INSIGHT ON: Wealth Management – Cautious optimism

Posted on Jan 1, 2015 :: Insight On , Wealth Management
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Posted by , Insight on Business Staff Writer

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It’s been awhile since the Great Recession pulled the rug out from under the economy, and now it seems to be weaving itself back together: The stock market had a booming year, real estate is bouncing back and unemployment is on its way down.

With more confidence out there, what are financial planners advising their clients for 2015?

It’s really business as usual.

Kurt Heling of Alberts & Heling CPAs LLC says he views 2015 with “cautious optimism” for a couple of reasons.

“One is 2008-09 is still fairly fresh in people’s minds because it hit them really hard,” Heling says. “Secondly, in this recovery, the market’s been going up. The low point of the market was March of ’09, and it’s been working its way up since then, so we’ve had a five-and-half year run. Now people are starting to look at the market and say, ‘OK, when’s the next crash going to happen and how do we plan for it?’”

How people plan for a crash or market correction, if it happens, really depends on where they are in their careers. “A person in their 40s — they’re going to be able to weather that a lot more easily than a person who’s 60 or 65 and is on the verge of retirement,” Heling says.

Heling says if there is another downturn, people shouldn’t panic. And at the same time, they should not chase returns. If you’ve met someone at a holiday party who says he made 40 percent last year and you wonder why you didn’t, “It’s kind of like that person at the blackjack table or at the slot machine. What are they willing to stick in to win that?” he says. “If somebody made 40 percent in 2014, odds are they’re not going to make 40 percent again in 2015. In fact, history says a lot of times those are the first ones to fall back, and fall back hard if there is a downturn.”

Jim Zuleger, vice president at Baird in Appleton, says every financial plan must be developed individually based on a person’s needs and goals.

“What is the heart of the matter, what are the things we’re really trying to accomplish?” Zuleger says. “And then secondly, we would be reviewing your overall asset allocation: Is our risk tolerance in line with the goals we are trying to accomplish?”

One influencing factor on finances in the coming year could be energy prices and the rebound in hiring, he says.

“Energy is going to be a big thing — what continues to happen overall at the pump,” Zuleger says. “We’re seeing more and more people going back to work, which hopefully puts more people at ease. There are certainly risks at play as there always are, which is why we believe it’s so important to have an overall game plan and long-term focus on anything you’re doing.”

Josh Smith of Associated Financial says corporate earning is increasing and the U.S. economy appears to be doing well going into 2015, though it can depend on what happens overseas.

“The U.S. can continue to support a weaker Europe and a weaker China through 2015, but most likely not past 2015,” Smith says. “And what I mean by saying that is if Europe and China were to continue to slug along or be in a recessionary environment, particularly Europe, 2016 is when we could start to see the equity markets reflect that in valuations.”

Smith estimates 5 to 7 percent overall earnings growth, with a 2 percent dividend yield on top of that. “You could still be looking at a 7 to 9 percent type of return for 2015,” Smith says. “Now, that’s subject to any sort of major geopolitical event or things of that nature.”

People also have been asking about the Affordable Care Act and how it will impact their finances, Smith says, particularly if they’re retiring before the age of 65 and have to fill the gap between an employer health plan and Medicare.

Heling agreed that health care is top of mind for clients and it will impact finances and taxes. Rising medical costs and the effect they have in clients’ retirement years, from the tax side of things to the cost of insurance, will impact the economy, Heling says.

As employer mandates kick in during the next year — with large employers having to meet Affordable Care Act regulations this year and mid-size employers in 2016 — that will all impact the economy as well, Heling says. People underestimate the effect of the act on taxes; it’s potentially huge, depending on whether a person’s income remained the same or changed, which could impact whether or not they receive premium credits and the refund they were expecting.

Another mistake people make generally with finances is not carrying a diverse enough portfolio, Zuleger says.

“We need to have long-term growth within the portfolio, but we also need to be able to sleep at night as well,” Zuleger says. “Finding that balance between fear and greed is the biggest challenge that we try to help people overcome.”