Records Are Made to Be Broken
By Tony Moeller, CPA
The S&P 500 and Nasdaq Composite rose to new records earlier this week. Helping spur this was news that the U.S. economy (GDP – gross domestic product) grew at a strong rate (3.2%) in the first quarter. This was more than economists forecasted, partially due to a boost in U.S. exports, falling imports, and inflation remaining contained.
Renewed confidence in the U.S. economy has helped markets rebound from last year’s slide, and the following are some of the reasons why we are seeing stocks and bonds perform well thus far in 2019.
- The U.S. Commerce Department reported that consumer spending increased by the greatest amount in more than 9-1/2 years in March
- Inflation posted its smallest annual gain in 14 months. Currently, the economy is in a sweet spot. There's not enough inflation to cause a rate hike, but it's also not low enough to worry Fed officials that economic demand is weakening, which could require rate cuts. As such, the Federal Reserve has signaled it is unlikely to raise interest rates this year
- In addition, hopefully the U.S. and China moving toward an end to their tariff fight, when they meet this week in Beijing. Such a deal between the two largest economies could spur further earnings and economic growth
- Investors were also weighing the latest batch of corporate earnings, with profit reports from large companies generally coming in better than many analysts had expected so far. Through the end of last week, 230 or 46% of the S&P 500 companies reported first-quarter earnings and almost 80% of them beat Wall Street Estimates
Where Do We Go from Here?
The last quarter of 2018 and specifically December was financially and emotionally painful for investors. However, with the swift turnaround thus far this year, it may feel like you’re on emotional roller coaster waiting for what is around the next turn. The following chart may give some perspective.
Basically, it shows that the stock market (i.e., S&P 500) performs much better during mid-term election years than other years. Since 2019 is a mid-term year, the current uptrend—if it follows history—may well continue through year-end.
Bottom line, 2019 has been a good year for stocks and bonds. Inflation is muted, interest rates are down, and the Fed is not planning any further increases. In addition, consumer spending is healthy, the labor market continues to be strong, and corporate earnings are better than expected. If the current economic environment combined with the market’s historical trend during mid-term election years, 2019 may end up being quite positive and profitable.
As noted in the above chart, politics may dominate the headlines, but economic/company fundamentals drive stock prices. Thus, tune out all the noise from D.C. and focus your long-term objectives.
Overlooked Legal Documents to Consider Once Your Child Turns 18
When your child turns 18, the experience can be an emotional one for you as a parent, as well as for your son or daughter, especially as they prepare to leave home for the first time to attend college. Adulthood suddenly becomes real—not just some “far off in the future” concept.
In addition to the emotional aspects, you and your child will come face-to-face with certain legal realities. Specifically, your rights as a parent diminish when your child turns 18, including the right to know anything about their finances, medical condition, or even school records. That means, for example, that if your child were injured, you wouldn't have the right to make medical decisions on their behalf.
My old oldest, Jake, will be heading to college this coming fall. The excitement of his upcoming high school graduation and celebration party are offset by the reality that his now considered an adult (18 years old).
Sandra and I have taken for granted that we were entitled to access Jake’s medical records and able to make medical and financial decisions on his behalf. However, once he reached the age of 18, he is now legally an adult and entitled to his privacy. Thus, we no longer have the same level of access to information or control over financial and medical decisions. This could be an issue if something occurred unexpectedly, but planning in advance can help us avoid problems.
The following documents are something we are putting into place, and you may want to consider for your child once they turn 18 as well.
As it relates to college costs and grades
- Financial Records Access
If your child is away at school and all you really want is access to tuition and housing accounts, many colleges allow students to grant such access to parents without the hassle of a power of attorney. Of course, any joint account you and your child share are open to you without special permission. At the university Jake is attending, a Designated Access form allows us to pay bills, and view tax and financial aid information related to his attendance there.
- FERPA Release
Under the Family Educational Rights and Privacy Act (FERPA), students age 18 or older must provide written consent before education records such as grades, transcripts, and disciplinary records can be shared with parents. This law applies to students who attend a school that receives any funding from the U.S. Department of Education.
Most public high schools, as well as public and private colleges and universities, notify parents about this requirement. Ultimately, though, it is up to you to make sure your child signs a release to give you access to their records.
As it relates to health care
- Health Care Power of Attorney (HPOA)
Should your child suffer a medical event resulting in their inability to communicate, doctors and other medical professionals may refuse to speak with you or allow you to make medical decisions on behalf of your child. If your child does not have an HPOA already in place, you may be forced to hire an attorney to petition to have you appointed as your child’s legal guardian by a court. If you are faced with health care crisis situation, the last thing you need is court proceedings and legal fees.
Typically, a health care power of attorney doesn’t become active unless your son or daughter is physically or mentally incapable of making his or her own medical decisions. However, each state has its own criteria.
- HIPAA Release
Under the Health Insurance Portability and Accountability Act (HIPAA), once your child turns 18, you can no longer access their health records without written consent. The HIPAA laws prevent you from even getting medical updates if your child cannot communicate his/her wishes to have you involved.
- Living Will / Advance Directive
A living will, also known as an advance directive, addresses things such as your child’s wishes regarding life-extending medical treatment and organ donations. Having this document in place can help avoid the potential pain and anguish of different family members being at odds about how to handle a tragedy, such as an automobile accident.
As it relates to financial issues
- Durable Power of Attorney (DPOA)
Like medical information, your child’s finances are also private once they turn 18. Should your child become incapacitated, you will not be able to access their credit cards or bank accounts to ensure bills are being paid if you do not have a durable power of attorney in place. If you need to access their financial accounts to resolve any problems or manage the account, you may be forced to seek the court’s appointment as conservator of your child.
Regardless if there is a crisis or not, a durable power of attorney can be helpful. A durable power of attorney allows you to access bank accounts, sign tax returns, renew car registration, and perform other transactions. For example, if child is studying abroad and issues come up where they cannot access their accounts, a power of attorney would allow the chosen person to manage the issue.
Most of these documents can be created without hiring a lawyer, although you may choose to involve an attorney to make sure the paperwork is complete and accurately executed. In most cases documents must be signed, witnessed, and notarized.
Bottom line, it’s important to sit down with your child before you ask them to sign anything. Discuss the reasons for the document or form, consider your child’s concerns and, in general, do your best to treat them like the adult they have now become. After all, their reaching adulthood is the reason why these documents are necessary.
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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Chart Source: Capital Group, RIMES, Standard & Poor’s. Includes all daily price returns from 1/1/30 to 11/30/18. Endpoints represent average cumulative return through 11/5/18.