Illumination Wealth September 2014: Do You Have The Right Financial Prescription?
Hey,
I hope you are feeling well and enjoyed the long holiday weekend. It’s back to school time but this month we are bringing you in to financial med. school in an effort to get you on the right financial health plan.
So here’s what we’re covering during this month’s check up:
- Do You Have The Right Financial Prescription?
- Illumination’s Media Spotlight: Financially Intelligent Insights
- The Market Scoreboard for August 2014
Do You Have The Right Financial Prescription?
“You may not be able to read a doctor’s handwriting and prescription, but you’ll notice his bills are neatly typewritten.” – Earl Wilson
Throughout my life I have been surrounded by doctors and fortunately for me, not due to my own health issues. My grandfather was a physician in St. Paul, Minnesota and was well ahead of his time when it came to the care and treatment of his patients. Lindy, my wife, is a Doctor of Physical Therapy treating post-op hip replacements patients to those with TMJ, weekend warriors to Olympic athletes and everything else in between (even issues that start between the ears too!).
My personal & professional relationships with doctors in conjunction with my experience in the financial services industry has illuminated one thing: Many people and financial advisors are focused on the drugs (products in the form of stocks, mutual funds, hedge funds, whole life insurance, trusts) without looking at their overall goals and solutions need to reach them.
Think about a recent visit to your doctor. The first part of your conversation is not prescribing you a drug. You go through a systematic process to review your medical history (those questionnaires you fill out and charts they have on file) in addition to analyzing your current health situation. This may involve running tests, doing blood work, taking your blood pressure amongst others. As this relates to ones financial life it’s akin to discovering your current financial situation and determining your needs and goals (performing the physical).
It does only after those processes can a doctor develop a diagnosis and proper treatment plan. But when it comes to ones financial lives (most financial advisors and their clients) don’t look at the entire financial life first before creating solutions. People are sold or go right for the magic pill, the thing that will in their minds get them rich quick or help them “beat the market”. To truly find the right solution you first have to ask the right questions–just like when your doctor takes your history.
If you don’t know the right questions to ask, you don’t know what problems you have. And if you can’t diagnose the problems you have, you can’t come up with appropriate solutions. In every major area of your financial life, you need to ask all the critical questions first so you can uncover the financial problems you need to address. It’s only after that can you implement the strategies and choose the tools you need to solve those problems and reach your goals.
Let’s stop here for a second. One area where I routinely see the abuse of drugs (I mean financial products) is when it comes to life insurance. I have seen far too many people not have enough of the right life insurance and too much of the wrong insurance (most often whole life) all because their buddy or colleague bought some (or more likely was sold some). You are a successful professional so you must need it. Before jumping in, ask yourself the right questions:
1. What is the purpose for me to get life insurance?
2. Do I need life insurance at all at this stage in my life?
3. How much life insurance do I need?
4. How do I figure out the amount of life insurance I need and for how long do I need it?
5. What type of life insurance do I need considering the above?
These are the sort of questions that you should be asking yourself (or your financial planner with you) before just buying drugs as if it is the only solution for you. The whole financial physical process needs to build around your goals, not financial products. You may be surprised to hear this but I would argue that the least important piece of your financial life planning process is implementing the investment decisions (buying the drugs).
It’s imperative for your financial health that you determine your needs and goals, understand your current financial picture and money history, develop financially viable solutions based off your goals, implement the strategies, build a proper investment portfolio and monitor your overall progress regularly.
No matter where you are at in your financial life – a recent college grad, to starting your own business to having your first child to getting ready to retire – everyone needs to address all the major areas of their financial life and goals on an ongoing basis.
Action Items:
- Take one area of your financial life (let’s say it’s debt reduction or investment planning) and write down all of the questions you need answered in those areas to get your finances straightened out in that area.
- Identify which questions you need help with.
- Either spend time searching for solutions on your own or search for a financial planner or investment advisor that can help you ask the right questions and answer them appropriately.
Illumination’s Media Spotlight
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.
Matt’s Appearances
Unlock Your Wealth Radio: Matt Rinkey Interview
Personal Finance
Market Watch: Why it’s so difficult to raise kids-and save for retirement
Star Tribune: The Success Guide to Happiness
Life
Derek Coleman: The NFL’s First Deaf Offensive Player
New York Times: Learning to Shun the Instagram Life
Great Videos, Podcasts & TED Talks
Bloomberg View: Masters in Business: James O’Shaughnessy
Market Scoreboard
Here is the market scoreboard for August 2014:
The S&P 500 closed August with a monthly gain of 3.77%. This was the biggest monthly advance for the S&P 500 since February 2014. Developed international stocks made little progress during the month while their emerging economy counterparts rallied nearly 3%.
On the economic front, this past week the Bureau of Economic Analysis (BEA) released its revision to the 2nd Quarter Gross Domestic Product estimate which came in at 4.2 percent, an upward revision from the Advance Estimate of 4.0 percent. This report continues to show a rebounding US economy driven by business investments, growing inventories and surging exports. It shows a growth rate that — when coupled with largely normalized official unemployment data — indicates that we have finally reached a full recovery after the nightmare of the Great Recession. That said, the economic picture says nothing about future stock market returns.
Despite the good news, recent economic data shows a curious lack of accelerating growth after the winter slump. Consumer spending, which accounts for about 70% of the U.S. economy, grew at an annual rate of 2% in July and has declined every month since March. In prior economic recoveries and expansions, spending would grow in the 3-5% annualized rate. This combined with the modest housing recovery is not yet implying any major advances in future economic growth.
So what do we have to watch out for in the short term? Well, according to Urban Camel’s blog, September is historically the worst performing month of the year. This factor is even stronger when August has been strong: when August has been up 1% and at a high, September has been down 85% of the time for an average loss of 1.6%. When August has been up more than 3%, like it was this year, September has an average loss of 2.6%.
Beyond September, there are two integral market dynamics that are shifting. First, corporate stock buybacks are declining. Companies buying their own stock back have grown by $1.56 Trillion since 2011. However, share repurchases peaked during the first quarter of this year at $159.28 billion and slide back to $120.21 billion in Q2. In October, the Federal Reserve is going to end its money printing operation, QE3. The risk for the financial markets with the Federal Reserve reducing the flow of cheap liquidity, and potentially raising borrowing costs in 2015, two of the major supports of the markets will be removed. This will leave the market on the weight of its own fundamentals. It promises to be an interesting month ahead.
Illumination’s Community Shine
Congrats to our friend Jeff Grant and his team at Sand & Sea Investments for being named the Top Real Estate Brokerage Firm in the 2014 San Diego’s Best Union-Tribune Readers Poll.
“You only live once; but if you live it right, once is enough.” – Adam Marshall
Thank you for taking the time out of your busy life for some continuing financial education. Your personal financial education is one of the greatest bargains in life when you think about it. It costs you very little, you risk nothing, and the rewards can be huge. It is the best investment you can make. Here’s to your continued financial health.
All the Best,
Matt & The Illumination Wealth Team
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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.