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This past weekend I took my family to the movies. Now it has been quite a time since we have all gone together and seen a first run movie. To make matters worse we usually go the local theater near our house. It is not your state of the art twenty five theater movie theater, but rather a small 4 theater movie theater with great service and reasonable prices. In fairness we did not go to our regular theater because we waited too long and it was not showing anymore, but it was still showing at the Mega Theater. Understand that I live in Raleigh which is not Boston or New York and I would hope that ticket prices were reasonable everywhere. At $10 each ticket with no discount for students I swallowed hard and purchased the tickets. I chalk that up to a stupid tax for waiting and if that was the end of the price gouging then I would have been happy and you would not be reading this. In our family a movie is not complete without popcorn and a drink. So without thinking I walked up and ordered 2 “special combo packs” one large popcorn and two medium drinks. I was then informed that for only 50 cents more I could upgrade to a large drink. This sounded like a good deal because who wants to get up during the movie and refill your drink. The clerk said that would be $39.50 that is right $39.50 for 4 drinks and 2 bowls of popcorn. I thought I was going to choke. I informed the clerk that maybe she forgot to clear the last sale and she voided the sale and re-entered our order. The same amount. I looked at the board to see exactly how much the “Special Combo” cost but there was no price on the board. I guess even they were ashamed to put the price on the board knowing full well that no reasonable person would pay that much for popcorn and drinks. I swallowed my pride and said that was crazy and we would not purchase two combo’s but only one. We received our dry popcorn and were directed to a dispenser to put our “butter” topping on the popcorn. Fortunately the movie was very good and we enjoyed our evening out.
What can you learn from our misfortune? The first is to ask the costs before you commit to something. I assumed that all movie theaters would charge a similar price for movies. We will never go back to this theater. The second is when ordering anything that does not have a price on it ask and then make your decision. We paid $19.75 for popcorn and drinks, this is almost as much as a dinner out for the entire family and I am sure that neither is on the list of top nutritional choices. The last thing and this bothers me the most is when you pay a premium price for average, if not poor service, let someone know. I sent a note to the owners of the theater informing them of our experience and I received an auto response that they were sorry for my experience. Well as they did in the Bible I am just going to dust off my clothes and never return. Maybe if enough people say this is crazy the theaters will start listening. For those in Raleigh I will not give you the name of the theater that was so bad, but the one that provides a great value is Six Forks Station. Hopefully they will continue to listen to their customers and provide great value.

Thanks
Steve

Last week I hosted a party to formally launch Fee Only Planning NC. I would like to share some of what I learned and apply it to life. I love to cook and have people over to our house. I enjoy good food, music, and great conversations, so it seemed natural to bring all of these elements together in the launch of a company that represented me. The party seemed so easy on paper and in my mind. In reality it was very difficult. The level of stress that bringing all the different components together was incredible. Now each by themselves was not hard, but combined with the others and trying to run my business, well let’s say I did not handle it as well as I could. In the end the venue was great although difficult to find, the food excellent and plenty of it and music over the top. I thank all that were able to attend. I expected 30 to 40 people and 54 showed up. So by all measures it was successful.
The question is why do we stress about things that we love to do? I think the first is that I wanted the evening to be perfect and that it would represent me in a great light. This is pride and it can cause stress. What I found out is that it is about relationships. As I talked with the people they genuinely wanted to support me in my new effort and wished success for me. They wanted to learn about what the new company was all about and would have probably come for hot dogs and chips. So what I was concerned about was not what they expected for the evening. It was me that was magnifying the expectations not my guests and in the end it was me that was creating my own stress. The second area of stress was would they respond positively to me speaking about the differences of my financial planning company and others? I guess we all have experienced that feeling of sitting in a timeshare meeting and waiting for them to finish. But after I was done many came up to me and expressed thanks for explaining what I do and how it differs from what is currently available. So again it was me creating my own stress. Finally the big question in my mind was would it be worth it financially for me host such an event? Well we will have to see about this, but if the first few days are any indication the answer is yes.
Here is my take away from the event. First don’t be afraid to ask for help. Barbara with CCM was great in setting up the room and organizing the venue, Brian was awesome with the music and it could not have been any better. I love to cook and wanted the food to express one of my passions but having help with serving and cleanup was money well spent. Finally having my family there to support me even though I was difficult is priceless. Second don’t interpret your stress as something your guest will have. Lastly enjoy the moment. Once the event started it was an evening that I would do again, but will approach it with a completely different attitude.
What does this have to do with financial planning, nothing, but not everything in life is about financial planning, sometimes it is important to share what we learn.
Have a great New Year.
Steve

Happy New Year
I hope that 2012 is a wonderful year for everyone. As I was reflecting on the past year and listening to the commentators on the TV talk about their “New Year’s Resolutions” I began to think that this is familiar. Each year you hear about the same resolutions. I will eat less, I will go to the gym, I will write thank you notes and so on. But in reality very few of these resolutions are actually implemented long term. I think we want to improve, but we are just not committed to do what is necessary. This past year was a very interesting year for me personally. I started a new company, my daughter started college, and I was diagnosed with Diabetes. I was able to plan for the new company and Meg going to college (but you can never plan enough), the challenge came with the Diabetes. For many years I have struggled with my weight. I knew that I should lose about 30 or 40 pounds and each year I would start at the gym and go on the South Beach Diet and loose 10 or so pounds. It was an annual tradition to show up at the YMCA for about a month and then life got busy and it was soon cut out of my routine. In August I went to urgent care because I thought I had broken my arm and needed an x-ray, I mentioned that I had some cramps in my legs and the doctor took some blood to see what was going on and was going to have a radiologist read the x-ray. The next day we took Meg to college and I got a phone call from my doctor. He told me there was no problem with my arm but I was a diabetic and I needed to get medicine right away. Needless to say this was a shock to me and the next week was quite an education as I read all I could about diabetes. While meeting with my primary doctor she said something that changed the way I approached my weight. She told me either I manage the diabetes or it will manage me. In reality it quickly moved from the resolution to a commitment. I have lost over 40 pounds and have about 10 more to go, but I feel better and watch what I eat as well as when I eat. The lesson I learned from this experience is that when you truly commit to something amazing results can happen. What are the resolutions that you have made that really need to be commitments. If they involve financial planning let me know and I would love to help. The second lesson I learned is don’t wait for it to be a major problem before you commit to addressing the problem. I had known for several years that I needed to do something about my weight. Now my cholesterol, blood pressure and weight are all at normal or better levels and I look forward to the great year ahead.
I wish everyone a healthful and prosperous New Year and let’s move some of those resolutions to commitments.
Steve

I was reading an article in Investment Advisor magazine about the changes in retirement attitudes and thought it worthy of passing along. For many years I worked as a retirement plan specialist and saw great growth of the retirement planning business. This article titled “Retirement Reset” by John Sullivan describes what I have felt since 2008 when the market changed and so did our economy. It is interesting that prior to 1930 there was really no assumption that you would retire and then Social Security was introduced. Social Security was not the comprehensive program that it is today, but the goal was to give people some level of comfort by setting aside some savings. If you remember this is right after the great depression and savings was a high priority for everyone. Since then we have seen a shift from corporate pensions where the employer was responsible for investing the money and providing a benefit to one where the individual is now responsible through their 401(k) or similar plan. In the early nineties and early two thousands many companies discovered the oncoming wave of senior citizens and ramped up their advertising targeted towards them. Campaigns of “live the lifestyle you deserve” or “what is your number” gave the impression that you were entitled to have everything you desired after your working career was over. If you were to somehow save a certain amount of money then you could live comfortably for the rest of your life. In my eighteen years of financial planning I have yet come across a person that had enough saved not worry about finances. Having said that many have lived comfortably, but there is always some worry about money.
So what has changed since 2008? Simply put it is our attitudes. According to Ken Dychtwald 54% of people now view retirement as a new chapter in life rather than winding down. This is up from 38% just ten years ago. People are waiting longer to retire. This has been delayed by 5 years changing from 64 to 69 years of age at retirement. Retirement no longer means the end of work. In fact almost two thirds of those surveyed say they would like to remain productive in retirement. Finally financial peace is now six times more important than accumulating wealth and 82% name it as their key financial goal.
How does all this apply to financial planning? As people plan for retirement the awareness of this paradigm shift in views is critical to planning. People are living longer, eating better, exercising more and learning more about planning for their future. Ten years ago it was a do it yourself mentality and this has shifted to who can I trust to help me make wise decisions. People don’t want to be sold a product or a process. Instead they want to understand how changes affect them and their future. I think this may be a result of a recent Dalbar study that showed that individual investors have averaged only 2.6% on their investments from 1991 to 2010. This is probably different from the retirement projections that factored in a growth rate of 5, 7 or 8%. The reality is that clients have to clearly understand where they are and realize that you can’t change what has happened in the past, but you can change how you approach the future. Retirement is not a guarantee, but can be fulfilling with a little planning both before you retire and after you have retired. I would argue that “peace” can only come from God, but comfort can come from the understanding that you have a plan in place and you monitor it on a regular basis.
I hope everyone has a Merry Christmas and a wonderful New Year. As always let me know if I can answer any of your questions.
Steve

This last Saturday I was watching the NC State Maryland football game. As a Wolfpack fan the first half was miserable. Turnovers and a defense that could not stop anything looked to be the theme for the game. With the score 34 – 14 in Maryland’s favor at the half I thought that the season was over, but being a loyal fan I loaded up a load of yard waste and went to the dump while listening to the game on the radio. At least this way I would get something accomplished and could take out some frustration while cleaning up the yard. The third quarter did not start well either. Maryland scored and it was now 41 – 14. I had all but given up hope, but the team had not. NC State scored on its next 6 possessions to win the game 56 – 41. It was the largest comeback in school history and the second largest comeback in ACC history.
You may be asking what does this have to do with financial planning. I think that with all that has happened with our economy and the lack of confidence we have in both the stock market and the government many have given up hope. If you ask some people we will never be able to repay our national debt, companies will never treat employees fair, and our government will always be corrupt. Now I for one do not believe any of these. As a country we have faced much greater challenges in the past, but when you are deep in the trenches there is the appearance that it is hopeless. It is also important to realize that there are some things that you cannot change. No one person can by themselves change any of these, just like no one football player can bring a team all the way back. But what we can do is exactly what NC State did and that is to make the situation that is before us better today than it was the day before. Or to score each time you have the ball and don’t let the other team score any more. By making today better than yesterday you can look in the mirror to can see small changes add up to amazing results. One touchdown did not bring NC State back to win the game, but when they strung 6 touchdowns in a row together and stopped Maryland from scoring it made history. What are the small things in your life that you need to do better today to make your future better?
If you need help just give me a call and let’s make history.
Steve

This morning I was having breakfast with several men at my church and someone asked me what I do for a living. I told him I was an hourly only financial planner. Based on the look on his face I could tell that he had no idea what that meant. I think this is a problem because if I cannot clearly explain what I do, how will clients know about my services. Later while in the line I was talking with our orthodontist and it hit me. What I provide is very similar to going to a dentist. Every six months I get a friendly reminder that it is time for my dental checkup. I don’t know about you but I immediately look for any excuse to delay the appointment. I need to get the car serviced, I was planning a business trip or there is a 1% chance of rain and I might catch a cold. Any excuse will work. But in the end I go and have the hygienist clean my teeth, take x-rays and wait for a review by my dentist. While waiting I know I am going to be asked did you floss? Do you brush your teeth after every meal? Do you rinse with mouth wash? Do you wear your night guard? I of course know the answers to all of these questions and they are often not what they should be. Knowing this I wait for the report from the dentist. Sometimes it is everything looks great, see you in six months, while other times it is we need to schedule another appointment to fix a crown or fill a tooth. Now I don’t know anyone that likes this, but when you consider the alternatives I am always glad to know and thankful that it can be fixed. I pay my bill and schedule the next appointment in six months and the process starts over again.

The question is why don’t we treat our financial life like we do our teeth? As a Certified Financial Planner TM practitioner I see all kinds of clients. In reality I know some really don’t want to meet with me because we will discuss things that are uncomfortable. But like a filling or a crown you will feel much better knowing it has been addressed. I also think there is wisdom in routine reviews of your finances. The earlier we can identify a potential problem the easier it is to fix. This may be changes in life as well as changes in your portfolios. Our goal is to help clients make wise decisions about their financial life. One of the wisest decisions is to regularly review where you are, how you are progressing towards your goals, and is there anything that needs to be adjusted to give you the best chance of achieving your goals. And like a good checkup at the dentist, confirmation that you do not need any changes is a great outcome. So don’t fear the financial planner.

As always feel free to give us a call in the office or send us an e-mail

Steve Gaito CFP ®
Founder and President
Fee Only Planning NC, LLC

The fact is that people are living much longer to day then they were 20 years ago. This creates additional importance on how much you save for retirement and the decisions you make on the specific investments to grow your retirement. Most people’s largest investment is in their employer’s retirement plan. These are 401(k), 403(b) and defined contributions plans offered by an employer. The challenge is that creating an efficient portfolio within these plans is very difficult. While it may be relatively easy to choose the best performance based on historical data, the challenge is evaluating how much risk the specific investment had to take to achieve the performance. A key component to building an efficient portfolio is to have a lower standard deviation with as high a return as possible. Let me illustrate this with 2 portfolios:

Portfolio A
Return
50%, -25%, 10%
$100,000 Investment
$150,000 , 112,000 , $123,200
Investment Return
Percentage 11.67%, Dollars $23,200

Portfolio B
Return
10%, 10%, 10%
$100,000 Investment
$110,000 , $121,000 , $133,100
Investment Return
Percentage 10.00% , Dollars $33,100

This illustration shows how using a lower standard deviation can actually put more money in your account. Isn’t that your goal?

The second challenge is that most employers select investment choices based on the percentage of return and so do most participants. After all why wouldn’t you want to have the best return? Hopefully you now understand why this way of selecting investments is flawed. By actually comparing all of the choices available in your plan on a risk adjusted basis we create custom efficient portfolios for our clients. This is based on what is available and the risk tolerance of the client. Matching your risk tolerance to your goals is very important to feeling comfortable about your progress. A great example is the story of the tortoise and the hare. We all know who wins in the end. It is very important to understand that an efficient portfolio does not guarantee you will not lose money, nor does it mean that you will have a better return. To use a baseball analogy one home run can win a game but your chances of success rise with the more singles you hit on a consistent basis.

Getting started is easy. We already have the models set up for NC State University 403(b) plans, The University of North Carolina Optional Retirement Plans for all campuses, Meredith College, Wake County Public Schools and several small businesses. All of these models are developed without any bias that comes from the company servicing the investments. So our clients get a truly unbiased portfolio that offers the most efficient portfolio based on the limited investments in the plan. We can also integrate in your personal holdings to develop a comprehensive summary of all of your investments. At Fee Only Planning NC we do not sell any commissioned product or gather assets under management for an asset based fee.

This is one of three core services that Fee Only Planning NC provides. The other two areas are hourly only financial planning and portfolio monitoring. If you have any questions about any of our services please contact us at (919) 341-0277 or info@feeonlyplanningnc.com.

Thank you,

Steven W Gaito CFP®
Founder and President

You want the most return for your money? You don’t want to see it all disappear in one day. How do you balance the need for return with the risk associated with your goals? This is done through the implementation of an efficient portfolio. I have been in the financial services industries for over 18 years and there are many terms used that simply confuse people. The bottom line is by using a few measurements you can create a portfolio that historically has less risk and more return. It is important to note that I said historically. This is because there is no guarantee of future results and portfolios are created based upon past results. But you have to start somewhere. A few of the measurements that I utilize when I evaluate or create portfolios are, Alpha, Beta, Standard Deviation, Excess Returns, Upside and Downside capture ratios and correlation.
To help let me define these terms.
• Alpha is a measurement of additional value a manager provides above an established benchmark. Positive alpha indicates more value and negative alpha indicates less value over the index.
• Beta measures the volatility of the fund compared to the index. For example if the beta was 1.3 it would be 30% more volatile than the benchmark. If it was .8 it would be 20% less volatile than the benchmark.
• Standard Deviation is used to measure the volatility of the investment.
• Excess Returns usually measures the returns above or below the index.
• Upside and Downside Capture Ratios measure how much a fund participates in the market. For example if a fund has an upside capture ration of 110 it would expect to produce 10% more return than the market. If the downside capture ratio was 50 than it would expect to have half of the loss of the market. So you want to find higher upside ratios with low downside ratios.
• Correlation. This is how similar the investments are to each other. High correlation leads to greater volatility in a portfolio. You do not want a basket of apples or even a basket of fruit; you want a well balanced meal with meat, vegetables, bread, and dairy from all over the world.

For most people is gathering all these statistics and creating the portfolios. As a Certified Financial Planner TM Practitioner I have tools that provide this information on a daily basis. And quite honestly you are probably better off understanding the need for an efficient portfolio than building one yourself. I compare this to working on a car. I am perfectly happy getting in my car turning the key and going where I want. I understand that from time to time the car will need maintenance and I am happy to pay for it to keep the car running well.

A big challenge we have is with our employer 401(k) or 403(b) plans. Most employees do not have input into the choices, so they are limited in how efficient they can make their portfolio. But the goal is to move towards an efficient portfolio that has less historical risk and more historical return.

As a service I have done some analysis on the UNC System Optional Retirement Plan (ORP) as well as the 403(b) options for NCSU. If you would like to discuss how to utilize an efficient portfolio in these plans just give us a call in the office (919) 341-0277 or send us an e-mail info@feeonlyplanningnc.com. If you would like us to evaluate your employer’s options we are happy to discuss this too. One of the main goals of Fee Only Planning NC is to help people make wise decisions about their finances. We believe that education is part of that process.
Thanks
Steve

Well with all the hoopla about the debt ceiling and the potential collapse of the world. It is comforting to know that our leaders in Washington can come together and create a Public Relations event that helps them get reelected. After all isn’t that the reason we send them to Washington.
Well enough of this, we all know there are problems in Washington. Last approval rating for congress was seventeen percent. What does it all mean? They gave themselves more money to spend. In the end this may have been their only option because the two options for addressing the debt ceiling is reducing spending and/or increasing taxes. In my opinion both would have a severe negative impact on our economy. The time to deal with this was in good times, but since we did not do this congress in essence rolled all their credit card debt into their mortgage and left the house to the kids. Our federal budget process is all messed up. The cuts are in expected increases to future budgets, so basically they increase spending by billions and take some of it back and call it a cut. As a financial planner it is hard to wrap my head around this method. Every day I have to explain to clients that the best way to get out of debt is to stop spending and save. Not go out and get another credit card. This problem in Washington did not start this year. It has taken many years and both parties to build such an enormous debt. It will take many years to work our way out of this. It will require changes to sacred cows commonly known as entitlement programs. I am not for taking grandma’s social security check or short changing our military, but I have to believe that since mortality tables (how long people are expected to live) have changed so should the age that people can start receiving benefits. Corporations figured out that defined benefit plans are too expensive to fund and one day it will become apparent to congress that the same applies to social security.
I believe that the best way to address the problem is to grow economy. This is really not a difficult task, but for a politician it seems to be that way. Goal one should be to make the United States the best place in the world to do business. Cut the corporate tax rate to zero. Basically we are not getting these taxes anyway from large corporations. They have headquarters in other countries or use tax loopholes to avoid a majority of taxes. This leaves paying corporate taxes to small and midsize businesses. Ironically they are the ones that create real growth in our economy. This will create more jobs and more jobs mean more revenue for the government. The key is that like helping get a person out of debt the excess revenue needs to go towards debt reduction not additional spending.
The next area is our tax system. I have for a long time been a proponent for the “Fair Tax” Having read several options this tax system is the fairest to all and should create a windfall for the country. Best of all it allows each person to control the amount of taxes they pay. This is because the taxes are collected on purchases. If you have not read the book, I encourage you to read it before you judge it. It changed my mind and I think if you read it you will agree that this is the best way to increase revenue and solve some of our complicated tax issues.
I am glad that congress thinks that they have solved the problem, but it may have been their intent from the beginning. Never let a good crisis go to waste.
If you need help with your own finances please let us know. We would be honored to help.
Steve