3 Reasons Discretionary Investment Management could be Right for You

Contributed by: Angela Palacios, CFP®

We all have busy lives. Whether you are getting down to business or enjoyingyour retirement to the fullest who wants to worry about missing a call from their advisor because something in their portfolio needs to be changed? Perhaps cash needs to be raised to meet that monthly withdrawal to your checking account so you can keep paying your traveling expenses. Or money has to be deposited to your investment account, if you are still saving, and needs to be invested. Regardless of your situation, many investors find it difficult to make time to manage their investment portfolios. We argue this is far too important to be left for a moment when you happen to have some spare time. 

What is Discretionary Management?

It is the process of delegating day-to-day investment decisions to your financial planner. Establishing an Investment Policy Statement that identifies the guidelines you need your portfolio managed within is the first and arguably the most important step. Investment decisions are then made on your behalf within the scope of this statement. It is kind of like utilizing a target date strategy in your employer’s 401(k). You tell it how old you are and when you are going to retire and all of the asset allocation, rebalancing and buy/sell decisions are made for you.

3 reasons this can be a suitable option for investors:

1. Frees up your time to do what you love most. Time is the resource we all struggle to get our hands on. Need I say more?

2. Markets move quickly and sometimes portfolios must also to respond. Changes can happen in a timely fashion whether you are within reach on your cell phone or not.

3. May reduce the potential for poor investor behavior. Let those not emotionally charged by fluctuations in the market make decisions on your behalf.

If you have questions on whether or not this is right for you and your portfolio don’t hesitate to contact us.  We’d be happy to help!

Angela Palacios, CFP® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.

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The information contained in this blog 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 Angela Palacios and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. 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.

Millennials Matter: The Importance of a Budget

Contributed by: Melissa Parkins, CFP®

No one likes making a budget. It takes time to make, time to maintain, and it can provide some depressing information. All this considered, you still SHOULD make a budget! Actually, no matter your age or where you are in life, a budget is a critical piece to your financial plan. A financially successful future can depend on your actions today, and budgeting is an effective way to keep your actions in check.

Why budget:

A budget helps you best plan for your short term goals (like a vacation, or paying down student loans) and long term goals (like a home purchase, or a comfortable retirement). First you lay out your goals with specific amount and timeline, then you track your spending habits and monitor your progress, and before you know it, your dreams can become a reality! I know, easier said than done. But in all seriousness, a budget is one of the best ways to keep yourself accountable AND focused so that your goals can be met. It also forces you to realize your bad spending habits (the depressing part of any budget) and then work towards correcting them. First know what you earn and what you need to spend to live then determine how much you need to save to reach your goals. As you’ve heard many times before, don’t spend money that you don’t have! Especially if you already have unwanted debt (like student loans!). Even if you are currently comfortable with your income and spending each month, creating a budget is still helpful to identify unnecessary spending and redirect those funds to your priorities. I mean, do you really need to be spending $100 a month on lattes?! A budget will show you what little guilty pleasures actually add up to in the long run, and it may surprise you.

How to setup a budget:

Taking the time to start your budget is the hardest part.

• First, collect your paystubs and any other regular monthly income statements to determine the amount that comes in each month.

• Next, collect bank and credit card statements, and other monthly bills to figure out your fixed expenses, necessary expenses, and unnecessary spending.

• Compare multiple months of statements to determine on average how much you spend monthly.

• Break down your spending into categories (living expenses, household bills, debt payments, groceries, eating out, shopping, savings etc.).

• Analyze your spending categories to see which areas are your “bad habits” and you’d like to consciously make improvements.

• Review your goals and make sure you are appropriately saving for them.

Once you have done all this, you now have your bottom line, and it is just a matter of sticking to it. The way you go about maintaining and tracking your budget is a matter of personal opinion. Some prefer using an excel spreadsheet. Others find online tools such as Mint, Level Money, or You Need a Budget to be most helpful. There are also alternatives to the traditional budget like utilizing multiple checking/savings accounts at the bank to organize your spending and savings (opening different savings accounts and titling them for different goals like emergency fund, travel, etc. or having separate checking accounts for necessary spending and discretionary spending).

It doesn’t matter how you do it, you just need to find the way that works best for you. Creating and sticking to a budget involves discipline, and maybe some sacrifice at times, but it will break the bad habits and replace them with good spending and savings habits. At the end of the day, a budget can help you eliminate your debts and build your net worth quicker. If you have dreams of luxury purchases, traveling the world, paying down student loans quickly, or just having a happy retirement, you need a budget! It can help you reach your goals quicker and easier.

Melissa Parkins, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.®

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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 Melissa Parkins and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

No Such Thing as too much Security!

Contributed by: Raya Chope

Raymond James has rolled out a new feature for Investor Access called Enhanced Authentication. This is a new, free option that allows clients to add another layer of security to Investor Access accounts.

How Enhanced Authentication Works

If you have ever logged into your Investor Access account from a new, unrecognized device you may have been prompted to answer a few security questions. This new feature replaces security questions with a one-time text message or voice call that includes an authorization code. It’s not until the code is received and entered that you’re able to gain access to your Investor Access.

How to Get Started

To enable Enhanced Authentication, follow these simple steps:

• Log in to Investor Access from a trusted device

• Select the Account Services tab

• Select the Password & Security sub-tab

• Click the bubble at the bottom of the page to enable Enhanced Authentication

Once the feature is enabled, you will be prompted to choose either a mobile device or a landline from the phone numbers we have on file. If a mobile device is selected, you have the choice to receive the authentication code via text message or voice call. If a landline is selected, a voice call is the only option to receive the code. If you do not see your corresponding phone numbers or would like to add another one to our files, please contact the office.

If you’re new to Investor Access, get started by visiting our webpage and clicking on the Investor Access tab at the top.

Raya Chope is a Client Service Associate at Center for Financial Planning, Inc.®

Elder Care Planning for Single Older Adults

Contributed by: Sandra Adams, CFP®, CeFT™

As I have written about for many years, having a plan in place for one’s aging years is important. Making sure that there is a plan for future housing, future care, having legacy plans in place, and having the proper estate planning documents procured so that someone is set to handle things in the case of incapacity is vital. For aging couples, it is important that these plans are discussed and ready; but in a worse-case scenario, when plans haven’t been solidified, at least the spouse is in place to help provide support and clean up the pieces, even if the situation isn’t ideal.  But what happens if planning hasn’t been done for a single older person, one who might never have been married and might have no children? One who might not have any close or living relatives, then what?

I have found that many single older adults think that planning for their aging years is very simple. They believe because it is “just them,” not much planning it is involved. Quite to the contrary, because it is “just them,” more planning is actually needed. There are not any default family caregivers or family living situations to rely on. The estate planning area can be a special area of challenge.

For single older adults with possibly no family to name as durable powers of attorney or successor trustees on Trusts, what are possibilities?

• Consider naming a close family friend that you trust.

• An estate planning attorney can serve as a general power of attorney or executor of an estate if there is no other suitable person to name.

• An estate planning attorney or family friend along with a corporate Trustee can be named as a successor trustee of a Trust (i.e. broker dealer of the financial advisor you work with, if that is appropriate and the fees are reasonable).

• A Geriatric Care Manager might be considered as a power of attorney for health care/patient advocate if there is no other suitable person to name (they have the appropriate background in nursing and social work to make the health care related decisions on your behalf).

Elder Care planning is important for everyone, but especially important for older single adults. If you haven’t started planning and this applies to you, start the conversation with your financial planner today.

Sandra Adams, CFP® , CeFT™ is a Partner and Financial Planner at Center for Financial Planning, Inc.® Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. 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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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 Sandra Adams and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Unpacking Incentive Stock Options

Contributed by: Matt Trujillo, CFP®

What is an ISO?!

Some of you reading this might have been granted Incentive Stock Options (ISOs) in the past or perhaps this is something that your employer recently started to grant you. In either case it never hurts to get a refresher on what they are and some of the nuanced planning opportunities that go with them. ISOs are a form of stock option that employers can grant to employees often to reward employees' performance, encourage longevity with the company, and give employees a stake in the company's success. A stock option is a right to buy a specified number of the company's shares at a specified price for a certain period of time. ISOs are also known as qualified or statutory stock options because they must conform to specific requirements under the tax laws to qualify for preferential tax treatment.

The tax law requirements for ISOs include*:

• The strike price—the price you will pay to purchase the shares—must be at least equal to the stock's fair market value on the date the option is issued.

• To receive options, you must be an employee of the issuing company.

• The exercise date cannot be more than 10 years after the grant.

*Special rules may also apply if you own more than 10 percent of your employer's stock (by vote). Nonqualified stock options, another type of employee stock option, are separate from ISOs therefore receive different tax treatment.

Once you have been granted a stock option, you can buy the stock at the strike price even if the value of the stock has increased. If you choose to exercise a stock option, you must buy the stock within the specific time frame that was set when the option was purchased or granted to you. You are not required to exercise a stock option.

Your options may be subject to a vesting schedule developed by the company. Unvested options cannot be exercised until some date in the future, which often is tied to your continued employment. The stock that you receive upon exercise of an option may also be subject to a vesting schedule.

Assuming that a stock option satisfies the tax law requirements for an ISO, preferential tax treatment will be available for the sale of the stock acquired upon the exercise of the ISO, but only if the stock is held for a minimum holding period. The holding period determines if a sale of the stock you received through the exercise of an ISO is subject to taxation as ordinary income or as capital gain or loss.

To receive long-term capital gain treatment, you must hold the shares you acquired upon exercise of the option for at least:

• Two years from the date you were granted the option, and

• At least one year after the date that you exercised the option

So whether this is something new to you or something you’ve been handling for a long time, feel free to contact us with questions regarding the nuances around Incentive Stock Options.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc.® Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This information does not purport to be a complete description of Incentive Stock Options, this information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investing in stocks always involves risk, including the possibility of losing one's entire investment. Specific tax matters should be discussed with a tax professional.

Qualified Charitable Distributions: Giving Money while saving it

Contributed by: Nick Defenthaler, CFP®

Late last year, the Qualified Charitable Distribution (QCD) from IRAs for those over the age of 70 ½ was permanently extended through the Protecting Americans from Tax Hikes (PATH) Act of 2015. Previously, the QCD was constantly being renewed at the 11th hour in late December, making it extremely difficult for clients and financial planners to properly plan throughout the year. If you’re over the age of 70 ½ and give to charity each year, the QCD could potentially make sense for you. 

QCD Refresher

The Qualified Charitable Distribution only applies if you’re at least 70 ½ years old. It essentially allows you to donate your entire Required Minimum Distribution (RMD) directly to a charity and avoid taxation on the dollars coming from your IRA. Normally, any distribution from an IRA is considered ordinary income from a tax perspective, however, by utilizing the QCD the distribution from the IRA is not considered taxable if the dollars go directly to a charity or 501(c)(3) organization.    

Let’s look at an example:

Sandy, let’s say, recently turned 70 ½ in July 2016 – this is the first year she has to take a Required Minimum Distribution (RMD) from her IRA which happens to be $25,000. Sandy is very charitably inclined and on average, gifts nearly $30,000/year to her church. Being that she does not really need the proceeds from her RMD, but has to take it out of her IRA this year, she can have the $25,000 directly transferred to her church either by check or electronic deposit. She would then avoid paying tax on the distribution. Since Sandy is in the 28% tax bracket, this will save her approximately $7,000 in federal taxes!

Rules to Consider

As with any strategy such as the QCD, there are rules and nuances that are important to keep in mind to ensure proper execution:

• Only distributions from a Traditional IRA are permitted for the QCD.

• Employer plans such as a 401k, 403b, Simple IRA or SEP-IRA do not allow for the QCD

• The QCD is permitted within a Roth IRA but this would not make sense from a tax perspective being that Roth IRA withdrawals are tax-free by age 70 ½ *

• Must be 70 ½ at the time the QCD is processed.

• The funds from the QCD must go directly to the charity – the funds cannot go to you as the client first and then out to the charity.

• The amount you can give to charity through the QCD is limited to the amount of your RMD.

• The most you can give to charity through the QCD in a given year is $100,000, even if one’s RMD exceeds that amount.

The QCD can be a powerful way to achieve one’s philanthropic goals while also being tax-efficient. The amount of money saved from being intentional with how you gift funds to charity can potentially keep more money in your pocket, which ultimately means there’s more to give to the organizations you are passionate about. Later this month, we will be hosting an educational webinar on philanthropic giving – click here to learn more and register, we hope to “see” you there!

Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

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 blogs.

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Nick Defenthaler and are not necessarily those of Raymond James. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Webinar in Review: Summer Investment Update

Contributed by: Angela Palacios, CFP®

As summer heats up so have the headlines! From Brexit to the Election there has been much for investors to digest so far this year. On Thursday, July 28th, Melissa Joy, CFP®, Partner and Director of Wealth Management, and Angela Palacios, CFP®, Director of Investments, hosted a webinar to update investors on the economy, stocks, bond, and all the exciting headlines.

We started the year with all eyes on the Federal Reserve Board as investors wondered when the next interest rate hike would occur.

They have been watching several data points on the economy to assist them in making this decision, including:

• Unemployment and Wage Inflation

• Inflation (Core Consumer Price Index)

• Gross Domestic Product Growth

On all points there hasn’t been enough strength shown yet by the economy for the Fed to justify raising rates further since the last rate hike in December.

The election cycle is now in full swing. Melissa discussed how Brexit, the United Kingdom vote to leave the European Union, and the election here are very telling of a constituency that is tired of the status quo. We expect headlines for Brexit to make waves in the market over the next couple of years, similar to what we remember from the Greek debt crisis a few years ago, as deadlines approach and negotiations of the separation ramp up. 

While politics here in the U.S. will cause some very interesting negative headlines in the next few months, election years overall are usually some of the better performing years (past performance is not a guarantee of future results) despite this. 

Focusing on interest rates we shared our thoughts on record low rates both here in the U.S. and around the world. Low to negative rates are becoming the trend around the world making high quality U.S. government debt extremely attractive to investors outside the U.S. This anomaly is keeping our rates very low despite a Federal Reserve Board that is slowly trying to increase rates.

While interest rates are low, many investors are turning more and more to equities to seek out yield and returns; however, it is important to remember that bonds have the potential to provide needed preservation even at these low rates during stock market corrections. When markets are comfortably up as we have seen this year investors often become complacent and don’t pay attention to their portfolios. Market highs present investors with some great opportunities to tune up their portfolios.

Melissa offered her checklist of what to do when markets are up:

• Make sure you have future cash needs set aside.

• Rebalance your portfolio.

• Consider charitable gifting.

• Reflect on your investment perspective.

• Make sure your plan is on track.

If you want to learn more on any of these topics check out the webinar recording below. If you still have questions, don’t hesitate to reach out to Melissa or Angela for further discussion.

Angela Palacios, CFP® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.

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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 Melissa Joy and Angela Palacios and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Introducing our Newest Team Member!

Contributed by: Center for Financial Planning, Inc.

Exciting things are happening this summer at The Center! We are thrilled to welcome our newest team member, Lauren Adams, as our brand new Director of Client Services. Here at The Center, we are committed to providing an exceptional level of service to our clients, and we are continuing to invest in this area by bringing Lauren aboard. And that’s not all! As one of her first responsibilities, Lauren is tasked with further growing our client service team by hiring two new Client Service Associates. We hope to be able to introduce them to you here soon.

Lauren said she was eager to join The Center after finding us on Crain’s list of “Michigan’s Cool Places to Work.”* Originally from Michigan, Lauren worked as a stock analyst and manager in Chicago for Morningstar for several years while also earning her MBA from the University of Chicago Booth School of Business and CFA®, Chartered Financial Analyst®, designation in the evening. She’s excited to put these credentials to work helping further improve The Center’s operations and contributing to our investment process. 

Managing Partner Tim Wyman comments, “While working at Morningstar Lauren held a variety of roles that makes her uniquely qualified in this new Senior Manager position here at The Center. Most importantly, Lauren passionately embraces our firm values such as professionalism, a strong work ethic, and a desire to serve others.”

Lauren and her husband Chris decided to return to her home state of Michigan, but not before spending one year traveling the world and visiting over 50 countries (they were inspired by Jim Rogers’s book Adventure Capitalist). If you get the chance to speak with Lauren, be sure to ask her about her favorite countries!

*annual ranking of Michigan’s best work environments based on factors such as benefits, policies, perks, and engagement as measured by employee and employer-based surveys (awarded for 2014)

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Checkout our current blog posts HERE. See you there!

Recent Mortgage Rate Decline may offer Financial Opportunities

Contributed by: Nick Defenthaler, CFP®

Over the past month, interest rates on mortgages have declined significantly, posing the question to many clients if it would make sense for them to refinance or potentially accelerate a new home purchase that they may have been considering. Many factors cause mortgage rates to decline, but the most recent cause can primarily be attributed to the UK leaving the European Union, dubbed “Brexit” (click here  to read our recent blog on this topic and don’t forget to check out our investment focused webinar as well on 7/28!). Typically, when there is a surprise in the markets or volatility spikes, there is a “flight to safety” by investors and bonds are purchased. Bonds are a bit tricky at times to understand in the sense that when bond prices rise, interest rates usually fall. This “flight to safety” caused the yield on the 10-year Treasury bond to hit an all-time low of 1.36% on July 5th. Mortgage rates typically have a direct correlation to the 10-year Treasury bond yield so when you see those rates decline, usually mortgage rates will follow suit. 

Here are some items to consider if you’re thinking of taking advantage of these once again, historically low mortgage rates:

• How long do you plan on staying in your home? There is usually a cost to refinancing and we’ve found that you typically need to live in your home for at least two to three years after the refinance to justify the fees lenders will charge.

• Lowering the payment isn’t always the best option – consider reducing the term on the loan even if it means the payment will slightly increase. Being mortgage free in retirement is a beautiful thing!

• If you have an outstanding second mortgage or home equity line of credit, consider combining them into one loan with a fixed interest rate.

• If you have an adjustable rate mortgage (ARM), now could be a great time to move to a fixed rate to avoid payment fluctuations in the future.

• Consider a modest cash-out refinance to pay down high interest rate loans or use as a low interest rate option to fund higher education costs.

• Don’t make an impulse home purchase just because mortgage rates have declined – the cost of rushing into a major decision like buying a home can cost you far more than the savings you’d see by having a very low mortgage rate.

As with any major financial decision, such as a refinancing or a new home purchase, we encourage all of our clients to reach out to us before making a final decision so we can ensure it is in their best interest for their own personal situation. Please don’t hesitate to reach out if you’d like to talk through your options and see if changing your mortgage rate or term aligns with your overall financial plan and goals. 

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 blogs.

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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 Nick Defenthaler and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investments mentioned may not be suitable for all investors. Prior to making an investment decision, please consult with your financial advisor about your individual situation.