Monthly Archives: August 2014

The REAL American Transformation!

People in Washington may believe they’re transforming America. They are wrong. America is being transformed, but it has nothing to do with politics. It’s happening in North Dakota, Texas, the Rust Belt and Silicon Valley.


• By 2016 the United States will surpass Saudi Arabia and Russia as the world’s biggest oil producer and is on track to become energy self-sufficient in two decades. North Dakota and Texas are leading the charge.


• Steel manufacturing in mini-mills is replacing big, antiquated mills using a fraction of the labor and energy cost. Thanks to energy and labor cost advantages, foreign companies are building major new plants in the US.


• While no one was looking, 3D printing is beginning to revolutionize manufacturing and medicine. GE is making major parts of its jet engines via 3D printing. Medical device manufacturers are developing casts, bones, skin and even lungs using 3D printers.

These developments are creating jobs, transforming our lives and creating an American renaissance. But because they are not in the headlines, few people are even aware that this is where the real American transformation is taking place. There is a very good chance that the 21st Century, not the 20th Century, could be the REAL American Century.

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Why employees need 401(k) investment advice

Employee Benefits News has an article with the headline explaining why employees need investment advice.  Here’s their reasoning:

While American employees appreciate having a 401(k) plan, the majority will likely spend more time planning for a new car purchase or vacation than researching their plan’s investment options.

This retirement disconnect is not surprising, according to Schwab Retirement Plan Services, which released a survey this week of more than 1,000 401(k) plan participants. “We often see that participants are hesitant to take action when they’re not completely comfortable with the matter at hand, and this is especially true when it comes to financial decisions,” says Steve Anderson, head of retirement plan services at Charles Schwab.

Aside from health coverage, the survey found nearly 90% of workers agreed that the 401(k) is a “must-have” benefit, more than extra vacation days or the ability to telecommute. However, employees said they spent more time researching options for a new car (about 4.3 hours) or vacations (about 3.8 hours) than researching their 401(k) investment choices (2.1 hours).

The article goes on to mention that more people get help having the oil in their car changed,  mow their yard or prepare their taxes that planning how to invest their 401(k).   This is a problem because changing your oil, mowing your yard, even doing your taxes, is easier than making wise investment decisions.  For many people, their 401(k) is their biggest source of financial security for their retirement.

If you want to get the best out of your 401(k) think about getting the guidance of a professional.  Contact an RIA.

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Preparing for the unexpected.

What happens if you have to live on less income because you lost your job or your spouse died? The economy has not been kind to many people and job loss can happen before we’re ready to retire. That’s when a financial advisor can help.

It can be tough to find a good paying job if you’re within a decade of retirement age.  Companies are reluctant to hire you.  You may be wondering what you should do when you realize that the best path is early retirement. Where can you cut back? How should your money be invested for an extra-long retirement? These are all questions that you should not tackle on your own because the wrong decision at this age can haunt you a few years down the road.

If the major breadwinner in your family dies how will the survivor cope? One 61-year-old woman left work to care for her dying husband. After his death she could not return to work but had a lot of decisions to make. Decisions about social security, insurance, where to cut back (fewer trips, sell the motorcycle and the RV), as well as decisions about her investments.

Each case is unique, but a financial advisor should be more than a money manager. He should advise his clients about all aspects of their lives that impact their financial well-being. Ideally you will have developed a good relationship with a financial advisor before an unfortunate event occurs. But if you have not, this is definitely the time to find one.


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“529” Plans – Keep Your Receipts

A client recently asked me how to make sure that money moved from a 529 college savings account to a student’s checking account would be viewed from an IRS perspective.  What do you need to know if you take money from a 529 plan and put it in your, or the student’s checking account?

The answer can be found on the American Funds website.  Virginia’s 529 plan offers the American Funds and is known as CollegeAmerica.  Here are their answers:

Q: What is considered a qualified higher education expense?

A: Qualified higher education expenses generally include:

  • tuition
  • mandatory fees
  • textbooks, supplies and required equipment
  • room and board during any academic period during which the beneficiary is enrolled at least half-time in a degree, certificate or other program that leads to a recognized educational credential awarded by an eligible educational institution
  • special needs services for a beneficiary with special needs

Paying off a student loan is NOT considered a qualified expense.

Q: Who is responsible for determining that a withdrawal was made for qualified higher education expenses?

A: The account owner or the beneficiary makes the determination and must retain appropriate documentation to show that a withdrawal was made for qualified higher education expenses.

Q: Can my withdrawal be sent to my bank account?

A: Yes. You can have a withdrawal transferred to the checking or savings account linked to the CollegeAmerica account. This transaction may take place online, over the phone, or by mailing us a completed CollegeAmerica Distribution Request Form (PDF). Direct deposit withdrawals requested online are limited to $25,000 per day. Payments will be deposited into your bank account within three business days of the transaction date. Use the FundsLink® form (PDF) to link a bank account. A signature guarantee may be required.

Q: Can my withdrawal be sent to an educational institution?

A: Yes. You can call us to redeem up to $125,000 per day from a CollegeAmerica account and have the money sent directly to an eligible educational institution. We’ll need the name and address of the institution when you call.

Q: When making a withdrawal from my CollegeAmerica account, will it be reported under the Social Security number of the account owner or of the beneficiary for tax purposes? 

A: It depends on to whom the distribution is made payable. If the withdrawal is made payable to the account owner, then the tax reporting will be under the account owner’s Social Security number. If withdrawals are made payable to the account beneficiary or to the school, then the tax reporting will be under the beneficiary’s Social Security number.

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Choosing a financial advisor.

The current issue of Financial Advisor magazine has an article about the ranking of financial advisors. The issue they raise is an important one. The amount of assets that an advisor has is often used as a shorthand way of determining how “good” that advisor is. It’s a term called “assets under management” (AUM). To use an automotive expression, when you look under the hood, AUM often has no bearing on the quality of the advisor.

Some large firms, even those with over a billion dollars in AUM have one huge client and a bunch of little accounts. Under those circumstances you can imagine how much attention the small clients get.  In fact, it’s a common complaint of people who work with large firms, they don’t get much attention unless they have tens or hundred of millions in assets.

Other firms have one or several principals in their mid to late 60s. They could very well go out of business when they retire, leaving their clients looking for a new advisor. How would you feel if your advisor shut down when you are retired?

The bottom line is this: your advisor should be there for you for a long, long time. Check out the firm, ask about their clients; see if the people there will be there for you for the rest of your life.

Check us out. We stack up very well.  And check out our book on estate planning: BEFORE IF GO.

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10 Common Mistakes Made with company retirement plans.

Surveys say that most people don’t take full advantage of company sponsored retirement plans.

What are some of the most common mistakes?

1. Many people never participate at all, and others wait months or years to participate.
2. Failure to make enough of a contribution to obtain the full company match.
3. Failure to increase your contribution after getting a raise.
4. Failure to study the investment choices.
5. Putting too much of the money into company stock.
6. Failure to re-balance the portfolio on a regular basis.
7. Leaving the plan behind when changing jobs.
8. Failure to name a beneficiary.
9. Failure to review beneficiary information.
10. Cashing the plan out before retirement.

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Income from “Total Return”

When thinking about income from an investment portfolio many people focus on interest and dividend income. That can lead to problems. In times like these where interest rates are low, the desire to get income from bonds and high dividend paying stocks can be hazardous.

Bonds that pay high yields may be low grade “junk” bonds that are riskier than high grade bonds. Or they can be long-term bonds that will lose value when interest rates rise.

Stocks with unusually high dividends may actually be paying more in dividends that they earn. How long can that go on? Focus too much on dividend income and you could be like those who, in 2008, owned lots of bank stocks that were paying some of the highest dividends. Some of these banks failed and shareholders lost all their money. The survivors cut their dividends to – or near –zero.

Don’t misunderstand; getting income from bonds and stocks is not bad. But “reaching” to get income from these sources can be hazardous.

There is another way of getting income from an investment portfolio that does not focus on just interest or dividends. It’s called the “Total Return” system.

Total Return introduces a third factor into the income mix: growth.

Let’s use a stock as an example.

Imaging that we buy XYZ company stock at $100. It pays a dividend of $3. That gives us a dividend yield of 3%. But let’s assume we chose XYZ stock not just because of the dividend but because we believed it would grow. A year later, XYZ stock is now selling for $110. The “Total Return” on XYZ is the sum of the dividend and the growth in value.

Dividend:                    $3.00 (3%)
Growth in value :     $10.00 (10%)
Total Return:           $13.00 (13%)

Under these circumstances, we could take the dividend plus part of the increased value of the stock, spend it, and still have more wealth than we had before. Viewed from the Total Return principle, we could spend up to $13 and be wealthier than before.

This example is easier to accomplish using mutual funds, and it’s one of the strategies that we employ for those who are retired and those who are still building their retirement portfolio.
If you want to know more about the Total Return way of investing, contact us.

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Mr. Market gets nervous

For a while it seemed that Mr. Market didn’t read the newspapers. Turmoil in Europe, real war in the Middle East, Central America moving across the southern border; nothing seemed to faze him as he went up, up, up.

Then suddenly it seemed that Mr. Market picked up a newspaper and fainted. A banking crisis in Portugal and Argentina defaulting on its debt (hint: Argentina default is as predictable as the rising of the sun; since gaining independence in 1816 it has been in default or rescheduling payments about a third of the time) seemed to trigger a re-assessment. Then there was good economic news (GDP rising 4% in the second quarter), something that scares Mr. Market because that means that the end of the Fed’s money printing is drawing nigh.

Anyway, those were the reasons given for the market stall and modest retreat in July.

But let’s put both fear and hope aside and take a clear-eyed view of the market and the economy:

  • The job market is showing steady gains.
  • Economic growth is slow but steady.
  • The manufacturing sector is firing on all cylinders.
  • Consumer spending grew by 2.5% as people went out to buy cars and home furnishings.
  • Business spending grew 5.5%.

We are reluctant to make market predictions because we’re not in the fortune-telling business. We’re in the business of building wealth for our clients over the long term. If this is the beginning of a correction, we believe that the long-term outlook remains good.

If the market’s actions scare you or create a growing sense of panic or concern, you may need to re-evaluate your portfolio. Create a portfolio that’s good for all seasons. Remember our slogan: Finish Stronger™.

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What do you do when the market drops 300 points?

Yesterday scared a lot of people.  And when the July brokerage statements arrive, many people will not want to open them.  It’s not been a good month for stocks.

When there’s a sudden drop in the market, one that makes people take notice, we always wonder what’s going to happen next.  Is it the beginning of a steep decline, perhaps a Bear Market?  Or is an opportunity to buy stocks on sale?  A Blue Light Special?

The answer is: nobody knows.  Anyone who pretends to know is lying.

If you have a properly constructed portfolio, what happens next won’t bother you.

By a properly constructed portfolio we mean a portfolio that’s designed to be robust, that’s properly diversified and one that is designed for your risk tolerance.

When the stock market is going up, the value of that part of your portfolio devoted to stocks increases in value.  And while you may think that’s a good thing, what it’s doing is increasing the portion of your investments to stocks which are the riskiest part of your portfolio.  Over time, during a Bull Market, your portfolio is becoming riskier and riskier.  Unless you take active measures to bring your investments back to your original asset allocation – a fancy way of saying the portion of your portfolio that’s devoted to stocks and bonds – when the market takes a dive, your portfolio will decline more than you want.

If yesterday’s drop felt more like a drop-kick, you own too much stock. It’s time to to re-evaluate your risk tolerance. Talk to your financial advisor.

So, to answer our original question: What do you do when the market drops 300 points?  If you had a portfolio that’s designed with you and your future in mind, the answer is nothing.  On the other hand, if it caused you to panic, call us and let’s talk.

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