7 Reasons to Consider a Prenup

I believe Kanye West said it best when he said, “We want prenup!”

There is nothing that can kill the romance of upcoming nuptials more quickly than your partner asking you to sign a prenuptial agreement (aka prenup). But do you know what can really kill the romance? Divorce! Perhaps you are thinking, “our relationship is going to last… we’d never get a divorce.” Well let’s face it, I don’t think anyone goes into a marriage thinking that in 5-10 years they are going to split. Other people may think that the agreement is only for the rich… this is actually a misconception. While it’s true, a prenuptial agreement may not be right for everyone, the following are a few scenarios in which it will make a lot of sense:

1: One partner earns the majority of the income. If you know going into a marriage that one person will be the primary “bread winner,” a prenup can be used to determine the amount of alimony that will need to be paid upon a divorce.

2. What about the partner that doesn’t make a lot of money? The prenup can also be used to make sure that the partner who is less financially set is protected in the event of a divorce.

3. For the spouse with substantial assets. If you own a home or other substantial assets prior to a marriage, you can use a prenup toestablish that those assets that came with you, will leave with you.

4. For the stay-at-home parent: This will obviously affect your income. If it is decided prior to marriage that one parent will stay at home with the children, a prenup can be used to make sure that each parent shares in the responsibility of taking care of the children financially.

5. One partner has a significant amount of debt. A prenup can establish who will be responsible for paying off debt in the event of a divorce. This can prevent you from getting straddled with debt that the other spouse created prior to marriage.

6. Children from a previous marriage. When entering into another marriage you need to make sure that you kids are protected from another divorce. This can ensure that in the event of your death/divorce that assets that should be going to your children won’t go to your disgruntled spouse.

7. You own a business. It is possible that in the event of a divorce your spouse will end up owning part of the business. Your partner will then go from being an unwanted spouse, to an unwanted business partner. Establishing that the business is off limits in a prenup can prevent this from happening.

It’s understandable that many couples don’t even want to entertain the idea of a prenuptial agreement. The important thing to remember is that this is a document used to protect all parties. Communicate openly and listen to the concerns of your partner. Even if you do live “happily ever after,” there will always be a peace of mind involved with foresight and deliberate planning.

Ashley Woodring, CFP®

Financial Advisor

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Financial Times Top 300

Parsec is excited to have been named one of the nation’s Top 300 Registered Investment Advisers by Financial Times Magazine.  The candidate pool started with more than 2,000 qualifying RIA firms.  This list was then narrowed down to the top 300 in the nation after a lengthy decision making-process. Each firm was required to fill out a survey where the FT scored RIAs based on 6 broad factors. These areas included adviser assets under management, asset growth, the firm’s years in existence, industry certifications of key employees at the firms, SEC compliance record and online accessibility.  We are excited to have been included in this inaugural list. Check out their site to read more about FTs Top 300! http://www.ft.com/intl/reports/registered-investment-advisers

 

Ashley Woodring, CFP®

Financial Advisor

Market Update Through 6/30/2014

as of June 30, 2014
Total Return
Index 12 months YTD QTD June
Stocks
Russell 3000 25.22% 6.94% 4.87% 2.51%
S&P 500 24.61% 7.14% 5.23% 2.07%
DJ Industrial Average 15.56% 2.68% 2.83% 0.75%
Nasdaq Composite 31.17% 6.18% 5.31% 3.99%
Russell 2000 23.64% 3.19% 2.00% 5.32%
MSCI EAFE Index 23.57% 4.78% 4.09% 0.96%
MSCI Emerging Markets 14.31% 6.14% 6.60% 2.66%
Bonds
Barclays US Aggregate 4.37% 3.93% 2.04% 0.05%
Barclays Intermediate US Gov/Credit 2.86% 2.25% 1.23% -0.07%
Barclays Municipal 6.14% 6.00% 2.59% 0.09%
Current Prior
Commodity/Currency Level Level
Crude Oil  $105.37  $102.71
Natural Gas  $4.46  $4.54
Gold  $1,322.00  $1,246.00
Euro  $1.36  $1.36

Mark A. Lewis

Director of Operations

One Down, One to Go

There was much rejoicing among analysts, economic forecasters and financial market participants on June 6 when the BLS told us that total nonfarm payroll employment on a seasonally adjusted basis set a new record in May 2014 with 138,463,000 such jobs then. The old record of 138,350,000 such jobs on a seasonally adjusted basis was set in January 2008, which was the first full month of the 18-month long recession that began in December 2007 and ended in June 2009.

The chart shows the pattern of this widely followed economic series since January 1978. It is quite obvious that instead of the fairly quick recovery in such jobs that followed every recession from 1945 to the 1981-1982 one, the length of time to return to previous levels has gotten longer and longer with every recession beginning with the 1990-1991 event.

Capture

While many reports on this new record contained statements claiming that all the jobs lost in the recession had been made up, that is not technically true. What IS true is that the total number of jobs has now been matched. But tens of millions of actual jobs that disappeared in 2008-2010 will never come back. They have just been replaced by other jobs.

In addition to that, the total population and the labor force have grown a lot over this time frame. Some estimates are that we might need as many as five million more jobs today just to be even with how well off we were in January 2008 in terms of payroll employment.

It turns out that the pattern of nonfarm payroll jobs today is vastly different from what it was back in January 2008. Here are some of the comparisons.

By far the largest number of net new nonfarm payroll jobs over that period is found in the “health care and social assistance” category, which has risen by 2,150,000 such jobs. Next is “Accommodations and food services” with an increase of 941,000. “Professional and technical services” jobs have grown by 512,000. “Education services “has gained 425,000 jobs and “Temporary help services” has added 307,000 jobs since January 2008.

Not very surprisingly, the biggest loser is jobs in manufacturing. There were 1,650,000 fewer of those in May 2014 than in January 2008. This is hardly a new story. The peak was 19,553,000 jobs back in June 1979. The recent trough counted 11,453,000 such jobs, which was the lowest number since March 1941, well before the US became involved in World War II. The May 2014 level of 12,099,000 is still lower than in June 1941, both on a seasonally adjusted basis. No one expects to see a new record here for many years, if ever. It is a fact that total manufacturing output has soared since then. The Industrial Production manufacturing index was 10.5 (2007=100) then and 99.5 in May 2014. That shows how huge the labor productivity increases have been in manufacturing. The US has the highest levels of labor productivity in manufacturing in the world and also the highest average annual rate of increase in this critically important measure over the past 70 years.

The construction sector was still down 1,496,000 jobs in May 2014 from January 2008. The government sector lost 507,000 jobs over that period, but almost all of these were at the state and local level.

Consistent with this shift in the type of nonfarm payroll jobs over the past 6-1/2 years, it should not surprise you to learn that the number of nonfarm payroll jobs held by women has been above the old peak set in February 2008 every month since September 2013. There were 68,393,000 nonfarm payroll jobs held by women in May 2014 or 49.4 percent of all such jobs.

As a corollary to the still-missing millions of construction and manufacturing jobs, the total number of nonfarm payroll jobs held by men is still below the old peak. It will take several more months to see a new record for men holding nonfarm payroll jobs.

Of course, there are two different measures of employment. In addition to nonfarm payroll employment, we have total civilian employment, which includes the self-employed and agricultural workers. This measure counts each person only once, whereas the payroll survey does not adjust for people who have more than one payroll job.

Total civilian employment peaked in November 2007 with 146,595,000 people employed on a seasonally adjusted basis. In May 2014 there were 145,814,000 people employed, so there are still 781,000 fewer people employed than at the peak. There were 9,799,000 people who were unemployed and looking for work in May for an unemployment rate of 6.3 percent. We should see a new record in the next two or three months. Then we can celebrate the fact that we are in uncharted territory by both measures.

The June 10, BLS report on “Job Openings and Labor Turnover” (the JOLTS report) told us that on April 30 on a seasonally adjusted basis there were 4,455,000 unfilled job openings in the US. That was the highest since September 2007, before the recession began.

The report also said that there were 55.1 million hires in the twelve months ending in April 2014. There were 52.8 million job separations in the same period.

Thus, we had 107.9 million people changing jobs over 12 months in order to get a net employment gain of 2.2 million people. The US economy remains the most incredible “jobs machine” every seen.

 

Dr. James F. Smith

Chief Economist

Giving Away Your Cake (and eating it too), AKA Charitable Remainder Trusts

ImageOne of the first recorded instances of the age old phrase “a man can not have his cake and eat it too” was written from Thomas, Duke of Norfolk to Thomas Cromwell, speaking about how the construction of Kenninghall had cut deeply into his finances. Today, we use this phrase when considering saving something of value, or giving it up for consumption. When thinking about our own personal assets, we have many choices. We have the opportunity to hold on to them (having our cake), swap them out (trading for a different cake), or selling them and buying a consumable asset (eating the cake).

With responsible planning for the future, the size of your portfolio should grow through the years. At the point of retirement for someone, a combination of pension, social security, and portfolio income may be able to provide for all of their expenses. This is a fantastic place to be in as a retiree. A dependable cash flow can empower gifting to the extent that the cash flow remains intact.

A few months ago, I wrote about Charitable Remainder Trusts here. For a retiree that has an excess income stream from investments, a Charitable Remainder Trust (CRT) can provide a certain and continued stream of income from donated property.  As the name suggests, a charity will inherit the property held in the trust when the beneficiaries pass away, just as it would if you left the property to a charity in your will. However, the additional benefit of a CRT is the income tax deduction received for giving the property occurs immediately. As a beneficiary you retain an income interest.

Give thought to the idea of giving some of your cake away now. There are many great non-profits and charities that will thank you. Now, I know all this talk of cake has really gotten that sweet tooth going, so feel free to eat some cake now too!

Gen Y, Say Yes to Stocks!

It started with anecdotal evidence: a conversation with a co-worker about a group of professionals he spoke to about their 401k. The wiser (by which I mean older) folks were asking about the outlook for the economy and how they could maximize their 401k contributions. But the young man in the group, who was in his early 30s, expressed complete contempt for the stock market.  All of his money, he said, was in cash. Then a client of mine who is nearing retirement called me just to tell me about a dinner he went to where the topic of investing came up.  He was shocked at how vehement the young people at the table were about not investing in stocks due to their risk.

Since then I’ve read about a growing body of evidence coming from surveys and other research that suggests that the younger generations are too conservative in their investments. Gen Y is saving but not investing aggressively enough. The problem is that they distrust financial institutions (we don’t count) and believe another financial meltdown is all but imminent.

Gen Y, we don’t blame you. You were in your teens on Sept. 11, 2001, which had to have rocked whatever concept of stability you had. By the time you were old enough to know what the stock market was, the technology-driven crash of 2001-2002 was causing strife in budding 401k plans. And just when you were starting to dream about home ownership the housing market was spiraling out of control in 2008-2010. Many of you watched your parents go through extreme financial duress during this time period, something you were well old enough to understand.

It’s no wonder that Generation Y is too conservative. Your generation doesn’t have the benefit of personally experiencing the roaring 80s and 90s to boost your confidence about the markets. You don’t know who Crockett and Tubbs are. Looking at historical stock returns on paper just isn’t the same as living through it. And it’s hard to understand why men ever wore over-sized shoulder pads, but they did. Even the last five (amazing) years of positive stock markets seems like mere payback for the horror of 2008-2009. Despite this, we have to remember that stocks have historically provided the highest long-term return. No matter what your steadfast beliefs are about the future of the economy, it probably carries no more predictive capacity than the next differing opinion. That’s why we look to history as a guide, rather than trying to guess the future.

When you look at stock volatility over long time frames, it isn’t nearly as risky as the day-to-day movement would have you believe. In the last 87 years large company stocks’ annual returns ranged from -43% in the worst year to +54% in the best. That’s quite a spread! But those same stocks in any given 20 year period (starting on any given day in any year) averaged returns in a range of +3% in the worst 20-year period to nearly +18% in the best 20-year period. That includes the Great Depression and the market crashes of this century. That’s a lot easier to swallow. You have a long time before liquidating your accounts for retirement – probably more than 30 years, so you should be taking a longer term view.

And let’s not forget about inflation. That cash that’s in your 401k is doing less than nothing for you. Long run inflation is around 3%. If you are getting a 0% return on your cash, that is actually -3% in real dollars, guaranteed.

Saving money isn’t good enough. Millennials need to invest with a little more oomph. Yes, diligently putting away $500 a month for 30 years is hard work and no one wants to see their money shrink. But consider this: if you get a modest 4% average return on those savings, you will have $347,000 in retirement; if you double that return to 8% an amazing thing happens: $745,000. Taking risk means a lot of ups and downs along the way, but potentially twice the money in the end. If you can go cliff-jumping with your friends, you can buy stocks, right? (No? Was that just my friends?)

There is no reward without risk, to be sure. Any investment plan should be done with the full comprehension of the volatility, range of outcomes and potential for return. There certainly is risk in losing money in the stock market over short and intermediate time periods. However, those losses only become permanent if you sell out during periods of decline. It seems all but certain that an all-cash/fixed income portfolio is doomed to growth too slow to possibly reach any long-term financial goals.

 

Harli L. Palme, CFA, CFP®

A Gen-exer who believes all of the above applies to her generation too, except the part about over-sized shoulder pads.

Employee Education and the Ostrich

    I read many articles about ERISA plan governance, including articles about fiduciary duty, proposed changes to legislation, and the delivery of advice.  One article, in particular, did an excellent job describing the ineffectiveness of employee education.  Admittedly, I was a little off put by the premise, especially considering how hard I work as making these meetings interesting.  But by the time I finished reading, I had to agree with the author.  The author describes education material that includes an overwhelming amount of charts and graphs with a delivery filled with industry jargon and terms that the average person cannot understand.  What does work, however, are personal stories and relating the topic in plain English.

     Story telling also helps to pique interest, especially when the story is memorable.  One such story I tend to share is how people often act like ostriches.  An ostrich is a very fast bird, among its other notable characteristics.  We too are like ostriches, in that we are often distracted by the speed of life.  Our daily routine is predictable and busy.  We wake, we work, we pick the kids up from their extracurricular activities, we go to bed, and then we do this all over again.  Rarely do we take five or ten minutes out of our day to focus on other important matters.  Rather we will put it off for another day. 

     Retirement plan participants are often very driven by their work schedules and things that need tending to after work.  The education meeting, if structured properly, serves as motivation for the participant to take action with a sense of urgency.  After all, if something is not addressed immediately following the message or shortly thereafter, then the attitude of “take care of it tomorrow” will turn into next week and next week will turn into next month, and so on.

     So what can we do?  Start by having meaningful conversations and consider changing the way participant education is delivered.  It’s okay to open up and share personal stories if it helps deliver the message.  Have fun with the presentation because humor helps take the edge off serious matters.  Most importantly, be available to answer questions.  Participants are more likely to seek advice after the education meeting, especially when they know you’ll hang around to answer any questions.

Neal Nolan CFP(R), AIF(R)
Director of ERISA
Senior Financial Advisor