People often talk about what they’d do if they had “extra” money. The reality is, though, that there’s not really such a thing as “extra” money. Extra means left over, or a surplus. For almost everyone, there’s somewhere that money should be going, whether it’s to pay down debt, add to a savings account, invest, or begin planning for retirement. Thus, it’s not actually extra, even if all your bills are covered.

Your job with whatever money comes your way is to make it work for you. You have to tell your money where to go or it will tell you where you can and can’t go—on vacation, for example.

The best way to ensure that all your money is going where it needs to is to make a monthly budget—and stick to it. You must think of your monthly budget as a dynamic document; it’s going to change and adjust to whatever life brings your way.

Review Your Inflows and Outflows

Money comes in, and money goes out. Often, it feels like it’s going out before you even have it in hand. Get better control over this feeling by creating a document that helps you see exactly what’s coming in and where it needs to go.

Create your budget.

Use a spreadsheet on a program such as Excel, Numbers, or Google Docs to help you draft an understanding of your monthly income and expenses. Don’t forget to account for any expenses you have that occur annually or semi-annually, such as car insurance.

Choose a document that you have easy access to and that feels comfortable for you to use. You can also make a note on your phone with all the bills that come out each month or pay period, and you can check them off as they come out of your bank account. That way, you always know what’s going to come out during the next couple of weeks so you don’t overspend.

Take an honest look at your spending.

Analyzing where we might be part of the problem isn’t always easy. However, the truth is that many people make enough money to live on, and they simply live outside their means, accruing debt at an exponential rate. Look carefully at where all your money is going, down to the last dollar.

How much do you spend on eating out for lunch? Are you buying new clothes every month? Do you have a handful of monthly subscriptions that you aren’t using or that you don’t need? You have to balance your spending with your financial goals. If you want to save more money, then maybe you can think about packing lunches from home or only buying clothes on sale. Or, you can cancel those unused accounts and automatically put that money toward your savings account.

Check out some of the programs available to help you budget, such as Mint, You Need a Budget (YNAB), or EveryDollar. Some programs are free or have a no-pay level, but others offer advanced budgeting and investing advice for a monthly or yearly fee. However, before you sign up for a service that costs money, determine if what it offers aligns with where you need help. You also need to determine if you’re committed to tracking your spending and sticking with a budget; otherwise, it will just be more money going out that you aren’t using. Start with free resources like Google Docs or Notes, and then move on to a paid service such as YNAB.

Grow your emergency account.

No one wants to live paycheck to paycheck. It’s stressful and frustrating, and you’re living to work instead of working to live. Growing your nest egg has to start somewhere, and once you see how good it feels to have a hefty chunk of savings that you can rely on (instead of a credit card) it will motivate you to keep going with responsible financial planning.

We advise all our clients to have three to six months of monthly expenses in an emergency savings account. This savings account will not only enable you to use cash for an emergency instead of an interest-racking credit card, but it will serve as a constant reminder of how hard you’ve worked to get to where you are. This emergency account should be able to cover rent, food, transportation, and a phone for at least six months. Once you have it built up, you can feel free from the vicious cycle of credit cards. Whenever you have to pull from your account, like if your car breaks down, pat yourself on the back for having cash on hand. Then, build it back up again before you begin saving for or investing in something else.

Consider becoming a credit union member.

If you’re overwhelmed by the idea of building and sticking to a budget on your own, community credit unions have trained financial coaches who help members build and stick to a budget. These financial coaches can help answer questions and give you feedback about your budget. We work closely with Rivermark Community Credit Union, and they have financial coaches at every branch who can work with members to create a budget, plan for their finances, or consolidate debt. Best of all, this service is included as a benefit of credit union membership!

Don’t be ashamed about needing to ask for guidance! People all over the world have struggled with debt since trading and currency made their way into human culture. We have to learn financial literacy and take responsibility for our spending—these things aren’t usually taught in school or during adolescence, so most adults have to figure it out themselves. Use your resources and choose to prioritize your future.

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Credit unions are member-owned and member-governed financial cooperatives. The first financial cooperatives were established in Europe in the mid-1800s and spread to North America at the beginning of the 20th century. In Canada, Alphonse Desjardins is recognized for launching the first credit union in Quebec. Desjardins was also instrumental in establishing the first U.S. credit union in Manchester, New Hampshire, in 1908. Twenty-six years after creating the first U.S. credit union, the U.S. Federal Credit Union Act was passed, which was instrumental in providing structure around the credit union movement.

As of the end of 2020, according to the National Credit Union Administration (NCUA), U.S. credit unions had 124.3 million members across 5,099 federally insured credit unions. Despite the total number of members with a credit union relationship, their deposits are negligible compared to their banking counterparts. For example, data released by the Federal Reserve shows JPMorgan Chase Bank holding domestic assets above $2.2 trillion as of September 2020. Conversely, as reported by NCUA, federally insured credit unions had a combined $1.85 trillion of assets.

Better Service & Better Borrowing Rates

Banks' overall prominence is surprising given that credit unions are generally regarded as providing better support for their members than banks do for their customers. In addition to having the upper hand on customer service, credit unions generally pay more on member deposits and charge less when members borrow than traditional banks. For example, quarterly data provided by the NCUA examines the national average rate of credit unions versus banks in 23 different product categories ranging from CDs to car loans. In over 90% of the categories, credit unions beat banks. Based on this simple comparison alone, it is surprising why consumers would choose a bank over a credit union.

One of the first financial accounts a consumer opens is a checking account. From there, it is common for an individual to put some of their excess in a savings account for an emergency fund or future purchase. For many Americans, a CD is a first "investment." Based on the data from NCUA, if you assume a five basis point delta between credit union deposits and banks, and you compare domestic deposits of the three largest U.S. banks against the deposits of all credit unions, a seemingly insignificant delta becomes meaningful. On average, the top three banks together keep an extra $3 billion per year that if on deposit with a credit union would go directly to a member.

A car purchase is another area where consumers interact with their financial institution. For many individuals, a car provides the necessary transportation to a first job, in addition to the ability to get out of town to explore another part of the city or state. Most individuals finance a car purchase through a bank or credit union. In this particular category, the benefits of credit unions are even more apparent, with an average rate difference of about 1.97%.

Members get stronger together

So how are credit unions able to offer such a rate advantage on both deposit and lending products? Part of the answer resides in the unique structure of credit unions. First, credit unions are owned by their members, not shareholders. Therefore, the interests of the owners (the members) are aligned with the interests of the members (the owners). Member owners do not want to charge themselves more than is necessary to cover the cost of the product and the operation of the institution. Another reason credit unions can offer products and services that are more beneficial than banks is they are tax-exempt entities. That's right, under IRS rules, federal credit unions are tax-exempt under section 501(c)(1), and state credit unions are exempt under section 501(c)(14)(A). This allows credit unions a lower cost structure than most banks and allows credit unions to recycle profits to lower rates on loans and higher rates on deposits.

Despite the large number of Americans with a credit union relationship, banks dominate the wallet of U.S. households. This is surprising given credit unions' upper hand in offering members better rates for deposits and loans. One of the many reasons credit unions can offer better rates on consumer deposits and lower fees when borrowing is that 1) members are also owners, and 2) credit unions are tax-exempt organizations. The choice between a bank or credit union is a significant one given the potential economic loss associated with one, versus the financial gain related to the other.

This article was originally published on Forbes on June 10, 2021.

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Seeing losses in your portfolio during market volatility may be disheartening. Utilizing those losses through a process called tax loss harvesting affords the opportunity to have your taxes benefit from those losses. Rather than selling stock due to inferior performance and shifting the allocations in your portfolio, you can lock in those losses while keeping your portfolio performance the same.

What is tax loss harvesting? Why should I utilize it?

Tax loss harvesting is when you realize, or “lock in,” the losses of your investments by selling the investment. Say you bought stock A at $150 per share, and that investment is now valued at $120 per share (or a $30 per share unrealized loss). You may lock in the loss of an investment by selling some or all of your shares. This is known as “realizing” your losses.

You can then use these losses to lower your tax bill in three ways:

1. Offsetting your realized gains from other investments sold

2. Offsetting capital gains generated from other activities such as a home sale, business sale, or collectibles

3. Offsetting up to $3,000 of your ordinary income

Tax loss harvesting is typically recommended for clients whose tax liabilities require year-round attention. We implement tax loss when positions we manage to hit a certain loss percentage. Toward the end of the year, we perform "tax-gain harvesting" where we look to sell positions with very high gains to ensure we are not generating a net gain for clients.

The “Wash Sale” Rule that minimizes loopholes

Unfortunately, you are not allowed to sell a stock and immediately repurchase it to recognize the losses. If you decide to sell an investment position at a loss, you may not purchase that same investment or a “substantially identical” investment 30 days before or after the sale at a loss. This is to avoid a “wash sale” rule violation. This rule applies to all investment accounts associated with your household and on your tax returns. If a wash sale rule violation happens, the IRS will not allow you to use the loss to offset your gains. The cost basis of your investment will also change as the disallowed loss is added to the cost basis of the new, "substantially identical" investment you purchased. Click here for more information on the wash sale rule.

Will I miss out on my investment returns by doing this?

While there is no guarantee that the original investment sold to harvest losses will stay valued at or lower than the price you sold it for, you can buy similar positions to maintain the allocation and expected rate of return in your investment portfolio.

For example, you sell your Apple stock (AAPL) and are looking for a replacement, so you decide to use a large-cap growth index fund. Large-cap growth index funds are funds that invest in various stocks/companies that are classified as "large-cap," meaning they are valued at a market capitalization of $10+ billion. The growth piece implies that the fund managers see that the companies offer strong earnings growth and are undervalued in the stock market. Using a large-cap growth index fund gives your portfolio continued exposure to the large-cap growth sector of the market during the time period you are not allowed to buy AAPL stock.

See tax loss harvesting in action.

Say you bought some AAPL stock at $10,000, and the stock is now valued at $7,500. If you were to decide to sell it, you would then realize a loss of $2,500. Then, you have another stock, MSFT, that you bought for $5,000 and is now valued at $9,000. You sell that stock and realize a gain of $4,000. Since you can use the losses generated to offset your gains, you would have a net $1,500 of capital gains to pay taxes on, rather than the original $4,000!

Human Investing is here to help.

Tax loss harvesting is done as part of our portfolio management services. We also offer tax planning as a part of our services, helping to ensure you receive comprehensive financial planning where you need it most. If you are interested, please reach out to us at 503-905-3100 or hi@humaninvesting.com.

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If you are a recent grad, you have likely fantasized about making career moves, moving to a new city, or maybe even getting your own pots and pans. Instead, you might be moving in with your parents. According to Forbes, 50% of Millennials and Gen Z plan to move back in with their parents after graduating college. Whatever steered you to decide to move back in with your parents, hopefully this post gives you some confidence about your decision.

Some of you may choose to live at home, but many of you have no other option. Do you find yourself hesitating about moving back home? Or maybe you are considering spending your savings just to get some space from your family? Regardless of the specifics, have you thought about the impact saving money on rent can have on your future?

This is an excellent opportunity to start saving like a millionaire.

For illustrative purposes, let’s consider Sophia, a fictitious 23-year-old. She had other plans for herself, but she is living at home for various reasons. She wakes up grateful for safety and shelter, but she is also human and feels a little nostalgia for what this year could have been. Let’s run some numbers on the potential financial benefit of living at home to make her day a little brighter.

Doodle credit: Rachelle Locey

LET THE SAVINGS BEGIN

If Sophia were not living at home, she would be spending $1,100 a month in housing expenses. After 12 months of living at home, she could save $13,200 that would have ‘normally’ been spent on her rent, wifi, utilities, and parking.

WHERE SHOULD SHE PUT THIS EXTRA CASH?

Sophia is comforted by these additional savings in her bank account today. She remembers her economics teacher explain inflation, the stock market, and compounding interest. Now what is a girl to do?

Here’s her 5 step game plan

One year of savings, Thirty years later

**This chart assumes a 7% annualized growth for her investment over time. The 7% is based on historical data of S&P500 returns. **

By living at home, Sophia has safety, shelter, and savings. She also has significant savings for not only today, but also for the future. If you are living at home, please be thankful for your dishwasher and applaud your future self because the financial trade-off is immense.

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One of my favorite market commentators is Dr. David Kelly, an economist whose research focuses on the investment implications of an evolving economic environment. His insights are rooted in theory and application, which help make the work he publishes comprehensive and practical. In his most recent article, he notes the following:

“As America emerges from the pandemic, there are still serious health concerns, a yawning political divide, rising autocracy around the world, a brutal war in Europe and the highest inflation in 40 years. Moreover, anxiety triggered by these genuine problems is being amplified by cable channels and social media which ever more efficiently gather their audience by appealing to fear and outrage.[1]”

— DR. DAVID KELLY

With this backdrop, I will try to share my thoughts on the market, economy, and implications for investors.  

Market declines: We’ve been here before.

Whether looking at the stock market, bond market, or commercial and residential real estate markets (to name a few), all are down for the year. With widespread asset price declines, renewed volatility is unnerving for many of us. These are challenging times to have capital deployed into the market. However, volatility and risk are the primary reasons investors in the market have achieved meaningfully better returns than cash over most market cycles.

The narrative surrounding this market cycle continues to evolve—the reasons "why" we are experiencing market gyrations and asset declines today differ from past times. However, I have great hope and confidence markets will normalize and begin their next run higher—in the same way they have done following each of the last downturns dating back to 1825. [2] In my 25+ years advising clients, I have experienced managing assets through significant market declines, with the most recent being Q1 2020, and most memorable 2007-2009, and 2000-2002. The cause for these markets was different, but the result was the same for those who managed their emotions through turbulence.

How is the economy responding to the current market?

Economic activity is beginning to slow. The most notable remark came from Fed-Ex, which reported a slowdown in shipments—a real-time data point highlighting growing constraints from corporations and consumers alike. Although the Fed-Ex announcement is one observation, it is congruent with analysis conducted by Dr. Kelly and others, highlighting a slowing economy domestically and abroad.

The Federal Reserve (the Fed) job is exceedingly tricky, given that inflation affects everyone and the primary defense for rising prices is interest rate hikes. At the same time, if interest rate increases are applied excessively, they stand to constrain the economy, which in turn could inflict pain on households through job loss and a decline in asset prices. Concern over Federal Reserve policy mistakes has begun to capture the headlines, with notable economists Mohamed El-Erian and Jeremy Siegel blasting the Fed for raising interest rates too aggressively.

The tension between the actions of the Fed and prominent economists may cause the Fed to exercise more constraints when deciding on interest rate policy in the future. Ultimately, we hope Fed Chairman Powell and his colleagues around the country can orchestrate a soft landing for the economy—which involves moderating rate hikes and extinguishing inflation while maintaining reasonable economic growth.

Our financial plans factor in these conditions.

Financial planning is essential to helping to create positive customer outcomes and providing wise counsel in all market and economic conditions. Recently, a retired client and friend called concerned about the market. They asked if they should reduce their overall risk and sell a portion of their equities. After a review of their financial plan, it was determined that despite the market decline, they were on target to maintain their spending goals; therefore, no immediate action was needed.

Our recommendation for this client included a study on their financial plan's probability of success. The probability analysis simulates their plan's likely outcomes based on good and bad markets. When coupling their planning inputs with their probability analysis and considering their cash and bond holdings, it is easier to look past the market and focus on their plan, including simulations for markets like we are in now.

Please know we understand how unnerving it is to see account balances drop and to feel that the world is unraveling. However, it is imperative that we remain objective and focused on our disciplined approach to both planning and investing. When speaking with your advisor, their answer may be "stay the course." This is our way of saying we have looked at your plan and are prepared for times such as these. Attempting to control the market or predict capital market outcomes sets us up for failure. However, focusing on what we can control, utilizing industry-leading technology, and leveraging a team of experienced credentialed experts are the best approaches with the highest probability of success for our clients and their plans. [3]

As has been the case since hiring Marc Kadomatsu, CFP to Human Investing, financial advice dispensed through the lens of financial planning has been the cornerstone of our service offering at Human Investing. Marc previously served as the head of the Financial Planning Association for Oregon and SW Washington. We have added to his team the recent promotion of Will Kellar, CFP, to Partner. Will has tremendous experience in advising clients through a planning lens. Moreover, Will is responsible for training the next generation of financial planners as he currently serves on the faculty of Oregon's only accredited financial planning program at George Fox University. 

Diversification may be the key to your peace of mind.

Emotion management is complicated—particularly for those whose primary source of income is their investment portfolio. To help manage the anxiousness that may accompany turbulent markets, please consider the concept of diversification. The term "diversification" means we don't put all your eggs in one basket. Although you have one account statement from your primary brokerage affiliation (Schwab, Fidelity, Betterment, etc.), you have various investments. Each investment serves a purpose in helping you achieve your goals. Some investments like cash and short-term bonds are what we tap into to provide necessary liquidity without having to sell at a significant loss. At the same time, equities are for longer-term appreciation to help your portfolio generate returns that outpace inflation and taxes.

Although your portfolio performance and holdings are aggregated into a single statement, we ensure that customers are adequately diversified into many different holdings. That way, when it's time to take a necessary withdrawal, we have many options for where we can go for the cash. There is no easy way to manage emotions in volatile markets. However, knowing ample investments can be accessed to provide the needed financial resources is something to consider when looking at the portfolio as a whole.

Markets of all kinds experience ups and downs—which has been my experience since 1996. The current downturn has several major markets down in excess of twenty percent year-to-date. Countries and regions go through economic cycles for various reasons and durations. The economy is showing signs of a slowdown, which could negatively impact consumers and businesses alike. With both the market and the economy on edge, we believe it is paramount for investors to stay disciplined, avoid acting on emotion and lean on their financial plan and advisor to help them make informed financial decisions.

[1] Kelly, D. (2022, September 19). Why the Fed should worry less about sticky inflation (but probably won't). Notes on the Week Ahead, JP Morgan Asset Management.

[2] Gladhill, A. (2019, September 12). Return histogram: Stock market annual returns 1825-2017. Investment Committee Q32019, Human Investing.

[3] Bennyhoff, D. G., & Kinniry Jr, F. M. (2016). Vanguard Advisor's Alpha®. Vanguard, June, http://bit. ly/2gXMDCs.

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Many people dream of one day receiving a considerable sum of money, whether through a large inheritance, winning the lottery, or selling their business or home. Whether the windfall is expected or not, without a plan, coming into a lump sum of money can be overwhelming at first and emotionally draining once the dust settles.

We’ve all read or heard stories of lottery winners who went from rags to riches to rags again, ending in bankruptcy. [1] While most of us may not win the lottery, we may receive money from an inheritance or a gift we weren’t expecting. This news will undoubtedly stir up thoughts of grandeur on how to spend it or for those more practical, how to best protect it. Not to mention, there are also taxes to consider. It can be exciting and scary at the same time.

For these reasons and more, building a financial plan may help you avoid the pitfalls of emotional or poor decision-making by creating a roadmap. This roadmap will act as your guide, helping you stay on track and get the most out of your new-found wealth. By creating a plan, you will cover many topics that matter most to you, such as:

Assessing your short-term goals.

Has there been anything on your to-do list that you would like to check off within the next few years? Buy a more reliable car, take care of house projects, or bolster your emergency savings fund? It’s vital to assess these needs before you consider investing, as the funds necessary to cover the costs of these goals may need to remain in cash.

Paying off high-interest debt.

Do you have any debt? Our team defines high-interest debt as any loan with an interest rate of 6-8%. This is typically found in credit card debt, some student loan debt, and personal loans. It is important to aggressively pay down high-interest debt, and receiving a lump sum just might provide you with the opportunity to do so!

Building an investment plan.

Analysis paralysis can sometimes lead someone to leave their windfall as cash. Building a personalized investment plan that aligns with your goals and timeline is essential to avoid the permanent risk of holding cash. This step is one where an advisor is especially valuable to provide expertise and advice.

Treating yourself.

Receiving a windfall should not feel like a chore. As your financial plan is being built, it’s okay to add room for things like gift and travel. Not only will it make you feel good that it’s in the budget, but it will give you something to look forward to. Considering even small treats is good to do as it will help you plan to budget for bigger things like travel. According to a survey by the Harvard Business Review, 80% of people derive a greater level of happiness when spending money on experiences rather than buying material things.

You can certainly create a basic goals-based plan on your own, or you could look to hire an expert to help you with comprehensive planning. Here are three ways an advisor can help you:

1. Discuss what may be the highest and best use of your dollars.

An advisor will help you prioritize your needs and wants. While it may seem like you are set for life, without proper planning, the money can disappear fast.

2. Help decipher what is important to you.

For many, coming into a lump sum of money can be partnered with heartbreak from losing a loved one or the pain from a legal settlement. Having a discussion measuring both objective and subjective factors is essential.

3. Partner with you to help keep you accountable for your goals.

Many come into money with great intentions but fail in the execution due to a lack of responsibility, intentional or not.

See The Value of Hiring Human Investing for additional information about the advantages of having an advisor.

As always, our team is here to help. We believe receiving a lump sum requires deep consideration and understanding as it relates to your overall financial well-being. If you would like to connect with a dedicated team member to go over your options, please use this link.

[1] The Ticket to Easy Street? The Financial Consequences of Winning the Lottery

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Starting From Square One (Or $20 in my bank account)

Picture this: You’ve just graduated college and received your first '“big-kid” job. You have about $20 in your name. Although it is a new concept, with a new job comes new responsibility, and you decide you should probably be more mindful about your spending (and saving) habits. But how do you start?

I had the unique privilege of beginning my career at Human Investing shortly after I graduated. As you can imagine, working at a financial advisory firm meant that before I started contributing to the company’s 401(k) plan, I was given a beginner’s course in investing.

AN ENDLESS MAZE OF DECISIONS

Like many people who join corporate America, I opted into its retirement plan because it was a free benefit I received. I knew saving for retirement was important, and the investment options available to me would benefit my long-term financial plan.

When I received my first paycheck, I learned the importance of contributing to my 401(k), but in a way that was compatible with my cash flow.

A common rule of thumb is to contribute 10-15% of your gross salary to your retirement account if you can (this includes the employer contribution/match). After learning this, I was eager to invest 15% into my 401(k). However, I did not consider other key factors that made up a healthy and holistic financial plan, like funding an emergency savings account or considering other short-term goals (ex: continuing education or buying a home). Although I was so eager to contribute as much as I could to my retirement plan, I ended up contributing much less than expected after assessing my current financial situation.

Unpacking where to start

I share this story because, like most people new to the financial scene, I wanted to manage my money well, and I figured investing all of my excess income would equate to successful money management. What I didn’t do was take a step back and assess my entire financial landscape. Thankfully, Human Investing was there to provide some guidance. That’s why we made this visual. We call it “The Pyramid to Financial Wellness.” Use the visual as a map; start at the foundation and then work your way up. Before continuing, please know that we all have unique financial situations, and not every block may apply to your situation.

LEVEL 1: Build a Foundation

Build a Budget to understand your monthly cash flow: If you’re looking to invest dollars from your paycheck, you need to know how much bandwidth you have at the end of each month. If you don’t currently have any excess dollars, try to get creative. Look at your current spending habits and see if you need to minimize spending in a certain area. Don’t be afraid to rely on savings apps for help. We generally recommend Mint or Digit.

Pay off High-Interest Debt: Focus on higher interest, non-deductible loans first, such as credit card loans. Consider refinancing your loans or reconsolidating your debt to make payments more manageable.

Contribute to your Company-Sponsored Retirement Account: If applicable, contribute enough to receive the employer match. For example, if your employer matches up to 6% of your contribution, try to meet the 6% savings rate.

Build an emergency fund: If something unpredictable happens, make sure you’re prepared. Click here to learn how to build an emergency savings fund.

Level 2: Plant Long-term Seeds

Open a Retirement Account for future savings: Based on your age and tax bracket, start contributing to either an IRA or a Roth IRA. Click here to see if a Roth IRA account is the right account for you.

Continue paying down student loans: If student loan payments are on your horizon, don’t delay! Try to pay off what you can now. Consider refinancing your loans in order to make regular payments more manageable.

Save for a Home: If this is a goal of yours, start saving. Depending on your timeline, try to save in either a High Yield Savings Account (Short-term goal) or a Roth IRA (Longer-term goal).

Level 3: Hone your Monthly Budget

Open up a 529 account for a child or grandchild: If you are hoping or planning to fund your child’s college education, utilizing a 529 account can protect your purchasing power. The same rules that apply when flying apply here too. Put your mask on before taking care of others.

Pay down your mortgage: Target additional mortgage payments if you are able. Consider refinancing your mortgage to possibly find greater savings with lower interest rates.

Save for Short-term and Mid-term goals: Short-term goals include immediate expenses, paying down debt, having an emergency savings fund, etc. Mid-term goals are big purchases that you plan to make before you retire. This includes saving for a house or a car. Avoid borrowing and start planning to save. If you’ve exhausted other savings vehicles (like your 401K and Roth IRA), consider opening a brokerage account.

If you have any questions about how investing can fit into your financial plan, contact us! We are here for you and are excited to cheer you on as you learn to manage your money well.

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Are you fearful a recession might be around the corner?

There’s been a lot of chatter about the state of the economy and whether we’re in a recession, or if one’s already passed. Whatever the situation, we wanted to help put things into perspective and remind you of the things you can (and cannot) control if uncertainty is on the horizon.

The widespread definition of a recession is two consecutive quarters of a decline in real GDP (Gross Domestic Product). However, the National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months." No matter which yardstick we use to measure a recession, here is what you need to know:

• Recessions are a natural part of the business cycle. There have been 34 recessions since 1857, ranging from more than five years to the pandemic-driven contraction of 2020 that lasted two months.

• Recessions do not necessarily coincide with a decrease in the stock markets.

• No two recessions are alike in cause, length, or intensity.

• Recessions are marked as a time of heavy uncertainty and an increase in job insecurity.

Planning for a recession is difficult.

Using the general definition, we won't know we are in a recession until six months after it starts. Rather than worrying about a recession (which is out of our control), investors should focus on things that they can control. When future economic uncertainties arise, here is a list of things that you can do to prepare yourself better:

1. Re-evaluate the size of your emergency fund.

The amount someone should keep on hand should correspond with their living expenses, income instability, stage of life, risk tolerance, etc. This amount is typically 3 to 12 months of living expenses. An unforeseen medical bill or a temporary lapse in employment can happen anytime. Arming yourself with a cash safety net is your first defense against debt or selling your investments during a market downturn. For more information, read our blog about understanding the role of cash in a financial plan.

2. Analyze your spending.

Watching how much you spend builds awareness of your current spending habits. Understanding essential vs. nonessential expenses will make it easier to navigate your budget if your income disappears. Bonus: a better understanding of your spending can help you spend less and thus help you save more.

3. Bolster your professional network and skills.

Prioritize efforts to develop strong long-term relationships with essential connections. You may also invest in yourself with job-related skills and by polishing your résumé to ensure you are prepared for an unanticipated lapse in your employment.

4. Assess your investment portfolio.

Recessions don't always coincide with a stock market selloff. However, ensuring your investments are aligned with your goals is essential. Before a downturn in the market is the best time to position your portfolio based on your risk tolerance, time horizon, and financial goals. If you are unsure of your investment strategy, get in touch with a financial advisor to ensure you have the formula for successful investing.

5. Review your insurance coverage.

Start with the basics. Review what you have vs. what you need.

• What kind do you have? Is your protection tied to your job?

• Do you have enough dollar-amount coverage?

• Do you need to adjust, more or less?

Remember the things you can and cannot control. Take your time to examine what you want to prioritize. While we can't predict precisely when a recession will occur, we can plan, prepare, and adjust appropriately to survive any economic storm. If you want to talk with one of our advisors, please call Jill at 503-905-3100.

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On Wednesday, August 24th, President Biden announced his administration’s Student Loan Debt Plan. This news may bring up questions for you, and we are here to answer them.

Here are the Details you Need:

Who qualifies for loan forgiveness?

• Federal student loan borrowers who earn less than $125,000 per year or married couples who make less than $250,000 per year on their 2020 or 2021 tax return.

• Private and Federal loans taken after June 30th, 2022, are not eligible.

How much will be forgiven?

• $10,000 of student loan debt is canceled for all federal student loan borrowers. 

• An additional $10,000 ($20,000 total) of student loan debt is canceled for those who received Pell grants. 

How can you ensure you receive forgiveness if you qualify?

Borrowers who are already on income-driven repayment plans will automatically receive forgiveness. The Department of Education will make an application available during the month of October. Due to high-volume traffic, the application and income verification process will likely take time.

Borrowers can sign up for updates from the US Department of Education to be notified when the application becomes available by clicking here.  

Other key dates to remember:

• November 15th The deadline to apply to receive debt cancellation by the time the payment pause expires at the end of the year. Your application must be submitted by November 15th.

• January 1, 2023: If you didn’t receive total forgiveness, payments will start back up and interest will begin accruing on the balance on January 1, 2023.

• December 31, 2023: The final deadline to apply for student loan forgiveness.

Forbearance extension

Biden also extended the pandemic student loan forbearance that was set to expire on August 31st to the end of the year. This will benefit those who won’t qualify for forgiveness and those who will still have a balance remaining after forgiveness.

Proposed change of repayment based on income: Those with undergraduate loans who are on income-driven payment plans, may be able to cap repayment at 5% of their monthly income. This is half of the current rate most borrowers pay now.

How does this affect Your current financial situation? 

This news will likely create further questions regarding your specific financial landscape. Here are a few examples of how this change is applied to everyday people:  

MARIA, AGE 25

Maria graduated in 2019 with $25,000 in student loan debt and currently makes $44,000 per year. One of the loans she received was a Pell Grant. According to Biden’s plan, Maria will only have $5,000 left to repay starting in January 2023.

ANDREW & MONICA, AGE 43

Andrew and Monica are a married couple. Together, they carry $40,000 in student loan debt and make a combined income of $260,000 per year. Due to their income, they are ineligible to receive student loan debt forgiveness and will need to resume their repayments starting in January 2023.  

SEAN, AGE 35

Sean graduated in 2017 with $8,000 in student loan debt and currently makes $75,000 per year. All of Sean’s student loans are canceled, with no repayments resuming in January 2023.

How Should You Adjust Your Financial Plan?

However you are receiving this news, you should use this opportunity to assess your finances and take action to get closer to your long-term goals. Here are a few tips:  

If your student loan debt has been altogether canceled:  

• Take some time to reassess your spending and saving habits – create a budget.  

• Bolster your emergency savings fund: Make sure you have 3-6 months of expenses saved.

• Use the extra cash to pay off any consumer debt.

• If you have no consumer debt and have extra cash, consider redirecting those repayments to funding a Roth IRA. (Up to $6,000, or $7,000 if you are aged 50+).

• Reconsider short-term and long-term goals.

If your student loan debt repayments are resuming in January 2023:

• Edit your budget to include these payments.

• Consider restarting your monthly payment schedule. This will save you money in accrued interest by paying down the principal during the payment pause.

As always, our team at Human Investing is here to help should you have any further questions. If you would like to talk with an advisor, call 503-905-3100.

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Due to the newly proposed legislation (Inflation Reduction Act), if you are in the market for a new electric vehicle, you may want to rush to the dealership today (August 11th)!  In the proposed legislation, Congress extended the electric vehicle credit but has added new restrictions which will make qualifying for the credit more difficult.

Here is a list of the new limitations proposed for Electric Vehicles delivered in 2023:

1. 40% of the Battery must have been made in a country in which the US has a free trade agreement.

2. MSRP must be under $55,000 for sedans and $80,000 for vans and SUV’s.

3. Modified Adjusted Gross Income must be less than $300,000 for married joint returns and $150,000 for others.

4. On a positive note, the $200,000 sales limitation that has kept Tesla and a few other manufacturers from qualifying for electric vehicle credit will be removed. So if you are thinking about getting one of these models, you may want to wait until next year to see if these manufacturers can meet the above qualifications.

To use the old credit, you must take delivery of the car in 2022 or have a binding contract to purchase before the bill is signed into law. The bill has already been approved by the Senate and will head to the House for a vote on Friday, August 12. 

Which cars are still eligible for the old credit?

If you want to act quickly, this link contains a list of cars that are still eligible for the old credit.  Please note that Tesla and some other dealers are not eligible for the old credit, but may be eligible for the new credit given they comply with the limitations above. 

As always, we are here to help. Please reach out to your advisor team or email luke@humaninvesting.com if you have any questions.

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Many small businesses are behind.

There are several retirement solutions that can help you secure your future and that of your employees, but the decision-making process can be challenging.

A survey of nearly 2,000 small business owners in 2017 found that over a third (34%) don't have a retirement plan. The main reason for this cited (by 37% of those respondents) was that they could not generate enough revenue to save. Another 18% of the business owners without retirement savings are looking at selling the businesses as a retirement plan.

Many small business owners avoid or are unaware of the crucial elements of planning for their futures. Here are a few questions to ask yourself before deciding on a retirement plan:

Do you have employees or expect to in the future?

Is it important that employees can contribute to a retirement plan?

Is your priority higher contributions or ease of administration?

Would you like plan contributions to be deductible as a business expense?

What retirement plan options do you have?

With help from Vanguard, we put together a one-sheeter that gives details and considerations on several small business retirement plans, including Small Plan 401(k), Individual 401(k), SEP IRA, Simple IRA, Traditional IRA, and Roth IRA.

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Source: Vanguard

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Keep in mind that the state requires all employers in Oregon to facilitate OregonSaves if they don't offer a retirement plan for their employees. The deadline for employers with four or fewer employees is March 1st, 2023. The rules are identical to a Roth IRA, where employees contribute post-tax dollars to the plan and distribute savings tax-free.

If your business already sponsors or wants to sponsor a 401(k) or another qualified retirement plan, you are not required to participate in OregonSaves but must certify the exemption online. Exemption certificates are valid for three years from the filing date.

Employers who don’t sponsor a retirement plan or participate in OregonSaves by the appointed deadline may be penalized $100 per affected employee. The maximum fine per year is $5,000. More details can be found here: OregonSaves

Which plan is best for you?

401(k): Best retirement plan for large and established small businesses.

Safe Harbor 401(k): Best retirement plan for small businesses with less than 100 workers to avoid expensive annual compliance testing.

Solo 401(k): Best retirement plan for maximizing contributions.

SEP IRA: Best retirement plan for a sole proprietor who wants easy administration.

Simple IRA: Best retirement plan for employee participation in funding the retirement account.

Profit Sharing Plan: Best retirement plan for business owners who want more 401(k) contributions and tax benefits.

The responsibilities of owning and operating a small business can be overwhelming, but having the right retirement plan and advocates on your side can make all the difference. If you would like assistance making the best decision for your business, we invite you to schedule an appointment on the calendar below.

Source: Best Retirement Plans for Small Business

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On November 5th of 2021, Nike stock closed at its most recent all-time high of $177.51. Much has changed since that time, with the stock price dropping over 38% to $109.12 as of 7/22/22. This has made financial decisions much more challenging for Nike leaders that hold and receive significant amounts of Nike stock as part of their compensation and benefits. Many rely on their stock for their financial goals and life plans like retiring, paying for college, paying off debt, contributing to charitable causes, and purchasing a vacation home or a new car.

Uncertainty and concern

Those decisions are now met with uncertainty and concern over the significant decrease in their Nike shares compared to just seven months ago. So, the understandable questions are starting to arise:

“Should I sell some or all of my stock now?”

“Should I delay my financial goals and life plans?”

“Is there another way to fund those goals without selling my stock?”

“How long do you think it will take to recover?”

Each individual has a unique financial situation, and the right decision is not the same for everyone.

To help Nike clients through these discussions, we thought providing information and context to the question of how long it will take for the stock to recover would be helpful.

While we cannot predict the future, we can look to past situations to get a sense of general time frames, which can help the decision-making process.

How Long Will this Down Period Last?

In examining the last five times Nike stock dropped by at least 20% from its high, we noted the periods to recover to their all-time high.

The average time for recovery has been just under one year at 339 days. You will notice from the table above that the recovery time varies widely from as quick as two months to as long as 20 months. Another interesting observation is that over the past 15 years, there has been a 20%+ drop in Nike stock every 2-4 years.

This most recent -20% downturn in Nike happened on February 11, 2022, about five months ago. So how much longer will this down period continue? No one truly knows, but if we go off of the history of the past 15 years, you should be prepared for up to another 15 months.

So, what should Nike leaders consider and assess now? Below are some tips.

TIP #1: Assess and Understand your Time Frame

Having enough time to be patient and wait for a potential recovery is one of the keys to the current environment. Take time to assess if you can hold tight or if you have very specific timelines or deadlines like a Stock Option expiration.

TIP #2: Take Note of your Risk Appetite

Even if you have the time to wait for a potential recovery, it may not be worth it if it is causing an undue amount of stress and anxiety. In this case, we find that developing a well-thought-out selling plan, where you sell part of your stock at different prices and time periods, can relieve some of the concern.

TIP #3: Develop a Contingency Plan

If the stock takes longer to recover than expected, identify other places where you can access cash in the short-term to meet those financial goals.  Examples can include: using existing cash in the bank, the conservative part of a taxable investment account, a home equity line of credit, or a portfolio loan.

TIP #4: Pick the Most Optimal Shares for any Sales

When the time is right to sell, are you picking ESPP, RSUs, or Stock Options?  We recommend carefully selecting the right type and exact shares to minimize taxes, maintain your long-term upside, and fit your time frame.

By looking into the past, we can see that downturns and recoveries in Nike stock are pretty standard and have happened regularly. We recognize that this historical data doesn’t mean it will be the same this time, but it does give you a sense of what it could look like.

“History never repeats itself, but it does often rhyme.”

-Mark Twain

If you need help assessing your current Nike stock and how it fits into your personal goals and situation, you can reach Marc at marc@humaninvesting.com.

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