Atlanta Planning Guys

As you have probably heard, the Dow Jones Industrial Average closed at an all-time high yesterday (14,253.77).  The previous high was achieved way back on October 9^th, 2007 (14,164.53).  If you had somehow been on a tropical island with no access to TV, newspapers, or the internet during that time you would have missed a wild ride.

 Some events of the last 5 ½ years (not necessarily in chronological order):

• The housing bubble burst – causing foreclosures, bankruptcies and severe damage to the banking system in this country and the rest of the world – Fannie Mae and Freddie Mac reeling
• Lehman Brothers, one of the oldest firms on Wall St, collapsed
• On March 6, 2009 the DJIA closed at 6443.27
• Bank of America buys Merrill Lynch at a fraction of what it was trading for just a few months earlier
• Some 3 month treasury notes traded (at least momentarily) with a NEGATIVE yield. 
• Unemployment in the USA went well over 10%
• Quantitative easing
• Downgrade of US debt – once considered the safest in the world
• European sovereign debt crisis (Greece)
• Flash crashes
• 100+ point swings in the Dow – Volatility that has never been seen before
• 10 year Treasury note yields reached 200 year lows of 1.44%
• Auto bailout
• TARP
• Bank bailout – “Too Big To Fail”
• Health care debate
• Debt ceilings
• Sequestering

I am sure that we could add several items to the list. 

During the height of the crisis we sent out emails or wrote blogs multiple times a week.  Most of them were meant to encourage good investor behavior and prevent reactions such as selling at what could be precisely the worst time.  Virtually every client we spoke to was scared – so were we.

I remember there were two concepts I put a lot of faith in at the time:

• It is impossible to predict when the market would turn around
• When it does turn around, it will turn around very quickly

I must admit that my faith in what the textbooks said about proper investing behavior during bear markets was being put to a serious test.  In November 2008, I wrote this blog: http://atlantaplanningguys.com/?p=86 (I also remember not being 100% sure that I believed what I was writing).  In it, I laid out four keys to investing over the next year.  They were:

• Review to see that our clients’ investments are diversified.  A mix of large, medium, and small companies. Domestic and foreign. Equity, fixed income, and alternative.  Are there any gaps in allocation?
• Pay close attention to small cap investments.  This asset class has typically been the first to rally when past bear markets have come to an end. 
• Fixed income may be an important asset class going forward.  The spread between corporate bonds and government bonds is among the largest in history.  If, or when, these spreads contract, corporate and municipal fixed income investors could be rewarded nicely.
• Stay in the market.  History has shown that the turn-around from a market bottom can be very rapid.

No one could have imagined that March 9^th, 2009 would be the bottom.  No one could have imagined that the market would go from 6443.27 on that day to end 2009 at 10,428.05 (a gain of almost 62%!) and to close on March 5^th 2013 at 14,253.77 (a gain of over 221% in less than 4 years).  As recently as November 26^th 2012, TIME Magazine published an article titled “Why Stocks are Dead and Bonds are Deader”.

The market closing at a high shouldn’t be an indication that “everything is okay”.  We should fight the urge to forget about what we just went through and avoid looking at this as the “time to get in”.  Instead, we should remember some key lessons:

• The market can go up and down – and it can do both quickly and without warning
• Financial crises are a real threat.  They happen periodically.  Most people will go through multiple crises in a lifetime of investing
• Systematically adding money to a retirement account during a market downswing will be rewarded if the market turns around
• Diversification is important
• Predicting what the market will do over a short period of time impossible – Financial publications and TV channels are entertaining, but are consistently poor market forecasters
• Real estate prices don’t always go up
• Managing downside risk is just as important to the long term success of a portfolio as capturing upside returns

Summary: Athletes earn their money very quickly. Their careers don’t last very long. They are very young when they retire and have unusually long “distribution phases”. Since they usually don’t earn much after their playing days are over, they typically are in financial ruin very soon after retirement. Having all of the money at once clouds the reality of what that sum of money can support for an extended period of time. Obvious statement – they should live on far, far less than they do.

The ESPN 30 for 30 documentary, aptly titled “Broke”, is full of tales of excess, bad advice, and bad investments. It is a sobering documentary that explores the fact that so many of our retired athletes are flat broke. Many within just a couple years of retiring. I have always been surprised by most people’s reaction to these types of stories.

It seems to me that, universally, people are appalled or shocked when they hear of a big-time athlete or entertainer going broke. “What a dummy! How could someone who earned (insert really big number here) be broke?”

But, why are we all sure that this wouldn’t happen to us?

I contend that the vast majority of people, thrown into the same situation, would experience the same fate.

It seems that Americans have a natural tendency to live RIGHT AT their income level. I don’t need to quote national savings rates or other statistics to validate this assertion. It’s just my gut instinct. Income is relative too. I think many people who make $50,000 (approximately the median income in this country) are just as disgusted when they read about a foreclosure on a $600,000 home that was owned by someone making $200k. “What a dummy! If I had all that extra money, I know I wouldn’t have gone broke!”

Athletes and entertainers do earn a lot of money. They also earn it quickly. More money than almost everyone will earn in their lifetime comes in just 3 or 4 years for an average NFL player. It’s this lump sum payment that causes such a problem.

See. The rest of us have a safeguard in place. Like bumpers in a bowling alley. It stops us from getting in too deep. We only get paid periodically and we earn our lifetime income over our lifetime. Not in just a few years.

Let’s say that someone earned 100k per year and was 35 years old. This person could expect to earn about 4 million bucks between now and 65. I just assumed a few raises and a promotion or two.

That 4 million will provide for her for the next 30 years while she is working AND (hopefully) some of that money was socked away to provide for retirement. The goal should be a big enough nest egg accumulated to supplement her social security.

She is never going to get a lot more than 100k (before taxes) in a single year to spend during her working years. This is a very powerful safeguard.

Imagine giving this same employee 4 million bucks upfront and then taxing it so she is left with 2.5 million. That’s it. You will not earn another dollar for the rest of your life. You are 35 years old. What would you do?

The “Sustainable Withdrawal Ratio” is just a little over 4.5% of a lump sum of money. This also has only been tested for 30 year time frames. The woman above, realistically, has a 60 year time frame! This would mean that she should spend less than 4.5% of her nest egg for it to last that long.

Having all that money staring her in the face, I think she would buy a nicer house, a nicer car. Maybe a more lavish vacation. She is in the beginning stages of financial ruin.

So what should Mr. Star Running Back (SRB) do? He is 24. He was drafted high in the first round and received a four-year contract worth $15 million. He will have to pay taxes and an agent. After taxes this should amount to around $7.5 million bucks.

Mr. SRB will, in all likelihood, not sign another contract after this one. It would be extremely fortunate if he did, but the numbers say no. He will be 28 and retired. Hopefully he earned his degree and can pick up a second career. But let’s be conservative and help Mr. SRB see some realistic, and LIKELY, scenarios.

He could live for 60 years, or more. We know that his spending should be south of the 4.5% Sustainable Withdrawal Ratio that has only been tested for a 30 year time frame. So let’s use 4% of $7.5 million.

Mr. SRB should develop spending habits that are commensurate with a $300,000 per year income. If he did this, he would have a legitimate chance of living that way for the rest of his life. He would be able to increase that income by inflation every year. He might even have a nice sum of money left at the end to leave to his heirs. He could, in effect, be pretty close to a “1 percenter” for the rest of his life.

As I type this next sentence, I have a smirk on my face. I see why so many people are shocked and appalled. BUT. Mr. SRB is going to have a very tough time living on such a “small” income.

If he commits to anything much more than a 750K house and two nice cars (not the kind that turn heads) , he is either on the road to financial ruin or he BETTER sign a second contract or have a solid job lined up for when his playing days are over.

It would take a lot of courage and wisdom to avoid the temptation to “keep up with the Joneses”.

The best observation in “Broke” was from an athlete quoting a mentor: “You can live like a king for a few years. OR you can live like a prince forever.” Unfortunately, many athletes seem to go the king route.

Effective January 1, 2012, the following articles are historical and based on information that was current at the time of initial print. They contain information that has changed. Staff and business names may have changed. We now offer financial planning through Chappell Financial Group, A Registered Investment Advisor and separate entity from LPL Financial.

Fox 5 Atlanta asked us for some tips that parents could give their recent college graduate children about finance, spending, and saving (see the clip here).  Here are my top five, though there are certainly many others:

Contribute at least as much as the employer match to your 401(k)

This is a “no brainer.”  The employer match is free money, though you must contribute your own money to receive it.  A typical employer match might be 3 or 4% of salary.  Given that these are pre-tax contributions, contributing to your 401(k) will not reduce your take-home pay by as much as you might think.  By all means, if you can put more than that towards your 401(k), do it! Just be sure that, at a bare minimum, you are contributing up to what your employer will match.

Be aggressive

Most retirement plans should be thought of as long term investments.  With a few exceptions, you can’t easily access the money in a retirement plan until you are 60, so take advantage of the fact that you have a long-term investment horizon by investing in equities and other asset classes that may involve a bit more risk than others.  Over 30 year time frames, investments in equities (stocks) have outperformed investments in fixed income (bonds).  Past performance is no guarantee of future results, but I like your chances of success by staying aggressive when you are young.

Don’t stop – EVER

Recessions and market downturns are a fact of life.  Between now and when you retire you can expect to experience a few more of them. If you are contributing on a systematic basis (monthly or bi-weekly through your paycheck), then a market downturn can be looked at as an opportunity.  Many employees stopped contributing to their 401(k) in 2008 and 2009 because of the financial crisis—the worst time to stop contributing.  When the market dips, and you are contributing consistent amounts of money, you will be accumulating more of that particular investment since it is now less expensive.  When the market turns around, you will be greatly rewarded for having stuck with it.  Many people who continued to invest right through the crisis have been pleasantly surprised when they opened their most recent retirement plan statements.
 

Don’t buy a townhouse or condo just because you can afford to

 
Atlanta has an abundance of condos and townhouses for sale right now.  Many of these properties are for sale by people in their late 20’s or early 30’s who bought them right out of college.  The thinking was “why pay rent when I can build equity in real estate?”  As these people got older and got married or had children, many wanted to move into a house.  When the housing bubble burst, many of these townhouses and condos couldn’t be sold for what the seller paid for them.
Remember, it costs money to both acquire and sell a piece of property.  If you are only going to live in the place for a few years, is it really likely that the property will appreciate enough to offset the acquisition and disposition costs?  Instead of buying a property like this, rent within your means for awhile.  Build up a reserve of money so that when you are ready to move into a house you can make a sizable down payment and therefore borrow less. 

Force yourself to save

The 401(k) is a great tool.  But it is money for retirement.  What about saving money to buy a car?  Or a house?  There are several online brokers who charge very low fees to open and maintain separate savings accounts.  Even having them draft $25 per month from your checking account can make a difference.   My experience has been that people are much more successful saving and investing money when it is automatically transferred and before you have a chance to consider it spending money.

Summary

• The ultimate goal of purchasing a long term care insurance policy is to guard against spending more than your nest egg will allow, thus protecting your, and your family’s, assets.
• Buy an insurance amount equal to the increased spending that may result from the incapacitation NOT the full amount of the cost of the incapacitation.
• It is important to speak with an independent agent about your specific situation, but a good rule of thumb is 2/3 of the “average cost of care” in your area.

Long term care insurance is one of the most important, and often overlooked, financial purchases that a senior can make.  We have previously assisted with information on how LTCI works and when to buy it, but we would now like to focus on how much insurance an individual should purchase.
With policy benefits ranging from $50 a day to as much as $500 per day, it is important to remember why you are purchasing the insurance in the first place.With policy benefits ranging from $50 a day to as much as $500 per day it is important to remember why you are purchasing the insurance in the first place.

The ultimate goal of purchasing a long term care insurance policy is to guard against spending more than your nest egg will allow, thus protecting your, and your family’s, assets.

That is a mouthful.

Allow me to elaborate…

In retirement, the risks that we are faced with are very different than those when we are working.   The risk of losing a job, and thus an income, is gone.  The risk of losing the ability to work (disability) is not applicable.  And, in the case of a husband and wife, the risk of premature death is not a threat to the overall retirement plan.  Strictly financially speaking, the death of a partner, in many cases, will strengthen a retirement spending plan as there is only one person is left to provide for.

Retirees don’t all of the sudden dramatically change their spending habits…unless they HAVE TO.  The incapacitation of one spouse will likely cause a dramatic increase in spending.  Without insurance, the increased spending could cause the nest egg to be depleted prematurely—before both spouses are deceased.  Another byproduct could be a reduced estate to pass to heirs.

You should buy an insurance amount equal to the increased spending that may result from the incapacitation, NOT the full amount of the cost of the incapacitation.

Long term care insurance is often sold using sales literature that shows the “cost of care” in your area.  It is more expensive, for example, to be incapacitated in New York City that it is in Atlanta.  If the average cost of care in my zip code is $60,000 per year, this may only result in a $40,000 increase to my spending.  Whether I was incapacitated or not, I was still going to be spending on many basic things that would be included in that $60,000 number.  I might recommend that this person purchase a policy with a $40,000 per year benefit, or about $115 per day.

It is important to speak with an independent agent about your specific situation, but a good rule of thumb is 2/3 of the “average cost of care” in your area.

This is a very basic explanation of how to determine how much long-term care insurance one might need. For a more detailed, customized answer that fits your specific needs, please consult with your independent insurance advisor.

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It’s time to see if they are right for you

3 Reasons to Consider SMAs

 Executive Summary:

Once an investment vehicle for large institutions or the ultra wealthy, separately managed accounts (SMAs) are now commonly available for as little as $100,000. Separately managed accounts offer investors three potential advantages:

1. Cost structure which is transparent and usually allows for a decrease in fees as the account size grows;
2. Actual ownership of stock and bonds, potentially allowing for greater control and flexibility with tax planning issues;
3. More concentrated portfolio (typically) which allows an emphasis on the “highest conviction” stocks by the portfolio manager.

Click Here for an excellent piece from MFS Investments comparing SMAs to another popular investment vehicle

SMAs are investment accounts, managed by a professional portfolio manager, in which the investments are held in the name of the individual investor.  SMAs are similar to other investment vehicles in a number of positive ways.  It is their differences, however, which make an SMA so attractive to today’s investor. 

Who is investing the money?

In most cases, a portfolio manager is investing the money in the SMA.  Your financial advisor helps to decide when to switch to a new manager or a new investment style.

What do they own?  What do you own?

The answer to those two questions is the same: SMAs own individual stocks and bonds in your name.  A hypothetical portfolio manager might invest your account in 20 different stocks.  Your statement would show these shares.  As an example, you would own 8 shares of ABC inc, 23 shares of ACME co, 15 shares of COMP inc, etc, etc.
 
In this situation, the SMA manager can focus on her “highest conviction” stocks.  In other words, if only 20 stocks make up her best picks she doesn’t have to also invest in her “b” or even “c” selections to spread the money thinner and avoid becoming an “insider.”

Fees

Usually, a financial advisor will evaluate your risk tolerance and objectives and construct a portfolio consisting of several SMAs.  Each SMA is usually in its own account at the financial advisor’s firm.  The advisor will usually add his fee to the fee charged by the SMA manager.   Clients at our firm pay a total fee that includes all trading costs and expenses.  This fee is transparent.  It shows up on your statement as a line item.  The amount you pay in expenses would not be affected by the amount of trading that the manager does. 

The larger your account is, the lower your fee would be in an SMA.  It makes sense.  Charging 1% for an account worth $1,000,000 generates $10,000 in fees annually.  An account worth ten times that wouldn’t need to generate ten times the revenue for the advisor.  He can use the same approach in his pricing that big box retailers do: the more you buy, the less it costs. 

 Taxation

Since the stocks or bonds are held in your name, the cost basis is your own.  There aren’t capital gains and dividend distributions made to you at the end of the year which may, or may not, reflect whether you actually realized the gain.  With SMAs, your taxable gain and loss is figured off of when the manager bought it for you.  For this reason, one could potentially manage their tax situation better.  If the SMA manager has sold several stocks throughout the year, resulting in a net capital gain, you could instruct the SMA manager to sell a few of your “losers” too (usually).  This could help offset any of the gains.  This is called “tax loss harvesting.”
 
Conclusion

Click Here for an excellent piece from MFS Investments comparing SMA’s to another popular investment vehicle.

SMAs have several features that could make them attractive for investors.  These include: “highest conviction picks” (lower number of holdings), fees, and tax loss harvesting.  Many SMAs have lower minimum investment levels than even a few years ago (typically $100,000).  As always, investors will want to seek diversification in their portfolio by using multiple SMA strategies.

Your accountant does it.  Your mortgage company does it.  Why shouldn’t you take advantage of setting up a monthly accrual system to save for your annual expenses? Even just a little bit truly does add up over time, eventually becoming a sizable amount that can bring some relief when paying for larger expenses.  In a perfect world, you already have your 2011 budget locked down and have a good idea of what your major expenses should be. Now is a perfect time to carve some of those larger expenses out of the budget and start saving specifically for them.

Online banking has made it so incredibly easy to carve out money each month and sock it away for later use. Here are my top 5 expenses that you can save for in the coming years.

***See last week’s blog for tips on how to be careful when setting up any new accounts specifically to hold your monthly accrual***

#1. Travel Plans

I’m not talking about a spontaneous weekend excursion (although you can throw those in).  We all have that one trip we want to take every year. It can be a family trip to the beach or the annual ski trip to Vail.  In either case, you most likely know about how much you will have to, or are willing to, spend.  Starting a vacation fund today will help keep you on a budget and provide you with the money you need when it’s time to pack up the luggage.

#2. Auto Insurance/Auto Payments

Unless you pay by bank draft (auto debit), then you are either getting a bill once or twice a year for auto insurance.  Why not save for that expense systematically?  You should also always have a “car payment.”  Whether you are actually paying down a car you already own or saving for the next vehicle purchase.  A classic mistake consumers make is thinking that you are ever without an auto payment.  Sooner or later you will need to replace your vehicle.  How nice would it be to have the funds available to avoid the hassle of financing all over again?

#3. Medical Expenses

Some of these we simply can’t plan for.  However if you know the kids will need braces, why not save for them now.  This is especially true if you have an HSA (Health Savings Account). If you aren’t eligible for an HSA, find out if your employer offers a Flexible Spending Account (FSA) and see about taking advantage of some tax savings on money you set aside for these purposes.  Be mindful that FSA money must be used up by year-end or it will be lost.  So try not to save too much here in any one year, but it is hard to ignore the tax savings that can be had over time.

#4. Charitable Giving

First things first…if you don’t already have a designated month in the year that you make your contributions to your church, synagogue or favorite charities, now is the time to do it.  If your charity month is September, then you have a perfect answer for anyone that calls you the other 11 months of the year to ask for money.  If they want your support badly enough, they’ll pick up the phone again.  Aside from that, take a look at what you donated in 2010 and figure out how much you want to give this year.  Throw that in your monthly accrual.

#5. Gifts

Again, you’ll want to know how much you spent for birthdays, anniversaries, holidays and weddings for the year.  Knowledge is power right?  Setting aside the funds to cover these anticipated expenses is a brilliant way to start the year.

Certainly, you may find other recurring annual expenses that top your priority list, but the above will give you a few ideas of specific expense types for which you can start saving now.

The mechanics of monthly accrual are pretty simple.  When you have found the amount you need to set aside each month, have it automatically taken out of your checking account and put into separate savings.  You don’t need to have accounts set up for all these various expenses so long as you know how much of the account needs to be spent on each item.  When it comes time to pay the bill, simply slide that money back into your checking account and viola! You have just kept your monthly expenses in the black.

Whether you’re checking luggage or accumulating travel miles, chances are you have seen an increase to your fees in recent years.  As a financial planner, it’s old hat to educate clients on the fees associated with various credit cards.  For years, credit companies have lured in would-be cardholders with promises of points, cash back, and rewards; but at what cost?  As the financial overhaul comes into effect, there are additional proposals to cap merchant fees that are charged every time you use your card to purchase something.  These proposals represent a potential 80% drop from current levels.  80%!

As regulators continue to close in on some of the traditional revenue sources for banks, it is apparent that banks will look to make up some of that revenue by adding fees to common transactions or occurrences.  Those free debit cards might not be free anymore. The same may be said for “free checking accounts”.  Be on the lookout for more stringent spending limits and charges for non-usage of accounts and cards.  Any financial planner worth their salt will tell you to limit the number of cards you use annually.  This may come at a price in the future.  Those extra cards you simply leave in your desk drawer may cost you.

Here are just a few areas to keep an eye on as we welcome in this new era of banking:

Paper Statements:  There will be fees to get your statement in the mail.  We encourage our clients to turn off the paper statements they receive for investment accounts.  It looks like doing the same to your traditional checking and savings accounts may be prudent.

ATMs:  This one has two heads.  An inactive card will likely cost you in the future.  Some banks are already imposing inactivity fees for Debit Cards to the tune of $8.95 per month.  Additionally, you will likely see a new or increased fee to get cash from an ATM that isn’t associated with your bank.

Account Activity:  Use your account…or be charged.  In the case of most traditional checking accounts, this isn’t a typical concern; if you have extra accounts, you may need to consolidate.  But with a savings account, you could also incur a charge if you make too many withdrawals or transfers per period. Look for new guidelines on what constitutes allowable ‘usage’.

Account Minimums:  Carrying a minimum balance on certain accounts has always been the norm. In the past, higher balances were rewarded with higher interest rates to your balance.  But now you may be required to keep a minimum balance in your checking account in order to avoid a monthly maintenance fee.  Keep an eye out for additional fees going forward.

Direct Deposit:  Many banks already have fees for checking accounts that don’t have direct deposit.  However, the rules typically apply to aggregate deposits over the course of a month.  Aggregate limits will most certainly rise or a requirement for a larger single sum to hit the account at least monthly.

Giveaways & Sales Gimmicks:  If you have been to an airport, college campus, sporting event or shopping mall in the past 5 years, you know what I’m talking about.  Those “get a free T-shirt or pocket calculator to get this free debit or credit card” kiosks are a nightmare.  Don’t be fooled (not that you ever were).  Another gimmick is to give you a discount off your purchase if you apply for a store card at the time of purchase.  It is worth a conversation with your children.  Especially if they have, or will be, headed away to school.  There is NO such thing as free and the price young consumers may ultimately pay to these predatory vultures could be very costly.

Most banks are standing firm by these new fees saying that many of them can be avoided by simply complying with the rules of the account.  Be sure you educate yourself on how your bank enforces its rules so you can save in the long run.  They will squeeze as much out of you as you allow.

Being cooped up in the house for a few days this past week got me thinking.  How does one adequately prepare for lots of snow and ice?  The south is especially vulnerable to the crippling effects that inclement weather can have simply due to how seldom we get it.  In times of anxiety and feverish preparation for bad weather, here are my top 5 tips on making sound decisions that will save you in the long run:

Your Grocery List:  Pass on the milk and bread staples that most folks flock to.  You’ll need the following:

•  Fill your freezer with Meat. It will still be good a month from now (if you don’t use it) and a chuck roast takes up as much room as a single frozen meal.  Buy cuts of meat that can be easily cooked in a slow cooker.

•  Batteries. Candles are a fire hazard and if power goes out flashlights can get you to and from bed.  Time to catch up on that much needed sleep.

•  Water.  Loading up on 12 gallons of milk is overkill and water is plenty good for you.  Tap water will do for most folks.  However, if your pipes burst you’ll need a backup.

•  Snacks. Items that don’t have to be refrigerated will come in handy if you lose power.  And if you have children in the house, you know how hungry they can get when they’re bored and restless.

 Salt the House/Driveway:  the DOT isn’t going to make your sidewalk, driveway or carport safe to walk on.  The financial and physical impact of a fall at your house can ring loudly for months to come.  Make sure you can safely traverse your surroundings.

• You don’t have to salt the entire driveway.  Just make two strips for your tires and you should be good.

• Keep a big bag of rock salt laying around in the basement for such emergencies.  You will avoid having to go out and get it when you shouldn’t be driving the roads in the first place.

Stay Home:  Getting out on hazardous roads will only lead to car damage.  If you’re getting stir crazy, go for a walk and enjoy the scenery.  It’s not worth the agony of an accident or car repair to make it into the office.  Your boss will understand.

Learn to cook:  Even if you’re a seasoned veteran of the kitchen, chances are that you have a meal or entree that you want to perfect.  You’ll likely have plenty of time on your hands.  Why not learn to make a killer pot roast or play around with a new recipe for lasagna or chicken soup?   The ability to call upon an awesome recipe in a pinch is a skill most would like to have.

Be Neighborly:  Check on those around you.  Be sure everyone is OK.  A small investment of your time can pay big dividends should you ever need a favor, such as having someone watch your house while you’re out of town.  Take this opportunity to be a good friend and neighbor.

A very Happy New Year to all of our clients, partners, friends and readers!  Hopefully the holiday season went off without a hitch.  After the champagne glasses and party hats have been put away, we like to help investors take a look at a few things that they can do now to get 2011 started off on the right foot.  Like my grandfather used to tell me, “You want to hit the ground running!”

Here are my Top 5 Ways to get 2011 started off with a bang:

#1. Start the Tax File

In the next several weeks and months, you will begin to receive important documents in the mail that you, or your accountant, will need to keep close by to prepare your 2010 taxes.  Get a file started so that when April rolls around you have each of these documents organized and accessible.  Schedule a discussion with your accountant now to be sure you’re on the same page as last year.  What’s changed?  What hasn’t?  How can you be best prepared for filing? You’ll thank yourself for these simple preparation steps come filing time.

#2. IRA/Roth Contributions

If you’re eligible to make contributions to either of these accounts, do so.  Did you make a 2010 contribution?  The sooner you put that money away, the longer it has to accumulate and grow.  Would it be possible to go ahead with your 2011 contribution also?  If so, you’ll need to write separate checks to the account.  The contribution limits are $5,000 if you’re 49 or younger and $6,000 if you’re 50 and over.  Put that money to work for you as soon as possible.

#3. Allocations/Contributions to 401k

Did you get a raise?  Great work!  Be sure to tweak your contribution percentage on your company retirement plan to maximize your contribution limit.  Cass recently touched on some common 401k Blunders that all investors should be aware of, so please review those.  You may also want to have your financial planner look at your portfolio to make sure your allocation is still in line with your long-term goals.  If you find that you do need to make a change, be sure and include current assets and future contributions for 2011.  One big change we are making to our client’s portfolios at present is a greater allocation toward the high yield bond space.  We are decreasing exposure to short term debt and re-allocating toward domestic and global high yield.   Many plans now allow you easily to make these changes online.

#4. Family Meeting

Set aside some time to sit down and put a plan together for the year.  Vacations, trips to the grandparents and business trips out of town are all important things to have on the calendar.  A simple meeting to get things on paper can keep everyone on the same page.  This is also a good time to go over the family budget.  Take this opportunity to show your kids how saving money on clothes, games and entertainment can lead to fun trips to the beach or Disney in the summer.

#5. Start Saving Now
  
Having just finished another year of holiday gift giving and vacationing, it’s a good idea to tally all those expenses up.   Savings accounts are inexpensive and most banks allow for automatic transfers to/from your checking account systematically.  Start accruing your holiday expenses now for next year.  This way, when the time comes for gift giving, you will have the money already saved.  Example:  I spent $600 on gifts this year.  Set up a savings account for gift giving and systematically transfer $55/month into that account.  You’ve got 11 months to save the money and hopefully you won’t miss the $55 each month.