Even if you don’t closely follow the stock market, you likely saw headlines in late January on GameStop and how an army of Reddit users took on Wall Street. The most popular platform these Reddit users used to invest was with the smartphone app, Robinhood. Robinhood is a popular choice for many due to its accessibility, it’s free to use and their array of investment choices such as, stocks, options, ETF’s, and cryptocurrency. We aren’t going to go into too much detail on any one specific investment type, but instead dive into the reason Robinhood and platforms like it are so attractive to new or first-time investors and whether that attraction is good, problematic or a mixture of both.
Robinhood has existed since 2013 but gained most of its popularity later in the decade. Millennials have been their primary demographic throughout its existence. In many of the economic or financial benchmarks (salary/wages, home ownership, etc.), the Millennial generation has been lacking behind their predecessors. However, thanks to the emergence of Robinhood and apps like it, investing could be an area where Millennials and Gen Z make up some ground.
Robinhood’s marketing approach, although somewhat controversial, is undeniably successful. Their use of push notifications, graphics and promos make the app feel almost like a game. Many compare the marketing techniques to popular sports betting apps like DraftKings or Fan Duel. This is where the problematic aspect rears its ugly head. Gambling can be addicting and detrimental to one’s financial wellbeing. Combining the risks, accessibility to those risks and the appeal to inexperienced or new investors has already resulted in a deadly outcome.
In June 2020, a University of Nebraska student committed suicide when he saw a negative cash balance of over $730k. This balance was a result of option trading, which can be extremely risky. Although it turned out the significant negative balance was just a temporary display until an underlying stock settled. This is an extreme and unfortunate example of how inexperience and lack of knowledge can lead to consequences that the investor may not fully understand or know how to handle.
The fact remains, this app and others like it aren’t going to go anywhere anytime soon. They continue to attract new investors, mostly from a generation that is beginning to look for new ways to accumulate capital and build for retirement.
The uncertainty surrounding Social Security’s future among Millennials is just another factor that’s driving them to invest within these sorts of apps. The positive in this, is it’s expanding access to the market and allowing more people to have the opportunity to build wealth in a time where the wealth gap is widening at a historic rate.
But like the famous quote from Winston Churchill says, “with opportunity comes responsibility.” Which begs the question, where does that responsibility lie? Certainly, the individual investor will take on most of the responsibility for their own choices. But is there a point where the gimmicks and marketing strategies from these apps might be considered predatory? These are questions that will likely continue to come up as these apps expand their userbase and broaden their appeal to a generation starving for financial success and independence.
The extraordinary global events of 2020 have rocked budgets, sapped savings and frustrated fiscal aspirations. But with the new year comes an opportunity to review personal finances and re-assess savings and spending goals.
Here are 4 tips to help you clean up your finances this spring after a pandemic-tainted year that has shaken many and prompted plenty to re-examine their financial strategies.
Evaluate Your Current Financial Situation
You can’t take action or work to “clean up” your financial situation if you’re unsure of what it actually looks like — from the big picture down to the details.
Start with the basics: ensure you’re operating with a budget, you have a system to track your finances and you’re living within your means.
Take a look at each of these elements in detail. Is your budgeting process one that you like and consistently stick with month after month? If it’s not working for you, it’s time to try something new. Remember, there’s no such thing as one right way to budget your money.
The perfect budgeting system is one that you can stick with and makes sense to you. That said, we do offer broad based financial planning, and in celebration of our 30th year, we’re also offering our Initial Financial Overview for $300 (Regularly $775). Learn more here or schedule an intro meeting.
After you’ve got your monthly budget in line, also take a look at how you manage your money on a daily basis. If things are slipping through the cracks, take time to clean the cobwebs from your financial processes and create systems that actually function for you.
Once you cover the details, check out the big picture. Look at your net worth — your assets minus your liabilities — to get a feel for your overall financial health.
Cut Unnecessary Costs
Lifestyle inflation is a hard thing to avoid, and it’s a trap many of us fall into at one point or another. This spring, take a look at your spending and your expenses. Have any “wants” crept into the “needs” category?
If so, clean ’em out and put them back where they belong. Understand the difference between luxuries and what you truly need to live a comfortable, happy life within your means.
Also take a look at the expenses that you can’t avoid: housing, food transportation. What costs rose over the last year? Call service providers and any company that regularly sends you a bill to ensure you’re not paying for more than you need. You can do some spring cleaning just by trimming those expenses you can’t throw out completely.
Organize Your Financial Life
Do you know the status (open or closed) of every single credit card you’ve ever had? Do you know where you’ve stashed your tax returns from the last seven years? Can you access a credit card statement quickly so you can dispute an incorrect charge in a timely manner?
You can’t manage information you don’t have or know. And you certainly can’t keep track of every aspect of your financial life if you don’t have a clue about parts of it. This sounds simple, but a little organization goes a long way.
Reconnect With Your Financial Goals and Priorities
Much like costs and expenses that sneak up on you, your financial goals and priorities can shift around without you realizing it. It’s always good to take a step back and check in with yourself. Are you still on the right track toward what you want to achieve?
If you’ve missed a few goals or have gone way off the path, that’s OK. Look at the goals you’re setting and first make sure they’re “SMART”: specific, measurable, actionable, realistic, and timely (which means they have a deadline attached to them). When your goals don’t meet these criteria, you could set yourself up for a rough time in reaching them.
Make it a habit to check in with yourself and what you want so you can ensure your actions take you closer to goals and dreams instead of further away from them.
It feels great to spring clean your home and enjoy the start to a fresh new season. The same can be said when you spring clean your finances. You can replace outdated money management systems and habits, get organized, and rediscover your financial priorities to make the next 12 months even better than the last.
Tulsa, Oklahoma. 1921. A wave of racial violence destroys an affluent African-American community, seen as a threat to white-dominated American capitalism.
By Kimberly Fain
In 1921, Tulsa, Oklahoma’s Greenwood District, known as Black Wall Street, was one of the most prosperous African-American communities in the United States. But on May 31 of that year, the Tulsa Tribune reported that a black man, Dick Rowland, attempted to rape a white woman, Sarah Page. Whites in the area refused to wait for the investigative process to play out, sparking two days of unprecedented racial violence. Thirty-five city blocks went up in flames, 300 people died, and 800 were injured. Defense of white female virtue was the expressed motivation for the collective racial violence.
Accounts vary on what happened between Page and Rowland in the elevator of the Drexel Building. Yet as a result of the Tulsa Tribune’s racially inflammatory report, black and white armed mobs arrived at the courthouse. Scuffles broke out, and shots were fired. Since the blacks were outnumbered, they headed back to Greenwood. But the enraged whites were not far behind, looting and burning businesses and homes along the way.
Nine thousand people became homeless, Josie Pickens writes in Ebony. This “modern, majestic, sophisticated, and unapologetically black” community boasted of “banks, hotels, cafés, clothiers, movie theaters, and contemporary homes.” Not to mention luxuries, such as “indoor plumbing and a remarkable school system that superiorly educated black children.” Undoubtedly, less fortunate white neighbors resented their upper-class lifestyle. As a result of a jealous desire “to put progressive, high-achieving African-Americans in their place,” a wave of domestic white terrorism caused black dispossession.
The creation of the powerful black community known as Black Wall Street was intentional. “In 1906, O.W. Gurley, a wealthy African-American from Arkansas, moved to Tulsa and purchased over 40 acres of land that he made sure was only sold to other African-Americans,” writes Christina Montford in the Atlanta Black Star. Gurley provided an opportunity for those migrating “from the harsh oppression of Mississippi.” The average income of black families in the area exceeded “what minimum wage is today.” As a result of segregation, a “dollar circulated 36 to 100 times” and remained in Greenwood “almost a year before leaving.” Even more impressive, at that time, the “state of Oklahoma had only two airports,” yet “six black families owned their own planes.”
These African-Americans’ economic status could not save them from the racial hostility of their day. Greenwood survivors recount disturbing details about what really happened that night. Eyewitnesses claim “the area was bombed with kerosene and/or nitroglycerin,” causing the inferno to rage more aggressively. Official accounts state that private planes “were on reconnaissance missions, they were surveying the area to see what happened.”
Despite all of the economic damage, Hannibal Johnson, author of Black Wall Street: From Riot to Renaissance in Tulsa’s Historic Greenwood District, explains that neither the survivors nor their families ever received the reparations suggested by the Tulsa Race Riot Commission. The commission recommended reparations for “people who lost property” and proposed “the establishment of a scholarship fund—that did happen, for a limited time.” The commission also proposed initiatives for the economic revitalization of the Greenwood community. Despite the tragic events, these grand ideas never manifested into a tangible reality.
Underlying Causes of the Massacre
In “The Tulsa Race Riot of 1921: Toward an Integrative Theory of Collective Violence,” the sociologist Chris M. Messer explores the underlying causes of the massacre. As a result of mass migrations to the area, driven in part by increased job opportunities, Tulsa became the city with the most African-Americans in the state. With a boom in the black population and their demands for equality, “perceptions of discrimination and shared experience among African-Americans…allowed for little time for adaptation among whites.” Tulsa’s rapid change in racial demographics made the city ripe for a riot motivated by white animosity against black economic progress. Whites of the era equated improvements in “wages and working conditions” as communistic threats. In essence, whites were resentful that blacks no longer passively accepted second-class citizenship in their own homeland.
Another structural factor that played a vital role in the Tulsa race riot was segregation. Ironically, black businesses benefited from self-sufficiency, which held both benefits and drawbacks for entrepreneurship. “Through maintenance of the legal separation of race in sociality, business, education, and residential areas, the structure of segregation encouraged initiative, but also placed parameters by restricting African-American opportunities,” Messer writes. In other words, since it was against the law for blacks to shop at white-owned stores, black businesses flourished. However, even though black businesses profited from how segregation reduced competition for black patrons, segregation also limited blacks’ mobility and opportunities to achieve outside their community.
According to Messer, the police force also contributed to the riot. Due to their ineffective leadership, they allowed mobs to gather at the courthouse for hours before seeking additional assistance. Furthermore, they actively participated in the riot by deputizing whites without discretion, arming them with guns to multiply the police force overnight. The police disregarded due process, arresting blacks and interning them in detention camps; meanwhile, no whites were arrested during the riot.
Both politicians and the media falsely framed the Tulsa riot as an uprising started by lawless blacks. Tulsa newspapers regularly referred to the Greenwood district as “Little Africa” and “n—–town.” African-Americans in the district were labeled “bad n—–s” who drank booze, took dope, and ran around with guns. Perhaps as a result of government officials’ stereotyping rhetoric and the media’s biased reporting, whites and blacks interpreted the racial violence differently. Generally, white politicians and residents perceived the black community “as predisposed to crime and in need of social control,” Messer explains. In other words, due to assumptions of black criminality, whites justified deadly violence on Black Wall Street, because blacks needed to be subjugated.
The Tulsa World newspaper inflamed the tensions between blacks and whites by suggesting that the Ku Klux Klan could “restore order in the community.” Since the KKK asserted white superiority with terroristic acts, such as lynchings, the mere suggestion from a mainstream newspaper that the KKK should intervene demonstrates how white supremacy was not only legitimized but also promoted with legal impunity. In the early 1900s, there was a rise in Black Nationalist organizations that refused to cower in the face of KKK violence or submit to societal subordination.
Whites responded to black pride and demands for equality with “social control, including segregation, lynchings, and pogroms,” Messer writes. In “Mass Media and Governmental Framing of Riots: The Case of Tulsa, 1921,” Messer and his colleague Patricia A. Bell offer further detail about how the media framed the riot, igniting tensions. In essence, blacks’ desire for socioeconomic progress and assertion of their rights was seen as a grave threat to white hegemony. Portraying all blacks as criminals served the black inferiority narrative, maintained Jim Crow segregation, and promoted the violent enforcement of racist ideology.
For instance, the racial framing of blacks as criminals legitimized whites’ congregation “at the courthouse and the subsequent destruction of the Greenwood area.” Consequently, it’s no surprise that blacks perceived the riot started by whites “as a massacre of their community.” The massacre of Black Wall Street primarily occurred due to whites “generalized perception that African-Americans were ‘out of line’” and needed to be put “back in their place.”
Despite racial discrimination and Jim Crow segregation, the Greenwood district offered proof that black entrepreneurs were capable of creating vast wealth. Based on critical analysis of the events, Messer asserts “there is evidence that whites perceived African-Americans as an economic threat to the city.” For those who supported black subjugation, witnessing blacks thrive and defy the stereotypes of black inferiority was too much.
Soon after the riot, Walter F. White of the National Association for the Advancement of Colored People (NAACP) visited Tulsa. According to him, black economic prosperity contributed to the destruction of the Greenwood District. White reported in The Nation how the city prospered under the oil boom. He stated that the town had grown from a population of 18,182 in 1910 to somewhere “between 90,000 to 100,000” residents by 1920. White claimed that the sudden wealth of the townspeople rivaled the “forty-niners” in California. However, when blacks experienced wealth, lower-class whites resented their success.
Many whites believed they were “members of a divinely ordered superior race.” Despite their inflated perceptions of themselves, there were three blacks in Oklahoma “worth a million dollars each.” A man named J.W. Thompson was worth $500,000. There were “a number of men and women worth $100,000; and many whose possessions” were “valued at $25,000 and $50,000 each. This was particularly true of Tulsa, where there were two colored men worth $150,000 each; two worth $100,000; three $50,000; and four who were assessed at $25,000.”
White concluded that many of the white pioneers in Oklahoma were former residents of “Mississippi, Georgia, Tennessee, [and] Texas.” Unfortunately, they failed to leave their “anti-Negro prejudices” behind in the Deep South. White had no positive words for Oklahoman whites. He considered them “[l]ethargic and unprogressive by nature, it sorely irks them to see Negroes making greater progress than they themselves are achieving.” In one instance, a white worker burned and demolished his black boss’s “printing plant with $25,000 worth of printing machinery in it.” In the process of leading the destructive mob, this disgruntled white employee was killed at the site.
The destruction of this successful African-American community was no accident. Messer asserts that “[t]he destruction of the community was rationalized as a necessary and natural response to put them back in their place.” Evidently, private industry and the state stood to benefit economically from the destruction. Two days after the riot, the mayor wasted no time in establishing the Reconstruction Committee to redesign the Greenwood District for industrial purposes. Blacks were offered below market value for their property. White men who offered “almost any price for their property” perceived survivors as desperate and destitute.
In essence, African-Americans posed a “geographical problem because their community was situated in an ideal location for business expansion.” The government and private industry worked in concert to bring down land prices and maintain white dominance in the Tulsa area. Poor whites’ resentment of successful, landowning blacks allowed elite whites to use them as pawns to obtain more land, wealth, and prosperity. Judging by the legal impunity granted to whites by law enforcement, the state endorsed and, in fact, supported the Tulsa riot for self-serving, capitalistic gains.
Historically, American capitalism has thrived with an elite few maintaining power and wealth. When blacks gain a strong foothold in a community or industry, they have the power to effect meaningful change. Thus, the socioeconomic progress of African-Americans on Black Wall Street threatened the power structure of white-dominated American capitalism. When white people destroyed black business establishments and homes, the façade of white superiority was maintained.
By the 1940s, the Greenwood District was rebuilt, but due to integration during the Civil Rights era, never regained as much prominence. The fate of Black Wall Street illustrates that as long as power remains in the hands of elite, mainly white families, America’s socioeconomic system can be marshalled to support and advance the tenets of white supremacy. Regardless of the progress made by prominent African-Americans, American capitalism is structured to keep a white segment of society ahead of the remaining marginalized many.
#BlackHistoryMonth #WallStreet #BlackWallStreet #FinancialManagement
A common guideline is that you should aim to replace 60-80% of your annual pre-retirement income. You can replace it using a combination of savings, investments, Social Security, and any other income sources (part-time work, a pension, rental income, etc.). The Social Security Administration website has a number of calculators to help you estimate your benefits.
It’s important to consider how your expenses will change in retirement. Some, like health care and travel, are likely to increase while some recurring expenditures will go down. You no longer need to dedicate a portion of your income to saving for retirement. You may have paid off your mortgage and other loans. However, you may wish to increase your traveling for the first few years of retirement and then start making gifts to family in later years. This may require you to aim to replace 100% or even 110% of pre-retirement income.
Regarding taxes in retirement, most retirees have been saving for years in their pre-tax 401(k) or 403(b) workplace retirement accounts. One benefit of these plans is that while contributing, you did not pay income tax on any of the income you deferred to your account. The downside to this is in retirement, you will have to pay tax at ordinary income tax rates.
The great news for most retirees is that their post-retirement tax brackets are typically lower than their tax brackets during their working years. This makes saving while working into a pre-tax account like a 401(k) or IRA a great option. However, if you have a substantial pension benefits or a large Required Minimum IRA Distribution, you could end up in a higher tax bracket post-retirement.
If you weren’t aware, pre-tax retirement accounts like 401(k)s and IRAs have an IRS mandate to begin taking distributions by age 72. These Required Minimum Distributions (RMDs) can be quite the surprise for folks that will not need the full distribution but will be required to take them anyway.
If this sounds like it could be you, there are a number of tax planning techniques that can be implemented to help lower your taxes in retirement. We recommend working with a financial planner that specializes in tax planning in conjunction with your tax professional to help you plan for future tax consequences.
Cash Flow Planning
A great place to start with determining how much you’ll need to retire is by creating a written cash flow plan.
The best place to start with determining your ability to retire is to create a detailed record of your required expenses. We like to break up these expenses into two main categories: living expenses and variable/periodic expenses.
Living expenses should be expenses that aren’t expected to change drastically on an annual basis and are required for your standard of living. Utilities, gas, groceries, and personal care are common examples of living expenses. Periodic/variable expenses are items you are planning to include in your spending, but may be more flexible in the amount you spend. Examples may include vacations, dining out, and other lifestyle spending. You would also want to include any future expenses such as roof replacement and vehicle purchases.
Once you have a clear list of your required monthly/annual expenses you will know what your income need will be in retirement. (Pro tip: the first time you create a cash flow plan, leave a bit of wiggle room as most people miss a few things)
Once you know how much income you’ll need, you can start creating a plan to strategically liquidate savings in retirement. This is where is gets a bit more tricky.
Many people are great at the initial creation of their cash flow plan but forget the silent killer of long-term planning: inflation. Inflation is defined as: “A general increase in prices and fall in the purchasing value of money.” In simple terms, a dollar today will not be able to purchase the same amount of goods as a dollar in the future as prices for goods increase over time. The average cost of a loaf of bread in 1990 was 75 cents whereas today it’s over three dollars.
General inflation has been about 2-3% on average over time. The cost of healthcare has increased higher than average inflation (typically 8.5%). The average cost of college has increased by 7%. Accounting for inflation is one big missing variable many folks planning retirement on their own often overlook.
We use a real rate of return in our clients’ Financial Plans so that we can accurately understand the purchasing power of future dollars. We use real rate of return by removing inflation from income and expenses (except for medical and college expenses) and the rate of return on investments.
For medical expenses, we assume a 5.5% inflation rate. For college costs we assume a 4% inflation rate. For your investments, we use a real rate of return of 4% (based on a 60% equity/40% fixed portfolio). This is an 7% rate of return – less an inflation rate of 3%. (The historical rate of return for stocks is 10% and bonds is 6%).
Once you have your cash flow plan and have accounted for inflation, you can now start to determine how much you will actually need for retirement.
In celebration of our 30 -year anniversary, we are also offering our Initial Financial Overview at a reduced cost of $300 (normally $775).This service is a personalized 2-hour review of your entire financial situation. From this meeting, we will provide you with specific recommendations in written form. Since we do not sell any products or accept commissions, our recommendations will always be objective and free from bias. Our ultimate goal is to help you get clarity on your current situation and provide you with steps on how to transition successfully and confidently into retirement.
If this sounds like something you would be interested in, or if you would like to schedule a complimentary introduction call, you can schedule a time using the link below:
Schedule an Appointment
In our latest video, Melanie Colwell gives a brief economic outlook and tips for stress management during this unprecedented time. One of the best strategies? Showing gratitude.
Thank you to our clients for your trust and confidence. Thank you to the essential business workers for ensuring our basic needs are met. Thank you to the medical providers for being our front-line heroes.
Another part of the CARES Act enacted the Paycheck Protection Program.
This program is offering loans to small businesses (less than 500 employees), sole-proprietors, and non-profits.
If funds are used for qualified payroll costs in the next 8 weeks, the loans can be forgiven. However, there are lot of details and caveats that Greg explains further in the below video.
Watch this video and then go talk to your bank as soon as possible!
The Coronavirus Aid, Relief, and Economic Security Act aka “CARES Act” was signed into law on March 27, 2020.
Individuals may be entitled to $1,200 checks ($2,400 for individuals filing a joint return) and $500 for each qualifying child under age 17 if certain income requirements are met. Did you know these checks are actually designed as a credit on your 2020 Tax Return?
Our video below discusses these checks in further detail.
The world is changing, and we changing with it. Introducing the Galecki Financial Management Video Blog Series! Kevin Chandler kicks us off with a introduction of the faces you’ll be seeing in the coming days and weeks.
The coronavirus epidemic has sent shockwaves through the American economy, as many investors already know. Still, with a little economic sense, investors should be able to maintain long term confidence in their portfolios and in the market. The United States economy was due for a recession; since 2009, the economy has rebounded to the tune of 121 consecutive months of GDP growth, a national record. With such large expansion, however, must come an eventual downfall (due to market overvaluation, inflationary output gaps, etc.). It has been nearly 11 years since the last recession in the United States. Recessions, on average, occur every 5 to 6 years. Long story short, a recession was on the horizon. The coronavirus epidemic caused the recession through fear. Consumer expenditures, based on popular economic belief, make up approximately 70% of total economic expenditures. When consumers are faced with outside influences, such as fear imposed by a deadly virus, spending habits change, and the economy is forced to shift accordingly. In the case of the coronavirus, fear decreased consumer expenditures. People are afraid to go out in public to eat, shop, etc. With the decrease in consumer expenditure, the economy was done in. However, the bright side of the economy’s current standing is this: the cause is known. In the 2008 financial crisis, the cause was not so easily identifiable. Some economists blamed it on market overvaluation while others blamed consumer confidence and the housing market. Knowing the problem makes finding a solution infinitely easier. The FED has already moved to halt the onset of a recession; similar action from the FED took much longer in the 2008 financial crisis. Ultimately, there is no system malfunction that is causing the current economic decline. The culprit is an outside invader, a virus that will be beaten by the United States medical system. Once the virus is gone, consumer confidence will return, and the economy will surge once again.
As COVID-19 takes hold of the world, investors need only remember one thing: patience is a virtue. The stock market will rebound; it always does. And portfolios will gain back their value after the recent bear market. Michael Wilson, Morgan Stanley’s chief US equity strategist, believes that the stock market will begin to recoup value in the near future and urges people to jump into the market. With cheap prices and nowhere but up to go, the stock market is primed for a rebound. With an influx of new investors, prices could begin to rise again in the near future. For investors who have lost large percentages of their portfolio value, now is not the time to sell. Remain patient and wait until the market upticks again, and maybe even look into investing more while the COVID-19 has prices so low.