Special note: This commentary originally ran in March 2017. I received more feedback about it than any other Investor Update column I’ve written over the past eight years. Since many of you found it helpful and I’m out of the office this week, I decided to republish it.

My father-in-law passed last week. Les was a person who was willing to take risks when the potential payoff seemed to warrant doing so. This led him to stop his graduate school studies at the University of Chicago and join what was then a brand-new government agency: NASA. His attitude toward risk carried over to investing where, like many investors, he realized profits and occasionally incurred some bad luck, such as the Enron bonds he owned. Though many of the conversations Les and I had involved nonfinancial topics, it was not unusual for him to discuss investing with me. Les even once gave me his copy of Benjamin Graham’s “The Intelligent Investor” to read, not realizing I already owned a copy of it.

The best financial steps Les made didn’t involve security selection or portfolio allocation, but rather the management of his finances. The process of assisting my mother-in-law with her finances was greatly helped by what my father-in-law did before he passed. I’ll share some of the actions Les took with you in the hope that you’ll consider following in his footsteps.

Conversations: I cannot begin to stress how helpful I am now finding the conversations that Les and I had to be. My wife and I know about all of the accounts my in-laws have, bank or brokerage. We also know about the sources of retirement income and the life insurance policy. There are also no disagreements about how to manage the money, since it was previously discussed. The simple act of conversing has allowed me to quickly start on the transition, including making calls on my mother-in-law’s behalf.

Good Record Keeping: My father-in-law maintained copies of his account statements and tax returns. Having access to both allowed me to quickly assess my mother-in-law’s financial situation. The tax returns were particularly helpful for filling out their 2016 tax returns. Though I write our annual tax guide and have done my own taxes for as long as I can remember, doing somebody else’s taxes was a new experience. Being able to both identify which tax forms I needed and have a prior return to compare my work against were immensely helpful.

It’s not just the record keeping, but also knowing where everything was located. A few months ago, I followed my father-in-law around the house with a notebook, writing down where the various documents were kept. This has helped me to know what to look for and where to find it.

Estate Planning: My in-laws updated their wills and set up trusts. My wife accompanied her parents to the estate attorney, while I dialed in. Knowing who the attorney is, having her know who I am and having a plan in place has provided much peace of mind.

Account Access: My wife and I are listed as agents on the investment accounts. This allows us to act as if we were the account owners. We also have the powers of attorney over my in-laws’ finances.

Combined, these authorizations enable us to make financial decisions and take actions on their behalf.
There are issues of trust and competency to be considered when granting such authorizations since it can leave the door wide open for mistakes, abuse and fraud. My father-in-law trusted us; my wife and I are being fully transparent with my mother-in-law, and she is doing the same with us. Not every family is fortunate to have this type of trusting relationship. As such, while naming agents and granting powers of attorney can be very helpful, much thought must be given to the decision of who to give them to.

Pre-Planning the Funeral: My in-laws previously established their final arrangements. There are no questions about what Les would have wanted. We also don’t have to worry about purchasing a plot, deciding which casket to buy, etc.

Though nobody likes to think about their own demise, planning your own funeral has big advantages. The fixed costs are locked in at current prices. (There still may be variable costs, such as transportation.) Your surviving loved ones are not put into a position of making costly decisions at a time when they’re grieving. (Making financial decisions when you are emotional is never a good idea.) Plus, your personal wishes are more likely to be carried out. The latter particularly matters if you have special requests, such as casket preferences, cremation or a mausoleum. If you desire to be buried in a particular cemetery or a specific area of a cemetery, pre-planning can give you the option of waiting for a plot to become available on the secondary market.

There are a few other things worth mentioning. I’ve been keeping a separate notebook dedicated to my in-laws’ affairs. It has proven to be invaluable for keeping track of various items as well as detailed notes about what still needs to be done. Call about survivor benefits as soon as possible following the deceased’s passing to get the ball rolling. For instance, the Office of Personnel Management told me it could take two to three months before survivor benefits start. Be prepared to get copies of the death certificate (the funeral home should assist with this) and marriage licenses. Finally, don’t be afraid to reach out to friends and extended family. Many of them will want to help, even if it’s just sending food or being there for you.

• When It’s Time to Transfer Financial Decision-Making – Actionable steps for transferring control of your finances to someone you trust.
• Steps to Smoothly Transfer Control of Your Family’s Finances – Guidance for preparing your family members to step in and take over the management of finances.

• Using the Power of the Written Word to Improve Your Returns – A notebook is not only helpful for estate planning, it’s also great for managing your portfolio.
• Advice on Evaluating an Adviser From an Industry Veteran – In addition to a background check, asking the five questions listed in this article can reveal whether an adviser is truly someone you want to work with.

Rosh Hashanah starts Sunday night. L’Shanah Tovah to those of you who will be celebrating the Jewish new year.

Just three S&P 500 index companies are on the earnings calendar. Kroger Co. (KR), Adobe Systems Inc. (ADBE) and Oracle Corp. (ORCL) will all report on Thursday.

The week’s first economic report will be the July JOLTS report released on Tuesday. Wednesday will feature the August producer price index and the Federal Reserve’s periodic Beige Book. The August consumer price index will be released on Thursday. Friday will feature August retail sales, August import and export prices, July business inventories, August industrial production and the University of Michigan’s preliminary September consumer sentiment survey.

Two Federal Reserve officials will make public appearances: Atlanta president Raphael Bostic on Monday and Thursday and Chicago president Charles Evans on Friday.

The Treasury Department will auction off $35 billion in three-year notes on Tuesday, $23 billion in 10-year notes on Wednesday and $15 billion in 30-year bonds on Thursday.

Optimism and neutral sentiment among individual investors fell slightly from last week, while pessimism increased according to the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.3 percentage points to 42.2%. The historical average is 38.5%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 0.6 percentage points to 31.5%. Neutral sentiment remains above its historical average of 31.0%, but only slightly.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.9 percentage points to 26.3%. The historical average is 30.5%.

The recent rebound in optimism is occurring as the major U.S. stock indexes are setting record highs. Nevertheless, tariffs and the possibility of an escalating trade war remain front and center on the minds of many individual investors. Also influencing sentiment are Washington politics (including President Donald Trump), economic growth, interest rates (including monetary policy), valuations and corporate profits.

This week’s special question asked AAII members which industries or sectors they like right now. Roughly 26% of respondents say the technology sector, while 18% say the health care sector. Eight percent of respondents favor financials, 7% currently like the energy sector, while consumer staples, real estate investment trusts (REITs) and aerospace & defense tied for 6% each. There is a small percentage (6%) that say they don’t follow industries or sectors.

Here is a sampling of the responses:

• “Real estate. As long as the economy is humming and people are fully employed, demand is going to increase. Now, if only we could turn up inflation a bit!”
• “Some automotive, some tech.”
• “I believe in high-end retail like Tiffany’s or Nordstrom.”
• “It’s a growth market right now; you have to be overweight in technology and other growth names.”
• “I don’t follow industries or sectors.”

Bullish: 42.2%, down 1.3 points
Neutral: 31.5%, down 0.6 points
Bearish: 26.3%, up 1.9 points


Bullish: 38.5%
Neutral: 31.0%
Bearish: 30.5%

Individual investors’ fixed-income allocations declined compared to last month, according to the August AAII Asset Allocation Survey. While fixed-income allocations decreased, equity and cash allocations increased.

Stock and stock fund allocations increased by 0.2 percentage points to 68.5%. While the overall stock allocation increased, it’s worth noting that stock fund allocations increased 0.9 percentage points, while stock allocations decreased 0.7 percentage points. The overall stock allocation remains above its historical average of 61.0%.

Bond and bond fund allocations declined by 1.5 percentage points, to 14.4%. The decline moved bond allocations slightly further from the historical average of 16.0%, after coming close to the average last month.

Cash allocations increased 1.3 percentage points, to 17.1%. This breaks the May-to-July pattern of cash allocations staying between 15.7% and 15.9%. While cash allocations increased, they remain well below the historical average of 23.0%.

Investors likely focused on earnings season during August, which showed strong corporate earnings growth. While tariff concerns remain, these concerns haven’t significantly affected individual investors’ asset allocations.

Last month’s special question asked AAII members whether their long-term strategy, the returns of various asset classes or the yield curve has the biggest impact on their asset allocation decisions. Two-thirds (67%) of respondents say their long-term strategy has the biggest impact. Many respondents discuss the importance of sticking to it, while others discuss their desire for dividend income. Nearly 16% say the returns of assets—particularly stocks versus bonds—have the biggest influence on their allocations. Just 8% say the yield curve is having the greatest impact on their allocation decisions.

Here is a sampling of the responses:

• “A long-term strategy only works if you stick with it, so that is what I do.”
• “My long-term strategy, which includes the returns of various asset classes.”
• “The returns of various asset classes, because I want to position my portfolio to maximize its return on investment.”
• “My long-term strategy is long-term with dividend-paying stocks. Invest and hold until results dictate a change.”
• “As the yield curve rises, I will allocate more to bonds/bond funds and less to stocks/stock funds.”

• Stocks and stock funds: 68.5%, up 0.2 percentage points
• Bonds and bond funds: 14.4%, down 1.5 percentage points
• Cash: 17.1%, up 1.3 percentage points

• Stock Funds: 37.6%, up 0.9 percentage points
• Stocks: 30.9%, down 0.7 percentage points
• Bond Funds: 11.5%, down 1.0 percentage point
• Bonds: 2.9%, down 0.5 percentage points

Take the Asset Allocation Survey.

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