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investing

The Equity-Indexed Annuity

Any time there’s a down market going on, you’re more likely to get a sales pitch for an equity-indexed annuity. There can be upsides, but mostly downsides.

Can You Beat the Market?

In investing and finance, the words “beat the market” appear from time to time either as part of an investment strategy, conversation, or a combination of both. Investors can often be lured by the phrase in the hopes of achieving returns superior than the market or “above average”. When we refer to the market, we’re generally referring to a benchmark such as the Dow Jones Industrial Average (The Dow) or the S&P 500. First off, I’d like to offer a bit of clarity before attempting to answer the titular question. If fact, I’d like to ask two questions and answer both – because they will have different answers, even though they look similar. First, I think it’s appropriate to ask this question: Can the market be beaten? To which I answer, yes. The market can be beat, and there are times where certain investments have done better than the market. […]

Index Funds: The Oatmeal of the Investing World

Index funds are similar to oatmeal – providing the essentials that we need, with low costs and no frills. And they’re surprisingly do-it-yourself!

Why Inactivity Can Be Your Best Friend

When most of us think about the word inactive, we may think negatively – such as lounging around on the couch, being lazy, or apathetic to a given situation. Most of us feel the need to be active to promote a healthy lifestyle through exercise, perform optimally at our job, or being involved with our family. In many cases, this is valid. There is one area where inactivity can be beneficial. When it comes to investing, doing less can help us achieve the expected return we need on our portfolios, while keeping expenses as low as possible. For many of us, this seems counterintuitive. Many of us can’t help but to do something, anything. Some of us may feel that if we are in control of our investments, we can impact their performance. But the truth is for most us, we are not in control. We cannot control the markets. […]

Wash Sale Rules

If you sell an investment at a loss, you need to be careful about how you re-invest the money so that you can avoid the wash sale rules.

Volatility is a Two-Way Street

In many cases, whenever we think of volatility we think negatively. Try it yourself. Think of the word volatility and say it out loud. What thoughts, words, or images pop into your head? Bad news? Market losses? Losing money? The color red? The point is that we tend to give volatility a bad rap – and rightfully so. Generally, the word is thrown at us during periods of when the market, and our investments, lose value. Volatility, however, works both ways. It’s also present when the market and our investments are doing well. We just don’t call it volatility. We call it returns, gains, appreciation, a bull market, etc. The point is to expect volatility – good or bad. It’s part of investing in capital markets. We need to understand that just because our portfolios are doing well – doesn’t mean volatility is absent. Volatility is what helps produce long-term […]

5 No-No’s for IRA Investing

It is generally well-known that in an IRA account you have a wide range of investment choices. These choices are typically only limited by the custodian’s available investment options.  However, there are specific prohibited transactions that cannot be accomplished with IRA funds. Often these prohibited transactions can cause your IRA to be disqualified, which can result in significant tax and penalty, along with loss of the tax-favored status of the funds. What’s Not Allowed for IRA Accounts? Self-Dealing.  You are not allowed, within your IRA, to make investments in property which benefits you or another disqualified person.  A disqualified person includes your fiduciary advisor and any member of your family, whether an ancestor, spouse, lineal descendant (child) or spouse of a lineal descendant.  It is important to note that this limit applies to both present and future use of a property. So if you purchased a condo and rented it […]

Sorry to Rain on your Parade

I wanted to take a brief moment to remind our readers of a fundamental investing truth that tends to get overlooked, forgotten, or deliberately disregarded during times of market euphoria. Think about this. If you had a million dollars at the beginning of 2016 to invest and I said that over the year that there would be a Supreme Court vacancy, the Cubs would win the World Series, interest rates would rise, and Donald Trump would become president – would you invest that million dollars in the market? I would bet that many people would not. They would guess that 2016 would be a dismal year for market returns. Yet, in 2016 the Dow returns 13.4% and the S&P 500 returned 9.5%! With all of that uncertainty and the improbable happening, the market still had a great year of returns. Those who stayed invested were rewarded. Those who sold (say, […]

After-Tax Investment Considerations

Some individuals have the ability to contribute after-tax amounts to their employer-sponsored plans such as a tax-deferred 401k or a defined benefit pension. Generally, since these amounts are after-tax, the contributions start adding up to a sizable amount known as basis. Basis is simply the amount of after-tax money put into these accounts that is not taxed when it’s withdrawn. However, any earnings on the basis are taxable. Individuals considering contributing after-tax amounts to the above plans may also consider if it makes sense to contribute to a non-qualified brokerage account. Like the aforementioned employer-sponsored plans, contributions to a non-qualified brokerage account are made with after-tax dollars, thus they can build a sizable basis – which is not taxed when withdrawn. Also, like the above employer-sponsored accounts, any earnings are subject to taxation. The major difference is in the way the earnings from the non-qualified account are taxed. Earnings on […]

How to Make Your Saving Automatic

Sometimes it can be difficult to save for emergencies or for retirement. While physically not demanding, the mental strain can be a hump that is hard to get over. In other words, we experience a little bit of “pain” or mental anguish if we have to physically hand over money or write a check. So how can we overcome this anguish? Automate. First, determine how much you need for an emergency. This can either be to start the fund or to replenish amounts that have been used. Generally, it’s a good idea to have 3 to 6 months of non-discretionary expenses (expenses that don’t go away if you lose your job or become disabled) set aside in an FDIC insured bank account. Some individuals may find it more comforting to have 6 to 9 months or 9 to 12 months. It’s up to you. For retirement, I recommend saving 15 […]

6 Year End Tips for a Financially Productive 2017

As 2016 comes to a close in a few weeks and we start into 2017, here are some good tips to consider to start 2017 off with some good strategies that will hopefully become habits. If you’re not doing so already, set up your payroll deductions to save the maximum to your 401k. There’s plenty of time to your payroll allocated so your deductions start coming out on the first paycheck in January. The 2017 maximum contributions are $18,000 for those under age 50 and $24,000 for those age 50 or older. To deduct the max, simply take the number of pay periods you have annually and divide it into your maximum contribution amount. This will allow you to save the maximum amount over 2017. Consider doing the same to maximize your IRA contribution. Those limits are $5,500 (under 50) and $6,500 (over 50) respectively. Check your allowances on your […]

Tax-Loss Harvesting: It’s Never Too Late

Tax-loss harvesting is a tax move that can help with your income tax burden when you’ve experienced a loss with your investments.  Briefly, this is where you have a taxable account, holding stocks, bonds, or mutual funds and the market declines leaving your holdings in a loss situation.  Once you sell the holding, you have realized the loss, which enables you to take advantage of the tax laws and deduct those losses, first against any gains in your account(s), and then at a rate of $3,000 per year against ordinary income. This is similar to the famous move that Mr. Trump (and I would be shocked if Mrs. Clinton never took a loss against future taxes) used to avoid future income taxes. This was recently discovered in Trump’s tax records and made out to be a fatcat loophole – at least by the media – when actually anyone can take advantage of […]

The Third Most Important Factor to Investing Success

Previously I wrote about the Most Important Factor and the Second Most Important Factor to Investing Success. Continuing this streak I’ll give you the third most important factor to investing success: Leave it alone. To recap: The most important factor is to continuously save and add to your nest egg over your career; the second factor is allocation – make sure you’re investing in a diversified allocation that will grow over time. The third most important factor to investing success: Once you’ve started investing, leave it alone. Resist the temptation to sell off the component of your allocation plan that’s lagging; the reason you have a diversified allocation is so that some pieces will lag while others flourish, and vice-versa. Reallocate your funds from time to time (once a year at most) to match your allocation plan, but that’s all the fussing you should do with your investments. Leave it […]

Investing Your 401k – a 2-step plan

If you’re like most folks, when you look at a 401k plan’s options you’re completely overwhelmed. Where to start? Of course, the starting point is to sign up to participate – begin sending a bit of your paycheck over to the 401k plan. A good place to start on that is at least enough to get your employer’s matching funds, however much that might be. In this article though, we’re looking at investing your 401k money. It’s not as tough as you think. In fact, it can be done in just two steps – taking no more than 30-45 minutes of your time. Step 1 – Look at your options When you’ve signed up for the 401k plan, review your options for investing your 401k. Look at the list of investments available – and from here you can take a shortcut if you like. If your plan has a “target […]

The Madoff Scam: What Can We Learn?

Note: This is a re-publish of an article from early 2009 – but the lessons are still very useful in today’s world. You’d have to be living under a rock to not know about the scandal of Bernie Madoff’s firm – wherein the supposedly legitimate Madoff bilked some of the most sophisticated investors in the world out of something like $50 billion. The Ponzi scheme has been around forever, for the very fact that it works – much to the chagrin of those caught in its web. The bright spot for all of us (as long as you weren’t caught in the Madoff scheme) is that the losses we’ve all seen in the the stock market pale in comparison to the losses by Madoff investers. Plus, we have the opportunity to make it back (eventually). These folks lost literally everything invested there, in some cases entire life savings. The vexing part […]

Should I Pay Off My Student Loans or Start Investing?

I had an interesting question come my way from a student the other day and I thought I’d expand on my answer that I gave to the student. The question was whether he should pay off his student loans and then start investing, or if he should start investing first and pay off the student loans gradually. If we really look at it, paying down any type of debt is very similar to making an investment in a guaranteed account paying interest on the equivalent of the interest rate on the debt. This student’s interest rate on his debt was approximately 7%. Paying this off would not be unwise and would be a great way to earn 7% risk free – only this method keeps the 7% out of the lender’s pocket and puts it into the borrower’s. However, if we completely ignore investing and saving for retirement we can […]

What to do with an extra 1,000 dollars

I occasionally get this question – especially around the time of tax refunds.  When someone comes up with an extra $1,000, they often want to know how to best use that money wisely to help out their overall financial condition. Of course this question has different answers for different situations.  I’ll run through several different sets of conditions that a person might find him or herself in, and some suggestions for how you might use an extra $1,000 to best improve your financial standing.  (It’s important to note that you don’t have to have an extra $1,000 lying around to use this advice – you could have an extra ten or twenty or fifty bucks a week and put it to work with the same principles.)  The point is to find money that isn’t being spent on something critical, and put it to work for you!  Even small steps amount to wonders. […]

Maintaining Confidence in an Uncertain World

All around us, every day, we see signs of an unstable financial world. The stock market has been all over the place, instability continues in the Middle East (like it will ever change?); at home we’re confronted by a presidential election that offers little choice other than to hold your nose and vote for the one that you believe is likely to do the least damage. Add to this the rising cost of “getting by” and there’s little wonder many folks are very concerned  and have little confidence about the future. What Can You Do? I don’t suggest hiding under your bed – this has never worked for me, and sometimes you find things there that you would rather not! On the other hand, there are few things that you can do to help get through this uncertainty, and maybe you’ll decide that it’s not so scary after all. For […]

The Power of Compounding

Many individuals understand the power of compound interest. They understand that compound interest means money or interest earned on interest received. That is, if I earn 5 percent interest annually on one dollar, in one year I’ll have $1.05, but in two years, I’ll have $1.1025, not $1.10. Granted, this may not seem like a lot; and it isn’t. But on several thousand or hundred thousands of dollars it really starts to add up. This post is mainly for those individuals who haven’t heard of this concept or haven’t started utilizing it to their advantage. Mainly, I’m addressing millennials and college students. Those individuals in the cohort I’m address have one powerful thing on their side: time. We’ve written before on this blog about the power of time and starting to save early. We showed the comparing of someone starting right away either during or right after college and another […]

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