Year-End Financial Checklist: 7 Tips to End on High Note

Contributed by: Jaclyn Jackson

And just like that, we are already in the fourth quarter; the year has gone by quickly! Before it completely slips away...

Try these top tips to strengthen your finances and get things in order for the year ahead:  

1. Harvest your losses – Tax-loss harvesting generates losses that can be used to reduce current taxes while maintaining your asset allocation. Take advantage of this method by selling the investments that are trading at a significant loss and replacing them with a similar investment. 

2. Max out contributions – While you can wait until you file your tax return, it may be easier to take some of your end-of-year bonus to max out your annual retirement contribution.  Traditional and Roth IRAs allow you to contribute $5,500 each year (with an additional $1,000 if you’re over age 50).  You can contribute up to $18,000 for 401(k)s, 403(b)s, and 457 plans.

3. Take RMDs – Don’t forget to take the required minimum distribution (RMD) from your IRA.  The penalty for not taking your RMD on time is a 50% tax on what should have been distributed.  RMDs should be taken annually starting by April 1st of the year following the calendar year you reach 70 ½ years of age.

4. Rebalance your portfolio – It is important to rebalance your portfolio periodically to make sure you are not overweight in an asset class that has outperformed over the course of the year.  This helps maintain the investment allocation best suited for you.

5. Use up FSA money – If you haven’t depleted the money in your flexible spending account (FSA) for healthcare expenses, now is the time to squeeze in those annual check-ups.  Some plan sponsors allow employees to roll over up to $500 of unused amounts, but that is not always the case (check with your employer to see if that option is available to you). 

6. Donate to a charity – Instead of cash, consider donating highly appreciated securities to avoid paying capital gains tax.  Typically, there is no tax to you once the security is transferred and there is no tax to the charity once they sell the security.  If you’re not sure where you want to donate, a Donor Advised Fund is a great option.  By gifting to a Donor Advised Fund, you could get a tax deduction this year and distribute the funds to a charity later. 

7. Review your credit score – With all of the money transactions done during the holiday season, it makes sense to review your credit score at the end of the year.  You can go to annualcreditreport.com to request a free credit report from the three nationwide credit reporting agencies: Equifax, Experian, and TransUnion.  Requesting one of the reports every four months will help you keep a pulse on your credit status throughout the year.

Bonus: 

If there have been changes to your family (new baby, marriage, divorce, or death), consider these bonus tips:

• Adjust your tax withholdings

• Review insurance coverage

• Update financial goals, emergency funds, and budget

• Review beneficiaries on estate planning documents, retirement accounts, and insurance policies

• Start a 529 plan

Jaclyn Jackson is a Research Associate at Center for Financial Planning, Inc.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jaclyn Jackson and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Year-End Financial Checklist: 7 Tips to End the Year on a High Note

Contributed by: Jaclyn Jackson

And just like that, we are already in the fourth quarter; the year has gone by quickly! Before it completely slips away, try these top tips to strengthen your finances and get things in order for the year ahead: 

1. Harvest your losses – Tax-loss harvesting generates losses that can be used to reduce current taxes while maintaining your asset allocation. Take advantage of this method by selling the investments that are trading at a significant loss and replacing it with a similar investment. 
2. Max out contributions – While you have until you file your tax return, it may be easier to take some of your end-of-year bonus to max out your annual retirement contribution.  Traditional and Roth IRAs allow you to contribute $5,500 each year (with an additional $1,000 for people over age 50).  You can contribute up to $18,000 for 401(k)s, 403(b)s, and 457 plans.
3. Take RMDs – Don’t forget to take the required minimum distribution (RMD) from your IRA.  The penalty for not taking your RMD on time is a 50% tax on what should have been distributed.  RMDs should be taken annually starting the year following the year you reach 70 ½ years of age.
4. Rebalance your portfolio – It is important to rebalance your portfolio periodically to make sure you are not overweight an asset class that has outperformed over the course of the year.  This helps maintain the investment objective best suited for you.
5. Use up FSA money - If you haven’t depleted the money in your flexible spending account (FSA) for healthcare expenses, now is the time to squeeze in those annual check-ups.  Some plan sponsors allow employees to roll over up to $500 of unused amounts, but that is not always the case (check with your employer to see if that option is available to you).
6. Donate to a charity – Instead of cash, consider donating highly appreciated securities to avoid paying capital gains tax.  Typically, there is no tax to you once the security is transferred and there is no tax to the charity once they sell the security.  If you’re not sure where you want to donate, a Donor Advised Fund is a great option.  By gifting to a Donor Advised Fund, you could get a tax deduction this year and distribute the funds to a charity later. 
7. Review your credit score – With all of the money transactions done during the holiday season, it makes sense to review your credit score at the end of the year.  You can go to annualcreditreport.com to request a free credit report from the three nationwide credit reporting agencies: Equifax, Experian, and TransUnion.  Requesting one of the reports every four months will help you keep a pulse on your credit status throughout the year.

Bonus:  If there have been changes to your family (new baby, marriage, divorce, or death), consider these bonus tips:

• Adjust your tax withholds
• Review insurance coverage
• Update financial goals, emergency funds, and budget
• Review beneficiaries on estate planning documents, retirement accounts, and insurance policies.
• Start a 529 plan

Jaclyn Jackson is a Research Associate at Center for Financial Planning, Inc.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jaclyn Jackson and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

The Center Helps Send Southfield Students Back to School

Co-Contributed by: Jaclyn Jackson and Kali Hassinger

On August 15th, Center team members, Kali Hassinger and Jaclyn Jackson, joined the Southfield community for a day of volunteering and fun at the Southfield Public Schools Back to School Summer Bash.  The event provided free school supplies, books, and pertinent information to families gearing up for the 2015-16 school year.  Featuring rides, ice cream, music, farm animals, and festival food, the picnic-style event proved to be great day for the Southfield community. 

“As we were organizing supplies to give away, you could see a long line forming. One of the volunteers even joked that it looked like a line for a Justin Bieber concert. You could tell parents and students were excited about the event,” Jaclyn said.   

The event reflects responsiveness to recent demographic changes of the school district. Today, sixty-five percent of enrolled students qualify for free or reduced lunch.

“It was such a positive event. It feels great to know that a student, who may not have the ability to buy those supplies otherwise, is starting the year prepared,” Kali explained. 

In addition to volunteering, The Center was an event sponsor.  Sponsorship and volunteer efforts are part of The Center’s vision for community partnering, which aims to contribute $100,000 in sweat equity, commitment, and financial contributions by 2020.  In just 3 hours, the Summer Bash distributed enough school supplies to fill a large school bus.  With continuing support from community sponsors, they hope to keep the annual event going.

 The Center wishes every student a successful and enjoyable 2015-16 school year!

Jaclyn Jackson is a Research Associate at Center for Financial Planning, Inc.

Kali Hassinger is a Registered Client Service Associate at Center for Financial Planning, Inc.

4 Reasons Putnam Investments is back in the Winner’s Circle

Contributed by: Jaclyn Jackson

During the first quarter of 2015, I had the pleasure of attending Putnam Investment’s Research Analyst Meeting.  Even though a giant snowstorm hit the area just days before, positive energy seemed to be bursting at the seams in Boston. Admittedly, the Patriots had just won the Super Bowl and the victory parade was the day before the conference started, but the positive feeling at Putnam Investments came from something else.  It came from a proud shift in company culture that helped propel the firm back into its rightful spot in the winner’s circle of investment companies.

Putnam’s Fall & Rise

Having had their reputation shattered in 2003 after Securities and Exchange Commission market timing and late trading investigation, Putnam’s net asset level plummeted dramatically through 2008.  Fighting to stop the bleeding, Putnam decided to completely revamp.  On the first day of the conference, I had a chance to listen to R. Jeffrey Orr (President and CEO of Power Financial Corporation) and Robert Reynolds (President and CEO of Putnam) discuss how they turned the company’s culture on its head.  I remember R. Jeffrey Orr saying that when he first came to Putnam, there was a “playing not to lose” attitude and his goal became to shift that to a “playing to win” attitude. 

The Changing Culture at Putnam

I was most impressed by the analysts’ panel.  In line with the changes Orr and Reynolds set out to accomplish, the analysts talked about how Putnam’s research culture evolved to become more entrepreneurial and team based.  These fundamental changes have improved fund performance and subsequently brought Putnam back to life.  Many factors helped make that change happen, but here are what I see as the top four reasons Putnam is back in the winner’s circle:

1. Shared Research: In the old company culture, credit analysts and equity analysts never crossed the aisle to work with each other.  Now, it is common for credit and equity analysts to combine research (as credit research often captures a perspective that differs from equity research performed on the same company and vice versa) to make better assessments of a company.
2. Personal Accountability: Each analyst constructs his/her own individual portfolio and is rewarded based on how well his/her portfolio performs.  In this way, analysts are acknowledged for all the good calls they make and not just the calls they make that the portfolio manager adapts to the fund portfolio.  This encourages good ideas, individual thinking, high conviction, and entrepreneurship. 
3. Different Compensation Structure: Putnam’s compensation structure differs from other companies in that, typically, analysts fight over a lump sum amount intended to be split among them. The traditional structure often pits researchers against each other; even if more than one person has a good year, only the best researcher is compensated.  Putnam’s structure allows everyone to be compensated for the choices they make in their individual portfolios; essentially, everyone can be rewarded when they make positive attributions.  Culturally, the compensation structure helps thought sharing and helps build comradery (provided analysts are no longer motivated to hoard good ideas).
4. Efficient Communication: Communication has improved between portfolio managers, analysts, and traders.  To start, everyone is centrally located - meaning you can physically see when someone is at their desk and consult with them as needed.  This informal meeting style has helped Putnam eradicate the long, formal meetings they once had.  Check-ins are shorter, but more frequent and have generated more time for everyone to fulfill their job responsibilities.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Jaclyn Jackson and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Are we Seeing Inflation or Deflation in the US Economy?

Contributed by: Jaclyn Jackson

The Fed has created investor concern by stumbling away from its hope of 2% inflation.  That concern has given rise to a polarizing inflation/deflation debate. With a fragile recovery at stake, the Fed struggles against overcoming persistently low inflation rates and losing the public’s faith.  At the same time, investors build their cases for inflation or deflation; each side posing strong arguments for why either threatens the US economy.   

Evidence of Deflation

Investors who find themselves in the deflation camp argue that fears that the European Central Bank’s bond buying program will make the euro less attractive and send investors flocking to rising currencies.  As a result, European growth will improve, but at the expense of growth in the US, Switzerland, and other countries with strong currencies.

Moreover, January 2015 marked the third month in a row that prices for goods declined, clearly discouraging hope of a healthy growing US economy.  With a -0.1% price decline in January, goods actually cost less than they did one year ago. Similar to 2009, deflation affects falling prices, consumer spending, and adds pressure to corporate profit margins, typically spawning wage reductions and increased unemployment.

Not to mention, some dispute whether quantitative easing even worked.  The Fed made huge bond purchases with the intention of increasing the money supply.  Ideally, central bank asset purchases should increase bank reserves and the money supply, resulting in increased lending by banks. However, in reality, banks were so panicked during the financial crisis that they held on to the excess money and did not lend. There can’t be inflation without lending.

Argument for Inflation

Conversely, investors in the inflation camp argue that the energy sector, especially cheap gas prices, is the primary driver of falling goods prices.  Moreover, they believe recent price stabilizing marks the beginning of increasing gas prices moving forward. Essentially, as gas prices rebound, the inflation figures should also put deflation worries to bed.

What’s more, if you exclude energy from consumer prices, staples such as food, shelter, and medical care have increased 1.9% from 2014.  When the most volatile categories like food and fuel are removed from the equation, core inflation is steady and up 1.6% from last January.  These numbers reflect the economy being more in line with the Fed’s 2% goal.

Despite looming worries, economists are still optimistic about the overall improvement of the US economy.  Many credit quantitative easing for keeping interest rates low, building job creation opportunities, and preventing the Great Recession from becoming the second Great Depression. However, it is also important to note that critics of quantitative easing say that a long-term effect could be high inflation.

The Verdict

This is not a black and white issue.  There are areas of inflation and deflation pulling the US economy in both directions.  We are watching bank stability, consumer spending, and credit to monitor the situation.  Yet, taking the glass half full perspective, investors can be comforted that the United States’ core inflation is key in differentiating the U.S. economy from more challenging economies like Japan and the Eurozone. 

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Jaclyn Jackson, Investment Research Associate and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Jaclyn Jackson, Investment Research Associate and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss.

Our Gold Medal Standard: The Center’s Investment Scorecard Review

I’m always amazed by the almost superhuman springs, twists, turns, and flips gymnasts are able to perform with grace and precision.  Who could forget Kerri Strug’s seemingly impossible vault of handsprings, twisting dismount, and a perfect landing just seconds after tearing two ligaments on her ankle?  Watching from home, I remember anxiously waiting as the judges reviewed her vault with a fine-tooth comb; evaluating the form, height, length, and landing of her performance.  To my excitement, Kerri received winning scores and managed to catapult the 1996 US Olympic women’s gymnastics team to gold medal victory.

Giving Investments the Fine-Tooth Comb Treatment

Similarly, we aim to build model portfolios with “gold medal” worthy investments that are equipped to meet your goals even through adverse circumstances.  We too, like Olympic judges, evaluate each investment with a fine-tooth comb making sure it meets its purpose in your portfolios.  In fact, we routinely complete a seventeen-point criteria review of our model investments.  Our investment department team fondly refers to this process as the Morningstar Direct Fiduciary Scorecard Review.  For the review, we assess the following:

Performance and Volatility

We look at performance, risk-adjusted performance (alpha), and the volatility of the investment compared to the market (beta) for 1, 3, 5, and 10-year periods.  In order for investments to receive points for these metrics, they must place above 50% of comparable peers.  For these categories, score points are more heavily weighted towards the longer periods of time with the intent of crediting investments that consistently produce over long stretches of time.

Tenure and Inception

We want your investments to be managed with the wisdom of experience and we want investments that have shown they’re able to adapt through different parts of a market cycle, therefore, we review manager tenure and product inception.

Size and Style

We evaluate the investment’s size and style to identify whether the investment has grown too large to maintain its investment strategy and integrity or whether an investment is too small to keep resources robust (i.e. research, analysts, etc.).

Expenses

We evaluate investment expenses so performance is not watered down by excessive fees.

Once scores have been tallied by the investment department team, our investment committee talks through each investment to determine whether it meets the gold medal standard.

We want to ensure your portfolio investments can perform through the springs, twist, turns, and flips of any market cycle with grace and precision.  The Morningstar Direct Fiduciary Scorecard Review is just one of the many ways we stress test your portfolios.  After all, due diligence is one of the key ingredients to maintaining our investment process and ensuring that we are investing your portfolios in the best products. So, the next time you review your portfolio, imagine each investment being able to do this gold winning move through even the toughest circumstances.

Investing involves risk and investors may incur a profit or loss regardless of strategy selected. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-035970

The Strategy Behind Investment Allocation for 529 Savings Plans

529 plans can be a great way for families to create college tuition savings for their students.  Not only do the plans benefit students, they also carry advantages for donors. Benefactors can enjoy tax-deferred growth with federally tax-free distributions (when distributions are paid directly to the beneficiary’s college).  Donors have complete control of the account, they are allowed to make substantial deposits, and there aren’t age restrictions or income limitations to inhibit investing.  It’s no surprise 529 savings plans have become popular over the years.

Age-Based 529 plans

Ever wonder how 529 college savings plans are invested to meet timely tuition needs?  Age-based 529 savings plans are a helpful place to gain insight.  The graph below shows an example of the glide path of equity allocation for age-based 529 savings plans from 2010 to 2013.

According to this chart, we see the following:

• Generally, 80% of the portfolio is invested in equities at age 0 and reduces to 10% by the time the beneficiary is enrolled in college. 

• Since 2010, plan investment managers have become more conservative in the beginning (age 0) and end (age 19) stages of plans.

• Investment managers have become 6-7% more equity aggressive during ages 5-15 to meet tuition goals. 

529 Managers Make More Aggressive Move

To meet the tuition needs of students in adequate time frames, the graph trend reveals that investment managers are becoming more aggressive during the middle of a student’s investment time horizon, but they are also growing more cautious about preserving money closer to the end of the student’s investment time frame.  Interestingly, the graph also reveals that investment managers still rely on bonds as one of the safest places to preserve money (90% of the portfolio by age 19) despite the negative reputation bonds have received in our current rising rate environment.

As always, we are more than willing to support your investment needs.  If you have questions about 529 plans or are considering adding one to your investment strategy, don’t hesitate to reach out; we’d love to help.

Rules and laws governing 529 plans are varied and subject to change. There is a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Before investing, it is important to consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Investors should consult a tax advisor about any state tax considerations of an investment in a 529 plan before investing. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation to buy or sell any investment. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. C14-035968

Investment Performance - 1st Quarter 2014

Source: Morningstar

US Bonds represented by Barclay's US Aggregate Bond Index a market-weighted index of US bonds. US stocks per S&P 500 Index a market-cap weighted index of large company stocks. Barclay’s Capital Global Bond index is a market-cap weighted index of global bonds. US Small Companies per Russell 2000 Index a market-cap weighted index of smaller company stocks. International stocks measured by MSCI EAFE is a stock market index designed to measure the equity market performance of developed markets outside of the US and Canada. Commodities per Morgan Stanley Commodity Index a broadly diversified index designed to track commodity futures contracts on physical commodities. Barclays Capital US Corporate High Yield Index is an unmanaged index that covers the universe of fixed-rate, noninvestment-grade debt. Barclays Capital US Corporate High Yield Index is an unmanaged indexthat covers the universe of fixed-rate, noninvestment-grade debt.

Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.

2014 Investment Insights

Click on the image below to download the 2014 Investment Insights presentation given by Center partners Matthew Chope, CFP® and Melissa Joy, CFP®.

Investment Performance - 2nd Quarter 2013

Source: Morningstar

Bonds represented by Barclay's Aggregate Bond Index a market-weighted index of US bonds. US Large Companies per S&P 500 Index a market-cap weighted index of large company stocks. Barclay’s Global Bond index is a market-cap weighted index of global bonds. US Small Companies per Russell 2000 Index a market-cap weighted index of smaller company stocks. International stocks measured by MSCI EAFE is a stock market index designed to measure the equity market performance of developed markets outside of the US and Canada. Commodities per Morgan Stanley Commodity Index a broadly diversified index designed to track commodity futures contracts on physical commodities. Barclays Capital US Corporate High Yield Index is an unmanaged index that covers the universe of fixed-rate, noninvestment-grade debt. Barclays Capital US Corporate High Yield Index is an unmanaged indexthat covers the universe of fixed-rate, noninvestment-grade debt.

Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.