Planning 2026 with intention: 10 financial and life considerations for the year ahead

The start of a new year naturally invites planning. But for most people, planning quickly turns into optimization – more efficiency, better returns, tighter projections.

The more meaningful work often starts earlier than that.

Before adjusting numbers, it’s worth stepping back to ask whether your financial life is aligned with the life you want to live. As we look ahead to 2026, with several new planning rules and legislative changes becoming active under the OBBBA framework, this is an ideal moment to reset both direction and strategy.

As a kid of the ‘90’s and a David Letterman fan, I always waited for the part of the show when he revealed his (sometimes crazy, but almost always funny) Top 10 List.  Here is my attempt and a nod to Mr. Letterman with 10 financial and life planning considerations worth reviewing as you prepare for the year ahead, with a particular emphasis on building margin, clarity, and adventure into 2026.

1. Define What You Want 2026 to Feel Like

Before reviewing accounts or projections, clarify the experience you want the year to deliver.

Do you want 2026 to feel spacious or packed? Grounded or mobile? Predictable or exploratory?

Financial plans are most effective when they support a clearly defined life vision. Without that anchor, even strong financial results can feel disconnected.

2. Plan Adventure First, Not Last

Adventure is often treated as optional – something to squeeze in if time and money allow.

In practice, that usually means it doesn’t happen.

Whether adventure for you means extended travel, meaningful family trips, endurance events, or simply more time outdoors, plan it intentionally. Block the time on the calendar. Estimate the cost. Create a dedicated savings bucket.

When adventure is designed into the plan, money becomes an enabler rather than a gatekeeper.

3. Understand What’s Changing Under the OBBBA

Several provisions tied to recent federal budget and benefits legislation are now becoming relevant for 2026 planning. While the specifics vary by household, common planning areas affected include retirement contribution limits, including updated catch-up provisions for certain age ranges; required minimum distribution rules and beneficiary timelines impacting inherited retirement accounts; income thresholds for tax credits and deductions, with tighter phase-outs at higher income levels; and sunsetting provisions from earlier tax law, increasing the importance of proactive, multi-year tax planning.

The key takeaway is that understanding these changes early creates flexibility. Waiting until year-end often removes good options.

4. Revisit Your “Enough” Number

As income and assets grow, old targets often linger long after they stop serving your life.

Revisit what level of income actually supports your desired lifestyle, how much work is enough, and which trade-offs are no longer worth it.

Clarifying “enough” is often the most powerful financial decision you can make.

5. Align Cash Flow With Experience, Not Habit

Instead of asking where to cut spending, ask where your money is working well for you.

Which expenses consistently add meaning or enjoyment? Which ones feel automatic or outdated?

Redirecting cash flow toward experiences, travel, and flexibility often improves quality of life without increasing overall spending.

6. Strengthen the Safety Net

Adventure is easier to pursue when the foundation is solid.

The new year is a good time to review emergency reserves, insurance coverage, estate documents, and beneficiary designations.

These items rarely feel urgent – until suddenly they are. Proactive review reduces stress and creates confidence.

7. Simplify Where Complexity Has Crept In

Over time, financial lives naturally become more complex.

Multiple accounts serving similar purposes, legacy strategies that no longer apply, and complexity that adds confusion without value can quietly accumulate.

Simplification improves clarity, reduces friction, and makes decision-making easier when life changes quickly.

8. Use Tax Planning to Support Lifestyle Decisions

With updated thresholds and evolving rules, tax planning for 2026 should align with life choices.

This may include timing income around travel or sabbaticals, evaluating Roth strategies during lower-income years, or coordinating charitable giving with tax efficiency.

The goal is not minimizing tax in isolation, but ensuring tax decisions support the life you want to live.

9. Decide What to Stop Doing

Borrowing from the annual review approach popularized by Tim Ferriss, one of the most powerful planning exercises is deciding what to stop.

What commitments, habits, or financial behaviors create stress without meaning, consume time without return, or reflect an outdated version of you?

Stopping often creates more freedom than starting something new.

10. Build Margin Into the Plan

Finally, leave room.

Margin in your calendar allows spontaneity. Margin in your cash flow absorbs surprises. Margin in expectations builds resilience.

A plan with no margin may look efficient, but it is fragile. A plan with margin can flex and support opportunity when it appears.

Final Thought

Planning for 2026 isn’t about predicting every outcome. It’s about creating a framework strong enough to support responsibility and exploration.

When financial planning is aligned with experience, when adventure is treated as essential rather than optional, and when decisions are made intentionally rather than reactively, money becomes what it was always meant to be – a tool in service of a well-lived life.

Recent interest rate cuts: What they mean for savings, mortgages and cash management

The Federal Reserve recently cut its benchmark interest rate by 25 basis points, lowering the federal funds rate to 4.00% from 4.25%. This September 2025 Fed rate cut was widely expected, reflecting slower job growth, rising unemployment, and inflation that remains above target. The move signals a cautious shift: the Fed wants to support the labor market to keep people employed without reigniting inflation.

Why the Fed cut rates

Inflation in services has stayed sticky even as the broader economy shows signs of cooling. By trimming rates, the Fed is aiming to balance recession risks with its commitment to long-term price stability (known as the Fed’s Dual Mandate). Markets had largely priced in this cut, and future policy moves will likely hinge on labor market data and inflation trends.

Impact on savings accounts and money market rates

Here is where the rubber meets the road.  For savers, Fed cuts often translate into lower yields on savings accounts and money market funds. Online banks and credit unions may hold rates higher to remain competitive for a short period, but traditional deposit accounts usually adjust downward within months, if not immediately. Money market funds tend to react fastest, since they are directly tied to short-term rates.

This makes it essential for savers to compare account yields regularly. As rates decline, holding cash in a low-interest account could mean leaving money on the table.

Cash management programs

To maximize returns, many investors are turning to cash management programs.  One such example is Flourish Cash. These platforms sweep deposits into a network of FDIC-insured banks, offering:

  • Competitive, high-yield savings alternatives without fees or minimums
  • Extended FDIC protection beyond the standard $250,000 limit due to the number of banks involved in the sweep program
  • Daily rate adjustments that track prevailing market conditions
  • Liquidity and flexibility, allowing easy transfers in and out

Programs like Flourish Cash are designed to help cash balances earn more in both rising and falling rate environments. When rates go up, program yields can reset higher. When rates fall, these programs still provide better returns than most traditional checking or savings accounts, making them a valuable part of cash management in 2025.

Mortgage rates and refinance opportunities

A common misconception is that mortgage rates fall directly with Fed cuts. In reality, 30-year mortgage rates are tied more closely to long-term Treasury yields and investor demand for mortgage-backed securities (MBS). As a result, fixed mortgage rates may not drop much after a Fed cut.  However, borrowers with adjustable-rate mortgages (ARMs) or home equity lines of credit (HELOCs) often see more immediate relief, since these products reset based on short-term benchmarks.

For homeowners, mortgage refinance opportunities in 2025 depend on long-term yields. If Treasury and MBS yields decline alongside Fed cuts, refinancing can unlock real savings. Homeowners should weigh the potential monthly payment reduction against closing costs and the time they expect to stay in their home.

The bottom line

The recent Fed rate cut underscores the importance of staying proactive with your money. Savers should explore high-yield savings alternatives and consider cash management solutions to protect returns. Homeowners should track long-term mortgage rates to evaluate refinance opportunities, while those with ARMs or HELOCs may benefit more immediately from recent rate changes.

In today’s shifting interest rate environment, agility is key – aligning your cash, borrowing, and investment strategies ensures your money continues working for you, no matter how rates move.

Making your cash work: Smart management in a shifting monetary landscape

In today’s uncertain financial environment, idle cash doesn’t need to sit there. With high-yield, FDIC-insured options and rising awareness of monetary policy dynamics, you can make sure your liquidity still earns its keep. Here’s a look at standout solutions and what to watch.

Cash management options worth knowing
  • Flourish Cash

Flourish Cash is a brokerage-based cash sweep vehicle that partners with multiple FDIC-insured “program banks.” It offers competitive, variable interest rates—around 4.0% APY as of late April 2025—and spreads your deposits across many banks to expand FDIC coverage. You receive one statement and tax form no matter how many banks hold your funds, and transfers are generally seamless.

  • High-Yield Money-Market & Savings Accounts

High-yield savings accounts remain popular for their accessibility, though attractive rates are often promotional and can drop over time. Money-market funds typically offer higher yields—around 4–4.5%, with some pushing 5% in recent years. However, note that many of these are not FDIC-insured, and rates remain sensitive to Federal Reserve policy.

  • Cash‑Management Accounts (CMAs)

Offered by brokers and robo-advisors, CMAs blend checking, savings, and investing tools. They usually provide higher interest than traditional bank accounts, and your funds may or may not be insured via FDIC or SIPC. They facilitate payments, transfers, and even debit card access—helpful if you want seamless functionality without locking up funds.

How Monetary Policy shapes cash yields

Monetary policy – especially interest-rate movements by the Fed – has a direct, powerful effect on what cash earns.

  • When rates rise, as they did in recent years, money flows into high-yield instruments like money-market funds and sweep accounts. As of December 2024, money-market funds held roughly $7 trillion as inflows continued despite expectations rates would fall. Yields hovered around 4.39%, a stark contrast to average bank savings near 0.5%.
  • Looking ahead to 2025, some analysts expect rate cuts could shift investor behavior—less reward for idle cash may drive money into bonds or equities, especially as these markets show gains. Still, the high level of cash holdings suggests many investors may linger in money markets longer.
  • Institutional preference for stability remains evident—corporations are allocating more to high-yield money-market instruments to capitalize on elevated interest. As of late 2023, nonfinancial S&P 500 companies held 56% of their assets in cash and equivalents, seeing favorable returns.
Top 3 things to watch – and take action on
  1. Interest‑Rate Trends & Fed Signals – Fed rate changes directly impact cash‑account yields. Review your accounts regularly—are they outpacing or lagging current rates?
  2.  FDIC‑Insurance Structure & Coverage Limits – Tools like Flourish spread deposits across banks to maximize protection. If you hold a lot of cash, make sure you’re not exposed to single-bank FDIC caps. This is so important and something that I see many wealthy clients overlook regularly!
  3. Liquidity Needs vs. Yield Trade‑offs – Higher yield often comes with limitations. Define your cash needs—daily use vs. emergency reserve—and match them to the most fitting vehicle.

Cash doesn’t have to be passive. With the right tools and vigilance, your liquid assets can work harder without compromising security or flexibility.  Want to discuss this cornerstone topic further?  Let us know!

What the Latest Tax Bill Means for You (Without the Jargon)

A significant tax and spending package – nicknamed the One Big Beautiful Bill (OBBBA) – recently passed the U.S. House and is now being debated in the Senate. This isn’t just Capitol Hill chatter – it has direct implications for your financial plans, and I want to make sure you’re informed without getting bogged down by technical jargon.

Here are five key areas currently up for discussion:

  1. SALT Deduction Cap: House Wants $40K, Senate Uncertain

The House-approved bill proposes raising the State and Local Tax (SALT) deduction cap significantly—from $10,000 up to $40,000 (joint filers), permanently. This is a notable change for anyone living in high-tax states or dealing with substantial property taxes.

The Senate, however, hasn’t fully embraced this increase yet. They’re leaning toward maintaining the current $10,000 cap, sparking intense negotiations.

What it means for you:

If you typically itemize and live in a higher-tax region, your deductions – and thus your tax bill – could swing substantially depending on the final agreement.

  1. Child Tax Credit and Family Incentives

Both chambers agree broadly on enhancing the Child Tax Credit. The proposal currently extends the credit at $2,000 per child permanently, with a temporary increase to $2,500 per child until 2028.

The House version also includes a novel initiative: $1,000 “baby bonus” accounts for newborns through 2029. The Senate is debating this component, but no firm commitments yet.

What it means for you:

Enhanced child credits or potential baby savings accounts might mean extra breathing room in your budget or additional savings opportunities.

  1. No Taxes on Tips and Overtime?

The bill includes bipartisan provisions to exempt certain tip income and overtime earnings from federal income tax, at least up to certain thresholds. This initiative targets workers in the hospitality industry, gig economy, and service sectors.

Both the House and Senate versions reflect strong support for making tips and overtime pay partially tax-exempt, potentially putting more money directly into workers’ pockets.

What it means for you:

If your income includes tips or overtime, your net earnings could rise, meaning immediate cash-flow improvements.

  1. Green Energy Credits Could Change Drastically

The House version plans significant rollbacks of existing clean-energy incentives introduced previously under the Inflation Reduction Act. The Senate prefers a more moderate path—keeping credits for geothermal, hydropower, and nuclear energy intact longer, but phasing out solar and wind incentives sooner.

What it means for you:

If you’ve planned home efficiency upgrades or renewable-energy installations, these changes might affect your timing or feasibility, depending on what incentives remain.

  1. Taxes on Social Security Income May Shift

An additional change currently debated is how Social Security income is taxed. The House bill includes proposals to raise the income thresholds at which Social Security benefits become taxable, meaning potentially fewer recipients would owe taxes on these benefits.

The Senate’s stance isn’t finalized yet, but similar adjustments are being seriously considered.

What it means for you:

Retirees—or soon-to-be retirees—might see significant shifts in their taxable income, impacting cash flow, retirement planning strategies, and possibly allowing greater flexibility in your spending plans.

Broader Implications and Timing

  • Deficit Impact:

    The Congressional Budget Office (CBO) estimates the bill could increase the federal deficit by $2.8–$3.8 trillion over the next decade. The tax cuts, expanded credits, and changes in income taxation are major drivers of this projection.
  • Medicaid and Healthcare:

The bill could also affect healthcare spending, potentially tightening Medicaid eligibility rules, which could indirectly affect financial planning for healthcare costs in retirement.

  • Timeline:

After passing the House on May 22, 2025, the Senate is aiming to finalize its version before the July 4 recess, intending to bundle it with a new debt-ceiling increase.  There is still disagreement on these even within the majority party, so the deadline is currently up in the air.

The Bottom Line (for Now)

Given these proposals are still in flux, flexibility will be essential in your financial strategy. Areas to watch closely include SALT deductions, family-related tax credits, changes in taxable income from tips and overtime, renewable-energy incentives, and especially the taxation of Social Security benefits.

We’re closely monitoring these developments. Rest assured that once the final details are clear, we’ll recalibrate your financial plan together – ensuring you’re positioned to make the most of these new opportunities or to mitigate any potential challenges.

Remember, my goal remains unchanged: helping you live your great life right now, confidently navigating whatever comes next. As always, I’m here if you have immediate questions or if any of these changes prompt you to rethink current plans.

Thanksgiving Reflections: Finding Financial Peace, Presence, and Genuine Joy in the Season

Thanksgiving marks a pause for many of us in the whirlwind of daily life. I love it for that.  For a few days, we gather with family and friends, enjoying good food, laughter, and conversation. Yet, the season can be bittersweet—a time of reflection and celebration that’s often overshadowed by the stress of holiday expenses and the pressures of hosting or attending gatherings or other family dynamics that are just hard to put a finger on. As we enter this Thanksgiving season, maybe we consider a different approach: focusing on financial stability, being fully present with our loved ones, and finding genuine enjoyment rather than just getting through it.  Yeah, I know, you’ve heard this before, but hear me out.

Cultivating Financial Stability…it’s not about the money

Financial stability isn’t about extravagance; it’s about having peace of mind and the freedom to make choices aligned with our values. For many, holidays add a financial strain, but it doesn’t have to.  Trust me, this is the part of the article where I’m talking to myself, so feel free to listen in.

Financial stability begins in the mind. It’s about adopting a mindset that values contentment over accumulation, embracing a sense of “enough” rather than striving for more. This mindset allows us to approach the holidays with gratitude for what we have rather than stressing about what we lack. Thanksgiving invites us to step back and see our resources—time, energy, and money—as tools to be used intentionally, not indicators of success or happiness. When we feel secure in what we have, we’re less tempted by the holiday urge to overspend or overextend.

The Power of (Being) the Present

With today’s technology, it’s easy to be physically present with family while mentally absent—our thoughts divided between notifications, emails, and to-do lists. I truly believe that there is no such thing as multi-tasking…our brains are hardwired in this way.  So, if you’re staring at your phone, you’re not present with those around you.  One of the most profound gifts we can give during Thanksgiving is the full presence of our attention. Choosing to leave phones in another room, engage in conversation, and listen to each family member’s story without distraction can transform our gatherings. These moments don’t require perfection in family dynamics; they only need our open ears and a willingness to embrace others as they are. 

Being fully present also applies to ourselves. Instead of rushing to fit every seasonal obligation, we can consciously slow down, taking time to recharge. Whether it’s a quiet morning walk, reading a book, or simply breathing deeply before a meal, these moments allow us to enjoy Thanksgiving with gratitude and grace rather than as an item on a checklist.

Enjoying, Not Enduring, the Season

Many people experience the holidays as something to endure rather than enjoy—a time of fulfilling social expectations or family obligations. However, true enjoyment comes from engaging with the season in a way that’s meaningful to us personally. For some, this might mean traditional festivities; for others, it might look like an intimate gathering or even a quiet Thanksgiving hike. The key is to spend the day in a way that brings joy and connection, free from imposed expectations.

Setting boundaries on how we celebrate doesn’t diminish the holiday’s value—it enhances it. When we choose celebrations that align with who we are, we foster genuine gratitude. If that means opting for a small dinner, skipping crowded stores, or using Thanksgiving to volunteer instead, so be it. Our traditions should reflect what brings us joy, not what we feel pressured to maintain.

Thanksgiving is a time to reflect on abundance—of love, health, relationships, and even the lessons learned through challenges. I want us all to pursue our Great Life right now, and this holiday season is a great opportunity to pursue it with the people that we care most about.  This season, let’s make it less about stretching our resources thin and more about stretching our capacity for gratitude. Embrace simplicity, give the gift of presence, and choose joy over obligation. In doing so, Thanksgiving becomes more than a holiday; it becomes a practice in contentment, reminding us that true wealth is measured by the richness of our experiences and the depth of our connections. 

Thanks for listening without judgment to my inner dialogue.

 

How to Plan a Big Family Trip Without Becoming the Griswold’s

Research shows that spending money on experiences often brings more lasting joy than buying more “stuff.” Now imagine the joy and connection that comes from planning a big family vacation—one that creates memories for generations to come. I believe Clark Griswold knew the value of such trips, but he clearly had trouble pulling it off.  While getting everyone aligned may feel challenging, it’s also what makes the journey worthwhile. Let’s go over some key steps to ensure your family adventure is one for the books.

Open the Dialogue Early

Nobody enjoys being dragged along on someone else’s vacation. The key to a successful family trip is making sure everyone feels included from the start. Whether some family members are retired with flexible schedules or others are balancing school, work, and activities, it’s important to consider everyone’s situation.

Start by agreeing who is the ‘champion’ of the planning overall.  Someone must be responsible for organizing the communicating the plans.  Then start gathering input from everyone—use a group video chat, shared document, or a family meeting to talk through options. This gives everyone a chance to voice what works for them and helps you find common ground. Collaboration early on can make all the difference in pulling off a trip everyone enjoys.  Obviously this will look different if you are traveling with younger kids, but you know that they have opinions too!

Balance Togetherness and Individual Time

When planning a vacation for a large group, it’s crucial to strike the right balance between shared experiences and personal space. Not everyone will want to do the same activities, and that’s okay. Whether it’s golfers heading out for a round while others enjoy a spa day or different groups exploring different sights, the key is flexibility.

Plan a few moments for everyone to be together—like beach time or family dinners—but also allow space for each person to pursue what excites them. This balance will help everyone enjoy the trip in their own way without feeling overwhelmed or restricted.

Be Clear About the Budget

Few things create tension faster than money talk, especially in a family setting. If each family is paying their way, aim to pick a destination that fits most people’s budgets. If one person is paying for it all (ie, mom and dad), be totally clear about that from the beginning.  This ensures everyone can enjoy the trip without feeling financially strained.  Or worse, living in the uncertainty of ‘who is paying for what’?

If you are generously covering the cost, having a clear budget in place is even more important. Setting limits upfront helps ensure you don’t overstretch yourself financially, allowing you to fully enjoy this special experience with your loved ones.

Thinking ahead about your travel budget and ensuring that this family vacation fits within your broader financial goals will allow you to focus on making memories instead of managing costs.  This is what it is all about!

 

What To Teach Your Kids (and Adults) About Investing

Providing for your children’s education is an important part of your financial plan. But, for the most part, that education won’t teach your children very much about basic financial literacy. The money lessons that kids learn from their parents can help to fill that gap and instill habits that will improve return on their life.

You can teach these three simple financial lessons to your kids with activities that illustrate the basics of financial planning.  And remember the quip, ‘Everything I need to know, I learned in Kindergarten’?  Same goes for the principals of good financial planning, so these lessons are still good for us adults to hear regularly as well.

  1. “Pay yourself first.”

Many families have a rule that X percent of any money a child earns for chores or receives as a gift has to go into a custodial account. This is a good way of helping kids understand the importance of investing in their futures.

However, many parents don’t take the essential next step of showing kids how their savings have grown over time. This can create awkward feelings around money and make it hard for kids to appreciate the end result of their responsible behavior. Just updating a simple spreadsheet together after a big birthday deposit can give kids a greater sense of control and deeper feelings of satisfaction around how they’re handling their money.

  1. “Money makes money.”

Your kids have probably learned about Ben Franklin flying a kite in a lightning storm. You can teach them Franklin’s lesson about the magic of compound interest: “Money makes money. And the money that money makes, makes money.”

Thanks to higher-than-usual interest rates, your child’s custodial savings account might be providing a good lesson on compounding right now. It’s also a great time to shop around for a new savings account as many banks are offering higher rates to entice new customers — especially online.

Most financial institutions also allow parents to open custodial brokerage accounts for their children, which can be another option for those special self-payments. Some brokerages also sell shares of companies that kids will recognize, like Disney, as a physical framed certificate. These gifts can help kids connect how they spend their time and money with an understanding of how the stock market creates and compounds wealth for shareholders.

Again, check in on these accounts every month or every quarter and show your child how their money is doing. Down periods are an opportunity to introduce the concept of volatility. Even modest losses might sting at first. But seeing their ROI move up and down over the course of a year will eventually help your kids get comfortable with managed risk. And if they start eying their toy shelf for other companies they might want to invest in, you can start talking to them about the power of diversification.

  1. “Plan ahead.”

Kids often think money works like a vending machine: swipe, tap, punch in some numbers, and what they want magically appears. Instant gratification is such a basic part of their lives that they rarely stop to think about where money comes from or how adults manage it to fulfill so many different needs. They see the end result, but not the plan.

Reviewing your monthly budget probably won’t hold your kids’ attention for very long. Instead, create new budgets that provide for both short-term and long-term goals that will interest your kids. Break down the cost of a new bike or video game over a couple weeks of allowance money. Or, show them your saving plan towards a big family vacation to illustrate how your financial plan provides for current needs while also progressing towards bigger goals.

We are always happy to help our clients have life-centered planning conversations with their children, especially older teens who are starting to earn their own money. Give us a call and let’s start your kids on a path towards a healthy relationship with their money.

Volatile equity markets, falling bond yields, and the coming recession: A letter to our clients

By Matt Miner

August 15, 2019

Dear Clients,

First, THANK YOU for your business with PLC Wealth Management! We are honored to serve as your advisors and to walk through life with you.

Second, we think today is a good day to talk with you about jumpy stock markets, falling bond yields, and our thoughts regarding the US economy. Our letter wraps up with actionable advice for you to implement immediately. Pretty exciting, right?

As I prepared to join my family for dinner last evening, I received a forwarded email. According to a tweet by advisor Michael Batnick, yesterday was the 307th time that the Dow fell 3% or more in a single day, over the course of the last 100 years. To see the folks on CNBC jumping up and down, wild eyed and foaming at the mouth, you could be forgiven for imagining that the entire US economy been vaporized.

Volatile Stock Markets

On average a downward move of the magnitude we experienced yesterday happens 3.07 times each year. Equity markets have been mostly placid over the last decade, and yesterday’s market decline was the first drop of that size in 2019. But if we simply achieve historically average volatility, we can expect two more moves of the same size before we celebrate New Year’s Day 2020! Said differently, drops of 3% come around slightly more than three times as often as Christmas.

For a different comparison, UNC and Duke always get invited to the NCAA Men’s Basketball Tournament. In each program’s history, UNC has played 160 NCAA tournament games and Duke has played 147 NCAA tournament games. Coincidentally, the Dow Jones Industrial Average has declined 3% or more in a single day in the last 100 years the same number of times as the two most storied programs in college basketball have played a game in the NCAA tournament: Many, many, times! Stock market volatility is table steaks. It’s why investors expect to earn a positive return for investing in stocks.

The Russell 3000, one of our preferred index comparisons, was down 2.89% yesterday and is down 4.85% for the month. No one likes that. But the same index is up 14.63% in 2019, 9.53% per year on a rolling five-year basis, and 13.20% per year on a rolling ten-year basis (ftserussell.com as of 8/14/2019 market close).

The stock market can be a rough ride, but it has reliably propelled investors’ wealth upward over time. The chart below shows the growth of one dollar from 1970 to 2017 invested in one-month T-Bills, the S&P 500 Index, and in a globally diversified stock portfolio, similar to PLC Wealth’s equity investment style.

Friends and neighbors, you only get hurt on a roller coaster if you jump off.

Falling Bond Yields

It is true that bond yields have fallen, meaning that money invested in the bond market today earns less interest than it did at this time last year. This has resulted in strong appreciation of bond funds (bond prices move in an inverse relationship to bond yields). For example, DFAPX, an investment-grade bond fund, has appreciated 7.81% in 2019, something I did not expect as we entered this year. On the other hand, falling rates mean that maturing bonds will be reinvested at lower interest rates than bonds that matured in the recent past. It also means that interest rates earned on assets like money market funds, certificates of deposit, annuities, and savings accounts have been reduced.

The Yield Curve

What about the ever-famous inverted yield curve? Once you finish this article you’ll be able to amaze your friends and confound your enemies because you’ll know the answers to questions like, “What is a yield curve?” and “What is an inverted yield curve?” and “What does a yield curve inversion mean?” and most meaningfully, “What should I do?”

First, a yield curve plots the returns investors expect on debt over different periods of time – for example one, five, ten, and thirty years. Investors normally demand to be paid more to loan their money for longer periods. You may have experienced this as a consumer: 30-year mortgage rates are higher than 15-year mortgage rates. This is because the longer the loan, the greater the investor’s exposure to the vagaries of inflation, the risk that the borrower fails to repay, and the risk that the money is locked up at a time the investor wants liquidity. In the graphic below, the August 2018 yield curve (the line with the gray diamonds) is the most “normal” looking, even though the rates are low by historic standards.

Second, an inverted yield curve like the blue line with dots, labeled “Current” in the graph above, means that investors demand 2% to loan to the US government for one year, but only ~1.65% to loan for ten years. How can this be? The inverted yield curve signals that bond investors expect poor economic performance resulting in low interest rates over that time period.

Third, an inverted yield curve has accurately predicted economic recession (two or more quarters of negative growth) or an economic slowdown (a reduction in the growth rate) with 100% accuracy going back to the Eisenhower administration. The predictive value of the inverted yield curve is particularly potent if the inversion lasts for more than one full quarter which is the case as I write you this letter.

Here’s the unvarnished truth: A recession is coming. A recession is always coming. What we don’t attempt to do is predict when the recession will arrive. The fact that a recession is coming is part of your plan. When you work with an advisory firm like PLC Wealth, your plan includes the expectation of recession. It’s kind of like knowing you’ll need to replace your car. You don’t know exactly when you’ll need a new car, but you’ll need one sometime. By planning with PLC Wealth, you have prepared for recession.

Cam Harvey, a terrific professor at my business school alma mater – Duke’s Fuqua School of Business – was quoted yesterday by WRAL saying, “Maybe this is not the right time to max out your credit card…Maybe it’s not the right time to take the vacation with your family that is going to overextend you.” Professor Harvey goes on to recommend you “[do] 100% effort at your job.”

At PLC Wealth we never recommend you max out your credit card. Instead, we recommend you negotiate discounts and pay cash!

We love vacations, but we don’t recommend you overextend yourself to take one. Go camping if that is what your budget supports!

Putting in 100% effort at work is timeless advice your dad gave you, too.

Call to Action

What should you do to prepare for the coming recession? For that matter, what should you do to prepare for the coming prosperity? The advice does not change. Do excellent work. Live on less than you make. Invest the difference wisely. Make a good tax plan. Bless your family with a thoughtful estate plan. Prepare for catastrophe with suitable insurance and emergency funds. Care for your health. Spend time with the people you love. Live according to your values. Be kind.

If you have questions about market volatility, bond yields, or the coming recession, give us a call. We are here to help with any topic where life meets money. Once again, thank you for your business with PLC Wealth Management.

Home is where the __________ is. 1.) Heart or 2.) Hassle?

June 17, 2019

Matt Miner

Over the weekend I received a thoughtful note from a client about renting versus owning.

Our client asked what we thought about the possibility of renting throughout one’s entire life, and taking the money that would be used for a large house down payment (in this case, a 100% down payment) and investing it as we recommend. I wanted to share my reply below:

 

Dear N_________,

It’s always great to hear from you!

First, there’s nothing wrong with renting for the rest of your life as long as this is part of your plan, and you do it eyes-wide open. Like anything, it is just a whole lot better if it’s intentional. This is how you’re approaching it, so well done!

In your mail you mention that owning a home means you have to pay taxes on it and maintain it for the rest of your life. This is true, but renting just means you pay someone else to do this for you.

You are correct that you could probably invest the money you’re putting into this house and get enough return to continue renting throughout your life. We can model this with some assumptions if you’d like.

Whether renting forever is scary just depends on your planning. We can share with you that according to Tom Stanley, (author of The Millionaire Next Door and other data-driven books about the wealthy), 95 – 97% of wealthy people choose to own their own home with these type of ratios:

1.) 10% – 25% of their net worth tied up in the house

2.) A mortgage balance between Zero-times and Three-times annual income (not more)

For a family earning $120,000 per year, with a net worth of $350,000 that WANTED to own, these could be reasonable numbers:

  • $360,000 purchase price
  • $72,000 down (< 25% of total net-worth tied up in the house)
  • $288,000 mortgage balance (< 3X annual income)
  • All-in monthly / annual payment of $2300 / $27,600

The family in this case should have enough money to build wealth. Even though the bank may be happy to approve their application (!) a $500,000 house is too expensive for this family. As our friend Tom Stanley says, asking the bank how much you should borrow is like asking a fox to count the chickens in your henhouse.  On the other hand, a $275,000 house will allow them to become wealthier faster, or to support other goals along the way, such as travel, children’s education, or giving.

For a family in retirement with a net worth of $1.7M, having a paid-for $360,000 house would be totally reasonable; this is less than 25% of their total net worth.  For this retired family, a $700,000 house is too much. The home will make it difficult for their other assets to support their lifestyle.

On the positive side, when you own a home, what you get is some protection from long-term inflation for part of your housing budget, and you get a portion of your portfolio returning a very predictable amount once you own it in cash: You save the principal and interest portion of your mortgage payment.

As you can see from the ratios above, we don’t recommend putting 100% or even 50% of your net worth into a house.  On the other hand, copying what wealthy people do in terms of habits and ratios is usually a good idea too!

Conceptually, when you rent, this is what you pay:

Rental Price

  1. Landlord’s Cost of Capital on the home itself
  2. PLUS Landlord’s Profit
  3. PLUS Landlord’s Real Estate Taxes & Insurance
  4. PLUS Landlord’s Maintenance and Repair Costs
  5. MINUS Tax Benefits that may accrue to the Landlord (deductibility of repair expense, interest expense & depreciation, possibly at a higher tax rate than your own)

When you own, this is what you pay:

Home Ownership Price

  1. Your cost of capital on the home itself
  2. PLUS Your Real Estate Taxes & Insurance
  3. PLUS Your Maintenance and Repair Costs
  4. MINUS Tax Benefits that may accrue to you (for middle-income tax payers, the TCJA has made this less likely given a much higher standard deduction)

Just looking at that formula lets you know that for an equivalent house, all else equal, by owning you will save the Landlord’s Profit component MINUS any tax benefits that may be greater for the Landlord than they are for you (you may or may not be able to deduct your interest and real estate taxes each year, and you cannot deduct repairs or depreciation as an owner-occupant).

Rather than reinvent the wheel with a bunch of calculations, please check out this excellent article, and then let me know if you want to go deeper on any of this. In a lot of ways, it all comes down to preference and then putting the right plan in place for you.

 https://affordanything.com/is-renting-better-than-buying-should-i-rent-or-buy/

We wish you all the best!

Matt

Fuqua Finance Forum – April 10th, 2019

Photos (left) Laurinda & Matt and (right) Ruben, Oriana, Matt, Laurinda, Monique, & Francisco

Matt Miner

April 10th, 2019

Whoa!  Sitting over here at WaDuke thinking about the excellent conversation we had together this morning. Such a delight to be with y’all, with Laurinda, and with Professor Dyreng.  Huge thanks to BLMBAO for this opportunity.

Thanks to all the folks who wanted to chat afterward.  I am honored that our time together was helpful to you.

Thanks to the several of you who asked about copies of the slides.  They are posted below for you to review, anytime.

Wishing you every success with life and money,

Matt Miner

2019.04.10 Matt Miner Slides

Some additional reference material below:

Recent interview on Radical Personal Finance podcast about my career transition to planning.

Interview on Masters of Money podcast

Blogs posts I referenced yesterday:

Renting versus owning – Afford Anything

The Shockingly Simple Math – Mr Money Mustache

Book recommendations:

Millionaire Next Door by Stanley is always top of the heap. The idea is that wealth is about habits.

Total Money Makeover by Ramsey is the best motivation book (“why”) and the best budgeting book

The Only Investment Guide You’ll Ever Need by Chris Tobias is terrific on both PF and investing topics

Personal Finance for Dummies by Tyson is comprehensive and accessible.

If you Can by Bernstein is a great DIY resource.

Your Money or your Life, by Dominguez and Robbins, is the frugality book.  Frugality: you can control your spending and achieve a high savings rate on any income.

The Automatic Millionaire by Bach

Richest Man in Babylon by Clason – seminal in this genre

The Wealthy Barber by Chilton – story based and easy PF content