable taking risks with their investments. Sometimes this is because they view money a little differently than men. Other times, they haven’t spent as much time learning about investments.

It’s been our experience that women often take fewer risks with their money. They want to remain in a position of control. They might not mind our assistance, but they want to feel in charge of the situation. Circumstance like being in debt can weigh heavily on a woman’s conscience. She might feel like she needs to get that paid off before taking what she could perceive as the risk of investing.

It can be easy to let a husband take care of the household finances. It can be nice to let someone do the worrying, researching and planning for you. But if something happens and he is no longer there, some decisions will need to be made—and that will fall on her.

Worry More, Plan More

Many women have more control over the well-being of the family. This can make them worry more about finances. The balancing act of life can fall heavily on women.

Seeking advice from a professional can help teach her about investing, planning for retirement, and even saving for the kids’ college education. Seeking help from someone who has been trained can help alleviate uncertainty in many situations—whether the advice is from a financial advisor, lawyer, or accountant.

Getting help from the pros can help women feel like they are placed back in control. They can learn about investing strategies, plan for contingencies, prepare for retirement, set goals, and balance all the financial elements of life.

Despite often being good planners, we’ve seen many women don’t seek advice until something major happens. But once they engage our help, they tackle the plan like the other aspects of their life.

Someone “Gets” Me

You’ve decided you’d like to talk with a financial advisor. Don’t be afraid to ask them questions. When you start your search, you want to make sure it’s a good fit. When a match “clicks,” you feel more confident and ready to take what comes your way.

Don’t be afraid to explore how your relationship with an advisor would work. You may want lots of contact or just a little. You may want your financial advisor to give you a couple of choices to choose from, or a wide range.

See how comfortable you are with the way they explain things to you. Are things clear, or do you need more information?

You are building a relationship, and not just with an advisor but also a team. Make sure it feels good to you. It may be one of the most important decisions you make regarding your family’s future.

Do You Understand Investments?

By JJ Burns

July 2, 2012

People who find themselves owning complex investment vehicles often leave the driving to the professionals. And that’s perfectly acceptable, but even “passengers” should have a basic understanding of how a particular investment works—especially when it’s your hard-earned money on the line.

Consider a retiree who’s looking into purchasing an annuity. Is it an investment product, an insurance product, or both? Will the annuity continue to pay income to heirs if the owner dies? Is the principal protected in case of a severe economic downturn? Surprisingly, many investors—including owners of annuities—are stumped by these basic questions.

Other commonly used terms often befuddle investors. Do you know the difference between an “annual effective yield” and an “average annual yield”? How about an “annual percentage yield”? It’s important to distinguish among different types of yield so you can make valid comparisons of investments.

Do you consider yourself an investment expert? Here are a few simple questions—with the answers below—to see how you measure up.

1. An insurance company generally begins payments under an annuity when:

  1. The accumulation phase begins.
  2. The accumulation phase ends.
  3. The annuity owner dies.
  4. The annuity owner retires.

2. Payments under a variable annuity are based on:

  1. Fluctuations in the current interest rate.
  2. Fluctuations in the current inflation rate.
  3. Performance of underlying stocks. 
  4. Performance of the Standard & Poor’s (S&P) 500 index.

3. An annual effective yield is described best as:

  1. The annual return before interest is compounded.
  2. The annual return after interest is compounded.
  3. The annual return before inflation.
  4. The annual return after inflation.

4. The average annual yield often is used to:

  1. Compare the past performance of mutual funds.
  2. Distinguish Treasury bills from Treasury notes.
  3. Factor in the tax-free element of municipal bonds.
  4. Account for a guaranteed minimum-income benefit.

5. When you buy Treasury bills at auction, the rate is:

  1. Based on the current interest rate for loans. 
  2. Based on the S&P 500. 
  3. Equal to par.
  4. Discounted from face value.

6. A “private activity bond” is best described as:

  1. A corporate bond eligible for capital-gain treatment.
  2. A corporate bond exempt from income tax. 
  3. A municipal bond that is completely taxable. 
  4. A municipal bond that can trigger alternative minimum tax (AMT) problems.      

7. An exchange-traded fund (ETF):

  1. Trades like stocks.
  2. Trades like mutual funds.
  3. Involves trades between major stock exchanges.
  4. Involves trades between different currencies. 

Answers: 1-b; 2-c; 3-b; 4-a; 5-d; 6-d; 7-a