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Determining the Value of Financial Advice

Have you ever speculated about how much better off your portfolio would be under the careful stewardship of a financial advisor? It’s difficult to quantify, but a recent study by the world’s largest mutual fund company attempted to put a numerical value on expert financial advice. What they found is that you can potentially add up to 3% in net returns over time when working with an advisor that adheres closely to best practices.

Financial Planning for Physicians

 

While there are many different philosophies and schools of thought when it comes to portfolio management, certain methods are universally recognized as the foundation of a sound investment strategy. For example, diversification is an effective way of spreading your risk across a wide range of asset classes such as local and global bonds, domestic and developed market equities and emerging markets. However, these standard practices can only take a portfolio so far. Strategic investors differentiate themselves by following these seven wealth management principals:

  • Maintaining a long-term, disciplined approach: Investing is a marathon, not a sprint. Advisors can help their clients see the big picture by essentially coaching them to evaluate their portfolio in a long-term context instead of seeking instant gratification. Investing is an inherently emotional experience, so advisors have to maintain a disciplined approach that avoids the temptation of chasing returns.
  • Applying an Asset Location Strategy: The coordination of assets between taxable and tax-advantaged accounts can add value to your portfolio every year that builds up quickly. A properly structured portfolio will hold broad-market equity investments in taxable accounts while holding taxable bonds within tax-advantaged accounts. Doing this generates higher and more certain returns by spreading the yield between taxable and municipal bonds.
  • Asset Allocation: Most firms request that their clients fill out an investment policy statement that outlines the financial objectives of the portfolio. Having this blueprint in place provides a solid foundation for the advisor/client relationship. Not only does it allow them to adopt an investment philosophy and embrace it with confidence, but it also makes enduring the inevitable ups and downs of the market a little more tolerable.
  • Employing Cost-Effective Investments: Advisors constantly seek ways to control costs so they can efficiently deliver higher-than-expected returns. Every dollar spent on management fees, trading costs and taxes is a dollar less for your potential net return. By paying less you are essentially keeping more, regardless of how the market is performing in general.
  • Maintaining Proper Allocation Through Rebalancing: Risk tolerance is different for every investor. It’s up to the advisor to reconcile the risk/return characteristics of a portfolio with the client’s appetite for taking risks. The objective of a properly implemented rebalancing strategy is to minimize risk, rather than maximizing return.
  • Implementing a Spending Strategy: When the time comes to divest your portfolio, it’s important to consider this income in the context of your estate so that tax liabilities are minimized. The acceleration of income taxes and the resulting loss of tax-deferred growth can negatively affect a portfolio. An informed withdrawal order strategy will minimize the total taxes paid when a client reaches retirement which ultimately increases the wealth and longevity of their portfolio.
  • Investing Income Vs. Total Returns: Ideally, an investor could live off the returns generated from their holdings, but that often sacrifices the tax efficiency of the portfolio in the process. Ultimately, this increases the portfolio’s risk by becoming too concentrated in certain sectors which could potentially reduce the lifespan of the portfolio. For retirees to avoid the risk of falling short of their long-term financial goals, experts advocate an approach that considers both income and capital appreciation.

 

Active fund managers haven’t been able to consistently outperform benchmarks despite having a wealth of experience and resources at their disposal. The value of every advisor varies based on each client’s unique circumstances and the way the assets are actually managed. Ideally, you want a responsive advisor that you can trust with your financial future.

Transparency is critical, but you also want to make sure that you’re receiving truly independent advice. This means avoiding the recommendations of someone who is receiving a financial incentive from the provider of the product they are promoting. You don’t want to contract with advisors that are sales representatives for a particular company. The ideal advisor is independent and committed to a fiduciary relationship with their clients.

A fiduciary relationship is defined as “one founded on trust or confidence reposed by one person in the integrity and fidelity of another.” Although this standard is not required by law, an advisor pledging to make recommendations solely with the client’s best interests in mind will be able to manage your portfolio as objectively as possible. This standard of conduct includes controlling excess costs such as transaction fees, taxes and efficiency in implementation.

Markets are uncertain and cyclical, but a disciplined approach to investing will yield better results over the long run. An advisor that will work tirelessly on your behalf day-in and day-out to provide the highest level of service possible will allow you to have peace of mind and confidence that the foundation for a secure financial future is in place.

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The projections or other information included in the linked report prepared by Vanguard regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Although we believe the information contained in the linked report to be accurate, we can’t guarantee its accuracy.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.

4 Key Steps for Planning Your Digital Estate

When a close family member of mine passed away back in the spring, no one was surprised that this meticulous planner had left his financial affairs in good shape. The family’s longtime financial advisor coached his wife about how to open an inherited IRA to stretch out the tax-saving benefits of the vehicle, and the family attorney got to work on tying up all of the other loose ends, both financial and legal.

But not every aspect of his estate has been attended to, almost six months later. His LinkedIn profile is still up, as is his old Facebook page. In the scheme of things, the fact that those accounts are still live may not seem like a big deal. But that may not have been what he had wanted, either. Because he never specified his wishes for those accounts, his family doesn’t really know.

Financial Advice for Doctors

My relative’s situation illustrates that even people who think they’ve ticked off all the usual boxes on their estate-planning to-do lists may have overlooked an increasingly important component of the process: ensuring the proper management and orderly transfer of their digital assets after they die or become disabled. Just as traditional estate planning relates to the management and transfer of financial accounts and hard assets, digital estate planning encompasses your digital possessions, including the tangible digital devices (computers and smartphones), stored data (either on your devices or in the cloud), and online user accounts such as Facebook and LinkedIn.

The basic idea is to knit these digital assets in with the rest of your estate plan. “We need to do the next step in planning,” says James Lamm, an attorney who coaches other attorneys on the importance and specifics of digital estate planning. “Who should get the data? And more importantly, are there things we don’t want others to have?”

‘The new reality’

As we’re all spending more and more time pecking at our phone screens and transacting online, digital assets are taking up an increasingly important role in all of our lives. “The new reality is that our lives are largely digital, and the artifacts of our digital lives have value, from both sentimental and financial standpoints,” notes Evan Carroll, cofounder of TheDigitalBeyond.com and coauthor of Your Digital Afterlife, a book about digital estate planning.

At first blush, making plans to allow your loved ones to gain access to your digital property may not seem like a pressing concern—certainly not on par with issues like who should inherit your financial accounts or look after your minor children. Lamm concedes that many digital assets have little or no financial value. But he also notes that “there can be significant value if you know what to look for.”

An obvious example of a valuable digital asset would be a manuscript on the PC of a best-selling author. But domain names and advertising from webpages and blogs may also have financial value. Downloaded assets such as digital music and book libraries may be worth something too.

And even if they don’t have monetary value, digital assets may have sentimental worth. If you don’t specifically outline what should happen to such assets when you craft the rest of your estate plan, Carroll notes, “The implications could be that your wishes are unknown to your heirs and they won’t have access to precious family mementos or important documents.”

Logistical hurdles abound

Digital estate planning is, in many respects, more complicated than traditional estate planning. Whereas finding and managing financial and hard assets after a loved one has died or become incapacitated isn’t always straightforward, identifying and gaining access to the digital assets of a loved one is apt to be an even more cumbersome process.

Lamm says that unless the owner of those assets has left specific guidance about the existence and whereabouts of the digital assets, the deceased or disabled individual’s fiduciaries may not even be aware of their existence. Additionally, those digital assets may not only be password-protected or encrypted, but they may also be covered by data-privacy laws or criminal laws regarding unauthorized access to computer systems and private data. Fiduciaries may be able to unearth passwords and gain access to their loved ones’ online accounts, but they may not be doing so legally.

The field of digital estate planning is also evolving rapidly, as are digital providers’ policies on what should happen to digital assets that are left behind. For example, Google has created an Inactive Account Manager, which allows you to name a trusted person who can gain access to your data once your accounts have been inactive for a certain period of time. Facebook, meanwhile, does not currently allow others to gain access to data stored on the social media firm’s site. Digital assets are also governed by a complex web of rapidly evolving laws, both at the state and federal levels.

The fact that state and federal laws and digital providers’ rules are so piecemeal, notes Carroll, should serve as an impetus for individuals to “take a few minutes and get their plans in order.” Here are several key steps to take.

1. Conduct a digital “fire drill”

Lamm thinks a good first step in the digital estate-planning process is to conduct a digital fire drill, which tends to jog clients’ memories about what digital assets they deem important. He urges his clients to consider the following questions:

  • What valuable items would you lose if your computer were lost or stolen today?
  • If you were in an accident, would your loved ones be able to gain access to your valuable or significant digital information while you were incapacitated?
  • If you were to die today, to what valuable or significant digital property would you like your loved ones to have access?

2. Take an inventory of your assets

The next must-do is to create an inventory of the digital assets you named during the fire drill. Document the item/account name as well as user names and passwords associated with that item.

Among the items to document in your digital inventory are:

  • Digital devices such as computers and smartphones
  • Data-storage devices or media
  • Electronically stored data, including online financial records, whether stored in the cloud or on your device
  • User accounts (Facebook and LinkedIn accounts, for example)
  • Domain names
  • Intellectual property in electronic format (a book you’re working on, for example)

As with the “master directory” I’ve discussed in the past, this document is chock-full of sensitive information, so keeping it safe is crucial. A printed document will tend to be the most vulnerable, unless you store it in a safe or safe deposit box. A password-protected electronic list of your digital assets and instructions on how to gain access to them is a step in the right direction, but it, too, will need to be updated on a regular basis as passwords change.

Lamm is a fan of software programs such as LastPass and Dashlane, which securely store your online account information and passwords on your computer and smartphone. Web-based services such as LegacyLocker and AssetLock aim to take the extra step of making this information available to your fiduciaries, after a verification procedure.

Lamm recommends a hybrid approach for most individuals. Maintain an electronic list of digital property and passwords, protected with strong encryption and a strong password and backed up in the cloud (as opposed to on your computer and smartphone alone). From there, he advises creating a master password for the electronic list, storing the password in a safe deposit box or home safe, and providing fiduciaries and family members with instructions about how to gain access to it.

3. Back it up

We’ve all been schooled on the importance of regularly backing up digital assets, and Lamm points out that estate-planning considerations make it doubly important to do so. Even if a specific device malfunctions, storing digital assets on another storage device or in the cloud helps ensure the longevity of those assets. Moreover, online account service providers may voluntarily disclose the contents of electronic communications, but they’re not compelled to do so. If you want to help ensure that your loved ones have access to the information in your online accounts, backing it up on your own device is a best practice.

4. Put your plan in writing

Experts also recommend formalizing your digital estate plan. That means naming a digital executor—someone who can ensure that your digital assets are managed or disposed of in accordance with your wishes after you’re gone.

If your primary executor is savvy with technology, there’s probably no need to name a separate digital executor. But if not, or if you have particularly valuable or special digital property, such as intellectual property, Lamm advises a separate fiduciary/executor for digital assets.

Depending on the type of property, the fiduciary may also need special powers and authorizations to deal with specific assets. “Because of the complexities of criminal laws and data-privacy laws,” Lamm says, “you need the right kinds of authorizations in place.”

He also advises individuals to mention specific digital assets in their wills. “If you don’t want to pass it on, that’s fine. But if I had something valuable I wanted to pass on, I’d put it in my will.”

Copyright © 2013 by Horsesmouth, LLC. All Rights Reserved

Have Questions?

Understanding the Different Ways to Title Property

There’s satisfaction to be had in owning something valuable. In many ways, the property we possess serves as a testament to the sweat equity we apply to our daily lives. Property consists of rights and interests a person holds in anything of value that is capable of being owned. Real property (real estate) is land and everything permanently attached to it such as buildings, fences, pavement, storm drains and tress. Personal property covers all other assets, even the intangible ones.

Asset Protection for Physicians

Ownership is a surprisingly nebulous term. There are several different types of ownership, each with a unique set of features. Understanding the characteristics of each type of ownership is crucial for formulating a proper estate plan.

Types of Ownership

  • As the sole owner of a property, you can sell, mortgage or gift the property at your own discretion and are entitled to all of the income. You can also designate an heir in your will who will inherit the property if anything were to happen to you. The only exception would be a life estate, where a person’s interests cease when the owner dies.
  • Joint Tenancy with Right of Survivorship (JTWROS): This is common form of joint ownership between spouses, although non-married owners can also qualify. In this scenario if one of the owners dies, the property is automatically transferred to the surviving owner by operation of law.
  • Tenancy in Common: A form of ownership between two or more persons in which each owns part interest in the whole property. The proportion of ownership can be of any combination but it must be officially stated. Any income generated from the property is split based on these fractional shares. Each party can legally sell their share without the other party’s approval or consent. Unlike JTWROS, rights do not pass from one owner to the other(s) at death.
  • Tenancy by the Entirety: This form of ownership is similar to JTWROS in terms of survivorship but provides far more asset protection. However, it may only exist between married spouses. This permits spouses to own property as a single legal entity by giving each spouse an equal and undivided interest in the property. Consent from the other spouse is always required before making the decision to sell or rent the property. It’s important to note that Tenancy by the Entirety is not recognized in all states.
  • Community Property: Another form of ownership that can only be held between spouses. It generally does not include property acquired prior to marriage or to property acquired by gift or inheritance during the marriage. These laws generally presume that all property owned by a married couple while residing in that state is community property regardless of titling. However, it’s possible to have a written agreement to the contrary. Currently, only 10 states (Arizona, California, Nevada, New Mexico, Idaho, Texas, Washington, Louisiana, Wisconsin, and Alaska) recognize some form of community property laws, which should be considered if you plan on relocating to another state.

When planning your estate, it’s important to be informed about the laws controlling transfers at death. You can make things a lot less complicated for your grieving loved ones by seeing that your assets are automatically transferred to their respective beneficiaries without having to go through a probate court. An effective estate plan will ease the burden during this stressful time by eliminating the guesswork when honoring last requests. Having property correctly titled and keeping beneficiary designations up to date will do just that.

Have Questions?

References:

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal advice or services. Please consult the appropriate professional regarding your legal needs.

5 Ways to Keep Your Car Insurance Bill from Being a Disaster

Auto insurance is a familiar if vexing financial burden for American drivers.

Across the country, annual prices range from $934 in Maine to $2,699 in Louisiana, but one thing auto insurance shoppers have in common is that they can get a price break on their insurance bill.

Financial Advice for Doctors

If, that is, they follow these tips:

  • Be patient—and look around: Don’t pull the trigger on the first deal you get. Auto insurance websites such as FastQuotesDirect.com allow you to check multiple auto insurance quotes at one time. In addition, you can vet individual companies via your state’s insurance department website. Visit USA.gov for a direct link to your state’s insurance commission.
  • Get a group discount: You can get a good deal on car insurance in some offbeat places. Big-box retailers such as Costco offer discounts of 10% or so simply by signing up as a member (through Progressive Insurance, in that case). Or look into an affiliation discount through groups such as AARP, which can offer even deeper discounts for members.
  • Check your mileage: Mileage figures aren’t static. More Americans are working at home or have switched jobs that may lead to a shorter commute from work. In many states, that matters a great deal when it comes to car insurance rates. Check your current insurance policy—look for the number on the policy’s declarations page—and see if your average mileage has been reduced in recent months. If so, let your insurer know right away. It could save you a bundle, as auto insurers base their policy fees on how much you drive.
  • Get vocal about your vehicle’s safety features: Does your car or truck have antilock breaks, vehicle theft protection, and front and side airbags? Insurance companies love these features and will likely offer you a price break for having them. Chances are your insurance agent or your carrier will ask you about such features, but if they don’t, make sure to bring them up—and ask for a discount.
  • Consolidate your insurance: You can’t swing an engine block without seeing media ads for “multi-policy” discounts on auto insurance. Don’t be reluctant to get on board with consolidated insurance—you can save big bucks. Nationwide Insurance, for example, offers discounts of up to 25% for a combined auto, life, and home insurance package. Most insurers offer similar discounts.

Also, always mention your safe driving record when dealing with an auto insurance agent or company. That may lead to your best deal on vehicle insurance.

Have Questions?

Copyright © 2013 by Horsesmouth, LLC. All Rights Reserved

How to Keep Inflation from Killing Your Retirement

The best protection against inflation is a sound financial plan

When financial experts talk about retirement challenges, it’s usually savings, debt and taxes at the top of the conversation.

That’s as it should be, as each issue can have a significant impact on your ability to meet and surpass your retirement goals.

Medical School Debt

But there’s another lurking issue that can threaten a decent retirement: inflation. And retirement savers need to recognize it as the threat that it is, and craft a strategy to deal with it, one financial adviser says.

“Inflation is commonly referred to as the ‘silent retirement killer,'” says Joshua Kadish, a financial planner with RPG-Life Transition Specialists. “Everything from grocery bills to utilities to real estate is subject to inflation, and unless your retirement savings will take this adjustment into account, it could pose a threat to your retirement plans.”

If inflation is that big a threat, why do so many retirement savers downplay the issue?

The simple answer is there is a lack of education in the investing population, Kadish explains

“People are busy being sold products by the financial services industry, and there is not enough push to focus on the fact that a financial plan is much more valuable and important to future success than a particular investment,” he says. “Most people don’t understand things in percentages. They don’t realize that if long-term inflation has been about 4% that means that if you think you need $100,000 to live your life today, you better plan on spending $148,000 to buy the same basket of goods in 10 years and $219,000 in 20 years just to keep up with inflation.”

At a historic rate of 4% inflation, what costs $1 today will cost $1.48 in a decade, Kadish says. In 30 years it will cost $3.48. “This means that the money you’ve saved for retirement today will have to work even harder to buy the same basket of goods during your retirement that could last upwards of 30 years,” he says. “Unfortunately, we also know that the future levels of inflation may be higher, especially for health care, which we’ll need in our later years.”

Another part of the problem is that some investors take a “whistling past the graveyard” mindset with inflation.

“People may be hesitant to pay to have a plan done because they are afraid of the potential news or outcome,” Kadish says. “It’s similar to the number of people who don’t go to the doctor for regular checkups because they feel good now and don’t want any bad news like they may need to exercise, adjust their eating habits and lose 20 pounds to avoid diabetes or heart issues.”

Your key takeaway as a retirement investor? Kadish says to confront inflation head on.

“My advice is this,” he says. “Stop listening to all of the general guidelines out there when it comes to saving and investing and get your own plan. Get that full financial physical, become educated as to what your financial ailment and prognosis might be and then get a prescription to fix it.”

Have Questions?

Copyright © 2014 by Horsesmouth, LLC. All Rights Reserved