Investors, Don't Overlook These Details
by Charles Rotblut | September 04, 2014
If there is one irony about investing that too often goes unnoticed, it’s the practice of focusing on investment selection and portfolio management but failing to properly manage the simple details of one’s estate plan. I’m not talking about setting up complex trusts to get around the estate tax. Rather, I’m talking about ensuring your assets are handled in a manner you want them to be.
You’ll find a good example of what I’m talking about in the new September AAII Journal. Boilerplate language in Donald Sterling’s trust documents designated his estranged wife, Shelly, as the successor trustee were Donald to be found incompetent to serve as trustee. As many of you know, a court allowed Shelly to take control of the trust that owned the Los Angeles Clippers, based on a diagnosis for Donald of Alzheimer’s disease. Shelly subsequently sold the NBA team over Donald’s objections.
A lot of the work to protect yourself and your estate can seem overly simple, but it is very important. I periodically see articles about the unintended consequences caused by someone who didn’t following through on their estate planning procedures. For example, the proceeds from a deceased man’s 401(k) went to his estranged wife because a spousal waiver was not signed before he passed. Simply put, just as you should periodically check your credit report, you should check everything related to your estate plans.
A good place to start is to look at how your accounts are titled. Who is listed, and who has access to which account? This is a good time to think about whether you want one of your children to have the ability to access your bank account and write checks on your behalf. If possible, get a second opinion (e.g., from your spouse) before giving someone new access to your accounts as a precaution against fraud.
Next, check the beneficiary information on all of your accounts, your insurance policies and your trusts. Are names and Social Security numbers correct? Are all addresses up-to-date? If there has been a change in the family (e.g., a divorce, a death, a birth), have the documents been updated accordingly? Spending the time to review this information can help your heirs avoid hassles and ensure your wishes are carried out.
Then look at the documents you already created. Is there anything in your will that needs to be changed? What about the power of attorney documents? Who is on them? Do they know they are listed on the documents, and do you still trust them? (Hopefully, the answer is “yes.”) Is there someone who should be added? If a trust is set up, who is the successor trustee?
Most importantly, think about whether the person you trust to step in and manage your affairs will know how you want your finances handled. A pre-written set of emergency instructions will greatly increase the odds of success. The instructions do not have to be formal or complicated, but they do have to be thorough enough that someone (e.g., your spouse, son or daughter) can step in and immediately know what to do.
We, as investors, spend a lot of time focusing on how to optimize our strategies and minimize our mistakes. In doing so, it’s easy to overlook the details of our account and estimate planning documents even though forgetting about them can have big implications for how our finances are managed.
-
Family and Finances: Start the Dialogue – Useful advice for how to discuss your estate plans and financial planning wishes with family members.
-
A Guide for Dealing with an Estate Planning Attorney – This 2002 AAII Journal article gives a good outline of the types of documents and family situations to discuss.
-
How Much Do Your Children Know About Your Estate Plans? – Tell us on the AAII.com Discussion Boards.
Optimism among individual investors about the short-term direction of the stock market pulled back, but remained above average, in the latest AAII Sentiment Survey. Bullish sentiment is now at a three-week low, while both neutral sentiment and bearish sentiment are at three-week highs.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 7.2 percentage points to 44.7%. Even with the drop, optimism remains above its historical average of 39.0% for the fourth consecutive week.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 2.5 percentage points to 31.4%. The increase puts neutral sentiment back above its historical average of 30.5% for the first time in three weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose by 4.7 points to 24.0%. The increase was not large enough to keep pessimism from staying below its historical average of 30.5% for the 41st time in the past 47 weeks.
A reversion to the mean occurred this week, with bullish sentiment pulling back from an unusually high level and bearish sentiment rebounding from an unusually low level. Even with the shift, it is important to realize that optimism is still nearly six percentage points above its historical average and pessimism is more than six percentage points below its historical average.
Keeping many individual investors optimistic about the short-term direction of stock prices are the S&P 500’s rise above 2,000, earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases. Causing other AAII members to be pessimistic are prevailing valuations, the failure of the S&P 500 to set new highs, events in the Middle East and Ukraine, the pace of economic growth and Washington politics.
This week’s special question asked AAII members how comfortable they are with the valuations of the stocks they currently hold. Half of all respondents said they are comfortable with current valuations. Some of these respondents described valuations as being elevated, but not too high. Others described valuations as being acceptable. An additional 5% of respondents said they were very comfortable with current valuations. At the other end of the spectrum, more than 18% of respondents described themselves as not being comfortable with the valuations of the stocks they currently hold. Many of these respondents said valuations are too high.
Here is sampling of the responses:
- “Valuations are at the high end of normal, but overall, I feel comfortable with where valuations are.”
- “I’m comfortable only because I’m buying quality companies.”
- “I think valuations are too high.”
- “I’m not comfortable, but there are not good alternatives.”
- “I am very comfortable as I believe the stocks I’m investing in are fairly valued, if not undervalued.”
Bullish: 44.7%, down 7.2 points
Neutral: 31.4%, up 2.5 points
Bearish: 24.0%, up 4.7 points
Bullish: 39.0%
Neutral: 30.5%
Bearish: 30.5%
August 28, 2014 Seven Rules for Beating the Market
August 21, 2014 Don’t Assume Beating the Market Is Easy
August 14, 2014 Are Smart Beta ETFs Smart Investments?
August 7, 2014 The Characteristics of High-Return Stocks
Discussion
No comments have been added yet. Add your thoughts to the discussion!
You need to log in as a registered AAII user before commenting.
Create an account