Tuesday, September 6, 2016

What Every Retirement Investor Must See (and Take Note) from the Recent EpiPen Saga


What Every Retirement Investor Must See (and Take Note) from the Recent EpiPen Saga


Mylan Pharmaceuticals, the maker of EpiPen, has been in the news lately regarding some astronomical increases in the price of its life-saving drug. My mission with this column is not to opine about the details of that move one way or the other. No doubt, a lot has been said in recent days to that end.

What I want to point out is a valuable lesson that every stock market investor must glean from this story. There is a fundamental principle to building a prudent investment portfolio that we can all learn from this situation – and I really do hope that people will not get complacent and ignore this lesson.

What exactly am I talking about? What does a decision by some company fatcats to jack up prices have to do with your retirement portfolio? Allow me to explain myself. Since you do not and cannot control any bad business decisions and/or actions that company executives might take which could, in turn, lead to serious stock price and revenue repercussions, it behooves you to pay particular attention to the good old rule about prudently diversifying your investments. Most of us tend to get carried away and ignore this rule.

But the fact of the matter is that on any given day, we may wake up to news of some event that could potentially depreciate a company’s stock price or even wipe it out all together – and with it could go our hard-earned wealth. In this particular case involving Mylan Pharmaceuticals, you may have heard reports that the company’s stock value sank by somewhere in the neighborhood of 3 billion dollars in just a matter of days; what you must understand is that every cent of that loss represents somebody’s wealth. My hope is that those folks have properly diversified their portfolios, rather than dedicating significant portions of their investments to this one company’s stock.

Is your portfolio heavily dependent on just one or a few companies? No company is inoculated from an event that could be catastrophic for its stock price. It does not matter how large, smart, or long any such company has been around. And it certainly doesn’t matter whether several generations of your family have been employed by this company.

What do WorldCom, Enron, Global Crossing, Washington Mutual, and Lehman Brothers have in common? They were all wiped out. It is however extremely crucial to note that right up until the very day and very moment that each of them basically evaporated from this planet, they were considered large and stable.

I hope that I’ve made my case. My very best to you.
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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. Youll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If youre ready, were here to help.

Monday, July 18, 2016

Why Passive Fund Management Outperforms Active Fund Management

Why Passive Fund Management Outperforms Active Fund Management



In my most recent post I made a broad ten-thousand-foot-level argument as to why making frequent changes to an investment portfolio – whether in reaction to or in anticipation of what the stock market/economy might do – is destructive behavior.

Today, I would like to get a little more technical and specific, because I believe this is such a serious issue that is the main driver in determining whether you’ll see tangible results from your years of hard work and investing or you’ll end up otherwise, without anything to show for your efforts.


Active vs. Passive Management


One of the main choices you must make as an investor is deciding the manner in which you want your portfolio to be managed: actively or passively. In active management, a mutual fund manager attempts to predict what will happen next and which stocks/bonds are going to win, so to speak. This is called active management because it involves constantly selling and buying stocks/bonds and changing things up in an attempt to “beat” the market. Personally, I don’t support this form of investing because in order for it to work, you’d need a fund manager who could actually precisely predict what the markets will do in the future. Common sense tells me that’s impossible. But let’s just leave it at that for the moment.

The alternative is passive management which, in contrast, understands that since the market’s movements are random and unpredictable, the most effective thing to do is to invest in an entire asset class/index and leave the investments alone. The goal of this approach is to capture/duplicate the market’s returns, not attempt to beat it, as in the case of actively managed funds. 

Now let’s get back to the argument at stake. Is constantly trying to make changes to a portfolio based on day-to-day events (active management) really destructive for your investments?


The independent investment research firm Morningstar publishes a report called Active/Passive Barometer, which gives us a glimpse of how these two opposite approaches at managing investments hold up against each other. Here is a quote from the report’s executive summary:


…The report finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons, and experienced high mortality rates (that is, many are merged or closed)…
Now here’s my humble opinion: Attempting to actively manage investments hasn’t worked so far, which should not be surprising at all. Human beings cannot predict the day-by-day movements of a completely random and unpredictable market. As the report found, not only are these active funds failing miserably, but they also have “high mortality rates” – they have such bad results that they end up closing.
Think about it and invest your money prudently. My very best to you.


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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. Youll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If youre ready, were here to help.

Monday, June 13, 2016

Why You Should View Frequent Investment Portfolio Changes as a Sign of Serious Trouble

Why You Should View Frequent Investment Portfolio Changes as a Sign of Serious Trouble


Many unsuspecting investors do it all the time. Any time the stock market makes the news – good or bad – they react by making changes to their existing portfolios. Sometimes the changes are initiated by the investors themselves, but other times the advisor suggests the changes, convincing the investor to go along.

Am I implying that making changes to your investment portfolio is a bad thing? Essentially and for the most part, yes – except in the case of rebalancing your portfolio back to its targeted allocations, which technically speaking isn’t considered a change in your portfolio. Here’s why.

You visit an advisor. He or she helps you put together what virtually any financial professional would claim is the best possible portfolio to help you achieve your long-term financial goals, be it retirement or college funds for your child or grandchild. Then in a matter of just a relatively short period, without any significant changes in your life that necessitate altering your investing profile, you need to make changes?

Let’s think carefully about that picture. What does it tell you about an advisor if they are constantly moving funds around? I interpret it along these lines: they don't really know what they’re doing, where they’re going, or how to get there. They were hoping this portfolio they suggested might do the trick. But, now, based on what the stock market is doing, they think that other one will be better instead. Does this sound like what you want your advisor to be doing with your hard-earned investment money?

It’s interesting, but some people actually see this destructive behavior as a sign that a financial advisor is smart and on top of things. The opposite is true, in my opinion, simply because no one can predict what is going to happen tomorrow. So if your investment strategy revolves around reacting to short-term market movements, you should think twice. In fact, any time your advisor alters your portfolio in this manner, it is indicative of only one thing: that he or she got it all wrong previously. Isn’t it?

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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. Youll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If youre ready, were here to help.

Monday, May 16, 2016

Exaggeration or Cold Hard Truth that Most Financial Advisors are Full of Hot Air?

Exaggeration or cold, hard truth that most financial advisors are full of hot air?

I might be over-exaggerating things here, or perhaps the situation is just as dire as I perceive it – that so many hard-working people out there are getting what amounts to shoddy treatment from the so-called financial advisors, consultants, or what-have-yous they’ve turned to for guidance to secure their financial futures.

Here’s why I am saying this. Quite often, I meet and/or talk with folks who by any reasonable standard were given bad financial advice which led them to invest their hard-earned money in the wrong products – things that ended up giving them less than optimal benefit. On the other hand, however, the advisors always end up receiving their paychecks.

For these unsuspecting folks I have personally met, this usually is a wake-up call, but how many more out there aren’t even aware that they are not getting the best bang for their efforts and money? Unfortunately, I think many of these shady advisors are getting away with this unacceptable behavior.

When you go to talk to a financial professional about your retirement, you would expect to get only the best suggestions. However, based on what I see in my practice on an almost-daily basis, it seems to me that the vast majority of people tend to end up with some cookie-cutter, off-the-shelf advice and products without any real emphasis on their unique set of circumstances.

So, again, I ask: Am I over-exaggerating what’s happening out there? Of course this doesn’t apply to every financial advisor. There are certainly some great advisors out there who are actually going above and beyond to help their clients get the best possible outcomes. In fact, isn’t this exactly and precisely what people should expect from any financial professional they might talk to? Why should that be the exception instead of the norm?

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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. Youll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If youre ready, were here to help.

Monday, April 18, 2016

Unfortunately, Your Old 401k Isn’t Just Sitting There

Unfortunately, Your Old 401k Isn’t Just Sitting There

Your old 401(k)s isn’t just sitting there. And that is not unique to you — no one’s 401(k) ever just stays put, whether you are actively contributing to it, no longer contributing to it, or no longer employed by the employer offering it. This is the gist of a conversation that I had with someone a few weeks back.

This individual was under the impression that her 401(k) from her previous employer was simply going to stay put, now that she was no longer a part of that organization. In her estimation, nothing would happen to her money except that over the years she could expect to see some growth.

Based on my interactions throughout the years, many unsuspecting folks unfortunately seem to operate under this same erroneous assumption that could potentially lead to costly unintended consequences — as you are about to see in just a moment.

401(k)s, like any other similar investment vehicles, have certain fees associated with them.
In my opinion, one of the most dreadful things surrounding these plans is that these fees are not disclosed anywhere on the statements you receive as being deducted from your account balance, because they are deducted directly from your returns.

For example, say that the fees associated with your 401(k) were 1.5 percent a year. If your investments earned, say, a 6 percent return for the year, you’d only end up seeing an increase of 4.5 percent (6% minus the 1.5% fee). Yes, you can say that the fees get paid on the back end.

In the case of the individual with whom I had the above mentioned discussion, I was able to dig out the associated fees on her old 401(k) from her former employer’s Summary Plan Description document.
And it wasn’t great news. As an employee, her fee was approximately 1.5 percent annually. However, once she was no longer actively employed by the organization, it increased to 2.5 percent. I must note here that this practice isn’t unusual in the 401(k) world. It’s pretty standard for your fees to increase when you are no longer part of the sponsoring employer’s workforce. A good question is: How many folks out there are aware of this? Do you know how much you are paying in fees? The fact is that these fees matter a lot, because they directly affect the outcome you’ll end up having when the rubber finally meets the road.

Let’s assume this individual had about $100, 000 in this old 401(k), and it will earn a return (before fees) of 8 percent a year for the next 10 years. If she were still employed at the company offering the plan, her net return after deducting the 1.5 percent in fees would be 6.5 percent. In 10 years, her money would have grown to about $191, 218. Unfortunately, however, since she is no longer an active employee, her fee goes up to 2.5 percent, meaning her net return comes down to 5.5 percent, which equates to a balance of $173, 107 at the end of those 10 years. That comes to about $1, 811 extra fees a year ($18, 111 over those 10 years).

This lady thought all along that her money was just sitting there; she learned the hard way that this isn’t the case because that is not how investment accounts of any kind work. This realization gives her the opportunity to seek an alternate investment account that will get her the same or a potentially better return, but with a lower fee structure so she’ll come out ahead and end up keeping more of her money. And from where I am sitting, isn’t that the goal of every hard working investor?

When it comes to your old — or current — 401(k), are you asking the right questions, or simply making assumptions?

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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. Youll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If youre ready, were here to help.

Monday, March 21, 2016

Think Twice Before Contributing to a Traditional IRA


Think Twice Before Contributing to a Traditional IRA


It’s tax time once again, which makes it the perfect time to discuss what, in my humble opinion, seems to be one of the deadliest financial mistakes that millions of unsuspecting folks are led to make by some tax preparers.

Right about now, so many folks are being given what amounts to very short-sighted advice to make tax-deductible contributions into traditional IRAs so that they can reduce their taxes (a.k.a. save money and, in turn, outsmart our favorite Uncle Sam). On the surface, that sounds like a pretty awesome situation, doesn’t it? But that is not the end of the story. In fact, from my standpoint, it is not even half of the story. 

First of all, it is true that once you meet certain criteria, you are allowed to make tax deductible contributions to an IRA. Presently, it’s up to $5,500 for those under age 50 and $6,500 for people 50 and older. So, yes, by doing so, you would be reducing your taxes, all things being equal, but only for today.

However, here’s the rest of the story – the alarming part that people often discover so many years later to their utter dismay, at least based on what I keep seeing in my practice year after year.

Your contributions to a traditional IRA and the interest you earn on them accrue on a tax-deferred basis. In everyday English, all you are doing is essentially electing to postpone paying the taxes you owe until sometime in the future, probably when you reach retirement age. So you really aren't avoiding any taxes – they all must be paid sooner or later.

So when you reach retirement age and begin taking withdrawals from your traditional IRA, every single penny will be subject to taxes – get this – at whatever tax rate you find yourself in at that point in time. An amazing number of people tend to think that when they retire, they will somehow find themselves in a very low tax bracket because they expect a drop in their total income. But it is not as simple as that, because that is not how income taxes work. We are taxed on our “taxable income” – not simply income, two entirely different concepts.

And I can tell you this also. Generally speaking, you tend to have very few deductions in retirement, compared to earlier on in life, so your taxable income – like that of most retirees in America today – will likely be higher than you anticipate, even though you have a much lower total income. I am not sure if you’ve noticed it yet, but most folks in retirement tend to not enjoy tax time at all. Not that most of us look forward to it, but per my observations, retirees really, really dread April 15.

Another caveat. All the withdrawals you take from your traditional IRA in retirement also factor into how much tax you’ll end up paying on your Social Security benefit checks. I am not sure any of these traditional IRA gurus tell folks about this piece of crucial tax planning information. 

To be clear. I am not telling you that you should not own a traditional IRA, because I simply don’t know your particular situation. I am suggesting, however, that you be mindful of the often one-sided view offered by typical financial advisors and consider the total picture. At the end of the day, when the rubber finally meets the road, as it always does, you are not saving because you want to defer taxes, but because you want to have income available for a better tomorrow.

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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. Youll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If youre ready, were here to help.

Monday, March 7, 2016

From Saving to Distribution - Is Your Retirement Plan COMPLETE?

From saving to distribution - is your retirement plan COMPLETE?


There’s a rather unfortunate problem on the American retirement scene that seems to be getting worse by the day - an ever increasing number of folks are arriving at retirement only to discover that they are at risk of running out of money. And it’s not because they didn’t save enough during their working years. Many did. So why are they facing this predicament?

From what I have seen in my practice, most folks fail to transition from the accumulation or savings phase of retirement planning into the distribution or income phase. In fact, many retirees today have not done any form of serious income planning. So in effect, they are going along in retirement trying to manage issues relating to longevity of their income but with accumulation-focused nest eggs.

This amounts to trying to fit a square peg in a round hole because the two are entirely different. Income planning is a whole specialty on its own, and not all financial advisors focus on it. But it is too important to ignore because the consequence is the difference between running out of money mid-stream or making sure that you’ll never run the risk of outliving your income, irrespective of how long you end up living. 


Some questions to consider


Will I have enough income to last as long as I do? Will my income keep up with rising prices? What effect will a stock market crash have on my income? What portion of my income is guaranteed and based on what? What will happen to my spouse’s lifestyle if I die? What effect will taxation have on my various sources of income throughout the years?


It may not seem that big of a deal. But without proper income planning by an experienced professional, you could end up in a really tough spot at a time that you don't want to be. Report after report tell us that is exactly what’s happening to so many unsuspecting folks out there. My hope is that if you haven't done so already or feel uneasy about your situation you’ll take some time to talk with an advisor who specializes in income planning today because your peace of mind in those retirement years is too important. 

Food for thought.
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Visit LaserFG.com or call 877.656.9111 right now to book your complimentary, confidential consultation with a financial professional who has your best interest at heart and who is willing to ask the right questions to help you make a plan that will get you where you want to go. Youll be paired with an experienced financial professional who can help you plan for a secure future, regardless of your current financial situation. Retirement planning means planning for ALL aspects of your life after retirement. If youre ready, were here to help.