Check lists are a great way to stay organized each day, and are a great way to avoid "A.D.D." A checklist is also a good approach to kick start your financial plan. Start out with a simple list of broad categories: debt management, cash reserves, retirement planning, estate planning, tax planning, insurance, and long-term investments. Within the broad categories drill down deeper into your specific needs.
Debt Management - When was the last time you re-financed? Have you consolidated student loans? Track your expenses if debt repayment is an issue for you.
Insurance - If you have a family, make sure to have life insurance and disability insurance to replace income should something happen to you. Get a Personal Liability Umbrella Policy to give liability coverage above and beyond home owners and auto insurance. If you medical issues, check your maximum "out of pocket" expenses in your major medical policy.
Retirement Planning - If you are in your working years, contribute the maximum you are allowed to your retirement plans. "Save and invest. Save and invest."
College Planning - Take advantage of tax deferred growth in a 529 college savings plan. Qualifying educational expenses will be paid tax free. No capital gains.
Employee Benefits - Take advantage of your employee benefits such as Flexible Spending Accounts and Employer Matching.
Estate Planning - If you are ALIVE meet with an estate attorney, who will review an estate planning checklist.
Long-term care insurance - If you have accumulated assets over $700k, look into long-term care insurance as an estate planning tool to protect your nest egg should you meet long-term medical care.
Invest in a diversified fashion - Know yourself and invest according to your risk tolerance and comfort levels. But avoid getting too conservative. If you place too much of your money in cash or bonds, you run the risk of losing purchasing power over time to inflation.
Taxes - If you are a business owner, work with a CPA to efficiently manage your tax issues. If you are an individual, also work with a CPA. The tax code is complicated!
It can be overwhelming out there, but it does not have to be. Starting out with check lists can reduce the stress and anxiety involved with getting your finances organized.
Friday, November 11, 2011
Tuesday, November 8, 2011
Reasons to Have an Estate Plan
1. Get a will. Dying without a will is referred to as "dying intestate," which means you gave up the opportunity to distribute your assets as you would have liked. Instead, the state (through probate court) gets to figure things out for you. It's quite possible all your assets may not pass to your spouse and children as you would have intended.
2. Name a guardian for your minor children. If you have young children, you need to consider who will care for them should something happen to you. Do you really want a judge-appointed stranger to make those decisions?
3. You also need a medical directive and a durable power of attorney. These documents apply if you become disabled and cannot make decisions on your own for basic expenses like your mortgage and other monthly bills. A power of attorney lets a friend or family member do that for you. Your medical directive allows another person of your choice to act on your behalf, honoring your preferences.
4. Think of your heirs. Without proper planning, your heirs will have to deal with probate court. If you own real estate in several states, your heirs will have to deal with probate in each state. The process involves long delays and high legal costs. It is also public information. Fortunately, you can avoid all this with a revocable living trust.
If you haven't done any estate planning, set up an appointment with an estate attorney soon.
2. Name a guardian for your minor children. If you have young children, you need to consider who will care for them should something happen to you. Do you really want a judge-appointed stranger to make those decisions?
3. You also need a medical directive and a durable power of attorney. These documents apply if you become disabled and cannot make decisions on your own for basic expenses like your mortgage and other monthly bills. A power of attorney lets a friend or family member do that for you. Your medical directive allows another person of your choice to act on your behalf, honoring your preferences.
4. Think of your heirs. Without proper planning, your heirs will have to deal with probate court. If you own real estate in several states, your heirs will have to deal with probate in each state. The process involves long delays and high legal costs. It is also public information. Fortunately, you can avoid all this with a revocable living trust.
If you haven't done any estate planning, set up an appointment with an estate attorney soon.
Tuesday, June 1, 2010
Financial adviser's motives, expertise, methods crucial to managing your wealth
good article if you're looking to find a financial adviser.
http://http://www.washingtonpost.com/wp-dyn/content/article/2010/05/29/AR2010052900289.html
Financial adviser's motives, expertise, methods crucial to managing your wealth
By Bob Frick
Sunday, May 30, 2010; G03
Why do so many of us who seek advice about money shy away from asking the hard questions of financial advisers? Maybe because money is such a taboo subject -- after all, survey after survey finds that given a choice to discuss sex or money, more of us feel comfortable with pillow talk.
But understanding your financial adviser's motives, expertise and methods is crucial to managing your wealth and will certainly help you sleep better during turbulent financial times.
First check an adviser's qualifications and references. Then ask these key questions:
Do our goals match? If an adviser works solely or partly on commission, you might have a problem. You can never be sure whether the investments the adviser is buying for your portfolio are the best he can find or the ones that generate the largest fees. When an adviser wants to swap a few mutual funds in and a few out, is he doing so to improve your performance or because he needs to score more commissions to make a car payment?
The simplest way to unite your goals with those of your adviser is to pay a fee tied to the size of your portfolio -- say, 1 percent of assets per year. When your portfolio goes up, and only when it goes up, so does your adviser's compensation.
Other methods that avoid conflicts of interest are to pay for advice by the plan, by the hour or by an annual retainer. But those don't provide as much incentive for your adviser as a plan linked to assets.
How much will your services really cost me? Your adviser's fee is only a part of your costs. If your adviser trades securities often, brokerage commissions can add up. And maybe your adviser likes mutual funds or other investments with high annual expenses.
Get an accounting of total annual fees and expenses for the adviser's typical portfolio. A thrifty adviser can find plenty of cheap mutual funds and exchange-traded funds and won't trade often, keeping the annual cost of your portfolio to well below 1 percent of assets (not including the adviser's fee).
How do you measure performance? This is definitely a question to ask upfront. At your annual checkup, your adviser can pull out all kinds of measures to make his performance look better than it really is. Decide what standards you're going to use before turning over a penny. Be sure to ask current and former clients how their portfolios performed.
Here's our suggestion: Your portfolio should do at least as well at the market averages. So the portion of your portfolio in big U.S. companies should at least equal the performance of Standard & Poor's 500. Likewise, the portions in small-company stocks, foreign stocks, bonds and so on should equal or better their market-average doppelganger.
Equaling the averages is a no-brainer; all your adviser has to do is invest in index funds. In fact, many advisers follow just that strategy. At any rate, studies have shown that your mix of assets is far more important in determining performance than the choice of individual funds or securities.
What do you know about me? Many advisers use a "portfolio in a box" approach -- that is, they figure that if you're of a certain age and generate a certain amount of income, you should hold investments X, Y and Z.
But the past decade has taught us that we all come with biases that affect our comfort level with investments and their performance. For example, some of us love risk, while others despise it. Plus, we put different priorities on different goals.
A good adviser will ask you questions to divine your attitudes toward risk, different types of investments, your need for security and your priorities. Many will have you fill out questionnaires on those topics, although advisers should combine the surveys with heart-to-heart discussions.
The payoff for spending time on such discussions is a portfolio that reflects those variables.
Do you time the market? Most advisers who try to time the market won't admit to it, at least not in those words. Timing the market means trying to predict future movements of asset prices and moving money in and out of markets to take advantage of those predictions. Relatively few investors have done so successfully over long periods. If your adviser were one of them, she would probably be running a multibillion-dollar hedge fund.
By asking an adviser about her investment strategy and how it changes with developments in the markets, you'll discover whether she's a closet market timer. Watch out for an adviser who says, for example, that she thought foreign stocks were getting pricey so she shifted clients' money from overseas shares to commodities. Wholesale changes of that sort rarely pay off, and, if they're done poorly, your portfolio could shrink faster than an igloo on Hawaii.
Do you take a holistic approach? You might want your adviser just to manage your money. That's fine. But to really take advantage of a pro's expertise, you want someone who is versed in estate planning, insurance and a host of other areas that work best when orchestrated together. That includes estate planning, life and long-term-care insurance and investing for college.
How can you help me transition to retirement? Making money grow is just half the challenge. A good adviser should lay out a strategy on how you'll reduce risk in your portfolio as you approach retirement age, even if retirement is years away.
The adviser should have a plan for setting up various buckets of funds to meet your retirement income needs, including short-term liquid assets for immediate cash; fixed-interest investments, such as CDs or bond ladders, that you can use to replenish your cash bucket as needed and to shield you from having to sell stocks in a down market; and long-term assets invested for growth in a well-diversified portfolio.
-- Kiplinger's Personal Finance
http://http://www.washingtonpost.com/wp-dyn/content/article/2010/05/29/AR2010052900289.html
Financial adviser's motives, expertise, methods crucial to managing your wealth
By Bob Frick
Sunday, May 30, 2010; G03
Why do so many of us who seek advice about money shy away from asking the hard questions of financial advisers? Maybe because money is such a taboo subject -- after all, survey after survey finds that given a choice to discuss sex or money, more of us feel comfortable with pillow talk.
But understanding your financial adviser's motives, expertise and methods is crucial to managing your wealth and will certainly help you sleep better during turbulent financial times.
First check an adviser's qualifications and references. Then ask these key questions:
Do our goals match? If an adviser works solely or partly on commission, you might have a problem. You can never be sure whether the investments the adviser is buying for your portfolio are the best he can find or the ones that generate the largest fees. When an adviser wants to swap a few mutual funds in and a few out, is he doing so to improve your performance or because he needs to score more commissions to make a car payment?
The simplest way to unite your goals with those of your adviser is to pay a fee tied to the size of your portfolio -- say, 1 percent of assets per year. When your portfolio goes up, and only when it goes up, so does your adviser's compensation.
Other methods that avoid conflicts of interest are to pay for advice by the plan, by the hour or by an annual retainer. But those don't provide as much incentive for your adviser as a plan linked to assets.
How much will your services really cost me? Your adviser's fee is only a part of your costs. If your adviser trades securities often, brokerage commissions can add up. And maybe your adviser likes mutual funds or other investments with high annual expenses.
Get an accounting of total annual fees and expenses for the adviser's typical portfolio. A thrifty adviser can find plenty of cheap mutual funds and exchange-traded funds and won't trade often, keeping the annual cost of your portfolio to well below 1 percent of assets (not including the adviser's fee).
How do you measure performance? This is definitely a question to ask upfront. At your annual checkup, your adviser can pull out all kinds of measures to make his performance look better than it really is. Decide what standards you're going to use before turning over a penny. Be sure to ask current and former clients how their portfolios performed.
Here's our suggestion: Your portfolio should do at least as well at the market averages. So the portion of your portfolio in big U.S. companies should at least equal the performance of Standard & Poor's 500. Likewise, the portions in small-company stocks, foreign stocks, bonds and so on should equal or better their market-average doppelganger.
Equaling the averages is a no-brainer; all your adviser has to do is invest in index funds. In fact, many advisers follow just that strategy. At any rate, studies have shown that your mix of assets is far more important in determining performance than the choice of individual funds or securities.
What do you know about me? Many advisers use a "portfolio in a box" approach -- that is, they figure that if you're of a certain age and generate a certain amount of income, you should hold investments X, Y and Z.
But the past decade has taught us that we all come with biases that affect our comfort level with investments and their performance. For example, some of us love risk, while others despise it. Plus, we put different priorities on different goals.
A good adviser will ask you questions to divine your attitudes toward risk, different types of investments, your need for security and your priorities. Many will have you fill out questionnaires on those topics, although advisers should combine the surveys with heart-to-heart discussions.
The payoff for spending time on such discussions is a portfolio that reflects those variables.
Do you time the market? Most advisers who try to time the market won't admit to it, at least not in those words. Timing the market means trying to predict future movements of asset prices and moving money in and out of markets to take advantage of those predictions. Relatively few investors have done so successfully over long periods. If your adviser were one of them, she would probably be running a multibillion-dollar hedge fund.
By asking an adviser about her investment strategy and how it changes with developments in the markets, you'll discover whether she's a closet market timer. Watch out for an adviser who says, for example, that she thought foreign stocks were getting pricey so she shifted clients' money from overseas shares to commodities. Wholesale changes of that sort rarely pay off, and, if they're done poorly, your portfolio could shrink faster than an igloo on Hawaii.
Do you take a holistic approach? You might want your adviser just to manage your money. That's fine. But to really take advantage of a pro's expertise, you want someone who is versed in estate planning, insurance and a host of other areas that work best when orchestrated together. That includes estate planning, life and long-term-care insurance and investing for college.
How can you help me transition to retirement? Making money grow is just half the challenge. A good adviser should lay out a strategy on how you'll reduce risk in your portfolio as you approach retirement age, even if retirement is years away.
The adviser should have a plan for setting up various buckets of funds to meet your retirement income needs, including short-term liquid assets for immediate cash; fixed-interest investments, such as CDs or bond ladders, that you can use to replenish your cash bucket as needed and to shield you from having to sell stocks in a down market; and long-term assets invested for growth in a well-diversified portfolio.
-- Kiplinger's Personal Finance
Thursday, May 27, 2010
How much to save to reach $1 mill by age 65
This is how much you would need to save each month to accumulate $1 million by age 65 if you began:
At age 20 $189.59 per month (at 8% annual returns)
At age 30 $435.94 per month (at 8% annual returns)
At age 40 $1,051.49 per month (at 8% annual returns)
At age 50 $2,889.85 per month (at 8% annual returns)
At age 60 $13,609.73 per month (at 8% annual returns)
At age 20 $189.59 per month (at 8% annual returns)
At age 30 $435.94 per month (at 8% annual returns)
At age 40 $1,051.49 per month (at 8% annual returns)
At age 50 $2,889.85 per month (at 8% annual returns)
At age 60 $13,609.73 per month (at 8% annual returns)
Reasons to have an Estate Plan
1. Get a will. Dying without a will is referred to as "dying intestate," which means you gave up the opportunity to distribute your assets as you would have liked. Instead, the state (through probate court) gets to figure things out for you. It's quite possible all your assets may not pass to your spouse and children as you would have intended.
2. Name a guardian for your minor children. If you have young children, you need to consider who will care for them should something happen to you. Do you really want a judge-appointed stranger to make those decisions?
3. You also need a medical directive and a durable power of attorney. These documents apply if you become disabled and cannot make decisions on your own for basic expenses like your mortgage and other monthly bills. A power of attorney lets a friend or family member do that for you. Your medical directive allows another person of your choice to act on your behalf, honoring your preferences.
4. Think of your heirs. Without proper planning, your heirs will have to deal with probate court. If you own real estate in several states, your heirs will have to deal with probate in each state. The process involves long delays and high legal costs. It is also public information. Fortunately, you can avoid all this with a revocable living trust.
If you haven't done any estate planning, set up an appointment with an estate attorney soon.
2. Name a guardian for your minor children. If you have young children, you need to consider who will care for them should something happen to you. Do you really want a judge-appointed stranger to make those decisions?
3. You also need a medical directive and a durable power of attorney. These documents apply if you become disabled and cannot make decisions on your own for basic expenses like your mortgage and other monthly bills. A power of attorney lets a friend or family member do that for you. Your medical directive allows another person of your choice to act on your behalf, honoring your preferences.
4. Think of your heirs. Without proper planning, your heirs will have to deal with probate court. If you own real estate in several states, your heirs will have to deal with probate in each state. The process involves long delays and high legal costs. It is also public information. Fortunately, you can avoid all this with a revocable living trust.
If you haven't done any estate planning, set up an appointment with an estate attorney soon.
Tuesday, May 25, 2010
How to View Volatility
5/25/2010
Volatility is back. There is no question that the volatility index “the VIX” has risen in the last few weeks much higher than it has been in the past six months. It appears due to the uncertainty on the political, social, and economic agendas worldwide that volatility will be around for a while. Therefore, we must recognize that volatility is back and to brace for it.
Volatility is not the same thing as market declines. Just because prices are volatile doesn’t necessarily mean that prices are falling. Volatility is a yo-yo. You can’t have volatility unless prices also go up! A bear market is when prices go down. A bull market is when prices go up. A Volatile market is when prices do both. Volatility is a double-edged sword. Just need to recognize the environment we’re in. Brace ourselves and weather the storm.
If you don’t have the stomach for it, consider reducing risk now. Review your asset allocation. Speak to your financial advisor to see if your investments are properly allocated. This is not a recommendation to time the market. It is about knowing who you are, what your goals are, and what your stomach for risk is.
If you need the money in the next few years, you should not be in the stock market at all.
Volatility presents a fabulous opportunity to create long-term wealth. If you’re adding to your investments (or dollar-cost averaging) during periods of volatility, you set the stage for long-term profits. Treat market declines as long-term buying opportunities.
The dominant determinant of lifetime investment outcomes is. . . .
The dominant determinant of lifetime investment outcomes is not investment performance, but investor behavior.
Sunday, May 23, 2010
Keep it Simple
Keep it Simple - This applies to your finances and your investments. Don't over-think it.
“Simplicity is the ultimate sophistication.” - Leonardo Da Vinci
"Things should be made as simple as possible, but not simpler." - Albert Einstein
“The spirit's foe in man has not been simplicity, but sophistication.” - George Santayana
“Simplicity is the ultimate sophistication.” - Leonardo Da Vinci
"Things should be made as simple as possible, but not simpler." - Albert Einstein
“The spirit's foe in man has not been simplicity, but sophistication.” - George Santayana
Friday, May 21, 2010
How to Choose a Financial Planner
click on the link to read a short article in the Wall St. Journal on "How to Choose a Financial Planner."
Tuesday, May 18, 2010
It's Time In the Market, not Timing the Market that Creates Wealth over Long periods
This chart shows how a $10,000 investment would have been affected by missing the market's top-performing days over the 20-year period from January 1, 1989, to December 31, 2008. For example, an individual who remained invested for the entire time period would have accumulated $50,455, while an investor who missed just 10 of the top-performing days during that period would have accumulated only $26,006. This hypothetical example does not represent the performance of a specific investment.
Source: Standard & Poor's. Stocks are represented by Standard & Poor's Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Past performance is no guarantee of future results. Investors cannot directly invest in an index.
Friday, May 14, 2010
Wednesday, May 12, 2010
How to Win at Gambling
"The greatest advantage from gambling comes from not playing at all." - Girolamo Cardano, 16th Century physician, mathematician, Renaissance Man
Belief in a mutual fund manager's "hot streaks" leads to the mistake of confusing luck and skill.
Belief in a mutual fund manager's "hot streaks" leads to the mistake of confusing luck and skill.
Tuesday, May 11, 2010
What is Long-term Care Insurance and Who needs it?
Long-term Care refers to “custodial”care—personal, hands-on assistance to individuals who need help with the activities of daily living, or ADLs. ADLs are routine things that healthy people don’t give a second thought to: bathing, dressing, eating, using the toilet, getting into and out of bed or a chair. The need for long-term care may be due to physical limitations or disabilities resulting from injury, illness or the normal aging process. It can also be due to a cognitive impairment resulting from a stroke, for example, or Alzheimer’s disease.
While such care is provided in nursing facilities, assisted-living facilities, and adult day care centers, the majority of long-term care takes place in the recipient’s home. Usually, in fact, it is provided by unpaid family members or friends.
Nearly 41% of long-term care is provided to people under age 65 who need help taking care of themselves after an accident or stroke or as a result of chronic illness or debilitating diseases.
It’s clear that the longer you live, the more likely it is that you’ll need help at some point. Overall, at least 70% of people who live to age 65 will require some long-term care services at some point in their lives. That means that only three in ten of us will live out our lives without the need of such assistance.
Clearly the potential need for long-term care is a risk that all Americans face—and one that can take a heavy toll on your family and your bank account.
While such care is provided in nursing facilities, assisted-living facilities, and adult day care centers, the majority of long-term care takes place in the recipient’s home. Usually, in fact, it is provided by unpaid family members or friends.
Nearly 41% of long-term care is provided to people under age 65 who need help taking care of themselves after an accident or stroke or as a result of chronic illness or debilitating diseases.
It’s clear that the longer you live, the more likely it is that you’ll need help at some point. Overall, at least 70% of people who live to age 65 will require some long-term care services at some point in their lives. That means that only three in ten of us will live out our lives without the need of such assistance.
Clearly the potential need for long-term care is a risk that all Americans face—and one that can take a heavy toll on your family and your bank account.
Study by John Hancock, 2008
Source: Kiplinger's
A free way to track your expenses and stay on top of your personal finances
Mint.com (http://www.mint.com) was purchased for $170 million by Intuit, the maker of Quicken and Quickbooks. This is a free web site that allows you to track your investments, bank accounts, and expenses from credit cards or debit cards all under one interface. They look for ways to save you money and alert you if you are getting hit with fees and/or when bills are due. One way they earn money is by partnering with vendors such as the credit reporting agencies.
Monday, May 10, 2010
Reasons to Have Cash Reserves
Generally speaking it is a good idea to build and maintain cash reserves of at least 6 to 12 months of non-discretionary expenses if you're working and 2 years or more of cash reserves during retirement years. The more stable your income and the less you spend each month the less you need to have in reserves (and vice versa). Even if you have you have high job security, cash is king and access to liquidity is vital as witnessed in the financial panic of 2008. The cash reserves are there to help keep you from going into debt or dipping into your long-term investments if you run into unexpected emergencies such as medical expenses not covered by insurance, broken home appliances, leaky roof, car trouble,etc or if you lose your job and are having trouble finding another one.
Also, if you know you're going to incur major expenses such as paying for a wedding, buying a home, or buying a new car, save those amounts away in addition to your reserves.
The goal is to maintain a fully-funded cash reserve at all times.
Also, if you know you're going to incur major expenses such as paying for a wedding, buying a home, or buying a new car, save those amounts away in addition to your reserves.
The goal is to maintain a fully-funded cash reserve at all times.
Thursday, May 6, 2010
Why You Need to Diversify
This chart (produced by Blackrock) shows annual returns by asset class (i.e. stocks, corporate bonds, Treasuries, real estate, International stocks, small company stocks, etc) from best performance to worst performance from 1988 through 2008. As you can see, there's no clear pattern in any given year. It is impossible to predict with accuracy which assets will have the greatest returns from year-to-year. As a result, many investors, including myself, invest with a strategy of diversification -- owning virtually everything (US and International stocks, US Govt/International and Corporate bonds, real estate, gold, natural resources, etc) and hold these investments for very long periods of time. The portfolio should be adjusted as needed as the investor's financial situation changes and when his/her portfolio shifts significantly from the target asset allocation.
Wednesday, May 5, 2010
College Savings Plans
Here's a site to read about 529 Plans
College Savings Plans Network
Some of the features of 529 college savings plans.
College Savings Plans Network
Some of the features of 529 college savings plans.
- ability to save huge amounts of money toward college. Maximum contribution allowed is over $300,000 in some states.
- minimum investment as low as $25
- earn market-based returns instead of inflation-based returns
- tax deferred growth and tax-free withdrawals as long as money is used for education expenses.
- Money can be used for tuition and room & board (pre-paid tuition plans only cover tuition)
- 529 plans can be used for any school in the country. Pre-paid tuition plans are only good for state schools in that state)
- Money can be used for grad school.
- No age limit.
- If one child decides not to go to school, you can change the beneficiary for another child (or that child's child). Flexibility!
- 529 plans are considered to be owned by the person who establishes the account (not the children)
- a way for grandparents to help grandchildren with college savings (talk to a financial adviser to see if this is a good move for your situation)
- Any withdrawals not used for education are subject to income taxes and a 10% penalty.
Tuesday, May 4, 2010
Monday, May 3, 2010
Remember to revise and revisit your financial plan periodically
Financial Planning is a process, not a product.
Because your life will undergo frequent changes, and because your assumptions require constant updating, financial planning is a lifelong process, not a report you shove onto a shelf and ignore.
This means you need to revise your plan periodically. Your financial plan should be revised if:
1. One to three years have passed since you last updated it.
2. There have been any changes in your:
a. Goals
b. Health
c. Marital status
d. Occupation or employment
e. Income
f. Expenses
3. There has been a birth or death in the family.
Because your life will undergo frequent changes, and because your assumptions require constant updating, financial planning is a lifelong process, not a report you shove onto a shelf and ignore.
This means you need to revise your plan periodically. Your financial plan should be revised if:
1. One to three years have passed since you last updated it.
2. There have been any changes in your:
a. Goals
b. Health
c. Marital status
d. Occupation or employment
e. Income
f. Expenses
3. There has been a birth or death in the family.
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