Talking to your children and/or grandchildren about wealth can be a daunting task. There is no one-size-fits-all approach and is based on your children/grandchildren’s situation and maturity.  A simple question such as, “If you were to win the lottery, what would you do with all the money?”, can be a great way to gauge their maturity and determine the level of details that can be discussed. It is also a good way to measure their financial knowledge and start a conversation about financial topics such as type of accounts, type of investments, the power of compound growth, etc.

General topics based on age

Teens - Depending on their level of maturity, this can be a great time to discuss simple financial concepts. Talk to them about how fortunate they are to have parents or grandparents who work hard to provide them with a good life, the importance of living below your means to enable yourself to invest for your future, and to give back to those less fortunate. You could even go as far as creating a family mission or value statement.

20’s - This is the time to start discussing more details, but not exact values. Talk about the assets the family owns, whether it be stocks, bonds, real estate, or a business. You can discuss how to protect those assets with insurance, the types of accounts used, allocation of those investments and why. Some of these topics might require other professionals such as an accountant, estate planning attorney, insurance agent or financial advisor to be involved. This is also the time to share stories of how the wealth was created and maintained, and that it requires proactive effort to build and keep wealth.

30’s+ - This tends to be the age when people are starting to have families of their own and are mature enough to have specifics shared with them. It can be a good idea, if you have multiple children/grandchildren, to have a family meeting to share the specifics with everyone all at once. This can remove the opportunity for one or more children to feel slighted or left out of the discussion. It can also be effective to have a trusted financial professional to help facilitate the discussion and explain more complex topics such as Powers of Attorney, how the estate plan is structured, who the executor of the estate will be and their role in the process. 

Being an executor is a thankless yet important task in which most people do not have the knowledge or expertise to serve as the sole responsible person. Most will need help from other professionals to fulfill their duties and obligations. Our website includes a Personal Document Locator which will help organize your information and will assist your executor. 

Although each family is different, we believe it is important to discuss finances with them.  An initial meeting followed by on-going conversations will serve to make family members aware of the overall situation, provide opportunities to educate the next generation and set them up to be financially successful as well.

There are plenty of different types of bonds. They include government, corporate, municipal, mortgage, and treasury bonds.  All of them have different time frames from a couple of months to 30 years.  They all present their own risks.  For example, government, municipal, mortgage and treasury bonds are more interest rate sensitive.  This means they will move more in price when interest rates change. Corporate bonds, on the other hand, are more credit rate sensitive. That means the interest rate paid on those bonds are determined by the risk of default by the company.  That is not to say credit risk will not affect treasuries, government, mortgage or municipal bonds, or that interest rates do not affect corporate bonds, they just have a lesser impact. 

Typically, bonds and stocks move inverse of each other.  That is not as true when we are in an inflationary and rising rate environment like we are now.  Unfortunately, 2022 was a storm on all fronts and there has been almost nowhere to hide.  This has been the worst year for bonds and a 60% stock/40% bond portfolio since 1931 (The Great Depression). 

We look to position clients’ portfolios for the future rather than looking in the rear-view mirror. When it comes to bonds, we have already endured the pain of the initial and quick rise in interest rates from the Fed.  There is a silver lining though, the bonds we now hold, even though they are worth less in terms of dollar value, have seen their interest rates nearly tripled in some cases. This means clients will finally get paid for the risk of holding bonds.  For example, the yield on a typical short-term bond fund in early 2022 was slightly above 1%, it is now over 4%.  This is a huge win for those who are in the “distribution phase” of their financial lives.  This will allow the bonds to produce more income to cover withdrawals reducing the need to sell equities.  This is especially important when stocks are down so that an investor does not have to sell for losses to meet withdrawals. 

Bond prices move inverse of interest rates.  As we have seen recently, the Fed has increased interest rates and we have seen prices of current bonds fall.  This happens so that current bond coupon payments are equal to the current interest rates. Let’s consider a 10-year bond that costs $1,000 and has a 1% interest rate ($10 coupon payment) that pays annually.  If interest rates are increased to 2%, the bond that was worth $1,000 @ 1% interest rate would now have to cost $910.17 to match its yield to maturity to the current rate of 2%.

The duration of a bond (lifetime of bond) plays a large part in the price change.  The higher the bond duration the more sensitive a bond is to rate increases or decreases.  If we use the example from above and change it to a 30-year bond, holding all else constant, that bond price would drop to $776.04 with the change from a 1% to 2% interest rate.

Another factor to consider with a higher starting interest rate is that future rate increases will affect prices less (cushion). For example:

-   10-year, $1,000 par, 1% starting rate, 1% rate increase = $910.17 current value = 8.90% drop

-    10-year, $1,000 par, 5% starting rate, 1% rate increase = $926.40 current value = 7.36% drop

As a result, even if interest rates continue to rise the likelihood that a bond will produce a positive return for the year is greater due to the cushion of a higher starting rate.   

Positioning a portfolio should not be based on looking in the rearview mirror or adjusting a portfolio based upon an outlier year like 2022.  Today's higher rates will help to fund withdrawals without having to sell stocks when they are down.  Diversification of bonds between those that are interest rate sensitive and credit rate sensitive or by duration will also serve to reduce overall portfolio risk. 

Everyone is familiar with standard home and car insurance.  There are several other types of insurance coverage that may make sense for you to consider given your specific circumstances.  We have listed below some less common types of insurance with brief descriptions of each.

Titling of insurance if the home is owned by trust/LLC – Many people use trusts or LLC’s to hold the title of their homes. Homeowners often forget to add their trust or LLC as an additional insured on the policy. Adding a trust or LLC to your policy does not cost any extra premium, but it does protect you and the entity that owns the title to your home from lawsuits resulting from injuries that happen at your home.

Umbrella policy – This is a type of policy we recommend to all of our clients since most are considered high net worth and can possibly be targets when it comes to lawsuits. An umbrella policy will ride above your current car and home insurance (if you have the same insurer for both) and add an extra layer of protection. The average annual cost for a $1 million policy is $200 and about $100 a year for each million above that. For example, if you have $500,000 of car insurance and a $1 million umbrella, you would have coverage up to $1.5 million if you were to injure someone in a car accident.

Workers compensation – Covers the medical expenses and lost wages of nannies, housekeepers, care givers, and other household employees who become ill or injured on the job. It also protects you as the employer from liability. Policies cost an average of $750 per year based on a $50,000 salary.

Excess flood – Even if you maintain standard flood insurance, it might not be sufficient. Policies you can purchase through the National Flood Insurance Program are capped at $250,000 for your home's foundation and structure with an additional $100,000 for the contents of your home. Through private insurers you can buy policies for up to $10 million.

Jewelry riders – Standard home insurance policies tend to only have $10 in jewelry coverage per $1,000 of coverage (Ex. $300,000 policy would = $3,000 in jewelry coverage). Therefore, it is important to purchase “valuable articles coverage” to insure the full value. This type of insurance covers items such as; jewelry, art, and collectables like wine, sports memorabilia, coins, etc.

Cyber insurance – This type of insurance can help protect you from identity theft, hacking, cyberstalking or harassment. With this type of policy, you may be able to recover stolen funds and ensure you have the resources to get your life and identity back. The average cost for a policy is $250 annually per $100,000 of protection. 

Although we do not sell insurance, we understand the ability of insurance to transfer financial risks from yourself to an insurer.  You should discuss your specific circumstances with your insurance provider or agent.

As of 2019, the population of those 65 and older reached 54.1 million or 16% of the population.  By 2040 this number will be closer to 22%.  Healthier lifestyles and better medical care means that people will live longer.  Even though we have better medical treatments, the mind/brain is one of the fields of medicine in which we still have a lot of work to do.  

In conjunction with establishing an estate plan which includes a power of attorney, we recommend that you add a trusted contact(s) on each of your accounts.  This will allow the trusted contact to communicate with the custodian (Schwab), if/when the account holder becomes unable to handle the account due to mental and/or physical decline.  In a study done by Schwab, people's cognitive decision making tends to peak at age 53 then gradually declines. As people reach their 70-80’s, they lose the capacity to process new information. Once someone reaches their 80’s, about half of the population has a medical diagnosis of substantial cognitive decline. These are all unfortunate realities of getting older, and reasons why you should have trusted contacts attached to your accounts.

Listed below are instructions for establishing or amending your trusted contacts and beneficiary designations for those with online access at Charles Schwab and Company.  If you do not have online access you can contact us to provide the necessary forms for each. 

Home Page (Schwab.com) after login

-> My Profile (top right, next to search bar, drop down menu)

-> Trusted contact (second tab, middle of page) 

-> Input information of your Trusted Contact

-> Save

Home Page (Schwab.com) after login

-> My Profile (top right, next to search bar, drop down menu)

-> Beneficiaries (third tab, middle of page, next to Trusted Contact)

-> Input/check information of your Beneficiaries

-> Save

If you have any issues or questions, please contact me at (847) 991-6050 or email me at This email address is being protected from spambots. You need JavaScript enabled to view it..