VESTED Winter 2016 by CAPTRUST

Patti Cotton Defines Her Own Success

Look in the Mirror

PLUS Moving Into the City Mountain Climbing Leaving an Education Legacy Couples, Conflict, and Money

WINTER 2016

“The meaning of life is to find your gift. The purpose of life is to give it away.” – Pablo Picasso

At CAPTRUST, we believe we have a profound responsibility to share our success with those less fortunate than us. One way we do that is through the activities of the CAPCommunity Foundation, our in-house, employee-run charitable foundation. Its mission is to enrich the lives of children in communities we serve. The foundation, a registered 501(c)(3) charity, was formally organized in 2007 to provide our employees with opportunities to participate as a group in community outreach efforts and to offer their time, passion, and financial support as a way to give back.

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Volume 2, Issue 1 | Winter 2016 PUBLISHER & EDITOR IN CHIEF J. Fielding Miller Chief Executive Officer

The beginning of the year is always an opportune time to look back on the year that was, express gratitude for the good things that happened, and rededicate oneself to improvements for the future. We continue to learn what’s important to our readers with every issue of VESTED—thanks to your feedback—and promise to continue to raise the bar, exploring new issues and ideas, in 2016. The cover of our winter 2016 issue features Patti Cotton as the “hero” profiled in our Second Act column. The former chief development officer for a Southern California healthcare system, Cotton realized she was living someone else’s definition of a successful career, so she reinvented herself as an entrepreneur and found her calling as an executive coach. This issue’s columns and features cover a variety of topics, including: • Suburban empty nesters moving into more urban environments, • Paying it forward by establishing a scholarship, • Mountain climbing as a way to stay active and healthy, • Why it’s important to get your beneficiary designations right (and what can happen if you don’t), and • Common myths couples face about love and money. This issue’s must-read article, titled “Look in the Mirror,” speaks to the hidden challenges of investing, how emotion can sometimes get the

EDITORS John Curry Senior Director, Marketing

Eric Freedman Chief Investment Officer

EDITORIAL ADVISORY BOARD

CEO Fielding Miller updates colleagues on 2015 business results and initiatives at the firm’s Synergy meeting held in January.

better of investors—even the older, wiser, and more successful kind. Author Andrea Coombes describes the origins of these problematic behaviors and offers a few tips to combat them. And finally, CAPTRUST Chief Investment Officer Eric Freedman offers up five themes he sees as critical for investors in 2016 and beyond. As always, our primary aim with VESTED is to provide you with timely, relevant, and actionable ideas and recommendations. Please help us by sending your thoughts, reactions, and story ideas to VESTEDmagazine@captrustadvisors.com.

Jeremy Altfeder Client Relationship Manager

Nick DeCenso Manager, Wealth Strategy

Lauren Bartholomew Senior Client Management Consultant

Karen Denise Senior Manager, Wealth Operations

Rush Benton Senior Director, Strategic Wealth

Mike Gray Senior Vice President, Financial Advisor

Hugh (Trae) Cole Financial Advisor

Land Hite Senior Vice President, Financial Advisor

Ellen Crowley Vice President, Financial Advisor

Mark Paccione Director, Investment Research

Teri Parker Vice President, Financial Advisor

ART DIRECTION & MARKETING Jessica Rose Art Director, Marketing Michael Galiano Associate, Marketing

Jennifer Mastrapasqua Senior Manager, Marketing

Shaila Gupta Associate, Marketing

Greg Middleton Director, Marketing

Jennifer Liebel Manager, Marketing

Colby Warren Manager, Marketing

WITH THE ASSISTANCE OF

All the best,

Classic Graphics Morrisville, NC Kendrick Brinson Los Angeles, CA

The Mission Inn Riverside, CA

J. FIELDING MILLER CAPTRUST Chief Executive Officer 800.216.0645 | www.captrustadvisors.com 4208 Six Forks Road, Suite 1700 Raleigh, NC 27609

andrea coombes

eric freedman

nanci hellmich

kathleen burns kingsbury

Andrea Coombes is an award-winning writer with more than 14 years of experience writing personal finance and business stories for a variety of publications. Her work has appeared in The Wall Street Journal, the Miami Herald, Sacramento Bee, San Francisco Chronicle, San Francisco Examiner, and on Yahoo! Finance. She served as personal finance editor at MarketWatch.com from 2010 through 2012.

Eric Freedman is CAPTRUST’s chief investment officer and is a member of the firm’s executive and operating committees. He has an undergraduate economics degree from Colgate University and received a Master of Business Administration from the Wharton School of the University of Pennsylvania. Eric is chairman of the Diocese of Raleigh Investment Committee and serves on the boards of the Ronald McDonald House of Chapel Hill and Monday Life.

Nanci Hellmich, an award-winning multimedia reporter, covered personal finance, retirement, nutrition, health, and other topics for USA TODAY for more than 30 years. She now enjoys writing for AARP, Encore.org, and other companies and organizations. She has been named one of the top 10 national online influencers on weight loss and nutrition. Nanci has appeared on both local and national television, including NBC’s TODAY Show.

Kathleen Burns Kingsbury is a faculty member of the Certified Private Wealth Advisor® program offered by the Investment Management Consultants Association, an adjunct lecturer at Bentley University, a Certified Professional Co-Active Coach®, and founder of the KBK Wealth Connection. She is a wealth psychology expert and author of How to Give Financial Advice to Women and How to Give Financial Advice to Couples.

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Features 4

Columns

PATTI COTTON

Defines Her Own Success by Constantine von Hoffman

LOOK IN THE MIRROR

by Andrea Coombes

URBAN DEVELOPMENTS

20 25

by Kim Painter

PROGNOSTICATORS AND PROPHETS BEWARE

PASSION PURSUITS

A Higher Calling by Nanci Hellmich

GLEANINGS

EXPERT ANGLE

When Is Simple Not So Simple? by Teresa Rhyne

MARKET REWIND

LASTING LEGACY

Paying It Forward With Scholarships by Susan Weiner

CLIENT CONVERSATIONS MONEY TALKS

Does Love Really Conquer All? by Kathleen Burns Kingsbury

CAPTRUST HAPPENINGS

by Eric Freedman

kim painter

teresa rhyne

constantine von hoffman

susan weiner

Kim Painter is a freelance writer specializing in health and lifestyle issues. She was a USA TODAY staffer for many years and has continued to contribute to the newspaper for many additional years as a reporter, columnist, and blogger. She lives in McLean, Virginia, where she practices what she preaches: wearing sunscreen, eating broccoli, and getting at least 10,000 steps a day.

Teresa Rhyne is the principal of The Teresa Rhyne Law Group, where she focuses on developing comprehensive and sound estate and charitable tax plans for business owners, individuals, and families. Teresa attended University of California, Santa Barbara, and Loyola Law School where she earned a Doctorate of Law. She has been practicing law for more than 20 years.

Constantine von Hoffman is a business and financial writer. For the past 25 years, he has worked for CBS News, Inc. Magazine, and The Boston Herald, among other news outlets. His writing has appeared in many publications, including the Harvard Business Review, Sierra Magazine, and The Boston Globe.

Susan Weiner is a Chartered Financial Analyst®, a journalist, and a writer and editor for leading investment and wealth management firms. Her work has been featured in Advisor Perspectives, The Boston Globe, Bottom Line Personal, CFA Magazine, Financial Planning, Louis Rukeyser’s Mutual Funds, Wealth Manager, and other national publications.

All publication rights reserved. None of the material in this publication may be reproduced in any form without the express written permission of CAPTRUST: 919.870.6822. ©2016 CAPTRUST Financial Advisors. The opinions expressed in this report are subject to change without notice. This material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. CAPTRUST does not render legal, accounting, or tax advice. If you require such advice, you should contact the appropriate legal, accounting, or tax advisor. The information and statistics in this report are from sources believed to be reliable but are not warranted by CAPTRUST Financial Advisors to be accurate or complete. Performance data depicts historical performance and is not meant to predict future results.

PATTI COTTON What happens when you reach the top, but it’s someone else’s definition of the top? by constantine von hoffman

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That was the question facing Patti Cotton in 2006. She served in the role of executive development officer for the five hospitals of a world-renowned academic health sciences system, where she had started as a part-time secretary 13 years before. When she assumed the role, the hospitals were raising a total of $1 million a year. But after her first four-anda-half years as EDO, she had turned fundraising around, oversaw a team raising $22 million, and was prepared to launch another major fundraising initiative. “They hired me and paid me a third less than my male counterpart,” says Cotton. “And even though I sat at the executive table, I also carried a lesser title, being told that it was just political, and that they loved me just as much. But I also felt like a total impostor! The truth is, I was secretly afraid to ask for big money myself, even though I taught my team to do so. I wasn’t getting out there to ask for the larger gifts of which I suspected I was capable.” To get where Cotton was professionally required being smart and determined. To do what she did next required even more: being brave. “I realized that if I was going to be a serious contender in life, I needed to face my own fear and do something about it,” she says. And this time it meant being brave for herself, not for someone else. Because, she realized, what was making her feel like an impostor wasn’t just her paycheck. Although there’s no doubting the success she had achieved through her own hard work, it followed a path laid out by someone else. At a basic level, Cotton felt she wasn’t being honest to herself. She wasn’t living up to her potential. Continued on page 6

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There are plenty of people who seem to know from the start what it is they want out of life, and they dedicate all they can to achieve it. However, there are a lot more people who allow themselves to be pulled forward, many quite successfully, changing course both professionally and personally many times. In that regard, Patti Cotton is a lot like most of us. The route she followed, though, is most certainly not. She grew up in California, the daughter of a pastor and a gospel recording artist. Her father went from pastoring to teaching theology, and although the family always had food, caring for a family of six meant they needed to be careful about spending.

“I remember a favorite soup my mother used to make. She called it ‘Pour Dieu,’ or so it sounded. Years later Mom corrected me on the name. ‘No, no, honey. That’s what the poor do.’ It was a soup made with stewed tomatoes and old bread.”

“I remember a favorite soup my mother used to make,” she says. “She called it ‘Pour Dieu,’ or so it sounded. Years later Mom corrected me on the name. ‘No, no, honey. That’s what the poor do.’ It was a soup made with stewed tomatoes and old bread.” When she was about 12 years old, life got less modest. Cotton’s father went into health care and wound up developing and overseeing “some hospitals and rest homes. Life changed, and I went to college and then ran off to Switzerland and lived there for 10 years.”

Cotton is an ebullient talker and, even when doing her best to briefly describe her life, she mentions all sorts of things that you just know have a great story behind them. Take that sojourn to Switzerland, for example. It all began with a big, empty water cooler bottle. She had been putting change in it since her early teens, saving for a trip to France. When she was a junior in college, not knowing what to

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do with her life, she thought “you know what? I’m spending the contents of that jar. I’ve worked since I was 13. I’m going to go to France.” Then she decided to study French in France. She convinced one of her sisters to come along, even though they didn’t yet know exactly where they were going to study. A friend of a friend suggested they go to a language school in Switzerland where a friend of that person had gone. (“Well, how naïve is it to make a decision like that? You have to remember it was pre-Internet days, so getting good information was like throwing a dart into the wind, closing your eyes, and hoping it hits something.”)

“You know what? I’m spending the contents of that jar. I’ve worked since I was 13. I’m going to go to France.”

After they finished the three-month course, her sister decided to go home. Cotton decided to stay, so she enrolled in secretarial school. While there, she met, fell in love with, and then married one of her teachers. The two of them joined the Swiss diplomatic corps and worked together for many years. Unfortunately the marriage didn’t work out and, when it didn’t, she came back to the U.S. This put her on the path to becoming the EDO for Loma Linda’s academic health sciences system. Whew. That by itself is enough adventure for many people. Back in California, Cotton continued to raise her family. She got the part-time secretarial job at Loma Linda, in part to spend more time with her three sons, but there may also have been an element of selling herself short as well. “I intentionally underemployed myself,” she says. “Over in Switzerland, I had worked in Fortune 500 companies and then been wife of a diplomat for several years. So I had the background of working alongside my husband, with heads of state, heads of corporations, and all this. But I thought, ‘No, I want to be a mom. So I’ll save my energies and be a part-time secretary.’” The people at Loma Linda knew they had someone special and capable on their hands and, as Cotton says, they “just kept promoting me.” While Cotton earned and appreciated Continued on page 8

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the promotions, she was also aware that she was following a path someone else had chosen. It had never been her intent to be in development, but she went into it because it was offered to her—not because it was what she wanted. As we all know, facing down your own fears is not an easy thing. Cotton understood that and did what any sensible person would do. She got expert help. “I secretly hired an executive coach and, in the space of three months, broke through old fears and went out and asked for a $3 million dollar donation and got it,” she says. It was just the most empowering thing. I mean, that sounds pretty sensationalist. It’s not something you do every day.” Working with her coach also allowed her to see what she had loved most her entire life: helping people grow into their full potential. “So at a time when they were talking to me about elevating my career track, again—I wasn’t sure what that meant, but I was on a track to keep going—I said, ‘You know what, I think I’m living somebody else’s life,’” she says. “What do I want? I get to finally call it.”

“It was empowering to jump off and to start at probably the worst time in modern history. The way I saw it was there’s nowhere to go from here but up.” Her background and formal education in organizational management and development, combined with a specialty in executive coaching, gave her the impetus to found her own executive consulting firm. That was in 2009, which wasn’t a great time to start a business. “But, it was time. I thought, ‘If I don’t do this now, if I don’t stand up for myself, I can’t help other people do that,’” she says. “It was empowering to jump off and to start at probably the worst time in modern history. The way I saw it was there’s nowhere to go from here but up.” And, with a client list that includes Boeing, Harvard University, Sysco, Coca-Cola, Girl Scouts of America, Bank of America, Morgan Stanley, and many other notable U.S. and global organizations, up is exactly where she is going in her latest act.

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Patti’s advocacy and board service support women in leadership and the empowerment of vulnerable and silenced voices. Firmly believing that women, money, and power need to sit together at the big table, she is currently launching a new women’s leadership development initiative to help maximize female potential within organizations, entitled “Women Changing the Face of Leadership: 3 Strategies to Meet the New Business Revolution!” To learn more, visit www.PattiCotton.com. Three book recommendations she shares with clients are as follows: The 15 Commitments of Conscious Leadership: A New Paradigm for Sustainable Success by Jim Dethmer, Diana Chapman, and Kaley Warner Klemp for authentic leadership and maximum potential. Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher and William Ury for win-win relationships and getting what you want. Your Life On Purpose: How to Find What Matters and Create the Life You Want by Matthew McKay, John Forsyth, and Georg Eifert for discovering your passions, aligning your values, and focusing on what matters most.

THE BIGGEST RISK TO YOUR INVESTMENTS?

Behavioral biases—and the investing mistakes triggered by them—can derail the market gains of even highnet-worth investors. Consider these strategies to help overcome them.

by andrea coombes

It’s a story almost as old as the stock market itself. Stocks go up, and investors crowd in. When the market drops, as it inevitably does, they stampede to the exits. The types of emotions that might be indispensable to us in other facets of life often lead to negative outcomes as investors: fear of missing out on the next big thing, panic at the thought of losing money, an eager focus on the recent past at the expense of a long-term view. The list goes on. You may think you’re above such foibles, but are you sure? While wealthy investors tend toward different biases than average-income investors, they’re not immune to the blind spots that lead to investing mistakes.

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Certainly, research shows that, overall, investors shortchange themselves in the financial markets. The average equity mutual fund investor earned just 5.5 percent in 2014, compared with the overall equity market’s 13.7 percent return, largely due to mistiming the market, according to the 2015 Quantitative Analysis of Investor Behavior, an annual report published by DALBAR, a financial services consulting firm. While studies with different methodologies find investors’ underperformance to be less glaring, they still find a gap of about 1 to 2 percent between the market’s return and the typical investor’s return annually. That shortfall adds up over time. One study found that the total return of UK equity funds was 6.5 percent, but the average investor earned 5.3 percent — a difference that compounded into a loss for the average investor of almost 20 percent over 10 years, according to research conducted by Cass Business School for financial firm Barclays. Each investor is different, of course, with individual attributes that potentially prompt a unique response to the market’s gyrations. That said, generalizations can be made. For example, investors with assets of more than $30 million might be less likely than middle-income or even wealthy investors to sell in a panic. Generally, ultra-high-net-worth investors know they’ll be passing a substantial sum on to their heirs, says Richard Peterson, a psychiatrist and chief executive of research at consulting firm MarketPsych LLC. “They tend to really look long term. They’re thinking about generations,” he says. Meanwhile, a self-made millionaire who feels confident about his ability to handle his own finances may feel a desire to exert control during a market in free fall — that could mean withdrawing money at precisely the wrong time. “An engineer, an entrepreneur: they’re used to having control over their financial situations,” Peterson says. “That can lead to trouble. Markets aren’t controlled like engineering systems are controlled.” High-net-worth investors may realize their weaknesses. Forty-one percent of high-net-worth investors said they wish they could “take a more disciplined approach” to their finances, according to a 2011 survey of 2,000 investors worldwide by Barclays. That awareness doesn’t necessarily lead to better outcomes. In times of market volatility, “people tend to want to act,” says Mark Paccione, director of investment research at CAPTRUST. “They want to feel like they’re in control of things that they’re not in control of.” In 2012, a few years into the bull market that started in 2009, some clients clamored for more equities. “Hey, why don’t I have more stocks? I’m more aggressive than you guys have me invested,” he remembers clients saying. Continued on page 12

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“People tend to want to act. They want to feel like they’re in control of things that they’re not in control of.” Mark Paccione CAPTRUST Director, Investment Research

A few years earlier, during the financial crisis, many of these same clients had reacted in panic when the stock market went into free fall. That tendency among investors to forget the past and extrapolate the near term into the future — that is, assume that when an investment lately has been gaining, or tanking, that trend will continue — is called recency bias.

For one client who was particularly fervent on equities, Paccione and his team dug up email messages the client had sent during the financial crisis — messages in which the client made it clear he couldn’t stomach the risk. “He thought the U.S. was going to melt down,” Paccione says. Just four years later, the client was pushing to hike his allocation to equities beyond the balanced portfolio his advisors thought prudent. He and other clients were convinced they were missing out — a feeling often driven by the human tendency toward a herd mentality: If everyone else is doing it, it must be right. That’s perhaps a useful instinct at times. In investing? Not so much.

KEEP EGOS IN CHECK Overconfidence is another hindrance to high-net-worth investors’ investing abilities, says Meir Statman, a finance professor at Santa Clara University’s Leavey School of Business. He points to the difference between an average investor and, say, a multimillionaire who rose to wealth by building a restaurant chain. “The person who owns the restaurants understands competition,” Statman says. But because she’s been successful, she thinks she’ll be successful in any business, including investing, even though the competition includes computer algorithms and professional traders. Average-income investors, meanwhile, are likelier to commit framing errors, Statman says. “They don’t ask themselves, ‘If I am selling my stocks because I’m sure they’re going to go down, who is the idiot who is buying them?’ They frame it as playing against a practice wall, without realizing that it might be Djokovic on the other side of the net,” he says, referring to the top-ranked tennis pro Novak Djokovic. They fail to see the whole picture. They sell when they should be buying.

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“Some people don’t understand they’re playing against Djokovic. Others understand they’re playing against Djokovic, but they think they can beat him anyway,” Statman says. “It’s overconfidence.” And overconfidence can lead wealthy investors astray in other ways, Statman says. “They are likely to be swayed by an advisor who says, ‘Surely you’re not average. You don’t want to be like those mediocre index-fund investors. You can do better, and I’ll show you how.’” The appeal of that message can sway wealthy investors into high-cost, complex investments that take away from wealth rather than adding to it, Statman says. Social status can drive behavior too. “If you’re in a circle of friends who talk to you about their successes — of course, they never tell you about their failures — you’re very likely “If you’re in a circle of friends who talk to be swayed by it,” Statman says. To be a successful investor, “It’s very important to to you about their successes—of course, keep egos in check.”

they never tell you about their failures—

That’s easier said than done. The fact that investors are human beings, with all the you’re very foibles of our species, means that the work of financial advisors has as much to do with dealing with clients’ emotional drivers than choosing the best investments.

likely to be swayed by it.” Meir Statman Finance Professor, Santa Clara University’s Leavey School of Business

“Taking into account the psychology and personality of a client is just as important, if not more important, as the actual asset allocation,” Paccione says. “If you don’t take into account the client’s personality, whatever plan you put in place is probably going to get blown up at some point.” Take a 25-year-old client who is conservative, he says: “It doesn’t matter if you think he should be mostly in stocks. If you can’t construct a portfolio where he can stomach the volatility, he’s going to sell those stocks the first time there’s a serious correction, which will be the worst possible time to do it.”

MENTAL ACCOUNTING Here’s the good news: There are useful strategies to protect investors from their own biases. One of these is the bucket approach. Divide money into investment buckets, each with its own time horizon or goal, such as immediate income or long-term retirement savings. This approach — also known as mental accounting — does have a negative connotation. Mental accounting also refers to people’s tendency to perceive Continued on page 14

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pools of money differently, depending on their source, such as when those who receive a tax refund consider it found money and spend it, rather than save it as they save other earned income. But mental accounting, in the sense of using investment buckets, can have the benefit of putting a brake on biases. An investor, for example, may be more willing to accept volatility when he can see the losses are concentrated in his long-term savings. Paccione says his team often uses three buckets: a capital preservation bucket for immediate spending needs, invested in certificates of deposit, cash, and short-term bonds; an income portfolio of bonds and other yield producers for those clients who are drawing income; and a third bucket for long-term needs, invested for growth in equities and higher-volatility investments. “When you do have a market sell-off, you have the income account that has not gone down significantly, and while the growth portfolio may be down, you can point to the account that has held up relatively well,” Paccione says. “It gives mental comfort to a client.” A related strategy is having a sliver of portfolio allocated for high-risk bets. “That strategy really is more for the business executive or the entrepreneurial client — the client who’s used to having some concentrated risk,” says Nick DeCenso, a manager of wealth strategy at CAPTRUST in Raleigh, North Carolina.

LET’S TALK In some ways, the best strategy financial advisors have is their ability to engage and converse. “Many investors think that the real contribution of advisors is in beating the market. That is really the least of their abilities,” Statman says. Instead, he says, the best advisors manage investor emotions and work to help clients achieve their big-picture goals. Setting expectations for each piece of an investor’s portfolio is crucial, as is reframing current events within a historical context. For example, in 2009, the government’s response to the economic crisis seemed to signal, to some clients, the beginning of a financial Armageddon. “There was this fear that the Fed was printing money, that the dollar was going in the tank, and that inflation was going to be out of control,” Paccione says. His solution? “You try to explore how it would actually take place,” he says. For example, “If hyperinflation happens, we’ll definitely see a general rise in prices; there would be time before a Hershey’s bar goes from a buck to $10.” Plus, he tells clients the firm actively monitors for inflation, and he points to the client’s investments that tend to perform well during inflation, such as commodities.

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This type of reframing to put current events in context is not unlike one of a series of mental exercises recommended by Peterson of MarketPsych. In times of extreme volatility, he suggests investors ask themselves: “How many times have such things happened in history?” The answer is “more than once,” and the market survived every time. “Looking at the sweeping history of the markets helps us to stop focusing on the day-to-day moves,” Peterson says. “A longer-term perspective diminishes stress.”

FOCUS YOUR MIND A related tactic — Peterson calls these exercises “perspective shifting” — is to expand one’s focus beyond the markets. “Consider what really matters in your life,” Peterson says. “Does recent stock market performance or money in the bank instill meaning in your life?” Generally, our sources of meaning are found in family, friends, faith, career, and lifelong goals. “In the grand scheme of your whole life, today’s performance in the stock market is just a tiny iota of all the meaningful things in your life,” he says.

“In the grand scheme of your whole life, today’s performance in the stock market is just a tiny iota of all the meaningful things in your life.” Richard Peterson Psychiatrist and Chief Executive, MarketPsych LLC

Another strategy: reduce media consumption. “Paying attention to any short-term noise only makes investors’ decisions more impulsive and results poorer,” Peterson says.

Don’t forget that advisors have biases too. That’s one reason advisory firms adopt investment policies that dictate specific actions, such as a percentage range that acts as a signal to rebalance appreciated assets. Similarly, individual investors should devise a plan for their investments and stick to it.

Even advisors find that tough. Says DeCenso: “When a particular asset class hits the skids and it’s down 30 percent, it’s going to feel weird buying it, but it’s a proven plan.”

A HIGHER CALLING by nanci hellmich

Many people love to hike, but some are so passionate about the sport that they have taken it to new heights.

Aerial photograph of Mount Fitz Roy in Argentinaâ€™s Patagonia region.

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Take Bob Jones, 60, a senior vice president and financial advisor at CAPTRUST in Charlotte, North Carolina. Besides taking hiking trips with his wife and children, Jones and a group of buddies go on challenging mountain adventures. They’ve traversed the Haute Route in the French and Swiss Alps, hiked the Inca Trail in Peru, and climbed Mount Kilimanjaro in Tanzania. “When you get to the top of Kilimanjaro, it’s a tremendously exhilarating feeling,” Jones says. “The adrenaline of success overwhelms the fatigue.” Or consider Marcela Curry, 55, a senior vice president for Wells Fargo in Raleigh, North Carolina. After she trekked to the top of Colorado’s Pikes Peak for the first time, she thought “this was the most amazing challenge of my life. I have to do more.” Since then, she has tackled trails in several regions, including hiking in Torres del Paine National Park in Chile’s Patagonia region. She describes the area as “nirvana. It’s so pristine and so quiet. There are herds of guanacos (a

relative of the camel) on the mountains, and beautiful condors flying overhead, and you have no access to iPhones or TV.” Or take Maria McEvoy, 50, of New York City, who used to work on Wall Street but now stays home with her son. She started hiking a few years ago, and since then she has climbed three of Colorado’s fourteeners, which is what enthusiasts call a mountain that meets or exceeds an elevation of 14,000 feet. And she made it to the top of Mount Kilimanjaro. “The beauty of mountain climbing is you are going to an incredible destination every single time,” she says. These folks’ passion for adventurous mountain hiking doesn’t surprise Michael Lanza, creator of thebigoutside.com, where he writes about hiking, backpacking, and other outdoor adventures. He has hiked in most major U.S. National Parks and all over the world, including in the Alps, Scottish Highlands, and Italy’s Dolomites.

LOOKING FOR A GREAT HIKE IN THE U.S.? Here are five favorites from Michael Lanza, author of Before They’re Gone— A Family’s Year-Long Quest to Explore America’s Most Endangered National Parks: South Kaibab Trail South Rim, Grand Canyon Highline Trail Glacier National Park Half Dome Yosemite National Park Angels Landing Zion National Park Mount St. Helens via Monitor Ridge

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“This was the most amazing challenge of my life. I have to do more.” Marcela Curry Senior Vice President, Wells Fargo

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“Recent studies have proven what people have known intuitively for a long time: Being outdoors in nature makes us feel better. It’s good for us physically and mentally,” says Lanza, author of Before They’re Gone—A Family’s Year-Long Quest to Explore America’s Most Endangered National Parks and a former Northwest editor for Backpacker magazine. Hiking is really walking, he says. “We’re not all going to run through the mountains, leap high, or do things that specialized athletes do, but most people are capable of hiking as long as they pace themselves and eat and drink enough.” Lanza describes beginning hikers as people who get out occasionally. Intermediate hikers have done a variety of trails and possess fundamental skills like the ability to read a map, use a compass, make good judgments in the backcountry, dress properly, and stay hydrated and fueled, he says. Expert hikers are people who’ve hiked quite a lot, probably in a variety of environments. They have faced many situations, requiring them to adapt to a changing or unanticipated situation, and they can lead others through a crisis, Lanza says. A mountain climber is someone who uses climbing gear, such as ropes, to climb rocks or even snow and ice on bigger mountains, he says. And the definition for a mountaineer is a person who climbs mountains as a sport. The better your physical condition, the more you’ll be able to enjoy demanding hikes, he says. Walking 1,000 feet uphill is challenging for many; hiking 3,000 feet uphill in a day is a big day for most people, as is a fourteener, he says. But there are many easy hikes that can be undertaken by adults of any age at almost any fitness level and by even the smallest children, he says. 18

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Passionate hikers often train for their expeditions. Tom Wilson, 54, an investment banker in Charlotte, North Carolina, who takes trips with Jones, is already fit because he’s an avid runner and cyclist. But he does additional training because he knows from experience that the fitter he is the more he will enjoy himself. To prepare for Kilimanjaro and Mount Rainier, Wilson added biweekly stair climbing to his routine for several months. Wearing backpacks, he and his hiking buddies would climb up and down 90 flights of stairs in an office building. McEvoy views hiking as a sport she’ll be able to continue doing into her 60s and beyond.

“When you do something that is so difficult, and you succeed, it is confidence building. I can point to that mountain, and say, ‘I did that.’ I’m constantly thinking about what my next mountain is going to be.” Maria McEvoy

“I want to be challenged mentally and physically, but I don’t want to get hurt. It’s an incredible workout, but you don’t feel like your body has been beaten up.” Hiking gives her a sense of accomplishment. “When you do something that is so difficult, and you succeed, it is confidence building. I can point to that mountain, and say, ‘I did that.’ I’m constantly thinking about what my next mountain is going to be.” So how expensive are mountain hiking adventures abroad? A weeklong, unguided, hut-to-hut trek in the Dolomites, not including airfare and

ground transportation, is about $1,000 per person, Lanza says.

have some of their “greatest moments of conversation” while on the trail.

Jones estimates the cost of a 5- to 10-day hiking trip is $2,000 to $4,000, excluding airfare. If you stay in tents or huts, the lodging and food costs are minimal, but many hikers hire a guide for the more challenging trips, he says. On the other hand, one can head to the nearest National Park and hike for next to nothing, Jones adds.

Jones agrees. “You can sit out and look at millions of stars at night. Or you may be walking in a storm in pouring-down rain. It can be very relaxing, and you are off the grid,” he says. “Hiking is a very peaceful thing to do.”

It’s hard to put a price tag on the benefits of this kind of experience.

Left: Bob Jones and Tom Wilson stop for a photo break on the trail with a fellow hiker. Middle: Marcela Curry enjoys a muchneeded snack in the Southern Andes near Mount Fitz Roy. Right: Jones, Wilson, et al. pose for a photo at Uhuru Peak on Mount Kilimanjaro, the highest point in Africa at 19,341 feet above sea level.

Curry says the quietness of a mountain hike allows her to think about ideas and memories, providing her the opportunity for “great clarity.” Plus, she and her husband, John,

REACHING THE SUMMIT TALLEST MOUNTAIN IN THE WORLD Looking at an above-sea-level measurement, Mount Everest tops the list at 29,029 feet. On a base-to-summit basis, Mauna Kea, a volcano on Hawaii’s Big Island, rises from the ocean floor with a height of more than 33,000 feet (13,796 feet above sea level). HEIGHT IN FEET MOUNT EVEREST 29,029 K2 28,251

FIRST RECORDED MOUNTAIN CLIMB The first significant achievement in mountain climbing was the ascent of Mont Blanc made by Jacques Balmat and Michel G. Paccard in 1786. DENALI 20,310 MOUNT KILIMANJARO 19,341

MONT BLANC 15,778

PIKES PEAK 14,115

MOUNT RAINIER 14,417

MOUNT FITZ ROY 11,020

MOUNT MITCHELL 6,684

SPRUCE KNOB 4,863

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Get information about where you’re going to hike so you understand the terrain and potential hazards. Seek advice from someone who knows the trail, such as a park ranger, a hiking club member, or local outdoor-gear-store employee. Get supportive, comfortable hiking footwear that fits your feet well. Don’t overextend yourself beyond your fitness or skill level. Choose hikes you’re ready for; the fastest route to discouraging you or your companion from going out on the next hike is to push too hard. He tells beginners to start with modest goals. “Getting to the top of a local hill can feel like a great accomplishment. Then you can build up to more ambitious objectives.” Pace yourself. Hiking is an endurance sport, not a sprint, he says. Go at a pace you can maintain for hours rather than a pace at your upper limits, which will fatigue you much faster. Drink up and snack regularly. Stay hydrated, which helps fights muscle soreness and the effects of the hot sun and high elevations, he says. “I take a good drink every 15 or 20 minutes.” Lanza says he keeps energy bars, dried fruit, and other snacks handy.

MAUNA KEA 13,796 MOUNT FUJI 12,388

MOUNT OLYMPUS 7,980

Michael Lanza, creator of thebigoutside.com, offers these suggestions for making mountain hiking safer and easier:

MOUNT ST. HELENS 8,366

MOUNT WASHINGTON 6,289

MOST CLIMBED MOUNTAIN IN THE WORLD With over 100,000 people reaching its summit every year, Mt. Fuji is the most-climbed mountain in the world. It is considered a sacred mountain by the Japanese. Shintoists consider the peak sacred to the goddess Sengen-Sama who embodies nature; the Fujiko sect believes the mountain is a being with a soul; and Japanese Buddhists believe the mountain is the gateway to a different world.

URBAN

DEVELOPMENTS by kim painter

Bill and Marie Cross spent their working years in Wooster, Ohio, the kind of idyllic not-too-big, not-too-small town that many people dream of calling home. But when it was time to retire, the Crosses knew it was time to get out. “It was a great town to have a business in,” says Bill Cross, who owned a car dealership in the college town of 25,000. “But there isn’t a lot of activity after you go home from work. There’s not a great restaurant base or a big art center.” So when Bill, 65, was ready to sell the dealership and Marie, 67, was ready to step away from her career as a high school art teacher, the two went looking for a city home. They checked out Chicago and Charleston, but ended up just 90 minutes away in upand-coming Columbus. Living in Short North, a hip and artsy enclave in the city of more than 800,000, means the couple can now walk to galleries and jazz concerts and hit a restaurant, get gourmet takeout, or buy fresh ingredients for dinner each night. And the affordability of their Columbus home — a renovated 1,700-square-foot house dating from the 1800s — means they have been able to build a second, bigger home for winter enjoyment in Sarasota, Florida. “We made the decision to move here in a day,” Marie says of their place just off Columbus’s bustling High Street. And, she says, they have not regretted it a day since. Downtown retirees such as the Crosses were once considered oddities, says their neighbor Kyle Ezell, a city planner who is an associate professor at The Ohio State University. A decade ago, Ezell wrote a guidebook for what were then pioneers of urban aging called Retire Downtown: The Lifestyle Destination for Active Retirees and Empty Nesters. “These days, it’s not a novelty, it’s a norm,” he says, and it’s happening in cities of all sizes, from New York to Little Rock — especially those where planners and developers have had the good sense to create the housing and amenities that urban empty nesters and retirees crave. Often, he says, that means building bigger, pricier condos that appeal to incoming suburbanites. These city digs have high-end kitchens, luxury baths, grill-ready outdoor spaces, and locations within walking distance of all kinds of food, fun, and necessities. They also include the transit and healthcare services that become more important as people age. Continued on page 22

Continued from page 21

Affluent Bethesda, Maryland, right outside Washington, D.C., offers just that mix in the densely populated shopping and restaurant district near the city’s main Metro station. Right now, the demand from retirees and empty nesters for homes in that neighborhood “is so great it’s almost manic,” says realtor Jane Fairweather, a broker with Coldwell Banker. That’s despite the fact that some of these folks are replacing 10,000-square-foot suburban houses with 1,500-square-foot condos — and paying more for the privilege, she says. It’s worth it, Fairweather says, because “what they are getting is a new lifestyle. A life they can walk to.” Karen Mitchell, 59, a long-divorced university administrator with two grown daughters, recently traded in a five-bedroom house in Potomac, Maryland, for a two-bedroom condo in downtown Bethesda. She says she broke even financially and could not be happier: “I am right in the middle of everything. I can walk to two movie theaters and I don’t even know how many restaurants and shops.” She also loves that she can reverse commute to her job in further-out Rockville and use the Metro on weekends to enjoy museums in Washington. The same kinds of buyers are clamoring to move into popular downtown Dallas neighborhoods such as Turtle Creek, says realtor Keith Head, a Coldwell Banker branch manager. “We are seeing empty nesters and others over 55 who are buying smaller condos in urban areas just to come in for the weekend” and get a taste of city living, he says. Others, he says, want to ditch their sprawling suburban homesteads without giving up multiple bedrooms and baths and are demanding 3,000- to 5,000-squarefoot city residences. Builders are scrambling to meet that demand, he says. Head himself moved into a smaller high-rise condo from a big suburban house and, at 59, he says he does not miss driving everywhere or devoting his weekends to lawn work and other home maintenance chores. “I will never go back to a single-family residence again,” he says. “They’ll have to roll me out on a gurney.”

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Of course, city life is not for everyone — and it’s not the choice of all retirees and near retirees. In surveys for AARP, most baby boomers say they want to age in place in their current homes or communities, most of which are in suburban and rural areas, says Jana Lynott, a senior strategic policy advisor for the nonprofit group’s Livable Communities project. That project encourages communities of all sizes to become more livable for people of all ages, with accessible housing, health care, walkability, and other features. Research by the Urban Land Use Institute shows that more than half of boomers would like to live in a small town, about 24 percent would prefer the suburbs, and just 22 percent would choose a city — fewer than live there now. “One thing that really stands out to me is that boomers are generally saying they want to live in small towns and rural settings, but many want the amenities we associate with urban communities,” Lynott says. Rachel MacCleery, a senior vice president at the Land Use Institute, says: “People are looking for a holistic package that is going to support every aspect of their lives.” Some communities and developers are trying to create those packages in more rural and suburban settings by building homes in denser neighborhoods near compact village centers and, “hopefully, we’ll see more of this kind of development as the country ages,” she says. Right now, she says, many cities do have more to offer, but at a price just a few people can afford. Still, empty nesters and retirees who choose to move into cities are distinguished by more than their pocketbooks, says John Brady, founder of TopRetirements.com, a website offering advice on relocating for retirement. “I think the people who are interested in urban retirement are quite different,” he says. “A lot of the time, they have lived in the suburbs, and now they are interested in the intellectual stimulation, restaurants, museums, culture, and being in the thick of things.” And being in the thick of things — not just restaurants and theaters, but hospitals, transportation and, most importantly, other people — can be a

very smart way to age, Brady says. “You retire at 65 and you are fine in that house; at 75 less so, and by 85 you are living the wrong place. Let’s say you can’t drive anymore. Now you are isolated. You lose your social life.”

Let’s say you can retire anywhere, and you like cities better than the countryside.

Ezell says: “The older you get in the city, the more thankful you are to be in the city.”

It depends on whom you ask. Rankings of best cities in general and best retirement cities in particular are all over the Internet and based on all sorts of criteria. For example, the AARP ranks livable cities — for people of all ages — based on factors including housing, health care, walkability, environment, civic engagement, parks, and crime rates. Among large cities, those with populations over 500,000, it gives the highest points to:

One advantage of city living, he says, is the daily opportunity to mingle at will with people of all ages, something you can miss out on if you move into a traditional retirement community or stay in many aging suburban neighborhoods. “You have friends who are in their 20s, 30s, and 40s,” Ezell says. And some of those young people may look very familiar; they could be your children and grandchildren, if they are part of the wave of young families now staying in cities instead of fleeing to the suburbs. The New York Times recently reported growing numbers of grandparents are moving into Manhattan to care for their grandchildren, easing the loads of their harried young-professional children. But nanny is not the only job luring older adults to cities, which, after all, is where many jobs are. Today, many people of traditional Continued on page 24

“A LOT OF THE TIME, THEY HAVE LIVED IN THE SUBURBS, AND NOW THEY ARE INTERESTED IN THE INTELLECTUAL STIMULATION, RESTAURANTS, MUSEUMS, CULTURE, AND BEING IN THE THICK OF THINGS.”

WHERE SHOULD YOU GO?

San Francisco, California

Philadelphia, Pennsylvania

Boston, Massachusetts

Portland, Oregon

Seattle, Washington

Denver, Colorado

Milwaukee, Wisconsin

Washington, D.C.

New York, New York

Baltimore, Maryland

Then there’s the Gallup-Healthways Well Being Index, which is based on surveys of more than 175,000 U.S. adults and ranks communities based on five elements of personal wellbeing, including: • PURPOSE — liking what you do each day and being motivated to do it, • SOCIAL — having supportive relationships and love in your life, • FINANCIAL — managing your money in ways that reduce stress and increase security, • COMMUNITY — liking where you live, feeling safe, and feeling pride in your community, and • PHYSICAL — having good health and the enough energy to get things done. The index ranked the largest 100 communities in the United States and found the highest wellbeing among people over age 55 in these places: North Port-Sarasota-Bradenton, Florida Honolulu, Hawaii Grand Rapids-Wyoming, Michigan Oxnard-Thousand Oaks-Ventura, California Cape Coral-Fort Myers, Florida Albuquerque, New Mexico San Jose-Sunnyvale-Santa Clara, California San Francisco-Oakland-Hayward, California Syracuse, New York Austin-Round Rock, Texas

Continued from page 23

retirement age are working, both for financial security and personal fulfillment. “These days, someone who is 65 is not the same as a 65-yearold even 20 years ago,” Ezell says. “They are extraordinarily active, and many are starting new businesses or careers.” Charlene Zellmer, 67, an interfaith chaplain who recently moved into a two-bedroom Bethesda condo with her 71-year-old husband, Bill, a healthcare consultant, says she is looking for a new job. She will work that new job from her home office — one that, for the first time, she needs to share with her husband, a former nonprofit executive. “My biggest challenge so far is being a compassionate desk mate,” she says. She says that she and her husband, parents of two adults, do not miss their large colonial home, their yard, or the many things they gave away to make the move. They still have enough room to host big dinner parties, although it is sometimes a challenge for their guests to find parking. They love living in a neighborhood where their own car can stay parked most of the time, and where Bill is mere blocks from his favorite bike trail. And the freedom from big-home maintenance means they now can travel together for weeks at a time with little worry about the home front. “It’s a good move for the quality of our lives and our family life,” Charlene says. “We made an informed decision to make a lifestyle change, which I think will keep us healthier and keep us focused on what’s important in our lives instead of what’s obligatory.”

Tips for moving from a big suburban home to

SMALLER URBAN DIGS: TRY IT BEFORE YOU BUY IT. “Don’t do anything too abruptly,” says John Brady of TopRetirements.com. “Go there and stay in a residential hotel for a while and see how you like it. Make some field trips. Visit friends who live there.” DOWNSIZE YOUR STUFF FIRST. “If you haven’t touched it in the past year, you need to give it away or throw it away” long before the moving van arrives, says realtor Jane Fairweather. Be brutal. Fairweather says that when she and her husband moved from a big house to a high-rise condo in Rockville, Maryland, a few years ago, “I literally called the children and said if you don’t come and pick up your bowling trophies from when you were 12, we are going to throw them away.” EXPECT TO BUY STUFF TOO. Your fantasy of saving and moving your favorite furniture may be just that. “Your furniture may be too big for that condo living room,” says Dallas realtor John Head. GET A STORAGE UNIT. “Many people will say I don’t need it,” Head says. “The vast majority of people who say that eventually say ‘Dang it, I should have gotten the storage space.” LOOK FOR UNIVERSAL DESIGN. Seek the kind of features that make an apartment, condo, or house accessible to people in all states of health and mobility. While you may not think you need a shower grab bar or wider doorways right now, anyone at any age can be just a slip away from needing a more accessible home.

“THESE DAYS, SOMEONE WHO IS 65 IS NOT THE SAME AS A 65-YEAROLD EVEN 20 YEARS AGO. THEY ARE EXTRAORDINARILY ACTIVE, AND MANY ARE STARTING NEW BUSINESSES OR CAREERS.”

WHEN IS SIMPLE

NOT SO SIMPLE? by teresa rhyne Principal | The Teresa Rhyne Law Group

My father is a big fan of the K.I.S.S. principle (“Keep it simple, sweetie.” What? Your father calls it something else?). He mentions it a lot. And as a lawyer, I’ve been accused of over-complicating things (not just by my father). But I’m not without appreciation for simplicity. It’s just that there is a time when what seems simple is far from it. More often than not, a simple beneficiary designation — on your bank account, your retirement plan, your life insurance — isn’t all that simple. I’m convinced there are more ways a beneficiary designation can go wrong than right. You may have taken the time and care to put into place a thoughtful, customized estate plan that includes a living trust, powers of attorney, healthcare directives, and all the usual documents, including a schedule of assets attached to your trust delineating all that you own that is intended to be part of your trust. Maybe that list includes your bank accounts, your life insurance, and your retirement plans. Good for you! This is terrific, and it puts you ahead of most folks. Then a few years go by, or a lot of years, or maybe even a few months. Maybe you open a new bank account, buy a new insurance policy, or rollover your IRA. You’re handed a beneficiary designation form and look, it’s only a page! It’s so simple! You fill it out, naming your spouse, and should your spouse not survive you, you’ve listed all four of your children as the contingent beneficiaries. Perfect, right? Well … Let’s move ahead 10 or 15 years (or

more, if that makes you feel better), and sadly, you’ve passed away with your well-planned trust still in place. What’s going to happen to your bank accounts, your life insurance, and your retirement plans? If you properly funded your trust and changed the bank accounts into the name of the trust, your carefully thought out trust terms will control what happens in a variety of circumstances. Yay for you and your lawyer! (Oh come on, lawyers can use a little cheering!) But, if you didn’t change your account into the name of the trust, or (and I shudder to think of this) you never put a trust in place, the accounts will belong to whomever you named on your beneficiary designation form — and that could be something you filled out many, many years ago — maybe even before you were married. Or before you were divorced. If there is a beneficiary designation form, it will trump the terms of a trust or will almost every time. But wait, you say, I listed these accounts on the schedule attached to my trust! Nope. Beneficiary designation wins if you didn’t actually change title on your bank account. Continued on page 26

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I know what you’re thinking here: So why bother with the schedule? You’re just complicating things. The schedule will help if there is no beneficiary designation form. The schedule is a piece of evidence for the trust or probate attorney to take to probate court and say, “Your honor, my client meant to put this asset in the trust, but she just didn’t get around to it. Please don’t make us do a full probate, and just give us an order to transfer these accounts to the trust.” It’s a backup plan, not a plan. Now, back to those assets … As for your life insurance, even if you transfer ownership of the policy to the trust, what matters is still the beneficiary designation. Whatever it says, whenever you filled it out, that’s how the proceeds will be distributed, with only a few narrow exceptions. You aren’t going to be surprised when I tell you it’s the same for retirement plans, right? See? I can keep it simple! Retirement plans can’t be owned by a trust — all you can do is properly fill out the beneficiary designation. Now, why isn’t that actually simple? Let’s look at those beneficiary designations … Did you name your spouse as the beneficiary? Great! She’s happy to receive those funds free of the carefully planned trust the two of you set up. Now she can freely spend it on whatever she pleases, or her next spouse, or, less happily, be forced to give it all to a creditor. She can also decide to leave the proceeds at her death to whomever she likes, which may or may not be your kids from a prior marriage, or even your kids from this marriage. The proceeds are completely free of the limitations and protections outlined in your trust. Did you name a prior spouse as a beneficiary way back when you first got a life insurance policy? Or perhaps you named your mother (she always did like you “Your honor, my client best) on that policy you got with your first job long before you had a husband, meant to put this asset in let alone kids. Well, prior spouse or mom is going to get the policy proceeds. If you live in a community property state, your current spouse may have the trust, but she just didn’t get some community property claims, but he’s going to have to fight for it and around to it. Please don’t make us prove how much of the policy is community property (and he’d be entitled to 50 percent of that … if he wins the fight). do a full probate, and just give

us an order to transfer these accounts to the trust.”

Is the designated beneficiary suffering from an addiction or otherwise incapacitated? He’ll still get the money outright, which could have disastrous consequences, including, in the case of an incapacitated beneficiary dependent on needs-based government aid, the loss of that aid.

Is the beneficiary a minor? She’ll get the funds when she turns 18. That’s always a great age to responsibly handle money, isn’t it? (Keeping it sarcastic, sweetie.) Did you name all four kids? If one of your children pre-deceased you, his share may or may not go to his children; it will depend on the form and the person interpreting the form. Is one of your children in the middle of a divorce or having financial troubles? His or her share will be at risk. Is the full beneficiary form available? I had a client who had six children and named all six on the beneficiary form — four on the first page and two on the “see attached” page. The bank lost

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the “see attached” page and would only give the account to the first four children. And no, they didn’t share. Mom really did like the four of them best. Did you name one beneficiary, and he is deceased? If the default provision on the account or policy is your “estate,” there will likely need to be a full probate proceeding to get the proceeds paid to the estate (though this is where that schedule of assets would be handy). Did you name exactly who you wanted to, and are they all responsible, wonderful, living people who can handle the money outright? Great! Will they contribute their share of estate taxes or will your trustee have to chase them down? (Yes, insurance proceeds are subject to estate taxes; it’s only income taxes they are exempt from.) A carefully planned out trust, named as the owner of bank accounts and the beneficiary of life insurance proceeds, can generally prevent all of the above issues and more. A trust is a document that adjusts to a variety of contingencies based on your preferences and family circumstances. A beneficiary designation form is a tool to make things quick and easy for the financial institutions — and to ensure they aren’t caught up in probates or long legal battles.

I had a client who had six children and named all six on the beneficiary form — four on the first page and two on the “see attached” page. The bank lost the “see attached” page and would only give

the account to the first four children. There are times when the simplicity of a beneficiary designation form is just what’s needed. If you have children from a prior relationship and you want to have a policy pay directly to them in the event of your death, that’s a great use of a direct pay policy (as long as your spouse has agreed). And retirement plans paying directly to a trust can have adverse tax consequences (seek advice from your tax advisor on this), so designating a spouse or adult children as the beneficiary may make more sense. But, if the retirement plan is the most significant asset of the estate, some careful planning needs to be done — and that can’t be done in a couple of fill-in-the-blank lines on a form. I GIVE YOU THREE SIMPLE RULES: • If you use beneficiary designation forms, please make certain you review and update them regularly. • Generally, naming your customized, well-planned-out trust as the beneficiary of insurance and owner of bank and investment accounts is going to prevent a lot of heartache. • Work with your estate attorney and your financial planner to make certain you’ve properly handled the titling of your accounts and any beneficiary designations. If you too are a big fan of the K.I.S.S. principle, think of it this way: life changes constantly. When you have to adjust to those changes, do you want to change one document (your trust) or one document for every asset you have (the beneficiary designations)?

PROGNOSTICATORS AND

PROPHETS BEWARE

by eric freedman

The New Year ushers in a flood of investment predictions, including year-end index targets, key events, and my personal favorite, the inevitable “Top (pick a number like 10) surprises for 2016.” With the latter, prognosticators make outrageous and attention-grabbing predictions. If one or two even come close to being correct, the prognosticator becomes prophetic. If none prove right, it’s no big deal. They weren’t supposed to anyway.

To provide insight into whatâ€™s on our minds as we embark upon the new year, here are five themes we see as critical to outcomes in 2016 and beyond and their investment implications. China Chinaâ€™s recent emergence is perhaps best captured in the following statistic: China used more concrete between 2011 and 2013 than the U.S. did during the entire 20th century.1 And the countryâ€™s economic significance continues to grow. The International Monetary Fund predicts that in the years ahead, China is likely to account for up to 50 percent of total growth in global income, trade, and commodity demand.2,3 However, following years of infrastructure building and urbanization, China is slowing. Leaders are now attempting to transition the centrally planned, communist country from a manufacturing and export-driven economy to one driven by consumer spending. Economist Larry Summers published an influential paper encouraging market participants to contemplate a wide range of potential outcomes in China and Asia writ large.4 Investment Implications: China is slowing faster than the market believes. While it will remain an important demand source, China is not likely to achieve its stated 6.5 percent growth goal. China could be more of a headache than a help to equity and commodity markets in 2016, leaving us less optimistic than we were at this point last year. Continued on page 30

Figure One: Select Inflation Readings January 2010–January 2016 3.0% 5-Year Forward Inflation Expectation U.S. Personal Consumption Expenditures 2.5% U.S. Federal Reserve Target

2.0%

1.5%

1.0%

0.5%

2010

2011

2012

2013

2014

2015

Continued from page 29

Divergent Central Bank Policies In response to the 2008–09 financial crisis, major central banks cut interest rates and initiated asset purchase programs in an attempt to revive business and consumer spending. The U.S. Federal Reserve raised interest rates for the first time in nine years this past December, after terminating its latest asset purchase program at the end of 2014. The Fed concluded that the U.S. economy was strong enough to justify a more restrictive policy. Meanwhile, other central banks, including those in Japan, Europe, and China, are heading in the opposite direction. Their economies still need support and stimulus. Investment Implications: The biggest impact is on currencies. All else being equal, if a stable country with strong military alliances raises interest rates, its currency should rise relative to the currency of a similar country that leaves interest rates alone. It was no secret that the Fed was going to increase rates before Europe or Japan, and the dollar has increased relative to the euro and yen. That makes dollar-hedged investments more attractive since we do not see other central banks moving faster than the Fed, but as we will discuss next, the Fed will not be in a hurry to raise rates.

Interest Rates Bond yields and interest rates are the cornerstone of finance. From a borrower’s perspective, they represent the cost of money. From a lender’s perspective, they represent the potential reward for accepting the risk that a borrower may not pay him back. Interest rates tend to track economic growth and are positively related to inflation. If an economy is strong and price levels increase, central banks will increase their interest rate targets to stave off inflation. Because both existing and expected inflation remain low as shown in Figure One (the Fed would like to see both at around 2 percent),

Winter | 2016

we expect interest rates to remain low for at least the next 12 to 18 months, and likely longer. Although the Fed increased its interest rate target in December, Fed officials are unlikely to increase interest rates further in the face of a fragile global economy. If they move too fast, the dollar will rally and hurt exporters.

Although the Fed increased its interest rate target in December, Fed officials are unlikely to increase interest rates further in the face of a fragile global economy.

Investment Implications: Given our view that interest rates will remain subdued in the U.S. and abroad, seeking ways to add value in bonds without taking excessive risk remains an important focus for our team. We have found opportunities in various parts of the fixed income market, including reinsurance bonds and structured credit (bonds tied to a pool of underlying loans, such as mortgages and auto loans). These securities are less sensitive to interest rate movements and have low correlations to other parts of a portfolio.

The Energy Market A combination of a stronger dollar, increased U.S. supply (U.S. daily oil production has increased 86 percent in recent years, from 5 million barrels per day in November 2008 to 9.3 million barrels per day in October 2015), and softening global demand have hurt energy prices.5 While low gas prices provide a windfall to consumers, the data does not yet reveal that consumers are spending their gas savings. In fact, while still positive, consumer spending has been slowing despite an almost 65 percent drop in oil prices since June 2014. While consumers may eventually spend these savings, a more immediate issue is what happens to the cost of borrowing for smaller companies. The high yield bond market, which is roughly 18 percent energy companies, could see increased borrowing costs, a negative for lower-quality corporate bonds and small- and mid-sized companies that rely on debt markets. Investment Implications: At some point, dislocations in the energy and commodity markets will provide attractive entry points for equity and debt opportunities. While we think energy prices may remain volatile in coming months, we are looking at opportunities in this space. Continued on page 32

Continued from page 31

Demographics Eighteenth century French sociologist Auguste Comte famously said, “Demography is destiny.” The world’s generational shifts and population trends can shape markets, determining both where growth is likely to occur and what sectors will perform well. From 1960 to 2060, median ages will shift from 29 and 34 in Spain and Germany to 51 and 50, respectively.6 In Japan, the median age in 1950 was 22. By 2050, it will more than double to 53.7 However, geographic locations like India have more favorable prospects, and China’s recent loosening of its one-child policy could help boost its consumer base as the country strives to become a more service-based economy.

Evaluating investment opportunities that can take advantage of the durable consumer trends likely to evolve irrespective of economic conditions can provide long-term investor rewards.

Investment Implications: Sectors, industries, and investment strategies focused on consumer services represent secular investment opportunities given global demographic developments. Health care and related services have become a larger proportion of consumer’s expenses. This will remain an investment theme for those regions with aging populations. Similarly, parts of the technology landscape will benefit from global consumer trends, including increased mobile technology and cybersecurity needs. Evaluating investment opportunities that can take advantage of the durable consumer trends likely to evolve irrespective of economic conditions can provide long-term investor rewards.

Parting Thoughts 2016 is off to a volatile start with a recalibration of growth expectations causing periods of concern. Further, the last few years have been challenging, with diversified portfolios not delivering much reward. Nonetheless, we see pockets of opportunity across asset classes and, per the themes discussed in this piece, we are seeking opportunities across the investment landscape on your behalf.

Swanson, Ana. “How China Used More Cement in 3 Years than the U.S. Did in the Entire 20th Century.” The Washington Post, March 24, 2014, Wonkblog. Accessed October 12, 2015. http://www.washingtonpost.com/news/ wonkblog/wp/2015/03/24/how-china-used-more-cement-in-3-years-than-the-u-s-did-in-the-entire-20th-century.

Summers, Larry. “Grasp the Reality of China’s Rise.” November 8, 2015. Accessed January 9, 2016. http://larrysummers.com/2015/11/09/grasp-the-reality-of-chinas-rise.

“World Economic Outlook.” International Monetary Fund. Accessed January 9, 2016. http://www.imf.org/external/pubs/ft/weo/2015/02/weodata/index.aspx.

Pritchett, Lance and Summers, Larry. “Asiaphoria Meets Regression to the Mean.” NBER Working Paper Number 20573. October 2014.

“U.S. Field Production of Crude.” U.S. Energy Information Administration. Accessed January 9, 2016. https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=m.

“World Population Prospects: The 2015 Revision, Key Findings and Advance Tables.” United Nations. Published 2015.

Ibid.

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MARKET INDEX PERFORMANCE

7.2%

7.0%

(as of 12.31.2015)

4.8%

Q4 2015 2015 Emerging Market Stocks Commodities

2.1% 1.4%

0.7%

0.6% -0.4% International Stocks

-0.6% U.S. Bonds

U.S. Stocks

Real Estate

2015 MARKET RECAP U.S. stocks performed well in the fourth quarter. Dampened by concerns about economic growth and the impact of lower oil prices, large–cap stocks ended the volatile year only slightly positive. Small- and mid-cap stocks were down marginally. International developed and emerging market stocks held their own in the fourth quarter. Developed market stocks ended 2015 down slightly. Meanwhile, emerging market stocks closed out a difficult year highlighted by Chinese growth concerns.

-10.5%

Bonds treaded water last quarter, as investors digested the Federal Reserve’s first interest rate increase in nearly a decade and eked out a small return for the year. Commodities, 2015’s laggard asset class, remained under pressure as oil prices reached their lowest levels of the year in December. Real estate rallied in the fourth quarter and finished the year in positive territory for the seventh straight year on solid market demand for most property types.

LOOKING FORWARD -14.6%

U.S. employment growth has been strong, with the unemployment rate falling from 10 percent in 2009 to 5 percent at the end 2015. As labor markets further tighten, we should see wages pick up, creating more dollars for consumers to spend.

Oil prices have fallen to a 12-year low on oversupply relative to sluggish world demand. Oil prices stabilizing at recent levels could lead consumers to spend some of the windfall they receive as a result of lower gasoline and heating oil prices.

Even though it has begun hiking interest rates, the U.S. Federal Reserve suggests it will act slowly. Meanwhile, central banks in Europe, Japan, and China remain in stimulus mode.

-24.6%

Asset class returns are represented by the following indexes: U.S. large-cap stocks (S&P 500 Index), international stocks (MSCI EAFE Index), emerging market stocks (MSCI Emerging Markets Index), U.S. bonds (Barclays U.S. Aggregate Bond Index), commodities (Bloomberg Commodity Index), and real estate (Dow Jones U.S. Real Estate Index).

PAYING IT FORWARD

WITH SCHOLARSHIPS by susan weiner

Mike O’Hare’s wife had cancer for six months, but she never cried until she signed the letter saying she couldn’t return to the Deer Lakes school district where she had worked as an elementary school teacher, reading specialist, and principal. That’s how devoted she was to her students. When O’Hare looked for a way to honor his wife’s memory in 2004, a scholarship for Deer Lakes high school graduates heading to college felt right, particularly since Geraldine O’Hare had taught students graduating that year. His onetime funding of a scholarship has blossomed into funding several awards of $1,000 per student, first in his wife’s memory and, more recently, in his parents’ memory. O’Hare’s scholarships fit a pattern for scholarship donors. “They have a regard for somebody who helped them, and they want to pay it forward,” says Pat Roberts, vice president for development and alumni relations at Hiram College in Hiram, Ohio. That person could be a family member or faculty member. Or perhaps the donor received help himself that he’d like to repay, or he’d like to have an impact on future generations, says Roberts. He also finds that moments, good and bad, inspire donations. Those moments could arise from a financial windfall, a near-death experience, a death in the family, or the realization that the donors have disposable income once their children graduate from school. In the case of O’Hare, a retired sales executive from snack food company Snyder’s-Lance, several motivations combined. In addition to honoring his late wife, he wanted to give his son Adam a

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way to remember his mother and to learn about the importance of giving. Adam, who was eleven years old when his mother passed away, has given a plaque to scholarship winners at the awards dinners for a number of years. O’Hare thinks there’s also an element of giving back for the college scholarship that he received. “My father gave me $300 when I graduated from high school,” he says. That was all his truck driver father could afford, but his father’s employer gave him a college scholarship of $500 a year. “That was pretty awesome,” O’Hare says. While his working-class parents weren’t rich in cash, they contributed in other ways, including “encouragement, love, home-cooked meals, and whatever else it took to allow their children to meet with success,” as he notes in the brochure for the Dody & Stel O’Hare Memorial Scholarship, which he started in 2015.

The Geraldine O’Hare Scholarship was created to honor her memory while supporting graduating students that she either taught or served as the principal for at their school. Her son, Adam (pictured right), annually presented recipients with the scholarship award. Geraldine O’Hare

O’Hare keeps a stash of notes from the scholarship winners. “The thank you notes I have received from these grateful students bring tears to my eyes,” he says. He’s also happy that he can support both Deer Lakes, where Geraldine was his high school sweetheart, and Slippery Rock University, also in Pennsylvania, which they both attended. O’Hare has found the mechanics of awarding scholarships easy. In the early days, he worked with a guidance counselor at Deer Lakes. However, he had to get creative when he switched to funding scholarships with stocks instead of cash. Deer While his working-class parents Lakes couldn’t handle cash, so he weren’t rich in cash, they went to Slippery Rock University’s foundation, which now manages contributed in other ways, scholarship logistics for him. He including “encouragement, has shifted from awarding scholarships to Deer Lakes graduates love, home-cooked meals, and going to any college to rewarding whatever else it took to allow their any Deer Lakes graduate going to Slippery Rock University. children to meet with success.” Individuals who would like to set up a scholarship at an alma mater should call the college’s development office, says Roberts. “Articulate what you want, and then work with the professional at the institution and your own legal and tax professionals.” Charitable donations cut the donors’ adjusted gross income for tax purposes, although this typically isn’t a driving motivation for donors. “I don’t want to work with someone who’s donating just for the tax incentive,” says Roberts. “I want all of our donors to be philanthropic first.” When setting the parameters for scholarship recipients, Roberts cautions that you can’t set up a scholarship to benefit only family members or a specific person. That’s against the Continued on page 36

Continued from page XX

“Do your giving while you’re living, so you’re knowing where it’s going.” –ANONYMOUS Continued from page 35

law. “We want their input, but they cannot select a specific recipient.” That’s partly because the school must respect the confidentiality of some student information, such as the parents’ financial statements. However, scholarships can be need or merit based. “Too many people think scholarships are just for bright kids, kids with a 4.0 grade point average,” says Roberts. It doesn’t have to be that way. O’Hare’s current scholarship awards $1,000 to eligible students in their first year and then $1,000 per year for students who achieve a 3.0 grade point average at Slippery Rock, starting with their second year at the school.

can be paid without tapping the principal, says Roberts. O’Hare’s scholarships haven’t been endowed for perpetuity, but he hopes to keep giving as long as the stock market’s movements make it practical. You may be able to boost the amount of your scholarship by taking advantage of corporate programs that match charitable donations. Programs vary greatly, so check with your company’s human resources department. O’Hare urges everyone to fund scholarships. He says, “Don’t worry about the amount. Even if it’s $100, somebody will be honored.”

Don’t define your scholarship recipients too narrowly if you’re endowing a scholarship you mean to be perpetual. “The magic words are ‘first preference,’” says Roberts. When you build in flexibility, 100 years from now, when there’s no one who meets your original criteria, the school can award your scholarship to someone who fits the spirit of your intentions. There are different kinds of funding. Some people start with a onetime scholarship. In this case, you provide the money and it’s given out right away. A more lasting approach is to endow a scholarship with enough money that it should be able to last forever. For this approach, you need to donate at least $25,000 so an annual scholarship of $1,250

Left: Mike and Becky O’Hare providing continued college support to Geraldine O’Hare Scholarship recipient Lindsie Kwasniewski. Right: Mike O’Hare’s Slippery Rock University graduation with his parents, Dody and Stel (Top), and providing funding to the university for the scholarship in their honor (Bottom).

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READER Q & A In this issue, we explore several recent changes to Social Security that may affect your benefit planning, best practices for creating an emergency fund for unforeseen expenses, and how to take advantage of healthcare savings accounts, an interesting planning tool with attractive tax benefits.

What do I need to know about the changes to Social Security benefits enacted as part of the Bipartisan Budget Act of 2015? With no advance warning, public hearing, or proposed legislation, Congress made several important changes to Social Security benefits as part of the Bipartisan Budget Act of 2015. While primary benefits remained unchanged, the budget deal ended two lesserknown but valuable Social Security strategies: file and suspend and restricted application for spousal benefits. Let’s start with file and suspend. This strategy allowed wage earners at or beyond full retirement age to file for benefits and immediately suspend them, allowing their benefit to grow at 8 percent per year and, most importantly, to allow a spouse or dependent child to collect benefits worth up to 50 percent of the wage earner’s benefit. Under the budget deal, file and suspend goes away, and the wage earner must be collecting benefits to trigger a spousal or dependent child benefit. If you have already filed and suspended, you are grandfathered in. If you will be age 66 by May, you can still file and suspend before that date. If you won’t be 66 by May, you are subject to the new rules. If you will be age 66 by May 1, 2016, you may want to consider whether the file and suspend strategy could be beneficial for you. There is no downside to doing it. Restricted application allowed spouses or dependent children who were at or beyond Social Security’s full retirement age to collect benefits based upon a spouse’s earnings while allowing their own benefits to grow and retaining the ability to switch to those higher benefits later on. Going forward, if you are entitled to both a benefit from your own earnings record and a spousal benefit, you must take the higher of the two at the time you file. You won’t have the option to switch later on. These new rules went into effect December 31, 2015. As always, consult your financial advisor or visit the Social Security administration’s website at https://ssa.gov for more information about how these recently enacted changes affect your personal situation. Continued on page 38

Continued from page 37

How much of a cash reserve should I keep on hand in case of emergency? Building a financial plan is like building a house. You want to live in a house with a strong foundation, one that is likely to stand up against whatever Mother Nature throws at it. Similarly, a sound financial plan includes an appropriate cash reserve that provides liquidity in the event that you experience unforeseen expenses. Unforeseen expenses may include significant home or auto repairs, uncovered medical expenses, loss of income due to unemployment, illness, or disability, or the cost of bailing a family member out of a financial crisis. In any case, you’ll want to have enough cash on hand to cover the expense without disrupting your longer-term savings or investment strategy—or requiring the sale of investments at an inopportune time. The size of an appropriate emergency fund depends on several variables, but the single biggest variable is your employment status:

STILL WORKING If you or your spouse is employed by a corporation or self-employed in a business with consistent cash flow, you should keep three to six months of your monthly expenses in a cash reserve. If you are concerned about your company’s stability or the economic environment, you may want to increase those numbers to six to 12 months. If you’re self-employed in a newer business or one with inconsistent cash flow or operating expenses, you may want a bigger cushion, perhaps as much as a year of expenses.

RETIRED Retirees should keep a cash reserve of 12 to 18 months of expenses. Of course, it is difficult to predict expenses during the first several years of retirement, so you may want to create a larger cushion—at least until you get a better handle on what you’re going to spend on a regular basis. Given today’s low interest rate environment, you may not enjoy the idea of six months’ expenses tied up in an account that’s effectively earning nothing. You may want to consider a tiered cash reserve, splitting your emergency fund up between a checking account for paying bills, a savings or money market account that you can quickly transfer to checking, and a capital preservation-oriented investment strategy that you can liquidate in a few days, if needed. Remember, your emergency fund is there to provide ready access to cash in the event you need it. Capital preservation is a top priority, so you should consider the risks and restrictions placed on your money.

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What’s the best way to take advantage of a health savings account (HSA)? Health savings accounts—or HSAs—have taken off in recent years along with the increased availability of the high-deductible health plans with which they must be paired. HSAs allow an individual to set aside up to $3,350 a year or $6,750 for a family to fund medical expenses (in tax year 2016). If you are age 55 or older, you can set aside an extra $1,000 catch-up amount. One reason for their appeal is that money in an HSA doesn’t have to be used in the current year; you can add to and grow your account balance so it’s available to pay future healthcare expenses, like those you will incur in retirement. HSAs offer several interesting advantages that may make setting aside the annual maximum family contribution appealing:

CURRENT TAX DEDUCTION Like 401(k) or 403(b) contributions, money coming out of your paycheck to fund an HSA reduces your taxable income.

EMPLOYER CONTRIBUTIONS Some employers make contributions to the accounts of employees selecting high-deductible health plans as a way to entice them to participate. This is free money that you can take advantage of—like retirement plan matching contributions.

TAX-FREE GROWTH Earnings inside of HSAs compound free from taxes. This advantage has become much more meaningful as HSA balances have grown and investment choices have expanded.

TAX-FREE DISTRIBUTIONS Money that comes out of an HSA to pay healthcare expenses is not subject to taxes. HSAs won’t make sense for everyone, but if you are healthy and comfortable using a high-deductible health plan, they might provide an additional tax-advantaged way to save for retirement healthcare expenses. You should consult your tax and financial advisors for more information.

If you have a question for the VESTED team, we’d love to hear from you and see if we can help. Please send your questions to us at VESTEDmagazine@captrustadvisors.com.

DOES LOVE REALLY

CONQUER ALL? How Myths About Love and Money May Get in the Way of Living Happily Ever After by kathleen burns kingsbury

What really happened to Cinderella after she married Prince Charming? Did she live happily ever after? Or did she, like most partners, disagree from time to time with her husband about how to spend, save, and invest the kingdomâ€™s money? Like most couples starting out, the Charmings were probably too busy falling in love to talk about their attitudes and beliefs about money. Then, as the years went by, they realized that living happily ever after involves more than love. It requires a willingness to engage in financial conversations and plan together for the future. In our society, there are many myths about love and money that are perpetuated by fairy tales and movies. Three such myths are: love conquers all, love means never having to say you are sorry and, if you truly love your partner, you should always agree financially. Letâ€™s take a brief look at these myths and how these beliefs, when left unchallenged, can contribute to couples not being as financially healthy as they could be.

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Love Conquers All The Latin phrase “omnia vincit amor” (translated to “love conquers all”) dates back to the Roman poet Virgil and his work, Eclogue X, written around 44 BC. This saying has gone on to be used as the name of a painting in the 1600s and the title of a song written in the 1990s by the band Deep Purple. While it sounds nice, is it true? Does love really conquer all? Not when it comes to managing money together. Partners who truly love each other can still struggle to understand their respective beliefs about spending, saving, investing, and gifting money. When these thoughts clash, money disagreements occur.

No one is perfect financially, and it’s human nature to act irrationally from time to time. Whether it’s chasing the latest hot stock tip or buying a gas-guzzling car because you love the color, feelings — when left unchecked — can get the best of you.

Matt and Mary are a good example. They share many of the same money values, but differ when it comes to buying cars for their children. In Matt’s family, it’s a tradition to get a new car on your sixteenth birthday. Mary thinks this is an indulgent extravagance. As their daughter approaches this milestone, they find themselves at odds. While being in love motivates them to resolve this misunderstanding, it does not conquer all. The real solution is much less romantic. It involves developing the skills to talk openly about money, sharing money histories and beliefs, and then finding a compromise that respects each partner’s viewpoint. In Matt and Mary’s case, they agreed to give their daughter the down payment for a car for her birthday and have her contribute to the car loan each month.

Love Means Never Having to Say You Are Sorry This is the famous phrase from Love Story, the heartbreaking 1970s movie starring actors Ryan O’Neal and Ali MacGraw. The movie, based on a novel by the same name, is about two people from different economic backgrounds who fall in love, get married, and struggle to make ends meet. The tale turns tragic when the couple learns the wife is dying of cancer. When the husband apologizes for getting angry, the sick wife utters, “Love means never having to say you are sorry.” While loving someone does make it easier to forgive, it is important that you learn to apologize to your partner when you make a financial mistake or get overly emotional during a money conversation. No one is perfect financially, and it’s human nature to act irrationally from time to time. Whether it’s chasing the latest hot stock tip or buying a gas-guzzling car because you love the color, feelings — when left unchecked — can get the best of you.

When you mess up, fess up. Apologize if you made a financial decision that hurt your loved one. Ask for forgiveness when you regret what you said when discussing finances. Be compassionate to yourself and your partner when your humanness shows through, and remember that love means you care enough to say you are sorry.

If You Truly Love Your Partner, You Should Always Agree Financially There is a misconception that stems from our conflict-avoiding culture — and the idea that conflict is bad and should be avoided at all costs. In other words, full agreement between parties is good and the best outcome. However, it is sometimes healthy to have diverse viewpoints when it comes to money and investments. This allows a couple to explore differences, learn from each other, and arrive together at a solution. Often the shared solution is better than the original offered by either member individually. The truth is you can be truly in love, practice financial harmony, and disagree from time to time. The secret is to focus on understanding your partner — not convincing him or her to see it your way. This is best achieved by practicing active listening, being open minded, and remembering that your loved one may, in fact, have some good ideas when it comes to the family finances. Money is complex and can be tricky to manage as a couple. Hiring a trusted advisor, who likes you but is not in love with you, can be a big help. A couple-friendly advisor helps you identify any myths you have about love and money and teaches you how to communicate more effectively so you can plan for a secure financial future. And that is a great way to live happily ever after.

GIVING

BACK Year-End Wrap Up

In 2015, the CAPCommunity Foundation, CAPTRUST’s employee-run 501(c)(3), made 55 financial contributions totaling more than $56,000 to charitable organizations around the country. These donations, all of which are made at the request of CAPTRUST employees, support the foundation’s mission to enrich the lives of children in the communities we serve. In addition, CAPTRUST employees participated in and organized dozens of volunteer and fundraising events to benefit Children’s Flight of Hope as part of the foundation’s primary fundraising focus for 2015. Highlights included September’s First Annual CAPCommunity Music Fest and the Hops for Hope Cask Challenge held in October. The result was a record-setting donation of $151,000 to support Chidren’s Flight of Hope’s mission of “providing free air transportation to and from medical facilities for children who—due to medical, financial, or logistical reasons—are not able to travel to treatment any other way.” To learn more about Children’s Flight of Hope, please visit www.childrensflightofhope.org. Top: Children’s Flight of Hope employees and CAPCommunity Foundation board members gather for the year-end check presentation at a CAPTRUST employee luncheon. Below: CFOH Director of Mission Delivery Haley Terry (left) reacts and Executive Director Staci Barfield (right) beams during presentation of the CCF’s $151,000 check. Opposite Top: Team CAPTRUST at the Tuna Run starting line in Raleigh. Opposite Bottom: CAPTRUST employees Ryan Cox and Austin Donnald help fellow colleagues gather Angel Tree donations for delivery.

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In 2015, the CAPCommunity Foundation contributed to the following organizations

Tuna Run 200 For the third year running, CAPTRUST colleagues and a handful of friends participated in the Tuna Run 200, a 200mile overnight relay run from Raleigh to Atlantic Beach, North Carolina. This year, CAPTRUST fielded two 12-person teams for the event held in late October. Overall, 82 teams participated in the event organized to create awareness and raise money for good causes. Charity partners for the 2015 race were Autism Society of North Carolina and Alzheimer’s North Carolina. CAPTRUST runners also raised money for Children’s Flight of Hope.

Salvation Army Angel Tree Each holiday season, The Salvation Army works with local businesses, churches, and schools to collect gifts and new clothing for children and teens who otherwise may not receive any presents for the holidays. During the month of December, CAPTRUST employees, organized by Raleigh-based Financial Advisor and CAPCommunity Foundation Board Member Kevin Monroe, gathered or purchased items to benefit 214 children through this program.

New Board Members The CAPCommunity Foundation would like to recognize and welcome new Board Members Bob Auditore, Allison Carpenter, Megan Cutter, Jessica Edris, Wilson Hoyle, Margaret Jarocki, and Jennifer Liebel. The 16-person, allemployee board includes representation from a growing number of communities where CAPTRUST has a presence, including Bethlehem, Pennsylvania; Boston, Massachusetts; Charlotte, North Carolina; Clarkston, Michigan; Greenwich, Connecticut; and Raleigh, North Carolina.

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

4 Paws for Ability Adrian Madison Church of the Nazarene Alexander Family YMCA Alexander Youth Network Assistance League of the Triangle Area Atlanta Community Ministries Autism Society of Greater Akron Big Brothers Big Sisters Big Brothers Big Sisters of Greater Flint Blythedale Children’s Hospital Boy Scouts of America — Great Trail Council Boy Scouts of America — Occoneechee Council Central Children’s Home of North Carolina Children’s Flight of Hope Community Memorial Health System Community Partners of Dallas Council for Children’s Rights Cystic Fibrosis Foundation Elim Christian Fellowship Elise’s Corner — Akron Community Foundation Food Bank of Central & Eastern North Carolina Friendship Circle of New Jersey Hope Reins of Raleigh House of Providence Inter-Faith Food Shuttle JDRF — Raleigh John Owen’s Adventure KidsPeace Long Island Children’s Choir Make a Splash Foundation Michigan Ovarian Cancer Alliance National Multiple Sclerosis Society NC Foundation for Public School Children North Raleigh Ministries Pediatric Brain Tumor Foundation Ronald McDonald House of Central Iowa SAFEChild Salama Urban Ministries St. Baldrick’s Foundation Starfish Family Services Swim Across America The All Stars Project, Inc. The Boys & Girls Clubs of the Western Reserve The Salvation Army The Webb Simpson Challenge Thomas Davis Defending Dreams Foundation Treehouse UNC Lineberger — Pediatric Oncology United Arts Council United Ballers Association Wade Edwards Foundation and Learning Lab Wake Forest Titans Y Readers

RECOGNIZING COLLEAGUES 2015 Brick Award Winners

Excellence Award

Each year, CAPTRUST recognizes employees who exemplify the very best of the firm’s core values, mission, and vision with Brick Awards. Award nominations and final voting are employee driven, and awards are presented to the winners at the firm’s Synergy meeting in January. The award itself is a marble brick, symbolizing our belief that our best colleagues are the building blocks of CAPTRUST’s culture, and that any great company is built “one brick at a time.”

In October, Chief Financial Officer Bonnie McCullough received the CAPTRUST Excellence Award. This award recognizes employees who—in addition to embracing the firm’s mission—demonstrate sustained records of commitment and mastery of their positions.

Congratulations to 2015’s winners in the following categories: CLIENT SERVICE Stegosaurus Jones

INNOVATION PROJECT NAME

COMMUNITY SERVICE Rodney Hacksaw

Jacques Hollandaise Christian Buddha Carlos Waterslide Teddy Nuggets Rodney Hacksaw

MOST VALUABLE PLAYER Giuseppe Everglades

Bonnie was singled out by her peers for her innovative thinking and tireless commitment to addressing the many legal, organizational, and tax-related challenges associated with the firm’s growth strategy.

STEP UP Nikolai Backflip

North Carolina Museum of Art CAPTRUST and Raleigh law firm Kilpatrick Townsend & Stockton partnered to sponsor an exclusive event for clients and friends at the North Carolina Museum of Art in November. The museum’s exhibit of the works of M.C. Escher and Leonardo da Vinci provided a thought-provoking setting. The exhibit featured more than 130 items spanning Escher’s career from his earliest print to his final masterpiece. Also featured was da Vinci’s Codex Leicester, a 500-year-old notebook from the inventor, scientist, and artist composed of 18 sheets of paper, each folded in half and written in the artist’s famed mirror writing.

Halton Theater

APPRECIATING CLIENTS 44

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In November, CAPTRUST helped celebrate the 10th anniversary of the Dale F. Halton Theater at Central Piedmont Community College by hosting clients and other dignitaries at the theater’s production of “The Phantom of the Opera,” a highlight of the theater’s 2015–16 season. Over the past decade, some 360,000 ticket buyers have attended more than 735 theater productions, which included approximately 100 children’s shows and events that featured President George W. Bush, the Vienna Boys Choir, and Michael Jordan.

CAPTRUST GROWTH We wrapped up the year by adding more talent to our portfolio with the addition of four new financial advisors and a key client service hire in our Raleigh headquarters.

Santa Barbara

Fast 50 Award

Opened last summer, CAPTRUSTâ€™s Santa Barbara, California, office expanded dramatically with the addition of Financial Advisors Taria Agbelusi, Deanna Bamford, and Devyn Duex in December. Working alongside Financial Advisors Troy Hammond and Mike Woods, Taria, Deanna, and Devyn are responsible for providing retirement plan advisory services to corporate fiduciaries. All three joined us as a result of the firmâ€™s strategic partnership with Pensionmark Retirement Group where they held similar roles.

The Triangle Business Journal named CAPTRUST as the seventh fastest-growing privately held business in the RaleighDurham area during its October Fast 50 awards ceremony. Winners are recognized for their entrepreneurial excellence and leadership and are selected and ranked based on a formula that counts revenue growth and profitability in the preceding three years. 2015 marks the third year CAPTRUST has made the list.

Taria Agbelusi

Deanna Bamford

Devyn Duex

Will Lyle

Will Lyle Will Lyle rejoined CAPTRUST in late 2015 as a financial advisor in our Akron, Ohio, office, responsible for providing retirement plan advisory services to corporate fiduciaries. He spent more than two years with CAPTRUST between 2009 and 2011, working in the Akron office and later in our Raleigh headquarters. During his hiatus, Will worked as a financial advisor with a major wirehouse firm and as a sales consultant for a 401(k) plan recordkeeper. He has been in the industry since 2006 and earned a Bachelor of Science in financial planning from the University of Akron.

Veronica Willoughby Veronica Willoughby (not pictured) joined CAPTRUST in November as Team Leader, Client Services and Administration. She is responsible for and oversees the administrative, hospitality, and wealth management client service teams. Veronica came to CAPTRUST from Wealth Management Group LLC, where she worked in a supervisory role overseeing human resources and client services. She graduated from Ashford University with a Bachelor of Science in organizational management and human resources management.

P&I Top 20 Ranking Pensions & Investments ranked CAPTRUST as the 20th largest investment consultant based upon worldwide institutional assets under advisement in its 2015 annual survey. Results of the P&I survey were released in November. This annual report ranks the top 100 investment consultants in the country across several major categories based on information provided by the investment consulting firms. Since 1973, P&I has delivered news, research, and analysis to the executives who manage the flow of funds in the institutional investment market.

Mike Gray Senior Vice President, Financial Advisor

Eric Freedman Chief Investment Officer

We believe an investment advisory firm is only as strong as the people who create the advice.

CAPTRUST was built on the belief that investors are best served by financial advisors motivated to focus exclusively on their clients’ best interests. Our commitment to independence and transparency has enabled us to grow from the entrepreneurial vision of our founders to one of the largest independent investment advisory firms in the country.

WEALTH MANAGEMENT SERVICES

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• Investment consulting services

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• Discretionary investment management

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www.captrustadvisors.com 919.870.6822 | toll free: 800.216.0645 4208 Six Forks Road, Suite 1700 | Raleigh, NC 27609