Financial Insight Online - Shari's Personal Blog for Clients and Friends

Conference Call on Our Website: Market Thoughts and Recommendations

2008-10-14T12:34:00.002-05:00

Recently, we held a phone call for any client or guest - incidentally, our call date was Thursday, October 9th - the day before the BIG DROP. It is about a 60 minute presentation with the following agenda:

What Happened and What the Government Did
· Why Sept. and Oct. 08 will go down in market history for volatility
· Why the lending system is so important and it’s effect on the stock market
· What the government has done to try and fix it

What has Changed and Our “Take” on the Situation
· Understanding the fundamental shift that has now taken place
· Are we sure we want to be in the market, still?

5 Key Questions We Think EVERY Investors Should be Asking

What changes might need to be made to your investment strategy given the strong possibility of a flat but volatile market?

How diversified are you and, if suitable, do you hold alternative asset classes in your mix? (real estate, commodities, precious metals, etc.) If so, do you have a strategy to “redirect” if the hedges that worked in similar hard times don’t work again?

If you are contributing and/or withdrawing from your accounts, what changes might be made to potentially capitalize on the volatility instead of letting it work against you?

What has this market done to our retirement projections and what are our realistic chances of recovery?

Given taxes are probably going up fast and our account values down, what tax moves should we be looking at today with our tax advisors – even before year end – to make some lemonade out of lemons?

All of this material is available to you on the Home Page of our website at www.invresource.com. Listen and share!

Federal Elections and Tax Decisions

2008-10-14T12:28:00.002-05:00

The outcome of the 2008 federal elections is anything but certain. For the first time since 1928, there is no presidential heir-apparent, and both houses of Congress are up for grabs. Taxes are very much in the forefront of the political debate. But where is tax policy headed?

At this point, no one knows for sure, but the implications all lead to one, unambiguous conclusion - - With the dawning of 2009, every section of the federal tax code will likely be reviewed and perhaps changed significantly or even eliminated. This brings to light several questions for many more complex investors:

1. Should you consider accelerating income and receiving it in 2008, rather than in later years when ordinary income rates may be higher?

2. Should you consider taxing your compensation currently, rather than deferring compensation to later years when tax rates may be higher?

3. Should you consider deferring discretionary deductible payments (such as charitable contributions) to later years when they may be worth more due to higher tax rates?

4. Should you consider selling assets and recognizing capital gains in 2008, rather than wait to sell in later years when the capital gains rate may be higher?

5. Are you eligible to take advantage of the 0% capital gains rate available in 2008? Can we manage your taxable income to qualify for that rate?

6. Should we review your estate planning when the outlines of estate tax reform become clearer?

7. Should you be gifting assets to family members, or others, in lower tax brackets, so the earnings on those assets are not subject to higher tax rates (recognizing that gifts to minors may be taxed at your rate)?

Answering these questions is anything but easy. If you find yourself thinking the same thing, then likely we should talk. Word about our company and the services/advice we give spreads one person at a time. I look forward to a call from you if you so feel we could be of assistance.

Worst Dow Drop of the Decade...and longer...

2008-09-30T07:39:00.002-05:00

Financial markets fell off a cliff Monday, with the Dow Industrial Average (an unmanaged index of 30 widely held stocks) finishing the day at 10,365.45..... down 777.68 points, or 6.98%, from Friday's close. The drop occurred after the House of Representatives unexpectedly rejected a proposed $700 billion package designed to relieve the financial industry of its troubled mortgage-related debt. Despite Monday’s market plunge, September 29, 2008, in all likelihood will NOT replace the "Black Monday" of October 19, 1987, when the Dow Industrial Average (an unmanaged index of 30 widely held stocks) lost more than 22% of its value. Other widely followed indices fell spectacularly Monday, as well.

To add to the gloom, yet another marquee bank was broken up as Citigroup agreed to take over the banking operations of Wachovia for $2.2 billion. And that just days after Washington Mutual collapsed and was gathered up by JPMorgan Chase for $1.9 billion. The redrawing of the American financial landscape continues unabated, and experts tend to agree that several smaller banks are likely to need rescuing. Most banks that have either failed or been swallowed up found themselves in trouble because they were heavily exposed to mortgage-related investments.

Observers were dumbfounded by the failure of the bailout bill, a massive measure designed to allow the government to buy up bad and suspect debt from troubled financial institutions. After more than a week of debate, meetings and political compromises, Congressional leaders on both sides of the aisle thought that their bipartisan approach would spur House passage on Monday. As you have often heard, confidence is a determining factor in markets and market value. When confidence is shaken badly, as it has been over the past year and over the past few weeks in particular, the only solution is to restore it. The bailout measure was designed to do that. While it was defeated Monday, it seems likely to somehow be resurrected. Late in the day it was reported that the House will reconvene on Thursday to try again.

In such a fluid situation, investors with a long-term horizon may best be served by keeping a watchful eye on the situation and avoiding hasty moves. No one knows how deep the lack of confidence and financial industry troubles will drive the markets, but, historically, such black periods...sometimes quickly, more often, slowly...have been wiped away by subsequent restoration of confidence and, with it, value. If you have questions about the state of the financial services industry, the meaning of the bailout package, or would like to discuss how your portfolio and specific investments are faring, please feel free to contact me.

REMEMBER WE HAVE A CONFERENCE CALL FOR ANYONE TO CALL IN NEXT THURSDAY, OCT 9 @ 9 am CST to discuss just what our thoughts are (the moves we are making and suggesting) and recovery strategies.

CALL 877-639-1065. CONFERENCE ID# 66391211. Feel free to share this with friends.

Also, we are evaluating key moves within ALL ACCOUNTS to take advantage of a market drop (which might include taking more risk at this point, adding more to accounts, or tweaking holdings). Today will be a key day for me to do additional evaluation so don't be surprised if you hear from any one of us in the next few days for moves and options. If you have given us discretionary authority on your accounts, you can bet we have been and are already acting. Not all accounts can have the ability for us to do moves without your authorization , but if you would like us to implement this on your accounts, we will try everything we can do to get the account to qualify for that service….we especially think this is a huge benefit in today's environment. Let us know if you'd like to convert or see if your account can be converted to this type of arrangement going forward.

Keep the faith and know we are on the job!

Why You Need a Power of Attorney

2008-09-23T12:31:00.004-05:00

What happens if you are in a serious accident, laid up in a hospital somewhere, and you need to make a financial decision?

If you have accounts in your individual name only or own IRA's, a power of attorney may be the only way to have financial decisions made if you are unable to make them. For example, let's say Mrs. Smith owns an IRA with a lot of stock in it and the value of the stock is dropping rapidly. If her broker calls to suggest an action and finds out she is in serious condition at the local hospital, nothing can be done....unless Mrs. Smith has prepared for such an occurrence.

Many individuals feel they've "covered their bases" if they draw up a will. After all, the will expresses their wishes for what happens with their property if something happens to them. So true. But what if you don't die, the will never goes into effect. Statistically speaking, many are more likely to be incapacitated than to die. A power of attorney is a relatively inexpensive legal document that when properly executed designates who can make financial decisions on your behalf. Usually there is an alternate person listed if the first cannot serve. You can choose whether to set up a power of attorney that 'kicks in' anytime you are unable to be located or just upon incapacity. If Mrs. Smith (above) gave her son permission to act on her behalf if incapacitated through a power of attorney, he could decide whether or not to sell the stock in the IRA.

One common problem with the power of attorney is the date listed on the document. If the date is more than 90 to 180 days old, which is likely the case, there may be some question as to whether the power of attorney is still in effect. While this may be frustrating, these controls are put in place to protect the person for whom the power of attorney is drawn up.

For example, Mrs. Smith's son may have to prove that the power of attorney is still in effect because it may have been set up 5 years ago. If this is the case, how does the broker know that Mrs. Smith hasn't done a new power of attorney with someone else listed in the last month? The son may have to sign a "Full Force and Effect Letter", in which he must testify that the power of attorney is still "good" and that his actions are indeed authorized. This way, if the son has been replaced as current power of attorney, the financial institution is not responsible for taking direction from the wrong person. All fault and blame would be on the son.

Consult with your attorney about the "ins and outs" of any legal document you have drawn on your behalf....And, for past powers of attorney already drawn up, ask your attorney if you need it updated with any of the latest language.

The Greatest Women's Shoes on Earth

2008-09-12T16:20:00.002-05:00

I always love a good tip! Especially on shoes!

Check out the Wall St. Journal link on Sarah Palin's shoes and a few links to find them. They are sexy, classy, and make a statement. What a great combination!

WSJ Article:
http://online.wsj.com/article/SB122116644864624975.html

Those Shoes:
http://www.shoes.com/naughtymonkey/

http://www.amazon.com/s?ie=UTF8&rh=n%3A1040668%2Cp_4%3ANaughty%20Monkey&page=1

Don't Assume Putting It All in a 401K is Wise

2008-08-20T15:48:00.004-05:00

"My CPA told me to put all I can in my retirement plan. I get a tax deduction for putting money in today, so this gives me a lot ofhelp now while my income is high. I will ultimately pay that tax when my income is lower in retirement."

If saving tax TODAY is your number one goal, then likely putting the maximum allowed into an employer sponsored retirement plan is a good move. It is one of the few deductions taxpayers have left. Certainly contributing any funds to an account up to the employer match is a good move. It's free money!

But what about TOMORROW? If you knew you wouldn't be in a lower tax bracket in retirement and actually pay more tax later, would you still put all you could in your 401(k)? It may be time to rethink.

"In the old days", people worked at the same company for years and years and years. They held the same job, lived in the same house,and had the same routine. In retirement, life geared down and folks lived on less. Tax rates were less because income was less. Today, retirement doesn't mean the same thing. People are retiring earlier or higher incomes. Retirees are having a second family, getting their pilots license, starting a second career, buying beach houses, traveling, or at least spending their money on theirgrand kids. The goal of many financial plans today is to maintain or even increase living standards in retirement. This requires more to be saved.

With proper planning and good investments, this can result in higher account balances, with the goal of generating more income in retirement than in their working years. If tax rates don't change, this means more taxes in retirement, not less.

Other factors may also point to higher tax rates in retirement. First, tax rates today are at an all time low, so who's to say they won't go up. Second, who's to say that our rates won't go up because we inherit IRA money. If these situations occur, many may find they are actually in a higher tax bracket in retirement. This will mean taxable accounts like 401(k)'s and IRA's will cause "a world of hurt" when funds are taken out.

Regardless of whether you choose to put money in a pre-tax retirement plan, you may want to hedge your bets by obtaining investments that have different tax outcomes. Some investments have you pay tax year by year at a preferred tax rate (10-20% capital gains rate). Some investments will allow you to skip tax today and pay tax only on your earnings tomorrow. Others allow for tax free withdrawals.

Diversifying what happens to your tax picture is a wise move instead of blindly sinking all your money in one place.

Invest or Pay Off Mortgage?

2008-08-13T18:18:00.003-05:00

When the average person "comes into money," one of the first inclinations is to pay off debt. For many, the mortgage is the largest debt, so it is a likely target for early payoff. After all, aren't we often told to pay off credit cards at the end of the month? Don't we hear tapes playing in our heads to "save our pennies" and pay cash for big expenses like car purchases or major home improvements? It just seems like a "no-brainer" to pay off large debts when money comes our way.

This question of whether to pay off mortgage debt is one of the most highly debated issues in the financial planning community and the answer is anything but clear-cut. The heart of the issue of paying off your mortgage is it is often an emotional decision, not a financial one. Let's say we have an individual who had an inheritance and the last thing he would want is to do something risky with the money. The tendency may be to do something in his mind that would be deemed "responsible" by the grantor of the funds. Paying off the house certainly falls in that category. But this decision is not driven from a numbers standpoint, it's emotionally driven.

If, however, an individual wanted to understand which choice is financially better, several things should be considered - tax bracket and risk tolerance being two big items.

Financially speaking, the starting point to determining whether paying off mortgage debt is the best solution for you starts with calculating how much that debt is costing you. Look at the interest rate. Let's assume the rate is 7%. If you get a tax break for making mortgage payments like many do, then your cost isn't the whole 7%. It's the 7% rate, minus the tax break.

This means the actual cost of a 7% mortgage to an average taxpayer is closer to 5 or 5.5%. The higher your tax bracket, the lower the interest cost.

The next step is to determine if you can invest the money over a period of time and consistently make more than what you pay in interest. If an investment will make you more than 5.5%, perhaps not paying off the mortgage and investing the money is the wiser move. In reality, the investment could even pay a monthly amount to help offset some of the mortgage payment. What the investment makes above the monthly payout just grows that investment pot even more.

Today, we don't see a guaranteed 5.5% return advertised much from a bank, so there's no way to consistently make that 5.5% in something as safe as the bank. For conservative investors, perhaps the best option is to pay off that debt. But those with a higher risk tolerance may want to look at investment alternatives to produce potential higher returns.

Remember, the lower the interest rate and the more open an individual is to investing outside the bank, the more financially sound investing becomes versus paying off the mortgage.

Investment Thoughts - Second Quarter 2008

2008-07-29T13:06:00.004-05:00

Last quarter, I mentioned it was my belief that the jury was still out on whether this market and economy was going to turn decidedly worse. The jury appears to be headed back into the building and I have some very definite thoughts about investment direction and strategy.

Although I am still cautious and feel that recovery will not be a quick event, I do think that a good portion of the negative market action is behind us. As of 3/31/08, the market was down YTD as measured by the S&P 500 -9.4%. By the end of May, the market had just about recovered all of its loss before heading south to an -11.9% loss as of 6/30/08. Every newspaper and television program is negative, negative, negative and selling in the market since the end of May is at record levels. The last week of June gave the first signs of stability. Even commentators on CNBC on 7/3/08 started asking the question "is it a bull market from here?" and "have we seen the bottom?". This stability after some quick pain plus a few pieces of economic data released over the past few weeks gives me hope that perhaps recovery may come in the near future.

· First, the GDP (Gross Domestic Product - economic growth) figures for the first quarter were revised upward to a 1% annual growth rate (versus a negative one). Although not ideal, this positive number could indicate that any recession we might be experiencing will be slight and shallow. For those concerned we might have another 2000-2002 bust, I wholeheartedly disagree based on today's economic numbers.
· Second, wages continue to increase. This is a key indicator, according to our Senior Economist Scott Brown who many of you heard speak a year or so ago at our office. It fuels consumer spending. If wages backtrack, we have many more headwinds in front of us. So far, so good.
· Third, although inflation is very real, the oil price issue must be kept in perspective. Energy and food comprise only about 25% of the total economy, so despite everyone belly-aching and a fear that we are going to return to the 1970's era, the economic data does not point in that direction. Higher prices on food and gas will restrict spending and this will likely hold down company profits for a while, but, anemic growth is still growth.

In markets like today's, it is tough to make money and control volatility. In the next 6-12 months, probably CD's and cash won’t pay much. Likewise, the majority of stocks and equities likely won't be big winners. Even the return on bonds will likely be low. But, there are ways to approach these kinds of markets and attempt to make lemonade out of lemons. We are attempting 5 key strategies to provide value during these tough times:

1. We continue to be ultra diversified and have included a variety of bonds and alternative investment asset classes to hedge against stock market declines and inflation. We've controlled the losses compared to the market, which means bigger balances on which to gain ground once the market turns up.

2. We are putting our managers to additional performance tests against their peers and most are holding up beautifully through these benchmark tests. It is even more imperative today to have managers who pick the few stocks that are good performers and quickly cut their losses on mistakes. The one manager who is not meeting our new criteria has been placed on a 3 month watch list and if performance doesn't change, they will be in danger of losing their spot in our lineup.

3. We are closely monitoring sectors of the market which are making money - - commodities and energy. In my First Quarter Investment Update, I cited my nervousness about the continued uptrend in commodities, wondering if the party might be over for this asset class. So, far the party continues with growth of over 20% in the category year to date. Likewise, energy has been a solid performer with similar performance. Although both of these investment categories do carry a lot of risk and volatility, they have been successfully giving positive returns and I expect they will be the saving grace to our performance figures this year.

Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. There may be sharp price fluctuations even during periods when prices overall are rising. Investing in energy or any other sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.

4. In our more actively traded accounts, we have taken profits on our winners (commodities, energy), placed in cash, and are strategically and actively looking for buying opportunities to put money back to work for aggressive investors. For our more moderate investors, we are holding much of this in cash or buying into more stability-driven investments. In this way, we are attempting to "sell high" (profit take) and either "buy low" now for aggressive investors or simply "pocket those profits" for our moderate clients. This active strategy, we believe, is the strongest component and contributor to adding value over the past 9 months since the market has been falling - especially year to date.

5. We have a revised real estate strategy which will hopefully allow us to participate in a market we believe in, yet recoup some of the recent year to date losses. Holding commercial properties in a portfolio has been a popular way to diversify funds for years but in the last year this has been a challenge. Our 2007 performance was fine, although the index fell sharply. In 2008, our investments in this area lost 14% as of 6/30/08. Today, the fundamentals in the commercial real estate market are still good. When a business rents office space, it signs a 5-10 year lease so cash flow is steady. Property values have been pushed down in the backlash of the public’s "all real estate is bad" mentality, which has caused our recent losses but also presents money managers to buy at tremendous bargains (17-25% discounts). Therefore, we have exited our REIT holdings only for more conservative clients. For our more moderate and aggressive investors, we continue to either hold these investments or have sold off portions, only to initiate a re-buy back into the same investment over the next 6 months (anticipating we might actually buy a little lower in the short term potentially boosting our overall return if the market continues to have difficulty in the short run, even before the category as a whole starts recovering).

Be advised that investments in real estate and REIT's have various risks, including possible lack of liquidity and devaluation based on adverse economic and regulatory changes. Additionally, investments in REIT's will fluctuate with the value of the underlying properties, and the price at redemption may be more or less than the original price paid.

Life is good. Hold your breath. We are on the job now, more than ever! And, we thank each of you for your trust and confidence.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Shari Burnum and not necessarily those of RJFS or Raymond James. Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results.

Inheriting an IRA from a Deceased Spouse

2008-05-12T15:54:00.003-05:00

The IRS gives a big break to spouses in this situation. As long as the money stays underneath some type of IRA umbrella and isn't withdrawn, no tax is owed. The key is knowing what rights you do and don't have. The first rule to know is that a spouse can follow the same basic pattern money-wise as an IRA beneficiary after the death of their spouse as before death. If withdrawals have been made in the past, some type of withdrawal can likely continue if set up properly.

The second rule to know is that a spouse has three basic options with regard to themoney. 1. Cash out the IRA all at once or in parts and pay the tax, which may be a larger amount if the withdrawal is made all at once. In addition, there maybe a 10% penalty for withdrawal if the either spouse is or was under age 591/2 . 2. Rollover the IRA funds to your own IRA. 3. Rollover the IRA funds to a Beneficiary IRA in the name of the deceased owner.

Two scenarios usually develop - one for younger folks and one for older folks. For those under age 70 1/2 or those who aren't intending to withdraw any money from the IRA: Most people look at rolling over the deceased person's IRA to their own IRA because no tax is paid (option #2). However, rolling over money to a Beneficiary IRA (option #3) may be a better choice if either person is under age 59 1/2. The Beneficiary IRA allows the spouse beneficiary to withdraw funds as if their age was the same as the deceased person. So, if Mr. Smith who is 60 dies and leaves his IRA to his wife who is 55, if she just rolls the money to her own IRA (like #2), she would incur a penalty if she touched it. She would have to wait almost 5 years to access that money penalty free. If the money were rolled to a Beneficiary IRA (#3), she could access funds with no IRS penalty. Withdrawals will be taxable in all cases, but the extra 10% penalty could be averted. In situations where life is in a state of flux, such as this, retaining the flexibility to tap money penalty free may come in handy. For those over age 70 1/2 and who are taking mandatory distributions: The spousal beneficiary can continue those distributions or alter them. There are other rules, but this is the short answer.

The bottom line is that a spousal beneficiary can rollover funds in some way, shape, or form and not pay tax. If however, they wish to withdraw funds, this can be arranged but planning must be done to avoid as much tax or penalty as possible. Consulting a qualified tax or financial professional would be wise in any case.

Local Column Cancelled in The Huntsville Times

2008-03-25T15:29:00.000-05:00

As of a few weeks ago, The Huntsville Times Business Editor decided to take the paper in another direction - with more of a national focus. As the last local columnist writing for the Business Section, my column was "cut" and it will no longer been published. If you have questions or concerns about this action that you'd like to submit, please feel free to contact Steve Byers at steve.byers@htimes.com. Or, you could write an editoral if you'd like to share your opinions more widely, letters of no more than 250 words can be mailed to: Your Views, The Huntsville Times, P.O. Box 1487, Huntsville AL 35807 or faxed to 256-532-4420 (typed letters only) or emailed to: letters@htimes.com.

If you choose to write the Editor, here are the rules: Letters or emails must bear the writer's full name including middle initial, address with zip code, and daytime phone number. Middle initials and zip codes will be published. Other information is used for verification but not published or given to other parties. Individual letter-writers may be limited to one published letter every 30 days. Letters become the property of The Huntsville Times and will not be returned. Letters may be edited and may be re-used in any medium.

I share this with you for a few key reasons. First of all, I want you to know that I see this as a natural evolution in my career and life - a positive move forward. I have been praying for God to "open and close the right doors". Writing the column was excellent "press" for our firm but was certainly a drain on my time. So, my intention is not to have a public outcry for the column in hopes of having it reinstated. My hope is that our local paper will receive comments from people across our city to make our paper better. There is quite a difference in opinion at The Times as it's future direction. They are at a critical point, losing market share to the internet. Any feedback they can get from loyal readers will be of help. Although I got many comments on my column, The Times heard very little. They need our opinions, our voices, and our ideas. I hope that many of you will take the time to email Steve and the Editorial desk with your feedback on how to help Huntsville continue to grow, be progressive, and be supported by a strong paper with a variety of information.

Inheriting an IRA or 401K - If You Aren't a Spouse

2008-03-20T11:22:00.004-05:00

A tremendous number of Americans have money in an IRA. Many more are sinking huge portions of their salaries into a 401(k) accounts. With an increasing number of employers also contributing matching funds, it is no wonder that the fastest growing, largest pot of money in our society today sits in some sort of retirement plan.

Many never think about what happens when family members inherit these accounts and The Tax Man wants his piece of the action.

A ticking time bomb.
IRA's and 401(k)'s are not inherently bad investments. Quite to the contrary! Most of them trigger a tax break when money is added. At the very least, no tax is owed on earnings until the money is ultimately touched. There is an increasing trend to retire and either live off the earnings of these accounts or never touch them at all. Even the mandatory withdrawals at age 70 ½ don't deplete the account for a long time. This leaves a lot of money to beneficiaries that has never been taxed. Leaving money to your spouse as beneficiary doesn't trigger any taxes if no withdrawals are made. But once the funds finally make it to the children, that's when things get interesting. Too many times, the children just cash out the whole account minus the tax. On average, this leaves only 50-80% of the balance in their hands.

Beneficiaries other than a spouse can cash out and pay a ton of tax OR take payments which allow most of the money to continue to grow. This cushions the tax blow. Payments are made from an account called a Beneficiary IRA and can be paid out - for as short as 5 years or as long as a lifetime. For more money in the long run, the Beneficiary IRA is the only way to go.

Let's look at an example.
Out of a $500,000 IRA, if a son decided to cash out, he would walk away with about $300,000 after tax. Instead, if the son were age 50 and set up a Beneficiary IRA, he would start off taking an income of around $16,000 per year AND have close to $750,000 at his age 65 if the investment grew at 6%.

Rules get even more tricky if no beneficiary is listed or if "estate" is listed on the beneficiary form. Also, if the beneficiary is a non-living person (like a charity or trust), then other rules apply.

It is best to consult a qualified financial planner on the subject, especially if your beneficiary has designated multiple children or a charity. You could end up limiting the growth of your 401(k) or IRA when it passes to your heirs just by not knowing your options or dying at the wrong time!

Should You Cancel Life Insurance at Retirement?

2008-02-07T15:06:00.000-06:00

Should I Cancel My Life Insurance When I Retire?

The light at the end of the tunnel. The Big Day – Your Last Day. We all work so hard to get retired that sometimes that there isn’t time to fully think through all the financial changes. We’ve all been taught to get rid of unnecessary expenses but what about life insurance premiums? Should we continue to keep paying?
We suggest that most people review two things when it comes to their life insurance going into retirement.

First, seek advice on how much coverage is actually needed. Perhaps your need for coverage has actually gone down now that children are out of the house. Perhaps your need has gone up because you are using the life insurance as a fall back in the event you die and no pension is left to your spouse. Inflation and your expected longevity (or lack thereof) also plays a role.

There are a few questions you can ask yourself to determine a rough amount of appropriate coverage. In the event of death, do I want to
• pay off my house for my spouse or heirs?
• pay off additional debts?
• pay for the cost of a funeral?
• pay a set amount of monthly money to my spouse since some of my other benefits (pension, social security, etc.)

If the answer to any of these questions is “yes”, then likely you need some type of life insurance.
Second, we suggest that you determine what type of coverage is most appropriate given your new situation. Term insurance is less expensive but goes away after a time. Universal and whole life are more expensive, but build a cash value and are intended to cover you for longer periods of time. Variable universal life is an investment geared cash value type of coverage which also may be worth exploring.

A few last tips:
• If you have cash value built up in a policy already, you will want to evaluate your status. Typically keeping that type of coverage or decreasing your face value amount down to a paid up policy is a way to continue coverage but decrease your expenses going into retirement.
• If you have term insurance, you may want to check to be sure you’ve got coverage that will extend for the period of time you want and perhaps add on some options to purchase additional insurance (or convert it to permanent cash value insurance) with no physical exam.

The bottom line is that life insurance, even in retirement, can play a major role in the whole financial planning process.

Personal 2008 New Years Goals

2008-02-07T14:57:00.000-06:00

Many of you know that I'm a big fan of New Years. It's a chance to throw out the OLD (i.e. what's not working), correct all your problems, and bring in the NEW! I think it's a wise thing for us all to take time to remember how blessed we are and make some intentional changes in our lives to better ourselves. We can be a better person to others if we better ourselves. So, here are some of my goals for the new year.

1. Take off Fridays. Use it as a day to read, have lunch with a friend, volunteer for a community project, or do something non-work related!
2. Make a "date night" for Jamie and I each week. Have a "personal night" at least 1-2 times a month.
3. Take up tennis - - again!!!!
4. Add 10 clients with at least $1 million to invest who also need ongoing financial coordination from our consulting department. Yeah, I know this is a business goal, but it's personal time and interaction that will make this happen.
5. Do some reading on Christian books and those of other religions to better understand my 'path'.
6. Spend some more time with my mother-in-law, who is GREAT.
7. Do something special for our niece, who is about to be a teenager!
8. Complete a house renovation that will transform the "Burnum Manor" as we know it!
9. Take 2 big trips.
10. Reach for balance - daily.
11. Meet with some key people who know more about living and our world's issues than I do. See what they think our solutions are and begin to formulate how I might communicate these to others. We have a whole generation of older people whose stories need to be told.
12. Raise some funds for our church foundation.
13. Leave behind activities that focus my attention on building, building, building. Instead, focus my attention on maintaining and giving away.

Further Thoughts on Repositioning a Portfolio

2008-01-30T15:38:00.000-06:00

Because of the volume of positive comments from my last column, I wanted to share some additional repositioning strategies if you are inclined to move funds in this volatile market. First, let me reiterate that selling after you have lost may not be the best move - - often it's not. Better to be diverse and not so aggressive than to fall big and then try to sell. But for those who may have taken a bit too much risk and want to pull some money off the table, here is some further food for thought:

1. Compare how much you have lost in each investment from 1/1/08 to present with the S&P 500 index for the same time period. If your investment has fallen more than the index, perhaps selling is a mistake. Why? Let's assume your investment lost 15% year to date compared to an 8% loss in the S&P 500. If you'll rebuy back into another equity type of investment, then essentially you are selling at a 15% discount and rebuying into an area that is likely down about 8% - - that's a 7% deficit. You'd need to decide whether you felt comfortable taking a 7% hit.
If your investment hasn't fallen as much as the market, then count yourself lucky and consider whether to ride out the storm OR sell it and invest in something that has fallen even further. The idea would be selling low, but buying into something even lower.

2. If your investment is something more aggressive (or materially different) than the S&P 500 index, also compare your investment performance to the comparable index. If it is acting similar or better than the index, likely there is nothing really wrong with the investment and you just have to decide whether the volatility is something you can stand. Often your time horizon has a lot to do with holding or not. If your investment is performing worse than the index, you might consider cutting your losses.

A good example of this strategy could be applied to the real estate sector. Real estate is an area of the market that institutional investors and large endowment managers routinely hold for the long term because it typically moves independent of the stock market. Returns in this area weren't exactly great last year on the index, although many individual holdings faired pretty well. Year to date, many losses match about what the general market has lost. Therefore, if your sector or your investment holding is something you would likely hold onto for a long period of time and today it just happens to not look so hot, then perhaps holding through the volatility is warranted, assuming this only represents a slice of the portfolio. If the slice has gotten too big, then perhaps cutting some of your losses may be in order.

3. Stay away from sector investments that are too narrow. Sectors can be an excellent way to enhance returns in a difficult market, if you bet right. But trying to be so specific (i.e. buying a single country fund or gold or steel) can get you into trouble because these type of areas are more volatile - good and bad. Even putting a large percentage of the portfolio in one area that is broad can be still be dangerous. Better to limit the percentage you put in any one sector and be sure that the sector can cover lots of areas if you are feeling queezy these days. As an example, if you like the idea of investing in gold but know you are buying at a high in gold prices, consider a precious metals or general commodities investment that hits all sorts of areas and let the manager work out the details.

4. Use dollar cost averaging to your advantage. One potential way to win back losses in a falling market is to sell a portion of assets to cash and reinvest back a portion into those same investments (assuming they were sound in the first place) over a period of weeks or months. You earn interest on the cash and get to buy at lower prices if you are right and the market falls. The only catch is if the market turns up, then you buy higher.

If you are uncomfortable in today's market, it might mean you didn't have the portfolio positioned right in the beginning. Seek wise counsel. Listen for two or three trusted opinions who know your specific situation. Every case is different and unique and the above strategies are not meant to solve every situation for a nervous investor. They are meant to stir up further questions to help you decide on the best course of action.

Repositioning Your Portfolio After You've Lost Money?

2008-01-15T16:28:00.000-06:00

The last month in the market has been no picnic. It often raises the question - Is it too late to sell and reposition after I have already lost money?

It seems contrary to sell out at a loss just to get the portfolio in a better position for the next time the market experiences a correction. Why not wait until the portfolio recovers, then sell and reposition? The question is not easily answered but there are a couple of lines of thought that one should consider.

First, never discount the possibility of further loss. Just because you might be down 10-15% from the last few months does not mean you cannot fall further. Big losses are what kill the values of our portfolios. The recession of 2000-2002 proved that well enough. If you think we are facing some more hard times ahead and you are not happy with your portfolio, you need to think hard whether you can withstand more losses. Remember, when you lose 50%, it takes 100% to get back to even. If you are in investments that are volatile, then you really have to evaluate when this repositioning should take place. If now, even after a 10-15% market correction, then so be it. You might save yourself further loss.

Second, evaluate if there is a chance that the economic circumstances or the management style might recover. If so, perhaps waiting to sell and reposition is the answer. It is pretty amazing how volatile the market can be on the smallest piece of news. For instance, the market may surge up and give us a one day wonder when things like the Fed lowering interest rates or oil dropping far off that $100 mark happen. You might gain 2-4% in a single day if you are watching. That could potentially provide just the opportunity to sell and reposition.

What would my answer be today? My thoughts are that the economy has slipped pretty dramatically to the downside in the last 3-4 weeks. Most people expect a rough six months in the market, so cashing now and repositioning would admit defeat (i.e. you would take your 10-15% loss) but the move might shelter you from further erosion. I hate to sell low as much as the next guy, though, and might see if I could evaluate my more volatile positions and move those around at opportune big market positive days.

There has been a lot of selling of late. Perhaps even with the downward pressure on stocks and selling there might be windows to recover some, sell, and reposition on a good market day. Splitting the difference and selling some positions now and waiting on others could work just fine.

The other advice I might have for those wanting to reposition is to put a portion of the proceeds immediately back to work in the newly restructured portfolio. This way, if the market does decide to head up (and we were too pessimistic in our outlook), you should get upside. Also, dollar cost average back a portion back into the market over time so that if the market falls further, you will continue to have some of your funds buying at these low prices. If you are aggressive, perhaps the dollar cost averaging should be just on more volatile holdings. If not, moving in money each week or so for the whole portfolio is probably the safer bet. You may miss some upside, but you will experience better buying if the market heads down further in the short run.

Every strategy is unique. It is always better to think about risk and understand how much you are taking before the market decides to go backwards, but better late than never!

New Years Goals for Young Professionals

2008-01-02T14:18:00.000-06:00

Is it really worth sacrificing the rest of your life because you lived too high on the hog in your young years? As much as I love that Nickelback song RockStar and see so many Young Professionals living with similar excessive tendencies, many more people have found greater financial success by exercising fiscal discipline, especially in younger years. And what better time to evaluate priorities than a New Year!

For those of you interested - here's a great excerpt from the Nickleback song: I want a brand new house on an episode of Cribs and a bathroom I can play baseball in and a king size tub big enoughf or ten plus me(So what tell me what you need?). I'll need a credit card that's got no limit and a big black jet with a bedroom in it. Gonna join the mile high club at thirty-seven thousand feet. [Chorus:] 'Cause we all just wanna be big rockstars and live in hilltop houses, driving fifteen cars. The girls come easy and the drugs come cheap. We'll all stay skinny 'cause we just won't eat. And we'll hang out in the coolest bars...Every good gold digger's gonna wind up there. Every Playboy bunny with her bleach blond hair. Hey hey I wanna be a rockstar.

It's hard to get past materialism. My comments will focus toward Young Professionals in this column because the habits they develop today can profoundly change their tomorrow. If you are or know a young person with potential, be sure to forward these New Years Financial Resolution ideas.

1. Only buy it if you can afford it. Society encourages big spending. We are taught that our lifestyle must include the latest cell phone, IPod, MP3, or electronic gadget - - or driving a new $40,000 car, spending all we want on vacations, parties, entertainment, and eating out. What ever happened to waiting to buy it until you can afford it? A typical 20-something cannot live like a typical 40-something or like a 20-something Britney Spears. Math doesn’t lie. You can either live the life of the rich and famous that Nickelback asserts and increase your chances of eventual self-destruction OR exert some discipline, start a savings program, and have piles of money later on. The richer you want to be, the more savings minded you need to while you are young. Forget what your friends buy or what your boss drives. If you go by the rule to buy only what you can afford, you will likely have much more for a longer period in the end.

2. Evaluate any debt you have or might incur in the next few years. Credit cards are not evil but they do become a problem if you cannot pay off your balance each month. Avoid high interest credit cards at all costs. On the flip side, low interest debt (like a mortgage) can be quite useful. Some financial experts suggest paying cash for everything because all debt is bad. While this is a good theory and keeps people out of trouble, I would encourage Young Professionals to look deeper at their debt picture. For instance, if you purchase a home at an interest rate of 6% but after the tax break you only are paying 4%, why make a large down payment at purchase or make double house payments? Either could be invested. If you could make 10% on that money and only pay 4% on the mortgage, it seems to me you are pocketing 6%. The catch is you can’t consistently make 10% without some risk.

3. Add a savings for future consumption account to your monthly budget. This savings fund is a liquid account designed to pay big-ticket or non-monthly items instead of having to go into debt or running short on cash when these big bills come up. The first step to establishing such a fund is to determine how much is spent on non-recurring monthly items like vacations, home repair (or home fund), car repair, or medical costs. Quicken has a great program to track all your expenses and really get a handle on where each dollar actually goes. Once you see your non-monthly expenses, go ahead and deduct the amounts you will eventually spend on these type of items and move that amount to a savings account. When it comes time to spend, you’ll have the funds.

4. Save money in your 401K or similar retirement plan as soon as you can and raise the amount you save every year. Contribute at least as much to any employer plan that they match – it is free money! Consider implementing a Roth IRA, which will give you tax free money on the back end, which counterbalances a good bit of the taxes you will pay in retirement from those employer pre-tax retirement plans. Not only do you get the long term tax benefits, this gets you saving more and more on a monthly basis. Make a goal to invest a certain percentage of any bonuses or salary changes as well.

5. Determine what financial things you want short and long term and re-look at your savings plan. Perhaps instead of saving all money to a 401K or to a house fund, you might do a little of both. I hate to see people save all their money toward a home purchase, when that little extra savings only compounded over the few years until purchase doesn’t substantially reduce the monthly payment. Whereas investing the same into a retirement fund that compounds for 30 years makes a much larger difference down the road. Think about making financial progress in 3 different areas: short term (today’s expected and the unexpected stuff), medium term (what you want in 5-10 years) and long term (retirement) - - and balance them all.

If you are dedicated and disciplined to save now, you have a much better chance of attaining and sustaining that richer lifestyle later.

Tips for Conservative Investment Money

2007-12-21T12:14:00.000-06:00

Mary called, frantic. "My savings account is paying under 3 percent but, if I lose a penny of this inheritance, I'll lose my mind. Is there something relatively safe that pays more?" This is a common question from more conservative investors.

Here are two options:
Option 1 - Certificates of deposit. Mary knew in general about the guarantees of bank CDs. She was surprised to learn that CDs come from a variety of places, and taking the highest rate for the longest term wasn't always the best strategy.

Tips for buying CDs now: Be sure to check rates at 2 places - local banks or credit unions and nationally offered CDs through a brokerage house. Sometimes a local bank may run a rate special in response to a large business loan. If they can pay CD buyers more and still profit after lending funds to the business, then it's worth dangling that extra incentive out there for CD buyers. At other times, national and/or brokered CDs give a more competitive rate. Also, it may be prudent to stick with a 1-3 year maturity, as rates are likely to rise, allowing quicker reinvestment at the higher rate.

Option 2 - Fixed Annuity. Mary had heard that annuities had higher fees and upon death, her heirs got little. What she didn't know is that she had half the story and many changes have occurred with annuities over the years. There are many types, all used for different purposes. The fixed deferred annuity is the easiest to understand. It is a contract between an individual and an insurance company. Interest earned during the term of the contract is nontaxable if reinvested. Principal is guaranteed by the insurance company. Withdrawals may be subject to income tax and, prior to age 591/2, a 10 percent federal penalty tax may apply. Withdrawals will affect both the account value and death benefit.

"What if the company goes belly up?" Mary recalled hearing about a failed insurance company a decade or two ago. Annuity money is only as safe as the company and the reserves it puts aside by state law. As an Alabama resident, there is an insurance fund set up in case the insurance company failure, but it's still a good idea to look for an A or A+ rated carrier.

Tips for buying annuities now: The rate can be locked in for a period of time or can adjust each year. Since we expect rates to increase, perhaps buying the adjustable one may be the best alternative. Be careful of higher "bonus" rates in the first year, as renewal rates may not be as high in later years. Look for annuities with a shorter surrender charge period (5-8 years) if you are concerned about flexibility. Most offer a 10 percent per year withdrawal. But if most of the money is stuck (not touchable) because of a high surrender penalty, the company can pay you whatever interest it wants when the annuity rate renews each year. And remember, the longer the surrender charge period, the more chance the agent got paid more of a commission....which sometimes means you get paid less in the end.

Removing Money From Retirement Accounts

2007-12-13T12:52:00.000-06:00

Year end brings many questions about the nuiances of removing money from IRA’s –those Required Minimum Distributions (RMD’s). This article is key for people over age 70 ½ or for children who care about their ultimate inheritance and can counsel parents with multiple accounts, which lend themselves to multiple mistakes!

For those readers not familiar with RMD’s, the government requires that once you turn 70 1/2, you must withdraw annually from most retirement type of plans – and pay those taxes on the distribution. Calculations are done each year based on your balances and life expectancy (or joint expectancies with a spouse) – but there are some creative ways to work these distributions and that’s where the questions come in!

Persons working over age 70 ½ with multiple IRA’s, ESOP’s (employer stock option plan), and 401K’s typically ask a few questions about their IRA and RMD’s. First, since they are still working, do they have to count his current company 401K as part of the money on which RMD’s must be figured? The good news is no - - unless the person is a 5%+ owner in the business, or unless he retires. One strategy we’ve used for people with 401K’s from previous employers is to roll them to the current 401K, which allows the worker to exempt these funds from the RMD calculation. We had a case this year of someone not implementing this strategy and it cost them $2,000 in taxes to keep the money in the old 401K. There are trade-off’s to the 401K transfer, but it is something to consider and shows the value of hiring someone to oversee the entire financial picture, instead of just manage an account or two…something we highly recommend you do.

Second, wouldn’t it be wise to delay taking distribution as long as possible and take this first distribution out in 2008, since the tax laws allow such a move? Normally, I would be in agreement to keep money compounding as long as possible. Although, your first RMD is figured in the year you reach 70 ½, you can wait until April 1st of the following year to actually pay it, allowing money to compound longer. It seems logical to wait to pay. However, you would have to take out TWO distributions in 2008 (2007’s and 2008’s). Since the distribution amounts might be of reasonable size, perhaps taking two distributions in one year might push you into a higher tax bracket - which might not outweigh any extra investment compounding. To muddy the water even more, if you are juggling the possibility of retiring in 2008, which would lower your tax bracket, it might be better to delay and take two distributions in the year of retirement. Needless to say, the decision of doubling up on RMD’s in 2008 isn’t quite so easy.

The third question has to do with the mechanics of withdrawing funds – is there an easier way rather than taking little pieces out of so many areas? It is perfectly OK, even preferable at times, to take the distribution from one place, as long as you figure all accounts when performing the RMD calculation. Always consider removing money first from the lowest yielding investment, which leaves other investments to compound at higher rates.

So it goes, life and finances are rarely simple. This is just another reminder that most financial matters are inter-connected. When it comes to finances, it’s usually preferable to seek Financial Insight!

Christmas Open House - This Friday

2007-12-03T14:16:00.000-06:00

We are diligently getting ready for our event on Friday! It's chocolate everything and lots of Holiday Spirits for all! We appreciate all our clients and want to share in this joyous season with those who mean the most to us! See you between 2-6 PM on December 7th!

Shari Makes Executive Council for 2007 with Raymond James Financial Services

2007-12-03T14:12:00.000-06:00

It is a great honor to have been selected by our partner, Raymond James Financial Services, to be a member of the 2007 Executive Council. To qualify, you must have ethical standards, a clean 'compliance' record, outstanding client service, and a minimum of $500,000 of annual revenue. This is the third year we have received this honor.

How Property Transfers Upon Death

2007-12-03T13:48:00.000-06:00

Many articles have been written on the benefits of a will in an effort to preach "be prepared," but how many people understand how a will works and how property is transferred? Probably fewer than we'd like to admit.

Most people want to transfer property upon their death in the most efficient way possible - without time, hassle, and expense. Many are surprised to learn that the quickest and least expensive way to transfer property is not through a will. You probably still need a will, but it's helpful to understand how to get property transferred without one.

Say Bob wants to leave one-third of his assets to each of his three daughters. He's an executive and has accumulated most of his money in a 401(k), where he listed his oldest daughter as beneficiary. His will designates the oldest daughter will settle his estate, so he lists her as beneficiary, assuming she will distribute equal portions to the other daughters. But at his death, the oldest daughter gets all of the 401(k) instead of one-third, and she may risk adverse tax consequences if she "shares" with the other sisters. If Bob understood more about how to transfer property, he likely would not have created this mess.

Jointly held property is one of the first types of property to be transferred upon death. If a name is added to your property deeds, bank accounts or other assets, you convert that property to a joint ownership position. Legally speaking, you have made a gift of a portion of your property to someone else. The advantage is that the others left on the account need only remove the deceased person's name by submitting a death certificate. No cost. Little delay. The big disadvantage is that joint owners have immediate access to your assets, so withdrawals can be made at any time without your permission. Also, if that person on your accounts were to be involved in any type of legal action (including divorce), your funds may be at risk. So, although easy and cheap, there are some drawbacks.

Another way to transfer property before a will takes effect is by using a beneficiary designation. These are available only on certain types of accounts: annuities, Transfer on Death (TOD) accounts, IRAs and other retirement accounts. The beneficiary tells the holder of the account whom to transfer the account to upon the holder's death.

Only after joint property and beneficiary property is settled does a will come into play. If you're not using a trust, most of the other property will likely be solely in your name. The will directs the court how to divide what's left in a process called probate. In Alabama, probate takes a minimum of 6 months; that gives time for creditors to "make claim" against your estate. Once that time passes and all debts are paid, the estate can be settled and property can be transferred according to the terms of the will.

When we can no longer bless our families with our lives, we can at least make the transition easier for them after we're gone. Understanding the basics is a good start.