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Your 2011 Resolutions
South Park Magazine
January, 2011

During these volatile economic times, it’s never been more important to protect your money and take advantage of smart investment opportunities.  And to truly make your money work for you, strategic financial planning is imperative.

To help you navigate the choppy financial landscape, SouthPark Magazine consulted several wealth management experts who tailored their advice to three stages of life:  single young professionals, families with kids, and baby boomers who are retired or heading that way.

YOUNG SINGLE PROFESSIONALS

At this stage of life, building a career is usually the top priority – but the experts warn that starting to save should be just as important.

In addition to maximizing any 401(k) options, Karen Keatley, president of Keatley Wealth Management, LLC advises young professionals to set aside as much in savings as possible.  “It’s a good time to do it before they have the obligations of children and education expenses.”

Because time is on their side, Keatley said people in their 20’s and 30’s can afford to be less conservative with their asset allocation.   Equity investments, in which profits are realized through dividend payments and capital gains, outperform bonds when looking long-term, she says.

Keatley also recommends that young professionals invest in low-cost, no-load mutual funds in which there is no sales charge or commission.  To maximize earning potential, Keatley also suggests creating a diverse portfolio including international and emerging markets, as well as large- and small-capitalization funds, meaning a mix of both big and small companies.  The advantage to this strategy, Keatley says, is it allows you to continue to invest and save money even during a downturn.  “And the long-term impact of that is tremendous”.  She says.

FAMILIES WITH KIDS

While saving for education expenses is vital, Keatley warns her clients not to neglect retirement savings.  “This can be dangerous because when a kid finishes college, he has a whole lifetime to pay that off.  But when you’re retired and finished with your working life, that’s it”.

RETIREES AND BABY BOOMERS

Since most baby boomers and retirees rely on their portfolios for their living expenses, Keatley recommends they maintain three to five years of living expenses in safe, liquid assets, such a short-term bond funds or money market funds – “as long as that part of the portfolio is completely immune from fluctuations.”

“You never want to be in a situation where you’re forced to sell stocks to meet living expenses at a disadvantageous time.”

Charlotte Business Journal
December 17, 2010

Karen Keatley, owner, Keatley Wealth Management: Small-business owners face unique challenges because in their focus on running their business, it can be easy to lose sight of the financial big picture. Will I achieve my desired retirement lifestyle? Will my family be protected if I die or become disabled? Am I getting the most out of my investments?

A talented adviser can work with a business owner to clarify financial and nonfinancial goals and establish a plan to meet them.

An adviser also can help evaluate small-business retirement-plan options and future exit strategies. Always work with fee-only advisers who do not sell products or receive commissions and are paid only by their clients.

Flee, or stay the financial course?
By Marcie Geffner, Bankrate.com, January 2009

If you're worried about the dramatic ups and downs in the U.S. stock market, you can still count on one thing for sure: You're not alone. Plenty of people have panicked and sold off their mutual funds, raided their bank accounts or taken other ill-considered steps they may well regret later on -- or at least that's the perspective of financial planners, who unanimously advise against hasty decisions and instead advocate calm.

"You can't make good decisions when you are emotional. You have to calm down," says Frank Boucher, principal of Boucher Financial Planning Services in Reston, Va. "Sit back, take a deep breath, relax and when you are ready to deal with it without emotion, you are ready."

There's no doubt that the stock market has been volatile. In fact, October was one of the wildest months on record: The Standard & Poor's 500 stock index, to take just one measure, suffered its largest one-month decline since the "Black Tuesday" stock market crash of 1987, but also posted its biggest one-week gain in the last 34 years.

Such extreme volatility naturally engenders a perception of greater uncertainty. But uncertainty itself isn't a new phenomenon; rather, it's a constant presence, albeit to a greater or lesser degree, in free market economies, observes Karen Keatley, owner of Keatley Wealth Management in Charlotte, N.C.

"We've always been dealing with uncertainty. It's just that now we are all aware of it," she says.

It's important to remember, Keatley adds, that the U.S. economy has suffered other extreme "bumps in the road" over the decades. Two examples are the bear market of 1973-74 and sky-high interest rates of 1981.

Time horizons dictate financial plans If you're worried about your investments, financial planners say, you should first have a financial plan.

John Belluardo, president of Stewardship Financial Services in Tarrytown, N.Y., suggests this approach: Divide your money into three pots based on how soon you plan to spend it. Money you're planning to spend in the next five years should be considered "short term," money you'll want in the next five-to-10 years should be designated "medium term" and money you won't need for more than 10 years can be denoted "long term." Short-term money shouldn't be invested in the stock market; medium-term money might be put into a conservative mixture of stocks and bonds and only long-term funds can be invested more aggressively.

People who are close to retirement do need to take extra care of their savings in a climate of heightened uncertainty. Near-retirees should continue to fund their retirement accounts, but also should "start to build up a bankroll of relatively safe investments," Boucher says.

Once you have a financial plan, your next step should be to periodically reassess your time horizons and tolerance for risk -- which is really just another word for uncertainty -- and then reallocate your pots of money accordingly. If your risk tolerance isn't high enough to achieve your goals within your desired time frame, you might need to lower your expectations, rather than accept the possibility of larger losses, Boucher suggests.

"Uncertainty, and perhaps our diminished risk tolerance, will cause us to change our goals and maybe (realize that) those goals were riskier than they needed to be. Maybe we wanted to retire at 60, and now 65 looks better. Maybe we wanted to buy a retirement home in another state, and maybe now the house that we have looks pretty good. Those are the kinds of changes people are going to make," he says.
Deposit insurance protects savings If you're worried about the security of your bank accounts, you should read up on the rules that govern federal deposit insurance and diversify your accounts, so you don't have too much money in any one financial institution, suggests Robert Bartley, president of Bartley Financial Advisors in Bedford, N.H.

Bartley says the FDIC has negotiated deals for other banks to take over the deposits of banks that have failed within one day, but there have been situations historically when bank accounts were tied up for several days. If you're concerned that you might not be able to access your cash on demand, you might also be willing to pay higher bank fees or earn less interest income in exchange for the peace of mind of having your money in more than one institution.

Make 'don't panic' your mantra

If you're worried about your entire financial situation, planners offer several good suggestions.

Suggestions for worried investors

• Take a step back and relax before you make any financial decisions.
• Recognize that you can't control what's happening in the stock market.
• Focus on taking care of your own day-to-day activities.
• Turn off the television.

As Keatley summarizes: "If you have a reasonable amount of job security and cash for a rainy day, and if you are living within your means, then you have to turn off the television and not let that whip you into an emotional state."

A "barrage of negative financial news" is especially bound "to prey on" people who are stuck at home because they've lost their job or suffered an illness, Bartley warns. Those cases are all the more reason to turn off the set.

While it may be difficult to completely ignore the headlines, this "ostrich effect -- or whatever you want to call it -- is not a bad strategy," Belluardo also says: If you have a financial plan in place, your assets are properly allocated and you're comfortable with the amount of risk you've taken on to achieve your goals, a "very good coping mechanism is not to pay attention" to the day-to-day gyrations in the financial markets.

Marcie Geffner is a freelance real estate reporter in Los Angeles.

Angling For An Early Retirement

Kiplinger’s Personal Finance, August 2007

Scott Glassen loves fishing so much that his wife, Charlotte, jokes that his true calling is to own a bait shop.  But the couple are serious about leaving Somerset, NJ for someplace where the fish bite more and taxes bite less when Scott retires in 14 years from his job at the local electric utility. 

Scott, 41, saves much of his overtime pay, but those hours are unpredictable.  He and Charlotte, 40, will pay off their mortgage in 2021, when their daughters are 21 and 18.  By then, assuming regular contributions and 8% returns, the Glassen’s retirement accounts should total about $1 million.  Plus, Scott has a decent pension. 

That’s not too shabby, but is it enough to quit at 55?  That depends on inflation, health-insurance costs, college plans and other factors that can’t be known with certainty.  If, say, you withdrew $5,000 a months assuming 3% inflation, 8% returns and a 25% tax rate, you’d exhaust $1 million in 25 years.  So a 2021 retirement seems like a stretch. 

But the couple have an ace in the hole.  Since 2000, Charlotte’s relatives have given the family a bunch of shares in steel maker Nucor.  The stock’s been quite a catch, as it has climbed tenfold since late 2000.   The Glassen’s 7,300 shares are worth $500,000.  Even now, Nucor isn’t overpriced.  At $67, it trades at 12 times estimated 2007 earnings.  But Nucor’s prospects are beside the point.  Charlotte needs to diversify and trade potential future gains for safety. 

Financial Planner Ray Padron, of Brightworth, in Norcross GA, says that anyone with a concentrated portfolio must answer two questions.  First, what’s the real-life impact if its value plunges?  Second, how much time would you have to recover?  Moreover, if you sell, what about taxes?  And what would you do with the proceeds?

Prudent selling.  Scott and Charlotte can forget about early retirement if Nucor stumbles.  As Karen Keatley of Keatley Wealth Management, in Charlotte, NC, notes, “With a single stock you could lose 15% just like that on any bad news.”  In addition, the 15% tax rate on long-term capital gains may be higher in the future.  So Padron says, it’s better to sell sooner than later.

It’s okay to keep up to 10% of your investments in one stock.  The Glassen’s will have to calculate the taxable gain on the stock they sell based on the price at which their relatives bought it.  If they sell in stages, they should unload the shares with the highest basis first to minimize taxes. 

With the proceeds, Scott and Charlotte should invest in low-cost mutual funds with about 75% in stocks, says Keatley.  If the portfolio generates 8% returns without the stress of relying on one stock, Scott and Charlotte will hook a leisurely waterside retirement.

Starting Out In Hock

Money Magazine, February 2007

Like so many romances today, Kim and Brian O’Donnell’s story began with a visit to an online dating website.  Even though Kim lived 400 miles away and in another state, Brian e-mailed her after he noticed that her profile mentioned a love the outdoors.  Kim suggested they meet for some biking and night kayaking.  That was the summer of ’05.  Exactly one year after meeting, the 34-year-olds relocated to a new home in North Carolina and married shortly thereafter.  “It all happened really quickly,” says Kim.  “Suddenly, there’s all these things we hadn’t thought about, like investments and insurance.”  And a mortgage.  And a credit-card balance.  And all those persistent student loans.  

Where They Are Now
Brian, a pediatrician who went to medical school while in the Air Force, earns about $105,000 a year.  He expects his clinic to offer him a partnership in 2009, which will likely bump up his salary but require an outlay of about $130,000.  Kim, a former pricing analyst for a freight company, isn’t working right now and hopes to start a family soon.  The newlyweds’ debt has ballooned with their new $307,000 mortgage, along with $27,000 in car and student loans.  They also just added $3,000 in credit-card debt, which they admit will likely increase as they begin furnishing their new house. 

On the other side of the ledger, Kim has almost $60,000 in a jumble of five retirement accounts and an annuity.  She also owns a rental property in Fort Lauderdale valued at $250,000.  Brian has $95,000 in his Thrift Savings Plan, the government’s version of a 401(k), and another $36,600 in IRAs, most of it in high-fee mutual funds.  Financial Planner Karen Keatley of Charlotte, NC found that 36% of Brian’s income goes toward payments on their loans.  “This couple has too much debt and too little cash,” she says.

What They Should Do
Given the O’Donnells’ need for quick cash, Keatley thinks Kim should consider working for now.  Another fast way to get on track: sell Kim’s condo.  Although the property would likely appreciate over time, the couple’s need to free up cash is more pressing.  They’d walk away with about $100,000, enough for them to retire the auto, student-loan and credit-card debt, saving them $11,000 a year in debt payments.  It would also allow them to establish a much $35,000 emergency fund, make $8,000 in Roth IRA contributions this year and begin saving for Brian’s partnership. 

Next, Keatley recommends that the couple ditch their high-fee funds and consolidate their IRA plans with a single provider.  Two of Kim’s five accounts are 401(k)s from previous employers.  She should roll both into a traditional IRA, which would give her more investment choices and less paperwork to keep track of.  Kim also pays 1.5% in annual fees for an annuity she purchased in 1995 for $1,450, which is now worth just $1,600.  That’s a pathetic 10% gain over a decade.  Keatley notes that the broker who sold that annuity could easily have made more on commissions than Kim did on the investment.  Since Kim won’t owe a surrender charge if she sells, she should bail out now. 

Finally, noting their youth and willingness to take risks, Keatley suggests Brian and Kim keep 100% of their portfolio in stock funds and names three index choices:  Vanguard 500 Index, Vanguard Small-Cap Index and Vanguard Total International Stock Index.  The two should each max out Roth IRAs until Brian has enough tenure to start contributing to his 401(k).  At that point the couple should start saving 15% of their income each year for retirement (“at least,” says Keatley).  And furniture or no furniture, they should not take on any additional debt except to finance Brian’s stake in the partnership.  The O’Donnells agree.  “We took on a lot all at once and overleveraged ourselves,” says Brian.  “Now is time to start climbing out.”

Uncommon Sense

Climb out of your financial black hole

May 31, 2004

It's not the splurges that do you in -- it's the easy monthly payments. Here's how to determine if you're overcommitted, and what to do about it.

Editor's note: Columnist MP Dunleavey and six other women have come together online to strip away the myths surrounding money, lay bare their assets and liberate themselves from debt. Follow the quest for financial fabulousness of these "Women in Red" every second Monday in Dunleavey's column on MSN Money.

"Sex and the City" may have thrown more women into debt than any show in history, yet nobody I know went broke buying Manolo Blahniks.

The financial tipping point for most people occurs when they take on certain fixed expenses that not only do a number on their bottom line but send the rest of their financial life spinning out of control, too.

That’s what happened to Brice, 37, when her roommate moved out over a year ago and she decided that she would try to swing the rent for her Greenwich Village apartment on her own. Unfortunately, the rent was $2,370 a month. And last year Brice earned about $40,000. Which means that $28,440 of her income -- about 65% -- went toward rent alone.

That’s called being overcommitted.

Biting off more than you can pay for
You don't have to be young and single or live in a big, expensive city to suddenly find yourself sucked into financial quicksand. Here are some of the most common holes people fall into:

Unlike a vacation or a new dress, these are bills that keep on coming -- and are never paid off. Once they become part of your lifestyle, it can be hard to remember that you really can’t afford them.

Living too close to the edge
It took almost a year for Brice to realize she was seriously overcommitted because the problem was masked by big swings in her free-lance income. Up to $5,000 one month, down to zilch the next.

Being self-employed increases your risk of being overcommitted. The checks come in with a delicious whoosh! of sudden wealth -- and you feel like you can afford A WHOLE NEW LIFESTYLE! But ya can’t.

In reality, most people (free-lance or not) succumb to the temptation to spend every dime they have, and that sets the stage for nasty financial surprises to leap out of the dark and knock them silly.

Unwinding your big expenses
There are really only two ways to deal with being overcommitted, and neither one is easy. One is to earn more money. The other is to unwind those unaffordable commitments.

In a consultation with Karen Keatley, a financial planner with the fee-only Garrett Planning Network. Brice had to face the fact that her overhead was waaaaay over her head.

Keatley pointed out that if Brice gives up her pricey apartment and moves to one that costs, say, $1,200 a month, her yearly expenses still would be $36,972. And that doesn't include federal, state or city taxes. “It pains me to say this,” said Keatley, “but with a projected income of $40,000, that’s a problem.”

Understandably, there was a shocked silence while Brice took in this new information. She had already made plans to move to a less expensive place but hadn't yet realized that halving her rent wouldn't solve her problem.

Know thy cash flow
Sandi Bragar, a financial planner with Kochis Fitz Wealth Management in San Francisco, said Brice’s first task should be to nail down how much she has coming in -- and going out -- in order to adjust her expenses and live within her means. “She needs to make a cash-flow projection for herself,” says Bragar.

Luckily, Brice was familiar enough with Excel to make a spreadsheet that tracked both her fixed and discretionary expenses -- as well as the checks she knows she has coming in, and the months where there are some holes.

“I was a little bit shocked,” Brice admitted after she took this first big step toward financial sanity and saw in the cold, clear light of Excel that her discretionary expenses alone were almost $1,100 a month. “It was depressing to see how much higher my personal expenses are than I thought.”

“I don’t even think I’m spending that much money,” Brice said. “I’m just not bringing in enough.”

Lifestyle choices and changes
Keatley agreed that Brice could easily bring in more income. (The silver lining of self-employment is that you do have some control over your earnings.) In fact, she would have earned $60,000 last year but for the Big Disaster. She had four assignments, worth about $20,000, suddenly evaporate last fall when the magazine underwent an editorial coup.

Keatley also recommended that Brice take her upcoming windfall of paychecks -- she has about $16,000 due her this summer -- and start setting aside $500 a month in an emergency fund and an extra $100 a month toward her $4,000 credit card debt. “I want you to pay back your debt, but you need some stability,” Keatley said.

Ways to tighten the belt
Keatley, who used to live in New York City herself, was sympathetic to Brice’s plight, agreeing that the city doesn’t lend itself to a modest lifestyle. Still, to achieve her goals, she advised Brice to tighten her belt and live on less. Keatley suggested that Brice leave her credit card and ATM cards at home and carry only as much cash in her wallet as she needed for basic expenses each week.

Ginita Wall, a financial planner and founder of a money site for women, The Money Club, said that Brice could also benefit from greater financial self-awareness. “People always underestimate what they spend,” says Wall. “It’s just human nature. To really get a grip on her spending, Brice should review about six months’ worth of credit card and bank statements and see where her money is going.”

I threw in my two cents and championed “ the 60% solution” budget that helped me to turn my financial life around. The key to that approach is to keep your committed expenses to a manageable level, ideally not more than 60% of your gross income.

Brice’s reaction
After her financial tune-up, Brice was a little depressed, but undaunted. “I feel encouraged and discouraged at the same time,” she said. “I’m not as far along the road as I want to be, but at the same time, looking at those numbers -- instead of having them floating in my head -- is useful. It helps just to see where all your money is going.

“I thought I could throw a chunk of (the $16,000 she's owed) at my debt -- but now I realize I can’t. I have to cover my living expenses for the fall and set up my emergency fund.”

The consultation with Keatley also helped Brice to face some other issues she’d been putting on the back burner: How can she build her free-lance business? Would it be better to get a full-time job? How much should she try to save for retirement?

But, as Brice is learning, you can’t do everything at once. You start slowly, and try to live with the fact that having a financial life will always be a work in progress. She admits that she’s not at all thrilled to be in belt-tightening mode. At the same time, she says, “I’m excited to start tracking my expenses, to see where I’m spending frivolously.”

MP Dunleavey is a journalist based in San Francisco. She has written for The New York Times, Redbook, SELF and so on. She also writes a column for Lifetimetv.com (on life as a single woman), but this is her first personal finance column. Her parents are pleasantly surprised. E-mail her at mpdunleavey@msn.com.

©2005 Microsoft Corporation. All rights reserved
http://moneycentral.msn.com/content/Savinganddebt/Learntobudget/P84970.asp

Uncommon Sense

Why buy in an overpriced housing market?

2004

The true cost of ownership is far bigger than it looks, and soaring real estate prices make the proposition even more dubious. If you have to shell out more than double your current rent to buy a home, look for other places to invest your money.

Editor's note: Columnist MP Dunleavey and six other women have come together online to strip away the myths surrounding money, lay bare their assets and liberate themselves from debt. Follow the quest for financial fabulousness of these "Women in Red" every second Monday in Dunleavey's column on MSN Money.

Carole, 37, one of my Women in Red, wants to buy a home, but she has a problem: She lives in Manhattan, the overpriced real estate capital of the universe.

Renters like Carole in many parts of the country are finding that they would have to shell out two or even three times their current rent to buy homes comparable to the ones they live in now.

Nationwide, the average home price has skyrocketed more than 40% in the last five years and it seems unlikely that pace can continue. But now, interest rates are inching up, and many people say the air is finally leaking out of the over-inflated property market. Hissssssssssss.

The eternal rent v. buy debate
Like so many other prospective home buyers in these overpriced real estate markets, Carole has a tough decision to make: Even if she can afford to buy her own place, is buying into a frothy real estate market the best move for her money now?

In some ways Carole is in the perfect position to become a homeowner: She’s 37, single, and earns a very comfortable salary of $120,000 a year. Without kids or a car payment (or even much debt) to worry about, she appears to have enough disposable income.

But like many renters, she’s starting to analyze the true cost -- and ultimate yield -- of homeownership, financially and emotionally.

“I’m realizing that the middle class is so caught up in the American dream of owning,” Carole says. “People assume it’s the best way to invest your money. So we work hard, keeping ourselves on a treadmill. But owning your own home can be a drain.”

Questions to ask yourself
Conventional wisdom holds that buying is the most lucrative option over the long-term, but that depends on several factors: