The Joys and Financial Challenges of Parenthood

Children are special. There’s nothing like them. They can be our sweetest blessing, as well as our biggest frustration. Most of all, however, they are our greatest responsibility, as well as our most important–and expensive–commitment.

Whether you are a first-time parent or a veteran of refereeing sibling squabbles and who-put-the-empty-milk-carton-back-in-the-fridge inquisitions, parenthood can be both wonderfully rewarding and frighteningly challenging. Our children give us gifts only a parent can understand–from sticky-finger hugs to heartfelt pleas to tag along on Saturday morning errands. We raise them with a clear goal that we secretly dread will actually take place–that someday they will be grown, independent, ready to move out into the world on their own, and our work will be over. As our children travel this long and never-dull road from infancy to adulthood, we nurture them, worry about them, scold them, love them. Most of all, we try to protect them. We want them to grow up in a stable world, one in which they are physically safe, emotionally nurtured, and financially secure. Still, meeting expenses can be a challenge.

How expensive is raising a child?

The United States Department of Agriculture estimates that the average nationwide cost of raising one child in a two-parent family from cradle to college entrance at age 18 ranges from $176,550 to $407,820 depending on income. (Source: Expenditures on Children by Families, 2013, released August 2014) Then, when they turn 18, add in college expenses, and your financial outlay can get even worse. How much worse? According to the College Board, for the 2014/2015 school year, the average cost of one year at a four-year public college is $23,410 (for in-state students), while the average cost for one year at a four-year private college is $46,272 (the total cost of attendance includes tuition and fees, room and board, books and supplies, transportation, and other miscellaneous costs). Even if those numbers don’t go up, that would come to $93,640 for a four-year degree at a public college, and $185,088 at a private university (and college costs have increased each year for decades). Oh, and don’t forget graduate school.

The bottom line: Children are expensive! Between raising them and educating them and making sure they get a good, strong start in life, one thing is obvious when it comes to children–they are a major responsibility. Fortunately, as long as we remain alive and healthy, we manage to somehow meet these expenses.  It’s part of what parenthood is all about.

Have you taken steps to protect them?

But here’s a question you need to consider: What would happen to them if something happened to you? No, it’s not the kind of question we like to dwell on. But these matters are important. This is why many financial professionals recommend that, above and beyond the day-to-day efforts to provide for their children, parents should take specific steps to help protect their financial well-being.

Review your life insurance coverage

Life insurance is an effective way to protect your family from the uncertainty of premature death. Life insurance can help assure that a preselected amount of money will be on hand to replace your income and help your family members–your children and your spouse–maintain their standard of living. With life insurance, you can select an amount that will help your family meet living expenses, pay the mortgage, and even provide a college fund for your children. Best of all, life insurance proceeds are generally not taxable as income. Keep in mind, though, that the cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance.

Consider purchasing disability income insurance

If you become disabled and unable to work, disability income insurance can pay benefits–a specific percentage of your income–so you can continue meeting your financial obligations until you are back on your feet. What about Social Security? If you do become permanently and totally disabled and are unable to do work of any kind, you may be eligible for benefits, but qualifying isn’t easy. For more flexible and comprehensive protection, consider buying disability income insurance.

Start building a college fund now

College costs may seem daunting (and they are expected to continue increasing), but you have about 18 years before your newborn will be a college freshman. By starting today, you can help your children become debt-free college grads. The secret is to save a little each month, take advantage of compound interest, and have a sum waiting for you when your child is ready for college.

The following chart shows how much money might be available for college when your child turns 18, if you save a certain amount each month.

Child’s Age Now $100/month $200/month $300/month $400/month
Newborn $38,735 $77,741 $116,08 $154,941
4 $26,231 $52,462 $78,693 $104,924
8 $16,388 $32,776 $49,164 $65,552
10 $12,283 $24,566 $36,849 $49,132
14 $5,410 $10,820 $16,230 $21,640
16 $2,543 $5,086 $7,629 $10,172
Table assumes an after-tax return of 6%, compounded monthly. This is a hypothetical example and is not intended to reflect the actual performance of any investment.

 

But keep saving for your own retirement, too. Many well-intentioned parents put their own retirement savings on hold while they save for their children’s college education. But if you do so, you’re potentially sacrificing your own financial well-being. Finally, enjoy watching your children grow up. And remember, just as they are important to you, you are important to them. Make sure they’re protected financially.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, Pfizer, Verizon, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Handling Market Volatility

Conventional wisdom says that what goes up must come down. But even if you view market volatility as a normal occurrence, it can be tough to handle when your money is at stake. Though there’s no foolproof way to handle the ups and downs of the stock market, the following common-sense tips can help.

Don’t put your eggs all in one basket

Diversifying your investment portfolio is one of the key tools for trying to manage market volatility. Because asset classes often perform differently under different market conditions, spreading your assets across a variety of investments such as stocks, bonds, and cash alternatives has the potential to help reduce your overall risk. Ideally, a decline in one type of asset will be balanced out by a gain in another, though diversification can’t eliminate the possibility of market loss.

One way to diversify your portfolio is through asset allocation. Asset allocation involves identifying the asset classes that are appropriate for you and allocating a certain percentage of your investment dollars to each class (e.g., 70% to stocks, 20% to bonds, 10% to cash alternatives). A worksheet or an interactive tool may suggest a model or sample allocation based on your investment objectives, risk tolerance level, and investment time horizon, but that shouldn’t be a substitute for expert advice.

Focus on the forest, not on the trees

As the market goes up and down, it’s easy to become too focused on day-to-day returns. Instead, keep your eyes on your long-term investing goals and your overall portfolio. Although only you can decide how much investment risk you can handle, if you still have years to invest, don’t overestimate the effect of short-term price fluctuations on your portfolio.

Look before you leap

When the market goes down and investment losses pile up, you may be tempted to pull out of the stock market altogether and look for less volatile investments. The modest returns that typically accompany low-risk investments may seem attractive when more risky investments are posting negative returns.

But before you leap into a different investment strategy, make sure you’re doing it for the right reasons. How you choose to invest your money should be consistent with your goals and time horizon.

For instance, putting a larger percentage of your investment dollars into vehicles that offer safety of principal and liquidity (the opportunity to easily access your funds) may be the right strategy for you if your investment goals are short term and you’ll need the money soon, or if you’re growing close to reaching a long-term goal such as retirement. But if you still have years to invest, keep in mind that stocks have historically outperformed stable-value investments over time, although past performance is no guarantee of future results. If you move most or all of your investment dollars into conservative investments, you’ve not only locked in any losses you might have, but you’ve also sacrificed the potential for higher returns.

Look for the silver lining

A down market, like every cloud, has a silver lining. The silver lining of a down market is the opportunity to buy shares of stock at lower prices.

One of the ways you can do this is by using dollar-cost averaging. With dollar-cost averaging, you don’t try to “time the market” by buying shares at the moment when the price is lowest. In fact, you don’t worry about price at all. Instead, you invest a specific amount of money at regular intervals over time. When the price is higher, your investment dollars buy fewer shares of an investment, but when the price is lower, the same dollar amount will buy you more shares. A workplace savings plan, such as a 401(k) plan in which the same amount is deducted from each paycheck and invested through the plan, is one of the most well-known examples of dollar cost averaging in action.

Although dollar-cost averaging can’t guarantee you a profit or avoid a loss, a regular fixed dollar investment may result in a lower average price per share over time, assuming you continue to invest through all types of market conditions. (This hypothetical example is for illustrative purposes only and does not represent the performance of any particular investment. Actual results will vary.)

Making dollar-cost averaging work for you

  • Get started as soon as possible. The longer you have to ride out the ups and downs of the market, the more opportunity you have to build a sizable investment account over time.
  • Stick with it. Dollar-cost averaging is a long-term investment strategy. Make sure you have the financial resources and the discipline to invest continuously through all types of market conditions, regardless of price fluctuations.
  • Take advantage of automatic deductions. Having your investment contributions deducted and invested automatically makes the process easy and convenient.

Don’t stick your head in the sand

While focusing too much on short-term gains or losses is unwise, so is ignoring your investments. You should check your portfolio at least once a year–more frequently if the market is particularly volatile or when there have been significant changes in your life. You may need to rebalance your portfolio to bring it back in line with your investment goals and risk tolerance. Don’t hesitate to get expert help if you need it to decide which investment options are right for you.

Don’t count your chickens before they hatch

As the market recovers from a down cycle, elation quickly sets in. If the upswing lasts long enough, it’s easy to believe that investing in the stock market is a sure thing. But, of course, it never is. As many investors have learned the hard way, becoming overly optimistic about investing during the good times can be as detrimental as worrying too much during the bad times. The right approach during all kinds of markets is to be realistic. Have a plan, stick with it, and strike a comfortable balance between risk and return.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, Merck, access.att.com, ING Retirement, AT&T, Qwest, Chevron, ExxonMobil, Hughes, Northrop Grumman, Raytheon, Glaxosmithkline, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

4 Money Blunders That Could Leave You Poorer

A “not-to-do” list for the new year & years to follow.

How are your money habits? Are you getting ahead financially, or does it feel like you are running in place?

It may come down to behavior. Some financial behaviors promote wealth creation, while others lead to frustration. Certainly other factors come into play when determining a household’s financial situation, but behavior and attitudes toward money rank pretty high on the list.

How many households are focusing on the fundamentals? Late in 2014, the Denver-based National Endowment for Financial Education (NEFE) surveyed 2,000 adults from the 10 largest U.S. metro areas and found that 64% wanted to make at least one financial resolution for 2015. The top three financial goals for the new year: building retirement savings, setting a budget, and creating a plan to pay off debt.1

All well and good, but the respondents didn’t feel so good about their financial situations. About one-third of them said the quality of their financial life was “worse than they expected it to be.” In fact, 48% told NEFE they were living paycheck-to-paycheck and 63% reported facing a sudden and major expense last year.1

Fate and lackluster wage growth aside, good money habits might help to reduce those percentages in 2015. There are certain habits that tend to improve household finances, and other habits that tend to harm them. As a cautionary note for 2015, here is a “not-to-do” list – a list of key money blunders that could make you much poorer if repeated over time.       

Money Blunder #1: Spend every dollar that comes through your hands. Maybe we should ban the phrase “disposable income.” Too many households are disposing of money that they could save or invest. Or, they are spending money that they don’t actually have (through credit cards).

You have to have creature comforts, and you can’t live on pocket change. Even so, you can vow to put aside a certain number of dollars per month to spend on something really important: YOU. That 24-hour sale where everything is 50% off? It probably isn’t a “once in a lifetime” event; for all you know, it may happen again next weekend. It is nothing special compared to your future.

Money Blunder #2: Pay others before you pay yourself. Our economy is consumer-driven and service-oriented. Every day brings us chances to take on additional consumer debt. That works against wealth. How many bills do you pay a month, and how much money is left when you are done? Less debt equals more money to pay yourself with – money that you can save or invest on behalf of your future and your dreams and priorities.

Money Blunder #3: Don’t save anything. Paying yourself first also means building an emergency fund and a strong cash position. With the middle class making very little economic progress in this generation (at least based on wages versus inflation), this may seem hard to accomplish. It may very well be, but it will be even harder to face an unexpected financial burden with minimal cash on hand.

The U.S. personal savings rate has averaged about 5% recently. Not great, but better than the low of 2.6% measured in 2007. Saving 5% of your disposable income may seem like a challenge, but the challenge is relative: the personal savings rate in China is 50%.2

Money Blunder #4: Invest impulsively. Buying what’s hot, chasing the return, investing in what you don’t fully understand – these are all variations of the same bad habit, which is investing emotionally and trying to time the market. The impulse is to “make money,” with too little attention paid to diversification, risk tolerance and other critical factors along the way. Money may be made, but it may not be retained.

Make 2015 the year of good money habits. You may be doing all the right things right now and if so, you may be making financial strides. If you find yourself doing things that are halting your financial progress, remember the old saying: change is good. A change in financial behavior may be rewarding.         

Citations.

1 – denverpost.com/smart/ci_27275294/financial-resolutions-2015-four-ways-help-yourself-keep [1/7/15]

2 – tennessean.com/story/money/2014/12/31/tips-getting-financially-fit/21119049/ [12/31/14]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, Verizon, Bank of America, ExxonMobil, Pfizer, hewitt.com, resources.hewitt.com, access.att.com, Qwest, Chevron, ING Retirement, AT&T, Hughes, Northrop Grumman, Raytheon, Glaxosmithkline, Merck, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

Unit Investment Trusts

Despite offering certain distinct advantages for an investor, unit investment trusts (UITs) are not nearly as familiar to most people as, say, mutual funds. According to data compiled by the Investment Company Institute (ICI), in 2013 mutual funds held roughly 173 times as much money as all UITs did. But as a greater diversity of UITs have been introduced, they have become more popular as an investment vehicle.

Historically, most unit investment trusts have invested in bonds, especially municipal bonds. However, in recent years, equity UITs have taken the lead.

What is a unit investment trust?

Like a mutual fund, a UIT represents a collection of individual securities. However, unlike a mutual fund, it has a specified termination date. A UIT can last as little as a year, or 30 years or more. A bond UIT’s termination date coincides with the maturity dates of the bonds it holds; an equity UIT specifies its termination date. Once that date is reached, the proceeds are either distributed to investors or, in some cases, reinvested in another trust.

When a UIT is launched, it buys a collection of securities that typically does not change throughout the life of the trust. By comparison, the portfolio manager of an actively managed mutual fund may buy and sell individual securities at any time based on his or her judgment about their prospects. Also, a UIT is free to hold only a handful of securities; most mutual funds are required to have far more individual holdings to achieve a minimum required level of diversification. In some cases, a UIT will invest in a particular subset of an index, hoping to outperform the index itself.

Once a UIT is launched, UIT sponsors are required to buy back an investor’s shares at their net asset value, which is based on the market value of the UIT’s individual holdings. Some also maintain a secondary market that enables investors to purchase UIT shares that have been redeemed by other owners.

A UIT is an easy way to diversify, particularly in the case of bonds. Though it’s not impossible to assemble a well-diversified portfolio of individual securities, the minimum investment required by each individual bond means that achieving the appropriate level of diversification can require a substantial investment.

Advantages of a UIT

Relative certainty about specific holdings

With a UIT, you know the specific securities in which you’re investing at all times; a list of them must be included in the UIT’s prospectus. With an actively managed mutual fund, you’re relying on the portfolio manager’s expertise in trading and securities selection, and the fund’s holdings may change depending on the manager’s view of what is likely to be most profitable. Knowing exactly what’s in your UIT gives you a greater ability to tailor your other holdings accordingly.

A UIT also can be a way to avoid overweighting a particular security in your portfolio. For example, let’s say your employer represents a substantial part of the S&P 500, and you’ve accumulated many shares of its stock as part of your compensation. Investing in an S&P 500 index mutual fund would automatically add to your holdings of company stock, potentially leaving you with an inappropriate overweighting. A UIT’s transparency can help you avoid being too heavily concentrated in a single security.

The stability of a UIT’s holdings allows you to gauge more precisely whether a specific UIT is appropriate for your individual situation and risk tolerance. In the case of a bond fund, it also can mean greater reliability of income; unless an issuer defaults or calls a bond, the income stream from a UIT is likely to be relatively predictable over the life of the fund. (Remember, however, that a UIT’s total return is based not only on interest but also on the market value of the UIT’s holdings, which can vary.)

Professional securities selection

A UIT’s holdings are chosen by a professional money manager and designed to further a particular investment objective. That factor is especially important with a UIT. Because the securities themselves don’t change over the life of the trust, it represents a classic “buy-and-hold” strategy, so the selection of specific securities is critical.

Ease of focusing on a specific strategy or sector

UITs can be an easy way to concentrate on a market sector or implement a specific investing strategy. For example, one-year UITs that pursued the “Dogs of the Dow” strategy–buying the 10 Dow Industrial stocks with the highest yields at the beginning of the year and then replacing them at the end of the year–were some of the earliest equity UITs. Also, because a UIT is free to invest in a very limited number of securities, it can focus on what the trust’s sponsors consider the best investing ideas, without having to include lesser prospects simply to achieve a certain diversification level.

Cost efficiencies

Because a trust doesn’t trade frequently, it avoids much of the trading costs incurred by investors in a mutual fund with a high turnover ratio. Infrequent or nonexistent trading also means that a trust typically has little or no portfolio management fees. And because a UIT does not generally market shares to the public after the initial offering, UITs generally do not charge the ongoing marketing fees that many mutual funds do. Finally, because UITs don’t have to hold a large cash position to take care of unitholder redemptions, more of your investment is free to be put to work.

Tax advantages

Because it doesn’t trade frequently, a UIT is unlikely to generate much capital gains liability from year to year. By contrast, a mutual fund that has realized capital gains is required to distribute those to shareholders each year; that can create a tax liability for the fund’s shareholders. For example, if a mutual fund is forced to sell shares to meet shareholder redemptions, the fund might realize capital gains that are taxable to you even if the fund has lost money. A UIT generally doesn’t have to sell securities to meet investor redemptions, and therefore doesn’t incur capital gains liabilities to pass on to unitholders.

Factors to be aware of

Purchasing a UIT may involve sales charges

Before investing in a UIT, you should understand how much you’re paying to do so. Find out how much of your purchase represents any initial sales charge, or whether a deferred sales charge will be imposed when you sell your units. Also, find out whether purchasing more units would qualify you for a discount on any sales charges; in many cases, if you purchase more than a certain amount–what’s known as a breakpoint–the sales charge percentage may be reduced.

Gauging performance can be challenging

A UIT that represents a unique selection of securities may be difficult to compare to an appropriate benchmark in order to gauge its performance, particularly if the UIT is newly launched. A UIT’s sponsor may provide performance data based on backtesting a particular time frame or strategy, using historical data to gauge how the UIT’s holdings would have performed in the past. However, past performance is no guarantee of future results, and your UIT’s performance could be very different.

A limited number of investments means less diversification

As stated earlier, a UIT is free to focus on a limited number of securities; for example, a UIT might invest in the 20 securities in the S&P 500 that have had the highest yields over the last 10 years. However, that concentration means that if one of those 20 companies runs into trouble, it will have a greater impact on the value of your investment than if you were invested in all 500 S&P stocks. Remember that you’re generally married to a UIT’s specific investments as long as you hold your units. If the value of those holdings plummets, you not only would suffer from that loss in value but also might have difficulty selling your shares on the open market, as many holders of Internet UITs found out when the tech bubble burst.

The value of your investment can fluctuate

Even though your UIT’s holdings won’t change, their value can fluctuate. As a result, your UIT’s units may or may not be worth what you paid for them when the UIT reaches its termination date. That’s particularly true for equity UITs; a bond UIT’s sensitivity to interest rate changes declines as it nears its termination date.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, Hughes, Northrop Grumman, AT&T, Qwest, Chevron, Raytheon, ExxonMobil, Glaxosmithkline, Bank of America, Merck, Pfizer, Verizon, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.