Monthly Archives: August 2018

Top 10 Concerns for Female Investors

MON, AUG 27th, 2018

As women, we face several unique investment challenges. We have the wage gap, which means we often make less money for the same job, earning just $0.78 on the dollar compared to men in the United States. We often step out of the workforce to raise our family for several years, and during that time we are not earning or saving. And then we factor in the investment gap. Women tend to be more risk averse in investing, preferring safer and less volatile investments. The tendency to avoid risk—or avoid investing altogether—reduces our expected return over time. On top of this, women tend to live longer than men by five years on average, so we actually need more savings for our retirement.

It’s time to take control of our savings and investments. Make the commitment to yourself to get started with a long-term investment plan now.
1. Where do I start?

Start by saving. Aim to put aside 15% of your income—if that amount won’t work for you, start where you can and work your way up.

When you’re just starting out, keep in mind that solid investing is about time in the market, not timing the market. Instead of checking your investments daily and trying to guess what will get you the best returns tomorrow, you should diversify your investments across market caps and market sectors and participate in what the market has to offer over the long term.
2. How much should I have set aside in cash?

Build a fund of three to six months of your expenses. Keep this amount in cash in a savings account where it can be accessed in case of an emergency. Be sure to remove it from your day-to-day checking account so you won’t think of it as accessible for items just outside of your monthly budget.
3. What should my long-term goals be?

By the time you’re 30, plan to have one year of your salary saved. By age 45, aim to have four times your annual salary saved, and by age 67 (traditional full retirement age), plan to have 10 times your annual salary saved. If you’re already feeling behind on this amount, there’s still time to catch up. Don’t underestimate the power of compound interest. Not only will the money that you invest be put to work, but the earnings on your investments will work for you too.
4. How much money do I need before I start investing, and where should I invest?

Once you have three to six months worth of expenses set aside in your savings account, any additional amount can go to your investment accounts. To maximize your investments over time, you want to invest in three different “buckets,” or types of accounts: taxable, qualified, and Roth IRAs. The three-bucket strategy will allow you to manage your taxes while you’re making money, while your money is growing, and when you pull from your accounts during retirement.

Your taxable accounts are funded with money that you have already paid income taxes on. You will pay taxes on interest and dividends paid in these accounts each year, and also on any gains that are realized in the accounts. You will not pay any additional taxes when money is taken out of these accounts.

Qualified accounts include retirement plans, such as 401ks, that may be offered by your employer and IRAs. You will get a tax deduction in the current year for contributions made to qualified accounts. These accounts grow tax-free, and then when money is taken out of the qualified accounts, it is taxable to you as ordinary income.

Roth IRAs use your after-tax income, grow tax-free, and when you withdraw the funds you won’t pay income tax. Try to keep a balance of investments across the three buckets. Please note that there are restrictions on when you can take distributions from your qualified accounts or Roth IRAs without incurring penalties.
5. Is it better to pay down debt or invest my money?

Paying down debt and investing money will both help you out in the long run. Technically, if your investment rate of return is higher than the interest rate of your debt, then you would end up with more money if you chose to invest. If the interest rate on your debt is higher than the rate of return on your investments, then you are better off paying down the debt.

However, debt often weighs heavily on people’s minds, and it can be a relief to finally be debt free. If you’ll sleep better without debt, then pay it off. If you chose to invest, aim to make more than the minimum monthly payment on your debts.
6. My workplace has a retirement plan—should I participate?

Absolutely—especially if your employer offers a contribution match. An employer match is essentially free money, so take advantage of it. Workplace retirement plans represent the qualified bucket. This is a great way to save and invest, and the money grows tax-free. If your employer does not offer a retirement plan, or you are self employed, look into options such as a SIMPLE IRA, SIMPLE 401k, or an IRA.
7. I don’t know where to start with estate planning.

Understand your personal and your family’s balance sheet. Take stock of what you own and what you owe, and understand what will happen to your accounts when you die. For both qualified accounts and Roth IRAs, look at your beneficiary designations. It’s a good idea to make estate-planning decisions while you are alive to avoid costly expenses after death.
8. How do I protect myself?

One of your biggest assets is your own earning potential. How would your household function without your income? Double check your insurance plans—how much will you receive in the event of disability, and how much will your family receive in the event of your death? It sounds grim, but it’s better to be prepared.
9. What about unexpected financial hurdles?

Having a strong financial plan in place allows you to stay on track in case of an emergency. If you have three to six months worth of expenses set aside in a savings account, you’ll be better able to handle unexpected challenges. These can include medical bills, household or car repairs, and even possible job loss.
10. I have more questions.

Remember that you don’t have to do everything on your own. An experienced financial advisor can help you review all of your options and make informed decisions. Look for a fee-only financial advisor such as Albion Financial Group for assistance. Every situation is different, and Albion can help you find the right solutions for your financial future.
Sarah Bird, CFP® / Senior Wealth Advisor
Albion Financial Group
(801) 487-3700

A Ten Thousand Foot View of the Current Tariff Debate

THURS, AUG 10th, 2018

Trade wars and tariffs have been in the headlines for several weeks impacting discussions in boardrooms and living rooms around the world. Many economists are opining about the potential impacts of the proposed and recently implemented tariffs, but how do the tariffs today fit in the context of U.S. trade history? First, a bit about tariffs. Tariffs are a tax imposed on imported goods or services from another country. They serve the purpose of sheltering a domestic industry from foreign competition by making the foreign goods more expensive for domestic consumers.

Tariffs have been around as long as nation-states and commerce have existed. The first tariff law in the U.S. was the Tariff of 1789 which was implemented to generate revenue for the federal government and to protect domestic workers and industries. Prior to 1789, under the Articles of Confederation, individual states sought to impose their own tariffs on imported goods. The 1789 act assessed a duty of fifty cents per ton on cargo of foreign owned or foreign built ships but only six cents per ton tariff on American owned ships. Interestingly this provision favoring U.S. ships still exists today for shipping between U.S. ports. It has been in the news as U.S. commonwealths such as Puerto Rico find themselves paying higher shipping rates from U.S. ports due to the lack of competition from foreign firms.

Tariffs were the greatest source of federal revenue, at times approaching 95%, until the income tax was established in 1913. Between 1789 and 1914 the debate about the correct level of tariffs remained heated. In general, Democrats favored tariff rates sufficient to fund government but no higher while Whigs and Republicans favored higher tariffs to protect American workers and encourage American business. Following the implementation of the income tax in 1913, tariffs have generally trended lower and today are quite low.

The three main reasons tariffs are imposed today are to protect budding new industries, to protect aging and/or inefficient industries, and to protect against dumping – when a foreign company sells products in the export market at a price below their cost or at a price below what they charge for the same products in their own market.

Tariffs can be implicit or explicit. An explicit tariff is a clear fee assessed on imported services and products. Implicit tariffs are rules that prohibit the import-export of certain items – for example, some nations disallow importing of genetically modified foods which serves to protect their farmers from foreign competition. China requires foreign companies that manufacture in China to share ownership of their endeavors with a Chinese firm and transfer their technology to this jointly owned entity.

If every country had the same labor laws, environmental laws, governmental structure and business regulations then tariffs would likely not be an issue. But that is not the way the world works. Each country has its own set of laws and values and will work to protect them. For example, France has placed a high value on its rural agrarian countryside and has implemented trade barriers to keep such areas from being wiped out by U.S. agribusiness. For the last several decades China has implemented trade barriers both to allow budding businesses to incubate and grow and to remain in control of what is still a single party authoritarian economy. The U.S. has implemented hundreds of protectionist measures through a variety of tools from tax breaks to regulatory restrictions which raise the bar for potential new entrants, to outright tariffs on imports. According to the Center for Responsive Politics, $3.37 billion was spent on lobbying Congress in 2017 most of which was focused on legislating an advantage for a specific company or industry.

Tariffs and other restrictions on free, fair, unfettered trade have existed as long as commerce has existed. The current headlines regarding trade practices, while unsettling, are not new. History has taught us that countries will continue to view trade policies from the lens of enlightened self-interest. However, it has also taught us that open markets with free and fair trade promote global economic growth. And, as the saying goes, rising tides lift all boats.

John Q. Bird, CFA, CFP®, MBA
President, Principal and Co-Founder
Albion Financial Group
(801) 487-3700