When you die, the way in which your property is handled will depend on the type of documents (or lack thereof) you’ve set up before your death. The following is a summary of the ways your property transfers to heirs when you pass away.
Life Insurance. At death, life insurance proceeds are passed to your beneficiaries (and in most cases, tax free). For example, if you have a life insurance policy with a face amount of $500,000, when you die, your beneficiaries receive the $500,000 face amount tax free.
When you purchase life insurance, you name your beneficiary or beneficiaries – those who receive the death benefit when you die. Most married couples will name each other as beneficiaries on their respective polices, some will name charities, and other will name other relatives, individuals, or trusts. Life insurance contracts generally avoid probate (the legal process of validating a will and division of property), unless you name your estate beneficiary (a bad idea) or fail to name a beneficiary (also a bad idea).
Annuities. At death annuities operate the same way as life insurance regarding beneficiaries. A big difference however, is the tax treatment. Even though an annuity may pay a death benefit, in most cases it is taxable to the beneficiary. This is different from life insurance death benefits that are received tax free. Any taxable annuity death benefits are taxed as ordinary income.
Trusts. Trusts can be established either during your lifetime or at your death. They may also be revocable (changeable) or irrevocable (not changeable). Trusts are set up by a grantor (the person wanting the trust) and assets are placed in the trust, managed by a trustee, for the benefit of the trust beneficiary. When you die, the assets in the trust are still managed by the trustee for the benefit of the beneficiary. Like annuities and life insurance, trusts avoid probate.
Brokerage Accounts. When you have a brokerage account where you hold stocks, bonds, mutual funds, or ETFs it’s called a non-qualified brokerage account. The non-qualified means that it’s not a 401(k) or IRA. When you open this type of account, you are given the option to name a beneficiary on the account should you die. At death, the property passes to the beneficiary. The beneficiary also receives special tax treatment on the account. Brokerage accounts also avoid probate.
Retirement plans. When you have retirement plans such as 401(k)s and IRAs you also name beneficiaries who get the account assets when you die. The tax treatment of the assets will depend on the account (Roth or not), and what the beneficiary chooses to do with the assets (sell them all or take minimum distributions). Brokerage accounts avoid probate.
Wills. A will is a written legal document that directs how and to whom your assets are dispersed after your death. Wills also name a guardian(s) for minor children should both parents die. Wills also name an executor for your estate that helps direct where assets go, what assets to sell, and filing the final tax return for the deceased and or the estate.
As mentioned before, probate is the process of validating a will. Thus, it’s a public process, and often long and expensive. Additionally, the documents mentioned above supersede the language in a will. In other words, if your will states that your kids get your IRA assets at your death, but your IRA beneficiary is another person or entity, the IRA overrides the language in the will.
Dying without a will means dying intestate. Dying intestate means that the state determines how your assets are divided, who gets them, and if you have minor children, who becomes their guardian. Different states have different laws, but be assured, the laws may differ from what your intentions are or who you think should get your assets or be guardians. Don’t risk it. If you don’t have a will, or your beneficiaries named, consider taking care of this today.
An extremely important point not to be overlooked is the need to update your beneficiaries or documents whenever you have a life changing event. Life changes mean births, deaths, divorces, job changes, etc. For example, if you get divorced and remarry, and forget to change your beneficiary from your ex-spouse to your new spouse – and you die – your ex-spouse is still the beneficiary and gets the property. It is paramount to update your accounts, estate documents, insurance policies, and retirement plans to reflect any life changes.
Michael and Ben were talking about a new study they’d read at The Atlantic about how no one is happy with the amount of money they have, up and down the scale. The conclusion of the piece is that pretty much everyone says they’d be contented if they only had 2 to 3 times more wealth. Now, of course, for people who don’t know where their next meal is coming from, this is a ludicrous proposition, but talk ...
Following Decemberâs heightened market volatilityâand with ongoing geopolitical uncertainty, trade wars and slowing global growthâmy recent conversations with clients have resoundingly focused on how to build more resilience into their portfolios. Proper positioning for a market slowdown or significant bouts of volatility is something that can keep even the most experienced investor up at night.
Investors have frequently turned to Quality and Minimum Volatility strategies for just this type of resilience. We have seen evidence of this trend in flows into iShares Edge MSCI USA Quality Factor ETF (QUAL) and iShares Edge MSCI Min Vol USA ETF (USMV). Year to date through February 28, 2019, flows into QUAL and USMV totaled $1.8B and $2.6B respectively. These flows followed combined inflows into the two funds of $7.2B in 2018.
Positioning for late-cycle markets
Itâs easy to see why investors are turning to these strategies. Both factors have tended to outperform in the later stages of the economic cycle â performing best at the peak of the cycle or at the beginning of an economic slowdown, as the chart below shows.
We can go even deeper by analyzing monthly market returns over the last four years, both for the whole period and across different gradations of returns. In down markets, the Quality factor and the Minimum Volatility factor have outperformed the broader market 71% and 79% of the time, respectively. Importantly, for both factors the likelihood of out-performance increased as the market return declined.
While both strategies have provided investors with out-performance in periods of market decline, it is important to notice the more subtle differences in factor behavior particularly when the market returns are more extreme. As the chart shows, when the market declined more than 2%, the Minimum Volatility factor was more likely to outperform. In contrast, when the broad market was trending and rose more than 2%, the Quality factor was more likely to outperform.
Another way to look at resilience is through upside and downside capture, how much each factor participated in positive and negative environments, respectively. Not surprisingly, during the full period observed, the Quality factor provided investors with higher upside potential, but at the expense of a higher downside capture. In contrast, the Minimum Volatility factor provided much lower downside capture but sacrificed some upside potential.
Interested in Minimum Volatility strategies? Read more about it.
Resilience through different lenses
What upside-downside capture makes clear is that while Quality and Minimum Volatility strategies both provide investors with potential for portfolio resilience, their objectives and behavior differ. As a result, they may serve different purposes in a portfolio:
Investors looking to structure more resilient portfolios in the face of the uncertain market environment ahead may be well-served to incorporate both Quality and Minimum Volatility strategies.
Holly Framsted, CFA, is the Head of US Factor ETFs within BlackRockâs ETF and Index Investment Group and is a regular contributor to The Blog. Elizabeth Turner, Vice President and Christopher, Associate are members of the Factor ETF team and contributed to this post. Source: BlackRock, as of February 28, 2019  Start date of analysis based on the first full month of live performance for the MSCI USA Sector Neutral Quality Index (January 2015) through February 28, 2019.  Quality factor is represented by the MSCI USA Sector Neutral Quality Index. Minimum Volatility factor is represented by the MSCI USA Minimum Volatility (USD) Index.  The broader market is defined as the S&P 500 Index. Carefully consider the Fundsâ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Fundsâ prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing. Investing involves risks, including possible loss of principal. The iShares Minimum Volatility Funds may experience more than minimum volatility as there is no guarantee that the underlying index's strategy of seeking to lower volatility will be successful. There can be no assurance that performance will be enhanced or risk will be reduced for funds that seek to provide exposure to certain quantitative investment characteristics ("factors"). Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. In such circumstances, a fund may seek to maintain exposure to the targeted investment factors and not adjust to target different factors, which could result in losses. This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular. This document contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of March 2019 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain âforward-lookingâ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, âBlackRockâ). The iShares Funds are not sponsored, endorsed, issued, sold or promoted by MSCI Inc., nor does this company make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with MSCI Inc. Â©2019 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners. ICRMH0419U-776303-1/1
Be sure to subscribe to our channel so you never miss an update Sean Brown is the CEO of YCharts, one of the hottest investment research platforms on the web. Michael Batnick and Ben Carlson use YCharts for research projects all the time, whether they’re answering a client question, creating a blog post or seeking to prove or disprove an idea about markets, the economy, investing or portfolio construction. Sean cam...
Chinaâs local-currency bond market is opening up to global investors. The Bloomberg Barclays Global Aggregate Index begins including yuan-denominated bonds this month, automatically adding exposure to such bonds for index investors. We favor maintaining such passive exposure and preparing to invest more.
The inclusion of local-currency government and policy bank securities into the global bond market benchmark index is set to gradually occur over a 20-month period. Those passively invested in that index will, by default, add Chinese bond exposure to their holdings â which we view as a positive. Local-currency Chinese bonds are set to make up roughly 6% of the global fixed income benchmark when the phase-in is complete. At that stage, Chinaâs yuan currency will be the fourth-largest component in the index, behind the U.S. dollar, euro and Japanese yen. The chart above shows one reason we advocate investors maintain the inclusion exposure: Local-currency Chinese bond yields this decade have been materially higher than the average yields of the developed market bonds that make up the majority of the global bond index. See the top line in the chart above.
A very good place to start
We see China becoming a growth turnaround story this year, as policy makers ease fiscal and monetary policies and market fears of a U.S.-China trade war dissipate (see our Q2 Global investment outlook). Improvements in the domestic economy should result in rising yields and a stable or appreciating yuan currency. Christian Carrillo of BlackRockâs Asia Pacific fixed income team sees the higher yields of Chinese bonds creating a tactical opportunity to add additional exposure in the future. His team estimates the fair value yield of 10-year Chinese government bonds will rise slightly in the second half amid positive economic data surprises and stabilizing inflation, but actual yields may rise more. Chinese bond prices may decline a bit as yields rise, but investors maintaining exposure stand to benefit from both relatively high income and potential currency gains.
Chinaâs bond market has been dominated by domestic investors, and offers diversification benefits as a result. The correlation between Chinese bond and U.S. Treasury prices has been close to zero over the past five years. This benefit may diminish over time as foreign investorsâ ownership share of the market increases.
Read more market insights in our Weekly commentary.
What are the other risks and challenges?
We believe investors who hedge their currency exposure should take a patient approach toward Chinese bonds, as hedging costs currently are significant. This could improve over time as affordable hedging instruments become available. Liquidity is also a concern, particularly for investors with shorter-term horizons. The domestic Chinese investor traditionally has had a âbuy and holdâ approach to investing. As more foreign investors gain access to this market and trading begins between onshore and offshore players, liquidity should improve.
Chinaâs bond market is the worldâs third-largest, with about $13 trillion in outstanding bonds. We believe the marketâs size, attractive yields and diversification benefits mean it cannot be ignored, similar to our view on Chinaâs domestic equity market. We see Chinaâs inclusion in global bond benchmarks as a key event. Understanding the market is key. We believe maintaining automatic exposures and preparing to invest more is a very good place to start.
I don’t think I would ever invest money with someone who isn’t on Twitter. Let me take a step back before you totally lose your mind over this statement. My friend JC Parets sent this picture to me from 2010 – it’s me, him, Brian Shannon (@AlphaTrends) and Dr. Phil Pearlman (one of the founders of StockTwits). We invented Finance Twitter, talking about markets and investing and trading on the site ...
In an effort to âreduce, reuse and recycle,â I have switched from disposable coffee cups to an amazing stainless-steel tumbler that keeps my drinks hot or cold for hours. Just as importantly, I have finally trained my brain to remember to bring it to work with me.
Like cutting down on coffee cup usage, adding sustainable investments to a portfolio takes a bit of preparation. Fortunately, itâs almost as easy to put into action.
More than stocks
One way that is growing in popularity is the use exchange traded funds (ETFs) that seek to track environmental, social and governance (ESG) indexes. ESG data providers collect information on companies and rate them with an ESG score. Index providers use these scores as the basis to determine which securities are included in an index and may apply negative screens to exclude certain sectors such as weapons manufacturers or tobacco companies.
While people often associate ESG or sustainable investing with stock funds, a similar approach can be used for bond portfolios, too. As with stocks, bond issuers can be rated on distinct ESG characteristics and in turn, the bonds from these issuers. Indeed, ESG analysis has become increasingly important in credit ratings themselves. As demand has grown, credit ratings agencies have been exploring ways to incorporate ESG analysis in their ratings, and some have already started doing so.
Read more from Karen.
Letâs look at two approaches to investing in more sustainable bond issuers: ESG and green bonds.
1. Go broad by applying an ESG lens
ESG analysis is about identifying risks and opportunities that may not be captured in traditional financial analysis. For example:
Itâs important to note that when data providers such as MSCI rate companies, they do so based on ESG characteristics that are most relevant to their industry. For instance, an issuerâs environmental impact would be more important for an oil company, while a bank would be more closely judged on the social impact of its lending practices.
The creators of ESG bond indexes take these ratings into consideration to determine whether or not these companies make it into the index and at what weighting. Depending on the construction of the index, other factors are used to seek a certain target, such as a similar risk and return profile as the relevant broad market benchmark.
For example, guidelines can be set so that the ESG index adheres to certain sector weightings, credit ratings and duration targets. Screens on a companyâs business involvements like tobacco and weapons can also be applied, in addition to companies that experience a severe ESG controversy (e.g. a massive oil spill or product recall).
A broad ESG approach that seeks a similar risk and return profile as the relevant broad market benchmark allows investors to use these funds as portfolio building blocksâmuch as they would a traditional bond ETF.
2. Green bonds
Green bonds are an even more targeted approach to investing sustainably and are often known as âimpactâ investments, since proceeds proactively and directly fund sustainable projects. These bondsâissued by foreign government agencies, supranational issuers or corporationsâare used to fund new and existing projects that promote environmental purposes. Think solar panels or clean transportation.
While there is no governing body that determines whether an issue is âgreen,â the Green Bond Principles are voluntary process guidelines that encourage transparency and disclosure and promote integrity of the green bond market. Itâs important for investors to ask how these issues are being evaluated and for reporting that details the impact from the use of the bondâs proceeds. A green bond ETF makes it easy for investors to gain diversified exposures to these projects.
Read iShares Impact Report.
Funds to consider:
Be sure to subscribe to our channel so you never miss an update Josh here – True story, Michael bought a house and had a gap between when his mortgage banker needed cash versus when his apartment in Brooklyn sold. This meant temporarily making sales in his investment account. This scenario is just one of a million things that happens to investors in the real world, which makes actual results look different from tho...
On this date fifteen years ago, April 19, 2004, this blog was officially launched. The article below was the first post ever, and I’ve reposted it here in celebration of the 15 year anniversary of Financial Ducks In A Row.
I have not edited the content below, it’s exactly the same as it was originally posted back in 2004.
A lot has changed over the years, and I continue to enjoy sharing sound financial principles, information and advice through this medium, and I hope to keep it up for a long time into the future.
Nine Essential Tips for a Bright Financial Future
1. See a lawyer and make a Will. If you have a Will make sure it is current and valid in your home state. Make sure that you and your spouse have reviewed each other’s Will – ensuring that both of your wishes will be carried out. Provide for guardianship of minor children, and education and maintenance trusts.
If you are unsure about your financial affairs or you have financial goals such as retirement planning, college funding, business succession or estate planning that you’d like help achieving, call Blankenship Financial Planning at 217/488-6473 to schedule a no-cost, no-obligation “Get Acquainted” meeting to discuss your situation.
We tried this new thing yesterday on CNBC’s Twitter feed – a live Q&A show with me and Dominic Chu taking questions on things like the revitalized IPO market, how long-term investors should think about earnings season and much more. Maybe we’ll do it again, who knows. You can watch the whole thing in the embedded tweet video below, skip to the 4:45 mark. We are LIVE with @ReformedBroker and @TheDom...