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SUMMER 2017 - INSIDE THIS
River Wealth Advisors’ Growth Continues
Cost of College Derailing Parents Retirement
Investing in Bonds Could Add Balance to Portfolios
Standing Instructions For Investment Accounts
Home Waters Program Helps Veterans
Number Of Clients & Assets Under Management Increase
Since the launch of River Wealth Advisors in March 2015, we have seen double-digit growth. Currently, River Wealth Advisors has over $500 million in Assets Under Management (AUM), which is a 17% increase. The growth has been fueled by an increase in assets managed for existing clients as well as an influx of new clients.
“Seeing the growth is very encouraging,” said Bob Caplan, CEO of River Wealth Advisors, “but knowing that our increase in assets under management is because we provide our clients with financial advice that helps build their wealth is the most rewarding part. Many of our new clients come to us by referral,” he continued, “That just reinforces our belief that we’re doing right by investors and providing a quality service to them.”
To manage the growth and continue to exceed client expectations, River Wealth Advisors is also expanding their staff. “We started with such a dedicated and talented team,” said Caplan. “Each staff addition has continued to improve our organization with their unique blend of capabilities. Everyone here is dedicated to improving our client’s overall experience and taking River Wealth Advisors to the next level.”
Will Take On Additional Responsibilities
We offer our congratulations to Jennifer Reisinger, who recently graduated Magna Cum Laude with a Bachelor of Science degree in Business Administration from Elizabethtown College. Jennifer has over 20 years of experience in financial services and holds Series 63 and 65 designations. She has been with River Wealth Advisors from its inception.
In addition to her current duties as Chief Operations Officer, she will be taking on additional management responsibilities including overseeing the firm’s SEC compliance and human resources. Enhancing our client’s experience is her top priority.
Increases Number Of Advisors Available For Clients
Justin Stryker was recently awarded the CFP® certification and was promoted to Financial Advisor with the firm. In his new role, Justin will provide financial planning and investment management services to clients. Justin’s experience in financial analysis and portfolio structure has played an integral role in developing fixed income portfolios and serving as a key member on River Wealth Advisor’s investment committee. With his expertise in financial planning and investment management services, he is a true asset to our clients.
Ali Bircher To Serve As Operations Administrator
River Wealth Advisors announced that Ali Bircher has joined the firm as Operations Administrator. In her new role with the firm, Ms. Bircher will manage client relations, coordinate client and community events, serve as marketing liaison and assist with day-to-day operations of the firm. She attended Central Penn College for Business Management Administration and also completed the Dale Carnegie Leadership Training for Managers.
Parents & Grandparents Risk Financial Security For Students’ Education
A generation ago, a much smaller number of American high school students planned on attending college in the future. Today, nearly 70% of high school graduates are enrolling in college. The increase in the number of students attending college, along with skyrocketing tuition costs, has left many families financially unprepared for higher education. Increasingly, parents and even grandparents scrambling to pay college costs are setting themselves on a path towards a financial crisis.
A survey conducted by student loan lender Sallie Mae, found that only 48% of parents with kids under the age of 18 are saving for college. Feeling a responsibility to help their children pay for college, but not having properly prepared, parents (and grandparents) are making financial missteps. Some are opting to take early distributions from their 401(k) plans, which have a double whammy negative impact. First, there can be tax consequences, and more importantly, these withdrawals erode funds available after retirement. Other parents are forgoing or reducing the money they contribute to retirement accounts.
With nearly half of parents not being fully prepared for the financial strain of their kids obtaining a college degree, many turn to student loans to cover costs. In some cases, the students are solely responsible for repaying the debt. However, many parents and grandparents co-sign for student loans. If the student defaults on these loans, the responsibility falls on the co-signer. Since student loans cannot be discharged through bankruptcy, it often leaves parents or grandparents in a financial crisis.
States Now Offer College Assistance
A number of states are acknowledging the challenges of paying for college and have stepped up with a solution that benefits students and workforce development. New York State recently introduced its Excelsior scholarship, which will help to retain talent in the state, as well as, help students defray the cost of attending college. The Excelsior scholarship offers free tuition at NY state public colleges and universities for in-state students from households earning up to $100,000. One of the requirements of the scholarship is that upon graduation the scholarship recipient must live and work in New York for as many years as they have received tuition assistance. Tennessee and Oregon have both also began to offer free tuition at their two-year community colleges. Several other states are in the process of rolling out free college programs for residents.
If you don’t live in a state that offers in-state scholarships, there are a number of ways to tackle the tuition challenge. There are a number college savings solutions including: 529 college savings plans, Coverdell Education Savings Account (ESA) and the Uniform Gifts to Minors Act and Uniform Transfers to Minors Act (UGMA/UTMA). Each of these savings options offers different benefits and can be opened by a friend or relative on behalf of a student.
529 College Savings Plan
A 529 college savings plan is a tax-advantaged account that allows parents to invest money towards college tuition and other education-related costs. Although 529 contributions do not qualify for federal tax deductions, thirty four states offer state tax deductions. These college savings plans are offered by a number of investment sources and each 529 offers its own investment options. Plan investments may include age-based strategies; conservative, moderate, and aggressive portfolios; or even a mix of funds. If the 529 funds are used for the qualified educational purposes, there are no federal income tax or investment gains on the distributions.
A 529 plan also allows for flexibility with fewer restrictions on income or age limitations. Anyone over the age of 18 is able to open and fund a 529 plan. These plans can also be easily transferred from one beneficiary to another, allowing for any excess funds to be passed to other students in the family.
Coverdell Education Savings Account
Another option is a Coverdell Education Savings Account (ESA), which can help parents save $2,000 a year after tax. With ESA’s the distributions, including any earnings, are tax-free. The beneficiary must use the distributions for education-related expenses. There are age limitations with ESA’s. Once the beneficiary turns 18 contributions must stop. In addition, there are income level caps. A person, filing single, with an adjusted gross income above $110,000 and those who file jointly with an adjusted gross income above $220,000 cannot contribute to a Coverdell Education Savings Account.
Charitable Gifts To Students
One solution for grandparents looking to help their grandchildren with the burden of college education is the Uniform Gifts to Minors Act and Uniform Transfers to Minors Act (UGMA/UTMA). This allows family members to gift securities and other assets to minor students. Doing so offers tax advantages for grandparents or others to shift their wealth to students. Typically, the student is taxed at a lower rate than the grandparents or relatives. This method provides college funding and can also save families a significant amount in taxes.
The best advice for managing college education costs is to start saving as soon as the child is born. If you haven’t done that, start saving now. Anything is better than having nothing to put towards college. There is no need to jeopardize retirement or financial security in order to defray the cost of college tuition. If you would like guidance in selecting a financial plan for funding education or making charitable gifts to family, please contact a River Wealth Advisors.
By Robert E. Caplan, MBA, CFA
A few months ago we were asked to review the financial holdings of a recently retired 70-year-old gentleman and give our opinion as to any changes we would make to his portfolio. His account statements showed a well-diversified portfolio of mid to large-cap stocks, some holdings in small and international equity mutual funds, and a number of certificates of deposit at local banks.
When asked about any bond holdings, his response was, “I don’t understand bonds, and I don’t know how to buy them.” He went on to explain his aversion to bond mutual funds “because they never mature and you may not ever get your money back.”
When it comes to bonds, we have found that this kind of confusion and uncertainty is widespread even among seasoned investors.
The past several years have driven home the fact that a well-diversified portfolio with a good mix of stocks, bonds, cash reserves, and real estate can help weather turbulent times. All of these different asset classes do not move in lockstep with one another. Often, losses in one asset class can be offset by gains in another. Even a relatively small bond allocation of 15 percent to 20 percent can greatly minimize the overall volatility in your portfolio.
We have all read numerous investment articles lately that talked about the advantages of being “balanced.” Now that so many folks finally see the light, they are faced with deciding whether now is the right time for bonds; what type of bonds they should add to their portfolios; and if they do buy bonds, how do they go about it?
Since the Federal Reserve has begun the process of raising interest rates, it may seem like the worst time to get into something that may lose value, should interest continue to rise. Money market funds, which invest in very short-term instruments, are currently paying next to nothing. As an investor purchases bonds with incrementally longer maturities, the yield they receive rises, but so too does the risk related to increasing rates.
In today’s rate environment, yields rise quite rapidly as maturities extend out to the seven to ten year range, and then flatten out after that. This current steepness in the yield curve enables investors to vastly improve upon money market returns without taking on excessive risk. Most people know that long-maturity bonds are more volatile than shorter-term bonds. This volatility can be mitigated by “laddering” bonds across the steepest part of the yield curve.
Laddering entails buying bonds that mature in six months, one year, two years, etc., on up to where yields start to flatten. By laddering a portfolio of these shorter-term bonds, investors can more than double money market returns and still be fairly insulated from a gradual rise in interest rates. As the shortest bonds mature, the proceeds can be reinvested back out along the yield curve, taking advantage of potentially higher rates down the road.
If you decide that adding bonds to your portfolio makes sense, how do you figure out the right ones to buy? The first decision is whether to buy taxable or tax-free bonds. As a general rule, retirement accounts and people in lower tax brackets net more income by buying taxable bonds, while higher-bracket individuals net a greater after-tax return by purchasing municipal bonds in their taxable accounts.
Individual bonds or bond mutual funds? Individual bonds have set maturity dates, which provides more certainty about the portfolio’s expected cash flow. Even if you should buy a high-quality bond right before a big run-up in interest rates, you can expect that you eventually will get back the face amount of the bond. With a bond mutual fund many investors are combining their funds and delegating the responsibility of managing to a fund company. Cash inflows and outflows to and from the fund make the return of the original investment somewhat less predictable.
Numerous factors can affect the price of a particular bond, including the credit rating of the issuer, maturity date, coupon, call provisions, dealer mark-up, purchase size, etc. Different bond dealers can have widely divergent offering prices on exactly the same bond, depending on how badly they want to move it off their books.
Software applications from companies, such as Bloomberg, enable money managers to analyze specific bonds to determine a theoretical fair value and to use this information in negotiations with various bond dealers. By buying in large blocks — generally $250,000 or more — money managers also are able to negotiate more advantageous prices for clients.
To summarize, we feel that bonds can still play a positive role in a well-diversified portfolio. Investors should consider committing a portion of their investment pool to bonds to reduce portfolio volatility, not to mention the potential for higher returns.
Each year financial custodians, like Charles Schwab & Co. and Fidelity Investments, are required by law to send notices to all account holders regarding the instructions that are on file for money movement. Money movement instructions can include the account holder’s preference on how journal transfers between accounts; delivery instructions to a bank account via direct deposit or other transaction.
These notices from River Wealth Advisors custodians, Schwab and Fidelity, have started being sent out, so you should expect to receive them shortly. You do not need to respond or take any action, unless you want to change the instructions that are currently on file for your account(s). If you have any questions about the notice you receive or if you want to make any changes, please contact our office.
At River Wealth Advisors, our fascination with all things river goes beyond just our name. Bob Caplan and Ed O’Gorman are long-time fly fishing enthusiasts. As a way of giving back and sharing his love of fishing, Ed hosts Trout Unlimited’s local Home Water event. The local chapter invites disabled veterans from area veterans’ centers to Ed’s creek-side home for a day of camaraderie, food, guiding and fishing.