Monthly Archives: April 2018

Thoughts From Willis | Are You Ready for the Big Game? How to Avoid Financial Planning Risks and a Nail-Biting Finish

April 23, 2018

I often hear investment professionals on financial networks compare the market cycle to the innings of a baseball game.


They associate the first inning with the beginning of a long, positive bull market, and the ninth inning with the end of a cycle, just prior to the beginning of a bear market. However, I feel a better analogy is to compare baseball to an individual’s financial planning journey.


In baseball, like many sports, the ending score is the only one that really counts. However, if you get ahead early in the first few innings, you have flexibility. You have the option to protect your lead by playing conservative and saving your pitchers, or, you can take the risk and pour it all on.


As you approach the end of the game, the losing team will begin making aggressive changes. Why? Because at this point, they have nothing left to lose. It’s time for the big play, the pinch hitter, the new pitcher and aggressive base stealing. If the aggressive play does not work and the game ends in a loss, most fans can say ‘at least they tried’, or ‘at least they gave us an exciting finish’.


In baseball, high risk moves are thrilling and, sometimes, taking such risk can yield very positive results. However, when it comes to financial planning, relying on the risky plays later in life to make up for all the years you skipped saving or planning can be a gamble. Unlike baseball, when you’re taking significant financial risks in the later stages of your retirement journey, you have a lot to lose.


Life doesn’t have another season.


You don’t want to run out of money in the seventh inning before the end of the game. More importantly, you don’t want to begin the game with the ‘I can make up for it later’ mindset. As you prepare for retirement, your financial well-being will likely be affected if you skip an inning of planning, saving, or reviewing your financial affairs.


So, what is your financial planning team doing to help you get ahead and avoid financial planning risks?


Have you developed your financial plan to get you through the ninth-inning and potential extra innings, or…


Have you skipped planning this year hoping for an exciting finish to save your financial game?



President and CEO, CFP®
Willis Johnson

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.

Financial Fact | Interest Rates Are Increasing… Are Your Savings? High Yield Online Savings Accounts vs. Traditional Banking

April 16, 2018

Banks profit on the difference between the interest they pay their depositors (checking and/or savings accounts) and the interest they charge for lending that money to others in the form of loans.

If banks are charging higher interest rates for a mortgage, credit card, or auto loan, why are they not paying you more for the deposit that made it all possible?


The Federal Reserve has raised the benchmark funds rate for the sixth time since the Great Recession, and consumer interest rates have floated higher throughout the economy. Although these rates are increasing, a majority of traditional banking establishments still offer low yield interest rates to potential savings account customers. There are two reasons national banks maintain these low yield rates:


1) Traditional banks have expensive overhead.

a. For the bank, it can cost a lot to staff a branch in addition to standard costs such as paying utilities, property taxes, and building upkeep.


2) Today’s banking customers don’t shop around.

b. For the customer, there’s no reason to change banks if switching to the competing national branch across the street only earns you a few extra cents each year.

High Yield Online Savings Accounts vs. Traditional Banking: Comparing Interest Rate Earnings

In contrast to the traditional bank, online banks eliminate the cost of a physical footprint and pass those savings to their customers in the form of higher interest rates, meaning more growth for the customer’s savings account. Savings accounts at online banks are FDIC insured and include perks like free mobile check deposits, daily interest compounding, and low (or zero) account minimums. 


In return for forgoing a local branch, customers can expect their savings account to grow at the current rate of 1.50% – 2.00% annually.  Compare the growth of online savings accounts to Wells Fargo, Bank of America, and Chase who offer rates ranging from 0.01% – 0.09%, depending on the customer’s “preferred status” and minimum account size.*


*For this comparison, I used our local zip code (77057) to look up the current rate offerings from the largest national banks. (Sources: Popular Direct, Dollar Savings Direct, Ally Bank, Bank of America Awards Savings, Wells Fargo Way2Save, Chase Savings)


Now, let’s put these rates into perspective. Consider you’re a high net worth individual with $100,000 cash savings held in an account at a national bank. The account has an interest rate of 0.01%. After one year, your savings will earn $10 in interest, bringing your total savings to $100,010.


Now, consider that instead of using a National Bank, you deposited your cash into a high yield, online savings account with an interest rate of 1.50%. After one year, your savings would have earned $1,500 in interest, bringing your total savings to $101,500.   


That’s a $1,490 difference in earnings!


So, why would anyone choose to open a savings account at a traditional bank? When might an online savings account NOT be the preferred choice?


Online savings accounts outperform traditional banking options for a majority of the corporate professionals we have worked with, but there are instances when internet banking does not fit the lifestyle or preferences of an individual. The reasons behind such preferences generally stem from the fact online savings accounts live and breathe ONLINE. Online account holders cannot walk into a physical establishment and engage with people and processes that are familiar to them.


For a majority of individuals, the preference for traditional banking methods is primarily relevant when taking out a mortgage, applying for an auto loan, or completing another major financial milestone. An additional inconvenience accompanying online banking accounts is the delay you may experience when transferring funds to or from an online savings account as it may take time for the activity to process and clear your account.



Choosing an Online Savings Account: How to Find a Top APY Savings Account that Fits Your Financial Plan

Not all online banks are a good fit, and you should thoroughly research your options to determine if they suit your unique financial situation and long-term goals.  I often recommend my clients use Bankrate to research online savings accounts and compare your options. Follow these steps to try it for yourself:


1) Go to the Bankrate savings accounts savings rates comparison page.

2) Sort the list of online savings accounts by Annual Percentage Yield (APY). This will display the top-paying banks first.

3) Browse your options and compare the perks and requirements associated with each.



What Are the Downsides to Using a High Yield Online Savings Account?

High yield online savings accounts can be a great way to increase your savings without requiring significant effort. However, there are a few complexities that accompany online banking:


1) Online accounts require more administration by the account holder than required by traditional banking. YOU are responsible for moving money between your online accounts.

2) You sacrifice the comforts of a physical branch. You do not have in-person access to the people behind the bank’s operations or customer service departments.

3) It can take 2-3 days (sometimes more) to move money between online bank accounts and checking accounts at national banks unless you pay a wire fee to move the funds.

4) ALL savings accounts are limited to six withdrawal transactions per month.


Despite their potential deterrents, we believe high yield online savings accounts are often the best place for our clients to hold their emergency cash reserves. We recommend you consider your options in light of your financial plan to determine which online savings account is the best fit for YOU.


Maximizing your cash earning potential is an easy way to combat inflation and preserve the purchasing power of your rainy day fund.  Interest rates are continuously changing, so it’s important to stay informed and assess if your bank is doing enough to earn your business.


If you have any questions regarding the benefits of high yield online savings accounts vs. national banks, contact a WJA representative for more information or to schedule a conversation.



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.


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Tyler Baker, CFP®


Tyler Baker is an associate wealth manager at Willis Johnson & Associates.Tyler enjoys guiding individuals and their families through the financial planning process, and he specializes in uncovering new opportunities that work to minimize client expenses, while increasing their savings.


Tyler graduated from the University of Georgia with two degrees, a Bachelor of Science in financial planning, and another in housing management and policy. 


How Restricted Stock Works & What You Should Consider for Your Financial Plan

April 10, 2018

Does your employer offer restricted stock as a form of employee compensation? If so, do you know how restricted stock works?

What restrictions and tax implications accompany the restricted stock shares long-term? What happens to your restricted stock if you’re laid off? What if you decide to retire?

These are all questions you should ask, and be able to answer when incorporating your company’s restricted stock offering into your financial plan.


Employers offer restricted stock compensation as a means to retain and incentivize key employees, but many employees do not fully understand how restricted stock works. The fine print associated with these grants can be complex and can vary depending on the grant. Therefore, it may be effective to consult with your financial advisor or initiate a relationship with a financial planning professional, before you accept a restricted stock grant from your employer.


How Restricted Stock Works: A (Very) Basic Overview

Restricted stock awards are shares of company stock granted to an employee by the employer, which the employee does not have the ability to control for a specified period of time. Think of restricted stock as a conditional promise from the employer to the employee. Once the employee meets the pre-determined conditions, the promise is fulfilled. In some ways, restricted stock is a deferred bonus which pays out at an increased or decreased value depending on the price of your employer’s stock.


A majority of employers require an employee to meet a specific quota(s), often a designated term of employment with the company and/or individual performance metrics, in order to achieve full ownership of the stock.  If the employee meets the quota(s), the funds will ‘vest,’ meaning the employee is no longer restricted from selling, converting, or receiving dividends on the shares. 


Employers utilize restricted stock to align the employee’s interests with those of the firm. Ideally, the employee wants to increase the value of their restricted stock, thus increasing their compensation. Similarly, the employer wants to enhance productivity among invested employees, thus increasing the company’s stock value as a whole. The idea is that both parties are motivated to improve the long-term stock value of the company because both parties are thinking and acting like stakeholders.  


How Restricted Stock Works and WHEN: A General Timeline


A majority of employers implement a restricted stock compensation timeline similar to the one below.



1) Grant Date: Restricted Stock is Granted to the Employee by the Employer


a. Restricted stock is granted to the employee by the employer, starting the clock for the employee to fulfill the specified vesting conditions, also known as the vesting schedule.
b. The employee does not pay taxes on the shares when they are granted, unless they choose to complete an 83(b) Election (see section on 83(b) Elections below).


2) Pre-Vesting Purgatory: Post-Grant Date, Pre-Vest Date, and the Policies In-between


a. The length and restrictions associated with the pre-vesting period, or vesting schedule, are unique to the company granting the stock.
b. The employee does not have ownership rights to the restricted stock, meaning they cannot sell the shares, or convert the shares to cash.
c. At this time, the restricted stock is still considered to have a Substantial Risk of Forfeiture and is not subject to taxes. 
d. There are two main types of vesting schedules:

i. Graded Schedule: The employer will determine a set percentage of the shares to vest each year for a set number of years.
ii. Cliff Schedule: 100% of the restricted stock shares granted to the employee are vested after the specified employment conditions are met by the grant recipient.


3) Vest Date: Value…and Taxes


a. Once the employee has fulfilled the criteria set by their employer, the shares are vested. This means the employee now has full ownership rights to the company shares and the stock is no longer ‘restricted.’
b. Upon vesting, the shares are no longer a ‘Substantial Risk of Forfeiture’ and are subject to taxation. The vested shares are subject to earned income tax rates unless the employee completes an 83(b) Election (see section on 83(b) Elections below).
c. The cost basis for the stock is the value of the stock on the date it vests. As such, there is often little to no additional tax due if the employee sells the stock soon after it vests.


How Restricted Stock Works with 83(b) Elections: The Exception to the Tax Rule

A majority of employees are subject to paying earned income taxes on the restricted stock once the shares have vested and the employee officially owns the stock. However, some employees choose to make an 83(b) Election in an attempt to decrease the amount of taxes paid on the growth. Instead of paying taxes on the value of the stock when it is vested, the employee will pay taxes on the value of the stock when it is granted.


Thus, if the stock basis increases from the time the restricted stock is granted to the time it vests, the employee may be able to reduce the taxes paid on the shares, as any growth that occurs after the grant date is taxed at capital gains rates instead of earned income rates. However, this strategy requires the employee to pay taxes on stock that has not yet vested, and if they ultimately do not receive the stock, the taxes paid on the shares are non-refundable.


Restricted Stock Awards vs. Stock Options: Similar, But Not the Same

Restricted stock and stock options are two terms often confused by employees working to understand their employer compensation offerings. Stock options were a popular choice in the past, but restricted stock awards have become the preferred compensation method for employers over the last decade. 


Restricted Stock:

• A conditional award of stock to an employee once they reach the vesting date and fulfill the pre-determined conditions specified by their employer.
• The shares are taxed on their stock basis upon vesting, meaning the employee does not pay taxes on the grant date.
• The value of the promised stock is subject to market fluctuations. In other words, when the stock goes up, the award is worth more, but when it goes down, the award is worth less.
• Restricted stock is almost always worth something. Even if the stock value drops dramatically, the shares will most always retain some value and will rarely be worthless to the employee.


Stock Options:

• The option for an employee to purchase a specific number of shares in company stock at a specific price for a certain amount of time.
• If the market price of the stock exceeds its exercise price, the employee can decide to buy the stock, thus paying a lower price for the shares than their actual market price.
• If the stock price is below the exercise price at expiration, the options have no intrinsic value to the employee and may end up being worthless.


Common Curveballs: Pre-vesting Pitfalls, Overconcentration in Company Stock

Like all financial planning, it is important to prepare for what could go wrong. Restricted stock offerings can be a valuable opportunity for employees to receive direct compensation for their contribution to the company. However, without the right information and careful consideration, an employee may unintentionally jeopardize the value of their restricted stock.


Pre-Vesting Pitfalls to Avoid


The most important thing to remember about restricted stock awards is that the stock shares are not guaranteed until the shares have vested. Just because an employee is granted restricted stock, does not mean they will receive the shares on the vesting date.


For many employers, the retirement or resignation of an employee will trigger the automatic forfeiture of the individual’s unvested shares. However, this may not be the case for every employer, so be sure to thoroughly read and re-read your employer’s restricted stock grant documents to determine what policies may affect your financial plan.


Employee Termination:
What if you are laid off? In such a position, you have less control over the situation than you would if you decided to retire or resign. Many employers offer a severance package that allows the terminated employee’s restricted stock to continue vesting. Refer to your employer’s severance agreement to clarify how unvested shares are treated in this context.


Performance Shares Classification:
Another variable to consider is an employer’s potential treatment of restricted stock shares as performance shares. This means the employer will adjust the amount of shares the employee receives based on a specified set of metrics. So, if an employee is granted 100 shares, they may receive more shares if the company performs well, and less if the company performs poorly between the grant date and vest date.


Overconcentration in Company Stock


Once the restricted stock shares are vested, what do you do next?  Should you keep all of your shares? Sell everything? Sell part? If you only sell part, how much should you sell and when?



Planning for the post-vesting period is just as important as planning for pre-vesting. You should have a clear understanding of how you will manage your vested shares to complement your financial plan.


For example, as we begin working with new clients, we often find they are over-concentrated in their employer’s stock. They have been working for the same company for a long period of time while accumulating company stock year after year without diversifying their holdings. Suddenly, they may realize that 10%, 20%, or 30% of their net worth is invested in their employer.


This is already a high concentration before these clients account for the unvested restricted stock, the fact they will continue to be employed, and additional employee-related incentive compensation that make up their portfolios. All of these components are tied to the company they work for, which can be a major risk if an unexpected event like the BP Horizon Spill, or worse, an Enron bankruptcy were to occur. Such unforeseen incidents can destroy an employee’s retirement plan if their portfolio is heavily weighted in employer-associated assets, which is why a diversification strategy should be in play from the start.


We work with our clients to set up a diversification strategy that takes into account their net worth, tax situation, and expected future vesting of restricted stock. A diversification strategy may include staged selling, covered calls, and/or laddered limit orders to ensure you are reducing specific company-specific risk in a tax efficient manner. Talk to your advisor or reach out to a member of the WJA team to learn more about what strategy is best for you.


nickNick Johnson, CFA®, CFP®



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.



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. 


Market Update | Quarterly Market Review for Q1 (as of market close March 29, 2018)

April 2, 2018

Quarterly Market Review: January – March 2018

The Markets (as of market close March 29, 2018)


The first quarter of 2018 began as the fourth quarter of 2017 ended: with strong market gains. The Nasdaq led the way by the end of January, posting a monthly increase of almost 7.40%, followed by the large caps of the Dow (5.79%) and the S&P 500 (5.62%). The employment sector remained strong, with 239,000 new jobs added in January and average hourly earnings climbing 0.3%. Consumer prices rose 0.5% in January, while personal income increased 0.4%. The trade gap continued to widen, which has proven to be a focal point of the current administration. Nevertheless, consumer confidence in the economy increased in January with expectations for continued strengthening in the coming months.


Chart April 2018


Volatility returned to the stock market in February, with each of the benchmark indexes listed here posting notable losses from the prior month. Nasdaq, while down, fared better than the large caps of both the S&P 500 and the Dow. Investor concerns over rising inflation and interest rates seemed to trigger volatility. A strong labor report in February revealed a 2.9% increase in average hourly wages over a year earlier, the addition of 313,000 new jobs, and decreasing unemployment insurance claims. These factors combined to prompt investors to conclude that higher labor costs may eat into corporate profits, which might prompt the Fed to raise interest rates at a faster pace. February also saw long-term bond yields surge as evidenced by a 16-basis-point increase in yields for 10-year Treasuries, as bond prices fell… Click here to read the full article.

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