Never Fear

There is no doubt that the definition of retirement has been changing for years now. Longer life expectancies, increased costs for just about everything, and shrinking retirement benefits are just a few of the variables involved in retirement’s metamorphosis. The promise of ever-increasing demands for an ever-shrinking pool of resources is a cause for fear in many.

All too often, this fear causes people to approach retirement as if they are jumping off a cliff. They aren’t certain if they have saved enough. They look at their portfolios and hope that it will provide the life they envision. Failing that, they convince themselves that they will simply fit whatever income they earn year in and year out.

This fear, fear of the unknown, fear of doing without, fear of adhering to a budget for the first time is what drives this decision to not make decisions, or worse, to fall prey to any number of the slick sales approaches that inundate your mailbox and television daily, “guaranteeing” to make it a smooth ride.

As is true with just about everything else in life, the known is better than the unknown and life doesn’t come with guarantees. Sitting down and mapping out your goals for life after retirement, determining the costs involved and how your portfolio can help you accomplish those goals is the first step. Working with an independent advisor held to a fiduciary standard, you can learn whether or not your goals are attainable and what steps you might take to increase your chances of success.

The earlier you begin to plan, the better. For example, you can test drive your retirement budget by adhering to it for a year or two before you retire. This will allow you to see any cracks in the foundation and make adjustments as needed. If you’ve put off the planning or are already retired, it’s still a good idea to make sure you’re on track. Don’t continue to procrastinate out of guilt for putting it off, just make today the day you take action.

Another term that grabbed some headlines after a study done by Vanguard in early 2007 is downshifting. This involves working with your employer to adjust your current position to part-time, or by finding other part-time work that interests you before full-fledged retirement. This was a practice growing in popularity near the market’s peak and should be considered even more seriously in 2010. It is both an attractive way to make this transition while still earning some income and a way to begin to emotionally make the dramatic shift from a bustling professional life to one more focused on your personal goals.

The bottom line is that the security provided by having a solid plan in place cannot be overstated. It is an invaluable tool to maintain solid financial footing, and your sanity, as you wake up each day without the burden or fear of the unknown. Imagine being able to turn off the constant barrage of information on the “crisis du jour” knowing that, regardless of the short term outcome, you have a plan that will allow your money to outlive you, not the other way around.

By Chip Workman, CFP®
cworkman@taaginc.com
www.taaginc.com

321 Million and Counting...

More than 300 million people have a Facebook profile. My intention with this blog is to address those of you who have made a conscious decision to stay away. Though your ranks dwindle daily, there are many of you. This is understandable – a social movement that became so popular so fast must engender skepticism.

One of the biggest fears that I hear is the concern about privacy. Facebook has many privacy settings that allow you to set up how much or how little people can see about you and your profile. You choose what information to share with others. Don’t want someone who isn’t your ‘friend’ to be able to see your photos? No problem. Don’t want your nosy neighbor to be able to see your status updates? Done.

Facebook has recently added even more privacy settings so that you have control over virtually any privacy matter you can think of. You can set it up so that your former colleagues see one version of your profile, while your family sees another. Choosing your privacy settings should be your first move after creating a Facebook profile.

Another common reason for not joining Facebook is that you don’t want people to know your business. That’s fair! You can join Facebook and use it only as a tool to see information from others. You don’t have to EVER post a status update if you don’t want to. You don’t HAVE to post photos of yourself. Heck, you don’t even HAVE to go out searching for friends. They will naturally find and request you through people that you’ve allowed to be your friends.

Some people think that by joining Facebook, they are signing up for a huge time commitment. Not so. You can log-in only once a month just to approve/reject friends if you want. Yes, it is true that over half of all Facebook users log on daily, but that’s not because it’s a requirement – it’s because it’s fun.

(By the way, it’s ok to not accept friend requests. The person is not notified that you did not accept. Don’t accept requests from people that you don’t know, and don’t think twice about removing a friend if they have made you regret your acceptance).

Think you’re too old for Facebook? That’s ridiculous! Perhaps you didn’t know that the fastest growing demographic of Facebook users is people over 50. Facebook is a wonderful resource for families who don’t all live in the same area. If your kids live in a different state, you will be able to see photos that they post and their status updates. In time, it will make it feel like you’re not so far from each other. That’s the whole point of Facebook, to make people feel more connected.

I could write a very long article about all the reasons that I feel you should be on Facebook, but that’s for another day. What I want to know is, what are your personal reasons for holding out on Facebook? I’ve tried to hit the big ones here, but it’s different for different people.
Please leave a comment, start a conversation.

By Amanda Bashore, CFP®
arbashore@taaginc.com
www.taaginc.com

Eliminating Financial Clutter

As we draw closer to the deadline for institutions to furnish your annual tax statements, you may be wondering how long you need to keep tax and other financial documentation. Gathering your income tax data is a good time to clean out your filing cabinets and shred your utility bills from 1982 and brokerage statements from 1997.

Tax returns and related documents should be kept for seven years. If the return details a potentially taxable investment, keep it as long as you own the asset plus seven years. I recommend clients use the black binder we give you when you become a client of TAAG to organize your monthly brokerage statements, trade confirmations, and other investment related documentation.

You can shred buy and sell confirmations after you have compared them to your monthly statement. Keep your monthly statements until December and put your December statement in the file with your tax return for that year. If you ever need an historical brokerage statement, we can provide it to you. Most financial institutions are required to keep your statements for seven years. TAAG will track the cost basis for any investment we make in the taxable accounts we manage. Each January we will provide you with the realized gain and loss information you will need for taxes.

You can also use this process with your ATM receipts, deposit slips, and credit card receipts not needed for taxes or a warranty – shred them after comparing to your monthly statement. Canceled checks can be disposed of after a year if not used for a tax related purchase or deduction and your monthly bank statements, after seven years.

Bills can be tossed after six months and monthly credit card statements after a year if not being used for tax purposes.

Records to retain for the longer term include the paperwork from your home purchase – mortgage application, appraisal, deed and your sales contract. You should keep these at least as long as you own your home, longer if you prefer. For tax purposes, make sure you keep records and receipts from any improvements you have made that may reduce your tax bill when the house is sold.

If you have updated your estate planning documents in the past year, make sure to dispose of the outdated versions of wills, powers of attorney or health care directives. If you have recently made changes, please let us know if any of the documents we have in your file have been replaced or accounts should be re-titled.

There are a few documents you need to keep for life, including birth and death certificates, marriage licenses, adoption papers, and divorce decrees. It is best to keep these in a safe deposit box or fireproof safe in your home.

If you set up a system to purge unnecessary records on a regular basis, assembling the needed documentation at tax time will not feel like a chore.

By Chris Carleton, CFP
clcarleton@taaginc.com
www.taaginc.com

Enough

At a party given by a billionaire hedge fund manager, Kurt Vonnegut informed his friend, Joseph Heller, that their host made more money in a single day then Heller had earned from his popular novel, Catch-22, over his entire lifetime. Heller responded, “Yes, but I have something he will never have………enough.”

This story opens the introduction to the book, Enough, by John Bogel, the founder and former CEO of the Vanguard Mutual Fund Group. It’s my favorite part of the book, because it perfectly summarizes what I have observed as a financial advisor over my entire career.

When we were first married, and very poor, my husband would tease me when he could tell I was getting stressed over our finances with his quip, “Let’s go buy something to cheer ourselves up!” The sad thing is, many people use acquiring things as a way make themselves happy, and then are disappointed when the good feeling quickly wears off. Years go by and they are never quite able to accumulate what they need to stop working. Our consumer society has helped fuel the growth of manufacturing countries like China, increased the trade deficit, and caused storage facilities to pop up all over the suburbs to help alleviate the overcrowding in our homes.

If there is anything good to come from the Great Recession we have experienced over the last two years, I hope it encourages people to stop and give real thought to what ‘enough’ means to them.

I have been fortunate to observe and learn from the collective experiences of our clients over the past 21 years. People who are conscious spenders, those who know what they are acquiring and why, have been much more successful and able to handle the financial ups and downs that life has handed them. This doesn’t mean they live as paupers, they simply decide early on what is important to them and what isn’t, and then prioritize their spending to enhance the areas of their lives that have meaning to them, versus blindly upgrading and expanding their possessions. This accomplishes two things. The money they spend truly does enhance their lives and adds to their long-term happiness versus giving them a temporary boost, and they have funds left over to save so they don’t have to work until they die.

I realize I may sound like a critical parent lecturing on spending, but it’s much more than that. I’m suggesting that we, as a society, do a lot of mindless acquiring that is damaging to our financial security, and at the risk of sounding dramatic, to our souls. Unlike the bumper sticker, I do not believe that “He who dies with the most toys, wins.”

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

Giving Where it Truly Counts

Most of us have been flooded over the last several weeks with grave stories and haunting pictures of the devastation caused by the recent earthquakes in Haiti. Naturally, many of us want to help where we can with the relief efforts, but have been equally overwhelmed with the various opportunities to contribute. With news of charities, such as Haitian-native musician Wyclef Jean’s Yele Haiti foundation, being under scrutiny for misappropriation of funds, it is hard to know where your gifts will be most efficiently used to help those in need.

In the hopes of spreading the word about how to gift more effectively and how to leverage your contributions, we put together a few basic ideas this week to help you make that decision a little easier.

Choose How You Want to Help

The first step is to decide how you’d like to help. This could be giving to charities specializing in a range of activities from immediate relief such as water and food, longer term rebuilding and support efforts or to charities already on the ground supporting the impoverished nation in other ways. It is best to give cash or marketable assets whenever possible. Experts claim that, while many want to box up gifts of food and water, giving this way is often very inefficient and rarely serves its intended purpose. If you do prefer to contribute this way, give through an organization, such as Matthew 25 Ministries here in Cincinnati, that serve as a mass collection point for these kind of gifts and can then do a more targeted airlift of those good to the areas that need them most.

Choose Which Organization Best Suits Your Intentions

Once you have a purpose in place for your gift, the next step is doing some investigating about the various organizations that can help meet that goal. A great place to start your research is http://www.charitynavigator.org/, an organization that evaluates how well charities manage their costs and provides other tools to help contributors make educated decisions. Even when charities have the best intentions for every dollar donated, it is often difficult to keep administrative expenses in line. If you visit their homepage now, the first link that appears is a list of various organizations that are relevant to Haitian relief efforts.

Leveraging Your Gift

There are more ways than ever to leverage your gifting efforts. Many rewards programs are allowing members to transform their points into cash for the relief efforts. For example, Marriott is giving $25 to the Red Cross for every 10,000 points donated. AARP recently announced that they would match contributions dollar for dollar up to $500,000 (that level has since been reached, but they are still collecting donations). If employed, your employer may match gifts as well.

Beyond those efforts, consider social networking. If you give, provide a link to the charity of your choice or details on how to get more information on your Facebook, LinkedIn or Twitter page. While some misconstrue this as a sign of vanity, charitable groups strongly encourage this practice as it really is a tremendous tool to raise both funds and awareness about their cause.

In turn, if you see posts on these sites about various fundraising efforts, feel free to give, but be sure to do a little investigating on your own first to make sure they are legitimate.

Tax Benefits

Make sure you take advantage of any and all potential benefits related to giving. Congress recently passed a law allowing taxpayers to write off charitable donations to the Haiti earthquake on their 2009 Tax returns as opposed to waiting to deduct on their 2010 returns. This was done in an effort to encourage more donations and was unanimously approved in both the House and the Senate.

Be Cautious

As mentioned above, it’s important to make sure that you’re giving to who you think you’re giving to. Avoid telemarketers asking for a gift. Avoid e-mail solicitations, especially those that appear to come from an individual victim. When in doubt, hang up or log off and take the time to check out the charity on your own and make a direct gift.

Keeping these simple steps in mind, you’re well on your way to making an educated contribution that will have the maximum impact possible with every dollar contributed.

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

No Good Deed Goes Unpunished

If you haven’t heard a word about all the changes that have been going on in the credit card industry, you’ve probably been living under a rock…That and you haven’t come in to meet with your advisor in over a year! Some people haven’t paid much attention because they don’t think they will be affected by the changes, but you might be more vulnerable than you thought:

· So you planned to stop using your credit cards altogether to avoid fees? Not necessarily. Many cards have instituted inactivity fees, so if you go too long without using your card, don’t be surprised to see a charge on your statement. Also, if you don’t charge enough in the year, there might be a fee for that, too.

· Maybe you’re a person who pays off your balance consistently every month? You might not be exempt in this either. Credit card companies are desperately seeking ways to fill the revenue streams that they’re losing, and that means instituting fees for just about anything they can get away with. Also, watch your due dates! You don’t want your due date to get moved up and you inadvertently miss the payment.

· Some people might choose to take it to the extreme and cancel all of their credit cards (or even just a few). While this might feel like you’re doing something good, beware! 45% of your credit score has to do with the length of your credit history and the mix of how much you owe compared to how much credit you have available. If you cancel a credit card that you’ve had for 20 years, you could be doing serious damage to your credit score. Don’t worry so much if you’re just closing store brand credit cards. Just make sure they aren’t carrying a major credit card logo like MasterCard or Visa.

Keep these things in mind as we come closer to the day in February when these reforms take effect. Be sure to read ALL correspondence from your credit card company, even the fine print.

Amanda Bashore, CFP
arbashore@taaginc.com
http://www.taaginc.com/

Lessons for Investing Success

It’s always interesting to read the financial press this time of year. You can find a prediction to support whatever your gut feeling is about the future direction of the stock market. Tucked into this month’s Money Magazine amongst articles profiling the hottest mutual fund managers, and why investing in gold is a fool’s errand, is an excerpt from The Elements of Investing by Burton G. Malkiel and Charles D. Ellis. It caught my eye because Dimensional Fund Advisors (DFA), whose mutual funds we use in our client portfolios, utilizes the research of both of these gentlemen to guide their approach to investing.

The article is entitled “Dodge the 6 Biggest Investing Mistakes” and in each area, I see clients struggle to overcome these mistakes so that they will be successful long term investors.

Overconfidence

“We tend to be overconfident. If we do make a successful investment, we confuse luck with skill.”

All of us want to be able to brag to our friends that we identified the next hot stock before anyone else due to our superior stock picking ability. In reality, most times a lucky pick can turn into a disaster when confused with skill that can be relied upon in the future.

Following the Herd

“Just as contagious euphoria leads investors to take greater and greater risks, the same self-destructive behavior leads many to sell at the market’s bottom when pessimism is rampant.”

During the past twenty years I have talked many clients out of doing the exact opposite of what they should. We all know that buying low and selling high is the way to investing success, but unfortunately, our gut, along with the popular press and our friends and relatives, often leads us in the wrong direction.

Timing the Market

“The average investor’s actual returns are at least two percentage points lower (than the stock market as a whole) because the money tends to come in at or near the top and out at or near the bottom.

I think that this is one of the areas that an advisor can add the most value to clients. It doesn’t matter if the market is going up or down, investors feel better when buying the winning asset class or stock and selling the loser. Convincing them that staying invested over the long run is the best path to reaching their financial goals can be challenging during a roaring bull or raging bear market.

Assuming More Control Than You Have

“There is no dependable way to predict the future movements of a stock’s price from its past wanderings.”

We all want to look for trends, whether it’s in the market’s movement in general, a particular stock’s price, or whether it is likely to split in future. Feeling as if we can spot these patterns gives us more sense of security than we really have. I continually see this when discussing the price of the stock of a company from where the client has retired.

Paying Too Much in Fees

“There is one piece of investment advice that, if you can follow it, can dependably increase your returns: Minimize your investment costs.”

The DFA funds are not available to the public and are passively managed, which both allow them to keep the costs within their funds a fraction of what the typical retail investor pays.

Trusting Stockbrokers

“The stockbroker’s real job is not to make money for you but to make money from you.”

The advantage of working with an independent, fee only investment advisor is that there is no incentive from a brokerage firm to recommend trades or products which can be hazardous to the client’s wealth.

Investors that are able to overcome these mistakes and focus on their long terms goals despite the short term fluctuations of the stock market and the constant barrage from the media enticing them to do the exact opposite, are more likely to have a successful investing experience.

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