TPW Money Musing

By: Nathan Billigmeier, Director of Research and Analytics 

From ancient civilizations to modern society, humans have always had a fascination with gold. The yellow metal has been used as currency, as jewelry, and incorporated within various other industrial applications. Gold also helped shape United States history when it was discovered in the Sacramento Valley in 1848 sparking the California Gold Rush. But does it belong in your investment portfolio? We will discuss some of the benefits and drawbacks below. 

1) Store of Value

Famed financier J.P. Morgan once stated, “Gold is money, everything else is just credit.” This quote strikes at the core of the “gold as a store of value” argument. But what exactly is a store of value and what qualifies gold to be viewed as such? 

By definition, a store of value is an asset that maintains its value without depreciating. Gold’s ability to maintain wealth by preserving purchasing power has been well documented. Civilizations throughout history have turned to gold as a means of exchange as well as a hedge against currency devaluation. 

Gold’s finite supply also helps boost its appeal as a store of value. To date, all the gold mined throughout history would fit into two and a half Olympic-sized swimming pools. According to the US Geological Survey (USGS), approximately 187,000 metric tons of gold has been mined in total, with 57,000 metric tons remaining underground. 

Critics of gold state that it is an antiquated means of exchange with little utility or industrial application, outside of jewelry, and should therefore not be considered a store of value. Specific to utility, their argument could be viewed as valid. But what gold lacks in utility, it makes up for in investor psychology. Humans have long placed value in gold. While this value may very well be due to its historical reputation, until this connection is broken, gold will remain one of the primary assets used to preserve wealth 

2) Low Correlation to Other Investments

One key aspect of a properly diversified portfolio is owning investments that have a low correlation to each other. What does this mean, and why is it important? Correlation is a numeric value from -1 to +1. The closer that two different investments are to having a +1 correlation, the higher the likelihood their respective market values will move in tandem with each another. Vice versa is true for investments with a -1 correlation. Investments with a correlation of 0 are completely unrelated, meaning the price movement of one has no relation to the price movement of the other.For longer-term investors, it is important to have the correlation between the various asset classes (read: stocks, bonds, alternatives, cash, etc.) held in their portfolio be as close to zero as possible. This allows investors to better manage the risk of their portfolio and increases the likelihood that the share price of investments held in different asset classes will not move in the same direction in response to current economic and market trends. 

Gold is a unique asset in that it has a low, or sometimes even negative correlation to the other primary asset classes typically included in a properly diversified portfolio. In fact, as you can see from the above graph, it tends to have a negative correlation to US equities, hence sometimes being described as a “flight to quality” asset. 

3)Portfolio Insurance

Just as you purchase home or auto insurance to protect your assets against unforeseen events, you should consider doing the same with your investment portfolio. As recent events have shown us, market and economic crises can and do happen. 

Given its negative correlation to US equities, gold can provide needed insulation to your portfolio, helping it to better absorb these inevitable pullbacks. While it will not completely offset equity losses, gold can help reduce volatility and provide “downside insulation” to a portfolio. 

As the chart below shows, with the exception of two instances, the 1997 Asian financial crisis and 2013’s “Taper Tantrum,” gold has achieved positive returns during times of equity unrest. It also has a tendency to outperform US Treasuries during these downturns, which many view as another safe haven asset. 

4) But What About Income? 

Gold is not without its faults. One of the main arguments against gold ownership is the lack of a dividend or interest payment and the fact it has little to no industrial production value. 

One of the most famous investors in the world, Warren Buffet, is an outspoken critic of gold ownership for these very reasons. He has been quoted as saying, 

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” 

…and Mr. Buffett would be correct. Gold has little to no real economic utility, does not generate sustainable cash flow, and does not pay a dividend. 

What it does offer is relative stability and the potential for price appreciation. During turbulent economic times when company cash flows decline and dividends are cut or reduced, gold tends to shine, as investors try to preserve capital and fear the inevitable stimulus measures taken by central banks and/or government could stoke inflation and decrease the purchasing power of their currency.

More recently, financial markets have also been grappling with historically low interest rates, with some countries even experimenting with negative interest rates (i.e. investors paying the government interest, instead of receiving it, when owning government-issued bonds). This has significantly lowered the opportunity cost of owning gold (which pays no interest) versus owning government-issued bonds (which pay interest) as investors look for safety during times of market unease. Gold has been a direct beneficiary as the declining interest rate trend has gained steam, particularly in countries issuing bonds with negative interest rates. Why would an investor choose to pay interest to own a government bond when they could own gold instead, achieving the similar end goal of capital preservation? 

4) What happened to gold with the COVID-19

COVID-19 market pullback in March of 2020, gold suffered sizable declines along with equities. In fact, it suffered its largest weekly decline since 1983 while equities dipped into bear market territory in a record-shattering 20 days. Doesn’t this fly in the face of all the previous arguments for owning gold?

It depends on what you believe. Some have argued that the declines in the price of gold, at the exact same time equities were dropping precipitously, debunks the theory that gold should be viewed as a safe haven asset during times of market turmoil. Especially coupled with the fact that US Treasury bonds and the US dollar remained strong throughout the collapse in equity prices.

Proponents of gold have argued that the price decline the metal suffered in March, 2020 was due to the rapid shock the US economy experienced as virtually all of us entered lockdown. This forced many investors to raise cash as rapidly as possible, and gold, being a very liquid asset, provided easy access to needed cash. These proponents would challenge that the price of gold acted similarly during the 2008/2009 financial crisis before ultimately touching all-time highs, not too different to what has happened over the last three months. 

By analyzing the above chart, we are able to see that initially gold did maintain its strength as equities began to move lower. As the equity losses accelerated, gold prices declined before beginning a steady march higher prior to the March 23 low in equity prices. This does lend credence to the claim by gold “bulls” that the metal was used as a source of cash by investors during the selloff, and in doing so, helped them limit their losses.

In Summary

While critics may remain unconvinced, it is hard to deny that gold has maintained its luster throughout history as a go-to asset during times of uncertainty. Its ability to provide ballast to a portfolio allows your longer-term financial goals to remain upright and on course. We are by no means advocating that investors transition 100% of their assets into gold. However, we feel that a modest allocation of 3-7% in gold does have a place in a properly diversified investment portfolio. 

How Can We Help? 

At Towerpoint Wealth, we are a legal fiduciary to you, and embrace the professional obligation we have to work in your best interests 100% of the time. If you would like to discuss your circumstances further, we encourage you to call (916-405-9170) or email (nbilligmeier@towerpointwealth.com) to open an objective dialogue. 

Nathan Billigmeier Director of Research and Analytics 

Towerpoint Wealth, LLC is a Registered Investment Adviser. This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Towerpoint Wealth, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Towerpoint Wealth, LLC unless a client service agreement is in place

14 STRATEGIC IDEAS TO CONSIDER DURING THE CORONAVIRUS CRISIS

Towerpoint Wealth – Special Report

Obviously none of us can control the financial markets, the economy, or decisions that our elected leaders make. However, we can help our clients and their families plan around these considerations, and respond in the most economically beneficial way possible.

Highlighted below are 14 strategic ideas that we believe could help you take advantage of today’s unprecedented societal, economic, and market conditions.

Individuals

1. Convert an IRA to Roth IRA – The balance of your current IRA is probably lower compared to the beginning of the year. You can convert some, or all, of the investments inside your Traditional IRA to a Roth IRA. We are confident that any converted investments will eventually recover in value, and inside of Roth IRA this appreciation will occur tax free. Note: Ordinary income taxes are owed on the value of any investments that are converted from a Traditional IRA to a Roth.

2. Reduce the long-end of a bond ladder (and timing) – Most long-term bonds have seen a jump in value. While not inconceivable, it is hard to imagine there is much upside room given where interest rates are. Also, consider margins against these if you need liquidity short-term as rates are low. There are a lot of bonds being sold right now, so pricing should be better in a couple months.

3. Quicken the pace of your systematic, or Dollar Cost Averaging, investment program – If you have a plan to invest cash over the next 12 months, consider accelerating it during this period of market weakness.

4. Refinance your home or other debt – Review the interest rate on your mortgage to see if it makes sense to refinance. Many people are doing this right now, and it is important to be patient with your lender or mortgage broker.

5. Harvest investment tax losses now – Click HERE for an excellent Forbes article discussing this strategy.

6. Reduce or completely unwind from a concentrated stock position. If you own an individual stock that represents more than 20 percent of your overall portfolio and has declined significantly in value, now may be a good time to sell some or all of it with smaller capital gains tax consequences.

7. Accelerate the funding of retirement accounts (401K, 457s, 403B, IRA, SEPIRA, etc.) or Education Savings Plans – If you have and normally contribute to accounts like these, and have the financial wherewithal and free cash flow to do so, consider speeding it up.

8. Don’t fret about April 15 – The IRS has extended the April 15 tax filing deadline to July 15. Preserve your cash until the new filing date if you owe Uncle Sam. 9. Family Gifting – Do not gift family members any investments owned at a loss. Instead, sell the investment yourself to “harvest” the tax loss (see #5 above). Then, gift the cash instead.

10. Use this “extra” free time to update and review your estate plan. Don’t forget health care proxies, powers of attorney, living wills, advance directives, and retirement plan beneficiary designations.

Business Owners

11. Look into and leverage the myriad of new SBA lending programs – The new Coronavirus Stimulus Bill provides $349 billion to guarantee loans to small businesses.

12. Consider pulling cash from your line of credit, even if you don’t yet need it – We have seen banks reduce lines of credit during difficult economic times, possibly right at a time when you may need it most.

13. Consider strategic tax moves and review the new marginal tax rates, if your business income will be lower due to the crisis.

14. If you own your building, consider a Sale-Leaseback, especially now with the current interest rate environment. A Sale-Leaseback is when you sell the building your business occupies, and then sign a long-term lease renting it back. This could provide additional liquidity that could be put to work in other areas of your business, and also help diversify the overall percentage of assets you have tied directly to the business.

At Towerpoint Wealth, we are here for you, and we remain very confident that this crisis will be temporary. In the meantime, stay safe, stay healthy, stay calm, and carry on.

Joseph Eschleman, CIMA^® | President | Towerpoint Wealth, LLC

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“An Investment in Knowledge Pays the Best Interest” (Ben Franklin) A TOWERPOINT WEALTH SPECIAL MARKET UPDATE: MAY 22, 2019

Why does the back of our neck itch right now? The economy seems to be doing fine, the stock market is booming, earnings are solid, inflation is non-existent, interest rates remain low, and global central banks remain accommodative.

In our April Monthly Market Lookback, we opened with the following:

All of the “signals” we’ve been focusing on in the past several months remain solidly “in the green.” So why are we apprehensive? Perhaps we shouldn’t be, and simply are falling prey to our inner “Chicken Little” who always thinks the sky is falling. We’ve been guilty of that before.

We think complacency is the root of our itch. Market volatility once again has become somnambulant, with the VIX trading below 15% since February (the historical norm is closer to 20%). The markets seemingly are ignoring geopolitical issues (trade tensions, Brexit, Italy, France, North Korea, etc.) and are trading in a very “Candide-ish” manner (“All is for the best in this the best of all possible worlds”). Nothing is moving the needle.

And that’s what’s bugging us. Nothing is moving the needle – the markets just keep trading higher. We hated the days when market movement revolved around Fed policy announcements – when bad news was good news because the Fed would ride to the rescue – but we seem to be back in that mode.

Well, at least for now, that complacency has evaporated. Consider the recent path of the VIX, a common measure of volatility. You notice two things right away: (1) the recent spike over the past two weeks, but also (2) how low volatility had been in the previous several months – essentially, since the beginning of the year (at least compared to historical averages):

In essence, the market had been pricing in no risk to the current market rally. We’ve been suggesting for months that investors focus on market signals – which to us means (1) Economic Growth, (2) Earnings, (3) Inflation, (4) Interest Rates, and (5) Central Bank Policy.

All of these signals suggest we remain in pretty good shape – perhaps decelerating with respect to economic growth and earnings, but still fairly solidly “in the green”.

We also have been suggesting that, unfortunately, many investors focus too much on market noise, which we define as transitory events that can disrupt markets in the short-term but generally do not have long- lasting effects.

We think that is where we are today – there is a lot of noise out there right now, including:

1. The US / China trade negotiations
2. Ongoing Brexit difficulties
3. Changing political currents in Europe

1. North Korea once again sending threatening nuclear signals, and
2. Rising tension in the Middle East following the sabotaging of two Saudi Arabian oil tankers

Any of these issues individually might be “absorbed” by the market, but collectively they have re-introduced a certain amount of fear (and therefore increased volatility) into the global markets.

We believe the market had not been pricing in appropriately the possibility of protracted US/China trade negotiations, and certainly not the possibility of an all-out trade war. We also believe the market has been overly complacent about Brexit, which could end very badly indeed for the UK.

But some perspective is in order. The UK is a relatively small part (<3%) of global GDP, and the estimates we’ve read suggest that protracted trade negotiations or even a ramp up in tariffs between the US and China might shave roughly 0.5% off the US GDP growth rate in 2019 (which would still leave the expected growth rate above 2%).

The rising tensions in the Middle East are the newest development, and the risk of a subsequent spike in oil prices should not be ignored. But it is too early to evaluate the ultimate outcome.

We view all of these issues as “low probability, high consequence” (i.e., “fat tail”) events. If any or some combination of these issues should come to a negative outcome, it certainly would affect global growth and earnings (though, conversely, it would almost certainly keep interest rates low and central banks accommodative).

In particular, the US/China trade negotiations have the distinct possibility of getting worse before they get better (though we think they will get better), and the Middle East is almost always a potential source of geo- political turmoil.

So the market is correct to price in some degree of risk accordingly.

But keep in mind that the market had not been pricing in any measure of risk through the first four months of this year. In other words, we view the recent increase in volatility as healthy and, to some degree, a return to normalcy.

With respect to market performance, we again believe some perspective is in order. The following two charts show global stock market performance (1) Year-to-Date and then (2) since September 30, 2018 (roughly the high point of the markets in 2018):

What we see is that (a) despite the recent downturn, the markets remain solidly positive in 2019, and (b) the markets are down only slightly since the absolute high point of a phenomenal first three quarters of 2018 (ex-US Small Cap, which was hit hardest by both Q4 2018 and the recent downturn).

In many respects, we believe that the past few weeks have been a “mini-version” of what occurred in the fourth quarter of 2018. During that period, the broader market signals remained positive, but the market had become overly complacent and thus over-reacted to noise (primarily what was perceived to be overly- hawkish comments from Fed Chairman Jerome Powell).

In the current environment, we believe the market once again become overly complacent and so is reacting to noise. Perhaps it would be more accurate to suggest that the market is once again appropriately pricing risk back into the market.

We will close with how we closed our April Monthly Market Commentary, which we believe is still valid:

So, we find ourselves in a bit of a conundrum – most of the market signals remain “green”, and we generally are optimistic about the potential for risk assets over the remainder of 2019.

This is the consensus view and, frankly, that is what gives us pause. “When all the experts and forecasts agree — something else is going to happen”. We are not losing any sleep just yet, but we think there may be some sleepless nights ahead. Pay attention, stay diversified, and keep your investment horizon aligned with your financial plan.

Please do not hesitate to contact us with any questions at info@towerpointwealth.com.

Warm Regards,
Joseph F. Eschleman, CIMA® President
Towerpoint Wealth, LLC

From a window high above Capitol Mall in downtown Sacramento, I oftentimes look out over two of Northern California’s great recreational treasures – the Sacramento River and the American River. Sacramento residents love to have a good time outdoors, and value our recreation and the freedom to enjoy life. Whether it be trolling past Clarksburg in a fishing boat, taking a bike ride on the famous American River Bike Trail up to the historic town of Folsom, chatting with a vintner at a local tasting room, or alighting upon a barstool to enjoy a farm-to-fork snack and local craft beer, we are hungry for the independence to do what we want, when we want to. Our desire for this independence extends through our entire lives— through our forties, fifties, sixties, seventies and, if we’re fortunate enough, on and on.

You may have read our post, “Financial Complexities of a Longer Life”. On average, Americans can expect to spend about 20 years in retirement. By entering your sex and birthdate into the , you can see the average number of additional years you can expect to live. One out of every four 65-year-olds will live past the age of 90, and one out of every 10 (!) will live past the age of 95.

Achieving this kind of long-lasting independence, while maintaining a comfortable lifestyle, requires discipline, grit, and hard work. And what this independence looks like and means for one person is almost always very different from another, depending on the lens that we use to see life out of.

Retirement, the time traditionally set aside for when the hardest labor of our lives is behind us, should be a time when this independence prevails.

However, most of us do not give significant thought about how our life will really change once we stop working. While most of us recognize how important financial planning for retirement is, at Towerpoint Wealth we have continued to realize that there are concerns surrounding retirement that have nothing to do with the numbers. Getting prepared for retirement has an emotional component.

In today’s world, many people are working well past the age of 65 before retiring. Some people who are in good health may not be ready to retire yet, because they need the extra money, enjoy what they do, want to keep busy, or some combination of all three.

Even if you are still in the fantasy stage and retirement is not in the cards just yet, it never hurts to begin preparing for and considering the emotional change that will occur when retirement does happen and a new chapter of life begins. At Towerpoint Wealth, we have come to recognize that you may want to start preparing yourself emotionally for retirement now, because preparation goes far beyond making sure you have enough money to be comfortable after you stop working.

We can learn how to better emotionally prepare for retirement by asking ourselves a few relevant questions, such as:

• • How do you plan to live when you retire? Do you prefer a house, condo or apartment?

• • Where do you want to live? Will it be near your children? Do you want to be in a city, in the suburbs, or in a rural area? Do you prefer a warm or cool climate? Will you remain in Sacramento, Roseville, Folsom, Davis, or the Bay Area? Or do you want to retire to the Sierra Foothills, wine country, Capitola, or San Diego? Or even internationally or farther afield?

• • Are you married or have a significant other that you live with? If so, how do they feel about your answers to these questions?

• How is your health and do you anticipate any health challenges affecting your outlook and vision for your retirement?

Considering each of these questions before you retire can better help your psychological adjustment to the change.

If you are married, retirement will be a big adjustment not just for you, but for your spouse or significant other as well. Each partner may have a different idea of a “dream retirement.” In addition, spending more time together can put stress on a relationship, as you will need to adjust to each other’s new schedule, not to mention each other’s daily habits and behaviors, to which you may not currently be attuned.

“We have a house that’s too big for us, but one of the advantages is I let [my wife, Judy] keep the space she’s used to having,” admits Towerpoint Wealth client Larry Britts, who retired at age 63 1/2 after working in the insurance industry for 42 years.

On the other hand, if you are single, it does not hurt to begin thinking about whether spending too much alone time will be detrimental to your health. Studies have shown that a solitary lifestyle may not be problematic, but being flat-out lonely or socially isolated can be. You may want to consider moving near friends or family members, or into an active senior community to foster relationships and stay engaged.

A gregarious single woman, Towerpoint client Ann Martin literally pulled up the stakes on her RV and retired from her sales job in Folsom when she turned 65. She joined a like-minded community of RVers, and for many years she has been a seasonal docent at the Sacramento Wildlife Refuge in Willows, CA. At the refuge, Martin gets to share her love for migrating birds. She’s now 81 years old, and as happy as she has ever been.

Be sure to take your health and physical activity into account when emotionally planning for retirement; not surprisingly, maintaining your health as long as possible will afford you the physical capability to do everything you want when you retire.

Larry retired at 63 1/2 because work stress was affecting his health. “Now I’m freed up to do what I want to do. My blood pressure is down, and I get to have lunch with my Folsom tennis buddies instead of being stuck in Rancho Cordova at work,” he says.

Whether it’s playing tennis or birding, dining, angling, or learning, retirement with a good financial plan and emotional preparation will allow us to take full advantage of the independence it affords.

In our next post, we’ll talk more about how Northern Californians are no different than folks in other regions when it comes to experiencing unexpected emotional challenges that come with the prospect of full time independence afforded by retirement.

We are here to help.

Of course, when thinking about retirement, we cannot forget the financial aspect. As a fully-independent wealth management firm, Towerpoint Wealth is here to help you gain financial confidence and reach your retirement goals as you take on this important life transition. If you’re interested in learning more about how we can help you plan your retirement, please call (916-405-9140) or email us (info@towerpointwealth.com) for a complementary consultation.

Joseph F. Eschleman, CIMA®, President

Download “Are You (Emotionally) Prepared for a Dream Retirement? Part 1”

Disclosures: Towerpoint Wealth is a Registered Investment Advisor. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Towerpoint Wealth and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Towerpoint Wealth unless a client service agreement is in place. No portion of any content within this commentary is to be interpreted as a testimonial or endorsement of Towerpoint Wealth investment advisory services and it is not known whether any clients referenced herein approve of Towerpoint Wealth or its services; nor should it be assumed that any references to our clients are representative of all our clients’ experiences.

Most of us don’t give significant thought as to how our life and self-identity will really change once we retire. While we know how important financial planning for retirement is, many of us don’t realize that there are more retirement concerns than just numbers.

In our last post, we asked you to consider how you would answer a few basic but important questions before you retire, in order to better help your psychological adjustment to the change that’s coming: How do you want to live, where do you want to live, are you and your spouse on the same page about retirement, and what lifestyle will your health afford you?

Another factor that can affect our emotional preparedness for the independence of retirement is how tightly our self-identification is tied in with our job title. If you have been a math teacher, or an oncologist, or a mortgage broker for decades, how will you introduce yourself at a party after retirement? And what will you do all day?

Eric Eschleman, Joe’s dad, is the CFO of a large brick manufacturer, and has been working for the same company for over 38 years. Though he and his financial advisor have confirmed that, at age 65, he has reached all of the traditional economic markers for retirement, he anticipates it as joyously as he would anticipate, in his words, “jumping off a 50-foot cliff.”

Eschleman says he’s considered retirement once or twice, but adds, “I’m usually in the office by 6 a.m. – [After retirement] what am I going to do when I get up in the morning?” Taking the step off the plateau of familiarity can be difficult.

Self-identity in retirement may be different

Because we often intermingle our identity with our career, we can be dealt quite a shock in determining “who we are” once we retire.

To properly prepare for retirement, it’s important to recognize that it is a major life transition that may impact you on an emotional level.

Your self-image is important, and many people identify strongly with their career and the relationships they have kept with it. These identifications can rapidly fall away when you retire, which can be daunting and depressing. Conversely, and perhaps more importantly, this frees up room for new growth in your personal development.

According to retired counseling psychology professor Nancy Schlossberg, there are different ways to approach retirement and finding one’s new identity. These approaches include:

• • Being a continuer: Continuers take something they did as a career and adjust it as they continue on through retirement. For example, a journalist might become an author or start a blog. In these roles, we maintain some form of our work-related identity – just manifested in a different way.

• • Being a searcher:This is someone who investigates different activities, interests, and hobbies once they are retired, similar to how a high school graduate may explore different interests before settling on a college major. Searchers may seek out a variety of volunteer opportunities, take on new projects or hobbies.

• • Becoming an adventurer:People who fall into this category upon retirement typically seek out an entirely new adventure. For instance, an architect may become an artist, or a dentist may become a baker. This type of person considers retirement as a way to make an exciting change in life, and pursue interests they previously had no time to explore or cultivate.

• Becoming an easy glider or retreater: Two additional post-retirement identities include easy gliders, people who don’t have a set schedule and may do something different each day, or retreaters, those who stay at home until they decide what path they want to take next.

Towerpoint Wealth client and Rancho Murieta resident Bridget Gransee worked as a regional trainer and director of associate development when she retired at 65. She was a valued employee, professionally recognized, and comfortable in her role at a national department store. Now, post retirement, Bridget is an easy glider: She’s “letting the first year go by,” golfing two to three times a week, reconnecting with people, reading books, and seeing films. “I have no sense of a loss of identity,” she says.

Larry Britts led an 80-person team at the company where he was employed for 42 years and played tennis and pickleball in his free time. Since his retirement, time on the court has moved front and center, as have extended visits with his four-year-old granddaughter with whom he is “forming a close bond.” He and his wife took a trip to Europe this summer and “knocked an item off his bucket list” – seeing Wimbledon. They have already signed up for a “bike and barge” tour next year that will end in Paris. He enjoys that his “health allows him to get actively involved and take time to really get to know and learn about people [he meets].” In Schlossberg’s terms, Larry approaches retirement as a searcher.

Ann Martin turned 65 and took six months to fully retire from a sales career. A true adventurer, she had been preparing for her lifestyle change for several years — paring down her possessions, and purchasing a fifth-wheel trailer and truck to pull it. She started with a brief “vacation” at a riverside campground in Coloma, then began exploring opportunities with the State Parks, integrating her lifelong hobby (birdwatching) into a post-retirement avocation.

Eric would like to be, in Schlossberg’s terms, a continuer. He sees the optimal situation as having a post-retirement job that is “special-project driven.” One where he could “keep busy, but on a not-so-regular basis.” And when he’s not working on a project, he could spend more time traveling—to Europe, to the Caribbean, and of course, out to California to visit his family.

Purpose and self-identity pivots in retirement are healthy

Having an emotionally healthy retirement means acknowledging that you are literally turning the page to a big new chapter of your life, transitioning into a new lifestyle that includes new friends, experiences, and most likely, a new identity.

Don’t forget to be flexible, realistic, and patient with yourself when setting retirement goals and determining your new lifestyle. You will be hungry to figure it all out as quickly as possible, but will be happier if you realize you can’t control everything, and that sometimes you just need to relax and have faith that things will work out. Let go and let life happen. Or, as the poet Rumi said: “Try not to resist the changes that come your way. Instead let life live through you. And do not worry that your life is turning upside down. How do you know that the side you are used to is better than the one to come?”

When you look out into that next season of your life, what do you see?

We are here to help.

Of course, when thinking about retirement, we cannot forget the financial aspect. As a fully-independent wealth management firm, Towerpoint Wealth is here to help you gain financial confidence and reach your retirement goals as you take on this important life transition. If you’re interested in learning more about how we can help you plan your retirement, please call (916-405-9140) or email us (info@towerpointwealth.com) for a complementary consultation.

Joseph Eschleman

Download “Are You (Emotionally) Prepared for a Dream Retirement? Part 2”

Disclosures: Towerpoint Wealth is a Registered Investment Advisor. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Towerpoint Wealth and its representatives are properly licensed or exempt from licensure.

Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Towerpoint Wealth unless a client service agreement is in place. No portion of any content within this commentary is to be interpreted as a testimonial or endorsement of Towerpoint Wealth investment advisory services and it is not known whether any clients referenced herein approve of Towerpoint Wealth or its services; nor should it be assumed that any references to our clients are representative of all our clients’ experiences.

Our experienced and knowledgeable team at Towerpoint Wealth uses facts and logic rather than emotion to guide our clients through investment decisions. Too often, we see investors that do not work with a financial advisory or wealth management firm fall prey to mental biases that lead to poor investment decisions.

Indeed, these mental biases impact our everyday life without most of us even realizing it. Unfortunately, these biases can be particularly costly to an individual’s investment portfolio, and ultimately their financial success, if not managed and monitored properly. 

While it’s impossible to completely eliminate mental biases – we are human after all – we help our clients identify and minimize common investment biases to put them in the best position to succeed.

What are the most common biases in investing? 

Behavioral psychologists Daniel Kahneman and Amos Tversky first explained the biases that inhibit investors’ ability to make rational economic decisions. There are two main categories of investing biases: cognitive and emotional.

Cognitive investing biases involve information processing or memory errors, whereas emotional investing biases involve taking actions based on feelings rather than on facts. Let’s take a look at the five most common investment biases, along with remedies we use to minimize their impact on our clients. As you will see, these investment biases are certainly not exclusive. Several investment biases can, and often do, work together to compound poor financial decisions.

1. Confirmation Bias Confirmation bias is the natural tendency for individuals to be drawn to information that supports their existing views and opinions. This bias often leads investors to attach more emphasis to financial information that supports the outcome they desire. This can cause investors to experience a myriad of self-induced investing mistakes. For example, an investor may be prone to the hazardous strategy of stock picking by filtering through data and research to find those facts that make them sure the stock is a “winner.”

How We Help Minimize the Effects: We provide our clients with up-to-date information gathered from a variety of reputable sources. Our investors are fully informed of the pros and cons of their desired investments, giving a more balanced view that leads to better decisions.

2. Overconfidence Bias A common behavioral bias in investing is overconfidence, which causes investors to overestimate their judgement or the quality of their information. This can lead to “doubling down” on a losing investment instead of knowing when to cut losses, or under-reacting to important information about changing market conditions.

How We Help Minimize the Effects: We guide our clients by developing a customized and detailed investment plan based on sound financial fundamentals and not emotion. We do not pretend to be able to predict the direction of the market, and diversify our clients across many asset classes instead. Diversification maximizes the probability that our clients experience long-term investment success.

3. Recency Bias 

Investors who suffer from recency bias have a tendency to overvalue the most recent information over historical trends. For example, recency biases can threaten an investors’ financial well-being by spurring them into increased risk-taking after experiencing a favorable gain in their portfolio. It can also occur when the investor experiences an isolated loss and decides not to make any portfolio adjustments for fear of further loss. One recent example of recency bias is the large number of investors that completely exited the stock market during the Great Recession. Had an investor understood the historical trends of the stock market rather than focusing on the loss in value of their current investment portfolio, they would have stayed the course and ultimately experienced the significant investment gains of the bull market after the Great Recession.

How We Help Minimize the Effects: We help our clients focus on the long-term performance of their portfolios, by reviewing both historical and current performance.

4. Loss Aversion Bias Research has shown that humans feel the pain of a loss approximately twice as much as they feel the pleasure of a similarly sized gain. This can lead investors to focus on their investment declines more than gains and can lead to inaction that stagnates the growth of their portfolios.

How We Help Minimize the Effects: We help our clients accept that losing money is an inevitable part of investing. However, we do not ignore the importance of the loss aversion bias and because of this, we recommend that our clients invest in diversified portfolios that offer downside protection. We believe erring on the side of being more conservative rather than aggressive is important to mitigate this bias.

5. Anchoring Bias 

Anchoring bias is the tendency to “anchor” on the first piece of information received rather than evaluating the market as new information develops. For example, many investors buy an investment when its value rapidly drops. These investors anchor on the recent high price of the investment and predict the investment will recover to this price.

How We Help Minimize the Effects: We help our clients to assess investments based on current market value and utilize the first piece of information on an investment only within the broader picture of all data and research gathered.

We Are Here To Help 

Investing biases can lead people into making poor investment decisions that can significantly hamper their long-term financial success. That’s why we believe one of our main responsibilities at Towerpoint Wealth is to help our clients avoid the cognitive and emotional biases that can lead to faulty investment decisions.

If you’re interested in learning more about how we can help you manage cognitive biases, please call (916-405-9140) or email us (info@towerpointwealth.com) for a complementary consultation.

Disclosures: Towerpoint Wealth is a Registered Investment Advisor. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Towerpoint Wealth and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Towerpoint Wealth unless a client service agreement is in place. No portion of any content within this commentary is to be interpreted as a testimonial or endorsement of Towerpoint Wealth investment advisory services and it is not known whether any clients referenced herein approve of Towerpoint Wealth or its services; nor should it be assumed that any references to our clients are representative of all our clients’ experiences. 

Sources: 

Parker, Tim. (2018, May 3). Behavioral Bias: Cognitive Versus Emotional Bias in Investing [Blog post] Retrieved from https://www.investopedia.com/articles/investing/051613/behavioral-bias-cognitive-vs-emotional-bias-investing.asp

Farnam Street. (2018). Confirmation Bias And the Power of Disconfirming Evidence [Infographic].

McKenna, Greg. (2014, Nov. 20) Trading Insider: 5 Cognitive Biases That Can Hold Traders Back [Blog post] 

Lazaroff, Peter (2016, April 1) 5 Biases that Hurt Investor Returns [Blogpost] Retrieved from https://www.forbes.com/sites/peterlazaroff/2016/04/01/5-biases-that-hurt-investor-returns/

Towerpoint Wealth Phone: 1.916.405.9140 500 Capitol Mall, Suite 2350 Email: info@towerpointwealth.com Sacramento, CA 95814 Twitter: @twrpointwealth Page | 4

DesignHacks.co (2017, August). Cognitive Bias Codex [Infographic]. 

Dr. Pipslow (2018, May). What is “Recency Bias” and How Can You Avoid It? [Infographic]. Retrieved from https://www.babypips.com/trading/forex-recency-bias-20180518

(and steer clear of your mistakes)

As a wealth manager, it is very important I learn about and become intimate with clients’ short and long-term personal and financial goals as I share conversations and build relationships with them. I also often learn about their frustrations and regrets regarding past financial decisions. During these sometimes difficult conversations, I remind clients that with time comes both perspective and experience. None of us are perfect, and while they, as adults, may have regrets about past financial blunders, they can learn from and build upon them. And if they are parents of school-age children, they can use their knowledge and experience to help their children steer clear of the same mistakes and missteps. With April being Financial Literacy Month, there is no better time to learn about the importance of teaching children about financial matters and helping them form good economic habits for their future.

While many parents think their child will learn financial literacy while in high school, only 17 states in America currently require students to take a personal finance course. If children are not learning about money from their parents and/or guardian, many children are left in the dark, or even worse, could learn negative financial habits from their peers or the media.

In my first Towerpoint Wealth blog post, I described how my wife, Megan, and I are teaching our two kids about responsibility and finance. No one seems to be surprised I do this – after all, I have many years of learned and applied knowledge in money management and finances. However, I have noticed that many people are reluctant to speak with their children about financial matters because of past mistakes that they have made. One thing to be clear about: you do not need to be financially flawless in order to teach your kids helpful lessons for the future.

Broach the financial conversation with your children with the confidence of knowing you are teaching valuable life skills. Sometimes these conversations even help parents take better control of their own financial situation in order to be stronger role models for their children.

Not sure which financial lessons are most important to teach? Here are 4 to consider when you prepare to educate your son or daughter on how to build a solid financial future:

1. Earning Money. One of the first experiences your child will have when it comes to financial matters is earning money. Whether you are offering a small stipend or allowance for jobs around the home, or your child has a part-time job after school, earning money through physical or mental effort helps your child associate value to labor. If you want to see the job chart we use at my house for our two young children, you can find it here.

2. The Importance of Budgeting. The topic of budgeting can be brought up at a relatively early age. Whether your child earns an allowance or is paid from a job outside of the home, discuss how he or she can create a budget with the earnings. Budgeting helps children learn the value of money and gain a clearer picture of the time and effort involved in obtaining something of value or making a major purchase in the future.

Some parents require that a child’s own earned income be used for their discretionary spending – things like going out with friends, or buying a new toy or clothing item. Be sure to help your child create a system where a portion of his or her money will go into savings, an emergency fund, their car or phone payment, etc. And, if charitable giving is important to you, instill this value early, as my wife and I have done with our kids. Actively participating in charitable giving has many intrinsic rewards.

3. The Difference of Needs vs. Wants. Because we live in a want-driven society, this is a crucial discussion to have with your child. We “need” food, shelter, clothing and security to survive – whereas our “want” is something we desire but do not depend on to live. Teach your child that “needs” should be built into their budget, whereas a splurge or extra money fund is what should be paying for the “wants” in life.

Of course, this can segue into a much broader discussion of why your child wants something – possibly because his or her friends have it, because they think it will make them more likeable, etc. There are many helpful conversations that can come from this topic that can benefit your children for years to come.

4. Saving Money. It seems like such a simple topic, yet saving money is often not discussed with younger generations. As young men and women between the ages of 17 and 25 make plans to move away from the family home, many are unprepared for the shock and strangeness of being responsible for monthly bills and being tied to contractual obligations such as rent, phone, and monthly car payment contracts.

By having a firm grasp on saving money and budgeting, your child can bypass “bill shock,” in addition to feelings of anxiety and confusion when he or she moves out of the home.

Teach younger children about the topic of saving money through the use of a piggy bank or other physically tangible savings vehicle, and older children through opening checking and savings accounts and setting up various economic goals.

Take advantage of Financial Literacy Month this April and make a plan to start having regular discussions about money with your children. Teaching them while they’re young can help them build a strong and positive relationship with money, and instill in them the value of earning money, budgeting, saving, and setting up a secure future.

For more information on how to teach financial literacy to tweens, click here, and for teens, click here. Both links offer concepts and tasks that will help them develop the financial skills they need as they prepare for adulthood. If you would like personalized financial guidance as you educate your kids about money, please call (916-405-9150) or email me (jeschleman@towerpointwealth.com) directly for a complimentary consultation.

Download pdf

Americans are living longer. That’s the good news. The bad news is that most people aren’t financially prepared. Many Baby Boomers will be in retirement for over 20 years and unfortunately, many aren’t saving and investing with a longer life-expectancy in mind.

There are serious consequences to financial planning around the wrong life expectancy. Some retirees are working later in life; others live in fear of running out of money, while others are leaving less of a legacy than they hoped. No one wants to run out of money in retirement.

How Long Should You Expect to Live?

The Social Security Administration notes that at 65-years old, the average man can expect to live to roughly 84.3 years of age, whereas the average 65-year old woman can expect to live until age 86.6. This means that on average, Americans can expect to spend about 20 years in retirement.

However, there is a strong chance that you should plan to be in retirement much longer than 20 years. One out of every four 65-year olds will live past the age of 90, and one out of every 10 will live past the age of 95. Are you prepared for three decades of retirement? Most people aren’t.

With these figures in mind, here are 4 steps that can be taken to ensure your financial longevity:

Step 1) Develop a Clear Vision of Your Retirement Lifestyle

To create a well-conceived plan and have the will to faithfully execute it, you need a clear vision of your lifestyle in retirement. Start by defining your goals and asking yourself:

• Where will I live?
• Where will I travel?
• What will I drive?
• How will my hobbies change?
• Where will I donate my time and money?

It’s important to factor realistic spending assumptions into the cost of your retirement, based on your goals and desired lifestyle. Your plan should also include contingencies for health care costs and unexpected expenses.

Step 2) Address Your Concerns

As we live longer, the trend continues to be to work longer, but oftentimes in a more meaningful and less economically-driven fashion. The act of retiring today is rarely black-and-white, and concurrently, the financial and retirement planning surrounding this life transition is by no means static. As the experience of a major life event takes place, our experience in helping clients in properly coordinating all of their financial affairs has exposed a few common concerns:

• How do I properly draw income from my various investment accounts once I am no longer saving money?
• What are the tax consequences of my various retirement income sources?
• How do I ensure that the retirement income I am taking is sustainable over the next 20, 30, 40+ years?
• What do I need to do to be confident I will not run out of money before I die?

Step 3) Adjust Your Investment Strategies

Start to plan for a longer retirement by adjusting your investment strategies — like saving more, being slightly more (or less) aggressive with your investment strategy, etc. We ensure our clients have these bases covered, so consider calling us if you’d like someone to review your investment strategies.

Step 4) Consider Your Health Insurance Options

Health insurance is the most expensive and bothersome insurance the average individual carries. Unfortunately, many people approach retirement and believe that the burden of health insurance will be lifted. In reality, even when covered by Medicare and other supplemental insurance plans, there are still substantial costs left for the individual to pay.

In addition to premiums, deductibles, and co-pays, prescription drug costs are likely to rise. In the last decade, the average annual cost of one brand-new drug used to treat chronic health conditions cost a senior $5,800 (2015), compared to $1,800 less than a decade earlier (AARP). Planning for a longer retirement requires keeping a keen eye on the rising cost of healthcare in the US.

Understanding the stresses that come with ensuring your financial longevity, we’re here to help you sort out the complications of an ever-changing financial plan. Contact us to review your retirement, legacy, and estate plans. Together, we’ll create a clear strategy that points you toward a comfortable retirement, whether it lasts one decade or three.

We Are Here To Help

Living a longer life often creates financial complexities. We encourage you to call (916-405-9140) or email (info@towerpointwealth.com) us with any concerns, questions, or needs you have – we are here for you, and look forward to connecting with, helping, and being a direct, fully independent, and no-strings-attached expert financial resource for each of you.

Disclosures: Towerpoint Wealth is a Registered Investment Advisor. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Towerpoint Wealth and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Towerpoint Wealth unless a client service agreement is in place. No portion of any content within this commentary is to be interpreted as a testimonial or endorsement of Towerpoint Wealth investment advisory services and it is not known whether any clients referenced herein approve of Towerpoint Wealth or its services; nor should it be assumed that any references to our clients are representative of all our clients’ experiences.

You’ll Thank Yourself a Year from Now: Financial Resolutions

With New Year’s right around the corner, it is the perfect time to make resolutions before the calendar flips to January 1. The 7th Annual New Year’s Resolution Survey found that many resolutions made last year were focused on faith, family, and personal wellness. Unfortunately, financial stability trailed far behind, with only 29% reporting financial considerations in their New Year’s resolutions. We are hoping to change that this year by providing the top four financial resolutions to make for 2018:

Financial Resolution #1 – Diversify Your Income Streams

Does the bulk of your annual income come from one source? Is there one slice of the pie that dominates your other income sources? It is almost always a good idea to diversify your income streams as much as possible so you are not overly dependent on one particular stream for greater than half of your income.

Create a tangible game a plan to grow other income streams so that you increase your overall income and decrease your reliance on any one particular source. This resolution is all about establishing financial security so you are prepared, and not surprised, if something happens to your primary income stream.

Financial Resolution #2 – Get Organized and Stay Organized

Organizing your finances may be a task that easily gets put on the back-burner, especially when juggling multiple priorities. There are plenty of online tools that make it easier than ever to get organized and stay organized. Here are a few of our favorites:

Mint: Mint shows you your balances, lets you pay your bills, track your investments, and more—all in one place.
Shoebox: Shoebox helps you digitize and organize all of your receipts; plus it archives everything and is completely searchable.
Buxfer: If you share costs with family members or significant other, Buxfer allows you to neatly split expenses, create budgets and bill reminders.

Another helpful tip for staying organized is to divide your financial documents between short-term and long-term. Short-term documents could include files from the past year, such as bills, statements, tax receipts, health records, etc. Long-term files could include income tax records, inheritance papers, legal documents, reports from trusts, birth certificates, Social Security cards, physical stocks and bonds, mutual funds statements, etc. Use the filing system that you think works best for you and stick to it!

Financial Resolution #3 – Stop Neglecting Your Insurance Policies

Although most people do not do this, it is a very good practice to review your insurance policies annually. What better time to make this happen than with the change of the New Year? Review your auto insurance, homeowners’ insurance, life insurance, business, and even umbrella policies. The umbrella policy is particularly important to focus on because, as your net worth increases, your exposure to a lawsuit increases as well. Check for lapses in any of your coverage and make sure you are not overpaying for a coverage that might be more affordable somewhere else.

Beyond insurance policies, take a look at your wills or estate plans. Your beneficiaries or assets may have changed, so update these plans to ensure your will or estate plan remains accurate and reflective of your true intent.

Financial Resolution #4 – Perform a Thorough Retirement Check-Up

Finally, meet with your financial advisor to review your retirement plan (assuming you already have one). With a complete understanding of where you stand with your retirement savings, it is possible you will find places to improve and/or gaps to close. Review how much you have saved, how much you are adding each year, and whether you will end up with enough in your “retirement nest egg” if you continue your present course. US News recommends tweaking your retirement savings by boosting it in the New Year if possible.

Your financial stability impacts both your physical well-being and the well-being of your family. As you set your resolutions for the New Year, keep in mind these four important financial resolutions and check-points.

Curious if you would benefit from a comprehensive and personalized year-end financial audit? We are here for you, and welcome sitting down with you to discuss your circumstances further. To schedule a complimentary and confidential initial discovery meeting, call (916-405-9140) or email (info@towerpointwealth.com) us today.

The art of negotiation and teaching kids financial responsibility.

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