CFP® Pro Tip of the Week - July 20, 2018: Homeowners Insurance

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2015 Economic Intermission

Every January, I outline the big issues and economic predictions for the year ahead. With six months down, the Independence Day weekend is a perfect intermission, where we can review the highs and lows of Act I, and look ahead to Act II. US Economy: There were great hopes coming into the year, but a trio of events conspired to dash them. For the third time in five years, the US economy contracted in the first quarter of the year (2011, 2014 and now 2015). The combination of bad winter weather, the West Coast port shutdown and shrinking investment in the energy sector due to lower oil prices, caused Q1 GDP to shrink by 0.2 percent. There are a number of encouraging signs that growth has snapped back in the second quarter and beyond: Despite a weak reading in March, job growth is accelerating and wages are edging up; new and existing home sales have reached six to seven hear highs; personal income and spending have jumped; and consumer sentiment is at a five-month high.

Federal Reserve Rate Hikes: Back in January, I predicted that “the first rate hike will occur in the third quarter of the year.” I’m sticking to my guesstimate that the Fed will increase rates for the first time in over nine years at the September meeting, especially after Fed Chair Janet Yellen said that she expects “the economic data to strengthen.”

Oil: Oil prices bounced up from the $40-lows to $60 per barrel and have settled into a trading range. While drivers may miss those sub-$2/gallon prices at the pumps, they can take solace in the fact that prices are down about 90 cents from a year ago.

Housing: The improving economy and labor market, combined with still-low mortgage rates and loosening credit conditions, should help housing in the second half of the year.

Markets: Stocks have bounced around a bit more this year than last, but the story is the same: Investors are laser-focused on Fed rate hikes and the bond yields appear to have started the long-anticipated drop in price and rise in yields.

Greece: I didn’t specifically mention Greece back in January, but I would put this under the category of “geopolitical”. After a five-month standoff, Euro group leaders and Greece officials came to a major impasse at the end of June. At issue was €7.2 of European rescue funds, which Greece needs to make loan repayments throughout this summer. In order to get the lifeline from the Euro group, Greece must agree to more taxes and an increase in employee pension contributions. Greece’s Prime Minister Alexis Tsipras called for a surprise referendum for July 5^th, where Greek citizens will have the opportunity to vote on the euro group’s demands and essentially determine whether or not the country remains in the euro zone.

As always, these big picture events are out of your hands, but during the economic intermission here are some actions you can take in your financial life to gain control!

Investments: Review your investment accounts and be sure to rebalance them so that your asset allocations remain in check. Make sure that your allocation remains at your desired levels. If you don’t know what’s the right allocation for you, there are plenty of resources on line that help incorporate your risk tolerance and your investment time horizon. Remember that rebalancing a diversified portfolio is not meant to time the market, but it should help you sell high and buy low, when your emotions might otherwise prevent you from doing so.

If you have any big expenses coming up within the next 12 months, like a college tuition or a home down payment, it’s time to free up cash. You don’t want to risk having to sell an asset if it happens to be down at the wrong moment. Finally, if you work with a financial advisor or broker, schedule an appointment to review your progress. Ask a lot of questions and clarify how you pay for the services.

Retirement: Use EBRI’s “Choose to Save Ballpark E$timate” (www.choosetosave.org/ballpark/) to calculate where you stand. If your cash flow has improved, bump up your retirement plan contribution, even if it's just by one percent!

Homeowners and Renters insurance: Make sure that your property insurance is up to date, especially with the summer tornado, fire and hurricane season upon us. It’s important to review your policy before an event occurs, to make sure that it is adequate. The three biggest mistakes that people make with their homeowners or renters insurance are: 1) under-insuring; 2) shopping for price only and not comparing apples to apples; and 3) not reading policy details before a loss occurs. If you have questions, give your sales agent a jingle and he or she can walk you through some of the fine print.

Estate Planning: Hire a qualified estate attorney to prepare a will, power of attorney and health care proxy/living will. Those with larger estates, or who want more control over the disposition of their assets, may want to consider a revocable or changeable trust. In 2015, the estate tax exemptions are $5.43 million for individuals and $10.86 million for couples.

Halftime for the Economy and YOU!

In the beginning of the year, I dusted off the crystal ball and made some predictions about 2014. At mid-year, it’s time to see how those guesstimates stack up. Economic growth: Who knew that Polar Vortex would put the deep freeze on 2014 economic predictions? We now know that the economy contracted by an annualized pace of 2.9 percent in the first quarter, the worst quarterly showing since the recession. Although Q1 will screw up the year, economists still believe that growth will increase to 3 percent by the end of the year, which would leave growth for the full year at about 2.25 percent, matching the ploddingly slow pace of the past four years.

Jobs: Back in January, estimates for 2014 monthly job creation stood at 225,000. Despite the rotten weather, job creation through May has averaged 214,000, the fastest pace in 15 yearsand the unemployment rate has dipped to 6.3 percent. Additionally, weekly jobless claims are now just above their post-recession low and are at least back down to where they were prior to the recession's start in late 2007. This year alone has seen advances; with the number of people seeking unemployment benefits falling 10 percent since the first week of January.

Housing: 2014 got off to a very slow start for housing. A combination of bad weather, low inventory and high prices in some markets reduced activity in the beginning of the year. Recent data have been more encouraging and with mortgage rates remaining relatively low and banks lending a bit more freely, housing should see progress in the second half of the year.

Investors: After the S&P 500 soared by 30 percent in 2013, expectations were pretty low for this year. Still, stocks continued to move higher, despite an early spring tech/biotech selloff. The S&P 500 managed a 6 percent gain in the first half of the year. Now the big concern is that investors have become complacent about volatility and risk.

What could go wrong? The big threat today is an escalation of violence in the Middle East, which could cause a spike in energy prices. The next biggest risk is that the Federal Reserve screws up the unwinding of its policy. If the central bank reduces its bond purchases too quickly and raises interest rates sooner than expected, the economy could falter and investors could get spooked. Conversely, going too slowly might create a speculative bubble or catch the central bank flatfooted, if inflation emerges.

All of these macro factors are out of your hands, but at mid-year, here are some actions you can take in your financial life to gain control!

Investments: Market highs are the perfect time for long-term investors to rebalance accounts so that allocations remain in check. This requires that you override your emotional urge to keep winning funds and dump those that are lagging. But that’s the point of asset allocation—various funds are supposed to move in different directions at different points in the economic cycle.

Retirement: Still haven’t calculated your number? Use EBRI’s “Choose to Save Ballpark E$timate” or check out your retirement plan/401(k) website for retirement tools.

Homeowners and Renters insurance: Don’t wait for a natural disaster to occur before you review your insurance. The three biggest mistakes that people make with their homeowners or renters insurance are: 1) under-insuring; 2) shopping for price only and not comparing apples to apples; and 3) not reading policy details before a loss occurs.

Estate Planning: PLEASE DRAFT/UPDATE YOUR WILL! I advise hiring a lawyer to prepare a will, power of attorney and health care proxy/living will. If you insist on doing it yourself, you can use a software program like Quicken WillMaker. All of your estate documents and final instructions should be stored in a safe place – don’t forget to provide copies to your executor/trustee. Those with larger estates, or who want more control over the disposition of assets, may consider a revocable or changeable trust.

#172 Summer Finances; Mortgage Market Update

The Summer Solstice occurs on Saturday June 21st at 6:51am EDT. The start of summer often means that people disconnect from their money issues -- not so fast! We have a great guest who discusses the current mortgage market and also field lots of great retirement questions.

• Download the podcast on iTunes
• Download the podcast on feedburner
• Download this week's show (MP3)

Michael Raimi, VP of PMAC Lending, has been in the mortgage business for a long time, so when he says that there are some positive developments in the market, we should listen! There's good news for jumbo borrowers, but Mike cautions that anyone starting the mortgage process will need to do three things: (1) check your credit to make sure that there are no errors on your record (2) Understand the real cost of owning, including property taxes and homeowners' insurance (3) Bring your patience and perseverance to the process!

Retirement planning was on the minds of Lenny and Pat, both of whom are wising considering how they will manage their assets after retirement. Joe is wondering whether he can tap some of his retirement funds to purchase a beach condo.

Jesse has extra money to invest and wants to know where to direct it; Robert is seeking higher returns for his emergency reserve funds; and Rick wondered about a charge in his retirement account.

Thanks to everyone who participated and to Mark, the BEST producer in the world. Check out Mark's first-producing credit for this CBS Evening News segment that aired recently. If you have a financial question, there are lots of ways to contact us:

• Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

• Send an email: askjill@jillonmoney.com 

• Tweet us: @jillonmoney and @MTalercio

#171 Father's Day, Hurricane Preparedness

This is my first Father's Day without Big Al. Last year, Dad joined the show to impart some of his unique wisdom. This year, I have just his memory and all of the great advice that he imparted. You can read Big Al's Financial Advice on this blog and also see a picture of my father in action on the floor of the American Stock Exchange.

• Download the podcast on iTunes
• Download the podcast on feedburner
• Download this week's show (MP3)

Hurricane season runs from June 1st through November 30th, so we thought it would be a good idea to invite Stephen Testa, President of Testa Brothers Insurance as our guest. Stephen provided great advice on how to prepare for any kind of disaster and what you need to know about your policy before and after the storm.

Listeners Dave and Kathleen needed help thinking about a traditional retirement vehicles vs. Roth IRAs; Vivek wants to save for college, but doesn't want to use a 529 plan; and John wants to know whether he is in a good position to retire.

Thanks to everyone who participated and to Mark, the BEST producer in the world. Check out Mark's first-producing credit for this CBS Evening News segment that aired recently. If you have a financial question, there are lots of ways to contact us:

• Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

• Send an email: askjill@jillonmoney.com 

• Tweet us: @jillonmoney and @MTalercio

Mid-year financial update: What to do with your money now

The Federal Reserve has thrown a wrench into what was shaping up to be a very good six months for investors. Since you can’t do much about the timing of the Fed’s policies and the gyrations in the market, six months into the year is a perfect time to revisit the financial issues over which you actually have control: your investments, retirement savings and some of those other financial to-do’s that have been on your list for a while.  Investments: Quit complaining about the markets and DO SOMETHING. Remember that if you are a long-term investor, periodic market pullbacks are great opportunities to rebalance your accounts so that your allocation remains in check. This requires that you override your emotional urge to keep winning funds and dump those that are lagging. But that’s the point of asset allocation—various funds are supposed to move in different directions at different points in the economic cycle.

Bonds: Given the recent move in the bond markets, you may be tempted to sell all of your bonds. But of course that would be market timing and you are not going to fall for that, are you? Here are alternatives to a wholesale dismissal of the fixed income asset class:

• Lower your duration: This can be as easy as moving from a longer-term bond into a shorter one. Of course, when you go shorter, you will give up yield. It may be worth it for you to make a little less current income in exchange for diminished volatility in your portfolio.
• Use corporate bonds: Corporate bonds are less sensitive to interest-rate risk than government bonds. This does not mean that corporate bonds will avoid losses in a rising interest rate environment, but the declines are usually less than those for Treasuries.
• Explore floating rate notes: Floating rate loan funds invest in non-investment-grade bank loans whose coupons "float" based on the prevailing interest rate market, which allows them to reduce duration risk.
• Keep extra cash on hand: Cash, the ultimate fixed asset, can provide you with a unique opportunity in a rising interest rate market: the ability to purchase higher yielding securities on your own timetable.

Retirement: Many people say they are worried about retirement, but most of them haven’t done any planning to help themselves. Any conversation about retirement must start with an easy step: calculating  your retirement numbers. EBRI’s “Choose to Save Ballpark E$timate” (www.choosetosave.org/ballpark/) is easy to use, or check out your retirement plan/401(k) website for more retirement tools.

Homeowners and Renters insurance: It seems like the past year has seen an unusual number of natural disasters from tornados to hurricanes to wild fires. Summer often brings more scary weather, so before an event occurs; make sure that your current coverage is adequate. The three biggest mistakes that people make with their homeowners or renters insurance are: 1) under-insuring; 2) shopping for price only and not comparing apples to apples; and 3) not reading policy details before a loss occurs.

Estate Planning: If you haven’t done so already, PLEASE DRAFT A WILL! I advise hiring a lawyer to prepare a will, power of attorney and health care proxy/living will. If you insist on doing it yourself, you can use a software program like Quicken WillMaker. All of your estate documents and final instructions should be stored in a safe place – don’t forget to provide copies to your executor/trustee.

If your total estate is greater than $5.25 million this year, a revocable or changeable trust will shelter your unified tax credit against federal estate and gift taxes. Many states impose a state death tax at lower levels, so check the rules. Even if your estate is unlikely to incur estate taxes, you may want a trust to better control the disposition of your assets. Revocable trust assets are not subject to probate.

Volatile markets are always unsettling, but doing what you can now, may help you feel more in control and enjoy the second half of the year a little more.

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