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Five Ways to Build Your Healthy Financial Mindset

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Your bank account, investing strategy, and credit score aren’t the most important parts of your financial life. Your net worth or rate of return aren’t even the most pivotal. The most important part of your financial life is your mindset.

Without the right way of thinking and feeling about your financial well-being, those other metrics of success amount to nothing. A healthy mindset leads to healthy behaviors and a productive relationship with your money. Without this foundational approach to managing your financial life, all the positive planning and execution on the world won’t improve your overall life. Having the right money mindset means:

1. Developing an Abundance Mindset

Much of the world operates in a mindset of scarcity. The debt crises, global conflict, and fear-based media all operate from a scarcity mindset. They believe that opportunity is limited and that your good fortune is under threat. A mindset of abundance accepts these risks, but knows that there are more opportunities waiting if you plan and act effectively. Adopting an abundance mindset means being thankful for the good things in life and knowing there is more good waiting for those who plan and act correctly to reach their goals.

A good way to grow your abundance mindset is to challenge encroaching, negative thoughts that may arise when you are stressed by re-framing them as positive opportunities rather than threats.

2. Anticipating Your Nature

Part of a healthy financial mindset involves knowing yourself and being honest about who you are. We are all impulsive, emotional, messy human beings. Developing overly tight budgets that don’t allow for your occasional impulse can torpedo all of your efforts towards financial self-improvement. Feeling deprived can make you lash out and resent your own efforts in impulsive ways that lead to overcharges and other negative outcomes.

Know what your impulsive vices are and plan to reduce those in healthy ways while still giving yourself the occasional reward. Whether that means an impulsive purchase of an ebook on sale or treating yourself to a movie theater trip once a month, you have to allow yourself to enjoy life while working towards financial wellness.

3. Rolling with the Punches

The trajectory of success is never a straight line and neither is your financial trend line. Changing  behaviors, investing, and trying to better your financial status all come with associated risks. Can you handle negative returns on higher risk investments? Can you run your finances like a business and accept that your funds will be working for you in several different places? Accepting the constant presence of change and uncertainty and remaining self-assured that your strategy WILL work for you is essential for your mindset.

Automated investment and savings strategies can help make this easier for you by keeping it out of sight and out of mind. Market downturns and hiccups happen, but the trick is trusting in your strong strategy to weather the market volatility that can harm your investments.

4. Staying Motivated

Staying the course and maintaining your focus on the positive outcomes you’re working toward is easy early on in your financial journey. Can you maintain that focus in year? Five years? Figuring out what steps you have to take to keep yourself motivated and working toward financial prosperity is key for your journey. It’s a moving target and requires radical honesty with yourself, but maintaining that motivation is essential. Some people use vision boards or other simple reminders of what they’re working towards.

Some people track behavior streaks on a calendar or in a mobile app. What works best for you won’t hold true for everyone else; you just have to figure out how to keep yourself motivated in a natural and effective way.

5. Expressing Gratitude

Being thankful for what you currently have and for the future you are building will help immensely. Too many people spend their lives pessimistic and jaded, resenting their current status without taking real action to improve their standing. It goes beyond appreciating what you have. True gratitude means celebrating others’ good fortunes and contributing to a better world through your self improvement. Your most valuable asset is you, and you should be thankful for the commitment you are making to yourself and your life as you begin this journey towards a better financial life.

Taking these steps will help put you on the right path towards cultivating a healthy financial mindset. Want to learn more about effective money management principles and see how we improve our client’s lives? Contact us to discuss how we can help you on your financial journey.

Market Update: Avoid the Noise and “Tilt”

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I’m sure you saw all the headlines yesterday about the market.

The media is obsessed with hysteria and trying to get viewers, readers, and followers. The question you need to constantly ask yourself is:

“Is this noise or is this evidence?”

In the last 2 days the SP500 has dropped -2.1% followed by a -4.1% drop yesterday. Two back to back days like this is pretty rare. Since the 1960’s, double dipping has happened less than 1% of the market’s total lifetime. The last 2 twice-occurring drops were August 2015 and in November 2011. These were rare, but still memorable.

To put this into perspective, the SP500 is now at prices we last saw in mid-December 2017- all of 8 weeks ago. The SP500 is still up 17% over the past year. The market is now -6.2% below its close on Jan 31, 2018. This recent drop is not a big drop in magnitude, it just happened fast enough to make an emotional impact.

After a year of unprecedented market growth (12 straight months of market gains) with the DOW never before reaching 25,000 and the S&P 500 reaching over 2,700, we are now seeing volatility creep back into the system. Yes, the DOW did have its largest one-day point drop in history. However, it was only a 4.26% drop in one day – not the biggest percentage drop in history.

Evidence, Noise, and Tilt

This is the EVIDENCE.

Pay no attention to the NOISE generated by the media and pundits whose jobs are to get more viewers, reactions, “likes,” and “followers.” You know better, pay attention to the evidence and the confidence of how you are invested using diversification and trend following strategies.

Poker uses the term “TILT” when your position at the table is either down a majority of chips or you’re stacked. Tilt breeds emotion and good decisions are rarely made using emotion instead of evidence. Investing is much the same way. When the market starts to tilt one way or the other we get emotional about our money.

Negative tilt, even a little bit like we’ve seen the past couple days, can cause panic and irrational thinking. Positive tilt, like we’ve seen over the past year can create overconfidence (see bitcoin) and cause more risky decisions.

At Jarred Bunch, we’ve always used evidence and rules-based strategies that avoid “tilt.” Our educational philosophy has always been to seek the evidence and avoid media-fueled noise.

Want more evidence?

The reality is that the market is in a drawdown more than not, in fact 70% of the time (historically) is spent in a drawdown. Ben Carlson recently wrote about Robert Frey’s video “180 Years of Market Drawdowns” and showed some context to this with the following chart:

Carlson further went on to analyze monthly drawdowns to see the size of the loss:

He states, “Over the last 90 years or so the market has been in a bear market almost one-quarter of the time. Half the time you’re down 5% or worse. It’s difficult to appreciate this fact when looking at a long-term log scale stock chart that seems to only go up and to the right. This is why stocks are constantly playing mind games with us. They generally go up but not every day, week, month or year.”

What’s the Payoff?

The payoff by sticking with your investment plan is that, over time, the market trends upward. The 10-year S&P 500 is up 142%, for an annualized return of 9.26%. It’s the gyrations in-between that become noise and detract us from our goals.

Looking at rolling returns we get a great picture of how the stock market performs over good and bad times. Over short periods the market can deliver exceptionally high or exceptionally low returns. Over time this fluctuation smooths out with a worst 20-year period delivering a return of 6.4% per year and the best returned 18% per year. See the chart below provided by Dana Anspach’s research.

What we do know about the market is it will continue to fluctuate and experience losses on a regular basis. How we as investors use this evidence to stick with our investment strategies is the key decider to our long-term success.

Cybersecurity Tips from the IRS

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The holidays are also the prime season for criminals shopping for credit card numbers, financial account information, Social Security numbers and other sensitive data. Cybercriminals seek to turn stolen data into quick cash, either by draining financial accounts, charging credit cards, creating new credit accounts or using stolen identities to file a fraudulent tax return for a refund.

In addition to its specific recommendations for online security, the IRS says people can take a couple of additional steps several times a year to make sure they have not become an identity theft victim.

One is to receive a yearly free credit report from each of the three major credit bureaus, and check it for any unfamiliar credit changes.

Another is to create a “My Social Security” account online with the Social Security Administration on which users can see how much income is attributed to their SSN. This can help determine whether someone else is using the SSN for employment purposes.

Following are the IRS’s seven steps to help with online safety and protect tax returns and refunds in 2018.

  1. Shop at Familiar Online Retailers

The IRS notes that sites using the “s” designation in “https” at the start of the URL are generally secure. Users should look for the “lock” icon in the browser’s URL bar. This is not 100% accurate as some criminals can obtain a security certificate, so the “s” may not always vouch for the site’s legitimacy.

  1. Avoid Unprotected Wi-Fi

Unprotected public Wi-Fi hotspots may allow thieves to view transactions. Do not to engage in online financial transactions if you are using unprotected public Wi-Fi. Also be aware of purchases at unfamiliar sites or clicking on links from pop-up ads.

  1. Learn to Recognize and Avoid Phishing Emails

These emails pose as a trusted source, such as financial institutions or the IRS, and may suggest that a password is expiring or an account update is needed. The criminal’s goal is to entice users to open a link or attachment. If you aren’t expecting an email from a specific company, then it probably is not real. You can always call the company in question to verify.

  • The link may take users to a fake website that will steal usernames and passwords
  • An attachment may download malware that tracks keystrokes
  1. Keep Computers, Phones and Tablets Clean

Using security software to protect against malware that may steal data and viruses that could damage files is a must. The software should be set to update automatically so that it always has the latest security defenses. As well, firewalls and browser defenses should always be active. “Free” security scans or pop-up advertisements for security software are to be avoided.

  1. Use Strong, Long and Unique Passwords

According to the IRS, experts suggest a minimum of 12-character passwords, but says “longer is better.” It says longer phrases are better than a specific word, and recommends the use of a combination of letters, numbers and special characters. Each account should have its own password. A password manager can help keep track of multiples ones.

The National Institute of Standards and Technology recommends that users create simple — but still long — passwords that are easy to remember.

  1. Use Multi-Factor Authentication

Some financial institutions, email providers and social media sites allow users to set accounts for multi-factor authentication. This means users may need a security code, which is usually sent as a text to a mobile phone, in addition to usernames and passwords. Some financial institutions will also bolster protection by sending email or text alerts when a withdrawal or change to the account takes place.

  1. Encrypt and Password-Protect Sensitive Data

Anyone keeping financial records, tax returns or any personally identifiable information on a computer should encrypt and protect these data with a strong password, see above. You should also back up important data to an external source, such as an external hard drive. When it is time to dispose of a computer, a mobile phone or a tablet, it’s important to wipe the hard drive of all information before trashing.

Its very important to protect yourself, especially this time of year. Doing so will make sure your holiday season is more enjoyable.

 

401(k) Lawsuits Becoming More Prevalent

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Nordstrom has been accused of allegedly selecting and retaining high-cost investment options in its $2.8 billion 401(k) plan when lower cost options were available. The suit states that Nordstrom allowed unreasonable, excessive fees to be charged to its plan participants, failed to use lower cost alternatives, and made inadequate disclosures regarding the specific dollar amount it charged them for administrative expenses.

The lawsuit against Novitex alleges the plan allowed unreasonable high fees to be charged for plan services, including advisory services. The lawsuit states that UBS, who is providing the advisory services, is “excessively compensated.” In addition, Novitex permitted unreasonable fees to be charged for record keeping and investment management.

Investment News reports that litigation targeting excessive retirement plan fees has grown over the past few years. Most often targeted are fees paid to service providers (such as TPA’s for record keeping and mutual fund companies).

“It is rare, for now, but something I think you will see with increased frequency,” Marcia Wagner, principal at The Wagner Law Group, said.

The Novitex lawsuit also furthers a developing trend of excessive-fee lawsuits targeting smaller retirement plans rather than just the multibillion-dollar ones.

“Smaller plan fiduciaries increasingly are in the crosshairs of ERISA class actions, as illustrated most recently by Novitex,” said Duane Thompson, senior policy analyst at Fi360.

If you are a sponsor of a 401(k), then you need to be up to date on how your plan stacks up due to the new Department of Labor rules and increased scrutiny of these plans.

At Jarred Bunch, we review a lot of small to mid sized company 401(k) plans. It is not unusual to see high fees and limited/outdated investment choices. In addition, there is rarely an education program available to employees, and, in many cases, the company (sponsor) is the investment fiduciary.

Our goal is to help relieve this burden for our clients by offering the following:

  1. We serve as the investment fiduciary on the plans we implement.
  2. We offer financial education for companies and their employees.
  3. We benchmark your plan, investment options, and costs to make sure your plan is where it should be.

If you haven’t looked at your 401(k) plan in the past couple years, then you need to contact us right away. We offer a free analysis so you can see exactly where you plan stands.

Let us address these issues with our Future 401k Plan, visit www.401khack.org to learn more or sign up. You can also call or email one of our 401(k) experts today. An analysis takes very little time and could save you a lot of money and headache.

Nobel-Prize Winning Formula: 4 Ways To Boost Savings

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I love it when a Nobel Prize winner gives humanity a gift everyone can use and enjoy. That was the case when Prof. Richard Thaler won the Nobel Prize in Economics on Monday (October 9, 2017).

Prof. Thaler’s work over the past 30 years has changed the way we view financial decisions. As a behavioral economist, he’s studied the way we actually think and act instead of hewing to some wrong-headed theories.

According to Thaler’s view, we’re consistently misled by embedded mental biases. We’re hardwired to be overconfident, act on emotion and conflate recent events with the big picture.

Fortunately, thanks to the research of Thaler and other behavioral economists, we can make much better financial decisions. Here are four suggestions:

— Put Your Savings on Auto-Pilot. 

By defaulting employees into a 401(k) with regular, automatic contributions, Thaler’s “Save More Tomorrow” program dramatically increased retirement savings.

It turns out when you don’t have to make a decision — or have to say no to something — people will take the easiest route to set money aside.

Yet you can put any form of savings on auto-pilot. Simply set up automatic withdrawals from payroll or checking accounts into savings or retirement accounts.

— Blast Past Your Biases. 

Behavioral economists have repeatedly shown that we’re naturally biased to think we know more than anyone else, are needlessly confident, can look back in time and claim we can predict the future.

All of these biases cause us to consistently lose money.

If you need to invest in the stock market — all of us need to in order to beat inflation — regularly invest monthly amounts in global stock index funds. You can do this through any mutual fund, IRA or retirement plan.

— Forget the Headlines.

We all get spooked by daily market downturns and bad news. It scares us, so we think we have to do something immediately. We don’t. Never act on fear when it comes to financial decisions.

If you need to invest — who doesn’t? — focus on how much you need to save. Don’t look at returns or stock averages from day to day. It’s just noise. Buy all the time and hold.

— Don’t Get Cocky.

So you picked a stock or mutual fund that made money. Do you think you have more skill, insight and trading ability than the best money managers— and their lightning-fast computer programs? You don’t. It was the roll of the dice.

Diversify your portfolio by investing in large, medium and small-company stocks from around the world.

That’s always been the smartest thing to do. And you don’t need a Nobel Prize to profit from that knowledge.