The first Ask the Investment Guy submission- and it’s from a real person!

Investment Guy, I know that starting a 401K or 403B or IRA is beneficial, but I currently live paycheck to paycheck. I’m 34- how can I make this happen? – Kevin

Hi Kevin- Thanks for asking! That’s a great question. Living paycheck to paycheck certainly makes this goal seem intimidating, but it’s attainable with a little bit of effort. Recognizing the need to save for retirement is an awesome first step. In order to save for retirement while your cash flow is tight requires commitment and sacrifice; once you are committed, read on.

Where is your money is currently going?

If you haven’t already created a budget, do so.  It’s an interesting exercise that will show you exactly where your dollars are going each month, and maybe you can find some wasted expenses to redirect towards saving. I’m not going to suggest you cut your diet down to ramen noodles, but maybe brown bagging your lunch every day is an opportunity to save a few bucks. It’s little things that go a long way. (here are 2 budget templates: one is for families , another if you are single)

How much to contribute:

Anything is much more than nothing- and it doesn’t have to be a lot. Can you afford $20/week?  Contributing $20/week with market growth of 5% over the next 30 years will total more than $66,000! Additionally, at the end of the year you will see an account statement with a bottom line number representing your progress. If you want to really improve your odds at a successful retirement, each year you should try to increase your contributions by a few dollars.

Make automatic contributions

Set up contributions to occur automatically straight from your paycheck or checking account. This keeps the money out of your hands and instills the discipline of consistency.

Behold of the power of tax deduction…

If you contribute $20 to a 401k, this money goes into your account before taxes are taken out.  Therefore, assuming a 20% tax bracket, your take home pay only goes down $16 and you saved $20 in your 401k for an additional $4 to you each week.

… and tax deferral

Inside of your retirement account the IRS allows you a free pass from paying taxes on gains that are owed in non-retirement accounts. In exchange for these tax benefits, you are waiving access to these dollars until you are 59 ½ at the earliest. These may seem small, but over time are powerful. It’s also one of the very few ways to legally avoid paying taxes.

Finally, if it’s simply not possible to find the extra money in your current budget, maybe you can try these 2 harder approaches: ask your employer for a raise of $20/week (ya never know) or find a second job for a couple of hours a week. If you ask me, it’s better to bust your hump while you’re in your 30’s instead of working into your 80’s.

Good luck Kevin!

I’ve said it before and I’ll say it again- Asset Allocation.  It’s the best way to invest.

I often feel like a broken record, but I believe in AA more and more every day.  I’ve been utilizing AA since 2003.  Before international and emerging markets were in vogue.  And when nobody wanted to own large cap us stocks.  And before metals were the flavor of the day.   It’s not going to be a silver bullet, because you will also own the worst performing asset class.  But it reduces risk, and that is my goal.

Asset allocation is not dead, as some people contend.   I am not going to look into a crystal ball and tell you what the future has in store.  I will be the first to admit that I don’t know what the best investment idea is for today’s current economic environment.  Earthquakes and tsunamis and nuclear reactors are certainly going to have some impact on the market.  So will the credit crisis of 2008-09.  And the dot com bubble.  These things are inevitable.  If you want to time the market or try to strategically overweight some of these styles, go for it.  But stay true to AA.  Keep the majority of your funds in an asset allocation, and dedicate a small percentage to overweight.

There is always going to be a sweet spot.  Whether its bonds or blue chips or gold or real estate (and the list goes on), there will always be a sweet spot.  And if you own different asset classes- the key is to own all of the asset classes- you will always be participating in that sweet spot.  By owning all of these you will always be positioned to participate.

 The “Oracle of Omaha”, Warren Buffet, CEO and the largest shareholder in Berkshire Hathaway said in his 2010 annual letter:

Fund consultants like to require style boxes such as “long-short,” “macro,” “international equities.” At Berkshire our only style box is “smart.”

My goal as an investment adviser is to reduce your risk while maintaining competitive returns.  The key to asset allocation is that it reduces risk.  Don’t get caught up in the investment of the day. 

Asset Allocate.  It’s smart.

2010 Interest Rates on 10 Year Bonds

1.      In 2010, bond yields have moved 1.7% from peak (4.0%)  to trough (2.3%)

2.      In 2010 the Fed has changed rates ZERO times.

Interest rates move up and down in small increments all day, every day.  Over time these small movements can have tremendous effects on your investments.  

It is imperative to understand that rate movements are determined by the market, not the Fed.  This is contrary to the way most people think of interest rates.  Rates can start moving up without any decision from the Fed, and that should negatively effect your portfolio. 

We’re coming out of a declining interest rate environment that lasted for 30 years!  This has been a friendly climate for fixed income investments.  What will the next 30 years be? 

How susceptible is your portfolio?  If you would like to review your investments, please don’t hesitate to call.

Remember: The purchase of bonds is subject to availability and market conditions. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

 1. Maximize your 401k contribution    

 The maximum amount an employee can contribute to a 401k plan is $16,500.  This does not include the $5,500 catch-up contribution for anyone over 50 years old.  Do what YOU can; if you are contributing $5000 this year, can you do $1000 more?

2. Take your RMD!         

In 2009 the Requirement was waived, but it has returned in 2010.  If you are over 70 ½ years old, you are required to withdraw from any retirement plan (with exception of ROTH) and the penalty for failing to take RMD is 50% of the amount that should have been withdrawn.

3. Convert to a ROTH IRA

This opportunity has been extended beyond 2010, however in 2010 only you can spread the tax consequence over the next 2 years.  Additionally, you can avoid RMD in a ROTH IRA.

4.  Sell!

Do you have any capital gains?  How about unrealized losses?  You may want to realize some losses if you have gains to offset tax liabilities.  This needs to be evaluated on a case by case basis.  Every individual’s situation is different- speak to your advisor before taking any action.

5. Give the gift of Green 

Give cash, $13,000 to unlimited family members (or anyone, really) tax free. If you are looking to reduce your estate this is the easiest, fastest, tax free method.

6. Write checks for education       

If you write a check directly to an educational institution for children/grandchildren/anyone it is not considered a gift.  You can still gift $13,000 from #5 without tax liability.

7. Give to your favorite charity  

If you made qualified donations this year, you may be able to take a tax deduction if you itemize on IRS Form 1040, Schedule A.

8. Make energy improvements    

Qualifying improvements earn a Federal tax credit of 30% of costs up to total credit of $1500.  Must be installed by 12/31/10 at your principal residence.

9. Get married! 

Spouses can transfer assets between them tax-free.  Ok, maybe this is excessive.

10. Have a baby!  

This may open a different can of worms, but you can claim your child as a dependant and qualify for numerous credits including the child tax credit, the child care credit, and the earned income credit.  Unfortunately, diapers are not deductible.

Interest Rates 1970-2010, as of 12/17/2010

When interest rates go up, the price of bonds goes down.  

Take a look at this graph of interest rates going back to 1970.  Rates are at 40 year lows, aside from a short lived blip during the 1^st quarter of 2009 when the economy nearly halted.

In the short term, it is possible that rates stay here or go down more.  But in the long run an increase in rates is inevitable, with the enormous deficit and the amount of money being printed.  Once the economy starts to pick up steam, we will see a reversal in rates and UP will be the new long term trend.

If you hold fixed income investments such as bonds, you need to take a look at the duration in your portfolio.  Duration is different than maturity– this is an important distinction.  Duration can be used to calculate the effect each 1% increase in interest rates will have on your investment.

The economy is still soft, and the fed intends to keep rates low.. for now.  Once the economy picks up however we may see a vicious cycle of rate increases and the subsequent decrease in the price of bonds.

Duration matters.  Now is a good time to evaluate your investments and prepare for the future.  There are steps you can take to reduce the interest rate risk in your portfolio.  Call us today to discuss appropriate strategies.

It was 2 years ago this week (10/16/08) that Warren Buffet wrote his “Buy America, I am.”  Op-ed article in the New York Times.  Buffett encouraged investors to “be fearful when others are greedy, and be greedy when others are fearful.”  In the 2 years since the article was written, the S&P500 has gained +29.1% on a total return basis through the close of trading last Friday (10/8/10).

Buffet is clearly a natural at removing any emotional connection to investing.  In May 2009 I wrote about the risks of investing based on your emotions in Buy Low, Sell High.  Where are we now?, and I still find the chart a valuable resource in analyzing the emotional analysis of where we are in the market any given day.

In my daily conversations, I ask everyone I talk to what they think of the economy and where they think the markets are going.  In summary: There  is not a lot of greed in today’s environment. 

If you ask me, I would point directly between HOPE and RELIEF on the chart.  What do you think?

take the emotions out of investing

Check out our ROTH IRA Conversion FACT SHEET.  It’s a must read if you are considering converting your traditional IRA, IRA Rollover,  or other eligible retirement account into a ROTH IRA.  There are some nice nuggets of information about the various tax benefits and consequences.

On June 15^th we hosted an event presented by Special Agent Duffey of the FBI about preventing Identity Theft and safeguarding confidential information.  Special Agent Duffey talked about a real life case involving a national department store; the recap is below.

DID YOU KNOW?

Most of your information is already online.  Google, zabasearch, and a variety of other places can provide your name, address, phone number, d.o.b., and more, for FREE! 

Armed with this information a clever criminal can pose as a trusted representative from a company that you do business with.  If a criminal gets a hold of the list of clients who have credit cards from that company, a simple non-threatening phone call might go something like this:

Hello Mrs. Smith, I am calling from [NATIONAL DEPARTMENT STORE].  Your credit card was flagged for fraudulent activity.  Do you still live at [THE ADDRESS I JUST GOOGLED] and have [THE SAME PHONE NUMBER I JUST ZABASEARCHED]?  Great, now that you trust me…Can you please confirm your social security number? 

And…BAM!  Kiss your credit history goodbye.

• It takes the average victim 170 hours and $1,000 to correct their stolen identity.
• Today, nearly 1 in 5 Americans have been victims of Identity Theft.

Here are 8 tips I learned from Agent Duffey that might help you avoid becoming the next statistic:

1. Protect your Social Security Number. Never give it out to anyone you don’t know…Ever!  Ever, ever!  Your SS# is your identity.  In a situation like the one described above, hang up the phone and call the national department store at a number listed in the yellowpages.
2. Check your Credit!   Stolen information can lay dormant and resurface 5-10 years later.  Annualcreditreport.com will check all 3 reporting agencies and is FREE once a year. *Note: This is not the one you hear advertised on the radio, DO NOT USE Freecreditreport.com, which is not free.
3. Shred Everything with personal information. 
4. kEEp a S@fe c0mputeR.  Passwords should not be words from the dictionary.  Substitute $ymbol$, num6ers, and rAndom upperCase letters.  Antivirus software and Firewalls are your friend and there is no such thing as being overprotected.
5. Know your Surroundings. Supermarket and convenient store ATM & Debit Card machines are targets for cloning.
6. Don’t open email from an unknown sender.  Regardless of how enticing the subject line is, delete unknown emails immediately.  These are scams and phishing attempts.
7. Laptop Security. Never keep any personal or business information on a portable device.
8. Talk to your Family.  The elderly are often targets.  They are friendly, love to talk to people, and not tech savvy.  Criminals will contact them posing as officials or a family member in need late at night when they are disoriented.

              Remember that you are only as strong as your weakest link, and I hope that these points have helped you discover where to find yours.  For more information…

call 1-877-IDTHEFT

   Visit this website: http://www.ftc.gov/bcp/edu/pubs/consumer/idtheft/idt08.shtm

   Or contact your local authorities.

Thank you Special Agent Duffey for an entertaining and terrifying presentation.

The topic of the article is Estate Planning 101.  Check it out for some estate planning tips.

Click the logo below to read the article from ABCnews.com:

Tuesday nights Social Security Income educational event was a hit!  We hosted a presentation at the Great American Pub in Conshohocken, and the material was presented by the government.  Richard Gaudiosi from the Social Security Administration did a heckuva job presenting an informative  event and even made it entertaining.  I think everyone learned something valuable.

Did you know that each month you wait to collect your benefit, it will increase by .5%?

There was a lot of information, including strategies to collect spousal benefits and survivor benefits. 

Did you know that a husband can increase the monthly benefit his wife gets as his survivor by more than 20% by claiming at 66, not 62?  Claiming later could be the most effective way a husband can improve his wife’s long-term financial security.

Do you plan on working after your Full Retirement Age?  There is a lot to learn!  If you have any questions or would like some of the handouts, feel free to contact me.

The crowd was great; we had 22 people…thanks to everyone for attending.

We are looking forward to doing it again in September.  If you are interested in attending, ENROLL NOW .