Quote of the Week
“Adapt what is useful, reject what is useless, and add what is specifically your own.” – Bruce Lee
What the market gave us two weeks ago, the market took away last week. High volatility was the prevailing theme last week with trade uncertainty taking center stage. Stocks finished lower, but bonds finished higher because interest rates have come down. Because we see a strong trend in lower long-term interest rates, we have taken a 50% position in long-term U.S. Treasury bonds in all managed portfolios. We are looking at taking a position in Utilities which can act as a bond substitute because they have a high steady dividend. I will keep you posted if we add managed futures to the portfolios. The trend in the economy is down, and I expect a much lower U.S. GDP report for the fourth quarter. The turmoil in Washington is not helping.
Last week started off on a strong note. The U.S. and China agreed at the G20 meeting to not impose any additional tariffs for 90 days as they try to negotiate an agreement. Really, get serious, it took 16 months to negotiate the new NAFTA which really was nothing more than a few tweaks between three friendly nations. After the announced agreement on the 90 days, the truth came out that there is very little common ground to negotiate from.
Now add in the fact that a Chinese tech company’s Chief Financial Officer was arrested in Canada on allegations of violating U.S. trade sanctions on trade with Iran. This is a serious setback to the negotiations because this company in the second largest cell phone maker in the world, plus is a sponsored company of the Chinese government. Just when you hope things are going to get better, the U.S. throws gasoline on the fire.
Last week the Dow was down 4.5%, the S&P 500 was down 4.6%, the Nasdaq was down 4.9%, and MSCI EAFE was down 0.04%. For the year the Dow is down 1.3%, the S&P 500 is down1.5%, the Nasdaq is up 1.0%, and the MSCI EAFE is down 13.8%.
What would you do if you won the lottery – had an extra hundred million or so to play with? The following article from the Broadridge Website may be helpful. Dream on!!!
What would you do with an extra $10,000? Maybe you’d pay off some debt, get rid of some college loans, or take a much-needed vacation. What if you suddenly had an extra million or 10 million or more? Now that you’ve come into a windfall, you have some issues to deal with. You’ll need to evaluate your new financial position and consider how your sudden wealth will affect your financial goals.
Evaluate your new financial position
Just how wealthy are you? You’ll want to figure that out before you make any major life decisions. Your first impulse may be to go out and buy things, but that may not be in your best interest. Even if you’re used to handling your own finances, now’s the time to watch your spending habits carefully. Sudden wealth can turn even the most cautious person into an impulse buyer. Of course, you’ll want your current wealth to last, so you’ll need to consider your future needs, not just your current desires.
Answering these questions may help you evaluate your short- and long-term needs and goals:
- Do you have outstanding debt that you’d like to pay off?
- Do you need more current income?
- Do you plan to pay for your children’s education?
- Do you need to bolster your retirement savings?
- Are you planning to buy a first or second home?
- Are you considering giving to loved ones or a favorite charity?
- Are there ways to minimize any upcoming income and estate taxes?
The answers to these questions may help you begin to formulate a plan. Remember, though; there’s no rush. You can put your funds in an accessible interest-bearing account such as a savings account, money market account, or short-term certificate of deposit until you have time to plan and think things through.
Once you’ve taken care of these basics, set aside some money to treat yourself to something you wouldn’t have bought or done before, It’s OK to have fun with some of your new money!
Note: Experts are available to help you with all of your planning needs, and guide you through this new experience.
Impact on insurance
It’s sad to say, but being wealthy may make you more vulnerable to lawsuits. Although you may be able to pay for any damage (to yourself or others) that you cause, you may want to re-evaluate your current insurance policies and consider purchasing an umbrella liability policy. If you plan on buying expensive items such as jewelry or artwork, you may need more property/casualty insurance to cover these items in case of loss or theft. Finally, it may be the right time to re-examine your life insurance needs. More life insurance may be necessary to cover your estate tax bill, so your beneficiaries receive more of your estate after taxes.
Impact on estate planning
Now that your wealth has increased, it’s time to re-evaluate your estate plan. Estate planning involves conserving your money and putting it to work so that it best fulfills your goals. It also means minimizing your taxes and creating financial security for your family.
Is your will up to date? A will is the document that determines how your worldly possessions will be distributed after your death. You’ll want to make sure that your current will accurately reflects your wishes. If your newfound wealth is significant, you should meet with your attorney as soon as possible. You may want to make a new will and destroy the old one instead of simply making changes by adding a codicil.
Carefully consider whether the beneficiaries of your estate are capable of managing the inheritance on their own. For instance, if you have minor children, you should consider setting up a trust to protect their interests and control the age at which they receive their funds.
It’s probably also a good idea to consult a tax attorney or financial professional to look into the amount of federal estate tax and state death taxes that your estate may have to pay upon your death; if necessary, discuss ways to minimize them.
Giving it all away — or maybe just some of it
Is gift giving part of your overall plan? You may want to give gifts of cash or property to your loved ones or to your favorite charities. It’s a good idea to wait until you’ve come up with a financial plan before giving or lending money to anyone, even family members. If you decide to give or lend any money, put everything in writing. This will protect your rights and avoid hurt feelings down the road. In particular, keep in mind that:
- If you forgive a debt owed by a family member, you may owe gift tax on the transaction
- You can make individual gifts of up to $15,000 (2018 limit) each calendar year without incurring any gift tax liability ($30,000 for 2018 if you are married, and you and your spouse can split the gift)
- If you pay the school directly, you can give an unlimited amount to pay for someone’s education without having to pay gift tax (you can do the same with medical bills)
- If you make a gift to charity during your lifetime, you may be able to deduct the amount of the gift on your income tax return, within certain limits, based on your adjusted gross income
Note: Because the tax implications are complex, you should consult a tax professional for more information before making sizable gifts.
Copyright 2018 Broadridge Investor Communication Solutions, Inc
By the Numbers
“KICK THE CAN – In order to avoid the 3rd shutdown of the government during the 2-year Trump administration and 15th shutdown since 1980, Congress passed a short-term spending bill last Thursday12/06/18. Without the passage of the 2-week spending bill (to 12/21/18), 7 government agencies that have yet to pass a fiscal year 2019 spending bill would have shut down as of midnight on Friday 12/07/18 (source: Congress).” – Michael A. Higley, BTN 12-10-2018
If you have friends or family in need of financial life planning services,
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These are the opinions of Larry Lof and Stephanie Mayoral and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs.
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Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.