Navigating an Estate

Please pardon the significant gap between posts.


Last month, after years of more good cheer and grace than anyone could have asked for given her circumstances, my mom passed away. She has been significantly diminished for several years and my brother and I have long missed the mother we grew up knowing. What has surprised me is how much I miss spending snippets of time with even the shadow of her that I've grown used to seeing on a regular basis in recent years. Biology is a powerful force, and losing a parent under any circumstances is a major life event.


As we sort through our emotions, my brother and I are also getting a first-hand lesson in funerals and estate administration from the state of Maryland and the custodians of my mother's last few accounts. Here are a few tidbits and tips we can share for anyone who finds himself in our shoes:

• Find out, far in advance, what your parents' wishes are so that you can honor them to the extent it is possible. Our mother executed a complete set of documents -- a will, medical power of attorney, durable power of attorney, and living will-- several years ago when she was first admitted to the nursing home. This allowed us to instruct the staff to move into hospice mode, according to her wishes, when she was obviously terminal. She had also purchased a plot in the cemetary where her parents are buried. It was not the resting place we might have selected for her, but it was her choice and we were happy to be able to grant her one last wish.


• Make sure you have access to any safe deposit boxes, know where tax returns are stored and have the addresses and social security numbers of all beneficiaries.


• The staff at the funeral home can be extremely helpful when you are really in need. They are experts in planning funeral logistics and can tend to many details that you may not have considered or be prepared to handle in the midst of your grief. In addition to all of the funeral details, the funeral home also took care of applying for death certificates and sending a death notice to our local newspaper.


• Request plenty of originals of the death certificate. The funeral home we used recommended a minimum of twelve. If you know your parent's financial life was fairly complex -- he or she owns multiple homes, has accounts with multiple custodians , banks or fund companies, or has multiple life insurance policies -- twelve may not even be enough. Many of these account holders may accept a copy rather than an original, but it's better to be safe and order extra.


• The personal representative, or executor named in the will is responsible for estate administration. This involves gathering all relevant documents, filing paperwork with the state to register the estate and obtain a tax id number, and eventually distributing the assets. How long this takes and how much it will cost depend upon many factors including what state the deceased lived in, the complexity of his or her financial life, and whether there are trusts in place. If you are serving as a personal representative for an estate be prepared to be very patient and to wade through a tremendous amount of bureacracy. You can also engage an estate attorney to handle much of this process.


• Life insurance, IRAs, pensions and trusts contain named beneficiaries and pass directly to them when the proper paperwork has been completed and filed. Expect to provide each company involved with a copy of the death certificate along with whatever paperwork and additional documents they require.


• Contact Social Security to notify them of the death. Payments received after the month of death will be reversed and must be returned if they were not paid electronically. If there is a surviving spouse who was also receiving Social Security, he or she will receive the higher amount of the two individual payments in the future.


• Small estates qualify for a simplified probate process in most states. Larger estates, $1 million and over may require appraisals of real property and personal property and a Federal estate tax return that is due nine months after the date of death.


• Joint accounts must be retitled in the name of the survivor. Notify the bank or brokerage firm and expect to provide them with a death certificate.


• Retain cancelled checks and bank statements for five years prior to death for your records. Estates can be audited by the IRS.

Ruminations on Risk

Last year we analyzed the portfolio of a prospective client who had very significant wealth -- more than all of our other clients combined. The client told us, and we agreed, that he had more money than he could possibly spend in his remaining lifetime. One of our recommendations in light of this fact was to invest his portfolio in low risk, fixed income securities. Why incur risk when you don't need to?


The client did not think much of our analysis or our recommended course of action. Why would he bypass the opportunity to earn big returns by investing in private equity placements, hedge funds and and other high stakes options when he could clearly afford to participate? From his perspective, he was able to withstand the risk. Taking the safe route just meant leaving money on the table.


Needless to say, the client did not choose us to be his advisors, and whenever his name comes up, the two of us just shake our heads and wonder how he could have ignored our good advice. Why take risks when you don't need to in order to reach your goals?


Clearly, we had a failure to communicate.

I've recently observed a similar disconnect in my personal life. With my youngest child leaving for college in the fall, I've realized it's important that my husband and I start doing more together than coordinating schedules and making sure someone has shopped. This weekend, I invited him to join me on a walk along a trail that runs near our house. Taking a long walk on the trail is one of my favorite things to do on nice days, but he declined -- he had work to do, needed to prepare for a trip the next day and was playing hockey that evening. Unless it was going to be a quick walk, he wasn't really interested.

I mulled this over on my long walk and concluded that my husband is just not a walker. This should not be news to me -- we've been together for more than 30 years and he has been in constant motion for most of that time. He wants to do it all, and pretty often pulls it off. He works long hours with frequent travel, plays ice hockey in an adult league, religiously follows several sports teams, regularly volunteers as a hockey coach and in a reading program for school children in D.C. He's truly an amazing guy -- but you don't get all of that done by walking.

I, on the other hand, am a walker -- literally and figuratively. I abhor stress and have structured my life to limit it. Of course when my children were young this was largely out of my hands (which surely contributed to my strong stress aversion), but these days I have managed to arrange my work schedule, my commute, even my meals in a way that keeps my stress level very low. I have built cushions into my schedule, so I won't miss deadlines or sweat out conflicts. Whenever possible I avoid activities that I find frustrating or just don't enjoy.


You might think that with such a cushy life I'd be happier than I have ever been. But, instead I am learning that sometimes stress is what makes me feel alive and truly engaged with the world. Rather than bliss, I'm feeling bored and somewhat useless. The activities I enjoy most these days are those that are stressful in the sense that they take me out of my comfortable routine and force me to adapt to new situations -- traveling is a great example.

I love traveling to new places, soaking up the culture and the history, and finding the local treasures--even though I hate flying and packing and dealing with airports. The adventure of discovering a new city is a payoff that far outweighs the inconveniences of traveling, and for some reason I even see the occasional misstep in the course of traveling (getting lost, missing trains, unfortunate food selections) as a part of the whole grand experience.


Looking back on my life, I also must admit that the heightened emotions of some very difficult times are memorable and cherished. The demands of three small children were overwhelming and exhausting at times, but there was an undeniable degree of excitement in surrendering all control of your life to the whims and needs of your offspring. That imposed randomness is missing in my life now.

Don't get me wrong -- I'm quite happy to be free to choose when I will be spontaneous, and don't wish to return to those past days of chaos. But I now see that eliminating too much stress from one's life can leave you feeling small and unfulfilled.

So I've come to understand why Mr. Not-a-client wanted to make some risky bets, even though it was unnecessary from a planning standpoint. Even more than me, he is more-or-less accountable only to himself -- no job, no young children making demands on his time, nothing that absolutely has to get done when he wakes up most days. Making his money grow is one of the only challenges remaining in his life. He wants the excitement of having a horse in the race more than the absolute assurance that his money will always be there for him and his family. And, though I understand a little better where he's coming from, I'd still give him the same basic advice -- don't take unneccesary risks with you family's money. Still, maybe I'd suggest keeping a small percentage of his money in a pool he could use for some riskier plays, just to satisfy his need for an adrenoline rush.


And in my own life, I'm going to make more of an effort to regularly step outside my comfort zone, and raise my stress level a bit. Perhaps I'll work a little harder to break a sweat and keep up with my husband-- if he can slow down occassionally to let me catch my breath.


Maybe we'll invite Mr. Not-a-Client to go bungee jumping -- just for kicks!

Annette Simon

Copyright 2009 The Money Dames

Like Mother, Like Daughter -- Not Always

It's my mom's birthday today, but there's not much to celebrate. She is 74, has been completely disabled and living in a nursing home for more than seven years.

I've come to the conclusion that most of us never see our parents clearly or in three dimensions. The memories and perceptions of our inner child distort our views of mom and dad (and siblings for that matter) beyond childhood, and probably throughout our lives. In my case, I was a complete daddy's girl when I was young -- a tomboy, good student and brimming with ambition. Although neither of my parents went to college, I saw my dad as smart and self-educated. He was a successful business-owner and a prominent member of the community.

On the other hand, I had no respect for my mom -- a stay-at-home mother of three. She had planned to be a nurse, but dropped out of nursing school at 19 to get married and move to Minnesota. My brothers and I never fully appreciated that or any of the other hundreds of sacrifices she made to help us grow up to be whatever we wanted to be. We did devote a lot of time, though, to ridiculing her yoyoing weight, her hair, which changed color frequently, her non-existent cooking skills and her endless volunteer activities. And we gleefully participated in mom's addiction to shopping, a habit that afforded us every toy, outfit or gadget we ever wished for on countless indulgent afternoons at the local shopping mall, our favorite childhood and teenage haunt. I swore I would never be like my mom -- she was the last person I would have considered a role model either for motherhood or for life.

By the time I became a mother, my mom had concluded she could never live up to my expectations. True to my childhood vow, I had traveled a completely different path than hers -- college, grad school and a career in business. Mom was completely intimidated by me and our relationship was beyond dysfunctional. I didn't want her around when my first child was born; she didn't want to come and help me following the birth of my second or third-- when I really wanted and needed her to be there.

The funny thing is, I turned out to be a mom who is in some ways just like the one I considered such a failure. I have almost always worked, but for the past15 years my work has allowed me to be at home and available for my kids pretty much any time they have needed me. I stopped cooking several years ago when we moved across the street from Trader Joe's and within walking distance of more than 100 restaurants. I've devoted countless volunteer hours to my professional association ( a less altruistic pursuit than mom's work with the local hospital auxiliary and chapters of Jewish women's groups). And my children focus on my foibles more than my accomplishments; they never miss an opportunity to poke fun me. Like my siblings and me, they're not exceptionally mean, just self-involved and unappreciative -- i.e. over-privileged teenagers and twenty-somethings.

As my kids got older my relationship with my mom eased a bit. By the time my dad died 15 years ago (they had long since divorced) we were on pretty good terms. When she became physically disabled nine years ago my younger brother and I stepped in and eventually moved her from the west coast to a nursing home here in Maryland where we could visit frequently and try to keep her somewhat involved in our lives until she declined mentally a few years ago.

I'm surely still viewing mom through the filter of my childhood experiences, but I think I've gained at least some perspective. I now recognize that she was loving and generous to a fault with her kids; bored with the drudgery of housework and childrearing, and eventually fed-up with the ingratitude of her spoiled kids. The grandchildren were her reward for enduring the three of us. She was financially illiterate, but thanks to alimony, life insurance and inheritance she felt pretty wealthy and continued to love shopping until she was unable to get around. While she was mentally alert, Mom endured years of complete helplessness with more gratitude and grace than most able-bodied people demonstrate on a daily basis.

Mom's life now is extremely limited. She has not left her bed or her room in years, and if she recognizes me when I visit it's only as a friendly face, not specifically as her difficult daughter. My brother and I talk about her in the past tense since the mother we knew has been gone for some time. I'm back to swearing that I never want to be like my mom -- but this time I want to be sure I avoid her fate.

Annette

Copyright 2009 Money Dames

Alternative Investments -- Money Dames-Style

Has the relentlessly falling market got you wondering what to do with money you would normally invest? Are you leaving extra cash in your checking or savings account rather than adding to your retirement or investment account?

We continue to believe that the market will turn around and that it could happen fairly quickly. By waiting for a sign that it's safe to get back in, you risk missing out on the biggest gains; and missing just a few of the highest return days can reduce your overall returns quite dramatically.

Our prescription: Think about how much of the money in your investment portfolio you will need to pay for expenditures in the next three to five years, then set that amount aside in a money market fund or CDs. What's left in your account should be long-term money -- funds you will not be drawing upon for five or more years. This money should be invested in a diversified portfolio incorporating a moderate level of risk that allows it to outpace inflation but still lets you to sleep at night. If you are not planning to draw upon your investments for five or more years and have the ability to contribute to your accounts, it makes sense to continue to do so and to buy securities at what will in the long run probably look like bargain prices.

We've been repeating this mantra since the downturn began and stand by it as the most sensible course of action. But, many people have reached the point where they don't want to hear it anymore. Adding to accounts that seem to shrink on a daily basis is more than they can stomach. They are accumulating cash -- building their checking, savings and money market funds rather than put any more money into the bottomless pit the market has become.

If you find yourself in that camp, here are some ways to make good use of your excess cash until you feel safe getting back into the market:

• Accelerate your mortgage payments. Paying extra principal will reduce the time it takes to retire your loan and yields a guaranteed rate of return -- the interest rate on your loan minus the value of tax deductions (for interest you will not pay in the future) you are forgoing. Reducing your debt increases your overall net worth just as much as increasing your assets -- and it's a sure thing.
• Prepay tuition. Check with your child's college or private school to see if they will allow you to prepay for one or two years of tuition. Tuition increases have outpaced general inflation for years, and if you believe the market will continue to drop it makes sense to pay future tuition bills now rather than waiting for your education fund to shrink further. Our caveat on this -- don't pay too far ahead -- especially if your child is starting at a new school or not entirely happy with the school she attends.
• If you definitely plan to purchase a house, remodel, buy a car or other big-ticket item in the near future, it might make sense to dive in now. You'll have great bargaining power in markets that are starved for buyers.
• Invest in yourself. If you've been thinking of going back to school to improve your job skills or train for a new career, use some of your cash-on-hand to cover the cost.
• Remember to look for opportunities to harvest lossses in your taxable accounts. Sell losing securities to capture the losses (up to $3,000 each year can be deducted from income, the remainder can offset realized gains this year or in years to come). Invest in another, similar fund if you want to be positioned to participate when the market rallies, or keep the proceeds in money market or other stable asset classes if you can't bear the risk. Just remember that you're locking in losses when you sell in a down market and don't reinvest in equities or stocks.

And a final reminder: you should always keep enough cash on hand to cover at least six months of living expenses, more if your income is at risk or irregular. These suggestions are only for investors who have a reliable income source that leaves you with excess cash you would normally be adding to your retirement or investment portfolio. We are not endorsing an irrational spending spree or depleting your cash reserves to pursue the ideas above.

Above all else, be sensible and plan to return to regular saving and investing as soon as possible.

Copyright 2009 Money Dames

All that Glitters is not Gold

As the world economy reels and markets around the globe plummet, gold has made a comeback as the darling of speculators and terrified investors alike. Some folks are so worried about the collapse of the economic system they are purchasing gold bullion and having it delivered to their homes. (See WSJ article).

Up more than 9.7 % this year, gold has been one of the few opportunities for positive returns in a dreadful period. So why aren't we jumping on the bandwagon and recommending gold to our clients?

Historically, gold has been a terrific hedge against inflation. As the dollar, or any currency, weakens, investors turn to commodities with perceived value, driving up their prices. In today's world, where long-standing institutions are failing and once-in-a-lifetime events seem to happen on a daily basis, many buyers are again looking to gold as a "safe" asset.

Unfortunately, it is anything but that. Contrary to popular belief, gold has no intrinsic value -- it is simply worth what the market will pay at any point in time. And that price has been extremely volatile over the years, rising and falling very dramatically over short periods of time. In the last gold rush, during the early 1980's, many speculators lost their shirts by mistiming the market. In fact, individual investors have been notoriously horrible at deciding when to buy and sell gold. With prices up so dramatically this year, it's not surprising that frightened buyers are piling in.

As with anything else, the smart time to buy gold is when the price is low, not at a high level. And the smart way to hold it is in a mutual fund or ETF and as a very small (2% or less) percentage of your total portfolio.

Gold pays no dividends or interest, and for those who choose to physically hold gold the costs of shipping, storing and securing their investment are very high.

Moreover, gold is best used as a hedge against inflation, yet most economists worry that the biggest risk we now face is global deflation.

On balance, we don't see gold as a panacea for an ailing portfolio, or even as a good buy at current prices. We're sticking to our boring mantra -- diversify, diversify, diversify -- and in these tough times adding a folksy adage: Patience is a Virtue.

Copyright 2009 Money Dames

How Much is Enough?

With the S & P 500 down more than 45% since October 2007, virtually every U. S. investor is holding a portfolio that has shrunk dramatically. Many boomers are asking themselves if they will ever recover their losses or be able to save enough to retire in their old age.

It all comes down to one question -- how much do you really need to maintain your desired lifestyle in retirement?

There has been a fair amount of academic research to determine how much you can continually withdraw from a portfolio over 30-35 years -- the length of the typical retirement these days. Based upon the range of historical returns in a diversified portfolio (pre-2008) a safe annual withdrawal rate is 4%-4 .5%, adjusted annually for inflation. In dollars that means that you can safely withdraw $40,000 - $45,000 from a $1 million portfolio in year one. In year two, if inflation is 3%, your withdrawl will increase to $41,200 - $46,350.

If you are spending $135,000 now and hoping to sustain the same lifestyle through 30 or more years of retirement you need to accumulate an investment portfolio of approximately $3 million unless you have a pension or other source of income in retirement.

Most people find this breakdown sobering, if not completely depressing -- and it doesn't even account for the likelihood that your savings are in pre-tax dollars (if they are in your 401(k), IRA or other retirement account). We'll deal with that gloomy aspect of the issue on another day.

The bottom line, for most of us in middle age, is that retirement, in the tradional, gold watch, puttering away your days in the garden or on the golf course model of the past is not in the future for us. But it's also true that it wasn't a realistic scenario even before the bottom fell out of the stock market in 2008!

Relatively few people had saved enough to achieve full retirement at age 60 or 65 . We have been a nation of spenders for years now -- almost no one, especially in the baby-boom generation-- has been able to pare back current consumption so that they are living a lifestyle they can reasonably sustain in retirement just by saving diligently. Most of the lucky few who are well-positioned for retirement received a windfall: an inheritance, stock options that paid off handsomely, or a cash settlement from a lawsuit or the sale of a business.

So don't beat yourself up. Retirement may not be a reality -- but work keeps us vibrant and engaged. You may not be golfing or fishing every day, but you can probably slow down and find work that feeds your soul and supplements your savings. That's the view we're taking.

Annette

Copyright 2009 The Money Dames

Are You Financially Literate?

We've been surprised by how little many otherwise sophisticated, successful people know about financial matters. The Madoff affair and the sub-prime credit crisis are both financial disasters that largely could have been averted if more Americans had a solid grasp of some basic financial concepts. Our hope is that the Obama adminstration recognizes this and will embrace the cause of increasing financial literacy.

Until they do so, here are a few questions to test your own financial literacy:

1. What is the difference between a stock and a bond?

2. How is investing in an IRA or 401(k) different from investing in a brokerage account or mutual fund?

3. What is the difference between term, universal and whole-life insurance?

4. Is $1 million enough to retire on?

5. How much income is too much to qualify for college financial aid?

6. Is real estate a better investment than "the market?"

7. How much can you reasonably expect to earn on a risk-free investment?

8. What is the average rate of inflation?

9. What are the basic estate planning documents everyone should have?

10. What types of insurance does everyone need to own?

11. What credentials, education and legal obligations are financial advisors required to meet?

12. How long will it take to repay your credit card balance making the required minimum payment each month?

13. Should avoiding taxes be your first priority in making financial decisions?

14. Which of these factors is the most significant determinant of portfolio performance: Security selection (which stocks and bonds you buy), asset class allocation (how much you have in stocks vs. bonds, large vs. small companies, etc.) or Market Timing (picking the right dates to move in and out of the market)?

15. How much cash do you need to keep in a checking/savings account for emergencies?

16. What is a mutual fund?

17. How much of current income do you need to save for a secure retirement?


If you can answer all of these questions accurately and confidently, good for you -- you have achieved an outstanding level of financial literacy.

The answers...? Oh you want the answers! We'll be addressing these questions and more in entries to come over the next several weeks. Stay tuned and submit your questions if we don't cover them.

Annette Simon

Copyright 2009 The Money Dames

Advisor=Scapegoat -- One More Benefit to Consider

A couple of weeks back we posted an article enumerating the benefits of working with a financial planning professional. Over the weekend, it occurred to me that we missed one of the valuable services we offer to our clients.

Many times clients tell us that they have no trouble holding down spending for themselves, but it's too hard to say "no" to their children and grandchildren. In many instances, we have become the go-to excuse for clients trying to get these expenditures under control. They don't want their kids to be mad at them, but can blame those witches -- Veena and Annette -- who won't let them shower the grandkids with gifts or pay for lavish family vacations .

We're happy to be the bad guys. The kids won't love us now, but may be grateful someday when mom and dad aren't eating dog food in their eighties!

Annette

Copyright 2009 The Money Dames

Pre-paying the Mortgage -- Should I or Shouldn't I?

Clients often ask whether we recommend accelerating their mortgage payments in order to retire the debt faster. It's a question that might have two answers -- one based on the economics and another based on your peace of mind and risk aversion.

The numbers side of the equation is fairly simple. It's a matter of comparing the rate of interest you are paying to the investment return you expect to earn going forward. Just remember, as you make this comparison, that the interest portion of your mortgage payment is tax-deductible, and reduces the cost of your mortgage. So, for example, if the interest rate on your mortgage is 6% and you are in a 40% combined (federal plus state) tax bracket, your after-tax cost for the loan is 6% x (1- 40%) = 3.6%. If you have the opportunity to earn more than 3.6% after taxes on relatively safe investments the numbers say you should not pre-pay. (Excuse the rhyme).

But beyond the numbers it's important to consider what is going to allow you to sleep peacefully at night. By doubling the equity portion of your monthly payment can pay off a 30-year, 6 % mortgage in less than 21 years. Reducing your fixed monthly expenses might allow you to retire sooner or at least cut back and take life a little easier. It's hard to attach a numeric value to that benefit, but the value is very real to many people.

Balance is one of the mantras we return to again and again in our practice. We seek balance in our own lives and try to provide it for our team members. And we encourage our clients to look for balance in their financial lives as well. Finding the right balance on this mortgage question is a personal decision, and not a purely financial one.

Annette Simon

Copyright 2009 Money Dames

Why Work with a Financial Advisor?

Does working with a professional advisor make a difference? We think the answer is a resounding yes. Here’s why:

1. We help clients set and stick to their most important life goals. That is huge. Most people think about what is important. Few write down those goals, even fewer monitor those goals, and an even smaller percentage measure to see if their goals are being met. Advisors who practice holistic planning help with that process. It is often profound for clients to realize after working with advisors for several years how much progress they have made toward their goals.

2. We lead clients through mature, objective and deep conversations about very important family planning issues. Most couples avoid discussing contentious money matters and when they do it often devolves to a very emotional exchange, even an argument. As an objective, knowledgeable and trusted advisor we facilitate difficult discussions in a non-judgmental way. Moreover we help by providing advice and feedback based upon our years of experience. Often, this is akin to counseling albeit with three cups of technical advice, a teaspoon of humor and a half cup of reality testing questions.

3. Fiduciary, fee-only advisors evaluate clients’ financial situations objectively and weigh their options with only the clients’ financial success in mind. Because we are paid by and answerable only to our clients, we can help them cut through and ignore the noise. TV, newspapers, and websites are full of conflicting and often contradictory advice; friends and neighbors brag about their investment successes. Often this random information sounds impressive and compelling – but it may not be accurate or appropriate for every individual’s situation. A professional who knows the totality and specifics of her clients’ personal circumstances can protect them from chasing after the can’t-miss investment of the week.

4. A good advisor is a great resource for clients to help them manage their busy lives. We know smart, ethical attorneys, accountants, mortgage brokers and professional coaches, useful websites, pertinent books, strategies for problem solving, etc. Clients are consumed with their day-to-day activities and seldom come up for air to think about alternative ways of solving issues. We have extensive networks and can refer them to resource professionals who can help make their lives easier.

5. We serve as a sounding board, helping clients think through tough issues. At times that may mean we protect them from themselves by heading off bad decisions. In the horrifying days of mid-October, who didn’t contemplate going all to cash and wondering if any of their portfolio should be in the equities market? We provide sound advice in the heat of the moment to help them stay calm, reduce the emotion and make a rational choice based on facts, not hearsay. That model of measured advice and help in difficult times only comes from a trusted advisor—not from a salesperson.

Annette Simon

Copyright 2009 The Money Dames

The Making of a Financial Planner

What makes someone want to become a financial planner? In my case you might call it a series of unfortunate events.

My father died from pancreatic and liver cancer almost 15 years ago. In the last year of his life he suffered terribly not only from the ravages of his disease but because his financial life began to unravel at the same time.

For most of his life he had been a successful businessman. He and his brother sat atop a small empire of retail stores and a variety of investments in local businesses in my Midwestern home town--a family business my grandfather built after emigrating from the Ukraine. We lived very comfortably in our small community while I was growing up; in fact I'd say my brothers and I were pretty spoiled, never wanting for anything. I saw my dad as a savvy businessman and a person of the highest integrity.

Our fortunes first began to turn when my dad and uncle decided to open a new store halfway across the country in Nevada. Until then I had been unaware that dad was unhappy with his life, but he was restless and looking for a big change. Boy, did he get it! Our family voted (four to one -- I was the only one opposed) to relocate so that dad could manage the new venture. Soon after moving the family he left my mom and filed for divorce.

Not surprisingly, my mom chose to leave Nevada and headed back to the east coast where she had grown up. During her marriage mom had paid the bills, but dad really managed all other aspects of the family's finances. Every element of money management was new to her -- living on a budget, buying a house on her own and making big financial decisions -- and she was ill-equipped to deal with any of it. Over the years she was victimized by salesmen and brokers who won her trust and sold her inappropriate products with no regard for what she really needed.

Meanwhile my dad fell in love and remarried. While his love life was flourishing, changes in the IRS rules created massive tax liabilities for the family business. It was a financial blow dad never really recovered from, but he hid it from the rest of us even cooking the books to keep his brother in the dark. I think he believed his fortunes would turn and he would make it all right, but he got sick and ran out of time.

After his condition was diagnosed, dad began to count on a large life insurance policy he had purchased to keep the business afloat and to provide an inheritance for his wife and three adult children. The plan was in place and might have worked as dad hoped, but less than a month before his death my step-mother convinced him to transfer ownership of his life insurance policy to her. She promptly made herself the sole beneficiary and received the entire death benefit when he died.

That sounds like the end and enough to motivate me to want to learn more about financial planning, doesn't it? But there's more!

Dad's life insurance policy was what's known as key-man insurance, intended to carry his business partner--his brother--through several months during which he would find someone to fill dad's shoes and keep the business (which my dad had thrust deeply into debt) afloat. So it wasn't really dad's policy to leave to his children or his new wife, and it certainly wasn't his to transfer to a new owner. It's probably not too surprising that my uncle sued my step-mother and after months of very ugly back-and-forth they came to a settlement. She bought him out; over time she paid off and negotiated down the remaining debts. She owns and runs my dad's business to this day.

While all of this was happening I began taking CFP courses. I wanted to learn how to spare others from the mistakes my family had made.

Initially, I saw my step-mother as the villain who stole my inheritance. When my uncle sued her and won, he joined the bad-guy team. But as I learned more about personal finance I realized that my dad and my uncle had an agreement and dad had broken it first by changing the beneficiaries of his life insurance policy and then by giving it to his wife. So my uncle was a victim too. Even my "evil" step-mother was going to be stuck with credit card bills my dad had hidden. I could eventually see that she was doing what she needed to just to keep his wreckless acts from dragging her down financially. She wanted to save her house and the assets she had built up over a lifetime. I can understand why she did what she did.

My dad blew it by failing to plan, by denying the reality of his financial limitations, and of course by lying to everyone along the way. I'm even willing to see him as a victim -- a victim of unfair tax laws and even more a victim of love! He was so eager to please his second wife he didn't want to confess his failings; he wanted to give her everything.

And in the end, I don't really see myself and my brothers as victims at all. We were clearly last in line for the insurance money. We didn't receive any inheritance at the time of his death, but my dad put us all through top-notch colleges and instilled a work ethic that has allowed each of us to survive and flourish on our own. And his missteps brought me to a profession I love--that's a pretty good silver lining in my book.

Annette Simon

Copyright 2009 Garnet Group LLC

Budgeting -- Unpopular, but oh so Important!

In recent years the idea of living on a budget has fallen out of favor. Baby-boomers, we are told, don't care for budgets. They prefer a spending plan -- it fits more with their mindset.

Call it a budget or a spending plan or whatever you like, successfully managing your financial life starts with getting control of your cash flow. In the simplest terms, when spending exceeds income, you're in for trouble. This is true whether you make a lot of money or almost none at all.

That's the big idea, but most people are looking for more guidance than that. They're wondering, for example, how much they can reasonably spend on housing, or how much they should be saving for retirement. Here are a few benchmarks to start with, established by the Foundation for Financial Planning.

First some definitions:

• Disposable Income - This is your total income from all sources minus federal and local income taxes and your own contributions to your retirement plan(s). Taxes are not optional and we recommend treating retirement savings (at least 10% of your total income) the same way -- as though you have no choice about it.


• Living Expenses - Includes rent or mortgage (principal, interest, taxes and insurance) food, utilities, medical, transportation -- required expenses, none of the fun stuff.


• Discretionary Income - Subtract your total living expenses and debt payments (non-mortgage debt) from Disposable income to reach this number.

Using these concepts, here are some ratios that can help you determine whether your lifestyle is reasonable based upon your savings and income:

• Basic Liquidity Ratio - Divide your total savings (money in bank accounts and liquid or readily salable investments) by your monthly living expenses. The result is the number of months you can survive without an income, or your Basic Liquidity Ratio. This ratio should be greater than or equal to six, meaning that you could survive on your savings for six months if you were suddenly unable to work and earn an income.


• Debt Ratio - Find your Debt Ratio by dividing your monthly debt payments (excluding mortgage payments) by your total monthly income. A Debt Ratio greater than 10% is a red flag indicating that the interest on your credit cards or other loans is eating up too much of your income.


• Housing Ratio - This is your rent or mortgage payment (principal, interest, taxes and insurance) divided by your total monthly income. If your housing ratio exceeds 30% you are house poor -- spending too much of your income on housing, which leaves you with too little for retirement savings and other living expenses.

Use these ratios to take a good hard look at your lifestyle. If your ratios are out of line -- you are living with excessive risk and building a financial house of cards that will probably fall apart with the first strong wind.

Annette Simon

Copyright 2009 Garnet Group LLC

Five Financial Resolutions for 2009

I like New Year's resolutions -- even though they're often futile and left by the wayside within days, sometimes hours. Because once in a while a resolution sticks and we succeed in making real change. Here are some financial resolutions for 2009 you're welcome to adopt:

1. Procrastinate in a productive way. We're all great at procrastinating-- I do it constantly when it comes to tedious work, household chores, doctor's appointments and other less than exciting activities. Try taking that natural ability to procrastinate and using it to postpone and maybe avoid unproductive habits, like impulsive spending. Put off buying those great new shoes for a few day; wait another month to shop for a new rug. It's likely you'll forget about the items that seemed so essential and move on. This sometimes works for binge eating too (admittedly not a financial issue). Wait an hour to eat the cookie that is calling your name (I hear one now). The craving may pass and you'll be glad you waited.


2. Save and invest regardless of market conditions. This is important for a couple of reasons. First, saving and investing consistently is by far the best way to build wealth over your lifetime. Stopping because of market conditions (or because you have increased your spending) puts you at risk of dropping a good habit. Moreover, investing when the market is beaten up, as it is now, is like buying everything on sale. Many advisors and economists think that we are in for higher than average growth in the markets over the next few years as a result of the dramatic declines that occurred in 2008. There's no guarantee this will happen, but it's a good bet that this is a bad time to stay completely out of the equity markets.


3. Start a family conversation about money issues. This might be with your parents, your children, your siblings or your spouse. Money is one of the last taboos -- most people would rather talk about their sex lives than discuss money with their family. Do you know if your parents have adequate resources to support themselves through their lifetimes? Have they prepared wills, durable powers of attorney and any other appropriate estate planning documents? If you explaing why, even young children can understand that saving for the future is an important family value and we can't buy everything we want just because we want it. It's much easier to learn and keep good habits when you are young than it is to change bad habits as an adult. Are you and your spouse on the same page when it comes to spending, saving and charitable giving? Opening the lines of communication with your family about financial matters a good way to avoid hurt feelings and potentially unwelcome surprises down the line.


4. Have your estate planning documents reviewed. If your documents are more than five years old or you have had significant changes in your life or family structure (e.g. birth or death of an immediate family member, divorce, all children now over 21) it's likely you'll need to update your estate plan. There have been changes in estate planning laws in many states that make it important to update the language in any wills or trusts as well. And if you don't have, at a minimum, a will, a general, durable power-of-attorney, and a medical power-of-attorney you need to see an attorney who specializes in estate planning to draft and execute these basic documents. Estate planning documents that are clear and properly drafted are especially important for unmarried partners who are not protected by most states' laws.


5. Diversify, diversify, diversify! Yes, every asset class was hit this year, but some more than others. No one can consistently predict the future (even the smartest guys in the room) and successful investing is more often than not the result of diversifying as broadly as possible and keeping your emotions out of your investments. Falling in love with a stock or a piece of property (we saw a lot of this in recent years with real estate investments) will almost inevitably break your heart and your bank.

Here's to a better year. Cheers!

Annette Simon

Copyright 2009 Garnet Group LLC

A Lesson Learned from Madoff

“Those with the biggest financial gains generally had their money managed by Madoff. It was an honor having him handle your fortune. He didn’t take just anybody. He turned down all kinds of people, and that made you want to give the man even more of your money. When he took your fortune, he told you that he would tell you nothing about how he achieved his returns.”-Laurence Leamer, a Palm Beach based journalist, writing in the New York Post, December 13.

Reading this reminded me of past meetings with clients -- during which a client has told us she or he wonders if we should be putting some money into a can't miss investment recommended by a brother, a friend, a son.... It's a hedge fund managed by a brilliant guy with a Midas touch, or stock in a new company started by a genius who has never failed to turn pennies into millions. It's a special version of the American Dream -- that we will invest in the next McDonalds, the next Microsoft, the next Google. It's sexy and exciting and so hard to resist.

But the truth is, picking the next megasuccess is the longest of long shots. Are there indicators that help us identify companies that will be wildly profitable? None that are a sure thing. It's like an ugly twist on the old fairy tale -- where the princess kisses a frog and he turns into her prince. In investing (and often in dating I'm told) you're likely to kiss hundreds, even thousands of frogs before you ever find a prince. Chasing after can't-miss investments is a terrific way to fritter away your money leaving yourself with little to show for it in the end.

Bernie Madoff's investors believed he was different because he didn't promise extraordinary returns. His promise was guaranteed returns of 8-9% each year. The victims convinced themselves that they were not being greedy, just seeking safe, steady returns. But anyone who has been investing in the past 10 or more years knows that there is no way to achieve a guaranteed return that high year after year. Madoff pulled it off while the market was strong, but as soon as returns dropped off he was forced to borrow from Peter to pay Paul. When the bottom dropped out of the market last fall his entire house of cards came crashing down. The cost of Madoff's crimes is truly terrible. We can measure the dollars, but we can't put a number on the loss of trust he has triggered in millions of people around the world who were not his clients but believed something like this could not happen in the American financial system.

Successful investing, like success in other areas of life is the result of keeping at it, putting money away year after year, spreading your risk as broadly as possible by using diversified, publicly traded mutual funds that hold liquid publicly traded securities. Fortunes are not built overnight and you cannot expect to get something for nothing. This is just common sense, but too often we convince ourselves that our own case is special, or a particular opportunity is a once-in-a-lifetime chance, too good to pass up.

If any good can come from this, I hope it is that people learn, once and for all, that when something sounds too good to be true, it almost certainly is not true. It's time we stopped believing in fairy tales.

Annette Simon

Copyright 2009 Garnet Group LLC

Vote for What??

(Note: Voting on this issue on Change.org ended on 12/31/2008. It did not make it past the first round.)

Does your financial advisor put your interests first? It seems like a simple question with an obvious answer. Who would work with an advisor who did NOT put the clients' interests first at all times?

If you are working with an advisor who is a representative of a brokerage firm or bank, that's what you are doing. By definition, the primary obligation of a registered representative is to the broker-dealer he/she works for, not the clients. Moreover, when recommending products, a registered representative is only required to consider whether the product is "suitable", not whether the actions he or she is recommending are in the best interest of the client.

It sounds like so much legalize, but this is the difference between a fiduciary standard and the lesser standards most people who call themselves financial advisors are held to. This softer standard contributed tremendously to the chain of irresponsible actions that came together to create the sub-prime crisis and the near collapse of our economy.

Now, the Obama administration is asking for Americans to get involved and to vote for new ideas that can help change the course of our country in the future by visiting their website, change.org. Because there are hundreds of ideas already posted on change.org, we've made it easy for you to get started. You can vote for a fiduciary standard for all financial advisors by clicking on the link in our sidebar. This will take you to the change.org site where you can also look for other ideas and causes you may want to support.

This is an opportunity to speak up and say that you want a financial industry that puts consumers first. With enough votes we might make a difference. If we don't speak up the future will almost certainly be more of the same.

Until the law requires all advisors to put their clients first, you can find financial advisors who annually sign a fiduciary oath by visiting NAPFA - the National Association of Personal Financial Advisors. You can also learn more about fiduciary standards at Focus on Fiduciary. Learn what questions to ask and how to find an advisor who is truly on your side. You deserve nothing less!

Annette Simon

Copyright 2009 Garnet Group LLC

What's an Investor to Do?

Here's a press release from our professional association, NAPFA, that provides excellent guidance for investors worried about the safety of their portfolios:

http://www.napfa.org/userfiles/file/Madoff%20Opinion%20Release%20-%20121608.pdf

It's Harvest Time

The market this year has been absolutely punishing – there’s just no way around it. But there is a thin silver lining on the cloud if you have losses in your taxable investment accounts. This is a great opportunity to harvest tax losses you can use to reduce your income taxes, perhaps for years to come.

Harvesting losses refers to a two-step process:

1. Sell securities you now hold that are in a loss position (you will need to know your original cost basis to determine whether your securities are in loss territory).

2. Immediately purchase another under-valued security. We use low-cost, diversified mutual funds. By doing this, you capture the loss, which has great value for tax purposes, but you are NOT losing anything because you’re holding a basket of securities that will rise when the market recovers.

Most people have an immediate gut reaction to this idea – “I don’t want to take a loss! I’m going to wait for it to come back.” Some people grow attached to the securities they have picked. Others feel it would be wrong to sell stocks they inherited from their parents or grandparents.

Let it go!

One of the first rules of good investing is to approach it rationally, not emotionally. Securities are financial vehicles, not keepsakes or expressions of your personal style. When your portfolio is too concentrated – for example, you are holding more than 5% of a single stock or most of your investments are in a single industry or country – you are assuming excessive risk and probably receiving no extra compensation (in the form of higher returns) for doing so. By waiting for the market to recover, you will limit or lose the opportunity to harvest losses and miss the chance to diversify your portfolio and reduce your taxes for years to come. There is really no rationale for doing this.

Harvesting losses is a smart tax strategy, not an admission of defeat. Avoiding it makes no sense at all – it is passing up an opportunity to reduce the risk in your portfolio and your future taxes, an opportunity that costs you almost nothing at all (there may be incidental trading costs).

Annette Simon

Copyright 2009 Garnet Group LLC

Welcome to Our Blog!!

Welcome to our blog! Veena and I hope to provide valuable financial information for women of all ages in this space. We’ll talk about what’s happening in the world and the markets as well as the financial challenges in our own lives that might be affecting many of you as well. We want to hear from you as well so please share your questions and comments.

Annette