Insight on Money, Markets and Financial Security                                      December 2014
Greetings! 

In the latest book of the Freakonomics series (Think Like a Freak), authors Steven Levitt and Stephen Dubner wrote a segment about the hardest three words to say. They are not "I love you."

 

Rather, humans find it very difficult to say "I don't know."


Certainly, there are many things that we don't know but could. We can Google it and know in seconds. But what Dubner and Levitt write about is the tendency for people to carry on with explanations about things that truly cannot be known. People regularly make up something that seems fitting and logical just to respond. Dubner and Levitt suggest that this is because people rarely face adverse consequences for offering an answer but they may appear unprepared or ignorant if they say "I don't know."


In many cases, "I don't know" is the only correct answer and knowing what you don't know can prevent a lot of mistakes. There are too many things, especially questions about the future that simply are not knowable. We can make an educated guess but that doesn't equate to certainty.

In the business of money and markets, we're always looking toward the future and often expected to "know" what's coming. However, no financial advisor can assuredly tell you when interest raise will rise, how far they will rise, over what time frame and what will be the impact on stocks, bonds, or loans. It's just the same for whether or not inflation will climb, how long the stock bull market will rally, whether international stock returns will catch up to U.S. or how to preempt the next market shift with a shift in your portfolio.


There are many things we do know. We know investment rules, regulations, portfolio management theory ... How much can you contribute to an IRA? What are the underlying expenses of an investment or whole portfolio? Has this investment mix experienced a better risk-adjusted return over time than that one? How much of your retirement income will be made up of Social Security? And many other known inputs to financial planning and investment management.


There is also a deep supply of detailed information about past circumstances of money and markets. But we can never know how much that tells us about the future. So we are left with a lot of assumptions that may create a wide range of outcomes.


Because "I don't know" is sometimes the only real answer, we like to see a margin of safety when we create financial plans and assumptions for people. We like to know that even if expenses are higher than expected, life is longer than expected or investment returns poorer than expected, there will still be enough money left to cover the "I don't know" aspect of managing money for the future.


If you have questions, please contact us. If we don't know the answer, we'll quickly learn those things that we can know and for those things that can't be known we'll try to help you get comfortable with the probability of what might happen without completely being able to predict the future.


Happy Holidays,



Gary Brooks, CFP® 


 

Allyn Hughes, CFP®, ChFC®, CLU®, CAP® 

Gary Brooks's column in The News Tribune December 3

Too often, families face unnecessary headaches because parents and adult children don't communicate about preferences and plans for financial security, health care and estate planning.  

 
The Money Architects Idea Roundup for December

(These and other ideas shared at our blog: www.themoneyarchitects.com)

 

Year-end financial planning checklist 
Have you taken care of the financial decisions and tasks you intended to this year?Here's a list of topics that might apply to you:
  • Max your retirement plan contributions
  • Complete charitable contributions
  • Use up money in Flexible Spending Accounts
  • Review your beneficiaries on retirement accounts and life insurance
  • Harvest capital losses to offset gains (many mutual funds will pay out large capital gain distributions this year)
  • Check your credit report and score
  • Adjust your tax withholding if needed
  • Compare your home, auto and life insurance policies with competitors' rates
  • Take Required Minimum Distributions from your retirement accounts if you are over age 70
  • Defer income and accelerate expenses (if you have control over these things)
  • Maximize your gift allowance of $14,000 per person if it meets your estate plan objectives
  • Review your investment mix and decide if you need to rebalance (or trust your advisor to do so)
  • Review spending and revise your budget for 2015

The trouble with trustees
Beneficiaries of professionally managed trusts often have difficult relationships with the trustees. This Wall Street Journal article provides insight on how to manage this relationship, which can sometimes last for years.


Can gas savings fuel the economy?

Gas prices have declined $1.35 per gallon for regular since July 16, 2008 according to gasbuddy.com. That equates to a $20.18 savings for a 15-gallon fill up. If you have two cars in your household and pump 15 gallons twice per month, you'd save about $80 a month.


That's not enough savings to change your lifestyle but it's certainly easier on your monthly budget. If the savings were to persist, investing that $960 annual savings at 5% would grow to $12,678 in 10 years.


According to the New York branch of the Federal Reserve, a $20 per barrel decline in the price of oil effectively transfers $670 billion per year from oil producers to oil consumers. From another angle, the actual decline in gas prices over the past six months has amounted to a $75 billion tax cut for U.S. consumers.


So while it might not make a monumental difference to any individual or household, collectively it fattens wallets and consumption power meaningfully.

Brian Gable, Toronto Globe and Mail


 

graduate-woman.jpg Published college costs don't reflect actual costs, few people pay the full rate 

According to the latest information released by the College Board actual net costs for public and private colleges are meaningfully lower than unsubsidized full costs.


Average net prices are lower than published prices because many students receive grants from federal and state governments, colleges and universities, and other sources. Federal education tax credits and deductions also reduce the price.

Over the decade from 2004-05 to 2014-15 average net tuition and fees at public four-year institutions rose by 32%, compared to a 42% increase in the published price (after adjusting for inflation). At private nonprofit four-year institutions, the net price fell by 13% over the decade, while the published price increased by 24%.

In 2014-15, full-time students receive an average of about $6,110 in grant aid and education tax benefits at public four-year institutions, $5,090 at public two-year colleges, and $18,870 at private nonprofit four-year institutions.


Christmas as a marketing and sales event
In this month's Mutual Fund Observer, there is a discussion about the history of Christmas as an economic event. According to the article, between the founding of the U.S. in 1776 and 1820, New England's premier newspaper -- The Hartford Courant -- did not include a single reference to "Christmas-keeping" or a single ad for holiday gifts.

Commercialization, largely supported by the poor and middle class, began a shift toward today's version of Christmas. "Beginning in New York around 1810 or 1820, merchants and civic groups began 'discovering' old Dutch Christmas traditions that surrounded family gatherings, communal means and presents. Lots of presents."

And now the Christmas commercialization starts as soon as Halloween closes.


Allyn will visit this location in a few months.
Photographer: Guy Nesher 500pxart.com/guyn
27 amazing photos that will infect you with 
the travel bug

Visit the This World Rocks blog for some remarkable photographs from around the world. Cows on the beach in Tanzania, climbing the Egyptian pyramids, and even one from Olympic National Park.



 

85 life-changing ideas to celebrate BusinessWeek's 85th anniversary
 

In it's 85 years of existance, BusinessWeek has chronicled a continually changing world. To celebrate its anniversary, the magazine has produced many articles looking at the most disruptive ideas that have improved standard of living, created new industries or otherwise moved people and business in a new direction.

The number one is rooted here in the Puget Sound area but it is not the technological innovation of Microsoft. See the list here ...

http://www.businessweek.com/features/85ideas/


 

For links to other interesting articles and notes, follow us on Twitter

 @moneyarchitects

A Cup of Coffee and a Second Opinion 
If you know someone who is not completely satisfied with their current arrangement for financial advice -- or someone going through a financial transition who would value an independent perspective -- we would be happy to sit with them and offer a second opinion about their planning and their investments. No cost. No obligation. Just a conversation.
 
  
 
Past performance does not guarantee future results. 
No content of this email is considered a personal investment recommendation. 
 

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