Namaste Invested: Look to Yoga to Build Your Wealth

I have been practicing yoga for more than a decade. I love the physical and mental benefits it provides. Yoga makes me stronger and more flexible and helps counteract the effects of sitting in a chair at my desk all day. Yoga is also a great stress reliever, helping to clear my mind and keeping me grounded and focused. I love how I feel after a great yoga class – strong and empowered, yet balanced and calm.

As I was practicing recently, it occurred to me that a number of the lessons I have learned from my yoga practice can be applied in our financial lives as well:

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1. Focus on your own mat.

 A man doing yoga looks around during class. A man doing yoga looks around during class.

It can be tempting to compare yourself to the people around you in a yoga class. There is always someone that can bend a little deeper or hold a pose a little longer than you can.

It’s important not to worry about what the person next to you is doing. Instead, focus your attention and energy on the practice on your own mat.

This same philosophy can also be applied in our financial lives. You will be better served by ignoring what your neighbor is doing with their finances. Their investment allocation might be right for them, but that doesn’t mean it is the one that will best help you reach your goals. You may envy their outwardly lavish lifestyle, but that doesn’t mean they are on track for retirement. Ignore what you see other people doing with their finances and focus on yourself instead. 

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2. Be mindful.

A young woman does yoga.A young woman does yoga.

One of the benefits I get from yoga is it helps me be more mindful. Through yoga I find myself consistently more aware of my surroundings, feelings and actions, living more thoughtfully and purposefully in the present.

It can be easy to get caught up in the hustle of everyday life and forget to be mindful in each moment. I find this also to be true in personal finance, particularly when it comes to spending. It is too easy to absentmindedly swipe a credit card, spontaneously add to our Amazon cart without thinking, or overdo it on expensive takeout.

One of the best things that you can do to build wealth is to control your savings rate – which means controlling your spending. Unfortunately, very few people have an accurate idea of what they spend their money on. There are various ways that you can incorporate mindfulness into your spending decisions, such as tracking where every dollar you spend goes or asking yourself whether you are buying something you need or something you want.

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3. Look past the wobbles.

A woman looks uncomfortable as she tries to get into a yoga pose.A woman looks uncomfortable as she tries to get into a yoga pose.

There are times during my yoga practice when I find myself constantly wobbling and falling over, struggling to find my balance. When I find myself swaying and struggling to stick with the pose, I take a deep breath, look across the room, and find my drishti – a spot on the wall that doesn’t move that I can focus my gaze on to help me remain steady until the wobbles pass.

Occasionally the stock market also has “wobbly” days, which can be unsettling for many investors. Usually, the best thing that you can do in times of market volatility is to take a deep breath, look toward the future, and focus on your drishti: Remind yourself of your long-term goals, revisit your financial plan, and keep in mind that you put your plan in place when your emotions weren’t running high. Maintaining your focus on the long term is one of the simplest ways to stay the course through any market volatility.

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4. Make adjustments, just don’t give up.

A yoga teacher adjusts a student's pose.A yoga teacher adjusts a student's pose.

On days when everything feels more challenging than it usually does, I am sometimes tempted to give up. Rather than quit, however, I pause, take a breath, and then I make small adjustments. This might mean using a yoga block for support or simply bending my knees deeper. The important thing is to modify in small ways that still allow me to continue my practice. I have found this approach also works well in times of market volatility.

If market volatility has you spooked and you are tempted to sell everything in a panic, don’t just quit investing. Instead, try making some minor adjustments first. You could sell just enough stocks to raise one year of expenses in cash, or you could “flip” your portfolio from a 60/40 stock/bond mix to a 40/60 stock/bond mix. You could also trim your spending instead of your stock allocation. The important thing is not to give up entirely.

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5. Do nothing.

A woman lies in the grass, totally relaxed.A woman lies in the grass, totally relaxed.

Savasana, one of my favorite poses, occurs at the end of the practice and is a meditative posture where you lie on your back in total relaxation, bringing stillness to your body and your mind. It sounds easy, but it can be challenging to just let go and to resist the urge to twitch or move. We are all so accustomed to the idea that you need to be taking action or moving to accomplish something, but taking time to do nothing in Savasana is what allows me to reap and enjoy the benefits of the hard work I just did. This same premise also applies to investing.

Investors often think that constant trading, trying to time the market, or picking the next hot stock is the best way to accumulate wealth – it’s not. In fact, a Fidelity study once found that the best performing accounts were owned by people who forgot they had an account!

Once you put in the work of crafting your financial plan and developing your asset allocation, then take a financial Savasana: Do nothing. Resist the urge to tweak your plan or investment portfolio at the slightest hint of market volatility. Unless there has been a meaningful change in your life that necessitates an update to your financial plan, take some time to relax and reap the benefits of the hard work you just did.

Hopefully these lessons I have learned from my yoga practice can help you relieve some of the financial stress you feel in your life. 

Namaste!

Senior Wealth Adviser, Boston Private, an SVB company

Kathleen Kenealy, CFP®, CPWA® is the Director of Financial Planning and a senior wealth adviser for Boston Private, an SVB company. She specializes in working with successful individuals and families to manage, protect and grow their assets. Kenealy provides guidance on investment, retirement, philanthropic, estate and tax-planning strategies.

Source: kiplinger.com

SmartAsset Talks to the Couple Behind MarkandLaurenG.com

AJ Smith, CEPF® AJ Smith is an award-winning journalist and personal finance expert with more than a decade of experience in television, radio, newspapers, magazines and online content. She has appeared on CNN, The Weather Channel, Wall Street Journal Radio and ABC News Radio. Her work has appeared on websites including MarketWatch, Huffington Post, Yahoo Finance and Credit.com. She is a contributor for Forbes. The SmartAsset VP of Content and Financial Education has degrees from Princeton University and Mississippi State University. AJ was named an honoree of the 2018 Women in Media awards in the Corporate Champions category. She is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance® (CEPF®). AJ and her husband also write and illustrate educational children’s books.

Source: smartasset.com

3 Ways to Protect Your Escrow Deposit

In this article:

When buying a home, you’ll probably hear your lender or real estate agent use the word escrow. The term escrow can describe a few different functions, from the time your offer is accepted to the day you close on your home — and even after you become a homeowner with a mortgage.

There are essentially two types of escrow accounts. One is used throughout the homebuying process until you close on the home. The other, commonly referred to as an impound account, is used by your mortgage servicer to manage property tax and insurance premium payments on your behalf.

Disclaimer: The information contained in this article is for informational purposes only and is not intended to be relied upon as financial or legal advice, guarantees or warranties of any kind. Reference to escrow accounts here refers to an escrow account established to facilitate the purchase transaction of a new home.

What is an escrow account?

An escrow account is a contractual arrangement in which a neutral third party, known as an escrow agent, receives and disburses funds for transacting parties (i.e., you and the seller). Typically, a selling agent opens an escrow account through a title company once you and the seller agree on a home price and sign a purchase agreement. When you’re buying a home, this escrow account serves two main purposes:

  1. To hold earnest money while you’re in escrow
  2. To handle and disburse the funds until all escrow conditions are met and escrow is closed

How does escrow work?

When you make an offer on a home, the seller may require you to pay earnest money that will be held in an escrow account until you and the seller negotiate a contract and close the deal. This earnest money gives the seller added assurance that you do not intend to back out of the deal, and it protects them in the event that you do. It also motivates the seller to pick your offer over others.

During the escrow process, the escrow agent will handle the transfer of the property, the exchange of money, and any related documents to ensure all parties receive what they are owed. This removes uncertainty over whether either party will be able to fulfill its obligations, and it helps ensure that neither party is favored over the other.

What does in escrow mean?

When you hear the phrase “in escrow”, it means that all items placed in the escrow account (e.g., earnest money, property deed, loan funds) are held with an escrow agent until all conditions of the escrow arrangement have been met. The conditions usually involve receiving an appraisal, title search and approved financing.

While the earnest money is in escrow, neither you nor the seller can touch it. Once conditions are met, the earnest money will likely be applied toward the purchase price or your down payment on the home.

What does it mean to close escrow?

To close escrow means that all of the escrow conditions have been met. You’ve received a home loan, and the title has legally passed from the seller to you. During the closing of escrow process, a closing or escrow agent (who may be an attorney, depending on the state in which the property is located) will disburse transaction funds to the appropriate parties, ensure all documents are signed and prepare a new deed naming you the homeowner.

Afterward, the escrow officer will send the deed to the county recorder for recording before escrow is officially closed. Once closed, you and the seller will receive a final closing statement and other documents in the mail. Check the statement carefully and call the closing agent immediately if you spot an error. Save the statement with your most important papers, as you will need it when you file your next income tax return.

What is an escrow payment?

After you purchase a home, you’ll be responsible for maintaining insurance on the property and paying state and local property taxes. The property tax and insurance premiums you owe are the escrow payments made to your escrow or impound account.

The impound account ensures that the funds for taxes and insurance are available and that premiums are paid on time. Your lender doesn’t want you to miss a tax payment and risk a foreclosure on the home. They also don’t want you to miss a homeowners insurance payment, or they may be forced to take out additional insurance on your behalf to cover the home in the event of property loss or severe damage.

How monthly escrow payments work

The amount of escrow due each month into the impound account is based on your estimated annual property tax and insurance obligations, which may vary throughout the life of your loan. Because of this, your mortgage servicer may collect a monthly escrow payment, along with your principal and interest, and use those collected funds to pay taxes and insurance on your behalf. 

Your lender will notify you 30 days before your next payment if the amount changes. You can also ask your mortgage servicer to walk you through the local impound account funding schedule that applies to your loan. If there are insufficient funds in your impound account to cover the taxes and insurance, your monthly mortgage payment may increase (even though your principal and interest will stay the same on fixed-rate loans).

Initial escrow payment at closing

Lenders usually require at least two months’ worth of insurance and property tax funds in the impound account at closing. The amount you have to prepay into an impound account for these costs is based on your location. Keep in mind that these funds aren’t additional closing costs. Instead, you’re prepaying extra months of home insurance and property tax bills that you would be required to pay when due. Your mortgage servicer will list the initial escrow payment amount due at closing on your loan estimate.

Your escrow analysis statement

Each month, your mortgage statement will show you how much you’ve accrued in your impound account. And each year, your mortgage servicer is required by law to send you an annual escrow account analysis showing you some of the following:

  • The amount of funds received from you
  • The amount of funds paid out for insurance and property tax
  • An estimation of how much the escrow portion of your monthly payment may increase or decrease based on the premiums owed
  • Notice if you don’t have enough funds in your account to pay the estimated tax and insurance due in the next bill (i.e., escrow shortage)
  • Notice if you have a negative balance in your account that is owed to bring your account to current (i.e., escrow deficiency)

Is an escrow account required?

An escrow account for paying property tax and homeowners insurance is generally required by lenders who originate VA, FHA and conventional loans. In some instances, lenders may allow the homeowner to pay the property tax and home insurance as a lump sum instead of setting up an escrow account. If you waive escrow, be aware that some lenders may charge you a fee or an increased interest rate.

While you may not be required to set up an escrow account, you can choose to open one voluntarily to break up insurance and property tax payments into smaller amounts, keep track of payment due dates and avoid surprise bills at the end of the tax year.

Need a home loan? Contact a pre-approval lender today to get pre-approved for a mortgage.

Source: zillow.com

3 Ways to Protect Your Escrow Deposit

In this article:

When buying a home, you’ll probably hear your lender or real estate agent use the word escrow. The term escrow can describe a few different functions, from the time your offer is accepted to the day you close on your home — and even after you become a homeowner with a mortgage.

There are essentially two types of escrow accounts. One is used throughout the homebuying process until you close on the home. The other, commonly referred to as an impound account, is used by your mortgage servicer to manage property tax and insurance premium payments on your behalf.

Disclaimer: The information contained in this article is for informational purposes only and is not intended to be relied upon as financial or legal advice, guarantees or warranties of any kind. Reference to escrow accounts here refers to an escrow account established to facilitate the purchase transaction of a new home.

What is an escrow account?

An escrow account is a contractual arrangement in which a neutral third party, known as an escrow agent, receives and disburses funds for transacting parties (i.e., you and the seller). Typically, a selling agent opens an escrow account through a title company once you and the seller agree on a home price and sign a purchase agreement. When you’re buying a home, this escrow account serves two main purposes:

  1. To hold earnest money while you’re in escrow
  2. To handle and disburse the funds until all escrow conditions are met and escrow is closed

How does escrow work?

When you make an offer on a home, the seller may require you to pay earnest money that will be held in an escrow account until you and the seller negotiate a contract and close the deal. This earnest money gives the seller added assurance that you do not intend to back out of the deal, and it protects them in the event that you do. It also motivates the seller to pick your offer over others.

During the escrow process, the escrow agent will handle the transfer of the property, the exchange of money, and any related documents to ensure all parties receive what they are owed. This removes uncertainty over whether either party will be able to fulfill its obligations, and it helps ensure that neither party is favored over the other.

What does in escrow mean?

When you hear the phrase “in escrow”, it means that all items placed in the escrow account (e.g., earnest money, property deed, loan funds) are held with an escrow agent until all conditions of the escrow arrangement have been met. The conditions usually involve receiving an appraisal, title search and approved financing.

While the earnest money is in escrow, neither you nor the seller can touch it. Once conditions are met, the earnest money will likely be applied toward the purchase price or your down payment on the home.

What does it mean to close escrow?

To close escrow means that all of the escrow conditions have been met. You’ve received a home loan, and the title has legally passed from the seller to you. During the closing of escrow process, a closing or escrow agent (who may be an attorney, depending on the state in which the property is located) will disburse transaction funds to the appropriate parties, ensure all documents are signed and prepare a new deed naming you the homeowner.

Afterward, the escrow officer will send the deed to the county recorder for recording before escrow is officially closed. Once closed, you and the seller will receive a final closing statement and other documents in the mail. Check the statement carefully and call the closing agent immediately if you spot an error. Save the statement with your most important papers, as you will need it when you file your next income tax return.

What is an escrow payment?

After you purchase a home, you’ll be responsible for maintaining insurance on the property and paying state and local property taxes. The property tax and insurance premiums you owe are the escrow payments made to your escrow or impound account.

The impound account ensures that the funds for taxes and insurance are available and that premiums are paid on time. Your lender doesn’t want you to miss a tax payment and risk a foreclosure on the home. They also don’t want you to miss a homeowners insurance payment, or they may be forced to take out additional insurance on your behalf to cover the home in the event of property loss or severe damage.

How monthly escrow payments work

The amount of escrow due each month into the impound account is based on your estimated annual property tax and insurance obligations, which may vary throughout the life of your loan. Because of this, your mortgage servicer may collect a monthly escrow payment, along with your principal and interest, and use those collected funds to pay taxes and insurance on your behalf. 

Your lender will notify you 30 days before your next payment if the amount changes. You can also ask your mortgage servicer to walk you through the local impound account funding schedule that applies to your loan. If there are insufficient funds in your impound account to cover the taxes and insurance, your monthly mortgage payment may increase (even though your principal and interest will stay the same on fixed-rate loans).

Initial escrow payment at closing

Lenders usually require at least two months’ worth of insurance and property tax funds in the impound account at closing. The amount you have to prepay into an impound account for these costs is based on your location. Keep in mind that these funds aren’t additional closing costs. Instead, you’re prepaying extra months of home insurance and property tax bills that you would be required to pay when due. Your mortgage servicer will list the initial escrow payment amount due at closing on your loan estimate.

Your escrow analysis statement

Each month, your mortgage statement will show you how much you’ve accrued in your impound account. And each year, your mortgage servicer is required by law to send you an annual escrow account analysis showing you some of the following:

  • The amount of funds received from you
  • The amount of funds paid out for insurance and property tax
  • An estimation of how much the escrow portion of your monthly payment may increase or decrease based on the premiums owed
  • Notice if you don’t have enough funds in your account to pay the estimated tax and insurance due in the next bill (i.e., escrow shortage)
  • Notice if you have a negative balance in your account that is owed to bring your account to current (i.e., escrow deficiency)

Is an escrow account required?

An escrow account for paying property tax and homeowners insurance is generally required by lenders who originate VA, FHA and conventional loans. In some instances, lenders may allow the homeowner to pay the property tax and home insurance as a lump sum instead of setting up an escrow account. If you waive escrow, be aware that some lenders may charge you a fee or an increased interest rate.

While you may not be required to set up an escrow account, you can choose to open one voluntarily to break up insurance and property tax payments into smaller amounts, keep track of payment due dates and avoid surprise bills at the end of the tax year.

Need a home loan? Contact a pre-approval lender today to get pre-approved for a mortgage.

Source: zillow.com

Thinking of Donating to your Alma Mater? Be Careful!

“My father graduated from a small, private college in the Midwest with a degree in civil engineering. He became a real estate developer, and his company was very successful.

“Dad often said, ‘I want to give back to my school in a big way.’ And then one day – when I was a student at his college – we met with their foundation staff to discuss scholarships and grants for the Civil Engineering Department. He handed the school’s president a check for $5 million. This was five years ago.

“Dad trusted the school to honor his wishes, but unfortunately the letter accompanying his check only said, ‘These funds are to be used for the betterment of instruction in Civil Engineering and related purposes as well as scholarships for needy students.’

“Substantial amounts of his donation have been used for things like improvements to classrooms, foreign language programs and faculty raises. This is not what Dad wanted. Could he have done anything to prevent that from happening? Thanks for your help.” “Allan.”

A University Development Officer Shares His Opinion

I ran his question by Heath Niemeyer, Executive Director for Development at California State University, Bakersfield. 

I asked, “What mistakes by donors have you seen when they make gifts to educational institutions?”  He replied, “Plenty! You would be surprised at the number of lawsuits over donor intent, which result in tremendous litigation costs.”

Niemeyer then gave a by-the-numbers list of the things donors do wrong, which can result in great disappointment later on.

1. Assume the best. Fail to specify in a formal agreement that you and representatives of the university sign, your intentions and the university’s commitment as to how your funds are to be used.  

Consequences: Your money will used for anything and anywhere, not necessarily as you would have desired. Unrestricted funds can be used for any purpose.

2. Fail to have a current relationship with the school. Do not remain up to date on programs that you want to support.

Consequences: Institutions and people change over time. Academic programs are often dropped due to a lack of enrollments, so your gift may not have a home. To avoid disappointment, it is important to make connections with the departments you want to support.

So, tour the campus, and meet the professors. Visit classes. Do they have the level of academic rigor that you require? If you are granting scholarships, have the school arrange for a meeting with candidates and talk with them.

3. Fail to become informed as to the limitations state and federal law impose on the purpose or recipients of your gift.  

Consequences: You may be putting the institution in an uncomfortable position of rejecting the gift or taking it and then breaking the law. For example, in California and many other states, a donor cannot make a donation based on race, ethnic origin, gender, religion, sexual orientation or political affiliation. A gift that is limited to “Women who are registered Democrats and majoring in theater arts” would be illegal.

4. Fail to engage with the university’s foundation or development staff to see the feasibility of the donation achieving your goal.

Consequences: As an example, if your desire is for a significant rehab of a building, but the amount of the donation is inadequate to cover it, then the school has a problem. It may have to wait for years until enough funds can be accumulated for that purpose to be realized.

By discussing your idea with the development staff, there will be a greater likelihood of something attainable within your budget.

5. Fail to be kept informed as how you donation is being used. Ignore gift stewardship.

Consequences: You will be left in the dark and not witness the impact you are having on students and the institution.  More than that, as a university has an obligation of respecting a donor’s intent, are they using these funds how you want them to be applied?

Ask for a yearly update on how your funds are being spent.  Most schools have some kind of a reception or engagement with faculty, administration and students throughout the year.  Be sure you are on their invitation list.

6. If you discover a potential misuse of your funds, remain silent.

Consequences: You will be seen as condoning the activity and possible misuse of your donation. When it comes to money –  your money – silence is not golden.

Niemeyer concluded our chat with praise for all those who help support higher education:

“The impact of personal and corporate donations make it possible for one out of four students to attend university.

“One of the greatest ways you can thank your alma mater is by making a donation. Your gift has a priceless impact on the future of those students whose lives you touch, while benefiting our communities and country.”       

Attorney at Law, Author of “You and the Law”

After attending Loyola University School of Law, H. Dennis Beaver joined California’s Kern County District Attorney’s Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, “You and the Law.” Through his column he offers readers in need of down-to-earth advice his help free of charge. “I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift.” 

Source: kiplinger.com

Financial Fixes to Make after the Pandemic

From dining out to vacation travel, many Americans have started to resume their pre-pandemic lifestyles – and the spending that accompanies those lifestyles. According to Schwab’s Modern Wealth Survey, nearly half (47%) of Americans polled back in February (before the rise of the Delta variant) were looking to get back to living and spending like they were before the COVID-19 pandemic and a quarter (24%) said they were eager to indulge to make up for lost time.

But we’re also seeing a healthy balance – even as people make plans to get out and spend, they also want to nurture newfound savings and investing habits developed over the last year. Nearly two-thirds (64%) of Americans surveyed said they were savers in 2020, as opposed to spenders. Hoping to double down on new savings habits in post-COVID life, 80% planned to be bigger savers than spenders in the year ahead, with nearly half (45%) planning to save more money and a third (34%) intending to reduce their debt once the pandemic has subsided.

If your own spending and savings outlook has shifted during the pandemic, how can you make sure you will stay on a healthy financial path going forward? Start by taking these steps:

Revisit your goals

To determine how to fit new priorities into your financial plan, start by identifying what is most important to you. Not all goals are created equal, so make a list of the top three things you’d like to do over the next year or so, along with your top three longer-term goals. Then, commit to saving toward each while resisting the urge to splurge on other things that may be less important to you.

As you revisit your goals, you may find that your priorities have changed over the last year. Many people are finding that they have different feelings about what matters to them most, with increased importance on mental health (69%) and the health of their relationships (57%).

Assess your preparedness for the unexpected

Schwab’s survey revealed that over half of Americans were financially impacted by the pandemic. Against this backdrop, it’s important to assess your financial preparedness for the unexpected. As you plan for the future, consider building emergency savings and contributing to a health savings account, if you’re eligible for one.

You may also want to ensure that you have adequate insurance coverage. Sound insurance planning can help avoid a financial catastrophe. Health insurance is a must, and it’s also wise to confirm that you have adequate automobile and homeowners insurance. Explore disability, life and long-term care insurance and consider whether adding coverage is right for you. 

Put your plan in writing

After a year of focusing on one day at a time, we’re now able to look ahead and plan for tomorrow. Take this as an opportunity to review where you are — and be honest with yourself about your progress toward your goals.

Simply writing things down is an important step. In fact, 54% of Americans who have a written financial plan feel “very confident” about reaching their financial goals, while only 18% of those without a plan feel the same level of certainty. However, only a third (33%) of Americans have a plan in writing, despite planning tools and advice being more accessible than ever.

Whether you need to reduce spending and debt, up your savings or just refine the details, once you know where you are and where you need to go, you’ll have a sense of direction. Then you can take necessary action steps and commit to moving forward.

Investing involves risk including loss of principal. Diversification strategies do not ensure a profit and do not protect against losses in declining markets. 
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of securities and investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. 
©2021 Charles Schwab & Co., Inc. (“Schwab”). All rights reserved. Member SIPC.

Branch Network Leader, Charles Schwab

Joe Vietri has been with Charles Schwab for more than 25 years. In his current role, he leads Schwab’s branch network, managing more than 2,000 employees in more than 300 branches throughout the country.

Source: kiplinger.com

8 Ways to Insulate Yourself from Inflation

The first half of the year is behind us, with the market performance strong across the board.  But what about the rest of the year?  With inflation on the minds of many investors, how do you protect against those risks, and what top strategies could help better position portfolios? 

Inflation is seemingly everywhere, with the prices of oil, lumber, steel and real estate all pushing higher.  Some of that inflation could be with us for quite some time. Of particular concern is increases in rents – up over 8% nationwide in June to a record high $1,575 per month, according to Realtor.com.  Also, rising wages — while good for individuals — can mean higher costs passed on to the consumers. 

What can you do to protect yourself from inflation, and how can you ensure your portfolio is keeping up with rising prices? 

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1. Don’t Be Too Conservative

A man in a conservative suit tightens his tie.A man in a conservative suit tightens his tie.

Inflationary environments often see asset prices rise, but they can be challenging for the value of bonds.  As interest rates rise, the value of your bond portfolio could decrease, potentially eliminating any benefit you are receiving from a consistent yield.  In a period of slowly rising interest rates, a traditional bond allocation could mean some dead weight holding back your portfolio from the true upside potential.  A portfolio that is too conservative will have a tough time keeping up with inflation. 

Conventional financial planning suggests an increasing allocation to bonds as one ages and approaches retirement.  For example, if you are 60 years old, maybe you need a 35% allocation to bonds.  With interest rates so low and inflation becoming more of a threat – you may want to consider decreasing that bond allocation to optimize performance.

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2. Focus on Inflation-Favorable Sectors

An oil rig in the sea.An oil rig in the sea.

Consider increasing your allocation percentages in areas of the market that do well in inflationary environments.

Credit Suisse did research on markets where inflation was expected to increase, and which sections of those markets performed best in those times.  They found that on an average day if the S&P 500 was expected to increase by 0.45%, the energy sector was expected to increase 0.86%. Two other areas with the potential to outperform include financials, at 0.68%, and materials, at 0.62%. 

Increasing your exposure to funds, ETFs or individual stocks in those sectors could help your portfolio keep pace during an inflationary environment.  

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3. Be More Active and Dynamic in Your Risk Management

A man and a woman run together.A man and a woman run together.

Increasing your equity exposure could make sense, but it needs to be coupled with a rule set for managing risk.  If you use an adviser, ask them about their strategy for managing volatility.  If invested in a fund or ETF, look at how that strategy has weathered prior volatile markets and understand what goes into their methodology for risk management.

If you are buying an individual stock or ETF on your own, set your own price targets.  Maybe set trailing stop losses to lock in your gains and limit your downside exposure.  A trailing stop loss order lets you set a price to exit a stock that rolls up as the stock increases in value.  For example, a 15% trailing stop loss on a $100 stock would initiate a sell of the position at $85, but if that stock rises in value to $115 the trailing stop order will ratchet up the exit sale price to $97.75. You are getting the stock exposure you want but limiting your downside risk if the market moves the other direction.

The key for any investment strategy is to not rely on emotion and to be levelheaded about your strategy.  Take advantage of opportunities in the market, but be disciplined in managing your downside exposure. 

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4. Consider Technology to Diversify

A collection of antique aluminum robots.A collection of antique aluminum robots.

Technology has been a lagging sector since late last year, but it is emerging again as a place of potential growth.  Technology had significant outperformance during the COVID year or 2020 but has had weaker performance since then. 

As multiple tech companies recently reported strong earnings, an overweight in your allocation to the sector could be appropriate. 

Technology is one of those areas that have the potential to profit during inflationary environments. Tech companies may find it easier to pass price increases on to consumers, and their business models may be less susceptible to pricing and supply chain disruptions. 

With the Delta COVID variant surging in many parts of the country, the lower risk of business interruption might also be attractive in technology companies. 

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5. Watch the Federal Reserve

The Federal Reserve building in Washington, D.C.The Federal Reserve building in Washington, D.C.

One of the biggest concerns about inflationary pressure is what the Federal Reserve might do in response.  Actions the Fed could take include slowing its recent bond purchases or raising interest rates.  While the members of the Fed have signaled little change to policy in the short term, continued strong inflationary pressure could cause them to change their minds. And that could put the broader market at risk.  Action by the Fed to quell inflation could lead to a pullback, requiring that investors take additional risk-management measures. 

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6. Adjust Your Expectations

A man's face is reflected in a computer screen showing volatile stock movement.A man's face is reflected in a computer screen showing volatile stock movement.

Many investors think about performance on an absolute return basis, but it is important to think about how inflation can impact your financial plans overall.  In the short term, does your income need to increase to accommodate the increased costs of goods and services?  Does your plan account for inflation, and will your portfolio be able to keep up with rising costs?  Now is a good time to re-engage a financial adviser and ask if your plan is aligned with higher inflation expectations. With a 3% annual inflation, like we saw last year, your portfolio needs to do more to keep up.

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7. Reassess Your Long-Term Plans 

An empty picture frame outlines a peaceful scene of a country road.An empty picture frame outlines a peaceful scene of a country road.

Housing prices were up 24.8% year over year in June, according to Redfin.  If you were considering moving and downsizing, is now the time?  The smaller home or community you considered moving to has also likely seen an increase in prices, so beware of potential sticker shock.

 Inflation may have a positive impact on your current net worth, as most asset prices have increased.  That may give you more flexibility in your plan to reposition or relocate.  Just bear in mind that if inflation continues to be an issue, downsizing your real estate might make it more difficult to keep up with inflation as your smaller home may not see as large of an equity increase as a larger home.

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8. Consider Purchase Delays Where Appropriate

A red change purse.A red change purse.

The inflation that certain areas of the economy are experiencing will likely be temporary, but for others, it may be longer lasting.  You may want to consider delaying purchases of goods or services that are temporarily priced higher due to supply disruption.  For example, you might want to delay a home addition because of higher lumber costs, or delay the purchase of a used car as those areas of the market have seen supply chain issues.  Similarly, travel to certain areas is in higher demand now, leading to possible price increases.  Delay can work as a tactic if you believe price increases in that area are temporary. 

In summary, inflation is the biggest story going into the second half of the year.  Investors need to be aware of the opportunities and risks of navigating during an inflationary environment. 

Investing carries an inherent element of risk, and it is possible to lose principal and interest when investing in securities. Strategies are used to assist in the management of your account. Even with these strategies applied to the account, it is possible to lose money. No strategy can guarantee a profit or prevent against a loss. There may be times when the strategy switches between equities or fixed income at an inopportune time, causing the account to forfeit potential gains. USA Financial Exchange is an SEC-Registered Investment Advisor. SEC Registration does not imply a certain level of skill or training.

CEO – Senior Wealth Adviser, Sterling Wealth Partners

Scot Landborg has over 17 years of experience advising clients on retirement planning strategies. Scot is CEO and Senior Wealth Adviser for Sterling Wealth Partners. He is host of the retirement planning podcast Retire Eyes Wide Open. Scot is a regular contributor to Kiplinger.com and has been quoted in “U.S. News & World Report,” Market Watch, Yahoo Finance, Nasdaq and Investopedia. He also formally hosted the nationally syndicated radio show “Smart Money Talk Radio.”

Investment Adviser Representative of USA Financial Securities. Member FINRA/SIPC A Registered Investment Advisor. CA license # 0G89727 https://brokercheck.finra.org/

Source: kiplinger.com

Women Who Make More Than Their Husbands Should Watch Out

When women out-earn their husbands, marriages struggle. Marriages of female breadwinners are 50% more likely to end in divorce, according to a University of Chicago study.

Many relationships that do not conform to the traditional norm of the man playing the role of provider do not fare well. The University of Chicago study points to several reasons, including tension between the partners, due to a combination of societal expectations of men and deep-seated ideas about gender roles, leading to arguments.

Men Who Cheat on Their Breadwinning Wives

Studies also show that when a wife out-earns her husband, he is more likely to cheat. In fact, about 15% of the men in a study by the American Sociological Review who were 100% financially dependent on their wives had affairs. That’s three times higher than the 5% of high-earning wives who strayed, the study showed.

For men, financial dependence may be particularly threatening, resulting in relationship-sabotaging behavior, and cheating may be a subliminal way to bolster his self-esteem or re-establish his sense of masculinity. While infidelity is not necessarily a death sentence for a marriage, it is the most often-reported reason for a split.

“It’s not exactly logical,” according to Alexandra Shepis, a Certified Divorce Financial Analyst® with Francis Financial who provides financial advice to many breadwinning women. “If you are financially dependent on your spouse, you probably should not cheat on them. But rarely do finances dictate matters of the heart.”

 In addition, Shepis warns that a divorce for breadwinning women can be especially painful, as the law dictates that she pay spousal support to him if her earnings are significantly greater. “This can be an especially tough pill to swallow for a woman whose husband had an affair while she spent long hours at the office working to provide for him.”

Who Gets Stuck with the Housework?

Lisa Zeiderman, a divorce attorney and managing partner for Miller Zeiderman LLP, often represents the breadwinner female spouse. According to Zeiderman, many of these women are high-powered executives who not only support their family but also care for the children. Notwithstanding that they are earning a substantial income, these women still manage to run the household, including, but not limited to, sourcing the children’s providers, arranging for childcare, making playdates, attending school functions and making sure there is a family meal and bedtime routine.

Zeiderman contends that these women should receive a greater share of equitable distribution due to their greater contributions to the family unit.  Moreover, while they may have to pay alimony, that may be set off by a greater distributions of assets.  While in some marriages there is no affair, the breadwinning woman may still feel as if she is not supported enough, deepening conflicts and causing resentment that can escalate into arguing and, ultimately, divorce. Moreover, as set forth above, breadwinning women often end up doing a disproportionate amount of housework.

According to the Journal of Family Issues, the more economically dependent that men are on their wives, the less housework they do. Even women with unemployed husbands spend considerably more time on household chores than their spouses. In other words, the more the wife earns, the greater the penalty at home. Therefore, as Zeiderman points out, the greater the reward should be when dividing up the marital pot.

“As with any issue, couples need to be willing and able to honestly discuss the reality of the woman being the primary breadwinner,” says Beatty Cohan, psychotherapist, sex therapist and author.  “Issues including the division of labor on day-to-day tasks, including childcare, grocery shopping, housecleaning, etc. need to be acknowledged, addressed and resolved.   The couple needs to be open to ongoing evaluation about how the process is actually working.  Compromise, trade-offs and win/win solutions should be the goal when challenges arise … as they inevitably will.”

Tips to Help Maintain a Happy Marriage

On the financial front, successful marriages have regular, open communication about finances. This is especially important when gender-earning norms are reversed. Shepis advises couples to plan a financial date night and craft a financial plan that takes into account their goals.

“Large gaps in income can cause tension in the relationship, and if money is a taboo subject, the odds will be stacked against you. On the other hand, getting on the same page, financially, and working together towards your shared dreams is one of the most important ways to strengthen your relationship and ensure your happily ever after.”

President & CEO, Francis Financial Inc.

Stacy is a nationally recognized financial expert and the President and CEO of Francis Financial Inc., which she founded 15 years ago. She is a Certified Financial Planner® (CFP®) and Certified Divorce Financial Analyst® (CDFA®) who provides advice to women going through transitions, such as divorce, widowhood and sudden wealth. She is also the founder of Savvy Ladies™, a nonprofit that has provided free personal finance education and resources to over 15,000 women.

Source: kiplinger.com