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FINANCIAL GROUNDHOG DAY 20 FEB is intended to educate the general public about investing, finance, estate planning, personal injury, and small-business issues. It is not intended to be legal or financial advice. Every situation is different.The information in this newsletter may be freely copied and distributed as long as the newsletter is copied in its entirety.
GETTING OUT OF HARMFUL CYCLES TO PREPARE FOR RETIREMENT
January’s already come and gone, though you might not be able to tell from the weather. Starting the year in the dead of winter can certainly feel counterintuitive. Here we are talking about new beginnings and fresh starts while the world outside our doors is literally frozen in place. It can be hard to break out of our own cycles when we wake up to the same morning again and again. It can all begin to feel a little like a certain movie that was set during this time of year. I don’t think “Groundhog Day” will ever stop being a classic, which I suppose is fitting given the plot. Bill Murray’s deadpan “here we go again” performance is still good for a laugh today despite the rather existential situation his character finds himself in. Like the movie, many of us can relate to the idea of being stuck in a rut — experiencing the same setbacks and missed opportunities as the years before. However, unlike Murray’s magical repeating of a single day, our situation can be far more dire. Say what you want about the frustrations of reliving the exact same day over and over again, but if your age and bank account resets, then you’ve got yourself a pretty decent deal. The rest of us face loops that still march forward with time. It might feel like nothing changes from year to year, at least where our finances are concerned. And yet retirement looms closer with each repetition. But this isn’t to say these cycles are inescapable. It can easily feel that way during a time when NewYear’s resolutions are failing and the weather is in its own depressing loop, but make no mistake, the spring thaw does come eventually. The trick is to plan ahead to be ready when that sunshine comes. Again, let’s return to Murray and “Groundhog Day.” Our protagonist may not have the ability to change his larger situation, but he can alter the way he reacts to it. After plenty of high jinks, missteps, and literal slaps to the face, Murray begins to learn and grow out of his old habits. From there, the repetitive cycle takes care of itself. Murray’s greatest ally in the movie is information. He turns the curse of cycling through a single day into a strength, learning French and even how to save a child’s life. Sadly, we don’t have the eons of disposable
time the fictional character has to study and perfect every aspect of our day-to-day lives, but unlike Murray, we don’t have to go it alone.
Financial cycles are nothing new. They happen on both a micro level (people struggling to find ways to save for retirement) and a macro level (the boom-bust dynamic of the modern economy). Like Murray in “Groundhog Day,” observing these cycles and getting the right information from them is key to moving forward. But, of course, there can be such a thing as too much information. Of all the financial mistakes I see people make, indecision caused by analysis paralysis is by far the most common. There’s so much advice and raw data out there that it can be hard to know where you’re going. So rather than pick a direction, people stay put, stuck in the same old cycle of trying and failing to reach their financial goals year after year. That’s where responsible fiduciaries come in. In my view, it’s my job to separate the wheat from the chaff when it comes to this information, helping you make decisions about your future with confidence. You may not get to run through every financial decision thousands of times like Murray’s character, but with steadfast advice and quality information, you don’t have to.
Here’s hoping the groundhog doesn’t see its shadow,
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Facts About the Leap Year LEAP INTO 2020
Like the Olympics and presidential elections, leap years only occur once every four years, which is why many people look forward to Feb. 29. But there’s a lot that you might not know about this quirk on the calendar. WHY To keep the calendar in sync with Earth’s orbit around the sun, an extra day is added to it every four years. Earth takes exactly 365 days, 5 hours, 48 minutes, and 46 seconds to orbit the sun. Those extra hours add up over time, so another calendar day becomes necessary. But a leap year doesn’t occur every four years. Adding that extra day still doesn’t quite keep Earth on track, so the calendar skips leap years that occur during century years not divisible by 400. For example, 2000 was a leap year, but 2100 won’t be. WHO The odds of being born on Feb. 29 are 1 in 1,461. That means that of the roughly seven billion people in the world, only about five million of them are “leaplings.” The number of leaplings currently living in the U.S. is roughly 187,000. Some famous leaplings include motivational speaker Tony Robbins, rapper Ja Rule, and singer Mark Foster of Foster the People. However, the most famous leapling is probably Superman. When you invent a super-being, you might as well give him a super-birthday. WHERE Anthony, Texas/New Mexico (a single town that straddles the two states’ borders), claims the title “Leap Year Capital of the World.” The city throws
one massive birthday party for all leaplings but invites everyone to join the celebration. Two leapling neighbors from Anthony began the tradition in 1988, and it’s blossomed into a festival with thousands of participants every four years. It includes banquets, hot air balloons, a carnival, concerts, parades, and more. When you have four years to plan in between each shindig, there’s time to go big. Celebrate this leap year by doing something unusual or new. It’s a special day that doesn’t occur often, so make the most of it by doing something you’ll talk about for another four years.
THIRD THURSDAY
FEB. 20 Tackling the Cost of Long-Term Care
MARCH 19 The Taxman Cometh
After the unsettling meeting with special agent Tom Fine, there isn’t much for Greg DuPont to do but get back to his normal slate of legal and financial planning meetings, reasoning that a hostile and suspicious federal agent is still nothing to worry about if you’ve genuinely done nothing wrong. At the end of the day, he’s ready to return home, close the door, and forget the whole thing for a relaxing night, but in keeping with his recent stroke of bad luck, the proverbial cat drags in the de Modelo boys, and they’re not feeling relaxed at all.
APRIL 16 A New Approach to Resolving Old Debt
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Check out the entire chapter, catch up on prior chapters, and perhaps learn a few things at DandBLaw.com or http://bit.ly/PilotMysteryCh9.
MARCH TO 1 MILLION UPDATE
Current count for the March to 1 Million: 239,705
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6 TAX PLANNING TECHNIQUES EVERYONE SHOULD KNOW
SHIFTING DEDUCTIONS Deductions can also do a bit of time travel. These expenses can be paid in one year or the next in order to place them wherever they’ll yield the greatest tax benefit. DEFERRINGTAX Continuing the time-splitting theme, certain investments and pension plan contributions allow you to defer taxes on parts of your income until some future year, making this a great long-term strategy. TAX-DEDUCTIBLE EXPENDITURES Provided you meet certain requirements in the tax code, some of your expenses may be deductible. With proper planning, you can structure your affairs to make many of the things you enjoy a deductible expense — supporting your lifestyle while saving you money.
Whether you’re scrambling to get your taxes done this year or looking for ways you can reduce the damage in 2020, it never hurts to return to basics. Where tax cutting and tax planning are concerned, there are no great secrets to success. However, six fundamentals will save you money when tax season comes knocking. INCOME SPLITTING The way you divide up your family’s taxable income as a whole can have a huge impact on the rate you pay. By splitting these earnings among several family members and/or legal entities, a larger portion of your total income will be taxed at a lower rate. SHIFTING INCOME Just as you can split income between family members, you can shift parts of it between years. Certain types of income such as bonuses, dividends, and year-end payments can be moved into the following tax year, which can result in more savings.
TAX-EXEMPT INVESTMENTS The one thing better than growing your money is growing your money for free. Selecting tax-exempt investments at the federal or state level, such as many mutual funds, can net you a significant tax advantage. Using these techniques in ways that optimize your tax savings is the backbone of any tax strategy. Want to learn more? Give us a call at 614-408-0004.
SUDOKU
VEGAN BANANA PANCAKES
Inspired by My Darling Vegan
Breakfast in bed just got a whole lot yummier with this vegan banana pancake recipe.
INGREDIENTS
• • • • •
1 1/2 cups flour
• • • •
2 tbsp maple syrup
2 1/2 tsp baking powder
2 tbsp coconut oil, melted
1/2 tsp salt
1 tsp vanilla extract
2 extra ripe bananas, mashed
Cooking spray
1 cup soy milk
DIRECTIONS
1. In a small bowl, combine flour, baking powder, and salt. 2. In a separate bowl, whisk bananas, soy milk, maple syrup, oil, and vanilla together. 3. Add dry ingredients to wet ingredients and stir. Don’t overmix. Lumps are okay. 4. Spray a heated pancake griddle with cooking spray, and scoop 1/4 cup of the mixture onto the griddle. Repeat until the griddle is filled. 5. After 3 minutes or when bubbles appear, flip each pancake. 6. After each pancake has risen to double its initial height, remove from griddle. Repeat as necessary until batter is gone. 7. Serve with your favorite toppings!
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INSIDE
What Bill Murray Can Teach About Finance PAGE 1
Learn All About Leap Year Pilot Mysteries Synopsis PAGE 2 6 Paths to Tax Savings Vegan Banana Pancakes PAGE 3
Your Epic Adventure Awaits PAGE 4
CREATE YOUR OWN ODYSSEY
MYTHICAL ADVENTURES AWAIT IN THE MEDITERRANEAN
One of the oldest stories in Western literature is Homer’s “The Odyssey.” This epic poem tells the story of Odysseus and his long journey home after the Trojan War. While Odysseus’ travels were fraught with mythical monsters and magic, many of the places he visited are said to be inspired by real islands in the Mediterranean. Even today, travelers flock to these islands looking for peace, adventure, and epic stories of their own. SICILY, ITALY One of the most popular stories in “The Odyssey” is the tale of Odysseus rescuing his crew from Polyphemus, a man-eating Cyclops. It’s said that Polyphemus made his home on what is now modern-day Sicily. Fortunately, there are no Cyclopes in Sicily today; there are only cultural festivals, world- class golf courses, and delicious food. GOZO, MALTA While Odysseus’ journey was perilous, he did enjoy one peaceful stop. Odysseus spent seven years on the mythical island of Ogygia, home of the nymph Calypso. Historians suspect that Ogygia was Gaudos, now modern- day Gozo, Malta. Gozo is home to the Ggantija temples, which are older than the Egyptian pyramids. In addition to exploring its archaeological marvels, Gozo’s visitors can also enjoy snorkeling, horseback riding, and other memorable adventures.
ITHACA, GREECE If you want to chart your own odyssey, make your final stop Odysseus’ home, the island of Ithaca. Covered in lush greenery and quaint villages, Ithaca is a wonderful place to relax at the end of your trip. Visitors can enjoy their morning coffee by a seaside cafe before lounging on a secluded beach for the rest of the day. It’s no wonder why Odysseus fought so hard to get back to Ithaca!
With dozens of other islands to explore, the Mediterranean is the perfect place to plan your own odyssey — minus the mythical monsters, of course.
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2010–2019: THE DECADE IN REVIEW
Every January, I look back and report on The Year in Review and assess the year that was. What were the highlights? What were the “lowlights”? What did we learn? But this January did not just mark a new year. It marked the beginning of a new decade. (If you are a strict observer of the Gregorian calendar system, the next decade begins in 2021. But I digress.) So, for this report, we’re going to look back at what shaped the markets in the 2010s, and what lessons we should take with us into the ‘20s.
For the first few years, fear abounded as to whether the global economy would recover at all. Nation after nation dealt with spiraling debt that couldn’t be paid off. Remember how often Greece used to be in the news? Some analysts speculated about the possibility of a second recession. 2011 was an especially tenuous year for the stock market, especially when the United States’ credit rating was downgraded for the first time in history.
2012–14: THE FEDERAL RESERVE INTERVENES
During this time, however, the world’s largest central banks were working behind the scenes to keep the recovery going. In the United States, for example, the Federal Reserve embarked upon a massive bond- buying program to the tune of $85 billion per month. This accomplished two things. First, it flooded the money supply and kept interest rates historically low. Lower interest rates made borrowing less costly, which meant businesses and individuals could borrow and spend more, thereby pumping more money into the economy as a whole. This, of course, equaled growth. Slow growth, but growth nonetheless. The second thing the Fed’s bond-buying did was drive more investors into stocks. Low interest rates often lead to lower returns for fixed income investments, so investors went into the higher risk, higher reward stock market. All this had been going on for years, but the results were only then becoming apparent. So, it came almost as a surprise when the markets reached new highs even though the economy still seemed to be licking its wounds. In mid-2013, the Dow Jones Industrial Average hit 15,000 for the first time, rising to 16,000 by the end of the year, and then 17,000 the year after. 2015–16: WAITING FOR THE OTHER SHOE TO FALL But that didn’t mean the markets were immune to volatility. Despite the economic recovery, many experts spent the decade in near-constant fear of another bear market. Every wobble and every market correction was
2010–11: AFTERSHOCKS OF THE GREAT RECESSION
The best way to see how much can change in a decade is to remember how things were at the end of the last one. In 2010, we were coming off the worst decade for stocks since the 1930s. The Great Recession had devastated the retirement savings of millions of people. Many of the world’s most famous financial institutions had collapsed. And the national unemployment rate was near 10%. It was a scary and uncertain time. Many investors had fled the markets entirely by 2010, some for good. As a result, they missed a remarkable recovery that was just around the corner. Not only that, they also missed the longest bull market in history. In hindsight, it might seem obvious that there was nowhere to go but up. But just as the start of a recession is very hard to see coming, the ending can be equally hard to wait for. People can be forgiven for thinking the worst was still to come, because in 2010 and 2011, there were still a lot of ominous headlines to deal with. Remember any of these terms? SEQUESTRATION • US DEBT CEILING EUROPEAN DEBT CRISIS BAILOUTS • AUSTERITY • THE FISCAL CLIFF
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... CONTINUED FROM FRONT
When I looked back at the last 10 years, one thing that struck me was how interconnected the world has become. So many of the storylines that drove the markets originated far beyond our shores. We truly live in a global economy. We invest in other countries, buy products in other countries, loan money to other countries (or apply for loans, as the case may be), and trade with other countries. We might be separated by the world’s biggest ponds, but the ripples near one shore are always felt near the other. That means two things. One, for an advisor like me, it means there’s more than ever to keep track of. But two, it means we should react less and less to the headlines of the day — or to each individual ripple. A butterfly might flap its wings in Beijing and cause a hurricane in Topeka, as the saying goes, but there are butterflies flapping their wings everywhere. That’s one reason why we saw many storms but fewer hurricanes in the 2010s. Another thing we learned: Sometimes, most times, slow and steady really does win the race. We were all taught the truth of this as children when we learned the story of the tortoise and the hare. The past decade proved it. Everyone loves growth that comes fast and hot. But when something burns fast and hot, it tends to burn out faster too. One reason we never saw the recession so many people feared is because the economy recovered as slowly as it did. It’s a lesson we can apply to our own financial decisions. While it’s always tempting to chase after windfalls and jackpots, it’s so much smarter to prioritize steady progress over short-term whims. The race to your goals is a marathon, not a sprint. A third thing we learned is how often things don’t go as predicted. In 2010 and 2011, many experts predicted a gloomy decade for the stock markets, and they had good reason to think so! But it didn’t happen. When, say, “Obamacare” became the law of the land, many experts predicted economic disaster. As of this writing, it hasn’t happened. When Brexit became a reality, many experts predicted a global catastrophe. As of this writing, it hasn’t happened. When President Trump was elected, many experts predicted a market meltdown. As of this writing, it hasn’t happened. We all have our opinions on whether events like these were good or bad, of course. But it’s a good thing we didn’t base our investment decisions on experts’ predictions! Because, if there’s one thing we learned this decade, it’s that a prediction is like a person’s appendix — pretty much useless. 2020 AND BEYOND With that in mind, I won’t make any predictions for the coming decade. If history is correct — and it always is — another market correction, another bear market, or another recession will come eventually. Whether it’s this year, next, or the one after that, I can’t say. What’s more important is that we remember this: It’s when we fly that we should have the healthiest respect for gravity, but it’s when we’re on the ground that we should raise our eyes to the skies. Investing is like trying to find our way in the dark, and our strategy is our North Star. It’s so much more valuable than any prediction! We may bump into the occasional obstacle. Sometimes, we may even trip. But if we hold to that star, we will keep moving forward in the direction we want to go. We will make this decade whatever we want it to be.
watched with fearful anticipation. It was like standing next to someone’s hospital bed, thinking every next breath will be their last. Some of this was probably a form of post-traumatic stress caused by the Great Recession. The rest came from the spasms of an ever-changing world. Oil prices plunged dramatically around this time, hurting both oil-producing nations and the energy industry. China’s stock market crashed. The Greek debt crisis reared its ugly head again, prompting fears that “financial contagion” would spread and create another global recession. And then came Brexit. The news that the United Kingdom would leave the European Union sent shock waves around the world. And here at home, one of the most bitterly contested presidential elections in U.S. history had both sides of the political aisle forecasting economic ruin if the other side won. But despite the dire predictions, these developments only slowed the recovery’s march rather than derailing it completely. In fact, by July 2016, the Dow once again hit new heights.
2017–19: THE LONGEST BULL MARKET While most of the decade had seen slow but steady growth, the horse started picking up speed as it neared the finish line, buoyed by tax cuts, increased government spending, and corporate earnings. Nowhere was this truer than with the Dow. Comprised of 30 of the largest publicly traded companies, the Dow hit 20,000 for the first time early in 2017 and closed well above 28,000 on Dec. 31, 2019.
Exactly 10 years before, the number was only 10,428. That’s an increase of over 170% — the culmination of the longest bull market in history.
Of course, it wasn’t all smooth sailing. The trade war with China is an ever-present concern, with rising tariffs often leading to brief but dramatic downswings in the market. 2018 was actually a down year for the S&P 500, the only one of the decade. And as the 2010s drew to a close, many economists warned of a slowing economy with maybe even a mild recession in store. Despite these warnings, investors did what they had done for most of the decade: act startled and then head right back into the markets. Some pundits call it a market “melt up ” instead of the usual meltdown. WHAT HAVE WE LEARNED? So, after a remarkable decade filled with twists and turns, what did we learn?
Happy NewYear! My team and I can’t wait to spend the next decade with you.
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