kdrumm

The Washington Update: 2020

July 7, 2020 // by kdrumm

Thursday, September 3, 2020
Live Stream Presentation Begins at 7:00 pm

An Overview of the Political Environment, Prospective Legislation, and Strategies for Investment and Retirement Planning

Join us live via:
LIVE STREAM

Washington is focused on helping individuals afflicted by the coronavirus and providing fiscal stimulus to restart an economy that has been devastated by the virus’s effects. Toward those ends, Congress has enacted multiple pieces of complex legislation that have wide-ranging consequences for individuals, businesses, and the economy. More legislation is likely ahead.

The crisis could affect the results of a national election that is poised to mark an inflection point in our country’s future. The parties and candidates offer starkly different views on issues that will define American policy for years to come.

Jeff Bush will address details of the coronavirus legislation, including how it affects individuals, small businesses, and industries. He will also discuss the legislation’s effect on other important concerns, such as the U.S. fiscal situation, U.S.-China relations, and the national election. Jeff will share his insights on the election, from the Democratic primaries and nomination through the election of the president, House, and Senate in November, providing a unique analysis of the factors likely to influence the election result, as well as the markets’ likely reaction.

We will be live streaming this event:

livestreamlv.com/live/cfs

If you have questions, you may contact our office at 440-974-0808 or email us at carverfinancialservices@raymondjames.com.

About Jeff Bush

Jeff presents more than 200 times yearly in the US and abroad to a client base that includes a who’s who list of fortune 500 firms from Wall Street to Main Street and everywhere in between. Jeff frequently appears on CNBC’s Nightly Business Report, featured in various industry publications, including Investment News, and a guest on POTUS Sirius/XM Radio.

Jeff is a 30+ year veteran of the financial industry. By the end of his career on Wall Street, he was managing a $50+ billion sales organization. Before that, Jeff was the youngest managing partner in the 150-year history of The New England Financial.

Jeff holds a bachelor’s degree in Business Administration/Management with an emphasis in Accounting, computers, and philosophy from William Jewell College.

Jeff’s dedication, forward-thinking, and strategic abilities have resulted in performance records, industry awards, and industry accolades.

Carver Financial Services Inc. offers securities through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc. Carver Financial Services Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services. Raymond James and Carver Financial Services are not affiliated with Jeff Bush or The Washington Update.

New Bipartisan Law Encourages Retirement Saving

December 31, 2019 // by kdrumm

True bipartisan support of just about anything in Washington has become as rare as sightings of the Loch Ness monster — and almost a tale from the past. Yet on December 17^th, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in the House with a 417–3 vote. Two days later, it also passed in the Senate with bipartisan support. Late in the evening on Friday, December 20^th, President Trump signed the SECURE Act into law as part of the year-end appropriations package.

This is the first major retirement plan legislation since the Pension Protection Act of 2006, and it affects millions of Americans. The far-reaching bill includes significant provisions aimed at increasing access to tax-advantaged accounts and preventing older Americans from outliving their assets. Our country needed this legislation. According to GOBankingRates’ sixth annual savings survey, in 2019, 69 percent of respondents said they had less than $1,000 in a savings account.

Yet sadly, reporting of this historic bill and its bipartisan support was lost and underreported as the media chose to focus instead on partisan politics.

So what does it mean for you? The Secure ACT has 29 major provisions. Here are just a few key provisions that could have an immediate impact on you:

Section 113 of the SECURE Act raises the required minimum distribution age (RMD) from 70½ to 72. This means that people can now wait to begin making their RMDs. The age 70½ was first applied in the retirement-plan context in the early 1960s and has never been adjusted to take into account increases in life expectancy.
Section 106 of the new law removes the age limitation on IRA contributions. In the past, once you reached age 70½, you could no longer contribute to a traditional IRA, if working, although you could contribute to a Roth IRA. With the new law, there is no age limitation on contributing to a traditional IRA, as long as you have earned income.
Section 401 of the bill reduces the “stretch IRA” provision for nonspouses. Previously, a nonspouse beneficiary could stretch payments from a retirement plan over his or her life. The SECURE Act requires a nonspouse beneficiary to draw inherited retirement plans like 401(k)s, traditional IRAs and Roth IRAs over a period no longer than 10 years.
Some 401(k) plans will automatically enroll you and start deferring part of your salary unless you actively opt-out. Currently, the maximum percentage of employee compensation that may be deferred under a 401(k) plan that includes a “qualified automatic contribution arrangement” (QACA), unless the participant affirmatively elects otherwise, is 10 percent of eligible compensation. Section 101 of the SECURE Act raises this maximum to 15 percent.
Currently, safe harbor 401(k) plans are required to provide an annual notice to participants apprising them of their rights and obligations under the plan, whether the employer safe harbor contribution is satisfied by a matching contribution or a nonelective (i.e., profit-sharing) contribution. Section 102 of the SECURE Act eliminates the requirement to provide such notices with respect to safe harbor 401(k) plans that satisfy the employer safe harbor contribution with nonelective contributions. The notice requirement remains in place with respect to plans that use matching contributions to meet the safe harbor requirements.
Section 112 of the Act provides the ability to draw up to $5,000 from a retirement plan without penalty for the birth or adoption of a child.
Section 204 creates new rules that expand lifetime income options within retirement plans, such as annuities.
Section 302 allows 529 plan owners to withdraw up to $10,000 tax-free for payments toward qualified education loans. However, there is no double-dipping when it comes to federal education tax benefits. Any student loan interest paid for with tax-free 529 plan earnings is not eligible for the student loan interest deduction. Also, the $10,000 limit is a lifetime limit that applies to the 529 plan beneficiary and each of their siblings.

One important item to note is the potential impact on IRA’s with a trust named as beneficiary or a trusteed IRA. We believe it is always good practice for all beneficiary designations of retirement accounts to be periodically reviewed to see if they are still in line with your wishes. The changes introduced by the SECURE Act make it important to review any situations where trusts are named as retirement account beneficiaries. This is something you should discuss with your estate planning attorney.

In general, trusts created to serve as the beneficiary of a retirement account are drafted in such a manner as to comply with the “see-through trust” rules which allow the trust to stretch distributions over the oldest applicable trust beneficiary. Both Conduit and Discretionary trusts could be treated unfavorably by the provisions in the SECURE Act. For instance, many Conduit Trusts are drafted in a manner that only allows for the required minimum distribution to be disbursed from an inherited IRA to the trust each year, with a corresponding requirement for that amount to be passed directly out to the trust beneficiaries. In light of the changes made by the SECURE Act, for those beneficiaries subject to the 10-Year Rule, there is only one year where there is an RMD… the 10th year! As a result of this change, Conduit Trusts drafted with this type of language may not allow distributions of the inherited account until the 10th year after death (because prior to that 10th year, any IRA distributions would be ‘voluntary’). And then, in the 10th year, the entire balance would have to come out in one year to the trust… and be passed entirely along to the trust beneficiaries (as a mandated RMD that under the Conduit provisions ‘must’ be passed through). The end result could be what would amount to a very high tax bill, as the entire value of the retirement account is lumped into a single tax year as a distribution to the beneficiary.

Discretionary Trusts may not fare much better though, if at all. It is not yet clear whether the IRS will allow all See-Through Trusts to actually see through the trust to an Eligible Designated Beneficiary. The SECURE Act specifically provides that such trusts can (subject to certain rules) be treated as an Eligible Designated Beneficiary when the applicable trust beneficiary is a disabled or chronically ill person. The law is silent, however, as to how a trust benefiting other Eligible Designated Beneficiaries (i.e., a spouse, a minor child, or a beneficiary within 10 years of the deceased retirement owner’s age) should be treated. Thus, it remains ambiguous. Future IRS guidance will likely be needed to address this question.

Because each person’s planning needs and situation are unique, it’s important to work with your financial advisor to develop a plan that is best for you. The SECURE Act is intended to encourage Americans to save more for their own retirement. As we live longer and do more later in life, it is critical that we have the financial resources to maintain and even enhance our standard of living.

The passage of this bill serves as a reminder that bipartisan work is possible and is happening. Ultimately, the government and regulations will not make financial security a reality for us. We have to take some personal responsibility, and the end results are largely dependent on our own actions.

Please contact our team with questions or if we can help you figure out how to optimize your retirement savings and planning. It’s your vision, and we are here to help you achieve it. Please contact me, or our team, with questions or whenever we may be of service: 440-974-0808 or randy.carver@raymondjames.com.

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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

Ultimate Vacation

December 9, 2019 // by kdrumm

It’s been said that retirement is the ultimate vacation. Many people spend more time researching and planning for their next vacation than they do for their retirement. There are a number of reasons for this, but one reason is that often, the process seems overwhelming. Here are five truths about retirement that can shed some light on why many people—and maybe you—put off retirement planning.

1. Retirement planning doesn’t have to be overwhelming or scary; treat it like you’re planning for a vacation, and you’ll be better off. Research shows that 39 percent of Americans spend more than five hours exploring vacation possibilities—while only 11 percent spend the same amount of time researching their 401(k) plans. In our new book, Ultimate Vacation, I walk you through retirement planning just as you would prepare for a trip: where are you now, where you want to go (and why), how you will get there, and what will you do once you’ve arrived.

2. It’s easy to think that retirement planning is all about the numbers. It’s not. If at any point you start to feel overwhelmed, remember, numbers are only one part of the picture. Understanding your numbers is just a way of helping you answer bigger, more important questions—namely, how to align your current reality to your hopes for the future. While most financial planning is investment-centric, our team focuses on each client’s individual, personal vision.

3. You’re likely putting off important decisions because of fear. Our team has heard it from more than a few clients: they put off insurance, long-term care, and estate planning because, as they say, “I worry that if I do it, I’m going to die.” It’s human to feel this way. But even if taking these steps won’t literally kill us, it will remind us of our own mortality, which is scary. The best way to live longer—and to enjoy the time you have—is to plan for the future.

4. Can the FIRE movement really help you retire by age 40? FIRE is an acronym that stands for “Financial Independence, Retire Early.” FIRE is a movement dedicated to a program of extreme savings and investment that allows proponents to retire far earlier than traditional budgets and retirement plans would allow. By dedicating up to 70 percent of their income to savings, followers of the FIRE movement may eventually be able to quit their jobs and live solely off small withdrawals from their portfolios.

But someone using this method would have to save up between 25 and 35 times his or her anticipated living expenses. On the low end, that’s more than $1.3 million, which is a pretty distant goal for most young people. To make the FIRE method work, you would need to maintain a high-paying job and live an austere lifestyle for years—or pray that you get an unexpected financial windfall. For most people, the math simply doesn’t make sense.

5. Budgeting is a lost art. In five easy steps, you can become an effective budgeter without an overwrought or complex process. A 2019 poll by Debt.com of more than 1,000 Americans revealed that precisely 67 percent of respondents had their family on a budget, down from 70 percent in 2018.

Many people either don’t think they need to, or they don’t think they can afford to. But it’s simple to find out how much you spend and where you can save a bit. In the book, I demolish your excuses and layout exactly what you need to do to make big changes in small steps. And no, it doesn’t include itemizing every penny you spend!

Ultimate Vacation: The Definitive Guide to Living Well Today and Retiring Well Tomorrow looks at this entire process and provides a road map you can use on your own or with your trusted advisor. Contact us for more information on how to obtain a copy.

When planned properly, retirement really is the ultimate vacation!

Please contact our team with any questions or if we can otherwise be of service. We are happy to discuss your personal vision and how you can live well today while being prepared for tomorrow. There is no cost or obligation. Contact me at randy.carver@raymondjames.com or (440) 974-0808.

Any opinions are those of Randy Carver, and not necessarily those of Raymond James. Investing involves risk, and you may incur a profit or loss regardless of strategy selected. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

Here We Go Again – Income Tax, Politics, and History

November 4, 2019 // by kdrumm

“Income tax returns are the most imaginative fiction being written today.” ― Herman Wouk

The election season is in full swing, and once again, we are hearing politicians campaigning on the idea of raising taxes on the wealthiest Americans and businesses to pay for various programs.

Intuitively, it makes sense that if you raise tax rates, tax revenue will go up. Moreover, it seems logical that if you raise tax rates on the wealthiest Americans, they will pay a larger share of the income tax.

But it doesn’t work that way. We have written about this for the last decade, and yet history continues to repeat itself with each election.

Tax policy proposed to help lower- and middle-income American’s often hurts them. This is not an economic debate; the facts stand for themselves. This is simply, and unfortunately, politics. Never before have we seen such extremes proposed as we are now, and thus the risk is higher than ever before, for those who are most vulnerable.

Taxing the rich more isn’t the answer

Bernie Sanders is proposing a 97 percent tax on the wealthiest Americans via his “Corporate Accountability and Democracy Plan.” Elizabeth Warren has proposed a 70 percent marginal tax rate, while Alexandria Ocasio-Cortez has also proposed a 70 percent income tax on the country’s highest-earning citizens, to pay for a new green energy plan.

The reality is that today, the wealthiest Americans are already paying the bulk of all income tax.

According to the Tax Foundation, in 2016, the top 50 percent of taxpayers paid 97 percent of all individual income taxes. The top 1 percent of taxpayers paid more income tax (37.3 percent) than the bottom 90 percent combined (30.5 percent).

Some politicians are ignoring history

Yet the debate continues on raising tax rates in the face of mounting government deficits. It makes sense that the government taxes people more and uses the money to reduce deficits. Yet history objectively shows us the impact of lowering tax rates versus raising them, so any debate about this is purely political. Some of today’s issues, such as health-care reform, Social Security and immigration, are often difficult to quantify objectively because we have not had experience with proposed changes. On the other hand, we do have objective experience with income tax cuts and their impact.

Tax cuts have historically shifted the tax burden from middle-income people to the wealthiest Americans while creating jobs and increasing government revenue. This seems counterintuitive, but the fact is true and undebatable. Critics, often with the best of intentions, have said that extending tax cuts and further reducing income taxes will benefit the rich over the poor and will lead to more deficit spending. This simply is not the case. The only reason any informed person would propose raising income tax rates is to gain votes — or to intentionally hurt lower- and middle-income Americans.

The public is told we cannot afford tax cuts due to government spending on entitlements, defense and all the other important things the government does. While cutting taxes in the face of mounting deficits may seem counterintuitive, critics are ignoring history.

Past income tax rate cuts have increased government revenues, boosted our economy, created jobs and shifted the tax burden away from low-income families to middle- and upper-income folks. There is no doubt that we will have to deal with excessive government spending to balance the federal budget. Independent of that, extending and expanding tax cuts, while closing loopholes, is a proven way to increase government revenue. This approach benefits all Americans by shifting the burden to those who can most afford it.

TEFRA from 1982 gives us a great history lesson

The Tax Equity and Fiscal Responsibility Act of 1982 (Pub. L. 97-248), also known as TEFRA, was enacted on Sept. 3, 1982. According to US Treasury statistics, TEFRA increased revenues by $130 billion in its first four years — after tax rates were cut dramatically. The top rate was slashed from 70 percent to 50 percent.

TEFRA was created in response to the recession at the time and faced fierce opposition from those who felt that taxes should be increased, not decreased, to offset government shortfalls. Sounds like a familiar debate, doesn’t it? TEFRA reduced the budget gap by generating revenue from closed tax loopholes and enforcement of tougher tax rules, as opposed to changing marginal income tax rates.

This legislation modified some aspects of the Economic Recovery Tax Act of 1981 (ERTA). Both of these pieces of tax legislation took place during the Reagan presidency.

TEFRA was considered the largest peacetime tax increase in American history as part of a budget deal to get the federal deficit under control. Reluctantly signing the bill into law, President Ronald Reagan stated that he was supporting “a limited loophole-closing tax increase to raise more than $98.3 billion over three years in return for…agreement to cut spending by $280 billion during the same period.” In the period between 1981 and 1986, it was believed that TEFRA would reclaim approximately $215 billion of the $750 billion given up by ERTA. According to the Bureau of Economic Analysis (BEA), the economy’s growth rates after TEFRA took effect were among the fastest in history.

Two years later, the 1984 Deficit Reduction Act increased tax collections by $72 billion in the four years after taxes were cut again. The bulk of these revenue increases came from the wealthiest Americans. This should not have been a surprise.

The broad-based income tax cuts that President Reagan implemented in the 1980s set off an entrepreneurial boom that propelled the growth of the economy for the next 20 years. Certainly, the Clinton presidency benefited from the tax cuts, and to Clinton’s credit, he even added his own cut by reducing the capital gains tax.

Reagan’s detractors point to his lack of sensitivity for social issues and the legacy of his deficit spending — yet his legacy is a positive one. In the seven years following the Reagan tax cuts, almost 20 million good-paying jobs were created, according to the U.S. Department of Labor.

Top earners already pay the lion’s share of taxes

A Joint Economic Committee for the US Congress report in 1996 revealed that the share of the income tax burden borne by the top 10 percent of taxpayers increased from 48 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.

The middle class also benefited — those between the 50th percentile and the 95th percentile for income. Between 1981 and 1988, the income tax burden of the middle class declined from 57.5 percent in 1981 to 48.7 percent in 1988. The increase borne by the top 1 percent of income earners is entirely responsible for this 8.8 percentage point decline in the middle-class tax burden.

According to the IRS, in 1981, the top 1 percent of income earners paid 17.6 percent of all personal income taxes. By 1988, their share had jumped to 27.5 percent — after the top tax rate had been cut from 69.13 percent in 1981 to 28 percent in 1988.

According to the Bureau of Labor Statistics, inflation, measured by the consumer price index, increased by 49.5 percent between 1977 and 1981. Between 1982 and 1986, inflation was 19.1 percent — much lower than it was prior to the tax cuts.

Across-the-board tax cuts were implemented way back in the 1920s as the Mellon tax cuts and in the 1960s as the Kennedy tax cuts. In both cases, the reduction of high marginal tax rates actually increased tax payments by “the rich” and also increased their share of total individual income taxes paid.

We are here for you, as always

Those who would benefit the most from lower taxes could be hurt, with the best of intentions, by the current path we are going down. Clearly, there is an optimal point below which taxes should not be cut but increasing taxes today does not make sense from an economic or even social standpoint. Lower-income taxes stimulate growth, create good jobs, increase government revenues and shift the tax burden from low-income families to upper-income payers.

If all the intellectual energy that is being used to debate historically established facts were channeled into solving problems that Americans face, instead of promoting partisan rhetoric, all Americans would benefit. Then again, it’s much easier to offer something for free if you’re just hunting for votes. We believe most Americans are too smart to fall for the false narrative about dramatically raising income tax rates.

Regardless of what happens in Washington, our team will continue to take a very proactive approach to legally minimizing taxes for our clients. At the end of the day, it’s not what you make that’s important, but what you keep, net of fees, expense and taxes.

Our Personal Vision Planning Process^® focuses on developing a plan to help you achieve your personal goals, regardless of changes to tax rules, the economy or markets. We are here for you. You can contact me personally at randy.carver@raymondjames.com or (440) 974-0808.

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Read This Before You React to Those Shocking Headlines About the Stock Market Dip

October 1, 2019 // by kdrumm

On August 14, 2019, the headlines were dire:

“Dow Plummets 800 Points on Worsening Global Recession Fears” (Fox Business)
“Dow Plummets More Than 800 Points on Recession Red Flag” (New York Post)
“Dow Tanks 800 Points in Worst Day of 2019 After Bond Market Sends Recession Warning” (CNBC)

Those headlines are indeed alarming…but there was a complete disconnect between what had actually happened and what the headlines implied. The dip was normal. As the MarketWatch chart below shows, this market dip was nothing unusual—and less than what we see about every two months!

Market corrections 1928–2018:

5 percent—About every 2 months
10 percent—About every 8 months
20 percent—About every 30 months

The News Media Aim to Sell Advertising, Not to Educate

People often forget that the business of the news media is not to inform and educate, but rather to sell advertising. Whether they lean the left, right or center, media outlets must attract viewers and readers so they can sell advertising and make a profit. To do so, the media use sensational and often frightening headlines. The use of “click bait” is a widespread phenomenon on the internet. Click bait is content whose main purpose is to attract attention and encourage visitors to click on a link to a particular web page.

With the Dow Jones Industrial Average (DJIA) at 25,000 on August 14^th, the drop of 800 points was less than 3.3 percent—again, something we see every few months! Just a 5 percent dip, which has been the average every two months for the past 90 years, would have been 1,250 points, or 50 percent more!

As of September 20, 2019, the DJIA was at 26,900. A normal dip for that number, of 10 percent, would be 2,690 points. You will notice that the media generally ignore the percentage change and rarely give any context. We expect to see 1,000-point swings and more in the coming year. Does that really matter? Only if you panic.

The Benefit of Keeping Your Emotions in Check

Dalbar, Inc., is an independent company that evaluates, audits and rates business practices, customer performance and service. Each year since 1994, Dalbar has conducted its Quantitative Analysis of Investor Behavior (QAIB) study to analyze investor returns. The company has consistently found that the average investor earns much less than market indices would suggest.

Hypothetical Growth of $100,000 over 20 years

Average Mutual Fund Investor – $214,220 Vs. Average Mutual Fund $346,830¹.

Source: Quantitative Analysis of Investor Behavior by Dalbar, Inc. (March 2019)

The average investor makes far less than the fund averages largely due to moving in and out of their investments at the wrong time. We are not suggesting someone blindly buy and hold, nor are we suggesting that you can time the markets. We recommend developing and monitoring an overall plan and making changes based on your needs or the overall allocation, rather than headlines or short-term fluctuations.

Panic and Poor Timing Can Cost You

People who panic during these normal dips and sell off their stocks pay a significant price for doing so. The average investor has given up almost half of his or her potential return over the past 20 years by engaging in self-destructive behaviors such as the following:

Trying to time the market
Chasing hot investments
Abandoning their investment plans
Reflexively avoiding out-of-favor areas

In March 2019, Dalbar found that the average investor was a net withdrawer of funds in 2018, but poor timing caused a loss of 9.42 percent on the year, compared to an S&P 500 index that retreated only 4.38 percent.

Stick to Your Plan

We have developed and refined a process that accounts for both short- and long-term volatility. The key is to stick with your plan. We expect increased volatility in the markets and even more dire comments and forecasts by the media as we approach the election next year. Those who have a comprehensive plan and stick with it should not be concerned about what lies ahead. Those who do not have a plan, or act emotionally, could pay a significant price for doing so.

Before you react to the headlines you read, take a deep breath, and remember that your well-developed financial plan is designed for performance over the long term.

We are here to help you. Our team has worked with clients for more than 30 years and has the experience, insight and expertise to guide you through what lies ahead. Please contact our team with questions or concerns, whether you are a client or ours or not. We are happy to provide a second opinion, without cost or obligation, even if you already have an established portfolio or plan. Carver Financial Services, Inc. 440-974-0808 or carverfinancialservices@raymondjames.com.

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1. Dalbar computed the Average Stock Fund Investor Return (above, “Driven by Emotions”) by using industry cash flow reports from the Investment Company Institute. The Average Stock Fund Return (above, “Emotions Held In Check”) figures represent the average return for all funds listed in Lipper’s U.S. Diversified Equity fund classification model. The average annual return for these two was 3.9% and 6.4% respectively.

This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the professionals at Carver Financial Services, Inc., and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Investing involves risk, and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Examples provided are hypothetical for illustration purposes only. Actual investor results will vary. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional The fact that buy and hold has been a successful strategy in the past does not guarantee that it will continue to be successful in the future. The performance shown is not indicative of any particular investment. Past performance is not a guarantee of future results. Individuals cannot invest directly in any index. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.

Randy Carver and The Story of Carver Financial Services

August 26, 2019 // by kdrumm

When life knocks you down, you have two choices: stay down or get up. —Tom Krause

I have been an entrepreneur ever since I was six years old.

My first business involved me gathering dandelions, bunching them into bouquets and selling them door-to-door around the neighborhood. I was selling seed packets and wrapping paper at the age of eight. By ten I was making and selling jam.

Then, my world was turned upside-down at the age of twelve when I was diagnosed with non-Hodgkin’s lymphoma. For the next three years, doctors worked to remove the complete lobe of my left lung, parts of my right lung, my spleen and my thymus. Later, a surgery to remove another mass paralyzed my vocal cord, leaving me with the raspy voice, that I have today.

Those three years were among the toughest of my life. The constant chemotherapy, radiation therapy, and surgeries took an incredible toll on me, which was only made worse by the fact that I was being treated for the wrong disease. While I had been diagnosed with non-Hodgkin’s lymphoma, we discovered years later that I actually had malignant thymoma—an entirely different disease.

As a result of the treatment and illness, I missed a lot of school—most of sixth grade, all of seventh and eighth grade, and most of ninth grade. Despite this, I was learning constantly. The Wall Street Journal became a daily companion, teaching me about financial markets and investing. I also enjoyed watching the hit TV show M*A*S*H. Alan Alda, the best surgeon in the unit, had the ability to deal with the worst circumstances and still have fun. This example helped to shape my personal values. We can use our experiences to be the best at something, help others overcome adversity and still not take ourselves too seriously.

Aside from my parents, the person I credit most with getting me through that period was my surgeon, Dr. Robert Filler. He was the only person who, every time he saw me, would look me in the eye and say, “No, you are not going to die.” I’m convinced that his persistent attitude and aggressive approach to helping fight my disease are what ultimately saved me.

Through these experiences, I realized that life is short and needs to be enjoyed. Most of all, I learned that with a positive attitude and persistence, anything is possible. This was something I wanted to help others see so they could achieve their dreams and enjoy their lives.

It was this mindset that spurred me on through the most difficult times, encouraging me to keep growing as an entrepreneur. At the age of fifteen, I started a catering business in my mom’s kitchen and then founded and ran two successful home-renovation companies. It was with these companies that I realized how building something tangible could help others and how much I personally enjoyed seeing the results of this. Ultimately, this would become the vision for Carver Financial Services Inc.

First College, Then a Career

After enrolling at Oberlin College in Ohio, I quickly found that all that time spent reading The Wall Street Journal had paid off. To help pay my way, I would borrow money from my professors, and invest it in futures. After a while, I had become so successful with these efforts that one of my professors suggested that I should start teaching others how to invest as well. I took his advice and taught a college credit course on investing.

In 1987, I graduated with a bachelor’s degree in economics. Originally, I planned to head home and resume my home renovation businesses. I enjoyed interacting with people and loved seeing tangible results of our work as we improved people’s homes. Instead, I took a job with a regional brokerage firm and moved to Mentor, Ohio, where I immediately began knocking on thousands of doors to open a new office for them. I had acquired enough clients in just four months to open my own branch in the spring of 1987.

With a lot of hard work and dedication, my office became one of the company’s most successful within three years.

I suffered another catastrophic setback in March of 1989. I was flying a single-engine plane and was forced to crash-land. I suffered collapsed lungs, broken ribs, a cracked larynx, and a crushed nose. For almost a year, I couldn’t speak. I would write notes, which my assistant would then take and read to my clients. Again, this was a very challenging period, but the experience helped me improve my listening skills and showed me the importance of working with a team, rather than working alone.

Not yet thirty, the bouts with adversity strengthened my sense of life’s fragility and made me even more determined to help others enjoy their lives. When I started in the financial services business, I believed that we could help people achieve their dreams.

Turning Industry Standards Upside-Down

After three years, I realized that working for a large investment firm would never come close to aligning with my aspiration of helping people build their financial future based on their hopes, dreams and personal vision. I was happy to be helping people, but at the same time, realized that there was a problem with an industry model focused simply on selling investments, not providing outstanding customized experiences. I envisioned a company focused on personal service, where the investments were merely tools to help people achieve their personal vision.

Of the many things years of entrepreneurship had taught me, one key idea was that no matter what business you’re in, the best way to differentiate yourself is through exceptional client service and making a true difference in their lives.

Unfortunately, that wasn’t what I saw most financial advisors, or firms, focusing on. To them, the financial services industry was all about selling investments and getting new clients—not providing lifelong support to the people who had invested with them. In my view, that model of financial services was broken. Financial planners should be helping people create experiences and fulfill their vision of a happy life, not pushing investments.

I felt that the company I worked for was no different—a product-focused firm that required its advisors to only sell a limited number of offerings. I felt we should be allowed to offer our clients the best possible financial solution, regardless of what company it came from. But unfortunately, our hands were tied.

Compounding this problem was the focus on getting new clients, rather than providing an amazing service experience for existing ones. To me, this approach was completely backward, and not only didn’t help people with what they really needed—it did not make good business sense either. I knew that working for a large investment firm would always prevent me from providing the kinds of service and experiences, that our clients deserved. So, I decided to set out on my own and build a new model focused on creating holistic experiences for our clients who we would work with for life.

Because the type of firm that I envisioned didn’t exist, I created it. This was the beginning of Carver Financial Services Inc. in December of 1990.

The Birth of a True Team

I established Carver Financial Services, Inc. with the vision statement of, “To make people’s lives better—our clients, our team and our community,” and partnered with Investment Management & Research, which is now Raymond James Financial Services, Inc. Our goal was to build a service company that used financial planning and wealth management to help people achieve their personal vision, while simplifying their lives. By partnering with a global firm, we could provide all of the services that any large investment firm could without the pressure to sell any specific product or service.

While most financial advisors, and firms, focused only on their clients’ financial situations, we were passionate about helping people simplify their lives, seize opportunities to experience life’s greatest gifts, and continually enhance their lifestyles. The vision I had carried since childhood, to live life to the fullest AND to help others do the same, was implemented.

Our approach proved to be a success. As our practice grew, I quickly realized I could not provide the service needed for all of our new clients by myself. It was time to grow our team.

Here again, we turned the existing model upside-down. Most financial services practices had one sales assistant for every three or four advisors, I wanted to do the opposite, hiring three or four highly skilled client concierges for every advisor. That way, our clients could get the attention they wanted, needed, and deserved from a team of concierges who could handle any and all administrative requests.

In growing our practice, it was important to have a firm that would be around for generations to come. Moreover, I envisioned a team of professionals who not only had outstanding credentials, but also the same values and vision that I did for our clients. To do that we built a team of experts who bring different skills and experience to the table to create a robust support system for an enduring practice. Furthermore, we needed to have younger members who would learn and provide intergenerational longevity to the team. While many financial services firms claim to take a team-based approach to financial planning, team members are usually incentivized based on what they do individually. Our team, on the other hand, works collaboratively and is compensated collectively.

Again, this unique approach paid off. Today we continue to add specific operational, administrative, and planning professionals to our team, and have continued to grow our advisory and support team as well.

Personal Vision Planning®

Over the years, we have developed and refined a process for leading clients to achieve their personal vision for the future, while enjoying the present. We call it Personal Vision Planning.

Personal Vision Planning is different from traditional financial planning or investment planning. We work with our clients to build a clear, personalized vision of what their retirement might look like, and then we plan out how they can get there. The planning is based on your Vision, not investments. Through this process, my team and I offer clients unbiased investment information and a wide range of financial products and services through Raymond James Financial Services, Inc. While we are an independent firm, we custody our assets with Raymond James and have access to all of the resources of a multi-billion dollar global firm whose offerings include, but are not limited to: investment banking, a trust company, an FDIC insured bank and hundreds of experts on a variety of topics of importance to our clients.

This focus on personal vision and quality of life, rather than on the money itself, is very important to me. As a survivor of cancer, a plane crash, and other extreme injuries, I’ve learned first-hand how precious each moment of each day truly is. Rather than simply helping people to grow wealth, Personal Vision Planning helps our clients to live their best lives possible.

Creating Unforgettable Client Services

All of us at Carver Financial Services are passionate about helping other’s enjoy life. In addition to the Personal Vision Planning, we create memorable life experiences for our clients by hosting unusual, once-in-a-lifetime trips and events. Overseas trips, educational and aspiration presentations by national speakers who are experts in various subjects and even a car show are just some of the experiences we offer each year.

Always Evolving

Throughout this journey, nothing has made me prouder than to watch Carver Financial Services move from being “my firm” to “our firm.” United under the shared vision of making people’s lives better, we have continued to bring in new generations of team members so that the firm, just like our clients and their families, will be here to serve you and your family for generations to come. Understanding that unforeseen things happen we have both a detailed business continuity plan and business succession plan in place so that we will always be here to serve you and future generations, no matter what challenges we face.

Who knows what the future holds? Life is full of twists and turns. Some of them are wonderful, and others are life-threatening and awful. When we conquer difficulties, we learn that we can be or do anything, despite our circumstances. My experiences have shaped my passion to enjoy life and to be intentional about every action I take.

Our entire team is committed to helping you simplify your life, while enhancing your lifestyle as you live your future intentionally, with both a plan and a purpose. We are focused on sharing that journey with you, every step of the way. Our practice will continue to evolve while maintaining our vision of making people’s lives better. The things we do and the way we spend our time are so important and we appreciate you taking time to read this! Please let us know whenever we can be of service—have an amazing day!

You can reach Randy at randy.carver@raymondjames.com or 440-974–0808.

It’s not what you make that matters; it’s what you keep

August 2, 2019 // by kdrumm

The highest return isn’t always the one that puts the most in your pocket. Why? Because it’s not what you make that’s important, but what you keep—net of fees, expenses, and taxes.

When comparing returns on investments, we need to look at the net return, not the gross return. For example, a 10 percent taxable return could put less money in your pocket than a 6 percent tax-exempt return if you are in a 45 percent tax bracket. If you earn 10 percent on $100,000, you earn $10,000; however, if you pay 45 percent income tax, then you net only $5,500—which is less than the 6 percent ($6,000) tax-exempt return.

The lowest-cost investment is not always the best, either. For example, if an investment costs 2 percent per year but pays a net return (after an expense of 8 percent), that’s better than a 3 percent investment that’s free. Again, it’s not what you make, but what you keep—net of fees, expenses, and inflation.

You will sometimes hear about the “real rate of return” or “after-tax real rate of return.” It’s the actual financial benefit of an investment after you factor in taxes and inflation. If your investment earns 8 percent, but inflation averages 3 percent for the year, then your real (inflation-adjusted) rate of return is 5 percent.

“Beware the investment activity that produces applause; the great moves are usually greeted by yawns.” —Warren Buffett

When comparing a return on a portfolio to a benchmark, such as the S&P 500, we need to compare both returns, net of income tax, fees, and expenses. Often, the benchmark that looks higher than a portfolio return does not account for expenses or income tax. Our team takes a very conservative tax, allocation and expense-management approach that focuses on the highest net return for you, based on your personal situation—not the return that appears to beat a benchmark or appears to be higher than it really is.

Benchmarks can be helpful in comparing your portfolio’s performance to an industry figure. But comparing a portfolio to the wrong benchmark can lead to a misperception of how well you are doing. Often, investors compare their portfolios to the S&P 500 stock benchmark, even though they own investments other than large-cap stocks. That is not a relevant comparison.

Another example is if you are invested to generate reliable current income, to help maintain your lifestyle on an inflation-adjusted basis. This is a very different objective than beating the S&P. The most important benchmark is whether or not you can meet your current income needs and future goals with a portfolio that also meets your risk tolerance.

Often the real value of your trusted advisor is not selecting investments, but developing and monitoring an allocation that works for you. The advisor can also help take emotion out of investment decisions and thereby increase your overall net return. In fact, according to a February 2019 study by Vanguard¹, implementing the Vanguard Advisor’s Alpha framework can provide, on average, 3 percent* more return (net of their fee’s) than people can achieve on their own. This is the

Looking at the largest return might not put the most money in your pocket. Moreover, a well-balanced portfolio may seem boring, yet this can provide a more suitable plan to help you reach your goal. Please contact our team with questions, to provide a second opinion or if we can otherwise be of service to you. Our goal is to help simplify your life and enhance your standard of living.

¹ https://advisors.vanguard.com/iwe/pdf/ISGQVAA.pdf

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Past performance may not be indicative of future results. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.

Examples provided are hypothetical for illustration purposes only. Actual investor results will vary. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

* The actual amount of value-added may vary significantly, depending on client circumstances.

Americans Are Better Off Now Than Ever Before

June 20, 2019 // by kdrumm

Bad news sells. Humans are hard-wired to focus more on negativity and bad news than on positivity and good news. Psychologists call this phenomenon “negativity bias.” It’s no wonder many feel the world is getting worse with the onslaught of negative media and a 24/7 news cycle.

Focusing on Danger and Doom Doesn’t Serve Us in Modern Times

According to Laura Mixon Camacho, Ph.D., a communication coach at Mixonian Institute, “The human brain remembers negative messages, results, and possibilities with greater magnitude than positive ones.” In pre-historic times, remaining alert for potential danger was the key to surviving. But, she says, “Modern times favor humans who not only imagine a better future but who put in the work to make it become reality. Fixating on negative possibilities creates harmful stress that actually shortens lifespans.”

Bad news has always dominated the headlines. In fact, publications that are launched specifically for the purpose of reporting only good news don’t stay in business long. Back in 2014, a Russian newspaper called The City Reporter published only positive news for an entire day. The result? The paper lost two-thirds of its readership that day.

Given the onslaught of negative information, people see the world and the future as much bleaker than they really are. A recent survey asked people all over the world, “All things considered, do you think the world is getting better or worse?” In the United States, only 6 percent of the survey respondents thought things are getting better. The Swedish were a little more optimistic, at 10 percent, and only 3 percent of the French thought things were improving—of course, if you live in France they may be right.

Despite the media’s focus on gloom and doom, the average person in the United States is better off than ever before, as are people around the world generally.

A Harvard Professor Advises Us to Notice the Good Around Us

Steven Pinker, a cognitive psychologist and professor at Harvard University, agrees that there is a journalistic bias toward publishing negative news. He says negative events tend to happen suddenly. “Wars break out, terrorists attack, rampage shootings occur, whereas a lot of the things that make us better off creep up by stealth” so we are not as aware of them.

In a powerful study entitled “The short history of global living conditions and why it matters that we know it” by Max Roser, an economist at the University of Oxford, we learn that on virtually all of the key dimensions of human material well-being—poverty, literacy, health, freedom, and education—the world is an extraordinarily better place than ever before.

In the early 1980s, more than 40 percent of all humans were living in extreme poverty. Now fewer than 10 percent are.

Whereas 36 percent of the world’s population was literate in 1950, by 2010 that had jumped to 83 percent (Roser & Ortiz-Ospina, 2018b).

Life expectancy has risen 20 years over the last half century.

In the New York Times, Nicholas Kristof declared that by many measures, “2017 was the best year in the history of humanity”, with falling global inequality, child mortality roughly half what it had been as recently as 1990, and 300,000 more people gaining access to electricity each day.

By most objective measures the economy, and quality of life, for Americans is better than ever before.

Negative Headlines Hide the Truth

While the media in general, and especially political pundits, continue to discuss the negative impact of tariffs, potential trade wars, that the markets are too high, we will have a recession and other seeming bad things the facts tell another story. We have one of the best economies in the world and have one some of the strongest economic numbers in American history right now.

According to NPR, “The unemployment rate dropped to 3.6% — the lowest in nearly 50 years.” Participation is higher now than it was in the late 1960s when 3.6% was considered full employment. And that’s in spite of an aging population.

The unemployment rate for those with less than a high school degree has averaged 5.6% in the past twelve months, the lowest on record, and well below the previous cycle low of 6.3% reached during the internet boom two decades ago.

The Hispanic unemployment rate has averaged 4.6% in the past year, while the Black unemployment rate has averaged 6.4%, both also record lows.

Meanwhile, wage growth has accelerated. Average hourly earnings are up 3.2% from a year ago. And the gains in wages are not just tilted toward the rich. Among full-time workers age 25+, usual weekly earnings are up 3.5% for those in the middle of the income spectrum. But wages are up 4.9% for workers at the bottom 10% of earners, while up 1.7% for those at the top 10% of income earners. A rising tide is lifting all boats.

Nominal GDP (real growth plus inflation) is still up 4.8% at an annual rate in the past two years, and is set to equal, or exceed, that in the year ahead.

Meanwhile, the stock market has jumped 27 percent since the 2016 election amid a surge in corporate profits and as a result of corporate tax cuts and regulation.

Focusing too much on the negative can lead to decisions that may hurt us in the long run and could cause unnecessary stress. We cannot time markets or predict short-term events from terrorism, the weather or politics, nor should we try. Our team has developed and refined an investment and planning process. It takes into consideration both the expected and unexpected while being guided by your specific needs, objectives and personal vision. What the markets and economy do in the short run should not impact you.

People often ask the question of “what’s going to happen?” That may be the wrong question. The question should be “How will what’s happening impact me?” If the answer is that it won’t, then there should be no point in worrying about it. In my opinion, we are living in one of the best times and should enjoy this. Our team is here to help sift through all of the noise and help you live a happier and healthier life driven by intention, not circumstance. We call this Persona Visional Planning® and look forward to helping you live the life you have dreamed of.

Feel free to contact Randy Carver personally, or the Carver Financial Services Inc. team at randy.carver@raymondjames.com or (440) 974-0808. Carver Financial Services has served clients globally since 1990 and manages more than $1.25 Billion for clients today. There is neither a cost nor obligation to speak with an advisor.

Not an Investment Brokerage – Something Different

May 29, 2019 // by kdrumm

Bill Graham, the legendary concert promoter, wrote about the Grateful Dead, “They are not the best at what they do; they are the only ones who do what they do.”

Here at Carver Financial Services Inc., that’s what we strive to do – provide a service that’s as unique as our clients. We provide Personal Vision Planning^® and work to improve your life; we are not here to sell or manage investments. When you hire us, you are not hiring an investment broker or fund manager. Our goal is to improve your life and enable you to enhance and maintain your lifestyle while being confident in your future. The value of working with our team is not in beating a random benchmark such as the S&P 500. Success, in our opinion, is measured by your being able to confidently live your life the way you want to. We are here to make you and your family happier.

The Value of a Broader View of Your Well-Being

The value we provide is not reflected only in the return on your portfolio. Our team can help you reduce income tax, fund education expenses efficiently, help facilitate real estate or vehicle purchase as well as a myriad of other strategies that put more money in your pocket. Yet these valuable benefits are not reflected in a portfolio return.

Personal Vision Planning is more than just managing money; it focuses on making you happier and more comfortable. This might involve working with your CPA, attorney, insurance agent, medical professionals and others. Our firm works with integrity, transparency and discretion to coordinate your life. Our clients do not hire us solely as investment managers.

Even from a pure portfolio-return standpoint, industry studies estimate that professional financial advice can add between 3 and 4 percent to portfolio returns over the long-term, depending on the time period and how returns are calculated.^[1]

The process we have developed and refined includes defining your goals, understanding your current situation and identifying the key steps to move forward. Although many firms talk about personal or customized approaches, they use standard models for their clients, do not take a holistic approach, and are focused more on investment management rather than on your life. Beyond long-term goals like retirement, and shorter-term goals like buying a house, funding your kids’ education or traveling, our process looks at factors such as legacy planning, family support, health care, insurance coverage and charitable giving.

Our Team Will Serve You for the Long Term

Our large, experienced team is composed of several generations of advisors who will be here to serve you for generations to come. We work around your schedule to accommodate your busy life. As many firms move to cookie-cutter models, reducing staff and relying on technology rather than personal contact, we have continued to grow our team of highly educated and experienced financial professionals.

We host events throughout the year that are fun, educational and inspiring. We invite you to check out the full list of our upcoming events.

Our firm was founded in 1990 with the mission of Making People’s Lives Better—Our Clients, Our Team and Our Community. We look forward to hearing from you regarding how we can best fulfill that mission for you and our community. Feel free to contact me personally at randy.carver@raymondjames.com or anyone on our team at (440) 974-0808. We are the only ones who do what we do in the financial-planning field, because we are focused not just on your portfolio return, but on enhancing your life and legacy.

[1]. Value of advice sources: Envestnet, Capital Sigma: The Return on Advice Opens (estimates advisor value-add at an average of 3 percent per year), 2016; Russell Investments, 2017 Value of a Financial Advisor Update (estimates value-add at more than 4 percent per year); Vanguard, Putting a Value on Your Value: Quantifying Vanguard Advisor’s Alpha®, 2016, (estimates lifetime value-add at an average of 3 percent); Morningstar Investment Management, The Value of a Gamma-Efficient Portfolio, 2017.

Capitalism Isn’t Fair – That’s Why it Works

April 5, 2019 // by kdrumm

As we head into the 2020 election season, we are once again hearing the cry to move away from capitalism to socialism in the United States. The idea of free health care, free education and free basic income for all is compelling and presented as fair, whereas capitalism is presented as unfair and even racist. Speaking on March 15^th, 2019, former Texas congressman and Democratic candidate for president Beto O’Rourke stated, “It is clearly an imperfect, unfair, unjust and racist capitalist economy.”

A Fuzzy Understanding of Socialism and Its Implications

There is an increased interest in socialism, especially among younger people. A national Reason-Rupe survey found that 53 percent of 18- to 29-year-olds view socialism favorably, compared to only one-quarter of Americans over 55. At the same time, however, millennials don’t like the idea of the government running things, so it’s clear that they may not understand what socialism is, or what the implications are.

The promise of universal basic income (UBI), a social policy that guarantees a fixed, unconditional income from the government for everyone, free college tuition and free health care are all very appealing, especially to many younger Americans. Yet while many Americans find the socialist policy appealing, they don’t understand what the implications are. Kate S. Rourke, in her article “You Owe Me: Examining a Generation of Entitlement,” writes that there is a sense that the government will provide these “free lunches” without any true sense of how they will get paid, other than “The rich must pay.”

So what do millennials think socialism is? In the Reason-Rupe survey mentioned above, respondents were asked to use their own words to describe socialism. Millennials who viewed socialism favorably were more likely to think of it as just people being kind or “being together,” as one millennial put it. Others thought of socialism as just a more generous social safety net. Some thought it referred to social media like Twitter and Facebook!

Americans’ often fuzzy understanding of socialism can skew research results. A Harvard study revealed millennials’ apparent disregard for capitalism and favorable attitude toward socialism. However, the article acknowledged, “It is more likely that the results are less a repudiation of capitalism and more a rejection of the ‘status quo,’ which is a strange mix of cronyism, capitalism and socialism.”

In the study, millennials did not indicate support for capitalism but said they do not view the government as a solution, either. Only 27 percent answered that they believed the government should do more to regulate the economy, and only 26 percent responded that government spending can increase economic growth.

Someone Has to Pay for All the Freebies

First and foremost, “free” isn’t really free. To pay for socialist programs and policies, taxes must increase dramatically, which can take away the incentive for businesses to hire people and grow. Conversely, we have seen that lowering income taxes and reducing regulation leads to more jobs for everyone.

In the United States, as of March 2019, we have some of the lowest unemployment rates in our history and in the world. According to October 2018 figures from the International Monetary Fund, the unemployment rate in the United States was 3.5 percent, compared to much higher rates in socialist countries: Greece at 18.1 percent, France at 8.5 percent and Venezuela at 38 percent.

Proposals to fund free education, free health care and UBI in the United states range from returning income tax rates to pre-1982 levels, adding a Value Added Tax or National Sales tax (in the UK, this is 20 percent) and adding a tax to all securities transactions. All of these moves will increase the cost of goods and services to everyone and can reduce the growth of our economy.

Making decisions based on perception, or misinformation, rather than facts can lead to actions that fail to meet our needs and objectives or are harmful to our future. Seeking instant gratification and the easy path is often at the expense of our long-term well-being.

Policies that provide so-called free college, free wages and free health care are not free and will negatively impact all us in the long-run — most of all, young people. As with many things, the people these benefits are supposed to help are the ones who will be hurt the most. Aside from the psychological impact of never really accomplishing anything, these policies can make our economy suffer and even fail, as evidenced by countries that have enacted socialist policy.

“Free” Higher Education Isn’t Free

In the 2016 election, Bernie Sanders made free higher education a cornerstone of his presidential campaign, helping him get to a 54 percent favorability rating among 18- to 29-year-olds, according to a Harvard poll. Introducing the bill in a press conference, Sanders said the United States is falling behind as a world leader in educating young people. He might not be wrong about that. Moreover, the sentiment that “Our job — if we are smart — is to make it easier for people to get the education they need, not harder,” is a good one, in our opinion.

How we accomplish this, however, is a matter for discussion. Creating incentives for people to develop a skill and for private business to support this goal makes a lot of sense. Sanders admitted that the plan is costly — and he wants Wall Street to pay for it. “Now, some people say that this legislation is expensive, and they’re right. It is,” he said. “Well, I’ll tell you how we’re going to pay for it. We are going to ask Wall Street to end their speculation. We’re going to put a speculation tax on Wall Street.”

This so called “speculation tax” or “speculation fee” will impact every working person who has a 401(k), IRA or any other type of investment. This will not impact the rich, but lower and middle income Americans who are trying to save for their futures. According to USA Today, the estimated cost of the program is $47 billion per year. That would cover, Sanders estimates, 67 percent of the $70 billion it costs for tuition at public colleges and universities. He proposes that states would cover the remaining 33 percent. This could lead to additional state income tax, fees and expense that would impact everyone.

“Free” Health Care Isn’t Free, Either

The single-payer health-care system that Bernie Sanders and others advocate would shift payment for all health care services to the federal government, eliminate private health insurance plans and dump all Americans onto public health care coverage. One estimate predicts that the scheme will most certainly include a massive payroll tax hike, an additional 4 percent personal income tax on all Americans and at least an 8 percent tax hike on businesses (even the small ones). The plan would cost, by a conservative estimate, at minimum, $16 trillion to sustain, just for the next decade. This could mean giving everyone Medicare or a new health-care system.

And Neither is “Free” Income

Universal basic income (UBI) is a policy that guarantees a fixed, unconditional income to all members of a designated group or entire country. For centuries, thinkers from Thomas Paine to Milton Friedman have kicked this concept around. Proponents claim UBI would be an efficient replacement for the United States’ expensive entitlement programs and, as a result, would actually reduce overall costs.

The reality is that UBI would just replace one pricey system for another. And unlike the current entitlement/welfare program, which has standards for determining who qualifies for certain aid, UBI would be given to everyone. This would dramatically increase the pool of citizens receiving benefits from the state and inflict massive expenses across the board. As mentioned, this would also create a disincentive for working, as we have seen in places like Greece. There are always claims that UBI could decrease, reform or even abolish our welfare system. But no one seems to have any idea about how this transition would actually look.

The likely scenario is that UBI would be in addition to, not instead of, the current welfare program. The idea of changing Social Security is known as the “third rail of politics” because the mere mention of it can mean political death. Anyone in the policy realm knows that there is no better way to alienate older constituents than by threatening to take away their Social Security benefits. In fact, the mere mention of decreases usually causes rooms full of senior citizens to fear for their well-being. Even if an alternative plan is presented to them, it does not calm their fears of what might happen during the transitionary period.

Also, trying to get individuals transitioned off of one welfare plan and into the next requires, at least temporarily, the funding of both programs. A decision to enact UBI would not magically abolish the American welfare system. America’s welfare program has been around for so long, it would take time to unroot it. Too many people have become reliant on our welfare state to have it simply wiped out overnight.

And who is going to pay for the process in the meantime? Well, any working American! At some point it no longer makes sense to work when you can simply get ‘free’ income from the government.

If anything, incorporating UBI in America would most likely result in an additional layer of welfare being added on top of our existing programs. This would, in effect, increase the state’s power rather than decrease it. Governments are rarely keen on relinquishing their power, and there is great power in controlling the welfare of the citizenry. It is therefore highly unlikely that the welfare state as we know it today would simply cease to exist.

UBI creates the illusion of decreasing the welfare state, when the facts of the matter all point to the contrary. Everyone would like to live in a society where no one wants for anything and everyone is provided for. But we live in a society of individuals with individual aspirations and goals. Pretending that we can centrally plan a welfare system with so many distinct wants and needs is unrealistic and unobtainable.

Socialism Is a Focus for the 2020 Election

The push for socialist policy is becoming more mainstream and will be a focus of the 2020 presidential election.

On March 18, 2019, Democratic 2020 presidential candidate Andrew Yang reiterated on MSNBC his proposal to give every American universal basic income each month — $1,000 per month for doing nothing — by taxing tech giants such as Amazon and Google. “It’s about 1.8 trillion a year past current expenses,” he said, before pointing out that Amazon paid “zero” taxes last year. Yang went on to state, “Amazon’s sucking up $20 billion in business every year, putting 30 percent of American malls out of business. We need to pass a value-added tax that would get the American people a slice of every Amazon transaction, every Google search, every robot truck mile.”

What he doesn’t state is how many jobs the tech giants have created and how they in fact help lower- and middle-income people by providing lower-cost goods and services. The problem is that socialism doesn’t work. It ultimately hurts the most vulnerable in our society while enriching a few elites at the top. Perhaps this is what those politicians proposing socialist policy want.

During his 2016 bid for the presidency, Bernie Sanders really moved the socialist agenda to the mainstream. Sanders presents socialism as just a generous social safety net. This narrative says government is a benevolent caretaker and pays for everybody’s needs by taking from the very rich to help the poor and the middle class.

Ironically, when you start to dig a little deeper, many who claim to support socialism do not actually like the true definition of it — the idea of government running businesses. If socialism is framed as government running Uber, Amazon, Facebook, Google, Apple, etc., it does not go over well. The Reason-Rupe study mentioned earlier notes that millennial preferences might not be so different from older generations, once terms are defined.

Socialism Has a Poor Track Record

In my opinion, we must move away from labels and perceptions and look at the facts. We have seen over and over that a centralized or socialist economy doesn’t work. It takes away the incentive for individuals to grow and leads to high unemployment and lower standards of living.

Stephen Moore, the Distinguished Visiting Fellow for Project for Economic Growth at The Heritage Foundation, takes it even further. He noted in 2015 that “Greece was about to slide into fiscal oblivion. This is the natural and unavoidable consequence of socialism everywhere it has been tried. Financial collapse.”

History has proven that that lower tax rates and less government regulation will lead to more economic prosperity and lower unemployment. Capitalism and a free economy lead to higher employment and more opportunities for all. Paying a guaranteed income to everyone will disincentivize many from working.

As taxes rise and there is no incentive to grow business, productivity drops. As productivity drops, revenue to the government drops, and more taxes must be levied. Ultimately economies collapse, while unemployment and poverty rise. History has repeated itself many times in this regard. Whether it’s the USSR, China, Cuba, Vietnam, the former East Germany, North Korea, Laos, Nicaragua, Zimbabwe, Cambodia, Venezuela or any of the other failed experiments in socialism, it has never worked anywhere.

On May 17, 2018, Investor’s Business Daily stated, “There has never been a successful socialist government in history. None. Everywhere socialist precepts are put in place, poverty, loss of freedom and rights, and societal decline inevitably follow. Collapse is a frequent result… It has led only to misery, deprivation, government control and a loss of basic human rights. Socialist regimes always start off with high ideals, promising ‘free’ this, and ‘free’ that — education, health care, whatever. But as their ideas fail, they inevitably resort to compulsion, and eventually torture, political ‘re-education,’ imprisonment, exile and murder for those who disagree.”

Let’s look at just a few examples of countries in which socialist policies have been enacted.

1. Cuba

Cuba is one of the most prominent socialist nations, having a mostly state-run economy, a national health-care program, government-paid (free) education at all levels, subsidized housing, utilities, entertainment and even subsidized food programs. These subsidies compensate for the low salaries of Cuban workers. According to Cuba’s National Office of Statistics, wages in Cuba averaged just 494.4 pesos ($18.66) monthly from 2008 to 2015. Compare that figure with income in the United States. The median U.S. household income in 2017 was $61,372 per year, or $5,114.33 per month.

2. Greece

Unemployment— youth unemployment in particular — remains one of the biggest struggles in Greece. In 2016, 47.3 percent of the Greek population under age 25 was out of work. That’s nearly half the population and more than two times the average rate across the euro zone. This situation is largely the result of large government pensions and benefits and declining tax revenue. Ironically, lower taxes on the wealthy generally increase tax revenue.

3. Sweden

From 1970 to 1991, Sweden’s socialist government attempted socialism, and it failed dismally. In fact, Sweden recorded the lowest growth rate in Western Europe. After 1991, the government introduced market reform, tax cuts and welfare cuts. Those changes resulted in massive growth, allowing the country to have the second-highest growth rate in Europe, with only the UK being higher during this period.

4. Venezuela

The International Monetary Fund predicted that by the end of 2018, the annual inflation rate in Venezuela would reach 1 million percent. That means that a candy bar that cost $1 today would cost $10,000 at the end of the year. An article in The Washington Post explains why hyperinflations like those in Venezuela occur:

The government wants to spend much more money than it is collecting in taxes — so much more that no one is willing to lend it the money to cover the deficit. Instead, the government uses the central bank to finance the deficit. That puts more money in the economy, but since it’s chasing the same number of goods and services, prices rise to soak up all the extra cash. Unless the government manages to close its budget deficit, it must print even more money to buy the same amount of stuff.

The article goes on to say that Venezuelan president Nicolás Maduro stays on this destructive path while the country’s citizens starve because of socialism.

This is not an issue of left vs. right or of Democrat vs. Republican. This is an American issue. The rise in popularity of socialism in the United States should be a concern to all of us. Just how far have Americans leaned toward socialism? According to a 2017 survey of adults by the American Culture and Faith Institute (ACFI), 40 percent of adults said they preferred socialism to capitalism. That is alarming! I believe the people in this camp need to review what history has told us about socialism’s repeated failure and to understand what socialism really is.

Why Socialism Doesn’t Work

So why does socialism fail again and again? Mark J. Perry, Ph.D., a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus, gives this reason:

Socialism does not work because it is not consistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives. In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail.

As we write this in April 2019, we are seeing one of the strongest economies in history for the United States, with record employment, rising wages, strong corporate profits and rising markets. This is the result of less tax, less government regulation and more free markets. This benefits everyone, especially lower- and middle-income Americans. This economic prosperity is good news, especially for today’s younger generations to succeed.

We have an amazing opportunity to benefit all Americans with good jobs and a strong economy. Some of the people who are in favor of socialist policies have the best intentions. But it simply doesn’t matter if those espousing free wages and free college are doing so for their own political gains or because they believe it will benefit someone. What matters is that these policies can cripple our economy and country. This is not a political opinion but an economic fact. As we approach the 2020 elections, it is important to consider and support candidates whose economic and social policies will benefit the country — regardless of party affiliation.

Why Capitalism Does Work

Capitalism is not fair, and that’s why it works. Capitalism creates the incentive to innovate and work hard to be rewarded, which leads to more jobs and a better economy for all. We must get away from semantics, politics and labels and focus on the real problems that these “free programs” address. In many ways, creating jobs, through lower taxes and less government intervention does, solves the issues. People can pay off debts (college loans or otherwise), afford housing and food, and receive quality health care and health insurance.

Nobody knows what the future holds. But regardless of the new political and economic policy, world events or changes that come, we are here for you. Rather than planning based on speculation, we believe in planning based on your needs and current facts. Our customized and proactive approach allows you to adapt to any changes in our tax laws, markets or economy.

We look forward to being your partner. Please contact us whenever we may be of service to you, your family and friends. Right now, we are taking clients only by referral. We are happy to meet, without cost or obligation, with anyone you feel would benefit from our personal Vision Planning™ process.

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Thursday, September 3, 2020 Live Stream Presentation Begins at 7:00 pm