Like many, I have certain expectations of camping. Hard ground. Hot food. Cold drinks. The simple things in life. I certainly do not expect an eye-opening conversation about tax codes and retirement policies. So, when the topic came up this last weekend around a campfire, I was quite surprised. One of my friends, generally very astute, was convinced that there was no reason to invest in a traditional IRA. A Roth, she told us, was just plain better. Why pay taxes when you don’t have to? I tried to interject to give an even-handed comparison. “They are different plans,” I protested, “for different circumstances. Neither one is always better.” My friend ignored me. She continued. And I was amazed. A Roth, it turns out, is no mere retirement account. It can hold stock in Apple and Microsoft. It compounds in value every nanosecond. It’s gluten free. Bluetooth compatible. Standard and metric. Faster than a speeding bullet. My account is slightly exaggerated. Well, borderline untrue. Fine – a complete and utter fabrication. But hearing the way many people, my friend included, talk about Roths, it doesn’t seem all that far-fetched Let’s be clear: there are many advantages to a Roth. The funds can be withdrawn or transferred with relative ease. It is more flexible in estate planning. It is not subject to a required minimum distribution at age 70. And it can save money in the long run, depending on your tax situation. But that is the key: depending on your tax situation. Roth IRA contributions are included in your taxable income, while traditional IRA contributions reduce it. All else being equal, the person who uses a traditional IRA will be able to invest more in their plan than the person who uses a Roth IRA, because their tax load is lower. Assuming both plans are invested identically, with similar tax brackets in retirement, the traditional IRA will have exactly as… | Read More »
Wealth Management
Absurd payday loan provision in WI budget troubling
For more than 30 years we’ve been strong proponents of financial success through education. We teach classes, host seminars, run an active blog and write a weekly market commentary. We hold the industry’s highest credentials, including the CFP®, CFA®, CMT®, and CPA because we respect both our clients and our fiduciary relationship with them. That’s why we’re so appalled by item 61 in the Wisconsin state budget, which expands the types of financial products a payday lender can sell, including insurance, annuities and other financial products. It is hard to imagine a more complicated financial product than an annuity and a less suitable person to break it down for consumers than a pay day lender. Consider the nature of the pay day loan business model, which lures clients in with the promise of immediate cash inflow, charges exorbitant interest for that privilege, and then hopes for a cycle of repeated loan requests. According to a report from the Consumer Financial Protection Bureau, over 80% of payday loans are rolled over or followed by another loan within 14 days. This results in a digital debtor’s prison in which consumers have little hope of breaking free. Clearly, the very first piece of advice any reputable financial advisor might give a client is to avoid doing business with a payday lender. That these same lenders should offer financial advice, sell insurance products, and vet investment opportunities strikes us both absurd and dangerous. We urge the Wisconsin legislature to reconsider this proposal and, should this budget remain intact, we stress again the importance of seeking financial advice from a reputable professional, preferably one with a fiduciary responsibility to his or her clients.
In life and wealth management, change is the only constant
Change is the only constant. Although Greek philosopher Heraclitus said this more than 2500 years ago, it’s especially true today, particularly when we look at retirement scenarios. Financial headwinds– shrinking interest rates and rising inflation, taxes, Social Security and health care costs – continue to batter potential retirees. Most troubling for people trying to plan their golden years is the very real notion of change. Calculate a tax rate and, with the next election, you know it will change. Adjust your withdrawals based on health care costs and brace yourself for an unplanned medical situation that will wreak havoc on your insurance premiums. Unpleasant events including deaths, divorces, job loss, illness and accidents hover on the fringes of any financial plan and, in today’s financial environment, those troubles in a second generation generally impinge financially on retirees. Adult children are returning home in record numbers. Constant change also affects the global markets, where we’ve seen economic uncertainty, political upheaval and fragile monetary units challenge investors. With a sure cycle of change affecting family budgets, Wall Street investments and global economics, clients need to rely even more heavily on sound fiscal advice. We advocate active money management, in which an investment team meets daily to analyze investment opportunities and monitor markets to keep abreast of the constant change. We also strongly encourage a fiduciary relationship with an advisor who has a legal responsibility to act in his or her clients’ best interest. Contact us today to see how we can help you make the market’s constant changes work for you.
Active money management means taking advantage of market volatility
At a financial planning workshop we recently hosted at MomCom Austin, we fielded the following question: with the stock market so unpredictable, should I be putting some of my money in cash? The easy answer is yes, you should always have some money in cash. We advocate having six times your paycheck, or three month’s salary, in a money market account for easy access. This is your emergency fund for unexpected expenses like car repairs and medical emergencies. Keep this account replenished. But that’s just the first level of the “should I move money to cash” conversation. We are strong believers in transparency in your investments and the continuous ability to move your money to cash positions when the market calls for it. This is the essence of active money management and it allows us to avoid being fearful of market volatility. This is important because we know that market downturns can yield attractive buying opportunities. The key is to stay poised for investment opportunities when they arise. Your age and your risk tolerance level will determine how much risk you should be taking in the equity market. In general, the closer you are to retirement, the less risk you should be taking. As an alternative to cash, we look at individual corporate bonds with less than two years to maturity. The yield to maturity rate plays a key factor in our decision to purchase these bonds. We steer clear of bond funds and we avoid long-term bonds as well because we don’t like to lock ourselves into a rate for more than two years Overall, though, we would caution against pure volatility being the deciding factor in moving your investments from the stock market to cash. By definition, volatility means the stock market is moving up as well as down and active money management allows investors to take advantage of that volatility. These conditions create opportunities for both purchases… | Read More »