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
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
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
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:
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.