Our December edition of the 5,5,5 covers the market outcomes after the recent midterm elections, the different account titling options to consider in your estate planning, and our volunteer outing at the Momentous School. Enjoy!
1. Midterm Elections and Market Outcomes
We all survived the midterm elections, and the markets cheered the results with the MSCI ACWI Index up 1.8% on Wednesday after the results were tallied. As the chart above shows, midterm election years tend to be difficult for markets, as the fear of uncertainty draws attention away from economic fundamentals. The volatility that the market will exhibit due to uncertainty, draws an investor’s attention to the “today,” instead of the “tomorrow” that we are investing for. During midterm election cycles, the pain of the first three-quarters of uncertainty is typically rewarded in the last quarter of the year, which has a tendency to continue for the 12-months after the election, as shown in the chart below. Whether history will continue to repeat itself is anyone’s guess, but it is a reason to remember that each client’s portfolio is designed with that “tomorrow” in mind – to accomplish those goals with reduced volatility or uncertainty.
2. The Future of our Economy: Increased Fed Rates and Destabilized Markets
Recently, our Investment Team had the opportunity to attend a luncheon where the former Chairman of the Federal Reserve, Ben Bernanke, participated in an hour-long conversation with a David Braun, a PIMCO Managing Director.
The conversation began with the three to the five-year outlook of the U.S. economy and markets. There is a strong feeling that the U.S. economy will experience a recession during that time period and markets are likely to experience more volatility than has been realized in the past five years. Potential causes for an end to the current cycle remain the same as previous causes: too many Fed Funds rate increases or financial instability. Fortunately, the risks inherent in the economy are not as serious as they were in 2006 or 2007 before the Great Financial Crisis. Nonetheless, the Fed still has a dilemma of raising rates to understand where the economy is, then decide where to take rates from that point forward. The Fed is deciding to hike rates with historical data, not future data – as Powell has said, so their decisions will be “data dependent.” Former Chairman Bernanke’s expectation is that the Fed will have to pause rate hikes in the Spring of 2019 to gauge the state of the economy.
In the discussion of the current economic environment, Dr. Bernanke had some interesting comments on the state of the global economy. He compared the European Central Bank’s rate increase cycle to where the U.S. was three to four years ago. Credit was given to the ECB for the progress they have made in lowering unemployment across the Eurozone, but clearly they have more progress to make and will likely remain accommodative for the foreseeable future. In their discussion of China, Dr. Bernanke described the current environment for China as “delicate” given the difficult task the Chinese government has of maintaining growth while reducing debt in the economy. China deals with the “tension” of trying to make sustainable economic changes to support their long-term growth without destabilization. The markets have already realized destabilization this year, through the drawdown seen in their stock market. Part of this year’s destabilization is a result of the U.S.-imposed tariffs on China. And while the tariffs have been successful in the destabilization of Chinese stocks, if China’s growth continues to slow, it will have a negative impact on the rate of world growth going forward.
Finally, if you are curious about what Dr. Bernanke is reading (it is not an economics textbook) his two most recent recommended reads are How Asia Works by Joe Studwell and Educated by Tara Westover.
3. Fulfilling Lives in our Community: Volunteering for the Momentous School
True North employees Mark Gehlbach, Bethany Carla, Connor Gross and Katie Botik, volunteered at the Momentous School on November 16 and served lunch to the students. Founded in 1997, the Momentous School is a unique Dallas laboratory school, where students ages three years old through 5th grade are engaged with a rigorous curriculum, woven with rich experiences on social emotional health - a key predictor for a child’s academic achievement and lifelong success. Their program is underscored by deep parent engagement, as students thrive when they can be recognized and celebrated both at school and at home.
“It was a great opportunity to participate in a cause that both of True North’s founders are deeply involved with. Serving lunch to the kids allowed us to see the amazing work that the Momentous Institute does daily, evidenced by the behavior and gratitude that each student showed while going through the lunch line, as we were met with big “Good mornings!” I think that seeing all of those students reflected back on us as a reminder of the importance of gratitude, especially at this time of the year,” says Connor Gross, Investment Analyst.
The Momentous School is a program of the Momentous Institute and had been powered by Salesmanship Club of Dallas since 1920. This service organization, made up of more than 600 business and community leaders, is committed to transforming kids’ lives. Scott Wood, Co-Founder and CEO and Mark Gehlbach, Co-Founder and President of True North are both Salesmanship Club members.
Opportunities for our employees to come together and volunteer their time enables them to not only fulfill their own lives, but the lives of others in our community. If you are interested in learning more about the Momentous Institute or Salesmanship Club of Dallas and all the wonderful good they do for our community, please check out these websites below.
4. Estate Planning: What Are Your Options For Account Titling?
Clients prepare estate documents to ensure that their assets are passed to the next generation according to their wishes. Wills and trusts are only part of what goes into asset distribution after death. Other important items include account titling and beneficiary designations. Coordinating these with estate planning is imperative.
The way in which an account is titled is legally significant and can supersede a will. Here are three common joint account titles, and how each option is treated:
- Community Property: For the eight states that observe community property laws, each spouse generally has a 50% interest in the Community Property, with their share passing through their estate plan. This means the 50% interest for each spouse will pass through your will which will require probate.
- Joint Tenants with Rights of Survivorship (JTWROS): All tenants in this type of account have survivorship rights in the event of the death of another account holder. The assets in a JTWROS account will transfer immediately to the remaining owners, will supersede any estate planning documents, and will not pass through probate.
- Tenants in Common (TIC): All assets in a TIC account are owned equally by the account holders. Each owner has a right to leave his/her share to a beneficiary upon their death. The percentage owned by that account holder at death passes through probate.
All three of these titling options have a specific purpose and are meaningful in estate planning. It is important to ensure that account titles are aligned with estate documents in order for an estate to be settled per the owners’ desires. Contact your Senior Wealth Manager if you are interested in learning more.
5. Financial Security, Health Aging, and Balancing Your Leisure and Work
With a one in five chance of living beyond our 90th birthday, planning for a successful retirement and healthy aging should be something we all do. Today is when we must be active and eat healthy, continue working and be socially connected by being involved in our communities. What we do today for ourselves will determine how our retirement years will be for us in the future.
Numerous studies prove that people in good health have a favorable view of retiring and plan for it, while those in poor health don’t think they’ll make it to retirement and don’t save for it. We’ve identified that financial planning along with staying healthy leads to a higher chance of achieving what we consider a ‘fulfilled life.’
People’s thoughts of retirement have changed from what it was fifty years ago. Retirement used to be the non-active part of one’s life, where you disengaged from your previous lifestyle. We know that preparing our bodies through proper nutrition and exercise and taking care of our mental health through positive experiences is the best way to ensure a long life.
Our recommendations consider the following components:
Financial Security includes what you do today with your money that impacts your future. Saving and planning for retirement helps you to feel financially secure and eliminates stress about running out of money. As you age, continue financial planning while liquidating your retirement assets or consider to leaving a legacy for the next generation. Having a ‘spending down’ plan and a strategy in retirement is just as important as when you were planning for your retirement.
Healthy Aging needs to start long before retirement. Retirees that are enjoying good health in retirement have taken steps along the way; proper nutrition, exercise, no smoking or excessive alcohol use, and have monitored their health with yearly checkups while maintaining a healthy weight. Healthy aging includes ensuring your assets will not prematurely liquidate prior to retirement and during retirement. We all can think of retirees that have practiced the steps toward healthy aging and those that have not.
Balancing Leisure Time and Working is critical to you and your relationships. During our working years, focusing on family and yourself first and work secondly can help reduce stress. Exercise, work, family time, personal leisure time and volunteering should be part of your monthly schedule. In retirement, having the choice to continue to work because you enjoy it and not because you have to, is what financial planning is all about. Your retirement ‘work’ may be a part-time paid position, or volunteering to benefit your community in some way. Work becomes a leisure time activity if planned successfully.
Being Ready for Retirement should be based on your decision and not due to poor physical or mental health. Feeling you have achieved all you want to in your career, looking forward to the next chapter of your life, and having a healthy body is just as important as saving money for retirement.