Are You Following the Herd, or Blazing Your Own Trail to Financial Security?

Are you following the herd, or blazing your own trail to financial security?

Given my role at our firm, I find myself on an almost daily basis interacting with retirement investors, either in a group setting (when I’m teaching a workshop) or in private client meetings. Lately, I have noticed a very disturbing trend in the perception of a rather large number of folks. I’m talking about the idea that, when times are bad for the stock market, “Our investment portfolios lose money together” – and therefore, by implication, “We make money together when things are good.”


Given the fact that most American investors tend to follow the herd, so to speak, when it comes to planning their retirements – in the sense that whatever their favorite TV/radio personality, financial magazine, or smart cousin suggests is what they pursue – I can to a certain extent understand why this erroneous perception is so prevalent. The problem is that when one member of the herd loses or gains, everyone else must share the experience.


Here’s the thing, though. There are investors who do not lose even a dime when the stock market plummets. In fact, they are folks just like you. More interesting is that these folks are not using any out-of-this-world, special-omen financial products. We’re talking plain old 401(k)s, IRAs, tax-sheltered annuities, SEP IRAs, Roth IRAs, and the like. Really! I say this all the time, but this moment calls for me to say it again: not all financial strategies/products - even of the same kind - are the same.


Wait a minute here! Does this guy mean to say that some people actually did not lose any portion of their investment portfolios values during the 2008 stock market tsunami? Absolutely, yes! How is that possible? Simple! They utilize a strategy that, as a matter of contract, guarantees their savings will be completely insulated from stock-market risk. So when the market dips, they don’t lose anything. But whenever the market gains, their savings increase, up to a certain cap.


This is not a fantasy. Actually, for the nearly two decades that we’ve been around, these investors’ portfolios have gained money every single year. That’s definitely something to think about the next time you see and/or hear one of those reports that seem to suggest otherwise.
_______________
Contact a financial professional at Laser Financial Group to schedule your complimentary meeting today. Learn strategies that will give you peace of mind and help your retirement income provide the security of which you have always dreamed. 877.656.9111 or LaserFG.com.

Financial FICTION #12: If a Particular Financial Product is Good, Most People Should (and Would) Know About It

Financial FICTION #12: If a Particular Financial Product is Good, Most People Should (and Would) Know About It – and Own It, Too.


Many people are under the erroneous impression that if a given financial product is good, then everyone should be using it. While a part of me understands the reasoning behind this belief, to some extent, that line of thinking should not be any serious person’s litmus test.

Not all financial products – even of the same kind – are equal


Unlike other stuff we acquire in life, personal finance should be and must be custom made for each individual – sort of like fingerprints. What that means is that a product that might work perfectly well for you could end up being terrible for your friend. I have seen several cases where a particular product (and we’re talking the same product by the same company) worked very well for one individual but turned out to be a complete disaster for another.


You should view personal finance just as you view your doctor-patient relationship, in the sense that your prescribed medications must be based on your symptoms, test results, allergies, and the other unique personal circumstances that doctors take into consideration. 


Additionally, just because a financial product is popular does not mean it’s the right solution for you. As basic as that statement may sound, many in this country guided by so-called financial advisors or gurus are doing just that – jumping on a trend because it’s popular, without doing the necessary research to determine whether it really is the right thing for their circumstances.


Here’s an important observation, though. Have you noticed the biggest trend of all: unfortunately, the majority of American retirees wind up in an inadvertent cycle of poverty, rather than being able to live their golden years in complete financial security? The interesting fact that seems to be escaping the notice of far too many is that the few who end up financially secure during their retirements tend to take an atypical approach with their investments (which means they’re not so trendy at all).
___________________
Contact a financial professional at Laser Financial Group TODAY to schedule your complimentary session. Have them evaluate your current financial plan – and learn what might really work for you, specifically, even if it's not the most popular idea in your neighborhood. 877.656.9111

Financial FICTION #11: Roth IRAs Are the Best Known Tax-advantaged Vehicles Offered in the U.S. Tax Code

Financial FICTION #11: Roth IRAs are the best-known tax-advantaged vehicles offered in the U.S. Tax Code

Financial professionals overwhelmingly agree that it is a very smart move for retirement investors to pursue investment programs into which they can contribute after-tax dollars today, and be able to withdraw those funds (including all the gains) income-tax free later on. I wholeheartedly agree with this line of thought because it makes perfect sense in almost every situation I have witnessed to this point.


However, many financial advisors fall short by positioning Roth IRAs (and, more recently, Roth 401(k)s) as the absolutely best tax-advantaged strategy available to investors under current U.S. tax laws. Given the limitations associated with Roth IRAs, vis-à-vis what one could do within the confines of Sections 7702, 72(e), and 101 of the Internal Revenue Code, I don’t think anyone could argue otherwise that Roth IRA’s are not the absolutely best tax-advantaged deal out there.

For one thing, the maximum yearly contribution one can make into a Roth IRA is $5,000 for those younger than 50 and $ 6,000 for those who are age 50 or older – which means that under no circumstance can anyone contribute more than these limits, even if they wanted to.


Most folks are not aware of this, but not everyone can own a Roth IRA. Certain eligibility requirements which are generally based around Modified Adjusted Gross Income (MAGI) and tax filing status must be met to the satisfaction of the IRS in order to own them.


For instance, if your filing status in 2011 is single, head-of-household or married filing separately (and you did not live with your spouse anytime during the year), and your MAGI is more than $122,000, you cannot contribute anything to a Roth IRA. For those with a married filing jointly or qualified widow(er) status, the cut-off/disqualified MAGI figure is $179,000.


The situation gets somewhat worse for those with married filing separately status who lived with their spouse at anytime during the year, because they are completely disqualified from contributing anything into a Roth IRA if their MAGI goes over $10,000 (that’s not a typo – it’s $10,000).


The other thing is that, in general, the tax advantages of Roth IRAs will kick in only after waiting for at least five years after you make your first contribution into them AND until you, as the account owner, reach age 59½ OR you are deemed disabled (by IRS definition) OR you are going to use the gain to purchase your first home (with a $10,000 lifetime limit).

So, What Can You Do Within the Confines of Sections 72(e), 7702, and 101?


Basically anyone – irrespective of their MAGI – may contribute any after-tax amount. Unlike Roth accounts, there are no set dollar contribution limits in the real sense of the word. Rather, there are certain guidelines that must be followed. But you can effectively set your own contribution limit. The point is, the amount would be totally up to you, with the help of a truly savvy, well-trained, and out-of-the-box financial professional. In fact, without such help, you could create a disaster.

Another really nice thing is that these contribution amounts are “rolling,” in the sense that if for some reason you’re not able to make a contribution or to contribute the full amount in any given year, you can always catch up at a later time. Yes, they don’t expire! On the other hand, with a Roth, if you don’t make your allowed contribution in any given year, you lose that opportunity.


Then, all your after-tax contributions continue to grow, and you are able to access your money, completely income-tax free – including all the gains – without having to wait five years or to reach age 59½.


Upon your death, any remaining funds will transfer to your named heirs, again completely income-tax free!


Yes, I know it almost sounds unbelievable, right? At least now you may be able to understand why I’d argue that “Roth” options are not the absolute best for tax-advantaged accumulation and access.


Let me mention again that for you to enjoy these incredible tax advantages, you’d need to – and must – stay compliant. That’s why I strongly recommend that you hire a well-trained financial professional who’s very familiar with the tax requirements, as set out under Sections 72(e), 7702, and 101 of the U.S. tax code.
______________

Contact a financial professional at Laser Financial Groupt today to schedule your appointment and get valid, relevant answers about the best tax-advantaged program for your circumstances. 877.656.9111 or LaserFG.com.

Steve Jobs Reminded Us to Focus on What's REALLY Important

Steve Jobs Reminded Us to Focus on What's REALLY Important


Yet another detour from the financial fiction series – we’ll continue with the series next week.

_______________________________

The reason for the detour is because I’d like to dedicate today’s column to the amazing and – in my opinion – unparalleled memory of one of the greatest, smartest success stories of our generation, a man who changed the face of life/communication as we knew it, revolutionizing everything for the much, much better. Yet in the midst of his remarkable achievements, he stayed as humble as one could be – a true icon and, personally, my inspiration in business ethics, ingenuity, resilience, and true success.

I am talking about the late Steve Jobs, who sadly passed away last Thursday, October 5. I was very much saddened when that evening’s newscast was interrupted with the breaking news of his death. But then I was reminded of the fact that that’s exactly how life is, so we must all strive to give it our very best shot, regardless of the circumstance we happen to find ourselves in. We must follow our passion like there’s no tomorrow and, indeed, live everyday like it were our very last day on this planet.


One question that came to me, and which you may have heard several times already, is: If you knew you were going to take your last breath in a matter days, what would you do? I’m sure most of us would answer that question with an answer like, “Focus on what is really important.” But what is really important to you? Have you really thought about that? If it’s people, do they know (and I mean really know) that they are that important to you? Do your words and deeds reflect that on a continuous basis?

Moments like this always remind me of a life – and death – lesson I learned from a mentor many years ago. Back then, he put it this way:

·        We’ll all die one day.
·        In most instances, our death will happen at the most inconvenient time.
·        Our time of death will either be before or after we have retired.

Think about that for a moment, and then start doing whatever it is that you’ve been putting off – that thing you know will positively impact mankind in your own small way.

My prayers and thoughts go out to Mr. Jobs’ family. May his soul rest in peace.
____________
Follow us on Facebook. Tweet with us on Twitter. Visit our website. Or call us at 877.656.9111

Financial FICTION #10: If the stock market has averaged "x" percent return over a given time period, you'd have earned that return too

Financial FICTION #10: Learning that the stock market or a specific variable investment has averaged "x" percent return over a given time period means that if you had owned the same investment over the same time period, you’d have earned that return in reality.

The investing public is bombarded with "average return" information about specific funds over such-and-such periods of time. If you look at your mutual fund or 401(k) statement, you will see this information being advertised when the market is doing really well, or simply reported as required by law when things are not going that great.


The question is: What do those average return numbers mean to you? Does it mean that’s how much your investments made over the same period of time? Does it mean that if you don’t own that investment yet, that’s what you would have made if you had owned it? Think again, because it’s not even close!


Here’s what’s actually going on in nine of 10 such situations: those average returns that are being advertised are the simple average or arithmetic mean. But in investing, that average is bogus because that’s not how money grows. Instead, what you need to know is the real annualized return, also known as the compound return.


If you were to take any of those simple average numbers being advertised and do the math, you’d never even come close to the actual money in your account. Let me illustrate with this example: Over the past 10 years (from January 1, 2001 through December 31, 2010) the S&P 500 has averaged 3.55 percent. Which means (or is supposed to mean) that if you had placed your money in this investment, you’d have earned that “average” return.


Let’s say you had invested $100,000. So, at a 3.55 percent average per year over the past 10 years, you’d have had $141,743 in your account on December 31, 2010. Here’s the shocker, though: That’s a complete myth – one of those things that seems right but couldn’t be further from it.


In actuality, your $100,000 investment would have been worth $113,900, a whopping $27,843 less than the number we just figured should be the average return. I don’t know about you, but most folks who are caring for their families and focused on their careers probably would not appreciate any half-baked distortions that could cause them to improperly calculate their future income. The distortion arises because over that 10-year period, the actual compounded return of the S&P 500 (which, by the way, is how investment accounts grow) was 1.31 percent – that’s a 20 percent deviation from the 3.55 simple average – and used in 99.99 percent of cases.


Mathematically, compounded average is calculated quite differently than simple average/arithmetic mean. This is a classic case of not all averages being the same. And although those advertisers and advisors know full well the difference between the two, they choose to quote “simple averages” instead of “compound,” presumably because the numbers look more enticing. Talk about fiction versus fact for a moment. They may both be averages, but in reality, their results are very different.
___________________
Call a financial professional at Laser Financial Group today to set up your complimentary, no-obligation consultation. They'll walk you through the complexities of compound interest, and look at your goals and current situation to help you determine the best path for your future. 877.656.9111 or LaserFG.com.

Last week's DOW plunge: A Lesson in Common Sense

Last week's DOW plunge: A lesson in common sense
_________
NOTE: Today, I’m taking a little detour from the Financial Fiction Series to discuss the current happenings in the stock market. I hope to continue with the series next week.
_________


This past week has been a nightmare for some (not all) retirement investors. Sadly, though, that number of investors in distress happens to be in the overwhelming majority. Personally, as someone who has been helping scores of hardworking Americans plan successfully for their golden years, my feelings are mixed about this ordeal – sad on the one hand, yet believing this should be an “Aha!” moment for the majority of retirement investors.

My Sympathetic Side

I’m saddened and feel the pain, so to speak, for those who are enduring this ordeal. They woke up Monday, September 19, with the Dow Jones Industrial Average (DOW) at 11,401. Then they went about their usual weekly routines, and by the end of the work week on Friday, September 23, the very same DOW had plummeted to 10,771.48. That’s a 5.5 percent decrease, decline, and loss of their hard-earned nest eggs – in just a week! That translates into a $100,000 nest egg on Monday having decreased to $94,478.38 by Friday, just like that.
f
I know there are some who brush this off as trivial because, as they always say, “Of course you’ll make it all back in a matter of time.” Really?
f

That’s complete baloney, because none of those investors who lost money this past week will ever make that money back! Such a thing has never happened since the beginning of time and will never happen, because that’s just not how investing in the stock market works. These investors may make NEW gains to reach the same totals they had before the plunge, but the money they lost is GONE, never to be recovered.

The other very important thing investors must understand and not take lightly is that whenever they lose money this way – in the stock market – they have lost that percentage of their entire life’s savings (all their principal, plus all the gains they have made up until that point in time). You might want to let that last point sink in for a moment.

This must be an “AHA!” moment

We financial professionals are highly skilled and educated ( or at least we’re supposed to be), but this statement by the late Robert Green Ingersoll also is true:

It is a thousand times better to have common sense without education than to have education without common sense.

Common sense tells us that there are only two possible directions for the stock market: up, when you can make an unlimited amount of money, OR down, in which case you can lose everything – including your seed money. Is there any other direction I’m missing here? Of course not!

So, if you want the certainty of enjoying your retirement one day (or right now), you probably don’t belong IN the stock market game. My clients – and I mean all of them – decided not to play in the market. Instead, their nest eggs are growing every single year, including those years that the market plummets, and they certainly enjoy night after night of tranquil sleep, regardless of which direction the DOW and the S&P 500 go. That means that they will not have to delay their retirements, or if they are already retired, endure any decreases in their investment incomes.


Media reports and our everyday encounters lead us to believe – wrongly – that we are all in the same boat when it comes to investing our nest eggs: that we all lose money together and make money together. That couldn’t be further from reality – just talk to any Laser Financial Group client. 

It’s YOUR retirement and YOUR common sense, so use it!
_____________
Contact a financial professional at Laser Financial Group TODAY for a confidential, complimentary assessment of your nest-egg so that you can determine whether getting out of the direct line of the market's volatility may be right for you. 877.656.9111 or LaserFG.com. 

Financial FICTION #9: When you "break even" or receive a refund check from the IRS, you did not pay any income tax that year

Financial FICTION #9: When you file your taxes and break even or receive a refund check from the IRS, it means you did not pay any income tax that year. Alternatively, owing $500 means you paid just $500 in income tax that year.

This particular fiction is so prevalent that in all my years of consulting with people of all sorts, I don’t remember a situation where they didn’t give me a look of “you must be kidding” when I disagreed with their interpretation of how much they’d paid in taxes for a given year. As I have said all along, especially during this Financial Fiction series, when it comes to personal finance, most of what people have come to believe (and built their retirement livelihoods around) sadly enough amounts to little more than myth.

You see, just because you did not write a check to the IRS when you filed your tax return – or you received a refund – does not necessarily mean that you did not pay any income tax. Besides, in 99.99 percent of all cases, the amount you owed at the time of filing is not what you actually paid.

To explain this, I’m going to compress a typical tax return to just four lines you’ll find on every tax form (irrespective of which form you use to file):

• Taxable Income
• Tax
• Refund
• Amount Owed

Usually a portion of the paychecks (or if you’re already retired, your investment/pension income) that you receive throughout the year is withheld in anticipation of taxes due at the end of the year. Notice that these amounts are referred to as “withholdings” or “advanced payments.”

Come tax time, when you (or your tax preparer) fill out your tax return, this is what basically happens: Your “tax” for the year is calculated, based on your “taxable income.” Then, the amount of the “tax” you need to pay is compared against your withholdings (or advance payments). If your withholdings were more than your “tax,” you’ll receive the excess money back (a refund). On the other hand, if the opposite were true, you’d need to send a check for the difference – and you’d better sign and mail that check quickly.

Therefore, if you filed your taxes and broke even, in the sense that you didn’t have to pay anything extra, nor receive any refund, that only means that your “tax” amount for the year is equal to the amount you withheld in advance – it does not imply that you paid no tax that year. On the other hand, if you ended up having to send the IRS a check at tax time, that would mean that you were paying that amount in addition to what had already been withheld.

Just the other day, I met with a client who insisted that according to her CPA, she paid only about $800 in income tax as a result of the tax planning strategies/skills of the esteemed accountant. The problem, though, was that she’d paid a little over $7,600 in taxes last year. Of course, she at first thought I was probably not as competent as she would have preferred – because she insisted that she personally signed that $800 check and requested that I reexamine her tax returns, again! The difference? The client (and, interestingly enough, her CPA) were looking at line 76 of the Form 1040 which is the “Amount You Owe” line, instead of Line 44, the “tax” line.

Now, here’s a quick question for you: Would you rather know the total amount of tax you paid or just the difference you need to pay to top off what has already been withheld? The answer is a no-brainer, right? So the next time you examine your tax situation, please pay close attention and focus on the right line/box – remembering that there is a HUGE difference between “tax,” “refund,” and “amount owed.”

_______________

Contact a financial professional at Laser Financial Group to schedule your complimentary, no-obligation consultation to review your last income tax filing and learn how to maximize your retirement income. LaserFG.com or 877.656.9111.