Financial Symmetry News & Views

Posts Tagged ‘financial planning’

In the world we live in today, we are inundated with 24 hour news and information from more sources than ever before.  New gadgets and devices continue to roll out to capture our attention with fascinating technologies.

Smartphones and other portable devices allow the user to stay connected from even the most remote locations.  Social networking sites like Twitter and Facebook have amplified the chatter to a level that no one would have dreamed of at the beginning of the millennium.

A troubling byproduct of this flood of information is the ease with which extreme messages are being propagated.  From cable news shows to the blog-o-sphere, we are being bombarded with ideological beliefs that are driven mostly by emotion and have little use for facts.  During turbulent times especially, irrational views can become pervasive because they touch emotional nerves that otherwise would not be as sensitive.

A Ratings Game

Larger than life persona’s on both ends of the spectrum do their best to keep us all in a constant state of anxiety because they know that if we are provoked enough we will continue to tune in.  The name of the game is ratings, because higher ratings translate into higher advertising revenue.

Glenn Beck and Michael Moore are polar opposites on the political sphere, but they have more in common than either one of them would care to admit.  The challenge they face is trying to blend editorial content within a format that is meant to entertain.  They both endeavor to create an emotional response in their audiences by enhancing certain aspects of the subject matter while leaving important details out that would possibly cause a different reaction.

Motivation that was born of their formative experiences is altered by a cycle of capitalistic one-upmanship that can distort even the purest of intentions.

Unfortunately, blurring of the lines between truth and fiction in the information landscape is all too common, and often the consequence for the consumer is drawing a conclusion without having heard the full story.

Separating Fact from Fiction

Keeping fact separated from emotion is an important part of our job and something that we spend a great deal of time doing.  A healthy dose of skepticism is necessary, as we have found that even the most respected source of information can often be influenced by their biases.

We employ various methods, such as quantitative research, to enhance the opinions and analysis gathered from our trusted sources.  We also talk to people in our industry as well as our clients to get a perspective as to how others are experiencing the economy.

There is no easy solution to charting the course that we feel will provide the best opportunity for success.  By remaining consistently disciplined in a long-term approach to investing, we believe that we can gain an advantage by filtering out the noise.

Photo Credit : truthout.org

Feeling a little nervous about the recent drop in the market? You’re in good company as it’s perfectly normal in this type of environment.  In fact, we’d be surprised if the drop had not made you nervous as that is what the majority of people feel after a rise over 14 months long.  Here are a few tips to remember that should calm your nerves:

Reverse Your Emotions

Successful investing requires turning emotions on their head.  When most people are nervous is the time to see opportunity, and when most people are fearless is the time to be scared.

The stock market did worse during the 2000’s than it did in the 1930’s! Do you remember how you felt in September of 2002?  Or even last February 2009? These periods are when many people were giving up on the stock market.  Fear had brainwashed their rational decision-making skills. If they would have realized in 2002 that their investments were about to go on a multi-year bull market ride, would their fear have been as pronounced?

On the other hand, people’s attitudes of early 2000 and October 2007 were ripe with optimism and fearlessness.  This is a direct contrast to the fear and pessimism that are now dominant.  Optimism makes people overpay for opportunity, while fear makes them overpay for safety.

It’s important to recognize that we will continue to have economic scares in the future (as we always have in the past).   Economic Cycle Research Institute had a recent write-up about the lag effect in people’s perception after a recession.

Take Inventory of Your Short-Term Holdings

What percentage of your investments are in safe areas?  The basic rule of thumb is to have 3-6 months of your living expenses in a safe place with little risk.  This allows you some breathing room for the money you have invested in the markets.  Knowing that you have a cushion of cash and bonds to access for your everyday expenses gives riskier investments time to ride through the stock market dips.

*Photo Credit: pasukaru76

No one likes potholes.  Not only because of the annoyance they create, but also the added cost of getting your car realigned as a result. Often times, you may not hit anything major but your steering wheel begins to shake and your car starts to pull to the left after reaching 45mph.  This more subtle warning sign lets you know it’s time for an alignment to prevent extra wear and tear on your tires or even worse, a blow-out.

Watch Out For Potholes

Unfortunately, with an investment portfolio we don’t always hit a pothole or get a steering wheel shake to let us know it’s time for realignment.  In fact, when investors do begin seeing bad returns, it often leads them to make bad choices with their investments resulting in costly mistakes. We have become well aware of this natural human tendency which is why we rely heavily on our research themes.  By conducting our investment review process quarterly, we can review client portfolios and realign according to our research themes if necessary. During our analysis, we monitor how closely the client’s current investment mix matches our long-term investment strategy.  We also measure the level at which our clients’ stocks are positioned within the allocation ranges we establish during our initial planning work.  If the stock percentage is above or below the range, we know an adjustment should be made.

Mental Accounting

Many investors have a tendency to bucket their investment accounts.  They assign different purposes for their accounts which in turn require different investment strategies for each account.  For an investor to reach their optimal portfolio return, we feel it’s vital to have a coordinated investment strategy across all investment accounts.  Qualified plans give us the best example of this philosophy.  Many investment choices offered in 401k’s and 403b’s are limited compared to what you might be able to access in other accounts.  In a 401k, there may be a great international fund choice but only average domestic choices.  In this scenario, we may want to use the attractive international investment for all the funds in the 401k and surround it with more quality choices in other accounts where we have more investment selection.

I’ll Owe More in Taxes?!?

Don’t let the tax tail wag the investment dog.  In other words, there are times when heavy realized gains in a holding could lower the motivation to sell if you were strictly looking at the scenario from a tax perspective.  However, if this same security represented 75% of the portfolio and was comprised of one individual stock, the concentration risk would most likely outweigh the desire to hold on to the stock to avoid incurring a large capital gain.  Decisions such as these take careful evaluation and can only truly be assessed by taking the “big picture” into consideration.

Other Factors

Our investment review process allows us to assure our client’s portfolio is in good working order. To accomplish this, we also consider specific factors such as a client’s age, family relationships, tax considerations, risk levels, and the latest notes and communications with the client to assure we are not missing any potential improvements that could be made to their overall investment situation.  Our investment review process helps us take great care in assuring our client’s investment mix matches their risk preferences. Do you have a review process for your investments?

This is the second part of a 3-part series we’re calling “Behind the Scenes.” It is our hope that this series will give our clients a more transparent look at our business so they can better understand the diligence we employ with each client review.

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.

In response to the many fears and uncertainties that arose during the recent economic crisis, The National Association of Personal Financial Advisors (NAPFA) Consumer Education Foundation sponsored multiple financial advice events around the country as part of the “Your Money Bus” tour.  On Tuesday January 19^th, the “Your Money Bus” rolled in to downtown Raleigh, in partnership with NC State Treasurer Janet Cowell’s office.

With unemployment hovering around 10% and dramatic swings in the stock market, the need for financial advice was very apparent in the crowd of more than 85 that showed up at the State Government Complex in downtown Raleigh.  The impressive turnout of people came with a wide mix of questions that dealt with everything from how much and in which accounts they should be saving to which debts they should be paying down the quickest.

Partners of Financial Symmetry, Allison Berger and Chad Smith, participated in the event for the second consecutive year.

“We’ve really enjoyed being involved with the ‘Your Money Bus’ tour over the last two years.  It’s a great opportunity to spread financial literacy and make a difference in our community.” -Allison Berger

“Volunteering our advice has been a neat way to provide people with action steps that can help them gain some peace of mind when dealing with their finances.” -Chad Smith

Have you made your 2009 Roth IRA contribution?

If you have not yet made the maximum contribution, you still have time!  Tax payers have until April 15^th of 2010 to make their Roth contributions for the 2009 tax year.  If you are within the income limitations to make contributions, a Roth IRA is an excellent investment account as investment growth is tax deferred and withdrawals in retirement can be tax free.  For 2009, single filers are able to fund their Roth IRAs with 100% of the contribution limits if their income is below $105,000.  Their amount of contribution availability drops if they are above the $105,000 and are phased out completely at $120,000.  For Married Filing Joint taxpayers, income restraints begin at $166,000 and end at $176,000.

Looking forward for 2010 contributions, contribution limits for this year have stayed the same.  This includes the limits for the Roth and Traditional IRAs and the majority of employer sponsored plans such as 401ks and 403bs. A very good practice is to contribute enough of your salary to receive at least the employer match.  Also, pay raises often present an easy opportunity to increase your deferral, while reducing your adjusted gross income.

The contribution limits for nearly all types of retirement plans are listed in the following chart:

Qualified Plans	2009	2010
401k, Roth 401k, and 403b plans	$16,500	$16,500
Catch-up for ages 50 & over	$5,500	$5,500
457 Plans of tax exempt employers	$16,500	$16,500
Catch-up for ages 50 & over	$5,500	$5,500
SIMPLE IRA or SIMPLE 401k plans	$11,500	$11,500
Catch-up for ages 50 & over	$2,500	$2,500
Limits on annual additions to SEP Plans	$49,000	$49,000
Traditional and Roth IRAs	$5000	$5000
Catch-up for ages 50 & over	$1000	$1000

Our wealth management service monitors your income and determines every year how much you should be contributing to each of these investment accounts.  It also reviews your income tax and estate picture, which may provide opportunities for tax savings.  If you are interested in this service, please contact us.

Even though 2010 is almost here, you still have time to take advantage of some 2009 tax planning strategies.  Here are some suggestions to consider before ringing in the New Year.

• Should you take losses or pull in capital gains?  It depends on your likely tax bracket…Take a look at your 2008 tax return. The IRS will allow taxpayers to deduct a maximum of $3000 in investment losses against ordinary income.  Many investors had a lot more than $3000 in realized losses in 2008 and, as a result, have a carry forward of the unused losses to 2009.  The opportunity now is that the IRS allows an unlimited amount of realized investment gains to be offset by realized investment losses.  So if you held on to an investment that has recovered much of its value this year, now may be a good time to sell.  If you don’t have any losses from 2008 to use consider selling something at a loss now.  Like we said above, the IRS allows $3000 of realized investment losses to be used as a deduction against ordinary income.  If you are in a higher tax bracket, that can be a valuable tax savings.

• If you are in the 10 and 15 percent tax brackets you can realize capital gains on investments held for more than a year at a zero percent tax rate in 2009.

• Watch out for the social security bubble – Up to 85% of your benefits could be subject to income taxation depending on other sources of income.

• Taxpayers normally subject to required minimum distributions from tax deferred accounts have been granted a waiver for 2009. It may make sense, however, to take some amount from those accounts depending on tax bracket.  Also, remember that you have sixty days from the distribution date to rollover into an IRA if you change your mind.

• Look at making a Roth conversion.  Because of the tax-free nature of the withdrawals, you need to consider your current tax bracket vs. your future tax bracket.

• Consider donating appreciated stock rather than writing a check.

• Make your property tax and estimated state income tax payments by December 31 if you want the write off for federal tax purposes.  Make sure that you consider the implications for alternative minimum tax.

• Weigh 2009 and 2010 together.  For example, you might want to wait until January to make property tax and state estimated tax payments if you think you will be in a higher tax bracket in 2010.

• If you are in the position to do so, you can gift to as many individuals as you wish up to $13,000 as the allowed gift tax exclusion.  If you are married, your spouse can gift $13,000 to those same individuals.

• The Hope Education Credit was renamed the “American Opportunity Tax Credit” for 2009.  This maximum credit for the first four years of postsecondary education is now increased to $2500.  This includes course materials costs in addition to tuition and fees.

Not ready to make the jump to an online budgeting tool? Quicken software may be what you are looking for.   The following is a brief overview of Quicken software.  Check back next week for tips on establishing categories in Quicken.

As many of you know, it can be hard to create a budget and even harder to stick to it.  The key to sticking to your planning is continuous monitoring.  To do so, we generally recommend using software like Quicken that is designed specifically for expense tracking.

Financial Symmetry Inc. is proud to announce that Will Holt, CPA, has earned the CFP® designation. Congratulations Will!

The following is Will’s recent letter to our clients announcing his achievement.

When I joined Financial Symmetry a little over three years ago, I came in with a broad goal of using my extensive experience in accounting and taxation to help others achieve their financial objectives.  It soon became apparent to me, however, that having the CERTIFIED FINANCIAL PLANNER™ designation would enhance my hard earned skills and allow me to better serve our clients.  I am proud to announce that upon completion of an intensive preparation course and diligent self study, I successfully passed the comprehensive national CFP® exam in July.  In the months following I completed the remaining requirements to earn the CFP® designation and now possess the necessary credentials to move into a primary financial advisor role.

To earn the CERTIFIED FINANCIAL PLANNER™ designation, candidates must complete what the Board of Standards refers to as the “4 E’s”:

• Education
• Examination
• Experience
• Ethics

In addition to earning a bachelor’s degree, completing a board certified education program, passing the exam, and adhering to a strict code of ethics, candidates must also have completed three years of relevant work experience in an industry related field.  As a licensed Certified Public Accountant I was automatically eligible to apply for the CFP® Certification Examination in lieu of the education requirement.  Thirty hours of continuing education every two years is also required in order to maintain an active CFP® license.

Being part of the team here at Financial Symmetry has enabled me to build upon my experience as a partner in a local CPA firm.  Through working on plan development, personalized investment analysis, and implementing strategies in our high-level client service model, I have added the essential knowledge and skills to move into this new role with our firm.  I look forward to the new challenges and responsibilities that this opportunity presents.

For a complimentary initial consultation with Will Holt, CFP®, CPA,  please contact him at (919) 851-8200 ext. 203 or by email at wholt@financialsymmetry.com.

On Tuesday, September 15th, Allison Berger, CFP® and Chad Smith, CFP®, both junior partners at Financial Symmetry, Inc., returned to their alma mater to speak to NC State’s Personal Finance Club, which is based in the College of Management.

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.