FINANCIAL
Personal
Planning
2013
Getti ng yo ur fina n cia l house in order
It's like a colonoscopy.
Delving into the details of your
personal finances can feel like that.
Many of us try to avoid it.
BY Joseph Hight
PHOTOGRAPHY BY ERICK GIBSON
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Many
investors
have
p os t-t ra umatic
s t r es s
di s orde r
from 2008
and refuse
to take any
risk.
Stephan Cassaday
www.northernvirginiamag.com
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E
Eleanor Blayney, consumer advocate at the Certified Financial Planner Board of Standards in
Washington, D.C., says, "This tax season, you have
all those financial forms in front of you. Make
them do double duty. The information needed
for your taxes can be used for a household balance sheet and income statement."
Kevin Keller, CEO of the CFP Board makes
the analogy that going to a financial planner for
financial health is like going to your family doctor for medical health.
Norman Kamerow, co-founder of Capital Financial Group/HBeck in Bethesda, Md., advises his clients to "make sure you have a budget, a
listing of debt, adequate life insurance and disability income insurance. Have an attorney prepare a will or trust."
When asked why more people don't do any of
this, one financial planner says it's like asking
why some people don't exercise adequately.
S toc ks
toinwatc
h
201 3
From analysts at
The Motley Fool
in Alexandria
Norman Kamerow
Nike (NKE)
It’s the world leader in
sports equipment and apparel with an outstanding
product reputation, giving
the company modest pricing power. It offers investors global exposure with
excellent growth prospects
particularly in emerging
economies. Management
has done a solid job of returning value , with share
buybacks that have brought
share count down 15 percent and a dividend that will
continue to grow.
Jason Moser, Senior Analyst
NxStage Medical
(NXTM)
This company is a force
in the large kidney dialysis
market. Their System One
device allows a patient on
dialysis to take control of
their care and do their dialysis in the convenience
of their home. Charley Travers, Associate Advisor
Starbucks (SBUX)
Starbucks has more than
17,000 stores and room to
grow. The coffee is just a
gateway for the company
to repeatedly sell customers an experience rooted
in comfort, quality, health,
community and conscience. Customers’ emotional ties to this are the key
for expanding the reach of
its brand into new products
(Verismo single-cup brewers), new platforms (Evolution Fresh juice bars) and
new brands (La Boulange
branded foods).
Bryan Hinmon, CFA, Analyst
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Simple answer: It's easier not to.
Might a personal financial advisor help?
With enough financial knowledge, time to do a financial
assessment, some research and a capacity to be unemotional
about investing, you can try going it alone. There is plenty
of help for do-it-yourselfers.
There is easy access to online bank statements, credit card
statements, invoices and bills. Personal finance software
programs are available—some you can buy and some can
be downloaded free. Stocks and mutual fund shares can be
traded online. Books on portfolio management and on diversifying risk are abound.
Otherwise, you may
benefit from a relationTHOSE WHO
ship with a carefully choWERE FEARFUL
sen personal financial advisor. A good advisor can
OF GETTING
help keep you level headed
BACK IN THE
and focused.
MARKET
For instance, Executive Vice President of Focus Wealth Management
in Middleburg Helen Modly's hard core Republican
clients were thinking: "If
Obama is elected, it's a punishment from God for our wayward ways." And her liberal Democratic clients were thinking: "If Romney is elected the world will end."
"My job," she says, "is to keep all of them calm and help
them keep their emotions in check."
John Wolff says it is natural for a client to be emotional
about money. He tells his clients at Capital Fiduciary Advisors in Reston that it is his job, not theirs, "to not be emotional about their money."
LOS T A LOT O F
L E V E R AGE.
Arcos Dorados
(ARCO)
Arcos Dorados (“Golden
Arches” in Spanish) has the
exclusive right to own, operate and franchise McDonald's restaurants in Latin America. Through Arcos
Dorados we get exposure
to the top fast food brand
in one of the most attractive economic regions of
the world.
Charley Travers, Associate Advisor
Baidu (Nasdaq: BIDU)
While the internet boom
seems like a thing of the
past, internet-related technologies are still unfolding
in emerging markets. Think
of Baidu as the “Google of
China.” It takes what we
now know is one of the
best business models in
technology and applies it
to China with its greatest
economic growth story of
the last 25 years. Patient investors should see impressive growth from Baidu.
Andrew Tonner, Technology and
Telecom Sector Analyst
Stephan Cassaday, president of Cassaday & Company
Wealth Management in McLean, says "Many investors have
post-traumatic stress disorder from 2008 and refuse to take
any risk. Though they know that choices like CD’s, money
funds and bonds can't help them reach their goals, they
are unwilling to take any risk," steering clear of investing
in the stock market.
Fred Hecklinger, 72, has published books on career planning and given seminars on retirement planning throughout
Northern Virginia and the D.C.-Metro area. Before Hecklinger retired from Northern Virginia Community College
in Alexandria where he was coordinator of counseling and
later dean of student services, he sought help from a personal financial advisor. For the past 20 years he has been
meeting with his advisors at Ameriprise Financial in Fairfax
twice a year. He says Jennifer Gallant and Kelvin Creyts at
Ameriprise helped with investments, life insurance, longterm care insurance and with protecting equity during economic downturns.
Though he started with his advisors in his 50s, Hecklinger recommends starting much earlier, "In your 20's,"
he says.
Advice from advisors
Everette Orr, of Orr Financial Planning in McLean, recommends first paying down debt. "Debt isn't just a problem for
those with modest incomes," he says. "Even high-income
households can pile up debt."
Orr recommends maximizing 401(k) contributions. "Employer matching contributions are free money that shouldn't
be left on the table."
He also advises everyone to make a will and make sure
you have adequate life insurance."
Cassaday says, "The number one gift you can give your
Denbury Resources
(DNR)
Denbury is a different kind
of oil company. Instead of
searching for oil, it buys
existing oil wells that are
in the late stages of their
lives. It injects carbon dioxide into the wells to push
out the oil that's been left
behind. It owns the only
naturally occurring carbon
dioxide deposit east of the
Mississippi, giving it a competitive advantage over traditional oil companies.
David Meier, Associate Advisor
General Electric (GE)
Whether it’s in energy,
healthcare or infrastructure, size really does matter. Recognizing the opportunity, GE reached into its
deep pockets and acquired
key players in each of these
industries over the past few
years. At the same time,
GE is making long-term investments in research and
development. Projects like
natural gas fueling stations
and a smarter energy grid
are in their infancy now,
but will pay off in the years
ahead.
Isaac Pino, Industrials Analyst
www.northernvirginiamag.com
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Hous ehold
expenses
Create a monthly budget. All it
takes is some paper and a pencil,
but using a spreadsheet can
make it more formal. A Microsoft
website offers a template that
can be downloaded to an Excel
spreadsheet. office.microsoft.com
> templates > Excel
Where to look for savings:
Homes and mortgages
Homes mortgage interest rates at
the time of this writing were at or
near historic lows and were projected to remain low through 2013 and
beyond. If you haven't refinanced a
home mortgage recently and can
qualify, check out the pros and cons
of refinancing now. If you don't
own, 2013 may be a good time to
buy, and for sellers, a good time to
put a home on the market.
Insurance
Life insurance and auto insurance
rates have been falling. Look for savings by bundling home and auto
with one insurer. Term life insurance
offers the most insurance per dollar
of premiums.
Autos, commuting
With the low interest rates, offers
on refinancing car loans abound.
Check Pen Fed Credit Union, Wells
Fargo or your own lender. Grocery
store offers of gasoline discounts
can be real savings. For commuting into Washington, think carpooling or taking advantage of the 'slug
lines' to and from commuter lots.
Shopping
Use grocery store coupons and
check with coupon sites on the
web. Check out the website slickdeals.net, which calls itself "a userdriven deal sharing site," providing tips and deals offered by users.
Those items you bring to the cleaners, do they really need dry cleaning or will simple laundering do? Big
box wholesale or discount shopping
can save money if you have a large
family and can buy in bulk.
Many studies have found no additional health effects from expensive nutritional supplements over
a healthy diet with plenty of fresh
fruits and vegetables. In season,
compare prices at farmers markets
to grocery store prices. Think of
adding a home freezer and buying
meat in bulk.
Continued on page 96
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child is to not be a burden on them
when you are older. Both parents
should max out their tax-deferred retirement savings." Then, if additional
funds are available, he adds, Virginia
has several plans for college savings
that could be considered. Visit the
website virginia529.com.
While contributions to a VA529 account are from after-tax earnings, the
website advises that earnings on the
accounts grow free from federal tax,
and, in most instances, from Virginia state income tax. Withdrawals for
qualified higher education expenses
are also free from taxes.
The stock market rebound
Cassaday says through September
2012, "All major markets were up
over 100 percent on a total return basis since March of 2009, assuming reinvested dividends." "The financial markets in October
2012 were at, or near record levels,"
adds Capital Financial Group's Kamerow. "Those who were fearful of getting
back in the market lost a lot of leverage. The 2008-09 melt down caused
most investment portfolios to lose 48
to 52 percent of value, but my clients
and others who used professional financial planners suffered losses in the
15 percent area, and were whole again
in eight or nine months."
Most Americans haven't regained
their taste for stocks. As late as August
2012, U.S. stock trading volume was at
its lowest level since before the crisis
of 2008-2009. In October, Bloomberg
news was reporting third quarter 2012
trading volume 14 percent below the
same period a year earlier.
Wolff says investors are still scarred
by the crisis. "Retail investors are missing out," he says.
Local housing values quick
rebound
Building equity in housing has always
been a way U.S. households built net
worth. And, the housing bust of 20062007 put a dent in that option. But
housing values may have bottomed out
in 2012. The Associated Press reported that a measure of U.S. home prices
had jumped 4.6 percent over the year
in August 2012, the largest increase
in six years.
But the report also stated that home
sales, housing starts and prices all remained below healthy levels.
Lisa Sturtevant, of the Center for
Regional Analysis at George Mason
University, says Washington area housing has performed better than others.
The turnaround in housing prices in
greater Northern Virginia began in
2009. By September 2012 prices had
returned to more than 80 percent of
peak levels. Alexandria and Arlington
prices were nearly back to full peak
Debt isn't just
a problem for
those with
modest incomes ...
Ev en high-income
househol ds can
p il e up debt.
values. Suburban Maryland housing
began its recovery later, but by September 2012, Maryland home prices
had risen to nearly 70 percent of their
peak levels.
So where are Americans
putting their money?
Federal Reserve data in October 2012
showed Americans funneled a record
$6.9 trillion into savings accounts that
pay interest rates less than zero after
factoring in inflation. That's like paying banks and credit unions to borrow
your money.
This is what undo fear of risk can
do to money management. The key to
managing risk is diversification, not
what amounts to putting money into
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Finding your
Debt-to-income ratio
MONTHLY PAYMENTS ON: INSTALLMENT
DEBT + MINIMUM PAYMENTS ON CREDIT CARD
DEBT + REVOLVING CREDIT + LOAN PAYMENT
OBLIGATIONS + HOUSING COSTS
ANNUAL GROSS INCOME
12
=
DTI = DEBT-TO-INCOME RATIO
MDPO = MONTHLY DEBT PAYMENT OBLIGATION
MGI = MONTHLY GROSS INCOME
=
100% ( )= DTI
MDPO
MGI
a mattress.
Modly admits there is a lot of uncertainty. She says no
matter who ended up winning the election in November, she
can't believe that Congress wouldn't have moved to avoid the
'fiscal cliff ' of tax increases and spending cuts that loomed
for January 2013. "If they were to take effect, it would absolutely take the air out of our recovery balloon." Congress
probably will not have solved the long-term budget issues,
she says, but at least they will have "kicked it down the road
another year."
By the time you are reading this we will know if Modly
was right. But taxes may be going up. For example, she says
beginning in January 2013, new taxes on higher income taxpayers related to Medicare take effect, as mandated under
the Affordable Health Care Act.
Your personal debt-to-income ratio, explained, calculated
Everette Orr
Most of us have a fairly good idea of our cash flow. A personal debt-to-income ratio, or DTI, can give a more precise
indication of current finances. The first number needed is
annual gross income as reported on your tax return or added up from a year of pay stubs. Annual income is divided
by 12 to get a monthly gross income (MGI).
Add up monthly payments on installment debt, including monthly minimum payments on credit card debt, other revolving credit or loan payment obligations. The best
source for this is your credit report. Don't forget child support payments, if applicable. Don't include any credit cards
on which you pay off the balances every month, since these
are living expenses, not loans. Add up monthly housing
costs, including mortgage principal, interest, home insurance, taxes, mortgage insurance and housing association
dues. The sum is your monthly debt payment obligation,
or MDPO
Divide MDPO by MGI and multiply by 100 percent to
get your DTI.
When deciding to approve a loan, many lenders use this
number along with a more limited DTI which is simply
monthly gross income divided by monthly housing costs.
Lenders look for these ratios to fall within certain considwww.northernvirginiamag.com
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Continued from page 94
Utilities
Cable TV bills can be a source of
savings, scrutinize to see if you are
using all the services you are paying for. Check for discounts when
bundling phone, TV and internet
services.
Check your cell phone bill. Are
you paying for more minutes than
you are using? Do you need all of
that texting and data service? Can
you do with that old model smartphone? (When the Apple iPhone
5 came out, Verizon Wireless was
offering a free Apple iPhone 4 to
customers.) Can you use a pre-paid
cell phone from a grocery or drug
store?
In winter, turn down the thermostat at night, or install one that
can be programmed to do it automatically.
Entertainment
Check to see if dining out spending
is too high. Tickets for professional sporting events can be expensive. Think minor league baseball in
Prince William County, high school
or college sports for better prices.
Look at county parks for recreation
and lesson opportunities at good
prices. For vacation savings think
closer to home and off season.
Home improvement
Painting, putting in a fence, patio
or deck? Think 'do-it-yourself.' Replacing those old windows on your
house? Yes, it can save a modest
amount on heating bills but the
savings are paltry compared to the
expense of installing new high quality windows. So make the decision
on factors like looks, convenience,
reducing the need for painting and
the feeling of draftiness in winter.
Credit
If you are offered interest-free
transfers to a credit card account,
be sure to factor in the one-time
transfer fee, which can be as much
as four percent or more of the balance transferred. If you make the
transfer, be sure to pay off the balance before the end of the n- interest period or you could be hit with
a large back interest charge. Similarly, be sure to make the required
monthly minimum payment.
96
ered safe ranges, which can differ depending on the lender and on the reason for the loan.
FICO scores
employer for any reason after you are
55 or older, distributions may be taken from a 401(k) without the 10 percent premature distribution penalty.
With IRAs you must wait until you
are 59-and-a-half to escape the penalty. But IRAs provide more investment options.
Cassaday says, "We always recommend a rollover because of the additional flexibility and greater investment options."
Know your FICO score, commonly referred to as a credit score, as reported
on a credit report. It is used by banks,
issuers of credit cards and other lenders when deciding on loan applications.
FICO stands for Fair, Isaac and Company, the firm that first developed the
credit scoring system.
The law allows one free credit report Getting financial advice
moving through life stages
annually from the three credit reporting agencies, Experian, Equifax and Not all of us can profit from or afford
TransUnion. You can get the reports wealth management and high end inonline at Annualvestment advice.
CreditReport.com,
Capital Fiduciary
or by calling 1-800Advisors' John Wolff
322-8228 or by mail,
says there is help no
LIVE on less
after downloading a
matter what your
than you
form from Annualcircumstances.
make and
CreditReport.com.
Individuals or
Consumers have
young couples startthe right to a free
ing out should have
good tax preparacopy of their credtion help, preferably
it score if they are
working with a certurned down for a
loan, or if they are offered a rate oth- tified public accountant. They should
er than the rate that the lender gives
look for a financial planner to help set
its best customers.
long-term goals and strategies, includ The FICO score is built as experiing saving for children's college and a
ence with credit accumulates. The key
secure retirement.
to a good score is to pay on time. If you
They should be maximizing contrimiss a payment, get current as soon as
butions to their retirement accounts.
possible. Try to keep balances below 25
Many employers offer assistance in
percent of the credit limit on accounts. choosing the best investment options
This means you can sometimes raise in the company 401(k) for risk toleryour FICO score by asking your credance and age. As assets accumulate,
it card issuer for an increase in your
they should seek out a financial advicredit limit.
sor for investment advice and portfo FICO scores range between 300 and lio management.
850. A score above 650 generally indi If they are fortunate, as wealth accates a very good credit history.
cumulates, they may need high-end
wealth management services and fi401(k) vs. IRA
nally, an estate attorney.
Retiring with a 401(k) retirement ac "That pretty much covers it," Wolff
count? Leave that nest egg as is? Roll
says.
Orr makes it sound even simpler.
it over into an Individual Retirement
Account (IRA)? There are benefits and He says building wealth is not comdrawbacks to both. Modly says the
plicated, "Live on less than you make
rules are complex. If you leave your
and invest the difference."
in v est the
differ en ce.
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