Tarheel Advisors, LLC has produced an educational text on financial planning available at Amazon and Barnes & Noble. In order to have a successful retirement, you must have a plan that allows you to identify risks, reduce taxes, find good investments, understand insurance, save for education, and manage your estate planning.
Preparing for Retirement: A Comprehensive Guide To Financial Planning does this with a 176 page guide that is full of easy to read charts, examples, and an appendix of commonly used financial planning forms. Whether you have managed your money for decades or you're new to financial planning, this 2018 edition of Preparing for Retirement provides the information and techniques needed to successfully create and maintain a financial plan.
Who wants to be a millionaire? Everyone of course, except for those 2,000 or so billionaires. How do you become a millionaire is a much better question, and there is a lot of misinformation and bad assumptions made on the subject. There are many people that think you need to be the CEO of a Fortune 500 company or a trust fund baby in order to be a millionaire, but is that true?
Over the past decade we have seen an influx of research done on the "millionaire class" which has given us much greater insights into how people reach this status. According to recent figures there are estimated to be over 11 million households in the United States with a net worth greater than $1 million, and around 10% of that subset is over $5 million in net worth. To put those numbers in perspective, if you just took the high net worth individuals over $5 million you would have a population the size of Hawaii which is the 12th most populous state.
One out of nine households in the U.S. are millionaires. So, how exactly are these people making their money? Ramsey Solutions recently completed a national survey of over 10,000 millionaire households, and the findings are quite interesting. When you look at the top five careers for millionaires, only 15% work in senior leadership or C-suite roles. The top three professions are actually engineers, accountants, and (be ready for your jaw to drop) teachers. What is also surprising is that 1/3 of millionaires never made over $100k in a single year in their entire career.
It appears a lot of people are becoming millionaires working in very traditional jobs. For those naysayers of capitalism, I know where your thoughts are going from here. All of these people must be earning their money the old fashioned way—Inheritance! According to the Ramsey Solutions study, this could not be anything further from the truth. Only 1/5 of millionaires became so via inheritance.
Pursuant to the data it appears that becoming a millionaire is within anyone's grasp as long as you're willing to work for it. For those that are willing to consistently save, the average amount of work needed to become a millionaire was 28 years, which occurred on average by around age 50.
One question many people ask before entering careers is should I work for the private or public sector? The traditional thought is that if you want to make more money you should always be in the private sector, but after a few decades of stagnant wage growth in the private sector this is no longer true. Based on the 2017 Census Personal Income Tables (PINC-07) the median earnings for those in the private sector was $46,797, and for government employees it was 14% higher at $53,435. If you carve out Federal employees their pay is a whopping 41% higher than the median coming in at $66,028.
Looking over the Ramsey study one can't help but notice a resounding trend in the spending patterns of the wealthy. The initial thought of many is that the rich are out there spending lavishly, but really the complete opposite is true. For example, when you look at the vehicle purchases of millionaires nearly 1/3 are driving either a Toyota or Honda, and only about 1/4 are driving brands considered traditionally as "luxury" vehicles.
The frugal nature of millionaires also extends from their garage to the rest of their house. According to the Ramsey data the average size of a millionaire's house was a reasonable 2600 square feet. One might think this number is skewed by a large amount of millionaires living in big cities where living quarters are naturally smaller, but this is not the case either. Only around 1/5 of millionaires live in large metropolitan areas and 63% opt to live in the more reasonably priced suburban residential areas.
If you want to be a millionaire there are a lot of things that are wise to skimp on, but education is not one of them. In the Ramsey Study 87% of millionaires had at least a 4 year college degree. While a college degree was important, a more expensive degree was not. About 2/3 of millionaires in the survey attended a public institution of higher learning.
It would appear the secret to becoming a millionaire is more about how you spend your money instead of how you make it. For those looking to ascend to this level of wealth it is extremely important to understand and control your family budget. Debt should also be avoided for the bulk of purchases outside of a primary residence. If you work hard, spend responsibly, and save consistently, becoming a millionaire is going to be a certainty, not an impossibility.
-Ryan Glover, CFP®
For the first time in a while, it feels like investors have had a perfect bracket through the end of the first quarter. Much like the NCAA tournament, the favorites are leading a "chalk" bracket with U.S. stocks posting a 13.65% gain. This is quite a rebound from an awful fourth quarter performance in last years tourney. Many pundits would probably like the big dance to end right now and claim their one shining moment. However, there is more time left on the clock and the outcome is still undecided. With that in mind, let's take a look at the top investment themes so far in 2019, and see which one will have the biggest impact on your portfolio moving forward.
Coming out of the Midwest region, we have the undisputed number 1 seed. The Federal Reserve has once again secured the top spot under the leadership of Coach Powell. In the past 6 months the Fed has roiled markets with it's flip-flop on monetary policy. This strategy change from a ball "hawk" defense to something more akin to a softer zone coverage has once again given life to all asset classes. However, fears of slowing economic growth have caused the dreaded yield curve inversion. This harbinger of imminent recession is definitely something to watch, and the President may look to appoint a new assistant coach soon to try and make sure the Fed once again reverts back to the full-court printing press.
Coming out of the West is a high flying mid-major that is making its first appearance in our bracket. With the trend towards legalization of marijuana for medicinal and recreational use in the US and abroad, cannabis themed investments are burning down the nets with their hot shooting — up 50%+ start to the tournament. While the potential long-term revenue growth of this consumer segment has enamored investors, in the interim, profits are non-existent. Those wishing for the ultimate Cinderella story will need to be patient and perhaps lock in some of those gains before their tourney hopes go up in smoke.
In the East we have another new contender that continues to impact the global economy. The trade war between the U.S. and China has entered overtime after both parties failed to reach a substantive agreement ahead of the self-imposed March 1st. deadline. Although both sides seem to be getting closer to a deal that will address trade imbalance, government subsidies, market access, and intellectual property, the lack of clarity continues to keep markets on edge. The key to a resolution may be finding a referee that can enforce the rules and keep both sides from getting a double T (tariffs and tweets!).
Coming out of the South we have "Brexit" squarely back in the news and on investors' minds. Dating back to the original vote in 2016, the United Kingdom (UK) and the European Union (EU) have kept International markets under wraps as they try to negotiate an amicable divorce. Unfortunately, this game has also entered overtime, and Coach Theresa May can't even quit her job to pass the deal. With no easy path towards resolution ahead of the abrupt April 12th EU deadline, this game could get ugly. Look for errant shooting by either team as an opportunity to invest long-term in what has been an under-weight asset class.
-Walter Hinson, CFP®
In roulette there are a variety of strategies available with varying levels of risk involved, much akin to playing the stock market. One can go high risk and bet on a single number praying for the big payout; or, play it safe and simply bet on red or black. However, on occasion the dreaded 00 is rolled where pretty much everyone is a loser for playing the game. For investors, 2018 was the equivalent of a 00, where you most likely lost for having participated. The question for the savvy investor is do you stop playing or double down?
Year in Review—Before we get into our 2019 predictions let's take a look at how our prognosis for 2018 panned out. Our baseline thesis for last year was that the US economy would post solid growth numbers on the back of the new tax stimulus bill. We felt this strong growth would translate into two interest rate increases of 0.5% and stock market returns of around 10%. Additionally, after an extremely low volatility year in 2017, we expected a significant increase in volatility in 2018.
Through the first three quarters of the year, all our predictions were spot on. GDP growth was annualized at 3.3% and the US stock market was up around 10% after two 25 basis point increases in interest rates.
Then, like the Energizer Bunny, Chairman Jay Powell at the Federal Reserve kept going and going… In a move that many felt was ill-advised considering the economic data, the Fed raised interest rates two more times to close out 2018. The markets shared this sentiment, which in our opinion, was the primary impetus for pushing us into the first bear market correction we have seen since 2008. Over the last 3 months of the year, most major indices saw corrections of 20% or more, and our Santa Clause rally was nowhere in sight, as St. Nick must have overslept after a bit too much eggnog.
Unfortunately, timing is everything, and the hawkish move by the Fed and continued rhetoric between the US and China, along with the uncertainty of the mid-term elections ended up giving all market participants a failing grade. Except for cash, essentially all asset classes ended up with negative returns in 2018. Bitcoin led the way with an astounding drop of over 80% from it's high of $20,000 per coin.
As a professional investor, I must say 2018 was one of the most frustrating years of my career. During the last big sell-off in 2008, there was at least some refuge to be had in the bond market, as high quality bonds returned over 10% during the bear market. While the year end print for the S&P 500 doesn't look all that bad at a 4% loss, returns were much worse for those diversified in small cap and international stocks. Unless you exercised superior market timing in 2008, your portfolio suffered, and diversification brought little value.
2019 Predictions—In the current volatile market, moves of a thousand points or more over the course of a few hours have become commonplace. Given that environment, the thought of making predictions for the entire year is a bit daunting at the moment. However, let's kick it off by taking a side on one of the most talked about terms these days — "bear market." As opposed to a correction, which is a short-term sell-off less than 20%, the typical definition of a "bear market" is a drop from peak valuation of more than 20%. Including the most recent drop in the 4th quarter, there have been 16 bear market plunges since 1929 (or every 5.5 years on average). These large drops in asset values can last a few weeks or multiple years (The previous example occurred during the financial crisis from October 2007 through March 2009). These bear markets can last a few weeks (cyclical) or several years (secular). The big question now is how long until this bear goes into hibernation? In our opinion, that answer is up to a handful of people at the Federal Reserve. Throughout history, over-tightening by the Fed has often driven the economy into recession. Hindsight is always 20/20, but just once you'd expect the Fed to get it exactly right and not overshoot. In fact, the Fed has never projected the economy will enter a recession—talk about positive thinking! Though the Fed may have moved too far, too fast, it's still possible that we could strike a nice balance in 2019. Remember the so-called "goldilocks" economy of the last few years where we weren't too hot or too cold? Hopefully, the Fed can bring back that kind of investing climate.
At some point during 2019, we anticipate the Fed will announce a pause in rate hikes. The current market anticipation is for another two 25 basis point hikes. We think/hope that it will only be one or less. Once that occurs, we foresee a significant market rally to follow. So, while we may experience more pain to start the year, our end of year figures should end up in the green. The US stock market rarely has consecutive down years. In fact, it has only happened 4 times since 1950. In those instances, The U.S. has been in the midst of significant macroeconomic events, wars, and extended recessions.
Currently we do not see the case for a recession in the near-term horizon in the United States. While trade talks and tariffs have taken a bit of a toll on some global growth expectations, the economy here in the U.S. appears to be on a fairly steady footing. Our GDP estimate for 2019 is for 2.5% growth, which is below the trend of the last few years, but still positive.
We believe one of the greatest silver linings for investors at the end of 2019 is going to be the resurgence of diversification working again. Investment-grade bonds now yield around 4%, and close to 7% can be obtained in the high-yield corporates. It has a been a while since these types of returns have been available in fixed income. This return to the normalization of interest rates no longer forces investors into being over-weight in equities. Look for the aggregate bond index to return close to 5% for 2019.
Another potential area where diversification may once again work is in international stocks. After an abysmal year in 2018 where most indexes were down at least 15%, we expect out-performance relative to the U.S. Indexes in 2019. The continued Brexit drama in the early part of the year may keep a lid on international returns early, but look for weaker valuations and perhaps a weakening dollar once the Fed pauses as an opportunity to add exposure to this asset class.
After a decade long bull market we were overdue for a large pullback. It might feel good to sell everything and hide during bear markets, but as history has taught us, these drops can be excellent buying opportunities for long-term investors and an ideal time to rebalance portfolios. After this bear market capitulates, we anticipate balanced portfolios to once again achieve annualized returns of 8% or more for the next 3-5 years. If you have immediate cash needs for the next 6-12 months, then keep money on the sidelines to hedge against volatility. However, the remainder of portfolios should be trending towards being fully invested. Once Fed Chairman Powell waves the white flag, it will be time push all your chips in.
-Ryan Glover, CFP®