Planners' Perspective: From PR to Finance

 Part 4 of a series that will shed some light on who we are and why we love financial planning. Sandy Adams never set out to be a financial planner, but that’s right where she landed and today she’s our resource on Elder Care issues.

I like to think that the Center and I found each other at just the right time.  It was 1996 and I had spent nearly four years searching for the right fit.  I graduated in 1992 from Eastern Michigan University with a bachelor’s degree in Public Relations and Business Management.  My goal had been to use my public relations degree in the non-profit sector; in 1996, I found myself working in the communications department at Hospice of Michigan, with my job on the line due to funding issues.  Just at that time, I received a call from my friend Eric Wade (Estelle Wade’s son who was also the guy who hired me for my first job out of college) to see if I might be looking for a job.  I set up an interview with Dan Boyce, and Marilyn Gunther and that’s where my journey in financial planning began.

I had little experience or knowledge of the industry, but immediately recognized that this was an area where my strengths in organization, problem solving, and helping people could be put to use.  I had learned strong money and savings skills from my parents, but began to learn about financial planning in detail on the job.  Dan, Marilyn and Estelle were all wonderful mentors, willing to share their knowledge and experience with me…and I was more than willing to take it all in.  When I made the decision to pursue my Certified Financial Planner™ designation, the Center was more than supportive in helping me make it happen.  Not only have I learned valuable technical knowledge and strategies, but even more important, I have learned how important trust, relationships, and the desire to help clients is to being a good financial planner.

My desire to help others has led me even further to focus on Elder Care financial planning, which keeps me challenged every day.  I feel that this knowledge helps me to assist not only the Center team, but Center clients and others who are facing challenges as they, or their parents, age.  As the population shift continues, I hope to be a leader in the field when it comes to educating the financial planning professionals and the public in general on aging-related financial issues.  My best advice…plan ahead for EVERY stage of life.

Investing is a Marathon, Not a Foot Race

 I had lunch with a friend that turned 40 years old last week.  He mentioned that he runs in a few marathons. He used to run dashes.  A marathon is a lot different from a 100-yard dash.  Preparation is different, psychologically, mentally and physically you prepare differently.  

He changed his portfolio over the last few years because of the market volatility.  This new portfolio was geared towards mitigating risk in the next few months; kind of like a foot race but he is not considering the implications of the next 25.5 miles. Three things came to mind as I was looking at his new selections.  First, I had my research assistant run some analytics on the two portfolios and then compared the old and new. 

Old Portfolio:

  • Centered on equities
  • 10 year plus time frame
  • Partially passive and partially active approach
  • Focus on growth rather than risk, liquidity or safety

New Portfolio:

  • 5 year or less time frame
  • Focused on a possible need for current income
  • Very risk adverse (actually underperforming the market by 2-3% annually)

After taking a look at his portfolio changes and the implications, I offered these three suggestions:

#1 Find a consultant that understands what you want to accomplish.

Sit down and let a planner you trust (that has a similar investment philosophy) really get to know who you are and what your family goals are. Talk about what you want your portfolio to accomplish.  Complete that firm’s financial planning questionnaire, risk tolerance questionnaire, etc.  Start out with someone who is a CFP or has a vast background in working with family planning situations and money.  Pick a person who wants to keep you on track over the next 20-30 years. 

#2 Develop an asset allocation that is right for you.

First you should clearly articulate your goals.  After that is done, get the right mix of asset classes in your portfolio.  Don’t worry so much about the actual investment selection – it has the least amount of validity in the entire process. Look for managers that have 10 years experience and an average or better track record.  If possible select investments that have a small asset base. They may be more nimble than large investments. 

#3 Meet annually with that planner.

And lastly, meet once a year (both you and your spouse) for an hour or two with that planner to discuss your goals, feelings, and perceptions of your planning. Reviewing your financial situation periodically is an important part of the financial planning process; it helps maintain forward momentum, establishes a checkpoint to assess progress, refocus efforts, and ultimately helps you cross the finish line you’ve set for yourself.

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.

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 contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material.  Any information is not a complete summary or statement of all available data necessary for making an investment decision.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  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 hose of RJFS or Raymond James. Asset Allocation does not ensure a profit or protect against a loss.  Investing involves risk and investors may incur a profit or a loss regardless of strategy selected.

My heart couldn't be bigger

 Behind every smiling newborn is a parent counting down the minutes until she can be with her baby again. This was my very thought during my first day back at the Center after what felt like too short of a maternity leave  (how could 10 weeks go so fast?). My husband Kelly and I welcomed our first child, Emma Lynn into this world on May 30th. We were fortunate to have the 4 weeks together as we explored life with a little bundle of joy.

The Re-entry

The first day back to work, the alarm jolted me up at 5:00 AM, a challenge since Emma and I would typically wake at 6:00 AM or later. I amazed myself by getting ready in a short 30 minutes. Now what? She’s not up, I don’t want to wake her, but it’s time to GO! I’m a scheduler and I am learning Emma is the one setting the pace from this point forward! We made it out the door on time with bottles in tow. We were greeted with a warm welcome from her early morning caregiver, who almost had to kick me out the door!

Say “I Do” to your Wedding Budget

 Approaching retirement, the birth of a child, or writing that first tuition check for college … these are all life events financial planners help clients with on a daily basis. A wedding, as I have found out from first-hand experience over the past year, is certainly one of these major financial milestones that can be overlooked or underestimated.  Last September, I became engaged to my best friend and love of my life, Robin.  We were both beyond excited to start our journey together and begin the wedding planning.  But as we both quickly found out, nothing about a wedding is cheap!  There were some things I have learned throughout the wedding planning process that I think can truly help couples during this stressful, overwhelming but very fun time.

Things I have learned

  • Find out early on what type of financial assistance (if any) is available from family.  This will help immensely to avoid confusion and keep everyone on the same page.
  • Sit down together and take a look at your existing cash flow figures and create a REALISTIC budget that they both of you agree upon and stick to it!
  • Take a close look at your personal savings accounts and determine how much you can afford to draw from those accounts while still leaving funds available for an emergency fund (we typically recommend keeping 3 – 12 months of cash reserves, depending on the client’s situation).
  • Be aware of the potential consequences of using retirement accounts, such as an IRA or 401k to pay for wedding expenses (early withdrawal penalties, excess tax, lack of long term growth, etc.).
  • Do your best to stay away from personal loans.  These types of loans often require a form of collateral, and usually carry hefty interest rates. 
  • Consider RESPONSIBLY utilizing low interest credit cards for a portion of expenses.  Many cards offer 0% rates for 12 – 24 months and, if paid off within this time frame, can be a great tool to help with the incoming costs while planning.    
  • Guys – help your fiancé!  You probably don’t care about how the napkins will be folded at the reception, but taking things off of her plate such as honeymoon planning or researching vendors can really go a long way. 
  • Most importantly – HAVE FUN!  At times, the planning won’t be, but take a step back and realize what the two of you are planning for together and enjoy it! 

As our October wedding approaches, we are in the home stretch and finalizing the last details that make my head spin.  It was not always a smooth or easy ride but knowing I get to spend the rest of my life with Robin has made all of the stress more than worth it.  Know what you can afford, stay on budget and be responsible, just like any other major financial event.  With proper planning and help from your financial advisor, the process will go much smoother and keep the both of you sane!

Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

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The Ideal Age to Start Social Security

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 I recently had an opportunity to travel to Chicago to meet with a group of retired airline pilots.  We had a great conversation on areas such as estate planning, investment planning and income tax planning given changes that occurred in January 2013.  However, it was Social Security that garnered the most interest and questions for this group of retirees between the ages of 60 and 70.  Specifically, the question at hand was, “When is the ideal time to start receiving social security retirement benefits?” 

If you think that the IRS Code is complex, then Social Security claiming rules are a close second.  Unfortunately there is a lot of confusion and misinformation.  Moreover, the stakes are quite high.  Perhaps at age 40 social security benefits are a distant thought, but for those aged 60+ the issue is quite ripe. 

Deciding When to Claim

As with most financial planning decisions, general rules get you only so far.  The key is to structure your decision, when to claim in this case, based on your individual goals and circumstances. The reason that most Americans choose to start social security retirement benefits as early as possible is because frankly they need the money now.  However, for those with flexibility in timing, there are strategies that can be employed to maximize benefits, especially for married couples. 

Social Security Simple Math

All kidding aside, if you know the day you will die then the decision is straightforward and is a “simple” math equation.  Barring certainty on that “day” however, certain assumptions must be made.  You see, social security benefits are designed to be actuarially fair or equal. Meaning, if you collect a reduced benefit starting early at age 62 you will have smaller payments lasting for a longer period of time, but if you elect to postpone receiving benefits you will collect a larger amount for a shorter period of time. If you live to normal life expectancy the math is the same.

There are a variety of software programs designed to assist in making the most-educated decision about the optimal time to claim social security retirement benefits.  Please feel free to contact us if you would like assistance in making this important decision.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

The information contained in this report does not purport to be a complete description of the subjects referred to in this material.  Any information is not a complete summary or statement of all available data necessary for making a 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.

Planners' Perspective: Progress by the decade

 Part 3 of a series that will shed some light on who we are and why we love financial planning. Matt Chope talks about taking the long view on investing and why to look at decades rather than days.

If we’re being honest, I was inspired to enter the financial planning profession for selfish reasons. I went in hoping to find the deep sense of personal satisfaction gained from helping someone make the most of the one life they have to live. In the beginning, it was about helping people achieve a higher, more consistent return on their investment, beating the tax man at his game, or beating the market.  I wanted people to think I was smart and good at something unique.  That made me feel special and it still does. 

In those younger years, life was very quantitative and simple. It was a numbers game; I thought that if someone had more money they could do more and be more.  While that is still an undercurrent to some extent, today this area of energy has evolved to helping clients achieve a better return on their life, which might sound kind of corny or even ridiculous.  But, to me it is about making the most out of what you have in the time remaining. 

After having worked for a decade or longer, I’ve noticed many investors gain a noticeable amount of relief and even a deep sense of fulfillment toward achieving or making considerable progress toward their lifelong goals.  I ask continually what my client’s goals are and I listen and capture those goals to help them turn goals into reality.  It’s so cool to see it transpire.   Not too much generally changes over a year but I have found that it’s absolutely amazing what can transcend over a decade when you’re dedicated to achieving something.

Center Family Picnic

Imagine your financial advisor, laying it all on the line in a grueling, high stakes battle … of a water balloon toss. Oh, we stop at nothing to make sure our team is ready, especially when it comes to picnics! The Center social committee organized a wonderful weekend gathering August 17th at Island Lake State Park in Brighton. The event was filled with good food, good company, and lots of your typical summer picnic games. And to put the icing to the cake, we couldn’t have had a more beautiful day for it.

About 50 people – Center team members and their families and friends – came out. Everyone contributed a dish or two to go along with the burgers and dogs on the grill, and we ended up with enough food to feed closer to 100 people!

Megaphone in hand, our Dan Boyce officiated the day’s games, including that water balloon toss that quickly turned into a water balloon fight. Next up was the 3-legged race, and last but not least was an egg & spoon relay race. There were also side competitions in corn hole, ladder golf, bocce, and a very intense game of sand volleyball. Some unexpected competitive sides came out, and spectators enjoyed watching the players diving all over the court.

Great memories were made with our Center family and we have the pictures to prove it! Overall, the first annual Center Family Picnic was a terrific success, and a tradition that will undoubtedly be repeated.

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House Hunting How-To: Deciding on the Best Down Payment

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 You have decided to purchase a new home. Now questions start racing through your mind. How much do we put down?  What is our interest rate going to be?  Do we get a fixed loan or a variable loan? Do we finance it over 15 years or 30 years? In today’s historically low interest rate environment the answer to some of these questions may surprise you.

Let’s take a scenario between John Doe and John’s identical twin brother Jack Doe.  John and Jack have the same exact job, the same income, and the same assets.  Everything about them is the same except for how they approach money decisions.  John is a firm believer in staying out of debt. He doesn’t believe in financing anything. He pays cash for cars, houses, vacations etc…  Jack on the other hand believes that responsible use of debt could be a good way to get ahead in life.  He firmly believes that you shouldn’t put more then 20% down on a house, you should finance a car, especially when interest rates are less then 3%, he’ll even put a vacation on a credit card to earn the mileage points, making sure he pays it off within a month or two. 

John and Jack are looking to purchase an identical home in the same neighborhood; same square footage, same interior design, same lawn animals, same everything.  The purchase price of the house is $250,000. They both have identical investment portfolios valued at $250,000. John has the option to finance it with a 30-year fixed loan at 3.5%.  But instead John takes a look at his finances and decides he will take the money out of his investment portfolio and buy the house outright.  John now has no money left in his investment portfolio, but at least this will save him that pesky $1,200 mortgage payment over the next 30 years. He doesn’t like the fact that his investment portfolio now has a 0 balance, but he intends to rebuild his drained investment account by adding $1,200 each month. 

Jack, on the other hand, decides he is only going to put down 20% on the house and keep the rest of his money invested. He needs to come up with 20% of $250,000, or $50,000. After the down payment, Jack will have $200,000 remaining in his investment account.  He won’t be able to add any funds to his investment account because he needs that money to pay the mortgage.

Let’s break down the impact of their decisions after 10 years factoring at a 6% interest rate compounded annually for their investments. Let’s also assume the value of their homes has also appreciated in value at 6%:

Jack has less equity in his house because he put 20% down so, after 10 years, he still owes the bank $150,000 on the original $200,000 mortgage note. From the totals, it might appear that Jack made a slightly better money decision, but life is not quite that simple.  We can’t possibly account for all the “what if’s” that life might throw at the two brothers over that 10 year period. 

Here are some things to consider: 

  • What if John had a sudden emergency such as an unexpected job loss over that 10-year period?  He has no liquidity to tap into to help him pay the bills because he spent it all on the house. 
  • How much mortgage interest can John deduct off his income tax bill annually?  None because he doesn’t have a mortgage! 
  • What if house prices in the neighborhood depreciate in value instead of appreciate?  Jack could potentially hand the keys back to the bank whereas John could be stuck with a rapidly depreciating asset.
  • What if John isn’t as disciplined as he thought he was and starts spending the $1,200 a month instead of saving it?  Jack might not be as prone to this problem because there is a big consequence to him not paying the bank $1,200 a month which is that he loses the house.   

As you can see, having a mortgage might not be the worst thing in the world. Even though it bucks the traditional value of having a home paid off as quickly as possible, there can even be some advantages to using debt responsibly. Make sure you talk to your financial planner when deciding if you’ll follow Jack or John’s example.

The example contained herein is hypothetical and for illustration purposes only.  It is not intended to reflect the actual performance of any particular investment.  Actual investor results will vary.  Investing involves risk and investors may incur a profit or a loss.  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.  You should discuss any financial or mortgage matters with the appropriate professional.

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