Part 2 - A Year of Lessons on Money Matters for Your Children and Grandchildren

When I was just starting out in the investment business, one of my mentors said over and over, “Accumulation of wealth is about time, not timing.”  If you start early and invest appropriately, you don’t need to try to time the market.  Timing the market is a fool’s game and leads to many troubling mistakes.  Most people, even the pros, can’t time the market correctly with a high percentage of success.

The chart below from Fidelity is a simple but dramatic example of accumulating greater wealth by starting early. 

The “Leave it Alone” Approach

There are more steps to starting early. They begin with understanding your risk tolerance and then sticking to it by finding the appropriate portfolio allocation.

Next, set up a dollar-cost-averaging monthly investing discipline in your 401k or IRA program.  And leave it alone!  Obviously, if your employer matches your contributions to a 401k plan, than max that out before any other type of investment program.  A match is the same as free money that will help to build a nest egg. Why not let someone contribute along with you?  

Unbelievably over 30% of participants don’t contribute to their employer plans and miss the match.

This suggestion sounds simple but there will be periods of your life when time seems slow and dull and your investments are not making the headway you expect. People around you are getting wealthier it seems.  You start to think maybe you should be more aggressive.  You will be tempted to change stride and do something different to keep up with crowd.  Don’t mix brains with a bull market!  Occasionally individual markets (like the S&P last year) will trounce a diversified portfolio.  This temporary outperformance by one asset class generally will not persist for more than a year or two. 

Tips for Staying the Course

There may be other periods when the economy or financial markets seem to be falling apart and you cannot believe the extent of losses in markets and even your portfolio.  When you feel regret and loss, it may not seem easy to stay the course.

My advice, when the pain threshold becomes overwhelming at first  breathe and then consider doing the opposite of what your stomach is telling you.

This is when your brain needs to take over.  If you are sad because of losses and feel the need to change direction because, consider buying a little more. When it’s so exciting that you are looking at your portfolio value every day and twice on Saturdays (BTW prices don’t change on Saturdays), slow down your purchases or be slightly more conservative. It’s not always easy to ignore your gut, but historically starting early and staying the course is the advice I give my clients every day.

---

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.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or loss.  

Our New Office Design Attracts Attention

Moving offices last summer meant a lot more than packing up our desks and remembering which way to turn in the morning on our way to work. Taking over a new space turned into a major remodel. We seized the opportunity to reinvent the atmosphere of The Center to reflect our approach and values. We ditched the traditional cream and beige and embraced the colors you see on our website. Natural light and an open floor plan now welcome our clients. The changes were so dramatic we were recently featured in The Wall Street Journal.

It helped that we brought in the design team from dPOPculture. The Detroit company helps clients by, “Breaking out of the cubicle and redefining the workplace.” Without their encouragement, we might not have taken as many risks. From the colors to the quotes on the walls, our new office is designed to make everyone feel comfortable, with particular appeal to our younger clients. Partner Melissa Joy explains:

"With a lot of firms today looking to recruit a younger demographic, I think it’s important not to overlook the power that your office space has to tell your story.”

By now, you’ve probably toured our new space. If not, we invite you to stop by or take this virtual tour.

---

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 web sites or their respective sponsors. Raymond James is not responsible for the content of any web site or the collection or use of information regarding any web site’s users and/or members.

Slightly Off-Center: What can you simply not resist?

There’s a lot you know about our team at The Center … but we’ve dug up answers to some questions you might have never thought to ask.

Sweets especially Chocolate cake –Angela Palacios

Coca Cola –Amanda Toia

My kids’ faces when they smile –Gerri Harmer

Listening to good music –Jaclyn Jackson

Warm Showers –Jennifer Hackmann

Chocolate chip cookies –Jennie Bauder

Baked by Melissa Cupcakes from NYC –Kali Hassinger

A bowl of popcorn drizzled with butter and finished off with a touch of salt –Laurie Renchik

Cheesecake –Matt Trujillo

It’s a good thing I don’t live in Texas where I was born b/c I love Whataburger. Yummy. –Melissa Joy

Junk food and Mexican!  If it’s in the house, it won’t be there for long… -Nick Defenthaler

Fixed Annuities in Retirement

Who doesn’t like a level of certainty in life?  In a world full of unknowns, it’s human nature to feel more secure by having some type of guarantee.  For some, this might mean holding a certain amount of cash in the bank or having your home paid off in retirement, but the topic I’m tackling in this blog is fixed income sources in retirement.  Traditionally this meant a pension, social security, and annuity income.  However, with pension plans now being about as common as seeing a walkman CD player and social security having its own issues, I think it makes sense to explore other options to provide a guarantee for a portion of your retirement income need.

The 50% Fixed Income Rule of Thumb

One of the many questions we discuss with clients when working with them on their financial plan (especially when they are approaching retirement) is how much of their spending goal should be comprised of fixed income sources?  Ideally, we would like to see that percentage around 50%, but every client situation is different.  So if the annual spending goal is $100,000 gross, $50,000 of fixed income sources (social security, pension or annuity income) is desirable with the remainder of income being drawn from a well-balanced, diversified portfolio.  However, depending on the client’s risk tolerance and other assets, it could make sense to have that percentage higher or lower. 

The Bygone Pension Era

Since one of the main fixed income sources for a retiree was a company pension – now virtually non-existent – it’s often up to you. The burden has been placed on the employee to fund their own retirement through a 401k, 403b or other defined contribution plan.  While company matches certainly help the employee, they don’t come close to offering the same lifetime income benefit a pension provides.  As such, it could make a lot of sense to explore the option of utilizing a fixed annuity for part of your retirement need. 

Making Room in your Plan for Annuities

Annuities don’t make sense for everyone and they have rightfully received a bad rap. Many of them are expensive and were “sold” in situations where it just didn’t make sense for the client based on their needs and their personal situation.   However, annuities are around for a reason, because they can fit the need for certain clients for a PORTION of their financial plan.  With so many different options for income, annuities typically place the burden of risk on the insurance company offering the annuity for a guaranteed stream of income.  Having a portion of your spending goal met by a fixed income source, such as an annuity, gives many clients an added layer of peace of mind, knowing that the income stream will be there regardless of what the market is doing. 

In summary, annuities can have a place in your financial plan but like anything financial, they don’t make sense for everyone.  This is our job, as your financial team member, to work with you to see if they have a place in your plan.  Don’t cringe when you hear the word “annuity” like many do. Please have an open mind because they could play a very important role in your retirement!

---

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s Money Centered and Center Connections blogs.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation to buy or sell any investment. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. There are special risks associated with investing in bonds (fixed income) such as interest rate risk, market risk, call risk, prepayment risk, credit risk, and reinvestment risk. Investing involves risk and investors may incur a profit or loss regardless of strategy selected. 

A fixed annuity is a long-term, tax-deferred insurance contract designed for retirement. It allows you to create a fixed stream of income through a process called annuitization and also provides a fixed rate of return based on the terms of the contract. Fixed annuities have limitations. If you decide to take your money out early, you may face fees called surrender charges. If you're not yet age 59½, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. A fixed annuity contains guarantees and protections that are subject to the issuing insurance company's ability to pay for them.

We're Sorry, This Page is No Longer Available

Checkout our current blog posts HERE. See you there!

Efficient Tax Planning is a Year-Round Job

While many of us are so focused this time of year on getting our tax returns done and over with until 2016, year-round tax planning is something that excites us number geeks!  Taxes are something we really can’t control, right?  Not exactly.  While we can’t change the tax rates set by our government, we can work collaboratively with you and your tax professional to make sure certain financial decisions throughout the year ensure that you are being as efficient as possible with your tax situation.  Let’s take a look at a few examples:

Example #1: Ford Stock

Say you have a stock position in Ford that you purchased when the “sky was falling” at $3/share.  Now it is worth much more and you have an unrealized gain of $20,000.  You might not want to part ways with the stock because it has done so well and you don’t want to pay tax on that nice $20,000 gain.  This might make your reconsider: If your taxable income falls within the 15% marginal tax bracket, chances are you would pay very little or possibly ZERO tax on the $20,000 gain.  You could lock in some nice profit on the stock and potentially improve the overall allocation of your portfolio. 

Example #2: Roth Conversion

Let’s take a look at another real life example we see very often.  What if your income this year drops significantly?  Whether it be a job loss, retirement, job change, etc. this is something we want you to keep us in the loop on for pro-active tax planning purposes.  In this situation, a Roth IRA conversion could make a lot of sense if your income this year will fall into a lower tax bracket that you will most likely never be in again.  Paying tax at a much lower rate than you normally would and moving Traditional IRA dollars into a Roth IRA for potential future tax-free growth could be a monumental planning opportunity.   

Sharing Your Tax Returns

These are just two examples of the many factors we are looking for in your financial plan to make sure your dollars are being taxed efficiently.  You can help us do this work by providing us with your tax return early in the year.  This gives us a much better chance to fully analyze your tax situation throughout the year to see if any tax planning strategies could make sense for you and your family.  Many of our clients have now signed a disclosure form allowing us to contact their CPA or tax professional directly to obtain copies of returns and to discuss tax-planning ideas.  This saves you, as the client, the hassle of making copies or e-mailing your return to us – we are all about making your life easier! 

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s Money Centered and Center Connections blogs.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Raymond James does not provide tax advice. You should consult a tax professional for any tax matters. C15-004265

Slightly Off-Center: Your best beauty secret?

There’s a lot you know about our team at The Center … but we’ve dug up answers to some questions you might have never thought to ask.

Exercise is the Fountain of Youth! –Angela Palacios

Stay Out of the Sun –Amanda Toia

Stay optimistic, stay fit, have fun –Dan Boyce

Don’t stress and be happy –Gerri Harmer

Drink tons of water –Jaclyn Jackson

Clean ears is a must –Jennifer Hackmann

Less is more –Jennie Bauder

Fanny Packs are always in style and can complement any outfit –Kali Hassinger

7 hours of consistent sleep every night –Matt Chope

I have to shower twice a day – once in the morning to help myself wake up and once at night to relax and unwind –Nick Defenthaler

Don’t try too hard! –Sandy Adams

This is all natural – bam! –Tim Wyman

Embrace yourself – you are beautiful no matter what –Melissa Parkins

Where to look for Bond Yield

Finding yield has become a struggle for investors today.  At the beginning of 2014, most experts were expecting the yield on U.S. 10-year Treasuries to end the year well above 3%.  However, they ended up going down from where they started the year and finished at 2.2% (and are even lower today).  Many were left scratching their heads as to why this could have happened.  However, when you look at the high quality government bond options around the would you can start to understand why. It’s all relative. 

Mapping 10-year Government Bond Yields

First of all, not much of the world is considered “high quality”.  The turquoise countries in the graphic below are the only countries that receive the coveted AAA rating.  This includes Canada, Australia, Singapore and much of Europe.  There are a few countries in the AA rating, or bright green color coding camp, which is where the United States falls. 

Second, look at the yields these countries pay.  Of the AA and AAA rated countries, U.S. Treasuries at 2.2% have the most attractive rates for the credit quality and also perceived quality by others.  Would you want to buy 10-year Chinese government bonds for only 1.5% more yeild over the U.S. (3.7% versus 2.2%)?  The answer is generally no with the bulk of your fixed income assets.

Many governements, institutions and pension funds agree.  So U.S. bonds are aggressively bought when their rates go up, even a little, by institutions and governments because they are a safe haven with the best relative yields out there. This buying then drives the rates right back down again.  The blue bars on the chart below show month-by-month how many trillions of U.S. Treasuries are owned by foreign governments.  You can see as tapering occurred (indicated by the green boxes in $’s), the U.S. pulled back on the amount of bonds it was buying, then yields would spike (see the purple line) and foreign governments would buy.

Now, with Europe embarking on its own bond buying program, yield curves and thus rates in Europe are going to come down even further. This is likely to make this phenomena even more pronounced.  For at least the near term, it is likely we will be stuck with lower rates here in the U.S. and around the world as these trends persist.

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.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of [insert FA name] and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. There are special risks associated with investing in bonds (fixed income) such as interest rate risk, market risk, call risk, prepayment risk, credit risk, and reinvestment risk. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices generally rise. International investing involves special risks, including currency fluctuations, different financial accounting standards, and possible political and economic volatility. C15-003427

Happy Centerversary!

Bringing a combined 37 years of experience to The Center, we are grateful for the contributions of Tim Wyman, Matthew Chope and Amanda Toia. While we wanted to give them a little recognition as they reach their Centerversaries, we also wanted to know what the anniversaries meant to them.

Fifteen years ago now Managing Partner Tim Wyman joined our team. He not only brings leadership to The Center, but he keeps our team laughing. When we asked him about hitting the 15 year mark, he called it a wonderful milestone:

Joining The Center in 1999 was clearly the best professional decision I have made. I am very grateful and thankful for what we have collectively built here at The Center for the benefit of clients and the great team that serves them. My work is extremely rewarding and important in my life and it is a true pleasure and privileged to be a member of The Center!  

Center partner Matthew Chope joined Center for Financial Planning, Inc. in 1996. Of his 18 years with The Center he says:

“It’s been like a dream career for the most part. The only thing better than these choices, as I look back, was the staff that found a home here over that time and the clients that gave us an opportunity to serve them.  I feel lucky and privileged each and every day.”

And 4 years ago, Client Service Manager Amanda Toia joined our team. Now that we have her, we can’t imagine how we ever managed without her!

“I work at the greatest firm with the greatest co-workers and clients! I have learned somuch in the last four years.”

Important Information for Tax Season 2014

As you prepare for the 2014 tax season, here is some information that you may find beneficial.

Our team is available to assist you with your tax reporting needs. Please don’t hesitate to reach out with questions. We are also happy to coordinate with your CPA or tax preparer on your behalf if you make this request.

2014 Raymond James Form 1099 mailing schedule

• 2/17- Mailing of original Form 1099s
• 3/2 - Begin mailing delayed and amended Form 1099s
• 3/16 - Final mailing of any remaining delayed original Form 1099s

Please note the exceptions immediately below:

Delayed Form 1099s

In an effort to capture delayed data on original Form 1099s, the IRS allows us to extend the mailing date until March 16, 2014 for clients who hold particular investments or who have had specific taxable events occur. Examples of delayed information include:

• Income reallocation related to mutual funds, real estate investment, unit investment, grantor and royalty trusts; as well as holding company depositary receipts
• Processing of Original Issue Discount and Mortgage Backed bonds
• Cost basis adjustments

Amended Form 1099s

Even after delaying your Form 1099, please be aware that adjustments to your Form 1099 are still possible. Raymond James is required by the IRS to produce an amended Form 1099 if notice of such an adjustment is received after the original Form 1099 has been produced. There is no cutoff or deadline for amended Form 1099 statements. The following are some examples of reasons for amended Form 1099s:

• Income reallocation
• Adjustments to cost basis (due to the Economic Stabilization Act of 2008)
• Changes made by mutual fund companies related to foreign withholding
• Tax-exempt payments subject to alternative minimum tax
• Any portion of distributions derived from U.S. Treasury obligations

What can you do?

You should consider talking to your tax advisor about whether it makes sense to file an extension with the IRS to give you additional time to file your tax return, particularly if you held any of the aforementioned securities during 2014.

If you receive an amended Form 1099 after you have already filed your tax return, you should consult with your tax advisor about the requirements to re-file based on your individual tax circumstances.

Additional information can be found at http://www.raymondjames.com/taxreporting.htm.

We hope you find this additional information helpful. Please call us if you have any questions or concerns during tax season.

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.