On Monday Feb. 5 the Dow Jones Industrial Average suffered its largest one-day drop ever, falling nearly 1,600 points in the middle of the day before closing 1,175 points below the prior day’s close to register a one-day drop of 4.6 percent. In the intervening days the Dow, along with the rest of the stock market indices, appear to have stabilized somewhat and traders have bid prices back up – at least in the short term. The initial catalyst for the selloff was a sudden fear on Wall Street that inflation and interest rates might rise more rapidly than previously thought. High interest rates cut into corporate profits and so a re-evaluation of what corporate shares are worth caused a number of investors to trim their holdings in equities. But what happened next is the real story. To understand why stock prices experienced such drastic swings over the past week, we have to go back almost two decades to when Wall Street firms like Goldman Sachs, Merrill Lynch and others invested heavily in computer technology and human capital to take the guess work out of investing and also make their trading more efficient. The big Wall Street banks sent recruiters to prestigious institutions like MIT, Cal Tech and Stanford to find and hire the most talented mathematicians and computer scientists to study the stock market and design trading strategies that would bring mathematical precision to the decision-making process and tie them to the most powerful computers to execute trades in fractions of a second. These mathematicians designed what are called “algorithms.” Algorithms are a specific set of clearly defined instructions aimed at carrying out a task or process. A simple algorithm can be found in your home’s thermostat. The thermostat is programmed to turn the furnace on when the temperature falls below a pre-determined degree. Trading algorithms, by contrast, are extremely complex with pre-determined factors running in the hundreds. One… | Read More »
Few things cause sleepless nights like the offer of a voluntary severance package. You wonder, as you toss and turn, whether you’ll be able to support yourself and your family if you accept your company’s offer, and whether you’re being foolish if you pass it up. You might be upset and, especially if you’ve worked at the same company for many years, you might be afraid of what the future holds. The good news is that you have the opportunity to analyze your financial situation and resources available to help you decide. In the 30 years we’ve been in business, we’ve counseled plenty of clients through the VSP maze, and we can help you. In fact, we’re offering a free consultation to anyone facing a voluntary or involuntary severance program. Meanwhile, here are seven things you should consider before you decide whether to participate in a voluntary severance program: The likelihood that your job will be eliminated entirely. An honest industry assessment should give you a good idea of whether innovations and/or consolidations threaten your specific job. If this is the case, you may be better off taking the severance program and make good use of your company’s employee assistance program to refine your skills and update your resume for the next phase of your career. Your age. Consider your full retirement age, which varies based on the year you were born. How close are you? Will the severance be enough to tide you over until you can withdraw from your IRA without penalty? Your current financial needs. Perhaps delaying your severance will give you more time to build up a cushion. Take a look at your budget, which will not only give you an idea of how much readily available cash you’ll need, it will also highlight areas you can trim. Tax implications. Does your severance include a lump sum payout? Will it bump you into a higher tax… | Read More »
The first and most important step toward financial health is education. All other steps follow that one. As retirement options become increasingly sophisticated, fine print consequently more lengthy, and pensions decidedly rare, investors need to work harder to understand the impact of the important choices they make. Fortunately, access to quality financial education has improved. Podcasts, blogs, books, seminars and financial education classes all offer plenty of valuable information, most literally available at your fingertips. Of course, you need to check your sources and be leery of sales pitches, but that still leaves a wide variety of legitimate options. Winch Financial offers financial classes in several locations through the University of Wisconsin continuing education system and, while we cover the information in our syllabus, we also tailor each class to its participants because finances are personal and everyone’s risk/reward profile is unique. We also send out a weekly commentary, which not only covers what happens in the stock market each week, but also offers some explanations behind the moves. Many of us subscribe to a variety of financial podcasts. We also follow Dave Ramsey and have taken his Financial Peace University course. If you do one thing for your retirement this year, we urge you to educate yourself. That education is going to lead to other tasks, so here are a few more steps you can take to get financially fit this year: Track you expenses. This may seem like a tedious task (because it is), but you can make it easier by making it part of your daily routine. Digital banking has made it easier to categorize expenses and we find that seeing where your money goes makes you much more intentional about your spending. Once you’ve tracked your expenses for a few months, you can set a realistic budget pretty easily. Random budgets waste time. The best budgets develop from your own spending habits. Change your passwords. This… | Read More »
Though it may feel like coal in your Christmas stocking at first, our Christmas Cash Challenge really is a way to give yourself the kind of present that lasts throughout the year. Let your credit cards be your adult elf on a shelf and stash them in places you can’t reach easily during the Christmas season. Without quick access to them, you can avoid spontaneous over-spending. A cash-only Christmas requires discipline, but it’s the kind of hard work that makes you and your presents more thoughtful and genuine. Anyone can click a link and mass purchase an eye-catching trinket. To find the true spirit of Christmas, and save yourself the true pain of February bills, you need to think hard about all of the special people on your gift list and remember that the best gifts come from your heart, not your credit line. You’ll have far less buyer’s remorse when you pay with cash because you only have to think how much you’ve spent once – at the time of purchase. Pay with a credit card and you think about the cost three times – when you’ve made the purchase, when you receive your credit card bill, and when you pay that bill. Cash purchases are much cleaner. It’s harder to part with cash when you can watch it dwindle from the palm of your hand. You can swipe your credit card pretty effortlessly but, while the card itself will still look shiny and new, that tiresome debt will continue to accumulate. Celebrate St. Nick Day the old fashioned way, with cash. We challenge you to put your credit card away for all 19 of the remaining shopping days until Christmas. We promise you’ll be glad you did.
With a record setting stock market, and the earliest Thanksgiving the calendar allows, most people have more time and money for their holiday shopping than ever. From Black Friday to Christmas Eve, shoppers will have 31 days to buy presents and holiday décor. That’s a fa-la-la-la-long time to resist temptation and over-spending. For inspiration, we say look to the big guy. Everyone knows Santa makes his list and checks it twice. We think you should too. Armed with a list, you’ll be less tempted to pick up frivolous items, or to hit Amazon’s one-click shopping button a few too many times. As the economy rolls along, and retirement accounts grow plump, it’s tempting to let yuletide generosity fill you up like grandma’s homemade egg nog. Black Friday! Small Business Saturday! Cyber Monday! Giving Tuesday! You can hashtag yourself right into some serious debt. If you haven’t made a holiday list yet, start now. Really. Open a spreadsheet and get going. Or, grab a reliable pen and jot. First, take a realistic look at your budget and set an amount you can afford to spend on the holiday season. Next, list the people for whom you plan to buy gifts. Don’t forget to include hostess gifts and the like. If you think you need a new outfit for the office Christmas party, add that to the spreadsheet. Likewise, those icicle lights you’re adding to the front yard display this year. Set a budget for any holiday parties you plan to host this year, and think twice about all the extra restaurant meals you plan to grab while you run around town. We’re not asking you to Ebenezer your way through the season. We’re all for reciprocal joy. We’re just saying don’t get carried away. Make a plan, stick to it and know that February will feel a lot jollier if you ho-ho-hold back a little on your holiday spending.