SHOW NOTES: 2019-09-12 MiM

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Last Week’s Question of the Week: What percentage of Americans actually have their wills and their estate planning in place?

ANSWER: Only 40% have a will and estate plan.

HOST: I know that one thing I hear you talk a lot about is the idea of simplifying, consolidating and diversifying — why is that so important?

KLAAS FINANCIAL: Yes, we really want to help our clients understand that Simplifying, Consolidating and Diversifying. That should be their mission when it comes to their entire financial picture. There is a misconception that having multiple advisors and having multiple accounts is safer, but really what is most important is to focus on asset allocation and appropriate risk.

In a nutshell, asset allocation refers to the percentage that you keep in your portfolio of stocks, bonds and cash or cash equivalents. There is Age-based asset allocation, and asset allocation through the use of lifecycle funds.

  • Age-based asset allocation: As individuals approach retirement age, portfolios should generally move to a more conservative asset allocation so as to help protect assets that have already been accumulated; stocks, bonds and cash holdings need to adjust in accordance, generally speaking.
  • Lifestyle, or target-date fund allocation: A grouping of mutual funds that attempt to provide investors with portfolio structures that address an investor’s age, risk tolerance and investment objectives with an appropriate apportionment of asset classes. While sometimes these can work as a standardized solution for allocating portfolio assets it does not consider individual circumstances.

HOST: What other investing principles are important to remember?

KLAAS FINANCIAL: We just talked a bit about our first one, which is to diversify. Here’s more on diversification as part of our 6 simple investing principles:

  1. DIVERSIFY. “Don’t put all your eggs in 1 basket”. Diversification does not necessarily mean having multiple advisors – rather it means not owning just 1 stock or bond.
  2. KNOW YOUR TIME FRAME. The amount of TIME you have to invest your money can and should have a major impact on your asset allocation (how much in stocks vs bonds vs alternatives vs cash). Discuss current interest rates at local bank for savings, CD’s etc.
  3. KNOW YOUR RISK PROFILE. How much loss/volatility can you tolerate? Being more aggressive just because someone THINKS you should be does you no good if you sell out of your investments when the market goes down. REMEMBER that when we look at stock market history, it is normal to expect at correction of 15% or more every 2 years, 20% or more every 3.5 years.
  4. STAY COMMITTED TO YOUR STRATEGY. Do NOT try to time the market… just buy the general market without getting in and out.
  5. GET STARTED NOW Time is your greatest asset when investing, so get started now!
  6. SEEK PROFESSIONAL FEEDBACK or DIRECT GUIDANCE. While not everyone must have a money manager who invests their money for them, it is important to at a minimum seek the advice of a professional.

HOST: What about current interest rates? What should we know about them?

KLAAS FINANCIAL: Mortgage rates this month are down more than 1% since late last year. Trade wars, Fed rate cuts, and the recent yield curve inversion could make September the optimal month to lock in or consider a re-finance if you haven’t done so in recent years.

Any variable interest credit cards, student loans, mortgages or home equity loans may slowly be going down as well which is good news — you can pay off any remaining debt sooner!

Remember, even with low borrowing rates, don’t get in more debt than you can really afford. What you may qualify for if you are moving into a new house, doesn’t mean how much you should really spend.

HOST: Now, let’s look to our Money in Motion Listener Question Corner, where one of your listeners, Henry, asked this question: “I am planning on beginning my social security benefit this year. How soon before I want to collect should I apply?”

KLAAS FINANCIAL: Thanks, Henry! You should apply no later than the month in which you want your benefits to start. You can file up to four months before that, which gives Social Security ample time to process your application. Since the minimum age to collect retirement benefits is 62, the earliest you can apply is when you reach 61 years and 9 months. Keep in mind: Regardless of how far ahead of time you file, you will not get your first payment until the month after your first full month as a 62-year-old.

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Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.