Part #1 of this series, The First Step is Signing Up, breaks down the various reasons why Americans aren’t participating, and the steps for signing up for your company sponsored plan. But what if your company doesn’t offer a 401(k)?

Millions of Americans are facing a Retirement Crisis. As we learned from our first piece in this series, only 14% of all American employers offer a 401(k). Not being able to contribute to an employer-sponsored retirement plan is a disadvantage, but it’s one you might be able to overcome. Even if you don’t have a 401(k), you can take the following steps to prepare for retirement.

1. Set up a Traditional IRA

A traditional IRA allows you to save up to $5,500 a year for retirement ($6,500 if you’re over age 50). If you don’t have a retirement plan at work, your IRA contributions are tax deductible. (If you’re married and your spouse is covered by a plan and you’re not, there are contribution limits.) Plus, your savings grow tax-free until you start making withdrawals at retirement.

Setting up a traditional IRA isn’t hard. You can start by figuring out where to open your account. Banks, brokers, and Investment Advisers all offer IRAs. With Park + Elm, you can open a Schwab IRA in a day or two, and begin to fund your retirement. If you’re new to saving, a low or no account minimum is the best place to start. You can set up automatic transfers to fund your IRA.

2. Set up a Roth IRA

A Roth IRA generates tax-free retirement income. Roth IRAs work in much the same way as traditional IRAs, with one crucial difference: The money you contribute can’t be deducted from your taxes. In exchange for giving up the tax deduction today, you get something that might be even better: the possibility of tax-free income in retirement. Roths have a few other perks, as well, such as penalty-free early withdrawals of contributions (though not earnings) and no required minimum distributions at age 70½.

Not sure whether a traditional or Roth IRA is the right choice? It all depends on what tax bracket you think you’ll be in at retirement. If you think your taxes will be higher in retirement than they are today, a Roth is a smart move. If you think your taxes will be lower when you retire, go with the traditional IRA. Keep in mind, there are limitations in regards to who can contribute to a Roth, and how much can be contributed.

3. Look at options for the self-employed

Working for yourself is no excuse not to save for retirement. Self-employed workers and small-business owners have options for saving for retirement beyond traditional and Roth IRAs.

If you work for yourself, consider a SEP IRA, which lets you put away up to $54,000 a year for retirement. Or you could set up a solo 401(k) or SIMPLE IRA. These plans are similar, but you might be able to save more because of slightly different rules regarding those contributions.

If you’re self-employed and considering setting up a retirement plan for your business, talk to a financial professional. They can walk you through the pros and cons of the different options, particularly if you have employees. If you’d like to request a copy of Park + Elm’s Business Owner’s Guide to Saving, please contact Kara at kara@park-elm.com .

Even if your business is a side gig in addition to your full-time job, you can still set up a retirement plan. Shoveling a big chunk of your money into a tax-advantaged retirement account, such as a SEP IRA, could help make up for not having such a plan at your full-time job.

4. Consider the spousal IRA

You can use a spousal IRA to double your yearly retirement savings. Some people aren’t saving for retirement because their employer doesn’t offer a plan, while others aren’t saving because they don’t work. Usually, you need to have earned income to contribute to a retirement account, but the IRS offers an exception for married couples where one person earns little or no income: the spousal IRA.

Spousal IRAs are basically the same as a traditional or Roth IRA, except that the working spouse can contribute an additional $5,500 a year on behalf of their non-working spouse. If neither of you has a workplace retirement plan, the contributions are entirely deductible.

5. Max out your HSA contributions

An HSA is designed to help you cover out-of-pocket medical expenses, but it can also help you save for retirement. Your employer might not have a retirement plan, but another one of your employee benefits could give you a way to save tax-free for retirement: your high-deductible health plan with a health savings account, or HSA.

An HSA lets you put aside $3,400 per year pre-tax ($6,750 per family) to cover out-of-pocket health expenses. The money grows in the account tax-free, and if you use the funds to pay for qualified medical expenses, withdrawals are tax-free, too. And unlike flexible spending accounts, there’s no use-it-or-lose-it provision with an HSA. So your savings add up over time, provided you don’t have a major health crisis that forces you to drain the account.

Considering that your health expenses are likely to skyrocket as you age, setting aside some money now to cover those bills can be a smart move. And if you don’t need the money for health care costs, you can make penalty-free withdrawals after age 65 to cover other living expenses.

6. Save the old-fashioned way

A financial planner can help you choose the right investments when you’re saving for retirement. People love 401(k)s and IRAs because of the tax advantages, but they’re not the only way to save for retirement. Investing in a plain old investment account is another way to build your nest egg. Sure, you won’t get to deduct your contributions from your taxes like you do with a regular 401(k). But you also won’t have to worry about rules regarding withdrawals and contribution limits, which is a big plus for some people.

Capital gains tax can be an issue if you’re investing for retirement outside a 401(k) or IRA, particularly if you’re high-income. But if you’re in the 10% or 15% tax bracket, you won’t have to pay any long-term capital gains tax. Working with an experienced accountant or adviser can help you minimize your tax liability if you’re saving for retirement outside of a 401(k).

According to a World Economic Forum Report, longer life spans and disappointing investment returns will help create a $400 Trillion retirement savings shortfall in about 3 decades. Not having access to a company sponsored 401(k) can be part of this problem. We’ve given you 6 potential solutions to this problem. Feel free to contact our office today if you would like to see if these solutions might fit your individual situation.

Financial science and experience show that our investment efforts are best directed toward areas where we can make a difference and away from things we can’t control. We can’t control movements in the market. We can’t control news or financial headlines. No one can reliably forecast the market’s direction or predict which stock or investment manager will outperform.

But each of us can control how much risk we take. We can diversify those risks across different assets, companies, sectors, and countries. We do have a say in the fees we pay. We can influence transaction costs. And we can exercise discipline when our emotional impulses threaten to blow us off-course.

These principles are difficult for most people, because we are programmed to think that if we pay closer attention to the day-to-day noise, we will get better results. Ultimately, we are pushed toward fads that the financial marketing industry decides are sellable, which require us to constantly tinker with our portfolios. The financial media emphasis is often on the excitement induced by constant activity and chasing past returns, rather than on the desired end result.

So what can we control?

1. Risk – Identify an acceptable level of risk for an acceptable return. We use Riskalyze cutting-edge technology to identify risk tolerance and align your portfolio with your investment goals and expectations. Run stress tests and understand what your risk tolerance means for your portfolio over time.
2. Expenses – Every investor has a say in the fees they pay. Think of the costs as a percentage of your return that you give away. If you’re invested in a fund that returns 5%, but charges a 1% expense ratio, then you lose 20% of your return to fees.
3. Diversify your portfolio – Diversification improves the odds of holding the best performers, and by holding a globally diversified portfolio, investors are positioned to capture returns wherever they occur.
4. Minimize the taxes you pay – High turnover strategies can leave you with a big tax bill in the spring. Efficiency in investing is a controllable way to save tax dollars.
5. Discipline – It never feels good to watch the markets go down, but it’s also part of being an investor. No one can accurately time the highs and lows. Avoid the temptation to make changes to your portfolio in response to ever-changing market conditions.

A financial advisor can create a plan tailored to your personal financial needs while helping you focus on actions that add value. An evaluation of the risk and fees in your portfolio is a perfect first step toward a significantly better investment experience. Contact us if you’d like a free assessment of expenses and risk in your current portfolio.

DO YOU PARTICIPATE?
Americans aren’t saving enough for retirement. Recent studies show that Two-thirds of all Americans don’t contribute anything to a 401(k) or other retirement account available through their employer. Millions of people aren’t saving, because either they don’t have access to a plan, or just can’t spare the cash. It doesn’t help that the information on how to participate is stuck in the middle of a large stack of new employee paperwork that gets set aside permanently.There is also very little investment advice offered, and most participants choose funds without a solid understanding of the investments or the process.

DOES YOUR COMPANY OFFER A RETIREMENT PLAN?
What’s also concerning is only 14% of Employers in America offer plans at all. Prior to this recent study, it was widely thought that nearly 40% of private sector employers offered some retirement savings plan. An evaluation of tax records uncovered this much larger problem. Bigger companies are the likeliest to offer 401(k) plans, and since they employ more people than small firms, the overall number of U.S. workers who have the option are skewed. Because these companies employ the vast majority of Americans, it’s estimated that 79% of Americans work at a company with a sponsored retirement plan. That’s the good news. The bad news is that just 41% of those workers are making contributions. That combined result equates to 32% of American workers saving via a workplace retirement account.
Although lawmakers and states have proposed a variety of ways to get more people to save, they face serious pushback from Congress and the Financial Industry. Retirement is an important goal, but many Americans seem to have more pressing financial concerns.

STRATEGIES FOR SUCCESS:
For those people who are participating, their employer sponsored retirement account will be their largest asset at retirement, yet many of their co-workers aren’t signing up. If you find yourself in that boat, here are a few tips for taking advantage of your retirement benefits:

1. As early as you are eligible, sign up for your company’s 401(k)!
2. Create a deferral strategy. If you aren’t sure what to contribute, at least defer the maximum match that your employer offers. Please take advantage of this free money.
3. Look for low-cost, diversified mutual funds. Target-date funds are a simple answer on how to allocate your portfolio. If needed, hire an investment manager to advise you on your 401k.

At Park + Elm, we help our clients develop an investment strategy that incorporates their entire financial picture. Creating an allocation and deferral strategy in your 401(k) that compliments the rest of your portfolio is crucial to your financial future. Additionally, if you are self-employed and do not have access to a 401(k) plan, there are affordable retirement solutions for you. If you’d like to start a discussion about your deferral and allocation strategy, please feel free to call us at 855.PARKELM!

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. When tested, consider the source and maintain a long-term perspective.

Why doesn’t the media run more good news? Because bad news sells! It sells because fear is a more powerful emotion than greed. If people preferred good news, the media would supply it. Newspaper editors know it, which is why the front pages are often so depressing.

When the readers are investors, the danger can come when the emotions generated by bad news prompt them to make changes to their portfolios, unaware that the news is likely already built into market prices. For the individual investor seeking to make portfolio decisions based on news, this presents a real challenge. First, to profit from news you need to be ahead of the market. Second, you have to anticipate how the market will react. This does not sound like a particularly reliable investment strategy. Take, for instance, these headlines from this past November:

Trump’s win turns stock market into shock market, CBS News

A Trump win means recession, stock market crash , CNBC

Yet after some brief jitters following Trump’s win, the stock market has kept marching skyward. By the time Trump clinched the presidency, the market rallied and closed the trading day 256 points higher, and has not shown any opportunity to re-enter efficiently. From just before the election to today, the S&P 500 has gained nearly 10%.

Take also the summer of 2015, when Greece was on a fast track to bankruptcy. Media around the world described the financial crisis to come in Greece, yet the following year, Greece was the #1 performing stock market in the world.

Conversely, what about those EXTREME jackpot prediction headlines:

Six Stocks to Kick Start Your Portfolio

Make Money in Any Market

12-Month Get Rich Plan

In early 2013, the Daily Mail in the UK carried the headline, “Gold Set to Shine Even More Brightly in 2013.” The rationale was that with investors scouring the world for “safe havens,” gold could reach as high as $2,500 an ounce by year end. As it turned out, gold suffered its biggest annual loss in three decades that year, with its spot price falling 28% in US dollar terms. From an all-time high of $1,920 in September 2011, gold fell to just over $1,200 by the end of 2013.

The notion that the path to long-term wealth lies in locating secret and previously undiscovered treasures in the global marketplace of securities is one regularly featured in media and market commentary. It’s a haphazard approach, reliant on chance and requiring a lot of work that is unlikely to be rewarded. Worse, it means taking unnecessary risks by tying one’s fortunes to a handful of securities or to one or two sectors.

A BETTER APPROACH

Luckily, there is better approach to investing. It involves working with the market and accepting that news is quickly built into prices. Those prices, which are forever changing, reflect the collective views of all market participants and reveal information about expected returns. So instead of trying to second-guess the market by predicting news, investors can use the information already reflected in prices to build diverse portfolios based on the dimensions that drive higher expected returns.

WHAT SHOULD YOU DO?

Sound investment boils down to a handful of principles – accepting that markets work, understanding that risk and return are related, diversifying, keeping costs low and maintaining a long-term perspective. You should turn off MSNBC and Mad Money and work with an Adviser to develop an investment strategy that fits YOUR financial goals for your family and retirement.

This report features world capital market performance and a timeline of events for the past quarter and the past year. It begins with a global overview, then features the returns of stock and bond asset classes in the US and international markets.

The report also illustrates the impact of globally diversified portfolios and features a quarterly topic.

CLICK BELOW!

QUARTERLY MARKET REVIEW

CLICK ABOVE!

Have you ever been asked about your investing risk preference? Or have you been investing based upon gut instincts, hunches or emotions? Maybe you’ve discussed risk in a subjective way based upon your age. What if I asked you:

“How far can your portfolio fall, within a certain period of time, before you make a poor investing decision?”

4 out of 5 people have more risk in their portfolios than they realize. But it can be as simple as 5 minutes to determine an acceptable amount of risk your family is willing to take, for an acceptable return.

Park + Elm Investment Advisers has invested in award winning technology from our partners at Riskalyze, that defines an individual’s risk tolerance through the patented “RISK NUMBER”. We invite you to take 5 minutes to identify YOUR risk number. It’s simple, quick, free and crucial to your investment experience.

My risk number is a 67! Click on the button above to find out yours!

Trivia time: how many stocks make up the Wilshire 5000 Total Market Index (a widely used benchmark for the US equity market)?

While the logical guess might be 5,000, as of December 31, 2016, the index actually contained around 3,600 names. In fact, the last time this index contained 5,000 or more companies was at the end of 2005. This mirrors the overall trend in the US stock market. In the past two decades there has been a decline in the number of US-listed, publicly traded companies. Should investors in public markets be worried about this change? Does this mean there is a material risk of being unable to achieve an adequate level of diversification for stock investors? We believe the answer to both is no. When viewed through a global lens, a different story begins to emerge—one with important implications for how to structure a well-diversified investment portfolio.

U.S. Against the world

When looked at globally, the number of publicly listed companies has not declined. In fact, the number of firms listed on US, non-US developed, and emerging markets exchanges has increased from about 23,000 in 1995 to 33,000 at the end of 2016. (See Exhibit 1.)

It should be noted, however, that this number is substantially larger than what many investors consider to be an investable universe of stocks. For example, one well-known global benchmark, the MSCI All Country World Index Investable Market Index (MSCI ACWI IMI) contains between 8,000 and 9,000 stocks. This index applies restrictions for inclusion such as minimum market capitalization, volume, and price. For comparison, the Dimensional investable universe, at around 13,000 stocks, is broader than the MSCI ACWI IMI.

Exhibit 1. Number of Publicly Listed Companies

Source: Bloomberg

While it is true that in the US there are fewer publicly listed firms today than there were in the mid-1990s (a decrease of about 2,500), it is clear that the increase in listings both in developed markets outside the US and in emerging markets has more than offset the decline in US listings. Although there is no consensus about why US listings have decreased over this period of time, a number of academic studies have explored possible reasons for this change. One line of investigation considered if changes in the regulatory environment for listed companies in the US relative to other countries may explain why there are fewer listed firms. Another considered if, since the 2000s, private companies have had a greater propensity to sell themselves to larger companies rather than list themselves. In either case, the implication for investors based on the numbers alone is clear—the number of publicly listed companies around the world has increased, not decreased.

a global approach

In the US, with thousands of stocks available for investment today, it is unlikely that this change will meaningfully impact an investor’s ability to efficiently pursue equity market returns in broadly diversified portfolios. It is also important to note that a significant fraction of the publicly available global market cap remains listed on US exchanges. As noted in Exhibit 2, the weight of the US in the global market is approximately 50–55%. For comparison, it was approximately 40% in 1995.

For investors looking to build diversified portfolios, the implications of the trend in listings are also clear. The global equity market is large and represents a world of investment opportunities, nearly half of which are outside of the US. While diversifying globally implies an investor’s portfolio is unlikely to be the best performing relative to any one domestic stock market, it also means it is unlikely to be the worst performing. Diversification provides the means to achieve a more consistent outcome and can help reduce the risks associated with overconcentration in any one country. By having a truly global investment approach, investors have the opportunity to capture returns wherever they occur.

Exhibit 2. Percent of World Market Capitalizations as of December 31, 2016

Data provided by Bloomberg. Market ap data is free-­ oat adjusted and meets minimum liquidity and listing requirements. Many nations not displayed. Totals may not equal 100% due to rounding. China market capitalization excludes A-shares, which are generally only available to mainland China investors.

CONCLUSION

While there has been a decline in the number of US-listed, publicly traded companies, this decline has been more than offset by an increase in listings in non-US markets. While the reasons behind this trend are not clear, the implications for investors today are clearer—to build a well-diversified portfolio, an investor has to look beyond any single country’s stock market and take a global approach.

Source: Dimensional Fund Advisors LP.

Past performance is no guarantee of future results. There is no guarantee an investing strategy will be successful. Diversification does not eliminate the risk of market loss. Investing risks include loss of principal and fluctuating value. International investing involves special risks such as currency fluctuation and political instability. Investing in emerging markets may accentuate these risks.

All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

Indices, such as the MSCI All Country World Index Investable Market Index (MSCI ACWI IMI) are not available for direct investment.

Many people struggle to separate their emotions from investing. The chart above shows the correlation between emotional cycles and market returns. Investors typically buy at “Elation” and sell at “Fear”, inherently creating a dreaded “selling low, buying high” strategy.

A philosopher once said that nothing is as difficult for people as not deceiving themselves. But while most self-delusions are relatively costless, those relating to investment can come with a hefty price tag.

Market volatility in 2008 and 2009 took investors on a bumpy, emotional ride. Despite the market’s strong performance after March of 2009, many investors were too exhausted to endure the ongoing stress of an uncertain economy and market. By making an emotional decision to avoid the stress, there are millions of investors who never recovered their losses and sacrificed the enormous gains that would follow.

On the contrary – prior to the tech bubble of the early 2000’s, investors were pumping money into the dot coms because they saw their neighbor or co-worker getting rich. Driven by media and emotional investing, American’s poured their savings into tech stocks, only to endure the bubble bursting in 2000.

Some media outlets claim a similar bubble for tech stocks in ‘15 and ‘16. A Bing search on this claim literally pulled up the following article titles, one after another on page 1:

“Why this Tech Bubble is Worse than the Tech Bubble of 2000”

“Why this Tech Bubble is Less Scary than the Tech Bubble of 2000”

Magazines sell by appealing to the emotions of a reader. When it comes to investments, reacting to what you read or see on TV can be detrimental to your long-term retirement plan. Keep these tips in mind before making an emotional investment decision:

1. Market timing is hard.
2. Never forget the power of diversification.
3. Markets and economies are different things.
4. Discipline is rewarded.

Overcoming self-deception is not impossible. It just starts with recognizing that, as humans, we are not wired for disciplined investing. We will always find one way or another of rationalizing an emotional reaction to market events. But that’s why even experienced investors engage advisors who know them, and who understand their circumstances, risk appetites, and long-term goals. The role of your advisor is to listen to and acknowledge your very human fears, while keeping us in the plans we committed to at our most lucid and logical moments. Can you say with confidence that your investment decisions are based on a long-term strategy, or are your current emotions playing a role?

A Core principle of the Park + Elm’s Investment Strategy is investing efficiently, and adding value by analyzing and reducing portfolio expenses. We focus on partnering with firms that value those same principles, in order to deliver a cost efficient, research based portfolio for our clients.

It’s been a great 2017, and we are thankful to be partners with two respected organizations that announced fee reductions in January. As a fiduciary, we continuously analyze the cost of building a portfolio, and work with these partners to add value through reducing expenses. Charles Schwab and Dimensional Fund Advisors have both announced cost cutting adjustments for 2017.

Charles Schwab, Inc.
Charles Schwab, the brokerage firm that custodies our firm’s assets, has significantly cut expenses on several of its open-ended index funds, announcing a reduction to the same level as their equivalent ETF’s. We currently use both Schwab open-ended index funds, as well as the equivalent ETF’s, so this directly affects the value of our portfolios.

Additionally and most importantly, the lowest expense ratio would apply to all investors, whether they invested $1 or $1 million. In normal industry practice, institutions with $1 million or more to spend get significantly lower expense ratios than individuals with $500 to invest. Schwab’s lower expenses will start March 1.

Schwab will also reduce standard online equity and ETF trade commissions from $8.95 to $6.95, which, Schwab says, is lower than those charged by Fidelity, TD Ameritrade, E*Trade and Vanguard. The lower commission rates start Friday, Feb. 3.

Dimensional Fund Advisors
Dimensional Funds also announced a reduction in expense caps and investment management fees for 2017 relating to 10 of their mutual funds. Dimensional Funds are the building blocks of our portfolios, and have been a preferred partner of Park + Elm for 16 years. Dimensional’s foundation is based upon investing practically and EFFICIENTLY, and they continuously evaluate investment management fees and overall expenses. Dimensional Funds have had a long history of low-expenses and turnover in their funds, which is a core reason for our long-term partnership. As of January 1, 2017, expense cap reductions were already effective, and management fee reductions will be effective February 28, 2017.

This is a BIG deal. This will positively affect our portfolio values, and, long-term, can make an impactful difference in retirement. Investing in equity markets can be risky and volatile, but expenses are one controllable aspect of an investment strategy. These efforts also confirm that Park + Elm, Charles Schwab and DFA are working to give clients the best products, in the most efficient way.