Improving the Planning Process

As mentioned in our July monthly letter, our financial planning software released a new version this week full of exciting updates.  New functionality will improve our planning process by better integrating certain variables and placing a better framework around how we segment goals.  We think it’s a big step forward in The Asset Advisory Group’s mission to enhance our clients’ well-being and help them make smart decisions about money.

From a technology standpoint, the software will now address things such as Social Security not just on it’s own, but really look at how different distribution scenarios impact the overall portfolio.  These are certainly things we’ve evaluated in the past, but having them fully integrated into our planning tool will really help frame the impact and outcomes of various decisions.

When evaluating goals, we will now segment around needs, wants and wishes.  This isn’t a major shift, but an important one.  In the past, the Monte Carlo analysis would put all goals in one pot and then determine a probability of achieving success.  While useful, providing more sound footing around needs like food, water and shelter typically take precedence over travelling first class around the globe.  Going forward, we will be able to segment these three goal categories, putting an emphasis on making sure needs are met, which then allows for more meaningful conversations around how to prioritize the risk needed to meet the wants and wishes. 

For many clients, this will mean revisiting some of the “discovery” phase of our relationship.  The purpose of this is not redundancy, but to ensure that our existing clients go through the same detailed process in defining their goals that a new client would experience.  At the same time, we’re making sure we’re using the most up to date information available from our clients and that we are asking questions specifically designed to maximize the potential of the updated process.

We continue to be committed to creating customized experiences for our clients based on their individual wishes for a financial planning relationship.  Making an investment in the right technologies continues to be an important way of executing on this commitment and in working together to make smart decisions around mitigating tax issues, taking care of heirs and building, protecting and distributing wealth.

Have a great week!

Chip Workman, CFP®

cworkman@taaginc.com
www.taaginc.com

TAAG's New Home

In October 1988, after six years as a CPA and banking officer, I took my newly earned Certified Financial Planner designation and youthful optimism and started The Asset Advisory Group (TAAG).  It wasn’t actually TAAG then, since I was only a single advisor with an administrative assistant brave enough to leave the bank to join me. 

In my exit interview, my well-intentioned boss told me I was crazy to try to start my own business as a 28 year-old female in a conservative town.  He offered to hold my job for me until I came back.

In the fall of 1988, no one really knew what a financial planner was, so I spent most of my time educating people about how I could help them make smarter financial decisions.  To be able to afford an office, I teamed up with an insurance agency that allowed me to rent space to meet with my clients.  After five years my husband and two other employees joined me, and we outgrew the office and the business arrangement.  It was time to establish our own identity.  We incorporated as The Asset Advisory Group and moved into a rented office in Glendale. 

By 2002, we had outgrown our Glendale office as well.  We surveyed all our clients and asked them where they wanted us to be located.  The Montgomery/Blue Ash area won by a wide margin.  We’ve been in our current Blue Ash location for over 10 years now, and change is once again on the horizon.

We use the ups and downs of the market to your advantage by rebalancing your portfolio through different economic conditions.  We follow that same philosophy as we plan for the future of TAAG. As a result, The Asset Advisory Group has acquired a permanent home.

Interest rates are the lowest they have been in decades, commercial real estate has not fully recovered in Cincinnati, and a property we felt was a perfect expression of the culture and client service philosophy we strive to provide was available. 

Our new home, 9200 Montgomery Road, sits at the intersection of Montgomery Road and Ronald Reagan Highway.  It is a professional, but warm and inviting building. We are making renovations to create an environment in which our clients and their professional advisors will enjoy meeting and working together.  We plan to be moved in by October of this year. 

Chip, Chris and I have made the commitment to be owners of the building, as well as the owners of TAAG.  Our investment in a permanent home conveys our commitment and belief in the future of The Asset Advisory Group, and our love of the work we do for you.

October 2013 will mark the 25th year of my great adventure.  I look forward to sharing the next 25 with you in our new home! 

Jeannette A. Jones, CPA, CFP® 

jjones@taaginc.com

www.taaginc.com

What is the Truth About Health Care Reform?

(from Carolyn McClanahan's Forbes' column, 7/3/2012 - click here for the original post. Carolyn is a physician, financial planner, educator and storyteller. For more on Carolyn, visit her Forbes' profile.)

When the Affordable Care Act was originally passed, misinformation and inflammatory lies regarding the law made their rounds on the internet. Great examples from the right – seniors on Medicare would face rationed care, death panels were going to be enacted, or you would have to pay extra taxes on the sale of your home to name a few.  Great examples from the left – the life of “Julia” and the exaggeration of the numbers who would be denied coverage because of preexisting conditions.

The lies and misinformation slowed down a bit over the past few months as everyone waited on the Supreme Court decision with rabid anticipation.   Those against the law thought the case was all locked up to repeal.   Immediately after the Supreme Court decision was released the misinformation started again.  What a surprise (not really.)   On Facebook, what showed up?  The oldie but false picture of a van with the following painted on the side – “President OBAMA – If the Health Care Reform Plan is so Great, Why does it EXEMPT YOU, Michelle Obama, Congress, Senators, and their families?  Page 114 Line 22”

Move up http://i.forbesimg.com tMove down

                   

I’ll debunk this in a minute, but first I want to share my hope for the people of this great country as the election approaches.  My hope?  We take the time to understand the problems in this country from more than our individual perspective and then obtain non-partisan education on solutions from reputable sources.   We should choose our leaders based on truth, understanding, and a desire to improve our greatness instead of basing our decisions on rhetoric and ideology.  When we hold ourselves to a higher standard in our own education on important matters, we can hold our leaders to a higher standard, and maybe they will begin to deliver.  I am an optimist.

To help you focus on issues with health care, I point you to two non-partisan and highly reputable resources. These will help you pick through the bunk and exaggerations from both sides.

Kaiser Family Foundation:
This is the granddaddy of all sites on health care reform. There is a section with the basics, and delves as deep as you want to go into the details of health care and the Affordable Care Act. In addition, the good people at Kaiser Family Foundation provide regular updates and a roundup of the news in health care on The Scan. I also enjoy the regular polls they conduct and share from others on public opinion in numerous facets of health care.

FactCheck.Org:
This site looks at the facts behind statements in the press, chain emails, and other questionable propaganda. Sponsored by the Annenberg Public Policy Center, FactCheck.org goes beyond health care and is a great tool for all matters of fact in our public debates. In their archive, 408 articles are devoted to health care or the health care law. There is an abundance of misinformation out there, and this site helps you sort through the bull. It has an easy search engine if you are looking for a particular topic, like our lovely quote on the van.

So don’t rely on some photo of a van with billboard lies to learn what this law is about. Check out the facts for yourself. Even better, stop the misinformation and lies. As for the van? A waste of paint. Congress, the President, and the First Lady are subject to the law. The van doesn’t even reference the law – it references a draft of a bill not part of the Affordable Care Act. Page 114 of the real law discusses the four different levels of health insurance that would be sold on the exchange – and line 22 focuses on the “gold plan.” FactCheck.org backs me up on this one. In case you are curious, Title I, Section 1312 “Consumer Choice” contains the verbiage that Congress is required to use plans created under the law. You can actually go read it. Go to page 157, starting at Line 16.

Make no mistake about it. The Affordable Care Act has warts, but the majority of the law contains good provisions that will eventually make our country stronger and healthier. Learn what is good in the law, learn about the warts, and demand that our leaders move forward with further solutions.

Detour Ahead

My husband, Tom, and I just returned from Asheville, North Carolina.  We drove to Asheville so Tom could participate in a century ride to raise money for cancer research with the Leukemia and Lymphoma Society’s Team in Training program.

Being the diligent planner, I mapped out our course and researched the construction delays along our route.  Fortunately, we were able to avoid a major back up on I-75 southbound just over the Tennessee border where the road is being repaired due to a rock slide.  Although our alternate route was miles longer, we were still able to make it to Asheville ahead of some of the other participants who did not take a detour.

Many of the financial detours that we encounter in our lives can lead to frustration because, more often than not, they are beyond our control.  In Cincinnati, Procter & Gamble employees are facing a potential detour in their careers with the company’s latest downsizing announcement.  It’s not only the people leaving whose lives will be changed, but also the remaining employees as well.  Their jobs may look drastically different a year from now. 

When a client discovers they are facing an unexpected career change, major health issue, loss of a loved one or are going through a divorce, the original path they were on is suddenly changed.   All of these circumstances can feel overwhelming because you feel like you are suddenly being veered off course.   

This is why it is so important to create a financial plan and to continually monitor it.  This can help to put the obstacles you face in perspective.  Will the change in careers mean you will have to work longer – or will your new job offer a faster road to retirement?  A health crisis could change your priorities causing the second home you always dreamed of to seem less important than it once did.  If you become suddenly single you may realize you are much more financially savvy and emotionally stronger than you originally thought. 

No matter what financial detours you encounter, we are here to guide you through them.  What may initially seem like a disaster may not have the impact you fear.  The most important thing is to start mapping out an alternative route as soon as possible so that you can lessen the impact.  Just make sure you let us know when we can help.

Christine Carleton, CFP®

ccarleton@taaginc.com
www.taaginc.com

Social Security - An Update

According to the Social Security Administration, nearly 62 million Americans are receiving some type of benefit from the program as of April 2012.  There is much speculation as to where the program is headed in the future.  Unfortunately, there’s little more to report on long term changes than mentioned in my July 2011 blog on just that topic.  The broken record remains the same.  If you’re over 55, you’re likely to see your full benefit.  How that benefit is taxed, whether or not it is means-tested in some fashion and what’s to come of the program for the rest of us remains to be seen.
 

That said, there are sufficient changes surrounding Social Security in the here and now that justified an update. 

Analytical Tools Multiplying

With 10,000 baby boomers reaching age 65 every day, it’s no surprise that a large number of tools have started to sprout up promising to help analyze how to maximize your benefit.  These tools vary in their level of sophistication, but most ultimately come down, as all financial planning does, to making educated guesses about a number of variables.  Despite much of what’s written out there, the decision as to when to draw social security is often much more than just picking age 62, 66 or 70.

The basic rule of thumb is simple.  If you expect to live past age 80 or so, depending on some other factors, it’s best to wait as long as you can to draw your benefit.  But, that comes with a number of caveats.  It’s impossible to touch on them all, but the biggest gap we see in these tools is the ability to translate what’s best purely from a Social Security standpoint to how the timing of your benefit impacts the overall portfolio.  

Does drawing later for a higher benefit cause too much strain on your portfolio in the early years of retirement?  Is giving in to the emotional pull of starting benefits sooner costing you potentially hundreds of thousands of dollars in benefits down the road?  We have the ability to look at these tools as they relate to your overall plan and help make that decision about when to turn on benefits as educated a choice as possible.

No More Statements

As you may have heard, an effort to reduce spending on postage, paper and impact to the environment has led the Administration to cease mailing out annual statements.  In response, they’ve added a new online offering called “My Social Security”.  The program allows you to create your own login and retrieve the same information reported on your annual statement at any time.  The website can be found here, or we’d be happy to walk you through the process in our next meeting.

No More Paybacks

Another slightly older bit of news that wasn’t very widely covered is the closing of the “payback” loophole.  In the past, you could elect to start your benefit early and then, at any time before age 70, “cancel” your election, payback what Social Security had paid you to that point and then restart your benefit at the new, higher rate.  This was essentially an uncollateralized, non-interest bearing loan from the government.  That option has since been removed and is no longer a tool to use in determining the best outcome for you and your benefit. 

Unintended Benefits 

Stories continue to emerge about various other Social Security “loopholes” that are likely to be closed as Congress continues to find every way they can of extending the program without upsetting the electorate.  One story that’s arguable an illustration of what’s wrong with the system was one I recently came across in Investment News.  Dependent children under a certain age are eligible for benefits of up to ½ the amount of the recipient.  This rule was largely intended for parents receiving Social Security for disability or widow/widowers’ benefits or for those having to care for dependent grandchildren.  The unintended consequence is that, in this day and age, more and more fathers in their sixties have young children.  Until the loophole is addressed, Mary Beth Franklin of Investment News recommends anyone eligible take the benefit and use it to fund the child’s 529 plan.  She coins the strategy “The Viagra College Fund.” 

We’ll continue to monitor this and all the topics we cover here that can have a meaningful impact on your life and financial goals.  If you have any questions or wish to discuss further, don’t hesitate to contact us via the links below.

Thanks and have a great week!

Chip Workman, CFP®

cworkman@taaginc.com

www.taaginc.com

The Real Reasons Why You Buy

(from Carl Richard's New York Times' Bucks blog, 4/16/2012 - click here for the original post. Carl is a Certified Financial Planner in Park City, Utah. His sketches are archived on the Bucks blog and on his personal Web site, www.BehaviorGap.com.) His new book The Behavior Gap is on shelves now.

Before we buy something we tell ourselves stories.

We are particularly fond of the story that goes like this: We have researched all the options, and the decision we have made represents that best one we could make given the facts. Just the cold, hard facts.

Of course, that story isn’t really true.

And we make up other stories as well, many of which have absolutely nothing to do with the actual facts. We create these stories to help ourselves feel good about a decision we have already made.

For instance, many times we actually reverse the process. We decide what we want, often for emotional reasons, and then we go looking for evidence to support the decision. As we are gather the evidence, we carefully omit anything that doesn’t fit into the story we’re writing.

This is so easy to do you could say that it’s natural to us. We don’t really have the time to consider every single option. If you did, you would never get past your closet in the morning. So we take shortcuts. We decide what we want and then gather a few facts to prove to ourselves, our spouse and our family or friends that we did the right thing.

When it comes to spending money, one of the stories we like to tell ourselves is that we aren’t just spending. This item is actually an investment. It’s an investment in ourselves and our quality of life, or an investment that will actually save us money over the long run.

So we run the numbers, or more likely we read about someone who ran the numbers. Then if the narrative matches, we use that as evidence that we’re doing the right thing.

It seems easy. A simple case of addition or subtraction.

Things get complicated pretty quickly, however, when we start using the argument of saving money as a Trojan horse to hide the real reasons we’re doing something. Let’s take the case of whether to buy a hybrid or electric car.

If you decided that you want a hybrid, it’s pretty easy to find evidence to support that decision, but be careful if you’re telling yourself that it will save you money.

Except for two hybrids, the Prius and Lincoln MKZ, and the diesel-powered Volkswagen Jetta TDI, the added cost of the fuel-efficient technologies is so high that it would take the average driver many years — in some cases more than a decade — to save money over comparable new models with conventional internal-combustion engines … Gas would have to approach $8 a gallon before many of the cars could be expected to pay off in the six years an average person owns a car.

To be clear, there are plenty of legitimate reasons to buy a more fuel-efficient car. Unfortunately for the buyers relying on the numbers argument, one of them isn’t saving money in the short term unless you buy specific models.

So why do we hide behind saving money?

It’s easy to point to the price of gas. It’s harder to explain why the environment benefits from one more person driving an electric car. And it’s harder still to explain why driving a hybrid just makes you feel good.

And few people want to admit to adult peer pressure. How could you live with the story that you actually bought that Prius because you wanted a cool spot to put your Apple sticker?

Obviously cars aren’t the only thing we try to make the saving-money logic stick to. How about the recent argument at Slate that you should run out and “buy, buy, buy” a house if you are currently renting? This is a classic case of using tons of “evidence” to tell a nice little story while ignoring the data that might not fit nicely in the narrative.

Based on the facts presented in this particular story, it looks like it might actually be cheaper to buy than rent, but it states that any consideration of where prices might be headed is “irrelevant.” It’s just one more example of how far we can go in our storytelling exercises.

And it’s not that simple, as you’ve probably guessed. What if prices fall 10 percent and you have to relocate for another job? What if you know you’re moving in three years and prices stay the same?

You may be very hard pressed to break even after you consider the costs associated with buying and selling the house (e.g., real estate commissions, closing costs, moving costs and taxes). With a little honesty, there goes that nice, clean “time to buy” story.

While cars and houses might require the most complex stories, we often tell ourselves little ones about things like vacation “deals,” using a rewards credit card and buying in bulk. Often they get brushed with the halo of saving money. In each instance, saving money may be one of the reasons you’re doing something, but you can rarely say that it’s the only reason.

And that’s the point.

We tell ourselves stories about why we’re buying something, and saving money is a good story.

But I think one of the best conversations you can have with yourself, your spouse or your family is about the real reasons behind why you spend money. Be honest, even if it means having to admit that you’re buying something only because you simply want it. Blurring our reasons for our decisions around spending money is a slippery slope that can lead to a lot of financial headaches.

Can We Pass the Marshmallow Test?

In the late 1960’s, psychologist Walther Mischel conducted an ingenious experiment testing the ability of children to delay gratification.  A child was left alone in a room with a marshmallow on the table, and was told if he or she could wait 15 minutes to eat it, they would get a second one as a reward. 

About two-thirds of the kids failed the experiment – but the fascinating part of the study was the follow-up research on the children years later.  The kids who didn’t eat the marshmallow had stayed in college, made more money, and had fewer drug and alcohol problems.  The kids who had been able to delay gratification were more successful in life overall.  

As I read a Wall Street Journal article this morning about yet another government spending program that makes it impossible to balance the budget, I wondered why we’re surprised we have this problem.  It’s easy to be critical of Congress and its inability to make difficult decisions necessary to keep our county within its spending limits, but many people can’t balance their own family budget – so how do we expect states with competing interests to agree?  Congress is only a representation of the people it serves. 

Why has it been so tough for my baby-boomer generation to budget?  I have a theory.  We didn’t learn to delay gratification.  We grew up in a time of prosperity, and it felt like the party would never end.  Sure, we experienced the lousy stock market of the early 70’s, but most of us were just getting started, so we were unaffected.  We also experienced raises that were tied to inflation, and our salary increases in the 80’s bought us even better lifestyles when companies like Walmart and Costco drove down prices of the everyday things we purchased.  The easy credit of the 90’s caused our home values to race up and our cost of borrowing to drop - we were on a roll.  We didn’t have to budget like our parents and grandparents; until the Great Recession began in 2007. 

Although markets have recovered from their lows, it’s evident we may be in for an extended period of time when we won’t have the wind at our back.  And we need to adjust.  Like the kids in the lab, we must exercise some self-restraint; and like Congress, we have to make some tough decisions.  At the risk of sounding overly-dramatic, it’s much easier to make a change in our lifestyles today than it is to choose between buying food or paying the mortgage tomorrow.

I’ve had this discussion with clients and prospective clients over the past several years, and I’ve been told by some that they intend to enjoy life now, because it won’t matter when they’re old.  I think this is a battle we’re waging between our present and future selves.  It’s easy to delude ourselves today that it will be easier to get by with less in the future.  One of my favorite quotes on this subject was made in a presentation by Shlomo Benartzi, an economist who studies financial behavior:  “Self-control is not a problem in the future.  It’s only a problem now, when the chocolate is next to us.”

Marshmallow, anyone?

Jeannette A. Jones, CPA, CFP®

jjones@taaginc.com

www.taaginc.com

That's Why We're Here

At TAAG, we work only with individuals and their families, so we can focus on getting to know each of our clients well.  While we manage your investments and provide financial planning, we can also help in other ways you may not be aware. 

   

I recently met with a client, her son, and her son’s partner to help them with their budget planning.  They had just purchased a home and were having difficulty adjusting their spending and tracking how they were doing.  We provided help with ideas, resources and ways to track their expenses that were not so burdensome.  My client contacted me later to let me know her son was happier and was more engaged in the on-going financial discussions, something that made HER happier.  

Another client is having health issues, and needed assistance filing for disability retirement benefits.  We helped complete the application request and coordinated the paperwork between her employer, her physicians, and the retirement plan administrator.  With our paperless filing system we have copies of all the documents in case anything is needed later.

Chip has been meeting with the second generation owners of a family-owned business, helping their estate planning attorney map out a plan to take care of their children and transition the company if something happens to them today, while planning for their continued growth into the future. 

Chris has been working with P&G employees that have been referred to us in the recent downsizing, helping them determine if they should take early retirement offers.  She’s also been working with current retirees designing option exercise plans, helping them exercise their options, and diversifying their portfolios afterward. 

During the year, we hold planning meetings with our clients and their CPAs, report investment activity, and consult with them before creating gains when given permission.  We have relationships with a variety of CPA firms, and when a client needs a CPA, we help match them to the best firm based on the complexity of the client’s situation, the specialization of the CPA and cost considerations.  We feel it is in your best interest to have an independent CPA, versus one employed by TAAG, so we can each specialize in what we do best and provide independent oversight of each other’s work.  We provide the same assistance with finding and working with attorneys.

So if you are struggling with a decision or you have a financial issue that’s causing you stress, call us.   

That’s why we’re here. 

Jeannette A. Jones, CPA, CFP®

jjones@taaginc.com

www.taaginc.com

America Saves!

This week, we wanted to do our small part in furthering "America Saves Week".  Slated for February 19-26th and coordinated by the America Savings Education Council, America Saves Week is celebrating its 6th anniversary.  The goal is to encourage employers, organizations and others to promote good savings behavior and for all of us to evaluate our saving and spending habits.

If savings hasn't been on your radar, or that of a loved one, in quite some time, focus first on basic emergency savings.  Most of us should have anywhere from 6-12 months of expenses in a very liquid account somewhere that we can access reasonably quickly.  This can be tough to do, and we hear this all too often, but it's amazing what one less latte a week, using a water bottle instead of bottled water, only buying fruit and vegetables you're actually going to eat (Americans threw out $32 billion worth last year) or some other simple habit change can make to our long term plans. 

If emergency savings are covered, spend some time focusing on college, retirement, or other goals you might have.

Below are some links to details on America Saves Week and related articles that we wanted to share in the hopes that they help you or someone you know. 

America Saves Week - main site of a week focused on savings

America Saves - the non-profit organizations' home site

On Your Mark, Get Set, Save - A savings "how-to" article from Forbes magazine

Take America Saves Week to Heart - An article from Visa's head of financial education programs

ING Encourages Savings in Support of America Saves Week - a CNBC article on ING's recommendations to jump start savings

If there's ever anything we can do to help you sort out what your savings goals might be, please let us know.

Have a great week and happy saving!

The Asset Advisory Group
info@taaginc.com

Happy Thanksgiving!

As we head full steam into Black Friday and all the hustle and bustle of the holiday season, we wanted to pause a moment this Thanksgiving Eve and encourage everyone to really take time tomorrow to enjoy all the family traditions, the time together and to truly give thanks for all that we have and enjoy in this world. 

Wherever you are this Thursday, we hope you have a wonderful holiday and know that we are thankful for the work we get to do with and for our clients and their families each and every day.

Happy Thanksgiving to all of our readers, clients and their families!

The Asset Advisory Group
www.taaginc.com

Resetting Expectations

I am an avid Cincinnati Bearcats fan. It was heartbreaking on Saturday to lose our first string quarterback, Zach Collaros, to a broken ankle. Although the players did a great job in the second half of the game adjusting to a new quarterback, we still lost to West Virginia. Zach’s out for the season and now four other teams are only one game behind our first place standing in the Big East. The Bearcats are still eligible for a bowl bid, but getting to a game like the Orange Bowl may be more challenging. I may need to adjust my expectations for post-season play.

This happens all the time in financial planning. We set goals, encounter obstacles, and need to adjust our plan when we face new challenges. This might be the loss of a job, an unexpected illness, or a precipitous drop in the stock market. While all of these events are beyond our control, how we prepare for them in advance and readjust along the way can minimize their impact on our ability to reach our goals.

Over the past 21 years, I have worked with many clients who have had to alter the original picture they had of their retirement. There were those who planned to retire from Procter & Gamble in March, 2000 when the stock tumbled from $87.44 to $61.00 in one day. Or the client going through a divorce only to learn that her husband had spent all of their savings, and they were living on credit cards. In each situation, what at first seems insurmountable is actually a temporary setback. The sooner you face a difficult situation, the less devastating its impact will be.

As we have worked through challenges, and my clients have made adjustments to their original course, they have still been able to achieve a fulfilling retirement. As we’ve often said in this blog, it’s not what happens to you, but how you respond to it that will dictate the success or failure of your plan.

While the Bearcat’s initial response to losing their quarterback seemed to be fear and panic, once they were able to regroup at halftime and adjust their game play, they came a lot closer to winning their game. Maybe I’ll need that hotel reservation in Miami after all…

Christine L. Carleton, CFP®
clcarleton@taaginc.com
http://www.taaginc.com/

What Do We Do Now?

Let’s get up to speed first

Last week, Congress & the White House came to a zero-hour agreement to raise the debt ceiling, covering the nation’s short term debt needs.  While there were some cuts made in future spending, the greater challenge of creating long term, meaningful solutions was left to a Congressional committee, charged with presenting a deficit reduction bill to Congress by Thanksgiving.
Friday evening Standard & Poor’s, an agency that rates the quality of various securities, debt obligations, governments and other entities reduced its rating of the U.S. government’s long term debt from its highest rating tier, AAA to the second highest rating tier, AA+.  There are varying opinions as to the validity of this decision, whether it was warranted or not and what it truly means for the economy, both in the U.S. and abroad over the long term.  Standard & Poor’s ultimately felt the current plan for reducing the debt is far from sufficient and that it needs to see more action from the government before improving their outlook.  As of this writing, the other ratings agencies have held the United States’ AAA status, but have warned that they, too, are concerned.

The world markets responded to these events in a very negative fashion on Monday, speeding up some already brisk downward moves from the week prior due to continued tension in Europe and slower than expected growth in various sectors here in the U.S.  Tuesday, the Fed released a statement confirming that interest rates will likely stay put for the foreseeable future.  Along with some positive corporate earnings, this news drove the market up nearly 4% and the Nasdaq up more than 5% on an extremely volatile trading day.

We continue to believe that the best defense in any market is to have a broadly diversified, low cost portfolio that is thoughtfully rebalanced to track with our client’s long term goals and tolerance for risk.  That said, we wanted to take this opportunity to provide our view on some commonly asked questions surrounding recent events. 

Are my cash & short-term bond funds safe?

In a word, yes. The money market funds we utilize are of very high quality and will continue to provide safety and security for our clients’ cash reserves.  Much the same, the remainder of the fixed income side of the portfolios, while subject to market fluctuation, are all short term, high quality bond funds.  Using these tools helps protect our clients from a number of factors.  For example, the debt downgrade impacts long term U.S. debt, but its short term rating has remained unchanged, meaning the impact of the S&P downgrade is likely to be minimal.

What can we do?

For most of us, the option to pull out of the market is the worst possible scenario, as can be illustrated by the late afternoon rally on Tuesday.  We will take action by continuing to look for opportunities to buy low and sell high as the volatility provides rebalancing opportunities.  Sticking with our long term discipline served us very well in 2008 and 2009 as the purchases we made during the worst of times have produced the strongest returns since.

While this sometimes feels like a “do nothing” response, it isn’t.  The truth of the matter is, to quote author and financial planner, Carl Richards, “The time to prepare for a crisis is long before you find yourself in one.  It’s not a good idea to figure out how a parachute works after you jump out of the plane. Financial plans and asset allocation models are built for the long term. Large fluctuations in market value are expected and are necessary as the downswings provide the buying opportunities that we’ll take advantage of in future upswings.  How one responds to these temporary fluctuations over a lifetime of investing is what really tests us as investors.

This is the first time the U.S. debt rating has been downgraded.  Is this time different?

No. While the look and feel of this crisis has different characteristics of the prior crisis, which had a different look and feel than the one prior to that, these issues, while incredibly painful and emotional, tend to appear and behave like most financial crises in hindsight.  They are part of the natural economic cycle of booms and busts, the constant battle between fear & greed.
Corporations around the world continue to collectively be healthier than they’ve been in quite some time.  Many are sitting on larger than usual cash reserves and earnings have remained strong overall.  Famed economist Burton Malkiel recently said, “Panic selling of U.S. common stocks will prove to be a very inappropriate response...no one can tell you when the stock market will end its decline, but there are some things we do know.  Investors who have sold out their stocks at times when there have been very large declines in the market have invariably been wrong.”

Who should I be reading? What should I focus on?

The best answer is that you should be reading your favorite books and magazines, and focusing on that which you can control and enjoy.  If this current economic situation fits that bill, below are some excellent articles that help breakdown what has occurred of late and a variety of responses.

Resisting The Urge to Run Away - Ron Lieber, New York Times, August 5, 2011

Your Neglected Stock Market Backup Plan - Carl Richards, New York Times, August 8, 2011

Don’t Panic About the Stock Market – Burton Malkiel, The Wall Street Journal, August 8, 2011

This crisis will come and this crisis will go. The same goes for the upswings. When they will occur is something that no one can tell you with any degree of accuracy, certainty or consistency. It’s tough to feel positive in the midst of so much uncertainty, but take solace knowing that if you stick to your disciplined plan and stay focused on long term results, you’re prepared.

Chip Workman, CFP®
cworkman@taaginc.com
http://www.taaginc.com/

The 25 Documents You Need Before You Die

On July 20th, The Asset Advisory Group will be hosting an Estate Planning lunch and learn session with Jeff Albrinck of Rendigs, Fry, Kiely & Dennis, LLP.  The topics will range from the basics to Jeff's take on the current state of estate tax legislation and how to plan for the future as laws continue to fluctuate with each election cycle.

In the meantime, the Wall Street Journal published an excellent article, "The 25 Documents You Need Before You Die"  which does an excellent job of prefacing Jeff's presentation by breaking down the basic documentation all of us should have on hand and easily accessible by our heirs or those that would carry out our wishes.  This often feels like an overwhelming task, but as author Saabira Chaudhuri explains, it really doesn't have to be.

You can link to the article above or by clicking here. 

Have a great week!

The Asset Advisory Group
http://taaginc.com
info@taaginc.com

The Best Investment Advice: Stop Losing Money

(from Carl Richard's New York Times' Bucks blog, 5/9/2011 - click here for the original post.  Carl  is a certified financial planner in Park City, Utah. His sketches are archived on the Bucks blog and on his personal Web site, www.BehaviorGap.com.)




I’m more convinced than ever that Mark Twain was correct when he decided that he was more interested in the return of his money than the return on his money.

A couple of weeks ago, we discussed how often people in their 60s and 70s say that their primary residence of over 30 years was their best investment. This belief exists despite the fact that home values barely kept pace with inflation. How can this be, given that during the same time period average annual returns in various stock market indexes ranged from 8 to 13 percent?

Because for most people, it was the only investment that didn’t lose money!

While the same outcome may not apply to housing in recent years, the principle still applies to investing in general. Most of us are chasing the highest return, because that’s what investing is all about, right?

But the experience of many people has been that the well-intentioned search for the best investment actually cost them money. They bought at the peak and sold at the bottom, and their overall returns ended up being meager. I suspect lots of these people would gladly trade their actual experience over the last decade or more with simply having their money returned to them.

So, what if the key to investment success is to start by making sure that you don’t lose money? Could it be that accepting a lower rate of return might result in having more money than continuing the wild goose chase of this magical 10 percent we hear that the stock market delivers over time?

Part of the problem is that we focus on the wrong thing, like finding the very best investment or beating a particular stock market benchmark. Both are a wild goose chase. Having the money for a dignified retirement, however, is not. By setting real financial goals, we can quit chasing investment performance and focus instead on creating a plan for the future that makes sense.

Once a plan is in place, it may very well be that the best thing we can do with our investments is to simply not lose money and take the time and energy we were spending in the chase and focus on those things that we have more control over. Things like finding creative ways to earn or save more, or just enjoying the one life we have to live.

Confronting Your Personal Debt Ceiling

(from Carl Richard's New York Times' Bucks blog, 4/18/2011 - click here for the original post.  Carl  is a certified financial planner in Park City, Utah. His sketches are archived on the Bucks blog and on his personal Web site, www.BehaviorGap.com.)

We’ve all made financial commitments like mortgages, rent payments, college tuition and utility bills. When you combine those commitments, you end up with the foundation for a budget. But what happens when those commitments exceed your income?

After we become accustomed to a certain lifestyle, it can be difficult to make adjustments when the amount of money coming in decreases. But unlike the federal government, real people don’t have the option to take a vote and raise their personal debt ceiling. In the real world, increasing your personal debt ceiling only works for so long. At that point, there are only two options:

1. Earn more
2. Spend less

Simple math, tough choices.

Yet again we have another example of how painful it can be when the cold, hard facts of arithmetic smash against the complex, emotional issues of money. The math is simple: if you spend more than you earn, at some point things will have to change.

But once we move beyond the math, things start to get fuzzy fast. Most of us can relate to that sick feeling of comparing what we owe to the amount of money sitting in the bank and knowing it isn’t enough, or the pain of telling children that we simply can’t afford to do something that was incredibly important to them or the awkward discussion with a spouse about which extra expense we have to cut to make ends meet. These conversations aren’t easy, but they have to happen if we want things to change. At some point we can’t continue to kick the can down the road.

To add to the frustration, these decisions are intensely personal. We all want easy answers from some personal finance guru who will tell us what to do. We want a prescription, but this discussion doesn’t work that way.

Sure, there are books that will provide a framework, and learning from others (including Elmo) that have been through this can be helpful. But in the end, your situation is absolutely unique. It will require you to come up with a plan that works for you. Often what one family defines as a need another will view as a luxury, and neither one of them is wrong. In the end, they will both need to satisfy the equation on the napkin: their income must be greater than or equal to their expenses.

At some point in your life, you’ve done the math and realized that your financial commitments were out of whack with your income. How did you fix your problem? If you have children, how are you helping them understand the need for financial balance?

Making the Most of Tax Time

This is not a favorite time of year for most of us, because wading through all the paperwork needed to prepare our taxes can be a headache. But if you have to gather up all the information anyway, you might as well use it as an opportunity to improve your financial situation. Here are some ideas:

• Mortgage Interest Deduction - Look at the year-end summary report you received from your mortgage company and see what you still owe on your house and your current interest rate. The national average for a 30 year fixed rate is 4.96%, and some banks here in Cincinnati are offering even lower rates. If you have a mortgage over 6% you should seriously consider refinancing and locking in a lower rate while they are still at historical lows.

• Real Estate Tax Deduction - Chris Carleton mentioned it in her March 9th blog, Taking Advantage of a Decline in Your Home’s Value, but it’s worth mentioning again. Even if you have your home paid off, real estate taxes will continue to be a major housing expense for you, so having your house reassessed after the housing downturn might be worth it. You won’t be able to make the March 31st deadline for this year, but we can help you if you’d like to file for a reduction for next year.

• Interest and Dividend Income - Do you receive 1099-INTs from a variety of banks and brokerage companies? Do you have brokerage accounts that you set up with the intention of doing some investing on your own, but haven’t taken the time? You should hold three to six months of living expenses in very liquid investments in case of emergencies, but more than that and you are missing the opportunity to maximize your income. Consider consolidating these accounts to simplify your life and maximize your interest. You’ll thank yourself next year.

• Charitable Contributions – Do you give money to a wide variety of charities each year? Look at your average giving over a period of years, and consider setting up a donor-advised fund for future gifts. The large deduction in the year you set up the fund will have a much greater tax impact; and you can involve your children or grandchildren in your gifting decisions to pass along charitable family values. In Cincinnati, we have great resources such as the Greater Cincinnati Foundation, where you can establish a donor-advised fund with a $25,000 contribution, and the West Chester Community Foundation.

• College Planning with a Deduction – It felt like it took forever to pay off our college loans when we were first married, so my husband and I want to help our grandson with his college expenses. By setting up a 529 account, we can help him and get a deduction up to $2,000 on our Ohio income tax return. If you want to help a young person with college, this is a great way to do it.

We can’t make the work of filing your taxes go away, but we can help implement one of these ideas. If you would like to know more, please give one of us a call.

Jeannette A. Jones, CPA, CFP®
jjones@taaginc.com
http://www.taaginc.com/

Don't Confuse the Urgent with the Important

Carl does a great job in the blog below of reminding us of why those things with low urgency, but a high degree of importance on our to-do list deserve our time and attention before it's too late.  

(from Carl Richard's New York Times' Bucks blog, 3/21/2011 - click here for the original post.  Carl  is a certified financial planner in Park City, Utah. His sketches are archived on the Bucks blog and on his personal Web site, BehaviorGap.com.)
  

Last weekend marked the beginning of spring, and even though there’s still snow on the ground here in Park City, it reminded me that nearly a quarter of the year has come and gone.

Like many of you, I made resolutions in January. There were a lot of important things I wanted to accomplish. And for a few weeks, I did really well. But now it’s March, and part of me is panicked. There’s still so much to be done. But another part of me latched on to the second half of the equation: I still have three quarters of the year to go. What’s the big deal?

The problem results from the distractions that come from things that seem urgent. They cause us to lose our focus on the important issues.

On a day-to-day basis it’s easier to focus on those urgent things that capture your attention. After all, who wouldn’t focus on getting the car fixed over making sure the will is up to date? That seems like a logical decision that trumps the merely important goals you set in January.

Bob Goldman, a financial planner, said that he sees a surge in business around January and February. So at least they’re trying.

But Mr. Goldman added that he often doesn’t see those people again for years. Following through on the big decisions tends to  drop down the list quickly when you’re confronted by life’s urgent demands. After all, many of these important goals appear complex, like buying life insurance or setting up college savings accounts. So we often push them aside in favor of the urgent and immediate.

Plus, we enjoy the sense of checking urgent things off a list. The more urgent the task the greater the sense of satisfaction. By comparison, sitting down and working through the details of your personal and financial lives doesn’t offer the same sense of excitement and immediate gratification.

Here’s the danger in all of this though. Once time passes, the important eventually becomes urgent. But by then it may be too late to do much about it.

Think about the stories of friends and colleagues who are dealing with complicated estates because family members let the urgent trump the important. Then there are the parents who didn’t think 18 years would pass so quickly; now they’re unsure whether they can help pay for college.

A friend who is an estate planning attorney noted that people will often come to him in a panic right before taking a trip without their kids. With worst-case scenarios floating through their minds, these couples want their wills done in case the plane goes down or the ship sinks. Since these things take time, it’s often impossible to finish before they leave town. Then, my friend doesn’t hear back from them again until a few days before the next trip.

See a pattern here?!

If there’s one resolution that I hope each of you keeps it’s this: please set aside time each month to tackle these important questions. Yes, you will be tempted to brush them aside until next month because there will be something urgent going on. But you can’t keep making the same resolution every January to deal with your important decisions this year. The tasks will never get smaller if you don’t start dealing with them one by one.
After every financial crisis we often ask, “How did we miss the signs?” Unlike a large-scale crisis that only seems obvious in hindsight, you know that you can prevent a personal financial crisis by tackling the important tasks in your life right now.

New Index Returns Astound Wall Street

(from Dan Solin's Huffington Post blog, 12/7/2010 - click here for the original post)

It's hard to be modest about this achievement, but I am going to try.

In January, 2010, I created the Solin Random Stock Index (SRSI). For those skeptics who want to verify this claim, please see this blog I wrote at the time.

I wish I could report that my index was a complex algorithm, but it was really very simple. I just took the spelling of my last name, and punched each letter into a quote engine. I selected the first two stocks (listed on a U.S. stock exchange) that appeared for each letter. Here's the list of ten stocks that comprised the SRSI:

1. Sprint Nextel (S)
2. Sirius XM Radio (SIRI)
3. Realty Income (O)
4. Oracle (ORCL)
5. Loews (L)
6. Las Vegas Sands (LVS)
7. Intel (INTC)
8. International Business Machines (IBM)
9. Netsuite (N)
10. Nvidia (NVDA)

Now that we are coming to the end of the year, I thought this would be a good time to see how the stocks in my index have performed. I know my competitors are busy getting the performance data of their funds together so they can show how well they did. Morningstar will be analyzing this information in order to figure out which funds get the highest "star" ratings.
Investors rely on performance history. High performing funds can expect an influx of revenues. More revenues means more fees. It's a high stakes game. I want a piece of it.

So, how did the SRSI do from January, 2010 through November, 2010? Hold on to your hat. It's up an astounding 45.14%! No kidding.

The S&P 500 is only up 5.87%.

Let's put this stellar performance in perspective so you can really appreciate it. In an article published February 24, 2010, US News recommended its top mutual funds for 2010. It's methodology was impressive. It relied on "some of the brightest minds conducting investing analysis" and used ratings from Morningstar, Lipper, Zacks, TheStreet.com and Standard & Poor's.

Hard to see how you could miss if you followed these recommendations.

Let's compare some of these top funds with the SRSI. The performance data is as of October 31, 2010.

The Yackman Fund (YACKX) is up 9.07%. It was the top ranked Large Value Fund;
The FMI Large Cap Fund (FMIHX) is up 5.15% It was the top ranked Large Blend Fund;
The Parnassus Workplace fund (PARWX) was up 8.35%. It was the top ranked Large Growth Fund.

The SRSI clobbered the returns of all these top rated funds. I didn't have access to any of the "brightest minds" who do sophisticated analysis and I don't even have a subscription to any of these ratings services.

So what can I expect next? I assume invitations from the cable financial shows so that I can educate investors on how I did it. Maybe all those impressive ratings services will start to follow the SRSI. If I was set up to receive funds, I assume I would have to brace for a massive influx. I would wear "back office problems" as a badge of honor.

My real goal is to win Morningstar's Fund Manager of Year award. Bruce Berkowitz was the pick for U.S. stock-fund manager in 2009 for his stellar performance running Fairholme Fund (FAIRX). His fund has $10 billion in assets. Mr. Berkowitz is a highly regarded stock picker, holding only about 20 stocks. The SRSI holds 10 stocks, so we have the over-concentration thing in common.

Fairholme is only up 12.96%. Clearly, my stock picking skills are vastly superior. It should be no contest for 2010. I'm a shoo-in.

I'll still have time to write this blog. I really enjoy it. But I suspect that being known as a "stock picking guru" will have its perks as well.

Sorry, I have to run now. The phone is ringing. I'm hoping it's Jim Cramer. Maybe he will anoint me as "one of the great ones in this business", an accolade he is reported to have bestowed on

Lenny Dykstra, the ball player turned stock picker.

Dykstra filed for bankruptcy in July, 2009.

I'm no Lenny Dykstra.

The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.