Our Blog

DWM is committed to learning for its team, clients and friends. In this changing world, it’s extremely important to stay current in all areas impacting your financial future.

We encourage all of team members to “drill down” on current topics important to you and contribute to our weekly blogs.  Questions from our clients and their families are often featured in our blogs.  

Financial literacy for clients and their families is very important to us.  We generally hold an annual wealth management seminar for all of our clients.  We encourage regular, at least semi-annual, meetings in person with our clients to review family updates, progress on financial goals, asset allocation and performance of investments.  We’re happy to assist younger members of the family as part of our total wealth management program.

Here’s our latest blog:

 

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Innovation: Showcasing Efficiency and Tightening Security

Written by Jake Rickord.

Companies in the 21st century are constantly looking for way to move their services to the next level of the digital age. Accessibility, convenience, and speed are major factors that industry leaders always look to improve upon, and Charles Schwab & Co., Inc. is no different.

Over the past few weeks, Schwab has put on several presentations in cities across the nation to showcase their technological advancements in a series they call Schwab Solutions. At DWM, we were lucky enough to attend one of these presentations and learned of a lot of exciting new features and opportunities that we believe can assist our clients. Here are some of the highlights:

  • E-Signature->For existing clients looking to open a new account at Schwab, we can utilize a new process called e-signature to send the documents over to your Schwab portal. Simply let DWM know your intention to open a new account, and we can work up the forms to do so. Once the forms are ready, we can send a request for your e-signature, which will send a notification to your Schwab Alliance account. This will assist in opening your account faster, more securely, and with no paper waste!
  • E-Approval->For check and journal requests (moving money from one account to another at Schwab), we can follow a very similar process to the e-signature process, with e-approval! Once again this reduces processing time, paper waste, and improves document accuracy. Schwab is also working to bring this feature to MoneyLink requests, so stay tuned for that improvement!
  • Mobile Deposit->The Schwab app also allows investors to scan/take a picture of the front and back of a check and upload them for deposit, usually within the same day!
  • The Schwab platform itself is receiving an overhaul in the coming months, which should provide clients with a much sleeker, more intuitive experience. A major difference to come will be a personal value chart, which will display a simplified net worth statistic based on the accounts at Schwab, as well as the ability to add in accounts outside of Schwab (think 401ks)!
  • In addition to the aesthetical changes, the Schwab portal now has much more client interactivity than before, which will allow investors to update various information on their accounts all from within the website, no paperwork involved. These various services include:
    • Updating accounts in case of address change
    • Beneficiary updates on IRAs
    • Tax withholding percentages for IRAs

As with any technological advancement, new security challenges often emerge, and Schwab, as well as DWM, are your first line of defense against these threats. For Schwab's part, they have bumped up security in some major ways:

  • Whenever a new device is used to access a Schwab portal, a text or e-mail is sent (depending on how the security of the specific account is set-up), to ensure that fraudsters are not trying to access your account information electronically.
  • In addition, Schwab offers a security feature called two-factor authentication, which allows for an app on your phone to provide a six-digit code to follow your Schwab Alliance password, further ensuring that only the account holder can access their sensitive information.
  • Finally, one further security measure clients can choose to utilize is called Schwab Voice ID. With this service, a client calls in and answers some basic questions to the Schwab Alliance team, through which their Voice Biometrics system analyzes the quality of your voice. Then, if any suspicious activity occurs in your accounts, Schwab will call and verify the activity with you, using the Biometrics system to ensure that the voice on that end of the line is actually the account holder.

As far as DWM goes, our stance and determination in protecting our clients’ information remains resolute. We are completely committed to client security, and will continue to both provide education to keep our clients informed of rising threats, as well as keeping ourselves up-to-date about viral issues and staying abreast of any suspicious account behavior. For example, one of the most dangerous areas regarding theft and fraud currently going on are real estate scams. Hijackers will find a way into legitmate e-mail threads regarding wire information for a client buying property, and provide phony wire information. As a result, verbal verification is the new normal. As part of our safeguarding protocol, DWM will be calling the client and/or the title company to verify these wire instructions to ensure that everything goes as planned.

At DWM, we are passionate about protecting our clients and helping them shape their financial future, worry-free. This is seen throughout our wealth management process, from investing to account management, to financial planning. We aim to help clients notice and avoid any landmines that might be hiding in their long-term financial plan. Providing safer, more efficient ways of accessing and updating their accounts, while also actively monitoring for suspicious activity and ensuring accuracy is an effective method of doing so. 

Please feel free to stay updated on Schwab's technological advancements through their "Client Learning Center" page found here:

http://content.schwab.com/learningcenter/

Please also feel free to contact DWM with any questions or concerns regarding either advancements or safety.

At DWM, we are passionate about protecting our clients and helping them shape their financial future, worry-free. This is seen throughout our wealth management process, from investing to account management, to financial planning. We aim to help clients notice and avoid any landmines that might be hiding in their long-term financial plan. Providing safer, more efficient ways of accessing and updating their accounts, while also actively monitoring for suspicious activity and ensuring accuracy is an effective method of doing so. 

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Biases: Fluid & Fuzzy vs Rational

Written by Lester Detterbeck.

bias_black_and_white.pngIn a perfect world, we would all make optimal decisions that would provide us with the greatest value and satisfaction. In economics, the rational choice theory states that when you are presented with options, you would choose that which maximizes your personal satisfaction. This theory assumes that you make your decision by weighing the costs and benefits, without emotion and external factors. If it were only that simple.

Enter behavioral economics. It draws on psychology and economics to try to explain why people sometimes make irrational decisions, i.e. not following predictions of economic models based on a consistently rational, self-interested, and “utility” maximizing approach? Psychology explains this deviation of behavior from what is expected rationally to be caused by “biases.” Common examples of biases include:

  • Anchoring- relying too heavily on one piece of information
  • Confirmation-focusing on information that confirms one’s preconceptions
  • Endowment-demanding much more for something owned than what you would be willing to pay to acquire it
  • FOMO- Fear of missing out- paying too much to get into the “game”
  • Loss aversion- valuing the pain of losing twice as much as the satisfaction of making a gain
  • Normalcy- refusing to plan for a potential disaster that has never happened before
  • Recency- predicting the future results by expected recent results to continue

Koen Smets’s recent article in the Behavioral Scientist “There is More to Behavioral Economics than Biases and Fallacies” defines behavioral economics as the field that confronts us with our deeply potentially irrational selves. “We are bamboozled by biases, fooled by fallacies, entrapped by errors, hoodwinked by heuristics, deluded by illusions.” Ouch.

This brings to mind Ebenezer Scrooge’s question of the Ghost of Christmas Future: “Are these signs of things that will happen or may happen?” Perfect question, Ebenezer. Actually, there is a widespread misconception that biases explain or even produce behavior. Biases merely describe behavior that may or may not be followed. They are simply labels for an observed behavior that contradicts traditional economics’ simplified “rational” expectations.

The conversation about biases is generally negative: they interfere with our decision making or undermine our health, wealth and happiness. For example, consider loss aversion. Ten of thousands of years ago, humans were more concerned about losing a week’s food supply than gaining an extra week’s. Today, an individual might never invest their cash because of a fear of losing money and have the purchasing power of their funds decreased by inflation. This loss aversion is part of our evolutionary DNA, but that doesn’t mean that we have to exhibit that behavior.

Biases are tendencies that are not uniformly shared or employed. Mr. Smet describes human behavior as “fluid and fuzzy.” These days, speed and simplification are keys and behavior based on biases is increasing. Knowing that people are taking shortcuts, marketing has really stepped up its game.

“Heuristics” are really becoming huge. They are the various techniques we use to solve problems, learn or discover by using shortcuts. Persuasion heuristics save us time and effort in making many of the hundreds of decisions we are confronted with each day. Robert Cialdini, author of “Persuasion and Marketing” and political consultant, offers six key principles to persuading (or perhaps hoodwinking) a consumer using heuristics:

  • Authority-the voice or face of authority drives results. (Celebrity endorsements work)
  • Commitment and Consistency-consistent follow through establishes trust (Repetition works)
  • Scarcity-create hype based on time limits and expirations. (I see this every time I go to book a hotel room)
  • Liking-people are persuaded by others liking something. (Tripadvisor)
  • Social Proof- Show evidence of results. (People like to hear positive statistics-whether or not they are true)
  • Reciprocity-Offer discounts, free trials, sample products (people tend to “return a favor”)

We know biases exist. Some of them are in our DNA; some we learn over time. At the same time, people and companies are aware of these potential biases as they are marketing their products, services, or suggestions. Certainly, for many small decisions we need to make every day, there is no problem with taking a shortcut and even employing a bias.

However, when it comes to really important decisions, such as your wealth and happiness, it’s time to step up your game and move from fluid and fuzzy to rational. These very important decisions generally take more time and require more due diligence.   You need to make sure you thoroughly and objectively understand and investigate choices and understand the likely risks and rewards of each. To keep yourself “bias-free” at these times, you may benefit from having the expertise, skill and objectivity of a wealth manager like DWM who works with these important matters every day. There’s a time for fluid and fuzzy and a time for rationality. We’re here to help you when it’s time for rationality. Give us a call.

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Paychecks 101

Written by Grant Maddox.

 

GetFile.jpgEveryone always remembers their first paycheck and asking themselves, “Who’s FICA, and why is he taking all of my money?” If you’re like most people, the number that really matters to you is the bottom line: money in the bank! You may even throw out the rest of your pay stub. However, it is so important to review your pay stub and be able to analyze the information you find there to spot potential errors.

While your paycheck may not always give you the physical wealth you were looking for, it will give you a wealth of knowledge about your finances. Carefully reviewing pay stubs is a step we at DWM take with all of our clients to ensure they’re clear on available benefits, tax rates, employer matches, withholdings, and more.

So, without further ado, here’s a comprehensive guide to reviewing and analyzing your pay stub.

 

Important Terms and Definitions

 

First, to help you better understand the different acronyms within your pay stub, let’s take a look at a few of them and their definitions:

 

YTD: Year-to-date

PPD: Pay period

REG: Regular hours worked

OT: Overtime hours worked

HOL: Paid holiday hours

VAC: Paid vacation hours

PTO: Paid time off

FT or FTW: Federal tax withheld

ST or STW: State tax withheld

LT: Local tax withheld

SS: Social Security tax

MED: Medicare tax withheld

FICA: Your employer’s portion of the Social Security and Medicare taxes

WC: Workers’ compensation contribution, typically paid by your employer

 

Additionally, there are a number of terms you will need to know:

 

Gross pay: This is the total amount you earned during the given pay period (pay period discussed below). It includes your wages or salary, plus bonuses and tips if applicable. Most pay stubs will also include how much you’ve earned year to date.

 As almost all areas of your pay stub relate to gross earnings, this number is usually located on the first line of your pay stub with the remaining figures telling you how much of those earnings were withheld for taxes and other uses.

 Pre-tax benefits: Some benefits may appear on your pay stub as pre-tax income. For example, if your employer pays for some or all of your childcare expenses, travel expenses, or your parking pass, these may show up as taxable benefits.

 Net pay: Also known as “money in the bank,” this number is what you receive as your paycheck after taxes, insurance premiums, retirement contributions, and other deductions have been taken out.

 Pay Period: By looking at the dates on your pay stub (usually located at the very top of your pay stub), you can tell if you’re being paid monthly, weekly, or bi-weekly. This helps to know if you need to multiply your current pay by 12, 52, or 26 to determine annual salary. If you are using a mid-year pay stub, you may multiply your current pay by the number of pay periods remaining and add this to your year-to-date figure, mentioned earlier.

 Federal income tax: Your pay stub will show how much money was taken out of your gross pay for federal taxes. The exemptions you claimed on your W-4 form determine the amount withheld for federal taxes.

 With recent changes to income tax brackets in 2018, federal income tax withholding is an area you should review thoroughly. To see if you are currently withholding enough or too much, go to https://www.irs.gov/individuals/irs-withholding-calculator.

 State income and local tax: If you live in a state that requires that you pay an income tax, that number will also be determined based on your W-4 exemptions.

 Social Security tax: The federal government requires that every employee and employer pay a tax for Social Security purposes. You, as the employee, pay 6.2 percent of up to $128,400 in wages for 2018. So, if you earn $100,000 per year, your Social Security tax comes out to $6,200 for the year. This tax makes it possible for you to receive Social Security benefits when you retire.

 Medicare tax: Similar to the Social Security tax, the Medicare tax is mandatory for employees and employers alike. You’ll pay a 1.45 percent tax on wages up to $200,000 ($250,000 if married) for 2018. There is an additional 0.90 percent, 2.35 percent overall, tax on wages over $200,000 ($250,000 if married). Medicare tax exists so that you can benefit from the program when you come of age.

 

Understanding Your Benefits

 

Now that the hard part (taxes) is out of the way, it’s time to understand your benefits.

 Insurance premiums: If your benefits include insurance like health, dental, vision, life or disability, your employer may require that you pay for at least a portion of the plans’ premiums. That cost will come out of your gross pay automatically, and how much you pay shows up on your pay stub. Be sure to take some time to understand your insurance policies, as well!

 Flex spending account (FSA) or health savings account (HSA): If you opted to participate in an employer-sponsored FSA or HSA, you’d typically see a deduction for these on your pay stub and also note whether your employer has made a contribution (free money!).

 Contributions to your retirement plan: This figure is how much you agreed to contribute to your employer-sponsored retirement plan. Common retirement plans include 401(k), 403(b), and 457 plans. If you get a match (more free money!), this number is on your pay stub, too, which shows you how much your employer contributed.

 You can divide your employer’s contribution by your gross pay to determine what percentage they’re contributing to your retirement. If you know your employer matches your contributions up to a certain percentage limit, this is a good area to see if you are reaching your full contribution potential and whether you need to adjust accordingly.  

 

Now What?

 

Final step! Now that you’ve reviewed each aspect of your pay stub, you have probably come across one or two items you’d like to change. Unfortunately, you can’t do anything about Social Security and Medicare taxes, but you can increase or decrease your federal and state tax withholdings by updating your W-4 form. This can be done by contacting your HR department.

 If you’d like to review your pay stub, DWM is always happy to be your second set of eyes and ensure that your pay stub reflects your best interest.

 

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