Money Management in Three Hours or Less

Finance (Photo credit: Tax Credits)

You want to get on top of your finances, but work, kids and other responsibilities routinely take precedence. What's more, the sheer number of choices in the financial market (Which investment is best out of the thousands available? Which credit card? Which cable provider?) have left you overwhelmed. But fight off the paradox of choice and the fear of doing the wrong thing. For as experts like Baltimore financial planner Tim Maurer stress, inaction will cost you dearly most of the time.

The good news is that a single lunch hour or a Saturday morning can be enough time to get your finances in significantly better order. Make headway by taking these actions, each of which only requires one to three hours.

IF YOU'VE GOT AN HOUR
Nine out of 10 married people avoid talking to their partner about money, according to an American Express poll published in June 2010. Sound familiar? Dodging discussions may help you avoid fights in the present, but you'll pay in the long run, warns Mary Claire Allvine, co-author of The Family CFO: The Couple's Business Plan for Love and Money. Says Allvine: "Research shows that couples who regularly look at their balance sheets together do better financially." She recommends scheduling one-hour "dollar dates" to get on the same page.

Date 1. Crack open a bottle of wine to loosen the nerves, then bring out the laptop and register on money-management site Mint.com. Take just 15 minutes to upload your accounts and you'll get a balance sheet (how much you've got and what you owe) and a look at your cash flow (what's coming in and what's going out). For the rest of the date, divvy up a pack of index cards and separately write down your money-related goals (say, paying off debt or taking a cruise). Then come together to prioritize your top three.

Date 2. Spend the first 20 minutes figuring out how much cash each of your three goals will require. Next, determine when you want to accomplish each of them and how much you need to save per month to do so. Finally, program the goals into Mint, and the site will track your progress toward them.
This tried-and-true method is the best way to cover allotted expenses if you don't trust yourself with a debit or credit card. Put budgeted amounts of cash into separate envelopes for each category. If you reach into your grocery envelope and nothing's there, eat from the pantry until the next payday, or pull cash from an envelope that can spare it.

Shrink Your Bills

As of March 2012, the average wireless customer is paying $1,776 annually and cable customers shell out around $900 per year, according to BillShrink.com. The site can help you reduce those costs. Fill out a quick worksheet—your address, how much you pay, favorite channels and so on—and directly upload data from your phone account. The site will identify lower-cost providers based on your current usage and show you exactly how much you could save in the course of two years. Use the rest of the hour to cancel your current accounts and switch to a new carrier. 

Get Disaster-Ready

"The majority of Americans haven't included financial documents in their disaster plan," says Jim Judge of the American Red Cross's Scientific Advisory Council. To prepare for an emergency, store your important documents on two CDs, one to keep at home and the other to tuck away in a safe-deposit box. On each CD, scan the following paperwork:

Using credit and debit cards is the simplest way to keep track of most of your purchases. Mint.com is a free online program that automatically updates information from your accounts and sorts transactions into categories. Check in for a complete picture of your spending. If you're going over budget in any category, you'll receive an e-mail warning.

• Driver's license and passport
• Social Security card
• Social Security card
• Health insurance card
• Insurance policies
• Mortgage and other loan papers
• Property deeds
• Car title and registration
• Marriage license
• Your will
• Last year's tax return
• Bank and brokerage account numbers

IF YOU'VE GOT TWO TO THREE HOURS

Protect Your Legacy

Who wants to spend an afternoon thinking about mortality? No one, which is why 55% of Americans don't have a will, according to FindLaw.com research from December 2010. "But without one, you could be leaving disposition of your assets and the guardianship of your minor children to a court," says New Jersey attorney Gerard Brew. If you have young kids and/or significant assets, you should really consult a lawyer. For now, however, download Quicken's WillMaker Plus from Nolo.com. The program takes only 30 minutes to complete. But count on the discussion with your spouse over whether his mother or your brother would make a better guardian to add some time.

Get on Recruiters' Radars

Today, 89% of firms use social media to find candidates, according to Jobvite. Not seeking work? "The best time to create a digital footprint is before you're looking," says Miriam Salpeter, author of Social Networking for Career Success. That way your next move can find you. The information contained herein represents the opinions of a third party and does not necessarily represent the opinions of Mercer HR Services, LLC or MMC Securities Corp. and are unaffiliated with any of the entities referenced above.

How to do it. 

If you're not yet on LinkedIn, the site most companies use to recruit, start by uploading your résumé. Include your entire job history, since profiles with multiple jobs are 12 times more likely to be viewed than those with one. Add a photo, and your click-through rate increases sevenfold. In your summary, be sure to use keywords that are important in your industry (hint: check job ads to find them) so that you'll come up in searches.  

  Adapted from the December, 2011 issue of Real Simple. © 2012 Time Inc. All rights reserved.

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Coming to America: Foreign Travelers Boost U.S. Economy

International visitors to the United States spent a record $153 billion in 2011, an increase of 14% over 2010. That’s good news, but just as significant is the fact that the travel and tourism balance of trade produced a surplus of $42.8 billion — a historic high and a 35% increase over the previous year.¹

At a time when the overall trade deficit and slow economic growth continue to cause concern, the international travel boom provides a bright spot that helps stimulate local economies. Three-fourths of the spending goes to local goods and services, including food, lodging, recreation, gifts, entertainment, incidentals, and transportation in the United States.² The tourism and travel industry (including domestic travel) supports 14.4 million jobs, either directly or indirectly — about one out of nine U.S. jobs.³

Bouncing Back from 9/11 and Global Recession 
It’s not surprising that income from foreign visitors dropped after the terrorist attacks of September 11, 2001. International travel to the United States began to increase in 2004, only to drop again in 2009, the low point of the global recession.⁴Last year surpassed pre-recession levels, and 2012 is off to a great start. Spending for the first four months increased by more than 13% over the same period in 2011.⁵

The flow of funds from foreign visitors is classified as an export in federal accounting and plays a meaningful role in the larger framework of U.S. trade. In 2011, spending by foreign travelers accounted for 7.3% of all U.S. exports, an amount that exceeded two major export categories: automotive vehicles, parts, and engines; and food, feeds, and beverages.⁶ The growth rate of travel and tourism exports from April 2011 to April 2012 was twice that of overall U.S. exports.⁷

Selling “Brand USA” 
The weakening of the dollar against foreign currencies makes U.S. travel less expensive for foreign visitors. But the dollar has been weak for several years, so other factors may be contributing to the recent upsurge.⁸ One could simply be an improving world economy. Global GDP has increased since 2009 — despite the fiscal crisis in the eurozone — and emerging nations such as China, Brazil, and India are developing a more affluent class of citizens who can afford to travel overseas.^9–10

To capture a larger share of the international travel market, Congress established a marketing agency in 2010 called Brand USA, which recently launched a multimillion-dollar marketing campaign funded by a combination of private and public funds.¹¹ The federal government is also considering changes to visa regulations to make it easier for visitors from certain countries to travel to the United States.¹²

Although travel and tourism may not get headlines in economic news, the industry contributes almost 3% to U.S. gross domestic product.¹³ Foreign travelers spend an average of $4,000 per trip, and it’s estimated that 35 international visitors support one U.S. job.¹⁴ Promoting Brand USA won’t solve larger economic issues, but the continuing growth of the U.S. travel and tourism industry could potentially be a significant factor in the nation’s economic recovery.

1–2, 5–6, 10, 13) U.S. Department of Commerce International Trade Administration, 2012
3, 7, 12) U.S. Travel Association, 2012
4) U.S. Bureau of Economic Analysis, 2012
8) The Wall Street Journal, May 18, 2011
9) International Monetary Fund, 2012
11, 14) Brand USA, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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What’s Your Retirement Vision?

Wouldn’t it be disappointing to dream about a comfortable retirement and then find yourself unable to enjoy your leisure years because of limited financial resources? Unfortunately, this is a possibility for people who underestimate retirement expenses and the rising cost of living.

Evaluate Spending and Costs

Although your expenses may change when you retire, reductions in some areas (such as clothing and transportation to and from work) could be offset by higher costs in others. For example, your home energy expenses may be higher if you spend more time at home, and health-related costs typically increase as you grow older.¹

Some expenses, such as food and housing, may stay about the same. Home-related expenses represent at least 42% of spending for Americans aged 50 and older, regardless of whether they are retired.² One study found that even though three out of five workers expect to spend less in retirement, half of retirees said their spending in the early years of retirement was about the same or higher than it was when they were working.³

Where you live could play a significant role in your overall expenses. If you’re living on a limited income, your money might go further in some cities and states than it could in others (see the cost-of-living chart). You’ll need to consider not only the cost of housing, food, and utilities but also taxes. States have varying rules for taxing pension and Social Security income, and property and sales taxes may vary not only by state but by county.

Enjoy the Lifestyle You Want

As you calculate the savings it may take to retire, remember to factor in your retirement wants as well as your basic needs. What do you picture for your retirement? The top retirement dream for today’s older Americans is vacation and travel.⁴Perhaps you’d like to see South America or go fly fishing in Alaska. Maybe you want to work on your golf or tennis game, or enjoy a hobby that you don’t have time for now. You might like to volunteer for your favorite charity or move closer to your children and grandchildren.

Sixty-nine percent of middle-income Americans say they’d like to work in retirement in order to “stay busy.”⁵ While this could be a worthwhile goal, wouldn’t it be nice to work on your own terms — to pursue your passion instead of a paycheck?

If you’re young, retirement may seem too far off to worry much about. If you’re approaching the end of your working years, you may have a clearer picture of life after work. Regardless of your age, a solid financial strategy could help you retire more comfortably.

1–2) Employee Benefit Research Institute, 2012
3) Employee Benefit Research Institute, 2010
4) AARP, 2011
5) Journal of Financial Planning, August 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville CPA. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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Investing When Rates Are Low

Interest rates have been exceptionally low for three years now — and are expected to remain so through the end of 2014, according to the Federal Reserve.¹ Meanwhile, market volatility has been high. These are challenging times for risk-averse investors who want to improve their returns.

If you are retired or approaching retirement, capital preservation is important, but you also want your portfolio to outpace inflation in order for it to last throughout retirement. So how do you factor the prospect of continued low interest rates into your investment strategy?

Cushioning with Cash

In a low-interest-rate environment, savings accounts, bank money market accounts, CDs, and other cash alternatives offer low earnings potential. However, these generally stable vehicles may still play a role in helping mitigate the impact of market volatility in your portfolio. It’s also important to keep reserves in liquid accounts to handle unexpected as well as routine large expenses and to take advantage of future investing opportunities.

Bracing with Bonds

Like cash alternatives, bonds may play a key role in your portfolio regardless of low interest rates, but you should choose your investments based on the same sound criteria you would utilize if interest rates were higher. Bonds with longer maturities generally offer higher yields than short- and medium-term bonds.²However, you may not want to commit to long-term bond investments in the current interest-rate environment because you might not be able to take advantage of more attractive yields when rates rise in the future.

Diving into Dividends

Equities may offer the potential to outperform cash and bond investments, but they carry higher risks. If you have trepidations about investing in a volatile stock market, one approach is to focus on well-established companies that pay dividends.

Cash reserves held by U.S. corporations are currently near a 50-year high.³ And some companies with excess cash are paying higher dividends. In 2011, companies included in the S&P 500 offered 388 dividend increases, compared with only 261 in 2010.⁴ The amount of a company’s dividend can fluctuate with its earnings, which are influenced by economic, market, and political events. There is no guarantee that a corporation will continue paying dividends in the future.

Although companies that pay dividends may not offer the growth potential of some newer companies that reinvest their profits, dividend-paying stocks may be less volatile. And if you have a longer-term time horizon, reinvesting any dividends can increase the potential for total return — share price appreciation or depreciation plus all investment earnings, including dividends and interest. Of course, as demand for dividend-paying stocks increases, their prices can become more expensive.

The return and principal value of stocks, bonds, and cash alternatives fluctuate with market conditions. Shares, when sold, and bonds redeemed prior to maturity may be worth more or less than their original cost. The FDIC insures bank CDs, savings accounts, and money market deposit accounts, which generally provide a fixed rate of return, up to $250,000 per depositor, per federally insured institution. Investments seeking the potential for higher yields also involve a higher degree of risk.

Even though a low-interest-rate environment can be challenging, there may still be opportunities for careful investors. Just be aware that if you’re searching for higher yields, you could take on more risk than may be appropriate for your situation.

1) Federal Reserve, 2012
2) Yahoo! Finance, 2012
3) Time.com, January 18, 2012
4) The Fiscal Times, February 10, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Tax advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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Costs of Caregiving

More than 65 million Americans — about one out of three adults — provide care for someone who is ill, disabled, or aged.¹Although these caregivers are unpaid, the total value of their efforts is estimated at $450 billion annually — more than the value of paid home health care and more than the 2010 retail sales of Wal-Mart, the world’s largest retailer.^2–3

Not surprisingly, about two-thirds of all caregivers help someone who is age 50 or older, typically a parent, a spouse, or a friend.⁴ Most people volunteer out of love and a sense of duty, but the high expense of professional care is an important factor. The average annual cost of nursing-home care exceeds $77,000.⁵

Unpaid informal caregiving, although free, could still have a significant financial impact. Seven out of 10 working caregivers reported having job difficulties, from changing their schedules or turning down a promotion to taking unpaid leave or giving up work entirely.⁶ For caregivers who live nearby or with the person receiving care, average out-of-pocket costs range from $4,570 to $5,885 annually. For long-distance caregivers, who often have substantial travel and lodging expenses, the average annual cost is $8,728.⁷

Of course, the financial burden is only one aspect of the cost of caregiving. Studies show that many caregivers also suffer physical and emotional effects, especially back problems and depression.⁸ The old expression, “Physician heal thyself,” may be appropriate. When you provide care for someone else, it’s important to take care of yourself (see chart).

As with many aspects of life, financial resources can make a significant difference. Only 3% of caregivers with six-figure incomes report suffering fair or poor health themselves, compared with one-third of those who have household incomes under $30,000.⁹

If you haven’t factored the cost of long-term care into your retirement needs, it may be wise to give it serious consideration. If you are caring for a loved one — or receiving care — a sound financial strategy could help alleviate some of the stress. We are available to discuss your situation and help you consider your options.

1–2, 4, 6–9) Family Caregiver Alliance, 2011
3) Deloitte Global Services, 2012
5) 2012 Field Guide, National Underwriter

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Retirement Planning advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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Following the Federal Reserve

To spur borrowing and boost the economy, the Federal Reserve cut the federal funds target rate to near zero at the end of 2008. More recently, the Fed disclosed that it is unlikely to raise rates until late 2014. In January 2012, the central bank released detailed forecasts for the federal funds rate — and stated a specific goal for the rate of inflation (2%) — for the first time in its history.^1–2

The Federal Reserve and the Federal Open Market Committee (FOMC) operate under a dual mandate to conduct monetary policies that foster maximum employment and price stability. In response to the financial crisis, lingering economic weakness, and high unemployment, the Fed has taken a series of unconventional steps.

Meet the Committee

The FOMC meets eight times a year. Projections for economic growth, unemployment, and inflation are collected from all seven members of the Board of Governors of the Federal Reserve System (including Chairman Ben Bernanke) and 12 regional Reserve Bank presidents ahead of scheduled FOMC meetings.

Behind closed doors, participants discuss how economic conditions are likely to change and which policy responses might be appropriate given the economic outlook. The 12 committee members — including all seven governors, the president of the Federal Reserve Bank of New York, and four of the remaining 11 Reserve Bank presidents (on a rotating basis) — vote on specific policy actions proposed during the meeting. Quarterly projections are typically released after their two-day meetings.

Portfolio Moves

During the 2008 credit crisis, the Fed helped stabilize the banking system by making emergency loans to banks and businesses and buying up “toxic” securities whose values had plummeted. The central bank was criticized by some people for putting itself in a position to sustain losses, but so far Fed holdings have generated profits.³

The central bank now holds almost $2.9 trillion of Treasuries, agency debt, and other securities, much of which was acquired through bond-buying programs known as quantitative easing and QE2.⁴

In September 2011, the Fed announced a plan to help drive down long-term rates further. “Operation Twist” involved trading $400 billion of short-term Treasuries for new ones with longer maturities. If the economy falters in 2012, a third round of monetary stimulus remains a possibility.⁵

Communication Matters

One of the most powerful tools the Fed has at its disposal is communication. Traditionally, speeches made by FOMC participants, published economic projections, and the official statements released after each FOMC meeting have been used to inform the public.

Chairman Bernanke began holding press conferences after FOMC meetings in 2011, and detailed rate forecasts followed in January 2012.⁶ This marks quite a shift from the early 1990s, when the Fed didn’t even announce when (or by how much) rates had been adjusted.⁷

Bernanke believes that greater transparency and the clarity gained from forecasts could push down long-term rates and help shape the expectations and behavior of investors, businesses, and households — and managing the public’s expectations could make the Fed’s policy moves more effective.⁸

Investors should remember that future Fed actions will depend on economic conditions. If inflation rises more than expected, higher interest rates will likely follow, despite any previous forecasts.

All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest.

1) Federal Reserve, 2012
2, 6) CNNMoney, January 25, 2012
3) The Wall Street Journal, January 10, 2012
4) CNNMoney, January 10, 2012
5) The Wall Street Journal, September 21, 2011
7–8) The Wall Street Journal, January 4, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Financial Planner. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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What Is Your Business Worth?

The market for selling small businesses improved slightly last year, but buyers typically still had the upper hand. The median selling price rose 3.3% to $155,000, while the median revenue for firms sold in 2011 rose by 6.7%.¹

Lenders generally require a professional valuation before extending credit to owners and buyers. But even if a loan or a sale is not in your immediate future, a precise valuation could be useful for effective business, tax, and retirement planning.

Preparing for potential changes. When a firm with several owners has negotiated a buy-sell agreement, the buyout value should be updated regularly to reflect market conditions and the company’s financial position.

You may also need to seek a business valuation if you plan to implement an employee stock ownership or profit-sharing plan, or for litigation support in the event of a divorce or other type of legal dispute. For tax purposes, it may be necessary to use one of the specific valuation approaches considered acceptable by the IRS.

Conserving your estate. One way to help reduce exposure to potential future estate taxes is to begin transferring ownership of a family business to the next generation during your lifetime. An accurate valuation may be needed to help ensure that gifts of partnership shares conform to the annual federal gift tax exclusion (currently $13,000 per year, per person).

Protecting your wealth and your retirement. It’s generally considered risky for investors to hold more than 20% to 30% of their net worth in a single asset, but many entrepreneurs don’t think twice about having a much larger proportion of their personal wealth in their own businesses.² Investing outside your firm could help insulate your total financial picture from risks associated with your business’s distinct market.

Understanding the true market value of your company may help you make more informed decisions about how much of your income you should save and invest for retirement. It might also lead you to adjust your portfolio in light of the performance of your enterprise and/or your retirement goals.

1) BizBuySell.com, January 4, 2012
2) The Wall Street Journal, December 17, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Business advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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Rebalancing World Trade

Despite the European debt crisis and the related market turmoil, total U.S. exports demonstrated six months of record-breaking increases last year and reached an all-time high of nearly $180 billion in September 2011.^1–2

Rising exports have generated nearly half of U.S. gross domestic product (GDP) growth since the recession ended in June 2009.³ Sales of U.S. goods and services abroad surged 29% in the first nine quarters of the recovery, as manufacturers took advantage of stable demand from developing nations in Asia and Latin America. In fact, emerging markets now receive 55% of U.S. goods shipments (up from 40% in 2000).⁴

Investors who follow the balance of trade may also be interested in some other recent shifts in the exports sector, including the federal government’s efforts to stimulate the domestic economy by removing barriers to trade and expanding global trading opportunities.

Balancing Act

When the economy imports more goods and services than it exports, it creates a trade deficit. The United States has run prolonged trade deficits since the 1970s, when the price of imported oil began to surge along with U.S. demand for oil and other foreign-made goods such as cars and electronics.

U.S. imports tend to grow when the economy grows, because consumers may have more money to spend on goods and there is often more demand for foreign oil. But this pattern did not reappear in 2011; the economy grew slowly (at an annual rate of 1.8%) in the third quarter, even as the trade deficit narrowed.^5–6

Changing Landscape

U.S. exports to China and Chinese imports both rose to record high levels near the end of 2011, but the imbalance continued to grow in China’s favor. Despite the shrinking national trade gap, the trade deficit with China was forecasted to end the year as the highest ever with a single nation.⁷

There was another interesting development in 2011 regarding international trade. By processing crude oil for growing nations such as Mexico and Brazil, the United States became a net exporter of petroleum products for the first time since 1949.⁸Meanwhile, the United States is still the world’s largest importer of crude oil.⁹

Focus on Free Trade

In March 2010, President Obama signed the National Export Initiative, an executive order intended to promote international trade and provide assistance and financing for small businesses that want to enter foreign markets. In pursuit of the president’s stated goal to double exports by 2015 (from 2009 levels), U.S. trade officials have recently forged some of the most significant trade agreements in years.¹⁰

In October 2011, Congress passed new trade pacts with South Korea, Colombia, and Panama. Upon their implementation, the United States will have trade agreements with 20 countries. The United States is also participating in negotiations for a Trans-Pacific Partnership with nine nations (including Australia, Chile, Peru, and Singapore) — a robust region that represents more than 40% of global trade.¹¹

A recession in Europe or high oil prices could affect the balance of trade, because U.S. export growth typically depends on the health of our trading partners and the strength of the dollar. Consequently, fast-growing emerging markets and a relatively weak dollar help explain why healthy U.S. exports have been a more important contributor to economic growth than they were in the wake of any other recession since World War II.

Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost.

1, 6) U.S. Department of Commerce, 2011
2–4, 8) Bloomberg.com, December 5, 2011
5) U.S. Bureau of Economic Analysis, 2011
7) thehill.com, December 9, 2011
9) The Wall Street Journal, November 30, 2011
10) Whitehouse.gov, 2010
11) Office of the U.S. Trade Representative, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Brokerage Services advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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Hanging the “Help Wanted” Sign

Toward the end of 2011, an index that measures the hiring intentions of small businesses rose to its highest level in three years, and another report estimated that small businesses have added about 1.2 million new jobs since October 2009.^1–2 All told, businesses with fewer than 500 employees have created about 65% of new jobs in the United States over the last 20 years.³

Business owners may need to invest a fair amount of time and money to build a good team. Adding a salary can be substantial by itself. However, you must also consider the potential costs and responsibilities beyond wages when you are ready to hire new staff members.

Begin with the Big 4

Benefits. Employers that provide benefits such as health and dental plans, disability coverage, and life insurance may need to factor in costs ranging from 1.25 to 1.4 times the base salary. For example, an employee who earns $35,000 annually may actually cost the employer $44,000 to $49,000. You may also need to increase the budget for perks provided to existing employees — from free coffee to holiday parties and bonuses.⁴

Recruiting. It’s not always easy to find the right fit for a new position. There are potential expenses associated with recruiting, including advertising, drug screenings, background checks, as well as the cost for someone to review resumes, screen applicants, and conduct interviews.

Training. Getting new employees up to speed and making sure they become as productive as possible can also be expensive. Employees spend an average of 32 hours a year on training, and new hires often need additional time to learn the ropes. One report estimated that companies spend about $1,200 annually per employee on training.⁵

Compliance. Employers must often deal with a complicated array of federal and state regulations. Research may be needed to understand the possible cost of implementing requirements that apply specifically to your area and/or industry.

It’s exciting to discover an opportunity to expand the size or scope of your business, and sometimes extra help is needed to make that happen. Fortunately, successful small businesses are likely to continue providing employment opportunities in the years to come.

1) Businessweek, December 13, 2011
2) The Wall Street Journal, November 30, 2011
3) Associated Press, December 14, 2011
4–5) Yahoo! Finance, July 25, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Small Business planning advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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Socially Responsible Investing Joins the Mainstream

It’s not surprising that some people have a strong desire to steer their money toward entities that endeavor to make a difference in the world.

Growing investor interest — and wider recognition that social and environmental issues can amount to material financial risks and/or rewards for corporations — has landed socially responsible investments (SRIs) in the spotlight in recent years.

In a 2010 survey, 93% of CEOs said that sustainability will be important to the future success of their businesses, and 96% believed it should be integrated into their companies’ strategies and operations.¹

“Socially responsible,” “sustainable,” and “green” all refer to an investing approach that integrates environmental, social, and governance (ESG) factors with more traditional financial analysis methods.

If you’re thinking about adding SRIs to your portfolio, keep in mind that you may be depending on your portfolio to help fund many of your future financial needs. For this reason, it’s a good idea to learn more about SRI opportunities and whether they might be appropriate, considering your asset allocation, risk tolerance, and time horizon.

How They Work

Many SRIs are broad-based and diversified. Others may focus on a narrow theme (such as clean energy); the latter types can be more volatile and may carry risks that may not be suitable for all investors.

Most SRI options utilize one or more of the following methods.

• Screeninginvolves selecting or avoiding investments in companies based on whether they help protect or cause harm to the environment or society. Some common ESG factors include, but are not limited to, pollution control, natural resource conservation, energy efficiency, employee relations, respect for human rights, health and safety, regulatory compliance, and public disclosure.
• Shareholder activism describes efforts to influence a company’s management to adopt policies that help benefit the workers, the community, and/or the planet.
• Community investing provides capital directly to organizations for purposes such as lending funds to business enterprises in underserved communities and supporting economic development.

Considering Corporate Citizenship

Many companies have begun collecting and reporting ESG information, and services that provide research and data for investment analysis have also made this type of data available to the public. More transparency regarding corporate sustainability issues may give investors insight into potential costs, as well as the ability to compare how businesses in the same industry have adapted their strategies and practices to meet social and environmental challenges.²

Read the Fine Print

Socially responsible investments entail risk, could lose money, and may underperform similar investments not constrained by social policies. There is no guarantee that a SRI will achieve its investment objectives. As with many investment strategies, SRIs may limit the total universe of available investments, and investors who want to diversify their portfolios among a variety of sub-asset classes may not find a SRI to fill each sub-asset class.

Different companies offering SRIs may use different definitions of socially responsible investing, and investors may have different opinions about which policies and practices they believe are positive or negative. However, the universe of SRI opportunities continues to expand, so there may be investments that align with your personal values and investment goals and objectives.

1) Businessweek, November 9, 2010
2) Fast Company, April 1, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek Naperville tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• Buy Like Buffett: Socially Responsible Investing in Ethical Business So You Can Sleep at Night (savings.com)
• Endowment Activism: How Students Can Move Big Money (yesmagazine.org)
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Help Protect Your Assets

Lawsuits have become increasingly common in our society. From 1951 through 2009, the cost of torts (civil suits) rose at more than double the annual rate of general inflation and even surpassed the annual increase in medical expenses (see chart).

In this litigious environment, it is especially important to protect your assets and your future income. If you entertain often, have a dog or a swimming pool, or employ workers in your home, you may have additional exposure to a potential civil suit.

Standard homeowners and automobile insurance policies generally offer coverage in the event of a personal liability lawsuit. However, the policy limits may not be high enough to pay a substantial jury award. If you would like extra coverage at a relatively low cost, you might consider an umbrella insurance policy.

Typically, you can obtain $1 million in coverage for a few hundred dollars a year. However, you must usually purchase the maximum liability coverage on your homeowners and automobile policies; they serve as a deductible for the umbrella policy, which can provide additional coverage (up to the policy limits). Umbrella policies may also cover situations that are not included in standard policies, such as libel, slander, invasion of privacy, defamation of character, and other personal injuries.

Although umbrella policies have long been a staple for wealthy households, many middle-income households have substantial home equity, retirement savings, and current and future income that could be used to satisfy a large judgment. Qualified retirement plan assets may have some protection from creditors under federal and/or state law (depending on the type of plan and jurisdiction), but even if your retirement savings may be protected, you would still be liable for any judgments.

You’ve worked hard to establish a solid financial base. In a world where it sometimes seems to be raining lawsuits, it might be wise to carry an umbrella.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Insurance advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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• Does your insurance make you a lawsuit magnet? (insurance.com)
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To Convert or Not to Convert? That’s the Roth Question

Nearly 20 million U.S. households have a Roth IRA — a significant number considering that it has been around only since 1998. However, Roth IRA participation still lags behind that of traditional IRAs, which were first introduced in 1974.¹

The good news is that you can invest in more than one type of IRA (the combined contribution limit in 2012 is $5,000, or $6,000 for those aged 50 and older). And regardless of your income, you can convert all or part of your traditional IRA investments to a Roth IRA and benefit from tax-free withdrawals in retirement.

Paying Taxes Now or Later

Contributions to a Roth IRA are made with after-tax dollars (subject to income limits), whereas contributions to a traditional IRA are generally tax deductible. When you withdraw money, however, qualified distributions from a Roth IRA are free of federal income tax if you’ve satisfied the requirements (distributions may be subject to state income taxes). By contrast, traditional IRA withdrawals are taxed as ordinary income.

When you convert tax-deferred IRA assets to a Roth IRA, the conversion amount is taxed as ordinary income in the tax year of the conversion. This can be a significant expense, but there’s a trade-off: Under current tax law (and if all conditions are met), the Roth account will incur no further income tax liability for the rest of your lifetime or for the lifetimes of your account beneficiaries, regardless of how much growth the account experiences.

Here are some considerations to help determine whether a Roth IRA conversion might be appropriate for you.

Changing tax brackets. The logic behind deferring taxes on retirement savings is that investors may be in a lower tax bracket in retirement than they were during their working years. This is not always the case, of course, so you need to consider your own situation. Also keep in mind that tax rates are scheduled to increase after 2012 (unless Congress takes further action), so you may pay higher tax rates in the future.

Mandatory distributions. Unlike the case with traditional IRAs, there are no required minimum distributions (RMDs) at age 70½ for original Roth IRA owners, so you can keep money in your account until you need it, or bequeath it to your heirs if you wish (IRA beneficiaries must take RMDs). The longer your investments can pursue growth, the more advantageous it might be for you and your beneficiaries to have tax-free withdrawals.

Current value versus growth potential. If your tax-deferred assets have fallen in value over the last few years, one silver lining is that taxes on a conversion may be lower. Again, your choice on converting may depend on how much time your portfolio will have to pursue growth.

Keep in mind that you can convert as much or as little of your traditional IRA assets as you wish, and you can even spread the conversion process over a number of years to help manage the tax liability.

Traditional and Roth IRA withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty. To qualify for a tax-free and penalty-free withdrawal of earnings, a Roth IRA must meet the five-year holding requirement and the distribution must take place after age 59½ or result from the owner’s death, disability, or a first-time home purchase ($10,000 lifetime maximum).

A Roth IRA conversion may not be an appropriate strategy for everyone, but it’s worth considering depending on your personal situation, time frame, and current and future tax brackets.

1) Investment Company Institute, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Tax Accountant. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• IRA Basics : Converting to a Roth IRA (ally.com)
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Watching for Weakness in the Global Economy

In April, the International Monetary Fund (IMF) forecasted global economic growth of 3.5% for 2012, noting that the U.S. economy had gradually gained momentum, whereas China and other emerging economies appeared to be headed for gradual slowdowns. However, the IMF also warned that if the debt crisis in Europe deteriorated into a worldwide financial crisis, the fallout could produce a 2% drop-off in global growth over two years.¹

More recent economic data released in May suggests that growth slowed more than expected in a number of the world’s major economies, primarily because problems in Europe have recently re-emerged.

There are significant differences in the economic challenges facing government leaders in Europe, Asia, and the United States, yet expanded world trade and globalization in general have made the fates of many nations more interdependent.

All Eyes on Europe

In mid-May, Greek political parties were unable to form a coalition government, and a caretaker government was named until new elections take place in mid-June. The outcome is likely to determine whether Greece will abide by the deal reached to restructure its debt under conditions set by the European Union (EU), the International Monetary Fund, and the European Central Bank. Voter anger over austerity measures and resulting political instability have reignited uncertainty about whether Greece will stay in the eurozone.²

Eurozone unemployment has risen to record highs (10.9%), and strict austerity programs in a number of European nations have held back growth more than expected. Europe barely avoided a recession during the first quarter of 2012, but 11 individual nations in the EU are judged to be in a recession.³

China

Economic data measuring trade, investment, spending, and output for April was surprisingly weak, prompting government action to help promote lending and speed up economic growth. The People’s Bank of China lowered the share of deposits that banks must hold in reserve (the required reserve ratio) by 0.5%.⁴

Until recently, Chinese leaders seem to have been more concerned about fighting inflation. However, China’s economic growth slowed from 8.9% to 8.1% in the first quarter — the slowest pace in nearly three years — when an uptick was expected.^5–6 Reduced European demand for Chinese goods has been cited as a reason for the slowdown; the eurozone is the largest market for Chinese exports.⁷

When balancing growth and inflation, China’s authoritarian government may be able to act more decisively than democratic societies. Elected leaders often negotiate or justify policy moves and contend with public backlash. But Chinese leaders grapple with many of the same risks as other nations in the global marketplace.

India

The inflation rate in India (9% for most of 2011) is still the highest among the emerging-market nations known as BRICS (Brazil, Russia, India, China, and South Africa). Inflation has been cooling, but prices rose faster than predicted (7.23%) in April.⁸

Efforts to lower inflation, along with fewer exports to Europe, caused economic expansion to sag to a three-year low of 6.1% in the December quarter. In response, India’s central bank cut interest rates for the first time since 2009.⁹

Fiscal deficits and political gridlock have also put India’s investment-grade status at risk. Standard & Poor’s recently lowered the country’s credit outlook from “stable” to “negative.”¹⁰

Will U.S. Fortunes Follow?

So far, the trouble in Europe has affected Asia more than the United States. Exports account for less than 15% of the U.S. economy, compared with 30% for China.¹¹

Still, if conditions in Europe worsen, the situation could continue to affect trade and growth around the world. Therefore, U.S. consumer and investor confidence is likely to depend on how the situation in Europe ultimately unfolds.

Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to a specific country. This may result in greater investment price volatility. All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost. Investments seeking to achieve higher yields also involve a higher degree of risk.

1) The Fiscal Times, April 17, 2012
2) The Wall Street Journal, May 17, 2012
3, 5, 7) CNNMoney, May 15, 2012
4, 6, 11) The Wall Street Journal, May 14, 2012
8–9) The New York Times, May 14, 2012
10) Bloomberg.com, May 14, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville investment services advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Small Companies Face Costly Cybersecurity Threats

Possibly because many large corporations have enhanced their security policies, 40% of all targeted Internet attacks are directed toward more vulnerable companies with fewer than 500 employees. Unfortunately, only 52% of small businesses have a basic cybersecurity plan.¹

Small businesses often use the Internet to market their products and services, accept electronic payments, and run their operations effectively. Owners who ignore potential cybersecurity issues may be taking a significant risk.

Whether a company relies on one laptop computer or depends heavily on e-commerce, small-business owners can shore up their defenses and help protect their financial interests.

To help owners understand basic precautions, the Federal Communications Commission (FCC) has introduced the Small Biz Cyber Planner (www.fcc.gov/cyberplanner), a free online tool that allows visitors to customize a planning guide based on their online presence.

Here are a few general cybersecurity tips for small businesses from the FCC.

• Install and update antivirus and antispyware software on every computer.
• Maintain firewalls between the internal network and the Internet to keep outsiders from accessing data on a private network, and make sure that home computers used to conduct business also have firewalls.
• If you have a Wi-Fi network, set it up so that the network name is hidden and a secure password is required for access.
• Create backup copies of important business data and information.
• Lock up computers to prevent them from falling into the wrong hands. Notebooks and tablets, in particular, can easily be stolen if left unattended.
• Train employees in security practices and set up a separate account for each user. Limit the authority to install software and provide access only to the data needed for users to perform their jobs.
• Require all passwords to be changed on a regular basis.

Recovering from a breach can be time-consuming and expensive for companies with smaller staffs and limited resources. Moreover, a company may be held responsible if its customers’ personally identifiable information is disclosed.Internet liability insurance may help shield firms conducting business on the Web from risks related to computer hacking, spam, viruses, and other online perils (up to policy limits).

1) Reuters, October 24, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville small business planning advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.