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How to Leave Your Legacy

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To leave a legacy means more than the dollars you leave in the pockets of your children. A legacy is an opportunity to have an impact after your time. You can ask yourself how you want to be remembered and what your core values are — and then put those answers into action. Here are four ways to leave a legacy for those you love.

Give back to your community.

If generosity and acts of service are among your core values, consider participating in volunteer activities with your community, which can be incredibly rewarding. You can take part in a fundraiser or donate your time or talent to a local nonprofit you’re passionate about. If you have an affinity for a particular cause, creating a charitable foundation can be a meaningful way to provide your loved ones with employment or board membership opportunities directly related to the cause you support. While a private foundation is certain to leave a powerful financial legacy, it also promotes collaboration, creativity, and continuity of your philanthropic vision. A foundation can be structured to operate indefinitely so that the lessons you leave to your heirs can be taught for generations to come.

Keep a record.

Record a video message or keep a journal. When a loved one passes away, it’s common to hear sentiments such as, “I wish I could see their face or hear their voice again.” Recording a video message is an opportunity to express your love, share your life experiences and values, and offer guidance to your loved ones. Think about answering questions such as:

• What do you love most about your family?

• What’s something you want your loved ones to remember about you?

• What do you hope the inheritance you leave your heirs will afford
them? (This can be material or immaterial.)

• What’s the most important lesson you hope your loved ones take to heart?

If a video feels too formal or induces stage fright, consider keeping a journal. Put it someplace you’ll see it often so that you can jot down daily observations, funny memories, random thoughts, and pieces of wisdom you want to pass along. There’s no need to copy edit or write multiple pages at once. Keeping a journal can be a low-pressure way of putting your personality to paper — a gift your loved ones will cherish when you’re gone (and possibly even pass along to their heirs!).

Create a will and/or a trust.

The act of creating a will and/or trust gives the absence of chaos to your heirs following your death. These documents outline who will inherit your assets as well as how and by whom they’ll be distributed. Putting your wishes in writing helps to prevent disputes and legal battles among your heirs. Additionally, a trust may be able to protect your assets from creditors, reduce estate taxes, and provide financial support to your beneficiaries. A trust can also prevent your heirs from having to participate in probate, a lengthy and often expensive formal court administration process that “proves” the legitimacy of your will after death. While far from glamorous, creating a will and/or trust is a generous and loving act of housekeeping that may spare your children from unnecessary additional suffering after your passing.

Start a family tradition.

Whether it be the smell of homemade birthday cake, music coming from the kitchen on Saturday mornings, or counting constellations from a tent under the open sky every summer, a tradition reinforces your family’s values and creates a sense of belonging. Establishing positive family traditions has proven to increase a child’s ability to form a strong sense of identity — an identity you have the opportunity to forever influence.

So, take that annual spring break trip with your loved ones. Contribute to your favorite charity and participate in their fundraising events. Record a legacy video for the important people in your life. A little preparation now will make for a meaningful transition for your heirs down the line.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

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Six Financial Challenges for Couples with an Age Gap

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Financial planning is never easy, but couples with a significant age gap face additional complexities due to differences in retirement eligibility dates, life expectancies, health issues, income needs, and more.

Following are six challenges for couples with a significant age difference, as well as strategies to help you navigate them.

1. Staggered retirement dates

Couples with a significant age gap may find themselves juggling different retirement dates. The older spouse may be ready to retire while the younger spouse is still enjoying prime earning years. The key to solving this challenge? Don’t even try!

From a financial perspective, there can be significant advantages to staggering your retirement dates. For example, the working spouse may be able to maintain employer-sponsored health insurance until both partners are eligible for Medicare. And any earnings that continue to come into the household can reduce the need to draw from retirement assets, therefore preserving the couple’s retirement savings.

Of course, if the lifestyle challenges of having one working spouse and one retired spouse are too much, consider a compromise. Perhaps the older spouse takes a part-time job for a few years and the younger spouse wraps up their career a few years earlier than originally planned.

2. Timing Social Security

Properly planning for Social Security is especially critical for couples with an age gap because the younger spouse has the potential to live significantly longer than the older spouse. This means the younger spouse may need to rely on a survivor benefit for an extended period of time.

If the older spouse is the primary earner, it may make sense for him/her to delay taking benefits until age 70. Doing so allows the Social Security benefits to grow by 8 percent each year, which can also result in a higher survivor benefit for the younger spouse.

In contrast, it may make sense for the younger spouse to begin receiving Social Security benefits as soon as possible, even if that means taking reduced benefits beginning at age 62. By doing so, the couple can receive as many years as possible of the younger spouse’s benefits. Then, when the older spouse passes away, the younger spouse may be eligible to receive survivor benefits at the older spouse’s higher rate.

3. Investment allocation

Typically as you near retirement, you begin to shift your investments from a growth-oriented strategy to a more income-oriented strategy. However, if there’s a significant age gap between you and your spouse, it may make sense to maintain a slightly more aggressive portfolio than your same-aged friends.

Remaining more aggressive provides your investments with additional time to stretch and grow, which will hopefully protect the income needs of the younger spouse later in life. And, because the younger spouse has a longer time horizon, he/she may have a better opportunity to recover from market volatility, should the value of your investments decline.

4. Life insurance

It often makes sense for an older spouse to implement a permanent life insurance policy that pays a tax-free death benefit to the younger spouse. Some policies even offer a rider to help pay for the costs of long-term care, which can take some pressure off the younger spouse, should the older spouse face health issues later in life.

5. Pension payments

If the older spouse is eligible to receive pension payments, it may make sense to elect a joint-and-survivor payout option. While this practice typically reduces the amount of the monthly payment to the household, it also helps ensure the younger spouse can continue receiving payments for the rest of his/her life, even after the older spouse passes away.

6. Estate planning

Estate planning for couples with an age gap can be especially complex. It’s important to take steps to ensure the younger spouse will continue to be financially secure following the older spouse’s death. Work with your wealth manager and estate planning attorney to implement the necessary documents, including wills, trusts, financial powers of attorney, and healthcare powers of attorney. This will help ensure both spouse’s wishes are properly reflected in your estate plan.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com

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Investing in Uncertainty

Photo: Andrii Yalanskyi | Dreamstime.com

As part of the Observatory (our financial planning process), our investors unsurprisingly end up with, well, investments. These allocations are based on client need, desire, and ability to take risk, and the allocations tend to not frequently change over time. A client’s portfolio here is not based on an assumption of all sunshine and rainbows, but rather a review of history, including market declines in March of 2020, 2008, 2000, 1987, and even more obscure disturbances like the events of 1997 and 1937.

In our Observatory process, we don’t model any sort of attempt to predict or avoid these events. Instead, we model a disciplined approach of staying invested and taking opportunities to rebalance into equity markets after drawdowns. This approach has worked well in the past, and our view is that it will continue to work in the future. Nevertheless, there’s a fundamental human desire to avoid risk at all costs, especially when things seem particularly risky, and there are always a few clients eager to “get defensive until the uncertainty subsides” in every market environment.

For our investors, we believe we preemptively position defensively through allocations to short- and intermediate-term bonds. Those bonds aren’t there for the good times — in fact, they are a drag on performance when stock markets are strong. Bonds shine after a serious stock market downturn when they possibly contribute some total return. More importantly, they serve as a source of cash to rebalance into equities (just when equities have declined and become more attractively priced). We believe selling stocks and adding to bond allocations or going to all cash after a big market decline is the worst time to do so.

I was listening to the radio recently, and the host asked a guest, “… but what’s the point of economic modeling at a time of such great uncertainty as this?” I couldn’t help but laugh out loud. The host was referring to the Ukraine invasion, and he seemed to be implying that a forecast made the day before Russia invaded would be much more appropriate than one made the day after since so much “uncertainty” would be introduced by the conflict. I laughed because all forecasts are equally based on ex ante information and therefore don’t incorporate the unknowable future. Forecasts made confidently when things seem certain are likely the worst forecasts of all! The situation in Ukraine has become more certain today than at any time in the last decade or so. The greatest unknown — the question of whether Russia would dare a full-scale invasion of Ukraine — is uncertain no longer.

Stepping back, when in the past was there not uncertainty? Markets have performed exceptionally well for many decades, but we know that only because of the prescience of hindsight. Following the 2008 financial crisis, the U.S. stock market bottomed out quickly in March of 2009 and has provided extremely attractive returns ever since, but we sure didn’t know that was going to happen back then. There were concerns that banks would fail, cash would stop coming out of ATMs, and life as we know it would grind to a halt. The last decade was an exceptional one for investors, but who could have credibly predicted that in 2010?

As Yogi Berra said, it’s tough to make predictions, especially about the future. We are certain that the future will contain some difficult times, and that’s okay. If we devote all our efforts to avoiding the bad times, we’ll miss the good times too. If history is any guide, the good times will continue to be good enough to offset the bad in the years and decades to come — but only if you stay invested.

Gene Gard CFA, CFP, CFT-I, is Chief Investment Officer at Telarray, a Memphis-based wealth management firm that helps families navigate investment, tax, estate, and retirement decisions. Ask him your question at ggard@telarrayadvisors.com or sign up for the next free online seminar on the Events tab at telarrayadvisors.com.

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Terms of Confusion: Value vs. Growth

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Question: I see a lot of articles about value vs. growth and which stock will do better over time, but I’m not sure what that means. What should an average investor know about value and growth? 

Answer: This is a confusing topic because there are many definitions and they are used loosely and interchangeably. Here are a few examples of what value and growth mean to different people: 

Professors Eugene Fama and Kenneth French did research into factors that drive investment returns. Dividing the overall market value of a company by the value of assets they own creates a metric called the “price-to-book” (p/b) ratio. This is one way of considering whether a company is cheap or expensive. Famously, the Fama-French research found that cheap stocks (low p/b) tend to outperform expensive stocks (high p/b). They called the cheap stocks “value” and the expensive stocks “growth.” It’s unfortunate that they decided to use these terms because “growth” sounds much more alluring than “expensive,” which is what the authors really meant by growth in this context. 

There’s a category of active investment managers known as value investors, and they don’t give a darn how a couple of finance professors define value and growth. Value investors simply like to try to buy a dollar for less than a dollar by finding undervalued, underpriced, misunderstood opportunities. Their picks might often have a low p/b ratio but just as easily might not. For example, Alphabet (Google) is a position widely held by value investors today. They likely choose it not because it is cheap by traditional valuation metrics, but rather because they believe there are aspects of the company the market doesn’t fully understand or appreciate. A value investor could easily buy an “expensive” stock like Google if their calculations suggest it’s worth more than its market price today. Note that expensive and cheap have nothing to do with the share price. In this context, it doesn’t matter if the share price is $5 or $5,000. 

A more informal definition of value vs. growth has to do with earnings.  Companies that are growing quickly might not pay a dividend today, but the promise of big future dividends or an eventual payout due to the company being acquired is enough to draw investors in. These are often referred to as growth companies. Mature companies that are not growing quickly attract investors through things like dividends, share buybacks, and mergers and are considered value companies. This is probably the least clearly defined facet of value vs. growth, and is probably best summarized as young companies (growth) vs. mature companies (value). There’s no widely accepted definition here, but most people know it when they see it. 

To further confuse things, there is the matter of mutual fund regulation. Each fund is required to state a prospectus objective. A pure bond fund with the goal of generating investment income from bond coupons is likely to have an income objective. A stock fund targeting share price appreciation with little or no dividend yield tends to state growth as an objective. Funds targeting a mix of the two often declare they are “growth and income” funds. Here, growth means “stuff we hope will increase in price over time,” or just stock exposure. It has nothing to do with the specific qualities of the companies being purchased. 

When an average person chooses funds in a 401k, they probably aren’t applying any of these definitions. Sadly, it can end up being like a Rorschach test — does value or growth define you as a person? (Side note: Don’t pick funds like this!) 

There’s a deep desire in our reductionist culture to simplify complex concepts into single numbers or labels, which is the reason why the investment community has tried to cram a wide variety of concepts into these two simple terms. There’s no simple answer that will always work perfectly in every market environment; otherwise, everyone would be doing it and we wouldn’t be having this conversation.  

Whether you choose your own investments or use an advisor, always make investment decisions deliberately and with full understanding of how investments are picked by the fund manager and why.  A mistake compounded over time can have profound negative implications, just as good choices can pave the long-term path to a secure financial future, whether those choices are labeled value, growth, or something else entirely.
Gene Gard is Co-Chief-Investment Officer at Telarray, a Memphis-based wealth management firm that helps families navigate investment, tax, estate, and retirement decisions.