economy

Incorporating Philanthropy into Your Financial Plan, Part 1

Smart giving strategies for every economic climate


Key Takeaways:

  • As record numbers of boomers approach retirement age, their focus shifts to distribution of assets rather than accumulating wealth.

  • Affluent millennials look for ways to have impact rather than just give away dollars.

  • Do your homework before you give.

  • A Donor Advised Fund (DAF) is a perfect giving tool for all economic climates. Sock away money in the good years, and give from it in the lean years.

The latest Giving USA data shows that charitable donations rose for the fifth consecutive year to nearly $360 billion—passing its pre-recession peak and likely to continue the upward trend.  Researchers indicated that another recession could hurt giving slightly, even though the number of aging boomers coming into liquidity events should offset a downturn to some extent.

As more and more boomers turn 65 every day, the focus shifts to distribution of assets rather than to thinking solely about accumulation of wealth. Giving is a function of individual capacity, which too often is a perception rather than an actual quantified ability.

Giving is not just for boomers and retirees

More and more wealthy younger people are giving generously earlier in their lives. Are millennials really more charitably inclined than boomers and Gen Xers, or are we just hearing more about the good deeds of extremely wealthy tech entrepreneurs?

Experts on philanthropy say that millennials have a more overt concern about the world around them. The problems of the world are very much “front and center” for them because of the Internet and its social media outlets. That said, millennials look for ways to have impact rather than just give away dollars.

Is charitable giving really tied to the economy and financial markets?

Many experts believe there is a tremendous linkage between levels of giving and the types of giving and investment and economic cycles. Charitable giving rises in good times, and, sadly, falls when times are tough. A study of charitable giving during recessions since 1967 found that giving during recessions dropped by slightly more than 1 percent on average, while it rose significantly during the good years. This poses a serious dilemma for charities that don’t have endowments to help cushion the drying up of charitable giving during the lean years. It also creates strategic challenges for family foundations and individual philanthropists who during the lean times see greater need in the human services arena.

We know of one family that was faced with having to reduce its commitment to environmental causes during the economic blizzard of 2008-09. As the family’s wealth and its foundation capital recovered dramatically post-crisis, they are giving even more today they did prior to 2008 to environmental causes they support.

As for good and bad years in the economy, a Donor Advised Fund (DAF) is a perfect tool. Sock away money in your good years, and give from it in the lean years. For donors approaching retirement, the same logic applies. Fund the DAF during your highly taxed working years, get the deduction then, and in your retirement years, make gifts from the DAF. For those who are more technically minded, or if you are the owner of a closely held business or commercial real estate, gifting such property to a DAF can be a smart move. Such transfers can be part of a business exit plan if you have philanthropic goals and want to become more involved in your community post-exit.

How can people of means to have a more “balanced portfolio” of giving?
The most effective philanthropy needs to be driven not by balance but by three things: head, heart and mind. And not necessarily in that order.

Giving to arts and culture has always been strong. People strongly support a wide range of causes that they’re passionate about--and there is some status assigned to supporting the arts. Giving to human services is a challenge with program effectiveness and real change. While arts received larger portions of giving, a balanced portfolio is generally not advised. Much of the giving research indicates that depth, not width, is advisable for donors. More impact can be achieved, more data evaluated by narrowing focus.

We know from the world of business how critical sustainability is to long-term success. Why should it be any different within the realm of charity? It’s imperative that philanthropists and foundations look critically at the sustainability of the organizations and projects they are funding. Failure to think “sustainably” creates a great risk charitable dollars won’t have as much impact or as lasting an impact as the giver might hope.

Purposeful philanthropy is the art of thoughtfully, intentionally and purposefully integrating the passion, spirit and commitment of philanthropy into the fabric of your family system. When you encourage each member of your family to participate in giving that honors the individual values and interests of your family members, there is an almost inevitable balancing that will occur in the grant-making and giving process.

A good next step for a donor hoping to be more strategic and impactful in giving would be exploring a Community Foundation and books such as, Inspired Legacies by Tracy Gary or Give Smart by Tierney and Fleishman.

Philanthropy is not necessarily about giving away to charities. It is about having impact. It is about the sustainability for your children and grandchildren of the world you live in. It is about the recognition that every dollar you invest is impact investing because it is impacting something.

Conclusion

In Part 2 of this series, we will discuss charitable tools, techniques and philosophies that you can use today to add value to your planned giving goals.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Millennials: On Investing and Retirement

Move over Baby Boomers. These days all eyes are on Millennials, those young adults between the ages of 18 and 34 who are now America's largest living generation.1 According to the U.S. Census Bureau, Millennials in the United States number more than 75 million -- and the group continues to expand as young immigrants enter the country.1

Due to its size alone, this generation of consumers will undoubtedly have a significant impact on the U.S. economy. When it comes to investing, however, the story may be quite different. One new study found that 59% of Millennials are uncomfortable about investing due to current economic conditions.2 Another study revealed that just one in three Millennials own stock, compared with nearly half of Generation-Xers and Baby Boomers.3

On the Retirement Front

How might this discomfort with investing manifest itself when it comes to saving for retirement -- a goal for which time is on Millennials' side? According to new research into the financial outlook and behaviors of this demographic group, 59% have started saving for retirement, yet nearly two-thirds (64%) of working Millennials say they will not accumulate $1 million in their lifetime. Of this group, half have started saving for retirement -- 37% of which are putting away more than 5% of their income -- despite making a modest median $27,900 a year.2

As for the optimistic minority who do expect to save $1 million over time, they enjoy a median personal income that is about twice that -- $53,000 -- of the naysayers. Three out of four have started saving for retirement and two-thirds are deferring more than 5% of their income; 28% are saving more than 10%.2

So despite their protestations, their reluctance to embrace the investment world, and a challenging student loan debt burden -- a median of $19,978 for the 34% who have student loan debt -- Millennials are still charting a slow and steady course toward funding their retirement.2

For the Record …

Here are some additional factoids about Millennials and retirement revealed by the research:

•  The vast majority (85%) of Millennials view saving for retirement as a key passage into becoming a "financial adult."

•  A similar percentage (82%) said that seeing people living out a comfortable retirement today encourages them to want to save for their own retirement.

•  Those who have started saving for retirement said the ideal age to start saving is 23.

•  Those who are not yet saving for retirement say they will start by age 32.

•  Of those who are currently saving for retirement, 69% do so through an employer-sponsored plan.

•  Three out of four said they do not believe that Social Security will be there for them when they retire.

•  Most would like to retire at age 59.
 
Source(s):

1.  Pew Research Center, "Millennials overtake Baby Boomers as America's largest generation," April 25, 2016.

2.  Wells Fargo & Company, news release, "Wells Fargo Survey: Majority of Millennials Say They Won't Ever Accumulate $1 Million," August 3, 2016.

3.  The Street.com, "Only 1 in 3 Millennials Invest in the Stock Market," July 10 2016.
 

Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
 


The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.
 

Presidential Elections and the Stock Market

Here is a nice article written by Dimensional Fund Advisors:

 

Making investment decisions based on the outcome of presidential elections is unlikely to result in reliable excess returns for investors. At best, any positive outcome will likely be the result of random luck. At worst, it can lead to costly mistakes.  CLICK HERE TO READ:

 

Presidential Elections and the Stock Market.pdf

 

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Growth vs. Value: Two Approaches to Stock Investing

Growth and value are two fundamental approaches, or styles, in stock and stock mutual fund investing. Growth investors seek companies that offer strong earnings growth, while value investors seek stocks that appear to be undervalued in the marketplace. Because the two styles complement each other, they can help add diversity to your portfolio when used together.

Growth and Value Defined

Growth stocks represent companies that have demonstrated better-than-average gains in earnings in recent years and that are expected to continue delivering high levels of profit growth, although there are no guarantees. "Emerging" growth companies are those that have the potential to achieve high earnings growth, but have not established a history of strong earnings growth.

The key characteristics of growth funds are as follows:

•  Higher priced than broader market. Investors are willing to pay high price-to-earnings multiples with the expectation of selling them at even higher prices as the companies continue to grow.
•  High earnings growth records. While the earnings of some companies may be depressed during period of slower economic improvement, growth companies may potentially continue to achieve high earnings growth regardless of economic conditions.
•  More volatile than broader market. The risk in buying a given growth stock is that its lofty price could fall sharply on any negative news about the company, particularly if earnings disappoint on Wall Street.

Value fund managers look for companies that have fallen out of favor but still have good fundamentals. The value group may also include stocks of new companies that have yet to be discovered by investors.

The key characteristics of value funds include:

•  Lower priced than broader market. The idea behind value investing is that stocks of good companies will bounce back in time if and when the true value is recognized by other investors.
•  Priced below similar companies in industry. Many value investors believe that a majority of value stocks are created due to investors' overreacting to recent company problems, such as disappointing earnings, negative publicity or legal problems, all of which may raise doubts about the company's long-term prospects.
•  Carry somewhat less risk than broader market. However, as they take time to turn around, value stocks may be more suited to longer-term investors and may carry more risk of price fluctuation than growth stocks.

Growth or Value... or Both?

Which strategy -- growth or value -- is likely to produce higher returns over the long term? The battle between growth and value investing has been going on for years, with each side offering statistics to support its arguments. Some studies show that value investing has outperformed growth over extended periods of time on a value-adjusted basis. Value investors argue that a short-term focus can often push stock prices to low levels, which creates great buying opportunities for value investors.

History shows us that:

•  Growth stocks, in general, have the potential to perform better when interest rates are falling and company earnings are rising. However, they may also be the first to be punished when the economy is cooling.
•  Value stocks, often stocks of cyclical industries, may do well early in an economic recovery but are, typically, more likely to lag in a sustained bull market.

When investing long term, some individuals combine growth and value stocks or funds for the potential of high returns with less risk. This approach allows investors to, in theory, gain throughout economic cycles in which the general market situations favor either the growth or value investment style, smoothing any returns over time.
 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
 


The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Investing Long Term? Don't Overlook the Inflation Factor!

A penny saved is a penny earned, right? Not necessarily. Thanks to inflation, over time that penny could be worth less than when it was first dropped into the piggy bank. That's why if you're investing -- especially for major goals years away, such as retirement -- you can't afford to ignore the corrosive effect rising prices can have on the value of your assets.

Inflation Under the Microscope

Just what is inflation, this ravenous beast that eats away at the value of every dollar you earn? It is essentially the increase in the price of any good or service. The most commonly referenced measure of that increase is the Consumer Price Index (CPI), which is based on a monthly survey by the U.S. Bureau of Labor Statistics. The CPI compares current and past prices of a sample "market basket" of goods from a variety of categories including housing, food, transportation, and apparel. The CPI does have shortcomings, according to economists -- it does not take taxes into account or consider that as the price of one product rises, consumers may react by purchasing a cheaper substitute (name brand vs. generic, for example). Nonetheless, it is widely considered a useful way to measure prices over time.

Inflation has been a very consistent fact of life in the U.S. economy. Dating back to 1945, the purchasing power of the dollar has declined in value every year but two -- 1949 and 1954. Still, inflation rates were generally considered moderate until the 1970s. The average annual rate from 1900 to 1970 was approximately 2.5%. From 1970 to 1990, however, the average rate increased to around 6%, hitting a high of 13.3% in 1979.1 Recently, rates have been closer to the 1% to 3% range; the inflation rate was only 0.73% in 2015.

What It Means to Your Wallet

In today's economy, it's easy to overlook inflation when preparing for your financial future. An inflation rate of 4% might not seem to be worth a second thought -- until you consider the impact it can have on the purchasing power of your money over the long term. For example, in just 20 years, 4% inflation annually would drive the value of a dollar down to $0.44.

cost of the future.png

Or look at it another way: If the price of a $1,000 refrigerator rises by 4% over 20 years, it will more than double to almost $2,200. A larger-ticket item, such as a $23,000 automobile, would soar to more than $50,000 given the same inflation rate and time period.

Inflation also works against your investments. When you calculate the return on an investment, you'll need to consider not just the interest rate you receive but also the real rate of return, which is determined by figuring in the effects of inflation. Your financial advisor can help you calculate your real rate of return.

Clearly, if you plan to achieve long-term financial goals, from college savings for your children to your own retirement, you'll need to create a portfolio of investments that will provide sufficient returns after factoring in the rate of inflation.

Investing to Beat Inflation

Bulletproofing your portfolio against the threat of inflation might begin with a review of the investments most likely to provide returns that outpace inflation.

Over the long run -- 10, 20, 30 years, or more -- stocks may provide the best potential for returns that exceed inflation. While past performance is no guarantee of future results, stocks have historically provided higher returns than other asset classes.

Consider these findings from a study of Standard & Poor's data: An analysis of holding periods between 1926 and December 31, 2015, found that the annualized return for a portfolio composed exclusively of stocks in Standard & Poor's Composite Index of 500 Stocks was 10.07% -- well above the average inflation rate of 2.91% for the same period. The annualized return for long-term government bonds, on the other hand, was only 5.64%.2

There are many ways to include stocks in your long-term plan in whatever proportion you decide is appropriate. You and your professional financial planner could create a diversified portfolio of shares from companies you select.3 Another option is a stock mutual fund, which offers the benefit of professional management. Stock mutual funds have demonstrated the same long-term growth potential as individual stocks.

total annual returns.png

A Balancing Act

Keep in mind that stocks do involve greater risk of short-term fluctuations than other asset classes. Unlike a bond, which guarantees a fixed return if you hold it until maturity, a stock can rise or fall in value based on daily events in the stock market, trends in the economy, or problems at the issuing company. But if you have a long investment time frame and are willing to hold your ground during short-term ups and downs, you may find that stocks offer the best chance to beat inflation.

The key is to consider your time frame, your anticipated income needs, and how much volatility you are willing to accept, and then construct a portfolio with the mix of stocks and other investments with which you are comfortable. For instance, if you have just embarked on your career and have 30 or 40 years until you plan to retire, a mix of 70% stocks and 30% bonds might be suitable.4 But even if you are approaching retirement, you may still need to maintain some growth-oriented investments as a hedge against inflation. After all, your retirement assets may need to last for 30 years or more, and inflation will continue to work against you throughout.

Take Steps to Tame Inflation

Whatever your investor profile -- from first-time investor to experienced retiree -- you need to keep inflation in your sights. Stocks may be your best weapon, and there are many ways to include them. Consult your financial planner to discuss your specific needs and options.
 
Source(s):

1.  U.S. Bureau of Labor Statistics.

2.  Wealth Management Systems Inc. Stocks are represented by the S&P 500 index. Bonds are represented by a composite of returns derived from yields on long-term government bonds, published by the Federal Reserve, and the Barclays Long-Term Government Bond index. Inflation is represented by the change in the Consumer Price Index.

3.  Diversification does not ensure against loss.

4.  These allocations are presented only as examples and are not intended as investment advice. Please consult a financial advisor if you have questions about these examples and how they relate to your own financial situation. The investor profile is hypothetical.


Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
 


The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.