Investors need to know the risks and factor them into investment decisions

The relationship between the United States and China has been strained for some time, and tensions have only increased in recent years. The ongoing trade war, intellectual property disputes, and geopolitical competition have all contributed to a sense of uncertainty and unease.

While the full extent of the potential consequences of an increasing conflict with China is difficult to predict, equity investors are likely to face several risks. Here are five significant main risks to equity investors that an increasing conflict with China might bring.

Disruption to Global Supply Chains

China has become the world's largest manufacturer and exporter, and many companies rely on Chinese factories and suppliers for components and raw materials. If a conflict were to disrupt these supply chains, it could have severe consequences for companies' ability to produce goods and meet demand. This would lead to higher costs and delays, which would hurt companies' profits and ultimately impact equity prices.

Reduction in Chinese Demand

China is also a significant market for many companies, particularly those in the technology and consumer sectors. If a conflict were to reduce Chinese demand for these goods and services, it could hurt companies' revenue and growth prospects. This could, in turn, lead to lower equity prices as investors reassess their expectations for future earnings.

Increased Regulatory and Legal Risks

An increasing conflict with China could also lead to increased regulatory and legal risks for companies operating in both countries. For example, China could increase regulatory scrutiny of American companies operating within its borders or impose retaliatory tariffs.

In addition, companies with significant operations in both countries could face legal challenges related to intellectual property or other issues, which could lead to costly legal battles and reputational damage.

Currency Volatility

An increasing conflict with China could also lead to currency volatility, as investors reassess the strength of the US dollar and the Chinese yuan. This could impact companies with significant international operations, particularly those that rely on exports or imports. Currency fluctuations could also impact the value of foreign investments, which could impact equity prices.

Geopolitical Uncertainty

Finally, an increasing conflict with China could lead to geopolitical uncertainty, which could impact equity prices in several ways. For example, a conflict could lead to increased military spending or other government interventions, which could impact economic growth and corporate profits.

In addition, geopolitical tensions could lead to increased volatility in financial markets, as investors try to assess the potential consequences of a conflict.

Things Get Better With Age

In conclusion, an increasing conflict with China is likely to have significant implications for equity investors.

As such, it's important for all investors to consider these risks and factor them into their investment decisions.

By staying informed and monitoring the situation, you can make more informed choices and better protect your portfolio. Your financial advisor can help.

Copyright © 2023 FMeX.

The earlier you start saving, the easier it will be to send your kids to college

The month of August is when many parents are preparing to send children back to school this fall. While the checklists grow and the kids soak in the last few minutes of summer break, it’s important to remember college planning and back-to-school shopping. While getting an education can be difficult at times, paying for it can feel like climbing up an unending hill. More and more adults are going back to school, so this doesn’t just apply to kids.

According to the U.S. Census, in the 40+ years since 1980, college costs have increased by 169% – while earnings for workers between the ages of 22 and 27 have increased by just 19%.

Rising Costs of College

Today, the average cost for college – which can include tuition, room and board, supplies, student loans and lost income can exceed $500,000. Consider these statistics:

• The average private, nonprofit university student spends a total of $55,840 per academic year living on campus, $38,768 of it on tuition and fees.

• The average cost of college in the United States is $36,436 per student per year, including books, supplies, and daily living expenses.

• The average cost of college has more than doubled in the 21st century, with an annual growth rate of 2% over the past 10 years. 

• The average in-state student attending a public 4-year institution spends $26,027 for one academic year.

• The average cost of in-state tuition alone is $9,678; out-of-state tuition averages $27,091

• Considering student loan interest and loss of income, the ultimate cost of a bachelor’s degree can exceed $500,000. 

 

Planning ahead for your children’s education can alleviate the burden on your family when you or your student must write a check or take out an education loan.

College Savings Plans

College savings plans offer many great benefits. For example, some taxpayers are eligible for a state income tax credit of up to 20% of contributions to a 529 account, which can add up to thousands of dollar per year. With a 529 plan, you put away money that grows tax-free, as long as you use it on education.

These types of savings accounts are also very flexible. Just because a student has a 529 account set up in Kansas, doesn’t mean the assets cannot be used to attend a school in California or Texas, as long as the institution is eligible under the specific 529 rules.

Many plans allow for hundreds of thousands of dollars per beneficiary to be held in a 529 account, with few income or age restrictions.

Another great benefit of a 529 is the donor retains control of the account and makes the decision for when withdrawals are made and for what reason.

Talk to Your Advisor

It’s important to consult an advisor or a 529 plan manager with specific questions regarding how each state’s plan works.

Back-to-school season is a great time to teach children and young adults about budgeting and giving priorities to certain purchases. While parents get ready for that time of the year where they make sure lunches are made and homework is completed, it’s wise to look ahead and begin, if they have not already, planning for their kids’ college education.

With rising tuition costs, the earlier you start planning and saving, the easier sending a child off to school can be.

Copyright © 2023 FMeX.

Understanding the “chicken and egg” dilemma facing buyers and sellers

The dynamic real estate market has seen a significant slowdown lately. Those looking to buy or sell homes are feeling the pinch, but the question remains: what is causing this downturn? A recent Realtor.com report presents an intriguing explanation – a 'chicken and egg' problem. Let's unravel this conundrum.

The slowdown primarily stems from rising mortgage rates, which currently sit about 1 percentage point higher than last year, at around the mid-6% range. This increase presents a considerable hurdle not just for potential buyers but also for sellers who feel "locked in" to their existing properties due to lower mortgage rates they secured years prior.

The hesitation from both buyers and sellers has created a bottleneck in the market. Even homebuyers prepared to face higher rates are met with a scarcity of listings. May witnessed a significant 22.7% drop in new listings compared to last year.

Realtor.com Chief Economist Danielle Hale elaborates, "Many sellers report being concerned about finding another home, which may cause some of them to put plans to list on pause." This apprehension among sellers is leading to a limited pool of options for eager buyers.

Unravelling the “Chicken and Egg” Problem

This stalemate in the real estate market is being dubbed the 'chicken and egg' problem. In essence, the current market situation hinges on a paradox: sellers are reluctant to list their properties for fear of not finding another home, while buyers grapple with limited options and higher rates. This cycle feeds into itself, making it challenging to break.

Potential sellers are effectively 'chickens', unwilling to 'lay the egg' of putting their property on the market due to uncertainty. Buyers, on the other hand, are eager yet unable to find suitable 'eggs' in the form of new properties.

A Potential Solution

While this might paint a somewhat gloomy picture of the real estate market, it's essential to remember that markets are cyclical. Just as we've seen booms and busts in the past, this too will likely shift over time.

In the interim, it's important for potential sellers to remember that while their current mortgage rates might be lower, the higher selling prices could potentially offset the cost of higher rates on a new mortgage. Meanwhile, buyers might need to adopt a more patient approach, understanding that the market fluctuation is part of a broader cycle.

Navigating the Market as an Investor

As an investor, it's crucial to have a comprehensive understanding of the market dynamics at play. In times of a slowdown, exploring different strategies could prove beneficial. For instance, rental properties could be an attractive option, with a potential increase in demand as some potential buyers may choose to rent until the market stabilizes.

The 'chicken and egg' problem of the real estate market offers a clear lesson: the importance of flexibility and patience in any investment strategy. While the market might be slow for now, savvy investors know that it's all part of the cycle.

Understanding these patterns and adjusting strategies accordingly can help navigate these challenging times.

Copyright © 2023 FMeX.

Identity theft runs rampant during tax season

Here’s what to know and how to protect yourself.

Identity thieves often swipe your bank or credit card account numbers, birth date information or Social Security Number (SSN) to steal from your accounts, open a new and phony account or make illegal purchases. Some 15.4 million consumers were victims of identity theft or fraud last year, according to a new report from Javelin Strategy & Research.

All sorts of nefarious schemers can come after you via the phone or email. Your tax return offers a trove of your personal information, and this time of year scammers also prey on your apprehension about paying taxes.

The Internal Revenue Service recently published its latest list of scam warnings, freely admitting, “It’s true: Tax scams proliferate during the income tax filing season.

Among IRS tips:

• Beware of unexpected communication at the start of tax season that claims to come from the IRS.

• Don’t fall for phone and phishing email scams that use the IRS as a lure. The fake messages typically probe you for personal information thieves often pose as the IRS offering a bogus refund or warning you to pay past-due taxes – sometimes, with phone scams, threatening you with immediate arrest if you hang up.

• The IRS sends letters by postal mail and initiates no contact with taxpayers by email to request personal or financial information. This means any e-communication, such as text messages and messages over social media.

• The IRS doesn’t ask for personal identification numbers (PINs), passwords or similar confidential information for your credit card, bank or other accounts.

• If you get an unexpected email, open no attachments and do not click links in the message. Forward the email to phishing@irs.gov. See more about reporting phishing scams involving the IRS at the agency’s website.

(Note: Only IRS.gov is the website of the U.S. government’s Internal Revenue Service.)

Identity Theft And Fraud Complaints, 2013-2016

Source: Federal Trade Commission, Consumer Sentinel Network.

To protect against scams and identity theft:

• Don’t carry your Social Security card or any documents that include your SSN or Individual Taxpayer Identification Number (ITIN). Don’t keep forms containing that information in your car, either.

• Don’t give any business your SSN or ITIN just because someone who claims to represent the company asks. Give such information only when required and when positive who you’re talking to.

• Check your credit report every 12 months. Stay aware of your credit status and learn quickly about any illegal use of your credit or accounts.

• Secure personal information in your home.

• Protect your personal computers with firewalls and anti-spam and anti-virus software, updating security patches and changing passwords for your home Internet accounts.

• Give no personal information over the phone, through the mail or on the Internet unless you initiated the contact and are sure of the recipient.

• Choose a tax preparer carefully. Most preparers provide excellent service a relative few are unscrupulous. The IRS recommends watching for preparers who try to manipulate or change your income figures or make up deductions to qualify you for tax credits and unusually large refunds.

Tax season brings enough to worry about. Cross identity theft off your list.

Copyright © 2023 FMeX.

If you’re a small business owner, you’ve invested a great deal of time and effort into building your company. With day-to-day demands, it may be difficult to imagine your eventual transition into retirement. Yet, if you want to build personal financial security and ensure business continuation, it is important to plan ahead. Business succession planning can help create retirement income for a retiring business owner and facilitate the transfer of operations and/or ownership to family or another entity. A successsion plan can also provide a strategy to handle unforeseen events, such as death or disability.

Laying the Foundation

It is never too early to begin planning for succession. An early start can allow you ample time to develop an appropriate exit strategy, choose the right person to be your successor, and train your successor to manage the daily operations of your company. Consider the following points to create a foundation for a successful plan:

Valuate Your Business
A key aspect of planning for continuation is calculating the worth of your business. There are a variety of techniques for business valuation, and the most appropriate will depend on your business circumstances. A qualified professional can help you choose strategies for valuation.

Plan Your Exit Strategy
It is important for a retiring business owner to plan his or
her departure from the day-to-day operations of the business. A solid plan can help ensure this transition will go smoothly, as well as facilitate the transfer of ownership.

Choose a Successor
If you plan to keep ownership and control of your business within your family, start by assessing your family members’ interests and qualifications, and how well they match the needs of the business. Discuss with family members who will participate in the company and in what capacity. Then, determine how working members will be compensated and what will be given to nonparticipating members.

If you expect unrelated parties to carry on the business, meet with the key people involved for an in-depth discussion about the company and its future. If succession involves the sale of the business, be prepared to address such issues as what the purchase price will be, how it will be paid, and when the succession plan will be activated.

Develop a Business Plan for the Future
Through your business plan, you can outline clear-cut, short-, medium-, and long-term business goals for your successor, along with an action plan for achieving them.

Include budgets and financial forecasts that can be modified according to changing conditions in both the industry and the economy.

Choose a Transfer Strategy
Depending on the type of business, its value, and your personal financial situation and goals, determine the best ownership transfer strategy for your business. There are a variety of ways to structure and fund buy-sell agreements. For transfers to family members or charity, gifting may be an appropriate option. Consult your tax and legal professionals for specific guidance.

Plan for Contingencies
Regardless of your intentions for succession, it can be helpful to compile current information in case an unforeseen event, such as a death or disability, occurs before you have finalized your succession plan. This information should include the following:

A copy of your current business plan.

Job descriptions for all positions within the company, including details regarding areas of responsibility and delegation of duties.

A list of potential successors.

A plan to ensure extensive “hands-on” training for your designated successor.

An estate plan that addresses any Federal and state estate tax obligations.

Other Considerations

A comprehensive succession plan involves strategies to handle a number of financial, legal, and tax issues. For instance, how will a successor secure funds to buy out a retiring, deceased, or disabled owner’s share of the business? What are the estate planning issues? How can an owner minimize gift taxes resulting from the transfer of company stock to family members? Such situations can be addressed in a succession plan, with the guidance of qualified legal, tax, financial, and insurance professionals.

You owe it to yourself to ensure that your business will continue to flourish after your retirement, as well as in the event of death or disability. Proper planning through a business succession plan can help provide long-term security for your retirement, your company’s future, and your family.

Copyright © 2023 FMeX.

Retirement is not what you retire from, but what you retire to

When you plan for retirement, an exciting new phase of life, double-check your expectations. They may not match the reality.

Baby boomers, currently in their 50s and 60s, view retirement differently than the previous generations. Many boomers consider retirement as an opportunity to begin a new career, hobby or passion, which is a good thing. But the upcoming retirees may not take everything into account.

Five Misconceptions About Retirement

Here are five common misconceptions about retirement:

1. Retirement is like a 30-year vacation. A life full of leisure must be great, right? Not really. Too much free time leaves many retirees feeling depressed and unimportant. Studies show that people who keep working after 65 tend to be happier whether or not they do so by choice.

Among all, voluntary part-time workers are the happiest. While money is the main reason for continuing to work in retirement, stimulation and satisfaction are just as important.

2. Money is most important to happiness in retirement. The biggest key to a happy retirement is good health. If you have financial security, you have enough. Money only correlates with happiness up to a certain point. You can still enjoy a happy and fulfilling retirement even if you are not a millionaire.

3. Spending is consistent in retirement. People generally spend less in retirement, but that’s not always the case. Many spend the first few years traveling, and as years go by, the number of trips decreases while health care and family costs increase.

Many estimates suggest a couple needs $250,000 to cover medical expenses throughout retirement. Although health-care costs are retirees’ biggest concern, few spend much time planning for that.

4. Retirement is a “couples” thing. Married couples face a new adjustment when entering retirement. One in three couples doesn’t agree on the ideal lifestyle they want to have in retirement. You need to be aware that your partner has his or her own needs and alone time.

Also, women have a life expectancy six years longer than men. Actually, 60% of American women over 65 are single, widowed or divorced, according to the Census Bureau.

5. Financial planning stops at retirement. You still have many issues that need to deal with during retirement. You need to continue planning of your investments to make sure that your money can last as long as you do. You may have estate concerns and health issues that require long-term care.

Retirement is not what you retire from, but what you retire to. Just because you reach a certain age, it does not mean you have to stop working. And to stop working does not mean you stop planning for your life.

Plan and enjoy.

Copyright © 2023 FMeX.

Retirement planning is a primary reason for long-term saving, and when people think about retirement, finances are often the focus. However, it is important to also look at the non financial aspects of transitioning from the world of work to the world of leisure. Specifically, lifestyle changes and self esteem issues associated with the loss of your professional identity may create difficulties. As you’re preparing strategies for your future well-being, give some thought to the kind of retirement you envision for yourself.

Consider the following questions:

• What do you find fulfilling?
• What gets you out of bed in the morning?
• What are your strengths and weaknesses?
• Do you work well as part of a team, or do you thrive on solitude?
• Do you have a lot of physical energy, or do you prefer a more sedentary pace?
• Do you have a hobby you always wanted more time to pursue?

Don’t be afraid to think outside the box. This informal self-inventory may hold the key to your vision for retirement.

Challenging Conventions

The concept of retirement in America is changing. Traditionally, retirement has been idealized as a leisurely phase of life, a reward for the many years of working and raising children. This concept is based on the assumptions that people will enjoy themselves in retirement, and that work, as we commonly know it, is the province of younger generations.

However, is this concept realistic for those of us still years away from retirement, and if it is, is it what we really want? The answer might surprise you. Especially when you learn that by early 2022, roughly 1 million U.S. retirees had reentered the workforce. Now, it’s true that many retirees reentering the workforce had no choice, but for others the choice was intentional.

Rethinking retirement means reexamining conventional ideals to determine whether they apply to today’s reality and what we envision for ourselves.

Intrinsic to the conventional notion of retirement are significant assumptions about work, money, and retirement standards of living. For previous generations, work was thought to be something you did for about 45 years (until roughly age 65), and then, suddenly, you never had to (or wanted to) work again. A company pension, Social Security, and some savings generally provided enough income for funding a comfortable lifestyle in retirement, including leisure, travel, and recreation.

If that’s what you want for your retirement, there is nothing wrong with pursuing that goal. However, for some, work is too much a part of their sense of “self” to be suddenly cast aside. Moreover, with so much of their daily lives centered around work, some people have difficulty imagining their life without that structure.

Furthermore, changes in employer-sponsored retirement plans (i.e., the decline of defined benefit plans and the rise of defined contribution plans) have altered our expectations about retirement funding. The responsibility has shifted from employer to employee, which means that an individual’s long-term saving for retirement must now be factored in with other savings objectives, like purchasing a house or funding a college education for children, and ongoing financial responsibilities.

Finally, the traditional concept of retirement is based on the belief that one’s standard of living will be sustainable in retirement, and it may be for some. For others, however, it may be more practical to ask what standard of living can be maintained based on projected resources. This type of approach might help you see what is realistic (and what may be unrealistic) in your situation, and it may help you set more realistic retirement priorities. For some people, downsizing their standard of living in retirement may be acceptable. For others, however, maintaining the same standard of living during retirement as during their working years may be the goal.

Consider Phased Retirement

As you consider the traditional concept of retirement, you may discover that it doesn’t meet your needs. Phased retirement is a term coined to describe a range of employment arrangements that allow an employee who is approaching retirement to continue working, usually with a reduced workload, in transition from full-time work to full-time retirement.

Many individuals may want to continue some form of work, such as consulting, job-sharing, mentoring, or providing back-up management. Mentoring, in particular, enables an individual to transfer a lifetime of learning and experience to a friend, relative, or younger colleague. Aside from money earned from continued work, phased retirement may help you maintain a feeling of involvement in the world and may provide a sense of purpose.

For some, phased retirement may be an option. For others, it may be a necessity. For still others, phased retirement may provide structure to daily life and the opportunity to explore other activities while maintaining a meaningful role within an organization, the community, or society in general.

What’s most important, however, is to define your vision of retirement in a way that makes sense to you and is realistic considering your goals and resources.

Copyright © 2022 FMeX.

Women face unique financial challenges as they age. When compared with men, women live longer, earn less, and spend fewer years in the workforce. Financial concerns are often more acute for older women who are divorced, widowed, or otherwise single, as well as for those who have spent all or a significant portion of their adult years caring for children and other family members. Consequently, planning for long-term care (LTC) is an issue of particular importance.

LTC assists people, through various support services, with activities of daily living, such as dressing, bathing, eating, transferring, and toileting. If a woman has difficulty performing two or more of these activities due to physical limitations, cognitive impairment, or both, LTC may be needed. LTC services are provided in the community, in an assisted living facility, or in a nursing home.

Most people are unaware of the actual costs associated with LTC. For example, according to the American Association of Retired Persons (AARP, 2009), the average cost of a nursing home is $75,192 per year, and the average cost for assisted living is $2,968 per month. It is important to note that these figures are national averages. Actual costs vary widely from state to state. If cost of living is high an area, it is likely that costs for long-term care services will be well above the national average.

There are a number of reasons why it is important for women to plan for LTC.

First, women live longer. Back in 1900, women and men shared a similar life expectancy of about 47 years. Today, the longevity of both men and women has increased overall by 20 years, with the life expectancy for women generally five years longer than men. The U.S. Census Bureau (2009) reports that women represent 57% of those aged 65 and older, and 67% of those aged 85 and older. Unfortunately, with longer life comes an increased risk of health problems. In fact, the Administration on Aging (AoA, 2009) reports that women are twice as likely as men to live in a nursing home. They are also more likely to sustain a disability or be diagnosed with a chronic health condition.

Second, women often lack the resources necessary to fund the care needed later in life. According to the U.S. Department of Labor (DOL, 2009), the average woman in the U.S. who is employed full-time earns less than her male counterpart (80 cents for every dollar a man earned in 2007). In addition, women typically spend nearly 12 years out of the workforce while taking care of children or elderly parents. It is not uncommon for many women to spend years juggling family, professional, and caregiving responsibilities, and as a result, their income is disrupted, hindering their ability to save money or attain financial stability.

Finally, shorter careers and lower incomes often result in lower Social Security benefits. According to the Social Security Administration (SSA, 2009), the average annual Social Security income received by women 65 years and older was just $10,685 in 2007. Moreover, married women often don’t know that the benefits accrued by their husbands may be reduced if they are widowed or divorced. These factors put many women at high risk for poverty as they age, especially if they do not plan accordingly.

Many women think their children or other relatives will be there for them, should the need for LTC arise. But even if the willingness is there, the costs associated with caregiving often exceed the financial capabilities of the average family. And, if medical care is required, family members may not have the necessary skills to provide care. As you can see, the time has come for women to look toward the future and prepare for LTC.

The Insurance Alternative

The good news is there is an alternative. LTC insurance can help cover LTC expenses before you meet the strict requirements for Medicaid eligibility. Many policies cover the costs of nursing homes, assisted living/residential care facilities, adult day-care centers, and/or home care. The cost is typically based on your age, your current health, and specific policy features, such as scope of coverage, levels of care, and duration of benefits. LTC insurance is designed to help you maintain your independence and quality of life, while offering increased options for care.

Needless to say, it is difficult to prepare for the possibility that you may one day need LTC. While you don’t know what the future holds, planning today for an uncertain tomorrow may help preserve your assets, increase your options for care, and perhaps most importantly, bring you and your loved ones peace of mind.

Copyright © 2022 FMeX.

For many people, the New Year is a time for personal reflection, a time to consider commitments and resolutions for the coming year. This year, why not resolve to make your finances a priority? With proper planning and appropriate guidance, you can begin to build financial stability and prepare for the uncertainties of tomorrow.

Consider the following steps:

1. Get Organized. Gather all your important financial documents – life insurance policies, homeowners insurance, wills, trusts, and other pertinent financial records – and organize them so you can access them quickly and easily.

2. Schedule a Legal Consultation. Arrange a time to meet with your attorney to review or write your will and establish any necessary trusts. Prior to your meeting, discuss with your spouse or other loved ones how to handle property dispositions and guardian appointments.

3. Keep Debt in Check. Pay off high interest debt first, especially if the interest is not tax deductible. Do your best to avoid the minimum payment trap. By making only the minimum monthly payment, the interest that accumulates over time can make even “bargain” purchases costly in the long run.

4. Review Insurance Coverage. Review your life insurance policies to ensure that your beneficiary designations are appropriate to your current situation and that all arrangements are up-to-date. Also, consider repaying any loans you may have against your insurance policies. This can help to reestablish an emergency fund for the future.

5. Apply for Scholarships. If your children plan to attend college next year and require financial aid, remember that financial aid forms are due early in the year. The earlier you apply, the better your chances may be for obtaining aid.

6. Prepare a Tax Strategy. Begin to gather your tax information and arrange a time to meet with your accountant, if necessary. It is important to file your income taxes on time and to be aware of any tax changes that may affect your return.

7. Write It All Down. Once you’ve met with your financial, insurance, and tax professionals, write down a few realistic goals that you think are achievable. Make the commitment now to plan your finances accordingly. This is your first step to building a solid financial future.

The New Year offers us a fresh beginning. This year, resolve to make your finances a priority. With proper planning and appropriate guidance, you can begin to work toward financial independence and prepare for life’s uncertainties.

Copyright © 2022 FMeX.