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If you’ve followed the financial news over the past year, you may have run across a curious term – negative interest rates. It denotes the situation where one lends money to another entity, does not earn interest and eventually may receive back less than what they loaned.At first blush, negative interest rates seem strange – why would you lend money, not charge interest, and /or be agreeable to accept less than your original loan amount? Yet this phenomenon is prevalent in global government debt markets today. Due to an inability to otherwise juice economic growth, countries like Japan and many in Europe have indeed driven down the cost of their sovereign debt to such a degree. In fact, so much so that in August 2019, Deutsche Bank estimated there was over $15 trillion of global government bonds with negative rates in circulation. Due to a worsening economy, Germany is on the cusp of issuing negative rate bonds too. The purpose of this policy is apparently to force cash into the respective economy and spur spending and investment by consumers and businesses.While zero or negative rates may sound great for borrowers, there are plenty of downsides that proponents of the strategy (such as our President) should consider. First of course, is the point of view of those on the other side of the transaction; namely savers and lenders. Those who deposit their money with lending institutions (such as banks and finance companies) should and do expect some kind of return for their monetary commitment. You have likely winced at the paltry interest paid over the past decade on your bank savings accounts and certificates of deposit. As we’ve seen in the investment world, negligible earnings from savings/CD’s are causing some consumers to turn instead to more risky investments than they otherwise would be comfortable with, such as the stock market. Even large investors such as pensions and insurance companies, who invest heavily in government bonds and other income securities, also expect (and need!) a return on their money. The potential demand for negative-rate US Treasuries may be far less than proponents might hope for.Negative rates turn the normal functioning of capital flows and economic finance upside down. They also hurt lenders – rather than earn the spread between what interest they pay depositors and what they earn by lending, banks are forced to pay central banks to hold their cash or push it out into the economic system. Bank profit margins are also squeezed, forcing banks into more risky lending and to seek profits through more services fees; something consumers have complained about for some time.Negative rates also have the potential of triggering inflationary pressures by pushing up values of financial assets and real estate, sometimes beyond what is reasonable in a normal environment. Critics point to recent equity prices and values of real estate in high-end parts of the country as potential examples of this consequence.Lowering rates too far to zero or negative also remove a potent tool from central banks, such as the Federal Reserve, to stimulate their economies by lowering rates. Once rates go negative, pushing them further down may be ineffective in motivating spending to invigorate the economy. In sum, the advent of negative rate bonds is truly uncharted territory. While the consequences over time are not known, the best defense for consumers and investors may be to suffer with lower savings yields for now, remain diversified, and manage risk even more diligently than before.

There’s an old Yogi Berra –ism (though correctly attributed to computer scientist Jan van de Snepscheut) about theory and practice: “In theory, there’s no difference between theory and practice. In practice, there is.” While Yogi may have attributed the concept to baseball and Van de Snepscheut to computer algorithms, it also applies to personal finance.Most financial planners will (or should) admit that recommendations they provide to clients are not exactly rocket science and often are rooted in some basic financial common sense, along with a hefty dollop of analysis, tax rules, asset allocation strategies concerning compounding savings and rates of return versus interest amortization, inflation and spending. In short, success in personal finance and planning is often pretty simple to understand to anyone who takes the trouble to carry out the various tasks required to create a workable plan.It is often the execution (or day-day practice) of good financial habits that get people in trouble, (read: being human, with all our collective foibles). We (over)spend when we should save, drive up the credit card balance, forget to pay the life insurance premium, under-insure our car/home, hide our heads in the sand about college costs for our kids, and dismiss the notion of our own eventual demise and fail to get our estate in order. All those things and more.And we forget the lessons of the past. The tech boom and bust of the late 1990’s. The inflation of the 1970’s. How markets recover eventually from a crash. That something for nothing is, and always will be, a fantasy. That companies need sales, revenue and eventual real earnings to survive and support a wildly-high stock valuation. Or how supposedly-secret stock tips or strategies touted by investment newsletters are not really so secret or exclusive (except to you and three million of your closest co-subscribers). And despite common knowledge about Ponzi schemes and ever-vigilant regulators watching out for unethical product-pushing, advisor-charlatans, consumers still get taken to the cleaners at times. PT Barnum is attributed with the snarky comment about a sucker born every minute. When it comes to personal finance, Barnum was a prophet.In our 24 years as a firm, we’ve seen that many clients do, in fact, have a pretty decent handle of what they’re trying to do and why. Circumstances and life-events may have derailed their initial plans or perhaps things didn’t work out the way they hoped. That’s life, of course. In most cases,our work with these folks have been chiefly to crystalize and structure what they innately know about their money – they often just need someone who, with some specialized knowledge and the software programs to demonstrate in charts and graphs, can help them flesh out the numbers and forecasts into something they can grasp and understand. With this direction and a second opinion, people often feel empowered to forge ahead toward their objectives, despite the many obstacles and setbacks that are part of life. For the most part then, people have a good feel for where they are, whether their future looks bright or potentially troublesome.After these many years, we’ve also seen that even those with modest means can build wealth for the long-term. For these people, their advantage is having stout fiscal discipline, adherence to a plan of some sort, a conservative lifestyle and the faith that the sacrifices they’ve made along the way will serve them well in the future. There are many new financial books published each year, but the basics remain the same. The markets, investing trends, financial gurus and politicians, of course, all come and go, but if you save for the future, invest widely and carefully, avoid falling prey to get-rich schemes or ill-conceived financial decisions, most likely you’ll end up with sufficient financial success to fill some, if not all, of your dreams and aspirations for you and your family. It just takes a plan and the willpower to execute it.

Estate planning is an important part of a good overall financial plan. Here is a list of common estate-planning mistakes we see in the office from time to time.A first mistake is thinking that you don’t need an estate plan because you don’t have gobs of money that you’re leaving behind. This unforced error is rooted in the misconception that estate planning is just for the uber-rich who might be subject to inheritance taxes. While the wealthy may indeed have more complex planning, the core reason for estate planning is to develop a plan for the distribution of assets, during severe disability or ultimately death, according to the wishes of the individual, in the most expedient, efficient and least cost possible. As a local attorney once said, “You want to be looking down from heaven and all is transpiring the way you envisioned.” Estate planning involves more than just trusts and a Last Will. Nearly every good estate plan includes documents such as Durable Powers of Attorney, a Living Will and specific provisions for dependents that may be left behind. One of the next biggest mistakes is the failure to title assets properly. You can have an attorney create the most effective, beautiful estate documents in the world, but they might be ultimately useless if the assets involved are not ‘re-titled’ in the name of said trust(s). For example, if the George & Martha Trust is designed to distribute the George and Martha Investment account in a certain way, but the investment account is not retitled in the name of the trust and has an old beneficiary designation that names George’s first child from a prior marriage as the sole primary beneficiary, guess who gets the money?Which segues into the next big mistake; no or old beneficiary designations. Life insurance, IRA accounts and retirement plans are often the largest assets on one’s estate. Life happens and changes occur which often require updating beneficiary designations. These updates are critically important during major life transitions, such as divorce, marriage, new children, changing objectives regarding heirs, or even just creating an estate plan. A large insurance death benefit may be better off within a separate trust than going to the estate and an IRA beneficiary as one’s estate may result in unnecessary taxes paid.Another less common, but important, mistake is naming inappropriate fiduciaries, such as executors, trustees, etc. Naming your eldest sibling to take care of administering your estate is a common default many people use, but is your eldest sibling the right person? He or she may not be all that organized, too busy with their own life or live in another part of the country where taking care of matters after you’re gone would be a huge (and costly) burden for them. For trustees to your trust, some people are just not able to handle the myriad details of trust administration (or may not want to). So when you name executors and trustees, consider these designees carefully and ask them first.These are just a few of the errors that can occur after it’s too late. Have a written plan and exercise great care in the planning.

If we were to hold up a $100 bill and ask, “What is this?” invariably there would likely be a chorus of voices calling out, “Money”, then mutters of disbelief when our response would be, “No sorry, that’s not correct”.Well if that “Franklin” isn’t money, then what is it? It is ‘currency’, a medium of exchange representing an amount of government-backed value that can be freely exchanged for goods and services in the good old U.S. of A. Well, okay, you say. Then what is money?In the purest sense, the word ‘money’ is actually purchasing power – the ability to take a measure of stored, generally-accepted value, (whether dollars or clam-shell wampum) and exchange it for an equal-valued item or service desired. The reason I call your attention to the difference between currency and money is that this is essential to knowing why we save and invest for the future. It is also critical to understanding why, despite the anxiety that may be part of investing, we shouldn’t just stuff our ‘currency’ in the mattress or all in bank certificates of deposit and believe that our ‘money’ is safe. The currency units (dollars) in the bank may be safe, due to guarantees by the Federal Deposit Insurance Corporation (FDIC), but even then, our currency dollars are leaking purchasing power every day.In the early 1980’s, a depositor might have earned about 15% on his bank CD investment. Sounds wonderful, right? The problem was one of context, because inflation (loss of purchasing power) was just over 10 percent in 1981. So really, the CD-owner’s nominal purchasing power may have only increased by about 5% (pre-tax, of course). Depending upon that particular individual’s tax bracket that 5% increase in purchasing power may have been reduced by another 1.5% due to Federal/State taxes on his interest, bringing his net gain to about 3.5%. Nothing to dismiss, of course, but not quite as juicy as that original 15% either.So when we are making contributions to our IRA’s, our 401(k) accounts and college savings accounts, we are deferring current consumption at today’s purchasing power in order to create greater purchasing power that we want (and need) in the future. And in order to maximize our future purchasing power, we ought to be investing in things that have at least a fighting chance of outpacing the ravages of inflation over time and help our limited savings grow. This is the reason that, (in line with our ability to tolerate the volatility) some portion of our investments ought to be as “owners” (shareholders) of companies, not just as lenders (to companies or banks) through bonds and other forms of “fixed income”.With investing, one size doesn’t fit all, so your neighbor’s tolerance for risk in stocks and stock funds may differ from yours, as does his/her goals and objectives. The point here is to encourage all to understand a core concept of why we invest our money. It’s the added purchasing power we seek to combat the erosion of inflation over time and it’s really not a matter of choice, but of necessity.

In the world of professional investment advisors, the phrase “Past performance is no guarantee of future results” is a staple (or should be) within client conversations, literature and most any other form of communication with the investing public. There’s a good reason the regulators are so adamant in preventing financial advisors from misleading the unwary investing public by touting an investment’s past success – it’s not all that hard at times to cherry-pick data in order to persuade a prospect that their future investment returns could be stellar, based upon what that investment has done in the past.Like everyone else, advisors want to forget the Great Financial Crisis (GFC) of 2008 and the abysmal investment returns that occurred that year. When advisors, fund representatives or even individual investors themselves review historical returns of an investment, what occurred in 2008 usually looms large in several places; in the multi-year period performance figures (usually 3-year, 5-year, 10-year or “since inception” results), in the “Best/Worst” performance results for a 3-month, 6-month or full-year period, or in historical returns “by year”.Often though, performance reports may limit their listing of past performance at 10 years (‘since inception’ is too general and ambiguous to be useful). This is where the passing of 2018 becomes significant. As occurred after 2011 for the 3-year returns and in 2013 for 5-year period returns, after 2018, the 10-year return averages for investments such as mutual funds will see the horridly negative results for 2008 fall out of the equation and may offer a little boost to the 10-year historical results. In addition, investors need to be aware that the general US stock market has been on a bit of winning streak; as measured by the unmanaged S&P 500 index, there have been no down years since 2008. In 2011 the S&P 500 returned 2.11% and in 2015, the return was 1.38% (Source: ycharts.com), but otherwise, in each year from 2008-2017, a potential investment in S&P 500 index delivered double-digit returns (but of course, there’s no guarantee of a repeat!). The point here is that an investor looking at these returns next year might be unaware that they’re seeing results during a historic 10-year bull market and uptrend (assuming we end 2018 on an up-note). The fact that markets do, in fact, go down and sometimes severely may be lost on such individuals unless someone (like an ethical advisor), point this out to them (perhaps using 2008 as an illustrative example). Markets can also be volatile in a year, but end up with mediocre returns at the end (as in 2011 and 2015, but also 2005 and 2007).So when evaluating investment returns as part of your due diligence research, go beyond the published numbers on the “quick fact sheet” and dig a little. Get a little more perspective and be thoughtful about whether the investment is relatively new or whether it (and the portfolio manager behind it) has some “battle scars” to show. This also goes for the relatively new, (but highly touted and popular) Exchange-Traded Funds (ETF’s) which have yet to participate in full blown market decline or bear market.

In the nearly two decades that we have written about college financial planning and helped client families figure out how to pay/finance college expenses, we’ve come to some sobering conclusions. Since it is September and the college admission and financial aid application season will begin October 1st, we’re hoping these will resonate and help readers make good decisions about college choice and funding.An Internet search will likely show you that total student loan debt is about $1.5 trillion dollars in the US today. That’s 5x the amount of debt in 2005, according to the Federal Reserve. If you were to research “Why all of this debt?”, you’ll get; More students are going to college today, more are taking out loans, college costs have increased faster than inflation, states don’t have the money to subsidize public colleges, etc.But there are little-understood, more subtle reasons for this crisis and it starts with family finances. First, stagnant “wages” for the average family is a huge problem. Most middle and upper income families are finding it difficult to pay their bills and perhaps put a little aside in the 401k for retirement. A chart I keep in my office shows college costs rising at a steady 45 degree angle for the past 20 years, yet average wage growth per capita (adjusted for inflation) is flat. So without savings or extra cash flow, the family has little choice but to borrow (heavily) if they want their student to attend a good college. The next reason is consumer debt and the inability to live within one’s means. An oft-cited statistic reveals that 46% of American households would be unable to pay a $400 extra expense without selling something or going into debt. Add the cost of one or two college degree costs at $25,000/year or so (after financial aid is figured in) and the family budget is at DEFCON 1. Lastly, college students and their parents should copy/paste this next sentence as their smartphone screen wallpaper: Every student borrower must fully understand and calculate their future ability to repay their loans upon graduation, given the career choice and the earning potential of their first job(s) during the repayment process. What does this mean, exactly? It means the student and their parents must research what the student’s earning potential will be after graduation, calculate normal after-tax living expenses, then the “carrying cost” of the aggregate student loan debt in monthly payments, and then determine whether all of that debt is affordable to attend the chosen college. If not, move on to a less expensive school choice. It’s that simple, but that critical. Otherwise, the student is possibly being set up for financial disaster in the future. Current debt counseling at the colleges doesn’t go this far, but students and their families need to. “College financial planning” means exactly that – families need to have a thoughtful, thorough plan to tackle college costs and financing from middle school right through to the last college loan payment. Otherwise they and their student(s) could be flying blind into a financial hailstorm.