by Jackie Waters on February 9th, 2017

​Today's post will be by guest writer, Jackie Waters. Jackie lives on a three acre hobby farm in Oregon along with her family. She prides herself in raising 4 energetic boys and still find the time to be Hyper-tidy.

The emotions of becoming a new parent can be quite the rollercoaster ride. Excitement. Fear. Wonder. Hope. All of these feelings are completely appropriate and normal if this is your first experience on the journey of parenthood. A lot of first time parents pressure themselves with the idea of “getting it all right” on their first go around. But if you have taken heed to any advice that has been around from parents past, it is that no one will ever be the perfect parent. The only thing you can do is give your best effort and try to raise an upstanding human being. Wanting what’s best for your child is absolutely admirable and taking control of your financial security is one of the best ways to do so. Use this guide to assist you in planning ahead for the future of your family.

Make sure your child has the proper health insurance

Health insurance is a vital factor in the well being of your child. Throughout their lives, there will be several incidents that my not be foreseen, however you want to make sure you have the proper precautions in place. Doctor visits will make up a huge portion of your child’s life, especially in the early years. As they grow older and childcare outside of the home is set into place, they are subject to be around more airborne illnesses and viruses. Having the correct health insurance plan will cut down on the expenses involved with health care. Working parents have the ability to place the child under their existing coverage, while other parents pay out of pocket for insurance. Whichever may be your case, you will want to be sure that your child has the best policy within your means.

Have a life insurance policy in place

Having a life insurance policy is a step in the right direction to ensure the protection of  your family should something happen to you (an estate plan isn’t a bad idea either). Having a policy in effect will dissolve the financial burden that may strike your family should you or your spouse pass away unexpectedly. There are two main types of coverages to consider; Whole Life Insurance and Term Insurance.

Whole Life insurance will cover the insured the span of their lifetime, offering a payout to the beneficiary at the time of death. A term life insurance plan covers one for a select period, or term of their life. Should the insured pass way before the term of the policy expires, all benefits will go to the beneficiary. Should life go beyond the set term of the policy, no benefits will be made available. At that point, an option would be to seek opening another policy.

Save, save, save

One common thread about children is that they are expensive. The older they become, there will be more unforeseen or surprise expenses that will come into play. Plan ahead for the cost of childcare, extra curricular activities and college funding. Having the proper savings arrangements in force will lessen the blow of being caught off guard by the expenses that come along with being a parent. Consider savings through your bank, retirement plans and 529 Plans for college.

Parenting is an awesome experience that many wouldn’t trade for the world. While you cannot plan every step along the way, nor can you see what will unfold in the future, you can make sure that you are well equipped to deal with life as it arrives. Start planning for the security of your family now and your future self will indeed thank you down the line. 

Photo By Pixabay

Disclaimer: This publication has been distributed for educational purposes only and should not be considered as investment or insurance advice or a recommendation of any particular security, strategy, insurance product or investment product. Please speak with a qualified financial professional to address your specific financial needs.

by Milad Taghehchian, CFP(R) on December 13th, 2016

The end of the year presents a great opportunity to review several financial areas that could add a significant benefit to your financial growth. Here are a few areas we think are of tremendous value.

 


by Milad Taghehchian, CFP® and Chris Cyndecki, CFP® on November 14th, 2016

​The Elections Are Over... Now What?

​Presidential election years and the following first year of a presidency present a lot of questions. This uncertainty leads to anxiety and fears along with volatility in financial markets. Financial markets like predictability of future events. So what does this all mean for your portfolios and financial plans? Here are our thoughts.
From 1926-2013, the average return of the S&P 500 in the year following an election is +9.3%. (Chart Credit: Dimensional Fund Advisors) 
​Since 1900 the first year following the election of a Republican president, with a Republican majority in the House and Senate, has shown an average return in the S&P 500 of +11.1%.  (Chart Credit: BMO Investment Strategy Group)
​There appears to be no significant correlation between presidential party affiliation and the annualized return of the S&P 500. (Chart Credit: Dimensional Fund Advisors)
​US Equities have experienced long-term appreciation, regardless of who is in the White House. ​(Chart Credit: Dimensional Fund Advisors)
​Historically, volatility in equities has increased substantially 30 days prior to an election, and increased volatility continues for 60 days after the election. (Chart Credit: Blackrock)
​Investors should experience higher returns as compensation for greater price fluctuations (volatility). Equities have shown a higher historical average return compared to bonds as a result of this dynamic. Volatility has been amplified around presidential elections.
  
Several studies have shown that timing the market is impossible to do consistently. In our view, staying invested in equities, adhering to a systematic rebalancing schedule, and minimizing fees will maximize portfolio value long-term. During volatile times, it is important to maintain course with your long-term portfolio objectives and financial planning goals.  

Disclaimer: This publication has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Past performance is not a guarantee of future performance. Please speak with a qualified financial professional to address your specific financial needs. 

by Chris Cyndecki, CFP® on July 15th, 2016

​Filing for bankruptcy can be a frightening and stressful experience. If you are feeling overwhelmed with debt and are contemplating bankruptcy, knowing the legal protections afforded to you may prevent you from making a costly mistake.   
 

ERISA Plans


The Employee Retirement Income Security Act of 1974 (ERISA) was established to protect assets placed into retirement accounts during a person's working life. An ERISA plan is an employer-sponsored retirement plan that falls within certain IRS requirements. Assets within retirement plans that meet these ERISA requirements are not included in an individual's bankruptcy estate -- they are protected up to an unlimited amount when filing bankruptcy. Employer sponsored plans such as 401(k)s and 403(b)s are the most common qualified ERISA plans.
 
BAPCPA

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 extended federal protections to many other non-ERISA retirement accounts including: IRA's, Roth IRA's, SEP-IRA's, and SIMPLE IRA's. The protection for all traditional IRA's and Roth IRA's combined is capped at $1,283,025 (adjusted every 3 years for inflation). Meanwhile SEP-IRA's and SIMPLE IRA's have unlimited protection. BAPCPA also provides protection to assets placed into certain education savings accounts such as Coverdell accounts and 529's prior to two years before filing for bankruptcy (certain restrictions apply).

It is important to know that BAPCPA only shields assets during bankruptcy proceedings. Meanwhile qualified retirement plans under ERISA are protected from both bankruptcy and civil judgments.   

If you are considering filing for bankruptcy, we strongly recommend speaking with a bankruptcy attorney prior to distributing funds from any retirement accounts. 

by Chris Cyndecki, CFP® on June 10th, 2016

In the second part of this blog series, we'll take a look at a few of the implicit costs of investing. These costs are not easily observed and can be difficult to quantify.  

Portfolio Turnover

Turnover is a measure of how frequently a portfolio manager buys and sells assets in a fund within a 12-month time period. Every time a manager buys or sells a security within the fund, the brokerage firm assesses a transaction fee. A fund with a high turnover ratio incurs more fees than a fund with a lower turnover ratio. These turnover costs are not factored into a fund's net expense ratio and cannot be found anywhere in the fund prospectus. However, turnover costs are reflected in the fund's overall performance.  

Several studies have attempted to quantify the impact of portfolio turnover on fund performance. Mark Carhart's analysis in "On Persistence in Mutual Fund Performance," suggests that a 100% increase in portfolio turnover equates to a 0.95% reduction in performance annually. Several factors contribute to this reduction including: brokerage fees, taxes, and asset liquidity. To find the turnover ratio of the funds in your portfolio, view the fund's prospectus or perform a fund search on Morningstar's website.

Time

Once individuals decide they are ready to invest, they face a process similar to the one outlined below.
  1. Choose a brokerage firm and open brokerage accounts (research required) 
  2. Fund the account with a lump sum or create plan for making periodic monthly/quarterly contributions
  3. Determine risk/return objectives based on investment goals
  4. Evaluate time horizon, risk tolerance, and any other pertinent factors
  5. Decide on an asset allocation using above factors (research required)
  6. Determine which funds to use for portfolio implementation while factoring in brokerage fees (substantial research required).
  7. Purchase chosen investments in brokerage account while taking into account taxation of chosen securities 
  8. Create a plan for consistently investing recurring contributions 
  9. Elect a rebalancing strategy to periodically re-align portfolio with the original target allocation
  10. Revise portfolio strategy for changing macroeconomic factors (e.g. rising/falling interest rates)
As one can see, the investment process can become overwhelming, given the copious decision points, research requirements, and conflicting expert opinions. With the plethora of options available, many investors either give up, or the task falls to the bottom of their priority list.

Investing in a well diversified portfolio can be a tremendous tool in achieving the financial goals you set for yourself and your family. However due to the many potential pitfalls (e.g. fund expenses), we recommend consulting with a qualified financial professional before implementing any portfolio.
 
 
 


by Chris Cyndecki, CFP® on April 9th, 2016

Fees are one of the few things investors have direct control over in the hectic investment universe. Fees can have a significant impact on long-term portfolio performance. In the first part of this blog series, we'll take a look at the explicit costs of investing.  

Mutual Fund/ Exchange Traded Fund Fees

Front-end load : upfront commission paid to a financial intermediary (broker or financial advisor) who sells a specific fund.

This fee is deducted from your initial investment capital. For example, if you invest $10,000 in a fund with a 5% front-end load, $9,500 is invested in the fund, while $500 is paid to the advisor or broker as a commission. Front-end loads are often labeled as "Class A" shares. The letter "A" follows the fund name on an account statement.

Back-end load: commission paid to broker or financial advisor when fund shares are sold. The fee is dependent on how long the investor holds on to the shares. Shorter holding periods require a higher percentage fee. Back-end loads are often labeled as "Class B" shares.

12b-1 fee (Level Load): annual marketing or distribution fee. This ongoing annual fee is often paid as a commission to a financial advisor or broker for selling a fund's shares. These fees are included in a fund's expense ratio.

Expense ratio: total operating costs of a mutual fund. These include: compensation for fund managers, recordkeeping, custodial services, taxes, 12b-1 fees, and legal expenses.

Redemption fee: the fund will asses this fee if shares are sold within a specific period of time - usually 30-90 days from the purchase date

Broker Fees

Transaction fee: assessed by a broker for each purchase or sale of fund shares. Transaction fees are usually lower for Exchange Traded Funds (ETFs) than mutual funds. Many brokerage firms have transaction free mutual funds and ETFs which do not charge a transaction fee (restrictions apply).    

Account transfer fee: assessed by custodian for transferring funds or shares to another custodian

Portfolio Implementation Fees

Investment management fee: covers evaluation of client's investment goals and risk tolerance, implementation of recommended asset allocation, and portfolio rebalancing. This fee is usually a fixed percentage of portfolio assets.  
 
How much am I paying in fees?

Many of the above mutual fund/ETF fees are listed in the fund's prospectus document. Also the mutual fund research company Morningstar publishes a significant amount of information related to each fund on their website. For detailed fee information, type in your fund's symbol into the "Quote" box at the top of the page, then click on the "Expense" tab.

Brokerage firms will usually notify clients of transaction costs prior to accepting a trade order.
Your financial advisor will quote you an investment management fee prior to creating a portfolio recommendation. 
 
Mitigating investment fees is an essential piece of successful portfolio management. Speak with your financial planner about optimizing fee efficiency in your portfolio.  

by Chris Cyndecki, CFP® on October 20th, 2015

​A car is one of the most significant purchases a person will make. In terms of wealth creation, it is also arguably one of the worst investments available. A vehicle is often a necessary means of transportation to maintain employment. However many people view a car as a status symbol or pay a premium for the driving experience. The true cost associated with purchasing an expensive new car is often overlooked.

Unlike stocks, bonds, and real estate, cars are essentially guaranteed to lose value over time. Estimates show that cars lose up to 10% immediately after being driven off the lot. Many cars will lose about 20% of their value within the first year. After 3 years, the car is worth about 60% of what you paid for it. After 5 years, the car is worth about 40-50% of the original purchase price.

Let's take a look at a specific example using the best-selling sedan in the United States for over a decade: the Toyota Camry (2015 XLE Edition). Pricing and annual depreciation information was taken from the Edmunds True Cost to Own® tool. 
​By the end of year 5, the Camry is worth about half of its original purchase price. Assuming the owner decides to trade in the Camry for a new model at that point, the cycle repeats.

How to avoid this cycle?
One option is resisting the urge to trade in your used car for a new model. This means driving your current car for as long as possible. Another option is buying a used car. After a few years, a significant amount of depreciation has already occurred. The potential savings could be used to create a diversified portfolio of appreciating assets. Always consult with your financial planner to see what makes the most sense for your specific needs. 

by Chris Cyndecki, CFP® on September 29th, 2015

​Many companies offer a benefit called an Employee Stock Purchase Plan (ESPP), which allows employees to purchase their employer's stock with after-tax money. Many plans allow employees to purchase stock at a 15% discount with a look-back period of 6 months.

How It Works 
After signing up for the ESPP, the employee contributes to the plan through payroll deductions. The money accumulates into an account, and the employer purchases company stock for the benefit of the employee at the end of the contribution period (usually 6 months). If the plan includes a look-back period, the stock will be purchased at today's price or the price 6 months ago, whichever is lower.  

Example 
Assuming the stock is purchased at today's price, and the employee sells the stock immediately, the 15% discount is equivalent to a 17.65% return. For example: If you buy $100 worth of stock (current market value) for $85 (discounted price), and sell it immediately in the marketplace for $100, you've just realized a $15 gain on an $85 investment ($15/$85= 17.65%). However this $15 discount is generally categorized as ordinary income and taxes must be paid at marginal income tax rates. Separately ESPPs have a maximum contribution limit of $25,000 per year.

An ESPP with a discount feature can be a great employer benefit. Ask your financial planner if contributing to your Employee Stock Purchase Plan makes sense in your specific situation. 

by Philip Christenson on July 24th, 2015

​Today’s post is brought to us by Phillip Christenson, a chartered financial analyst (CFA) and financial advisor at Phillip James Financial, a fee-only financial planning company located in Maple Grove and Plymouth Minnesota.


The best places to park your money in a low-interest rate environment.

The sustained low interest rate environment has been a big boost to borrowers, but at the expense of savers who struggle to get more than 0.01% on their bank accounts. While interest rates have inched up recently, you’re still not getting any return on your money that’s sitting in the bank. So where do you look to keep your cash safe while still earning just a little bit more? While there’s no substitute for cold hard cash, these investments make your money work a little harder for you.

Try New “Bullet” ETFs

These funds have been around for a few years now but recently have been trading with enough daily volume to make them interesting. Bullet Funds are basically just bond funds that mature at a certain date. It works just like an individual bond but with the added diversification of a mutual fund or ETF. For example, you put in $1,000 in the Guggenheim Bulletshares 2016 Fund (BSCG) and at the end of 2016 you will receive your $1,000 back, collecting interest along the way. The current rate on this fund is 0.75%. I know it’s not much but here’s where it gets more interesting. You can play Professional Bond Manger and build a bond ladder portfolio by buying the 2016, 2017, and 2018 bullet funds. This way you can earn a little extra interest if you plan out your cash needs. Also, these could be better investments if you are worried about interest rate risk. Because these bond funds mature, you won’t be hurt by increasing interest rates as long as you hold to maturity. Other bond funds don’t provide this protection.

Municipal Bonds for High-Net worth Savers

Muni bonds can be very beneficial if you are in a high interest rate bracket. The interest earned is tax free from Federal Income Tax and State Income Tax if you purchase a bond in the state where you live. Keep in mind some bonds can be just as risky as stocks. I suggest looking into “General Obligation” bonds which means the bonds are backed by the general taxing authority rather than “revenue bonds” which are only backed by the revenues from a certain project, like a sports field for example. Also, stick with AA and AAA rated bonds as well as shorter maturities if you are trying to make this a substitute for your cash.

Short-Term High Grade Bond Funds

As mentioned above you can keep your cash relatively safe but still earn some interest by using short-term, high grade bonds. By using these funds like Vanguard Short Term Bond ETF (BSV) and Vanguard Short-Term Corporate Bond ETF (VCSH) you can get a little extra yield, keep your investment diversified and with relatively low risk. However, because these funds don’t mature like the Bullet Funds mentioned above there is no holding until maturity to get your money back. You need to sell to get your cash back which if interest rates are up at the time you might experience a loss. The good news is the pain doesn’t last long as the existing bond investments mature, they are replaced with new ones that pay higher yields.

Go Online to Find Extra Yield

If you still don’t have an online bank it’s time to get with the times. These are checking and savings accounts that are completely managed online from the account opening, funding, and transactions. Because everything is done online the banks don’t have to support them with expensive branch offices and bankers which mean they can pay you more interest in your accounts. One of the more popular account is Capital One 360 (Formerly ING Direct). The savings account yields 0.75% and the checking account goes all the way up to 0.90% depending on the balance you keep in the account. Other options could be MySavingsDirect, Ally Bank, and SFGI Direct. Some of these account pay over 1%. Unlike the other investments mentioned is actually a bank account so it’s cash. The other investments are liquid but like I said nothing beats cash for liquidity and safety. I use my online bank account in conjunction with my physical bank account, earning the extra interest but still have a brick and mortar location if I need to talk to a real person.

Depending on your cash needs you may want to use a combination of these investments. Keep some cash in a physical bank for daily transactions, keep another 4 months of cash in an online bank account, and then invest the rest of your cash in some bond funds.

If you need help earning a little extra yield on your cash ask your Pioneer Wealth Management Advisor or if you’re in the Twin Cities reach out to Phillip James Financial by calling 763-432-0852.
 
 

by Chris Cyndecki on July 14th, 2015

Many employers are now offering the Roth 401(k) plan as a vehicle for retirement savings. The plan's popularity has skyrocketed in recent years.

How Does It Work?

Employee contributions to the Roth 401(k), typically made via payroll deductions, go into the account on an after-tax basis. Employees pay income taxes today at their marginal tax rate on the money that goes into the plan. These contributions grow tax free, and the taxpayer will not have to pay taxes upon distribution in retirement.

Employer matching contributions are made on a pre-tax basis and are placed in a separate bucket. The money in this bucket will be subject to ordinary income taxes when distributions are taken in retirement (just like a traditional 401(k) or IRA).

Certain employers will allow Roth conversions within the plan, enabling a person to convert the match portion to after-tax status (pay tax on employer match today). However the employee must be careful with in-plan Roth conversions, because employer contributions are usually subject to a vesting schedule. Employees are entitled to the match only after fulfilling the requirements of the schedule. If the employee leaves the employer before the match is fully vested, the taxes paid on the converted, unvested match portion would be lost.

Rules
  • For the 2015 tax year, an employee's total contribution between a traditional 401(k) and Roth 401(k) cannot exceed $18,000. There is a $6000 catch-up provision for people over age 50, increasing the total allowed contribution to $24,000. These limits also apply to elective deferral contributions made to another employer's 401(k), 403(b), SIMPLE, or profit-sharing plan.  
  • There is no income phase out for the Roth 401(k) in determining eligibility (unlike the Roth IRA).
  • Qualified distributions occur when the individual has reached age 59.5, died, or become disabled AND at least 5 years after the first Roth contribution was made (5 year period starts January 1st of initial contribution year).
  • Non-qualified distributions are assessed on a pro-rata basis (unlike the Roth IRA where contributions come out first). Each distribution will be assigned a % contribution and a % earnings, both totaling 100%. The contribution portion will always come out tax-free and penalty-free, however the earnings portion will be subject to ordinary income taxes and a 10% IRS penalty.  
  • The Roth 401(k) is subject to Required Minimum Distributions (RMDs) at age 70.5. The taxpayer can avoid RMDs by rolling the Roth 401(k) into a Roth IRA.
When Does It Make Sense?

Many individuals contribute to a traditional 401(k) during peak earnings years to defer taxes until retirement when their marginal tax rates become lower. People in the early stages of their careers, expecting to make more money in the future, may benefit from contributing to a Roth 401(k). We recommend speaking with your financial planner or CPA to figure out what makes the most sense in your specific situation. 

by Yoni Lipski on July 9th, 2015

Thinking about where you want your life to be in the future – whether 30 years from now, or just 10, can be stressful. Most people don’t even know where they want to be in 1 year – and if you’re anything like me, you don’t even know what you’re doing next week! However, there are important times in life when we have to step back and make plans for the future. Not just for our own benefit, but for the sake of our children and our future generations. The following are 8 important ages to adjust our plans for the future.
 
Right Now!
 
It’s never too late, or early, to start planning. The time value of money is perhaps the most important concept in retirement planning. A dollar today is worth more than a dollar in the future, simply because of its earning capacity. To illustrate this, I’ve devised a simple example.
 
Let’s say someone offers you the option to receive a gift of $100 today, or $100 a year from now. From a practical standpoint, most of us would prefer the money today. But let’s see the math behind it. Let’s assume an interest rate of 3% - a very conservative one. If I take the $100 today and invest it for a year, I should have $103 at the end of the year ($100 multiplied by 1.03).
 
On the other hand, if I were to defer the $100 gift for a year, it would be worth $97.08 today – which is less than the $100 offered to me today! This is because we divide $100 by 1.03 to get the value in today’s dollar amount – we’ve discounted the future amount to the present value. I would obviously prefer to have $103 a year from now rather than $100.
 
Using this concept, we can see the value of planning for retirement as early as possible. Saving a lot of money early on is incredibly advantageous for 2 reasons: firstly, your money gets to grow for longer, and therefore more, and secondly, the more you save early on means the more your money can grow by. A person who saves $50,000 by the time they’re 30 could grow their money to $500,000+ by retirement with minimal (actually, no) effort on their part!
 
Age 50
 
This is when the IRS officially considers you “catching up” on your savings. In 401(k) plans, you can now defer taxes for up to $24,000/yr. in savings – and the same applies to 403(b) plans as well as government thrift saving plans. On your IRAs, you can now contribute up to $6,500/yr. In contrast, younger savers can only max out at $18,000 and $5,500.
 
Age 55
 
Not a particularly important age for many, but relevant to 401(k) owners and many federal employees. If you have a 401(k) or Thrift Savings Plan and leave your employer once you turn 55, you can withdraw money from your retirement account associated with that job without incurring a 10% early withdrawal penalty. Not every plan is the same, and you should check the documents and make sure this applies to you. You will still be taxed on the money being pulled, but we assume you’ve left your employer and are not earning much this year, so the burden is not big.
 
Age 59&1/2
 

At this age, you no longer pay a 10% early withdrawal penalty on your 401(k) or IRA withdrawals. However, each plan is different – some 401(k)s will charge a fee if you’re still with your employer, and IRAs could be held by institutions that charge their own fee if you withdraw before maturity. Always check the details of your personal plans!
 
Age 62
 
You now qualify for Social Security payments – but with a big caveat. The earlier you sign up for SS payments, the less these payments will be. In creating these laws, Congress created flexibility for people who can wait until their full retirement age (usually 67) and incentivized them to wait by increasing their payments. Under dire circumstances, you may need to receive these payments as soon as possible, in which case it makes sense to sign up for SS when you turn 62. But if you expect to live well past your 70s, it makes sense to wait until your full retirement age and receive as much as possible!
 
Age 65
 

You can sign up for Medicare 3 months before you turn 65, and it covers you beginning in the month you turn 65. The only prerequisites are your age and your ability to pay.
 
Age 67
 
As I just mentioned, it makes sense for most people to wait until their full retirement age to claim SS benefits. This age is 67 for anyone born in 1960 or later. These payments will be bigger, and if you expect to live much longer, you will benefit from a bigger SS check every month. The tradeoff is that you do not receive any payments from ages 62 to 67, but most people simply continue working during this time so that they can benefit in the future.
 
Age 70
 
For every year after your full retirement age (usually 67) that you defer your SS payments, your payments go up by 8%. For most people, it makes sense to fully retire at 67, but some decide to keep working until their 70s and don’t exactly need the SS benefits just yet. If you fall in this category, it might make sense to wait until age 70 and grow your monthly benefits even more. However, past age 70, there is no additional benefit in waiting and you’re simply throwing money away – so start claiming your benefits!
 
At age 70&1/2, you’re forced to begin taking distributions from your IRAs and prior employer 401(k)s if you haven’t done so already. You have to take 3.65% of the value of your retirement assets.
 
And there you have it, folks. Plan today so that you can live a comfortable retirement – or at last one free of monetary concerns. 

by Bill Holiday on July 1st, 2015

AIO Financial is a fee-only financial planning firm in Tucson and Phoenix, AZ. They specialize in Socially Responsible Investing. Bill Holliday, a Certified Financial Planner, offered to write for our blog this week.

Socially Responsible Investing (SRI)
SRI (also known as sustainable, socially conscious, and ethical investing) continues to grow at a faster pace than conventional investment assets. The idea is to invest in-line with your values.  SRI provides a way to support organizations and issues that you are concerned about while earning a competitive return. 
 
Over $3 trillion of U.S. investments (13%) are in SRI.  These investments use at least one of the three SRI strategies:
  1. Screening
  2. Shareholder Advocacy
  3. Community Investments 
Some of the main reasons why SRI is more attractive now than in the past, include:
  • There are more socially responsible investments available.  There are currently about 925 SRI funds. 
  • SRI mutual fund performance has improved.  Increased competition and size of these funds has allowed the administrative costs to be lower.
  • There are companies and industries people do or do not want to support and there is more information readily available than ever before. 
There is no one strategy to move your portfolio closer to your values as there is no one reason that motivates people to participate in SRI.
 
Screening
Screening involves using positive and negative filters to select investments (avoid or include investments).  Companies may be excluded or included based on their:
  • Industries – exclude all (like oil) or best of the worst (like BP) or focus on alternative energy
  • Country – avoid if regime has poor human rights record
  • Corporate SR – promoting women, impacts on community, environmental impacts, fair trade products
  • Policies & Practices – Unions, Healthcare, recognize domestic partners 
Shareholder Advocacy
Shareholder advocacy is exercising your right as a shareholder (through SRI mutual funds or individual stocks) to influence the direction of business.  Index and non-SRI funds generally do not vote or vote with management on environmental, governance and social (ESG) issues.  Shareholders can:
  • Voting  of Proxies - All shareholders may vote on annual meeting agenda items
  • Letters - Letters may be sent any time (all public companies have Investor Relations Depts.)
  • Filing Resolutions - Shareholders may petition companies they own shares in (at least $2k), for annual meeting agendas.  Resolutions often pass with less than 30% in favor
  • In-person meetings/dialogues - Letters and resolutions may lead to discussion of  issues with company executives
  • Divest – sell your shares 
Some of the top ESG shareholder issues are:
  • Political contribution
  • Climate change
  • Equal employment
  • Environmental management and reporting
  • Board diversity
  • Executive pay 
Community Investments
Provide access to credit, equity, capital, and basic banking products that low-income communities who would otherwise lack.

Participation in community investment includes:
  • Investing in micro-credit organizations through notes
  • Using member owned credit unions or community banks for your banking services
How to Construct an SRI Portfolio
Work with your financial advisor to determine your risk tolerance and investment objective.  Develop an investment policy.  Depending on your situation and SRI desires you can develop an SRI portfolio by using:
  • Individual stocks
  • SRI mutual funds
  • SRI exchange traded funds (ETFs)
  • Community development loan fund
  • Managed accounts (from asset management firms)
  • Or a combination 
If you’re an Arizona resident in the Tucson or Phoenix area, we recommend you visit a fellow fee-only financial planning firm. Check out aiofinancial.com or call AIO Financial at 520-325-0769.

by Yoni Lipski on June 29th, 2015

A recent CNBC survey discovered that more than 1/3 of millionaire families, defined as those with investable assets over $1 million, have not established an estate plan with a proper financial expert.

Why?
 
Perhaps the constant changes to federal estate-tax law have continued to confuse families, as they can’t keep up with the ever-changing law. Some families simply think they don’t need to establish a plan, as the latest exemption stands at $5.43 million per person – in other words, no taxes are paid for estates under $5.43 million. However, this is not a good excuse for not devising an estate plan. Why leave so much uncertainty to your children and family, especially with so much money at stake?
 
A quick cautionary note – some states, like New York and Maryland, levy their own estate taxes that kick in much earlier than at the federal level. Maryland’s deduction, for example, only applies to the first million.
 
Importance of Estates
 

Many of these people perhaps dismiss the importance of estates. Tax breaks and estate transfers are only a portion of the equation. Your estate documents protect your other assets, like property, and even include end-of-life decisions. Without these instructions, you can leave your family in an uncomfortable position when it comes to sudden decision-making.
 
With young children comes the necessity of a will. Money isn’t the most important factor here – in an unfortunate turn of events, your children may need a guardian to take care of them through adulthood. As for the money, you can set up trusts and name a trustee to handle it until the children reach a specific age.
 
Consequences of Improper Estate Planning
 
In the case of a tragedy, the courts would be left to make decisions that you could’ve made when planning your estate. One of these, perhaps the most important, is who gets to take care of your children. A medical power of attorney is important too, giving an individual authority to make health-care decisions in your place when you can’t. Similarly, a financial power of attorney document identifies who handles your money and finances in a situation when you can’t. This grants legal authority to act as a financial extension of you, paying down your taxes, debts, handle bank transactions, etc.
 
Tax burdens must also be considered. In some cases, it makes sense to leave money to your heirs in trusts. But in others, they end up paying high income taxes and would instead benefit from being given the property directly rather than through a trust.

"He who fails to plan is planning to fail."
                                      – Benjamin Franklin

 
By taking the time to establish a clear plan in your estate, you won’t have to worry about what can happen to your family in the worst-case scenario. Your heirs will have a clear understanding of who gets what portion of the estate, and your children will be taken care of by a legal guardian of your choice. After all, you’d prefer to make these decisions now rather than have the courts make them later – without your approval!

by Greg Phelps on June 19th, 2015

​Greg Phelps is a CFP® certified financial planner in Las Vegas, Nevada. As an Ed Slott Elite IRA Advisor, he’s also an IRA specialist. We asked Greg to guest write for our blog on how beneficiary IRA’s work, and the rules surrounding them.
 
IRA Beneficiary Rules
 
IRA’s (individual retirement accounts) are one of the most popular ways for investors to save for retirement. In fact, as of 2012 there was nearly 50 million American households with over 5.4 TRILLION dollars in individual retirement accounts. IRA’s were created in 1974 under the Employee Retirement Income Security Act (better known as ERISA).
 
When used properly as part of a well-rounded financial plan, IRA’s can provide a source of retirement income that can last your entire lifetime! Not everyone will completely spend down their individual retirement accounts however, leaving potentially large sums of untaxed (or tax free in the case of ROTH IRA’s) monies to beneficiaries. So what exactly happens to your IRA when you die?​
 
Spousal Beneficiary. If your spouse survives you and they’re named as your primary beneficiary, they get the most flexibility with managing your IRA. They can leave the funds in your current IRA and simply re-title it as something like “John Doe, Deceased, IRA for the benefit of Jane Doe”, OR alternatively they can roll the entire IRA into an IRA in their own name.
 
Generally, the spouse will want to roll the IRA into an IRA in their own name and manage it according to their own personal financial plan moving forward. There is however one big exception for that, which is a spouse beneficiary younger than age 59 1/2.
 
If a younger (than 59 1/2) spouse beneficiary inherits an IRA, they may need the money for financial support. If they’ve rolled that IRA into their own IRA there will be a 10% penalty on any distributions. If however they leave the IRA as an inherited IRA, there is no 10% penalty on the distribution prior to 59 1/2. For this reason it’s much safer to leave the IRA as an inherited IRA until the spouse is 59 1/2 or older.

Non-Spousal Beneficiary. Non-spouse beneficiaries such as your children, friends, or other family members, don’t have nearly the same flexibility. A non-spouse beneficiary can withdraw the IRA money in it’s entirety (paying income taxes owed) within 5 years, OR withdraw the funds as annual payments over their lifetime. Should they choose to withdraw the inherited IRA funds over their lifetime, they must begin doing so by December 31st of the year following your death. This rule is on the chopping block however, as new budget proposals would require withdrawal of all IRA money by a non-spouse beneficiary within 5 years, eliminating the ability to “stretch” the IRA funds over the beneficiaries lifetime.
 
If you’re currently taking your required minimum distributions (meaning you’re over age 70 1/2), the beneficiary MUST withdraw the required minimum distribution prior to December 31st of the year you die. If your beneficiary misses your required distribution it is subject to a 50% penalty of the amount not withdrawn.
 
Remember, there are never any penalties for distributions from an inherited IRA, even if taken prior to age 59 1/2. Also, it’s critical the beneficiary NEVER EVER request a check payable to them, and NEVER EVER put the IRA into an IRA in their own name (with the exception of a spousal rollover as mentioned).
 
Seek out the advice of a CFP financial advisor professional before you do anything with the inherited IRA. A great CFP will help you create a financial plan to maximize the value of the IRA inherited!
 
If you're a Nevada resident and looking for Las Vegas financial advisors, give Greg a call at 702-987-1607.

by Yoni Lipski on June 17th, 2015

​Purchasing a home can be a very stressful experience. Long search times, indecisiveness, and an inability to find a home everyone in the family will love are some of the most common issues people run into when searching for a home. Finally finding a home you’re absolutely happy with can be a big relief – until the appraisal value turns out to be much lower than your offer.
 
It’s a common situation in rising housing markets. A rise in demand forces homebuyers to bid against each other, forcing home prices to rise well above their previous values. In many cases, people are happy to pay a premium for a home, seeing it as a serious investment with a long time horizon. But the appraisal value can often fall short of the negotiated price of the home, creating many issues.
 
Most lenders base mortgages as a percentage of the appraised value of the home. For example, if your home is appraised at $300,000, a lender might only let you borrow $240,000, or 80% of this appraised value. This can be a problem when the appraised value is much lower than your offer, as you’ll have to put more cash down because lenders are covering less of the cost.
​Solutions
 
Contracts usually have an appraisal contingency clause in order to protect you, the buyer. If the actual appraisal does not match the pre-determined amount, the contract becomes null and void. Use this as a way to negotiate a new price – or at least get your money back!
 
You could also appeal the valuation and ask for a second appraisal – but this can quickly become expensive. A cooperative seller might offer to cover the costs of the appeal, hoping to close the negotiation for good. In order to receive a fair appraisal, you must make sure to provide comparable listings and recent sales in the area that match your offer.
 
Ultimately, this could be a sign that you’re overpaying for your home and should perhaps re-evaluate how much a new home is truly worth. By overpaying on a home, you could be inviting years of stress on high mortgage payments and preventing yourself from enjoying financial freedom in the later years of your life.