Investing for Millennials

Investing for Millennials is an important topic for a generation set to inherit a massive amount of wealth over the next few decades. Millennials will likely inherit $30 trillion from boomers over the next 30 years[1]. While the stock market is volatile, it continues to rise and break new highs. The questions for Millennials are, “When is the right time to invest? Where do I start?”

Investing for Millennials – three keys to keep in mind
Market timing is a losing formula
When it comes to investing for Millennials we tell them, “You cannot time markets.” This is very important. Waiting for the right time to buy or sell is the realm of day traders. In other words, if you think you’ll get ahead by picking the right day to start investing, chances are there will always be a better day. Certain investments are attractive because of brand popularity or hype, but are often bad investment choices for the investor. It is a big temptation to “time”...

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Roth IRAs

financial planning iras Sep 19, 2017
 

What is a Roth IRA?
One of the most popular ways to save for retirement is in a Roth Individual Retirement Account, or a Roth IRA. Roth IRAs first came out in 1997 after being championed by former Senator William V. Roth of Delaware. Tax-wise, a Roth IRA is basically like a Traditional IRA but backwards. In a Traditional IRA, just like 401ks, you generally get an up-front tax deduction when making a contribution. The account grows over time, tax-deferred. You don’t pay any taxes as the account grows. When it’s time to retire, whatever you take out of a Traditional IRA is taxable at your ordinary income rate.

Let’s do some basic math: if your tax bracket at retirement is 25% and you distribute $1000 from your Traditional IRA you will get to keep $750. The IRS keeps $250. Remember, since contributions are made before tax, distributions from a Traditional IRA are fully taxable.

The Roth IRA basically works the other way around. In a Roth IRA, or Roth 401k, you get no...

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The Difference Between Disability Insurance Coverage & Long Term Care

Although there are many similarities these are two very different kinds of insurance. Disability insurance coverage protects wages lost due to an illness or accident. In contrast, long term care insurance is designed to help cover costs of health care services. Typically, health services are in your home, a nursing home, a rehabilitation center, or an assisted living facility.

Disability insurance coverage vs. long term care insurance
Disability insurance coverage provides replacement for lost wages when you are unable to work. Your ability to earn a living – including your professional education and experience – are what’s insured. Long term care insurance, in contrast, addresses expenses associated with palliative medical care services in your home, a nursing home, a rehabilitation center, or an assisted living facility.

Short vs. long term disability insurance coverage
Disability insurance coverage may address either short term or long term income replacement...

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This Page is Intentionally Left Blank

Uncategorized Sep 12, 2017

This Page is Intentionally Left Blank
It sort of hit me one day after having seen This Page is Intentionally Left Blank in clients’ brokerage account statements.

We’ve been pondering this.

Seems to me that if there’s printing on the page, it is not blank, is it? Brokerage statements go on for pages and pages. Who formats these things? Why not print on it and save a tree?

Sometimes business written communication makes me crazy. Why not say use instead of utilize? Or even worse, why not say complete instead of effectualize? Seems the more jargon the better. We should close the flight plan on this. Really? Why not simply conclude? Or how about our deliverables? Deliverables? We sell deliverables? I though we sold products!

Personally, I’d rather eschew obfuscation. (That’s a joke.)

Just wanted to get this off my chest. It all leaves me scratching my head in wonder. I’m glad my high school English teacher isn’t around to see this.

For more pithy...

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Paying Off Student Loans

 

Student loans are often top of mind for many of you in the early stages of a professional career. You’ve made an investment in yourself by getting a great education, and now you’ve got to make enough money to get that monkey off your back. You’ve made a bet on yourself that you’ll get enough return on the investment in your education to repay the loans. The main piece of advice we give most of our clients with student loans is not about numbers. It’s about overcoming the feeling that this debt is very heavy burden. So if you’re in that camp, we have some advice:

Own it – these student loans are your responsibility
Taking out these loans was ultimately your choice, so own it. You DID in fact have other options – you could have gone to a cheaper school, or stretched your education out as you worked your way through. Whatever the case, ultimately it is your signature on the loan form. Take responsibility.

Don’t let student loans...

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A Guide to 403b Retirement Accounts

 

A retirement plan sponsored by a non-profit
Most people are familiar with the 401k, but what’s a 403b? Basically a 403b is a retirement plan that is sponsored by a 501c3 organization, meaning a not-for-profit employer. A local school board or hospital are good examples. The employee invests in mutual funds or annuity contracts – the only choices available. If annuity contracts are the only investment choice, the plan is likely administered by an insurance company, and can also be known as a TSA, or tax-sheltered annuity.

Money can go into your account from two sources: deferrals from your paycheck (money that you could have taken in cash) and your employer can also make contributions. The employer’s contributions can be discretionary or according to a match formula. Say the employer will offer you 50 cents on the dollar of whatever you contribute, up to 6% of your earnings. That’s a fairly typical formula. We’ve seen some out there more generous, and...

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The Time Value of Money

Uncategorized Aug 31, 2017
 

The time value of money is a topic that should be understood by every serious about financial planning. We usually understand the time value of money in two contexts: the growth rate of an investment, and the inflation rate.

To conceptualize this, sketch out a timeline of your life. At the leftmost point is your date of birth. The rightmost point is your date of death. In between, mark your retirement date, and today’s date. If you are not yet retired, then the time value of an investment pertains to you in particular.

Time Value of Money: Investment Growth Rates
Let’s look at investment growth rates. Say you want to project out your IRA balance over the next 10 years, assuming an 8% annual rate of return, compounded monthly. Your current balance is $250,000, and you are depositing $300/month – less than what is permissible by law. I make the following entries on my HP12-C calculator:

Present value: -$250,000

Payment: $-300

Interest: 8%/12

Time (or number of...

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The Ins and Outs of Traditional IRAs

financial planning iras Aug 29, 2017
 

In this blog post I want to go just a little bit beyond the basics of traditional IRAs and how they work. I’ve also done a video on the topic, which you can find below.

What are Traditional IRAs?
An IRA is an individual retirement account by definition, with the emphasis on individual. One IRA means one owner, so there can be no joint titling. In order to contribute to an IRA you must have earned income. That is, income from compensation defined as wages, salaries, tips, alimony, and separate maintenance payments. These are all earned income. Income from capital gains, dividends, and interest is not considered earned income by the IRS – they classify it as investment income.

How much can I invest?
Your contribution limit is $5500 per year. If you’re over 50 an additional $1000 catch up contribution is allowed, so that limit is $6500, but you cannot contribute past age 70 ½.

What’s the big deal?
The big deal about traditional IRAs is that you may be able...

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Your Portfolio: Good Servant; Poor Master

Having great investment portfolio returns may not get you to your retirement goals. You could have (in theory) spectacular returns every year for 20 years and still not realize the retirement you want. Do we like strong investment performance? Sure. Should stellar performance be your goal? Not necessarily. Goals-based investing should be the approach. The investor starts from the endpoint and works backward toward today.

What is goals-based investing?
In doing retirement planning, first begin with the lifestyle you want to enjoy. Then figure out how much it’ll cost you. Then evaluate your current investments to see if they’ll do the job. Your portfolio return in this approach becomes the means, not the end. In other words, start with your goals, figure out how much it’s going to cost you, and determine how you should invest to accomplish those goals.

This approach is very different from performance-based investing, where you pick the top performing fund or funds for...

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A Day at the Homestead Air Force Base

It was a rainy, early Sunday morning. I was at the entrance to the Homestead Air Force Base, approximately 30 miles south of Miami, FL. “I’m meeting with Sergeant L_________” I tell the armed guard at the gate. He motions me to pull over to the side. I get in contact with the Sergeant. She tells me over the phone, “I’m in a blue car. I’ll come out to meet you; look out for my vehicle and follow me onto the base.” Within minutes I see her car and pull out to follow. The armed guard at the gate stares at me and shakes his finger. I hesitate. The next second he laughs to himself and waves me on to proceed onto the base, amused that I took his grave expression seriously.

Visiting Homestead Air Force Base
That is a taste of my first experience at the Homestead Air Force Base last month. I was invited to give three financial planning presentations to military members there, which was an incredible honor. It was an especially amazing experience for...

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