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11/03/2014

Investor Life Cycle: Where are you?

Understanding how to invest money to appropriately meet a clients needs and expectations is the job of an Investment Management Professional. Determining where clients are in their life cycle needs to be determined in order to make appropriate decisions. Typically concepts such as Time Horizons, Risk Tolerance, Investment Knowledge, Current Income and Years of Investing Experience are discussed to determine how to appropriately allocate capital.

There are many other concepts often discussed along with these but an understanding of where someone is in their investment life cycle can also be very helpful to making decisions.

What is the Investment Life Cycle?

It can be defined many ways but I find the following three phase approach to be simple and helpful when combined with other concepts for deriving portfolio construction and selecting specific investments.

  1. Accumulation Phase-earliest stage in an investors life cycle where the investor is accumulating assets. There is a long time horizon and often more risk can be accepted because there is more time to achieve objectives. In this phase there can often be short term needs that must be considered and the appropriate amount of investment risk taken: such as when a large purchase is looming. For instance the purchase of a home.
  2. Consolidation Phase-this phase is typically when wealth accumulates more rapidly. In this phase many of life's large purchases and immediate cash needs are already addressed and income is often significantly out pacing expenses allowing for more rapid building of wealth. Time horizon to the next phase (Spending Phase) is getting shorter over this phase.
  3. Spending Phase-this phase is signified when earned income has ended and investment income from accumulated wealth is now the primary source for living expenses. Typically called retirement. Longer life expectancies can lead to long time horizons in this phase. Some would say this is the phase where one would now enjoy the utility of the wealth they have created. Risk tolerance tends to be significantly lower as asset fluctuations are less desirable. However some risk is often required for potential growth to combat the prospects of long time horizons in this phase.

Understanding which phase you fit into can greatly help with understanding why certain investments are necessary and how they fit into your overall investment portfolio. Knowing what phase you are in can make the uneasy feelings about investments more understandable as to why they may be necessary.

To discuss your specific situation please contact Prominence Captial at 310-433-5378. We can also be contact via the web at www.prominencecapital.com

 

09/30/2014

Why Have A Financial Plan? 11 Reasons

Why have a financial plan? There are as many reasons as someone can think up but these 11 reasons show up more often then others when asked this question:

  1. Reduce Stress
  2. Live Comfortable In Retirement
  3. To Eliminate Debt
  4. Manage Cost Of Raising Children
  5. Living Longer Than Anticipated
  6. Large Purchases: Buying Cars and Homes
  7. Protect Against Financial Risks
  8. Prepare For Long Term Care
  9. Take Care Of Aging Relatives
  10. Pass Wealth On To Heirs
  11. Pass Wealth On To Charity

Protecting against financial risks such as loss of income due to death or disability, living comfortably in retirement and planning for the cost of children's educations tends to be at the top of concerns when considering a financial plan. The other concerns listed here also rank very importantly. Reducing ones stress might be one of the best benefits of financial planning over all.

At Prominence Capital we strive to alleviate the stress that comes along with not having plans in place and strategies to combat potential threats to ones financial well being. Contact us at 310-433-5378 or visit us on the web at www.pronincecaptial.com to find out how we can help you.

09/23/2014

Managing Tax Liability To Create Wealth

There are 3 methods that can be legally used in tax planning.

  1. Avoiding Taxes-use of exclusions, credits and certain deduction to legitimately reduce taxes.
  2. Deferring Taxes-does not produce a permanent reduction in taxes but reduces current taxes.
  3. Conversion-converting highly taxed income into more favorably taxed income.

Tax planning is fundamental to financial planning. The objective of financial planning is to structure financial affair's so that the result is the greatest accumulation of wealth possible. The less money paid in taxes the more money one has working towards increasing their wealth. Two investments with the same amount of return pre-tax will not necessarily net the same amount of after tax return thus reducing the amount of money working toward wealth accumulation. Using legitimate methods to reduce taxes, defer them or avoid them all together should be discussed with your advisors to make sure the optimal strategy is taken. 

Understanding the tax rules on capital gains, both short and long term, and income such as interest and dividends are key to developing the appropriate strategy. 

 

09/22/2014

Retirement: What to do in your 40's!

I have been advising clients for over 12 years on building retirement assets and planning for income needs in retirement. The most important issues can all be addressed in a properly executed financial plan with the help of an advisor. So creating a financial plan with an financial advisor is the #1 thing I believe that should be done. Good advisors are trained to ask questions and listen, gather needed information and analyze it, put an action plan together with appropriate recommendations to achieve goals and finally help clients monitor and evaluate the success of the plan all while making necessary changes along the way. For list of action items there are many and some do depend on a person or couples specific situation.

Here are 10 areas to start (not in a particular order):

  1. Create Personal Financial Statements.
  2. Budget.
  3. Understand what tax advantaged savings vehicles are available to you for retirement and plan to maximize the savings you can put in them.
  4. Retirement Savings vs. College Savings-understanding why retirement savings should come first.
  5. Risk Assessment- looking at ones insurance coverage needs (not just life insurance).
  6. Estate Planning- Wills, Trusts etc.
  7. Asset Allocation-Strategic vs. Tactical.
  8. Financial Advisor, Accountant and Attorney-understanding the value of advisors.
  9. Portfolio Review-know what you have and why, are their conflicts of interest, understanding fee structure.
  10. Debt Management.

You do not have to do these things alone as often people do. Having professionals help free's up time and allows one to concentrate on what they are professionals in. Also having different perspectives often helps identify areas that require more attention. 

Contact us at 310-433-5378 or find us on the web at www.prominececapital.com to inquire about how we can help you.

09/09/2014

Don't Abandon Your Employer Retirement Plan!

Making sure your company sponsored retirement plan investments are appropriately allocated and working in conjunction with other assets in other accounts is critical to achieving your financial planning goals.

 

 Walking Away

 

All too often assets in retirement plans with one’s employer are left unattended. I have been advising people on asset allocation (percentages in equities, fixed income, alternatives and cash) and investment selection for more than a decade. One area I see that often is not paid enough attention to (or at all) is the mix of investments owned in one’s company sponsored retirement plan such as a 401k, 403b and 457 plans.

Many investment advisors are also not doing enough to ensure that these assets are working correctly with regard to the entire financial picture and conflicts of interest often exist.

Recently I conducted a free portfolio review for a new client. In our initial conversation I asked to see the statements from his investment accounts with his current advisor and any accounts he had elsewhere such as his company sponsored retirement plan and life insurance policies. In our first face to face meeting he brought along his brokerage statements, IRA statement, 529 plan statement, life insurance statement and annuity statement.

When I asked about his company 401k he mentioned he didn’t bring it along because he didn’t think it was important to bring along. I asked why he thought that way and he said:

“My current advisor has never asked about it and does not provide advice on it.”

My next question was why he hasn’t asked about it or provided advice on it? He said:

“I don’t know. He never asked and I never mentioned it because it is money that he cannot manage and get paid on so I thought it was not important for this review either.”

We then discussed his risk tolerance preference, time horizon, financial and retirement goals and set a meeting for a future date to discuss my findings upon completion of my review. I also asked if he could provide me with his 401k statements as soon as possible.

This particular client happened to be in his early 40’s with a time horizon of 25 years or more to retirement and a fairly aggressive tolerance for risk. He was able to provide me with a copy of his 401k statement, plan investment selections and program specifics. In reviewing that statement I found that 48% of his holdings where in one conservative allocation mutual fund that predominantly held bonds. This of course appeared to be in conflict with his profile: fairly young investor, with a long time horizon to retirement and a need to accumulate as much capital as possible to support his retirement income needs. It was clear a change to align his 401k investments was appropriate.

In our meeting to review my findings I had asked how the investments where selected in his 401k. He answered:

“I was in my early 30’s and new I had to start investing so I chose two investments to start and never really paid attention to it since.” 

His 401k represents about 25% of his total investments and an even greater portion of his retirement asset base. Ultimately we made some changes to his asset allocation percentages to bring them in line with his investor profile and we made new investment selections in his accounts in order to align them with his goals. We made some significant changes to the investments in his 401k and plan on reviewing them on a consistent basis going forward.

Making sure that assets held in company sponsored retirement plans are not abandoned is critical to successfully achieving your retirement planning goals.

At Prominence Capital we strive to make sure that all of our client’s assets, including those assets not under our direct management are working in the appropriate manner to achieve your goals. Often this may not happen right away but work should be done to ensure these assets are not forgotten.

Contact us today at 310-433-5378 or visit us at www.prominencecapital.com  for a Free Portfolio Review to see if all of your investments are aligned with your goals.

09/04/2014

Maximize Your Social Security

 

Maximizing Social Security Benefits is a cornerstone to Retirement Income Planning. Making choices on how you elect your benefits is key to getting the most income out of Social Security. This can increase the income available to you in retirement, extend the life of your investments and help protect them from unnecessary depletion. As one of your most important retirement assets Social Security is a key component in making sure you can reach your retirement income goals.

Attached is a brochure with more information. Click download link below.

Download Maximize Your Social Security-Prominence Capital

Each of us have different circumstances that dictate what election strategies may be best. At Prominence Capital we help people understand what strategies are available to them base on their unique set of circumstances. We also offer integration of your strategy in retirement plans and full comprehensive financial plans. 

For further information on the retirement income planning and social security planning services Prominence Capital offers to clients please contact us at 310-433-5378 or visit us on the web at www.prominencecapital.com and click the "Contact Us" button on the top right of the screen.

08/27/2014

Life Insurance: Part of your financial plan.

Life Insurance is designed to protect your family's financial security in the event you die. It can also be use to protect business associates as well. Many use life insurance as the basis for their financial plan. For financial planning purposes it can serve many different functions as part of your overall investment strategy. Life insurance can help you build assets to meet needs during your lifetime. Certain types of life insurance offer living benefits to the owner such as the potential of tax-deferred growth of cash values and tax-favored access to cash value.

Two types of insurance are Term Insurance and Permanent Insurance:

  • Term Insurance is similar to renting; a premium is paid and the insurance covers you for a limited time. This type of insurance does not build up cash value. The main advantage of term is that it is initially less expensive than permanent life insurance.
  • Permanent Insurance is similar to owning; three commonly used types of permanent insurance are Whole Life, Universal Life and Variable Universal Life. Each provides for the build up of cash values and riders may be available for additional benefits and features.

Which type you choose will depend on your specific financial situation and goals. Working with a planner that can bring-in insurance specialists who work to design insurance solutions that have the right benefits and features is important. The involvement of estate planning attorney's and accountants may also be necessary in order to make sure the ownership structure is appropriate while minimizing potential tax issues.

08/19/2014

Social Security Planning

 

08/08/2014

Net-Investment Assets to Net-Worth Ratio

This ratio compares the value of investment assets (excluding equity in a home) with net worth.

  • An individual ratio should be at least 50% and the percentage should get higher as retirement approaches.
  • Younger individuals will likely have ratios of 20% or less but they have time to build it up.
  • A family with a ratio of only 18% indicates that they are not progressing well in their goal of accumulating capital.

 

Net-Investment Assets to Net-Worth Ratio = Net Investment Assets / Net-Worth

                                                                                            

2 Personal Debt to Income Ratios to Know

 

Front-End Ratio

Indicates the percentage of income that goes toward housing costs, which for homeowners includes PITI (principal, interest, taxes and insurance premiums). Homeowners Association dues would be included in this ratio as well. Housing shouldn't exceed 28% of gross monthly income.

Back-End Ratio

Indicates the percentage of income that goes toward paying all recurring debt, including those covered by the Front-End Ratio, and other debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments and legal judgements. Maximum for this ratio should be 36%.

Front-End Back-End Ratios