Objective information about financial planning, investments, and retirement plans

How Confident Are You About Retirement?

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Retirement Paradise

The Employee Benefit Research Institute (EBRI) recently published their annual Retirement Confidence Survey.  A few highlights from the survey:

  • The number of workers who say they are confident that they will have enough money to live comfortably in retirement improved to 18% from 13% in the prior survey.
  • The percentage of retirees indicating that they were very confident that they would have enough money to live comfortably in retirement jumped from 18% to 28%.
  • Workers having money in a retirement plan such as an IRA, 401(k), or pension were more than twice as confident that they would have enough money in retirement (24% vs. 9%) than those not participating in a retirement plan of some sort.
  • Worker confidence decreased with higher levels of debt.
  • Worker confidence was higher among workers with higher levels of income. 

Surveys and overall statistics are great, but the reality is that your level of retirement confidence should be driven by your level of retirement readiness.

Retirement readiness questions 

In assessing your level of retirement readiness, ask yourself these questions:

  • How much do I have saved for retirement?
  • How much am I saving each year for retirement?
  • How much will I need to have accumulated by the time I retire to ensure a comfortable retirement?
  • How much will I spend annually in retirement?
  • What resources will I have available to fund retirement other than my nest egg?  This would include items such as a pension and Social Security. 

The impact of debt

According to the survey those workers carrying high debt loads were less confident about their ability to accumulate enough money for a comfortable retirement than those workers with more modest levels of debt.  This is no surprise in that money that goes to service your debts is money that cannot be saved and invested for retirement.

Once you are retired excess debt payments can be a real burden for those on a fixed or semi-fixed income which is a high percentage of retirees.  If the debt, such as a mortgage, is at a manageable level given your retirement cash flow, that’s fine.

What can you do to boost retirement confidence? 

There are any number of things you can do to boost your retirement readiness and your retirement confidence level.  Here are a few:

  • Manage your spending and make cuts where possible.
  • Take full advantage of your 401(k) plan or other workplace retirement plan.
  • Start and fund a self-employed retirement plan if you are self-employed.
  • Manage all of your old retirement plans as well as those of your spouse as part of your overall portfolio.  Consider an IRA to consolidate several old plans in one place.
  • Get a financial plan in place to assess where you stand and to determine any shortfalls regarding where you need to be.  Tools such as the calculator at the end of this post can help as well. 

If it looks like you might come up short relative to being able to fund your desired lifestyle you have some choices to make:

  • Delay retirement or plan to work at least part-time during retirement.
  • Ramp up you savings now.
  • Revise your planned standard of living in retirement. 

In a prior post on this blog Is a $100,000 a Year Retirement Doable? I worked through the math of a hypothetical retiree.  This methodology might be helpful to you as well.

You may or may not like the answer you get when you do the planning and the math for your retirement but at least you will know where you stand.  Knowing where you stand is powerful and can go a long way to improving your confidence about your retirement.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss  all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. Click on the Amazon banner below to go directly to the main site or check out the selections in our Book Store.

 

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Time Well Spent: Choosing an IRA or a Restaurant?

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Actually both can be a good use of your time in the right amount.  Living near a major city like Chicago, the dining choices are innumerable.  The worst that can happen is you have a bad meal should you choose the wrong restaurant.  Contrast this with choosing the wrong place for your IRA account and/or the wrong investments and you may end up with less in retirement than you had hoped for.

According to a recent survey by TIAA-CREF:

  •  Americans are more likely to spend two hours selecting a restaurant for a special occasion (25 percent), buying a flat screen TV (21 percent) or tablet computer (16 percent) than on planning an IRA investment (15 percent).
  • Fewer than one in five (17 percent) Americans are contributing to an IRA – a decline from 22 percent in 2012 – potentially missing tax and savings benefits.
  • What’s more, fewer than half (47 percent) of those not contributing say they would consider an IRA, down from 57 percent in 2013.
  • Even among those who already have an IRA, more than half (55 percent) said they spent an hour or less planning for the investment.

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According to the TIAA-CREF survey:

“An IRA can be an incredibly powerful savings tool that can boost retirement security and offer immediate tax and savings benefits. IRAs can also serve as a valuable supplement to an employer-sponsored plan and help fund a first home or education,” said Doug Chittenden, Executive Vice President, Individual Business at TIAA-CREF. 

Despite these benefits, the survey found that fewer than one in five (17 percent) of those surveyed currently contribute to an IRA, a decline from 22 percent in 2012. 

The survey reveals that the number of Americans who would consider an IRA as part of their retirement strategy has fallen sharply since 2013. Fewer than half (47 percent) of those not contributing say they would consider an IRA, down from 57 percent in 2013. 

It is possible that a lack of understanding is responsible for low IRA contribution levels. More than one-third (35 percent) of respondents do not understand what an IRA is or the difference between an IRA and an employer-sponsored plan. This percentage is even higher among the Generation Y (age 18-34) population surveyed (45 percent). 

“More and more people are unaware of the ultimate value an IRA can have in a building a stable and secure retirement,” said Chittenden. “Americans today bear much more responsibility for their retirement savings than previous generations did. There is a pressing need to educate Americans from all age groups and income levels on the long-term retirement benefits that IRAs provide through compounded investment growth and tax savings.” 

Even among those who already have an IRA, more than half (55 percent) said they spent an hour or less planning for the investment. 

Sixty percent of those who are contributing to an IRA also have an employer-sponsored plan such as a 401(k) or 403(b). Among those with both plans, more than half (53 percent) say they contribute to their IRA regardless of whether they have reached the contribution or matching limit of their employer-sponsored plan. This means they could be leaving money on the table if they are diverting money to their IRA before contributing enough to get their employer match. 

How does an IRA fit with my retirement planning strategy? 

TIAA-CREF is absolutely right in that an IRA can be a great tool in your retirement planning strategy.  If someone has access to a 401(k) or similar workplace retirement plan I generally suggest they contribute at least enough to capture any employer match offered.  This is true even if their 401(k) plan is lousy.

Beyond that it makes sense to contribute more than the amount needed to receive the match if your employer’s plan offers a menu of low cost solid investment choices.  Although 401(k) plans receive a lot of bad press, in fact there are many excellent plans out there.  One advantage to investing for retirement via a workplace retirement plan is the salary deferral feature.  This makes regular savings and retirement investing painless.

An IRA can be a great retirement savings vehicle in a number of situations:

  • You don’t have access to a retirement plan via your employer.
  • You have maxed out your contributions to your 401(k) and want to make additional retirement contributions.
  • You are a non-working spouse and your working spouse makes at least income to cover the amount of your contribution.
  • You are self-employed.  Note there are a number of retirement plan options for the self-employed including a Solo 401(k) and SEP-IRA.
  • You are looking to roll over your 401(k) after leaving a job and also possibly to consolidate several old 401(k) plans in one place to make managing these assets a bit easier. 

Considerations in choosing an IRA account 

In a recent post on this blog 3 Considerations When Opening an IRA Account I suggested the following things to consider when opening an IRA account:

When looking at the cost of an account at a particular custodian consider any annual account fees and transaction costs related to the types of investments you are likely to make.  For example:

  • How much is it to trade stocks, closed-end funds, ETFs or other exchange-traded vehicles?
  • Does this custodian offer a large number of mutual funds on a no transaction fee (NTF) basis? 

While researching a good restaurant can take some time and potentially yield some tasty rewards, time spent on finding the right IRA and on retirement planning in general can pay off handsomely down the road.  This can lead to many fine restaurant meals as well.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss  all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. Click on the Amazon banner below to go directly to the main site or check out the selections in our Book Store.

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Is Fear the Ultimate Financial Sales Tool?

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If you are like me you may have noticed a preponderance of TV and radio ads where fear is used to pitch various financial products.  If seems that these are overwhelmingly from providers of products such as annuities, insurance or other commissioned financial and investment products.   Recently I heard commercial for a variation of the insurance product called Be Your Own Banker.  Their pitch was the inevitability of a 50% loss in the stock market.  Really, come on.

Fear Is the Mindkiller

My personal pet peeve is that far too often these fear mongers seem to target seniors afraid of losing their nest eggs.

Should fear be a financial motivator? 

Ameriprise has been running a commercial asking folks if they would outlive their money in retirement.  A valid question and one in part based upon fear.

In fact many folks in their 50s or 60s looking for financial planning help as they approach retirement are asking this question.  Whether it’s fear-based or born out of a desire to be prepared it is a good lead-in to the financial planning process for folks in this age range.

On the other hand scaring people, especially seniors, into purchasing a financial product that may or may not be right for them strikes me as sleazy.

In a prior post on this blog, 5 Steps to a Lousy Retirement, I listed making financial decisions based on emotions as one of the steps to take on the road to a lousy retirement.  This especially true when you are being sold annuities or insurance products because so many of them come with onerous surrender charges meaning that it will cost you dearly to move your money elsewhere over the first 5-10 years of ownership.

Planning should precede the sale of financial products 

The logic, other than the desire to earn a sales commission, of pitching a financial product instead of a financial plan to a client escapes me.  In my world a financial planning strategy generally comes first, the implementation of that strategy including the use of appropriate financial products comes afterwards.

Inflation vs. investment loss 

Many of these fear-based product pitches cropped up in the wake of the financial crisis of 2008-09 and the corresponding drop in the stock market.

In my opinion, however, retirees should fear the impact of inflation on their purchasing power vs. losing money in the stock market.  Even a relatively benign 3% inflation rate will cut your purchasing power in half over a 24 year period.

Yes the stock market was hammered in 2008 and if you use the SD&P 500 as a benchmark the market gained very little during the decade 2000-2009.  However a diversified portfolio did reasonably well even during this “lost decade.”

Ask questions and do your homework  

Many successful financial sales types are very personable individuals.  In some cases the sales person might be your neighbor, a member of your church, or a fellow member of the local Rotary club.  This shouldn’t disqualify them as an advisor, however you should also be prepared to scrutinize their credentials and the products they may be trying to sell you with the same tough standards that you would hopefully apply to a stranger in the same situation.

As an example, with the Be Your Own Banker (or any of its variations) sales pitch that I mentioned at the outset, you need to dig very deep before writing a check for this type of insurance policy.  I went to the site and found much of the presentation confusing and found little or no information about the associated policy costs and expenses.

Whether an insurance policy, an annuity, or commissioned investment products you need to ask many, many questions of the agent/registered rep.

  • At the very least understand ALL associated fees, expenses, and restrictions on moving your money.
  • How does this individual get paid?
  • With an insurance related product how solid is the company behind the policy or annuity contract?  

Fear must be a very effective tool in selling financial products, otherwise we would not see so many fear-based product pitches.  Don’t fall for this type of sales pitch.  The only financial products that you should consider are those that are right for your situation, not those that you are scared into buying.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss  all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. Click on the Amazon banner below to go directly to the main site or check out the selections in our Book Store.

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Retirement: Will You Outlive Your Money?

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If you’ve been watching the Olympics, you may have noticed several new Ameriprise Financial commercials with their star pitchman Tommy Lee Jones.  One commercial asks the question on the mind of many folks looking to retire:  

retirement

This isn’t about whether Ameriprise Financial is the right firm to help you answer this vital question.  Rather I wanted to discuss some of the factors that will go into the answering this question from the perspective of someone looking to retire.

Your resources 

A good first step is to determine your resources to generate spendable cash once you retire.  Depending upon your situation these may include some or all of the following:

  • 401(k) or similar retirement plan such as a 401(b) or other defined contribution plan.
  • IRA accounts, both traditional and Roth.
  • A pension.
  • Stock options or restricted stock units.
  • Social Security
  • Taxable investment accounts.
  • Cash, savings accounts, CDs, etc.
  • Annuities
  • Cash value in a life insurance policy
  • Inheritance
  • Interest in a business
  • Real estate
  • Any income from working into retirement  

The list above is not exhaustive and you may have other assets or sources of income that you will be able to tap in retirement.

How much have you accumulated? 

This is an important question at all ages for those saving for retirement.  It is critical the closer you are to retirement and this is certainly true if you are within 10 years or less of retirement.

How much will you spend in retirement? 

While this might vary over the course of your retirement you need to take a stab at a spending plan for retirement if you are close to retirement.  Some of the issues to consider:

  • Where will you live?
  • Will you have a mortgage or other debts as you enter retirement?
  • What types of activities will you engage in?
  • What are your costs for medical insurance and medical care?
  • Will you need to provide support for children?  Grandchildren?  Aging parents?
  • What will your basic living expenses entail?  

These questions just scratch the surface, but I think you get the idea.  One other point to remember is that you might spend more on travel and activities in the earlier part of your retirement and less as you age.  However, any savings here might be offset by increased costs for medical care.

Another approach is to figure out what level of expenditure your savings and other resources will support and either work backwards to a budget within that spending level, try to ramp up your retirement savings to close the gap, or perhaps plan to work a few years longer before retiring.  This can be done using the retirement calculator tool below or any number of retirement planning calculators available online.  With any such tool it is important that you pay attention to the assumptions inherent in the calculator’s model and that you think through any assumptions that you are allowed to input.

A qualified financial planner can help you through this process and this is a key element in a financial plan.

Whatever route you take the issue of outliving your money in retirement is a vital one for you to address.  In my opinion this is the biggest risk retiree’s face and is a biggest risk than losing money in the next market downturn.

Please check out our Book Store for books on financial planning and retirement as well as any Amazon shopping needs you may have.  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss  all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.

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The Super Bowl and Your Investments

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Lombardi Trophy - Super Bowl XXXI

It’s Super Bowl time and once again my beloved Packers are not playing.  At least they beat the hated Bears to make the playoffs.  Every year the Super Bowl Indicator is resurrected as a forecasting tool for the stock market.

This indicator says that a win by a team from the old pre-merger NFL is bullish for the stock market, while a win by a team from the old AFL is a bad sign for the markets.  Looking at this year’s game, Denver is an original AFL team while Seattle is neither.  The Seahawks came into existence in the 1970s (post-merger) first as an NFC team, then moved to the AFC, and are now back in the NFC.  To me this disqualifies them from this “scientific” prognostication tool but what do I know?

According to a recent Wall Street Journal article the indicator seems to work around 70% of the  time mostly because old NFL teams (which include the Steelers, Colts, and Ravens) have won a majority of the time (there is a 70% probability of this according to the WSJ article).  A notable exception occurred when the Broncos won in 1998 and 1999 and the stock market went up both years.

What should you do?

My suggestion is to enjoy the game, the halftime show, the commercials, and eat plenty of unhealthy food.

As far as your investments, I think you’ll agree that the outcome of the game should not dictate your strategy.  Rather I suggest an investment strategy that incorporates some basic blocking and tackling:

  • A financial plan should be the basis of your strategy.  Any investment strategy that does not incorporate your goals, time horizon, and risk tolerance is a bit flawed.
  • Take stock of where you are.  Have the strong stock market of 2013 and the almost five year rally since March of 2009 caused your portfolio to be over weight in equities?   If so perhaps it’s time to rebalance.
  • Costs matter.  Low cost index mutual funds and ETFs can be great core holdings.  Solid, well-managed active funds can also contribute to a well-diversified portfolio.  In all cases make sure you are in the lowest cost share classes available to you.
  • View all accounts as part of a total portfolio.  This means IRAs, your 401(k), taxable accounts, mutual funds, individual stocks and bonds, etc.  Each individual holding should serve a purpose in terms of your overall strategy.  

As far as the game, it should be a good one.  I suspect we will root for Seattle only because of Pete Carroll (we are USC fans and the proud parents of a 2010 USC grad).  On the other hand how can you not like Peyton Manning?

How has the Super Bowl Indicator done?

Going back to the game played in 2000 (following the 1999 season) the Super Bowl Indicator has been right 8 times, wrong 5 times, with one that I would call not applicable.  The 2003 game saw Tampa Bay an NFC team that came into existence post-merger won and the market (defined as the S&P 500 for this analysis) did go up so I will leave it to you be the judge on this one.

Notable misses during this time period:

  • St. Louis (an old NFL team) won in 2000 and the market dropped.
  • Baltimore (an old NFL team that was formerly the original Cleveland Browns) won in 2001 and the market dropped.
  • The New York Giants (an old NFL team) won in 2008 and the market tanked in what was the start of the recent financial crisis.

The Super Bowl Indicator is another fun piece of Super Bowl hype.  Your investment strategy should be guided by a financial plan, not the outcome of a football game.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your financial planning and investing questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

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Six Things Your Divorce Attorney May Not Tell You

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This post was written by fee-only financial advisor Michelle Fait.

You may think coming to terms in your settlement puts the work of your divorce behind you.   The good news is, for the most part that’s true.  But before you pay that final invoice to your attorney, make sure you cover the following issues.  Your divorce attorney is trained in family law and the drafting of documents, but may not be as savvy in making sure those paper promises in your settlement are implemented, and that can put a bump in your path to a new life.

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You May Not Be Able to Cancel Your Own Credit Card

If you are the secondary person (your name is listed second) on a joint credit card, the credit card company may not recognize your authority to close the account, even though you would be liable for any charges to it.  Make sure your attorney arranges for your ex-spouse to contact the credit card issuer to close your joint account, and ask for written verification of its closure.

Your Divorce May Not Trigger COBRA Eligibility

If you are expecting to be eligible for COBRA after your divorce, your ex-spouse’s benefits department will have to acknowledge that you are terminated from their plan. Unfortunately, you may not be able to do this directly.  Have your attorney ensure that your ex-spouse terminates you from the employer’s health care plan if you intend to move to COBRA, and coordinate this termination with your new coverage. Otherwise, you may have to appeal to the state authority and could risk losing your eligibility.

The Small Stuff Might Be Big

All those times work interfered with vacations or holidays?  All those business trips?  Your spouse may have a valuable stash of frequent flyer miles and vacation pay that should factor into your financial settlement.  Ask for an accounting of this information from the employer for accumulated vacation pay, and of your spouse for information on any frequent flyer accounts.

Here are Your Assets – Would You Like a Tax Bill With That? 

Especially with a rising stock market, you may be awarded assets that have an unrealized capital gain.  When sold, these assets could trigger a nasty tax bill for which you alone will be responsible. Your attorney might not assess your assets keeping in mind any tax liability that goes with them.  Consult with a CPA or other tax professional to calculate the after-tax value of any non-retirement assets you are splitting with your ex-spouse.

Filing a Joint Tax Return May Save You Tax But Cost You Anyway

Filing a joint return will almost always be more beneficial from a tax standpoint than filing separately.  But first make sure you are comfortable that all information has been disclosed.  You may not have knowledge now of any information that leads to an audit and/or tax bill and penalties later on, but you will be responsible for it nonetheless by signing a joint return.  In addition, be sure to ask for half of any refund or otherwise ask for consideration in exchange for the benefit of filing jointly. 

You May Not Have All the Facts

If you suspect your soon-to-be former spouse has not been forthright in disclosing information, have your attorney demand a credit report to check on any and all accounts that your spouse may have.  Follow-up with a request for statements for any accounts you don’t recognize.

Divorce is a difficult process at best.  But don’t be surprised by what your divorce attorney may not tell you – or know.  Their main responsibility is helping you through the legal maze of divorce.  Tax advice, health care insurance eligibility, and even estate work may not be their purview, but issues in these areas will impact your settlement and you must be vigilant in seeking the right expertise.

Michelle A. Fait, MBA, CFP®, EA founded Satori Financial LLC in 2001.  Michelle is a CERTIFIED FINANCIAL PLANNERTM professional (CFP®) with expertise in investments and tax.  She holds an MBA in Finance from Yale University, a bachelor’s degree in Economics from U.C. Berkeley, and is an IRS Enrolled Agent.  Her experience includes work as an investment banker in New York and Seattle for a major broker-dealer, and work for two start-up companies.   Immediately prior to founding Satori, she served as Treasury Manager for Starbucks Coffee Company, where she was responsible for cash and investment management and financial risk management. 

Satori Financial LLC is a boutique fee-only financial advisory firm that works with clients who want a partner to help them organize, simplify, and manage their financial lives in today’s chaotic world. Satori focuses its work on the planning needs of clients who are single, whether by choice or by chance, particularly those beginning again after divorce, and working professionals who want to outsource help with their financial lives.  Michelle is happily divorced and living in San Francisco.  You can reach Michelle at (206) 320-9263 and michelle@satorifin.com. You can follow Satori on FaceBook, its blog Eyes Wide Open, and Michelle’s crazy single life (along with the occasional tax tidbit) on Twitter: @michellefait

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your financial planning and investing questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

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My Fearless 2014 Investing Forecast

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With the start of a new year, there is no shortage of forecasts about almost everything under the sun.  Forecasts about the economy and the financial markets abound throughout the financial news media and on the various cable financial news shows.  Here is my fearless and guaranteed to be accurate 2014 stock market forecast.

English: Dartboard with darts. Suomi: Tikkataulu.

As the top financial officer of one of my retirement plan sponsor clients predicts at the start of each year, I can say with 100% confidence that the stock market as a whole and the various market benchmarks will finish 2014 either higher, lower, or unchanged when compared with the levels at the end of 2013.

Further I will make the same prediction for your overall portfolio and for each of the individual investments you hold including mutual funds, ETFs, individual stocks, bonds, closed-end funds, and all other investment vehicles.

Forecasts are fun, but at the end of the day the performance of the financial markets and your individual holdings is beyond your control.  While the details underlying some of these forecasts are worth reading, as investors we need to focus on the factors that we can control versus worrying about what the market will or won’t do.

Investment expenses 

Morningstar, the PBS Frontline program The Retirement Gamble, and many other sources have highlighted the negative impact that high cost investments can have on your returns and the amount you accumulate for retirement and other goals.

Investment expenses can include:

  • Expense ratios on mutual funds, ETFs, closed-end funds, and variable annuities.
  • Transaction costs to buy or sell investment vehicles, this also includes front and back-end sales charges on mutual funds and annuities.
  • Expenses for investment advice.

Like anything else you want to keep these expenses as reasonable as possible and be sure that you are receiving appropriate value for any expenses incurred.

Portfolio risk 

While many of the pundits are saying stocks are undervalued, with the Dow, the S&P 500, and other market benchmarks at or near record highs the markets are inherently more risky.

For example the S&P 500 had its best year since 1997.  Even after big gains in 1997 the index had solid years in 1998 and 1998 before the Dot Com bubble and subsequent decline from mid 2000 thru most of 2002.  The markets may well continue on this pace in 2014 and beyond, but at some point we will see a correction.  Don’t become overconfident or complacent.

A good way to keep portfolio risk in check is to periodically rebalance your portfolio.  This is very important in a rising market like this one where your equity allocation can quickly exceed your desired allocation.

Along these same lines make sure that your portfolio is diversified.  This does not mean owning a large number of individual holdings but rather having some portfolio holdings whose performance is not closely correlated to the rest of portfolio.

Invest with a plan in mind 

Perhaps the most important investing element under your control is having a financial plan in place.  My biggest beef with “financial advisors” who focus on selling financial products is that they seem to lead with a sales pitch rather than with a financial plan.

Regular readers of this blog know that I am an advocate of an investing strategy that is an outgrowth of your financial plan.  I view investing as a vehicle to achieve your financial and life goals such as funding college for your kids and retirement.  How can you invest in a fashion that supports your goals and is appropriate for your time frame to achieve these goals and your risk tolerance without a financial plan in place?

A look at some famous market forecasters 

As long as I can remember there have been people forecasting what will happen in the financial markets.  Here are a few of the more colorful and noteworthy of this group:

Joe Granville was a well-known market forecaster of the 1970s, 1980s, and 1990s.  He published a popular newsletter, The Granville Market Letter, which had a notoriously poor track record.  He was also quite entertaining.  I had the occasion to see his “show” circa 1980 or ’81 as a graduate student at Milwaukee’s Marquette University.  All I recall is Granville playing the piano in his suit and boxer shorts on stage at a local movie theater.  Mr. Granville died in 2013, rest in peace Joe.  Check out this excellent piece about Granville by Mark Hulbert on Market Watch Four lessons Joe Granville taught us.

Elaine Garzarelli was an analyst with Shearson Lehman when she successfully called the 1987 market crash.  She was subsequently fired from the firm in the mid 90s after the firm cited the high cost of her research operation.  Ms. Garzerelli was a top-notch research analyst who became a bit of celebrity, even serving as a pitchwoman for pantyhose in a TV commercial.  Her call on the markets in 1987 is what launched her career and she is a true “one hit wonder.”

Meredith Whitney made a famous call about impending doom and gloom in the municipal bond market in an interview with 60 Minutes in late 2010.  Guess what, outside of the Detroit bankruptcy her prediction was pretty much a bust.  This hasn’t stopped the likes of CNBC from featuring here as a frequent guest expert. Barry Ritholz summed it up very nicely in this post Meredith Whitney, 2011 Winner, Elaine Garzarelli One-Hit Wonder Award on his excellent blog The Big Picture.

I’m not dismissing market forecasts out of hand; much of the research and analysis behind these forecasts is interesting and valuable to investors.  However at the end of the day investing is about you, your goals, and your tolerance for risk.  Control the factors that you can control and don’t lose a lot of sleep worrying about the factors you can’t control.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your financial planning and investing questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

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Meaningful Family Conversations for the Holidays

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This post was written by fellow NAPFA-Registered fee-only financial advisor Megan Rindskopf.

With Christmas less than a week away and the streets abuzz with holiday spirit, it is easy to get consumed by the busyness of the holidays. We encourage you this season, amidst the shopping shuffle and the corporate holiday parties, to pause. Take time this year to reflect on the people and the relationships that are most important to you.

Diabetes365 Day 48 November 24 - The family

Every family is different and there is no one-size-fits-all solution to a family’s situation – whether family members are estranged or everyone is “thick as thieves,” take the opportunity this year to have meaningful conversations with your loved ones. Reflect on memories – appreciate the tough moments that have made your relationships stronger and be grateful for the memories that make you laugh. Most importantly though, share your thoughts and feelings with the ones you love, because we never know how short life might be.

As you enjoy the company of family and friends during the holidays, pause for a moment to consider the following: 

If something happens to me, will my loved ones be taken care of?

While this thought may seem a bit morbid around the holidays, in reality, what better time than when we are surrounded by family and friends to remind us to have the appropriate insurance coverage in place to protect the ones we care about most.

If you or your spouse become disabled, do you have the right coverage(s) in place to make sure you can still support your family? Retirement, college and other savings goals become much more difficult to accomplish when your income stream is greatly reduced or eliminated entirely.  Proper disability insurance can help supplement the loss of income associated with a long term disability. My colleague Cheryl Sherrard was recently quoted in Financial Planning Magazine regarding group disability insurance. Click here to read the article (free registration may be required).

If you or your spouse become ill and needs skilled nursing care, do you have Long Term Care insurance or adequate additional resources in place to cover in-home care or a skilled nursing facility?  Equally as important – have you had those conversations with your family members so they know what type of care you desire in the event a long term care need arises? It is important to have these discussions before an issue arises.

If you or your spouse passes away unexpectedly, do you have the right life insurance in place to support your family? Depending on your family and financial situation, you may or may not need life insurance coverage. It is important to understand both the amount and type of life insurance you need, in order to assess whether any adjustment is necessary. Work with a financial professional who knows you and thoroughly understands your needs and your goals when assessing your family’s needs.

Do I have current estate planning documents and have I communicated my wishes to my family?

It is imperative to have the essential legal documents in place to protect against the unexpected. In order to avoid family turmoil once you are no longer living, it is also helpful if you have discussed your wishes with the friends and family members involved. While these conversations can be difficult to initiate, they can bring clarity to a situation and help reduce family conflict once you are gone. If the conversations are too difficult to have, a hand-written letter or video can accompany the Last Will and Testament explaining your decisions.

If you are unsure if your documents are still adequate, consult your estate planning attorney to see if you need to establish new estate documents or update your existing documents.

The holidays present opportunities for family members to spend quality time together and create lasting memories. Show your gratitude this season by making sure your loved ones are properly protected financially and by having open, honest conversations with your family members before issues arise. Being proactive for the benefit of those you love is the best gift you can give this season.

Megan Rindskopf is a Financial Advisor for Clearview Wealth Management in Charlotte, NC. As a NAPFA-Registered Financial Advisor and CERTIFIED FINANCIAL PLANNER™ professional, Megan helps individuals and families reach their goals through a holistic and customized approach to financial planning. Much of her time is spent helping young, high earning professionals prioritize competing demands so that they may successfully achieve financial clarity and independence, along with a healthy work-life balance for the long term. Clearview Wealth Management is an independent, fee-only Registered Investment Advisor firm that cares deeply about each relationship and is committed to lifelong partnerships with clients and their successive generations. Megan can be reached at mrindskopf@cvwmgmt.com, or connect with her on LinkedIn. If you would like to learn more about Clearview Wealth Management and the people they work with, check out their website at www.clearviewwealthmgmt.com 

Thanks to Megan and her firm for these excellent thoughts and tips for addressing these difficult issues.

As always please feel free to contact me  at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.  

Photo credit:  Flickr

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New Stock Market Highs: It’s Different This Time Right?

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Dow Jones (19-Jul-1987 through 19-Jan-1988).

It seems like every time we hit new highs in the stock market, the pundits tell us that somehow it’s different this time.  In 1999 we didn’t need to worry that many of the high-flying tech stocks had no balance sheet or even a viable business plan behind the company.  We all remember how that turned out.

In 2007 Wall Street couldn’t securitize questionable mortgages fast enough.  Mortgages and real estate were very secure investments.  Again we recall how that turned out.

This year the markets are again reaching record highs.  Both the Dow Jones Industrial Average and the S&P 500 stand at record levels as I write this.  No worries say the experts.  Valuations are reasonable and this isn’t a bubble (translation, it’s different this time).  We don’t know how this will turn out, but hopefully those of you with any degree of common sense will recall and apply the lessons of the past 15 years.

Who’s paying the pundits? 

Day after day there are guests on CNBC and similar programs touting stocks.  The chief investment strategist of a major financial services firm recently dismissed any talk of a bubble in stocks at least in the near term.

These folks may be right; perhaps this almost five year old bull market still has a way to go.  But somewhere in the back of my mind I also have to wonder if they aren’t touting stocks because it is in the financial interests of their firms (and perhaps their annual bonuses) for investors to keep investing in stocks.

So what should investors do in this stock market environment? 

What should you do now? 

If you are a regular reader of this blog nothing that I’m going to say below will surprise you nor will it differ from what I’ve been saying for the 4+ years that I’ve been writing this blog or the almost 15 years that I’ve been providing advice to my clients.  For starters:

  • Step back and review your financial plan.  Where do the recent gains in the stock market put you relative to your goals?
  • Does your portfolio need to be rebalanced back to your intended allocations to stocks, bonds, cash, etc.?
  • Review your asset allocation.  Is it still appropriate for your situation?
  • Review the holdings in your portfolio.  In the case of mutual funds and ETFs, how do they compare to their peer groups (for example if you hold a large cap growth fund compare it against other large cap growth funds)?  Would you buy these holdings today for your portfolio?
  • Ignore the market hype from the media and from financial services ads.

If you don’t have a financial plan in place this is a great time to get this done. 

Remember the lessons learned from the market downturns of 2000-2002 and 2008-2009.  While your portfolio will likely sustain losses in a major market downturn or even a more moderate and normal sell-off, diversification helps.  Diversified portfolios fared far better than those that were overweight in equities during the decade 2000-2009.  Portfolios with a diversified equity allocation generally fared better than those heavily weighted to just large cap domestic stocks that use the S&P 500 as a benchmark.

Of note, bonds have been a great diversifier in the past, especially over the past 30 years with the steady decline in interest rates.  With rates at historically low levels at the very least investors may need to rethink how they use bonds and what types of fixed income products to use in their portfolios.

My point is not to imply that a market correction is imminent or that investors should abandon stocks.  Rather the higher the markets go, the greater the risk of a stock market correction.  Make sure your portfolio is properly allocated in line with your financial goals and your tolerance for risk.  Many of the investors who suffered devastating losses in 2008-2009 were over allocated to stocks.  Tragically many couldn’t stomach the losses and sold out near the bottom, booking losses and in many cases missing out on the current market gains.

Revisit your financial plan and rebalance your portfolio as needed.  Most of all use your good common sense.  It’s not different this time regardless of what the experts may say.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.  

Photo credit:  Wikipedia

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