The importance of time management

It may sound strange to hear a financial advisor say this but achieving the things you care about most requires more than just money. There are certain habits and behaviors that, while not directly related to finance, can spell the difference between reaching your goals or not. In our experience, people rarely hear about these things from their financial advisors. We want to share some non-financial lessons we’ve learned. It’s our belief that applying these lessons makes working towards your goals both easier and more rewarding.

So, without further ado, here is:

Things Most Advisors Don’t Tell You #2:


Managing your most precious asset

Do you know what your most precious asset is?
It’s not your house. It’s not your car. It’s not your investment portfolio.
It’s your time.

Benjamin Franklin once said:
If time be of all things the most precious, wasting time must be the greatest prodigality, since lost time is never found again, and what we call time enough, always proves little enough.

You’ve probably seen or heard a lot of fancy terms related to your finances. “Asset management,” for example, or “Investment management.” You get the idea. But just as important is the concept of time management.

The definition of time management is, “The act of planning and exercising control over the amount of time spent on specific activities, especially to increase effectiveness, efficiency, or productivity.” 1 Look at those words again. Planning. Control. Effectiveness. Productivity. All things that can have a big impact on how much money you have to achieve what you want most.

The art of time management is essentially the art of prioritizing your life. It’s the art of recognizing which activities are most important in terms of reaching your goals. Some activities will bring you closer; others will move you further away. Many activities, of course, will have no effect either way.

Let’s call them “A” activities, “B” activities, and “C” activities. “A” brings you closer to your goal, “B” keeps you stationary, and “C” moves you further away.

For example, let’s say one of your most cherished goals is to travel to the country your ancestors came from. “A” activities could include creating a plan for getting there, setting aside money specifically for the trip, or learning that country’s language. “B” activities, meanwhile, could be anything from going to the grocery store, to playing a round of golf once a month, or sleeping.

Some examples of “C” activities? How about buying that new $1,000-version of the phone you already have? Or deciding not to plan, but just wing it, instead? As you can see, “B” and even “C” activities are NOT inherently bad! In many cases, those activities can be fun, rewarding, or even necessary. But when you prioritize “B” activities over “A” activities, or when you spend your time or money mainly on “C” activities, then your most cherished goal will always be a fantasy instead of a reality.

Time management, then, is the process of:
• Determining what you need to do to get where you want to go. (These are your “A” activities.)
• Making those activities be your first priority on a daily, weekly, and monthly basis.
• Filling up the remainder of your time with “B” activities after the “A” activities are done.
• Being very cautious about when you spend time or money on “C” activities.

As you may know, we help people plan for retirement. In our experience, people who don’t practice time management end up planning for retirement this way:
1. First, they dream about what they’d like to do in retirement, and then decide it’ll probably happen “some day.” Then they start thinking about what to do for the weekend.
2. A few months or years later, they read a book or article on retirement planning and think, “This makes sense, I’ll have to get on that sometime.” Then they turn on the TV.
3. Occasionally, they remember to save or invest a portion of their income, between bouts of buying the latest thingamajig that everyone else seems to have.

Then, before they know it, they’re in their sixties, and realize they’re nowhere close to being ready for retirement. The point is, time is an asset. But like all assets – money, property, personal skills – if you fail to manage it properly, it will go to waste and be lost forever. That’s why, when it comes to accomplishing what really matters, time management is just as important as money management.

And that’s something most advisors just don’t bother to tell you.

 

1 “Time Management,” Wikipedia.org, accessed July 10, 2019. http://en.wikipedia.org/wiki/Time_management

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Red Flags for Tax Auditors

Red Flags for Tax Auditors

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No one wants to see an Internal Revenue Service (IRS) auditor show up at his or her door. The IRS can’t audit every American’s tax return, so it relies on guidelines to select the ones most deserving of its attention.

Ever wonder why some tax returns are eyeballed by the Internal Revenue Service while most are ignored? Short on personnel and funding, the IRS audited only 0.60% of all individual tax returns in 2017, and the vast majority of these exams were conducted by mail. So the odds are pretty low that your return will be singled out for review. And, of course, the only reason filers should worry about an audit is if they are fudging on their taxes.

That said, your chances of being audited or otherwise hearing from the IRS escalate depending on various factors, including your income level, the types of deductions or other tax breaks you claim.

Here are six flags that may make your tax return prime for an IRS audit.¹

The Chance of an Audit Rises with Income
According to the IRS, less than 1% of all individual taxpayer returns are audited. However, the percent of audits rises to over 2% for those with incomes between $500,000 and $1 million, and is over 4% for those making between $1 million and $5 million.²

Deviations from the Mean
The IRS has a scoring system it calls the Discriminant Information Function that is based on the deduction, credit, and exemption norms for taxpayers in each of the income brackets. The IRS does not disclose its formula for identifying aberrations that trigger an audit, but it helps if your return is within the range of others with similar income.

When a Business is Really a Hobby
Taxpayers who repeatedly report business losses increase their audit risk. In order for the IRS not to consider your business as a hobby, it needs to have earned a profit in three of the last five years.

Non-Reporting of Income
The IRS receives income information from employers and financial institutions. Individuals who overlook reported income are easily identified and may provoke greater scrutiny.

Discrepancies Between Exes
When divorced spouses prepare individual tax returns, the IRS compares the separate submissions to identify instances where alimony payments are reported on one return but alimony income goes unreported on the contra party’s return.

Claiming Rental Losses
Passive loss rules prevent deductions of losses on rental real estate, except in the event when an individual is actively participating in the property’s management (deduction is limited and phased out), or with real estate professionals who devote greater than 50% of their working hours to this activity. This is a deduction to which the IRS pays keen attention.

  1. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
  2. IRS, 2017

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Don’t Forget To Include Your Pets In Your Home Evacuation Plan

Many homeowners will form evacuation plans for their homes and practice them with family members, but most have failed to include their pets.  An evacuation plan is a necessity for every home, especially if you live in an area where fires, and other disasters are a possibility. Take these steps to add your pets to your evacuation plan.

Assign pet evacuation responsibility to an adult. 
Everyone in the household should know what to do during an evacuation. That includes assigning one parent or adult to the pets. This allows the other parent and the children to focus on their part of the evacuation plan, so there’s no confusion during a high-stress moment when time is of the essence.

Keep evacuation maps and pet carriers readily accessible. 
If you need to evacuate, you should know exactly where every important item is located. If your pets require carriers, keep them in a place that you can access easily.  Don’t forget any essential medications which might not be easily replaced in an emergency situation.

Practice your plan. 
Include your pets in your home evacuation drills. It will help you see how they will respond and make changes to your evacuation plan if necessary. Getting your dog out of a window may not be as simple as you think!

Be prepared in case you get separated from your pets. 
No matter how much you drill your evacuation plan, it’s possible that a dog or cat will run off while you’re focusing on keeping your family safe. A microchip or a GPS-compatible tag can help you find your pets once it’s safe to return to the area. Make sure all pets wear collars and tags with up-to-date identification information. Your pet’s ID tag should contain his name, telephone number and any urgent medical needs

Get a Rescue Alert Sticker
This easy-to-use sticker will let people know that pets are inside your home. Make sure it is visible to rescue workers (we recommend placing it on or near your front door), and that it includes the types and number of pets in your home as well as the name and number of your veterinarian. If you must evacuate with your pets, and if time allows, write “EVACUATED” across the stickers. 

Examining the cause and effect of the new tariffs between the U.S. and China

After months of relative quiet, the trade war between the U.S. and China has erupted again in a big way. The markets are the most immediate casualty, with the Dow plunging over 600 points on Monday alone.1

In all likelihood, you’re probably more focused on things like spring cleaning, your upcoming summer plans, and the end of Game of Thrones. My job in this letter is to briefly explain what’s going on, what matters, what doesn’t, and why you can go back to focusing on those other things

So, here’s what’s going on:
Failed deals lead to new tariffs
You may have noticed that headlines about the trade war had been rather muted in 2019. That’s because negotiators for both nations had been quietly working behind the scenes to come to an agreement on how to address the $375 billion trade deficit the U.S. has with China. The White House expressed optimism that a deal was close – until a sudden hardening of positions prompted both sides to retreat to their corners.

On Friday, May 10, President Trump raised the stakes by placing 25% tariffs on all Chinese imports that had previously been spared. Here’s how the U.S. trade representative put it:
“[The President has]…ordered us to begin the process of raising tariffs on essentially all remaining imports from China, which are valued at approximately $300 billion.”2

Throughout this trade war, it has seemed like both countries are waiting for the other to blink first. Both are still waiting. For on Monday, May 13, China announced it would raise tariffs on $60 billion in U.S. goods, some up to as much as 25%.3

Why all this matters to the markets
You’ve heard, of course, of the principle of cause and effect. If one thing happens, something else is affected. Fail to brush your teeth and you get cavities. Leave meat out of the refrigerator too long and it will spoil. You get the idea.
Investors, analysts, money managers, and traders who participate in the markets on a daily basis make decisions based on cause and effect. How tariffs impact certain companies is a perfect example of this. For instance, imagine a fictional American company called Widgets n’ Stuff, or WNS for short. In order to make its widgets, WNS buys thingamajigs from China. But thanks to tariffs, the price of importing thingamajigs goes up.

Investors know this, and thanks to the principle of cause and effect, predict it will have a negative impact on WNS’s finances. Maybe they’ll have to raise prices on their own widgets to make up the difference. Maybe they’ll have to produce fewer widgets. You get the idea. So, investors sell stock in Widgets n’ Stuff because it no longer looks like an attractive investment.

Like them or not, tariffs act as a double-edged sword that affect companies and consumers on both sides of the Pacific. On the American side, China’s tariffs can make it harder for U.S. companies to sell their goods to Chinese consumers. At the same time, American tariffs can make it harder for U.S. companies to import the goods they need for their own products. Either way, prices go up, corporate finances suffer, and consumers are often the ones left to foot the bill. That’s why the markets care about the trade war.

But here’s why all this doesn’t matter to us – yet
The principle of cause and effect is important, but it’s more important to short-term traders than long-term investors like us. That’s because we don’t actually know what the long-term effects are yet. We can guess, but guessing isn’t really a viable strategy in life, is it?

Think of it this way. Let’s say you come down with a fever. The short-term effect is that you probably don’t feel very good. But the long-term effect isn’t yet known. Perhaps it’s just a symptom of a mild cold that will pass in a few days – and that’s why we don’t immediately start chugging antibiotics the moment we feel sick.

While it’s never fun, the markets have fallen after almost every round of tariffs to date. Each time, the markets absorbed the blow, and then rebounded relatively quickly. Previous trade war battles faded into the background and investors turned their attention to other things. Will that happen again this time? We don’t know. And that’s the point: We don’t know what the long-term effects are. What’s more, with the markets having enjoyed a remarkable bull market in recent years, we can afford to be patient. What we can’t afford is to make important decisions by guessing at the long-term effects of these tariffs.

Hippocrates once wrote that, “To do nothing is sometimes the best remedy.” For that reason, it’s okay for you to go back to planning your summer vacation or betting which character will die next on Game of Thrones. In the meantime, my team and I will continue monitoring all the causes and effects in the markets. If, at some point, we have a better understanding of the long-term effects of this trade war, we’ll make decisions accordingly.

As always, please let us know if you have any questions or concerns. We are always happy to speak to you!

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1 “Dow plunges 700 points after China retaliates with higher tariffs,” CNN Business, May 13, 2019. https://www.cnn.com/2019/05/13/investing/dow-stocks-today/index.html
2 “Trump Renews Trade War as China Talks End Without a Deal,” The NY Times, May 10, 2019. https://www.nytimes.com/2019/05/10/us/politics/trump-china-trade.html?module=inline
3 “After China Hits Back With Tariffs, Trump Says He’ll Meet With Xi,” The Wall Street Journal, May 13, 2019. https://www.wsj.com/articles/china-to-raise-tariffs-on-certain-u-s-imports-11557750380

Have you been watching the markets lately?

Bear Or Bull Market…
Which Is It?

“We are now in a bear market – here’s what that means.” – CNBC headline on December 24, 20181

“The stock market rally to start 2019 is one for the history books.” – CNBC headline on February 22, 20192

If you’re like most people, it’s probably not uncommon for you to plan your day or week based on the weather forecast. For example, you might check the forecast, see that it’s supposed to be sunny, and decide to go fishing on Saturday.
But when Saturday rolls around, it starts to rain.

The frustration you’d feel is very similar to how investors and analysts often feel about the markets. The forecast says one thing – and then the opposite happens.

For example, let’s go back to the end of 2018. For months, the markets had been hammered by volatility. The Nasdaq entered bear market territory. Many pundits predicted even more volatility after the new year.

But four months later, the markets are on the verge of record highs.
So, the question is: Why the change in direction? What’s behind this year’s market rally? And most importantly, what can we learn from it?

The volatility that dominated the end of 2018 was largely due to fears of an economic slowdown. The Federal Reserve raised interest rates, which can cool both inflation and economic growth. Trade tensions with China showed no signs of stopping. Corporate earnings slowed down, oil prices had dropped, and several other indicators had many analysts predicting a recession in 2020 or 2021.

Even after the turn of the year, there was some interesting data that, when compared with historical trends, suggested more storms on the horizon. For example, you may have seen the term “inverted yield curve” bandied about in the media for a time. We’re venturing into “financial nerd” territory here, but this is when the yield on short-term Treasury bonds rises higher than the yield on long-term bonds. It doesn’t happen often, and historically, it has sometimes been a sign of an impending recession. The result of all these signals was a forecast that had many investors reaching for their umbrellas, convinced that gloomy weather was here to stay.

But instead, the markets enjoyed their strongest start to a year since 1998.3
In many ways, this rally has been driven by something very simple: Nothing really got worse. The Federal Reserve has stopped raising interest rates, saying that it won’t raise them again in 2019.4 The trade war with China seems to have hit a lull. And now, investors can point to a host of different historical trends that work in their favor. For example, some data suggests that when the stock market rises 13% or more “during the first three months of a calendar year,” it will gain even more before the end of the year.3

So, does that mean the good times are here to stay?
No.
Warren Buffett, the legendary investor, has a saying: “Be fearful when others are greedy and greedy when others are fearful.” While we shouldn’t take that maxim too literally, it does illustrate an important point. Time after time, conditions that cause fear can change in an instant, leaving the fearful behind. On the other hand, conditions that stoke greed can shift before you know it, giving the greedy a nasty shock.

On their website, CNN has something called the Fear & Greed Index. 5 Using seven different indicators, they can calculate which emotion is driving the markets most at any given time. As of this writing, that emotion is greed. A few months ago, it was fear. As we’ve just seen, the scale can swing from end to another very quickly.

When you look more closely at the data, there are still reasons to think a recession is possible in the next year or two. (A contracting labor market, problems in Europe, stocks being valued too highly, to name just a few.) Other data suggests that the stock market’s current highs are overblown.6 But does this mean it’s time to run and hide? Nope! While data is very good at telling us what was and what is, it’s still unreliable at telling us what will be – at least as far as the markets are concerned. In fact, for as much grief as we give meteorologists for getting a forecast wrong, they do a much better job predicting the weather than experts do the markets!

Here’s what we can learn from all this
As your financial advisor, the reason I’m sending you this letter is because there are a few things I think we need to keep in mind as 2019 rolls on.

First, we need to remember to guard against recency bias. Recency bias is when people make the mistake of thinking what happened recently is what happens usually. It’s why investors tend to panic during market volatility or take on unnecessary risk during a market rally.

Second, remember that emotion is a good servant, but a bad master. Emotion helps us interact with other people. It makes experiences more memorable and life more colorful. But it can be come harmful if it drives our decisions. We should always strive to keep our own personal Fear & Greed Index from swinging too sharply one way or the other.

Finally, whether the markets go up, down, or sideways, you’ll probably hear about many different statistics, indicators, and historical trends that predict this, that, or the other thing. When you do, remember that correlation is not causation.

Correlation, as you probably know, is the measurement of how closely related two things are. In finance, we often find that many things tend to change in sync with one another. Asset classes, market sectors, you name it. It’s why we spend so much time looking at things like inverted yield curves – because they are often correlated with the health of the markets or economy.

But just because two things are correlated does not mean that one causes the other. (It’s why an inverted yield curve doesn’t always mean a recession is nigh.) All the indicators and historical trends you hear about in the news are important, and worth studying – but again, they only tell us what was or what is. Not what will be.

So, to sum up:
• Just as we didn’t give in to fear when the markets were down, so too will we not give in to greed while the markets are up.
• We will remember that sun today doesn’t protect against rain tomorrow, or vice versa.

Instead, we’ll make decisions as we’ve always done: by keeping your long-term goals foremost in our minds. In other words, we’re not working to help you go fishing just this weekend.

We’re working to help you go fishing any weekend you want.

As always, if you have any questions or concerns about the markets, please don’t hesitate to contact us. In the meantime, have a wonderful Spring!

1 “We are now in a bear market – here’s what that means,” CNBC, December 24, 2018. https://www.cnbc.com/2018/12/24/whats-a-bear-market-and-how-long-do-they-usually-last-.html
2 “The stock market rally is one for the history books,” CNBC, February 22, 2019. https://www.cnbc.com/2019/02/22/the-stockmarket-rally-to-start-2019-is-one-for-the-history-books.html
3 “The Stock Market is Having Its Strongest Start in 21 Years,” Money, March 20, 2019. http://money.com/money/5639032/stock-market-strong-start/
4 “Fed holds line on rates, says no more hikes ahead this year,” CNBC, March 20, 2019. https://www.cnbc.com/2019/03/20/fedleaves-rates-unchanged.html
5 “Fear and Greed Index,” CNN Money, accessed April 17, 2019. https://money.cnn.com/data/fear-and-greed/
6 “Dow, S&P 500 and Nasdaq near records but stock-market volumes are the lowest in months,” MarketWatch, April 18, 2019. https://www.marketwatch.com/story/why-stock-market-volumes-are-the-lowest-in-months-as-the-dow-sp-500-and-nasdaq-testrecords-2019-04-17

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If your portfolio lost more than 10% in the last recession, you need to take another look at how you are managing risk.

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Jim Streight James Streight Chief Marketing Officer

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