Would you believe there are seven layers of investment fees that can be deducted from your investment accounts? It would be rare to pay all seven, but four or five are fairly common. The more you know about investment fees the less likely excessive expenses will impact you.
Every dollar of investment fees is one less dollar you have for reinvestment and your future use. Long-term goals, like secure retirements, can be severely impacted by excessive expenses. Continue reading
By now you probably have a pretty good understanding of the Fiscal Cliff and how it may impact you. In essence, it is a combination of expiring tax cuts and proposed budget cuts that if implemented as is, could tip the U.S. economy back into recession. The Fiscal Cliff also has a lot of implications for investors who are impacted by increased taxes on dividends, interest, capital gains, and estates. Virtually every personal tax reduction since 2001 will be rolled back to previous, higher rates.
Can you afford to wait for politicians to legislate some type of compromise or should you be taking a more proactive approach? Continue reading
How about this for a start? Financial advisors may be money managers, but money managers may not be financial advisors. Or, does this make it even more confusing. The solution is to develop clear definitions of the professionals’ various roles so you select the right advisor based on the services that they provide.
Money managers have two distinguishing characteristics that describe what they do:
Here’s how the Labor Department describes the problem. Assume you have 35 years until retirement and your current 401k account balance is $25,000. If your investment performance averages 7% over the next 35 years and your expenses average 0.5% your 401k account balance will grow to $227,000 in 2047. However, if your expenses averaged 1.5% with no additional contributions to your account your account balance would only grow to $163,000. The 1% difference in expenses reduced your account balance at retirement by 28%. And, that is with a paltry starting balance of just $25,000. Bigger 401k account balances are impacted the same way, the numbers are just bigger.
Every dollar of expense is one less dollar you have available for reinvestment and your future use. Therefore it is critical that you obtain the data you need to create an extremely accurate spreadsheet that documents every penny of expense that is deducted from your accounts or billed direct to you. Your measuring stick is the percentage of your assets that are paid every year in the form of expenses to as many as five service providers. Continue reading
First of all, sales reps say you will never pay the surrender charge or penalty for early withdrawal because you intend to hold the investment for at least seven years. That is true on the day you buy the investment – you have no intention of selling it that day. But, it is not true one year later when you determine the investment product (mutual fund, annuity) is under-performing and charging excessive fees. You determine you could do a lot better elsewhere, but you have to pay a 6% penalty (one year has elapsed) to move your assets.
Why are surrender charges just a big number? As you may know, investment product companies still pay the sales rep a 5% commission even though the assets are not deducted from your account. In effect, the product company is front-ending the commission payment to the advisor. The product company needs time to recover the commission payment. Most of the reputable companies charge early withdrawal penalties for seven years. They have that length of time to recover the commission payment and they are protected by the surrender charge if you decide to leave early. Continue reading
I often wonder why millions of boomers have not figured this out. They spend 30 or 40 years saving trillions of dollars of pension assets in their retirement accounts. Then they turn the assets over to Wall Street professionals who are supposed to increase their pension amounts with sage advice and sophisticated investment services.
The role of pension assets is to produce income during retirements that may last 30 or more years. That’s right, a lot of boomers will spend as many years in retirement as they did working. That’s the good news. The bad news is rising longevity means investors will have to generate higher investment performance to offset the erosive impact of expenses and inflation for a lot longer than they may have thought. Or, they may face their biggest nightmare, inadequate assets late in life when they need it the most. Continue reading
The year 2008 was a turning point in the lives of many, mostly for one reason: there was a dramatic crisis of confidence in our credit market combined with a process called ”deleveraging” which meant companies were no longer borrowing to invest. Since 2008, a worldwide economic slowdown has had a negative effect globally. This has created a challenge for our government and especially for Federal Reserve Chairman Bernanke, whose job it is to find ways to stimulate the economy and get it back on track.
We are now living in a low interest rate environment, primarily a result of the Federal Reserve Board’s (commonly called “the Fed”) decision to keep interest rates low in order to stimulate business and, of course, the general economy. So is this a good thing or a bad thing for seniors? As in most things in life, it depends on your point of view. Continue reading
How to buy stocks is usually focused on how to buy high quality stocks that will provide superior performance over the next few years. For example, if you purchased Apple at 100 you would have a 700% gain. If you did not buy Apple you are not alone. It is very difficult to predict the future price movement of individual stocks. This is why most investors have a number of stocks. However, diversification is a defensive, not an offensive strategy. The primary role of diversification is to minimize the risk of large losses.
An index fund is a managed portfolio of securities that is designed to replicate the performance of a segment of the stock market. For example, the S&P 500 index duplicates the performance of 500 large capitalization U.S. stocks. The EAFE (Europe, Australasia, Far East) index is supposed to represent the collective performance of the stock market in 22 foreign countries. Continue reading
Most investors regard stocks as risky investments due to their well-known reputation for volatility. Actually, there are other asset classes that are more volatile. For example, commodities, derivatives and almost any form of leveraged investment.
You should have a high tolerance for risk if you are going to invest in the stock market. What exactly does that mean? It means you are willing to tolerate substantial losses to achieve higher returns. The bottom-line, a high tolerance for risk means you are willing to accept big losses to achieve higher rates of return from your investments. Continue reading
The greatest thing about defined-benefit plans was that workers didn’t have to do anything other than show up for work to get the desired result: a guaranteed income for life. It was a good system in that most workers didn’t want responsibility or control, just a secure retirement.
The defined-benefit plan is gone, and it’s not coming back. It’s been replaced by the 401(k), an accidental solution to the retirement problem. As a replacement, it’s been a dismal failure. The worker is still just looking for a secure retirement with little to no input required. Unfortunately, very few workers are on track to get that these days. Continue reading