The Infamous 401(k) Rollover…The Why and The How

You leave a job and you have money in a 401(k) what should you do with it?

Podcast Details:

Podcast Title:   The Infamous 401(k) Rollover:  The Why and The How
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

Powerpoint Slides

Questions/Issues We’ll Address on this Episode:

  • There are two buckets of money…qualified or non-qualified (5:00)
  • What is a 401(k)? (6:00)
  • Is it mine?  (6:35)
  • Can I roll this into my new employer’s plan?  (10:35)
  • Can I still participate in my former employer’s plan?  (11:30)
  • How should I invest my  401(k)?  (12:33)
  • What is an IRA?  (15:35)
  • Why would I want to rollover my 401(k)? (17:00)
  • The steps to a 401(k) Rollover (19:00)

 

#financialliteracy #finlit #finance #financialplanning #financialeducation #advice #financialadvisor #money #finances #taxes #tips #retirement #investing #401k #401kplanning

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

Where to Find Us:

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#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com

Are We Winning the Fight for Financial Literacy?

Are we winning the fight for financial literacy–what do you think? What influences our purchasing decisions and is that “force” the loudest of all voices? I’ll tackle this important subject this week.

Podcast Details:

Podcast Title:  Are We Winning the Fight for Financial Literacy?
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

Questions/Issues We’ll Address on this Episode:

The Question–“Are We Winning the Fight?” (2:25)

What drives or influences our spending decisions?  (5:30)

The influences that marketing has on us are undeniable.  We are constantly bombarded with the message of CONSUMPTION to, if not drive decision making, definitely influence our decision making.

What is US consumer spending?(8:00)
Domestic consumption of goods and services is near 70% (per the Bureau of Economic Analysis or the BEA).  This is measured by PCE or “personal consumption expenditures”. How much of that do you think is a result of the “Marketing Machine’s” influence?
What are the Facts? (9:40)
So how many people actually learn the basics around cash flow management, budgeting, saving or investing in high school?  or even college?  Here are some sobering statistics…
    • Per the WSJ, the US ranked 14th in a 2015 global study conducted with a grade of just 57%
    • As of May 2016, only 17 states require high school students to take a course in personal finance.
    • Another independent study that about 1/3 of students took a personal finance course in college
Two Articles from WSJ I reference:
Another Independent Study:
Past Problems (12:20)
 I think the most notable problem of the last decade was the US Housing crises where would-be homeowners were SOLD the idea through marketing that homeownership was good (which it is) regardless of your level of income and financial situation.  We needed more educated consumers back in the early 2000s (when was the bill passed?) that could have navigated the relaxed lending standards that allowed them to secure mortgages they couldn’t afford.  (What was the debt-to-equity ratio or the home ratio 1 or 2 back then compared to what it should be?)
Current/Future Problems (15:15)
Have we learned from our mistakes?  I don’t think we have or at least our children haven’t.  The next domino could indeed be something that is ironically enough, “in the name of education”–student loans.  Student loan debt is #2 on the list behind mortgages in the consumer credit market.  Per the St. Louis Fed, the number of student loans outstanding has increased 300% since 2006.
This all points to a problem of lack of education efforts towards financial literacy to keep consumers ignorant as to the consequences of their purchase decisions.
Solutions (19:30)
    • Start with earlier, more relevant education to younger students (my wife as a school teacher);
    • Financial services industry needs to take a more proactive to educate through pro-bono work;
    • Post-secondary lending standards need to be raised to stop the bleeding

#financialliteracy #finance #financialplanning #financialeducation #advice #financialadvisor #debt #studentloans #finlit #money

Submit a “Boot Camp Listener” question

Sign up for more our free newsletter with financial updates like these!

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

Where to Find Us:

Facebook-Icon78-3 twitter-icon youtube google
#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com

The Evolution of the Retirement Landscape

So I recently penned an article entitled: “Executive Compensation: A Guide to Building Wealth” (send me an email to get the article) and I wanted to use a podcast segment to take a high-level view at the purpose behind that article, and talk about the evolving retirement landscape that I’ve witnessed in my years of practice.

Podcast Details:

Podcast Title:  The Evolution of the Retirement Landscape
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.
(HEAD OVER TO YOUTUBE FOR THE VIDEO VERSION)

 

Questions/Issues We’ll Address on this Episode:

So I recently penned an article entitled:  “Executive Compensation:  A Guide to Building Wealth” (send me an email to get the article) and I wanted to use a podcast segment to take a high-level view at the purpose behind that article, and talk about the evolving retirement landscape that I’ve witnessed in my years of practice.  Per the Survey of Consumer Finances conducted by the Federal Reserve Board, the number one reason for individuals to save and invest is to fund their retirement.  With the evolution of the retirement landscape over the past three decades, the creation of defined contribution plans like the 401(k) has shifted the responsibility to individual investors to provide income for their retirement years.  Prior to that, defined benefit pension plans put the responsibility on corporations to provide retirement benefits. This was a fairly sophisticated process involving actuaries and large investment firms which had the responsibility to provide investment returns that provided benefits to thousands of workers.  Due to a multitude of factors including reduced corporate profit margins, increased fixed costs from globalization and subpar returns from lower interest rates, this giant responsibility has been handed off to individual investors living busy and complex lives. The logical question is: “How equipped is today’s business executive to deal with this new responsibility”? And further, “Can a successful retirement be achieved without proper financial advice?”

  • What are the IRS limits on contributions to qualified plans? (3:10)
  • The Human Capital Exchange “80,000 hours” defined (8:30)
  • The Evolution of the Retirement Landscape (9:35)
  • Can you have a successful retirement without the proper advice (15:00)
  • The “Unfunded pension crisis” and whether to take the lump-sum distribution (19:20)
  • Company Stock options (21:40)

#financialliteracy #financialplanning #financialeducation #financialadvice #financialadvisor #retirement #qualifiedplans #nonqualifiedplans #executive compensation

Submit a “Boot Camp Listener” question

Sign up for more our free newsletter with financial updates like these!

Subscribe to the podcast!

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

Where to Find Us:

Facebook-Icon78-3 twitter-icon youtube google
#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com

What the FED is Doing is Irrelevant and Here’s Why!

In talking to many clients, I realize there may be a false notion going around that suggests the FED is not doing a great job executing fiscal and monetary policy.  Actually, economic theory suggests that our government (separate from the FED) is responsible for determining fiscal policy (e.g. taxes, trade, etc.) while the FED is to carry out monetary policy. However, these two roles have been co-mingled over time, so it seems worth evaluating the question of whether the FED is doing a good job or not.  In the 1940s, an economist named Abba Lerner explored the doctrine of functional finance. It basically states that:

The first financial responsibility of the government (since nobody else can undertake that responsibility) is to keep the total rate of spending in the country on goods and services neither greater nor less than that rate which at the current prices would buy all the goods that it is possible to produce.

In that context (which I deem as very sound), let’s tackle some simple questions…

Q.  What is the goal of monetary and fiscal policy?  

A.  To keep aggregate demand (e.g. total spending in the economy) at the level of aggregate supply (e.g. total amount of goods and services in the economy).

Q.  What is the result of any imbalance?  

A.  This is a very loaded question.  But when aggregate supply exceeds aggregate demand this will result in unemployment since the level of goods and services being offered has not enough demand to consume them all.  The providers of those goods and services will then be forced to lower prices which will cut profits and cause less business expansion thereby reducing the need for labor (e.g. a decrease in the rate of employment).  When aggregate demand exceeds aggregate supply this will result in inflation since the level of goods and services being offered is not enough for all that would like to consume them.  Thus the providers of those goods and services will tend to raise prices causing the consumer’s purchasing power to be eroded.  Although inflation is always a much easier problem to handle (vs. unemployment) the government only has two ways to control it:  raising taxes (e.g. adjusting fiscal policy) which reduces the amount of income left available for consumption or raising of interest rates (e.g. adjusting monetary policy and carried out by the FED) which makes consumers less inclined to borrow to bring future consumption forward into present-day consumption.

Q.  How does the government get into the picture?

A.  When the FED is ineffective in employing its tools to regulate the economic cycle, economic theory would suggest the government get involved as a last ditch effort to “save” an economy from recession or depression.  One example would have been the Great Recession (2007-2009) where the government raised the level of consumption by purchasing government bonds.  How did this help?  When the government bought bonds the proceeds from the transactions where passed to the holders (e.g. banks, financial institutions) through “quantitative easing”, thereby giving these institutions the wherewithal to increase their lending facilities.  The more money a bank has on deposit the more it can lend to prospective borrowers.  This was designed to compel consumers to pull future consumption forward by borrowing more at much lower interest rates.  However, this has its consequences as inevitably interest rates can not remain artificially low for an extended period of time less too much borrowing occur or the effect of quantitative easing becomes moot.  I believe the last 7 years are evidence both happened.

Q.  What is the effect of too much borrowing by the government?

A.  Not much, especially if you subscribe to Lerner’s doctrine.  Ultimately the government’s control of how much currency is in circulation nullifies the rate at which it repays its debts.  The more important focus is the government’s use of borrowed money.  It is usually to increase aggregate demand or increase the level of spending.  The question is always then how effective is this employment of borrowed funds, not how much have they borrowed.

Q.  What is the effect of too much borrowing by non-government entities?

A.  Since low interest rate policies (“LIRPs”) don’t place restrictions on who can and cannot borrow, one popular outcome is the carry trade.  One example of this has been seen in the last several years, in which USD was borrowed at low interest rates to buy foreign securities and currencies that paid higher rates of interest.  The difference between the cost of borrowing and the interest paid was called the “carry”.  Many analysts believe this phenomenon artificially pushed up the value of securities in the global financial markets causing market valuations to trade well beyond their actual worth.  On the other hand, there is also evidence pointing to borrowed cash being “sidelined” or not invested and just hoarded inevitably waiting for the next financial collapse.  The latter theory is less popular, in that, in the short run this is a relatively costly trade because there is no return being earned on sidelined cash.

Q.  What is the “so-what” of all this?

A.  Ahhhh. A much easier question to answer with a definite answer.  Regardless, of all the economic theory that can be supposed, we are living in very unconventional times.  The need for investors to earn a return for assumed risk should be paramount, but has taken a backseat to the need to avoid market volatility. At the end of the day, financial market complexity may be at its apex thereby justifying the need for prudent asset selection with constant monitoring.  An investor should consider setting realistic goals in a systematic way with the assistance of a financial professional.  Whether you think the FED is doing a good job or that government spending is out of control, your investment plan will need to be constructed to withstand the test of time; inevitably requiring it to resist the ups and downs of several economic cycles.  Time after time, I’ve seen the most successful investors create a sound plan and remain with that plan to achieve their financial goals. In that context, it really doesn’t matter what the FED does as much as what YOU do.

Invest wisely!