3RD  Quarter

  2014

T H E    Q U A R T E R L Y    R E P O R T

IN THIS ISSUE . . .The Importance of

Rebalancing p. 2

The Rising Cost of Not Going to College p. 2

Should You Refinance Your Mortgage? p. 3

Put It in a Letter p. 4

Financial Checkup p. 5

Stephen Got Published p. 5

Festival of Lights Tickets p. 6

2014 RMD Procedures p. 6

HCM MISSION STATEMENT

We work passionately to help our clients and their families enjoy a financially independent life by providing sophisticated wealth planning solutions.

Your Partner in Financial Independence      1

The Genius of Pay Yourself FirstAnyone who has ever managed their own finances knows that saving can be a challenge. An endless stream of expenses always seem to demand a piece of each month’s paycheck. Herein lies the genius of paying yourself first: you get the cream at the top of the bucket, and not the leftovers at the bottom.

For example, what if you stepped up your savings rate from 5 percent to 10 percent of your paycheck, thus doubling the amount you save? To achieve this, all that’s required is trimming your spending from 95 percent of your paycheck to 90 percent. Perhaps the best way to achieve this would be to establish a direct deposit of a standard amount from your paycheck to a regular savings account. This automated savings approach means that the amount would already be deducted from your net check.

The trick is to prioritize. Make it a point to put your future first. At first, saving may mean a small lifestyle change. But most individuals want to see their net worth increase steadily. For them, finding ways to save becomes more of a long-term commitment than a short-term challenge.

In addition, diligent savers need smaller retirement nest eggs. If you are committed to saving, you won’t just accumulate your desired retirement portfolios more quickly, you also will need less money to retire because you are accustomed to living less expensively.

Putting Your Money to WorkWhat will you do with the money you save?

If retirement is your priority, consider taking advantage of tax-advantaged investments. Employer-sponsored retirement plans, such as 401(k)s and 403(b)s, can be a great way to save because the money comes out of your paycheck before you even see it. Also, as an added incentive, some employers offer to match a percentage of your contributions.

For money you may want to access before retirement, consider placing the funds in a separate account. When the balance hits your target, think about moving the money into investments that offer the potential for higher returns. Of course,

PaY YourselF FirsTEach month you settle down to pay bills. You pay your mortgage lender. You pay the electric company. You pay the trash collector. But do you pay yourself? One of the most basic principles of sound investing involves the simple habit of “paying yourself first,” in other words, making the first payment of each month into your savings account.

Americans’ saving patterns vary widely. And too often, short-term economic trends can interrupt long-term savings programs. As an example, the U.S. Personal Savings Rate jumped from 3.5% to nearly 8% in May 2008 during the housing and banking crisis. In economic downturns people tend to tighten their belts, lowering their spending and saving more money due to their lack of confidence in the economy. After 2008, the savings rate rose and fell sporadically as the economic environment appeared to stabilize.

(continued on page 2)

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PaY YourselF FirsT(continued from front page)this may mean exposing your money to more volatility, so you’ll want to choose vehicles that fit your risk tolerance, time horizon, and long-term goals.

Your HCM Wealth Advisor would be happy to sit down with you and discuss the various options available to you for saving and investing. In the pursuit of growing wealth, sound habits can be your most valuable asset. Develop the habit of “paying yourself first” today. The sooner you begin, the more time and potential your savings will have to grow.

The Importance of RebalancingOver time, market fluctuations will cause a proportion of assets in your portfolio to change. For example, let’s say that you determined that stock investments should represent 50% of your portfolio. In the chart below, what was once a 50% allocation to stocks one year ago now sits at 56%.

Moreover, not only does the portfolio’s allocation change, but the portfolio’s risk profile also changes, rising from 9.1% to 10.4%. If your financial goals and/or risk tolerance have not changed, your asset allocation shouldn’t either. Therefore, we would adjust the balance of your portfolio, either by selling some of your stock investments or purchasing investments from an under-weighted asset class to re-establish your original targeted asset allocation.

The Rising CosT of noT going To College

A recent study from the Pew Research Center found that on virtually every measure of economic well-being and career attainment, from personal earnings to job satisfaction, young college graduates are outperforming peers who have less education. Moreover, the findings show that when today’s young adults are compared with previous generations, the disparity in economic outcomes between college graduates and those with a high school diploma or less formal schooling has never been greater in the modern era.

Millennial college graduates between the ages of 25 and 32 who are working full time earn about $17,500 more annually than their peers who only hold a high school diploma. This pay gap was significantly smaller in previous generations.

Suddenly the cost of a college degree seems a bit more reasonable when you know the long-term effect on earning potential and general work life. If you need help planning for significant education expenses, give us a call. Our Wealth Advisors can work with you to develop the best plan for saving for your children’s and grandchildren’s educations.

Notes: Chart depicts disparity among “millennials” aged 25–32 by education level in terms of annual earnings. Annual earnings figure is the median among full-time workers, in 2012 dollars. Median annual earnings are based on earnings and work status during the calendar year prior to interview and limited to 25- to 32-year-olds who worked full time during the previous calendar year and reported positive earnings. “Full time” refers to those who usually worked at least 35 hours a week last year. The unemployment rate refers to the share of the labor force (those working or actively seeking work) who are not employed. Poverty is based on the respondent’s family income in the calendar year preceding the survey.Source: Pew Research Center tabulations of the 2013 March Current Population Survey (CPS) Integrated Public Use Micro Sample.

But why would anyone want to sell investments that have performed reasonably well in order to purchase investments that have lagged? Rebalancing is all about risk management. By rebalancing, we can ensure that your portfolio does not overemphasize one or more asset classes, and the portfolio will return to a comfortable level of risk.

At Hengehold Capital Management, we are always monitoring your portfolio and have developed a standard process to rebalance asset classes to make sure that the return and risk profiles of your portfolio remain intact.

If you’d like to discuss this article or have any other questions, please give your HCM Wealth Advisor a call or send an email. We are always happy to discuss your Financial Independence plan with you.

STOCKSBONDS

RISK 10.4%RISK 9.1%

HYPOTHETICAL CHANGE IN PORTFOLIO ALLOCATION: JULY 2013–JUNE 2014

50%

50% 56%

44%

Your Partner in Financial Independence      3

Your Mortgage?

In an uncertain market and economic environment, it pays to take advantage of all the sure things you can get. With long-term mortgage rates in the historically low single digits, locking in a fixed payment for decades may truly be a once-in-a-lifetime opportunity. Refinancing may reduce the interest you owe and save you thousands of dollars over the life of your loan. It’s a good time to investigate whether it benefits you to refinance your mortgage.

You should consider refinancing if one or more of the following applies to you:

u Your current interest rate is appreciably higher than prevailing rates. We have a “Can I Refinance My Mortgage?” calculator on our new website to help you analyze and determine if it makes sense to refinance your mortgage. (See box at bottom right for more information.)

u You plan to stay in your home for several or many more years, thereby increasing the likelihood that you’ll recoup any applicable closing costs over the life of the loan.

u You have an adjustable-rate mortgage with a currently low interest rate but plan to stay in your home for several more years and would like to lock in a relatively low fixed rate.

u You would like to switch to a shorter-term mortgage with a lower interest rate—say, you have a 30-year loan and would like to refinance to a 20-year loan. Just be sure your job is stable before increasing your monthly debt. If you’re concerned about job security, you can still refinance but instead stick with the same term and make additional payments on principal.

u You have great credit—720 or preferably even higher—and you haven’t lost your job or missed a mortgage payment since you secured the loan.

u You have a decent amount of equity in your home—ideally 20% or more. However, you

Should You

may still be able to refinance if your home is now worth about the same as your loan value or even a little bit less.

u You have the cash on hand to cover any closing costs up front. A survey conducted by bankrate.com put the average home loan’s closing costs at $2,732. By fronting the closing costs, you’re likely to be able to obtain a more favorable loan rate. Many banks offer reduced closing costs in an effort to be competitive, so be sure to research several alternative lenders for various options.

In addition to these items, you should also keep in mind that your property will need to be reappraised as part of the refinancing process. This might require you to pay private mortgage insurance (PMI). Lenders assess PMI when a loan is more than 80% of the current value of the home. If this applies to you, be sure to include the cost of PMI along with principal, interest, and escrowed real estate taxes when determining the new monthly payment.

Finally, you might have had a mortgage for many years and are seriously chipping away at the principal. If that’s the case, refinancing, and thereby extending the term of the loan, could increase the total interest you’ll pay, even if you’re able to reduce your monthly payment.

If you are unsure if refinancing is the right thing to do, feel free to give your HCM Wealth Advisor a call at 513.598.5120. We would be glad to help you evaluate your situation and the potential refinancing alternatives available to you.

Be sure to try the “Can I Refinance My Mortgage?” calculator on our new website at www.hengeholdcapital.com if you are thinking about refinancing. Click the Resources button, scroll down to Calculators, and look for it under the Lifestyle section.

Refinance

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Most people don’t spend too much time thinking about their own funeral, yet many of us have a vision about our memorial service or the handling of our remains. A letter of instructions can help your loved ones fulfill that vision and may make the task easier for them as well.

This letter of instructions is not legally binding, but it can provide your family with guidance upon your death on little things that would not necessarily go into a legal document. It can be addressed to whomever you choose, but typically letters of instructions are directed to the executor, family members, or beneficiaries.

Make a Cheat Sheet

Think of a letter of instructions as a “cheat sheet” to your estate. Here are a few ideas and concepts that may be included:

  The location of important legal documents, such as your will, insurance policies, titles to automobiles, deeds to property, etc.

  A list of financial assets, including savings and checking accounts, stocks, bonds, and retirement accounts. Be sure to include account numbers, PINs, and passwords where applicable.

  A list of pensions or profit-sharing plans, including the location of their explanatory booklets.

  The location of your latest tax return and Social Security statements.

  The location of any safe deposit boxes and their keys.

IdentIfy funeral WISheS

A letter of instructions is also a good place to leave burial or cremation wishes. You will want to let your relatives know if you’ve prepaid any of your funeral expenses, as well as giving the location of your cemetery plot deed, if you

have one. You may even wish to specify which hymns or speakers you would like included in your memorial service.

Although a letter of instructions is not legally binding, your heirs will probably be glad to know how you would like to be remembered. It also may be helpful to leave a list of contact information for people who should be notified in the event of your death.

There is no “best way” to write a letter of instructions. It can be written in your style and reflect your personality, or it can be written to simply convey information. You should decide what type of letter best fits your estate strategy.

don’t WaIt

Fifty percent of Americans with children don’t have a will, and 41% of baby boomers don’t have one. If you are one of these people, you should make arrangements to draft your will soon. Your family will thank you for taking care of this important step.

The HCM Wealth Advisors can help you with all of your estate planning needs. We can coordinate the preparation of all of the important documents you will want to have in place should they be necessary. We can recommend and coordinate the activities of the other professionals, such as estate attorneys and CPAs, who will be needed to get all the proper paperwork completed. Please give us a call at 513.598.5120 to schedule a meeting with your HCM Wealth Advisor to review your estate plan.

Put It In a letter

Tip: A letter of instructions also might include contact information for individuals who could be helpful in the distribution of your assets, such as your lawyer, your accountant, and your HCM Wealth Advisor.

Fact: If you die without a will, also called dying “intestate,” the state will decide how your assets should be distributed.

Financial Checkup

Your Partner in Financial Independence      5

Please join us in congratulating Stephen Bergman, who is part of the HCM Investment Trading and Research Department, on his recent publication. Stephen’s research project, completed as an undergraduate at The Ohio State University, was published in the August 2014 issue of the Journal of Sports Economics. Well done, Stephen!

Several times a year it makes sense to think critically about the events that have occurred in your family’s life. Some may have financial consequences that should be addressed in your family’s

wealth, tax, or estate plan. Some examples may include:

u Receiving an early retirement package u Serious medical issuesu Receive a windfall (inheritance, lottery)u Helping grown children/family members with financial trouble

u Trustees or executors who need to be replaced due to health or other reasons

In certain circumstances, these events may require an adjustment to your wealth plan. Also, your capacity to accept market risk may have changed, requiring a modification to your asset allocation.

So, if you have recently been affected by a significant event OR if you anticipate any of these events in the next few years, please call your HCM Wealth Advisor. We can get together by phone or in person to discuss your situation. In addition, we are always available to work with your Tax Professional, Attorney, or other trusted advisor.

STEPHEN GOT

PUBLISHED

u u u

The feature at right is reprinted

from The Ohio State University’s

alumni publication.

Getting Published: An Undergraduate’sHard Work Pays OffSunday, August 10

Alumnus Stephen Bergman (BS, economics, 2013), a security analyst for Hengehold Capital Management in Cincinnati, just learned that research he conducted as an undergraduate has been published in a peer- reviewed journal generally reserved for tenured professors.

“I’m honored and I’m gratified,” said Bergman on hearing the news. “I’m not sure it’s really hit me yet—maybe when I see it in print.”

In 2013, when Bergman was an undergraduate majoring in economics, he submitted a research

paper, “The Effect of Recruit Quality on College Football Team Performance,” to the Journal of Sports Economics, a top peer-reviewed journal in the field. His faculty advisor and men-tor throughout the research and writing process was Trevon Logan, associate professor of economics. The article was published in the August 2014 online version of the journal.

2014 Charitable Contributions

If you plan to make year-end charitable contributions of securities in your Schwab account, please note the

deadline below for processing the transfer.

The Letter of Authorization must be received in our office

by the following date:Gifting of Mutual Funds

& Stock:Friday, November 28, 2014

We Welcome Your ReferralsWe value your trust and confidence. We would be honored to provide our wealth management

services to those you care about, such as your friends, family, neighbors, and business associates.

O f f i c e s6116 Harrison AvenueCincinnati, Ohio 45247

4555 Lake Forest DriveCincinnati, Ohio 45242

513.598.5120877.598.5120 (toll-free)513.598.2314 (fax)

A b o u t   U s   .   .   .When you decide to work with an Advisor to help plan and prepare for your financial future, it is important to work with professionals who are willing to take the time necessary to understand your situation and help you create solutions uniquely suited to meeting your goals and objectives. Your relationship with Hengehold Capital Management LLC is managed on a full-time basis by experienced Wealth Advisors. Your Wealth Advisor is always available to answer your questions, either in person or by phone. At HCM, we provide goals-based wealth planning and investment management services using the top technology, research, and analytical skills of our investment professionals. As a fee-only Registered Investment Advisor, our loyalties are always aligned with our clients’ best interests. Our goal is to be your most trusted advisor based on integrity, knowledge, and personalized service.

This newsletter provides financial and tax information to clients and friends of Hengehold Capital Management LLC. This information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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2014 Required Minimum Distribution (RMD) Procedures The Client Services team at HCM is busy assisting Clients (age 70.5 and older)

with their Required Minimum Distributions (RMDs) that must be processed before December 31, 2014.

If you are currently taking monthly or quarterly distributions, your preferences have already been recorded and your RMD is already set up for 2014.

If you are accustomed to taking your annual RMD in a single distribution, and you have not yet taken the distribution for 2014, we will be contacting you within the next few months to schedule your 2014 RMD.

If you have questions about your RMD, please call Kathy, Diane, or Laura at 513-598-5120.

Once again, we are pleased to offer Festival of Lights tickets to all of our Clients and their Families for the 2014 Holiday Season.

New for 2014: Your 2014 Festival of Lights invitations will come to you by email this year in early November. All of the instructions for securing your tickets will be included in the email.

If you do not have an email address, we will send you a mailed invitation in early November.

2014 Festival of Lights Tickets

Welcome Sally Bankemper

to the HCM TeamWe are pleased to announce that Sally Bankemper has recently joined the HCM team as an Executive Assistant. As part of the Client Services team, Sally will work with the entire HCM team in an administrative support role. Sally has more than 25 years of administrative support experience.

In her spare time, Sally and her husband love the outdoors—camping, bike riding, hiking, and taking walks with their two dogs. Please welcome Sally to the HCM team the next time she answers the phone!