A look at how variable rates of return do (and do not) impact investors over time. 

What exactly is the “sequence of returns”? The phrase simply describes the yearly variation in an investment portfolio’s rate of return. Across 20 or 30 years of saving and investing for the future, what kind of impact do these deviations from the average return have on a portfolio’s final value?

The answer: no impact at all.

Once an investor retires, however, these ups and downs can have a major effect on portfolio value – and retirement income.

During the accumulation phase, the sequence of returns is ultimately inconsequential. Yearly returns may vary greatly or minimally; in the end, the variance from the mean hardly matters. (Think of “the end” as the moment the investor retires: the time when the emphasis on accumulating assets gives way to the need to withdraw assets.)

An analysis from BlackRock bears this out. The asset manager compares three model investing scenarios: three investors start portfolios with lump sums of $1 million, and each of the three portfolios averages a 7% annual return across 25 years. In two of these scenarios, annual returns vary from -7% to +22%. In the third scenario, the return is simply 7% every year. In all three scenarios, each investor accumulates $5,434,372 after 25 years – because the average annual return is 7% in each case.1

Here is another way to look at it. The average annual return of your portfolio is dynamic; it changes, year-to-year. You have no idea what the average annual return of your portfolio will be when “it is all said and done,” just like a baseball player has no idea what his lifetime batting average will be four seasons into a 13-year playing career. As you save and invest, the sequence of annual portfolio returns influences your average yearly return, but the deviations from the mean will not impact the portfolio’s final value. It will be what it will be.1

When you shift from asset accumulation to asset distribution, the story changes. You must try to protect your invested assets against sequence of returns risk.

This is the risk of your retirement coinciding with a bear market (or something close). Even if your portfolio performs well across the duration of your retirement, a bad year or two at the beginning could heighten concerns about outliving your money.

For a classic illustration of the damage done by sequence of returns risk, consider the awful 2007-2009 bear market. Picture a couple at the start of 2008 with a $1 million portfolio, held 60% in equities and 40% in fixed-income investments. They arrange to retire at the end of the year. This will prove a costly decision.

The bond market (in shorthand, the S&P U.S. Aggregate Bond Index) gains 5.7% in 2008, but the stock market (in shorthand, the S&P 500) dives 37.0%. As a result, their $1 million portfolio declines to $800,800 in just one year. Its composition also changes: by December 31, 2008, it is 53% fixed income, 47% equities.2

Now comes the real pinch. The couple wants to go by the “4% rule” (that is, the old maxim of withdrawing 4% of portfolio assets during the first year of retirement). Abiding by that rule, they can only withdraw $32,032 for 2009, as compared to the $40,000 they might have withdrawn a year earlier. This is 20% less income than they expected – a serious blow.2

Two other BlackRock model scenarios shed further light on sequence of returns risk, involving two hypothetical investors. Each investor retires with $1 million in portfolio assets at age 65, each makes annual withdrawals of $60,000, and each portfolio averages a 7% annual return over the next 25 years. In the first scenario, the annual portfolio returns for the first eight years of retirement are +22%, +15%, +12%, -4%, -7%, +22%, +15%, +12%. In the second, the returns from year 66-73 are -7%, -4%, +12%, +15%, +22%, -7%, -4%, +12%. (For simplicity’s sake, both investors see this 5-year cycle repeat through age 90: three big advances of either +12%, +15%, or +22%, then two yearly losses of either -4% or -7%.)1

At the end of 25 years, the investor in the first scenario – the one characterized by big gains out of the gate – has $1,099,831 at age 90, even with yearly $60,000 drawdowns gradually adjusted 3% for inflation. In that scenario, the portfolio losses are fortunately postponed – they come three years into retirement, and six of the first eight years of retirement see solid gains. In the second scenario, the investor sees four bad years out of eight from age 66-73 and starts out with single-digit portfolio losses at age 66 and 67. After 25 years, this investor has … nothing. At age 88, he or she runs out of money – or at least all the assets in this portfolio. That early poor performance appears to take a significant toll.1

Can you strategize to try and avoid the fate of the second investor? If you sense a market downturn coming on the eve of your retirement, you might be wise to shift portfolio assets away from equities and into income-generating investments with little or no correlation to the weather on Wall Street. If executed well, such a shift might even provide you with greater retirement income than you anticipate.2

If you are about to retire, do not dismiss this risk. If you are far from retirement, keep saving and investing knowing that the sequence of returns will have its greatest implications as you make your retirement transition.

Examples are hypothetical and are not representative of any specific situations. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – blackrock.com/pt/literature/investor-education/sequence-of-returns-one-pager-va-us.pdf [6/18]
2 – kiplinger.com/article/retirement/T047-C032-S014-is-your-retirement-income-in-peril-of-this-risk.html [7/3/18]

If something sounds too good to be true, it probably is.

If you are in or near retirement, it is a safe bet that you would like more yield from your investments rather than less. That truth sometimes leads liars, scammers, and fraudsters to pitch any number of too-good-to-be-true “investment opportunities” to retirees. Given all that and the classic money scams perpetrated on elders, you have good reason to be financially skeptical as you get older.

Beware of unbelievable returns. Sometimes you hear radio commercials or see online ads that refer to “an investment” or “an investment opportunity” that is supposedly can’t miss. Its return beats the ones achieved by the best Wall Street money managers, only the richest Americans who know the “secrets” of wealth know about it, and so forth.

Claims like these are red flags, the stuff of late-night infomercials. Still, there are retirees who take the bait. Sometimes the return doesn’t match expectations (big surprise); sometimes their money vanishes in a Ponzi scheme or pyramid scheme of sorts. Any monthly or quarterly statements – if they are sent to the investor at all – should be taken with many grains of salt. If they seem to be manually prepared rather than sent from a custodian firm, that’s a hint of danger right there.

Beware of equity investments with “guaranteed” returns. On Wall Street, nothing is guaranteed.

Beware of unlicensed financial “professionals.” Yes, there are people operating as securities professionals and tax professionals without a valid license. If you or your friends or relatives have doubts about whether an individual is licensed or in good standing, you can go to finra.org, the website of the Financial Industry Regulatory Authority (formerly the National Association of Securities Dealers) and use their BrokerCheck feature.1

Beware of the “pump and dump.” This is the one where someone sends you an email – maybe it goes straight to your spam folder, maybe not – telling you about this hot new microcap company about to burst. The shares are a penny each right now, but they will be worth a thousand times more in the next 30 days. The offer may be entirely fraudulent; it may even promise a guaranteed return. Chances are, you will simply say goodbye to whatever money you “invest” if you pursue it. Brokers pushing these stocks may not even be licensed.2

Watch out for elder scams. In addition to phony financial services professionals and exaggerated investment opportunities, we have fraudsters specifically trying to trick septuagenarians, octogenarians, and even folks aged 90 and above. They succeed too often. To varying degrees, all these ploys aim to exploit declining faculties or dementia. That makes them even uglier.

You still see stories about elders succumbing to the “grandparent scam,” a modern-day riff on the old “Spanish prisoner” tale. Someone claiming to be a grandson or granddaughter calls and says that they are in desperate financial straits – stranded without a car or return ticket in some remote or hazardous location, in jail, in an emergency room without health insurance, could you wire or transfer me some money, etc.  A disguised voice and a touch of personal information gleaned from everyday Internet searches still make this one work.3

Would you believe some crooks prey on the grieving? Elders can be targeted by funeral scams, in which a criminal reads new obituaries, and then calls up widowers claiming that the deceased spouse or partner had an outstanding debt with them. Occasionally, the crook even attends the funeral and presents the bogus claim to the bereaved in person. Identity thieves may present themselves as official representatives of Medicare – they are calling from Washington D.C. or the local Medicare office, they have detected an error, and they need a senior’s personal information to make things right. In reality, they aim to do wrong.4

Everyone wants to look younger, and unsurprisingly, new scams have surfaced pitching bogus anti-aging products. One Arizona-based scam pushing fake Botox brought in $1.5 million in just over a year before its masterminds were arrested. Expect to see more of this, with the cosmetics or medicines offered either amounting to snake oil or resulting in physical harm.4

A little healthy skepticism can’t hurt. If you are recently retired or approaching retirement age, be aware of these scams and schemes – and inform your elderly parents about them, too.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – finra.org/investors/about-brokercheck [7/9/18]
2 – money.usnews.com/investing/stock-market-news/articles/2018-03-08/penny-stocks-5-ways-to-spot-a-pump-and-dump-scam [3/8/18]
3 – tickertape.tdameritrade.com/retirement/elderly-financial-scams-16236 [12/25/17]
4 – ncoa.org/economic-security/money-management/scams-security/top-10-scams-targeting-seniors/ [7/9/18]

Wise moves to make before things are finalized.

Before your divorce goes through, it will be wise to check up on financial matters. It will be better to assess the state of your financial life before the split rather than after.

Find out where you stand financially. Beyond your salary and your bank accounts, how much do you have in the way of retirement savings? What will your monthly income be? What investments do you hold? Will you retain ownership of any real estate, and assume the mortgage payments yourself? Will you be selling any assets or ownership interests?

You should document everything about your personal finances. Everything you can think of. Whether you scan it or copy it, you should have as complete a picture of your financial life as possible.

The picture of your financial life should also detail your credit & insurance. Do you know your credit score? Today, a good credit score is considered anything north of 690. If you have a score in the mid-600s, you have fair credit. Below 630, you have poor credit.1

Track your credit before & after your divorce. There are three major credit reporting agencies that assign you credit ratings: Equifax, TransUnion, and Experian. Through Credit.com, you can see two of these three credit scores for free, updated each month. You may also request a copy of your credit report every 12 months from the three reporting agencies; you are entitled to it, by law. Ask all three for such a report, if you haven’t already. If your ex-spouse attempts to add some unauthorized debt in your name, this is one way to know about it.1

Do you have your own health insurance? If so, how much do you pay for it per month? If not, you may have a challenge to secure it – hopefully, your health or employment situation allows you to get coverage without many obstacles. Apart from health coverage, other types of insurance have no doubt protected other people and important items in your household. Who owns these policies? The beneficiary designations on the policies will undoubtedly need to change.

What should you do about taxes? If you are divorcing after April, should you and your spouse file one more joint return? This calls for a chat with your tax professional. Filing jointly could of course save you money compared to filing singly, but it also means you are jointly responsible for everything on that 1040 form.

If you remain legally married and living with each other when a calendar year ends, the two of you must file your federal tax return for that year as a married couple – your filing status will either be married filing jointly or married filing separately. If you think you will receive a refund, you and your former spouse will have to communicate to see how it will be divided – the IRS does not allocate refunds to divorced spouses by any kind of formula.2

If you will have primary custody of your children, the IRS expects that you will claim the exemption for dependent children on your 1040 form. If you have multiple children, it is allowable for you and your former spouse to divide the per-child exemptions as you see fit. If you paid some or all of the medical expenses for one of your children, you can deduct those expenses even if your ex-spouse has primary custody of that child.2

Most importantly, assess what your financial potential will be after the divorce. An “equal” settlement is not always an equitable one, as one spouse may be left with much greater potential to build and retain wealth than the other. That is the most important long-term issue to address, and it should be addressed well before a divorce is finalized.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – ajc.com/feed/business/personal-finance/the-important-financial-lesson-you-wont-learn-in/fCRRNr/ [8/21/16]
2 – irs.com/articles/filing-your-taxes-after-divorce [9/15/16]

65 percent of older adults rely on family and friends for long-term care needs”

As parents reach their golden years, many need their adult children’s help for daily living or for simple tasks like rides to doctor’s appointments and going to the grocery store or more intense care such as dressing, bathing and administering medication.

According to the Family Caregiver Alliance, 65 percent of older adults rely on family and friends for long-term care needs with 30 percent supplementing family care with paid providers. These informal providers give nearly $500 billion in valued services. A majority of the time — an estimated 66 percent — the caretaking tasks fall to women who give at least 20 hours of unpaid care on average while also balancing their own families and working outside the home.

When folks are giving so much of themselves to others, caregivers often suffer burnout from physical, mental and emotional exhaustion, including anxiety, stress and depression. “You have to make sure that you are not overextending yourself,” said Tammy Bresnahan, AARP’s associate state director for advocacy. “… That is why we recommend that you find breathing exercises and/or yoga or try to carve out a little bit of time for yourself so you are not all consumed.”

She suggests siblings may want to split up duties if possible, such as one takes the parent to doctor’s appointments while the other does home visits.

Elizabeth Weglein, CEO of the Elizabeth Cooney Care Network, believes it is important for caregivers to take time for themselves.

“If you are able to take care of yourself, you can take better care of someone else,” she said. “Most caregivers put themselves at the bottom row and take care of themselves last. Their health deteriorates fairly quickly. So really the mantra should be always take care of yourself.”

The advice is similar to the scenario you hear before an airplane flight from attendants who instruct caregivers, in the case of an emergency, to put on their oxygen masks first before helping their loved ones.

“Caregivers don’t always realize it when they are in the midst of it,” Weglein said. “They need to be taking care of themselves, getting time off. Even just going to the grocery store alone or going to get their hair done or seeing a friend and having lunch. Just having some downtime to talk. The value of that break is so high.”

One of the biggest needs for caregivers is respite care. Some caregivers need to attend out-of-town funerals or important events. Others need to have surgery or be in a medical facility for a short time.

Maryland is one of 16 states that utilizes a federal grant to provide emergency respite care services within 72 hours, allotting families $225 a year for services. Beginning in fall 2017, the Elizabeth Cooney Care Network serves as administrator.

“The individuals who have utilized (the grant) were very thankful,” Weglein said. “They really did not have any resources to turn if it had not been for the grant. …The good part is it doesn’t have a lot of strings. There is no economic requirement. They just have to have a need. It is supporting respite care which means it is helping the primary caregiver.”

Weglein believes the grant is unique because it can be triggered so quickly and families may call themselves.

“In Maryland, there are a lot of gatekeepers where you have to call this entity, get prequalified and then call,” Weglein said. “This particular grant was really designed to be very free and accessible that a family caregiver could just call Elizabeth Cooney 24 hours a day, trigger the grant and then services would be rendered within a 72-hour period for the total of $225. We’ve been very creative with that $225 to create support systems that really maximize the need for that individual.”

The Maryland Healthy Families Working Act, which took effect in February, also helps caregivers. The bill, vetoed by Gov. Larry Hogan but overridden by the Maryland General Assembly, requires employers with 15 or more employees to provide paid sick/safe leave for up to five days. Before the act, some fields, such as retail and food service, had no paid sick/safe leave.

“There is some fear from some businesses that it is going to hurt the business,” Weglein said. “… My perspective on how we treat our employees and also how we treat our clients (is) you support your team. The stronger and happier and healthier your team is, the stronger your company is.”

Weglein notes the better we understand taking care of our own families, especially with the aging population, the better we will be as a society in the state.

“Overall, financially, if we keep and take care of our citizens, it is really a matter of keeping our economic base strong so people don’t move to Delaware,” Weglein said. “They don’t move to Florida or North Carolina. They don’t look and seek other pathways to get care.”

This Article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual.

Steps to get your credit rating back toward 720.     

We all know the value of a good credit score. We all try to maintain one. Sometimes, though, life throws us a financial curve and that score declines. What steps can we take to repair it?

Reduce your credit utilization ratio (CUR). CUR is credit industry jargon, an arcane way of referring to how much of a credit card’s debt limit a borrower has used up. Simply stated, if you have a credit card with a limit of $1,500 and you have $1,300 borrowed on it right now, the CUR for that card is 13:2, you have used up 87% of the available credit. Carrying lower balances on your credit cards tilts the CUR in your favor and promotes a better credit score.1

Review your credit reports for errors. You probably know that you are entitled to receive one free credit report per year from each of the three major U.S. credit reporting agencies – Equifax, Experian, and TransUnion. You might as well request a report from all three at once. You can do this at annualcreditreport.com (the only official website for requesting these reports). About 25% of credit reports contain mistakes. Upon review, some borrowers spot credit card fraud committed against them; some notice botched account details or identity errors. Mistakes are best noted via a letter sent certified mail with a request for a return receipt (send the agency the report, the evidence, and a letter briefly explaining the error).2

Behavior makes a difference. Credit card issuers, lenders, and credit agencies believe that payment history paints a reliable picture of future borrower behavior. Whether or not you pay off your balance in full, whether or not you routinely max out your account each month, the age of your account – these are also factors affecting that portrait. If you unfailingly pay your bills on time for a year, that is a plus for your credit score. Inconsistent payments and rejected purchases count as negatives.3

Think about getting another credit card or two. Your CUR is calculated across all your credit card accounts, in respect to your total monthly borrowing limit. So, if you have a $1,200 balance on a card with a $1,500 monthly limit and you open two more credit card accounts with $1,500 monthly limits, you will markedly lower your CUR in the process. There are potential downsides to this move – your credit card accounts will have lower average longevity, and the issuer of the new card will of course look at your credit history.1

Think twice about closing out credit cards you rarely use. When you realize that your CUR takes all the credit cards you have into account, you see why this may end up being a bad move. If you have $5,500 in consumer debt among five credit cards that all have the same debt limit, and you close out three of them accounting for $1,300 of that revolving debt, you now have $4,200 among three credit cards. In terms of CUR, you are now using a third of your available credit card balance whereas you once used a fifth.1

Beyond that, 15% of your credit score is based on the length of your credit history – how long your accounts have been open, and the pattern of use and payments per account. This represents another downside to closing out older, little used credit cards.4

If your credit history is spotty or short, you should know about the FICO XD score. A few years ago, the Fair Isaac Co. (FICO) introduced new scoring criteria for borrowers that may be creditworthy, but lack sufficient credit history to build a traditional credit score. The FICO XD score tracks cell phone payments, cable TV payments, property records, and other types of data to set a credit score, and if your XD score is 620 or better, you may be able to qualify for credit cards. Credit bureau TransUnion created CreditVision Link, a similar scoring model, in 2015.5

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – investopedia.com/terms/c/credit-utilization-rate.asp [6/28/18]
2 – creditcards.usnews.com/articles/everything-you-need-to-know-about-finding-and-fixing-credit-report-errors [9/15/17]
3 – creditcards.com/credit-card-news/behavior-scores-impact-credit.php [11/9/17]
4 – creditcards.com/credit-card-news/help/5-parts-components-fico-credit-score-6000.php [11/9/17]
5 – nytimes.com/2017/02/24/your-money/26money-adviser-credit-scores.html [2/24/17]

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A fair argument can be made that investor behavior is among be the most important factors in the success of an investment strategy. Please enjoy the following article written by wsj.com

Congrats, Investors! You’re Behaving Less Badly than Usual

Investors tend to buy high and sell low. But new evidence suggests that may be changing… for now

By Jason Zweig

On the eternal treadmill of the financial markets, investors can’t even keep up with their own investments.

In what’s often called the behavior gap, investors underperform the investments they own, partly because they tend to buy high and sell low instead of vice versa.

New evidence suggests investors may be behaving better — but they aren’t turning into financial angels.

A study published this month by Morningstar, the investment-research firm, finds that the average mutual fund gained 5.79% annually over the 10 years ending March 31; the average investor, 5.53%. That gap of 0.26 percentage points is much narrower than in the past; over the 10 years through the end of 2013, investors lagged their investments by a horrific 2.5 percentage points annually.

What’s behind this puzzle?

Let’s imagine a fund that starts with $100 million in assets and earns a 100% return from Jan. 1 through Dec. 31. Assuming that no one added or subtracted any money along the way, $100 million at the start of the year turns into $200 million at the end.

Attracted by that spectacular 100% return, investors pour $1 billion into the fund overnight. It thus begins the New Year with $1.2 billion. This year, however, its investments fall in market value by 50%.

After gaining 100% in year one and losing 50% in year two, an investor who had bought at the beginning and held until the end without any purchases or sales would have exactly broken even. (Losing half your money after doubling it puts you back where you started.)

Such rigid buy-and-hold behavior doesn’t describe what the fund’s investors did, however. Only a fraction of them were present at the beginning to double their money, while all were around in year two to lose half their money. As a group, they gained $100 million in year one — but lost $600 million in year two.

Adjusted for the timing and amount of inflows, the typical investor lost an average of about 43% annually — in a fund that officially reported a 0% return over the same period. The investment broke even; its investors took a beating because of their own behavior.

In real life, the gap between investors and their investments is rarely that extreme. On average, trying to do better makes you do worse: It feels great to buy more when an investment has been going up, and it hurts to buy more when an asset has gone down. So you tend to raise your exposure to assets that have gotten more expensive (with lower future potential returns) and to cut it — or at least not to buy more — when they are cheaper (with higher future returns).

When you chase outperformance, you catch underperformance.

Why, then, does the new Morningstar report find that investors’ behavior seems to be improving?

The stock market itself, which has risen for most of the past decade with remarkable smoothness, deserves much of the credit.

“Extreme volatility triggers emotional responses that lead you to screw up,” says Russel Kinnel, author of the Morningstar report. With so few stabs of panic in recent years, staying invested has felt unusually easy.

Fran Kinniry, an investment strategist at Vanguard Group, says investors have increasingly favored index funds, which hold big baskets of stocks or bonds, as well as so-called target-date funds that bundle several types of assets into one portfolio. Both approaches blunt the jagged fluctuations investors would suffer in less-diversified funds that focus on narrower market segments.

More financial advisers are seeking to keep their clients’ portfolios aligned with target allocations to stocks, bonds and other assets, says Mr. Kinniry. That means they automatically sell some of whatever has recently risen in price, using the proceeds to buy some of whatever has dropped. That’s a mechanical counterweight to the natural human tendency to buy high and sell low.

When Mr. Kinnel is asked whether these changes mean that investors and their advisers won’t bail out at the bottom during the next crash, he sighs.

“No,” he says after a long pause. “Advisers and individual investors still have an inclination to chase performance, to fight the last war, to panic a bit. People are still people. They’re still going to be inclined to make the same mistakes.”

And so they are. Spooked by recent poor performance, investors are pulling out of international and emerging-market stock funds, even though those markets are significantly cheaper than the U.S. Through June 26, investors have yanked $12.4 billion out of global equity funds, according to Trim Tabs Investment Research, putting June on track for the biggest monthly outflow since October 2008.

The more investors change, the more they stay the same.

Write to Jason Zweig at intelligentinvestor@wsj.com, and follow him on Twitter at @jasonzweigwsj.

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual. It contains references to individuals or entitles that are not affiliated with Cornerstone Wealth Management, Inc. or LPL Financial.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Investing in mutual funds involves risk, including possible loss of principal.

Asset allocation and diversification do not ensure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.

An investment in a target date fund is not guaranteed at any time, including on or after the target date, the approximate date when an investor in the fund would retire and leave the workforce. Target date funds gradually shift their emphasis from more aggressive investments to more conservative one based on the target date.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

The Rise of the Older, Single Female Home Buyer

Unmarried women over 55 is one of the largest, and fastest-growing, demographics of home buyers. With longer lifespans and careers, many look for homes with ‘no bad memories’

Ms. Hoffman said her new home is giving her a chance to ‘start from scratch.’ Photo by THE WALL STREET JOURNAL

By Katy McLaughlin

Leah Hoffman was looking for a house to start the next phase of her life. She doesn’t need a lot of space, and being single, she only needs to please herself. She says she found exactly what she was looking for in a $1.7 million home in Paradise Valley, Ariz., which she moved into in January.

The life phase Ms. Hoffman is starting? She is 60 and divorced, with grown children. She sold a wealth-management firm she founded in 2007 and is now ready for something new. “I’m totally starting from scratch,” she says. “I like change.”

Since 1981, single women over 55 have been the fastest-growing demographic of home buyers when compared with a multitude of other categories, according to an analysis of U.S. Census Bureau data by Ralph McLaughlin, founder and chief economist at Veritas Urbis Economics in Alameda, Calif. Married couples are by far the largest group of home buyers, and single women the next largest group. But last year, single, older women made up 8.2% of all home buyers, roughly double the percentage of 20 years ago, Mr. McLaughlin says. These women also buy homes at nearly twice the rate as their male counterparts.

Three Single Women, Three New Homes

There have long been many more older single women than men, reflecting the fact that men remarry at a higher rate after a divorce, as well as the fact that men generally die at younger ages. But the dramatic increase in home purchasing by older women speaks to something else. Many women in this place in life want to own a home of their own, says Jessica Lautz, director of demographics and behavioral insight for the National Association of Realtors. Ms. Lautz also notes that longer average lifespans—and people working until later in life—are giving older buyers the confidence to take on a 15- or 30-year mortgage.

Ms. Hoffman, echoing the sentiments of others, views her purchase as more than a financial transaction. “There are no bad memories in this house, and I’m going to try hard not to create any,” she says.

In the late 1990s, Ms. Hoffman and her then-husband built a family home in Paradise Valley. Raising two sons, the couple designed a 6,000-square-foot house with a wing of bedrooms and a play area for the boys. Because she spent about 60-hours-a-week running her own company, a location near school, a grocery store and a dry cleaner was paramount. After divorcing in 2005, Ms. Hoffman moved into a 5,000-square-foot Paradise Valley house so her children could remain in the same school district. That house is now on the market for $1.475 million.

She then decided to downsize to a house that was easier to take care of. Finding her new place wasn’t easy, says her agent Joan Levinson of an eponymous brokerage in the area, as most Paradise Valley homes are larger. Eventually, Ms. Hoffman found a 3,200-square-foot, two bedroom with a separate, one-bedroom casita. Near restaurants and shopping, it has a landscaped garden and views of Camelback and Mummy mountains. Ms. Hoffman says she left behind all her old furniture and commissioned custom pieces, aiming to “start from scratch.”

Mary Jo Valentine Blythe and her then-husband raised three children in a 7,000-square-foot home in the upscale Chicago suburb of Hinsdale, Ill. They divorced in 2005, and seven years later Ms. Blythe bought an 8,000-square-foot home in Vail, Colo. that she and her now-grown sons, avid skiers, consider their “family home,” she says. She waited until her youngest son graduated from high school to put the Hinsdale home on the market, she says, selling it in 2016. That same year she also sold the corporate event company she built over 25 years.

Next, Ms. Blythe moved to an $8,000-a-month, two-bedroom rental in Trump International Hotel & Tower in downtown Chicago. The rental introduced her to a “completely different life,” she says, putting her close to restaurants, upscale shopping and bike rides alongside Lake Michigan. Her only qualm was the monthly outlay for a home she didn’t own, she says.

So in June, Ms. Blythe, now 56, put down a deposit on a $3.2 million, four-bedroom condominium in Renelle on the River, an 18-story building currently under construction near the Trump Tower. Her new apartment keeps her in the heart of the city, “where I can walk everywhere,” she says.

A year ago, Ms. Blythe met a man with whom she is in a relationship, she says. As it happens, he lives back in Hinsdale, the suburb she left, where he is raising two teenagers. Ms. Blythe says she has no plans to return to the suburbs. “I’m done with that chapter,” she says. “I want to be part of something that’s more energized.”

“Multigenerational homes,” or places where aging parents, adult children not ready to leave the nest, and children under the age of 18 can co-habitate are in high demand among “buyers in their early 50s,” says Ms. Lautz of the NAR. That is roughly what Laura Ackerman was looking for. After ending a 33-year marriage, she was planning to move out of her Bay Area home of 20 years.
“Over the holidays, my kids sat me down and told me they wanted me to move to the East Coast,” says Ms. Ackerman, 57. At first, she laughed it off, but later started to dwell on it. Two of her children live on the East Coast and a third lives in Spain, she says.

Influencing her decision was the fact that eight years ago, her youngest son fell out of a tree and nearly died of a traumatic brain injury, Ms. Ackerman says. He recovered and is a healthy young man finishing college, she says. But the experience taught her to “never take another day for granted,” she says.

In April, Ms. Ackerman closed on a $1.75 million Colonial on 5 acres in Mendham, N.J., where she had gone to high school. The 7,000-square-foot house has six bedroom and seven bathrooms—ideal for when her three children and her mother come to visit. Someday, when there are spouses and grandchildren, everyone will be able to gather, she says.
Still in the process of unpacking, Ms. Ackerman says she is looking forward to joining a church and book club, strengthening relationships with old friends and taking advantage of proximity to her children.

“I definitely feel that the fresh start has given me a new lease on life.”

Write to Katy McLaughlin at katy.mclaughlin@wsj.com

Appeared in the June 29, 2018, print edition as ‘A New Life, a New House.’

Last year, after finishing with college tuition for their three children, Jessica Galligan Goldsmith and her husband, James, treated themselves to something she had long wanted: long-term-care insurance.

It hasn’t been cheap. The couple, both lawyers in their mid-50s, will shell out more than $320,000 between them over a decade. For that, they will be able to tap into benefits topping $1 million apiece by the time they are in their 80s, the age when many Americans suffer from dementia or other illnesses that require full-time care.

Plus, the policies pay out death benefits if long-term care isn’t ultimately needed, and most provide 10% to 20% of the original death benefit even if the long-term-care proceeds are fully tapped.

Such policies that combine long-term-care coverage with a potential life-insurance benefit are called “hybrids,” and they are reshaping the long-term-care niche of the U.S. insurance industry just as it had appeared headed for obsolescence, financial advisers say. The Goldsmiths were among 260,000 purchasers last year nationwide of these hybrids, according to industry-funded research firm LIMRA, far outpacing the 66,000 traditional long-term-care policies sold in 2017.

When long-term-care insurance took off in the 1990s, insurers aimed for the broad middle class of America. The pitch was that policies would save ordinary families from entirely draining their savings, leaning on children or enrolling in the federal-state Medicaid program for the poor. (Medicare pays for nursing-home stays only in limited circumstances.)

Now, many insurers are finding their best sales opportunity with wealthy Americans. Many of these people may be able to afford costly care later in their lives, but they are buying the contracts to protect large estates, advisers say. ​​

Ms. Goldsmith wanted long-term-care coverage partly because her legal specialty is trusts and estates and she has seen families whose seven-figure investment portfolios were devastated by years of care for spouses.

“What felt like a good nest egg” can be hit by “astronomical expenses,” says Ms. Goldsmith, of Westchester County outside New York City. Their policies are from a unit of Nationwide Mutual Insurance Co.

According to federal-government projections, about a quarter of Americans turning 65 between 2015 and 2019 will need up to two years of long-term care. Twelve percent will need two to five years, and 14% will need more than five years. At $15 an hour, around-the-clock aides run $131,400 a year, while private rooms in nursing homes top $100,000 in many places.

Hybrids can cost even more than traditional standalone products because they typically include extra features. There is wide variation across the hybrid category and the type the Goldsmiths bought (known as “asset-based long-term-care”) includes a particularly valuable feature: a guarantee that premium rates won’t increase.

Traditional long-term care policies fell from favor in the mid-2000s after many insurers obtained approval from state regulators for steep rate increases—some totaling more than 100%—due to serious pricing errors. In May, Massachusetts Mutual Life Insurance Co. began applying for average increases of about 77% that would apply to about 54,000 of its 72,000 LTC policyholders. Until this move, MassMutual hadn’t previously asked longtime policyholders to kick in more to better cover expected payouts.

Affluent buyers also can afford to pay for their hybrid policies within 10 years, as many insurers require. However at least one big carrier, Lincoln National Corp. , has begun allowing people in their 40s and early 50s to spread payments over more years, provided they fully pay by age 65.

Besides the death benefit—which is as much as $432,000 on a combined basis for the Goldsmiths—hybrids also include a “return of premium” feature. This allows buyers to recoup much of their money if they want out of the transaction, albeit without interest.

“We call these ‘live, die, change your mind’ policies,” says Natalie Karp, the Goldsmiths’ agent and co-founder of Karp Loshak LTC Insurance Solutions, a brokerage in Roslyn, N.Y.

About a dozen insurers still offer traditional long-term-care policies that typically lack those features. They charge more and provide shorter benefit periods than they did in the past. But Tim Cope, a financial adviser in South Burlington, Vt., for insurance brokerage NFP, says the good news is that “policies continue to pay for much-needed care, and changes in their policy design, pricing and underwriting are an effort to minimize premium increases on recently issued and new policies.”

Many advisers favor standalone and hybrid offerings of three of the nation’s largest and financially strongest insurers: MassMutual, New York Life Insurance Co. and Northwestern Mutual Life Insurance Co.

Ms. Goldsmith says she was attracted to the Nationwide hybrid because it doesn’t require submission of receipts to obtain the long-term-care proceeds. Benefits are payable in cash when a physician certifies a severe cognitive impairment or inability to perform basic activities, such as bathing, eating and dressing. Payments are capped at specified monthly amounts. For the Goldsmiths, the monthly benefit starts at $9,000 per spouse and grows with an inflation adjustment to more than $15,000 in their 80s.

“Receipts are very hard for older people to deal with, especially when stressed by caring for a disabled spouse or being disabled themselves,” Ms. Goldsmith says.

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual. It contains references to individuals or entities that are not affiliated with Cornerstone Wealth Management, Inc. or LPL Financial.
All illustrations are hypothetical and are not representative of any specific investment.

Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions and the policy holder should review their contract carefully before purchasing. Guarantees are based on the claims paying ability of the issuing insurance company.
If you need more information or would like personal advice you should consult an insurance professional.

Some things to think about as you get started with your strategy.

First, look at your expenses and your debt. Review your core living expenses (such as a mortgage payment, car payment, etc.). Can any core expenses be reduced? Investing aside, you position yourself to gain ground financially when income rises, debt shrinks, and expenses decrease or stabilize.

Maybe you should pay your debt first, maybe not. Some debt is “good” debt. A debt might be “good” if it brings you income. Credit card debt is generally deemed “bad” debt.

If you’ll be carrying a debt for a while, put it to a test. Weigh the interest rate on that specific debt against your potential income growth rate and your potential investment returns over the term of the debt.

Of course, paying off debts, paying down balances, and restricting new debt all works toward improving your FICO score, another tool you can use in pursuit of financial freedom (we’re talking “good” debts).1

Implement or refine an investment strategy. You’re not going to retire solely on the elective deferrals from your paycheck; you’re to going retire (potentially) on the interest that those accumulated assets earn over time, assisted by the power of compounding.

Manage the money you make. If you simply accumulate unmanaged assets, you have money just sitting there that may be exposed to risk – inflation risk, market risk, even legal risks. Don’t forget taxes. The greater your wealth, the more long-range potential you have to accomplish some profound things – provided your wealth is directed.

If you want to build more wealth this year or in future years, don’t go without a risk management strategy that might be instrumental in helping you retain it. Your after-tax return matters. Risk management should be part of your overall financial picture.

Request professional guidance. A considerate financial professional should educate you about the principles of wealth building. You can draw on that professional knowledge and guidance this year – and for years to come.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – experian.com/blogs/ask-experian/credit-education/improving-credit/improve-credit-score/ [5/30/18]