Monday, December 10, 2018

When Making Six-Figures is a Bad Thing

In terms of being financially prepared for retirement, what is the most important component? 
Is it:
How much you have saved in your 401k?
Making sure your mortgage is paid off?
Your social security benefit amount?  
The amount of cash you have in the bank?
No, no, no, and no.  
After 18 years of planning with thousands of people, I’ve learned, firsthand, that the most important variable in anyone’s retirement plan is…… your monthly spending.
Let me tell you two quick stories.
Story #1
Joe and his wife, Joette, worked diligently for over 40 years.  Joe worked in maintenance at a small nursing home, and his wife did data-entry for a large medical firm. Along with the financial stress of raising three kids, Joe and Joette also got hit hard by the real estate crash in 2008. Money was always an issue.

By the time they reached their mid-60’s Joe said to me, “My body just can’t handle this work anymore.  Forty years of working with my hands have taken a toll.”
And while Joette was physically able to continue working, the stress of her job was beginning to affect her health.

After all those years of work, they were able to cobble together $200,000 in retirement accounts along with $30,000 in savings.  Joe was eligible for $1600/mo from social security. Joette’s benefit was around the same.
“We are never going to retire,” Joe lamented.  “I feel so trapped. I don’t know what to do.”

“How much money do you need coming in each month?” I inquired.

“Well, between the two of us, our take-home pay totals about $3200 a month,” Joe replied.

“Are you able to cover your bills?”  

“Usually,” Joe remarked, “unless something breaks down. If everything goes smoothly for the month, we might be able to put away $1000 into savings.”

“Wait a minute,” I injected, “you are able to live on a little over $2000/mo? Your social security would total $3200 and your retirement accounts can produce around $800/mo in income. That’s $4000.
And, since social security is only taxed if your income reaches certain limits, you would not have to pay federal income taxes on any of that money.  That means you would have more money coming in than you do now!”

Joe and Joette were actually in much better financial shape than they realized.  Not only were they hard workers, but they were extremely cautious with their spending.  They lived in a modest home. Did without cable. Only bought used cars and ran them into the ground.  Vacations were as simple as enjoying the glorious Florida weather and beaches.

Yet, as they had never put together any sort of retirement plan, they had no concept of where they stood financially.  

And what was the most important variable?  Monthly expenses.
Story #2
Jack and Diane both had extremely successful careers.  Jack was a dentist and Diane worked as a mechanical engineer for IBM.  As they reached their mid-60’s retirement looked more and more attractive.

“I think it’s time to start a new season in our lives, Dave.  I think it’s time to pull the trigger on retirement.”

Between the two of them, Jack and Diane were eligible for $4800/mo from social security. In addition, they had socked away nearly $1,000,000 into retirement accounts.

“Sounds great!” I replied.  “Let’s revisit the plan and get you guys retired.  Between your social security and the income from your investment accounts, you can expect to receive around $9,000/mo.  Minus taxes that puts you at $8,000.”

I could tell something was bothering Jack.  

“That doesn’t seem like that much,” Jack offered.  “Between the two of us, we’ve been making over $400,000 a year in income.”

“What do you think you are spending each month?”

“I don’t know.  We bring home around $20,000 a month.  We usually spend most of it. The country club is $2000.  The mortgage is $3500 a month. Storage for the boat and RV is not cheap.  Let alone insurance on all this stuff. If we want to keep living the way we have, I would guess we need at least $18,000 a month.”

Uh oh.  This is a problem.  I’m not a magician. I can’t make financial vehicles return more than they do.  

Jack and Diane are in a very sticky situation.  Retiring could mean a radical change in lifestyle.  A lifestyle they had adapted to over 30 years of employment.  

It’s funny.  I often notice how people who feel unprepared for retirement are often more prepared than they realize.  Many high wage earners who believe they are in great shape, are not.  

I’ve also discovered that wealth contains a certain amount of diminishing return.  Meaning: If you have enough to pay your bills, go out to eat when you want, and take a vacation here and there- you can live a very rewarding and enjoyable retirement.  

A couple of extra luxury cars, boats, and big houses do not add much to that enjoyment.  Not to sound cliche but the best things in life are free. And as long as you can cover expenses, and not have to worry about your financial security in retirement, you can live just as awesome a life as the guy who sold his company for $20 million dollars.  

Actually, the stress and pressure of all the stuff the wealthy have accumulated often times just isn't worth it.  

Enjoy where you are!  Live your life with a sense of opportunity and empowerment.  Have fun! You deserve it. You don’t need a million dollars to retire.  

Be Blessed, 
 Dave

There is no certainty that any investment strategy will be profitable or successful in achieving your investment objectives. An index is a portfolio of specific securities. Indexes are unmanaged and investors cannot invest directly in an index. Index returns are “total returns” with dividends reinvested, which means the return is not only the change in price for securities but any income generated by those securities. The performance of an unmanaged index is not indicative of the performance of any particular investment. Investments offering the potential for a higher rate of return also involve a higher degree of risk. Past performance is no guarantee of future results. Actual results will vary.

Protecting Yourself from the 2019 Stock Market

Around December each year, many news outlets start publishing stories about stock market predictions for the following year. Normally the articles cite insights from various economists, investment firms, and policymakers. 
Let's take a look at what next year will bring.....
Dave's Take: Uh oh. That's sounds ominous. 
Dave's Take: Ok. That sounds a little better. Remember: A "bull market" is good and a "bear market" is bad. This article sounds a little more encouraging.  
Dave's Take: Well, that doesn't sound good. 
4. From "Bloomberg:" Credit Suisse Backs Stocks in 2019. It starts: "Investors would be smart to remain bullish on equities in 2019."
Dave's Take: So this article makes it appear like things are moving in the right direction....
Overall, I can’t help but notice that some super-smart-people believe the markets will go up, and some super-smart-people believe the markets will go down.
So who is to be believed ?
To answer this question, let me share with you a great quote:
Market pundits have successfully predicted ten of the last two recessions.
In other words, "experts" have a terrible record of predicting market movements. And, in general, the vast majority of their dire predictions never come to pass. 
Don't worry. I'm not going to get on my soapbox and passionately express how no one has ever been able to consistently predict what the stock market is going to do. 
I'm certainly not going up against Wall St. and suggest that, even with their most sophisticated methods, there is zero proof that their predictions are any more reliable than throwing darts at a newspaper filled with stock quotes.   
I'm not even going to sound off against the irresponsible “sky-is-falling” financial news reporting that fills the airwaves on a daily basis.
Instead of making arbitrary proclamations about market movements, let’s have a quick history lesson.  Since the Great Depression, the stock market has gone up 66 times and has gone down 19 times. (source) 
During that time period, stocks have had an average annual return of +10% per year and bonds +5% per year. (source)
So while I can't predict the exact direction of the markets over the next year, I do know one thing:
Between now and the end of your life, if a diversified portfolio of stocks and bonds does not return an average of at least 5% per year, it is the first time in modern economic history where it hasn’t.
So over the next month if you hear anyone giving their 2019 stock tips, be sure to remember that the guy has probably predicted ten of the last two recessions too. 

Be Blessed, 

Dave

There is no certainty that any investment strategy will be profitable or successful in achieving your investment objectives. An index is a portfolio of specific securities. Indexes are unmanaged and investors cannot invest directly in an index. Index returns are “total returns” with dividends reinvested, which means the return is not only the change in price for securities but any income generated by those securities. The performance of an unmanaged index is not indicative of the performance of any particular investment. Investments offering the potential for a higher rate of return also involve a higher degree of risk. Past performance is no guarantee of future results. Actual results will vary.

Tuesday, November 27, 2018

5 Retirement Savings Tips for Your Kids

Concerned your kids are not properly preparing for retirement?  This week I going to explain what they need to do now, in order to be prepared for then.  I figured with the Thanksgiving holiday family will be around, and it’s as good a time as ever to broach this subject.
I usually expound on how many retiring Baby Boomers are worrying themselves sick about running out of money. I discuss how many retirees are in much better shape than they realize. I reveal ways how you can get the most life out of your money. I encourage you to empower yourselves to live the retirement you deserve.
But let’s also make sure your kids will be financially prepared for their retired years.  Remember, you never stop being a parent.
During a meeting last week, a man, late into his 80’s, remarked to me, “Dave, I’m worried about my kids.  They can’t seem to get it together. I’m worried about them and wonder how I can help.”
I inquired, “How old are your kids?!”
“70 and 68,” he replied.
You never stop being a parent.
(Going forward in this article I will be addressing your kids directly.)
5 Tips Your Parents Want You to Know About Saving for Retirement.
1. Pay yourself first.  This simply means that the money you are saving should come automatically out of your paycheck or bank account.  Do not promise yourself that you will save whatever is left over at the end of the month. It does not work. At all.
2. Give until it hurts.  Maybe saving $100/mo sounds reasonable and comfortable.  I strongly suggest you start saving $200/mo or even $500/mo.  Choose a number that feels a little scary and uncomfortable. You can always lower the amount if it ends up being too much.
Most people adjust quickly to their new savings plan and find they are able to save more than they first thought. In my experience, few people increase their contribution once they start.
3. Invest the money into a 401k or IRA.  These accounts give you a tax deduction up front and defer taxation until you withdraw the money.  In addition, by using a retirement account the money is more “tied up” than normal savings. This might make you hesitate to use money from your retirement accounts for non-retirement reasons.
4. Invest the money 100% in the stock market.  Don’t make this more complicated than it is.  We are talking loooooong term investing here. Stocks have been returning an average of 10% over any meaningful time period throughout economic history.
5. Understand the power of compounding interest.  It doesn’t especially matter how much you save, but how longyou save it for.
The table below assumes somebody invests $100/mo into a 401k or IRA and places 100% of the money into the stock market.  
Age Saving Begins      If you save $100/mo       Age 65 Nest-egg                                                                                                                                                                                                                                                                  (with investment returns)
20                       You saved $54,000                  $948,000
30                        You saved $42,000                $357,000
40                        You saved $30,000                $130,000
50                        You saved $18,000                 $42,000
Whoa.  That is eye-opening.  Even for me.
My overall advice: Just start with something. You’ve got this!
_________________________________________________
Feel free to share this email with your kids.  I have also included a short video presentation of these concepts if they prefer watching a video. (click here for video)

Be Blessed,

Dave Kennon, Kennon Financial 

Tuesday, November 20, 2018

Real Estate Bubble and Misunderstood Dividends

Real Estate Bubble and Misunderstood Dividends

David Kennon Kennon Financial


 

I am about to teach you how dividends react to stock market changes. The vast majority of people with whom I meet do not understand this important mathematical concept.
Let’s say you have a diversified portfolio of stocks and bonds. Some of the money you make is from dividends and interest. Some of the money you make is capital growth (the value of the stock or bond increases in value).
For example, the Coca-Cola Co. is currently paying around a 3% dividend. If you invest $100,000 into Coca-Cola stock, you will receive $3,000 in dividends during the year. Dividends are simply profits that companies give back to shareholders.
So, what happens if The Coca-Cola Co. has a huge drop in its share price? Let’s say it loses 30% for example.
If your $100,000 in stock is now worth $70,000, how much money will you receive each year in dividends going forward?
The dividends would be 30% less, right? You would only get around $2000 a year going forward, right?
Nope. You would continue to receive $3,000 a year*. How is that possible?
Let’s say you buy a rental property.  You pay $100,000 for the house and you start receiving $1,000/mo in rent. What happens if another real estate bubble bursts and the value goes down?  What happens if, when you go on Zillow to see the current value of your home, it says $70,000?
Do you start getting 30% less in rent?  No. The rent doesn’t change. The underlying asset may temporarily be worthless, but the rent doesn’t change.
This is an absolutely essential concept to understand. Why? Because it should help insulate you from fear about the markets.
Many diversified income-oriented portfolios in the current economy could pay around a 3% dividend on stocks, and around a 3% yield on bonds. So no matter what happens to the share price of your stocks and bonds, that 3% keeps getting paid out. It is a huge buffer in volatile markets.
Can companies decrease dividends? Sure, but it is much more common for them to increase dividends. And, don’t forget a diversified portfolio of stocks contains hundreds, if not thousands, of companies.
Last year dividends increased for U.S. stocks by 57%.  In fact, 53 stocks in the S&P 500 have increased dividends every year, for 25 years. The Coca-Cola Company has increased dividends every year for 55 years. These stocks are often referred to as the Dividend Aristocrats.
My point is this: regardless of share price, your cash flow continues. Dividends and interest are powerful tools for retirement income creation. It is not all about the share price.
And now you know!  And knowledge of power!

Be Blessed,

Dave Kennon, Kennon Financial 


That is What the Money is FOR

That is What the Money is FOR

David Kennon Kennon Financial



Last week I asked you to share some examples with me as to how you are using your extra spending money in retirement.
Remember, my suggestion is that you spend the money that the money is making.  Hopefully, by now you would agree that spending the earnings on your assets is a reasonable and responsible strategy.
The Retirement Revolution is starting to head out of the station.  Are you ready?  As we speak, more and more retirees are jumping on the train.
There is just so much needless worry and stress about retirement finances happening out there.  Not to mention that many Baby Boomers never get to enjoy the money they saved their entire life specifically for retirement.
Some people wonder how I can get so consistently jazzed up discussing spending in retirement.  Keep reading…you might understand better.
Here is some feedback I received from loyal readers last week in regards to spending:
“We held (and funded) a family reunion in Hilton Head, SC with our children and grandchildren, even our son from Thailand!”
Incredible, isn’t it?  The children and grandchildren will forever have that memory.  Their son got to reconnect with the family.  This is what money is FOR.
That’s one family reunion initiated.  As the book begins to gain momentum and readers- can we get ten family reunions to happen.  One hundred?  One thousand?  
Can we help foster family relationships all across the country between grandparents, parents, children, and grandchildren?  Yes.  I believe we can.
Another response:
“I gifted a newly graduated MBA (my son) $14,000 to relocate and get a head start.  My husband had almost an entire household full of furniture from when we downsized to Florida.  I hired a mover to ship the leftover furniture from Virginia to my son’s new home in Indiana.”
Wow.  That’s awesome.  This person was able to help her son when he needed help the most.  I can just imagine the joy she felt giving the money, and I can only imagine the relief it gave her son.
Can we help foster this kind of generosity across the country?  Yes, we can!  This is what money is FOR.  Can we get more than one person to take action like this?  Ten people?  A hundred people?  A thousand people?
Another response:
“I invested in a personal trainer to regain my stamina after a bad bout of bronchitis.”
Could The Retirement Revolution actually save a life?  Personal trainers, concierge doctors, healthier food, and nutritionists all extend lifespans and quality of life.
Could The Retirement Revolution improve the health of the country’s retired population?  One person?  Ten people?  One hundred?  One thousand?
These are just a few examples of the feedback I received.  How could you not become passionate about this work?
New Data:
There is more and more data coming out supporting my point (many retirees are not spending enough money).  Recently a new study was released by the Employee Benefit Research Institute.
They examined retirees with low, moderate, and substantial savings.  Their conclusion?  Retirees are not spending nearly as much as they could be.
Amount of Assets at RetirementAverage Savings at RetirementAverage Savings 20 Years After RetiringPercentage Decrease
Low$31,700$24,000-24%
Moderate$334,000$243,000-27%
Substantial$857,450$763,800-11%
Important Points:
1. This study tracked people during the past 20 years which was, in reference to the stock market, terrible. One of the worst 20 year time periods in the history of the markets. (the S&P 500 still averaged around 7% per year. Not too shabby for a “terrible” 20 year period).
2. These numbers do not include anything besides investable assets. It does not include equity in your home. And, inconceivably, the study did not include money held in 401ks. I feel the study is underestimating leftover wealth.
3. The data reconfirms the fact that only 12% of Americans reach the end of their life living only on Social Security with no other assets or savings. 
I certainly am not suggesting that those of you in the “low” asset category should start spending more.  But those of you in the “moderate” and “substantial” categories might have more room to spend and enjoy the fruits of their labor.

Be Blessed,

Dave Kennon, Kennon Financial 

A Tiger is Not Going to Eat You

A Tiger is Not Going to Eat You

David Kennon Kennon Financial



In last week’s article, I cited a truly amazing study. Dalbar Inc., for the past 24 years has been tracking portfolio returns.
1. First, they looked at what the stock market returned.
2. Then they looked at what actual human investors made investing in the stock market.
Are you ready for their findings?
1. The stock market (S&P 500) had an average annual return of over 10% during that time period.
2. Human investor’s average return? 4%
How is this possible?
Very simply, humans are emotional.  Humans and emotions are a bad combination when it comes to successful investing.
I hear it every week in my office.  “Dave, I lost a ton of money in 2008.  I can’t let that happen again. I’m retired now and if I lose all my money I have a BIG problem.”
While I empathize with their discomfort, I can’t help but think to myself, “Your brain is exaggerating the losses and forgetting the gains.”
What do I mean, exactly?  Let’s take a look at stock market returns over the past ten years. (source)
 2008
-37%
2009
+26%
2010+15%
2011+2%
2012+16%
2013+32%
2014+13%
2015+1%
2016+12%
2017+21%
Here is a statement I rarely hear: “Dave, minus a couple bad years, I have made a ton of money by sticking with a plan and staying the course.”
This phenomenon is known to the psychological community as “negativity bias.”  Very simply, human beings are hard-wired to focus on the negative and dismiss the positive.
Imagine living in a cave 10,000 years ago.  Tigers are trying to eat you, neighboring tribes are trying to kill you, and danger lurks around every corner.  If you don’t focus on the dangers, you die.
I have not had a single client eaten by a tiger.  Or a bear for that matter.
This same programming today could sabotage your retirement, and, in particular, your finances.  If all you do is remember the negative, you forget the overall big picture.
All of this goes back to Baby Boomers’ rather skewed perspective on the stock market.  You are being asked to trust a financial instrument that, by its very nature, is volatile and unpredictable.  Of course, it might stress you out.
So what is the solution to this dilemma?  You. Have. To. Stay. The. Course.
I know. It goes against your instincts and “gut-feelings.”  It goes against all kinds of stuff you hear in the news.  But you have to fight back.  You have to trust in the process, knowing that you have decades of economic history to back up your decisions.
Just to review:
1. The markets are never “due” for a crash.
2. One certain month does not have better historical returns than another. (source)
3. Elections have zero long-term bearings on the stock market. (source)
4. Waiting for the market to go down before you invest doesn’t work. At all.
5. Nobody has ever been able to consistently time the markets.  Ever.
I have an extremely rewarded job.  As an objective, third-party advisor, I am able to help my clients navigate the ups and downs of the economy.  But if I could give everyone who is reading this article a piece of advice:
Stop thinking about your investments.  Turn off the financial news. Put a plan in place and don’t deviate from it.  I know you can do it!
Hopefully each week I am able to help put your mind at ease and stop you from making emotional decisions when it feels like the tiger is about to pounce.
Be Blessed,

Dave Kennon, Kennon Financial 

Stock Market Stress? 10 Things to Remember

Stock Market Stress? 10 Things to Remeber

David Kennon Kennon Financial



I figured with all the volatility in the market right now it’s a good time to review some essential investment knowledge. Let’s go to class. All data is taken from New York University’s Stern School of Business. (source)
1. Most people nearing retirement do not have all of their money in the stock market.  This is one of the most common misconceptions I run into each week.  Remember, a well-diversified portfolio contains both stocks and bonds.
Why is this important? Because in modern economic history, stocks and bonds have never gone down in the same year.
Most of the time, the more stocks go down the more bonds go up. This is mainly due to the fact that people panic and move their money into more conservative investments.
For instance, in 2000 the stock market was down 9% and the bond market was up 16%. In 2002 the stock market was down 22% and the bond market was up 15%.
So if half of your money was in stocks and a half in bonds, the effects of the market downturn would have been greatly diminished.
2. It is NOT timing the market, it is TIME in the market. It is absolutely impossible to time the market. Moving in and out of your investments is a recipe for disaster.
According to Dalbar, in the past 30 years, the stock market has returned a little over 10% on average. What is the average return of an actual person who invested in the stock market? 4%
How is this possible? Human beings are emotional. They pull in and out of the markets. They let their emotions determine financial decisions. Don’t make the same mistake.
3. Markets recover much more quickly than most people realize. Since World War II, the markets have dropped between 5-10% 77 times. The average time it took to recover? One month. (source)
4. If the stock market between now and the end of your life does not return an average of at least 5% per year it is the time in modern economic history where it hasn’t.
5. Without the power of stocks in your portfolio, it is going to be very difficult for your money to grow enough to keep pace with your lifestyle.  Keep your eyes on the prize!
6. Warren Buffett says, “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.” 
7. The markets are never “due” for a correction.  It is not that simple.  Sure, in the 2000’s we had two serious recessions in 2001 and 2008.  Now we are ten years without a downturn.  We are due, right?
From 1941 to 1973 there were no “crashes.” From 1973 until 2001 there were no “crashes.” Don’t assume the markets are on some sort of set-in-stone crash cycle.
8. 2008 was a “worst-case-scenario” type of year.  Someone with half of their money in bonds and a half in stocks would have lost -16%.  In 2009, the same portfolio returned +16%.
9. Stocks and bonds have 200 years of success. Don’t try to reinvent the wheel.
10. We live in the most affluent country, with the most social safety nets, in the most exciting time in all of human history.  You are not going to end up as a Walmart greeter living in your car.  Even the poorest Americans are far better off than almost every other human being on the planet.
Be Blessed,

Dave Kennon, Kennon Financial 


Still Working For No Reason



Still Working For No Reason

David Kennon Kennon Financial



If one thing could be said about Betty Brown is that she was a hard worker.  At age 15 she started working at a drugstore counter, and for the next 43 years, she continued to work a hodgepodge of various jobs.
Betty never went to college and never found employment that paid her a decent wage, but she was tenacious.  She worked overtime whenever she could, and would often work another job on the weekend.
Besides a strong work ethic, Betty had also developed one additional habit.  She saved money.  Oh boy, did she save.  Throughout her entire working life, she meticulously put away as much money as possible.  She learned how to live on an incredibly slim budget.  Betty, financially speaking, had done everything right.
I first met her in her late fifties.  She looked tired.  “My job is killing me,” she lamented.  “They expect more and more work each month without any more help.”
“How much are they paying you?” I inquired.
“$17 an hour.  I haven’t had a raise in three years.”
“Betty,” I suggested, “You have nearly $750,000 saved up here.  Between social security and the investment income you can derive from the money, you will have plenty each month. In fact, you will have much more money coming in if you quit work and ‘retired’ than you do now.”
“I don’t know Dave, it just doesn’t seem right,” Betty lamented.  “I guess I might be ok, but I think I should work a few more years just to be safe.”
Four years later, Betty came in to see me.  “Dave,” she said grimly, “I have pancreatic cancer. The doctors are not optimistic, they think I only have a few months to live.”
The doctors’ heartbreaking prediction came true, and within two months Betty passed away and went home.  Her $750,000 sat untouched, unused, and unenjoyed.
As Betty had no children, she named her husband as the primary beneficiary on her accounts. But, during the last few weeks of her life, the inheritance became more and more important to her.
She literally spent some of her last days on Earth perfecting her complex and generous contingent beneficiary list:  Nephews, nieces, the aunt, and uncle who raised her, friends in need…
Bob Brown, her husband, was in full agreement. After he passed away, he wanted this money to go to the right people.
Unfortunately, contingent beneficiaries don’t hold all that much importance when the primary beneficiary receives the proceeds from the accounts.
Betty’s husband came in to see me shortly after her death. Bob and his wife had never seen eye to eye on their money. In fact, Betty hid most of her financial information from her husband, fearing he may wastefully spend it.
When Bob showed up in my office, along with his brother, I knew Betty’s wishes were in serious trouble.  Not only did Bob change all the beneficiaries according to his wishes, but the questions his brother was asking caused me great concern.
“Betty had some sort of hangup about spending money,” Bob’s brother scoffed. “Dave, how much do you think we should start spending now?”
“We”? Since when was Betty’s brother-in-law involved with any of this? In fact, Betty and the brother-in-law had not spoken in years. Betty did not trust him and did not like him.
And now her husband and, ostensibly, her brother-in-law, had her money.
You can guess where this is going. The money was gone in less than a year.
Bob, his brother, and a bunch of their buddies spent a couple months traveling around the world. Classic cars were purchased, gambling losses were significant, bar tabs were large.  Good times.  They didn’t even have to look at the price.
Betty. A lifetime of struggle. A lifetime of labor.  Gone.  In hindsight, it was almost like Betty existed as an indentured servant to provide funds for her in-law’s debauchery.
Even as I write this, I feel anger welling up inside of me.
Morals of the Story:
1. Money brings people out of the woodwork.
2. Life rarely moves in a straight line.
3. If you don’t use your money, someone else will. And oftentimes heirs do not use the money the way you had intended.
4. While running out of money in retirement can be a scary prospect, don’t forget that there are other possible conclusions.
What Can You Do?
Create a sensible and logically plan that allows you to spend more now, while not mortgaging your future.  I believe in this so strongly I wrote a book about it.  (click here to learn more).
Be Blessed,

Dave Kennon, Kennon Financial

Tuesday, October 30, 2018

Banks Going Out of Business?

Banks Going Out of Business?

open door to safe
Here’s a good question:
What happens if I have my mutual funds and investments with a bank and the bank goes bankrupt?  (JP Morgan Chase, BofA, Merrill Lynch, etc.)
I’ve had several people express this concern to me over the past couple weeks- so let’s take a look.
Whenever you buy a stock or bond or mutual fund, that investment has to be “held” somewhere.  Back in the good old days, many people would actually hold stock certificates inside a safe in their house.
Nowadays, with modern technology, stocks and bonds are held electronically at a “custodian.”  A custodian is simply a financial institution that holds your investments.
So what happens if the custodian goes bankrupt?  First of all, this is an extremely rare occurrence.  In 2008, when Lehman Brothers went bankrupt, JP Morgan Chase purchased them and took over the custodial responsibilities.  Not a single account holder lost a penny due to the bankruptcy of the custodian.  It simply meant was that JP Morgan Chase started to hold the stocks and bonds instead of Lehman Brothers.
But what you really need to know is the following:  whoever is holding your investments has no financial claim to your money.  Your assets are held separately from the bank’s assets.
For most of you who work with me, you know that we employ the Bank of NY Mellon.  This particular bank holds 1.5 trillion dollars in client assets.  The part of the bank that acts as a custodian is called “Pershing, LLC.”
So if the Bank of NY Mellon comes out tomorrow and says they are going bankrupt, what happens to your money?!
Let me answer that question, by asking another question.  Let’s say you purchase 100 shares of Disney stock, and you request the actual paper stock certificates, and you put those certificates in a safety deposit box at a local bank.   If that bank went bankrupt, would you lose your stock certificates?
Absolutely not.  You would go to the now-bankrupt bank, open up your safety deposit box, and take your stock certificates.
The same thing applies to you and your investments now.
There are actually several additional layers of safeguards for consumers, including SIPC insurance, but at the end of the day, you really have nothing to worry about. (click here for more technical info)
So if you are concerned about the bank holding your investments.  Please stop.  There is nothing to worry about.
Be Blessed,
Dave