Financial Symmetry News & Views

Archive for August, 2009

Local professionals volunteer time & expertise to provide free, one-on-one financial, tax and estate planning guidance.

FOR IMMEDIATE RELEASE

RALEIGH (AUGUST 31, 2009) – On Saturday, Sept. 19th from 9 a.m. – 12 p.m., local professionals have combined their efforts to give back to the community by providing free financial, tax and estate planning guidance to the public.

The professionals participating in these one-on-one consultations will include:

• Chad Smith and Allison Berger, two independent Certified Financial Planners® from Financial Symmetry, Inc.
• Zeke Bridges, an Estate Planning Attorney with  Bridges Law Firm, PLLC
• Will Holt, CPA with Financial Symmetry, Inc.

The recent economic turmoil has left many people with hard-to-answer questions like:

• Are my investments properly diversified?
• What does my recovery plan look like?
• How will this year’s losses impact my tax bill next year?
• Should I create an estate plan?
• What’s the best way to budget my expenses?
• Should I be contributing to my 401(k) and a Roth IRA?

This event was designed to help give people guidance about where to find answers in a “no strings attached” environment.  Anyone seeking advice is encouraged to bring documents relevant to his/her situation such as 401(k), IRA and Brokerage account statements, tax returns, and wills and estate related information.

“The last two years have been a wake-up call for people financially.  Our desire with these one-on-one meetings is to help people understand the implications of the economic crisis while giving them some practical advice on how they can improve their personal situation,” said Chad Smith, CFP.

The event will be held in the Financial Symmetry offices located at 1401 Sunday Drive, Suite 115.

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About Financial Symmetry
www.financialsymmetry.com

Financial Symmetry, Inc provides fee-only financial planning, portfolio management and wealth management services for individuals and their families. “Fee-only” means we neither sell products nor receive commissions, which allows us to offer our clients the impartial advice necessary to make effective financial decisions.

About Bridges Law Firm, PLLC
www.bridgeslawnc.com

Bridges Law Firm, PLLC offers clients an integrated approach to legal representation, combining the practical aspects of real estate law and estate planning within a single, personal service oriented firm.

We serve our clients with legal professionalism and a commitment to individualized attention.

The next NAPFA Consumer Webinar Series is scheduled for September 4th, 2009 from 1:00pm until 2:00pm.  Here’s a preview of the upcoming series, Kids & Money :

“Kids & Money

1:00 pm – 2:00 pm ET

Instructor Linda Leitz, CDP, CFP, EA,

NAPFA Registered Financial Advisor and

Author of The Ultimate Parenting Map to Money Smart Kids

How can you raise your children to be money smart? Linda wrote the book on raising kids to be smarter about money and will share her thoughts on steps you can take today to get your kids on the right money track.”

Click here to read more and to register:  Kids & Money Webinar.

Click here to view the August 7th webinar video, Money 101: Knowing the Basics.

There are two primary types of client relationships in the world of financial investments.  The sales model represented by brokers versus the fiduciary model represented by Registered Investment Advisors.

The following is a good example of the pitfalls of the sales model:

CIT Debt Sold to Widows Has Fine Print Pimco Resists

Notice that FINRA, the self regulatory authority for brokers says:

“….it’s investigating whether the risks associated with the securities were adequately disclosed.”

Well here is an example of so called disclosure:

CIT Group Inc. Prospectus Supplement

It is our opinion that it is ridiculous to expect most Americans to be able to adequately interpret 72 pages of “disclosure” (and this is only the supplement to the initial disclosure document).

Yet the world of FINRA regulation provides the framework for a Prudential spokesman to proclaim:

“As with all bonds, investors choosing to sell the notes before maturity may sell them at market value to other investors and face certain risks, which are fully disclosed at the time of issue…”

In other words, buyer beware.

The inherent problems and conflicts of interest with the sales model is why we choose to operate as Registered Investment Advisors.  Our regulatory framework is the Investment Advisors Act of 1940, which requires that we act in our client’s best interest.  We believe this is the best framework for client relationships.  The SEC is responsible for supervision under the Act, and they have unfortunately been underfunded for the last several years.  We hope that will be corrected as we feel more of the public should be served by Registered Investment Advisors.

All data is not created equal.  The following chart would seem to indicate
that US stocks are more expensive and overvalued then they’ve ever been.

http://www.chartoftheday.com

The rest of the story is that the last 12 months of earnings are not
representative of what earnings will be going forward.  Our best estimate is
that at current price levels, the PE ratio is actually around 13 to 17.  Most
definitely not the most expensive market in history.

Much of our research effort involves separating good data from bad data,
which is essential to gain and maintain a competitive edge against other investors.

To be successful as an investor, you have to know which type of sources you can trust.  It’s also helpful, to not let recent past performance color your predictions of where the best future returns will arise.  In this article on Bloomberg.com, you see examples of how treacherous the consequences of relying on large brokerage house research can be.

” Anyone who did what Wall Street analysts advised last March has only losses after the biggest stock market rally in seven decades.

Citigroup Inc., Bank of America Corp. and more than a dozen other firms told clients to purchase European energy producers and U.S. drugmakers while selling banks and retailers, according to combined rankings compiled by Bloomberg. An investor who used $10,000 to buy companies in the highest-rated industries and bet on declines in the lowest since the advance began on March 9 lost everything and would owe as much as $6,000 to cover bearish trades, the data show… “

The lack of forward thinking by brokerage house research departments has been a constant theme in our research meetings over the years.  In fact, a central premise of our research process challenges us to explore the reasons why a source may be recommending a specific area of the market.  We attempt to evaluate the lens through which a source views the investing landscape.  This can help us understand whether they have a  motivation and/or bias that skews their opinion.  Digging deeper allows us to zero in on the “why”, which goes a long way in helping us identify opportunities for better returns.

Need a new appliance? You may be able to find the best deals on large appliances during September and October.

Sometimes certain purchases can put a strain on your budget, like a new refrigerator, furniture or computer. While there is not a ‘best time to buy’ guide for everything, there are certain categories of goods and services that regularly go on sale during specific times of the year.

We found a list on Yahoo! that breaks down items like used cars, holiday airfare and mattresses. Keep ‘best time to buy’ sales in mind when planning ahead for a special purchase, whether it is a new purchase or a replacement, and look forward to save as much as 75% off original prices.

Click here to view When Is the Best Time to Buy…? on Yahoo!.

The following article is written by Financial Symmetry’s Will Holt, CPA.

For me, one of the neatest things about living in the Avent West community has been observing the transformation of homes through remodel, refurbishment and even reconstruction.  In fact, the same could be said about the entire city of Raleigh as it certainly looks a bit different today than when I first arrived in 1986.

Over the last decade or so, the federal government has enacted legislation designed to subsidize energy efficiency and conservation improvements.  The American Recovery and Reinvestment Act of 2009 signed into law by President Obama provides another opportunity for homeowners looking to “go green” while also saving on the monthly utilities.  So if you are thinking about tackling that home improvement project keep in mind that the government may cover a portion of the cost via qualifying tax credits.  Remember that a tax credit reduces your tax liability dollar-for-dollar.  There are two main credits available to homeowners and are summarized below directly from the U.S. Dept. of Energy’s website: home energy efficiency improvement tax credits and residential renewable energy tax credits.

Home Energy Efficiency Improvement Tax Credits

Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs, and heating and cooling equipment in existing homes can receive a tax credit for 30% of the cost, up to $1,500, for improvements “placed in service” starting January 1, 2009, through December 31, 2010. See EnergyStar.gov for a complete summary of energy efficiency tax credits available to consumers.

Residential Renewable Energy Tax Credits

Consumers who install solar energy systems (including solar water heating and solar electric systems), small wind systems, geothermal heat pumps, and residential fuel cell and microturbine systems can receive a 30% tax credit for systems placed in service before December 31, 2016; the previous tax credit cap no longer applies.

In addition to the products listed above, qualifying water heaters (non-solar) and stoves that burn biomass fuels are eligible for the $1,500 Home Energy Efficiency Improvement credit.

The state of North Carolina will also kick in a credit toward the Renewable Energy Credit. See the details at North Carolina Renewable Energy Tax Credit

There are many considerations when you plan a home improvement project.  As we all know, living in a fifty-year old ranch or split level requires attention to more than just detail.  When the decision has been made to spend thousands of dollars on new windows or HVAC we primarily want to make sure that we are getting a fair deal and that everything works properly.

However, Uncle Sam wants you to put energy efficiency at the top of your list as well.  So much so that he is willing to put some money back in your pocket.  Also, you’ll feel better about being green and we all get to see another transformation take place.

Financial Symmetry is dedicated to helping you get a handle of your financial picture.  We think it’s important to remember that investments should be evaluated on their merit, not personal emotions that can cloud your judgment and lead you to act in ways that are counterproductive to your financial success. Below are some examples of common emotions that can lead to poor decision making.

Feeling Left Out

The media can make it seem like everyone else is getting rich.  You can also hear tips from a friend, neighbor, relative, co-worker or even a stranger that can make you feel like you are the only one that is not making loads of money on a great new thing.

Greed

It’s an intense desire to acquire or possess.  Feeling that it is possible to get something for nothing is one of the strongest triggers for greed. There is an almost irresistible tendency for people to think they have “lucked out” and stumbled into an opportunity of a lifetime.  While this might be the case, most of the time it is not.

Desperation

It’s a state of hopelessness leading to rashness. This feeling can set in when people have made unfortunate financial mistakes or have just been impacted by a bad economy. Some people try to bounce back by assuming an unsafe amount of risk.  This approach rarely works as higher risk can lead to even greater losses.

Fear

It can immobilize people into stagnant patterns.  Fearful investors avoid getting involved in the market because it lacks certain security from losses.  However, the inability to accept some risk due to fear can greatly diminish your investment returns.

Attachment

This refers to a personal allegiance or loyalty to an investment without proper analysis.  This attachment can impair your ability to construct a well-diversified portfolio. Beware if you find yourself saying “I’ll never sell that because…

• My great grandfather bought that stock in 1912
• I worked a long time for this company and I owe them
• I have used this product for years

Investments should be evaluated on their merit.

Pride

Pride and investing are the equivalent of oil and water. This emotion can stop you from being able to admit when you are wrong and correct your mistake.  No one buys investments expecting them to under perform, however some of the time it is inevitable.  Capital Research Management, the research firm for the American Funds, states “We are very careful when making changes because we expect to be wrong 1/3 of the time.”  With an expectation of being wrong 1/3 of the time and an excellent performance record, it is clear that a certain amount of humble detachment is appropriate and necessary for successful investing.  It is also important to recognize when it is appropriate to seek assistance from experts

Fairness

This is something not easily measured. People like to feel as though they are being treated fairly and that desire extends to their investments. However, investments can be beneficial to you as an individual and seem like the treatment was not equal to all.  Investments are not a zero-sum game where someone has to be a winner and a loser.  People generally make mistakes when they are unwilling to accept the fact that the world is not fair.  Individuals should not base their decisions on forcing the issue of fairness when it is in conflict with what is best for them.

Supporting Viewpoint

We found an article on FiLife.com that also helps to explain emotional investing.  Tom Adams explains in  Emotional Investing Hurts Returns how  emotions can effect your investments.