Do you worry about money? Do questions often arise in your mind such as “Do I have enough? Am I taking too much risk with my investments? Will I be able to maintain my current lifestyle throughout my retirement? Can I support my children, grandchildren and charities to the degree I’d like?” If questions of this type have ever kept you up at night, congratulations! This shows you are someone who is aware enough about money to be contemplating such questions and. Now, let’s spend some time addressing these worries and see what you can do to possibly alleviate them.

Webster’s dictionary defines worry as “to subject to persistent or nagging attention. Mental distress or agitation resulting from concern for something impending or anticipated.” So when a person has wealth worries, they may be experiencing mental distress about money issues at a future point in time. By realizing that these worries are a fear-based projection into the future, we can remind ourselves that it is not our current reality, but only our fears being played out in an unconstructive way. To regain a healthier, more peaceful perspective, consider the following two exercises:

While the media tends to feed our fears, and promote various “doom and gloom” factors that could derail our financial independence in retirement, it is important to note the positive factors as well. Examples of this would be the fact that aside from health care costs that can be mitigated with long-term care insurance, retirees could typically spend less as they get older. This reduction in spending is often not anticipated. Earned income as a senior is also not often factored in, and yet some people find themselves stepping out of their traditional retirement with some part-time work or involvement in consulting projects that generate income to help with their household expenses.

Probably the greatest factor that is often overlooked is the fact some people don’t take into account their home values with their retirement planning. Most people love their homes and assume they’ll remain in them until the day they die. But this often is not the case. Whether due to a downsize move to be closer to town and reduce the upkeep responsibilities or due to a health need that requires assisted living support, some people in the 93108 zip code have significant equity in their homes that has not been factored into their financial plans. This added infusion of capital when one is in the later phase of their life can become an added safety-net to their financial well-being.

If you are among those who struggle with feeling anxious about money, please know this is a voluntary practice. With proper education and perspective, you can stay present in your life and enjoy the abundance you have today, while also taking productive steps to achieve your financial goals in the future. With outside help, you can consider the path you are on now to see, with an informed degree of probability, what your finances in the future may look like. By removing the guesswork and any fear-based influences from your mind, you can feel at ease with regard to money issues in your life.

Author’s Note:  Brad Stark, MS, CFP, AAMS, CMFC and Seth Streeter, MS, CFP are Co-Founders of Mission Wealth Management, LLC, a Registered Investment Advisor. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Securities offered through National Planning Corporation, Member FINRA/SIPC.  NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Also, historical performance cannot predict future results. The authors can be reached at info@missionwealth.com. 

Dear S&B: As I head into retirement, any rules of thumb when it comes to how much I can take from savings each year? Susan – Santa Barbara

Historically speaking, the number seems to be around 4%-5% with your distributions adjusted for inflation. For example, if you need $40,000 in the first year of retirement, the next we plan on taking $40,000 + inflation. Please see the Exhibit: Distribution Rates for us to discuss further.

We went back in history and assumed that retirement took place in 1970. We started with $1,000,000 and invested it 50% in stocks and 50% in bonds. Then we ran withdrawal scenarios from 4% to 9%. Forty years later, only the 4% withdrawal rate had money as all the others failed.

For a little additional perspective, from 1970 through 2011, the US Bond index had a return of slightly over 8% with the S&P500 a little under 10% and inflation as measured by CPI came in at 4.42%. If the market returns were higher than all but one of the distribution rates (4,5,6,7,8%), how can failure occur?

In years when negative returns occur and you pull money from the portfolio, you have less money to make the “comeback” and thus require an even larger investment return. For example, if you lose 20% in your portfolio, you need it to rise 25% to get back to even. If you pull out an additional 7% during that downturn and thus lose 27%, you need a 37% return to get back to even.

Additionally, while returns in the chart are not static, the distributions continue. Thus, if a portfolio loses money and you pull out the same amount as before, your distribution becomes a much higher percentage. A $40,000 distribution on $1million is 4% but if you pull out the same $40k on an $800k portfolio after a dip that is now a 5% distribution. Here are some planning items to consider.

Investment Management: As you head into the “distribution” phase of life, mentally prepare that your net worth will not increase like it had in the past unless you have “over saved.” As evident in the exhibit, most people struggle in retirement if they start out spending too much and thus cut into principal too early.

Consider focusing on income strategies as the primary objective with growth secondary as you head into retirement. If you can satisfy your lifestyle via the known income (dividends, rental income, pensions, social security, interest, etc.) then you are in a great place to ride out market downturns as you can “wait.”

If you rely heavily or demand steady market returns in order to satisfy your lifestyle, that is a stressful place to be where the statistics are very much against you.   Risk Management: In your planning, make sure you set aside mentally or literally about $250,000 for potential long term care costs. You can either segregate money in your accounts or reallocate funds toward insurance to cover this what if.

Wealth Management: When it comes to planning and you think you may run out of money in the future, there are four major items to consider; life expectancy, expenses, inflation and investment return assumptions. Life expectancy according to the government is around age 82. We know historical rates of return and inflation statistics but the future is unknown. So focus on the areas you can control, spending, saving and your investment allocation.

If you have any questions you want addressed, please submit them to info@missionwealth.com.

Author’s Note:  Brad Stark, MS, CFP, AAMS, CMFC and Seth Streeter, MS, CFP are Co-Founders of Mission Wealth Management, LLC, a Registered Investment Advisor. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Securities offered through National Planning Corporation, Member FINRA/SIPC.  NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Dividends are subject to change and are not guaranteed. Also, historical performance cannot predict future results. Investing directly in an index is not possible. You should not base specific investment actions on any information contained within. Speak to your advisors before investing. The above exhibit is used as an illustration only, not indicative of any particular investment; actual results will vary. It assumes reinvestment of dividends with no consequence of fees or taxes.  Investment decisions should e based on an individual’s goals, time horizon, and tolerance for risk.

Nothing is more fun than going to a party and getting stuck chatting finances. If you are unable to change the topic to politics or religion, here are some of the current talking points for consideration.

The Greece non-sense in Europe continues but did you know that China creates the economic equivalent of a Greece every 11 ½ weeks.¹  As long as Italy, France and Spain get their financial houses in order, we believe the rest of it shouldn’t really matter much.

Oil prices, the old and new political firestorm of ideas and opinions. But in 2011 did you know the demand actually declined in 2011 for China as they continue making significant inroads into alternative energy and nuclear. To dig deeper into the value of oil, while the spot price is around $120 a barrel today, the 5 year forward contracts have been hovering in the $80-$100 range.²  Interesting…costs more today, less if I wait.

“US Stock market corporate profits hit all time highs?” Yes, they have but the stock market still trades below record levels. But who cares about that, let’s talk about Apple.

“What is this Federal Reserve (The Fed) doing with interest rates and printing all this money? Did I hear someone that wanted to discuss gold?” The Fed normally controls short term interest by setting overnight lending rates. They have dropped this figure as low as they can go…basically zero (one reason why cash and short term deposits pay bupkis).

The Fed instituted “operation twist” to further manipulate longer term interest rates by purchasing mostly medium term bonds in the market (pushed prices up which in turn, lowered yields). For anyone owning municipal bonds last year…you may have been largely rewarded (weren’t they supposed to fail per that 60 Minutes report)?

Regarding financially shaky municipalities, it’s not mainstream news yet, but Stockton has been flirting with bankruptcy for a while. They have already claimed fiscal emergency twice and they are threatening to follow the path of Vallejo.   The real fight is centered upon the local government’s inability to cut expenses. This is a good segue topic for union contract and government spending conversations. Always a crowd pleaser.

With all the “troubles” and problems throughout the world…did you know that through last week, the emerging market stock index was up over 16% year to date followed by the broad non-US market at almost 12% and the US close to 9%.

“Yes, that all sounds great, but have you heard of the new Apple initiative?”

Far less conversations about real estate as of late. While the data has improved marginally, lending rates remain low but lending tight.

Jobless claims continue to improve. They would surely get better if Apple moved the manufacturing back here. Right? Depending on the how one interprets the government data, either unemployment is much better or the numbers really don’t properly represent the amount of people that stopped looking for work. Since you are most likely having this conversation with a fellow “one percenter,” email us on how you two settled that dispute.

“You have to have all your money in gold, it is the safest investment!” If you get stuck in a conversation with this person, splash something on your clothes and excuse yourself. Yes, gold prices have increased substantially over the past number of years. While having it as part of a portfolio makes sense to many, its still a commodity and subject to great fluctuation. For a little perspective, it took almost 30 years from the last peak to drop to break even. When Village Grocery puts a scale and a chisel on the counter instead of taking cash or credit, then the sign of life changing events is upon us.

If the person is adamant about talking endlessly about gold, try switching the conversation to religion, they probably have less conviction there. But you can always fall back to Apple.

Author’s Note:  Brad Stark, MS, CFP®, AAMS, CMFC and Seth Streeter, MS, CFP® are Co-Founders of Mission Wealth Management, LLC (MWM), a Registered Investment Advisor. They can be reached at info@missionwealth.com. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Advisory services offered through MWM. Securities offered through National Planning Corporation, Member FINRA/SIPC.  NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Also, historical performance cannot predict future results. In general, the bond market is volatile, and fixed income securities including municipal bonds carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Indices are unmanaged measures of market conditions that cannot be invested into directly.
 

    ¹ Goldman Sachs Monthly Insights and Strategy Series, GSAM Chairman Jim O’Neill, www.gsam.com/jimoneill.

    ² GS Global ECS Research, Jan 2012.

Dear S&B, I hear the term, “risk management” in the context of financial planning, but
what does that mean? Jeremy – Santa Barbara

Life is full of risks but the key is to identify them ahead of time and make decisions on how you want to address them. While “Risk Management” in the context of financial planning is a rather broad term, we think it is best to view it as two categories; controllable and non-controllable.

For example, you can decide if you want to invest in the stock market or not, a controllable action. However, lawsuits arising from a car accident, an unexpected change in personal health, a natural disaster are examples of “non-controllable” events. The most common non-controllable items often pertain to inflation, taxes and the economy. Whenever dealing with risks, we view four routes you can take.

Assume the Risk:  This is pretty self explanatory but is the outcome both measureable and acceptable? For instance, if you make a risky investment, your maximum risk exposure is typically 100% of what you put in. However, if you become disabled, not only are your future earnings capabilities at risk, the cost of health care can fall into an extremely wide spectrum.

Whenever considering risks, we find it helpful to recognize the Probability and the Magnitude of such events. For instance, the magnitude of a meteor hitting the earth and ceasing life is colossal but the probability is infinitely small. It is usually most prudent to address the higher probability items first when it comes to planning.

Avoid the Risk:  Life is full of risks and generally rewards are reaped long term for assuming some level of it. Avoiding them altogether is unrealistic and can adversely impact “quality of life” either today or most likely in the future. Additionally, “avoiding” risk altogether actually can create them. For example, take someone who retired in the early 1990′s and placed all their retirement money in “safe” cash investments, while inflation has continued to roll along. This sort of risk avoidance can create unwanted problems down the road.

Shift the Risk: This usually comes in the form of purchasing insurance. A check we never want to write yet one of the “wisest decisions” ever made if something goes wrong. In many cases, insurance is the most cost effective way to address risk. You can also gauge the probability of payout by the costs being charged. If insurance is really cheap, the likelihood they put on the claim is probably small. But if it is “expensive,” that is a good indication that risk may be higher than you perceive.

Ignore the Risk: We would not say this is the “preferred” way to go. Addressing the “unknown” can be liberating. You know it exists so dealing with it and making an informed decision on how to address your needs is far better than pretending it won’t ever happen to you. Years of great investing and saving can all be put in jeopardy by improper planning. And this does not have to be just an “insurance” issue.

Investment risk lessons abound. In the 1990′s people concentrated their money in specific investments (such as their company stock or just a few “high octane” mutual funds) only to have it significantly reduced in value because they ignored the risks associated with their “nest egg.” We saw it again most recently with real estate. Some other potential “bubbles” currently seem likely but only obvious once they burst.

From a wealth management perspective, we recommend you focus on your individual and family goals so that you can start to identify the true “risks” that are specific to you.  When it comes to investments, diversified portfolios that match your risk tolerance level while also addressing your short and long term goals are usually most prudent. Finally, put a tax management plan in place that is unique to your specific situation.

Start with your “foundation” of high probability risks and work up from there. The lower magnitude risks you may want to assume but others not so much. You will be surprised by how effective and psychologically liberating it can be. Not to mention how it can help you and your family accomplish and protect a lifetime of work.

If you have any questions you want addressed, please submit them to info@missionwealth.com.

Author’s Note: Brad Stark, MS, CFP, AAMS, CMFC and Seth Streeter, MS, CFP are Co-Founders of Mission Wealth Management, LLC, a Registered Investment Advisor. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Securities offered through National Planning Corporation, Member FINRA/SIPC. NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Also, historical performance cannot predict future results.

Every year Dalbar Inc. publishes the investment return estimates for the “average” investor.
We can’t recall a time in history when the report was anything but disappointing. For the most recent report going back 20 years, they reported an estimated return sandwiched between inflation and housing (the three lowest returns of the nine profiled by far).

After conducting thousands of investor interviews and analyzing the portfolios, we have come to the conclusion that there are two common investor stumbling blocks that often adversely impact portfolios. The first of these is very close to home, it resides in our brain. Greed can create a sense of over confidence when things are going well, while fear can instill sheer panic on the other spectrum.

Besides having emotions control decisions during times susceptible to impulse reactions, we tend to as investors “chase the herd” and go after “yesterday’s” best investment. But it has to continue going up, look how well it is doing, you just have to get on the gravy train before you miss it, right? And during times of fear, panic and confusion, the feeling that there is no way it will ever go up can be overwhelming.

Time after time, we see the studies that show the “best” investments becoming the “worst” and vice versa. Even for novice investors they get the idea that not one thing is the “best” all the time because if it were, there would be no other options that people would partake in. Here are some tips to help you avoid some of these issues.

Wealth Management: List out your goals along with your assets, liabilities and cash flow. Yes, this sounds sort of like a business plan in the making. Precisely. A business is intended to be long term in nature and has to be prepared to account for various changes and obstacles that will inevitably come and address them without failing.

The more you understand your situation, the less anxiety you should experience generally in your life and the more apt you will be to make less emotionally charged financial decisions. We know you really want that car and the dealership says they will give you the lease. But how does that impact your other objectives? Knowledge of yourself is true power to help you make the right decisions for your particular situation.

Investment Management: Once you diversify your portfolio (let’s not argue this please), consider rebalancing it quarterly. You will find yourself most likely trimming the items you don’t want to and adding to those you are least comfortable with. Why? Because you will be selling the ones that have done the best and buying the “losers” in your portfolio.

Rebalancing forces you to go right against your greed and fear tendencies. This is counter to what the “average” investor does. So you will tend to be a seller when people are buying and a buyer when people are selling. Some argue, buy low, sell high?

Risk Management: A good business plan accounts for threats that could adversely impact operations. This is why you set up the proper entity type, purchase insurance, have a disaster recovery and contingency plan in place.

For individuals, a Will, Trust and durable powers of attorney are very important legal documents to have in case something goes wrong. These documents leave directions for those who follow as well as provide legal authority for someone to handle your affairs.

When you are in your working years, your earning ability is generally your biggest asset so disability, life and health insurance are important. As you come closer to retirement, you have hopefully amassed enough savings so that it provides you “salary replacement” in your golden years. But keep in mind that long term care costs run approximately $250,000 in aggregate today so either carve that off or look to reposition assets into insurance.

As humans, we tend to make many of our decisions based upon emotion. We know the burger is bad for us, but it tastes so good and leaves us satisfied. A car may be impractical but it feels so good driving it. That big house is unnecessary but it feels good when pulling into the driveway. Just realize these emotional decisions have consequences…financial success usually comes from making the “difficult” choice, not the one that feels good.

If you have any questions you want addressed, please submit them to info@missionwealth.com.

Author’s Note:  Brad Stark, MS, CFP, AAMS, CMFC and Seth Streeter, MS, CFP are Co-Founders of Mission Wealth Management, LLC, a Registered Investment Advisor. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Securities offered through National Planning Corporation, Member FINRA/SIPC.  NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Neither diversification nor rebalancing can ensure a profit or protect against a loss. Also, historical performance cannot predict future results. 

Maybe it is just me but it seems as though there are more stories about actors, athletes or the famous running into financial troubles. People that have made tens of millions over their careers that you would expect to be financially set for life. In doing a little research, we found what we expected; six common themes that lead to their ruin that are mostly avoidable.

Sports Illustrated published a study that found that 78% of NFL players filed for bankruptcy within two years of retirement from football. The NBA fared better at five years and 60% but still startling.

Some of the famous professional athletes that have filed for bankruptcy or have been publicly reported to have hit hard times (name and estimated lifetime earnings in millions): Holyfield-250, Taylor-50, Pippen-120, Sprewell-50, Vick-130, Tyson-300, Laettner-60, Ismael-20 and Clark-20 to name a few.

Entertainers are not exempt with well publicized financial troubles hitting Kim Basinger, Mick Fleetwood, Willie Nelson (16.7 million IRS debt at one time), Larry King, Tom Petty, Elton John, Walt Disney, Burt Reynolds, Wayne Newton and the list goes on (going all the way back to include Mark Twain and Rembrandt).

Some people say our currency is bankrupt today and that may be somewhat true with Grant, Lincoln and Jefferson all declaring bankruptcy at one time. One other President, William McKinley filed for bankruptcy protection as well.

We have left off a famous lottery winner who blew 16.2 million, but you get the idea—money only allows for financial security only if you steward it well. So what are some of the common themes to the downfall? Most of the troubles seem to stem from the same common challenges everyone encounters: over spending, divorce, legal problems, leverage, really bad investments and tax troubles.

When you make hundreds of millions and lose it, that means you did not follow the number one rule for wealth creation, pay yourself first. Take a portion of your earnings, carve it off and put it aside in liquid diversified investments. BORING. Maybe but it works.

Leverage can be a key to making great wealth but it is also a common cause of financial destruction. For example, if you borrow $800,000 on a $1,000,000 property and the value increases 20% to $1.2mil, you just made 100%. How can that be? Well, you invested $200k and the bank put in the remaining $800k. If you cash out this hypothetical transaction assuming no costs involved, you get $400k (1.2m-800k), doubling your initial investment.

Let’s make it go the other way, the property loses 20%, dropping from $1mil to 800k in value, you now lost 100% of your investment.

People borrow money to buy their home, but what generally happens if they can’t afford the mortgage any longer? It gets foreclosed and their credit is tarnished but generally their other assets are untouched. But if you take out loans for business ventures or real estate investments, those structures are often recourse against your entire net worth vs. just the property (non-recourse).

Affluent people that get into business with less financially well off partners often times come to the shocking realization that they are the target of collection if something goes wrong. Just because you are one of the partners in a deal gone south, does not mean that all the partners will be sought after for collections.

Most loan agreements do not separate out the liability per the percentage ownership in a deal. The lender often times comes after the deepest and easiest pocket to go after, leaving the partners to figure out how to settle up amongst themselves.

The overspending issues in the country are a societal problem that applies to the wealthy as well. Why would anyone think that the more money people make, the more they would save? That means there is more to spend. And that is one if not the biggest problems that we saw in a lot of these downfall stories. People making a lot, spending more, taking on debts to fill holes.

When people follow this path, they seem to pay less attention to one major bill, the IRS. Whether it is the attempt to initiate tax dodges that don’t work, taking aggressive positions or simply not paying, you don’t want to ever get into a situation where you have to liquidate assets to pay the government (e.g., Nicholas Cage most recently).

When it comes to investments, maybe it is the artistic side of the mind or the aggressive “win at all costs” mentality in athletes but they tend to make some really bad decisions. The usual culprit is the restaurant, night club, business with friends or a land development deal. These are all investments that typically carry tremendous risks and leverage. Of course the BORING stuff does not appeal…that only appeals to someone like Warren Buffet (3rd ranked wealthiest person in the world…living in his same Omaha house he bought in 1958).

All of the people in this story could have been financially well off forever. If they had only followed the “boring” path to financial success. The tortoise wins more often than you would think. But it’s not EXCITING. Though financial distress is?

If you have any questions you want addressed, please submit them to info@missionwealth.com.

Author’s Note:  Brad Stark, MS, CFP, AAMS, CMFC and Seth Streeter, MS, CFP are Co-Founders of Mission Wealth Management, LLC, a Registered Investment Advisor. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Securities offered through National Planning Corporation, Member FINRA/SIPC.  NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Also, historical performance cannot predict future results. 

During a lawsuit or divorce action it is commonplace to believe that money may have gone “missing.” So to find the secrets on how to discover when money may have gone astray or to find where it went, we solicited the help of Lorch & Company, a forensic CPA and valuation firm located in Westlake Village, CA for some discovery tips.

“Facts are the facts, make sure you follow the details,” says senior manager, Tamara Rigberg, CPA. Most financial assets are traceable by making sure you follow the ownership title, transactions, transfers, withdrawals and changes that occur. “People may try to hide money by moving it or changing its character but there is no magic pill in making it disappear as long as you follow what actually happened,” says Mr. Lorch.

People used to believe they could move funds offshore to make them “disappear.” And while it may be more difficult to recover, “you can trace the transactions to when the money left the country either by records or tax reports” according to Mrs. Rigberg. It is a criminal offense not to report worldwide income and while some people take that risk to conceal accounts, Rigberg says “you can always trace back to where money went missing by following the transactions previous to the event.”

During a lawsuit a common belief is that an “asset may be worth more than claimed” according to Mr. Lorch. This usually pertains to a business valuation where an argument is being made that the worth is being artificially depressed. “During marital separation or lawsuits, it can be the case where the business owner is purposely tanking profits to temporarily deflate the value of the company so the issue to determine…is it the economy or the overt actions of the operator in the appraisal process” says Rigberg.

Also during divorce, a common argument arises about the characterization of the property. Mr. Lorch says, “If money is received during marriage, it is considered community property unless it can be proven to be separate property (typically a gift or inheritance). Rigberg continues by saying, “If rights are in question, tracing the funds back to the source will uncover the lawful ownership.”

There is a difference between asset protection and concealment. While married it is a common practice to protect assets from potential lawsuits by reducing liability exposure. But “as soon as a marital separation takes place, it may appear that protection strategies are misconstrued as a concealment technique” says Rigberg. She goes on to say that “rules in family law are designed to protect the community against concealment and people considering shenanigans are facing pretty severe penalties that they should not take lightly.”

Fraudulent transfer is a common concealment technique when someone is facing litigation. This is when assets are moved and placed under alternate title with an entity or person. “But again, as long as you pay attention to the details, you can track the movement of money, funds or property by looking at title, transactions, financial statement changes and tax records. Once uncovered, the courts and attorneys are there to protect the interests of the claimants to get those funds back,” says Mr. Lorch.

For those trying to recover funds, as long as you dig and follow the data, you can find the money. For those trying to hide it…they will get you.

Author’s Note:  Brad Stark, MS, CFP, AAMS, CMFC and Seth Streeter, MS, CFP are Co-Founders of Mission Wealth Management, LLC, a Registered Investment Advisor. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Securities offered through National Planning Corporation, Member FINRA/SIPC.  NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Also, historical performance cannot predict future results. The authors can be reached at info@missionwealth.com.

Are you confused as much as the politicians and the media are about how the economy works? No wonder society is puzzled with economic reality lost among the jargon. Let’s boil down the backdrop into simple to understand concepts of GDP (Gross Domestic Product), Consumer Economics and Market Valuations to create some clarity in a topic often misunderstood.

What is GDP? Simply put, it is the value of all goods and services that are produced in the United States. Quarterly records originated in 1947 and for the past number of years, the numbers have been anemic.

What is a good number? For an established economy such as ours, 3%+ growth is generally considered first-rate while anything under 2.5% leads to expected job losses (the Consensus Economic forecast is 2.1% for this year). Looking at the other parts of the world, Consensus forecasts 6.9% for the “Growth” markets, 2.1% for the “Advanced” economies and 4.1% for the World (which is around historical “norms”).

What are the components of GDP? In the most recent calculations by the US Department of Commerce, personal consumption was 71.1%, gross investment (business) 10.3%, government 20.1% and housing at 2.2%. Yes, if you add those up, the number is 103.7%. How can that be? We have a “hole” in our economy called “net exports” caused by our trade deficits to outside countries. Why can’t the government turn this around? This is one of the great political debates going on…but once it is understood that consumers are 70% of the economy and the government is 20%, the math makes it very difficult for the government to fill even small voids left by consumers. The stimulus plans coupled with easing monetary policy (i.e. the Federal Reserve slashing interest rates and flooding the market with money) have attempted to “prime the pumps” of the consumer. Why hasn’t it worked like in decades past? The “baby boomer” consumer is older this time around and neck deep in debt vs. decades ago when they were just starting to leverage themselves. So while the government and the Fed have been pulling levers to help promote spending, the consumers do the natural thing when you are scared of the future, save more, spend less and reduce debt—all factors that may impede economic recovery.

How do you properly assess investment opportunities and pricing during turbulent times? When it comes to the stock market, common formulas for establishing “fair value” are named; Dividend Discount Model, Fed Model, Mean Reversion, Price to Earnings (P/E) analysis and many others. Are any of them better than others? Yes, no, maybe, sometimes (no system is perfect).

One of the most commonly referenced valuation measures is the P/E ratio. That is the “P”rice of the stock divided by its annual “E”arnings per share (the critical component). A long running P/E average for US stocks is around 16. In general, the equity markets in Europe and the US are trading at P/E values well below historical averages (meaning they may be attractive?). But remember, stocks in particular can trade at high or low P/E ratios for extended periods.

Bond prices are normally dependent on three main factors; length of maturity, principal repayment safety and interest rates. Stocks and bonds are constantly competing for investment dollars. When interest rates are high, people will tend to gravitate toward bonds unless stocks can demonstrate tremendous “E”arnings growth. Otherwise, why take the risk? When interest rates are low, people generally gravitate toward stocks in the search for greater potential returns.

Residential real estate is largely valued on supply/demand, wages, economic stability, demographics, environmental factors, and available debt (all items under pressure). While investment real estate may also be valued on a “cap rate.” For example, if your apartment building yields $40,000 a year after expenses and it is valued at $1,000,000, then it has a cap rate of 4%. This allows the comparison to stock dividends, bond yields and interest rates.

The three main components to commodity prices are; speculation, currency values and supply/demand. A lot of our energy and basic materials are derived from other countries with many investors so it is sensitive to currency changes. Commodity prices can be highly volatile, may be difficult to justify, and are considered “speculative” for a reason.

In the end, there is no shortage to the number of investment products that are out there. Remember, that most products are all tied to the underlying basic foundational investments discussed here but packaged differently. And don’t confuse economic data with investment opportunities. They can move in opposite directions.

Authors’ Note:  Brad Stark, MS, CFP, AAMS, CMFC and Seth Streeter, MS, CFP are Co-Founders of Mission Wealth Management, LLC, a Registered Investment Advisor. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Securities offered through National Planning Corporation, Member FINRA/SIPC.  NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Also, historical performance cannot predict future results. Investments in commodities may be affected by the overall market movements, changes in interest rates and other factors such as weather, disease, embargoes and international economic and political developments. Commodities are volatile investments and should form only a small part of a diversified portfolio. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks. Investment decisions should be based on your individual goals, time horizon and risk tolerance.

Whenever someone pulls money out of a retirement account (e.g., IRA, 401k, etc.), they could find themselves subject to three possible tax situations and generally facing one of three needs. There are different rules for those under age 59 ½, over 70 ½ and those in between. And when it comes to withdrawal needs, people usually are in a “forced to,” “would like to” or “optional” situation.

If you are under the age of 59 ½, retirement plans are typically the last place you want to pull money from, but there are exceptions. Regardless of your age, understand that tax qualified money (e.g., 401k accounts, IRA’s, pension plans, etc.) grow tax deferred and becomes taxable when funds are pulled out.

The taxes owed are NOT subject to the lower capital gains rates but rather calculated at higher marginal bracket. Also keep in mind that if you are under 59 ½, there are Federal and State penalties for “early” withdrawal, but there are some exceptions for which you could qualify.

If you are over 70 ½, you are “forced” to take out Required Minimum Distributions (RMDs) based upon a life expectancy table provided by the IRS. Otherwise there is a 50% penalty for missing a distribution and you owe taxes as well.

If you are between the ages of 59 ½ and 70 ½, that is considered “open territory.” You can take out as much or as little from your available retirement accounts without any government rules to be concerned about as long as you pay the taxes on those distributions.

If you need funds and are under 59 ½, you could utilize the IRS rule “72t” to avoid the 10% Federal penalty (as well as California’s 2.5%). In order to activate this clause, you have to be separated from service (ie. not employed), distributions must run a minimum of 5 years or to age 59 ½, whichever is longer, your distributions must follow one of the approved IRS calculation methods and you can’t modify the withdrawal (except in the case of death or disability).

There are some additional situations where penalties may be avoided, but taxes are still levied on the distributions. These include but not limited to a qualified employer plan where separation from service occurred after age 55, distributions for deductible medical expenses, military exemptions where active duty is involved, public safety employees separated from service over the age of 50, unemployed person paying for health insurance premiums, first time home buyer limited exemption and qualified education expenses.

Before acting, make sure you speak to your CPA to ensure an exemption pertains to your situation. The rules and procedures can be quite complex so familiarize yourself with the regulations at www.irs.gov. Over the years, the IRS has become less forgiving when withdrawal mistakes are made and the procedure to fix an error can be costly and time consuming.

Remember, these retirement accounts have not been taxed before, so most people look at these as the last place to pull money. But if you are going to be in a low tax “employment transition” year, then you may want to consider a Roth conversion or take withdrawals when your marginal rate is low. If your financial situation is so dire that bankruptcy is a real possibility, speak to an attorney ASAP. Your retirement accounts have rules that can protect it from creditors so you need to be aware of your rights before you take money out.

If you have any questions you want addressed, please submit them to info@missionwealth.com

Author’s Note:  Brad Stark, MS, CFP, AAMS, CMFC and Seth Streeter, MS, CFP, Co-Founders of Mission Wealth Management, LLC, a Registered Investment Advisor. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Securities offered through National Planning Corporation, Member FINRA/SIPC.  NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Also, historical performance cannot predict future results. 

How do YOU define success?  Many people believe that the best measure of whether they have “arrived” in life is financial and material accumulation. Do you drive the newest Range Rover or Mercedes, or do you envy your neighbor who does?  Do you find yourself feeling more attractive in that new brand name outfit? Advertisers and retailers will continue to do their part to make whatever you have seem inferior to the latest and greatest available products. Let’s discuss what you can do to counter this influence in order to feel successful without a material standard as your ruler.

The first step is to realize that you aren’t what you do or what you have. We all get caught up in labels. Whether it is your title at work, the zip code you live in, or the country club you belong to, these do not represent who you are.  Think of your best friend, spouse, or child. How would they describe you as a person?  These qualities, character attributes and unique ways you impact others truly demonstrate who you are at your core.

Second, it’s helpful to have a reality check. No matter how hard you try, there will always be someone who has more than you. Whether it is wealth, smarts, or tennis, others will rank above you. In a recent Forbes ranking of the world’s richest people, Bill Gates had to accept a #2 position (and $8 billion net worth “deficiency”) to Mexican telecom billionaire Carlos Slim Helu.  Accepting the fact that there will be others who have greater financial success allows you to turn off your external comparisons and focus on your own best potential.

Bestselling author Chip Conley touches on this subject in two of his books.  First, in PEAK – How Great Companies Get Their Mojo from Maslow, Conley modifies noted American psychologist Abraham Maslow’s Hierarchy of Needs Pyramid to a more simplified, three-stage version.

If we apply this to our finances, we know that the base “Survival” stage is simply about having enough funds to cover our basic needs for food, shelter and clothing. Most people who are reading this article and living in Santa Barbara are well beyond this level.   The middle “Success” stage is broad and based on personal interpretation. In business this is measured by profitability, revenue growth and valuation. For individuals it is based on income, net-worth and possessions. As we discussed earlier, this type of success is very subjective and, for some, can never be enough.

The top tier of the pyramid, what Conley calls “Transformation”, is when meaning and purpose come into the equation. This is beautifully described in Viktor Frankl’s famous book Man’s Search for Meaning about his surviving a Nazi prison camp, “The more one forgets himself – by giving himself to a cause to serve or another person to love – the more human he is and the more he actualizes himself.” He adds, “People have enough to live by but nothing to live for; they have the means but no meaning.” Those who step beyond the wealth accumulation game and into the “make a difference game” find this to be the most fulfilling, and thereby successful, time in their lives.

In Chip Conley’s most recent book Emotional Equations he shares a formula for happiness:

By appreciating your many blessings as much or more than you pursue your gratifications, you can maintain a state of happiness. It’s all about where you focus your attention.

If you maintain your sense of identification on your natural talents and attributes vs. possessions, set challenging but realistic expectations based on your own potential, and dedicate your actions to making a positive impact on others, you can live a life of meaning and enjoy a success beyond any other.

Author’s Note:  Brad Stark, MS, CFP®, AAMS, CMFC and Seth Streeter, MS, CFP® are Co-Founders of Mission Wealth Management, LLC (MWM), a Registered Investment Advisor. The information contained in this article is general in nature and should not be construed as comprehensive financial, tax, or legal advice. As with any financial or legal matter, consult your qualified securities, tax, or legal representative before taking action. Advisory services offered through MWM. Securities offered through National Planning Corporation, Member FINRA/SIPC.  NPC and MWM are separate and unrelated entities. Certain statements contained within may be forward-looking statements, including but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties; all statements are subject to change without notice. Also, historical performance cannot predict future results.