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Investing Isn’t Always About Retirement Planning

Posted by Seton McAndrews | CFP®, Vice President Investments

September 5, 2018

When we talk about saving and investing for the future, the conversation usually steers quickly towards retirement planning – IRAs, 401(k)s, pensions, Roth IRAs, and so on. After all, retirement is when all of your careful saving, well-intentioned investing, and hard work pays off. It’s when you’re finally supposed to be able to live the good life.

But investing isn’t always about retirement planning. Nor should it be. While it’s true that many people share the same goal of retiring with financial security, there are myriad of other life goals that require careful saving, planning, and investment returns.

J.P. Morgan Asset Management created a graphic that effectively illustrates this point:

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Investment Planning Saving for Retirement

Should You Invest Your Entire Investment Portfolio in a Single Management Strategy?

September 4, 2018
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

Nuveen Sees Investors Looking Past Risks to Bid Stocks to New Highs

August 30, 2018
We see threats to equities, but we don't believe this bull market is over. Last week featured multiple negative political headlines for President Donald Trump that questioned the stability of his administration. The news was also dominated by signs of increased trade tensions between the U.S. and China, as well as statements from Federal Reserve Chair Jerome Powell that interest rate hikes were likely to continue. Despite the noise, however, investors continued moving money into stocks, causing the current bull market to become the longest in history and the S&P 500 Index to reach new record highs by the end of last week. It is natural to ask what risks will likely cause the bull market to end, as equity prices again reach new highs and the roller coaster action that has dominated markets since February appears to be over (at least for now). Rising protectionism appears to be the biggest theat. From a rational perspective, we think this risk should fade since trade restrictions are ultimately a lose-lose proposition. And the United States appears more willing to negotiate than President Trump’s tough rhetoric would indicate. Trade uncertainty remains a wildcard, but we still believe that an all-out trade war is unlikely. [+] Read More

How to Successfully Roll Over Your 401(k)

August 29, 2018
When a person leaves a job to retire or to join another employer, there are often decisions about what to do with your 401(k). Should you leave it where it is, and just not mess with it? Should you roll it over to your new employer’s plan? Should you roll it into an IRA? Those three questions, in fact, present three distinct options for an investor to potentially choose from. In this post, we’ll examine each option, detail the pros and cons, and in the process, hope to provide you a road map for how to successfully manage your 401(k). After all, there’s no reason for an investor to not do something with their 401(k) because it just seems too hard to move without incurring penalties. Our biggest suggestion though is that – unless it’s absolutely necessary – you resist the temptation to cash out. Cashing out of a 401(k) and taking it as a distribution means potentially incurring a sizable tax burden, and if you are under the age of 59 ½ your distribution will also be subject to an early distribution penalty of 10% unless an exemption (such as medical costs) exists. [+] Read More

Lord Abbett Dives Into the Roth Recharacterization Repeal in the New Tax Act

August 23, 2018
Recharacterization of Roth IRA conversions from traditional IRAs and 401(k)s has been repealed, but recharacterizing Roth contributions is still permitted. When Congress passed the Tax Reform Act of 1997, what was originally referred to as “IRA Plus” became known as Roth IRA after its primary sponsor, Senator William Roth (Del.). Two decades later, Roth IRAs continue to grow in popularity and assets, especially with younger investors. More than 30% of Roth IRA investors are younger than 40, while cumulative assets have grown to more than $660 billion as of December 31, 2016 (latest available), according to the Investment Company Institute. [+] Read More

Financial Best Practices for New Parents

August 22, 2018
Having a baby (or babies!) and starting a family means so many exciting, happy, but also unknown things. For first time parents, in particular, it means navigating the often head-spinning tasks of feeding, caring for, and cleaning a baby while also working, taking care of the house, and if you’re lucky, sleeping. For most new parents, there’s not enough time in any day to get everything done, and by the end of every day you’re exhausted. Making time for budgeting, financial planning, and taking steps to prepare for the child’s future can often seem so far out of reach. But at the end of the day, it must be done. A recent study found that in the first year alone, the cost of raising a baby can run upward of $21,000 – and that’s not even factoring-in any unexpected illnesses or conditions an infant might have early-on, which are quite common. From the time the baby is born until he or she turns 18, the total cost of upbringing can range from $260,000 (“no-frills”) to $745,000.¹ In short, it’s no financial walk in the park. [+] Read More

Should Investors Stress Over an Inverted Yield Curve?

August 21, 2018
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

Evaluating the Most Efficient Way to Save for a College Education – Doug’s Quiz Corner

August 17, 2018
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

JP Morgan Releases New Guide to the Markets for 3Q 2018

August 16, 2018
Reviewing the Guide to the Markets to Understand the Current Investment Environment J.P. Morgan's Guide to the Markets for the third quarter of 2018 is now available for your review. Inside you'll find deeper insight into the current investment environment and what the investment team at JP Morgan is keeping an eye on right now.  On page 19 you'll see two charts (Real GDP & Components of GDP) that show how the economic expansion is continuing at a slow but steady pace. On page 25 you'll see a chart that displays how unemployment continues to fall, which JP Morgan believes should drive up wages. And on page 7 you'll see three charts that show how although earnings headwinds should be behind us, future growth may be muted.  [+] Read More

It’s a Family Affair: Talking to Your Family about Financial Planning

August 15, 2018
The “Godfather of Soul,” James Brown, had a noble vision for how he wanted his assets distributed after his passing. His will had set aside $2 million for his grandchildren’s education, and he would also set aside millions of dollars for the education of underprivileged children in Georgia and South Carolina. Eleven years after his passing, not a penny has gone to these beneficiaries of his will. The reason: ongoing legal battles, as family members challenge Mr. Brown’s will in court and multiple parties argue over the assets in his estate. More than a dozen lawsuits have been filed since Mr. Brown passed away in 2006, and one of them involves nine of Mr. Brown’s children and grandchildren suing the estate’s administrator as well as Mr. Brown’s widow, Tommie Rae Hynie.[1] James Brown carefully crafted his estate plan to focus on education and his community, yet his wishes are arguably yet to be fulfilled. It leaves one to wonder: what if Mr. Brown had gathered his entire family together, had very frank and candid discussions about his estate plan, and told his family explicitly that they were not to challenge his wishes. Where would his estate be today? [+] Read More