I Want it All

My husband and I are planning a trip to celebrate our 30th anniversary this summer. We love to travel, and we are fortunate to have taken some wonderful trips over the years. But, when it comes to planning a new trip, I have a weakness: I want it all. You see, there are many places still on my list to visit, and yet there are others we have visited and enjoyed so much, we want to return. It can take weeks for us to pull the trigger and settle on an option. I want it all and I want it right now.

So, it was with great amusement when I read the most recent blog post by the NY Times “Sketch Guy,” Carl Richards http://www.nytimes.com/2014/01/21/your-money/the-trap-of-too-many-choices.html?ref=your-money. You see, having few options is bad, but having too many options can be debilitating.

In the world of financial planning, we most often see this debilitation when people try to time the market. When the market is up, people want to wait for a correction. When it is down, they think it hasn’t gone down enough. Just when they think it is safe to go back in the water, they have missed the biggest part of the upswing. The cycle continues.

This is why the right asset allocation and portfolio diversification play such an important role in your financial success. It may not be exciting and you may not beat the Russell 3000 year after year, or ever. But you are participating in the markets, you have the cushion that fixed income provides and sufficient cash for emergencies to ride out just about any storm. And if you stick with your plan, over the long term, you will be a winner. You definitely won’t get there by sitting on the sidelines.

We all want to make the best decision, invest at the best time, pay the perfect price, plan the perfect trip, etc. But all of the research in the world won’t guarantee success 100% of the time. In fact, waiting for the best often causes us to do nothing.

Richards’ suggestion is to accept that sometimes good enough is better than not at all. And I would have to agree. For now, we have settled on our travel plans. And with any luck, there will be another trip next year.

Tracy H. Allen, CFP®
Financial Planner

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Retirement Plan Savings 101

This time of year there are many employee benefit emails being churned through inboxes. Some of these benefits are time sensitive and can only be changed during qualifying events. Many times these benefits include health insurance coverage, group life and disability insurance coverage, and Health Savings or Health Reimbursement account withholdings. One benefit that is available to many employees, and can be changed at any time, is a retirement savings account. The maximization of these account benefits can result in a large reduction of your year-end tax bill. Let’s take a look at a few of the major plans approved for use by the IRS.

The 401(k):

The 401(k) is the most popular defined contribution plan available. The plan sponsor (the company) sets up the rules for employer contributions, which is approved by the IRS. Participants (employees) also have some decisions to make in regards to contributing to the account. For employees younger than 50, the 2014 maximum funding is $17,500 and for those older than 50 the maximum is $23,000. This employee contribution is subtracted from the employee’s taxable income for the year. This can lead to significant tax savings, but will also reduce the amount of take home pay for the employee. Similarly, some plans allow for a Roth 401(k). This plan functions the same way as the traditional 401(k), except employees do not get to exclude contributions from taxable income. However, once the employee reaches retirement age, all withdrawals from the Roth 401(k) are tax free, unlike a traditional 401(k).

The 403(b):

The 403(b) functions very similarly to the 401(k) but is only offered in certain types of organizations. Primarily, the 403(b) is offered to employees in public education and most non-profit organizations. The contribution limits are the same as the 401(k), with a slight advantage with the “catch up” rules.


SEP IRAs and SIMPLE IRAs are two savings vehicles available to small business owners. These accounts give small business owners and their employees access to tax-deferred savings vehicles with lower administrative costs. The SEP IRA’s contribution limit is similar to the 401(k) and 403(b), but based on the discretion of the business owner. This is different from a 401(k), for which an employer is required to contribute a certain amount. The SIMPLE IRA has a maximum salary deferral of $12,000 for 2014, with a $2,500 catch-up for employees older than 50.

This just scratches the surface of the details involved with employer sponsored savings plans. If you have questions about whether you are making an appropriate deferral, contact your advisor for a review of your situation. If you own a business and are interested in establishing a company plan, contact Neal Nolan, our Director of ERISA for a comprehensive consultation.

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The Best Man for the Job is…a Woman?

I was pleased to read yet another article supporting the importance of women in portfolio management. The article (found here) cited a recently released report which found that an index of hedge funds managed by women outperformed the HFRI Global Hedge fund Index over a 6.5-year period. During that time, the female-managed fund index rose 6%, while the HFRI declined 1.1%. Of course, the sample size was relatively small, as only about 125 of the 10,000+ hedge funds have female portfolio managers. Still, the data seem to support the notion of gender diversity in investment management. There have been many articles written about how men and women differ in their approach to investing, indicating that women investors on average have a performance edge on men.

Many theories abound as to why this might be the case. Some of the most popular theories are that women tend to be more risk-averse (less testosterone) and are therefore less likely to take risky bets that don’t pay off. Another theory is that women lack “over-confidence” leading them to trade less, which has shown to contribute to outperformance. This particular article also suggested that these women hedge fund managers took a longer-term view compared to their male counterparts, which paid off over the time period in question.

Fortunately, Parsec is ahead of the curve when it comes to gender diversity in the investment management arena. Three of our five CFA charterholders are women, and are active members of our Investment Policy Committee. We don’t really know the reasons behind the findings in these studies, but some of the theories described above make sense to us. At Parsec, we don’t see this as a gender issue, just good investing. Our philosophy has always been one with a long-term view that eschews market timing and excessive risk-taking. While this approach doesn’t guarantee outperformance, it is a prudent way to invest for retirement, and we do know the research supports that.

Sarah DerGarabedian, CFA
Portfolio Manager

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Market Update through 1/15/2014

as of January 15, 2014    
       Total Return
Index 12 months YTD/QTD/MTD
Russell 3000 29.28% 0.24%
S&P 500 28.24% 0.07%
DJ Industrial Average 24.79% -0.50%
Nasdaq Composite 37.28% 0.94%
Russell 2000 34.18% 0.69%
EAFE Index 24.05% 0.90%
Barclays US Aggregate -1.29% 0.60%
Barclays Intermediate US Gov/Credit -0.55% 0.42%
Barclays Municipal  -2.07% 1.19%
  Current Prior
Commodity/Currency Level Level
Crude Oil  $94.17  $98.42
Natural Gas  $4.33  $4.23
Gold  $1,238.30  $1,202.30
Euro  $1.35  $1.37

Mark A. Lewis

Director of Operations

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2013 IRA Contribution Rules

The deadline to make IRA contributions for tax year 2013 is April, 15 2014.  The maximum contribution is $5,500 of earned income or $6,500 for those 50 and over.   These amounts will stay the same in 2014.

There are income limits which determine whether you can deduct your Traditional IRA contribution or if you qualify to make a Roth contribution.  The following table gives the phase-out range for the most common circumstances.

Do you qualify to deduct your   Traditional IRA contribution?
 If   your income is less than the beginning of the phase-out range, you   qualify.  If your income is over the phase-out range, you do not.  If   your income falls inside the range, you partially qualify.
  Modified   Adjusted Gross   Income                                           Phase-Out   Range
Single,   participates in an employer-sponsored retirement plan $59,000-$69,000
Married,   participates in an employer-sponsored retirement plan $95,000-$115,000
Married,   your spouse participates in an employer-sponsored retirement plan, but you do   not. $178,000-$188,000
Do you qualify to contribute   to a Roth IRA?
Single $112,000-$127,000
Married,   filing jointly $178,000-$188,000

If your filing status differs from those listed above, please contact your advisor and he or she can help you determine whether you qualify.


Harli L. Palme, CFA, CFP®


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Market Update Through 12/31/2013


as of December 31, 2013        
  Total Return
Index 12 months YTD QTD DEC
Russell 3000 33.55% 33.55% 10.10% 2.64%
S&P 500 32.39% 32.39% 10.51% 2.53%
DJ Industrial Average 29.65% 29.65% 10.22% 3.19%
Nasdaq Composite 40.12% 40.12% 11.10% 2.94%
Russell 2000 38.82% 38.82% 8.72% 1.97%
EAFE Index 27.46% 27.46% 6.40% 1.41%
Barclays US Aggregate -2.02% -2.02% -0.14% -0.57%
Barclays Intermediate US Gov/Credit -0.86% -0.86% -0.14% -0.63%
Barclays Municipal  -2.55% -2.55% 0.33% -0.26%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $98.42    $96.60
Natural Gas    $4.23    $4.35
Gold    $1,202.30    $1,235.70
Euro    $1.37    $1.37

Mark A. Lewis
Director of Operations

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Inflation Is Definitely Not a Problem

There are many things you might want to worry about concerning the U.S. economy, but inflation is definitely not one of them.  We continue to get nothing but good news on that front.

There are two primary measures of inflation in the U.S.  The one that people are most familiar with is the Consumer Price Index (CPI).  It is based on the prices of a basket of goods using fixed weights and is calculated and reported every month by the Bureau of Labor Statistics.  BLS reported the data for October 2013 on November 20.

Chart 1 shows the pattern for the overall CPI since 1946.


Chart 1


The base for this index is 1982-1984=100.  The index in October was 233.5.  This is the index for all urban consumers, the CPI-U.  BLS also publishes a CPI for urban wage and clerical workers, the CPI-W.

There is also the chained CPI index for all urban consumers (C-CPI-U).  That’s the one that has generated lots of discussion in Washington, D.C. as a candidate to replace the CPI-U in calculating the annual cost of living increase for Social Security benefits and income tax brackets.  If those changes happen, many more people will become familiar with this index. The C-CPI-U uses weights that change as consumption patterns change. That’s why it rises less than the CPI-U.

Chart 2 shows the year-over-year percentage changes in the CPI-U.  You can clearly see the big increases in prices after price controls expired after World War II and during the Korean War.  You can also see the period of the “Great Inflation” of 1965-1980 followed by the “Great Moderation.”


Chart 2


The CPI-U only rose by 1.0 percent in the twelve months ending in October 2013.  That’s mostly because energy prices fell by 4.8 percent, led by a 10.1 percent drop in gasoline prices.

The CPI-U excluding food and energy is called the “core CPI-U.”  It rose 1.7 percent in the year ended in October.

Either way suggests there is not much inflation in the system.  The members of the Federal Open Market Committee prefer to follow the implicit price deflator for personal consumption expenditures.  That’s because it both uses changing weights and measures all goods and services that consumers use. This measure is computed by the Bureau of Economic Analysis and is reported in the quarterly national income and product accounts.  The most recent data came out on November 7, 2013.

Chart 3 shows this measure. Its base is 2009=100.  This index was up only 1.1 percent from the third quarter of 2012 to the third quarter of 2013.  The index excluding food and energy was up only 1.2 percent for the same period.


      Chart 3


The raw material for inflation is the rate of growth of the broad M2 money supply.  This includes currency, demand deposits, savings deposits and time deposits of $100,000 or less.  The late Milton Friedman, recipient of the 1976 Nobel Memorial Prize in Economic Science, devoted much of his life to the study of money growth and inflation.  He taught all of us that “Inflation is always and everywhere a monetary phenomenon.”

The Board of Governors of the Federal Reserve System reports these data every week in its “Money Stock Measures-H.6” release. For the 52 weeks ended November 11, 2013, the rate of increase in M2 has been 6.5 percent.  That’s in line with the past three years and is no reason for alarm.

If you want to worry about the U.S. economy, then worry about how to break the U.S. economy out of the slow growth we’ve been experiencing since the recession ended in June 2009.  This has been the weakest expansion after a recession in over 100 years.  We are now in the fifth year of the expansion and real GDP is only 10.0 percent above where it was at the trough in the second quarter of 2009.

Dr. James F. Smith
Chief Economist


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Time is Running Out!

When we were kids, it seemed to take FOREVER for Christmas to get here.  After Thanksgiving, you knew it was close but oh so far!  Nowadays, it seems as if December just flies by.  We have so much to do!  How do we get it all done?

In the midst of the holiday chaos, let’s take a moment to handle charitable donations.  Your favorite non-profit organization appreciates anything you can do for them. 

You still have time to make a donation.  You must make cash donations by December 31 to count them toward the 2013 tax year. 

If you want to donate securities, call us the second you read this blog post.  Time is running out to ensure processing of these types of donations by December 31.

Also, if you have old clothes, furniture, or other items to donate, you should deliver the items to the charity by December 31.  (Some charities even offer pick-up service.)  Make a detailed list of the items you donated.  If something is particularly valuable, it would be a good idea to snap a picture.  You would have proof, if you are ever audited, of the item’s condition.

It is possible to get everything done on time.  As I mentioned, charities need our support.  Just take a deep breath, make a list, and do one thing at a time.  If you planned to make a donation, just add them to the “to do” list.

We hope everyone has a safe holiday season and a healthy, happy new year.

Cristy Freeman, AAMS
Senior Operations Associate

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Small Steps

This morning, I was reading an online article about simple ways to increase retirement savings.  I started thinking about how to express this to our ERISA/401k plan participants and figuring out a new way to educate them on the importance of saving for their future.  I’m fearful that some have determined in their mind that a secure future is something unobtainable, while others realizing that there’s not enough money to live on. 

My desire for our ERISA clients and plan participants is greater confidence in their ability to accomplish their retirement goal.  We’ve attempted to remove indecision that can arise from creating one’s investment allocation from the line of funds by offering mutual fund models.  We have also ensured that there are financial planning tools and calculators on the Third Party Administrator’s website (for our Daily Valuation plans) that helps to inform the participant about how much money needs to be saved each month.  However, these tools and resources will not overcome indecision.  That is why we also go one step further and provide ongoing education to the participants of these plans.  Herein lies my most sincere desire:  That participants make a choice and take action to move one step closer to a comfortable retirement.  Any journey starts with one step and each successive step gets progressively easier. 

Regarding the article: One of the things we have employed in our retirement plan education meetings are “Simple Solutions”.  These are simple ways of carving money out from our household budget to increase our savings rate.  For instance, I frequently tell plan participants about my coffee and muffin run to the local grocery store and how I would share the muffin with my then 3 year old daughter.  As the story goes, I explain that an intern (now full time Financial Advisor at Parsec and CFP® candidate) helped to make me realize how much money I was spending over the course of 25 years.  I was shocked at the expense and immediately changed my spending habits.  What’s interesting to me is that prior to this conversation, I thought it was a nice daddy-daughter treat.  However, I quickly realized two things:  The seemingly small expense added up to significant sums of money over time.  Also, that an extra cup of coffee and breakfast at home would go a lot further for building memories with my daughter. 

I believe we have the capacity to save something.  Often times, a small step in the right direction is all that is needed to overcome the hurdle.  For others, online calculators and financial planning tools are motivating, as they give the sense of speed and direction.

Check out our twitter post: https://twitter.com/ParsecFinancial

Neal Nolan

Director of ERISA  

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Market Update Through 12/13/2013

as of December 13, 2013        
                  Total Return
Index 12 months YTD QTD MTD
Russell 3000 29.15% 28.06% 5.58% -1.58%
S&P 500 27.77% 27.06% 6.06% -1.60%
DJ Industrial Average 22.65% 23.22% 4.75% -1.93%
Nasdaq Composite 35.47% 34.17% 6.39% -1.42%
Russell 2000 36.16% 31.96% 3.34% -3.07%
EAFE Index 23.10% 21.16% 1.14% -3.61%
Barclays US Aggregate -1.73% -1.82% 0.07% -0.36%
Barclays Intermediate US Gov/Credit -0.72% -0.82% 0.06% -0.37%
Barclays Municipal  -3.12% -2.47% 0.41% -0.17%
    Current   Prior
Commodity/Currency   Level   Level
Crude Oil    $96.60    $92.72
Natural Gas    $4.35    $3.95
Gold    $1,235.70    $1,250.60
Euro    $1.37    $1.35

Mark A. Lewis

Director of Operations

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