Call Our Office
(559) 384-2900 | Fresno
(619) 480-1413 | San Diego
(619) 480-1413 | San Diego
Your Money
Your Life
Your Way
You are now leaving the Strong Valley Wealth & Pension, LLC ("Strong Valley") website. By clicking on the "Schwab Alliance Access" link below you will be entering the Charles Schwab & Co., Inc. (“Schwab”) Website. Schwab is a registered broker-dealer, and is not affiliated with Strong Valley or any advisor(s) whose name(s) appears on this Website. Strong Valley is/are independently owned and operated. Schwab neither endorses nor recommends Strong Valley. Regardless of any referral or recommendation, Schwab does not endorse or recommend the investment strategy of any advisor. Schwab has agreements with Strong Valley under which Schwab provides Strong Valley with services related to your account. Schwab does not review the Strong Valley website(s), and makes no representation regarding the content of the Website(s). The information contained in the Strong Valley website should not be considered to be either a recommendation by Schwab or a solicitation of any offer to purchase or sell any securities.
Valley Animal Center, a no-kill shelter, houses thousands of dogs and cats annually until they are placed in loving homes. Their vision is to be known as the leading resource for the health and well-being of companion animals.
The majority of their shelter animals are rescued from local animal control agencies who have no more space for their animals. Even animals who have been abused, mistreated, abandoned, and injured are cared for and nurtured until a loving home is ready to adopt them. We are proud to support Valley Animal Center at their recent Golf Tournament fundraiser.
On Friday, June 10th, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers increased 1.0% in May after rising 0.3% in April. Worse, over the past 12 months, the Consumer Price Index increased 8.6%.
According to BLS, “the increase was broad-based, with the indexes for shelter, gasoline, and food being the largest contributors. After declining in April, the energy index rose 3.9% over the month with the gasoline index rising 4.1% and the other major component indexes also increasing. The food index rose 1.2% in May as the food at home index increased 1.4%.” Further:
On a 12-month basis:
Inflation in the United States has averaged around 3.3% from 1914 until 2022, but it reached an all-time high of 23.70% in June 1920 and a record low of -15.80% in June 1921.
Most will remember the high inflation rates of the 70s and early 80s when inflation hovered around 6% and occasionally reached double-digits. But so far in 2021 and 2022, inflation seems to have gone up every single month – which you no doubt already know – because you’re feeling it.
Inflation decreases the purchasing power of your money in the future and unfortunately, many don’t factor inflation into their retirement plans.
Consider this: at 3% inflation, $100 today will be worth $67.30 in 20 years – a loss of 1/3 its value.
Said another way, that same $100 will only buy you $67.30 worth of goods and services in 20 years. And in 35 years? Well your $100 will be reduced to just $34.44.
Therefore, it is imperative that your long-term retirement strategies account for inflation and
that you prepare for a decrease in the purchasing power of your dollar over time. You should strongly consider assuming that inflation will be more than 3% – its historical average.
It’s true that inflation today hovers over 8% – quadruple the Federal Reserve’s target inflation rate – but a better assumption might be one based on the last 100-years of data.
If you’re wrong and you find that the inflation rate for the next 25 years turns out to be 2%, then the purchasing power of your retirement savings will be more, not less.
Your financial advisor can create models with various inflation scenarios so you can better understand – and account for – inflation’s true impact to your retirement.
Have you ever entertained thoughts of taking an early retirement? Suppose you’re age 55 and could take home a pension income that amounted to 60% of your pay if you retire now. If your income is high, it may seem that you would be able to retire in reasonable comfort. However, before calling it quits, weigh all of the facts carefully to be sure an early retirement makes financial sense for you. Here are eight rules to consider if you’re thinking about taking an early retirement:
Retiring at age 55 with, hypothetically, 60% of your income may seem like a good deal at first. But if you wait until full retirement age, you will have another 10 years of full earnings under your belt, along with any pay increases from promotions, merit raises, and inflation. This will provide you with more money to save for retirement, and ultimately, it may boost your Social Security and pension benefits. Also, if you consider the difference in the percentage you will receive now and in 10 years¾for example, 60% if you retire now versus 80% if you retire in 10 years¾retiring now may not seem as attractive.
If you think you could manage on 60% of your income, remember that inflation will erode your pension. If you retire today and let’s say you receive a pension income of $1,600 per month for life, in 20 years at a 4% rate of inflation, you’ll have the equivalent of $707 in today’s dollars.
The longer you live, the more money you’ll need in retirement. Due to increased longevity, an early retirement plan must include a budget to meet the financial needs of several decades beyond the normal retirement age of 65.
If you already have a sizable nest egg, or if you expect to collect a pension from a previous employer, the amount of your current employer-sponsored retirement plan may not be as robust. If so, perhaps you can exit the labor force earlier because you have other sources of retirement income.
However, don’t expect Social Security to provide most of your retirement income. The Social Security Administration (SSA) projects that benefits will replace about 40% of the average worker’s preretirement income and retirees may need 70% or more of preretirement earnings to live comfortably (SSA, 2014). Also, since the future of Social Security and Medicare is uncertain, you may have to provide more funds for future health care expenses.
If you decide to leave your present job, will you be securing employment elsewhere until you permanently retire and start collecting your pension? Keep in mind that it may be difficult to find another equally high-paying position. Although the prospect of part-time work may make it possible to consider an early retirement option, be sure you can depend on a reduced part-time income until full retirement.
If you are under full retirement age andcontinue working after you begin collecting Social Security benefits, you may have to “give back” a portion of your benefits. In addition,
if you continue working after you begin collecting Social Security, a portion of your Social Security benefits might be taxed. You can determine how much of your benefits will be included in your gross taxable income with a calculator found online at the Social Security Administration’s website, www.ssa.gov.
Is there a chance your company will lay you off if you do not elect to leave on your own? Many companies now lay off high earners as part of their cost-cutting measures. If your company is experiencing financial difficulties and downsizing appears imminent, you may get a better deal through early retirement than through the company’s severance package.
If you opt for early retirement, in some cases you may incur a 10% Federal income tax penalty for early withdrawals from a qualified retirement plan. Keep in mind that withdrawals taken from an Individual Retirement Account (IRA) before age 59½ may also be subject to a penalty.
Early retirement may be a long-held dream and a financial possibility. But, before calling it quits, assess your situation carefully. You will have to live with the effects of your choice for the rest of your life. Take the time now to make sure it will be a smart decision in the long run. Your financial advisor can help.
On May 4th, the Federal Reserve raised interest rates by 50 basis points and scaled back other pandemic-era economic supports, as it stepped-up its fight against the highest inflation we’ve seen in 40 years.
“Inflation is much too high,” Federal Reserve Chair Jerome Powell said. “We understand the hardship it is causing, and we are moving expeditiously to bring it back down. We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses.”
The May rate hike was the sharpest from the Fed since 2000 and the second of what is expected to be six or seven rate hikes in 2022.
In no time, the warning bells were ringing like this headline: “Lookout Retirees, Here Come Rising Interest Rates.” The headline warns us to adjust our investment strategies as bond prices, which move in the opposite direction from rates, slide.
Here is a headline from the Wall Street Journal on May 6th: “It’s the Worst Bond Market Since 1842. That’s the Good News.” But the sentence under the screaming headline said this: “The four-decade long bull market in bonds is over, but that doesn’t mean you should dump them.”
The basic premise of these warning bells and scary headlines is that Federal Reserve rate hikes will hurt bond returns so much that investors should reduce their bond allocation. Before taking cover and preparing for the impending rate raises, consider some of the faulty logic encouraging investment action.
What’s not well understood is that the Federal Reserve does not set or directly control intermediate and long-term interest rates that matter most to bond prices. The federal funds rate affects extremely short-term rates, and thus has a strong impact on the yield of money markets, bank savings accounts and floating rate loans. It has much less influence on longer-term rates, which are a function of bond investors’ trades and market expectations.
Let’s go back to a period of Federal Reserve rate hikes which began in June 2004 for a clear example of the disconnect between the fed funds rate and longer-term interest rates. On June 29, 2004, the day before the Federal Reserve began to increase rates, the 10-year U.S. Treasury yielded 4.7%. Within three months of the first rate hike, the 10-year’s yield declined below 4.0%.
That is, the Fed increased rates, but bond yields went the opposite direction. A year after the first rate increase, the 10-year Treasury yield remained below 4% despite the fed funds rate increasing by two percentage points over that span.
Purchasing a 10-year Treasury the day before the Fed started raising rates and holding it for a year resulted in a return of 10.1%. A 20-year Treasury held over that same time earned 19.2%.
One reason: Back then, China’s government was an eager buyers of long-term Treasuries, which drove up their prices and pushed down their yields. Today, that might not be the case, but for many foreign investors, especially amid troubles in Eastern Europe, long Treasuries are the safe-harbor investment of choice. So much for the concept that you don’t want to own bonds when the Fed is increasing rates.
If the market anticipates that Fed rate hikes are likely to trigger an economic slowdown, recession or simply curtail any inflation pressures, expect longer-term bond yields to decrease, not increase.
It’s a fallacy to simply say that higher interest rates will hurt bond returns. This belief holds true in the short-term, but not in the longer-term. If you buy a 10-year Treasury today and you’re seeking the highest nominal return over the next decade, the best-case scenario is that interest rates rise dramatically immediately after you purchase the bond.
This logic flies in the face of traditional short-term thinking because most people associate rising interest rates with lower bond prices. True, the bond price will decline in the short-run and you would have been better waiting to buy the bond after rates increased, not before.
But if rates immediately rise, you will be able to reinvest the coupon payments at higher reinvestment rates over the next 10 years, which will make for a higher holding period return over the bond’s decade-long term than if rates had remained constant or declined.
It’s also a fallacy to think that you should sell bonds in advance of Fed rate hikes. Again, remember that bond yields are not directly tied to the federal funds rate. Plus, anyone who sells bonds has to find a replacement investment for the sale proceeds.
Cash still pays nearly nothing and stock prices have historically provided lackluster results in rate tightening cycles. Also, predicting outcomes is a fool’s errand. Timing the movement of interest rates has dumbfounded investors for decades and is likely to continue doing so.
If you think you clearly know the future path of interest rates, you are better served to open a hedge fund and make outlandish profits, than to simply make a few dollars on your own portfolio. Bonds in a diversified portfolio provide protection in stock market selloffs.
While the Standard & Poor’s 500 lost 36.6% in 2008, an investment in 10-Year Treasuries gained 20.1%. If you’re worried more about sharp portfolio losses than near-term fluctuations, a better idea is to maintain a bond allocation, rather than to abandon this protection.
What do these fallacies of rising interest rates mean to you? Humans are inherently biased to do something, a point that is not lost on Wall Street. People prefer action over inaction, regardless of whether inaction is optimal. Since Wall Street profits from investor activity, there will continue to be warnings of rising interest rates and what you can do to protect yourself. as banks and brokerages have a vested interest in compelling trading activity.
Don’t let public perceptions drive your bond investing. Remember the difference between speculation and investment.
In the words of author Fred Schwed Jr., a stock trader who got out of the market in 1929:
“Speculating is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort which should be successful, to prevent a lot of money from becoming a little.”
The standard definition of a bear market is when major U.S. stock indices, such as the S&P 500, drop by 20% or more from their peak. And 5+ months into 2022, we see NASDAQ and the smaller-cap Russell 2000 both in the grips of a bear and the DJIA and S&P 500 darting just outside the claws of a bear (by the time you read this, they could both very well be trapped by a bear or be further away from the claws).
Let’s examine the last time the S&P 500 was in a bear market and a little history of other past bear markets.
Remember when the S&P 500 closed at a then record high of 3,386 on February 19, 2020 and just three short and very painful weeks later, the S&P closed under 2,500, a drop of 26% in about 16 sessions (the COVID-bear)?
Then, on August 17th, the S&P 500 eclipsed that February 19th high in mid-morning trading, and it mostly managed to stay above that level. In fact, it was the second fastest-ever bear market to market peak in history as it took 126 trading days for the S&P 500 to reclaim its February high.
And this was over 10 times as fast as the index’s average historical rebound (1,542 trading days).
One the one hand, it was the fastest bull-to-bear market in history (COVID). But on the other hand, it was the second fastest bear market recovery in history.
From the perspective of an investor, there really is nothing special about that 20% threshold that separates a correction from a bear market. Does it matter if the S&P 500 is down 19% versus 21%? Both scenarios probably leave you feeling anxious. But it is worth remembering that every decade has seen bear markets and bull markets.
Glass half-full investors will undoubtedly focus on the good news – the worst decline in our economy since the Great Depression (the COVID bear) took just 126 days to recover – maybe we will see a similar recovery.
And glass-half-empty investors will undoubtedly focus on the not-so-good news – inflation is at 40-year highs, we have 11 million open jobs, the Fed is raising rates aggressively and corporate earnings are coming in weak – this bear will be more like other historical bears.
But long-term investors would be well served understanding both perspectives.
Consider this simple bittersweet example:
Be honest, how does this make you feel? Probably happy on the one hand, less so on the other, right?
What should you do? Well, the answer to that question, of course, is deeply personal. That being said, it’s never a bad idea to better understand the current macro-economic environment to help make informed decisions.
But the important point to keep in mind is that all the macro-economic data in the world is only helpful as it informs your long-term investing decisions and asset allocations. So before you make any investing changes, make sure you talk to your financial advisor to ensure that your assumptions are consistent with your risk profile and your financial plan.
Every day in Fresno and Madera counties, at community centers, high schools, middle schools, juvenile institutions, coffee shops, and local hangouts, Youth for Christ staff and volunteers meet with young people.
Fresno/Madera YFC is a rural, suburban, and urban non-profit ministry on a mission to share the saving love of Jesus with teens, especially those living in group homes. Their focus is to bring young people closer to God and closer to each other. We were pleased to be a participant sponsor at the recent Golf Classic fundraiser for YFC on May 5th. They are making a positive difference in our communities and in our youth.
Too often during uncertain times, we inadvertently compare ourselves to the people around us – and that leads us to make financial mistakes.
In his book Predictably Irrational: The Hidden Forces That Shape Our Decisions, Dan Ariely remarks, “We don’t have an internal value meter that tells us how much things are worth. Rather, we focus on the relative advantage of one thing over another, and estimate value accordingly.” Later he adds, “We not only tend to compare things with one another but also tend to focus on comparing things that are easily comparable.”
In other words, we use completely irrelevant benchmarks to gauge our success and make decisions. We compare the car we drive or clothes we wear to our siblings. We draw comparisons about how our children act relative to the neighbors.
None of these comparisons makes rational sense. Instead they take the common shortcut and follow things easily comparable to a simple, concrete – and irrelevant – answer.
Simple comparisons also often gloss over details. In another example, you lament that you refinanced your mortgage at 4% interest while your brother got 3.75%. The interest rate provides a simple comparison and misses the big picture.
Digging deeper, we find that your brother paid closing costs and you didn’t. The monthly savings of that 0.25% difference covers the closing costs after 10 years but your brother only wants to stay in the home for five. The lower rate ends up costing more.
Nowhere is relative benchmarking more prevalent and more irrelevant than in investing. How you perform against the Standard & Poor’s 500 bears little on your financial well-being.
If you are in retirement and have a properly structured portfolio, you probably underperformed the S&P 500 since the onset of COVID and maybe have outperformed YTD so far in 2022. Big deal. The S&P 500 is not trying to accomplish with its money what you try to accomplish with yours.
For instance, if you ever owned a business, you understood that revenue and profits rise and fall. It is not always a consistent upward trajectory. You continue running your business because of the lifestyle it provides, and you make decisions that ensure continuity. Few owners run their business to maximize returns at all times – those that do are often hung out to dry when things get rough.
Consider your retirement portfolio as your own small business, comprising ownership in thousands of real, functioning businesses.
If you strive to maximize gains in all the businesses at all times, you eventually get burned. Not to mention that the business (portfolio) performance of the bicycle shop guy down the street bears no relation to that of your bakery.
That comparison makes no sense. Your portfolio provides you with the lifestyle you want.
Blindly comparing your portfolio to an arbitrary benchmark – especially over short periods – tells you nothing about whether your investments help you toward your life goals. There’s nothing less relevant.
Actors Johnny Depp and Amber Heard are in a contentious defamation trial in a Virginia court. Depp and Heard were married from 2015-2017 (15 months) and Depp is suing Heard for $50 million over a 2018 op-ed she wrote for The Washington Post in which she described herself as a "public figure representing domestic abuse." Though Heard did not specifically name Depp in the article, he claims it cost him lucrative acting roles.
But it was another pair of lawsuits involving Johnny Depp's assets that might be more relevant to those questioning the importance of estate planning. Because with about 40 million lawsuits filed in the U.S. each year, protecting your family's legacy and assets is getting harder and harder.
In 1999, Depp hired The Management Group to handle his expenses as his business manager. By then Depp had become a very wealthy actor who led a lifestyle that included 14 homes, a $75 million yacht and $30,000 a month for wine.
And as hard as it might be to believe, Depp's lifestyle cost him in excess of $2 million per month, which according to his business manager, was far exceeding his cash flow.
In January 2017, Depp hired a new business manager and conducted a financial analysis of his assets. During this analysis, he claimed to have discovered big investment losses made by The Management Group, so he filed a lawsuit seeking damages of $25 million.
The Management Group responded with a countersuit of their own alleging that early in Depp’s career, he borrowed $5 million from them to cover the expenses of his lifestyle and had allegedly defaulted on this loan. The countersuit sought to recover his loan by foreclosing on some of Depp's assets.
The lawsuits were eventually settled.
There are a lot of lessons to be learned from Depp's experiences – and it's not that the rich are different.
If Depp had established an asset-protection plan, he could have ensured that his personal wealth was protected from any potential lawsuits. In effect, it would have placed his assets under the ownership of a trust.
Depp would not legally own the assets, as they would be owned by the trust itself – protected from any lawsuits brought against him.
There's a lesson in that Johnny Depp saga: Protecting your assets and family's legacy should always be an important part of any comprehensive estate plan.
As such, you should consider placing your assets into a protective trust. And there are a few to choose from.
There are a lot of considerations when selecting the right trust for your situation. For example, you want to make certain that the trustee has hired a reputable investment manager for your assets. In addition, you want to make sure the professionals and fiduciaries have the requisite checks and balances in place.
Your financial advisor can help you select the right trust for your circumstances. It’s part of your personal estate planning process.
“Not All Treasure is Silver and Gold Mate.” ~ Captain Jack Sparrow