Listen to Me

Many of our new clients tell us they found out about fee only financial planning by listening to talk radio or watching their favorite financial pundit on television.  Media personalities such as Suze Orman, Clark Howard, and Dave Ramsey do a great service by inspiring consumers to take control of their financial lives. We also appreciate those who send clients our way by touting the benefits of fee-only financial planning.

While the work they do providing financial education and empowerment to the masses is terrific, there is one thing missing from their advice — YOU.  Every once in a while we shock clients by recommending a different strategy than the hard and fast rules preached by these financial celebrities.  This is because we take the time to get to know you, what your values are, and help you define your long term goals.  We appreciate that every client is different and can benefit from planning and investment strategies that address their unique needs.  Media personalities have to define systems intended to work for nearly everyone, so their methods tend to be extreme, from only using cash in envelopes for expenses to denying yourself purchases that may increase your quality of life.

Food for thought

Sometimes the methods used by financial celebrities remind us of the health gurus on TV that come to your house and throw away all the food in your pantry or promote juice cleanses and no-carb diets.  These measures may help you lose weight in the short term, but are not always realistic or appropriate for your specific needs.  A few of the financial strategies we have recommended against are:

Pay Off Your Mortgage Early

This principle is one that is so appealing, because interest costs over the life of a mortgage are huge when looked at in dollar terms.  However, we typically do not recommend neglecting contributions to your retirement accounts or emergency funds in order to pay off a mortgage early.  The reason for this is that, for borrowers with good credit, mortgage rates are at historical lows, plus the interest payments are tax deductible.  Therefore, the interest paid on this debt is likely to be lower than the rate of return earned on your investments over a 15 or 30 year period.  While debt can be a four letter word, using debt responsibly as part of a coordinated strategy can help you achieve your long term goals.

Pay Cash For Everything

This concept also makes sense and the goal is to keep you from living beyond your means.  After all, if you can afford something, you shouldn’t have to use a credit card to pay for it.  However, credit cards have made our financial lives easier by allowing us to visit the bank less frequently and carry less cash on us.  Unless you have struggled with credit card debt in the past, we find that many people can handle the responsibility of spending reasonably with a credit card and paying off the balance every month.  Typically only extreme cases warrant a cash only strategy.

Buy and Hold Only Index Funds

This is not bad advice for the average investor just starting out or going it on their own.  This comes down to whether you believe in active or passive investing and cost.  Index funds charge lower expense ratios than actively managed mutual funds.  Therefore, if you believe that no one can beat the market, it is pointless to pay more for active management.  We embrace a more active investment philosophy and acknowledge that while not everyone can beat the market, talented managers that can provide additional returns can be worth the extra cost.  Another problem with this advice is that most investors can not stick to a buy and hold strategy and tend to make portfolio changes based on short term market volatility and emotional biases.  This leads to sub-par performance over time.

Photo Credit: Steph Anderson

This Little Piggy Goes to Target.

When we start working with a new client, one of the first steps is typically consolidating the number of accounts they have outstanding.  In our experience this makes your finances easier to manage by reducing the mental accounting that needs to take place every time a financial decision is made.  While this has always made sense to us from a simplification standpoint, it also seems to result in lower overall spending.  Recent research from the University of Utah found that “consumers who use multiple accounts spend more money than those with a single account.”

Don’t Bucket Your Savings

While this process ultimately simplifies financial management for our clients, the transition from multiple accounts to just a few is not always an easy one.  Most of us want to use a “bucketing” strategy to save for different life goals.  However, in the event of a true emergency or change of plans, money may need to come from a fund with another intended purpose.  This is why we feel consolidating the number of accounts outstanding offers the greatest flexibility in terms of cash flow and investment, not to mention it may also help with your budgeting goals.

Photo Credit: A National Acrobat

Photo Credit: David Remer's Hammer Photography

While we emphasize the importance of annual tax planning, it’s also important to not let tax avoidance override your other financial goals.  Liz Davidson, of Forbes.com, wrote a nice piece describing how people lose money when they let tax issues dominate their investment decisions. The article does a great job of examining why payments to the IRS can be such a tough pill to swallow and identifies traps most of us fall into in an attempt to shrink our tax bill.

Please contact us if you have questions about appropriate strategies for reducing your tax bill while also staying on track for your long term goals.

photo credit - cliff1066™

If you invest in your employer sponsored retirement plan you have probably heard of Target-Date funds.  These funds are characterized as investments that change the allocation of stocks, bonds, and cash according to your specified retirement date.  In theory, these funds should progressively reduce risk exposure as the target date approaches.  However, there are no universal allocation standards, so the returns have varied widely from plan to plan.  This was highlighted by the market downturn in 2008 when funds with a target date of 2010 lost an average of 25%, with some posting losses of over 40%.

While the concept of these funds is great; taking the guesswork out of retirement planning for the average investor; further research, transparency, and likely regulation is required.  To that aim the Senate Special Committee on Aging will be introducing legislation that would require fiduciary responsibility for target-date fund managers. This is a step in the right direction, but there are still many other concerns that warrant attention.  In October 2009 Morningstar’s vice president of research Jon Rekenthaler testified before the Senate Special Committee on Aging.  You can read his testimony here:

“Five Concerns About Target Date Funds”

http://advisor.morningstar.com/articles/article.asp?docId=17632

“Advisor Perspectives” recently reviewed the predictive ability of the star rating system over a full market cycle and the results of their study were similar to our experiences.  In a recent letter published by Robert Huebscher, he states, “We concur that the ratings are not an effective forward-looking measure, but that is not how they are used in the industry.  By calling this calculation a rating, Morningstar imparts at least the implicit endorsement of higher- rated funds and an expectation that their relative performance advantage will endure.”

To read the full article and learn more about fund performance over a full market cycle go to:

http://www.advisorperspectives.com/newsletters09/Morningstar_Ratings_Fail_over_a_Full_Market_Cycle.php

On November 1^st, 2009 Allison Berger completed the Rex Healthcare Half Marathon in Raleigh, NC.  She finished with a time of about 2:05:20.  Although the course was hillier than her training runs she still beat her goal of running 10 minute miles.  This was the first distance running event that Allison has participated in and she plans to do more in the future.

The recent issue of Investment News details these findings:

“…funds whose managers invest $1 million or more of their own money in their fund ranked in the 42nd performance percentile, on average, over the five-year period through July. That means they outperformed 58% of their peers.”

To read the full article click here: InvestmentNews

The following is written by Allison Berger, CFP®.

The club was created for students who are interested in careers in financial planning, who want to expand their networks and their knowledge of personal finance.

Berger & Smith talked to the group of students about how they started their careers, the importance of managing their personal finances, and some advice on finding jobs in a tough economic climate.

“Be creative.” said Berger. “Everyone has to start somewhere. If you are interested in a specific field, be open to taking an internship or part-time position if you are not able to find full-time work. This could always lead to a more permanent situation or provide you with skills that make you a more attractive candidate to other employers.”

They also encouraged students to start a 401k plan at work, citing that “Starting a savings and investment plan early in your career can help you accumulate wealth more easily than someone who doesn’t start saving until their 30’s or 40’s.”

Chad Smith & Allison Berger are NCSU College of Management alumni, both receiving bachelor’s degrees in Business Administration with concentrations in Finance (in 2000 & 2004, respectively).

To read more advice given by Smith & Berger, and learn more about the Personal Finance Club, click here for the full article.

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.