Financial Planning - Even on Vacation

Have you ever shopped in a popular tourist spot, perhaps in Cabo San Lucas, Cancun, or a similar location? You might notice a couple of things:

• How much each store's offerings looked like the others;
• How quickly each shop was willing to negotiate price;
• How likely each shop was to position their products as superior without any verification of the claim.

This behavior isn't specific to swap-meet type atmospheres. In fact, many financial planning professionals do the same thing. Most financial advisors, both small independent firms and large wirehouses, speak a lot about being more customized and individually focused, sensitive to the individual client's objectives, using disciplined and proven approaches, having relevant experience, and linking everything together. Are these truly differentiators in the financial planning industry? Perhaps more importantly, is there any substance to actually back up these claims.

The swap-meet vendors actually aren't different at all. Their products are the same, and of the same quality. Consequently, they must attempt to differentiate on price. Many financial advisors are similar. Thus, I would advise individuals looking for a financial planner to be wary of advisors who tout price first and foremost. What value are they actually adding?

So does Net Worth Advisory Group look like every other financial planning firm? I'd strongly argue we don't. First, we are a fee-only financial planning firm, meaning we never collect commissions on the products we recommend. This enables us to provide objective advice without a concern for our own compensation. The National Association of Personal Financial Advisors (NAPFA) is the primary organization for fee-only financial planners. Of the over 800,000 financial advisors in the United States, less than 2,000 are NAPFA members. Second, Net Worth Advisory Group truly does provide superior service. We conduct physical meetings with our clients at least every six-months. These are appointments set up by us, not by the client. How many other financial advisors do that? Of course, we are also available daily to address any questions and concerns a client may have.

Does Net Worth position our products as superior without any verification of the claim? First, all Net Worth financial advisors are either Certified Financial Planners (CFPs) or candidates to become CFPs. The CFP designation is the platinum standard signifying financial planning expertise. It illustrates that the advisor is well-versed in every major aspect of personal financial planning. Of the 800,000 financial planners out there, only about 7.5% are CFPs. Second, we provide each of our clients with a comprehensive financial plan that is updated and reviewed during every six-month meeting. These plans are individual-focused and deal with every element of a client's financial life, ranging from retirement planning, to insurance coverage, to investment portfolio management, to estate planning and taxes, and more. This simply isn't a common practice in the financial planning industry. Third, Net Worth Advisory Group utilizes various investment models that were developed in house and are only used by our firm. These strategies have consistently outperformed their appropriate benchmarks.

In summary, I strongly believe Net Worth Advisory Group is vastly different from most financial advisory firms, and thus, we don't need to compete on price alone. However, this does not say that Net Worth Advisory Group is an expensive option. In fact, close examination will reveal that investing through our firm is not only cost-competitive, but extremely cost-efficient.

So given these factors, why not give us a try? Call today (801.566.0740) to schedule a complimentary consultation.

The Return of RMDs

As you know, required minimum distributions (RMDs) were suspended in 2009 to allow investment portfolios an opportunity to recover from the market decline of 2008. In 2010, RMDs are back. Of course, a financial advisor will be able to determine how to best handle your RMDs. Here are some general rules.

If You're an IRA Owner Who Turned 70 1/2 in 2009

You ordinarily would have been required to take your initial required withdrawal by no later than April 1 of this year. That initial required withdrawal would have been for the 2009 tax year. The deadline of April 1 of the following year may seem weird, but the idea is to give you a penalty-free grace period for the first required withdrawal. Anyway, since there was no required withdrawal for 2009, there was no April 1 deadline this year. Instead, you must take your initial required withdrawal, which will be for the 2010 tax year, by Dec. 31, 2010. Next year, you must take your second required withdrawal by Dec. 31, 2011. And so on for 2012 and beyond.

If You're an IRA Owner Who Turned 70 1/2 before 2009

You must take your required withdrawal for the 2010 tax year by no later than Dec. 31, 2010. You must take another one for the 2011 tax year by Dec. 31, 2011. And so on for 2012 and beyond.

If You're an IRA Owner Who Will Turn 70 1/2 in 2010

You must take your initial required withdrawal (which is for the 2010 tax year) by no later than April 1, 2011. Next year, you must take the second one by Dec. 31, 2011, and so on for 2012 and beyond.

Importantly, you have the option of taking your initial required withdrawal by Dec. 31 of this year. That can be a tax-smart move for high-income folks and those with large IRA balances -- because it avoids having to jam two required withdrawals into 2011. Your tax rate may be higher next year, and the extra income could also cause valuable tax breaks to be reduced or eliminated (due to unfavorable phase-out rules that kick in as income goes up).

Again, for more specific advice speak to a financial planner.

A Downside to the Business

I love my job. I work on projects that fascinate and enthrall me. I meet great people who place planning for the future and fiscal responsibility as a priority (my kind of people!), and I interact with experienced, knowledgeable professionals who make it their responsibility to always do what is best for their clients.

Most importantly, I truly love helping people. The list of individuals that I have helped get on track to meet their financial goals and enjoy the retirement they envision is constantly growing. I value these close personal relationships, and I can't explain how important it is to me to contribute to my clients' success.

However, this emotional investment comes with a downside. Occasionally, I meet someone who could certainly benefit from my services, but I am unable to communicate my value, causing the individual to not utilize my knowledge. It breaks my heart to see someone who could likely enjoy a less stressful life by investing in my services walk away. Additionally, this scenario makes me feel like a failure -- there was someone I could have and should have helped, but I was unable to enunciate my value, and consequently, the individual will miss an opportunity to improve their standard of living or reduce stress.

There are so many ways I can help. For some, it may be as simple as assuring them they are on the right road to get from point A to point B. For others, I am able to help by significantly reducing their investment costs. Others could certainly benefit from having a professional plan and investment portfolio built specifically for their needs and risk tolerance. Still others could use help managing their debt or redefining their strategy when failing to meet retirement projections.

I am such a strong believer in the value I can add to an individual's financial situation anyone can visit my office for a no-charge, one-hour initial consultation. This is your time to discuss anything you like. I commit to helping you as much and in the best way possible. I enjoy these opportunities to get to know new individuals who prioritize their lives the same way I do.

I also believe that once you have a chance to sample the value I can add to your financial life, you will be excited to move forward with me as your financial partner. Please, invest an hour toward having a better life. Call today to schedule a complimentary consultation.

Exciting News - Our Financial Planing Practice Has Moved

I want to share some exciting news with you about our financial planning firm. Last week we moved into a new office located at 9980 South 300 West, Suite 110. This is in the Gregory Swapp building which is visible from I-15 and is situated just west of the freeway.

We are on the first floor in the southwest corner of the building. You can access the building from the frontage road which is west of the freeway. Our phone and fax numbers as well as our email address will all remain the same. The only change is our physical office address.

We chose this location because we feel it is centrally located and easily accessed. Additionally, it allows us to expand and custom design the workspace to enable us to serve you, our clients in a professional and effective manner. We are extremely happy with the new space and hope you will be pleased as well.

Is it Worth "Tuning Up" Your 401k?

I'm currently offering a special where I analyze a client's 401k plan and develop an optimized portfolio utilizing the investment choices offered. In most cases, the cost of this service will be $250. Some might wonder "wouldn't I be better off simply investing that $250?" or "can you really improve my portfolio enough to justify the $250 fee?"

First, do you know your 401k's current allocation between stocks, bonds, and cash? Most people don't. Study after study indicates having an appropriate asset allocation is the most important factor in determining investment success. If you have a portfolio that consists of a proportion of stocks to bonds that is too low or high relative to your risk tolerance, you will consistently be unhappy with your obtained return or losing sleep because your nest egg is declining faster than you can handle. Analyzing and identifying your risk tolerance is included with the $250 fee, as is determining the asset allocation of your current portfolio, as well as developing a stocks/bonds/cash mix that matches your needs.

Second, ensuring your 401k is adequately diversified is also part of the process. I'll make sure you are investing in not only large cap stocks, but mid caps, small caps, and international stocks as well. To the best of our ability, I'll make sure you also have exposure to not just corporate bonds, but government and international bonds. Of course, I'll determine the highest performing investment option in each asset category, and identify the percentage of your portfolio that should be placed into each portion of the diversification chart.

Third, do you know the costs of each investment option within your 401k? Again, most people don't. My process identifies the expense ratio of each mutual fund in your 401k. After all, investing in a fund that is producing high returns doesn't do any good if the fund is charging a fee that consumes half the return.

So back to the original question: is all this worth $250? Let's take a hypothetical client, John, make some assumptions, and see if he is ultimately happy with his decision to tune-up his 401k. John is 50 years old, has $100,000 invested in his 401k, and intends to contribute $10,000 per year until retiring at age 65. He thinks he will live until age 95, and wants to know how much his 401k is going to allow him to spend annually until death. Lastly, we'll assume inflation of 3%, and that John currently has a portfolio that will generate an 8% return annually. With these assumptions, John would be able to withdraw the inflation-adjusted equivalent of $26,654 per year from his 401k between ages 65 and 95.

Now, let's assume John pays $250 to tune-up his 401k, and consequently, is able to add 1% to his annualized return, either by enhancing his investments' performance, or by reducing the cost of his portfolio. A 9% annual return would enable John to withdraw the inflation-adjusted equivalent of $33,087 per year from his nest egg between ages 65 and 95. That is $6,433 more EACH AND EVERY YEAR! I think it would be safe to assume John was happy with his decision to supercharge his 401k.

Another way to look at is asking what rate of return John achieved on his investment. A $250 investment that yielded $6,433 of income for 30 years achieved a rate of return of 2,573%. Do you know any other investments that offer that type of return?

This article was written by Lon Jefferies of Net Worth Advisory Group. Learn more about Net Worth Advisory Group at www.networthadvice.com and visit Lon's blog at www.utahfinancialadvisor.blogspot.com.

Do Markets Still Have Further To Climb?

For some perspective on the current state of the stock market, today's chart presents the long-term trend of the Nasdaq. The chart illustrates the degree by which the tech-laden Nasdaq plunged during the dot-com bust (2000-2002). The Nasdaq then rebounded sharply into 2004 whereby it continued its uptrend (albeit at a relatively modest pace) during the real estate boom. Beginning in late 2007, the trend turned sharply to the downside as fears of an outright collapse of the financial sector took hold. As it became apparent that the financial sector would survive, stock prices rebounded sharply with the Nasdaq currently trading fairly close to what was once pre-crisis support (green line). It is worth noting, however, that the post-crisis rally has been slowing over time and is currently approaching resistance (red line).

Was the 2000's a Lost Decade for Investors?

I'd like to pass on an article from one of my fee-only financial planning associates, Mr. Tom Posey, CFP, J.D:

I’ve had it. I’m calling out an all-too-popular financial fallacy these days. It goes like this: “Stocks? Diversification? Who needs ‘em! Just look at the last ten years. ‘The Lost Decade.’ The S&P 500 Index was down for the whole decade. Stocks did nothing for us.”

Did stock investors really experience a “Lost Decade” from January 2000–December 2009? No. Where did this fallacy come from, then? It came from the mistaken belief that the S&P 500 Index represents all stocks.

Let’s get a grip. Sure the S&P 500 was down slightly from 2000–2009. But is the S&P 500 the only way to invest in stocks? Not by a long shot. The S&P 500 is an index of 500 largest US stocks. It leaves out over 8,000 publicly traded stocks. Consider the following:

Lost Decade? Not for diversified investors.

As you can see, during this so-called Lost Decade there were plenty of positive returns to be captured around the world – and even here in the USA. The stock investor who wisely diversified across an appropriate range of the many stocks available via sensible, low-cost investments did not experience a Lost Decade. To illlustrate, a portfolio with 70 percent in the four equally weighted domestic stock asset classes and 30 percent in four equally weighted international asset classes would have ended the decade up by about 75 percent.

What does this mean? It means the investor who invested in stocks over the past ten years and didn’t make money has only himself to blame. It means the S&P 500 is not the only stock asset class. It means that, despite its many recent obituaries in the popular investment press, diversification is alive and well.

This is not to say that you should invest all your money in stocks (far from it!), or dump all your money into far-flung asset classes you don’t understand. Investing well is complicated, and you may need an expert financial advisor to help you build an intelligent portfolio of stocks and fixed income holdings that make sense for you. But don’t give up on long-term, well-diversified investments.

Chart of the Day -- Nonfarm Payrolls

Today, the Labor Department reported that nonfarm payrolls (jobs) increased by 162,000 in March -- the largest increase in three years. This chart puts the jobs decline and recovery into perspective by comparing job losses following the beginning of the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1950-1999 (dashed blue line). As the chart illustrates, the current job market has suffered losses that are more than triple what occured at the lows of the average recession/job loss cycle. It is also worth noting that previous job market declines did not tend to end abruptly but rather flattened out before moving back into an expansionary phase. Today's relatively positive jobs report provides an early indication that the current job market is moving from a phase of stabilization to that of expansion.