9 Things to Know About GLWM

Posted On January 7, 2017 By Scott Stratton, CFP(R), CFA In Financial Planning /

There are a lot of ways to get financial advice today and you want to know that you’ve made the right choice. How do you decide? We invite your questions and scrutiny and would love to get to know you. That’s the beginning of a trusted advisory relationship.

While you can and should read our disclosure documents and “Form ADV Part 2”, to really get to know Good Life Wealth Management, you need more personal insights. Here are 9 things that will help you better understand who we are and how we help clients like you.

1) The Key Benefit to You
When my clients see their goals defined in milestones and specific actions, they feel confident in their future. Together, we craft a financial plan that is more than just an investment strategy, but a comprehensive road map to accomplish your goals and avoid the hidden pitfalls which could derail your success. That begins with understanding you, and helping refine your goals from intangible ideas to specific, measurable outcomes.

2) Pricing Our Services
We provide objective advice for your best interests, and that’s why we adopted a fee model rather than a commission approach based on transactions. Other advisors have fee structures that are complicated and opaque. We offer two programs with prices that are simple, transparent, and fair:
– Wealth Builder Program (under $250,000 in assets) costs $200 a month.
– Premier Wealth Management (over $250,000) costs 1%, billed quarterly.

3) Value to You
We provide value to our clients’ finances in many tangible ways, such as reducing portfolio taxes, saving on investment expenses, and implementing tax strategies. We also help avoid pitfalls and unforeseen problems in many areas beyond the obvious portfolio risks, such as being uninsured or under-insured, having a poor estate plan, or not having an efficient college savings strategy.

You could tackle these issues yourself if you have the interest and inclination, but our clients value their free time and prefer to delegate to experts. They enjoy peace of mind knowing that are receiving objective advice that is based on experience, insight, and professional training. We can help couples achieve their financial goals with less friction and improved mutual understanding.

4) Our Practices
As we get to know you and your family and develop your custom plan, you will see how our services directly connect to your goals and concerns. Our clients feel secure with our consistent approach and time-tested methods that are based on evidence and academic rigor, and not sentiment, fad, or conjecture. We take our Fiduciary Oath very seriously, which is why our clients have placed such deep trust in our advice.

5) Why I’m an Advisor
None of my grandparents had any wealth, but they instilled in my parents the values of a strong work ethic and sense of personal responsibility. Through their education, hard work, frugality, and investing discipline, my parents became financially successful and independent. I became an Advisor because I believe all Americans have an opportunity to achieve the American Dream. My passion is educating others on how to make that dream a reality.

6) Community Involvement
Outside of financial planning, I have two long-standing interests. I’m a classically trained musician and perform as Principal Trombone of the Garland, Las Colinas, and Arlington orchestras. Additionally, I play frequently for area church services, and my brass quintet gives approximately 50 concerts a year at area nursing homes through Texas Winds.

My other interest is in animal welfare and ending the pet overpopulation problem here in America. I’ve been an active volunteer at Operation Kindness for 15 years. We frequently foster mom dogs and their puppies, which you can follow on The Foster Dog Chronicles facebook page. I also am proud to serve as a Board Member and Treasurer for Artists For Animals, a 501(c)3 non-profit group that raises money for humane rescue and education.

Good Life Wealth Management donates at least 10% of its pre-tax profits to charity annually. And there’s nothing I’d love more than to increase our giving each year!

7) Qualifications
My expertise sits right in the center of what you need in creating a family financial plan. I’ve developed similar plans for more than 100 clients at my previous firms, so it’s rare that an issue comes up that I haven’t already encountered. I hold two of the most comprehensive designations in finance: Certified Financial Planner (CFP), and Chartered Financial Analyst (CFA). But I didn’t get these just to put up on the wall – my whole life has been dedicated to the pursuit of educational excellence. I graduated first in my high school class of 330 and received my doctorate at the age of 25. My mantra is to never stop learning. The question I ask everyday is how can this information benefit my clients? That’s the prism through how I spend my time.

8) How I Built My Company
Simple – I look at how I’d want to be treated as a client. My family are the largest clients of Good Life Wealth Management, and I personally invest in our Growth Model (70/30). I share this because I know some advisors who recommend one thing to clients and then do something different with their own money, or who don’t have any investments at all. I aim to provide every client with the same care, detail, and diligence as if it were my own money. The Golden Rule isn’t new, but many businesses don’t think this way.

9) Our Business Objectives
Good Life Wealth Management is a small, family practice, where I know every client individually. Our capacity will be only 75 clients and once I reach that level, we will establish a waiting list for new clients. Why? Because we refuse to compromise our level of personal service to you for the sake of growth.

My goal is to be a trusted advisor with each client for life. Our clients share our patient philosophy and appreciate our disciplined approach.

Are we the right fit for you? I don’t know, but I do believe that no one else will care more about your financial life than we will. I am blessed by the trust my clients have placed in me to serve them and love the challenge of working on each unique plan. If you’ve read this far, thank you. I’d love to have you take the next step and begin a conversation about how we can accomplish your goals together. Just send me a message, or call me at 214-478-3398 to get started.

The Boomer’s Guide to Surviving a Lay-Off

Most people in their fifties and sixties have a very specific vision of their retirement. But if you find yourself unexpectedly getting laid off at age 55, or 63, you are probably feeling extremely stressed about your plans being thrown off course. The reality is that many people retire earlier than they had originally intended due to being laid off, or because of health or family reasons.

We build detailed retirement analysis packages looking at when you can retire, how much you can spend, and how long your money will last. As much science and math goes into those calculations, we should recognize that things don’t always go as planned and that we may have to adjust our plans. If you find yourself unexpectedly out of a job, I want you to know that things will be okay and we can help give you a more informed dissection of what to do next. Here are five steps to get started:

1) Address immediate needs

Figure out your health insurance. COBRA may be very expensive, so take the time to compare COBRA to an individual plan. A lay-off is a qualifying event, so you may be eligible to join your spouse’s health plan without waiting until the next open enrollment period. Avoid gaps in your coverage. Researching your health insurance will likely take more hours than you want to spend, but it’s important to get it right.
Please note that if you are over 65 and did not sign up for Medicare because you had employer group coverage, that post-employment, you have an 8-month Special Enrollment Period to sign up for Medicare without incurring the lifetime surcharge. COBRA is not considered group coverage and will not delay the start of this 8-month window.
File for unemployment benefits so you can receive benefits as soon as you are eligible. You should never quit a job in advance of a layoff; doing so could jeopardize your eligibility for unemployment.

2) Create your household budget

Are you burning cash? How much money will you have left in 6, 12, or 24 months? Making a budget is how you will know. Uncertainty creates fear; planning creates clarity.
Can you live off one spouse’s income? Can you cut expenses? This is often not that difficult to do, but we resent it, because it was unplanned and forced upon us against our wishes. But we cannot stick our heads in the sand and ignore a new financial reality. If you are going to make changes, make them without delay.

3) Start your job search immediately

You have to document weekly job search activity to receive unemployment benefits, so you might as well get started!
It may take you much longer than expected to get your next job. Some of this may unfortunately be due to age discrimination, so I would not discount that consideration. However, many veteran employees have a skill set that was unique to one employer. You may need other skills for what the marketplace requires today. Lay-offs typically occur in jobs where there is a reduction in demand. Your next job may need to be very different.
Be careful of anchoring to your past income. If you are holding out that your next job will be the same work at the same pay as your old job, that may not be a realistic expectation.
Polish your resume and application; consider getting professional help with these materials. Most applications are done online today, so your words represent you. Practice your interview skills and be prepared to answer any question. Network with colleagues and meet with someone every week to chat about your next steps.

4) Consider retiring early

Maybe you are 63 and were planning to retire at 65. The layoff could be a blessing in disguise and will allow you to retire now. Make your budget and let’s take a look at your retirement plan. If you can afford it, why not go for it?
You may realize that you don’t enjoy your work as much as you used to and have other interests now. If you used to make $100,000, you might not be willing to work 50 hours a week for $65,000. Or you may decide that starting a new career isn’t going to be very fulfilling, if all you are doing is marking time for 2-3 years. Consider all your options.

5) Delay spending your nest egg

Can you hold off on withdrawals for a few years and get by on a spouse’s income or from existing cash and unemployment benefits? Postponing withdrawals by even two or three years can have a significant impact on the longevity of your portfolio.
Try to avoid dipping into your IRA and 401(k) at age 60, if you were not planning to touch those monies until age 66. The best withdrawal strategy remains to wait until age 70 1/2 and then take only your Required Minimum Distributions.
Lay-offs are one of the most common reasons people start Social Security benefits early. If you have longevity concerns – and most people should – you want to delay those benefits for as long as you can, even to age 70. You get an 8% increase in benefits by delaying for each year past full retirement age. Patience pays.
Take a part-time or seasonal job if it means you can avoid tapping your retirement accounts. Unemployment benefits are based on weekly income, so you would be better off working 40 hours in one week and zero the following week, versus working 20 hours both weeks.

Bonus: 6) Take care of your emotional needs

It’s easy to focus on the financial aspects of a lay-off, but the emotional impacts are even greater. If you are not yet financially ready for retirement, a very real concern is running out of money in your seventies or later. We need to address those fears with a revised financial plan.
It’s natural to feel resentment and even betrayal when you were planning on giving a company the rest of your working years, and they decide instead to kick you to the curb. It’s important to not take this personally. A lay-off does not have anything to do with your value as a human being, a parent, or even as an employee. If you still feel enthusiasm, optimism, and joy in your work, then your positive attitude will be as valuable to your next employer as your experience!
We need to have a sense of identity, self-worth, and purpose that is not tied to our job. We are more than just an accountant, teacher, or engineer. Many people who are laid off go through the same work withdrawal they would have experienced at retirement. They don’t have their old routine, colleagues, or sense of belonging. Can you fulfill those needs in another way, such as through part-time work, free-lancing, or volunteering? What exactly is it that you miss?

While you can do all these steps on your own, what may give you the most confidence to move forward is to meet with me and prepare a new financial plan. I’ve met a lot of folks in the same situation and can help. We will put together a detailed analysis reflecting your new situation, evaluate all your options, and chart a new course.

Sometimes we choose change and sometimes it is thrust upon us. Change isn’t always easy or what we would have preferred, but ultimately, it’s our attitude that determines how successfully we can adapt.

Will The Real Fiduciary Please Step Forward?

Posted On December 11, 2016 By Scott Stratton, CFP(R), CFA In Financial Planning /

We’ve got some great news – the Department of Labor is finally requiring all financial advisors to adhere to the same level of transparency and fairness that we have with you. In April of 2017, the new DOL Fiduciary Rule is going into effect.

You may wonder what it means for your IRAs and 401(k) accounts. Here is what you need to do: nothing. At least that’s true for the accounts we service for you. If you have retirement accounts elsewhere, it might be a good time to discuss potential impact with us.

The new rule requires some financial services professionals to change their compensation structure to align with client interests. We already adhere to this high standard. You may hear advisors talking about a “new higher standard for retirement accounts.” These firms may be new to the idea of putting you first.

We’ve always put you first and we always will. That’s #1 in our 13 Guiding Beliefs. If you have any questions about the your retirement accounts don’t hesitate to contact us. We’ll be happy to talk about your situation as always.

While the Fiduciary Rule has the objective of protecting consumers and improving practices of the financial industry, I fear the legislation will create additional confusion for investors. Here’s what you might not know about the DOL Fiduciary Rule:

1) It only applies to retirement accounts. The DOL does not have jurisdiction over taxable accounts. That falls to the SEC, FINRA, state securities regulators, state insurance regulators, and banking regulators like the FDIC. There is no one regulator that watches over all investing, finance, and insurance activities. Broker/Dealers will not be required to act as Fiduciaries for your taxable brokerage accounts under the rule. If you have multiple accounts, the rule may apply to some of your accounts and not others.

2) In my opinion, being a Fiduciary means that I should find the best possible solution for my clients, with an objective, independent eye. Under the new rule, a captive insurance agent (one who represents a single company), is also required and presumed to be a Fiduciary. But will that agent recommend another company if it offers a superior product? Will an agent recommend a product with a lower commission, if it might be a better solution? It seems like the potential for a conflict of interest has not changed, in spite of the new label of “Fiduciary”.

3) Merrill Lynch announced this week that their advisors must refer at least two clients a year to other units of Bank of America or have their pay cut by 1%. (Read the Marketwatch article here.) This is not illegal under the Fiduciary Rule, because it is disclosed. What if other banks offer better mortgages, CDs, or other products? That doesn’t sound like putting clients’ needs first to me. Wells Fargo Advisors have a similar program, as I’m sure many big firms do. We do not accept compensation for referrals and never have.

4) As a result of the cost of implementing the new Fiduciary Rule, many firms are dropping small clients and implementing higher account minimums. According to the Investment Company Institute, the DOL Rule is already depriving investors of financial advice.

5) The DOL does not directly enforce this legislation. While the SEC and states have thousands of auditors and field agents who visit, inspect, and enforce securities law, the DOL does not have a team tasked with ensuring Fiduciary compliance. Rather, the Rule will rely on investors to file class action lawsuits. If an advisor violates the Fiduciary Rule, forget getting assistance or relief from the DOL – you need to hire an attorney.

This process seems to me to be a poor way to protect consumers, and very expensive, as attorneys will take a significant portion of any award in court. For firms, we face the potential for frivolous lawsuits, an expense which will have to be passed on to consumers.

I am all in favor of consumer protection. But the new Fiduciary Rule will make it harder for investors to really tell who is truly acting in their best interest.

If you have an IRA in a commission-based account, you can expect your advisor to be moving your account to a fee-based account this year. Instead of having one account which is under a Fiduciary standard, I’d suggest you consider working with a holistic financial planner who will look at your entire financial picture when making recommendations in your best interest.

Money is Time

Posted On November 7, 2016 By Scott Stratton, CFP(R), CFA In Financial Planning /

Benjamin Franklin is credited with the phrase “time is money”, an exhortation to not delay for tomorrow what work you can do today. While this sense of urgency continues to be a universal part of modern life, I think investors can better understand their financial priorities with the reverse thought, Money is Time.

Time is not a limitless resource. We have to choose how we spend our hours. And whether you are a billionaire mogul, a retiree, or a parent working two jobs, we all have the same 24 hours in each day. To me, the goal of money is not the acquisition of material objects, but to afford the privilege of spending my time in the way that I enjoy most. Money can give us the freedom to do what we want, when we want.

Money can enable us to retire from a job, if we no longer enjoy it. Money can allow us to pursue our interests rather than working solely for the money. Work-life balance requires money. Having the courage to turn down work you don’t need or don’t enjoy is only possible when you do not have worries about running out of money.

Money allows us to experience new things, to see the world, and expand our horizons. Money gives us the ability to spend our time where we want, doing what we want. I enjoy variety, and money provides the flexibility to get out of a routine and try other things.

Money can free us from the mundane. Why spend four hours a week cleaning your home if you can afford to hire someone else to do it? Then we can use those hours for something we might enjoy, something more permanent, meaningful, or memorable.

What is the number one reason people don’t go to the gym and take better care of themselves? Not enough time. And unfortunately, poor health can shave years or decades off your life. Having enough money allows you to reset your priorities.

We should stop thinking of money in terms of what it can purchase, and instead recognize that financial independence can give us the one thing that no one can buy: more time. This doesn’t have to be for leisure or laziness. Time could be spent being with those you love, or feeling the satisfaction of volunteering to make your community a better place.

Someone who hoards their money, refusing to spend a penny, is ultimately squandering their time. To allow years to pass without doing what you love, is perhaps the greatest tragedy. You can never get those years back. Many people are mature enough to realize that material possessions won’t bring happiness. But if we think of money in terms of how it can impact your time, the idea of saving and investing may become more appealing and relevant. Could you retire at 62 instead of 65 and give yourself three additional years while you are still young and healthy?

My passion for helping families lead The Good Life, is ultimately about giving you as much time back as possible. That’s why saving early in your career is so important. It is an investment in your future freedom. Now, if you enjoy your work, congratulations, that is a tremendous blessing. But retirement planning is for everyone – just because you love your work, doesn’t mean you don’t need a plan.

I know that for many people, there is not a desire to become a millionaire or to be wealthy. But we all have dreams that require time. Think about how your nest egg could allow you to achieve the life of your dreams. That may give you the real reason to save and invest – not for guilt or fear or greed. Investing is to buy time, experiences, and living. Money is time.

The Price of Financial Advice

Posted On October 31, 2016 By Scott Stratton, CFP(R), CFA In Financial Planning /

You are more likely to achieve your financial goals with my help than without it. Together, we can craft a financial plan that is more than just an investment strategy, but a comprehensive road map to accomplish your goals and avoid the hidden pitfalls which could derail your success. I’ll be there along the way to keep us on course and respond to changing markets, regulations, and needs.

That’s my value proposition. Whether your goals are retirement, college, or making your money work for you, I’ve helped people achieve goals just like yours for more than a decade. Unfortunately, there is often some reluctance to hire a financial advisor, even one who is a Certified Financial Planner professional. Recently, the scandal at Wells Fargo reminded us that that some financial firms still allow short-term profits to take priority over ethical behavior or customer needs.

Years ago, I left the broker-dealer world that was paid by commission to become a fee-based financial planner. I am not a salesman, so why would I want to be paid on a transactional basis? It is a conflict of interests and investors know this. That’s why trust is so low for the financial industry and why many people are still reluctant to seek help even when they need it.

When a survey by Cerulli Associates asked about the most difficult part of working with financial advisors, the top concerns included:

Not sure if the advisors are recommending the best products
I am not sure if I can trust advisors
Costs are not transparent and I don’t know how much I pay advisors
I don’t feel like a top priority client for advisors

Boy, that is sad. Unfortunately, these thoughts are probably familiar and you may have had the exact same concerns. Luckily, you can address most of these issues by changing from a commissioned broker to a fee-based fiduciary. As a fiduciary, my legal obligation is to place client interests ahead of my own. In a 2014 survey by State Street Global Advisors, they found the top reasons why investors prefer fees versus commissions:

36%: I know what I am going to be paying upfront
27%: My advisor is invested in my success
20%: I trust that my advisor is not selecting costlier investment products just to drive up commissions
10%: An actively traded account could result in high commissions, costing more than fees
7%: I can deduct investment advisor fees on my taxes

Which would you prefer?
A) I’m not sure how my advisor gets paid or if I can trust him. Am I in the best products or the ones with the highest commissions?
Or B) I know exactly how and how much my advisor is paid. My advisor is paid by me for providing advice over time not a commission for a sale. My advisor has my best interests in mind.

At Good Life Wealth Management, our approach is simple and transparent. We offer two programs:

1) Premier Wealth Management. For investors seeking holistic financial planning and wealth management. Our fee is 1% of assets under management ($250,000 minimum). Most common needs include retirement income planning, portfolio management, college savings, tax and estate planning, and risk management.

2) Wealth Builder Program. For newer investors seeking to build a personally-tailored financial foundation. The fee is $200/month (under $250,000). Most common needs are IRAs, employee benefits, net worth analysis, student loan advice, savings strategies and term life insurance.

The fee conversation often takes center stage for the decision about choosing a financial advisor. But it shouldn’t. We ought to be focusing on what we can do for you and about how working together will put you in a position to be more likely to achieve your goals. Investors work with me because they want peace of mind knowing that I have their back. My clients are very intelligent and could undoubtedly “do it themselves”. But that is not what most successful investors do. Why not?

They have better uses of their time. They would rather spend their time on work, family, or collecting cat figurines (or insert your actual hobby).
They recognize that they “don’t know what they don’t know”. Most people don’t have the interest in studying finance in their spare time, but even if they did, there remains the risk of missing information and not keeping up with new developments.
Leaders delegate to experts. You can’t be an expert at everything. You should have a good CPA, Attorney, and Financial Planner who know you so well that they can anticipate your needs.
It’s tough to be objective about money. For couples, conversations about money are often, how shall we say, counterproductive? An advisor brings an outside perspective, expertise, and insight to create a plan that works for both of you.

I remember the first day of ECON 101 at Oberlin – Professor Zinser started the class by writing this on the board: TINSTAAFL. There is no such thing as a free lunch. If you’re looking for financial help, it’s fair to ask what it will cost. That’s because if someone is offering you a free lunch, you know that it may ultimately be a very, very expensive lunch. Know what you are paying your financial advisor. Ask.

If you’re looking for comprehensive planning, or just help with a couple of questions, give me a call. Yes, there is a price for financial advice. I aim to make that cost completely transparent, so you can have the confidence to move forward and get to more important questions about how we can achieve your financial goals together.

23 Ways to Save Money

Posted On October 24, 2016 By Scott Stratton, CFP(R), CFA In Financial Planning / 1 Comment

A penny saved is a penny earned. I write often about how much you might need to invest for retirement, college, and other financial goals. While I can help with the financial planning strategies and investment advice, it’s up to each client to save the cash required to meet these goals. And this crucial first step is often easier said than done!

There is some amount that each family is comfortable saving. Unfortunately, for many of us, the amount we need to save is often much larger than the amount we’d like to save. Here are 23 ways to save money, hopefully with little or no sacrifice on your behalf.

1. If you pay off your credit card monthly, use a cash back rewards card rather than a debit card, cash, or check. I put everything I can on the credit card – and have gotten back $907 so far this year.

2. Drop your landline and use your cell phone as your one and only phone. You still have a landline?

3. Drop cable or satellite for Netflix or another streaming service. We probably watch too much TV as a society, myself included. Read a book instead.

4. Buy used items online, from Craigslist, or at local sales.

5. Sell your unneeded items on Craigslist. Cash is better than a tax deduction of the same amount.

6. Wait to buy items on sale. Never pay full price. There are a number of apps that scan barcodes and will show you reviews and prices of that item.

7. Get a programmable thermostat. For every degree you adjust the thermostat, you may see a 3% change in your utility bill.

8. Replace light bulbs with LEDs. Prices have come down quite a bit in the last three years. They use a fraction of the electricity and will last for years. I’m a fan of the Cree floodlights.

9. DIY Home Energy Audit. US Department of Energy instructions here.

10. Compare your Texas electric rates at PowertoChoose.org. These tend to creep up after your initial guarantee period is over.

11. Shop your home and auto insurance every three years.

12. Save money on pets: 5 Ways to Save Money When Adopting a Pet.

13. Volunteer. Looking for something fun and interesting where you can make the world a better place? Find an organization doing great work and volunteer! You don’t have to spend a lot of money to have an interesting and satisfying weekend.

14. Prepare meals at home or eat at home. If you are going to eat at a restaurant, lunch is usually much less expensive than dinner.

15. Shop at Target? Get the Red Card for 5% off and free shipping. Sign up for the Cartwheel app for additional discounts.

16. Shop at Walmart? Download the Savings Catcher app. You scan your Walmart receipt and if they find a lower price elsewhere, they refund the difference to you.

17. The car advice I always give, the short version: Keep your current car for as long as you can. When you must buy your next vehicle, buy used and pay cash.

18. You don’t save much by doing your own oil changes. But if you are mechanically inclined, you can save a lot of money by doing your own brake jobs and other routine maintenance and repairs. Check YouTube for video instructions.

19. If your car is out of warranty, find a reputable independent mechanic rather than having all work done at the dealership. Develop a relationship with one mechanic.

20. Cheapest local gas prices: gasbuddy,com.

21. Do you need two cars? How often? Could you get by with one car plus using a Taxi or Uber a few days a month?

22. Don’t want to spend hours tracking a monthly budget? Read my tips about Reverse Budgeting and putting your savings on autopilot.

23. For inspiration, I subscribe to a number of frugality blogs which share ideas, frugal fails, and a chance to read about others’ journey. Media bombards us with a message of consumption, but not everyone buys into the materialism they’re selling. We all need a reminder from time to time that “more stuff” or the “latest and greatest” is neither the source of happiness nor financial independence! Make your goals the top priority for your cash flow.

5 Questions to Ask Your Advisor Before a Recession

Posted On October 17, 2016 By Scott Stratton, CFP(R), CFA In Financial Planning /

It’s a matter of when, and not if, the economy will sink into recession. I’m not saying that because of some dire economic forecast – it is simply the reality of the economic cycle. We have not had a significant market correction since 08-09, and 7 1/2 years is a pretty long stretch historically. Even as a card-carrying optimist, I have to admit that there is always the possibility that our tepid GDP growth could turn negative in 2017 or in the near future. But market volatility could occur for any number of reasons, recession or not.

It’s vitally important that investors communicate with their advisors during the good times to understand what to expect when the market is down. The longer the current bull market runs, the more we forget how painful volatility can be. Make sure you understand the game plan before there’s a downturn. If you haven’t discussed these five questions with your advisor, it’s time for a meeting.

1) “When there is a downturn, will we change our investment allocation?”
We explain to clients that we do not time the market and that we are long-term, buy and hold investors. They nod in agreement, but then when the market goes down by 10%, I sometimes get calls asking if we should go to cash to avoid further losses. The answer is no, we don’t time the market. In fact, we will rebalance in downturns, buying stocks when everyone else is selling. It’s a discipline that works.

We have ample evidence why we think this approach is best one for investors. When we do have a downturn, emotions tend to take over our decision making process, often leading to sub-optimal results. The best time to have the fire drill is before the fire. Plan what you will do in advance. Make sure you do not turn a temporary decline into a permanent loss of capital by having a knee-jerk reaction when the market dips.

2) “How much risk is in my portfolio? How would it have performed in 2008-2009?”
While there’s no guarantee what will happen in the future, clients should at least understand how they are currently positioned. The best time to reallocate is when the market is up. If your current allocation is more aggressive than your risk tolerance, you should be making changes today to a more conservative strategy.

3) “How can we capitalize on the next downturn?”
You make your money in bear markets; you just don’t know it until later. Ask not only about defense but how we can profit from the inevitable cycles in the economy and markets. What would we like to be able to buy on sale? If we view a market downturn as an opportunity rather than a catastrophe, it will change how we respond. In hindsight, 2008-2009 was a remarkable chance to make the buys of a lifetime. The willingness to buy when everyone else wants to sell takes planning and commitment.

4) “Are there any changes that should be made to my portfolio if there could be a recession in 2017?”
If you are in a 70/30 portfolio, what would happen if you went to a 60/40 portfolio today? Many investors get stuck in thinking that investing should be all-in or all-out. Most of the time, fine tuning and making minor adjustments is a better approach. It’s a good time to revisit your 401(k) and other accounts, as well as to rebalance any equity positions which have run up in recent years.

5) “How could investment performance impact our financial goals?”
If you are close to retirement, the impact could be more significant than for someone in their thirties. Would a recession require that you push back your retirement or other goals? Hopefully your advisor is already considering these factors, but anytime you have a shorter time horizon, it pays to be having these conversations regularly.

I hope this doesn’t sound a pessimistic tone. To be clear, I am not predicting a recession. Pullbacks in the market are completely normal and part of the economic cycle. What no one knows is if we are still in the mid-cycle growth phase of this cycle or at the end-cycle plateau. Economists can only determine this in hindsight. We have a plan in place for each client and want to be sure we talk about volatility before it occurs.

Helping HENRY

Posted On October 5, 2016 By Scott Stratton, CFP(R), CFA In Financial Planning /

On Thursday, the CFP Board published the results of a consumer survey they undertook this spring. Based on interviews of 1000 adults over age 25, they identified four groups: Concerned Strivers, Stretched Worriers, Confident Savers, and Tentative Savers. At 27% of the respondents, Concerned Strivers could benefit tremendously from financial planning, but many investment firms are not equipped to help them because they may have little or even zero in investment assets today outside of their 401(k).

“The Concerned Striver has many day-to-day challenges that make it hard for them to save with any regularity,” said CFP Board Consumer Advocate Eleanor Blayney, CFP®. “Concerned Strivers feel like they can deal with the immediate needs of their families, but may neglect saving for their own future. They have good intentions, adequate resources and employer-sponsored retirement plans, yet they feel they are unable to capitalize on these financial strengths.”

We have an acronym for Concerned Strivers: HENRY, High Earners Not Rich Yet. There are so many families and professionals here in Dallas who are in their twenties, thirties, and forties and have incomes of $100,000 to $500,000 and yet have little or no investment assets. Between mortgages, car loans, credit cards, and student debt, they may have a negative net worth with no relief in sight.

While some HENRYs are “not rich yet”, many will be not rich ever, based on their current trajectory. You can change this. If you are are a Concerned Striver, you need the guidance of a Fiduciary – an expert whose legal and sole obligation is to put your needs first – and not someone who gets paid a commission to sell you investments and then give you a “free” plan.

Many people assume that they don’t have enough assets to be a client of Good Life Wealth Management. I am a former educator and it’s in my blood to want to help people get started. I want to make a difference in people’s lives. That’s why we offer two distinct programs.

Our Premier Wealth Management program is for investors with over $250,000 and focuses on holistic financial planning, retirement preparation, and investment management. For our clients with under $250,000 – even $0 – we created our Wealth Builder Program to build a strong financial foundation and put you on the path to your first million.

With our Wealth Builder Program, we will help you accomplish your goals and priorities:

Get out of debt: managing loan repayments and cash flow priorities.
Invest monthly – however much or little you can afford – to build your wealth.
Track your net worth annually to measure your assets and liabilities. Awareness creates behavior to increase assets and reduce liabilities. It’s like knowing you have to step on the bathroom scale Monday morning.
Select employee benefits and advise on 401(k) decisions.
Term Life Insurance, if you have a spouse or children. (The only life insurance a Concerned Striver needs).
College planning for your children that considers all your other financial goals.
Bring a “neutral” coach to improve communication about money with your spouse. A financial planner is still cheaper than a divorce!

The Wealth Builder Program is $200 a month, and is cancelable at any time if you are unsatisfied. That’s probably less than your cell phone bill or how much you spend on coffee. Make an investment in your future. Find out more here.

I know that every fifty-year old millionaire was once a thirty-year old facing these very issues and concerns. Some of those thirty-year old professionals will become financially independent if they make smart decisions. There’s no need to reinvent the wheel, I can show you what works. But it’s not one-sided. You have to be coachable: eager to participate actively and willing to make changes. If that describes you, we could go a long ways together as a team. What are you waiting for, Henry?

Charitable Giving Rules and Strategies

Posted On September 19, 2016 By Scott Stratton, CFP(R), CFA In Financial Planning /

Is Charitable Giving part of your financial plan? It is part of ours. At Good Life Wealth Management, we donate a minimum of 10% of pre-tax profits annually. We believe that charitable giving is the ultimate expression of financial freedom. Having the ability to help others and make the world a better place, without fear of running out of resources for ourselves, is perhaps the best definition of financial independence. So many people have helped us get to where we are today, it is only right that we look to make a difference through our work, our time, and our financial support.

The IRS rules behind deducting your donations are not well understood by most taxpayers. There are strategies which can make your giving dollars go farther. Even if you have been making charitable gifts for many decades, chances are that you will learn something new in this article.

1) Qualified Charities. If you are wondering whether your donation to a particular organization is tax-deductible, check the IRS database: Exempt Organization Select Check. There are some organizations, such as political parties or candidates, fraternal organizations, chambers of commerce, or lobbying groups, which are not eligible for tax-deductible donations. Donations to individuals are not tax deductible, either.

2) Deduction limits. Charitable donations are part of itemized deductions. If you take the standard deduction, you are not getting any tax benefit from your charitable giving. If this is the case, try alternating years of itemized and standard deductions. Aim to “stuff” all your itemized deductions into one year. For example, you can pay your property taxes in January and then again in December, which puts two years of deductions into one year for tax purposes. Do the same with your charitable giving

There are limits to how much you can deduct, based on on your Adjusted Gross Income (AGI). If your donations are more than 20% of your AGI, you need to know these rules:

For most charities, you can deduct donations up to 50% of AGI.
If you donate Capital Gain Property, the limit is 30%.
For certain charities, including private foundations, veterans’ organizations, and non-profit cemeteries, the limit is 30%.
Capital Gain Property donated to 30% organizations is limited to 20% of AGI.
If you exceed these limits, the good news is that the excess will carry forward for the next five years.

Lastly, your itemized deductions – including charitable donations – may be reduced under the Pease limitations for high income earners.

3) Cash Donations. Cash donations under $250 may be substantiated with a cancelled check or credit card statement. Donations over $250 require an acknowledgement from the organization. Please note that if you receive anything in return for your donation (event tickets, T-shirt, etc.), the value of the goods or services received must be subtracted from the value of the donation. Most tickets to charity events, raffles, or contests are non-deductible.

4) Non-Cash Donations. Non-Cash Donations are an area of scrutiny for the IRS, and the record keeping requirements are more strict. You are limited to the fair market value of goods donated, and generally, not your cost basis in the items donated.

Under $250. A receipt from the organization, including a “reasonably detailed description” of the property. You may determine the value, but need to document how you calculated the value.
$250-$500. You must have a receipt from the organization, including the value of the items donated.
$501-$5,000. In addition to the requirements above, you must document how you acquired the property, when, and your cost basis. If you are donating an item to a charity auction, the receipt from the organization should indicate the amount that the item sold for, which could differ significantly from your opinion of value.
Over $5,000. You must also obtain a written appraisal from a qualified, independent appraiser.

5) Appreciated Securities. If you are planning on making larger donations, it may be worthwhile to donate appreciate securities (shares of stock, mutual funds, etc.) rather than making a cash donation. You still get the full value of your donation (and the charity gets the full amount), but you also will avoid paying capital gains tax on those securities. Since the charity is a tax exempt organization, they pay no capital gains when they sell your securities.

For example, consider a donation of $10,000. You could donate cash, or a $10,000 of a fund. Yous cost basis in the fund is $4000, so you would have a gain of $6000. At a 15% capital gains rate, you would avoid $900 in capital gains. If you are in the top bracket, you pay 23.8% for long-term capital gains, so you would save $1,428 in this example.

If you want, you can put the $10,000 cash you were planning to donate into your brokerage account and immediately repurchase your shares. There’s no waiting period or wash sale on donating gains! Now you have made your donation as planned, avoided some capital gains, and still have the same number of shares, but have reset your cost basis higher. Win-win-win.

6) IRA RMD. Last year, Congress made permanent the rules on Qualified Charitable Distributions from your Individual Retirement Account. If you are over age 70 1/2, you can make a distribution directly from your IRA to the charity of your choice, in fulfillment of your Required Minimum Distribution. I wrote in detail about who should use this benefit here: Qualified Charitable Distributions From Your IRA.

7) Donor Advised Fund (DAF). Also called a Charitable Gift Fund, a DAF is a charitable fund that allows you to make a tax deductible donation today, invest those funds, and distribute money to charities of your choice in the future. The DAF is itself a public charity, so your creating and funding an account is tax-deductible. It is also permanent and irrevocable, so plan carefully! Once funded, you can purchase various investments, such as cash, mutual funds, or other securities.

A DAF is great if you have significant windfall in one year – for example, through the sale of a business or real estate – and want to plan ahead for future giving. For example, you could put $100,000 into the fund, and receive a $100,000 deduction this year. You can subsequently make donations for the next 20 or 25 years, if you wanted to. A DAF is often a better solution than setting up a private foundation for family giving. If you have a significant financial event, you may be pushed into the top tax bracket of 43.4%. If that happens, every $1000 you put into a DAF will save you $434 in taxes. If you were ultimately planning to give that money to charity in the future, it would be crazy to not look at keeping more of your money out of the hands of the IRS today.

While the gift to the DAF is irrevocable, you still control the disbursements from the account, so you can decide when, to whom, and how much you give. You may love a charity today, but 10 years from now may find another that you feel is more deserving. This may be preferable to donating a significant amount to one charity in a single year. A DAF is also a great way to involve your children or grandchildren in your family’s philanthropy.

Certainly the purpose of Charitable Giving is not to get a tax-deduction. But if the government is going to give us financial incentives to encourage our donations, we should take advantage of those opportunities. Significant tax savings today means that you will have more money left over to donate in the future. Why pay 15% to 43.4% (or 50%+ in California, New York, and other states) tax on each dollar you donate?

Many people prefer to leave gifts to charity through their will. While this has the advantage of making sure you do not run out of money while you’re alive, you lose the benefit of reducing your income taxes today. If you have more than enough money, it may be preferable to give while you are alive, to enjoy seeing the good your money can do. That will give you better tax benefits, and also avoids problems with your will.

I know of a deceased individual (not a client) who planned to leave several million to charity and “only” $1 million to each child. The children are contesting the will and besides tying up the money for years, attorney’s fees will end up reducing the proceeds by at least $1 million. This tragic situation of a contested will is all too common, but could be avoided with better planning and communication. That’s where professional advice can help.

How can we help you with your charitable planning?

Can You Afford a Second Home?

Posted On August 22, 2016 By Scott Stratton, CFP(R), CFA In Financial Planning /

When asked to describe their idea of living The Good Life, many investors tell me that they have a special place – a lake, mountain, beach, or city – that is near and dear to their heart. Their dream is to have a get away, not at retirement, but now to spend with their families and build the memories that will last a lifetime. If you find yourself constantly dreaming about that perfect Florida beach or the stillness of a snow-capped Colorado peak, it won’t be long before you find yourself Googling home prices in your favorite vacation town and thinking about the possibilities.

Having a second home is a wonderful thing, when done properly. It can also be stressful, time-consuming, and an enormous financial drain which can impact your financial stability and even your solvency. When the financial crisis hit, buyers of vacation properties disappeared, leaving cash-strapped owners in a tragic process of liquidating properties at enormous losses.

Today, prices have recovered and in many areas are back to fresh highs. Not only have bargains largely disappeared, prices have been driven up in popular locations by foreign investors who want to get money out of their own country and into the stability of US dollars. For many international investors, it is easier to buy US real estate than it would be to open a brokerage account in the US.

If you are contemplating buying a second home, be smart and make sure your decisions are based on a thorough and comprehensive examination of the financial details involved. For our financial planning process, that would mean adding in the realistic costs of a second home into our software and examining the results. Would the drain of a second home crowd out other cash flow goals such as retirement? Would you have to delay retirement by several years to keep your retirement success above 80 or 90 percent?

I own a second home, and have spoken with dozens of clients about their experiences over the years. Here’s my advice if you’re thinking of taking the plunge:

1) A second home is not an investment. It’s great if your Uncle made millions off the property he bought in Beaver Creek in 1976, but this is 2016. Very few people make money off their vacation properties, and even fewer actually consider their total costs of interest, taxes, insurance, upkeep, and utilities, when making a profit calculation. In other words, buying a condo for $400,000 and selling it for $450,000 five years later means you probably lost money. A 6% real estate commission would immediately reduce your proceeds from $450,000 to $423,000. Take out your other costs and you almost certainly have a negative return, even if you have a capital gain for tax purposes.

When we want something, our mind will go to great lengths to rationalize why it is a good idea. I once had a client bring me a spreadsheet showing the value of a condo in Hawaii increasing by 9% a year for the next 40 years. Why? Because he said it was a fact that condos in Hawaii increase by 9% every year.

I’m not saying a second home is a bad idea, but it’s best to not start with rose-colored glasses thinking that it will be a killer investment. Instead, examine the costs of a second home and calculate if you can afford this expense as part of your lifestyle. If, after many years of enjoyment, you were to turn an actual profit, consider yourself fortunate to have had such good luck.

2) If you are only going to be there two weeks a year, you will probably be better off staying at a hotel or rental rather than buying a property. This is not only likely to be the less expensive route, it also frees you from the mental and emotional drain of having a second home. Besides paying more bills, you have the difficulty and hassle of maintaining a property that is hundreds or thousands of miles away.

Don’t worry, there are management companies to look after your property, right? Yes, for a cost. Thinking that you can effortlessly rent out your vacation property when you are not there and it will pay for itself? While you may be able to offset your management fees and some other expenses, I have yet to meet anyone who actually pays their whole mortgage through renting. Instead, many drop out of the rental process altogether, citing time, added stress, damages, and wear and tear on their property, with minimal rent to show for it.

You should budget 1-2% of the purchase price per year to spend on repairs and maintenance. Some years you will spend less, but in other years, you may need to replace a roof, furnace, or other major item. Is your emergency fund big enough to cover two homes? There will be days when having two homes feels like you are trying to prove Murphy’s Law – if something can go wrong, it will!

If you want to save yourself the headache of getting that 11 pm call in December that the hot water heater is out, don’t be an absentee owner. Just take vacations. If after five years at the same beach, you decide you’d rather go to Europe next summer, you can change your plans and not feel like you are obligated to go to your second home year after year. In fact, behavioral finance suggests that you may have more memories and find more fulfillment from taking 10 different vacations rather than going to the same place for 10 summers in a row.

3) On taxes and finances, a few points to consider:

You can deduct mortgage interest and property taxes on a second home. These are itemized deductions.
Only your primary residence is eligible for a capital gains exclusion of $250,000 ($500,000 if married). For a second home, keep records of any capital improvements which would increase your cost basis. If you have a very large potential capital gain, you can receive the primary residence capital gains exclusion by making the property your primary residence for two years. As long as a property was your primary residence for two of the past five years, you are eligible. Keep capital gains records until seven years after the sale.
You can rent out a primary or second home for 14 days a year tax-free. You don’t even have to report this income!
If you use the property personally for more than 14 days or more than 10% of the total rental days per year, it is considered a personal residence and you can only deduct rental expenses up to the amount of rental income.
If your personal use of the property is less than 14 days AND less than 10% of the total rental days, the property is considered a rental property (a business), and not a second home. You can deduct losses and may depreciate the property. Note that days you spend full-time on repairs and maintenance (but not improvements) are not considered personal use days, even if the rest of your family is enjoying recreation that day.
If you let others stay for free, or below fair rental price, or give away days (even to a charity auction), those are considered personal use days.
Before you rent, make sure your insurance covers renting. Talk with owners of similar properties if you want a realistic idea of how many days of your property might be rented each season. Do your homework before you buy.
In Texas, primary residences are creditor protected, 1 acre in town or 100 acres rural, with no limit on value. These are doubled for married couples. Second homes are not creditor protected. Which mortgage should you pay off first? Probably your primary residence.

Link: IRS Publication 527, Residential Rental Property Including Rental of Vacation Homes.

If all this makes your head hurt, you may be happier keeping your life simple and just enjoying your vacations without owning a second home. You cannot ask your accountant to sort this all out at the end of the year if you haven’t kept complete records of use/rental days and expenses.

4) When it comes to affordability, don’t let a mortgage broker tell you how much you can afford. They calculate the maximum the bank is willing to lend you; they don’t care about your other priorities like contributing to your 401(k) or paying for your kid’s college. If you want to know what you can afford and still accomplish your other goals, you need to do a financial plan. That’s where I can help.

5) Not surprisingly, the vast majority of people I have met who purchased a timeshare have been frustrated and regretted the decision. Similarly, friends who purchase property together often find things become less than cordial when disagreements arise over use, expenses, or maintenance.

Link: HGTV Top 10 Things to Know About Buying a Second Home