Remain calm and carry on: why stocks and stress don’t mix

The popular press is generating a lot of recession-related articles lately and with stocks starting the New Year on a weak note, it’s no wonder investors feel a little nervous. Year-to-date, U.S. large cap stocks are down about 10% while most international markets are down even more. Commodities continue to slide and global economic growth has been revised lower. This is certainly not a confidence-inspiring picture, but here’s why keeping calm and carrying on is the best course of action.

First, I want to illustrate why stocks and stress don’t mix. Let’s say that stocks are down 10% year-to-date, the global growth outlook is muddy at best, and you’re seeing a lot of articles suggesting that the US is headed for a recession. Assuming the above facts and a meaningfully-sized investment portfolio, most humans are likely to feel anxiety, stress, and maybe some fear. Is the market going to fall further? Are we heading for a recession?

Having read enough about neuroscience to be dangerous, I know that when we’re feeling anxiety, stress, and fear, the more evolved part of our brain – our neocortex – is usually off-line and the more primitive part of our brain – our limbic system or brain stem (a.k.a. lizard brain) – is typically running the show. When our lizard brain is calling the shots we often make poor, fear-based decisions because we can’t see the big picture. Our brain shuts down and we become reactive instead of proactive. In these instances our capacity to think higher-level thoughts is greatly reduced.

Speaking of the big picture, did you know that from 1926 – 2015, stocks have delivered average annualized returns of 10%? Notice that includes the two largest US market declines, the Great Depression, and the Great Recession. Not bad. When we get triggered by stress, facts like these can get overlooked and we could make decisions we’ll come to regret. Here’s a schematic of how that might look:

graph 1

You can see how our thoughts and emotions affect our behavior which then reinforces the above pattern or one like it. Unfortunately, the outcome stinks and so I’d like to propose an alternative – – one that leads to a much happier, healthier outcome.

In the alternative pattern, the same triggering event happens, only this time you’re aware of the stress and anxiety it triggers. The fact that you’re aware of the stress and anxiety is huge! It means you’re not identifying with the emotions and thus your rational-thinking, neocortex brain is still online. You now have choices. Given the old pattern, one strategy would be to call your advisor and get some reassurance that the sky isn’t falling. Another option is to simply turn off the TV or the computer and take some deep breathes. Maybe take a walk around the block or engage in an activity you enjoy. The point is to interrupt the old pattern. The more you can do this, the more your awareness grows, and in turn, the more options you have.

Following through with this example you can see that giving yourself a break from the triggering event and getting some perspective allows you to stay calm, and thus make better decisions. Just like the first illustration, when repeated, this one will also reinforce itself. And the outcome is much better.

graph 3

So now that you’re hopefully in a calm, peaceful state, we can talk about the current environment. Yes, stocks have gotten off to a shaky start but the US economy remains on stable footing. Jobs growth is strong, oil prices are low, consumer debt is in-check, and wage growth is finally starting to rise. It’s true that US manufacturing is contracting but it only accounts for about 12% of GDP. Meanwhile, US services sectors, which account for 88% of GDP, remain in expansion mode.

Stocks have been spooked by falling commodity prices, slowing growth in China, and fears of deflation. But most leading indicators remain strong and every recession since the 1970’s has been preceded by a spike in oil, not a decline. Finally, and speaking of perspective, there will always be some risk of recession simply because contractions are a natural and a healthy part of any business cycle. Without them we can spiral out-of-control into bubble-like environments. I for one intend to stay calm and carry on. Nothing else seems to help anyway.

Carrie A. Tallman, CFA
Director of Research

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Five Gas Saving Travel Tips for the Holidays

It’s that time of year again- entertaining, eating too much, and lots of travel.  Marshall Doney, AAA president and CEO, stated in a recent press release that over 46 million Americans will journey 50 miles or more from their home this Thanksgiving.  The chart below shows that gas prices are actually in our favor for traveling this Thanksgiving.

Here are five easy ways to save on fuel prices – not just for the holidays, but all the time!

2012-2015_Avg-Gas-Prices-11-23-15

    1. Drive the more fuel efficient car.  Many people jump to taking the family car with the most leg room and luggage space.  Perhaps take this opportunity to assess your packing and squeeze into the smaller more fuel efficient car.
    2. Lighten the load.  Take an inventory of what’s in your car.  By having a heavier car you use more fuel.  Take off the roof rack that you don’t plan on using this winter and empty out the trunk, leaving only the necessities.
    3. Get a tune up.  Consider getting your car serviced before taking off this holiday season.  The better shape your car is in, the more fuel you will save.
    4. Go back to driver’s ed.  Take this time to remember the basics of driving.  Accelerate slowly, eliminate aggressive braking and speeding.  All of these things lead to increased fuel cost.
    5. Find cheaper gas prices.  GasBuddy is my favorite app for this purpose.  You can use this to find the cheapest prices on your route.

Every penny counts when trying to stick to a budget to meet your long-term goals!

Ashley Gragtmans, CFP®
Financial Advisor

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The Power of Spending Choices

While it’s still well ahead of the official holiday season, a recent email got me thinking about what really drives my spending habits. My sister messaged our family a week ago asking if we were planning to buy presents for the kids this Christmas. I love my nieces and nephews but they are eight in number with at least one more on the way. Buying each one of them a birthday present reflective of their unique personalities is a delight, but as their numbers have grown, holiday shopping has become a little less joyful (‘tis the season) and definitely more stressful.

After the email arrived I knew immediately what I wanted to do – not buy Christmas presents. Only it wasn’t so easy to type those words back. So I waited. Everyone else had responded in the affirmative, but I held back. I felt torn between what I thought I should do and what I knew I wanted to do: enjoy the holiday season with family, minus the gift-giving.

After a little inner conflict and a healthy dose of anxiety, I realized that my desire to not offend, to maintain a magnanimous image, and to avoid the dreaded Scrooge moniker, prevented me from telling my financial truth. I saw that it wasn’t the criticism or praise from others that I was trying to avoid or earn; it was my own inner critic that I was trying to please.

With this newfound awareness, I discovered that not only does this happen at the holidays, but throughout the year! My misguided sense of propriety often influences my spending habits, in a way that is not always aligned with what I really value. Instead, when I notice and promptly ignore my inner critic’s arbitrary rules and demands, it frees me up to spend in a way that’s more aligned with what I really value — like retirement and that future trip to Paris I’ve been planning.

I bit the bullet and told my sisters that I would no longer buy Christmas presents for the kids. It turns out that none of my family criticized me for my decision. This non-reaction was even more proof that my own thoughts and fears – not other people – were behind my financial misalignment.

While some people may not react as well as my family did, when we stop worrying about other peoples’ reactions to our spending choices, they will have less of an impact. We’ll see them for what they are – simply other peoples’ reactions. In the meantime, giving ourselves a break, internally, frees up a lot more clarity to spend in alignment with what feels right. And I can’t think of a better holiday gift!

Carrie A. Tallman, CFA
Director of Research

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Ways to Cut Wedding Costs

I’m getting married this year, and I couldn’t be more excited . . . about getting married, not necessarily about planning the wedding. The process can be stressful and overwhelming – the organization, details, responsibility, and not least of all, cost.

As a financial planner I’ve thought a lot about the cost of this important day. A quick Google search reveals that the average amount of money spent on a wedding in the United States is over $30,000. It’s not like the old days where fathers paid men a dowry to marry their daughters (thankfully). While both of our families are helping us on wedding cost, we still need to pony up quite a bit of cash on our own. I did not want to start off this next phase of my life in debt.

Through my planning I’ve come across a number of ways that people have saved money on their wedding. While I didn’t choose all of these options, I think they’re all worth considering.  If you know someone who’s planning on tying the knot soon, you may want to share these ideas with them: 

  • Cut the guest count.I’ve experienced night sweats on who to invite to my wedding. I wake up thinking: “They invited me;” “She’s my second cousin twice removed;” or “What about my best friend from kindergarten?” A recent survey by theknot.com shows that it costs over $200 per guest at a wedding. That’s right – over $30,000 for just 150 people! Try to limit your guest to friends, immediate family, grandparents, close aunts and uncles, and close cousins. People will understand you can’t invite everyone.
  • DIY.This isn’t for me, but it is for a lot of people. I’m not overly handy or creative, nor do I have the patience for doing anything myself on my big day. However, if you are that type of person, you should do as much as you can on your own. Try printing your own invites and save-the-dates cards. Research sites like Etsy to get ideas. Pick a creative family member to help decorate for your rehearsal dinner; have a girlfriend do your hair. Every little bit that you can do yourself (or others can do) will save hundreds or even thousands of dollars. Maybe a friend’s participation could be given in lieu of a gift.
  • Don’t be so traditional.More of my friends are not getting married on Saturday. In most cases they are moving to Friday and Sunday where wedding vendors and venues don’t charge the same premium as a Saturday wedding. Also, think lunch reception and maybe not a sit-down, four-course evening meal.  Or, you could just do a champagne toast and appetizers and cut out early for the honeymoon 😉.
  • Pick a season and stick with it.Try to purchase decorations, flowers, and food that are in season. If you are trying to get Birds of Paradise or sunflowers in the dead of winter, you will pay for it. You can save a lot by having a Christmas wedding because most venues are already decorated. Another option is to try for a spring wedding when everything outside is blooming. If you are planning your meal options, do a sautéed veggie option with items that are in season.
  • Bundle. Try bundling items to cut down cost. For example, instead of having a cake and party favors, maybe have a candy station for people to grab something on their way out the door. This way, you still have sweets and favors, but you’re cutting the expense down by really having one.  If you have something around the house that you can use as your guest book, do it! I’ve seen people use globes from a bookshelf to sign, as well as old corn hole boards that were painted with the wedding colors.
  • Keep it casual. Buffets may not give the same vibe as a plated meal, but it’s a lot cheaper. If you really don’t want people to wait in line for food, then try doing family style. This is a bit more expensive but doesn’t come with the extra cost of servers.
  • Hire a coordinator.  This goes against the DIY bullet, but you can save money in the long run. Most wedding planners have discounts and perks arranged with partners and vendors… but be wary and do your research before hiring someone to plan for you.
  • Do everything memorable early. Try to get the bouquet toss and cake cutting out of the way early. If you do everything memorable first thing, you can let your photographer and videographer leave early to cut down on their hourly time. Your guests will continue to snap pictures throughout the night.
  • Buy someone else’s wedding. This may sounds crazy, but sadly, many people cancel their wedding every day. Most deposits are already put down and can’t be returned. Decorations have been bought, and gifts have been purchased.  Check out http://www.bridalbrokerage.com/to purchase someone else’s unfulfilled day.

Finally, the number one way to save money… ELOPE! Have a quick wedding, a potluck in the backyard, good conversation and s’mores by the fire, and call it a good day!

Good luck on planning your special day!

Ashley Woodring, CFP®
Financial Advisor

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Starting on the Right Foot

In the spirit of college graduation season, as Milliennials contemplate their careers and financial futures, I thought I’d share a bit of perspective that’s helped me find career contentment and at the same time, put me on a course towards financial independence. While those of you who recently earned your bachelor’s degree (congrats!) may feel pressure to find your life’s calling, as society often tells you you should, I would suggest a different approach. Instead of trying to figure out your purpose or your true career calling, I advocate a low-pressure alternative; something I call “following your thread.” More on that in a bit. In addition to focusing on your career, which is admittedly very important, I would recommend giving some attention to your finances at this point in your life. Even if your income is paltry, carving out just a small amount of time and energy in this area will pay off in spades.

As it turns out, identifying a single line of work that will lead to perfect career bliss is a tall order. As a young college student I didn’t have that hindsight. Had I known to pay attention to the classes that really interested me and followed that thread, I might have arrived at career contentment sooner. While I’m finally happy in my financial vocation, the point is that few of us discover our life’s passion in college. For the rest of us, learning to identify important career sign posts, setting ourselves up for financial success, and tuning into our intuition are much more useful.

My advice to those of you just starting off is to start tuning-in exactly where you are. If you’ve landed your first job, congrats! Now is time to dive into your work and also pay attention to what energizes you and what drags you down. I call this “following your thread”. Move towards tasks that interest and energize you and over time, reduce those duties that sap your energy. While any job will often have some unpleasant assignments, moving towards a better work mix will ultimately lead to greater career satisfaction.

Once you get the hang of following your thread – and it is a life-long process – making a commitment to excellence will take you to the next level. This may sound like a tall order, but I’ve found that it’s not my job that gives me meaning but it’s the meaning I bring to my job that matters. Granted, we’ll fail often (I do regularly), but a commitment to excellence imbues our work and everything we do with meaning and value. This flips the notion that career bliss comes from finding our passion or figuring out what we want to be when we grow up. It seems that working with what’s right in front of us at our current job, digging in, and brining our passion and commitment to our current task is actually what brings lasting career contentment, which overtime should pay off in financial rewards.

And last, but not least, I believe that setting yourself up for financial success is the bedrock of a bright future. Without stable financial footing, including saving regularly for retirement, money stress can hang over the happiest of careers and lives. A stable financial situation can free up your innate creativity, which then helps open you up to new opportunities. It’s a virtuous cycle that paves the way for a rewarding and meaningful life. Where to begin? Start small and simply. Track your expenses and set a reasonable budget that allows you to save a regular amount monthly, but with wiggle room to still have fun with friends and family. The power of compound returns will grow your money significantly over time and can better help you weather market and career downturns. Financial education is key and there are plenty of great financial planning books out there. If you’re not a do-it-yourself-er, consider contacting a fee-only independent financial planner who can help get your started.

Wishing you a bright and fruitful future!

Carrie A. Tallman, CFA
Director of Research

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Using Brief Everyday Moments to Teach Kids about Money

More than once my nine year old daughter has asked “Why don’t you quit your job so you can be home more?” After I remove the knife from my heart, I tell her that we would not be able to afford to live in our house if I didn’t have a job. “Daddy could get a job,” she says. After my stay-at-home husband removes the knife from his heart, he tells her that my job pays more than a job that he could get. These are the few and small lessons we teach our kids about money. I hope they’re enough.

As a working mother with three small kids, and a busy stay-at-home dad, there’s not a lot of time for my husband and I to have protracted discussions with our kids about money. We want to teach our children how to work hard, spend wisely, and value the things they have. But with so little time, I find myself having far fewer conversations about the money than I thought I would before I had kids. I also thought I would never let them eat in the car, but you know how that goes.

Because my time, focus, and patience are so limited, I try to model behavior in my daily actions and conversations. When the kids ask why we can’t have something or do something that is not in our budget, we explain that we have to make priorities about how we spend our money. If we buy that toy, then that would be one less pair of pants we could buy, and you need a certain amount pants for school. Recently, my daughter overheard the grocery store clerk tell my husband how much the groceries were. “One hundred and fifty-three dollars!?” She was shocked. He explained that yes, it was crazy expensive, we were lucky to be able to afford it, not everyone can, and that’s why it drives us nuts when she doesn’t eat the edges of her sandwich. It’s like leaving a dollar on your plate!

My daughter has asked us to pay her money for chores around the house. When it comes to allowance, each family must decide what works best for them. We have decided not to pay allowances or to pay for chores. I explain that it is her job to help out in the house. As a family, we all have a duty to make the household run better. She puts the dishes in the dishwasher every night because she is part of the family. I do, however, pay her to “babysit” my two year old sometimes when I have a household chore that I have to tend to, and I need someone to distract my toddler. I tell her that as the mom, it’s my job to watch the baby, but she can earn some money by helping me with my job. I distinguish between her household duty as a member of the family, and an extra job to help me out with my job. In doing this, I hope it helps her to grow up not feeling entitled, with a strong work ethic, and the knowledge that in life, you just have to work. That’s the deal.

We also try to scale down Christmas and birthdays. I believe that if I only ever gave the kids two gifts for Christmas they’d be just as excited as if I gave them ten. But once they expect ten, they are let down at two. I’ve tried very hard each year to keep it minimal. Unfortunately, that may be a battle I’m losing, because it becomes uncomfortable when grandparents lavish more gifts than Santa Claus. What’s a Santa Claus to do?

Parents, your time is limited and you are exhausted. But you don’t have to summon loads of energy to teach your kids about money, just show them with your everyday actions and conversations. As parents, we have to work hard, spend wisely and value what we have. We have to be vocal about it with our kids. Let’s hope they get the message, because I don’t have time for a bigger discussion on the matter – I have to leave right now to get to my six year-old’s soccer game.

Harli Palme, CFA, CFP®
Partner

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The “Who” of Earning More

While we’ve all read the articles about the gender pay-gap in the US, I’d like to discuss why it’s important that women start earning more and provide one perspective on how we can go about doing that.

First I’d like to mention that despite earning more college degrees than men, and now, more advanced college degrees, women still make on average 27% less than their male counterparts. That’s a glaring disconnect and it’s significant considering that most women outlive men by roughly five years in the U.S. We’re also the sole or primary source of income for 40% of households with children. That’s up from only 11% in 1960. Thus, a higher income in our working years is crucial if we want to adequately provide for both our children’s and our futures.

While it’s clear the female gender has the intelligence and discipline to master higher education, what isn’t clear is why we don’t reach the same levels of success in the workplace. I can’t claim to know the answer for all women, but I can speak from my own experience. As the first of my sisters to go to college I had little guidance. Fortunately, once I learned the system, established good study habits, and got clear about why I wanted a degree, I started to excel. In college, succeeding meant knowing the material, acing tests, and generally holding myself accountable. I didn’t necessarily need strong interpersonal skills or external confidence. I simply needed to know the subject matter and master tests and assignments.

My first job in finance was a very different experience. In comparison to school, the working world – particularly in the male-dominated world of finance – was much more about confidence, speaking up, and did I mention confidence? Yes, intelligence and a job well-done were important, but I noticed that those who had the confidence to take on challenging projects, talk to the executives with ease, and court clients with swagger seemed to get ahead. Interestingly, I had this confidence outside of work, but in the office my voice cracked, my brain froze up at inopportune times, and my words were often awkward. It was doubly painful to watch myself make blunder upon blunder, all the while knowing that in other environments I was relaxed, confident, capable – in a word, myself. What was happening? Where did I go?

It’s been twelve years since landing my first financial job and since that time my confidence has grown. I believe the biggest contributors to bridging the gap between the outside-work me and the at-work me were awareness, compassion, and trust. Although at times I felt insecure, incapable, and frustrated on the job in those early years, having awareness of the confident, capable version of myself was an important touchstone in the office. It allowed me to notice what triggered my nerves or caused my thoughts to freeze up, instead of believing that that was who I was. With awareness, I could proactively prepare for those moments, give myself a break when I did have a blunder, and trust that in time, I would grow more confident. It wasn’t always easy, but having an image of who I wanted to be at the office spurred me on. So did identifying role models at work, both male and female, and reaching out to those people. Knowing where I wanted to go, what that looked like, and most importantly, who I wanted to be at work were my guideposts.

There were certainly bumps along the way, including raises that were not granted, wrong career turns, and staying in some positions for too long. Despite the setbacks and challenges, I remained focused on my “who” at work and had a willingness, and perhaps a penchant for embarrassing blunders. Money was important to me, and although I aspired to grow my income, it wasn’t my main focus. Surprisingly, my commitment to being more myself and a willingness to work with new, uncomfortable situations had the happy side-effect of promotions and pay raises.

Money is important. Considering that we women often outlive men and are shouldering more and more responsibility for our dependents and ourselves, it’s even more important. The good news is that while money is not always our first priority, from my experience, it doesn’t have to be. A commitment to being more fully ourselves in any environment and a willingness to stretch ourselves with uncomfortable, yet meaningful challenges frequently has the happy side-effect of higher earnings.

Regardless, becoming more fully ourselves brings with it the capacity to weather any financial situation and is, in the end, its own reward.

Carrie Tallman, CFA

Director of Research

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Living Healthier – Better for your Wallet, Not Just your Waistline.

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A couple of years ago I made a significant lifestyle change. After gaining post-college weight, I realized that the carefree metabolism of a 20-year old went out the window at 21. I made the decision to stop eating unhealthy food and develop a workout regimen that I could stick to. At first I worried that I couldn’t afford to live “healthy.” I believe that this is a normal and reasonable reaction. $120 for a gym membership? WHAT! $10 for organic breakfast? HUH? Thankfully, what I realized was that I was incorrect to think that “healthy lifestyles” and “expensive lifestyles” were synonymous. I actually saved money! Here are just a few ways that you can get healthy, save a dollar or two, slim down and be happier.

  1. Get rid of your expensive bad habits:
  • Do you pay $10 a day for a double pump, venti, skinny, salted caramel mocha frappuccino? Stop it! First, whoever told you that this was “skinny” was lying to you. Second, these things add up. What bad habits do you have? Is it the lunch time soda? The mid-afternoon candy bar from the vending machine? The two packs of cigarettes a day? Once you write down your vices, tabulate them to see how much those bad habits cost over a week, a month, a year, a lifetime.
  • Example: A pack of cigarettes in North Carolina costs $4.45. You could spend more than $49,662 on smoking a pack a day for 30 years. According to the American Cancer Society, each pack of cigarettes on average will cost you $35.00 in health care costs. That’s $383,250 in health care costs due to smoking for 30 years. Is it worth it?
Vice Per day Per 30 Years 30 Yr Health Cost Total 30 Yr Cost
Cigarettes $4.45 $49,662 $383,250 $432,912

 

  1. Reduce your medical bill:
  • It’s impossible to ignore the fact that eating healthy and exercising can reduce visits to the doctor. There are a plethora of studies out there that prove a healthier diet can reduce your risk of heart disease, lower your cholesterol, reduce stress on joints from excess weight, etc. To give you a personal example, I have always had trouble with stress management. I’m a worrier (#shegetsitfromhermama). Since I was a child I have racked up numerous medical bills related to anxiety, including medications, sleep studies and doctor visits. Had I known much earlier that by slapping on a pair of running shoes and going for a jog, I could eliminate a lot of my stress, I would have saved myself and my parents a lot of money. Running is a much more affordable way to blow off steam than medication. With my routine, I was able to ditch the expensive medications and doctors’ visits.
  1. Waste not:
  • I’m marrying a Dutchman soon… literally. One thing I learned from him and his Dutch family is to waste nothing and use everything. When I first started dating Chris I couldn’t understand how he would eat 2-3 times more food than I did and spend 2-3 times less money than I did. The answer simply was he didn’t waste anything. Now, this was a bit harder for me to do. Chris could sit down and eat hummus with a spoon, but if I didn’t have crackers to eat the hummus I’d let it sit there, go bad, and then I’d throw it out. So how did I fix this little problem and save hundreds of dollars doing it? Planning! How did I shed some pounds? Planning! Sit down at the beginning of the week and plan out all your meals. When you plan ahead of time you’re more likely to make healthier choices. You also are less likely to go out and eat when you have already planned, purchased and prepped your healthy food choices. Once you realize the savings potential you start using the “waste not” mentality in other facets of your life.
  • Tip: when planning your meals ahead of time, leave yourself a day to go out and splurge. Without the occasional “cheat” you may go crazy and give up.
  1. Cut on transportation cost:
  • Now this isn’t possible for everyone, but for a lot of people you can quickly save some money, cut cost and your waistline by switching up your transportation methods. Bike and walk to work. Is there a train nearby? Then walk to the train rather than driving to your office. If you are eating out for lunch, pick a restaurant that you don’t have to drive to. A lot of people say that the time spent walking is a great way to meditate, and reflect on their day. This can offer a peace of mind that can’t be achieved with the stresses of the road.
  1. Create healthy family outings:
  • Skip the $30 movie, popcorn, and 2 hours of inactivity and do something active with your family. Spend $15 on a soccer ball and go to the park on Sunday afternoon. Take the dog on a hike or a walk. This brings up another point… working out and being active is always more rewarding and sustainable when you have a support group or community of people that you workout with. If healthy outings cannot be accomplished with busy family members, then join a running club, a biking group or a community gym.

I could write an entire blog series on ways to be healthier and save money… but the key is to start small! Pick an area that needs improvement in your life and manage it. Use the momentum of a small change to snowball into an entire lifestyle change. Fatten up that wallet by trimming up the love handles!

Ashley Woodring, CFP®

Financial Advisor

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Gift Stock Yields Better Returns Than Gift Checks

 This article was originally published on NerdWallet.com

When thinking of giving a gift, most people immediately consider writing a check, giving a gift card to a favorite restaurant, or ordering something online.

However, from a financial planning perspective, this is a very inefficient method of giving. Unfortunately, the method that gets you the biggest bang for your buck is usually the most complex, impersonal and inconvenient, as is often the case in financial planning.

Let’s take a look at a few ways to get a little more “bang for your buck” with a gift.

Consider what the alternatives to giving cash might be. It is pretty hard to think of ways to give a gift without using cash.

One way to do so is to gift stock, preferably appreciated stock. It is very common for the individual giving (grantor) to be in a higher tax bracket than the individual receiving the gift (grantee). For this reason, the grantor is able to give more to the grantee because they don’t have to sell the stock, pay the taxes, then give the cash. To make the situation even better, the grantee may not even have to pay taxes when they sell the stock, if they are in the 0% to 15% tax bracket. This isn’t your traditional heart-warming gift from Grandmother, but the tax savings sure are heart-warming to me.

Another play on the same technique is to gift appreciated stock to young children in a custodial account. This allows either the grantor or a parent to act as a custodian over the account until the child reaches age 18 or 21, depending on state law. Appreciated stock can be directed into this account and sold over time with minimal tax consequences. However, you have to be aware of the “Kiddie Tax” for unearned income over $2,000 attributed to the child. Any amount over $2,000 is then taxed at the parents’ highest tax bracket! To extend this gifting strategy, cash produced by dividends and sales from this account can be transferred to a 529 savings plan in the name of the beneficiary. Just don’t forget to give the child something useful or fun at the same time.

Although these techniques are not as easy and straightforward as writing that check, there are some significant tax savings available for those who choose to use them. For individuals who are trying to play catch up on funding 529 plans or gifting to children or grandchildren, the annual gifting limit is $14,000 per year per person for 2014 and 2015.

Daniel Johnson, III CFP®

Financial Advisor

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Top 10 rules to a frugal life:

Those that know me well can vouch for the fact that I am a frugal person.  I feel that there is much that is virtuous about living a frugal life.  Learning about delayed gratification and the important limits to set upon our role in a consumption based economy is a great path to happiness and peace.  The famous economist and philosopher John Stuart Mill once said, “I have learned to seek my happiness by limiting my desires, rather than attempting to satisfy them.”  This simple phrase rings true to me.  This is especially evident as you stand witness to the constant bombardment of consumerism in our media and markets.  Take stock of what you have and the blessings of life and you might not fall prey to the treadmill of consumption that will always be tempting you.

Top 10 rules to a frugal life:

  1. Budget – know where your money goes.
  2. Be guarded against lifestyle inflation; try to keep income growing faster than expense growth.
  3. Don’t be wasteful. Consider gently used items when buying cars, and other depreciating assets.
  4. Find discounts whenever possible.
  5. Trips and vacations are about experiences, not necessarily lavish accommodations.
  6. Frugal people rarely eat out, preferring to prepare their own food.  I find it better and healthier, not to mention less costly.
  7. While there are many worthwhile private schools, there is a great value to be found in many of our public schools as well. Consider whether public schools, for both young children and college, may be right for your family.
  8. Frugal people care less about fads and trends; keeping up does not matter to them.
  9. Know the value of a dollar, if there is a lower interest rate find it.
  10. Don’t be cheap, stay generous.  It is ok to part with money to help others.

Richard Manske, CFP®                                                                                                                                      Managing Partner

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