I used to look forward to voting when I was younger as I was certain of what I was doing. My lack of sophistication and naiveté made me see things in very simple terms and it was easier to choose between the “right” candidates and the “wrong” candidates. Now, I am jaded, and I realize that everyone has an agenda and some have better propaganda machines. An advertising budget can do wonders in painting either a shiny, albeit inaccurate picture; or a scathing and unfair one. Many investors fall prey to such manipulation, as well, as their “friendly financial consultant” portrays competence, polish and compassion – often times they are simply charismatic and not much else. I know this from experience. In a past life, I worked near these types; and, in my current life, I get to unravel the damage they have done at the hands of their once trusting (and now former) clients.
While not all brokers are incompetent or misleading, the truth is that their business model is. As long as they act as salespeople – fronting for product, and not for their advice, there is a conflict of interest. When a salesperson is paid by a third party (e.g., mutual fund company or insurance company) to recommend a product to their client, there is temptation to make the investor’s needs subordinate to the salesperson’s need of putting bread on the table. The only products a salesperson will likely recommend are ones that carry high sales charges, because a portion of these charges come back to the broker in the form of commissions (mutual funds that have letters, like A, B, C, etc. after their names carry these higher fees). If the fee is low, there is nothing to compensate the broker with. So even though the low-cost fund is a better choice, it will not be recommended to the investor. And, let’s face it, if an investor purchases something that basically tracks the S&P 500 returns, then the fund that deducts 0.15% of a fee will always beat its counterpart with 1.5% -3% fees. It’s an absolute, basic, numeric truth, plain and simple.
Often times the very established brokerage houses have their own mutual funds and insurance products that compensate their salesforce a little extra. Branch managers are enticed to rev up their sales team to make this a higher percentage of the office’s business. This is how bonuses are shaped – which is no small chunk of change. Again, I speak from experience here as I witnessed this firsthand. Branch managers who let their team sell what they want won’t do that for long when a big bonus is at stake. At best, its coercion; at worst, it’s blackmail. So even if a broker or a manager wants to “do the right thing” they are penalized. The only way to get around this is to break out and become independent – which can be daunting for those entrenched in this system.
Most investors have no idea that mutual fund and insurance companies pay money to have their investment products listed on the brokers’ “preferred list,” or included as a 403b option; everyday trusting investors operate under the false assumption that “preferred “means superior when it simply means deep pockets. Again, this model compromises the broker’s judgment. The investor is blissfully unaware often times, and thinks the broker is making the best possible recommendation, when there is another agenda in the fold. While the investor blindly thinks the broker “knows best” the truth is sales pitches are provided and practiced on how to sell the product and how to overcome investor objections. Again, I know this firsthand as I have witnessed sales training sessions; I have written the sales tips to help them sell; I have promoted the sales contests that give a sales rep a crystal paperweight for besting the sales of the other hungry brokers. I have done this all in a past life I feel compelled to redeem myself from. The truth is, I thought that’s how the business worked with no other options – I had no idea at the time of another (less popular, and less advertised) approach.
In the act of full and fair disclosure, I mention that my husband and I own a fee-only Registered Investment Advisory firm, ATI Investment Consulting, Inc. (that means we do not accept commissions, and our clients receive a straight-forward bill from us every quarter). This design was intentional – as we guided my Mother in the aftermath of my Father’s debilitating illness and found lots of hungry salespeople licking their chops at getting a piece. We weren’t even in business at the time; I was in my “past life” where I helped brokers hock products, actually. I didn’t want her to fall victim to this model. There was too much riding on this; namely my Father’s medical care and my Mother’s future financial stability. At the end of this project we realized that we could deliver this to the masses; that this service is truly needed; that we can remain true to investors’ goals; and, that we can save them from being someone else’s prey. It is not as profitable to conduct business this way, but it is good for everyone involved; first and foremost, our clients.
Not too long ago I was approached by an insurance agent who asked me how we handle clients with insurance needs. I mentioned that we advise clients on what type of insurance they need to get, and the amount. He asked me if I had considered getting my insurance license, which I hadn’t. He informed me that if I had that license and didn’t want to sell insurance I could refer all my clients to him, for which I would get a piece of the commission. He estimated he could make me an additional $50,000-$60,000 per year with this arrangement. I know he thought my emphatic “Not interested,” was a Pollyanna response – but we want no part of putting our personal interests ahead of our clients’ needs.
If you are wondering whose side your financial professional is on, go to your statements. The tell-tale signs are easy to spot:
Funds with A, B, C, etc. after their names carry higher fees which does not benefit you in any way.
Owning annuities in an IRA or other tax-deferred account, such as a 401k or 403b means that you have paid a high expense to have a tax-deferred product in an account that gives you tax-deferral at no charge (think, paying extra to have a belt, when you’re wearing suspenders).
Annuities, in general, are very expensive and rarely have I seen this benefit an investor. Occasionally a work-sponsored annuity is paying a very high guaranteed rate – but this is a rare exception.
The broker who works for XYZ Company has sold you mainly XYZ funds. Or, the college savings plan (529) you were sold has ties to XYZ in some way.
Investing is like the political campaign process – it’s hard to know what to believe, or what to argue against when you feel like no one is telling the whole story. Unless you are prepared to research and get to the bottom of the issues that are important to you, you will easily be swayed by whoever speaks with more authority on the subject than they may actually possess (your friends, your union, your colleagues, etc.). Until you truly examine the motivation of the person feeding you the information (pride; ego; or worse, profit), it is easy to swing in the breeze while others collect from manipulating you. Now that you have been warned, it is up to you to decide how you want this to end, and who wins your business. Choose wisely.
This time of year, spending tends to get out of control as we attempt to show those who we love, just how much using our $$$$ (paper or plastic).
For those of us trying to be reasonable, or just trying to be more mindful of what the holiday season is really about, here are some innovative ways to gift-give without breaking the bank.
1. Give you what you do best. Are you admired for your baking? Sense of style? Ability to fix things? Why not give a gift that reflects that? Give a lesson in your talent, or a “coupon book” good for your services, or give one of your creations as a gift. They will remember it always.
2. Create a Memory. Plan a day or outing. It can be elaborate (take in a show and dinner, for example), or it can be more budget-friendly — plan a lunch and go to a park or a museum. Or, if you are a skilled photographer or story-teller, create a memory book.
3. Touch the Heart. For your loved ones who are care-givers, give them some care. Pack up a basket with their favorite treats (food, magazines/books, etc.), or gift certificates to their favorite store, salon or restaurant.
4. Give what they really need. Maybe you know a stressed out young couple, who could use a night away without the kids. Offer to babysit as your gift. Maybe you have an elderly friend who would appreciate having their groceries dropped off and unloaded. Take a look around at their lifestyle and find what would truly be helpful.
5. Give to others. For those who support charitable causes, go along with your friend and volunteer your time to the charity, or make a donation in the name of your friend.
Most important, know that the size of your love isn’t measured by the dollars you spend. You have much more to give than that, and it is priceless.
When most of us go to make an important purchase – a refrigerator, furniture, or a car – we shop around. We want to make sure that we don’t get taken advantage of and that we get a good value for our money. So why is it that when it comes to investments, (mutual funds, in particular) many of us have no idea what we’ve invested in and what it costs? Why would we rather haggle with a car salesman on a one-time purchase, than pay attention to our investment costs and our long-term financial goals?
There are many possible answers: maybe we’re not sure what we should be paying; or, in order to find out what we pay we have to read the dreaded prospectus (who wants to do that, and who can understand it, anyway?); or perhaps we really don’t believe that we can win this game, so why try? Right? Wrong.
There are many costs associated with owning a fund. Many investors do not actually see these costs, as they are deducted from the fund’s returns, but make no mistake: High fees handicap your portfolio’s ability to outperform the market. If you think of it as a race, a low fee investment starts one mile ahead of a high fee investment. Wouldn’t you rather have that one mile edge?
Let’s look at three similar investments, each returning 10%, but the fees charged vary widely. After the deduction of fees, the returns are dramatically different: ranging from 6.65% for the high-cost investment to as high as 9.80% for the low-cost fund. After 30 years, these fees would really impact your bottom line. If you invested $10,000 in each of these investments, after 30 years, the high-cost investment would be worth $68,996; the average mutual fund would be worth $91,289; and the low-cost mutual fund would be worth $165,222 – nearly $100,000 more than the high-cost investment. Of course, this example is hypothetical and does not reflect past or future results for any investment.
High Cost Investment
Average Mutual Fund
Low-Cost Mutual Fund
Assumed Return (before expenses)
Assumed Real Return (after expenses)
After 30 years, $10,000 grows to:
So, how can you protect yourself from high fees? How can you “shop around”? For starters, know if the fund carries a sales charge.
Typically, if a fund carries the letters A, B, or C after its name, it is considered a “loaded” fund (has a sales charge). These products are “sold” to investors. That is, a salesperson (a broker, for example) earns a commission for selling you the Fund. These loaded funds also compensate a broker over the lifetime that you own the Fund. That is why these Funds carry higher expenses. Someone needs to pay the broker. Look at it as a transfer of wealth: a transfer from you to the Fund Company, and ultimately a piece of that goes back to the broker. There is nothing improper about this; however, you may question if this arrangement between the broker and the Fund Company is as beneficial to you, as it is to them. If the broker works for a company that sells its own proprietary funds (for example, Merrill Lynch), they are paid even more to sell the in-house product. Will this influence a broker’s recommendation?
Fee-only registered investment adviser firms (RIA), such as our sister company ATI Investment Consulting, Inc., are only compensated for the advice they dispense, so they work purely for their clients. In fact, should an RIA receive compensation from any source other than a client, it must be disclosed to clients as a potential conflict of interest.
By law, RIAs are held to the higher standard of acting in an investor’s best interest, which includes keeping expenses low. Brokers need only sell you something that is deemed “suitable”. To compare the RIA fiduciary standard to the Broker’s suitability requirement, consider this: If a client needs long-term growth and a S&P 500 fund is an appropriate investment choice, but one option carries fees of 1.5% in addition to a 5% commission, and the other carries a fee of 0.15% with no commission, the RIA would be obligated to recommend the lower cost option, because low fees are in the client’s best interest. The broker could sell the one that paid him more (a commission) even though it is more costly to the client, because the investment is still suitable for the client.
Furthermore, brokers are paid on transactions and earn commissions every time clients buy or sell, and they earn trail commissions when a client holds an investment. Therefore, client satisfaction does not affect the broker’s compensation nearly as much as it does for the RIA. A fee-only adviser does not have these additional sources of income as a safety net. All an RIA has is the quality of his/her advice. If that is shoddy, the RIA will soon be out of business.
Don’t be afraid to ask your investment professional how he/she is compensated. It is in your best interest to know if his/her interests lie elsewhere. Ignoring this question while clipping coupons, shopping sales and looking for bargains is truly an exercise in being penny wise and pound foolish.
If there’s one thing that parenthood has bestowed on us, it’s the desire to be a better person. Suddenly with a pair (or pairs) of little eyes watching you closely, you become more aware of your habits (good and bad), your diet, your manners, and your temper – because someone is learning from you. Well, there’s a biggie that most of us haven’t given much thought to: money. For those of you with small ones, consider this time as good behavior training because even if your kids are too little to notice now, recent research indicates that children as young as 8 are ready to learn about money; and, the greatest impact on their knowledge is not any course they can take (if you can even find one) but on the behavior they observe at home. The study went on to say that behavior modification in older children is difficult; the key is to catch them early. So even though many of you have younger children, it’s never too early to get your household on track. This way, the practices your children adopt will be healthy ones that will come naturally to you. These simple first steps will lay a solid foundation:
When we have dessert, it’s served after dinner – When a child sees that Mom or Dad doesn’t always immediately gratify their retail purchasing urge, it teaches that not everything you want is needed, or some things are worth the wait. With toddlers, the currency can be giving up the bottle or diapers to “buy” something that they want. Having older children partake in saving for a portion of a pricey purchase can help teach them about setting goals and working toward achieving them, as well. In addition, they will start to understand the sacrifices you make to afford your lifestyle.
Make sure your eyes aren’t bigger than your stomach – Showing children that bills are paid in full and on time sends them the signal that they need to keep a handle on how much they spend. As you write the checks, let them know what you are doing and why you need to pay it on time. If carrying credit card debt is something they don’t see in life, it makes them less likely to abuse the cards themselves. This lesson is the single most important one to your future financial well-being.
If …. Then … Lessons – Show your kids the power of choices and the consequences to get across budgeting basics (e.g., “If we buy this flat screen TV, we won’t have enough for food.”).
Do as I Do – There are no greater imitators than kids. If they see you balancing the checkbook (even though they are not sure what that is), they will grow up knowing that is part of an adult routine. As they get older, you can even enlist their help in calling out the check numbers.
Make Saving a Game – When they are really young, nothing is more fun than the clink of change in a piggy bank, or a change sorter. As they get older, encourage kids to put away a portion of any gift money they get, as well as dedicating a portion to gifting. When they are old enough to get a bank book of their own, take them down to the bank. It will be a day they remember.
Story telling – Do you have a family member who overcame adversity (such as coming to this country with no money) only to live a successful life? Let them know that Grandpa started up his business with nothing in his pocket. Better yet, let him share the story. Kids love to hear true stories, and they’ll be better off for having heard these words of wisdom.
Starting early in their lives will make all the difference, and it will be time well spent for all of you. Remember: They are watching.
Anyone who has a child getting ready to start college for the first time probably has a list of concerns a mile long. Among the worries is the handling of money. Whether your child is going away or staying home, there is a real opportunity to start your son or daughter on his or her first journey into financial responsibility. While it might be hard to look at your “baby” as an adult handling money, there’s no time like the present to learn these important lessons. These tips will help your child get off to a strong start. 1. Consider what income sources are available. Will your child save money over the summer or have a job while at school? Will you be supplying extra money? 2. Decide on who is paying for what. Sit down and be clear about what you are paying for, and what you are not paying for. This will allow your child to ballpark what his/her expenses might be. Go shopping together so your child can get a real sense of what things cost; then put together a rough budget. 3. Look at ways to shave the expenses. For example: Does your child really need a car? Is public transportation an option? Can used books and supplies be bought on line or at the book store? Can a roommate share the costs of a refrigerator or rug? 4. Make a final weekly budget. Based on the figures from the three previously mentioned points, put together what can realistically be spent each week and allow for 5% savings as a cushion. I recommend a weekly budget, because it is a big task to stay balanced for a whole month; breaking the task into a series of smaller ones may be more manageable. 5. Use cards with caution. Explain how debit cards work. There may be fees associated with them and, if lost, they can pose a danger to the account if not reported promptly. Using ATMs at another bank can get expensive, as well. Credit cards also require caution. Show your child why finance charges are not an option because they make the cost of purchasing goods much greater. If credit cards are used, have him/her keep the minimum low, and keep spending below the minimum. 6. Record keep. Encourage your child to always balance the checkbook. All transactions should be entered in the checking account ledger (cash/debit card transactions, checks written/deposited, and credit card purchases). This recordkeeping should be done immediately, and not when it hits the bank/credit card statement, so that your child always knows what actual funds are available. These steps will lay the foundation for good money habits for years to come.
I gave a presentation to a group of sixth graders and asked an innocent question, “Who here earns money?” As I expected there were those who mowed lawns, babysat, shoveled snow, folded laundry, etc. to earn cash. These kids weren’t “working papers” ready, and they took great pride in earning their own money – and not too surprisingly, they seemed to be more discriminating on how they spent it, and had a solid understanding of what was an item or service that they needed versus something they wanted.
A pretty little girl sat with her arms crossed and called out that her parents didn’t want her to work; they wanted her to focus on her studies. I smiled. Isn’t earning money, working hard and being responsible a lesson unto itself? Isn’t that more valuable than memorizing and regurgitating some meaningless facts for the short-term gratification of a good grade, only to have this cycle start all over again? She wasn’t done talking, not by a long shot – and it was very revealing, indeed.
“Is food a need or a want?” I asked – a ridiculously easy question.
“A need!” they shouted.
“Now is Starbucks a need or a want?”
“My Mom can’t live without coffee!” someone called out.
“Me either,” I admitted, “But is paying $20 a week for it a luxury, a want?”
That’s when my little friend piped up again, “Starbucks is absolutely a need! I have to have Starbucks!”
“How convenient,” I thought, “You get to have your expensive coffee and someone else pays.”
It’s tempting to make life so good for your kids that you actually thwart their progress. There is great wisdom in the old proverb, “Give a man a fish, you feed him for a day; teach a man to fish and you feed him for a lifetime.” So when is “helping” really not so helpful? When is helping actually hurting?
Keeping your kids isolated from the realities of life doesn’t stop the responsibilities from coming; it only retards their ability to respond appropriately to the challenges. Again my little friend had a nugget to offer up, “My parents don’t want me to get a job until after I graduate college.” Perhaps I went a tad over the line here, but my reply was simple, “Do you think it would be helpful or harmful if your Mom said to you: ‘Honey, don’t bother learning to read. I will go to college with you and read out loud to you every night from your textbooks. Don’t worry your pretty little head about it.’ Finally, she was silent. The other kids thought that idea was dumb or worse, embarrassing to have mom reading to them in college.
When you deprive a child of rising to the occasion so you can look like a hero, it is harmful. The message can easily be construed as the world is your servant; or worse, you are incapable of handling this yourself. All the children who earned money had one thing in common: confidence. They were excited to share that they could be trusted to be responsible and to do a good job. The end result, of course, is that they treated that money differently than if it was a handout. If we are to hope that they will be motivated, productive and responsible with their money – shouldn’t we start these good habits as soon as they are able to assert themselves and earn some money? Now that would be more helpful than making sure that they memorized their way through school, don’t you think?
You’ve heard it before: Don’t let emotions get in the way of business. Well the adage holds true for investing, as well – probably even more so. It seems easy enough to do, but when you see the value of your savings falling like a botched Martha Stewart soufflé, your first instinct may be to sell, sell sell! But acting out of emotion can often be the worst thing you could do when it comes to investing. Here are some tips to prevent sabotaging your financial well-being.
Make sure you have a specific financial goal (or goals) with a specific time frame in mind. Sounds pretty basic, right? It may be, but the trick is to really give this some serious thought. Very rarely are you saving for just one thing at a time. Most of us are saving for retirement, future college costs, and near-term goals like buying a new car or house, a home remodeling project, or planning a big vacation. The way you invest for a short-term goal is very different from the strategies you would use to meet a goal that may be 30 years away, like retirement. Long-term goals require growth provided from stocks (equities), because you will need the money to outpace inflation. If you put your retirement savings into CDs, after thirty years, your investment would be worth less than what you put in because inflation would have reduced its purchasing power. Short-term goals require stability, because you plan on using the money soon. If the stock market has a set-back, you can loose a substantial amount of your investment in an eye-blink. Therefore, CDs, money market, or even short-term bonds would be a good choice for a shorter investment time frame. When I hear people say they want to make as much money as fast as they can – they need to know the reality is that the inverse holds true for that investment, as well. If an investment can move up in value rapidly, it is volatile and it could just as easily (and swiftly) move in the opposite direction.
Diversify your investments. Yes, stocks are for growth and bonds, money markets and CDs are for income, but having a mix of investments can really protect your investments from times when the stock market may be volatile, or times when rates on CDs or money markets are anemic. Alternative investments, as a group might be risky, but when added to a portfolio (and combined in very specific percentages) can actually reduce a portfolio’s overall volatility.
Start as early as you can, and invest regularly. The earlier you begin investing for your long-term goals, the better, because time is on your side. As your investment grows, you can take advantage of compounding, which is when you take whatever income or gains from an investment and buy more shares. Investing regularly is another good strategy, because it helps remove emotions from investing. By treating investing like a bill to pay every month, you stop thinking about how else you could spend the money. Over the years, the money adds up and one day you look at your balance, and you can’t believe how painless it was to actually save. Most mutual fund companies will even link payment to your bank so every month your bank account will automatically be debited and you won’t ever need to remember to write out and mail a check. There is also another big advantage to making regular fixed investments every month: it is called dollar-cost averaging. Because there may be some months when the price of a fund is lower than other times, you will buy more shares, and during the months when the price is higher you will buy fewer shares. The price, in effect, gets averaged out over time. It helps protect you from sinking all of your money into an investment on a day that may happen to be a high. Yes, this also means that you will not be buying on the absolute lowest day, either. But, since the market is impossible to time, this is the most logical (unemotional) way to invest, not to mention it puts an element of discipline into your commitment to invest.
The markets can be fickle, but don’t you be. A well constructed plan needs to be followed out. If you shift your plan as the market moves, you will forever chase performance and be a reactive investor. Holding firm to your plan isn’t always easy, but deviating from it can prove fatal.
Remember, like most things, the planning is the hardest part. Once you’ve determined what your goals are, and how much time you have to reach these goals then you can begin selecting the right investments. Then, you can let your money work for you.
As of April 2014, the average tax refund for is $2,831, according to the IRS. While it might be tempting to use this windfall for something fun, like a vacation to someplace warm and exotic, there are better ways to spend your refund that can help improve your finances for years to come. Yes, you can call me a kill-joy, but delaying gratification can have its rewards in bigger and better ways, like being able to buy your dream home sooner than expected, or being able to take that once in a lifetime vacation that you never thought you would be able to afford, or retiring early. Laying a solid foundation first will enable you to then focus on the perks in life. So, before you call your travel agent and book a trip to Cancun consider these three less exciting, but more rewarding ways to spend your tax refund (if you’re not getting a tax refund, look to address these items as you get some spare cash):
Get Rid of Credit Card Debt. Even if your bill is bigger than your refund, it pays to get rid of as much debt as quickly as possible. If your card charges 18% interest and you pay off all or some of that debt, it is the same as if you earned 18% on your money. Remember to see which cards carry the highest rates. Pay those off first and stop using all cards. If you absolutely must charge, make sure you use a card carrying the lowest rates.
Add to Your Emergency Fund. It is recommended that you have six months’ worth of income stashed away in a liquid account (bank account, money market, etc.) in case of illness, or unemployment. In the event of an emergency, how long could you go on paying your bills? If your account seems thin, beef it up.
Fund Your Investment Accounts. As part of your monthly budget, it is recommended that 10% of your take home pay goes towards savings. In addition to adding to your emergency fund and other general savings, this 10% can be satisfied in a number of ways:
Fund retirement through an employer-sponsored plan. This has enormous benefits, because the investment often times can be made with pre-tax dollars (lowering your income taxes) and the investment can grow without the effect of taxes, provided you withdraw the money in retirement. Also, many employers help you save toward retirement by matching a percentage of your contributions. That is called free money – and it’s hard to find.
Fund an IRA or a Roth IRA (contributions can be made for non-working spouses). Again, tax-deferred growth is a key benefit here. Check with your tax advisor if you qualify for a Roth IRA, as it has unique benefits such as tax-free withdrawals, and the ability to withdraw for reasons other than retirement, such a first-time home purchase, or to meet college costs. Contribution limits are $5,500 ($6,500 if you are at least 50 years old). Contributions for 2014 can be made until April 15, 2015 (for both IRAs and Roth IRAs).
Add to your child’s college savings. Whether you open a specific college savings account, such as a Coverdell account or a 529 Plan, or opt for a more general account, such a mutual fund or savings bond, you can take an important step in securing your child’s future.
If it makes it easier to get started, think of it this way: you wouldn’t give your kids dessert before they had dinner. This list is dinner, and there’s no telling what kinds of dessert await you if you take care of this very necessary business first.
My husband was up to something. He was pounding away at the computer and printing like a madman. When I didn’t hear the whir of the printer, there was the distinct sound of the three-hole punch chewing its way through paper.
“I’m working on something,” is all he would say. It seemed to excite him, this project. I wondered what it was.
When “it” appeared, it wasn’t impressive looking. It was a plain white three-ring binder.
“Open it,” is all he said, smiling.
I wondered if it was something romantic. He was beaming like a cat that just dragged home a bird carcass as an affectionate offering.
“What is it?” I asked.
“The Death Book,” for some strange reason, he was still smiling. “In case something should happen to me, this book will tell you where everything is, who you need to contact…” he continued on, but I wasn’t listening any longer.
I recoiled from this stark white book like it was a jinx.
“Look at it, this is important,” he said. He wasn’t smiling any longer. He looked irritated that I didn’t share his enthusiasm for The Death Book.
“It’s morbid,” I said, “I don’t like thinking about this stuff.”
“Well if something were to happen to me and you were stuck digging around trying to find out all this information, then you’d really be depressed,” he flipped open the book.
In it was all the information I could possibly need: Copies of our wills, all the account numbers, passwords, and phone numbers for the kids’ college funds, our joint accounts and retirement accounts, information about his pension, the details of our life insurance policies, and social security information. He had totaled up what kind of payout I could expect. His excitement morphed into relief as he shut the book.
“Well, that’s that,” he said. “Everything is taken care of.”
I had the sense that he would sleep better that night knowing that this was off his shoulders. As for me, I told myself that The Death Book was the best insurance policy I could have that my husband would live a long, long life.
Want to Build Your Own Book? There are books out there that you can buy, or you can simply get a three ring binder or folder and put the following in it:
Copies of your wills, healthcare proxies, durable power of attorney
Social Security cards and statements
Titles/Deeds to house and cars and any other real estate
Current statements for all Bank Accounts, including account numbers and passwords
Current statements for all retirement accounts, including account numbers and passwords
Current statements for all taxable individual and joint investment accounts, including account numbers and passwords
Current statements for all college savings accounts, including account numbers and passwords
All savings bonds (or list of them with maturity dates)
Insurance policies (account number, passwords, terms of payout)
Employer sponsored retirement accounts, including account numbers and passwords
Pension funds (account number, passwords, terms of payout)
Any lists of instructions you have for family members
Any list of personal effects that you would like handed down to specific family members and/or friends
Some people personalize their books with family stories that they want handed down, or with personal messages (letters) to loved ones
You would never jump into a game and wager thousands of dollars without first knowing the rules. And yet, every year many parents do just that as they embark on the process of seeking financial aid for college costs. The truth is if more parents understood how the information on the Free Application for Federal Student Aid (FAFSA) is analyzed, they would take steps to place themselves in the most favorable light. Strategic positioning can really pay off if you know how the game is played. Here’s what you need to know:
How your data will be assessed: The formula FAFSA uses to determine the Expected Family Contribution (EFC) considers the parent’s income, savings and investment assets (excluding retirement accounts and the primary residence), as well as the student’s assets and income. On average, parents are expected to contribute about 5.6% of their assets and between 22% and 47% of their income (with a $20,000-$60,000 allowance based on their age) towards college costs. Students are expected to contribute roughly 20% of their assets and 50% of their income (with a $3,000 allowance) towards the tuition bill. Switching assets into a child’s name would not be a helpful strategy. If your child is employed, consider opening a Roth IRA, as retirement assets are not considered assets.
What time fame you are working with: The FAFSA form is submitted during the student’s senior year in high school, based on data from the previous tax year (i.e., January 1 of the student’s junior year through December 31 of senior year), also called the Base Year. Strategies that can be employed to reduce income or assets before the assessment period could prove very beneficial (e.g., sell non-retirement assets before the Base Year and use this money to fund IRA or Roth IRA accounts; speak with your employer about receiving your bonus prior to the Base Year, or delay the bonus until the following year). In addition, avoid liquidating any investment assets during the Base Year, as that inflow of cash would be considered as income.
What counts against you: Non-retirement assets are considered available funds, even though you may be carrying high credit card debt. Prior to January 1 of your child’s junior year, consider taking some of your non-retirement savings or investments and using them toward reducing or eliminating this debt.
What works in your favor: Roth IRAs, IRAs, employer-sponsored retirement accounts, Coverdell accounts, 529 plans, annuities, or the cash value of life insurance policies are not considered as assets for the purposes of FAFSA. Prior to the Base Year, consider moving non-retirement assets (which FAFSA does count as assets) into one or more of these types of accounts.
Remember, if your child is looking at more elite, private schools, the CSS form will need to be completed as well. This formula assesses parents and students differently, and requires more of a contribution from both the parents and student.
After you submit the FAFSA form, the matter is out of your hands. But, what you do beforehand, when the matter is in your hands, can be critical to the outcome. Being aware of what you are up against may change your approach to the game and, hopefully, with a little planning, may help reduce the tuition bills.
Dina Isola, President of Real$martica, Inc. - COO and Director of Investor Relations, ATI Investment Consulting, Inc.
Following a successful career in marketing communications in the financial industry, Dina and her husband, Anthony, founded a registered investment advisory firm, ATI Investment Consulting, Inc., and ultimately the idea for the educational company Real$martica, Inc. was born. In dealing with investors and hearing their concerns, she spearheaded ATI’s investor education efforts, coordinating with local libraries and townships to offer free investor education seminars.
She has volunteered her time, writing financial articles and has conducted investor education classes geared to family financial matters. She is President of Real$martica, Inc. and is COO and Director of Investor Relations for ATI Investment Consulting, Inc. and personally handles all communications for both firms.
She is active in her local business community and serves on the Brookhaven Business Advisory Council and is a member of the Three Village Chamber of Commerce. She earned a BA in English and Communications from Fairfield University. She is a registered investment adviser, and is a licensedreal estate salesperson in New York State. Prior to founding Real$martica, Inc. she was a Vice President in charge of marketing communications for a privately-held investment management company in New York City. She has worked in the financial industry since 1987.
Anthony T. Isola,
President, ATI Investment Consulting, Inc.
Anthony has married his passions, investing and education. He is President and founder of ATI Investment Consulting, Inc. (“ATI”) a registered investment advisory firm. His vast knowledge in matters of finance brings a well-rounded perspective to all that he does.
As an educator, he has a natural ability to explain complicated economic and financial concepts and make the practical application of these concepts come to life. In working with clients, he recognized how overwhelming building a financial plan can be, especially when most investors are vulnerable due to their ignorance on financial matters. He prides himself on empowering investors to understand how to look out for their interests and not fall prey to financial arrangements that will take them off goal. In addition to managing assets for clients, he has counseled investors on social security benefits, retirement income assessments, and college planning.
He teaches history at Plainview Old Bethpage Middle School and oversees students’ participation in The Stock Market Game and financial literacy for the Plainview Old-Bethpage Central School District. He has taught financial related courses to children, parents and staff members in the district, as well as to Long Island residents.
He holds a New York State Permanent Certification (in Social Studies). He earned a BA degree in Economics from Boston University and a MS degree in Secondary Education from Hofstra. Prior to teaching, he worked as a foreign currency trader in New York City for large international banks.