Retirement Planning
Written by Dani, May 11th, 2012
(This is a summary of our exclusive live teleseminar with Doug Fabian on May 8th, 2012. If you’d like to hear the audio recording of the teleseminar, please click here.)
The Global “Big Picture”
If you listen to our podcast and read our blog regularly, you know the market forces that concern us: market volatility, uncertainty in Europe, public debts and deficits, slowing global growth.
Here’s a glimpse at those concerns and the big picture, region by region:
Europe: Belgium, Germany and the Netherlands are the only countries in the EU which are currently trading above their 200-day moving average. Eleven countries in the European Union are in recession, while Greece and Spain are in a depression. We are also seeing other countries start to contract – which means less tax revenue, less growth, more unemployment and more unrest in Europe. Remember that this news is important because the EU represents 24% of the trading of the world.
China: also trading below its 200-day moving average. Slowing economic growth and some news of political change there as well. China is not in serious trouble, but is contracting slightly with global trends.
Japan: also trading below 200-day moving average. Japan had a serious setback last year with the earthquake and tsunami, and they aren’t out of the woods yet. They just shut down all 54 of their nuclear power plants for safety reasons, which is causing an energy shortage, and Japan already has massive public debt to deal with as well. Japan is the third largest economy in the world, (right behind the US and China).
Emerging markets: Also trading below 200-day moving average. Their success is tied to established markets and they are export driven, meaning that contractions in the markets effect them heavily. You may have noticed that oil prices have been falling, and the emerging markets are very focused on commodities – so this global slowdown really impacts the emerging markets.
In all, global growth looks suspect and vulnerable to any shocks. Panic in the markets, bank problems or another crisis in Europe seems like the most likely place we can expect a shock to come from. However, in Europe’s case, it might also be a solution to this global growth problem as well.
If the Germans decide to borrow more money and step up to back the other countries in the European Union, this would be a positive for EU and the rest of the world. In that case, we would expect markets to come back and volatility to ease considerably. However, right now Germany seems set on austerity, and while we are watching closely for any changes, we also have to be knowledgeable and realistic about the current global situation.
In the United States, we are spending $1.40 for every $1 we bring in. This is creating a 9% budget deficit, which is unnaturally high and a bit disconcerting. However, the world doesn’t seem to care about the U.S. debt and deficit and we have been able to finance the debt so far, so its been a safe haven for the rest of the world.
Also in the U.S., the federal stimulus plan is currently in place, keeping the economy growing at about 2.2%. Despite the United States’ safe haven status and relative security, we believe that Investors have been lulled into complacency, which we think will be very dangerous. Risk is still at play in the financial markets, and the slowing global growth will influence the US markets fairly soon.
Because of these factors, we think it’s essential to have a game plan and an exit strategy for your investments. We believe that there’s a 70% chance that we’ve already seen the high in the US stock markets this year. The only caveat is that if Germany decides to fund the EU’s debt crisis, the markets could kick back into gear – which is why Europe and the debt crisis there is so important to watch.
Fiscal cliff: January 2013
There are four laws that are going into effect in January 2013. We are calling this a “fiscal cliff” and we think they will have serious implications for your investments. These can only be changed by an act of Congress and the President’s signature – so they need to be taken seriously – as of right now, this isn’t just political theater.
- Bush/Obama tax cuts will expire in January 2013
- Employees are not paying social security (payroll tax) which equates to approximately $45/pay period. This will kick back in to play in January 2013
- Obamacare taxes on investors January 2013
- Automatic spending cuts to discretionary and defense spending in January 2013
Between the November election and January 2013, there’s a very small window to change these laws, and these new taxes, and the political gridlock that may be unable to change them, means that a US recession is a very real possibility.
As we watch the markets – with all of these uncertainties in the US and abroad – remember that we want to invest during a “sale”. We want to get a good deal, and we think that capitalizing on sell-off, panics and sectors that no one else is buying is the way to do so.
Favorite Growth Strategies
Emerging Markets: Observe on the chart that during the 2008 decline, the emerging markets went down significantly. Emerging markets are very susceptible to panics and crisis. The main message to remember is that we need to buy them when everyone else is panicking and they have dropped out of favor. Emerging markets are developing countries – they don’t have entitlement programs, they are embracing technology and they are very likely to grow without all of the weight that developed countries face.
Check our exclusive ETF list for more details on emerging market opportunities.
Energy: Energy is a great long-term theme and it has yet to flourish in the markets this year. Big oil stocks are down, but we believe that natural gas is the big story for the future. New developments in how we discover and access natural gas have brought the price down, and this is presenting an excellent opportunity for investors.
Natural gas in Europe is $15/BTU, in Japan $17/BTU. Here in the U.S., natural gas is $2/BTU. This is actually creating a manufacturing boom in the U.S. and is a great opportunity for job growth and economic stimulation.
Natural gas infrastructure is not well-established in the United States. This will take some development and will also be a great opportunity for investors. Five years from now, we think it will be fairly easy to convert cars to natural gas and this will drive the price higher as more people start to use it. We are now benefiting from low natural gas prices and the infrastructure does not exist yet – so this is going to be a great investment opportunity. IEZ, XOP and FRAK are the three best ETFs for natural gas investment in our opinion. Right now, price trends on natural gas are down – we don’t have these in our portfolios today, but we are watching them for our opportunity.
As we look at energy opportunities, owning traditional oil might be a good move too, if it “goes on sale”. China is still developing and will continue to need oil, so if the economy stabilizes, then oil will probably be a good investment.
Precious metals: Gold is setting up for a nice move to the upside. Why? Because of inflation and deflation.
- Deflation: Reduction of the general level of prices in an economy. Deflation is what the banks are worried about, why we borrow money, why we bail out banks, etc. Jobs are lost during deflation and politicians don’t want that.
- Inflation: A general increase in prices and fall in the purchasing value of money. Money has less value during inflationary times.
If any kind of crisis occurs, the Federal Reserve will step in and try to stabilize the economy, which means more debt and deficit, and more inflation. The reason gold has risen in value is because people know this, and they are concerned about the value of money and the effects inflation and deflation will have on their investments.
Also, because the United States economy is still struggling in some ways (2.2% growth isn’t exactly stellar, and jobs numbers are still lagging) this is a concern for many people. If we continue to see debt and deficits around the world, gold will continue to be a strong bid.
The other part of the precious metals equation is the emerging markets. In many areas of the world, gold is one of the few stable investments, so there is some competition to bid the price up.
The big story in the precious metals opportunity is in gold stocks. Gold mining ETFs are down, and pairing investments in precious metals as well as gold mining could be a smart move for growth investors. Again, this is not a “buy now” signal, but we are watching these for investment opportunities when gold prices stabilize.
All three of these growth strategies will be great opportunities – perhaps even in the very short term. Our philosophy is to buy when they present great value, when they are depressed in price. We will be talking about these a lot on our podcast and blogs, and you can always call for more information.
Action Items and Questions to Ask Yourself and Your Advisor
Prepare yourself for the next stock market decline. Be prepared for more European crisis, the fiscal cliff in the U.S. in 2013, and educate yourself on how to preserve your capital and survive this market volatility.
How are you going to take advantage of the buying opportunities in the three key areas we mentioned earlier? Are you monitoring these changes closely or do you have someone watching this for you?
What does your portfolio look like, and does it line up with your goals and objectives?
As always, here at Fabian Wealth Strategies we are available to discuss your portfolio and help you make these decisions in the best way possible. Call us at 800-391-1118 for your free portfolio review.
Note: The information expressed in this seminar is for educational purposes only and should not be construed as a recommendation to buy, sell, or hold any investment security. Doug Fabian is a registered investment advisor representative. The opinions expressed in the seminar are not considered personal investment advice. Consider the risks, fees, and expenses before making any change to your investment portfolio.
Written by David, April 17th, 2012
If you’re like most people, you probably own a variety of insurance products. Life insurance is the most widely held financial services product in the country, but did you know that there are also over 20 million annuities in existence? If you own a life insurance policy or an annuity, you need to be aware that there are features and benefits to these contracts that you can use to enhance your financial situation. But beware; there also are fees and expenses associated with these products that could threaten future benefits for you and your family. Let me explain.
When it comes to life insurance, most of us own it as a way to protect our family. If we were to die unexpectedly, our spouse and or dependents would have enough money to replace lost income, pay down debt or pay for college expenses. These are the typical reasons why we buy life insurance. Most people own term life insurance, which covers you over a specified time period (usually when our dependents rely on us most). In this situation, you want to make sure you have the right amount of coverage, and that you are paying a reasonable cost for what you need.
Action Item No. 1: If you have a term life insurance policy, you need to review that policy’s coverage to make sure it serves your family’s needs. You also need to see if what you’re paying for that coverage is reasonable.
In addition to term life insurance, there’s also a type of life insurance that allows you to merge a savings account with a policy to help achieve your financial goals. For example, you can create a personal pension plan with a permanent life insurance policy. This type of policy allows you to save for retirement while also generating a future income stream from your savings. This strategy works well for high income earners who aren’t able to save enough of their income via a 401(k) or other retirement savings plans. These life insurance policies allow you to invest for retirement and family protection WITHOUT downside risk, and they come with full tax deferral and tax free withdrawal, IF they are properly structured.
Action Item No. 2: If you’re concerned that your current retirement savings vehicles may not be enough, or if you have concerns over the amount and cost of your current life insurance coverage, take steps to find out what kinds of life insurance may fit one or both of these needs.
If you have an annuity, you should be looking at your contract in terms of investment performance and costs. Annuities are valuable tools for retirement savings and income generation, but there are complicated options and contract language that are vital to understand. Annuities also carry many internal fees and expenses, and insurance companies traditionally do a poor job of explaining those costs. When it comes to investment options, you need to make sure your annuity is in sync with your overall retirement plan.
Action Item No. 3: If you own an annuity, you need to conduct a review of the investment options, fees and expenses associated with your policy, and you need to compare those with the latest product offerings from the industry.
At Fabian Wealth Strategies, we offer our clients a full service wealth management experience. We know that life insurance and annuities play a key role in our clients’ financial plans, and that’s why we have experienced team members here to help our clients make the most of these financial products. Because there are so many varied aspects to life insurance and annuities, you simply must have an experienced professional on your side to make sense of it all.
Today, I am offering you a FREE insurance and annuity consultation. If you would like to have one of our experienced professionals research and analyze your life insurance policy or annuity contract, then simply call our offices at (800) 391-1118, and we’ll set you up for your FREE life insurance and annuity review.
Make the call today, and find out how you can better protect yourself and your family.
All the best,
Doug Fabian
President, Fabian Wealth Strategies
3070 Bristol St, Suite 610
Costa Mesa, CA 92626
(800) 391-1118
NOTE: Fabian Wealth Strategies, Inc. is a registered investment advisor with the U.S. Securities and Exchange Commission. Doug Fabian is a registered investment advisor representative. The information expressed in this email is for educational purposes only and should not be construed as a recommendation to buy, sell, or hold any specific insurance product. Fabian Wealth Strategies, Inc. is licensed by the California Department of Insurance (License #0G87212).
Written by Dani, February 15th, 2012
We’ve been blogging and podcasting for some time about the uncertainties in the market right now, and so we thought we’d expand on fixed-income strategies today.
We advise three broad investment categories for income:
- Fixed income (bonds)
- Dividend equities
- High-yield alternatives
We think that asset allocation is what makes or breaks an investment strategy, and we are advising our clients to put a high allocation of their portfolio into fixed income at this time. We have several vehicles for this and can advise you in more detail if you call our office. Please call us at 800-391-1118 for a free portfolio review.
We also believe that now is a bad time to get into dividend equities, and we are advising our clients against saddling their portfolios with over priced investment vehicles at this time. Instead of the either-or choice of safety vs. yield, we’ve developed a strategy designed to maximize income while at the same time managing the various risks inherent whenever you put money to work in the market.
Check out our special report for more information on how to invest wisely, here.
Written by Dani, February 14th, 2012
Thanks for reading our podcast summary. If you want more details on what is discussed on the blog, please listen to the full podcast here.
Global/European debt crisis
For the last 20 years, we’ve watched the entire world build masses of credit and debt, and in the last few years we’ve seen the debt shift from the private sector to the public sector.
Now, we’re seeing credit unwinding in Europe and specifically in Greece. On Sunday the Greek parliament voted for severe austerity measures, which caused the riots we are now seeing, as Greece continues this cut-back. Right behind Greece is Italy, Spain and Portugal, which means that the European economy will continue to contract. We think that this debt crisis will cause economic contractions all over the world, which will cause drops in the stock market.
European central banks have managed to keep things together with massive borrowing and printing of new money, which we believe is unsustainable. Despite high markets (what some people might see as a missed opportunity) we think that these economic forces will continue to gyrate and it remains a risky market. Our suggestion to clients and readers is to wait this one out, and see how the global economy fares through the European crisis. We believe that the fundamental foundation of the global economy is rocky and still calls for capital preservation to be and low-risk options. (For more information on the kinds of options we suggest, check out our special report here.)
Written by David, February 08th, 2012
Insurance can take many forms, and the need for insurance is a very personal one. The most common reason to have a good life insurance policy in place is to replace lost income due to the death of a spouse, and to provide survivors with the financial stability necessary to not worry about fiscal issues.
For high-net-worth individuals, life insurance can be used to defer capital for retirement, and to help protect and grow that wealth for their dependents. As for annuities, they also can be very good financial instruments—if they fit your overall financial goals.
The final personal finance exercise I want you to conduct here is to do a complete review of all of your insurance products, including any annuities you may own. Ask yourself the following questions:
1) What policies do I have, and what’s the benefit amount in each policy?
2) Where are my policies, and am I dealing with more than two companies? If so, you may want to consolidate these.
3) Do I have sufficient insurance to take care of my dependents? Many people bought policies when they first were married. Now, you may have children, you may be making a lot more money than you used to, and you may have significant assets such as a home to protect.
4) What kind of premiums are you paying for your policies, and how much are you paying in annuity fees? The latter can be substantial, so if you are paying substantial annuity fees, it’s time to see if those fees can be reduced.
Performing an insurance and annuity review will give you a good idea of what you have, where you stand. It also allows you to address any flaws in your overall financial plan.
At Fabian Wealth Strategies, my investment advisory firm, we’ve set up a webpage to help you address some of the common questions involved when assessing your life insurance picture. I invite you to pay a visit to this page before you conduct your own insurance review.
If you’d like to hear more about this, as well as other personal finance exercises, and if you’d like my take on all of the market action, then sign up here for my weekly audio podcast.
Written by Dani, February 02nd, 2012
We believe that the most successful people are on top of the issues of the day. Being well-informed and staying well-organized will help you to succeed, so for the next few weeks we will be outlining six exercises for you to stay informed and ready to make good decisions. Those six exercises are:
- Making a calculation of your net worth
- Taking inventory of financial assets
- Understanding your cash flow projections
- Examining your expenses
- Making sure you have an updated estate plan and living trust
- Taking stock of all insurance policies – health, life, long term care, annuities, etc.
Four weeks ago, we took less than an hour to calculate your net worth. Three weeks ago, we talked about taking inventory of your assets. Two weeks ago, we figured out how to understand your cash flow projections. Last week, we looked at your expenses. If you missed any of these exercises, please go back and listen to those previous podcasts for more detailed information, or you can read the summaries of each exercise on our blog.
This week, we are making sure that we have an updated estate plan and living trust. About 80% of Fabian Wealth Strategies’ clients have an estate plan, will or living trust of some kind, but many haven’t looked at them in years. A living trust is what we encourage all of our clients to invest in. Without a living trust, all of your assets are frozen and subject to court order if something should happen to you. Here in California, if you have a million-dollar (gross value) estate, the minimum cost of your probate would be $47,000. Revocable living trusts can be changed at any time, but it keeps a judge from determining what happens to your assets if you are unable to do so.
But you have to make sure that all assets, all stocks, bonds, properties, etc are included in your living trust, or else those assets will end up going to probate. Remember that you can stipulate who is to be the guardian for your minor children, medical power of attorney, gifts to organizations or individuals and much more in this document. You need to pay attention to these details in order to protect those you love, and this is a very important personal finance exercise. We have a trust attorney that we recommend for our clients, so if you’re interested in having his contact information, please send us an email here.
All of these exercises are relatively easy, and you need to start the new year off right by looking at this. Again, if you need guidance on what needs to be held or bought, how this inventory works and our advice for your assets, don’t hesitate to get in touch with us at 888-300-3684.
Once you know what you have to can set clear, reachable goals. Tune in next week for more on Doug Fabian’s Monday Market Update, and the next exercise to preparing yourself for a successful investment future. (Also, if you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)
Written by David, February 01st, 2012
For the past four weeks, we’ve outlined the personal finance exercises I want you to undertake for 2012. This week, we have Part V of our series, which is all about living trusts, wills and guardianships.
When it comes to preparing for the inevitable in life, many of us fail to act responsibly. I know it can be hard to think of ourselves as not being around any longer, but that’s no excuse to neglect this extremely important part of your financial life.
If you have any kind of significant net worth, you need a living trust. When you have a living trust, your desire for what happens to your money, your property, your insurance policies, etc., after you’re gone is in your hands. By setting up a living trust, you control the disposition of your assets by appointing a trustee to carry out your wishes.
If you don’t have a living trust, then everything you held dear in your life could literally be at the mercy of the courts. That means someone who doesn’t know you, has never met you, and has no personal interest in you or your family, will decide where your assets go after you’re no longer here. I don’t know about you, but I can’t think of anything more infuriating than having the courts determine where the products of my life’s toil will go. Yet without a living trust—and/or without a will—this may be precisely what happens.
Guardianships also are extremely important to those with children. Who’s going to take care of your progeny if you are no longer there to do so? Where will your assets go, and who will look after those assets for your children? Without a guardianship, the courts are in charge. Don’t let that happen.
A little proper planning is all it takes to make sure you are in control of your assets after you’re no longer here to do so. If you already have a living trust, will or guardianship, make sure you periodically review the trust to make account for all of the changing circumstances in your life. A divorce, a significant change in your financial situation, or the death of a spouse, are all prime reasons for you to alter your financial plans, so make sure you have those plans in place and up to date for 2012.
Next week, we’ll conclude our personal finance series for the new year with a discussion on insurance and annuities.
If you’d like to hear more about these personal finance exercises, and my take on all of the latest market action, then I invite you to sign up here for my weekly audio podcast.
Written by David, January 25th, 2012
For the past three weeks, we’ve outlined the personal finance exercises I want you to undertake for 2012. This week, we have Part IV of our series, which is all about expenses.
When it comes to expenses, many of us act like an ostrich and put our heads in the sand. That’s because tallying up your expenses can be a both disconcerting, and quite revealing. I recall that just a few short years ago, many of my friends, acquaintances and colleagues were on spending binges like you couldn’t believe.
I saw many upper-middle class people behaving like they were Arab sheiks, throwing money around lavishly (and in my view, frivolously) on cars, boats, vacations, home improvements and other goodies. A few years ago, expenses didn’t really matter, because the economy was booming and home values and stock portfolios were sky high.
As we all know, times have changed. And even though the economy and the markets have made headway over the past year, the lesson most of us learned is to not overextend ourselves, and to keep expenses down.
The first step in getting a handle on expenses is to do a simple list of what you owe, to whom, and at what interest rates you’re paying. Doing so allows you to identify where you can make adjustments, and making the right adjustments can help you increase your wealth.
For example, if you have toys like a boat, a sports car or a motorcycle that you aren’t using very much, why not consider selling them and shedding those payments? Also, if your home mortgage is north of 6%, then you need to consider refinancing. I know it’s almost impossible to refinance if you’re underwater in your home, but if you do qualify you can save thousands and thousands of dollars over the life of the loan by getting that rate lowered.
If you have high-interest credit cards, then consider putting a plan in place to pay that debt down to manageable levels. There’s nothing worse than constantly paying each month on purchases with high interest, because you end up increasing the overall cost of those purchases. The longer it takes to pay them off, the more money you’re losing.
When it comes to protecting your net worth, think about how you can keep more of what you make by reducing expenses. If you’d like to hear more about these personal finance exercises, and my take on all of the latest market action, then I invite you to sign up here for my weekly audio podcast.
Written by David, January 18th, 2012
For the past two weeks, we’ve outlined the personal finance exercises I want you to undertake for 2012. This week, we have Part III of our series, which will be of particular interest to investors with a focus on income. Recall that the first installment was all about taking an inventory of all of your assets. Part II was to do an asset allocation review. Today in Part III, it’s time to think about cash flow.
In my experience, most people don’t think about their income as much as they do their expenses; however, the beginning of a new year is a great time look at all of your existing—and potential—income streams. Now, this exercise is extremely important if you’re in retirement or transitioning into retirement, but it’s also very important if you’re still working.
Remember that your goal when investing is to increase your net worth. You can do this by making good investment decisions, but you also can do this by saving more money. The bottom line here is income minus expenses. We will get to expenses portion of this equation next week, but this week it’s all about income.
Income is something that can, and should, come from multiple sources. When you finally reach retirement, you’ll want multiple income streams. Here are the categories of income for most people currently working:
- W-2 income (wages earned and taxes withheld)
- 1099 income
- Rental income
- Investment income (interest and dividends from your taxable portfolio)
- Royalty income (energy and oil & gas funds)
- Business ownership (profits from a small business or side business
- Alimony/child support
For retirees, the categories for income streams also include:
- Social Security
- Pensions
- IRAs (required minimum distributions or withdrawals from retirement accounts)
- Other retirement plan distributions
This week, I want you to calculate all of your current (and projected) income, and figure out what’s coming in monthly and annually. Your goal here is to add up your total income, as you want to how much cash flow you’re expected to get this year. Completing this exercise is critical to determining the kind of net income you’re going to have in 2012. Knowing what you have coming in is the first step in increasing your net worth, so be sure to complete this personal finance exercise before next week.
If you’d like to hear more about these personal finance exercises, and my take on all of the latest market action, then I invite you to sign up here for my weekly audio podcast.
Written by David, January 11th, 2012
In last week’s Alert, we began a special series on personal finance exercises for 2012. The first installment was all about taking an inventory of all of your assets. Here we took a page from corporate CFOs, as they regularly are tasked with determining the precise value of their company’s assets. The result of that inventory should be that you now know how much money you actually have, and in what type of asset class that money resides (equities, bonds, real estate, gold or silver coins, checking account, CDs, etc.).
This week, we are going into Part II of the series, and that is to do an asset allocation review. This is the time to dig down deep into precisely where your assets are, and by that I mean knowing specifically which stocks, bonds, exchange-traded funds (ETFs), mutual funds, variable annuities, etc., you currently own. You also need to know how much you own of each security. Your goal this week is to take an inventory of all of your securities holdings so that you can see if there are any glaring weaknesses and/or omissions in your asset allocation.
Once you know, in percentage terms, how much of your total investment portfolio is committed to stocks, how much to bonds, commodities, cash, etc., you can make the necessary adjustments to get the desired mix of assets where you want them.
I am of the opinion that stocks are going to struggle to make headway at least in the first half of 2012. And while there certainly could be a lot of flux in stocks going forward, I think portfolios with a distinctly risk-averse orientation will perform much better than those with a lot of equity exposure. That means you’ll want to have more cash and bonds in your mix than equities.
If you find that you have a relatively high equity allocation, then you should think about reducing your level of exposure. If, on the other hand, you have a lot of cash in your portfolio, then I think your cautious approach will be rewarded in the months to come.
Next week, we’ll do an inventory of all of the income streams your money is generating. If your primary goal is to capture high yield and dividend income from your existing assets, next week’s lesson is aimed directly at you.
If you’d like to hear more about these personal finance exercises, and my take on all of the latest market action, then I invite you to sign up here for my weekly audio podcast.
