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SH&J Blog

Q3 Market Update: Awaiting Uncertainty

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We have arrived at the time of year where a few things are certain. The air around us will become cooler, days will become shorter, flu season is near and the holidays are fast-approaching. This year will look different than last, as we continue to navigate our lives during a pandemic, global recession, and what just so happens to be an election year. The familiarity of this season seems to be overshadowed by the uncertainties of what is to come. Will there be a vaccine for coronavirus soon? How will the results of the upcoming election affect the future? What will the winter months look like during a pandemic? The dichotomy between a still-struggling economy and a recovering stock market, makes this time a bit more complicated. 

We have made it through 7 months of uncertain times. We have survived government mandated stay-at-home orders, a transition for many to working remotely, and minimizing interactions with others. As a society, we are resilient, so in a time where uncertainty may feel overwhelming—we know we will see the other side!

An Economy on the Mend

The coronavirus recession has been financially devastating for many Americans, but it also has been advantageous for others. Many people found themselves out of work and worried about paying their mortgage or rent, while others are paying down debt or buying second homes. Small business closings seem to be popping up left and right, but companies like Amazon and Microsoft are prospering.  The contrast of this recession has intensified the disparity between those who are financially stable and those who struggle to pay their bills. 

The good news is that we are slowly but surely seeing improvements in our current economy. The Wall Street Journal reports that the initial jobless claims have declined from nearly 7 million at the end of March to less than 1 million claims in mid-September. As shown below, there has been a slow recovery in the job market as approximately 11 million jobs have returned since the initial round of layoffs.

US Non-Farm Unemployment Rates

Although we have not returned to employment levels pre-COVID, the steady improvements in the job market have put money back into the economy and kept many households afloat. 

For those with a healthy financial picture prior to COVID, the combination of having fewer places to spend money, less travel, and low interest rates has created opportunities to improve their financial picture. Home improvement projects are ramping up with many spending most, if not all their time at home. RVs are hard to come by as many travel buffs focus on domestic exploration. Low interest rates have pushed home sales through the roof and refinancing is creating additional household cash flow and opportunities to pay down debt. 

Although there is a slow revival of the U.S. economy, the return to “normal” relies heavily on the production of a safe vaccine for COVID-19. Even when the vaccine is produced, it will take time to distribute to the masses. Until that time, the economy will continue to be supported by consumer spending and government monetary support. As the U.S. economy is awaiting a vaccine, the equity market is looking to the future. 

The Stock Market is Singing a Different Tune

While the economy has been making a slow recovery, the stock market has put the pedal to the metal. The momentum in the equity market has pushed the S&P 500 index to new heights, reaching a new all-time high at the end of August. While uncertainty surrounding a COVID vaccine hinders the economic recovery, predictions of a vaccine, along with momentum in a small number of stocks has driven the market to a V-shaped recovery. It feels strange to have such a divergence between the economy and market, but we have been here before. This is the fifth time in history the market has hit an all-time high while the economy was still in a recession. Momentum can power the stock market beyond fundamental support, which is what we are seeing currently. 

It should be noted that this momentum is not universal throughout the entire stock market. Made up of the U.S.’s top 500 stocks, the S&P 500 index’s returns have been propelled by the top 5 companies: Apple, Microsoft, Amazon, Facebook and Google. The graph below shows that while the top 5 stocks are showing a combined return of 28.8%, the remaining 495 companies are negative for the year. The concentration in these companies creates exposure to risk in portfolios so maintaining a diversified portfolio remains important during this time.

COVID Stock Market Impact

Source: Charles Schwab

Mailing it in: Election Day

One of the main questions we receive as financial advisors as an election approaches is: “How should I prepare my portfolio for the upcoming election and how could the results affect my investments?” Our goal in answering these questions is to remind investors that indulging political fears or expectations by making changes to your investments can be damaging to long-term goals. The culmination of a pandemic, global recession, and an election creates a tornado of uncertainty, which makes keeping emotions and political views at bay more complicated for investors. 

Rules of Thumb During Election Season: 

Managing your finances can be challenging, especially during times where things seem out of your control. Here are a few guidelines for investors to remember as we approach November: 

  • Prepare for Volatility

Following the 2016 election, the S&P 500 fell more than 5% in premarket trading, halting the market until the flurry of emotions calmed down. By the time the market closed that day, the index was up over 1%. Every election is different, and it is common to see increased volatility in the stock market heading into and following an election. It is important to remember that it is temporary and to not let these market reactions influence your long-term thinking. 

  • Turn off the TV

Headlines are created to grab your attention and news outlets want your clicks for advertisement dollars. Keep all of this in mind as we approach November and don’t let the headlines influence your investments!

  • Focus on What You Can Control

Predictions, assumptions, and polls give the public a false sense of control during elections, but outcomes are always uncertain. Turn your focus on what you can control in times of uncertainty to help avoid emotional reactions. 

  • Keep Your Eyes on the Long-Run

Whether it’s COVID, the election, or the cold winter months—this too shall pass. Remain focused on your long-term goals! 

The Wrap-Up

We have been through a lot as a society in 2020. It has been a year like no other and with continued uncertainty surrounding coronavirus vaccines and election results, it is important to remain focused on what you can control because one day, hopefully in the near future, we will be back to the hustle and bustle of our day-to-day lives with busy schedules, airplane rides and much, much more.

Inside the Economy: An Improving Economy amongst COVID-19

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This week on “Inside the Economy”, we explore the improving job market and current debt trends during the coronavirus pandemic. Unemployment rates continue to improve as people get back to work and stop collecting unemployment benefits. A combination of spending less and uncertainty surrounding the future has Americans paying down debt. Where are debt delinquencies increasing and where are they decreasing? Many U.S. citizens are sitting on additional cash, but how much cash is currently sitting in the U.S. banking system? Corporations continue to issue new bonds as money remains “cheap” due to low interest rates. Tune in to hear about all of this and more!

Key Takeaways:

  • Unemployment rates and outstanding benefit claims continue to decrease
  • Unemployment benefits made-up over 30% of U.S. personal income, but has declined
  • Outstanding consumer debt has reduced as Americans pay off loans
  • There is currently over $12 trillion in cash sitting in American’s savings accounts
  • Gross corporate bond issuance in 2020 has exceeded years past

3 Steps to Set Your Heirs up for Financial Success

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People work so hard to build their wealth to support their family and lifestyle. The next step, which can be an important one, is leaving a legacy. How do you want the fruits of your labor to be passed from generation to generation? In this article we provide helpful steps to safeguard your legacy and to set your heirs up for success.

1. Define your Estate Plan

First things first, make sure your assets are accounted for and will be left the way you want them to be. Consider a few of the following questions. 

  • Is your will updated? 
  • Do you need a trust? 
  • Do you have a financial power of attorney?
  • Do you have medical directives? 
  • Are your assets titled properly? 

If you do not have these questions answered, contact Sharkey, Howes & Javer to help you get started. 

2. Start the Conversation

Finances can be a private and difficult conversation to have. It is not easy talking with loved ones and preparing for someone’s death. However, it is important to discuss your plan and reasoning with your beneficiaries. Choose an appropriate time and place to discuss your plan with your heirs. Many times, children or beneficiaries are at different stages in life. You may have a successor who is more financially independent than the other. Do you want to make it equitable or split your wealth evenly? Do your inheritors need guidance with handling money? Talking about your estate plan can help get your children started with investing or growing in their financial journey. Read our tips to help guide the conversation when talking to your children.

3. Introduce your Financial Advisor

Bring your children or heirs to your next meeting with your financial advisor. It is important your beneficiaries are financially mature if they are to inherit your legacy. Having them involved in the conversations with your advisor can help them be more engaged in their own finances and help you with, potentially, a tough conversation.  

At Sharkey, Howes & Javer we would love to meet your family and help create a vision for your legacy. Talk to your CERTIFIED FINANCIAL PLANNER before your next meeting to involve your beneficiaries.

Inside the Economy: Unemployment, Foreclosures and COVID 19

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This week on “Inside the Economy”, we focus on the employment trends. Unemployment remains high, however new jobs are being created in specific sectors. On a positive note, retail spending at non store retailers have increased year over year. Will this trend continue? The extra $600 per month of Federal unemployment has stopped and to no surprise, mortgage delinquencies are on the rise. We also look at remittances to Mexico, the dollar and gold prices. Tune in to find out more!

Key Takeaways:

  • Unemployment remains high overall, but in pockets of the job market hiring is robust
  • Retail spending continues to trend upwards
  • Foreclosures and evictions are starting to increase
  • Workers in the US are sending more money back to Mexico to support families
  • Less oil transactions and international tourism are a few factors contributing to a weaker dollar and higher gold prices

Is Downsizing Dead?

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The practice of moving to a smaller property during life’s transitions has been around for decades. Many folks look to move to a smaller home once they become empty-nesters or as they phase into retirement. The combination of the pandemic and current real estate market may challenge what we currently know about downsizing and change what retirement living looks like in the future. 

The Evolution of Downsizing

Traditionally as homeowners age, they look to move to a smaller space to cut spending, lower maintenance responsibility, and rid of unused space. Baby boomers are now staying in their larger homes longer than past generations and many people are waiting until it’s too late to leave the home. 67% of people who relocate from age 53 to 92 do so in response to a household member’s health, rather than on their own volition

A big reason as to why this generation is more reluctant to downsize is due to the current real estate market. First-time home buyers are looking for small, centrally located homes to begin building equity. The high demand for smaller homes between new homebuyers and retirees has pushed home prices higher. For example, the average price in Denver now exceeds $500,000, making finding a smaller home that is less expensive more difficult.

Current Trends:

“Right-sizing” or “Smart-sizing”

These terms have become more common in the last year as buying a smaller home or less expensive home isn’t always the answer. Homeowners are now looking for right-sized homes where they can grow long-term roots. This may mean similar square footage, but in a single-level home without stairs or a condo closer to family and friends. This transition of focus to functionality and location from minimizing square feet could prevent a forced move due to health concerns in the future. 

Increase in Suburban Sprawl 

Because first-time home buyers often focus on small homes closer to the city center, finding a smaller space on the outskirts of town may help avoid a bidding war. The Coronavirus has pushed the workforce remote and emphasized the importance of space over proximity to work. The pandemic could have long-term influence on retirees choosing an age-in-place home in the suburbs over crowded retirement communities and increase future value of homes with more privacy. 

Four Tips for Downsizing: 

  1. Start Today – Don’t wait to begin downsizing.
  2. Plan for Forever – Decide what type of home you are looking for and what features will keep you in the home long-term.
  3. Find an Agent – Partner with a real estate agent who understands your needs or specializes in downsizing or retirement living.
  4. Talk Money – Discuss with your financial advisor what you can afford and strategies to finance your new home. 

Downsizing is Still Alive

Downsizing is not dead but current real estate trends may change what retirement living looks like in the future. COVID-19 has changed our day-to-day lives, and although moving during a pandemic may not be ideal, it may be a great time to start planning for the next phase of life. For more information on the Denver real estate market, click here to read our recent Q&A with Denver real estate agent, Jacci Geiger with Kentwood Cherry Creek.

Looking to Downsize?

Whether you’re planning for retirement or just trying to maintain balance between your financial future and living situation, the advisors at Sharkey, Howes & Javer can help guide you. Contact us for a free consultation today!

Inside the Economy: Second Quarter GDP after COVID Shutdown

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This week on “Inside the Economy”, we reflect on the gross domestic product (GDP) and employment trends from the second quarter. What was the impact on GDP as a result of the lockdown? As spending and employment rates continue to recover, what is in store for the remainder of 2020? More job openings are becoming available and temporary layoffs are returning to the workforce, but what is the trend with permanent layoffs? Consumer spending has been down since many are staying closer to home, but it seems as if stimulus spending has helped boost spending during this difficult year. What industries have seen the direct impact of restricted spending? Tune in to hear this and much more!

Key Takeaways:

  • GDP declined at an annual rate of 32.9% in Q2 of 2020.
  • Temporary layoffs have dropped, but permanent job loss has been slowly climbing
  • Job openings are beginning to increase 
  • Decreased spending has led to less outstanding credit as Americans have more money to pay off loans and credit cards
  • Travel, real estate, consumer discretionary, and energy have all seen the impact of the stay-at-home order

Inside the Economy: The State of the Economy and COVID-19

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This week on “Inside the Economy”, we continue to monitor economic data as it continues to improve. Fiscal stimulus comes in many forms, like the direct payments or federal unemployment benefits, and has totaled more than 12% of GDP. What will the next bill look like from Congress and how much more money will be added to the national debt? Gold has had a strong rally as buyers speculate on future inflation and the value of the dollar. What’s to come over the next several months? Tune in to find out more!

Key Takeaways:

  • Economic data continues to improve with retail sales, production increases, and housing data. 
  • Stock market indices continue their recovery lead by big tech as earnings show better than expected. 
  • Gold is rallying and another stimulus bill from Congress is coming soon.

Fundamental Analysis and Technical Analysis

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Fundamental and Technical Analysis

At Sharkey, Howes & Javer our investment department uses a wide range of tools when constructing and rebalancing client portfolios. With so much data and analytic tools available today, it is easy to be overwhelmed and overthink things as an investor. That is why our investment department uses a balanced approach when making investment decisions. In this article, we will define a few basic tools which help our firm make thoughtful decisions when investing. 

Fundamental vs Technical Analysis

These are the two perspectives investors choose to consider when evaluating an investment decision. Fundamental analysis consists of looking at the value of a given company and determining if it’s overvalued, undervalued, or a fair price. The fundamental lens looks at the financial well-being of a company by examining items such as assets, liabilities, expenses, earnings, and management of the company. Technical analysis assumes most of the fundamental metrics are already accounted for in the stock’s current price. Therefore, the technical lens will try to identify trends or patterns to predict what the stock will do next.

Fundamental Analysis – Price to Earnings

One of the most popular fundamental analysis metrics is the price to earnings ratio. This is simply evaluating the price of a company’s stock compared to the earnings. This can be a useful measure in determining which company is a better buy in the same industry. Inherently, investors cannot rely on past earnings to predict the future and earnings guidance given by the company can be over or understated due to multiple unknown variables. That is why we look at many fundamental metrics. The takeaway is P/E ratios are used to help investors determine if a company is overvalued or undervalued when comparing the stock price to the company’s earnings and then comparing that ratio to other similar companies. In some cases, a high P/E may suggest an overvalued company and a low P/E may suggest an undervalued company. 

Technical Analysis – Moving Averages

Moving averages is one of the most common technical analysis tools. Moving averages takes the historical average of the price for a given period of time. For example, a 200-day moving average will average the last 200 days of the stock’s price and create a trend line. When the price of a stock falls below the 200-day moving average, it can be interpreted as a bearish or negative sign. If the stock’s price is below the 200-day moving average and breaks through above it, this can be a bullish or positive sign for the stock price. Moving averages can help determine when a trend may be breaking or a new trend is forming. The most common timeframes are the 20 day, 50 day, and 200 day moving averages. 

Conclusion

Fundamental and technical analysis are often used together to help formulate an opinion and make a final decision when investing. There are numerous metrics when evaluating stocks and aiming to forecast the markets. At Sharkey, Howes & Javer our investment department uses a multitude of both fundamental and technical analysis to make investment decisions for clients. If you have questions about investing or want a free consultation with one of our CERTIFIED FINANCIAL PLANNERS, do not hesitate to reach out.

Inside the Economy: The Pandemic Job Market and its Impact

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Today on “Inside the Economy”, we examine the impact that COVID-19 has had on the U.S. job market. As a society, we have witnessed numerous recessions over the last 75 years but none quite like this. How will the uncertainty regarding Coronavirus effect unemployment over the long-term? As Americans wait to see what is next, many are sitting on more cash than usual. How is this impacting spending and has it affected stock market returns? Tune in to find out!

Key Takeaways: 

  • COVID-19 spurred a dramatic change in unemployment numbers, different from previous recessions
  • Although unemployment numbers remain high, we are starting to see an increase in hiring and job openings again
  • We have seen an increase in mortgage delinquency but it is nowhere near 2008-09
  • This year has been a volatile year for all asset classes but gold and 10-year Treasuries remain on top
  • Corporate debt and money supply continue to climb

Reverse Mortgages – Utilizing a Reverse Mortgage in Retirement

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The reverse mortgage has carried a stigma with it from the Financial Crisis in 2008, but through the evolution of the product along with newer Federal Housing Authority (FHA) guidelines, the reverse mortgage can be a valuable tool for homeowners over the age of 62. In this article, we will be discussing how these loans can be used as a financial resource during retirement.

 Many homeowners are entering into retirement with high amounts of home equity, but this asset usually does not get pulled into the picture when it comes to calculating retirement income. There are a few ways your home equity can be utilized when planning for retirement. Here are a few examples:

Using a reverse mortgage to supplement retirement income

Many retirees work hard for years but may have started saving for retirement later in life. Because of the delayed savings, retirees may not have enough investment assets to cover future living expenses. A reverse mortgage could be used to supplement the cost of living for the remainder of their lives. There are two avenues borrowers can pursue; A fixed-rate loan allows the borrower to access equity as a lump-sum and an adjustable rate loan can be utilized as a line of credit or to establish monthly payments.

Using a reverse mortgage to pay off current mortgage 

Many workers plan to pay off their mortgage before walking away from the workforce. Not having a mortgage can help lower monthly spending in retirement or even reduce withdrawals from retirement accounts to pay for living expenses. We all know life doesn’t always go as planned and you may need to carry a mortgage into retirement. Homeowners with outstanding mortgages can use a reverse mortgage to pay off their remaining loan to improve cash flow throughout retirement.

Using a reverse mortgage as a “long-term care insurance policy”

Long-term care has a reputation for being expensive, so much so that many retirees cannot afford long-term care coverage. Because of this, the equity in your home could be reserved to cover medical care costs that may arise in the future. A reverse mortgage would allow a homeowner to tap into their home equity without having to put it on the market, which is especially important if a spouse continues to live in the home. 

Those are just a few examples of how a reverse mortgage can be used during retirement. It should be noted that a reverse mortgage is indeed a loan. You or the heirs of your estate are responsible for paying back what you borrowed either when the house is sold or when you pass away. Reverse mortgages can also be expensive. Interest rates are typically higher than traditional mortgage rates. Along with accruing interest, there are origination fees, FHA mortgage insurance premiums, and servicing fees that all add up. 

All in all, reverse mortgages can be a great resource for retirees, but don’t fit in to every financial picture. Our team at Sharkey, Howes & Javer is here to help you explore all your options, from reverse mortgages and beyond. Contact Sharkey, Howes & Javer today to speak with a CERTIFIED FINANCIAL PLANNER™.