Investment Advice Before Turbulent Times

Investment analysis charts

It is human nature to seek advice only when things aren’t going as planned or when some unforeseen situation arises. Take one’s health for example- some people routinely have an annual exam, while others seek medical advice only when they suspect a health problem and the symptoms have become severe. Just like seeking medical advice only when something is wrong, some seek financial advice from a professional only when the stock market and their investments are experiencing turbulent times.

Being reactive during turbulent stock market periods sometimes leads people to consider leaving their current financial advisor to one that wants to change their entire portfolio composition during a market downturn. Moving investments over to a new advisor during a bad time can be a bad decision when investors fail to consider the possible longer-term consequences of liquidating portfolio holdings at a low valuation and then repurchasing new shares. Advisors that are ready to move a client’s assets during their lowest valuation are not working in the client’s best interest and may be working for the commissions created through the client’s panic.

Here are few things to consider before the turbulent period arrives:

  • Market swings are a sign of a healthy market that is working toward a market correction.
  • Don’t make sudden decisions to quit investing or ‘go all in’ and keep investing through dollar cost averaging over the turbulent times the stock market may be experiencing.
  • Your investment’s time horizon is likely over many years (20 or more years) and not affected by a drop over a short period. Consider how long your 401(k) will be in the accumulation stage; it has experienced many market swings.
  • Short term investments should be moved into cash and not the stock market if you think you will need it in the next one to two years.
  • Evaluate your advisor’s performance during the good and bad times the stock market is performing. If there are issues that can’t be resolved, the best time to change advisors (and your portfolio) is when market valuations, and your portfolio’s valuation, is positive.

If you have concerns about your portfolio and how it will fare when the stock market corrects itself again, now is an excellent time to meet with us to develop a plan for the future. The best time for making financial decisions is during ‘the good times,’ not the turbulent times when an investor may be prone to emotions hindering good decisions.

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*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Are Early Retirement and Pension Buyout Offers a Good Deal for You?

Early Retirement

In today’s economy, offers of an early retirement buyout for a current employee or a pension buyout directed at a former employee are becoming common as companies look for ways to cut costs.

Many large employers are offering employees who are not yet at retirement age the option to take an early retirement buyout. Each company has their reason for providing the buyout, but mainly because it will save the company money to hire a junior employee to fill a senior employee’s role when the yearly salary is a factor.

For companies that had a pension plan for their employees, pension buyout offers have become standard practice due to the increasing costs of administering pension plans. Even though pension plans may not be currently part of the employer’s retirement plan, there may be former employees that have the pension plan. Companies have a desire to get the liabilities associated with the pension payments for retired employees off their balance sheets well ahead of their retirement start dates.

Both of these types of offers usually come with several options:

  • Take the value of your early retirement or pension buyout as a lump-sum payment which can be rolled over to an IRA. The advantage is the ability to manage this money outside the employer’s plan, perhaps growing the value to a level that would provide a more significant benefit than taking your payments every month.
  • Take a monthly payout now (earlier than your average retirement age) with tax consequences.
  • Do nothing and take your original pension payment (or a lump-sum if offered) at your planned retirement age.

Factors to consider:

  • Will taking one of the buyout options put you in a better financial position than doing nothing and waiting until your normal retirement age?
  • Are you comfortable managing a lump-sum yourself or do you prefer a financial advisor you trust to help?
  • Is your financial or health situation such that taking the monthly payments now would make sense?

These types of offers are likely to continue given the unknown financial future, the tariff environment, and the worldwide economy. If you receive an early retirement or pension buyout offer, please contact our office for a consultation. We can help you evaluate your offer and make the best choice for your personal situation. Contact us today!

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

GDP: Does It Affect Your Portfolio?

Stocks vs GDP

Gross Domestic Product (GDP) is the total of everything produced in a country, even if it is made by a foreign company or foreign workers within a country’s borders. GDP counts the final value of a product, but not the parts that go into producing it as a way to avoid ‘double counting.’ In many countries, GDP is measured quarterly by adding personal consumption expenditures plus government spending plus business investment plus exports minus imports (GDP Standard Formula: C + G + I + (X-M). But does GDP have a bearing on your portfolio?

GDP growth is a measure of an economy’s growth but is not an accurate indicator of stock market performance. Although politicians like to use GDP as a goal in measuring the health of the economy, stocks don’t track upward or downward depending on the GDP.

There are continuing factors impacting the U.S. GDP:

  • The U.S. has shifted from an Industrial Economy to a Service Economy (not counted in GDP)
  • We are becoming ‘more efficient’ consumers, purchasing fewer non-essential goods than previously.
  • Low energy prices = reduced economic expansion

Indicators that are relevant to stock market performance include current economic conditions, changes in financial conditions for companies, and future production forecasts. Two industries that affect the stock market, regardless of the country of origin, are the automotive industry and the technology sector. When production booms or lags in either of these, it reflects in the stock market where the company is based.

However, when the stock market is over-performing or under-performing, consumer confidence directly affects GDP. During a bull market, there is optimism about the economy and consumer spending increases. As a result, company valuations increase, expansion happens due to increased product demand, companies can borrow easily, and more jobs are available. When the stock market is underperforming, consumers are reluctant to spend and impact on GDP.

If you have questions or concerns regarding the stock market and how your portfolio is performing, now is a great time to review it and plan for a market downturn. Contact us today!

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Planning for the Long Haul: Is Your Plan for Retirement Bullet Proof?

Long Haul Runner

The good news is we are living longer, but the bad news is that having irregular employment, higher health costs and the premature depletion of retirement assets is becoming a reality for many Americans. Despite plans for retiring later (compared to previous generations) at age 69 or into the 70’s, unplanned events are contributing to earlier retirement, despite the best retirement planning preparation.

According to a 2018 survey by The Employee Benefit Research Institute (ERBI), 40% of participants in the study plan to retire after age 70 citing personal financial concerns. However, previous research studies by the same group revealed that many workers are forced to retire before age 60. Consider why the outlook for an unexpected early retirement is happening to many people:

Layoffs and Terminations

The ERBI survey revealed that 26% of workers terminate out of their jobs before turning age 60. Older workers are often paid higher wages than their younger counterparts and unfortunately are often the first to be terminated. Even with an early retirement buyout, many have a hard time finding work with the same pay rate and benefits.  The change in income is creating negative consequences for many as suspended savings contributions and premature liquidation is occurring when retirement assets become necessary for living.

Health Issues

Despite longevity increasing worldwide, many workers are forced to retire early due to health reasons. What we do to our health in our younger years affects us later; smoking, alcohol consumption, lack of a healthy diet and exercise and sleep deprivation are the most significant contributors affecting our health later in life with genetics being secondary

Keeping yourself healthy and employed is imperative to your retirement plan’s success. By preparing yourself financially and taking care of yourself, your plans for retirement have a better chance of being bullet proof-regardless of what life hands you.

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

High Income, High Financial Planning Risk?

High Income Workers

Despite having a high income from owning a business or being an executive, these individuals can experience retirement savings problems. They have missed savings opportunities or put off financial planning. Often they assume that everything will work out with their retirement plan, and it can, but their high-income can hide the reality of a retirement savings deficit when their career ends.  They failed in their early working years to consistently save, but why?

Many high-income and self-employed people often focus on the business being their retirement nest egg. The sale of the business being the funding source or an executive benefits package is sometimes an unknown in the early working years. Retirements today are different from the past since retirees desire the flexibility of choosing to work, volunteering, golfing daily, or doing anything they choose. This lifestyle is only possible if they have saved enough for retirement or are financially fortunate when they sell their business.

Consistent financial planning puts the self-employed and high-income executive in a better position to retire on their terms and when they choose. Here are some retirement plan ideas specific to these individuals:

  • Maximizing a Solo 401(k) or SEP IRA each year allows self-employed earners to save more than in a traditional 401(k), but with some additional requirements. For the self-employed or executive, these retirement plan options are the most obvious way to save and should be considered regardless of the financial status of the business.
  • Having a Deferred Comp Plan (DCP) allows larger deferral of compensation to help supplement other retirement savings plans later on.  A strategically planned DCP creates the option to choose an IRS contribution limit determined by the employer’s corporate lower tax bracket or the employee’s higher personal tax bracket when determining contributions for each year. 
  • A Defined Benefit Plan (DB) Provides the opportunity to contribute to retirement benefits well ahead of retirement time. A DB plan is a qualified-benefit plan and differs from a pension fund where the payout amounts are often dependent on investment returns. In a DB plan payments are determined by a formula that considers the length of employment, salary history, and other factors. If poor investment returns result in a DB plan funding shortfall, the employer must tap into the company’s earnings to make up the difference.

For those that are self-employed, avoid putting all of your additional revenue back into your business. Choose to contribute to a retirement savings plan and avoid believing you can ‘always make it up later’ when it comes to financial planning and retirement savings. Having a high income enables you to save more, but only if you consistently engage in planning for your retirement.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Financial Planning for a Couple’s Age Gap

Financial Planning for a Couple

Couples usually don’t retire at the same time when they have an ‘age gap’ between them. An age gap relationship is one where there is eleven or more year’s age difference between them. Age gap relationships are becoming more common as people are choosing to marry later in life, remarry or start a life-partnership with someone significantly younger.

According to the latest study from the National Center for Health Studies (2017 statistics), the average woman is living 81.1 years compared to 74 years in 1960; the average man is living 76.1 years compared to 67 years in 1960. The increase in life expectancy is helping to change the age differences in many couples, making financial planning even more critical.

In age gap relationships one member continues to work for a decade or longer than the other. The drawing of retirement assets and social security income earlier for one member, coupled with differing longevity factors presents a planning challenge compared to other couples.

Age gap couples may have up to a half-generation between their ages and should consider planning for two different scenarios to reflect their age difference. These couples shouldn’t rely on a financial plan based only on the older member’s financial information and longevity factors. Some things to consider for these couples:

  1. The older member may want to delay taking Social Security benefits until their full retirement age unless they have health issues. Delaying the benefits of the older member will benefit both if the older member was the higher income earner.
  2. Health insurance coverage will be impacted if the older member carried the health insurance and goes on Medicare, requiring the younger one to find new insurance.
  3. Basing the financial plan on the partner with the longer life expectancy will help the combined portfolio last over a longer time horizon. Both expected retirement dates should be included even if they are a decade or more apart.
  4. Considering the tax consequences for drawing down retirement assets at two different starting dates is important. With one member continuing to work, they should maximize their pre-tax retirement account contributions to off-set moving the couple into a higher income tax bracket. Most retirees have a higher income tax consequence for the first few years of their retirement.

If you’re in an age-gap relationship and need guidance in planning for your retirement start-date gap, now is a great time to get started on your unique financial plan. Contact us today to talk about your unique situation with no obligation.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

New Year, New Financial Resolutions?

New Financial Resolutions

The start of a New Year is the time when most people decide to implement changes in some areas of their lives. Whether it is health or money related, starting the New Year off with a plan feels good! According to research from YouGov Omnibus, last year 1 out of every 5 people (20% of the population) that made resolutions stuck to them, while 63% of the population said they didn’t make resolutions anyway! Even though 80% of New Year’s Resolutions made by ‘Resolution Makers’ fail by the end of the first quarter, having ‘resolutions’ is a positive thing because keeping them helps you change.

Here are the top financial resolutions that may be on your list for 2019:

  • Reduce Credit Card Debt: Are you one of the ‘revolver households’ that carries credit card debt month after month? Make 2019 the year you cut up the cards until you stop carrying balances.
  • Start an Emergency Fund: Start with a minimum of one month’s expenses. A fully funded emergency fund should have six months or more of expenses and should be in an account that you won’t access and one that’s not tied to market performance.
  • Save for Retirement: Set your retirement savings contributions to ‘auto-pilot’ and if your provider has automated increases, that’s even better! Make an effort to maximize your contributions, if possible. But then again, if you’re doing everything on this list, you can achieve this in 2019.
  • Reduce Spending: The less you spend, the more you can save. Although this one seems simple, without reviewing your spending at least at the beginning of this year, you have no way of knowing what you can cut out to reduce your spending. If you feel like you were financially insecure in 2018 or on the brink of it, 2019 is the year to take back control.

It takes a little effort but writing down your financial resolutions and having them in a visible place is crucial to keeping them. Much like a written financial plan, you are more likely to follow your financial resolutions when they are in writing. After you’ve written down your resolutions, share them! Tell others about your plan, your progress, and your failures. Lastly, keep your resolutions simple by taking baby steps and believe that you can achieve your goals in 2019.

 

Contact Us for a Portfolio Review

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

New IRS Changes for Retirement Plans in 2019

Growth in 2019

 

The IRS announced last month in November cost-of-living adjustments to limits on contributions to retirement plans for 2019. There hasn’t been an increase in some plan types since 2013, which is why now is a great time to take advantage of maximizing retirement contributions. According to a 2017 FINRA study,  10% of American retirement savers are contributing the maximum allowed. Are you?

Here’s the breakdown of the 2019 IRS changes for retirement plans:

  • 401(k)s, 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plan will rise to $19,000 next year, up from $18,500 in 2018.
  • IRA contributions (Pre-Tax, Roth, or a combo) rose to $6,000 from $5,500, the limit that has been in place since 2013.
  • Catch-up contribution limits if you’re 50 or older in 2019 remains unchanged at $6,000 for workplace plans and $1,000 for IRAs.
  • SEP IRA or a solo 401(k) goes up from $55,000 in 2018 to $56,000 in 2019, based on the amount they can contribute as an employer, as a percentage of their salary. The compensation limit used in the savings calculation also goes up from $275,000 in 2018 to $280,000 in 2019.
  • SIMPLE retirement accounts goes up from $12,500 in 2018 to $13,000 in 2019. The SIMPLE catch-up limit is still $3,000.
  • Defined Benefit Plans goes up from $220,000 in 2018 to $225,000 in 2019. 
  • Deductible IRA Phase-Outs for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $64,000 and $74,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $103,000 to $123,000 for 2019.
  • Roth IRA Phase-Outs for taxpayers making Roth IRA contributions is $193,000 to $203,000 for married couples filing jointly. For singles and heads of household, the income phase-out range is $122,000 to $137,000.

If you aren’t contributing the maximum into these types of retirement accounts, you can increase what you’re contributing overall. If you have questions about these increases or want meet regarding your overall saving and investing, now is the time to plan for 2019.

 

Contact Us for a Portfolio Review

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Tolerate the Turbulence

Volatility will always be around on Wall Street, and as you invest for the long term, you must learn to tolerate it. Rocky moments, fortunately, are not the norm.

Since the end of World War II, there have been dozens of Wall Street shocks.

Wall Street has seen 56 pullbacks (retreats of 5-9.99%) in the past 73 years; the S&P index dipped 6.9% in this last one. On average, the benchmark fully rebounded from these pullbacks within two months. The S&P has also seen 22 corrections (descents of 10-19.99%) and 12 bear markets (falls of 20% or more) in the post-WWII era.1

Even with all those setbacks, the S&P has grown exponentially larger. During the month World War II ended (September 1945), its closing price hovered around 16. At this writing, it is above 2,750. Those two numbers communicate the value of staying invested for the long run.2

This current bull market has witnessed five corrections, and nearly a sixth (a 9.8% pullback in 2011, a year that also saw a 19.4% correction). It has risen roughly 335% since its beginning even with those stumbles. Investors who stayed in equities through those downturns watched the major indices soar to all-time highs.1

As all this history shows, waiting out the shocks may be highly worthwhile.

The alternative is trying to time the market. That can be a fool’s errand. To succeed at market timing, investors have to be right twice, which is a tall order. Instead of selling in response to paper losses, perhaps they should respond to the fear of missing out on great gains during a recovery and hang on through the choppiness.

After all, volatility creates buying opportunities. Shares of quality companies are suddenly available at a discount. Investors effectively pay a lower average cost per share to obtain them.

Bad market days shock us because they are uncommon.

If pullbacks or corrections occurred regularly, they would discourage many of us from investing in equities; we would look elsewhere to try and build wealth. A decade ago, in the middle of the terrible 2007-09 bear market, some investors convinced themselves that bad days were becoming the new normal. History proved them wrong.

As you ride out this current outbreak of volatility, keep two things in mind:

One, your time horizon. You are investing for goals that may be five, ten, twenty, or thirty years in the future. One bad market week, month, or year is but a blip on that timeline and is unlikely to have a severe impact on your long-run asset accumulation strategy. Two, remember that there have been more good days on Wall Street than bad ones. The S&P 500 rose in 53.7% of its trading sessions during the years 1950-2017, and it advanced in 68 of the 92 years ending in 2017.3

Sudden volatility should not lead you to exit the market.

If you react anxiously and move out of equities in response to short-term downturns, you may impede your progress toward your long-term goals.  Please reach out to us to review your portfolio and goals in today’s market.

 

Contact Us for a Portfolio Review

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

 

Citations

  1.  marketwatch.com/story/if-us-stocks-suffer-another-correction-start-worrying-2018-10-16 [10/16/18]
  2.  multpl.com/s-p-500-historical-prices/table/by-month [10/18/18]
  3. crestmontresearch.com/docs/Stock-Yo-Yo.pdf [10/18/18]

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