Our Wealth Services Advisors and Personal Insurance Experts provide insights about topics and trends that could impact your financial and personal goals.
PERSONAL FINANCE QUARTERLY WINTER 2022 Our Wealth Services and Personal Insurance Experts provide insights about topics and trends that could impact your financial and personal goals.
SevenTips for Choosing a Good Contractor For many homeowners, finding the right contractor can be the most difficult part of a home renovation project. Renovations can be stressful and expensive, with many surprises along the way. Having a skilled and reliable contractor can put you at ease and help make your dream home a reality. The following tips can help you find a qualified contractor: Talk to people you know • Relatives, friends, neighbors, co-workers and your real estate agent who have completed home renovations can be the best resources. • Visit their homes, and inspect the quality of work to make sure it meets your standards. Conduct online research • Online searches through Angi, Yelp, National Association of the Remodeling Industry (NARI) and Google can provide a list of licensed contractors in your area. • Make sure the contractor specializes in the work you need and routinely does the kind of project you are planning. • Check the contractor’s online reviews, but always make sure to ask for references. Ask former clients the following questions: • Did the project finish on time? • Did the project finish on budget? • How was the quality/durability of the work? • Would the client recommend the contractor to a family member or friend, and why? • How well did the contractor communicate and resolve problems? Inquire about experience • Find out how long the contractor has been in business and what type of warranties and guarantees he or she provides on the work. Check licenses, insurance and complaints • Ask the contractor for a copy of his or her license, as well as licenses for any subcontractors who may work on the home. • Ask for proof of business and a certificate of liability insurance, and check that policy limits meet state requirements. • Check the Better Business Bureau and local court records for any reported complaints or lawsuits. Personal Finance Quarterly | Winter 2022 3
Interview and obtain written itemized estimates from at least three contractors • Before meeting a potential contractor, make sure to have a clear idea of what you want. Make sure the contractor can start and complete the project within your timeframe. • Provide specific directions on the scope of the project and the materials you want used. • Obtain a complete contract specifying the work to be done, the materials to be used, the amount to be paid and the rights of both parties. • Compare the bids, and make sure they include the same work and materials. • If your preferred contractor has the higher price, try to negotiate before signing the contract. Determine if the estimate includes contingences for unexpected costs • Contractors can’t see through walls, so it is common to find surprises that can easily add 10-15% to your cost. Pull proper permits • Have the contractor determine what permits will be needed, and confirm that the contractor will work with the city to obtain all necessary inspections. We offer this information to assist you in making decisions that can help mitigate your risk. While we cannot address every possible scenario or guarantee these tips will work for you, our goal is to support your efforts to protect yourself and your family. 5 6 7
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Click here to read the full article from our carrier partner Nationwide Private Client. If you have questions about your post-renovation replacement costs, request a time to chat with our team here.
4.25%. The total return for the Bloomberg Barclays Aggregate Bond Index has enjoyed a positive total return during five of those periods. In the two periods when the total return was negative, the bond index lost a total of 2.89% during 1987 and 2.04% during 1994. With the 10-year Treasury yield at about 1.5%, the bond market is clearly not concerned about long-term inflation. However, as the economy continues to recover, and with short-term rates rising, the longer-term yields are likely to rise as well. A good indicator of this relationship is the interest rate spread between the 2-year and 10-year Treasury yield. This spread has been a very accurate indicator of pending recessions when the shorter-term yield is higher than the long-term rate, that is, when the yield curve is inverted. When the economy is expanding and inflation pressures are high, the spread between the 2-year Treasury and the 10-year Treasury has risen to as high as 2.5%. With the current 2-year Treasury yield at around 0.50%, the current spread is about 1%.
Inflation–More Than Transitory Written and prepared by: Robert Janson, CIMA®, AIF® Senior Vice President, Senior Portfolio Manager, Wealth Services
inflation, currently around 3.2% annualized, tends to exhibit longer staying power. Sticky categories include rent , owners’ equivalent rent, insurance costs and medical expenses. Flexible prices are those that change Sticky [price] categories include rent, owners’ equivalent rent, insurance costs and medical expenses. price relatively frequently, including food and energy. The relationship between steadier sticky prices and more volatile flexible prices also mirrors the relationship between the CPI and the Producer Price Index (PPI), with the CPI generally much less volatile than the PPI. Covid-related raw material production, manufacturing slowdowns and supply chain
disruptions during the early portion of the recovery caused the PPI and flexible prices to escalate when the rapidly rising consumer demand completely outpaced the ability for the supply chain to meet the demand. Increasing consumer demand was aided by the rapid improvement in the employment picture. At the height of the Covid shutdown, the initial claims for unemployment insurance surged to ten times the typical recession levels. After only 18 months, this leading indicator is down to the levels only seen during the best parts of a growing economy. The relationship between employment and inflation is described by the Phillips Curve. The Phillips Curve argues that unemployment and inflation are inversely related: as levels of unemployment decrease, inflation increases.
Now that the economy has recovered from the 2020 Covid-19 shutdown, the dominate investment concern is inflation. The stock and bond markets are wrestling with the challenge of whether the current higher inflation is “transitory,” as the Federal Reserve has stated, or is going to be longer lasting. Investors are looking for opportunities to provide “real” return on their money to overcome the impact of rising prices. Define Inflation THE ATLANTA FEDERAL RESERVE has defined two parts of the Consumer Price Indexes (CPI) as “sticky” inflationand“flexible” inflation. According to them, if the price changes for a particular CPI component occur less than every 4.3 months, that component is a “sticky-price” good. Goods that change prices more frequently are “flexible-price” goods. Sticky
Investments During Periods of Higher Inflation Bonds THE FIXED RETURN that most bonds provide means they are very sensitive to the impact of inflation on their real total return. However, history has shown that bonds reflect negative total returns only during periods when inflation was greater than 6%. Since 1983, the Fed has increased the Fed Funds rates during seven different periods. During those periods, the Fed increase the rate by minimum of 1.75% to maximum of
The Federal Reserve had a significant impact on the rapid recovery of the market through the aggressive interest rate policy as well as the stimulus provided to the financial markets. To combat rising inflation, the Fed has already begun to “taper” the stimulus and is likely to start raising the Fed Funds rate during 2022. For now, the Fed is projecting only one increase next year, while the futures market foresees at least two increases. Short-term rates are likely to end 2022 between 0.50% and 1.00%.
Personal Finance Quarterly | Winter 2022
If the 2-year yield rises along with short rates by 0.50% to 1% and the spreads remained the same, the 10-year yield would rise from 2% to 2.5%. This rise would put pressure on bond values. To lessen the risk from falling bond values as interest rates rise, the average maturity of a bond portfolio can be shortened to reduce interest rate risk, also known as duration risk . This can help mitigate the decline, but the likely total return on bonds may be flat to slightly negative over the period of rising rates. However, the downside risk of bonds is still likely to be significantly less than other investment assets during periods of short-term volatility and should still be a significant portion of an investor’s portfolio to help dampen the downside risk, as was shown during the shutdown in 2020. Stocks OVER THE MARKET’S HISTORY, riskier assets, such as stocks and other alternative investments, have shown to help provide
real return above inflation. Investments like gold and other commodities have
wealth. In the short run, companies with pricing power such as semiconductors and some consumer brands can pass through flexible price inflation to consumers and maintain real earnings and profit growth. Financial stocks tend to do best in rising interest rate environments. And, during periods of sticky inflation environments, such as in the period of 1975 to 1982, stocks have provided the best opportunity for real return. During that period, annual inflation ranged from 5% up to 13%. In those same years, stocks provided real returns in five of eight years and only had two negative years–which is typical for the stock market over any economic environment. More importantly, over those eight years, prices rose by 96% while stock prices rose by over 200%. And, of course, during periods when inflation is not a challenge, the stock market also provides significant real returns with an average annual “real” return of 4-5%.
Disclaimer: This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. Advisory Services offered through Alera Investment Advisors, LLC. Securities offered through Triad Advisors, LLC. Member FINRA/SIPC. GCG Financial, LLC, Alera Group, Inc. and Alera Investment Advisors, LLC are not affiliated with Triad Advisors, LLC. Information provided by GCG Financial, LLC should not be considered tax or legal advice. Should you require tax or legal information, please consult your tax advisor or attorney.
been used in short periods to mirror rising flexible prices. In the past, emerging markets were also a good proxy to provide inflation protection due to their commodity driven economies. However, recently, these economies have become more dependent on technology and less on commodities. The return from commodity- related investments has been relat ively minimal and temporary. For most investors, simply tracking price changes and inflation is not a long-term solution to providing real returns. Historically speaking, stocks have done the best to create real returns and long-term And, during periods of sticky inflation environments...stocks have provided the best opportunity for real return.
Conclusion INVESTORS ARE LOOKING for opportunities to provide “real” return on their money to overcome the impact of rising prices. Bonds can still provide the stability in an investment portfolio despite rising interest rates. As history has shown, total return on bonds can still be positive, as it has been in five of the last seven rising rates environment. However, whether the current inflation threat is “transitory” or longer lasting, the stock market has shown
in high inflation environment of the late 1970’s, early 1980’s and throughout the history of the stock market that it can provide the “real” return above inflation to help investors create wealth and combat the effects of rising prices.
To schedule a meeting with one of GCG’s Wealth Services advisors regarding your investments, follow this link . Interested in a market recap of Q4 2021? Register for our webinar on January 26th at 11:00 AM CST.
Personal Finance Quarterly | Winter 2022
Personal Umbrella Insurance: Peace of Mind to Enjoy the LifeYou’ve Earned
Umbrella insurance may cover damages for claims excluded under a home, auto or watercraft policy. If, for example, you were sued for libel because of something your son or daughter posted in social media and coverage was excluded under your homeowners policy, an umbrella could provide the needed coverage. Personal umbrella insurance also covers attorney fees and defense costs that exceed underlying coverage, and it can cover costs resulting from a policyholder’s auto accident when the driver at fault is uninsured or under-insured , or when the policyholder is the victim of a hit-and-run. Social Inflation and Nuclear Verdicts In an October 2020 article titled “What Exactly Can Be Taken From You in a Lawsuit?” , Forbes noted that an unfavorable verdict could cost a defendant assets including homes, cars, life savings and “anything you have left.” Using one Illinois attorney as an example of aggressive litigation lawyers, Forbes reported, “When Mario Iveljic, a partner at Mag Mile Law, issues a citation to discover assets in Illinois, he leaves no stone unturned. His firm asks for all checking and savings accounts, partnership agreements and records of partnerships, real
estate (including timeshares), trusts, contents of all safety deposit vaults, title to all properties and a complete list of jewelry, art objects and personal property.” Exposing a defendant’s full net worth enables Iveljic and attorneys like him to capitalize on what’s known in the insurance and legal industries as “social inflation,” the phenomenon of escalating insurance claims resulting from: • Increased litigation and third-party litigation funding • Broadened definitions of liability • A greater percentage of plaintiff-friendly legal decisions • Larger compensatory court awards – some so costly that they’re referred to as “nuclear verdicts” In such a litigious climate, the threat of a lawsuit can be intimidating. One of our knowledgeable team members can work with you to determine what assets a litigant would be likely to seek in a suit and what policy limits you would need to protect those assets. Click here to request a time to chat. You’ve worked hard—enjoy the life you’ve earned. A personal umbrella will cover you and your family.
Written by: Jordan Levitz, GCG’s Director of Personal Risk Management
By most standards, Lisa and Joe are living the American dream. Hard-working professionals, they have three children, a dog, a combined annual income of about $450,000, a 10-room colonial in the suburbs and a lake house that sits on four acres of zoned land. They own three late-model vehicles, one of which their two teenagers share. The parents and kids alike enjoy entertaining, including use of the backyard swimming pool at the main house and a trampoline at the lake house. Lisa and Joe are engaged in their children’s activities and active as volunteers in their community. Lisa coaches their daughter’s soccer team, and Joe is on the board of a conservation group that owns properties used for recreational activities. But what if one day the family’s pet is startled by one of the kids’ friends and bites them? Or one of the teens accidentally drives through the plate-glass front of the downtown bistro? Or a neighbor at the lake sustains multiple fractures on the trampoline? Or Joe’s board is accused of negligence after a hiker falls off a slippery boardwalk on one of the conservation group’s properties? With so many assets, wouldn’t Lisa and Joe be inviting targets for a lawsuit if one or more
of those things happened? Wouldn’t they be in danger of losing their savings, their homes, their antiques and artwork? Lisa and Joe are able to maintain peace of mind because they practice good risk management— including protecting themselves and their assets with personal umbrella insurance. Real-Life Assets, Risks and Protection Joe and Lisa are a fictitious couple, but risks of a liability lawsuit resulting from the kinds of scenarios we’ve described are real. For a relatively inexpensive premium—usually between $150 and $350 annually for extended coverage limits starting at $1 million—you can protect yourself and your family from the type of legal judgment that could cost you everything you own. In short, personal umbrella insurance enables you to secure your future and live your life. Let’s say your homeowners policy has a liability limit of $100,000 and a guest successfully sues you for $200,000 after suffering an injury on your property. Your homeowners policy would pay the $100,000 limit, and the umbrella would cover the balance. Similarly, if your teen driver were to cause an accident resulting in damages that exceeded the auto policy limit, your umbrella policy would pay the difference.
Personal Finance Quarterly | Winter 2022
Seasonal Spotlight
Commercial Bingo Cards If your favorite part of the Super Bowl is the commercials, try your luck with “Commercial Bingo Cards.” Write in the large companies that you think are going to have a Superbowl ad, and then see if you can get 5 in a row! Football Squares What may seem like a complex grid of numbers is actually a fairly straightforward scoring system, and if you play for money, by participating you could stand to win a decent amount of cash. Plus, it’s a lot more random than a March Madness bracket where some knowledge of the sport definitely gives participants an edge. Halftime Show Predictions Write out your best guesses for what songs will be performed, which special guests will be brought out, or even if there will be fireworks. Whoever correctly predicts the most, wins! Mascot Trivia Billy Buffalo is pretty obvious, but which team does Sourdough Sam rep? Put your friends and family to the ultimate test with this matching game where you pair each NFL team with their corresponding mascot . Regardless of if your favorite team is playing for the trophy, or if you choose which team to root for based on their uniform colors, these games are sure to be a hit with all of your family and friends this Superbowl Sunday. Enjoy!
A GameWithin a Game What to play with family and friends during this year’s Superbowl
Whether you’re tuning in for the commercials, the halftime show, or the actual NFL championship, Superbowl Sunday remains one of the most highly anticipated events of the year. While the football game may technically be the night’s main attraction, that doesn’t mean that you can’t have some fun with a few activities of your own. For most people, hosting or attending a Superbowl get- together isn’t necessarily about watching the game, but an excuse to spend time with family and friends. Playing some small games during the big one is a fun way to make sure that all attendees have a great time. Here are some game suggestions for all ages that will be sure to keep everybody entertained throughout the night—especially those of us just trying to make it to the halftime performance.
Sources: https://www.goodhousekeeping.com/life/g4953/super- bowl-party-games/ https://www.krqe.com/sports/the-big-game/explainer- heres-how-super-bowl-squares-work/ https://www.playpartyplan.com/super-bowl-games-bingo/
Personal Finance Quarterly | Winter 2022
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