Category Archives: Financial Planning

Qualified Protection

lock

You might be surprised to learn that your pension and IRA assets are protected from fraud, malfeasance and sly predation by an entirely different government agency than your taxable and brokerage accounts.  Under the Investment Advisers Act of 1940, the Securities and Exchange Commission polices investment advice and the fairness of recommendations and markets related to taxable accounts.  Retirement accounts are policed under the Employee Retirement Income Security Act (ERISA) of 1974, by the U.S. Department of Labor.

Continue reading Qualified Protection

Kindle

(Astronomical) Cost of Living

Screen Shot 2016-05-08 at 6.11.49 PM

The rule of thumb in financial planning circles is that you shouldn’t spend more than 25% of your income on housing costs.  But if you live in certain cities, it might be a tad difficult to follow that rule.  Pity New Yorkers, whose rent costs 63.1% of their income.  And New York is cheap compared with other locations.

Continue reading (Astronomical) Cost of Living

Kindle

New Guidelines, Better Advice?

images-4

Most people think that the Securities and Exchange Commission (SEC) regulates the investment markets and providers of investment advice, and that the Financial Industry Regulatory Authority (FINRA) regulates the Wall Street sales agents.

But in fact, when it comes to your retirement plan, like a 401(k) account, the chief regulator is actually the United States Department of Labor.  Anybody who provides advice to these plans has to meet standards generally defined in the 1975 law known as ERISA (Employee Retirement Income Security Act), which is administered by the Department of Labor.

Continue reading New Guidelines, Better Advice?

Kindle

Couples Decision Therapy

images-48

There have been studies showing that financial issues are one of the primary reasons why married couples fall apart.  A recent article in Market Watch suggests that the biggest reason for these significant disagreements is a failure to create a unified view of the financial future that both parties have agreed to.  In many cases, one dominant spouse will make decisions on behalf of the couple, which can lead to disagreements (and potential divorce) down the road, as one spouse feels left out of the picture.

Continue reading Couples Decision Therapy

Kindle

The Drama on Wall Street

images-32

Have your long-term financial goals changed in the last three days?

Are American companies less valuable because investors in China are panicking?

Is there any reason to think that because Chinese investors are panicking, that Chinese companies are less valuable today than they were a few days ago?

These are the kinds of questions to ponder as you watch the U.S. stock market catch a cold after China sneezed.  In each of the first four trading days of the year, China closed its markets due to a rapid fall in share prices—a move which may have made the panic worse, since it made investors fear being trapped in stocks that are seen as dropping in value.  It’s unclear exactly how or why, but the panic spread to global markets, with U.S. stocks falling 4.9% to mark the worst first-of-the-year drop in history.

For long-term investors, the result is much the same as if you went to the grocery store and discovered that the prices had fallen roughly 5% across the board.  At first, you might think this is a great bargain. But then you might wonder whether the prices will be even lower tomorrow or next week.  One thing you probably WOULDN’T worry about is whether prices will eventually go back up; you know they always have in the past after these sale events expire.

Will they?  The truth is, nobody knows—and if you see pundits on TV say with certainty that they know where the markets are going, your first impulse should be to laugh, and your second should be to check their track record for predicting the future.  Without a working crystal ball, it’s hard to know whether the markets are entering a correction phase which will make stocks even cheaper to buy, or whether people will wake up and realize that they don’t have to share the panic of Chinese investors on this side of the ocean.  The good news is there appears to be no major economic disruption like the Wall Street derivatives mess that triggered the 2008 downturn.  The best, sanest investors will once again watch the markets for entertainment purposes—or just turn the channel.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

Sources:

Global assets shaken by China market turmoil – FT.com

Global markets were in tumult on Thursday after attempts by Chinese authorities to support share prices and the currency raised fresh questions about their ability to manage a slowdown in the world’s second-largest economy. The Shanghai stock market

US bond yields sound warning on economy – FT.com

The US government bond market is blowing raspberries at the Federal Reserve. This could indicate trouble ahead for the American economy. Last month, the Fed lifted interest rates for the first time in nine years, and short-term bond yields have duly

Kindle

MyRA May Not Be YOUR RA

Myra-buzz-words-300x300Suppose somebody offered you a choice between two cars.  The first car was identical to the second car, with one exception: it would only travel at a constant speed of 30 miles an hour.  In the other car, you could could choose to travel at any legal speed, and quite a number of illegal ones.  Meanwhile you can only buy the one-speed car if you make less than a certain threshold income, and eventually, if you drive enough miles in the one-speed car, you’d have to buy the car that can travel at any reasonable speed anyway.

Which car would you choose?

That’s the interesting choice posed by a new retirement account that was launched on Wednesday.  In his 2014 State of the Union address, President Obama announced that he was directing the U.S. Treasury Department to create a new retirement savings initiative: the myRA, officially named My Retirement Account.  This week, the first retirement savers will put the first dollars into the program.

The myRA is basically a government-sponsored Roth IRA with the same contribution limits ($5,500 a year, or $6,500 for those 50-and-older).  Like the Roth IRA, all myRA contributions will be made after-tax (in other words, no deductions for the contributions), but the money will come out tax-free when the taxpayer reaches age 59 1/2.  However, unlike the Roth, where the money can be invested in zillions of possible combinations of thousands of mutual funds, ETFs and individual stocks, the myRA participant has exactly one investment option: the government’s Securities Fund for federal employers, which earned 2.31% last year.

Moreover, there are limitations on who can participate in the myRA.  Only people with no 401(k) or 403(b) retirement plans at work can make myRA contributions, and even then, only those with an adjusted gross income less than $131,000 a year ($193,000 for couples).  Also: once you’ve accumulated the maximum myRA balance of $15,000, you have to move the money over to a private-sector Roth IRA.  The only benefit: the myRA doesn’t come with any custodial or account fees, but those are typically nominal when you open a private sector Roth IRA.

So why would people contribute to a retirement option that is identical to a Roth IRA, but with roughly a zillion fewer investment options?  It’s possible that unsophisticated investors will appreciate the simplicity of the myRA solution, where, instead of having to decide where to invest, they simply lend their money to the federal government and collect the (modest) interest.  The fact that the myRA account has no minimums could be attractive.  Most private sector Roths require at least $1,000 to be invested, but theoretically you could start your myRA with a penny.

It’s also possible that the U.S. Treasury Department is about to discover that there’s less demand for an inferior retirement plan than government economists had projected.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

Sources:

MyRA Starter Retirement Accounts Launch Nationwide

For beginning savers, a MyRA is a safe way to get started.

Government officially launches ‘myRA’ program for retirement savings

MyRA, the Obama administration’s free, guaranteed-return starter retirement account, launched nationwide on Wednesday. The government-backed plan is an option for the tens of millions of U.S. workers whose employers don’t offer a retirement savings plan. MyRA accounts are open to anyone earning an annual salary of less than $131,000, or $193,000 if they are married and file taxes jointly.

Expert: myRA is a misguided bureaucratic mess

The Treasury Department officially rolled out its new myRA retirement plan on Wednesday, deeming it a free, no-risk savings plan. The truth is that the newly launched retirement account will do very little to help the working poor and will quickly become another bloated bureaucratic system that wastes billions of taxpayer dollars.

Kindle