YOUR FINANCIAL FUTUREYour Guide to Life Planning

August 2016

Our roads to success mayhave twists and turns andups and downs; together wecan navigate a course andenjoy the scenery along theway.

Christian PhillipsPhillips FinancialLPL Registered Principal1920 Tienda Drive Suite 202Lodi, CA 95242209-367-0868Fax: 209-367-0811christian.phillips@lpl.comhttp://lpladvisorweb.com/PhillipsFinancial/

CA Insurance Lic# 0A20651

In This Issue

Does Your Portfolio Reflect Your Risk Tolerance?There are many types of risk associated with investing. Understanding each type and the effectit may have on your portfolio returns is crucial to your long-term investing success.

Obstacles to Avoid on the Road to Investment GrowthMost long-term financial goals require you to maintain a long-term investment outlook. Don'tlet your goals be sidetracked by these potential obstacles.

Avoid These Financial Traps -- They May Be Hazardous toYour WealthManaging finances responsibly takes a lot of time -- and experience. Learn from your mistakesand try to avoid the traps described here.

College Planning -- It's About More Than MoneyThere is more to college planning than saving and investing. There is financial aid to consideras well as the search to find the "just right" institution for your child.

 2   Your Guide to Life Planning

Because allinvestments entailrisk, you may want toreview your mix ofstocks, bonds, andcash investmentswith an eye towardcreating a risk/returnprofile that isappropriate for yoursituation.

Does Your Portfolio Reflect Your Risk Tolerance?

 When it comes to investing, many people associate risk with losing money. But investing entails different typesof risk. Understanding each type -- and the potential return associated with your retirement portfolio -- canhelp you determine whether your investments are appropriate for your situation.

Examining Risk and Return

Stocks historically have exhibited the highest level of market risk -- or the potential that an investment maylose money in the short term. Over long periods of time, however, stocks have outperformed both bonds andcash investments. This risk/return tradeoff may influence how you allocate your investments. For instance,1

consider weighting assets that you intend to keep invested for 10 years or more toward stock investments.

Bonds carry their own risks -- credit risk, or the possibility that a bond issuer could default on interest andprincipal payments; and interest rate risk -- the chance that rising interest rates could cause a bond's price tofall. Ascending interest rates historically have influenced the prices of bonds more directly than the prices ofstocks. When short-term rates are on the rise, investors may sell older bonds that pay a lower rate of interest1

-- causing their prices to fall -- in favor of newly issued bonds that pay higher interest rates. On the plus side,bonds historically have exhibited less short-term volatility that stocks, although past performance is noguarantee of future results.

It's also important to look at cash investments, such as 3-month Treasury bills, from a vantage point of riskand return. Although Treasury bills typically experience a low level of volatility, they may be subject to1

inflation risk -- or the possibility that their returns may not keep pace with the rising cost of goods andservices. For this reason, you may want to use cash investments for short-term situations when you expect toaccess your money within 12 months or less.

Putting Risk in Perspective

Because all investments entail risk, you may want to review your mix of stocks, bonds, and cash investmentswith an eye toward creating a risk/return profile that is appropriate for your situation. Owning different typesof assets may increase your chances of experiencing the benefits associated with each, while mitigating thecorresponding risk. Your retirement portfolio won't be risk free, but you will have the confidence of knowingthat you've done what you can to manage a potential downside.

This article offers only an outline; it is not a definitive guide to all possible consequences and implications ofany specific investment strategy. For this reason, be sure to seek advice from knowledgeable financialprofessionals.

 

 

Source: Wealth Management Systems Inc. For the 30-year period ended December 31, 2013. Stocks are1

represented by the Standard & Poor's Composite Index of 500 Stocks, an unmanaged index that is generallyconsidered representative of the U.S. stock market. Investing in stocks involves risks, including loss ofprincipal. Bonds are represented by the Barclays U.S. Aggregate Bond index. Bonds are subject to marketand interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subjectto availability and change in price. Cash is represented by the Barclays 3-Month Treasury Bills index. It isnot possible to invest directly in an index. Government bonds and Treasury bills are guaranteed by the U.S.government as to the timely payment of principal and interest, and, if held to maturity, offer a fixed rate ofreturn and fixed principal value. Past performance is not a guarantee of future performance.

© 2016 Wealth Management Systems Inc. All rights reserved.

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 3   Your Guide to Life Planning

By investing in awell-thought-out mixof investments, you'llgive yourself anopportunity to takeadvantage ofwhichever asset typehappens to bethriving at aparticular time.

Obstacles to Avoid on the Road to Investment Growth

 You're in the driver's seat when it comes to choosing investments for your retirement savings. Make too manywrong turns, however, and you may not achieve your long-range financial goals. Here are some commonroadblocks to avoid.

The Poor-Diversification Block

You're free to choose from the range of investment options your plan offers, but concentrating too much ofyour retirement money in one investment type may not be wise. Some investments do much better than others-- at times no one can predict. By investing in a well-thought-out mix of investments, you'll give yourself anopportunity to take advantage of whichever asset type happens to be thriving at a particular time.

Choosing a mix of different investments (diversification) is also a proven strategy for managing investmentrisk. When one type of investment is down, another may be up or holding steady, adding stability to the1

overall value of your account.

When planning your investment mix, remember the differences in growth potential of the various asset classes.For instance, the historical returns of investments such as money market funds are often close to the rate ofinflation and may be too low to deliver the long-term growth you need. On the other hand, if you have a heavy2

concentration of potentially high-earning stocks and the market performs poorly, you risk losing a lot of thevalue of your account, at least temporarily.3

The Quick-Escape Block

Expect the stock market to decline at times. It's inevitable -- only the timing is uncertain. When stock pricesdrop, don't automatically veer off course by moving your stock investments to bonds or another asset class thatmay be doing better at the time. Instead, it may be prudent to "stay the course" so that you'll be in a better4

position to benefit from potential future growth down the road.

The Spend-the-Future Block

If you change jobs, you'll have the option of cashing out your retirement account. You may be tempted to takethe money and spend it, especially if the amount isn't very large. But, if you spend your retirement money,making up for it later may be very difficult.

The chart below shows just how costly spending a retirement nest egg can be. A much better strategy: Roll overyour retirement money into an individual retirement account (IRA), into your new employer's tax-deferredretirement plan, if allowed, or leave it in your current plan, if allowed. You'll likely still be able to choose howyour retirement money is invested. And you'll keep it working for you until you're certainly going to need it --after you retire.

 

The "Cost" of Withdrawing $25,000

  Retirement AccountBalance at Age 30

Amount Withdrawn at Age30 When Changing Jobs

Balance at Age 65

Employee A $25,000 $0 $512,786

Employee B $25,000 $25,000 $225,132

  Cost of EarlyWithdrawal

$287,654

Assumes: $125 monthly contributions and 7% average annual investment returns between ages 30 and age65. Withdrawals are subject to income taxes at then-current rates and a possible 10% additional federal taxif withdrawn prior to age 59½. The chart does not reflect these costs. This is a hypothetical example. Yourinvestment return and contributions will vary.

Source: DST Systems, Inc.

 

 4   Your Guide to Life Planning

 There is no guarantee that a diversified portfolio will enhance overall returns or outperform a1

non-diversified portfolio. Diversification does not assure against market risk.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance2

Corporation or any other government agency. Although the fund seeks to preserve the value of yourinvestment at $1.00 per share, it is possible to lose money by investing in the fund.

Investing in stocks involves risks, including loss of principal.3

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as4

interest rates rise and are subject to availability and change in price.

© 2016 Wealth Management Systems Inc. All rights reserved.

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 5   Your Guide to Life Planning

Short-term debt willbecome long-termdebt if you're payingonly the minimumamount toward yourbalances.

Avoid These Financial Traps -- They May Be Hazardous to Your Wealth

 Money. It's hard to get and easy to lose. It doesn't take long for the wealth you've accumulated to disappear ifyou don't manage your money well or have a plan to protect your assets from sudden calamity.

Snares like the ones mentioned below could easily threaten your financial security. Planning ahead can protectyou and your loved ones from getting caught.

Undisciplined Spending

The more you have, the more you spend -- or so the saying goes. But not paying close attention to your cashflow may prevent you from saving enough money for your future. Manage your income by creating a spendingplan that includes saving and investing a portion of your pay. Your financial professional can help identifyplanning strategies that will maximize your savings and minimize your taxes.

High Debt

With the easy availability of credit, it isn't hard to understand how many people rack up high credit cardbalances and other debt. Short-term debt will become long-term debt if you're paying only the minimumamount toward your balances. If you can't pay off your credit card debt all at once, consider transferring thebalances to a card with a lower interest rate.

Unprotected Assets

Your life, your property, and your ability to work should all be protected. Life insurance can provide income foryour family if you die. Homeowners and automobile insurance can help protect you if your home or car isdamaged or destroyed and provide liability coverage if someone is injured. Disability insurance can protectyour income if you're unable to work.

Unmanaged Inheritance

A financial windfall is great, but it also can be dangerous. Without solid advice on managing and investing themoney, you could find that your inheritance is gone in a much shorter time than you would have thoughtpossible. Your financial professional can help you come up with a plan for managing your wealth. Setting asidea portion of the money to spend on a trip or other luxury while investing the rest may be one way to rewardyourself and still preserve the bulk of your assets.

Neglected Investments

Reviewing your investments to make sure they're performing as you expected -- and making changes in yourportfolio if they're not -- is essential. But it's also essential to periodically review your investment strategy. Youmay find that your tolerance for risk has changed over time. You'll also want to assess the tax implications ofany changes you plan to make to help minimize their impact.

Retirement Shortfall

If you're not contributing the maximum amount to your employer's retirement savings plan, you're giving upthe benefits of pretax contributions and potential tax-deferred growth. Maximizing your plan contributions canstart you on your way to a comfortable retirement -- hopefully with no traps along the route.

© 2016 Wealth Management Systems Inc. All rights reserved.

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 6   Your Guide to Life Planning

Applying well inadvance of thedeadlines can boostyour child's chancesof getting accepted tothe school of his orher choice andreceiving a favorablefinancial aid package.

College Planning -- It's About More Than Money

 Choosing a way to save for your child's education expenses may be your family's first college planning decision,but it certainly won't be the last. From making that first deposit, to selecting a college, to choosing a course ofstudy, you and your child will be making choices that can have a financial impact for years to come.

How Will You Save Enough?

Starting to save for college when your child is young may give you the best chance for accumulating asignificant amount of money. Section 529 plans -- prepaid tuition plans designed to lock in today's tuition ratesat eligible institutions -- and college savings plans, which permit contributions to an investment account set upto pay qualified education expenses, are popular tax-favored options. Coverdell Education Savings Accounts1

also offer tax advantages, although contribution limits are relatively low. Custodial accounts set up under the2

Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) are another option toconsider.

The Financial Aid Game

By the time college gets close, your family's life may seem to be ruled by deadlines. There are differentdeadlines for college applications, scholarship applications, and the FAFSA (Free Application for FederalStudent Aid) submissions. Applying well in advance of the deadlines can boost your child's chances of gettingaccepted to the school of his or her choice and receiving a favorable financial aid package. If you wait too long,spots may already be filled and aid money given to students who applied earlier.

Dissecting Aid Packages

Typically, aid packages consist of grants, loans, work study, and an expected family contribution. Whenreviewing aid offers, compare apples to apples. Start with the cost of tuition at each school. Then look at howmuch of the aid package consists of loans that will have to be repaid. Make sure non-tuition costs, such asroom and board, books, equipment, transportation, and fees, are included in the school's cost estimates. It's agood idea to do your own cost estimate and use that as your basis for comparing offers.

The Right Fit

As important as it is, money shouldn't be the only criterion used when choosing a college. Lower cost ofattendance or generous financial aid is most valuable if the college is a good fit for your child's abilities,personality, and goals. Choosing the wrong college could cost a bundle in lost opportunities if your child isunhappy or doesn't feel sufficiently challenged by the curriculum.

Look Toward the Future

A college education is an investment in the future, so parents may want to discuss choosing a course of studythat will lead to a career. Talk to your child about the importance of preparing for life beyond college byobtaining the practical skills and knowledge needed to land a job after graduation. By planning ahead, yourchild may turn his or her interests into a successful career.

 

Certain benefits may not be available unless specific requirements (e.g., residency) are met. There also may1

be restrictions on the timing of distributions and how they may be used.

Internal Revenue Service. The annual contribution limit is $2,000. Taxpayers with modified adjusted gross2

incomes (MAGIs) of more than $220,000 (for married couples filing a joint tax return) and $110,000 (forsingles) may not contribute. For most taxpayers, MAGI is the adjusted gross income as figured on theirfederal income tax return.

© 2016 Wealth Management Systems Inc. All rights reserved.

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The opinions voiced in this material are for general information only and are not intended to provide specificadvice or recommendations for any individual. To determine which investment(s) may be appropriate foryou, consult your financial advisor prior to investing. All performance referenced is historical and is noguarantee of future results. All indices are unmanaged and cannot be invested into directly.

 

The financial consultants of Phillips Financial are registered representatives with and Securities are offeredthrough LPL Financial. Member FINRA/SIPC. Insurance products offered through LPL Financial or itslicensed affiliates.

 

Not FDIC/NCUA InsuredNot Bank/Credit Union

GuaranteedMay Lose Value

Not Insured by any Federal Government Agency Not a Bank Deposit

 

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