Market Summary: August 2020

Stocks rise in August for the fifth month in a row.

What happened.

August was a good month for stocks. In the U.S., large-cap stocks were up 7.19%, closing the month at an all-time high (S&P 500). Small-caps were up too, by 3.99% (S&P 600). International stocks also had a good month. Developed-market stocks rose 5.14% and emerging-market stocks 2.21% (MSCI EAFE and Emerging Markets indexes). Interest rates rose over the month, although they remain very low by historical standards. But this led bond prices to fall, with the Bloomberg Barclays Aggregate Bond Index down by 0.81%. It was a relatively calm month for the stock market, with the S&P 500 moving by +/- 1% on only three days.

Why it happened.

The economic news in August was mixed. The unemployment rate, reported at the start of the month, fell to 10.2% from April’s peak of 14.7%. But the number of new claims for unemployment insurance has remained stubbornly high at around a million per week. Nonetheless, July retail sales exceeded their level from before the coronavirus crisis, and the housing market has been strong, buoyed by low interest rates.

Talks in Congress about continuing the economic stimulus made little progress, and the $600 addition to unemployment benefits expired on July 31. As the extra benefits expired, there were indications of a decline in consumer confidence. The Federal Reserve noted that there is still uncertainty in the economic outlook and reiterated that it would keep interest rates low for the foreseeable future in order to support the economy.

And yet given all that, stocks had a very strong month. In this month’s sidebar, we look at how markets and the economy are related – and why they can seem to be on different tracks.

What this means for you.

Given the continued rise in stock prices, you probably experienced gains in your portfolio last month. And the greater your allocation to stocks, the greater those gains would have been. But don’t be tempted to change your asset allocation based on one month, or even five months of good returns. Nor should you assume that markets won’t fall in the future.  Considerable uncertainty remains as the economy recovers from the current crisis, and new and different challenges will present themselves as well. So, keep in mind that you are saving for the long term, and your investments need to be based on that perspective. That means you need to honestly determine your own individual risk tolerance and invest accordingly. If you need help doing that, please give us a call.

©2020 Edelman Financial Engines, LLC. This publication is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Future market movements may differ significantly from the expectations expressed herein, and past performance is no guarantee of future results. Edelman Financial Engines assumes no liability in connection with the use of the information and makes no warranties as to accuracy or completeness. Future results are not guaranteed by any party. Financial Engines® is a trademark of Edelman Financial Engines, LLC. Advisory services are provided by Financial Engines Advisors L.L.C. Call (800) 601-5957 for a copy of our Privacy Notice. Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. All other intellectual property belongs to their respective owners. Index data other than Bloomberg is derived from information provided by Standard and Poor’s and MSCI. The S&P 500 index and the S&P SmallCap 600 Index are proprietary to and are calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P®, S&P 500® and S&P SmallCap 600®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. ©2019 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.
An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Investing strategies, such as asset allocation, diversification, or rebalancing, do not assure or guarantee better performance and cannot eliminate the risk of investment losses. All investments have inherent risks, including loss of principal. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Past performance does not guarantee future results.
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What to Do If You Are a Victim of Identity Theft

14 steps you should take immediately.

Thieves who assume your identity work quickly to drain your bank and investment accounts and borrow money in your name. By the time you discover the theft — which can take months or even years — you might have lost hundreds, even thousands of dollars, and you may spend months or years untangling the web of mischief the thieves created. Until you clean up the mess, your credit report is likely to be in tatters, cashiers may treat you like a thief, and you will make dozens of phone calls in an attempt to straighten things out.
In spite of your best efforts, you may still become a victim. Therefore, prevention is not enough. You must also vigilantly monitor the following:

Bank and credit card accounts
By the time you learn that you’ve bounced a check, or are informed that your credit card limit has been exceeded, the damage is already done. Unfortunately, most financial institutions use U.S. mail to notify you; few phone or e-mail you. This delay can make the problem worse. To protect yourself, minimize the number of bank and credit card accounts you hold, and check the balances regularly. Most allow you to do this through automated telephone menus or the Internet.

Mail service
Know your billing and statement cycles. Bank, investment, and credit card statements that fail to arrive on time might have been stolen. Thieves could have raided your mailbox, found an old statement in your trash, or gleaned information from your check or credit card number when you used it in a store or restaurant. However they got it, they sometimes use the data to submit a fraudulent change of address form with the institution. They might create fake checks on their computers, or they might shop with a fake card that carries your number. So, if your mail is late, investigate.

Your credit report
Ideally, you’d look at it weekly to see if any accounts have been opened in your name without your knowledge, or if any of your legitimate accounts show unauthorized activity. Weekly is ideal because someone who steals your identity will cause extensive damage during the first week to ten days. But let’s get real — nobody looks at their credit report often due to the time and effort involved. So, examine yours at least annually. And if you see old accounts listed that you no longer use, close them.

Someone Has Stolen Your Identity — Now What?
If someone has forged a check on your account, laws in most states hold banks responsible for any loss. However, you must notify financial institutions about the problem in a timely manner. If someone illegally uses your credit card, your maximum liability for each account is $50 if you report it within 50 days. Debit cards are another matter: Your liability is $50, but only for the first two days after the card is lost or stolen. Your liability increases to $500 for the next 58 days, and after 60 days, your liability is unlimited. Thus, if you have a line of credit attached to your checking or savings account, you could lose thousands of dollars.

Obviously, as soon as you discover or suspect a problem, notify the institution that handles the account. Do the following:

  1. Phone the institution. Each maintains a fraud division, so make sure you’re talking to people able to take action. Maintain a log showing the telephone number, date, time of the call, and name and title of the person with whom you spoke. Add notes describing what was discussed and actions agreed to.
  2. Send a certified letter, return receipt requested, to the person you spoke with, confirming the call and summarizing the conversation. If you send an e-mail instead, require that they confirm receipt.
  3. Keep your original logs, notes, and documents. Upon request, send copies; never give originals to anyone.
  4. Keep all records for at least seven years after you have resolved the last problem.
  5. Close all affected credit card, investment, and bank accounts. Open new ones. This is a major hassle, but the alternative might be to lose all the money in those accounts. Put your request in writing and ask each institution to place on each account the statement, “Account closed at customer’s request.”
  6. Issue “stop payment” requests on all missing or outstanding checks. Ask each bank and credit card company for a copy of its “fraud dispute form.” Fill it out promptly and return by certified mail, return receipt requested.
  7. Notify the following check verification companies that your checks have been stolen:
    TeleCheck: 1-800-710-9898
    Certegy Inc.: 1-800-437-5120
  8. If a financial institution is not supporting your efforts, find out your bank’s regulator by visiting the Federal Financial Institution Examination Council online at www.ffiec.gov. Contact the regulator, carefully explain your problem, and include a description of the financial institution that is not assisting you.
  9. Place a 90-day fraud alert on your file by contacting any of the three credit reporting agencies (Transunion: 800-680-7289; Equifax: 888-766-0008; Experian: 888-397-3742). When there is a fraud alert on your report, creditors are supposed to contact you to verify you want to open a new account. An extended seven-year fraud alert is available to victims of identity theft who file an identity theft report filed with law enforcement.
  10. File a police report immediately in the jurisdiction where your problem occurred (for example, in the city where your wallet was stolen); many banks, credit card companies, and credit reporting agencies will request a copy. Keep in mind that this type of crime, unless it occurred just minutes ago (“Hey! He just stole my wallet!”), is often a low priority for law enforcement. The more evidence and information you can provide the police, the more cooperative and helpful they’ll be. Still, expect few results — and be downright astonished if they catch the culprit.
  11. If there is any chance that the thief might use your Social Security Number, contact Social Security at: http://www.socialsecurity.gov/pubs/10064.html.
  12. If you think the thief might be using your driver’s license, contact your state’s department of motor vehicles and ask to have a fraud report attached to your record.
  13. Report your problems to the Federal Trade Commission at https://www.ftccomplaintassistant.gov/. The FTC will investigate only if there is a pattern of identity theft in your area.
  14. Never pay for any forged check, credit card purchase, or other fraudulent transaction for which a merchant may try to hold you liable. If presented with an invoice or demand for payment, explain the situation with the vendor. Be polite, friendly, professional, and communicative, but do not pay a debt that is not yours. If you pay a false bill in error, it is highly unlikely you will get your money back.

For more information  on identity theft, go to the Federal Trade Commission’s website at: http://www.consumer.ftc.gov/features/feature-0014-identity-theft.

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Watch Out for Charity Scams After a Disaster

How to avoid giving to fraudulent individuals and groups seeking relief donations.

Televised scenes of devastation and displaced families after natural disasters usually move millions of Americans to help by donating to relief organizations. Unfortunately, these events also bring out lots of scammers, who are constantly getting more organized and methodical.

For example, the websites they use might have been registered months prior, experts say. “Every year when the National Weather Service releases the names of that year’s upcoming storms, people start registering online domains so they can scam people,” says Walt Green, former director of the Justice Department’s National Center for Disaster Fraud. The same goes for every kind of disaster.

The scams go beyond web domains asking for money. They also work through email and social media. Never give money through a link that someone emails you or provides via social media, no matter how much you may trust that person. He or she could have been scammed too. Also be wary of email attachments that claim to be links to charitable organizations. They could contain malware that can infect your computer.

The Federal Trade Commission offers these tips for those who want to help disaster victims:

  • Avoid organizations using names that closely resemble better-known, reputable groups — for example, givetotheredcross.org rather than redcross.org.
  • Be wary of groups that won’t provide proof that a contribution is tax-deductible.
  • Watch out for those who thank you for a pledge you don’t remember making.
  • Avoid those who pressure you to donate immediately without giving you time to think about it or do any research.
  • Never give to anyone who asks for donations in cash or asks you to wire money.

If you encounter a charity you suspect is fraudulent, notify the Department of Justice at disaster@leo.gov, which tracks and attempts to shut down scams.

How can you verify that your donation is going to a charity that’s truly positioned to help, such as the Red Cross (which we highly recommend)? Other charities, including local ones, may also be reputable but simply not well-known. To learn about them, check with organizations that vet charities, but remember that a charity recommended by one organization might fall short by another’s standards. Therefore, check with at least two rating groups before you make a gift.

Here are four vetting sites that can help:
Charitywatch.org — a site run by the American Institute of Philanthropy — has a good record of discovering charity scams and weaknesses, and it has letter grades for many charities.

CharityNavigator.org uses a star rating system to vet numerous charities.

Guidestar.org has a list of expert-recommended charities involved in relief efforts.

Give.org is the Better Business Bureau’s charity-checking site, allowing you to verify which ones meet its accreditation standards.

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3 Ways to Help Foil Financial Fraud.

Between Ponzi schemes, fake IRS phone calls and the countless identity forgeries that happen each day, it may seem like swindlers are lurking around every corner.

Closely review and monitor your accounts.

Regularly check your bank and credit card statements and review every single charge. Is there a service fee that’s new or you’re unsure about? Ask your creditor or bank what it is and why it’s there. It could be an honest mistake – or, unfortunately, it could be an attempt to siphon money out of your account.

Whatever the reason, you should get to the bottom of it immediately. Similarly, if you see a charge on your statement that you don’t recognize, request more information about it. Sometimes swindlers who have obtained your account details will draw out a small amount on a regular basis in the hopes that you won’t notice or won’t bother disputing a $2.50 unknown charge.

These small thefts can add up, however. Plus, you don’t want the thief to have your account information in case they decide they want to make a significant purchase that could overdraw your account or max out your line of credit.

Keep tabs on what’s attached to your identity.

A credit report will tell you the bank accounts and credit cards attached to your name and Social Security number. All three credit-reporting agencies (TransUnion, Equifax and Experian) offer one free annual credit report, so you can get a total of three free reports each year.

By regularly checking these reports, you’ll be able to know more quickly if a rogue robber has opened a bank or credit card account in your name and is potentially damaging your credit.

Be wary of wi-fi networks.

Wi-fi networks are another avenue that online crooks can use to access your personal information. Many of these con artists have begun setting up shop in public places, such as coffee houses and airports, creating wi-fi networks that closely resemble legitimate ones and stealing information from anyone who logs on to them. If you log on to one of these illegitimate “free” sites, the scammer can look through your computer for financial information.

Even worse, if you use a credit card to buy time on an illegitimate network, that credit card information is now available for the crook to begin using right away. One way to avoid this type of scam is to stop your computer from automatically connecting to non-preferred networks (for PCs, go to Network Connections and uncheck “Connect to non-preferred networks” in advanced wireless settings; for Macs, go to the Network section of System Preferences and check “Ask to join new networks”).

In addition, look for “https” in the website address of any wi-fi network and a small padlock icon in the bottom right corner of your computer. If you see both of these, there’s a greater probability that the network is legitimate and secure.

While the unfortunate reality is that swindlers exist, you can take measures to lower the likelihood that you’ll be taken advantage of. By being proactive, careful and staying aware of the latest schemes, you can improve the chances of protecting yourself and your finances.

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7 Mistakes to Avoid When Buying Life Insurance

Buying life insurance can be a confusing process if you’re not prepared for it.

You wouldn’t buy a house or car without some comparison shopping. The same should be true when buying life insurance — another major purchase with long-term implications. The number and types of products available can be confusing, causing people to make common mistakes. Here are seven of them:

Looking Only at Price
Whether buying temporary (term) or permanent insurance, consider the company’s financial strength and the policy’s guaranteed features. If you’re buying life insurance with a term policy, compare the death benefit, the cost of the policy and the insurer’s rating to competitors. Such “apples to apples” evaluation can help you get the most insurance for the longest term at the best rate from a strong company.

If you need permanent insurance instead of (or in addition to) term, also compare the assumed interest rate that each policy is offering. Decide which of all these variables is most important to you, make sure the others are equal, and then solve for the variable you’re emphasizing. A good independent, fee-based, objective financial advisor can help you do this.

Automatically Buying Term Life Only
With longer life expectancies, today’s 30-year term policies are cheaper and more cost-effective than ever, and usually best if you don’t need life-long coverage. But some people have more than one need for insurance: for example, to ensure that a surviving spouse won’t lose the home while protecting the children from estate taxes. For such reasons, you may need a permanent policy, or even two policies — term and permanent. Your advisor can help you decide what best meets your individual needs.

Not Buying Enough Coverage
Consumers often underestimate the amount of insurance that’s needed to properly protect their families. How much money your survivors will need and how long they’ll need it are key factors in determining the amount of coverage that’s right for your family. Your advisor can help you with this calculation.

Considering Illustrations as Fact
When selling permanent insurance policies, agents like to give people a form called an “illustration” that demonstrates the cost of insurance and the future cash value of the policy. But be aware that the numbers you see on life-insurance illustrations are merely projections. They are not guarantees (unless you see that word printed there!) and the reality could be very different from what is illustrated. The actual interest rate earned by the policy might be lower than projected, the premiums might be higher, and other costs could rise if the policy is a non-guaranteed contract. Don’t give too much credence to policy illustrations.

Viewing the Purchase as a One-Time Activity
As with the rest of financial planning, evaluating life insurance needs is an ongoing process, not a one-time product purchase. If you bought a policy 20 years ago, your death benefit may be much less than what you need today, because your income and expenses are likely higher than they were. It’s best to review your insurance needs every few years, or whenever you’ve experienced a major change in income/expenses, marital status or the birth or death of a family member.

Are You a Tobacco User?
You’ll get far better rates if not. Tobacco users usually pay more than twice as much for insurance as nonusers. Some companies treat tobacco use more favorably than others, so it’s important to comparison shop when buying life insurance.

Cancelling a Policy Before You Obtain the New One
Term life insurance rates have dropped dramatically in recent years, making it worthwhile in many cases to switch insurance companies. But if you’re going to replace a policy for a new, lower-cost one, don’t do it until the new one is in force.

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Market Summary: July 2020

Markets rise despite bad economic news.

What happened.

U.S. and international stocks rose in July, for the fourth month in a row. Large-cap stocks were up 5.64 percent and small-caps by 4.11 percent (S&P 500 and 600 indices). International stocks closed the month up, with developed-market stocks climbing 2.33 percent and emerging-market stocks 8.64 percent (MSCI EAFE and Emerging Markets indices). Bonds rose too, with the Bloomberg Barclays Aggregate Bond Index up 1.49 percent. July was less volatile than recent months, with the S&P 500 moving by more than +/- 1 percent on only six days.

Why it happened.

There was more bad economic news in July. New unemployment claims had increased slightly to 1.4 million per week by the end of the month. This is much lower than the peak of 6.9 million in late March, but the decline seen from April to the start of July has stalled for now. At the end of the month, the Bureau of Economic Analysis reported that the economy shrank by 9.5 percent during the period of April to June, the largest drop since record-keeping began in 1947. Economies around the world experienced similar or worse contractions. In addition, the coronavirus resurged in the South and West. And yet stock markets rose. Why?

We’ve noted before that the stock market isn’t a snapshot of the current economy. It’s driven by expectations of companies’ future profits. In July, companies started reporting their first-quarter earnings. They were expected to be bad, but so far 84 percent of companies — led by the big tech firms — beat these expectations, boosting their stock prices.

The economy does affect how companies perform. And while the economy shrank last quarter, it’s expected to grow strongly this quarter — and the Federal Reserve reinforced its commitment to help the economy. There was also promising news on the prospects for a Covid-19 vaccine. All this isn’t to say that what markets expect will definitely happen. There are risks. The impact of the coronavirus on the economy is uncertain and the inability of Congress to agree on extending economic support may reduce spending. And, of course, the election is only three months away. In this month’s sidebar, we look at the election’s potential impact on markets.

What this means for you.

Given the strong performance across markets, your portfolio will probably have seen gains in July. Once again, stocks outperformed bonds. This means that the riskier your portfolio — based on the further you are from retirement and whether you’ve told us you are comfortable taking more risk — the higher the expected long-term return on your portfolio. But keep in mind that there is always the risk of more market volatility. Make sure your portfolio properly reflects your risk tolerance. Feel free to give us a call if you have any questions.

©2020 Edelman Financial Engines, LLC. This publication is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Future market movements may differ significantly from the expectations expressed herein, and past performance is no guarantee of future results. Edelman Financial Engines assumes no liability in connection with the use of the information and makes no warranties as to accuracy or completeness. Future results are not guaranteed by any party. Financial Engines® is a trademark of Edelman Financial Engines, LLC. Advisory services are provided by Financial Engines Advisors L.L.C. Call (800) 601-5957 for a copy of our Privacy Notice. Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. All other intellectual property belongs to their respective owners. Index data other than Bloomberg is derived from information provided by Standard and Poor’s and MSCI. The S&P 500 index and the S&P SmallCap 600 Index are proprietary to and are calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P®, S&P 500® and S&P SmallCap 600®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. ©2019 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.
An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Investing strategies, such as asset allocation, diversification, or rebalancing, do not assure or guarantee better performance and cannot eliminate the risk of investment losses. All investments have inherent risks, including loss of principal. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Past performance does not guarantee future results.
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An Estate Plan: Create It for Yourself and Those You Love

A comprehensive guide to creating an estate plan.

Heaven can wait … but estate planning can’t. Estate plans deal with the topics that no one likes to think or talk about — accidents, illness, the inability to care for ourselves and, ultimately, death.
But we know you will face these issues eventually — even if the actuarial tables say you have many more years to live, fate may have other plans — and will be creating a tremendous amount of work for your loved ones if you procrastinate and fail to put a plan in place.

If, for example, you become incapacitated due to an accident or illness, your family will face an arduous legal process to have you declared incompetent, so they are able to manage your affairs. And if you pass away without documents in place, they will have to go through a difficult, lengthy probate process. Is that the legacy you’d like to leave?

Death combined with money can bring out the worst in people. By putting your plan in place, you will be saving your loved ones a great deal of difficulty and anguish that you probably aren’t even aware of.

Consider this:

  • Die without a will and, in some states, your spouse could receive as little as half of your money.
  • Die without a will and an unmarried partner would likely be left with nothing, including the home the two of you currently share.
  • If you are unable to handle your affairs due to an accident or illness, no one will be able to handle your finances unless you created and put a power of attorney in place.
  • If you have an accident that prevents you from communicating, your medical wishes cannot be honored unless you state them in a living will and have appointed someone to make decisions via a health care power of attorney document.

With all the well-known dangers of dying without a will, it’s amazing that more than 50 percent of adults today do not have one, according to Chas Rampenthal, general counsel of LegalZoom.

Estate Planning Essentials

  • Will
  • Durable Power of Attorney
  • Living Will (to put your medical wishes on record)
  • Health Care Power of Attorney
  • Proper Titling of Assets
  • Beneficiary Designations (Have you designated per stirpes or not?)

Also Consider

  • Revocable Living Trust
  • Provision for Digital Assets

How to Start Creating an Estate Plan

An estate attorney can easily help you set up the essential documents that form an estate plan — a will, a durable power of attorney, a living will and a health care power of attorney. You should also consider creating a revocable living trust, which helps in many ways: It makes the process remarkably simpler for your heirs, avoids probate, reduces costs, avoids publicity and allows for the management of your assets and decision-making during your lifetime if you become incapacitated.

When you work with a lawyer to create an estate plan, you only need to be an expert in one thing — you. It’s your lawyer’s job to figure out which estate planning tools are the right ones to implement your individual set of instructions.

Estate Planning Questions You Need to Ask Yourself

There are some questions everyone needs to answer in preparing an estate plan:

  •  Who do I want to inherit my assets and my belongings when I pass away?
  • Who can I trust to make these distributions according to my wishes?
  • How can I assure that my affairs are handled in the best way possible if I become incapacitated?
  • How can I lessen the burden on my family when I pass away?

Preparing a Will

When creating an estate plan, the last will and testament is a likely place to start. If you don’t have a will, the probate court will distribute your assets following your death according to the laws of your state — possibly in ways you would not agree with.

For the preparation of a will, you’ll need to answer these key questions:

  • Who gets what (naming of heirs along with amounts or percentages for each)?
  • Who will take care of my minor children (naming a guardian)?
  • Who will distribute my assets (naming an executor or personal representative)?

You should note that a will cannot guide the distribution of jointly owned assets. Wills also do not cover the distribution of assets in accounts in which you name a beneficiary, such as 401(k) accounts, IRAs or life insurance policies. For those accounts, the named beneficiaries receive the assets in the account after you pass away.

That’s why it’s important to review who you’ve named as your beneficiaries regularly — at least every five years. You should also review your beneficiaries after major life events have occurred, such as births, deaths, changes in the marital status of either yourself or your heirs, or changes in your attitude toward your heirs.

Also, remember that minors should never be named as direct beneficiaries of life insurance proceeds, work retirement plans or IRAs.

Durable Power of Attorney, Living Will and Health Care Power of Attorney

A will is only one important step to take in estate planning, however. You will also need documents to direct others to take actions on your behalf when you’re unable to do so. A durable power of attorney is a document that names a trusted family member or friend and describes their rights and responsibilities in those circumstances.

If you are out of the country or are unable to handle your affairs due to an accident, a medical condition or dementia and have not drafted a power of attorney, no one will be able to write a check to pay for your medical bills or normal household expenses.

You’ll also need a pair of documents to cover medical situations where you become incapacitated due to an accident or illness:

  • A living will details the level of medical care you wish to receive (or none at all) if you are unable to speak for yourself.
  • A health care power of attorney allows the trusted person you appoint to direct the doctors to follow the medical directive and can make additional medical decisions for you.

Revocable Living Trusts and Other Trusts

Beyond these core documents, you may also want to consider creating one of the several flavors of trusts.

A revocable living trust has many benefits:

  • A trust can go into effect as soon as you create it and can help if you become incapacitated for any reason. Typically, you would be the trustee of your own trust to start, but would name your spouse or a trusted family member or friend to serve as the backup or successor trustee if you are unable to handle everything. This provides a seamless way to assure that your assets will be handled as you wish throughout your lifetime.
  • Following your death, the trust allows your heirs to avoid probate court. This means assets will be distributed in months as opposed to years and will reduce legal fees substantially.
  • The provisions of a trust remain private after your death, avoiding unnecessary publicity.
  • Following your death, the revocable living trust becomes irrevocable, locking in your wishes. It will be up to your successor trustee to distribute assets according to your specific, written instructions laid out in your trust.

There are quite a few other types of trusts, each useful for a different, specific purpose:

  • QTIP (Qualified Terminable Interest Property) Trust: This type of trust is often used in second marriage situations. It provides income for a surviving spouse, while controlling and preserving underlying assets for distribution to children from a previous marriage or other beneficiaries.
  • Spendthrift Trust: You may want to create this type of trust if your child cannot effectively handle money, is in a problematic marriage, or suffers from drug or alcohol abuse.
  • Life Insurance Trust: This type of trust allows you to avoid estate taxes on the proceeds of a life insurance policy. If done properly, the life insurance proceeds that come through a life insurance trust following death are not counted as part of the estate.
  • Special Needs Trust: If you have a child needing ongoing oversight and custodial care due to a disability, this type of trust avoids the interruption of the agency or government benefits due to the child receiving an inheritance
  • Charitable Remainder Trust: This type of trust is often used for a large donation to a charity, a university or another nonprofit. It can provide a tax deduction today along with the ability to generate income during your lifetime.

When you do the job right, you’ll make sure you will be taken care of and reduce the burden on your loved ones. Plus, you’ll help ensure that your legacy is passed on to future generations.

This material was prepared for informational and/or educational purposes only. Neither Financial Engines Advisors L.L.C (also referred to as Edelman Financial Engines) nor its affiliates offer tax or legal advice. Be sure to consult with a qualified tax or legal professional regarding the best options for your particular circumstances.
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Market Summary: June 2020

Markets end higher, but volatility continues.

What happened.

Markets rose around the world in June. The S&P 500, an index of U.S. large-cap stocks, was up by 1.99 per cent. Small-caps were up more, rising by 3.74 percent (S&P 600). Looking abroad, we see that international stocks were up by 3.41 percent (MSCI EAFE Index). And bonds also had a good month too, with Bloomberg Barclays Aggregate Bond Index up 0.63 percent. Our simple measure of volatility in the stock market shows that June was a volatile month, with S&P 500 moving by +/- one percent on 11 of the 22 trading days of the month. This was also the end of the second quarter of the year, which followed a steep fall in the first quarter. The S&P 500 rose by 20.54% over the past three months, making it the best quarterly return since the fourth quarter of 1998.

Why it happened.

Uncertainty about the economic impact of the coronavirus pandemic drove markets in June. Market participants, trying to figure out how the coronavirus will impact companies’ performance, reacted strongly to good and bad news. As a result, markets experienced repeated ups and downs.
Early in the month, the unemployment rate was reported and, instead of rising substantially as expected, actually fell slightly. In response, the S&P 500 rose by 2.6 percent on June 5th. But on the 11th the S&P 500 fell by 5.9 percent after news of spikes in coronavirus infection rates and Federal Reserve Chairman Jerome Powell predicting a slow economic recovery. Then there was positive news on the 16th as retail sales grew by 18 percent, double what was predicted, sending markets back up. Another fall in markets came on the 24th as the International Monetary Fund said that the recession was worse than it had expected. There was also news of spikes in infections, leading multiple states to pause or backtrack on their reopening plans. Towards the end of the month, markets rose once more as pending home sales and the consumer confidence score beat expectations. After all these ups and downs, the S&P 500 closed up for the month.

What this means for you.

At Financial Engines, we build personalized portfolios that reflect your risk preferences and goals. Your portfolio is likely to have risen in June, and slightly more so if you have a higher stock allocation. But, as we continue to see market volatility, it is important that you are comfortable with your portfolio’s risk level. To do so, log into your account and look at the impact of changing your risk preference. Or call one of our advisors to help determine the level of risk that is right for you.

©2020 Edelman Financial Engines, LLC. This publication is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Future market movements may differ significantly from the expectations expressed herein, and past performance is no guarantee of future results. Edelman Financial Engines assumes no liability in connection with the use of the information and makes no warranties as to accuracy or completeness. Future results are not guaranteed by any party. Financial Engines® is a trademark of Edelman Financial Engines, LLC. Advisory services are provided by Financial Engines Advisors L.L.C. Call (800) 601-5957 for a copy of our Privacy Notice. Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. All other intellectual property belongs to their respective owners. Index data other than Bloomberg is derived from information provided by Standard and Poor’s and MSCI. The S&P 500 index and the S&P SmallCap 600 Index are proprietary to and are calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P®, S&P 500® and S&P SmallCap 600®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. ©2019 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.
An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Investing strategies, such as asset allocation, diversification, or rebalancing, do not assure or guarantee better performance and cannot eliminate the risk of investment losses. All investments have inherent risks, including loss of principal. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Past performance does not guarantee future results.
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Making Ends Meet Part 1- Bridging Expense Gaps During and After the COVID-19 Crisis

By Chris Ishida, Director, Financial Planning, Financial Engines

Financial relief from the federal government

The impacts from the coronavirus pandemic have been widespread. We’ve seen a new record for the highest one-week number of initial unemployment claims since the Department of Labor started tracking those figures back in 1967. More than 15 percent of the work force has lost their jobs. The $2 trillion CARES (Coronavirus Aid, Relief and Economic Security) Act stimulus package signed into law on March 27 is designed to put cash directly into the pockets of millions of Americans and businesses to alleviate some of the financial suffering.

Paying for basic needs

A recent survey from SimplyWise found that 40% of Americans’ income has been lost or reduced due to the virus response. And 43% of those who have been put out of work are not confident they will even have a job in the next three months.

The CARES Act stimulus payments will help people meet immediate needs, such as buying groceries, and paying for rent, prescriptions and utilities. A number of people say they will need the money to make late payments on loans and mortgages. While paying off debt is usually a good financial move, many banks have pledged to help customers who are having trouble making payments on bills and loans, including skipping or deferring payments. Check with your lenders to see what assistance they are offering.

Filling the income gaps

Half of U.S. households have no emergency savings, and nearly 40% would struggle to afford an unexpected expense of $400, according to a survey by the Federal Reserve. For many of the people in these households, stimulus money may not be enough to cover essential bills. What’s needed is a way to create extra income.

According to a SimplyWise survey, here are a few options Americans are considering.

Seek part-time work

While 15% of survey respondents are planning to apply for unemployment insurance, almost a third (30%) of respondents said they would look for part-time work to fill in their budget gaps.

While recruiting in your primary occupation may be down, many companies are still actively recruiting. Businesses offering essential services like Aldi, Amazon, CVS, Walmart, Kroger and FedEx are bringing on tens of thousands of new workers. New Jersey and Los Angeles have created job portals that list opportunities for those unemployed or underemployed due to the pandemic.

Ask yourself:

  • Is my resumé up-to-date and are my social media accounts suitable for a potential employer to view?
  • Do I have the technology in place to do video interviews and work remotely?

Sell assets

Online marketplaces, such as eBay, Etsy, eBid, Bonanza and others, make it easy to sell personal property for cash, and 15% of survey respondents indicated they would sell assets, including their home or car. Keep in mind buyers may be reluctant to purchase non-essential items while money is tight for so many. You can check with  eBay for tips on selling goods during the pandemic.

If you’re considering selling a house, understand that the traditional spring-time real estate market will probably not operate as usual. Nearly half of realtors surveyed by the National Association of Realtors said home buyer interest has decreased due to coronavirus-related concerns.

There are many questions to answer before listing your home, including whether you have enough equity to turn a profit and whether substitute housing is available. Given the need for social distancing, the sale of real property would have to be through a video tour, which could add to the difficulty for sellers.

Ask yourself:

  • Do I have items that are in demand and that I won’t regret selling later?
  • Do I have the time and resources to monitor the sales process and then pack and ship sold items?

Borrow from family or a bank

The SimplyWise survey found that 16% plan to borrow from a family member or friend, while just 10% said they would get a loan from a bank.

Turning to loved ones for short-term funds may be a good way to get a better interest rate without lots of paperwork. But when borrowing from a family member, it’s important to be very clear about loan terms and expectations. Writing up a contract may help avoid misunderstandings and family tension.

Many banks are offering to help customers during the pandemic. Five federal agencies—the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration and Office of the Comptroller of the Currency— issued a joint statement issued a joint statement encouraging financial institutions to “offer responsible small-dollar loans to consumers and small businesses in response to COVID-19. Do your research to find a loan with a good interest rate that is structured to meet your needs.

Ask yourself:

  • Is my credit rating high enough to get a decent interest rate on a loan?
  • Could I combine a loan with other income sources to make the loan as small as possible and limit my debt?

Borrow from your retirement savings

Think very carefully before taking a loan from your 401(k) as it can have long-term impacts on your retirement readiness. The cash you take out of your account won’t have the opportunity to grow over time. This could make it harder to reach your retirement income goals. Retirement plan loans tend to offer favorable interest rates, but you will be paying yourself back—with interest—through automatic payroll deductions. Pay careful attention to whether you can still make paycheck contributions if you have an outstanding loan—if not, you’ll be losing your company matching contributions. IRS.gov has more information on coronavirus related relief for retirement plans.

Ask yourself:

  • If I lose my job, will I be able to pay back the loan all at once?
  • Will the loan repayments make it hard to continue making contributions to my account?

Take a retirement account withdrawal

The SimplyWise survey discovered that 14% of respondents plan on withdrawing from their retirement funds. Taking a withdrawal from your retirement account should be a last resort because it will mean you’ll likely have less money available when you hit retirement. The new stimulus package removed the 10% early withdrawal penalty, so that’s a plus. But you will still owe income taxes on the money you take out. Consider your other options first, and then consult with a financial advisor before requesting a withdrawal.

Ask yourself:

  • Do I really want to sell investments in my retirement account when the market is down?
  • Can I combine a small withdrawal with other income sources to minimize the negative effects on my future retirement income?

Understand your options and ask for help

This is an incredibly difficult time. Many two-income families are now trying to survive on a single wage earner. Some have the additional burden of caring for sick loved ones or worse, being sick themselves. Use the time you have while staying at home to educate yourself about all the available options to bridge the expense and income gaps through the crisis. An advisor can provide a calm and objective view to help you make smart decisions.

In Part 2 of Making Ends Meet we take a look at how personal loans may help support your finances.

© 2020 Edelman Financial Engines, LLC. Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Results are not guaranteed. See FinancialEngines.com/patent-information for patent information. Financial Engines Advisors L.L.C.; Attn: Investor Services; 4742 N. 24th Street, Suite 270; Phoenix, AZ 85016 Links to third-party content are intended to provide additional perspective and should not be construed as an endorsement of any services, products, guidance, individuals, or points of view outside Financial Engines. AM117811</h6)

Making Ends Meet Part 2 – Bridging Income Gaps With Personal Loans

By Chris Ishida, Director, Financial Planning, Financial Engines

In Part 1 of our “Making Ends Meet” series, Bridging Expense Gaps During and After the COVID-19 Crisis (avaiable in the Education Center), we described some of the financial resources that could help bridge your household’s expense gaps in the wake of the COVID-19 economic slowdown. In Part 2, we look at how one of those resources — personal loans — may help you pay the bills until the economy gets moving again.

What’s the (FICO) score?

Before we get into loan types, interest rates and application processes, let’s examine one of the most important factors in the borrowing world — your credit score, which lenders use to help gauge your ability to repay a loan on time.

The credit score used by more than 90 percent of top lenders is the FICO score, a three-digit number that ranks your creditworthiness. Think of it as a summary of your credit report. It’s a measure of how much credit you have and how long you’ve had it, how much of your available credit is being used and your record of paying on time, among other factors.

Scores run from 300 to 850. The higher the score, the better. The scale is divided into five categories, from “poor” (below 580) to “exceptional” (800 and higher). If your score is 720 or above, you’re generally in the excellent credit range, which should make it easier to get a loan and help you qualify for a better interest rate.

To give you an idea of why your FICO score matters, here’s a look at estimated online personal loan APRs (annual percentage rates) by FICO score range, as reported by NerdWallet’s April 2020 Lender Survey:

As you can see, the difference between fair and excellent credit is significant. You can improve your FICO score by following these tips from myfico.com

  • Pay bills on time.
  • Get current with any missed payments
  • Keep balances well below the credit limits on credit cards and revolving credit accounts
  • Don’t close unused credit cards
  • Don’t open lots of new accounts within a short period of time

Check your credit reports for accuracy

TransUnion, Equifax and Experian are the three big credit reporting bureaus. Each company issues credit reports on individuals to lenders, insurers and other businesses. Before you apply for a loan, review copies of your credit reports to make sure they are accurate.  The three bureaus do not share information with one another, so your reports from each firm may be slightly different. Under federal law, you are entitled to a copy of your credit report from each bureau every 12 months. You should make a habit of doing this even if you’re not in the market for a loan so you can ensure your reports are up to date. A best practice is to request your free report from a different credit bureau every four months.

If you’re about to apply for a personal loan, you can get all three reports at once for free from annualcreditreport.com. This is the only official website that does not charge for the reports. In response to the COVID-19 crisis, all three credit bureaus are offering consumers access to their reports on a weekly basis through April 2021.

Choose a lender

There are three primary sources for personal loans:

Banks — Banks may offer competitive rates, with discounts for banking customers, but they typically have tougher eligibility requirements and can take longer to fund your loan compared to online lenders. If you value personal interaction and the security of knowing who is handling your loan, a bank might be a good place to start. Also, you may be able to negotiate a lower rate or qualify with a lower credit score if you’re talking to a person with whom you already have a banking relationship.

In the aftermath of the 2008–2009 subprime mortgage crisis and recession, many traditional “brick and mortar” banks pulled back on consumer lending. While banks have loosened up a bit in the last of couple years, many are still reluctant to offer unsecured personal loans.

Online lenders — Online lenders are stepping in and offering unsecured personal loans that would not be available at a traditional bank. Online sites like Avant Loans have simplified the process of taking out a loan. Because online lenders don’t have the overhead expenses of maintaining a physical bank, they may be able to offer lower loan fees. For the same reason, online interest rates are usually lower than those of banks if you’re applying for a secured loan, such as a home mortgage or auto loan.

Most online lending is unsecured, which means you’re not putting up collateral that the lender can keep if you don’t pay your debt. Unsecured loans are riskier for the lender, so they come with higher interest rates. If you need a personal loan and borrowing online is your only option, even at a relatively high interest rate, you’ll likely pay less than you’d pay in credit card interest. One positive aspect of online interest rates is that they are usually fixed, so you’re not vulnerable to broader interest rate fluctuations. A fixed-rate loan allows you to know exactly how much interest you’ll pay for the life of a loan.

Credit unions — Credit union loans often have lower interest rates than those of banks and online lenders. If you have a less-than-stellar FICO score, you may find credit union loan officers more willing to consider your overall financial picture when determining your creditworthiness.

There are two types of credit unions: federally chartered and state chartered. At federal credit unions, APRs on most types of loans are capped at 18 percent. Over the past five years, federal credit union loan APRs on three-year loans have averaged 9.29 percent, while the average at banks was 10.18 percent, according to data from the National Credit Union Administration. Rates at state-chartered credit unions have averaged 11.43 percent over the past five years, according to economists with the Credit Union National Association. Your credit union may choose to charge an application fee that isn’t part of the APR.

Pre-qualify to see where you stand

Personal loan interest rates currently range from about 5 to 30 percent. The actual rate you receive depends on factors such as your credit score, credit history, annual income, existing debt and whether you get a loan from a bank, credit union or online lender.

Because rates and terms vary among lenders, we recommend pre-qualifying for several personal loans so you can compare offers. Pre-qualifying gets you access to potential loan terms, like the amount you qualify for and the interest rate, but it does not guarantee that you’ll get the loan. Pre-qualifying for a loan should not impact your credit score. Lenders do a “soft” credit check to determine your basic creditworthiness and that inquiry will not show up on your credit report.

The pre-qualification process generally involves the following steps:

  1. You fill out a pre-qualification form, sharing such information as your income, occupation and existing debt
  2. The lender performs a soft credit check, assessing your credit score and history. This gives the lender a sense of how risky a borrower you may be
  3. The lender either denies or grants your pre-qualification. If you pre-qualify, you’ll receive information about the loan you may receive, including the rate and loan amount

If you continue with a loan application after pre-qualifying, the lender will verify your financial history and perform a hard credit check, which will appear on your credit report for up to two years and may temporarily shave a few points off your FICO score.

In Part 3 of our “Making Ends Meet” series, we’ll take a look at four other loan-based resources that might be used to support your finances: home equity loans, home equity lines of credit, mortgage modifications and payday alternative loans.

 

© 2020 Edelman Financial Engines, LLC. Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Results are not guaranteed. See FinancialEngines.com/patent-information for patent information. Financial Engines Advisors L.L.C.; Attn: Investor Services; 4742 N. 24th Street, Suite 270; Phoenix, AZ 85016 Links to third-party content are intended to provide additional perspective and should not be construed as an endorsement of any services, products, guidance, individuals, or points of view outside Financial Engines. AM1178119.