Archive for Financial Planning

Beyond the Crypto Craze: The Rise of Blockchain Technology

Financial Planningon June 14th, 20182 Comments

Written By: Daniel Tripp

Hardly a day goes by where we don’t see headlines about Bitcoin, the rise of cryptocurrencies, and the emerging technologies fueling the craze – we shared a post on the topic earlier this year titled “What is Bitcoin actually worth?”. In this post, we’d like to take a deeper dive into the technology that supports Bitcoin and cryptocurrencies known as blockchain. The emergence of blockchain technology may be reminiscent of Buffalo Springfield’s famous song lyrics; “There’s something happening here. But what it is ain’t exactly clear.” Our hope for this post is to share a deeper look at what that something is, and why we as financial planners are paying attention to this disruptive technology.

What is blockchain and why should we be paying attention?

Technologically speaking, a blockchain is a digitized, decentralized, public or private ledger of transactions or records. Blockchain is steadily growing as ‘completed’ blocks (the most recent transactions or records) are added to it in chronological order. What makes a blockchain system innovative is that it doesn’t run on just one computer like a regular database. Rather, it runs over many distributed processing nodes. Every node has a full copy of the blockchain, and the system requires all the nodes to establish a consensus about its contents; thereby verifying the authenticity of the database and its contents. The consensus among technology experts is that it’s difficult, if not impossible to change the blockchain without others finding out and correcting it.1

What makes blockchain different?

In our society, we rely on trusted third-party organizations such as courts, banks, financial institutions, and governments to process and keep official records of transactions. These third-parties are trusted because we rely on them to maintain the databases necessary to store our most sensitive data and to facilitate business. The integrity of their databases is only as strong as the physical and cyber security protection they provide. If they fail, we suffer; a recent example of this failure is the Equifax data breach in September 2017.2

The blockchain is exciting because the integrity of the contents of the distributed ledger does not rely on any specific individual or organization. So, rather than leaning on trusted third-parties to facilitate record keeping and transactions, we would depend on blockchain systems. As such, blockchain technology has the potential to decrease reliance on third-parties, reduce the frictional cost of doing business, increase financial transparency and efficiency, lower the risk of cybercrime, and decrease the ability of cybercriminals to exploit sensitive personal data for gain.3

Three Ways Blockchain is Shaping the Financial World of the Future

1. Financial Service for Clients

Blockchain technology is drawing investments from major financial institutions; many of them are involved in the asset management profession. Large financial service companies such as Goldman Sachs, JP Morgan Chase, and Citi Bank have all seized on blockchain’s potential to both disrupt and enhance the financial service sector. Even the U.S. Government is exploring the use of blockchain to improve transparency and efficiency.4

One area drawing a lot of attention is client onboarding and account servicing. In today’s world, clients must provide a host of personally identifiable information for each separate financial institution they wish to do business with. Financial companies must comply with reporting requirements including anti-money laundering regulations, information security procedures, ongoing account monitoring, and a cumbersome transfer of asset systems known as ACAT. All these functions require meticulous record keeping, and separate databases maintained by each financial institution. This increases the frictional costs for consumers, creates a potential cybersecurity hazard, and can add days or weeks to accomplishing routine financial actions. 4,5

Enter the blockchain. Imagine you have a single profile with all the required personally identifiable information necessary to facilitate financial transactions stored on a central blockchain ledger. Trusted parties such as financial planners, banks, custodians, mortgage companies, insurance and loan companies would be granted access to your profile using highly secure cryptology. The system would enable a tamper-proof audit trail which would track changes to the blockchain, allowing instant verification of your identity. The consumer could apply for credit, an insurance policy, open accounts, transfer assets, or service existing accounts nearly instantaneously. Because the system is predicated on highly secure cryptology, many technologists believe blockchain can provide this level of security because of its unique characteristics.

2. Reducing Global Poverty

According to a World Bank report, three-quarters of the world’s poor are “Unbanked,” either because reliable banks don’t exist, they don’t serve poor populations, or those in poverty are reluctant to use banks due to high costs, distances to travel, or bureaucratic barriers. Seeing that there is a direct relationship between access to banking services and poverty, a host of startup companies are attempting to solve this problem by using blockchain to provide essential banking services to the world’s poor. These services include imagining new and more secure payment processing methods, using mobile phones for banking functions, microfinancing for small business, digital identity methods to help banks verify customer information, and cheaper currency conversions services.7,8

Another way blockchain has the potential to reduce poverty is to combat corruption. Because blockchain technology builds tamper-proof databases, the technology is being used to increase transparency within emerging countries’ government and financial systems. An example of this effort is to use blockchain to store property ownership records. Land grabbing or the illegal seizure of land by corrupt officials using falsified documents is a significant issue exacerbating global poverty. Because of blockchain’s unique characteristics, officials in emerging countries are looking to store property records on blockchain ledgers. This method of record keeping has the potential to make property records tamper-proof and transparent, thereby enhancing the property rights of the world’s economically vulnerable.9

3. Impact on Global Stock Exchanges

Stock exchanges around the world are exploring how best to leverage blockchain to improve costs and efficiency and to lower risks and improve security. Not surprisingly, NASDAQ, the world’s largest technology stock exchange, is leading the way in adopting blockchain. NASDAQ is implementing a series of projects exploring the potential of blockchain to support the trading of private stock, payment remittance, and mutual fund settlement. Experts believe the efforts by NASDAQ and others will create a faster, more reliable, effective marketplace with the net result being increased security and lower trading costs for investors.10

Blockchain May Come, But Some Things Will Stay the Same

As financial planners, we like to see ourselves as standing at the intersection between the global financial system and our client’s lives. The security of our client’s data, how the financial system functions, and what that means for our clients is crucial to us. As the financial system develops, how we interact with you and the ways you interact with us will also change. Much of the change coming is due to the advent of blockchain that will occur in the background of our lives. However, one day shortly, if the potential of blockchain comes to fruition, we will worry less about our data, spend less time servicing our financial lives, and have more time to pursue our Live Big lives. On the other hand, no matter how much technology changes, your team at Yeske Buie will always be here, as human beings, ready to help you navigate one of the most powerful forces in your lives – your finances.

CITATIONS:

  1. (ICFAI), P. B. (2018, March 18). Blockchain. Retrieved April 25, 2018, from https://www.investopedia.com/terms/b/blockchain.asp
  2. Staples, M. (2018, April 23). Blockchain is useful for a lot more than just Bitcoin. Retrieved from https://theconversation.com/blockchain-is-useful-for-a-lot-more-than-just-bitcoin-58921
  3. Tkatchuk, R., Minkus, K., McClarty, I., & Berg, B. (2017, October 18). Is blockchain the ultimate weapon against cybercrime? Retrieved April 27, 2018, from http://dataconomy.com/2017/10/blockchain-ultimate-weapon-cybercrime-2/
  4. Ozelli, S. (2018, April 27). US Government Implements Blockchain Programs to Improve Transparency and Efficiency: Expert Blog. Retrieved April 27, 2018, from https://cointelegraph.com/news/us-government-implements-blockchain-programs-to-improve-transparency-and-efficiency-expert-blog
  5. Blockchain innovation in wealth and asset management Benefits and key challenges to adopting this technology. (2017, July 07). Retrieved April 04, 2018, from http://www.ey.com/Publication/vwLUAssets/Blockchain_in_wealth_and_asset_management/$FILE/ey-blockchain-innovation-wealth-asset-management.pdf
  6. Bendor-Samuel, P., & IDG Contributor Network. (2017, May 04). Is blockchain technology secure for your company’s transactions? Retrieved April 27, 2018, from https://www.cio.com/article/3194586/it-industry/is-blockchain-technology-secure-for-your-companys-transactions.html
  7. Three Quarters of The World’s Poor Are “Unbanked”. (2012, April 19). Retrieved April 27, 2018, from http://www.worldbank.org/en/news/feature/2012/04/19/three-quarters-of-the-worlds-poor-are-unbanked
  8. Hyland, J. (2016, March 15). Unlocking blockchain for the underbanked. Retrieved April 27, 2018, from https://techcrunch.com/2016/03/14/unlocking-blockchain-for-the-underbanked/
  9. Kuznetsov, N. (2017, July 26). How Emerging Markets And Blockchain Can Bring An End To Poverty. Retrieved from https://www.forbes.com/sites/nikolaikuznetsov/2017/07/24/how-emerging-markets-and-blockchain-can-bring-an-end-to-poverty/
  10. How Stock Exchanges Are Utilising Blockchain Technology. (2018, January 09). Retrieved April 27, 2018, from https://internationalbanker.com/brokerage/stock-exchanges-utilising-blockchain-technology/

Grounded Investing

Financial Planningon May 30th, 2018No Comments

Written By: Ryan Klemm

At Yeske Buie, we believe there is a science to investing. Unfortunately, much of what passes for investment activity has little connection to this science. To some degree, this comes from the natural human desire to “beat the system,” to gain some special advantage, to find the secret short-cut. But at the end of the day, we believe success in investing is more about discipline than it is about beating the system by picking hot stocks or timing the market. With this in mind, we share eight common investment habits to avoid to maintain a grounded and disciplined approach to investing. We feel that having an awareness of these habits can help the overall health of your portfolio and investment journey.

  1. Failing to Diversify
    Diversification is an important strategy to lower the overall risk of an individual portfolio by investing in stocks and bonds that are categorized in different asset classes. Combining investments with low to negative correlations is a technique that reduces risk by having positions invested in different sectors. Arming your portfolio with securities that perform well when others perform poorly, and vice versa, allows gains and losses to offset each other therefore reducing the magnitude of volatility within a portfolio.
  2. Buying High and Selling Low
    It can be tempting to buy something that is doing well and to sell something that is doing poorly. However, this leads to “buying high and selling low” which inevitably results in realizing losses for a particular investment. This “trap” usually results from emotional investing and can be avoided by following your investment policies.
  3. Using Past Performance as a Measure for Future Returns
    There is a reason that it is a requirement for an investment vehicle’s prospectus and advertisements to have a disclaimer, in some variation, which says “past performance is not indicative of future results.” Just because something performed well during the prior year does not guarantee the same type of success in the current year.
  4. Having Unclear Investment Goals
    Not knowing why you are investing can cause unclear motives over your investment journey which often leads to buying and selling erroneously and not in service of a specific goal. Having clear goals while investing allows you to “stay-the-path” and avoid many of these mistakes mentioned in this piece.
  5. Ignoring Your Risk Profile
    Having a portfolio allocation that is too risky or too conservative for your risk profile can lead to severe emotional volatility. Aligning the level of risk you are willing to take with an investment allocation chosen is an important strategy to the overall wellness of your portfolio and your mental state.
  6. Trying to Time the Market
    Attempting to time the exact moment when the market is going to peak or dip is seemingly impossible. It is better to invest when you are ready to, rather than trying to wait for the perfect moment. Remember, hindsight is 20-20.
  7. Buying Last Year’s “Winners”
    Investment performance is based off many different interconnected factors and may lead to varying results year-to-year. The highest performing stock in the previous year could very well become the lowest performing stock in the current year.
  8. Making “Trendy” Investment Decisions
    Buying and selling based off headlines is often a result of emotional investing. Again, identifying your investment goals will allow you to stay steady through your investment journey and help keep you from making many of these mistakes.

At Yeske Buie, we mitigate these common investment habits by applying our evidence-based investment philosophy to each of our Clients’ accounts. This philosophy is rooted in a foundation of research and years of practical application and is monitored by our Financial Planning Team to ensure nothing slips through the cracks. We also emphasize the importance of financial literacy and spend a portion of our annual update meeting with our Clients reviewing our investment philosophy to keep them informed. As always, if you ever have a question regarding investments or our investment philosophy, please do not hesitate to contact someone on our team.

The Science of Spending

Financial Planningon May 17th, 2018No Comments

Written By: Daniel Tripp

What if there was a way to increase your happiness and satisfaction without much work, energy, or effort? Would you want to find out more? Science supports that it is, indeed, possible to achieve more happiness by taking an objective look at how you’re spending your money. In this piece, we share insights from the emerging field of positive psychology that suggest ways we can increase our happiness by simply changing how we view and how we spend our money.

We’re all familiar with the old saying “money can’t buy happiness” – we’ve written about this saying in a previous post. As it turns out, scientists have been studying the question of whether money can buy happiness for decades. The evidence they’ve found suggests that money can indeed buy happiness, but only up to a certain point. They believe that the relationship between the possession of wealth and happiness is positive, but modest. In their studies, scientists have found that often times, money allows people to live longer and healthier lives because it buffers them against worry and harm, increases leisure time, and allows them to control the nature of their daily activities—all of which, science says, are sources of happiness.

However, if money does indeed increase happiness, why doesn’t a whole lot more money equal a whole lot more happiness?3 The answer to this question may be found in an emerging field of psychology popularly known as positive psychology, or as some people call it, the science of happiness. Positive psychology is the scientific study of the strengths enabling individuals and communities to thrive and flourish. The field is founded on the belief that people want to lead meaningful and fulfilling lives, to cultivate what is best within themselves, and to enhance their experiences of love, work, and play.2

An important term in the field of positive psychology is PERMA. PERMA is an acronym for the belief that for human beings to flourish, they must:

  • Experience Positive Emotions
  • Be Engaged in Life
  • Cultivate Relationships
  • Have a Sense of Meaning and Purpose, and
  • Experience Feelings of Accomplishment5

The following sections will share additional insights on each of these areas.

P: Experience Positive Emotions

The first part of the PERMA framework is to increase the feeling of positive emotions. What constitutes a positive emotion is different for each of us, but some universal activities that elicit positive emotions are spending time with loved ones, spending time outdoors, attending sporting events, listening to music, dining out, travel, or experiencing new and novel things. We also feel positive emotion when we engage in healthy risk-taking activities or purchase new clothing, jewelry, or other material items.

E: Be Engaged in Life

The second element of the PERMA framework suggests that individuals can change their spending patterns to increase their happiness by seeking ways to be more engaged. Activities that increase engagement include spending money on hobbies such as reading, playing music, doing art, gardening, exercising, hiking, or practicing mindfulness. Other ways individuals can induce a sense of engagement is by seeking experiences which positive psychology calls entering a state of flow. Flow is defined as a mental state of operation in which a person performing an activity is fully immersed in a feeling of energized focus, full involvement, and enjoyment in the process of the activity. In essence, flow is characterized by complete absorption in what one does and a resulting loss in one’s sense of space and time. Scientists have determined that people who experience more flow in their lives, tend to be happier.4

R: Cultivate Relationships

The third word of the PERMA acronym focuses on an individual’s desire to cultivate relationships, sometimes in a way that involves spending money. This may include making gifts for others, planning travel together with friends or family, visiting loved ones, spending money to connect with one’s significant other, participating in community activities, or seeking new relationships around shared hobbies. Another way to cultivate relationships may be to outsource household tasks or chores that take time away from connecting with others or from pursuing activities we genuinely enjoy.

M: Have a Sense of Meaning and Purpose

The fourth way individuals can increase their happiness is by spending money on experiences that enhance a sense of meaning. Having a sense of purpose and meaning to why each of us is on this earth is essential to living a life of fulfillment. These fulfilling activities could include volunteering, becoming involved in a charity, participating on a board, developing and sustaining meaningful work, cultivating a sense of wonder, deepening spiritual practice, or seeking new opportunities to engage in self-growth.

A: Experience Feelings of Accomplishment

The PERMA framework is rounded out by the fifth element which is to seek ways to increase a sense of accomplishment. We can improve our sense of accomplishment by setting goals and taking actionable steps to achieve those goals. Other ways to build a sense of accomplishment might be to embark on educational endeavors that challenge us mentally or to set personal benchmarks requiring self-discipline and self-regulation.

Keeping these elements of the science of happiness in mind, financial planners have the opportunity to help Clients engage in personal spending habits that align with the PERMA framework. The framework offers a “Spending Inventory” that helps Clients and Planners work together to classify a Client’s spending habits as they relate to each of the PERMA categories. Once these habits are identified, both parties can brainstorm new ways to alter spending patterns to bring more of the elements of PERMA into one’s life in pursuit of increasing happiness and well-being.

Next time you are in a reflective mood, we encourage you to take a few minutes to think about how you’re spending your money and ask yourself;

  • Are the things you’re spending your money on bringing more elements of the PERMA framework into your life?
  • Are there ways you could change your spending habits to increase your happiness and life satisfaction?

We invite you to explore your spending questions and habits so we may think together about ways you may be able to use your money to enhance your well-being and to improve the happiness of those you share your life with.

REFERENCES:

  1. Authentic Happiness. (n.d.). Retrieved January 17, 2018, from https://www.authentichappiness.sas.upenn.edu/learn/wellbeing
  2. Asebedo, S. D., & Seay, M. C. (2015). From Functioning to Flourishing: Applying Positive Psychology to Financial Planning. From Functioning to Flourishing: Applying Positive Psychology to Financial Planning, 51-58. Retrieved from https://www.onefpa.org/journal/Pages/default.aspx.
  3. Dunn, E. W., Gilbert, D. T., & Wilson, T. D. (2011). If money doesnt make you happy, then you probably arent spending it right. Journal of Consumer Psychology, 21(2), 115-125. doi:10.1016/j.jcps.2011.02.002
  4. Finding Flow. Reviews the book ‘Finding Flow,’ by Mihaly Csikszentmihalyi. Retrieved January 17, 2018 from https://www.psychologytoday.com/articles/199707/finding-flow
  5. Positive Psychology Center. (n.d.). Retrieved January 17, 2018, from https://ppc.sas.upenn.edu/

Can I Take a Rain Check?

Financial Planningon May 17th, 2018No Comments

Written By: Ryan Rasmussen

It’s likely that at some point you’ve had to ask someone for a rain check when it’s been more desirable to accept an offer at a later date rather than in the present moment. In a similar way, when you set aside money for a rainy day, you are serving your future self by being prepared for unexpected financial hurdles including layoffs, medical emergencies, unexpected home and car repairs, and more. These funds collectively make up your emergency fund. In this piece, we share our thoughts for determining an adequate emergency fund, creative ways to save, where to keep your emergency fund, when to utilize the funds, and how your relationship with money can change as a result of having an emergency fund.

How much should you have in your emergency fund?

As you may have heard us say before, the answer is “It depends!”. The “right” emergency fund  is very specific to each individual’s situation and there are numerous factors to consider. First, the expenses to be considered include all essential living expenses like housing costs, debt payments, utilities, insurance premiums, and food costs. Other factors that may need to be considered include risk tolerance, savings ratio, and job security. The following questions can help begin determining the most appropriate emergency fund:

  1. How secure is your job?
  2. If you were to lose your job, when would you expect to find a similar position that is as good or better than your previous position?
  3. How many people depend on you for monetary support?
  4. Do you have a partner that could contribute more to expenses, if needed?
  5. Do you have additional means of financial aid (i.e. disability insurance)?

For some, the three-to-six months’ worth of expenses “rule of thumb” may work. But we think it is important to consider all factors when determining the most appropriate emergency fund for your specific situation.

What are some ways you can contribute to your emergency fund?

Saving for an emergency fund does not have to be completed over night – the idea of saving for three, six, eight, or even twelve months can be intimidating! Instead, start building your emergency fund slowly. One method that Yeske Buie utilizes in order to help Clients achieve their savings goals is by establishing savings policies. For example, we may suggest that you try setting aside a comfortable percentage of your income and bonuses to help you reach your emergency fund goal. Eventually, we find that many Clients experience a shift in mindset from feeling that saving is painful to feeling that saving is empowering.

Where should I keep my emergency fund?

Your emergency fund needs to be safe, readily available, and easily accessibly for when you need it most. Online savings accounts offering higher interest rates can be a great place to hold your emergency fund because they provide an opportunity for your funds to grow without sacrificing liquidity. It’s the best of both worlds! Take a look at Bankrate.com to view banks that offer competitive rates of return.

Another potential vehicle to hold your emergency fund is your Roth IRA.  Roth IRAs permit withdrawals of the principal value (your contributions), tax-free and penalty-free, at any time. This is different than withdrawing earnings on investments, which can be subject to tax. Don’t pursue this strategy without making sure it’s right for your specific situation.

Finally, you could also choose to leave your designated emergency fund amount in cash. Then, once you have surpassed your emergency fund savings goal, you can begin investing the remaining deposits to take advantage of the opportunity for growth. This is a great way to establish your emergency fund and accomplish your planning goals at the same time.

When should I use my emergency fund?

Your emergency fund should only be used as a last resort in a true emergency. As was shared above, you want to use it only for serious circumstances that cause unexpected changes in income or expenses like a job loss, a medical procedure, or necessary home or automobile repairs. Furthermore, it is best practice to create policies that identify specific situations where you can or cannot take out money from your emergency fund before you actually need the funds. This will help you make a grounded decision in the moment and keep you from the temptation of using your emergency fund for a non-emergency. Another policy that can help you define your emergency fund spending is keeping the funds separate from your everyday checking account. This will help you take more time to reflect on when to spend your emergency fund savings.

In summary, an emergency fund is an essential component of a strong financial plan. We hope these tips provide you with some guidance on determining how to establish your emergency fund and encourage you to give yourself permission to take a rain check for your future self!

Do’s and Dont’s for Recent College Graduates

Financial Planningon May 3rd, 2018No Comments

Written By: Ryan Klemm

We’d like to extend a big congratulations to all those who will be graduating in the coming months. For upcoming college grads, the notion of entering the “real world” can feel equally exciting and ambiguous. The reality of becoming financially independent means accepting a deepened responsibility for how you choose to manage your money and pursue a sustainable lifestyle. While you may never feel “ready” to take on this big responsibility when starting your first career, being aware of the positive and negative habits can help you build your financial foundation and be more comfortable in determining what your path looks like going forward.

For those embarking on this new chapter of their financial journey, we share a few do’s and don’ts of personal finance that may be helpful for ensuring your career starts off on the right foot:

DO’S:

  • Create a budget
    • Creating a budget can sometimes feel overwhelming. However it is one of the most important things to do when starting your own financial life. our budget not only tracks financial inflows and outflows, but can also be used as a starting point to create policies that you can fall back on when making financial decisions. Providing limits on what you can spend may take some of the temptation away for those “extra” purchases.
  • Take advantage of your employer provided benefits
    • Employer provided benefits offer a low cost option for insurance benefits. You may only select your benefits during the enrollment period and sometimes the language can be confusing; take advantage of your human resource department if you have any questions! Additionally, it is also a beneficial practice to direct a certain percentage of your paycheck to your employer provided retirement plan. This is a tax-advantaged way of saving for retirement and it encourages you to save money before it even reaches your bank account. If your employer provides a percentage match on contributions, take advantage of “free money” by contributing at least that percentage.
  • Build an emergency fund
    • An emergency fund is used for exactly what it sounds like: an emergency! The purpose of an emergency fund is to have an amount of fixed expenses set aside that will allow you to continue your lifestyle if you lose your job or something happens unexpectedly that impacts your finances. Ideally, this fund will have enough money to cover your expenses should something come up that requires you to look for a new job or have to pay off an unexpected financial outlay.

DON’TS:

  • Take on too much debt
    • It can be very enticing to purchase a brand new car or splurge on materialistic goods when you experience a salary for the first time. While it may be difficult to ignore these flashy goods, it is important to stick to your budget and not accrue unnecessary.
  • Develop bad money habits
    • Developing bad money habits early on in your career, while seemingly sustainable in the present, can have drastic effects on the future of your finances. Bad habits include not creating a budget, spending before saving, avoiding financial education, living above your means, etc. Bad habits are hard to break and therefore it is important that you build your foundation on positive ones at an early age.
  • Wait to save and invest
    • It can be easy to fall into the mentality that “there is plenty of time to save,” but this mindset can be very detrimental to the future of your finances. Saving at a young age provides more time for returns to compound, allowing your account value to grow at a faster rate in the future. Alternatively, waiting to save until you are older will require saving more to make up for the returns you are missing out on by delaying.

These are just a few of the do’s and don’ts that can help recent college graduates build a solid financial foundation. At Yeske Buie, we are invested in the financial success of our Clients’ entire family and are always willing to sit down with your recent college graduates if they would like to discuss their new financial independence further. Please do not hesitate to reach out to us with any questions you may have!

Staying Financially Grounded

Financial Planningon April 4th, 2018No Comments

Written By: Ryan Rasmussen

During times of market volatility, investors can feel like they’re riding a bumpy roller coaster ride. And while our worldview about the markets is that human beings are fundamentally growth seeking and resilient, we recognize that the bumps along the way can make investors feel dizzy. One of the ways we try to help mitigate this dizziness is by encouraging you keep your Live Big® goals a priority. With this in mind, we share a few ideas to remind you to take a deep breath and stay focused on the things most important in your life.

Staying Organized

Financial anxiety can take many forms. Some may allow their stress to hinder them from making decisions, and others may make rash decisions without a full understanding of the implications. No matter if you respond in one of these two ways or otherwise, these behaviors are normal! When you feel yourself falling into an anxious mindset, accepting that these feelings are “normal” can help you take small actions to keep you from falling any further. A great first step to building confidence in this realm is to stay organized. For many, organization can provide a clearer depiction of where you are and where you need to go. For example, designating a folder for your tax documents can help prepare you for filing your taxes. You will be able to collect all of the required documents and move to the next step swiftly and confidently. Strategies like this can help keep you focused on your overall financial picture and provide you a path to your next objective.

Refer to Your Policies

At Yeske Buie, we believe in Policy-Based Financial Planning® as an enabler of financial groundedness. Financial planning policies act as a set of guidelines to make it easier to stick with a consistent course of action in the midst of an ever-changing environment. Think of them as guardrails for the unexpected. One of the keys to grounded policies is to align them with your values. When creating policies for our Clients, we start by helping them explore areas in their life that motivate them and we work together to create goals that align with these areas. From there, we design policies that will bridge a Client’s goals and values together. For instance, one may feel that financial security is a source of empowerment. A means to increase one’s financial security, then, might be to create an emergency fund for unexpected hardships. An example of a policy that may help one achieve this goal goal may be to save 15% of your income and half of every windfall, such as a bonus, toward your emergency fund. A policy, such as this one, can help keep you on track to achieving your goals with minimal thinking or stress and by sticking with percentages rather than fixed amounts, this creates a goal that is always achievable.

Befriend your Anxiety

Take a moment to remember a time when you felt anxiety and discomfort wash over you. My guess is that, like most, you quickly tried to deflect these feelings. Next time, try a different approach. When you feel anxious, ask yourself the following questions:

  • Why am I feeling this way?
  • What are things I can do to better my future self?
  • How did I handle a prior situation when I felt this way?

In doing this you can create more awareness in recognizing what you fear and the sources. And with awareness, you can be better prepared to take the steps necessary to overcome your fears, rather than avoiding the situation all together and continuing your discomfort. Creating strategies to move past difficult life situations can help you feel better equipped to continue working towards your goals.

Staying organized, creating policies, and familiarizing yourself with your anxiety are just a few ideas to help you feel grounded, motivated, and secure in times that reflect the opposite. Let’s be honest, anxiety has a place in all of our lives. Let’s identify it, and use it to keep us going. And of course, whenever you experience feelings of stress or uneasiness during moments of volatility or otherwise, know that we are always available to talk and remind you of your policies and the goals at the top of your priority list.

All Our Clients Are ‘Round’

Financial Planningon March 21st, 2018No Comments

Written By: Zach Bennedsen

No, we did not just call our Clients fat. Today, we’re writing about the literary concept of a flat vs. a round character and how it applies to Yeske Buie. We’d like you to take yourself back to your high school English class. While you were busy passing notes (or sending texts, depending on the age of the reader), the teacher may have been sharing some information actually worth retaining. In this case, we’re referring to the two, well-known categories of literary characters: round and flat. A round character is one that undergoes development throughout a story. They are complex and their characteristics cannot easily be summarized in a few sentences. Most importantly, a round character experiences growth as the pages turn. Conversely, a flat character is predictably one-dimensional. They do not undergo development or change, and their characteristics can be captured in the span of a sentence or two.

While the concept of round vs. flat stems from literature, we can easily apply it to people in our lives. Of course, every human being is complex. Everyone has dreams, memories, and regrets. However, until there is a meaningful relationship, we do not see the dimensionality of a person, and instead see them as flat. For example, the cashier at the grocery store, while at work, is a purely flat character to the other shoppers. A neighbor with whom you only share a friendly “hello” when picking up the morning paper is also flat, unless either party makes an effort to develop a relationship.

On the other side of the coin, our lives are made interesting by round characters. Friends and family, whom we have seen develop and change over time, are perhaps the best example of round characters in our lives. A coworker who you observe growing into a new role, or who you just learn more about during a job, is another example.

To us, some of the “roundest” people we know are our Clients. We are in a unique and privileged position to have a relationship with our Clients that spans time – often years or even decades. We are there as Clients envision and develop their goals, embark on new careers, and grow their families. Through a robust discovery process, we have a depth of understanding regarding their true nature that is not afforded to many. Through tools like the Wheel of Life (pictured right), we help Clients better understand the quality of various realms that constitute their environment. We also use a Life Transitions Survey to encourage Clients to think about the various changes they are currently experiencing, and what might be on the horizon. These tools allow us to see all our Clients as their roundest selves.

We have this opportunity because financial planning is not transactional in nature, but instead transformational. If we were simply selling financial products, our Clients could be treated as flat. Since we are instead serving as a trusted advisor through all the ups and downs, we want our clients as round as they can be. The more we know the Client, the better we can serve them. So, since eating that extra slice of cake won’t help Yeske Buie develop rounder Clients, we ask for your continued willingness to share your true selves with us. It’s an honor to see your complexity, and we truly believe it makes for better planning.

Get More from Your Credit Score

Financial Planningon March 8th, 2018No Comments

Written By: Ryan Rasmussen

Credit scores are used by individuals and organizations as a method of assessing a person’s financial responsibility. The “grading scale” ranges from 300, being the weakest, to 850, being the strongest. As a reference, Experian assesses a credit score above 670 as “good”. It is widely understood that this three-digit score helps lenders decide whether or not to approve someone for credit cards and loans, but the significance of this number permeates much further than that. As such, it is important to understand how your credit score is comprised, especially if you are trying to increase your score.

So, what exactly makes up your credit score? Data from your credit report is organized into five categories; each category making up a different portion of your credit score. Furthermore, each category carries a different “weight” in the composition of your score, so categories that make up a larger portion of the score have a more significant impact on your overall number.

Composition of Your Credit Score

The following is a break down of the composition of your credit score.

Payment History (35%): Your payment history is the heaviest weighted factor that determines your credit score. Thus, making on-time payments will benefit your credit standing forever. As you may assume, then, having a negative payment history will have the opposite effect on your credit score. Some aspects of a negative payment history, such as accounts sent to collections, tax liens and bankruptcy, will fall off your record in seven to ten years.

Credit Utilization (30%): Your credit utilization is the ratio of your credit balances to credit limit. This is a measurement of your credit limit that is being used. The lower the percentage the more positive the impact on your score.

Length of Credit History (15%): Your length of credit history is determined by averaging the amount of time all of your accounts have been open. It has been found that generally speaking, there is a positive correlation between the age of an account and a higher credit score.

Types of Credit Used (10%): There are three categories of credit accounts: revolving, installment, and open.

  • A Revolving Account is a line of credit that is based on the amount of credit a person has, with the maximum credit limit set by the lending company. The payments for revolving accounts are variable. (Example: Credit Cards)
  • An Installment Account is a form of debt that has a fixed payment amount and repayment period in which an individual can pay. (Example: Mortgage)
  • An Open Account has a balance that is to be paid in full every due date. (Example: Cell Phone Bills and Home Utilities)

New Credit (10%): New Credit is created when an individual requests an amount of credit in addition to their existing amount of credit. While making a single inquiry for new credit is likely to have little impact on your credit score, opening multiple credit accounts in a short amount of time can signal greater risk to lenders which can in turn decrease your score.

The Significance of Your Credit Score

Credit is connected to many aspects of your life and having a higher credit score can help you achieve your financial goals more easily. For example, having a good credit score can increase the likelihood of the following:

  • Receiving a loan for a car or house
  • Acquiring advantageous interest rates on loans
  • Obtaining credit cards
  • Being more attractive to employers
  • Renting an apartment
  • Paying lower insurance premiums

So, what can you do if you are not satisfied with your credit score? As was discussed above, the two factors dominating the makeup of your credit score are Payment History and Credit Utilization. The best strategies to increasing your credit score, then, revolve around improvements in these categories.

To improve the Payment History portion of your score, it is important to make sure you make all of your credit payments on time. One suggestion you may find helpful is to set reminders for yourself to make the payments or to enroll in automatic payments. Your credit score will rise when you make payments according to the dates they’re due over a long period of time.

To improve the Credit Utilization portion of your score, it is important to make an effort to lower your ratio of credit balance to credit limit. The best way to do this is by paying down your debt. You may also consider contacting your credit companies to see if you are eligible for an increased credit limit. The decision to increase your credit limit should not be taken lightly, however. As was discussed earlier, taking on too much new credit can negatively affect the New Credit portion of your score.

As a final note on this topic, whether or not you are satisfied with your credit score, we highly recommend that you regularly monitor your credit score and your credit report. You can obtain a free credit report every 12 months from each credit bureau: Equifax, Transunion, and Experian. This will provide you a consolidated report of your current credit and it’s history. We encourage you to investigate this report, make sure everything is accurate, and report any inaccuracies to the credit bureaus. Please see our post “A Careful Review of Your Credit Report” for our thoughts on best practices when reviewing your credit report.

Your credit score is tool that can help you achieve life goals. Be sure to evaluate your credit standing and make a goal to increase it if you are not satisfied. Everybody’s situation is unique; therefore, each individual will have a different strategy to raising their credit score. Of course, please reach out to anyone on the Financial Planning team if you have further questions!

Long-Term Care Aware

Financial Planningon February 22nd, 2018No Comments

Written By: Daniel Tripp

Long-term care is defined as the need for assistance with normal activities of daily living for a period of greater than 100 days. Additionally, when long-term care is needed, it is not a one-time need, but rather is a “continuum of care” that starts at home and advances to an assisted living community or nursing home. No matter where one falls on this continuum of care, the costs can be significant. Many financial experts agree that long-term care is one of the most significant financial strains you or your family may face as you age. In this piece, we explore this topic by sharing our thoughts on a few of the most common questions regarding long-term care.

What are the odds of needing long-term care? The reality is that the answer is different depending on which study you reference. One reliable study conducted by the Center for Retirement Research at Boston College estimated that 44% of men and 58% of women will need nursing home care at some point in their life.1

How much does long-term care cost? The factors determining the costs of long-term care include geographic location, the type of care received, and the person’s condition who is receiving the care. In 2016, the average annual cost of a private room in a nursing home was about $92,000, and $82,000 for a shared room.2 The annual inflation rate for long-term care is between 4% and 7% but could increase dramatically as Baby Boomers start to use long-term care facilities.3 Another factor that makes long-term care complex is the uncertainty about how much care you or your loved one may require before receiving a specific health diagnosis. With so many variables affecting long-term care cost, it’s important to start thinking about developing a long-term care plan before you’re faced with an adverse health diagnosis.

How may one pay for long-term care costs, if needed? There are four primary ways to pay for long-term care. They include relying on family, relying on Medicare, using personal assets, and utilizing long-term care insurance.

  • Relying on Family: In past decades, family members often took on the role of caregivers when a person needed long-term care. However, as society has changed, the opportunity to rely on family members to meet long-term care needs has decreased. As families have become smaller, more geographically separated, and have come to rely on two incomes, the ability and opportunity of family members to provide care has decreased. As a result, in the future, paid caregivers will likely be the most common providers of long-term care services.
  • Relying on Medicare: Contrary to popular belief, government-funded health insurance programs such as Medicare and Medicaid do not pay for long-term care, unless your assets or income are below a certain threshold specified by the states. This misconception stems from the fact that these programs will pay for acute care, which is defined as the first 20 days in a skilled nursing home and another 80 days of care on a co-payment basis following a three day stay in a hospital. If a person requires additional long-term care after 100 days, the cost will be borne by the individual.4 Finally, standard health insurance does not provide long-term care benefits. Health insurance plans are designed to provide 100 days of “short-term” care or less following an illness or accident.
  • Using Personal Assets: Paying for long-term care from personal assets is known as self-insuring. Personal assets used to pay for long-term care are typically withdrawn from one (or more) of three places. These include individual savings, retirement accounts, and home equity. There are some advantages to paying for long-term care from personal assets, particularly regarding the quality and location of care received. The disadvantage of self-insuring is that even a short stay in a long-term care facility can have a significant impact on a person’s financial security.
  • Utilizing Long-Term Care Insurance: Long-term care insurance will pay for a nursing home, assisted living, at-home care, and adult daycare. There are many factors to consider when purchasing long-term care insurance. These include the optimal age to purchase insurance, determining whether or not you have enough assets to self-insure, covering other, potentially more pressing, insurance needs first such as health, disability, and life insurance, and determining whether or not you are in good enough health to pass the underwriting process.

What is the optimal age to purchase long-term care insurance? Since your ability to obtain long-term care insurance is a function of your health, the younger you are, the cheaper and more likely you are to be able to purchase a policy. As a general rule, the earlier you purchase long-term care insurance, the cheaper the cumulative cost will be. For example, an individual who buys long-term care insurance at age fifty-five will pay less, over the course their lifetime, than a person who purchases the same coverage at age sixty-five, even though someone at age a sixty-five will theoretically pay fewer premium payments than someone at age fifty-five.3 This is because the cost of long-term care insurance premiums rise as one ages and long-term care insurance is outpacing the rate of inflation.

When should you consider purchasing long-term care insurance? At Yeske Buie, we feel that someone under the age of fifty does not need to consider purchasing long-term care insurance. Individuals between the ages of fifty and sixty, however, should carefully analyze the costs and benefits of buying long-term care insurance. We also encourage individuals in this age group to prioritize additional savings and expenses verse the premium costs of the long-term care insurance. For individuals over the age of seventy-five, it gets much harder to pass the underwriting process, and long-term care insurance becomes prohibitively expensive.3 Unfortunately, insurance companies view older individuals as part of an increased risk pool and are very reluctant to sell long-term care policies to people they consider at a high risk of filing a claim.

What can you do to plan for the possibility of needing long-term care? The following are four considerations to reflect on as you begin planning for your potential long-term care needs.

  • Educate yourself on the topic of long-term care.
    • This includes gathering information on the statistics, demographics, types of care available, and costs in your local area.
  • Evaluate your situation and assess the risk factors you face.
    • This might include realistically assessing whether you have a high longevity risk, or if your family situation prohibits you from relying on care from family members.
    • You should also consider if other family members have needed long-term care for a genetically predisposed condition such as Alzheimer’s or Dementia.
  • Consider the cost of modifying your home so you can age in place safely.
    • When thinking about this cost, you will want to evaluate whether or not you qualify for Medicaid or other government benefits such as Veteran Administration services.
  • Assess your ability to self-insure verse purchasing a long-term care policy.
    • Begin by evaluating the types, cost, and merits of long-term care insurance.

After reflecting on the above considerations, it is important to then discuss your situation with your family, trusted friends, and a Financial Planner. These individuals can help you to write your long-term care plan down and review the plan at least annually.

How can we as Financial Planners help you plan for your long-term care needs? As planners, we’re in a unique position to assist you with planning for long-term care costs. If you or your loved one has been diagnosed with an illness which will likely result in a long-term care need or if you simply want to make a long-term care plan, our team at Yeske Buie is available to assist you in any of the following ways:

  • Supporting you in walking through all the options available to you and evaluating your situation as you walk through your long-term plan development process.
  • Helping you gather the information on long-term options, running cost projections, and assessing your financial situation so you can make informed decisions.
  • Determining your risk tolerance and exploring options for paying for long-term care cost.
  • Projecting the impact of savings and investing in accounting for long-term care cost.
  • Referring you to health experts who can be there to coach you through all the details of setting up long-term care and assist you in avoiding potential pitfalls.
  • Referring you to a reputable long-term care insurance provider, and help you evaluate long-care insurance policies.

Financial Planners are in a unique position to understand your goals, values, and resources and help you find the best solution to address your needs, including your individual long-term care planning needs. Please do not hesitate to contact our team if you have any questions about long-term care insurance or creating a plan that’s right for you.

SOURCES

Olympic Overlap

Financial Planningon February 7th, 2018No Comments

Written By: Lauren Stansell, CFP®

The 2018 Winter Olympics are upon us! This year’s festivities are being held in PyeongChang, South Korea and began (last night) with figure skating and will further kick off with the opening ceremony today. Throughout the two weeks, competitions will be held in a total of 15 sports – from bobsled to ice hockey to alpine skiing –with 102 different events on the slopes or on the ice.

While these sports and events may vary widely with respect to the skills needed to win gold, the Olympics and all events surrounding it happen to align well with financial planning – from the planning and preparation process to the implementation to the monitoring. Read more about the dedication, training, performance, and teamwork similarities between the Olympics and the Financial Planning Profession…

Preparation and Training

Successful preparation for the Olympics includes intense dedication, persistent training, and professional coaching, amongst many other things. Athletes must first dedicate themselves to their sport much like we, as financial planners, must dedicate ourselves to our profession. Deciding to compete in the Olympics is not an overnight decision. It is a long-term plan that athletes choose to pursue and stick to over time. Similarly, Clients must dedicate themselves to the financial planning process which is a long-term process. These forms of dedication may not always be easy – there will be challenges and learning moments, for sure – but in the end, we feel that it is worth the investment of time.

Part of that dedication comes in the form of persistent training – athletes train day and night physically, nutritionally, and mentally to improve their skills, health, and robustness for their Olympic competitions. We at Yeske Buie persistently pursue learning and growth; we embody our values of Learn Big, Think Big, and Be Big to continue on the path to becoming the best planners we can be.

Athletes also seek out professional help, something we feel is our role to fill for our Clients. We want to be similar to an Olympic coach – to provide our best thinking, guidance, education, and support. We want to provide feedback when improvements are needed and be there to celebrate successes with our Clients! Simply put, we want to be part of our Clients’ team.

Performance

As we know, endless hours go into preparing for The Olympics in hopes of winning gold. The Games are now upon us and the athletes are ready for action. It’s time to put the dedication and planning into play. We, as financial planners, are ready for our game – taking Clients through the financial planning process; implementing our Evidence-Based Financial Planning, Policy-Based Financial Planning, Safe-Spending Policies, Investment Philosophy; and more. Although there are many individual facets of our financial planning process and relationships, we think our true value is in the combination of all parts in the execution of a successful financial planning relationship with each Client.

Team Play

In most highly valuing the sum of our parts, our approach is similar to a hockey team, made up of individual players with their own strengths and weaknesses who are selectively picked for the way they perform together as a whole. We view financial plans as a sum of the parts of a Client’s entire life, not just the money.

Likewise, when building our Investment Portfolios in alignment with our Investment Philosophy, we consciously pick the building blocks (mutual funds) for the exposure they give us to each segment of the market we’re interested in. But we don’t pick the building blocks one-by-one, we pick them based on the totality of the ideal portfolio and how well they play together.

And, like an athlete strengthening muscles to avoid injury or adjusting mid-game to better compete with an opponent, or a client setting aside funds for an emergency fund or making course corrections along the financial planning path, we build in resilience:

  • We are globally neutral, meaning we invest in the countries of the world as they make up the world economy.
    • For example, the U.S. makes up about half of the world economy and, consequently, about half of our portfolio allocation. We do not have a home-country bias.
    • That being said, when you’re watching the Olympics, if you are rooting for the United States competitors and teams, you may be exhibiting home-country bias and that is just fine!
  • We have a chunk of most portfolios invested in a stable bond fund that is included for stability in volatile times, not for returns. In retirement, this chunk of bonds is purposefully increased to function as the bridge to weather a downturn for six-to-seven years’ worth of spending needs.
  • And, like athletes in the middle of an Olympic event, we are consistently assessing ourselves and our surroundings for any adjustments that may need to be made, like rebalancing accounts, shifting to lower-duration (and less interest-rate sensitive) bonds, etc.

Financial planning and the Olympics seem to have quite a bit in common and we love finding connections between our profession and passion and the world around us!


“Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our light, not our darkness that most frightens us. We ask ourselves, Who am I to be brilliant, gorgeous, talented, fabulous? Actually, who are you not to be? Your playing small does not serve the world. There is nothing enlightened about shrinking so that others won't feel insecure around you. We are all meant to shine. And as we let our own light shine, we unconsciously give others permission to do the same. As we are liberated from our own fear, our presence automatically liberates others.” ~Marianne Williamson