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How Has the Pandemic Affected Divorce?

CREDIT: Ilia Burdun | Dreamstime.com

How tired are we of the COVID virus and the ensuing lockdowns, employment loss, and total disruption of our way of life? Luckily, humans are very adaptable (Zoom, masks, six feet apart, online shopping), and the rollout of vaccines (though slow) gives us a glimmer of hope that the “end” is coming this year. We will certainly be a different country at some levels, but many of the problems from the past are still there and will surely resurrect as some level of normalcy returns.

As a Certified Divorce Financial Analyst, I tend to look at trends in divorce and found conflicting information on the surge or diminishment of divorce during the pandemic: New York Post: “Divorce rates skyrocket in U.S. amid COVID-19 pandemic”; Institute for Family Studies: “Divorce is down during COVID”; Web MD: “Pandemic Drives Couples to Divorce or to Seek Help”; Bloomberg.com: “Divorces and Marriages Tumbled in U.S. during COVID, Study Shows.”

Ilia Burdun | Dreamstime.com

At first glance, it would seem that divorces would spike during such a stressful time, given that money (or lack of) is a top conflict behind many marriage dissolutions. However, as with the Great Recession in 2008/2009, it might be a money issue that actually keeps a couple tied together until a recession — or pandemic — ends. Additionally, the shutdown of courthouses and law offices this spring most surely slowed many in-progress filings, so I have to believe that any trends that emerged in 2020 might be short-lived.

If you are happily married, I congratulate you! You can finish reading this article and keep it in mind when you converse with friends who might not be so happy. If you are contemplating a separation or divorce, I wanted to give you some ideas on important topics you should consider as you work through this process.

Know about your money. Know what you have (assets), know what you earn (income), and know what you need (budget). If you don’t know anything about your money, you must learn. Get copies of bank account statements, 401ks, pension benefits, etc. and become familiar with them. This allows you to begin to understand the effects of a divorce prior to actually starting the process and helps put you in a position of strength for negotiation. Knowledge is key.

Hire experts to help you. A good family law attorney can advise you on the divorce process and potential issues that might arise. A good financial advisor (CDFA) can take your information and project success or pitfalls in your current or future living objectives. Knowledge is key.

Deciding to divorce should be the most emotional part of the process for you. Once you have made the choice to pull the trigger, remember to keep your emotions in check. Anger, fear, resentment, and hostility are all valid feelings, and I encourage you to work through these issues with a trusted friend or counselor. But if you let these feelings drive your process, you will be miserable and potentially make costly mistakes. Calm is key.

Protect your children and yourself at all costs. If you are in an abusive relationship or fear for your life, leave. If you are not, be watchful during the process to make sure it doesn’t become abusive. And whatever you do, never talk bad about the other spouse to the kids that you have with that spouse. No matter the age, children will feel some sense of responsibility to protect their love for that parent. This is a position you should never put them in. Love is key.

I hope that divorce isn’t in your future, but if it is, remember to be knowledgeable, calm and protective.

Kathy Williams, CFP, CDFA, is Principal and Senior Wealth Strategist at Waddell & Associates.

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Pros and Cons on Trending Stocks

The holiday season is upon us. Although gatherings may be untraditional this year, some usual dinner topics may still arise. To help avoid politically charged conversations or the infamous “when are you getting married?” question, wow your guests with tips regarding these three stocks.

Tesla — led by CEO Elon Musk, co-founder of PayPal and founder of SpaceX — is the world’s leading maker of electric vehicles. The company share price has surged over 500 percent during the past year and the stock was recently added to the S&P 500 index.

Why you would buy: Tesla’s long-range electronic vehicle and battery technology can store solar energy that is generated from its own products. The cost advantage of recharging over gasoline will eventually pay for itself, and it is believed that gas will not be able to keep up. Importantly, the company has experienced four consecutive quarters of profitability.

Why you would pass: Mass electronic adoption in vehicles could take longer than Tesla expects. If the projected demand does not pan out, the company may struggle to maintain profitability. Other car manufacturers have jumped on the electronic vehicle bandwagon, so competition is coming to the table. Finally, Elon Musk’s behavior can be erratic at times.

Cannabis stocks experienced recent momentum with increased U.S. legalization during the November elections. Marijuana is legal in 33 states plus D.C., and it is recreationally legal in 11 of these states. Our north-of-the-border neighbor, Canada, also fully legalized cannabis in 2018. There are several ways to invest in cannabis companies, including but not limited to Aphria, Canopy Growth, Tilray, or the ETF (exchange-traded fund) ETFMG Alternative Harvest (ticker MJ).

Why you would buy: Cannabis is one of the fastest-growing industries across the world, and some experts predict the marijuana industry to triple in the next five years. Although there has been recent momentum, the industry is still in a correction, which could make for a good buying opportunity.

Why you would pass: Despite recent legalization, the possibility of national legalization remains tenuous and federal legalization is not guaranteed. The thriving black market also puts significant pricing pressure on legal operators.

Bitcoin is the world’s most popular cryptocurrency. Its stock price surged in 2020, rising over 130 percent as many viewed the crypto as a safe-haven investment in the wake of the coronavirus recession.

Why you would buy: As the U.S. continues to increase the national debt in response to the virus, Bitcoin could be a good inflation hedge. Also, PayPal recently announced it will allow users to buy, sell, and hold cryptocurrencies, which makes buying the crypto very easy and introduces possible future merchant adoption.

Why you would pass: Even with PayPal’s announcement, there is still not a lot of tangible use for the currency. It also lacks standardization and regulation around trading. Furthermore, the currency is now only 12 percent below its highest value and therefore might not be a good entry point at this time.

The pandemic also produced many high-flyer stocks that have capitalized on mandated shutdowns. But it is unlikely the momentum will last as vaccines become readily available. Zoom Video Communications has been one of the best performing stocks in the Russell 3000, up over 487 percent on the year. Peloton Interactive, a producer of at-home workout equipment, is up over 258 percent on the year.

The pandemic has provided numerous investing opportunities across different sectors. Having a few talking points on several stock ideas will impress your guests. But the most important thing to remember is that when investing in specific companies, it is critical to always do so in a diversified manner, and not based solely on dinner table turkey talk.

Source: Morningstar. Waddell & Associates is not making a recommendation to buy or sell any of the equities mentioned in this article. Sean Gould, CPA/PFS, CFP, is a Senior Wealth Strategist with Waddell & Associates.

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How Do Presidential Elections Affect Your Investments?

Election Day — Tuesday, November 3rd — is almost upon us! After a long, unique campaign during the COVID pandemic, Americans who exercise their right to vote are choosing a president, senators, congresspersons, and a whole host of local politicians. Let’s hope we know the results on November 4th!

How will the election impact your long-term investments? Much speculation has been bandied about how the U.S. stock market will react. Pundits on the various business television channels (and Cheddar) are gaining PR exposure by making their own predictions of coming stock market gains or losses post-Election Day. Of course, many of these prognosticators are primarily seeking attention, so the more extreme their views, the more likely their comments will be promoted and shared.

This chart quantifies how much $100 invested in the total U.S. market on the Election Day would have grown during the terms of the last 12 past presidents.

Should long-term investors worry about this chatter? Many of us have passionate opinions about our political choices, but should we act on our convictions when it comes to election-influenced short-term volatility in the stock market?

It may come as a surprise to know, according to Forbes magazine research, stock market returns for the six Democratic presidents since 1952 have averaged 10.6 percent/year versus 4.8 percent/year for seven Republican presidents.

Richard Nixon and George W. Bush really brought the Republican average down with cumulative losses of 20 percent and 40 percent, respectively. In the Nixon years, stagflation took hold — high inflation, slow growth, and high unemployment. The stock market fell 50 percent from the beginning of 1973 to two months after his resignation due to the Watergate scandal. Bush’s term started with the dot-com bust and ended with the financial crisis — the “lost decade” for the U.S. stock market.

Investors profited during the eight-year terms of Bill Clinton, Barack Obama, Dwight Eisenhower, and Ronald Reagan (from best to fourth best) as economic recoveries and expansions took hold.

Back to our question. Should long-term investors care about short-term volatility that often surrounds a presidential election? Stock markets over the long term reflect the growth and profitability of public corporations. Corporations have a long, successful history of adjusting to changing tax, regulatory, and global trade policies. This will continue to be the case for the 2020 presidential election and those to come.

Therefore, vote for the values and leadership for which you are passionate. Whatever the outcome, according to Forbes research, take comfort that the “buy and hold” investment strategy is the best policy for the long-term investor.

Carol Lee Royer, CFP, CFA, CDFA, is senior vice president and senior wealth strategist for Waddell & Associates.

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Hello There! I Have a Date For You

CREDIT: Zimmytws | Dreamstime.comS

You might have read the above headlines and thought “Oh, fun! A date!” It’s a trap, but I make no apologies, as I needed to say something other than “Medicare” to get your attention. Now that I have you, I hope I can keep you a little longer.

With all things governmental, there are special dates that must be observed. April 15th for taxes. December 31st for year-end. Turn 18 and you can vote. Medicare also has dates, but luckily there are ranges that give windows of opportunities to add or make changes to Medicare choices. Since we are now at the beginning of one of those windows, I thought it would be helpful to understand what they mean and why you might be interested in the opportunities afforded.

Zimmytws | Dreamstime.comS

What are those letters again? Here is a quick primer of Medicare parts:

Part A covers hospitalization and is generally available to you at no charge.

Part B covers doctors and has a monthly premium that can be increased/decreased each year based on your modified adjusted gross income.

Part C is Medicare Advantage, which includes Parts A and B and sometimes Part D, but plans are limited to your local area and resemble HMOs or PPOs. There is a premium that is based upon the plan options you choose. Part C is provided through a Medicare-approved private company and might also offer vision and dental coverage.

Part D covers prescriptions and has a monthly premium.

As a rule, you will file for Medicare Part A at age 65 since there is no cost to you if you are a covered worker. Also as a rule, you will file for Medicare Part B and Part D at age 65 or when you lose creditable employer coverage, whichever comes last. Why the difference? While you are covered at work, there is no need to additionally pay the Medicare premium for Part B and D. This applies if your company has 20 or more employees, so check with your HR department to verify before you delay.

So, what are the special dates for Medicare?

Initial enrollment period (for all parts): seven-month period of first eligibility, which includes the three months prior, the month of, and the three months after your 65th birthday.

Special enrollment period (for all parts): eight-month period starting the month after your employment ends or your current employment group insurance ends. Note this does not include COBRA coverage or retiree health plans, as these are not considered current employee coverage.

General enrollment period (if you didn’t sign up during the initial or special enrollment periods): January 1st through March 31st each year. Coverage will start July 1st, and premiums could be higher if you didn’t sign up when you were first eligible.

Open enrollment period (Parts C and D): October 15th through December 7th each year. This period allows you to add Part D if you didn’t when you first enrolled in Medicare (there could be a higher premium), switch from Original Medicare (Parts A and B) to Medicare Advantage (Part C) or back if you started with Part C, switch from one Part D plan to another Part D plan, or drop your Part D coverage completely.

As you can imagine, there are plenty of “if this, then that” scenarios involved with Medicare. If you fail to obtain coverage in a timely manner, premiums can be permanently increased and you might find yourself without coverage for a period of time. But if you are observant of the important deadlines and are timely in your actions (this is where your wealth strategist can help), you can successfully navigate your dates.

Kathy Williams, CFP, CDFA, is Principal and Senior Wealth Strategist at Waddell & Associates.

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Independence Day: Charting Your Path to Financial Freedom

Financial planning tends to focus on retirement planning — that holy grail where we ride off into the sunset (literally, to some beach chairs) and never work again while living comfortably off of retirement plan savings and income. Retirement planning is a nice ideal and important, but there can be much more to financial planning than preparing for our last 25 to 30 years. A broader financial planning discipline may have more appeal to you — financial independence.

It’s fairly self-explanatory: The concept is to reach a point where your financial assets can support your living expenses, so you no longer need to work or depend on earned income. Essentially, your time is your own.

Shifting from retirement planning to financial independence helps move the financial concept from a daunting, long-term goal to a process with benefits along the way. It also addresses those blessed people who love their businesses or jobs. In those situations, a full-stop retirement date may not have an appeal, but they still want the freedom to work when, where, and how they prefer — in other words, independence.

What steps can you take to start the road to financial independence?

Let’s start with the foundational equations of finance. For annual income, savings equals income minus expenses, and for financial position, net worth equals assets minus debt.

In the annual income equation, expenses and savings deserve equal attention. The rule of thumb is that you can safely withdraw 4 percent of your investment assets each year, make increases for inflation, and still have assets remaining after 30 years. By inverting the 4 percent withdrawal rule, you should target accumulating 25 times your annual living expenses (e.g. $60,000 annual spending x 25 = $1,500,000 target investment assets).

It is important to dial in your spending number to provide an accurate, realistic target. I advise my clients, regardless of income level, to establish some sort of budget plan. Knowing expenses allows the opportunity for review and adjustment. There are articles that extol the benefits of cutting out Starbucks coffees, but the real focus should be paid to the big three — home, vehicles, and food. Making conscious decisions like staying below the housing cost guideline (housing costs less than 28 percent of income) and making reasonable vehicle purchases help keep expenses at a moderate level and allow for increased savings. Another important factor is avoiding lifestyle creep, in which expenses instead of savings grow with income.

The traditional retirement savings target is 10 percent to 15 percent of annual income. That savings rate over a career should ensure that you can retire and maintain a similar lifestyle in retirement. A 15 percent savings level should be the baseline, with increases shortening your time to financial independence.

There are people who take it to another level, such as the FIRE (Financial Independence, Retire Early) movement that aims for a 40 percent to 50 percent savings rate. Prioritizing savings to that level may not be practical or feasible, but anything over 15 percent will accelerate your timeline and immediately impact your financial position.

There is a hierarchy of savings that helps maximize efficiency while taking advantage of the tax code. After reserving an emergency cash fund (three months to six months worth of living expenses), prioritize savings to 401(k) or 403(b) plans that offer a matching contribution. Next, target any higher-interest loans (anything above 6 percent). Then, contribute to health savings accounts and Roth IRAs if you are eligible. Last, save to brokerage accounts up to your targeted savings rate.

Saving is simple. Sometimes all you need is the right advisor in your corner to assist with an individualized plan that you can follow. With these tips and a little guidance, reaching financial independence is possible, regardless of your age and salary. Plan now and enjoy your freedom later.

Tim Ellis, CPA/PFS, CFP, is senior investment strategist and wealth strategist for Waddell & Associates. He can be reached at tim@waddellandassociates.com.