Saving for College? Here are 5 Accounts You Can Start Using Now

Saving for College? Here are 5 Accounts You Can Start Using Now

 

It’s true what people say about having kids: the days are long, but the years are short. Sometimes our busy, ever-changing lives leave us wondering: “Where did the time go?” When it’s time to send your child off to college, you may feel sentimental, but there’s no need to feel unprepared. With so many options to save for your child’s future, you’ll be able to find the one for you.

 

Invest in a 529 Plan

When saving for your child’s future, 529 Plans are a popular choice. These savings accounts offer tax advantages similar to a Roth IRA. When your child is ready to go to college, you can make tax-free withdrawals to pay for qualified education expenses.

Benefits

  • You can open a 529 plan as soon as your child is born. This allows the money to grow over a longer period of time.
  • The funds apply to both undergraduate and graduate programs at any two- or four-year institution.
  • They allow up to $300,000 in lifetime contributions.
  • If your child doesn’t go to college, you can change the beneficiary.
  • Some K–12 expenses may qualify under the 529 plan, such as tuition and fees.

Drawbacks

  • Any funds not spent on qualifying expenses are subject to income tax and a 10% tax penalty.
  • You are required to report withdrawals on the FAFSA if the account is owned by someone other than the parent. This could negatively impact the student’s eligibility for financial aid.

 

Consider a Roth IRA

Roth IRAs are typically used for retirement savings, but you can also use them to save for your child’s future. You can’t take distributions on Roth IRAs penalty free before 59½. However, any account open for at least five years can be used for education, so make sure you open the account no later than your child’s 8th grade year.

Benefits

  • Distributions are tax free and penalty free as long as they are used for qualifying education expenses.
  • After graduation, the account can still be repurposed as your retirement account.
  • The value of the retirement account is not included in a FAFSA application.

Drawbacks

  • Roth IRAs have annual contribution limits of $6,000. An average year at a university can cost upwards of $20,000. So, it would be difficult to save enough money with a Roth IRA account unless you start early.
  • Remember, any withdrawals from a Roth IRA are considered income, which will be reported on a future FAFSA. This might impact your child’s chances for financial aid.

 

 

Coverdell ESA

A Coverdell Education Savings Account (ESA) is a great alternative to a 529 plan. It is a tax-deferred trust account with high potential for growth.

Benefits

  • Savings can be used for primary and secondary education as well as college.
  • There is more flexibility in what is considered a “qualifying expense.” Parents can use the funds to pay for school uniforms, tutoring, and other K–12 programs.

Drawbacks

  • Annual contribution limits are set at $2,000 per person, per year.
  • You also cannot make contributions after age 18. All funds must be spent before the beneficiary turns 30.
  • There are also income limits on who can contribute to a Coverdell ESA account.

 

 

Custodial UGMA/UTMA

Custodial accounts are another great way to save for your child’s future. With a Custodial UGMA/UTMA, you have the ability to transfer assets to your minor children and enjoy tax breaks.

Benefits

  • When the assets are transferred, a portion of the value of the assets is taxed at the child’s tax rate, and the rest is taxed at the parent’s tax rate.
  • Since this is only a transfer of assets, there are no restrictions on how the money should be spent, other than the benefit of the child.
  • A custodial account allows any asset (not just cash), such as stocks, bonds, art, and real estate, to be transferred to a minor.

Drawbacks

  • Since the assets are owned by the child, parents have less control over how the money is spent.
  • These accounts will have to be reported on a FAFSA, so there is a chance for them to negatively impact financial aid.

 

Savings Bonds

Savings bonds are issued by the US government and can be purchased from a financial broker or directly from the US Treasury. They may be a good option for more conservative investors, at least for a portion of your investment strategy.

Benefits

  • Bonds are low-/no-risk investments since they are backed by the federal government.
  • If you invest in Series EE or Series I bonds, interest earned is tax free when funds are used for qualified education expenses.

Drawbacks

  • Incredibly low rate of return. You’ll need a backup savings plan.

 

When it comes to financial planning, you’ll also want to consider making sure you have your retirement accounts set up first. A certified financial planner will help you decide which account is the best option when saving for your child’s future. He or she can monitor all of your accounts and suggest any changes needed to secure a bright financial future for you and your family.

 

 

 

 

Written Exclusively for Merriman.com by Lyle Solomon

Lyle Solomon has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. Since 2003, he has been a member of the State Bar of California. In 1998, he graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, and now serves as a principal attorney for the Oak View Law Group in Los Altos, California.

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and it is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. .  Facts presented have been obtained from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.

Thinking Through Cryptocurrencies | Part 1

Thinking Through Cryptocurrencies | Part 1

 

It seems like everyone nowadays is talking about cryptocurrencies. Whether it’s the proselytizers on CNBC or the techie next door, it feels as if everyone is either talking about or buying into this next big thing.

Trying to adequately explain an emerging technology and it’s economic impact in less then a few thousand words is bound to neglect certain facets of the subject. This series attempts to cover the technical specification of cryptocurrencies, how they can be viewed in an investment environment, the narratives that accompany this new technology, and the future impact, applications, and risk of the cryptocurrency universe.

 

What Is a Cryptocurrency?

The first cryptocurrency, Bitcoin, was originally imagined as a system of value exchange that could bypass institutions and instead allow users to make transactions on a peer-to-peer basis. For such a network to succeed, there had to be a way to verify the veracity of the transaction for both parties.

This is where the revolutionary technology called the blockchain comes in. The blockchain can be visualized as its name suggests: a chain made up of individual blocks of transactions. At its heart, this is what Bitcoin is: a series of transactions leading up to the current moment. When an individual buys Bitcoin, they are simply adding their name to the transaction list (or ledger), saying, “I have bought x number of Bitcoins.” Of course, it’s not as simple as adding a line.

Bitcoin works by having computers (or nodes) confirm and document transfers. When a transaction between Person A and Person B occurs, this transaction is sent out over the Bitcoin network. These nodes then verify that Person A has the right amount of Bitcoin to transfer to Person B by looking at the blocks of historical transactions on the chain. Once the majority of nodes on the network (50%) verify that a transaction can take place, it is added to the blockchain transaction log.

This verification process is where Bitcoin miners come into the picture. Miners provide the computers and computer power needed to verify transactions. They provide this service and get “paid” for it by having the opportunity to mint a new Bitcoin. To mint a new Bitcoin, a miner must verify 1MB worth of transactions and find a solution to a cryptographic hash function, which is the difficult part. The Bitcoin miner who verifies the transactions and is the first one to determine the target hash is the one who gets to include a new transaction for themselves, essentially minting a Bitcoin. While cryptocurrencies differ in the exact way that they go about transactions and the minting of new coins, the Bitcoin method is a solid enough base to understand cryptocurrencies at their base level.

 

Where Do Cryptocurrencies Fit in the Investment Landscape?

Cryptocurrencies, especially Bitcoin, are sometimes referred to as digital gold. Like gold and other currencies, they are something that derives their value from the belief that they can be exchanged in the future for something else of value and that the future value will be greater than the present value. The term that is frequently used is “a store of value.” Perceptions of value can change much more quickly than physical objects, which leads to the volatility that has always been present in currency markets, digital and fiat.

One of the advantages of cryptocurrencies, unlike gold or silver, is the ability to store value in an even more concentrated physical form. A 100-gram gold bullion cost about $6,000 dollars in 2020. This gold bullion could be slipped into your pocket or placed in a safe. A small flash drive, smaller than the gold bullion, could essentially hold billions of dollars in Bitcoin.

As with gold, there is a physical limit to the number of Bitcoins that can be produced. There can only be 21 million Bitcoins in the current Bitcoin network. So far, almost 19 million have been mined. Many believe this commodity-like supply will result in the value of Bitcoin rising with inflation—or possibly even faster.

Cryptocurrency advocates have discussed how this feature also makes digital currencies immune to the hyperinflation that can result from governments printing money. On the one hand, that is true. However, on the other side of the coin, the creation of a new Bitcoin or other cryptocurrency via mining injects new money into the supply. And as has been seen with gold historically, short-term, localized abundance of even a limited supply commodity can result in hyperinflation. The famous 1849 Gold Rush in California is a perfect example of the phenomenon. The prices for various goods like eggs, bread, and boots in the local area rose to more than three times the original price. Allowing for the lower accuracy of CPI data from the late 1800s, there is general consensus that the various gold rushes of the era from the U.S., Australia, and South Africa all resulted in increased inflation rates. So, while cryptocurrencies may be more immune from government influence, it is unlikely that they are immune to supply and demand shocks.

Other types of cryptocurrencies, such as Ethereum or Cardano, offer different use cases by allowing the creation of new cryptocurrency assets or non-proof-of-work methods. The full effect of these other types of cryptocurrencies remains to be seen. One Ethereum-based crypto asset that has seen a lot of recent attention is the rise of Non-Fungible Tokens (NFTs). These tokens represent a unique digital item and are not interchangeable. This has created a marketplace for artists to sell digital items with the authenticity guaranteed by the blockchain. Many of the applications of varying alternative cryptocurrencies are still being figured out at this time. It has yet to be seen whether these become alternate stores of value or simply new, more efficient ways to transact.

 

Watch for the next installment where we discuss cryptocurrencies and recent market conditions.

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Opinions expressed by Merriman are based on economic or market conditions at the time this material was written.  Economies and markets fluctuate.  Actual economic or market events may turn out differently than anticipated.  Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made.  Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional.  Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place. All composite data and corresponding calculations are available upon request.

The Role of Bonds

The Role of Bonds

 

In Berkshire Hathaway’s most recent annual shareholder letter, Warren Buffett shared his dire forecast for bond investors:

 

And bonds are not the place to be these days. Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.

Thus far, Warren’s negative outlook has proven correct with the yield on the 10-year U.S. Treasury bond rising to 1.74% through the first quarter, leaving bond investors with a negative (3.4%) return.* And with inflation expectations heating up, it is certainly difficult to build a bullish case for bonds. However, most individual investors do not have all their investable assets in bonds. Buffett only considers the investment merits as a standalone investment. Given that most of our clients own bonds within a diversified mix of equities, real estate, and other asset classes, we thought this would be an opportune time to revisit the role bonds play within the portfolio.  

In its most basic form, a bond is a loan to a government entity, corporation, or individual consumer. The investor in a bond is the lender and expects to receive back the original principal along with interest over the life of the loan. Bonds have two main characteristics: quality and maturity.

Quality is a measure of credit risk or the likelihood that the entity will repay the loan. High-quality bonds carry lower interest rates to reflect the low risk of default. In Buffett’s example above, he discusses the U.S. Treasury bond, which has the highest quality and thus a lower interest rate. On the other end of the spectrum, a corporation with a “junk” credit rating will have a much higher interest rate to compensate investors for the additional risk of default. 

Maturity is a measure of interest rate risk. Using bond terms, duration provides an estimate of how sensitive a portfolio of bonds is to changes in interest rates. As an example, if interest rates rise across all maturities by 1%, a bond portfolio with a duration of 10 years can expect to lose 10% in value without including interest payments. The interest rate risk increases with duration and vice versa.

Now that we have the basics in place, let’s discuss more specifically the role bonds play in a diversified portfolio. MarketWise is designed to produce the highest risk-adjusted returns, taking into consideration the long-term expected returns, volatility, and correlations produced by the different asset classes. Bonds play a critical role in that mix. We invest in high-quality U.S. government bonds with short to intermediate (two to five year) maturities with the sole purpose of mitigating risk and providing stability. For taxable accounts, we invest in municipal bonds, which play a similar role while producing tax-free interest. We also own Treasury Inflation Protected Securities (TIPS), which provide protection during inflationary environments. 

The main function of bonds in a portfolio is downside protection. If stocks always went up, there would be little need for bonds or any other asset class. But as we were recently reminded last March, stocks do go down, and when they do, bonds provide that counterbalance, as they typically rise in value during equity bear markets or economic recessions. In fact, since 1976, there have been eight years in which stocks were lower. In each of those years, bonds finished higher to help cushion the blow. This allows us to rebalance during those periods and sell bonds when they are up and buy stocks when they are down in value.

Bonds also have very low overall correlation to stocks. During negative months for stocks, that correlation drops even further. But that also does not mean bonds always have negative returns when stocks are up. In fact, bonds are slightly positively correlated to stocks during up periods. We recently saw this in 2020 with both stocks and bonds finishing with positive total returns for the year. 

So, despite the lower expected returns for bonds going forward, it is important to understand the characteristics of bonds and why we own them. That said, our team continues to research ways to improve the fixed income slice of the portfolio. Over the past several years, we added two specialized asset classes in Alternative Lending and Reinsurance to increase returns that are uncorrelated to both equities and bonds. Going forward, we will continue to investigate ways to enhance the role that bonds play within the portfolio.

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.  Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products.  The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.  All composite data and corresponding calculations are available upon request.

 

The 5 Biggest Financial Planning Mistakes Made by Tech Professionals | Recap

The 5 Biggest Financial Planning Mistakes Made by Tech Professionals | Recap

 

I love working with the tech community. I started my career at Microsoft and have since been inspired by the creative and innovative minds of folks working at tech companies large and small. I also enjoy working with tech employees, because as a personal finance nerd, I get to help people navigate the plethora of benefits available that are often only available at tech companies. Between RSUs, ESPP, Non-Qualified or Incentive Stock Options, Mega Backdoor Roth 401(k)s, Deferred Compensation, Legal Services, and even Pet Insurance, it is the benefits equivalent of picking from a menu of a Michelin three-star-rated restaurant.

 

Through my own experience as a tech employee and my experiences now as an advisor working with tech professionals, I’ve identified some of the biggest financial planning mistakes that can hold the tech community back from achieving financial independence and success.

 

Mistake #1 – Not Optimizing Benefits

 

We all are familiar with the paradox of choice. Most people, when faced with a long list of complicated benefits that even some financial professionals struggle to understand, will focus on the areas that are familiar and disregard the rest. Who wants to spend their free time reading about ESPP taxation or the mechanics of Roth Conversions on after-tax 401(k) contributions? Chances are that if you work for a growing tech company, you have very little free time to begin with.

 

While it may not be the most enjoyable use of your evenings or weekends, I can’t emphasize enough how valuable it is to invest the time to learn how to optimize your benefits now. Choosing to invest additional savings in your Mega Backdoor Roth 401(k) over a taxable brokerage account may shave a couple of years off your retirement date. Maximizing HSA contributions and investing the growing account balance can provide for a substantial amount of money to pay for high healthcare costs if you retire before you are Medicare eligible (age 65). Making strategic Roth Conversions during lower income years, such as in early retirement or during breaks from paid employment, can save hundreds of thousands of dollars in future taxes over the course of your lifetime. The list goes on, trust me.

 

If I don’t exercise for a week, or even a month, I probably won’t notice a significant difference in my overall health. If I keep telling myself that I’ll start a workout routine, but years go by without investing my time and energy into making the plan a reality, my physical fitness will take a toll, and I will also lose out on all the amazing benefits that exercising regularly provides. I may look back with regret at some point later in life that maybe certain health issues could have been minimized or prevented if I had spent the time to prioritize what is truly important. It is critical to think beyond how something may impact us in the short term and recognize the long-term impacts of choosing to continue to put something on the back burner. Ask yourself, what impact will this have on my life if I wait a year to prioritize my personal finances? What effect will it have on my life if I wait ten years to prioritize my personal finances? Chances are that impact is even greater than you think.

 

 

Mistake #2 – Building and Maintaining Concentrated Stock Positions

 

I consider a concentrated position to be any investment that comprises over a quarter of your investable assets. It can be easy to accumulate a concentrated stock position in the same company that is responsible for your paycheck. If you receive stock as part of your compensation, without a disciplined plan to sell shares on an ongoing basis, you will continue to accumulate more and more company stock. Over the past several years, countless families have become wealthy because of the stock compensation they’ve received and its seemingly never-ending climb in price. While the strategy of holding onto RSUs and ESPP over the recent past has worked out incredibly well, we know that continuing to maintain a concentrated stock position is incredibly risky if you want to ensure you maintain your newly built wealth.

 

There are two explanations for not reducing a concentrated position that I hear most often: (1) My company has outperformed the rest of the market several years in a row. If I believe in my company and our growth prospects for the future, why would I sell? (2) If I sell my company stock now, I’ll have to pay a significant amount of tax on the gain. Let’s debunk each of these as reasons not to diversify:

 

(1) Typically, returns of a single stock position are intensely more volatile than the returns of a market index. This can work out in your favor, or it can work to your detriment. Historically, about 12% of stocks result in a 100% loss.[1] In addition, approximately 40% of stocks end up with negative lifetime returns, and the median stock underperformed the market by greater than 50%.1 This means that a few star performers drive the positive average returns of the market. The odds of randomly picking one of these extreme winners is 1 in 15.1 If you’ve been lucky enough to hold one of these outperformers, I encourage some humility around acknowledging that maybe being in the right place at the right time has attributed to your rapid accumulation of wealth.

 

Companies that achieve such success and become the largest company in their sector may become subject to what is called the winner’s curse. Since the 1970s, data shows that sector leaders underperform their sector by 30% in the five years after becoming the largest company in that sector.1 Over a long time horizon, you are probably more likely to obtain positive investment returns by ensuring you hold the future Microsofts and Amazons of the world through broad diversification, not concentration.

 

(2) I hate to tell you this, but unless you hold onto an investment until you die, you will have to pay tax on the growth at some point. I encourage people to think of paying long-term capital gains taxes as a good thing, because it means your investments went up and you made money. A surprisingly small fluctuation in stock price can wipe out any benefit of delaying the recognition of capital gains tax. As advisors like to say, “Don’t let the tax tail wag the dog.”

 

 

Mistake #3 – Burning Out

 

There has been a significant decline in Americans’ use of vacation time. Twenty years ago, the average American took almost three weeks of vacation per year. As of 2016, Americans average only about 16 days of vacation per year, almost a full week less. You might think that improvements in technology over this 20-year timeframe would allow us to be more productive and therefore take more time off. It seems that the curse of this increased productivity is a greater reluctance to disconnect from work and give ourselves the permission to unplug.

 

Taking more time off has a positive impact on your physical and mental wellbeing. For those that need more convincing to submit a PTO request, research has found that those who take vacations are more likely to get promoted than those who underutilize their available time off. Taking steps to prevent burnout can not only lengthen your career and make it more sustainable, but it can also get you an increase in title and a pay increase. If that isn’t a compelling argument for taking a vacation, then I don’t know what is. At Merriman, we want to help you achieve your definition of living fully, whether to you that means taking time off for an epic adventure or maybe you have a larger goal of making work optional.

 

 

Mistake #4 – Poor Risk Management

 

Here are some fun facts for your next socially distant dinner party. If you are a 40-year-old male and you were in a room with one hundred other 40-year-old men, statistically speaking, two of those men will pass away before they reach their 50th birthdays. Another seven will have passed away before they reach their 60th birthdays, and another thirteen won’t make it to their 70th birthday. Close to a quarter of forty-year-old men will die before age 70. Do I have your attention now?

 

I don’t bring these grim statistics up to scare you. I bring them up because I’ve seen first-hand how a failure to plan for risk and the realities of life can cause significant financial harm during an already emotionally devastating time. Nobody enjoys talking about death and disability, but it is a fact of life that we will all pass on at some point. It is only fair to the people we love that we at least protect them financially.

 

Estate Planning and Insurance Planning are often the two most overlooked areas in a financial plan for folks that have not worked with an advisor. Financial advisors will also tell you this is often where we see our clients procrastinate the most. There are many things in life that feel urgent but are not actually important. We put off the important items, like drafting an Estate Plan, to answer our emails and do other tasks that have more of an immediate pull on our time and energy. There will always be those items to complete that feel pressing, but try to think through the consequences of not completing your will or obtaining life insurance if, in fact, your time has actually run out.

 

 

Mistake #5 – Not Hiring an Advisor

 

Yes, I get it. Hiring an advisor means paying fees. And hiring a bad advisor can be more harmful than helpful. But just like everything else in life, there can be a lot of value in employing the knowledge and resources of an expert. I don’t cut my own hair for a reason, and I wouldn’t dream of providing my own defense in any sort of lawsuit. If you have a handle on your investments, are rebalancing your portfolio like a pro, and have done extensive research on your company’s benefits and how to utilize them, then by all means, carry on, you fellow financial-planning nerd. I wish everyone fell into this category, but it is rare that I talk with someone who doesn’t need help in at least one major financial planning area.

 

If you do hire someone, be sure to hire a fee-only fiduciary advisor. You’ll need to explicitly ask this question, and if the answer is no, I suggest you run far, far away. Also, if you’re afraid of commitment, ask what the process and cost is of leaving an advisor if you aren’t seeing value from the relationship. Work with an advisory firm who isn’t going to make it difficult or expensive to end your relationship. Without any significant barriers to exiting the relationship, your advisor will be motivated to make sure you are getting great service and will want to remain a client for years to come. If you’re looking for an advisor you’re compatible with, consider perusing our advisor bios. If you’d like to discuss your situation, don’t hesitate to contact me.

 

 

 

1 Avoid Gambler’s Ruin: Bridging Concentrated Stock and Diversification

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

 

 
Navigating Healthcare Options

Navigating Healthcare Options

 

We strive to deliver peace of mind to our clients, not just about investments and taxes but about everything that touches their financial lives. One subject that continually comes up is healthcare. How will I be able to afford healthcare? Should I work until age 65 so that I qualify for Medicare? To help answer this question, we partner with outside experts to help our clients evaluate different healthcare options. We spoke to Ed Steffens at Propel and asked about health insurance through the Exchange versus COBRA.

 

How do you help your clients?

I help clients navigate their options with individual healthcare, Medicare, life insurance, and long-term care insurance.

 

COBRA vs Affordable Care Act (ACA)

Since the rate increases in the individual market back in 2017, COBRA is usually the better option, depending on the tax credits (subsidies) available to you. If you have to pay full price on the ACA exchanges, COBRA plans tend to be better. The network of doctors with the COBRA plan option has fewer limitations and is generally available throughout the US. These networks offer coverage in and of network, with higher costs using an out of network doctor.

ACA plans, on the other hand, use more restrictive networks of doctors. Generally, your available network is your home area and surrounding areas. There is no coverage out of network, with exception to true emergencies. In this case, ER and ambulance are covered anywhere in the country.

Before you choose a COBRA or ACA plan, spend time with a professional and/or on the healthcare website: https://www.healthcare.gov/glossary/exchange/ and www.wahealthplanfinder.org.  Subsidies are estimated based on the current year of total estimated MAGI. When determining MAGI, your income includes unemployment benefits and your spouse’s income. If the tax credits are deep enough, ACA may end up being a better option than COBRA.

 

When should people reach out to you?

The sooner the better. Separation from service, marriage, death, permanent move, and the birth of a child are all qualifying events. It might just be a 10-minute call. If tax credits are an option, however, a longer conversation will be necessary. For Medicare, please reach out three months before your 65th birthday. 

 

How are you compensated?

I am compensated by salary and not by enrollments. This allows me to work in the best interest of my clients.

 

What kind of clients do you most enjoy working with?

I enjoy helping everyone. People who are in their fifties and sixties are the most common clients I work with, as they are more likely to experience the above-mentioned qualifying events—including those who are contemplating retirement. I am unable to help people with Medicaid though Such cases are redirected back to the state. 

 

What would you tell someone who does not think they should retire because of the cost of healthcare?

People should analyze their situation and explore the options. They are often pleasantly surprised. It should really be explored on a case-by-case basis, regarding both the coverage available and the cost of coverage. This analysis should be taken into account along with the individual’s entire financial picture in order to make this life transition.

 

What are common misconceptions about healthcare on the open market?

It goes both ways. Some people think they should get tax credits but don’t. Other people think they won’t get credits and do. The amount of tax credits you may receive is unrelated to the level of health coverage (labeled as Gold, Silver, or Bronze, depending on what coverage you purchase). In general, the three tiers of health coverage look like this:

Bronze level plans: Lowest cost, highest deductibles, highest cost sharing after deductible.

Silver level plans: “Reasonable” cost, deductibles and cost sharing.

Gold level plans: Highest cost, highest level of coverage, lowest deductibles and cost sharing.

 

Tell me about the recent changes in the stimulus package. 

The new administration opened new enrollments through May 15, and then extended it to August 15t. They raised income limits on tax credits. Everyone has an opportunity to make changes now through August 15th. The government is trying to make insurance as accessible as possible. You can use a subsidy calculator for an estimate.

 

How should clients contact you?

I can be reached at 541.494.7714 or via email at ed.steffens@propelinsurance.com to schedule an appointment.

 

Disclosure: Edward Steffens is a licensed insurance agent/broker for Propel Insurance. All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the article. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any particular individual. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax or legal or accounting advice, and nothing contained in these materials should be taken as such.

Why Diversification Matters

Why Diversification Matters

 

 

You’ve probably heard the saying, “Don’t put all your eggs in one basket,” but what exactly does that mean for retirement planning? Or, put a different way: Why should you care about diversifying your investments?

 

I’ve had a number of conversations lately with my clients who have a concentrated portfolio (sometimes through no fault of their own), and thankfully the past decade has rewarded many of them. Either because of how they’re compensated (i.e., RSUs) or through a laid-back approach to rebalancing, I’ve seen a lot of portfolios with a large allocation to one or a handful of stocks. Mostly, it’s been a concentration in tech stocks (e.g., AMZN, MSFT, GOOG, FB, SNAP, TSLA, etc.), but because of how the recent bull market has been a success story for many large growth companies, I’ve seen lots of different variations all with a common theme: A lot of eggs, all in one basket.

 

First, we need to understand the importance of diversification. Building a portfolio with lots of different types of investments spreads the risk around. Technically speaking, to have a well-diversified portfolio means you have different assets that are as uncorrelated to each other as possible. It’s not necessarily a quantity-over-quality metric. You can easily have a portfolio made up of dozens or hundreds of different stocks/mutual funds/ETFs and still be undiversified if all of those investments behave very similarly. Proper diversification can be achieved by investing in asset classes that are made up of different types of investments (stocks, bonds, real estate, commodities, cash, etc.), by investing in the same type of investment (small-sized company stock vs large-sized company stock), and by investing in different geographic regions (US vs International). Obviously, this is a high-level overview, and there’s a lot of research and effort that goes into building a thoughtfully diversified portfolio.

 

Now, back to why you should care. There’s another famous saying that goes something like this: Wealth can be built with concentration, but it should be protected with diversification. A realistic investment philosophy should be built with planning at its core. I often tell my clients (or anyone that will listen) that it’s impossible to predict what’s going to happen in the market, but we can prepare for the unexpected.

 

“While we can’t predict the markets, we can prepare for them.”

 

If you’ve built up a concentrated portfolio and because of that concentrated allocation you’re closer to retirement than you might have been otherwise: Congrats! I’m not here to chastise anyone for successfully building their wealth. Instead, I’d be remiss if I didn’t ask: What’s next? Or better put: What’s your plan to protect your hard-earned wealth? This is where diversification can make a huge impact on your future retirement plans. A well-constructed and professionally managed portfolio should be able to weather the ups and the downs of different market cycles. It’s very important that I point out that a diversified portfolio is in no way immune to losses, but with the right amount of guidance and discipline, diversification can be the key to long lasting financial freedom.

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.