Revelation Financial Planning-COMMENTS

Have one's cake and eat it too

2009-08-05T11:30:00.000-07:00

I have a personal testimony on how the tax laws can work in ones favor if certain circumstances are met.

Here is my story; My wife and I have lived in our current house in North Seattle for 32 years. I remember this year vividly because the first project I took on the house was re-roofing it. While on the roof I heard on the radio that "Elvis" had just died. Okay, on with the story.

In these 32 years we have heated our house with oil. We keep our house at a pretty low temperature in the heating season so the consumption of oil is pretty low but in 2008 when we filled the tank at the height of excalating oil prices, the cost of oil was at $4.50 per gallon. I began thinking about alternative energy options. I first thought about geothermal but it is too costly in a confined space where deep holes would have to be drilled.

The next option was looking at solar. You are probably questioning me given Seattle's propensity for lack of sunshine but after doing some research I found that Seattle has 70% of the capacity as Los Angeles. I put it on the back burner until a couple weeks ago after the record setting 103 degree temperature. It was time to revisit solar energy. I contacted a solar energy expert and he provided me a quote that would provide enough energy from solar to be energy neutral. I really liked that idea because I am also pro envirnoment. The solar panels would produce enough electricity to offset the amount we use (during summer when we will produce more electricity than use, we can sell it back to the city and state) and different solar system would provide hot water. The quote included a heat pump to replace the oil furnace plus provide air conditioning in the rare hot days here in Seattle.

The quote was way above my budget but the energy expert provided me some interesting information about the change in the tax laws that just went into effect this year. The new law provides for a 30% tax credit, with no limit, for the cost of installing alternative energy systems; geothermal or solar. Amazingly with the 30% tax credit I am now within budget. There is also an additional $1,500 tax credit for the heat pump. As you know a tax credit comes directly off of income taxes due.

Okay, this is great but how am I going to pay for it? I am over age 59 1/2 so I can take "In Service" withdrawals from my retirement plan (4o1(k)/403(b)) with no penalty. I just have to pay ordinary income taxes on the amount withdrawn. But wait I get a 30% tax credit for going green with the solar energy system. This credit more than offsets the additional taxes I will have to pay with the "In Service" withdrawals. What a deal, the tax laws actually helps me!

The possibility are even greater in 2010 when Roth IRA conversions will be allowed for everyone, no income limitations. If you are looking to go green, want to do a Roth IRA conversion then the tax codes are in your favor to accomplish two things at once with little taxes due. Of course you still have to come up with the money for the installation.

I can taste that cake now. The installation starts next week.

Target-Date Funds, are they appropriate?

2009-07-03T10:22:00.000-07:00

In the last few weeks much scrutiny has befallen Target-date funds culminating in the June 18th hearing of the Securities and Exchange Commission and the Department of Labor. The hearing came about because the diverse range of returns (losses) since the great recession began in the fall of 2007 with similar dated Target-date funds with different investment firms.

Target-date funds invest in a mix of equities, fixed income and cash equivalents that automatically rebalance toward a more conservative mix the closer the fund gets to it retirement date. This is accomplished by systematically reducing or glide path, and replacing these investments with more conservative, less volatile asset classes such as bonds, inflation protected securities and cash. The glide path dictates at what ages, and to what extent, the asset allocation is modified, in effect transferring the onus of portfolio management and rebalancing to a professional money manager.

Target-date funds have because very popular after being one of the default investment options for 401(k) plans per the the 2006 Pension Protection Act. Target-date fund assets went from $66 billion in 2005 to $178 billion in 2007 but it is now down to $152 billion in March 2009 due largely to the beating they took during the market downturn. In a recent speech SEC chairperson Mary Schapiro expressed her concern that the average loss last year for 31 funds with a 2010 retirement date was almost 25%, with losses ranging from 3.6% to 41%. This is quite a hit for those nearing retirement. They probably won't have enough time to recover.

According to a recent research report from Vanguard there are three factors that determine the funds' glide path and widely varying returns;

Asset Allocation - higher funds' allocation to stocks the more aggressive the fund.
Underlying Asset Classes and exposure to each - examples would be %US stocks compared to % international stock and with bonds corporate bonds % compared to % US Treasury bonds.
Implementation - active versus passive methodology. Active managed have greater potential for higher return but at a higher risk. Active managed also have higher expenses.

To see an example of a Vanguard's glide path please click on the link.

Even with the volatility that we have seen from this severe down financial market I still think Target-date funds are very appropriate investment for a retirement account for their simplicity and rebalancing methodology. But it does raise the issue of the appropriateness when one is nearing retirement. Make sure you understand the above three points especially the Asset Allocation. Some Target-date funds are very aggressive even when one is nearing their retirement years.

If you want little involve in investing your retirement balances a Target-date funds would be appropriate. Another name for Target-date funds are lifecycle funds

Economic Update

2009-06-26T17:46:00.000-07:00

Today I heard a presentation by well know economist in the Pacific Northwest, John W. Mitchell. I have heard John speak many times. I always look forward to what he has to say. He can make the dull science very interesting.

In his presentation he reviewed where we are in historical perspective, see the two slides from his presentation, where we are now and where he thinks we will be down the road.

As you can see from the first slide the current recession is greater in length than any other modern recession at 18 months and still counting (NBER stands for National Bureau of Economic Research). We won't know how long the current recession will last until the data has been scoured a year or so after the recession is over. For those over 40 we have been through this before, not quite so severe, but the 1973-5 & 1981-2 were relatively long recessions.

The second slide is trying to say that anyone under 40 has not experienced a major recession. Only 5.3% of the time period from Nov. 82 to Dec. 2007 was the US economy in a recession. This just says that many members of our population only know stock prices going up, except for the tech bubble blip, and housing prices escalation. It was a no brainer to make money in these two areas. That has now come crashing down. These were the go go years of spending and excess. It is an opportunity for the younger (older set too) set to learn to save which will have a major impact on slowing the economic recovery since over 2/3rd of US economy is depended on consumption. Data that just came out yesterday shows the saving rate at its highest level in many years as an example. Good planning for the individual but bad for the economy. It will take awhile to adjust to this change.

As you know the recession is being led by the housing value decline. He sighted many reasons for this but the main one I came away with other than the obvious ones is that people thought home prices only go up. If they entered into a mortgage that they could not afford they could sell at a profit if something went bad. How wrong they were/are. It is human nature. It is really no different than the tulip blub mania in the 1700s, Internet stocks or Railroad/Canal Shares.

John said that four month ago there were no positive signs in the economy. But now there are some positive signs that the economy is nearing the bottom. He expects the bottom to be hit in the third quarter or the latest in the 4th but the recovery with be very slow compared to the recovery from previous recessions. This is a global recession impacting all countries an States except for North Dakota, do you want to move there?

He stated that we are going into unknown territory with all the smorgasbord of government policies, the incredible high federal deficit and huge amount of money that has been and will continue to be pumped into the economy. He said these are exciting times for economist and policy makers. What will not be so easily is when the economy does bounce back how and what to "Unwind The Stimulus". This will be much harder. From history we know that this was not handled well in 1937-8 with pulling back too early and 1966-7 when pulled back too late causing severe inflation many years later.

He did reemphasize that the recovery will be slow and there could be a relapse in 2011 or so if the "Unwinding" is not handled correctly.

Thank you John, stay tuned.

Why I purchased Citigroup Stock?

2009-06-05T17:47:00.000-07:00

This week I did something that I have not done in a long time. I purchased an individual stock. For those that have read my comments in the past know that I am an advocate of passive investing utilizing index funds. There is no guess work just figuring out the asset allocation among different low cost index funds.

So why this week did I purchase a few shares of Citigroup. First off I can afford to lose the bet. I only purchased 500 shares for a total price of $1,750 or $3.50 per share. I am thinking this is one of the largest banks in the United States. It made some very bad decisions with the loan debacle but The Federal Government won't let it die so the upside potential is huge with the economy reviving.

Nah, those are good reasons but is not the real reason. My emotional brain overruled my rational brain after an article I read this week about the fate of stocks that are removed from the Dow Industrial Average. As you probably know this week Citigroup and General Motors were removed from the 30 companies that make up the Dow index. They were replaced by Cisco Systems and Travelers (funny that Travelers used to be part of Citigroup).

The article provided historical evidence where companies that fell out of the Dow fared much better than companies that replace them. Numerous examples were cited. I thought why not when my rational brain was asleep, it is worth taking a gamble. It will be interesting to see how it plays out.

I do think that we have seen the bottom of the recession.

We all need some excitement in our lives including investing. I see no issue with placing 5% of one's investments in very speculative assets. I would consider the purchase of Citigroup as part of my 5% allocation. Even if it goes up, which I expect it will with the economy turning around, it won't be that big of a winner since I only own 500 shares but the excitement is worth more than the dollars that are behind it. I suppose this is why the lottery and gambling are successful since there is no rational reason for doing either but the upside potential is huge. By the way my rational brain wins out here. I have never purchased a lottery ticket or gambled with my own money.

It is okay once in awhile to get off the easy, passive bandwagon.

Old Parents Planning - Part II

2009-05-27T13:18:00.000-07:00

Last week I wrote about a couple estate planning issues related to my aged parents. This week it has to do with health care and the experience of my wife's mother. Not to be too specific but my mother-in-law had major surgery about a month ago. She spent about a week in the hospital and now she is in a rehab facility working to get her back on her feet so she can go home.

This is not a commentary about the health care providers (doctors, nurses, hospitals, rehab facility) but about how these providers get paid and the impact on the patient and family. By the way the care has been excellent but the agony to my mother-in-law and her three daughters with the payment scares has been very difficult and continues to raise its ugly head.

My mother-in-law happens to be covered by a health maintenance organization that takes the place of Medicare. This HMO also has its own medical staff so it is both a health insurance company and provider at the same time. This create an inherent conflict because the HMO provides the insurance but also their staff (doctors and nurses) recommends when a patient will no longer be covered by their insurance.

Within the first week at the rehab facility (not part of the HMO) we were told by the social worker that my mother-in-law's case would be reviewed every few days to determine if the HMO would continue to provide insurance coverage for her. My mother-in-law just had major surgery and there is talk that the HMO is considering discharging her from their responsibility as no longer medically necessary! This puts severe pressure on the family because currently my mother-in-law requires around the clock care. Without insurance coverage her wealth would be depleted quickly.

Due to a medical complication she is still covered by the HMO but we are still on pins and needles knowing that a letter will come soon that says her HMO insurance coverage is over. Fortunately the rehab center also has an assisted living facility that would provide housing and meals at a fixed rate but any additional services (bathing, helping with medication, bath rooming, transferring) would cost extra. Given her slow recovery the additional services would add up quickly without the insurance coverage.

This is one tiny example where our health insurance delivery system is failing. This HMO has to follow the rules set forth by Medicare but the Center for Medicare/Medicaid Services is under severe financial pressure. Just recently an the annual report from the Social Security Board of Trustees to Congress said that Medicare/Medicaid trust fund will be insolvent by 2017. This is two years earlier than projected last year. It is being compounded by the weak economy through less collection of taxes and interest earned. CMS lower their standard of care, discharing patients earlier, which then dictates what the HMO can do.

What can be done? This is one the key agendas of President Obama this year. I heard on the radio this morning that Jim McDermott, my Representative from the State of Washington, is proposing a single payer system similar to Medicare. I don't think this will happen. The health insurance lobbyist hold too much weight with Congress. I will be very interested in the health care reform debate that will be occurring soon in the halls of congress.

What can be taken away from this experience from a financial planning standpoint;

Even with health insurance coverage there is no assurance that it will cover what you think it will cover as being medically necessary. Without this coverage, even though it can be a frustrating experience, one's assets would be depleted quickly. Having secondary insurance to Medicare is paramount.
Every year Fidelity comes out with a study estimating the cost for health coverage in retirement. In this year's report the health costs are estimated to be near $250,000 over an average lifetime. You better incorporate this into your retirement projections. The cost in retirement probably won't be less given the potential cost of health care.
Family members need to make sure their aged parents have adequate health insurance coverage beyond what is provided tbyMedicare (part "A", "B" and "D").
It is also a time to discuss long term care insurance coverage that would come into play if patient is required to have custodial care (not able to take care of themselves) for an extended period of time. Most people don't think they would need such insurance but with the advancement in medical technology (mother-in-law is a good example) making it possible to live longer more people will live beyond their ability to take care of themselves. Who is going to pay for it?

I think this is enough for this week. There is much food for thought here.

Old Parents Planning - Part I

2009-05-12T17:18:00.000-07:00

I am having trouble figuring out what to call this topic when one is dealing with their elderly parents so I am calling it Old Parents Planning. This can be confusing because adults having children at a later age could also be covered by this title.

I am talking about being a parent to one's parents as they begin to suffer the effects of old age and what can be done to make it easier for both parties with planning when age begins to impact everyone's lives. This is playing out in my life and my wife's as my parents and her mom are in their early 90s and mid 80s respectively.

Last week I did an estate planning workshop and my parents showed up to hear me speak. I was surprised because this is the first time they have heard me make a presentation of any form over my 33 year career. It was very helpful for them (and me) to be there because a couple topics in the workshop need their attention. I don't think I could have had this conversation directly with them so this indirect way through the workshop will hopefully help them and my two brothers with Parents Planning. We will see.

The two areas that most concern me in the estate planning area for my parents are (they have all their legal documents completed through estate planning attorney);

Communicating wishes to children; Keep the family involved during one's life so the children know what to expect when one dies. Don't keep the kids in the dark about what is important. Don't just leave it to reading of the will. Sit down with your children and talk about your wishes and desires so everyone understands. If this is not done there is potential for tearing the family apart. You would think this is an easy step but it is not. It takes a conscious effort of disclosing something to your family you might not want to do. Be open not secretive.

Get your information organized; Pull all your records together in one notebook or use computer software to organize and print out a hard copy. Include personal information, medical information, final arrangements, estate documents, financial documents, investments, personal possession and other pertinent information. This will help the children immensely especially as they are dealing with a parent that has just died or no longer can take care of their personal affairs. There is free software through T. Rowe Price that allows one to enter all relevant information using the computer. It is easy to use and update with no string attached. Make it easy on the survivors or the executor.

Doing these two things does not cost anything but your time. Take the time to make both of these two things a reality. Communicate and get organized.

Next week's comments will be on our health care system as experienced by wife's mother.

Markets in 2009 and where going

2009-05-01T11:50:00.000-07:00

Now that April is done what has transpired in the financial markets for the first four months and what might happen in the near future? The first question is easy since it represents history but the second question is not so given we have just witness, for most of us, a once in life time event.

The chart at the top represents the historical performance for different investment sectors for the month of April, the current quarter - QTD (April - June) and Year to Date. A good recap of the performance for April and year to date is found in this MarketWatch article. As this article states the growth sector (Nasdaq - technology) is performing much better than the value sector led by financials. It is interesting to note that the passive buy and hold index investing did much better than managed funds like hedge funds that were up only 1% in April.

Don't get too excited about the rally because the S&P 500 and DJIA are not back to were they were when the year started. We have a long ways to go. There are signs of the economy turning around but does it represent a long term trend? It is difficult to see beyond the present when unemployment continues to increase, industrial titan Chrysler filing for bankruptcy, concerns over deflation, the tenuous world political climate and the unprecedented spending of the Obama administration. This does not even consider the swine flu threat.

Many people are saying that the March and April rallies are "too soon, too quick". About 2/3rd of the US companies have reported their first quarter results so the markets have gotten through this difficult reporting period. As time marches on future earnings will be reported against the weak results of last year's downturn so the results should actually look pretty favorable.

My gut feeling, for what that is worth, and many others is that the economy will start turning around in the 4th quarter. I think this is what the financial markets are currently anticipating. If you did not bail during the market downturn your buy and hold strategy will further advance above the market lows hit in February. It is hard to watch ones' investments decline so precipitously but bailing at the bottom would be much worse because when the markets turn for a sustained period, sorry I don't know when, you don't want to be sitting on the sidelines. Between 1982 and 2001 if one missed the best 30 days of the S&P 500 one's return would be reduced from 11.8% a year to 5.3%. If you have incurred the market losses it makes no sense to bail now. No one is successful over an extended period to be an effective market timer.

Hang in there.

Investing - Simple is better

2009-04-23T08:57:00.000-07:00

You probably know by now that my investment philosophy is just to be "average" and that you can do it yourself with a little guidance. Take what the market provides and not worry or try to beat the market. It is a loser game in most situations. This philosophy was again vindicated with an article I read a couple days ago about passive index funds outperforming active managed funds.

Even if the active managers are able to time the market through buying and selling of securities they will always fall short because every time a transaction is executed it creates additional costs in two ways; (1) trading costs and (2) income tax through short-term capital gains in most situations.

The other negative of active managed funds are their higher costs passed on to the investors through reduction in the actual performance. As they say it is not what you make that is important, it is what you get to keep. With active funds one gets to keep much less than a passive index fund. The average active managed funds has an expense ratio of 1.5% (there are additional hidden fees also) where a Vanguard index fund has an expense ratio of .2%. This is more than a 1% difference taken directly from what one will receive in their account at the end of the day.

In fact, a study by the University of Illinois at Urbana Champaign concluded that when you consider the actual return on investments after fees are accounted for, index mutual funds beat actively managed funds by .72% per year, a particularly significant figure when you consider the value of this money saved compounding over time. As an example if one invested $10,000 with an average annual return of 7% over 30 years the ending value would be $263,000. Same example but return reduced by .72% per year the ending balance will be $227,000. Additional expenses have reduced the overall account balance by $36,000. Expenses do add up. The example would be more extreme if the index funds used were through Vanguard.

If you want to see examples of passive index funds take a look at MarketWatch's Lazy Portfolios. This is an excellent beginning to put together a low cost diversified passive index portfolio.

Now the markets need to turn the corner so we can begin to see positive returns.

Investment Nightmare

2009-04-11T19:18:00.000-07:00

Earlier this week I read an article in the Wall Street Journal about how some investors are reacting to the severe drop in the stock markets. Many investor are abandoning the buy-and-hold strategy for the do-it-yourself approach. I think this is very drastic and will led to nightmarish results.

Only a few money manager have been able to beat the market for an extended period of time so why does one think as an amateur investor that they can be one of these market beaters. I can understand their discouragement and high level of distrust in their investment advisor but to go it alone and become stock timers and pickers is going down the wrong path.

Even if they were somewhat successful the advantage would be lost through excessive trading fees and taxes incurred. People want more control over their money and are going it alone but I can only see disaster down the road. If they think the 50% loss in their portfolio is bad now just wait after they have make some untimely moves.

If you want the excitement of being a day trader so be it but only use 5% of your overall investment portfolio. Leave the remainder of your investment in index funds be it through mutual funds or EFTs.

In the Wall Street article mentioned above John Bogle (founder of Vanguard Group) states: "It's a fools' game. Not only will short-term investors pay more commissions, fees and other costs, but various studies have shown that market timers typically lose more money than buy-and-hold investors. If you want to trade the market, you've got be right twice - you've got to get out and get back in". Who can do this consistently?

I suggest one seek out assistance or just play the market through a diversified index strategy and the stay the course since leaving now when the markets are so beaten down will make paper losses permament.

Investment Basics

2009-04-03T17:11:00.000-07:00

In the last week I have read a number of articles asking the question: "Has the Bull Market Returned?".

The market ended today for the fourth week in a row where the Dow Jones Industrial average has increased. The Dow is now above 8,000. This is a longways from the high point back in October of 2007 when it was over 14,000. The Dow is still down 43% from its peak.

The much broader measure of the Standard and Poors 500 index is down 46% from its peak.

I can only hope that we are on the upswing. The stock market is a leading indicator of the economy and normally leads the economy out a recession by about 6 months. If this is the case it is pretty close to what many of the prognosticators are saying about the recession ending by the end of this year. I have posted a couple articles on my website discussing the stock market recovery. I post articles written by others every few days that I find of interest and you might also.

It is difficult to comprehend why the stock market has increased for 4 consecutive weeks when news is so negative including today's employment figures with an additional 663,000 people on the unemployment rolls in March with the total unemployment at 8.5%. Employment is a laggard of the economy and normally does not begin recovering until 5 months after the recession is over. I guess the stock market has already factored in these lower than expected numbers. A few months ago there was an expectation the unemployment numbers would reach 10%.

This severe recession has had a major impact on the individual investor watching their balances decline dramatically. In many situations many investors have cut and run from the market which in the long run is probably not the best move. No one knows for sure (timers don't know how to time the market) when the markets will turn around and when the markets turn historically there has been a rapid upticks in the averages. Are we in the middle of one now or this a false bull? I don't know but because I am not a timer my money is invested for the long run and I am ready when market decides to turn for the better.

My investment philosophy is very basic in being broadly diversified in different asset classes that are made up of index funds. There is no active managed funds in the portfolios that I would recommend. Over the long run active management because of their higher fees don't perform as well as index funds so why not just take what the market provides.

My investment company of choice is Vanguard because they are the lowest cost provider of investments and have the largest number of index funds to choose from. This week Vanguard introduced a 5 part series on investing titled "Simple Strategies for Successful Investing". I think it is very helpful and gets to the basics of investing. Here is the link to the video series. I hope you find it informative and helps with your investment educator and investment decisions during these turbulent times.

If you have questions about investing let me know.

All about risk protection

2009-03-26T05:00:00.000-07:00

I am writing this entry from a hospital bed in downtown Seattle. I pride myself in being in good health and working hard to keep it that way. I was shocked yesterday when I received a call from a technician after having a CT Scan that I have numerous blood clots in both my lungs and that admitting papers have been sent to hospital to admit me to get rid of the clots and keep them from coming back.

I definitely have a better understanding of the health care system after experiencing it first hand. It does work and I am grateful for that. I am doing well and expect to be out of the hospital today and back to a normal life in a couple more.

This bring up the need to fully protect oneself from the high cost of hospital care and being prepared for the unknown. I don't know how much a stay in a hospital costs each day but it must be in the multiple thousands of dollars. I find it a small price to pay for health insurance coverage to protect against the cataclysmic cost if extensive health care is required. I don't have enough assets to draw on to self insurance so insurance coverage is a necessity.

It was interesting that a few days ago I was helping my son's girlfriend with some tax and financial planning issues. During our discussions I discovered that she did not have any health insurance coverage. I counseled her strongly to get health insurance coverage because one never knows when your day might come that requires health care. My experience put a scare in her to take action. She shared with me during my first day at the hospital that she is researching insurance coverage and will have it in place soon. Don't be one of the 47 millions that are uninsured.

Only God knows what our future will hold with many activities of our lives beyond our control. Having health insurance coverage is just one of the pillars to fully protect oneself, out families and property from the outside world. Fortunately I have the pillars in place to protect against the worldly risks.

I will be back into the outside world soon. Keep in touch.

Bruce

Who can you Trust?

2009-03-13T15:22:00.000-07:00

With the lack of confidence in the stock market compounded by the fallout of Bernard Madoff and others, individual investors, especially older ones, are scared and are not looking at returning to the stock market anytime soon but they must if they want to keep purchasing power ahead of inflation.

What can be done to raise the trust level and the confidence of the individual investor? There is much discussion about this on capital hill and regulatory reform will come but will it be the right approach? Can future regulations catch the Bernie Madoff's of the world and prevent another global meltdown of the economic markets?

Why cannot individual investors have the same rules in place as they do through their retirement programs? The key here is the advisor for these retirement programs must be a "fiduciary" where the client's interest come first before the adviser's. This seems pretty clear and easy to implement but lobbyist for the big brokerage houses don't want rules put in place that will keep them from promoting toxic investments that put their clients at risk but put substantial quantities of money in their pockets.

Here is a link to an article by Bob Veres in the most recent Financial Planning magazine about what is happening in the regulatory world and what you can do.

Anyone can be an investment advisor and hang their shingle out with limited regulations. If you are in the market for someone to help you with your investments, if there is anything left, then search out a firm that is a registered investment advisor (must follow the "fiduciary standard") and the individual investment advisor holds the CERTIFIED FINANCIAL PLANNER tm designation with the fiduciary and ethical standard that follow.

To find out more about the CFP tm ethical standards there is a link under the Link section of this blog's home page (right side) entitled "CFP Board's Ethical Standards ....." that when clicked will play a video through YouTube.

Trust and confident must be regained and the firm that is a "fiduciary" with the highest ethical standards can make this possible.

Emergency Fund

2009-03-06T13:04:00.000-08:00

Creating an emergency fund is one of the easier concepts to understand but one of the more difficult to implement. Why is this? Pretty simple, Americans would rather consume (spend) rather than save. Last year an alarming statistics was published that Americans have a negative savings rate (spending more than save).

Our economy is dependent on everyone being a consumer. The latest numbers show that consumption makes up over 70% of the gross national products of the US! I just heard on NPR this morning that an economist that they were interviewing said we are in the midst of a "Consumption" recession. Consumers can no longer prop up the economy with over 15 trillion dollars in lost wealth so far through decline in investment values, retirement account balances, housing equity and actually beginning to save (5%). But if all these things happen at once as it is now our economy has to suffer greatly, which it is.

This brings me to the subject at hand about an emergency fund. If every working adult had 3 -6 months of ongoing expenses in a liquid account do you think we would be in the pickle we are in now? I don't think so because we would be more of a saving nation not a consumption nation.

What is an emergency fund used for?

emergencies, unexpected, non-budget expenses such as medical bills and home repairs.
pay regular expenses (food and lodging) if one becomes unemployed, disabled or loses income for other reasons. With 8.1% of the population in the unemployed ranks, and growing, understand this quite well.

If one does not have an emergency fund to tap when something unexpected happens what to they do? What would their safety net be against life events that happen?

credit cards
take a tax penalty, if under age 59 1/2, by withdrawing from retirement accounts
declare bankruptcy; a common example now is losing house to foreclosure

What can be done to begin building the emergency fund?

Get one's house in order. Make sure one understands where income is being spent. Use such tracking software as quicken or free Internet based site, mint.com.
Pay yourself first
Downsize
If a couple, one spouse works more.
Home equity was a possibility but now either there is no equity in home or credit is tight resulting in no lending.

With an emergency fund of at least 3 to 6 months of living expenses will protect against;

The unexpected that will happen
Manage stress because of the peace of mind it will bring
Reduce risk; combining emergency fund with health, disability and life insurance

You might have avoided the unexpected so far in your life or have scrapped by but take control by funding an emergency fund!

On Second Thought

2009-02-27T09:25:00.001-08:00

A few weeks ago on this blog I wrote about a quick turnaround in the stock market once the recovery is underway, whenever that might be.

The more I hear from the experts and experience first hand I don't think there will be a quick recovery. This morning the led economic story is that the US economy shrunk 6.2% in the 4th quarter. The worst showing since 1982.

With over 2/3rd of the economy dependent on consumer spending the future does not look very bright. We are in a vicious cycle. How can the consumer prop up the economy when they are losing their jobs, their housing equity has disappeared, they cannot get credit and their retirement portfolios have disappeared. At the same time people were not saving in any tangible manner so there were no reserves to rely on when the financial crisis appeared. Maybe we will learn that consumption should not led the economy, this is a topic for another time.

I think all these adverse factors will slow the market's recovery at a more steady pace anywhere from 7 to 9% annually once the economy stabilizes possibly later this year. This just means it would mean many years before the markets get back to where they were at their peak. I don't think there will be a quick rebound with a 20 -30% increase. Please checkout this article in The Wall Street Journal by Jason Zweig on Feb. 25th. It is about a slow recovery and the risk of investing in stocks.

Another factor is reverting to the mean long term returns. The markets witnessed incredible increases in the 80s and 90s that put the returns above long term sustainable trend lines. This severe recession and resulting sell off in the markets have brought the markets back in line near historical returns.

If we are in for lower return expectations with no quick recovery to the market peaks what does this mean for those nearing retirement that have seen their portfolios decrease by 20 to 40%? I think expectations will need to be adjusted. This will not be easy. If one wants to retire in the next couple years don't expect your portfolio to have returned to where it was pre-recession. Either your retirement income will be lower if retire soon or you postpone retirement for a number of year. I think the latter is the better choice if you have the option. Don't retire, this is assuming you have not already been laid off.

TIP, is it time to rethink investment strategy?

2009-02-20T18:13:00.000-08:00

In the last few weeks I have read a number of articles about looking at ones investment strategy given what has happened in the financial markets over this last year. Is it time to rethink where one invests for retirement and in retirement?

I have always been interested in economics and lately I have been reading more from economists and their take on financial planning and investing. In fact I have adopted new financial planning software that has been written by economists that take a different approach to planning compared to other planning software on the market. If you are interested check it out at Economic Security Planner's website.

Most Economists also believe savings is all about insuring and not about speculating and the only true safe asset in which one can invest is Treasury Inflation Protected Securities. TIPS are safe because they are backed by US Government (so long as they can tax and print money and someone buys it) and protected against inflation.

TIPS offer a fixed yield plus the inflation rate keeps pace with changes in the consumer price index. TIPS do well as an investment when prices are rising. There is not much inflation now, maybe a little deflation, but this just makes TIPS cheaper. With the Feds dumping bucket loads of money into the economy inflation is inevitable unless they raise interest rates which won't happen in this economy.

The other big advantage of TIPS is its negative correlation to stock market returns. During inflationary times stock markets usually do poorly. TIPS are a diversifier of one's investment portfolio.

It might be time to rethink how much should be invested in TIPS especially if one is 55 or older. The current market decline puts this in grim perspective. TIPS are the only known investment product the will provide a risk free return and beat inflation at the same time.

TIPS are sold at auction and receive a fixed real rate of return. The principal is adjusted for inflation before the fixed-interest payment is calculated. TIPS can be purchased directly at little or no cost. Buying individual TIPS gives investors the ability to control the maturity of their holdings. TIPS can also be accessed through mutual funds but one needs to be careful because some mutual funds have other investments other than TIPS in them so read the prospectus carefully. A true play TIPS fund is Vanguard Inflation Protected Securities Fund (VIPSX).

TIPS have a tax issue though. Bond income includes the yield or coupon, and the adjustment for inflation. Bondholders receive the coupon but the inflation adjustment is paid once the bond matures. Yet when federal taxes come due, investors are billed for both the income they pocketed and the "phantom income" that was held back. In contrast, funds and ETFs distribute both the coupons and the inflation adjustment, sidestepping the tax problem. Given TIPS are taxed at ordinary income tax rates it is recommended that one hold TIPS in a retirement account.

If one converts part of their retirement balance (401(k), 403(b) or 457) to an immediate annuity adjusted for inflation, social security deferred to age 70 (adjust for inflation) and the balance in TIPS one has a very sold income base that one will not likely outlive their income stream.

Are equities no longer needed to provide a higher return later in the working years and in retirement? Don't tell the investment industry. They don't want to hear this but it is a wise move in my opinion.

Retirement Contributions and Taxes

2009-02-13T10:37:00.000-08:00

As we enter the tax preparation season, there will be an article about using electronic filing in a future post, I will present the case here for opening a Roth IRA if one ever is thinking about using the tax paid option of your retirement account (401(k), 403(b) and 457).

As administrator of the retirement programs for the Pacific Northwest Conference of the United Methodist Church I received a personal retirement contribution agreement from a pastor this week that requested a significant amount be taken after-tax. After-tax just mean that when one receives w-2 from employer the annual amount contributed to the retirement plan is not deducted in the amount report in box 1; consequently, taxes are paid upfront at ordinary income tax rates on these contributions.

The earnings in retirement account grow tax deferred until one starts taking distributions. When distributions are taken the earning are taxed and the original contributions are not so a calculation has to be determined on which represents principal and earnings.

Is there a better way? Yes! It is called a Roth IRA or if employer offers a Roth 401(k) or 403(b).

The advantage of a Roth IRA or Roth 401(k) is that the earnings are withdrawn tax free in contrast to the earnings on a regular IRA, 401(k), 403(b) or 457 are taxed at ordinary income.

So why would anyone contribute to an after-tax retirement account? My guess is they either don't understand the consequences of their action or their income is too high. The two negatives of a Roth IRA are the limited amount one can contribute in a single year and the earnings test. In 2009 the contribution limitations are $5,000 plus an additional $1,000 if one is 50 or older. One that earns too much cannot contribute to a Roth IRA in 2009. Most people that I know won't have any issue with the earnings test. If you want to know the exact amount let me know. In 2010 the earnings test is eliminated. A Roth 401(k) or 403(b) do not have either of these limitations but most employers are not offering this option.

401(k), 403(b) and 457 plans have maximum contributions in 2009 of $16,500 with an additional $5,500 if one is 50 or older. Because of these higher limits it would make more sense if one's retirement contributions to employer plan is more than the IRA limits and they want to contribute after-tax they contribute the maximum to a Roth IRA and the remainder to the after-tax account. Take advantage of the Roth tax advantage!

In a future post I will discuss the possibilities of converting (rollover) a regular IRA or employer retirement account to a Roth IRA. This year might be a very opportune time given the beaten down value of underlying investments. There is also still time to convert for the 2008 tax year.

Mortgage Refinancing

2009-02-06T15:23:00.000-08:00

In the past few weeks a number of people have asked me if I thought this is a good time to refinance the mortgage on their home. As normal one answer does not fit all situations. There are so many factors that have to be considered in making a reasonable decision given all the facts. And even when all the facts have been considered the decision is made more difficult by pending legislation and the possible impact on interest rates. We will talk about this later but first what are the questions to ask about refinancing.

Is the value of your home, given the current housing valuation decline, worth more than your current mortgage? One would need at least 20% equity in house to even give any consideration in refinancing.
What is your credit rating (score)? If it is below average (below 700) lenders will probably not even consider allowing a refinance or if they do it could be at a higher cost. During this credit crisis lending institutions are only willing to lend to those with the highest credit rating.
Can you qualify with the stricter earning tests? Is your income high enough in the eyes of the lender to make the monthly payments? The days of easy underwriting of mortgages is over. The historic rules of thumb of housing payment not being more than 28% of gross income and overall debt load payments not more than 35% will be enforced.
How long do you plan on living in your house? You will need to live in your house long enough for all the refinancing costs to be made up over a fairly short period, three year, with the lower monthly payments.
How stable is your current employment? If your job is vulnerable it does not make much sense to refinance because a loss of job could cause relocation and the inability to sell house and make the payments.
What types of mortgages do you currently have on the house? If you purchased your house with an adjustable rate mortgage or an interest rate only loan it behoves you to get into a fixed loan before they reset but you probably will be shut out by one of the factors stated above.

Refinancing will probably only work for those that have lived in their homes for a number of years and have built up equity in them and have a strong credit rating. If you have made it this far and think you can qualify for refinancing is this the time to do it? I don't have a crystal ball. Will the interest rates go lower because of the stagnant economy, the potential legislative action or the work of the federal reserve of buying up bad loans?

I think the direction of interest rates needs to be put out of your thought process if you are serious about refinancing that will save you on the monthly payment at current low rates. If this is the case why would you wait hoping for the rates to go lower. We are in historical low interest rates and hoping for them to go lower just seems counter intuitive. It is possible the rates could go much lower but again they are at very low rates now.

If you lock in a rate that lowers your monthly payment then I would celebrate and not worry what the rates do in the future. If rates go down to 4% you can celebrate the additional savings when you refinance again. Take advantage of what is given to you now and not worry about what it will be in the future. "A bird in the hand is better than two birds in the bush."

Recent Article on Global Economic Forecast for 2009

2009-01-29T18:02:00.000-08:00

The last entry was on the US economic/market forecast for 2009. Today I came across an extensive article about a global forecast for 2009 from Knowledge@Wharton (Wharton Business School at the University of Pennsylvania). It is lengthy but a good read. It is not overly optimistic so be forewarned. Click on this link for the article

Bruce

2009 Economic/Market Forecast

2009-01-28T18:15:00.000-08:00

It is time to return to writing. My hiatus is over. My plan is to write one posting a week about financial planning topics so check back every week. If you have a topic you would like me to cover or have comments please send me an email (on this site click on the "View my complete profile" link for the email ).

With the current tough economic times we are experiencing I think it is appropriate to discuss the economic/market outlook for 2009. I don't claim to be an expert except many decades ago I did receive a bachelors degree in economics. I would like to share here the wisdom of Dr. David Kelly with some embellishments. He is the chief market strategist for JP Morgan. He made a presentation to the AICPA Advanced Personal Financial Planning Conference last week that I attended.

Dr. Kelly said that we are in unprecedented times. He pointed out 3 areas as follows;

Market Volatility - the markets have never been so volatile (ups and downs) on a daily basis over a 3 month period at the end of 2008. The average swings were over 3.3% each day for a 3 month period in the US Stock Market. This has never happened before. The individual investor left in a panic and pulled out billions of dollars. Their emotion ran a muck and they left in a herd.
Government Response - no recession, not even the great depression, has seen the response of the federal government through monetary and fiscal policies. The fiscal policies are just now being considered with the potential deficit climbing to over 1.5 trillion dollars. Will this work? There is no history to look back on to provide guidance. He calls this stimulus the "fiscal sledgehammer".
Global Nature - we are one small world now with all economies shrinking at once. There is no protection from abroad in fact international economies are having a much harder time than we are having, if you can believe this.

The economy is currently on life support but with the injection of the government stimulus drugs the patient will stabilize and come back to life and prosper. No one knows when this will happen but it will happen. Unemployment will continue to increase and company profits will decrease until they are compared against the weak performance of last year. What history shows us is that the stock market is a leading indicator of the economic rebound and anticipates the turn around about 4 1/2 months before it happens. Unemployment is a lagging indicator of the economic rebound trailing the recover by about 5 months so don't get too bummed by the increasing unemployment numbers unless you are one of them.

History has shown that the deeper the recession the great the rebound. Take solace in knowing the worse the recession the greater the recovery. I liken this to a ball. The harder one throws it against an object the greater the rebound will be. When the economy does recover the markets will advance sharply and quickly so if you are out of the market you will miss a major part of the advance.

The US economy has the ability to grow by 3% a year due to productivity and worker gains. This potential won't go away. This is why in the last 50 years the economy has been in an expansion 86% of the time. The expansion days will return and the economic business cycle will start over again.

But before this can happen the average investor must get over fear and greed. Once their confidence comes back they will get back into the market but until then it is the institutional investors by default.

Dr. Kelly expects the US to led the world out of the recession and balance funds through diversification are still the way to go. Invest broadly and when the tide changes be there to experience it, see the results of assets classes in the above image. Balance is the way to go in the long run.

Trust in others - I have returned

2007-07-21T18:47:00.000-07:00

Well, The Who experience is now over. My wife and I have returned from an amazing time in Finland and Estonia. Above are a few photos of our trip and The Who concert on July 9th and meeting with Pete and Roger. Because the trip was so unexpected it seems like a dream that I can recount over and over but it was real and will rank up there on my lifetime top 10 list.

What I learned that can be related to financial planning is sometimes one must put their trust in someone else. For me this is not easy since I am the planner and like to have control of my own destiny; OK, God and my wife have some input. I definitely did not have any control over The Who Are You Fly Away contest prize and how it was executed by the promoters. Here are some examples:

Because it is a 13-14 hour flight (2 planes) from Seattle to Helsinki I was anxious to find out about our travel arrangements ahead of time. Where would we be sitting on each flight given the time we would be on each flight? Could I extend our stay beyond the nights covered by the prize? The last question became moot because we did not find out about the travel arrangements until July 4th. This was only 3 days before we left on the 7th. I should have know this would occur because of the travel agency was called lastminute.com.

Because the flight was books so late and on two different airlines, we fit the profile of terrorist so we had quite a time going through security at SeaTac airport. We received the full terrorist profile treatment. Fortunately we had a few minutes to spare before our plane left (a few anxious moments).

How would we get from the Helsinki airport to where we were staying in downtown Helsinki and back to the airport? How do we get backstage at the concert and meet The Who? How and when will we receive our spending money while there?

I suppose these are minor details given they are at somebody else's cost but still important in planning a trip itinerary. These last three issues were resolved the day before we left. I don't know how you would react but the promoters wanted our bank account numbers so they could deposit the daily spending allowance. I was caught a little off guard on this one given the world that we live in with scams and identity theft. I became a little paranoid after sending in the numbers without questioning the validity of this contest since I had only talked and received an email from one person at the promotion company that I had won. I had to do some investigation to satisfy me that everything was on the up and up but it did give me a few uncomfortable moments constantly keeping an eye on my bank account balance online.

It all worked out but there were a few anxious moments along the way. As my son would say, I needed to chill out and just let the adventure happened. It probably would have if it had not been for the bank account scare. A word to the promotion company for future prize winners; use a PayPal or send a certified check don't ask for bank account numbers.

The promoter and travel agent did their job very effective but it was slow in coming. Here are a few other highlights;

Being met at the Helsinki airport with a Finnish person holding a sign with my name on it (the first name was misspelled but who can complain). He whisked us away in his Mercedes and dropped us off at our 5* hotel. The hotel accommodation were interesting. When we arrived on Sunday morning (we lost a day with a 10 hour difference between Seattle and Helsinki) we were grateful the hotel had a room available for use so we could get cleaned up from the long flights and take a short siesta. Did not work out as planned, the department store next door was doing some major remodeling and they would only do the heavy drilling during off business hours (stores are closed on Sunday in Finland). I hope you have never experienced being under where drilling in concrete is taking place but it is a mind numbing.

A nap was not going to work so we headed out for a lovely afternoon of sightseeing. We were very exhausted when we returned to find the drilling noise even worse. We needed a nap in the worse way. We called the front desk but there were no rooms available. We could not stay in our room because the noise was unbearable. We went down to the front desk and asked if there was any place in the hotel (dark corner or couch) where we could lay our heads down. The answer was still no but the manager on duty went back into his office. You can probably tell what is coming. There is always other rooms available but they are much nicer. Yes, the manager gave us keys to a suite overlooking a park on the opposite side of where the drilling was taking place. We enjoyed this luxurious room for the next three nights.

We also took a catamaran ferry to Tallinn Estonia one day. I had made prior arrangements (you know me, the planner) for the tickets over the Internet. Our trip coming home was canceled and the ferry company tried to contact us but our cellphone did not work in Finland. We were pleasantly surprised that they had upgraded our ticket coming home to business class with front row seats and free food and drinks. It keeps getting better.

I was finally able to contact the person from the promotion company that was coordinating our meeting with The Who and the concert that followed. I was given a phone number the day before we left Seattle. I had no idea the phone number was for a person in London. I thought it was for someone in Helsinki. The person from the promotion company flew from London the morning of the concert and made all the arrangements for us to get to and from the concert venue, receive backstage passes and meet and greet Pete and Roger. Steve did a yeoman's job.

About 15 minutes before the concert we met Roger and then Pete for about 5 minutes each. We took pictures and had them sign our tickets, see above of an image of our signed tickets. The Who then went on stage and we followed them to our front row seats or at least we tried. Unfortunately we could not find our seats. There is no way with the noise of the concert and the crowd jumping around that we could find where the seat were suppose to be. We headed to the isle just below where Pete was positioned and held our ground as the other concert goers began to fill around us. The concert was somewhat different from the concert in Seattle which made it nice for me. The Who did not play as many of their new songs but more of their classic hits. It was incredible to be this close to the action.

Because we did not go through security but went right to the backstage I was able to bring in my large digital camera (they don't like pictures being taken) and took quite a few picture before a security guard told me to put the camera away. Of course I did not understand what he was saying until a person next to me interpreted. I gladly obliged since I had already taken over 30 pictures.

There you have it. I won't go into the ordeal we had coming home. All I will say is that the service on Finnair was great and it sucked on American Airlines (one glass of stale water for 8 hours in the plane-delayed 3 hours at JFK).

Getting back to financial planning topic of trust. Most people are not experts in everything during life's journey. We each have expertises and we should seek out help with life more difficult issues (doctors, lawyers, accountants, plumbers, electricians and even financial planners to name a few). One would not trust a plumber to do brain surgery while at the same time it is important to consult a financial planner to determine if one is on the right path as they progress through life and prepare for retirement. Don't think that you know all because you don't. There are others out there that know much more than you but it does require you to take the first step and have trust in others.

Do you know Who Are You? I have better idea of myself after being the grand prize winner of The Who Are You Contest. I need to lay more trust in others and be cool.

Thank you Peter, Roger and the promotion company Ultrastar.

Be Prepared you never know!

2007-06-26T18:32:00.000-07:00

These last few days have been pretty amazing. You will have to bare with me for my real life story so I can relate it to a financial planning topic.

Last fall my wife's birthday present to me was a ticket to see The Who (if you have not heard of them they are a famous British Rock music group that started at the same time as the Beatles and the Rolling Stones - in the early 1960s). I attended the concert and had a grand time enjoying all of their vintage music with their distinctive beat.

As part of the concert ticket price each concert goer received a one year membership in The Who's premium website. I took advance of this because I like the price and am able to have live streaming video of their music. About three months ago this website had a contest titled "Who Are You". Of course if you are a Who fan you know this is the title of one of their famous songs. The only requirement was to submit a picture to enter the contest. The picture of myself on this blog with the running medals in the background is the picture I used.

The caption I used for the picture was "The Winner". Pretty prophetic because I found out I was the grand prize winner of the contest last Friday. Below is the announcement posted on the website.

THE "WHO ARE YOU" FLY AWAY CONTEST WINNER IS...
With almost 2,000 fan submissions in the "Who Are You" Fly Away contest, you made it tough for the Who to choose their favorite! The band loved seeing your tributes, photos and artwork, but it came down to one winner: bgalvin from Seattle, Washington. Congratulations! bgalvin and a guest will meet Pete Townshend & Roger Daltrey, plus they'll be in the front row at the Who's show in Helsinki, Finland on July 9th. Thank you to everyone who participated!

Of course I was stunned beyond belief that my wife and I would be traveling to Helsinki Finland to see The Who perform and also get to meet the rock legends.

What does this story have to do with financial planning? I am getting there. As I was speaking to the organizers of the contest about the prizes involved and booking of the flight to Helsinki I realized that our passports had expired. If you have been following the news lately there are 3 million passports in the pipeline waiting to be processed for anxious travelers. We need a passport in less than 2 weeks. The average wait to receive a passport is 10 - 12 weeks. My heart sunk when I thought about the possibility of not being able to take advantage of this amazing prize.

I tried to talk to a live body in the passport office but this was an impossibility. Fortunately for me there is the Internet. I was able to access the government passport website and setup an appointment at our regional passport office here in Seattle on Monday.

My wife and I spent a long anxious weekend wonder if we would be able to convince the people at the passport office that I won this amazing prize and needed a passport issued in less than 2 weeks. What are the chances this would happen? I had my doubts but the passport rules came into play for those leaving within 14 days. We were successful in getting our passports ordered and they should arrive by this Friday.

The moral of this story is to BE PREPARED as they say in the Boy Scouts. You just don't know what is going to happen so you better be prepared for the worst. In financial planning parlance this is a form of risk management. Make sure you have proper insurance to cover all possible disasters, accidents, deaths, health issues and have a sufficient amount of liquid assets in an emergency fund.

Fortunately I was able to be bailed out by the system but many events that one might encounter along life's journey will not be bailed out if one has not planned properly. If one does not have the proper insurance coverage such as property, liability, health, disability, life and long-term care, to name a few, one is taking too much risk which could come back to haunt them and their family.

It might be time in your life if you have had a major life changing event such as marriage, divorce, birth or death to look at all of your insurance coverages that are in place.

Make sure you are prepared for that unexpected event. I sure was not.

In future I will comment about my experience in Finland.

Investing ideas from John Bogle

2007-06-21T16:55:00.000-07:00

Sorry I have been out of touch for so long. I was on vacation plus work took me away for another week but I am back in the saddle now.

One of my heroes when it comes to investing is John Bogle. John is the father of indexing and founded one of the largest investment firms, Vanguard. Vanguard is the only investment company mutually owned by its investors which allows it to charge much lower fees then any other investment firm.

Since my previous post was about mutual funds and ETFs here is John Bogles take.

MarketWatch had an interesting interview with him in video format on their site today. Click on this link to see him interviewed. He spends most of the interview discussing the downside of Exchanged Traded Funds (ETF). As you will hear he does not have much respect for these new offerings because they are used as short-term speculative investment vehicles. If they were held for the long run they could rival mutual fund indexes as a reliable investments but most of them are not broadly diversified.

The investment platform of choice are broadly diversified index funds which includes more bond index funds as one gets older.

ETF vs Index Mutual Funds

2007-06-02T18:01:00.000-07:00

One of the fasting growth investments is exchanged traded funds, over $400 billion at the end of 2006. This still is dwarfed in comparison to mutual funds which are in multiple trillions but ETF have not been around very long, not much more than a decade. So why such growth?

Before we answer this question we need to know what is an ETF? It is both like a stock and an index fund. The characteristics of a stock are; trading flexibility intraday on the exchange, long or short sales and options. The characteristics of an index fund; Constructed to track benchmark indexes, low expense ratios and low turnover (tax efficient).

The creation/redemption process distinguishes ETFs from mutual funds and closed-end funds. Mutual funds have buyers and sellers that work through fund companies that deal directly with the stock exchange. An ETF there are buyers and sellers and financial intermediaries, market makers. fund companies and stock exchange.

The exchange of a securities that is an ETF is an in kind transaction so there is no tax consequence. While a mutual fund is required to distribute 95% of its capital gains/losses each year even if the owner does no redemptions or buying. Because of the capital gains/loss distribution for mutual funds it is important to investment in funds that are tax efficient (little turnover). ETF incur capital gains/losses only when there is a sale by the ETF owner beside dividends earned.

ETFs tend to have lower expense ratios then comparable index funds.

ETF price values are refreshed continually during the day while index fund only have their prices published at the end of the day.

Most people that invest in ETFs are active money managers, hedgers and professional traders, all speculators. The ETFs are not being held for the long-term. I like ETF for their tax efficiency and low expense ratio compared to index funds but they are only a good investment if they are held for the long-term limiting speculation. They do provide a buzz and we know how emotions impact our investment decisions.

There is one downside to ETF investments beside potential speculation and that has to do with transaction fees that are incurred when shares are bought or sold. One does not incur a transaction fee while owning an index fund. If you frequently add to your investments through dollar cost averaging then an ETF would not be a good choice because of the transaction fees each time shares are purchased. ETFs are Wall Street's friend because of these transaction fees.

If you have a buy and hold strategy then ETFs should be considered as an option in your investment portfolio. There are over 400 ETFs and the numbers are growing by the day so there is a wide variety of investment alternatives to satisfy diversification and asset allocation.

The major players in ETFs are American Funds, Vanguard Group, iShares (Barkley's) and PIMCO.

Tax Diversification

2007-05-23T13:34:00.000-07:00

I know this is a stimulating title but don't be fooled it is a retirement savings strategy that could be very beneficial to reduce taxes in retirement. Tax diversification has to do with balancing retirement savings between tax deferred and tax paid (Roth) accounts.

There has been much written about the need to save as much as you can as early as you can. If you participate in a qualified retirement plan like a 401(k) the advice is to contribute as much as you are able this tax deferred vehicle.

This is all fine and dandy but there are those that have followed this approach and have significant balances in their qualified retirement accounts. Don't get me wrong this is great but there could be a major tax dilemma when retirement comes around and the funds are drawn upon. In this situation there is no tax diversification between retirement accounts and since the principal and interest in the qualified accounts grow tax free, Uncle Sam, at some point, wants to be paid through taxing the withdrawals at ordinary income tax rates.

Because of the minimum required distribution rules the qualified balances must be taken from these accounts in the appropriate minimum amounts or a 50% penalty is levied. You better understand these rules or you will pay.

How do you tax diversify? By putting retirement money in both tax deferrred and Roth IRA or Roth 401(k)/403(b) plans. If your income is too high you will not be able to contribute to a Roth IRA. Income limitations do not apply to a Roth 401(k)/403(b) plans but your employer must offer this option. The Roth 401(k)/403(b) is a new plan that just came about through the tax law changes enacted back on 1/1/2006. Still many employers do not offer the Roth 401(k)/403(b) option. I would make noise with your human resources department if they have not been implemented.

The advantage of a Roth is paying taxes now and not having to pay taxes on any earnings in the future, what a concept. It makes sense to open a Roth if you are in a lower tax bracket (10 - 15%) and pay the taxes now because we don't know what the tax rates will be in future. Tax rates are very low now and in the future the rates could increase due to all the entitlement programs and baby boomers that will be accessing them soon. One of the options to pay for these entitlements is raising the tax rates.

One of the premises has always been that when one retires their income will be less so their taxes will decrease. I am not sure this will necessarily happen for many. Taxes might be more especially if you have been really good at saving in your active years.

Hopefully your employer has or will implement the Roth 401(k)/403(b) because their is no income limitation and the contribution amount are much greater then a Roth IRA.

With more of one's qualified retirement savings balanced between taxed and taxed deferred accounts it will provide more flexibility no matter which way the tax rates change in the future especially during ones retirement years.

Stay tuned.

Investing - interesting articles in June issue of Money Magazine

2007-05-21T17:40:00.000-07:00

It is nice to see a couple articles in June 2007 issue of Money, a popular personal finance magazine, that reinforces a couple of my major tenets when it comes to investing.

1. Employ a financial planner by the hour to review investment portfolio. This is one of the suggestions in the article entitled "Where to put $5,000" for the best reality check found on page 78. The investment review will take about eight hours on average. Here is the remainder of the comments; "That's roughly how long a pro will need to look over your finances, help you set realistic goals and flag any hidden dangers in your portfolio. Hire a financial planner who charges by the hour, not by the investments you buy. Expect to pay $150 to $250 an hour; that should leave at least $3,000 to implement your plan."

If you want to find out more about my investment philosophy you can read my comment in my April 13th article on this blog related to "Lazy Investing" or go to my website and click on the link to my government filing of ADV Part II. This filing also provide my hourly rate which is significantly lower then the above amounts.

There are three ways financial planners charge or a combination of the three; commissions (selling products), fees on investments managed or hourly. I think the compensation with the least conflict of interest is through the hourly model which I follow.

2. Bill Sharpe's interview, by the way he is a Nobel prize winner on his work between investment risk and return, on page 107 entitled "The Man Who Explained It All". In the interview he explained the "only way to be assured of higher expected return is to own the entire market portfolio".

The interviewer then follows up this response with this question and Sharpe's response; "Q: You can easily do that through a simple, cheap index mutual fund. Why doesn't everyone invest that Way? A: Hope springs eternal. We all tend to think either that we're above average or that we can pick other people [to manage our money] who are above average. That's what makes markets-when one person thinks he knows more than somebody else, information is exchanged and a new stock price is set. And those of us who put our money in index fund say, 'Thank you very much.' We get to free-ride on other people's convictions."

What can I says about Sharpe's comments other than what else is new, passive investing is the only way to go to beat the market over the long haul through lower cost and tax efficiency. Average, as they say, is above average in my book any day even to a Noble laureate that explained it all.

Why make investing more complicated then it already is.

Social Security-addtional information

2007-05-14T18:16:00.000-07:00

I thought you might be interested in another informative article about social security especially related to married couples. It is provided through the Center for Retirement Research at Boston College. The article is entitled Why do women claim social security benefits so early?

It looks at the ages of husbands and wives in relationship to their income and provides the best age to begin taking social security benefits for each spouse.

Generally because women out live men, women tend to marry older men and men make more money then women all these reasons result in the social security system favoring women taking social security benefits at the earliest age possible (62) and men waiting as long as possible (per study - age of 69).

This article looks at how the social security system works with comparing women's own earned social security benefits compared, the 50% family benefit and the surviving spouse benefit of 100% of the husband's benefit if greater then women's own benefit.

The age difference means men will tend to die much earlier then women and the 100% survivor benefit will come into play sooner. The family benefit and survivor benefit are both dependent on when the man begins taking their benefit. The family and survivor benefit will be reduced if the spouse is less then their.

Because women will be the likely survivors the couple should have the women begin taking early social security benefit on their own right at a reduced amount and wait for the husband to defer receiving their benefit (therefore cannot begin taking the 50% family benefit because husband has not begun taking theirs). The The 100% survivor benefit is dependent on the man's benefit when they start receiving it.

Because social security provide an extra amount beyond the full retirement age there is an incentive for the men to wait so the survivor benefit will be on a greater amount and will be paid longer because of longer life expectancy of spouse.

Check the article out, it will make more sense then my prose.

When to start social security?

2007-05-13T19:31:00.000-07:00

One important retirement planning discussion point has to do with when to start receiving social security payments. Should one take it early, at full retirement age (FRA) or delay beyond FRA? As they say, it all depends. Some of the factors to take into consideration are inflation (cost of living), health (life expectancy), income tax rate, investment return, need, marital status and other retirement income sources.

Here is a link to an article that incorporates the first five factors (very scientific) and the other article that recently appeared in Retirement Weekly fromMarketWatch looks at COLA and the last two factors.

The conclusion from the first article provided through TIAA-CREF research is that financial consideration should not be an overriding factor in deciding when to begin taking social security. The difference are slightly in favor of delaying. In general delaying makes more sense if one is expected to live longer but overriding factor of maintaining ones standard of living is more important.

The first article assumes that the money received from social security before FRA will be invested and earn certain minimum returns. I would dispute that many people receiving social security early would be worried about investing this money.

Social security is an insurance program not an investment program which is geared to benefiting lower income recipients greater. I thing most people receiving social security benefits early doing so to maintain their standard of living or by necessity and are concerned about today not what is going to happen in the future (maybe not the best planning approach).

Also there are strict income limitations if one starts receiving social security before one reaches their FRA. In 2007 if one earns more than $38,880 and they are not in their year of their FRA they will have to return all of their social security benefits received (ouch!). Obviously if one knows they are earning in excess of the income limitation they can suspend their social security benefit.

The second paper was presented recently (April 2007) at the Pension Research Council Symposium. It challenges some of the original thinking when COLA increases are taken into consideration. There is also a look at married couples where one spouse has a significantly greater social security benefit and how the other spouse (and the widow/widower later) would benefit with the major bread winner delaying receipt of benefits beyond normal FRA.

These articles are good resources but each situation is different and a financial planner should be consulted before you make such an important decision. Also the social security website provides very valuable information.

The second article also presents ways to bridge the income gap using IRAs and qualified pension benefit payments if social security is taken early. I will touch on this topic in my next blog. Stay tuned.

Annuities - yes, no or maybe

2007-05-03T16:23:00.000-07:00

It all depends. First, I must clarify what annuities we are talking about in this post. This post will not be discussing variable and equity indexed annuities that are insurance products with investments as sub accounts. What I will write about are immediate fixed annuities that are used to generate a stream of income.

At some point I will post my thoughts about variable and equity indexed annuities but will defer to later because of their minimal usage in my practice.

Immediately fixed annuities are a financial products issued by insurance companies. They provide a guaranteed income stream (guaranteed as long as the insurance company has the ability to pay) to one or more people, in specific amounts for a specified period or for life (we will only talk about life).

They are an important product to consider when planning for retirement because they will provide another source of steady income along with social security to retain ones standard of living similar to their active working years. Income payout is based on a guaranteed, fixed interest rate when purchased.

If you want to avoid the risk and uncertainty of the stock market based products and feel more comfortable with a known amount of income then an immediate fixed annuity might be right for you. An immediate fixed annuity is the opposite of life insurance. The payout occurs during ones lifetime not at death.

The amount of guaranteed income paid is dependent on three variable; (1) the interest rate at the time of purchase, (2) the ages of the annuitants and (3) the amount of money given the insurance company. Obviously the income will be greater the greater all of the three variable are. Because there are many insurance companies selling annuities one must shop around for the best deal.

The best deal might not be the best decision because the income stream is only as good as the insurance company that is backing it up especially since the payments could be over many decades. Make sure to check out an insurance companies rating through rating service such as AM Best. Only purchase through those companies that are highly rated.

What are the positives and negatives of a immediate fixed annuity.
Positives
As discussed above they provide a steady stream of income to supplement social security, pensions and other investments. As pensions are disappearing another steady source of income is necessary for most people. That guarantee can be very important for piece of mind and planning purposes.

A good rule of thumb is 50% of retirement income should come from guaranteed sources (annuities, social security and pensions). This percentage could vary widely given one's overall financial situation and tolerance for the unknown.

You cannot outlive the annuity. If one has a family history of long life then an annuity might be the right choice.

Negatives
The money used to purchase the annuity now belong to the insurance company. They takes the risk to invest it and provide the guaranteed income. At the death of last annuitant the income ceases and nothing goes to beneficiaries unless the annuity provides for certain guarantees. If one dies early then an annuity might not have been the best choice for the annuitants' beneficiaries. If one is concerned about passing on a legacy to beneficiaries then purchasing an annuity would not be appropriate.

If the annuitant is not in good health an annuity is not a good option.

The money used to purchase annuity is gone so you cannot rely on it anymore if there are emergencies.

One faces interest rate risk when purchasing an annuity. The interest rate is fixed at the purchase date which is one of the determining factor of the income streams. If interest rates go up in the future and stay up then income stream will be negatively impacted. One way around this is to purchase a number of annuities at different times rather than one lump sum at the same time.

Most immediate fixed annuities are not adjusted for inflation. If the annuity is paid over decades then the purchasing power of the income stream will gradually erode because of inflation (see one of previous posts about the impact of inflation). Social Security has an advantage over most annuities because of cost of living increases.

Some immediate fixed annuities do have inflation riders but it will mean a lower payout in the beginning but might be the right choice if the lower payment does not affect the standard of living in the beginning.

I do think immediately fixed annuities do have a place in retirement plans for most people.

The Vagaries of Inflation

2007-04-29T17:38:00.000-07:00

If the dollar is worth the same today as it is in the future then our income needs would be much easier to predict in retirement. During our working lives most workers' wages (salaries) increase through merit or inflation adjustments (cost of living adjustement). Unfortunately most people are not so fortunate when they retire. Their pensions are normally fixed. The pension in the first year of retirement is the same as the last year. This is bad news when inflation is taken into the equation.

Historically inflation has averaged about 3% per year. This inflation rate does not sound like very much but it means that prices will double in approximately 24 years or the dollar's purchasing power is worth 1/2 of what it was 24 years previous. How do I know it is 24 years. Here is a little secret us financial types use to do these quick calculations. It is called the Rule of 72. Seventy two is the magic number, just don't ask me why.

Here is how it works; If you know the inflation rate (or your could also use the rate of return), divide the rate into 72 and the answer will be how many years it will take to double your money or in our example when prices will double. You could also use this rule in reverse. If you want to know the rate it will take to double your money in "X" number of years just divide "X" into 72. In our example using 24 years divided into 72 and wallah you get the rate of 3 as the answer.

Okay, back to inflation problem in retirement. Many people will live 24 years in retirement so inflation is an important consideration. If you don't plan for inflation and your pension is fixed your standard of living will gradually erode unless one plans accordingly. There are normally three sources of income in retirement; pensions, personal investments and social security. Fortunately social security is provided COLAs but going forward less people will be able to depend on social security for their major income in retirement so must look at other sources of income.

Of the three legged retirement income stool personal investing is left (includes qualified retirement plans; 401(k), 403(b), 457, IRAs). The only way to beat inflation is to earn more then inflation. In the long-term returns on equity investments will out pace inflation. This just means a majority of your personal investments must be invested at risk in equity investments. Most competent financial planners would not recommend an investment allocation that does not include at least 50% of personal investments in equities. Of course there are exceptions.

The key here is to make sure one has a significant emergency fund (much more then when working) invested short-term that will supply 2 to 3 years of income to cover the most sever down turns in the stock market. One would draw on the emergency funds for income when the markets are down and replenish the emergency funds when the market are up by rebalancing portfolio. You don't want to be forced to sell equities when the stock market is down.

Historical the stock market (US in this situation) has averaged annually 9.5%, significantly greater then the inflation rate. Unfortunately these returns are not consistent one year to the next and one's investment portfolio in retirement should not be invested 100% in equities.

Inflation is not your friend so plan accordingly.

Next time I will write about another option, taking some of one's personal investments and purchasing an immediate annuity.

Financial Literacy Month

2007-04-26T18:50:00.000-07:00

I knew that April is designated as financial literacy month but had not given it much thought until I read this article today by Chuck Jaffe from MarketWatch. It raises again the frustration I see with our consumption society (2/3rd of our economy is dependent on it). Why worry about being literate when one can pull out their credit card. The government sure knows how to do it. Why save, let someone else deal with it.

There is so much information at ones fingers tips it is sad we have to declare a literacy month but our consumption orientated brains make it almost impossible to be financially literate. We are the "must have it now" society.

Like exercise and dieting it takes a change in behavior. One must want to do it. If you need some assistance in becoming financially literate (I could also help you with exercise and dieting but that is beyond this blog) you can start by accessing my web page and looking under resources for sites and calculators. These sites will help you with your journey to become more finacially prepared.

The Perils of Entitlement Programs

2007-04-23T17:52:00.000-07:00

Normally I would not write so soon after my last post but after reading three articles about the perils of government entitlement programs (Medicare, Medicaid and Social Security) and the pending baby boomers access to these programs I thought it was important to bring it to your attention immediately.

As you probably know our country faces dire consequences if nothing is done about funding the above named entitlement programs. Contrary to popular belief, especially the politicians, Medicare/Medicaid is the biggest concern not Social Security. In an article published today by MSNBC.com the directors of the trust funds for Social Security and Medicare said these trust funds would be exhausted by 2041 and 2019 respectively. This is actually good new because it is one year longer then reported last year.

In another related article financial columnist Scott Burns discussed the recent study completed by two noted economist, Jagadeesh Gokhale and Kent Smetters. According to their study the current unfunded liability for Medicare and Social Security is 72.9 trillion. The article goes ont ot say "Just so we keep this number in perspective the total output of the U.S. economy is now about $12.5 trillion. The Federal Reserve recently estimated the net worth of all U.S. Consumer at $55.6 trillion". Wow. Bigger numbers then I can comprehend. I think written out the unfunded liability is $72,900,000,000,000.

What does this mean for financial planning purposes? Higher Taxes and lower benefits, plus there could be grave consequences on interest rates and the economy if we cannot finance these entitlements. You need to begin planning for this day. In future "comments" I will write about what can be done now to protect yourself for the future.

I know the politicians don't want to talk about either of these solutions but they must. It is estimated if nothing is done that the annual deficit will exceed today's entire federal deficit. Read this recent article by The Heritage Foundation.

Lastly, if you want to get the full scoop, read Laurence J. Kotlikoff and Scott Burns' book published in 2005 entitled The Coming Generational Storm - what you need to know about America's economic future.

Don't let the next generation have to pay for our inaction.

Beneficiary Designation

2007-04-21T17:11:00.000-07:00

One of the easiest and most beneficial planning activities that one can perform is to make sure their beneficiary designations are up-to-date. Beneficiary designations are very important when it comes to life insurance policies and qualified retirement plans (IRA/401(k)/403(b)/457).

Beneficiary designations determine where the proceeds of a life insurance policy will be paid and how qualified retirement plans are distributed at death. Life insurance and qualified retirement plans avoid probate which means the beneficiary forms will determine how proceeds are distributed not a will.

It is important to periodically review these forms but it is especially important if one has had a "life event" such as a marriage, divorce or birth. These forms need to be updated immediately. What would happen if you never changed your beneficiary designations and you got divorced and remarried and then died suddenly? Most likely the first spouse would get the proceeds since their name is still listed as primary beneficiary. I don't think this is what the owner would have wanted to happen.

It just takes a phone call to the insurance company or qualified retirement plan administrator to request another designation of beneficiary form. Just do it, as they say.

When you complete the designation of beneficiary form make sure you include both a primary beneficiary (such as a spouse) and a contingent beneficiary (such as children), sometimes called a secondary beneficiary. The contingent beneficiary is an alternate person(s) one names to receive their benefit if primary beneficiary dies before owner. If there is no contingent beneficiary the plan will determine how to distribute which probably will be to owner's estate which would delay the whole monetary distribution. Don't let this happen to you.

Lazy Investing

2007-04-13T17:05:00.000-07:00

Wall Street would like to make you think that investing takes an incredible talent that only they can supply. I am here to tell you this is just not so. You can outperform most money managers by adopting a lazy investment philosophy that is easy and pretty effortless. Lazy investing is made possible through passive investments (index funds).

Paul G. Farrell, of MarketWatch, coined this phrase a few years ago. He went on to write about it in detail in his book published in 2004 titled The Lazy Person's Guide to Investing. It is a great read that is easily understood.

Paul also tracks a number of lazy portfolios made up of passive index funds. This week he published an article in MarketWatch that reviewed the performance of these portfolios for the First Quarter of 2007 compared to the bench mark S&P 500. Here is a link to this article. The lazy, boring portfolios did it again by beating the S&P 500. They can do this because of diversification and low cost.

About 80% of all active managed mutual funds are beaten by the performance of passive investments which is made possible through their low expense ratios and and tax efficiencies.

In this article there is a link to a short video from MarketWatch where Paul explains lazy investing. It is so easy and takes such little effort. You can do it, don't let the mavens of Wall street fool you. It does require some assistance to pick the appropriate passive investments to make up your lazy portfolio so it is properly diversified and meets your needs.

An investment policy will help guide your decision making. I can help you with this policy.

Be a winner and adopt the lazy portfolio way of investing.

Tax Time and running the Boston Marathon

2007-04-08T17:02:00.000-07:00

On my calendar there are two dates that draw my interest this time of year. No, it is not Easter because the date varies with something having to do with the full moon. I am talking about income tax filing and the Boston Marathon. Last year at this time, actually the Boston Marathon is run on the third Monday in April (the 16th this year), I ran this marathon for the fourth time.

Because April 15th is a Sunday and Monday is a holiday in Massachusetts and Washington DC the filing date for your 2006 federal tax return is moved back to April 17th. If you have not filed your income taxes by now you must owe the IRS money or you are a procrastinator. If you have a refund due it has probably been cashed long ago. I owe the IRS taxes so the check will be put in the mail the 17th.

I have more interest in talking about my experience in training and running the Boston Marathon then talking taxes so I will share by 5 running tips and how they relate to effective tax preparation.

1. Hire a coach or do on your own? As a runner I have never used a coach, partially because I was not that talented, but there is so much written that it is easy to train yourself. I think the same thing when it comes to filing income taxes.

You don't need a specialist unless you have complicated issues that require a professional. Tax preparation software has made this job so much easier especially when it come to entering the numbers on the many forms that might be necessary, especially schedule "D" for capital gains tax calculation.

Your return is complied from the answers given to the many questions asked. The tax code is so complicated if you did not have some assistance through software I would never recommend doing it on your own because mistakes will be made and entries not handled correctly or at all.

But in the last few years the IRS has pushed tax preparer and individual filers to send in their taxes electronically. The only way this can be done is through a tax preparer or on your own using tax preparation software. The software has come into its own these last few years and should be easily understood by anyone reading this blog since you are already computer savvy.

There are many stand along software packages such as TurboTax and H&R taxpreparer but I prefer using online software. I use an online service called TaxAct (taxact.com). It costs less than $10. It works for me including filing for my financial planning business. If you have not checked them out I highly recommend that you do so. Once the information is entered for the first time (will take longer the first time around) the information is used in future filing. I think it only took me about 1 hour to complete my return this year. You might have simpler needs so it could even be shorter.

But if you are not comfortable doing your own taxes then please see a tax professional. You don't want to receive a computer generated letter from the IRS where there is a filing problem.

2. Training and keeping a log. If you don't properly train for a marathon the actually race will be very difficult. Running 26 miles is not an easy task so a well laid out training program over a 12-18 week period is of paramount importance.

When it comes to taxes preparation if one has not keep proper records (the training leading up to the actual filing) it will be very difficult, time consuming and potentially inaccurate. Whatever you do you must have a file that all your tax information is kept so it is easily accessed when tax filing comes around.

It does not take much in the way of organizational skills, just find a folder and keep all your tax information there.

3. Run at an even pace. Don't get carried away and run to hard early, you will pay later. One of the worst things a marathoner can do is get so excited early in the race and run too fast. It feels so easy in the beginning but don't let this fool you. It will take away in the later going. Save your energy for later in the race. It is much more beneficial to be passing people at the end of the race rather the beginning.

It is not smart planning to have too much taxes withheld from your paycheck so you can have this big refund when your file your income taxes. This is the wrong approach. Do you want the government sitting on your money paying your nothing? I think not. You need to plan better and only give the government the break even amount (taxes due equal to withholding). The money saved can be invested (not spent) so you will be much farther ahead. You will have a much better race this way.

4. Proper fueling and drinking during race are very important. Unless you are a world class or highly talented marathoner it is going to take your probably 4 plus hours to complete a marathon. Can you run this far without drinking or fueling the depleted body? In the early days of marathons runners did not drink or refuel themselves during the race. This is not the right approach. You must properly hydrate or there will be consequences down the line.

How does drinking/fueling have to do with taxes? I might be stretching the point here but you should be fueling your retirement from the beginning and consistently in all your working years. Not withholding from salary money for retirement through work 401(k), 403(b), 457 and non work IRAs one will be in grave shape when retirement rolls plus (now we get to the tax issue) you are differing taxes until later or in the case of a Roth IRA you pay taxes now but no taxes on earnings or withdraws in the future. If you don't fuel properly you will hit the proverbial wall when you need it.

5. Heart Break Hill and beyond. The most famous point of the Boston Marathon course is heart break hill. It is not the size of the hill but the place in the race. It is between mile 20 and 21. Without the proper training hitting the hill at this point in the race can be very difficult. But if you have trained properly, run at an even pace and refueled correctly then the hill is just another bump along the way to successfully completing the race.

Filing ones taxes can be like running a marathon and then facing heart break hill when the tax season is about 2/3rd over. Taxes are a fact of life. They come due every year at the same time. Get with the program and don't procrastinate such that you are not able to make it over the hill and complete the return when it is due. One can file a tax extension but one still has to pay their estimated taxes. Start working on the taxes earlier so the result will not make you come to a halt.

If you have not completed your taxes yet then here is a link to an article that recently appeared in MarketWatch about taxes (marketwatch.com).;http://www.marketwatch.com/news/story/ten-critical-items-review-before/story.aspx?guid=%7B5A2BD515%2DCD93%2D4797%2D968E%2DF2CF23B6EA0D%7D.

Paste this link into your browser. There is some great tax information here. Plus MarketWatch is a great resource for personal finance.

Yours truly,

Bruce Galvin, CFP(r)

Why the blog?

2007-04-02T08:12:00.000-07:00

This blog was setup about 9 months ago (June 2006) and there has been no posts. Being an early baby boomer a blog just was not something I understood so nothing has happened. By chance today I figured out how to log into my blog (my son originally set it up). I was amazed that I guessed my password and login name. As my son would say, "You never change your password" so I guess it was not luck that I figured out how to finally get started with my blog.

Why the blog? For me it gives me a chance to share some of the thoughts I have about financial planning. It is such a dynamic area that is so important to all people lives that I would like to share from my perspective. I read extensively on the vast subject area and hopefully share some wisdom that my be beneficial to others.

My business model is to help the "average" person. This is not the business model of most financial planning practices. Most practices cater to those that have significant assets. There is a great need for people with average means to be assisted with their financial needs. It is my hope that I can provide this help through my hourly practice.

If you would like to have me write about a specific financial planning topic let me know by adding comments to the blog topic.

Depending on my time and energy I will attempt to write about a couple topics each week. Hopefully I will be able to stick with this approach. I am pretty good at keeping commitments.

Revisit this blog periodically to find out what is new. If you want to find out more about my financial planning business in Seattle, WA click out my website at www.revelationfp.com.

Bruce Galvin, CFP(r)

Welcome!

2006-06-06T23:04:00.000-07:00

This blog will provide space for the musings of Bruce Galvin, owner and sole proprietor of Revelation Financial Planning. Check back soon for new content.

Our Firm provides hourly, as needed, or fixed fee financial and retirement planning to individuals and families. These services may be general in nature or focus on particular areas of interest or need, depending upon each client’s unique circumstances and goals. The firm/planner is a Registered Investment Advisor with the State of Washington. The planner is a CERTIFIED FINANCIAL PLANNER^TM who is an active member of The Financial Planning Association.

Our firm does not sell products, receive commissions or manage assets. We have no conflict of interest. We put the welfare of the clients above the firm. Our client’s interests come first.

Our Mission is to help individuals that need financial planning advice but who did not think they could afford it or who thought a planner would not entertain their business.

Our Clients share in the planning process. They will be trained and educated by the planner to implement and monitor the plan making the fees charged more cost effective.