Investing – Can History Tell You Something?

January 9, 2012 By Leave a Comment

Investing history is a reliable source of information relative to asset categories as a whole. By looking at historical returns, we can assess the overall risk and volatility of an asset category. It is also possible to understand how different asset categories behave in relationship to one another (correlation) using history.

This type of information is useful in designing diversified portfolios that will achieve market rates of return over a long-term period of time.

Here’s the problem:

Historical information cannot offer us any indication of how any one asset class or individual investment is going to perform in the future. Past performance is not a guarantee of future performance. Therefore, it is imprudent to base future investing decisions on the track record of one asset class or individual investment. The Financial Coaching Group discourages financial professionals and investors from using short-term returns to make long-term investment decisions.

We believe in Markets, not Managers. Market performance is primarily determined by asset allocation, NOT stock picking or market timing. We believe that prudent and global diversification reduces risk. We believe that this philosophy can reduce risk, costs, taxes and expenses.

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Portfolio Checkup – Start Your Year Right

January 3, 2012 By Leave a Comment

If you’re checking in on your portfolio holdings every day–or worse yet, throughout the day–you may be tempted to trade more than you need to. In turn, you may run up high tax and transaction costs, and you’re also more likely to chase hot-performing stocks and funds in the hope that they’ll continue to outperform. That can be a recipe for disaster. In fact, when it comes to investing the truth is: Activity (trading) = Loss of Control and Worse Performance. So don’t do it!

Many of the basic rules of investing are counterintuitive. For example, rising interest rates may be good news for those shopping for CD’s and other short-term savings vehicles, but they’re generally bad for bond funds. And here’s another zinger: The lazy investor is often more successful than the hard-working one.

Because it is possible to shoot yourself in the foot with overzealous trading, I’m a big proponent of conducting a portfolio review just a few times a year–semiannually or quarterly. The purpose of this portfolio checkup is to systematically troubleshoot problem spots and identify changes you may want to make as part of your rebalancing program. (You should plan to rebalance your portfolio–remove money from those investments that have performed well and plow it into your portfolio’s underachievers–at least every few years.)

Observe the following five steps as you conduct a portfolio review. Take notes as you go along. You can always get a profession free portfolio checkup by contacting us here.

1. Make sure your asset mix is in line with your targets.
One of the most important determinants of whether your portfolio is positioned to meet your goals is your asset allocation–how much you hold in stocks, bonds, and cash.

2. Analyze your portfolio positioning.
Once you’ve assessed your portfolio’s asset allocation, turn your attention to how your stock and bond holdings are positioned.

3. Review your individual holdings and have a purpose.
Once you’ve checked out your aggregate portfolio’s positioning, it’s time to conduct a quick checkup on each of your individual holdings. (Cash, stocks, bonds, annuities, etc.) Ask yourself: “What is the purpose of this money?” Then find the investment that solves that purpose.

4. Examine performance.
It’s a big mistake to focus too much attention on short-term performance, but your quarterly or semiannual portfolio review should include a quick assessment of what is going on.

5. Rebalance your portfolio
After you’ve reviewed your portfolio’s current status, it’s time to plan your next move. It’s not likely that you’ll uncover a portfolio problem you need to address right away, but you should make sure your portfolio is rebalanced quarterly – if needed.

Simply put – this is usually way too much for the average investor. Not only is it confusing, but most people don’t have the tools to make this happen. This is part of our overall service we provide to our investing clients.

Does your investing and planning mean a lot to you? Then get your FREE portfolio checkup for 2012. Contact us right away!

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Must I Take My RMD’s as Cash?

December 14, 2011 By Leave a Comment

Question of the Month: Must I take my required minimum distribution as cash?

Q: Is it mandatory that my required minimum distribution (RMD) be taken as cash or can a specific stock the value of my RMD be moved from the IRA account to a regular taxable account? How about a specific stock used as an RMD to a Roth conversion account? Would this be taxed as a conversion and an RMD?

A: An RMD can be satisfied by distributing an asset in-kind or in cash. If you are distributing an asset to satisfy an RMD, it will be based on the fair market value of that asset upon distribution. You will have to check with your IRA custodian to determine if they will allow an in-kind distribution to satisfy an RMD.

An RMD in cash or in-kind cannot be rolled over to a Roth IRA. You can, however, use the cash to make a contribution to a Roth IRA – if you are eligible to make a contribution.

To get started with your FREE Retirement Analyzer and see what’s missing from your retirement – CLICK HERE

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Dealing With Retirement Myths

December 12, 2011 By Leave a Comment

The richest generation of all time is now experiencing the effects of our recession. More seniors are becoming impoverished, and many use credit cards to make ends meet. The No. 1 reason is out-of-pocket medical expenses and increasing health insurance premiums.

The National Academy of Science reported nearly one in five (almost seven million) seniors have fallen below the poverty level. The average credit card balance for seniors is $11,000 and climbing. Meanwhile, retirement-planning myths continue to provide shaky financial foundations for all Americans. Here are a few of the worst offenders:

  • You will not need as much income in retirement. Actually, many retirees have higher medical costs, higher housing expenses or rental costs and higher energy costs because they need to stay warmer or cooler. There are many other examples of expenses actually increasing.
  • Taxes will be lower in retirement. Our government’s circumstances are changing dramatically. The government’s need for revenue will continue to increase exponentially. Many retirees could actually see an increase in taxes (though it may not be called a “tax”).
  • I will use my house as a retirement savings vehicle. Obviously, this does not work. Many purchased much larger homes than they could afford, believing that increasing values would provide retirement benefits when their homes were sold. That did not happen, and many people lost money on these purchases. Additionally, large house payments and extra living costs prevented people from using that money to save for retirement.
  • I can make larger returns in the stock market. The stock market has averaged approximately 6 percent from 1926 to 2008 and has actually lost money in the last decade. Many experts believe that could last for another decade.

I am not being a doomsayer: I just know that many retirees and potential retirees struggle when it comes to what their assets can and will do for them.

To find out right now what your assets can do for you and get answers to the most requently asked retirement questions with facts, get your FREE Retirement Analyzer today.

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Avoiding Retirement Mistakes in a Divorce

October 31, 2011 By Leave a Comment

Avoid these mistakes in 5 Easy Steps.

When a divorce occurs, the financial assets of a couple, including their retirement accounts, are often split. If mistakes are made during this process, the stress of a divorce can be compounded when one or both spouses find they are subject to unnecessary taxes or penalties.

1. IRAs in divorce. To properly divide an IRA as a result of a divorce, specific language on the structure of “who gets what” should be included in the marital settlement agreement (MSA) or other divorce agreement. A copy of this executed agreement should be given to the IRA custodian. The money should NOT simply be withdrawn from the IRA and given to the other spouse, as this would be treated as a taxable distribution for the IRA owner.

2. Qualified plans in divorce. Qualified plans can’t be split by an MSA or divorce agreement. They require a special court order, known as a “Qualified Domestic Relations Order,” or “QDRO” for short. Once a QDRO has been issued, it should be sent to the qualified plan’s administrator. The terms of the plan will determine when the spouse receives the funds. In some plans, a lumpsum distribution will be available immediately, while in other funds, benefits may not be payable until the ex-spouse retires.

3. What to do with the received funds. If you are receiving a portion of an IRA, you will likely want to roll the funds over to your own IRA to avoid incurring tax and possibly the 10% early distribution penalty. However, If you are receiving a distribution pursuant to a QDRO, you will want to consider if you will be using any of the funds prior to age 59 1/2. Funds received directly from a plan under a QDRO are exempt from the 10% penalty. If you roll those funds over to an IRA and later take a distribution prior to age 59 1/2, the 10% early distribution penalty will apply.

4. Name new/update beneficiaries. One of the most common mistakes after a divorce is the failure to properly update beneficiary forms. This is NOT something that should be overlooked. There have been many documented cases where a failure to properly update beneficiary forms led to an ex-spouse receiving funds that were intended for children or even a new spouse. DON’T let this happen to you.

5. Reassess retirement preparedness. For many, a divorce is an emotionally draining and traumatic event. But for some, the emotional impact is compounded by a significant change to personal finances. So just like any other major life event, it’s beneficial to reevaluate your retirement and financial plans to determine the best course of action.

To learn from our Retirement Resources, visit our Website.

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16 Meaningless Market Phrases – #16

September 19, 2011 By Leave a Comment

“It’s a show-me stock”

General: A classic way to describe a company that has blown it.

When to use it: Any time you don’t know what a banged-up stock will do next–especially if you’re worried that viewers might think you were dumb enough to have owned it when it cratered.

Why it’s smart-sounding: It sounds tough, decisive, and judgmental. You’re not going to take management’s word for anything–not like those other idiots who just got blown up in the stock. You want to see the results. You want to make management show you that they can deliver, before you entrust them with your clients’ hard-earned money.

Why it’s meaningless: All stocks are “show me” stocks. If management “shows you” that they have delivered results that beat the market’s expectations, the stock usually goes up. If management “shows you” that they have blown the quarter, the stock tanks. Even when applied to the limited realm of companies that have just choked, if management “shows you” that they can deliver, they’ll show everyone else, too. The stock will go up before you can buy it.  And then, once the stock goes up, management will have to “show you” that they can continue to do better. And so on. By the time you and everyone else finally trust management enough again to buy into their vision of the future, the stock will have soared–and it will then be time for management to show you that they’ve blown it again.

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16 Meaningless Market Phrases – #15

September 12, 2011 By Leave a Comment

“Take a wait-and-see approach”

General: A perennial favorite.

When to use it: Any time you don’t have the balls to make any predictions or recommendations whatsoever.

Why it’s smart-sounding: It sounds prudent and cautious. It sounds appropriately skeptical. It plays to the viewer’s sense that, somehow, things are more uncertain now than they usually are. (Absurd–the future is always uncertain.) It sounds like there’s a specific event or events that you’re waiting for that will suddenly turn you into the Donald Trump of Conviction, instead of suggesting that you’re just perpetually wishy-washy. But it doesn’t actually specify what this event or events are.

Why it’s meaningless: It means nothing. How long are you going to wait? What are you waiting for? Why, when what you’re waiting for finally arrives, won’t everyone else see it at the same time and bid prices up or down? Why will the future be any less uncertain tomorrow, or next week, or next year, or whenever it is you’re planning to “wait-and-see” until? What are you waiting for?

 

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16 Meaningless Market Phrases – #14

September 6, 2011 By Leave a Comment

“Sell on strength.”

General: The corollary to “buy on weakness.”

When to use it: Any time you don’t actually have the balls to say “sell” but want to be able to say later that you told everyone to sell if the stock goes down.

Why it’s smart-sounding: It sounds highly informed. It sounds prudent (don’t be stupid and sell the stock here, when it’s already down).  It will allow you to take credit for predicting any downward move in the stock, while also being able to say “I said sell on strength” if it soars. It hedges all future outcomes, at least over the near term–by implying that the stock will eventually trade higher than it is today, and lower.

Why it’s meaningless: It’s too vague to be interesting or helpful. It can be applied to almost any stock or market at almost any time. It reveals that the speaker has little or no conviction about what he or she is saying–and, instead, just wants to have it both ways.

 

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16 Meaningless Market Phrases – #13

August 22, 2011 By Leave a Comment

“Buy on weakness”

Image: CNBC

When to use it: Any time you don’t actually have the balls to say “buy” but want to be able to say later that you told everyone to buy if the stock should happen to go up.

Why it’s smart-sounding: It sounds highly informed. It sounds prudent (don’t be stupid and chase the stock here). It sounds like common sense.  It allows you to take credit for predicting any bullish move in the stock, while also being able to say “I said buy on weakness” if it crashes. It hedges all future outcomes.

Why it’s meaningless: It’s too vague to be interesting or helpful. It can be applied to almost any stock or market at almost any time. It reveals that the speaker has little or no conviction about what he or she is saying and just wants to have it both ways.

 

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16 Meaningless Market Phrases – #12

August 15, 2011 By Leave a Comment

“Oversold”

Image: Bloomberg

General: The corollary to “overbought.” A classic way to describe a stock or market that has gone down a lot.

When to use it: Any time you don’t know what a stock or market will do but want to imply that it might go up.

Why it’s smart-sounding: It sounds highly informed. It sounds like common sense: The stock just went down a lot–it must be “oversold.” It hedges all future outcomes. (Just because a stock or market is “oversold” doesn’t mean it will go up. It might get more “oversold.”) Again, it sounds like you have command of “technical” and “quantitative” analysis, which always sounds smart.

Why it’s meaningless: As with “overbought,” what does it mean, exactly? Does it mean that traders sold too much of the stock? How can they have done that–the amount of stock in the market didn’t change. Does it mean that traders sold stock at prices that were too low? Okay, maybe it means that. But does that mean the stock is going to go up soon? Why? In short, it’s a fancy and sophisticated-sounding way of saying nothing.

 

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