Financial Abundance

There are two main financial planning goals that my clients most often want addressed.  One goal is attaining an abundant retirement and the second is saving for college expenses.  One method of minimizing your child or grandchild’s college expenses is to maximize tax savings.  Another is to maximize college aid opportunities. Here are some ideas on how to maximize your college savings funds:

1. Section 529 College Savings Plans

Section 529 College Savings Plans allow a one year donation up to $65,000 per person, to each potential beneficiary.  While the donor does not have “direct control” of the plan’s contributions/earnings, the donor can choose among the limited number of investment options available in the chosen 529 Plan.  Investment options can be changed as often as every 12 months and the account beneficiary may be changed to another qualifying family member at any time.

Distributions from the Section 529 College Savings Plan can be used for any qualified higher education expenses, including tuition, books, fees, equipment, special needs services, and/or room and board costs.  All distributions that are used for qualified college expenses are never taxed.  Thus, the growth and income from a 529 Plan are tax free, as long as the funds are used for qualified college expenses.

For Colorado residents, a Colorado income tax deduction is available for contributions to the Colorado College Invest Plan.  If you contribute $20,000 to a child’s or grandchild’s College Invest 529 Plan in 2012, you will be able to deduct $20,000 from your 2012 Colorado income taxes.

2. Coverdell Educations Savings Accounts

A Coverdell Educations Savings Account (ESA) allows for annual non-deductible contributions of up to $2,000 per year for each child that is age 18 and under.  Parents with three children can save up to $6,000 annually in Coverdell ESAs for their children’s education.  A Coverdell ESA is similar to an IRA, where most custodial firms, such as Schwab, Ameritrade, etc. provide low or no cost ESA accounts.   When used for qualified educational expenses, Coverdell ESA funds can be withdrawn on a tax free basis.  The investments allowed with a Coverdell ESA are virtually unlimited, which may provide for a better investment return than the limited selection of funds offered in a 529 Plan.

3. Series EE Bonds and Series I Bonds

While the current return is very low on both Series EE and Series I Savings Bonds, they virtually guarantee that slightly more than the original amount invested will be available when withdrawn.  When used for qualified educational expenses, the interest that is earned on these government backed savings bonds is received tax free.

4. Maximize College Aid

The most important single year for maximizing the potential of receiving college aid is the year that begins on January 1st of the student’s junior year in high school.  This is often called the “base income year” for financial aid.  During this financial year, parents should accelerate all expenses possible, including paying property and income taxes for the following year. It is also important to minimize your controllable income and capital gains during this year.

Another method for lowering income is to maximize retirement contributions during the base income year.  Retirement contributions are not considered as income, and retirement savings assets, held in a qualified retirement plan, are not considered as financial resources available for college tuition by financial aid assessors.

A final tip for maximizing financial aid is to minimize the assets owned by your children. 20% of a student’s assets are considered available for college funding, as opposed to only 5.64% of parental assets.  If your child has a UTMA or UGMA account, it might be advisable to roll these account assets into a 529 College Savings Plan, with your child as the plan beneficiary.  This approach will significantly reduce the amount of assets that will be counted against available college aid funds.

Planning is the key to successfully maximizing the funds that will be available for your children’s education.  An excellent website to gather more information on this is www.savingforcollege.com .   Every parent and grandparent wishing to help fund their children’s college education should work with their financial adviser to devise the best possible plan to maximize college savings funds.

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There are few areas of the tax code as confusing as inherited IRAs.  Let’s examine your current tax deferred retirement accounts (IRA, SIMPLE IRA, SEP IRA, 401(k), 403 (b), etc) and what is required to minimize taxes from an inherited tax deferred retirement account.

The single, most important step you can take to assure that your tax deferred retirement account, which I will hereafter call an IRA, can be inherited with maximum tax flexibility is to fill out the account’s beneficiary form.  Contact your IRA custodian and verify that you have a named beneficiary.

IRAs Inherited from your spouse. The most flexible inherited IRA is one that is inherited from your spouse.  Typically, the best approach for an inherited spousal IRA is to roll the assets into your own IRA.  These assets can either be comingled with an existing IRA or put into a new IRA in your name.

Due to the unique treatment of inherited spousal IRAs, it may be better to transfer the IRAs assets into an inherited IRA if:.

1) you are older than your spouse and your spouse died before age 70½.  This option would allow you to delay taking the minimum required distributions (MRDs) until the year your spouse would have turned age 70½.

2) you are younger than age 59½ and you need access to the IRA assets immediately.  An inherited IRA allows you to withdraw funds and not be subject to the 10% early withdrawal penalty that would apply to your own IRA.

Whether an inherited IRA is spousal or non spousal, be sure that it is properly retitled.  A suggested format is: “John Smith, Deceased (date of death), IRA F/B/O  (for benefit of) Mary Smith, Beneficiary.”

IRAs Inherited, other than spouse. If you inherit an IRA from a parent or other relative, you cannot roll it over into your own IRA.  To have continued tax deferred treatment of the inherited IRA assets, you must set up a properly titled inherited IRA.  The inherited IRA must be established by December 31 of the year following the year of the deceased’s death.

Once the inherited IRA is properly titled, you will have two distribution options:

1) The entire IRA must be distributed by December 31 of the fifth year following the year of the owner’s death.  If the owner died in 2011, all of the IRA must be distributed by 2016.  The timing(s) of this distribution is entirely up to the beneficiary, as long as all assets are distributed by the end of the fifth year.

2) The inherited IRA can be paid out over the life expectancy of the beneficiary, starting in the year following the owner’s death.  If the owner is over 70½ , the required minimum distribution (RMD) must also be taken for the year in which the owner died.

If the beneficiary of an IRA is a qualified trust, the two distribution options shown above apply.  However, if the beneficiaries of the trust include multiple people, the life expectancy that must be used in option 2) is the life expectancy of the oldest beneficiary.  However, if the IRA is left directly to the multiple beneficiaries, each beneficiary can choose their distribution option and the life expectancy distribution will be based on the age of each beneficiary.

Unless the inherited IRA has a “basis” (some of the contributions were made with after tax funds) all IRA distributions are taxable.  Distributions from inherited IRAs are never subject to the 10% early distribution penalty, regardless of the age of the beneficiary at the time the distribution occurs.

Inheriting a Qualified Roth IRA. A beneficiary may receive all of the assets in a qualified Roth IRA as a tax free lump sum.  However, a beneficiary has the option of establishing an inherited Roth IRA with the Roth proceeds.  With an inherited Roth IRA, the beneficiary will only be required to take a yearly distribution, based on their current age.  This allows the Roth proceeds to continue to grow on a tax free basis, throughout the beneficiary’s lifetime.

Be sure to verify that all of your retirement accounts have a named beneficiary.  If you inherit and IRA of any type, seek advice from a qualified professional before taking any actions .

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Many of my baby boomer clients are questioning their ability to retire before they reach their Full Retirement Age (FRA) for Social Security.  When we do our annual retirement planning, we always explore several different retirement options to allow for the abundant retirement they desire.

The goal of any retirement plan is to live throughout the retirement years without depleting retirement savings.   An abundant retirement provides adequate income to continue living the current lifestyle plus additional funds to better enjoy retirement through additional activities such as travel and hobbies.   As there is a 40% probability that at least one person in a healthy 65 year old couple will live an additional 30 years, providing for an abundant retirement requires advanced financial planning.

One factor that is not often fully appreciated in retirement planning is the large “cost” of early retirement.  However, if you are actively saving for your retirement years, there is  a seldom explored option to early retirement.

The goal is often to retire at age 62, the earliest age at which Social Security payments are available.  An option to taking this early retirement is to stop making contributions to your retirement plan saving at age 62 and use these funds to better enjoy your final working years.  By doing this, retirement savings continue to grow, Social Security payments continue to increase by approximately 8% per year and your pre-retirement years can include the travel and hobbies that may have previously been unaffordable.

Let’s consider an example of how this option can help assure an abundant retirement:

Mary and John Smith, both age 61, have a combined income of $100K per year.  Throughout their careers they have saved 15% of their pretax earnings, providing them with $800K in retirement savings.  At their full retirement age (FRA) of age 66, their combined Social Security benefits will be $40,000 per year.  They have determined that they will need $80K per year to live the abundant retirement that they desire and would like to begin retirement when they are age 62 and eligible for Social Security benefits.

If John and Mary retire at age 62, their annual Social Security benefits will be reduced to $30,000.  They will need to spend $50,000 per year from their retirement savings to provide the required $80K in annual income.  Assuming no inflation and a 3% real rate of return on their investments, John and Mary could deplete their funds in 22 years, when they are only age 84.

Since both John and Mary are in good health, there is a very high probability that one or both of them will live past age 84.  They must reconsider other options if they wish to have the desired abundant retirement.

Mary and John meet with their financial planner to explore other retirement options.  Their planner suggests that they continue working until their Social Security FRA age of 66.  However, he also suggests that instead of continuing to save for retirement, they use their annual $15K in retirement savings for vacations and new hobbies that they have been postponing due to lack of funds.

When John and Mary retire at age 66, their $800K in savings, growing at just 3%, will have grown to $900,407.  At age 66, they will receive their full Social Security benefits of $40,000 annually, reducing the annual savings withdrawal to $40,000 per year.  With these changes, John and Mary’s savings will now last for 38 years.

By working an additional 4 years and spending their annual retirement savings of $15K on vacations and hobbies, John and Mary will be able to live an abundant retirement and never deplete their savings.

If your company offers a 401(k) match, continue to contribute to your 401(k) up to the company matching amount.   Take the amount contributed to your 401(k) plan out of a taxable investment account.  You will still come out ahead thanks to the “free money” contributed by your employer’s match

Retirement options need to be explored before you retire.  Work with a qualified financial planning professional to explore all of your retirement options.  A relatively small change can make a huge difference in your ability to have and maintain an abundant retirement.

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Thanksgiving is a day of gratitude for our many blessings and a time to appreciate our abundance.   Do you live from a sense of financial abundance during the other 364 days of the year or do you often live in fear, from a belief in scarcity?

Our wealth far exceeds the basic human requirements of food, shelter and clothing.  In spite of this, I meet many people who do not feel that they live in financial abundance.  Why do some people live from a sense of financial abundance while others, often with more financial resources, live in fear of financial scarcity?

As a Certified Financial Planner (CFP^®), I strive to help my clients move from a fear of financial scarcity to a sense of financial abundance.  This transformation requires a commitment to actively manage, protect and control one’s financial activities.   Let’s review the “Seven Steps to Financial Abundance.”  While following these steps will not guarantee financial abundance, as a minimum, they should help reduce fear of financial scarcity.

1. Spend Less Than You Earn

The first step on the path to financial abundance is to create excess earnings.  If you contribute to a retirement plan, your contributions are included in excess earnings.

A reasonable goal is excess earnings of at least 15% of after tax income.  To meet this goal, consider the “pay-yourself-first” approach.  On payday, make the first payment to your excess earnings fund.  This fund can be used to buy your first house, pay for your children’s education or your help fund retirement.

If you have not already done so, use excess earnings to build an emergency fund. With an emergency fund, you will be able to survive a job layoff or short term disability, without prematurely using funds from you retirement account.

2. Maximize Your Financial Resources

The next step toward financial abundance is to maximize your savings income.  If you have a company sponsored retirement plan, as a minimum, contribute the maximum amount that your company will “match.”  When your company matches 50% of your contribution, the company’s contribution is “free money,” guaranteeing an immediate 50% investment return on your retirement savings.

If you are saving for your children’s education, Coverdell Education Savings Account and/or Section 529 College Savings Plans can help.   Your educational savings will grow and no taxes will be paid on the growth and income from these plans.

If you are responsible for your health insurance, a high deductible health insurance plan (HDHP) plus funding your Health Savings Account (HSA), to the maximum amount allowed, will virtually guarantee a lower (after tax) cost for your health care.

3.  Minimize Your Taxes

Using every legal method for reducing taxes is the next step toward financial abundance.  If you are married and your spouse has no earned income, you may be able to fund a “spousal IRA.”  With a spousal IRA, you may deduct an additional $5,000 ($6,000 if your spouse is over age 50) from your income taxes.

If you have children in college, be sure to claim the American Opportunity credit or Lifetime Learning Credits.  These tax credits can reduce your taxes by up to $2,500 annually to offset high educational costs.

Use appreciated long term stock for your charitable giving.  You pay no taxes on the stock’s appreciation and receive a charitable deduction of the stock’s full value. Establishing a Donor Advised Charitable Giving Fund makes this easy to do.

4. Manage Your Investments

Properly managing investments is a critical step toward financial abundance.  If you manage your own investments, implement an asset allocation that allows you to sleep well at night.  Low cost, indexed mutual funds or Exchange Trades Funds will provide superior long term results for most investors.

If you use an investment advisor, investigate potential conflicts between how the advisor is compensated and your best interests.  The advisor should always be a fiduciary, guaranteeing that they will put your interests ahead of their compensation.

5. Protect Your Financial Resources

Fear of the unknown can produce a sense of scarcity.  Proper insurance to protect your financial resources is important in keeping this fear at bay.  The requirement for health, life and property insurance is often well understood.

Disability insurance is sometimes overlooked.  Peter Ubel, professor of psychology states, “If people are smart, they will invest wisely in [disability] insurance.”   A serious, long-term disability can destroy even the best financial plan.

Protecting yourself from catastrophic financial risks is a necessary step in obtaining financial abundance.

6. Control Your Personal Finances

The stock market, tax codes, the economy or negative world events are outside of our control.  Things we cannot control increase the fear of scarcity.  We can control our spending habits, our prioritization of saving for our family’s future and our decision to plan for our financial well-being.

With this control, we have significant power over personal finances.  Once this power is recognized, fear of scarcity is diminished and a feeling of financial security begins to permeate our lives, leading us toward financial abundance.

7. Have Faith in Continued Abundance

Overcoming the fear of scarcity requires faith in continued abundance.

By implementing the first six steps, you have done everything in your power to control your financial abundance.   However, without faith that your abundance will continue, doubts and fears of the unknown and uncontrollable future can become overwhelming.

Living in financial abundance requires controlling consumer-driven consumption, maximizing and protecting financial resources and faith that abundance will continue.  If you do not feel that you can take these steps alone, find a knowledgeable and trustworthy financial guide to help you with this journey.

Once you escape the fear of scarcity, you may find true serenity.  When living in financial abundance, you may even decide to share more of your abundance with your favorite charitable organizations, spreading the gift of Thanksgiving.

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Ready for a riddle?  What federal government program requires 72,000 pages of written text to explain, has an annual compliance cost of over $350 billion and is a key contributor to our current economic morass?  The answer is the US tax code.  The current tax code is so broken that no amount of tweaking will fix it.

Let’s explore why the code has become so complex and why both political parties are unwilling to fix it.

First, let’s examine the individual income tax.  In 2010, the US treasury collected $899 Billion in individual income taxes.  Estimates from the GAO and other sources estimate that the cost of compliance (tax preparation) in 2010 for individuals was approximately $150 Billion.  This cost includes the “fair value” of each individual’s time in compiling tax data, the time required to fill out the complex tax forms for those who do their own taxes and the revenue collected by CPAs and tax lawyers to file individual tax returns.

The vast majority of these compliance costs could be saved if individuals merely paid a percentage of their total income with no deductions or credits of any kind.  To protect the poor, there could be a minimum level of income below which no taxes are levied.  With this approach, the compliance costs could be turned into tax revenues with no net cost increase to the American taxpayer.

If such a simple change could increase tax receipts with no effect on the individual tax payer, why aren’t politicians clamoring for this reform.  The answer lies in the 72,000 pages of our tax code.  Every segment of our tax code has special interest “gifts” that are important to special interest groups who give money to the politicians that protect them.  As an example, the mortgage interest deduction benefits home builders, realtors, mortgage brokers, lawyers, banks and investment speculators.  These groups provide millions of dollars to politicians in both parties.

The corporate income tax is even more insidious.  In 2010, the US Treasury collected $191 Billion from corporations.  It is estimated that in 2010, corporations spent almost $190 Billion in tax compliance.  Large corporations are the obvious benefactors of the current tax code distortions, with corporations such a GE paying no income tax in 2010.  How many millions do you suppose GE spent on lawyers and accountants to assure this tax outcome?

The current US corporate tax code is 35% of net earnings, the highest corporate tax rate of any industrialized country.  If all of the corporate welfare ( and with it the tax code compliance cost) were eliminated, corporations could pay a lower percentage of their total earnings and the federal government could collect almost twice the revenue, with no negative impact on the corporation’s total expenses.

With this approach, the US corporate tax rate could likely be cut dramatically and still provide twice the current tax revenue.  An added benefit is that lower federal corporate tax rates would attract foreign companies to the US and provide less incentive for US companies to move operations abroad.  This combination could dramatically increase our GDP while significantly decreasing our rate of unemployment.

By eliminating all deductions and credits in the current tax code so individuals and corporations pay taxes equal to their current taxes plus their current tax preparation/ tax compliance cost, the federal deficit could be reduced by over $3 Trillion dollars (over a 10 year time frame), with the a net increased cost to both individuals and corporations of $0.

So once again the question, if this approach is so simple, why are some billionaires calling for higher tax rates instead of tax code reform.  Once again, the answer can be found in the 72,000 pages of the tax code.  The current tax code protects the super rich from paying the same income tax rates as the rest of us.

Regardless of your thoughts on  federal government spending or higher tax rates on the rich, we have an annual $350 Billion in deficit reduction staring us in the face. Perhaps it is time to tell both parties that they must begin supporting their constituents instead of the special interest groups protected by our broken tax code.

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I have never met anyone who wished to pay more income taxes than they legitimately owe.  The super rich have accountants and lawyers scrutinizing every aspect of their income and expenses to assure they take advantage of every tax loophole and pay the absolute minimum in taxes.

Since most of the rest of us cannot afford personal tax lawyers, here are seven simple ways that you may be able to lower your tax bill for 2011.

1) Spousal IRAs: If only one spouse has a company retirement plan, the other spouse may contribute up to $5,000 ($6,000 if age 50 or over) to his own IRA, even if he has no earned income in 2011.  The spousal IRA contribution is fully tax deductible and must be made before April 15, 2012.  Your combined incomes must be less than $169,000 to receive the full spousal IRA deduction.

2) Investment Tax harvesting:  Taxable investments with short or long term losses can be sold by year end to provide a tax deduction of up to $3,000 in 2011.  Be careful not to repurchase the same security in less than 30 days as this creates a “wash sale,” eliminating the loss deduction.  However, buying a similar fund is allowed.  Let’s assume that you have the iShares MSCI Emerging Markets ETF (EEM).  You may sell the EEM ETF and immediately buy the similar Vanguard MSCI Emerging Markets ETF (VWO) without creating a wash sale.

3)  Mutual Fund sales:  If you are considering selling a mutual fund, but are waiting until 2012 to avoid paying capital gains taxes in 2011, you may end up paying capital gains taxes in both years.  Most mutual funds have year-end distributions of short term and long term capital gains in December.  By selling now, these year-end distributions can be avoided.

4) Charitable contributions:  If year-end charitable contributions are planned and you have stocks with long term capital gains, consider donating shares of appreciated stocks.  No capital gains taxes are ever paid on the donated appreciated stock and the full charitable deduction is provided for the value of the stock.  The simplest method of accomplishing this is by setting up a donor advised fund through your custodian (brokerage firm).

5) State Sales Tax Deduction: If you itemize deductions and are retired or received limited income in 2011, utilizing the state sales tax deduction instead of state income taxes might prove beneficial.  The benefits of using state sales taxes will only apply if sales receipts for higher priced purchases (each of which was taxed at over 8% in Colorado) have been saved.  If you did not save your receipts in 2011, consider saving receipts in 2012.

6) Colorado 529 Plan: If you are a Colorado resident with a child or grandchild in college, consider putting next year’s funds for tuition, room and board and other required expenses into College Invest, the Colorado 529 plan.  Any contributions made to College Invest in 2011 are dollar for dollar deductible against 2011 Colorado income taxes.  Assume that college expenses for 2012 will be $30,000.  By depositing that amount into College Invest during 2011, the 2011 Colorado income tax bill will be almost $1,400 less.  With this short term approach, keep 529 funds in the money market investment option until they are used to pay for a child’s or grandchild’s college expenses.

7) Roth IRA contributions:  Even if you are covered by a company retirement plan, contributions of up to $5,000 ($6,000 if age 50 or over) to a Roth IRA are allowed, as long as adjusted gross income is below $169K for joint filers or $107K for single filers.  While a Roth IRA contribution does not lower 2011 income taxes, Roth income grows tax free throughout your lifetime and potentially the lifetime of your beneficiary.  If funds are ever required from the Roth IRA, the funds contributed can be withdrawn with no taxes or penalties.

Hopefully, one or more of these tax savings ideas will be helpful in reducing 2011 taxes.  If these tips provide some unexpected savings, I hope that you will save and invest these funds to help you prepare for a financially abundant future.

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There has been a lot of recent press and political punditry about Bank of America charging $5/ month for the “privilege” of using their debit cards.  Arguments can be made over whether this fee is justified, after the Dodd-Frank bill lowered the allowed maximum debit card transactions fees, or whether Bank of America customers should find a new bank.  However, assuming that one is able to get a credit card, the correct question should be:  “Why would you ever want a debit card?”

Let’s explore some of the reasons for which debit cards are used and see if any of these are required.

1) Debit cards are a replacement for writing checks.  While debit cards were initially designed as a replacement for checks, modern technology has made checks almost obsolete.   Monthly bills can be paid by credit card or by direct payments from a bank account. No physical checks are required.  Any product that can be purchase with a debit card can also be purchased with a credit card.  If checks are required, the vendor requiring a check will typically accept neither debit or credit cards.  Thus, debit cards no longer serve exclusively as a replacement for checks.

2) Debit cards prohibit their users from spending more cash than they have. Debit cards (theoretically) do not allow for spending more than is in a bank account.  While debit cards usually limit spending to a bank account’s cash balance, there are other methods of achieving this same goal.  With a laptop or smart phone, bank balances can be accessed 24 hours a day.

If it is critical to your budgeting process that expenditures never exceed the cash on hand, consider the following approach.   Always have a small amount of cash for incidental purchases.  For all other purchases, keep track of credit card purchases so that you know to stop using the credit card when bank account limits are reached.  When the next pay check arrives, pay off the credit card balance and repeat this process.  This approach provides the same cash management function as a debit card, while eliminating any possibility of debit card overdraft fees.

3) Debit cards are a budgeting tool, helping assure that one does not spend more than they earn.  With the proliferation of free, online budgeting tools, such as mint.com, debit cards are one of the least effective budgeting tools available.  As with 2) above, using cash for small purchases and keeping track of the larger purchases that are made with a credit card provides considerably more budgetary control than a debit card.  The only “downside” of this approach is that it requires discipline to keep track of purchases and to stop spending when you cash is depleted.

To successfully eliminate debit cards and their associated fees, it is important that the credit card balance be paid in full every month.  Without discipline, credit cards can easily become an easy method of “budget busting.”   While quick and easy to use technology makes it possible to keep track of all credit card purchases as well as the remaining cash available in a bank account, implementing this technique requires both desire and determination for it to succeed.

The small amount of work required to enter each credit card purchase as it is made, coupled with the determination and desire to maintain a budget can break the debit card habit forever.

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A question that is commonly asked in times of market volatility is “should I invest or keep my savings in safe Certificates of Deposit?”  Even if the questioner is stuffing their cash in a mattress, they are “investing.”   Thus, the question that should be asked is “how will I invest my funds?”

For many investors, the stock and bond markets are just too risky.  These investors are often choosing such investments as one year CDs.  One year CDs yield approximately 0.6%.  At the end of August, the US inflation rate for the past 12 months was 3.8%.  When we consider the real rate of return (total return less inflation rate) for one year CDs, they currently provide a -3.2% real rate of return.

On the opposite extreme is an investor that is 100% invested in the US stock market.  From the beginning of 2007 through the end of Q2 2011, the annualized investment rate of return for the S&P 500 (with dividends reinvested), was 0.4%.  With the recent volatility the S&P 500 annualized return declined to -2.6% by the end of Q3.

Is a guaranteed -3.2% real rate of return better or worse than a volatile rate of return created by investing in the markets?  Investment studies have shown that the most critical requirement for investment success is to develop an investment plan and stick with it through both good and bad markets.

Studies show that investors consistently underperform stock market benchmarks.  This performance is not related to an investor picking the wrong stocks or mutual funds.  Most of the long term investment underperformance occurs because investors often buy when markets are high and sell when markets are low. Whether the investment approach is conservative or aggressive, these studies show that long term investment results are consistently higher when the investment approach is maintained throughout a full market cycle.

A conservative investor will typically significantly outperform an aggressive investor in down markets.  Unfortunately, in frothy up markets, conservative investors are often tempted by the significant gains that their more aggressive investor friends are receiving.  At the worst possible time (when stocks are overpriced) these conservative investors often decide to become more aggressive investors.  By changing their investment approach, their funds are often decimated by the next market downturn.

Aggressive investors will typically significantly underperform their conservative counterparts during a down market.  In desperation, aggressive investors often sell much of their stock market investments at the worst possible time (when stocks are underpriced).  By changing their investment approach, aggressive investors will not be fully  invested in the stock market when the markets stages its next recovery.

Financial Abundance, LLC, uses a diversified investment approach that includes US and international stocks and stock funds, US and global bonds and bond funds as well as some exposure to “alternatives” such as REITs, gold, commodities and currency funds.  We seek out value oriented investments that typically provide better than average dividend payouts.  This approach helps decrease a portfolio’s volatility and increase the total return.  From the beginning of 2007 through Q3 of 2011, our consistent investment approach has provided for average client return that exceeds the S&P 500 (with dividends reinvested) by over 6% annually.

Whether your investment approach is conservative, aggressive or somewhere in between, the key to long term investment success is maintaining a consistent approach through up and down markets.  Fear and greed are two of our most common investment nemeses.  If you are susceptible to one or both of these, find a fee only investment advisor to help manage your investments.  At Financial Abundance, LLC  our primary added value is our ability to remain consistent with our investment approach, through up and down markets.

After reading many investment studies, a consistent conclusion is that investors can be successful as aggressive investors, conservative investors or anywhere in between.  Regardless of investment approach, the two primary components of successful investing are portfolio diversification and consistency.

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One of the greatest blessings of my life was to be the father of two children.  When we become parents, it is understood that we are taking on a large, new financial responsibility.  Most young parents believe that their financial responsibility will end when their children graduate from college.  Many parents of grown children have found that these expenses can continue well past college graduation.

Many people who are approaching retirement, provide financial support for their grown children, even when doing so places their retirement at risk.  Regardless of your child’s age, you can decrease and eventually break your children’s financial co-dependence.  Here are a few approaches to consider:

1. Agree that you will only pay for in state college tuition.  When our children were young, my wife and I determined that Colorado had excellent state colleges.  When our children began to consider their college options, they were allowed to consider all colleges.  Our children knew that we would pay for any state supported college in Colorado. If they wanted to attend a more expensive school, they would be responsible for the increased costs.  This approach allowed our children to share the financial responsibility for their college choice.
2. While our children both chose state supported colleges, had they chosen more costly schools, they would likely have required student loans.  If your child requires a student loan, keep the loan only in the student’s name.  Even if you choose to help your child pay this loan after college, by keeping the loan in your child’s name, you avoid personal responsibility for a loan that would always be with you, even if you or your child declared bankruptcy.
3. Never co-sign any financial obligation with your child.  If you agree to co-sign a lease, a car loan, a mortgage or any other financial instrument, you are effectively taking 100% ownership of the obligation.  If the financial obligation is something that you wish to support, such as a mortgage, take the mortgage out in your own name and have a separate agreement with your child.  This gives you complete control over the property should things not work out as planned.
4. If your child requires on-going financial support that you are willing to provide, pay their bills directly to the party to which they are owed.  This will assure that your financial support is going to where it is intended.
5. Be sure that your grown child has medical insurance.  Many young people do not see the need for medical insurance.  If your grown child can no longer be on your medical insurance policy and you are financially able to help them, use the first dollars of your support to assure that they have adequate medical insurance.
6. If you are supporting your grown child, develop a mutually agreed upon plan to terminate this support.  While the plan may require months to complete, you are demonstrating to your child your faith in their ability to succeed financially.  Your faith in your child’s ability to succeed financially will be one of the best gifts that you can ever give.
7. If required, allow your grown child to fail financially.  It is human nature to learn more from failure than success.  While it is extremely difficult to see grown children struggle, by letting go and allowing them to determine how to get out of a financial jam, we allow them to grow as adults and we show our faith in their ability to solve their financial dilemma.

Parents wish for their children to be financially secure.  As counterintuitive as it may seem, one of the best ways to assure this is to let our grown children have the responsibility of taking care of their own financial well being.  While some critical financial support is often required, showing our faith in our children’s ability to be responsible for their own financial health is a gift to both your children and your retirement.

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