P R E S S R E L E
A S E
FOR IMMEDIATE RELEASE
January 1, 2005
Fort Worth, TX. Financial Planning magazine names Guy M. Cumbie, a personal financial planner and principal of Cumbie Advisory Services (CAS), a 17 year old financial and investment advisory firm with offices in Fort Worth's downtown central business district, as one of the Movers & Shakers of 2005.
A Certified Financial Planner™ practitioner, business owner, and former president of the 29,000 member Financial Planning Association, Cumbie is listed as The Diplomat in the January 2005 issue of Financial Planning magazine.
Cumbie, a Fort Worth native, and graduate of the University of Texas at Arlington, has earned and maintains the Certified Financial Planner™ (CFP®), the Certified Investment Management Consultant (CIMC®), and the Certified Investment Management Analyst™ (CIMA®) licenses and is trained in alternative dispute resolution for court-appointment as a mediator.
Cumbie Advisory Services provides personal financial planning services and investment management consulting to a growing number of private client individuals and families who value wealth preservation and thinking beyond solutions. The firm also supports fiduciaries of personal trusts, charitable organizations, and retirement plans in the procedurally prudent service of beneficiary and participant interests.
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P R E S S R E L E
A S E
FOR IMMEDIATE RELEASE
December 1, 2004
Fort Worth, TX. D Magazine names Guy M. Cumbie, a personal financial planner and principal of Cumbie Advisory Services (CAS), a 17 year old financial and investment advisory firm with offices in Fort Worth's downtown central business district, as one of the Best Financial Planners in Dallas.
A Certified Financial Planner™ practitioner, business owner, and former president of the 29,000 member Financial Planning Association, Cumbie is listed as one of the Best Financial Planners in Dallas in the December 2004 issue of D Magazine.
Cumbie, a Fort Worth native, and graduate of the University of Texas at Arlington, has earned and maintains the Certified Financial Planner™ (CFP®), the Certified Investment Management Consultant (CIMC®), and the Certified Investment Management Analyst™ (CIMA®) licenses and is trained in alternative dispute resolution for court-appointment as a mediator.
Cumbie Advisory Services provides personal financial planning services and investment management consulting to a growing number of private client individuals and families who value wealth preservation and thinking beyond solutions. The firm also supports fiduciaries of personal trusts, charitable organizations, and retirement plans in the procedurally prudent service of beneficiary and participant interests.
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Why Do You Need a Financial Planner? Don't put off your planning. A study by the Consumer Federation of America and the former Nations Bank revealed that households with financial plans accumulate twice as much wealth as households without plans. Business is generally improving these days for financial planners. Many investors feeling burned by the declining stock market, are turning to planners for investment advice. Families shaken by the terrorist attacks of September 11, the faltering economy and the Enron scandal are engaging planners to put their financial houses in order. But many families have yet to turn to such professional help, held back by the question, "Why should I hire a planner for something I could do on my own, with the aid of a computer or by hiring a financial specialist?" Good question. Here are some reasons why you should seriously consider seeking the advice of a qualified financial planner. Financial planning is more than about money. At its core, financial planning is about effectively managing financial resources so that individuals can lead happier, more fulfilling lives today and tomorrow. One of the very first steps in a financial planning relationship is to help clients define their life goals. Do you want to start your own company, create an exit strategy, have more time to volunteer, change careers, live somewhere else? How do you balance competing goals, such as saving for retirement while putting children through college and help out elderly parents? How do I optimize the deployment of financial and human capital? Take the example of the CERTIFIED FINANCIAL PLANNER™ professional in Texas who asks of all her new clients, "If you could create a perfect world, what would it be?" When she asked that question of a local university professor, a man known for his sour, depressed mood, he told her he wanted to live on a farm, far from where he was teaching. The more he talked about it, the more excited he got, and the more that he, his wife and the planner realized it was a dream he could make a reality. Within a year and a half they were happily settled on a farm in Iowa. In a good financial planning relationship, the planner and the client periodically reassess the client's goals and strategies already in place to achieve those goals, especially as life circumstances change. No financial planning or investment software program can effectively come up with those kinds of questions-let alone provide the right answers. Financial planning sees the whole, not just the parts. Many financial specialists provide valuable services to people for a specific financial need, such as buying property and casualty insurance or drafting a will. However, a financial planner typically provides the overview in order to make sure the various parts are working in harmony and not against each other. For example, one professional's strategy to save income taxes may undermine another professional's investment strategy. A computer might provide investment advice (though usually not well tailored to your individual needs), but a financial planner can help you find ways to free up additional money for investing. It also is the planner who might discover that your computer-designed investment plan could be seriously undermined by a costly medical crisis because you don't have adequate disability insurance or health care coverage. Planners motivate. Sure, you probably know you need a will, better insurance, a budget, a better handle on your investments and assessment of a host of other financial issues. Perhaps you could do some of it adequately on your own. But there's nothing like going to a financial planner to motivate you to finally take the actions you've been procrastinating. For example, a recent retirement study by TIAA-CREF Institute found that people who planned more thoroughly for their retirement experienced fewer financial "surprises" when they actually retired. Planners provide checks and balances. Beyond the financial expertise and the motivation to take action, the planner can provide a much-needed objective perspective. Numerous studies show that investors who work with financial advisors trade less often and average better returns than those who invest on their own. Planners can filter out the financial "noise" that so often clouds financial judgment. This independent perspective is especially critical when a family is under stress such as from a job loss, divorce or a major market decline. Ideally, it's better to create a financial plan before a crisis occurs. One of the greatest benefits of financial planning is its ability to prepare you to better handle the inevitable financial roadblocks thrown up in life that can detour you from achieving your life goals. The primary source for the information contained in this bulletin is the Financial Planning Association, the membership organization for the financial planning community. As always, while we generally consider this information to be accurate, please consult your advisor(s) with respect to the use of this material in your situation.
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Understanding Periodicity Have you heard the comment, "With statistics, the numbers can be made to say anything you want"? That observation can be amazingly true. In fact, sometimes the numbers can seem to "say" some pretty bizarre things without anyone manipulating them or "making them say it." Beginning with this Client Bulletin issue, we are going to begin to explore some of these unusual, yet really not necessarily very complex statistical phenomenons. Have you ever owned a sensible, long-term investment that seemed from all appearances to be a "no brainer" in terms of prospects for producing satisfactory returns for any investor, yet when you owned it, it was nothing but flat, flat, flat or down, down, down, until you finally gave up and liquidated at breakeven or at a loss? Have you ever noticed that at times some of your investment accounts seem to inexplicably have startling different returns from other similar accounts, even over roughly the same time period? Have you ever observed your stock market investments seeming to perform pronouncedly different than what you just recently understood the market did over about the same time frame? There are many possible factors contributing to these seeming discrepancies. Some of these explanations, believe it or not, are almost purely statistical in nature and truly reflect very little, if anything, regarding the actual composition or merit of the underlying investment holdings. In a rather arcane subset of financial planning known as investment management consulting, professional advisors make it their business to discern to what these observable variations are attributable. This particular aspect of investment performance measurement is referred to specifically as attribution analysis. Many times some otherwise very perplexing differences, such as the ones referenced in the questions in the predecing paragraph, are explainable in large part or perhaps entirely by a relatively simple, yet very meaningful statistical concept known as periodicity. In the most basic sense, periodicity refers to the holding period-specific aspect of variations in investment returns. The "effects" of periodicity in varying the returns on similar investments over similar holding periods, perhaps of identical length, can be quite dramatic and may even be startling to the uninitiated. Periodicity is really more of an observable and analytically useful phenomenon than it is a cause of variations in returns. In fact, it is itself an effect or result of man's arbitrary slicing up of time into measurable pieces, like quarters and years, that capital markets neither recognize nor respect. Probably the best way to communicate this concept is to provide an illustrative example. Utilizing Morningstar's Principia Pro database, we viewed several twelve-month rolling returns for a well-known global growth and income fund and found large swings in the portfolio's performance for different twelve-month periods that began as little as a few months apart. In one instance, the returns for a twelve-month holding period we will call "A" were +39.42%, while the returns on another twelve-month holding period we will call "B" that began just five months later were -8.77%. Same portfolio, same length of holding period -- the only variable being a five-month shift in start and end points and the returns varied by over 48 percentage points. An investor whose sole experience with or whose primary perspective on the fund in question was holding period "B" based would likely have a difficult time relating to a holding period "A" investor's positive sentiment. Clearly, the converse is also true as the holding period "A" investor would likely have difficulty understanding how anyone could be displeased with such a well-performing fund. Again, both held the same fund for the same length of time during the particular seventeen-month slice of the fund's existence. The experiences of the investors, however, were diametrically opposed. The starting-point sensitivity described above can also have a substantial impact on the time required for a portfolio's holding perdiod returns to revert to the mean (average expected) return. While much that is said and written leads investors to believe that if they will just hold on to an investment for "4 or 5 years" or a "full market cycle" they will almost assuredly realize expected returns, in hindsight, many who were less than charmed with their particular entry point into the market learn that it's just not quite that simple. One lesson is to remember the volatility inherent in investment markets. Perhaps a more central lesson is that capital markets are no respectors of man's propensities to want to arbitrarily slice up time with calendars. Market volatility and the resulting periodicity effects limit the usefulness of absolute return as an investment performance measuring device except over periods of time long enough to truly capture even protracted capital market cycles. This reality led to the adoption of benchmarking for assessing relative returns for meaningful measurement of other than very long-term investment performance. More on this concept of benchmarking and relative returns in a future Client Bulletin issue. [Author: Guy M. Cumbie]
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Regular IRA Versus Roth IRA - Revisited The Taxpayer Relief Act of 1997 created a new individual retirement account called the Roth IRA, named after its sponsor. Unlike a regular IRA, in which contributions generally are tax deductible and withdrawls are taxed, the contributions to the Roth IRA are not tax deductible, but withdrawls are not taxed. So which type of IRA should a taxpayer choose? Should a taxpayer convert a regular IRA to a Roth IRA? The answer is like the answer to many of the numerous tax questions raised in this act: it depends. Here's how the Roth IRA, sometimes referred to as a back-ended IRA, works. Starting in 1998, contributions of up to $2,000 a year (minus any contributions made to a regular IRA) are made with after-tax dollars. The Roth IRA owner can pull the contributions out at any time, free of tax. The account's earnings also are free of tax as long as they meet one of the following new withdrawl rules:
There are income restrictions to using Roth IRAs. If you are married and filing jointly, the maximum amount you can contribute begins to phase out at $150,000 ($93,000 as a single) and you can't contribute at all once you reach $160,000 ($110,000 single). One the other hand, unlike a regular IRA, you can contribute to a Roth IRA even if you work for an employer with a qualified plan. Also, you're not required to start withdrawing funds at age 70 1/2. You can shelter earnings in the Roth IRA until your death, at which point the minumum distribution for regular IRAs would kick into effect for your heirs. So does it make sense for you to open a Roth IRA or stick with a regular deductible IRA? Here are some factors to think about. Your tax rate remains the same. Calculations by the Congressional Joint Committee on Taxation found that if your tax bracket is the same at the time of contribution and withdrawl, you'll end up with identical sums of money, after taxes, with either type of IRA. This assumes everything else is equal (earnings, time the money is in the account, etc.). The Roth IRA would have the added advantage of no required minimum withdrawls beginning at age 70 1/2. Tax rates differ between now and retirement. If you think you will be in a lower tax bracket when you retire, generally you're better off contributing to a deductible IRA because the deductions will be made at the higher rate. If you expect your tax rates to increase by the time you retire (either because your income rises or because Congress raises the tax rates), you'll be better off using the Roth IRA. Higher income taxpayers. Roth IRAs may be more attractive to higher income taxpayers who expect to be making withdrawls at the same time they're receiving Social Security benefits. That's because taxpayers with high incomes during retirement often must pay taxes on their Social Security benefits. But tax-free withdrawls from a Roth IRA, unlike withdrawls from a regular IRA, won't count toward the "modified adjusted gross income" calculation used to determine whether Social Security benefits will be taxed. Should you roll over your regular IRA into a Roth IRA? The new act allows you to pull funds out of a regular IRA and put them into a Roth IRA penalty free, even if you are younger than 59 1/2 and as long as your adjusted gross income is less than $100,000. However, the withdrawls will face regular income tax, though you can spread the taxes on the withdrawl out over four years if you convert during 1998. Again, several important factors must be taken into account in order to make the best choice. The factors cited earlier regarding the decision to open a Roth IRA and contribute taxable funds also apply to the decision whether to convert a regular IRA. However, there are added factors regarding the conversion. First is how will you pay the taxes? Will you need to use some of the money you withdraw from the IRA to pay the bill, or will you have other sources? Are those sources already invested in a capital asset, such as stock, or property-producing income that would be taxed at ordinary income rates? In general, money drawn from a capital asset, and especially from an income-producing asset, to pay the taxes will make the conversion worthwhile. Using money from the IRA withdrawl makes it less appealing. Even with the ability to spread taxes out over a four-year period on the IRA withdrawl, you could find yourself in a higher income tax bracket. However, before deciding, it's best to let a professional financial planner run the numbers to determine what the best scenario is for your particular situation. [Produced by the Institute of Certified Financial Planners]
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Should You Worry About The 'D' Word? Deflation. Unless you're older than age 65, you probably aren't familiar with that word. The last time deflation was widely spoken in this country was during the early years of the Great Depression. But it's beginning to compete with inflation for attention these days, and it could have a dramatic impact on consumers and investors if it wins out. As the word readily suggests, deflation is the opposite of inflation. Prices in goods and services rise under inflation, and decline under deflation. Too many goods are chasing too few dollars. Both words refer to a wide range of prices, not merely one segment of the economy. For example, commodities such as gold and soybeans have declined in price recently, but the price of services such as a haircut or college tuition has risen. Overall, prices continue to inflate, though very slowly. Don't confuse deflation with disinflation. That's the slowing down in the rate of price increases, which is what we've been experiencing in recent years. In 1990, the Consumer Price Index (CPI) rose 6.1 percent. In 1993, it went up 2.7 percent, and in 1997 it rose only 1.7 percent, the lowest inflation rate since 1986. The worry is that the inflation rate could keep dropping until it passes zero, and prices across the board actually begin to decline. In fact, deflation has already hit at the wholesale level, with prices down .06 percent in 1997. That sounds like good news for consumers: who wouldn't love to pay less for a car or college. In the short run, maybe it would be okay, but in the long run, falling prices often are disastrous. The problem is, as prices decline, many companies producing goods and services find profits squeezed to the point they cut wages and, eventually, cut workers. Falling prices also typically mean that people with loans are paying those loans with dollars that are more precious than they were before, in essence, the loan is costing more to pay off than when they took it out. These and other factors can accelerate the decline in prices, and the downward spiral leads eventually to a major depression. Most economists aren't overly worried yet about deflation, but it is a word that is being uttered by more and more of them. One brokerage house even issued an investment report on deflation. What worries observers the most is Asia. Japan has basically been at zero inflation for some time now, and the economic collapse in the rest of Asia, deflation in a true sense, could export its deflation world wide. Few are concerned that we would suffer another Great Depression. The economies and financial controls are much stronger than they were then. But extended or steep deflation could hurt, especially if it burrows into the investment markets. Should you worry at this point? Probably not, but it won't hurt to keep your eyes on things. Observers say this would not be a good time to go any deeper in debt. As mentioned earlier, it's expensive paying back debt with deflated dollars. If you work in an industry that's vulnerable to deflation -- commodities such as oil or food, heavy exporters, real estate or discretionary services such as travel and entertainment -- now might be the time to sock more money away in your emergency fund. On the investing side, the issue of whether to continue pumping money into stocks is a tricky one. During deflationary periods, high-quality bonds and cash are considered good investments because they generally hold or increase in value. Stocks have done well during mild deflation, but generally not well during serious deflation. Real estate also suffers hard during deflationary times. On the other hand, if you're investing for the long run, stocks would still likely remain the place for the best long-term returns. [Source: The Institute of Certified Financial Planners]
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Long Term Care Needs As people grow older, they should begin to make plans for later years. It is important to think about retirement and those activities you would like to pursue. It is also important to think about the possibility that, at some time, you or a loved one might require some help with ordinary every day activities or need care over an extended period. Usually, when people think of long-term care, they think of nursing homes. Long-term care means more than nursing home care. It also means, for example, home health care, personal care, or help with chores. However, many people have limited financial resources available and this is a major factor in one's ability to obtain the care or services needed. Social Security was never intended as a complete security program for retired persons. Medicare is not intended to cover long-term care. Ordinary health insurance does not cover long-term care. There are a variety of long-term care insurance policies available in the marketplace. It is important to understand how the costs of long-term care are paid and how to evaluate your needs and private insurance options that may be available to you. WHERE THE NEED ARISES While many think long-term care means nursing homes, in reality, it means much more. Long-term care also means medical, personal and social services provided at home, in a community program such as an adult day care center, or in a nursing home. Long-term care is distinguishable from "acute care" such as that provided in a hospital. Acute care refers to the level of care needed by those people with chronic illness or disability requiring constant support. Private long-term care insurance differs from the usual health care insurance with which most people are familiar. Long-term care insurance is one way to cover the costs of caring for the chronically ill or disabled not typically covered by health insurance plans or severe enough to require hospitalization. HOW SERIOUS IS THE NEED? Long-term care has become the greatest health care need of older persons. It represents the primary catastrophic health care expense today. Every day, more than 5,000 people in this country turn age 65. More than 2.5 million people are over age 85. The likelihood of chronic illness or disability increases with age. Nearly one person in five age 65 or older will use a nursing home at some time. For every person in a nursing home, another two or three people in the community have at least the same, if not greater, need. The nature of services required by a given individual may vary widely. Some may need help around the house, with shopping, or transportation while others may need personal care (such as help with bathing or dressing), rehabilitative care such as that following a stroke, or intensive long-term skilled nursing care. For many, the cost of receiving needed care and services can reach devastating proportions. The only way to avoid crisis decision making and to cope with exorbitant financial demands is to plan ahead by thinking about your potential needs, your personal preferences, and the costs associated with your choices. THE COST OF LONG TERM CARE Depending on the level of care provided, the cost of care in a nursing home averages $30,000 to $40,000 a year, and can easily exceed $50,000 or even $60,000 depending on location and the level of care which is required. Long-term care provided at home is also costly. Home health care provided by licensed professionals can range from $5,000 per year for home health aides, equipment and other supportive services to $10,000 per year or more for skilled nursing services. UNDERSTANDING THE COVERAGES Medicare is not intended to cover long-term chronic care. But such care is very often critical to a person's ability to remain independent. Medicare coverage for long-term care is limited and currently pays less than two percent of the nation's nursing home bills. Medicare generally covers only 100 days of skilled nursing care if an individual meets specified criteria and even then there is a substantial co-payment. It rarely covers custodial care, which is most commonly needed by those with chronic illness. Medicare will pay for home health care, but only under certain conditions. Personal care and supportive services are usually provided by home health aides. Medicare covers this level of care only if it is provided in conjunction with skilled nursing, and that is rarely the case. Medicaid is a federal/state matching program that covers services for the aged, blind and disabled poor. A variety of services may be offered at the option of the state to those individuals determined to be financially eligible. Becoming financially eligible generally means that a person has depleted assets and life savings. In recent years, Medicaid paid less than 40% of nursing home costs. States are required to cover skilled nursing home care as well as home health care. Most states provide intermediate and custodial care to the categorically or medically needy. Medigap or supplemental health insurance does not generally cover additional services, but rather pays the costs Medicare doesn't for covered services (e.g., hospital deductibles and physician co-payments). Some plans may pay for drugs or services such as private duty nurses. It is important to understand the coverage and limitations of supplemental policies. In summary, those services most likely to be covered by existing programs are those which are of a medical nature provided in an acute care setting (e.g., hospital). These programs typically are not able to address the needs of an Alzheimer's victim, a person with crippling arthritis, a person whose rehabilitation potential following a stroke is limited or a person with significant visual impairment. That continually increasing segment of the population coping with chronic and disabling conditions is virtually "on its own." The private sector has begun to respond to these gaps in the financing system. Long-term care insurance represents one response. [Author: Guy M. Cumbie]
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If after looking around you would like more information, please feel free to send us e-mail or call us.
Cumbie Advisory Services
306 W. 7th Street, Suite 442
Fort Worth, TX 76102
Phone: 817.335.1181
Fax: 817.335.1225
Email
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CLIENT
BULLETIN #5
