Your portfolio is comprised of a variety of ingredients. These ingredients–typically stocks, bonds, and real estate (perhaps in the form of mutual funds)–are combined based on how much risk you want. But is it possible to keep your risk-level on track over time?
When we hear the word “recipe,” most of us think of food. And now that the summer season is here, foods with fresh ingredients are abundant–a welcome and nutritious change. But we can also apply the friendly term “recipe” to our portfolio asset allocation, recognizing that our portfolio ingredients are likely to be stocks, bonds and real estate. Fortunately, when we get the proportions right, these investment ingredients may deliver welcome results and keep us financially healthy.
Sue’s experience provides a perfect illustration. Sue is a meticulous and successful entrepreneur with a strong commitment to preserving what she has accumulated. Before we met, she had not paid much attention to the ingredients in her portfolio. She assumed that her long-time advisor, whom she inherited ten years ago along with the money from her father, was doing just that for her. Furthermore, because she recognized the names of the companies in her portfolio as “good companies,” she figured she did not have to worry about a loss in value.
However, Sue decided to talk to a different advisor about her most important financial goals, especially her primary goal of “making work optional” for herself and for her partner. Therefore, she scheduled a meeting with our Entrust team: 1) to discuss her financial goals, and 2) for a second opinion about whether her current portfolio of investments was on track to help her achieve them.
None too soon! Analysis of her investments revealed that over the years, Sue’s portfolio had become concentrated in just a few stocks. Not only did this concentration increase her risk, but the fact that the stock positions she held were all in just one sector of the market also resulted in greater risk than she had intended. Sue now realized that if she continued to hold concentrated positions going forward, her portfolio would have little chance to deliver the consistent and reliable appreciation she needed to achieve her primary goal, that of making work optional.
As an alternative, we introduced Sue to the risk-management strategy of allocating her money across a variety of ingredients (assets), such as stocks, bonds and real estate. She agreed to the diversification recipe we presented and her decision was soon validated. Not long after the implementation of her new portfolio asset allocation was completed, one of her former technology stocks plummeted in value. She is thrilled to have escaped the volatility of single-sector investing before the worst occurred!
Selection of the right portfolio ingredients can serve as a recipe for success and result in the achievement of investors’ most important goals. Contact us today for a second opinion about the health of the asset allocation recipe for your portfolio of investments.
Bizzie, a thoughtful and practical woman who has carefully cultivated her legal consulting practice for decades, is married to a high school music teacher and has one son–a teenager soon to complete his senior year and head off to college. Our story begins when Bizzie inherits a substantial amount of money following the sudden death of her father. While the handling of the family finances was always her husband’s responsibility, upon receiving this inheritance–which felt like a windfall to Bizzie–she realized she wanted to take charge of this money and for the first time in her life become financially literate. Bizzie wanted to be confident of doing the right thing; after all, this inheritance was high stakes money for her.
Bizzie quickly determined that step one on the road to financial literacy was to hire the right financial advisor. A linchpin for her, as she researched with whom to work, was learning about Entrust Financial’s commitment to planning and having a team of advisors who are Certified Financial Planner™ Professionals. When she contacted us to schedule a consultation, one of the first things she said was, “I want to do the right thing with my inheritance. I hope that with proper planning my father’s gift will make it possible for my family to achieve our most important financial goals.”
During our initial consultation Bizzie was articulate in sharing her goals, which included:
Prepare for a secure retirement
Provide a college education for our son
Earmark a $2 million-dollar legacy for our son
As we worked with Bizzie to formulate and implement a wealth plan for achieving her stated goals, we recommended an assignment: develop a precise understanding of expenses by tracking all family expenses over a period of several months using this budget spreadsheet. She was thrilled when this homework assignment allowed her to answer the question, “What does my family need to spend to be comfortable?”
Although she completed the expenses-tracking assignment in preparation for the successful implementation of her wealth plan, two excellent and unexpected outcomes resulted from her efforts:
She discovered her husband did not prefer to be solely in charge of the family finances. In fact, he indicated that going forward he was thrilled to share this responsibility with Bizzie, who enjoys the details far more than he.
She discovered that her inheritance portfolio could provide income today, thereby allowing her to take a step back from her consulting practice and finally pursue her dream of attaining her doctoral degree.
As Bizzie and her family experienced, “doing the right thing with your inheritance” can have far-reaching effects, superb outcomes that go beyond financial confidence and a sense of security knowing the achievement of important goals is within reach. Contact us today to explore how to accomplish your most important financial goals.
Cyber-fraud is on everyone’s minds these days. For instance, we probably all know of someone who was scammed through their email. A common and all-too-effective ploy is for a hacker to send an urgent and alarming email of distress–from a loved one–requesting that money be sent immediately. A good friend of mine responded to one such request for help because ostensibly it came from his best friend; as a result, he lost thousands of dollars.
At Entrust we are vigilant about protecting our clients’ information. Among the tactics we employ are three easy ones you, too, can use to protect your personal information.
Never use public Wi-Fi, unless your device has absolutely NO private information on it.
Never send documents with personal information, such as account numbers or social security numbers, through email.
Change your passwords at regular intervals–no less often than quarterly. And store your passwords securely on software–such as KeePass–designed for such storage.
What prompts us to blog about the topic of cyber-fraud? Hacking–now frequently PHISHING–has become a big business and we are all at risk. No longer is the hacker a late teenager, stoned, sitting in his mom’s basement hacking away on his computer to pass the time while he tries to “find” himself. No, today we are surrounded by global networks of hackers and what do they have in common? They are PATIENT. They are content to gather massive amounts of information and take all the time they need to sift through it for the nuggets of value, no matter how long it takes.
How can utilizing the foregoing tactics we enumerated protect you?
If you use public Wi-Fi, you are opening the door to hackers to gather whatever information happens to be on your computer. This information could be about you, or they could simply be gathering data about all of your connections–including your connections on LinkedIn or Facebook, for example.
Avoid public Wi-Fi and you are adding a layer of protection over your personal information (and your friends’ information, too!)
If you send private information by email, hackers truly love you because they do not even have to sift through anything to take the data they want. Use your secure portal, such as your Entrust portal, instead. Even if it takes extra time to provide information, avoid sending private information by email.
Because massive amounts of information are gathered and it takes time to sift through it, if you change your passwords at regular intervals, the likelihood is that when a hacker circles back to you, he will no longer be able to gain access because your credentials have now changed.
For all of us, protecting our information is becoming more difficult while at the same time doing so is more important than ever. Contact us to continue this conversation about how you can better protect yourself and those you love.
We spend most of our lives working and saving so that at some point we will have the financial freedom to step away from the grind and do something else. Do you know if you are on track for financial security throughout retirement?
Just posing this question reminds me of our clients Brent and Wanda. When we began working together in 2005, they were about forty years old. As small business owners, their demanding schedules prompted them to aspire to retire early–preferably before turning sixty years of age. Their rationale was that since they devoted almost every waking hour to their business, they wanted the option to step away sooner rather than later, and start enjoying the money they were accumulating from all their effort.
When we met initially, Brent and Wanda were worried. They could easily identify their primary goal: retire, and when they wanted to reach it: before the age of sixty, but they had no idea what steps to take to accomplish it. Preparing financially to have enough income during retirement felt like an insurmountable task to them.
To fulfill their goal within the timelines they preferred, we began by creating a retirement game plan with three major steps:
Identify their “number.”
Implement a savings plan to attain their number.
Design an investment portfolio.
Having agreed upon the strategic steps to take, it was time to dig into the details for each step. Read on!
Step 1: Identify their “number.” Brent and Wanda were diligent savers but had no idea how much to save to fully fund their retirement; in other words, their number. We began by establishing where they were financially, and followed that analysis by making projections for future income needs. To replace the income for their current style of living, aiming for financial security throughout retirement, we discovered that a minimum of $4.5 million would need to be accumulated in their retirement accounts.
Step 2: Implement a savings plan to attain their number. Once we identified their number, $4.5 million, it was time to calculate how much Brent and Wanda would need to save annually and in what type(s) of accounts. For instance, it is typical to maximize tax-deferred accounts for annual retirement savings. Business owners have a variety of such accounts, or retirement plans, to choose from. We recommended that this couple utilize a 401k and Profit Sharing Plan because these plans permit maximum savings for the future, in part by reducing current income tax liabilities.
Step 3: Design an investment portfolio. The right portfolio of investments makes all the difference in whether investors achieve their retirement portfolio goals, and achieve them on time! Disciplined asset allocation has been proven time and again to be the effective choice for achieving the results required to attain those all-important retirement numbers.
Follow the fantastic and successful example of Brent and Wanda. Contact us today to confirm that you are on track for financial security throughout retirement.
2017 is well underway and it is time to accelerate the implementation of your tax savings strategies, before spring arrives on Monday, March 20th. A key step for maximizing your savings this year is to take advantage of opportunities to reduce your taxable income in the months ahead.
Whether you are a business owner or an employee, these money-saving tips for funding medical expenses and your retirement plan (assuming you are eligible) could enable you to trim thousands of dollars from your taxable income in 2017. Let the savings begin!
Funding an account such as an HSA (health savings account) or FSA (flexible spending account) is a great way to reduce taxable income and to put money away for medical expenses that crop up unexpectedly during the year. Fortunately, a variety of medical expenses qualify for payment using an HSA or FSA account: expenses such as prescription medicines, doctor visit co-pays, and certain dental expenses.
A superb illustration is provided by our client Susan, who proudly reported to us recently that her HSA now exceeds $50,000. She has been funding it aggressively over a period of years, with the following intentions: 1) to reduce her taxable income in the year in which she made contributions, and 2) to accumulate tax-free funds for a variety of medical payments when she transitions into retirement.
We encourage you to consider following Susan’s great example. As you can see, in addition to the annual tax savings, if you do not need to use the funds currently you will get the added benefit of boosting your preparation for financial security in retirement.
While both HSAs and FSAs can help reduce taxable income, step one in your deliberations is to determine whether a plan is available to you, based upon your circumstances. Here are some basics to get you started:
HSAs are only available to those who have a high-deductible health plan, whereas the FSAs have no eligibility requirements.
For 2017–HSA contributions are capped at $3,400 per individual and $6,750 per family annually; FSA contributions are capped at $2,600 per year for both individuals and families.
FSAs are only available through your employer, whereas HSAs can be opened by anyone as long as you have a high-deductible plan. If you are interested in opening your own HSA; check out Ardent Credit Union HSAs.
Retirement Plan Contributions
One of our favorite clients, a business owner named Paul, was thrilled when we introduced him to the power of fully utilizing a company retirement plan to save money on his annual income taxes. Paul has always enjoyed being a diligent saver but did not understand that tax-deferred saving meant keeping a lot more money in his pocket, compared to just setting money aside that would be fully taxed in the year he earned it. His situation has a degree of complexity so we were able to help him establish not only a 401(k), but also a profit-sharing plan, thereby doubling his income tax savings in the first year.
Retirement savings come in many shapes and sizes. The following are some specifics to prompt your thinking about how to maximize your tax savings this year:
If you are an employee, choosing to contribute to a retirement plan such as a 401(k) or 403(b) can reduce your taxable income and thereby save you money in taxes. For the 2017 tax year, the IRS has approved tax-deferred contributions up to $18,000. Employees aged 50 years and older have the option to add an additional $6,000 to their annual contributions for a total of $24,000 contributed into their retirement accounts this year. Or in other words, they can reduce their taxable income by $24,000 in 2017. Talk about savings!
If you are a business owner, implementing a company retirement plan such as a 401(k) in tandem with a profit sharing plan, like our client Paul chose to do, provides you with a number of benefits. First, it boosts your personal retirement savings; second, the contributions save you money in taxes; and third, such plans are attractive and beneficial to your employees, resulting in enhanced firm loyalty as well as improved morale at work. Such tandem plans also offer higher contribution levels than those cited above for individual employee contributions.
Not surprisingly, retirement plans are subject to numerous and changing rules and regulations that must be honored because the IRS does pay attention and penalties can be confiscatory.
If you read all the way to this conclusion, congratulations for wading through a dizzying array of options for saving money on taxes. We all want to pay less income tax on our earnings but strategies to accomplish this worthy goal are incredibly complex, as you can see.
We welcome the opportunity to assist as you make an effort to accelerate the implementation of your tax saving strategies over the coming months. We can help and look forward to hearing from you.
When I established my holistic financial planning firm in 2000, I was advised by colleagues to avoid using the word “holistic” to describe Entrust Financial’s services. “It sounds too new age,” they said, “Like you are reading taro cards or something. It just doesn’t sound like you are offering rigorous financial and investment advice.”
I admit I was puzzled by the strong negative reaction to the word holistic because to me, offering financial advice using a holistic process was the natural outcome of observing what clients needed to be successful. For example, early in my career I was referred a couple, Emily and Dan, who reported they wanted to meet because they were “hemorrhaging money.” To them, this meant that although they inherited a substantial portfolio a couple of years before, they had already dissipated about $2 million dollars of it.
How could this be? Two things stood out when we completed our discovery meeting. First, the allocation of their inherited portfolio was not structured to generate the income they were taking or to minimize taxes. Second, Emily and Dan had inadvertently overlooked the need to plan for their family’s financial concerns that went beyond investing. These concerns proved not only expensive but extensive as well, including things such as: promised payment of expensive college tuitions for four children, long-term care expenses for a parent, and private, unreimbursed therapist expenses for their children, to name a few. Not surprisingly, the money hemorrhaging continued until we were able to reallocate their portfolio with a tax-sensitive income objective and to address their family’s other financial concerns.
Let us return to the term holistic for a moment. It is an adjective that means to comprehend the parts of something as intimately interconnected and understandable only by reference to the whole¹. Emily and Dan were faced with a dissipated portfolio because they had failed to look at the interconnection between the asset allocation of their inherited portfolio, their family’s financial concerns that went beyond investing, the inevitable tax consequences, and their current need for income. Fortunately, Entrust’s commitment to using a holistic process provided the structure they needed to turn things around and re-position their personal finances for long-term success.
Today, unlike in 2000, Entrust can use the word holistic with confidence, knowing the term is a positive indicator of the extra layer of care we provide to clients. In fact, when Mckenzie and I made the decision to reorganize Entrust Financial as an independent fee-based firm in 2015, we chose the descriptor: Partners in Holistic Wealth Management.
Our years of experience have continued to teach us that ensuring financial security and independence for clients is a holistic endeavor requiring more than astute investment planning. We have positioned ourselves as the financial quarterback, meaning we see the big picture, coordinate related professionals, deploy resources and respond with appropriate strategies within the context of life transitions and unexpected events. The job of our Entrust team is to be each client’s financial partner, the fundamental multi-faceted resource they can count on, no matter what.
Surprisingly, despite the benefit to clients of the extra layer of care offered when a holistic process is utilized, fewer than seven percent of financial advisors have adopted this service-delivery model. Rather, the financial services landscape has remained virtually unchanged over the past twenty years, with the vast majority of advisors trying hard to sell investment products, instead of addressing investors’ complex financial needs.
Whether you are preserving your affluence or are in the process of building your wealth, Gloria Steinem’s wry observation sums up the need for using a holistic approach: “Rich people plan for three generations; poor people plan for Saturday night.” Planning your personal finances for long-term success is not about a product sale. It is about achieving a holistic balance as you address your complex financial needs.
You can instill a sense of gratitude and generosity in even the youngest children by teaching them to share with others, beyond the immediate family. For instance, a great place to start is to encourage your kids to volunteer their time or share a portion of their allowance with the causes they love.
Strategies for transforming your children into young philanthropists include:
Discover what sparks their interest
Create a family tradition
Establish a donor-advised fund
Discover what sparks their interest
You can easily discover children’s interests by having a conversation, or better yet, by holding a family meeting. Facilitate the participation of each family member regarding their special interests. Identify what captures the heart of each child; then select charities that fulfill his or her passion.
For example, if your child likes pets, that might generate interest in a local animal rescue group. Once the organization is selected, look for opportunities to support them by donating time or money. As an added incentive you might agree to match the donations your child gives.
Create a family tradition
Celebrate a holiday, anniversary, or other event as a family by giving back to those in need. Not only will your children learn the importance of volunteering and generosity, they will also look forward to this traditional family endeavor every year. For example, participate in a family-friendly one-mile or 5K walk that benefits a cause important to your family. Or enjoy beautiful spring or summer days by volunteering for a park cleanup project or a local community building project. These shared experiences provide valuable lessons about the impact of giving back to the community.
Establish a donor-advised fund
A great charitable tool you should consider is a donor-advised fund. Many families establish a donor-advised fund because it’s flexible and a great tool to teach their children about giving, saving, and investing. When you and your family donate to your fund, you may be eligible for an immediate tax deduction.
Family members meet regularly to review their contributions, their investment strategy, and the value of their donor-advised fund. They make decisions about when to grant money and to what organizations. Some families set savings goals; they wait for the fund to reach a certain value prior to dividing funds among their favorite charities. Because grants are made only to qualified charities, an added benefit is that investment appreciation has the potential to grow tax-free.
Givers for life
By teaching lessons in gratitude and generosity early on, you can set your kids up for a lifetime of giving back to those in need, to their local communities, and to cherished causes. If you would like to discuss specific strategies for incorporating charitable giving into your family planning, contact us today or take a look at the BalancingActBook.com Charitable Planning Map.