The Anatomy of an Index

Posted by on Jan 13, 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, Saving Money, social security, tax returns, taxes, TSA | 0 comments

The S&P 500 represents a large portion of the value of the U.S. equity market   Provided by Frederick Saide, Ph.D.   Did you know that nearly $10 trillion in assets are benchmarked to the Standard & Poor’s 500 Composite Index, including about $3.5 trillion in index assets?1   The S&P 500 is ubiquitous. It is constantly referenced in financial and non-financial media, and we may compare the return of our own investments to its performance. As the index represents approximately 80% of the value of the U.S. equity market (or about 80% of market capitalization), it may be worthwhile to gain a better understanding of its structure and workings.1   Breaking down the benchmark. The S&P 500, as we know it today, was introduced in March 1957. It tracks the market value of about 500 large firms that are listed on the Nasdaq Composite and the New York Stock Exchange. The S&P is structured to include companies from across the sectors of the business community, in an effort to represent the breadth of the U.S. economy.1,2   There are a number of criteria a company must meet to be considered for inclusion in the index. A firm must be a U.S. company publicly listed on a major equity market exchange, have a market capitalization of $6.1 billion or more, and have at least 250,000 of its shares traded in each of the six months prior to its consideration for index membership by Standard & Poor’s. A company must also be financially viable: the ratio of its annual dollar value traded to its float-adjusted market cap must be greater than 1.0.3   The S&P has changed over time. Companies have been gradually removed and added over the past 60-odd years. At the benchmark’s fiftieth anniversary in 2007, just 86 of the original components remained. Subsequent mergers and acquisitions have reduced that number further.3   Right now, about 20% of the weight of the S&P is held in ten companies, and the performance of tech shares influences the benchmark’s return, perhaps more than any other factor.3   The index has been altered through the years in response to changes in the economy. Across several decades, the makeup of the index’s various sectors has differed, along with their weightings. This leads to frequent updates for the equity funds that aim to replicate the index; in order to maintain that replication, they may quickly need to buy or sell shares of corporations that are being added or removed.3   Keep in mind that amounts in mutual funds and ETFs are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Equity...

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Why Having a Financial Professional Matters

Posted by on Dec 30, 2018 in 401k, 403b, bank statements, Boomers. Millenials, Budgeting, Consumer Tools, Credit & Debt, 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 good professional provides important guidance and insight through the years.   Provided by Frederick Saide, Ph.D.   What kind of role can a financial professional play for an investor? The answer: a very important one. While the value of such a relationship is hard to quantify, the intangible benefits may be significant and long lasting. A good financial professional can help an investor interpret today’s financial climate, determine objectives, and assess progress toward those goals. Alone, an investor may be challenged to do any of this effectively. Moreover, an uncounseled investor may make self-defeating decisions.   Some investors never turn to a financial professional. They concede that there might be some value in maintaining such a relationship, but they ultimately decide to go it alone. That may be a mistake.     No investor is infallible. Investors can feel that way during a great market year, when every decision seems to work out well. In long bull markets, investors risk becoming overconfident. The big-picture narrative of Wall Street can be forgotten, along with the reality that the market has occasional bad years.   This is when irrational exuberance creeps in. A sudden market shock may lead an investor into other irrational behaviors. Perhaps stocks sink rapidly, and an investor realizes (too late) that a portfolio is overweighted in equities. Or, perhaps an investor panics during a correction, selling low only to buy high after the market rebounds.   Often, investors grow impatient and try to time the market. Poor market timing may explain this divergence: according to investment research firm DALBAR, the S&P 500 returned an average of 8.91% annually across the 20 years ending on December 31, 2015, while the average equity investor’s portfolio returned just 4.67% per year.1                  The other risk is that of financial nearsightedness. When an investor flies solo, chasing yield and “making money” too often become the top pursuits. The thinking is short term.   A good financial professional helps a committed investor and retirement saver stay on track. He or she helps the investor set a course for the long term, based on a defined investment policy and target asset allocations with an eye on major financial goals. The client’s best interest is paramount.   As the investor-professional relationship unfolds, the investor begins to notice the intangible ways the professional provides value. Insight and knowledge inform investment selection and portfolio construction. The professional explains the subtleties of investment classes and how potential risk often relates to potential reward. Perhaps most importantly, the professional helps the client get past the “noise” and “buzz” of the financial markets to see what is really important to his or her financial life.   This...

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S Some Changes Are Coming For 401(k) Plans

Posted by on Dec 23, 2018 in 401k, 403b, atuos, bank statements, Boomers. Millenials, cars, college planning, Consumer Tools, credit card statements, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, social security, tax returns, taxes, TSA | 0 comments

Take note of them for 2019. Provided by Frederick Saide, Ph.D. Some notable developments are about to impact 401(k) plans. They follow a major change that became effective in 2018. Thanks to the Tax Cuts & Jobs Act, workers who borrow from 401(k) accounts and leave their jobs now have until October of the following year to repay plan loans.1 The Internal Revenue Service has eased the rules on 401(k) hardship distributions. Plan participants who arranged such withdrawals in 2018 (and years prior) paid an opportunity cost. The Internal Revenue Code barred these employees from making periodic contributions to their 401(k) accounts for six months after the withdrawal, and it also prevented them from exercising any stock options for that length of time.2 In 2019, some flexibility enters the picture. The Bipartisan Budget Act of 2018 (passed in February) allows plan sponsors to remove both of those restrictions in 2019, if they wish.2 Some fine print worth noting: the BBA also permits plan sponsors to give employees more sources for hardship withdrawals. In 2019, plan participants may take hardship distributions from their 401(k) account earnings, qualified non-elective employer contributions (QNECs), and qualified matching contributions (QMACs) in addition to elective deferral contributions, discretionary employer profit-sharing contributions, regular matching contributions, and earnings on contributions made before December 31, 1988.2 In 2018 and years prior, a plan participant could only take a hardship distribution after taking a loan from his or her 401(k) account. Next year, plan sponsors can waive this requirement, if they choose, and let their employees take hardship withdrawals from 401(k)s without a loan first.2 In addition, plan sponsors may let victims of California wildfires make special hardship withdrawals. An individual who suffered economic losses due to the massive fires in the Golden State (and whose principal residence is in a California wildfire disaster area) may take qualified wildfire distributions of up to $100,000 from a 401(k) through December 31, 2018. The money withdrawn is fully taxable, but the withdrawal is not subject to a 10% early withdrawal penalty. The amount withdrawn can also be recontributed to the plan within three years of the distribution. This type of hardship withdrawal may be permitted immediately; the plan sponsor has until the last day of the first plan year, beginning on or after January 1, 2019, to revise the plan documents to denote the new terms.2 What do these rule changes mean for companies sponsoring 401(k) plans? The message is clear. Review your plan documents and hardship withdrawal guidelines before 2019 begins, and decide whether you want to include these provisions. Lastly, annual contribution limits for 401(k) accounts are rising. An employee can put up to $19,000 into a 401(k) in...

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A Retirement Fact Sheet

Posted by on Dec 9, 2018 in 401k, 403b, bank statements, Boomers. Millenials, college planning, Consumer Tools, credit card statements, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Medicare Planning, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, sales, social security, tax returns, taxes, TSA | 0 comments

Some  specifics about the “second act.” Provided by Frederick Saide, Ph.D. Does your vision of retirement align with the facts? Here are some noteworthy financial and lifestyle facts about life after 50 that might surprise you.  Up to 85% of a retiree’s Social Security income can be taxed. Some retirees are taken aback when they discover this. In addition to the Internal Revenue Service, 13 states levy taxes on some or all Social Security retirement benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana,Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. (It is worth mentioning that the I.R.S. offers free tax advice to people 60 and older through its Tax Counseling for the Elderly program.)1 Retirees get a slightly larger standard deduction on their federal taxes. Actually, this is true for all taxpayers aged 65 and older, whether they are retired or not. Right now, the standard deduction for an individual taxpayer in this age bracket is $13,600, compared to $12,000 for those 64 or younger.2 Retirees can still use IRAs to save for retirement. There is no age limit for contributing to a Roth IRA, just an inflation-adjusted income limit. So, a retiree can keep directing money into a Roth IRA for life, provided they are not earning too much. In fact, a senior can potentially contribute to a traditional IRA until the year they turn 70½.1 A significant percentage of retirees are carrying education and mortgage debt. The Consumer Finance Protection Bureau says that throughout the U.S., the population of borrowers aged 60 and older who have outstanding student loans grew by at least 20% in every state between 2012 and 2017. In more than half of the 50 states, the increase was 45% or greater. Generations ago, seniors who lived in a home often owned it, free and clear; in this decade, that has not always been so. The Federal Reserve’s recent Survey of Consumer Finance found that more than a third of those aged 65-74 have outstanding home loans; nearly a quarter of Americans who are 75 and older are in the same situation.1 As retirement continues, seniors become less credit dependent. GoBankingRates says that only slightly more than a quarter of Americans over age 75 have any credit card debt, compared to 42% of those aged 65-74.1 About one in three seniors who live independently also live alone. In fact, the Institute on Aging notes that nearly half of women older than age 75 are on their own. Compared to male seniors, female seniors are nearly twice as likely to live without a spouse, partner, family member, or roommate.1 Around 64% of women say that they have no “Plan B” if forced to...

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Tax Scams & Schemes

Posted by on Dec 3, 2018 in 401k, 403b, atuos, bank statements, Boomers. Millenials, cars, college planning, Consumer Tools, credit card statements, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Medicaid Planning, Medicaid Recovery, Medicare Planning, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, sales, social security, tax returns, taxes, TSA | 0 comments

The “dirty dozen” favored by criminals & cheats.   Provided by Frederick Saide, Ph.D.   Year after year, criminals try to scam certain taxpayers. Year after year, certain taxpayers resort to schemes in an effort to put one over on the Internal Revenue Service (I.R.S.). These cons occur year-round, not just during tax season. In response to their frequency, the I.R.S. has listed the 12 biggest offenses – scams that you should recognize, schemes that warrant penalties and/or punishment.   Phishing. If you get an unsolicited email claiming to be from the I.R.S., it is a scam. The I.R.S. never reaches out via email, regardless of the situation. If such an email lands in your inbox, forward it to phishing@irs.gov. You should also be careful with sending personal information, including payroll or other financial information, via an email or website.1,2   Phone scams. Each year, criminals call taxpayers and allege that said taxpayers owe money to the I.R.S. The Treasury Inspector General for Tax Administration says that over the last five years, 12,000 victims have been identified, resulting in a cumulative loss of more than $63 million. Visual tricks can lend authenticity to the ruse: the caller ID may show a toll-free number. The caller may mention a phony I.R.S. employee badge number. New spins are constantly emerging, including threats of arrest, and even deportation.1,2   Identity theft. The I.R.S. warns that identity theft is a constant concern, but not just online. Thieves can steal your mail or rifle through your trash. While the I.R.S. has made headway in terms of identifying such scams when related to tax returns, and plays an active role in identifying lawbreakers, the best defense that remains is caution when your identity and information are concerned.1,2   Return preparer fraud. Almost 60% of American taxpayers use a professional tax preparer. Unfortunately, among the many honest professionals, there are also some con artists out there who aim to rip off personal information and grab phantom refunds, so be careful when making a selection.1,2   Fake charities. Some taxpayers claim that they are gathering funds for hurricane victims, an overseas relief effort, an outreach ministry, and so on. Be on the lookout for organizations that are using phony names to appear as legitimate charities. A specious charity may ask you for cash donations and/or your Social Security Number and banking information before offering a receipt.1,2   Inflated refund claims. In this scenario, the scammers do prepare and file 1040s, but they charge big fees up front or claim an exorbitant portion of your refund. The I.R.S. specifically warns against signing a blank return as well as preparers who charge based on the amount of your tax...

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Staying Out of Debt Once You Get Out of Debt

Posted by on Nov 19, 2018 in 401k, 403b, atuos, bank statements, Boomers. Millenials, cars, college planning, Consumer Tools, credit card statements, Deflation, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, Medicare Planning, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, social security, TSA | 0 comments

As you reduce your liabilities, embrace the behaviors that may improve your balance sheet.   Provided by Frederick Saide, Ph.D.     Paying off a major debt produces a sense of relief. You can celebrate a financial milestone; you can “pay yourself first” to greater degree and direct more money toward your dreams and your financial future rather than your creditors.   Once you get out of excessive consumer debt, the last thing you want to do is fall right back in. What steps can you take to reduce that possibility, and what missteps should you avoid making?   Step one: save money. So often, an unexpected event can put you in debt: an auto breakdown, a job loss, a trip to the emergency room or a hospital stay. If you earmark $50 or $100 a month (or even $20 a month) for an emergency fund, you can create a pool of money that may help you deal with the financial impact of such crises. Every dollar you save for these events is a dollar you do not have to borrow through a credit card or a personal loan at burdensome interest rates.      Step two: budget. Think about a 50/30/20 household budget: you assign half of your income for essentials like housing payments and food, 30% to discretionary purchases like shopping, eating out, and entertainment, and 20% to savings and/or paying down whatever minor debts you must incur from month to month.   Step three: buy things with an eye on value. Do you really need a new car that will require financing, one that will rapidly depreciate as soon as you drive it off the lot? A late-model used car might be a much better purchase. Similarly, could you save money by eating in more often or bringing a lunch to work? You could find some very nice goods at very cheap prices by shopping at thrift stores or online used marketplaces. These are all smart consumer steps, net positives for your financial picture.   You should also be aware of some potential missteps that could lead you right back into significant debt, or negatively impact your credit rating. Some of them may be taken consciously, others unconsciously.   Misstep one: spending freely once you are free of debt. If you get rid of consumer debt, but retain the spending mentality that drove you into it, your financial progress may be short-lived. If the experience of getting into (and getting out of) debt does not change that mindset, then you risk racking up serious debt again.   Misstep two: living without adequate health, auto, or disability insurance. Sometimes people are forced to assume large debts as a direct...

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