Money Matters 2-28-2014

Money Matters The Kane County Financial Planning Guide

FEBRUARY 28

2014

A publication of K C

CHRONICLE

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Kane County Chronicle / KCChronicle.com • Friday, February 28, 2014

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Terry Murphy, CFPÂŽ, ChFC

President

525 Tyler Road, Suite T St. Charles, IL 60174 (630) 762-9352 terry@totalclaritywealth.com

Financial planning services to address major financial goals related to retirement, college funding, and risk management

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Asset management customized to your specific circumstances

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Easy-to-understand fee structure based on the value of the managed account

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Independence both in ideas and in form; we do not represent any one product or company, we represent you Investment advisory representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory services also offered through Total Clarity Wealth Management, Inc. Total Clarity is under separate ownership from Cetera.

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EXPECTATIONS ???

However, it turns out that is not the case.

Market pull backs of 10% are relatively common; occurring about every 11months.

The last 10% decline happened in June of 2012 - so we may be overdue. This isn’t a call to get out of the market, but rather a reminder about investing vs. speculating.

The rising dividends of great American companies (represented by the S&P 500) have returned 7,384% from January of 1970 through year-end 2013. That works out to an annual rate of return of 10.3%. So, when we hear “the market returns about 10% a

year”, over the long run that has been fairly accurate. Interestingly, over the last 44 years the market posted an annual return at or near 10% only twice – in 1993 and again in 2004.

These facts become important when we set expectations for our investments in 2014 and beyond. Expecting returns like we experienced in 2013 for 2014 will probably lead to disappointment. But, if we think of our investments as investing in the rising dividends of great American companies for the long run, we have a good chance of making our investment goals - just not overnight. That would be speculating - and speculating is a fool’s game.

The case of Johnson & Johnson (JNJ) provides a good illustration of the power of long-term investing. $10,000 invested in JNJ at the beginning of 1970 would be worth

today about $1,900,000 - a return of 12.67% per year. This, despite challenges such as an energy crisis, several wars, at least 4 violent market sell offs and “9/11”. And, the quarterly dividend of JNJ which has been raised every year since 1962, would be $13,200 per quarter or $52,800 - more than 5 times the amount originally invested.

This is not a recommendation to run out and by JNJ; but these facts illustrate that investing for the long haul can potentially lead to superior results. Without worrying, “What is the market going to do this year?”

Terry Murphy, CFP, ChFC President, Total Clarity Wealth Management, Inc.

[Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance is not an indication or guarantee of future results.]

Kane County Chronicle / KCChronicle.com

2013

was a banner year for stocks.

The S&P, including dividends, returned better than 32% on the year. After the past year, it is easy to believe that the markets only move in one direction.

(In this case, UP.)

Money Matters | Friday, February 28, 2014 •

$$$

Kane County Chronicle / KCChronicle.com • Friday, February 28, 2014

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C R EorD I T DEBIT

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Weigh your options regarding credit and debit cards

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redit and debit cards are how many people make their purchases, both big and small. Many people would rather swipe a card at the checkout counter than count cash. These cards offer unmatched convenience and can help keep receipts organized and purchases accountable with minimal effort.

Although debit and credit cards are frequently used interchangeably, there are times when one is preferable over the other. Here’s how to decide which card to use.

$ Need to build credit? Use a credit card if you are trying to establish a positive credit history. However, you must pay your bill in a timely fashion, and it helps to pay the entire balance each and every billing cycle to develop a good credit score.

$ Don’t want a large monthly bill?

Debit cards withdraw money directly from your account at the moment the transaction occurs.

Much like spending with cash, debit cards let users know when they have run out of cash, as cards will be denied if the transaction is not approved. If you do not want to pay a large bill at the end of the month, debit cards are the better choice.

$ Prefer greater security? Great

strides have been made to thwart would-be identity thieves and keep financial data safe.

However, as was evidenced by the major data breach in Target’s payment system in late 2013, when millions of credit and debit card numbers and PIN codes were hacked, no system is entirely foolproof. Credit cards offer added security because if fraudulent purchases are made, your credit card account will be quickly frozen and you will not be held accountable. When using debit cards, you are spending your own money up front. Fraudulent purchases may be fixed over time, but it could leave a deficit in your account until matters are resolved.

$ Want to minimize fees? Debit cards

do not charge interest or minimum charge penalties. There’s no need to worry about being late for a payment and getting charged a fee, and causing your balance to skyrocket. Gas stations and other retailers that may charge more per purchase for using credit cards will treat debit cards like cash and offer the same discounts.

$ Enjoy perks? Credit card companies will sell

you their card over another based on various perks.

In addition to competitive interest rates, perks may include being able to accumulate travel points, cashback dollar amounts, advanced ticketing offers for shows and sporting events, discounts and coupons for certain retailers, and many other benefits.

More and more consumers are relying largely on credit cards and debit cards to make their purchases. Each type of card has its benefits and disadvantages, so consumers must weigh their options to determine which type of card works best for them.

Understand your plan

Health plans are largely broken down into two main categories: HMOs and PPOs. All managed plans contract with doctors, hospitals, pharmacies, and laboratories to provide services at a certain cost. Generally this group of medical providers is known as a “network.” HMOs, or health management organizations, require you receive most or all of your health care from a network provider.

You also may need to select a primary care physician who oversees and manages all of your health care requirements, including approving referrals for tests or approving visits to specialists.

HMOs are the least expensive option, but they’re typically the least flexible as well.

For those who have a family doctor who is in-network and will not need to see doctors outside of the network, it is financially beneficial to go with an HMO. Those who routinely see specialists or want greater say over when and where they can go to the doctor, a PPO is a better option.

Note co-payment changes

It is generally the patient’s responsibility to know what is expected of him or her at the time of payment. Doctors take many different plans, and some prefer not to manage the terms and conditions of each and leave it up to the patient to understand the specifics. As such, you should know your co-payment requirement for tests, office visits, lab work and the like. You will be responsible for making these co-payments at the time of your visit, as many doctors no longer bill for co-payments. Failure to pay the correct amount could result in penalties or even refusal of service.

Also do not assume that a provider is in-network. There may be subtleties and subdivisions of certain insurance plans.

It may seem like one doctor takes your insurance, but it may not be your particular plan. Confirm that the doctor is in-network prior to visiting to avoid any unforseen bills.

Notify your doctor

Many insurance plans will start coverage at your sign-up or anniversary date, others may begin January 1st. Notify your healthcare provider as soon as possible as to the change in coverage. This protects you if they are behind in billing and paperwork by helping you avoid additional out-of-pocket expenses resulting from billing the wrong insurance company.

Learn about annual exams

A new plan may wipe the slate clean with respect to how frequently you are entitled to yearly physicals or specialized tests, such as mammograms or prostate exams. When your insurance plan changes, investigate when you are able to go for routine exams and if you will have to pay a co-payment.

You may want to schedule a physical at this time to start the new year on a healthy note.

Do you have money in a CD that you want to leave to your children or grandchildren?

You can immediately increase the amount you can leave to your heirs and avoid any negative tax implications with a Single Premium Whole Life Insurance policy.

Look at this example: Joe (age 65) has $17,000 sitting in a CD. He plans to leave this money to his granddaughter as a gift. If Joe were to use this money to purchase a Single Premium Whole Life Insurance policy, it would instantly be worth $29,667*—an immediate gain on the deposit of over $12,000. Plus, his granddaughter will receive this money tax-free! *Based on a Preferred rating, which is a Nonsmoker rating.

VOLKMAN INSURANCE AGENCY, INC. 161 S Lincolnway, Suite 206 North Aurora, IL 60542 www.volkmaninsurance.com

630-897-8824

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PPOs, or preferred provider organizations, create a list of preferred providers that participants can visit. You will not need to select a primary care physician and likely won’t need referrals to visit specialists.

Should you choose to stay in-network, you will pay only the co-payment required.

However, you also have the option of going out of your network, and will have to pay the co-insurance, which is the balance remaining for the doctor after the PPO has paid their share. Many plans will cover 70

to 80 percent of the out-of-network bill, and you will be responsible for the rest.

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Money Matters | Friday, February 28, 2014 •

NEW HEALTH INSURANCE:

How to get the most out of your new plan.

Kane County Chronicle / KCChronicle.com • Friday, February 28, 2014

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M a nagin g Mon e y a f t er 5 0 I nvestors know that money management can be difficult. The ebb and flow of the economy can be similar to a roller coaster, with soaring highs followed by steep drops, and those changes all affect investors’ bottom lines. It’s no wonder then that many investors over 50 envision the day when they can get off that roller coaster and simply enjoy their money without having to worry about the everyday ups and downs of the market. But managing money after 50 is about more than just reducing risk. Here are additional steps to ensure your golden years are as enjoyable and financially sound as possible.

$ Prioritize saving

for retirement. Men and women over 50 know that retirement is right around the

corner. Despite that, many people over 50 still have not prioritized saving for retirement. It’s understandable that other obligations, be it paying kids’ college tuition or offering financial assistance to aging parents, may seem more immediate, but men and women over 50 should recognize that their time to save for retirement is rapidly dwindling. Just because you are retired does not mean your bills will magically disappear. In fact, some of those bills, such as the cost of medical care, are likely to increase.

$ Pay down debt. Men and women

over 50 are not often associated with debt, but that’s a misconception. Thanks in part to the recession that began in 2008 and led to high unemployment, many people went back to school to make themselves more attractive to prospective employers. While that might have been a sound decision, it left many deeply in debt. According to a 2013 report from the Chronicle of Higher Education, student loan debt is growing fastest among people over 60. Men and women over 50 who are still carrying debt should eliminate consumer debt first, as such debt tends to be accompanied by higher interestrates than mortgages and student loan debt. Paying

down debt can help reduce stress, improve your quality of life and free up money for living and recreational expenses once you retire.

$ Examine your insurance policies.

Your approach to insurance should change as you get closer to retirement. For example, you want to maximize your liability insurance on homeowners and auto insurance policies.

This ensures the money you have set aside for retirement won’t be going to a third party should you be at-fault in an auto accident or if someone suffers an injury at your home. Experts recommend liability insurance be substantial for men and women over 50, some suggesting it be twice your net worth.

If it wasn’t already, securing long-term disability insurance should be a priority once you have turned 50. A sudden accident or illness at 55 that prevents you from working could prove devastating to your financial future if you do not have disability insurance. Some employers offer long-term disability, though many people are left to secure policies on their own. Make sure it provides adequate coverage should you succumb to an illness or injury and be unable to work.

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INVEST: THE FINANCIAL PUZZLE

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SOLVING

That is a huge difference.

The investor who started with $100,000 at the end of Jeff Martin is a registered investment 1991 ended with $198,594 advisor and president of KDM after 20 years. If you Investment Management in Geneva, Il. matched the return of the Find out more at www.kdminvest.com. stock market you ended with $449,967. That is an increase $251,103 by What should an individual do? remaining focused on the longHire an investment manager to term and not worrying about design a portfolio and a portfolio short-term market fluctuations. management process based The return information is based on your situation, goals and on a 2012 study by Dalbar as risk tolerance. The investment published in the Wall Street manager will help keep you on Journal on April 7, 2012. track and create a circuit breaker when markets inevitably go Emotion is the main reason down. Look for a manager who for such poor performance. does not try to pick stocks or Investors tend to sell stocks time markets. Their fees should after the stock market goes be reasonable and the cost of down and buy stocks after the the investments they use should stock market goes up. Exactly also be low. Sticking with a the wrong approach. Academic diversified low-cost portfolio studies consistently show that provides you with the best chance professional investors cannot of achieving your investment time the stock market and objectives. individual investors are even worse.

Money Matters | Friday, February 28, 2014 •

HOW TO

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or the 20 year period ended 2011, the average investor in equity mutual funds generated an annual return of 3.49% while the stock market (represented by the S&P 500) generated an annual return over the same period of 7.81%.

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Unique individuals who provide specialized services

Kane County Chronicle / KCChronicle.com • Friday, February 28, 2014

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PROFILES

Jeff Martin President, KDM Investment Management

“While it’s easier if you start early, it’s never too late to start.”

Martin Takes Confusion out of Retirement Planning Jeff Martin, president of the KDM Investment Management in Geneva, believes any time is a good time to take control of your finances.

“While it’s easier if you start early, it’s never too late to start. I work with young people to set up ways for them to save through their employer, and I also have clients in their seventies and eighties. We help them manage their investments during retirement, so their income lasts the rest of their life,” Martin said.

KDM Investment Management offers retirement planning, investment and wealth management services, with an emphasis on creating an understandable, workable plan to help clients prepare for, and carry them through retirement. “We help them understand how much they need to save and how they need to manage those investments over their lifetime,” he said.

Martin’s typical new client has scattered, non-strategic investments. “They might have a couple of 401ks with different companies, a few IRAs and they need to organize their portfolio,” he said.

The first consultation focuses on understanding the client’s goals. “Then we create a strategy, consolidating accounts if possible, which is documented in an Investment Policy Statement, a plan to achieve their goals,” he said.

The advantage of a documented plan is that it prevents emotion-driven decisions during the market’s inevitable ups and downs, that are often detrimental to a client’s financial health.

Martin also enjoys educating clients, and has written a book, “Strategic Diversification: Retirement Planning That Works.” available at Townhouse Books in St. Charles, Anderson’s Bookshop in Naperville and through Amazon.

“The biggest thing is making sure they have the proper investments for where they are in the savings and retirement cycle, and that those investments are wisely managed,” he said.

A University of Georgia graduate, Martin built a 17-yearcareer in corporate information technology, then realized he wanted a more people-driven profession. “I’ve always been interested in personal finance and investing, I knew I wanted to help others, so this was a good fit,” he said. eight After talking with financial services professionals he pursued certifications and entered the field seven years ago, partnering with his family’s long-time financial advisor for the first four years. “For me, what’s most rewarding is giving customers peace of mind that things are organized and if they stick to the plan it will work,” he said.

Jeff Martin 321 Stevens Street, Suite R Geneva, IL 60134 630-232-9097 www.kdminvest.com