What’s On Our Minds:
As talk about negative interest rates in Europe and Asia increases in the financial news, we’ve received more and more client inquiries asking what this means for global markets and their portfolios. After all, the financial system is built around positive interest rates, and the current overseas rate structure seems to be “upside down.” We spend a lot of time thinking about, discussing and structuring portfolios around various interest rate scenarios, whether they be positive or negative. We’ll first explain how and why rates can go negative, and then discuss the chances of negative rates entering our domestic financial system.
A negative interest rate policy means that a central bank will charge commercial banks negative interest: instead of receiving money on deposits, depositors must pay to keep their money with the bank. Central banks, specifically several in Europe and Asia, have introduced such a policy to stimulate their weak economies and increase inflation levels, which have been well below comfortable levels. By introducing negative interest rates, it is hoped that commercial banks will lend more money at very low interest rates. Doing so should entice bank customers to borrow more, spend more, and save less, thus boosting economic activity. As importantly, negative interest rates often drive down the value of a country’s currency, making its exports more affordable and competitive with overseas trade partners (which also helps economic growth). Banks must be careful, though, to avoid the specter of deflation.
While negative rates in the US are always a possibility, we think that such a scenario is highly unlikely, as the domestic economy would have to get much worse before the Fed would contemplate such a move. We are not forecasting such weakness or a related recession in the near term and therefore do not foresee negative rates in the US during this economic cycle. Moreover, introducing such a strategy would be an extreme move in the history of our country’s monetary policy. Such a move would likely have broad political implications, possibly provoking Congress to limit the powers of our country’s central bank.
Last Week’s Highlights:
Strength continued in the equity markets, as stocks posted solid gains for the third week in a row. The Dow rose 2.2% for the week, the S&P 500 was up 2.7%, and the Nasdaq increased 2.8%. Many investors are becoming more confident in the US economy’s growth (slow growth though it is), and talk of a recession in the near term is less alarming.
Friday’s jobs report came in well above expectations, with the US economy adding 242,000 jobs in February (above economists’ 195,000 estimate). The unemployment rate remained 4.9% (as expected by the Street), and wages declined 0.1% for the month.
Looking Ahead:
Front and center for investors this week will be Thursday’s meeting of the European Central Bank (ECB), which is expected to push a key interest rate even further into negative territory. Doing so would boost its current stimulus program in order to help economic growth in the Eurozone. More volatility is expected with this week’s meeting, especially if the ECB provides less stimulus than investors are anticipating. Please read our thoughts on the negative interest environment and its impact on global markets (in the above “What’s On Our Minds” section).
There is little US economic data to be released this week, so all eyes will be on Europe.
What’s On Our Minds:
In the last two and a half weeks, the S&P 500 is up nearly 8%. This weekend, we were asked, “Does this mean that the market will go down again before it goes up more?” Our response was, “Yes, either that, or it will go up more before it goes down again.” The upward movement doesn’t seem to be because of any fundamental shift. Rather, what is improving is sentiment, the” wild card” of the market. The market recovered from its despondency that was building as a result of China worries, oil prices (fears of $20 crude), credit weakness, and more. Then, we got better US data, a rally in crude, waning China concerns, and the Fed came out against negative interest rates.
We are a bit worried, though, about pro forma (adjusted) earnings that have been reported over the last year vs. GAAP earnings (those adhering to strict accounting rules). While there can be good reason to present adjusted earnings that do not “reflect the realities of the business as a going concern,” a market-wide trend in the ballooning of these adjusted earnings is a bad sign. Adjusted numbers show that earnings grew just 0.4% last year, a very poor showing as it is. But the more-stringent GAAP numbers show a 12.7% earnings per share decrease, a number more reminiscent of 2008. Could stocks be more expensive than market participants believe them to be?
Last Week’s Highlights:
Last week was another relief, as stocks rose farther out of their earlier depths. While not as stellar as the previous week, it was still very rosy, with the Dow up 1.5%, the S&P 500 up 1.6% and the Nasdaq up 1.9%.
Looking Ahead:
Economic numbers come out this week- that is, real fundamentals. We will see the manufacturing price index PMI on Tuesday, auto sales also on Tuesday, and February US jobs on Friday. Something we will certainly be watching are the results of Super Tuesday’s primary races. We can’t make any hard calls at this point but the leaders in both parties are looking more and more inevitable…
The Baltimore Business Journal featured Tufton, and explained our vision of rebranding the company for a new era. Click here to read the article.
The Baltimore Sun featured Tufton, and briefly explaining our vision for the rebrand. Click here to read the article.
Effective February 23, Hardesty will being operating as Tufton Capital Management, LLC
Hunt Valley-based Hardesty Capital Management has rebranded and officially changed their company name to Tufton Capital Management effective immediately. The independently owned investment advisory firm is one of the largest in the region with nearly $1 billion dollars in assets for individual clients and institutions.
The firm previously known as Hardesty was founded in Baltimore, Maryland in 1995 by Jim Hardesty and Randy McMenamin. The namesake of the company, Jim Hardesty, retired from the firm in April of 2015 and passed away the following month. In explaining the name change, Chad Meyer, President of the firm remarked “The Hardesty name will always connote trust, financial acumen and a deep devotion to our clients. We feel strongly, however, that the contributions of all of our employees, and not just those of our co-founder, be reflected in our corporate name. While Jim Hardesty’s legacy and invaluable contribution to our organization will live on, we believe that a new name will best represent our entire firm as we move forward.”
The Tufton Capital Management name was selected after a thorough evaluative review and was ultimately voted on unanimously by the entire firm. The offices of Tufton Capital, a 13 person firm, overlook the beautiful Tufton Valley of northern Baltimore County. The company will celebrate their 21st anniversary this year.
Tufton Capital Management is an independently owned wealth management and investment advisory firm located in Hunt Valley, Maryland with nearly $1 billion in assets for individual clients and institutions. The 13-person firm, founded in 1995, provides a value-oriented investment approach to high net worth individuals, families and institutions.
For more information, please contact Dana Metzger Cohen or Karen Evander at Clapp Communications at 410-561-8886 or dana@clappcommunications.com or evander@clappcommunications.com.
What’s On Our Minds:
Recently, equity markets have been volatile and wild intra-day price swings have many investors on the edge of their seats. In times like these, it’s more important than ever to stick to your guns and focus on your long term portfolio. In this sort of environment, we are reminded of Ben Graham’s “Mr. Market” whose view on an individual company’s share price changes from wildly optimistic one day, to overly pessimistic the next. According to Graham, the only way to beat Mr. Market was to perform fundamental analysis on a company to determine it’s fair market value and trade shares with Mr. Market accordingly. This oversimplified version of investing rings true today.
Last Week’s Highlights:
Last week was a breath of fresh air for investors as stocks rose out of correction territory. We saw the best week of the year with the Dow up 2.6%, the S&P 500 up 2.8% and the Nasdaq up 3.9%. Crude oil prices rallied last week on news that Saudi Arabia and Russia would agree to freeze production levels as long as other countries agree to participate. The Federal Reserve said that they would not change their economic outlook for the year but would keep a close eye on the global economy and developments in both the energy and stock markets.
Looking Ahead:
We will be monitoring economic and company data this week as we reach the end of 4th quarter earnings season. On Tuesday, January Existing Home Sales will be reported and J.M. Smuckers, Home Depot, and Macy’s will report earnings. On Wednesday we will see results from Target, HP, and Lowe’s followed by Campbell’s Soup, Best Buy and Kraft Heinz on Thursday. Finally, on Friday, J.C. Penney and EOG Resources will report their 4th quarter results and we will get a look at January’s consumption and personal income levels.
What’s On Our Minds:
Early Tuesday morning, it was announced that four oil producers (importantly Saudi Arabia and Russia) will “freeze” oil production levels. Though this may seem as a sign of higher oil prices, production levels for both the world’s largest producers were at an all-time high in January. However, a compromise among these producers appears to be an apparent sign of financial stress in these commodity dependent economies. If the price of oil does not stabilize or move higher, additional deals could be on the table. Furthermore, the markets have been consistently focused the price of oil as investors have increasingly been quick to sell their stock positions when the oil price declines.
Last Week’s Highlights:
Stocks rallied on Friday before the long-weekend as West Texas Intermediate crude oil had the largest daily gain since February of 2009. Nevertheless, markets were still down for the week without a clear catalyst for a global selloff. Investors cited a multitude of reasons for the market turmoil. The list included, but was not limited to Federal Reserve Chairman Janet Yellen’s observation that she was not in a hurry to raise interest rates, investors taking money out of China due to an economic slowdown, fear of slowing growth in United States, and additional in declines the price of oil. As a result of Chairman Yellan’s view for lower for longer interest rates, the financial stocks were the worst performers declining 2.4% on the week.
Looking Ahead:
This week, investors’ eyes will be on data for January housing starts and building permits on Wednesday morning. Housing starts have recently been hurt by harsh winter weather around the country. Following housing data, investors will get a gauge of the industrial sector with the release of Industrial Production. Output has been in decline since the beginning of the fall in the price of oil in mid-2014. And lastly, it will be hard to forget about South Carolina Republican Primary this weekend. This Primary is historically known for dirty politics – get your popcorn ready.
What’s On Our Minds:
Just as the Broncos and Panthers went into Super Bowl 50 with a game plan, investors are re-positioning themselves for what many expect to be a year of decelerated growth. Thus far in 2016, it appears investors are going on the defensive as consumer staples, telecom, and utility stocks have held up during sell offs. Meanwhile, financial, healthcare, consumer discretionary, and technology stocks (which largely led the market in 2015) have sold off in face of a slowdown in the global economy. Although nobody welcomes an economic slowdown, as a value-focused firm, we are reassured that our inherently defensive investment approach prepares our clients’ portfolios for this type of environment.
Last Week’s Highlights:
The volatility continued, with Friday capping off yet another turbulent week. Investors focused on oil, the US economy, and weakness in various industries’ corporate earnings, and there was not much good news to be delivered. The Dow Jones fell 1.6% on the week, and the S&P 500 dropped even more, closing down 3.1%. Technology shares were especially pressured, as earnings from companies such as LinkedIn (LNKD) and Tableau Software (DATA) disappointed shareholders. The tech-heavy NASDAQ finished last week down 5.4%.
Friday’s jobs report came in below expectations, with the US economy adding 151,000 jobs in January (below economists’ 190,000 estimate). While the figure was slightly disappointing, other employment data was more promising: the unemployment rate dipped to 4.9% (from 5%) and average hourly earnings increased 0.5% in January.
Looking Ahead:
While earnings season is nearing its end, we’ll see 65 more reports this week from S&P 500 companies, including Coca-Cola (KO), Disney (DIS), Time Warner (TWX) and Cisco (CSCO). Of the 315 S&P companies that have reported so far, 77% have beaten earnings estimates, while only 46% have beaten revenue expectations. For the quarter, earnings have declined by 6% and sales by 5%.
The economic calendar remains relatively light this week, although reports on retail sales, import and export prices, and consumer sentiment will be released on Friday. Comments from Fed Chair Janet Yellen will be closely monitored this week, as she’s scheduled to deliver her semi-annual testimony to Congress on Wednesday and Thursday.
What’s On Our Minds
Everyone has been talking about oil, so let’s revisit the energy markets this week. Oil is solidly above $30 a barrel- which sounds great until you remember that even sub-$50 was unthinkable not long ago. Talks and rumors abound suggesting that major oil-producing countries, if they perhaps aren’t about to enter a “grand bargain,” will at least move to stop the free fall. Additionally, some major US shale companies announced capital expenditure reductions, meaning 2016 supply should come down.
Also, what happened to the “oil dividend”? Prevailing theory is that a reduction in oil prices is like a check made out to the American consumer. Consumer demand hasn’t been awful (see chart), but it hasn’t been great, either. It seems Americans are saving their gas station discounts.
Last Week’s Highlights
Last week’s numbers were saved by a big rally Friday that turned what would’ve been a down week into a gain of 1.8%. This is the second week of gains in a row, easing some concerns, but we must not (and we certainly don’t around here) forget that we are still down 5% for the year.
Looking Ahead
On Monday morning, the Institute of Supply Management (ISM) released their manufacturing PMI for the US, coming in at 48.2 vs 48.0 last month. Any reading under 50 indicates contraction. The Purchasing Manager’s Index indicates that manufacturers are still feeling the effects of global issues here in the US. We try not to get political here, but we will all certainly be closely watching the Iowa caucus and a new president’s potential effects on the US’ business environment.
As we look back at last year’s financial market results, it appears at first blush that we had a very quiet, uneventful twelve months in the investment world. The Dow Jones Industrial Average (DJIA) increased a mere 0.2% (including dividends), while the S&P 500 eked out a 1.4% total return. But like the proverbial duck, calm on the surface but paddling like crazy underneath, there were indeed extensive market-driving global events throughout 2015 and the volatility that ensued.
Last year’s activity began with quantitative easing (QE) from the European Central Bank, followed by a spike in bond yields. As the year continued, we experienced the Greek drama, a stronger U.S. Dollar, a continued slide in commodity (namely oil) prices, and ongoing concerns over growth in China and other emerging markets. The terrible events in Paris in November and the increased threats of global terrorism continued to dominate headlines. And let’s not forget the Fed! After months of “will they or won’t they”, Federal Reserve Chair Janet Yellen and her Committee presented us in December with the first shortterm interest rate increase in almost ten years.
What do these events mean for investors as we look into the future? The volatility we are experiencing serves as a reminder: markets “climb a wall of worry” in the long term. That is, while things can and do get very choppy, investors need to hold on and stick to their long-term goals. Part of our job at Hardesty Capital Management is to guide our clients through these turbulent times, helping them to focus and not react emotionally. Back to the proverbial duck, our role is to analyze and manage the “craziness” that exists beneath the surface. Our goal is that this allows our clients to live calmer lives and focus on other, more important things.
We begin this quarter’s Hardesty Horizons with our firm’s outlook for the economy and financial markets beginning on Page 2. As you’ll read in our investment analyses throughout Hardesty Horizons, we continue to be cautious but still positive on the equity market and are forecasting a low single-digit percentage gain for stocks this year. While we anticipate a slightly positive year for equities, we foresee another year of significant volatility in getting there.
Also included in this Horizons issue is a timely discussion starting on Page 4 of the benefits of value investing over the long term. The investment professionals at Hardesty Capital Management have long subscribed to the value philosophy, seeking to purchase a dollar’s worth of assets for fifty cents. We continue to be confident that value investing will outperform growth investing over a full market cycle.
This quarter’s Hardesty Horizons analyzes one of our favorite stock ideas for the New Year: Qualcomm (QCOM). While QCOM’s business of making semiconductors might not be overly exciting to some, the company’s prospects and stock’s valuation excite us! Finally, our article on Pages 7-8 discusses the complications of transferring wealth to the next generation and how to avoid possible pitfalls.
As we enter our third decade in business, we’re as optimistic and excited as ever about the outlook for our clients and our firm. We wish all of you a very Happy New Year, and thank you again for your continued support!
A surge in the stock market over the closing two weeks of the year allowed the S&P 500 to post a positive total return of 1.4% for 2015. This meager return is more than welcome given the market’s mid-summer swoon of 10% and an increase in volatility prior to the Federal Reserve’s decision to increase short-term interest rates in December.
Although we flip the calendar to a new year, many of the headwinds buffeting the stock market persist. The U.S. Dollar remains strong, in part because Europe, China and Japan are stimulating their economies while the Fed is taking steps to limit future inflation. In turn, the strong Dollar has a pronounced negative impact on reported revenue and earnings by those U.S. companies with extensive international exposure. Further, the highly valued Dollar keeps a lid on energy and other commodity prices. Lower energy prices will reduce output in America, leading to slower economic growth in the short term. The impact of a strong Dollar and weak overseas markets can be seen in returns from the different major stock market indexes. The industrial-rich Dow Jones Industrial Average has now underperformed the S&P 500 and the NASDAQ for the fourth consecutive year.
The economic windfall provided to consumers from lower energy prices has not fully percolated through the economy. Instead, savings rates have increased. Expectations were for savings at the pump to be spent in other areas. Higher savings rates may portend a lack of confidence in our economy – a troubling development. Similarly, the popularity of Donald Trump may be a reflection of a loss in confidence and the dissatisfaction with the status quo.
Federal Reserve actions will also continue to impact the markets. We continue to believe the Fed will move slowly and deliberately. William McChesney Martin, Jr., the Chairman of the Federal Reserve from 1951 to 1970, once said that the Fed’s job is to take the punch bowl away just as the party gets going. From the depths of the recession in 2009 through the first half of 2015, average annual real gross domestic product growth in the U.S. has been just over 2%. This doesn’t exactly constitute a party. Although the first few rate hikes may remove a few hors d’oeuvres, the punch is still flowing.
A few additional areas of concern have emerged during the course of the year. The value of merger and acquisition activity involving U.S. companies has reached $3 trillion. Prior peaks of $2.25 trillion in 2007 and $1.75 trillion in 1999 preceded recessions. The lack of organic growth has companies turning to M&A to provide the growth that investors expect.
The compression of interest spreads in U.S. Treasury yields has also entered our radar screen. The Fed’s decision to begin raising short-term rates has had little impact on the 10-year Treasury. While the Fed has great sway over short-term rates, longer-term rates are controlled by the market and expectations for growth. A critical level for the spread is at the point of inversion, which occurs when the short-term rate actually exceeds the longerterm rate. The scenario is a good indication of a looming recession. We are not close to inversion yet, but the spread contraction is something we monitor very closely.
The upcoming presidential election will certainly begin to shape the investment landscape. It is difficult to handicap the race, especially for the Republican Party. However, with the left and the right pulling further apart, gridlock may be the end result. In any case, we continue to monitor the candidates and their platforms to determine the impact on your portfolios.
Not to be completely overshadowed, the economy continues to expand and the employment ranks grow. A late-year budget deal included increased government spending without raising taxes, which should boost our GDP by as much as 0.5% next year. Equity valuations are not cheap, but at the same time they are not excessively high. We anticipate below-average equity returns for 2016 with the S&P 500 delivering a total return of around 3%. We remain cautious but opportunistic in our equity investments.
The bond market has also experienced gyrations this year. Most of the action has been in the high-yield area. Many energy companies, having incurred high amounts of debt to build infrastructure to capture abundant deposits, have fallen on hard times as both oil and natural gas prices have collapsed. Bond prices have fallen and liquidity is now a concern. Investors who entered the space in a hunt for yield may precipitate further weakness as they head for the exit. Our investment-grade strategy has held up well. We own bonds for their stability and steady income. Equities are the asset class for risk-taking.
Given our outlook for modest interest rate increases, our primary concern is credit risk, not interest rate risk. Credit risk reflects the issuer’s ability to make interest and principal payments. Interest rate risk reflects price changes due to movements in interest rates. As interest rates move higher, the price of a bond with a fixed rate of return will move lower. Although interest rates are still at very low levels, we have started to extend maturities as rates have crept higher from the depths reached in 2012.
Each new year presents uncertainty and unique challenges, and 2016 will be no different. We appreciate your support and confidence as we work hard to add prosperity to your New Year.
Generally speaking, there are two schools of investing: growth and value. Growth investors look to invest in companies that are normally growing their sales, earnings, and perhaps customers at a rate well above the typical company. A successful growth company firing on all cylinders and achieving the above factors often leads to the company’s stock outperforming the broader market. However, when the markets start to decline and overall growth is anticipated to slow, growth stocks frequently decline more than the market. On the other side of the spectrum lies value investing. Often, value investors are more risk-averse and first look for the downside scenario that might face a company. With the downside determined, value investors attempt to buy the company’s stock at a discount to the estimated intrinsic value. While the company’s earnings may not grow at a rate faster than or even matching the broader market, the expected downside in the company’s stock price is limited during periods of stock market volatility. As a result, value investing has proven to outperform growth investing over the long term.
The investing styles move in and out of favor depending on what investments are perceived to deliver the best returns. Since the beginning of this bull market in 2009, growth investing has been en vogue as investors have sought companies that are actually growing in a no-to-slow-growth economic environment. 2015 was no exception as Facebook, Amazon.com, Netflix, and Google were among the S&P 500’s best performers. Often known by the acronym FANG, these four companies held up the S&P 500 from further declines during the year, while the average stock in the index was down 18% from its 52-week high.
A handful of stocks leading the market is nothing new to Wall Street. In the late 1960s and early 1970s, investors were enamored with “the Nifty Fifty” which included companies such as IBM, Walt Disney, Coca-Cola & McDonalds. All came crashing down when the bear market arrived in 1974. A similar craze occurred in the late 1990s and early 2000s with several technology stocks, such as Microsoft and Intel, leading the market. Once the “tech bubble” burst, some overvalued technology stocks lost more than 80% of their value. A share purchased in Microsoft or Intel early in the 2000s would, even today, not have made an investor a single dollar.
At Tufton Capital, we practice the value investing philosophy, looking to outperform in bear markets while performing adequately in bull markets. There is no telling when the next bear market will arrive, but one thing is definite – we are currently in the second longest bull market of all time. Our style will come back into favor. Until then, we will maintain our discipline, be patient, and continue to focus on finding a dollar’s worth of assets trading for fifty cents.
We recently welcomed LaShawn Jenkins back to the Hardesty Capital team as an Account Administrator.
LaShawn has over 20 years of experience working as an administrative and customer service professional. She began her career as a receptionist at Prudential Securities, followed by positions at A.G. Edwards & Sons and M&T Bank. LaShawn worked at Hardesty Capital Management from 1996 through 2001 and returned to the firm in 2015. Just prior to rejoining Hardesty, she worked as a Gift Entry Coordinator at Kennedy Krieger Institute.
LaShawn is involved in fundraising and raising awareness for the Cystic Fibrosis Foundation. She is also actively involved in fundraising efforts for the Kennedy Krieger Institute. LaShawn lives in Parkville with her daughter, Amaya.
Help your descendants help themselves by learning about these common wealth transfer problems.
Money can make even the closest family relationships turn ugly. Anticipating the emotional issues attached to wealth transfer can help you avoid them altogether or deal with them more efficiently if they do arise.
Sudden wealth syndrome
Coming into a large amount of money unexpectedly seems great from an outside perspective. However, if an heir receives this money without being adequately prepared for the responsibilities that come with it, he or she can experience something similar to what lottery winners often feel. This instant gratification is often called “sudden wealth syndrome.” Because the heir did not have to work to gain the money and/or may not have talked with his or her predecessor about the work that went into earning the money, it may result in a lack of motivation. The person may find it hard to develop skills like delayed gratification and thrift. Therefore, an heir is more likely to spend the windfall and blow through most of the inheritance. Heirs in this situation often experience frustration, feelings of failure or a false sense of entitlement. They may avoid accountability or withdraw from others, sometimes even developing serious social disorders.
How to fix it
The most important thing to remember to avoid giving your children sudden wealth syndrome is to take the time to communicate to your family the values that allowed you to accumulate your wealth. Children who understand and empathize with the struggle that their parents may have gone through to attain their wealth will feel more of an emotional attachment to this money and will be less likely to spend it all at once. If you feel that your children are not emotionally ready to handle this wealth, consider setting up trusts or placing an age restriction on when your future heirs can inherit their money. This sets up a longer time line and gives the next generation time to mature.
Leadership voids
A leadership void can occur when a family business owner dies suddenly before training the next generation. If it’s not clear who should step up to take responsibility of the business, power struggles can occur among the remaining heirs. Even if financial wealth or the entire business isn’t lost, the vision for the business often is.
How to fix it
If a business is among your assets, one of the first things your wealth transfer plan should establish is how that business will function after you are gone. Will your family continue to run the business, or will it pass through sale to a third party? If you choose to keep it within the family, you will want to set specific role designations for your future heirs. It’s important to remember that “fair” is not always “equal.” For example, if you have two children, one who has worked alongside you in the business for years and understands your business plan and ethics, and one who has shown no interest in the business and knows little about your business practices, you may not want to split the business equally between these children. When making these choices, it’s important to discuss your rationale with your family ahead of time so that your future heirs understand why they are placed in their roles and what is expected of them in those roles.
Trustee-beneficiary relationships
Difficult trustee-beneficiary relationships can occur when families adhere to the “nothing revealed until death” principle of estate planning. If trustees and beneficiaries are not kept in the loop during the planning process, the beneficiaries suddenly find themselves inheriting an unexpected amount of wealth at an already emotional time in their lives. If they haven’t talked to the grantor about the idea of a trust before the grantor’s death, they can feel as though the trustee is standing between them and what they are “rightfully entitled” to.
How to fix it
It’s important to consider who you name as trustee and why. For example, it can be common practice to name a child as a trustee. However, what if you die before your spouse and your spouse then has to ask your son or daughter for principal distributions from a trust? This can create an uncomfortable family situation. It’s important to consider the possible ramifications of who you name as trustee and whether or not they will be able to handle the difficult decisions left to them. Depending on your family situation, it may be best to name a trustee who is impartial to family dynamics.
Property squabbles
Depending on how specific you are in your wealth transfer, there may be certain items that are “up for grabs” in your estate. These items may have emotional value to one of your descendants, or may be culturally significant, such as prominent works of art. This can lead to arguments among family members over who gets to keep what, especially amongst siblings or descendants who may already be prone to fighting.
How to fix it
Depending on the personalities within your family, it might be wise to avoid leaving property division decisions to your descendants. You have the option to try to be as specific as possible in your estate planning documents, or you can name an impartial executor to divvy up your property. If you do choose to leave property division to yourself, make sure you are open and honest with your future heirs about how and why you chose to leave certain things to certain people. Also, you should avoid promising the same piece to more than one person—a tactic that some people use to try to avoid conflict in the moment. Unfortunately, this usually leads to enlarged conflict later on.
Communication is key
Even if you set up a beautifully planned wealth transfer with a variety of financial strategies and your financial planner executes it perfectly , it still has the potential to fail if you don’t have your future heirs on board. Beyond preserving your wealth, communicating money values and generational wealth transfer plans in the most open way possible can also help your children to become more knowledgeable and responsible with their finances.
This article was written by Advicent Solutions, an entity unrelated to HardestyCapital Management. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Hardesty Capital Management does not provide tax or legal advice. You are encouraged by your tax advisor or attorney regarding specific tax issues. Copyright 2013 Advicent Solutions. All rights reserved.
What’s On Our Minds
Last week, our Weekly View urged readers to “hold tight” and based on last week’s volatility, it looks like we got it right. Media pundits had many panicking last week as we saw a major sell off mid-week only to finish the week in positive territory. Yes, volatility can be very stressful for investors, but in situations like last week, we continue to stress the importance of keeping a long term view on your investment portfolio.
Last Week’s Highlights
The S&P 500 closed out the week up 1.4%. The market kicked its 2016 weekly losing streak and finished in the green, but it wasn’t easy. Concerns over global economic growth continued and depressed oil prices worried investors. It was a wild week. On Wednesday, the Dow sank 1.6% on a day when oil hit $26.55 per barrel at one point, the lowest “black gold” has traded since May of 2003. By the end of trading Friday, oil rallied back to $32.16 per barrel, which helped the markets recover. As of the close Friday, the S&P 500 was still down 6.70% year to date.
Looking Ahead
The Federal Reserve will release its Federal Open Market Committee Statement on Wednesday afternoon and Fourth Quarter GDP numbers on Friday morning. This week we will also be watching fourth quarter earnings releases from notable companies such as Apple, Johnson & Johnson, Proctor & Gamble, and Microsoft.
