The job market and student loan debt has not been kind to Millennials the last several years. As such, these 24-35 year olds may not have saved as much as they should. But there are still factors to consider to help them to prepare to retire. We will explore several of those issues and provide tips on this blog over the next several weeks.
Many people have many reasons for having a Financial Advisor. Are you considering a new advisor? Are you looking for an advisor. This article from Bloomberg may help you pick the right one. ALWAYS pick a Fiduciary when you are working with a Financial Advisor. Why wouldn't you want someone who has a legal obligation to put your needs ahead of his own to advise you?
Five Ways Your Financial Adviser Can Screw Up Your Retirement, Legally
Many advisers aren't required to put your interests first, and they don't
February 23, 2015 — 2:37 PM EST
Investment advisers should act in their customers’ best interests, President Obama says. Here's how they don't, and how it can hurt you.
Right now, only some advisers are fiduciaries, required to put their clients’ needs first, while many brokers and advisers need only to recommend “suitable” financial products. On Monday, the White House said it would support a plan to change that.
Wall Street industry groups warn that new rules could raise costs and thus make advice unaffordable to many middle-income Americans. It’s not clear what the final administration proposal will look like—Labor Secretary Thomas Perez says it will be “very different” from previous proposals. But the goal is to end biased advice that the administration estimates costs investors $17 billion a year.
Here are five ways that, under current law, advisers can put their clients at a disadvantage:
401(k)-IRA rollovers For many workers with a 401(k) who are approaching retirement, the best option is to do nothing. Their employers offer 401(k) plans with low fees and great investment choices. There’s no reason to move the money to an individual retirement account, or IRA. But as Bloomberg’s John Hechinger reported last year, investment firms push workers to do just that. For example, federal employees are urged to shift assets into IRAs with fees that are 20 times as high as those in the Federal Thrift Savings Plan.
Load fees When customers buy a mutual fund from a broker, they’re still often charged a front-load fee—a one-time fee that can swallow up more than 5 percent of their money before it’s invested. The proceeds from load fees help compensate advisers for their time, though there are often far more efficient ways to get advice. More and more investors are asking for no-load mutual funds, but the Investment Company Institute estimates that $630 billion in load funds were sold in 2013, the latest data available. That was up 19 percent from 2012 and the most since 2008.
Opaque fees While you might notice a 5 percent load fee, many other commissions charged by advisers are hard to spot. For example, a “12b-1 fee” can be tacked on to a fund’s expenses every year, with the proceeds often going to an adviser years after he or she sold the fund. Most of these charges should be disclosed somewhere, but it can be very difficult for clients to add up all the various ways an adviser is making money off them.
Active fund bias In many investment categories, low-fee index funds have historically performed better than actively managed mutual funds. But when an adviser meets a client with lots of assets in index funds, he or she often urges the client to reallocate into higher-fee funds. When mystery shoppers visited advisers for a 2012 study, 85 percent were told to ditch their diversified, low-fee portfolios.
Poor performance Commissions, including load fees and 12b-1 fees, give advisers an incentive to recommend certain investment products over others. Firms can also give advisers bonuses for steering client money into the firms’ own funds. The result of this biased advice is that investment performance suffers, academic studies show—and not just because fees eat into returns. A 2014 study compared self-directed investors with clients who received advice with conflicts of interest. The self-directed investors performed an average of 1.25 percentage points better annually. A 2009 study found that direct-sold funds beat broker-sold funds by 0.14 to 0.9 percentage point per year, even disregarding the broker funds' higher fees. Over time, that performance gap can cost you thousands, or tens of thousands, of dollars.
I had the privilege of taking my son Matthew to Chapel Hill this weekend where he will start Medical School a week from today. He has been such a blessing and inspiration to me in his 27 years. He was homeschooled all through high school and graduated with top honors from Brevard College while being a collegiate National Champion athlete in cycling. He has chosen Medical School as his next challenge. I am so proud of him but I will definitely miss him. I have been blessed to have him live close and be one of my best friends these years. It is truly bittersweet.
He has never been satisfied with being mediocre. He has always pushed himself to be the best and rise to the challenge he has set before him and his life is truly inspirational. He has planned each step - the logistics of the move, the financial aspect, he has gained valuable advice and made moves according to his plan.
You have two ways to live your life. You can let it happen to you or you can choose your direction, plan your steps and work to achieve your goals. Matthew has made his decision and will succeed. Can you say that about your life? Can I?
The vote by the Greek people over the weekend has the world markets all upset. The Greek people voted in a referendum to NOT accept the austerity measures that would be acceptable to the European Union (EU). While this was not a vote to leave the EU, it may turn out that way.
Markets, like most things in life, like certainty rather than uncertainty. The entire situation in Greece and the European Union has been one big bag of uncertainty for several months. The deadline for Greece to present the EU with a list of mutually agreeable austerity has past and the situation is now anyone's guess.
One thing is certain, this is another in a long line of "big, scary events" (Ken Fisher). All though history there have been big scary events that shake up the markets. The markets drop and then recover new highs and the only variable is when the new highs are achieved.
For investors, your response depends on your personal situation. If you are in the accumulation phase, lower prices are a great time to buy. If you are in the withdrawal phase, your decision is whether to respond and sell some or all of your holdings or stay the course and wait this scary event out. Your personal situation will determine the best course of action but it should have been determined prior to investing.
Give St. Marie Financial Advisors a call and let's talk about your personal situation.
What is the definition of Fiduciary and why does it matter? For the answer to this I will turn to an unbiased 3rd party source. Tony Robbins recent book Money: Master the Game has this to say on the subject.
"...many are operating in a "closed circuit" environment in which the tools at their disposal are pre-engineered to be in the best interest of the "house". The system is designed to reward them for selling, not for providing conflict-free advice. And the product or fund they sell you doesn't necessarily have to be the best available, or even in your best interest. By legal definition, all they have to do is provide you with a product that is "suitable". Page 125
According to David Karp, a registered investment advisor, the suitability standard essentially says, "It doesn't matter who benefits more, the client or the advisor. As long as an investment is suitable (meets the general direction of your goals and objectives) at the time it was placed for the client, the advisor is held free of liability" Page 126
The Gold Standard
To receive conflict-free advice, we must align ourselves with a fiduciary. A fiduciary is a legal standard adopted by a relatively small but growing segment of independent financial professionals who have abandoned their big-box firms, relinquished their broker status, and made the decision to become a registered investment advisor. These professionals get paid for financial advice and by law, must remove any potential conflict of interest (or at a minimum, disclose them) and put the clients' needs above their own. Page 126
To better understand the difference between your broker and a registered investment advisor watch this SHORT VIDEO and then give us a call.
Capping off a wonderful busy month of May, my son Michael got married to Amanda this past Sunday. The bride was stunning. The groom was beyond himself happy. The wedding went so smooth. The food - from Jaime's in Brevard - was delicious. The music was great. It was just a great wedding weekend. They are off now for 12 days in Ireland.
Congratulations to Mr and Mrs. St. Marie.
Life, like a wedding, takes planning and hard work. But the reward is worth it. Planning ahead for the big events in your life is what Financial Planning is all about.
There is nothing like watching a child succeed. I was able to watch my son Michael graduate from Brevard College last week (Cum Laude no less). I am so proud of him and his hard work and look forward to watching him succeed in the next phase of his life (which includes him getting married the end of this month).
Reaching Goals is a big part of life - whether the goal is a college graduation, a successful retirement or a new or remodeled house. Make sure that you are able to reach the goals you have set for your life by planning.
And Congratulations Michael!
In a recent BlackRock survey, longevity risk scored as one of the biggest concerns for advisors and clients. Living longer was cited by 62% of advisors as a risk to their clients future financial security. Only healthcare costs scored higher on the worry-meter for advisors.
News from the Society of Actuaries will likely add to your concern. New pension mortality tables raise the average longevity for a 65 year old male in 2014 to 86.6, a two-year increase since 2000. The average longevity for a 65 year old female is now 88.8 years, up from 86.4 in 2000. (That means half of today's 65 year old men will still be alive past age 86.6 and half of today's 65 year old women will live beyond age 88.8)
That puts even more pressure on advisors to devise an investment strategy that can generate sufficient income for what can be a very long retirement for clients. Have you discussed options with your advisor to ensure you don't outlive your money?
The S&P 500 is up a whopping 200% from its March 2009 low. At 2,003, the S&P has already exceeded many analysts' forecasts.
Morgan Stanley strategist Adam Parker and economist Ellen Zentner believe that the conditions are just right for the bull market to keep going for years.
"Our best guess is that an S&P 500 peak of near 3000 is possible should the U.S. expansion prove to have five or more years left to it, based on 6% per annum EPS growth through that time frame and a 17x price-to-earnings ratio," Parker writes.
Like many experts on Wall Street, Parker reminds us that our recent experience of crisis to recovery is not like most of history's boom-and-bust cycles. He also reminds us that bull markets and economic recoveries don't just end because they have gone on for a long time.
"We believe a prolonged period of deleveraging in the U.S., coupled with an uneven global recovery, are just two of the reasons why this could prove to be the longest US expansion — ever," he writes.
In a meaty 27-page research note titled "2020 Vision: Long Live the Expansion," Parker and Zentner argue that the U.S. economy is actually only in the early parts of its growth cycle. It is also uniquely positioned in the world, benefiting from low volatility, healthier balance sheets, and a lack of corporate exuberance.
Here's their bulleted summary (verbatim):
The Capital Spending ComebackFirst is their comment about capital expenditures, or business investment. The capex recovery has been one of the most highly anticipated and controversial aspects of this recovery. And recent data show that it's finally happening.
However, Parker notes that capex levels are still at reasonable levels when considered relative to sales. For Parker, this is a sign that "hubris" is absent.
The Debt CushionNo one has forgotten the financial crisis, which was highlighted by a freeze in credit. This had even the most financially healthy companies struggling to meet their financial obligations.
However, that memory also had companies turning their balance sheets into fortress balance sheets.
Many companies engaged in aggressive amounts of refinancing, which pushed the maturities on their debt back by several years.
From an income statement perspective, a very high interest coverage ratio shows that companies have plenty of operating earnings to finance their current debt financing needs.
Obviously, there's no guarantee that we're looking at five years of smooth sailing.
"There are a number of ways the current expansion could get derailed," Parker writes. "Europe and China are already slowing and near recession in some parts. Japan is highly dependent on the success of policy. U.S. reforms on key issues like the budget, taxes and entitlements, and immigration seem a long way off and are likely to cause much angst in the coming years. And after a prolonged period of unprecedented monetary policy accommodation, we are on the cusp of removal of that accommodation — also in an unprecedented way."
But their base case remains quite bullish.
"As the prolonged expansion becomes more visible, we'd expect a materially higher U.S. stock market."
Read more: http://www.businessinsider.com/morgan-stanley-sp-500-3000-2014-9#ixzz3CARUeF2J
These ideas are proposals in President Obama's new budget. While they have to be approved and may not have a chance to become law, these could be a huge game changer for financial planning.