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Open enrollment for employee benefits kicks off on November 1st. Before you plan your Thanksgiving menu, you should make the time to review your benefit choices.
Employee benefit experts expect benefits to change next year like few years before – given the rising costs of health care and the impact of COVID-19 on businesses this year. Even if little changed in your life in 2020 – and that’s probably unlikely – you should aim to maximize what your employer offers.
Here are a few pointers.
Even if you carry the same plan as in many past years, spend a few minutes evaluating which one is best for you and your family when you choose – especially High-Deductible Health Plans and traditional plans.
Switching from the traditional plan to a high-deductible option might save money if you don’t visit the doctor much. Perhaps too your spouse’s company now offers a better plan and you can switch the family coverage to the better alternative.
Improved employer plan descriptions lay out plans’ differences and costs and do that much better this year. Take advantage of their free help, online or in person.
Often you receive only one choice for dental coverage, but you might be surprised at how many people decline to pay the relatively small premium for this coverage. Even if young and cavity-free, you take care of your teeth now to potentially prevent large dental bills in retirement.
If nothing else, dental insurance provides a teeth-cleaning twice a year.
This benefit works great if you wear glasses or contacts and need regular eye exams. Those with perfect vision may opt out of this coverage.
Most employers offer some basic life insurance, the coverage usually a multiple of your salary. If you are married, own a home or have kids, this basic coverage usually falls short.
Consider paying extra if possible, to increase life coverage through your employer. If that’s not an option, consider supplementing this minimal coverage with a term policy from an independent provider. These policies come with set duration limits on coverage and you decide whether to renew once the policy expires.
Remember that whatever life coverage your employer pays for vanishes if you leave that company.
Standard coverage in this category usually pays 60% to 66% of your compensation if you become disabled and unable to work.
As this coverage often comes with a cap, if you are highly compensated, this insurance might also fall short to sustain your standard of living. Estimate your minimum to live on if you become unable to work and, if that number scares you, consider purchasing a supplemental policy.
This pays for assisted living, a nursing home or in-home care late in your life.
Even as our lifespans increase, long-term care premiums escalate. If your employer offers any coverage at a relatively inexpensive group rate, consider locking in some protection. Financial advisors normally recommend LTCI when you turn age 50 – getting it while you are young and healthy under an employer plan may still make sense.
This savings account reduces your taxable income and funds medical co-pays, orthodontist appointments and prescription drug orders, among other expenses.
Figure your out-of-pocket medical costs and sign up to set aside that amount, up to $3,550, pre-tax in an FSA and $7,100 for families. Remember that if you participate in an HDHP, you maintain a related health savings account and can only take advantage of a limited FSA.
Either way, pay for the most of out-of-pocket medical costs with pre-tax dollars.
If you pay for daycare, after-school programs, or summer day camps for children under age 13 or for eldercare for a dependent parent, DCAs help you offset that cost with pre-tax dollars. Again, a working couple can set aside up to $5,000 from paychecks.
When describing the confluence of this year’s events it has become cliché, if not a major understatement, to describe 2020 as a year of uncertainty. Just some of the obvious contributors: COVID-19 and the politicization of lockdown policies. Add to that social unrest from peaceful protests to raging riots. And then there is the virtual firestorm of politics ahead of the elections, to say nothing of the actual firestorms raging across the Pacific Northwest. So how can we be prepared in times of uncertainty?
With so much uncertainty it may be hard for individuals, families, or businesses to know how to plan for next month, let alone plan for the distant future. For many, comfort is found by having certainty in the big three of faith, family, and finances.
Even for the non-religious among us, feeling certain about the future still requires having a degree of faith. We tend to operate from the belief that life will still operate within some band of "normalcy" even if there is some change. That is, we presume that the basics of our governmental, social, and economic norms will at least resemble something similar to today.
Yes, we know that there will be changes in the future, but it is one thing to speculate about taxes and inflation, and it’s another thing entirely to speculate about fundamental shifts like moving from capitalism to socialism. That is a drastic example to make a point.
Perhaps more illustrative is thinking about the fact that the 401(k) has only been around since 1978. What has today become the predominant individual retirement vehicle has existed for less time than most retirees. You can read a brief history of the 401(k) here, and see how it has evolved pretty significantly over the past 42 years.
The good news? It is possible to plan and feel prepared for the future even in the face of uncertainty. Good advice can cut through the chaos and provide some certainty. Especially when the underlying principles are solid regardless of future outcomes.
For example, one never knows when a natural disaster might happen. But, having an escape plan, emergency kits of food, water, clothing, and cash is still good advice even if disaster never strikes. Just being prepared can bring some peace of mind.
This month Strong Valley Wealth & Pension is kicking off a new initiative to help clients not only be more prepared but feel more prepared. Our goal is to help clients gain some additional peace of mind. We believe one way to do that is by reducing the stress of unpredictability in their financial portfolios.
We are implementing an additional tool called Riskalyze. Riskalyze was built on a Nobel-prize winning framework and it helps people better understand risk. This is a scientific and quantitative approach to analyzing risk at both a personal and portfolio level. The tool provides many advantages, but at its simplest level, it can help determine your personal risk score.
Understanding risk is important because avoiding too much risk can affect your goals as negatively as taking on too much risk. Going through the Riskalyze assessment and determining your risk score can help with proper planning.
It is important to note that understanding your risk score can be useful on its own. However, a risk score is designed to be just one of the multiple inputs that shape an individual client's wealth plan.
Strong Valley combines risk scores with experience, training, disciplined investment strategies, and financial principles. This combined approach can help clients be more prepared for planned and unplanned market (or life) changes.
A risk score is a great quantitative measure. However, it does not replace the qualitative factors that come from our focus on having in-depth client relationships. The technical data helps us define and better communicate planning and performance. But there is no substitute for measuring the "real life" factors that impact our clients.
The great news is that Riskalyze can be started on your own online at any time. We can also schedule a time to walk through it together. (You can schedule an appointment here.) Here is some of what you can gain by going through the process:
If you are an existing client and have not done so yet, here is the link to start your Riskalyze assessment, and we’re excited to hear your feedback after going through the process.
We cannot emphasize enough that despite using cutting-edge technology, a risk score does not replace the human aspects of wealth management and retirement planning. This is just one tool that we can use to further refine the strategies and advice we provide. Knowing you is far more important than just knowing your risk score alone.
That said, we think it is such an important tool, that we would highly encourage sharing the link below with your friends and family. There is no obligation to follow-up with a Strong Valley advisor. Of course, we certainly appreciate that most of our referrals come from existing clients.
Every four years, Washington D.C. and Wall Street converge as Americans elect a president and Wall Street tries to figure out what the outcome means for the stock and bond markets. And since so many hypotheses on this topic abound, it’s hard to keep track of them all.
For example, there are those who swear that Wall Street performs better when:
But what if we ranked the best and worst presidents simply by the performance of the stock market? Surely that would settle the debate as to which president was best for investors, right? Well, while it sounds easy – and the editors at Kiplinger did rank presidents from worst to best according to the stock market – there are a few big caveats to consider.
Caveat #1: Since the Office of the President was established in 1789, America has had 44 different presidents. And just three years later, Wall Street was officially founded on May 17, 1792 with the signing of the Buttonwood Agreement. But for the most part,
there really was no “stock market” until the late 1800s, meaning it doesn’t make sense to include the first 22 presidents. So this analysis starts with the election of 1888.
Caveat #2. The Dow Jones Industrial Average was first published on May 26, 1896 and it followed the 12 largest companies in each sector. Today, it tracks 30 companies. The other very commonly-used index – the S&P 500 – although introduced in 1957 it does track data back to the late 1920s. The editors of Kiplinger decided to use the S&P 500 from President Hoover to the present and the DJIA for earlier.
Caveat #3. Returns do not include dividends. Over the last few decades, dividends have become a smaller component of total returns, so not including dividends will tend to favor more recent presidents.
Caveat #4. Data is not adjusted for inflation. This will tend to help presidents of inflationary times (Carter and Ford) and hurt presidents of deflationary times (Hoover and Bush).
Final Caveat. This one is sure to spark heated debate, but it seems fair to not include President Trump on this list simply because his presidency is still going.
#1 of 22
President Herbert Hoover, Republican
Is it any surprise that President Hoover, who took office just a few months before the Stock Market Crash of 1929 that led to the worst bear market in history, would be the worst in terms of stock market performance? It’s not bad enough that Hoover presided over an annualized compound loss of 30.8%, but the cumulative loss of 77.1% is astoundingly awful.
After his landslide win in 1928, Hoover said in his inaugural address that: “I have no fears for the future of our country. It is bright with hope.”
Then just seven months later, on October 24, 1929, the world witnessed the beginning of the Stock Market Crash of 1929, which brought Black Monday, when the DJIA dropped 13% in a single day.
#2 of 22
President George W. Bush, Republican
George W. Bush did not come into office after the Stock Market Crash of 1929 and the Great Depression, but he did come into office after the Dot.com boom of the 1990s and presided during the September 11th terrorist attacks, the Iraq War and the 2008 mortgage crisis.
While there were some good years from 2003 through 2007, many might remember when Bush visited the New York Stock Exchange on January 31, 2007 and gave a speech deriding excessive executive compensation.
Little did anyone know at the time that in less than a year, investors would experience one of the worst bear markets in history stretching from October 2007 through March 2009 when the S&P 500, DJIA and NASDAQ all lost more than 50%.
#3 of 22
President Grover Cleveland, Democrat
Stephen Grover Cleveland was the 22nd and 24th president of the United States, the only president in history to serve two non-consecutive terms in office (1885 – 1889 and 1893 – 1897). But his second presidency will be remembered for the third worst in history, measured by stock market performance.
Cleveland’s second presidential term coincided with the Panic of 1893 that ran through 1897 – the end of Cleveland’s presidency. The Panic of 1893 began with a railroad bankruptcy in February 1893 and resulted in over 500 banks closing, more than 15,000 business failing and unemployment hitting 19%.
The deep recession that followed hammered the banking system and by many accounts led to the realignment of the Democratic Party and the beginning of the Progressive Era.
#4 of 22
President Richard Nixon, Republican
President Nixon is remembered for Watergate, his resignation and the Vietnam War, but stock markets performed poorly during Nixon’s presidency too. And while losses of 3.9% a year are bad, if you factor in high inflation, then the performance looks even worse.
In addition to poor stock market performance, Nixon is also remembered for abandoning the gold standard – which meant that the U.S. would no longer convert dollars to gold at a fixed value.
Essentially killing the Bretton Woods system established in 1958, Nixon implemented a series of economic measures – now called the Nixon Shock – to help combat rising inflation. The result was even higher inflation in the 1970s and one of the worst bear markets in history from 1973 – 1974. In fact, the period from January 1973 through December 1974 saw the DJIA lose about 45% of its value.
Next week will bring Part II – and the list might surprise you.
We are halfway through 2020, and what a wild ride it has been so far. The first six months of this year has been one of stark contrast. We have seen the highest of highs and the lowest of lows. We have seen amazing heights of achievement fueled by human ingenuity and collaboration juxtaposed to the dark days of human division and despair.
The same day that SpaceX, NASA, and the world celebrated the successful start of a new era in space exploration, the crew of the Dragon and the International Space Station (ISS) were orbiting mass outbreaks of the coronavirus, protests, violence, and political unrest. The irony of these extremes is that there is both one answer and one driving motivation that fuels them both – and that is hope.
Significant investments of time, money, fortitude, faith, combined with a long-term perspective driven by dreams for a better life will be the key to conquering both the vast distance of space, and the growing divide among neighbors this planet. Meaningful growth and change often comes through adversity, and from the willingness of those to persevere, and to pioneer a new path forward from the old to the new.
The days ahead will require pioneers of hope. Positive change will require those willing to invest their resources into planting, growing, and sharing hope with the long-term perspective and goals in mind, perhaps outcomes that will even take multiple lifetimes to achieve.
The loud and noisy vocal minority that currently dominate with evocative headlines, jarring sound bites, and scrolling tweets are often just the tactics of short-term thinking and not long-term change. These are merely challenges for pioneers of hope to overcome.
The SpaceX Dragon launch was historic, but not because of the two men aboard the spaceship. The mission is historic because it was a team of over one-hundred thousand people all committed to doing their small part, not just to launch the two-man crew to the ISS – but to launch millions of future generations towards the hope of a better future in distant worlds.
Like the SpaceX Dragon, overcoming the challenges we face on our planet now will require rising above the chaos, working together, committed in our long-term cause of hope for humankind, and recognizing that even vast distances are only conquered by taking the first step.
Strong Valley was launched with the goal of rethinking how personal and business financial management could be done. We started our firm with a focus on people, relationships, and long-term thinking. From the very start we viewed Strong Valley as an opportunity to build and strengthen our community – the community of clients, the community of like-minded partners, and the physical communities in which we live.
We know that there are many reasons to have concerns during these times, but we also believe that there are many reasons to celebrate and have hope for the future. We stand firm in our resolve to be pioneers of hope and helping clients and our communities achieve a better life. We also actively encourage you to share your ideas on what it means to be pioneers of hope.
We hope you enjoy the information in this quarterly newsletter from Strong Valley.
A business will is far more than a legal document designed to transfer assets upon the death of an owner or partner. It is a comprehensive estate planning tool that can include everything from management plans, and other documents necessary for a company’s continued operation and future health, to shareholder buy-sell agreements.
An estate planning team consisting of a lawyer, accountant, and qualified financial and insurance professionals can help you develop a business will, including all necessary documentation. There are established methods for transition that can help leave your company and successor management free from unnecessary worry or jeopardy. In addition, through carefully planned life insurance and disability income insurance, the transition can be properly funded to help avoid substantial losses that might otherwise occur.
A business will should be clearly written to address such questions as:
A business will is essential for sole proprietorships and partnerships because they must cease operation upon the death of an owner or partner. If a family member or executor attempts to operate the business without the proper authority that can be granted through a will, he or she may be held personally liable for all debts incurred and any decline in the value of the business. In contrast, the deceased’s heirs are entitled to all profits from the business.
For sole proprietors the business ends and the business assets and liabilities become the assets and liabilities of the estate. If a sole proprietor does not want to change the form of business ownership, but does want to retain the business, the planning concerns involving the administration of the business during the estate settlement period, and the continuation of the business after the estate has been settled, need to be addressed. The proprietor’s will must give the executor certain powers during the period of estate administration such as:
Some objectives can also be accomplished while the owner is alive—through the purchase of shares by the successor owner or manager, or through the creation of a corporation, which has continuing life as long as a shareholder is competent to vote the stock and make business decisions.
To effect a smooth transition, upon the owner’s death, suppliers and customers should be notified through appropriate means that a successor business is in place and will assume the responsibilities and obligations of the prior business.
The surviving spouse should be kept informed of decisions regarding the succession or disposition of the business— for his or her own welfare, as well as to help maintain the stability of the company throughout the transition.
Employees need not be given specific details of the transition or confidential information, but they will appreciate being informed that arrangements have been made to safeguard their welfare.
Planning for the transition of the business you have spent many years building is not an easy task. However, taking steps now to prepare a business will and the accompanying documents can help ensure your business continues according to your wishes.
The past couple of months has brought untold misery to hundreds of countries around the world. Millions of COVID-19 infections, with hundreds of thousands of them fatal, 30 million plus unemployed in the U.S., rising levels of anxiety, depression and substance abuse. Maybe now is a good time to talk about the Misery Index.
The Misery Index was popularized in the 1970s as an easy to understand measure of America’s economic health. Equal to the sum of inflation and the unemployment rate, the original Misery Index was created by Yale economics professor Arthur Okun.
In the 1960s, professor Okun researched the relationship between unemployment and production and his findings became known as Okun’s law, which states that when the U.S. unemployment falls by 1%, our Gross National Product will increase by 3% (this was apparently only true for the U.S. economy and only when unemployment was between 3% and 7.5%).
Professor Okun also served on President Lyndon Johnson’s Council of Economic Advisors and he coined the Misery Index as a way for President Johnson to easily communicate the relative health of the U.S. economy. The higher the Index, the greater the misery felt by the average American. Simple.
During the presidential campaigns of 1976 and 1980, the Misery Index became more popular. In 1976, then-candidate Jimmy Carter criticized President Ford and in 1980, then-candidate Ronald Reagan pointed out that the Misery Index increased under President Carter. It will be interesting to see if the Misery Index gets reintroduced during the 2020 presidential race.
While the Misery Index is a simple measure, most economists are quick to point out its many flaws.
Finally, and this is probably the largest flaw: which defines misery more: the unhappiness associated with unemployment or the unhappiness associated with inflation? Most would argue that unemployment brings much more misery versus the rising costs of a basket of goods and services.
And while the percentage of unemployed, current inflation and the resulting Misery number for the average American might be useful somehow, how useful is it if you’re unemployed?
Since the 1970s, the original Misery Index has been modified several times, including by Harvard economist Robert Barro in 1999 and in 2011 by John Hopkins economist Steve Hanke.
Barro included much more data – and called it Barro’s Misery Index – and he included interest rates and economic growth and looked at countries other than the United States. Hanke took Barro’s Misery Index and added more data, including “the sum of the unemployment, inflation and bank lending rates, minus the percentage change in real GDP per capita.” And yes, he called it Hanke’s Misery Index and updates it yearly for close to 100 countries.
In case you’re wondering, the most recent Hanke Misery Rankings show the following:
But while Hanke’s findings are undoubtedly rooted in mathematical precision, one could argue that his conclusions – the rankings – are a bit of a head-scratcher.
Consider this:
While maybe the model dictates those rankings, it’s a reminder that:
“Happiness is a direction, not a place.”
~Sydney J. Harris, American Journalist
Hope and Life After COVID-19
There is little doubt that a time will come when we say the worst of is behind us, but life after COVID-19 will likely look much different. Few events are as truly worldwide as this or have had such a rapid impact on shaping our daily lives and routines. Our personal, social, financial, educational, and professional lives have all been suddenly disrupted. Moving forward many of our social and cultural norms are likely to be forever altered.
During this time of volatility, uncertainty, complexity, and anxiety we thought it would be a good idea to provide some light-hearted, but heart-felt, recommendations:
Buy:
Into HopeHold:
Onto What Truly MattersSell:
Others on Doing the Same
It’s important to keep the big picture in mind no matter how disruptive things feel right now. It’s an unfortunate axiom of life that coming through the other side of a major tragedy is what makes us stronger if we allow it to. When we overcome adversity, we often gain a new appreciation for family, loved ones, and life itself. When we work together, we can find strength in our individual and collective faith and find the fortitude to move forward in hope.
The current events of the past few months are no different. If we work together, we will come stronger individually and as a community. Regardless of what the immediate future holds, by holding on to what is truly important we can weather the storm and overcome any challenges that might lay ahead.
We feel so blessed to have clients, so many of whom we consider to be close friends, and each one of you is an important part of the Strong Valley family. Our business was born out of a desire to do business differently and to be able to best serve our clients – in good times, in bad times, and times such as these.
It is also in times like these that we can look forward to amazing new changes, opportunities, and innovations that will undoubtedly come from the creative entrepreneurial spirit. We’ve provided some links below that you may find inspiring. There are stories from past tragedies, and even more recent stories from the current coronavirus pandemic.
As we have communicated in recent emails, by phone, and in our (virtual or face-to-face) meetings please know that we are working on your behalf. We will be keeping an eye on the markets, monitoring your situation, and working to help protect your goals and dreams. Our aim is to provide you with peace of mind so you can focus on your life, your business, your retirement, and most importantly – time with your loved ones.
Obviously, nobody can predict the future. As financial advisors we often let people know that “past performance is no guarantee of future results” – but in this case, we’re pretty confident in stating that acting in hope and within the best of our humanity is never bad advice.
Your Turn:
What are you looking most forward to as we put the coronavirus in the rearview mirror? Let us know below!