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How to Create A Financial Roadmap: Investing In A Volatile Market

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The market has been heading up, up and away for so long that many investors may not remember (or even experienced in some cases) what it was like to invest during times of extreme volatility. However, the bull market has to end sometime—and probably for longer than a single quarter like we saw at the end of last year.

So how do you go about making investment decisions when it becomes very challenging to find positive returns? It can be tempting to switch out your entire portfolio when there’s a sudden change, but that may not be the wisest move.

Before making any changes, you should consult your financial roadmap, and if you don’t have one, then now is an excellent time to make one.

The Securities and Exchange Commission advises investors to look at their entire financial picture before making any big changes. This step-by-step guide will help you get everything down on paper.

#1. Set goals

Image result for goals

To start creating your financial roadmap, write down any goals that you have. Perhaps you want to purchase a new home in 10 years. You’ll also want to determine when you want to retire, although this age could change over time if you discover that you can’t retire as early as you want to.

Decide what types of things you want to save money for, whether it’s a new home or car, an education, retirement, medical bills, a “rainy day” fund, or anything else.

Don’t forget to set timelines for each goal so you have an idea of when you might be able to achieve these goals realistically. The SEC has a number of calculators and other financial tools to help you set realistic timelines for your goals.

#2. Look at your current financial picture.

Most investors already know the basics, but pulling everything together into a roadmap might seem a bit overwhelming because it can be so easy to forget something.

Even though you may think you know everything you need to know about your current financial picture, just having all of it down on paper will help you get organized. Make a list of all your liabilities and assets, including individual holdings in your portfolio[s].

List all your checking and savings accounts and their balances, the cash value of your life insurance policies, real estate, home, retirement accounts and other investments, and any personal property.

Knowing which stocks or other assets you have money in can make it easier to decide where you want to move your money when the market turns.

On the liability side, list your mortgage, credit card and bank loan balances, car loans, student loans, and any other liabilities. Add up your assets and liabilities and subtract your liabilities from your assets to see your net worth. If you have a negative net worth, you can start making plans to get on track.

The Foundation for Financial Planning has some excellent worksheets to help you get started with making your lists so you don’t forget anything.

#3. Consider your risk tolerance before making any changes.

After you’ve made a list of all your investments and assets, it’s time to think about your risk tolerance. As the winds of the market shift around, risk sentiment will move as well. There is no such thing as an investment that is 100% safe.

A good guideline for determining the best mix of risk in your investments is to subtract your age from 120 and put that percentage of your portfolio in stocks and the other percent in bonds.

For example, a 40-year-old would put 80% of their portfolio in stocks and the remaining 20% in bonds.

Of course, there are many other asset classes to consider too, and picking stocks is literally a full-time job. Thus, you may want to consider an index fund for your stock holdings if you just want to set it and forget it.

However, if you want to take on a bit more risk in part of your portfolio, there are many actively managed funds with excellent track records to take the guesswork out of stock picking.

As you’re setting out all your investments and thinking about making changes, make sure your portfolio is properly diversified so that when one asset falls, another one gains to make up for the loss in the other one.

Think over every potential change carefully before making a move to avoid unnecessary turnover and fees associated with trading. The SEC also has a handy guide here which explains more about investing and creating a financial roadmap.

This article originally appeared on ValueWalk. Follow ValueWalk on TwitterInstagram and Facebook.

Money

CHART: How Blockchain Powers Bitcoin

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Blockchain, Bitcoin. Bitcoin, blockchain.

The two terms go hand in hand—and have become almost ubiquitous with this year’s insane rise (and fall) of Bitcoin.

But what does it all really mean? How does it come together? In this week’s chart, our friends at CB Insights break down exactly how blockchain powers Bitcoin.

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This Mogul Became America’s 1st Black Billion-Dollar Businesswoman

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Sheila Johnson.

Where to start?

She’s the first black billion-dollar businesswoman. Before Oprah Winfrey.

She started as a TV executive, founding Black Entertainment Television (BET), the first TV network targeting African Americans. She then became a real estate mogul.

Oh, she also owns a stake in three major sports franchises, the NBA Wizards, NHL Capitals and the WNBA Mystics, the African American, period, to boast that claim.

In honor of Black History Month, let’s dive into her remarkable career.

FAST FACTS:

  • Born Sheila Crump in McKeesport, Pennsylvania, Johnson co-founded BET in 1979 with then-husband Robert Johnson. The couple sold it to Viacom in 2000 for $2.9B
  • Sheila Crump Johnson became the first African American woman on the Forbes’ Billionaire list in 2000—beating Oprah Winfrey to the distinction.
  • Per Forbes, Johnson has an $820M net worth as of 2019

 GIPHY

Foray into real estate…

After closing the sale to Viacom, Robert and Sheila pocketed around $1.5B each. Johnson used that windfall as seed money to build a hospitality real estate empire in 2005.

“There’s a disparity in paychecks between whites and blacks,” she told the Wall Street Journal. “I will never forget that.”

As CEO of Salamander Hotels and Resorts, Sheila controls a spectacular portfolio of six luxury hotels in Florida, Virginia and South Carolina. And she’s built it from the ground up—literally—in her own spirit.

“I’ve been to many hotels, not only in the US, but all over the world,” she told Forbes last year. “And I wanted to find something that was going to really make Salamander stand out beyond all of these hotels.”

So what does that mean?

“You have to understand, there are a lot of people, investment companies, with very deep pockets,” she says. “They can do it, but they don’t have the experiences that we’re able to bring. I am constantly trying to find a way to help Salamander Resort & Spa stand out head over heels above any other hotel — not only in the area, but in the nation.

“I want them to leave that resort wanting to come back and not just say, ‘I’ll be back in six months.’ I want them to come back all the time.”

And so far it’s worked. In fact, on Forbes Travel Guide’s 61st list of Star-Rated hotels, Johnson’s Salamander Resort & Spa outside of Washington, DC earned a Five-Star distinction.

Image Credit: Salamander Resort & Spa

Forbes: “Everything [she] touches turns to gold.”

That’s a real quote. From Forbes. Last year. It’s also true.

BET? Billion-dollar exit. Washington Capitals? Stanley Cup.

And Roma. Won 10 Oscars. Who showed it before a single soul started caring? Johnson’s Middleburg Film Festival. (Which, by the way, has 32 films and counting in Academy Award contention.)

Remember her golf resort at Innisbrook? Oh, yeah. Hosts the Valspar Championship, one of the PGA calendar’s most-anticipated tournaments.

Becoming a billionaire comes with a new level of clout as well. “When you don’t have money, you’re not invited to special events; you really don’t matter,” she told WSJ. “It’s a society thing.”

So instead, she’s turned to giving back. Her Sheila Johnson Fellowship’s paid for more then 40 scholarships at Harvard University for students who otherwise wouldn’t afford to attend.

Image result for sheila johnson"

Breaking glass ceilings. 

There’s an alarming statistic in business and diversity—especially as it pertains to women. According to research by investor Richard Kerby, 18% of all VCs are women—and only 3% are black. In addition, less than 50 black women ever have raised $1M in funding.

“When I got started,” Johnson says, “I couldn’t get a loan. I had to use my own money to get Salamander Resort and Spa.”

She explained to WSJ last year that men can go to any bank with a bank proposal. And no matter how “wacky” the idea is, she said, “they’re going to get the financing. Women do not have that ability.”

Johnson’s taken it upon herself to do something about that, becoming one of the founding partners of WE Capital, an investment firm that invests in female entrepreneurs.

“I started out in a very unique position where I had my own capital to be able to get started,” she says. “But there have got to be banks and investors that believe in helping women who want to be entrepreneurs in the hospitality business.

“And it’s just really, really important that they really take a look at this.”

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100% Immediate Expensing Won’t Help Bring Back American Jobs

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Image: Bermix Studio via Unsplash

As the country continues to battle the health and economic crises brought on by the Coronavirus pandemic, leaders and policymakers in Washington are considering a number of tax-related measures to hasten recovery and stimulate the economy in the wake of this generational crisis. One such proposal would expand full and immediate expensing to include structures. The popular thinking is that this measure would incentivize companies to invest in US facilities, including and especially those companies who have historically opted to offshore much of their manufacturing footprint. While this proposal is certainly well-intentioned, if enacted it would have far more negative consequences, and far fewer benefits, than many realize.

It is important to remember that the tax reforms of the 1980s tried this approach, accelerating depreciation to 15 years for real estate in an attempt to stimulate the economy. While thoughtfully considered, this measure resulted in massive overbuilding and the use of real estate as a tax shelter, a dynamic that contributed significantly to the savings and loan/real estate crisis at that time. As a result, the depreciation schedule for structures was eventually lengthened to better reflect the true useful life of a structure or real estate. While measures were put in place to try to prevent entities using the construction of buildings as a tax shelter, there are ways to get around the rules. Expanding immediate expensing to include structures today would incite the same unintended consequences the U.S. experienced in the 1980s.

Some economists continue to cite that immediate expensing of structures, to include manufacturing plants, office buildings, and commercial real estate, would contribute substantially to the growth of gross domestic product and encourage companies to return to the U.S. However, these assumptions are flawed as they do not account for the tax consequences and restrictions unique to real estate, which prevent immediate expensing for structures and buildings from yielding the same economic benefits that may result if applied to other capital expenditures.

These models also do not reflect the very real dynamics of a post-COVID-19 business environment.  In the last few days, some of our country’s largest employers including Facebook and Twitter have offered their employees extended teleworking flexibility well after a phased re-opening of America begins. COVID-19 has shown that through technology, a large number of employees are capable of being highly productive working from home, providing an opportunity for companies to shed tremendous office space costs from their books, and leaving uncertainty to the future need for office space in the U.S.  We cannot afford a situation where office buildings are built for tax benefit rather than market need.

Most economists’ models that demonstrate GDP growth from the inclusion of real estate in full and immediate expensing do not factor in basic real estate tax rules, such as, recapture taxes, passive loss, basis, at-risk limitation rules, or other market drivers, as well as company valuations and shareholder requirements. They also often rely on European data that does not effectively reflect U.S. economic realities. As a result, many of these models overstate both the increased investment that would result from immediate expensing, as well as the extent to which immediate expensing would incentivize U.S. companies to re-shore production lines and facilities currently located overseas.

Also of great concern is the possibility that providing immediate expensing for structures will greatly increase the incentive to utilize debt financing, which many economists believe is already too attractive. Take, for example, an investor purchasing a $10 million building with $8 million in debt financing and just $2 million in equity. Under immediate expensing, that investor would receive a $10 million tax write-off despite having only expended roughly $2 million. This is a dangerous tax loophole that could hinder the U.S. recovery from the economic fallout of COVID-19.

Finally, there is the cost. The most recent estimate conducted by the Tax Foundation found that providing full and immediate expensing for structures would cost the Treasury nearly $1 trillion over the next ten years. While many agree that repairing the damage COVID-19 has wrought to our economy will require significant and innovative government support, there are better ways to stimulate growth and encourage U.S. companies to re-shore their innovation and manufacturing capabilities that do not carry the same unintended consequences.

Fortunately, there are much stronger alternatives to bring companies and innovation back to the United states, to lessen our reliance on foreign countries, and to support small businesses in the wake of COVID-19. Allowing companies to continue to immediately expense research and development and equipment expenses, providing manufacturing facility credits to companies committed to stay in the U.S. and on-shore, developing a robust, but low risk government backed loan program to support critical next generation technology development and manufacturing in the U.S., and providing a more immediate payroll tax holiday for small businesses and individuals. These types of highly effective actions that would result in a more impactful near-term and long-term stimulus to the nation’s businesses and job opportunities for Americans.

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