Money Centered BLOG
The Center celebrates our 29th year serving clients. Founded in 1985, our success and longevity would not be possible without the support of our entire team.
To ring in 2014, founding partners Marilyn Gunther and Dan Boyce both celebrate 29 years with The Center. In addition, partner Laurie Renchik marks her 8th Centerversary.
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If you’re tapped into social media, you’ve likely heard the latest hype about Facebook’s share prices. Facebook has drawn a lot of attention and, as a result, a lot of demand for its underlying common stock.
There are a lot of different methods for valuing shares in publicly traded companies. Two of the more common approaches are to look at present earnings versus the current share price and decide whether a company is under or overvalued based on some multiple of those two figures. This is known as the price to earnings ratio. The second common approach, and probably the one more applicable to social media companies, is future projected price to earnings. This approach is nothing more then educated guess work, and in many cases can lead investors to pay large dollar amounts for a company based on their potential earnings rather than current earnings.
The argument is that because social media sites have so many users, they can leverage that user base into advertising dollars. It sounds great, in theory, and even in practice we are starting to see those advertising dollars roll in for Facebook. The company recently reported $2.02 billion of revenue for the third quarter of 2013. That’s certainly a lot of money, but if you take a look at what that means in the bigger picture that’s simply .39 cents for each share they have outstanding. If you were to purchase Facebook’s stock today, you would be paying almost 150 times their earnings. The closing price on January 13th, 2014, was $56.46 per share.
Even if you account for future potential earnings, Facebook would have to triple their revenue to bring their multiples down to any sort of reasonable historical P/E ratio (according to Morningstar.com, S&P 500 companies have a historical P/E ratio of roughly 15). Furthermore, a future tripling of revenue would only justify the current price. For any further appreciation of the share price, the growth would have to continue at an exponential rate, which seems highly unrealistic, even by Facebook standards.
Despite all this, don’t be surprised if Facebook’s share price continues to rise in the short term. It’s widely documented from the 1999-2000 technology craze that companies share prices appreciated substantially regardless of their underlying fundamentals or profitability. You may or may not remember some of these under-achievers from that time period:
If there’s one take-away from this list it is this: Short-term speculation is no different than gambling and can end badly. In the end, fundamentals usually win. As legendary investor Warren Buffet so aptly put it, "The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money.”
Matthew Trujillo is a Registered Support Associate at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.
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, and is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation or a solicitation or an offer to buy or sell any security referred to herein. 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. Expressions of opinion are as of this date and are subject to change without notice. The price-earnings ratio, or P/E, is a common measure of the value of stocks. It shows the relationship between a stock’s prices and the underlying company’s earnings (or profits) per share of stock. In essence, it calculates how many dollars you pay for each dollar of a company’s earnings. In very general terms, the higher the P/E ratio, the more likely the stock is to be overpriced. Forward P/E, sometimes called estimated P/E, divides a stock’s current price by consensus earnings estimates for the next four quarters. It evaluates the current stock price against projected earnings. Forward P/E will be lower than current P/E if earnings are projected to rise, and higher if future earnings are expected to slow. 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. Center for Financial Planning, Inc., Raymond James Financial Services, Inc., its affiliates, officers, directors or branch offices may in the normal course of business have a position in any securities mentioned in this report. Closing price for Yahoo as of 1/13/14 was $40.21/share. Google and Yahoo are not closely followed by Raymond James Research. #C14-000640
Recently I had the privilege of presenting at the Michigan Association of CPA’s continuing education conference on the topic of Maximizing Social Security benefits. Social security is an important source of income for most of the estimated 58 million people who receive benefits. Over my 22 years as a practitioner, I have tried to counsel clients to be sure to coordinate social security retirement benefits with their overall retirement plan. As pensions (not just the City of Detroit) continue to become more obsolete, social security remains one of the few, if not only, guaranteed income sources for future retirees.
Before getting to how to maximize social security retirement benefits – how about a little fun social security history? Do you know Ida Mae Fuller? She is the first reported person to receive social security retirement benefits. Apparently Ida went into the SS office after contributing a total of $24.75 over three years in payroll taxes and told the staff that she was retiring and didn’t expect to receive anything – but thought she might as well check. She ended up collecting $22.54/month and lived to age 100 – not a bad return on her contributions!
A traditional breakeven analysis works pretty well for single folks. One of the best research articles that I have come across was in the Journal for Financial Planning and written by Doug Lemons. Mr. Lemons outlined three main variables in the breakeven analysis: inflation/cost of living, income taxes, and time value of money. Mr. Lemons’ research addressed multiple variations and combinations. The general rule based on his research is:
The breakeven analysis breaks down a bit for couples (two life expectancies vs one). I have written about spousal benefits in the past. In this post I’d like to provide two strategies for couples to consider.
June Cleaver: As you may know, June Cleaver of the “Leave it to Beaver” show was the classic stay-at-home mom. Her husband Ward, who sometimes was known to be a “bit too hard” on their son the Beaver, was the sole income earner. If June and Ward were close to retirement today, their respective social security benefits at full retirement age might be $2,000/month for Ward and $0 for June. How can they maximize benefits? At full retirement age (assume 66) Ward files for social security retirement benefits but then immediately suspends. This allows June to begin receiving a spousal benefit (assuming she is at full retirement age) which is $1,000/month or 50% of Ward’s benefit. Then, when Ward turns age 70, Ward may elect to begin receiving his own benefit ($2,640 in this example) that has increased 8% per year from age 66-70 thanks to “Delayed Retirement Credits”. Assuming average life expectancy, this combination will provide June and Ward the maximum benefit. What if Ward passes away at age 75? June will receive the higher of her benefit or Ward’s as a survivorship benefit - $2,640 in this example.
Elyse Keaton: Elyse Keaton of “Family Ties” was played by Meredith Baxter (and mother of Michael J. Fox in the show). Elyse, unlike June Cleaver, had income of her own as an architect. Elyse and her husband Steven Keaton had similar earnings. If Elyse and Steven were close to retirement today, both of their social security benefits at full retirement age might be $2,000/month. Rather than “filing & suspending” like June and Ward, the Keatons might consider another strategy to maximize their total benefits. At full retirement age Elyse should consider taking her own benefit or $2,000/month. Steven, at full retirement age, may choose to restrict his benefit to a spousal benefit only (50% of Elyse’s benefit) or $1,000/month. This allows Steven to collect some benefits now while allowing his own benefit to grow at 8% until age 70. At age 70, Steven may elect to begin receiving benefits based on his own earnings – or $2,640/month. Note that the survivor benefit for each of them now becomes $2,640. The election to “restrict” to a spousal benefit can only be done at full retirement age or later.
So, are you more like June or Elyse? If your situation is more like June’s then consider the “File & Suspend” strategy. If your circumstances are more like Elyse’s then consider the “Claim Now, Claim More Later” strategy. Do you have a social security question? Let us know – we love to research and help you maximize the benefits.
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 has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing information is accurate or complete. Any information is not a complete summary or statement of al 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 Raymond James. The examples provided are for illustrative purposes only. Every individual’s situation is unique and you should consult with the appropriate professional regarding your individual situation. Every individual’s situation is unique and you should consult with the appropriate professional regarding your individual situation. Guarantees are based on the paying ability of the issuer. #C14-000038
Client Services Manager Marilynn Levin recently retired after more than 20 years working at The Center. As she says goodbye, she leaves us with some parting thoughts on what might be ahead for her.
Now that I’m retired, I like to think of my days as vacation days and I am getting used to that luxury. Many people have told me that retirement will keep me so busy that I won’t believe I ever had time to work! Right now, I am considering many options to volunteer in a way that is meaningful to me, I am spending more time with my husband, and I am looking forward to seeing more of my 7 grandchildren.
People say old age is not for sissies, but I think the same thing can be said about what I’m going through. Retirement is not for sissies! After almost 22 years at the Center, I am already missing my routines and my colleagues. I was so fortunate to have worked with such an amazing and caring group of people. We always found time to share our lives with each other – we laughed, cried, played, volunteered, shared pictures and really and truly cared about each other.
The same is true of the clients I was privileged to have assisted. I was privy to their thoughts and feelings, as well as their financial lives. With many, we also laughed, cried and shared our family stories. I will miss those relationships, but look forward to seeing many of you at future Center events.
The Hebrew word Shalom means hello, goodbye, and peace. In parting, Shalom and I wish everyone an amazing 2014.
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With the Affordable Care Act becoming effective in 2014, healthcare seems to be top of mind with a lot of people. But there are still many kinks to be worked out and many questions left unanswered. In a world of uncertainty, why not consider utilizing a savings vehicle to help with medical costs that you can control?
A Health Savings Account, or HSA, is a fairly new type of account that is available to those who are enrolled in a high deductible health care plan. Many confuse an HSA with a Flex Spending Account or FSA – don’t make that mistake! A Health Savings Account is typically much more flexible and allows you to roll any unused funds over year to year, something a Flex Spending Account does not offer – it is a “use it or lose it” plan.
Many employers who offer high deductible plans will often contribute a certain amount to the employee’s HSA each year as an added benefit, somewhat like a 401k match. Dollars contributed to the account are pre-tax and earnings accumulate tax deferred. Funds withdrawn, if used for qualified medical expenses (including earnings), are tax-free. The list of qualified medical expenses can be found at irs.gov, however, just to give you an idea, a few include: expenses to cover your deductible (not premiums), co-payments, prescription drugs, various dental and vision care expenses, etc. As always, consult with your financial advisor, tax advisor and health savings account institution to verify what expenses are considered qualified. If you make a withdrawal that is considered “non-qualified”, you will be subject to taxes and a 20% penalty on the withdrawal amount.
Individuals
Must have a plan with a minimum deductible of $1,250
$3,300 contribution limit ($1,000 catch-up contribution if 55 or older)
Maximum out-of-pocket expenses cannot exceed $6,350
Family
Must have a plan with a minimum deductible of $2,500
$6,550 contribution limit ($1,000 catch-up contribution if 55 or older)
Maximum out-of-pocket expenses cannot exceed $12,700
Once you reach age 65 and enroll in Medicare, you can no longer contribute to an HSA. However, once you are 65, funds can be withdrawn for any purpose, medical related or not, and you will no longer be subject to the 20% penalty. However, the withdrawal will be included in taxable income, like an IRA or 401k distribution. This can present a great planning opportunity for clients who may want to defer additional money but have already maximized their 401k plans or IRAs for the year. Although you have to wait 5 ½ years longer to access the funds from a HSA than a traditional retirement plan (age 59 ½) to avoid penalty, this is just another investment vehicle that could reduce taxable income in the year contributions were made while earnings have the opportunity to grow tax-deferred and tax free.
As you can see, a Health Savings Account can be a great addition to an overall financial plan and should be considered if you are covered under a high deductible health plan. No one likes medical expenses; this can be a vehicle that can potentially soften of medical expenses.
Nick Defenthaler, CFP® is a Support Associate at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.
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. 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. You should discuss any tax or legal matters with the appropriate professional. #C13-002464
It was mere weeks ago that we wished Betsey Schrock well as she left The Center for retirement, promising that it was a “See you later” rather than a “Goodbye”. Guess we were right. It wasn’t long after Betsey’s departure that Client Service Associate Gerri Harmer reported the first sighting:
On Thanksgiving morning, I found myself in unquestionably cold weather handing out coffee and hot chocolate to thousands of jovial runner. Although the weather was brisk at the Ann Arbor Turkey Trot, the snow was falling beautifully and everyone was smiling. I was having a great time volunteering at this event; especially checking out the creative and clever Turkey Day costumes when all of a sudden who should appear? Betsey Schrock. Just days after her retirement from The Center, Betsey had gone turkey and was hanging out with a wild bunch. No peaceful serene retirement for her. Great to see you Betsey Schrock --- Keep on Moving!
At The Center, volunteering is one of the values we most prize. Gerri’s gift of her time to the Turkey Trot is just one of the ways we get involved in our community. It just goes to show that when you give of your time, you just might get something unexpected in return. And it might also suggest that no matter how fast you run, you just can’t escape The Center!
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There is so much information out there for women about investing … news stories, case studies, research reports, white papers and books try to answer common investment questions. But this well-intentioned information should come with a warning label: Lumping women investors together in one big category is a cliché’ to be avoided at all costs.
While the similarities among women investors can be significant, cookie cutter advice is not specific enough to rely on over the long term. Over the last 20 years I have had the pleasure of working with many women with backgrounds as diverse as snowflakes. A couple of common themes I see working with women investors is a high degree of importance placed on the personal connection with an advisor, and an intuitive sense that links investment decisions to heartfelt priorities including family and charitable causes.
Differences are also abundant and unique to each individual. For example, a woman in her 50’s who is immersed in her career and has launched children is in a different place than a woman who is recently widowed or divorced. Even women who have achieved similar career goals cannot be lumped together. Some have built investment savvy along the way and some have not. The real work begins with the discovery of how each woman investor is different from other women even when they share general characteristics.
Discovery starts with a personal vision that is linked to your unique financial life planning. Vision implies you have a view of exactly where you want to go and you chart a course accordingly. It’s like plotting a journey on a map – straightforward with no distractions or alternate routes. The reality is that, for many women, the vision diverges into quite a lot of directions. It is at these points where the advisor you work with really can make a difference.
Hitting mile markers where life and money intersect including career changes, divorce, loss of a spouse or retirement are all opportunities to regroup resources, refocus on the vision, and move forward with plans for the future. Avoiding clichés associated with being a woman investor is an important part of the process.
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.
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.
Any opinions are those of Center for Financial Planning, Inc., and not necessary those of Raymond James. #C13-002513
As much as I love financial planning, if you were to ask me, “What do you want to be when you grow up?” I’d have a different answer. My response would be the same now as it was if you were to ask me when I was five – a professional hockey player! From a young age, I couldn’t get enough of the game. It took daily amounts of extreme begging before my mom agreed to let me play and take on the financial burden of becoming a hockey parent. Being a part of a team at a young age did wonders for me. It taught me discipline, respect, and camaraderie. I also learned how to work as a team to achieve a collective goal and a long list of other lessons that apply not only to the game, but to how I approach life.
In my opinion, hockey players are the best true athletes in the world. The sport combines skill, speed, precision, intelligence, strength and endurance in a way no other sport can rival. Despite what these athletes do on the ice, it is how they carry themselves that solidifies my love for the game. When a player scores a goal, he doesn’t prance around and make a scene to let everyone know he just scored. You might get the occasional fist pump, but that’s usually about it. They’ve been there before and they act like it. At the end of each playoff series, win or lose, no matter how much hatred there was between the two teams, players line up and shake hands, acknowledging a hard fought series and congratulating the victorious team in an act of sportsmanship that I don’t see in any other major sport. Hockey players are not flashy, but rather down-to-earth, regular guys. I’ve had the pleasure of meeting a few of the Red Wings at local events and if you didn’t know who they were, you would never guess they were professional athletes making millions each year.
When the Miami Heat won their second consecutive NBA championship this year, Lebron James was interviewed to discuss his team’s success. During a span of seventy seconds, he used the word “I” eighteen times. When the Chicago Blackhawks won the Stanley Cup this year, their captain, Jonthan Toews was also interviewed. He used the word “we” thirteen times and did not mutter the word “I” one single time. I think that says a lot. A team is not about an individual, it’s about creating success for the entire group – something we are constantly striving for at The Center in an effort to provide the best service possible to our clients.
I like to think of our team at The Center as “financial planning athletes”. We train hard and are always looking for ways we can improve our game. Athletes never stop practicing and neither do we. We work hard every day to maintain the knowledge necessary to serve you, our clients. There are a lot of egos out there, in professional sports, financial planning and everywhere in between. I can proudly say that our team of professionals embodies the furthest thing from an ego. We have an open door policy with one another; everyone is treated as an equal and is an integral part of our firm. We have one heck of a team here at The Center and I am very grateful that in some ways I’m living my dream job.
Nick Defenthaler, CFP® is a Support Associate at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.
Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. C13-001965
You enjoyed your holiday season to the fullest – great gifts for everyone, parties and evenings out with family and friends. But now the credit card bills are arriving, and you are feeling the pain and misery of your holiday spending hangover.
Enjoying the holidays and special times with family and friends is important to your overall enjoyment of life. If you occasionally go a little bit overboard, simply follow these steps to get yourself back on track and on your way to fulfilling your longer-term financial goals.
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.
Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of Raymond James. #C13-002512
