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By Laura Chiesman

Around this time of year we think about independence and what it means to us as Americans and as individuals. This is a concept near and dear to our hearts. Financial independence is a frequent topic of conversation with clients, and for many this means the freedom to live out life, to the end, on our own terms. Thinking through the details of this goal in practical terms is a challenging exercise that covers a lot of ground – e.g. having enough money, well thought out spending and investment plans, the right insurance, good estate documents – nice solid details that can help make the journey toward future independence somewhat predictable.

A less concrete and often heard requirement for happiness in later years is, “that we NOT be a burden on others.” For the independently inclined, the worst outcome is to have our children saddled with responsibility for our well-being. We dread the thought of others having to take care of us financially or otherwise.

Just below the surface of these concerns for others, there often lies a note of stubborn dedication to self-sufficiency and independence. We want to have our own homes, make our own decisions, and manage our own affairs. So we have, “I don’t want to burden you,” on one side of the coin and, “Don’t tell me what to do,” on the other side!

Where we live in later years is a key component of health, happiness and longevity. The community around us, opportunities for social interaction, access to physical and mentally stimulating activities are all critical to the quality of life. There are so many possibilities – everything from staying put in the family home to living on a cruise ship like “Mama Lee.”

In between the extremes there are many great living arrangements to consider. “Independent Living” is a strong buzzword in the world of senior services. What does that phrase actually mean? What’s the difference between independent living, assisted living, continuing care retirement communities, 55 and up neighborhoods and the myriad of other types of living arrangements? What might be appropriate for you?

Here is a good definition from an article on www.HelpGuide.org:

“Independent living is simply any housing arrangement designed exclusively for seniors, generally those aged 55 and over. Housing varies widely, from apartment-style living to freestanding homes. In general, the housing is friendlier to older adults, often being more compact, with easier navigation and no maintenance or yard work to worry about.” For an article that provides a great overview of the many options for happy, healthy living opportunities, click here.

Gathering information now to explore all the many options, and planning ahead so that the lifestyle of your choice is available to you can put you on the road toward a happy and independent future!

You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.

About the Author:

Laura K. Chiesman, CFP® WealthCoachTM

• Certified Financial PlannerTM Professional

• Financial Planning Association Member

• University of Central Florida, BSBA – Finance

The post Independence for Days to Come appeared first on FirstWave Financial.

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By Tom Kirk

A statistic that most people have heard before is that 96% of all small businesses do not survive beyond 10 years1. One that is perhaps less familiar is that 70% of small businesses do not survive an ownership transition2. These two statistics combine to what I am calling the 99% business death rate. 99% of businesses will not survive more than 10 years and successfully transition their ownership.

Those are pretty staggering odds. Especially when you consider the multi-trillion dollar generational wealth transfer going on right now. This wealth transfer consists of not only 401k plans and IRAs, but also valuable interests in closely held small businesses that were created over a life time of effort and accomplishment. What can be done to beat these odds? Read on.

Year after year small business owners invest and re-invest their time, energy and capital into their company. And it has often paid off very well, providing a good livelihood for them, their families, fellow workers and owners. But the business of running a business is so all consuming that little thought has been given to the answers to tough questions like:

  • What would happen to the business, its employees and customers if an unforeseeable tragedy happened to one or more of the owners?
  • How much longer do you want to keep working at your current pace?
  • In addition to what has been saved for retirement, how much more capital will be necessary to continue to live as you desire for the rest of your life?
  • What possible business transition options should you consider from the multitudes of ideas and tactics that are available?

These are not easy questions to answer. They are often only addressed after a crisis strikes like the death or disability of an owner. By then your choices can be severely limited. This all contributes to the above mentioned 99% business death rate.

We are participating in more and more conversations about business transition planning with clients and prospective clients at our fee-based wealth management firm in Satellite Beach, Florida. If you are a business owner who knows you aren’t going to work forever; you have much of your net worth tied up in your small business; and you want to beat the 99% business death rate; call and schedule your complementary consultation with one of our WealthCoaches to see if The Transition Roadmap Developer is the process you may want to investigate for improved clarity and intentionality in this critically important area of your personal and business life. Call today! (321) 773-7773

1Carmody, B. (n.d.). Why 96 Percent of Businesses Fail Within 10 Years. Retrieved November 28, 2017, from https://www.inc.com/bill-carmody/why-96-of-businesses-fail-within-10-years.html.
2Williams and Preisser, 2003.

You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.

The post The 99% Business Death Rate appeared first on FirstWave Financial.

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By Tom Kirk

Broker 
noun – a person who buys and sells goods or assets for others
verb – arrange or negotiate

Thank goodness for the resources that business brokers can provide. They can help introduce relationships with potential buyers and sellers of which you might otherwise have never been aware. They can be experts in the drivers of business value in your particular industry because of their years of experience brokering business transitions in that industry or profession. They can make available details of actual business transitions perhaps comparable to what you are considering. All of this can be very valuable and necessary for a successful business transition, especially if the transition is to an outsider (non-family, non-employee).

Before you reach out for the resources a business broker may bring to your business transition strategy you must be very clear about what you want, need and require to have happen. That’s because business brokers are very motivated to make a transaction occur, and any transaction is better for them than no transaction. I have heard it said that the biggest concessions are often made in the last few minutes of a negotiation. If you are not 100% clear about what you want, need and require from your business transition, you could accept something that you might regret for the rest of your life.

An example of how having a transitional plan in place could benefit you as the owner might look like this:  

You have a business in a specialized industry. You also have potential buyers that are a national organization and have engaged a business broker concentrating in this industry to help facilitate the transaction. After a period of due diligence, a formal letter of intent (LOI) was presented to you by the potential buyer, but there was a problem -the terms and conditions were not acceptable to you. Subsequent LOIs were then presented, but still fell short of what you wanted and required. Two years into this process, the business broker finally says the last LOI was the best deal you were going to get and you should just accept it!

If a business broker comes with a do or die scenario, and you the owner don’t know what you need from the sale of your business in order to live the life you have in mind for yourself, you might take the offer. And without that knowledge you may accept a deal that will not provide you with the resources necessary to experience your next great adventure as you desired. But, if you had used a tool like The Future WealthProjectionTMyou may have realized that the offer would not be enough and decided to walk away from this deal rather than to accept those consequences.  

With the confidence that a The Future WealthProjection can give you, the outcome could have looked more like this: 

You presented your non-negotiable terms and conditions based on your The Future WealthProjection tool to the potential buyer, (against the advice of the business broker) and gave them 30 days to take it or leave it. They took it, the sale closed and you experienced the great life they had in mind!

Confidently knowing what you need from the transition of your business and taking all the steps necessary to then go and get it takes a plan, and a Roadmap is your best tool. That is why we offer The Future WealthProjection aspart ofThe Transition Roadmap Developer TM– a transformational process that takes into consideration the practical, financial, and emotional aspects of your unique business transition challenge and delivers a customized step-by-step plan of actions.

All small businesses transition eventually. Be intentional about how you want this to happen. Call today and schedule your complimentary consultation with one of our WealthCoachesTMto see if The Transition Roadmap Developer is the process you may want to investigate for improved clarity in this critically important area of your personal and business life.

You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.

The post Is a Business Broker Your Best Advocate? appeared first on FirstWave Financial.

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By: Laura Chiesman

Conducting a Home Inventory

A home inventory is a complete and detailed written list of all your personal property that’s located in your home and stored in other structures like garages and toolsheds. It should include your possessions as well as those of family members and others living in your home. You should prepare an inventory whenever you move into a new home. To keep track of new additions and discarded items, be sure to update it every year.

Wasn’t there a vase on that table in the study?

It would be quite an accomplishment for any of us to recall all of the contents of any one room, even at the calmest of moments. Remembering everything that’s in your house and garage after a fire, theft, or other calamity would be virtually impossible. Yet that’s what you’ll be asked to do when you submit a claim on your homeowners insurance, unless you’ve already prepared a written inventory of your possessions.

Omitting items or failing to include an adequate description of an item may prevent you from receiving full compensation from your insurance company. Since the whole point of buying homeowners insurance is to be compensated for a financial loss, why bet everything on your memory? You’ll also find that a detailed inventory helps when filing a police report or when trying to prove a loss to the IRS.

Include everything but the kitchen sink

Under the terms of your homeowners policy, your claim for damaged or stolen property should show the quantity, description, actual cash value (i.e., the depreciated value of an item), and amount of loss associated with each item. You’re also asked to provide copies of bills, receipts, and other documents that support the figures in your claim. If possible, keep copies of these documents off-site, too. It’s also important to include the purchase price and purchase date of every item and to note the serial numbers and model numbers of any appliances and electrical equipment.

Listing the contents of each room and building separately promotes thoroughness and will help you organize your inventory. Make sure you catalog all the contents of every room, including rugs and carpets, wall hangings, curtains, blinds, and draperies. Be descriptive–refer to colors, dimensions, manufacturers, and composite materials whenever you can. Make sure you include component parts and the contents of drawers, shelves, closets, storage boxes, and built-in cabinets. Describe not only the bed but also the headboard, mattress, and bedding. Try to identify every item that you would have to box or carry out if you were to move out of your home. The only things you should leave out of your inventory are the four walls, the ceiling, the floor, and the fixtures (e.g., toilets and sinks).

Give a full description of any expensive clothing items, such as leather or wool coats, boots, suits, or formal wear. If you’d rather not describe every item of clothing, at least list quantities (e.g., six wool sweaters, two pairs of sneakers, two pairs of corduroy trousers).

Make sure to include the items stored in your attic, basement, garage, or outbuildings. Sports equipment tends to be expensive and should be described in as much detail as possible. The same goes for jewelry, furniture, antiques, collectibles, and other expensive items covered by your policy. Don’t forget tools and outdoor equipment like lawn furniture and barbecue grills.

This isn’t a test; you won’t be graded on your inventory for accuracy, completeness, or legibility. If you can’t stand this overly detailed approach, at least take the time to jot down any items valued at $50 or more. Hopefully, you’ll never have to use your inventory, but if you have to deal with a catastrophe, you’ll be happy you took the time to make a permanent record of all your possessions.

Getting the picture

Since a picture’s worth a thousand words, consider taking a photograph or videotape of each room, with separate photos for big-ticket items (e.g., your valuable coin collection). If you use a camera, make sure you label each photo with notes about the items shown. If you use a video camera, provide a running commentary describing every item (e.g., date of purchase, price) that comes into view. Make sure to date-stamp the video, and take a shot of that day’s newspaper. Contact your homeowner’s insurance agent; some offer a videotaped inventory as a free service to their customers.

Keep your inventory safe

Remember the purpose of your inventory. If there’s a fire or catastrophic event, it’ll do you no good if it’s burned up in the fire or washed away with the flood. Regardless of whether the inventory is recorded on film, videocassette, computer software, a sketch pad, or the back of an envelope, keep a copy of it stored somewhere safe, like a safe-deposit box at a bank, or your desk at work.

If you would like a copy of our Home Inventory checklist, please call a WealthCoach here at FirstWaveFinancial, today.  Interested in other ideas to be proactive to protect your financials? Call our wealth services firm in Satellite Beach, FL – Melbourne/Brevard area at (321) 773-7773.

You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.

The post Flood, Fire, Hurricane or Burglary – one step to protect your assets in all these situations appeared first on FirstWave Financial.

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By Jamie B. Ostrander

Or how about this one; “build muscle and have complete health without doing a thing!” We see immediately that this is a sales pitch; we can dismiss it out of hand as an elaborate claim. Too often though we come across investors that have fallen into this same trap, but it has to do with a fantastic or exclusive investment.

In order to be a successful athlete or to just maintain good health, there are exercise regimens and complete diet plans to follow. It takes commitment and focus to maintain good physical health. We know that the chiseled physique we see on the silver screen was the result of not just good genetics, but hours of dedication under the direction of an expert trainer and full-time personal chef. Yet, when we see that advertisement for the miracle fat-busting pill or the miracle machine that takes no effort or time to operate, too often victims fall prey.

Clarke Stanley is the literal father of snake oil salesmen. In the early 1900’s he would attract quite a crowd, kill some rattlesnakes and sell bottles of medicinal snake venom concoctions. It wasn’t long until federal agents tested the contents of this “snake oil”, finding the main ingredient was mineral oil, along with a little beef fat, turpentine and cayenne pepper to give it some kick. They soon shut him down, but not before he cemented the “snake oil salesman” moniker.

Recently I heard an advertisement for an investment. It was touting a single stock that you could buy to get to retirement, it was a “secret” stock with a “secret” ticker symbol… and yet, there are some folks that will fall prey to this charlatan as well. There are multiple class action lawsuits that get launched with great regularity around failed investment schemes. In hindsight, it is easy to spot the snake oil investment scheme, but by then the damage is done.

Just like a personal trainer we cannot do the exercises for our clients, or force feed them the proper diet. A trainer or coach, no matter how talented can never generate results if the athlete is on the couch.  In working with a WealthCoach at FirstWaveFinancial you get the financial “personal trainer” and the roadmap to follow to achieve your financial goals. Most importantly, there is a much bigger piece that our clients bring to the relationship; their time, energy, treasure and talent. Just don’t take all that potential and gamble it on a new miracle investment.

You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.

The post Lose 20 pounds, no exercise and eat whatever you want… appeared first on FirstWave Financial.

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Tax season is over, for most of us anyway, and now you have some new tax returns and related documents to save. We often get questions about what to save and for how long. Here are some guidelines that will help1. Keep critical documents and records safe and secure but accessible in a time of need

Certain documents and records are too important to retain in an ordinary file drawer. Fortunately, they are also the ones you tend to need least frequently. If they are stolen or destroyed by a catastrophe such as flood or fire, replacing them could be extraordinarily difficult, if not impossible. One of the best places to retain such items is a safety deposit box. These can be rented for a small monthly fee at many banks. The boxes are actually locked drawers within the bank’s vault. Various sizes are often available to meet individual needs. A home safe is another option, provided that it is adequately rated to protect contents from fire, water, explosions (gas leaks), and other calamities. Documents deserving extra protection include:

  • Property deeds
  • Trust documents
  • Insurance policies
  • Automobile titles
  • Stock and bond certificates
  • Wills and estate plans
  • Personal property inventory
  • Marriage and birth certificates
  • Military discharge papers
  • Passports
Keeping copies of vital records can save time, money, and headaches

There may be times when you need to know certain information contained on documents you’ve placed in safekeeping but don’t need the actual document. Avoid the inconvenience of obtaining the original documents by making copies of them for your file.

Tip: Create one file that includes copies of all documents you’ve placed in safekeeping (e.g., a “Safety Deposit Box” file). Then, you not only can turn to it for vital facts, but if you are incapacitated, whoever handles your important affairs will be able to locate key documents quickly.

Caution: The specific contents of some documents, such as wills and trusts, may be inappropriate to keep in more highly accessible home files. Instead of a photocopy, you might simply file a page containing those key facts that are less confidential in nature or obliterate very sensitive items on the copy.

Make backup copies of all computerized records

These days, many people keep important records on their personal computer. This can be an easy way to keep your records organized and updated, but it is important to keep a backup copy of these records in a safe place. If your hard drive has a meltdown, you’ll need to be able to recreate the important financial information that was lost.

Financial management software can be beneficial in tracking your finances, but it will take some time to learn how to use it properly. Don’t forget that you must still retain original documents as evidence of past transactions.

Save all essential records, receipts, and documents that your budgeting system requires

There are many reasons to save important records. If you apply for a loan (such as a mortgage, auto loan, or education loan), you will have to provide proof of your income. If you notice that money is disappearing out of your checking account, you’ll need your bank statements to back up your claim of unauthorized transactions. If you own financial securities, capital gains taxes are based on the price you paid for them on the date purchased. You’ll be required to verify this information. Potential tax audits will be far less intimidating if you have kept records to substantiate your tax return claims. An unsubstantiated claim will cost you not only the unpaid tax but interest charges and possibly, a hefty penalty.

Tip: Most of us realize it’s important to keep expense records, but for those with income sources other than employers, a cash receipts log can be invaluable. A small notebook or a few sheets in a separate file folder will do for recording income as it arrives. If you don’t recall later whether you received a particular dividend or rent payment, the log provides a quick answer.

Caution: Certain items, such as tips or business-related use of a car, require special tax treatment and records. Therefore, your record-keeping system must track these and retain any related documents.

Keep records as long as appropriate

Different records need to be saved for different periods of time. Divide your records into categories, such as short-term, medium-term, and long-term. There are no concrete rules about how long records must be saved, so you will often have to use your own judgment. The following guidelines may help:

Short-term (1-3 years)
  • Household bills, except those that support tax deductions (items such as heat, water, and electricity are generally short-term unless you deduct them for home office use or a rental)
  • Expired insurance policies
Medium-term (6-7 years)
  • Tax returns and supporting information
  • Income and expense records (including lottery tickets and winnings)
  • Bank and credit union statements
  • Brokerage house statements
  • Canceled checks and check registers (checks for major purchases may be kept longer)
  • Paid-off loan documents
  • Personal property sales receipts
Long-term (indefinitely)
  • Tax dispute records
  • Evidence of retirement plan contributions
  • Investment records
  • Medical history information
  • Pension/retirement plan documents
  • Social Security information
Other (as noted)
  • Home ownership/sale documents: 7 years after sale or indefinitely
  • Home improvement records: 7 years after sale

Caution: The IRS typically has three years after a return is filed to audit a return, or two years after you’ve paid the tax, whichever is later. However, if income was underreported by at least 25 percent, the IRS can look back six years after the return is filed, and there is no time limit for fraudulent tax returns. An audit requires that you provide documentation to substantiate the return being audited.

Tip: Canceled checks do not necessarily prove why a given payment was made, only that the payment was made. Having dated receipts, invoices, sales slips, credit card statements, and bank statements can provide valuable proof if needed, whether for an IRS auditor or an insurance claims adjuster.

Save space: Annually review retained records and discard those no longer needed

Some records and documents can be discarded after all potential usefulness has passed. Depending on circumstances, records can accumulate quickly and require extensive storage space. Discarding records that are no longer necessary saves space and makes finding a record you need easier.

Tip: Expired product warranties and insurance policies are excellent candidates for the trash can.

Tip: For easier future access, retain records for each year in separate files.

Caution: Keep your important records and financial files separate from information you might want to retain for other purposes. If you clip articles, jot notes, and save information you receive on items of potential interest, create a separate set of information files for them. These might contain vacation ideas, recipes, home improvement items, personal letters, or the kids’ school papers. Keeping them apart from vital records and financial files makes both easier to find and manage.

  1. Source: Broadridge Investor Communication Solutions, Inc.

You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.

The post Buried in Paper – How Do You Know What to Save, for How Long? appeared first on FirstWave Financial.

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Satellite Beach, FL, April 25, 2019 – FirstWave Financial announces the appointment of First Wave Financial President, Laura Chiesman, CFP®, CDFA® as chairwoman of the upcoming 2019 United Way of Brevard Campaign.

As the United Way of Brevard Campaign chair, Ms. Chiesman will serve as an advocate for United Way of Brevard’s annual fundraising drive. She will be working with the United Way team on developing campaign strategies and recruiting a motivated, committed core of volunteers to drive donations and support more than 200 workplace campaigns.

“I am honored to help spearhead the fundraising campaign for United Way of Brevard this year,” said Laura Chiesman. “Our efforts will bring people and resources together to focus on the local issues that matter most while improving lives and conditions right here in our own community.”

The United Way of Brevard mission is to provide leadership that creates lasting benefits for the community and its residents by mobilizing caring people to give, advocate and volunteer. United Way of Brevard fights for the education and financial stability of every person in the community.

“We are thrilled that Laura Chiesman has agreed to serve as our 2019 Campaign Chair,” said Rob Rains, United Way of Brevard President. “Laura demonstrated leadership and commitment in serving on our campaign team last year. She is extremely well organized and connected with a great strategic mindset.”

“Most importantly, she really cares about our community.”

The 2019 United Way of Brevard fundraising campaign will kickoff in September. Leading up to that time, Ms. Chiesman will work with other board members and United Way of Brevard staff to identify areas of critical need in Brevard County, set campaign goals and determine the most effective means of achieving those goals.

“I am grateful to have worked along side last year’s campaign chairwoman, Debbie Goode,” said Chiesman. “That experience demonstrated how committed leadership through United Way can generate investment in our community, inspire hope and create opportunities for a better tomorrow.”

Past United Way of Brevard Campaign Chairs:
2005 Howard Lance
2006 Dr. Tony Catanese
2007 Sheriff Jack Parker
2008 Dr. Rich DiPatri
2009 Mark Mikolajczyk
2010 Chas Hoyman
2011 Howard Tipton
2012 Adrian Laffitte
2013 Jeff Kiel
2014 Carol Craig
2015 Wayne Ivey
2016 Therrin Protze
2017 Desmond Blackburn
2018 Debbie Goode

# # #

About FirstWave Financial:
FirstWave Financial is an independent wealth management firm, providing planning and advocacy for successful families and business. They are based in Satellite Beach, Florida. For more information, call 321-773-7773 or visit www.firstwavefinancial.com.

About United Way of Brevard:
United Way of Brevard funds large scale collaborations, individual agencies and specific programs focused on the building blocks of a good life – education, financial stability, and health along with a safety net of health and human services. United Way also oversees and effectively deploys resources through VITA Tax Preparation Assistance, Financial Education, Healthy Families, Gifts in Kind and the Benefits Connection programs. Through United Way, the contributions of thousands of individual donors become a force for change in the community. United Way of Brevard was established in 1957.

The post FirstWave Financial’s Laura Chiesman to Chair 2019 United Way Campaign. appeared first on FirstWave Financial.

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By Laura Chiesman

If you are in the middle of planning a wedding you know all about checklists and budgets! The focus on this event is intense – where, when, who, how much, guest lists, photographers, food and so many details. You are probably also thinking about the first week, months or year of marriage –honeymoon, first home together, relocating if needed and other big decisions. These happy times are planned with precision and detail rivaling that of a corporate buyout! 

Marriage is the joining of two households and like a business merger information and planning makes all the difference.

Will you plan your marital finances with as much detail and care as your wedding? Whether this is a first marriage or second and regardless of your level of assets and complexity, there are financial and legal decisions to make that will kick your new joint venture off right.

It all starts with a conversation. You need to know about each other’s financial lives so that you are on the same page, understand each other’s strengths and areas for improvement. Then you can benchmark where you are now as a couple and begin to define your goals and start to plan. Work together, take a team approach. 

What does each person bring to this ‘business plan’ discussion? 

Finances:Starting with the facts is the first step: each of you will share information about your assets and savings, debts and income. Having this knowledge up front helps you begin to plan together. There are short term decisions, for example are you each going to maintain your own individual bank accounts and pay your own bills or use a joint account for all expenses? Depending on your situation there will be longer term issues which might include paying off debt, cleaning up credit, buying a home and planning for retirement. 

Legal:  Do you each have a will and other important estate documents? You will want to coordinate and update your estate documents and also consider the titling of your assets including investments, bank accounts and real estate. This can be pretty simple and there are also situations that require more focus to avoid later, unintended consequences. Examples of issues that would prompt you to spend the time and resources needed to do higher-level planning include significant assets, business ownership, marrying later in life, and one or both of you having children.  Discuss and plan now for things that will inevitably need to be dealt with later!

You are entering a new phase of life with all the excitement and anticipation that brings.

Take a moment, ok probably a few hours, to sit down together to share information and make some initial, basic decisions and plans. You can go deeper and develop full comprehensive plans later but getting a baseline set is a great first step. Don’t procrastinate on these early steps by waiting until you are more comfortable sharing with each other or until you have allthe information, moretime or moremoney. Just make a start!

Congratulations on this wonderful time of life! There are tools and resources that can help you make planning ahead a pleasant part of the journey. If you’d like a copy of a short checklist or would like to discuss your situation call or email our wealth services firm in Satellite Beach, FL – Melbourne/Brevard area at (321) 773-7773 or lchiesman@firstwavefinancial.com

You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.

The post Marriage – Your Personal Merger appeared first on FirstWave Financial.

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By: Jamie Ostrander A quick online search for “Dow rallies 500 points” yields a cascade of news stories with similar titles, as does a similar search for “Dow drops 500 points.” 

These types of headlines may make little sense to some investors, given that a “point” for the Dow and what it means to an individual’s portfolio may be unclear. The potential for misunderstanding also exists among even experienced market participants,given that index levels have risen over time and potential emotional anchors, such as a 500-point move, do not have the same impact on performance as they used to. With this in mind, we examine what a point move in the Dow means and the impact it may have on an investment portfolio. 

IMPACT OF INDEX CONSTRUCTION

The Dow Jones Industrial Average was first calculated in 1896 and currently consists of 30 large cap US stocks. The Dow is a price-weighted index, which is different than more common market capitalization-weighted indices.[1]

An example may help put this difference in weighting methodology in perspective. Consider two companies that have a total market capitalization of $1,000. Company A has 1,000 shares outstanding that trade at $1 each, and Company B has 100 shares outstanding that trade at $10 each. In a market capitalization-weighted index, both companies would have the same weight since their total market caps are the same. However, in a price-weighted index, Company B would have a larger weight due to its higher stock price. This means that changes in Company B’s stock would be more impactful to a price-weighted index than they would be to a market cap-weighted index. 

The relative advantages and disadvantages of these methodologies are interesting topics themselves, but the main purpose of discussing the differences in this context is to point out that design choices can have an impact on index performance. Investors should be aware of this impact when comparing their own portfolios’ performance to that of an index.

HEADLINES VS. REALITY

Movements in the Dow are often communicated in units known as points, which signify the change in the index level. Investors should be cautious when interpreting headlines that reference point movements, as a move of, say, 500 points in either direction is less meaningful now than in the past largely because the overall index level is higher today than it was many years ago. 

Exhibit 1plots what a decline of this magnitude has meant in percentage terms over time. A 500-point drop in January 1985, when the Dow was near 1,300, equated to a nearly 39% loss. A 500-point drop in December 2003, when the Dow was near 10,000, meant a much smaller 5% decline in value. And a 500-point drop in early December 2018, when the Dow hovered near 25,000, resulted in a 2% loss.

Exhibit 1.      Hypothetical 500-Point Decline of the Dow Measured in Percentage Terms

Dow Jones and S&P 500 data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. The chart illustrates what a 500-point drop would have been in percentage terms for the Dow Jones Industrial Average on a daily basis. It assumes a 500-point loss took place each trading day from January 1, 1985, to February 1, 2019, and uses daily historical closing values of the Dow Jones Industrial Average to compute the percentage change. Percentage change does not indicate the actual change in the Dow during the period shown. Actual results may vary. 

HOW DOES THE DOW RELATE TO YOUR PORTFOLIO?

While the Dow and other indices are frequently interpreted as indicators of broader stock market performance, the stocks composing these indices may not be representative of an investor’s total portfolio. 

For context, the MSCI All Country World Investable Market Index (MSCI ACWI IMI) covers just over 8,700 large, mid, and small cap stocks in 23 developed and 24 emerging markets countries with a combined market cap of more than $50 trillion. The S&P 500 includes 505 large cap US stocks with approximately $23.8 trillion in combined market cap.[2]The Dow is a collection of 30 large cap US stocks with a combined market cap of approximately $6.8 trillion.[3]

Even though the MSCI ACWI IMI, S&P 500, and Dow are all stock market indices, each one tracks different segments of the market, so their performance can differ significantly over time, as shown in Exhibit 2. Since 1995, the Dow has outperformed the S&P 500 and MSCI ACWI IMI by an average of 0.5% and 3.3%, respectively (based on calendar year returns). However, relative performance in individual years can be much different. For example, in 1997, the Dow underperformed the S&P 500 by 8.4% but outperformed the MSCI ACWI IMI by 13.9%. 

Exhibit 2.      Performance of MSCI ACWI IMI, S&P 500, and Dow by Calendar Year

Dow Jones and S&P 500 data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. MSCI data © MSCI 2019, all rights reserved. MSCI ACWI IMI is the MSCI All Country World Investable Market Index (net dividends). Their performance does not reflect fees and expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. 

It is also important to note that some investors may be concerned about other asset classes besides stocks. Depending on investor needs, a diversified portfolio may include a mix of global stocks, bonds, commodities, and any number of other assets not represented in a stock index. A portfolio’s performance should always be evaluated within the context of an investor’s specific goals. Understanding how a personal portfolio compares to broadly published indices like the Dow can give investors context about how headlines apply to their own situation.

CONCLUSION

News headlines are often written to grab attention. A headline publicizing a 500-point move in the Dow may trigger an emotional response and, depending on the direction, sound either exciting or ominous enough to warrant reading the article. However, after digging further, we can see that the insights such headlines offer may be limited, especially if investors hold portfolios designed and managed daily to meet their individual goals, needs, and preferences in a broadly diversified and cost-effective manner.

[1]. Market capitalization is the product of price and shares outstanding. [2]. 500 companies are included in the S&P 500 Index. However, because some of these companies have multiple classes of stock that meet the requirements for inclusion, the total number of stocks tracked by the index is 505. [3]. Market cap data as of January 31, 2019.

Source: Dimensional Fund Advisors LP.Also available at us.dimensional.com/perspectives/getting-to-the-point-of-a-point

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product, or any non-investment related content, made reference to directly or indirectly in this publication will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request. 

The post What’s the point? appeared first on FirstWave Financial.

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By: Laura Chiesman

Investment fads are nothing new. When selecting strategies for their portfolios, investors are often tempted to seek out the latest and greatest investment opportunities. 

Over the years, these approaches have sought to capitalize on developments such as the perceived relative strength of particular geographic regions, technological changes in the economy, or the popularity of different natural resources. But long-term investors should be aware that letting short-term trends influence their investment approach may be counterproductive. As Nobel laureate Eugene Fama said, “There’s one robust new idea in finance that has investment implications maybe every 10 or 15 years, but there’s a marketing idea every week.” 

WHAT’S HOT BECOMES WHAT’S NOT

Looking back at some investment fads over recent decades can illustrate how often trendy investment themes come and go. In the early 1990s, attention turned to the rising “Asian Tigers” of Hong Kong, Singapore, South Korea, and Taiwan. A decade later, much was written about the emergence of the “BRIC” countries of Brazil, Russia, India, and China and their new place in global markets. Similarly, funds targeting hot industries or trends have come into and fallen out of vogue. In the 1950s, the “Nifty Fifty” were all the rage. In the 1960s, “go-go” stocks and funds piqued investor interest. Later in the 20th century, growing belief in the emergence of a “new economy” led to the creation of funds poised to make the most of the rising importance of information technology and telecommunication services. During the 2000s, 130/30 funds, which used leverage to sell short certain stocks while going long others, became increasingly popular. In the wake of the 2008 financial crisis, “Black Swan” funds, “tail-risk-hedging” strategies, and “liquid alternatives” abounded. As investors reached for yield in a low interest-rate environment in the following years, other funds sprang up that claimed to offer increased income generation, and new strategies like unconstrained bond funds proliferated. More recently, strategies focused on peer-to-peer lending, cryptocurrencies, and even cannabis cultivation and private space exploration have become more fashionable. Revisit our blog Bitcoin: Invest if You Want to Get Bit! by WealthCoach Robert DeVries for his December, 2017 thoughts on cryptocurrencies. In this environment, so-called “FAANG” stocks and concentrated exchange-traded funds with catchy ticker symbols have also garnered attention among investors.

THE FUND GRAVEYARD

Unsurprisingly, however, numerous funds across the investment landscape were launched over the years only to subsequently close and fade from investor memory. While economic, demographic, technological, and environmental trends shape the world we live in, public markets aggregate a vast amount of dispersed information and drive it into security prices. Any individual trying to outguess the market by constantly trading in and out of what’s hot is competing against the extraordinary collective wisdom of millions of buyers and sellers around the world. 

With the benefit of hindsight, it is easy to point out the fortune one could have amassed by making the right call on a specific industry, region, or individual security over a specific period. While these anecdotes can be entertaining, there is a wealth of compelling evidence that highlights the futility of attempting to identify mispricing in advance and profit from it.

It is important to remember that many investing fads, and indeed, most mutual funds, do not stand the test of time. A large proportion of funds fail to survive over the longer term. Of the 1,622 fixed income mutual funds in existence at the beginning of 2004, only 55% still existed at the end of 2018. Similarly, among equity mutual funds, only 51% of the 2,786 funds available to US-based investors at the beginning of 2004 endured. 

WHAT AM I REALLY GETTING?

When confronted with choices about whether to add additional types of assets or strategies to a portfolio, it may be helpful to ask the following questions:

  1. What is this strategy claiming to provide that is not already in my portfolio?
  2. If it is not in my portfolio, can I reasonably expect that including it or focusing on it will increase expected returns, reduce expected volatility, or help me achieve my investment goal?
  3. Am I comfortable with the range of potential outcomes?

If investors are left with doubts after asking any of these questions, it may be wise to use caution before proceeding. Within equities, for example, a market portfolio offers the benefit of exposure to thousands of companies doing business around the world and broad diversification across industries, sectors, and countries. While there can be good reasons to deviate from a market portfolio, investors should understand the potential benefits and risks of doing so. 

In addition, there is no shortage of things investors can do to help contribute to a better investment experience. Working closely with a financial advisor can help individual investors create a plan that fits their needs and risk tolerance. Pursuing a globally diversified approach; managing expenses, turnover, and taxes; and staying disciplined through market volatility can help improve investors’ chances of achieving their long-term financial goals. 

CONCLUSION

Fashionable investment approaches will come and go, but investors should remember that a long-term, disciplined investment approach based on robust research and implementation may be the most reliable path to success in the global capital markets. 

Source: Dimensional Fund Advisors LP.

You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request. 

The post Déjà Vu All Over Again appeared first on FirstWave Financial.

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