XYZ Strategy #2

XYZ Strategy #2Take control of things

“Are you talking about legal documents?” you may ask… as many don’t have them yet.  After all, that’s something your parents need, but not you… right?  No!  There are several reasons to have some key, basic legal documents in place.  While it’s true that some of this is based on personal preference, there are still some common needs that apply to all of us.  Below are some thoughts that may help you in planning – but you should always seek out proper legal advice before implementing any strategy that is involved, especially end-of-life issues.  Believe it or not, you can control distribution of your hard earned savings from the grave (or hospital bed).

1) Name your beneficiaries – while you can.  And keep them updated!  Did you realize that accounts and policies which require beneficiaries often supersede a Will and pass outside of your estate?  That means whoever you name as beneficiary will receive the $’s.  And it’s true that many people fail to name them… and their reasons cited as to why are often weak.  So, make sure you name beneficiaries (and contingent beneficiaries) on your retirement accounts, IRAs, life insurance policies, etc.  In addition, you can often name other accounts as “TOD” accounts which are authorized to “Transfer on Death” when one occurs.  After you do this, remember to keep your beneficiaries updated as life goes on…

2) Protect your kids – from hurting themselves.  Families today often fail to realize one of the most basic truths about their children:  minors don’t know how to manage wealth.  When we were young, we hadn’t developed sound spending and savings principles that we later leaned out of necessity, or from years of life experiences.  But in adolescence most follow the crowd, spend on impulse, and waste $’s on unneeded things.  This can wreck a hard-built plan pretty fast.  Remember, as a child we didn’t think about our future because our parents took care of everything.  But when the parents are no longer around, it can be difficult to manage life – and to pay the bills.  Work with a competent attorney who can use a Will or even a trust to set up parameters that benefit your family.  You can create “sprinkling clauses” to pass wealth on to children at specific ages instead of all at once.  You can name that trusted guardian to raise your children like you would.  And yes, you can even leave your baseball card collection to that charity you trust.

3) Let others help you – when you can’t help yourself.  Often overlooked, make sure you have named someone to help out when you aren’t able to make decisions… health, life and yes, even investment decisions.  If you become incompetent, you need a power of attorney in place that gives authority to a named individual to act on your behalf, and to sign for you (under certain circumstances).  Yes, this even applies to your spouse.  Make sure you check into this and have the proper documents in place before something happens… even before leaving the country or traveling to that remote area where no one can reach you by cell!

XYZ Strategy #1

As a kid, my parents jokingly shouted “XYZ” if I ever exited the bathroom without zipping up my pants!  Let’s be honest, sometimes we get going so fast that we forget some of the most basic, fundamental needs we have.  As a Gen-X (ages 38-48) or a Gen-Y (ages 19-37) investor, did you know that you are a part of a group that boasts one of the highest earnings power?  Maybe you are moving along so fast that you need to stop to reconsider your plans for the future – something that seems way off, but in reality something that may come quicker than you realize.  Doing so can help you Zip-up (take care of) some essential needs in regard to your financial hopes and plans… these are the XYZ Strategies.

XYZ Strategy #1Develop a strong, sound savings strategy

Many Gen-X investors are doing this.  Many Gen-Y investors are starting (or have thought about it).  And some of you have an inheritance you unexpectedly received, providing a solid foundation on which to build.  Regardless of your situation, a key need for you is to develop a disciplined investment strategy.  This is how you accumulate net worth over time, and also build up what you need for retirement.  So what defines a strong savings strategy?  Here are some five basic criteria to consider.

1) Just begin – if you haven’t already, you need to start saving.  Do you realize it is much more difficult to save later on in life than it is today?  This, not to mention the opportunity cost of forfeited compounding, inflation, etc. are reasons to start today.  Plus, the math tells us that you shouldn’t be required to put aside as much now compared to waiting to start years later (when you get that pay raise, after you get married, once the car is paid off, etc.) saving for that goal.

2) Go automatic – systematic bank drafts work best and take the emotions out of investing.  There’s no second guessing and you don’t miss $’s that aren’t in your checking account.  If you get paid on the 15th and 30th each month, set up drafts for the 16th and 31st each month.  Before you realize it, the years pass and you could have significant accumulated savings that you funded without the pain of writing a check each month, or wondering if “now” was the right time to invest.  Dollar cost averaging is a proven, sound investment strategy.

3) Stick to your guns – in other words, don’t stop your plan… not when your car breaks down, not when the A/C unit stops working or the roof needs repair, not even when you have unexpected medical expenses.  That’s what your emergency fund is for.  Instead, benchmark that you won’t stop saving – and that you will even increase the amount you save every year.  When is the best time for this?… usually after your annual employment review (or bonus).

4) Spread it out – while you can’t argue with the tax-advantages of saving in a company retirement plan (401k, SIMPLE IRA, etc.) or a Roth IRA (tax-free growth over time), it is still important to diversify your savings.  Sound investors will also have taxable accounts (individual, joint, TOD, etc.) and disciplined families will have accounts set up for their children (UTMA, 529, ESA, etc.).  Not putting all your eggs in one basket doesn’t just apply what you invest in, but also to the type of accounts you are funding over time.

5) Ask for help – set aside the pride and work with an advisor.  It’s a sound way to receive professional, objective advice and it’s never a bad idea to have a second set of eyes on things.  Plus, they look at investments most every day – it’s what they are paid to do.  Let’s face it – life happens and before we know it time has slipped by, so enjoy the weekend and let your advisor worry about the investments.

Getting Back on Course

On a camping trip with the kids this past weekend, my daughter stayed in the woods to cut down a tree branch… my friend and his kids continued hiking back to our campsite.  When she had finished, we picked up our gear and began our trek to catch up with everyone else.  But unaware, I took a wrong turn and led us deeper into the woods.  After about ten minutes of hiking, it was apparent to her that we were lost.  A few minutes later she started to tear up and become afraid.

Having hunted in these same woods over fifteen years I knew we were safe.  My frustration was that I had led us in the wrong direction… and I knew it would take much longer now to get back to camp.  Her shoes were wet, her spirit beginning to break, and all she wanted was to be back with her friends (and to eat lunch).  Can’t say I blame her… as an eight year old (like her) I remember getting lost in my Mamaw’s neighborhood one time.  The word “fun” has never been used to describe that experience. 

Now, in the woods with my daughter, I began to experience a different fear… “what if” my six year old son had turned back for us and not continued on with my friend and his kids?  JB could easily assume that my son had stayed with me and would likewise be unaware anything was amiss.  That meant my son could be lost in the woods by himself… perhaps even feeling like I did as a lost child?  And to make matters worse, I left my cell phone in the tent, so there was not any quick phone call back to make sure all was okay (or to get a simple four-wheeler ride back to camp).

The mind began to run… and in a short while I was starting to feel a little panic like my daughter.  I had no control over my son’s situation and that is difficult for a parent.  But that’s when a simple thought landed.  I had a choice… to feed my daughter’s fear, or to turn our current situation into a learning experience.  We stopped, I said a quick prayer for my boy (and for us) and then began to point out signs to her.  Observing what was around us, we rather quickly found our way out of the woods and onto a familiar trail.  Then I let her take over and she eventually led us out to the road.  From there, we were back at camp within a few more minutes only to find her brother roasting s’mores over the campfire.

Thinking back on this experience I am reminded how easy it is to get caught up in hype, fear, or chasing trends with our investments that the “noise” around us soon causes us to lose focus.  We become distracted, and before long realize we aren’t following our plan.  We have taken a wrong turn and are no longer on course… or we simply become afraid, which can lead to emotional decisions that aren’t good for us.  There is much value in learning to stop and observe before we take action.  Through this practice we can make better decisions to get us back on track, and it’s how my daughter learned to get out of the woods!

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Obamacare and the Markets

What will the Affordable Care Act do to the markets?  Although no one can tell you with accuracy, some sources believe Obamacare may slow the pace of growth in the US.  No matter where you look, you are likely to find contradictory views being expressed.  In his latest commentary, economist Brian Wesbury explains why national health care reforms may not bring on economic or market armageddon… so we thought you may like to listen.  To do so, click on the link below for the latest First Trust video:

Wesbury 101 – Obamacare

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Thoughts on Investing…

Earlier this week I held an enrollment meeting for a 401(k) retirement plan and several new employees attended.  Most were young, in their early to mid-20’s.  As the meeting progressed, several good questions were asked about the plan.  Then as we discussed investments in the plan, and fluctuations in a typical market cycle, several of the younger employees began to question if investing was a good thing.  That’s when one employee, just re-hired at age 61, spoke up and shared some of his experience with investing.  He told them, “In 2001 and 2002 I lost half of my account, but I kept investing and within 2 years I was back at my highest account value plus some.”  A few of the younger heads popped up and began to listen closer to him.  He also shared a similar experience in 2008.  He finished by telling them to not only get into the plan and “save now” while they were young, but to “stick with it” even when times get rough.  He told them “it will pay off in the long run.”  I added some additional thoughts, but really didn’t need to say much to his wisdom – the point was made. 

On the drive back to the office I began to think about the meeting.  I thought about a friend who calls every time the market goes through a large correction and says “it’s a good opportunity to buy while the prices are low.”  He’s in his 30’s and understands that time is still on his side.  He also doesn’t panic and keeps a good perspective on things as the market gyrates.  Disciplined investing does take time.  It also can certainly have its pain along the way.  Yet as you move through these experiences you learn, and over time can grow.

 I’m reminded of a verse that says, “For the moment all discipline seems painful rather than pleasant, but later it yields the peaceful fruit of righteousness to those who have been trained by it.” (Heb. 12:11)  In much the same way, this can be true with investing.  For the moment (in the short term) we sometimes feel pain… yet if we stick to our plan, we often may see a good yield down the road (in the long term).

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The Upcoming “Employer Mandate” of Obamacare

Below is a link to a good video from the Wall Street Journal Live that may be helpful to understanding more about the “employer mandate” of Obamacare.  We’d encourage business owners to view this and let us know your thoughts.  It’s becoming clearer that small businesses could face penalties under this new healthcare provision for 2014.

WSJ Live: Small Businesses Growing Fearful of Obamacare

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Long-term perspective: Essential for athletics and investing

Good insight from Steve Holman of Vanguard that gives a view on maintaining a long-term perspective and the importance of delaying gratification.  He also reminds us that “doing the right thing means having clear goals, choosing the right balance… and investing for the long term.”

Long-term perspective: Essential for athletics and investing

If you’re looking for insight on investments and personal finance, you could do a lot worse than asking a long-distance runner.

Vanguard is a second career for me. After college, I had the great fortune to compete as a professional distance runner. Yes, there are such things as professional distance runners; however, our rewards tend to be more spiritual than financial. After participating in the Barcelona Olympics for the United States in 1992, and competing across the globe as a world-ranked miler for almost ten years, I “retired” at the age of 31.

Whether you’re 31 or 65, retirement isn’t an easy adjustment. Many of us experience a profound sense of nostalgia and melancholy for our former lives. We worry about what lies ahead. Like many retirees, it took me a while to figure out my next step. Ultimately, I decided to go to business school.

While I had been a Vanguard client for a number of years, making a career here was never a serious consideration until I spent time here as a summer intern while I was in grad school. As it turns out, many of the defining characteristics of my athletic career directly linked to Vanguard’s investing philosophy.

Long-term perspective: Distance runners know that success is never a product of a single run; it’s the cumulative effect of remaining committed, consistent, and focused over a long period of time. At times, it’s hard to remain diligent for a benefit that seems so far off in the future, but the rewards when you achieve these goals are immense. Investors, too, are often rewarded for remaining disciplined and maintaining a long-term perspective.

Delayed gratification: Getting up at 6 a.m. to jog isn’t “fun.” Pushing through the last few miles of a tough workout is rarely enjoyable. Runners know that you have to make choices and sacrifices in the short term if you hope to improve fitness over time. Putting money away in savings means you’re not consuming something cool now, and that can be tough. But a less expensive car now could mean a happier retirement later.

No quick fixes: I’m proud to say that I never used performance-enhancing drugs during my athletic career. I could have doped and run faster, maybe even got away with it, but it wasn’t the right thing to do. Instead, I got up every morning and put in the miles, year after year. It’s easy to be seduced by portfolio-enhancing alpha strategies and esoteric alternate investments. Occasionally these things work in the short run, but usually they don’t, and sometimes people go to jail. Doing the right thing means having clear goals, choosing the right balance of low-cost funds, and investing for the long term.

And as I learned long ago, hard work gets results—even when you can’t see the finish line.

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Congratulations, Julie!

Our industry requires a great degree of education, testing and licensing.  Today we are happy to announce that Julie Sanders has passed her Series 6 exam!  She has been working and studying hard over the last several months in preparation, so today is a “happy day” for her (and all of us).   

In order to pass the Series 6 exam, candidates must test on topics covering mutual funds, variable annuities, securites and tax regulations, retirement plans and insurance products.  The test is administred by FINRA (the Federal Industry Regulatory Authority) and passing candidates will register as an “Investment Company/Variable Contracts Products Limited Representative”.  We are proud of Julie and know you will be also…

The Pessimists Are Losing

Although no one can tell you with accuracy exactly what will happen in 2013, we continue to see a sense of enthusiasm regarding the markets for this year.  We are somewhat positive about equities, and bonds may not return as they did last year.  In fact, did you realize that since the beginning of the year the S&P 500 Index is up +6.19% through Wednesday, February 6th? 

In his latest commentary, economist Brian Wesbury explains why the pessimists are losing.  We thought you may like to listen, so click here to watch the latest First Trust video:  Wesbury 101 – “The Pessimists are Losing”

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Roth vs. Traditional IRA… Which is better?

With tax season around the corner many contemplate funding their IRA or Roth IRA accounts.  Sometimes you may wonder which is better for you.  We thought this article may help you as you debate the differences and which might be best for your situation.  Contribution limits for 2012 remained level at $5,000 with an additional $1,000 available for those age 50 or older.  It may be helpful to know that in 2013 these limits increased slightly to $5,500 (age 49 or younger) and $6,500 (age 50 or older).  Also remember that Traditional IRAs must be established by the tax-filing deadline (without extensions) for the tax year to which your qualifying contribution(s) may apply.

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