Monthly Outlook: June 2024

School’s out for summer! Last week kids all over the country celebrated graduation, move-ups, and the start of summer. The excitement is palpable as the opportunities for summer fun, from camps to travel to maybe even a summer job, lie before them. Parents surely have mixed feelings of excitement for more family time but more logistical challenges as they balance work and family life. For three months, June, July, and August, we as a country just agree that summer is a time to relax a little, enjoy the bounty that surrounds us, and rejuvenate ourselves even at the cost of a little slower work pace.

As responsible adults and investors, this summer is a particularly opportune time to take off, rise to a 30,000-foot view, and consider the bigger picture. Our managed iFolios are up anywhere from 12% to 20% for the past 12 months, depending on which model you’re in, and the trend across all markets remains “up.” We’ll manage the day-to-day portfolio management minutiae, of course, but together, we could use this summer to also think bigger, and to think longer-term. A Personal Financial Statement is a good way to start.

Personal Financial Statement – What is It? 

A Personal Financial Statement (PFS) is simply a two-page spreadsheet or document that lists your 1) Assets including cash, investment accounts, retirement accounts, real estate, life insurance, business assets and anything else you own; and 2) Debt including credit cards, mortgages, HELOCs, any other debt; to 3) calculate your net worth. It’s pretty simple, really, but few people take the time to create one. We already have the templates and have done many with clients over the years. With a little focus, we can usually knock one out in an hour or two, with your help.

Our version of a PFS goes further than simply a net worth statement, which you may already have. We’ll list every asset and debt, its account number, where it’s held (Schwab, Bank of America, State Farm, etc.), how the account is titled (individually, Joint Tenants, Revocable Trust, etc.), beneficiaries, and of course, value. Once the PFS is created, it’s simple to update it every year and track the growth of your overall net worth.

Benefits of a Personal Financial Statement

Peace of Mind. In most households, one person tends to “handle the finances” and knows where everything “is.” That can leave the other spouse feeling a little vulnerable and unsure about what would happen if they were suddenly left to step-in should something happen to the first spouse. For single people, your heirs or executor of your will would need to know your financial situation if you were to die. Having your will and a PFS in order often gives spouses, heirs, and executors peace of mind.

Asset Allocation Awareness. With a simple two-page PFS, it’s easy to get a clear view about your overall asset allocation. You may be surprised to realize how much of your net worth is in real estate, or maybe it’s in stocks or something else. Is your allocation the optimal mix for growth, income, and preservation, depending on your needs? A PFS really puts each asset into perspective and prompts you to make choices. Is that second house really being used, or is it a money suck? If your stock portfolio is only 16% of your net worth because you’re heavily invested in other assets, do you really need to stress about the daily price changes in the markets? Are your assets producing any income if you need it, or would taxable income and dividends just be a tax disadvantage?

Account Titles and Estate Planning. How you hold your assets is a key factor in your estate planning. Even if you don’t have an elaborate estate plan, titling will affect the ease of settling your estate one day and might have a big impact on any taxes due. Joint accounts, retirement accounts, life insurance, and trusts all have beneficiaries or directives that supersede the will. In other words, these assets will pass to your specified heirs regardless of what your will says. It’s best to get the titling on these right!

So, this summer, let’s have some fun and enjoy a slower pace. But let’s take an hour or two to create your PFS. We’ll help, and we do it for free. When asked what you did this summer, you can say, “I created a Personal Financial Statement!” Ah, the pride you’ll have. Ha.