How to Balance Portfolio Risk and Reward as You Get Closer to Retirement

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As you approach retirement, it may be time to pay more attention to investment risk.

If you are an experienced investor, you have probably fine-tuned your portfolio through the years in response to market cycles or in pursuit of a better return. As you approach or enter retirement, is another adjustment necessary?

Some investors may think they can approach retirement without looking at their portfolios. Their investment allocations may be little changed from what they were 10 or 15 years ago. Because of that inattention (and this long bull market), their invested assets may be exposed to more risk than they would like.

Rebalancing your portfolio with your time horizon in mind is only practical.

Consider the nature of equity investments: they lose or gain value according to the market climate, which at times may be fear driven. The larger your equities position, the larger your losses could be in a bear market or market disruption. If this kind of calamity happens when you are newly retired or two or three years away from retiring, your portfolio could be hit hard if you are holding too much stock. What if it takes you several years to recoup your losses? Would those losses force you to compromise your retirement dreams?

As certain asset classes outperform others over time, a portfolio can veer off course.

The asset classes achieving the better returns come to represent a greater percentage of the portfolio assets. The intended asset allocations are thrown out of alignment.1

Just how much of your portfolio is held in equities today? Could the amount be 70%, 75%, 80%? It might be, given the way stocks have performed in this decade. As a StreetAuthority comparison notes, a hypothetical portfolio weighted 50/50 in equities and fixed-income investments at the end of February 2009 would have been weighted 74/26 in favor of stocks by the end of February 2018. (1)

Ideally, you reduce your risk exposure with time.

With that objective in mind, you regularly rebalance your portfolio to maintain or revise its allocations. You also may want to apportion your portfolio, so that you have some cash for distributions once you are retired.

Rebalancing could be a good idea for other reasons.

Perhaps you want to try and stay away from market sectors that seem overvalued. Or, perhaps you want to find opportunities. Maybe an asset class or sector is doing well and is underrepresented in your investment mix. Alternately, you may want to revise your portfolio in view of income or capital gains taxes.

Rebalancing is not about chasing the return, but reducing volatility.

The goal is to manage risk exposure, and with less risk, there may be less potential for a great return. When you reach a certain age, though, “playing defense” with your invested assets becomes a priority.

Sources

  1. nasdaq.com/article/how-to-prepare-your-income-portfolio-for-volatility-cm939499

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Why Medicare Should Be Part of Your Retirement Planning

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The premiums and coverages vary, and you must realize the differences.

Medicare takes a little time to understand.

As you approach age 65, familiarize yourself with its coverage options and their costs and limitations.

Certain features of Medicare can affect health care costs and coverage.

Some retirees may do okay with original Medicare (Parts A and B), others might find it lacking and decide to supplement original Medicare with Part C, Part D, or Medigap coverage. In some cases, that may mean paying more for senior health care per month than you initially figured.

How much do Medicare Part A and Part B cost, and what do they cover?

Part A is usually free; Part B is not. Part A is hospital insurance and covers up to 100 days of hospital care, home health care, nursing home care, and hospice care. Part B covers doctor visits, outpatient procedures, and lab work. You pay for Part B with monthly premiums, and your Part B premium is based on your income. In 2018, the basic monthly Part B premium is $134; higher-earning Medicare recipients pay more per month. You also typically shoulder 20% of Part B costs after paying the yearly deductible, which is $183 in 2018.(1)

The copays and deductibles linked to original Medicare can take a bite out of retirement income.

In addition, original Medicare does not cover dental, vision, or hearing care, or prescription medicines, or health care services outside the U.S. It pays for no more than 100 consecutive days of skilled nursing home care. These out-of-pocket costs may lead you to look for supplemental Medicare coverage and to plan other ways of paying for long-term care.(1,2)

Medigap policies help Medicare recipients with some of these copays and deductibles.

Sold by private companies, these health care policies will pay a share of certain out-of-pocket medical costs (i.e., costs greater than what original Medicare covers for you). You must have original Medicare coverage in place to purchase one. The Medigap policies being sold today do not offer prescription drug coverage. A monthly premium on a Medigap policy for a 65-year-old man may run from $150-250, so keep that cost range in mind if you are considering Medigap coverage.(2,3)

In 2020, the two most popular kinds of Medigap plans – Medigap C and Medigap F – will vanish.

These plans pay the Medicare Part B deductible, and Medigap policies of that type are being phased out due to the Medicare Access and CHIP Reauthorization Act. Come 2019, you will no longer be able to enroll in them.(4)

Part D plans cover some (certainly not all) prescription drug expenses.

Monthly premiums are averaging $33.50 this year for these standalone plans, which are offered by private insurers. Part D plans currently have yearly deductibles of less than $500.(2,5)

Some people choose a Part C (Medicare Advantage) plan over original Medicare.

These plans, offered by private insurers and approved by Medicare, combine Part A, Part B, and usually Part D coverage and often some vision, dental, and hearing benefits. You pay an additional, minor monthly premium besides your standard Medicare premium for Part C coverage. Some Medicare Advantage plans are health maintenance organizations (HMOs); others, preferred provider organizations (PPOs). (6)

If you want a Part C plan, should you select an HMO or PPO?

About two-thirds of Part C plan enrollees choose HMOs. There is a cost difference. In 2017, the average HMO monthly premium was $29. The average regional PPO monthly premium was $35, while the mean premium for a local PPO was $62.(6)

HMO plans usually restrict you to doctors within the plan network.

If you are a snowbird who travels frequently, you may be out of the Part C plan’s network area for weeks or months and risk paying out-of-network medical expenses from your savings. With PPO plans, you can see out-of-network providers and see specialists without referrals from primary care physicians.(6)

Now, what if you retire before age 65?

COBRA aside, you are looking at either arranging private health insurance coverage or going uninsured until you become eligible for Medicare. You must also factor this possible cost into your retirement planning. The earliest possible date you can arrange Medicare coverage is the first day of the month in which your birthday occurs.(5)

Medicare planning is integral to your retirement planning.

Should you try original Medicare for a while? Should you enroll in a Part C HMO with the goal of keeping your overall out-of-pocket health care expenses lower? There is also the matter of eldercare and the potential need for interim coverage (which will not be cheap) if you retire prior to 65. Discuss these matters with the financial professional you know and trust in your next conversation.

Sources

  1. medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html
  2. cnbc.com/2018/05/03/medicare-doesnt-cover-everything-heres-how-to-avoid-surprises.html
  3. medicare.gov/supplement-other-insurance/medigap/whats-medigap.html
  4. fool.com/retirement/2018/02/05/heads-up-the-most-popular-medigap-plans-are-disapp.aspx
  5. money.usnews.com/money/retirement/medicare/articles/your-guide-to-medicare-coverage
  6. cnbc.com/2017/10/18/heres-how-to-snag-the-best-medicare-advantage-plan.html 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Smart Strategies for Coping With Student Loan Debt

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Paying them down and managing their financial impact.

Is student loan debt weighing on the economy?

Probably. Total student loan debt in America is now around $1.5 trillion, having tripled since 2008. The average indebted college graduate leaves campus owing nearly $40,000, and the mean monthly student loan payment for borrowers aged 30 and younger is about $350. (1,2)

The latest Federal Reserve snapshot shows 44.2 million Americans dealing with lingering education loans. The housing sector feels the strain: in a recent National Association of Realtors survey, 85% of non-homeowners aged 22-35 cited education loans as their main obstacle to buying a house. Eight percent of student loan holders fail to get home loans because of their credit scores, the NAR notes; that percentage could rise because the Brookings Institution forecasts that 40% of student loan borrowers will default on their education debts by 2023. (1,3)

If you carry sizable education debt, how can you plan to pay it off?

If you are young (or not so young), budgeting is key. Even if you get a second job, a promotion, or an inheritance, you won’t be able to erase any debt if your expenses consistently exceed your income. Smartphone apps and other online budget tools can help you live within your budget day to day or even at the point of purchase for goods and services.

After that first step, you can use a few different strategies to whittle away at college loans.

  1. The local economy permitting, a couple can live on one salary and use the wages of the other earner to pay off the loan balance(s).
  2. You could use your tax refund to attack the debt.
  3. You can hold off on a major purchase or two. (Yes, this is a sad effect of college debt, but it could also help you reduce it by freeing up more cash to apply to the loan.)
  4. You can sell something of significant value – a car or truck, a motorbike, jewelry, collectibles – and turn the cash on the debt.

Now in the big picture of your budget.

You could try the “snowball method” where you focus on paying off your smallest debt first, then the next smallest, etc., on to the largest. Or, you could try the “debt ladder” tactic, where you attack the debt(s) with the highest interest rate(s) to start. That will permit you to gradually devote more and more money toward the goal of wiping out that existing student loan balance.

Even just paying more than the minimum each month on your loan will help.

Making payments every two weeks rather than every month can also have a big impact.

If a lender presents you with a choice of repayment plans, weigh the one you currently use against the others; the others might be better. Signing up for automatic payments can help, too. You avoid the risk of penalty for late payment, and student loan issuers commonly reward the move by lowering the interest rate on a loan by a quarter-point. (4)

What if you have multiple outstanding college loans?

If one of them has a variable interest rate, try addressing that one first. Why? The interest rate on it may rise with time.

Also, how about combining multiple federal student loan balances into one? That is another option. While this requires a consolidation fee, it also leaves you with one payment, perhaps at a lower interest rate than some of the old loans had. If you have multiple private-sector loans, refinancing is an option. Refinancing could lower the interest rate and trim the monthly payment. The downside is that you may end up with variable interest rates. (5)

Maybe your boss could help you pay down the loan.

Some companies are doing just that for their workers, simply to be competitive today. According to the Society for Human Resource Management, 4% of employers offer this perk. Six percent of firms with 500-10,000 workers now provide some form of student loan repayment assistance. (6)

To reduce your student debt, live within your means and use your financial creativity. It may disappear faster than you think.

Need Additional Help?

Visit the Student Loan Borrowers Assistance website. The National Consumer Law Center’s Student Loan Borrower Assistance Project is a resource for borrowers, their families, and advocates representing student loan borrowers.

Sources

  1. studentloanhero.com/student-loan-debt-statistics/
  2. cnbc.com/2018/05/24/students-would-drop-out-of-college-to-avoid-more-debt.html
  3. cnbc.com/2018/04/19/student-loan-debt-can-make-buying-a-home-almost-impossible.html
  4. nerdwallet.com/blog/loans/student-loans/auto-pay-student-loans/
  5. investorplace.com/2017/06/how-to-navigate-your-student-loan-debt/
  6. shrm.org/resourcesandtools/hr-topics/benefits/pages/student-loan-assistance-benefit.aspx

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What Do Rising Interest Rates Mean for You? (The Upside and The Downside)

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Interest rates are rising.

The Federal Reserve has hiked the benchmark interest rate twice this year, and it expects to make two more hikes before 2019 arrives. It projects the federal funds rate will approach 3.5% by 2020. (1)

Are you retired, or about to retire?

You will be happy to know rates of return are improving on fixed-income investments. Take 1-year certificates of deposit, for example. Back in 2015, most of them were yielding 0.25%. Now their return is around 2.3%. Money market funds and even deposit accounts should soon feature slightly higher interest rates. The downside of this? If fixed-income investments grow increasingly attractive, investors may pull money out of equities. (4)

Do you have a lot of credit card debt?

The APR on your credit cards should continue to rise in response to the Fed’s moves. (2)

Do you have a fixed-rate mortgage?

You are unaffected. If you have an adjustable-rate mortgage, your payments may reset higher at the start of the next adjustment period. (3)

Are you a business owner seeking a short-term loan?

Try to arrange financing now. The cost of short-term borrowing increases when the Fed hikes. (2)

Do you own a business that sells high-end merchandise?

Your sales may be impacted. Higher interest rates force consumers to put more money toward debt. That means less disposable income to spend on the good life.

Sources

  1. bondbuyer.com/articles/fed-raises-rates-officials-boost-outlook-to-four-hikes-in-2018
  2. smallbusiness.chron.com/interest-rates-affect-businesses-67152.html
  3. tinyurl.com/y74tqh6q
  4. marketwatch.com/story/rising-interest-rates-give-retirees-good-news-and-bad-news-2018-06-20

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What is the Yield Curve, and Why is the Financial Media Concerned About it?

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Why are investors and economists getting nervous about Treasury yields? Here is a brief explanation, starting with a clarification.

A yield curve is really an X-Y graph projecting expected rates of return for equivalent-quality bonds with different maturity dates.

But it is not just any yield curve that matters. When investors, commentators, and economists talk about “the yield curve,” they are talking about the graph plotting the interest rates of Treasuries: 3-month, 2-year, 5-year, 10-year, and 30-year notes. The “curve” is the line connecting their projected future yields. This Treasury yields snapshot is authoritatively referred to as: “the yield curve.” (1,2)

The yield curve normally slopes upward.

(Think “rise over run.”) In other words, the projected yields on the short-term Treasuries (at the left of the X-Y graph) are small compared to the projected returns on the 10-year and 30-year Treasuries. (2)

NORMAL YIELD CURVE

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When the economy is booming, the slope of the yield curve is often steep.

A thriving economy typically has significant inflation, and when investors see rising inflation, they assume the Federal Reserve will start raising interest rates. That belief leaves them cold on longer-term bonds, so the prices of those bonds begin to fall, and their yields correspondingly rise. (2)

The yield curve usually flattens when the Fed tightens.

It has been flattening lately, and some economists wonder if it will invert. When the yield curve inverts, interest rates on short-term Treasuries exceed interest rates on longer-term Treasuries. (2,3)

Inverted yield curves are strongly correlated with recessions.

In fact, every recession America has experienced in the last 50 years has been preceded by an inverted yield curve. Three times in the 1950s, however, an inverted yield curve failed to presage a downturn. (2,3)

INVERTED YIELD CURVE

Invertedyieldcurve_r-1

Right now, the 10s-2s gap is being closely watched.

This is the difference between 10-year and 2-year Treasury yields. It has been steadily declining since December 2015 (when the Fed began tightening), and it narrowed to less than 0.5% this spring. (2)

Looking back over the last half-century, the 10s-2s gap has slimmed to less than 0.5% five other times, with an inversion of the yield curve – and a recession – following each time.

Those recessions took time to arrive, though. On average, they began nearly two years after the yield curve inverted. (2)

Wall Street analysts have noticed a relationship between bear markets and recessions – the former tends to herald the latter.

As some study the flattening yield curve, they not only see a recession risk, but an accompanying risk of a stock market downturn, as well. (2)

Could their fears be overblown?

As MarketWatch noted, the flattening yield curve has been promoted by pension funds buying up greater quantities of zero-coupon Treasuries. The Fed, too, may have affected things due to its quantitative easing and ongoing forward guidance. (4)

Is a flatter yield curve a new normal, as former Fed chair Janet Yellen argued in 2017?

She felt the latest gradual flattening was actually a product of a changing relationship between the yield curve and the business cycle. If that is correct, investors could worry a little less about the Fed’s determination to maintain its pace of rate hikes. (Its latest dot-plot projects four interest rate increases in 2018.) The New York Fed recently put the chance of a 2019 recession based on the slope of the yield curve at 11%; in comparison, the chance was 40% on the eve of the Great Recession. (3,5)

Sources

  1. investopedia.com/terms/y/yieldcurve.asp
  2. schwab.com/resource-center/insights/content/eye-on-indicators-what-does-yield-curve-tell-us
  3. brookings.edu/blog/up-front/2018/04/16/the-hutchins-center-explains-the-yield-curve-what-it-is-and-why-it-matters/
  4. marketwatch.com/story/how-pension-funds-could-be-muddying-the-predictive-power-of-this-recession-indicator-2018-06-13
  5. bloomberg.com/news/articles/2018-06-13/fed-raises-rates-officials-boost-outlook-to-four-hikes-in-2018

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Life Insurance 101: The Different Types of Life Insurance Policies Explained

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Whole life. Variable universal life. Term. What do these descriptions really mean?

All life insurance policies have two things in common.

They guarantee to pay a death benefit to a designated beneficiary after a policyholder dies (although, the guarantee may be waived if the death is a suicide occurring within two years of the policy purchase). All require recurring payments (premiums) to keep the policy in force. Beyond those basics, the differences begin. (1)

Some life insurance coverage is permanent, some not.

Permanent life insurance is designed to cover you for your entire life (not just a portion or “term” of it), and it can become an important element in your retirement planning. Whole life insurance is its most common form. (2)

Whole life policies accumulate cash value.

How does that happen? An insurer directs some of your premium payments into a reserve account and puts those dollars into investments (typically conservative ones). The return on the investments influences the growth of the cash value, which builds up according to a formula the insurer sets. (3)

A whole life policy’s cash value grows with taxes deferred.

After a while, you gain the ability to borrow against that cash value. You can even cancel the policy and receive a surrender value. Premiums on whole life policies, though, are usually higher than premiums on term life policies, and they may rise with time. Also, beneficiaries only receive a death benefit (not the policy’s cash value) when a whole life policyholder dies. (2,4)

Universal life insurance is whole life insurance with a key difference.

Universal life policies also build cash value with taxes deferred, but there is the chance to eventually pay the monthly premiums out of the policy’s investment portion. (5)

Month by month, some of your premium on a universal life policy gets credited to the cash reserve of the policy. Sooner or later, you may elect to pay premiums out of the cash reserve – so, the policy essentially begins to “pay for itself.” If all goes well, a universal life policy may have a lower net cost than a whole life policy. If the investments chosen by the insurer severely underperform, that can mean a dilemma: the cash reserve of your policy may dwindle and be insufficient to keep paying the premiums. That could mean cancellation of the policy. (5)

What about variable life (and variable universal life) policies?

Variable life policies are basically whole life or universal life policies with a riskier investment component. In VL and VUL policies, you may direct percentages of the cash reserve into investment sub-accounts managed by the insurer. Assets allocated to the sub-accounts may be put into equity investments of your choice as well as fixed-income investments. If you choose equity investments, you (and the insurer) assume greater risk in exchange for the possibility of greater reward. The performance of the subaccounts cannot be guaranteed. As an effect of this risk exposure, a VUL policy usually has a higher annual cost than a comparable UL policy. (6)

The performance of the stock market may heavily affect the performance of the subaccounts and the policy premiums.

A bull market may mean better growth for the policy’s cash value and lower premiums. A bear market may mean reduced cash value and higher monthly payments to keep the policy going. In the worst-case scenario, the cash value plummets, the insurer hikes the premiums in order to provide the guaranteed death benefit, the premiums become too expensive to pay, and the policy lapses. (6)

Term life insurance is life insurance that you provides coverage for a set period.

Term life provides coverage for usually 10-30 years. Should you die within that period, your beneficiary will get a death benefit. Typically, the premium payments and death benefit on a term policy are fixed from the start, and the premiums are much lower than those of permanent life policies. When the term of coverage ends, you may be offered the option to renew the coverage for another term or to convert the policy to a form of permanent life insurance. (2,7)

Which coverage is right for you?

Many factors may come into play when deciding which type of life insurance will suit your needs. The best thing to do is to speak with a qualified financial advisor who can help you examine these factors, so you can determine which type of coverage may be appropriate.

Sources

  1. thebalance.com/does-a-life-insurance-policy-cover-suicide-2645609
  2. fool.com/retirement/2017/07/20/term-vs-whole-life-insurance-which-is-best-for-y-2.aspx
  3. investopedia.com/articles/personal-finance/082114/how-cash-value-builds-life-insurance-policy.asp
  4. insure.com/life-insurance/cash-value.html
  5. thebalance.com/what-you-need-to-know-about-universal-life-insurance-2645831
  6. insuranceandestates.com/top-10-pros-cons-variable-universal-life-insurance/
  7. consumerreports.org/life-insurance/how-to-choose-the-right-amount-of-life-insurance/

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

What an Investment Policy Statement is and Why You Should Have One

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An “Investment Policy Statement” is a document that forms the foundation for an investor’s portfolio.

A good IPS outlines your entire investment plan

An IPS includes the asset allocation, the asset management approach, and your objectives, time horizon, risk tolerance, expected return, liquidity requirements, income needs, and tax concerns.

If you are a value investor, a growth investor, or a conservative investor, your IPS defines a strategy to invest your assets among diverse asset classes in a way that suits your preferred investment style.

Think of your IPS as long-term GPS for your portfolio.

The goal is to set the asset allocation in a way that can potentially give you the highest possible rate of return corresponding to an acceptable level of risk.

Your IPS keeps you from getting “off track” when it comes to investing.

You and your advisor should keep an eye on your portfolio to see that your invested assets stay within the allocation boundaries set by your IPS. This is why regular reviews are so essential.

Periodically, your portfolio may need to be rebalanced.

Here’s why. As months go by, the ups and downs of the investment markets will throw your asset allocation slightly or dramatically out of whack. As an extremely simple example, let’s say you start out with 25% of your assets in U.S. large caps, 15% in U.S. mid caps, 15% in U.S. small caps, 20% in foreign shares and 25% in bonds. Suddenly, small cap stocks have a great quarter, and thanks to the great returns, you wind up with 21% of your assets invested in small caps and only 19% in bonds. Great, right?

No. What’s actually happened is that your risk has increased along with your return. A greater percentage of your assets are now held in the comparatively risky stock market, removed from the bond market. So while the short-term gains have been great, it’s time to rebalance according to the parameters set by your IPS so that you can help reduce your risk exposure.

Rebalancing in Tax-Deferred Accounts

For tax-deferred investment accounts, this is easily done: you simply transfer assets among accounts to restore the target allocations. Future contributions occur according the IPS parameters.

Rebalancing in Taxable Accounts

When it comes to taxable investment accounts, it is usually best to ramp up future contributions to the underweighted funds rather than sell portions of a fund and trigger taxes.

Maintaining Balance

As a balanced investor your IPS should be designed to help you invest in a consistent, appropriate way, a way that matches your preferred investment style. Without an IPS, you invite impulse, emotion and a short-term focus into the picture.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What Women Need to Know Before Deciding to Retire: Challenges & Opportunities

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A practical financial checklist for the future.

When our parents retired, living to 75 amounted to a nice long life, and Social Security was often supplemented by a pension. The Social Security Administration estimates that today’s average 65-year-old female will live to age 86.6. Given these projections, it appears that a retirement of 20 years or longer might be in your future. (1,2)

Are you prepared for a 20-year retirement?

How about a 30- or 40-year retirement? Don’t laugh; it could happen. The SSA projects that about 25% of today’s 65-year-olds will live past 90, with approximately 10% living to be older than 95. (2)

How do you begin?

How do you draw retirement income off what you’ve saved – how might you create other income streams to complement Social Security? How do you try and protect your retirement savings and other financial assets?

Talking with a financial professional may give you some good ideas.

You want one who walks your walk, who understands the particular challenges that many women face in saving for retirement (time out of the workforce due to childcare or eldercare, maintaining financial equilibrium in the wake of divorce or death of a spouse).

As you have that conversation, you can focus on some of the must-haves.

Plan your investing.

If you are in your fifties, you have less time to make back any big investment losses than you once did. So, protecting what you have is a priority. At the same time, the possibility of a 15-, 20-, or even 30- or 40-year retirement will likely require a growing retirement fund.

Look at long-term care coverage.

While it is an extreme generalization to say that men die sudden deaths and women live longer; however, women do often have longer average life expectancies than men and can require weeks, months, or years of eldercare. Medicare is no substitute for LTC insurance; it only pays for 100 days of nursing home care and only if you get skilled care and enter a nursing home right after a hospital stay of 3 or more days. Long-term care coverage can provide a huge financial relief if and when the need for LTC arises. (1,3)

Claim Social Security benefits carefully.

If your career and health permit, delaying Social Security is a wise move for single women. If you wait until full retirement age to claim your benefits, you could receive 30-40% larger Social Security payments as a result. For every year you wait to claim Social Security, your monthly payments get about 8% larger. (4)

Above all, retire with a plan. Have a financial professional who sees retirement through your eyes help you define it on your terms, with a wealth management approach designed for the long term.

Sources

  1. cdc.gov/nchs/products/databriefs/db293.htm
  2. ssa.gov/planners/lifeexpectancy.htm
  3. medicare.gov/coverage/skilled-nursing-facility-care.html
  4. thestreet.com/retirement/how-to-avoid-going-broke-in-retirement-14551119

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

How to Make Sure “Lifestyle Creep” Doesn’t Ruin Your Financial Plan

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Sometimes more money can mean more problems.

“Lifestyle creep”

An unusual phrase describing an all-too-common problem: the more money people earn, the more money they tend to spend.

Frequently, the newly affluent are the most susceptible.

As people establish themselves as doctors and lawyers, executives, and successful entrepreneurs, they see living well as a reward. Outstanding education, home, and business loans may not alter this viewpoint. Lifestyle creep can happen to successful individuals of any age. How do you guard against it?

Keep one financial principle in mind: spend less than you make.

If you get a promotion, if your business takes off, if you make partner, the additional income you receive can go toward your retirement savings, your investment accounts, or your debts.

See a promotion, a bonus, or a raise as an opportunity to save more.

Do you have a household budget? Then the amount of saving that the extra income comfortably permits will be clear. Even if you do not closely track your expenses, you can probably still save (and invest) to a greater degree without imperiling your current lifestyle.

Avoid taking on new fixed expenses that may not lead to positive outcomes.

Shouldering a fixed mortgage payment as a condition of home ownership? Good potential outcome. Assuming an auto loan so you can drive a luxury SUV? Maybe not such a good idea. While the home may appreciate, the SUV will almost certainly not.

Resist the temptation to rent a fancier apartment or home.

Few things scream “lifestyle creep” like higher rent does. A pricier apartment may convey an impressive image to your friends and associates, but it will not make you wealthier.

Keep the big goals in mind and fight off distractions.

When you earn more, it is easy to act on your wants and buy things impulsively. Your typical day starts costing you more money.

To prevent this subtle, daily lifestyle creep, live your days the same way you always have – with the same kind of financial mindfulness. Watch out for new daily costs inspired by wants rather than needs.

Live well, but not extravagantly.

After years of law school or time toiling at start-ups, getting hired by the right firm and making that career leap can be exhilarating – but it should not be a gateway to runaway debt. According to the Federal Reserve’s latest Survey of Consumer Finances, the average American head of household aged 35-44 carries slightly more than $100,000 of non-housing debt. This is one area of life where you want to be below average. (1)

Sources

  1. time.com/money/5233033/average-debt-every-age/

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What a Target-Date Retirement Mutual Fund Is and How to Use It Properly

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Are these low-maintenance investments vital to retirement planning, or overrated?

Do target-date funds represent smart choices, or just convenient ones?

These funds have become ubiquitous in employer-sponsored retirement plans and their popularity has soared in the past decade. According to Morningstar, net inflows into target-date funds tripled during 2007-13. Asset management analysts Cerulli Associates project that 63% of all 401(k) contributions will be directed into TDFs by 2018. (1,2)

Fans of target-date funds praise how they have simplified investing for retirement. Still, they have a central problem: their leading attribute may also be their biggest drawback.

How do TDFs work?

The idea behind a target-date fund is to make investing and saving for retirement as low-maintenance as possible. TDFs feature gradual, automatic adjustment of asset allocations in light of an expected retirement date, along with diversification across a wide range of asset classes. An investor can simply “set it and forget it” and make ongoing contributions to the fund with the confidence that its balance of equity and fixed-income investments will become more risk-averse as retirement nears.

In a sense, a TDF starts out as one style of fund for an investor and mutates into another. When he or she is young, it is an aggressive growth fund, with as much as 90% of the inflows assigned to equities. By the time the envisioned retirement date rolls around, the allocation to equities and fixed-income investments may be split closer to 50/50. (2)

With such long time horizons, TDFs are truly buy-and-hold investments.

That has definite appeal for people who lack the time or inclination to take a hands-on approach to retirement planning. TDFs also usually have low turnover, with some distributions taxed as long-term capital gains. (1)

Are pre-retirees relying too heavily on TDFs?

Putting retirement investing on “autopilot” can have a downside – and that may be worth an alarm or two, given Vanguard’s forecast that 58% of its retirement plan participants (and 80% of its new plan participants) will have all of their retirement plan assets in TDFs by 2018. So in noting the merits of TDFs, we must also look at their demerits. (2)

The asset allocation of a target-date fund is not exactly dynamic.

As it is geared to a time horizon rather than current market conditions, TDF investors may wince when a severe bear market arrives – it could be a case of “set it & regret it.” They will need the patience to ride such downturns out. If they sell, they defeat the purpose of owning their TDF in the first place.

Additionally, some investors are conservative well before they reach retirement age.

A fortysomething risk-averse investor might not like having a clear majority of his or her TDF assets held in equities.

An investor will not be able to perform any tax loss harvesting with assets invested in a TDF (that is, selling “losers” in a portfolio to offset gains made by “winners”) and if all of his or her retirement savings happen to be in the TDF, you have to pull money out of the TDF to put it in other types of investments that might generate tax savings. (1)

Fees can be high

Because most TDFs are funds of funds – that is, multiple mutual funds brought together into one giant one – it may mean two layers of fees. (2)

The glide path is very important.

All TDFs have a glide path, the glide path being the rate or pace at which the asset allocation changes from aggressive toward conservative. With some TDFs, the glide path ends at retirement and the asset allocation approaches 100% cash. With others, the fund keeps gliding past a retirement date with the result that the retiree maintains a foot in the equities market – potentially very useful in the face of longevity risk, or as it is popularly known, the risk of outliving your money. The glide path of the TDF should be agreeable to the investor. The problem is that an investor may agree with it more at age 40 than at age 60. (1)

Here is a sample equity glide path for Vanguard’s target date funds:

Screen Shot 2018-06-05 at 8.59.23 PM

One feature can make TDFs even more appealing.

In 2014, the IRS and the Treasury Department permitted TDFs held in 401(k) plans to add a lifetime income option. That let a TDF investor receive a pension-like income beginning at the fund’s target date. Companies sponsoring 401(k)s can even elect to make such TDFs the default plan investment; that is, employees who wanted to direct their money into other investment vehicles would have to inform their employers that they were opting out.

Younger retirement savers should take a look at TDFs.

If you are not enrolled in one already, you may want to weigh their pros and cons. While not exactly “the cure” for America’s retirement savings problem, they are deservedly popular.

Source

  1. money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2015/04/07/3-questions-to-ask-before-choosing-target-date-funds
  2. time.com/money/3616433/retirement-income-401k-new-solution/
  3. nextavenue.org/article/2015-02/target-date-funds-pros-and-cons
  4. https://www.vanguard.com/pdf/s167.pdf

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.