Will you save more for retirement after the kids are grown?

on June 30, 2016 Comments Off on Will you save more for retirement after the kids are grown?
We are always prone to postpone the activity that has the least impact today.  For most of us, that is saving for retirement.  As we move through life, we are focused on our families and making sure that today is fulfilling without spending enough time to think about saving for a tomorrow that is years away.

read more
Jeffrey MillerWill you save more for retirement after the kids are grown?

Registered Investment Advisor vs Broker/Dealer

on June 17, 2016 Comments Off on Registered Investment Advisor vs Broker/Dealer

In the complex world of financial services it is often believed that every advisor is the same.  If you believe this, then you should learn more about the difference having a Registered Investment Advisor can make.  There are many types of advisors that exist in financial services.  The truth is that they are not all the same and when it comes to choosing an advisor, a little research will help you understand who may better serve you.

So, there are at least three different types of advisors with some overlap as each can have multiple licenses and therefore have multiple roles.  The three types are:

1   Investment Advisor Representative of a Registered Investment Advisor
2   Registered Representative (Broker) of a Brokerage Firm
3   Insurance Agent

I am going to focus the discussion on the difference between an Investment Advisor Representative and a Broker.  The key differences that define the relationship are important as you search for and choose an advisor to help guide you.

Fiduciary vs Suitability

There is a significant difference between the level of responsibility that is applied by law to the two different roles. For an Investment Advisor Representative, there is a requirement based on the Investment Advisers Act of 1940 to act as a fiduciary and put the clients interests before their own.  This simply means that the client is the most important consideration for any recommendation provided and all conflicts of interest must be disclosed to the client.

As a Broker or Registered Representative for a broker-dealer, there is only a standard of suitability.  What does suitability mean?  The standard of suitability only dictates that the investment sold to the client is appropriate given the client’s current financial situation.  So, the broker is able to sell/offer the investment that may pay them the highest commission because their interests can be placed above the client’s best interest.

Advice not Sales

For Investment Advisor Representatives, the goal of any work done for a client is to provide advice and guidance with a foundation in planning. The advice is based on the needs of the client.  The driving goal is to provide strong guidance that helps the client achieve their goals.  Once a recommendation is formulated, an Investment Advisor Representative working solely for a Registered Investment Advisor helps with the implementation but is not compensated by any investments that may be used in the process.  In many instances, there may be a need for insurance to be purchased.  At Courage Miller Partners, we work with our clients and an insurance professional to then implement the insurance need.  As a fee-only Registered Investment Advisor, we would not benefit in any way from the purchase of the insurance product.  As fiduciary Investment Advisor Representatives, we share full details regarding how we earn our fees and fully disclose any conflicts of interest.  There are no hidden compensation agreements or commissions that would jeopardize our responsibility to our client.

Can’t tell by the title

In today’s financial services environment, you cannot rely simply on a title to help guide you in your decision process. There are titles used from Wealth Manager, Financial Advisor, Investment Advisor and Financial Planner that are used in the industy, but these titles do not disclose any aspect of their compensation arrangement or responsibility to you as a client.

How can you tell the difference?

If you truly want to know, simply ask the financial professional if they are ever compensated by commissions for the sale of financial products and investments. The answer to that question will immediately let you know if they are truly an Investment Advisor Representative or not.  If they answer that they may receive commissions, then you know that when you are presented with a recommendation there is potentially some incentive provided to them for selling the product.  Now you must ask if it is truly the best product or the highest commission for the professional.

The Grey Area in between

With all situations there always remains a grey area that must be carefully navigated. A very traditional practice is for many financial professionals to be duely registered as both an Investment Advisor Representative and a Registered Representative (Broker).  When a financial professional is licensed as both, they may provide financial planning and guidance for a fee or free, but at the time of implementation of the advice they implement the plans as a Registered Representative and receive the commission compensation from the products used to implement the plan.

Fee based vs Fee only

In many instances, professionals will refer to their compensation structure and the subtleties make a difference. A fee based advisor is an advisor that may charge traditional asset based fee for portfolio guidance, but receives commission compensation from product recommendations and sales.  A fee only advisor is only compensated from a traditional asset based fee for portfolio management, hourly fees or flat fees.  You will always know the full extent of the compensation for a fee only advisor.  You will not have to ask yourself if the recommendation is in your best interest because the advisor has no incentive to recommend the product unless it is beneficial to your goals.  As a result, we highly recommend seeking out a fee only advisor as you look for guidance and planning.

We recommend using the SEC Investment Advisor Search and FINRA Broker Check to review the information of potential advisors and their Registered Investment Advisor and/or Broker/Dealer.  While the information does not indicate competency, it will provide information regarding complaints the advisor has received. You are also provided the company that has them registered as an employee. 

Hopefully, as you search for a financial advisor, you can use this as a guide as you interview potential advisors to help you through your financial decisions.

read more
Jeffrey MillerRegistered Investment Advisor vs Broker/Dealer

401k Investment Options – Sorting through the choices

on June 10, 2016 Comments Off on 401k Investment Options – Sorting through the choices

Most of us have the opportunity to save for retirement using a retirement plan through work.  It is most likely a 401k or a 403b depending on the type of organization.  I can recall my first exposure to a 401k Retirement Plan when I began employment with IBM after graduating.  I received all the plan documents and enrollment information.  It included details about how the plan works and the investment options available in the plan.  It was an intimidating experience.  I was determined to learn what I could about the plan and the investment options, so that I could be knowledgeable about my decisions, but finding time to do all the necessary research was very difficult.  Part of my desire to become an advisor and help families navigate their investments is certainly based on my personal experience.

Today, the expectation is that you make educated decisions regarding how your retirement savings are invested.  It is easier said than done.  Based on a study done by Brightscope and the Investment Company Institute, the average 401k plan has over 20 different investment options.  How do you know the difference between all the options and what type of investments they are?  Taking the time to research and make decisions on top of everything that life has in store from work to kids’ activities is daunting to say the least.  Not to mention that the names of the different funds don’t really give you a lot of information.

Typical 401k Investment Options

My goal over several entries is to give you some perspective of what sorts of funds are typically offered in retirement plans and the types of investments each different fund might have based on broad asset classes.  I hope to educate you so that you are more informed as you review your investment options for your retirement plan or any other investments you might be researching. 

In your 401k plan, you will potentially have access to five different types of fund options.  At a minimum, you will have access to three.

1)     Stock Funds

2)     Bond Funds

3)     Money Market or Stable Value Funds

4)     Risk Allocation Funds

5)     Target Date Funds

Since the typical plan has over 20 different funds to choose from on average, each high level classification of fund is divided into sub classes of funds.  There were 9,520 mutual funds and 1,594 Exchange Traded Funds (ETF) available in 2015 according to the 2016 Investment Company Fact Book from the Investment Company Institute.  This is a staggering number, and it continues to grow.  It is easy to understand why.  At the end of 2015, total assets invested with fund companies exceeded $18 trillion dollars.  With so many possibilities, making investment decisions can be very difficult.  It is like trying to choose a blue paint.  There are many different shades and each one is slightly different, so how do you choose.


Stock Funds

Let’s start the discussion with stock funds and the range of options that may be offered because every plan offers a stock fund.  Stock funds are mutual funds or ETFs that purchase shares in individual companies for your benefit.  Stock funds are first classified as domestic or international. 

A “Domestic Large Cap Fund” will purchase shares of companies that are household names and have their headquarters in the United States.  As I write this, Apple is the most valuable company in the United States.  In addition to Apple, there is a long list of companies that are possible investments for Domestic Large Cap Funds.  For example, Alphabet, Facebook, GE, Verizon, Pepsi, and IBM are companies that the Domestic Large Cap Mutual Fund or ETF could have as an investment.  Typically, these mutual funds are based on the S&P 500 index.  This index is made up of the 500 largest companies in the US.  What does that mean?  Largest by number of employees…..No.  The “size” of a company for investment purposes is determined by Market Capitalization (Market Cap).  The calculation for Market Cap is:

Market Cap = current stock price * the number of shares outstanding

For example, Apple’s Market Cap based on its shares and closing price as of 5/31/2016 is:

5,477,425,000 (shares per form 10-Q as of April 8, 2016)  * $99.86 (closing price 5/31/2016) = $546,975,660,500


As a general rule, the size of companies are divided into Large, Mid and Small.  These categories are based on a % of total corporate value.  Large companies make up 70% of corporate value, mid cap companies have the next 20% of value, and small companies are the last 10% of value across publicly traded companies.  As a result of this division, mutual funds and ETFs are divided into the corresponding categories.  The goal of the categories is to help reduce the number of funds that need to be reviewed as investment decisions are made, but can sometimes make it more confusing without an explanation.  Below is a table that covers the different fund categories and examples of companies and funds for each.

Fund Category Index Examples Examples of Companies Mutual Fund Examples
Large Cap Blend

S&P 500
Russell 1000

JP Morgan

American Funds Fundamental Investor
Davis NY Venture
Vanguard 500 Index

Large Cap Growth  S&P 500 Growth
Russell 1000 Growth
Walt Disney
Home Depot

American Funds AMCAP
Fidelity Contrafund
Vanguard Growth Index 

Large Cap Value S&P 500 Value
Russell 1000 Value
Exxon Mobil
Proctor & Gamble
Verizon Communications

T. Rowe Price Value
Columbia Dividend Income
Vanguard Value Index

Mid Cap Blend/Core

S&P Mid Cap 400
Russell Midcap

Clorox Co.
CBRE Group

Fidelity Spartan Extended Market Index
Vanguard Exended Market Index
Vanguard Mid Cap Index

Mid Cap Growth S&P Mid Cap 400 Growth
Russell Midcap Growth

T. Rowe Price Mid-Cap Growth
Columbia Acorn
Vanguard Mid-Cap Growth Index

Mid Cap Value S&P Mid Cap 400 Value
Russell Midcap Value
Best Buy
Western Union

Fidelity Low Priced Stock
Goldman Sachs Mid Cap Value
Vanguard Mid-Cap Value Index

Small Cap Blend/Core

S&P Small Cap 600
Russell 2000

Callaway Golf
Boise Cascade

JPMorgan US Small Company
Fidelity Small Cap Discovery
Vanguard Small Cap Index

Small Cap Growth S&P Small Cap 600 Growth
Russell 2000 Growth
Texas Roadhouse
Five Below
Tanger Factory Outlet Centers

Fidelity Small Cap Growth
Invesco Small Cap Growth
Vanguard Small Cap Growth Index

Small Cap Value S&P Small Cap 600 Value 
Russell 2000 Value
Lexmark Printers

Columbia Small Cap Value
JPMorgan Small Cap Value
Vanguard Small Cap Value Index

Foreign Blend

S&P 700


Dodge & Cox International
Lazard International Strategic Equity
Vanguard Developed Markets Index

Foreign Growth MSCI EAFE Growth
MSCI ACWI ex US Growth

American Funds Europacific Growth
Fidelity Diversified International
Vanguard International Growth

Foreign Value MSCI EAFE Value


T. Rowe Price Int’l Growth and Income
Templeton Foreign Fund
Schwab Fundamental Int’l Large Company Index 


FTSE All-World Index

 Any of the companies listed above

American Funds New Perspective
Franklin Mutual Global Discovery
Vanguard Total World Stock Index

Emerging Markets

MSCI Emerging Markets Index
FTSE Emerging Index


Oppenheimer Developing Markets
American Funds New World
Vanguard Emerging Markets Stock Index


As you can see, there are a number of possible categories for mutual funds.  In each segment there are some companies that are very well known.  There are also companies that will certainly not be household names.  So what happens when you own a mutual fund?  You instantly become a business owner in the United States.  Business ownership has been a great way to build wealth over years.  You are able to capture the productivity and value that corporations produce.  Funds give you the ability to build immediately diversified portfolios because the fund owns a large portfolio of different companies.

Above there is also Foreign and World categories included.  Funds that invest internationally, are typically classified into Foreign, World (includes US investments) and Emerging Markets.  They are invested in larger companies whose headquarters are outside the United States.  In many instances, there is hesitation to invest in international or foreign companies.  The reality is that many international companies are household names.  Some international companies that come to mind besides the ones listed above include Siemens, BASF, Panasonic, and Prudential.  These are all companies that have a significant global presence.  It would be hard to imagine not taking advantage of their future growth simply because they are identified as international.

As you review your retirement plan investments, whether you build your own portfolio with fund options, choose target date funds, or use the default investment option, I hope that this provides some insight.  Don’t leave your financial future to chance.  Educate yourself and be engaged in the process.  As we continue our series on the different investment options, we encourage you to ask yourself, how is my 401k invested?  If you find your 401k confusing, let us help.

Complimentary Portfolio Analysis

read more
Jeffrey Miller401k Investment Options – Sorting through the choices

401k – Old vs New – Where Should I Move it? (Part 2)

on June 9, 2016 Comments Off on 401k – Old vs New – Where Should I Move it? (Part 2)

In a recent article 401k – Old vs New – Where Should I Move It?, we discussed some of the 401k options that investors could take per guidelines of the Financial Industry Regulatory Authority (FINRA).   In this series on 401ks, we’ll cover the third of the four mentioned in our May blog.   This third option is simple-  liquidating and moving the cash value out of your tax-deferred retirement account and receiving your check in a taxable non-retirement account.   Data in 2013 from Fidelity revealed that people aged 20-49 years old, an average of 32-43% would cash out of their 401k when they terminated and changed jobs (see chart below).  We’ll also cover in a moment where this strategy is not so simple, metaphorically speaking.   


401(k) cash outs

(Source: Fidelity data based on the analysis of 900,000 terminating participants in workplace 401k plans; based on 12/31/13 data. Because of rounding, figures might not total 100%.)


Liquidating All or Some of Your 401k

If you choose to fully liquidate out of your 401k to take full cash value of your account, you will first have to contact your former 401k plan provider to get the proper paperwork started.   Requesting sells of positions will go to cash in your retirement plan once you request the distribution check.   One of the big negatives to liquidating your 401k is the loss of long-term compounding growth and tax deferral.  The benefit of reinvested capital gains, dividends, and interest with any tax consequence go away.  Investing into another investment account with no real tax benefit after liquidation is typically not a sensible strategy.  When people liquidate out of their 401k plan it’s typically for short-term emergency cash needs due to loss of a job.  This is why we would advise against this knowing it’s the least optimal and of last resort. 

Tax implications

When you liquidate out of a 401k to move to a taxable account, it will be subject to taxes due to IRS rules of early distribution from a retirement account.  Remember the part where we mentioned it wouldn’t be so simple?  This is the part.  Be aware your former employer is required to withhold 20% of that withdrawal for federal income tax.  An extra 10% penalty for early withdrawal will be applied if you are distributing before the retirement age of 59 1/2 years old.  Keep in mind state income tax also needs to be accounted for on this distribution and will vary from state to state.   This could be painful for those who are in need or in a short-term transition.  You want to be mindful of current IRS income tax brackets and that it does not bump you up into the next bracket, so we recommend conferring with a tax professional.  As an example, you may want to consider not liquidating that whole $15k or $20k in the former employer’s 401k if you don’t have to do it.  Maybe you rollover a percentage of it into a retirement account like an IRA or the 401k depending on the new employer and what your short-term needs are?  If for whatever reason you try to reinvest that money back into the market using a brokerage account, guess what?  Your investments are now subject to capital gains tax and ordinary income tax on interest each year.  Hence the importance of letting it stay in a tax-deferred account instead of the worst case scenario of moving into a taxable account.  

Below is a chart comparing the future value and investment return difference between tax deferred and taxable investments.  It also highlights the effects of compound growth using an online calculator for illustrative purposes.  We calculated having $20,000 in a 401k/IRA versus no tax-deferral in a brokerage account with a 7% annual expected rate of return.   We took it further and calculated the IRS penalties and income taxes totaling 35%, if this liquidation comes from a 401k into a brokerage with an effort to grow it.  


Amount Invested Number of Years Invested Marginal Tax Rate Investment Return Taxable Future Value Annualized Yield
    $20,000  (In retirement account – 401k/IRA)     30 yrs       20% 0% until income is drawn in retirement  $148,117      6.9%
    $20,000  (In a brokerage account)     30 yrs       20% 100% exposure to capital gains and interest income  $102,553      5.6%
    $13,000 (In a brokerage account. Assumes 401k valued at $20,000 with 20% fed. and a 5% state income tax, and 10% early withdrawal penalty)     30 yrs       20% 100% exposure to capital gains and interest income  $66,659      5.6%


We hope this blog brings perspective in having a plan for retirement in the future.  Seeing the ramifications of failing to launch a retirement account while you’re in the early career stage of life is vital in order to create a nest egg for the long-term.  Additionally, it highlights the importance of building an emergency reserve to protect you from cashing out your retirement accounts.   Let this serve as a call to action seeing the ability to store away hundreds of tax-deferred dollars to hopefully multiply to hundreds of thousands of dollars over the course of a lifetime.  Over the next few weeks, we’ll continue on this path to discuss the fourth and last option:  rolling over your 401k to an individual retirement account.   Please continue to follow us on WealthWorthItBlog.com and take advantage of our complimentary portfolio analysis, if you have more questions and would like to talk. 




read more
Jeffrey Miller401k – Old vs New – Where Should I Move it? (Part 2)

Money – Can it make you happier…apparently in retirement it can

on June 1, 2016 Comments Off on Money – Can it make you happier…apparently in retirement it can

We all know that money can’t buy happiness, but a recent study from the Employee Benefit Research Institute (EBRI) indicates that retirees with a higher net worth in retirement are more satisfied with retirement.  I think that most of us would expect this to be the case.  The reality is all retirees since 1998 have had a decreasing level of satisfaction during retirement.  The largest decline occurred from 2002 to 2004, which was a time period marked by a recession after the technology bubble burst and September 11th.  For me the more important item is that the level of satisfaction never recovered even after the end of the recession.  We have continued to see a negative trend in the level of satisfaction across all levels of wealth.

So, with this information and the expectation that having more savings in retirement would make it more satisfying, we must be saving more than ever before for retirement as a country.  Well that is not the case.  Each year an organization called America Saves conducts a survey to gain some perspective about the savings landscape in the country.  The America Saves Survey results are less than impressive.

Survey results

Survey results from 2016 National Survey Assessing Household saving by America Saves.

As a general rule, most planning assumes a need to save at least 10% of your income to achieve an amount of savings at retirement that will replace your income needed as a result of no longer working.  In the survey this year, 66% of respondents are fortunately not spending their entire paycheck.  The downside is that only 28% are saving at least 10%.  EBRI conducted a study with data through 2014 which estimates the retirement funding shortfall in the US is over $4 trillion dollars.  As pensions continue to be replaced by defined contribution plans, i.e. 401k, 403b, and SIMPLE IRA IRA, the burden is being shifted to each individual.  With only 28% of workers saving at a pace that will give them a solid foundation for retirement, we have a growing problem that will manifest over the coming years.

The other unfortunate statistic from this year’s survey is that only half of the respondents have a plan for saving with defined goals.  Every indicator shows that those with a plan are much more successful.  If you don’t yet have a plan, you should consider beginning the process to create one.





read more
Jeffrey MillerMoney – Can it make you happier…apparently in retirement it can