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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 to find out how we can help you.


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. 



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 to inquire about how we can help you.


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  for a Free Portfolio Review to see if all of your investments are aligned with your goals.


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 and click the "Contact Us" button on the top right of the screen.


4 Questions a Portfolio Review Can Answer.

A free portfolio review is a common service many advisor's offer. At Prominence Capital we offer a free portfolio review designed to provide information on 4 key questions:

  1. Are you taking too much risk in your portfolio?
  2. How much are you paying in fee's?
  3. Are you invested in unsuitable or inappropriate investments designed to generate returns that are not aligned with your objectives?
  4. How did my portfolio perform during periods of extreme stress in the financial system?

Answering some of these questions can help you in determining if you have the right asset allocation and investments selected to meet your goals and objectives. Stress testing can be a useful tool in understanding your investments performance during times when markets are experiencing extreme levels of stress, such as during the aftermath of the World Trade Center attacks.

Some investments are difficult to stress tests, we help identify those assets so that you can make informed decisions as to the appropriateness of owning them. Certain investment products commonly owned, such as mutual funds, have  fee's and expenses associated with owning them. Often there are alternatives that may provide similar investment objectives and the desired risk and return objectives with more advantageous fee structures. Fee's can significantly impact the long term performance of an investment. Along with fee's looking at the tax efficiency of a portfolio will also help you keep more of the return your portfolio generates over time.

Contact us at 310-433-5378 to find out more or find us on the web at and click on the Free Portfolio Review button.

Example Asset Allocation:

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.


Important Tax Aspects of Securities

Capital Gains and Losses and Qualified Dividends

  • Short term capital gains are gains from the sale of securities where the holding period is 12 months or less.
  • Short term capital gains are currently taxed at ordinary income tax rates.
  • Long term capital gains are gains from the sale of securities where the holding period is longer than 12 months.
  • Long term capital gains and qualified dividends are currently taxed according to the following:
    • 0% if taxable income falls in the 10% to 15% marginal tax brackets
    • 15% if taxable income falls in the 25%, 28%, 33% or 35% marginal tax brackets
    • 20% if taxable income falls in the 39.6% marginal tax bracket
    • 25% on Depreciation Recapture
    • 28% on Collectibles (art, gold, etc.)
    • 28% on qualified small business stock after exclusion
  • Capital Loss are deductible in a year up to $3,000 after the netting process is completed. Any loss in excess of $3,000 can be carried over to future years.


College Savings Tools: Coverdell and 529 Plans


Over the past 30 years the cost of attending college has increased faster than the pace of inflation in the United States. Data suggests that the rate tuition has increased is close to 8% per year over that period of time. A child born today that would like to attend a private school that cost $30,000 a year will see that cost rise to over $119,000 just for the first year.

Financing for a college education typically comes from current income of parents, relatives and the student. Student loans, pre-paid tuition programs, grants and scholarships are available as well as parent's and relative's savings. Two commonly used savings and investing vehicles for college expenses are Coverdell Education Savings Acocunts and 529 Plans.


  • Coverdell Education Savings Accounts were created by congress in 1997 and were called Education IRAs. These plans have a $2,000 annual account contribution limit per beneficiary which is subject to modified adjusted gross income limits. Money in the accounts grows income tax free and withdrawals made for qualified education expenses are not taxable. Coverdell accounts can be used for elementary, secondary, college and special needs student expenses. Money in these accounts must be used by the time the beneficiary reaches age 30.  Contributions phase out for a single parent with adjusted gross income of $110,000 and $220,000 for parents filing jointly.


  • 529 Plans have become increasingly more popular as the vehicle of choice for education savings planning. Section 529 Plans are education savings plans operated by a state which offer tax-deferred savings on money in the account as well as tax free withdrawals for qualified higher education expenses for the account beneficiary. Contributions are not deductible. The account owner controls the distribution of the funds in this account. These accounts allow for substantially larger savings limits (more that $300,000 in some states) and contributions are not subject to adjusted gross income levels. Contributions need not come from the same state the plan is sponsored by. Some states allow for  in state tax deductions if you use the plan from the state in which you reside. If the primary beneficiary decides not to go to college the beneficiary can be changed tax-free. The law also provides for rollovers from one plan to another should the owners decide that their current plan is no longer for them. 529 Plans have added estate planning benefits. Subject to the gift tax limits each year a person (typically a parent or grandparent) can gift the beneficiary the maximum gift amount, currently $14,000. A married couple (parents or grandparents) may gift up to $28,000 for the year based on gifting $14,000 per spouse. Additionally these plans allow for the 5-year accelerated gift option allowing for greater lump sum contributions of 5 years of gifting per individual which can be of great benefit for estate planning as these assets are considered to be held outside of the contributors estate. There are no limits on the number of plans you can set up and you can name anyone as a beneficiary. Keep in mind that distributions that do not pay for qualified higher education expenses will likely be taxable as ordinary income and maybe subject to a 10% additional tax.


Why We Save For Retirement

Three distinct reasons we save for retirement are:

  1. We cannot borrow money to retire on like we can to buy a home.
  2. Social Security typically is not enough to cover our retirement income needs.
  3. Inflation makes the goods and services we need more expensive over time reducing the buying power of our money.

Inflation may be the most important aspect of retirement to plan for. The reason is that inflation historically has run between 2-4% and that can have a huge impact on your retirement spending needs. Past data shows that the effect of inflation will cause goods and services to double in price every 15-20 years. 

This means that you must plan on saving twice as much money than someone retiring today if you are retiring in 15 to 20 years from now to be able to purchase the same amount of goods and services as today's retiree.