Full Service or Discount Broker

I was with some friends this weekend and one asked me "What is a discount broker?"
As I often encourage you to invest your money to help it grow, this might be a good time to explain the difference.

A full service broker is a firm like Merrill Lynch or Morgan Stanley. Here you will find a "broker" or sales person who may be called a Financial Advisor, Wealth Management Advisor or Retirement Specialist.
These large, full service firms will give you financial advice, help determine your financial goals and your risk tolerance. They typically have large research departments or purchase outside research on various companies' stocks and bonds. They use this research to recommend to their clients a mixture of investments (asset allocation) and will direct the buying and selling of these investments - usually for a substantial commission.
The commission charged is based on the price of the stock times the number of shares. The cost to buy or sell could be hundreds of dollars. This is how they get paid.

(Remember:
"What's this going to cost me? How do you get paid?" from a previous $ Tip.)

A discount broker is a firm with many of the same functions as above but without as many services. They will offer "canned" research, something anyone can find online. They will not call you recommending investments nor will they take pains to get to know you.
These firms are more "do it yourself". They assume you know what you are doing. They will take your order to buy or to sell and they will not offer comment.
Actually, the greater discount on buying and selling is when you talk to no one and enter the trade online. (A trade is a buy or a sell.)
There is one discount brokerage that charges $5 per trade for almost any size trade (50, 100, 1000 shares). Others may charge $7.50, $10 or $20 per trade. Scottrade, eTrade, Ameritrade are some discount brokerage firms.

Be $ Smart - know what type of brokerage firm is best for you to build wealth and financial security.

Social Security Estimate of Benefits - a valuable tool!

Many years ago, the Social Security administration did not mail benefit estimates. You had to visit one of their offices to learn what you might receive at retirement. Then in 1999 they began mailing them. With the advent of the Internet, they stopped mailing mid-2011 as a cost cutting measure. Now, by popular request, they will send the statements to those workers 25, 30, 35, etc. Every 5 years you will be mailed a statement until you are 60, then it will come every year.

What is so important about this statement?
It is a valuable financial planning tool that gives workers important information about their earnings, tax contributions and estimates for retirement, disability and survivor benefits!!

If your estimated benefits will pay you $1800 per month and you need $5000 a month to live, then you know you need to save enough to provide $3200 monthly.
It can be a real wake-up call to start saving! Every five years it can be a beneficial jolt to make you sit down and calculate if you are on track for retirement. The numbers may reveal that you must work longer than you planned.

You may view your benefits more frequently if you open a MySocialSecurity account online. Go to SSA.gov and input your SS number, mailing address and valid e-mail address. There will be security questions only you will know that match the information on file with SS.

With an online SS account you will receive an annual reminder to verify and update your information. It is critical to review your earnings as sometimes there may be errors. SS gives only a limited time to correct any earnings errors.

Be $ Smart - know your estimated SS benefits. Open a SS account online.

Dual Purpose - Roth IRA

Saving for retirement can be tough while you are trying to build an emergency fund, pay off student loans, car loans and other expenses. But we all know the importance of saving early. The earlier you start saving for retirement, the faster your money will compound and grow.

Here is where a Roth IRA (Individual Retirement Account) can serve two functions. The principal (original money invested) may be withdrawn without penalty and taxes at any time making that money available for emergencies. (It's the earnings - dividends and interest - that would be subject to taxes and penalty if you are under 59 1/2.)

Aim for three months emergency fund in a savings account and three months in your Roth.

How to open a Roth IRA:
You may open an IRA at a bank, credit union, brokerage house (e.g. Fidelity, Vanguard, Merrill Lynch) in person or online.
Questions to ask:
- What is the minimum investment?
- What fees are charged for the account and for transactions?
- What investments are available? Stocks? Bonds? Mutual funds? Exchange Traded Funds (ETF's)?
- How may I arrange for monthly automatic transfer from my savings or checking account?

Your biggest stumbling block may be the required initial deposit. Some firms require only $500 where others $1000 or $3000. Subsequent investments may be as little as $25 or $50. If you are expecting a bonus or a tax return, it may be a good use of that money. Otherwise, keep the emergency money building in your savings account until you reach the required minimum amount then open the Roth.

Using the Roth as part of your emergency fund means taking NO big risks with the money. Choose a very conservative investment for the emergency portion. As your balance grows, start to invest the difference more aggressively.

Keep in mind a Roth IRA is not for everyone. Only those individuals with earned income may contribute. And individuals earning under $112,000 and couples under $178,000 may contribute $5500 (if over 50, $6500). Remember it's not all or nothing. If you cannot contribute the max, contribute some amount.

Be $ smart - use the flexibility of a Roth IRA to your advantage in building your emergency fund.

Technology to the rescue! Use bank apps.

In order to improve their bottom line, banks have been charging fees on everything. One of the most costly fees is that on overdrafts. Not balancing your check book or keeping a very low balance in your account can push you into overdraft with a big fat fee of $35! Do that two or three times a month and you have the cost of a dinner out.

Take advantage of your bank's app. It allows you to check your balance, make payments, set alerts, etc. Set an alert for when your balance falls below a certain amount to avoid overdraft fees.

Statistics show that the youngest and poorest bank customers are paying the larger share of fees. These are folks who cannot afford to fund the bank's profits. One overdraft fee could buy a bag of groceries. Online banking is giving customers more control. Take advantage of the apps your banks offer to manage your money wisely.

Some features my bank app offers:

- deposit a check by snapping a picture of it,
- send money to someone to pay an IOU,
- transfer money between my checking and savings accounts,
- view my account balance,
- make sure "direct deposit" checks have been credited properly,
- view bill due dates,
- pay bills,
- find an ATM for my bank to avoid non-bank ATM fees.

Be $ smart - Keep more money in your pocket by using bank apps.

Third in a series - THE Important Conversation

As you may have guessed, the past two Tips were the primary steps in "putting your financial house in order." Be it your house, your parents' or a friend's, it all makes life easier when you are organized and can find important information quickly and in an emergency.

Other information to have readily available would be a
List of Professionals including their name, address and phone number:
Attorney
Accountant
Financial Advisor
Insurance Agent

A List of Investments including the name of the institution, account number, phone number and online access (User ID and PWD):
Brokerage accounts
Checking and Savings Accounts
Pension
IRA
401k or 403b
529 College Savings Plan
ESOP (employee stock ownership plan)

You may organize all this information in a 3-ring binder. Ideally, update it annually. Or you may buy a book with all the categories organized and separated for you. There are several offered by Amazon or any bookstore. e.g. Putting Things in Order or Get It Together: Organize Your Records so Your Family Won't Have To.

Be $ smart - put your financial house in order to give you quick and easy access as well as peace of mind.

THE Important Conversation

Too many families are avoiding THE important conversation. No, not the one about the birds and the bees; the one about estate planning. Estate means what you own and planning means how it will be used in the future. You don’t have to own much to do some estate planning.

Maybe you are young and have not built your estate yet but chances are you have parents who have accumulated a few things. You need to know what they have done about estate planning. It then becomes tricky. You hesitate to ask your parents about their retirement or estate plans. You might not want to appear greedy or eager to see them pass on. Your parents are reluctant to share this information with you for fear of giving you hopes (or disappointment) about inheritance. So everyone is in the dark!

Not having “the important conversation” can lead to misconceptions. Who will care for your aging parents? You? Your sibling? Or are you hoping your parents will have the resources to move into an assisted living facility? Won’t you be surprised when they decide to move in with you! Or better yet, take your inheritance and buy a fancy home in St. Thomas.

Do your parents have sufficient income to stay in their own home? Will they need both physical and financial help from you along the way? Maybe they have sufficient assets to live a long and comfortable life. How will you know, as they age, if they have participated in some scam that could drastically reduce their assets unless you know what assets they have?

At first it might feel awkward. Start with a few simple questions like: how are you and dad doing? What are your plans for the future? How will you make that happen? It might take two or three tries but eventually they will open up and you’ll all feel better.

If you are the parent, make time to have THE conversation with your children or loved ones.

Be $ smart - give yourself and your parents peace of mind. Have THE conversation.

Important Documents to Have on Hand..

Last week I spoke of THE important conversation about estate planning. This week I will continue that theme with a list of documents that should be current and readily available.

Having these documents will save you time, money and angst.
Top of the list is a will. Is it current? Have you married, divorced, had kids or changed the state in which you live? Who has the original? We left ours with our attorney who reitred and moved leaving no contact information. When my husband died we had a copy but needed the original. So technically, he died intestate. What a nightmare I was left to unravel in the throes of grief.

Will
Durable Power of Attorney
Property Deeds (house, land)
Letter of Instruction (last wishes)
Marriage License
Divorce Decree and Judgment
Birth Certificate(s)
Vehicle Titles (boat, car, RV, motorcycle)
Outstanding Personal Loan Agreements (friends, family)
Life Insurance Policies
Healthcare Proxy
Living Will
Deed for Cemetary Plot

Take an inventory of your documents. How many can you find? How many do your parents have on hand?
You may have to request a copy from your attorney or town clerk. And of course, keep them in a safe place in a fireproof box.
Promise yourself you will collect these documents by Labor Day 2014.

Be $ smart, update and inventory your important documents to save you time and money.