Smart Money Blog

It seems like every time I think about what to talk about I am always coming back to interest rates.
The Federal Reserve made another 25 basis point cut which most economists feel was unnecessary and useless. A review of the Fed Committee meeting indicates that there was NOT a consensus among its Board Members. This is not a bad thing but very different than when Bernanke and Yellen were running the Fed.

It is reasonable to expect short term rates, such as CDs and Money Market Funds to see lower rates in the future. This just makes these investments an even worse bet given that the interest you are being paid now by the banks is lower than inflation. This means while you are being paid interest you are actually losing purchasing power and getting poorer every day.

If you think the U.S. has a challenging interest rate environment let’s take a look at Europe. Mario Draghi (former head of the European Central Bank) cut rates deeper into negative territory before resigning as head of the ECB.

What amazes me about central bankers, particularly in Europe, is that these bonehead policies have been in place for so long but have done absolutely nothing for the European economy. I mean negative rates have yielded zero results (no pun intended) for any economy that has implemented them. What good is moving a rate from -0.4% to -0.5%?!?!

From an investment perspective, this will have little to no impact on how we are making decisions concerning how to invest now and in the future. This just gives the Talking Heads on TV something to argue about and possibly make for some interesting conversation at the backyard BBQ this weekend.

Have a great weekend.
My best,
Mark

The most terrifying words in the English language are:”I’m from the government and I’m here to help.”  Ronald Reagan Last week the U.S. House of Representatives passed the Secure Act. It’s stated goal was to make your retirement more secure. But what does it actually do?

1. It mandates that your 401(k) provider put annuities into your retirement plan. The Insurance companies even had congress mandate in the bill that annuity advertising be included in your 401(k) information package. While we believe annuities have their place in retirement plans, who is going to make sure that these annuities are not filled with fees and unnecessary riders which will eat away at your savings.
2. It will change the age for required minimum distributions from 70 ½ to 72. Moving from 70 ½ to 72 delays the inevitable. It may also result in larger required minimum distributions which could result in a bigger tax bite.
3. Require that all inherited IRAs be fully distributed within 10 years of death. The current law allows your children or even grandchildren to stretch their IRA payments throughout their entire life. This is a significant tax benefit for them. Under this bill, the money will be forced to come out of your IRA within 10 years which will result in the government getting more of your IRA money through higher taxes.

What should we do right now?   It seems like the Senate is going to slow this bill down a bit but I never bet against the insurance companies. Some form of this bill will ultimately pass but probably not for this year. For those of you who were thinking of delaying your required minimum distributions to see if the bill passes I would suggest you not wait too long. Even if it is signed into law this year, there will be a 12 to 24 month period before it will be implemented. We are closely monitoring the progress of this bill and will let you know when or if it becomes law. We are also working with legal and tax experts to determine how the different parts of the bill will impact your retirement plan.   In my next blog, I will discuss the new Fiduciary Rule the SEC just created.  

Have a great week,

My best, Mark

While the key concern before retirement is how to grow your investments, proper financial management in retirement involves much more. When trying to choose the most appropriate investment strategy or strategies, you will face a series of concerns that push and pull you in different directions.  I am not going to go into each concern here but you can find a detailed discussion of these issues in my book Road Rules For Retirement. 

Investing for retirement all starts with income. No matter what your account balance states, getting the money from your retirement account into your pocket can be challenging in good and bad times. 

While investing for growth is exciting, if you depend on growth for the majority of your retirement income then reverse dollar cost averaging, bad luck or bad timing can blow your retirement plan up in a single year. 

You will constantly be facing difficult decisions about how to generate income from your growth investments. If your investments are moving up, which fund or stock are you going to sell your winners, your losers, maybe a little of everything? If the markets and your investments are down, are you going to take a pay cut? Again, you have to choose which investment you are going to sell in order to generate income.

Income investing means focusing on cashflow . As an example, a dividend stock paying $100 dollars a year will continue to pay $100 a year whether the market is up or down so long as their business remains well managed and viable. Bonds pay interest on a regular predictable basis regardless of their current market value. 

Let’s go back to the example I used in my last blog about how past generations invested their money. It was all about matching cashflow to expenses. Money flowing in equals money flowing out regardless which direction the economic winds were blowing. 

Your key decision should be much of your money, how much of your retirement savings is going to be committed to income oriented investments and how much is going to be committed to growth oriented investments. 

I will share the formula I use to balance these two types of investments strategies in my next blog. 

My best, Mark 

Please take a quick minute to learn more about how the U.S. is doing.  How is the economy doing? A closer look at GDP

In the good old days, investing for retirement was so much easier. Government and Corporate Bonds were paying 7% to 8%. A 3 to 5 year CD paid close to 5%. Maybe, you purchased a few dividend stocks. Then all you had to do is sit back and collect the checks with the knowledge that your nestegg was secure.

Not only have the rules of investing for retirement changed but we are not even playing in the same ballpark. Interest rates are at rock bottom with no movement in site. Dividend yields are good but there is risk on the horizon.

This doesn’t even take into account tax costs, required minimum distributions, healthcare costs and much much more that needs to be considered. Its not just how much you make but how much you keep.
So let’s set the destination. This means having a good understanding of how much you need in retirement to live on, what kind of tax costs are you expecting down the road? how is your health? are you going to move? and many more questions.

That brings us to your nestegg. Do you have enough? Do you have enough to generate income for the rest of your life? Will you need to invade principal to get there?

We believe in the income layered approach or purpose based investing. Let’s say you need $10,000 a month net to live on plus inflation. Now subtract social security (modified for medicare costs), pension or annuity income which leaves the net amount you need to generate from your investments.  
 Let’s say you need to generate 4% a year to earn enough for the income you need. Do you just sell everything and move it into dividend and interest bearing accounts. Maybe not such a good idea given the volatility we have experienced. 

This is where investing in retirement differs from just investing for pure growth. 
In my next blog, which will be out in two weeks, I will go into more detail about the nuts and bolts of re-positioning your portfolio for the future. Plus discuss some potholes to avoid. 
I have also attached an article about the US Economy and to put things into perspective.  

My best, Mark 

Click here for article: US Economic Outlook

A key component to building a portfolio is using diversification which reduces your risk/volatility. This is very important when you are approaching retirement because of the potential damage volatility can do to a well planned retirement strategy.

The challenge is, when creating a diversified portfolio, some of your investments will be on the rise while others seem destined to never achieve any level of success. Because market cycles and economic cycles are so unpredictable, this may continue for months or years.

Over time, it is only natural to want to sell off the losers and buy more of those winners. When you finally decide to make that trade, it is almost always too late in the cycle. A few weeks or months later, all those winners you kept become losers and the losers you sold start hitting their all time highs.

This may sound like a bit of an exaggeration but I am sure everyone reading this blog has had this experience.

When you commit to a diversified portfolio, sometimes it requires a strong stomach and good constitution to ride through the tough times.

Why should we worry about this?

The chart below compares the annual return for four different asset classes over different periods of time in the market.

During the period 2002-2007, the Small Cap Value index beat all other indexes by a significant amount on average.   This was followed by a strong run up in Large Cap Growth Stocks during the period 2008 -2015.   Then back to Small Cap Value.

Markets move in cycles, trends occur but we never know for how long and when they will change. These differences are even larger when we start adding in other asset classes in the U.S. and globally.

It takes discipline to stay invested and diversified. Retirement is a long time. Don’t get caught out of balance.

The right diversified model is different for everyone. Make sure that your overall investment strategy is based on your goals not just as a response to temporary market cycles which can and will change over time.

Create a plan, build a portfolio to match your plan and stay disciplined. Success doesn’t happen by accident.

My best, Mark

With the first two months of the year behind us I think it is a good time to pause and take a quick look back and a long look forward. 

Since January most indexes have managed to erase all losses experienced in the fourth quarter of last year. Extreme pessimism felt at the end of last year has quickly turned into cautious optimism for the 2019. So what happened?

I believe three influencers moved the market in a positive direction: continued positive earnings, lowering of trade tensions with China and a relaxing of the Federal Reserve with respect to interest rate hikes and quantitative tightening. The challenge is as quickly as these influencers can turn positive they can turn negative. 

Recently, I attended a conference where I spoke with many economists, money managers and other economic experts. Each looked at what could happen in the markets and the economy from a different perspective and used different measures to determine what might happen in the coming year. Interestingly enough, they all ended up in the same place.   Economic slow down but no recession in sight.

Last week marked the tenth anniversary of the current bull market. While the first two months of the year saw markets surged, last week was one of the worst weeks in 2019. Is the great bull market over, consensus of opinion is not just yet. But definitely the economy is slowing and investors need to adjust to the new reality of slower markets and slower growth. There are many types of investing styles. Passive and active, strategic and tactical, and using Funds versus individual positions. Different styles work better during different periods of the economic cycle.

There is no question we are moving into a different part of a market cycle which means changing some of our approach to investing.  In the next few blogs I will discuss these changes in greater detail. 

Tax Time 

With April 15^th just a few weeks away many of us are focusing on our tax return. Don’t forget, the government gives you until April 15 to top off your prior-year contributions to individual retirement accounts (IRAs), simplified employee pensions (SEPs) and other retirement accounts like health savings accounts (HSAs). 

TFG Events…. Please keep an eye out for information on our annual Trenton Thunder outing and for those of you going on the May cruise with us, Lisa will be sending out information in the coming weeks. 

Until next time. My best,  Mark

The past few months is a great example of what the Wall Street Roller Coaster feels like. From a high of
over 2900 for the S & P 500 in Oct 2018; to a low of under 2400 in December 2018 and now back to
2775 as of last Friday. I am sure we can all agree this has not been a fun ride.

This kind of volatility can turn good days into bad. It is easy to understand why so many investors want
to get out of the market. Why so many folks who are close to retirement or in retirement want nothing
to do with the stock market.

But is this the right choice or is it emotional.

Let me start by making a very general statement. No one should have all their money in the stock
market. But most people should have some of their money invested in the stock market.
Again, let me be very clear. I believe that as a general rule you should NOT have all your money in
equities or the stock market. But many of us should at least consider having some of our money in
equities or the stock market. Even though we know that the Wall Street Rollercoaster ride we just
experienced will likely happen again sometime in the future.

The simple reason for this is because, over time an investment in the stock market has the potential to
help the average investor stay ahead of inflation and increase their wealth.

So how do you decide, how do you determine what is the right amount of money to put in the market or
put at risk versus keeps safe and off the Wall Street Roller Coaster.

There are some financial advertisers that say you should have all your money out of the market.
Perhaps in annuities, cash, CDs or bonds. There are some financial advertisers that say you should have
most or all your money in the market. Without ever knowing anything about who you are or what you
are trying to accomplish with your money.

We believe that a good way to figure all this out is through a 3 step proprietary risk assessment process.
Step 1: Determine how much risk you are taking right
• Regardless of what type of investor you think you are, your current investment strategy will tell
you a lot about your appetite for risk and your view of the stock market rollercoaster. Some
families I have met keep almost all their money in cash, CDs and bond funds, but tell me they
are moderate investors and want to invest in the stock market but just can’t pull the trigger.
Some of the families I meet have almost all their money in mutual funds but tell me that they
are scared of the market and want to avoid losing too much of your hard earned nest egg.
Step 2: What is your emotional risk tolerance?
• In other words, what do you consider a decimating loss? How much of a paper loss can you
really tolerate. It is an eye opening experience for most when I show them how much risk they
are taking and what their emotional risk tolerance is. In the majority of cases, most investors
are taking a lot more risk than they can stomach.
Step 3: How much risk do you need to take?
• What I mean by this is: based on your current financial situation, your current savings rate, how
old your are, when will you retire and how much money do you need a month to maintain your
current lifestyle, how much do you need to earn on your investments, how much will you owe in
taxes on your IRA or 401(k) money and much much more. From this we determine if you need
to earn 1% or 10%. Then we take that number and find an strategy that will aim to let you take
the minimum amount of risk to achieve your goals.
Once you have all this information you can decide how much of your money should be placed into the
market, what type of investment strategies you should use and how to best achieve your personal and
financial goals.

There is obviously a lot more to planning for retirement than just going through this risk exercise but it is
a good start. So if you are unsure whether you have to much or not enough money invested in the
market. If you are unsure whether you have enough money to retire. If you unsure if you money will
last for the rest of your life. Give us a call or send us an email.
My best,
Mark

Disclosures:
• Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future
performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended
by the adviser), will be profitable or equal to past performance levels.
• This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or
concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment
advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or
technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any
investment program or making any investment, clients as well as all other readers are encouraged to consult with their own
professional advisers, including investment advisers and tax advisors. TFG can assist in determining a suitable investment approach
for a given individual, which may or may not closely resemble the strategies outlined herein.
• The S&P 500 is an unmanaged index used as a general measure of market performance. You cannot invest directly in an index.
Accordingly, performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the
deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance
results.