Illumination Wealth October 2013: Why 2014 Starts Now

How’s it going?

That’s right, the calendar says that fourth quarter is upon us. For my football fans, we are entering the second quarter of the season as my lowly Minnesota Vikings sit with a record of 1-3.

If you ask me, your first quarter really begins now. That’s right, NOW.

Think about it – anything that you actually set out to create in 2014 will be due to the effort you put in during these next three months. You can’t wait until January. It will be busy enough as is in January, let alone the next three months filled with Halloween, Hanukkah, Thanksgiving, Christmas and New Year’s Eve. Not to mention, January 1st is on a Tuesday this year so by the time you are actually “in gear” is probably not until January 7th. That is, unless you set your sails now.

If you want to create real wealth and truly grow your financial life, you have to stop thinking short-term and start thinking long-term. Thinking long-term means thinking ahead and being proactive. This month’s newsletter has some great resources that will help point you in the direction of creating your ideal financial future right NOW.

Here’s what we cover in this month’s issue:

· The Market Scoreboard for September 2013

· Illuminating Insights: Your Financial Future in 3 Months & 3 Steps

· Readings of Illumination: Curated Articles for Your Financial Enlightenment

Market Scoreboard

Here is the market scoreboard for September 2013:

Notes: S&P 500, MSCI World Index ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: www.stockcharts.com. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

US stocks had a strong month coming off a lackluster August as prices rose nearly 3% at home. The big contributor to the gains this month was the Fed changing its mind regarding the potential slowdown in their money printing (a/k. /a QE) and news of a new money printing friendly front runner for the Fed Chairman position.  This means the printing press remains. Despite all the money printing news and noise, U.S. stocks sit only modestly above their May 2013 highs. During the past several weeks, U.S. stocks have pulled back due to worries that Congress will fail to approve a federal budget after the current fiscal year ends on Monday, leading to a possible government shutdown on October 1. A bigger threat to financial markets, however, is the risk of a U.S. default, which could happen if lawmakers fail to raise the nation’s debt ceiling. The U.S. market complexion is not showing any major cracks despite all the Shutdown hoopla.

The fiscal showdown in D.C. overshadowed generally positive economic data (but nothing robust). August reports on durable goods orders and new home sales came in better than expected. But remember, these economic reports are all from the past and are history as the market looks forward. Perhaps the gains are already baked in the cake as the U.S stock market is one of the most expensive across the globe and trades and close to a 30% premium to foreign markets.

As we have touched on over the past few months, Foreign markets are taking the leadership baton from the U.S. International equities rose over 7% in September as emerging markets, including China posted strong gains. Institutional investors, the major driving force behind market movements, are growing more comfortable abroad as European and Asian economies are showing signs of renewed growth.  The valuation disconnect that we noted above will eventually narrow which is why it is important to think beyond the  U.S. borders when investing.

Bonds yields reversed course in September as the 10 year treasury yield first for the first time since April, which is when fears about the Fed tapering its quantitative easing program began to push longer-term interest rates higher. This in effect lowered mortgage rates as they fell to 4.35% from above 4.6% in early September. Yields have risen quite a bit in a short period of time and a cooling off period would not be unusual. A new Fed chairperson is likely to take office on February 1, 2014. At the current time, Janet Yellen appears to be the front‐runner which is supposedly “bullish” for stocks.  According to Ned Davis Research, “the market has tended to test the new Fed chairperson. The average decline over the first six months has been ‐16%. I guess time will tell.

In the U.S. very little has changed in recent months. Stocks are quite overvalued by several historical measures, but price trends are not close to breaking down. A few divergences are appearing, but it is too early to declare them dangerous. A bull on the cover of TIME Magazine is not necessarily a good sign and that is what we saw last week. The biggest change in the markets is found within the leadership of foreign markets as some of them are breaking away as the U.S.  narrowly ascends. Until selling pressure picks up and the S&P 500 closes below the 1630 level, the bull market in stocks will live on, but it is a high‐risk uptrend, where in our belief, downside risk now exceeds upside potential (in the U.S.).

Illumination Insights: Your Financial Future in 3 Months & 3 Steps

 So here we are, three months until 2014. Does hearing that year scare you or excite you? Time is flying. Hopefully, you are another year closer to financial independence. No matter what, we are going to make sure you are by next year. So over the next 3 months, we challenge you to take these 3 Steps to Wealth with us. Let’s start with Step 1 in October.

Step 1: Find Out Where You Stand Financially

This month is not about the past or the future, but figuring out where you stand right now. You see, most people have no clue where they are at financially. And if you have no clue where you are, then it’s impossible to get to where you want to go.  Yes, I know you are busy and have a ton of things to do before year end. And I also know that some of you don’t want to do this because you may not like what you see but that is OK. The mere fact of going through the following exercise is a positive, despite what the numbers say.

Your goal for October is to find out where you stand financially right now. In doing so, we suggest you do two things:

A. Create Your Financial Statement & Figure Out Your Net Worth

Take out a sheet of paper and draw a line down the middle. On the left hand side write down all of your assets in detail (Bank accounts, the fair market value of your home, investment accounts, rental properties, business investments). For every asset, list it and its value. On the right hand side, list your liabilities. Credit card debt, mortgage debt, student loans… Again, get specific and list the actual amounts of each liability.

After you have completed all of that, add up all of your assets and then subtract your liabilities. That number is your net worth and for your own private eyes to see. Pretty simple and extremely impactful.

What does it show? Any surprises?

Take a good, healthy look at where you are. Remember, in order for you to get to where you want to go, you first have to know where you are.  To strive for financial independence and improve your financial situation you can do two things: 1. Increase your assets and 2. Reduce your liabilities. Part 2 of Step 1 is the sibling to your Net Worth.

B. Track Your Spending

They way you treat the money that you receive is directly related your Net Worth. Many people I talk to have no idea where their money goes each and every month. If that’s the case, is it any wonder why the Net Worth number isn’t too pretty.  You have got to know where it all goes.

The process of tracking your spending is one the most valuable ways of taking control of your finances. You have to become aware of how you spend money. If you spend more than you bring in, your liabilities increase and your net worth goes down. The only way to determine that is by tracking where your money goes.

For October, we suggest you track every dollar you spend so you can see where your cash flows. Once you know, you can then make any necessary changes to help you increase your assets, decrease your liabilities and grow your worth.

Here are two of the many ways to track your spending in October.

Online: We like Mint.com as it is a highly reputable, free online service with a smart phone app that automatically downloads your bank and credit card transactions. It does so pretty much in real time and allows you to categorize your expenses (e.g. Mortgage > Housing Expense). You can sign up for an account here and add the bank accounts and credit cards that you use for your spending and saving. If you use a lot of cash, you have to manually enter that information. Mint is great for those who primarily use debit and credit cards and are comfortable using online tools for their financial information like we are.

Manually: This method, while more time consuming, is extremely effective of bringing awareness to spending. You can do this by writing down the values of everything you spend in a journal or as a note in your smart phone in real time. Keep all of your receipts so you can reconcile as needed. If you want to make the manual process easier, transfer all of your information to a spreadsheet and everything up on a daily or weekly basis. Doing it the old-fashioned way can really change the way you look at your spending.

Readings of Illumination

Here’s our monthly compilation of interesting articles and videos designed to keep you informed and engaged in the areas of personal finance, the economy and life. We hope you enjoy this month’s edition. Please send us your thoughts on this month’s articles and suggestions for future posts.

Personal Finances

The Process Matters on All Your Money Decisions

Six Lessons You Should Have Learned From the Financial Crisis

Be Wary of Even “Safe” Investments

Economy & Business

Leaders Don’t Fix Problems, They Turn Them Into Opportunities

If You Don’t Understand People, You Don’t Understand Business

Life

20 Things 20-Year-Olds Don’t Get

How Millionaires Stay So Productive

Great TED Talks & Videos

Shawn Achor: The happy secret to better work

Creating Your Personal Budget

“You cannot change your destination overnight, but you can change your direction overnight” said Jim Rohn, personal development expert.  While we most definitely agree, we don’t ask you to change either of those things overnight. What we do suggest is to first figure out where you actually stand right now.  What does your financial picture look like – Your Net Worth & Where Your Money Goes? Take October to figure that out. Don’t let the fear of reality stop you from all the treats and dreams you can enjoy in your life ahead. I look forward to hearing about where you stand and what you experienced.  Please feel free to reach out to us anytime.

All the Best,

Matt & The Illumination Wealth Team

Feel free to forward this to any of your family, friends or colleagues; if this was forwarded to you, you may subscribe here.

The opinions and forecasts expressed are those of Matt Rinkey, President of Illumination Wealth Management (IWM) and may not actually come to pass. Mr. Rinkey’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Illumination Wealth services. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of IWM’s services. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Rinkey or Illumination Wealth nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Entities including, but not limited to IWM, its officers, directors, employees, customers and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. The analysis contained is based on both technical and fundamental research. Although the information contain is derived from sources which are believed to be reliable, they cannot be guaranteed. Past performance is never a guarantee of future results.