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C.H. Robinson

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Negative Market Headlines

Written by Summit Wealth on .

It's different this time. How many times have you heard that phrase during market downturns or volatility? It's easy to get sucked into the attention grabbing headlines. Although declining oil prices, issues in China, and the Federal Reserve increasing interest rates are real factors in the recent extreme volatility in the stock market, on the flip side, improved unemployment rates, cheaper gas, and stronger U.S. Consumers are factors that aren't grabbing the headlines. Why would that be? Unfortunately, those kind of headlines don't grab the same attention and ratings that the media is looking for.

That being said, we don't presume to know how the markets will perform for any certain time period. We can't predict how far the markets will go down and when they will recover, nor can anyone else. What we do know and can predict is the markets are volatile and they will go down, and they will go up. It is our job to plan for what we know.

We believe with a disciplined globally diversified investment plan, you will see long term growth in your investments over time. Taking advantage of market volatility by rebalancing, selling the stronger performing asset classes and buying the asset classes that are selling at a discount, is one strategy we use to try to enhance performance, without predicting its direction.

Below is a reminder of the past 45 years of attention grabbing headlines:

As you can see, even with negative events happening regularly over the past 45 years, over time there is growth for us to capture. The key is to have an investment plan and don't react to today's headlines and stay disciplined. If you would like to discuss your personal investment strategy in more detail, we are happy to do that with you.

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How Low Can They Go?

Written by Summit Wealth on .

As difficult as it is to stomach the rough ride the global equity markets are on lately, the silver lining is that mortgage interest rates are once again at historically low levels. What this potentially means for you is another golden opportunity to capitalize on. Here are approximate rates we are seeing for no cost / zero cost mortgages:

  • 30-Year Fixed Rate Mortgage: 4.00%
  • 20-Year Fixed Rate Mortgage: 3.75%
  • 15-Year Fixed Rate Mortgage: 3.50%
  • 5- or 7-Year Adjustable Rate Mortgages (ARM): 2.75% to 3.00%

Note that if you are okay with paying closing costs your rates could be about 0.50% lower than those stated above.

Here are some strategies for you could consider with these lower rates:

  • Refinancing Your Home: Look to drop your monthly principal and interest payment without increasing how long you have left to pay on your current mortgage. This puts extra dollars in your pocket now that you can put towards your retirement goals.
  • Cabin / 2nd Home: If you are looking to add a second home, now could be a great time to consider doing so.
  • Retirement Home: Even if you aren't ready to downsize quite yet, it could prove to be a great time to look at purchasing your retirement home and using it as a rental property until you are ready to transition to it.
  • Rental Property: If you are looking to diversify yourself from the equity markets and create a cash flow stream for yourself in retirement, now might be a good time to start. That said, you need to be pretty comfortable being a landlord!

If any of these opportunities sound interesting to you, please contact your SWA advisor and we can discuss how one (or more) of the above may fit into your Financial Game Plan. We can also connect you with our mortgage broker contacts (if you don't already have one) that can make this process as quick and painless as possible.

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Don't Make Emotional Decisions

Written by Summit Wealth on .

Peyton Manning wins the Superbowl and one of the first questions the reporters ask him is whether it is his last game. He calmly responds that he will take the necessary time to reflect on his career and what his future plans will entail. He explains that he wants to carefully consider what his next steps will be as he doesn't want to make an emotional decision. As soon as I heard it I thought, "What a smart thing to do as that is the same thing we preach to our clients."

Consider the last emotional decision you made and I ask, "Was it a good one?" My guess is that it probably wasn't. In fact, if you look back at many of the emotional decisions you made in your life, I would guess that more than 50% were probably not the greatest decisions you've made. The same rule applies to the current decision many are faced with in terms of their investment portfolios and whether to "jump ship and run for cover," now that the global stock markets are in correction mode.

We, as advisors, have been through several of these correction periods and the best counsel we can provide you is to remain calm and stick to your financial game plan. We invest our clients with a long-term asset allocation designed to ride out even these volatile times in the markets. True, no one likes to see the equity markets correct like this but if you remain calm and not allow yourself to make an emotional decision to sell out of equities at an inopportune time, you will likely be rewarded in the long run.

If you have any questions or concerns regarding your portfolio or your long-term portfolio goals, please contact an SWA financial advisor. We are always happy to help.

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Should You Pay Off Your Mortgage Before You Retire?

Written by Summit Wealth on .

If you are closing in on your retirement date, this question is likely one you've been thinking about. There are two perspectives from which to look at this dilemma:

Perspective #1: Emotionally, it may feel better to pay if off. This is a tough argument to combat as you may get a sense of relief to head into the sunset with no debt on the books. There's much less stress on your monthly cash flow and "debt" is a bad word, or so our parents and grandparents have preached to us.

Perspective #2: Financially, it may not make sense to pay it off. Let me explain. Let's assume you are in a moderate income tax bracket – say 35% combined federal and state tax. Let's also assume your current mortgage rate is 4%, which means after deducting the mortgage interest as an Itemized Deduction, you are actually paying about 2.60%.

• Just because your mortgage is paid off, doesn't mean your home will appreciate in value any faster--so no advantage on this front.

• By paying off the remaining mortgage balance, you are in essence saying that you cannot beat a 2.60% annual return (over time) with any other financial instrument. In other words, you would be pulling dollars out of a balanced, globally diversified portfolio earning 6% to 8% over the long-term, to pay off a 2.60% after-tax debt. Instead, what I am suggesting you do is what all banks do – borrow from their clients (via their checking & savings accounts) at zero to 0.05%/year and lend those dollars to their customers at 3% to 5% / year and earn the spread.

• Here's a question for you: What rate of return does the bank pay you on the dollars you've just handed over to pay off your mortgage? The answer is zero. In other words, once those dollars are in the hands of the bank, you earn nothing on them.

• Say you do pay off your mortgage and eventually need to access your home equity at some point in the future (job loss, illness / health issue, family emergency, etc.). How do you get at your home equity? The answer is you refinance your mortgage and pay refinancing costs to get at your own equity / money.

  • So, not only does the bank pay you a zero percent return on the dollars you handed over to pay off your mortgage, they charge you to get at your own money.
  • Plus, if you lose your job or have a health issue, do you think the bank is going to let you refinance? Maybe or maybe not.

You can see that the answer to the question of paying off your mortgage before retirement is certainly not a slam dunk and depends on your personal financial goals. If this decision is something you are contemplating, please reach out to an SWA advisor as we are glad to help you make the choice that is best for you.

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Tax Professional vs. Tax Software

Written by Summit Wealth on .

Tax forms are arriving in your mailboxes as we speak. As you gather your tax information you may be wondering if you are better off using tax preparation software (and preparing it yourself) or hiring a professional. There are several things to consider when making this decision.

•   Price: This is, of course, the most appealing argument for using tax preparation software. The cost of software ranges from free to $120. The national average cost for 2014 returns completed by a tax professional was $273 according to a survey by the National Society of Accountants. This fee will vary greatly depending on an individual's circumstances and the preparer's experience and training. Keep in mind accountants pay between $1,000 and $6,000 for their software, which is far more sophisticated than the products sold to consumers.

•   Speed: When using software you can complete your return at your convenience once you've gathered all the necessary documents, whereas an accountant will take several days to a few weeks to process your returns. A tax profession will save you time when handling complicated Issues. They are able to answer questions quickly saving you the time and frustration of researching and finding answers to your questions.

•   Simplicity: Good tax preparation software walks you through the process very quickly and easily. For those who have only a few deductions, sources of income, or investments, there is little need to sit down with an accountant to sort it all out. However, when using a professional you are able to develop a relationship so they understand your family's financial situation and future goals. They are able to make tax saving suggestions that a software program is not able to anticipate. Also, tax professionals can answer your questions year around.

In conclusion, there is no "correct" answer to the question of hiring a tax professional or doing your taxes yourself with software. Your comfort and familiarity with IRS rules will be part of your decision, but the complexity of your finances should be the key deciding factor. Those with business income and rental properties will find the expense of hiring an account to be worth their peace of mind and potential tax savings.

Regardless of how you choose to complete your tax return, we are happy to review your returns and work with you and / or your tax professional to uncover tax saving and planning opportunities that fit within your comprehensive financial plan.

North Metro: 763.355.5873
227 East River Parkway
Champlin, MN 55316-5873

South Metro: 612.987.9112
5871 Crossandra Street SE
Prior Lake, MN 55372-3337

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322 Greenhill Lane
Long Lake, MN 55356

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