Archive for Investments

Stock Market Correction Coming!

Are you concerned that the stock market is getting overvalued and on the verge of a nasty correction? This 10 minute You Tube video will provide helpful education in a logical , unemotional and scientific way. I think you will find it very revealing.

HOW TO MAKE YOUR TEEN A MILLIONAIRE Recommended by Paul Ferraresi

Washington – How To Make Your Teen A Millionaire This Summer

Published on July 31, 2017 04:29 PM; http://www.vosizneias.com

Washington – Gary Sidder set up Roth IRAs for his sons when they turned 13. Each year, the Littleton, Colorado, certified financial planner and his wife, Francie Steinzeig, a school psychologist, contributed an amount equal to whatever the two boys earned cutting lawns, shoveling snow and doing odd jobs. As the sons’ earnings increased, so did the parental contributions.

“Initially we started with $400, and now we do $5,500 for each,” the annual maximum allowable contribution, says Sidder, whose sons are 32 and 27. “Now that their accounts are worth more than $100,000 and $65,000, respectively, they do see the value of saving and starting early.”

Even if no further contributions are made, both sons could see their accounts top $1 million by retirement age, assuming conservative 7 percent average annual returns.

Financial planners know that Roth IRAs can set kids up for sound financial futures. Since children have decades ahead for money to compound, even relatively small contributions can grow large. The catches:

The kids must have earned income from real work. That includes reasonable wages or income from self-employment. The Roth contribution can’t be more than their total earnings for the year, up to $5,500.

Kids under 18 need a custodial Roth. Not all brokerages have attractive options for small accounts. Fidelity and Schwab, however, offer custodial retirement accounts with no opening or maintenance fees. Fidelity has no minimum, while Schwab requires at least $100 to open the account, and both offer commission-free trades on certain mutual funds and exchange-traded funds.

Why a Roth rather than a traditional IRA? Low-wage workers pay little if any income tax, so they don’t get much value from tax deductions, including deductible contributions to a traditional IRA. When a big upfront tax break isn’t available, it makes sense to contribute instead to a Roth. Contributions aren’t deductible, but withdrawals in retirement are tax-free.

Another important note: Retirement accounts aren’t included in federal financial aid formulas, so a child’s Roth won’t affect financial aid offers from most schools. Some private schools, however, do consider custodial Roths when calculating their offers, says college financing expert Lynn O’Shaughnessy, author of “The College Solution.” Also, withdrawals from Roths during college years would be considered income to the child and count heavily against her, O’Shaughnessy says.

HOW ROTH IRAS WORK
The ability to contribute to a Roth starts to phase out above certain modified adjusted gross income levels. For 2017, the phase-out begins at $118,000 for singles and $186,000 for married couples filing jointly.

That’s not an issue most kids have to worry about. Let’s say your daughter works 30 hours a week for the federal minimum wage of $7.25 per hour this summer and earns about $2,600 over 12 weeks.

Obviously, she won’t net $2,600 from her job. She’ll lose 7.65% to payroll taxes and want to spend some of the money she earns. But you can contribute $2,600 for her, or offer matching funds for whatever she contributes. If she continues those $2,600 contributions for the next 50 years, her Roth can grow to $1 million, assuming 7 percent average annual returns.

That far in the future, $1 million will be worth the equivalent of about $230,000 today, assuming 2.9 percent inflation. Once she’s in the working world full time, encourage her to contribute at least 15 percent of her income toward her retirement and keep doing so throughout her career.

You can talk about that with her as you’re setting up her Roth. Together you should also:

—Review her investment options. Fees can devastate small accounts and dramatically lower the amount she can accumulate over decades, so low-cost index funds or exchange-traded funds might be a good choice.

—Discuss the temptations for tapping the money. Technically, she can withdraw an amount equal to the contributions at any time without paying taxes or penalties. She also can withdraw up to $10,000 for a first-time home purchase, or money to pay college expenses, without taxes and penalties after the account has been open five years.

—Underline the payoff for leaving the money alone to grow. The best use of retirement money is for retirement, and it can grow to seven figures only if she keeps her mitts off it.

“Parents could use this to teach a valuable lesson in delaying gratification and building investments over time,” says John Gugle, a certified financial planner in Charlotte, North Carolina. “This is a marathon, not a sprint.”

IRA TROUBLE by Paul Ferraresi

What you think should happen to an IRA distribution and the actual outcome is two different things.

This great article (see link below) from the April 17, 2017 issue of https://www.financial-planning.com shows the tax horror stories that can develop.

The Lesson: Get competent advice from your advisor before doing anything with your IRA.

https://www.financial-planning.com/news/when-an-inherited-ira-becomes-a-tax-nightmare

RESETTING YOUR INVESTMENT STRATEGIES by Paul Ferraresi

John Maynard Keynes had a great quotation: “A speculator is one who runs risks of which he is aware, and an investor is one who runs risks of which he is unaware.”

So which are you?

Americans for more than 200 years have participated in the stock market as “passive investors”. A more common term used is a “buy and hold” investor. Over a long period of time this has proven to be a good way to accumulate wealth. Mind you, not an optimal way, but rather, a good way. Just set it, leave it alone, add to the account on a consistent basis and deal with the inevitable ups and downs.

Wall Street pundits continue to sing this happy tune of buy and hold as the only way to invest (you see if you took another approach then they would have to “resell” you each time in order to get you back into the market after each correction). Many people do not have the knowledge or time to produce better results, hence, they stay passive investors.

Things began to change for passive investors in the 1970’s as computers came onto the scene of investment management. Many people today do online investing with discount brokers or with their retirement accounts thinking they are being active. Yet, they are still passive investors, in that they go through the ups and downs of the markets. Funny these same investors get out of the market after it corrects. Conversely, as the markets reach new highs they start buying.

These activities confirm academic research which shows the small passive investor has obtained about a 2% return while the markets have averaged 10% – 12%. The results: passive investors, trading or trying to time the market does not work.

Today, worldwide trading is being done 24 hours per day. So while you are sleeping, markets, and your wealth, can be crumbling. Thus, the challenges for the passive investor will continue to increase in an exponential way.

Many passive investors who hold accounts at, say, Vanguard, Fidelity or others have their monies invested in good mutual funds and think they are safe. Unfortunately, as listed in the fund’s prospectus (you have read every page), it states that the manager can never move to more than a 10% – 12% cash position. Consequently, when the market corrects the small investor panics and sells their mutual funds. With only 10% – 12% of assets in cash, this forces the fund manager to sell more shares in a declining market which creates an even larger debacle in share prices.

An alternative to passive money management is known as Tactical Money Management (TMM). Here, selected professional money managers, using computer algorithms, not timing, move client’s money into and out of the market. This is not done on a daily, weekly or monthly basis. Rather, the moves are done when changes in money flow or activities in the market change (their “secret sauce” algorithms).

A Tactical Money Manager’s objective is to capture 70% – 80% of the market upside while eliminating 70% – 80% of the downside. They never pick the exact top nor the exact bottom. At anytime they can move your money into 100% cash or 100% in the market or some combination. The results compared to “passive investing” have been remarkable on the investors behalf.

So, if you think the market will continue to go up and up and never drop then stick with passive investing. If you feel there will be a correction, and a pretty severe correction then you may want to investigate Tactical Money Management.

I believe passive investment strategies will come under severe selling pressure in the coming years. Many investors have their core (and retirement) portfolios in these passive strategies. If you are prepared to ride out another 2001 – 2002 or 2008 – 2009 and then go through what I think will be and even longer and weaker recovery (until our debt issue is fixed), then stick with your passive strategies.

If you are looking for another option let me offer you one.

Contact us at (713) 871-5919 or at Jamie@fgmci.com and we will be pleased to educate you on the time tested successful Tactical Money Management strategies.

Here is to your safe wealth building strategies.

MASTERING ROLLOVER DECISIONS

Unfortunately, there is no one-size-fits all template that can be used to determine which option is best for a person. Each persons retirement plan must be evaluated individually, based on its own merit and the persons specific situation.

There are numerous variables to consider. These include fees, available investments, services provided, the 10% early distribution penalty, creditor protection, convenience, required minimum distributions and estate planning.

The ability to roll over is not limited to participants in the company plan.

A spouse who is a beneficiary can roll over inherited company plan funds to his or her own traditional or Roth IRA. Non spouse beneficiaries can directly roll over inherited plan assets to an inherited IRA (or directly convert the inherited plan to an inherited Roth IRA).

Probably the strongest argument for an IRA rollover is the ability of a beneficiary to stretch the money for years, keeping it growing in either a tax-deferred traditional IRA or tax-free in a Roth IRA. A non spouse beneficiary can stretch distributions on an inherited IRA over his or her life expectancy.

But many company plans do not allow the stretch option.

Another advantage to a rollover is that IRAs are more flexible than company plans in terms of estate planning and investment choices. IRAs offer the option of splitting accounts and naming several primary and contingent beneficiaries. Individuals can name anyone they wish as their IRA beneficiary.

In many company plans, a participant must name his or her spouse as beneficiary unless the spouse signs a waiver.

In an IRA, individuals can customize investment choices. In addition, investment changes can be made faster in an IRA because there is usually not as much bureaucracy as in a company plan.

Another attraction of a rollover is that it is much easier to access funds in an IRA than in company plans.

Another potential appeal is that an IRA can be a convenient place for a person to consolidate all retirement funds.

IRAs can be aggregated for calculating RMDs. The employee usually has to take his RMD from each company plan separately.

STAY WITH A COMPANY PLAN

If a person is interested in delaying RMDs as long as possible, continuing with the company plan may be a good idea because of the “still-working” exception that may apply. The individual may be able to delay the required beginning date until April 1 of the year after he or she retires. This rule does not apply to IRAs.

At the other end of the time spectrum, individuals who may need their retirement funds early should also give serious consideration to sticking with the company plan. If a person is at least 55 years old when he/she leaves their job, and he/she needs to tap retirement funds, distributions from the company plan will be subject to tax but no 10% penalty. But, if the funds are rolled to an IRA, withdrawals before age 59 ½ will be subject to the 10% early withdrawal penalty. The age 55 exception does not apply to IRA distributions.

For some people, creditor protection may be a concern. Company plans have an advantage here, as they receive federal creditor protection. State laws protect IRAs, and they can vary significantly.

An IRA cannot be invested in life insurance, but life policies can be held in a company plan. For some people, the life insurance offered through their company plan may be the only such coverage a person can qualify or pay for.

If a lump-sum distribution from a company plan includes highly appreciated company stock or bonds, a person may roll it over to an IRA, but he/she may not want to. Under a special rule, the participant can withdraw the stock from the plan and pay regular income tax on it, but only on the original cost to the plan and not on what the shares are worth on the date of the distribution.

The difference is called the net unrealized appreciation (NUA). A person can elect to defer the tax on the NUA until he/she sells the stock. When he/she does sell, he/she will pay tax only at his/her current long-term capital gains rate. The ability to use the NUA tax break is lost if the stock is rolled to an IRA.