Five things to consider before you invest

Zubair Khan, CFA®, CFP® Many investors share a common worry: figuring out the best time to get started. Their concern often comes from negative news about the markets. But if you waited until the news about markets was all good, you might never take the plunge. Pundits usually seem fixated on telling us either how bad the market is or when an up market might be ready for a correction. Fear of a correction exists because corrections truly are always just around the corner. Markets never move in a straight upward slope. Stock charts look like an outline of a mountainous horizon off in the distance, peaks followed by troughs running into more peaks. Fortunately, for most investors, despite the ups and downs, market prices rise over longer periods of time – just not as smoothly as we would all hope. So, how should investors time their entry into the market? First, consider your goals for the savings you are considering investing. Most investors have long-term goals like saving for college and retirement. If that’s the case, then timing the market has very little effect over what could be potentially a few decades of savings and market cycles. Most experienced

May 28, 2021 No Comments

Turn lemons into lemonade during periods of volatility

Staying focused on the bright side is admittedly hard to do when the markets are volatile. Fortunately, there are always some silver linings amid market volatility. For investors who feel the urge to do something in response to the markets, here are four things you can do to help minimize your tax exposure without altering your asset allocation or getting off track from your investment plan: For your taxable accounts, a good strategy is to harvest portfolio losses when volatility strikes in order to offset gains elsewhere in your portfolio. You “harvest losses” when you sell a security that has experienced a loss and use that loss to offset realized gains. The goal is to reduce your overall tax liability in your portfolio. Harvesting throughout the year, in response to market declines, can be a smart way to maximize the value of this strategy. Of course, you’ll want to steer clear of the Internal Revenue Service’s wash sale rules. Market declines can offer you a good opportunity to convert your IRA into a Roth IRA. When an IRA declines in value, the conversion taxes won’t be quite so burdensome. And once in a Roth account, all future growth of those

June 23, 2016 6 Comments

The facts and fiction behind self-directed IRAs

Not long ago, the North American Securities Administrators Association (NASAA) issued a warning to investors about custodians who handle self-directed individual retirement accounts (IRAs). A self-directed IRA holds nontraditional investments like real estate, metals, or limited partnerships. These accounts have been the subject of growing regulatory scrutiny and punitive action. Before investing in a self-directed IRA, make sure you’re aware of the risks involved. In its warning, NASAA dispelled 3 common myths surrounding self-directed IRAs. 1) The custodian is somehow blessing the investments available to you, performing due diligence and monitoring your account. The reality is that your custodian is not a fiduciary so it has no obligation to do so. 2) Your investment is safe because the custodian is a regulated trust company. In reality, the custodian is approved by the Internal Revenue Service, but its only real duty is to report contributions to and distributions from your account. 3) The custodian is holding your investment assets. In reality, it’s just a keeper of deposits and distributions from the account. Unfortunately, some investors have had to learn this lesson the hard way. Two things you should know if you’re considering a self-directed IRA: 1. Prohibited transaction rules: These rules

June 21, 2016 No Comments

Three questions to ask when shopping for an investment

Investors who pay attention only to a fund’s return are missing out on valuable information. Determining how a fund achieved its returns can be just as important as analyzing the returns themselves. Evaluating a fund properly not only helps you compare it with other funds; it lets you see whether a fund matches your investing needs and how it would complement your other investments. If you’re in the market for a mutual fund or other investment vehicle, ask yourself these three questions before you make a decision: What is the investment objective? For some investors, analyzing a mutual fund basically consists of looking at historical returns. However, any analysis really should start with a fund’s investment objective. More than any other factor, this will determine the role a specific fund might play in your portfolio and how well it fits with your financial goals. There are three basic investing objectives: growth, income, and capital preservation. Growth investments are typically expected to appreciate in value over the long term. Income investments offer regular payments of income. Investments that focus on capital preservation won’t increase much in value, but they are the least likely to lose value and typically can be easily

June 21, 2016 No Comments

3 common 401(k) mistakes employers and employees should avoid

For most people, saving in a 401(k) retirement plan is vital for their future financial health. Trying to save for retirement in a taxable account is not only challenging, but it’s nearly impossible to duplicate the same tax deferred compounding you get from a tax deferred (and often tax deductible) retirement account. Therefore, employers and their employees will want to avoid these 3 mistakes: The first mistake is not following an appropriate investment plan. Being equipped with an appropriate plan is essential to protecting yourself from acting irrationally in volatile markets. Instead of panicking and selling your portfolio when markets are down, stick to your plan and view such times as a buying opportunity. Don’t turn paper losses into real losses and consider this: if a security is down 50% it must rise 100% just to break even! Think about it in dollar terms: a stock that drops 50% from $10 to $5 ($5/$10 = 50%) must rise by $5, or 100% ($5/$5 = 100%), just to return to the original $10 purchase price.Of course, your plan needs to factor in your age and risk tolerance and be well diversified. For example: taking too much risk in volatile stocks when

February 8, 2016 No Comments

10 frequently asked questions about IRAs

1- When is my IRA contribution due? Your traditional and Roth IRA contribution must be made no later than April 18. If you make your contributions in year 2016, make sure your financial institution reports the deposit for year 2015. Your SEP IRA contribution for year 2015 isn’t due until you file your tax return (that could be as late as October 15 if you file an extension). 2- How much can I contribute to an IRA? The IRS may annually adjust contribution maximums. 3- How do I report my Roth IRA contributions? Roth IRA contributions are not tax reportable nor are they deductible from your income. Your financial institution will report the contribution to the IRS on form 5498 in late May. However, you must report a Roth IRA conversion on your 1040 form (using information provided to you on the 1099-R form). Keep in mind, you’ll owe taxes on the taxable part of the Roth IRA conversion in the year you make the conversion. 4- How do I report my deductible traditional IRA contribution? You report your deductible IRA contribution on your personal tax return 1040. 5- Why does my tax professional insist my traditional IRA contribution was

February 2, 2016 No Comments

Ask yourself these two questions in volatile markets

This has been the worst ever start to a year for the stock market, and stocks tanked again today. But that’s not all. Investors are seeking the security of government bonds. Oil continues to trade below $30 a barrel. Netflix is raising its prices. A massive snowstorm threatens the Mid-Atlantic. The new Star Wars movie didn’t get an Oscar nomination for best picture. The list of panic and chaos could go on. These recent events (at least the ones related to financial markets) have triggered lots of angst and questions from investors, some of which we responded to last Friday. Our readers have done most of the asking lately, but now it’s our turn to pose a couple of questions to you: 1) Do you have a strategy? How do you deal with market drops like the one we saw today? Instead of repeatedly smashing your head into the laptop, consider a more constructive approach. Rebalancing your portfolio so that your original asset allocation (mix of stocks, fixed income, and cash) is where you intended it to be could be a good move. To bring your asset allocation back to the original percentages you set for each type of investment,

January 20, 2016 No Comments

Seven ways to handle a market correction

Now that we stand six years removed from the Financial Crisis that preceded the current bull market in stocks, let’s understand how to react when a “correction” eventually occurs. Financial markets are characterized by long cycles with many ups and downs. The successful investor blocks out fear and sensationalism and recognizes that these market cycles are part of investing. In practically every bull market of the last 40 years, the U.S. stock market has experienced a correction during its rise. Read on for 7 ways to deal with the next one. In 2009, many investors were cashing out of the stock market. Things had been choppy for almost two years, and recent performance led them to behave as though the market was going to continue to go down. However, many of those who stayed invested saw stronger than average results over the next few years. In fact, since March 2009, the Standard & Poor’s 500 Composite Index is up more than 200%, making this the fourth-longest bull market in history. The year 2013 alone saw 45 new record highs in the S&P 500, so an upcoming correction in this current bull market may be due. What should you do? First,

April 23, 2015 No Comments

The strategic investor: Using fixed income to meet your financial goals

When evaluating investment performance, investors should consider both return and risk. Unfortunately, many investors stress the importance of the former and neglect the latter. This is particularly true when the markets are recording new highs like we’ve seen lately. The reverse is true when the markets are recording new lows. Investors start to exaggerate their risk tolerance to the potential detriment of reaching their goals. It’s important to understand that return is a marker of gain while risk is the potential for loss. As investors, we get sucked into comparing absolute returns while forgetting how much risk we have to assume in order to get those returns. Investments with different objectives carry different levels of risk. For example, investments in a fixed-income fund, whose objective is income and capital preservation, generally carry less risk than a large-cap growth fund, whose objective is appreciation. When comparing returns, it is important to compare investments to others with similar risks. Risk tolerance versus risk capacity When deciding on how much risk you can take, consider your risk tolerance and risk capacity. Risk tolerance refers to how much risk you want to take. Risk capacity, on the other hand, is how much risk you need to take. Some investors

June 9, 2014 No Comments

The benefits of tax planning

Taxes can take a big bite out of your total investment returns, so it’s helpful to look for tax- advantaged strategies when building your portfolio. You don’t want to pay any more in tax than you have to. That means taking advantage of every strategy, deduction, and credit that you are entitled to. Tax-deferred and tax-free investments Tax deferral is the process of delaying, until a future year, the payment of taxes on income you earn in the current year. For example, the money you contribute to a retirement account (such as a 401(k) or deductible IRA) isn’t taxed until you withdraw it, which might be 30 or 40 years down the road! Any earnings the account generates are also allowed to grow tax-free. This can be very beneficial because the money you would have spent on taxes remains invested and for your own benefit. In the early years of an investment, the benefit of compound growth may not be very significant. But as the years go by, the long-term boost to your total returns can be dramatic. Tax deferred is not the same thing as tax free. Tax deferred means that the payment of taxes is delayed, while tax

April 8, 2014 No Comments

Top 5 mistakes employees make with 401(k)s

The results are in, and our advisors have agreed that these are the five most common mistakes employees make with their 401(k) plans: 1. Not participating: The biggest mistake you can make is not contributing to a 401(k) if you are eligible, especially if your employer matches your contributions. Start out with small contributions and increase them gradually, otherwise you are missing out on an effective pretax and tax-deferred investment. The only reason not to start contributing is if you have an outstanding debt, as paying off your debt should be a priority. 2. Not contributing enough: Contribute enough to receive your employer’s match. Many employers will match your contribution up to a certain percentage. Otherwise, you are basically walking away from free money. For 2013, you can contribute as much as 17,500 in addition to a catch up of $5500 for those 50 or older. For example, if your employer matches you dollar-for-dollar up to 5%, and you make $100,000 annually, then you should aim for a minimum contribution of $5,000 so that you will receive a match of $5,000 from your employer. 3. Forgetting to rollover or cashing out your 401(k) when switching jobs: In the hassle of

September 9, 2013 No Comments