Need Help Deciphering the Markets? This Series Is for You
“YOU’VE PROBABLY HEARD ABOUT ‘EMERGING MARKETS’ over the years —maybe a news story about a debt or currency issue in one country or political unrest in another. But when it comes to investing in them, your first thought might be, ‘Thanks, but I think I’ll wait ’til they’re done emerging.’” With that, Nick Giorgi, an investment strategist in the Chief Investment Office at Bank of America Global Wealth & Investment Management, launches into the first of a new series of videos called Market Decode.
The goal, says Giorgi, “is to demystify investing.” He explains, “It can sometimes seem to the average investor that people in wealth management speak a foreign language: puts, calls, sectors, asset allocation. Our aim with this series is to translate how the markets work into the kinds of conversations you might have with your colleagues at the watercooler. Or over dinner with friends.”
Market Decode will feature Giorgi and other strategists from the Chief Investment Office offering straightforward explanations and sharp insights into timely financial and economic topics. It’s designed to help you make well-informed investing decisions that can help you pursue your goals.
First up, Giorgi “decodes” emerging markets—24 countries around the world that are projected to grow twice as fast as the U.S. this year and next, according to the Chief Investment Office. Along the way, he investigates a phenomenon known as “home country bias,” or the tendency for investors to tilt their portfolios strongly toward domestic assets, which helps explain some people’s reluctance to invest in this sector.
Up next is “Market Decode: Some (Surprising) Ways to Invest in Tech.” “Keep your eye out for it and others in this series,” says Giorgi, “and talk with your advisor about the ideas we’ll be covering.”
For more investing insights from our Chief Investment Office, visit ml.com/insights.
Student Loan Debt: The $1.5 Trillion IOU
TWENTY MILLION COLLEGE STUDENTS started their freshman year this fall—and seven in 10 are likely to leave with debt. They’ll have lots of company: As of June 2017, Americans collectively owe $1.5 trillion in student loan debt, making it the second-largest source of consumer debt after mortgage loans, according to Merrill Lynch’s Chief Investment Office.
How much individual graduates owe is partly dependent upon where they go to school: In Utah, for instance, the average student loan debt for the class of 2016 was only $19,975, while in New Hampshire it was $36,367, reports the Institute for College Access and Success, which surveyed more than 1,000 public and nonprofit four-year colleges in September of this year.
Finding the Right Pay-Back Plan for You
There are a number of repayment options available to graduates with federal student loan debt. They include a 10-year repayment plan, a graduated repayment plan with payments that start low and steadily increase, and various income-based plans. Those who work for the government or in the nonprofit sector may also be eligible for the Public Service Loan Forgiveness Program. If you owe private loans, the issuing bank sets the repayment terms.
“Deciding which repayment plan is right for you requires hard choices and a solid strategy,” says Jean Kim-Wall, director and wealth strategist at the Strategic Wealth Advisory Group at Merrill Lynch. “For instance, having lower monthly payments and more time to pay off your loan may sound tempting, but you’re likely to pay more in interest over the life of the loan.” For that reason, she says, “even if you’re eligible for an income-driven plan with a lower monthly payment, it may not be your best choice. If you can afford to pay more, do.”
Here are three more tips from Kim-Wall.
- ✔ First, "try to pay the interest on your loans while you’re in school to prevent your principal from growing during your college years."
- ✔ Also, “pay back the loan that has the highest interest rate first.”
- ✔ Finally, consistency is key, since “regular payments show future lenders that you have discipline.”
Headed to grad school next? Read “The Basics Q&A: Paying Off Grad School Debt.”
Time to Get Smart About Artificial Intelligence
IT WAS THE “CHECKMATE” HEARD ‘ROUND THE WORLD: Twenty years ago, a computer called Deep Blue outsmarted the reigning world chess champ, and artificial intelligence, or AI, suddenly became more real than a sci-fi movie plot. Today, AI’s potential goes far beyond games, shaking up entire economic sectors—and people’s lives.
AI, defined as “the development of computer systems able to perform tasks normally requiring human intelligence,” already can be seen in the form of digital assistants, unmanned drones and facial recognition systems. And AI-driven products aimed at reducing operating costs, improving decision-making and enhancing consumer services are in the works across a range of industries. (See video below.)
Investors with deep pockets are taking note. Just this past year, AI startups raised a record $5 billion globally—a near-tenfold increase over the 2012 level, according to CB Insights.
What’s speeding up development—and investor interest? Ehiwario Efeyini, senior research analyst, U.S. Trust, Bank of America Private Wealth Management, offers three compelling reasons:
- Intuitive Machine Learning. The traditional approach to programming computers has relied on system engineers writing vast sets of instructions. But that’s changing. New machine learning techniques allow computers to adapt to new situations on their own.
- Unprecedented Quantities of Data. The vast amount of data now available from social media uploads, connected devices, digital transactions, health records and more can be crunched and analyzed as never before to program software that responds more accurately to the world.
- Exponential Increases in Chip Speed. The use of graphical processing units (GPUs)—with their thousands of processing cores—makes it possible to run large numbers of similar operations at the same time. And tech companies are racing to build even faster “quantum computers” with chips that manipulate data using quantum mechanics.
What AI Could Mean for the Average Investor
Many real-world applications are still at the early stages, points out Efeyini. But over the coming years, you can expect AI software and related products to gain more widespread industrial and consumer adoption. “The biggest beneficiaries should be providers of AI-enabling technology and industries that gain the most in product enhancement from improvements in AI performance.”
Learn more about ““The Rise of the Machines” here. To read up on other timely market trends, check out the latest insights from Merrill Lynch’s Chief Investment Office below.
The Best Gift You Can Give Your Family
IN THE CATEGORY OF THINGS NO ONE WANTS TO TALK ABOUT, illness and death rank right up there. But putting steps in place now to spell out your health care and estate planning wishes could be one of the best things you can do for yourself—and your family.
“You take care of your family all your life. Preplanning for the time when you’re no longer here, or able to articulate your wishes, is just an extension of that—and a very caring gift,” says Cynthia Hutchins, director of Financial Gerontology at Bank of America Merrill Lynch. Here’s how to begin.
Start a “Big Picture” Conversation
As early as possible, meet with your loved ones, your financial advisor and estate attorney to begin translating your values into a long-term plan. Do you have a living will, which spells out your wishes to medical providers and your family? Is your estate structured in a way that will minimize the tax hit on your heirs? You might even want to think about planning your own funeral to take the pressure off your loved ones.
Next, “think about what you would want to happen in different scenarios,” says Hutchins. This means naming those who’ll carry out your wishes, including the person you want to make health-care decisions for you if you can no longer do so, as well as an executor, trustee and guardian, if you have minor children. Be sure to check in with them to make sure they’re comfortable with any responsibilities you’ve given them.
Create a “Family Album”
“Your financial advisor can work with you to create a “family album,” a document that contains all the possible things your heirs may need to know about or get their hands on,” Hutchins says. That includes things like the title to your car, deed to your house, account numbers, online passwords, and contact information for everyone from attorneys to accountants.
The following useful resources, including a new and very comprehensive paper on “Aging and Your Wealth,” will help you get started having these important, but difficult conversations. The checklist “Loss, Legacy and Looking Ahead,” can provide your family with useful step-by-step financial direction—from dealing with probate issues to investment decisions. Share them today.
10 Midyear Market Lessons—and What to Make of Them
“WHILE SIX MONTHS HARDLY MAKE A TREND,” the first half of 2017 offers investors some interesting insights into the remainder of the year, says Joseph Quinlan, head of Market & Thematic Strategy in Merrill Lynch's Global Wealth & Investment Management Chief Investment Office (GWIM CIO). He and the GWIM CIO team take the pulse of the markets, tracking 10 developing trends in these recent CIO Weekly Letters, “Lessons at Midyear,” Part I and Part II, and in the CIO July Monthly Letter.
Test your knowledge of the markets by taking our True or False quiz below. Then tune in to our “Midyear Market Check: Are You Ready for the Opportunities Ahead?” webcast for insights and answers from Chris Hyzy, chief investment officer, Global Wealth & Investment Management; Karin Kimbrough, head of Investment Strategy, Merrill Lynch Wealth Management; and Niladri (Neel) Mukherjee, director of Portfolio Strategy, Private Banking & Investment Group and International.
2 Times You Should Never Tap Your Home Equity
IT’S BIG. IT’S EXPENSIVE. And it’s many people’s largest asset. While your home may be the place where you lay your head and dream at night, it can also play a huge financial role in your life.
Making those monthly mortgage payments is a little like “enforced savings,” says David Steckel, head of Mortgage Product Strategy, Global Wealth & Investment Management. Your home’s value shouldn’t be overlooked as you build your financial strategies for the future—and the equity you hold in it is one resource you can draw upon to help you cover certain current expenses.
The simplest way to do so is through a home equity loan or line of credit, says Steckel. Many people turn to one of these to help them pay for major home renovations, for instance. But there are some expenses that you should never use your home equity for. After all, why put at risk that place where you raise your family and dream at night? Here, Steckel, gives his thumbs up—and down—on seven uses you might be considering.
Online College Degrees: Are They Worth the Money?
ONCE CONSIDERED A POOR SUBSTITUTE for the real thing, online higher-ed degrees are moving into the mainstream. These days they’re fully embraced by high-quality public and private not-for-profit institutions, which collectively serve 70% of all online students.1 Even the Ivy League is in on the action. And an increasing number of students are turning to online courses for their undergrad and grad degrees. Online M.B.A., anyone?
While the cost per credit tends to be similar for both online and on-campus students, their other advantages may be hard to ignore. The flexibility of being able to study at night and work by day that online programs offer students, as well as the cost efficiency of learning remotely (no housing or travel expenses to consider) make them a tempting option, says Richard Polimeni, director of Education Savings Programs at Bank of America Merrill Lynch. “Both federal aid and 529 accounts can be used to cover eligible expenses for online students,” he explains.
As for how employers perceive these “virtual” degrees, “there’s a growing awareness that online or on-the-ground doesn’t matter. What matters is the institution,” says Dr. Joshua Kim, director of digital learning at the Dartmouth Center for the Advancement of Learning. If you’re looking to join the ranks of online degree seekers, Kim suggests that you consider the following.
Take a test run. One advantage of online education is that many courses are now offered à la carte. Taking an online course or enrolling in a multicourse certificate program can help you evaluate whether an online degree track is right for you.
Check out the reputation of the program—and opportunities for networking. Make sure the school you’re interested in is accredited by using this search tool from the Department of Education. “Keep in mind that it’s not just the degree that’s valuable—it’s the network,” says Kim. When researching programs, look for notices of group work and opportunities to meet in person. Pursuing an online degree at an in-state institution may also help build your network by making it easier to meet with classmates and professors in person. This might explain why more than half of online students attend programs in their state.2
Do your homework on the instructors. Online degrees may give you access to professors who are professionals working in your field. But a program run entirely by adjuncts should be a red flag, says Kim. “A good professor will be responsive and work hard to create a community among the online students, whether it be through discussions, a blog or group project work,” adds Debra Greenberg, director, Retirement and Personal Wealth Solutions at Bank of America Merrill Lynch, who teaches marketing as an adjunct professor at Rider University.
Selling Your Home? 3 Ways to Improve Its Curb Appeal
YOU ONLY GET ONE CHANCE to make a first impression, and the same goes for your home—especially when you’re trying to attract buyers. “Your home’s curb appeal can help minimize the time it spends on the market,” says Shawna Winter, managing broker of the Big Sky Real Estate Company in Big Sky, Montana. Whether you’re looking to sell now or in the future, Winter recommends focusing on upgrades that are worth the time and money. “Walk around your home as if you were a buyer, and ask yourself what needs fixing, updating or replacing,” she says.
“Before deciding on a renovation project, talk to local real estate agents about what will attract buyers in your market,” suggests David Steckel, head of Mortgage Product Strategy, Global Wealth & Investment Management. Then consider how you’ll finance it. For small items, your credit card may be the best option. For larger undertakings, either a home equity line of credit secured by your home or a flexible line of credit secured by your investments, such as Merrill Lynch’s Loan Management Account® (LMA®), might work best, Steckel says. “Your financial advisor and loan officer can help you make these decisions.”
Below, Winter suggests a handful of high-value projects to consider.
Selling this summer? “Declutter, declutter, declutter!” says Winter. Then, touch up your lawn and wash windows and deck areas. Also, canvass the front of the house for common offenders like eroded gutters or missing shingles. Once your home is in tip-top shape, hire a professional photographer—after all, most buyers’ first impression comes when they see photos from the online listing, not when they enter your driveway.
Thinking about a move in the next year or two? “Ask yourself, does the entry look welcoming?” says Winter. Changes such as a new walkway or entryway landscaping may be worth considering. Larger investments like a new roof can also add significantly to your home’s curb appeal, and a simple fix like upgrading your front door or garage door(s) could significantly increase your home’s value, according to Remodeling Magazine.
Vacation Etiquette: Who Pays for What?
WE’VE ALL BEEN THERE: THAT AWKWARD MOMENT when the restaurant bill comes and it’s not clear who’s paying. Should you split it evenly—down to the decimal point? Or will one person magnanimously pick up the whole tab?
“The scene you want to avoid is having two or more people play tug-of-war with the bill,” says Stacy Allred, head of Merrill Lynch’s Center for Family Wealth. “It’s easy to arrange in advance for it to be given to you. Or you could just step away from the table and settle up while you’re waiting for dessert.”
What’s tricky with dinner can be even trickier when you’re dealing with larger expenses, like a weeklong vacation with family or friends. Allred offers the following three simple rules to help you avoid any misunderstanding.
Establish who’s paying what up front. “If you want all or part of the vacation to be a gift, say what you’d like to pay for, what you won’t be paying for and why you’re giving the gift,” she says. You could cover the cost of renting the beach house, for instance, and your friends could offer to pay for groceries or meals out.
Get creative. If you’re covering the big up-front expenses, it’s important that you leave the door open for people to help out in non-monetary ways, such as preparing some of the meals or planning excursions. “Everyone will feel better knowing they brought something to the table,” Allred says. And don’t forget that accumulated travel miles can be a friendly alternative to dollars, she adds.
Can you make the trip more affordable for everyone? Focusing on what everyone hopes to get out of the trip can help clarify how money should be spent. Are there expenses that you can compromise on? “Don’t let money stop you from enjoying one another’s company,” says Allred. “That’s the real reason you’re traveling together in the first place.”
Managing the Financial Needs of Your Special Needs Child
HAPPENING ON THE SLOPES OF AUSTRIA THIS WEEK, the Special Olympics World Winter Games 2017—thrilling proof of the power of all individuals to reach their full potential. Getting there isn’t always easy, though. “Seeing a child to adulthood is difficult enough. Raising one with special needs can be overwhelming financially,” says Chris Sullivan of the Global Marketing and Corporate Affairs group at Merrill Lynch. Recognizing that fact, Bank of America and Merrill Lynch have actively supported special needs families for many years.
Bank of America has been a partner of Special Olympics for more than 30 years. And Merrill Lynch’s financial advisors have access to many resources that can help families plan for the immediate and long-term financial needs of their special needs children. There are generally private special needs schools to consider, as well as the possibility of continuing medical care, notes Sullivan. And always there’s the nagging worry: What will happen to my child when I’m no longer here?
“Too often, the parents of children with autism or other special needs are so immersed in the challenges of the moment that they can’t think long term,” says Sullivan, who has decades of experience in special needs issues. He recommends consulting a care manager, a social services representative, a tax advisor and a special needs trust attorney, in addition to your financial advisor, to help address the following questions:
What’s the cost of care? Expenses can vary widely depending on your child’s condition. “Your care manager and financial advisor can work together to clarify anticipated costs,” Sullivan explains, “and your tax advisor can help make the most of available deductions.” For starters, check out our special needs cost calculator here.
What about government programs? Your special needs child may qualify for two key sources of government assistance, Supplemental Security Income and Medicaid. Sullivan recommends speaking with a special needs trust attorney to discuss your child’s eligibility, and visiting the Special Needs Resource Project for further information on programs in your area. Also worth checking out, ABLE Accounts—tax-advantaged savings accounts for individuals with disabilities and their families.
Should we rethink our estate plan? By leaving money to your loved one via traditional means, you could disqualify him or her from government assistance after your death. “That’s why some families decide to use a special needs trust,” says Sullivan. But there are potential downsides. “Ask your trust attorney to clarify the rules so you can decide which path to take.” For more on trusts, read “Is a Trust Right for You?”
Is Franchising a Safe Shortcut to Entrepreneurship?
ENTREPRENEURSHIP HAS LONG BEEN A FAVORITE SECOND ACT for retirees, with many buying franchises as ready-made businesses. Lately, the proliferation of low-cost and tech-based options has made franchising more affordable for young adults as well.
While you can pay hundreds of thousands of dollars in startup fees and costs to own a franchise, many come in for under $25,000 and some for around $10,000. “When you buy a franchise, you’re buying a system,” says Christy Wilson Delk, a franchise specialist. The main advantage: As the company builds the brand, you can focus on your customers.
But entrepreneurship—even when it comes prepackaged—isn’t for everyone. Franchisers can dictate what prices you charge and may require you to pay royalties and other fees. “As with any business, you need to do your research and be aware of the risks,” says Thomas Carter, vice president of Personal Retirement Strategy & Solutions at Merrill Lynch. “Before you sign the contract, have it reviewed by an attorney and your accountant, and be sure you understand all the expenses involved. You’ll also want to consult with your advisor about how this move might affect your other financial goals.”
If you’re considering taking the leap, check out the websites of the Small Business Administration and the Federal Trade Commission. “They have tons of free information about franchising,” says Carter. Below are three in-demand franchise fields to explore. None require dedicated expertise beyond sound business management.
Education: Franchises in this area can range from tutoring to SAT prep to continuing education. Worth noting: According to the market research firm Global Industry Analysts, Inc., the global private tutoring market is projected to surpass $102.8 billion by 2018.
Wellness: These businesses focus on fitness, beauty and nutrition. Health clubs alone posted revenues of $26 billion in 2015, up 6% from the year prior.1
Senior Care: The focus here is on providing in-home medical and non-medical care services for the elderly. In the next decade, says the U.S. Dept. of Labor, demand for health aides is projected to grow 38 percent – much faster than the average for all occupations.
Does It Make Sense for Me to File a Tax Extension?
YOUR TAX ALARM DIDN’T GO OFF. Your dog ate your 1099. Or maybe you’ve been waiting for a critical piece of documentation. Whatever the reason, you may be feeling the need for a little more time to file your taxes. If so, filing for an extension could be the answer. The deadline for filing for an extension this year is April 18. But doing so will give you until October 16 to file your taxes.
"People seem to have a sense that there’s something negative associated with extensions,” says accountant Vinay Navani, of Wilkin & Guttenplan P.C. “On the contrary, filing for one can be a very prudent move, especially if you’re waiting for information from a third party."
For business taxpayers, there’s an added advantage: “You may be able to defer making a pension payment until the extended due date, which allows you to use 2017 revenues while still claiming the benefit for 2016,” he says. But that doesn’t mean it’s a fix-all.
Here, Navani puts to bed some common myths about the process. Check in with your tax professional and financial advisor to weigh the pros and cons, and determine if an extension might make sense for you.
Fill in the Blank: The Biggest Expense of Your Life Is ...
IT CAN COST 2.5 TIMES MORE THAN THE AVERAGE HOME —and more than the average amount you’ll spend to purchase that house, raise your child and pay for his or her college education, combined. Yet few people think of it that way. Nor are they well prepared for the expense. At an average cost of $738,400, it’s “the purchase of a lifetime.” What is it? Retirement.
That’s a key finding of Finances in Retirement: New Challenges, New Solutions, a study just released by Merrill Lynch in partnership with Age Wave. Fully 81% of Americans have no idea how much they’ll need to save for their life after work, according to the study. And many don’t seem to know where—or how—to begin. In fact, one third of adult Americans, including 42% of millennials, have nothing at all saved or invested for retirement.
“Most people—and the young in particular—have a tough time imagining their financial situation years from now,” says Michael Liersch, head of behavioral finance at Merrill Lynch Wealth Management. Immediate priorities—like buying a home or saving for your child’s college—get in the way. “Yet understanding your future needs is key to preparing for a financially secure retirement.”
The study highlights many actionable strategies, course corrections and tradeoffs that can help you prepare for and deal with the financial challenges you may face as you age. Be among the first to download it here today. Then talk with your financial advisor about how you can prepare.
Writing a Will Won’t Jinx You
HERE’S A SHOCKER: More than half of Americans don’t have a will, including nearly a third of those 65 and older, according to a 2016 Gallup research poll.1 One possible reason, beyond lingering bad-luck superstitions: “People don’t like to plan for their own mortality,” says Jean Kim-Wall, a director in the Strategic Wealth Advisory Group at Merrill Lynch.
But estate plans (which include wills) are less about your own future than they are about protecting your family—from discord, avoidable taxes and legal fees. Most important, a will gives you control. "If you don’t have a will, the state will decide how your estate is handled," says Kim-Wall.
“Whether you’re nearing retirement or just starting a family, it’s a good idea to put your wishes down in writing,” she adds. "Talk to your financial advisor about your goals. An estate planning attorney will fine tune your initial thoughts and make everything official by drafting the necessary documents." And bring your family into the conversation.
Below, Kim-Wall offers three things here that every will should address.
Name your beneficiaries and your terms. Who inherits what from your estate is the first step, but you should also consider how your assets are passed on. For some ideas, read "Is a Trust Right for You?" and "Remarried—with Children? An Estate Plan for You."
Pick an executor and a guardian. “The executor will take inventory of your assets, make sure your mandatory filings are done, and pay any estate taxes,” says Kim-Wall. And if you have minor children, you’ll need to name the person who will look after them. For a first-person account of why this is so important, read "The Things They Never Tell First-Time Parents."
Plan for contingencies. Wills can become outdated quickly, so spell out how you want to account for major life events like births, deaths, marriages and divorces.
For more tips on getting started, check out “What You Need to Know About Your Will.” And if you want to see your kids enjoy their inheritance while you’re still alive, read "Why Make Your Heirs Wait?"
Please keep in mind Merrill Lynch does not provide Estate Planning, tax or legal advice.
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