January 23, 2012 by tfroberts

Increasing market volatility has become a way of life. Although we have not seen the swings of 2007 through early 2009, this year has seen extreme volatility. Weeks and even days of several hundred points swings, in both directions, on the Dow Jones average have become commonplace. In the first week of August alone, two of the Dow's 11 best days in history alternated with two of its 11 worst daily point losses ever. Other indices such as the S&P 500 and measures of international and small company stocks have seen similar volatility. If this continues what can you do to avoid investment anxiety and protect your portfolio?

January 12, 2012 by tfroberts

Younger people with long time horizons should have one type of portfolio; high growth, small cap stocks, emerging market and other "risky" stuff. Middle-aged people should have more bonds and large cap value funds. Senior citizens should have mostly bonds and cash. Less risky investments. Is this true?

Sorry, it's another myth. For example, younger investors would have done a lot better over the past decade with lots of bonds. Today, older investors putting most of their money in "safe" bonds may be making another mistake. Ten-year Treasury bonds yield 2% and 30-year bonds less than 3%. Retirees who hold lots of "safe" U.S. government bonds are losing purchasing power to inflation. Just like back in the seventies and early eighties.

The truth is, no one can rely on such simple rules. It depends on your needs. What if you are older but your investments are targeted to provide for your grandchildren in 20 years. Should you be in cash or bonds? Probably not the best mix. You are not the "average" investor, spend some time getting your investments right for you.

Decmeber 21, 2011 by tfroberts

Exchange Traded Funds (ETFs) are being used in place of individual stocks or mutual funds by individual and institutional investors. One advantage of using most ETFs is that the basket of investments, the index, is defined and transparent. If the investment index that the ETF developer wants to track is not easily made up of tradable securities, such as company stock, they can use other financial vehicles. One common vehicle is an Exchange Traded Note (ETN). However, there are some differences you should be aware of before investing in an ETN.

November 30, 2011 by tfroberts

No.  The rates of return quoted include ongoing operating expenses such as investment management, custodial charges, record keeping, legal, audit and accounting. This is identified as the expense ratio. Marketing and distribution expenses are identified as 12b-1 fees. Both of these fees have been deducted from the gross rate of return so the rate you see published is a net rate.

Other costs such as trading - brokerage costs - and the effect of trading on your tax burden are not included. Funds with higher turnover ratios, more trading of securities, will have higher brokerage costs. If there are capital gains from these trades, you will be responsible for the taxes on the gains. This information is available from various sources, such as Morningstar, and should be considered when evaluating a fund for investment.

October 16, 2011 by tfroberts

Starting November 1, 2011, 401k plan sponsors will have to provide you more information on the performance of the investments offered, the costs of the plan and display this in a comparative format.  The intent is to give you a better picture of your 401k.  Most participants will start seeing the new format in January 2012.

This information should make it easier for you to determine if your investments match your needs and goals.  You will also find it easier to compare your company's plan with other plans.  If you are responsible for your company's plan, you have an obligation to assure your plan meets the new requirements and is providing acceptable performance and cost to your employees.

September 26, 2011 by tfroberts

If you made a conversion or partial conversion to a Roth IRA in 2010 and the value of your investments has decreased you may want to consider "undoing" the conversion. If so, you need to act fast as the deadline is October 17, 2011.

Why would you want to "undo" the conversion? When you converted the Traditional or Rollover IRA to a Roth IRA, you agreed to pay taxes on the gains. If the value has decreased, you are still responsible for paying based on the gain at the time of conversion. If you make this change, you are limited to when you can make another conversion.

In 2010, there was a one time opportunity to pay the taxes on the conversion over 2011 and 2012 tax years. If you undo the conversion, you will loose this opportunity. Future conversions will require paying all the tax due in one tax year. Of course, you can always make partial conversions to manage your tax bill.

September 18, 2011 by tfroberts

The typical rule of thumb is "spend your taxable investments and let your tax deferred investments grow". While this may result in a higher overall tax adjusted value for many people, it may not always be the optimum withdrawal strategy. It does make sense to withdraw from your Roth IRA, and HSA, accounts last because there is no tax due on the growth or withdrawals.

If you have a large balance in your Traditional or Rollover IRA and you delay withdrawals, you may be forced to take larger Required Minimum Distributions (RMDs) after age 70 1/2 than you desire. Depending on the tax rates when you make the withdrawals, you may pay more tax than if you managed your withdrawals over a longer period, in a lower tax bracket.

To determine the optimum strategy for your situation, gather up your expected expenses, account balances, Social Security and other guaranteed income. Run scenarios taking income from different sources over your lifetime and compare. This will help you decide which withdrawal strategy is best for you.

September 11, 2011 by tfroberts

Have you purchased a new life insurance policy or annuity recently? When completing the section designating your beneficiaries, did you consider the impact on your estate plan? Beneficiary designations are independent of and trump directives in your estate plan documents. For example, if you intend to leave an equal amount of your wealth to your children and designate this in your will but name your daughter as your IRA beneficiary, you may significantly change the balance. You can avoid these problems in a few simple steps:

First, make a list of all your bank and investment accounts, retirement accounts (401k, IRAs, 403b), insurance policies and annuities. Contact the companies and ask for a copy of the current beneficiary or Transfer on Death designation. Do this even if the accounts or policies are old. Often these require changes to account for death, divorce and changes in children's status. Ask for a change of beneficiary form while you are at it. Using a copy of the company file is preferable to your records since what is in the company files, will rule.

August 29, 2011 by tfroberts

Convertible tops allow car drivers to enjoy sun and fresh air when conditions are right. You are not cooped up in an enclosed vehicle and you can put up the top when it rains or temperatures are not ideal. You have the best of both worlds although, like everything else, there may be some quirks to address.

In the investment world, convertible bonds have similar characteristics. These investments are a hybrid of a fixed rate bond that has the ability to be converted to stock if conditions are right. As a bond, they provide steady interest payments. The contract spells out how the bonds can be exchanged or used to buy stock at a specified rate. If the stock price increases, you can benefit by having access to shares. If the stock price declines, you still receive the interest. Some caveats; the interest rate is less than a similar bond and the value of the convertible rises at a slower rate than the company's common stock prices. The contract may also contain provisions for the bond to be called by the company as well as the option for you to sell the bond back at a specified price.

June 21, 2011 by tfroberts

It's no secret that we have a spending problem. Just as you will find your credit score going down if you spend up to your credit limits and more than you bring in, the US is facing a potential credit downgrade. It doesn't matter if S&P or Moody's makes it official. What really matters is what large investors think about the US's ability to pay it debts in the long run. At this time, investors still gravitate to US debt and the dollar when markets look risky. However, they have decided that it makes sense to diversify into other countries that may have stronger balance sheets, better cash flow and smaller long term obligations.

January 15, 2012 by tf roberts

Ever since the possibility of default on Greek sovereign debt has become headline news, a lot of people have found themselves wondering, "How is it possible for the financial problems of a country so small and so far away to create such turmoil in the world's markets?" What's happening in Europe is probably affecting your portfolio right now, regardless of the quality of your holdings or how well diversified you are.

Just what is all the shouting about? It's no secret that the so-called PIIGS nations (Portugal, Italy, Ireland, Greece, and Spain) are having difficulty coping with the debt that years of deficit spending have created. A robust global economy helped to mask the problem, but in recent years the burden of sovereign debt--bonds issued by sovereign governments--has become increasingly unsustainable. With debt at roughly 140% of its gross domestic product,* Greece is particularly troubled. Imposing austerity measures required by its European colleagues has added to the country's recessionary woes. That in turn has made it even more difficult to achieve mandated deficit reduction targets in order to qualify for additional installments of financial aid from the European Financial Stability Facility (EFSF) set up last year by 17 eurozone countries.

December 7, 2010 by tfroberts

The tax code allows IRAs to be created as trust accounts, custodial accounts and annuity contracts. The federal tax rules are generally the same for all IRAs. But the structure of the IRA agreement can have a significant impact on how your IRA is administered. This article will focus on a type of trust account commonly called a "trusteed IRA," or an "individual retirement trust."

Why might you need a trusteed IRA?

In a typical IRA, your beneficiary takes control of the IRA assets upon your death. There's nothing to stop your beneficiary from withdrawing all or part of the IRA funds at any time. This ability of your beneficiary to withdraw assets at will, may be troublesome to you for several reasons. For example, you may simply be concerned that your beneficiary will squander the IRA funds.

June 21, 2010 by tfroberts

Investors often are looking for more attention from their financial advisors than they receive from the larger firms. This can lead them to checking out "independant" advisors. When investigating potential advisors, make sure you get the attention you desire - but also check out how your portfolio will be assembled and managed. Portfolios that are inflexible do not fit most people's situations.

December 22, 2009 by tfroberts

Recent brightening in the economic forecast should have you thinking about how you are going to deal with increased inflation when it arrives. It may seem counterintuitive to be investing to combat inflation when we continue to face short term deflation. Being ahead of the pack is where the money is made - remember buying equities in March 2009?

November 3, 2009 by tfroberts

Here's another good reason not to tap your retirement plan accounts. We know that when retirement funds are tapped, it is unlikely they will be paid back and people generally stop contributing altogether. This can spell financial disaster when you retire. The Bankruptcy Reform Act (2005) protects tax exempt retirement accounts from your creditors if need to declare bankruptcy.

October 23, 2009 by tfroberts

Business Week recently cited a Fidelity survey showed people between 55 and 70 say that what matters to them in retirement is income. 85% said guaranteed income was more important than above average returns. Another survey of individuals over 50, who contribute to a retirement plan, said the most important considerations were; 83% steady income; 72% stable income even if markets go down; 66% access to their money without penalties and 64% desire to get market growth.

No single financial product on the market can satisfy all of these desired considerations. I propose we stop looking for a "product" to fulfill retirement income needs and focus on getting a process in place, which can be flexible and adjust as life changes. This means finding a professional who can work with you to understand your income requirements, time spans and temperament. They must have the ability to combine several investments into a coherent solution. The user must also be willing to reevaluate the process periodically to make changes when life happens.

October 18, 2009 by tfroberts

Everyday it seems that we hear more about the US dollar's decline. On the economic front, a weaker dollar means people in other countries can buy more of our products for the same number of pesos, pounds, euros, bhat or yen. This increases US exports and helps our balance of trade.

It also affects your investments. This article in the Financial Times Wealth magazine outlines how over the last two years (June '07 to '09) an investor using pound sterling would have gained 33.6% investing in the Brazilian Bovespa index. 3.4% of the gain was due to the Bovespa increase and 30.2% due the exchange rate change. Of course this can work in reverse.