Elections And Strategy – Nothing To Fear – Focus on You

Elections and strategy nothing to fear

Halloween is right around the corner, and like everything else, it’s markedly different this year. Some people find it thrilling to dress up and decorate the house, others think it’s just plain scary. It’s the unknown that gives us that frisson of fear, and there are a lot of unknowns this year.

The U.S. election is days away, and we are being bombarded with predictions about the effects the winner will have on the economy. How concerned should we be? In balance, history shows that elections, just like daily market volatility, don’t affect long-term investors negatively. We have a long-term strategy in place to help you pursue your goals, so any uncertainty, whether market, political or otherwise, shouldn’t worry you. Simply tune out the noise, and turn your focus to your goals.

Taking a goals-based approach to investment risk

The real measure of risk is whether or not you reach your financial goals. While investors may view risk in a number of ways, the perspective you take should help guide you toward your long-term goals. Focus on you.

Typically, investors measure risk by comparing performance to a market index (or benchmark), such as the S&P 500 or NASDAQ. So, if it was a tough period and the benchmark was down 10% but your investment portfolio was down 8%, you “outperformed.”

Relatively speaking, that’s not bad. Yet the fact is you’ve experienced a considerable loss in capital, which may put one or more of your financial goals at risk. Especially for those fast approaching a major financial milestone, such as retirement, there’s not much comfort in that type of standard.

Goals-based investing keeps your future in sight – Focus on You

Another approach, likely to provide you with a more helpful long-term perspective, is to look at risk in a personal way. That is, risk can be based on your unique life goals, rather than the market alone. And the probability of meeting or falling short of those goals. This is better known in investment terms as a goals-based approach. After all, investing should be about achieving the future you want. Whether it’s affording a satisfying retirement, your children’s education or a major home renovation.

As your advisor, I can help you integrate this approach. First, we review your financial profile and short- and long-term objectives. From there, we can build a portfolio that puts you on track by, perhaps, funding and investing in each goal independently. Each goal could work in aggregate as part of a whole portfolio, while having unique time horizons, asset allocations or risk profiles. This is one possible approach, among others, to goals-based investing that we could use.

Gauging portfolio risk and performance, then, is a matter of tracking the total returns of your portfolio. Not the relative returns compared to an index, and determining whether or not your goals are within reach.

Navigating market volatility to meet your goals

Achieving your financial goals, especially your long-term goals, through investing requires a highly disciplined approach. And flexibility to navigate the ups and downs of the market. I can help you maximize returns and minimize losses by integrating a number of important investment techniques. A few such techniques include:

  • Diversification – Certain investments, asset classes or market segments perform better at different times. It’s important to avoid concentrating your portfolio in one particular area only, since you will risk missing out on attractive investment opportunities in other markets.
  • Investing early – To reach your long-term financial goals, you need to begin investing as early as possible and for the long term. This will help you compound your earnings as you generate more returns on your asset’s reinvested earnings over time.
  • Systematic investing – Making regular investment contributions, instead of random ones, can help build your wealth in a disciplined manner. All while keeping you invested through all market conditions to enhance your long-term growth potential.

Please feel free to contact me to discuss taking a goals-based approach in your portfolio, or if you’d like to review your financial objectives for the future. And be sure to vote on November 3rd!

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

Roth IRA Advantages

We have a special blog post tonight from the one and only Senor Frog, one of our biggest fans, submitting this question through the website contact formWhat are the advantages to setting up a Roth IRA plan?  Great question Senor, thanks for writing us!  First, a Roth IRA is a retirement account for individuals.  The contributions (money you put in each year) grow tax free, and then when you pull the money out to live it up in retirement it is also tax free!  Pretty nice right?  Does this sound to good to be true?  All these tax advantages, there must be a catch, and there are, a few anyway…

  1. Income Limits – not everyone can open a Roth IRA, you have to be below a “Modified AGI” (Adjusted Gross Income) amount each year.  In 2018, the amount for married couples filing jointly to make full contribution amounts is $189,000, and single/head of household tax filings the max modified AGI is $120,000.  If you file married but filing separately, contact your tax specialist for plan details.
  2. Contributions Limits – with tax advantages who wouldn’t want to put all the money they can into this plan, this includes me, what’s the maximum each year?  In 2018, the maximum contribution to a Roth IRA is $5,500, or your total taxable compensation amount for the year, if your compensation was less than $5,500.  Bonus for the 50+ crowd, if you are age 50 or older, the maximum contribution amount is $6,500.  This additional amount is often referred to as the “catch-up” provision.
  3. Tax Limits – what tax limits, in the intro of this post there was nothing but tax advantages!  With a Roth IRA, there is no income tax deduction on the contribution amounts.  This is also the reason when you withdraw the funds it is tax free, because you already paid taxes on the money you put in!  Also, unlike a non-qualified brokerage account, if you have a loss in the account there is no tax write-off for the losses incurred.
  4. Withdrawal Limits – if you satisfy the requirements, qualified distributions are tax free.  The basic qualified distribution would be pulling money out of this plan after age 59 1/2.  However, if the account has grown and you are under the age of 59 1/2 you are penalized if the withdrawal includes contributions and gains.  In this scenario, the gains are taxable and penalized.

Roth IRA Advantages

Hmmm, not sure this plan sounds so great anymore, read on, it gets better!  The advantages of the Roth IRA plan are:

  1. It’s a savings plan often used alongside a 401(k) or other retirement plan to mix tax strategies in retirement
  2. The contributions made into the plan grow tax free, and compounding tax free growth adds up to a lot of money over 10, 15, 20, or even 30+ years
  3. If you still have earned income, you can make contributions to this plan beyond age 70 1/2 … people are living longer, and working longer, this may be a bigger advantage than people think
  4. There are not RMD’s (Required Minimum Distributions) with this plan, unlike a IRA or 401(k), when age 70 1/2 comes around nobody (IRS) is demanding you take a certain % of the account value out each year, this is very important during market corrections or downturns
  5. And finally, tax free withdrawals, wouldn’t it be nice after paying 30 or 40 years of taxes to receive tax free income for a change, that is another advantage the Roth IRA plan offers

Summary: It’s not a perfect plan, those don’t exist.  But this plan offers tremendous tax savings opportunity to grow a retirement account over a working period of time, whether its 40 years or 5 years.  If you would like to speak with one of our advisors regarding how you can take advantage of a Roth IRA, contact us today.

For more information on individual retirement planning, follow this link.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.