Irma’s Devastating Winds Don’t Devastate The Market

Contributed by: Nicholas Boguth

Hurricane Irma, one of the strongest and longest-lasting hurricanes ever recorded, recently passed leaving a long path of destruction behind it. People from the Caribbean to Florida prepared for the beast of a storm prior to labor day weekend, but there is only so much that could be done before its 180+ mph winds tore through the Virgin Islands on Wednesday the 6th, Cuba on Friday, and finally Florida and Georgia by Sunday. Entire islands were left in shambles across the Caribbean, Florida and Georgia sustained major damage, and millions of people are left without power and water.

How did the market respond?

We are constantly reminded that the markets do not like uncertainty, and this rings true when you look at short periods of volatility, but look at all of the uncertainty that we’ve seen in the past 15 years. Since ’02, we’ve had 3 presidents from republican, to democrat, back to republican, Congress party control flipped multiple times, we’ve seen 2 major wars, devastating natural disasters, massive oil spills, major business and even city bankruptcies, and a “Great Recession”. What did the S&P 500 do over the past 15 years? It is up about ~9% annualized, which is right on par with the average return of the S&P over the past 100 years.

Reminder: be a long term investor. Do not try to time the market, and if you ever have any questions – we are here to help!

Nicholas Boguth is an Investment Research Associate at Center for Financial Planning, Inc.® and an Investment Representative with Raymond James Financial Services.

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The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Boguth and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.

Finding the Right Professional Partner: A Personal Story

Contributed by: Sandra Adams, CFP®, CeFT™

I suffer from migraine headaches. Soon after I graduated from college, I began to get these debilitating headaches more and more often (up to 3 or 4 times a week), sometimes lasting entire days at a time.  I have spent years working with numerous medical doctors, as well as tracking the headaches -- what I eat and drink, how I sleep and various other life habits in an attempt to find a way to stop them from occurring.  The traditional medical doctors I’ve seen have prescribed numerous medications (and subsequently increased dosages of those medications) in an attempt to treat the headaches – but with no results. Until recently, when I took a different approach…

I found a different professional partner to consult with about my headaches – a doctor who consults on the whole body/body systems and does not try to treat just one symptom. 

By working with a doctor who was looking at how my entire body was functioning, I found out that there were some underlying problems that existed with how my body was handling stress and by adjusting a few small things with my diet and sleep, I have all but eliminated by migraine headaches over the last several months.

What, you might ask, does this have to do with financial planning? 

Choosing the right professional partner, no matter what facet of your life, is extremely important.  Just as it made a world of difference for me to find the right medical partner, it is important for clients to find the right financial partner.  A partner who only focuses on investments or just on insurance may not be the right partner for you if you truly need someone to look at your entire financial “body” to make sure everything is working together in perfect harmony.  If you have not yet found the right professional financial partner and are looking for someone to look at your entire financial lives, contact our Center Team – we are here to help!

Sandra Adams, CFP® , CeFT™ is a Partner and Financial Planner at Center for Financial Planning, Inc.® Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

The Importance of Friendships as We Age

Contributed by: Sandra Adams, CFP®, CeFT™

As a younger planner, I remember hearing planners older and wiser than I counseling clients to think twice before making the decision to leave their lifelong homes and communities upon retirement to move near children in a distant state (or country).  Despite that advice, many clients still think the best move as they age is to be nearest children (and grandchildren). 

However, they often regret that decision for a number of reasons:

• They find their families have their own lives to live and just don’t have the time to spend with them that they thought they would (spending time with “Mom and Dad” is not a priority);

• They may find that their children decide to relocate again, and then they are left in a location that they are unfamiliar with and have no family or community to call their own;

• Most importantly, they find that they truly miss the friends and community they spent years building.

Several conversations in client meetings recently have confirmed to me the importance of longtime friendships in the lives of older adult clients.  Friendships are especially important to those who have been widowed; it seems that family members provide support immediately after a death, but once they have a need to go back to their normal routines, it is friends that provide the emotional and social support that help widows get through the next months and years that are most difficult.  And for many older adults who have attempted to move away and start friendships in unknown communities, they realize that it is their longtime friendships that they truly value and miss (and sometimes find themselves wanting to come back to in older age).

Studies by the National Institutes of Health show that maintaining friendships and staying socially active are key components to a happy, healthy longer life.  Making the right decisions about where to live and near who are key decisions for quality of life and part of your retirement planning.  If you have not yet had these conversations about YOUR future retirement plan, contact your financial planner today.

Sandra Adams, CFP® , CeFT™ is a Partner and Financial Planner at Center for Financial Planning, Inc.® Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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This information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Opinions expressed are those of Sandra Adams and are not necessarily those of Raymond James.

Nick Defenthaler, CFP® NAMED TO INAUGURAL FORBES LIST OF AMERICA’S TOP NEXT-GENERATION WEALTH ADVISORS

Contributed by: Center for Financial Planning, Inc.®

Southfield, MI – Nick Defenthaler, CFP®, Financial Planner at Center for Financial Planning, Inc.®, was recently named to the inaugural Forbes list of “America’s Top Next-Generation Wealth Advisors.” The list, which recognizes advisors from national, regional and independent firms, was released online July 25, 2017.  

"It’s an honor and humbling to be recognized as one of the top next-generation financial planners in the country," Defenthaler said. "I’m grateful for the amazing team I’m surrounded by each and every day that has helped me to continually progress in my career."

The Forbes ranking of “America’s Top Next-Generation Wealth Advisors,” developed by Shook Research, is based on an algorithm of qualitative and quantitative data, rating thousands of advisors with a minimum of four years of experience and weighing factors like telephone and in-person interviews, client retention, industry experience, credentials, review of compliance records, firm nominations and quantitative criteria, such as: assets under management and revenue generated for their firms. Investment performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor Shook receives a fee in exchange for rankings.*

Defenthaler, who specializes in working with nearly and newly retired individuals and families, is also director of financial planning at The Center. He also sits on the board of directors at Michigan Financial Planning Association where he is the leader of the chapters Next Generation focus group.

Center for Financial Planning, Inc. is a wealth management and financial planning registered investment advisor located in Southfield, Michigan. Founded in 1985, the firm has seven financial planners and 24 total team members who work with more than 800 clients, the firm manages more than $1 billion in assets under management.

Securities are offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

* Past performance is not indicative of future results. Individual experiences may vary. Shook – Data provided by SHOOKTM Research, LLC. Data as of 3/31/17. SHOOK considered advisors born in 1980 or later with a minimum 4 years relevant experience. 2,356 Millennial advisors were considered based on high thresholds from which 500 were chosen. Advisors have: built their own practices and lead their teams; joined teams and are viewed as future leadership; or a combination of both. Ranking algorithm is based on qualitative measures: telephone and in-person interviews, client retention, industry experience, credentials, review on compliance records, firm nominations; and quantitative criteria, such as: assets under management and revenue generated for their firms. Investment performance is not a criteria because client objectives and risk tolerances vary, and advisors rarely have audited performance reports. Rankings are based on the opinions of SHOOK Research, LLC, which does not receive compensation from the advisors or their firms in exchange for placement on a ranking. For more information see www.SHOOKresearch.com.

Guide to the 2017 Benefits Open Enrollment

Contributed by: Nick Defenthaler, CFP®

As summer winds down and we quickly approach the holiday season, many employees will soon be updating their benefit options at work during open enrollment (click here to check out our webinar from last year on this topic).  It’s extremely easy to procrastinate and set that employer benefit booklet off to the side and put it off until you receive the e-mail from HR reminding you it’s due in a few days.  You scramble to complete the forms and more than likely, not spend as much time as you should on electing the benefits that will impact you for the next 365 days.  We’ve all been there, but it’s important to carve out a few hours several weeks before your benefit elections are due to ensure you put in enough time to thoroughly review your options.

If offered by your employer, below are some benefits that you should have on your radar:

• 401k Contributions

  • Are you maximizing your account? ($18,000 or $24,000 if you’re over 50 in 2017)

  • Traditional vs. Roth – click here to learn more about which option could make sense for you  

• Health Insurance

  • HMO vs. PPO - Click here to learn more about how these plans differ from a cost and functionality standpoint  

• Flex Spending Accounts (FSA)

  • “Use it or lose it” – click here to learn more 

  • Medical FSA maximum annual contribution 2017 is $2,550

  • Dependent care FSA maximum annual contribution for 2017 is $5,000

• Health Savings Accounts (HSA)

  • Can only be used if covered under a high-deductible health care plan

  • Click here to learn more about the basics of utilizing a HSA 

    • $3,400 maximum annual contribution in 2017 if single ($4,400 if over 50)

    • $6,750 maximum annual contribution in 2017 for a family ($7,750 if over 50)

• Life and Disability Insurance

  • Most employers will offer a standard level of coverage that does not carry a cost to you as the employee (example – 1X earnings)

  • If you’re in your 20s, 30s and 40s, in most cases, the base level of coverage is not sufficient, therefore, it’s important to consult with your advisor on the on appropriate amount of coverage given your own unique situation  

As with anything related to financial planning, every situation is different.  The benefits you choose for you and your family more than likely will not make the most sense for your lunch buddy co-worker.  We encourage all clients to loop us in when reviewing their benefit options during open enrollment – don’t hesitate to pass along any questions you might have to ensure you’re making the proper elections that align with your own personal financial goals.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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This information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete.

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4 steps to our Due Diligence Process

Contributed by: Angela Palacios, CFP®, AIF®

My friend’s wife is constantly putting him on a diet. He often appeases her by ordering taco salads instead of a traditional entree.  She assumes he’s eating healthy, but little does she know: some taco salads can pack as many as 1,700 calories and over 100 grams of fat! His wife might need to do her homework.

As important as it is to the success of dieting to understand what you are eating, it is equally important to understand what you are buying when investing.  Once you have identified your appropriate mix of asset classes for your risk tolerance and time horizon (your strategic allocation), it is time to start doing your homework to identify the appropriate securities to fill each asset bucket. 

Here is a summary of the steps we follow at The Center:

• Qualitative Review: We generate ideas through reading, conference attendance, peer networking and searches in Morningstar Direct.  The following criteria serve as a starting point.

  • At least $50 Million of Assets Under Management (AUM)

  • Manager tenure of 10 years or more

  • Bottom half of expense ratio in category

  • Manager invests in their strategy ($1 Million and up preferred)

• Quantitative Review: We review the performance and risk characteristics of investment options within the category.  Criteria may include but are not limited to:

  • Review of rolling returns to identify performance standouts over different time periods – 1, 3, 5, and 10 years.

  • Review of performance during difficult time periods (bear markets or periods of performance difficulty for the asset category).

  • Review of rolling statistics including standard deviation, alpha, beta, Sharpe and information ratio relative to best-fit benchmarks.

  • Review of upside-downside capture.

  • Review asset flows by category and individual security.

• Due Diligence Questionnaire & Manager Interview:  Center for Financial Planning’s Due Diligence Questionnaire is submitted to the short list candidates for completion.  Manager interviews for active strategies are conducted via phone conference or in-person interview. 

• Mock-up in portfolios: Position is added into a mockup of the portfolio to identify if intended outcome is achieved and what degree of exposure is required to help attain the desired outcome (percent allocated within the portfolio).

You can also view a simplified graphic on this process:

You can do your investment “waistline” a favor by doing your homework. Don’t be fooled by taco salads, make sure you are getting what you want when it comes to investing by having a defined buying process, or talking to your financial planner about establishing one that is appropriate for you!

Angela Palacios, CFP®, AIF® is the Director of Investments at Center for Financial Planning, Inc.® Angela specializes in Investment and Macro economic research. She is a frequent contributor The Center blog.

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Any opinions are those of Angela Palacios and not necessarily those of Raymond James.

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Qualified Charitable Distributions: Giving Money While Saving It

Contributed by: Nick Defenthaler, CFP®

Late last year, the Qualified Charitable Distribution (QCD) from IRAs for those over the age of 70 ½ was permanently extended through the Protecting Americans from Tax Hikes (PATH) Act of 2015. Previously, the QCD was constantly being renewed at the 11th hour in late December, making it extremely difficult for clients and financial planners to properly plan throughout the year. If you’re over the age of 70 ½ and give to charity each year, the QCD could potentially make sense for you. 

QCD Refresher

The Qualified Charitable Distribution only applies if you’re at least 70 ½ years old. It essentially allows you to donate your entire Required Minimum Distribution (RMD) directly to a charity and avoid taxation on the dollars coming from your IRA. Normally, any distribution from an IRA is considered ordinary income from a tax perspective, however, by utilizing the QCD the distribution from the IRA is not considered taxable if the dollars go directly to a charity or 501(c)(3) organization.    

Let’s look at an example:

Sandy, let’s say, recently turned 70 ½ in July 2016 – this is the first year she has to take a Required Minimum Distribution (RMD) from her IRA which happens to be $25,000. Sandy is very charitably inclined and on average, gifts nearly $30,000/year to her church. Being that she does not really need the proceeds from her RMD, but has to take it out of her IRA this year, she can have the $25,000 directly transferred to her church either by check or electronic deposit. She would then avoid paying tax on the distribution. Since Sandy is in the 28% tax bracket, this will save her approximately $7,000 in federal taxes!

Rules to Consider

As with any strategy such as the QCD, there are rules and nuances that are important to keep in mind to ensure proper execution:

• Only distributions from IRAs are permitted for the QCD. Simple and SEP IRAs must be “inactive.”

  • Employer plans such as a 401k, 403b, 457 do not allow for the QCD.

  • The QCD is permitted within a Roth IRA but this would not make sense from a tax perspective being that Roth IRA withdrawals are tax-free by age 70 ½. *

• Must be 70 ½ at the time the QCD is processed.

• The funds from the QCD must go directly to the charity – the funds cannot go to you as the client first and then out to the charity.

• The most you can give to charity through the QCD in a given year is $100,000, even if this figure exceeds the actual amount of your RMD.

The QCD can be a powerful way to achieve one’s philanthropic goals while also being tax-efficient. The amount of money saved from being intentional with how you gift funds to charity can potentially keep more money in your pocket, which ultimately means there’s more to give to the organizations you are passionate about. Later this month, we will be hosting an educational webinar on philanthropic giving – click here to learn more and register, we hope to “see” you there!

Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any opinions are those of Nick Defenthaler and are not necessarily those of Raymond James. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Adjusting the Secret Sauce in your Financial Plan

Contributed by: Laurie Renchik, CFP®, MBA

Investing in your financial future is a journey that doesn’t start or stop at retirement. Creating financial independence to support your future is a work in progress practiced over a lifetime. While it is reasonable to assume that the approach for a 35-year-old may not be appropriate for a 55-year-old, there is a common thread that emerges regardless of age. As priorities shift and circumstances change, financial plans and investment portfolios need periodic adjustments to stay in sync with your life. If your life journey is anything like mine, some plans work out perfectly and others may require course corrections to stay on track. I have found that the secret sauce is not just THE financial plan; but rather the consistent financial planning process along the way.

Let’s consider a 55-year old with a plan to retire in five years at the age of 60. In this transition period, the focus is shifting from saving and accumulating to preparing to withdraw income from retirement accounts; commonly referred to as the distribution phase. Having the confidence to retire without worry of spending down the nest egg too quickly is a common concern for folks in this transition phase. Sustaining the nest egg especially in the face of events that are beyond control—like market corrections, changing economic backdrops, and business cycles—are why financial plans and investment management go hand and hand.

I have found that considering a range of “what-if” scenarios in order to address concerns before retirement is a productive approach to addressing an unknown future that could unfold during your retired years.

1. Market corrections:  In the early years of retirement, a portfolio that goes down in value during a market correction may suffer initially and cause stress for the recent retiree.
   
   ACTION: Don’t panic. When things go in directions we don’t like, the natural inclination is to take action. To avoid a reactive response, start out with a properly diversified portfolio which includes appropriate asset allocation, ready cash on hand to support income needs, as well as a process for monitoring the big picture. Review your plan for confirmation.    
    

2.  Inflation is higher than expected: With inflation, things cost more over time eroding the value of savings especially when considering a 30 or 40-year retirement.
   
   ACTION: We don’t know how much inflation will spike or fall in the future. Model a range of scenarios in your baseline income assumptions to understand the potential impact. Revisit the areas of rising costs in your plan as part of your review process. Your financial plan should be built to withstand uncertainties.
    

3. Lower than anticipated market returns: A plan that is monitored consistently and customized to your long-term retirement goals can include the analysis and financial independence calculations to easily take into consideration lower than expected returns. 

ACTION: Build in a margin of safety in your baseline assumptions as a buffer to absorb the impact of lower than expected market returns. Put yourself in the best position to achieve your goals by prioritizing in advance where you can make incremental changes so that clarity and purpose are fundamental to your decision. 

Life has a wonderful, unpredictable way of introducing lots of sticky details into the mix. Your financial planner can help with the details and changes needed to take care of your nest egg by working with you to adjust the secret sauce as needed along the way.

Laurie Renchik, CFP®, MBA is a Partner and Senior Financial Planner at Center for Financial Planning, Inc.® In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie is a member of the Leadership Oakland Alumni Association and is a frequent contributor to Money Centered.

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Asset allocation and diversification do not ensure a profit or guarantee against loss.