Can Stocks Predict The Election Outcome?

Can Stocks Predict The Election Outcome?

Can stocks predict the election outcome? What about back-to-back bear markets? How big was the stock market drop in dollar terms?  We’ll cover these tidbits and more.

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A select few...

The stock market was down 34% earlier this year and it made a complete recovery. The recovery was led by a small handful of companies.

As of August 28, almost one-third of the stocks in the S&P 500 are still down at least 20% for the year.

That's a lot of money...

On February 19, the total value of the US stock market was $36.1 trillion. On March 23, at the bear market low, the US stock market was worth $23.4 trillion. $12.7 trillion evaporated into thin air over that timeframe. Most of that has come back, and we’re all glad for it.

can stocks predict election
Can stocks predict the election

Back-to-back bears?

We’re still dealing with this COVID-19 pandemic, and the economy isn’t back to full strength yet. There are some concerns that there will be some lingering effects. One of those concerns is a double-dip recession. The other is another significant drop in the stock market.

Over the last 75 years, the shortest time between the end of one bear market and the beginning of the next is two years and two months. The S&P 500 fell 22% during a bear market which ended on October 7, 1966. The next bear market, an 18 month long tumble of 36%, began on November 29, 1968.

It can happen quickly. Two years is the record. We may or may not see that record tested.

Can the Stock Market Predict The Election?

The S&P 500 was up 7.19% in August. It was the best August ever.

We found this interesting tidbit on the website MarketWatch. This is from Julian Emanuel of institutional investment management firm BTIG. “At first glance, August strength plays well into Donald Trump’s reelection. In the three months prior to November elections, positive S&P 500 returns have accompanied incumbent party presidential victories 85.7% of the time.”

“Going back to 1928, when stocks rose 5% or more in August, and the June to August return was in the top quartile, the market often struggled in September and October. When the S&P 500 was down from the end of August through the election, the incumbent party lost the White House on all six occasions.”

Could the stock market performance over the next couple of months predict the outcome of the election? It will be interesting to see if that comes true or not.

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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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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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What Should I do With My Old Retirement Plan?

What should I do with my old retirement plan?

Today we answer a question from Adam.  He asks, “I changed jobs a couple of months ago.  What should I do with my old retirement plan?

We discuss:

  • Your options
  • The pro’s and con’s of each
  • The key factors in your decision
  • And what you should ask a financial advisor about a rollover

Listen now: What should I do with my old retirement plan?

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what should i do with my old retirement plan

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: What should I do with my old retirement plan?

If you have changed jobs and left a retirement plan behind, you’ll have four options.

  • You can leave it in your old employer’s plan.
  • You can potentially roll it over to your new employer’s plan.
  • You can roll it over to an IRA.
  • Or, you can take a distribution

Leave it in your former employer's plan.

Advantages

  1. Cost. Your former employer’s plan may be one of the lower cost options. If that’s the case, then it may make sense to leave it there.
  2. Familiarity. You’re also familiar and comfortable with how the plan works.

Disadvantages

  1. Adds Complexity. Leaving your money in the plan makes it harder for you to keep things organized.
  2. Limited Investment Choices. With any retirement plan, your investment choices can be limited. You don’t have as many options to invest your money. Most plans have enough options to help you achieve your goals.
  3. Lack of Help. It may be difficult to get the help you want when you need it. You’re stuck calling a call center.

There aren’t many advantages to leaving it where it is.

Roll it to your new employer's plan

If your new plan allows it, you can roll it over to your new employers plan. Some plans don’t allow this.  You’ll need to check to see if your current plan does.

Advantages

  1. Simplicity. This can help you keep things organized. And it will help you see how you’re making progress towards your goals. That’s the biggest advantage.

Disadvantages

  1. Cost: You need to look at the cost of the plan. If it’s more than what you would pay in an IRA or your former employers plan it may not make sense to roll it to your current plan.
what should i do with my old retirement plan
old retirement plan what should i do

Roll it over to an IRA

You can do this many ways. You can work with a financial advisor, a bank, or insurance company. You can also use someone like Vanguard, Charles Schwab or TD Ameritrade.

Advantages

  1. Control. You control every aspect of that IRA. You control the investment choices and the cost.
  2. Nearly Unlimited Investment Choices. There are very few restrictions for what you can own in an IRA.
  3. Access to the Money. Some retirement plans may restrict your access to the money. You’ll have complete access to your money in an IRA.

Disadvantages

We can’t think of any disadvantages to this.

Take a distribution

This is probably the worst option, unless you’re in a dire financial situation. A distribution means taxes and penalties when you withdraw the funds.

Key factors in your decision

Costs

There are costs for any of these choices. Some costs are hidden. These are the internal costs of investment choices. Some of those are very low, some of them may be a lot higher.

Every plan has mutual funds or exchange-traded products. Those have an internal expense structure. In some cases, you may incur record keeping costs.

Many employers pass record-keeping costs on to their plan participants. They have to disclose it to you and it will appear on your statement.

Some plans have management fees. These also have to be disclosed. These will also appear on your statement. An IRA may have management fees, especially if you work with a financial advisor.

There could be other costs, too. You might pay commissions. If you select an insurance contract, you will likely pay a commission. You may also run into things like surrender charges, and other expenses for things like annuity contracts.

Control

IRAs allow you to control your situation. Retirement plans are more limited in that regard. They have limited investment options and limited access to your money. IRAs give you complete access to your money and complete control over the investments.

Convenience and Simplicity

Money is complicated enough. The more complications you add, the harder it is to reach your financial goals. You want to have it someplace where you can keep an eye on things and monitor your progress.

old
what should i do with my old retirement plan

Financial advisors and rollovers

Financial advisors make their living from retirement plan rollovers— including us. There is going to be a cost to you to do this when you hire a financial advisor. It may be more or less than what you currently pay.

Conflicts of Interest

This cost creates a conflict of interest. When an advisor prompts you to complete the rollover, it doesn’t matter if they’re a fiduciary or not. Whether they charge a commission or management fee, it doesn’t matter. Any financial incentive for the advisor to help you roll over your balance creates a conflict of interest.

But, if you see the value to having someone help you and the value is worth what they charge, hire that advisor.

Ask Questions

You need to ask relevant questions. Know how your advisor is going to be paid for that rollover. Is it going to be a commission or is it going to be a management fee? Know if what you’re going to pay is a one time charge or if it is ongoing.

And you need to know what other costs you’re going to incur. What types of investments is that advisor going to use? Are there surrender charges? Are there other hidden fees?

Be prepared and understand how the relationship will work.  Make sure you are comfortable with every aspect of the person you hire. 

If you would like to talk to us, please click here to schedule a phone call.

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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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Do You Need $8 Million to Retire?

Do You Need $8 Million To Retire?

Do you really need $8 million to retire? This is one of those articles that makes you scratch your head and say, “Where is this coming from?”

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Do You Need $8 Million to Retire?

Transcript: Do You Need $8 Million to Retire?

The article appeared last week on marketwatch.com. It was titled,  The New Savings Target for a Modest Retirement: $8 million? The article is based on a blog post written by someone who calls himself the Financial Samurai. The Samurai believes that the 4% Rule is dead. The actual safe withdrawal rate is 0.5%. Let’s dig into this.

Using the 4% Rule

The 4% Rule is something that a lot of financial advisors use. It starts the conversation about how much income you can generate from your retirement savings. You can use the rule to set a savings goal, or you can use it to determine how much income your savings will provide.

If you’re trying to set a savings goal, determine how much income you’ll need from your savings. If you need $40,000 from your nest egg, multiply $40,000 by 25. Your target is $1,000,000. (4% of $1,000,000 is $40,000 a year.)

Do You Need $8 Million to Retire?

Perhaps you’re getting close to retirement. You’re wondering how much income you can expect to get from your 401k. You’ve saved $500,000 in your 401k. Multiply that by 4% and you get $20,000 for the first year.

$8 million to retire

If you use 0.5% to compute your savings goal, it changes the math significantly. Instead of needing a million dollars to create $40,000 of income, you’ll need $8,000,000!

More on the 4% Rule

This video and blog post goes into greater detail about the 4% rule. 

Is This Realistic?

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Your $500,000 401k with a 0.5% withdrawal rate creates $2,500 of annual income. That’s a little over $200 per month.

Do You Need $8 Million to retire?

Is This Realistic?

Is this half percent safe withdrawal rate, the “new normal”? We disagree. We believe the 4% Rule is a valid tool to use to start the income conversation.

Academic minds developed the 4% Rule by studying past return data for stocks and bonds. The researchers were looking for a withdrawal rate with a very high level of success. We define success as not running out of money during your lifetime.

They tested it through all types of extreme market events. This includes bear markets like the “dot com” bust, the Great Recession, and the early 1970s. The 4% Rule held up in all those circumstances. It doesn’t mean it will hold up going forward. It’s not guaranteed.

Higher Withdrawal Rates Increase Risk

We know this. As you increase your withdrawal rate, you increase the chances of running out of money. You increase the odds of significant spending cuts because of adverse market conditions. The 4% Rule is not a silver bullet. We don’t know what future returns will be. But the 4% Rule remains a good starting point. The pandemic, an over-valued stock market, or low bond yields don’t change our opinion.

You don’t need $8 million to enjoy a modest retirement. People can retire and live a happy life on far less. They figure out ways to make it work.

The 4% Rule is a baseline. We work from there based on each individual’s circumstances to create a plan.

Do You Need $8 Million To Retire?
Do you Need $8 Million to Retire
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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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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.

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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
click to enlarge

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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How Will the 2020 Presidential Election Affect the Stock Market?

How Will the 2020 Presidential Election Affect the Stock Market?

How will the 2020 presidential election affect the stock market? That’s a big question on the minds of many. Today, we’ll dig into some numbers. We’ll show you what happened to the stock market in the three months before and after previous presidential elections.

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2020 Election Affect the Stock Market

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2020 election affect the stock market

This year is off to a crazy start. It started with the Coronavirus. That caused the stock market to drop by about 34%. From the bottom of the bear market to today, we’re now close to all-time highs. The stock market has increased by almost 50%.

The virus is still a factor in our lives. Now we get to add a presidential election to the mix. How will the campaign season influence the market?

Elections and the Stock Market: Historical Data

We are focusing on the three months before a presidential election. This means August, September and October. And we are looking at the three months after. This includes November, December, and January. We have nine election years going back to 1980.

The 3 Months Before

The average gain of the stock market for the three months before an election was about 0.75%. Stocks improved six out of the nine years.

The 3 Months After

For the three months after an election, the stocks gained 2.36%, on average. It was positive in seven of the nine years.

The Outlier: 2008

There was an outlier. 2008 was a really bad year. From August to October 2008, the stock market dropped by about 23%. Following the election, the stock market continued to decline. It fell another 22.5%.

If you remove this outlier from the data set, the results look much different. 

Leading up to the election, the gain improves to about 3.5%. After the election, if you take out this outlier, the stock market improved 5%.

Will this year be more like 2008?

The election didn’t have the type of impact on the stock market that one might think. But you might be wondering right now, “Will this year be more like 2008?”

But there are also reasons to expect this rally to continue. Some data points to better things ahead.

Vaccine Progress

Companies are making progress on a vaccine. A lot of the optimism in the stock market relates to the optimism of a vaccine coming to market sometime next year. There are a number of companies now entering second and third stage trials.

The Big Question: Do Your Long Term Plans Depend on the 2020 Election?

It is hard to make big allocation decisions based on short term events. Most of the historical data points to the election not being a significant factor to stock market performance.

Your long term plans aren’t likely to change based on the outcome of this election. This makes it very difficult to make a decision based on that outcome.  .

The election concerns many people. There’s a very big divide between the two sides. It’s very contentious and very emotional. This creates a desire do something. Some think if “Candidate A” wins, things are going to go downhill. And if “Candidate B” wins, things are going to be great. But we don’t know what that outcome will be.

Making big decisions based on short-term events, creates more chances to make mistakes. That’s not a real good way to do things.

You need to base your asset allocation decisions on your long term plans. You shouldn’t base them on what happens in a presidential election.

Have Questions?

If you have questions about your situation or would like to discuss how the pandemic and bear market have affected you, click the button to arrange a call.

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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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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.

Note:

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.

Medciare Insurance Supplement
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Medicare Supplement Insurance

 

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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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10 Years From Retirement: What Should I Be Doing?

10 Years Away From Retirement: What Should We Be Doing?

Heidi asks: “We’re 10 years away from retirement.  What should we be doing to prepare? Should we pay off our mortgage before we retire?”

Please note:  This is a highlight from our July Ask a CFP Pro show.

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Transcript: 10 years from retirement: What should we be doing?

We want to retire in about 10 years. What’s the best way to prepare for that? And is it best 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 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.

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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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Maintaining Spending Levels in Retirement

Maintaining Spending Levels in Retirement

Maintaining spending levels in retirement can be a challenge.  A recent study showed that nearly half of retirees were forced to reduce their spending because they didn’t have adequate resources. What are some of the characteristics of those who were forced to cut their spending?  We’ll explore that so you can make better decisions about your retirement.

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maintaining spending levels in retirement

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Maintaining Spending Levels Retirement

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maintaining spending levels in retirement

Show Outline

  • Intro
  • Consumer Financial Protection Bureau Study
    • Looked at the ability of retirees to maintain their spending level 5 years into retirement.
    • Most retirees see their spending decrease naturally.
      • Spend less on things like transportation and clothing
      • Do fewer things as you get older
      • On average, spending in retirement decreases by 19%
  • The Data
  • What can you do?
  • Outro

Spending in Retirement Decreases...

In general, people tend to spend less in retirement.  Many people find they spend less on transportation, clothing, and entertainment.  Those who had adequate savings saw their spending level decrease by 19%.  But, those who couldn’t maintain their spending level saw their spending drop by 28%.

The Factors in Maintaining Your Spending Level

Marital Status

Married couples are better able to maintain their spending level.  Receiving two Social Security payments is a significant factor.

Age

Older retirees had more success than the younger generations.  More older retirees received company pension benefits than Baby Boomers. 

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Social Security

Starting Social Security at younger ages means you receive a smaller benefit.  Delaying your retirement improves your benefit, spousal benefits, and survivor benefits.  This means you rely less on your savings.

Home Ownership

Home ownership factored into retirees ability to maintain their spending level.  Renters struggled compared to those who own their homes. 

Mortgage debt also played a role.  Those without a mortgage had more success maintaining their spending level in retirement.

Debt

Non-mortgage debt includes things like credit cards, car loans and leases, or other types of loans.

Those who carried debt into retirement struggled more than those who were debt free.

What Can You Do to Plan for A Better Retirement?

1. Consider delaying your retirement

Delaying your retirement can improve your Social Security benefits.  It can give you an opportunity to save more and benefit from compounded returns.  And it can help you eliminate debt.

2. Create a plan to be debt free

The data shows people who have debt struggle more.  Many times, loan payments are your larger expenses.  Eliminating those before you retire can reduce the stress on your retirement budget.

3. Save more aggressively

This doesn’t mean use more aggressive investments (though that can help).  It means make saving a higher priority, and try to save more.  

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maintaining spending levels in retirement
maintaining spending levels in retirement

 

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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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Halftime! A Wild Start to 2020

Halftime! A Wild Start to 2020

The coronavirus dominated the headlines.  It disrupted our lives, the economy and the stock market.  Today we’ll take a look back at what happened in the first quarter.  One thing is certain, It was a wild start to 2020.

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a wild start to 2020

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Episode outline:

Stocks

  • Both the first and second quarters were extreme
  • The first quarter:  Bad
  • The second quarter: Good, but not good enough
  • Stocks are still down year to date

Bonds

  • It’s where investors go when stocks struggle
  • Remember, when interest rates and yields go down, bond prices go up.
  • Long term bonds have bigger moves—much bigger

Gold

  • Gold is the “fear asset”
  • It shined in the first half

Pictures!

Stocks

US Stocks and International Stocks featured some extreme moves in the first half of 2020.

Bonds

Investors perceive bonds as a “safe haven” when there is trouble in the stock market.  Interest rates and yields dropped significantly in the first half, which means bond prices go up.  It was a good period for the bond market.

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Gold

Many people consider gold a fear asset. As a result, demand for the metal helped push prices higher in the first half.

Wild start to 2020

Comparing Year to Date Results

Bonds and Gold all generated positive results in the first half of 2020.  Unfortunately, stocks did not. 

A Wild Start to 2020
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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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