Christopher M. Lee, CFP®

I want everyone to close their eyes and go back to December 31^st, 2019.  Wildfires had scorched a huge chunk of Australia, Tom Brady won his 6^th Super Bowl; Tiger Woods returned to golf to win his 5^th Masters; Bradley Cooper and Lady Gaga’s lusty Oscar performance; and the series finally of Game of Thrones.

Fast forward from that day up to December 31^st, 2020.  If you took a long nap throughout the year and woke up and told you that the stock market ended up the year double digit gains, what would you think?

Here is the transcript of the video above:

It’s getting to be that time of year – every 4 years actually – when the upcoming presidential elections can cause some very powerful emotions and get investors anxious and sometimes nervous.  Compound the elections this year with the COVID crisis dominating the news, it could make for some volatile times in the market. 

Do you want your teenage children, grandchild, niece or nephew to understand the true value of money and the importance of it?  Are you frustrated with their lack of financial knowledge?  If so, New England Capital Financial Advisors, LLC is here to help and is offering the following online classes below. 

When:            5 sessions via online, weekly on Wednesdays, from July 15^th through August 12^th 2:00PM-3:00PM.  They can take one session or can take them all.

Who:             High school students and recent high school graduates

There seems to be so much uncertainty these days, between ongoing impeachment hearings (if it ever makes it to the Senate) and now the escalation and tension with Iran, never mind threats of “Christmas presents” from North Korea.  These seem to be some scary and unstable times.

Added into this uncertainty is the above average growth that most of you have seen over the past year in your investments.  2019 was a great year that saw the S&P 500 (500 largest US companies) up 31%, MSCI World Index (outside of the US) up 22%, and the Barclays US Aggregate Bond index was up 9%.

With the big gains it can be human nature to want to sell all the investments and wait for the market to drop or at least get some more certainty in the world.  While that may make you feel better, there is real risk to doing that.  This would be called “market timing”.  The hard part of “timing the market” is that you must be right twice.  You need to know where the top is and where the bottom is.  For example, if you sell now and the market drops 10%, do you get back in?  What if it drops 20%?  Vice versa – say the market goes up 10%.  Do you get back in?  If it drops 10% from there, what do you do?

A couple of weeks ago, I (and about 30 other financial related professionals) was invited to sit down with the Governor of Connecticut, Ned Lamont, to talk about the financial health of the state.  I was rather surprised when I got the email invite from one of his senior advisors.  The senior advisor had found me on a google search, as I am currently the President of the Financial Planning Association CT Valley Chapter (this is our trade organization throughout the state comprised mostly of CFP’s and financial planners).

In addition to Governor Lamont, David Lehman, the Economic Advisor and Commissioner of Economic Development for the State of Connecticut, was going to be there as well.  The purpose of the meeting was to engage in a dialogue with the Governor and other industry colleagues about the Connecticut economy, the Governor’s focus on fiscal stability, and an opportunity to share our perspective with Governor Lamont as well as ask questions.  What a great opportunity to hear from the Governor and be able to voice my thoughts and opinions, especially since I hear from a lot of you on how you feel about Connecticut.

Throughout my 26-year career, this question comes up quite a bit and is not always an easy one to answer.  After all, you have 8 years to choose from (as early as age 62 and as late as age 70).  Let me first say that everyone is unique, and decisions are not always financial-based.  Some decisions are based on health, life expectancy, and spousal needs.  There are pros and cons to starting Social Security early as well as taking it later.  This article will explore taking it early and my next newsletter article will focus on taking it later.

Before we get started, you need to know your Full Retirement Age (FRA).  Depending on when you start your benefits, they may be reduced for taking it early or increased if taking it late:

As some of you know, this topic is dear to my heart as I currently volunteer my time as President of the Connecticut Jumpstart Coalition for Personal Finance (www.ctjumpstart.org).  This Coalition encourages the development and implementation of programs to educate young people about personal financial management and responsibility. This includes convening conferences for students and training sessions for teachers; supporting financial education programs in-school, after-school and in conjunction with community partners.

In this article, I will discuss why teaching personal finance is so important, what new data is telling us, and some things you can do for your kids, grandkids, nieces, nephews, or other children to help them learn personal finance.

But first, why is this so important to me?  When we do not teach children about personal finance – about managing household budgets or making informed decisions about larger investments in education or at home – we are condemning them to learning it largely and perhaps entirely on their own, if at all.   If we teach them subjects like science, history, and math but do not teach them anything about personal finance, then we need to understand that we are making a conscious choice to release them into a financial world where they have to fend for themselves.

Lies, cover-ups, payoffs and investigations - from the president’s sex life all the way to his campaign's finances.   Add to that, a tariff war and possible collusion with another nation effecting our election.  The word impeachment has floated around as well.  Investors are anxious and worried about all these uncertainties in the market and are looking for some direction.  

Believe it or not, all these market headlines occurred over twenty years ago with then President, Bill Clinton.  As they say, history tends to repeat itself, but let’s review some of the issues that were in the news back then.

Tariff War - President Bill Clinton initially took a hardline approach on the U.S. trade deficit with Japan and prioritized extracting economic concessions from Tokyo.  Originally, the Clinton Administration placed a 100 percent tariff on 13 luxury car models.

Last week, there was finally some evidence that the investment markets were starting to get jittery about the escalating tit-for-tat tariffs and threats of tariffs that some economists are calling “America vs. the World.”  Most investors are probably wondering whether new taxes on items flowing into and out of the U.S. really is something to worry about.

It is on several fronts.  First, and most specifically, certain economic sectors will be big losers in an escalating tariff battle.  When President Trump imposed tariffs on steel and aluminum imports, solar panels and washing machines, China responded with an equal dollar amount of tariffs on certain agricultural products, including soybeans, meat, fish, milk and cream, various fruits and vegetables, alcohol, dog and cat food and cotton—all of which directly impacted the economics of many midwestern farmers (who China obviously presumes to be Republican voters). China and the European Union have imposed tariffs on Kentucky bourbon, Harley-Davidson motorcycles, pork and maple syrup, whose manufacturers and workers probably reside on both sides of the political aisle. 

If you’re a soybean farmer, then the fact that Brazilian soybeans are now extremely competitive in the large and growing Chinese market can be extremely discouraging.

My last article discussed homeowners insurance and the types of coverage that you should consider when protecting your house.  Continuing that theme, this article will address some important items that were not covered including liability insurance, additional coverage for other losses, medical payments coverage, and finally umbrella policies.

Insurance can be a boring subject, BUT a very necessary one.  If you do not have the proper insurance in place, all of our good planning and savings could come crashing down!  Every July 1st, my own personal policy is up for renewal, and I use that time to look over the policy and see what type of coverage I have and what is needed.  As always, I recommend that you talk to a professional agent for Property and Casualty Insurance to see what type of coverage you have and what is needed.

Personal liability coverage is a typical component of a homeowner’s insurance policy. While no one expects to be held liable after an accident at their home, liability coverage may help prevent you from paying out of pocket should the unexpected occur. 

For most clients, one of their largest assets is their house or residence.  With that being said, it is good to review your homeowner’s policy from time to time.  For most of you that have been with us, you have seen our “Success Triangle” and one of the items at the foundation of that Triangle is insurance.  This is because if the proper insurance is not in place, it jeopardizes the rest of your financial health.  In this article, we will discuss how much coverage you should have, what most polices cover and what they don’t.

What is a homeowner’s policy?

Homeowner’s insurance protects your home, its contents, and, indirectly, your other assets in the event of fires, theft, accidents or other disasters.  A standard homeowner’s policy (known as an HO-3 policy) will protect you from things like fires and fallen trees.  Floods or earthquakes are specifically not covered by a standard policy and require additional coverage.

As many of you are aware, we had sweeping Federal tax law changes for the first time in 30 years that will have both positive and negative effects on many of you.  Please note that these changes are not uncommon and usually do happen every 30 years, with the last two coming in 1981 under President Reagan and before that, in 1945 under President Truman.

In this article we will discuss, as Clint Eastwood would say, “The good, the bad, and the ugly” of the bill and how it may affect you.  Please note that this article is not meant to be a comprehensive guide to every caveat of the law, but it does cover the high points and makes it obvious how important good financial and tax planning will be (as it was in the past and will continue to be in the future)!  First though, let’s talk about some of the things that did not change:

UNCHANGED

With President Donald Trump making headlines on an hourly basis and our social media accounts going crazy with comments on his presidency, we are left asking ourselves: Should we perhaps change our investment strategy as a result?

First we need to identify what this alleged “new risk” - Geopolitical Risk - is.  Geopolitics is defined as the study of how geography and economics influence politics and the relations between countries. An example of geopolitical risk would include a flare-up of tensions between Saudi Arabia and Iran that resulted in a spike in the price of oil. 

Another example includes a banking crisis in Europe that results in foreigners buying U.S. Treasuries in vast quantities, which could result in American bond yields falling (supply versus demand – the greater the demand – the lower the yield gets pushed). 

As some of you may know, one of my passions is forwarding the progress of financial literacy in our youth, so much so that I am currently president of Connecticut Jumpstart (www.ctjumpstart.org), which is a non-profit of individuals and organizations that represents business, government, and education who have joined together to improve the personal financial literacy of Connecticut youth.   Why this passion?  My belief is that if we want to have a society that is less dependent/reliant on government, then we need to teach our youth the importance of savings, budgeting, credit cards, loans, and investments.  I know as a parent, that we want our kids to grow up to be independent and make good quality decisions in their life (and financial life).  So why don’t we have the same goal for our society?  The cost of making a couple of bad financial decisions early in life can have lasting effects on these young adults.  As Aristotle once said over 2,000 years ago, which still rings true today, “The neglect of education does harm to the political order”.

When I first joined this board seven years ago, the coalition was fresh off a defeat due to a bill that was pulled days before the general session to make personal finance a graduation requirement for high school students.  Why was this bill, which makes so much sense, pulled?  It was pulled for several reasons; the primary one being funding (of course). 

So where are we now, seven years later in the quest for financial literacy?  Before I answer that question, I want to give you some background on what other states are doing for financial literacy and some of the results that have been published.  Based on a bi-annual survey of the states that came out last year, (www.surveyofthestates.com) 17 states now require high schoolers to take a personal finance course prior to graduation.  Sadly, the number of states with this requirement has not changed in 4 years, and still stands at 17 (Connecticut is still not one of these 17).

We have been fielding some calls from clients (and prospective clients) about the current market and market highs.  So the question is this; with the market so high what should we be doing?

Although the last 16 months have been enjoyable watching this upward trend, should we be skeptical of where we are in the market cycle?  Will it continue to go up or will it drop?  I will try to answer some of these questions for you the best I can.

Will the market continue to climb?  No one can answer this question – not even the psychics or the so called “experts” on CNBC.  Yes, we have had an unprecedented run of 7 years without a drop of 20% or more although we did hit that 20% drop if you count intraday versus market close back in February 2016.  With that said, it is possible for this market to run more.  The economy, at this point, is in good shape and inflation is low, albeit the Fed has recently raised rates in a countermove to help keep inflation down.  There are always risks including geo-political, interest rate, earnings, market cycle, and of course the black swan event that no one sees coming.  This market reminds me a lot of 1996, when a lot of people felt the market was too high (as it was up 34% in 1995 and 20% in 1996).  The S&P 500 returns in the 3 years to follow were 31%, 28%, and 20%.

You know you’re deep into a longstanding bull market when you see things like average pedestrians keeping one eye on the market tickers outside of brokerage houses to see when the Dow Jones Industrial Average has finally breached the 20,000 mark.  Who would have imagined record market highs at this point last year, when the indices ended the year in negative territory?  Or when new year 2016 got off to such a rocky start, tumbling 10% in the first two weeks—the worst start to a year since 1930? 

The markets eventually bottomed in mid-February and began a long, slow recovery, turning positive by the end of March, suffering a setback when the U.K. decided to leave the Eurozone and endured another hard bump right after the elections.  In the end, we were disappointed; the Dow finished at 19,762.60 for the year—as the bull market has continued for another year.

This was the second year in a row that the final quarter provided investors with solid gains. The Wilshire 5000--the broadest measure of U.S. stocks—was up 4.54% in the fourth quarter of 2016, ending the year up 13.37%.  The comparable Russell 3000 index gained 4.21% in the final quarter, to finish up 12.74% for the year.

We are about a month away from the elections and our office has received several calls in regards to the effect that either candidate will have on the economy and consequently, the stock market.

Most people feel very passionately about this upcoming election.  Oddly though, I find that they are not strongly for, but rather ardently against a specific candidate.  Regardless of the flaws or characteristics of each nominee - what should we plan for when either of the candidates wins the general election?  A look back at history shows that presidential election cycles indeed correlate with stock market return. As for the outcome of elections? The impact might surprise you. Below, are a few things you should consider in election years.

According to a MFS Investment Management research report entitled, “Primaries, caucuses and elections–oh my!,” based on data from Ned Davis Research, from 1900 – 2008, the stock market, as defined by the Dow Jones Industrial Average (DJIA), performed better when the incumbent party won each given election, regardless of the political party of the incumbent.  Though historically, according to this research, market performance has been better historically under Republican Presidents as opposed to Democratic Presidents according to this research.

Hopefully you are enjoying your summer, whether it is at the beach, in the mountains, in your backyard, or even sitting poolside enjoying your favorite beverage.  This time of year makes it easy to fantasize about what retirement may look like – or even if you are retired – what life can look like away from “home”.

Vacations are great – everyone needs down time to recharge their batteries, reflect on the past, and look ahead to the future.  Some people prefer to travel, while others would like a “home away from home”.  At what point should you consider buying that vacation home or second home?  In part of that decision making process, there are some questions you need to answer first:

Where's a good place to buy? Take a look a market demographics, re-sale prices, weather, proximity to grocery/shopping/medical centers, traffic, etc.

With the current low interest rates for mortgages and the present status of the stock market, should you be putting extra payments onto your mortgage and pay it off faster, or should you rather invest that money?  Thanks to a suggestion from a client, we will try to give you some solutions in this article.

First, let’s first start with this case study.  Teddy and Donald Smith recently re-financed their house for $200,000 for a 30 year mortgage at 3.75%.  Their monthly payment for principal and interest and is $926, which does not include taxes or homeowners insurance.   Let’s assume that they make 1 extra payment per year.  By making that one extra payment, they chop 4 years off their mortgage, finishing in roughly 26 years.  Meanwhile, Hillary and Bernie Jones took out the same mortgage, but rather then make an extra payment on the mortgage; they invested that annually for the same 30 years at a 6% rate of return.  For this same example, let’s assume that after the mortgage is paid off, Teddy and Donald save their $926/monthly for 4 year years at 6%, which the results are shown below:

The first of the year always brings with it the promise of new beginnings and the burden of self-improvement.  According to research from the University of Scranton, some 45% of Americans decide to make New Year’s resolutions.  As Ben Franklin once said, “Be always at war with your vices, at peace with your neighbors, and let each New Year find you a better man.”

On the surface, it seems too good to be true.  You have a married couple, where (let’s say) the husband has earned higher yearly income than his wife.  That means he has contributed more to Social Security over his working life.  The husband files for Social Security benefits at full retirement age (currently age 66) and then immediately files to suspend those benefits. 

As a result of this simple maneuver, the wife is now entitled to immediately receive Social Security spousal benefits equal to half of the husband’s full retirement benefits that were just suspended.  She would do this if 50% of the husband’s benefit is higher than she would have received if she had simply claimed her own Social Security payments.

Because he suspended his benefits, the husband can continue working, and wait until age 70 to start receiving Social Security checks in his own name.  Why would he do that?  Because each year of deferral allows him to accumulate more credits—effectively raising his monthly benefits 8% a year, which is considerably higher than the inflation rate.  At that time, the wife would stop claiming the husband’s benefits and start receiving her own Social Security checks.  If she was working at the time, she might have raised the amount she could claim under her own name.

As most of you have noticed, 2015 has been a bumpy ride (to say the least).  We have seen quite a bit of market volatility (markets up and down) with the Dow even moving 1,000 points on August 24^th, the largest intraday point decline on record.  If you feel like 2015 has been a roller coaster (with a lot of downs lately) – it has, as seen in the graph below:

With the help of technology, it is easy to get reminded daily of what is going on in the markets along with your investment accounts, most of which at the touch of a button.  With all of this uncertainty and volatility, please know that we are watching things very closely here at New England Capital.  It is easy to let your emotions get the best of you (fear is a pretty powerful emotion), which is where we (your trusted advisors) come in to help be that voice of reason.

The answer is — it depends. It’s not possible to simply say that one is always better than the other because the answer depends on the specifics of each individual situation, which I will explain further.  First, let’s talk about the difference between buying and leasing.

First, leasing is only an option for financing brand new cars, not used cars, although leasing of used luxury cars is available from specialty car dealers in some cities.  When you lease, you pay only a portion of a vehicle’s total value, which is the part of the value that you “use up” during the time you’re driving it.

You have a choice of not making a down payment; you pay sales tax only on your monthly payments (in most states). You may also be required to pay fees and possibly a security deposit that you don’t pay when you buy.  Lease payments are made up of two parts: a depreciation charge and a finance charge.  The depreciation part of each monthly payment compensates the leasing company for the portion of the vehicle’s value that is lost during your lease.  The finance part (called money factor) is interest on the money the lease company has tied up in the car while you’re driving it. In effect, you are borrowing the money that the lease company used to buy the car from the dealer. You repay part of that money in monthly payments, and repay the remainder when you either buy or return the vehicle at lease-end.

By Christopher M. Lee, CFP®

In many households, the topic of personal finances is taboo and rarely talked about and can be uncomfortable. Understandably so with such topics as: How much do you make? How much did/does this house cost? If we as parents or grandparents are not educating our future generation, then who is? Many of you may think it is being taught in the schools, but it may not be, as I will explain below.

But first, let’s talk about the importance of it and what’s at stake. When we do not teach children about personal finance – about managing household budgets or making informed decisions about larger investments in education or a home – we are condemning them to learning it largely and perhaps entirely on their own, if at all.

By Christopher M. Lee, CFP®

I don’t know about you, but it always seems like the month of December flies by. Thanksgiving comes and then before you know it Christmas is here and you turn around and it’s New Year’s Eve. Life sure gets busy and it moves quickly. As I am now in my early 40’s, I am seeing how quickly the days, months, and years go by. Country music star Kenny Chesney sums it up in a song, singing “don’t blink, life moves faster than you think…”

Since this is the time of year when we often reflect on the previous year and make resolutions/ goals and possibly try to find balance in our life for the upcoming year, I feel the timing of this article is a good fit. Often in the articles that Chris Beale and I write, we refer to the phrase “life goals”. In this article I’m going to talk about those life goals and how to create or refine them – and how to find balance in your life. The first step, before creating those life goals is to take an inventory of where you are today. When life is busy, it's all too easy to find yourself off balance, not paying enough attention to important areas of your life. While you need to have drive and focus, taking this too far can lead to frustration and intense stress.

By Christopher M. Lee, CFP®

We have been in a 5½ year bull market (which is broadly defined as a period where the S&P 500 gains 20% or more without a decline of 20%) since March of 2009. At this point, we may be due for a bear market, which is a market drop of 20% or more. There are many factors that can cause a 20% drop in the stock market including over-inflated prices, geo-political threats, and of course “the unknown”. Before I talk about some ways that could potentially minimize your losses in a downturn, let’s look at some previous declines and what we know of them.

As you can see, market declines are historically normal as seen in the chart below:

By Christopher M. Lee, CFP®

Over the past couple of months we have fielded phone calls from clients who have owed money on their taxes – in some cases a lot of money. There are many different reasons why some people have paid more in taxes than in previous years. (Let me preface this by saying that I am not a tax advisor or a tax accountant – for your individual case you should always seek guidance from a tax professional). Later in this article I will list some tax tips that may help you reduce that check to Uncle Sam, but first let us look at what was different in your 2013 tax return from your 2012 return. Some of the biggest changes you may have not noticed in 2013 were:

• Payroll Tax: increase in the Social Security portion of the payroll tax from 4.2% to 6.2% for workers. This hits all Americans earning a paycheck—not just the “wealthy.” For example, The Wall Street Journal calculated that the “typical U.S. family earning $50,000 a year” will lose “an annual income boost of $1,000.”
• Top marginal tax rate: increase from 35% to 39.6% for taxable incomes over $450,000 ($400,000 for single filers).
• Phase out of personal exemptions for adjusted gross income (AGI) over $300,000 ($250,000 for single filers).
• Phase down of itemized deductions for AGI over $300,000 ($250,000 for single filers).
• Tax rates on investment: increase in the rate on dividends and capital gains from 15% to 20% for taxable incomes over $450,000 ($400,000 for single filers).

Obamacare tax increases that took effect:

By Christopher M. Lee, CFP®

As some of you may have noticed (either in your mailbox or email box), we made several changes to your account(s) over the past several weeks. We did get some phone calls asking about the changes, which gave me an idea about what to write about in this newsletter; how we manage your hard earned money here at New England Capital. First of all, please know that we do not take lightly the trust and confidence that you have placed with us to help you reach your life goals. We take what we do very seriously – our greatest joy is seeing you accomplish those life goals.

So how do we put together our “models” that we manage? What’s our reasoning? Why do we make changes in your accounts? In taxable accounts, do we consider taxes before we sell? I will try to answer those questions for you below. We have six “model portfolios” that range from Aggressive to Conservative (based on your life goals, age, income, your individual risk tolerance, and other factors). We help choose those models with you based on 1) the life goal you are saving for and 2) the answers in the risk questionnaire that you filled out. Based on that data (with some discretion) is what models we have chosen with you and the overall asset allocation (the mix between stocks, bonds, alternatives, and cash). Please note (as per the Engagement Agreement and application(s) that you signed when you opened your account(s)) that we have discretion on your accounts, meaning that we can make changes to your investments (buys and sells) as we deem necessary.