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Where Not to Die

Federal estate taxes are no longer a problem for all but the extremely wealthy. In 2016, as much as $5.45 million in assets will be exempt from federal estate taxes—double that for a married couple. However, state estate taxes, which kick in for estates valued at only $1 million or less in several states, could take a big bite out of your legacy.

Nineteen states and the District of Columbia—home to about one-third of the U.S. population—levy an estate tax on the assets of people who die or an inheritance tax on those receiving the assets, or both.

Source: WSJ

10 Cognitive Biases That Affect Your Investment & Everyday Decisions

Research suggests that we make up to 35,000 decisions every single day. Emotions, experiences, and environment can strongly influence our decision making process. Enjoy the cartoons below and learn more about common cognitive biases that impact your everyday life and your investing behavior.

Bandwagon Effect: Believing or doing something because people around you believe or do it

Availability Heuristic: Overestimating the importance of information that is easiest to recall

Dunning-Kruger Effect: Unskilled individuals overestimating their  abilities and experts underestimating theirs

Framing Effect: Drawing different conclusions from the  same information presented differently

Confirmation Bias: Seeking and prioritizing information  that confirms your existing beliefs

Curse of Knowledge: Struggling to see a problem from the perspective of someone with less knowledge than you

Reactance: The desire to do the opposite of what is requested or  advised, due to a perceived threat to freedom of choice

The Sunk Cost Fallacy: Refusing to abandon something unrewarding because you’ve already invested in it

Hindsight Bias: Believing that you could have predicted an event after it has occurred

Anchoring Effect: Excessively focusing on the first piece of  information you receive when making a decision

Source: Towergate

Advice for New (and soon-to-be) Retirees

Dr. Glyn Cowlishaw (right), Head of School, stands with 9 of the 10 retiring faculty and staff honored during a reception in the McMahon Fine Arts Center theater May 12 at Providence Day School. Pictured (from left) are Middle School Head Sam Caudill, Summer Programs Director Nancy Stockton, Admissions Associate Director Barbara Bodycott, Lower School Computer Science Department Chair Beth Hunter, Lower School Librarian Debra Wilhoit, Extended Day teacher Judy Bennett, Lower School Head Kay Montross, 3rd-grade teacher Marsha Small and Middle School math teacher Beth Ralston. Not pictured is Janis Roten of the Business Office. (Photo credit: Mike McCarn / Providence Day School)

Yesterday I had the honor to attend the retirement ceremony for two of my former & beloved teachers and seven additional educators that came after my time as a student. These nine individuals provided great leadership & passion over many decades and impacted thousands of students’ lives, including my own. The level of professional and personal adoration expressed by the school community for this exceptional group of educators was incredibly moving. One presenter captured the moment perfectly saying to effect, these retiring teachers are Mount Rushmore figures in the field of master educators! Inspired by their greatness and to honor the start of their next great adventures, we share the following advice for new retirees. Congratulations and thank you to the newest members of the “Golden Chargers” at Providence Day School. — Chris Mullis

Some years ago the consulting firm PricewaterhouseCoopers conducted a survey to reveal what new retirees need to understand to make their retirement more meaningful and to ease this major life transition. The following are excerpts from the survey results.

Initial Thoughts
Most of the new retirees strongly recommended keeping active, whether in volunteer work, hobbies, travel, reading, or new business ventures. Words of wisdom included:

Use your talents and realize this is a “new beginning” and not an end.
Set goals two to three years in advance. Good planning is helpful … focus on financial and emotional issues.
You should develop a routine (daily) and not just allow things to happen or not happen—you really are on your own—work, family, etc.
Learn to relax without feeling guilty about it! Stay busy, mentally and physically. Remember, it’s never too late to learn new things and improve old things.
Make a priority list of the things you’ve always wanted to do but didn’t have the time to do. Start doing the highest-priority items immediately.
Consider retirement a process rather than an event.
Don’t worry about how you will fill your day. If you are reasonably active physically, have outside interests and are willing to be involved in your community affairs … you will wonder where the time flies. But nail down the finances.

Your Significant Other
A frequently overlooked but important aspect of retirement is the new or different relationship with one’s spouse. A new retiree may need to be careful not to intrude or tread on a spouse’s independent lifestyle. Spouses offered the following comments:

Retirement is great but not for lunch.
Remember we have lives that are already full, and don’t expect to be waited on all the time.
Spouses have their own life in community activities. Make sure you don’t make them feel guilty when they continue their own lives.
Be prepared for a lot of togetherness. [One wife described it as half the money, twice the husband.]
Continue to pursue and respect other interests; take care of your health.
Sit down and review life’s priorities. Develop a jointly agreed-upon plan, together with benchmarks concerning the high-priority items. Allow plenty of time to relax together.

Expectations
Most retirees were surprised at how easy it was to fall into a new routine. Common sentiments included:

Instead of being bored and frustrated I found a new sense of freedom. For the first time in years I was my own boss and totally accountable for my state of mind.
The first six months [were] lonely and depressing that your successors never ask for your advice … followed by bliss!
How hard I thought it would be and how easy it really is.
[I was surprised that] my handicap did not drop by 10 strokes.
[You will be surprised by] how much you will miss the relationships and connections that you leave behind at work.

What They Would Do Differently
Lastly, new retirees were asked what they would have done differently before retiring. Most respondents said they would begin retirement planning, including financial and tax planning, at an earlier stage. Here are some insightful comments on this topic:

Put as much of the financial/administrative side of life on automatic pilot as soon as possible. Simplify and try to get out of the middle of all the minutiae.
We traveled extensively the first year. I would spread it out, but highly recommend travel.
Develop a greater understanding of the income tax considerations in the year of retirement.
I would have said appropriate farewells (good-byes) to all colleagues.
Would have done advance planning (for post-retirement activities) one to two years before actually retiring.

Source: PwC

Hedge Funds — Exceptional Complexity, Exceptional Underperformance

The chart above compares hedge fund returns to the S&P 500 Stock Index (blue) and the Barclays/Lehman Aggregate Bond Index (red) since 2011. Various popular hedge fund strategies are portrayed by the four colorful lines that occupy the zero-to-negative return space! In both an absolute and a relative sense, this is stunning underperformance. Moreover, those hedge fund returns are before fees, so the investor return is even worse. Hedge funds traditionally charge a management fee that’s 2% of assets, plus 20% on any profits.

Despite this dismal five-year run, complex and expensive hedge funds are more popular than ever. In the Internet era, interesting, persuasive, and money-losing commentary is just a click away!

At last Saturday’s annual meeting of Berkshire Hathaway, legendary investor Warren Buffett unloaded: “There’s been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities.” Buffet added that hedge funds operate with “a compensation scheme that is unbelievable to me.”

Our brains are naturally attracted to “shiny objects” and our intuition suggests success requires a complex solution. Nonetheless, empirical data such as the chart above demonstrate that wealth can be achieved through simple investments combined with simple discipline.

“for me, for you, for later” — First Steps to Spending, Sharing, and Saving

Seasame Street is helping parents teach kids about value with a new program to help kids develop good financial habits:

Each time your young child sees you spend money or use the ATM, she is building an understanding of what money is. You can guide that understanding with simple activities about making good choices; what has value; and spending, sharing, and saving. Over time you’ll see that, through everyday conversations and fun, you can help your child grow up to make good financial decisions.

View the multimedia program at SeasameStreet.org

10 Estate Planning Lessons From ‘Game of Thrones’

HBO’s “Game of Thrones” returns to the air for its sixth season on April 24th. This unfolding epic entertains and provides a guide to the do’s and don’ts of estate planning.

Check out these 10 lessons as shared by Wealth Management. (SPOILER ALERT: several of these involve major plot points from all five seasons of “Game of Thrones.” Proceed at your own risk.)

1. Taking Inventory of Your Assets Is a Good Place to Start
Working with an advisor to periodically evaluate your assets saves time and frustration down the road. Daenerys Targaryen, the last Targaryen alive, while almost always cash-poor, has collected some very valuable assets over the course of her journey, not the least of which are her dragons.

2. DIY Wills Aren’t the Answer
There are many lessons people can take from Robert Baratheon (conquerors don’t make good kings, alcoholism can kill, etc.), but perhaps the most important: Don’t allow attempt to write your will yourself. It’s too easy to make a big, costly mistake. In Robert’s case, when writing the will, Ned Stark replaces “My son Joffrey” with “my heir” because the king’s eldest son is actually a bastard. The will, and Ned Stark’s subsequent actions, tip off a struggle for the throne that costs the lives of thousands.

3. Don’t Stop With a Will
A simple will is probably not sufficient in terms of a complete estate plan. Consider developing and funding trusts for your children to ensure they’re taken care of in the future. Had Ned Stark done so before he died, his daughters Sansa and Arya would’ve been at least financially secure. Instead, Sansa is left at the mercy of the Lannisters for years and Arya has to travel through the war-ravaged countryside on her own.

4. Assign More Than One Trustee
Since every trust must have at least one trustee, it’s a good idea to name successor trustees in your will, in case the original trustee passes away. Take, for example, the Stark family. Following Ned Stark’s death, his wife Catelyn was in charge of the children, scattered as they were. But her death, along with the heir Robb Stark’s death at the “Red Wedding,” means no one is watching out for the remaining Stark children and their assets.

5. Guardianships
Naming a guardian for children who are minors is essential, but perhaps even more important is notifying the potential guardian and others of your intentions to avoid conflicts in the future. In Season 2, Lady Catelyn Stark asks Brienne of Tarth to secure the safety of her daughters. Unfortunately, she didn’t think to write it down or draft a letter of instruction on how to accomplish the task, so when Brienne and Podrick stumble upon Arya and the Hound in Season 4 (after her mother’s demise), both are wary of Brienne’s promises. In the end, Arya escapes and Brienne is left bruised and frustrated.

6. Talk About the Future
Kids need to know what’s in store. Especially since inheritance can be a loaded issue. Be as up-front as possible about your intentions, to help alleviate conflicts after you’re gone. Ned Stark made sure his children, particularly Jon Snow, knew where they stood while he was alive. In fact, Stark sent Snow to live at the Wall, knowing his son would have a place within the ranks of the Night’s Watch.

7. Keep Your Plan Up to Date
An estate plan isn’t something that can be done once and then put in a drawer and forgotten. It has to be constantly updated and re-evaluated because laws, and people, change. Or die. And they die a lot in “Game of Thrones.” When (Season 4 spoiler alert) Joffrey dies of poison on his wedding day, his younger brother Tommen is slated to take over as the new king. But what happens if Tommen also dies (as predicted)? Someone should make sure that some King’s Landing scribes have been set to work on a solution … just in case.

8. Trust Is Hard to Earn and Easy to Lose
Even the very best advice is worthless if you refuse to listen. Advisors must work hard to earn your trust, through patience and competence, and be constantly vigilant of how fleeting said faith can be. This struggle is illustrated in the show when Daenerys learns that her closest advisor, Jorah, had previously spied on her. Though no harm ultimately came from his indiscretion, she sent him away nonetheless. He could no longer be trusted.

9. Managing Wealth Can Be More Difficult Than Amassing It
Often we can become so focused on making money that we ignore certain dangers that can siphon it away even faster than we can earn it. In the context of estate planning, the risks of loss are greatest in times of transfer, be it wealth transfer, through gifts or bequests, or power transfer, through a succession event. If these scenarios aren’t properly planned and executed, a lifetime of work can be undone in an instant. Daenerys is currently learning this lesson as, after finding such success liberating the various cities of Slaver’s Bay, she’s struggling mightily now that she’s attempting to settle in and actually rule the city of Meereen.

10. Keep Things Flexible
The only certainty in life (other than death) is change, and estate planners need to equip their clients with the tools to deal with change when it inevitably occurs. Though it’s tempting to try and include language addressing every possible eventuality, this impulse is both impossible to accomplish (you’ll always miss something) and actively destructive, because the more hard-line rules are baked into an estate plan, the less flexible it becomes. For documents meant, in many cases, to reach far into the future, inflexibility is a fatal flaw. The best plans manage to walk the difficult tightrope of covering as many bases as possible while somehow not becoming prescriptive. The characters in “Game of Thrones” have plans for seemingly every eventuality. Yet none are prepared for the impending threat represented by the White Walkers, which dwarfs their petty succession squabbles. It would have been ridiculous for them to anticipate the possibility of a frozen zombie invasion, but their plans will have to survive one nonetheless.

Source: Wealth Management

How Much You Need to Earn to Buy a Home in 27 U.S. Cities

How much salary do you need to earn in order to afford the principal, interest, taxes and insurance payments on a median-priced home in your metro area?

Cities	30-Year Fixed Mortgage Rate	Median Home Price	Monthly Payment (PITI)	Salary Needed*
National	4.02%	$222,700	$1,192.67	$51,114.62
Pittsburgh	3.90%	$128,000	$726.47	$31,134.50
Cleveland	4.00%	$121,800	$758.88	$32,523.47
Cincinnati	4.02%	$136,600	$792.56	$33,967.01
St Louis	4.00%	$143,700	$811.48	$34,777.53
Detroit	4.07%	$148,667	$861.34	$36,914.56
Atlanta	4.03%	$169,200	$876.19	$37,551.08
Tampa	4.16%	$175,100	$978.19	$41,922.58
Phoenix	4.03%	$221,000	$1,025.21	$43,937.76
San Antonio	4.01%	$192,100	$1,096.08	$46,974.78
Orlando	4.08%	$205,000	$1,115.59	$47,810.81
Minneapolis	4.00%	$223,700	$1,172.52	$50,250.68
Philadelphia	4.00%	$213,700	$1,204.52	$51,622.40
Dallas	4.05%	$206,200	$1,208.81	$51,806.01
Houston	4.04%	$209,200	$1,217.16	$52,163.93
Baltimore	3.98%	$233,500	$1,233.51	$52,864.57
Chicago	4.04%	$209,800	$1,352.93	$57,982.85
Sacramento	4.05%	$294,100	$1,450.01	$62,143.45
Miami	4.07%	$286,000	$1,471.12	$63,048.07
Portland	4.05%	$318,800	$1,538.07	$65,917.47
Denver	4.05%	$353,500	$1,596.85	$68,436.22
Seattle	4.09%	$385,300	$1,829.91	$78,424.93
Washington	4.01%	$371,600	$1,834.60	$78,625.71
Boston	3.96%	$393,600	$1,940.20	$83,151.43
New York City	4.00%	$384,600	$2,024.64	$86,770.19
Los Angeles	4.02%	$481,900	$2,217.60	$95,040.20
San Diego	3.90%	$546,800	$2,407.18	$103,164.96
San Francisco	3.94%	$781,600	$3,453.24	$147,996.19

* Income required to cover the mortgage’s principal, interest, tax and insurance payment assuming the standard 28% “front-end” debt ratios and a 20 percent down payment subtracted from the median-home-price

Source: Visual Capitalist

8 Ways to Live Well in Your Middle Years

Our mantra at NorthStar Capital Advisors is Plan Well. Invest Well. Live Well.

Here are eight terrific insights on how to live well in your middle years distilled from former NPR reporter Barbara Bradley Hagerty’s new book, Life Reimagined – The Science, Art, and Opportunity of Midlife.

1. Aim for long-term meaning rather than short-term happiness, and you will likely find both
Aristotle suggested as much when he talked about eudaemonia, or the good life: striving with a purpose — raising terrific children, training for a marathon — rather than setting your sights on immediate pleasures, such as enjoying a good meal or a day at the beach. It’s also the best thing you can do for your mind and your health.

2. Choose what matters most
Clayton Christensen at Harvard Business School describes the eroding effect of short-term decisions — specifically, doing the activity that brings you immediate gratification (such as work) and putting off harder but ultimately more fulfilling activities (such as investing in your marriage and children).

3. Lean into fear, not boredom
Most of us become competent at our work by our 40s, and then we have a choice: Play it safe or take a risk. Howard Stevenson, also a professor (emeritus) at Harvard Business School, believes the greatest source of unhappiness in work is risk aversion — which leads to stagnation and resentment. “Ask yourself regularly: How will I use these glorious days left to me for the best purpose?”

4. “At every stage of life, you should be a rookie at something”
This insight comes from Chris Dionigi, a Ph.D. in “weed science” and the deputy director of the National Invasive Species Council (that kind of weed). He believes trying new things and failing keeps you robust. Always have something new and challenging in your life, he says, “and if that something is of service to people and things you care about, you can lead an extraordinary life.”

5. Add punctuation to your life
Young adulthood offers plenty of milestones: graduating from college, starting a career, getting married, having your first child. But Catharine Utzschneider, a professor at the Boston College Sports Leadership Center who trains elite middle-aged athletes, says midlife is like “a book without any structure, without sentences, periods, commas, paragraphs, chapters, with no punctuation. Goals force us to think deliberately.”

6. A few setbacks are just what the doctor ordered
Bad events seem to cluster in midlife — losing a spouse, a marriage, a parent, your job, your perfect health. But people with charmed lives — zero traumas — were unhappier and more easily distressed than people who had suffered a few negative events in their lifetime. According to resilience research, some setbacks give you perspective and help you bounce back.

7. Pay attention: Two of the biggest threats to a seasoned marriage are boredom and mutual neglect
The brain loves novelty, and love researchers say a sure way to revive a marriage on autopilot, at least temporarily, is to mix things up a bit. Go hiking, take a trip to an undiscovered land.

8. Happiness is love. Full stop
This observed wisdom comes from George Vaillant, a psychiatrist and researcher who directed Harvard’s Study of Adult Development for several decades. Vaillant found that the secret to a successful and happy life is not biology. It is not genes. It is not social privilege or education. It is not IQ or even family upbringing. The secret to thriving is warm relationships. Oh, then there’s this happy coda: Second chances present themselves all the time, if you’ll only keep your eyes open.

Source: NPR

The Financial Four – Bracket Challenge

Now that your March Madness bracket is already collapsing, how about a matchup where you’re always a winner? The National Endowment for Financial Education (NEFE) and the Financial Planning Association have put together an online interactive bracket of 32 financial actions that people can take to help make winning money moves.

Click here to take the Financial Four Challenge

Download PDF

Source: Washington Post

Remove Hidden Risks from Your 401(k)

Have you heard of Valeant Phramaceuticals? Or how about the Sequoia Fund? Valeant is a drugmaker whose stock price has tumbled 70% this year on a potential accounting scandal. Sequoia is a mutual fund who took an out-sized stake in Valeant. Sequoia has fallen sharply, trails 98% of its peers, and their CEO just resigned.

Why should all this matter to you? First, if you’re employed at one of the 50+ American companies that offers the Sequoia Fund as a retirement plan investment option, you may be unwittingly part of this debacle. Second, if you’re lucky enough not to be directly impacted, you should take this as a lesson and an opportunity remove similar risks from your retirement portfolio.

Incredibly, the Sequoia Fund is one of the most widely held investment options for Walt Disney employees. It’s relatively rare for major employers to offer risky mutual funds like Sequoia that make concentrated bets. Such “high-octane” funds have no business being present in 401(k)’s and similar retirement plans. Plan sponsors could even face class-action lawsuits from investors caught up in this avoidable mess.

How can you protect yourself?

Step #1: Educate yourself about what’s in your retirement portfolio.
Step #2: Pivot toward a massively diversified portfolio that favors low-cost, tax efficient index funds versus expensive, actively managed funds like Sequoia.
Step #3: Visit 401k.nstarcapital.com to access portfolio recommendations for +120 company retirement plans. Don’t see your company in the list? Shoot us an email (info@nstarcapital.com) and we’ll add your plan!

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