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The State of Wealth

As the economy improves, it is time to think again about how and where we invest and spend our money.



ROBERT GIUSTI HAS noticed more customers lining up at the Petaluma and Santa Rosa farmers’ markets to buy his homemade English toffees in recent months. In fact, he’s expanding from selling at two markets a week to four.

“It seems that people are spending a little extra money,” he says.

That’s good news for Giusti, 61, a former chef instructor at San Francisco’s Le Cordon Bleu College of Culinary Arts, who now blends buttery toffee with cashews, pistachios, pecans and almonds in his Hamilton Field kitchen to supplement his disability benefits.

It’s also good news regarding Marin County in general, which has seen a resurgence in confidence among consumers and business owners alike. In a recent survey conducted by the North Bay Business Journal and the Bank of Marin, 69 percent of business owners described Marin’s economic climate as “favorable” or “very favorable,” up from last year’s 63 percent.

That confidence shows up in businesses expanding and hiring new employees. Sixty-one percent of companies surveyed said they plan to expand in Marin in the next five years, up from 55 percent in 2013. It also shows in new businesses filling storefronts that sat empty in 2009 and 2010.

“There’s no space really unleased on Novato’s Grant Avenue now,” says Mark Dawson, president of the Downtown Novato Business Association. He estimates that 20 percent of businesses in the area are new ones, bringing an infusion of energy.

But a cheerful economic mood presents its own challenges to investors and savers, including persistently low interest rates, a tight housing market and strategy pitfalls that overconfident investors can easily fall into. We spoke to a few of Marin’s wealth managers about how to navigate the new economic reality.

Saving When Interest Rates Are Low

Giusti benefited from low interest rates a few years back by refinancing his home. But low interest rates can also challenge savers who would normally turn to certificates of deposit.

Giusti’s adviser, certified financial planner Kathleen Nemetz, helped him and his wife look beyond the CD to craft a portfolio of safe assets that provide income for retirement, he says. “We got into bonds and good stocks that pay dividends,” says Giusti. “You can’t take a big risk when you don’t have a lot of money.”

Bonds, the go-to vehicle for past generations, are enjoying renewed popularity in the low-interest-rate environment, Nemetz says. “If you use the discipline of spending only the dividends and interest, you can milk that cow for as long as you live,” she says. “But you have to build a fat enough cow first.”

Gregg Clarke, a CFP with Larkspur’s Meritas Wealth Management, says that even when CDs paid 6 or 7 percent interest (much higher than today’s rates) savers should not have relied on them alone to provide retirement income.

“CDs for us are always about safety and a cash reserve — something that you might need to tap into,” Clarke says. Despite low interest rates, he always advises his clients to keep some of their assets in cash to help them stick to longterm investment plans. Having a reserve protects you from having to sell bonds or stocks at inopportune times, he says.

Taking Goals Off the Back Burner

All the advisers interviewed for this story say their clients who followed long-range investing plans have recouped the losses of the 2008 financial meltdown.

As finances have improved — and they have improved quite a bit for most of our clients — there is a refocus on some goals that they had put on the back burner. I had some clients who postponed retirement for a couple of years. I had clients who were considering buying a second house,” Clarke says.

Another commonly postponed goal: philanthropy.

“We’ve seen clients dramatically increase their giving in the last year,” says Clarke. “And frankly, with the big increase that we saw, especially in 2012 and 2013, clients now have lower-basis investments with big gains. They make the perfect gift to charity.”

"He advises sellers who want to move to think like a business and write off the loss, and take the opportunity to buy a new home while interest rates are still low, and before prices rise further."

Moving Ahead in Housing

One goal that some Marin residents have trouble moving forward with is, well, moving. Would-be buyers face stiff competition for the available homes, and renters are seeing prices escalate. Even sellers face a challenge: With home prices still below peak, it’s tough for some owners to stomach selling at a loss, says Dawson, who is also a real estate broker and runs property management firm Giant Properties. He advises sellers who want to move to think like a business, write off the loss, and take the opportunity to buy a new home while interest rates are still low, and before prices rise further.

“You just have to accept that you lost money. Some people can’t afford to do that” — for instance, if they owe more than the current market price on the home, Dawson says — “but others can, and they’re just reluctant.”

Avoiding Emotion-Driven Decisions

Like the reluctance to sell property at a loss even if the move would be advantageous in the grand scheme of things, many financial mistakes happen when we let psychological biases rule our decisions, CFP Nemetz says.

One example she has seen in this climate: Due to the slow return of jobs to the economy, talented and intelligent people have ended up retiring sooner than expected. Some of these people — especially husbands who had been the family breadwinner — decide to make managing their portfolio their new full-time job, Nemetz says.

“This is a way of validating themselves and their usefulness, to continue being the hunter-gatherer. But it often becomes a very self-defeating behavior,” Nemetz says. “They become day traders. They don’t talk to their wives about what they’re doing. Often their wives would be horrified if they found out.”

A more reasoned, less emotion-driven response to an unexpectedly early retirement would be to look at how much income you need per year, craft a financial plan that can deliver that income, and then stick with it, changing things only to rebalance the portfolio, Nemetz says.

Then there’s the recency bias, our tendency to overweigh recent events when making decisions. In this climate, that could mean fearing to return to the stock market because the memories of the 2008 crash are just too scary. “I’ve encountered people who sold everything in ’08 and never went back into the market,” Nemetz says. She recently met one such individual who has held nothing but cash for the past six years and now finds herself just four years from retirement and not ready, because her money hasn’t grown.

To counter this bias, Nemetz shows clients how some stocks weathered the crash just fine, and how the long-term trend of the market is growth, even when disastrous years like 2008 are factored in.

Anyone who panicked and sold all their stocks in 2008 and is still out of the market today has missed out on enormous growth. However, it’s still not too late to get back in, Nemetz says: “There are always opportunities.”

Those looking to invest again have to accept that past losses are “water under the bridge,” CFP Clarke says. “You’re starting with what you have now,” he says. Then it’s just a matter of making a plan: “Be clear about where you want to go.”

Moving forward after financial losses means figuring out alternative ways to meet your goals, or making new goals.

“We have clients who are postponing retirement a couple years, because those years can make a big difference,” Clarke says. “We have some clients who are looking at alternative ways to help their kids pay for college.”

Remembering the Big Picture: Socially Responsible Investing

Now that the market is running smoothly and the fear factor has receded, this is a good time for investors to consider not just their financial returns, but how their investments impact the future world where they will spend those returns, says CFP J. Patrick Costello, founder of San Rafael’s Green River Financial. Costello says he sees more activity in socially responsible, or “green,” investing, in Berkeley and other parts of the Bay Area than he does here.

“Here we are in Marin, with many wealthy people, and I don’t think many are attuned to the green investing option,” he says. Socially responsible funds invest in companies that have better records in three areas: environmental impact, social issues (such as hiring practices) and corporate governance.

Socially responsible investors do not have to make sacrifices in terms of return, Costello says. At Vanguard, for instance, the SRI (Socially Responsible Investment) index has outperformed the conventional S&P (Standard & Poor’s 500) index for the past five years. This is possible because SRI fund managers use the same tactics as other fund managers to pick good stocks — they just add an extra screening step.

“Green investment does not attempt to select just a few obscure companies that get a perfect record. We just try to narrow the group of companies, and exclude the companies with the worst behaviors and emphasize the companies with the better behaviors,” Costello says.

The upshot of all this advice: Let the good times roll, but don’t let them roll you right into the rocks in the road. Clarke is optimistic that his clients and Marin residents in general are taking the lessons of the downturn to heart and are equipped to make the most of the economic renewal.

“They’re not taking on the same kind of debt or stretching for something more expensive. They’re being more modest,” he says. “The Great Recession was probably the worst downturn we’ve had since the Great Depression. That sears a lot of lessons into people’s minds.”

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