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A Christmas Story: A Lesson in Generosity

Tue, 01 Dec 2020 04:01:00 GMT

My grandmother is quite the financially savvy woman, and throughout the years, she has intentionally taught her sons and grandchildren how to steward their resources. After years of buying all 10 of her grandchildren Christmas gifts, she decided to do something radically different. On one Thanksgiving in particular, she declared that for Christmas, we would no longer be receiving gifts from her. Instead, she was going to donate the money she would have spent on gifts for us to charities on our behalf. Our homework was to find a charity that we felt was worthy of our gift. My cousins and I looked around at each other in disbelief, but we knew better than to question Nana. The car ride home became a conversation as to why she would do such a thing. After all, we were selfish teenagers at the time. When we became adults, she decided to match when we donated to a charity.

There was actually a lot of work that went into earning this gift. We had to research all of the charity’s financials. Was the charity in debt, how much money did the CEO make, what percentage was actually going to operations, were they making an impact, and so on. In our minds, not only were we not getting a gift, but we now had to write a research paper during winter break (and I hate writing papers). Needless to say, this was not something we were excited about. Also, we had to justify why we chose this charity and why it had personal meaning to us. So, the search began. As I began looking for a worthy cause, I was surprised to see how poorly some organizations were ran, how little of a percentage of the donations actually went to the cause, and more importantly, if it made an impact at all.

Christmas morning was very different that year as we all huddled around the fireplace. Normally, it would be a bustling of opening gifts and hoping we received gift cards or cash so we could get what we really wanted. This year, it was giving speeches about what charity we chose, why we chose it, and a breakdown of their financial records. Nana accomplished her goal and every Christmas since then, giving has been the foundation of our Christmas celebration.

As a parent now, I get it. I mean, how many toys can a kid have? Now, I’m not saying “go Grinch” from here on out and forgo toys altogether, but this modeling of generosity set the stage for my life years later. As the saying goes, “More is caught than taught”. Now, we look forward to the conversations about our charities, and we see the value of sacrificing a simple gift along the way to make a larger impact on our world.

Since my children are young and not quite old enough to write research papers, we teach them about being generous through their commission jobs. We have a list of commission jobs that they can do; things beyond the normal, home maintenance chores. These jobs include tasks such as mopping, pulling the trash cans to the street, pulling weeds in the flower beds, etc. When they get paid, they divide the money into 3 categories: give, save, and spend. Weekly, they tithe their “give money”, their “save money” goes into their savings accounts, and their “spend money” goes toward shopping for whatever they want. Two years ago, they started doing the Samaritan’s Purse Operation Christmas Child Shoeboxes. They absolutely love this tradition! OCC is a program in which people from around the world pack shoeboxes full of toys and hygiene items for children in third world countries. It also opens the door to minister to these families.

We start the season of Christmas in the spirit of giving. We watch OCC’s promotional videos and start talking about what we want to buy our child. Then we go to the store. We give them the option as to how much money they want to contribute to the gift. So far, it has been all of their personal spending money. Finally, we pack our boxes, pray over them, and then wait to get an email about where our box was mailed to. This year, they also decided to buy gifts for one another. This has given us the opportunity to talk with them about budgeting for these gifts, and possibly, doing extra commission jobs to meet their goals. As we are embarking on this parenting journey, we would love to hear about what you do to teach generosity.

How Does An Election Affect The Market?

Sat, 31 Oct 2020 04:01:00 GMT

Like you, we hear a lot of people make bold statements about how the presidential election will affect the market. A lot of these statements even contradict one another. We decided it was time to actually get the historic facts and answer these common questions about elections and the market. Be aware that any information we give here is based on past results. Past performance never guarantees future results. Below we address the common questions we receive around election time.

Before we address these questions, we have to get several things straight. When advisors refer to “the market”, we are most often talking about the S&P 500. This is an index that measures the performance of America’s 500 biggest companies. The S&P 500 provides an excellent snapshot of the American stock market. It is also important to know that the S&P 500 originally began in 1926 and has experienced an average annual return of about 10%. While this is not a consistent return that is experienced every year, this has been the average. Both Democrats and Republicans have been in power during this time.

1. Does the market care if a Democrat or a Republican gets elected? – In short, not really. This graph from Forbes nicely illustrates that the market has grown during the presidential terms of both Republicans and Democrats. George W. Bush’s terms d id not see market growth, but he also faced the Dot Com market bubble burst as well as the Great Recession of 2008. By the way, this graph below is a fantastic example as to why we encourage people to take the long-term, consistent, “boring” approach to investing.

As p rovid ed by Forbes. Stock market returns by president. Past performance is not a guarantee of future results.

2. Does the market go up or down around the time of an election? – Keeping the graph above in mind, Dimensional Funds reported that the market has been positive in 19 out of the 23 election years (from 1928 – 2016). The market only showed negative returns 4 times. This stands in line with the fact that the market has performed well over the long run.

3. Isn’t the market more volatile during election time? – First off, it is important to define volatility. Volatility simply refers to the up and down swings that markets tend to experience. Greater volatility does not necessarily mean that the market is going down; it simply means that those swings are larger than normal.

This question does tend to be true. In the months leading up to an election, the typical swings in market movement tend to be wilder than in non-election years. There is one critical reason behind this – all markets hate uncertainty, which is what an election brings.

4. Should you sell your investments before an election? – PFA strongly believes that any investments you make in the market should be part of a financial plan. This plan must be designed to weather the storms that the market will throw at you. This includes the volatility spike that we see during elections. Also, in case you missed it, see our “Quote of the Month” by Charlie Munger, please!

So, what should we do with all of this? As advisors, we typically have clients who get nervous during election years. But election volatility is nothing new. In fact, the market has done quite well during election years. While it may not be exciting, sticking with your investment plan really will give you the greatest chance to realize the best results. The American economy and the market are closely tied together, and they have proven to be far stronger than the divisive politics of this country. That should be the greatest takeaway of all.

“There’s no system to avoid bad markets. You can’t do it unless you try to time the market, which is a seriously DUMB thing to do.” Charlie Munger

Mortgage Rates and Refinancing

Sat, 01 Aug 2020 04:01:00 GMT

We get this question a lot: “Should I refinance my house right now?” The answer for many is probably yes. A lot of people in America are “in-the-money” when it comes to their mortgage. What that means is that many Americans likely have a higher interest rate than necessary and could be leaving some potentially considerable savings on the table. Here is some of the common follow-up questions we get as well.

What are the common reasons people choose to refinance?

Are interest rates really THAT low?

How do I know if refinancing is actually a good thing for me?

Where is the best place to refinance?

Independence to Pursue

Wed, 01 Jul 2020 04:01:00 GMT

Opening story by Robert Stark

“Perspective, Marines!” was the famous saying of our platoon commander, Lt. Iversen. Any time we thought we had it rough, he was immediately ready to give us a huge dose of perspective with a 10-mile run in the unforgiving heat of a North Carolina summer. “Life can always be worse, Marines. You have it pretty good.” I can still remember those words to this very day. At the time as a 21-year-old Lance Corporal, I just thought he was a sadistic jerk who enjoyed seeing his platoon suffer, but there was wisdom in his approach that I couldn’t see initially.

I served in the United States Marine Corps from 1998 – 2003 ending my enlistment with the invasion of Iraq in 2003. A trip to Iraq will very quickly give you some fantastic perspective on just how good we have it in the United States. Our team was attached to 1st Marine Recon Battalion based out of Camp Pendleton, California. We were desperately short of food and had been engaged in a firefight to secure an airfield. The Iraqi army knew we needed it and fought us tooth and nail to keep it. At that time, I had not eaten in 4 days and was keenly aware that we needed that airfield to have supplies airlifted to us.

After dark, our unit finally secured the airfield and the nearby town. I was ready for some much-needed rest. Our team was sent to the town to find an abandoned house to sleep in that night and finally eat some food. We needed the break. As we were entering the town, I had one of those life-changing moments of perspective. This was a town of mud huts that would have looked like it belonged in the 12th century, not the 21st. What made the huts very peculiar were the satellite dishes attached to the sides of them. It was dark at the time, but in the morning, I foolishly realized that I made my bed in the part of the hut where the animals were kept. Nobody wanted to be around me because of the smell!

I remember thinking as I saw that town just how blessed we truly are in America. That place made me miss my home. It’s sometimes easy to forget that. We are so wealthy, we live in a country where we’ve built houses for our cars called garages. We have so much food, we have to worry about ways to lose weight rather than gain it. We have machines that do our laundry and dishes for us! I’m not saying that America is perfect. Not by any stretch. But we live in a fantastic country where the poor among us would be counted as tremendously wealthy by the standards of the rest of the world.

This story teaches us to appreciate the foundations of capitalism that our Forefathers set in motion to make the American Dream possible. This freedom allows us to pursue our dreams, fail, and get back up to try again. This opportunity to pursue our dreams is not limited by the town we grew up in, who our parents are, or what we have been through. That spirit of the American Dream is still alive and well, all we have to do is push towards it one step at a time. Everyone has a different starting line, a different mountain to climb, and different obstacles along the way, but in America, we all have the freedom to use our talents to reach our fullest potential. In this time of uncertainty and unrest, let us not forget the foundations of our great nation which include life, liberty, and the pursuit of happiness for all people, that are created equally under God.

Our Declaration of Independence famously says:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.”

Love, Money and Relationships

Sat, 01 Feb 2020 20:26:00 GMT

February is the month of Valentine’s Day and love. A commonly misquoted verse in the Bible is 1 Timothy 6:10 “For the love of money is the root of all kinds of evil.”. People often say that money is the root of all evil, but it is the love of money. It is the posture of the heart which determines how we handle money. Does money play a part in whether or not your relationships are successful? You better believe it. In fact, money fights and money problems are the #1 cause of divorce in America today, so this topic deserves our attention. As a more proactive approach, we will be exploring 4 key areas that have been identified as the crucial relationship areas where couples need to have agreement. Whether you are currently in a relationship or looking for one, finding common ground in these 4 areas will help your relationship withstand the stresses that cause other relationships to fail.

1. Financial Agreement – the probability of having a successful marriage skyrockets if the couple has shared, common financial goals that they are working toward. It’s not surprising if one person is a saver and the other is a spender; in fact, that dynamic is common in most relationships. PFA strongly recommends that you have a detailed, in-depth budget that you both agree on to determine how your money is going to be allocated. Every dollar needs to have an assigned, agreed upon purpose. This is known as a written budget. PFA offers a detailed budget tool to assist in getting this put together, email us if you would like a copy. Having monthly, budget conversations with your spouse to review how you plan to allocate your money is also a best practice.

There’s no rule that says your monthly, budget conversation needs to be a stodgy affair! Turn it into a date and make sure to include the three F’s: 1) Food 2) Finances and… 3) Fun!

An additional financial topic needs to be mentioned – financial infidelity. Simply put, financial infidelity is when a partner lies about or hides money from the other partner. Studies have shown that financial infidelity can actually have a more negative impact on a relationship than marital infidelity. Keeping a detailed budget creates transparency over where the money is going. Even more important, strive to have a team mentality with your spouse. Establish shared goals and a financial plan that both parties agree upon.

2. Agreement Over Children – this topic includes: 1) Are we going to have kids? 2) How many are we going to have? 3) How will we raise our kids? Disagreement here is another leading cause for relationship failure in the US. For couples that aren’t married yet, this should be a key piece that gets discussed during premarital counseling.

3. Agreement Over How to Handle In-Laws – in a statement that will surprise no one, families can be stressful. While some relationships with our in-laws can truly be blessings, others may need some proactive guidelines. Henry Cloud wrote a fantastic book called, “ Boundaries ” that discusses this topic in a very practical manner.

4. Agreement Over Religion – for many people, their spiritual beliefs define how they approach the details and stresses of life. Someone’s belief system is truly what causes their heart to beat and impacts the decisions that they make. Therefore, disagreement in this area can cause a high degree of stress that will impact many, smaller, day-to-day decisions.

There have been other studies that have been conducted over the years that have a material impact on couples staying together over the long haul:

Our goal is not to tell you how to live your life with this article, but merely to present some key information that can help you have a relationship that will thrive over the long haul.

Turn Your Goals into Reality

Wed, 01 Jan 2020 04:01:00 GMT

Most people begin the new year with a genuine hope of seeing their lives improved in some way. Have you ever failed to accomplish your goals and ended the year disappointed? Of course, you have; we all have dealt with that. How do we actually turn our good intentions into goals that can be attained? Here are 6 realistic steps for effective goal setting:

Giving Strategies to Consider

Sun, 01 Dec 2019 04:01:00 GMT

As we get toward the end of the year, the holiday season inspires many of us to not only be grateful for what we have, but also to look for ways we can give to others less fortunate than ourselves. It’s important to remember that there are only 3 things we can do with money: spend it, save/invest it, and give it away. However, the concept of giving is not purely focused on money. We must remember that we can also give our time, energy, talent, and expertise toward helping others.

In this article, we want to focus on some giving strategies and concepts that can make your giving more impactful. Tax laws have recently changed how the deductions for charitable giving work. As always, speak with your tax advisor to determine the most effective way for you to give.

Consider Giving Appreciated Investments Rather Than Cash: Many people support their favorite charity or church by making cash gifts to them throughout the year. However, did you know that giving a gift of appreciated stock or investments rather than cash could be far more impactful for both you and the charity? Here’s how:

Giving In Retirement: For most people, their largest investment asset ends up being their retirement account such a 401(k) or an IRA. Once you reach age 70.5, Uncle Sam forces you to begin taking Required Minimum Distributions (RMDs) out of these accounts in order to ensure you pay your taxes. For most people, this ends up being an unwelcome tax burden. What many people don’t know is that they can give all or a portion of their RMD to their favorite charities and exchange a potential tax burden for a possible deduction while providing substantial help to others.

Creating A Lasting Legacy : Many people live below their means and build a substantial amount of wealth throughout their lives. You can use your will and/or a charitable trust to specify how money can be given away to future generations in order to provide a legacy that will far outlive you. This is one of the most powerful ways that you can establish a family name that stands for unselfish giving.

An easy way to give a smaller percentage of your account is to simply name the charitable organization as a beneficiary. A charity will happily give you their tax ID number to facilitate this. We’ve actually found that many charitable organizations don’t know that they need to give their tax ID numbers to donors in order to set up the transfer appropriately, so be sure to ask them for this.

Finally, an important step in the legacy giving process is to ensure the charity that you are giving your hard-earned wealth to is actually a good steward over the wealth they manage. Charity Navigator is a fantastic, public organization that evaluates the actual impact of many charities ( www.charitynavigator.org ). We encourage you to research your charity before you leave them your financial legacy to manage.

This newsletter is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought. A diversified portfolio does not assure a profit or protect against loss in a declining market.

Financial Products To Be Thankful For

Fri, 01 Nov 2019 10:00:00 GMT

We dedicated our October newsletter to covering financial products and habits that tend to do more harm than good. For November and in the spirit of Thanksgiving, we want to focus on good financial products that can be a vital part of your financial lives. There is no “one size fits all” approach; not everything on this list may be suitable for all people.

1. Term Life Insurance – We wanted to spend this month explaining why we value term life insurance. In order to do so, we must remember the main purpose why most people buy life insurance – to provide financial protection to the people that depend on the income you produce or will be financially harmed if you passed.

Term life insurance is not a permanent policy like whole life insurance. As the name implies, it lasts for a specific term then the coverage expires. Common term periods are 10, 20, and 30 years (although other options exist). Why do we prefer this? You’ll eventually get to the point where you build up enough wealth to self-insure which will make the insurance unnecessary. If you’ve built a solid plan to build wealth, why do you need to pay extra for a permanent insurance policy?

Another critical thing to consider – term policies are often 6 – 10 times less expensive each year than whole life policies. Use those extra savings to help pay off debt, invest, and build wealth.

2. Health Savings Accounts (HSAs) – This just may be the most tax advantaged account out there. Employers who offer High Deductible Health Plans can pair their health insurance plan with an HSA to provide a powerful means to save for medical costs.

Many people wonder if an HSA is essentially the same thing as an FSA (Flexible Spending Account). While both can be used for qualified medical expenses, HSAs have one very distinct advantage – unused funds can be carried over year after year while an FSA will only allow a $500 carry over in unused funds.

Why do we like the HSA so much? These accounts have a triple tax benefit associated with them:

3. Online Savings and Money Markets – After the Great Recession of 2008, the Fed started lowering interest rates in order to stimulate the economy. A major downside was that people with substantial balances in their local banks really suffered; they were no longer collecting the interest that had been previously available to them.

Online banking changed all of that. Online banks don’t have the same costs to run buildings and facilities that traditional banks have. People wanted more interest on their money, and online banks were able to meet that demand. Bankrate.com is a great resource that reviews what the top online banks are currently paying.

4. Budgeting Software : YNAB, EveryDollar, Mint – For many people, budgeting is about as popular as balancing their checkbooks; they simply would rather do anything else than budget. However, many don’t actually know what a budget really is and what it’s designed to do. In simple terms, it is a written plan by you where you tell your money exactly how it’s going to behave. Without this critical tool, money has a habit of leaking straight out of our pockets.

In the past, budgets used to be kept on a pad of notepaper. Thankfully times have changed and there’s now software such as YNAB ( Y ou N eed AB udget), EveryDollar (as offered by Dave Ramsey) and Mint that makes this process far easier. You simply connect your checking, savings, credit cards, loan accounts, etc., and upload your spending plan. The software will track your spending and categorize it so that you never spend too much. For example, say you set a grocery budget for $300. You use your debit card for a $60 grocery trip. The software will capture the transaction in real time and tell you that you have $240 left to spend. That’s a game changer.

The Spookiest Financial Products

Tue, 01 Oct 2019 10:36:00 GMT

October marks the return of fall, pumpkins, and the spookiness of Halloween. Unfortunately, there are some common, everyday financial products that should be in a scary movie and not in your financial life. Here are some.

1) Whole Life Insurance – PFA has agents licensed to sell insurance, but we will not sell Whole Life Insurance. In theory, this product sounds like a good idea. You pay a higher premium than term insurance but gain a permanent policy that will be in place the rest of your life while building cash value within the policy that you can access to meet needs. Not too bad, right?Here’s the problem: if you live within your means, stick to a budget, pay off your debt, and save responsibly, you won’t need life insurance for your whole life. You’ll build enough wealth to self-insure. Additionally, the vast majority of the premium you pay will be allocated to build up the cash value in the policy, HOWEVER there will be no cash value the first few years as this money gets eaten up by fees and commissions paid to the agent selling the policy. After that, the cash value portion of the whole life policy averages a 1.5% return per year according to Consumer Reports . In many policies, the cash value will get surrendered to the insurance company at the end of your life. Ouch. Consider term life insurance.

2) Car Leases and New Car Loans – Cars are a necessity for most people nowadays in order to help with the basic needs of life like working and shopping. However, there are some key mistakes that we consistently see with them.

Car Leases: There’s a lot of math out there that goes into why car leasing is much more advantageous for the dealership than you. Additionally, lease contracts can be full of “gotchas” that lead to unexpected fees at the end of the contract. The biggest reason we don’t encourage car leasing is due to the fact that you’ll always have a car payment if you lease vehicle after vehicle. For many people, this can be a large chunk of their budget that gets locked into an asset that they don’t own and also goes down in value quickly. Not a great idea.

New Car Loans: A smart rule to follow – put your money in things that go up in value, not down. Dave Ramsey exposes that most cars “lose 70% of their value in the first four years.” Cars are just a bad place to park your money (pun intended!). Another rule of thumb is that you should not own cars more valuable than half of your annual income. If you make $50,000 a year, then stick to cars totalling $25,000 or under as long as you can pay cash for them. Another piece of car buying wisdom is to buy slightly used cars that are perfectly reliable; let someone else pay for that initial loss of value. Lastly, if you are not a millionaire, we typically don’t advise buying a brand-new car.

3) Student Loans – We feel so strongly against these that this topic will get its own article in the near future. In short, it’s always better to save up and pay cash for college. For now, here’s some basics on why student loans are a bad idea:

4) Co-signed Loans – This tends to involve family a lot, which is why we think it can be so dangerous. Ultimately, if you co-sign on a $5,000 loan that doesn’t get repaid, you end up on the hook for it. If it costs you your relationship with your family member, was it worth it?We must remember a critical truth around this: the lender wouldn’t need a co-signer if they actually believed that the borrower was capable of repaying the loan. The lender expects the borrower to fail at repaying the loan in full and wants to be able to go after the co-signer for the loan balance. As a good rule of thumb, it’s better to decide to give or not give money as a gift to family members than co-sign a loan with them. Nobody wants unexpected debt because a loved one couldn’t pay.

5) Honorable Mentions – Lottery Tickets, Time-Shares, 401k Loans, 401 Debit Cards, Reverse Mortgages, Viatical Settlements, Payday Loans, Store Credit Cards, Debt Consolidation Company Contracts.