Looking Out for Your Spouse’s Financial Welfare
Thursday, March 17, 2016

There are three certainties in life: death, taxes and me wearing green on St. Patrick’s Day. I have a green shirt on today. Taxes are due a month from now; April 18 for most people. (If you haven’t started working on your return yet, our tax guide can help.) As far as the other certainty goes, well, you might want to grab a pint of Guinness or a glass of Jameson before reading further…

Death has unfortunately been on my mind for reasons I’d prefer didn’t exist. Since the start of this year, three people I know have passed unexpectedly. All were in their 50s or 60s. Two died without any warning, and a third suffered a stroke while in the hospital for a knee infection. I’m really hoping this is a very unfortunate coincidence and not the start of a trend.

It does, however, bring the question of financial planning to mind. Specifically, ensuring one’s spouse and family are taken care of. Not just in terms of financial resources, but also in the terms of their ability to take over management of the finances. To put things bluntly, would your spouse, significant other or child know how to access your financial accounts, life insurance and the like if something suddenly happened to you? Would they even know what financial firms to contact?

These are very serious questions, and it’s one you should be able to answer “yes” to. I use a password management program that my wife has access to. The usernames and passwords to every financial account we have is in there. She’s either a joint owner or the primary beneficiary on every account, and I check yearly to make sure this is the case. I also have a folder with instructions about what to do along with copies of our life insurance policies. It’s an emergency kit that I hope she’ll never have to use. (The good news is that I am one day closer to proving I’m immortal.)

Beyond having an emergency plan in place, you should also consider the financial needs of those left behind. Spouses will lose Social Security income; rather than receiving two checks, they will receive the highest of their benefit or the survivor benefit. (This is why you should take the survivor benefit into consideration before claiming Social Security benefits, particularly if your spouse is reasonably expected to outlive you and has a lower earnings record.) Depending how a pension is structured, income from it may also be reduced—assuming you are lucky enough to have a pension. (Read your pension documents or speak with your employer’s human resources department to determine what the terms are.) Annuity income could also be eliminated, depending on the type of contract purchased. The actual impact on your spouse's income will vary, but if you are married you should consider the possible implications and discuss them with your spouse.

You should also think about what you want done with your portfolio. Can your spouse follow your strategy? Does she or he even have any interest in doing so? If the answer is no, specify what they should do as clearly as you can in writing. Warren Buffett’s estate plan calls for putting 10% of the money he is leaving to his wife in short-term government bonds and 90% in a very low-cost S&P 500 index fund.

Most importantly, talk to your spouse and your heirs about your estate documents. Make sure they understand what documents you have and what you don’t. If you have medical wishes, or even funeral wishes, explain those as well.

I’m not purposely trying to cast a dour mood on your holiday celebrations (and, for the record, I did suggest grabbing a Guinness…), but unexpected events can and do happen. It’s the planning done in advance that protects your spouse and family. A little effort, planning and conversation now can go a very a long way toward protecting the financial well-being of those who matter the most to you should the unfortunate occur.

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AAII Model Portfolio Update

Following the March quarterly review, there was one change made to the Model Shadow Stock Portfolio. Universal Stainless & Alloy Products (USAP) was sold because it violated its earnings probation. However, it had dropped so much in price that the proceeds from its sale did not generate enough cash to add a new position to the portfolio. Currently, the cash position of the actual Model Shadow Stock Portfolio is less than 5%, so we did not add any stocks this quarter.

L.S. Starrett (SCX) and Salem Media Group (SALM) were added to the qualified for purchase list at the end of February. In addition, CSS Industries (CSS), Key Tronic Corp. (KTCC), Rocky Brands (RCKY), Townsquare Media (TSQ) and Willis Lease Finance Corp. (WLFC) once again qualified for purchase from the portfolio at the end of February. Qualified stocks are companies held within the Model Shadow Stock Portfolio that currently meet the initial purchase rules. (They are designated as “qualified” in the notes column of the Model Shadow Stock Portfolio table).

In a reversal from January, smaller stocks generally outperformed larger stocks in February. The S&P MidCap 400 index gained 1.3% in February, while the S&P SmallCap 600 index was up nearly 1%. The Vanguard Small Cap Index Fund (NAESX) posted a 0.9% gain for February. The market-cap-weighted Vanguard 500 index fund (VFINX) slipped 0.15% in February. In contrast, the Guggenheim S&P 500 Equal Weight (RSP) added 1.09% in February.

The Model Shadow Stock Portfolio, which is a collection of micro-cap stocks, also rebounded strongly by climbing 2.9% in February following January’s 6.8% loss. Contributing to the strong monthly performance were three shadow stocks that were up by more than 20% for the month. Seventeen of the 31 stocks that were in the portfolio at the end of January were up for the month of February. The overall Model Shadow Stock Portfolio performance was significantly better than the DFA US Micro Cap Fund (DFSCX), which was up 1.1% for the month.

The Model Fund Portfolio gained 1.6% in February and is now down 6.2% year to date.

The Week Ahead

The U.S. financial markets will be closed on Friday in observance of Good Friday. An early happy Easter to those of you who are observing the holiday.

Seven members of the S&P 500 will report earnings next week: Nike (NKE) and Red Hat (RHT) on Tuesday; General Mills (GIS) and PVH Corp. (PVH) on Wednesday; and Accenture (ACN), GameStop (GME) and Signet Jewelers (SIG) on Thursday.

The first economic report of note will be February existing home sales, released on Monday. Tuesday will feature the March PMI manufacturing index flash. February new home sales will be released on Wednesday. Thursday will feature February durable goods orders. The second revision to fourth-quarter GDP will be released on Friday.

Several Federal Reserve officials will make public appearances, as is typical following a Federal Open Market Committee meeting. Richmond president Jeffrey Lacker, Atlanta president Dennis Lockhart and St. Louis president James Bullard will speak on Monday. Chicago president Charles Evans and Philadelphia president Patrick Harker will speak on Tuesday. Bullard will also speak on Thursday.

The Treasury Department will auction $13 billion of two-year floating rate notes on Wednesday.

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AAII Sentiment Survey

The percentage of individual investors describing their short-term outlook for stock prices as neutral jumped to its highest level of the year, according to the latest AAII Sentiment Survey. Optimism plunged, while pessimism rose for the first time in five weeks.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell by 7.4 percentage points to 30.0%. The decline follows last week’s five-month high. With this week’s drop, optimism is below its historical average of 39.0% for the 19th consecutive week and the 52nd out of the past 54 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 4.9 percentage points to 43.2%. This is the highest level since December 30, 2015 (51.3%). The rise keeps neutral sentiment above its historical average of 31.0% for a seventh consecutive week and the 59th time in the past 63 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, rebounded by 2.5 percentage points to 26.9%. The increase follows what had been a 2016 low. The historical average is 30.0%.

The pullback in bullish sentiment comes after four consecutive weeks of increases. It also occurred during what was essentially a flat five trading days for stocks (with the exception of yesterday’s late afternoon pop in large-cap stocks). It should be noted that most of this survey period’s responses were recorded before the Federal Open Market Committee’s statement was released yesterday afternoon.

Though some individual investors are encouraged by the market’s rebound off of its February lows, sustained economic growth and still comparatively low energy prices, others fret about the pace of economic growth in the U.S., the pace of economic growth in China, tensions in the Middle East, the rate of earnings growth and prevailing valuations. Frustration with Washington politics also continues to be expressed.

This week’s special question asked AAII members what type of impact they perceive monetary policy to be having on the stock market. More than one out of three respondents (37%) said that the Federal Reserve is having a negative impact. Several (12% of all respondents) believe that continued low interest rates are artificially boosting stock prices and/or creating long-term harm, that rate hikes will hurt stock prices or that the central bank is creating uncertainty. Nearly 25% of all respondents do not believe that the Federal Reserve is having much or any impact on stocks, primarily because of the gradual pace at which rates are being raised. Only 8% of all respondents think the Federal Reserve is having a positive impact on the stock market.

Here is a sampling of the responses:

  • “None. I think an expected gradual rise in interest rates is already priced into the markets.”
  • “A dampening effect—any rise in rates spooks investors.”
  • “Downward impact because of the uncertainty caused by failing to be specific about what their plans are regarding interest rates.”
  • “Keeping interest rates low is driving money into the market and fueling the bull.”
  • “No impact so far. The move by the Fed was too small to have an impact. Also, other economic factors have come into play.”
  • “More than it should by any measure.”


This week’s Sentiment Survey results:

Bullish: 30%, down 7.4 points
Neutral: 43.2%, up 4.9 points
Bearish: 26.9%, up 2.5 points

Historical averages:

Bullish: 39.0%
Neutral: 31.0%
Bearish: 30.0%
Take the Sentiment Survey.

Local Chapter Meetings
AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you!