"Helping You Navigate the Course to Financial Freedom"
July 2015

It's All Greek to Me....


By Leslie T. Beck, CFP®, MBA

Despite recent headlines predicting global economic doom and gloom, the US economy seems to be exiting the funk it entered just a few months ago.

You can see it in the pick-up of job creation in April and May, according to data provided by the U.S. Bureau of Labor Statistics. You can see it in the faster pace of housing sales in the all-important spring selling season (National Association of Realtors, U.S. Commerce Department). And you can see it in willingness of consumers to spend (U.S. Bureau of Economic Analysis).

That's a plus for S&P 500 company profits, which are forecast to rise a modest 2.2% in Q2 versus one year ago, compared to an estimated decline of 2.8% expected at the start of the quarter (Thomson Reuters).


Market performance as of June 30, 2015




3-year* %

Dow Jones Industrial Average




NASDAQ Composite




S&P 500 Index




Russell 2000 Index




MSCI World ex-USA**




MSCI Emerging Markets**




Source: Wall Street Journal, MSCI.com       *Annualized             **USD


But let's address those doom and gloom headlines. In one word, it's Greece (although China might be the next word, based on huge market drops this week in the Chinese equity markets). Greece is a small nation in southern Europe.  In 2014, the U.S. exported $773 million in goods to Greece.  Its entire economic output is comparable to that of the state of Connecticut.

Greece is a beautiful country that is rich in history, and it's on my "bucket list" of countries to visit.  However, from a simply economic standpoint, a default by Greece won't have any effect on the real U.S. economy.

That said, the worries that are roiling our markets are squarely focused on the credit markets, the financial markets, and the banking system. This could have an impact at home.


Should the latest blow-up be a surprise? Well, not for students of economic history. You see, since Greece became an independent nation in 1829, it has been in default or rescheduling its debt 51% of the time through 2006, according to analysts at First Trust.

This most recent crisis started in 2009, so financial markets have had plenty of time to prepare. At least that is the prevailing wisdom.


What's different this time around is that Greece no longer has an independent currency - the drachma. Instead, it is part of the 19-nation European bloc that shares the euro.

A relatively new arrangement, no country has ever exited the euro bloc.  Such an event, if it were to occur, creates a heightened level of uncertainty because markets are woven together - like pulling a loose thread on a sweater, no one is quite sure how much will unravel.

Short-term, stock markets do not like added uncertainty - for proof see the nearly 2% selloff in the Dow on June 29 (MarketWatch).


That drop in stocks may have just been an excuse to sell, since the decline was preceded by an inordinate amount of complacency in markets over the last couple of months. And while Greece has been in the headlines, there has also been a general expectation that we'd eventually get some type of "kick-the-can-down-the-road" deal.  But certainly the markets are jittery, and any excuse for a market pullback may be seized upon by nervous traders.


Let's get back to the central issue - credit markets


Economically speaking, remember that Greece is too small to impact the global economy. But if it can create significant tremors in credit markets - think the fallout from the collapse of Lehman Brothers in September 2008 - it can leave its mark.


Unlike the Greek crisis of 2010 and 2011, the private sector holds very little in the way of Greek debt - eurozone banks hold about $6 billion (MarketWatch, JP Morgan). Most of it is held by European institutions like the IMF, the ECB, and European governments. Therefore, it is less likely a Greek default would spread across Europe and impact the credit markets.

Skeptics, however, would argue that we're set to enter uncharted waters, raising the possibility of something more serious.


In the aggregate, about $350 billion of Greek debt is at risk, but only around $40 billion resides in commercial banks. Out of that $40 billion, $14 billion is owed to U.S. banks (Guggenheim Investments, MarketWatch).

It really isn't very much, unless a large bank or hedge fund is overexposed to Greece. In 1998, the collapse of the hedge fund Long Term Capital Management nearly created a financial crisis, which was averted with a hastily arranged rescue package.


Where do we go from here?


For now, the situation is tense and extremely fluid in Europe. Greek Prime Minister Alexis Tsipras surprised markets when he called a July 5 referendum on creditor demands. A 'yes' vote would likely have kept Greece in the eurozone and soothed investor anxieties. But the 'no' vote creates more uncertainty and could force Greece from the eurozone.


Previously, there was the automatic assumption that a default would result in a return of the drachma (its former currency), but that's unclear at this juncture. A number of possibilities exist, including a parallel currency in Greece.

Or Greece may acquiesce and agree to creditor terms prior to the vote, as reports suggested early in the month. Again, the situation is fluid.


The general consensus suggests a default by Greece will not create treacherous conditions for global financial markets.


It's a different matter for the country itself. In the short-term, it would create very difficult conditions for the Greek population, as was suggested in recent report released by the Bank of Greece. Yet, a much-devalued drachma could help spur growth down the road.

So, how does this impact our investment philosophy?


Investor, know thyself!


It's something I always counsel when speaking with clients. A young person that is, say, 28 years old and has accumulated $25,000 in his or her 401(k) won't need the cash for 40 years. Such an investor has the time horizon that lends itself to a more aggressive posture.

An investor in retirement or closer to retirement may not have the stomach to handle a steep drop in the market. A more conservative approach may prevent such an investor from realizing steep gains in a roaring bull market, but he or she is much more likely to sleep well at night when (and a correction is inevitable) stocks drop.

While markets have been reasonably calm over the last four years, we will eventually hit a rough patch. Stocks will over time recover from such a decline - that has been the trend over the last 200 years.  But you need to be sure you are prepared for such a possibility - those in or near retirement should have at least a year's worth of living expenses available in cash or short term investments not subject to significant principal loss.

The financial plans we recommend take into account bumps in the road. Because no knows the future with certainty, it sometimes surprises us when we get big daily moves. Stepping back and taking a broader perspective, it really shouldn't.


As we've counseled on repeated occasions, look past the daily gyrations and keep your focus on the goal. The long-term, disciplined investor is the one who has historically been rewarded.


If you ever have any questions about your investments or your plan, or want to discuss anything else, please feel free to reach out to me.




In This Issue

How Much Money Should You Leave Your Children?

By Leslie Beck, CFP®


It's an issue clients don't raise directly.  But for many it's THE question lurking behind every retirement discussion and plan calculation - how much money will be left for my kids once I (and my spouse) pass away?  Secondary questions include:  Is there enough for all of us?  And exactly how much IS enough anyway?


Recent news articles concerning inheritance have been directed toward the ultra-wealthy - those with enough money that their children will be left independently wealthy.  Their concerns revolve around maintaining a child's sense of purpose and ambition amid the expectations of such a large wealth transfer.


I'm addressing a different type of inheritance.  Most of our clients, while better off than the

majority of Americans, will not have that kind of wealth to give away.  In contrast, their dilemmas have more to do with maintaining their own lifestyle in retirement while managing children's expectations about what might be left at the end.


Despite popular press stories about retirees' plans to spend everything in retirement, dying with the proverbial $1 left in their accounts, the reality is that type of planning is a "little too close for comfort" to most, so many retirees do indeed die with assets left in their estate.


 In addition, our clients worked hard to raise their families and save enough for retirement.  Despite having spent large sums to raise and educate their children, they remember their own struggles getting established in life, and would like to do what they can to ease those struggles for their own children and grandchildren.

But should that be a primary or even secondary concern when doing retirement planning? 

A 2013 study published in the journal The Geronotologist examined poll data from older Americans (ages 59-96) and their children (ages 40-60).  Among the parents, 86% expected to leave an inheritance of some sort to their children.  However, only 45% of their children expected to receive one.  Interestingly, adult children who were CURRENTLY receiving monetary support from their aging parents had a higher expectation of receiving something once their parents were dead than adult children who were receiving no current support.


Children in the study tended to consider their own financial situation when forming expectations on inheritance, while parents tend to plan bequests WITHOUT regard to a child's financial status.


So it seems the majority of adult children do NOT expect their parents to continue to scrimp and save in retirement in

order to leave them an inheritance.   However, the study findings imply that honest discussions between the generations regarding inheritance expectations remain few and far between.  


What is the solution to this disconnect between intention and expectation?  A first step would be open and frank conversation between the parties involved.  Parents should have clear intention and agreement as to the lifestyle they expect to lead in retirement, as well as what gifting/support they expect to provide to children while living and in death.  Any charitable inclinations should also be agreed to, and ideally planned for in estate documents.

Once agreement is reached between spouses or partners, we recommend an initial family meeting with adult children to go over parents' estate and retirement plans, perhaps moderated by a trusted third party.   While discussion is encouraged, it must be made clear that it is the parents who will make any final decisions regarding the disposition of their assets.   Children should be kept updated as to any substantial change in plan or status to prevent misunderstandings and/or hard feelings.


As with any issue involving money, clear and honest communication is the first step toward healthy resolution.  Please feel free to contact us if you have concerns about your own family's gifting or inheritance plans.



Are You Sleeping on a Pile of Cash?  Why It's Hazardous to Your Financial Health


One the first things I advise clients is to build up a cash emergency fund of anywhere between 6 months' and a year's worth of expenses.  When we run into trouble (and there is always trouble!), there's nothing more comforting than knowing we have a "cash stash" to help us through the rough times. 


However, some people take this kind of advice too literally.  In a recent survey by American Express, over 57% of respondents said their savings consisted entirely of deposits at their local bank (checking, savings, CDs) .  About 29% of respondents kept their savings TOTALLY in cash, and half of those admitted to hiding that cash in a secret location in their home!


While cash has some advantages, its main disadvantage is a big one - every day inflation nibbles away at the buying power of that cash hoard.   We can all name an item that costs more today than it did just a few years ago.  Prices go up, but without being invested cash has no way to grow.


And inflation is not the only risk to that cash.  In case of theft, fire, or other natural disaster most renters and homeowners insurance protect only a minimal amount, typically $200.  Those with dementia or other conditions affecting memory can forget where the cash is hidden, creating issues for caregivers and heirs.  When my brother's in-laws passed away, he and his wife found cash hidden everywhere as they cleaned up her parents' house to prepare it for sale.  Her parents had hinted but never said outright that they had cash in the house, and later developed dementia - who knows if all of it was found?

If you have than a few hundred dollars in cash in your home, you have too much.  Emergency funds should be kept in an insured bank or credit union account - the FDIC insures balances up to $250,000.  Additional funds should be invested according to your goals and risk tolerance.  Investing has its risks, but over the long term a diversified portfolio of equities and fixed income has proven to beat inflation.  We can't say the same about cash.


If you have any questions about managing your cash, please give us a call.


Sweet dreams!





Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA), Member FINRA, SIPC. Supervising office at 678-954-4000. Financial planning offered by Compass Wealth Management LLC. Leslie Beck and Martin Siesta are registered representatives and investment advisor representatives of SFA, which is otherwise unaffiliated with Compass Wealth Management. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary.  Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.  For more information visit www.compasswealthmanagement.net