Objective information about financial planning, investments, and retirement plans

Reader Question: Do I Really Need a Financial Advisor?

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This question came from a reader who is around 60, works for a major corporation and has retirement assets in neighborhood of $1 million.  He indicated he is looking to either retire or be able to retire in the near future.  His question was in response to my recent request for story ideas and I appreciate this suggestion.  I will address this question largely from the perspective of this person’s situation as this is the type of client I am quite familiar with.

Do I really need a financial advisor? 

Do I really need a financial advisor? The only answer of course is that it depends.  There are many factors to consider.  Let’s take a look at a few of them.

How comfortable are you managing your own investments and financial planning issues? 

This is one of the main factors to consider.  The reader raised the point that the typical fees for ongoing advice on a portfolio of his size would likely be $8,000-$10,000 per year and wondered if the fee is worth it.

Certainly there is the issue of managing his portfolio.  It sounds like he has a significant 401(k) plan balance.  This will involve a decision whether to leave that money at his soon to be former employer or roll it to an IRA.  Beyond this decision is the issue of managing his investments on an ongoing basis.  And taking it a step further the fee level mentioned previously should include ongoing comprehensive financial planning advice not just investment advice.

Since it is likely that his 401(k) contains company stock (based upon who he works for) he has the option of electing the Net Unrealized Appreciation (NUA) treatment of this stock as opposed to rolling the dollars over to an IRA. This is a tactic that can save a lot in taxes but is a bit complex.

Can you be objective in making financial decisions? 

The value of having someone look at your finances with a detached third-party perspective is valuable.  During the 2008-09 stock market down turn did you panic and sell some or all of your stock holdings at or near the bottom of the market?  Perhaps a financial advisor could have talked you off of the ledge.

I’ve seen many investors who could not take a loss on an investment and move on.  They want to at least break-even.  Sometimes taking a loss and redeploying that money elsewhere is the better decision for your portfolio.

Can you sell your winners when needed and rebalance your portfolio back to your target allocation when needed?

Do you enjoy managing your own investments and finances?

This is important.  If don’t enjoy doing this yourself will you spend the time needed not only to monitor your investments but also to stay current with the knowledge needed to do this effectively?

In the case of this reader I suggested he consider whether this is something that he wanted to be doing in retirement.

What happens if you die or become incapacitated?

This is an issue for anyone.  Often in this age bracket a client who is married may have a spouse who is not comfortable managing the family finances.  If the client who is interested and capable in this area dies or becomes incapacitated who will help the spouse who is now thrust into this unwanted role?

Not an all or nothing decision

Certainly if you are comfortable (and capable) of being your own financial advisor at retirement or any stage of life you should do it.  This is not an irreversible decision nor is there anything that says you can’t get help as needed.

For example you might hire a financial planner to help you do a financial plan and an overall review of your situation.  You might then do most of the day to day work and engage their services for a periodic review.  There are also financial planners who work on an hourly as needed basis for specific issues.

Whatever decision that you do make, try to be as objective as possible.  Have you done a good job with this in the past?  Will the benefits of the advice outweigh the fees involved?  Are you capable of doing this? 

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.  

Are Brokerage Wrap Accounts a Good Idea?

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A reader recently emailed a question regarding a brokerage wrap account he had inherited from a relative.   He mentioned that he was being charged a one percent management or wrap fee and also suspected that he was incurring a front-end load on the A share mutual funds used in the account.

Upon further review we determined that the mutual funds were not charging him a front-end load.  Almost all of the funds being used, however, had expense ratios in excess of one percent plus most assessed 12b-1 fees paid to the brokerage firm as part of their expense ratios.

Are brokerage wrap accounts a good idea for you?  Let’s take a look at some questions you should be asking.

What are you getting for the wrap fee? 

This is the ultimate question that any investor should ask not only about wrap accounts but any financial advice you are paying for.

In the case of this reader’s account it sounds like the registered rep is little more than a sales person who put the reader’s uncle into this managed option.  From what the reader indicated to me there is little or no financial advice provided.  For this he is paying the brokerage firm the one percent wrap fee plus they are collecting the 12b-1 fees in the 0.25 percent to 0.35 percent on most of the funds used in the account.

Before engaging the services of a financial advisor you would be wise to understand what services you should expect to receive and how the adviser and their firm will be compensated.  Demand to know ALL aspects of how the financial advisor will be compensated.  This not only lets you know how much the relationship is costing you but will also shed light on any potential conflicts of interest the advisor may have in providing you with advice.

What’s special about the wrap account? 

While the reader did not provide me with any performance data on the account, from looking at the underlying mutual funds it would be hard to believe that the overall performance is any better than average and likely is worse than that.

Whether a brokerage wrap account or an advisory firm’s model portfolio you should ask the financial advisor why this portfolio is appropriate for you.  Has the performance of the portfolio matched or exceeded a blended benchmark of market indexes based on the portfolio’s target asset allocation?  Does the portfolio reduce risk?  Are the fees reasonable?

What are the underlying investments? 

In looking at the mutual funds used in the reader’s wrap account there were a few with excellent returns but most tended to be around the mid-point of their asset class.  Their expenses also tended to fall at or above the mid-point of their respective asset classes as well.

Looking at one example, the Prudential Global Real Estate Fund Class A (PURAX) was one of the mutual funds used.  A comparison of this actively managed fund to the Vanguard REIT Index Fund Investor shares (VGSIX) reveals the following:

Expense ratios:

PURAX

VGSIX

Expense Ratio

1.26%

0.24%

12b-1 fee

0.30%

0.00%

 

 Trailing returns as of 12/31/14:

1 year

3 years

5 years

10 years

PURAX

14.03%

14.47%

11.12%

6.66%

VGSIX

30.13%

16.09%

16.84%

8.41%

 

While the portfolio manager of the wrap account could argue the comparison is invalid because the Prudential fund is a Global Real Estate fund versus the domestic focus of the Vanguard fund I would argue what benefit has global aspect added over time in the real estate asset class?  Perhaps the attraction with this fund is the 30 basis points the brokerage firm receives in the form of a 12b-1 fee?

Looking at another example the portfolio includes a couple of Large Value funds Active Portfolios Multi-Manager A (CDEIX) and CornerCap Large/Mid Cap Value (CMCRX).  Comparing these two funds to an active Large Value Fund American Beacon Large Value Institutional (AADEX) and the Vanguard Value Index (VIVAX) reveals the following:

Expense ratios:

CDEIX

CMCRX

AADEX

VIVAX

Expense Ratio

1.26%

1.20%

0.58%

0.24%

12b-1 fee

0.25%

0.00%

0.00%

0.00%

 

Trailing returns as of 12/31/14:

1 year

3 years

5 years

10 years

CDEIX

10.01%

NA

NA

NA

CMCRX

13.11%

19.30%

12.98%

5.78%

AADEX

10.56%

21.11%

14.73%

7.57%

VIVAX

13.05%

19.98%

14.80%

7.17%

 

Again one has to ask why the brokerage firm chose these two Large Value funds versus the less expensive institutionally managed active option from American Beacon or the Vanguard Index option.  I’m guessing compensation to the brokerage firm was a factor.

Certainly the returns of the overall wrap account portfolio are what matters here, but you have to wonder if a wrap account uses funds like this how well the account does overall for investors.

The lesson for investors is to look under the hood of any brokerage wrap account you are pitched to be sure you understand how your money will be managed.  I’m not so sure that my reader is being well served and after our email exchange on the topic I hope he has some tools to make an educated evaluation for himself.

The Bottom Line 

Brokerage wrap accounts are an attempt by these firms to offer a fee-based investing option to clients.  As with anything investors really need to take a hard look at these accounts.  Far too many charge substantial management fees and utilize expensive mutual fund options as their underlying investments.  It is incumbent upon you to understand what you are getting in exchange for the fees paid.  Is this investment management style unique and better?  Will you be getting any actual financial advice?

The same cautions hold for advisory firm model portfolios, the offerings of ETF strategists and managed portfolios offered in 401(k) plans.  You need to determine if any of these options are right for you.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

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Tis the Season for Stock Market Predictions

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As I listen to CNBC in the background and read the financial press it is the season for the pundits to make their 2015 stock market predictions.  Some of these predictions relate to the level of the market in general, others include “hot stocks for 2015.”

Many of these people are pretty smart and I’m not dismissing their research.  What I am saying is that that I’m not so sure any of this is useful.  But in the spirit of the season here are my 2015 stock market predictions.

The stock market might go up 

The consensus seems to be that 2015 will be a good year for the stock market.  They might well be right.  The U.S. economy is improving, oil prices are low, etc.

The stock market might go down 

The experts could be wrong or worse there could be some sort of adverse event that spooks the market and perhaps the economy.

My official stock market predication is that I have no clue 

While this is all fun and provides something for the cable news talking heads to discuss, at the end of the day nobody has a clue what 2015 or any year holds for the stock market or the economy.

Focus on what you can control 

We have no control over what the financial markets will do or over how your stocks, mutual funds, ETFs, or any other holdings will do.  But as investors you can control a number of things including:

  • The cost of investment advice
  • The expense ratios of mutual funds and ETFs owned
  • Your asset allocation
  • Your overall investment strategy
  • How much you save and invest in our 401(k) and elsewhere
  • How much you spend.

I’m not denigrating the value of stock market research and analysis.  But for most of you reading this post I’m guessing that you are long-term investors versus being traders.  If that is the case you are, in my opinion, far better off controlling what you can control and investing in line with your financial plan than in trying to chase predictions and hot segments in 2015 or in any year.

Start 2015 out right, check out an online service like Personal Capital to manage all of your accounts all in one place.  Check out our Resources page for more tools and services.

Retirement Investors: Poor Timing and Short Memories?

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A recent Wall Street Journal article Retirement Investors Flock Back to Stocks (not behind their paywall as I write this) discussed how retirement savers are putting more money into stocks.  Nothing like waiting for the stock market rally to pass its fifth anniversary, with many of the major market averages in record territory, to get retail investors interested in the stock market.  Two excerpts from this article:

“Stocks accounted for 67% of employees’ new contributions into retirement portfolios in March, according to the most-recent data from Aon Hewitt, which tracks 401(k) data for 1.3 million people at large corporations.” 

What cash I have, I’m going to use to buy more if the market dips,” said Roy Chastain, a 68-year-old retiree in Sacramento, Calif., who put an extra 10% of his retirement account into stocks in September, bringing his total stock allocation to 80%.  Mr. Chastain, who had put all his retirement assets into cash in May 2008, has gradually rebuilt his stockholdings.” 

If I understand Mr. Chastain’s situation, he sold out about half way through the market decline, he likely missed a good part of the ensuing market run-up, and now he’s bulking up on stocks 5+ years into the market rally.  I sincerely hope this all works out for him.

 What’s wrong with this picture? 

Part of the rational cited in this article and elsewhere is that stocks appear to be the only game in town.  At one level it’s hard to argue.  Bonds appear to have run their course and with interest rates at record low levels there is seemingly nowhere for bond prices to go but down.

Alternatives, the new darling of the mutual fund industry have merit, but it is hard for most individual investors (and for many advisors) to separate the wheat from the chafe here.

But a 68 year old retiree with 80% of his retirement investments in stocks is this really a good idea?

I’m not advocating that anyone sell everything and go to cash or even that stocks aren’t a good place for a portion of your money.  What I am saying is that with the markets where they are investors need to be conscious of risk and at the very least invest in a fashion that is appropriate for their situation.

Can you say risk? 

With the stock market flirting with all-time highs and in year six of a torrid Bull Market I’m guessing things are a bit riskier than they were on March 9, 2009 when the S&P 500 bottomed out.

Let’s say an investor had a $500,000 portfolio with 80% in stocks and the rest in cash.  If stocks were to drop 57% as the S&P 500 did from October 9, 2007 through March 9, 2009 this would reduce the size of his portfolio to 272,000.

Not devastating if this investor is 45 years old with 15-20 years until retirement.  However if this investor is 68 and counting on this money to fund his retirement this could be a total game changer.  Let’s further assume this occurred just as this investor was starting retirement.

Using the classic 4% annual rule of thumb for retirement withdrawals (for discussion only retirees should not rely on this or any rule of thumb), this investor could have reasonably withdrawn $20,000 annually from his nest egg prior to this market decline.  After the 57% loss on the equity portion this amount would have declined to $10,880 a drop of 45.6%.

Assuming this retiree had other sources of income such as Social Security and perhaps a pension the damage is somewhat mitigated.  Still this type of loss in a retiree’s portfolio would be a disaster that could have been partially avoided.

Am I saying that the stock market will suffer another 57% decline?  While my crystal ball hasn’t been working well of late I’m guessing (hoping) this isn’t in the cards, but then again after the S&P 500 suffered a 49% drop from May 24, 2000 through October 9, 2002 many folks (myself included) felt like another market decline of this magnitude wasn’t going to happen anytime soon.

Diversification still matters 

I agree with those who say investing in bonds will likely not result in gains over the next few years.  But given their low correlation to stocks and relatively lower volatility than stocks, bonds (or bond mutual funds) can still be a key diversifying tool in building a portfolio.

When I read an article like the Wall Street Journal piece referenced above or hear “experts” advocating the same thing on the cable financial news shows I just have to wonder if investor’s memories are really this short.

Individual investors are historically notorious for their bad market timing.  Is this another case of bad timing fueled by greed and a short memory?  Are you willing to bet your retirement that the markets will keep going up?  Or perhaps you think that you might be able to get out before the big market correction.

Perhaps you should consider doing some financial planning to include an appropriate investment allocation for your stage of life and your real risk tolerance.

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7 Year-End 2013 Financial Planning Tips

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Thanksgiving is behind us and we are in the home stretch of 2013.  While your thoughts might be on shopping and getting ready for the holidays, there are a number of financial planning tasks that still need your attention.  Here are 7 financial planning tips for the end of the year.

Use appreciated investments for charitable donations

 If you would normally contribute to charity why not donate appreciated stocks, mutual funds, ETFs, closed-end funds, etc.?  The value of doing this is that you receive credit for the market value of the donated securities and avoid paying the capital gains on the appreciation.  A few things to keep in mind:

  • This only works with investments held in a taxable account.
  • This is not a good strategy for investments in which you have an unrealized loss.  Here it is better to sell the investment, realize the loss and donate the cash.

 

English: A bauble on a Christmas tree.

 

Harvest losses from your portfolio

The thought here is to review investments held in taxable accounts and sell all or some of them with unrealized losses.  These may be a bit harder to come by this year given the appreciation in the stock market.  Bond funds and other fixed income investments might be your best bet here.

The benefit of this strategy is that realized losses can be offset against capital gains to mitigate the tax due.  There are a number of nuances to be aware of here, including the Wash Sale Rules, so be sure you’ve done your research and/or consulted with your tax or financial advisor before proceeding.

Establish a Solo 401(k) 

If you are self-employed and haven’t done so already consider opening a Solo 401(k) account.  The Solo 401(k) can be an excellent retirement planning vehicle for the self-employed.  If you want to contribute for 2013 the account must be opened by December 31.  You then have until the date that you file your tax return, including extensions, to make your 2013 contributions. 

Rebalance your portfolio

With the tremendous gains in the stock market so far this year, your portfolio might be overly allocated to equities if you haven’t rebalanced lately.  The problem with letting your equity allocation just run with the market is that you may be taking more risk than you had intended or more than is appropriate for your situation.

Rebalance with a total portfolio view.  Use tax-deferred accounts such as IRAs and 401(k)s to your best advantage.  Donating appreciated investments to charity can help.  You can also use new money to shore up under allocated portions of your portfolio to reduce the need to sell winners.

Review your 401(k) options 

This is the time of the year when many companies update their 401(k) investment menus both by adding new investment options and replacing some funds with new choices.  This often coincides with the open enrollment process for employee benefits and is a good time for you to review any changes and update your investment choices if appropriate.

Be careful when buying into mutual funds 

Many mutual fund companies issue distributions from the funds for dividends and capital gains around the end of the year.  These distributions are based upon owning the fund on the date the distribution is declared.  If you are not careful you could be the recipient of a distribution even though you’ve only owned the fund for a short time.  You would be fully liable for any taxes due on this distribution.  This of course only pertains to mutual fund investments made in taxable accounts.

Required Minimum Distributions 

If you are 70 ½ or older you are required to take a minimum distribution from your IRAs and other retirement accounts.  The amount required is based upon your account balance as of the end of the prior year and is based on IRS tables.  Account custodians are required to calculate your RMD and report this amount to the IRS.

Note beneficiaries of inherited IRAs may also be required to take an RMD if the deceased individual was taking RMDs at the time of his/her death.

If you have multiple accounts with multiple custodians you need to take a total distribution based upon all of these accounts, though you can pick and choose from which accounts you’d like to take the distribution.  Make sure to take your distribution by the end of the year otherwise you will be faced with a stiff penalty of 50% of the amount you did not take on top of the income taxes normally due.

If you turned 70 ½ this year you can delay your first distribution to April 1 of next year, but that means that you will need to take two distributions next year with the corresponding tax liability.  Also if you are still working and are not a 5% or greater owner of your company you do not need to take a distribution from your 401(k) with that employer.  You do, however, need to take the distribution on all remaining retirement accounts.

For those who take required minimum distributions and who are otherwise charitably inclined, you have the option of diverting some or all of your distribution via a provision called the qualified charitable distribution (QCD).  The advantage is that this portion of your RMD is not treated as a taxable income and may have a favorable impact on the amount of Social Security that is subject to income taxes for 2014 and other potential benefits.  Note that you can’t double dip and also take this as a deductible charitable contribution.  Consult with the custodian of your IRA or retirement plan for the logistics of executing this transaction.

With all of the strategies mentioned above I recommend that you consult with a qualified tax or financial advisor to ensure  that the strategy is right for your unique situation and if so that you execute it properly. 

Certainly year-end is about the holidays, family, friends, food, and football.  It is also a great time to take execute some final year-end financial planning moves that can have a big payoff and in the case of RMDs save you from some hefty penalties.

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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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.

Approaching retirement and want another opinion on where you stand? Not sure if you are invested properly for your situation? Check out my Financial Review/Second Opinion for Individuals service.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out the Hire Me tab to learn more about my freelance financial writing and financial consulting services.  

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Five 401(k) Investing Tips for This or Any Market

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Benjamin GrahamThe Dow Jones Industrial Average has hit something like 30 new highs this year alone, the S&P 500 is near record levels as well.  Twitter just went public and Obama Care will go into full swing in 2014.  What does any of this mean to you as a 401(k) investor?  Here are five 401(k) investing tips for this or any market environment.

Rebalance your account 

If you’ve let your holdings run it’s quite likely that your account is over allocated to equities given the strong showing the stock market has made so far in 2013.  This would be a good time to look to rebalance your account back to the original allocations that you had intended.  Paring back on stock funds might seem counterintuitive, but essentially you are taking some of your gains off of the table in order to keep the risk associated with your overall portfolio in line.

Consolidate and coordinate 

If you are just starting out in the workforce, it’s likely that your 401(k) is your lone investment vehicle.  By the time you get to your 30s or 40s and beyond it’s likely that you’ve switched jobs several times and have left a number of old 401(k) accounts or IRAs in your wake.  If you are married and both working multiply this financial clutter by two.

Consider consolidating your old 401(k) accounts either in a rollover IRA or into your current employer’s 401(k).  Looking after a number of scattered accounts is counterproductive and makes viewing all of your investment holdings as a consolidated portfolio that much harder.

While we are on the subject, ALWAYS view your 401(k) account as a part of an overall consolidated portfolio.  I create a spreadsheet for each client to do just that, with all of the technology available today this is not difficult, but it may take just a bit of time to lay things out the first time you do it.

The reason for this approach is so that you view your overall asset allocation and the diversification of your portfolio across all investment and retirement accounts.  Are you taking too much risk or not enough?  Do you own the same fund in three accounts all in different share classes?

Increase your salary deferral

This is the time of year where many companies have their employees go through Open Enrollment for their employee benefits.  While you are thinking in terms of benefits this is a good time to boost your salary deferral to ensure that you are contributing the maximum to the plan.  If you can afford it and are not on track to max out for 2013 ($17,500 and $23,500 if you are 50 or over) arrange to have more withheld for the rest of this year and figure out what percentage to apply to your first check in 2014.  How you invest your 401(k) is important, but studies have shown that the amount you save for retirement is the biggest single factor in determining the size of your nest egg.

Don’t default to the Target Date Fund

One of the Target Date Funds offered by your plan might be the right choice for you.  This may be the fund with the target date closest to your anticipated retirement date or some other fund in the series.  It is important that you understand what is under the hood of the Target Date Funds and decide if this is the right approach for you.  Note these funds change from time-to-time as witnessed by some recently announced changes that Fidelity will be making in its Freedom Funds. 

Get the help you need 

Many plan sponsors are offering advice options ranging from online advice to one-on-one advice to managed accounts.  Check out these options and any fees associated with them.  If you work with a financial advisor make sure that they are providing you advice on how to allocate your 401(k) account along with the advice they provide on your other holdings.  Some 401(k) participants are savvy investors, others are not.  If you are in this latter camp, bite the bullet and hire the advice that you need.  This is important, it’s your retirement, and you only have one shot at it.

For better or worse the 401(k) and similar retirement plans are the main source of retirement savings for most of us.  Make the most of your plan regardless of what is going on in the markets or the economy.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email.

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Stock Market Highs, Bond Market Woes, and Some Finance Links

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stock market

As I write this the Dow Jones Industrial Average and the S&P 500 stand in record territory.  In fact yesterday the S&P finished above 1,700 for the first time ever.  Bonds on the other hand have started to fizzle with virtually all bond categories suffering a loss during the second quarter.

As an investor what now?  Here are a few thoughts:

Tune out the media 

If you watch CNBC or similar shows the bulk of the guests are encouraging investors to get into stocks even at these high levels.  I’m not saying that new money invested in stocks will turn into losses, but I am saying that record market levels are not a reason to suddenly become euphoric about stocks.

Review your asset allocation

As you review your statements look at your portfolio’s current asset allocation to see if the gains in stocks have gotten you away from your target allocation.  Certainly market highs are a good time to look at rebalancing your portfolio.

Additionally this might also be a good time to review your target allocation in the context of your financial planning goals.  Have the gains in the stock market put you ahead of schedule in terms of reaching financial goals such as retirement and college funding?  Perhaps it’s time to take some risk off of the table and adjust your allocation to stocks a bit lower.  In any event this is a great to review your financial plan if you have one or to get one in place if you don’t.

Review your fixed income strategy 

Bonds and bond funds have operated in a favorable environment for the past 30 years.  This changed in the second quarter, though things have recovered a bit in July.  None the less at some point we will see interest rates rise.  This is a good time to look at your bond and bond fund holdings with and eye towards perhaps shortening up on duration.

It’s been a few weeks since I’ve given recognition to the many excellent investing articles and blog posts out there so here are a few links to some excellent reading:

Mike Piper offers A Look Inside Vanguard’s International Bond Funds at Oblivious Investor.

Ken Faulkenberry explains the difference between Geometric Average vs. Arithmetic Average For Investment Returns? at AAAMP Blog.

Morningstar’s Christine Benz walks us through A Bucket Portfolio Stress Test.

Market Watch’s Brett Arends comments on The return of ‘Dow 36,000’.

Jon  shares Stock Basics: The P/E Ratio at Novel Investor.

Please feel free to contact me at 847-506-9827 for a free 30-minute consultation to discuss your investing and financial planning questions. All services are offered on a fee-only basis, no financial product sales, no commissions. 

Please check out our Mutual Fund Investing page for links to additional posts about mutual fund investing.

Photo credit:  Flickr

 

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A Bucket Approach to Retirement

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I had the privilege of participating in a panel discussion entitled Practical Solutions for a Challenging Retirement Landscape at the recent Morningstar Investment Conference.  The panel was moderated by Morningstar’s Christine Benz, one of my favorite personal finance journalists.  After our session Christine and I discussed the bucket approach to retirement, a topic about which Christine has written extensively.

Here is a video of this conversation which as I write this appears on the Morningstar site.

 

Here is a link to the interview as well.

My thanks to Christine and to Morningstar for the opportunity to be a part of their excellent conference, this is always an outstanding event.

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