Greetings!

We are excited to bring you the first issue of our quarterly newsletter. Our goal is to provide you with timely information about financial topics we think may interest you, our commentary on the state of the markets, and updates about Cassaday & Company and our team members.

Cassaday Commentary

Time horizon is likely the most misunderstood concept in the investment lexicon, yet investor perceptions about it are among the biggest drivers of investment policy regarding asset allocation choices and hence risk and potential return. Properly framing time horizon is an essential first step toward constructing a portfolio that reflects an investor's goals in a realistic way and can head off the behavioral and emotional mistakes that are often responsible for poor long term performance.

Time horizon is essentially the period at the end of which a sum of money will be needed. Time horizon ending points are usually marked by a terminal event where the money will be used for something. In the investment world there are four common terminal events, a large purchase such as a home, college tuition due dates, the beginning of retirement and death. These events define when money will be needed and hence form the boundaries of a time horizon. Importantly, some situations call for a terminal event type time horizon and some do not. Often more than one time horizon is at play and a blend is appropriate. Occasionally there really is no time horizon and money processes can go on in perpetuity.

College is an example of a terminal event where, for the most part, money will absolutely be needed at a specific time. As the freshman year approaches the portfolio's risk levels are reduced since it is almost certain that assets will be liquidated for college expenses. The same is true for large purchases or short term needs. As the terminal event approaches, risk levels must be reduced to assure that money is available.

Other time horizon categories for example, retirement, get to be much trickier. Many believe that as retirement approaches, portfolios need to become more conservative. However since all of the money will not be needed at one time, the terminal event approach is inappropriate. Hence a change in portfolio allocations may not be necessary as retirement approaches. When our clients retire they don't call us and say "I need my portfolio in cash next Tuesday because I am retiring". Most will incrementally take money from their portfolio after they retire, usually over decades.

Unlike college, in retirement the idea is to not exhaust the money, but rather to make it last (at least) until death while producing some cash flow to supplement other retirement income. Of course since the date of death is unknowable, rather than a horizon we have a continuum with no terminable event but instead an ongoing need for supplemental retirement cash flow. Supplemental retirement cash flow means incremental, not lump sum, withdrawals. These usually occur quarterly and usually at an annual rate of 5% or less. Assuming a balanced portfolio which should have 20 - 40% in cash, bonds and other potentially stable investments, a 5% withdrawal can be supported for years through liquidations of stable portfolio components with some support from dividends and interest. Although there is no guarantee that any income strategy can produce the desired income amount in all market environments, this has historically usually provided enough latitude for the riskier parts of the portfolio to recover from declines.

 If the investor's goal is to provide a legacy, then the investment objective is not based on the investor's situation but rather that of the investors' heirs, usually children and grandchildren. Thus, a portfolio would reflect a multi generational, therefore multi decade, time horizon. If properly organized the assets could stay invested indefinitely. Accordingly, since the money in these instances has by definition a long term time horizon, we maintain that it can be more aggressively invested. Although there can be no guarantees, more aggressive portfolios have had higher long term returns albeit with more volatility and risk.

But what about death, is that a terminal event? Although death is a terminal event for the decedent it is not for the portfolio. Death does not necessarily mandate a liquidation of assets and therefore should not be a time horizon marker for most investors. When older investors say, "At my age I need to be conservative because I won't have time to make up the losses", our reply is that as long as you do not need all of the money at any given point, including at death, a well diversified portfolio should be able to meet normal cash flow demands for the duration of a typical retirement.

Time horizon is indeed a key variable in financial planning. A proper understanding and application of the concept can help investors avoid the "one size fits all" mistake when thinking about their time horizon.

Editor's Note: Stephan Cassaday is a regular contributor to the Washington Business Journal.  This article appeared in the September 30, 2011 issue. 

Hot Topic: Long-Term Care

1. What is long-term care?

Long-term care refers to the ongoing services and support needed by people who have chronic health conditions or disabilities. There are three levels of long-term care:

•  Skilled care: Generally round-the-clock care that's given by professional health care providers such as nurses, therapists, or aides under a doctor's supervision.
• Intermediate care: Also provided by professional health care providers but on a less frequent basis than skilled care.
• Custodial care: Personal care that's often given by family caregivers, nurses' aides, or home health workers who provide assistance with what are called "activities of daily living" such as bathing, eating, and dressing.

Long-term care is not just provided in nursing homes--in fact, the most common type of long-term care is home-based care. Long-term care services may also be provided in a variety of other settings, such as assisted living facilities and adult day care centers.

2. Why is it important to plan for long-term care?

No one expects to need long-term care, but it's important to plan for it nonetheless. Here are two important reasons why:

The odds of needing long-term care are high:

• Approximately 40% of people will need long-term care at some point during their lifetimes after reaching age 65*
• Approximately 14% of people age 71 and older have Alzheimer's disease, a disorder that often leads to the need for nursing home care**
• Younger people may need long-term care too, as a result of a disabling accident or illness

 The cost of long-term care is rising.  Currently, the average annual cost of a 1-year nursing home stay is $72,270* and in many states the cost is much higher. In the future, long-term care is likely to be even more expensive. If costs rise at just 3% a year (a conservative estimate), in 20 years, a 1-year nursing home stay will cost approximately $130,528.

3. Doesn't Medicare pay for long-term care?

Many people mistakenly believe that Medicare, the federal health insurance program for older Americans, will pay for long-term care. But Medicare provides only limited coverage for long-term care services such as skilled nursing care or physical therapy. And although Medicare provides some home health care benefits, it doesn't cover custodial care, the type of care older individuals most often need.

Medicaid, which is often confused with Medicare, is the joint federal-state program that two-thirds of nursing home residents currently rely on to pay some of their long-term care expenses. But to qualify for Medicaid, you must have limited income and assets, and although Medicaid generally covers nursing home care, it provides only limited coverage for home health care in certain states.

4. Can't I pay for care out of pocket?

The major advantage to using income, savings, investments, and assets (such as your home) to pay for long-term care is that you have the most control over where and how you receive care. But because the cost of long-term care is high, you may have trouble affording extended care if you need it.

5. Should I buy long-term care insurance?

Like other types of insurance, long-term care insurance protects you against a specific financial risk--in this case, the chance that long-term care will cost more than you can afford. In exchange for your premium payments, the insurance company promises to cover part of your future long-term care costs. Long-term care insurance can help you preserve your assets and guarantee that you'll have access to a range of care options. However, it can be expensive, so before you purchase a policy, make sure you can afford the premiums both now and in the future.

The cost of a long-term care policy depends primarily on your age (in general, the younger you are when you purchase a policy, the lower your premium will be), but it also depends on the benefits you choose. If you decide to purchase long-term care insurance, here are some of the key features to consider:

• Benefit amount: The daily benefit amount is the maximum your policy will pay for your care each day, and generally ranges from $50 to $350.
• Benefit period: The length of time your policy will pay benefits (e.g., 2 years, 4 years, lifetime).
• Elimination period: The number of days you must pay for your own care before the policy begins paying benefits (e.g., 20 days, 90 days).
• Types of facilities included: Many policies cover care in a variety of settings including your own home, assisted living facilities, adult day care centers, and nursing homes.
• Inflation protection: With inflation protection, your benefit will increase by a certain percentage each year. It's an optional feature available at additional cost, but having it will enable your coverage to keep pace with rising prices.

Your insurance agent or a financial professional can help you compare long-term care insurance policies and answer any questions you may have.

*National Clearinghouse for Long-Term Care Information, U.S. Department of Health and Human Services, 2009

**Alzheimer's Association, 2010

Disclosure Information -- Important -- Please Review
Forefield Inc. does not provide legal, tax, or investment advice. All content provided by Forefield is protected by copyright. Forefield is not responsible for any modifications made to its materials, or for the accuracy of information provided by other sources.  

What's New @ Cassaday

RIABiz Article: "How a top Royal Alliance advisor is selling his practice to young staffers" 

By: Steve Garmhausen 

First Steve Cassaday cloned himself then he began executing his succession plan...

In April, advisory-firm owner Steve Cassaday and three of his veteran employees signed off on a deal that helps pave the way for the younger men to one day take control of the firm, Cassaday & Company. 

Click Here to read the rest of this RIABiz article to learn more about Steve's succession plan and Cassaday's new co-owners.

New Hires: Cassaday & Company is growing!  Please join us in welcoming our newest employees.

Alex Karkeek and Christina Miller are our newest Research Associates.  They are recent college graduates from a certain South- Western Virginia University.  Both had their eyes on their future when they approached Steve after he spoke on Radford University's campus last year.  What can we say? We love their determination and enthusiasm!  Alex is originally from 'across the pond,' and Christina grew up in Texas.  Both are learning a lot in the 'big city' now.

Chris Miller joined us in March as our new Director of Financial Planning.   Chris is responsible for high-level financial planning analysis and the training and development of Cassaday's future generation of financial planners.  He is responsible for managing the Financial Planning department and he will be assisting with special projects such as industry product and software research.  Chris originally hails from Chicago and finds amusement in how the Metro DC area responds to a little bit of snow each winter!

Amera Ellmore is the newest member of our Client Service department.  She assists Linda and Ann with daily client relations activities.  Amera started at Cassaday as an intern last year and we are happy to have her with us as a full-time employee.  She will have her hands full in the coming year as she looks to also obtain her Master's in Business Administration.

Many of you may have heard that Lisa, Steve's prior executive assistant moved back South to be closer to her family; we have been lucky to replace her with Lori Triplett.  Lori has 11 years of experience with USA Today. 

Kara Mauceri is Cassaday's new Marketing Coordinator.  She is a seasoned marketing professional and is responsible for providing marketing, event planning and public relations support to the firm's investment advisors.   She will also take an active role in enhancing the client experience.  Besides her work at Cassaday, Kara has two little girls that keep her busy!  

Great Question from a Client

Please feel free to this newsletter to someone special in your life who could benefit from objective investment management advice.  At Cassaday, we are never too busy to be a resource for you, a family member, friend or colleague.  

Thank you,

Stephan Quinn Cassaday, CFP®, CFS  

8180 Greensboro Drive, Suite 1180

McLean, VA 22102

703-506-8200 or 800 672 2102 

www.cassaday.com

Securities offered through Royal Alliance Associates, member FINRA/SIPC. Investment advisory and insurance services offered through Cassaday and Company, a registered investment adviser not affiliated with Royal Alliance Associates.

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Awards and Recognition 

Advisor Spotlight: 

Stephan Cassaday 

* Cassaday & Company's President and CEO

* Over 33 years of experience in the financial industry

* Married to his wife, Mary, for 28 years

* Proud father to 3 sons: Chad, Kyle, and Chris