One of the most difficult things to do as a human being is to walk your path without being diverted or discouraged by other people’s opinions.
When you were young, your choice of clothing and music was influenced by your friends. As you got older, more important decisions such as where you went to college and what career you chose, were all influenced by others. Investing isn’t any different.
These days, people are trying to capture lost opportunities – they want to make up what they lost during the 2007 – 2009 market drop. As a result, people who intellectually agree that it is NOT a good idea to use the TV talking head’s market outlook to determine their next investment move find themselves unsettled by a friend’s recommendations to sell their stocks and put the cash in silver and commodities.
But time and experience have taught us that successful investors work from a philosophy vs. an outlook on the market. People who work from a market outlook are reacting to the events around them, the opinion of their friends, and the news; which ultimately creates a very confused and directionless investment plan.
An investment philosophy dictates how much risk you will take, when you will buy, when you will sell, and what you will hold. This philosophy should be based on your personal goals and objectives, and what you are trying to accomplish in your lifetime and beyond – not what Fox news or CNBC is telling you today.
As we head into the wedding, graduation and golf season, and your discussion with friends turns to investing, ask them – “What’s your investment philosophy?” You’ll probably be met with blank stares. If they don’t have a coherent philosophy for investing, they probably don’t know what they are doing, and they certainly shouldn’t divert you from your path.
Jeannette A. Jones, CPA, CFP®
jjones@taaginc.com
http://www.taaginc.com/
Tuesday, May 24, 2011
Wednesday, May 18, 2011
How Will Changes in Social Security Impact You?
With Secretary Geithner back in the news last week pressing Congress to take action on the growing concerns with Social Security, it’s likely we’ll soon see Congress return to the slew of proposals presented over the last few months.
In this world of non-stop information, it’s tough to discern between news and opinion, truth and fiction and everything in between. Many of our clients have asked for a basic breakdown of the primary issues and proposals floating around Capitol Hill and how it directly impacts them. A summary of some of the basics are below.
Increasing the retirement age
* Asset-based testing that could be based on all assets a participant holds, or allow for
omission of certain assets like residences or automobiles
* The tests could be assessed all at once when an individual’s benefits begin or over regular
intervals
* The tests could either gradually phase out benefits, eliminate them altogether or a combination
of both.
- This group recommends starting some loosely defined form of means testing in 2050 for middle
and upper income earners.
* Paul Ryan’s “Roadmap” Budget Plan
- This plan suggests preserving the current Social Security system as-is for all people age 55 or
older and doesn’t get into great detail as to what other action should be taken to help keep the
program solvent for those under 55.
* Lindsey Graham’s Social Security Solvency & Sustainability Act
- This plan suggests raising the retirement age to 70 by 2032 and starting means-testing for new
retirees in 2018, with benefits beginning to tier down for retirees with income starting at
$43,000. Anyone currently age 56 or older would maintain under the current rules.
Hopefully this summary has at least given you some idea of the issues at hand. Obviously, a lot is still up in the air, but it will be important to separate the details from the rhetoric as this issue starts to be bantered about again. It is an issue that, one way or another, will impact all of us.
Chip Workman, CFP®
cworkman@taaginc.com
http://www.taaginc.com/
In this world of non-stop information, it’s tough to discern between news and opinion, truth and fiction and everything in between. Many of our clients have asked for a basic breakdown of the primary issues and proposals floating around Capitol Hill and how it directly impacts them. A summary of some of the basics are below.
Increasing the retirement age
- An eventual increase in the retirement age for Social Security is likely to be a part of almost any proposal. This process is very likely to be gradual in nature, grandfathering anyone currently at or near retirement age. For those readers still in their working years, there’s potential for a wide range of impact based on what age is agreed to and when it goes into effect.
- Since its inception in 1935, Social Security has always been paid based on an individual’s wages regardless of their other wealth or non-wage based income. The system’s current situation has shifted talk to proposals that could include means testing. Means testing refers to reducing or eliminating benefits based on a pre-determined formula for wealthier and/or higher income participants. This formula gets a little tricky depending on who gets their way in Washington based on a wide range of testing factors, such as…
* Asset-based testing that could be based on all assets a participant holds, or allow for
omission of certain assets like residences or automobiles
* The tests could be assessed all at once when an individual’s benefits begin or over regular
intervals
* The tests could either gradually phase out benefits, eliminate them altogether or a combination
of both.
- It’s important to note that there does seem to be some growing support in Washington that, if means testing is determined to be necessary, that it be done against career earnings as opposed to retirement assets.
- Long story short, it’s still far too early to determine what the impact of means testing on a given individual could be, but it is an important piece of the puzzle to understand.
- There are multiple budget plans out there right now that all treat Social Security a little differently. It’s unlikely that any of these plans pass as-is, but much like means testing, it’s important to understand what is included in each at a basic level to understand how it might impact you.
- This group recommends starting some loosely defined form of means testing in 2050 for middle
and upper income earners.
* Paul Ryan’s “Roadmap” Budget Plan
- This plan suggests preserving the current Social Security system as-is for all people age 55 or
older and doesn’t get into great detail as to what other action should be taken to help keep the
program solvent for those under 55.
* Lindsey Graham’s Social Security Solvency & Sustainability Act
- This plan suggests raising the retirement age to 70 by 2032 and starting means-testing for new
retirees in 2018, with benefits beginning to tier down for retirees with income starting at
$43,000. Anyone currently age 56 or older would maintain under the current rules.
Hopefully this summary has at least given you some idea of the issues at hand. Obviously, a lot is still up in the air, but it will be important to separate the details from the rhetoric as this issue starts to be bantered about again. It is an issue that, one way or another, will impact all of us.
Chip Workman, CFP®
cworkman@taaginc.com
http://www.taaginc.com/
Wednesday, May 11, 2011
The Best Investment Advice: Stop Losing Money
(from Carl Richard's New York Times' Bucks blog, 5/9/2011 - click here for the original post. Carl is a certified financial planner in Park City, Utah. His sketches are archived on the Bucks blog and on his personal Web site, www.BehaviorGap.com.)
I’m more convinced than ever that Mark Twain was correct when he decided that he was more interested in the return of his money than the return on his money.
A couple of weeks ago, we discussed how often people in their 60s and 70s say that their primary residence of over 30 years was their best investment. This belief exists despite the fact that home values barely kept pace with inflation. How can this be, given that during the same time period average annual returns in various stock market indexes ranged from 8 to 13 percent?
Because for most people, it was the only investment that didn’t lose money!
While the same outcome may not apply to housing in recent years, the principle still applies to investing in general. Most of us are chasing the highest return, because that’s what investing is all about, right?
But the experience of many people has been that the well-intentioned search for the best investment actually cost them money. They bought at the peak and sold at the bottom, and their overall returns ended up being meager. I suspect lots of these people would gladly trade their actual experience over the last decade or more with simply having their money returned to them.
So, what if the key to investment success is to start by making sure that you don’t lose money? Could it be that accepting a lower rate of return might result in having more money than continuing the wild goose chase of this magical 10 percent we hear that the stock market delivers over time?
Part of the problem is that we focus on the wrong thing, like finding the very best investment or beating a particular stock market benchmark. Both are a wild goose chase. Having the money for a dignified retirement, however, is not. By setting real financial goals, we can quit chasing investment performance and focus instead on creating a plan for the future that makes sense.
Once a plan is in place, it may very well be that the best thing we can do with our investments is to simply not lose money and take the time and energy we were spending in the chase and focus on those things that we have more control over. Things like finding creative ways to earn or save more, or just enjoying the one life we have to live.
I’m more convinced than ever that Mark Twain was correct when he decided that he was more interested in the return of his money than the return on his money.
A couple of weeks ago, we discussed how often people in their 60s and 70s say that their primary residence of over 30 years was their best investment. This belief exists despite the fact that home values barely kept pace with inflation. How can this be, given that during the same time period average annual returns in various stock market indexes ranged from 8 to 13 percent?
Because for most people, it was the only investment that didn’t lose money!
While the same outcome may not apply to housing in recent years, the principle still applies to investing in general. Most of us are chasing the highest return, because that’s what investing is all about, right?
But the experience of many people has been that the well-intentioned search for the best investment actually cost them money. They bought at the peak and sold at the bottom, and their overall returns ended up being meager. I suspect lots of these people would gladly trade their actual experience over the last decade or more with simply having their money returned to them.
So, what if the key to investment success is to start by making sure that you don’t lose money? Could it be that accepting a lower rate of return might result in having more money than continuing the wild goose chase of this magical 10 percent we hear that the stock market delivers over time?
Part of the problem is that we focus on the wrong thing, like finding the very best investment or beating a particular stock market benchmark. Both are a wild goose chase. Having the money for a dignified retirement, however, is not. By setting real financial goals, we can quit chasing investment performance and focus instead on creating a plan for the future that makes sense.
Once a plan is in place, it may very well be that the best thing we can do with our investments is to simply not lose money and take the time and energy we were spending in the chase and focus on those things that we have more control over. Things like finding creative ways to earn or save more, or just enjoying the one life we have to live.
Wednesday, May 4, 2011
How Not to Help
In a recent meeting, Jeff Albrinck, an estate planning attorney at Rendigs, Fry, Kiely & Dennis, met with clients whose 45-year old son was diagnosed with Parkinson’s. The clients were concerned about their son’s long term ability to provide for himself. They wanted to amend their estate plan to leave everything to him, leaving out their other beneficiaries. After discussing their situation with Jeff, they realized the best thing they could do for their son and his family was to leave him nothing and create a special needs trust that would be available to him if needed, but never counted against him if he applied for government-sponsored benefits.
Many times when a loved one is diagnosed with an illness, family members focus on ways to help. Often, this will include gifts of money, stock, or a future inheritance. What many people don’t realize is they are actually doing more harm than good. This may inadvertently disqualify a person with special needs from government benefits. To qualify for Supplemental Security Income (SSI) and Medicaid, disabled individuals age 18 and up cannot have more than $2,000 in assets (excluding cars and homes).
Frequently, the individual with special needs is a dependent child who has been diagnosed with a condition like Autism or Down Syndrome. Even if a parent does not think they will need SSI and Medicaid for their child, it still makes sense to qualify them for benefits. This will allow the child to participate in training programs, housing arrangements and transportation that is funded by the government. It would also be a safety net if a parent loses a job or becomes disabled and can no longer provide health insurance for their child.
So, how can you help? Encourage the parents to set up a special needs trust which will protect their child’s government benefits and pay for everything except the basics such as food and shelter, which are covered by SSI. Once a trust has been established, you can gift assets or cash to the trust or make the trust a beneficiary of an insurance policy or retirement account.
If you have a child or other relative with special needs, it is important to start planning for their financial future as early as possible. We work with several attorneys, such as Jeff, who specialize in this area. We are happy to provide you with a referral, if needed.
Christine L. Carleton, CFP®
clcarleton@taaginc.com
http://taaginc.com/
Many times when a loved one is diagnosed with an illness, family members focus on ways to help. Often, this will include gifts of money, stock, or a future inheritance. What many people don’t realize is they are actually doing more harm than good. This may inadvertently disqualify a person with special needs from government benefits. To qualify for Supplemental Security Income (SSI) and Medicaid, disabled individuals age 18 and up cannot have more than $2,000 in assets (excluding cars and homes).
Frequently, the individual with special needs is a dependent child who has been diagnosed with a condition like Autism or Down Syndrome. Even if a parent does not think they will need SSI and Medicaid for their child, it still makes sense to qualify them for benefits. This will allow the child to participate in training programs, housing arrangements and transportation that is funded by the government. It would also be a safety net if a parent loses a job or becomes disabled and can no longer provide health insurance for their child.
So, how can you help? Encourage the parents to set up a special needs trust which will protect their child’s government benefits and pay for everything except the basics such as food and shelter, which are covered by SSI. Once a trust has been established, you can gift assets or cash to the trust or make the trust a beneficiary of an insurance policy or retirement account.
If you have a child or other relative with special needs, it is important to start planning for their financial future as early as possible. We work with several attorneys, such as Jeff, who specialize in this area. We are happy to provide you with a referral, if needed.
Christine L. Carleton, CFP®
clcarleton@taaginc.com
http://taaginc.com/
Subscribe to:
Posts (Atom)
Posts
