• Lessons from 2011  
• Helping Children Understand the Meaning of Money and Wealth  
• Market Insights – The Perception of Taxes  
• The clock keeps ticking…  
• in | Context – Considering International Diversification  
• The Educated Investor – Retirement Plans: Crucial Conversations  
• The Educated Investor – What Is the Behavior Gap?  
• The Educated Investor – Planning Through The Generations  
• in | Context – Putting the Global Economy and Markets in Context  
• The Educated Investor – Saving for College with a 529 Plan  
• The Educated Investor – Putting Recent Events in Perspective  
• in | Context – Planning in an Uncertain World  
• Post Election Update  

If you had access to all of these emails and letters at the beginning of the year, would you be inclined to be invested in the global equity markets?

(See the Dow averages during these communication dates)

 It is for this reason we don’t try to time the market, predicting good from bad and up from down . . . but rather remain focused and disciplined on long-term results, managing risk by using non-correlated asset classes, periodic rebalancing, and of course, diversification including small, large, growth, value, equities, fixed income, commodities, and real estate, both domestically and internationally.

Be safe and here is to 2013!

Income and Estate Tax Planning
While the tax law for 2013 and beyond is not certain, there are a number of areas of the Federal tax law that are scheduled to change on the first of the year if no further legislation is enacted. A few of the most noteworthy changes will be:

1. Ordinary income tax rates will rise, with the top marginal rate going from 35% to 43.4%.
2. The top tax rate on long-term capital gains will rise to from 15% to 23.8%.
3. Qualified dividends will no longer be taxed at the more-favorable long-term capital gains rate, but will be taxed at the higher ordinary income rates.
4. The gift and estate tax exemption amount will fall from its current level of $5 million to $1 million.
5. The highest marginal gift, estate and generational-skipping tax rates will rise from 35% to 55%

Investment Planning
It’s not surprising that there are lots of media dollars being spent attempting to capture our eyeballs with headlines such as “What Obama’s Victory Means For Investors” and “Where to Put Your Money Now That Obama Has Won”. Unfortunately, while we might find the forecasting and story-telling associated with Obama’s second term to be entertaining, there is nothing about his re-election that gives investors any additional clarity on how markets will perform over the next four year, months or days.  While there’s no doubt that fiscal cliffs, debt levels, unemployment, and aging demographics are all challenges that the global economy and investors face in the future, we should be careful not to let the perpetual uncertainty of the markets deter us from establishing and maintaining a sound plan that is structured for our own individual goals.  We can find comfort in these seemingly choppy waters by keeping a couple of fundamental and critical points in mind:

1. None of the challenges discussed above are new.  Every day, buyers and sellers agree on a price for every security traded in the market.  It’s reasonable to believe that these buyers and sellers are not oblivious to the environment around them.  Rather, the price at which they are willing to buy/sell reflects their expectations of the future.  As such, logic tells us that simply reacting to past events is not an attractive investment strategy.  Said differently, if you believe that most investors are pessimistic about our current and future economic state, market prices should already reflect that pessimism, and selling your securities now based on your (and the market’s) pessimism alone is unlikely to be a rewarding strategy, even if those pessimistic economic views turn out to be correct.
2. Forecasting changes in the expectations of others is incredibly challenging.  We have experienced a great example of the difficulties of forecasting over the past four years.  In 2008, we were in the midst of a financial crisis not seen since The Great Depression, we had a new president-elect and fear ran rampant about both the economic and political environment.  It was common to see “experts” forecast that the US would experience short-term hyperinflation, skyrocketing bond yields (and corresponding declines in bond prices) a collapse in the US dollar and a “sideways” US equity market.  Of course, none of these things have occurred, and yet here we are four years later hearing many of the same predictions.  Will they come true this time?  We think the only intelligent answer to that question is “we don’t know, so plan accordingly”.

It’s extremely difficult to see any pattern in the annual returns.  Furthermore, the return of equity markets over most four-term presidential terms has been positive (albeit not consistent by any means).  For those curious about Obama’s term to date, the annualized returns from January 2009 through October, 2012 are:

S&P 500 Index                                               14.8%

MSCI EAFE Index                                            8.9%

MSCI Emerging Markets Index                  18.7%

Barclays US Aggregate Bond Index            6.4%

Source:  DFA Returns 2.2 Software

Summary
While we now know who will be in the White House the next four years, no one knows exactly what legislation will come to pass in President Obama’s second term or how markets will react to that legislation.  While this uncertainty may seem frustrating, it’s important to acknowledge the future is never certain, even though with hindsight we all try to convince ourselves that unpredictable past events should have been foreseeable.  The only prudent way to plan in the face of uncertainty is to understand what the possible scenarios are and assess the potential outcomes (both positive and negative) of a given action in light of your personal situation and goals.

As always, we appreciate your business and look forward to continuing to serve you and your interests.

Past performance is not a guarantee of future results. Indices are not available for direct investment. Indices’ performance does include reinvested dividends and/or distributions; however, indices’ performance shown is unmanaged and does not represent the expenses associated with the management of an actual portfolio.

For the majority of 2012, events both economic and political have left Americans with more questions than answers. Most investors would agree that recent times have been fraught with uncertainty. How should we approach the uncertainty associated with financial matters, such as what will tax rates be in 2013, or when and how will the Eurozone crisis be resolved? Investors can approach this from three different perspectives..

We encourage you to read more about these topics in our quarterly newsletter by clicking the link below.

Click here to view the newsletter

As always, we appreciate your business and look forward to continuing to serve you and your interests.

Patient, disciplined investors with well-developed plans are subject to the same noise and concerns that plague other investors. Over the past year, most investors have noticed or been concerned about:

• Our continuing federal budgetary deficits and our ability to continue to fund them
• The upcoming “fiscal cliff” spending cuts and tax increases slated to go into effect in 2013
• The increased possibility of inflation caused by monetary stimulus
• The European fiscal crisis and the potential for sovereign defaults and the breakup of the Eurozone
• Rapidly slowing growth in China and other developing nations

These are all legitimate concerns. But ask this question: Are these risks generally known? Because these events have been an almost daily part of the public conversation for most of 2012, we would expect that the likelihood of these events occurring has already been built into current prices.

To frame the conversation about these economic issues, let’s analyze the question of the concern over the fiscal cliff – the combination of tax increases and mandatory spending cuts that are scheduled to hit as of January 1, 2013 (such as the expiration of Bush income tax cuts). One outcome would be some kind of temporary extension that just kicks the can down the road, so that very little of what is scheduled to happen will actually occur. One reason this could occur is we are able to borrow more cheaply than ever. Thus, there is little pressure from the bond markets for us to rein in the U.S. deficit.

If the fiscal cliff does actually happen, however, the tax increases in particular could negatively affect the economy. The Congressional Budget Office (CBO) projects the impact would be about a 0.5 percent contraction in the economy in 2013. However, some are skeptical that the spending cuts would be nearly as harmful as the CBO projects, expecting that the negative of any spending cuts could be offset by the benefits provided by the knowledge that future deficits will now be lower.

From an investment perspective, it is assumed that markets have factored in the possibility of the fiscal cliff happening and assigned some probability to it not happening. So, if the fiscal cliff does not happen, stock markets could respond positively, and the opposite if it does happen. This is no different than saying the market has assigned some likelihood the Eurozone could unravel and some likelihood it does not, and the market will act accordingly depending upon which scenario occurs.

It is not surprising some investors are worn out and discouraged by current events and what they see in the headlines. Consider how some investors have reacted to the European crisis. Over the past year, Europe has been caught in the eye of a financial storm. European equities experienced sharp losses and bond yields on sovereign debts soared as credit ratings were slashed. Some investors see the crisis and the risks, but they cannot see beyond that.

This type of stage-one thinking leads to sales of assets as investors assume the bad news means prices are surely going lower. They assume the only light at the end of the tunnel is a truck coming the other way. The result: Sales occur after prices have already fallen, reflecting the bad news. Those sales occur when prices are low and expected returns are high (reflecting the high perception of risk).

On the other hand, stage-two thinking involves seeing beyond the crisis. For example, while there is no certainty, most would expect that a crisis would lead governments and central bankers to come up with solutions to address the problem. If the crisis worsens, the more likely they would be to act with urgency and scale. Stage-two thinking allows one to see that the light at the end of the tunnel might not be a truck coming the other way. Instead, it might be actions to help resolve the crisis.

In response to the crisis, European governments and the European Central Bank have taken a series of actions including slashing budgets, cutting rates and implementing bond-buying programs. When the first actions were not sufficient, they took further ones and that has continued throughout the year. (Note that these actions were a virtual replay of actions taken by the United States.) Despite the fact that there is still no clear resolution, European equities are, in general, doing quite well. For example, from January 1, 2012 through August 31, 2012, the MSCI Europe Index had a total return of 8.1 percent.

Conclusion
The emotions created by crises can cause us to lose perspective – like forgetting that fairly regular crises are actually the norm. Having a well-developed plan, one that includes the virtual certainty you will have to face many crises over your investment horizon along with the ability to avoid stage-one thinking, should give you the best chance of achieving your financial goals.

While you cannot control the market, you can control the course of your overall investment strategy. If you feel a change is necessary, a prudent first step would be to re-evaluate your asset allocation plan within your current Investment Policy Statement and reconsider your ability, willingness and need to take risk. Possible actions include adjusting your goals or deciding to work longer, so you can take less equity risk. This will not only allow you to sleep better and enjoy your life, but it will also give you a better chance of staying disciplined – the key to successful investing.

This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Copyright © 2012, Buckingham Family of Financial Services.

529 Plan Basics
A 529 plan is similar to a Roth IRA in that you contribute after-tax dollars that grow tax free. Earnings from the plan can be withdrawn free of federal taxes for qualified college expenses.

Each state has its own plan, but you are not required to use the 529 offered by your state of residence. You can open a 529 account in any state. However, this does not mean the student (beneficiary) must choose a college in the state where the 529 was established. For example, a plan owner can live in Illinois, open a 529 account in Missouri and use the account to pay for the expenses of a private college on the East Coast.

A 529 plan has an owner and a named beneficiary. Anyone can act as the owner of the plan. Likewise, anyone – child, grandchild or even the owner – can be named as beneficiary. The owner of the plan, not the beneficiary, retains control of the assets. Anyone can contribute to the plan, but only the owner can make withdrawals. If a child or grandchild is named beneficiary, the assets will not be treated as their personal assets for federal financial aid purposes.

Choosing an Appropriate Plan
With so many 529 plans to choose from, it is helpful to consider three factors: investment options, costs and tax benefits.

• No matter what type of savings plan, it is good to understand your investment options. A suitable 529 plan should offer a wide variety of investments with both domestic and foreign investments. The plan should ultimately reflect your personal investment philosophy.
• The lower the costs, the less returns will be reduced by fees. Low fees are important when choosing a plan. An example of a low fee is 0.25 percent per year, whereas 1.00 percent per year is an example of a rather high fee.
• Both federal and state tax benefits should be considered. Choosing your own state’s plan should not be the default option. It is important to research and compare each state’s plan and tax benefits before selecting a 529.

Additional Steps to Finding an Appropriate Plan
It can also be helpful to take the following steps before making a decision:

Step 1: Consider your own state’s plan, particularly if the plan offers any state tax benefits for contributions. Ask the following questions when assessing your state’s plan.

• Are the plan’s expenses reasonable?
• If you move to a different state is the plan flexible?
• How are the plan’s funds allocated?

You might find that you choose to rule out a 529 plan that meets all but one of the above requirements, even if it is your own state’s plan. For example, your state’s plan might offer state tax savings and be flexible but charge an excessive expense. The high expense might be a reason to examine other states. These questions are helpful when examining any 529 plan.

Step 2: Check that appropriate asset allocation is available within the 529 plan.

Generally, 529 plan assets should be invested more aggressively for younger beneficiaries and less aggressively for older ones. Look for age-based options within a 529 plan because such a plan would offer a strategy of investing college savings less aggressively as the beneficiary ages. The age-based option requires little maintenance because it correlates and adjusts the overall portfolio allocation with the beneficiary’s age. However, it is important for the owner to monitor the portfolio on a regular basis.

Alternatives to 529 Plans
Another option is a Coverdell Education Savings Account (ESA). Similar to a 529 plan, this savings account is designed to help parents and students save for education expenses including elementary school expenses. A main difference with this savings plan is that contributions to the account cannot exceed $2,000 in any year. To learn more about Coverdell, visit www.irs.gov.

Some investors prefer to take no risk when saving for their child or grandchild’s education. For those looking to avoid risk, a traditional savings account is a good alternative.

Another option would be to contribute to both a traditional savings account designated for college savings and a 529 plan, much like diversifying retirement savings by contributing to both a traditional 401(k) and a Roth 401(k).

Conclusion
Paying for college is not an easy feat, but 529 plans can help alleviate some of the financial burden. When it comes to 529 plans, there is a great deal to understand and consider. To review 529s and find out the different tax benefits and fees of each state’s plan, visit www.savingforcollege.com.

This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Copyright © 2012, Buckingham Family of Financial Services.

The financial and economic environment of the past few years has been challenging. To name just a few headline-grabbing items, investors have had to stare down a ratings downgrade of U.S. Treasury bonds by Standard & Poor’s, the European debt crisis (see sidebar on this page), high unemployment report after high unemployment report and very low rates of interest on bond investments. With all of these stories, which are incessantly focused on negative developments, it can be easy for investors to miss the good news. With the turbulent financial markets of 2008 and early 2009 now several years past, we can begin to put these developments in context.

We encourage you to read more about considering international diversification by clicking the link below.

Click here to view the newsletter

As always, we appreciate your business and look forward to continuing to serve you and your interests.

Conversations about multigenerational planning begin with the first generation.The success of an estate plan can depend on whether the details of that plan have been properly communicated to family members. Therefore, it is helpful to be educated on how the estate plan works, proper steps to take and how wealth will be transferred to following generations.

Three main questions help establish a framework for subsequent discussions:

1)      What are the goals and objectives for the estate?

2)      How is the estate plan designed to serve the family?

3)      Does the original estate plan match the current financial situation?

Transferring Wealth to the Next Generations
Once you are comfortable with how the estate plan functions, talking to the second generation (in most cases, your children) is an appropriate next step. The tendency might be to focus on issues that are strictly financial in nature, not on preparing them for their impending responsibilities. An estate plan is likely to fail if family members are unprepared or communications break down within the family unit.

The following questions can be useful when thinking about how to start a conversation:

• Are you comfortable sharing details of your estate plan with your family? Are you comfortable sharing information with the spouses or partners of your children?
• Have your children been informed that a plan is prepared? Have they read it?
• Do they know your advisor and attorney?

Family members should be aware of the responsibilities of wealth and the impact it has on the family. A wealth transfer is more likely to be successful when there is a plan in place to prepare them for future responsibilities.

When estate planning extends beyond children to the next generation, it often involves providing for future education costs. For grandparents who wish to provide financial support for their grandchildren’s education expenses, generation skipping can be a useful tool.

Strategies to Help Prepare the Next Generations
If you hesitate to involve the next generations because of their inexperience with money, the following can be starting points:

Inexperience with handling money and managing budgets

• Include family members in the management of assets before a wealth transfer occurs.
• Give family members the opportunity to read all estate plan documents and ask questions about their contents to gain a better understanding of what will occur with the transfer of wealth.

Concerns about overemphasis on material possessions

• Invite younger children to become involved in philanthropic activities by making monetary donations and volunteering their time.

Concerns that spending will lead to overspending

• Set different distribution start dates for each individual instead of using a generic age.

Calling a Family Meeting
When the entire family participates in important decisions, others in the family will begin to recognize that family unity is something to be valued. This requires that the family communicate regularly with a majority of conversations being productive and positive.

The benefit of family meetings is to discuss how the estate plan works as well as bringing the generations together. All family members can be informed about how they will be affected and what the plan will look like when triggered. Family meetings can also help set the expectations of values and ethics, spending, charitable giving, and planning for future generations that are to be carried on throughout the family legacy. A family meeting also opens up a dialogue if there is a need to create a separate trust for children or grandchildren to protect the family wealth from potential problems.

Advisor Support Roles
As family needs dictate, an advisor can be there to offer assistance, support and expertise by:

• Reviewing the current estate plan to ensure it matches your defined multigenerational planning goals and objectives
• Working with your attorney to relay how your goals and objectives should be incorporated into the estate plan
• Establishing a relationship with your children to act as a resource as they experience life events such as purchasing a new home or motor vehicle, and planning for their children’s education
• Preparing for or facilitating family meetings
• Addressing goals that require charitable gift planning, such as gifting an overall percentage of the estate to charity or gifting a future lump sum, which can be included in the estate plan with tools such as donor advised funds, charitable remainder trusts and gifting of appreciated securities

Conclusion
The primary purpose of planning is to efficiently transfer family wealth. As a sometimes unexpected benefit, openly discussing goals and objectives can also strengthen relationships throughout the entire family.

This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Copyright © 2012, Buckingham Family of Financial Services.

Please click this link to view The Educated Investor.

As always, we appreciate your business and look forward to continuing to serve you and your interests.

Have you discussed your retirement plans with your spouse, partner, parents, children or friends? Your retirement will have an impact on them, and importantly, they will have a profound effect on your retirement. Yet, a surprisingly small percentage of us have had timely and helpful conversations that could be crucial to our future retirement success.

When most people think about the conversations they should be having when planning for retirement, they immediately think of their financial advisor. Although discussions with your advisor are an important element of overall retirement planning, they are not the only conversations you should have.

After interviewing hundreds of retirees, we continue to be surprised by how infrequently prospective retirees have discussed their plans with those closest to them. At one seminar, a man announced that the reason he had attended the event was he was considering retiring in the next few months, and he wanted to learn what he should be thinking about. The woman seated next to him glared and said to him, “You’ve got to be kidding. This is the first I’ve heard about it.” The woman turned out to be his wife.

You may think that is an extraordinary situation – it’s not. Yet, when we interview couples who have had a good start in retirement, we consistently learn they have been discussing their plans for some time – working through both the large decisions (e.g., where they will live, when they will retire) and the nitty-gritty details of daily routine (e.g., who will get the mail each day, how they will share the computer).

Here are some common situations you may have to deal with as you develop your retirement plans. Have you talked with those who will affect or be affected by these five issues?

Issue 1: Your spouse or partner has a life and plan of his or her own.
Are the two of you in agreement about the details of your plan, such as when you will retire, how you will manage your finances and how you will attend to day-to-day routines that will now be changing?

Issue 2: You may be caring for aging parents or expect to do so in the near future.
Have you taken this into account as you have developed your retirement life and financial plans? Have you discussed the implications with your parents?

Issue 3: You may be supporting your adult children.
Will they be returning to live at home? Will they need financial support? Are your adult children expecting you to be a regular or emergency babysitter for your grandchildren? Have you discussed your plans and theirs with them? Have you set expectations about what you will and will not do and what you can and cannot do?

Issue 4: Your relationship with your spouse or partner may not be on solid ground.
When you retire, this situation may be exacerbated as the two of you begin to spend much more time together. How will that work? Have you begun the crucial conversation to work out the relationship issues to prevent them from affecting your retirement happiness and that of your spouse/partner?

Issue 5: The transition to retirement can raise the question about where you will be living (staying where you are or moving to a new home).
Have you engaged your spouse or partner, your children and grandchildren, your parents or your friends in the conversation to help you make this decision?

Research and anecdotal information indicate that the quantity and the quality of our relationships significantly affect our longevity and quality of life. Therefore, nurturing your relationships is a critical element of living a fulfilling retirement. The following can get you started on making plans:

• Begin retirement planning as early as possible. Begin as many as 5-10 years before you plan to retire. If you’ve already passed that timeframe, start now.
• Consider all the elements that will make your retirement life plan successful. Most think of retirement planning as only achieving financial security, which is important, but it’s not all about money.
• Figure out who will be affected by and who will affect your retirement plans. Decide which crucial conversations you should be having and begin reaching out to those individuals.

What better way to proceed than to involve those closest to you in your retirement planning. Our advice: Begin to have the crucial conversations now.

About This Article
A special word of thanks to authors Alan Spector and Keith Lawrence for sharing these insights with us. Alan Spector is the retired Director of Worldwide Quality Assurance for the Procter & Gamble Company, author of four books and a management/quality assurance consultant for companies and nonprofits. Keith Lawrence is the retired Director of Human Resources for the Procter & Gamble Company and Founder and President of Sustaining Success Solutions, consulting with major companies worldwide. They co-founded LifeScape Solutions™ to conduct retirement life planning seminars for prospective and current clients of financial advisors, experienced employees of companies and the faculty, staff and alumni of universities. For more about their book, Your Retirement Quest, go to www.YourRetirementQuest.com.

This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed.  The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. To be distributed only by a Registered Investment Advisor firm. Copyright © 2012, Buckingham Family of Financial Services.

Last year was challenging for globally diversified stock portfolios. While the S&P 500 Index was up 2.1 percent in 2011, the MSCI EAFE Index, which is basically the international equivalent of the S&P 500, was down 12.1 percent. The MSCI Emerging Markets Index was down 18.4 percent.

We encourage you to read more about considering international diversification by clicking the link below.

Click here to view the newsletter

As always, we appreciate your business and look forward to continuing to serve you and your interests.