OCTOBER 2016

Evaluating Stock Investments

Y ou should thoroughly ana-lyze a stock before purchase.But pick up a company’s

annual report, and you can quicklybecome overwhelmed by all thenumbers. What figures should youconcentrate on when evaluating astock? At a minimum, look foranswers to these questions:

4What are the company’s earn-ings? Earnings per share

(EPS) is the company’s net incomeafter taxes and preferred stock divi-dends divided by the average num-ber of shares outstanding. Look forsteadily increasing EPS, whichshows a pattern of consistentgrowth.

4How does the company’s price relate to earnings? The

price/earnings (P/E) ratio is calcu-lated by dividing the company’sstock price by EPS. It basically indicates how much investors arewilling to pay for a dollar of the

company’s earnings. P/E ratios canbe calculated using different earn-ings numbers. Trailing P/E ratiosuse earnings per share for the mostrecent four quarters, while forwardP/E ratios use forecasts of futureearnings per share. To get a feel forthe reasonableness of a company’sP/E ratio, review its historical P/Eratio, the P/E ratio of other compa-nies in similar industries, and theP/E ratio of the market as a whole.Typically, companies with highergrowth rates have higher P/Eratios.

Is the Public or Private Sector Paid More?

I n 2015, the Federal Salary Council reported that private-sector white-collar workers earn 34.9% more than federal workers, consistent with

the 35.6% average reported in 2013 and 2014. Whether this pay gap is faircontinues to remain a hotly debated issue. While organizations advocat-ing for federal employees call the pay discrepancy unfair, other organiza-tions have suggested the gap is nonexistent. In 2012, the CongressionalBudget Office reported that federal workers actually make 2% more thanprivate-sector workers overall and earn 48% more in benefits. The reportnoted that workers with a high school diploma or less earned 21% morethan private-sector workers at the same educational level, and federalworkers with some college earned 15% more. On the other hand, federalworkers with masters or doctoral degrees were found to earn an averageof 14% less than their private-sector counterparts.

The Bureau of Labor Statistics reports that public-sector jobs, whichpeaked at 19.8 million workers in 2008, declined to 19.2 million in 2015,and the public sector saw the slowest job growth of any major industry at 0.3%. mmm

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U C C E S S

4How does the company’sbook value relate to its price?

A company’s book value equals itsassets less its liabilities, commonlyreferred to as stockholders’ equity.Dividing the stock’s price by itsbook value per share will give youthe price-to-book value. Companieswith low price-to-book values areoften considered value stocks.

4What is the company’s returnon equity? Return on equity

(ROE) is calculated by dividing the

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Copyright © 2016. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. Thisnewsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis ofthese subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any lossor damage resulting from errors or omissions or reliance on or use of this material.

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LLC. Kestra IS and Kestra AS are not a�iated with Bridge Wealth Advisors or Gotleib & Associates.

RETIREMENT PLANNING

Leo A. Gotleib, CFP®

1120 Route 73, Suite 305 • Mt. Laurel, NJ 08054856.482.6100 • 1.800.644.4204 • Fax 856.482.5362

WWW.INVEST2RETIRE.COM

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company’s income by its sharehold-ers’ equity. It is used to measurehow well a company is utilizingcapital retained in the company,although it is a statistic that shouldbe reviewed over a number of yearsto detect trends.

4What is the stock’s totalreturn? Total return equals

dividends plus or minus changes instock price divided by your pur-chase price. This is the overall measure of the stock’s performanceand is useful when comparing oneinvestment with other investments.

4What is the company’s debtlevel? The debt ratio is the

company’s outstanding debt divid-ed by shareholders’ equity, whichmeasures how leveraged a companyis. High levels of debt can make acompany more vulnerable duringeconomic downturns. Also take alook at the current ratio, which iscalculated by dividing current assetsby current liabilities. It is a measureof a company’s ability to pay its cur-rent obligations, with higher ratiosindicating a stronger ability to makepayments.

4What is the company’s growthrate? A company’s growth

prospects can be evaluated usingthe price/earnings to growth (PEG)ratio, which is calculated by divid-ing the P/E ratio by the company’sprojected earnings growth rate. APEG ratio of one is considered stan-dard, meaning the growth rate isincorporated in the stock’s price. APEG ratio higher than one meansthe stock is trading at a premium toits growth rate, while a ratio of lessthan one may mean the stock isundervalued.

4How volatile is the stock?Beta is a statistical measure of

how stock market movements havehistorically impacted a stock’s price.By comparing the movements of theStandard & Poor’s 500 (S&P 500) tothe movements of a particular stock,

Evaluating StockContinued from page 1

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a pattern develops that gauges thestock’s exposure to stock marketrisk. The S&P 500 is an unmanagedindex generally considered repre-sentative of the U.S. stock marketand has a beta of one. A stock witha beta of one means that on aver-age, it moves parallel with the S&P500. A beta greater than one meansthe stock should rise or fall to agreater extent than movements inthe S&P 500, while a beta less thanone means it should rise or fall to a lesser extent than the S&P 500.Since beta measures movements on

average, you cannot expect an exact correlation with each marketmovement.

The decision to purchase a stockcan’t be made solely from a reviewof financial ratios. You’ll also needto evaluate subjective factors, suchas the quality of management,prospects for the company’s indus-try, and where the company standsin relation to its competitors. Ifyou’d like help reviewing the finan-cial ratios of a stock that interestsyou, please call. mmm

Dos and Don’ts of Investing

H ere is a list of dos anddon’ts to rememberwhether you are a new

investor or a seasoned veteran. Do…rebalance — Review

your portfolio annually to ensureyour investments are in alignmentwith your strategy. You may needto make modifications.

Don’t…babysit your invest-ment accounts — As long asyou’re invested, you will experi-ence gains and losses. While it isimportant to evaluate and rebal-ance annually, babysitting yourinvestments can only cause stress.

Do…what is best for you —Always make decisions based onyour unique goals, comfort level,and financial portfolio. There areso many variables that shouldinfluence your investment deci-sions, and probably none of themare exactly the same as anyoneelse’s.

Don’t…do what everyone elseis doing — Make investmentsbecause they make sense for you,not because everyone else is doingit. Herd mentality definitelyapplies to the market.

Do…invest for the long term— Investing long term gives yourmoney time to grow in the market.Compounding interest is verypowerful.

Don’t…rush your investments— The market needs time to growyour money for you; let it. Ofcourse, some investments areappropriately short term, but mostof your investments should be inthe market for the medium to longterm.

Do…diversify — Allocateyour funds among asset classesand asset class categories. This willgive you a more balanced, stableportfolio, mitigating losses whendownturns do occur.

Don’t…put all your eggs inone basket — If you invest every-thing in only one place (in oneasset class or asset class category),you risk suffering significant losseswhen that investment falls.

Do…set a strategy and stick toit — Once you have developedyour investment strategy, everyfinancial decision you make needsto reflect that strategy. Whenevents occur that affect your strate-gy, sit down and discuss options(that’s a conversation you shouldhave annually regardless of whathas or hasn’t changed in yourfinancial situation).

Don’t…make decisions out ofemotion — When it comes tofinancial decisions, they should bemade rationally based on informedanalysis and according to yourinvestment strategy. mmm

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assumes your financial situation isrelatively uncomplicated. If youhave children with special needs orwho will be attending college soon,you may need even more insurance.

When it comes to disabilityinsurance, you may be tempted torely on your company’s policy, butthat might be a mistake. The cover-age may not be as extensive as youexpect with a limited benefit periodor narrow definition of disability(you may only get benefits if youaren’t able to work in any occupa-tion, not just your current occupa-tion). Robust disability insurancecoverage is essential if you do nothave the resources to replace yourcurrent income should you becomeunable to work.

Long-term-care insurance isanother essential component ofmany people’s financial plans.Given the high cost of nursinghome care or a stay in an assisted-living facility, the need for thesetypes of services in retirementwould bankrupt many, even thosewith substantial retirement savings.

If you suspect that you or yourspouse might need such care, along-term-care policy is one way toprotect your assets and reduce therisk that you will run out of moneypaying for a nursing home stay.

Clearly, insurance and financialplanning are intimately inter-twined. It is difficult to separate one from the other. If you havequestions about your current insurance coverage, please call to discuss. mmm

Insurance and Your Financial Plan

I nsurance plays a vital role inyour financial plan. A compre-hensive insurance plan, which

can include everything from autoinsurance to disability insurance,helps protect you, your family, andyour wealth.

Without insurance, most peoplewould have difficultly coping withmajor and unexpected financial setbacks. Insurance is a reasonableway to plan for worst-case scenariosthat we all hope never become reality.

In many ways, it’s the bed-rock that supports your overallfinancial security. Some might evenargue that if you have to prioritize,it’s more important to focus ondeveloping a solid insurance planbefore you worry about issues likeinvesting. Where Do I Start?

Most people already have someinsurance. A typical adult with afamily and a job might carry auto,life, and homeowners insurance(not to mention health insurance,which is another essential cover-age).

But most people purchase theirinsurance piecemeal, picking up apolicy here and there when theyneed it. Rarely do people have acoordinated insurance plan thataligns with their overall financialplan.

Thus, your first step in develop-ing an insurance plan should be sitting down and taking an objec-tive look at your total financial situ-ation, perhaps with the help of afinancial advisor.

Consider your age, family situa-tion, the risks you face, and currentassets and liabilities. This will helpyou identify areas where you mightneed the peace of mind that qualityinsurance provides.

For example, parents withyoung children will almost certainlywant life insurance, while people

who suspect there’s a good chancethey’ll end up in a nursing homemay want long-term-care insurance.

Sound complicated? It can be.Unfortunately, there is no off-the-rack or one-size-fits-all approach tobuying insurance. Evaluating Your Risk andDetermining Your Needs

Determining what kind ofinsurance you need to protect your-self and your family begins with anhonest evaluation of the risks youface. That helps you decide whatkind of insurance you’ll need.

But that’s just the beginning.For example, if you have youngchildren, you probably know youneed life insurance. But how muchis enough and what variety (whole-or term-life) is best? And whatabout other types of coverage?Should you buy umbrella insuranceor disability insurance?

Life insurance tends to be thearea where people have the mostquestions about whether their cov-erage is adequate. To determineyour needs, you need to imaginethe unthinkable: How would yourfamily survive if you were nolonger there to support them? Don’t just choose a big number andassume it will be enough.

Consider this: You have a lifeinsurance policy with a $1 milliondeath benefit that you think will bemore than enough to provide foryour family if you pass away unex-pectedly. Tragically, you die, andyour surviving spouse uses $400,000of the benefit to pay off your mort-gage and some other debts, pay foryour funeral, and cover other mis-cellaneous expenses. That leavesjust $600,000 for your family.

If your beneficiaries invest thatsum in a fund that earns an average5%, that translates to a monthlyincome of $2,500. That amount maynot be enough to meet all your survivors’ financial needs. And that

Insurance for Stay-at-Home Parents

Financial Thoughts

Frequently Asked Questions about Estate Planning

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I t could be just as important toinsure a stay-at-home parent as a

working parent. The issue is one ofvaluation: how do you set a dollarfigure on the contributions that astay-at-home parent makes? Startby looking at the functions he/sheprovides: cooking, cleaning, child-care, shopping, laundry, payingbills. How much would it cost topay someone for those services?

You have two choices: you cantake out a separate policy on yourspouse that names you as the bene-ficiary, or you can add a spouserider to your own policy. Theadvantage of a rider is that it can be cheaper than securing a separatepolicy for the stay-at-home parent.

On the other hand, if yourspouse dies after you do, the ridertypically doesn’t pay a death benefitto your spouse’s beneficiary. Inaddition, your spouse will have noaccess to cash value accumulationsince the policy and cash values are owned by you.

If there are other reasons foryour spouse’s life to be insured than replacing his/her homemakingservices — like designating differentbeneficiaries or meeting estate-planning objectives — a separatepolicy might be the better choice.mmm

W hat happens if I diewithout a will or trust?The state in which you

reside will appoint an administratorto decide who receives your assets,barring jointly owned property andbeneficiaries you have listed onbank and retirement accounts, lifeinsurance policies, and investments.

Can I draft my own will?Estate planning is a complicatedprocess with many federal and statelaws you may be unaware of thatcould negate your intentions. Eventhe slightest miswording couldinvalidate your will. Consultingwith an estate-planning profession-al is recommended.

What’s the difference betweena will and a living will? A willspecifies where your assets will bedirected after your death, while aliving will outlines your health carepreferences should you becomeincapacitated. Living wills haveevolved throughout the years toaddress a variety of concerns.

I have verbally discussed medical preferences with my fami-ly. Do I still need a living will andhealth care proxy? A living will andhealth care proxy ensure that yourwishes are carried out in spite ofdissenting opinions from familymembers.

What should I include in myestate-planning folder? In additionto your will and living will, youshould include the following: Titlesto your property and vehicles;copies of insurance policies, safedeposit box keys, and retirement,bank, and investment accounts;names and numbers of everyoneyou want your family to contact inthe event of your death: advisors;any clubs, associations, and socialgroups you belong to; service pro-fessionals; health care providers;creditors; etc.; and instructions forlocating your online accounts andpasswords.

I’m not wealthy — should Istill consider a trust? Trusts canplace stipulations on how and whenan inheritance is spent and preventloved ones from either becomingdisqualified from government bene-fits or losing their inheritance tocreditors. Furthermore, a trust keepsthe details of your estate privateand shields your family from theprobate process.

How often should I have myestate plan reviewed? Your estateplan should be reviewed every twoto three years to ensure it evolveswith any changes in your life.mmm

S ince September 2008, therehave been 6.1 million com-

pleted foreclosures across theUnited States (Source: CoreLogicNational Foreclosure Report,2016).

The average price of new, single-family homes is currently$305,000, up from $204,000 in2009. The median size of newlybuilt, detached homes is 2,445square feet, up 28% since 1992

(Source: BusinessWeek, 2016).Approximately 77% of indi-

viduals between the ages of 20and 24 are licensed to operate amotor vehicle, down from 92% in1983 (Source: University of Michi-gan Transportation Research Insti-tute, 2016).

In 2015, the average hourlypay rate for retail workers in theUnited States was $9.79. The aver-age hourly wage for full-time

Walmart employees was $13.38(Source: PayScale, 2016).

The average American retiresat age 64 for men and at age 62for women (Source: The WallStreet Journal, March 21, 2016).

Approximately 1.4 millionbusinesses in the United Statesare jointly owned by a husbandand wife (Source: Nielsen, 2016).mmm­­