In order to determine our investment allocations in client portfolios, we look at investment fundamentals like cost, risk, efficiency, etc. We also consider how the funds will be affected by key economic themes each year. For 2016, we are considering how the following three themes will affect our investments:
The “safest sounding” decision would be to convert your retirement savings into lifetime income by purchasing an immediate annuity that guarantees you monthly payments for as long as you live. While that may feel “safe”, we need to consider the hidden “risks” of such a product. First, immediate annuities don’t often include an annual cost-of-living increase. Second, you undertake risk that the insurance company can’t fulfill their promise (AIG on the verge of collapse in 2008?). Most importantly—you lose your flexibility, and your principal; there will be no money for your heirs. That is one HUGE, irreversible decision: to hand over your nest egg to an insurance company for the promise of lifetime income.
When I began working with Adam and Joyce, I was excited to learn exactly what an “Independent, Fee-Only Registered Investment Advisor” was. According to Investopedia, a “registered investment advisor (RIA) manages the assets of high net-worth individuals and institutional investors, and sits on the buy side of the investment field.” Needless to say, this definition didn’t quite help me to understand what Sommers Financial Management does for our clients.
Now that we are three months into the new year, we can talk about some of the economics happening around the world—and some ways we’re positioning client portfolios to make the best of the situations. There are currently three key economic themes that I am keeping in mind: Rising interest rates in the United States Quantitative easing and currency devaluation (currency wars) in both Asia and Europe U.S. stocks are richly valued due to relatively strong economic growth and quantitative easing over the past six years Let’s tackle them one at a time
In our financial planning process with clients, we perform an insurance needs analysis. We don’t sell insurance, so it’s not as though we’re funneling you to the sale of an insurance “solution”. But part of our fiduciary duty to you is ensuring that you’re adequately protected against financial risks. One of the topics we cover is long-term care insurance:
I’ve had more than one conversation over the past few months with people wondering if the stock market is creating another bubble just waiting to pop. There are many reasons to believe it. We’ve gone nearly three years without a 10% correction. The Shiller P/E ratio has only been this high in 1929, 1999, and 2007, on the eves of major market crashes. The Dow and S&P 500 just hit major milestone levels of 17,000 and 2,000, respectively. The S&P 500 has averaged returns of more than 22% over the past three years. How can we not be in a bubble?