ASK THE CFP® PROFESSIONAL

What percentage of a portfolio should be in bonds?
-Janet T, Boston

Janet, each person’s situation is different and there are many factors involved. These factors may include your age, risk tolerance, assets, income, cash flow etc. However a very general rule of thumb is whatever your age is, to have that number be the minimum percentage of bonds/fixed income that you have.

What is the difference between a Financial Advisor, CERTIFIED FINANCIAL PLANNER™ professional and Certified Financial Analyst (CFA)?
-Terry W. Boston

A financial advisor is a general term for someone who renders financial services to individuals or businesses. This can involve managing investment decisions or recommending investments.

Many CERTIFIED FINANCIAL PLANNER™ professionals are financial advisors, but not all financial advisors are CERTIFIED FINANCIAL PLANNER™ professionals. . Some financial planners assess every aspect of your financial life—including saving, investments, insurance, taxes, retirement, and estate planning—and help you develop a detailed strategy or financial plan for meeting your financial goals.

A CERTIFIED FINANCIAL PLANNER™ professional is a financial planner that has met the required experience and educational specifications of the Certified Financial Planner Board of Standards. CERTIFIED FINANCIAL PLANNER™ professionals have also sworn to abide by the specified codes of ethics. They have also passed a national test which is administered by the CFP Board of Standards.

A CFA (Chartered Financial Analyst) is a professional designation that is given by the Institute of Chartered Financial Analysts. Portfolio managers or research analysts of mutual funds or hedge funds usually have the CFA designation.

I just got laid off and have credit card bills. I was thinking of taking an early withdrawal from my Traditional IRA to pay them off. Does that make sense?
-Chuck A. Sudbury, MA

Chuck, taking an early withdrawal from your Traditional IRA is generally a bad decision to make. Not only are you taking money from your retirement savings and losing tax deferred growth but you will have to pay taxes and penalties. If you do not qualify for an exception there is a 10% tax penalty and federal and local taxes taken out before you get your money.

Let’s say for instance you wanted to do an early withdrawal of $10,000 from your Traditional IRA. If your federal tax bracket was 28% and your state income tax rate was 5%, it would be $3,300 in taxes. Add that to the $1000 10% tax penalty means you are left with only $5,700.

While I understand needing to reduce your current bills, I would look for other options like a home equity line before resorting to an early withdrawal from your IRA.

How many months of living expenses do you recommend in an emergency account?
Alan C, Boston, MA

The general rule of thumb is to have 3 to 6 months of living expenses in an emergency account. However if possible, I usually recommend to have up to 1 year’s worth of living expenses, especially considering today’s job market. While this may be difficult to accumulate, make it a longer term goal and increase it a little at a time.

If you have a question or topic that you would like me to discuss in a future article please email me at mtow@newbostonfinancial.com.

CERTIFIED FINANCIAL PLANNER™, Michael Tow is President of New Boston Financial. He is a registered representative and Investment Adviser Representative of, and offers securities and advisory services through Commonwealth Financial Network- a member firm of FINRA/SIPC and a Registered Investment Adviser. He is located at 58 Harvard Street in Brookline and can be reached at 617-734-4400 or www.newbostonfinancial.com