Watergate and Financial Markets

The Watergate Scandal and Today’s Financial Markets
I’ve always enjoyed a good political scandal. There’s something sort of satisfying in seeing powerful people get caught out. Sex scandals in particular. Remember Wilbur Mills and the Argentine Firecracker? You can’t make this stuff up.

The Watergate scandal of the 70’s has come to mind lately, and how it seemed to drag on and on. As I look at the current scandals in Washington (Hillary’s emails; the FISA Court), I began to wonder what happened to financial markets during Watergate, and whether there are any lessons for us today? I decided to do some research to find out.

Please note: I mean to observe historical facts here, and see if I discern any financial market parallel responses to political scandal. Although it is my objective to stay away from political opinion, please forgive any transgressions.

The Mid-70’s
President Nixon was running for a second term. The Vietnam war raged on....

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Hurricane Financial Preparedness: Top 6 Priorities Before A Storm Hits

As I write this, the Carolinas are experiencing the worst of Hurricane Florence. I’ve ridden out half a dozen hurricanes as a native Floridian. As a CERTIFIED FINANCIAL PLANNER™ professional, I’ve seen the difference that having (or not having!) a hurricane financial preparedness plan can make. The aftermath of a hurricane is not only about the damage to life and property, but for many it can take a serious personal financial toll. As you stock up on canned food, batteries, and bottled water, don’t neglect to address these top 6 financial priorities before a storm makes landfall.

1. Review your homeowners insurance policy for hurricane financial preparedness
Odds are your home is your most valuable asset. Why roll the dice on this? Not having homeowners insurance coverage is a mistake. Having a homeowners policy with little hurricane windstorm coverage could become a catastrophe. Typically, you’ll have a windstorm deductible for hurricane damage claims...

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Five Steps to Getting Financially Organized Before Retirement

Getting financially organized before retirement can be a daunting task. There are many unknowns and it can be hard to know where to begin. For that same reason people often wait too long to address retirement needs and, unfortunately, don’t achieve the financial freedom for which they long. When people get serious about retirement, many start by analyzing their investment account(s) (or lack, thereof). Ideally, they’ll meet with a CERTIFIED FINANCIAL PLANNER™ professional to get them on track. In this article, I’ll share with you five steps you should take to get financially organized before retirement. Spoiler alert: None of the five steps outlined involve contributing to a retirement account! Let me explain:

The first steps to getting financially organized do not involve dollars and cents.

Financial organization starts by identifying and prioritizing what is most important to you. This is a foundational financial planning concept you need to adopt in order...

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Should I Pay My Mortgage Off Early?

Should I Pay my Mortgage Off Early? This is actually a FAQ – a frequently asked question, so I thought I’d spend a little time on it here. Some other mortgage-related topics we’ve addressed are these:

  • How Much House Can I Afford?
  • Your First Home Purchase
  • How Much HouseMortgage Can I Afford?
  • Using an IRA for a First Home Purchase
  • The Fifteen Year Mortgage

A Mortgage Example
Let’s use a sample mortgage. $400,000 borrowed, at 4.5%, over 30 years. The monthly payment is $2026.74. That means over the life of the mortgage you will have paid $729,626.85 in principal and interest payments to repay that $400,000 loan – and, of course, $329,626.85 of that amount is interest.

You pay interest each month on the unpaid balance. In early years your payment is mostly interest, with very little principal repayment. In later years, situation reverses: you pay mostly principal, with much of the interest having been paid in the earlier years.

Using our sample mortgage,...

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The Fifteen Year Mortgage

This is a really good FAQ – a frequently asked question. Instead of taking out a 30-year mortgage, should I take out a 15-year loan? How much more are the payments? How much would I save? Can I afford it? Great questions all.

A Sample 30-Year Mortgage
Let’s use a sample mortgage. $400,000 borrowed, at 4.5%, over 30 years. The monthly payment is $2026.74. That means over the life of the mortgage you will have paid $729,626.85 in principal and interest payments to repay that $400,000 loan – and, of course, $329,626.85 of that amount is interest.

You pay interest each month on the unpaid balance. That means in early years your payment is mostly interest, with very little principal repayment. In later years, situation reverses: you pay mostly principal, with much of the interest having been paid in the earlier years.

Using our sample 30-year mortgage, in the first year you will have shelled out $24,320.88 – your monthly payment times 12. Of that amount, $17,867.98...

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Using an IRA for a First Home Purchase

A first home purchase is a big financial commitment. Not only are you taking on a mortgage, but you often need to deplete cash reserves to come up with the down payment. But what if you don’t have enough socked away for a down payment? or what if you prefer not to use all your cash reserves, leaving some cushion in your savings account? Normally the Internal Revenue Service levies a 10% penalty on distributions from a Traditional Individual Retirement Account (IRA). They make an exception on distributions up to $10,000 for a first home purchase.

How does the IRS define a first home purchase?
To qualify, it’s important to know how the IRS defines a first time homebuyer. According to IRS Publication 590-B, a first time homebuyer is defined in the following way:

Generally, you are a first time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or...

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The Top 4 Financial Priorities for Young Professionals

Retirement isn’t first priority when planning for young professionals. That’s OK!
Young professionals are expected to accomplish a lot early in life. You’re beginning to make real money. Time to get sound financial advice to establish a good foundation from someone you trust. The problem is most financial advisors focus primarily on retirement planning. When working with young professionals, I believe this is a mistake. Focusing only on retirement planning with young professionals is a huge missed opportunity. Let me explain:

Where do I start? The top 4 financial priorities of young professionals
With young professionals, we start the financial planning conversation with:

  • Debt payoff
  • Saving for a home down payment
  • Building an emergency fund
  • Wealth building (including retirement)

In addition, actively maintaining a budget is essential to establishing a strong financial foundation.

You see the difference? Most financial advisors do not spend time working with clients...

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SIMPLE IRA

Savings Incentive Match Plan for Employees
The SIMPLE IRA is the Savings Incentive Match Plan for Employees. The SIMPLE allows for both employer contributions and employee deferrals. The plan is deal for employers who want to contribute something – but not a lot – to employee retirement accounts.

A big part of retirement plan design has to do with discrimination. The IRS wants to be sure that the plan does not discriminate, meaning that the plan’s benefits are available across the board to all employees – both management and rank-and-file.

SEP Recap
This post is the second in a series of two about retirement plans available to the small business. Previously I discussed the SEP IRA, or Simplified Employee Pension. The most notable thing about the SEP is that money goes into an employee’s account from only one source – the employer’s contribution. The same percentage of earnings – up to 25% – must be contributed across the board. If...

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The SEP IRA

With this blog post I’m beginning a two-part series about retirement savings plans available to the small business owner. Earlier Jonathan and I have written about the Traditional IRA and the Roth IRA. In this piece I’m going to explain the Simplified Employee Pension, or SEP IRA. It is best used in a small shop, with few (or no) employees. It can be established by an individual proprietor, filing a Schedule C, or by a corporation, LLC, or partnership.

The SEP – Simplified Employee Pension
The SEP is designed for the business owner with few employees. Money goes into the SEP from employer contributions only. All contributions are tax-deductible to the employer. There is no opportunity for employee deferrals. A SEP IRA account is opened for each participant, and all funds contributed are immediately vested. (There is an older version, called a SARSEP, or salary reduction SEP. Although many are still out there, they cannot be opened after 1996.)

The employer must...

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The Advice Industry, Part II

financial planning Jun 28, 2018

A lot has happened in our regulatory world since I posted the original blog piece. The DOL rule is void. The SEC is opening up a public comment period about its new standards of client care.

The government regulates this industry – investments, advice, and insurance – via the Securities and Exchange Commission (the original 1940 Investment Advisers Act), the Department of Labor (ERISA comes under DOL, or the Employee Retirement Income Security Act), and the insurance commissioners of the 50 states. Just as it takes a team to give a client comprehensive advice (financial planner, investment adviser, estate attorney, accountant, and maybe more), apparently it takes a team of government agencies to regulate all of us in the industry to their satisfaction.

The Now-Dead DOL Rule
The 1940 SEC Act requires a fiduciary standard of client care. As I noted in Part I, The SEC granted exceptions to the brokerage industry, and a much lower suitability standard became the norm. A few...

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