Manage Your Financial Life

Planning for Retirement

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When it comes to planning and saving for retirement, you must be consistent, disciplined, and use reasonable, realistic assumptions for investment returns.  Explore the blog articles below for helpful advice during this stage of life.

Why Investment Fees Matter

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Understanding how much you are paying for investments and investment advice is essential. Fees reduce your return. Over time, high fees can hinder the growth of your assets. In the investment arena, fees are usually charged as a percentage of assets quoted in terms of basis points. A basis point is one one-hundredth of 1 percent, or 0.01 percent. In other words, 100 basis points equals 1.0 percent, and 50 basis points equals one-half of 1 percent, or 0.50 percent. There are many kinds of fees. Some fees are transaction-based: these compensate brokers for putting clients in an investment or for executing a trade. With a commission, the brokerage firm charges a fee for each transaction. In contrast to brokers, who charge commissions, fee-based advisers charge an annual fee based on a percentage of assets under management. The adviser is paid to manage your money and not to execute trades. If the…

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Understanding Tax Efficiency

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As an investor, you need to consider the impact of taxes. The taxes owed on investments depend on the type of investment account. For tax-deferred accounts, such as 401(k)s and 403(b)s, you contribute money from your paycheck before it is taxed, known as “pre-tax dollars.” In other words, you do not pay taxes on the portion of your salary that goes directly into your 401(k) or 403(b). Moreover, you do not pay taxes on the income or capital gains generated each year. Instead, you pay taxes when you withdraw money from the account. Roth IRAs and college savings plans, such as 529s, are examples of a tax-advantaged account. You fund these kinds of accounts with after-tax dollars, and you do not get a tax break upfront. After you fund a Roth IRA or 529, the income, appreciation, and withdrawals are tax-free. For taxable accounts, income and capital gains are not tax-exempt or tax-deferred, so you…

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Prioritize Financial Goals

Save and Invest

Life transitions, such as college graduation, are a good time to think about financial goals. Different goals have different time horizons. Some are short term—such as establishing an emergency fund—and some are long term, like retirement. Tackling all your savings goals at once is unrealistic, so you should prioritize. The most immediate savings goal is your emergency fund. Experts recommend that you have an emergency fund sufficient to cover six months living expenses. Assets in the emergency fund should be very liquid such as cash in a savings account or in a money market fund. If you are new to the workforce, it may take time to build up an adequate reserve. The easiest way is to transfer a portion of your paycheck every pay period directly into an account. You may need a bigger emergency fund in some circumstances. You may face hurdles when looking for a new job,…

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Financial Fundamentals – How to Think About Risk

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The financial fundamentals of risk evaluation are becoming more important than ever. This week, the S&P 500 reached a record level, surpassing the previous peak, which occurred on February 19th. After just a few months, the Index fully rebounded from a decline of 34%, which marks that fastest bear market recovery in history. The S&P 500 Index is market-cap-weighted, meaning that the companies with the largest market capitalization make up more of the Index and have a greater impact on the performance of the overall Index. The top five companies – Apple, Microsoft, Amazon, Facebook, and Alphabet (or Google) – make up more than 20% of the Index and significantly impact the performance. For 2020, the S&P 500 Index is up 4.9%, whereas the S&P 500 Index on an equal-weighted basis is down almost as much. Moreover, the Russell 2000 Index, which is the leading domestic small-cap index, is also…

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Alphabet Soup: What Do Financial Credentials Mean

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Financial professionals may possess a variety of certifications and designations. These credentials instill a sense of competency. In recent years, however. the number of financial credentials has expanded significantly. If you are choosing to work with a financial professional, you should understand what these credentials mean. The prestige of certifications and designations and their usefulness to clients varies considerably. The Financial Industry Regulatory Authority, or FINRA, has a designation lookup feature on its website, https://www.finra.org/investors/professional-designations. The tool is very helpful, especially because you can compare different designations side by side. FINRA does not endorse or recommend any of these designations. The list of designations on the FINRA website is extensive. Currently, there are more than 200 listed. How do you determine which are the most meaningful? Look up what is required to achieve and maintain the various designations. If you need help with retirement planning, what are the prerequisites for…

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Time to Focus on Your Retirement

Save and Invest

Most women are caregivers. We often put others’ needs—whether our parents, our spouse, or our children—before our own. We all have heard the advice that we cannot help others without taking care of our individual needs first, which is also true for our finances. Women take on many roles throughout their lives – daughters, wives, mothers, and, increasingly, businesswomen. The Small Business Administration reports that 50% of all small businesses in the US are home-based, which equates to approximately 15 million. The Census Bureau estimates that women run nearly three-quarters of home-based businesses. Running your own business offers independence and flexibility. These appealing attributes are sometimes the primary reason why women start businesses, especially those who are mothers. At the same time, women business owners need to be even more diligent and disciplined about planning for retirement. Saving enough for retirement is the biggest concern for many of us. For…

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Financial Truths

Good to Know

Managing your financial life is not a “set it and forget it” exercise. You must take a comprehensive view and stay engaged. As you work through the process and become more conversant with concepts, many financial truths are worth remembering: The importance of time: Compounding is powerful. The importance of risk and return: There are many types of risk. The importance of discipline and conviction: Stay true to your plan. The importance of patience: Study your investment decisions and don’t rush. The importance of value: Value is not what you paid for something. It is what someone else is willing to pay for it. The importance of supply and demand: Both have an impact on value. The importance of expectations: They also drive value. The importance of liquidity: How easily something can be converted to cash is key. The importance of total return: Look at both appreciation and income. The…

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Tax Efficiency

Educate Yourself

As an investor, you need to consider the impact of taxes. The taxes owed on investments depend on the type of investment account. For tax-deferred accounts, such as 401(k)s and 403(b)s, you contribute money from your paycheck before it is taxed, known as “pre-tax dollars.” In other words, you do not pay taxes on the portion of your salary that goes directly into your 401(k) or 403(b). Moreover, you do not pay taxes on the income or capital gains generated each year. Instead, you pay taxes when you withdraw money from the account. Roth IRAs and college savings plans, such as 529s, are examples of a tax-advantaged account. You fund these kinds of accounts with after-tax dollars, and you do not get a tax break upfront. After you fund a Roth IRA or 529, the income, appreciation, and withdrawals are tax-free. For taxable accounts, income and capital gains are not tax-exempt or tax-deferred, so you…

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Understanding Fees

Educate Yourself

In the investment arena, fees are usually charged as a percentage of assets quoted in terms of basis points. A basis point is one one-hundredth of 1 percent, or 0.01 percent. In other words, 100 basis points equals 1.0 percent, and 50 basis points equals one-half of 1 percent, or 0.50 percent. There are many kinds of fees. Some fees are transaction-based: these compensate brokers for putting clients in an investment or for executing a trade. With a commission, the brokerage firm charges a fee for each transaction. In contrast to brokers, who charge commissions, fee-based advisers charge an annual fee based on a percentage of assets under management. The adviser is paid to manage your money and not to execute trades. If the investments perform well, the portfolio grows, and the financial adviser also does well. Unlike brokers, who charge transaction-based fees, incentives are aligned for fee-based financial advisers and their clients.…

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The Benefits of Diversification

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The saying “Don’t put all your eggs in one basket” applies to investments, because concentration increases risk. Whether you invest your money yourself or work with a professional, never put all your assets in the same basket—the same kind of stock, bond, mutual fund, or other investment. In addition to avoiding concentration, diversification is key to improving investment results. Various asset classes, or types of investments, tend to perform differently under certain market conditions. Some perform better, and some perform worse, depending on what is going on with the economy and financial markets. The best investment strategy is to have a diverse portfolio that includes a mixture of stocks, bonds, and international investments. Diversification across asset classes helps reduce risk; correlation illustrates this benefit. Correlation measures how things, such as investment returns, move in relation to each other. Some asset class returns are more correlated than others. Say you invest in a…

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