Fun Facts Newsletter | December 2013

In the Spirit of the Holiday Season, Here Is A List of Early New Year’s Resolutions and Fun Things To Do in 2014!

  1. Remember, cash flow (income versus expenses) is the key to long-term financial success. If you are gainfully employed you should be saving 15% to 25% of your income. If you are retired or not fully employed and are drawing on your investment portfolio, your total annual withdrawals should be 3% to 5% of your portfolio value or less. If your savings rate is low or withdrawal rate high, review steps to increase your employment income or reduce your expenses.
  2. Insurance is the foundation of sound financial planning. Home and auto insurance, umbrella liability coverage, health insurance, life insurance, disability and long-term care insurance all require regular review and updating. Funding a Health Savings Account (H.S.A.) warrants consideration. If you own or are considering long term care insurance, pay particular attention to and understand the inflation protection options.
  3. Are there any family or personal changes that might prompt a review of your beneficiary designations on life insurance policies (both employer provided and individually owned), IRA accounts and employer retirement plans? Were there any changes in employer plans wherein correct beneficiary designations should be confirmed? How about Power of Attorney, Will and/or Trust documents? Changes of address or telephone numbers of people listed in your Health Care Power of Attorney document?
  4. Do your children or grandchildren have employment income that could be used for a Roth IRA or Traditional IRA contribution? If applicable, have you funded 529 college savings plans for the calendar year for children or grandchildren?
  5. Do your family members know where to locate important personal financial papers and how to contact your professional advisors in case of an emergency? Does a trusted person know where your website user names and passwords and answers to security questions are kept?

Have a safe and happy holiday season. Take good care of yourself. Best wishes for a healthy and prosperous New Year in 2014!

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What Financial Lessons Are Your Children Learning From You?

Our children are learning financial lessons from us, whether we realize it or not, through our actions, behavior and words. Are they learning useful lessons? Is their learning a positive experience?

The best approach is a proactive one, where they learn lessons from our intentional conversations about personal finances. This starts with a foundation of values and priorities that precede economic decisions. Do they choose their friends by who has the biggest house or the best clothes or the most stuff? Or do they choose their friends by who is the most genuine, honest, humble and caring? Watch for "teachable moments."

A dose of financial reality may come with your child's first paycheck when they ask, "What's FICA?"
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Teaching Kids About Personal Finances

There is no predefined or perfect way to teach children about personal finances. It starts at a young age with simple discussions about self-esteem, personal values and relationships. It can include discussions around presents at birthday parties and at Christmas. It can progress to dealing with cash as they may get allowances or babysitting or lawn-mowing income. The first dose of financial reality may come with your child's first official paycheck when they ask, "What is FICA?"

As the years pass, they will reach the stage when they can have their own bank account with mom or dad, followed by an ATM card or credit/debit card and checkbook. Explain the difference between a debit and credit card. Teach them how to write a check, even if hardly anyone does that anymore. They should understand the principle.

Explain to them how mom and dad make financial decisions. Explain, without lecturing, the sacrifices or trade-offs that are made to achieve personal goals and priorities. There's no harm or guilt trip in dad saying that sending a child to summer camp was more important than buying a new set of golf clubs, if you present it nicely and factually.

Turning 16 opens the doors to financial responsibilities of a car, including insurance and gasoline and maintenance costs. Preparing to go to college will certainly open some discussions about savings, grants, scholarships and loans. Hopefully a foundation of understanding financial principles and the value of a dollar will have been achieved by this point. Early adulthood may introduce buying or leasing a car, renting or buying a house, and the biggest of all debts, a mortgage!

Financial Lessons to Last a Lifetime

Decide for yourself whether you want your children (and grandchildren) to learn about money and personal finances by observation or by using a proactive approach. Either way, these will be lessons that influence them for a lifetime.

In the Spirit of Giving, Consider Your Community Foundation

As the holidays and end of year quickly approach, many people turn to thinking about charitable gifts. The Thanksgiving and Christmas season is a popular time for charitable giving, both for expressions of gratitude and giving as well as income tax deductions for the current calendar year.

The most universal guideline of how much to give to charity is the biblical principle of tithing 10% of your income.
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Develop a Charitable Giving Plan

Ideally, you should first develop a plan for how much to give and to what organizations or causes. Ideally, the amount you give will be commensurate with your income and assets, so the higher your income and assets, the higher your charitable gifts are as a percentage of your income and assets. The most universal guideline of how much of your income to give to charity is the biblical principle of tithing 10% of your income. As always, the best advice is to set a goal and have a plan.

Cash (in reality, money given via checks and credit cards) is the most common form of gifts. (We are addressing financial gifts here, but gifts of time and services are equally important.) If you have appreciated stocks or mutual funds, however, giving appreciated securities has an additional benefit: avoiding capital gains tax. If you give an appreciated investment to a tax-exempt charity, they can sell the investment and convert it to cash without paying any capital gains tax.

Giving appreciated stocks or mutual funds to charity can become administratively difficult if you give to multiple charities during the year. An attractive option is a donor-advised fund (DAF) at a community foundation, such as The Greater Cincinnati Foundation. Many communities have a community foundation. A DAF offers tremendous ease and flexibility. You can make one gift to your DAF at the community foundation and then request that grants be made to your list of charitable organizations. A DAF also allows you to separate the timing of gifts for tax purposes. For example, you can make a gift to your DAF this year for the income tax deduction, and either request grants to your favorite charities this year or in the future. A DAF also allows your stock or mutual fund to be sold and invested in a more diversified portfolio pending future distributions to charities.

Consider a Donor-Advised Fund

We are happy to help you learn more about a donor-advised fund at a community foundation. There are many uses and advantages of a donor-advised fund at a community foundation and we have only highlighted a few of them here. Most important, develop a goal and a plan for your charitable giving—it's the gift that keeps on giving.

You Passed Your Driving Test, But Can You Pass a Retirement Test?

The Wall Street Journal recently published a thought-provoking article on preparing for retirement. Below, we've highlighted a few of the questions from the quiz, so you can see how you would fare. You may find that passing this retirement test is harder than passing your driving test. You can take the quiz yourself online at The Wall Street Journal website.

"Passing a retirement test may be more difficult than passing your driving test."
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Take This Retirement Test

1. Research by Fidelity Investments recommends that workers should aim to save what multiple of their ending annual salary at age 67 in order to meet basic income needs in retirement?

Workers need to save eight times their final annual salary if they hope to meet their basic retirement income needs, according to the Fidelity study. This estimate assumes you start saving at age 25 and live to age 92. But some estimates are even higher. The Wall Street Journal also reports that an Aon Hewitt study concluded that a person would need a nest egg of 11 times their salary to retire at age 65.

What do these numbers mean for you? If your family has an annual income of $100,000, you would need a nest egg of between $800,000 and $1,100,000 to meet your living expenses in retirement.

2. What is the average age at which current retirees say they actually retired—and what is the expected retirement age among current workers?

As you know, what people want to do and what they actually do are two different things. While many reported that they expected to retire at age 66 (up from age 60 in 1996), the average retirement age among current retirees is 61, according to a Gallup poll published in May (that's up from age 57 in 1993).

People are beginning to see the impact of The Great Recession on their savings and investments as well as facing the reality of potentially longer life expectancies and uncertainty over health care expenses. There's one advantage to working longer, however (aside from being able to save more for retirement): The Gallup poll also found that people between the ages of 60 and 69 who work enjoy better emotional health than those who stop drawing a paycheck. Bottom line: Work provides important non-economic benefits.

3. What percentage of surveyed workers say they plan to continue working for pay in later life—and what percentage of current retirees say they have worked for pay?

Again, what people say they are going to do and what they do are often two entirely different things. While nearly 70% of people say they plan to work for pay in retirement, only one quarter of retirees actually do so, according to a study by the Employee Benefit Research Institute. That's a pretty big gap between expectations and reality. Granted, those results could be partly due to surveying people at different stages of their life (I'm not sure that they asked the same people both before they retired and after they actually retired). But if I had a nickel for every time someone said, "I'll just do some consulting in retirement...."

Perception vs. Reality

There is much to be learned about retirement and big differences between perception and reality. Contact us today for an appointment to start learning more about retirement and making your retirement dreams a reality!  

You Are Invited to Join the 1% Club!

At first blush, reading an invitation to join the 1% club probably makes you think about the top income earners who are so frequently referenced in public debate about wealth and income taxes. Who wouldn't want to join the 1% club?

"Better now than later, better safe than sorry. Good words to live by!"
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A Different 1% Club

We are recommending that you join a different 1% club; one that is more realistic and within reach for almost anyone. Join the club by increasing your retirement plan contribution 1% in 2014! You will be the big winner in the long run and you will be glad you did it.

There is so much written about the retirement savings shortfall in the U.S. that it can lead most people to despair. The general conclusion is that there is no hope, so why bother trying? But only one thing is for sure: Any negative financial situation only gets worse the longer it is ignored! Start nibbling away today and the long run results may surprise you.

How Much Are You Saving?

We generally recommend that people save 10% to 15% of their income, (for some high income earners, the number may be even higher). Most people save 3% to 6% to qualify for their employer's maximum matching contribution. Going from 3% to 15% overnight is understandably a very big jump to make and unrealistic for most people. But bumping up 1% a year each year will help you achieve your goal in the long run.

Fun Facts Newsletter | November 2013

Congratulations! Your investment portfolio just won the Nobel Prize in Economics!

Well, sort of, not directly, but certainly indirectly!

We are proud to report that Eugene Fama, Professor at the University of Chicago, was awarded the Nobel Prize in Economics based on his groundbreaking work on asset pricing and financial markets. Dr. Fama's academic research has been implemented in the real world thru the work of Dimensional Fund Advisors (DFA mutual funds) and is also the fundamental basis supporting the use of index funds such as the various stock funds we use in your portfolio from The Vanguard Group. His "Efficient Market Hypothesis" states that stock market prices reflect all available information and trying to pick superior performing stocks in advance is a fruitless exercise. We are proud to bring this award-winning investment philosophy to you and we are delighted to see the academic basis of our investment strategy awarded a Nobel Prize.

October was newsworthy for other reasons. As reported in the Kiplinger Tax Letter, the federal income tax just turned 100. President Wilson signed it into law on Oct. 3, 1913, a little more than four years after the 16th Amendment was proposed by Congress and eight months after official ratification by the states. Some facts about the 1913 tax:

The basic income tax rate was only 1%, with a surtax that ranged from 1% on net income over $20,000 and up to $50,000 to 6% on net income in excess of $500,000.

All filers were allowed to deduct interest on personal debts plus state and local taxes paid. The standard deduction was $3,000 for single filers and $4,000 for married couples. About 1% of households paid tax. The 1040 form was three pages long, with separate pages for income, deductions and the calculation of the tax and surtax.

The 20 instructions for completing the form fit on one page. The full set of instructions for filling out 2012's 1040 was 214 pages. But don't pine too hard for the good old days. Five years later, as World War I was coming to an end, the top rate had soared to 77% on net income over $1 million.

Since the calendar has closed on October, we hope you remembered to review your fire safety at home. Why is a financial planner writing about fire safety? We hope all of our clients live long and healthy lives and we always advocate that we manage things that are within our control and not be consumed about things that are beyond our control.

So remember to change your smoke detector batteries, replace your smoke detectors if they are over 10 years old, same for at least 1 carbon monoxide detector in your home. Then sleep well!

Happy Thanksgiving! Celebrate the good fortune and blessings that we have!

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Donna Ellis and Kathy Blain Accepted to Leading Association of Fee-Only Financial Planners

Two professionals with Berno Financial Management accepted to National Association of Personal Financial Advisors

CINCINNATI – October 18, 2013– Donna Ellis, CFP®, and Kathy Blain, CFP®, of Berno Financial Management have been accepted for membership in the National Association of Personal Financial Advisors (NAPFA) and designated as NAPFA Registered Financial Advisors. NAPFA is the leading association of fee-only financial planners in the United States. The organization's more than 2,400 members include the most qualified financial advisors in the country, all committed to delivering objective, fee-only advice to clients.

Fun Facts Newsletter | October 2013

The stock market pendulum swung widely in our favor both in the month of September and the third quarter of 2013. The asset classes that were “laggards” in the Asset Class Leaders and Laggards table that we introduced to you last quarter swung over to become “leaders”. More importantly, the month of September, which is historically a bad month as we also reported to you last month, turned out strongly positive. This all proves once again that trying to forecast or predict the stock market is a futile exercise!

Is It Time to Change Your Money Mindset?

financial-mindset
Are you a dreamer, procrastinator, perfectionist or a wanderer?

What is your financial mindset?

The 2013 Household Financial Planning Survey and Index, recently released by the Certified Financial Planner Board of Standards and the Consumer Federation of America, divides American consumers into four categories when it comes to their financial behavior.

"90% of Wanderers have no plan in place for specific savings goals."
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Four Categories of Financial Behavior

The four categories are defined by specific financial behaviors: comprehensive financial planning, basic financial planning and credit card debt management. The four categories are:

  1. Basic Planners—The Dreamers: 38% of Americans
  2. Limited Planners—The Procrastinators: 33% of Americans
  3. Comprehensive Planners—The Perfectionists: 19% of Americans
  4. Non-Planners—The Wanderers: 10% of Americans

The Dreamers are the largest category. They have some clear goals, but they just haven't worked out all the details. Two-thirds have a household budget but less than half of them write down their budget or store it electronically.

The Procrastinators are the second largest category. They put forth the bare minimum of effort and might get to the rest of planning later. While 31% of them plan for retirement, only 7% save for emergencies. Just 7% save for other goals.

The Perfectionists know the exact route to their financial goals. Two-thirds work with a CERTIFIED FINANCIAL PLANNER™ professional or Registered Investment Advisor. More than half have a household income greater than $100,000.

The Wanderers basically float from bill to bill without any strategic approach to money management. The report reveals that 90% of people in this group have no plan in place for specific savings goals. About 40% have significant credit card debt, but half of them have no plan to pay down that debt.

Planners Save More

Most important, the report concluded that planners exhibit more confidence in financial decision-making and save more money. Their confidence comes from understanding their financial situation. Regardless of income, planners achieved better financial outcomes than non-planners.

What is your financial mindset? While there may be little hope if you are a Wanderer, if you are a Procrastinator or Dreamer, now would be a great time to step up to the next level.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

Passive vs. Active Investing: The Battle Rages On

In the active vs. passive investing fight, we’re firmly
on the side of passive investors.

Active versus passive management is a long-raging battle among investment managers. On one side are the active managers, who believe that through careful research and individual stock picking they can beat a stock market index portfolio over time. On the other side are the passive advocates who argue that an investor is best served by buying a low-cost, broadly diversified portfolio that tracks a market index. In case we have to tell you, Berno Financial Management has been in the passive camp for years.

"It may sound un-American not to try to be the winner, but when investing, capitalism favors a passive approach."
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Gauging a Fund's Performance

Standard & Poor's, publishers of the popular Standard & Poor's 500 Index of U.S. large company stocks, conducts extensive research on fund versus index management performance. S&P recently released its June 30, 2013, report, which is summarized below:

Percentage of U.S. Equity Funds Outperformed by Benchmarks 06/30/13

Fund Category Comparison Index One Year % Three Year % Five Year %
All Large-Cap Funds S&P 500 59.58% 85.95% 79.46%
All Mid-Cap Funds S&P MidCap 400 68.88% 85.78% 81.98%
All Small-Cap Funds S&P SmallCap 600 64.27% 80.19% 77.88%
All Multi-Cap Funds S&P Composite 1500 63.41% 84.31% 82.57%

Over five years, roughly 80% of actively managed funds underperform their benchmark. An individual investor has a much higher probability of earning the market return in a passively managed index. They have a great risk (about 80%) of under-performing in an actively managed fund. Why take that risk? Add to this debate that past performance is not a guarantee of future returns (one of the top 20% of funds today has a low probability of staying in the top 20% over the next five years), and you have a very sound argument for passive management.

It's a free country, but don't argue with the facts. It may sound un-American not to try to be the winner, but when investing, capitalism favors a passive approach. 

Fun Facts Newsletter | September 2013

September is reported to be the worst month for stocks historically although, like all rules-of-thumb, it doesn't always work out that way. For the record, over the last 70 years September has been the worst month of the year, but with an average decline of only 0.5%. Just to show it ain't always so, over the last 10 years September has been a positive month 7 of 10 years with an average gain of 0.5%. More importantly, not just for September alone but for the balance of the year, whenever the Dow Jones Industrial Average has been up year-to-date going in to September, the year has ended up higher than it was in September by about 3%. Like all market predictions, only time will tell.

Starting School: The Smell of 529 Plans in the Air!

Schools seem to start earlier every year. I am of the mind that school shouldn't start until after Labor Day, but I lost that battle long ago! While starting school in August no longer has the scent of autumn in the air, it is a time to think about the future.

Fun Facts Newsletter | August 2013

Media sound bites, as always, are only telling part of the story. While radio, TV, newspaper and website headlines are blaring that the Dow Jones Industrial Average, NASDAQ and SP 500 are setting record highs, calendar year 2013 is showing widely dispersed investment returns, in stark contrast to 2012. Quite frankly, 2013 is a more "normal" market in terms of the range of stock and alternative investment returns. Bonds, however, are the big news that isn't reaching the headlines.

How America Saves 2013

Only 11% of people are contributing the maximum amount to their 401(k). How does America save for retirement? How does your retirement saving compare? Defined contribution plans such as 401(k)s are the foundation for retirement savings in America. The private sector (excluding government employees) retirement system covers over 80 million Americans and has total assets in excess of $4 trillion.

The Vanguard Group is one of the leaders in the defined contribution marketplace with more than $500 billion in assets and full-service plans covering 1,600 employers and over 3 million employees. Every year, The Vanguard Group publishes a report entitled "How America Saves" that summarizes participation in the plans they manage.

"7% is the average employee retirement contribution rate as a percentage of pay." [Tweet This]

Survey: 25% People Don't Contribute to Workplace Retirement Plans

Here are some highlights:

  • 76% of eligible participants actually contribute to their 401(k)
  • 24% of eligible participants contribute 0% (guess when they will retire)
  • 7% is the average employee contribution rate as a percentage of pay
  • 22% contribute more than 10% of pay
  • 11% contribute the maximum dollar amount allowed ($17,000 in 2012)
  • 10.5% is average total contribution rate (employee and employer)
  • $8,050 is average annual employee and employer contribution total

How Much You Save Matters More than Investment Returns

The amount that you and your employer contribute to your retirement plan is a far more important factor in your retirement security than the investment returns.

Your "savings rate" is one number you should know and grow!

Berno Financial Management Marks 20 Years in Business with Celebration at the Newport Aquarium

CINCINNATI – July 19, 2013 – Berno Financial Management, an independent, fee-only financial advisory firm based in Cincinnati, recently celebrated its 20th anniversary. The firm marked the occasion with a celebration at the Newport Aquarium on July 13. More than 150 clients and their family members enjoyed lunch in the Riverside Room and then spent the day exploring the aquarium.

"At Berno Financial Management, we focus on developing close, personal relationships with every one of our clients," said Bruce Berno, CFP®, the firm's President. "It's been gratifying to see those relationships evolve and flourish over the past two decades. Without the support of our clients, we wouldn't be where we are today. This event was a way to thank them and their families for their ongoing confidence in our firm."

Berno Financial Management was founded in 1993 by Bruce Berno, who currently serves as the firm's president and client services director. He leads a team of financial professionals who specialize in helping people make the most of their personal finances and achieve financial peace of mind.

Since it was established, Berno Financial Management has become one of the leading independent financial planning firms in the Cincinnati area. The team's experience and dedication have resulted in Berno Wealth Management being named a "Top Wealth Manager" by Bloomberg magazine every year since the list's inception in 2001. Bruce Berno has also been named a Five Star Wealth Manager by Five Star Professional in partnership with Cincinnati Magazine every year since 2010.

About Berno Financial Management

Berno Financial Management helps proactive individuals and their families make the most of their personal finances. As an independent, fee-only management firm, Berno Financial Management offers unbiased advice as part of its comprehensive personal financial planning and investment management services. To learn more, visit www.bernofinmgt.com.

Contact:

Bruce Berno, CFP®
7454 Jager Ct.
Cincinnati, OH 45230-4344
513.475.9191
bruce@bernofinmgt.com

Fun Facts Newsletter | July 2013

How did "the market" do today?
How much is "the market" up this year?
Did your stocks beat "the market"?

But have you ever stopped to wonder just what "the market" is? Most investors, including our firm, have historically defined "the market" as the Standard & Poor’s 500 Index or the Dow Jones Industrial Average, both of which are indices of U.S. large company stocks.

But:

  • the S&P 500 is about 70% of the US stock market and
  • US stocks are about 45% of the global stock market, so
  • the S&P 500 is actually about 32% of the world stock market.

So the S&P 500 is not a very good definition of "the market" if it is missing about 30% of the U.S. stock market and 100% of the foreign stock market, especially in our increasingly globalized society where the U.S. is less than 50% of the world stock market.

Hence, as we begin to celebrate Independence Day, we are declaring our independence (a long-standing hallmark of our firm) by replacing the S&P 500 and Dow Jones Industrial Average as benchmarks for "the market" with
(drum roll please...)
the MSCI ACWI IMI NR USD Index. Say that five times quickly!

It stands for:

MSCI

Morgan Stanley Capital International (pioneer in international indices)

ACWI

All Country World Index (Developed and Emerging Markets)

IMI

Investable Market Index (Large, Mid & Small size, excluding microcaps)

NR

Net Dividends Reinvested (Net of dividend foreign tax withholding)

USD

US Dollar (a no-brainer to end with, because it is what we spend)

In the long run, the MSCI ACWI and S&P500 are remarkably close in returns:

As of 05/31: 

15 Years

10 Years

5 Years

3 Years

1 Year

MSCI ACWI

+4.81%

+8.55%

+1.64%

+12.50% 

+26.34%

SP500

+4.61% 

+7.58% 

+5.43%  

+16.87%

+27.28%

As a special bonus with this edition, we are also introducing "Asset Class Leaders and Laggards". Ten stock asset classes are ranked by return, then by weighting, to show that even though the largest weighted asset class of US Large Cap was up by 13.74%, the 3rd, 5th and 6th most heavily weighted asset classes were 8th, 9th and 10th laggards, dragging the world index down to +6.4%.

06/30/13

 

 

 

 

 

Ranked by Return

 

 

 

 

 

Asset Class

Benchmark
Fund
Symbol

06/30/13
YTD %
Return

% Return
Rank

Model
Portfolio
% Weighting

% Weighting
Rank

Leaders

 

 

 

 

 

US Large Value

DFLVX

18.00%

1

12.0%

4

US Small Value

DFSVX

17.73%

2

2.0%

8

US Micro Cap

DFSCX

17.45%

3

1.0%

9

US Small Cap

NAESX

15.89%

4

4.0%

7

US Mid Cap

VIMSX

15.51%

5

14.0%

2

Laggards

 

 

 

 

 

US Large Cap

VFINX

13.74%

6

37.0%

1

US Large Growth

VIGRX

10.52%

7

0.0%

10

International Large Cap

DFALX

2.56%

8

13.0%

3

International Large Cap Value

DFIVX

1.77%

9

9.5%

5

International Emerging Markets

DFCEX

-9.49%

10

7.5%

6

 

 

 

 

100.0%

 

Ranked by Weighting

 

Benchmark
Fund
Symbol

06/30/13
YTD %
Return

% Return
Rank

Model
Portfolio
% Weighting

% Weighting
Rank

US Large Cap

VFINX

13.74%

6

37.0%

1

US Mid Cap

VIMSX

15.51%

5

14.0%

2

International Large Cap

DFALX

2.56%

8

13.0%

3

US Large Value

DFLVX

18.00%

1

12.0%

4

International Large Cap Value

DFIVX

1.77%

9

9.5%

5

International Emerging Markets

DFCEX

-9.49%

10

7.5%

6

US Small Cap

NAESX

15.89%

4

4.0%

7

US Small Value

DFSVX

17.73%

2

2.0%

8

US Micro Cap

DFSCX

17.45%

3

1.0%

9

US Large Growth (*)

VIGRX

10.52%

7

0.0%

10

(*) included in US Large Cap

 

 

 

100.0%

 

 

 

 

 

 

 

Global Market Weighted Index Benchmark

 

 

 

 

MSCI ACWI IMI Net Divs

 

6.40%

 

 

 

MSCI All Country World Index

 

 

 

 

 

Investable Market Index

 

 

 

 

 

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How Does Your Financial Capability Compare?

A recent nationwide study revealed some disturbing information about the state of people's finances.The 2012 National Financial Capability Study, sponsored by the FINRA Investor Education Foundation, provides some humbling results that should make you feel a whole lot better about your personal finances. But it should also make us all a lot more worried about the state of our country.

"The 2012 National Financial Capability Study found that 19% of respondents spend more than they make." [Tweet This]

What the Survey Says In summary, of the respondents to the survey:

  • 19% spend more than they make
  • 36% break even
  • 41% spend less than they make, thus actually saving money for the future
  • 26% have medical debt, with people between 18 and 34 having the most medical debt
  • 40% have a rainy day fund to buffer against unexpected financial shocks
  • 30% have engaged in non-bank borrowing within the last five years, such as through an auto title loan, tax refund loan, pawn shop or rent-to-own store
  • 49% pay their credit cards in full every month
  • 34% only pay credit card minimum balance due
  • 14% have an underwater mortgage, which means their house is worth less than the mortgage balance
  • Among 18-to-34-year-olds with a mortgage, 25% are underwater

Overall, only 39% got four or more questions right on a very basic financial literacy quiz.

You can take the quiz yourself at www.usfinancialcapability.org.

The Need for Financial Literacy Clearly, the survey results are reflective of the national economy over the past five years and the dramatic effect of unemployment and underemployment.

The study also demonstrates the need for basic financial literacy in our country.

As with many issues, the best and easiest place to start may be at home. Our "call to action" should be sure to spend some time with our children and grandchildren talking about basic finances, daily money management and the importance of saving for the future. What a great summer project!

About Bruce J. Berno, CFP® Bruce J. Berno, CFP® is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com.

Fun Facts Newsletter | June 2013

"Sell in May and go away", one of stock market pundits' many quick quips, fortunately did not fare so well in May 2013.  The MSCI World IMI Index appreciated 0.25% for the month, with U.S. large company stocks appreciating about 2% while foreign stocks fell about an equal 2%. U.S. small company stocks were strong performers, up about 4%. Bond investors got trumped by a surprising increase in interest rates, so broad bond market indices fell between about 1.25% to 1.75% for the month.  Our long term view remains optimistic but given the strong stock market returns in late 2012 and early 2013, a correction or downturn would not be surprising and would hopefully be short-term in nature. Remember, the stock market is volatile both up and down; always has been and always will be!  Important words for long term investors to live by.

Recently, Donna Ellis and Kathy Blain, Certified Financial Planners in our office, attended a two day seminar on Social Security planning by the National Social Security Association.  Donna and Kathy are now National Social Security Advisors (SM) and look forward to offering Social Security planning to our clients.

Planning to begin claiming Social Security is much more complicated than reaching a certain age and calling the Social Security office. The earliest most people may be able to begin claiming Social Security benefits is age 62. However, if you claim Social Security benefits at age 62, before full retirement age, you may be locking yourself and your surviving spouse into a lifetime of lower benefits.  By carefully examining all available strategies, you can avoid leaving money on the table.  At full retirement age married couples may employ the "claim and suspend" strategy to allow a spouse to claim a spousal benefit while the other spouse can allow their Social Security worker benefit to increase up to 32% by age 70. Also, if both members of the couple have been employed and qualify for Social Security benefits, a "restricted application" strategy can be employed to generate a spousal benefit while both worker benefits increase 32% by age 70! Before you file for Social Security benefits, please contact our office so that we can help you review your strategies and help you make the best decision for you and your family.

SAVE THE DATE!  We are pleased to celebrate our 20th Anniversary in July, 2013! On Saturday, July 13, 2013 you and your friends and children and grandchildren are invited to the Newport Aquarium in Newport, Kentucky for our 20th Anniversary Celebration. The Aquarium will be open from 9:00AM to 7:00PM and we will be hosting a buffet lunch in the Riverside Room, which offers a spectacular view of the Ohio River and downtown Cincinnati skyline.

Personal invitations and more details will be coming shortly.

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