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Get to Know Your Financial Advisor
Tweet Share on Facebook January 28, 2011 Comment (1)Today I want to highlight the importance of personal relationships, specifically the one between you and your financial advisor. It's a serious relationship, but it is grounded in the most basic foundation: we are all human. As humans we are all shaped by, and products of, the cultures we are immersed in throughout life. I was recently reminded of this by a personal experience I'd like to share. It requires a little bit of background on me.
Upon graduating from college, I became an artillery officer in the U.S. Marine Corps and served nearly seven years on active duty, seeing both the world and a little bit of combat. I was initiated into a culture grounded in more than 235 years of tradition. There was, appropriately, very little room for individuality. The culture of uniformity helped me develop an eye for detail and order. To this day I can look at a service member in uniform and determine if something is out of alignment by an eighth of an inch.
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Why You Should Still Buy Bonds
Tweet Share on Facebook January 27, 2011 CommentAs an investment advisor, it seems like I have a daily conversation with investors who are running for the exit with their bond portfolios. The prognosticators have spoken, and apparently the news has finally leaked out to the masses: Inflation is either here or just around the corner, and with it the great and terrible day of reckoning for bonds. Yes, a dot-com-sized bubble has inflated the bond market before our very eyes, leaving only the most foolish among us still holding on to our bonds. When the bond market finally craters, it will be the stubborn few taking the punishment—pigs, as they say, deserving slaughter.
The consensus for fleeing bonds has become more powerful with each passing week. The first notable warning shot came from Warren Buffett at his annual Berkshire Hathaway meeting when he predicted the future demise of the bond market. Soon after, the Vanguard Group announced worries about bond instability. Journalists, economists, and wealth managers have joined in chorus proclaiming disaster in the bond market. With such a dire consensus, why would any investor still buy bonds?
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3 Ways to Be Rich in Retirement
Tweet Share on Facebook January 26, 2011 CommentThe common joke of how to make $1 million in retirement is to start with $2 million. But jokes aside, there actually are ways to attain a seven-figure retirement fund. However, these strategies are not for faint-of-heart/quick-fix types of people and surprisingly, these ways consistently work.
[See 4 Steps to Planning Your Retirement in 2011.]
First, let's begin with the real question—is $1 million enough? Based on investment rules of thumb, a retired investor should expect to withdraw between 4 and 5 percent from his or her retirement accounts annually. Therefore, each $1 million of investments should provide $40,000 to $50,000 per year of inflation-adjusted income. But is $50,000 (in today's dollars) enough for you to live on? Depending on where you plan to retire, you might need two to four times that amount. Keep that in mind when assessing retirement needs.
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4 Ways to Cure Emotional Investing
Tweet Share on Facebook January 25, 2011 CommentNo one likes to lose money in the markets. Most people understand and accept that investments go down from time to time. But some folks get so emotional that they make rash decisions, which end up costing them money. That's why you need to create a financial plan and stick with it, no matter how the market is acting. Here are four ways to keep your emotions out of investing and stick to your plan:
Let your intellectual side take over. On a day when the markets are calm, make a list of what you would do if the market gained or lost 500 points in one session. Your responses will depend on whether those movements are one-day events or significant shifts in the economy that will affect your investments in the long run. Try to envision a range of scenarios and write your responses on a piece of paper that you can find later. When the market makes a big move and you're feeling jittery, read your responses. The answers written by your intellectual, rational self should calm your emotional side. Do not make any investing decisions when you're feeling emotional. Stay calm and let your rational side win.
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Why It Matters When Advisors Switch Firms
Tweet Share on Facebook January 21, 2011 CommentFinancial advisors switch firms—it's a fact. I've moved in my career, and many advisors I know have moved as well. It's not uncommon, and in many cases it's for a good reason.
But sometimes it's not.
When moving is in everyone's best interest. Some advisors move to improve their own "work lifestyle." Some big money management firms are rife with complicated politics, rotating management teams, and at times, inflexible compliance oversight. Additionally, there are instances where firms have a laser focus on profit maximization and have to make harsh cost cutting efforts. For example, when profitability or earnings are down, firms naturally look to cut costs, and it usually starts with a reduction in administrative staff. As with any industry facing painful cutbacks, these sorts of changes can become oppressive in the daily life of some advisors who are working to serve the best interests of their clients.
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You Might Not Have 'Beat The Market' in 2010
Tweet Share on Facebook January 20, 2011 CommentRetirement investors are faced with two basic investment choices: pay high fees for professional mutual fund managers to beat the market (called "active" investing) or buy low-fee funds that simply own all of the stocks in a given group ("passive" investing). If you have an actively-managed portfolio, it is important to determine if your fund managers are earning their keep.
First, understand that 2010 was an excellent year in the stock market. Everyone should have made money. But did you make enough money to compensate for the risks you took? Here's a way to figure out that answer.
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4 Steps to Planning Your Retirement in 2011
Tweet Share on Facebook January 19, 2011 CommentAt the beginning of each year, many people say they will do certain things; they will act differently or they will accomplish something by year's end. Unfortunately, when the end of the year inevitably arrives, it seems that nothing was actually accomplished.
It's time to make 2011 a new kind of year and a true beginning to your retirement. This could and should be the year that noticeably changed your retirement life.
Here are four ways to start that transformation:
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Don't Rush to Pay Off Your Mortgage
Tweet Share on Facebook January 18, 2011 Comment (21)Many people aspire to pay off their home as quickly as possible. These folks believe that once they don't have a mortgage, they've hit a financial milestone. However, this is one milestone I believe people shouldn't rush to reach.
The first reason that people should not pay off their mortgage is that it doesn't make financial sense. A few weeks ago, a man called in to my radio show asking if he should pay off his mortgage. He owes $50,000 on his house, so he was considering using half of his $100,000 mutual fund investments to wipe out the mortgage.
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Why Active Equity Management Stinks
Tweet Share on Facebook January 14, 2011 CommentAccording to a 2009 study by State Street Global Advisors, more than 70 percent of large-cap blend funds run by a portfolio manager failed to outperform their relative benchmark. Wow.
Want more? How about this, from the same study: In 2004, only 28.8 percent large-cap blend managers beat their benchmark. Tracking those successful managers out for five years to 2009 shows that only 0.1 percent of them still beat their benchmark.
That means for every 1,000 managers in this category, only one would have beaten their respective index over that five-year period. Is double wow an actual expression? If not, I'm claiming it.
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The Tale of Two Taxes
Tweet Share on Facebook January 13, 2011 Comment (1)While the über wealthy use exotic tax strategies to exploit esoteric loopholes, the everyday investor has one great tax trick available in the form of exchange-traded funds. ETFs offer a type of modern-day tax miracle. Sure, when it comes to capital gains from the sale of an ETF, investors must give Uncle Sam his slice of the pie. But as a highly tax efficient long-term investment vehicle, ETFs have a sophisticated architecture that, when it comes to taxes, leaves their mutual fund brethren looking a bit haggard.
The tax basics. First, some tax basics for all types of funds. When you make a profit, you have to pay the government in the form of the capital gains tax. Capital gains rates differ depending on whether the asset is held less or more than a year, creating short- or long-terms gains. These tax rates vary depending on an investor's income level, but generally, federal tax rates under the Bush-era tax plan can be as high as 15 percent for long-term and 35 percent for short-term capital gains. State taxes also apply.
[See 4 Ways Money Buys Happiness.]
