When you think about your portfolio, it can be easy to lose focus on what’s important and your goals. Just because there are some scary trends out there doesn’t mean that you can’t succeed and have the life you want. As you think about your portfolio, here are some important steps to remember as you invest:
Know what you need and keep your objectives in mind.
Take inventory of your assets
Don’t approach your long-term goals with fear – stay positive and continue to be smart, consistent and motivated as you work toward your financial goals.
Strategies are very important to us and we think that every investor should have one – particularly when it comes to the issue of legacy.
How do you want to be remembered, and what’s most important to you? Most people want to make sure that their loved ones, favorite causes and estates are taken care of. It’s very important to have a living trust, in order to avoid a long, painful and expensive experience for your family in probate court.
You want to pass on your assets to your children and grandchildren, and you want to avoid NIGO – a financial insider’s acronym for “Not In Good Order”. If something is messed up – a signature missing, a plan out of alignment, a trust written in order to keep your legacy intact and in good standing for your heirs and loved ones.
If you’ve built up a sizable portfolio, you owe it to yourself, your loved ones and your values to have clarity about your legacy and your expected tax burdens and concerns for the future. Call us today to discuss your needs, legacy, charitable wishes and hopes for your future, at 1-800-391-1118.
This is a podcast summary. For more information, please listen to the entire broadcast here.
We recently got an email from a client that propelled us into this topic. In a nutshell, they asked – with a new tax environment and higher taxes coming, how should investors react?
Here are four strategies that we recommend for “tax advantage investing“. Keep in mind that this is not the best time to invest in these strategies, but that opportunities may present themselves later this year.
We always believe that tax-deferred accounts are the most important money you will manage. Saving and investing in those kinds of accounts are the best strategies for financial security long-term, so keep an eye on your portfolio there.
Tax-free bonds – Yields are low right now and municipal bonds will likely have some challenges this year. We might see a correction, and, if so, actively managed tax-free bonds would be a great opportunity for investors. This will likely be a tough entry year, however, since municipal bonds ended the 2012 year so high.
Dividend equities – If you own qualified dividend investment vehicles, and have less than $400,000 in income, your federal tax rate is 15%. If you make more than $400k in income per year, your tax rate is 20%. However, dividend stocks are currently earning about 3%, and are high-priced. This investment is looking a little risky right now, but might be a good investment later this year.
Long-term capital gains – This requires that an investor hold a security for 12 months. The tax rate is attractive: less than $400,000 in income, your federal tax rate is 15% – more than $400k in income per year, your tax rate is 20%. But right now, any move toward buying U.S. equities would need good stock position in order to make the 12-month investment a good one. Trying to buy today, in our opinion, would be a high-risk strategy., despite the tax advantages.
Unfortunately, tax-efficient investing is not in a good place for entry right now. However, we think that 2013 will offer much better opportunities in this area, so keep paying attention to the markets and watching for your investment opportunity.
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on this topic, and please share this information with others who might benefit from our perspective.)
Contrary to popular opinion, setting goals and achieving them is relatively easy. However, there are two ground rules that people often miss, and then wonder why they don’t have more success. The rules are these: make exact, attainable goals, and write your goals down. Here are a few examples of the goals we encourage investors to make:
Income investors: exact amount of income you want to make this year from your investments
Growth investors: set growth target and decide what percentage of return you are aiming for
Add to retirement accounts through saving
Pay down debt
Increase non-retirement savings
Whan you have exact, written goals, it’s much easier to implement plans to make those goals a reality in your portfolio. If you want an 8% return on your investment, you need to think through what you are currently doing to accomplish that, and what you need to change this year.
This is the key to a good financial plan: calculate your net worth and set good goals. This is the time to do it, too, as January is the month that we are open to change and new ideas, and we want to set the right habits in place in the beginning of the year.
Also, don’t forget to listen to recent teleconference for some of our latest investment advice for achieving your goals, and if you have questions about your specific financial plan or portfolio, please call us at 800-391-1118 or email askdoug(at)dougfabian(dot)com.
In looking over stock market activity for the first half of the year, most are showing a downward trend with a few exceptions. We think this indicates a real slow down in economic fundamentals. Keep this in mind as you decide what to do with your 401ks and IRAs in the second half of the year. We are continuing to recommend keeping your stock allocations at low levels for now.
Don’t be fooled by the media declaring that everything is fine in the markets around the world. New statistics point to a global economic slowdown. Manufacturing is down world-wide, including in the United States, which is an indicator of a slowing economy.
In addition, the deal from the recent European summit is already unraveling, leaving the situation in Europe unchanged. This means it is even more important to be cautious about international stocks.
Let’s talk about the bond market, at this time it is still doing well. Most bonds are up and interest rates are low. We believe they will stay low until the election in November at least. For now, if you have bond investments, know that they are doing just fine.
Finally, Independence Day is one of our favorite holidays here at Fabian Wealth Strategies, and we want to wish you and your family a Happy 4th of July today. Enjoy the holiday and keep in touch with us over the blog all week, as we’ll keep bringing new content and more news for you, even as you enjoy celebrating with friends and family.
As we open the new year with the second Monday Market Update of 2012, welcome and thank you for listening. You can listen to Doug Fabian’s full podcast here, or keep reading for a summary of what we’ve discussed on the air.
We provide these blogs, podcasts and telecasts as part of our effort to inform and engage our friends and clients in healthy investing and rewarding financial growth. Feel free to skim through this blog for some highlights and listen to the full broadcast when you have time later – the information provided is not intended to give you be specific financial advice, but it will help you to make smart decisions with your investments.
Last week we talked a lot about Europe’s looming debt crisis, and this week we saw Europe still trying to fix their situation. Greece is in especially bad shape, and is about to go bankrupt, with austerity programs missing many of the fiscal targets they were aiming for. There is much concern that a meltdown in Greece will lead to the insolvency of European banks, and we still believe that “caution is the greater part of valor” in this instance.
One good note last week was the jobs report, which reported 200,000 jobs added on Friday – although we need 275,000 new jobs just to break even, so even that news is met with some caution.
Obviously, we continue to be a very uncertain economy, and uncertain world. Right now the trend of the market is very tenuous. We still believe that even with relatively positive news out of US, markets will go even higher, I think there’s 5% upside and 20% downside on a short term (next six months) standpoint in the stock market.
Remember last week we talked about patience in these areas, recognizing that the global economy is probably in a more serious recession than we currently feel. Be careful, as there is still plenty of risk for your hard-earned investment capital.
We want to talk today about your 401k, 403b, 457 plan, variable annuities, variable universal life – all of these are retirement products with some common traits. One of the questions we want to ask is: how do you allocate your retirement money?
The vast majority of Americans readjust their retirement allocations in January and don’t look at them for the rest of the year, so take the time to see what’s working for you and what’s not.
Look at what your personal allocations are – what are the individual accounts and how much is devoted to various allocations (stocks, bonds, etc.) What are your choices? Our first choice is cash. As Mohamed A. El-Erian said in his Wall Street Journal opinion piece this week, our investment strategy should be: “defensive, but agile enough to be offensive when opportunities emerge.”
To illustrate, you’ll notice that many large companies are dealing in what’s known as self-insurance, or sitting on large amounts of cash to insure themselves against a tenuous economy. We suggest that you take a similar approach right now – don’t be fully invested. Now is a time to be exercising some prudence, and hold cash so that if opportunity arises, as El-Erian wrote, you’re ready.
We suggest putting some of your portfolio in short-term bonds. They pay less in yield, but some interest is better than no interest. Also, if you have a Pimco total return fund option, that’s a good option, and if you’re going to have an allocation to stocks, make it very small.
Our clients have no allocations to stocks, in this uncertain economy. If these allocation decisions are difficult for you to make, or if you would like more in-depth analysis of what your options are, please call our offices so that we can take a look at your portfolio and help you with personalized options.
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.
This week, we’ve moved on to the second item: take inventory of your assets. Everyone knows how great it feels to clean out unnecessary clutter, and you need to do the same thing with your assets. Look at individual positions and see where you are. List each position, look at how it performed, look at your asset allocation, look at whether it’s a good idea to sell and be defensive with our cash, or hold and then decide what to reallocate.
Don’t be afraid to make changes – remember we are being defensive with our investments, and it can be a good idea to take a small loss if something is underperforming. Look at how your mutual funds perform versus their peer group and get rid of anything that isn’t up to par.
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.
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.)
You knew it was going to happen eventually. Today, I read an article on Yahoo Finance that confirmed my suspicion that ETFs soon will make their way into 401(k) plans.
According to the article, provided to Yahoo Finance by The Wall Street Journal, Jim McCool, Charles Schwab’s executive vice president of institutional business, “made waves at an asset-management conference in March when he announced that the brokerage firm soon would offer 401(k) retirement plans stuffed solely with exchange-traded mutual funds — and let investors trade them without charge.”
The article went on to say that Schwab has plans to stick to “plain-vanilla index ETFs, including domestic and international stocks and bonds” for their 401(k) offerings. Schwab reportedly will begin meeting with 401(k) plan sponsors this fall to work out the details of such offerings.
If this happens, and I certainly expect it to, then it could open the proverbial floodgates for more 401(k) plans to add ETFs to their investment offerings. That would be a very good thing indeed, and something that I suspect will help investors save money, enjoy greater transparency of holdings — and ultimately gain more control over their retirement portfolios.
Kudos to Schwab for taking this step in the right direction.
Although exchange-traded-funds (ETFs) are finding their way into the portfolios of many investors, they have yet to make much headway in 401(k) retirement plans. But that situation could start to change. If current drawbacks to using ETFs in 401(k) plans are resolved, the ETF industry would gain increased working capital, heightened revenues and earnings, and enlarged market share at the expense of mutual funds.
It also would open up the world of ETFs to a much bigger pool of investors. Mutual fund companies recognize the competitive threat and counter that they provide many low-cost, index-tracking funds that essentially perform the same service as ETFs.
It would not surprise me at all if many 401(k) providers were eyeing ETFs to supplement their array of mutual fund offerings. The sheer breadth of ETFs gives asset managers a spectrum of investment possibilities. The vast selection will allow retirement portfolios to be cobbled together that are best suited for the individual circumstances of people across a wide range of ages and income brackets.
Ideally, a retirement portfolio should have access to funds that mirror all types of market indexes, ranging from the S&P 500 to overseas stock exchanges. If there is anything that the bear market of 2008 taught us, it has been to diversify. Just ask any wealthy investor or hedge fund manager who used Bernard Madoff to manage money. In the wake of industry scandals and poor performance by money managers, ETFs that track indexes and stock markets are becoming increasingly attractive.
ETFs still have hurdles to overcome before their use in 401(k) plans becomes common place. A correctable weakness for ETFs is that their use in 401(k) accounts involves the payment of fees by plan administrators that—when used inside a “collective trust”—can be higher than the fees for mutual funds. However, that current disadvantage is limited to the use of ETFs in 401(k) accounts and can be remedied.
A 401(k) record keeping company, Invest n’ Retire, of Portland, Ore, has developed a technology to trade ETFs cost-effectively in 401(k) plans. The firm’s software allows ETFs to be traded in real-time at institutional pricing. Coupled with lower management fees, ETFs are becoming attractive investments in 401(k) plans.
ETFs still retain decisive advantages, compared to mutual funds. For example, ETFs offer intra-day trading to allow their purchase and sale throughout a trading day as share prices change. If an investor decides to trade an ETF, the transaction can be processed within seconds to eliminate market risk. In contrast, mutual funds keep the same price throughout a trading day and only revise it the next day after the market closes. That limitation for mutual funds leaves their investors vulnerable to market volatility during the course of a day. Right now, a growing number of mutual fund investors are pulling out their money — driving down fund values for the remaining shareholders.
Mutual funds control the majority of Americans’ retirement assets through 401(k)s, IRAs and annuities. Sadly, a gullible public has bought into the idea that steady investments in mutual funds, regardless of market conditions, is the way to make their financial dreams come true.
It’s no secret that most 401(k)-type retirement plans are in shambles as a result of the recent market meltdown. And while there is no simple, quick-fix solution for an ailing 401(k), 403(b) or 457 plan, if you have the ability to self-direct your retirement assets there is a way to put yourself on the road to recovery.
Here are the dos and don’ts of turning around that big drop in your retirement nest egg.
First of all, you have to fight “city hall.” All 401(k) providers want you to buy your investment and hold them in perpetuity. I don’t care where your 401(k) is, the mutual fund companies want you to choose a mix of funds and then just leave that mix alone. They have placed rules and restriction on you, and in many cases they make it hard for you to do what you want with your own money. Your first assignment is to know the rules of your 401(k) plan’s fund exchange policies. Hey, it’s your money, so don’t let anyone talk you out of doing what you want with it.
Second, you need to know your retirement plan fund choices. Usually, these choices fall into three categories; stocks, fixed income or cash. Look closely at your safe choices in the cash category; this could be labeled “stable value” or “money market.” As I have been saying for the last year, you need to use this account as your safe harbor in these uncertain times. I’d say you need at least a 50% safe harbor allocation right now.
In the fixed income category, there are some choices that I like. One popular fund is the PIMCO Total Return Fund, a balanced bond fund that posted a total return of 4.2% in 2008. I think you should stay away from those fixed income funds that went down in 2008.
Third, you need to get out of stock mutual funds. I realize that some of you may want to hold on to some of your exposure to stocks, but for me and subscribers to my newsletter services, we have zero exposure to equity mutual funds right now. Ideally, if the S&P 500 can recapture 900, we could make a run to 950. If this happens, then it will represent the best opportunity for those still in equity mutual funds to sell into strength.
Fourth, are you able to get some money out of your 401(k) plan? Here’s what I mean by that. Traditionally, 401(k)’s are very restrictive. Their very design means you have limited choices and more trading restrictions than you would otherwise have in a self-directed IRA. If you are able to, you should transfer assets out of you 401(k). You can do this if you are over age 59 ½, as you may be able to do what’s called an in-service rollover. This is when you transfer all or part of your 401(k) to an IRA rollover account. And while this is perfectly legal, your plan must allow for it.
Also, if you have a 401(k) at a previous employer you should roll that account into an IRA. This will give you the ability to buy and sell exchange-traded funds (ETFs), which come at lower cost than mutual funds—along with virtually no trading restrictions and with the utmost transparency, so you know always know what you own.
Finally, I know what I am outlining here runs counter to establishment thinking, but ask yourself this: are you happy with the results you had in your 401(k) last year? I dare say that that the answer for most people is no, and that means it could be time for some radical change.
Remember that success in anything doesn’t come without a little effort, and real success almost never comes about by following the conventional wisdom. In order to rescue your 401(k), you simply have to get involved and start thinking for yourself.