Leaking Hot Water Heaters

Our Asheville office was built in 1892.  I cannot speak for any upgrades made between 1892 and the mid-1980s, but I would like to think there were a few.  When Parsec moved into this building around 1986, almost the entire building had been remodeled.  It was brought up to what was then considered modern standards.

Over the years, we have experienced lots of challenges with our building.  For example, it is always fun to run network cable.  If you have ever renovated an old house, you can appreciate the architecture – and frustration – of buildings that were never designed for the age of technology.

Our latest adventure involves remodeling the top and main floor restrooms.  It was supposed to be a simple job of replacing fixtures, painting, et cetera.  Unfortunately, we discovered that the hot water heaters (inexplicably located in the ceiling) were leaking and needed replacement.  The contractor then uncovered significant water damage in one of the bathrooms, resulting in an almost complete gut of that room.

The project is now over budget due to these unexpected expenses.  As with everything else in life, the best laid plans are often derailed by things you cannot foresee.  The same principle applies to your financial life.

While we can design a careful plan for any financial goal, things happen.  You could encounter a bear market.  Or the stork can bring an unexpected baby late in life.  Or your college graduate child could move home to live with you, thwarting your plans to downsize your home.

The key to success is to be adaptable.  Realize that you will most likely need to periodically adjust your financial plan.  It will not be static.

We are here to help.  We greatly appreciate it when you tell us of life’s unexpected events.  We are a team, working together to help you meet as many of your financial goals as you can.  We encourage you to call us so we can stay on track.

Cristy Freeman, AAMS
Senior Operations Associate

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The Bucket List

Several years ago, I read a self-help book that promised to help me manage money better.  I do not remember much about the book, not even the title.  I do remember one exercise that was very useful.

I was supposed to create what is now commonly known as a “bucket list.”  I should list all of the things I wanted to do during my lifetime.  It did not matter how long the list was.  When finished with the list, I should then review it and think about how a change in money management practices could help me achieve those goals.  That would help me to set a budget, make more responsible spending decisions, et cetera.  After all, you need money to pay for most of the things you want to do in life.

I found the exercise to be very enlightening.  To my surprise, I saw that most of the items related to travel.  I realized that I needed to do a better job at maintaining an emergency fund and set a formal budget for travel.  I had been tapping the emergency fund whenever I wanted to visit some place new, which is a bad idea.  I setup a direct debit from my checking to my savings account so that savings could be automatic.  This act created a formal budget for both emergency savings and travel.

Today’s list is very different.  My revised list includes completing several projects around the house, paying off my mortgage a few years early, donating more money to my favorite charity, buying a nice road bike, and squirreling away more money for unexpected expenses and retirement.  Sure, there are a few personal goals that are not tied to money; I am not completely shallow.  In balance, the list is much more practical than years ago, when I wanted to see the world.

I still do not want to wake up one day at age 80 and realize all I ever did was work, work, work.  The list can help me stay focused on important things and achieve some of my goals.  Hopefully, I can strike the right balance between the practical (saving for retirement) and the fun (buying that road bike).  I encourage you to take some time to create your own list.

Then, please share your list with your financial advisor.  Goals change over time, so he or she should be aware of what you want from life.  Together, you can develop a financial plan to direct your savings in a manner that will bring you closer to achieving your goals.

Cristy Freeman, AAMS
Senior Operations Associate

 

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Trouble on My Mind

In 2007, Leona Helmsley passed away.  She famously left $12 million for the care of her beloved Maltese named Trouble.  The courts eventually decided that $2 million was a more appropriate sum.  The story created a lot of buzz.  Some people were appalled that she would leave such a huge amount to an animal.  Others understood why she did it and found nothing wrong.

Whether or not you agree with what she did, the story highlights a topic that may not be discussed during estate planning.  What happens to your pets when you pass away or are unable to care for them due to serious illness or disability?  You may think your children or a friend would step in and care for your pet.  Unless you have made advance plans, there are no guarantees that will happen.

When I began writing this post, I already knew that pets are regarded as property, not a furry child.  I have referenced my pets in my will.  As I researched this blog, I realized that was not enough.  Wills are not processed right away, so your wishes for your pet could be unknown for some time.  Also, wills do not apply unless you are dead.  A serious illness or disability would not require the reading of a will.

Pet protection agreements and trusts are other vehicles that can be used to outline care for your pet.  The documents can include instructions for feeding, exercise, toys, anything you want.  They can specify funds for care and outline a disbursement plan. 

Pet trusts are recognized in 46 states.  Since it is a trust document, it is more complicated and would require the assistance of an attorney.  For that reason, a pet trust could be more expensive than a pet protection agreement.

If you live in the Asheville area, Brother Wolf Animal Rescue offers classes about estate planning for your pet.  Visit their website at www.bwar.org and click the Events page for dates and times of upcoming classes. 

I dearly love my pets.  When I adopted them, I became responsible for their care for their entire life.  If they outlive me, I want to know their lives will be just as happy as when I was with them.  You feel the same way, or you would not have read this post all the way to the end. 

When you are thinking about who should get Grandma’s pearls, please take a moment and consider what should happen to your furry friends.  You should mention it to your estate planning attorney, if you have one.  Just like Grandma’s pearls, you want to know your friends will be treasured when you are gone. 

Cristy Freeman, AAMS
Senior Operations Associate

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Are They Made from Real Girl Scouts?

I spotted a headline online recently announcing that a new flavor of Girl Scout cookies would have a secret ingredient.  I laughed out loud.  I immediately thought of that line from the “Addams Family” movie, delivered so well by Christina Ricci, “Are they made from real Girl Scouts?”  (Look it up on You Tube.) 

As it turns out, the secret ingredient is not Girl Scouts; it is a vitamin cocktail.  I looked at the ingredient label on their website.  Yes, you get a small dose of vitamins when you eat 3 cookies…along with 8 grams of fat.  Am I supposed to feel better when I eat more than 3 cookies, because the cookies are “good for me?”

We all know that, no matter how nutritious new forms of cookies, potato chips, and burgers may claim to be, they cannot replace a balanced diet that contains fruits and vegetables.  Fad diets come and go.  You might lose a few pounds, only to regain them because who can eat mango smoothies all the time? 

You can apply the same principle to your investments.  Chasing the latest fad in investment strategy can be costly.  It is important to be very thoughtful about your asset allocation.  As we have said many times, it is easy to have an allocation of 100 percent equities in an up market.  It is extremely difficult to stick with that strategy when the market drops 500 points in one day. 

Your investment advisor is here to help you.  If you have not taken a look at your asset allocation in awhile, now is a good time to begin the conversation.  Have your goals changed?  Has your family expanded?  Have you started a new business?  All of these events, as well as many others, can prompt a change.  We are here to help, so put down the Girl Scout cookies and give us a call.

Cristy Freeman, AAMS
Senior Operations Associate

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Keep Calm and Carry On

While reading an article about the Nobel Prize award to two American economists, I spotted a headline to the right.  It featured a link to a story CNN wrote in honor of International Day of the Girl.  Titled “To my 15-Year Old Self:  Things I Wish I’d Known,” the writer posed that question to notable women in a variety of fields.  The link showed a picture of Oprah, because you always have to ask her those sorts of questions.

I find her rather annoying, so, naturally, I clicked the link.  The problem I have with her is she seems out of touch.  It is easy to talk about “living your truth” and “risking everything to pursue your passion” when you are a multi-billionaire for whom the risks brought great reward.  Do you think the person who just lost everything when his/her business collapsed feels happy and fulfilled because they “followed their dream?”  Doubtful.

Anyway, as I read the quotes from these highly successful ladies, it occurred to me that living in the past can be a dangerous thing.  Sure, it is good to look back and say, “Oh, I really wish I had not done that.”  On the other hand, you can become so paralyzed by fear of making the same mistake that you take no action at all.  The key is to learn from the mistake and get on with your life.

We can do that in our portfolios too.  There was a time when I was reluctant to invest excess cash in my portfolio because of current market conditions.  As a result, I missed out on some of the upticks in the market.  The lesson I learned is emotion has no place in investing. 

You may have similar feelings now with the upcoming election.  What happens if Obama is re-elected?  What would Romney do if he becomes President?  Will this country fall into a Great Depression or have a huge economic boom?  No one knows.  However, I would bet that, if you looked at previous elections, similar comments were said about the president and candidate then.  It happens with every election.  Work the crowd into a frenzy so they will watch the news.

We cannot change the past.  We cannot predict the future.  Let’s focus on what we can control (our behavior), keep calm, and carry on.

Cristy Freeman, AAMS
Senior Operations Associate

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Saving for College

It is that time of year when the air turns cooler, the leaves begin to change color, and the kids return to school.  Some of you may already have children in college and know the financial burden a good education can be.  Others may be setting up a savings plan for the first time.  This post is geared toward you.

You have probably heard of something called a “529 plan.”  This type of college savings plan is named after the section of the Internal Revenue Service code in which the plans were created.  I found an excellent article on, of all places, the SEC’s website.  In plain English, it explains the difference between the two types of 529 plans, tax benefits, and other interesting tidbits.  Here is the link:  http://www.sec.gov/investor/pubs/intro529.htm

Another great site to visit is www.savingforcollege.com.  You can learn about the 529 plans offered in your state.  The site has information about financial aid, scholarships, and lots of other things.

At Parsec, we are familiar with the basics of 529 plans.  Your financial advisor will be happy to answer any questions you might have, although we do not personally setup 529 plans.  We can guide you to resources with which we have experience.

Saving for your child’s college education does not have to be a painful experience.  As you have learned with your retirement savings, the best approach is to develop a plan and stick with it.  Utilizing a 529 plan might be a way to accomplish your goal.

Cristy Freeman, AAMS
Senior Operations Associate

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When Things are Going Well, Watch Out!!!

 

Before you cross the street,
take my hand.

Life is what happens to you
while you’re busy making other plans.

 -John Lennon, “Beautiful Boy”

When I built my house, there were certain things I really wanted.  Unfortunately, I did not discover a money tree on the property.  I had to face reality and eliminate some “wants.”  Lately, I have been thinking about tweaking the kitchen a bit.  I would like a new countertop and maybe a tile backsplash. 

Of course, life has a way of altering your plans.  One of my cats fell ill.  In six days, I racked up a sizable bill at the vet’s office.  Sadly, she did not survive.  As devastating as the event was, it would have been even worse if I had not squirreled away some cash in an emergency fund.  Knowing that I was financially able (to a point) to do as much as I could to save her was a relief. 

We have talked many times in this blog about saving for the inevitable rainy day.  It is one of the best financial decisions you can make.  You never know when your car might need repair, when one of your kids (human or furry) might be sick, or when you may lose your job.  These events are stressful.  Not having the funds to pay for them compounds the stress.

Automatically transferring funds to an emergency account is a great way to save.  Banks and brokerage firms will allow you to sweep a pre-determined amount from one account to another.  You determine when you want to transfer to take place. 

Conventional wisdom says to save 6 to 9 months of expenses.  I found it easier to first calculate the large, recurring bills – insurance, property taxes, et cetera.  I then added a certain amount for routine savings and overall maintenance items – upkeep of house and car; vet visits; and so on.  I took that figure and divided it by 12 months.  At every payday, my bank sweeps that sum from my checking account into my savings account.  I cannot access my savings account unless I visit the bank, so I avoid the temptation of withdrawing funds for something silly.

The automatic deduction has been wonderful.  I do not “feel the loss” because the money never stays in my checking account.  My emergency fund has saved me on so many occasions. 

You can setup automatic deductions with your investment accounts too.  I also have a sweep in place for a Roth IRA contribution.  We would be happy to assist you with setting up automatic deductions into your brokerage or other investment accounts.  Please contact your advisor if you are interested.

Cristy Freeman, AAMS
Senior Operations Associate

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Scared Money Don’t Make Money

Recently, I heard the above phrase in a rap song by Pitbull.  I was surprised to hear mention of investment risk/reward in a popular song.  He did not go on to discuss European economic instability or currency valuation.  That would have been truly shocking.

The statement provokes thought, though.  People who are willing to take the most risk have the potential for greater reward – and greater loss.  It is easy to have an asset allocation of 100 percent equities in an up market.  Can you keep that allocation when the market is significantly down?  Will you still sleep at night?

On the other hand, holding money in a money market fund earning near-zero interest is also a risky proposition.  You must find some vehicle in which to invest because you cannot afford to earn nothing for your money.  Inflation continues to rise, even when interest rates are not.  The dollar you stash in a mattress will not be worth the same 10 years from now as it is today.

Finding the right allocation is very tricky.  It requires a great deal of evaluation on your part.  What is your current age?  Do you have enough time to recover from a short-term loss?  What are your investment goals for the next 5, 10, 15 years?  When do you want to retire? 

This is just a sample of some of the questions you should ask yourself.  A thoughtful review of your situation with your investment advisor will help the two of you to determine the best asset allocation.  Being brutally honest with yourself and communicating your goals, thoughts, and concerns with your investment advisor will allow you to work as a team.  The two of you will be able to find the right allocation that can help you sleep a little better at night.

Cristy Freeman, AAMS
Senior Operations Associate

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I Hate Debt

Don’t we all??  I worry about placing myself in a situation where an unexpected event (car accident, illness, et cetera) could create a financial disaster.  As a result, I carefully monitor the level of both short- and long-term obligations I have. 

With interest rates at historic lows, I decided to take a closer look at refinancing my house.  I have refinanced two times already; should I do it again?  Some of you may be considering the same thing, so I thought I would talk a bit about how I made my decision.

It is important to understand what you are trying to accomplish.  In my regard, I want to pay off my house within 15 years, while keeping the monthly payment at a reasonable level.  Others may want to tap home equity so that they can pay down loans with higher interest rates or do some repairs to the home.  If this is the case with you, calculate in advance how much you need. 

The next step is to take a look at your credit report.  Some people have had some dings from the Great Recession.  Resolve any reporting issues in advance of applying for a loan.  It will save you a lot of aggravation later.

Now, let’s figure out if it is feasible to refinance.  I used the calculators that are available on the bankrate.com website.  Here is a link:  http://www.bankrate.com/calculators.aspx. They have a great mortgage amortization calculator that shows you total interest paid over the life of the loan.  You can also see the impact of extra amounts paid toward principal. 

Using this tool, I entered my current interest rate and loan terms.  I analyzed the impact of the extra payments I have been making toward principal each month.  Then, I entered a 15-year term but with a lower interest rate. 

I compared the total interest expense with my current rate vs. a lower estimated rate.  The difference in total interest paid for my current loan vs. the lower interest rate loan is about $5,000, as long as I continue to make extra payments toward principal.  Closing costs and refinancing fees add up, so I suspect that net difference between the two loans would be much lower. 

As long as I continue making extra payments toward principal, I will accomplish my goal of paying off the loan within 15 years.  The lower interest rate loan would also require a larger monthly payment.  I am not comfortable with that.  With my current loan, I can keep my lower payment amount, giving me some security in the event of a serious financial crunch. 

Lower interest rates can be very enticing.  In the long run, though, you could sacrifice financial peace-of-mind just to save a few dollars.  A careful analysis of your personal situation can help you make the right decision.  If all of this seems overwhelming, we are always here to help.  Your financial advisor is just a phone call away.

Cristy Freeman, AAMS
Senior Operations Associate

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Where Does The Time Go?

When I was a little kid, it seemed to take FOREVER for Christmas to get here.  The tree would be up for ages, the presents underneath teasing me.  When my parents were at work, I would shake the presents and try to determine the contents.  I confess I sometimes lifted the corner on some of the packages.  It’s a great way of learning whether or not you are getting that Barbie you wanted.  It worked well until my little sister tattled.  No one likes a snitch, Amanda.

In my adult life, time flies by.  It seems like only yesterday we were celebrating a new year; now Thanksgiving is almost here, and the holiday madness is about to begin.  Everything kicks into overdrive as we rush from holiday party to family event.  We spend hours in the kitchen, preparing dishes that will be engulfed in minutes and forgotten almost as quickly.  It seems that chaos reigns during the holiday season.

In the midst of all this activity, let’s not forget our financial lives.  If you plan to donate appreciated stock to charity or give it to relatives, take care of it now.  Do not wait until late December.  Go ahead, and cross it off your list.  The later you wait, the more difficult it becomes to process the transaction before December 31.

It is also important to take a look at your portfolio.  Do you have any gains that could be offset by losses?  Do you anticipate any big financial events next year (i.e. your child will be starting college; you plan to remodel your home; et cetera)?  A quick conversation with your financial advisor sets up for a smooth start to 2012.

Take a deep breath.  It will be okay.  The holidays will be over before you know it!  I hope you and your family have a happy, healthy, and peaceful holiday season.

Cristy Freeman, AAMS
Senior Operations Associate

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