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How to Tame Market Volatility through Diversification

jim diversification, family wealth management, Financial advisor, invest, Investing, Investing Strategy, investment manager, investment strategy, Mutual Funds, retirement, Retirement Planning, Stock Market, wealth management, wealth planning strategies December 7, 2020December 7, 2020financial advisor, invest, Investing, Investing Strategy, investment management, investment planning, investment strategy, Investments, retirement planning, strategic wealth management

It’s that time of the year again. Whether it’s in person or virtually, the holidays are an opportunity for more conversations with loved ones. This year, let’s strive to put some positivity into our conversations. There is a lot to gripe about, but there’s more to look forward to. And the more we talk, the better we plan, prepare, and progress. Discussing your financial strategies with loved ones can help reinforce them or pivot according to new circumstances. And I’m ready to hear you! Knowing what may have changed this year will help us become more successful in pursuing your financial goals.

One topic that is front of mind is how to diversify your portfolio. One way to help investors reach long-term financial goals is through an investment technique known as diversification. Diversification basically means spreading out your invested money across different investments types, industries, countries, etc. Diversification can smooth out volatility of your portfolio and potentially lead to stronger returns over the long term. Helping you take advantage of the benefits of diversification is a central part of my job as your advisor.

One guiding factor behind diversification is that not all investment categories perform well at the same time. As some are increasing in value, others may be decreasing. Market volatility is the movement of investment categories going up and down.

Maintaining a well-balanced portfolio

As your advisor, I help maximize returns and reduce the risks associated with market volatility. Essentially, your portfolio represents a collection of different investments that work in harmony to help you reach your goals. One way you can achieve portfolio diversification is to divide your investments among the major asset classes. Such classes include equities, fixed income and cash.

Asset classes – A range of risks and rewards

Each asset class comes with varying degrees of risk and return characteristics. Typically, each class performs differently in certain market environments. Here’s a quick summary of each.

Equities (e.g., stocks)
Equities refer to buying stocks or shares of a business, making you a part owner. This means the investor is subject to stock appreciation when the company outperforms. But also subject to the risks of declining stock value if companies underperform.
Fixed income (e.g., bonds, Treasury bills)
Fixed income investors lend capital in exchange for interest. Considered as creditors, bondholders often have a priority claim in case of company bankruptcy. This makes the investments less risky. Fixed income typically provides income at regular intervals.
Cash (e.g., money market funds, bank accounts)
Cash investments provide low returns versus other asset classes, in the form of interest payments. These investments typically come with very low levels of risk.

Investment funds – One-stop diversification

I can also help achieve diversification through the use of investment funds; namely, mutual funds and exchange-traded funds (ETFs). These investment vehicles represent convenient and affordable ways to access a wide range of investments.

Mutual funds – These are made up of a pool of assets from many investors. Mutual funds are managed by a portfolio manager. The portfolio manager actively seeks to produce greater returns than a specific market benchmark, such as the S&P 500 Index. With the large scale of a mutual fund, you benefit from professional management and can get strong diversification by gaining access to investments that would normally be inaccessible or too expensive for most individuals.
ETFs – These are funds that track and seek to replicate the performance of select market indexes. ETFs represent a basket of securities based on the underlying index. This allows investors to gain broad diversification across entire markets, industries, regions or asset classes. ETFs are known to incur fewer administrative costs, therefore charging lower fees to investors.

Please feel free to contact me if you have questions on the terms discussed in this article, or on how your investment portfolio is diversified.

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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.

How to Start Investing

jim invest, Investing, Investing Strategy, retirement, Retirement Planning, Stock Market, tax savings, wealth management November 23, 2020November 23, 2020invest, Investing, Investing Strategy, investment management, investment planning, investment strategy, Investments, retirement, retirement planning, tax savings, wealth management

So, you’ve landed your first “real” job! Now’s the perfect time to create your first investment plan and start investing.

First, let me congratulate you on getting through school and starting your first “real” job. You’ve worked hard to get here, and I’m sure there are many things you’ll want to spend your new paycheck on. An apartment of your own, some decent takeout (not from a student cafeteria), maybe a little traveling.

You should do those things, as long as they fit into your budget. You’ve earned a little breathing room. But now that you have some stability, you should also thinking about how to start investing for your future. Here are three ways to get the ball rolling.

1. Pay down debt

As a student, you may have accumulated a mix of debt, from student loans to credit cards. Create a debt-repayment plan that focuses on paying off your high-interest debt, like credit cards, first.

Student loans often carry lower interest rates, so these loans might not be your top priority. At the same time, many student loans require you to make a minimum monthly payment shortly after you graduate, and you only have so much time to repay the entire loan. You still need a loan-repayment plan to make sure you don’t default on these loans.

2. Build your emergency fund

Post-graduate life isn’t all sunshine and rainbows. Sometimes your air conditioner breaks down in the middle of a heat wave or your car dies on the way to a meeting. I suggest putting 10% of your paycheck into an emergency fund to cover unexpected expenses. The goal is to eventually have enough money in your emergency fund to cover three to six months’ worth of expenses, but it can take a while to get there.

Your emergency fund should be low risk and easy to access, like a regular savings account.

3. Think about retirement

This is the best time to take advantage of the power of compounding. If you start putting just $200 a month into a retirement savings account at age 25, and let it grow over the next 40 years at a 4% rate of return, you’ll have about $237,000 in that account when you turn 65.

Wait another 10 years to start investing the same amount at the same rate of return, and you’ll reach age 65 with about $140,000. That’s a big difference.

If your employer offers a 401(k), use it. With this tax-advantaged retirement account, you contribute pre-tax dollars directly from your paycheck. You employer will also match your contributions up to a certain percentage of your salary.

If you don’t have a 401(k), look into a traditional IRA (individual retirement account) or Roth IRA. With a traditional IRA, you’ll get a tax break on your contributions, while with a Roth IRA, you won’t pay federal taxes when you withdraw money in retirement. With both types of IRAs, you won’t pay taxes on any investment income you earn within the plan until you start making withdrawals.

Ready to start investing? Contact me today and we’ll work on creating your first investment plan.

Know Your Account Types – There is a Big Difference

jim 401k, 529 Plan, College Savings, family wealth management, Financial advisor, Investing, qualified account, qualified plan, retirement, Retirement Planning, Roth IRA, Saving for College, Traditional IRA, wealth management October 13, 2020October 13, 2020401K, College Savings, financial advisor, Investing, non-qualified account, retirement planning, Roth IRA, Saving for College, traditional IRA

There are two broad categories of plan types: qualified and non-qualified. Within these groups are a number of important accounts that can help you achieve your financial goals. If you know your account types, you can better understand the advantages and disadvantages. Let’s take a quick look at each one.

Qualified Accounts

Traditional Individual Retirement Account (“IRA”)

IRA accounts are often the core account for retirement savings. Contributions are typically tax-deductible, which means made with pre-tax assets. This provides a tax benefit in the current year by lowering taxable income. IRA’s are not taxed on investment growth annually. Taxation on this account occurs at the time of withdrawal. At which time in retirement, the individual will be at a lower marginal tax rate.

401k

401ks are offered through an employer. While there are important differences and similarities between IRAs and 401k accounts, the big benefit of a 401k is that your employer can also make contributions, helping you build up your retirement savings quicker.

Roth IRA

Contributions into a Roth IRA are made with after-tax dollars. Therefore, they are not tax-deductible like a Traditional IRA. Withdrawals, however, are tax-free after five years (and other important age conditions are met), which can potentially have a dramatically positive impact on the plan. As of 2020, individuals can contribute up to an annual maximum of $6,000 if you are age 49 and under, and $7,000 if you are age 50 and above.

529 Savings Plan

If saving for post-secondary education, a 529 Savings Plan is a popular option. 529 plans are sponsored by states, not the federal government. You do not have to live in the state that sponsors the plan you choose, nor does your child have to go to school in that state. What set 529 plans apart from others is that contributions grow tax-free if they are used for college.

Non-qualified accounts

Cash Account (for investments)

The most important non-qualified account type to know about is the cash account. Unlike qualified plans, a cash account does not have tax advantages, but there are also fewer restrictions. The big benefit to cash accounts is the liquidity. You can pull money out of your account at anytime without a tax penalty. However, there may be short-term and long-term capital gains taxes to consider.

A general rule of thumb is to maximize, if appropriate to your situation, qualified plans in order to take advantage of the tax benefits, before making significant investments into a cash account.

Do you think you can benefit from one of these account types? Contact me for a consultation!

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.

Market Brief – 2020 Mid-Year Review

jim Economy, family wealth management, Financial advisor, financial plan, Financial Planning, invest, Investing, Market Brief, Market Commentary, Market Outlook, Market Review, Retirement Planning, Stock Market, wealth management July 20, 2020July 20, 2020economic outlook, Economy, financial advisor, financial plan, financial planning, Investing, market brief, Market Commentary, Market Outlook, Market Review, retirement planning, Stock Market, wealth management

Dog days of summer have arrived. For 2020, it feels like the dog days arrived in March. From the moment the pandemic began to spread, to stay-at-home orders, to lock-downs, to protest rallies, to reopening phases, and back to more restrictions… what a year, and we are only halfway home. Didn’t even mentions the murder hornets! Let’s take a minute to catch our breath and see where we have been, where we are, and where we will go. Currently, we are in the midst of earnings season. Big name stocks will report second quarter earnings this week. Last week the main indexes finished mixed. The Dow up 2.3%, S&P up 1.25%, and Nasdaq down 1.1%. The S&P 500 outperformed the Nasdaq index by the widest margin since February 2016. The markets were mainly buoyed by progress of a virus vaccine.

What Happened?

The year started off strong through mid-February. Early cases and the fast spread of the coronavirus took hold in Asia and quickly jumped country borders to become a worldwide pandemic. Just about a month from the market peak in February came the market lows in March, a 33.9% drop for the S&P index. In just a few weeks, the U.S. economy erased 7 years of employment gains. 30 million Americans lost jobs, driving unemployment as high as 22% in April. By June, the unemployment rate hovered around 14%. Still extremely high, but significantly lower from 2 months prior.

In March, the Fed stepped in and provided a backstop to the equity markets. Stabilizing and possibly adding turbo to the economy via stimulus for individuals and businesses. The pandemic accelerated tech disruption. It changed how companies reach consumers, how supply chains work, how to deal with remote employees, and still build their brands.

Where Are We Today?

Year-to-date index performance; Dow down 6.54%, S&P down 0.2%, and Nasdaq up 17.0% through the close on Friday. Last week, Treasury Secretary Mnuchin said the Trump administration and Senate leadership are discussing a new stimulus bill. The end of July is the target time frame as the previous stimulus benefits are ending. The housing market reports are exceeding expectation. Current metrics show a shortage of existing home inventory, limited housing labor to build new homes, and a shortage of entry level homes for the first time home buyer. Historically low mortgage rates help boost the housing demand. Labor income across the board is surging and consumer spending is rebounding.

The markets are in fairly good position today. Much of the strength is attributed to the Fed and swift implementation of monetary policy. With interest rates near zero, investors are willing to pay for future earnings. Growth stocks have done well, value stocks have lagged. When the economy improves and interest rates rise, growth stocks will be challenged by high valuations. Communities have begun to re-open. The U.S. seems to have chosen independence over lock-down. This has led to a recent uptick in coronavirus cases. Deaths due to the virus have decreased as health care has gotten smarter about how to handle symptomatic cases. The resurgence of hiring and end of mass layoffs indicate the job market is recovering. While the decreasing layoffs and increasing hires offer hope, the reopening process has been trending in the wrong direction.

Where Are We Going?

It’s election season. From here on out, politics will headline media reports. Snippets and quotes from leadership on both sides will sway the markets. Bigger than the election is the Fed’s actions. Interest rates are low and likely to remain low for a very long time. This creates a scenario of easy lending and the opportunity for trillions of dollars to remain invested in the market. The future months will measured by the resurgence of the coronavirus, how quickly a vaccine can be developed, another round of monetary stimulus, and the upcoming election. If you thought the first half of 2020 was a roller coaster, the second half might be just as wild! Take care and be safe.

Market Brief’s are taking a summer hiatus, see you at the end of August!

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Retirement Planning Options – 401k or IRA – Which is Best?

jim 401k, Financial advisor, financial plan, Financial Planning, Investing Strategy, investment strategy, qualified account, qualified plan, retirement, Retirement Planning, Roth IRA, tax savings, Traditional IRA April 9, 2020April 9, 2020401K, retirement, retirement accounts, retirement planning, retirement plans, traditional IRA

Amid the recent market turmoil, lots of questions have risen around the best ways to save money for retirement. There are multiple retirement planning options for the individual saver. Now is a great time to re-evaluate your plan and strategy moving forward. Below I have highlighted a few of the basic accounts for retirement savings.

Similarities and Differences

The following discusses two popular retirement accounts, the 401k and the Traditional IRA. 401k’s and Traditional IRA’s are great accounts to save money for retirement. Both are similar in that the accounts grow on a tax deferred basis. Meaning once contributions are made into the account, growth and capital gains are not taxed. Another similarity is the taxation on withdrawals. When it is time to withdraw the money from the accounts, all the money taken out is taxed at ordinary income rates.

Schedule a call for a review of your retirement plan and targeted goals.

Differences between the accounts include contribution levels. With a 401k, in 2020, an individual under the age of 50 can contribute up to $19,500. With a Traditional IRA, the max contribution amount for savers under the age of 50 is $6,000. Another difference is that with a 401k, all the contributions are eligible for a tax deduction.

With a Traditional IRA, depending on your income, you may not qualify for the deduction. The “catch-up” provision allows for savers over the age of 50 to contribute more to their accounts. In 2020, the catch-up for 401k accounts is $6,500 and $1,000 for Traditional IRA’s. The deduction amount for a Traditional IRA depends on whether you already have an employer sponsored plan, your income level, and tax filing status. So be sure to discuss available options in detail with your tax and financial professional.

Another IRA option is a Roth IRA. The Roth IRA provides tax free growth in the account, as well as, tax free withdrawals after the account owner is 59 1/2. The contribution levels are the same as the Traditional IRA, however, income levels for making contributions are much lower. For example, a “single” tax filing status in 2020, the modified adjusted gross income must be below $124,000.

Pro’s and Con’s

The pro’s of owning a 401k are the big annual contribution limits, along with the tax deduction on your contributions and tax deferred growth. The downside of a 401k account is the limited investment choices within the employer plan. Also, the entire amount of withdrawals will be taxable. The pro’s of a Traditional IRA is that you may qualify for a deduction of contributions, tax deferred growth, and the investment options are fairly wide open to most investment choices in the marketplaces within the IRS guidelines.

The downsides of Traditional IRA’s include the small contribution amount and that all withdrawals are taxable. Another downside for both 401k plans and Traditional IRA’s is that they fall under the Required Minimum Distribution guidelines of the IRS. The RMD rules require money in these accounts to be withdrawn once the account owner turns 72 years old. Without a hardship, both accounts incur a penalty tax when withdrawals are made before age 59 1/2.

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The Roth Option

The Roth IRA option provides the biggest advantage at the withdrawal phase. Money withdrawn is tax free after age 59 1/2. The downside to the Roth IRA is that there is no tax advantage with contributions. All the contributions made with after tax dollars. Another advantage to the Roth IRA is that Required Minimum Distributions do not apply. Therefore, the IRS does not force the account owner to withdraw funds at anytime.

When it comes to Retirement Planning, there are good options for individuals. I hope you learned something from this post. If you still have a question, connect with us here. Call today if you need help, want to discuss options further, or want to review your current plan alongside your goals.

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.