Founders Forum

What Will You Do When Rates Go Up?

If you are like a lot of folks I’ve talked with recently you may be worried about the interest you are earning on your fixed investments.  Your CDs and IRAs may be maturing and the interest that you will begin drawing on them is likely to be much less.  You do not want to invest that money in something risky; however, the best you can earn is 1.0%.

The above scenario has forced a lot of investors into the bond market; however, with interest rates near record lows many think it’s time to exit the bond market.  Bonds can provide predictable income and principal protection.  The problem with bonds is that rising interest rates are destructive to fixed income portfolios because when interest rates rise – bond prices fall… and sometimes the moves can be dramatic. 

Consider some of the conditions that typically lead to higher rates:

• Stronger economic growth
• Rising inflation
• Growing expectations that the Federal Reserve will raise short-term rates
• Elevated risk appetites prompting investors to sell safer fixed-income investment and buy higher-risk investment

The good news is that there are investments that can be used to “hedge” against the potential destruction caused by rising interest rates.  Consider adding the following to your fixed-income portfolio.

Floating Rate Bonds

Unlike traditional bonds that pay a fixed rate of interest, a floating rate bond has a variable rate of interest that resets periodically.  The advantage of floating rate bonds is that interest rate risk is largely removed from the equation and that floating rate bonds will pay higher yields if rates go up.

Short Term Bonds   

Short term bonds can help provide safety when rates start going up because their maturities are closer and the odds of a substantial rate increase is less during a shorter period of time.

High Yield Bonds 

Even though high yield bonds are riskier than investment grade bonds, they can hold up well when rates are rising because they tend to pay higher yields than other bonds with similar maturities.

 

Convertible Bonds

 

Convertible bonds are bonds that can be converted t shares of the issuing companies’ stock.  This makes convertible bonds more sensitive to stock market movements than a typical bond and there is a greater likelihood they can go up in price when traditional bonds are under pressure from rising rates.

Consider adding some of the above investments as you strive to construct a well-diversified portfolio.  Before investing in any of these options, be sure to discuss the relevant risks and rewards with your financial advisor.  A number of investment strategies can be tailored to meet your individual needs.

 

The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value. The value of bonds will decline as interest rates rise.

Traditional CD's are insured by the NCUA and offer a fixed rate of return, whereas both the principal and yield of investment securities will fluctuate with changes in market conditions."

 

Securities and investment advisory services offered through Cetera Advisor Networks, LLC, Member FINRA/SIPC - Founders Federal Credit Union, Founders Financial Group, LLC and Founders Insurance Services are not affiliated with Cetera. Investment Services is a department of Founders Federal Credit Union. Registered Sales Branches are located at 607 N. Main Street, Lancaster, SC 29720; 1290 Old Springdale Road, Rock Hill, SC 29730; 100 Springcrest Drive, Fort Mill, SC 29715; 1307 Boiling Springs Road, Spartanburg, SC 29303.
Not NCUA Insured - No Credit Union Guarantee - May Lose Value - Not Deposits - Not Insured by any Federal Government Agency.

This article was written by C. David Tolson, III with Founders Investment Services. It was published in Founders Open Exchange Newsletter (July 2013).

In Uncertain Times Look for the Alternative

When discussing “investing” and “asset allocation” most folks think of the mixture of stocks, bonds, and cash in their portfolio.  While this is not necessarily wrong, asset allocation is more complicated than simply picking the appropriate pie chart or Morningstar style-box.  With stocks at record highs and an increase in interest rates inevitable, it’s now more important than ever to be properly diversified.

As an advisor, I spend much of my time managing the risk associated with client portfolios.  An important part of reducing the risk in any portfolio is to find asset classes that have a low correlation to one another.  Many traditional asset classes tend to move in tandem during times of volatility.   In other words, if two different investments always move in the same direction then we have done nothing to decrease the risk in a portfolio by owning both.  The only thing we gain is a false sense of diversification by investing in more than one asset.  This makes building a diversified portfolio an even greater challenge. 

One way to potentially lower the risk of your overall portfolio is to use alternative investments.   “Alternatives” are simply defined as assets that don’t fall into the standard categories of stocks, bonds, or cash.  The reason we add alternatives to an account is that their returns typically have little or no correlation to those of stocks or bonds.  The most commonly used alternative investments include commodities (oil, gold, silver) and real estate.   The more complicated alternatives would include hedge funds, managed futures, foreign currencies, and derivatives. 

Properly allocating a portion of one’s portfolio to an alternative strategy may help “smooth out the bumps” when there is increased volatility in the stock market as well as help immunize a bond portfolio against an inevitable rise in interest rates.  In the past most alternative investments were reserved more for institutional and high net worth investors because of their complex nature, limited regulations, and lack of liquidity.  Lately alternatives have become more available to the average investor through investments such as mutual funds, exchange traded funds (ETFs), and annuities. 

While alternatives can help reduce the overall risk of your portfolio, every individual’s situation is different.  Consult a financial advisor to see if alternative might be an appropriate addition to your portfolio.

 

 

Securities and investment advisory services offered through Cetera Advisor Networks, LLC, Member FINRA/SIPC - Founders Federal Credit Union, Founders Financial Group, LLC and Founders Insurance Services are not affiliated with Cetera. Investment Services is a department of Founders Federal Credit Union. Registered Sales Branches are located at 607 N. Main Street, Lancaster, SC 29720; 1290 Old Springdale Road, Rock Hill, SC 29730; 100 Springcrest Drive, Fort Mill, SC 29715; 1307 Boiling Springs Road, Spartanburg, SC 29303.
Not NCUA Insured - No Credit Union Guarantee - May Lose Value - Not Deposits - Not Insured by any Federal Government Agency.

This article was written by C. David Tolson, III with Founders Investment Services. It was published in Founders Open Exchange Newsletter (July 2013).

A Review of 529 Plans

529 plans are state-specific savings plans that help investors save for college.  All the money in the account is tax-deferred and as long as the money is used to pay for qualified education expenses the investment earnings may be withdrawn tax-free.  This preferential tax treatment has made 529 plans a popular option for college savings.

 

Advantages of 529 College Savings Plans:

 

Tax free growth - As noted above, investment earnings are never taxed if the money is used for the direct costs of higher education.  Expenses can include tuition, books, on-campus housing, etc.

State tax deduction - A number of states offer a state tax deduction on contributions to 529 plans.  In South Carolina, you can deduct any amount up to your total income from your state taxes.  The rules for these tax deductions vary by state.

Use any state plan - While you may buy your own state’s plan, you are free to use the plan of another state.  You may do this to access a preferred investment manager. Note - each state has different options available.

“Prefund” and save - While an individual is normally allowed to gift $14,000 as an annual exclusion, 529 plans allow you to use five year’s gifting at once.  Theoretically, a couple can give $140, 000 ($14,000 X 2 people X 5 years) at one time to a child or grandchild’s 529 plan.

Shelter against a storm - Once inside a 529, the money is generally protected against bankruptcy and creditors.

Retain control - Unlike a Uniform Gift to a Minor’s Account (UGMA), you maintain control of a 529 gift.  You control when distributions are made, not the minor, and you may choose to take it back or transfer it to another family member. 

Use it as a legacy tool - If your children fail to use all the 529 assets, the plans can be reassigned to the next generation.  Reassigning is a simple process and can be repeated to future generations.

It’s not too late - Even if you have a child in school now, you can make a deposit to a 529 plan and quickly send the money out to pay for higher education expenses.  If you fail to qualify for other educational federal tax benefits, at least you can earn a quick benefit on your state taxes.

Investors should consider their investment objectives, risks, charges and expenses associated with municipal fund securities before investing.  This information is found in the issuer's official statement and should be read carefully before investing.

 

 

Securities and investment advisory services offered through Cetera Advisor Networks, LLC, Member FINRA/SIPC - Founders Federal Credit Union, Founders Financial Group, LLC and Founders Insurance Services are not affiliated with Cetera. Investment Services is a department of Founders Federal Credit Union. Registered Sales Branches are located at 607 N. Main Street, Lancaster, SC 29720; 1290 Old Springdale Road, Rock Hill, SC 29730; 100 Springcrest Drive, Fort Mill, SC 29715; 1307 Boiling Springs Road, Spartanburg, SC 29303.
Not NCUA Insured - No Credit Union Guarantee - May Lose Value - Not Deposits - Not Insured by any Federal Government Agency.

This article was written by C. David Tolson, III with Founders Investment Services. It was published in Founders Open Exchange Newsletter (July 2013).

Flood Prevention

It’s summer, which means we’re getting into storm season.  The first tropical storm, Andrea, inaugurated the opening of Hurricane Season and The National Weather Service is predicting that 2013 will have an active season.  This means a lot of storms and a lot of rain.  Almost anywhere it rains, it can flood and preparation is just as critical as with other types of emergencies.  In this article we’ll look at a number of ways in which you can prevent, limit, or react to flooding and flood damage.

 

Preparing for a Flood

The Federal Emergency Management Agency recommends a number of steps to stay safe during emergencies and limit damage from flooding. You should:

• Build an emergency kit for your family containing enough drinking water and nonperishable food for each member of your family for two weeks. Also include flashlights,  radio, batteries, first-aid kit, medications, personal hygiene items and copies of important documents.

• Create a communication plan so family members can reach one another.

• Elevate your furnace, water heater and electric panel in your home if you live in an area with a high flood risk.

• Consider installing “check valves” to prevent floodwater from backing up into the drains of your home.

• If possible, construct barriers to stop floodwater from entering your home and seal basement walls with waterproofing compounds.

 

Acting during a Flood

If a flood is likely in your area, quick action may be necessary to protect your family and property. You should:

• Get information from the radio, television or a trusted website or weather app on your mobile phone.

• Move immediately to higher ground if there is any possibility of a flash flood. Do not wait for instructions to move.

• If you need to evacuate, secure your home and move essential items to an upper floor. Turn off utilities if instructed to do so, and disconnect electrical appliances. However, do not touch electrical equipment if you are wet or standing in water.

• Do not walk through moving water — it can make you fall. Use a stick to check the firmness of the ground in front of you.

• Do not drive into flooded areas. If you are caught in your vehicle in floodwater, abandon your car and move to higher ground if you can do so safely.

• If you have evacuated your home, do not return until authorities tell you it is safe.

 

Coping after a Flood

Flooding can cause emotional stress along with physical hazards, so be mindful of the well-being of you and your family during the aftermath.

• Floodwater can be contaminated by oil, gasoline or sewage, so avoid contact as much as possible.

• Make sure your city’s water supply is safe to drink.

• Clean and disinfect everything that was in contact with floodwater.

• The Red Cross has a free book available called “Repairing Your Flooded Home,” which contains useful information as you clean up. It’s available at redcross.org.

• If you have flood insurance, contact the claims center of your provider as soon as possible.

 

It’s important to note that flood damage is typically not covered by your homeowners or renters insurance. There are specialized flood insurance programs that Founders Insurance Services can discuss with you. Contact us at 1-800-845-1614 or InsuranceServices@foundersfcu.com for more information or to have a member of our team help you determine how ready your insurance plan may be for flood damage.

 

These products offered through Founders Financial Group, LLC, doing business as Founders Insurance Services. Insurance products not underwritten by Founders Financial Group, LLC or any affiliated company.

Not NCUA Insured - No Credit Union Guarantee - May Lose Value - Not Deposits - Not Insured by any Federal Government Agency.

Can I Retire and What Should I do?

Financial consultants are asked this question every day, and surprisingly, it is a complicated question with different answers for each person who asks.  

Retirement has a different meaning for each of us. So various questions must  be answered such as:

• When do you want to retire and what will you do then?

• How do you picture the ideal retirement? 

• How will your expenses compare to those during your working years?           

• What are your projected sources of income and will they increase with inflation?     

• Are you covered for unexpected expenses such as long term care and serious medical illness?

• What is your goal for leaving assets for your heirs or charity?

Retirement planning is a process that should begin with the first day of work and is an essential element of every financial plan. Although younger people may see that day as far in the future, those who have reached retirement will often say retirement comes sooner than you think.

If retirement planning begins early, retirement is not an event but part of a process.  When the date actually arrives, there are no surprises, and “the rest of your life” begins.  Today’s retiree often lives many more years as a happy and productive citizen, having more time and experience than ever.  Some choose to work part-time doing what they always wanted to do and others volunteer doing what is important to them.  In doing so, retirees enrich the lives of people and organizations to which they devote their time, talent and treasure.

Retirement readiness is so much more than a mathematical calculation.  It begins with a solid financial plan that is regularly revised and updated as you work with your Financial Consultant. 

The best time to begin planning for retirement is today.  If you would like to do that, we offer the following suggestions: 

• To get started, contact Founders Investment Services at 866-739-7064 to speak or meet with a Founders Financial Consultant.

• Gather current statements of all your financial accounts, investment accounts and insurance policies.

• Prepare to discuss your values, goals, income needs and risk tolerance.

• Develop a list of projected income and expenses after you receive your last paycheck. Be sure to include periodic expenses such as homeowner’s and car insurance.

• Prepare to address health insurance coverage, especially if you will retire before age 65 when you are eligible to receive Medicare benefits.   If you will be able to continue coverage with your employer, find out how much you will be required to pay.   If you have long term care insurance, bring a copy of your policy.

• Determine whether your estate planning documents are up-to-date. These documents include your will or revocable living trust, your limited or durable power of attorney, your living will and your health care power of attorney.

 Your first meeting with your Financial Consultant will be the beginning of a long-term relationship built on trust and mutual understanding.  As time goes on, your Financial Consultant will come alongside at regular meetings on the road to retirement as well as each time you come to one of life’s crossroads where important decisions must be made.  As you work together over time, you increase the possibility and probability of accomplishing your hopes and dreams over the course of a lifetime.

 

 

Securities and investment advisory services offered through Cetera Advisor Networks, LLC, Member FINRA/SIPC - Founders Federal Credit Union, Founders Financial Group, LLC and Founders Insurance Services are not affiliated with Cetera. Investment Services is a department of Founders Federal Credit Union. Registered Sales Branch located at 607 N. Main Street, Lancaster, SC 29720.

Not NCUA Insured - No Credit Union Guarantee - May Lose Value - Not Deposits - Not Insured by any Federal Government Agency.

This article was written by Kristen Davis Rhyne® with Founders Investment Services. It was published in Founders Transaction Newsletter (July 2013).

 

Avoiding Vacation Rental Scams

Now is the time when many summer seekers make arrangements for that long-awaited week at the beach or in the mountains. That also means it’s time to guard against vacation rental rip-offs.

The fraudsters’ basic technique is to place phony advertisements for vacation rentals at great prices. Most commonly they steal property descriptions and photos listed on legitimate real estate websites. Or they may post addresses of homes that aren’t for rent or simply invent a rental by posting a made-up description and nonexistent address.

The ads often show up on Craigslist, but can also be found in newspapers, online chat boards or phony real estate websites that the crooks create.

The goal is to get an up-front payment from you or trick you into completing an application form requiring personal information the thieves can use to steal your identity. You may even receive keys, a rental agreement or other indicators of a legitimate transaction, but when you arrive at your paid-for getaway, you learn it was all a ruse.

 It’s always a good idea to research your vacation location and the person or company you use to book your vacation. Before paying anything, first check out the property yourself, or ask a local to do it on your behalf. If you can’t take those steps, run an online search of its address, as well as of all names, emails and phone numbers of the supposed landlord or agent.

It’s also a good idea to use an online search engine’s map function to get an aerial view of the property. There may also be a street-level photo.

Relying solely on email correspondence is not safe. Many rental scams are carried out by Nigeria-based scammers (so beware of poorly written ads). You’ll want to talk, by phone, with the landlord or listing agent. There’s no guarantee the person who takes the call won’t be a crook using a disposable cellphone or Internet-based line that has a local area code. Be especially wary of foreign or distant American area codes when booking a domestic vacation.

Never pay upfront for a rental with a wire transfer or prepaid debit card, the preferred methods for scammers. A credit card or sending money online are your safest options. If something goes wrong, you’ll have recourse.

If dealing with people who say they’re the owners, ask for proof of ownership. You can also seek proof of identity, such as a copy of a driver’s license, and cross-check that information with the recorder of deeds or assessor’s office where the rental is located. For most areas, you can do this online.

To verify a real estate agent’s credentials, search for the person’s name at the Association of Real Estate License Law Officials or contact the licensing office in the agent’s state.

For vacation rentals, consider using reputable vacation websites or a local vacation rental company.

 

Portions of article from aarp.com. It was published in Founders Transaction Newsletter (July 2013).

Booking Last Minute Travel

Summer is here and vacations are in full swing. Haven’t booked your vacation yet? Use these tips for booking last minute travel to get the best deals!

 

Being Flexible Is Better 

Last-minute deals arise when airlines and hotels need to fill seats and rooms. Period. So it’s much easier to find bargains if you have no particular travel agenda. This might mean traveling on weekdays, flying very early or late in the day or on indirect flights, visiting a destination in the off-season or even heading  to a city that you never before considered.

 

Hotels Have Deals Aplenty 

Most hotels have deals available. Often these run for weeks or even an entire season, so you don’t need to book until you’ve found the cheapest airfare. Depending on the terms and conditions of the hotel offer, you might save additional money through memberships in loyalty programs or organizations like AAA or AARP. With larger hotel chains, check for deals on both the main and local property sites. And don’t be afraid to call the hotel for an unadvertised special or a manager willing to make a last-minute deal to fill an empty room.

 

Plan Ahead 

Sound like a contradiction? It’s not really. Many savvy travelers stick to last-minute vacations. They stay on top of deals by signing up for special-offer e-newsletters and email blasts from travel planning sites, airlines, hotels and credit card companies. They also do a little old-fashioned research to avoid planning trips during peak seasons or major events, when prices tend to skyrocket.

 

Move Fast, but Pay Attention 

Book incredible deals as soon as you see them. On some sites, they can be snapped up in minutes. That said, be sure you’ve read the small print and understand fully what you’re getting for the money and what you’re not.

 

Article source: AARP.com. It was published in Founders Springtimers Newsletter (June 2013).

Better Rates in A Low Rate Environment

Are you getting frustrated with your investments not generating the interest income they used to get? Is your retirement less golden than you thought it would be?

Retirement is a life-changing event. You must reposition assets inside your retirement plans previously used to accumulate wealth into retirement solutions designed to provide a lifetime of income. The transition from “accumulation” to “income and preservation” can be daunting.

This task is further complicated by the low interest rate environment you face today, which may cause the income generated from your investments to be historically low. This presents a potential hardship since you seek preservation, but the only way you can get the income needed is to withdraw principal from your investments. Another possibility is that they remain invested, but you have difficulty sleeping at night because you are exposed to market volatility. In this low interest rate environment, it may feel like your retirement income isn’t going to be able to sustain itself.

Having a sufficient source for ongoing income and the right financial portfolio in place can help protect you against sleepless nights—and give you the confidence to look ahead to your retirement.

Founders Investment Services may provide you with an alternative to low rates. Our Financial Consultants may be able to provide investment alternatives that may generate higher yields than what you may have now after a full understanding of your risk tolerance and goals. Furthermore, in the face of wealth destroying inflation, our Financial Consultants may be able to help you keep up with and outpace inflation.  A meeting with one of our Financial Consultants will provide the information you need to make an informed decision and provide guidance along life’s way.

If your investments are not generating enough income, or even what they used to, maybe it’s time you talked to a Founders Financial Consultant in Investment Services. If your financial goals include polishing your investment portfolio for sustainable, consistent, and ongoing income, speak to one of our advisors.

Together, we’ll assess your needs and concerns, discuss your options, and then decide on a practical solution that meets the needs of the fluctuating marketing and your current portfolio.

It is time to start rebuilding retirement for a brighter future. Contact us today at 1-866-739-7064 to schedule an appointment at a branch convenient for you.  

 

 

Securities and investment advisory services offered through Cetera Advisor Networks, LLC, Member FINRA/SIPC - Founders Federal Credit Union, Founders Financial Group, LLC and Founders Insurance Services are not affiliated with Cetera. Investment Services is a department of Founders Federal Credit Union. Registered Sales Branches are located at 607 N. Main Street, Lancaster, SC 29720; 1290 Old Springdale Road, Rock Hill, SC 29730; 100 Springcrest Drive, Fort Mill, SC 29715; 1307 Boiling Springs Road, Spartanburg, SC 29303.
Not NCUA Insured - No Credit Union Guarantee - May Lose Value - Not Deposits - Not Insured by any Federal Government Agency.

This article was written by Derek Hawk with Founders Investment Services. It was published in Founders Springtimers Newsletter (June 2013).

Contribution Limits for Retirement Accounts in 2013

When it comes to retirement accounts, bigger is better. The more dollars you contribute now, the more money you will have for retirement.

For 2013, several changes have been made to retirement account contribution limits. Fortunately, these increases can help you add more to your accounts now, and help you reach your retirement goals earlier. Another benefit of higher limits can be to hedge against possible higher taxes. The following are changes for retirement accounts:

For a 401(k), the Elective Deferral limit increased $500 to $17,500 in annual contributions. Additionally, the catch-up provision for those 50 years old and older increased $500 to $5,500. 

For a Traditional IRA and a Roth IRA, an individual may contribute $500 more in 2013 than in 2012, which increases the total per person contribution to $5,500. For individuals 50 years old and older, there is an additional allowed catch-up amount of $1,000.

If you have a SIMPLE or SEP IRA, your limits also increased.  For SIMPLE owners, you can defer $12,500, which is an increase of $500 over the 2012 limit. For SEP IRA owners, the annual contribution limit increased $1,000 to $51,000 for 2013.

If you have any questions or would like to discuss your retirement account options with a Founders Investment Services Financial Consultant, please call 1-866-739-7064.

 

 

Securities and investment advisory services offered through Cetera Advisor Networks, LLC, Member FINRA/SIPC - Founders Federal Credit Union, Founders Financial Group, LLC and Founders Insurance Services are not affiliated with Cetera. Investment Services is a department of Founders Federal Credit Union. Registered Sales Branches are located at 607 N. Main Street, Lancaster, SC 29720; 1290 Old Springdale Road, Rock Hill, SC 29730; 100 Springcrest Drive, Fort Mill, SC 29715; 1307 Boiling Springs Road, Spartanburg, SC 29303.
Not NCUA Insured - No Credit Union Guarantee - May Lose Value - Not Deposits - Not Insured by any Federal Government Agency.

This article was written by Derek Hawk with Founders Investment Services. It was published in Founders CU Connect Newsletter (April 2013).

 

The Rising Cost of Health Care

Can you see the elephant in the room? We all know he is there, but it is hard to get our arms around him. That is how it is when we consider what it might cost to take care of us as we age.

When Medicare was signed into law on July 30, 1965 (as part of the Social Security Amendments of 1965), most people were not expected to live many years past age 65. Those who conceived the program probably never imagined how many would live decades past that age only fifty years later.

Increasing health care costs and longer life spans strain many retirees’ resources. As those approaching retirement plan for retirement income, they often fail to plan for ever-increasing health care costs. Whether it is denial or a sincere misunderstanding of the financial threat and reality of the rising costs of health care, many underestimate this line in their budgets.

Today, a healthy 65-year-old man can expect to have around $369,000 on average in health care expenses, including insurance premiums. A healthy woman of the same age can expect a number closer to $417,000.  An estimated 7,000 Americans turn 65 each day, and studies show that more than half are not confident they will have adequate funds to live comfortably throughout retirement and/or cover their post-retirement health care expenses. As many voice their worst fears, they agree that Medicare benefits may not be as good in the future as they are today, and that they must plan effectively to face that scenario.

Effective planning is critical as retirement looms on the horizon. Founders’ Financial consultants can meet with you, address your concerns, and come alongside to plan for your financial future. Call 800-739-7064 to set a time to speak by phone or meet at your convenience.

 

 

Securities and investment advisory services offered through Cetera Advisor Networks, LLC, Member FINRA/SIPC - Founders Federal Credit Union, Founders Financial Group, LLC and Founders Insurance Services are not affiliated with Cetera. Investment Services is a department of Founders Federal Credit Union. Registered Sales Branches are located at 607 N. Main Street, Lancaster, SC 29720; 1290 Old Springdale Road, Rock Hill, SC 29730; 100 Springcrest Drive, Fort Mill, SC 29715; 1307 Boiling Springs Road, Spartanburg, SC 29303.
Not NCUA Insured - No Credit Union Guarantee - May Lose Value - Not Deposits - Not Insured by any Federal Government Agency.

This article was published in Founders Open Exchange Newsletter (April 2013).