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Matt McCoyCFP®, ChFC

Comprehensive planning is the key to achieving financial goals. I believe in planning through a process - not product!

Chattanooga, TN
Senior Financial Planner, Kumquat
Fee Structures: Asset-based, Fee-only, Hourly
Typical minimum client assets: $250k

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  • 1 out of 1 person found this answer helpful

    There seem to be foreign CDs that have higher interest rates than US CDs. What do I need to know when considering these options?

    Personal Finance

    Some foreign CD rates sure do seem to put U.S. rates to shame these days, however it could appear more

    more »

    Some foreign CD rates sure do seem to put U.S. rates to shame these days, however it could appear more attractive than it actually is.  The key factor to remember is that you will need to convert your proceeds back into U.S. dollars upon maturity, so the exchange rate fluctuations will play a big part in how much you actually realize from your investment.  The basic premise of several popular interest rate parity theories (I will not bore you with the details here) is that you should receive the same return regardless of whether you invested in the higher yielding foreign security or the lower yielding U.S. security.  The idea behind these theories is that any opportunity to exploit the yield difference will be arbitraged away - in other words, more and more investors would engage in these transactions until the benefit of the yield differential disappeared (this would happen almost instantaneously).  For the U.S. investor in this case, the result would likely be that the foreign currency depreciated relative to the U.S. dollar and they would therefore be exchanging less foreign currency back into dollars upon maturity.  We all know that the real world can differ significantly from theory, so this is certainly not meant to imply that foreign CDs are a bad deal.  Due to currency volatility however - especially in the very high yielding currencies - it is advisable to consider the CDs as a more risky investment than a traditional CD in the domestic market.  Be careful when viewing the foreign CD as an "apples to apples" comparison with the U.S. CD since there may be some additional risks. Just keep in mind that exchange rate fluctuations will have an impact on your investment. 

    Another consideration is to gain an understanding of the protection you are afforded for such an investment.  Several U.S. institutions will offer foreign CDs (denominated in the foreign currency) to be purchased through their platform and will extend FDIC insurance, however the FDIC insurance does not cover the fluctuations in the foreign currency.  Be sure to understand the policy thoroughly prior to investing.  Also be sure to understand all of the fees incorporated in the price since some institutions may charge you to convert your currency.

    Analyzing and forecasting exchange rates is an extremely complicated exercise, so caution is warranted. There are a lot of moving parts and the above considerations are simply a starting point for your evaluation.  I hope this has helped to get you started and best of luck!

     

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  • 1 out of 1 person found this answer helpful

    I'm getting to the point where I'm thinking about shorter-term (~10 years), non retirement goals. I'm thinking I can put the money somewhere moderately risky given the time horizon. Is that right, or should I just contribute more to my 403(b)?

    Asset Allocation, Retirement Savings, Investing, Retirement

    My first suggestion would be to quantify and prioritize each of your goals, including your longer term

    more »

    My first suggestion would be to quantify and prioritize each of your goals, including your longer term (retirement) goals.  This will assist you in determining how much of your available savings amount to allocate to each goal.  You will likely find that your priorities change over time, so plan to re-evaluate on a regular schedule (maybe annually).  

    It is always recommended that you contribute as much as you can to retirement plans, however you may find that your shorter term goals are the higher priority at this point.  In that case, you may choose to continue with your current contribution level (don't redirect your retirement savings), fund your high priority goals, and then increase your retirement plan savings.  Just remember to keep funding your long term goals - they won't go away!

    In regards to your shorter term goals, the risk exposure that you need will depend upon your end goal (how much do you need) and how much you can allocate toward that goal (either a lump sum now or monthly contributions) - in addition to your time horizon.  For example, assume you need $2,000 in 10 years.  If you allocate $1,500 toward that goal now, the risk exposure that you need would be much less than if your initial allocation toward that goal in $500.  This is where quantifying and prioritizing your goals will help inform your risk need for each goal.  In other words, allocate more savings toward your high priority goals.  This will minimize your risk exposure and likely increase the probability of reaching your goal.  While you may be willing and able to take moderate risk for your short term goals, it will depend upon more than simply your time horizon.

    It is also worth noting that you can always access your Roth IRA contributions (but not earnings) with no tax or penalty - regardless of your age.  Since your contributions are after tax - and not deductible - they can be accessed as needed.  Be sure, however, that you keep good records of your contributions and consult a tax professional for details prior to withdrawing any funds.  While it is not recommended that you tap retirement assets for shorter term goals, it does provide some flexibility.  

    Your savings patterns to this point are commendable - you are likely ahead of the curve already at a young age.  Determine which goals are most important, how much you will need to fund each, and the total amount that you can allocate for funding.  From there, you should be able to determine how to allocate your available funds to meet your goals.  I hope you find this helpful and best of luck!

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  • 1 out of 2 person found this answer helpful

    I'm 40 and have 2 kids. My income is $115,000 p.a. What would be the best saving plan or college investment plan?

    Paying for college, Personal Finance

    Depending upon the specifics of your situation, a Coverdell ESA may also be an option worth considering. 

    more »

    Depending upon the specifics of your situation, a Coverdell ESA may also be an option worth considering.  There are several differences between the two types of accounts that you should be aware of prior to making a decision. 

    First, the contribution limits are much lower for Coverdell accounts. Currently, if your modified adjusted gross income (MAGI) is less than $110,000 (single) or $220,00 (joint filing) you can make a contribution of up to $2,000 per year.  While there is no specific federal limit for annual 529 plan contributions, the suggested limit each year aligns with the federal gifting guidelines (for 2014 this would be $14,000 for a single gift or $28,000 if splitting the gift with your spouse).  You are certainly able to contribute more if you are willing to pay the gift taxes.  529 plans generally have overall plan limits which are quite high, however it is worth understanding the limits for the plan you choose.

    Second, Coverdell assets can also be used for qualified elementary and secondary education expenses in addition to higher education expenses.  IRS publication 970 will detail what is considered a qualified expense, however this generally includes tuition & fees, books & supplies, and academic tutoring.

    While the contribution limits are lower for a Coverdell ESA, you will likely have a much broader selection of investments versus a 529 plan.  You also have the option to roll a Coverdell to a 529 plan in the future if desired, but remember that it does not work the other way around (you cannot roll a 529 to a Coverdell).  Coverdell accounts - just like 529 plans - offer you the ability to change the beneficiary to another family member if needed. 

    As mentioned in a previous answer, you will certainly want to check on the availability of tax benefits regarding your state's 529 plan if applicable.  This was a very brief overview of the Coverdell option, but may provide some added flexibility depending upon your situation.  Be sure to do your homework before choosing an investment plan and best of luck!

     

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  • 1 out of 2 person found this answer helpful

    When opening a Roth IRA, should I take into account my asset allocation in other retirement funds (e.g. 403(b))? If so, what's a good strategy to find the right mix?

    Asset Allocation, Investing

    First of all, congrats to you for establishing a savings plan and for diversifying your account structures. 

    more »

    First of all, congrats to you for establishing a savings plan and for diversifying your account structures.  Great question and one that seems be overlooked quite often.  I believe it is key to take a consolidated look at all of your investment accounts; so yes, do consider your current allocation prior to investing in your Roth IRA.  Not only will you be looking to diversify through asset allocation, you will also be diversifying through asset location

    Keeping in mind that your distributions from your Roth will be completely tax free (as long as you meet the requirements), your Roth IRA is a great place for tax inefficient investments (such as fixed income) as well as those that are likely to appreciate in value more than others.  None of us know exactly which investments will appreciate the most, however high growth areas such as emerging markets or international small caps have historically fallen in this category.  And the interest from any fixed income securities has the potential to be received tax free in the future. 

     The most important step will be to first determine what your overall allocation needs to be based upon your financial goals - don't just invest in the expected high growth (and therefore higher volatility) markets simply due to the potentially higher future values.  Be sure it fits within the allocation needed to meet your goals.  Consider engaging a financial planner to help you quantify your goals and determine your overall allocation.  From there you should be able to determine the most efficient location for your investments.  Great job thinking ahead and best of luck!

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  • 0 out of 0 people found this answer helpful

    I'm having trouble budgeting cash flow between my 2 paychecks every month. How can I figure out the right amount to save/spend when big expenses (like rent) occur once a month while I get paid twice a month?

    Personal Finance

    First of all, your desire to save early and often is commendable - great job!   How to

    more »

    First of all, your desire to save early and often is commendable - great job!   How to think about budgeting is a subjective matter, however I will give you a simple framework that our clients have found helpful. 

    Your first step will be to take inventory of each fixed cost you incur each month, including the timing of each payment.  I suggest that you physically write them down in order of payment due date (either on paper or using a spreadsheet, etc.). Repeat this exercise with your income as well so you can see the timing of the inflows versus the timing of the outflows.  A lot of times, actually seeing the flow of cash in front of you will help connect the dots. You could even find a printable calendar online and write each inflow and outflow on the calendar. 

    Regarding your discretionary spending (eating out, going to movies or similar expenses), consider taking a few months to write down every penny that you spend in this category.  You may wish to extend this exercise if you incur a month or two of unusual expenses such as vacations - this will ensure that you can get a feel for your average monthly spending.  Be sure that both you and your spouse participate in this exercise so that you can avoid any surprises.

    Once you have a good idea of what your fixed and discretionary expenses look like on a monthly basis, you should be able to determine a comfortable level of savings. The key here is to address your expenses first.  If you determine that amount available for savings each month is not as high as you like, you can always reference your discretionary spending for any adjustments that can be made.  Also keep in mind that you do not need to save the same amount from each paycheck.  For example, you may be able to save more from your second paycheck each month due to the timing of your expenses. 

    With certain fixed expenses, it could be possible to change your payment date by contacting the company.  While this is not likely the case with your landlord, it may be worth a call in regards to the other expenses.

    Getting started and organized is definitely the most difficult step and after a few months you should feel like you have a great handle on your cash flow. Again, great job and best of luck!

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  • 0 out of 0 people found this answer helpful

    My question is with regards to life insurance companies that offer policies where you can withdraw money, tax free, for your retirement. Can you clarify the process so that I can fully understand how it works and be aware of the risks?

    Personal Finance, Taxes, Insurance, Life Insurance

    Such an option exists, however there are many factors to consider and a few caveats.  First and

    more »


    Such an option exists, however there are many factors to consider and a few caveats.  First and foremost, purchase life insurance because you need it - not as an investment.  The type of policy that you are describing (permanent insurance) requires premium payments that exceed the actual cost of insurance.  The amount of premium in excess of the cost of insurance and additional fees (these vary by type of policy) is what goes into the investment account. 

    These policies also carry a surrender charge period that can be upwards of 15 years.  Accessing your cash value during this period would be in the form of a policy loan in order to avoid paying surrender charges.  The interest rates on these loans are typically low, but just be aware that you are still paying interest.  After the surrender period is over, you generally do have full access to the cash value in the policy and this is tax free - to a point.  The portion that is received "tax free" is your basis in policy:  the amount that you have paid into the policy.  Any distribution amount above that would be taxable to you.  For example, if you paid $10,000 into the policy and your cash value was $9,000, you would not be taxed on that amount when withdrawn.  If the cash value was equal to $15,000, $5,000 of that would be taxable. 

    There is one very important point to make regarding the comment about retirement income.  Each of these policies are sold with an illustration that shows hypothetical cash values for each policy value (particularly variable policies).  This means that a high investment return assumption would equal higher hypothetical cash value and likely require a lower ongoing premium (since investment gains could be used to cover policy costs if needed).  The illustrations also assume that the rate of return is return is earned each year - therefore your actual experience could be quite different than what is illustrated.  If your realized return is less than what was assumed, you could have to pay more into the policy down the road.  Keep in mind as well that the cost of insurance still needs to paid - even when you are taking withdrawals from the policy.  This would likely be deducted from the cash value of the policy and would be in addition to your withdrawal amount.

    This is not to say that these types of policies have no value, however you should proceed with caution.  I would not recommend using this as a retirement income strategy, however if there is a policy in place for insurance purposes, it could possibly provide supplemental income.  Be sure to understand all of the policy features, fees, and assumptions prior to making a decision.  This has certainly not covered every detail, but hopefully this will get you started.  Best of luck!

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  • 0 out of 0 people found this answer helpful

    How much life insurance should I have?

    Insurance, Life Insurance

    There are multiple factors to consider when determining an appropriate level of life insurance to carry

    more »


    There are multiple factors to consider when determining an appropriate level of life insurance to carry and they are all unique to each individual.  I will speak to several of these factors in general, however insurance coverage is definitely one of those subjective topics.

    The first consideration is to identify what exactly you intend to cover with life insurance coverage:  pre-retirement income (since you are the sole earner in your family), future (retirement) income, debt coverage, all of the above, or some combination of the above.  From your question, it appears that replacing pre-retirement income would be an important consideration.  A good starting point would be to take inventory of any coverage you currently have through your employer (if applicable).  Keeping in mind that life insurance proceeds in the form of a death benefit are generally received income tax free, you can gain a good idea regarding how much after tax income this coverage would replace.  Calculators for the "human life value" approach can be found online and can help approximate the current value of your lost earnings.  Note that this approximation likely assumes death occurs in the current year, so your need will change each year.

    The debt coverage approach is pretty straightforward: obtain an amount of term insurance that would cover the outstanding amount of debt should something happen to you.  Keep in mind that if this debt is a traditional mortgage with principal and interest payments, the outstanding balance will decline over time.  One strategy that can be used for this is to purchase a decreasing term policy that follows the loan's amortization schedule. This strategy could also be used to cover lost earnings prior to retirement as mentioned above. 

    Estimating the need for replacing retirement income is much more involved.  If you are lucky enough to be a participant in a defined benefit (pension) plan, most of these plans offer a survivor benefit option that would provide your spouse with a similar or reduced benefit.  This is best determined through developing a comprehensive financial plan that considers all aspects of your financial life; pre and post retirement. 

    Regardless of the reason for insurance coverage, it recommended that no insurance need is looked at in isolation and rather as part of a comprehensive plan.  Generally, lost income due to disability is much more devasting from a financial standpoint than due to a death.  I would recommend exploring coverage options available through your employer for disability coverage as well (if you have not already). 

    There is no rule of thumb that will work for every situation and there is no magic amount of coverage that each individual should have.  It is a subjective topic that boils down to what makes you comfortable (and is affordable!).  I know I haven't been able to answer your question exactly, but hopefully this will help point you in the right direction.  You should be commended for looking out for your family and I wish you best!

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  • 0 out of 2 people found this answer helpful

    I'm a 26 year old male with an income of 350k. I max my 401k and IRA every year. What else should I be doing to save for retirement, besides a life insurance plan and a regular taxable brokerage account?

    Asset Allocation, Investing

    First of all, congratulations for having a savings plan at such a young age.  You are well on your

    more »

    First of all, congratulations for having a savings plan at such a young age.  You are well on your way to financial independence!  Prior to funding additional accounts that are earmarked for retirement, be sure to set aside an appropriate amount in your emergency fund.  The appropriate amount differs for each individual so I would suggest giving this some thought and keeping this very liquid.  I would include any savings for a future home purchase in this bucket as well.  One option in addition to what you have mentioned is a fee based annuity.

    While traditional annuities (variable, fixed, or indexed) may not suit your situation, there are several fee-based annuities that are specifically designed for tax deferral only that may be of interest.  Most fee-based annuities are significantly less expensive than their traditional counterparts and some of them do not offer any of the "bells & whistles" such as accumulation and withdrawal benefits.  They also offer an extensive investment platform that will allow you to invest in those assets classes that are considered tax inefficient.

     Since you are a high income earner and there are caps on contribution amounts to qualified retirement plans, chances are your after tax accounts will end up being funded more aggressively (depending upon your current lifestyle).  If you follow the rule of thumb that your tax inefficient investments should be concentrated within your qualified accounts, this would likely complicate maintaining your appropriate allocation due to the imbalance between your qualified and after tax account balances.  In other words, you may end up with too little exposure to asset classes that provide the most diversification characteristics.

    Remember that you would still need to be at least 59 1/2 to withdraw funds from an annuity without penalty, so be sure that these assets are strictly for retirement.  Also, the earnings are considered to be distributed first and are taxed as income.  This may be something to consider if you expect to be in a lower tax bracket when you withdraw the funds - or if you simply want the ability to time your taxes on the income and appreciation. 

    While this is by no means a recommendation, it may be something worth looking into.  I would suggest engaging a knowledgeable financial planner to help you determine account structuring and insurance needs. Congratulations again for getting a great start and best wishes!

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  • 0 out of 1 people found this answer helpful

    What's the best way to obtain Long Term Disability Insurance if your employer does not offer it?

    Insurance

    This type of coverage is often overlooked, however it is extremely important during your peak earning

    more »

    This type of coverage is often overlooked, however it is extremely important during your peak earning years.  If you are not covered under any professional associations, you will likely be limited to obtaining coverage through a private provider.  Your first consideration would be to determine your actual coverage need.  This is not always equal to the maximum benefit that can be underwritten since there are a multitude of factors to consider.  It is advisable that you discuss this in depth with a knowledgeable professional, however a few of the more important considerations relate to your current progress toward financial goals (retirement, etc.), remaining work life (how much longer you plan to work), current level of expenditures, and current level of reserve funds (emergency or savings fund).  You will also likely find that each of these factors will also help you in determining any of the "bells and whistles" that may need to be included in the policy - such as inflation protected benefits or the ability to increase your coverage in the future without medical underwriting.  Be sure to understand all of the coverage definitions as well as the details regarding any of the policy riders that may be presented.  You certainly want to be sure that you are covering the correct risk!

    Also keep in mind that if you pay the premiums for the policy, the benefits will be received tax free (you are paying premiums with after tax dollars).  This means that with a private policy, you will want to focus on the net amount of income you receive now rather than your gross wages.  With the typical group coverage, your employer would pay for the coverage and thus your benefits would be taxable to you as income. 

    You have certainly taken the first - and most important - step by recognizing that there is a need.  By giving your current situation some thought, you should be well equipped to have a substantive conversation with a financial planner or insurance agent regarding your necessary coverage.  Kudos for taking the first step and best of luck!


     

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About

Matt is an experienced financial advisor who has helped his clients accomplish their financial goals for over nine years. He earned a B.S. degree in Economics. In addition, he has been certified by the College for Financial Planning as a CERTIFIED FINANCIAL PLANNER® certificant, which focuses on comprehensive financial planning. Matt also holds the Chartered Financial Consultant (ChFC®) designation earned through The American College which focuses on the many uses of life insurance for financial and estate planning.

He is committed to a different way of thinking that doesn’t start with product but with process. His primary focus is on holistic financial planning tied to regular interaction with clients and their other core advisors. He is able to address each client’s unique financial situation through a detailed, risk focused approach. This process, coupled with his education and experience, provides the foundation for him to deliver solid solutions for clients.

Matt resides in Hixson, TN with his lovely wife Melanie and stepson Justin. He is an avid sports fan with a special affinity for baseball. He is also a student of his industry and enjoys financial reading and research.

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Contact Info
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Email
matt@kumquatwealth.com
Phone
(423) 531-0204
Web
I am available for web conferencing
Address
3001 S. Broad Street Suite 200
ChattanoogaTN 37408
Firm Website
Registrations
Individual CRD #4855742
Regulatory Records
Please visit FINRA's website to review Matt's records
State Licenses
TN Insurance License #0920439
While designations are not everything when selecting a financial advisor, they often indicate a certain level of knowledge related to a specific field and/or commitment to certain ethical and professional standards. Please see our detailed Guide to Financial Advisor Designations for more information.
Designations
CFP®, ChFC

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