The Sequence of Returns

Posted by on Apr 14, 2019 in 401k, 403b, bank statements, Boomers. Millenials, Budgeting, college planning, Consumer Tools, Credit & Debt, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, Life Stages, Persoanl Financial tips, Retire Happy, Retire Happy Now, Retirement, retirement, retirement planning, Saving Money, social security, taxes | 0 comments

A look at how variable rates of return do (and do not) impact investors over time. Provided by Frederick Saide, Ph.D. What exactly is the “sequence of returns”? The phrase simply describes the yearly variation in an investment portfolio’s rate of return. Across 20 or 30 years of saving and investing for the future, what kind of impact do these deviations from the average return have on a portfolio’s final value? The answer: no impact at all. Once an investor retires, however, these ups and downs can have a major effect on portfolio value – and retirement income. During the accumulation phase, the sequence of returns is ultimately inconsequential. Yearly returns may vary greatly or minimally; in the end, the variance from the mean hardly matters. (Think of “the end” as the moment the investor retires: the time when the emphasis on accumulating assets gives way to the need to withdraw assets.) An analysis from BlackRock bears this out. The asset manager compares three model investing scenarios: three investors start portfolios with lump sums of $1 million, and each of the three portfolios averages a 7% annual return across 25 years. In two of these scenarios, annual returns vary from -7% to +22%. In the third scenario, the return is simply 7% every year. In all three scenarios, each investor accumulates $5,434,372 after 25 years – because the average annual return is 7% in each case.1 Here is another way to look at it. The average annual return of your portfolio is dynamic; it changes, year-to-year. You have no idea what the average annual return of your portfolio will be when “it is all said and done,” just like a baseball player has no idea what his lifetime batting average will be four seasons into a 13-year playing career. As you save and invest, the sequence of annual portfolio returns influences your average yearly return, but the deviations from the mean will not impact the portfolio’s final value. It will be what it will be.1 When you shift from asset accumulation to asset distribution, the story changes. You must try to protect your invested assets against sequence of returns risk. This is the risk of your retirement coinciding with a bear market (or something close). Even if your portfolio performs well across the duration of your retirement, a bad year or two at the beginning could heighten concerns about outliving your money. For a classic illustration of the damage done by sequence of returns risk, consider the awful 2007-2009 bear market. Picture a couple at the start of 2008 with a $1 million portfolio, held 60% in equities and 40% in fixed-income investments. They arrange to retire at the...

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Your Financial Co-Pilot

Posted by on Apr 5, 2019 in 401k, 403b, atuos, bank statements, Boomers. Millenials, Budgeting, cars, college planning, Consumer Tools, Credit & Debt, credit card statements, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Life Stages, Medicaid Planning, Medicaid Recovery, Medicare Planning, Persoanl Financial tips, Retire Happy, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, sales, Saving Money, social security, tax returns, taxes, TSA | 0 comments

If anything happens to you, your family has someone to consult.   Provided by Frederick Saide, Ph.D.   If you weren’t around, what would happen to your investments? In many families, one person handles investment decisions, and spouses or children have little comprehension of what happens each week, month, or year with a portfolio. In an emergency, this lack of knowledge can become financially paralyzing. Just as small business owners risk problems by “keeping it all in their heads,” families risk problems when only one person understands investments. A trusted relationship with a financial professional can be so vital. If the primary individual handling investment and portfolio management responsibilities in a family passes away, the family has a professional to consult – not a stranger they have to explain their priorities to at length, but someone who has built a bond with mom or dad and perhaps their adult children.      You want a professional who can play a fiduciary role. Look for a financial professional who upholds a fiduciary standard. Professionals who build their businesses on a fiduciary standard tend to work on a fee basis or entirely for fees. Other financial services industry professionals earn much of their compensation from commissions linked to trades or product sales.1 Commission-based financial professionals don’t necessarily have to abide by a fiduciary standard. Sometimes, only a suitability standard must be met. The difference may seem minor, but it really isn’t. The suitability standard, which hails back to the days of cold-calling stock brokers, dictates that you should recommend investments that are “suitable” to a client. Think about the leeway that can potentially provide to a commission-based professional. In contrast, a financial professional working by a fiduciary standard always has an ethical requirement to act in a client’s best interest and to recommend investments or products that clearly correspond to that best interest. The client comes first.1 You want a professional who looks out for you. The best financial professionals earn trust through their character, ability, and candor. In handling portfolios for myriad clients, they have learned to watch for certain concerns and to be aware of certain issues that may get in the way of wealth building or wealth retention. Many investors have built impressive and varied portfolios but lack long-term wealth management strategies. Money has been made, but little attention has been given to tax efficiency or risk exposure. As you near retirement age, playing defense becomes more and more important. A trusted financial professional could help you determine a risk and tax management approach with the potential to preserve your portfolio assets and your estate. Your family will want nothing less. With a skilled financial professional around to...

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You Could Retire, But Should You?

Posted by on Mar 31, 2019 in 401k, 403b, atuos, bank statements, Boomers. Millenials, Budgeting, cars, college planning, Consumer Tools, Credit & Debt, credit card statements, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, Life Stages, Persoanl Financial tips, Retire Happy, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, sales, Saving Money, social security, taxes | 0 comments

It might be better to wait a bit longer.   Provided by Frederick Saide, Ph.D.   Some people retire at first opportunity, only to wish they had waited longer. Your financial strategy likely considers normal financial ups and downs. That said, a big “what if” on your mind might be “what if I retire in a down time that doesn’t swing back upward in a year or two?” It could happen to everyone, and it certainly doesn’t work on your schedule. For that reason, the fact that you can retire doesn’t necessarily mean that you should. Retiring earlier may increase longevity risk. The concern can be put into three dire words: “outliving your money.” Sudden medical expenses, savings shortfalls, financial downturns, and larger-than-planned withdrawals from retirement accounts can all contribute to it. The downside of retiring at 55 or 60 is that you have that many more years of retirement to fund. There are also insurance issues to consider. Medicare will not cover you until you turn 65; in the event of an illness, how would your finances hold up without its availability? While your employer may give you a year-and-a-half of COBRA coverage upon your exit, that could cost your household more than $1,000 a month.1,2 How is your cash position? If your early retirement happens to coincide with a severe market downturn or a business or health crisis, you will need an emergency fund – or at the very least, enough liquidity to quickly address such issues. Does your spouse want to retire later? If so, your desire to retire early might cause some conflicts and impact any shared retirement dreams you hold. If you have older children or other relatives living with you, how would your decision affect them? Working a little longer might ease the transition to retirement. Some retirees end up missing the intellectual demands of the workplace and the socialization with friends and coworkers. They find no ready equivalent once they end their careers. Also, it may be difficult to find a part-time job in another field, so staying a while longer could help you make the change at a pace that will be more comfortable, both financially and emotionally.3 Ideally, you will retire with adequate savings and a plan to stay physically and mentally active and socially engaged, so waiting a bit longer to retire might be advantageous to your bottom line. Fred Saidevmay be reached at 908-791-3831 or Frederick2@gmx.us www.wealthensure.com and www.moneymattersusa.net   This material was prepared by a third party, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves...

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Earnings for All Seasons

Posted by on Mar 24, 2019 in 401k, 403b, Boomers. Millenials, Budgeting, cars, college planning, Consumer Tools, Credit & Debt, credit card statements, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Life Stages, Medicaid Planning, Medicare Planning, Persoanl Financial tips, Retire Happy, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, sales, Saving Money, social security, tax returns, taxes, TSA | 0 comments

What is it and why is it important?   Provided by Frederick Saide, Ph.D.   While nature offers four seasons, Wall Street offers only one – four times a year. It’s called “earnings season,” and it can move the markets. So, what is earnings season, and why is it important? Earnings season is the month of the year that follows each calendar quarter-end month (January, April, July, and October). It is the time during which many public companies release quarterly earnings reports. Some public companies report earnings at other times during the year, but many are on the calendar year that ends December 31.1 Reported Earnings. To understand the importance of earnings, we need to remember that the value of a company can be tied to the amount of money it earns. Some companies don’t have earnings, and they are valued based on their potential rather than their current earnings. Wall Street analysts maintain a close pulse on a company’s quarterly report to help estimate future earnings. For example, these estimates may guide investors in determining an appropriate price for a company’s stock. Remember, a company is not permitted to discuss interim earnings with select individuals; earnings reports must be disseminated publicly to level the playing field for all investors.1,2 An Inside Look. When an earnings report is released, it tells the market two things. First, it offers an insight into how the company is performing and what its prospects may look like over the near term.1 And second, the report can serve as a bellwether for similar companies that still have not reported. For instance, if the earnings of a leading retailer are strong, it may offer an insight into the earnings of other retailers, as well as other companies that similarly benefit from higher consumer spending. What Time? Earnings reports are generally released when the market is closed in order to provide market participants adequate time to digest the results. Earnings reports may move markets. If earnings diverge from the expectations of professional investors and traders, then price swings – up or down – may be significant. Such a divergence is referred to as an “earnings surprise.” If you are a “buy-and-hold” investor and feel confident in a company’s long-term prospects, earnings season may mean little to you, since short-term results may not impact your long-term outlook. However, earnings reports can be meaningful if an earnings shortfall reflects a structural problem with a business or represents the continuation of a downward trend in earnings. For that reason, it may be wise for you to keep an eye on earnings season. Information about growth, decline, and other changes to a company can be important in understanding the value...

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Midlife Money Errors

Posted by on Mar 15, 2019 in 401k, 403b, Boomers. Millenials, Budgeting, college planning, Consumer Tools, Credit & Debt, credit card statements, Deflation, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRS, Life Stages, Medicare Planning, Persoanl Financial tips, Retire Happy, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, Saving Money, social security, tax returns, taxes, TSA | 0 comments

If you are between 40 & 60, beware of these financial blunders & assumptions. Provided by  Frederick Saide, Ph.D. Mistakes happen, even for people who have some life experience under their belt. That said, your retirement strategy is one area of life where you want to avoid having some fundamental misconceptions. These errors and suppositions are worth examining, as you do not want to succumb to them. See if you notice any of these behaviors or assumptions creeping into your financial life. Do you think you need to invest with more risk? If you are behind on retirement saving, you may find yourself wishing for a “silver bullet” investment or wishing you could allocate more of your portfolio to today’s hottest sectors or asset classes, so you can “catch up.” This impulse could backfire. The closer you get to retirement age, the fewer years you have to recoup investment losses. As you age, the argument for diversification and dialing down risk in your portfolio gets stronger and stronger. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline. Have you made saving for retirement a secondary priority? It should be a top priority, even if it becomes secondary for a while, due to fate or bad luck. Some families put saving for college first, saving for mom and dad’s retirement second. Remember that college students can apply for financial aid, but retirees cannot. Building college savings ahead of your own retirement savings may leave your young adult children well-funded for the near future, but you ill-prepared for your own. Has paying off your home loan taken priority over paying off other debts? Owning your home free and clear is a great goal, but if that is what being debt free means to you, you may end up saddled with crippling consumer debt on the way toward that long-term objective. In late 2018, the average American household carried more than $6,900 in credit card debt alone. It is usually better to attack credit card debt first, thereby freeing up money you can use to invest, save for retirement, build a rainy day fund – and yes, pay the mortgage.1 Have you taken a loan from your workplace retirement plan? If you’ve taken this step, consider the following. One, you are drawing down your retirement savings – invested assets, which would otherwise have the capability to grow and compound. Two, you will probably repay the loan via deductions from your paycheck, cutting into your take-home pay. Three, you will probably have to repay the full amount within five years – a term that may not be long as you would...

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Is America Prepared to Retire?

Posted by on Feb 24, 2019 in 401k, 403b, atuos, bank statements, Boomers. Millenials, Budgeting, cars, college planning, Consumer Tools, Credit & Debt, credit card statements, Deflation, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, Life Stages, Medicare Planning, Persoanl Financial tips, Retire Happy, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, sales, Saving Money, social security, tax returns, taxes, TSA | 0 comments

A look at some ways to get ready.  Provided by Frederick Saide, Ph.D.   Are Americans saving enough? Only 19% of U.S. adults describe themselves as “very confident” when asked about their savings. Worry spots include retiring without enough money saved (16%) and anxiety about having a “rainy day” emergency fund (14%). These findings come from the 2018 Consumer Financial Literacy Survey conducted by the National Foundation for Credit Counseling. (The survey collected data from 2,017 U.S. adults.)1   Only 41% of us keep a regular budget. If you are one of those roughly two-out-of-five Americans, you’re on the right track. While this percentage is on par with findings going back to 2007, the study also finds that while 65% of Americans are saving part of their annual income towards retirement, 29% indicate they are “not at all confident” that their savings will be enough to sustain them.1 Relatively few seek the help of a financial professional. When asked “Considering what I already know about personal finance, I could still benefit from some advice and answers to everyday financial questions from a professional,” 79% of respondents agreed with the statement. Yet only 13% indicated that they would seek out the help of some sort of financial professional if they had “financial problems related to debt.” While it isn’t surprising to think that 24% of respondents would turn to friends and family, it may be alarming to learn that 18% would choose to turn to no one at all.1 Why don’t more people seek help? After all, Americans of all incomes and savings levels certainly are free to set financial goals. They may feel embarrassed about speaking to a stranger about personal financial issues. It may also be the case that they feel like they don’t make enough money to speak to a professional, or perhaps, a financial professional is something that millionaires and billionaires have, not the average American worker. Another possibility is that they feel like they have a good handle on their financial future; they have a budget and stick to it, and they contribute to an IRA, 401(k), or have some other investments. But that 79% admission, mentioned above, indicates that a vast majority of Americans are not as confident.1  Defined goals lead to definite strategies. If you set financial objectives, you vault ahead of most Americans – at least according to these findings. A written financial strategy does not imply or guarantee wealth, of course, nor does it ensure that you will reach your goals. Yet that financial strategy does give you an understanding of the distance between your current financial situation (where you are) and where you want to be.  How much have you...

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