Why Estate Planning Matters at Every Stage of Life

The following blog was written by Dierrah McInnis, Client Service Administrator.

When you hear the word estate, what comes to mind? For many people, it’s a million-dollar home, fancy cars, lots of money, land, or any expensive items that they own. The truth is, you don’t have to be wealthy to have an estate. In fact, almost everyone has one, whether they realize it or not.

What’s an estate?

Your estate is simply everything you leave behind when you die. It includes things like your home, any land that you own, retirement accounts, cars, bank accounts, life insurance policies, and any personal belongings. While we spend our lifetime building a legacy, it is important to think about what happens to everything included in your estate. That’s where estate planning comes in. It’s more than deciding who gets what when you’re no longer here: it’s about making your wishes known, providing for your loved ones, reducing costs and taxes, and having a plan in place when you can’t make the important decisions (Clifford, 2022).

What happens if you don’t have a plan in place? 

Well, I’m glad you asked. Without a plan (a will or a trust) in place, state law decides who inherits your assets, and nobody wants that! This is why documents like a will, trust, durable power of attorney, and health care directive exist. They ensure your wishes are followed and provide clear direction for your loved ones when they need it most. However, getting the documents is only half the battle.

What are beneficiaries?

You must also make sure your beneficiaries are explicitly named inside your will, trust, and accounts. A beneficiary is simply the person or organization chosen to receive your assets. 

One of the misconceptions we frequently see is the belief that a will controls everything you own. The fact of the matter is not everything goes through your will, even if you have one. It’s important to know what assets your will covers and what assets bypass your will entirely. Assets such as IRAs and other retirement accounts, Transfer on Death (TOD) accounts, life insurance policies, and annuities (anything with a designated beneficiary) do not go through your will. In fact, your beneficiary designations on these accounts override your will every single time. 

For property controlled strictly by a will, beneficiaries usually receive their inheritance after the probate process ends. For a trust, they can get their assets much faster because a trust bypasses probate completely. You can also name primary or contingent beneficiaries to set the order of who gets what if someone passes away before you. (Link to previous blog post "Beneficiaries: A Blueprint" to learn more.)

Naming beneficiaries on bank accounts, investment accounts, certain homes or vehicles depending on your state, and the accounts mentioned above is a great way to avoid probate1 and cut out the middleman.

While probate can be a lengthy and expensive process, it does have one advantage: it can help protect your estate from creditors after you die. Because of this, probate is not entirely bad, just time consuming.

Which is better, a trust or a will?

Many people wonder whether they need a will or a trust. It really comes down to how complex your situation is. If you do not have many assets or dependents, a simple will can meet your estate planning needs while being less expensive than a trust. Otherwise, a trust may be worth looking into depending on your needs.

There are several advantages to a trust due to its flexibility. If you ever become temporarily or permanently incapacitated, you can name a trustee to step in and manage your finances to handle whatever you cannot. They are also super helpful if you have more complicated assets, like owning property in different states. Plus, if you have young children, grandchildren, or anyone else who might not be ready to handle a large inheritance all at once, a trust lets you set clear rules. You can easily structure distributions, so they receive funds in gradual portions over the years rather than getting everything at once.

While it is important to have a plan, estate planning is not a set-it-and-forget-it task. As your life changes, your plan needs to change right along with it. Major life events like marriage, divorce, growing your family, or losing a loved one are all great reasons to revisit your documents. As a good rule of thumb, we recommend reviewing everything every three years.

What’s our “perspective”?

No matter where you are in life, it is never too late or too early to meet with an estate attorney to create or review your plan. Taking this step protects what matters most and gives you and your loved one’s true peace of mind. Building a legacy takes time, but protecting it takes planning.

References:

Clifford, D. (2022). Plan your estate. Nolo.

For additional resources on creating a simple will and the role of the executor, check out these links below:

• Trust and Will: trustandwill.com
• Legal Zoom: https://www.legalzoom.com
• Estate Exec: https://www.estateexec.com/Docs/Guide
• American Bar Association: https://www.americanbar.org/groups/real_property_trust_estate/resources/estate-planning/guidelines-individual-executors-trustees/

ETFs 101: Investing Made Easy

The following blog was written by Kaitlyn Dortch, Client Service Associate.

If you are new to investing and don’t know where to start, check out ETFs! 

What is an ETF? 

An ETF is an exchange traded fund that like a mutual fund holds a collection of assets such as stocks, bonds, or other securities. While both ETFs and mutual funds provide diversified exposure through pooled investments, ETFs offer several advantages that have made them increasingly popular among investors.

Source: https://www.westernsouthern.com/investments/types-of-etfs

What are the advantages of investing in ETFs? 

1. Instant Diversification 

ETFs can be designed to track: 

· Broad market indexes like the S&P 500, NASDAQ Composite, Dow Jones Industrial Average, or Russell 2000 

· Fixed Income, including U.S. Treasury, corporate, municipal, and international bonds 

· Specific industries such as technology, healthcare, energy, or financial services 

· Commodities like gold, oil, and timber 

· Investment styles for high growth or value stocks 

· Different company sizes, including small-cap, mid-cap, and large-cap stocks 

Because this collection or portfolio of securities can include a wide range of investments, one of the biggest advantages of ETFs is diversification. Imagine investing all of your money in a single company. If that company’s stock price declines, your investment could suffer significantly. An ETF spreads your investment across many companies or assets, helping reduce the impact of any one security performing poorly. With a single purchase, you can own a small piece of a broad section of the market instead of relying on the success of one company. 

2. Low-Cost Investment 

ETFs generally have lower expense ratios than many mutual funds. The expense ratio represents the annual cost of managing the fund. For example, SPYM has an expense ratio of approximately 0.02%, and QQQM has an expense ratio of approximately 0.15%. While these percentages seem small, investment costs can add up over time. Lower fees mean more of your money stays invested, which could mean more portfolio gains in the long run. 

3. Flexibility 

ETFs trade differently than mutual funds. Because they are actively traded on exchanges, many ETFs offer ample liquidity, making transactions straightforward and efficient for most investors. Buying and selling ETFs is often as simple as trading a stock through a brokerage account. Mutual funds, on the other hand, are priced only once at the end of each trading day. Regardless of when an order is placed, all investors receive the same end-of-day price. This flexibility from trading ETFs gives investors greater control over when they enter or exit positions. 

4. Passive Investment 

Instead of purchasing individual securities one at a time, an investor can buy a single ETF and gain exposure to dozens or hundreds of underlying holdings. Some ETFs achieve this exposure by tracking broad market indexes. Rather than trying to beat the market by picking the "perfect" combination of stocks, some passive ETFs aim to capture the entire market. This approach involves less trading of the underlying securities, lower fees, and more diversification than actively managed ETFs and mutual funds. Automating deposits to buy and hold passive ETFs can help investors build a strong portfolio with low costs and little to no effort. 

5. Tax Efficiency 

ETFs are often considered more tax-efficient than traditional mutual funds. Unlike mutual funds, you have more control on declaring capital gains. Unexpected capital gains may increase income for investors and cause them to pay additional taxes even if they never sold any shares of the mutual fund. While tax implications vary by individual circumstances, many investors appreciate the potential to reduce unexpected taxable income that ETFs offer. 

What should you consider when buying ETFs? 

Although ETFs provide convenient diversification, it is important to figure out what you want in your portfolio before purchasing one. Two ETFs may have similar names but very different investment objectives and risk levels. Some may focus on large, established companies, while others concentrate on emerging industries, small businesses, or international markets. Before investing, take time to review the fund's objective, top holdings, industries/sectors represented, expense ratio, and overall risk level. Morningstar.com is a great resource to use when researching ETFs. Once you’ve narrowed down the securities 

that align with your financial goals, risk tolerance, and investment timeline, look for the low-cost ETF alternative. 

Investing doesn't have to be complicated. For many people, ETFs offer a simple, affordable, and effective way to start building wealth while maintaining diversification. Successful investing is less about finding the perfect stock and more about consistently investing in a diversified portfolio over time. 

Sources:

https://www.ici.org/faqs/faqs_etfs

https://www.fidelity.com/learning-center/smart-money/what-are-etfs

https://investor.vanguard.com/investor-resources-education/taxes/tax-saving-investments

blue chips

"Is there still such a thing as a Blue Chip stock anymore?"

It used to be considered a fairly sound investment strategy to just put your money in a couple of "Blue Chip" stocks and call it a day. Stocks have always been rightly viewed as risky, but the term Blue Chip lent comfort to investors. The designation differentiated large, well known, stable companies from smaller, risky companies that had not established themselves in the market. These were large companies with wide moats that could fend off competition and continue profitable growth into the foreseeable future. The term Blue Chip conveyed a sense of safety, a protection against permanent loss.

Picking a few Blue Chip companies is not a strategy that makes sense anymore. Blue Chips do not exist anymore, not because competition is too fierce and risk is too high, but because they are simply not needed.

The arc of human history is towards a growing population with growing wealth. Businesses are levered to this growth. Economic growth is ultimately growth in sales, masking the tumultuous fight for profits at the companies that make up the economy. No matter how steady a company appears, or now large their moat is, with individual companies there is always the risk of permanent loss. If you selected a small list of individual companies right now, you may find that they do not all exist in a one, ten, or forty years. If you happened to have selected the wrong ones, your investment might be worthless. If instead, you just bought everything, there would be some losers, but you would expect the winners to make up for that and still provide growth on your investment. Individual companies may fail, but it is exceedingly unlikely that the entire market fails.

The equivalent today of investing in Blue Chip stocks is being a passive index.

Now you can capture the market return effectively with index funds. There is less need for the stalwart individual stocks when you can capture a similar expected return with lower expected volatility in an index fund. Company management in a reasonably free economy have demonstrated time and time again a fantastic propensity for making money. Ride the wave of human history and just buy everything out there.

Blue Chip companies may be dead, but investing in stocks is still the best way to grow your investments over the long term.

Buying Stocks Online

 Buying stock through a company’s transfer agent used to be a common way to accumulate wealth in American companies. Occasionally I see quite valuable certificates that were passed on after decades of investing. Today, however, buying stock this way is a cumbersome, expensive option compared to using a discount broker.

Discount brokers, such as Charles Schwab or TD Ameritrade offer low or no account minimums ($1,000 for Schwab, $0 for TD Ameritrade), access to just about any stock you might want and easy to open, user-friendly online accounts.

Most online brokers offer some sort of filter or screener to help you find stocks with characteristics you are interested in. After that, there is research and recommendations on many individual companies. Many brokers also offer education and training resources to help guide you through the process.

Discount brokers are a low cost way to purchase stocks. Commissions are under $10 for the most part and there are typically no annual fees. Between the online account and monthly statements, there are plenty of ways to monitor and analyze your purchases.

Opening an account at a discount brokerage is a practical way to buy and manage a stock portfolio. Only invest with money that you do not anticipate needing for at least 3-5 years. Never buy a stock unless you have done your own research into the risks and potential rewards that it offers. Additionally, for most investors, it may be more practical to invest in stocks through a fund, which I will discuss in more detail later.

Please note that besides a reminder to keep fees low, this is in no way actual investment advice. Selecting appropriate stocks and building a portfolio to match your needs is a process that is well beyond the scope of this article. While some people may invest for “fun” with small amounts of money, remember that all of your money in the stock market is at risk. Consult a professional if you do not understand the risks yourself.

How To Buy A Stock Directly

The other day, a friend asked me how to buy a stock. I do this for a living, and I am always excited to help someone else get started! There are a few ways to buy stocks, this is how to buy them directly from the company. Beware, though, this is the least advisable way to buy stock, which just happens to have most novelty value.

Many companies offer direct purchase plan or a dividend reinvestment plan through a transfer agent. The transfer agent, such as Computershare, AST or Broadridge, maintains records relating to ownership of the stock. To find your favorite company’s transfer agent, check the investor relations section of the company website. For this example, let’s look at Disney.

Disney’s transfer agent is Broadridge. To buy shares, you will have to open an account on stockplans.broadridge.com. The application will need your personal information and bank information to transfer funds to purchase the stock.

The exact process will depend on the company you are trying to invest in, but many large companies typically allow you to invest any day. Some companies restrict it to once a month, but the transfer agent will handle the trade.

Fees are unique to the company as well. In our Disney example, there will be a $20 account opening fee, plus $20 for each purchase order. Besides the tedium of opening accounts for each investment, fees are the biggest drawback of buying stock this way.

Once your money is invested, you may have the option to order a paper certificate. This is the ultimate novelty in investing and is actually a lot of trouble to handle. If you really want to be able to hold a piece of a company in your hands, this is the only way to do it!

Again, I do not actually advise buying stock in this manner except for the novelty value.  Additionally, do not buy a stock unless you have done your own research into the risks and potential rewards that it offers. I will follow up with more practical and effective ways to buy stock.