Saving for Retirement and Potential Health Care Costs Your friend Jody has recently started a new job and she has several options for saving for her retirement and future health care costs. Jody’s new employer offers a 401(k) with a match of up to 3% of her salary. They also offer a Health Savings Account (HSA) option. Jody lives in a state that does not tax withdrawals from HSAs for qualified medical expenses and contributions to HSAs may be deducted from taxable income for state income tax purposes. In addition, Jody also has a Roth IRA which she is using to save for her retirement. Jody is in very good health and would prefer to have a health plan that limited her upfront health care costs while allowing her to save for future expenses. She is comfortable with a high deductible plan. She is financially secure and doesn’t plan on touching the money in her Roth IRA until retirement. Assume Jody meets the eligibility requirements to participate in her employers 401(k) program, enroll in a Health Saving Account, and simultaneously has enough to contribute to a Roth IRA. [+] Read More

We’ve all heard the term “don’t put all your eggs in one basket”. Of course, this concept can be easily applied to investing. Many sophisticated investors understand that investing in only one stock, or only one asset class, or only one anything is risky. However, the question of whether or not you should invest in just one money manager is rarely directly addressed. A key objective of diversified investing is to build a portfolio that is spread across multiple asset classes in an effort to lower the overall volatility of the portfolio. If you invest your entire portfolio in one single stock it’s clear that your entire portfolio will be tied to the fortunes, and therefore risk of that one company. Adding additional investments to the portfolio can lower the overall volatility and risk of the portfolio, especially if you are adding additional holdings with low correlations to one another. In other words, if your portfolio zigs, you want to add something that zags to get the most effective diversification benefit. To take this further, if your portfolio is made up entirely of one large cap telecom stock, adding a second and third large cap telecom stock may give you little in the way diversification benefit if each of these companies have similar factors that drive their returns. Ideally, a portfolio will be well diversified among different sectors. That way, if one sector is performing poorly, this poor performance may be offset by other sectors with stronger performance. Likewise, geographical diversification is important to help mitigate the impact of a poorly performing market. [+] Read More

Despite Apple topping $1 trillion in market value, the unemployment rate continuing to climb down, and a multitude of other positive market indicators, the Treasury yield curve has begun worrying some market analysts. That said, we don’t feel that investors should worry too much about an inverted yield curve. Here’s why… The Treasury Yield Curve as an Indicator of Recession The Treasury yield curve is typically upward sloping where long-term yields are higher than short-term yields. The longer the time to maturity, the higher the risk to the bondholder since the longer-term bonds have a longer time horizon and are therefore exposed to more potential changes in interest rates than short-term bonds. This forces investors in long term bonds to seek higher yields in exchange for accepting the added risk of a longer maturity bond. What is the Treasury yield curve? The U.S. Treasury Yield Curve compares the yields of short-term Treasury bills (those with terms of less than a year) with long-term Treasure notes and bonds (notes have terms of two, three, five, and 10 years while bonds have terms of 20 or 30 years). Yields always move in the opposite direction of Treasury bond prices because low demand drives the price below the face value while high demand drives the price above face value. The yield curve becomes inverted when short-term yields are higher than long-term yields. An inverted yield curve does not happen very often, but it has preceded every recession in the U.S. for the last 50 years.1 What Causes an Inverted Yield Curve? [+] Read More

What Are the Advantages of Using a Roth IRA vs. traditional IRA vs. a 529 Plan When Saving for College Costs? Consider this Scenario: Your friends Dan and Ashley have a son who will start college in 7 years. They would like to save some money for his college fund, but they are unsure about the best way to do so. Right now they have $10,000 in cash set aside for this purpose. Over the next few years, they’d like to continue saving more money for his college education. To make the most of what they’ve already saved, they’re considering putting the $10,000 into a 529 plan, into a traditional IRA ($5,000 into Dan’s and $5,000 into Ashley’s), into a Roth IRA ($5,000 into Dan’s and $5,000 into Ashley’s) or doing some combination of these options. Assume that Dan and Ashley will receive a full state tax deduction on a $10,000 contribution into a 529 plan. Also assume that they meet eligibility requirements to contribute $5,000 each into their traditional IRAs and/or Roth IRAs. [+] Read More

Determining Priorities When Saving for Retirement and Paying Off Student Debt Consider this Scenario: Your friend Stanley has recently completed college and has just started a new job. Stanley has $40,000 in student loans to pay off at an interest rate of 7%. Stanley’s starting salary at his new job is $50,000 per year. Additionally, his employer offers a 401(k) match of 2% of salary. Stanley understands the importance of saving for retirement and would like to save as much as possible toward his future. Stanley also understands that he is $40,000 in debt and he would like to pay off his student loans as quickly as possible. He isn’t certain how he should prioritize his budget though, and he’s heard a lot of conflicting advice. When he asks you, what would you recommend: Should he focus on paying off his student debt before investing for his retirement? Or should he save as much as he can toward retirement before paying off his student loan debt? What is the probably the best way to prioritize investing versus paying off student loan debt? [+] Read More

When you’re validating a money manager recommendation, chances are high that you’re looking for information regarding the managers performance against its own benchmark over time. While it’s up to the manager to provide this information to a third-party reporting database, many managers elect to do so, in part because it helps with transparency of their product and allows users to review the fundamentals of their strategy and to compare results alongside the appropriate chosen benchmark. Of the money managers that choose to report their performance, they typically report the investment performance of their products to institutional databases such as Morningstar, eVestment, and Informa Investment Solutions, among others. Subscribers to these databases can then compare the reported performance of thousands of different investment products and use custom filters and searches to narrow down a potential search for a product that best fits what they are looking for. By comparing managers who report to a database like this, a researcher may be able to whittle a universe of hundreds or even thousands of products down to just a handful of strategies that meet the investor’s specific criteria. But what if an investment manager doesn’t report the performance of their products to a database? [+] Read More

Some investors wish to align their personal values with their investment portfolio, but there have traditionally been several stumbling blocks for investors looking to assemble a diversified ESG (Environmental, Social, and Governance) portfolio. Fortunately, WrapManager now offers an innovative ESG investment solution which seeks to provide diversification among asset classes, market capitalization, country of domicile, and ESG methodology. What are ESG criteria? Environmental, Social, and Governance (ESG) criteria is a set of standards for company’s operations that socially conscious investors can use to screen investments. Environmental criteria look at how a company performs as a steward of the natural environment. Social criteria examine how a company manages relationships with its employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. [+] Read More

Understanding the Cost Basis Impact of Stock Splits & Reverse Stock Splits Consider this Scenario Your friend Bill owns a stock that just went through a 2-for-1 stock split and another stock that had a 3-for-4 reverse stock split. He is unsure how these actions will impact his cost basis per share for these stocks. Stock Split: A stock split is a corporate action that takes places when a company divides its existing shares into multiples shares to boost the shares liquidity. Although the number of shares outstanding increases by a specific multiple (such as 2-for-1 or 3-for-1) the total value of the shares held by a shareholder does not change. So, if you held 3 shares and the company held a 2-for-1 stock split you would now hold 6 shares, but the total original value would not change. Reverse Stock Split: A reverse stock split is a corporate action that happens when a company reduces the total number of its outstanding shares. A reverse stock split decreases the number of a company’s outstanding shares by a specific multiple (such as 1-for-5 or 1-for-10) and simultaneously increases the price per share. These are also known as a stock consolidation or share rollback. So, if you held 5 shares valued at $20 each and the company held a 1-for-5 reverse stock split, you would now hold 1 share valued at $100. A company may have their stock go through a stock split in order to make the stock seem more affordable to smaller investors. A company may have their stock go through a reverse split in order to meet the minimum share price for inclusion on a particular stock exchange. [+] Read More

Over the past couple of years, the S&P 500 Forward P/E ratio has been above its 25-year average. This has led some market commentators to warn that equities aren’t attractively valued. A Price to Earnings (P/E) ratio is a valuation measure that shows how much investors are willing to pay for a dollar of a company’s earnings. For example, a company that has a stock price of $30 and earnings per share of $2 would have a P/E ratio of 15 ($30/$2 = 15). A reading above the long-term average is typically interpreted to mean that stocks are expensive relative to the historical average. Similarly, a reading below the long-term average is typically interpreted to mean that stocks are cheap relative to the historical average. The recent pullback in equities to start the year coupled with continued strong earnings growth has left the S&P 500 Forward P/E ratio at 16.1x at the end of April 2018. The 25-year average S&P 500 Forward P/E ratio is exactly 16.1x. This marks the first time in over 2 years that this reading has not been above the 25-year average. [+] Read More