Q1 2016 Market Commentary

After completing my latest Market Commentary I handed it to Julia for her input and review
and asked her opinion of the document. Her reply was “its ok.”
“Just ok?”
“It’s the same old news and not very inspiring.”
So I reread it and she was correct. It was all about China, and the Fed, the dollar and oil. It was
about volatility and how long this market cycle is. It was, as she succinctly put it, the same old
story. So I shredded it and took a step back and thought about what inspires us here and the
work we do and my conclusion was, You.
We talk about it all the time, and we live it every day, but when we are in the thick of the
market’s rollercoaster ride we forget that at our core we are a planning firm. As such we have
the honor of being a part of that process of discovering what is really important to you; as you
pack your kids off to college, send us notes and photos from the trips you have taken, get
involved in charitable endeavors and remember those that we have lost.
So, for this quarter, I will put aside discussion of price to earnings ratios, and interest rate hikes
and why the dollar is stronger and the price of oil weaker to refocus on what is important –
your plan.
Goals
The beginning of a new year is always a good time to revisit our goal planning. There is a cleanslate feel to January that encourages the proper frame of mind to take two steps back and
review those things that are important to us. No matter what stage of planning you are in,
examining what you would like to accomplish for both 2016 and the years to come sets the bar
for your actions through the year. So take a second and think about what we have previously
discussed as your goals. Do you recall what you had previously expressed to us? If not, or if
they have changed because your priorities have shifted, then we definitely should revisit them
at our next meeting.
Goals are the view of your planning from a 10,000 ft. perspective, and we keep a record of them
so that we can properly plan for you. But many times the view can change, for a variety of
reasons, which is why we should continuously revisit and amend your goals as your life
changes.

In the meantime, write them down – there is nothing more powerful than declaring your intent
in writing. “I desire to...” When written they become more real. They are no longer dreams in
your mind but instead are realities you have set in motion.
Estate Documents
One of the most overlooked areas of any financial plan are the documents that make up the
basic stable of estate planning, a Power Of Attorney, Healthcare Directive and Will. Ask
yourself if you have these documents in place, and if you do how recently you updated them to
reflect changes in your life?
While there are services available for creating these documents yourself, for most clients we feel
that they should be written by a qualified attorney who has some specialty in estate planning.
These are important documents. They dictate who can take care of you and your affairs if you
become mentally or physically impaired, they empower someone to carry out your wishes after
you are gone, and they declare your desires for your estate should be distributed and who will
care for your minor children. Every State handles these documents in their own way, so if you
have moved since the last time you reviewed your estate plan documents, it is important to
review them again with somebody who is familiar with the laws of your new state.
The Power Of Attorney
There are three kinds of Power-of-Attorney documents (POAs), non-durable, durable and
springing. A non-durable (or common-law) POA assigns temporary control of your legal and
financial affairs to a person of your choosing, and ceases when you become incapacitated. A
durable (or continuing) POA allows the same control, but stays in place after you have become
incapacitated, and a Springing POA provides for that control if, and only if, a pre-set condition
is met (for instance, a declaration of physical or mental incapacitation by a licensed physician)
and terminates when/if the condition is resolved.
Healthcare Directive
The Healthcare Directive (also known as a Health Care Proxy / Power of Attorney, or a Living
Will) describes what medical actions should, and should not, be taken if you are unable to make
those decisions or express your desires. It may (in the case of a Power of Attorney or Proxy) also
allow for somebody to make those decisions for you. The exact name of the document, and the
type of control it bestows, is contingent upon the state that you live in. In Pennsylvania, the
Advance Healthcare Directive covers all the issue that both a Proxy/POA for health care and a
Living Will would cover, but some states use two separate documents.

The Will
The Will is the quintessential estate planning document, and should be reviewed regularly to
make sure it matches your desires as well as your current life situation. A Will declares who
will be Guardian of your Minor children, making all decisions moving forward about how they
are raised. The Will also appoints the individual who will be the Executor of your estate, the
person responsible for the distribution of your assets and the administration of your estate,
including filing taxes and closing your case with the county court. The Will may also be used to
make specific gifts, or bequests, to specific individuals. The Will does not keep your estate out
of the probate process, but it clearly defines the path the probate court is to take. Without it,
your assets will be distributed according to the laws of your particular state, which may be very
different from your wishes. Furthermore the court would need to name a Guardian for minor
children, having no indication of which person you would have chosen.
Beneficiary Designations
Beneficiary designations are another often overlooked area of planning and in 2016 we are
committed at Northstar to revisiting these with clients to be sure our records are up-to-date.
Beneficiary designations are found on life insurance contracts, annuity contracts, IRA and
qualified plans (401k’s, SEPs, SIMPLEs, etc.). Such designations bypass the Will and the probate
process and are paid directly to the named beneficiary. This can be a disadvantage if life
changes, such as divorce, have resulted in a new Will, but not a change in designations.
Revisiting who is named on a regular basis can help you maintain control of your estate plan. It
is always important to remember that your wishes, even wishes expressed in your Will, may be
different than what your Beneficiary designations state but at the time your assets are being
processed any account that has a Beneficiary will go to that designated person or entity at that
time no matter what anything else says.
Insurance
It’s always good to revisit your insurance coverage, to be sure it accurately reflects your needs
and concerns. The four risks that insurance is designed to protect you and your family from are
loss of life, disability, long-term illness and liability.
Loss Of Life
The need for life insurance tends to change over one’s lifetime, with a greater need in earlier
years when you have yet to accumulate significant assets. As your savings increases and your
debts decrease, the need for insurance may also decrease.
The way we like to plan for life insurance is to start from a very high level and simply find out
what you would like to have happen when you pass away. What are your goals for your family

and your estate after you have passed? We then like to define those goals on an income basis.
What is the income need of your survivor, if any, and how long would that need last?
Once we know that we can begin examine what other sources of income there may be (Social
Security Survivor benefits, pensions, rental incomes, etc.), what cash flow needs may drop off in
the future (mortgage payments, debts, etc.), and what assets are available to help support that
income. If there is a shortfall, then we determine the amount of capital that would be needed to
close that gap, or to take care of any one-time expenses such as tuition or a mortgage payoff.
That will help determine the most appropriate level of life insurance from which we can them
seek to find the most cost effective way of covering that need.
Disability
Disability planning is similar to life insurance planning in that we focus on the income needs of
the family in the event one, or both, spouses suffer a long-term disability. On top of normal cash
flow needs, we would add in estimated medical costs as well as the loss of scheduled savings.
Then, as with life insurance, we would review what other sources of income there may be, such
as Social Security Disability benefits. Many companies offer long and short term disability plans
to their employees, though it is important to remember that most group disability plans will
cover a certain percentage of gross income (normally 60-65 %), if the employer is paying for that
plan to be in place that paid benefit will still be taxable, and that there will be a cap on the
maximum cumulative payout. For higher income earners, we may find that the level of
protection offered by a group plan is inadequate and an additional policy to cover the shortfall
would be prudent.
Long-Term Illness
Most disability plans will cover you to the age of 65 but as we age, the risk of long-term illness
rises. So examining the risks in the event someone is incapacitated for an extended period of
time after retirement is crucial. Long-term care insurance cost will depend on how long one
waits for payments to start, how long benefits will last and the amount to be paid. Each contract
varies as to how benefits are calculated, pooled and paid out, and most will require a physician
to attest to the need for care. As the level of care that is needed can vary greatly, depending
upon the illness, determining what level of benefit to maintain can be tricky. The average stay at
a long-term facility is 2 ½ years, but illness due to dementia or Alzheimer’s’ can unfortunately
last for much longer. So it’s important for us to review both household income needs, and the
ability to “self-insure” by using savings to pay for care, in order to determine whether the cost
of a long-term care policy is worth the benefit for each individual situation.
Liability
An oft-overlooked risk is the chance that an accident or an oversight can result in damage or
injury for which you are found to be personally responsible. According to Alexandra M. Collyer

of Johnson, Kendall & Johnson Inc. in Newtown, PA, a general rule of thumb is that the liability
limits should cover a client’s entire net worth plus future earnings. While there are liability
limits on every home and auto policy, for someone with higher risk factors in their household
we may want to consider additional coverage through an Excess Liability Policy (also called a
PELP or an Umbrella Policy).
She recommends a three step assessment that includes examining; 1) the factors that put a
person at risk, such as owning a boat, having a college student using the family car while away
at school, writing a blog; 2) the value of what is being protected, including all property and
savings; 3.) an estimate of all future earnings and 4) the level traditional insurance coverage in
place (homeowners, automobile, etc.) and its limitations. If there are a number of risk factors, or
if traditional coverage amounts fall short of the entirety of your net worth and future earnings,
then an excess policy may be a good idea.
Taxation
We all wish to avoid paying taxes as much as possible. While I can’t cover all the tax savings
ideas here I will hit a few that may help you rethink how you approach 2016.
Employer-Sponsored Retirement Plans
401k plans, 403b plans, SIMPLE plans. The ability to save on a systematic basis through a
payroll deduction is probably the best way to save for retirement because it is so easy and
because spending is quickly adjusted so that many people who save in this way do not miss
funds that are set aside. Some employers will even add funds to your plan, but these
contributions typically are only available to those who participate up to a minimum amount. If
your employer offers such a contribution, you should be putting in at least the minimum
required to qualify for it.
Besides the ease and the built in discipline of a payroll deduction, these plans provide a method
for sheltering a portion of earned income from taxation until retirement. Not only is your
contribution excluded from your taxable income, but so are any dividends or capital gains that
your savings may earn in these plans for as long as they remain in the plan (or in a similar, taxqualified account such as an IRA) So even plans that do not provide employer contributions are
worth participating in as a means of lowering your current tax bill.
Health Savings Accounts
An underutilized benefit in our opinion, HSA accounts are a good way of making pretax
contributions to an account that grows tax deferred. The funds can be used to pay for medical
expenses, and roll over year to year if not used. If used for non-medical reasons before the age
of 65, however, withdrawals incur both income tax and a 20 % penalty. After 65, non-medical
withdrawals are taxed as ordinary income, which is no different than the taxation on traditional

IRA or employer plan withdrawals at that age, making HSA accounts a good supplement to
regular retirement savings. Keep in mind that you need to be in a high deductible, HSA
compatible plan in order to take advantage of this tax benefit, otherwise you will be considered
to not be in compliance and penalties and taxes will be assessed.
Investment Risk
Volatile market periods like the one we are currently experiencing are always good times to
revisit your overall tolerance for investment risk. Unfortunately, while seven years removed,
the sting of the financial crisis remains firmly fixed in the minds of many investors. This has
caused a unique situation in which it has become harder to rationally experience volatility.
There is now a deep distrust of the markets and the data we receive from various sources, every
fundamental analysis of the economy is greeted with a bitter skepticism, and every dip in
market prices is accompanied by widespread anxiety. There is a belief among many that the
markets are ‘fixed” in the favor of institutions, and that the everyday investor is simply there to
act as patsy for the hedge funds, private equity firms and high frequency traders of the world.
We would disagree.
According to the Investment Company Institute at the end of 2014 there was $31,381,425,000,000
of worldwide mutual fund assets under management. Think of that, over 31 million, million
dollars of assets invested for the benefit of shareholders. If that is not representation for the
small investor we are not sure what would be. So while hedge funds and the like have the
assets, revenues and personnel to seek competitive advantage, so too do the companies with
whom we have entrusted the bulk of our savings. These are highly skilled, knowledgeable
individuals making many of our day-to-day investment decisions, and the managers that we as
a firm utilize have decades of this day-to-day experience, spanning many economic cycles – bull
markets, bear markets and a handful of financial crises.
While we have faith in our capabilities and those of the managers we use, we are only part of
the equation. The other half is you and your ability to let time do its work and ride through the
rough patches. And there will be rough patches - there have been 20 Bear Markets (defined as a
prolonged period of decline in excess of 20%) since 1929 and the average decline, if we include
the 83% collapse of the Great Depression, has been 37.2%. But the good times generally outpace
the bad – bull markets have lasted an average of 97 months each and provided and average 440
point gain (on the S&P 500).
Regardless of the history, each person’s tolerance for this ride is personal and must be weighed
in advance. The savings plan in place, the goals that have been set, and the time allotted to meet
those goals determines the rate of return required to succeed. The allocation of savings, and the
amount of risk imbedded in that allocation, in order to earn that required return, determines
investment experience. If the experience is too emotionally difficult to bear then something
must give in the plan, be it the timeframe, the amount saved or aspects of the goal itself.

Having worked with clients for over twenty four years I believe that underestimating your true
tolerance for risk is one of the most detrimental mistakes an investor can make. More often than
not, the result is that your plan is abandoned at the darkest hour, and recovery from that action
is long and difficult, if not impossible. The plan is the foundation of everything and sometimes
that gets lost in the shuffle of market noise and thus we find this to be a perfect time to
encourage everyone to step away from the media racket and reassess the things that are
important to you and the things that you are trying to accomplish. Then restate those goals with
us and we will make sure that the structure in place matches.
Should you have any questions regarding your planning or your portfolio Julia and I are always
available to talk things through with you. We can be reached by email at julia@nstarfinco.com
and steve@nstarfinco.com or by phone at 800.220.2161.
Steven B Girard
President

The opinions expressed are those of Northstar Financial Companies, Inc. and are based on information believed to
be from reliable sources. However, the information’s accuracy and completeness cannot be guaranteed. Past
performance is no guarantee of future results

Northstar Financial Companies, Inc, 1100 East Hector Street, Suite 399, Conshohocken, PA, 19428 Tel: 800 220 2161 www.nstarfinco.com
Registered Representative, Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer, member FINRA/SIPC. Investment
Advisor Representative, Northstar Financial Companies, Inc. a Registered Investment Advisor. Northstar and Cambridge are not affiliated