What is Your Net Worth, and Why Should You Care? Steve Knudson Quoted

One of Intermountain Financial Group’s financial advisors , Steve Knudson, was quoted in the article, “What is Your Net Worth, and Why Should You Care?”

You probably know how much you make each year, and maybe even what you spend each month, but do you know your net worth? And more importantly, how to use the information in a way that matters?

Knowing your net worth can have a significant impact on your budgeting, spending, and retirement plans.

What is net worth?

Simply put, net worth is everything you own minus what you owe. While online calculators can be used to run the actual numbers, it’s important that you determine assets from debts accurately, to arrive at the most accurate breakdown.

Create a personal balance sheet with two categories: What you own (assets), and what you owe (liabilities). The “owned” category should include checking, savings, certificates of deposit, investment and brokerage accounts, retirement and college savings plans, and the value of vehicles you own outright (which can be found using Kelley Blue Book).

If you own furniture, electronics, art, technology, or jewelry worth significant value, those items are assets, as is the equity (what you own) in your home or investment property. (It is not the market value of your home — unless you own it outright).

Conversely, the “owed” category should include the balance you owe on your mortgage loan, student loan debt, auto loans, credit card bills, taxes owed, alimony or child support, and lease obligations you may be bound to for a car or rented dwelling.

Though actual calculation of net worth is simply subtracting what is owned from owed, it’s imperative that your balance sheet “inputs” are accurate.

Financial expert Steve Knudson of Intermountain Financial Group says that relying too heavily on net worth becomes problematic when based on unrealistic projections of unpredictable forces.

For example, if you’re invested in stock markets and the economy is booming, so is your net worth. Market values plunge one day — your net worth goes with it. An overstated net worth analysis can lead to borrowing things you can’t actually afford, and underestimating what you need to put aside for retirement.

“I have seen far too many portfolios trashed due to over aggressive valuations on real estate and private company stock valuations that have never materialized,” Knudson says.

Here are three simple ways to put your net worth balance sheet into action:

See where you stand with retirement

Forbes contributor and financial adviser David John Marotta, president of Marotta Wealth Management, says that saving 15% of your take home pay each year throughout your working life should theoretically provide sufficient savings for retirement, even with the ebb and flow of the market. Obviously, the exact number that percentage amounts to will change with your salary throughout the years.

Using your net worth balance sheet, you can easily arrive at a very basic spot check of how well you’ve planned for retirement so far.

Let’s suppose you started contributing to retirement five years ago, and your annual take home pay has been $40,000 for that time. Sticking to basic math, you should have about $30,000 earmarked in a retirement account. Of course, you may have more, or less, based on the investments you’ve made and employer matches, but the 15% rule is a simple way to see where you currently stand. If you’ve fallen short, you’ve got some catching up to do, either by spending less, saving more — or a combination of both.

Start a debt elimination strategy

Retirement planning is about strategizing a way to live in an essentially income-less scenario, aside from what you’ve saved. Ideally the “owed” section in your net worth balance sheet will be blank when you retire — even if that’s far from your reality today.

The steps you take now to eliminate debt can be just as important as what you contribute into retirement savings, particularly if the debts you carry have you paying far higher interest rates than your investments earn.

Using your “owed” column, formulate an action plan for long-term debt elimination that will allow you to eventually enter into retirement debt-free. Start with the highest interest rate loans first, and work your way down. As you whittle loans away, you’ll free up more funds to build liquid assets, and invest for retirement.

Focus on long-term planning

Knudson suggests a triangle-style approach to net worth analysis that focuses on three critical aspects of long-term financial management: income, access and growth.

To determine income needs, calculate your monthly fixed expenses compared to your monthly cash flow. If monthly income sufficiently covers those costs, Knudson says “there is no need to “burden an investment portfolio with bonds or low performing investments.”

To evaluate access, add up the total of your “owned” assets that are completely liquid, meaning that if a financial emergency happened tomorrow, you could withdraw your money without paying fees or penalties, or selling assets that may or not be worth peak value.

If most of your “owned” column consists of property, stocks, bonds or mutual funds, consider shifting some assets into more liquid savings tools to protect your long-term financial affairs. Once you’ve determined income and access, Knudson suggests investing the balance of cash in a long term growth portfolio to hedge against inflation, provide for appreciation, and invest for opportunities.

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The Ten Commandments of Selecting a Mutual Fund as a 401k Option

By Christopher Carosa, CTFA | April 4, 2012

(This is the second installment of a special three-part series)

While the four steps to a well-documented 401k investment due diligence process just fell in our laps, getting into the nitty-gritty of the first two steps – the identifying the selection and monitoring processes – might prove a tad bit morelaborious. There’s another thing about this particular portion of the due diligence process you must be warned about. It’s the part where the arguments start.

If you take any two investment advisers and ask them which specific characteristics one should focus on when selecting a mutual fund to be included among a 401k plan’s investment options, you’re likely to get vastly different answers. Fortunately, in speaking to different advisers, we’ve been able to whittle down their recommendations to very broad areas – wide enough for most advisers to swim comfortably within. So, if you’re looking for a fight, you won’t find one here.

I.        Company’s Custom Statistics – It all starts here, with specific data pertaining to the company’s demographics. This data set will produce the major criteria 401k plan sponsors – or their advisers – will later use when determining appropriate fund options. Todd Reid, General Agent for Intermountain Financial Group in Salt Lake City, Utah says this will indicate the “time horizon, liquidity, and true risk tolerance” of the plan’s investors; hence, act as a great starting point towards selecting funds. II.      Company’s Goal-Oriented Target Analysis – While company demographics are generic, it’s important to recognize that even employees of the same age may have difference return requirements. In order to best select relevant funds for the plan option, it’s critical to know the range of target returns. This will come in handy during the later performance analysis of each candidate fund. III.    Key Characteristics of the Fund – Before even getting into performance and costs, it’s important to identify a set of key differentiators you’ll review among all funds, whatever the investment objective. Boyd Wagstaff, 401k and Qualified Plan Specialist for Intermountain Financial Group, likes to focus in on the fund managers. He looks at years of tenure and style. “We want to make sure that fund or investment is true to its value,” he says. “For example, if we are looking for a large-cap value stock, we want to make sure it does not change to some other style, but that it remains consistent with its original design.” IV.     Peer Group Performance – Manny Schiffres, Executive Editor, Kiplinger’s Personal Finance in Washington, D.C. says, “We look at performance, specifically the consistency of performance. How has a fund done year by year against its peer group and an appropriate benchmark is far more important than cumulative results, which can be swayed by one outstanding year.” V.       Rolling Long-Term Performance – This approach to performance measurement is more consistent with the results of studies in behavioral finance as it dodges the dangers of short-term volatility and avoids the “snapshot-in-time” phenomenon Schiffres refers to. He says, “Analysis of the sort that says this or that fund has beaten its peers or an index over the past 1, 3, 5 and 10 years is bogus. As mentioned earlier, one outstanding (or awful) year totally distorts the numbers. Plus, because this sort of analysis can change depending on whether a fund is strong at the beginning or the end of the period, even if the results are essentially the same in either case, it is obviously a flawed approach to analyzing performance.” VI.     Generic Fund Statistics – All funds share common traits. Some of them may reveal characteristics the plan sponsor will want to shun or emphasize. Among these can include the number of holdings (addressed previously in “Overdiversification and the 401k Investor – Too Many Stocks Spoil the Portfolio”), the concentration of holdings, the fund’s size and any unique costs associated with the fund. When it comes to a fund’s size, Schiffres says “The bigger the fund, the harder it is to manage. This is especially true when the fund focuses on less-liquid investments, stuff other than big-cap stocks and Treasury bonds. When you buy in big quantities, you tend to force up the price of the security you’re buying. When you dump large quantities, you help push down the price. Neither is helpful to the manager.” Regarding costs, besides the usual expense ratio, Reid also looks at the “sales charge in relation to the fund class, and available break points purchased. The different fund fees vary by Class A, B, and C. Some classes have front-end fees, while others do not. Service fees are also a piece of the fees needing to be considered and vary by manager, and length of deferred sales charge.” VII.   Proprietary written description of Fund’s Investment Objective – These next four Commandments have one thing in common. They all rely on written documentation beyond the fund’s prospectus. While plan sponsors must read the prospectus, they must also remember the prospectus is inherently a sales tool. Getting a third party’s opinion can often help the plan elude the seemingly attractive pitch of an inappropriate fund. Sometimes this third party view comes from an adviser, sometimes it comes from a publisher. Ideally, it will be proprietary in nature, aimed at the specific needs of the plan and not for the general mass market. The first detail the 401k plan sponsor will want to see is an objective description of the fund’s investment objective. That’s the basis of each of the next three items. VIII. Proprietary written analysis of Fund’s ability to meet its objective – Did the fund meet its objective? Plan sponsors should not count on the fund to tell them. Select an unbiased party. Reid uses these sources to “review the history, performance of sector, and scrutinize any drifting that may have occurred.” He says, “It is my duty to my clients to ensure them the funds stay true to their sector and that the allocations are relevant.” IX.    Proprietary written commentary on Fund management – According to Schiffres, “the manager is the person responsible for the record.” He matter-of-factly says “past performance is not guaranteed. Expenses pretty much are baked into the cake. In other words, expenses are something you know in advance, so you want to keep them as low as possible. Of course, super-low expenses are the main justification for going with index funds. To recommend actively managed funds, you have to feel confident that you can identify managers you think are good enough to overcome their expense disadvantage.” X.      Proprietary written recommendation of relative appropriateness – When all is said and done, a plan sponsor must always ask “Is it time to replace this fund?” Here it’s vitally important to have a wide variety of choice, since any limitations may expose the plan sponsor to greater fiduciary liability. Wagstaff says, “We use a variety of sources to compare and contrast. We use third-party resources and we look for balance. We don’t want to load the platform up with one type of fund. We prefer a large number of funds to cherry pick and collect a platform for our clients that we believe is cost appropriate, diversified, and with excellent returns.”

We trust this represents a Decalogue possessing both credence and compatibility. Not only does it make sense to use, but the vast majority of plan sponsors can easily adopt each category of scrutiny.

We end this series next with a summation of the ideal 401k investment due diligence process.

Part I: 4 Easy Steps 401k Plan Sponsors Can Take to Insure a Well-Documented Investment Due Diligence Process Part II: The Ten Commandments of Selecting a Mutual Fund as a 401k Option Part III: 10 Point Checklist for the Ideal 401k Investment Due Diligence Process

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Christopher Carosa, CTFA

Utah Financial Services Agency Spreading the Word to Utah Consumers with Heart Conditions

MassMutual reaffirms commitment to make life insurance more broadly available to persons with heart conditions

Salt Lake City – Up to date diagnostic and treatment advances are resulting in broader life insurance coverage for many people with cardiovascular conditions. Conditions such as coronary artery, valvular and congenital heart diseases are being regularly reviewed by Massachusetts Mutual Life Insurance Company (MassMutual), a move that helps more people protect their families financially despite wrestling with the serious illness.

Heart disease is the leading cause of death in the United States – resulting in nearly 30 percent of all deaths – and is a major cause of disability1. The death rate from cardiovascular disease declined by nearly 28% from 1997 to 2007,”  according to Heart Disease and Stroke Statistics in the 2011 Update to the medical journal” Circulation.”

“Many people in our area with medical conditions related to heart disease may now be eligible for life insurance,” said Todd Reid, General Agent.  “MassMutual underwriters look at a ‘whole’ person and provide incentives for people to live healthier lifestyles via ‘credits’ to reduce premiums, such as not smoking, managing cholesterol and blood pressure, and maintaining a healthy weight.”

Last year, MassMutual updated underwriting guidelines for valvular and congenital heart disease. The company, over the last two years, has also updated its life insurance underwriting guidelines for persons suffering from diabetes as well as various forms of cancer – breast, prostate and kidney.

“People should not assume they cannot get coverage because of past medical conditions,” said Todd Reid, General Agent. “We encourage them to speak to your trusted financial professional.”

To learn more, visit Intermountain Financial Group’s website at http//www.intermountainfinancialgroup.com and massmutual.com, or call 801-943-6277 to contact a financial services professional.

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About the Local Agency:

For more than 157 years, local residents and businesses rely on Intermountain Financial Group (http://www.intermountainfinancialgroup.com) to help them secure their financial futures. The company significantly impacts Utah’s economy as seen in the numbers below (as of December, 2010):

  • More than 14,000 policyholders and clients1
  • Servicing over $711 million in assets2
  • Over $3.9 billion in life insurance coverage in force3
  • Over $28 million of life insurance benefits (claims) paid4
  • More than $8 million in dividends to whole life policyholders5

The company has been in awarded the national Sloan When Work Works award in 2011, 2010, 2009 and 2008, as well as the Work/Life Award by the Utah Department of Workforce Services in 2011, 2010, 2008 and 2007 naming them one of Utah’s best places to work. The company currently has offices in Salt Lake City, Utah and St. George, Utah.

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*Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. member SIPC.  (Salt Lake City Agency – 6340 S. 3000 E., Suite 500, SLC, UT  84121 – (801) 943-6277)

MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.

Insurance offered through MassMutual and other fine companies.

1.            An insured, owner, or payer of a MassMutual policy or contract.

2.            Includes values of MassMutual and subsidiary insurance companies’ insurance and retirement products and investment products offered through MML Investors Services, LLC, a MassMutual subsidiary.

3.            Amount of individual life insurance in force as of 12/31/10 related to products issued by Massachusetts Mutual Life Insurance Company and its subsidiaries, C.M. Life Insurance Company and MML Bay State Life Insurance Company.

4.            Amount of individual life insurance claims paid from 1/1/10 to 12/31/10 related to products issued by Massachusetts Mutual Life Insurance Company and its subsidiaries, C.M. Life Insurance Company and MML Bay State Life Insurance Company.

5.            The amount of dividends to whole life policyholders in 2010.

About MassMutual

Founded in 1851, MassMutual is a leading mutual life insurance company that is run for the benefit of its members and participating policyholders. The company has a long history of financial strength and strong performance, and although dividends are not guaranteed, MassMutual has paid dividends to eligible participating policyholders every year since the 1860s. With whole life insurance as its foundation, MassMutual provides products to help meet the financial needs of clients, such as life insurance, disability income insurance, long term care insurance, retirement/401(k) plan services, and annuities. In addition, the company’s strong and growing network of financial professionals helps clients make good financial decisions for the long-term.

MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives. MassMutual is headquartered in Springfield, Massachusetts and its major affiliates include: Babson Capital Management LLC; Baring Asset Management Limited; Cornerstone Real Estate Advisers LLC; The First Mercantile Trust Company; MassMutual International LLC; MML Investors Services, LLC, Member FINRA and SIPC; OppenheimerFunds, Inc.; and The MassMutual Trust Company, FSB.

CRN201401-156485

1Heart Disease and Stroke Statistics – 2010 Update.  A report from the American Heart Association Statistics Committee and Stroke Statistics Subcommittee.

New Financial Advisor Hired to Assist People and Businesses Plan for Now and the Future

Intermountain Financial Group (http://www.intermountainfinancialgroup.com), the Utah Agency of Massachusetts Mutual Life Insurance Company (MassMutual), has hired Keith Larsen as a financial services advisor and managing associate.

Larsen helps individuals, families, and small business owners with their life insurance and investment needs while supporting the client’s goals for a more secure future. Larsen also assists in the recruiting and mentoring of new agents for the company.

Larsen has 10 years of industry experience as a financial representative with a local financial services firm. Larsen earned his BS degree at Brigham Young University where he majored in Economics. “The financial services sector has always been an exciting industry for me to work,” says Larsen. “I enjoy my career specializing in life insurance. I am able to work with individuals and companies become more educated and prepared for their financial future.”

 

About the Company:
For more than a century, the Intermountain Financial Group/MassMutual (IFG) www.intermountainfinancialgroup.com has provided a comprehensive offering of a diverse array of products, including life insurance, annuities, disability income insurance, long-term care insurance, retirement planning products, mutual funds, and access to money management to individuals and businesses in Utah and most of United States. IFG currently has offices in Salt Lake City, Provo, and St. George, Utah. IFG has also been recognized as one of the best places to work in Utah by the Work/Life Awards Committee for 2007 and 2008 and the national Sloan When Work Works award in 2009 and 2008.

 

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*Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, Inc. member SIPC.  (Salt Lake City Agency – 6340 S. 3000 E., Suite 500, SLC, UT  84121 – (801) 943-6277)

MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.

Insurance offered through MassMutual and other fine companies.