An Introduction to Sound Options with Owner and CEO Mary Lynn Pannen

5c2ef955-956e-4812-9713-96b911a0e999The percentage of adult children providing personal care and/or financial assistance to a parent has more than tripled over the past 15 years. According to the MetLife Mature Market Institute research, “Currently, a quarter of adult children, mainly Baby Boomers, provide these types of care to a parent.” How do we plan well so we can help our families live well? What is the cost of our newfound longevity? How can baby boomers accompany their aging parents while planning for their own future?

If you are assisting an aging parent in finding care, choosing where to live, managing healthcare, and planning for the future,the learning curve can be steep. Fortunately, there are professionals in the Puget Sound region that offer eldercare consulting, care management, as well as personalized in-home care. Mary Lynn Pannen, RN, BSN, CCM, a friend of Financial Insights from Rotary 8 and owner of Sound Options, offers insights into how her care management firm can help.

For over 25 years, Sound Options has accompanied families in the Puget Sound region as they prepare for long-life, care for aging loved ones, or rebuild life after a trauma. We provide comprehensive care and guidance that is informed by our holistic approach to care and well-being. We’ve built a team of Registered Nurses, Masters of Social Work, and Certified Nursing Assistants who specialize in the holistic care needs of aging adults and those with chronic illness.

Whether you are looking to help an aging parent stay in their home safely in the beautiful Puget Sound, you’re experiencing some caregiver burnout, or you are managing a crisis like a fall or diagnosis with dementia, we can turn stressful situations into customized and manageable solutions. Here are just a few of the ways we can serve your family:

Professional Care Managers:

  • Create a comprehensive care plan around the family’s needs and vision of life lived well
  • Guide families through the healthcare maze to help them avoid the pitfalls so they can be informed and cost-effective healthcare consumers
  • Assist with navigating Medicare, long-term care insurance, benefits, and paying for care
  • Save families money through planning and reducing the costs of a crisis
  • Proactively coordinate and oversee care including appointments, medications, and services
  • Advocate in living and healthcare settings
  • Educate family on changing circumstances, diseases, as well as care and living options
  • Mediate difficult family dynamics and varied opinions about care solutions
  • Consult with families to help them make informed elder-care decisions
  • Give insight into the task of estimating long-term care and healthcare needs and costs

In-Home Caregivers:

  • Personalize and customize care and activities in the client’s home to relieve family
  • Assist with daily activities such as meal prep, dressing, self-care, errands, & hobby support to maintain safety and dignity in the home.
  • Transport clients to appointments, activities, or errands
  • Care for complex needs such as tube feedings, diabetes assistance or administering medications.
  • Provide compassionate dementia support in the home

So much of elder-care planning is the ability to both clarify the values and priorities that shape what you want from your care, and the ability to build the financial, social, and medical scaffolding to support your vision of long life lived well. When it comes to getting answers to the big questions in elder-care, let the experts at Sound Options guide and care for you and your loved ones.

Give them a call at (800) 628-7649 and they would love to help.

Behavioral Finance: Regulating your Emotions to Create a Rational Brain

We are now entering the seventh year of a bull market. In recent meetings with clients, I note a theme in behavior and discussion  items. The theme is one of fear and apprehension. Common questions have been: Are we going to have a market correction? Is  this really a good time to buy? I am not in a position to lose any  money; should I have more cash and fixed income investments?

To answer these questions I would like to draw on the relatively  new field of behavioral finance and some of the principals that  have guided me both personally and in our practice. Our brains  have evolved to be irrational. The primitive part of our brain  controls emotions; the logical and analytical side of our brain is newer and attempts to control and create rational thought processes. When dealing with your investments, would you prefer to be rational or irrational? One would hope that rationality would be the goal. That being said,how do you get to a point of training your brain to think rationally?

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It is important to start by defining your long term goals and learning to recognize your personal biases. How did you feel during the last market correction? What do you wish you would have done differently? Are there things that have happened in your past that influence your current decision making? Most people who sold during the 2008 correction, or those who made rash investment decisions during this time period, have regrets. Following a formula and having a plan to cope with the inevitable is better than letting your emotions drive your decision making and ultimately your state of mind.

Understanding your emotions, including your biases, while maintaining a disciplined approach is the key to long term investment results. It is easy to have hindsight bias and over analyze the dot com bubble, the 2008 recession, and Black Monday thinking that you could have done something differently. The facts are, the only rational decision was to have stayed true to your investment approach calmly and without deviation.

I can tell you with 100% certainty that we will have another market correction. I can tell you with 100% certainty that no one can predict when this will happen and I can lastly, with 100% certainty, say that you are going to want to have a plan in place both with your emotions and your investments. Markets are cyclical and corrections are unpredictable and inevitable. Charles Swindoll said, Life is 10% of what happens to you and 90% how you react to it.

So now that we have made a commitment to increase our emotional intelligence, understand our personal biases and come up with a plan, what action is to be taken? Here are a few of my takeaways:

1)Trust your plan
2)Be Proactive not Reactive
3)Take a Long View
4)Maintain your emotions and stay disciplined

In finance, as in most of life, the journey can be a messy place full of unpredictable behavior and surprising outcomes. I only hope that we can come to appreciate the beauty of the process and understand that if we have discipline in both our mental and investment approaches we will be not only more comfortable in the short term but, when negative events do occur, better equipped to react appropriately for the long-term.

Ali A.Criss, CFP

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January 2015 Economic Update

New Year rings with optimism: oil drop

Investors who weathered the volatility of the domestic stock market in 2014 were rewarded come year-end. The Nasdaq and S&P 500 ended up more than 10% each, and the Dow Jones finished with a respectable 7.5% gain. The final three months were a boon, as well. The fourth quarter saw the Nasdaq leading with a 5.4% gain; the Dow gain 4.6%; and the S&P 500 climb 4.4%. These numbers indicate an economy steadily growing over the long term.Performance reflects price returns as of December 31, 2014.

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December’s so-called Santa Rally was buoyed by economic data. For example, consumer sentiment hit a seven-year high; consumer spending was up on the back of unexpectedly lower oil prices; unemployment was down; and third-quarter real gross domestic product (GDP) wowed at 5%. Investors seemed to focus on this string of good news, and ignored the mediocre housing numbers and a disappointing durable goods report.

Chief Investment Strategist of Raymond James, Jeffrey Saut cautions, though, that we’ve experienced 38 months of upside without a 10% correction (we’ve come close, but haven’t quite hit the mark); in a typical cycle, we’d see a pullback of that magnitude every 18 months or so. This particular rally is “long in the tooth” by his reckoning, but isn’t unprecedented. His outlook for 2015 suggests a difficult period in the first quarter, though in a longer-term bull market any pullback could provide an opportunity for rebalancing or starting new positions. So far, we’ve seen lower gas prices take a toll on energy names in the first few trading days of January, and that sector’s slump has broadened to other sectors. Taking the longer view, however, Saut believes this secular bull market still has years left to run.

Looking ahead, Chief Economist, Scott Brown notes that the sharp drop in gasoline prices should provide strong support for consumer spending growth in the first half of 2015. Businesses, too, will benefit from lower transportation costs, which could get passed on to consumers and/or employees in terms of higher wages. Job growth was strong in 2014, and employment gains should remain brisk throughout the year. However, growth in average hourly earnings has been relatively lackluster. Wage growth should pick up as the job market tightens, and the Fed has indicated that it will be patient before deciding when to begin raising short-term interest rates. Policymakers also remain watchful of geopolitical risks and soft global economic growth; however, the fundamentals of the U.S. economy are in good shape.Financial insights Team

We will continue to monitor developments from the Fed and the latest economic data, as well as any news from the domestic and emerging markets.  Please feel free to contact us if you’d like to discuss recent market events,  as well as the outlook for 2015 or your financial plan! We look forward to speaking with you. Here’s to a happy, healthy and prosperous New Year!

 

Is The Market Overpriced?

Is The Market Overpriced?Financial Insights Team

Financial Insights Team

I’ve been asking myself this question more and more lately. The S&P 500 hit rock bottom on March 9th, 2009, when it closed at 676. Five and half years later, on September 18th 2014, it closed at 2,011, up 198% from the 2009 low. Even after the recent sell-off, we are talking about a 180% return since 2009, that’s over 21% a year. These are incredible gains, but let’s face it, the 2008 financial crisis did leave a pretty big crater. The question is, whether the market is overpriced, or just getting back to where it ought to be after 2008?

The best way to evaluate the price of the market is to compare a few key statistics to their historical averages. The first number we will explore is the Price to Earnings ratio. Chances are you have heard of the P/E ratio before. It is one of the oldest and most common metrics used in finance. The ratio is simply the current price of a stock divided by the earnings per share for the last 12 months. It can be used to evaluate a single stock or the stock market as a whole. The current P/E ratio for the S&P 500 is 18.66. The average is 15.52, which would imply that stocks are about 20% overpriced. While a 20% premium does indicate that stocks are expensive, it seems to understate the problem.

One drawback to using the P/E ratio to measure the price of the stock market is that only the earnings from the past 12 months are taken into account. So, at a high point in the business cycle, (like during the fifth year of a bull market), earnings will be at their peak and the ratio will be lower than it should be. The Shiller P/E ratio, created by recent Noble Laureate Robert Shiller, uses earnings averaged over the past 10 years. This has the effect of smoothing out the business cycle and gives better representation of true earnings. The current Shiller P/E (also known as the cyclically adjusted P/E ratio) is sitting at 25.17. The historical average is 16.56. This suggests that the S&P 500 is about 52% more expensive than its historical norm.

Warren Buffett, the CEO of Berkshire Hathaway, uses a simple technique to evaluate the stock market. The Buffett ratio is the value of the entire stock market divided by the current gross domestic product. This is a simple, yet effective way to measure the cost of the stock market relative to the value of the goods and services it produces. The average since 1950 is 68.6%. The ratio currently sits at 119%, and got as high as 127% last month. At the current number, the stock market is 73.4% more expensive than normal.

Now that we’ve determined that the stock market is overvalued, add in the fact that bond yields are at historically low levels; we find ourselves in a very challenging environment. What options do we have to safeguard gains and continue capital appreciation? We could liquidate our equity positions and wait for a major correction, or we could liquidate our bonds and wait for interest rates to rise. Neither one of these options is really a viable solution to our problem. Just because we can prove that the stock market is expensive compared to historical norms doesn’t mean that there is going to be an imminent crash. The prudent thing to do, is to take measured steps that capitalize on the fact that there is a bit of a bubble in the market.

At Financial Insights, we take a proactive and incremental approach to these types of problems. As certain outcomes become more likely, such as poor future market performance due to high current prices, we take steps to reduce exposure to the overpriced asset. If the bubble gets bigger, we sell more. For example, in early 2014, when equity valuations appeared stretched, we reduced our domestic equity exposure. We moved these funds to cash and fixed income. In mid-2013 we reduced our exposure to longer maturity bonds to minimize the damage from a potential increase in interest rates. We are constantly monitoring economic trends and the effects they are likely to have on our portfolios.

Going forward, if the market reverses its recent losses and continues to climb, we will make further reductions to our domestic equity positions. This strategy serves two purposes. First, it will help reduce losses when and if the market corrects. Second, it will allow us to have ready cash to re-enter the market when asset prices decline. If interest rates begin to climb, we will increase the use fixed income products with limited duration. As these shorter maturity bonds mature, we will be able to reinvest in a higher yield environment. As always, we will continue to monitor the economic landscape, and make changes to our models to help ensure that you achieve your long term financial goals.

Craig Davis

Investment Strategist at Financial Insights

Inevitable major market correction? Or just par for the course

             It has been almost three solid years since the US stock market has had a "market correction", usually defined as a 10% or more decline in market valuation.  Phone calls from worried retirees, market hubbub and the general feeling that this bull has run a bit too far has put investors on the defensive, wondering  if and when we will see a decline.  Many have just recently become comfortable with holding equities again and  are  starting to wonder how to put their money to work in the current potentially high valuation environment.

         The Facts:

*The S&P is up over 185% since its 2009 low and is trading at 19 times earnings.  Since 1871, the historic average P/E Ratio has been 15.51 times earnings.

*Market corrections historically happen every two years and it has been almost three years since we have seen a decline

There HAVE been correction gaps in our recent history with the most notable being both the 82 month gap between November 1990-November 1997 (6.8 years) and the 54 month gap between March 2003-October 2007 (4.5 years).  Also, the bull run of 2003-2007 stocks spent a year trading north of 20 times earnings.

The Questions:

*Does this mean that the market is overvalued?
  Yes, more than its historic average by 25.6%
*Does this mean we will have a market correction in 2014?
Not necessarily, in the past 25 years we have seen multiple markets continue their bull run for an additional one to three years.

*How to build protection:

During times when the market seems overvalued consider your short term expenses.  Consider keeping cash in your portfolio to cover the next 1-2 years.  Talk with your advisor about the best way to prepare for the short term while keeping cognizant of your long term goals.

We cannot predict a market correction, the market runs in cycles: some years will be positive and others negative. The best course of action is to stick with your long term investment strategy and remember market corrections are the best time to purchase stocks on sale. It is important to not become the "average investor" and let your emotions drive your investment decisions. Staying disciplined will prove beneficial to your long term goals.

-Ali A. Criss, CFP