Wisdom For Wealth. For Life.

Transcription

1 Spring 2018 Wisdom For Wealth. For Life. Quarterly Newsletter Launching Your Children 2 Live Generously 6 Market Perspective Insert

2 Wisdom For Wealth. For Life. Launching Your Children on a GLIDE PATH Toward Financial Independence By Erik Daniels, Executive Vice President of the Ronald Blue Trust Family Office M y mom gave me the boot about 40 years ago. Yes, I remember it as if it were yesterday. I had just graduated from college in mid-may and did not start my new job until August I moved back in with Mom and Dad expecting to stay (mooch) off them until I started my new job, but it didn t work out that way. I was not paying rent nor was I carrying my load of household responsibilities, and my mom would have none of that. She gathered up all my stuff, placed it outside her front door, and instructed me to find another place to live. I did, and we were both happier for it. Trust and investment management accounts and services offered by Ronald Blue Trust, a division of Thrivent Trust Company, are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, nor guaranteed by Thrivent Trust Company or its affiliates, and are subject to investment risk, including possible loss of the principal amount invested. 2

3 Quarterly Newsletter During my 38 years in the financial planning business, one of the most common questions I m asked by clients and friends is how to handle the financial implications of their children graduating from college. Finding a decent paying job these days can be a daunting task. Even if your child is fortunate to secure a job, sometimes it doesn t pay a commensurate wage with how he or she has lived in the past. Altering one s lifestyle downward is never an easy thing to do for anyone, no matter how financially mature they are. What is a parent to do? Do they supplement the child s income? Do they let the young adult move back into the parents home to save money? The term glide path is often used in investing to refer to a portfolio s direction toward an asset allocation goal. In other words, it s like a flight plan for your investments, but a glide path can also refer to a series of events or actions leading smoothly to a particular outcome. So whether you re contemplating how to help your child create a successful glide path or trying to reverse a failure to launch, I d like to offer some ideas for how to work with your children to get them on a successful track. Altering one s lifestyle downward is never an easy thing to do for anyone, no matter how financially mature they are. Keep in mind that these principles could also apply to a grown child who has moved back home after a personal setback or rough season in life. As parents, we must of course treat our children compassionately but also be mindful of their need to establish or reestablish financial responsibility and independence. Trust me; the child desires this independence as much as the parent does! While every situation is different, in my opinion, there must be an intentional plan in place in order to accomplish this common goal. If your child was not taught personal finances in college, he or she will need to learn the basics: How to establish a spending plan (budget) that meets their level of income How to apply for credit and manage it wisely How to manage expenses that they have never paid for, such as car insurance, cell phone, rent, etc. How to begin to plan for the future (emergency funds, savings, retirement, etc.) The basics listed above can be overwhelming to the child and maybe even to the parent. Managing money for most of us is not an easy task. But there is hope if the parent is willing to mentor and the child is open to learning. Spring

4 Wisdom For Wealth. For Life. Ronald Blue Trust National Office 300 Colonial Center Pkwy Suite 300 Roswell, Georgia Phone: Fax: With nationwide trust capabilities, Ronald Blue Trust provides wealth management strategies and trust services based on biblical principles to help clients make wise financial decisions, live generously, and leave a lasting legacy. With over $8 billion of assets under management and advisement and a network of 13 branch offices, we serve over 8,000 clients in all 50 states (as of 12/31/17 and subject to change). The information found in this issue of the Wisdom For Wealth. For Life. quarterly newsletter is intended to be educational in nature and may not be applicable to your current portfolio or financial strategy. You should not rely on any of the information as authoritative or a substitute for the exercise of your own skill and judgment in making any investment or other decision. These clients experiences may not be representative of the experience of other clients. Their experiences are also not indicative of future performance or success. All investment involves risk and should be carefully considered. Please feel free to contact your Ronald Blue Trust financial advisor with any questions or to discuss specific changes in your current financial situation. Ronald Blue Trust and its employees do not provide legal or accounting advice or service. Work with your attorney or accounting professional for such services. Participants in retirement plans receiving a copy of Wisdom For Wealth. For Life. and desiring additional information should contact their plan administrator ,

5 Quarterly Newsletter Three Principles for Moving Toward Financial Freedom Let me suggest three principles and one practical step in moving your son or daughter to a path of financial freedom. First and foremost, push as many economic decisions to the child as possible. Economic decisions are at the heart of financial planning because you have to prioritize what is truly most important to you. Life is about choices and we spend money on what we value. Can I afford that new cell phone? Can I afford to purchase that car? What amount of rent can I reasonably take on? Let your children make these decisions. Second, parents need to intentionally address what they expect of their children after they have graduated. Nothing should be left for interpretation. Can the young adult move back into the parents home after graduation? If so, will they be charged rent and how much? How long will they be permitted to stay with the parents? I know that these questions may sound harsh, but they don t have to be. You are doing yourself and your child a disservice if you are not clear about how you will help them and for how long. The third principle is the most difficult. As a young parent, I initially thought that it was my job to clear a path for my child and their development. As I have aged and matured, I am convinced that clearing adversity out of my children s paths hinders their personal growth and development. It is a parent s ultimate responsibility to build spiritual, physical, and mental resilience in their children. Life is not always fair. Life can be hard, and the earlier your children understand this, the better prepared they will be later in life. We truly underestimate our children, our own parenting, and God s plan for them. I believe that the vast majority of parents reading this article have done an outstanding job raising their children. You have raised them to manage their own lives, to be resilient, and to be financially independent with a little encouragement. Now, let that child follow and trust God, and your future contribution will not be monetary support but insight, encouragement, and wisdom. Putting a Glide Path in Place Now let me offer one practical step to helping your child live independently, and that is putting them on the glide path to financial freedom. I define a financial glide path as a plan whereby the parent initially takes responsibility for paying certain bills with the stipulation that the child will ultimately take over that responsibility. For example, my youngest daughter currently lives in New York City, and I have been providing her with a monthly allowance since her graduation. At first, the monthly amount helped her with rent, health insurance, cell phone expenses, etc. But as the months have passed, the plan is to reduce the monthly allowance as she begins to take responsibility for all of her expenses. Is there a magic number of months for a parent to provide this kind of stipend to help children launch their financial independence? I don t think so. In some cases, the glide path may be six months, in some cases two years. But the ultimate goal must be giving the child the joy of providing for themselves. The sooner parents can get to that point, the better off they AND their child will be. Spring

6 Wisdom For Wealth. For Life. LIVE GENEROUSLY I By Russ Crosson, Executive Vice Chairman of the Board n the winter newsletter, I described the first part influence of his generosity-filled life, a life well spent. The of our corporate vision statement, which is helping church was standing room only and overflowed with people clients make wise financial decisions. In this issue, he impacted for over three and a half decades. Their presence I will unpack the second part encouraging clients and the comments they made were a powerful testimony to to live generously. For 40 years, we have helped clients the impact a generous life can have on individual lives, implement strategies to maximize their generosity and it families, and, in this case, an entire community. What did continues to be the cornerstone of our company. Charles know that we need to know about giving? He knew I recently attended the funeral of a long-time client and these six reasons for why we should give. friend, Charles. I was blessed to observe the far-reaching Scripture quotations taken from the New American Standard Bible (NASB), Copyright 1960, 1962, 1963, 1968, 1971, 1972, 1973,1975, 1977, 1995 by The Lockman Foundation Used by permission. 6

7 Quarterly Newsletter 1 We give to acknowledge God s ownership and our stewardship. He is the owner and we are simply stewards of all that is entrusted to us. Deuteronomy 8:16-18 says that it is not the power and strength of our own hands that produce wealth, but rather God has given us the ability to produce it. 1 Corinthians 4:7 asks, What do we have that we were not given? 2 We give as a tangible way to worship and show gratitude to God. God demonstrated His great love for us by giving His only Son to pay the penalty for our sins. Giving allows us to show our gratitude and appreciation for all God has done for us, and is a barometer of our hearts. Giving is one area of the Christian life that cannot be faked; a person s checkbook or bank account shows what they value. 3 We give out of obedience to God. We are told in 1 Timothy 6:17-19 to be generous and rich in good works. One of the things that my friend Charles modeled for me was to err on the side of being generous. In other words, if you are wrestling with keeping or giving, err on the side of giving. we sense have a need. It may be the employee at the dry cleaners, the butcher at the grocery store, the service individual at the auto dealership, or the server at the restaurant. We wait for the Holy Spirit to prompt us, but I must say unplanned giving to meet immediate needs has been a lot of fun! 5 We give to receive rewards in the next life as a result of our giving in this life. The Bible clearly states we will be rewarded for how we have used and invested our money. (1 Corinthians 3:8-14; Philippians 4:17; Matthew 25:14-29). When we store up treasures in heaven as faithful stewards who show gratitude, are obedient, and meet the needs of others, we are putting our money where moth nor rust cannot destroy and where thieves do not break in or steal (Matthew 6:19-21). 6 We give to break the power of money in our lives and combat materialism. Luke 16:11-13 states that we cannot serve two masters: God and wealth. Giving is how we remove money from the throne of our lives and place God on the throne. Giving allows you to hold your wealth with an open hand and enables God to be the focal point. 4 We give to meet the needs of others. According to 2 Corinthians 9:12-14, if we are overflowing (or have more than we need), we should liberally meet the needs of the saints (others around us). 2 Corinthians 8:14 states that our abundance is a supply for their need. Many of the people at Charles s funeral had been recipients of his generosity as he stepped up to meet the needs he saw around him. My wife, Julie, and I have been inspired to keep cash with us (we call it our God Pocket) to share with folks For more perspectives on living a life of generosity, I encourage you to read our company s book, Faces of Generosity; you can contact your financial advisor to receive a complimentary copy if you don t already have one. My friend Charles, and his wife, have a story in the book that details how he blessed so many others through his life of generosity. The opportunity is there for you too! I think that you will come to see that, by being wise with your money and living generously, you will bless others with your abundance and find true joy. Spring

8 He who gathers money little by little makes it grow. -Proverbs 13:11

9 Market Perspective Spring 2018 Trust and investment management accounts and services offered by Ronald Blue Trust, a division of Thrivent Trust Company, are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, nor guaranteed by Thrivent Trust Company or its affiliates, and are subject to investment risk, including possible loss of the principal amount invested

10 Market Commentary Global economic growth expectations remain steady at a low but positive level. Continued labor market strength, dollar weakness, and recent fiscal and trade-related policies have caused a slight increase in U.S. inflation expectations. However, low inflation is still the most likely scenario domestically and abroad. Over the last several years, interest rates have increased dramatically and equities have rallied strongly. As a result, bonds have become more attractive on an absolute basis while equities have become less attractive. Among bond sectors, corporate bonds look particularly attractive, especially for environments characterized by low growth and low inflation. Despite an uptick in volatility and inflation pressures, alternative strategies and real assets remain less attractive. Principles-Based Investing PRINCIPLE OF APPLIED WISDOM 1 Principle of Uncertainty Provision against an uncertain future is a reason to save and invest. Faster Economic Growth We believe future growth is likely to be in countries with: Growing economies Stable currencies Low unemployment Favorable demographics Reasonable valuations We believe that applying principles can improve the chance of successful investment outcomes. Principle of Instability Markets and economies are not stable and provisions against uncertainty may fail. Risk needs to be managed through diversification. Principle of Human Productivity Wealth is created as a result of human productivity. Productivity is the combination of human creativity and natural resources. Principle of Leadership & Governance Leadership significantly influences the productivity of the people they lead. Environments with greater civil and economic freedom tend to provide increased fertile ground for investment. Principle of Inherent Value Investors and markets are not always rational. Opportunities or risks can be identified when a disciplined valuation process is used to determine the inherent value of an investment. DM Countries includes developed-europe, developed-asia, and Canada. EM Countries includes Latin America, emerging-europe, Middle East, Africa, and emerging-asia. Valuation data is as of 3/31/18. All other data is latest available as of 4/5/18. Age Dependency Ratio, old: ratio of older dependents (older than 64) to the working age population (ages 15-64). By normalizing earnings, analysts average a company s earnings over a period of time to get a more accurate account of its financial productivity. Sources: World Bank, OECD, Trading Economics, FactSet. Country Characteristics Economic Data GDP Growth (Real, Last 10 Yr) Inflation (CPI, Last 10 Yr) Fiscal (Principle of Leadership & Governance) Government Debt (% of GDP) Budget Balance (% of GDP) Interest Pmts (% of revenue) Tax Burden (% GDP) Demographics (Principle of Leadership & Governance and/or Human Productivity) Unemployment Rate Age Dependency Ratio, old Valuation Normalized Price-to-Earnings Dividend Yield Government Bond Yield (10 Yr) Worst U.S. Best Three Strategy Pillars Based on these principles, the strategies we build exhibit these characteristics: 1. Faster Economic Growth 2. Improved Valuation 3. Increased Diversification and Alignment with Client Time Horizons Developed Markets 1.3% 1.2% 1.5% 126.9% -4.0% 13.6% 10.9% 4.9% 22.8% % 2.7% 1.2% 125.7% -2.3% 6.8% 17.2% 5.7% 31.7% % 0.9% Emerging Markets 5.6% 3.0% 46.9% -2.4% 12.6% 13.2% 6.7% 13.7% % 4.7% 2 Historically, the more expensive a country s stock market, the lower its subsequent returns. We believe that valuation (how much you pay for stocks) affects potential returns. Sources: FactSet. Past performance does not indicate future returns. P/E s are normalized five-year moving average. Returns are nominal, USD. As of 12/31/17. 3 PROBABILITY OF SUCCESS Improved Valuation ANNUALIZED 10YR RETURN 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Average Country Stock Returns by Valuation (31 countries; ) More Expensive Countries 6.9% P/E Quintile Cheaper Countries Increased Diversification and Alignment with Client Time Horizons We build strategies diversified across multiple asset classes and aligned with your financial planning goals to improve the probability of successfully meeting your future cash flow needs. The table below contrasts the probability of success of our strategies with that of benchmark indexes for each time horizon. <10 Years Minimum Goal: Inflation Primary Risk: Volatility Primary Asset Class: Bonds Years Minimum Goal: 4% Real Return Primary Risk: Inflation & Volatility Primary Asset Class: Global Stocks* Benchmark Indexes** 51% 12% 1% Diversified Portfolio 51-63% 22-26% 5-31% *Includes U.S. & International Markets **<10 Years Benchmark Index is comprised of U.S. Bonds Years Benchmark Index is comprised of U.S. Stocks & Bonds. 16+ Years Benchmark Index is comprised of U.S. Stocks. Our recommended allocations are intended to be general in nature; actual client portfolios are customized to the individual investment objectives, risk tolerance, and time horizon of each client. Probability of Success for the investment strategies represent the opinions of the Ronald Blue Trust Investment Strategy Group as of 4/1/18 and may change as subsequent conditions vary. Ronald Blue Trust can give no assurance that any forward-looking statements or projections will be correct. As with any investment strategy, there is potential for profit as well as the possibility of loss. Ronald Blue Trust does not guarantee any minimum level of investment performance or the success of any investment strategy. All investments involve risk and investment recommendations will not always be profitable. 10.7% 16+ Years Minimum Goal: 6% Real Return Primary Risk: Inflation Primary Asset Class: Global Stocks* Improvement vs. Benchmark Up to +12% Up to +14% Up to +30%