Thursday, September 17, 2020

 


When choosing a financial adviser, make sure the adviser’s interests are aligned with your own.  If the adviser gets paid on commission, are you comfortable that he or she is choosing the best investments for you and not those with the best commissions for him or herself?  If you are paying the adviser 1% of your assets each year, will he or she keep your cash earning 0% in the account or will he or she have you move the cash outside of the adviser’s company so that you can earn 0.75% elsewhere?  If you are retired, will your adviser suggest you pay off your mortgage when he or she may lose fees on that money removed from your account?  When commissions on a $600,000 investment portfolio can take $30,000 out of your account on day one or a 1% annual fee can take $75,000 of fees from your account over 10 years (assuming 6% annual account growth before fees) plus another $23,000 in lost earnings on the fees paid, make sure your adviser is looking for every way to add value even at the expense of his/her own compensation.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Monday, July 6, 2020

Being Smart with $$ - Avoid 529-Plan Tax Snag from College Refunds


Do you have a child in college and because of coronavirus you received a refund of some expenses?  And did you pay for college using a 529 college-savings plan? If yes and yes, you may be facing an unexpected tax bill plus penalties unless you address this issue.  That refund you received reduced your expenses that qualify for withdrawals from your 529 plan meaning that you now have taken more from your college-savings plan than the qualifying expenses incurred.  That non-qualified withdrawal would be subject to taxes on the earnings portion of the withdrawal plus a 10% penalty.  So now you have a couple of choices: 1) Put the money back into your 529 plan in a recontribution before July 15; or 2) Match the refund to new qualifying educational expenses for the same child that you will incur before year end.  And then only take new withdrawals from your 529 plan for additional qualifying expenses above the amount of the refund.  And definitely keep good records in case the IRS comes knocking some day.
Larry Pike, CFA
Client Priority Financial Advisors LLC
www.clientpriority.com

Wednesday, June 10, 2020

Being Smart with $$ - Market Timers Learn Lessons the Hard Way


The recent stock-market activity has taught a harsh lesson to market timers.  Market timers often sell their holdings trying to avoid a 10% or 20% drop in the market.  Then when the market surprises them and goes up instead, they become sure that it’s an even worse time to get back in.  Then when the market is up 50%-100% in the next 5 or 10 years, they realize they have missed the entire rise because they stayed on the sidelines waiting for something that never happened.  An investor hoping not to lose $100,000 on his/her $500,000 investment might instead not earn $500,000 by staying safe.  People hate to lose money and that causes them to make decisions that often cost them more in the long run.  The current environment has many investors sitting on the sidelines.  But in order to benefit from high, long-term, stock-market returns, you have to stay invested.  (Past performance may not be an indicator of what to expect in the future and your individual circumstances should be considered in any investment choice. Investments in stocks can rise or fall in value, especially in the short run, and should be the part of your portfolio intended for your long-term needs and not for money you may need in the short term.)
Larry Pike, CFA
Client Priority Financial Advisors LLC
www.clientpriority.com


Friday, May 8, 2020

Being Smart with $$ -- Don't Be Fooled By Claims That Active Management Will Win In Volatile Times


Don’t be fooled by claims that active portfolio management can navigate volatile markets and make you money.  Mutual fund companies and money managers often say that in normal times it is hard to beat an unmanaged index fund that simply owns a sector of the market without trying to pick winners and losers.  It is hard to beat those index funds because their fees are so much lower than that charged by the active managers.  But the managers say that their value may come in times when the markets are volatile and they can navigate the ups and downs to save you money or make you money.  The trouble is that these claims are mostly marketing.  I have recently reviewed several portfolios with actively-managed, high-fee funds and the majority have done worse than low-cost index funds since the beginning of the year.  A just-completed review of a portfolio with 13 actively-managed funds revealed that 9 performed worse than an index fund offered in their same category and only 4 performed better since January 1.  What’s more concerning is that the average underperformance of the 9 was far greater than the outperformance of the 4 such that the entire portfolio would have had far superior results since the beginning of the year if it were entirely invested in low-cost index funds.  The active managers have the ability to hold less in stocks and more in cash if they think the market is going to fall giving them the ability to not only try to pick winning stocks and bonds but also to reduce their exposure to the markets if they see bad times ahead.  But these funds, which are managed by several of the largest and most respected mutual fund companies, failed to navigate the markets in the way they claim they can.  These 13 funds don’t represent the entire universe of mutual funds but they do make the point that high-fee, active management may not be able to provide the magic the big managers claim they can.  When you buy low-cost index funds, you can count on getting the returns of your target market sector less an almost negligible fee and you don’t have to worry that a manager will guess wrong and cost you money.  A long-term plan does not include guessing the direction of the market but instead stays the course and enjoys the growth of assets over the decades.  Don’t be fooled by the marketing claims.
Larry Pike, CFAClient Priority Financial Advisors LLCwww.clientpriority.com 

Sunday, April 12, 2020

Being Smart with $$ -- If You Didn't Lose Money, You Didn't Have It To Start With


It hurts to look at our 401(k) and brokerage statements right now when we compare them to year end.  And you may be thinking that you wouldn’t have lost money in the stock market if you kept all your savings in the bank.  But you also wouldn’t have had the money to lose in the first place.  Losses in US stocks from recent highs are only giving back the gains you received over the last 14 months.  If you weren’t in the market, you didn’t earn the money and then you didn’t give it back.  But chances are, if you were in the stock market over the last couple of years, you have also been in it over the past several years before that.  And US stocks are up an annualized 10% over the last 10 years even after accounting for the recent declines.  So you can fear the market and keep your savings in super safe assets or you can look at a long-term chart of stocks and realize that long-term success as an investor comes with occasional short-term stress.  In the last 10 years, investors in a “total stock market index fund” have seen $100,000 grow to approximately $260,000 today while investors in less-volatile “aggregate bond index fund” have seen the same investment grow to less than $150,000.  Perspective helps in times like these.  (Past performance may not be an indicator of what to expect in the future and your individual circumstances should be considered in any investment choice.)
Larry Pike, CFAClient Priority Financial Advisors LLC
www.clientpriority.com

Friday, April 3, 2020

Being Smart with $$ -- Take Advantage of the Market Drop


If the health crisis we are facing isn’t enough, perhaps the stormy weather in the financial markets has you feeling even worse.  But when the markets are down, you have the chance to make some moves you wouldn’t otherwise make.  Take tax losses to reduce your tax bill but consider reinvesting the proceeds into a similar asset so as not to lose your market exposure.  Sell poorly performing funds you have wanted to punt that may no longer be at a tax gain and reinvest into low-cost better performers in the same sector. Convert assets from a traditional IRA to a Roth IRA with a lower tax bill since 100 shares of most assets today are worth less than they were 2 months ago.  You can sit paralyzed as the markets react to the coronavirus news or you can act on it and grab what benefits you can.  (Specific moves should consider your personal circumstances and you should consult with your financial professional to ensure actions are in line with your needs and tax laws.) 
Larry Pike, CFA
Client Priority Financial Advisors LLC
www.clientpriority.com
Blog:
clientpriority.blogspot.com

Monday, March 2, 2020

Being Smart with $$ -- What Kind of Investor Are You?


Successful investors know there is never a good time to buy stocks.  Either the world seems healthy and stocks are overpriced (and who wants to buy an overpriced stock?) or the world has a new crisis with stocks plummeting (and who wants to buy stocks when they’ll be cheaper tomorrow?)  But successful investors know that they can’t correctly time the market on a regular basis.  They also know that despite short-term turmoil in the markets, their gains over the long run will likely be quite substantial.  Most of the rest who look for the perfect entry point usually complain that they can’t get a lucky break in the markets.  Which investor are you?
Larry Pike, CFA
Client Priority Financial Advisors LLC
www.clientpriority.com