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Investments

Pros and Cons: Fewer Regulations in the U.S.

By | Investments

One of the current administration’s persistent themes has been deregulation — cutting through the red tape in the rules of doing business. In one instance, Donald Trump was filmed standing beside mounds of paperwork to symbolize the amount of regulation the government has implemented since 1960.1

Perhaps the same can be said for the paperwork associated with our financial accounts, from bank statements to investment prospectuses to insurance policies. It’s important to recognize regulations often have two goals: To protect the consumer, and to protect the company providing the product or service.

We understand that sometimes the paperwork associated with your investments and insurance policies can be overwhelming, so please don’t hesitate to ask questions. We are here to help you fully understand your financial choices.

One such controversial regulation — currently being debated in Congress — is a rollback of the Dodd-Frank Act that was passed in 2010 to tighten rules on the banking system. Now that the economy has recovered from the recession, many legislators are in favor of loosening the banking rules, especially those affecting small community banks. Those who oppose reducing regulations fear the country will fall into the same bad practices and history will repeat itself. 2

Some regulations are so imbedded in our society that the affected industries now believe repealing them could cause more problems than keeping them. The most recent example was the EPA’s announcement to roll back emission standards for U.S. cars. However, the initiative has fallen flat with at least one auto manufacturer, stating it plans to implement the vehicle-emissions rules enacted under Barack Obama to continue addressing global warming considerations. Others think rolling back these regulations would increase their costs, especially if California implements its own emissions standards, which could lead to court battles.3

U.S. farmers are closely watching some of the regulations that have added extensive costs and delays to their businesses. They’re particularly interested in the Waters of the U.S. rule, although the EPA has postponed that rollback for two years. However, the Secretary of Agriculture announced that the USDA has identified 27 final rules that it plans to eliminate, saving $56 million per year.4

 

Content prepared by Kara Stefan Communications.

1 Michael Kranz. Business Insider. Dec. 17, 2017. “Trump cut literal red tape while standing next to a massive pile of paper to make a point about big government.” http://www.businessinsider.com/trump-stood-next-to-a-huge-pile-of-paper-showing-big-government-2017-12. Accessed April 27, 2018.

Sylvan Lane. The Hill. April 26, 2018. “House chairman eases demands on Dodd-Frank rollback.” http://thehill.com/business-a-lobbying/385066-house-chairman-eases-demands-on-dodd-frank-rollback. Accessed April 27, 2018.

Justin Worland. Time. April 5, 2018. “Scott Pruitt’s Rollback of Emissions Standards Is a Big Deal. Here’s Why the Rollout Fell Flat.” http://time.com/5228979/why-scott-pruitt-rollback-of-emissions-standards-fell-flat/. Accessed April 27, 2018.

4 Jacqui Fatka. Farm Futures. March 1, 2018. “Trump keeping regulatory rollback promises.” http://www.farmfutures.com/farm-policy/trump-keeping-regulatory-rollback-promises. Accessed April 27, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Handling Market Corrections Correctly

By | Investments

Today’s political environment and recent volatility in the U.S. stock markets, particularly February’s correction, caused concern for some investors.

If you’ve met with a financial advisor who designed a strategy to fit your individual financial goals, timeline and tolerance for risk, it’s generally recommended you stay the course.1 But that doesn’t mean to hold steady no matter what.

The occasional market correction (defined as a 10 percent decline)2 can be an opportunity to rebalance. If you’d like help identifying areas of your portfolio that may be ripe for a change during a temporary decline, please give us a call. We’d be happy to review your current financial situation.

Individuals with a longer investment timeline or who would like to see a wider range of diversification may wish to use a correction as a buying opportunity to get into emerging markets (EM). According to one investment strategist, “Compared to the S&P 500, EM equities trade at a lower multiple, are experiencing faster earnings growth, and are poised to benefit from strong global gross domestic product (GDP) growth and a relatively benign U.S. dollar.”3

Note that market corrections aren’t rare or necessarily unexpected. In the 40-year span from 1978 to 2017, there were 22 years that had a correction of 10+ percent.One money manager expects a 10 to 15 percent decline in the S&P 500 by the end of the year.5 Others believe the market has bottomed out for the year, with one commenting that the market technicals continue to support a long-term bullish trend.6

The variance in opinions illustrates how difficult it is to try timing the market. To avoid this practice, financial advisors may recommend investing on a weekly or monthly schedule.

Other suggested offerings may include index funds, exchange-traded funds (ETFs) or well-established dividend stocks.7

As always, it’s a good idea to speak with an experienced financial advisor before making any substantial changes to your portfolio, especially with regard to market movements.

 

Content prepared by Kara Stefan Communications.

1 Joel Johnson. Forbes. April 18, 2018. “How to Bounce Back After a Market Correction.” https://www.forbes.com/sites/joeljohnson/2018/04/18/how-to-bounce-back-after-a-market-correction/#5910818ced05. Accessed April 20, 2018.

2 Ibid.

Luciano Siracusano III. WisdomTree. Feb. 26, 2018. “Is the Sell-Off Creating a Buying Opportunity in Emerging Markets?” https://www.wisdomtree.com/blog/2018-02-26/is-the-sell-off-creating-a-buying-opportunity-in-emerging-markets. Accessed April 20, 2018.

Arjun Deiva Sigamani. FactSet Research Systems. April 9, 2018. “A Historical Perspective of Market Corrections.” https://insight.factset.com/a-historical-perspective-of-market-corrections. Accessed April 20, 2018.

5 Michelle Fox. CNBC. April 19, 2018. “Brace for a 10-15% market correction this year, warns financial advisor.” https://www.cnbc.com/2018/04/19/brace-for-10-15-percent-market-correction-this-year-warns-financial-advisor.html. Accessed April 20, 2018.

John Lynch and Ryan Detrick. LPL Financial. April 16, 2018. “Did Stocks Bottom?” http://static.fmgsuite.com/media/documents/3ce7c6b0-61b8-46f7-959c-4fbb474ad289.pdf. Accessed April 20, 2018.

7 Sean Williams. USA Today. April 4, 2018. “5 investing strategies to survive a stock market correction.” https://www.usatoday.com/story/money/markets/2018/04/04/5-investing-strategies-to-survive-stock-market-correction/33535519. Accessed April 20, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Investing in Europe

By | Investments

It’s often said that when one asset class falters, others are likely rising. To some extent, this may be occurring with U.S. equities. The stock market correction that started in February amid fears of rising inflation has continued through March with the threat of a global trade war.1

According to Bank of America Merrill Lynch, money that’s been flowing out of U.S. equity funds since the beginning of the year appears to be re-emerging in Europe. Just as all markets experience periodic ups and downs, Europe appears to be in an upswing. In general, European equities boast reasonable valuations and some of the highest dividends in the world.2

Investors with an asset allocation strategy that takes into consideration their risk tolerance, investment timeline and financial goals can make investment changes within those guidelines. For example, small moves from U.S. equities to European stocks may open up performance opportunities without significantly changing one’s asset strategy.

If you’re interested in diversifying to capture more stocks abroad, mutual funds may offer a viable way to incorporate these securities. We will only provide investment advisory services after we have assessed your financial situation. If you’re interested in a comprehensive review of this nature, we’d be happy to schedule a time to discuss this with you further.

European stocks are presently attractive because the continent is further behind in the economic growth cycle than the U.S. While European equity markets have lagged in recent years, they now appear to offer greater potential relative to other markets as they play catch-up. Moreover, the euro-zone monetary policy looks to be supportive, and the region’s service sector is growing at the fastest rate since August 2007.3

Although sudden price peaks and drops based on political news are generally temporary, it is worth noting the influence. President Donald Trump’s recent announcement regarding new global tariffs on steel and aluminum, along with his threat to increase tariffs on the import of foreign cars, could have been expected to impact German stocks, particularly in the auto industry. Last year, 35 percent of the 17.25 million vehicles sold in the U.S. were imported. Losses resulting from lower exports and/or higher tariffs on vehicles produced by German car makers would be expected to result in a 10 percent drop in profits, which would typically impact share prices.4

However, Trump announced on March 22 that several allies, including the European Union, were exempt from the steel and aluminum tariffs.5 This news most likely came as a relief to the European Union — as well as some U.S. manufacturers. The EU has expressed growing concerns about Trump’s protectionist stance on trade and has threatened punitive tariffs of its own on motorcycles, clothing, bourbon whiskey and a host of other products.6

Of course, EU countries have their own political problems that may influence domestic stock prices. For example, Italy’s recent election that created a balanced stalemate in parliament could have a negative impact on the European economy.7

 

Content prepared by Kara Stefan Communications.

 

1 Liz Ann Sonders, Jeffrey Kleintop and Brad Sorensen. Charles Scwab. “Navigating the Changing Market Environment.” https://www.schwab.com/resource-center/insights/content/market-perspective. Accessed April 4, 2018.

2 Blaise Robinson. Bloomberg. Feb. 23, 2018. “Equity Investors Fleeing Wall Street Are Turning to Europe.” https://www.bloomberg.com/news/articles/2018-02-23/equity-investors-fleeing-wall-street-are-turning-to-europe. Accessed March 9, 2018.

3 Dewi John. IPE.com. March 2018. “European Equities: Catching up with global growth.” https://www.ipe.com/investment/asset-class-reports/european-equities/european-equities-outlook-catching-up-with-global-growth/10023457.article. Accessed March 9, 2018.

4 Neil Winton. Forbes. March 5, 2018. “Trump Auto Tariff Threat Slams VW, BMW Shares, But Experts Call It A Bluff.” https://www.forbes.com/sites/neilwinton/2018/03/05/vw-bmw-shares-fall-after-trump-auto-tariff-threat-but-experts-call-it-a-bluff/#601d687b6bcb. Accessed March 9, 2018.

5 Jim Tankersley and Jack Ewing. The New York Times. March 22, 2018. “U.S. Exempts Allies From Steel and Aluminum Tariffs.” https://www.nytimes.com/2018/03/22/business/us-eu-tariffs-steel-aluminum.html. Accessed March 22, 2018.

6 Viktoria Dendrinou and Jonathan Stearns. Bloomberg. March 6, 2018. “EU Raises Stakes for Trump by Aiming Levies at GOP Heartland.” https://www.bloomberg.com/news/articles/2018-03-06/eu-targets-u-s-shirts-to-motorbikes-in-tariff-retaliation-plan. Accessed March 9, 2018.

Vickii Oliphant. Express. March 5, 2018. “Italian election 2018: What will Italy general election mean for Eurozone and euro?” https://www.express.co.uk/news/world/926368/Italian-election-2018-Italy-general-election-Euro-Eurozone-economy. Accessed March 22, 2018.

 

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Investment Themes for This Year

By | Investments

In the investment community, all eyes are on inflation this year. Economic analysts at Merrill Lynch anticipate further tightening in the labor market, to the tune of 3.9 percent unemployment by the end of 2018. Along with the tightened labor situation, they also expect personal consumption expenditure (PCE) inflation rising to 1.8 percent by year end and 2.0 percent by the end of 2019.1

As of this writing, inflation is at 1.7 percent. There is speculation that new Federal Reserve Chairman Jerome Powell may be open to inflation flowing as high as 2.5 percent before making any dramatic moves in interest rates, in an effort to extend the more than eight-year expansion in U.S. growth.2

It’s been a very good run for U.S. investors, but there are indicators that we could see more volatility this year. As such, individuals approaching retirement may want to consider ways to help reduce the impact of market volatility on their retirement assets. We’re happy to review your current situation and recommend strategies using a variety of investment and insurance products to help you pursue your long-term goals; just give us a call.

Below are some investment trends we see for 2018:

Value Stocks

Growth stocks have been outperforming value stocks for quite some time, but it looks as if that could change. Stocks that are considered undervalued have high relative dividend yields, low price-to-book ratios and/or low price-to-earnings ratios. These stocks offer the opportunity to thrive in a somewhat volatile market.3

Millennials

Much like their baby boomer parents, millennials are expected to drive innovation and previously under-explored markets in the future. As a demographic, they are tech savvy, environmentally aware and focused on sustainability, clean energy and impact investing. Perhaps more significantly, this generation is projected to inherit nearly $4 trillion in the United Kingdom and North America alone, which means they may have the means to act on their well-cultivated interests and passions.4

Autonomy

Transportation continues to be an issue in America, and we could be looking at a future ripe with automated cars, buses and other vehicles that do not require drivers. Public agencies may do well to focus on long-term city development plans that can accommodate driverless cars and other innovations.5

eGroceries

You may think that Amazon’s recent acquisition of Whole Foods has heralded a new era of buying groceries online. However, it’s a trend that has been going on for years, driven by investment by brick-and-mortar retailers, with online grocery shopper numbers more than doubling in a little over a year. According to recent research from the Food Marketing Institute (FMI) and Nielsen, almost 50 percent of Americans purchased groceries online in the past three months. The trend, however, is dominated by younger adults: millennials at 61 percent and generation X at 55 percent. FMI and Nielsen predict that many as 70 percent of U.S. shoppers could be buying groceries online by 2022.6

Content prepared by Kara Stefan Communications.

 

1 Michelle Meyer. Merrill Lynch. Nov. 19, 2017. “Investing Insights for the Year Ahead/Interest Rates, Policy and the Search for Missing Inflation.” https://www.ml.com/articles/market-updates.html. Accessed March 1, 2018.

2 Rich Miller and Shelly Hagan. Bloomberg. Feb. 26, 2018. “Powell Could Put Up With 2.5% Inflation to Keep Growth Pumping.” https://www.bloomberg.com/news/articles/2018-02-26/powell-may-accept-inflation-overshoot-to-extend-u-s-expansion. Accessed March 1, 2018.

3 Kevin Mahn. Forbes. Jan. 5, 2017. “Top 10 Investment Themes For 2018.” https://www.forbes.com/sites/advisor/2018/01/05/top-10-investment-themes-for-2018/#652c30027dff. Accessed March 1, 2018.

4 Alice Ross and Hugo Greenhalgh. Financial Times. Nov. 17, 2017. “$4tn wealth transfer sparks battle for kids of the rich.” https://www.ft.com/content/aa704cbc-c9dd-11e7-ab18-7a9fb7d6163e. Accessed March 1, 2018.

Daniel Terdiman and Mark Sullivan. FastCompany. Jan. 2, 2018. “The Most Important Tech Trends Of 2018, According to Top VC.” https://www.fastcompany.com/40503654/the-most-important-tech-trends-of-2018-according-to-top-vcs. Accessed March 1, 2018.

Deborah Weinswig. Forbes. March 1, 2018. “Online Grocery Set to Boom in 2018 (As Amazon Acknowledges Online Grocery A Tough Market to Crack).” https://www.forbes.com/sites/deborahweinswig/2018/03/01/online-grocery-set-to-boom-in-2018-as-amazon-acknowledges-online-grocery-a-tough-market-to-crack/#335f2c8e520b. Accessed March 1, 2018.

 

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Balancing Investor Euphoria With Market Reality

By | Investments

Many social media users share nearly all aspects of their lives, from photos of cute kids and pets to their political views. And now, we even are seeing posts from exuberant investors bragging about their investment returns. For example, consider this social media post:1

“I strived to become a 401(k) millionaire someday, and this week, thanks to years of consistent savings and a long bull market, that goal has come to fruition, at the ripe age of 45.” This message was accompanied by a snapshot of his actual account statement.

Indeed, every investor proud of his or her success should be applauded for diligent and prudent investing over time. However, it’s worth noting that what goes up generally comes down. The question is: When?

If you’ve achieved significant gains over the past few years, we’d like to help you ensure that your current financial strategy still fits within the context of your own goals, risk tolerance and investment timeline. Feel free to contact us for a comprehensive review of your financial situation to help determine the next move to help you pursue your financial goals.

Strong stock market performance is generally attributed to a wide range of factors, including the prevailing policies of the current presidential administration. While fiscal policy can have a near-term influence on investor and business confidence, other contributing factors are more long term in nature. For example, changes in monetary policy may take six to twelve months to impact the financial markets.2

The same can be true for market declines. While an occasional one-day freefall does occur, most of the time a correction, such as the one that occurred in early February, is the culmination of contributing factors over time. In fact, stock market analysts had been predicting a correction for quite some time, so it did not come as a surprise to many in the industry when it happened.3 Moving forward, analysts expect continued volatility that could damper some of those proud moments many investors have shared.4

Even if investors’ exuberance has been dampened somewhat because of the recent market volatility, it’s important to remember what got them there in the first place: Disciplined investing. As such, a stock price slide can present the opportunity to buy when prices are low — further positioning a portfolio for future gains.In other words, perhaps euphoria and prudence can go hand in hand.

Content prepared by Kara Stefan Communications.

1 Sally French. MarketWatch. Feb. 1, 2018. “People are bragging about becoming 401(k) millionaires — and posting their balances to social media.” https://www.marketwatch.com/story/people-are-bragging-about-becoming-401k-millionaires—-and-posting-their-balances-to-social-media-2018-01-29. Accessed Feb. 12, 2018.

2 Oliver Pursche. Kiplinger. March 21, 2017. “The Fed/Trump Face-off: When Fiscal and Monetary Policy Collide.” https://www.kiplinger.com/article/investing/T023-C032-S014-fed-vs-trump-when-fiscal-and-monetary-policy-colli.html. Accessed Feb. 12, 2018.

3 Eric Rosenbaum. CNBC. Nov. 27, 2017. “Chance of US stock market correction now at 70 percent: Vanguard Group.” https://www.cnbc.com/2017/11/27/chance-of-us-stock-market-correction-now-at-70-percent-vanguard.html. Accessed Feb. 12, 2018.

Cecile Vannucci. Bloomberg. Feb. 9, 2018. “Volatility Explosion Is Sparking a Rush to Hedge at Any Cost.” https://www.bloomberg.com/news/articles/2018-02-09/a-conundrum-for-hedgers-now-that-you-need-it-the-vix-is-at-32. Accessed Feb. 12, 2018.

Kristine Owram. Bloomberg. Feb. 12, 2018. “Morgan Stanley Strategist Who Predicted Volatility Says Buy Now.” https://www.bloomberg.com/news/articles/2018-02-12/morgan-stanley-strategist-who-predicted-volatility-says-buy-now. Accessed Feb. 12, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Mitigating Risk Goes Beyond Asset Allocations

By | Investments

What do Harvey Weinstein, “America First” policies and asset allocation have in common? Quite a bit, it turns out, when it comes to evaluating the various risk factors that can affect an investment or portfolio.

Anyone who’s ever taken a hot minute to observe the market or talk shop about the economy must realize any action that falls under the umbrella of investing comes with risk. The level of risk varies, however, depending on numerous factors, including the asset itself.

At our firm, we tend to focus on ways to help clients limit those risks. If you have any questions about your current risk factors, give us a call and we’d be happy to look at your current portfolio. We recommend you work with a financial advisor for insights into your particular situation. We can then assess those risk factors and recommend a variety of investment and insurance products that can help you work toward your short- and long-term financial goals.

For one example of a risk that is particular to an asset, let’s turn to bonds. We generally consider a bond investment less risky than a stock investment. But that’s mainly in consideration of market risk — which can dramatically impact stock prices. However, bonds are more impacted by interest rates, so in an environment of changing rates, they are exposed to a certain level of risk as well. That’s why trying to look at assets side by side is not as simple as an apples-to-apples comparison.

For investors who are looking to buy individual stocks based on companies, the garden-variety wisdom is to invest in a company you understand well. This wisdom is based on the risk of the unknown. If you don’t know the first thing about a company, how confident can you be in its performance? Not only do you want to review the company’s financial performance, track record, business costs, leadership, risk factors, dividend history and corporate governance, it’s not a bad idea to have some first-hand experience or exposure to that company’s product or service.1

While traditional asset allocation emphasizes diversification across asset classes (think, mixing stocks, bonds, cash, insurance, etc.), it’s also worth considering diversification within asset classes themselves, to work against underlying risk factors — for example, consider buying stocks from multiple companies, or different kinds of bonds. Risks run the gamut, from market risk and interest rate risk to currency and credit risk. Then, too, those risk factors may be more or less significant when applied to international companies, markets and even globalization trends.

In the past, one way American investors have diversified their portfolios is by investing in overseas companies. The recent trend toward “America First” has changed some of that sentiment, with more domestic money flooding into the U.S. markets. However, our long-term upward trend in performance leaves less room for growth, so it may be worth considering securities abroad again. If not, an investor runs the risk of being too domestically concentrated, which can yield two risky paths. One, growth stagnates at the top of the market, and potential gains abroad are left on the table. Two, if U.S. markets experience a setback, a heavy concentration can wreak considerable damage.2

One rising risk factor to consider: The threat of a sexual harassment scandal. From the flurry of recent allegations, it would appear some companies operate within a culture of inappropriate behavior. That puts those companies at higher risk for a scandal, which can impact its stock price and, subsequently, shareholder portfolios. For instance, as allegations about Harvey Weinstein’s misdeeds continue to surface, Weinstein & Co.’s financial standing has been hit hard. Just one more thing to consider when assessing investment risk factors.3

As different risks become more or less significant with the changing economy, just remember you don’t have to go it alone; call our firm for a consultation to see how your assets are positioned to cope with risk.

 

Content prepared by Kara Stefan Communications.

1 Saikat Neogi. Financial Express. Nov. 29, 2017. “Stock market investment tips: 3 big risk factors to beware of to ensure you don’t lose money.” http://www.financialexpress.com/money/stock-market-investment-tips-3-big-risk-factors-to-beware-of-to-ensure-you-dont-lose-money/951801/?utm_content=bufferb090f&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer. Accessed Jan. 29, 2018.

2 PIMCO. March 13, 2017. “Risk Factor Diversification.” https://www.pimco.com/en-us/resources/education/understanding-risk-factor-diversification. Accessed Jan. 29, 2018.

Nasdaq. Nov. 6, 2017. “Sexual Harassment is a Major New Investment Risk.” http://www.nasdaq.com/article/sexual-harassment-is-a-major-new-investment-risk-cm872105. Accessed Jan. 29, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Preparing for Retirement — Do You Have a Plan?

By | Investments

For much of the 20th century, many employees who spent decades working for one company typically received a pension plan. According to the Center for Retirement Research at Boston College, 88 percent of all private-sector employees in 1975 had a pension.1 With the confidence of knowing their retirement would be covered by pension and Social Security benefits, perhaps they even saved little — but it would not have been all that necessary to learn how to invest.

Today, the number of private-sector employees with pensions has plummeted to 33 percent.This means that baby boomers (those born between 1946 and 19643) are the first generation of retirees to rely on defined contribution plans, such as 401(k) and 403(b) plans. In fact, many boomers don’t have the luxury of perhaps just saving a little; they have to save a lot.

In addition, many boomers have to learn about different types of investments, which can be daunting. In fact, the Financial Industry Regulatory Authority (FINRA) lists 12 broad types, each of which has its own subsets.4 That’s a pretty big responsibility to take on.

Here’s an idea of where we stand:5

  • 44% of baby boomers have no work-sponsored retirement plans
  • 43% have defined contribution plans
  • 13% have defined benefit (pension) plans

Bear in mind that back in the days when many employees could count on a pension plan, those assets were managed by professional money managers. These days, some company 401(k) plans include a “self-directed” option, which lets you decide how to invest your contributions yourself.6 We hasten to remind you that investing can be complex, and creating a financial strategy for retirement has been complicated by the fact that people are living more years in retirement than ever before. If you could use some advice to help manage your investment portfolio — including self-directed accounts — or to create a financial strategy, please give us a call.

In fact, outside investment advice in the defined contribution space is becoming more prevalent. A recent report by the Spectrem Group found that 73 percent of employer-plan participants use an outside advisor, such as a mutual fund company representative or an independent financial planner, to assist them with investing assets that are outside their plan. However, they do not necessarily consult with an outside advisor for their entire investment portfolio.7

Keep in mind that preparing for retirement involves much more than just accumulating assets. This preparation includes deciding on a Social Security claiming strategy; navigating defined contribution plan rollovers; considering tax consequences; and mulling possible part-time work during retirement. And we must do this while pursuing social and intellectual engagement opportunities so we can stay healthy and cognitively fit during our long retirement.8

It’s a lot to think about. The earlier we get started on our full-scale retirement plans, the better.

 

Content prepared by Kara Stefan Communications.

1 John Waggoner. InvestmentNews. Dec. 2, 2017. “Younger baby boomers face hurdles as they approach retirement.” http://www.investmentnews.com/article/20171202/FREE/171209994/younger-baby-boomers-face-hurdles-as-they-approach-retirement. Accessed Jan. 16, 2018.

2 Ibid.

3 The Pew Charitable Trusts. Feb. 15, 2017. “Retirement Plan Access and Participation Across Generations.” http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2017/02/retirement-plan-access-and-participation-across-generations. Accessed Jan. 24, 2018.

FINRA. “Types of Investments.” http://www.finra.org/investors/types-investments. Accessed Jan. 16, 2018.

5 The Pew Charitable Trusts. Feb. 15, 2017. “Retirement Plan Access and Participation Across Generations.” http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2017/02/retirement-plan-access-and-participation-across-generations. Accessed Jan. 24, 2018.

6 Amelia Josephson. SmartAsset. March 22, 2017. “What Is a Self-Directed 401(k)?” https://smartasset.com/retirement/what-is-a-self-directed-401k. Accessed Jan. 24, 2018.

7 Spectrem Group. 2017. “How Plan Participants Use Advisors.” https://spectrem.com/Content/how-dc-plan-participants-use-advisors.aspx. Accessed Jan. 16, 2018.

8 Emily Brandon. U.S. News & World Report. Jan. 16, 2018. “How to Retire in 2018.” https://money.usnews.com/money/retirement/baby-boomers/articles/how-to-retire. Accessed Jan. 16, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Exploring the Behavioral Biases of Investing

By | Investments

Despite the research and due diligence necessary in developing an investment portfolio, investors are frequently influenced more by their own emotional and behavioral biases than by data.1 These biases may include overconfidence, regret, impatience and the desire to “keep up with the Joneses.”

In fact, personnel from at least one asset management firm believe that the company has a better chance of outperforming the market by anticipating investor behavior. At a macro level, the behavioral biases of a large number of investors may be able to influence the expectations of company performance and even its stock price. By tracking patterns among such biases, it may be possible to capture a higher return on investment relative to other market fundamentals.2

Although there may be truth to that, we believe that investment selection should be based more on individual goals than on mass market speculation. As financial advisors, we help clients get to the crux of their objectives and design a financial strategy around their long-term goals, timeline and tolerance for risk. Markets will always fluctuate, regardless of the impetus, but our job is help reduce the impact of behavioral biases and help keep your financial strategy on track. Please contact us if you’d like to learn more.

Within the study of behavioral finance are subfields. For example, biases can be cognitive, meaning an investor may think and act in specific ways or by following a rule of thumb. A behavioral bias also can be emotional, relying on feelings rather than information. An example of this is “self-attribution bias,” wherein investors tend to believe their investment success comes from their own actions but blame poor performance on external factors.3

Cognitive biases often are characterized by the inability to fully process statistical information or by memory errors.4 In some cases, cognitive bias manifests in simply not acknowledging when there is too much information for a person to process. In this scenario, it is common for an investor to cling to the original reason he or she made the investment — even when presented with new and potentially damaging evidence.5

Another common investing behavioral bias is an aversion to loss. In fact, investors are generally more afraid of losing money than they are of embracing the thrill of stock market success. This inherent fear of loss can, in fact, make an investor unwittingly more conservative than he needs to be or, depending on financial circumstances, should be.6

 

Content prepared by Kara Stefan Communications.

1 Tim Parker. Investopedia. “4 Behavioral Biases and How to Avoid Them.” https://www.investopedia.com/articles/investing/050813/4-behavioral-biases-and-how-avoid-them.asp. Accessed Jan. 5, 2018.

2 John R. Riddle. 361Capital. “Bounded Rationality: Tapping Investor Behavior to Source Alpha.” http://361capital.com/financial-advisor/viewpoints/bounded-rationality-tapping-investor-behavior-to-source-alpha/. Accessed Jan. 5, 2018.

3 Brad Sherman. Investopedia. April 12, 2017. “8 Common Biases That Impact Investment Decisions.” https://www.investopedia.com/advisor-network/articles/051916/8-common-biases-impact-investment-decisions/. Accessed Jan. 5, 2018.

4 Peter Lazaroff. Forbes. April 1, 2016. “5 Biases That Hurt Investor Returns.” https://www.forbes.com/sites/peterlazaroff/2016/04/01/5-biases-that-hurt-investor-returns/#74592db8d4ac. Accessed Jan. 5, 2018.

5 361Capital. “Behavioral Finance Basics.” http://361capital.com/wp-content/uploads/361Capital-Behavioral-Finance-Basics-Infographic.pdf. Accessed Jan. 5, 2018.

6 Peter Lazaroff. Forbes. April 1, 2016. “5 Biases That Hurt Investor Returns.” https://www.forbes.com/sites/peterlazaroff/2016/04/01/5-biases-that-hurt-investor-returns/#74592db8d4ac. Accessed Jan. 5, 2018.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Evolution of the 401(k)

By | Investments

When employer-sponsored 401(k) plans were introduced in the 1980s, an unexpected consequence occurred: Pensions stopped being the norm. One reason is that companies found 401(k) plans less expensive than traditional defined benefit plans.1

At the time, 401(k) plans were touted as an opportunity for greater earnings and a richer retirement lifestyle. While it’s true that potential exists, it has not come to fruition for many of America’s workers. Analysis of data compiled by The Pew Charitable Trusts indicates that only about half of American workers participate in an employer-sponsored retirement plan, including 401(k) plans.2

As a result, many Americans are woefully short on retirement funds and savings. According to recent data from the Economic Policy Institute, households in which wage earners are between ages 50 and 55 years old have a median savings of only $8,000. It’s somewhat better — $17,000 — for those ages 56 to 61. Worse yet, a 2016 GOBanking Rates survey found that 35 percent of all U.S. adults have only a few hundred dollars in their savings account; 34 percent have none at all.3

These are averages, of course, but the numbers are bleak. Thirty percent of baby boomers will start retirement with less than $50,000 in savings — indicating many will rely almost exclusively on Social Security benefits.4 If you could use some retirement planning advice, please give us a call. We help our clients make decisions about generating retirement income, using both funds accumulated in employer plans and through individual portfolios, as well as insurance products.

In 1978, Congress passed the Revenue Act of 1978, which included a provision for Section 401(k) plans, offering a means for employees to defer compensation from bonuses or stock options from current taxes. The law went into effect in 1980. The following year, the IRS issued rules permitting workers to make tax-deferred contributions to their 401(k) plans directly from wages, which is when their popularity began to explode. By 1983, almost 50 percent of large employers were offering or developing plans.5

It was an easy sell. Employers liked them because they were cheaper to fund with matches, and the expense was more predictable than indefinite pension payments. Employees felt they were in the driver’s seat and could make better investment decisions for higher earnings. These projections turned out well for companies, but perhaps not as well for many employees, as 401(k) accounts rise and fall with the financial markets.6

Automatic enrollments in 401(k) plans, as well as automatic contribution increases each year, appear to have the potential to help Americans save more. According to a study by J.P. Morgan: 7

  • Among workers who automatically enrolled in their 401(k) plans, only 1% opted out and 96% were happy with the feature. Nearly a third of those surveyed said they would not have enrolled in the plan without the automatic enrollment feature.
  • Among those whose contributions were automatically increased each year, 97% were satisfied, and 15% said they likely would not have increased contributions on their own.

In 2006, a new rule allowed employers to offer Roth 401(k) plans, either as a separate plan or as part of their retirement program. The Roth 401(k) is funded with already taxed income, the earnings grow tax-free and qualified withdrawals made during retirement are not taxed.8

For now, 401(k) plans are a primary retirement savings vehicle for American workers. However, one of the caveats is that those tax-deferred income contributions and earnings deprive the government of revenues that could be used to reduce the deficit or for new spending programs. With new deficit concerns on the horizon, the tax status of 401(k) funds could be subject to greater scrutiny in the future.9

 

Content prepared by Kara Stefan Communications.

1 Kelley Holland. CNBC. March 23, 2015. “For millions 401(k) plans have fallen short.” https://www.cnbc.com/2015/03/20/l-it-the-401k-is-a-failure.html. Accessed Dec. 29, 2017.

2 The Pew Charitable Trusts. January 2016. “Who’s In, Who’s Out.” http://www.pewtrusts.org/~/media/assets/2016/01/retirement_savings_report_jan16.pdf. Accessed Jan. 11, 2018.

3 Ester Bloom. CNBC. June 13, 2017. “Here’s how many Americans have nothing at all saved for retirement.” https://www.cnbc.com/2017/06/13/heres-how-many-americans-have-nothing-at-all-saved-for-retirement.html. Accessed Dec. 19, 2017.

4 Suzanne Woolley. Bloomberg. Dec. 13, 2017. “Retirement, Delayed.” https://www.bloomberg.com/quicktake/retirement-redesigned. Accessed Dec. 19, 2017.

5 Kathleen Elkins. CNBC. Jan. 4, 2017. “A brief history of the 401(k), which changed how Americans retire.” https://www.cnbc.com/2017/01/04/a-brief-history-of-the-401k-which-changed-how-americans-retire.html. Accessed Dec. 19, 2017.

6 Ibid.

7 Dan Kadlec. Money. July 27, 2016. “The 401(k) Features Employers Can No Longer Ignore.” http://time.com/money/4422533/401k-features-employers-can-no-longer-ignore/. Accessed Dec. 19, 2017.

8 Denise Appleby. Investopedia. Nov. 30, 2015. “Roth 401(k), 403(b): Which Is Right for You?” https://www.investopedia.com/articles/retirement/06/addroths.asp. Accessed Dec. 14, 2017.

9 Suzanne Woolley. Bloomberg. Nov. 15, 2017. “Why Republican Lawmakers Are Eyeing 401(k)s for Their Tax Plan.” https://www.bloomberg.com/news/articles/2017-11-16/why-senate-tax-cutters-have-an-eye-on-big-401-k-s-quicktake-q-a. Accessed Dec. 29, 2017.

 

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Exclusive vs. Inclusive Investing

By | Investments

There are many different approaches to investing in the stock market, but most fall under two categories: exclusive and inclusive. Exclusive means conducting thorough research on prospective companies and investing in a portfolio of select, thoroughly vetted securities. One of the advantages of this approach is that if an investor’s research pans out, he could have quite a cache of high-performing “winners.”1

An unfortunate disadvantage is that most big “winners” in the market have at some point suffered declines of up to 50, 60 or even 90 percent on their way to success. That type of risk can be difficult for the average investor to stomach.2

The inclusive strategy is quite the opposite. This encompasses ETFs, mutual and index funds, wherein the idea is to diversify across securities to help reduce volatility, yet still yield a positive return on investment. The advantages are that this is usually a lower cost way of investing in a wide array of stocks, and diversification may offer a better defense against capital losses. On the flip side, however, stellar returns can get whitewashed by a batch of underperformers.3

Many factors should be considered in developing an investment strategy. We have the tools to help clients determine how much risk they are willing to take on and what types of investments are appropriate for their financial goals, investment timeline and individual circumstances.  We’re here to help you analyze your personal financial situation and create strategies utilizing a variety of investment and insurance products that can help you work toward your financial goals.

One way to gauge risk tolerance is to recognize how we each react when the markets start to fall. It’s a very common, natural instinct to want to sell holdings to “stop the bleeding,” but, in fact, the opposite may be more productive. Buying when prices drop — at least well-vetted securities that are expected to recover – can be a means of achieving higher performance. But that’s not generally how human nature works. And, unfortunately, how investors react can have far more impact on performance than the economy or individual stock fundamentals. In fact, Robert J. Shiller, Sterling Professor of Economics at Yale, believes that markets are more prone to move when investors think they know how other investors will react.4

The one thing about significant market moves, whether up or down, is that they can throw a portfolio off your carefully designed plan. This is why rebalancing a portfolio, at least annually, can be an important investment strategy. However, a recent Wells Fargo/Gallup survey found that less than half of investors rebalance to restore their portfolios back to targeted stock and bond allocations on an annual basis. A bull run can be pretty satisfying as you watch your account’s market value continually increase. However, the problem with this is that an investor could be generating a far more aggressive portfolio than suited for his or her circumstances. In the event of a correction, losses could be significant.5

One suggestion is that investors should consider diversifying any position that climbs higher than 5 to 10 percent of their overall portfolio.6

Another possible strategy is to position some portfolio assets into an annuity. While the approach is slowly starting to catch on, the recently released 2017 “TIAA Lifetime Income Survey” found that only 50 percent of respondents reported being familiar with how an annuity works. However, even that finding can be deceiving. About 63 percent of participants who were invested in a target-date fund thought that it would provide a guaranteed income stream. While this is true of annuities*, it is not the case with most target-date funds. Half of those surveyed expressed interest in having an annuity option in their employer-retirement plans.7

*Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs.

 

Content prepared by Kara Stefan Communications.

 

1 Barry Ritholtz. Bloomberg. Sept. 26, 2017. “So Few Market Winners, So Much Dead Weight.” https://www.bloomberg.com/view/articles/2017-09-26/so-few-market-winners-so-much-dead-weight. Accessed Nov. 28, 2017.

2 Ibid.

3 Ibid.

4 Robert J. Shiller. The New York Times. Oct. 19, 2017. “A Stock Market Panic Like

1987 Could Happen Again.” https://www.nytimes.com/2017/10/19/business/stock-market-crash-1987.html?smid=tw-share. Accessed Nov. 28, 2017.

5 Walter Updegrave. Money. Oct. 4, 2017. “Do This One Thing Each Year If You Want a Better Retirement.” http://time.com/money/4964526/do-this-one-thing-each-year-if-you-want-a-better-retirement/. Accessed Nov. 28, 2017.

6 Donald Jay Korn. Financial Planning. Aug. 22, 2017. “Convincing clients to let go of huge holdings.” https://www.financial-planning.com/news/convincing-clients-to-let-go-of-huge-holdings. Accessed Nov. 28, 2017.

7 Karen Demasters. Financial Advisor. Oct. 17, 2017. “Annuities Are Misunderstood, TIAA Says.” https://www.fa-mag.com/news/annuities-are-misunderstand–tiaa-says-35249.html. Accessed Nov. 28, 2017.

 

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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