How to Keep Your Identity Safe

In case you didn’t know, June is National Internet Safety Month. With nearly 4 billion people on social media worldwide, plus the risks of using online brokerage and bank accounts, the need for digital security has never been higher.

While tech is becoming more secure in response to threats, there are some habits you can adopt to safeguard your digital life.

Stop – First, take a moment to evaluate your current security measures. Do you use two-factor authorization (2FA) whenever possible? What about a password manager? Do your research and put these measures in place.

Think – Before clicking a link or posting on social media, consider the information you may be accessing or sharing. A hacker can use minor details to target you or your loved ones.

Connect – Don’t go on auto-pilot: monitor your online accounts and devices. Make sure to change your passwords periodically, especially if you get an alert about unusual account activity.

By staying alert to these details, you can browse the web with a little more peace of mind.

Searching for the Goldilocks Economy

At the risk of slowing economic growth, the Fed has driven short-term rates higher to rein in inflation. But it’s a tricky proposition.

Raise rates too much, and you may trigger a recession. Don’t raise rates enough, and you won’t be able to restore price stability. The Fed is looking for a Goldilocks moment when its monetary policy is “just right” to create a soft landing for the economy.

You may not have noticed, but early evidence shows inflation is starting to slow. I’m confident the Fed sees it, too. However, most people judge inflation by prices at the gas station and the grocery store, so inflation is genuine and painful until those prices trend lower.

But I remain an optimist. History shows that economies and markets move in cycles, so I believe the current trend is healthy in the long term. I also think smart economists at the Fed are making difficult decisions following an extraordinary couple of years.

Our best days are ahead. I’m excited for the second half of 2022 and expect things will look pretty different by year’s end.

Orchestrating Your Retirement Accounts

An orchestra is merely a collection of instruments, each creating a unique sound. It is only when a conductor leads them that they produce the beautiful music imagined by the composer.

The same can be said about your retirement strategy.

The typical retirement strategy is built on the pillars of your 401(k) plan, your Traditional IRA, and taxable savings. Getting the instruments of your retirement to work in concert has the potential to help you realize the retirement you imagine.¹

Hierarchy of Savings

Maximizing the effectiveness of your retirement strategy begins with understanding the hierarchy of savings.

If you’re like most Americans, the amount you can save for retirement is not unlimited. Consequently, you may want to make sure that your savings are directed to the highest priority retirement funding options first. For many, that hierarchy begins with the 401(k), is followed by a Traditional IRA and, after that, put toward taxable savings.

You will then want to consider how to invest each of these savings pools. One strategy is to simply mirror your desired asset allocation in all retirement accounts.²

Another approach is to put the income-generating portion of the allocation, such as bonds, into tax-deferred accounts, while using taxable accounts to invest in assets whose gains come from capital appreciation, like stocks.³

Withdrawal Strategy

When it comes to living off your savings, you’ll want to coordinate your withdrawals. One school of thought recommends that you tap your taxable accounts first so that your tax-deferred savings will be afforded more time for potential growth.

Another school of thought suggests taking distributions first from your poorer performing retirement accounts, since this money is not working as hard for you.

Finally, because many individuals have both traditional and Roth IRA accounts, your expectations about future tax rates may affect what account you withdraw from first. (If you think tax rates are going higher, then you might want to withdraw from the traditional before the Roth). If you’re uncertain, you may want to consider withdrawing from the traditional up to the lowest tax bracket, then withdrawing from the Roth after that.⁴

In any case, each person’s circumstances are unique and any strategy ought to reflect your particular risk tolerance, time horizon, and goals.

How to Retire Early

Fed Boosts Key Interest Rate 0.75%

What an “interesting” week. In a move unseen since 1994, the Federal Reserve has taken an aggressive stance toward inflation by raising the key interest rate by three-quarters of a percentage point.

Investors initially seemed cheerful, but stock prices soon fell as the reality emerged that interest rates would continue to rise.

With consumer prices soaring, pushing short term rates higher is an attempt to slow economic growth while attempting to avoid a recession. Fed Chair Powell said that he expects rates to go up again at the July meeting and indicated that the Fed would take future decisions as they come.

In times like this, it’s good to remember that we’ve considered volatile markets when designing your financial strategy. Meanwhile, I’m always on hand to answer your questions.

The Long Run: Women and Retirement

Wise Words From Warren Buffet

During periods of market turbulence, I take comfort in one of my favorite Warren Buffett quotes:

“Don’t watch the market closely.”

The Oracle of Omaha gave this sage advice in 2016, when Brexit, China’s economic issues, and the Federal Reserve’s interest rate policy roiled markets.

Now here we are in June 2022 and facing turbulent markets again, thanks to inflation, global growth, and uncertainties over the Fed’s interest rate policy.

Buffett’s words remind us that pullbacks, corrections, and bear markets are an expected part of the investing process. Please reach out if you have any concerns, but in the meantime, take a break from watching too closely. That’s why we’re here.

Summertime Checkup

Summer’s here, and the time is right for vacations, outdoor activities, and fun. It’s also a good time to consider a few financial matters. Here are some questions to ask yourself mid-year.

• Goals still the same for 2022? Has market volatility affected your goals? Note any changes since the first of the year that may warrant reviewing your goals.
• Credit score looking good? Double-check your credit score for any red flags. This can be a good way to catch issues like identity theft early.
• Contributions on track? Consider increasing your contributions to any personal or workplace-sponsored savings plans if it suits your goals.
• Scheduled spending still make sense? Look at any impacts you’ve felt due to market volatility. Do your plans for the rest of the year align with reality?

If these tips have you thinking, please feel free to reach out. I’m happy to discuss your financial picture at summertime or any time.

The Sequence of Returns

What exactly is the “sequence of returns”? The phrase describes the yearly variation in an investment portfolio’s rate of return. But what kind of impact do these deviations from the average return have on a portfolio’s final value?

Let’s take a closer look at a few different investment scenarios. The first few scenarios focus on how market volatility affects a portfolio while assets are accumulating, and the last scenario focuses on how market volatility affects a portfolio from which distributions are being taken.

One study found the sequence of returns appears manageable during accumulation. An analysis from BlackRock compared three model investing scenarios: three investors start portfolios with lump sums of $1 million, and each of the three portfolios averages a 7% annual return across 25 years.

In two of these scenarios, annual returns ranged from a hypothetical -7% to +22%. In the third scenario, the return is simply 7% every year. In all three situations, each investor accumulates the same total of $5,434,372 after 25 years. This is because the average annual return is a hypothetical 7% in each of the three portfolios.¹

It’s important to remember that investing involves risks, and investment decisions should be based on your own goals, time horizon, and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

The BlackRock study assumes that the three hypothetical investors evaluated their financial ability to continue making purchases through periods of declining and rising prices.

When you shift from asset accumulation to asset distribution, the story can change. There is the risk that your distribution strategy could coincide with a period of declining prices, which may present a challenge.

In an extreme illustration, consider the 2007-2009 bear market. In this example, a hypothetical investor entered 2008 with a $1 million portfolio and held 60% in equities and 40% in fixed-income investments. The investor was preparing to retire in 12 months, on December 31, 2008.

During 2008, the bond market, as measured by the S&P U.S. Aggregate Bond Index rose 5.7%, but the stock market, as measured by the S&P 500 Index, lost 37.0%. The $1 million portfolio ended the year with a balance of $800,800.^2,3

If the hypothetical investor started taking distributions in January 2009, they would be starting from a smaller portfolio balance and they may not have the opportunity to rebuild the principal that was lost in the prior 12 months.

If you are preparing to retire, having an understanding of the sequence of returns may help you ask important questions about your overall investment strategy.

When Bears are Loud, Consider This

Some gloomy headlines are coming out of Wall Street lately. Have you noticed?

In recent days, I’ve read things like “Brace yourself for economic hurricanes” and “Wall Street investor survey paints a dire outlook.” It makes you wonder where the bullish thinkers have gone.

While negative headlines are eye-catching, a gloom-and-doom perspective misses some finer details. For example, look at how positively the financial markets reacted when the Fed’s May meeting minutes were released. What does this indicate? To start, investors feel confident in the Fed’s plan for interest rates. Also, three out of four companies posted positive earnings and strong revenue in the first quarter. It’s important to remember that companies are healthy, even if that doesn’t make for the most sensational news.

Bearish sentiment may be trendy, but keeping a broad perspective never goes out of style.