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Glossary

Here you will find the meaning to common financial terms that you will see throughout your financial plan. Please use this as a guide to help you understand the context of the financial advice given in your plan.

Assets Under Advisement – These are all of the assets an advisory firm, such as Plan & Act, is able to provide investment advice and/or guidance. This may include (but are not limited to) any type of asset such as cash, bonds, mutual funds, ETFs (exchange traded funds), stocks, IRAs, 401k and other types of employer sponsored retirement plans. Additionally, advice may also be provided for other types of assets, such as real estate, insurance policies and related “non-transactional” assets. It’s important to note, these assets do not need to be “managed directly” by the service and can remain independent and fully controlled by the client. In these cases, the advice provided by the service has to be implemented directly by the client.

Assets Under Management – Assets that can be actively traded by an advisory firm, such as Plan & Act, in which and the advisory firm is able to conduct trades on those assets per the agreement between the client and the advisory firm. Some examples are cash, bonds, mutual funds, ETFs (exchange traded funds), stocks and IRAs. This EXCLUDES assets inside 401(k) accounts and all other employer sponsored retirement plans, and real estate. Plan & Act does not manage 401(k) accounts, any other employer sponsored retirement plans or real estate. However, through custodial agreements with our clients and third-party transactional sites Plan & Act is able to actively manage certain types of assets on behalf of our customers for greater convenience.

Bad Debt - Debts that destroy wealth, such as like interest on credit cards and consumer loans, are considered "bad debt." Cars, television sets, and other electrical appliances usually decline in value as soon as you drive them off the parking lot.

Good Debt - Good debt is debt that helps you build wealth. For example, a 30-year fixed rate mortgage, student loans and sometimes business loans. It is good debt because your house and education will appreciate in value as the debt disappears. A business loan can also be considered good debt only if the business is generating sufficient revenue to cover the loan payments or owns assets that equal the value of the loan. Essentially, good debt helps you, while bad debt (as you can see above) hurts you.

The Cambridge System™ - The Cambridge System™ is a revolutionary approach to financial planning. The brainchild of Bert Whitehead, MBA, JD, it rejects the traditional approach to financial planning (including the financial plan document and asset allocation models developed for institutional investors) and instead places emphasis on the needs, including taxes and personal real estate, of real people.

Cambridge Financial Life Cycle© - The Cambridge Financial Life Cycle is a benchmark which divides your life into ten typical financial stages. There are specific wealth building strategies for each stage and financial ratios that mark the transition from one stage to the next. The most unreliable indicator on the Financial Life Cycle is the age range. People can spend 50 years stuck in a stage or skip it altogether. A divorce can move people backward and commitment to a financial plan can jump them forward. So don't be discouraged if you're "behind" and don't get too excited if you're "ahead".

Certified Financial Planner (CFP®) - A Financial Planner is a person who sets up financial plans for individuals. A Certified Financial Planner is a person who has passed a series of examinations, achieved at least three years industry experience, and met all other statutory licensing requirements. The CFP mark represents the highest designation attainable in the field of Financial Planning.

Early Accumulation - The Early Accumulation stage is the point on the Cambridge Life Cycle where your net worth exceeds your annual income. This typically occurs between the ages of 30 and 40. This is the stage where basic investment begins.

Fee Only Service -This term refers to the method of compensation for the financial planner. "Fee-only" planners are compensated solely by fees paid by their clients and do not accept commissions or compensation from any other source. "Fee-only" planners believe there is a significant "conflict of interest" if an advisor stands to gain financially from the purchase of any product he or she recommends to the client.

Fiduciary Relationship - A financial advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a Fiduciary, the financial advisor is required to act with undivided loyalty to the client. This includes disclosure of how the financial advisor is to be compensated and any corresponding conflicts of interest.

FIPOM - Financial Independence and Peace of Mind. This is the destination - Plan And Act provides you with the vehicle to get there.

Functional Asset Allocation - The premise behind this concept is that each asset category serves an important function or purpose in people's lives, and that understanding these unique functions allows the use of assets to be optimized. Real estate, in the form of the personal residence, is a prime example. It usually represents the largest and most profitable investment a family has, provides the best protection against inflation, and adds value beyond a financial calculation because of the personal enjoyment derived from its use.

Investment Advice – The strategic process of investment professionals who oversee the savings and investment decisions of their clients

NAPFA - NAPFA, the National Association of Personal Financial Advisors, is the nation's leading organization dedicated to the advancement of Fee-Only comprehensive financial planning. Consumers and the financial trade media look to NAPFA for access to financial advisors who meet the highest standards for professional competency, comprehensive financial planning and Fee-Only compensation.

Net Worth - An aggregation of the value of all assets, including cash, less total liabilities. Commonly defined as "all that you own less all that you owe."

Rapid Accumulation - The Rapid Accumulation stage is the point on the Cambridge Life Cycle where your net worth is three (3x) times your annual income. In this stage you reach the point at which the income from your investments exceeds your annual savings, and your Net worth tends to grow exponentially. This typically occurs between the ages of 40 and 55.

Registered Investment Advisor (RIA) - This service is registered with the Securities and Exchange Commission (SEC) under our formal name FinancialAdvice4Me LLC. You can find us on the SEC website at: http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx. As RIA's our business is regulated. All companies registered as Investment Advisors with the SEC receive fees - not commissions.

Tax Shelter - Tax shelters are legal methods for reducing taxable income resulting in a reduction of payments of State and Federal taxes and an increase of individuals’ wealth. A major example for a tax shelter is a retirement plan such as 401k. Taxes on money put aside in such plans are not taxed until retirement. The advantage of contributing to such plans is that money that would have been taken out as taxes is compounded in the plans until the funds are withdrawn.

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