Can A Trust Protect Your Assets If You go to a Nursing Home?

Can a Trust Protect Your Assets if You Go to a Nursing Home?

Shirley asks, “Can my Mom use a trust to protect her assets if she has to go to a nursing home?”   This question deals with planning for Medicaid.  

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Do you want to hear the full show?

The full episode is over 25 minutes long.  And we’ve found that not everyone wants to spend that much time listening to things.  But if you want to listen to the entire episode, it is below.

We answer:

  • What should I do with my old retirement plan? 
  • Can I use a trust to protect Mom’s assets if she goes to a nursing home?
  • Should I use my employer’s new Roth 401k option?
  • How do I use my savings to create retirement income?
  • Can I make the maximum contribution to both a Roth IRA and the Thrift savings plan?

Transcript: Can a Trust Protect Your Assets if You Go to a Nursing Home?

This question deals with planning for Medicaid. Medicaid is for people who have no financial resources. And to qualify, you have to spend what you have for your own benefit first. It’s basically welfare for healthcare.

Protecting assets

Oftentimes, people want to transfer money to a trust or give it away to protect those assets for their kids. They would rather their kids have it than a nursing home.

Here’s how this works, especially if you’re going to use a trust. The trust needs to be irrevocable, which means your mother is no longer going to own her assets. She’s no longer going to control her assets, and she can no longer benefit directly from the assets. This poses its own challenges.

The look back

The transfer also needs to be done at least five years in advance of applying for Medicaid. Most states have a 60-month look back. If you don’t wait for the 60 months, Medicaid will ask you to pay for your own care for a while.

Here’s an example. Your mother transfers $100,000 fewer than 60 months before she applies for Medicaid.  Medicaid is going to ask her to pay for that much of her own care. 

Medicaid says the monthly amount for her care is $9,000.  This is the offset amount. Medicaid is going to ask her to pay for 11 months of care ($100,000 divided by $9,000) before they pay for anything.

To make this work, you have to be thinking way ahead. Transfers need to be done at least five years before you apply for benefits.

Other considerations

In most cases, you want to look at carving off a portion of those assets. Your mother is still going to have to live and she still has needs. She will need her assets to provide some income. Restricting all her money is not a good idea.

She also has to be comfortable with the idea that she’s giving up control of the assets. That’s difficult for a lot of people.

Work with an expert

Medicaid planning is very complex, and very involved. There are attorneys who specialize in this and you’re going to want to get them involved. It’s not something you want to do on your own.

We would be happy to recommend some local experts to help you address your concerns.

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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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The 2020 Bear Market is Over!

The 2020 Bear Market is Over!

The 2020 bear market is officially over. Today: 

  • we’ll take a look back at what happened.
  • We’ll tell you what it means to patient long term investors.
  • We’ll talk about the implications going forward.

Watch Now: The 2020 Bear Market is Over!

The 2020 Bear Market is Over

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The 2020 Bear Market is Over!

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The 2020 bear Market is over

Transcript: The 2020 Bear Market is Over!

The 2020 bear market officially ended last week. It started February 19, when the market set an all-time high at 3386. Over the next 33 days, stock prices fell 34%. On March 23, the market closed at 2,273. Since then, the market increased 51.5%. On Tuesday, August 18, It closed at a new all-time high of 3,389.

2020 Bear market Over
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How Does This Compare to Previous Bear Markets?

2020 Bear Market is Over
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When we look back at the major bear markets, we think of the “dot com” bust and the Great Recession. During the “dot com” bust, stock prices fell 49%. It lasted almost three years, and it took about 56 months for prices to completely recover. The Great Recession didn’t last quite as long. Prices dropped 57% and it took about 49 months to recover.

This one happened a whole lot faster. If we look at drops of similar size, there are two to consider, 1968 and 1987. In 1968, prices dropped 36%. It took 543 days to go from top to bottom. And, it took 21.7 months to recover.

Bear market 2020 over
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What does this mean to patient, long-term investors?

Since 1946, we’ve seen 14 bear— or near-bear—markets. All are slightly different. The details about why they started, how far they fell, and how long they lasted, differ. But when you step back and look at each of them, they’re all basically the same. Every bear market is a short-term interruption to the long-term advance of stock prices.

2020 bear market over
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What are the implications of this going forward?

The first thing we need to remember is there’s another bear market coming. It may be sooner than we like. We’re still dealing with the impact of the coronavirus pandemic. The virus is still present. We have high unemployment. Businesses continue to struggle to get back to normal. That could all be a catalyst to the next bear, and it may happen faster than we want.

It may be several months before the next bear starts. We have no idea when it will happen. We also don’t know how far it will drop or how long it will last.

Now’s a great time to check the risk reward part of your portfolio. We all depend on stocks for the growth they provide over the longer term. Growth we need to achieve our goals.

If this last one made you extremely uncomfortable, it’s time to have a conversation. You should talk about the amount of short term risk you are taking for the pursuit of that long term growth.

It’s a better time to make adjustments to the stock allocation of your account. Selling stocks when prices are near their all-time highs is better than selling in the midst of a bear market. Remember, we want to buy low and sell high—not the other way around.

2020 bear marketover

Now is a Great Time To Evaluate Risk and Reward

Pursuing modest growth means you face difficult times.  We have a way to help you measure how you feel about those downturns.  It’s called a Risk Number.  Click the button to find out more.

Thinking about bear markets is a good reminder of one of my favorite sayings about stocks. 

We never know what the direction of the next 20% movement in prices will be. But we are pretty sure what direction the next 100% move will be.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Ask a CFP® Pro: Do I Need Medicare Supplement Insurance?

Ask a CFP® Pro: Do I Need Medicare Supplement Insurance?

Today on our show, we offer a simple, low-cost estate planning tip to help you avoid probate.  We talk about the current bear market, and share some expert predictions.  And we answer three questions.  The big one: do I need Medicare supplement insurance?

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Episode Transcript: Do I Need Medicare Supplement Insurance?

Estate Planning Tip: Transfer On Death Provisions

One of the things we’re going to talk about today is a basic estate planning tip. Oftentimes people ask us what happens to their accounts when they die. A lot of times, they’re trying to avoid the probate process. The probate process can be somewhat inefficient. So let’s talk today about it. Let’s talk about what happens when an account owner dies? What happens to their account.

Standard Individual Accounts

If a person has an individual account.  What happens when they die? we have to open an estate account. In order to do that, we will need:

  • A tax ID number for the Estate (normally the attorney applies for it)
  • A copy of the owner’s death certificate,
  • And a court-certified letter of testamentary. Sometime this is called a court appointment, which names the executor of the estate.

When we do that the original account is frozen. We can’t do any transactions in that account, and we can’t send out any money.

Once we get all the paperwork together, the assets transfer into the estate account. 

How long does it take to transfer an estate account to the beneficiaries?

That’s completely up to the executor. We need a letter signed by them to distribute those assets from the estate account. It can be pretty quick. They can also leave it there for an extended period of time. It’s completely up to them and how quickly they want to get that settled.

Some take as few as 30 days. Some take six months or more.

Transfer on Death Provisions

One thing you can do to improve the efficiency of this process is to use a transfer on death registration. What do we need to do to create a TOD account? And, what happens when we have a TOD provision on the account? What happens when the original owner passes away?

The form that the original owner would need to sign is actually called a non-probate TOD agreement. That form names beneficiaries for that individual account. And it specifies how they want the assets in that individual account to be divided.

We need

  • the name of the beneficiary,
  • the social security number and date of birth.
  • We also need the percentage of the assets that will go to each of them.

When the owner passes, the account is frozen. Individual accounts are opened for each beneficiary. We need a copy of the death certificate and a form called a transfer on death affidavit. Each beneficiary signs this form. This allows them to accept the assets from the decedent’s account.

Once we get the forms, the assets can transfer in two to three days.

It’s a lot more efficient than having an estate account. Plus, you don’t have to go through a lot of the probate stuff. It’s not going to completely avoid probate, there still may be some loose ends. But, it’s going to be a whole lot more efficient.

Once those accounts are open, each beneficiary has the option to do whatever they wish. They can liquidate it. They can continue the relationship with our firm. Or they can transfer it to another firm. It’s a much faster and more efficient way to get assets from the original owner to their heirs.

Joint Accounts

Can you add TOD provisions to a joint account?

On a joint account, when the first owner dies all the assets immediately go to the surviving owner. When the second owner dies, you would do it the same as if it was an individual account,

Typically, it goes to the surviving spouse (most of the time). In those cases, the TOD provision on a joint account comes into play if there’s a simultaneous death. Once the account goes to the survivor, they have to do the TOD paperwork all over again.

IRA’s, Retirement Plans, and Insurance Contracts

These provisions don’t apply to IRAs or retirement plans. IRAs and retirement plans have their own beneficiary designations. They are non-probate assets. It also doesn’t apply to insurance contracts like annuities or life insurance. Those also are non-probate assets that have beneficiary designations. It only applies to individual and joint accounts.

Still need a will…

This does not replace the need to have a will or a trust. You should involve your estate planning attorney (if you have one). They may have other ideas that are better suited for you.

This is a simple and easy way for you to do some basic estate planning. And it costs nothing.


The account owner must sign the TOD application. Powers of attorney cannot sign this form. Even if the power of attorney document says that the agent can name beneficiaries, we require a signature from the account owner.

Let's Talk Stocks...

Medicare Supplement insurance - Bear market

It’s been crazy.

Every time I speak to someone, they say that they can’t believe that the stock market keeps going up like it has. Here’s where we are in the current bear market.

We had a 35% drop in the first quarter. Since then, we’ve seen stock prices increase by about 44%. Year to date, prices are at a breakeven point. We started the year with the S&P 500 at 3,230. On price basis, the S&P 500 is breakeven for the year.

Prices have to go up another 5.5% percent to set a new high. The high point is 3,386. We still have a little bit to go to completely erase the bear.

Given the amount of bad news we’ve had, the increase doesn’t make sense. There is still a lot of potential bad news out there too. It doesn’t seem possible that we’ve erased that big of a drop this fast.

The virus isn’t going away either. Many states are trying to avoid another shutdown. I know we have mask requirements now in Ohio and West Virginia. I saw where Kentucky closed bars and limited restaurant capacity to 25%. States are trying to avoid shutting down, but there are some potential ugly things out there. You can make the case for why this market is going to correct again, but you can also find some rays of sunshine.

Expert Predictions

Medicare Supplement Insurance

It’s interesting to see what some of the experts think. Bloomberg released a recent survey of their equity market experts. They asked 17 analysts for their forecast for the year end value of the S&P 500. The average of the 17 predictions for the year end value is 3100. That’s about a 4% drop from current levels. On average, they think that stocks are a bit ahead of themselves and we’re due for a reset.

Five of these people have predicted that the S&P index will fall below 3000, which would be a 7%% drop from current levels. The lowest prediction is 2,750. That is a significant drop. The highest prediction was 3,500, which would be a new all-time high. That would be about a 7% increase from where we are right now.

How good are these predictions? We’ve talked about this in the past. Crystal balls aren’t always in working order. We really don’t know how accurate these forecasts will be.

If someone were to press me on it, I predict 3,150. I also believe we’ve gone a little bit too far, and we’ll see a small pullback.

Insurance Medicare Supplement
Medicare Supplement Insurance Do I Need

Question 1: Do I Need to Keep My Medicare Supplement Insurance?

If a person has Medicare A and B, plus prescription insurance, what is the benefit of Medicare supplementinsurance? Ours runs around $500 a month and there is no way we come close to that in paid claim benefits. I’m not a healthcare guru. But it seems to me there could be better ways to invest my $6,000 a year.

What does Medicare Cover?

To answer this question, we need to dig into what Medicare covers. Traditional Medicare has two parts. Part A is hospitalization. This covers hospital stays, skilled nursing home visits and hospice care.

Part B covers medical expenses. This includes doctor visits, surgeries and procedures. It also covers preventative care, durable medical equipment, clinical trials, and ambulance services.

Part A

Medicare doesn’t pay 100% of your expenses. Part A, has a $1,408 deductible for your first 60 days in a hospital. That is per benefit period.

A new benefit period starts if you haven’t been in the hospital for 60 days. Here’s an example. If you went into the hospital today, and you were there five days, you’d pay $1408. If you go back to the hospital later this year, say November. You would start a new benefit period. That means you have to pay another $1,408 deductible.

Days 61 through 90 cost you $352 per day, this is your out of pocket cost. And if you’re in a hospital more than 90 days, days 91 plus can cost you up to $704 per day. That’s your risk on the hospitalization side.

Part B

Part B is your medical expenses and is your doctor visits. So you have a $198 deductible. And then Medicare pays 80% of the Medicare approved amount. You pay the other 20% and any of the excess non-approved amounts.

Let’s say you have a joint replacement, and your total bill is $50,000. You pay the first $200. And then you pay 20% of the remaining bill. That’s $10,000! That’s your risk exposure in this case.

What do Medicare Supplements cover?

Medicare supplement insurance policies cover these out of pocket expenses. Most of them cover the Part A deductible. And they cover the Part A coinsurance—which are the costs beyond day 60. They also pay the Part B coinsurance.

Some Medicare supplement insurance policies will pay the Part B deductible. In our experience, you usually pay more in premium than the Part B deductible. We usually don’t recommend policies that cover the Part B deductible. Many will also cover the Part B excess charges. If a doctor bills $1,000 for a procedure and Medicare only approves $800, many of those plans will cover that extra $200. They cover some other things as well.

Is it worth it?

Is $6,000 per year worth it? When you’re healthy, and you don’t have claims, it doesn’t seem like it. But remember, you may not be in good health in the future, and you could have a claim at any time. Your risk exposure to not have that coverage is significant.

In many respects, this is like your homeowner’s policy or your car insurance. You pay premiums for years. If you never have a claim, you start to wonder, “Why do I do this?” But one car accident and you have a $3,500 repair. Suddenly, you’re glad you have that car insurance.

Medicare Supplement Insurance is the same thing. You could use that $6,000 a year to make money. But what would the net cost be if something major happened? And as you get older, you have an increased possibility of that happening.

You have to make that decision on your own. But in many respects, we find that the Medicare Supplement insurance premiums can be worth it.

Insurance Medicare Supplement
Supplement Medicare

Question 2: What is Your Opinion of Gold and Silver as an Investment Option?

With all the advertising promoting gold and silver as a safer investment. What is your opinion of that, and what is your advice to someone weighing that as an option?

Safer? Really?

Safer is an interesting way to put that. I’m not sure I would call gold and silver “safer.”

Gold and silver are fear assets. When things around us are going poorly, precious metals tend to do a lot better.

Right now, we are in a pandemic. We have a situation where the government is spending a lot of money to help people. They’re printing the money. And there’s some questions about whether they can sustain this long-term.

When a country does this, they’re trying to create some type of inflation. If we have hyperinflation—like Venezuela, they’re the most recent high profile case. In Venezuela, inflation has been some 3,000%. They’ve printed all this money. A loaf of bread costs $200. The price of gold also goes much higher.

When you look at what’s happening in America right now, some believe gold might be a really good asset. We keep pumping out trillions of dollars of stimulus money. The Fed continues to buy assets, and the money’s coming out of thin air. There’s a good reason to think gold could go much higher.

Consider all the alternatives

You have to consider a couple of other things as well. What other investments can you use? Stocks are one choice. we’re big believers in stocks. Equities have a lot of volatility. As we’ve talked about, we could see the stock market fall more in the coming months. Gold and silver may do a better job of holding their value over the next few months.

Bonds don’t look attractive right now. Yields are extremely low. And the only way bonds can generate any significant gains is if yields go even lower. Gold and silver may do a better job of holding their value than bonds right now.

Current prices matter

The other thing you need to consider are current prices. Gold recently set all-time highs. So you’re buying an asset at its highest price—ever. You are buying now and hoping it goes higher. Much of the gain from Gold has already happened.

If the US economy continues to rebound, gold prices could fall. Silver isn’t near an all time high. It has some room to run, but there are similar concerns.

Volatility in Gold and Silver

Medicare Supplement Insurance Gold Silver Stocks

Remember, gold and silver have a lot of volatility. All three investments have times when they perform extremely well. And, all three have times when they deliver gut wrenching drops.

Gold and silver can do well when stocks don’t. But the opposite can also be true. You have to be careful when you’re buying any type of asset when prices are at all-time highs. A lot of the gains have already happened.

There was an interesting stat from that chart. From 2007 through June of this year, stocks and gold have a very similar average annual return. I would have thought that stocks would have performed better. But the recent events had a significant impact on these numbers.

Question 3: Is the Media Moving the Market?

Is the market today being influenced by the media, especially the liberal left agenda?

This is an interesting question. When you’re in an election year, politics tends to dominate the headlines.

Both sides are trying to make themselves look good, and make the other side look bad. So both sides are pushing their agenda. It depends on which channel you turn to on a given night. as to which one you’ll hear.

You can argue the market has improved because the conservative agenda has shined. You can also make a case that the market has improved because of the liberal agenda. I’m not sure either argument is valid.

It depends on your perspective. You can create a reason for the moves in your own mind. You might believe the stock market is pricing in a Joe Biden victory in November. You can argue the stock market has benefited more from policies put forth by republicans.

When stocks go up, there are more buyers than sellers. When stocks go down, there are more sellers than buyers.

A lot of what we’ve seen to this point from the government has had a lot of bipartisan support. A lot of it has been driven by actions of the Federal Reserve—who is supposed to be politically neutral. You can’t really say that one party’s agenda is responsible for what is happening in the market.

Constant themes in the stock market…

As we get closer to the election, politics will play a bigger role in the day to day volatility. But you have to remember something with stocks: companies still find ways to make money. When we’re investing in stocks, we are buying those future profits. It doesn’t matter who’s in charge, Businesses will find a way to make money and grow their earnings.

The other thing to remember is volatility.  It’s always part of the stock market, no matter who’s in charge. We will always see stock prices have wild swings up and down.

In the big picture, the reasons why the market does what it does really don’t matter that much. Over time, stocks go up. It’s what they do. Politics don’t matter as much as some people want to believe.

What’s moving the market?

So my answer to the question. Nobody’s agenda is affecting the stock market. Stocks have gone up for these three reasons:

  • Anticipation of economic recovery
  • Optimism for a vaccine coming to market quickly
  • Earnings news hasn’t been as bad as anticipated

That’s why the stock market has gone up. In my opinion, it has nothing to do with right vs left or conservative vs liberal.

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Ask a CFP Pro: What Happens to Stocks if President Trump Loses?

Ask a CFP® Pro: What Happens to Stocks if Trump Loses the Election?

What happens to stocks if President Trump loses the election?  We’ll tackle that one and six others on this week’s Ask a CFP® Pro show.  Scroll down for a timeline of this episode, some useful graphs, and the full transcript of today’s show.

Listen Now: Ask a CFP® Pro: What Happens to Stocks if Trump Loses the Election? (29:20)

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Episode Timeline

Today we talk about:
Here are the questions:
  • The money in my checking account isn’t earning anything, and I probably have too much in that account anyhow.  What can I do to earn a better return on my cash? (5:02) Click here to read

  • How will the Charles Schwab – TD Ameritrade Merger affect me? (9:31) Click here to read
  • If we are setting up a college account for a grandchild, do we have to open the account in the state in which they live? Can we set it up in Ohio even though they live in North Carolina? (11:28) Click here to read and for links

  • What are some of the things people with lower income, who are just getting started invest in? (13:41) Click here to read
  • How do you select dividend producing stocks? (17:03) Click here to read and for links

  • What happens to stocks if Trump loses the election? (20:45) Click here for pictures!

  • What is the best way to invest for retirement about 10 years before you retire?  Is it best to pay off your house before retirement? (23:59) Click here to read
What Happens to Stocks if Trump Loses the Election
what happens to stocks if trump loses the election

Transcript: What Happens if Trump Loses the Election?

The Stock Market in the first half (0:46)

The first half of the year has been absolutely crazy. It’s as crazy as we’ve seen in our careers. And we’ve been doing this for a couple days. We’ve been through the dot com bust. We went through the Great Recession and now we’re doing the whole coronavirus thing. And that was the big story that affected the economy, our lives and the stock market in the first half of the year.

A big drop…

The S&P 500 experienced a near 34% drop in 33 days, mid cap stocks dropped 42% and small cap stocks dropped 43%. And you would expect that for the year the stock market would be in a deep hole. Here are total returns through June 29th. The S&P 500, which are large-cap stocks, were only down about five and a half percent. Mid cap stocks, represented by the S&P 400, were down about 8% and the small cap stocks were down about 12.5%. 

A big bounce…

We’ve had a stunning rebound. The prices for the S&P 500 have rebounded over 36% in a little over three months. It’s not something that I can ever recall seeing by memory. But when I look back at some things, I found something somewhat interesting.

Stock market trump loses
Click to enlarge
Prior Recoveries at 98 Days

The dot com bust which happened In 2000-2003, lasted about two years to go from top to bottom, Prices dropped 50%. And if you look at the same 98 days following the bottom that we’ve done now, prices rebounded about 18% back in 2003. In order for that bear market to completely recover, it took about 56 months.

During the great recession in 2007 to 2009, the stock market dropped 57%. And it took about 18 months to get there. If you look at the 98 days that followed the bottom in 2009, stock prices recovered 36.5%—like they have this time. I found that interesting. The Great Recession did take about four years to recover from the bottom to a new high.

We’re not quite to a new high yet—we’re getting close. But, to me, it’s been amazing how quickly things have recovered in the stock market.

Trump loses election stock market
Click to enlarge

Relief for Required Minimum Distributions (3:07)

We’ve talked in the past about required minimum distributions. Those were waived for 2020. If you had taken your distribution in January, you were unable to return that money to your IRA as a rollover. Rollover rules state you must return any withdrawal within 60 days.

Last week, the IRS issued a ruling. It said any distribution taken in January or February can now be returned by the 31st of August.

A New Tax Deduction (3:44)

The next thing we want to talk about is something we missed in the CARES act. It wasn’t a real prominent thing. The act allows an “above the line” tax deduction for charitable contributions up to $300.

A few years ago when they passed the tax law, there was a new standard deduction. For couples, it’s $24,800, and for individuals, it’s $12,400. It made it nearly impossible for folks to itemize. If you can’t itemize your deductions, you cannot deduct your charitable contributions.

It’s estimated by the IRS that 90% of filers now claim the standard deduction. So you didn’t get any tax benefit for some of those contributions to charity.

Part of the CARES act creates this above the line deduction. This means it comes off the front page of your tax return. You don’t have to worry about itemizing.

You can take a tax deduction of up to $300. It’s not a lot, but something you find beneficial as we go forward.

What happens to stocks if trump loses the election

Question 1: How Can I Earn More on My Cash? (5:02)

The Question:  The money in my checking account isn’t earning anything. I probably have too much in that account anyhow. What can I do to earn a better return on my cash?

How much cash?

We have two issues here. The first is how much cash do you need to have on hand? And how can you improve the returns on the cash you do hold?

So “the how much cash” question to us comes down to time frames? What are you going to need cash wise in the next 24 months? Any significant expenses need to be in those safe cash-type assets. Because those accounts aren’t going to decrease in value.

This would include:

  • your emergency fund, which is three to six months of expenses,
  • any planned major expenses you have over the next two years. Things like a vacation. If you know you’re going to have major home repairs, or a car purchase.
  • Anything over $1,000 like insurance deductibles

Then after you cover those first two years, you can start looking at the next two to five years. That’s an area where you can reach for more return. But, you still want to have some stability in the value of those funds. You want to cover any planned expenses and some cushion for any unplanned costs you might incur.

Anything beyond five years, you can start investing for growth. And we talked about the five-year threshold. The reason for this is the last two bear markets. We talked about the dot com bust and the Great Recession. Both took between four to five years to completely recover. If we have a another significant pullback in stocks, you can expect to recover in that time frame.

Where should You invest?


Where should you hold your cash? That’s the second question. A bank account is the obvious place. One of the problems we’ve seen is interest rates were cut to near zero. Most of the local banks aren’t paying anything at all.

One of the things that we’ve done over the last several years is use some of the online banks. We’ve used Capital One for a long time.   But they’re not as competitive. Right now they’re paying about a half a percent on their savings account.

We’ve moved most of our accounts to Synchrony Bank, and they’re paying about 1.05%.  heir big competitor is Ally Bank who’s paying about 1.1%.

The interesting thing about these banks is all three of them are big credit card companies. They’re loaning money out at 18 plus percent. This allows them to pay you a little bit more. You would think they would pay you more than 1.1%.

You link those online banks to your local bank account. You’re able to transfer money back and forth via their website. But you have to be aware, there’s a two to three day lead time for most transfers. You’ll need to think ahead a little bit.

Intermediate Term Money (2-5 Years)

When you start talking about that two to five-year bucket, you could consider CD’s. But there’s not much with any returns out there. Many times we’re using short term bond funds. They can help push your yields towards 2%.

If you’re using an exchange traded fund, there are typically no transaction fees to buy or sell those. You can also use mutual funds, but we’ve run into some issues with some of those. Some funds have short term trading fees. This means if you need the money inside of 30 or 60 days, you may have to pay an extra to sell them. You have to be aware of that before you use them.

You could look at some bonds with longer maturities or even preferred stocks to boost yields. But that comes with a trade-off. That trade-off is price movement. Anything you do to reach for more return, you introduce more market value risk.

Long Term Money (5+ Years)

Beyond five years, you’re looking for growth assets. This means common stocks, preferred stocks, or even high yield or junk bonds. Because there’s more growth involved, and there’s also a lot more price volatility.

Question 2: The Schwab-TD Merger (9:31)

Will the Charles Schwab merger with TD Ameritrade affect me?

In the financial industry, this was big news. Schwab is the largest custodian and it is buying the second largest custodian. A custodian is a company who holds your investment positions and hold your accounts. They also execute trades. It’s an important relationship in the grand scheme of things.

At Fleming Watson, we do not have custody of our clients assets. We selected TD Ameritrade to do that when we did this back in 2016.

The deal will be closing later this year. The government did not object to the merger. And shareholders of both companies approved it. We’re being told it’s going to take somewhere between 18 and 36 months for most of the accounts to be transferred. We understand that there won’t be any new paperwork required.

How will this impact you? If your account is at TD Ameritrade, your statements will look different. If you check your account balances online, you’ll go to a different website. And if you have a retail account, you’ll have a whole new interface to get used to.

If your account is at Schwab, it probably won’t change much at all.

It will have a bigger impact on the advisors who use TD Ameritrade. We considered Charles Schwab and TD Ameritrade along with Fidelity in 2016. We settled on TD Ameritrade because we felt they were the best fit for us.

Now, we’re going to be moving to Schwab, who was our second choice at the time. We have to get used to something completely different. It will impact how we do trades and other things with our custodian. But for our clients, it’s really not going to have a big impact.

Question 3: Which State's 529 Plan Do I Use? (11:28)

I’m setting up a college account for one of my grandchildren. Do I need to open the account in the state where they live? Or can I set it up in Ohio even though they live in North Carolina?

This refers to 529 savings plans. Those accounts have some tax benefits when the funds are used for education expenses. There are some tax benefits when you’re making contributions as well. That comes in the form of a state income tax deduction.

If you live in Ohio, you can deduct up to $4,000 of your contribution per beneficiary. And if you live in West Virginia, that amount is up to $15,000 per beneficiary per spouse. This means a couple can deduct up to $30,000 from their state income.

For more information on Ohio’s 529 Plan, Click Here

For more information on West Virginia’s 529 plan, Click Here.

If you would like information about another state’s 529 plan, please contact us.

You can use any state’s plan you want. It’s not like the old prepaid tuition plans. With those, you were buying the cost of a credit-hour at an Ohio institution. You would then redeem them as a credit hour going forward. Whatever you put in the account has cash value and whatever the value is, it is. That’s what you use to pay for those qualified educational expenses.

When you use those 529 accounts for qualified educational expenses, the distributions are not taxed.

Get your deduction

But here’s the deal. If you use another state’s plan, you don’t get to take the state income tax deduction—if you live in Ohio or West Virginia. If you live in Ohio and you use North Carolina’s plan, you miss out on the state income tax deduction. If you live in West Virginia and use Nebraska’s plan, you miss out on that current tax benefit as well.

But if you live in Ohio and use Ohio’s plan, you get to deduct your contribution against your state income. And if you live in West Virginia, and you use West Virginia’s plan, you get to deduct even more.

If you can get the current income tax deduction, use your state’s plan. If your kids want to set up their plan in another state and make contributions that’s fine, too. They’re not limited to how many 529 accounts you can have for a single beneficiary. But it makes sense that you get the tax benefit for making the contributions if you can.

Question 4: Getting started as an investor (13:41)

How can someone with a smaller income get started with investing?

Low Costs

This is an excellent question. I’m glad you’re thinking about doing something for your future. The good news is the costs to invest have come down a lot. We now live in a world where there are no commissions on stocks or ETFs. That means you can buy one share of a company and it won’t cost you any transaction fees.

Years ago, the cost to buy stocks was significant, maybe $200-$300 to buy 100 shares of stock. And when I started in 1996, I think we were charging probably somewhere between $75 and $150 for a stock trade. If you didn’t have a lot of money, it was difficult to start buying individual stocks. And if you wanted to buy an odd lot, which is something that is not divisible by 100, there were additional fees.

This is before a lot of things got highly computerized. Now everything is computerized. Now buying and selling a single share is no big deal. If you want to buy one share of something like Southwest Airlines, for example, it will cost you around $30 to $35.

The Challenges of Buying Individual Stocks or ETFs

Now, the downside to buying stocks and exchange traded funds is having enough to at least buy one share. If you were looking at something like Amazon, it’s trading over $2,600. To buy one share of Amazon, you still have to have $2,600. Netflix is over $450. Google is $1400. And even something like the exchange traded fund which tracks the S&P 500(SPY) trades for over $300 a share. You have to watch what you want to buy. If you only have $50, you’re not going to be able to buy shares of Amazon. You’re not even going to be able to buy a share of the SPY ETF.

Buying fractional shares is something that’s coming. And there are a few startups who are diving into this. But it isn’t mainstream yet. I’ve read where Schwab is investigating fractional shares. When that happens, you’ll be able to then buy fractional shares of something like Amazon. If you have $200, you’ll be able to buy a tenth of a share. 

Mutual Funds

This means you turn to the old handy-dandy mutual funds. You have no-load funds from Fidelity or Vanguard. If you have $50 a month, you can put that into an ultra-low cost fund. You can buy fractional shares with a mutual fund. You may only buy .526 shares this month.

There’s other online services like Robinhood and Betterment. They make it very easy to get started for very little cost. The good news is it’s never been easier or cheaper to invest in stocks and get started in investing for your future.

Question 5: Picking Dividend Payers (17:03)

How do you select dividend producing stocks?

Generally where I start is I look at the dividend aristocrats list. Their criteria comes down to two things. It’s got to be in the S&P 500. So that means it’s a very large company. And the company has grown their dividend for 25 consecutive years. Right now there are 66 companies who qualify.

Here’s the reason I like starting here. When companies who pay a good dividend reduce their payout, the impact on their share price is bad. In our experience, we’ve seen what happens when some of the drug companies cut their dividend. Their share price will drop a lot. People’s Bank is another example. Their dividend has been up and down through the years. And if they reduce their dividend, their price value has dropped significantly.

We like companies who at least have been able to maintain their dividends. We prefer companies who’ve been able to grow their dividends over time. From there, we generally start looking at the ones that pay a 2.5% to 3% yield or more. Owning that dividend that pays 1% isn’t quite as attractive. So we’ll trim that list of 66 down to those companies that are paying a little bit more.

The Next Step

Next, we look at the payout ratio. The payout ratio is how much is the dividend of that company’s profits. If a company is earning $2 per share in profit and they’re paying out $2.10 per share in dividends, that’s a real problem. It’s not something that you can maintain. If something happens that reduces earnings, they may not be able to maintain their dividend.

We generally like when the payout ratio is two-thirds of its earnings (or less). So if a company has $1 in earnings, we prefer they pay $.66 per share (or less) in dividends.

The other factors

Then we’ll look at some other subjective factors. How expensive is the stock relative to its earnings? What does the company do? Do we understand what the company’s doing and what’s happening in their industry? We want to understand what we own and we also want to make sure that we’re not paying too much for that stock.

We don’t exclude companies that are on that list. But if I’m asked to find some, that’s where I’m going to start.

Snow or rain, it’s all water. 

There’s one saying that, that stuck with me for a while, “Snow or rain, it’s all water.” Increases in value, are as good as dividends. It all benefits you in some way, shape or form. There are some good companies out there who have generated a lot of wealth, and they don’t pay a dividend. (Or if they do, the dividend is small.) We talked about Amazon earlier. Amazon is a perfect example of that. The return for Amazon over the last 30 years is astounding, and they’ve never paid a dividend.

You can generate income from your investments without dividend or interest payments. Systematic withdrawals have been around for years. We’ve used them for our clients for years.

Dividend paying stocks aren’t the end all-be all of investing. Some people like them. Sometimes dividend stocks, at least the reliable dividend payers, don’t have as much volatility. But you shouldn’t make that the only thing you want to do with your investment portfolio. Growth of principal is a good thing too.

Question 6: What Will Happen to Stocks if Trump Loses? (20:45)

If President Trump loses the upcoming election? What effect will this have on the stock market?

We like to steer clear of politics. We don’t want to get into who will win or lose. The election will happen this year, and you can’t hide from it. Depending on who you support, you’re going to feel differently about any answer we give to this question.

In general terms, most people would view republicans as more pro-business. They are a party that prefers less regulation and prefers lower taxes. And most people would categorize democrats as not as business-friendly. They prefer more regulation, and they’re not afraid to tax corporations.

You would think that the stock market would do better when a republican controls the White House. But there’s something interesting and surprising. The opposite of that is true.

Click to enlarge
Looking at the numbers…

We went back to 1949— or 70 years—and started with Truman’s second term as President. We went through the end of last year. Here’s what we found. Using calendar years, the average total return for the stock market when a democrat was in the White House is 14.4% per year. The average total return for the stock market when a Republican was in the White House is 8.8% per year.

Click to enlarge

Does that mean the stock market will do better under Joe Biden than it will for Donald Trump? Nobody knows. Whoever takes over in January 2021 is going to be dealing with a lot of interesting things. We still have this Coronavirus thing hanging over our heads. The economy is a long, long way from recovering. It could be a difficult situation for whoever’s in charge.

There’s nothing that says if Biden wins, the stock market’s going to do great. And nothing says if Trump wins, the stock market’s going to do great. Nothing in these numbers should be taken as a forecast for the future.

I don’t know if the stock market cares who occupies the White House. It does well under both parties. Companies find ways to make money no matter who’s in charge. I wouldn’t sell because Joe Biden wins. And, I wouldn’t sell if Trump wins reelection either. Find good companies, have a long term outlook when you buy stocks, and things will have a tendency to work out over time.

Question 7: 10 Years Until Retirement. What should we do? (23:59)

We want to retire in about 10 years. What’s the best way to prepare for that. And is it best or is it a smart move to go ahead and pay off our house before retiring?

Still in growth mode

If you’re 10 years away from retirement, you still should be in growth mode. This means you’re more heavily invested in stocks. You’re looking to pursue higher returns.

Over the next decade, bonds aren’t going to help you a whole lot. You’re looking at 1% to 2% returns going forward based on current yields.

If there is a major downturn in the stock market, you have some time to recover from that. Even though we’re not out of this bear market yet, there could be another one in the future. You’re still going to be able to recover. If we do have that downturn again, it becomes a great buying opportunity. You may never find prices that low again.

Volatility shouldn’t be a significant concern at this point. As you get closer, when you’re five years away, that story may change. But, right now, you still have the ability to enjoy those compounded returns. If you can save and invest for higher returns, it should pay off for you in the long term.

I wouldn’t have any problems being 100% invested in stocks for the next four or five years, if I were you. I think the benefits will outweigh the long term risk. It could be tough to do. When you have those volatile times, nobody likes to see their balances go down. But again, I think the growth will be significant for you.

Eliminate Debt

Should you pay off your house before you retire? If you can do so in a reasonable fashion? Absolutely—yes! In fact, you should try to have all your debts paid off by the time you retire. That means car payments, your mortgage, and credit card debts. The fewer expenses you have, the better your retirement is going to be.

Retirement is all about cash flow. In our experience, the biggest reason people run out of money is because they spend too much. And debt payments are a form of spending. So the more you spend to pay debts, the less you have to do other things. Or it could mean you have to take more money from your nest egg than you should.

Eliminating debt can be a huge boost to your retirement plans as a whole.

Here are some other things that you want to do

Know your Social Security numbers…

Get your Social Security earnings record and benefit estimates. This is going to be a key component in helping you plan for retirement. It will help you make good decisions about when to start your Social Security benefits. And for most of us, it’s still a key part of our income.

Get organized

Get things organized. Understand where all your accounts are and how they’re invested. This allows you to create a better plan.

What does retirement look like?

It’s too soon to do detailed budgeting. But at the same time, you can start thinking about what your retirement is going to look like. You can think about what you want to do in retirement. Then you can see how much it will cost.

Health insurance

Have a good idea of what your health insurance is going to be if you’re going to retire before age 65. This is huge. If you have to go out and buy your own health insurance, that’s a big expense that you’re going to incur. You want to know what that’s going to be because it will have an impact on the numbers.

Work on your current cash flow:

The last thing that I would suggest is get your current cash flow situation in order. Know where your money’s going. Know how you’re spending it. If you can rearrange things to focus more on saving and eliminating debt, you’ll be glad you did. You have to make those things a priority. When you do that, you’ll have some flexibility and freedom in your retirement.

what happens to stocks if trump loses the election
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Financial Planning

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Is the 4 Percent Rule Dead?

Is the 4 Percent Rule Dead?

Over the past two weeks, we’ve discussed expected future returns for both stocks and bonds. Several experts feel the future results will be much lower than historical averages. So that makes us wonder, “Is the 4 percent rule dead?”

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Lower expected future returns for both stocks and bonds can affect your retirement. Many “experts” expect stocks to produce below-average returns over the next decade. They forecast somewhere in the neighborhood of 6.5% per year. They also expect lower returns from bonds—somewhere between 1 and 2 % per year.

Lower Future Returns and the 4 Percent Rule

If these lower returns happen, it can create a major challenge for retirees. If these predictions hold, a well-balanced portfolio would earn somewhere between 4% and 5% per year.

Is the 4 percent rule dead

For the past 20 years or so, we’ve been big believers in the 4% rule for generating retirement income. This rules says you can take 4% of your retirement savings as income. So if you have a $500,000 nest egg, that translates to $20,000 per year or $1,666 per month.

Why Do We Believe in The 4 Percent Rule?

We use this guideline because it reduces the risk of running out of money during your lifetime. This has been back-tested during some of the biggest bear markets, and it has a high rate of success.

When you use historical return data, you can see why. Historical data shows a 60% stock-40% bond portfolio should grow by about 7% per year. So if you only take 4%, you would expect your account to grow by 3% per year. That’s enough to help your income grow each year to maintain your purchasing power.

What if Returns are Lower?

But what happens if the experts are right? What if those returns are less than average? Does the 4% rule still work?

In theory, if you earn at least 4% per year, you can take that much income and still maintain your principal. But there are a couple of things that come to mind. First, your odds of success will decrease a little. And, your ability to grow your principal to grow your income is also limited.

The second thing: what if you need to take more than 4% from your savings?  A lower return environment going forward means you will increase the risk of running out of money during your lifetime.

Balancing Risk and Reward

Financial planners always talk about balancing risks and rewards. And the amount of income you take from your retirement savings is a perfect example. The 4% rule is simply a guideline to help you think about that risk. And even with lower returns expected in the future, it still has merit.

No matter what future returns are, one thing remains true. The higher your withdrawal rate, the more you risk running out of money. If you are unsure of how this impacts you, talk to a financial planner.

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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How Lower Interest Rates Affect Your Retirement

How Lower Interest Rates Affect Your Retirement

Lower interest rates create some obvious problems for retirees. Things like savings accounts and CD’s just aren’t earning much. But there is a longer-term problem with these low yields. Today, I’ll discuss how lower interest rates affect your retirement.

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How Lower Interest Rates Affect your Retirement

For many, bonds are a significant part of your retirement nest egg. And, in my mind, there are three reasons to use them.

Reason 1: Less Volatility

Bonds reduce volatility. Think about what happened in March. The stock market fell over 30%. If you were 100% invested in equities, your account went down a lot! If you had 40% in bonds, the drop was much smaller.

Reason 2: A Place to Invest Your Future Income

Bonds give you a source of funds to generate your income. Selling stocks when they are down 35% to get your monthly check isn’t ideal. Putting your future income in bonds solves this problem.

Reason 3: A Way to Rebalance

Bonds give you a source of funds to buy stocks at better prices. Let’s say we get another big drop in the stock market in the next few months. I’m not saying we will, but if we do, you have a source of funds to buy stocks at those lower prices.

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Lower Risk, Less Return

Owning bonds will reduce your future long-term returns. They just don’t generate the results stocks do. For example, the Vanguard Total Stock Market Index fund has averaged just over 9% per year over the past 15 years.  The Vanguard Total Bond Market Index fund has averaged 4.3% over the same time frame.  Adding more bonds reduces the impact of a bear market.  But it also reduces your future returns.


Low Yields Translate to Lower Future Returns

Last week, we talked about lower expected returns for stocks and how that impacts your retirement.   The current low yield environment also means we should expect lower future returns for bonds too.

In fact, Vanguard recently said we should expect bonds to generate returns of about 1-2% per year over the next decade. 

So if we expect stock market returns of 6.5% and bond returns of 2% here’s what happens.

This is a real challenge when you need your savings to create income and grow to keep pace with inflation.

Lower interest rates and yields could have a major impact on your retirement plans.  It’s worth having a conversation with a financial planner to see how it could affect you.

What do you think?  Add your comments below!

Lower Interest Rates Affect Retirement


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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Ask A CFP: Are You Pessimistic or Optimistic?

Ask A CFP® Pro: Are You Pessimistic or Optimistic?

Today is the first episode of our Ask a CFP series.  Each month we will answer your questions about money, investing, and retirement.  The big question today: “Are you pessimistic or optimistic about where we are going?”

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Today's Questions

Here are the questions we answer on today’s show:

  1.  Are airline stocks a good buy? What’s the best way to invest?
  2.  My employer stopped matching my 401(k), should I also stop my contributions?
  3. Since my IRA has decreased in value, is now a good time to convert it to a Roth IRA?
  4. With businesses starting to reopen, is now a good time to buy stocks?
  5. Do you think we’ve seen the end of the bear market? Are you pessimistic or optimistic about where we are going?

What is your pressing question?

Do you have a question about money, investing or retirement.  Here is your chance to get straight answers from a Certified Financial Planner­™ Pro.  Click on the button to send us your questions.  We’ll answer it on an upcoming episode of our Ask a CFP show.  

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You can also ask your question in the comments section below!

Are you pessimistic or optimistic


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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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Is The Bear Market Over?

Is the Bear Market Over?

On March 23, the S&P 500 closed 34% lower than it’s all time high. Since then, we’ve seen prices rebound nearly 27%. It has many people wondering,  “Is the bear market is over?” Today we’ll pose 4 questions that will help us determine if the new bull market has started.

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From February 1 to March 23 we saw the stock market reach bear market levels at a rapid pace. It was enough to rattle even the most disciplined investor. Since then, we have seen prices race higher. The gain has been roughly 27%. It has us all wondering, “Is the bear market over”

Bear Market Over - prices

Today the official answer is “maybe.” In my view, there are still 4 questions which need answered before we know if it is “officially over” or not

1. Has the Market Priced in the Bad News?


The stock market is forward-looking—to a point. The price movements factor in a lot of projections about economic and earnings data. But how do you project something this extreme and unprecedented? We’ve never seen the economy forced to an almost immediate halt before now.

2. How Bad Will The Data Be?


Standard and Poors projects earnings for the companies in the S&P 500 Index. Their most recent data shows an 18% reduction in profits for the first quarter of 2020. And that number was lowered from a week ago.  How much will the actual numbers differ from those estimates?

Gross Domestic Product—that’s the value of output from an economy—will almost certainly be worse this quarter. But how much worse? Some predict the worst quarter since the Great Depression. Will it be that bad?

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3. How Will Investors React?

Is the bear market over

As a group, investors rarely react the right amount. There is a tendency to overreact on both extremes. In the dot-com era, we saw prices pushed irrationally higher. You could argue prices fell too far during the Great Recession too. How will people react this time?

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4. How Long Do We Suppress The Economy?


The longer we keep the economy in an induced coma, the longer it will take to revive it. When do we reach the point where there is significant long-term damage to our economy? This may be the most important question to answer.

The End of the Bear Market

The bottom of this bear market could have been on March 23. If it was, we can celebrate—we are on our way to recovery. But we need to brace for the idea the worst of this downturn is yet to come. The market could drop further. If the data is worse than expected, it could drop a lot further.

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3 Things You Should Know About Bear Markets

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In this free guide, we’ll share 3 things you need to know about bear markets, and 4 things you can do right now to survive it.

Financial Planning

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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.  

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Still Not A Bear Market

Still Not A Bear Market, Yet

Right now, there is a lot of fear and panic on Wall Street. It looks and feels bad. Yesterday seemed to amplify those fears even more. The Dow fell over 2,000 points for the first time ever. It was a headliner type day.

You can’t brush a day like that aside and say, “It was no big deal.” It is a big deal. The 7.6% decrease was the worst day for stocks since 2008. And it was the 24th worst day ever recorded. And this comes on the heels of two of the wildest weeks I can remember in my 24 years as a financial planner.

It feels really bad. The “fear index” reached its highest level since the Great Recession. Volatility is extreme.

Still not a bear market

Still Not A Bear Market

But here’s the thing that hasn’t gained traction in the financial media. This is still not a bear market, yet. And “yet” is important. Year to date the stock market has dropped 15%. From it’s high in late February, prices have dropped 18.8%. We don’t find the bear until prices drop 20%.

I say “yet,” because we could easily find the bear’s den in the next few days. I believe it is more likely than not. But there is always a chance we don’t cross that line for a while, if at all.

STill Not a bear market

The Second Hardest Thing To Do...

This is the unpleasant part of being an investor. Riding through the waves of big down days and big up days. “It feels like we are riding The Beast at Kings Island,” as one client put it. That’s a pretty good analogy.

Unfortunately, it looks like this wild ride may continue for a while longer. The impact of the virus both to our health and the economy remains unknown. And now an oil price war adds to the hysteria. We have no control over the uncertainty or the attention. But we can control what we do.

Doing nothing is the second hardest thing to do in times like this. But it is often the best course of action. We can look back at the past 20+ years and find many reasons to sell our shares of great businesses. But those reasons can’t overshadow why we hold onto those positions.

Still Not a bear

What's The Hardest Thing To Do?

What’s the hardest thing to do in times like this? Buy more stock. The shares of these great businesses are on sale for a limited time. The prices might get better, but the sale won’t last long.  Remember, you are supposed to buy lower.  We may not see an opportunity like this again in our lifetimes.

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At times, being a patient long-term investor is hard.  We are glad to discuss your situation in greater detail.  If you would like to talk to us, click the button. 

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.