"Helping You Navigate the Course to Financial Freedom"
 April 2016
"Winter is Coming"

By Leslie T. Beck, CFP(r)

I must confess, I am a big fan of HBO's "Game of Thrones". For those unfamiliar with the show, it takes place in a fantasy world torn by war and political strife. Adding fuel to that potent fire, this land is subject to unexpected climate shifts - long Summers of plenty and prosperity followed by equally long, but unpredictably occurring periods of darkness, cold, and deprivation. (Add in dragons, armies of walking dead, unspeakable violence, and all kinds of magic and you'll get the picture).

"Winter is Coming" is the motto of one of the leading (and much put-upon) Houses in the show, and is repeated often. It is both a literal and figurative warning that despite what is happening in the present, one must always be vigilant and prepared for the inevitable turn of events. 

Only the most resourceful and resilient characters last for very long on GoT, and even those need a little luck, clan support, or help from an unexpected source in order to make it through. But don't get me wrong here - very few (if any) characters have remained unscathed since Season 1. 

This is a show where very bad things happen (often!) to good people. Yet amid such bleakness, the characters strive to stay on track - to maintain their dignity and integrity, while protecting those they love.

As a planner and advisor, I can relate. Through the years, I have often seen bad things happen to good people - most times unexpected. Even the best plans can't anticipate the when's and how's of every possible catastrophe, including financial ones. But I continue to marvel at the strength of the human spirit - the ability to survive, even thrive, in the face of adversity - given the proper support, preparation, and guidance.

I expect that Winter is Coming, in one form or another, for all of us at some point. As in "Game of Thrones", I know the best advice I can give anyone is to pull loved ones close, take full advantage of the good times while they last, plan and save for the inevitable Winter, and always remember that Summer is waiting on the other side.  

The Markets - Calmer waters are welcome

Although we always recommend a diversified portfolio based on your own time horizon and risk tolerance, it's not a strategy that guarantees against losses. Such a portfolio seeks to dampen, but cannot eliminate, the inevitable fluctuations in the markets (equity and fixed income).

Whether we are reviewing an individual stock or a broad measure of equities such as the S&P 500 Index, in reality the current price is quite simply a gauge of market sentiment that takes into account the collective wisdom of all market participants. 
These participants include everyone from the small investor to sophisticated institutions that have created complex models to value stocks - so the big and small, the human and the machine.

Each attempts to incorporate as much publicly available information as possible (and some perhaps not so public!), collectively generating what they believe is a fair price for a stock, bond or industry metric at that moment. As sentiment shifts, so does the price.

In This Issue


Cost Basis is Not Performance
Many clients, especially those who view their accounts online, mistakenly use cost basis to determine whether they have made money or not on an investment.  While cost basis is a valuable tool, its proper use is to determine capital gains or losses for tax purposes.  Using it to determine performance can result in misleading and inaccurate interpretations.

Here's a simple example, courtesy of Vanguard:

You purchase $10,000 worth of two mutual funds - A & B (total investment $20,000).  Shares cost $10 each, resulting in a purchase of 1,000 shares in both funds.

During Year 1, Mutual Fund A increases in value due to market appreciation by $1,000, ending the year at $11,000.  Mutual Fund B pays you $1,000 in dividends, which are re-invested in new shares at $10 each.  The value at the end of the year is also $11,000.

However, because Mutual Fund B purchased new shares with the dividends, you now own 1,100 shares of B worth $10 each, with a cost basis of $11,000.

Using cost basis to judge returns, it appears that Mutual Fund B, with a new cost basis of $11,000 and a year end value of $11,000 did not increase at all.  Mutual Fund A, with a cost basis of $10,000 and a year end value of $11,000 appears to have done better.

This is, of course, an illusion.  Both funds returned $1,000.  Over the years, this type of distortion only grows when using cost basis as a proxy for performance.

Please call us if you have questions about the performance of your investments.

Helping Adult Children

It happens often.  You receive a call from an adult child or grandchild, asking for some type of financial assistance.  It could be a one-time request, due to special or unexpected circumstances.   But occasionally it becomes something more than that - an expectation of continued cash support; temporary accommodation that lingers beyond "temporary" (moving in or baby sitting are 2 common examples); or in its extreme abuse and fraud.

How to provide assistance to loved ones and without jeopardizing family harmony and your own financial future?  Here are a few tips to consider:

  1. Is it a loan, or a gift?  Clarify this at the outset.  If a loan, remember that to qualify under IRS regulations the interest rate on the loan must meet certain minimum standards.  You may want to consult with your accountant or estate attorney to address any tax consequences or legal pitfalls in making the loan.  At the very least, create a written agreement outlining the terms of the loan, and have both parties sign it.   If a gift, remember that any amount given over $14,000 (joint gifts up to $28,000) requires the submission of a Gift Tax Return (Form 709).
  2. Determine the impact on your future finances.  Ask your advisor to run a simulation on the impact of the support to your own finances before making any commitment.  Small gifts should have a minimal impact, but larger amounts could mean a significant change in the ability to maintain your own financial security.
  3. Think out of the box.  Is there another way to provide support without handing over large sums of cash? Consider providing a temporary supplement over time, linked to the unexpected expense.  
  4. Consider family dynamics.  Family money dealings are always fraught with the potential for bad feelings, sometimes lasting a lifetime. Communicate openly and honestly - if appropriate, consider making a similar gift or offer to other children, letting them know assistance is available to them as well should they need it (and if you can afford it!)
  5. Blame your advisor.  I always tell my clients to blame me when dealing with needy children/grandchildren.  I'm happy to sit down with family members, either individually or as a group, to brainstorm about solutions to family financial problems.  
As I often point out, in the long run a family is better off when parents can provide a happy, healthy retirement for themselves.

Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA), Member FINRA, SIPC. Supervising office at 678-954-4000. Financial planning offered by Compass Wealth Management LLC. Leslie Beck and Martin Siesta are registered representatives and investment advisor representatives of SFA, which is otherwise unaffiliated with Compass Wealth Management. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary.  Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.  For more information visit www.compasswealthmanagement.net