Investing

Dollar Cost Averaging: Facts and Myths

By admin  |  2010/01/27 12:17 Posted in Investing  |  Comments (0)

Most everyone has heard the term “dollar cost averaging” (DCA) as a way to invest money into the market. Unfortunately, there is much misunderstanding about the topic including the validity of the process.

Let’s look at an example of DCA. Lets say you just inherited $20,000 and you decided to invest it in the stock market. Once you have determined a proper asset allocation (mix of investments appropriate for your risk tolerance, risk capacity and goals) you could invest it all at once or do “dollar cost averaging” into the securities by purchasing a set dollar amount of securities at pre-determined intervals. An example would be investing $1666.67 on the first of each month for 12 months.

Dollar cost averaging is NOT the same as a pre-determined savings. Here you have decided to save $1666.67 a month from your income so that at the end of the year you have accumulated $20,000. Many people use this pre-determined savings technique for contributions to their retirement savings plans, as well as regular investment accounts, but remember this is not DCA.

The stated goal of DCA is to purchase more shares when the price is low, and fewer shares what the price is high thus providing a lower total average cost per share of the investment and giving the investor a lower overall cost over time.

There are several problems with this goal. The first is that no one intends to put money into an investment that they expect to go down. Dollar cost averaging is predicated on the fact that the investor expects share price to be lower in the future than it is currently. Historic price information proves that shares go up more often than they go down.

Go to: http://www.moneychimp.com/features/dollar_cost.htm to see this for yourself. There is a very good online calculator that will allow you to see the difference between lump sum investing vs. dollar cost averaging using the S&P 500 going back to 1950. The majority of the time, investors are better off with lump sum investing.

The second problem of dollar cost averaging is it fails to address the often higher transaction costs of making more numerous smaller acquisitions. This may be why many investment companies encourage you to cost average when it leads to higher fees for their companies.

The topic “dollar cost averaging” is a popular search engine title that is used to garner increased revenues for certain online companies. Take for example About.com: Investing for Beginners. Joshua Kennon writes “DCA is a technique that drastically reduces market risk”. He sites no evidence for this statement. This site is sponsored by banks wishing you to open accounts, investment companies wanting to sell you stocks, others that wish to sell you bonds and lastly those that wish you to dollar cost average into their investments. Sponsors usually pay based on how many people view the site, not on the accuracy of what is posted.

Suze Orman has claimed that DCA “reduces exposure to certain forms of financial risk”. However, others believe “DCA is nothing more than a marketing gimmick and not a sound investment strategy”. Keep in mind Susie makes her living from marketing her books, TV appearances, CDs and other products.

On the other hand, we have economists, including Nobel Prize winner Kenneth Fama who states that if you have determined the proper allocation for your investments you are better served to be in the proper allocation sooner rather than later. DCA delays the proper allocation.

It has also been academically shown that you get higher investment returns by having the proper allocation rather than when or how you buy into the market

Professor Fama believes that DCA is a method to ease the investors worries of making a larger investment in the market versus a number of smaller investments over time. He states that dollar cost averaging may give investors a better overall “investment experience” but may not give a better “investment performance”.

The long and the short of DCA is that “it does not make financial sense to DCA, but if you sleep better at night not worrying as much, it probably won’t hurt you in the long run”.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.

California Dept. of Corporations Has "Must Read" Publication

By admin  |  2010/01/20 13:24 Posted in Financial planning, General info, Investing  |  Comments (0)

In over 25 years for helping people to preserve, protect and grow their assets, many publications have crossed my desk. All were designed to help those approaching or in retirement. Perhaps the best one ever is from the Ca Dept of Corporations and is free. “Protect Yourself from Fraud” is easy to read, well written covers a large variety of topics and should be a must read for everyone.

The Dept of Corporations is the States’ Investment Financing Authority. It protects consumers by regulating companies and individuals that offer investment advice, securities, and consumer loans amongst other things.

The Department is committed to making the public more aware of the types of fraud and schemes that are being committed against consumers but particularly seniors.

Common Investment scams are reviewed including seminars with ”Free Meals”. It is always amazing the number of people who do not know that there is “no free lunch” and those that are advertised as free always have a hook.

Several telephone scams are reviewed including those telling you that you must return a call to “area code 809” for what appears to be a legitimate reason, only to discover the toll charges to the Virgin Islands could be hundreds of dollars per minute.

Other common scams involve con artists posing as a Charity or home repair while others go so far as to use a distraction and actually commit a burglary.

With the recent events in the housing market, there are increased scams with predatory mortgage lending. There are also companies preying on those that are behind in their mortgage payments and trick the unsuspecting into ”jumping from the frying pan into the fire”.

The publication has a good section on how to check your credit, protecting your credit and what to do if your identity is stolen.

One of the best tips that I wish everybody would listen to is to “Investigate before you invest and not after”. It could be your bank, insurance salesman or a call over the phone that tells you about a product/ investment that sounds to good to be true. If you only had read the fine print or asked for a second opinion (from an expert who is not selling) before you write the check, you would be better off.

There are other sections on important topics such as reverse mortgages, annuity purchase, end of life paperwork, and things you can do when you have financial difficulties.

Elder abuse and financial elder abuse are increasing in frequency as there are more people living longer every year. Unfortunately financial abuse often goes on without the victim’s knowledge. The exploiter can often be a family member or trusted personal attendant. If you experience, witness or suspect elder abuse immediately contact Adult Protective Services.

Lastly is a wonderful “resource section” that lists the contact information for a number of agencies that are designed to help safeguard those that would be intended victims.

I encourage everyone to pick up the phone and call 866-275-2677 and ask that you be mailed the booklet entitled “Protect Yourself from Fraud”. Do not miss this very worthwhile free publication.

Michael Chamberlain CFP®
Ca Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.

Tech Stock, Housing Boom and Bust – Is Gold Next?

By admin  |  2010/01/06 10:23 Posted in Investing  |  Comments (0)

Most everyone remembers the run up of the price of tech stocks about ten years ago. It was commonly referred to as the dot com bubble. The technology laden NASDAQ composite index went from roughly 800 to 5000 in six years, only to have it come tumbling down. In reality, the value was just not there.

More recently we’ve had the housing bubble when home prices were going up 20 to 30% a year. In some cases the price of a house doubled in less than 4 years, only to have the bubble break and prices dramatically fall. What went up in value has come crashing down.

In the last five years, the price of an ounce of gold has gone from $450 to over $1100. Its rapid increase in price looks very similar to what happened to the price of tech stocks in the 90s and housing prices this decade.

Gold prices, years ago was set by the government. Since the dollar was backed by gold, there were small increases over time but no wide variation in price. In the early 1970’s the United States went off the gold standard and now the price fluctuates based on demand.

Gold is a very unusual investment. It has no interest paid from owning it, there is no dividend stream and there is no cash flow generated from it in order to establish a value. There is no value derived from owning it as there is with owning a home. The value is now decided by supply and demand.

There seems to be three reasons for the increased demand: the fear of inflation (due to this country’s large amount of deficit spending), the media needing something to talk about and a lot of companies involved in selling gold doing a lot of advertising.

A fourth component to the increased demand could possibly also be what is called the “herd mentality”. If as an investor, you are hearing from your friends and neighbors on how their recent investment in gold has been up 100% and they plan on buying more and you would want similar returns so consider buying gold as well. This is exactly what happened with both the tech boom and the housing boom. What generally happens when you follow the herd is that you usually end up stepping in what the herd has left behind.

There are also definite problems in owning gold. In many cases, there are very high commissions built into the price of your purchase. When you need to sell the gold you never get the current market rate because of the transaction costs.

As far as an inflation hedge, you can’t hold enough gold to hedge your other investments because there’s just not enough of it. Once this is better understood the demand for gold may follow the same “ bust” as occurred with tech stocks and house prices.

Then there is the issue of storage. Are you going to keep it in your closet where it would be subject to theft? Putting it in a safe deposit box is not practical because it is so heavy. Do you pay to have it in a secure storage facility?

While the drop in gold prices have not occurred yet, the upward climb in price as a scary similarity to the tech stock and house price boom and then bust.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.

Protect Yourself From Investment Fraud

By admin  |  2010/01/04 10:47 Posted in Financial planning, Investing  |  Comments (0)

The media is full of stories about investment fraud and sales abuse. Wells Fargo was sued by the State of California for selling investments that were not as safe as reported. Bank of America was sued for involvement in a Ponzi scheme. Ameriprise paid a fine for selling products unsuited to clients retirement accounts. And of course the Bernie Madoff hedge fund scandal where people lost millions.

Now is a great time to review some methods to protect yourself from possible investment fraud and misrepresentation.

1. If an investment salesman uses the phrases such as; high rate of return, risk-free, your investment is guaranteed against loss, you must invest now, you should be wary and be extra careful.

2. Security laws protect investors by requiring companies to provide investors with specific written information about the company. Unfortunately, this information is very detailed and is buried amongst dozens of pages of the prospectus. Security laws safeguards are of no value if you don’t read the information prior to the purchase.

3. Be aware of the risk associated with an investment. Most people know that a certificate of deposit at a bank is less risky than investing with someone who contacted you by phone or investing with someone you know through your church or a friend. Many people do not know how to assess the risk of bonds, mutual funds or stocks.

4. Suppose a friend tells you about an investment opportunity that has earned returns of 20% during the past year. Your investments have been performing poorly and you’re interested in earning higher returns. This person is your friend and you trust them, however you should not invest until you call your securities regulator to see if the investment has been registered to be sold legally. It would be wise to get a second opinion from an investment professional who is not selling the investment.

5. When making an investment, do not rely on testimonials of others, advertising and news stories in the media or on the Internet, or technical data that you don’t really understand. You should rely on information that has been filed with your securities regulator. If you don’t understand it don’t buy it.

6. The best way to protect yourself from investment fraud includes; read all disclosure documents about the investment, be skeptical and ask questions and never write a check for investment in the name of your salesperson. The NASAA recommends investors seek the advice from an independent objective source (a professional who is not selling the investment).

7. When dealing with an investment salesperson who you consider reputable, you should; request copies of opening documentation to verify your investment goals and objectives are stated correctly, evaluate your salesperson’s recommendations by doing your own research before you buy, review all correspondence and account statements when received, and never allow the salesperson to manager assets as they see fit.

8. Numerous investments have been used to defraud the public including; short-term promissory notes, deeds of trust, offshore investments to avoid taxes, Nigerian advance fee letters amongst others. If it sounds too good to be true it probably is!

9. If you work with the an investment salesperson and he or she asks you to invest in a product that they are really excited about but the recommendation is different from financial products you have previously invested in, you should be sure to check with your security regulator to see if there’s any information on the investment product and that the salesperson is authorized to sell that product.

10. Do not assume an investment is legitimate just because the promotional materials and company website look professional, have a prestigious office location, other investors report quick upfront returns or the company has an official sounding name. Make the decision only after completing your due diligence.

11. Remember, no one insures you against investment loss. Make sure that your investments are appropriate for your risk tolerance (your ability to mentally handle the ups and downs) your risk capacity (your financial situation) and your goals and timeframe.

12. Whenever the sale of investment generates a commission for the salesperson, there is a possibility of misrepresentation or that it may not be as well suited to your circumstance and situation. This is the reason investors are wise to get a second opinion from an investment professional who does not sell product but only provides objective advice.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.

Legislature Does Not Protect Investors

By admin  |  2009/12/30 11:52 Posted in Financial planning, Investing, My soap box  |  Comments (0)

Congress is reportedly attempting to improve the safeguards for the investing public. Sweeping financial services reform legislation was approved last week in the House of Representatives. But there were some evidently last minute changes inserted into the bill by lobbyists to benefit big Wall Street Broker Dealers such as Charles Schwab.

Registered Investment Advisors give investment advice and they have a fiduciary duty to always do what’s in the best interest of the client. Broker dealer representatives are not responsible to do what’s best for the client and operate at a lower standard of what is called “suitability”. They only have to do what is suitable for the client, not what is best.

Some financial advisors are registered as both investment advisors that operate under the fiduciary duty and also representatives of the broker dealer and operate under the lower suitability standards. These double licensed individuals change from the White hat of investment advisor to the Black hat of the salesman. It is impossible for clients to know which hat the advisor is wearing and whether they are getting advice or being sold a bill of goods.

It was the Security and Exchange Commission’s recommendation that all individuals who give financial advice should operate with the client’s best interest in mind at all times. The head of the committee that produced the bill, Barney Frank, agreed that investors should be projected by the fiduciary standard.

So how is it that the House of Representatives passes legislation, if enacted, would require the Securities and Exchange Commission to write rules that would establish a fiduciary duty for brokers to provide investment advice but the bill adds a qualifier to that requirement saying,” nothing in this section shall require a broker or dealer or registered representative to have a continuing duty of care or loyalty to the customer after providing the personalized investment advice about securities.”

Consider the example. You go to a financial adviser and pay a fee to analyze your investments. As a result of the analysis, it is recommended that you buy $10,000 of an emerging market fund, $15,000 of a small value fund and $25,000 of an intermediate bond fund. Ideally the advisor then would present the best, lowest cost funds of each type. However this legislation would allow the adviser at take off his “fiduciary duty hat” and put on his “suitability hat’. The salesman is then free to sell his company’s high priced funds in each of the general categories.

This provision that was inserted, with virtually no one knowing about it, would render the fiduciary duty of brokers useless and therefore the public would have no safeguards, as was the intent of the Securities and Exchange Commission recommendations.

This is yet another example of how money from Wall Street goes into the lobby industry’s pocket to influence legislation that is not in the best interest of the public but is in the best interest of Wall Street.

If you as an individual want objective unbiased investment advice that is always in your best interest, it is essential that you seek advice only from Registered Investment Advisors that are not representatives of a Broker Dealer.

The simple test is to call your advisor and ask if they are a “representative of a broker dealer”. If they say yes, you have the wrong advisor.

For list of fee-only advisors check the website for the National Association of Personal Financial Advisors (NAPFA) or Garrett Planning Network.

Michael Chamberlain CFP®
Ca Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Legislature Protects Investors? NOT!

By admin  |  2009/12/17 12:49 Posted in General info, Investing  |  Comments (0)

Congress is reportedly attempting to improve the safeguards for the investing public. Sweeping financial services reform legislation was approved last week in the House of Representatives. But there were some evidently last minute changes inserted into the bill by lobbyists to benefit big Wall Street Broker Dealers such as Charles Schwab.

Registered Investment Advisors give investment advice and they have a fiduciary duty to always do what’s in the best interest of the client. Broker dealer representatives are not responsible to do what’s best for the client and operate at a lower standard of what is called “suitability”. They only have to do what is suitable for the client, not what is best.

Some financial advisors are registered as both investment advisors that operate under the fiduciary duty and also representatives of the broker dealer and operate under the lower suitability standards. These double licensed individuals change from the White hat of investment advisor to the Black hat of the salesman. It is impossible for clients to know which hat the advisor is wearing and whether they are getting advice or being sold a bill of goods.

It was the Security and Exchange Commission’s recommendation that all individuals who give financial advice should operate with the client’s best interest in mind at all times. The head of the committee that produced the bill, Barney Frank, agreed that investors should be projected by the fiduciary standard.

So how is it that the House of Representatives passes legislation, if enacted, would require the Securities and Exchange Commission to write rules that would establish a fiduciary duty for brokers to provide investment advice but the bill adds a qualifier to that requirement saying,” nothing in this section shall require a broker or dealer or registered representative to have a continuing duty of care or loyalty to the customer after providing the personalized investment advice about securities.”

Consider the example. You go to a financial adviser and pay a fee to analyze your investments. As a result of the analysis, it is recommended that you buy $10,000 of an emerging market fund, $15,000 of a small value fund and $25,000 of an intermediate bond fund. Ideally the advisor then would present the best, lowest cost funds of each type. However this legislation would allow the adviser at take off his “fiduciary duty hat” and put on his “suitability hat’. The salesman is then free to sell his company’s high priced funds in each of the general categories.

This provision that was inserted, with virtually no one knowing about it, would render the fiduciary duty of brokers useless and therefore the public would have no safeguards, as was the intent of the Securities and Exchange Commission recommendations.

This is yet another example of how money from Wall Street goes into the lobby industry’s pocket to influence legislation that is not in the best interest of the public but is in the best interest of Wall Street.

If you as an individual want objective unbiased investment advice that is always in your best interest, it is essential that you seek advice only from Registered Investment Advisors that are not representatives of a Broker Dealer.

The simple test is to call your advisor and ask if they are a “representative of a broker dealer”. If they say yes, you have the wrong advisor.

For list of fee-only advisors check the website for the National Association of Personal Financial Advisors (NAPFA) or Garrett Planning Network.

Michael Chamberlain CFP®
Ca Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Consider Target Date Retirement Funds Carefully

By admin  |  2009/12/14 12:40 Posted in Estate planning, Financial planning, Investing, Retirement planning  |  Comments (0)

In the last several years, numerous mutual fund companies have developed Target Date Retirement Funds (TDR) that are based on when people plan to retire. The longer away the retirement date, the more aggressive the allocation (more stocks) and it gets more conservative (more cash and bonds) as the retirement date nears.

The idea is that with one fund you get exposure to domestic and international stocks as well as corporate and government bonds and the allocation automatically adjusts over time.

These companies realize investors often do not pay attention to their asset allocation of their investments. People tend to put money into mutual funds but do not monitor them over time.

These funds are designed to fix that but there are some issues that you should be aware of if you are considering this type of an investment:

1. The proper mix of asset types within your portfolio should be based upon your tolerance for risk (your mental ability to deal with volatility), your capacity for risk (your financial situation) as well as your goals including your time frame. The problem with these retirement date funds is they look only at a point in time to determine the allocation and totally disregard your risk tolerance and capacity. The result could be an allocation that is not appropriate to your situation, which could be greater volatility or under performance of your investment.

2. Each investment company has a different philosophy as to the allocation for a given retirement date. How is a person to know which of the 100’s of funds is best suited to their situation? Note the difference in allocation amongst these funds:

Fund Name

Stock %

Fixed income %

Fidelity adviser freedom 2015 A

53%

47%

J.P. Morgan Smart retirement 2015 A

52%

48%

T. Rowe Price retirement 2015

65%

35%

Vanguard target retirement 2015

61%

39%

Schwab retirement 2015

55%

45%

Putnam retirement ready 2015 A

42%

62%

There can be as much as a 50% difference, which has a huge impact on risk and expected return.

3. The target date funds often do not provide great enough diversification across different asset classes. Value style funds, small-cap funds, emerging market and REITs are usually underrepresented. This lack of diversification may increase volatility and provide smaller returns than a more properly allocated portfolio.

4. A recent study has revealed there are many misconceptions amongst those who have invested in these funds.

a. 40% think that the fund has a guaranteed return- NOT TRUE

b. 40% think they get higher returns than the stock market in general- NOT TRUE

c. 60% think that they will be able to afford to retire on that date of the fund-NOT TRUE.

5. The fees associated with these accounts vary dramatically and are a huge revenue stream for some companies. The commissions and operating expenses can be a drag on performance. People may be better served with those funds with no commission and lower operating expenses.

Fund Name

Commission %

Gross expense Ratio

Fidelity adviser freedom 2015 A

5.75%

0.93%

J.P. Morgan Smart retirement 2015 A

4.5%

1.35%

T. Rowe Price retirement 2015

0

0.65%

Vanguard target retirement 2015

0

0.18%

Schwab retirement 2015

0

2.35%

Putnam retirement ready 2015 A

5.75%

1.1%

If you are invested in these types of funds or are considering them, you should find out their allocation and determine if the mix of asset classes in the fund is really suited to you and to be sure that your fund has low fees to help increase your return.

Michael Chamberlain CFP®
Ca Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Should I Roll My 401K to an IRA?

By admin  |  2009/12/04 13:01 Posted in Financial planning, Investing, Retirement planning  |  Comments (0)

Ok, you have gone ahead and retired. Now you are wondering, “What should I do with my 401K; leave it where it’s at or convert to an IRA?” Unfortunately, it’s not a simple question to answer. It depends upon the choice of investments as well as the ongoing costs of the 401(k) compared to that of an IRA. Other factors to consider are your age and whether you would need the funds before 59 1/2 as well as the amount involved.

Advantages of the keeping the 401(k) include:

  • You can borrow money from the 401(k) without penalty, as long as you pay it back.
  • If you’re less than 59 ½, you can withdraw money in your 401(k) under certain circumstances such as needing to pay medical bills. The qualifying expenses would have to be tax deductible and would exceed 7 ½% of your adjusted gross income.
  • If you become disabled before 59 ½, you can make early withdrawals from the 401(k).
  • Management fees of the funds within the 401(k) at very large companies are sometimes less than those of an IRA.
  • If the amount involved is small, you may get better diversification amongst different asset classes since the 401(k) often does not have a minimum account size.

Advantages of the IRA include:

  • Greater selection of investment options.
  • Management fees of the funds within the 401(k) at small to mid sized companies are often more than those of an IRA.
  • More freedom to switch investments with greater frequency.
  • The IRA may provide easier to deal with than dealing with a 401(k) and an existing IRA. There is less administration and record keeping with one account rather than two.

Once you have established that none of the advantages of the 401(k) would benefit you and that you understand the costs of the 401(k) compared to an IRA, converting to an IRA could allow for a better asset allocation than your 401(k).
Having the correct asset allocation of different investment types is perhaps more important then deciding to convert from the 401(k) to the IRA. The proper mix of asset classes can decrease your risk and increases your return. The allocation should be based upon your tolerance for risk, your capacity for risk and your goals including your timeframe.

Most people need some professional assistance to determine the proper allocation. Many financial publications recommend people use a “Fee-Only” advisor who does not sell products for objective advice that is free of conflict of interest (similar to a doctor or CPA).

If you convert to an IRA, considering using low-cost mutual funds and or exchange traded funds (ETF’s) to keep your investment costs low.

The time when it DOES NOT make sense to move your funds from a 401(k) to an IRA is when you are getting recommendations to buy a product that has commissions and high fees associated with the IRA. Unfortunately most financial advisors sell product and the commissions of 3 ½ – 7% can come right out of your account. Most retirees do not have the experience to fully understand the fees involved and the long-term impact on their nest egg.

If you are considering your options for converting a 401(k) to an IRA be sure to talk to a financial advisor who is not going to try to sell you the IRA.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

NAPFA Presentations are Free and Worthwhile

By admin  |  2009/11/25 12:14 Posted in Estate planning, Financial planning, Investing, Retirement planning  |  Comments (0)

There is a free offer that everyone should know about. The National Association of Personal Financial Advisors is providing free monthly educational presentations about personal finance to the public.

“The Basics of Investments” is the next presentation and will be on December 4th from 10 to 11 am. Most people have read about stocks and bonds or have heard people talk about them but this is the opportunity to get the basics about what they are, how they operate, risks associated with each and what might be appropriate for you.

Future topics include:

  • Advanced investment concepts – January 8, 2010
  • Managing your 401(k) – February 5, 2010
  • Leaving a legacy – March 5, 2010
  • Women and money – April 2, 2010
  • Financial planning and small business owners – May 6, 2010
  • Your retirement- June 4, 2010
  • Financial windfalls – July 1, 2010

The presentations are in the “webinar” form. This involves watching a presentation on the computer while listening to the presentation on the telephone. Each monthly session is one hour in length and contains a formal 40-minute presentation and 20-minute Q&A opportunity. To register for the meeting log on to the NAPFA web site at http://www.napfa.org/ then click on the “Consumer Webinar” logo on the right. It is as easy as that.

The Consumer Webinar Series is designed to help consumers across the country better understand personal financial matters. Each session will be led by a NAPFA-Registered Financial Advisor who commits to the highest of standards in the financial planning industry. Many of the instructors are authors, educators and leaders in the industry. The advisers will bring their knowledge and experience to the seminars.

The Consumer Webinar Series sessions are FREE and held monthly. Each is web-based to make “attending” easy no matter if you live in Boston or Los Angeles. Each session is held live but are also recorded and available in the Archived Sessions section on the NAPFA website. The public is encouraged to register for the live sessions as there is an opportunity to ask any related financial questions you may have.

NAPFA is an organization of 1000 financial planners from around the country that work with clients to improve their financial lives by making better decisions and without selling investments or insurance.

Michael Chamberlain CFP®
Ca Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Avoiding Family Conflicts with Your Illness or Death

By admin  |  2009/11/23 11:46 Posted in Investing  |  Comments (0)

Conflict and arguing within the family is the last thing anyone wants to have happen. Unfortunately, many people fail to have the proper estate planning documents so at the time of serious illness or death there is uncertainty, which creates discourse and strife from which some families never recover.

Below is a review of the documents you may need to be sure your desires are clear and legal, hence minimizing conflicts and confusion in your family.

The Advanced Health Care Directive is a specific form that lists your healthcare preferences to be used only at a time when you cannot communicate your wishes. It puts your family, doctors and hospitals on notice as to the types of treatments/tests/care you would or would not want. It also lists those empowered to make health care decisions on your behalf should you not be able to express your desires. Everyone over the age of 18 should have this form completed.

The office of the Attorney General of California has excellent information on this topic including a sample form and may be viewed @ www.ag.ca.gov/consumers/general/adv_hc_dir.htm

Power of Attorney for Asset Management appoints those that you trust to handle your financial affairs. The form also lists those areas in which you allow the individual to assist you. Having completed this form can be very important in avoiding conservatorship should you become incapacitated. An immediate or durable power of attorney allows your agent to immediately act on your behalf. A springy power-of-attorney goes into effect only when you are incapacitated. It would be important to talk to your attorney and make sure you receive the form that is most appropriate for your situation.

HIPAA Release Form. Several years ago the federal government passed a law to help protect our health care information. In doing so, it made it more difficult for our family members or trusted individuals to deal with health insurance matters at a time of our incapacitation. By having this special form completed ahead of time you allow those individuals named in your advanced health care directive and or power of attorney for asset management to have access to healthcare information to deal with insurance matters on your behalf at a time when you cannot do so.

A Will is the method that many people use to transfer their assets upon their death. These are relatively inexpensive to acquire but in most cases will result in probate which can be time-consuming and expensive. For many people who own real estate or have more than just modest assets, may be better served by having a Living Trust. Even those individuals having a living trust still need a will.

A Living Trust is the preferred method of transferring assets upon death for many people. When assets are transferred via the trust there is more confidentiality, less cost, more flexibility with distribution, faster distribution and your wishes are less likely to be contested than with a “probated will”. For those with a lot of wealth, the trust might also provide some estate tax benefits. The downside to the trust is that they are a little bit more expensive to create and maintain.

If you have the trust, is important to make sure that trust is properly funded. All real estate should be transferred to the trust as well as savings accounts, mutual funds and other investments. Assigning your personal property to the trust and having the proper document allows the trustee to distribute your personal property those that you list thus helping to avoid conflicts within the family when you’re gone.

You should always consult with an attorney who specializes in estate planning to make sure you have the correct estate planning documents for your situation. Do not rely on the Internet or from the sale of products such as from Suze Orman to create your own trust document.

Do yourself and your family a favor and make sure you have the proper estate planning documents now thus avoiding the family issues that can be caused by your lack of planning.

Michael Chamberlain CFP®
CC Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.