The Center finds balance at Dave & Busters

How do you beat the winter blues? It was a question the Center for Financial Planning Social Committee had been pondering.  We kicked around many ideas but finally decided on Dave and Buster’s.  For those of you not familiar, Dave and Buster’s is a complex where food, drink, gaming, and fun collide.  We could beat the blues while trying to beat one another at some of the best games around. 

On the afternoon of February 6^th, we headed to Dave and Buster’s in Livonia.  It was a great afternoon filled with lots of food, drink, and camaraderie.  We found out we are a pretty competitive bunch.  There was a fierce Pac-Man tournament that took place between Tim Wyman, Amada Toia, Kali Hassinger, and Jennie Bauder.  Matt Chope and Melissa Joy found a video-enhanced Soccer Game.  Matt Trujllio stationed himself at a cool skee ball game that paid out lots of tickets while many others spent some time shooting hoops, playing air hockey, and various arcade games.

We decided as a group we would pool the tickets we won and get something for the office.  The number of tickets won totaled somewhere around 19,000 (told you we had fun!). Walking through our office you may spy two large, brightly colored gorillas (stuffed, of course).  They are our happy reminders of the day our office beat the winter blues!

Downside Hedging: The Diversified Portfolio Effect

 Wow, what a year for the markets in 2013!  Despite a rough end to 2012, uncertainty regarding the affordable care act and fiscal cliff, political tension in Syria and a government shutdown, U.S. stock markets surged and reached record highs.  When all was said and done, the Dow was up 26.5% and the S&P 500 rose by 29.6% for the year.  When you see numbers like that, you may think, “My accounts did very well this year, but they aren’t up close to 30%!”  That is a perfectly natural reaction. One reason you most likely did not see these types of returns is due to diversified asset allocation. 

Building a diversified portfolio using asset allocation can be tricky.  Let’s use a 60% stock, 40% bond portfolio as our example. Stocks are typically more risky and bonds tend to be more conservative and they often work inversely with one another.  When one is doing well, the other may be lagging.  This can help to even out returns and reduce the large swings in account values.  Within those two categories, one may see several different classes that comprise the 60% stock and 40% bond allocation. The stock side may include domestic large and small cap equities, international, emerging markets, energy, real estate, etc.  The bond side may include options such as short-term corporate debt, international, emerging markets or government bonds, etc.  The key is to build a portfolio that fits an investor’s individual long-term goals and needs so that the proper amount of stock and bonds can be utilized to help achieve those goals over different market conditions. 

In the chart below, we compare a $500,000 portfolio that is invested in  60% stock, 40% bonds and one that is 100% invested in stocks, as represented by the S&P 500 from 2000 – 2013.  The results are pretty staggering.  As you can see, in years the market did well, the diversified 60/40 portfolio lagged the performance of the S&P 500.  This is something we would expect because of the portfolio’s exposure to bonds.  However, in years where the S&P 500 did very poorly, such as 2001 and 2008, the 60/40 portfolio was down significantly less compared to its counterpart.  The downside hedging is what I want to focus on.  When one loses 40% of their account values like many investors experienced in 2008, he or she would need to realize a 67% gain to get back to even.  It can take a very long time to recover such substantial losses like we saw in 2008.  Diversification is the main reason why the 60/40 portfolio is worth $272,000 more than the all-stock portfolio during the same time period.

Indices Used: S&P 500, MSCI EAFE, & Barclays Cap Agg

 

Sources: Barclays Cap Agg Indices, Standard & Poor’s Indices, MSCI EAFE, and Bloomberg Markets

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. 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 does not guarantee future results. 

Let’s be honest – we all wish we could have the best of both worlds.  Who wouldn’t want to eat poorly, not exercise and still have that six pack?  The same can go for investing.  Many investors want to achieve 30% returns like we saw in 2013, but they don’t want to lose money in an environment where stocks decline 30%.  This is why The Center builds diversified portfolios for clients using asset allocation.  Asset allocation is not necessarily a “flashy” way of investing, nor does it get a dedicated nightly television show like Jim Cramer.  However, the lack of media attention has no bearing on its potential effectiveness for long-term, disciplined investing.  We understand and can empathize with clients when they are concerned that their accounts may not be participating in a market run up as much as they are seeing in the headlines. However, it is our job as your financial planning team to discuss the reasoning for this discrepancy and to help keep you focused on the long-term plan, which is what ultimately leads to investor confidence.

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.

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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 Raymond James. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. C14-003064

Markets and Office Closed Monday February 17th

 

The Center will be closed on Monday March 17th for President's Day

Losing a Spouse: When to Tackle the Financial Details

 There are few times in life that are worse to make financial decisions than immediately following the death of a spouse. Whether sudden and unexpected or the result of a longtime illness, the loss can be overwhelming. Unfortunately, even during this time of grief, some financial issues need to be addressed. But our advice is to avoid making any major financial decisions right away. Big decisions may be left for weeks or months down the road, once you have had time to deal with your grief and can make rational decisions about your future.

So, what's most important to do right away?

Find Help: Identify a family member or close friend who can help you keep track of things that need to get done.

Make Copies: Get 10 - 20 copies of the certified death certificate to use in settling financial matters.

Call List: 

• The Office: If your spouse was still working, notify his/her employer and get information on health insurance, any life insurance survivor benefits, and retirement benefits.
• Financial Advisor: Contact your financial advisor for help in making sure needed cash is available for immediate expenses. Also, contact your financial advisor and financial institutions where you and your spouse have bank or investment accounts.
• Claims Calls: Contact life insurance and/or annuity companies to notify them for claim purposes. Also contact the Social Security Administration and, if your spouse was a veteran, contact Veteran's Affairs.

While making these contacts is necessary to make sure your financial affairs will be handled going forward, it does not mean that decisions need to be made right away. There will be a lot of forms to be completed and, in some cases, decisions that need to be made about benefits to be paid to you, titling of assets, and beneficiaries to be updated. Your financial planner can be invaluable in helping you navigate this unchartered territory -- from assisting with paperwork to helping you make the most appropriate benefits choices. And most important of all, working with your financial planner will help you determine WHEN it is the right time to make the bigger financial decisions, helping you avoid making mistakes based on emotion and grief.

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.

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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. C14-003511

Center Recognized for Living the Balanced Life

 

From the snacks in our lunchroom to the support of our colleagues, we have a healthy dose of proof that The Center is a fit place to work. The American Heart Association has named us as a Fit-Friendly Worksite for the 7^th year running! The credit for the award and recognition goes to Center team members who routinely make health and wellness a priority in their lives.

It all started back in 2007 when Jen Hackmann came up with the idea of a committee focused on health at our Annual Retreat. Firm leaders loved the idea because it dovetails with our firm vision of creating a worksite environment that encourages and fosters healthier and more balanced living. Our current Health & Wellness Committee is comprised of Jennie Bauder, Gerri Harmer, and Kali Hassinger. Our health and wellness efforts continue to reduce stress, facilitate greater well-being and encourage camaraderie.

We spread the fit mentality by bringing in professional speakers, a personal trainer, and a massage therapist. Quarterly luncheons promote team members to share goals and achievements and increase social interaction and support with colleagues. We currently have 2 teams and have friendly competitions to increase our physical activity. Our Center shopper, Angie Palacios, assists us by purchasing healthier snack options that are available in our lunchroom. Our lunch coordinator, Gerri Harmer, helps us choose healthier options for our staff lunches. To keep the energy levels up, and activity levels high we encourage walking, stretch breaks and flex time.

Center team members are encouraged to contribute ideas for promoting a healthier and more supportive environment. We look for ways to reduce stress in the workplace and provide tools for effectively dealing with stressful situations. Our most important asset and tool we have in promoting a culture of health is our staff. Living the balanced life value is vital to maintaining and improving our work environment and our wellness program.

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A14-003510

The January Barometer

 We’re off to an icy start, both in the weather and the markets. The weather forecast for this year has been cold, cold and colder in Michigan as well as across the country. It seems the temps are below zero more days than not this year.  Is it much the same in the forecast for the equity markets in 2014 or will they continue the sizzle of 2013?  As goes January so can go the rest of the year.  The chart below forecasts the likelihood of this:

As we finish the month of January with the S&P 500 down almost 3.5%, this means that we are more likely to have an overall negative calendar year than a positive one.  Our chances of being up overall this year are less than 42%.  Things could warm up though as the year progresses. Historical performance from February through the end of the years with negative Januarys have more often than not provided positive returns.

So even though the Groundhog saw his shadow predicting six more weeks of this harsh winter, it isn’t necessarily a given that the markets will remain icy. You’re probably familiar with the disclaimer, “Past performance is no guarantee of future returns.” Sticking with your long-term investment strategy amidst the noise and backward-looking statistics is the most important to the long-term achievement of your financial goals!

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.

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Source: http://blogs.wsj.com/moneybeat/2014/01/31/morning-moneybeat-january-slump-is-nothing-to-fret/

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 Raymond James. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market, 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. C14-003065

Center Family Grows with a New Trujillo Addition

 We’re happy to spread the word that It’s A Boy! Center Support Planner Matthew Trujillo and his wife Diane announced the arrival of their new, darling son, Gavin. Matt and Diane tell us they are having fun raising two little boys and look forward to fishing and camping when they boys get a little older.

Gavin Matthew Trujillo was born on December 26, 2013 at 11:00 a.m. He weighed in at 8 lbs. 7 oz. and measured 21 ¼ inches long. Baby Gavin, mom, dad and big brother Luke are all doing well. Gavin is a sweet little treasure that looks like daddy, which is only fair because big brother Luke looks just like Mommy! Congratulations to the Trujillo family!

Tax Prep: New Laws & Recent Changes to Help You File

Here at The Center, we think of tax season as the most magical and exciting part of the year, but you might not see it that way.  As you prepare to get your taxes in order, it is important to discuss some of the new laws going into effect for 2014 and to revisit some changes from 2013. Earlier this month, Matt Trujillo and Nick Defenthaler attended a portion of the University of Michigan tax seminar to brush up on the ever-changing landscape in the world of taxes.  Below are a few key points that they felt may impact you:

Expiring Provisions in 2014

• Deduction for expenses of elementary and secondary school teachers

• Option to deduct state and local general sales taxes

• Tax credit for energy efficient home goods (windows, doors, appliances, furnaces, etc.)

  • Don’t let home improvement sales people lead you to believe that the new product they are trying to sell you will generate a tax credit!

  • Elimination of private mortgage insurance (PMI) deduction

    • Consider checking a website such as Zillow or consult with a real estate agent to get an idea of what your home may now be worth.  With the housing market improving, you may now have greater than 20% equity in your home.  Consult with your lender to determine the best steps to eliminating your PMI. 

Reminder of changes from 2013

In 2013, the Medicare tax changes went into effect for “high income earners” based on certain thresholds:

• Single – Modified Adjusted Gross Income (MAGI) greater than $200,000

• Married Filing Jointly – Modified Adjusted Gross Income (MAGI) greater than $250,000

This tax has two components, one based on wages earned above the thresholds and another based on net investment income above the thresholds.

• 0.9% additional Medicare tax on wages above thresholds

• 3.8% tax on the lesser of total net investment income or the amount of earnings above the thresholds (net investment income consists of dividends, interest, capital gains, rental income, etc.  It does NOT include distributions from qualified retirement plans such as an IRA or 401k)

• Ex.  A married client’s MAGI for 2013 is $300,000.  They also have $20,000 of net investment income.  They are $50,000 over the $250,000 threshold.  However, the $20,000 is less than the $50,000 overage; therefore, the 3.8% tax is based on the $20,000, resulting in an additional tax of $760 ($20,000 x 3.8%). 

Affordable Care Act (Obamacare)

One of the biggest tax talking points for 2014 are the tax ramifications of the Affordable care act or “Obamacare”. A few key take-aways for 2014:

• it's widely known that the penalty (in 2014) for not having insurance is the greater of $95 or 1% of income - this penalty will increase for the next several years to entice people to get health insurance.

• For those individuals or families that are between 100% and 400% of the federal poverty level, you may qualify for a government subsidy to help offset your insurance premium costs.

• In 2014 you will need to use a combination of last year’s earned income, and your projections of this year’s income to figure out whether or not you qualify.

• If you find you are right on the cusp of qualifying for a subsidy, but are concerned about having to pay back the subsidy in full if you underestimate your income ... fear not!  The rules regarding income are a “cliff”, meaning if you are wrong by $1 dollar you are subject to a penalty. However, the maximum penalty for 2014 is $400.

Example: Joe and Jane are 55 with no dependents.  They estimate their income to be $62,000 and that qualifies them for a government subsidy.  However, Joe gets an unexpected bonus at the end of 2014 and his income ends up being higher than 400% of the federal poverty level.  In this scenario, Joe and Jane will be subject to a maximum $400 penalty.

Tax planning can be very confusing, especially since the IRS seems to change the tax code more often than electronics companies push new products.  Please don’t hesitate to contact us if you have questions about your personal tax situation. Although we are not CPAs, we can still help to make your overall financial plan as tax efficient as possible and work together as a team with your tax professional to ensure we are all on the same page.

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.

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. 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. Please note, changes in tax laws may occur at any time and could have 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. All examples are hypothetical. Please consult the appropriate professional if you have questions about these examples and how they relate to your own financial situation. C14-002577

The Business Cycle: A Corporate Checklist

Making a list and checking it twice … Have you ever stopped to make a checklist just to be able to check things off you’ve already done?  I will admit I have done that on more than one occasion.  I love checklists, they keep me focused throughout the day at work and at home.  While corporations utilize checklists, they go by different names like agendas, goals or even vision statements.  Coming out of 2008, many corporations didn’t have a choice as to the items on their checklists.  They had to get financially healthier and fast because they were in the worst spot of the business cycle!  Following are some of the steps many corporations had to follow.

✔ Improve balance sheets by reducing the amount of outstanding debt

You can see the ratio of debt to equity is now below even long term averages.

Source: Standard & Poor’s Compustat, JP Morgan Asset Management

✔ Horde cash to be ready for the unexpected

Companies have nearly doubled the amount of cash on hand over the past decade.

Source: Standard & Poor’s Factset and JP Morgan Asset Management

✔ Buyback stock and increase dividends

Dividends paid are reaching record levels for the past decade and stock buybacks are getting close.

Source: S&P Dow Jones Indices

❍ Increase capital spending

Notice the final item on the checklist has yet to be checked.

Our economy is nearing the expansion/growth phase and this capital spending by companies is usually one of the later occurrences in the business cycle.  So, while I would love to check off the last item on the checklist (almost nothing makes me feel better) doing so could bring us closer to the next stage in the business cycle and closer to possible recession.

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 contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material, 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. Past performance may not be indicative of future results. Dividends are not guaranteed and must be authorized by the company’s board of directors. C14-002179

Community Commitment Hits a High Note

 The Center proudly sponsored Brass in the Hills, a Detroit Chamber Winds & Strings (DCWS) concert performed at Kirk in the Hills Presbyterian Church.  As part of The Center’s 2020 Vision, we are committed to supporting events like this in and around our community. The January 14, 2014 concert featured composer Timothy Kramer’s world premier and included a mix of works for large and small brass ensemble.  The program was a large undertaking because of the extraordinary level of difficulty and obscure instrumentation.  Classical works from past composers shared the spotlight with contemporary pieces written in the last 100 years. 

Composer Timothy Kramer, was the winner of a composition competition sponsored by DCWS, The University of Michigan, and Oberlin College. 

The DCWS was founded in 1982 and has set the standard for chamber music in Detroit.  By bringing together top musicians from the metro area, most of whom are members of the Detroit Symphony Orchestra and Michigan Opera Theatre, DCSW immerses audiences in a chamber music experience that is innovative, entertaining and unsurpassed anywhere in the region.  The Brass in the Hills concert did just that.