Adaptive Advice – December 2020

2020 will be a year to remember in many ways, some negative but many positive. One thing that I will be forever grateful for, has been the opportunity to establish Adaptive Wealth Partners. Adaptive Wealth Partners allows us to work with our clients to address their needs and assist many people across the country as we have navigated the ups and downs of one of the most complex years in modern history. 

In writing this; the first monthly newsletter of Adaptive Advice, I want to bring you a few ideas that you will be able to use in order to get 2021 started on strong financial foundation. We all need a plan for our investments, the basic plan needs to be detailed enough to accomplish your goals but simple enough that you can follow it through the ups and downs.  

In my research the simple plans are often the easier to follow and allow for greater flexibility when unexpected expenses come up. In doing my research I have found that there are 3 steps, that if taken will lead you to make better financial decisions.

1. The Unemployment Line Money-With rates near record lows the biggest mistake we see investors making is they are simply keeping too much money in accounts at the bank or credit union where it is simply not working for them, hence the term Unemployment Line Money. We recommend our clients keep an appropriate amount cash on hand which we believe is 6-9 months worth of gross living expenses  set aside in an account that is out of the market. Remember to include in this calculation the amount that you spend on going out to eat, buying gifts, traveling and simply doing the things that you love to do. The biggest mistake we see investors make is they simply have too

2. With the market near all time highs you must ensure that your investments pass a stress test. Before we recommend any investment or any investment plan we use our 2000 Acid Test to verify the strength and quality of your investments. If you would like to have us run the 2000 Acid Test on your investments that are held elsewhere simply send us a statement and we will do the research and share our findings with you.

3. Your Extra Spare Tire – In doing our research we found that there have been 38 downturns of 10% or more in the market over the last 70 years. This is why we recommend keeping an additional 6-9 months worth of expenses in a separate fund that is earmarked to simply take advantage of downturns in the market. By doing this you put yourself and your family in a position that allows you to be mentally strong when the downturn occurs and will allow you to view downturns as an opportunity to add quality investments to your portfolio.

I hope that you have a pleasant December and that you and those around you stay safe and healthy.

-Michael


Behavioral Finance

This year is almost over and the new year is less than a month away. With the New Year approaching everyone will be making their resolutions and claiming that they will never break them. In reality, many people break their resolutions, but why is that? One of the biggest reasons we don’t stick to our resolutions is that we over-commit by making our resolutions unrealistic. Remember, when making your resolutions for 2021 you want them to be reasonable enough that you can actually stay true to them. 

4 Tips To To Help You Keep Your Financial Resolutions: 

1. Come Up With A Specific Plan 

Sit down and really think about what you want to achieve and how you can achieve it. Whether it’s fitness or financial goals, it all starts with a strategic plan. Set clear goals and a timeline for how you are going to achieve them. Starting with a plan helps hold you accountable. 

2. Enjoy The Process 

Who said that sticking to your resolutions had to be unenjoyable? Make it fun to stick to your plan! Find others to join you in your resolutions and make it an activity. Find friends to go to the gym with you or to make budget sheets together to help you stay true to your resolutions. Keep in mind your goals and why you chose your resolutions in the first place! 

3. Track Your Progress 

If you don’t keep up with how you are doing with your resolutions you’ll likely lose touch with them and fall off the wagon. Keep a journal of how well you are doing with your resolutions. Not only will this help you reflect on how you have been feeling about your resolutions, but it will always help you hold yourself accountable. 

4. Look For Support 

Find a few trustworthy friends and family members that can help by holding you accountable. This is an essential part of keeping your resolutions. If friends and family see that you are struggling to stay true to your resolutions, they can offer up their support and help you get back on track so that you can achieve your goals. 

Despite popular belief, keeping your resolutions is possible. If you commit to sticking to them, you can do it! You’ll be surprised how easy it is to stick to them if you set up a strategic plan, make it fun, track how well you are doing, and find support with friends and family. Make this the first year that you prove to yourself that you can do it. Go to the gym as much as you said you would. Save as much as you claimed you would. Go do it! You’ll thank yourself later for sticking with it. 


Business

Finding success as a business owner can take an immense amount of dedication, skill and determination. And for entrepreneurs, young and old it can feel like there’s an added challenge of being labeled too youthful to be taken seriously or too experienced to adapt to change. But we’ve rounded up six must-reads written with the entrepreneur in mind. If you’re looking to start your own business or turn your hobby into a profitable endeavor, we’ve got just the books for you.

Must Read 1: “The Young Entrepreneur’s Guide to Starting and Running a Business: Turn Your Ideas into Money!” By Steve Mariotti

Author Steve Mariotti has co-authored more than 30 books about entrepreneurship, pulling from his personal experience as a successful entrepreneur. In this book, Mariotti sets out to prove that age doesn’t have to stop you from creating a profitable business. Instead, Mariotti provides valuable insights from other young entrepreneurs and discusses the basic how-tos involved with turning a hobby or skill into a profitable business. With this book, aspiring entrepreneurs can gain an important understanding of the basics involved with building and running a successful business.

Must Read 2: “The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich” By Timothy Ferriss

In his book, Timothy Ferriss is helping young people break the stereotype of a 40-hour work week. Many believe that the more hours you work, the more you earn, but Ferriss is challenging that school of thought by encouraging you to instead focus on your mindset at work – rather than the hours you put in. 

Must Read 3: “How to Win Friends & Influence People” By Dale Carnegie

This chart-topping best seller is a popular book among entrepreneurs and goal-seekers of all ages, but it’s a great motivator for young business owners looking to hit the ground running. With over 15 million copies sold, this book has earned its cult following by helping people improve both their work and personal lives while providing key insights into influencing how others perceive you and your ideas.

If you have the passion and drive to run a business, you may still need a bit of encouragement and know-how to get started. These six books are designed to help you understand the challenges ahead and keep you excited about your new business venture to come.


Insurance

Many people do not like talking about life insurance — in times of health and relative ease, it can be an uncomfortable conversation. Moreover, the complexity of determining exactly who needs it and how much they need can be a little overwhelming. The number of people uninsured or under-insured continues to increase as more and more people forgo it altogether, unsure of where to find reliable information regarding life insurance. To help answer the first question, anyone who has financial dependents but does not have enough savings needs life insurance. Life insurance gives you a peace of mind by knowing that your dependents will be financially covered even after you have left them.

In the past, the formula for “how much” was seven to 10 times their total annual income, but that left many under-insured. It is good to keep in mind that there is no one-size-fits-all when it comes to life insurance. Take the time to crunch the numbers and discuss your family needs with your spouse to come up with a reliable estimate.

Now that you understand why you need life insurance, below is a simple four-step guide to help estimate the amount of life insurance you need.

Step 1: Evaluate Your Family Needs

First determine how much money it actually takes to run your household, including monthly expenses such as utilities. Also calculate your unpaid mortgage and outstanding debt. While at it, add all your funeral expenses and any possible estate taxes. Most insurance policies will cover expenses such as outstanding medical bills, funeral expenses, taxes, debts and even mortgage. Adding all these up gets you closer to the final estimate.

Step 2: Consider Future Financial Obligations

In your calculations, estimate the total amount of future financial obligations. This includes the cost of sending your children to college. Do not make a mistake of underestimating your family’s future needs. By doing so, you will be underestimating the amount of insurance you need, putting your family at risk of a financial shortfall. Make an outline of your family’s cash flow needs including long-term financial goals. Add all these factors up and you will have an estimate of the amount of money your survivors will need in the future. Don’t forget to factor in the loss of your annual income and current financial quality of life. Remember, the higher your income, the higher your responsibilities and expenditures. This means that you will need more insurance to cover the income loss.

Step 3: Add up All Your Resources

Resources should be a sum of all the assets you currently have. Add up your spouse’s income, savings (whether long- or short-term), and any balances in your 401(k)s and IRAs. Remember to add college funds you have set up for your children and emergency reserves. Resources also include rental property in your name. If your employer provides any other life insurance policy for you, include that as well.

Step 4: The Calculation

Now that you have a rough estimate of your family’s needs and assets, you can proceed to calculate your life insurance needs. The difference between your family’s resources and needs should give you an estimate of the life insurance you need.

You can opt to add a critical illness provision to your life insurance policy. This will give you peace of mind knowing your family will be financially protected if you suffer a critical illness and cannot work. Critical illness insurance policies cover illnesses such as cancer and heart disease. After you have taken life insurance, you should keep reviewing it on a regular basis so that if your circumstances change, it will still offer sufficient protection to your family.


Stay Safe and healthy. We look forward to wrapping up 2020 and heading into the New Year. Best wishes to you, our Adaptive Wealth Family.

-The Adaptive Wealth Team