Posts in Politics

Post-Election Reflections

November 10th, 2016 Posted by Investor Behavior, Politics 0 thoughts on “Post-Election Reflections”

Whether you’re feeling elated, deflated or mostly just jaded about what just happened in the U.S. elections, we wanted to share a few thoughts related to the “What’s next?” that may be on your mind.

First, a word: There are more than enough political analyses available from even a single Google search, so we won’t enter into that fray ourselves.

With respect to our clients’ investments, here’s a quick reminder of how we feel about that: Ample evidence informs us that it is unwise to alter your well-thought-out, long-term investment strategy in reaction to breaking news, no matter how exciting or grim that news may seem, or how the markets are immediately responding.

As we saw with the unexpected outcome of this summer’s Brexit referendum, the biggest surprise may be how resilient markets tend to be, as long as you give them your time and your patience. In fact, early results indicate that the markets may already have priced in the possibility of the relatively long-shot outcome that occurred.

That said, if any of our clients want to make changes to their investment portfolio in the aftermath of Tuesday’s election, we urge them to be in touch with us first, so we can do the job they hired us to do. Specifically, they can count on us to advise and assist them based on our professional insights, their personal goals and – above all – their highest financial interests.

In the meantime, consider these words by billionaire businessman and “stay put” investor Warren Buffett, from his 2012 letter to Berkshire Hathaway shareholders:

“America has faced the unknown since 1776. It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful). American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor. … The risks of being out of the game are huge compared to the risks of being in it.”

Buffett published these sentiments on March 1, 2013, shortly after the last presidential election cycle. If you review the volume of his writings, you’ll find that he has expressed similar viewpoints on many occasions and through many markets, fair and foul.

Presidential terms are four years long. If you are one of our clients, your investment portfolio has been structured to last a lifetime. Remember that as you consider your personal “What next?” … and please call us if we can assist. And if you are not our client, we still encourage you to give us a call at 203-985-0448. We’d be happy to answer your questions.

Presidents, Politics, and Your Portfolio: Thinking Beyond Stage One

August 31st, 2016 Posted by Investment Strategy, Investor Behavior, Politics 0 thoughts on “Presidents, Politics, and Your Portfolio: Thinking Beyond Stage One”

It’s no surprise that this year’s U.S. presidential race has become a subject of conversation around the globe. In “Why Our Social Feeds are Full of Politics,” Canadian digital marketing executive Tara Hunt observes, “American politics, it seems, makes for high-intensity emotions far and wide.” The intensity will probably only increase as the November 8 election date nears.

We are by no means endorsing that you ignore what is going on in the world around you. Politics and politicians regularly and directly affect many aspects of our lives and our pocketbooks. But as you think through this year’s raucous race, remember this:

The more heated the politics, the more important it is to establish and maintain a well-planned, long-term approach to managing your investments.

So go ahead and talk politics all you please – and if you are an American, be sure to vote. But when it comes to your investments, it’s best to ignore any intense emotions and the dire or ebullient predictions that spring from them, as dangerous distractions to your financial resolve.

Thinking in Stages

Have you ever heard of stage-one and stage-two thinking? They’re terms popularized by economist Thomas Sowell in his book, “Applied Economics: Thinking Beyond Stage One.” Basically, before acting on an event’s initial (stage one) anticipated results, it’s best to engage in stage-two thinking, by first asking a very simple question:

“And then what will happen?”

By asking this question again and again, you can more objectively consider what Sowell refers to as the “long-run repercussions to decisions and policies.”

Investing in Stages

In investing, we see stage-one thinking in action whenever undisciplined dollars are flooding into hot holdings or fleeing immediately risky business. Stage-two thinking reminds us how often the relationship between an event and the world’s response to that event is anybody’s guess and nobody’s certain bet. A recent Investopedia article, “Does Rainfall in Ethiopia Impact the U.S. Market?” reminds us how market pricing works:

“No one knows how any of these events will impact markets. No one. That includes financial advisors who have access to complex computer models and investment strategists in the home office with cool British accents. They don’t know, but their livelihood depends upon appearing to know. Few of them are ever held accountable for the innumerable predictions they got wrong. They simply move on to the next prediction, the next tactical move.”

Investors should avoid trying to predict future market pricing based on current market news.

Reflections on Presidential Elections

Stage-two thinking is especially handy when considering the proliferation of predictions for anything from financial ruin to unprecedented prosperity, depending on who will next occupy the Oval Office.

Again, the problem with the vast majority of these predictions is that they represent stage-one thinking. As financial author Larry Swedroe describes in a US News & World Report piece, “Stage one thinking occurs when something bad happens, you catastrophize and assume things will continue to get worse. … Stage two thinking can help you move beyond catastrophizing. … [so you can] consider why everything may not be as bad as it seems. Think about previous similar circumstances to disprove your catastrophic fears.”

In the current presidential race, we’re seeing prime examples of stage-one thinking by certain pundits who are recommending that investors exit the market, and sit on huge piles of cash until the voting results are in. At least one speculator has suggested that investors should move as much as 50 percent of their portfolio to cash!

And then what will happen?

Here are some stage-two thoughts to bear in mind:

  • Regardless of the outcome of the election, there’s no telling whether the markets will move up, down or stay the same in response. By the time they do make their move, the good/bad news will already be priced in, too late to profit from or avoid.
  • In the long run, the market has moved more upward, more often than it moves downward, and it often does so dramatically and when you least expect it.
  • Moving to cash would generate trading costs and potentially enormous tax bills. Worse, it would run contrary to having a sensible plan, optimized to capture the market’s unpredictable returns when they occur, while minimizing the costs and manageable risks involved.

In this or any election, stage-two thinking should help you recognize the folly of trying to tie your investment hopes, dreams, fears and trading decisions to one or another candidate. Politics matter – a lot – but not when it comes to second-guessing your well-planned portfolio. If you still have questions, please give us a call at 203-985-0448.

No Reason to Fear Brexit – Why We Prepare and Don’t Panic

June 30th, 2016 Posted by Economics, Foreign Investing, Investor Behavior, Politics 0 thoughts on “No Reason to Fear Brexit – Why We Prepare and Don’t Panic”

Throughout the first part of last week, polls in Europe predicted that the U.K. would choose to remain a member of the European Union (EU). Global stock markets rallied based on those forecasts. However, the opposite happened. The U.K. will spend the next two years determining how to disengage from the EU.

The “Brexit” vote is a perfect example of why we do not make investment decisions based on predicting or forecasting the future. What we do is PREPARE and PLAN for the unexpected. One way we do that is by owning high-quality U.S. bonds, CDs, bond funds and Treasury securities in all client accounts. When the unexpected happens in the financial markets, money leaves risker assets, like stocks, and flows into the safety of high-quality fixed income investments. The U.S. dollar improves. Global interest rates fall. Bond prices rise. Stocks decline.

So what? Now what?

Larry Swedroe, our Director of Research through the BAM ALLIANCE, recently shared some sage advice in an article he wrote on what to do in a similar situation. To summarize:

Avoid making things worse. Do not focus on the bad news and spiral downward into a cycle of negativity about the future. This cycle begins with a perfectly reasonable worry that snowballs into a perceived catastrophe. Do not go there. This emotional state leads to indecisiveness, and that causes investors to abandon well-conceived plans and investment discipline.

Imagine a positive outcome. Find the silver lining in the dark clouds. For example, European stock valuations are now more attractive than U.S. stocks. Lower valuations point to higher future returns for long-term investors. European stocks have positive earnings momentum, whereas U.S. stock earnings are close to a peak. European central banks will be providing increased liquidity while the Federal Reserve is less accommodative. Negative interest rates in Europe will cause investors to move into stocks once the dust settles.

Engage in “stage-two thinking” not “stage-one thinking.” “Stage-one” thinking perceives the risk in a crisis but cannot see beyond the event, so the stomach takes over investment decisions. On the other hand, Warren Buffett engages in “stage-two” thinking. He expects that a crisis will in turn lead governments and central bankers to come up with solutions to address the problem. While he doesn’t know specifically what those actions will be, he knows that the greater the crisis, the greater the response is likely to be. That allows him to see beyond the crisis at hand, enabling his head to keep control over his stomach and his emotions.

So what? Now what? There is no reason to fear the U.K.’s decision to leave the European Union, but expect that increased volatility will present opportunities to rebalance portfolio allocations into global stocks at lower valuations, thus providing the potential for higher future returns.

[Photo Credit: Flickr user James Cullen]

Brexit Votes and Market Outcomes

June 28th, 2016 Posted by Economics, Foreign Investing, Investment Strategy, Investor Behavior, Politics 0 thoughts on “Brexit Votes and Market Outcomes”

Here at OpenCircle, we get it. Following the Brexit referendum and its startling outcome, it’s hard to view current news without feeling your stomach twist over what in the world is going on. Whenever the markets shift dramatically downward, your instincts deliver a sense of unrest ranging from discontent to desperation.

Financial author Larry Swedroe has called this your GMO response: Get me out! The Wall Street Journal personal finance columnist Jason Zweig explains it this way: “Losing money can ignite the same fundamental fears you would feel if you encountered a charging tiger, got caught in a burning forest, or stood on the crumbling edge of a cliff.”

Basically, you can’t help it. These sorts of responses are being generated by basic reflexes in your brain, over which you literally have no control.

What’s Next?

So, first, take a breath. Now another one. Next, remember that there is a fine line between remaining informed about global goings on, versus letting an onslaught of news take over your brainwaves and trick you into rash reactions.

In that context, it doesn’t take long to realize that the Brexit news raises myriad questions, with few swift and comforting answers currently available.

In lieu of fixating on the bounty of in-depth analyses (when in reality the answer to exactly what is coming next is: “Who knows?”) it’s worth remembering that capital markets have been encountering and absorbing startling news for centuries. When viewed close up, the mechanics can be ear-piercingly loud, but they actually have a history of working marvelously well in the long run – at least for those who heed the evidence on how to participate in the upside rewards while managing the inevitable downside risks.

What Should You Be Doing?

If you are one of our clients, you know that we work to accurately position your portfolio to withstand high market risk when it occurs. This means that you have already prepared as best you’re able. And at this time you should be doing very little… which we understand, can be one of the very hardest things to (not) do. So let’s talk about that.

While the outcome of the Brexit referendum is certainly new and different, its impact on the market is old hat. These are the sorts of events we have in mind when we prepare and manage our clients and their portfolios. Using global diversification, effective asset allocation and careful cost management, the goal has been – and remains – the same. Our aim is to expose our clients to the market risks and expected returns they need for building or preserving their wealth, while minimizing over-concentration in any one holding. That way, they are best positioned to avoid bearing the “Ground Zero” worst of it when market crises do occur.

Even so, the unfolding events may cause some people to realize that they aren’t as keen as they thought they were on bearing market risk. Real life is very different from theoretical exercise.

If this is the case, we get that too. Still, we would strongly suggest that this is no time to act on those insights. In fact, it’s likely to be the worst time to do a “GMO.” First, it is likely to incur significant avoidable financial loss. Plus, while it may temporarily feel better to have “done something,” it leaves you with no plan for the future. That can generate more chronic unhappiness than it briefly relieves. Life is too short for that!

If you have a solid plan, but are still having your doubts, consider your current feelings an important and valuable insight about yourself, but please, please sit tight for now. Do give us a call right away, though, and we’ll explore how best to ratchet down your investment risk sensibly and deliberately. And if you are not our client and don’t believe you have a solid plan, give us a call about that, too.

In short, as an advisor, we’re all about safeguarding our clients’ best financial interests. We remain here for them as always. We hope you’ll let us know how you are holding up, and what questions we can answer about the unfolding news. Market analyses aside, we are living in “interesting” times, and would love to chat further with you about them, one on one. We look forward to hearing from you at 203-985-0448.

Teacup Pigs and Your Retirement: John Oliver’s Segment on 401(k) Plans

June 15th, 2016 Posted by 401(k), Investment Strategy, NAPFA, Politics, Retirement Planning 0 thoughts on “Teacup Pigs and Your Retirement: John Oliver’s Segment on 401(k) Plans”

For those of you who enjoy John Oliver’s straight-shooting and hysterically funny slant on the world and are concerned about getting unbiased advice from a fiduciary advisor on your retirement funds, do yourself a favor and watch his June 12th show. As a fiduciary myself who implements passive, low-cost investment approaches for 401(k) plans and clients in general, I can tell you that Oliver’s segment on retirement advice is right on the mark. Work with a fiduciary who is legally obligated to put your interests ahead of their own, get a full accounting of fees (beware 12-b1 fees, broker fees, internal fund fees), and keep aggregate costs low. Also I would add to his list the following: make sure your plan participants are being individually helped and educated based on their situation, protect yourself as plan sponsor by having the fiduciary advisor take responsibility in writing to serve as section 3(21) fiduciary to the plan, and use only index funds or low-cost asset class mutual funds–the ones we use are from Vanguard or Dimensional Fund Advisors. And please spread the word!!!!

[Strong language advisory]


Also read my April 7th blog for even more reasons to want the Department of Labor to succeed in their efforts to bring fair treatment and transparency to retirement fund management.

$17 Billion in retirement funds have been wasted in hidden broker fees

Rising Oil Prices

May 31st, 2016 Posted by Economics, Investor Behavior, Politics, Sectors 0 thoughts on “Rising Oil Prices”

Have you been following recent news headlines about oil prices? Here’s a sampling:

Oil Prices Rise as Supply Concerns Persist – Wall Street Journal, May 24, 2016

Oil price hits $50 a barrel – could it now go on to $55, $60 or $65? – The Week, May 26, 2016

Crude futures stabilize after rising above $50 a barrel –, May 26, 2016

Oil Prices Explained: Signs of a Modest Revival – The New York Times, May 26, 2016

We were enjoying the effects of deflated oil prices for a while. Who doesn’t like paying less to fill up their tank? But prices have recently been restoring themselves, due to lower supply and increased demand. We can feel the result in our pockets. Reading the headlines does not necessarily make us feel better, either.

The situation can feel worse if you have investment holdings in oil. So what should you do?

First of all, go ahead and read the news stories if you want to. Being better-informed does no harm, in and of itself. But be aware of how you may be reacting emotionally.

At OpenCircle, we always tell our clients to keep their impulsive feelings in check when it comes to making investment decisions. Financial matters should be handled calmly, with a clear head, and according to a well-thought-out plan. A good plan builds in healthy diversification across asset classes, so that your portfolio is not overly susceptible to fluctuations in one particular holding. And the best plan is designed to meet your goals, both short- and long-term. The important thing, is to stick to it.

Sticking to your plan on your own may be challenging. It is a question of staying calm and keeping your perspective. To help you do that, it is good to talk to someone you trust who understands your needs and goals and can support you in achieving them.

Whenever we see news that feels like it could threaten the status quo of our lives, it is natural to want to do something about it. So, you can worry if you are so inclined, but before taking any action, talk to someone who will not fan the flames of your worries. Talk to a professional who can help keep the bigger picture in your sights. We encourage you to give us a call at 203-985-0448. We look forward to speaking with you.

[Photo credit: Flickr user Soliven Melinda]

$17 Billion in retirement funds have been wasted in hidden broker fees

April 7th, 2016 Posted by 401(k), Investment Vehicles, Politics, Retirement Planning, Saving 0 thoughts on “$17 Billion in retirement funds have been wasted in hidden broker fees”

On April 6, the Department of Labor (DOL) published the final version of the conflict of interest rule it proposed in April 2015. The new regulations require those who advise on retirement savings plans to adhere to the “fiduciary standard” that our firm has long held dear.

Given the complexity of finance, many customers are simply unaware of hidden fees that may eating into their savings. $17 Billion in retirement funds have been wasted in hidden broker fees. As a Registered Investment Advisor, we are held to a fiduciary standard, and have been transparent about our fees since day one.

Because we’ve always been fiduciaries, these regulations won’t affect our relationship with our clients, but it’s a big win for individuals saving for retirement through their employer-sponsored retirement plans or through Individual Retirement Accounts (IRAs).

The new regulation should provide extra transparency and peace of mind in a relationship retirement savers usually don’t have control over (who their employer chooses to manage their retirement plan). We hope to see the rule result in better investments offered (and better advice given) to retirement plan participants across the country.

We anticipate you’ll be curious about what the ruling means to you, so we have answered a few big questions below:

Why was this regulation proposed?

The DOL fiduciary rule was proposed to better protect people who are saving for retirement as a result of changes in the investment environment. Over the last 40 years, the availability and importance of self-managed investments, such as IRAs and participant-directed retirement plans, has increased. At the same time, the number and complexity of investment products in the marketplace has grown, as well as the creative and sometimes questionable way they are packaged and sold.

Due to this changing landscape, the DOL has issued new conflict of interest rules that apply to retirement plan advisors and IRAs. The DOL believes that requiring all advisors who work with retirement plans to operate under a fiduciary standard will prevent advisor conflicts of interest estimated to lower participants’ returns by 1 percent a year and result in approximately $17 billion lost annually.

Why was there so much opposition to this regulation?

Broker-dealers are generally only required to meet the suitability standard in making investment recommendations rather than operating under the fiduciary standard. The suitability standard required broker-dealers only to recommend a product “suitable” to meet clients’ goals; the fiduciary standard requires an advisor to act in a client’s best interest. The DOL rule changes will require broker-dealers to act as fiduciaries for retirement plan and IRA purposes, affecting the compensation arrangements available to them.

What’s changed? What’s different from before?

The rule requires those advisors who work with retirement plans to do only what’s in the best interest of their clients and to disclose any conflicts of interest. Recommendations that previously would not have resulted in a prohibited transaction may now run afoul of the rules that bar financial conflicts of interest. In its final form, the rule defines who is considered a fiduciary investment advisor. Broker-dealers, insurance agents and others that act as investment advice fiduciaries can continue to receive a variety of common forms of compensation (such as commissions) as long as they are willing to adhere to standards aimed at ensuring that their advice is impartial and in the best interest of their clients.

Who will this rule affect? How?

For clients or participants in 401(k) plans, the new regulation should provide extra transparency and peace of mind in a relationship retirement savers usually don’t have control over (who their employer chooses to manage their retirement plan). We hope to see the rule result in better investments offered (and better advice given) to retirement plan participants.

On the advisor side, the main impact falls on broker-dealers. Broker-dealers frequently receive compensation that varies based on the investment options they recommend, and they will now have to comply with prohibited transaction rules designed around a best-interest fiduciary standard.

Registered Investment Advisors (RIAs) such as our firm, who already are considered retirement plan fiduciaries, do not receive compensation that varies by investment, so the impact will be minimal.

When will the new regulation take effect?

Compliance with the rule will be required beginning in April 2017 (one year after the final rule is published in the Federal Register). Exemptions will be available at that time with a “phased” implementation approach designed to give financial institutions and advisors time to prepare.

The Federal Reserve and Rising Rates

December 9th, 2015 Posted by Economics, Politics 0 thoughts on “The Federal Reserve and Rising Rates”

With the recent spate of positive economic news, highlighted by the strong jobs numbers for both October and November, all signs point toward the Federal Reserve raising the federal funds target rate 25 basis points from 0–0.25 percent to 0.25–0.50 percent. Based on federal funds futures, the market is assigning a roughly 76 percent probability of a federal funds increase. Given that this would be the first interest rate hike by the Federal Reserve since 2006, many clients are beginning to ask, “Should we stay short* and wait for the Fed to raise interest rates before investing?”

Investors need to remember that fixed income markets, just like equity markets, incorporate all known information into bond prices. If investors know the Fed is highly likely to raise the federal funds target rate at its December 16 meeting, then that information should already be priced into the market today.

To see this at work, take a look at the federal funds futures market as well as the yield on the 2-year U.S. Treasury bond. At its meeting on October 28, the Federal Open Market Committee opened the door for a possible December rate hike with the following statement: “In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress — both realized and expected — toward its objectives of maximum employment and 2 percent inflation.” Before this announcement, federal funds futures were predicting a 35 percent chance of an interest rate move in December while the 2-year Treasury rate sat at 0.65 percent. After the announcement, federal funds futures jumped to a 57 percent probability of an interest rate move while the 2-year Treasury yield increased eight basis points to 0.73 percent. As you can see, the market was able to digest this information and price it in rapid succession.

Now that we know a likely rate hike has already been priced into the market, we can answer the question of whether we should stay short and wait for interest rates to rise? The answer is a resounding no. Because this information has already been priced into the market, the only way an investor could profit by staying short is to know that interest rates will either rise faster or higher than the market is currently anticipating.

To illustrate this concept, look at forward interest rates. Let’s say a 1-year Treasury currently yields 0.57 percent while a 2-year Treasury yields 0.94 percent. If you were to invest in both securities and hold them for one year, you would have to reinvest the money in the 1-year Treasury at a yield of 1.30 percent just to break even with the original 2-year Treasury. The market is telling investors that it anticipates the 1-year Treasury to yield 1.30 percent one year from now. Again, the only way it’s profitable for investors to stay short or to wait is if they know the 1-year Treasury yield will be higher than 1.30 percent next year.

Academic evidence shows that no manager can persistently time the fixed income markets. We continue to recommend constructing a high-quality fixed income ladder that will protect client assets in both a rising and falling interest rate environment.

*stay short = invest in fixed income on a very short term basis (or don’t invest at all) in anticipation of higher interest rates

[Photo credit: Flickr user Alex]

Why Diversifying Your Investments Is So Important

October 21st, 2015 Posted by Economics, Investment Strategy, Investor Behavior, Politics, Sectors 0 thoughts on “Why Diversifying Your Investments Is So Important”

Diversify. You hear this word a lot in the investment world. It’s one of those things that many investors know they are supposed to do. But they may not have an in-depth understanding of why it is so important. The advisability of diversification becomes evident when we consider current events.

Most of us have seen at least one recent news headline like this one in the New York Times on Monday, September 28, 2015: “Shell Exits Arctic as Slump in Oil Prices Forces Industry to Retrench.” According to the article, “… Royal Dutch Shell ended its expensive and fruitless nine-year effort to explore for oil in the Alaskan Arctic — a $7 billion investment — in another sign that the entire industry is trimming its ambitions in the wake of collapsing oil prices.”

Potentially scary stuff. The impact on jobs can make it seem even scarier. As reported by the Times, “The industry has cut its investments by 20 percent this year and laid off at least 200,000 workers worldwide, roughly 5 percent of the total work force.”

Did anyone see the Shell pull-out coming? Apparently not, at least externally. In fact, the Times reports, “The decision represented a major turnaround from the faith in the project that Ben van Beurden, Shell’s chief executive, expressed as recently as August.” Perhaps the company was observing less-than-favorable trends, but was holding out hope for good news.

In the end, as the article states, “… the company announced that its one well drilled this summer ‘found indications of oil and gas, but these are not sufficient to warrant further exploration.’ In a statement, it also acknowledged ‘the high costs associated with the project and the challenging and unpredictable federal regulatory environment in offshore Alaska.’”

While environmentalists may be gratified by this latest development in Alaskan oil explorations, it is not good news for Shell or its investors. Which brings me back to the subject of diversifying your investments.

Where securities are concerned, the Shell situation proves how important it is to not have all your eggs in one basket. The more your investments are tied to a specific company or industry, the greater your exposure to financial risk. You need to limit whatever risks you can, but how?

One approach to limiting risk exposure is to invest in high quality bonds. These holdings are guaranteed by the issuer, such as the US government or a municipality. Another strategy is to put money into bank-issued Certificates of Deposit (CDs) that are insured by the FDIC up to $250K. High quality bonds and CDs are safe forms of investment, but precisely because they have a lower risk factor, they do not have the higher expected returns of equities.

So, if you are willing to be exposed to a little (or a lot) more risk in pursuit of higher expected returns, what can you do to try and limit that risk? The answer is straightforward: diversify your investments. And by diversification, I mean investing in multiple industries, not just different companies. I also mean investing globally. In this way, your “fortunes” will not be tied exclusively to one company, one industry, or one country.

Investing does not have to feel like you are gambling with your money. The academic evidence shows that diversification helps reduce investment risk. And an independent, experienced, registered investment advisor can help you do just that.

[Photo credit: LendingMemo]

Can You Afford to Help Syrian Children?

September 30th, 2015 Posted by Investor Behavior, Philanthropy and Charitable Giving, Politics 0 thoughts on “Can You Afford to Help Syrian Children?”

Distressing photographs of little children fleeing from terror… Moving videos of mothers trudging on railroad tracks, carrying their infants into the unknown, any place but where they have been… Endless news stories about countries feeling besieged by refugees… The images can be overwhelming. Perhaps they inspire in you the desire to help, if only you knew how.

Just the other day, one of my clients asked me how she could include more charitable giving in her financial plan. She already had estate provisions for transferring some of her assets to her favorite causes when the time comes. And she makes annual gifts to her local food bank, hospital and art museum. But she wanted to do something meaningful, now, to help Syrian refugee children.

She had done her homework to identify worthy organizations through whom she could channel her giving. She told me that she had checked out online links provided by the major TV networks and found some agencies which promised that 100% of her gift (or close to it) would go directly to aid refugees and children in particular. Then she checked out Google and other internet search engines to learn more. She knew where she wanted to donate her financial gift.

The question my client was facing was, how much could she afford to give? She was willing to make some personal sacrifices, but she felt lost in deciding exactly what to do. She remembered my advice about not making financial decisions based on emotions and didn’t want to make a mistake. But she also felt strongly about wanting to help. So we arranged to meet during her lunch hour.

We reviewed her written investment policy and her long-term financial plan. We discussed her personal and family goals. We examined the overall health of her assets. And we looked at her current charitable impulse in the context of her life.

The fact was, in her case, that her investments had been doing well, and a few of her holdings were showing significant capital gains. It was looking fairly probable also, that before year’s end, we would need to do some rebalancing in her portfolio so that we could “harvest” some capital losses in certain assets. In other words, if we sold some holdings at a loss, that loss would counterbalance the tax consequences of the gains she had experienced.

I told her we could wait and see how things looked closer to the year’s end, at which point we could sell an appropriate amount to raise the necessary cash to make a gift. Or, if the agency she selected would accept a non-cash gift, she could make a donation in the form of some securities which had gained in value, and she wouldn’t incur a tax on that particular gain. But she didn’t want to wait, because she felt that the refugee children couldn’t wait.

After a calm and honest conversation, I helped my client decide how much she could donate if she did it now. We made sure she would have enough cash flow to meet her needs and not jeopardize her retirement plan. After reviewing the numbers, we determined that she could make a donation that felt meaningful to her. I told her we would work out the details from there.

If you are feeling the urge to help those in need and aren’t sure if you are in a position to do so, I encourage you to consult a trusted financial professional. And if now isn’t the right time for you, you may want to revisit the idea in December. Making a charitable gift may not only help others, it may be a smart financial decision.

[Photo credit: IOM Iraq]