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Thoughts in Charts: The Curve May Change the Strategy

I was talking with a mentor late last year, and she was telling me about this incredibly “reasonable” request from a client. He was asking for a very low risk 2% annual income from an investment that he was happy to hold for the next 15 years. I believe she said something like “I’ll take that request all day”.

This week’s chart illustrates why she felt very confident that she could deliver for this client.  She could go out the maturity ladder to around 10 years and buy US Treasury Note at the appropriate yield. She would get him a 2% annual payment with very low risk.

Had that client asked for a low risk 2% yield at the beginning of 2019, she would have had even less trouble designing a portfolio. In fact, if he had wanted to take periodic withdrawals, she could have built the portfolio with maturities that would accommodate shorter term cash flows without dipping below the 2% yield.

Even in December of 2008 when rates dropped during the Financial Crisis, she could have met his request. Short-term yield very nearly matched what it does today, but she still had options at the longer maturity dates to reach the desired 2% yield.

And then there’s today: his portfolio construction would be much more complex. No matter how far out she looks on the curve, US Treasuries are not offering a 2% annual income. To construct something now, she would be forced to ask the client to take on more risk or lower his annual income expectation to around 0.50%.

Just like my mentor, bond fund managers cannot go out and grab a low risk yield right now. At ThirtyNorth, we are staying vigilant – aware that managers may be digging into higher risk or asking us to accept lower returns. Those adjustments are likely market realities, but we want to be prepared to adjust your allocations in response.

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Fellow Women – Bring Together Money and its Meaning in Your Life

Five months into a quieter isolated life, many of us have taken to online yoga classes, healthier home cooking, and meditation as ways to deal with the disruption. But as you strive to bring peace into your life, are you at peace with your financial future?

Numerous studies report that women are inadequately prepared for retirement. This may be the perfect time to reflect on using your investments to improve your confidence level in your own preparedness.

Here are three steps to get you started:

1. Think about overall financial strategy.

Developing a solid strategy is a process, beginning with understanding your current financial condition. Also identify your goals, understand your risk tolerance, and determine how your current investments work together (or not) to prepare you for the future.

All too often, people invest incrementally without considering how their investments are comprehensively allocated. This is particularly true when you have multiple accounts, including retirement plan balances with former employers, or rollover IRAs, as well as taxable accounts. It is important to take a broad view of the bigger picture, because the interaction among savings and various investments can determine success. You may find that changes are needed, especially if you haven’t focused on this recently.

2. Take full advantage of retirement plans.

Vanguard’s How America Saves 2020 estimates that a typical participant should target a total contribution rate of 12-15%, including both employee and employer match contributions, in order to achieve retirement readiness. In 2019, the average woman and her employer contributed 10.1% (1) Check on your total contribution rates and increase your employee portion if you are not already at the maximum annual amount ($19,500 for 2020). Don’t forget about the additional “catch up” contribution ($6,500 for 2020) if you’re 50 or older.

For married women who have decided to discontinue employment, check into the qualifications and benefits of a Spousal IRA so that you can advance your retirement plan savings.

3. Get more engaged in your financial future.

If you feel a need to be more engaged with your finances, especially your investments, then you are on the right track. Career opportunities for women have increased dramatically over recent years, but we remain challenged in retirement preparation. It may not be your area of expertise, so every chance to increase your learning about savings and investments improves the likelihood of reaching your goals. Working with a professional? Make certain you trust them and that they take the time to discuss with you the underlying principles of investing.

Life is unpredictable. The time we spend today in preparing for our tomorrows will be well worth it, and will enable us to bring together our money and its meaning into our lives.

Stay well, and stay tuned…

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Controlling What You Can

 

The need for long-term financial security is real, but sometimes financial choices are more heavily driven by pressing needs and wants along the way. If you find yourself falling short at retirement time, you may continue working in your current career (if you can), find employment in a different way, or adjust your future lifestyle plans.

In fact, people are working later in life. Almost 30% of those between 65-74 are still part of the civilian labor force.(1) Most are driven primarily by the desire to remain engaged and active, but a healthy percentage are also influenced by financial needs.(2)

Surveys aside, we all wonder about our financial security, especially when the stock market is as stressed as it was recently or as it will be in the future. What can we do to manage our concerns?

Take control of those things that can be controlled. Two simple but powerful questions to ask are:

  1. Am I saving enough? What can I do to increase my savings rate? COVID has caused some of us to realize that expenses can be reduced, and that it’s OK.  Before you return to your previous spending habits, consider ways to direct more into savings.
  2. How are my savings working for me? Do I really understand how my savings are allocated among cash, stocks, bonds or real estate? A cash reserve is very important, but too much cash may hinder our ability to meet future needs due to inflation risk. Does the allocation consider risk tolerance?  Are my investments broadly diversified, one of the most basic ways to minimize risk while enjoying the growth of the markets?  The allocation of investments is a major driver of their growth.

We cannot control the stock market, but we can control our savings rate and how we invest. We can bring together our money and its meaning for financial security in our lives.

Please stay well, and stay tuned…

For disclosures, please click here.

(1) Bureau of Labor Statistics, Employment Projections, JP Morgan Asset Management

(2) Employee Benefit Research Institute, Mathew Greenwald & Associates, Inc. 2019 Retirement Confidence Survey, JP Morgan Asset Management

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Thoughts in Charts: Withdrawal Timing

The timing of your cash withdrawals matter. The U.S. Stock market has persisted upward for the last 150 years; however, this has not been without periods of dramatic downturns. Some of these downturns lasted a significant amount of time.

Over a long period of time, the investor is likely to be compensated for risk. But this graph illustrates that there are periods of time where it’s very unprofitable to withdraw from a stock investment. A key part of your portfolio construction should be to avoid “needing” to withdraw more volatile stocks during those downturns.

While anticipated cash needs within the next year or two are often easier to identify, don’t forget to talk to your advisor about potential cash needs within the next 10 years as well. The goal is to create a portfolio with the appropriate level of risk for your shorter-term requirements and the ability to let your longer-term assets ride out the storms.

For disclosures, please click here.

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Thin(k) About Your 401(k) Plan: Work Your Core – Five Core Investment Principals

During the middle of the market downturn towards the end of 2018, I found a truly incredible opportunity in an asset backed by the US Government and in about 45 days it generated an annualized approximate return of 117%.  What incredible, riskless investment offering such astounding returns did I find? It was the Forever Stamp!  And guess what?  The US Government told me, well in advance, that the value of this commodity was going to increase from $0.50 to $0.55 on January 27, 2019.

Okay, there are numerous logical flaws to the above story, but while we watch the volatile markets during the time of the COVID-19 Pandemic, it offers a good reminder of the five core principles for investment.  Let’s examine how each negatively or positively impacted my decision whether to go long on Forever Stamps.

  1. Discipline is Everything. It’s tough to apply this principle to my stamp example because it would tell us not to chase recent performance and stick with a well-researched strategy.  However, why wouldn’t I invest in something I know is going to increase in value by 10% on a given date?  Here’s why:  you would have to forego or sell investments from your long-term approach in order to make the investment.  Further, once you owned the stamps, you would have a commodity that holds only a small value per individual unit that would have to be sold to someone else.  Maybe you could sell them alongside your children at their lemonade stand, but you would likely need to go at it for a long time to realize a substantial dollar measured profit.  Sure, the percentage gain per unit sold is incredible, but ultimately it is dollar gains that move the needle in a portfolio.
  1. Investing is both Art and Science. This principle seems a bit simpler to apply.  First the science side of investment analysis would tell us the opportunity to make money buying Forever Stamps is as close to a sure thing as we will ever see.  But when we move back to the art view of things, I would ask myself how many letters will I send in a given year.  If I were a voracious writer who doesn’t use email, then perhaps the purchase makes sense.  However, in this scenario we have shifted the conversation from investing to consumption.  While Forever Stamps may increase in value forever, the benefit of the investment lies in either its usefulness down the road – consumption – or one’s ability to liquidate at the appropriate moment – investing.  And, here we are again, back at the crossroads of how do I get rid of these things in enough quantity to make it worthwhile.
  1. Time Matters. Time is a trickier component in this example because a long-term view of the Forever Stamp could easily lead one to conclude that it is an asset to own forever.  After all, the value is guaranteed by the US Government and simple research would show the price of a stamp has only gone up.  Unfortunately, that analysis ignores the question of why has the price of a stamp only increased.  Who is to say where the US Mail system will ultimately land or when, but clearly the cost of delivering a letter is going up and therefore the cost of a stamp is as well.  However, there are many new and efficient communication options such as email and social media competing with the US Mail.  Down the road, the price of stamps could go up forever, but my guess is that at some point the elasticity of demand is reached and the price will have to either stabilize or even come down.
  1. Depth of Research forms Decisions. This principle offers us a bit of a repeat.  By not deeply researching the various aspects of the investment in Forever Stamps, you might make the deal because of the return alone.  However, this action fails to answer crucial questions like: how do I monetize the return; what will the dollars earned per unit translate into when measured against the effort required; or how long will the price hold up even though guaranteed by the US Government.
  1. Risk Must be Considered. While the risk of the price of a Forever Stamp falling might seem next to impossible on the surface, nothing is truly guaranteed.  The US Postal System is competing with other forms of communication and therefore subject to pricing risk over the long-term.  I have left a key consideration to the end.  The Forever Stamp has a guarantee for sure.  That guarantee is that it will always be able to be used to mail a letter in the US.  But it does not guarantee the value of the investment.

In summary, every investment must hold up to the five principles above and that is not an easy feat.  The Forever Stamp with a certain increase in price generating a measurable return at a given point in time was not able to meet even one of the principles.  When I was studying for my MBA, an accounting professor taught me an important lesson that remains with me today and will forever – “There is no such thing as a free lunch.”

Here’s more about ThirtyNorth’s five core principles.

For disclosures, please click here.

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1st Quarter 2018 Market Commentary

“What a long, strange trip it’s been” – Jerry Garcia, Bob Weir, Phil Lesh, and Robert Hunter

The US stock market burst energetically out of the gate in January. Fresh off double digit gains last year, the tech heavy NASDAQ index crossed 7,000 for the first time on January 3rd. At its peak on January 26th, the S&P 500 Index was up almost 7% in the first three weeks of the year. Nine trading days later, the market entered correction territory by dropping more than 10% from that peak. The remainder of the quarter was volatile, and half of the remaining trading days saw moves greater than 1.0% in the S&P 500 Index. The S&P 500 finished the quarter down -0.76%; a long, strange trip indeed.

For the quarter, International stocks, as measured by the MSCI EAFE Index, slumped along with the US, and were down -1.04%. Emerging market stocks, however, continued their leadership. The MSCI Emerging Market Index was up 1.42%. Continuing a trend from 2017, growth stocks led value stocks amongst large, mid, small and international stocks. Interest rates rose, and bonds prices suffered. The Bloomberg Barclays US Aggregate bond index was down -1.46%. International bonds provided a lift with the hedged Citi World Government Bond index up 1.50%. REITs were hurt by the prospect of rising interest rates and were down -6.66%. Finally, commodities were mixed with the Bloomberg Commodity index closing down slightly for the quarter.

A Tale of Two Styles: Growth and Value

Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (Russell 1000 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap (Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index). World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. Russell 3000 Index is used as the proxy for the US market. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2018, all rights reserved. Read more

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The Biggest One Day Loss Ever…Really?

After the recent volatility in the market, I once again recall a few reasonable tips that help me maintain a long-term focus on investing.

 

Tip Number 1 – First, although you may be watching the “financial” news or an “investing” expert on your local news, remember they are selling news first and foremost and shock value sells.  I always remind myself to take what I hear with a grain of salt.  Don’t get me wrong, I gather valuable information from the financial media.  However, when, like on Monday, February 5th, I hear experts on the news discussing the fact that the Dow dropped the most ever in a day, I take pause.  What does that really mean?

 

Once a drop in the Dow of 250 points seemed large, but is now only a 1% move.  This may feel painful when you look at your account balance, but volatility of this nature is normal in the stock markets even if we haven’t experienced it in a while.  As Blair duQuesnay, our Chief Investment Officer, reported Monday, February 5th, the 1,175 point drop, when measured in percentage terms, was not in the top 20 historical one day moves for the Dow (https://youtu.be/me7449asL_c).  In addition, the Dow is comprised of 30 mega-cap industrial US companies.  In today’s global world, this is a narrow list of companies used to measure a much larger universe of stock investment options.

 

While the Dow is a quick proxy to the markets that is discussed prolifically, for globally diverse investors with holdings in different asset classes including bonds and alternatives, a deeper dive is prudent on these days that are characterized in the press by fear and doom.

 

Tip Number 2 – This brings me to my second tip which is that you haven’t lost money in your account unless you sell.  I often hear pundits on the news talking about how much the market lost in a day.  The correct word, in my opinion, should be the amount the market declined.  Then, it might be easier to remember that over the long-term, back to the 1920s, the market has been on a steady incline only temporarily slowed by short-term declines.

 

Yes, the value of an investment on a given day may go down or up, but it is the long-term that really matters.  Historically, on average over the long-term, the stock market has gone up delivering positive returns in spite of days that get mischaracterized as the worst down day ever.  If, in a moment of fear, you sell, then you have locked in the loss.  However, if you hold for the long-term and achieve the expected growth, you should recover the temporary decline in value and more.

 

Owning a diversified portfolio that includes investments in different asset classes all over the world can effectively help manage the volatility of a portfolio as a whole when one asset class, like stocks, is suffering a temporary decline.  I included the cartoon above hoping to make you laugh, but also because many investors feel the market ups and downs most acutely in their 401(k) accounts.  Fear raises its ugly head here almost more than anywhere because we our retirement savings are at risk.  However, taking an appropriate amount of risk in your investment accounts is paramount to achieving a successful retirement.  This is why diversification is important to control the volatility while maintaining the right level of risk in your investment strategy.  Remember, it is time in the market that matters not timing the market that is most likely to help prevent us from having to live off our belly fat in retirement.

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4th Quarter 2017 Market Commentary

Stocks around the world posted double digit returns in 2017. On the heels of a healthy 2016, the current bull market trudged along triumphantly. In a Goldilocks scenario, volatility was conspicuously absent from the markets. There were only four days that the S&P 500 Index declined more than 1%, with the largest drawdown of 1.82% occurring on May 17th. Emerging markets saw the strongest returns with the MSCI Emerging Markets Index up 37.28% for the year. No, that’s not a typo.

Bond returns were more muted with the Barclays US Aggregate Bond Index finishing the year up 3.54%. International and emerging market bonds also outpaced returns on domestic bonds, aided by a weaker US dollar. Short-term interest rates continued to rise, while long-term rates held steady. The 2 Year Treasury began the year at 1.20% and finished at 1.89% while the 10-Year Treasury barely budged from 2.45% to 2.40%. Oil seemed to break out of the $45 – $55 range it has traded in since mid 2016. West Texas Intermediate (WTI) finished the year at $60.46 per barrel.

Tax Overhaul

On December 22, President Trump signed into law the Tax Cut and Jobs Act of 2017. While the law makes many tweaks to individual taxes, the major changes affect US corporations. The maximum corporate tax rate of 35% drops to a flat rate of 21%. This is combined with the elimination of the alternative minimum tax (AMT) for corporations. Sadly, the AMT elimination for individuals was scrapped in conference negotiations, but the threshold for qualifying for AMT jumps to $500,000 for individuals and $1,000,000 for married couples.[1] In addition to lowering the corporate tax rate, the law allows corporations to bring back cash from overseas and pay a one-time 15.5% repatriation tax rate. This could be a potential boon for the tech industry, as Apple, Microsoft, Cisco Systems, and Google (Alphabet) have $483 billion in cash parked overseas.[2]

Most investors speculate that smaller companies, that conduct most of their business domestically, will benefit the most from the tax changes. However, companies carrying deferred tax assets on their balance sheet will have to recognize a reduction in value of that asset. Further, limits to the deductibility of interest could hinder companies with large amounts of debt.[3] Corporations lauded the changes, with many well-known names announcing one-time bonuses, minimum wage hikes, or increased 401(k) matching for their employees. More time is needed to digest the final implications of the tax changes. Companies reporting year-end earnings will offer the next clues.

Market Valuations

Since the low in March 2009, the S&P 500 Index is up over 430% on a cumulative, total return basis. Investors seem nervous that the market is being overvalued. There are many metrics for attempting to quantify whether or not the market is over or undervalued. Each metric has its merits and each has its flaws. The forward price-earnings (P/E) ratio of the S&P 500 Index is 18.2 times earnings. This is higher than the 25-year average of 16.0 times earnings but below the 1999 peak of more than 24 times earnings. The Shiller price-earnings ratio (CAPE) is currently 32.4, well above the 25-year average of 26.4. The price-to-book ratio (P/B), a more stable valuation measure, is currently 3.1 for the S&P 500 Index versus a 25-year average of 2.9.[4] By all measures, the market value is higher than historical average but not approaching any records.

One crucial factor in considering price-earnings ratios is the denominator, earnings. Third quarter 2017 earnings for the S&P 500 Index were $31.32 per share, an all-time record.[5] Consensus analyst estimates call for the next four quarters of earnings to break this record. If earnings are growing, future projections for PE ratios may not be as rich as predicted. While short-term distractions such as politics, geopolitical tensions, commodity booms and busts, natural disasters, and war move markets in the short-run, the underlying factor for valuation of stocks is corporate earnings. From this perspective, the growth in the markets seems reasonable.

The S&P 500 Index has reached 188 new all-time highs since March 2013. There were 61 new all-time highs in 2017 alone. This statistic tends to make investors nervous. However, historically the stock market has made many new highs to get to today. Try to remember your experience investing during the 1980’s and 90’s. Dare we hope to be in the midst of a similar experience?

Bitcoin

Cryptocurrencies and Bitcoin dominated the financial news cycle when the price of one Bitcoin turned parabolic and climbed to more than $19,000. Let me preface this segment by saying that we have no expertise in cryptocurrencies and understand them only slightly better than the average person. However, the topic is now commonly broached in our client meetings and conversations. What we know is that the technology underlying cryptocurrencies, known as blockchain, could lead to extraordinary advances in the ease of transacting in financial markets. This has led large financial firms such as Fidelity Investments and Goldman Sachs to invest in research for the application of blockchain in financial transactions.

Before you are tempted to download the Coinbase app and start trading Bitcoin, Ethereum, or Litecoin, consider that these instruments lack some of the most basic protections to be considered “investments”. For example, there is no method of custody for cryptocurrencies. A custodian is a financial institution that holds investment assets in safe keeping and communicates the value of your holdings via regular statements. Further, the IRS issued guidance in March 2014, that cryptocurrencies are considered property and subject to taxation when received as income or as a result of a capital gain or loss. However, with no custodian to issue the appropriate tax reporting, investors have no mechanism to prove their cost basis if audited by the IRS. If you want to take a deep dive into the abyss of cryptocurrencies, Patrick O’Shaughnessy interviewed some of the leaders in the field over three episodes of a podcast titled Hash Power.

Everyone’s favorite investor Warren Buffett recently weighed in on the Bitcoin craze saying; “In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending.” Bitcoin is already down almost 40% from its December peak. It’s likely there will be many booms and busts as this technology, currency, dare we say “asset class” approaches maturity.

Fear and Greed

Despite all the statistics and fancy analysis we have today, the markets are a derivative of human emotion. Numerous studies prove that humans fail to act on logic and reason when money is involved in the decision making; especially if losing money is a possibility. There’s a great book detailing the history of market hysteria and bubbles beginning with the Tulip Mania in Holland in the 17th century. Extraordinary Popular Delusions and the Madness of Crowds is a fascinating but dense study of human greed and the “fear of missing out”. I suspect there’s a little of this happening with Bitcoin lately. In hindsight, there are always extraordinary investment options that could have been life changing. One of my favorites is holding Apple stock since it became public in 1980. But is there even one investor who managed to own it for the entire time-period? Everything looks easy in hindsight. Investors should keep their heads down, follow a disciplined strategy, rebalance periodically, and let time pass.

Remember these two? Tweedledum and Tweedledee are a great analogy for fear and greed. Both emotions are equally dangerous for investors.

 

January 2018

 

Footnotes:

[1] Kitces, M. “Individual Tax Planning Under the Tax Cuts and Jobs Act of 2017”. December, 18, 2017. https://www.kitces.com/blog/final-gop-tax-plan-summary-tcja-2017-individual-tax-brackets-pass-through-strategies/

[2] Meisler, L. “The 50 Largest Stashes of Cash Companies Keep Overseas”. June, 13, 2017. https://www.bloomberg.com/graphics/2017-overseas-profits/

[3] Blomberg BNA, Tax Reform Watch; https://www.bna.com/2017-corporate-tax/

[4] JPMorgan Q1 2018: Guide to the Markets, slide 5, https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets

[5] JPMorgan Q1 2018: Guide to the Markets, slide 7, https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets

Disclosures:

  • All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. It should not be regarded as a complete analysis of the subjects discussed.
  • Information presented does not involve the rendering of personalized investment advice and should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Tax information is general in nature and should not be viewed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
  • Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. All investment strategies have the potential for profit or loss. There are no guarantees that an investor’s portfolio will match or outperform any particular benchmark. Index returns do not represent the performance of ThirtyNorth Investments, LLC, or its advisory clients.
  • ThirtyNorth Investments, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
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Financial Wellness for Gen X and Millennials: Find the Highest Savings Rate

One of the first steps to building a solid financial plan is to accumulate a cash reserve. Popular financial planning rules of thumb suggest keeping 3-6 months of living expenses in cash. Homeowners and those in jobs subject to layoffs may prefer to keep a year or more in cash reserve. A cash reserve is a rainy-day fund that should not be invested in stocks or bonds. The purpose of a cash reserve is to pay for large, unexpected expenses such as; home repairs, car repairs, insurance deductibles, or paying bills during a period of unemployment.

If you’re planning to buy a home or car in the next few years, you might also be keeping large amounts in a savings account. Since cash savings is likely to be a larger percentage of total net worth for younger investors, it’s important to compare interest rates regularly. Now that interest rates are more than 0.00%(!), interest rate shopping is important.

First, make sure you’re getting the highest rate offered at your bank or credit union. Banks are constantly offering promotional rates for new accounts, meaning you may need to open a new account or transfer money to a different account to get the highest rate. Don’t let your savings sit in an account getting a lower rate. If you find a higher rate advertised elsewhere, there’s a chance your primary bank or credit union will match it. It might be worth a trip inside a bank branch to inquire about your options. Many banks are willing to work with you to maintain your deposits.

If the rates at your bank are less than satisfactory, look at the many online banks that offer higher rates. Each online bank has different requirements for minimum account size and number of monthly transactions. If you have a large amount of cash savings that you don’t need to access frequently, an online bank may be the best solution. When considering an online bank, be sure to select one that is truly a bank carrying FDIC insurance. A recent search of online bank rates produced the following results:

*Savings account rates found on Bankrate.com on December 12, 2017. This information is presented for informational purposes only and does not constitute a recommendation.

Keep in mind that short-term interest rates are slowly rising. The Federal Reserve is forecasting three rate hikes in 2018. That means the interest rate on your savings account is likely to change next year. Rather than constantly chasing the highest rate, set reminders to check your rates once or twice each year. Saving is hard, so make sure you’re earning a good rate on your cash reserves. You deserve it.

Financial Wellness for Gen X and Millennials – It’s About More than Investments

Part 1: Car Insurance

I’ve noticed a few recurring themes from financial plans this past year. They have nothing to do with investments, but they are in many ways, so much more important. It turns out, there are a few items in your financial life that require consistent maintenance. Dropping the ball could cost you quite a bit of money.

If you have any financial assets, you need full liability coverage car insurance. The state minimum amount will not be enough to cover you in an accident when you’re at fault, and the other party can sue you personally after the insurance maxes out. In Louisiana, the state minimum liability insurance is 15/30/25. That means $15,000 for bodily injury per person, $30,000 for bodily injury to more than one person in an accident, and $25,000 for damage to the other person’s vehicle. So, the next time you total someone’s $80,000 Tesla, you’re on the hook after the first $25,000. But the larger risk is the bodily injury limits. Have you ever seen a hospital bill, with an ambulance ride, for less than $15,000? If you carry minimum liability insurance, the injured person will be suing you for the remainder of their medical bills.

You need the maximum liability coverage of 100/300/100. That’s $100,000 bodily injury per person, $300,000 per accident, and $100,000 in property damage. In addition to full liability insurance, you might also want uninsured and under-insured coverage in case the other driver is at fault and doesn’t have enough insurance. To protect your assets further, you should consider purchasing an umbrella policy on your homeowner’s insurance that pays an amount above the maximum car insurance rates.

There are a few things you can do to lower your car insurance premiums. You might consider a higher deductible of $1,000 rather than $250 or $500. If you don’t owe anything on your car, and you have enough in savings to buy a replacement car, you might consider dropping collision coverage on your vehicle. If you run the numbers, self-insuring may be cheaper over the life of your vehicle.

Many car insurance companies are offering a discount to drivers who place a tracking device in their car for up to six months. This allows the insurance company to confirm the number of miles driven and analytical data such as speed and brake usage. Drivers deemed to be “safe” drivers are given a discount of up to 20% based on the data collected. This can backfire, however, if you’re a hot-rodder, so consider you’re driving style before taking this route.

Are you adding a teenage driver to your car insurance soon? Good luck! As parents before you know all too well, car insurance for teenage drivers is expensive. However, many insurance companies offer discounts for teens who have completed approved driver’s education classes and logged enough practice time behind the wheel with a parent. Teens can also get a discount for having good grades. Check with your insurance company to find out what information they need to apply for a teen driver discount.

I used to be the person who never changed car insurance, accepting the annual premium increase into infinity. It makes sense to shop your coverage every couple of years. Although the process is tedious, many people find significant savings by switching companies.

This is Part 1 of a series on financial wellness for Gen Xers and Millennials. Check back next week for a discussion on shopping your cash savings rate.