smart MONEY rules LITTLE GREEN BOOKfinpath.com/docs/Little-Green-Book.pdf · Here are four things...

(Or, What Would Steve Say?)

smart MONEY rules™

LITTLE GREEN BOOK

January 15, 2013

(Or, What Would Steve Say?)

smart MONEY rules™

LITTLE GREEN BOOK

The LiTTLe Green Book

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© Copyright 2013 Steve Juetten

All Rights Reserved

Or, What Would Steve Say?

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DeDication

to our ValueD clients

The one common goal among our clients is for them to take care of their money so they can do more of what they love. This little book is meant to help you in this effort.

Over the years, there are certain things I hear myself saying over and over. For example, “there’s no such thing as a free lunch.” Or, “it’s not what you make that counts, it’s what you keep.” I decided to start recording these thoughts so I could give clients one place to go if they ever wonder what they should be doing when confronted with a money question. This is where the “What would Steve say?” subtitle comes from.

You are holding the first version of The Little Green Book. I expect to add to it and refine it over time. If there is something you’d like to see added, please let me know. I hope you enjoy this brief text and it helps you achieve your financial goals.

Thank you for allowing me to serve you with my special secret sauce.

Steve Juetten, CFP®November 2012


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table of contents

Introduction: How financial planning is like growing a garden ..........6

The SmartMoney Rules™System

1. Have the Right Money Mindset ..............................................7

2. Protect Yourself ....................................................................12

3. Have Goals Tied to Your Values ............................................17

4. Use Cash Flow and Debt Smartly ..........................................19

5. Know How Much Is Enough for Retirement ..........................23

6. Invest Wisely ........................................................................27

7. Review Your Plan and Adjust Regularly .................................32

Other Resources ..............................................................................33

About Steve Juetten, CFP® ...............................................................34

Contact us:

Email: [email protected]

Phone: 425-373-9393

Web site: www.finpath.com


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introDuction

Taking care of your money is like growing a garden

If you want a garden, before you put seeds in the ground, you would lay out where the garden is going to be located, how big it’s going to be, what vegetables or flowers you want to grow, think about poten-tial threats to the plants like bugs and pests, when you will harvest the plants you grow and how often you’re going to tend that garden.

Once the garden starts growing, you would water it, pull weeds, and fertilize it. If problems crop up with your plants, you’d figure out what to do and adjust your actions.

Sometimes weather might negatively affect your garden. There’s not much you can do for a garden if the weather turns cold when you don’t expect it, or wind whips up or it hails. Sometimes, things just happen and your garden may suffer. But you know it’s temporary.

When flowers bloom or vegetables ripen, you cut the flowers or pick the vegetables. You planted the garden to enjoy the bounty and you also enjoyed the journey.

Taking care of your money is a lot like taking care of a garden.


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smartmoney rule #1

Have the Right Money Mindset

Money is emotional. I get that. It is for me and just about everyone I’ve ever met. If we accept the fact that money is emotional, it leads us to the first SmartMoney Rule™: have the right money mindset.

Basically, the right money mindset is to think in terms of abundance and not scarcity.

Why is this important? Because when it comes to your money and your wealth, it starts with your attitude. I used to play golf a great deal and in my golf reading, I came across a quote from Bobby Jones, whom many consider the father of American golf. He said:

“Competitive golf is played mainly on a five-and-a-half-inch course, the space between your ears.”

And good money stewardship is the same. Your attitude about money —whether you believe the world is awash in money or the opposite—largely dictates the way you deal with money. The space between your ears is your best money management tool.

This I Know to Be TrueHere is something else I know to be true: we are all influenced/shaped by the way our parents dealt with money. I’m convinced that the acorn (that’s you and me) either doesn’t fall far from the tree or it falls a long-way from the tree. In other words, our early money experience influences us a great deal. Think about your earliest money experienc-es and see what you can conclude from the self-examination.


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Be Careful of What You Take In

Money magazine and its competitors still breathlessly report on “the best mutual funds to buy now,” offering different recommendations every six months or so. Cable channels offer nonstop coverage of minute-by-minute market moves, when every bit of research tells us a short-term investment perspective can be deeply harmful to client portfolios. Men and women in business suits routinely predict the future with straight faces.

Meanwhile, investors are bombarded with cynical adver-tising from the large discount brokerage firms, which straightforwardly tell them they can beat the market if they sign on to churn their own portfolios. Even babies can supposedly beat the market with the right trading tools.

All of these visibly harmful channels of advice are not only legal, but even respected in our society. In aggre-gate, these various frauds and subtle dishonesties get far more attention than the honest advisors who try to give their client the best advice without compromise – and who, for the most part, are far better trained to do so. The nonsense put out by investment magazines and websites reach millions of consumers every day, and they act symbiotically with the television talkers to co-create the dangerous illusion that what happened 10 seconds ago is relevant to your retirement portfolio.”

Bob VeresFinancial Planning Magazine, November 2012

Money Personality Quiz

We all have a money personality. Some of us are hoarders, some of us are money monks, and some are spenders. It’s not so important what your money personality is, but it is important that you recognize it so you can plan accordingly.


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I refer many new clients to the Olivia Mellan website (www.moneyharmony.com) to take a money personality quiz. It’s under the Online Resources tab on the home page. The quiz was updated in late 2012 and if you have not taken it in the last few months, I suggest that you do so. It’s not a perfect tool, but it does open up some interesting questions for us all. On the website, it says:

There are additional money types that are not included in this quiz. There are Money Worriers, and when it comes to couples, Money Mergers and Money Sepa-ratists, Planners and Dreamers, Risk Takers and Risk Avoiders. However, an understanding of this quiz’s five money types is a great way to start getting to know your own money personality

By the way, I’m classified as a “Money Amasser” according to her methodology. What are you?

Get Organized

One part of having a healthy money mindset is to be organized. It’s a little like taking care of your garden. You want your tools to be sharp and free of rust. You want to be able to put your hands on the rake, shovel, or fertilized you need when you need it. It’s the same with financial things. You need to be organized in order to start making progress on your goals.

Here are four things you can do right now to help get your financial house in order:

1. Purge your old financial files. Shred bills and account statements and throw out any files or papers you don’t need. See the next section for what files to keep and for how long.

2. Set up a simple filing system for all your financial papers. Here’s what you’ll need:

y File folders

y File labels

y Storage box or one drawer of a filing cabinet


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To set up your filing system, do this:

a. Gather any files you already have and any papers you need to file.

a. Group the files and papers into categories that make sense to you. If it’s easier for you, sit on the floor and put files and papers into piles.

a. Make a label for each pile and put the label on a file folder. Put the papers into the appropriate files.

a. Arrange the file folders in alphabetical order. Put the files in the storage box.

a. At least monthly, sort papers into the folders.

Notes: if a file folder is too large, break the pile of papers into smaller categories.

3. Make sure your home inventory is up-to-date. If you’ve added home electronics, jewelry or any other items of value, you may need to add them to your home insurance policy as special rid-ers. A simple way to keep a home inventory is to walk around the house and take pictures with a digital camera of each room. Make sure you take photos of high value items like jewelry and elec-tronics. Then store the digital disc in your safe deposit box. You do have a safe deposit box, don’t you?

4. If you haven’t checked your credit report in the last year, do so now. Go to www.annualcreditreport.com to request your free re-ports. Watch out for the sales material that tries to get you to sign-up for regular credit reporting. You don’t need it. When you get your credit report, go through it carefully to make sure the reports have accurate information on you.

How Long to Keep Documents

Keep Forever:

y Academic records y Adoption papers y Birth certificates y IRA contribution records


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y Marriage certificate y Medical records y Passports y Retirement/Pension Papers y Social Security card y Wills and other estate documents

Keep for seven years:

y Investment records y Tax documents

Please note: Investment records that establish the cost basis of an as-set need to be kept as long as the investment is held, and then seven more years after the sale.

Keep for one year:

y Bank records y Paychecks/paystubs (until you get a W-2)

Variable:

y Credit card receipts: until you get a monthly statement y Sales receipts for items under warranty: until you dispose of the

item or the warranty runs out y Home repair receipts: until you sell the house

Please note: this is a general guideline; if you own a business, have complicated financial matters like a rental house, then you may have other record retention needs. If this is your situation, please consult with a tax expert.

Last Thoughts on SmartMoney Rule #1

Here are three other thoughts to support this first SmartMoney Rule™ (with apologies to Yogi Berra):

y If sounds too good to be true, it probably is.

y Simpler is better.

y In periods of life transition (retirement, marriage, divorce, new job, losing job, etc.) cash is king.


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smartmoney rule #2

Protect Yourself

People feel a loss more than they enjoy a gain. It’s just as import-ant to protect yourself and anything you value as it is to grow your wealth. You can borrow an idea from skiers to help you

think about your personal financial risks. Skiers know that the amount of risk for each ski run is designated by the color of diamond assigned to that run. Green is easiest, blue is moderate and a black diamond means the run is best for expert skiers.

Think about your personal financial risks this way too. The major risk events are poor health, loss of income, loss of life, loss of or damage to a major asset like your house. These major risks are black diamonds and need to be addressed first and with the most energy, usually with appropriate insurance.

Other more moderate risks are blue diamonds and might include dam-age to your car, loss of valuable personal items or minor injuries or health problems. Blue diamond risks are less critical and can be dealt with by avoiding the risk or reducing the probability of a loss happen-ing or reducing the impact of a financial loss with a high deductible insurance policy.

Green diamond risks are the easiest to deal with and usually don’t require any insurance or special risk management efforts. For exam-ple, if you lose your iPhone, it’s a pain to replace, but the insurance is not worth the premium. Keeping track of your phone is the best risk management method.


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I suggest you think about the risks in your personal finances and clas-sify them the way a skier looks at ski runs—green (easy and no spe-cial efforts required), blue (moderate risk and a combination of care, avoidance and high deductible insurance might be best) and black (high risk and therefore shifting the risk to an insurance company might be the best approach).

Cornerstone of Protection Rule— Liquid Emergency Savings

It’s an old adage, but still true. Have 3-6 months of living expenses in case you need it immediately. Stash cash in a high-yield savings ac-count. You’ll sleep better at night.

Estate Documents – Essential Protection for Those You Leave Behind

Everyone needs four estate documents:

1. Will

2. Durable Power of Attorney

3. Medical Power of Attorney

4. Medical Directive

The state you live in dictates how your estate is settled. If you have moved to another state since your basic documents were done, you need to redo them.

While it’s true that most married couples leave everything to their surviving spouse, you still need these documents to make the transfer of assets simple if you die. If you and your spouse die simultaneously, the state will decide how to divide your assets (something we want to avoid!).

Underage children (generally younger than age 18) cannot inherit property. If you have children younger than age 18, you may need to create a “trust” if you want your children to inherit property.


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Here is a good definition of a trust from www.about.com.

A trust is a legal agreement that has three parties to it:

y Trustmaker: The person who creates the trust agree-ment, also commonly referred to as the Grantor, Trustor or Settlor.

y Trustee: The person or entity responsible for manag-ing the property that the Trustmaker decides to title in the name of the trust.

y Beneficiary: The person or entity who is to receive the benefits of the property that is titled in the name of the trust.

A trust is a legal agreement that has three parties to it:

Trusts are tricky and complex animals. If you want a trust, talk to a good estate attorney to help guide you through the challenges of set-ting one up.

Last Thought on Estate Documents – Do You Need a Living Trust?

People often ask me if they need a living trust. This is a special type of trust and while the answer is “it depends,” generally the answer is NO. The primary benefit of a living trust is that it avoids probate. But there are many ways to avoid probate and even if your estate goes to probate, it doesn’t take that long any more. So unless you have a spe-cial situation, avoid the cost and complexity and avoid a living trust.

SmartMoney Rules™ Insurance TipsInsurance is a commodity and prices on commodities change frequent-ly. Therefore, plan to ask for insurance quotes on your car and house regularly (every two to three years). Ask your current insurance carrier and at least two other companies to bid. You might be surprised by how much you can save on premiums.


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Keep insurance premiums lower by having high deductibles—at least $1,000 on your car and home. Higher if you can. Make sure you have replacement cost coverage for the building and your possessions.

How much life insurance you need depends on your situation. Go to www.life-line.org for a free calculator that will help you figure out how much life insurance you need. Remember: term insurance is what most people need. Don’t let anyone convince you otherwise. Unless you are a small business owner, all you need is term life insurance. Other types of life insurance may be appropriate for small business owners

If you own a home, you need umbrella liability coverage. It covers your home and car for liability over and above what your car or home in-surance pays. And it’s fairly inexpensive. Minimum umbrella liability amount is $1 million.

Long-term Care Costs

Long-term care costs occur when you need help taking care of your Activities of Daily Living (ADLs). Unlike medical care, long-term care is to help sustain you and not return you to full health.

Long-term care is often provided in the home while the person needs minimal help. Once a person needs a higher level of care, then the person will move to a care facility and the costs go up substantially. Annual costs in a long-term care facility are $70,000 and up. For exam-ple, in the state of Washington, the average annual cost is $92,345. In Illinois, the state average is $78,840.

The good news (?) is that once a person goes into a long-term care facility (other than for a mental condition like dementia), the average length of stay is 2.5 years. In other words, if a person needs long-term care, the total cost is $175,000 and more.

Medicare and private medical insurance do not cover the cost of long-term care. Medicaid covers about 2/3 of the patients in nursing homes. Keep in mind that Medicaid only takes over when a person has exhausted all of his/her other assets.


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Forty-three percent of people age 65 will need long-term care of some sort in their lifetimes.

There are four ways to address long-term care costs:

1. Ignore

2. Self-insure (you pay the cost)

3. Insure (an insurance company pays the cost)

4. Combination of 2 & 3

Learn more about long-term care, including costs in your state, at www.longtermcare.gov.

Protect Your Identity

According to the San Diego County District Attorney, identity theft is one of the fastest growing crime segments. We commonly think of identity theft as someone using your personal information for fraud-ulent purposes, but because many states do not have a specific law addressing identity theft, and definitions of ID theft vary from place to place, it is difficult to track how many people fall victim to identity theft. Still, even if the potential for identity theft is low, the impact to you is great.

The State of Idaho Attorney General’s office produced a handy booklet on this subject. You can get a copy of the report by going to the Free Resources tab on my website.


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smartmoney rule #3

Set Goals Tied to Your Values

If you don’t know where you’re going, any road will get you there.

— Cheshire Cat in Alice In Wonderland

At your core, one of your goals should be financial freedom. “Freedom” is a great word. It refers to an absence of undue restrictions and an opportunity to exercise your rights, powers

and desires. (Thanks to Dictionary.com for help with a good, working definition of freedom.)

Curiously, financial freedom is not about being “rich” or “wealthy” and on the cover of Fortune magazine (although that’s fine too, if that’s what you want).

One way to think of “financial freedom” is that it means you have ev-erything you NEED and some of what you WANT.

Many people tell me that being financially free allows them to do more of what they love to do right now and not “someday.” Here’s the great part about financial freedom: you get to choose what you love to do.

You can: y Help send your kids to college. y Live without financial fear of dying because your family will be

fine (financially) if you die prematurely. y Say goodbye to the wrong job without fear because you have

emergency money to sustain you.


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y Retire when you want and define “retirement” the way you want.

y Have a second (vacation) home.

y Live on less than you make.

y Spend or save on the high priority items in your life and not worry about the rest.

Or whatever you define as financial freedom. I suggest that you have this conversation with yourself and your partner or spouse. Find out what being financially free means to you. Write down the answers and review them annually.

If Helping Pay for College Is a Value

Current (2012) annual costs for college, including tuition, books and fees, room and board:

Public in-state $17,131

Public out-of-state $29,657

Private $38,589

Harvard $58,750

The kicker is that college costs are increasing by double digits right now. Hopefully things will slow down, but assume at least annual 7.5% increases for the foreseeable future.

Go to collegeboard.com for more college cost info or visit the web-sites of college of choices for more information.

Best 529 college savings program for newborns: combo pre-paid col-lege credits and 529 investment account. If child is older than ten, use only the 529 investment account. There may not be enough time to catch up with the premium you pay for pre-paid credits.

Go to our website for a special report on How to Save For College.


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money rule #4

Use Cash Flow and Debt Wisely

A jug fills drop by drop.— Buddha

Building a Spending Plan in Three Steps

Unless you are on the Forbes richest persons list, you will need to make decisions about where you want your cash flow to go. I like to remind clients that you can have anything you want;

you just can’t have everything you want.

That said, I don’t believe in budgets to direct your money energy be-cause most people don’t stick with them. Most people do better with a spending plan. A spending plan is intentional because you declare ahead of time what your priority items are for your cash flow. After you direct your cash into those categories, you can do whatever you want with what’s left over. Here’s a simple way to create a spending plan:

1. Create a list of your important spending categories. Note that this is your list and should reflect what’s important to you. If you want to direct your cash to buying fine wine, hobbies, dining out or saving money so you can retire early, that’s fine. Just make sure your spending plan reflects what YOU value. After you have a list of your most important categories (no more than 20), estimate amounts for each


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1. As a guideline, you could aim to split your monthly income like this:

y Needs 50%

y Fun 30%

y Save 20%

2. Track your spending; enter numbers twice a month. Use paper, create your own spreadsheet or use an automated program.

3. Stay with it for at least six months and review.

Guidelines y Simpler is better

y No more than one hour a month on this activity

y Break credit card bills into right categories

y Track cash of greater than $5

y No “miscellaneous” or “other” categories

Where to Stash Your Cash

Put most of your emergency cash in a high-yield savings account at an Internet bank like the ones at American Express, ING, Ally Bank and HSBC. Find more information at their websites. Also, check out www.bankrate.com for information on current interest rates for savings ve-hicles.

Use Debt Wisely

Try never to borrow to buy a depreciating asset. This includes cars, horses, boats, or computers.

Should You Pay Off Your Mortgage?

Like many questions in the personal financial world, the answer is “it depends.” But that said, my bias is to not pay off a mortgage for the simple reason that I like using other people’s money to make money for me. Here’s an example of what I mean.


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Suppose you buy your house for $500,000 and you owe the bank $250,000 on a mortgage. That means you have equity of $250,000. If the house appreciates in value 3% a year for 10 years, it will be worth approximately $671,958.

Assuming you are not paying down the mortgage, your equity in the house will have increased to $421,958 or $171,958 in ten years. The simple average annual rate of return on this investment is about 6.8% per year. This is a pretty good rate of return when you consider that you get to live in the house and probably deduct the interest pay-ments on your taxes in the meantime.

I realize that keeping a house mortgage is not all about the money. As you get closer to retirement, you may want to be free and clear of a mortgage, and that’s fine, too. As I said in the first paragraph, the answer to the question of whether you should pay off your mortgage is dictated by your facts and circumstances.

Special SmartMoney Rules™ Note on House Appreciation

Fidelity Investments did a study several years ago and looked at the long-term rate of appreciation for residential housing. Their conclu-sion: houses gain in value at a rate that is slightly higher than the rate of inflation. If we assume that over time inflation will be about 3% per year (which it has for the last 100 years or so), you can see that your house is probably going to increase in value about 3% per year. The go-go years of the last 10-15 years are not apt to repeat themselves when it comes to housing value increases.

How to Divide Self-Employment Business Income

Some of our clients have a small business or their spouse or partner have one. Here is a simple way to divide the after-expense income from the business:

y 1/3 for taxes and benefits

y 1/3 to reinvest in the business

y 1/3 for the owner to spend however she/he wants


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SmartMoney Rules™ About TaxesPlan to pay for what you owe. No more or less than is required by law. If your tax situation is simple, do your own tax return preparation using one of the tax form preparation software tools. But if your tax situation is complex or you simply don’t want to do them yourself, hire a good tax preparer. Peace of mind is priceless.

Financial Freedom Tip: Use a Fee-only Financial Advisor

Here’s proof of the value of paying an adviser to help you with your personal finances.

Proof #1: Dalbar Study

The Dalbar research group is an independent company that provides information to the financial services industry. They study, among other things, how individual investors act. According to Dalbar, over the last 20 years, the individual investor has earned investment returns that are about 5% per year less than if the individual investor had simply put their money in an un-managed stock index and left it alone. If you go it alone as an investor, you are very susceptible to the twin rocks that sink most investors’ success: fear and greed. An investment adviser has one primary job: help you to avoid these rocks that sink so many well-intentioned investors.

Proof #2: Brightwork Partners Study

In a study that was completed in the first quarter of 2011, Brightwork Partners found that people without professional financial planning ad-vice are on track to replace 61% of their income in retirement; people who use an advisor are on track to replace 82% of their income at retirement. This advantage is consistent at every income level. And let me put this into perspective for you: if you cannot replace at least 80% of your income in retirement, you are going to be very unhappy. In fact, 80% is probably way too low, but replacing 60% of your pre-re-tirement income when you retire means you’re going to be working way beyond age 65 and probably living well below your current life-style. Does that scare you? Good. Commit to doing what it takes to get to the 90% income replacement level NOW!

Still, as Buddha said, “It is you who must make the effort. Masters only point the way.”


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smartmoney rule #5

Know How Much Is Enough for Retirement

Fidelity Investments released a report in September 2012 that said their rule of thumb for how much someone needs to have saved for retirement is eight times their final annual income. The

trouble with this number is that it’s probably wrong for most people. In fact, a study by Aon Hewitt published last spring said people need 11 times their annual income and a New York Times article said 20 times final pay is the right number.

What is the right answer? As with many money questions, the answer is “it depends.” It depends on how much you’re going to spend in re-tirement. How much will you spend on housing, on travel, on health care and long-term care, and food and eating out and new cars?

A bare bones existence costs much less than a more comfortable re-tirement lifestyle. The Fidelity study assumes a retiree can live on 75% to 85% of their pre-retirement income. That may be a pretty sparse lifestyle for many. In retirement plans we prepare with our clients, we assume that your living expenses in retirement will be about the same as when you are working. While you may spend less on work-related items, you will spend more on leisure activities, plus the cost of health care will be higher when you retire.

How much you need to have saved when you retire also depends on your definition of “retirement.” The definition of “retired” in my fa-ther’s generation meant no paid work whatsoever in retirement. But that has changed as people are healthier when they reach age 65 and they may need to work to have a comfortable lifestyle in retirement.


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If your definition of “retirement” means no work, you are in the mi-nority. A recent study by the Employee Benefits Research Institute (EBRI) indicates that 70% of workers plan to work for pay in retire-ment. EBRI also surveyed retirees who work. While many who were surveyed report non-financial benefits of work in retirement, 90% in-dicate that they need to work in order to pay for lifestyle extras, to offset a decrease in their savings or investments, needing money to make ends meet or keeping health insurance or other benefits.

How much you need to have set aside for retirement also depends on how long you’re going to live in retirement. The average person who retires lives to about age 85 (women a little longer and men a little less). Fidelity assumed a life expectancy in their study of age 85. But as we say in the financial planning biz, the risk of outliving your money is too high to be wrong, so we always use age 95 as the minimum life span and age 100 if we want to be more certain.

The “number” for retirement also depends on how much you want to have left when you die. I know many clients who are planning to leave something to their kids, or grandkids, or favorite charities. Other clients have said they want their last check to bounce.

In summary, there is no one answer to the question of how much you need to have saved for retirement. The Fidelity study is useful because at least it gives people a number to think about. But the Fidelity study does everyone a dis-service because I think it understates how much you need to have saved by the time you retire. How much you need to have saved for retirement is personal and individual to you. Call or email us at JPFP, if you would like to talk about how to get a good estimate of your retirement savings number.

Retirement Savings Guidelines

Save this percentage of your gross income:

10% in your 20s

15% in your 30s

20% in your 40s and 50s


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Smart Money Rules™ When You’re Getting Close to Retirement

1. It’s all about mindset:

a. Be flexible – this is entirely new territory for you so don’t go in with pre-conceived notions. As my business coach is fond of saying, “Build the airplane as you fly it.”

b. Be prepared to spend down assets you’ve spent a lifetime accumulating and protecting.

c. Think of a dollar as a dollar no matter if it comes from earnings or principal.

2. After health, the three most important keys to retirement hap-piness are:

a. Where you live

b. What you do, and

c. Who you do it with.

3. Prepare early enough, but not too early; read What Color is Your Parachute for Retirement by Bolles and Nelson at least 18 months before your target date.

4. Have three years of living expenses in cash before you retire.

5. Know what your Social Security retirement income options are (go to http://www.socialsecurity.gov/mystatement/ and sign up; paper statements aren’t mailed anymore).

6. Know what to do about Medicare.

7. Know how you’re going to pay for long term care.

8. Consider paying off your mortgage if you can.

9. Determine whether to roll over your employer sponsored sav-ings plan. Figure out which discount broker you want to use (Fidel-ity, Vanguard, Schwab, TD Ameritrade for example).

10. Figure out how much you’re spending now, in order to know how much is enough in retirement.


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11. The two biggest threats to retirement happiness are inflation and health.

12. How you take money out of your portfolio is going to be a chal-lenge because it’s very different than how much you put into your portfolio.

13. Use a reverse mortgage only as the very last alternative; this vehi-cle is complicated and expensive; there is a reason that counseling is required before a person gets one.

14. Make sure about 25% of your income is “annuitized” (meaning you can’t outlive the income) and this includes Social Security.

15. One thing that surprises many retirees is that their social circle changes when they retire. Working has a built in social element and when you retire, that’s gone. So be prepared for losing your “friends” when you retire. If you don’t have a social circle out-side of work, start to build one now.

Final Thought on Retirement: Financial Wisdom from Retirees

What a retiree would likely tell you:

y Spending stays the same or rises.

y Inflation is the enemy.

y Borrowing is not an option.

y Kids will keep asking.

On this last one, have a point of view with your spouse or partner and take a stand. Communicate your perspective to your kids before they ask.


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smartmoney rule #6

Invest Wisely

y It’s not what you make that counts; it’s what you keep. y There is no such thing as a free lunch. y Investors are motivated by fear and greed. y The future is unknowable. y People fear a loss more than they enjoy a gain.

Five Simple Rules for an Effective and Efficient Portfolio

1. Choose the right balance between stocks, bonds and cash for you.2. Diversify within each of these categories.3. Passive beats active.4. Keep costs low.5. Rebalance.

The Cycle of Market EmotionsMy colleagues at Loring Ward (www.loringward.com) coined this phrase. It refers to the ups and downs that we all have when it comes to investing. It looks like this:


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Our emotions follow this wave-like pattern when it comes to invest-ing. Just before we reach the crest of the first wave, we’re optimistic, excited, maybe even elated and many investors buy during this “time to buy” emotional wave. Then, when the markets start to correct as they always do, many investors start to be concerned, nervous and finally alarmed as the wave becomes a trough. Many investors sell during this “time to sell” period. And that period is usually followed by “a time to re-evaluate” phase when markets start going back up and many investors start jumping back into the market at that point again.

Got the picture? Investors buy securities at the top of the market (top of the first wave), sell when the trough comes along and then buy as the next wave of emotion takes over.

The problem is that this cycle of market emotions is guaranteed to lose money if you are buying and selling. You can avoid this cycle of market emotions by creating a long-term investment approach and sticking with it. Create your own cycle of market emotions only in-stead of it being shaped like a wave, it will be shaped like a gentle, upward sloping hill. You will be putting money aside all along the up-ward trek and looking back at the earliest purchases that were much lower and thinking to yourself, “I’m sure glad I’ve been consistent in my investment approach.” Imagine what that will feel like.

The dominant determinant of long-term, real-life return is not investment performance but investor behavior.

— Nick Murray

What “Diversify” Means

After you choose the right balance between stocks, bonds and cash that’s right for you, the second SmartMoney Rule™when it comes to investing is to diversify between different asset classes. The goal is to divide your assets among different asset classes—things that act dif-ferently in different situations. The rising tide tends to lift all boats in a particular harbor about the same.

There are about 10 asset classes:

y U.S. large cap stocks


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y U.S. small stocks y U.S. mid-cap stocks y Non-U.S. large stocks y Non-U.S. small stocks y Real Estate Investment Trusts (REITs) y U.S. bonds y Non-U.S. bonds y Commodities y Cash

There are some subsets of these asset classes, but this list pretty much covers the spectrum. Divide your investment dollars equally among these 10 categories and you will have a diversified portfolio.

For more information about how to build a diversified portfolio, try reading The Investment Answer by Dan Goldie and Gordon Murray. In 85 pages, they cover the subject about as well as anyone ever has.

The Benefit of Socially Responsible Investing (SRI): Do Good as You Do Well!

There are two approaches to SRI: emphasizing social aspects or sustainable views. Social investing means avoiding companies that manufacture weapons, have anything to do with alcohol, tobacco or gambling, or do business in countries with poor human rights prac-tices, like Sudan.

Sustainable investing focuses on excluding companies that have a rel-atively negative impact on the environment and emphasizing compa-nies that have a relatively positive impact on the environment. For ex-ample, companies that might be excluded from a sustainable investing approach might be those related to:

y Agricultural chemicals y Negative climate change y Hazardous waste y Ozone depleting chemicals y Regulatory problems


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y Substantial emissions y Negative economic impact y Other environmental concerns.

Companies that are emphasized in a sustainable portfolio might be ones with these positive factors:

y Beneficial products and services y Clean energy y Environmental management systems y Pollution prevention y Recycling

Independent, academic research shows that a well-diversified portfo-lio that emphasizes either social or sustainable investing earns about the same return as a traditional portfolio. This is remarkable and the reason this section is titled “Do good as you do well.” If you want to read more about SRI, we prepared a special report that is available on our website.

The Differences Between an ETF and a Mutual Fund

We use mutual funds and exchange traded funds (ETFs) in many of our portfolios. Some clients ask us about the difference.

A mutual fund pools the assets of its investors and invests the money on behalf of those investors. The companies that issue these funds, such as Fidelity or Vanguard, manage the pool of money on the investors’ behalf.

— Dave Kansas, author of The Complete Money and Investing Guidebook

On the other hand, an ETF is a relatively new animal on the investment scene. An ETF is like a mutual fund in that it holds a basket of stocks; but it’s unlike a mutual fund in that an ETF trades like a stock, that is by the minute. There are some other differences, too:

y A no load mutual fund often can be bought or sold without a fee; an ETF has a trading fee (usually about $10 per trade).

y The average mutual fund has an expense ratio of 1.4%, although index mutual funds (like the ones from Vanguard) have much


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lower expense ratios; ETFs have low expense ratios – typically less than .5%, although Vanguard and other custodians offer ETFs with expenses as low as .1% percent.

For many of our Do-It-Yourself clients we recommend a portfolio made up of mostly ETFs because of the low expense ratios.

A Final Investing Thought

Investment success is not about market timing; it’s about time in the market. Remember that investing is like planting a tree. You wouldn’t run out and pull up the roots of a newly planted tree weekly to see how it’s doing. Neither would you pull up a tree you planted last year and plant a new one because you read something in the newspaper about the newest and best type of tree. Patience and consistency have more to do with investing success than any other human traits.


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smart money rule #7

Review Your Plan Regularly and Adjust

“Nothing endures but change.”— Heraclitus

Review your overall financial plan and its parts at least once a year. When it comes to investments, reviewing and rebalancing two or three times a year is good. Of course, if something major changes in your life – marriage, birth, death, divorce, change jobs, lose job, big salary increase, etc. – then review your plan and adjust.

An annual review gives you a chance to gauge your progress on your major goals and to review if those major goals are still relevant. It is also a time to celebrate successes and pat yourself on the back.

If you work for an employer with benefits, you can usually review your benefits once a year and make changes then. And, if you have a Flex-ible Spending Account, you usually have until three months after the end of the plan year to use up the money in the account or lose it.

I suggest that you develop an annual ritual of review, reflection, com-munication and celebration around money. My wife Nancy and I do our annual review on New Year’s Eve. We look at our net worth state-ment, reflect on how it’s changed since the year before, and make plans for the New Year. Then we toast each other and appreciate the abundance that is all around us.

As you look forward, don’t expect the year to unfold exactly as you plan it. Like riding in an airplane traveling from Boston to Seattle, tak-ing care of your money is not a straight path with no variations. You’ll


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eventually get there, but expect bumps and changes in elevation along the way.

Chaos is inherent in all compounded things. Strive on with diligence.

— Buddha

Favorite ResourcesFor interest rate information and mortgage calculator:www.bankrate.com

Personal finance articles and information:

www.getrichslowly.com

www.iwillteachyoutoberich.com

http://money.msn.com/

Favorite books:

The Investment Answer by Dan Goldie and Gordon Murray

The Coffeehouse Investor by Bill Schultheis

A Random Walk Down Wall Street by Burton G. Malkiel

Bogle on Mutual Funds by John Bogle

I Will Teach You to Be Rich by Ramit Sethi

What Color Is Your Parachute for Retirement by Richard Bolles and John Nelson


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About Steve Juetten, CFP®

People hire me for my head, pay me for my heart and trust me most when I use both.

— Steve Juetten

Since 2001, busy career professionals have trusted Steve for personal financial guidance. All are treated to the same simple, respectful and direct counsel that comes from being raised in the Midwest and loving what he does.

Steve’s approach is to help clients identify where they want to go in their lives, evaluate where they stand now from a financial perspec-tive and help them create and follow the financial steps that guide them to achieve their goals.

If you’re looking for someone to help you take care of your money so you can get on with your life, consider engaging Steve. He is a fee-on-ly CERTIFIED FINANCIAL PLANNING professional, based in Bellevue, Washington.

“Fee-only” means that Steve does not sell any products (other than an occasional book he writes) or take commissions, so clients can trust his objective, independent advice and counsel.

Of all financial advisors in the U.S., only 20% hold the CERTIFIED FINANCIAL PROFESSIONAL (CFP®) designation. A CFP® financial advisor completes rigorous college level finance courses, passes a difficult exam and agrees to follow a high-standard of ethical standards when dealing with clients.

His clients seem to like what he does to help them. Seattle Magazine has named Steve a 2011, 2012 and 2013 recipient of its coveted FIVE STAR Wealth Manager award. Of the many financial advisers in the Seattle area, only about 6% earn this honor.


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Schedule Your Get Acquainted Session Today

If it’s a good fit, I’d love to play a role in tending the garden that will deliver the bounty you want for your financial future.

Email: [email protected]

Phone: 425-373-9393

Visit our web site at www.finpath.com

FINANCIAL PLANNING, SAVING, INVESTMENT

Take care of your money so you can do more of what you love!

Here is a practical book that is easy to read and easy to use that will help you to take care of your money so you can reach your life goals. But be warned! There are no get-rich-quick tips or ideas on how to “beat the market” here. Instead, there are six practical SmartMoney Rules™ that you can follow to get to your financial independence goals.

Using SmartMoney Rules™ Little Green Book, you will create the right approach for taking care of your money. For example you’ll learn how to:

• Developtherightmoneymindset• Protectyourselfsoyou’rereadywhenyouhitbumpsintheroad(andwealldo!)• Usecashflowanddebtwisely• Knowhowmuchisenoughforretirement• Investwisely

Plus,thisbookhassomeofSteve’sfavoritepersonalfinancesayingssprinkledthroughout to make it interesting and fun to read as well as practical and helpful.

Praise for SmartMoney Rules™ Little Green Book

I read Steve’s book and found it to be a collection of concise and easy to understand rules for a path to financial freedom. Follow the steps outlined in the book, and money issues and planning for the future can become stress free. — Joan,Kent,WA

Steve offers principled, objective advice that can help alleviate the fear of the complexities of financial planning. His book is logically organized, concisely written, fundamentally sound guidance for those starting out with planning their financial affairs or for those who find their financial planning in need of a better structure. Love your book! It’s like talking to you in person. — RonJackson,MSW,Seattle,WA.

Steve Juetten, CFP®

People hire me for my head, pay me for my heart and trust me most when I use both.

— Steve Juetten

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