Money Centered

CNBC Ratings as a Leading Indicator?

2013-05-21T12:00:56Z

This may be the most unique candidate for a leading indicator I’ve run across in a long time. A leading indicator is defined as a measurable economic factor that changes before the economy starts to follow a particular pattern or trend. You may have heard of an inverted yield curve predicting recessions or the number of building permits applied for predicting a housing boom or bust.

How about CNBC viewership predicting the next stock market boom or bust? Below is a chart showing Nielson Ratings for CNBC over the last eight years. The last time their ratings were this low was 2005 when markets had stablized after the tech bubble burst and we had enjoyed a couple of years of good returns. Sound familiar?

As you can see in the chart below of the S&P 500 total returns, 2005 was the start of some very nice returns which continued for the next few years. Could the low viewer ratings be a potential indicator that the returns we have experienced since 2009 are just the beginning? As returns accelerated toward the market peak in 2007 so did CNBC’s ratings into 2007.

Data from Morningstar

As individual investors start to jump on the band wagon of a bull market run, they become more interested in what is happening to their money and thus turn on the news.

There are many reasons investors could be choosing not to watch the channel now:

Investors have been lulled into a sense of security about market returns and aren’t concerned about current events
Many are not actually invested in the markets; therefore, they do not care
Investors are finding their information elsewhere
They have grown tired of the sensationalizing the network does to try to get better ratings (which is actually my main reason for not watching)

Assuming investors aren’t watching anymore because of one of the first two reasons, then this could be a very good indicator of what is to come, potential positive returns as more individuals put money back to work in the markets.

It is too bad there isn’t much historical data to determine if this is, indeed, a good stock market indicator but it is definitely something from CNBC that is much more interesting to follow than their overly dramatic, TV personalities!

Angela Palacios, CFP® is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well as investment updates at The Center.

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance may not be indicative of future results.

Why is 2020 So Significant to Boomers and Their Children?

2013-05-16T12:00:59Z

We’re not talking about 20/20 the news program, or about your vision. We’re talking about the startling statistic released by the Alzheimer’s Association that by the year 2020, there will be 20 million baby boomers with Alzheimer’s disease. In case you’re counting, that will be nearly 1 out of every 3 baby boomers that have Alzheimer’s or a related dementia. The cost of care will be a huge concern for these boomers and their families (according to AARP, the current average cost to care for someone with Alzheimer’s is $56,800 annually), among the many issues that will arise.

If you are a boomer, here are the top 3 things you can do to prepare for this risk:

Put Together a Team of Professionals – Start with a Certified Financial Planner™, who can help you plan ahead for the financial risks. This will involve simplifying accounts, managing your assets, and helping you plan for your financial future with your personal preferences in mind. Your financial planner will help you to put together a team of the additional professionals you may need and will bring on additional team members, as needed, along the way.
Make Sure Your Legal Documents are Up-To-Date – We are talking here about your wills, possibly a trust, but most importantly Durable Powers of Attorney. All individuals should have two durable powers of attorney – one for Health Care and the other for General/Financial affairs. These Powers of Attorney will be invaluable if you ever need someone to make health care or financial decisions when you are unable to make them yourself.
Get Your Financial Life in Order and Document – Not only is it a good practice to take inventory of what you have and where it is, but it is also (and equally) important to document these items and indicate where and who to contact if there are questions. Documenting investment accounts, insurance policies, legal documents, former employer benefits, etc., will be invaluable to family members or close friends who may need to assist you with your financial affairs in the future. Click Here for our Personal Record Keeping document that can serve as a guideline for this purpose.

While an Alzheimer’s diagnosis is not something any of us want to think about, it is better to plan ahead so that your financial life will be handled as you intend, rather than leaving the burden of making those decisions to your family when you might not be able to communicate your wishes.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing information is accurate or complete. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional.

What is a Tax Refund & What Should You Consider if You Get One?

2013-05-14T12:00:47Z

I hear lots of buzz this time of year and, I have to admit, I get a little buzzed myself when I am awaiting a tax refund. I begin to envision myself using my tax refund to go on a beautiful beach vacation. There I am, sipping a pina colada and soaking up the sun … but what does it really mean when you get a tax refund? A tax refund essentially is an interest free loan from the government. It means you paid Uncle Sam too much money in taxes last year and they are going to return it to you. It means that the government got to use the extra money you paid them a little while longer than you did.

According to David Wessel, economics editor of The Wall Street Journal, out of the 143 million tax returns filed with the IRS more than 80 percent of them produced a refund either because they paid too much or due to the earned income tax credit for low income earners. Yes, I know getting a refund (overpaying) is a lot better than underpaying, but no matter how appealing jetting off to Jamaica in search of the perfect pina colada may sound, you should consider adjusting your income withholdings. If you received an income tax refund that was significant, you might want to consider adjusting your income tax withholdings and get more money in your paychecks throughout the year. This way you control the money you are earning each year and can use this extra money to meet other cash flow needs and goals.

Need some ideas of what to do (other than plan that dream vacation)? The following are a few ways to allocate an income tax refund if you get one to meet your financial planning goals:

Cash Flow Planning

Emergency Reserve Fund: If you do not have an emergency fund, use this money to establish one. You should typically have 3 months of reserves if both spouses work, and 6 months of reserves if only one spouse works or you are single.
Pay Off Debt: If you have unsecured debt such as credit cards and student loans, consider using your refund to pay on these liabilities.

Retirement Planning

Contribute to a tax deductible Traditional IRA: assuming you meet the requirements to contribute, a Traditional IRA provides tax benefits to you today via an income tax deduction.
Contribute to a ROTH IRA: Assuming you are not over the income limitations, contributing to a ROTH IRA can provide significant tax benefits to your retirement income portfolio, as monies in a ROTH grow tax deferred and can be withdrawn tax free if certain conditions are met.
- Work with your CPA and financial planner to find out which might make the most sense for you and if you meet the requirements.
Invest in a taxable investment account: Investing in a tax-efficient taxable investment account is another great use of your tax refund dollars.

College Planning

Fund College Accounts: Assuming your current retirement savings plan is on track, using your refund to save for your children's college education is very helpful as well. Check with your state provided IRC Section 529 Savings plan to see if there are state tax benefits available to you when making a contribution to your state IRC Section 529 Savings plan.

Risk Management Planning

Have your risk management needs evaluated and if you need to allocate more dollars to meet these objectives, consider allocating your refund here.

Please feel free to contact me if you would like some financial planning advice in this area.

Julie E. Hall, CFP® is the Director of Financial Planning at Center for Financial Planning, Inc. In addition to her contributions to Money Centered and Center Connections, Julie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine. Julie is a member of the Financial Planning Association™ (FPA®) and is currently serving on the Financial Planning Association™ (FPA®) Pro-Bono committee, which works to help promote financial literacy within our local community.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. You should discuss any tax or legal matters with the appropriate professional.

Is Your Portfolio Off to the Races?

2013-05-09T12:00:24Z

We just got to enjoy what has been called “The Greatest Two Minutes in Sports.” I have always been a fan of the Kentucky Derby, the horses, the outrageous hats, wondering who is wearing the hats, and a blanket of roses. I’ve had the privilege of actually going down to Louisville to watch but I have never been part of the glamorous, hat-wearing crowd. We’ve always watched from the infield, though “watch” is a loose term. It is more like standing on your tip toes to see a blur of horses run by you for about one-tenth of a second and then return to drinking your mint julep. But it is fun nonetheless.

This year the market has felt a lot like we have been off to the races. It has been one of the strongest starts to the year this decade. Is it too much too fast? A new chart put out by Russell Investments says maybe not.

For additional disclosure and interpretive guidance on this chart, please click on the following link: http://www.russell.com/Helping-Advisors/Markets/acd.aspx?d=t

How to interpret the chart:

The gray bar is the full range of 1 year returns the asset class has experienced throughout history
The blue portion of the bar is where returns fall most of the time (68%)
The number highlighted in orange is where returns fell for the 12 months that ended as of March 31^st, 2013

Even with the strong returns, as of recently, most indexes are still hovering near “middle of the road” returns for the past 12 months. So perhaps it hasn’t been too much too quickly.

If you are seeking some advice on an appropriate strategy for your portfolio, put the odds in your favor and contact your Financial Planner today!

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

Planning for Marriage May Include a Prenuptial Agreement

2013-05-07T12:00:49Z

If an “I do” is in your near future, you need to make another commitment … this one to your financial planner. Before all the wedding planning and honeymoon booking are complete, a conversation with your financial planning team is also recommended to take a look at how marriage will impact your financial situation. Two people coming together with unique financial positions can create a number of financial issues to think about and plan for prior to entering this new chapter in life.

While prenuptial agreements aren’t for everyone, they are important planning tools especially if you or your future spouse have substantial assets, will receive a future inheritance, or have children from a previous marriage.

A prenuptial agreement typically provides direction in the following areas:

Assets and liabilities – who brings what into the union
Contributions of each partner – will there be special considerations
Estate Planning – who gets what at the death of either spouse
Division of property – when a couple decides to dissolve their marriage

More importantly the prenuptial document creates an understanding between partners and a roadmap for conducting financial affairs together. It determines how the assets and debts will be shared. It spells out how children from a previous marriage or relationship will inherit and it addresses the financial needs of the survivor in the case of death.

While talking with an attorney about a prenuptial agreement can be a stressful and touchy topic for many couples, the many beneficial aspects are worthy of consideration.

Laurie Renchik, CFP®, MBA is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

You should discuss any tax or legal matters with the appropriate professional.

My Meetings with Some of Our Portfolio Managers and Their Teams

2013-05-02T12:00:38Z

Over the last 22 years I have come to realize on many occasions that we are not in the numbers business but in the people business. Clients like to know that we understand their investments, and more importantly, the people behind the investments. While numbers are crucial and we spend a lot of time in the depths of many calculations, I find the most value when I get to understand the people behind the numbers.

Recently, I met with many of the managers from the PIMCO family of funds. PIMCO has been a long time resource, providing portfolio management services for the funds of Center clients for over a decade. I alone have made this trip 3 times in the last 10 years while others from the Center have also made the trip. These onsite visits take time, usually a day of travel to their offices and back and many hours of sitting, talking and listening to their strategies, philosophies and themes. I listen to their logic, really like to see that passion that drives them to succeed for Center clients.

I joke with our investment department about passion, “The managers we want jump out of bed like a piece of toast in the morning to get to work.” These managers could retire but they would prefer to manage money rather than golf. I always find these meetings with our managers as worthy time spent. I have come back from meetings with conviction in people and their teams we have in place and sometimes found that we need to look elsewhere for a replacement.

Some things can’t be discerned in the numbers alone.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Are Extended Warranties Worth the Expense?

2013-04-30T12:01:00Z

How many times have you been asked about buying an extended warranty on a product purchase? Probably every time you make a purchase. Salespeople are trained to push extended warranties to “upsell,” and the extended warranties are huge money-makers for retailers (about 60% is profit according to Businessweek!) because most consumers never use them.

Here are 3 Reasons Why You Should “Just Say No” to an Extend Warranty:

The manufacturer’s warranty is usually enough: Most products come with a standard no cost warranty that covers the purchase for up to one year. Most minor problems with a product occur within the first year, with major malfunctions occurring much later (often after even the extended warranty has expired).
Cost is a consideration: Often, the cost of the extended warranty is up to a third of the cost of the product itself. Since consumer products generally depreciate in value very quickly, it might make more sense to keep the extra dollars and save for a future repair when or if it is needed, or for your future replacement purchase.
There are other ways to get the same protection: Many credit cards offer protection on purchases made with the card. Many also offer to double the length of the manufacturer’s warranty. Make sure to investigate all of the benefits you might have available through your credit card provider.

Although there are many reasons to “Just Say No,” there are a few instances when it might make sense to say yes to an extended warranty:

You are buying an item that is new technology or is prone to problems.
You are buying a refurbished product, or one that was a floor model.
You are buying a very pricey item that would be expensive to repair or replace; the more expensive the item, the more consideration to give the extended warranty.

And above all else, don’t fee like you need to make an “at the register” decision. Most retailers allow you to purchase an extended warranty for up to 15 or 30 days after a purchase. Take your time to make a good financial decision.

The 3 Missing Bull Market Killers

2013-04-25T12:00:07Z

Every day I get questions from clients regarding the market being high. Yes, the market’s nominal price is at an all-time high. But consider the following situation: Over 20 years, with an average annual gain of 9% per year, the equity market could be looking at a DOW JONES average in the 80,000 range. Twenty years ago the Dow Jones was hovering around 3,500 and since then we have had a 12 year period when the Dow did not make a new high, but still averaged almost 9% a year.

The three things that tend to kill a bull market are inflation, interest rates, and valuations, and none of them are present yet.

A Look at Inflation

Notice that we are tracking at one of the lowest rates in history. You’ll see the Consumer price Index is well below the 10-year average. Just compare the difference between the price level of consumer goods and services in 2013 and in early 1980’s:

Sources: Bloomberg and Legg Mason. Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. The graph above is for illustrative purposes only and is not reflective an actual investment.

I don’t think I would be the first to remind you that interest rates are still at the lowest levels in history. This chart tracks interest rates and inflation as both trended down in recent years.

Interest Rates and Inflation

And when looking at the final potential bull killer, equity valuations, you’ll see the measures are in line with historical averages. Not expensive and not cheap.

Equity Valuations

History as our guide would tell us that until all three or at least one of the bull market killers are present this bull is still alive and well.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. The Dow Jones Industrial Average (DJIA) is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal.

Five Investing Strategies that Can Keep Taxes in Check

2013-04-23T12:00:44Z

If you’re like many Americans, you’ve started to consider (possibly even fear or dread) increasing tax rates on the horizon. Do you have taxable investments? Your tax burden may be even higher due to new Medicare surcharge on investment income. What’s an investor to do? Here are some real-life investing strategies to help you keep your tax obligations in check.

1. Municipal Bonds

Investors in state or local bonds may get to avoid federal (and sometimes state) taxes on ordinary income. This doesn’t exempt you from the Medicare surcharge but can go a long way to keep your tax burden in check. When you consider municipal bonds, look at their tax equivalent yield which helps to compare the bond yield to returns of taxable bonds.

2. Check Your Cost Basis Method

Your taxable brokerage accounts must have a cost basis method election. This determines how your original purchases are calculated against the closing price when securities are sold. Different methods may result in different tax consequences when a security is sold. If you’re in a high tax bracket, you might want to consider the Minimum Tax Method which works to result in the lowest tax consequences available for any given transaction. Not sure what’s best? A consultation between your CPA and financial planner might be best to make sure everyone’s on the same page with the best method for you, as I explained in my previous blog post.

3. Keep Turnover Low

When you buy and sell securities in your taxable investment accounts, there’s generally a tax consequence – either a realized capital gain or loss. Hopefully you’re realizing more gains than losses over time (that’s the point of investing), but you may want to analyze how often you’re buying and selling by calculating a turnover rate. A good rule of thumb is the lower the turnover the lower the tax burden, although, as with any rule of thumb, your personal circumstances need to be considered. Also, keep in mind the difference between short-term capital gains and long-term capital gains as you are rewarded for holding investments longer. You may want to wait until it’s been more than a year to sell something if you’re close.

4. Considerate Asset Location

If you have investment accounts with different tax characteristics, you have the opportunity to use asset location to your advantage. Let’s say you have a $500,000 Trust account (taxable) and $250,000 in an IRA. By placing types of investments that have higher tax burdens in the IRA account where your taxes are deferred, you can reduce the overall tax burden of your portfolio and hence increase your after-tax return. What types of investments may have higher tax consequences? Those with high turnover, taxable bonds, strategies that result in a lot of short-term gains to name a few. If you’re going to use asset location strategies, you may need to be ready to have different types of returns between accounts since they house different types of investments – focus on the overall investment performance of your combined accounts rather than whether one account trails another in any given time period.

5. Harvest Losses When Appropriate

Not every investing environment is positive and not every investment goes up and down in tandem with everything else. A small silver lining to an investment that has lost money is that you can typically tally a loss to offset a realized gain in your portfolio. If your realized losses exceed your realized gains, you should get to carry them forward for a future tax year. Some investments may be desirable long-term but present an opportunity to realize a loss in a shorter time period. In this circumstance, your financial planner can work with you to harvest the gain while avoiding a wash sale (re-entry into the same investment within 30 days) while staying focused on the same long-term strategy. Historically, investment managers might look to harvest losses in the 4^th quarter as they were closing up the books for a calendar year. I often prefer to recommend a rolling review of unrealized losses so that you can uncover losses more frequently and with the movements of the market.

A note of caution: With all this talk focused on taxes, don’t forget that getting taxed usually mean that the investment has made you money. Stay focused on the big picture while staying aware of tax consequences. Don’t let tax tail wag the total return dog.

As you prepare for higher tax burdens, work closely with your financial planner and CPA to coordinate your investing strategy. There are trade-offs to be considered and your overall financial goals need to take first priority. With planning, though, some tax-focused strategies can help to keep your obligations within your control.

Melissa Joy, CFP®is Partner and Director of Investments at Center for Financial Planning, Inc. In 2011 and 2012, Melissa was honored by Financial Advisor magazine in the inaugural Research All Star List. In addition to her frequent contributions to Money Centered blogs, she writes frequent investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.

Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. Municipal bond interest is not subject to federal income tax but may be subject to AMT, state or local taxes. Income from municipal securities may not be appropriate for all investors, particularly those who do not stand to benefit from the tax status of the investment. Changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax and legal matters with the appropriate professional.

What Do Organ Donation and 401(k)s Have In Common?

2013-04-18T12:00:56Z

While taking a Duke University course on Behavioral Finance, which is a topic I find fascinating, the professor presented the following scenario on organ donation:

While individuals around the world generally approve of organ donation, very few actually sign a donor card to grant permission, especially here in the US.

According to the chart below, some countries like Austria and France have an extremely high participation rate, 100% of the population. Why, then, is there such a difference from a country like Germany with only a 12% participation rate to Austria with a 100% participation rate? They share a border and culturally don’t have vastly different beliefs.

“Do Defaults Save Lives?” www.sciencemag.org

The answer is actually much simpler than cultural differences or beliefs. It is Defaults. Individuals love to take the easiest way out. The fewer decisions we have to make the better. Requiring people to opt out of something rather than opt in is a very effective way to push us toward a choice.

Defaults can be a very powerful tool, not only to increase organ donors, but also in investing for your retirement. Many 401(k)s offered by employers opt to automatically enroll their employees in the plan. If just a few percent is automatically deducted from employee’s paycheck, most individuals will not go out of their way to stop this as shown in the graphic below.

Automatic enrollment plans actually encourage individuals who are younger and have lower incomes to start saving for retirement much earlier than they normally would, when the effects of compounding interest are the most powerful.

While I will likely never live to regret being an organ donor, 401(k) contributions make me cringe just a little precisely every other Monday. Hopefully though this delayed gratification will pay off in retirement!

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.