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

Teach Your Children

I attended Homecoming at my alma mater, the University of Cincinnati, this weekend. In the first twenty years after graduating, my only association with the school was through the support of their basketball and football programs. Last year, I reconnected with one of my professors and have become more actively involved by being a guest speaker in the classroom and joining the Foundation’s Planned Giving Committee and the Economic Center’s Financial Education Initiative Committee. Through each relationship, I am gaining insight into how children continue to be woefully unprepared for their financial future.

Many of the students to whom I spoke in a Careers class were not interested in a career in finance. However, I was able to get their attention when I demonstrated what the power of compound interest and time could do to a small investment (ten songs a week on Itunes) and the impact even a small credit card balance can have for many years. I was amazed this was new information to a class ranging from sophomores to seniors!

Through the committee at the Economic Center, we are reaching out to area schools and offering them a financial curriculum and access to professionals in the community to assist their efforts. This will be an uphill battle with the continual budget cuts the schools face. After all, finance is an elective, right? When are kids ever going to need to know how to balance a checkbook?

I don’t have children of my own and have been removed from our educational system for too long. This past year has served as an Aha! moment for me. My reconnection to UC has helped to explain why I see so many clients whose retirement becomes endangered because they feel obligated to bail their children out of a financial hole. If basic budgeting, saving and investing were a core part of our children’s education, this might not be the case.

While school may not be the place for your children or grandchildren to learn about finance, you can lead by example and look for ways to instill good financial habits. There are opportunities on a daily basis to teach children financial skills - by explaining the difference between a need and a want, showing them that saving a little can add up to a lot, and giving them the opportunity to learn the financial and emotional benefit to helping those in need. If you take the time to ensure your children are on a path to financial success, you just may be ensuring that you stay on one as well.

Christine L. Carleton, CFP®

clcarleton@taaginc.com
http://www.taaginc.com/

The Price of Procrastination

This week’s blog is inspired by our political leadership since I can’t seem to go anywhere without being reminded of the ticking clock in Washington. Once again, by putting off a decision until the last possible minute, its impact on all of us will be much greater than it should have been.

We all know that it’s easier to put off today what we can do tomorrow, but oftentimes we are simply taking a manageable situation and turning it into a crisis. If you look around, examples of this are not hard to find – and might even be happening in your own life.

A detrimental mistake I see people making at an early age occurs when they are just entering the workforce. The euphoria of earning (and spending) your first “real” paycheck may overshadow the importance of enrolling in the company 401(k). However, the combination of compound interest and time is a compelling reason to start saving early. If you start at age 25 and save just $20/ day and earn 6% interest, you will have amassed over $1.2 million at age 65. If you wait until you’re 35 and save $25/day, you will have $450,000 less to spend in your golden years.

As your career continues, retirement may seem a distant concern, so ensuring you are on track to get there is easy to put on the back burner. You need to take the time to make certain you are saving enough and your accounts are properly allocated at least annually. If you wait until you are ready to walk out the door before seeking financial advice the road to retirement may become even longer.

In retirement, if your spending is putting your financial solvency in jeopardy, many times making at least a small change can immediately make a large impact over time. The only thing you will accomplish if you ignore the situation is making it worse. Be honest when examining your needs versus your wants and wishes. It is a lot less painful to spend fewer dollars eating out, traveling or on gifts for your family than it is to get by on Social Security alone.

I often joke that when I am overwhelmed with the scope of a task, I like to “eat the elephant one bite at a time.” This is a good saying to keep in mind if it feels easier to put off or avoid making a financial decision. The ability to reach your goals may feel impossible at times, but procrastination may only ensure it is more difficult to achieve them. Just ask Congress.

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

Resolutions - Part II

In January, we blogged the “10 important investment resolutions for 2011” as listed by Brad Steinman, Director of the Canadian arm of Dimensional Fund Advisors. Brad’s goal was to warn investors away from “ill-advised practices that are detrimental to their wealth” and hopes that “a set of New Year’s Investment resolutions, along with an advisor capable of helping investors adhere to them, will lead to a more prosperous future.”

As we mentioned in that post, we’ll visit these resolutions periodically throughout the year and provide some commentary on each.

Resolution #3: I will not invest based on a forecast—whether it is mine or anyone else's. I will recognize that the urge to form an opinion will never go away, but I won't act on it because no one can repeatedly predict the future. It is, by definition, uncertain.

TAAG Thoughts: We’ve covered this topic in a variety of ways in this blog, but it’s always a good time to refresh. Uncertainty can have a significant impact on the market and we’re desperate to gain any information we can in advance of others, hoping to gain an edge in our investment portfolio. Many have made fortunes selling their purported ability to forecast uncertainty ahead of others, but to no avail. The truth of the matter remains that the unknown is the unknown. We are all at its mercy. The best defense against the unknown when it comes to investing continues to be a low cost, broadly diversified portfolio which can lessen the blow of uncertainty’s impact in any one area of the market.

Resolution #4: I will keep a long-term perspective and appropriately consider my investment horizon (i.e., how long my portfolio is to be invested) when determining my performance horizon (i.e., the time frame I use to evaluate results).

TAAG Thoughts: This is an important one that’s very intuitive, but easy to forget. Often when we meet with clients, especially early on in the relationship, questions surround current political, economic and other issues of the day that are concerning for one reason or another. We’re happy to talk about these issues and they’re often concerning for good reason, but they’re never cause for modifying investment strategy. Average life expectancies continue to climb and, for the majority of our clients, investment horizons can be expected to last 20-30 years or more. Over those many, many years we will have ups and downs of all varieties caused by any number of events.

It is crucial to understand the role of short-term, high quality fixed income investments as a buffer from those short term events and the role of equities to provide that continued growth over the long run. Both work in concert, allocated properly to your risk tolerance and long term goals, to provide a plan that will ensure that your money outlives you and not the other way around.

The consistent theme in many of these resolutions is our behavior surrounding events that might cause us to veer from our financial plan. It’s ok to have these emotions, but we need to recognize that they’re often fleeting and no cause to act. As investment author Nick Murray recently said, “you can act your way to investment success, but you can’t react your way.”

We’ll continue to visit these topics throughout the year, touching on these basic, but crucial pillars of our investment philosophy.

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

Make Your Own Declaration of Independence

You don’t have to be Jefferson to create your own Declaration of Independence. Writing your own can be a great way to recommit to yourself and your financial independence this summer. Make it your half-year resolution.

We have all thought about our goals and what we want our future to look like. If you're anything like me, it will help you to write it down. Each day we make financial decisions and take steps to get there. We go to work and earn another day's pay. We pay our mortgage and can check one more payment off the list.

Start your Declaration with a mission statement. What is your goal? Is it to have enough saved to be financially independent until the end of your life? If you’re having trouble defining your goal, answer the question “How do I look in fine, ten or more years?”

Try not to just pick a number for your goal, such as stating “I want to have $1,000,000 by retirement.” Instead, try to model as closely as you can how much you will need in dollars to fund your desired lifestyle (Note: This sort of modeling can be made much easier with the help of a financial planner). Knowing what you need to save in order to fund your goals is much easier than picking a number and working backwards.

Once you have defined your goals, take it a step further and outline what you will do to work toward that goal. You could have a blanket answer to the questions by saying that you will work to fund your goals, but you might find it more useful to be specific. An example might be “I will set aside $250/month in order to have enough saved in 5 years for the boat we want.”

After you progress through defining your goals, rank them in order of importance. You might find that once you have them listed in this order, you see that your list moves from ‘needs’ to ‘wants.’ You might be surprised to see which items fall to the bottom of your list.

Finally, sign and date your declaration. Don’t just file it away, either. Keep it somewhere that you will remember to re-evaluate it each year. Perhaps you stick it in your current year’s tax file? That way you will find it next year and remind yourself of what you’re trying to do.
-It’s much easier to get there when you know where you’re going.

By Amanda Bashore, CFP®