Archive - June 2011

1
Should You Max Out Your 401k?
2
Where to Start With Your Financial Planning
3
How To Invest in Bonds During Your Retirement
4
Why The Greek Bankruptcy Won’t Affect You or Me
5
How To Calculate Your Actual Investment Performance

Should You Max Out Your 401k?

Someone inquired why a friend of theirs who is a 401(k) participant who was auto-enrolled at a 3% contribution rate has stayed at 3% instead of maxing out their contributions. The stereotype is that everyone should max out their 401k contributions.

Benefits in favor of 401K’s:

  • Asset protect from lawsuits, depending on complex rules
  • Encourages people to avoid spending their savings
  • Encourages people to save for retirement
  • Shift income into future years when retired when maybe in a lower tax bracket

Reasons against 401k contributions:

  • Retirement accounts create problems including double taxation of them at up to 85% for people

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Where to Start With Your Financial Planning

What is financial planning? Ask that question to the average Joe or Jane and the answer is usually centered on investments. Even some financial planners may operate with an investment centric model, but I don’t. Here’s why!

The Puzzle

I often equate financial planning to a giant puzzle. Each puzzle piece has an impact on the big picture.  With only one piece missing the picture is still intelligible, but, if several pieces are missing, the picture becomes harder to recognize. Similar to the puzzle, each piece of the financial plan makes up the entirety of the plan: therefore, every piece …

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How To Invest in Bonds During Your Retirement

People worry that bonds don't pay enough to live off of without an investor drawing down his net worth during retirement. Even with that concern I recommend 100% bond portfolios.

What About Low Interest Rates?

The question is always raised about how to get a higher yield, etc. This is not the correct way to approach bond investing. The purpose of bond investing is to have a “sanctuary asset” to ride out the storm. This means giving up the chance to make a lucrative yield in junk bonds and instead accept a low rate of yield in low risk, high …

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Why The Greek Bankruptcy Won’t Affect You or Me

Every few months we get another installment of the Greek credit crisis and another installment of the market jitters that go along with it. The jitters are understandable. Another global credit panic would certainly harm the world economy.

Size Matters

However, the Greek economy is tiny compared to the worlds larger economies. Greece's GDP is approximately $300 billion. That is about 1/50th of the US GDP or twice the annual sales of General Electric. We are certainly not talking about peanuts, but objectively a $300 billion economy is not large enough to damage the world economy.

The same picture emerges …

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How To Calculate Your Actual Investment Performance

Quick, do you know how much your investments earned last year? Are you certain? Well, if you relied on traditional methods to calculate your returns, you could be off, way off. The method most people use to calculate portfolio returns, regardless of the investment type, is by dividing the end value by the initial value; this method is also known as the Holding Period Return (HPR). If you deposited a lump sum, earned interest and/or dividends, and made no additional contributions or withdrawals, then using HPR is appropriate. However, if you are like most people, you make regular contributions to …

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