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Financial Life Planning & Investment Strategies
Published Biannually • Summer, 2010
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2010 Markets
Investors have backed away from irrational exuberance. The current mood on Wall Street is more cautious. Euro-zone nations are crippled by debt, U.S. housing is not recovering steadily, the still unexplained "flash crash" occurred on May 6th and the S&P is down 7% from the April 23rd peak.
If you just read this, you are probably ready to pack your investing bags and go home to cash and the mattress. We urge you instead to think about what you can do to be prudent, since you have no control over market trends.
SAVE. The generation that lived through the Great Depression survived because they learned how to be thrifty. We can emulate them, spending less in order to save more for retirement and emergencies.
INVEST. If you do not need the money tomorrow, you have time to make thoughtful, diversified investments and reap the rewards later. Seth Klarman of Baupost Group is a dedicated value investor. He counsels us to buy "whatever is out of favor, loathed and despised." Consider that advice and couple it with less volatile investments so you can relax about the overall investment performance in all markets.
MAINTAIN YOUR PERSPECTIVE. Bull and bear cycles are inevitable events in our investing lives. As long as you review your asset allocation with us at least annually, so we can assess your risk tolerance and existing goals, you do not need to obsess about current market events.
We hope you all enjoy the summer weather and find time for your favorite pastimes. When the markets and news get you down, remember this folksy piece of wisdom:
"We believe investing is like flying in an airplane. Occasionally, we will encounter some air turbulence, but that does not prevent us from reaching our final destination. In times of turbulence, we merely tighten our seat belts and wait for smoother flying." –Chris Browne, Tweedy Browne
We suggest our clients complete a home inventory. The purposes are twofold: to substantiate claims for both your insurance company and the IRS and to be sure you have enough insurance on your possessions.
- We suggest walking through your home with a video camera. Open
drawers and closets and narrate as you walk.
- You can also create a list, save receipts and keep photos.
- There are free software programs from the insurance industry available at knowyourstuff.org.
- You can even hire a professional to complete the inventory at www.napo.net.
ONCE COMPLETED BE SURE TO UPDATE AS NEEDED AND STORE YOUR INVENTORY IN A SAFE PLACE!!
Paying for College Has Become a Challenge
The Bad News – Skyrocketing Fees
If you have a child or grandchild attending college, you already know about the high fees. University of California campuses are raising tuition 32%. Many private universities cost significantly more than $50,000 per year. Experts predict that fees will continue to rise as federal stimulus funds begin to dry up in 2011.
Strategies to Maximize Aid
Even if you have significant assets, you may qualify for aid, especially if your income has suffered in the recession. Ask the college for a professional judgment review or write a letter to the financial aid office explaining your circumstances.
- Avoid generating income in the year before your child starts college. Try to avoid large capital gains, deferrable bonuses or retirement distributions that might boost your income. Maximize retirement contributions to reduce your income.
- Use 529 plans to save for college or save in your own name. These assets are assessed under lower formulas than those owned by the student. Avoid custodial accounts.
- Accelerate expenses, like buying a car, to the year before your child starts college or while in college.
The Good News – College Rewards Those Who Graduate
A college education broadens one's learning and life experiences, improves one's ability to express thoughts and opens up a new understanding of the world. However, college also brings genuine monetary rewards over a lifetime. A recent US Census Bureau study revealed that over a lifetime, high school graduates earn $1.2 million while college graduates earn $2.1 million. Even more striking are the advanced degrees. Those with a master's degree earn $2.5 million, with a doctoral degree $3.4 million and a professional degree, $4.4 million.
Mission Statement
At Wiiken & Gorman we pledge to use our expertise to help clients imagine a better financial future and develop a plan to experience more financial security and happiness in their lives.
Financial Tips
Do You Serve on a Board of Directors?
If you serve as a director, trustee or officer of a nonprofit organization, we offer kudos for taking the time to give to others. However, you should be aware that you are subject to personal liability lawsuits for failing to properly perform your duties. Many lawsuits today involve improper employment practices such as wrongful termination, breach of contract or sexual harassment. Donors to the organization may allege their contributions are being wasted or not invested according to the organization's purposes. The list of possible suits is long and includes mismanagement and slander.
Please check with your nonprofit about Directors and Officers (D&O) Liability Insurance. If you are serving, the nonprofit can obtain this coverage to protect your assets.
The Cost of Nursing Home Care Is Still Rising
There are several recent surveys about the current cost of nursing care. The numbers remind us that long-term care is an issue that cannot be ignored in planning for our old age.
A Genworth survey lists $239 as the median cost per day for a private room in California. A Met Life survey shows $432 for the average private room in San Francisco, but a similar overall average cost for the state ($236). Alaska appears to have the most expensive care on average, $584 per day!!!
Genworth has published a map that compares median costs across the country. In case you are interested, click HERE.
Fund News
T. Rowe Price recently closed two of its funds to new investors. The chair of mutual funds stated that strong cash inflows could make it difficult to manage the assets responsibly. The two closed funds are T. Rowe Price Mid-Cap Growth and Mid-Cap Value. Both of these funds had been closed in the past and later re-opened. If you have these funds, you may continue to buy more. New investors will have to wait for the funds to open again.
Management
Wiiken & Gorman manages money in pension plans, IRAs, personal accounts, and trusts. We charge a retainer fee for portfolio development, monitoring and reporting. We also help with financial life planning issues that arise. Please call us if you would like to work with us in this capacity. The minimum managed portfolio size is $500,000 and we welcome your business and referrals.
ADV and Code of Ethics
When you became a client of Wiiken & Gorman you signed a contract and received a document known as the ADV form. The ADV is the form that we file regularly with the SEC. We revise this document annually, whenever there is a material change in our business and continue to give it out to all new clients.
If you are interested in seeing the current Wiiken & Gorman ADV, updated in 2009, ask for it the next time you are in for a review or send us a SASE and we will return the most recent version to you by mail. We also have our Code of Ethics available for review.
About Your Planners
Paula and Mike attended the Norcal Financial Planning Association conference in June. The keynote speakers were excellent and included Dan Ariely, the behavioral finance professor from Duke University. We both agreed that the the talks were informative and energizing.
Mike will be hiking from the South Rim to the North Rim of the Grand Canyon in October with friends and family.
Paula and Howard are rafting down the Rogue River in August, hiking and boating at Crater Lake and exploring Portland for several days. Then they go to Santa Barbara to take their youngest to his freshman year at UC Santa Barbara.
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Growing a Strong Financial Future
Copyright 2004-2010 Wiiken & Gorman
Updated 14 July 2010
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