Saving for their children's college and their own retirement has become a more difficult balancing act for this couple in today's economy.
When the stock and bond markets fell sharply last summer, beginning a months-long slide that has continued into this year, John and Susan Ehmann spoke with their Financial Advisor, Lynette Blakeway, for a dose of sanity. "We asked her, 'What is going on? How are we impacted? Should we liquidate? What should we do?'" Susan recalls. "Her reply was, 'Let's talk about your concerns and not panic.'" It's advice the Ehmanns took to heart. The couple had been working with Blakeway for seven years, and Susan had worked with her for nearly 20. They had established a bond that allowed them to trust her in a crisis. It was Blakeway, after all, who had helped them merge their two families when they married in 2003, reorganizing their financial strategies to accommodate their combined family of six children, a new home and hefty tuition for John's two oldest, then in college. (Merrill Lynch Advisor magazine visited with the couple shortly after their marriage.)
Since then, the picture has grown more complex, with three children now in college. Social Security benefits from Susan's late husband helped establish savings for her children's college needs, but specialized majors have led to unanticipated costs. John, a divorced parent who agreed to finance his children's educations out of pocket, is paying off costs for one son who recently graduated and has another still in college. Meanwhile, the market meltdown has eroded the Ehmanns' overall portfolio value and their liquidity, leading to anxiety about their future financial security.
They've Adjusted Their Expectations — and Their Portfolio
But rather than allowing the couple to rush into a fire sale as the markets sank, Blakeway advocated a budget-based strategy and has advised staying the course. Many of their holdings were in high-quality corporate bonds, which produce income that augments John's salary. "The market value of the bonds fell about 30% below redemption price, but will mature at full face value," Blakeway says. "There is no reason to take the loss." Blakeway also helped the Ehmanns decrease their equity holdings in emerging and mid-size markets in favor of high-quality, dividend-paying multinational stocks. The dividends can be reinvested to buy more shares of each respective company and increase ownership as prices fluctuate, enabling the Ehmanns to benefit from a future market rebound.
"I advised them to go back to basics," Blakeway says. "We've focused on their needs against a budget and stressed that safety of principal trumps chance in these trying times." With discretionary income tight and liquidity at a minimum, the family has taken some economic steps, entertaining at home more often and scaling back vacation plans. This year, they're considering a trip to the Outer Banks of North Carolina, but they'll use airline miles accumulated from John's extensive business travel and stay with friends instead of at a hotel.
And They're Keeping Their Financial Advisor on Speed Dial
This more restrained lifestyle has been startling but beneficial for the six children: They are learning to budget and form more frugal habits. "They grew up through the gaga period of the 1980s and '90s, when prosperity was rampant," John says. "Now we look at everything we used to do through the filter of, 'Do we need to do it now?' It's not rocket science. It's just conservative, necessary behavior."
Though the Ehmanns remain concerned about keeping up with tuition payments and funding their retirement, they're reassured knowing that Blakeway is carefully watching their portfolio, recommending changes and keeping them informed of how current events will affect them. The Ehmanns have her on speed dial for those emotional days when the Dow heads south. "The Ehmann's confidence level in the financial arena has been shot," Lynette says. "So it comes back to our personal relationship and trust. That's where their comfort level is now."