FPA of Michigan -- Passing the Torch  

The Center's long and distinguished history of service to the Financial Planning Association (FPA) continues, as Sandy Adams passes the torch to Center team members Tim Wyman and Nick Defenthaler. Sandy recently left the FPA of Michigan Board of Directors after 7 years of service, including 2 years as board president and 2 years as board chair. Tim has served previous terms of the FPA Michigan board, as well as a term on the FPA National board. Nick is joining as a first-time board member.

Each of our founding partners has served in the leadership of our professional organization -- giving back to our profession is an important goal of The Center and supports our firm value of Professionalism and Competence. Our involvement with the FPA is an honor and tradition that we hope to keep alive for years to come.


Experts & Economists Share Insights at Conference

Bitcoin, robo-advisors, overvalued equities and more … all were hot topics at January’s Conference. For the second year in a row, we sent our portfolio manager Angela Palacios. She reports back on her biggest insights.

After 2014’s Conference, I had high expectations. They were quickly exceeded.  With over 1,800 attendees, it was one of the world’s largest conferences focusing on exchange-traded funds and the agenda was jam-packed. Keynote speakers included JJeffrey Gundlach of DoubleLine Capital and RRob Arnott of Research Affiliates, two money managers we know well here at The Center. We have utilized Gundlach and Arnott for many years for our clients.  

In addition to the all-star speaking lineup, I had the chance to hear from a “Robo-advisor” … a topic of debate around our office, which we featured in our recent blog. I also heard from experts in Bitcoin as well as Mark Yusko who talked about endowment models and the way they manage money.

Here are the 3 questions everyone seemed to be talking about:

  1. Is deflation on the horizon?  I expected conflicting viewpoints, but there was some agreement. The majority of the experts think it is coming.
  2. Where is oil headed? Most say it will stay low and drift higher, only very slowly.  Gundlach made an interesting point that $100 per barrel of oil may not be where oil should be. Natural gas has been and stayed low for so long, he suggested oil could now be coming in line with where it should be.
  3. Are U.S. equities overvalued?  There were too many differing viewpoints here to count but everyone was talking about it!

In between listening to the experts and economists, I also enjoyed a sprinkling of some lighter material.  Terry Bradshaw gave his thoughts on life in general (including his unusual infatuation with Tom Brady) and James Carville and Karl Rove faced off in a political showdown. Both were excellent additions to the lineup this year.

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 [insert FA name] 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. Unless otherwise noted, individuals mentioned are not affiliated with Raymond James. 

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.


What to Consider Before You Buy a Second Home

Well it’s that time of year again.  No not the cold and flu season – well actually it’s that time too.  Rather, I am talking about the time of year where my wife and I go up north for a few days and after a fantastic 24 hours have the conversation.  You know, should we buy our own vacation home/condo rather than mooch off our friends (hey they are good friends)? It’s a question that many of my Empty and Soon-to-be-Empty Nester clients ask.

First Steps to a Second Home

Our friends, we will call them John & Michelle to protect their identity, decided a few years ago to purchase a condo in God’s Country (that’s northern Michigan….not way up North).   So far the purchase has worked out well and I think they did a few things right.  They actually bought the condo with another family as they knew neither of them would use the condo fully on their own.  They spelled out their “parenting” time or who had first right of refusal for each Holiday.  And last but not least, they formed a Limited Liability Company (LLC) to own the property in order to shield other personal assets from potential liability. All in all, the purchase has been wonderful for us… I mean them.

Consider the “Carrying” Costs

For a short period of time a second home or vacation home sounds like a wonderful idea to us (wine is involved in many instances).  However, after a few minutes we decide that it is not for us.  Although interest rates are low, making the cost more manageable, we have some other financial priorities at this time.  Also, many folks do not fully consider, or fully appreciate, the “carrying” costs of owning a second home.  The real or total cost of owning a second home is much more than principal & interest payments.  Additional costs can include:

                        -Property taxes

                        -Association dues



                        -Repairs & maintenance (necessary year round, whether or not you’re there)

Additionally, simply furnishing and updating two homes is no cheap undertaking. For now, we are content renting for the couple of times that we make it up north. 

3 Factors in Buying a Second Home

That said, I wouldn’t be surprised if we decide to make a second home purchase in the future – for lifestyle purposes rather than investment.  And if we do, we’ll make the following a part of our decision-making process:

            Use:  Do we expect to use it more than just a couple of weeks? If so then buying may make sense.

            Location: What area makes sense now and in the future? Are we willing to drive X hours?

            Price:  What price point will still allow us to fund retirement savings? What are the ongoing expenses?

Adding a second home can have wonderful lifestyle benefits.  Many a family has built cherished memories thanks to the family cottage.  Make sure you weigh the full cost of owning a second home with the desired lifestyle benefits.


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 [insert FA name] and not necessarily those of Raymond James.  


NUA: Answering 7 Questions about Net Unrealized Appreciation

The financial planning profession is full of acronyms such as RMD, IRA, TSA and NUA. One acronym making a comeback due to the increase in the US Equity market is “NUA”. NUA stands for net unrealized appreciation and anyone with a 401k account containing stock might want to better understand it. NUA comes into play when a person retires or otherwise leaves an employer sponsored 401k plan. In many cases, 401k funds are rolled over to an IRA. However, if you hold company stock in the 401k plan, you might be best served by rolling the company stock out separately.

Before getting to an example, here are the gory details: The net unrealized appreciation in securities is the excess of the fair market value over the cost basis and may be excluded from the participant's income. Further, it is not subject to the 10% penalty tax even though the participant is under age 59-1/2, since, with limited exceptions; the 10% tax only applies to amounts included in income. The cost basis is added to income and subject to the 10% penalty, if the participant is under 59.5 and the securities are not rolled over to an IRA.

Suppose Mary age 62 works for a large company that offers a 401k plan. Over the years she has purchased $50,000 of XYZ company stock and it has appreciated over the years with a current value of $150,000. Therefore, Mary has a basis of $50,000 and net unrealized appreciation of $100,000.

If Mary rolls XYZ stock over to an IRA at retirement or termination, the full $150,000 will be taxed like the other funds at ordinary income tax rates when distributed. However, if Mary rolls XYZ stock out separately the tax rules are different and potentially more favorable. In the example above, if Mary rolls XYZ out she will pay ordinary income tax immediately on $50,000 but may obtain long term capital treatment on the $100,000 appreciation when the stock is sold; thus potentially saving several thousand dollars in income tax.

Here are some critical questions to review when considering taking advantage of this opportunity:

Have you determined whether you own eligible employer stock within your workplace retirement plan?

Have you determined whether you have a distribution triggering event that would allow you to take a lump sum distribution of your employer stock from your plan?

Have you discussed the special taxation rules that apply to lump sum distributions of employer stock and NUA?

  • Cost basis taxable as ordinary income
  • Net unrealized appreciation taxable at long term capital gains rates when stock is sold

Have you discussed the criteria necessary to qualify for NUA’s special tax treatment?

  • Qualifying lump sum distribution including stock of the sponsoring employer taken within one taxable year
  • Transfer of stock in kind to a brokerage account
  • Sale of stock outside of the current qualified plan

Have you discussed the pros and cons of rolling over your employer stock into an IRA, taking into consideration such things as available investment options, fees and expenses, services, taxes and penalties, creditor protection, required minimum distributions and the tax treatment of the employer stock?

Have you discussed the pros and cons of selling your employer stock within the plan, including the need for proper diversification?

Have you discussed with your tax advisor whether a NUA tax strategy would be beneficial from a tax planning perspective given your current situation?

These are a handful of the key questions that should be considered when deciding whether or not this opportunity makes sense for you. Professional guidance is always suggested before making any final decisions.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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. Strategies mentioned may not be appropriate for all investors.


Part 2: Use Time to Your Advantage: a year of lessons on money matters for your children and grandchildren

When I was just starting out in the investment business, one of my mentors said over and over, “Accumulation of wealth is about time, not timing.”  If you start early and invest appropriately, you don’t need to try to time the market.  Timing the market is a fool’s game and leads to many troubling mistakes.  Most people, even the pros, can’t time the market correctly with a high percentage of success.

The chart below from Fidelity is a simple but dramatic example of accumulating greater wealth by starting early. 

The “Leave it Alone” Approach

There are more steps to starting early. They begin with understanding your risk tolerance and then sticking to it by finding the appropriate portfolio allocation.

Next, set up a dollar-cost-averaging monthly investing discipline in your 401k or IRA program.  And leave it alone!  Obviously, if your employer matches your contributions to a 401k plan, than max that out before any other type of investment program.  A match is the same as free money that will help to build a nest egg. Why not let someone contribute along with you?  

Unbelievably over 30% of participants don’t contribute to their employer plans and miss the match.

This suggestion sounds simple but there will be periods of your life when time seems slow and dull and your investments are not making the headway you expect. People around you are getting wealthier it seems.  You start to think maybe you should be more aggressive.  You will be tempted to change stride and do something different to keep up with crowd.  Don’t mix brains with a bull market!  Occasionally individual markets (like the S&P last year) will trounce a diversified portfolio.  This temporary outperformance by one asset class generally will not persist for more than a year or two. 

Tips for Staying the Course

There may be other periods when the economy or financial markets seem to be falling apart and you cannot believe the extent of losses in markets and even your portfolio.  When you feel regret and loss, it may not seem easy to stay the course.

My advice, when the pain threshold becomes overwhelming at first  breathe and then consider doing the opposite of what your stomach is telling you.

This is when your brain needs to take over.  If you are sad because of losses and feel the need to change direction because, consider buying a little more. When it’s so exciting that you are looking at your portfolio value every day and twice on Saturdays (BTW prices don’t change on Saturdays), slow down your purchases or be slightly more conservative. It’s not always easy to ignore your gut, but historically starting early and staying the course is the advice I give my clients every day.


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. Investing involves risk and investors may incur a profit or loss.  

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.