The 401(k) Series #6: What is the right deferral rate for your 401(k)?

By | September 21st, 2017|Uncategorized|

When you’re laying the foundation for your retirement, the first big step is choosing your deferral rate. When you say it that way, it seems easy. What if I said, “how much of your paycheck will you sacrifice now for your future self?”

Your 401(k) contribution rate will set the financial tone for your retirement plan. First let’s start with the factors that go into this determination:

  • Age of the Contributor – younger participants traditionally have a lower salary to work with
  • Income – 3% of 100,000 is significantly higher than 3% of 40,000
  • Expenses – while it seems natural to calculate your contribution rate after everything else is paid, we advise our clients to adjust your expenses to allow for the optimal deferral rate. Pay Yourself First!!
  • Company Match – does your company offer a matching contribution?
  • Outside investments – are you investing for retirement elsewhere?

It’s clear that savers are at different points in their careers and lives. There is not a magic number. But everyone can take steps to get to the optimal amount of savings. There are many factors that can help you determine your deferral rate. This checklist is a good place to start:

  1. You have to start somewhere. Make that first step. SIGN UP! Even if it’s a small deferral, get in the habit of doing something
  2. Start with a calculation of how much you will need. Refer to #3 in this series “On my retirement day, how much money will I need”
  3. If possible, maximize the company match. If your company offers a match, ideally you would be able to save enough to get the full match…the FREE MONEY!
  4. Next, focus on paying off your high interest debt like credit cards.
  5. Make a goal to increase your contribution every year until you reach 15% – traditionally known as the 401(k) deferral Sweet Spot.

Conclusion: Make a commitment to pay yourself first and take advantage of free money from your employer. Stay disciplined and work toward a goal of increasing your deferral every year. When selecting a deferral rate, aim higher rather than lower! You’ll thank yourself later! If this process seems overwhelming, a financial advisor can help you determine the best rate for your situation.


Yield vs. Total Return

By | September 1st, 2017|Uncategorized|


Many investors, including retirees, rely on their investment portfolio to fund their cash needs. This need can be approached in one of two ways. In this blog, we explore the yield vs. total return approaches to generating income in a portfolio, and address misconceptions about the benefits of emphasizing dividend and interest income at the expense of other portfolio issues.

Using Interest and/or Dividends from securities to fund cash flow needs

The traditional appeal to this method stems from the belief that stocks paying high dividends are less risky because they offer a regular stream of payments to investors. Before you determine this is the favorable route, keep in mind that the amount of dividend and interest income generated by a portfolio is largely determined by dividend policies of the firms and prevailing market interest rates. Both of these are variables outside an investor’s control. Dividend   payments are not created out of thin air. They flow from a company’s earnings or assets, which are reflected in the current stock price.

DID YOU KNOW when a company pays a dividend, its stock price is reduced by an amount approximately equal to the dividend itself? So even when accounting for the cash received, the portfolio value may remain unchanged. While you may not have to liquidate assets for cash flow, the economic impact may be essentially the same.

The key is not to allow your preference for yield to influence your asset allocation by focusing on securities with higher yields. Let’s look at the numbers:

  • A dividend-focused portfolio would exclude 35%–40% of stocks globally, resulting in lower diversification and hence, higher risk
  • Global portfolios holding only dividend-paying stocks exclude about 47% of the available small cap stock universe, which historically has offered higher average returns than large cap stocks
  • Dividends are not certain or guaranteed. As demonstrated in the 2008−2009 financial crisis, companies have reduced dividends after large market declines.

Focusing on TOTAL RETURN to create cash flow

This type of portfolio involves selling assets in the portfolio to create cash flow. This method reflects the idea that, from an investment standpoint, it makes little difference whether returns are delivered as dividends or capital gains. Selling assets also allows greater control over the amount of cash flow generated, and eliminates reliance on dividend yields and interest rates, which are uncontrollable. It may create an opportunity to strategically rebalance by selling assets that are over-weighted relative to the target allocation.

If you follow iconic investor Warren Buffet, you may know that he also believes in the Total Return Strategy. His company, Berkshire Hathaway, has never paid a dividend. His belief is that investors can sell shares if cash is needed, with a timed sale that can capture optimal tax rates. His strategy is to keep the cash in the company, prevent dividends from being double taxed, and use that cash to fund future investments into the company.


Investors can have much greater control in generating cash flows by selling securities rather than relying on dividend and interest income. Firms’ payout policies evolve over time, as do market interest rates. Rather than letting portfolio yields determine spending rates, investors can develop a sustainable withdrawal strategy with a financial advisor. If you plan to rely on interest income for cash flow, consider your overall fixed income needs in your portfolio first. Contact us to set up a free portfolio evaluation, and take the first step to a long-term plan. Don’t let an income bias affect your diversification or expected returns.

The 401(k) Series #5: Roth or Traditional Deferral?

By | August 16th, 2017|Uncategorized|

The 401(k) is the preferred financial vehicle for saving for retirement, and will likely be your largest asset when you do retire. If you’re starting a new job, participating in your company’s 401(k) plan not only allows you to capture tax advantages, but often includes an employer match of your contributions. As we discussed in #1 of this series, signing up is almost always a great idea.

Recently, many companies have added a Roth option to their 401(k) plans. Should you put your money into a traditional 401(k) or opt for a Roth 401k)? Let’s analyze the differences between the two by first taking a quick quiz:

1. Will I be in a higher tax bracket today, or when I retire?

  • Today (generally, high earners and older workers): Traditional 401(k)
  • When I retire (generally, low earners and younger people): Roth 401(k)
The most important distinguishing factor between Roth and traditional 401(k)’s is when the money is taxed. If you are a high earner now, you may need the tax deduction in the current year and thus, opt for a traditional 401(k). If you’re in a tax bracket that you believe is lower than your tax bracket will be in retirement due to tax hikes, you may be better off contributing to a Roth, and saving those tax breaks for later. In technical terms, Traditional contributions are pre-tax, Roth contributions are after tax. However, on the other end, Roth withdrawals are tax-free and traditional withdrawals are taxed as income. Generally speaking, a Roth 401(k) is best for low-income and young people, who are likely in the lowest tax bracket of their careers.

2. Is there a chance I’ll need to withdraw before age 59 ½?

  • Yes: Roth 401(k)
  • No: Traditional 401(k)
The government discourages premature withdrawals from your 401(k), and therefore levies tax penalties on anyone who withdraws prior to age 59 ½, an unqualified withdrawal, aside from a few exceptions.

It’s possible to make an unqualified withdrawal, that is, a withdrawal before age 59 ½ that’s not on the list of exceptions. No matter whether you have a traditional or Roth 401(k), you have to pay income tax on the withdrawal, plus a 10% early distribution penalty. However, traditional withdrawals are taxed on the full amount, whereas Roth withdrawals only tax the earnings.

Hopefully, you will never have to make an early, unqualified withdrawal from your 401(k) and you can let the money grow in your account until you retire. However, life happens and if you want the flexibility of being able to withdraw without as steep a tax penalty, a Roth 401(k) may be a better fit for you. Keep in mind, any employer contributions will be taxed as regular income upon withdrawal, no matter they type of 401(k) you choose.

3. Is there a time (before retirement) when I’ll be making less than I am now?

  • Yes: Traditional 401(k)
  • No: Roth 401(k)
After separating from your employer there are options both ways for rolling over the funds. However, with traditional 401(k)’s you’ll have a second chance to decide when you want to be taxed, by rolling it to a traditional vehicle or a Roth vehicle. If you roll over a traditional 401(k) to a Roth 401(k) or Roth IRA, you’ll pay income taxes on the amount you transfer, though you won’t pay taxes on withdrawals once you retire. Essentially, with a traditional 401(k), you have the flexibility to decide when you’ll pay taxes on the money. A Roth 401(k) can only be rolled into a Roth IRA, so even if your situation changes, you don’t have an opportunity to change your mind on when you pay taxes. There are many scenarios that fit into the category where converting traditional funds to a Roth makes sense…going back to school, becoming a homemaker, etc. If you time the conversion right, you could avoid significant tax liabilities.

In sum, Roth and traditional 401(k) accounts have similarities and differences. Depending on your current and future tax bracket, need for early distributions, and desire to roll over accounts, one type of retirement account may be more beneficial than the other. One option would be to contribute to both to add to your tax savings flexibility (tax diversification).

The best place to start is with a financial advisor that can dig deeper into your current and potential situation. Our retirement calculators allow us to calculate the benefits of many different scenarios, for clients in all situations. Please feel free to contact us for a free analysis of your financial options and to help connect your choices to your personal situation.



By | August 1st, 2017|Uncategorized|

COSTS MATTER. Whether you’re buying a car or selecting an investment strategy, the costs you expect to pay are likely to be an important factor in making any major financial decision.

People rely on a lot of different information about costs to help inform these decisions. When you buy a car, for example, the sticker price tells you approximately how much you can expect to pay for the car itself. But the sticker price is only one part of the overall cost of owning a car. Other things like sales tax, the cost of insurance, expected routine maintenance costs, and the potential cost of unexpected repairs are also important to understand. Some of these costs are easily observed, and others are more difficult to assess. Similarly, when investing in mutual funds, different variables need to be considered to evaluate how cost‑effective a strategy may be for a particular investor.

Expense ratios

Many types of costs lower the net return available to investors. One important cost is the expense ratio. Similar to the sticker price of a car, the expense ratio tells you a lot about what you can expect to pay for an investment strategy. Exhibit 1 helps illustrate why expense ratios are important and shows how hefty expense ratios can impact performance.

This data shows that funds with higher average expense ratios had lower rates of outperformance. For the 15-year period through 2016, only 9% of the highest-cost equity funds outperformed their benchmarks. This data indicates that a high expense ratio is often a challenging hurdle for funds to overcome, especially over longer horizons. From the investor’s point of view, an expense ratio of 0.25% vs. 0.75% means savings of $5,000 per year on a $1 million account. As Exhibit 2 helps to illustrate, those dollars can really add up over longer periods.

Exhibit 1.       High Costs Can Reduce Performance, Equity Fund Winners and Losers Based on Expense Ratios (%)

fees 2


Exhibit 2.       Hypothetical Growth of $1 Million at 6%, Less Expenses


For illustrative purposes only and not representative of an actual investment.

While the expense ratio is an important piece of information for an investor to evaluate, what matters most when gauging the true cost‑effectiveness of an investment strategy is the “total cost of ownership.” Similar to the car example, total cost of ownership is more holistic than any one figure. It looks at things that are readily observable, like expense ratios, but also at things that are more difficult to assess, like trading costs and tax impact. It is important for investors to be aware of these and other costs and to realize that an expense ratio, while useful, is not an all‑inclusive metric for total cost of ownership.

Trading costs

For example, while an expense ratio includes the fund’s investment management fee and expenses for fund accounting and shareholder reporting (among other items), it doesn’t include the potentially substantial cost of trading securities within the fund. Overall trading costs are a function of the amount of trading, or turnover, and the cost of each trade. If a manager trades excessively, costs like commissions and the price impact from trading can eat away at returns. Viewed through the lens of our car analogy, this impact is similar to excessively jamming your brakes or accelerating quickly. By regularly demanding immediacy like this when it may not be necessary, the more wear and tear your car is likely to experience and the more fuel you will end up using. These actions can increase your total cost of ownership. Additionally, excessive trading can also lead to negative tax consequences for the fund, which can increase the cost of ownership for investors holding funds in taxable accounts. The best way to try to decrease the impact of trading costs is for funds to avoid trading excessively and pay close attention to effectively minimizing cost per trade. Employing a flexible investment approach that reduces the need for immediacy, thereby enabling opportunistic execution, is one way to potentially help accomplish this goal. Keeping turnover low, remaining flexible, and transacting only when the potential benefits of a trade outweigh the costs can help keep overall trading costs down and help reduce the total cost of ownership.


The total cost of ownership of a mutual fund can be difficult to assess and requires a thorough understanding of costs beyond what an expense ratio can tell investors on its own. A good advisor can help investors look beyond any one cost metric and instead evaluate the total cost of ownership of an investment program—and ultimately help clients decide if a given strategy is right for them.

The 401(k) Series #4: Health Care in Retirement

By | July 20th, 2017|Uncategorized|

hc retire

Funding your future can be extremely daunting and confusing. One of the hardest expenses to plan for in retirement, could also be the largest one. Young or old, it’s crucial to plan for steep medical expenses and avoid the health care sticker shock that awaits. Medication costs continue to rise, and the out-of-pocket costs for other preventative services are astronomical. Over time, health care costs could exceed Social Security payments. And when we really break it down, it’s clear many Americans won’t be able to afford that once it happens. Let’s break down the problems and solutions:

1. Inflation is not keeping up with Health Care costs

Health-care costs for retirees are likely to increase an average of 5.5% annually  over the next decade, which is triple the average inflation rate for the past 4 years, and double the cost of living adjustment on Social Security benefits. A worker 10 years from retirement should prepare, and person 20-30 years from retirement should beware. To put these numbers into context: if a 65 year old couple retired today, they would spend almost $30,000 more in total lifetime retirement health care expenses than a couple who retired in 2016.

2. Health care costs are rising faster than Social Security, so don’t expect Social Security to go very far

Reports have shown that a 66-year-old couple retiring in 2017 will need 59% of their Social Security benefits to cover all retirement health care costs. That doesn’t leave much left over for the fun you’ve been dreaming of. While some retirees can wait to withdraw Social Security until it pays more, it won’t completely close this gap. The cost of living adjustments simply aren’t mirroring the inflation of health care costs. And Social Security is a main source of income for most retirees.

It’s also very important to plan for Long-term care. Depending on how prepared you are for a long-term stay in a health care facility, you may need $75,000 – $90,000 per year for a private room in a long-term care facility.

3. Health care will cost $300,000 – $500,000

Health care will be one of the most significant retirement costs. Lifetime health care premiums will hit well over $300,000 for a healthy 65-year-old couple who retire in 2017. These estimates are just a starting point. When adding deductibles, copays, and other out-of-pocket costs into the mix, that number grows to over $400,000 in today’s dollars, if you’re healthy.

4. Prescription drugs will drain your budget

Anyone who makes regular trips to the pharmacy can educate the masses about the rising costs of prescription drugs. You can anticipate this cost increase to continue for the foreseeable future.

5. A longer lifespan will be expensive, especially for women

Advanced medicine and increased societal awareness has increased our life expectancy, and in turn increased the number of years we are paying for health care. Along those lines, we know that women will face higher lifetime health care costs because, they are expected to live on average two years longer than men.

At Park + Elm, we often talk about having a clear focus on the things we can control. So let’s assume 1-5 above are constants, and begin to prepare by controlling the things we can change. There are strategies to combat the issue of health care in retirement:

1. Take better care of yourself; Modify your physical behavior.

Managing your health, exercising and making health conscious decisions make health care more affordable. Making small lifestyle changes now, such as stopping tobacco use, exercising, maintaining cholesterol, could save several thousand dollars prior to retirement.

2. Start a Health Savings Account (HSA)

Most people aren’t aware that HSA’s can be kept into retirement to help offset medical costs. This is an opportunity to TRIPLE dip for tax purposes. Contributions to an HSA are tax deductible, investment growth is tax deferred, and withdrawals for qualified medical expenses are tax free. This is NOT a “use it or lose it” account, so contributions can be carried over for healthcare in the near or distance future.

3. Commit to a long-term savings plan

Those who start saving for retirement early will find it’s much more manageable to maintain their preferred lifestyle and pay for necessary expenses simultaneously. Even the smallest contributions can make a big impact throughout a lifetime. Take advantage of employer contribution plans and additional investment strategies to make the most of your savings plan. When calculating how much you need to retire, make sure to add at least $300,000 for health care. This is why planning well in advance for a successful retirement is so important

Trying to predict what will happen to Social Security and Medicare has proved to be way to difficult a task. What we know for sure is that there is a gap in Medicare coverage for copays, prescriptions, etc., and that gap needs to be factored into your long-term plan. We know that health care premiums are on the rise, and so are life expectancies.  A financial advisor can help you create a long-term strategy to cover the gaps in insurance, and help you achieve peace of mind, so that you can retire with health coverage and enough funds to enjoy your non-working years.

Quarterly Market Review – Q2 – 2017

By | July 10th, 2017|Uncategorized|


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.



401(k) Series #3: On your retirement day…How much money do you need?

By | June 22nd, 2017|Uncategorized|

piggy bank

It’s a money question that has no definitive answer: “How much should I save for retirement?” An exact figure is so elusive because everybody’s financial situation is different. In the past, most investors blindly considered 1 million dollars to be the number to target. Unfortunately, $1,000,000 could be considered a starting point for some.

It’s not a universal number. But a basic target can be calculated based upon your individual needs. Put more simply…multiply your current gross pay by 80%. This is a reliable factor for retirement spending. It’s not necessarily perfect. Spending tends to go down in retirement, but not for everyone. There are those that are planning large retirement purchases and spending. But a comfortable retirement can be expected at this spending rate. Exhibit 1 below offers a specific example for a current income of $65,000/year.

Exhibit 1

Current annual income =              $65,000

Anticipated annual Spending =   $52,000 (Current Income x 80%)

Other sources of Income =           $20,000 (Pension, Social Security, Part-time work)

Needed from Investments =        $32,000 (Anticipated spending less other sources)

Retirement Goal =                         $800,000 (Needed from Investments x 25)


If you’re overwhelmed by how much money you should have before retiring, start with your expenses. Focus on the expenses you can control. Naturally, the less money you spend on an annual basis, the less money you’ll need to retire.

It’s not a matter of luck. Your expenses determine if you can truly afford retirement. Sure, we don’t know exactly how much we’ll spend on an annual basis in the future, but most of us can reduce several major expenses like housing, transportation, and food if we truly tried.

The above exhibit is a very simplistic example of how to start the planning process. There are other items, like health care, that need consideration. Most people never start this process, because there are so many variables to consider. A financial adviser can help you create a strategy for savings, as well as a distribution strategy after your working years. There are several factors to be considered on your way to an enjoyable retirement. Please contact us for a complimentary investment projection and distribution strategy.

When Rates Go Up, Do Stocks Go Down?

By | June 15th, 2017|Uncategorized|

Should stock investors worry about changes in interest rates?

Research shows that, like stock prices, changes in interest rates and bond prices are largely unpredictable. It follows that an investment strategy based upon attempting to exploit these sorts of changes isn’t likely to be a fruitful endeavor. Despite the unpredictable nature of interest rate changes, investors may still be curious about what might happen to stocks if interest rates go up.

Unlike bond prices, which tend to go down when yields go up, stock prices might rise or fall with changes in interest rates. For stocks, it can go either way because a stock’s price depends on both future cash flows to investors and the discount rate they apply to those expected cash flows. When interest rates rise, the discount rate may increase, which in turn could cause the price of the stock to fall. However, it is also possible that when interest rates change, expectations about future cash flows expected from holding a stock also change. So, if theory doesn’t tell us what the overall effect should be, the next question is what does the data say?

Recent research performed by Dimensional Fund Advisors helps provide insight into this question. The research examines the correlation between monthly US stock returns and changes in interest rates. Exhibit 1 shows that while there is a lot of noise in stock returns and no clear pattern, not much of that variation appears to be related to changes in the effective federal funds rate.

Exhibit 1.       Monthly US Stock Returns against Monthly Changes in Effective Federal Funds Rate, August 1954–December 2016

Interest rates

Monthly US stock returns are defined as the monthly return of the Fama/French Total US Market Index and are compared to contemporaneous monthly changes in the effective federal funds rate. Bond yield changes are obtained from the Federal Reserve Bank of St. Louis.

For example, in months when the federal funds rate rose, stock returns were as low as –15.56% and as high as 14.27%. In months when rates fell, returns ranged from –22.41% to 16.52%. Given that there are many other interest rates besides just the federal funds rate, Dai also examined longer-term interest rates and found similar results.

So to address our initial question: when rates go up, do stock prices go down? The answer is yes, but only about 40% of the time. In the remaining 60% of months, stock returns were positive. This split between positive and negative returns was about the same when examining all months, not just those in which rates went up. In other words, there is not a clear link between stock returns and interest rate changes.


There’s no evidence that investors can reliably predict changes in interest rates. Even with perfect knowledge of what will happen with future interest rate changes, this information provides little guidance about subsequent stock returns. Instead, staying invested and avoiding the temptation to make changes based on short-term predictions may increase the likelihood of consistently capturing what the stock market has to offer.

Source: Dimensional Fund Advisors LP

The 401(k) Series #2: No 401(k)? No Problem!

By | May 31st, 2017|Uncategorized|


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 .

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.



Pursuing a Better Investment Experience #10: Focus on What You Can Control

By | May 17th, 2017|Uncategorized|


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.

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