Category Archives: CapWealth Blog

Stock market volatility: Friend or foe?

The following column from Jennifer Pagliara, CapWealth Senior Vice President and Financial Advisor, was posted by The Tennessean on Feb. 16, 2018.

Volatility is back. While many may not have expected such a swing after the long period of stability, investors and advisers alike know that volatility is simply part of the market cycle.

So, what is volatility anyway?

Photo: Getty Images/iStockphoto

The formal definition of volatility is a statistical measure of the dispersion of returns for a given security or market index. When the media discusses market volatility, they are essentially talking about how much stock prices are moving up and down. High volatility means prices are moving up and down quite a bit, and when it is low, there is steadier fluctuation.

There are even volatility indexes that show the market’s expectation of 30-day volatility. The VIX (the trademarked ticker symbol for the Chicago Board Options Exchange Volatility Index) tracks the S&P 500. It is forward-looking and is often referred to as the “investor fear gauge.” VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear. Values below 20 correspond to less stressful, even complacent, times in the market. Until February, the VIX had not closed at more than 16 over the prior six months. At the point of writing this column, the VIX’s highest peak was at 39.60 on Feb. 9.

Volatility can be a good thing. With some volatility, there is a wider range of possible outcomes. If volatility stays consistent, there is less possibility for reward. While the upside increases, so does the downside. And as with any investment, the riskier it is, the greater the possibility of return.

What’s the cause?

The problem with volatility is that there isn’t one particular cause that anyone can pinpoint. For the past couple of weeks, there seems to be several factors at play:

  • We are in a rising interest rate environment for the first time since the early 1980s. There is more conviction that three rate hikes will happen in 2018. Within that realm, the 10-year Treasury yield has rapidly increased to 2.8 percent from 2.5 percent in January.
  • There was a shift in investor sentiment. People started to believe that this bull run couldn’t last for forever.
  • There are also some large macroeconomic events that could have had some effect as well, including the potential government shutdown and concerns over the deficit and increased government spending woven into the bipartisan budget deal coming out of the Senate this week.

Some strategists, on the other hand, have noted more unusual suspects for some of the recent drop-offs, such as “forced selling” by electronic management models.

And still, many strategists point to “market psychology” for the selloff behavior, rather than to fundamental failures. With the economy continuing to move ahead in a positive direction and U.S. businesses reporting repeated earnings growth with the catalyst of major tax breaks still to be fully realized, the stage seems to be set for a sustained and healthy business economy — one to remain invested in.

How to stay the course

We all let our emotions get the best of us at times. We’re human. It’s completely understandable. However, when it comes to investing, making sure you don’t let that happen is going to be key to long-term financial success. We often let fear and greed drive our decisions in making shifts in our investments, rather than sticking to the fundamentals.

You should invest in companies that you believe will be successful and profitable for the long run, and don’t let daily fluctuations in valuation deter you. As Warren Buffet has said, “Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.”

Volatility is expected and, as earlier noted, can even provide an opportunity to acquire a greater investment in a company you believe in at a lower cost.

Jennifer Pagliara is a senior vice president and financial adviser with CapWealth Advisors, LLC, and a proud member of the Millennial generation. Her column speaks to her peers and anyone else that wants to get ahead financially.

Are we headed for another recession?

The following column from Jennifer Pagliara, CapWealth Senior Vice President and Financial Advisor, was posted by The Tennessean on Feb. 2, 2018.

(Photo: Colin Anderson, Getty Images/Blend Images RM)

2018 marks the 10th anniversary of the beginning of the Great Recession. At times, it feels like the economy is still healing, but on the whole, we have come a long way since then.

With the stock market at all-time highs, unemployment down to 4.1 percent and U.S. home foreclosures down to some of the lowest levels since 2005, it’s natural to worry about being able to continue on this trajectory. But should we be bracing for another recessionary cycle? Let’s take a deeper look.

What is a recession, after all? 

To take some ambiguity away from what a recession really is, let’s define it. A recession is most commonly defined as two consecutive quarters of declines in quarterly real GDP. The National Bureau of Economic Research offers a more detailed definition:

“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.”

The Great Recession lasted 18 months and was triggered by the bursting of “an enormous speculative housing bubble,” generated by a perfect storm of low interest rates, lenient lending standards, ineffective mortgage regulation and lacking loan securitization, according to a 2011 study released by the Federal Reserve Bank of San Francisco.

While devastating to the economy and to many people and industries, which are still struggling to recover today, a lot was learned from the Great Recession, and many changes have been implemented in both policy and regulation to protect the country from a similar crash.

Where are we today?

While recovery has been slow, it’s been purposeful, driven by caution across the board.
The Federal Reserve has kept interest rates low, easing the burden on those in debt (while counterproductively slowing gains for savers, however). And, central bank regulation is at an entirely different level than it was pre-Great Recession, completely changing how lending institutions operate today. The difference is so great, in fact, that Trump’s administration is seeking to loosen some of the restrictions applied 10 years ago to allow banks back in the game a bit more, if you will. This will likely produce a positive boost to our economy.

Also contributing to the advancement of the economy has been extraordinarily low inflation. Even as growth has picked up, inflation has remained low, meaning that as businesses are doing better, people are making more money and their paychecks are going farther.

What’s to come?

The stock market has always been considered a leading economic indicator, and the health of the economy was certainly reflected in last year’s double-digit positive performance across all major indexes (Dow +25 percent, S&P 500 +21 percent and Nasdaq +28 percent). Circling back to our original question, can this upward momentum continue or should we be on the lookout for a significant stock market correction?

In November, Vanguard Group, one of the largest investment management companies in the world, released research suggesting a 70-percent likelihood of a U.S. stock market correction. However, the prediction was not delivered with alarm, but rather with the intention of preparing investors for an impending downturn and setting right expectations for what the future could look like.

It’s important to note, however, that a stock market correction doesn’t mean we’ve entered a recession. A natural pullback allows the market to consolidate before going toward higher highs. It’s a natural function in the market cycle.

Other factors — such as interest rates and inflation, which are both expected to rise in 2018 — will have more of an impact on a possible recession in the economy. But in usual cautionary fashion, the Federal Reserve is likely to only raise rates slightly, and even inflation is expected to maintain a snail’s pace in upturn.

So, don’t panic.

Warren Buffett has said, “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

I urge you not to panic when a market correction does come. Because it will come, it is inevitable. What’s more important to focus on is the general outlook of your investments. If your perception of the company’s future earnings hasn’t changed, then a correction may only be an opportunity to invest more into those future earnings at a discounted price.

Jennifer Pagliara is a senior vice president and financial adviser with CapWealth Advisors, LLC, and a proud member of the millennial generation. Her column speaks to her peers and anyone else that wants to get ahead financially.

Millennials will change jobs more; be prepared for it

The following column from Jennifer Pagliara, CapWealth Senior Vice President and Financial Advisor, was posted by The Tennessean on Jan. 19, 2018.

(Photo: Getty Images/iStockphoto)

It is easy to paint millennials as self-absorbed, flakey job-hoppers who don’t work very hard. However, through this column over the past several years, I have tried to show a different side to this often misunderstood generation.

A big part of being in your 20s and 30s is figuring out what you want to do in life. Not everyone is born knowing their purpose and exactly how to achieve it. So this can result in several job changes before someone understands the path he or she is supposed to be on.

And, millennials haven’t been afraid to take the leap when necessary. LinkedIn actually evaluated its 500 million users and found that within their first decade out of college, members of this generation changed jobs an average of four times verses Generation Xers who only changed jobs two times. And, this trend is an even bigger shift from our grandparents’ and great-grandparents’ time, when they often held only one, maybe two, jobs during their entire lifetime.

Context matters

It’s interesting to consider the context behind such a trend shift. The financial crisis occurred when the majority of millennials were graduating from college, so I have to believe that had a huge impact on our churn.

There has also been less and less loyalty shown to any one specific company or even industry. So while our grandparents were likely motivated to stay put due to loyalty to the company, younger generations are more focused on finding the right fit for utilizing (and growing) their knowledge, skills and abilities. Times have certainly changed, and I don’t think it’s a negative thing.

The Bureau of Labor Statistics reports that the average American will hold 11.7 jobs between the ages of 18 and 48, but context matters here, as well, because a career change isn’t always as black and white as a doctor becoming a chef. There are parallel moves that might look like a change but are really a necessary shift to get to the next level.

With all of these likely job changes on the horizon for millennials, there are a couple of financial considerations to be aware of and prepare for.

Retirement plans

Employer-sponsored retirement plans, such as 401(k)s , aren’t always top of mind for someone considering a transition into a new career or job. It is not uncommon for me to deal with clients who have three or four employer-sponsored retirement plans scattered around that they have never consolidated. However, I always encourage them to either combine them into a traditional IRA or try or to roll them into a new employer-sponsored retirement plan (if the plan allows).

This is important, first of all, because if you don’t handle it right away, you will forget about it and won’t monitor the investments contained within it. Secondly, you’re missing out on potential money earned, as simple compounding helps grow your money faster if you combine them all together.

Emergency fund

Sometimes life doesn’t happen in the way we plan it, and career shifts are not always intentional. It’s important to have an emergency fund in place should you do lose your job or if you need to quit before you have another job lined up.

You will commonly hear that you need six months to one year’s worth of living expenses as an emergency fund. However, I believe that number is somewhat arbitrary. The real question you should be asking is “How much money do I need in savings to let me sleep soundly at night?” If that turns out to be six months’ worth of expenses or if it’s $25,000, then that is fantastic, but I’m less concerned with what everyone else does and what you need to feel comfortable.

Millennials may be professionally “on the move” more so than previous generations, but such diversity of experience can mold candidates who offer an equally diverse skill set, which should be an attractive quality to hiring managers in today’s fluid business environment.

Jennifer Pagliara is a senior vice president and financial adviser with CapWealth Advisors, LLC, and a proud member of the millennial generation. Her column speaks to her peers and anyone else that wants to get ahead financially.

Tax reform bill expands college savings plans to include K-12

The following column from Phoebe Venable, President and COO of CapWealth, was posted by The Tennessean on Jan. 12, 2018.

(Photo: RonBailey/Getty Images/iStockphoto)

Just before the end of the year, President Trump signed the Republican tax reform bill. The Tax Cuts and Jobs Act has occupied the headlines for the past few weeks because of the major changes being made to personal and corporate tax rates and deductions. The plan also includes a smaller change that will expand the benefits of 529 savings plan to include private school expenses.

A 529 plan is an educational savings plan operated by a state, state agency or educational institution, named after the IRS code section that created them. There were two types of 529 plans created: a savings plan and a pre-paid plan. Tennessee’s pre-paid plan is called TNStars College Savings 529 Program. Visit www.tnstars.comfor more information. The 529 Savings Plan works a lot like other types of savings plans in that contributions are invested into mutual funds or other investment vehicles. The plan you choose will provide you with investment options, and the value of the account will go up and down based upon the performance of the investments you select.

Before the new tax plan, 529 plans were exclusively used for college related expenses, but the new tax plan includes a provision that allows 529 plans to be used for K-12 education expenses. This includes private school tuition as well as public and religious elementary and secondary school expenses. It does not allow 529 plans to be used for homeschooling expenses. Beginning this year, 529 plans can pay up to $10,000 a year for K-12 expenses.

These accounts are easy to set up and contributions can be automatically deducted from your bank account every month. You can contribute up to $14,000 a year for single filers and $28,000 for couples filing jointly. There is also an option that allows you to fund a 529 Savings Plan with up to $70,000 (single) or $140,000 (married) in one year, but then no contributions can be made for five years. Although your contributions are not tax deductible on your federal income tax return, the earnings are tax-deferred.

Distributions from the 529 plan to pay for the child’s college costs are tax-free. You, as the donor, control the account, which means you call the shots. You decide when distributions are made from the account and for what purpose. Funds may be used for any qualifying educational expense. This includes supplies, books and room and board. Savings can be used for qualified higher education expenses at any accredited traditional college or university, community college, vocational or trade school in the U.S. And you, the owner of the 529 plan, name the beneficiary which can be your child, your niece, your grandchild or even yourself!

If your child (the beneficiary of the 529 plan) does not use all of the funds, you can reclaim the funds, but the earnings portion will be subject to income tax and an additional 10 percent federal tax penalty will be imposed on the earnings as well. An exception can be claimed if you withdraw the funds due to death, disability or if your child receives a scholarship and doesn’t need the funds for college expenses.

Another great feature of these savings plans is that a family with more than one child can simply change the beneficiary. If your oldest child receives a scholarship and does not need the 529 funds, you can change the beneficiary to another child and avoid the penalty or at least defer it until all of your children have completed college. What a nice problem this would be — to have over-saved for college!

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors. Her column on women, families and building wealth appears every other week in The Tennessean.

5 financial ‘don’ts’ for 2018

The following column from Jennifer Pagliara, CapWealth Senior Vice President and Financial Advisor, was posted by The Tennessean on Jan. 5, 2018.

(Photo: Getty Images / iStockphoto)

Happy new year! Are you ready to tackle the usual resolutions to improve the many aspects of your life? I’m sure you’ve got a list of all the things you want to (or need to) do this year to achieve your goals. Let me help you with a few “don’ts” to aid your yearlong journey.

1. Don’t put off saving — not even one more day. You likely have resolutions related to spending less and paying off debt, and maybe you have one related to setting and sticking to a budget. But an absolutely necessary step toward furthering your financial position is to start saving today! (The key word being “today!”) The power of compounding interest is mind-blowingly real — the earlier you start, the more mind-blowing. I can’t stress this enough to my millennial cohorts. If you think you’re too young or don’t have enough money, you’re wrong. Even putting away a small amount each month gains you an advantage for your future. You can actually begin investing in many mutual funds for as little as $50.

2. Don’t miss out on the new available tax credits and savings opportunities in 2018. With the recent tax reform came a number of changes to available credits and savings opportunities that millennials can reap benefits from. One particular note of interest for many of my clients pertains to 529 savings plans. Previously applicable only for college savings, these plans now allow for tax-free withdrawals for K-12 private school education. It would behoove parents (of all ages) to check with their accountants and ensure that they are up to speed on this and other applicable changes resulting from the new tax bill.

3. Don’t let student debt damper your dreams of financial freedom. Student debt is a looming displeasure for many millennials. A recent Nerdwallet report noted that the median student loan debt for a person who has attended some college or graduated from college is more than $49,000. Carrying the burden such a bulk can be overwhelming and may discourage resolutions to “get out of debt” in the new year. Rather than looking at the debt in its entirety, focus on paying off a particular amount each year, and divide that by 12 months. For example, a resolution to pay off $5,000 per year equates to around $415 per month. With just a little diligence in paying this amount (or any other amount you deem doable) each month, you will be sure to hit the annual goal and still take a chunk out of the overall debt.

4. Don’t “just do it.” (Plan for it!) I’ve said it before, and I’ll say it again. You need a financial plan. A plan allows millennials (and others) to set goals for your financial future and monitor progress along the way to ensure you stay on track. Life goes faster than you think, and with huge life events happening for millennials — launching careers, getting married, buying houses, having children — it’s easy to let time get away from you and miss out on the chance to properly prepare for future needs, like your children’s education and your own retirement. Success requires careful thought, discipline and some savvy. If you don’t have it, find a financial adviser that does and keep in touch.

5. Don’t let fear hold you back. Fear can be a roadblock to accomplishing great things. It can hamper the opportunity to try something new, to advance in one’s career or to find that special someone. Fear can also cause people to miss out on advantages others are capitalizing on now. This certainly holds true for those who let fear and worry keep them out of the market last year. It’s no secret that volatility exists within the market; ups and downs are guaranteed. Historically, however, the market has persevered upward, and the longer one is invested in the market, the more time there is to make up market declines and unanticipated sub-par returns. So, if you aren’t invested now, don’t let fear continue to keep you out of the long-term advantage you have at this point of your life.

Jennifer Pagliara is a senior vice president and financial adviser with CapWealth Advisors, LLC, and a proud member of the Millennial Generation. Her column speaks to her peers and anyone else that wants to get ahead financially.

Planning to have a baby in 2018? Count the costs

The following column from Jennifer Pagliara, CapWealth Senior Vice  President and Financial Advisor, appeared in The Tennessean on Dec. 8, 2017.

As we enter the holiday season, millennials’ Facebook and Instagram feeds are no doubt going to fill up with engagement announcements — it’s that time of the year. But for those who have already tied the knot, is a baby announcement on the horizon? Is 2018 going to be the year of “the baby” for you?

Current stats 

Photo: Getty Images/iStockphoto

In 2016, 3,941,109 babies were born in the U.S. This equates to 62 births per 1,000 women aged 15 to 44, or a decrease of 1 percent from 2015. That’s a small decrease, of course, but a decrease nonetheless.

It has been noted that millennials are delaying many of the big life milestones — getting married, buying a home, starting a family — so could this possibly have something to do with the decline? And, does this mean that as our generation ages into our late 20s and early 30s, there may be an uptick in births?

Will U.S. fertility rates rebound? 

There are people on both sides of the fence on this debate. The optimists believe there will be a surge of babies born due to the “tempo effect.” Essentially, demographers claim that fertility declines are followed by rebounds. The U.S. experienced this with the baby boomer generation. The war caused fertility rates to drop and then there was a huge surge of births after. The great recession could have caused a similar affect.

Naysayers, on the other hand, believe that millennials just don’t want large families anymore. Declines in unintended pregnancies is also a contributory factor of lower fertility rates.

But it’s true that millennials are more conscious of the costs of those aforementioned life events and are choosing temporary alternatives to many of those commitments — Uber over car buying and renting over homeownership — so maybe they’ve gotten wind of the costs associated with raising a family.

Babies: They’re cute, they’re cuddly, they’re costly

While I don’t want to cause any more anxiety about having a baby (especially for first-time parents), I want to arm my fellow cohorts with knowledge to help prepare financially for what occurs once a couple becomes a family of three (or more).

The Department of Agriculture estimated that a child born in 2015 cost a middle-income, married couple $233,610 in food, shelter and other necessities through age 17. This number does not include the medical costs associated with having the baby, however, which can range from $18,239 for a vaginal birth and $27,866 for a cesarean birth without complications for parents with insurance, according to a study by Truven Health Analytics.

Additionally, the $233,610 doesn’t include the costs of college, which continues to rise each year according to the College Board, a not-for-profit organization that publishes the annual “Trends in Higher Education” reports. The organization’s “Trends in College Pricing 2017” noted that the average published tuition and fee price for full-time in-state students at public four-year colleges and universities is $9,970 for the 2017-18 academic year. And, with an average increase of about 3 percent reported by colleges each year, think about how much that will cost 18 years from now!

Advantage: Time is on your side

The good news is while the initial cost of giving birth is due right off the bat, you have the next 17 years to plan accordingly to both raise your baby and get him or her through college!

Setting a realistic budget will allow you to outline what you need to support your desired family lifestyle and identify where you can start saving for college and other future life costs, such as retirement. Time is on your side, especially when you put this practice into place before you even have children.

Jennifer Pagliara is a financial adviser with CapWealth Advisors, LLC, and a proud member of the Millennial Generation. Her column speaks to her peers and anyone else that wants to get ahead financially.

Millennials change the landscape of charitable giving

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on Nov. 27, 2017.

Photo Getty Images/iStockphoto

As we kick off the 2017 holiday season, giving back is at the forefront of everyone’s minds. For 2016, individuals, estates, foundations and corporations donated an estimated $390.05 billion to U.S. charities according to “Giving USA 2017: The Annual Report on Philanthropy for the Year 2016.” Specifically, individuals and households saw an increase in giving by 3.9 percent over 2015.

While many might not automatically associate charitable giving with millennials, people might be surprised to learn that the millennial generation is actually changing the landscape for nonprofit organizations and causes around the world. In fact, there have been several articles just this year noting the disruption millennials are causing in charitable giving, as nonprofit organizations scurry to implement new technology and programs to meet the expectations and needs of this generation.

The old way of reaching out to and collecting donations just doesn’t connect to today’s digitally savvy contributors — millennial or otherwise. The days of sending a letter requesting a donation with a return envelope are over. Many people don’t even use a checkbook anymore, much less pay much attention to what shows up in the mailbox.
So, where are people finding causes to contribute to? Social media.

Remember the ALS ice bucket challenge that went viral a couple of years ago? It took on a life of its own and got people to donate to a cause most knew nothing about. Why? Because it allowed people to visually broadcast their charitable response — something millennials especially love to do.

Our generation (and those coming behind us) have been raised in the digital age, where broadcasting our lives is as much a part of our daily routine as eating and sleeping. And, not only do we use social media to transmit our own life happenings, but we expect to be able to follow the broadcasts of our friends and influencers. And seeing what others are doing can certainly inspire people to check out certain charities and get involved in the causes their friends and influencers care about.

Another charitable giving demand social media has inspired for millennials? Transparency.

With the rise of social media came an overall expectation of greater transparency — from companies, brands and organizations — as people expected to be able to dig deeper into a company’s mission, vision and culture by following them on social media and, thus, learning how they are making a difference in the world.

Millennials care about where their money is going, whether purchasing a product from a company or donating to a charity. An article in Fast Company in October of this year, titled “As Millennials Demand More Meaning, Older Brands Are Not Aging Well,” noted that for brands to continue to perform well with millennials and other “consumers of the future,” they need to have (and communicate) a clear mission.

Charitable giving falls in line with this same expectation — it’s important for us to know exactly how our donations will be spent and how big that impact is on the world around us.

It’s also not all about the money for millennials. For us, it’s not just about how much money we give, but it is also about donating our time. It is just as valuable — maybe even more valuable — for us to give of our time than to hand out a monetary donation. We get more fulfillment out of personally being involved in the impact rather than just handing over some cash.

If we can wear a pair of shoes or eyeglasses by a brand known to give back to charity for every purchase, that’s an active way for millennials to support a good cause. Similarly, if we can attach a charitable offering to an everyday activity, such as shopping on Amazon, that’s a no-brainer for us.

The millennial generation is now the largest living generation, surpassing the baby boomers this past year, so it’s important for charitable causes around the world to start engaging us now. Lucky for them, we are eager to help out — it’s just a matter of getting creative with how we can give back.

Jennifer Pagliara is a financial adviser with CapWealth Advisors, LLC, and a proud member of the Millennial Generation. Her column speaks to her peers and anyone else that wants to get ahead financially.

Got a holiday budget? Christmas offers good lessons for kids

The following column from Phoebe Venable, President and COO of CapWealth, appeared in The Tennessean on Nov. 17, 2017.

Believe it or not, Christmas is just around the corner! Now is the time to start thinking about how much your family should spend on Christmas gifts and festivities this year (and maybe try not to go overboard like last year). Every family has financial limitations when it comes to gifts, however it is easy to ignore these limitations during the holiday season.

Creating a Christmas spending budget is a proactive step, but how do you determine your budget? What does the average family spend? According to Deloitte’s 2017 holiday survey, Retail in Transition, the average expected spend for the 2017 holiday season is $1,266 per respondent. That’s an expected increase of 4 to 4.5 percent over last year, and that includes more than just gifts, as the bulk of shopper budgets go to non-gift items and experiences, according to Deloitte’s data.

If there are two adults in your family, that is $2,532 spent during the holiday season. But is that the right amount for your family?

One commonly used formula for establishing a Christmas budget is 1 percent of your after-tax income. If your family’s income is $100,000 a year and taxes are $20,000 (this will vary greatly but 20 percent is a good place to start), then your after-tax income is $80,000, and 1 percent of that is $800. That might sound like a lot of money to some and not nearly enough to others.

If the average two-adult family is spending $2,532 this year on Christmas, does this mean the average family’s after-tax income is $253,200? Of course not. Clearly not everyone sticks to the 1 percent formula, but being conservative can be beneficial to you in the new year when the credit card bills come rolling in. But if 1 percent doesn’t work for your family, maybe 2 percent does. Find a moderate number that works.

The holidays are a wonderful time to teach children about using a budget. A portion of the family’s holiday budget can be allocated to each child so they can make their own shopping list and decide how they want to spend their holiday budget. Throughout their entire life, they will have to make choices about how to spend a limited amount of money, so this is a great learning opportunity for the kids and a great teaching opportunity for all parents.

By teaching children that everyone has a finite amount of money to spend on the holidays, they start to understand the value of budgeting. While gifts from Santa may magically appear, children need to understand that the other gifts they receive are purchased with hard-earned dollars. Include the children in your decision-making process for the family holiday budget, too, so they can start to see that there is a clear and thoughtful approach to spending.

All families have holiday traditions. At my house, we have a tradition of allocating a portion of our holiday budget for a “house” gift. We all get a vote and the opportunity to campaign for whatever we want the house gift to be. Over the years, this tradition has not only been a lot of fun for all of us, but it has also engaged our son in the decision-making process and helped him understand the budgeting process.

Another great idea is to allocate a portion of the family’s holiday budget to helping those less fortunate. Whether you adopt an angel from one of the Salvation Army’s Angel Trees or donate food to Second Harvest Food Bank, benevolence is about the importance of giving and what it means to both the giver and receiver. Charitable giving has been shown to help raise self-esteem, develop social skills, foster an introduction to the greater world and encourage kids to appreciate their own lifestyle.

By giving children their own holiday budget, they will begin learning very valuable lessons that will benefit them throughout their lives and help them grow into money savvy adults.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors, LLC. Her column on women, families and building wealth appears every other week in The Tennessean.  

Millennials spur trend of SRI — socially responsible investing

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on Oct. 27, 2017.

Photo: Anchiy, Getty Images

Millennials have lived through the longest war in United States history as well as the worst recession since the Great Depression. Coming of age amid such trying times, millennials are motivated differently than other generations. This generation wants to feel like they are a part of something that is making a difference — for the common good, for happiness and for hopefulness — in the world.

So, with a cohort so acutely concerned with how they are impacting the world, how does that influence their advisers and their investment choices?

Parameters

Financial advisers take many factors into consideration when building a portfolio and financial plan for their client. Some of these constraints are: time horizon, liquidity, risk tolerance, legal and regulatory factors, tax concerns and unique circumstances. Under this last guideline, clients can give their financial adviser parameters for what they feel comfortable investing in or what they don’t.

Socially Responsible Investing (SRI) is essentially an investing strategy that considers environmental, social and corporate governance (ESG) criteria to not only create competitive returns, but also to provide positive societal impact. SRI is something that your clients might inquire about, and financial advisers need to choose appropriate investment vehicles that abide by those guidelines.

Evolution

The evolution of SRI has been one of organic growth as the landscape of investing and politics has changed. Traditionally, baby boomers and Generation X did not want their financial advisers to invest in companies that deal with tobacco or alcohol or what is commonly known as “sin stocks.” But, with the advancement of technology, SRI has taken the foundation of what sin stocks stood for and expanded it.

The Forum for Sustainable and Responsible Investment is now the leading voice in the advancement of sustainable, responsible and impact investing across all asset classes. Investors not only care what products or services a company provides, but they also care about the environmental and societal impact that they have on the world. Our world today is faced with a new set of problems that wasn’t at the forefront 50 or 60 years ago. Some of these include obesity, poverty and sustainable agriculture. Leading ESG criteria these days include board issues, pollution, human rights, climate change, executive pay and conflict risk.

How to invest

According to the 2016 Report on U.S. Sustainable, Responsible and Impact Investing Trends, “more than one out of every five dollars under professional management in the U.S. — $8.72 trillion or more — was invested according to SRI strategies.” That figure confirms an increase of 33 percent from 2014 to 2016 and accounts for 22 percent of the $40.3 trillion in total assets under professional management in the U.S. tracked by Cerulli Associates.

There are 1,002 funds that incorporate ESG criteria, including mutual funds, exchange-traded funds (ETFs), variable annuities and alternatives. The largest ESG ETF is the iShares MSCI KLD 400 Social. It is comprised mostly of large-cap companies with slightly higher exposure to technology, industrials and real estate and lower exposure to financials and energy compared to the average large-cap ETF. It does tend to track the S&P 500 within a few points.

Common misconceptions 

While growing in popularity, there are still some misconceptions about SRI. It is often assumed that these strategies produce lower returns. However, just because a company complies with these standards doesn’t necessarily mean that the returns will be lower or higher than the broader market or its competitors.

Another misconception is that the criteria used to screen SRI investments is only negative. Yes, there is screening to exclude companies involved in activities that are deemed unacceptable or have a negative impact on the world. However, there is also positive screening for how much investment is being done to solve environmental, community or societal problems.

Finally, many presume that SRI is only involved in public equities. But, it is also utilized in fixed income, real estate and private equity. What is important to note is that for millennials, it’s not always just about a return; it’s also about the impact an investment is making on the world.

Jennifer Pagliara is a financial adviser with CapWealth Advisors, LLC, and a proud member of the millennial generation. Her column, which appears every other week in The Tennessean, speaks to her peers and anyone else that wants to get ahead financially.

Opinion: We’re long overdue for tax reform

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on Oct. 12, 2017.

The last time the U.S had any major tax reform was in 1986. That was 31 years ago – in the midst of birthing our millennial generation!

Throughout Donald Trump’s presidential campaign, tax reform was one of his biggest promises of change. And, truthfully, there has never been a better time for the GOP to create these changes with control of the White House and both houses of Congress.

A blast from the past

Let’s go back to the last time there was a major change to the tax code. (Some of us weren’t even born, yet, while others may have just started kindergarten.) At that time, Ronald Reagan was president, and the world looked like a much different place than it does today. The goal back then? To simplify the tax code and more fairly redistribute the tax burden. Sounds familiar, doesn’t it?

Some of the changes successfully made with the 1986 Tax Reform Act were similar to what’s being proposed in today’s reform package, such as consolidating and reducing the number of income tax levels. Another similar focus for both reform packages is on the loopholes that allow certain people to avoid paying taxes.

Three decades later

Since 1986, a number of loopholes, credits and deductions have been added to the tax code, accounting for a 44 percent growth in such additions and resulting in a tax code that went from 30,000 to 70,000 pages. (Are you shaking your head and wondering how that’s possible?)

Throughout our lifetime, lawmakers have added modifications intended to encourage certain behaviors — everything from buying hybrid vehicles to replacing your home’s windows; from adopting children to putting them in daycare. And, now we have a tax code that’s once again quite complicated and confusing — and in need of another major overhaul.

With that understanding in place, let me point out the framework of the changes proposed in the current tax reform package.

Changes for families and individuals

  • The number of individual tax rates would shrink from seven to three. Those rates would be 12, 25 and 35 percent. However, the income ranges have not yet been determined for those brackets.
  • The standard deduction increases to $12,000 for single filers and $24,000 for married ones.
  • The child credit would increase to $1,000 per child under the age of 17.
  • Most of the itemized deductions will be eliminated, which includes personal exemptions of $4,050.
  • There are still incentives for homeownership, retirement savings, charitable giving and higher education. Those deductions are staying around.
  • The alternative minimum tax (AMT) will be eliminated. This tax was designed to keep wealthy taxpayers from using loopholes to avoid paying taxes. It normally becomes effective for filers making between $200,000 and $1 million.
  • The estate tax would also be eliminated. This tax applied to the transfer of any estate valued over $5.49 million upon the death of the owner. Currently, an estate of this size is taxed at 40%; anything under $5.49 million is not taxed.

Changes for businesses

  • The corporate tax rate would be reduced from the current rate of 25 percent to 20 percent.
  • The reform also proposes changes to how multinational companies are taxed on profits made outside of the U.S. Currently, companies with overseas profits are only taxed when they bring those funds back into the U.S. The new tax reform states that those companies would be subject to the tax of the government where the money is made instead of just what’s brought into the U.S.

These changes are pretty drastic. The end goal is to put more money into the taxpayer’s hands and, in turn, into the economy, ultimately increasing GDP and boosting a healthier overall economy. Whether this proposed reform will pass still stands to be seen, but it is certainly time for a simplified tax code.

Jennifer Pagliara is a financial adviser with CapWealth Advisors.

Millennials: Are you expecting your parents to leave you an inheritance?

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on Sept. 29, 2017.

There are an endless number of reasons that people don’t like to talk about money. When you live in the South, it can be especially taboo. Navigating discussions about family wealth with children and young family members can be tricky, but nevertheless, it’s important to make the effort, especially for the young adults in the family.

Getty Images/Stockphoto

At this point, millennials stand to inherit $30 trillion dollars in assets from their foregoing generations. That will be the largest wealth transfer of any generation. However, some may be shocked at what they actually receive. According to a new Natixis U.S. Investor Survey, nearly 70 percent of young people expect to get an inheritance, while only 40 percent of parents plan to leave anything for their children.

While you might be cringing at the thought of bringing up this topic with your parents, it’s important that you have an open dialogue with them to understand their wishes and how that might possibly impact you. This could honestly save both you and your parents a lot of frustration, uncertainty and wasted time.

There are likely several reasons why your parents have not previously discussed their wishes with you. First of all, many people don’t want to confront the fact that they will die someday. Also, parents sometimes don’t want children to be aware of what they could inherit because it could hinder their motivation in life and in their careers. And finally, it can just be flat out uncomfortable.

Here are some tips on how to tactfully approach the subject with your parents:

Don’t go into the conversation with any expectations. You might be surprised by what your family has planned. There is a real possibility that your parents plan to spend their life savings during retirement and not leave you (or your siblings) anything.
Acknowledge that this might be an uncomfortable conversation but one you feel is important to have. A good segue into this discussion is to ask if they have a strategy in place to carry out their wishes after they pass away.

Take exact numbers off the table. Encourage the idea that it’s not about the amount they are leaving you; but rather, you want to understand how their wishes could impact your own planning.

Ask for their advice. Explain that you are beginning to take a more active role in planning for your own retirement and want to know if they have a will, power of attorney, insurance policies or any other estate planning documents in place. Ask for their suggestions on what you should be doing at your age.

Start small. If you are dreading a formal sit down, then simply start the conversation naturally when you feel the timing is right. However, if you have siblings, you might want to ask in advance if they would like to be included in the discussion so it can be at a time when they are around.

Don’t think of this as a one-and-done conversation. Financial situations can change as life change happens and as time goes on. Keep an open dialogue to ensure everyone maintains an understanding of what’s to come.

The most important thing to remember is that your inheritance is a contingent asset, meaning you have no control over whether or not you will receive the amount your parents intend to pass down to you. If you plan for your financial future as if you won’t receive it, you are only going to be better off if something does come your way.

Jennifer Pagliara is a financial adviser with CapWealth Advisors.

Don’t make these mistakes when insuring your home

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on Sept. 14, 2017.

Hurricanes Harvey and Irma have wreaked havoc over the past couple of weeks. Unfortunately, none of us can escape natural disasters; however, you can be proactive and ensure that your home and personal belongings are properly insured before a disaster strikes.

Photo: Michael Blann, Getty Images

Homeowners insurance is not something anyone wants to pay, especially when you have never had to file a claim. Nevertheless, it is necessary to ensure that the cost to rebuild or fix your home is covered. A standard homeowner’s insurance policy will provide the insurer costs related to damage of the interior and exterior of the home, often related to fire, hurricanes, lightning, vandalism or other covered disasters. However, damage not normally covered, which requires separate riders or add-on provisions, is that which results from flooding, earthquakes and poor home maintenance.

Even if you aren’t a homeowner. You can still protect your belongings through a renter’s policy. This policy does not provide coverage for the structure or dwelling where you live, but it will protect up to a certain amount of coverage for your personal belongings.  According to a Nationwide Insurance survey, an estimated 56 percent of renters between the ages of 23 and 35 do not have renters insurance. I assume that a lot of millennials skip on this because they believe their possessions are not valuable enough to insure. However, there is a big misconception around this fact that I will discuss below.

Below are a few common mistakes and misunderstandings about homeowner’s insurance:

Underinsuring your home

A common mistake insurers make is only buying enough coverage for the remaining balance of their mortgage or the current value of their home. Both would most likely not cover the amount it would cost to rebuild their home. A professional can better estimate of how much it would cost to completely rebuild your home, and certain agents provide this service for free. That is the amount you should aim to cover.

Understanding your coverage

It’s important to know exactly what your home insurance covers and what it doesn’t. If you don’t know how to read your policy, be sure to ask your insurance agent for specifics. For example, flood insurance is not generally part of a standard insurance package. Many here in Nashville experienced the flood of 2010, where most of the areas affected were not considered in flood plains, and thus did not have the appropriate coverage. According to FEMA, more than 20 percent of flood claims come from properties outside the high-risk flood zone. You will need an extra rider for flood and earthquake coverage.

Insurance isn’t just for possessions

Homeowners and renters insurance policies don’t just cover personal property. They also protect the insurer from liability lawsuits. If your dog bites a visitor or someone falls down your stairs and breaks his or her leg, your insurance will provide protection. You are liable for what occurs in your home (if you own it or not) and need to be covered. This is where renters can benefit from a policy regardless of the value of their possessions.

Cost

Do not fall into the trap of buying the cheapest policy available. Also, understand your deductibles. You might believe you only pay one flat deductible if you file a claim, but often for natural disasters, like hurricanes or earthquakes, you end up paying a percentage of your coverage which could be up to 5 percent for flood or 10 percent for an earthquake. If your coverage is $500,000, you could be out of pocket $25,000 or $50,000.

If you’re feeling overwhelmed with picking the right policy, utilize your insurance agent or financial advisor. That is what he or she is there for. It’s best to ask questions now before you are in a situation where it is too late.

Jennifer Pagliara is a financial advisor with CapWealth Advisors.

Millennials: Is social media use harming your finances?

The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on September 1, 2017.

How much time do you spend on social media every day? I can feel your dread as you count minutes, which often turn into hours, of your day lost to the online abyss. It is easy to spend five minutes on Facebook while in the checkout line of the grocery store or two minutes on Twitter at a stop light. No judgement from me. I am just as guilty as everyone else.

(Photo: Getty Images/iStockphoto)

The tiny computers we have in our hands have led us to escape into other people’s lives, if only for a minute or two, rather than deal with what is in front of us. We can scroll and like people’s pictures rather than process how we feel about events going on in our lives or the mountain of bills piling up. Now I realize that not all of my generation is like that. However, on a whole, I think the habit of escaping to social media is translating into harmful millennial financial behaviors.

 

Many of you might be scoffing at the idea that the time you spend online has any effect on your finances. However, I am here to discuss how it might be in ways that you didn’t even realize.

We know that money is always one of the top stressors for every generation. However, it is particularly weighing on millennials who potentially don’t have the knowledge or life experience to deal with money issues.

Too much debt is the No. 1 source of financial stress according to Student Loan Hero. When you are young and beginning your career, money is often quite tight. You add a large amount of debt on top of everything, and it can seem impossible to overcome. So what do you do? You ignore it.

I can’t stress enough that you will only make the problem worse by not facing it head on. Get off social media and come up with a plan.

In 2015, Deloitte found that 47 percent of purchases made by millennials were influenced by social media. So not only are we running to Instagram and SnapChat to escape what is happening in our lives, we are also buying things based on what we see on these platforms.

Everyone puts their best self on social media platforms. Even if we think that we are not gullible enough to fall for these advertisements, they are subtly influencing our spending behaviors. It is easy to want to “keep up with the Joneses.” We have all seen a friend or celebrity on social media that has caused us to try and find what he or she was wearing or research what they are selling. Your phone makes it possible to buy whatever you just saw with one click.

Millennials are notorious for spending more money on experiences than other generations, but we also like our conveniences and comforts. Charles Schwab found that we spend more money on coffee, “hot” restaurants and taxis/Ubers than older generations. So the next time you impulsively want to buy something, stop and think if you really need it.

3 Allowance Apps to Help Teach Your Children Financial Responsibility

The following column from Phoebe Venable, CapWealth Advisors President & COO, appeared in The Tennessean on August 24, 2017.

(Photo: daoleduc, Getty Images/iStockphoto)

The most common way to begin teaching financial responsibility to our children is by giving a weekly allowance. It’s a direct, effective approach that empowers children to make financial decisions for themselves.

Once a child must make her own decisions on whether to spend or save her own money, chances are she will begin viewing money very differently. If parents just dole out cash to pay for things the child wants, it’s easy for a child to see money as an abstract concept at best or an unlimited resource at worst.

Ownership changes the game. When it’s their own money, children begin to learn the difference between wants and needs. Making choices and prioritizing financial resources is a fact of life, and this is a child’s introduction to it.

Allowance no longer has to involve parents handing cash to their children once a week. Like almost everything else, there is now an app for that! Actually, there are many smartphone apps available to help parents and children manage their allowance. These apps can actually send the allowance, track spending, teach budgeting lessons and even monitor chores.

Do you have a list of chores on your refrigerator that your children can do for extra money? You can incorporate those chores into the app and get rid of the fridge list forever.

Unless your bank offers an app for children that is tied to an actual bank account, most of the allowance apps will create a virtual allowance for your child. Think of it as a “store credit” that your children have with you.

Every week, their allowance is added to this credit and with your permission, they can buy whatever they want. Parents still have to actually complete the purchase transaction but after that’s finished, the parent simply deducts that amount from the child’s virtual account by logging the transaction into the app.

There are a lot of choices for parents that want to use web-based software or a mobile app for managing allowances. Here are just a few that you might want to check out:

Bankaroo

This app is more appropriate for teens than younger children but it was actually developed by an 11-year old and her father. This virtual bank allows a teen to track their savings as well as what mom and dad owe them for chores. It also has tools for learning how to set goals, budget and even do some basic accounting. One nice feature not found on every allowance app is the ability for parents to remove funds so kids had better make sure they make their bed every morning!

iAllowance

While most allowance apps are free, iAllowance costs $3.99.  It’s another virtual allowance tracker for parents and kids with some nice features that we didn’t find in other apps. iAllowance can send reminders to the children about household chores or other responsibilities around the house. Parents can add extra money or rewards for good deeds or when the kids meet certain goals. When a child wants to spend some of their allowance, the parent simply taps their account to purchase the item and the amount is deducted from their balance.

Piggybot

This app is designed for kids ages 6 to 8 and not only tracks allowances and spending but also can show youngsters how much more they need to reach their goal and how long it will take to get there based on the child’s spending and savings habits. Using this app, kids can add pictures of the things they want and create a slide to show off the things they’ve already purchased. This can help teach the concept of goals and rewards. The app also has a feature where a child can share some of their money with a sibling.

It is important to remember that the role of allowance in a child’s life is to give them an opportunity to practice managing money—and that is all.

Joline Gofrey, author of “Raising Financially Fit Kids,” suggests parents repeat this mantra to themselves regularly: “An allowance is not an entitlement or a salary. It is a tool for teaching children how to manage money.”

Allowance apps can be a great way for our children to practice managing money.

Phoebe Venable, chartered financial analyst, is president and COO of CapWealth Advisors, LLC. Her column on women, families and building wealth appears every other Saturday in The Tennessean.

Link: http://www.tennessean.com/story/money/2017/08/24/3-allowance-apps-help-teach-your-children-financial-responsibility/593260001/

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