Looking for a financial professional to tell you where the market is headed? Keep these thoughts in mind:
“We’ve long felt that the only value of stock forecasts is to make fortune tellers look good. Short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children” (Warren Buffett).
“Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window” (Peter Drucker).
”We have two classes of forecasters: Those who don’t know – and those who don’t know they don’t know” (J.K. Galbraith, US Economist and diplomat).
I'm not " " worthy, but I say there is no substitute for sound financial planning and sticking with an investment strategy.
Thursday, May 27, 2010
Monday, May 17, 2010
In-Service Distributions
Many people work for employers who offer a less-than-desirable 401(k) plan. Unfortunately, many 401(k) plans offer only a limited number of investment options, which prevents plan participants from diversifying their retirement account. Additionally, a 401(k) may offer only investments with average to poor performance track records. Finally, some 401(k) plans only offer investment options with high annual expenses. Are employees of companies offering inferior plans simply out of luck?
Employers and 401(k) plan administrators don't advertise this fact, but most workers 59 and a half and older can roll over 401(k) funds into an IRA while they're still employed and contributing to the plan. This process is called an "in-service" distribution. This maneuver allows employees to roll their 401(k) funds into an IRA, where they have more control of their investments and access to better investment options, and still contribute to their employer's 401(k) and receive a company match. Alternatively, this process allows employees to take cash out of their plan while still employed, pay the ordinary income taxes due, and spend what's left.
The law allows this, but employers don't have to permit it. Still, 70% of companies -- and 89% of those with 5,000 or more employees -- allow these in-service withdrawals. In-service withdrawals can also be made out of 457 plans, 403(b) plans, and other retirement accounts.
Another potential advantage of taking an in-service withdrawal is that the funds can immediately be converted into a Roth IRA, where future earnings will be tax free. Yet another reason to consider an in-service distribution is if you're planning on leaving retirement money to your kids or grand kids instead of to a spouse. Under a 2006 law chance, kids and other non-spousal heirs can roll 401(k) s into inherited IRAs where withdrawals and tax deferral can be stretched out for decades, but only if the employer permits it, which not all do. To avoid any issues, get the money out now and put it into an IRA that won't have any employer getting in the way of your family's needs.
Employers and 401(k) plan administrators don't advertise this fact, but most workers 59 and a half and older can roll over 401(k) funds into an IRA while they're still employed and contributing to the plan. This process is called an "in-service" distribution. This maneuver allows employees to roll their 401(k) funds into an IRA, where they have more control of their investments and access to better investment options, and still contribute to their employer's 401(k) and receive a company match. Alternatively, this process allows employees to take cash out of their plan while still employed, pay the ordinary income taxes due, and spend what's left.
The law allows this, but employers don't have to permit it. Still, 70% of companies -- and 89% of those with 5,000 or more employees -- allow these in-service withdrawals. In-service withdrawals can also be made out of 457 plans, 403(b) plans, and other retirement accounts.
Another potential advantage of taking an in-service withdrawal is that the funds can immediately be converted into a Roth IRA, where future earnings will be tax free. Yet another reason to consider an in-service distribution is if you're planning on leaving retirement money to your kids or grand kids instead of to a spouse. Under a 2006 law chance, kids and other non-spousal heirs can roll 401(k) s into inherited IRAs where withdrawals and tax deferral can be stretched out for decades, but only if the employer permits it, which not all do. To avoid any issues, get the money out now and put it into an IRA that won't have any employer getting in the way of your family's needs.
Thursday, May 13, 2010
More Emphasis on Cost
The financial advisors at Net Worth Advisory Group are strong believers in full disclosure. We strongly believe every investor should know exactly what they are paying, and should receive value and service that is equivalent to that fee.
The sad reality is, most investors have no idea what fees they are paying, and to who. Take your IRA, for example. Some realize they pay their mutual fund managers. Others, because the manager fees come directly out of their mutual funds accounts, do not. Right now, the average US stock mutual fund charges 1.31% annually.
However, the fees don't stop there. The financial advisor that services the IRA plan may also draw a cut. In many common scenarios, this fee is an additional 1%. By the time all fees have been paid, it is not unusual for total expenses to be around 2.3%. So are you getting 2.3% of value from your investment and advisor?
FYI - Since this post is about disclosure, allow me to mention that Net Worth Advisory Group's clients usually pay no more than an all-inclusive fee of 1.5% of their invested assets. This fee covers the cost of their investments, the advice they receive, and all transaction fees.
The sad reality is, most investors have no idea what fees they are paying, and to who. Take your IRA, for example. Some realize they pay their mutual fund managers. Others, because the manager fees come directly out of their mutual funds accounts, do not. Right now, the average US stock mutual fund charges 1.31% annually.
However, the fees don't stop there. The financial advisor that services the IRA plan may also draw a cut. In many common scenarios, this fee is an additional 1%. By the time all fees have been paid, it is not unusual for total expenses to be around 2.3%. So are you getting 2.3% of value from your investment and advisor?
FYI - Since this post is about disclosure, allow me to mention that Net Worth Advisory Group's clients usually pay no more than an all-inclusive fee of 1.5% of their invested assets. This fee covers the cost of their investments, the advice they receive, and all transaction fees.
Wednesday, May 12, 2010
How To Live The Life You've Imagined
What makes Net Worth Advisory Group different from other financial advisors? Why is it crucial to work with a financial planner who accepts a fiduciary responsibility to always act in your best interest? What are the economic and emotional benefits of having a comprehensive financial plan?
View the six-minute video titled "Your Path to a Worry-Free Retirement" to learn how Net Worth Advisory Group can help you reach your financial goals and add value to your retirement planning.
View the six-minute video titled "Your Path to a Worry-Free Retirement" to learn how Net Worth Advisory Group can help you reach your financial goals and add value to your retirement planning.
Monday, May 10, 2010
Another Example of How Financial Plans Prevent Mistakes and Reduce Heartburn
Most financial advisors had a long, rough day last Thursday. Their phones rang off the hook with clients calling in a panic, anxious to sell their positions, looking for information, and hoping for reassurance. Of course, that was the day the DOW dropped 1,000 points in less than twenty minutes.
Counter to what you would expect, it was fairly quite around the Net Worth Advisory Group office that afternoon. Why? Each and every one of our clients has a comprehensive financial plan built specifically for their situation. Included in the financial plan is an investment policy statement (IPS), which outlines the client's investment strategy with an emphasis on the long-term.
In the Net Worth office, financial planners and their clients frequently review their IPS statements to keep the focus on the ultimate goal. Our clients know that if they are to reach their long term financial goals, it won’t have anything to do with what is going on in Greece this week, or whether someone on a trading desk made a gigantic trade error. All that stuff is nearly irrelevant to long-term retirement planning. What is relevant is that the client's allocation reflects where they are in life, and they know what they need to be doing to reach their financial goals.
The discipline provided by having a financial plan saves our clients a large amount of stress, and prevents them from making decisions that would negatively affect their long-term well-being. Without a financial plan, many investors might panic and rush to sell after the market had declined significantly. This would have caused the investor to miss the 700-point correction immediately following the market pullback.
The focus on the end goal provided by their financial plan enabled our clients to still enjoy their lunch last Thursday. Personally, I didn't have a single client call anxious to sell their equities and move to cash. If I had my response would have been:
"You are the client, and I will do what you ask. However, think back on all the conversations we've had revolving around your financial plan and your long-term investment goals, and how we have been emotionally preparing for these types of market pullbacks. Read through your financial plan and call me back if you still want to sell."
I'm confident my phone would have been silent for the rest of the day.
Counter to what you would expect, it was fairly quite around the Net Worth Advisory Group office that afternoon. Why? Each and every one of our clients has a comprehensive financial plan built specifically for their situation. Included in the financial plan is an investment policy statement (IPS), which outlines the client's investment strategy with an emphasis on the long-term.
In the Net Worth office, financial planners and their clients frequently review their IPS statements to keep the focus on the ultimate goal. Our clients know that if they are to reach their long term financial goals, it won’t have anything to do with what is going on in Greece this week, or whether someone on a trading desk made a gigantic trade error. All that stuff is nearly irrelevant to long-term retirement planning. What is relevant is that the client's allocation reflects where they are in life, and they know what they need to be doing to reach their financial goals.
The discipline provided by having a financial plan saves our clients a large amount of stress, and prevents them from making decisions that would negatively affect their long-term well-being. Without a financial plan, many investors might panic and rush to sell after the market had declined significantly. This would have caused the investor to miss the 700-point correction immediately following the market pullback.
The focus on the end goal provided by their financial plan enabled our clients to still enjoy their lunch last Thursday. Personally, I didn't have a single client call anxious to sell their equities and move to cash. If I had my response would have been:
"You are the client, and I will do what you ask. However, think back on all the conversations we've had revolving around your financial plan and your long-term investment goals, and how we have been emotionally preparing for these types of market pullbacks. Read through your financial plan and call me back if you still want to sell."
I'm confident my phone would have been silent for the rest of the day.
Subscribe to:
Posts (Atom)
