The Importance of the Foundation

Written By: Shawn Perkins, CFP®, AWMA

Recently, many of our clients have expressed concern about the ongoing drama around the debt ceiling and the potential impacts if an agreement isn’t reached.  Their concerns are valid.  The impacts if a timely deal is not reached cannot be understated.  According to a recent article in Politico, if the government defaults on its massive obligations, tens of billions of dollars in obligations are at risk in June.1  For example, and far from an exhaustive list:

  • $50 billion in Social Security benefits
  • $20 billion in Medicaid payments
  • $6 billion in federal salaries, and
  • $12 billion in veteran benefits.

In addition, financial markets would also be negatively impacted.  U.S. government bonds are at the center of the financial world due their consistent and reliable payments and return of principal.  If the reliability of U.S. debt comes into doubt, then uncertainty – which drives market volatility – will be reintroduced into the market to a greater extent than it already has been.  

While we are optimistic that an agreement will ultimately be reached, I make the points above to validate the concerns that our Clients, and everyone that would be impacted, are feeling.  In times of uncertainty, whether it is the debt ceiling, the drastic rise of inflation in 2022, the fallout of the COVID-19 in 2020, or any other turbulent market/economic event, I revisit the purpose of the Foundation in our Financial House model with our Clients.  As a refresher, we use the Financial House model as a capital allocation framework when it comes to managing the assets of our Clients.  At the bottom of your Financial House is the reliable, sturdy, and dependable Foundation.  This is capital that we are not willing to put at risk of loss.  As an example, these assets would consist of cash, CDs, fixed index annuities, and guaranteed income annuities.  Next, the Walls of the Financial House are slightly more aggressive than the Foundation.  They still require dependability but could provide a little more return potential.  This could be corporate bonds, reliable dividend paying stocks, or rental income to name a few.  And finally, the Roof of the Financial House is your equity exposure.  Designed for long-term growth, the Roof is comprised of growth stocks, international stocks, and high-yield dividend stocks to beat out inflation in the long run.  

With this framework in mind, in the face of uncertainty within the stock market and from the risk of delayed income from Social Security or other payments, having a well-constructed Foundation is paramount for success and peace of mind.  The size and composition of the Foundation will vary from Client to Client due to risk tolerance, guaranteed incomes sources, and investable assets.  However, the purpose of the Foundation never changes.  Those assets are there for the unexpected and protected from market volatility.  Keep your Foundation strong, even in the good times, because the unexpected could always be around the corner!

Say What?

Researchers have released the details of a massive dying star eating a Jupiter-size planet. The star reportedly grew bigger and more than 100 times brighter in just 10 days, quickly faded, and then eventually turned back to normal. Researchers say this could be a clue as to what could eventually happen in our own solar system. But the good news is humans won’t be around to experience our Sun devouring our planet, as the Sun will probably fry Earth first, making it inhospitable for life. 

This week in history:

1792 – New York Stock Exchange was established.

1769 – George Washington started his legislative protest of Britain’s policy of “taxation without representation” in response to measures passed by British Parliament that taxed goods imported to the American colonies.  

1873 (150 years ago) – Levi Strauss and Jacob Davis receive a patent to create work pants reinforced with metal rivets, marking the birth of one of the world’s most famous pieces of clothing: blue jeans

1943 (80 years ago) – FDR and Winston Churchill met to set a date for an invasion of Normandy that would become D-Day. It was originally set for May 1, 1944 but actually took place on June 6, 1944. 

1973 (50 years ago) – Televised hearings on Watergate begin. 

1980 (May 18) – Mount St. Helens located in the Cascade Range erupted and blasted 1,300 ft off its top that sent hot mud, gas and ashes running down its slopes. 57 people were killed in the most destructive eruption in modern US history. 

Have any questions? That’s what we’re here for! Call us at 844-227-5766 today!

1 Here’s who misses checks if the U.S. hits the debt brink in June

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