Key Questions for the Long-term Investor

By | November 15th, 2017|Uncategorized|

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Whether you’ve been investing for decades or are just getting started, at some point on your investment journey you’ll likely ask yourself some of the questions below. Trying to answer these questions may be intimidating, but know that you’re not alone. Your financial advisor is here to help.  While this is not intended to be an exhaustive list it will hopefully shed light on a few key principles that may help improve investors’ odds of investment success in the long run.

1.  What sort of competition do I face as an investor?

The market is an effective, information-processing machine. Millions of market participants buy and sell securities every day and the real-time information they bring helps set prices.

This means competition is stiff and trying to outguess market prices is difficult for anyone, even professional money managers (see question 2 for more on this). This is good news for investors though. Rather than basing an investment strategy on trying to find securities that are priced incorrectly, investors can instead rely on the information in market prices to help build their portfolios (see question 5 for more on this).

2.  What are my chances of picking an investment fund that survives and outperforms?

Flip a coin and your odds of getting heads or tails are 50/50. Historically, the odds of selecting an investment fund that was still around 15 years later are about the same. Regarding outperformance, the odds are worse. The market’s pricing power works against fund managers who try to outperform through stock picking or market timing. One needn’t look further than real-world results to see this. Based on research, only 17% of US equity mutual funds and 18% of fixed income funds have survived and outperformed their benchmarks over the past 15 years.

3.  If I choose a fund because of strong past performance, does that mean it will do well in the future?
Some investors select mutual funds based on past returns. However, research shows that most funds in the top quartile (25%) of previous five-year returns did not maintain a top-quartile ranking in the following year. In other words, past performance offers little insight into a fund’s future returns.

4.  Do I have to outsmart the market to be a successful investor?

Financial markets have rewarded long-term investors. People expect a positive return on the capital they invest, and historically, the equity and bond markets have provided growth of wealth that has more than offset inflation. Instead of fighting markets, let them work for you.

5.  Is there a better way to build a portfolio?
Academic research has identified equity and fixed income dimensions, which point to differences in expected returns among securities. Instead of attempting to outguess market prices, investors can instead pursue higher expected returns by structuring their portfolio around dimensions of expected returns like company size, price, profitability and risk.

6.  Is international investing for me?
Diversification helps reduce risks that have no expected return, but diversifying only within your home market may not be enough. Instead, global diversification can broaden your investment opportunity set. By holding a globally diversified portfolio, investors are well positioned to seek returns wherever they occur.

7.  Will making frequent changes to my portfolio help me achieve investment success?
It’s tough, if not impossible, to know which market segments will outperform from period to period.

Accordingly, it’s better to avoid market timing calls and other unnecessary changes that can be costly. Allowing emotions or opinions about short-term market conditions to impact long-term investment decisions can lead to disappointing results.

8.  Should I make changes to my portfolio based on what I’m hearing in the news?

Daily market news and commentary can challenge your investment discipline. Some messages stir anxiety about the future, while others tempt you to chase the latest investment fad. If headlines are unsettling, consider the source and try to maintain a long-term perspective.

9.  So, what should I be doing?
Work closely with a financial advisor who can offer expertise and guidance to help you focus on actions that add value. Focusing on what you can control can lead to a better investment experience.

  • Create an investment plan to fit your needs and risk tolerance.
  • Structure a portfolio along the dimensions of expected returns.
  • Diversify globally.
  • Manage expenses, turnover, and taxes.
  • Stay disciplined through market dips and swings.

Contact us Park + Elm today to get started on your long-term plan at 855.PARKELM or kward@park-elm.com

Past performance is no guarantee of future results.

It’s Enrollment Time: Don’t Rush Through Your Options!

By | November 2nd, 2017|Uncategorized|

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Fall is open enrollment in the American workplace, and employers will begin to pass out packets, forms, memos, hold meetings and launch apps for the benefits enrollment season. Navigating your benefits package can be overwhelming, and has a direct effect on your long-term savings. Park + Elm wants to help. Below is your quick guide to navigating your benefits booklet from start to finish:

Health Insurance – pay close attention to the following variables to the health insurance options:

  • Coverage – compare what’s covered to your anticipated needs, i.e. maternity?
  • Co-payments and Prescriptions – if you go to the doctor often, or have a recurring prescription to fill, evaluate these fees closely.
  • Deductibles – the amount you have to pay out of your pocket before coverage begins. A high deductible plan typically means lower premiums, but participants pay more out of pocket if an unexpected illness occurs.
  • Premiums – the monthly fee for coverage. A higher premium usually means lower deductibles, co-pays and more coverage. But that’s not always the best financial choice.

Tax advantaged accounts – beyond health coverage, these accounts allow you to save pre-tax dollars for ancillary health and other expenses.

  • FSA (Flexible Savings Account) – similar in tax savings, a FSA allows you to use the funds for medical and child care services. There are limits to contributions and to carry over funds.
  • HSA (Health Savings Account) – contribute to this account to help cover medical expenses you are paying out of pocket. Choosing a high deductible plan warrants opening an HSA due to the anticipated higher out of pocket costs. These funds roll over from year-to-year.

Vision and Dental – Simply put…

  • Dental care is expensive. Insurance doesn’t cover a lot, but what it does cover usually outweighs the cost of the dental care without it.
  • Vision care is inexpensive, but sometimes unnecessary. If you have healthy eyes you need a checkup only every 2 years, so vision premiums may not be worth it.

Life and Disability – Important Voluntary Benefits!!!

  • Short-term Disability – are you covered for a short-term illness or injury?
  • Long-term Disability – if you are unable to work for an extended period of time, how will you pay your bills?
  • Life Insurance – How much should you leave your family if something happens to you?

401(k) – the likely #1 source of retirement savings, this benefit is the major player in your ability to retire.

  • Make a goal to increase your contributions every year
  • Take full advantage of your employer’s match
  • Make catch-up contributions if you are eligible
  • Evaluate the need to defer some of your funds to a Roth 401(k) to provide future tax diversification.
  • Evaluate your risk tolerance and allocate appropriately
  • Choose low-cost funds

The best way to make the most of open enrollment is to simply set aside adequate time to review all your options carefully and ask any questions you may have. Consult with your financial advisor, as these benefits choices will affect your long-term savings. To make the most of open enrollment, read the fine print, consider your family’s needs and make an educated, rather than a rash, decision. We are here to help you navigate these important choices. Please let us know if you would like a more detailed COMPLIMENTARY REVIEW of your benefits booklet!

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