Financial Advisor News

Piedmont, CA

Financial Advisor News

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Piedmont, CA

by: ALISON VAN DYKE

FIRST AND MAIN FINANCIAL

(510) 601-1935

Oakland, CA | East Bay, Piedmont; Financial Planning for a Recession

Is a recession inevitable?

As I write this we’re 3.6% below the last closing high for large U.S. stocks set on July 26th of this year.

Returns for this year are strong, but this is coming off a dramatic sell off at the end of last year. Markets fell almost 20% from early October to December 24th. Toward the end of last year chinks in the armor of the global economy started to reveal themselves. The Chinese economy (2nd largest) has been struggling and the European economy is now essentially at zero growth.

The media had recently been making a big deal about an imminent recession. Nearly every announcement about a change in trade talks with China pushes markets in one direction or the other.

If you’re watching the show it’s frustrating and normal to want it to all go away.

The U.S. economy is on decent footing. We haven’t had this strong of a labor market since the mid-1960’s. The U.S. consumer (about 70% of our economy), while sometimes expressing negative sentiment in surveys, has in-fact keep spending at a reasonable rate. Unless fear really sets in people will tend to keep living their lives and buying the things they need and want if they can afford them.

The U.S. savings rate is strong (over 7%) relative to what’s it has been over the last few decades and household balance sheets are better than they were before we started the last recession.

Our manufacturing sector is likely now in recession due to trade uncertainty and, should the U.S. consumer decide to curtail spending, our economy would very likely, and possibly very quickly, dip into recession.

We may not officially go into a period of contraction in the U.S. Recessions are generally caused by an imbalance in the system that needs correcting and there’s no such imbalance at this point, at least not one that’s readily apparent. In fact, one could argue that U.S. consumers are still fearful from the last recession and instead of spending excessively they’re spending and borrowing reasonably.

The stock market also doesn’t seem to be particularly inflated at present. After virtually no progress for a few years leading up to 2016, it then went on a tear through 2017. We haven’t had much in the way of gains since then. The stock market is forward looking with respect to prospects for profits and economic progress. With slower to no growth in the other major economies, and trade battles, we’re now in a bit of a wait and see environment. The market obviously isn’t presently counting on terrible things to come in the short term but also not counting on strong growth resuming.

Recessions, however, are positive as they serve to clean the economic system. Players who are too greedy and take too much risk, or are operating on thin ideas, need to be penalized at some point. We want economic progress to be real, solid and sustainable if possible. We’re in the longest growth cycle in our country’s history but that doesn’t mean it has to end soon.

We may get a recession in the coming year, or years, especially if there’s a shock to the system. It’s good to be prepared. We can’t predict the future so money must be managed for the long term, with pockets of safety for clients who need cash in the short term. Cash can also be maintained outside of investment portfolios in case of emergency and one can still get yield in Federally insured accounts above the rate of inflation (despite recent lowering of short-term rates). Credit on home equity or investment portfolios can also be used in case of emergency.

It’s good to have one’s financial house in order in uncertain times.

Oakland, CA | East Bay; Financial Planning for High-Costs of Bay Area Living

A Good Plan Can Make all the Difference—

Major life changes, such as moving to a new home or starting a new job can be overwhelming and very difficult to navigate, especially when moving to the Bay Area where the cost of living is high.  Our clients, Chris and Jen, who are in their 50s, came to First and Main Financial looking for help to verify that they were on the right path to meeting their financial needs throughout retirement, especially as they started their new adventures in California.  They asked us to help decide how much to contribute to retirement funds, how to best fund a new home, and what benefits at their new jobs they should choose. We also reviewed their existing insurance plans and current investment strategy.

As we do with all of our clients, we went through a detailed data gathering process.  Once information was received, we helped upload data to our secure financial planning software, eMoney Advisor.  We then analyzed the information and produced a base case scenario, detailing their current situation.  We also created multiple What if scenarios, such as different retirement ages, various home purchases, and different approaches to investing.  These what if scenarios helped assess the overall impacts of any changes to their financial plan.

Within each of these scenarios, we projected a probability of success for reaching a life expectancy age with enough assets to provide for a comfortable retirement.  Most importantly, we showed the impact of increasing their contributions to their retirement funds and how changing certain investments to other vehicles might provide greater return and help increase savings for a down payment for a house.

In addition to reviewing their finances, we reviewed their insurance (Life, Disability, Auto, Renters/Home, Medical, etc.) to assess if they maintained enough coverage.  We recommended that they get a quote for an Umbrella Policy to give them greater liability coverage above auto and home insurance policies.   We also encouraged them to review their estate planning documents, especially since they had moved to California and were considering a home purchase.

After presenting the financial plan to Chris and Jen, they asked First and Main Financial to manage their assets.  We offer a tiered fee schedule for our clients which is considered a good deal compared to the industry averages and starting rates usually charged by other firms.  We also provide clients with quality and individual attention as well as complementary guidance on existing 401(k) money.

If you are looking for some financial guidance, whether it be for a one time financial plan or continuing advice on your investments, we invite you to meet with the First and Main Financial advisors for a free consultation.  We work with a variety of clients, including clients like Chris and Jen who are trying to figure out new jobs and new homes in new places.  We would be more than happy to sit down with you, assess your current financial situation, and review with you our services to help you navigate your own financial future.

Oakland, CA | East Bay, Creating Additional Wealth Through Financial Planning

Tax-deferred growth makes a difference over time.

A recent client came to us looking for a second opinion on her financial situation with a goal to retire in three years.  She is 62 years old, single, with an older son who is on his own.  She has done well preparing for retirement over the years and has been able to save approximately $1.5M between her current 401k and IRAs that have been rolled over from previous employment.  A key component of her retirement savings will come from her Employee Stock Ownership Plan (ESOP) associated with her current employer.  She has been with the company for 10+ years and is 100% vested.

An ESOP is a tax-qualified deferred compensation plan and allows for the ownership of a corporation by its own employees.  While the rules and requirements associated with ESOPs can be complicated, an ESOP provides tax savings for the underlying corporation and employee motivation through stock ownership.  As the company does well, contributions are made to the plan which will eventually be paid out to the employees within 5 years after retirement based on the ESOP’s distribution policy.

As we do with all of our clients, we went through a detailed data gathering process over the course of a few weeks.  Once all information was received, it was analyzed and then entered into our financial planning software, eMoney Advisor.  We worked with our client to understand the intricacies of her ESOP plan and agreed on conservative amounts to use for the annual pre-retirement contributions.  Once we agreed on a projected ESOP balance at retirement in 2021, we then used our software to run through different what-if scenarios to assess the overall impacts to her financial plan.

We analyzed the difference between taking the ESOP payouts as a lump sum in the year they would be distributed vs. directly rolling the ESOP distributions over to another qualified retirement account.  The difference in the amount of wealth created over her lifetime was significant.  The tax-deferred growth associated with the direct rollover strategy resulted in over $2M of additional wealth in today’s dollars.  We also calculated the total amount of income taxes paid over her lifetime.  When applying the direct rollover option, she ends up paying less overall income taxes (even with the additional wealth that would be created).

We provided cash flow projections and analysis that highlighted exactly where her income will be coming from during retirement.  We prepared tax projections, which highlighted additional retirement planning opportunities to take advantage of in the future.  One key action item we identified during our analysis was to reduce her exposure to equities nearing retirement.  As she prepares for her next stage in life, we will be crafting a customized portfolio to her specific situation that considers her future retirement needs.  She will have flexibility in retirement with regards to spending and allocating towards her savings.  Going forward, we will keep her financial plan up-to-date and revisit it as needed, to help facilitate these types of financial decisions.

If you are looking for financial guidance, whether it be for a one-time financial plan or continuing advice on your investments, we invite you meet with the First and Main Financial advisors for a free consultation.  We would be more than happy to sit down with you, assess your current financial situation and review with you our services to help you navigate your own financial future.

Oakland, CA – East Bay, Piedmont | Using eMoney Financial Plans to Prepare for R…

What Will Your Retirement Be?

Our clients, Jeff and Cheryl, needed to make decisions about when to take Social Security, when to use funds from their pensions, their 401(k)s and when to retire.  These types of questions are quite common as many of us approach retirement and need to begin planning for  the next stage of life.  Jeff and Cheryl hired First and Main Financial to review their finances and verify that they were on the right path to retirement.  They wanted us to identify any red flags that they should take into consideration before they fully retired.

We worked with Jeff and Cheryl to gather their financial documents such as bank statements, retirement account documents and budget information. They uploaded easily to our secure financial planning software, eMoney Advisor, along with linking bank and brokerage accounts.   We produced a base case scenario of their financial situation and created multiple what if scenarios: retiring at different stages, taking Social Security income at 62, at full retirement age, or waiting until 70, and receiving their pensions as a lump sum or a Joint and Survivor Annuity.

Within each of these scenarios, we projected a probability of success for reaching age 90 with enough assets to accommodate the lifestyle to which they are accustomed.  Because they had proactively budgeted, their probability of success was 100% in each scenario; however, we were still able to show them the positive or negative impact of various scenarios, helping to inform decisions about retirement, and by adjusting and comparing the payouts options from their pensions, we figured for the best financial outcome.

As for any red flags, we noticed that the return on the assets within their 401(k)s were below industry averages.  In addition to financial planning, First and Main Financial helps clients manage investment assets.  We offer a tiered fee schedule, which many consider a good deal compared to the industry average and starting rates usually charged by other firms.  We also provide clients with quality and individual attention as well as complementary guidance on existing 401(k) money; which we reviewed, suggesting they consider an asset allocation more likely for growth or at least to maintain purchasing power.

If you are looking for some financial guidance, whether it is for a one time financial plan or continuing advice on your investments, we invite you to meet with the First and Main Financial for a free consultation.  We work with a variety of clients, including those who are just starting out and saving for retirement as well as clients who have saved for retirement but need help making decisions about their next phase of life.  We would be more than happy to sit down with you, assess your current financial situation, and review with you our services to help you navigate your own financial future.

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BIO: At First & Main Financial, Alison Van Dyke helps clients with their financial lives. She has worked in Corporate Finance for Bank of America and Chase Manhattan Bank. Alison is pursuing the CFP® certification; she received her MBA at Georgetown and her B.A. in Political Science from UCLA.

235 Wildwood Avenue,
Piedmont, CA 94610, USA

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Piedmont, CA 94610, USA

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BIO: At First & Main Financial, Alison Van Dyke helps clients with their financial lives. She has worked in Corporate Finance for Bank of America and Chase Manhattan Bank. Alison is pursuing the CFP® certification; she received her MBA at Georgetown and her B.A. in Political Science from UCLA.