Monthly Archives: July 2017

Thoughts From Willis | What it Means to Have a Proactive Versus a Reactive Advisor

Published July 28, 2017

A financial advisor’s basic duty is to ask the client questions, gather financial data, and ultimately design a plan that meets the financial needs and obligations of the client.

 

But the key component necessary to being a proactive and competent financial advisor is the continued dedication to making adjustments to a client’s financial strategy in response to life-changing situations.

 

The reality is that your wealth manager should be asking key questions to determine what stage of life you are in today and what major events are taking place in the near future in order to make the proper recommendations to adjust your ongoing financial plan. 

 

How to Recognize a Proactive Financial Advisor

You need to reflect on the relationship you have with your advisor.

 

How often do you and your advisor meet or speak on the phone?

Is your advisor asking questions about your life and your goals, or is he/she selling you on ways to invest your money?

Is your advisor charging you transaction commissions, or is he/she managing your accounts on a discretionary basis and charging a quarterly or annual fee?

Is your advisor asking about your budget and your projected cash flow needs?

 

 

You most likely have a proactive advisor if you are being asked the more in-depth questions, such as:

 

“What itemized deductions did you take on your tax return?”

“Where do you want to live in retirement?”

“Have you executed documents for your wills and properly assigned beneficiaries on all of your accounts?”

“Do you want to take your pension as a lump sum or in the form of an annuity?”

“Are you maximizing the use of all of your corporate benefit plans?”

“Are you earmarking the funds that will be used first during retirement in order to minimize taxes throughout your retirement years?”

 

How to Know If a Financial Advisor is Reactive vs. Proactive 

If your advisor is only asking you the baseline questions, such as, “When are you retiring?” or “Do you have insurance?” and waiting for you to ask the deeper questions, then you most likely have a reactive advisor. This means that you are responsible for asking the important questions that yield changes in your investment strategy and financial priorities.

 

At Willis Johnson & Associates, we hope and strive for the best by anticipating life-changing situations. When we map out multiple scenarios for our clients, their risk exposure may be mitigated if an unexpected life change were to come about. Our firm takes pride in what we do and our advisors have the ability and the skill set to assist our clients in so many facets of their lives. If you feel that your financial planning and investment needs are not being met, or are interested in finding a proactive advisor, please reach out to us so that we can help you plan out your unique and customized plan. 

 

 

Willis Johnson, CFP®
President and CEO

 


Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions. 

Financial Fact | Soaring Education Costs

Published: July 18, 2017

Did You Know that the Cost of Education is Continuing to Soar, Faster than Inflation or Healthcare Costs?

 

According to the U.S. Census Bureau, as of 2015, 88% of the United States population age 25+ had obtained a high school degree, and only 32.5% of the population had obtained a bachelor’s degree.  Additionally, only 12% of the population received an advanced degree (i.e., Master’s or Professional degree).  We have a huge education gap here in the United States, larger than many other developed countries.  There are many reasons for this gap, including the affordability of and access to education, generational gaps, etc.

 

The cost of college education in the U.S. continues to increase an average of 5.2% annually.  This is higher than the rate of inflation and the annual increase in health care costs.  If the average cost of a public university today is $21,000 and you have a child or grandchild planning on going to school in 18 years, their total cost to attend 4 years of college will be approximately $200,000. 

 

Photo 1

 

As a result of the high cost of education, many of the college-aged population are not attending college. If they do decide to attend, they are having difficulties affording their education, especially if they do not receive any scholarships or subsidies.  Furthermore, children with parents that have college degrees are more likely to go to and finish college.  Children with parents that do not have any higher education often continue in the same pattern of not going to or finishing college, and the cycle of little to no education, and thereby poverty and inequality, continues. 

 

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This is why it is imperative for parents and grandparents to encourage our children to finish high school and obtain higher degrees, whether it’s college or graduate school or more.  And as higher education costs continue to increase every single year, it is also important to help our children with the costs of a college education.

 

There are benefits to beginning to save for college within tax-deferred programs such as 529 plans or other types of tuition programs.  There is also a great benefit to saving early for a child’s college education to take advantage of compound growth over time.

 

To learn more about tax-efficient savings for higher education, please reach out to us or read some of our other articles about 529 plans here.

 

 


alexisAlexis Long, MBA, CFP®

Alexis Long is a wealth manager at Willis Johnson & Associates. For Alexis, financial planning combines an interest in producing detail-oriented financial plans with a desire to help people obtain their goals, ranging from retiring early, paying for their grandchildren’s educations, buying a second home or leaving a legacy for their children. Understanding what is truly important to a client is key to good financial planning, along with providing solid technical advice.

 

Alexis earned her undergraduate degree in International Business from Texas Tech University and her Finance M.B.A. from the University of St. Thomas.

 


 

 

What Nick’s Reading | Sequence of Return Risk

Published: July 11, 2017

Sequence of Return Risk and Planning for Your Retirement Future

Recently, a client of mine came in to see me and said he was ready to retire. He had crunched the numbers. He knew his expenses. He reviewed his portfolio value. And he believed he was in good shape.

 

He had a $2 million portfolio and needed $90,000 a year to live comfortably. That isslightly more than a 4% withdrawal. We both believed 5% market returns over the long run were achievable–even in today’s economy.

 

After I reviewed the numbers with him, I told him I was uncomfortable with pulling the trigger on retirement today.

 

With all of his retirement income being in the markets and no pension or annuity income, I felt that he had a significant sequence of return risk.

 

Essentially, just because the average return on a portfolio (5%) is above the expected withdrawal rate (4.5%), that does not mean the money will last through retirement. Starting retirement off in a bear market can absolutely devastate the longevity of a portfolio, while starting off retirement with a bull market can pay off handsomely.

 

As viewed in the chart below, this is because the order in which the returns to a portfolio occur really matter for a retiree taking income from the portfolio.

 

What Nick's Reading - July 2017

 

Who is Subject to Sequence of Return Risk?

 

This risk is especially prevalent for families who have a large majority of their retirement income subject to market returns. I see this all the time with retirees who choose the lump-sum pension option. They have a bucket of money to invest, which often times makes them feel comfortable. The problem is that without careful planning they may be setting themselves up for failure.

 

Sequence-of-return risk can often be compounded by retirees’ psychological reactions to the market in early retirement. Quite frequently we notice that retirees watch the market with greater scrutiny in their first few years outside of the office and are much more likely to react to market volatility. Now that they are living entirely off of their savings, their gut instinct will often be to “protect” their portfolio when the market is fluctuating by selling equities and going to cash exactly when they should be doing the opposite.

 

What Can Be Done to Mitigate Sequence of Return Risk?

 

For some, taking a pension as an annuity or buying an equivalent product may be a choice to reduce the amount of their asset base that is subject to market risk. Of course, annuity pensions simply trade off one type of risk for another. For many clients, we suggest a cash reserve to cover short-term expenses. Often knowing that the next 2-4 years are covered without being forced to liquidate a portion of the portfolio in a potentially bad market will often help retirees sleep better at night. (At the same time, holding too much cash can also be a problem, especially considering how long retirees are living these days.) Though, in the particular situation of the client that was recently in my office, I recommended a few more years of work before retirement.

 

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. This information is not intended to be a substitute for specific individualized advice and should only be relied upon when coordinated with individual advice.

 


nick

Nick Johnson, CFA®, CFP®

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Nick Johnson believes that financial planning is more than numbers on a balance sheet and a standardized process. People are unique and should be treated as such. 

 

As Vice President and Wealth Manager at Willis Johnson & Associates, his goal is to really get to know his clients, all the while providing a proactive approach to comprehensive wealth management.


 

Market Update | The Markets (as of Market close June 30, 2017)

The second quarter proved to be a bit bumpy for equities, but each of the benchmarks listed here closed the quarter ahead of their first-quarter closing values. April saw equities close the month ahead of March, buoyed by favorable corporate earnings reports, proposed tax cuts, and strong foreign economic advances. Nasdaq led the way posting monthly gains of 2.30%, followed by the Global Dow, which gained almost 1.50%. The large-cap Dow advanced 1.34%, ahead of the S&P 500, which increased close to 1.00% for the month. Even the small-cap Russell 2000, which has had some rough weeks, closed April 1.05% ahead of its March close.

 

 

May was a slower month as consumer spending and wage growth were relatively weak, with only 138,000 new jobs were added in May, compared with an average monthly gain of 181,000 over the prior 12 months. Nevertheless, only the Russell 2000 lost value, falling 2.16% from its April closing mark. Nasdaq continued to surge, ending May with a monthly gain of 2.50%…Click for the full update.

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