Last week, I shared the first part of my 'adventure' with G.K. (G.K. is for Gate Keeper, a junior officer I encountered during a recent 401(k) review for a local business.) There is certainly a lot of danger in sponsoring a 401(k) plan for your employees when you don't give a s*** about it.
Danger to employees - They aren't getting the most from this company benefit - which affects their future
and their abilty to retire later.
Danger to employer - By not taking their fiduciary responsibiltity seriously, the company may be open
to potential legal action.
The problem is that there are too many "wimpy" G.K.s out there. I am purposely leaving the name generic, so you may ask yourself "Is this MY company?" People like G.K. are one of the main reasons I wrote the book, "Help! My 401(k) Has Fallen - And Must Get Up!" You need to know what to do if you are stuck in a bad 401(k) plan. You also need to know what to do if your employer is "wimpy".
Anyway, as I mentioned in my post last week, I had asked G.K. my usual review questions and was suprised at her careless attitude towards their plan. She had provided me with a 2008 version of their enrollment kit. This was for me to prepare a report on their mutual funds in terms of performance and expenses.
After seeing this, I was pretty sure what to expect. I knew that I could help this company, but only if I was able to talk to the right people. I asked G.K. to please have the President and Vice President available for our next meeting. She said she would 'try' to do this. I told her how urgent this was. The others MUST be present. At the very least, have ONE of them. She needed to understand that being negligent about the plan was costing them money. Surely the other guys would get that.
We scheduled a follow-up appointment on a time when the Pres. & V.P. were scheduled to be in the office.
How did the funds look? Hmmm......imagine letting your lawn grow for several months without mowing or watering. That should give you a pretty good idea.
There were 59 funds in all! That is already a problem, even if they were all great. Imagine going to a restaurant and being handed a menu with that many entree choices (which happens). What do you do?
How long does it take to decide? If it is that hard in a restaurant, imagine poring over mutual funds.
People want SIMPLE! A good selection for a 401(k) is 15-20 funds which include the best possible ones in each asset class.
One of my resources allows me to measure funds and compare them to their peer group. A Large Company fund is compared to other Large Company funds. Internationals are compared to other internationals. In other words - apples to apples. Funds are measured in terms of performance, management fees, risk, and Morningstar ratings.
The finished report tells us very simply whether the fund passes or fails. Passing funds are printed in GREEN on the report. Failing funds are printed in RED. How is that for SIMPLE?
Guess what? Would you believe that 51 out of 59 funds were in RED?
Well, I burned up my toner cartridge and printed out 3 copies of this "tree-killer" report. That showed the problem clearly enough. Now I needed a solution for the company. We needed to address the glaring issues of monitoring mutual funds regularly and keeping fees low. As an advisor, I would also need to be pro-active in showing employees how to use the plan. As long as the "powers that be" were there, I felt pretty good about being able to serve them.
Another great benefit for the company was that because the plan held more than $1 Million in assets, there is no cost for them to change!
Ask Yourself This: If you could trade in your broken down, smelly, rusted out 1980's gas guzzler for a shiny new car - and the cost to you was ZERO - how long would it take to decide?
Wouldn't you know it though? Even though I had called G.K. the day before to confirm that everyone would be there......when I showed up, they were missing. No President. No Vice President. Only G.K.
She mumbled an "apology" without looking me in the eye, saying that "something had suddenly come up" for the guys and I could just show her my report.
"Something suddenly came up"? What is this - a 'Brady Bunch' episode?
I showed her my report and pointed out my concerns. When I showed her the mutual funds and that 51 out of 59 were in RED, she started looking for which funds were most common to the plan. Then she looked up HER OWN PLAN to see if HER funds were Green or Red. For a few seconds, I could only stare in disbelief - What kind of MORON is this??
I interrupted the insanity. "Ummm....Aren't we missing the big picture here? Rather than try to pick out individual funds, wouldn't you be concerned that 51 out of 59 are failing? You have a real need for a system to monitor the funds in your plan on a regular basis - which lowers your company liability. Think of it this way - if you have a bunch of bananas in the house, and they've gone brown and soft, what would you do? Would you try to pick out a few good parts? Or would it really be better to replace the bananas?"
G.K. thought for a bit, and admitted that I may have a point.
Amazing! Was I actually getting through?
Not really. G.K. sat there as I pointed out a few other red flags, then said goodbye. "I'll share this with the others. We'll call you if we're interested."
Let me make this clear. I'm not mocking G.K. and the company because they have a bad 401(k) plan. Also, I know not everyone will work with me as their 401(k) advisor. However, the reason for my anger is that the plan stinks - AND they aren't willing to do anything about it!
Again - If you could trade in your broken down, smelly, rusted out 1980's gas guzzler for a shiny new car - and the cost to you was ZERO - how long would it take to decide?
There are too many G.K.s out there - Lazy, narrow-minded people who oversee the 401(k) at your company. That's why I wrote this book, "Help! My 401(k) Has Fallen - And Must Get Up!" due out soon. This is to help YOU fight back - AND get more from your 401(k).
You can contact me at http://www.helpmy401k.us/. I am also at Linked In. You can pick up your free report on my website – "The 5 Biggest Problems With 401(k) Plans – And How to Fix Them".
My weekly financial advice program, Improving Your Financial Health is on Blog Talk Radio and Saturday mornings at WHME-FM.
Showing posts with label mutual funds. Show all posts
Showing posts with label mutual funds. Show all posts
Wednesday, March 31, 2010
Wednesday, February 3, 2010
Taking Stock
However, I did see something recently which I thought my readers may enjoy. If you were going to invest in stocks, which companies would be good ones to own long-term? At least one sign of a great company is one which is able to consistently increase their dividend payment.
If you aren't sure what a dividend is, think of it this way. When you own stock, you own a tiny piece of that company. Your investment rises and falls with the performance of the company. Over time, you would like to think the company will grow, and your money will grow with it. Companies which have established themselves and become profitable will share part of their profits with you as a part owner. Those profit sharing payments are known as dividends and are usually paid once every 3 months.
Again, the sign of a great company is one which has raised its dividend payment consistently, even in tough times. Raising the dividend for shareholders is like giving them a pay raise. (CDs don't do THAT!!) Those companies would be great to own long term.
What if a company were able to raise its dividend 25 years in a row or more?
Here are the ones which have:
Abbott Labs (ABT)
Bemis (BMS)
Century Tel (CTL)
Chubb (CB)
Coca-Cola (KO)
Exxon-Mobil (XOM)
Johnson & Johnson (JNJ)
Mc Donalds (MCD)
3M (MMM)
Pitney Bowes (PBI)
PPG (PPG)
Proctor & Gamble (PG)
Walmart (WMT)
S&P reports that since 1926, dividends have contributed to about 1/3 of the total return on your investment.
Another thing I like about dividends is that when the stock price goes down, the dividend yield goes up. Its a great time to buy more of great companies. That is what Warren Buffett does!
For example, lets look at Proctor & Gamble. Shares of PG are currently (2/3/10) at $62.90. Dividends are paid at $1.76/share, which is divided into 4 quarterly payments. You will get a dividend return of 2.8% on any shares purchased at that price.
What if you had been fortunate enough to buy in March of 2009, when it was selling for around $44/share? Well, you still would have gotten $1.76 per share, but that works out to about a 4% dividend return. (Better than a CD, and with potential to grow!)
Warren Buffett has become extremely wealthy because he buys great companies and holds them, collecting dividends which increase year after year after year.
Again, I am not encouraging people to buy individual stocks. There are plenty of financial stocks such as Citigroup and Bank of America which also had wonderful histories of increased dividends, until 2008.
Dividends are certainly something to consider though for any investment - including mutual funds and annuities.
You can contact me through my website, http://www.helpmy401k.us/. You can also contact me on LinkedIn at http://www.linkedin.com/in/dvoelker, or Twitter at http://www.twitter.com/deanvoelker. I am currently hosting a weekly financial advice program, "Improving Your Financial Health" on Blog Talk Radio at http://www.blogtalkradio.com/401kcoach. Let me know how I may help you!
Monday, January 4, 2010
New Years Resolutions
"Now is the accepted time to make your regular annual good resolutions. Next week you can begin paving hell with them as usual." Mark Twain
Here we are - a New Year. Some also say a New Decade.
What 'Financial' Resolutions have you made? Can't think of any? Here are a few tips.
1. Review and Rebalance your Investments and 401(k)
If you have been putting it off for a while to "wait & see", your account is probably seriously out of balance. Sit down with an advisor to review your goals and make your your fund mix matches what your needs are.
2. Increase Contributions to Your 401(k)
Are you putting between 10% and 15% into your 401(k) at work? If not, then at least raise the amount you are putting in. Gradually work yourself up to that level. You will need the nest egg for income later.
3. Pay Off Credit Cards and Other Debt
If you are having trouble with #2, get these paid off and free up some money for yourself.
4. Set Up a Budget and Stick To It
There are a number of places you can find good basic worksheets for setting up a budget. It should be simple. Just make sure all of your money has a place to go - either savings or expenses. Here is a site with some downloadable sheets. http://www.betterbudgeting.com/
5. Contribute to a Roth IRA and Convert Pre-Tax Retirement Savings
You can put up to $5000 into a Roth ($6000 if you are 50 and older). You can still make 2009 contributions up until April 15. The Roth IRA of course grows tax free and allows you to make withdrawals at retirement which are also tax free.
There are no income restrictions for the Roth this year and if you choose to convert any money from your Traditional Pre-Tax IRA to the Roth, you may spread the taxes out over the next 2 years.
You can contact me through my website, http://www.helpmy401k.us/. You may also follow me on Twitter at http://www.twitter.com/deanvoelker. I also host a weekly internet radio program at http://www.blogtalkradio.com/401kcoach.
Here we are - a New Year. Some also say a New Decade.
What 'Financial' Resolutions have you made? Can't think of any? Here are a few tips.
1. Review and Rebalance your Investments and 401(k)
If you have been putting it off for a while to "wait & see", your account is probably seriously out of balance. Sit down with an advisor to review your goals and make your your fund mix matches what your needs are.
2. Increase Contributions to Your 401(k)
Are you putting between 10% and 15% into your 401(k) at work? If not, then at least raise the amount you are putting in. Gradually work yourself up to that level. You will need the nest egg for income later.
3. Pay Off Credit Cards and Other Debt
If you are having trouble with #2, get these paid off and free up some money for yourself.
4. Set Up a Budget and Stick To It
There are a number of places you can find good basic worksheets for setting up a budget. It should be simple. Just make sure all of your money has a place to go - either savings or expenses. Here is a site with some downloadable sheets. http://www.betterbudgeting.com/
5. Contribute to a Roth IRA and Convert Pre-Tax Retirement Savings
You can put up to $5000 into a Roth ($6000 if you are 50 and older). You can still make 2009 contributions up until April 15. The Roth IRA of course grows tax free and allows you to make withdrawals at retirement which are also tax free.
There are no income restrictions for the Roth this year and if you choose to convert any money from your Traditional Pre-Tax IRA to the Roth, you may spread the taxes out over the next 2 years.
You can contact me through my website, http://www.helpmy401k.us/. You may also follow me on Twitter at http://www.twitter.com/deanvoelker. I also host a weekly internet radio program at http://www.blogtalkradio.com/401kcoach.
Wednesday, October 14, 2009
Cut The Fat in your 401(k)
Last week, we asked “Where’s the Beef?” Today, we ask “Where’s the Fat?”
Its very important to trim the ‘fat’ in your 401(k) plan – or fund expenses. Today on my Blog Talk Radio program, I had a listener ask about fund expenses. These can really affect your long term return on your retirement savings.
Expenses come from managing the mutual fund. The fund family charges a percentage of the assets invested to manage the fund – deciding what to buy, what to sell, and how much to buy or sell and when to do it. Less trading = lower expenses. Also the advisor on the plan may be paid from these expenses.
Knowing this, it would make sense to look for funds in your plan which have a lower expense rate. If its about 1%, that isn’t too bad, much more than that can negatively affect your returns over time.
To give you an example, I did some figuring on my financial calculator . Let’s look at a 22 year old college graduate, starting their 401(k) plan. Of course you would expect them to bump up their contributions over time, but lets say they put in $300/month with an 8% average return until age 66. They would have saved $1,340,048 in 44 years.
What if they were using a fund with expenses that were 1% more? In other words, the fund may have averaged 8%, but the real return was 7% due to higher expenses. With all the other factors being the same, we now have a total savings of $993,985, which is a difference of $346,063. OUCH! If you figure on taking 4%/year of the nest egg at retirement for income, that means we would need to live on less income -$13842 per year less. See where 1% can make a big difference?
So look carefully at your statement. Don’t just look at ‘performance’ but also fund expenses, which do affect long term performance. Have an advisor help you with this and also help you determine how much to save, so you can have the type of retirement you want.
You may contact me through my website at http://www.helpmy401k.us. You can also follow me on Twitter at http://www.twitter.com/deanvoelker. I also host a Weekly Internet Radio Broadcast “Improving Your Financial Health on Blog Talk Radio http://www.blogtalkradio.com/401kcoach
Its very important to trim the ‘fat’ in your 401(k) plan – or fund expenses. Today on my Blog Talk Radio program, I had a listener ask about fund expenses. These can really affect your long term return on your retirement savings.
Expenses come from managing the mutual fund. The fund family charges a percentage of the assets invested to manage the fund – deciding what to buy, what to sell, and how much to buy or sell and when to do it. Less trading = lower expenses. Also the advisor on the plan may be paid from these expenses.
Knowing this, it would make sense to look for funds in your plan which have a lower expense rate. If its about 1%, that isn’t too bad, much more than that can negatively affect your returns over time.
To give you an example, I did some figuring on my financial calculator . Let’s look at a 22 year old college graduate, starting their 401(k) plan. Of course you would expect them to bump up their contributions over time, but lets say they put in $300/month with an 8% average return until age 66. They would have saved $1,340,048 in 44 years.
What if they were using a fund with expenses that were 1% more? In other words, the fund may have averaged 8%, but the real return was 7% due to higher expenses. With all the other factors being the same, we now have a total savings of $993,985, which is a difference of $346,063. OUCH! If you figure on taking 4%/year of the nest egg at retirement for income, that means we would need to live on less income -$13842 per year less. See where 1% can make a big difference?
So look carefully at your statement. Don’t just look at ‘performance’ but also fund expenses, which do affect long term performance. Have an advisor help you with this and also help you determine how much to save, so you can have the type of retirement you want.
You may contact me through my website at http://www.helpmy401k.us. You can also follow me on Twitter at http://www.twitter.com/deanvoelker. I also host a Weekly Internet Radio Broadcast “Improving Your Financial Health on Blog Talk Radio http://www.blogtalkradio.com/401kcoach
Friday, October 9, 2009
Where's The Beef?
During the 1980’s there was a very popular commercial by Wendy’s. An elderly lady ordered a burger at a generic fast food counter. Upon seeing how puny and pathetic her tiny burger was, she grilled the sales clerk repeatedly - “Where’s the beef?” The commercial was a huge hit and “Where’s the beef?” was a well known catch phrase.
These days “Where’s the beef?” could easily be applied to the 401(k)s & IRAs of many people. In Daniel R. Solin’s book, “The Smartest 401(k) Book You’ll Ever Read”, he points out that “the typical twenty-something only invests 50.4% of his or her account in stock mutual funds.” You can’t keep up with inflation that way! Mr. Solin goes on to say that as we get older, that figure is also pretty timid. “The typical worker in their forties invests only 54.3% in stock funds.”
It doesn’t matter how old you are. Even people on the verge of retirement should be invested in stock mutual funds with a good part of their long term savings. After all, you could be retired for 20-30 years.
Stocks have been the only investment which has beaten inflation over the long term. And we NEED to prepare for inflation! Did you know that in 1989 (20 years ago), a loaf of bread costs an average of 0.67? And a postage stamp was just 0.25?
Mr. Solin also points out that “If you invested $1.00 in blue chip stocks in 1926, it would be worth $3077.33 today. That pencils out to a 10.42 average yearly return.”
Don’t be too fancy trying to pick the “right” fund. Look for mutual funds with long histories (10 years or longer) and low expenses. High management fees can really affect the return on your investment.
We will be looking at a few other ways to put some “Beef” back into your 401(k) in a future article.
You may contact me through my website at http://www.helpmy401k.us. You can also follow me on Twitter at http://www.twitter.com/deanvoelker. I also host a Weekly Internet Radio Broadcast "Improving Your Financial Health on Blog Talk Radio http://www.blogtalkradio.com/401kcoach
Thursday, August 6, 2009
The Real Thing
Recently, I've been thinking about what else to write about. We've covered a wide range of topics - annuities, tax-free bonds, mutual funds, the importance of savings, and 401(k)s.
Although I am licensed to buy & sell individual common stock, I strongly believe that most people should own them within mutual funds. There are a number of companies that have some very interesting stories though. One of them is Coca-Cola.
This is NOT an opinion of Coca-Cola's stock, or an endorsement - merely some history, which I hope you will find as fascinating as I do.
According to Wikipedia,
http://en.wikipedia.org/wiki/Coca-Cola , the first Coca-Cola recipe was invented in a drugstore in Columbus, GA by John Pemberton in 1885. Pemberton developed it as a non-alcoholic version of French Wine Cola. The first sales were at Jacob's Pharmacy in Atlanta, GA on May 8, 1886. It was initially sold as a patent medicine for 5 cents a glass at soda fountains. Many people at that time believed that carbonated water was good for your health. Pemberton claimed Coca-Cola cured many diseases, including morphine addiction, headaches, and even impotence (the first "Viagra"?).
Asa Candler acquired a stake in Pemberton's company in 1887 and incorporated it as Coca-Cola Company in 1888. Due to some controversy in ownership, Candler incorpoarted a second time in 1892 as THE Coca-Cola Company. Coca-Cola was sold in bottles for the first time on March 12, 1894. The first outdoor wall advertisement was painted in 1894 as well in Cartersville, GA.
Although the company grew and even had a celebrity endorsement from baseball star and Georgia native, Ty Cobb http://www.tycobbfoundation.com/ common stock for Coca-Cola never went public until 1919. http://beginnersinvest.about.com/od/investmentbanking/a/aa073106a.htm
In 1919, you could buy one share of Coca-Cola (NYSE - KO) for about $40/share.
However, the price quickly fell to $19 due to a sugar shortage. http://query.nytimes.com/gst/abstract.html?res=990CEEDA1131E433A2575AC1A9619C946195D6CF Times were tough due to World War I. I'm certain many people gave up on this investment, and lost out. Had they stayed invested over the long term, that ONE SHARE of Coca-Cola stock, with splits and dividends reinvested is worth OVER $5 MILLION TODAY!!
Coca-Cola joined the Dow Jones Industrial Average on March 12, 1987.
For more information, please contact me at http://www.helpmy401k.us. You may also follow me on Twitter at http://www.twitter.com/deanvoelker.
Thursday, June 25, 2009
Income For Life
One of my clients once told me that the biggest lesson he learned in retirement was this. You don't retire on a Lump Sum of Money. Rather, you retire on the INCOME which the Lump Sum of Money can create. Think about that statement for a bit. Let it sink in. In fact, let me repeat it, because this is what retirement means. You don't retire on a Lump Sum of Money. Rather, you retire on the INCOME which the Lump Sum of Money can create. You spend your working career saving, accumulating, investing, and building a "lump sum". At some point, you will want to use it for income.
Soooo.....what exactly is a "Lump Sum of Money"? Is it $100,000? $300,000? How about $1,000,000? More than that?
The best way to answer that is that the amouth may be different for everyone. However, we can help you to narrow down what you amount should be at retirement. Here are 4 steps.
1. Determine your monthly budget. You don't want any debt at retirement. Leave plenty of
room for "Miscellaneous" expenses - travel, kids, hobbies. If you aren't working, you are
spending.
2. Determine your Social Security Income amount. There are 3 categories for Social
Security income - Reduced Benefit (usually age 62), Full Benefit (usually age 66), and
Enhanced Benefit (age 70). As the terms suggest, if you take Social Security at an earlier age,
you are "stuck" with a smaller amount of income - and "Grounded For Life." There has also
been a growing movement for proposed changes in Social Security in order to make the
money last longer. At least one of those changes includes pushing back the age for Full
Retirement Benefits, which would force most of us to work longer. Whatever benefit amount
you select, you need to know the amount so it can be applied to your budget.
3. Do you have other sources of income? These may include rental property, part time
work, or anything else which generates income.
4. Look at your budget again, and deduct your budgeted expenses from your total
income.
This sounds simple - and it is- however you would be surprised at how many people don't do
it. Do you have enough income to cover your expenses? Is there money to do "special" things
you want to do in retirement? Travel? Golf when you want?
If there is a "gap", how much is the gap? Let's assume there is a gap of $800/month. $800 x
12 months = $9600/year. Now let's take $9600 and divide it by .04. (4% is a reasonably
"safe" amount to withdraw from a lump sum.) $9600/.04 = $240,000. Now we have a "lump
sum" goal of saving for retirement. This can be saved in your 401(k), IRA, Roth IRA, or
ordinary savings. Do not retire until you have this amount saved to cover your additional
budgeted expenses.
In a future article we will look further at annuities and how they can provide income for life. We also need to consider the impact of inflation on your savings.
For more income on annuities or on budgeting, please contact me at http://www.helpmy401k.us. You may also follow me on Twitter at www.twitter.com/deanvoelker
Soooo.....what exactly is a "Lump Sum of Money"? Is it $100,000? $300,000? How about $1,000,000? More than that?
The best way to answer that is that the amouth may be different for everyone. However, we can help you to narrow down what you amount should be at retirement. Here are 4 steps.
1. Determine your monthly budget. You don't want any debt at retirement. Leave plenty of
room for "Miscellaneous" expenses - travel, kids, hobbies. If you aren't working, you are
spending.
2. Determine your Social Security Income amount. There are 3 categories for Social
Security income - Reduced Benefit (usually age 62), Full Benefit (usually age 66), and
Enhanced Benefit (age 70). As the terms suggest, if you take Social Security at an earlier age,
you are "stuck" with a smaller amount of income - and "Grounded For Life." There has also
been a growing movement for proposed changes in Social Security in order to make the
money last longer. At least one of those changes includes pushing back the age for Full
Retirement Benefits, which would force most of us to work longer. Whatever benefit amount
you select, you need to know the amount so it can be applied to your budget.
3. Do you have other sources of income? These may include rental property, part time
work, or anything else which generates income.
4. Look at your budget again, and deduct your budgeted expenses from your total
income.
This sounds simple - and it is- however you would be surprised at how many people don't do
it. Do you have enough income to cover your expenses? Is there money to do "special" things
you want to do in retirement? Travel? Golf when you want?
If there is a "gap", how much is the gap? Let's assume there is a gap of $800/month. $800 x
12 months = $9600/year. Now let's take $9600 and divide it by .04. (4% is a reasonably
"safe" amount to withdraw from a lump sum.) $9600/.04 = $240,000. Now we have a "lump
sum" goal of saving for retirement. This can be saved in your 401(k), IRA, Roth IRA, or
ordinary savings. Do not retire until you have this amount saved to cover your additional
budgeted expenses.
In a future article we will look further at annuities and how they can provide income for life. We also need to consider the impact of inflation on your savings.
For more income on annuities or on budgeting, please contact me at http://www.helpmy401k.us. You may also follow me on Twitter at www.twitter.com/deanvoelker
Tuesday, June 16, 2009
Using Protection?
That should have gotten your attention!
In my last post, I discussed some basics of annuities. Annuities can offer some protection for your savings which other investments, such as stocks or mutual funds do not. Keep in mind that the value of your account may still go down.
Lets talk about a few protections which you may get from an annuity.
GUARANTEED DEATH BENEFIT - The first one, common to most annuities, is the Guranteed Death Benefit. What is means is that if you invested a sum of money into an annuity, your beneficiaries will receive at least that amount (minus any income or withdrawals taken).
For example, lets say that John puts $100,000 into a variable annuity. The market goes south, and the value of the annuity dips to $80,000, when John dies. If he has not taken income, his heirs will get the full $100,000. Now lets say that the market goes up, and the account grows to $120,000. When John dies, his heirs get $120,000. In this case, it would not matter if he has taken income - if the account value has grown from his original investment, his heirs get the account value.
GUARANTEED GROWTH - There are a lot of different insurance brokers who provide annuities, and not all of them offer this. Whichever provider you use, I would certainly recommend using a large, stable, reputable (Name Brand) company. The protection is only as good as the insurance company backing it.
I have become familiar with Jackson National Life, one of the largest annuity providers in the US. They have an AA rating in Financial Strength from Fitch & Standard & Poors, which is Very Strong. What that means to a client is that they should feel secure with the protections they are getting on their money. (Source: Jackson Life http://www.jackson.com/)
Jackson offers a Fixed Account Option on its annuities. The Fixed Option offers a 1 Year Interest Rate, which is reset each year, but is never less than 3% (Special Benefit Value). 3% actually looks pretty good right now, doesn't it?
Lets say that John starts out at age 55 by investing his $100,000 in a Fixed Index Annuity. Assuming that the annuity value has grown by 3% per year, by age 65 (10 years) it will be worth $134,392 minimum. (Source: Jackson Ascender Plus Select Brochure, http://www.jackson.com/).
A Variable Annuity should provide more growth over time, however its performance is related to the stock market. The Standard & Poors Index, also referred to as the S & P 500 represents the largest 500 companies in the USA. It has been the measuring stick for comparing investment performance.
If John had been investing his $100,000 in a Variable Annuity using the S & P Index, Jackson lets you have a "win-win". If the market goes up, the account will also go up. If the market goes down, the account value stays the same. This would have been particularly valuable in 2008 when the S & P declined by 42.9%. The value in John's account would have been the same. Had John kept his money invested over the last 10 years, he would have $145,825 today. (Source: Jackson Ascender Plus Select Brochure, http://www.jackson.com/)
I will look at Guaranteed Income Options in another segment. I will also look at additional charges for these features (where they apply). Please keep in mind that an annuity is not for everyone. You should consult with your advisor to determine if an annuity is right for you.
For more information, you may contact me at http://www.helpmy401k.us/. You may also follow me on Twitter at http://twitter.com/DeanVoelker .
In my last post, I discussed some basics of annuities. Annuities can offer some protection for your savings which other investments, such as stocks or mutual funds do not. Keep in mind that the value of your account may still go down.
Lets talk about a few protections which you may get from an annuity.
GUARANTEED DEATH BENEFIT - The first one, common to most annuities, is the Guranteed Death Benefit. What is means is that if you invested a sum of money into an annuity, your beneficiaries will receive at least that amount (minus any income or withdrawals taken).
For example, lets say that John puts $100,000 into a variable annuity. The market goes south, and the value of the annuity dips to $80,000, when John dies. If he has not taken income, his heirs will get the full $100,000. Now lets say that the market goes up, and the account grows to $120,000. When John dies, his heirs get $120,000. In this case, it would not matter if he has taken income - if the account value has grown from his original investment, his heirs get the account value.
GUARANTEED GROWTH - There are a lot of different insurance brokers who provide annuities, and not all of them offer this. Whichever provider you use, I would certainly recommend using a large, stable, reputable (Name Brand) company. The protection is only as good as the insurance company backing it.
I have become familiar with Jackson National Life, one of the largest annuity providers in the US. They have an AA rating in Financial Strength from Fitch & Standard & Poors, which is Very Strong. What that means to a client is that they should feel secure with the protections they are getting on their money. (Source: Jackson Life http://www.jackson.com/)
Jackson offers a Fixed Account Option on its annuities. The Fixed Option offers a 1 Year Interest Rate, which is reset each year, but is never less than 3% (Special Benefit Value). 3% actually looks pretty good right now, doesn't it?
Lets say that John starts out at age 55 by investing his $100,000 in a Fixed Index Annuity. Assuming that the annuity value has grown by 3% per year, by age 65 (10 years) it will be worth $134,392 minimum. (Source: Jackson Ascender Plus Select Brochure, http://www.jackson.com/).
A Variable Annuity should provide more growth over time, however its performance is related to the stock market. The Standard & Poors Index, also referred to as the S & P 500 represents the largest 500 companies in the USA. It has been the measuring stick for comparing investment performance.
If John had been investing his $100,000 in a Variable Annuity using the S & P Index, Jackson lets you have a "win-win". If the market goes up, the account will also go up. If the market goes down, the account value stays the same. This would have been particularly valuable in 2008 when the S & P declined by 42.9%. The value in John's account would have been the same. Had John kept his money invested over the last 10 years, he would have $145,825 today. (Source: Jackson Ascender Plus Select Brochure, http://www.jackson.com/)
I will look at Guaranteed Income Options in another segment. I will also look at additional charges for these features (where they apply). Please keep in mind that an annuity is not for everyone. You should consult with your advisor to determine if an annuity is right for you.
For more information, you may contact me at http://www.helpmy401k.us/. You may also follow me on Twitter at http://twitter.com/DeanVoelker .
Thursday, June 11, 2009
"OK, Now What?"
The market has performed much better over the past 3 months. From a low on 3/09/09 to now, the S & P has risen over 34%. This is an encouraging sign for investors.....BUT.....(as a friend of mine might say, "That's a mighty big but you have!")
All kidding aside, the question we all face is - "OK, Now WHAT?" As I talk with clients, attitudes range from "Gloom & Doom" expecting yet another downturn in our roller-coaster ride, to "Cautiously Optimistic". A common quote is "I don't want to lose anymore." (Sound familiar?)
We still have the same issues - we are living longer than we used to. Hallmark sold over 85,000 birthday cards last year for individuals who had reached at least their 100th birthday. The 100+ group is our fastest growing demographic and current life expectancies are 85 for males, 87 for females.
Over that time, being retired for 25 or more years, you WILL see inflation. As certain as death & taxes.
* Do you have enough money to live 25 years or more in retirement?
* Are you prepared to keep up with rapidly rising costs?
* Is your money protected well enough to weather another economic storm?
How can you get growth, income, and protection at the same time? One idea is with a variable annuity. Please meet with your advisor to determine if a variable annuity is right for you. There are several benefits (protections) which annuities offer which are appealing. I'll address these in a future article, but for now lets look at the basics.
According to wikipedia http://en.wikipedia.org/wiki/Annuity_(US_financial_products), an annuity contract is created when an individual gives a life insurance company money which may grow on a tax-deferred basis and then can be distributed back to the owner in several ways.
A variable annuity works much like a mutual fund (or funds). The funds, known as subaccounts, are held and backed by an insurance company. The insurance company can provide protections on your investment for income, death benefit, and in some cases they can even provide a minimum rate of growth. The 'catch' is that you pay for the protection thru annual fees and charges.
Annuities (and insurance) has changed much over the past 10 years. New government regulations has made insurers to become more client friendly, easier to understand, with more benefits to clients.
One way to look at the positive changes in annuities is to think of improvements made in other products. Think of cell phones for example. When they first arrived on the scene in the 1980's, phones were heavy (remember the backpacks!), expensive, with poor reception, and few features. Now think of them today - you can do all kinds of activities on a cell phone, even take pictures, videos, and use the internet - and the phone easily fits into your pocket.
I will be covering more on annuities to come. You may contact me at www.helpmy401k.us. You may also follow me on Twitter at www.twitter.com/DeanVoelker.
All kidding aside, the question we all face is - "OK, Now WHAT?" As I talk with clients, attitudes range from "Gloom & Doom" expecting yet another downturn in our roller-coaster ride, to "Cautiously Optimistic". A common quote is "I don't want to lose anymore." (Sound familiar?)
We still have the same issues - we are living longer than we used to. Hallmark sold over 85,000 birthday cards last year for individuals who had reached at least their 100th birthday. The 100+ group is our fastest growing demographic and current life expectancies are 85 for males, 87 for females.
Over that time, being retired for 25 or more years, you WILL see inflation. As certain as death & taxes.
* Do you have enough money to live 25 years or more in retirement?
* Are you prepared to keep up with rapidly rising costs?
* Is your money protected well enough to weather another economic storm?
How can you get growth, income, and protection at the same time? One idea is with a variable annuity. Please meet with your advisor to determine if a variable annuity is right for you. There are several benefits (protections) which annuities offer which are appealing. I'll address these in a future article, but for now lets look at the basics.
According to wikipedia http://en.wikipedia.org/wiki/Annuity_(US_financial_products), an annuity contract is created when an individual gives a life insurance company money which may grow on a tax-deferred basis and then can be distributed back to the owner in several ways.
A variable annuity works much like a mutual fund (or funds). The funds, known as subaccounts, are held and backed by an insurance company. The insurance company can provide protections on your investment for income, death benefit, and in some cases they can even provide a minimum rate of growth. The 'catch' is that you pay for the protection thru annual fees and charges.
Annuities (and insurance) has changed much over the past 10 years. New government regulations has made insurers to become more client friendly, easier to understand, with more benefits to clients.
One way to look at the positive changes in annuities is to think of improvements made in other products. Think of cell phones for example. When they first arrived on the scene in the 1980's, phones were heavy (remember the backpacks!), expensive, with poor reception, and few features. Now think of them today - you can do all kinds of activities on a cell phone, even take pictures, videos, and use the internet - and the phone easily fits into your pocket.
I will be covering more on annuities to come. You may contact me at www.helpmy401k.us. You may also follow me on Twitter at www.twitter.com/DeanVoelker.
Wednesday, June 3, 2009
Fixing Your 401(k) - Part 6
Problem #5 - Investments (Company Stock)
Do you own stock in your own company? Companies have always encouraged employees to think like an owner. By owning stock, you are a part owner of your own company. There is nothing wrong with that idea, and if you work for a large company which issues stock, that may be an option available to you in your 401(k) plan.
But how much should you own? Not more than 5-10% of the company in your 401(k). There are just too many "Murphys" out there. http://www.murphys-laws.com/murphy/murphy-true.html
Mutual funds are much more recommended as a way to spread your money out so it can grow.
“Money, you should pardon the expression, is a little bit like manure. It doesn’t do any
good unless it’s spread around, encouraging young things to grow.” Barbra Streisand
One of the worst examples of company stock going sour in a 401(k) is Enron. Enron has been a running joke since 2002 for their collapse due to fraudulent business & accounting practices.
Many of their workers lost their life savings when Enron filed bankruptcy and their stock was rendered worthless. http://www.albionmonitor.com/0202a/enrontimeline.html
Enron's 401(k) plan was enormous - over $1 Billion in total assets, of which $600 Million was in Enron stock - That is 60%! Enron offered a matching plan of up to 6% of an employee's base pay - but paid the match in STOCK, not cash. When the stock plummeted from over $90 per share to less than a $1.00 in 16 months, their employees lost their life savings and any chance at retiring the way they had planned.
http://encarta.msn.com/media_701610605___1___6/the_fall_of_enron_stock.html
Please meet with your advisor if you have more than 10% of your 401(k) or portfolio in company stock. For more information, or to contact me, please visit http://www.helpmy401k.us. You can also follow me on Twitter at http://www.twitter.com/DeanVoelker
Do you own stock in your own company? Companies have always encouraged employees to think like an owner. By owning stock, you are a part owner of your own company. There is nothing wrong with that idea, and if you work for a large company which issues stock, that may be an option available to you in your 401(k) plan.
But how much should you own? Not more than 5-10% of the company in your 401(k). There are just too many "Murphys" out there. http://www.murphys-laws.com/murphy/murphy-true.html
Mutual funds are much more recommended as a way to spread your money out so it can grow.
“Money, you should pardon the expression, is a little bit like manure. It doesn’t do any
good unless it’s spread around, encouraging young things to grow.” Barbra Streisand
One of the worst examples of company stock going sour in a 401(k) is Enron. Enron has been a running joke since 2002 for their collapse due to fraudulent business & accounting practices.
Many of their workers lost their life savings when Enron filed bankruptcy and their stock was rendered worthless. http://www.albionmonitor.com/0202a/enrontimeline.html
Enron's 401(k) plan was enormous - over $1 Billion in total assets, of which $600 Million was in Enron stock - That is 60%! Enron offered a matching plan of up to 6% of an employee's base pay - but paid the match in STOCK, not cash. When the stock plummeted from over $90 per share to less than a $1.00 in 16 months, their employees lost their life savings and any chance at retiring the way they had planned.
http://encarta.msn.com/media_701610605___1___6/the_fall_of_enron_stock.html
Please meet with your advisor if you have more than 10% of your 401(k) or portfolio in company stock. For more information, or to contact me, please visit http://www.helpmy401k.us. You can also follow me on Twitter at http://www.twitter.com/DeanVoelker
Monday, June 1, 2009
Fixing Your 401(k) - Part 5
Problem #5 - Investments
If you have been following me on this blog lately, you might think that I'm against the idea of 401(k) plans. Not so! Let me state this clearly. I LOVE 401(k) plans as a source of saving for retirement. EVERYONE should be participating in a 401(k).
However, there are many potential hazards that you must be aware of in your 401(k) plans.
So my purpose here has been acting as a 'caddy' and letting you know where the bunkers & water hazards are at so we can avoid them. And I certainly want you all to finish the 'course'.
Today, we will look at the problem which most investors find it easiest to point fingers at -
Investments.
How many investment choices are offered in your plan? And how do you choose which ones are right for you? How long do you stay with invesments in your plan before you look for
"greener grass"?
A survey done by Watson Wyatt in January 2008, (Watson Wyatt is the trusted business partner to the world’s leading organizations on people and financial issues)
http://www.watsonwyatt.com/us/pubs/insider/showarticle.asp?ArticleID=18489
gives us this information.
* 30% of all participants have NO equity (stock mutual funds) in their plans.
* 20% of investors at least 45 and older have stopped contributing.
* Too many people are invested heavily in their company stock, some who have at least
50% or more of their plans in company stock.
(Company stock is an issue I will look at in further detail in my next article.)
Dave Ramsey likes to ask this question - If you were CFO of your own finances, would you fire you? Well, the reality is that YES YOU ARE the CFO of your finances & retirement savings!
"Investors Behaving Badly: An Analysis of Investor Trading Patterns in Mutual Funds" is a 2001 article that shows people are holding their funds for shorter and shorter time periods, as short as 2.9 years, and probably even less time these days after all of the challenges recently.
http://spwfe.fpanet.org:10005/public/Unclassified%20Records/FPA%20Journal%20November%202001%20-%20Investors%20Behaving%20Badly_%20An%20Analysis%20of%20Investor%20Trading%20Patt.pdf
This is like moving your boat all around the pond in search of the 'perfect' fishing spot. It usually just scares the fish! This also explains why people finally give up and put everything into "safe" money market funds, because as one gentleman puts it. "At least I'm not losing nothing."
Wayne Gretzky said (during his playing days), "I skate to where the puck is going, not where it has been." How do we know where the 'puck' is going? We don't. That would mean market timing, and as Warren Buffett would say, "I'm not smart enough for that."
How many funds should an employer's plan offer? Anywhere from about 12 - 20 is a good range. Your personal plan should meet these objectives.
* Look for funds which have 10 year (or longer) histories. Established funds give a much
clearer long term picture of what to expect.
* Pay attention to fund expenses. The higher the expenses, the more it can hurt your return.
* Treat the plan as if you are at a "buffet". The plan offers a menu of choices, and it is best to
have somthing from all of the food groups. Just as you wouldn't eat only the fried chicken,
you also need fixed income, dividend paying funds (large companies), medium sized
companies, small companies, and international.
* Meet with an advisor to help you find the mix you should have and how much to put in.
Many good advisors (including myself) offer to do this at no charge to you. Let him or her
help you put a roadmap together which will help you get to (and through) retirement
safely.
Next we will examine the issue of company stock in 401(k) plans. For more information or to contact me, please visit http://www.helpmy401k.us/. You can also follow me on Twitter at
http://twitter.com/DeanVoelker
If you have been following me on this blog lately, you might think that I'm against the idea of 401(k) plans. Not so! Let me state this clearly. I LOVE 401(k) plans as a source of saving for retirement. EVERYONE should be participating in a 401(k).
However, there are many potential hazards that you must be aware of in your 401(k) plans.
So my purpose here has been acting as a 'caddy' and letting you know where the bunkers & water hazards are at so we can avoid them. And I certainly want you all to finish the 'course'.
Today, we will look at the problem which most investors find it easiest to point fingers at -
Investments.
How many investment choices are offered in your plan? And how do you choose which ones are right for you? How long do you stay with invesments in your plan before you look for
"greener grass"?
A survey done by Watson Wyatt in January 2008, (Watson Wyatt is the trusted business partner to the world’s leading organizations on people and financial issues)
http://www.watsonwyatt.com/us/pubs/insider/showarticle.asp?ArticleID=18489
gives us this information.
* 30% of all participants have NO equity (stock mutual funds) in their plans.
* 20% of investors at least 45 and older have stopped contributing.
* Too many people are invested heavily in their company stock, some who have at least
50% or more of their plans in company stock.
(Company stock is an issue I will look at in further detail in my next article.)
Dave Ramsey likes to ask this question - If you were CFO of your own finances, would you fire you? Well, the reality is that YES YOU ARE the CFO of your finances & retirement savings!
"Investors Behaving Badly: An Analysis of Investor Trading Patterns in Mutual Funds" is a 2001 article that shows people are holding their funds for shorter and shorter time periods, as short as 2.9 years, and probably even less time these days after all of the challenges recently.
http://spwfe.fpanet.org:10005/public/Unclassified%20Records/FPA%20Journal%20November%202001%20-%20Investors%20Behaving%20Badly_%20An%20Analysis%20of%20Investor%20Trading%20Patt.pdf
This is like moving your boat all around the pond in search of the 'perfect' fishing spot. It usually just scares the fish! This also explains why people finally give up and put everything into "safe" money market funds, because as one gentleman puts it. "At least I'm not losing nothing."
Wayne Gretzky said (during his playing days), "I skate to where the puck is going, not where it has been." How do we know where the 'puck' is going? We don't. That would mean market timing, and as Warren Buffett would say, "I'm not smart enough for that."
How many funds should an employer's plan offer? Anywhere from about 12 - 20 is a good range. Your personal plan should meet these objectives.
* Look for funds which have 10 year (or longer) histories. Established funds give a much
clearer long term picture of what to expect.
* Pay attention to fund expenses. The higher the expenses, the more it can hurt your return.
* Treat the plan as if you are at a "buffet". The plan offers a menu of choices, and it is best to
have somthing from all of the food groups. Just as you wouldn't eat only the fried chicken,
you also need fixed income, dividend paying funds (large companies), medium sized
companies, small companies, and international.
* Meet with an advisor to help you find the mix you should have and how much to put in.
Many good advisors (including myself) offer to do this at no charge to you. Let him or her
help you put a roadmap together which will help you get to (and through) retirement
safely.
Next we will examine the issue of company stock in 401(k) plans. For more information or to contact me, please visit http://www.helpmy401k.us/. You can also follow me on Twitter at
http://twitter.com/DeanVoelker
Wednesday, May 27, 2009
Fixing Your 401(k) - Part 3
Problem #2 - Portability
OK, after taking a few days off for the Memorial Day weekend, I am back. There are still a few more problems to tackle with 401(k) plans as a retirement tool. Today's topic is Portability.
Question: When you left your last job, what happened to your 401(k)?
Follow Up Questions: How many times does the average worker change jobs during their
working years? And what percentage of people cash out their 401(k)s?
In Gregory Crawford's memo to President Bush in 2005 "The Looming Retirement Disaster",
the average worker will change jobs 5-8 times during their working years. And Jobradio.fm says that 1 out of 5 will likely change in 2009. http://jobradio.fm/2009/01/07/changing-jobs-1-in-5-say-they-will-in-2009/
The era of the "gold watch" after a long, loyal career is pretty much OVER. People may change for any numbe of reasons, but whatever the reason is, it may have a dramatic effect on retirement savings. There can be waiting periods to participate in a 401(k), the new employer
may or may not offer a plan, and there are interruptions in employer matching contributions.
And on average, this happens 5-8 times for the typical worker over their working life.
How many people simply cash out all or part of their 401(k)? According to Gregory Crawford,
an astonishing 55%. If you are younger than 59 1/2, you are subject to taxes plus a 10% penalty by the government. Without education, or belief that the market will come back, many people convinced that this is the right thing to do "before they lose any more."
How exactly does this affect our savings?
In the last post, I showed how a worker earning $75,000/year for 20 years, putting in $6075 per year (8.1%) and getting a 4% match and an 8% average return would have saved
$431,901 in 20 years.
Using the same scenario, lets have this worker change jobs 3 times, with the last 10 years at the same job. We have just cut our savings down to $136,724. (Source Jackson Life - Rollover Rx). And if we take 5% income from that, we now have an income of $6836/year.
For more information, please contact me at www.helpmy401k.us
OK, after taking a few days off for the Memorial Day weekend, I am back. There are still a few more problems to tackle with 401(k) plans as a retirement tool. Today's topic is Portability.
Question: When you left your last job, what happened to your 401(k)?
Follow Up Questions: How many times does the average worker change jobs during their
working years? And what percentage of people cash out their 401(k)s?
In Gregory Crawford's memo to President Bush in 2005 "The Looming Retirement Disaster",
the average worker will change jobs 5-8 times during their working years. And Jobradio.fm says that 1 out of 5 will likely change in 2009. http://jobradio.fm/2009/01/07/changing-jobs-1-in-5-say-they-will-in-2009/
The era of the "gold watch" after a long, loyal career is pretty much OVER. People may change for any numbe of reasons, but whatever the reason is, it may have a dramatic effect on retirement savings. There can be waiting periods to participate in a 401(k), the new employer
may or may not offer a plan, and there are interruptions in employer matching contributions.
And on average, this happens 5-8 times for the typical worker over their working life.
How many people simply cash out all or part of their 401(k)? According to Gregory Crawford,
an astonishing 55%. If you are younger than 59 1/2, you are subject to taxes plus a 10% penalty by the government. Without education, or belief that the market will come back, many people convinced that this is the right thing to do "before they lose any more."
How exactly does this affect our savings?
In the last post, I showed how a worker earning $75,000/year for 20 years, putting in $6075 per year (8.1%) and getting a 4% match and an 8% average return would have saved
$431,901 in 20 years.
Using the same scenario, lets have this worker change jobs 3 times, with the last 10 years at the same job. We have just cut our savings down to $136,724. (Source Jackson Life - Rollover Rx). And if we take 5% income from that, we now have an income of $6836/year.
For more information, please contact me at www.helpmy401k.us
Wednesday, May 13, 2009
Where You Put Your Money Does Matter
According to Dave Ramsey (www.daveramsey.com), "A Simple one-time investment of $1000 could make a huge difference at retirement...if you know how and where to invest it.
Did you know that 84% of teens have some money saved, with the average being $1044. (I remember being in this position once as a high school student, working & saving. Boy, do I wish someone had shared this with me at that time! $1000 was worth more in 1982 than today!)
Dave Ramsey has a simple chart with some interesting facts.
http://www.daveramsey.com/school/media/pdf/sample_chapter.pdf (Page 9)
He points out on his chart that he learned from a Charles Schwab survey that 81% of teens say that it is important to have a lot of money in their lives. However only 22% say they know how to invest money to make it grow. And only 24% believe that since they are you, saving money now is not that important.
The chart shows what can happen to $1000 over a 40 year period (Age 25 -65) at different rates of return 6%, 12%, and 18% (with no new money added). Because of the compounding effect of interest, a snowball effect is created.
At 6%, $1000 will grow to $10,285 in 40 years.
At 12%, $1000 will grow to $93,050 in 40 years.
At 18%, $1000 will grow to $750,378 in 40 years.
There are some well-established mutual funds which have averaged 12%per year over a 40 year or longer time period. That does NOT mean that the fund will perform at 12% every year. 12% is merely an average.
As Dave often reminds us, saving & building wealth requires discipline and it is a marathon, not a sprint. Plant the seed and let it grow.
Are there any funds which average 18%? None that I can think of which have consistently perform at that level long term - However, think of your credit card lenders, and other forms of revolving credit. Can you see how they make money?
Remember the compound snowball is either working FOR you or AGAINST you. With all of the recent news about credit card lenders gouging, http://njmg.typepad.com/moneyblog/2009/05/credit-card-gouging.html
isn't this a great time to cut up the cards and begin to take control of your finances again?
Do you know a teen who has saved some money?
For more information, please contact me at www.deanvoelker.com.
Did you know that 84% of teens have some money saved, with the average being $1044. (I remember being in this position once as a high school student, working & saving. Boy, do I wish someone had shared this with me at that time! $1000 was worth more in 1982 than today!)
Dave Ramsey has a simple chart with some interesting facts.
http://www.daveramsey.com/school/media/pdf/sample_chapter.pdf (Page 9)
He points out on his chart that he learned from a Charles Schwab survey that 81% of teens say that it is important to have a lot of money in their lives. However only 22% say they know how to invest money to make it grow. And only 24% believe that since they are you, saving money now is not that important.
The chart shows what can happen to $1000 over a 40 year period (Age 25 -65) at different rates of return 6%, 12%, and 18% (with no new money added). Because of the compounding effect of interest, a snowball effect is created.
At 6%, $1000 will grow to $10,285 in 40 years.
At 12%, $1000 will grow to $93,050 in 40 years.
At 18%, $1000 will grow to $750,378 in 40 years.
There are some well-established mutual funds which have averaged 12%per year over a 40 year or longer time period. That does NOT mean that the fund will perform at 12% every year. 12% is merely an average.
As Dave often reminds us, saving & building wealth requires discipline and it is a marathon, not a sprint. Plant the seed and let it grow.
Are there any funds which average 18%? None that I can think of which have consistently perform at that level long term - However, think of your credit card lenders, and other forms of revolving credit. Can you see how they make money?
Remember the compound snowball is either working FOR you or AGAINST you. With all of the recent news about credit card lenders gouging, http://njmg.typepad.com/moneyblog/2009/05/credit-card-gouging.html
isn't this a great time to cut up the cards and begin to take control of your finances again?
Do you know a teen who has saved some money?
For more information, please contact me at www.deanvoelker.com.
Tuesday, May 5, 2009
College Savings Plans
With school winding down here in May, it may be a good time to bring up College Savings Plans.
College costs have increased wildly over the past 30 years due to improvements in technology,
modernizing campus facilities, and demand for those who want to attend college.
http://www.nytimes.com/2007/10/22/education/21cnd-tuition.html?hp
There isn't much you can do to bring college costs down, however, you can certainly help defray the expense with a good savings plan. The most popular Savings Plan for college right now is the 529 plan, which allows money saved in the plan to be invested in mutual funds. The money can grow tax free, and it can be withdrawn tax free also if the account is being used for educational
expenses. Think of it as a Roth IRA for college.
In Indiana, the 529 plan by U Promise www.collegechoiceplan.com is even sweeter. You can get 20% of your contribution refunded to you in the form of a tax credit. (up to $5000 per IN resident). In other words, if you contribute $5000, you get $1000 back the following spring on your Indiana state tax return.
I am also proud to see that U Promise made the list of best 529 plans according to Business Week and Morningstar.
http://www.businessweek.com/investing/insights/blog/archives/2009/04/best_and_worst.html
If you are an Indiana resident, and you would like more information on saving for your child's college education, please contact me at www.deanvoelker.com.
College costs have increased wildly over the past 30 years due to improvements in technology,
modernizing campus facilities, and demand for those who want to attend college.
http://www.nytimes.com/2007/10/22/education/21cnd-tuition.html?hp
There isn't much you can do to bring college costs down, however, you can certainly help defray the expense with a good savings plan. The most popular Savings Plan for college right now is the 529 plan, which allows money saved in the plan to be invested in mutual funds. The money can grow tax free, and it can be withdrawn tax free also if the account is being used for educational
expenses. Think of it as a Roth IRA for college.
In Indiana, the 529 plan by U Promise www.collegechoiceplan.com is even sweeter. You can get 20% of your contribution refunded to you in the form of a tax credit. (up to $5000 per IN resident). In other words, if you contribute $5000, you get $1000 back the following spring on your Indiana state tax return.
I am also proud to see that U Promise made the list of best 529 plans according to Business Week and Morningstar.
http://www.businessweek.com/investing/insights/blog/archives/2009/04/best_and_worst.html
If you are an Indiana resident, and you would like more information on saving for your child's college education, please contact me at www.deanvoelker.com.
Saturday, May 2, 2009
Am I Getting The Most From My 401(k)?
Today's economic conditions seem to create more questions than answers.
Yet the fact remains - we need to continue to save (and invest) in order to retire with dignity.
Dave Kansas makes a good point in a recent article "What Do I Do Now?" (Wall Street Journal - April 10, 2009) http://www.marketwatch.com/News/Story/do-do-now/story.aspx?guid=%7BE341FAB9-B0EC-4310-8E19-E03CE63FB7E4%7D when he quotes the author, Rudyard Kipling. "Keep your head about you as everyone is losing theirs."
That is what many good advisors tell you, although it is easy to say....and hard to do.
Another problem is that company retirement plans have become increasingly complex. Features such as online investing and elections, and mulitiple fund choices were designed for convenience, but actually may cause people to become "accidental " investors, which leads to confusion and inconsistent results.
This can present a problem for businesses who have a Fiduciary Responsibility to their employees to provide the highest quality investments and proper education on how to invest, why to invest, and how much to invest - at a reasonable cost.
Alliance Bernstein did a study recently http://www.deanvoelker.com/files/ab401kreview.pdf.
They found that both plan sponsors and participants want to "keep it simple".
(Hmmm....imagine that!)
Plan sponsors must review their plans on a regular basis. They need to make sure they are working with a professional who can meet with employees regularly and "keep it simple."
A strategy must be put in place to make sure you are saving enough.
http://www.helpmy401k.us/investment-tools.htm Please use the 401(k) calculator to see if you are on track for your goals.
Employees should also ask their plan sponsor about how funds are selected. There needs to be enough selection to be diversified, but not so much that it is overwhelming.
"Keep your head about you while everyone else is losing theirs." (Kipling)
"Be fearful when others are greedy, and greedy when others are fearful." (Buffett)
Please contact me at www.deanvoelker.com for more information.
Yet the fact remains - we need to continue to save (and invest) in order to retire with dignity.
Dave Kansas makes a good point in a recent article "What Do I Do Now?" (Wall Street Journal - April 10, 2009) http://www.marketwatch.com/News/Story/do-do-now/story.aspx?guid=%7BE341FAB9-B0EC-4310-8E19-E03CE63FB7E4%7D when he quotes the author, Rudyard Kipling. "Keep your head about you as everyone is losing theirs."
That is what many good advisors tell you, although it is easy to say....and hard to do.
Another problem is that company retirement plans have become increasingly complex. Features such as online investing and elections, and mulitiple fund choices were designed for convenience, but actually may cause people to become "accidental " investors, which leads to confusion and inconsistent results.
This can present a problem for businesses who have a Fiduciary Responsibility to their employees to provide the highest quality investments and proper education on how to invest, why to invest, and how much to invest - at a reasonable cost.
Alliance Bernstein did a study recently http://www.deanvoelker.com/files/ab401kreview.pdf.
They found that both plan sponsors and participants want to "keep it simple".
(Hmmm....imagine that!)
Plan sponsors must review their plans on a regular basis. They need to make sure they are working with a professional who can meet with employees regularly and "keep it simple."
A strategy must be put in place to make sure you are saving enough.
http://www.helpmy401k.us/investment-tools.htm Please use the 401(k) calculator to see if you are on track for your goals.
Employees should also ask their plan sponsor about how funds are selected. There needs to be enough selection to be diversified, but not so much that it is overwhelming.
"Keep your head about you while everyone else is losing theirs." (Kipling)
"Be fearful when others are greedy, and greedy when others are fearful." (Buffett)
Please contact me at www.deanvoelker.com for more information.
Tuesday, April 28, 2009
401(k) Bargains
I've been talking with several clients lately (even in their 30's & 40's) who aren't sure what they should be doing with their 401(k)s. A few of them have even taken money out of the 401(k) or IRA, because they "don't want to lose anymore".
We need to remember that while the market goes up and also goes down, over time IT GOES UP. Putting money into your 401(k) now (while prices are low) can only help, especially if your employer matches your contribution. We MUST get back to thinking big picture, not just what is happening today. As one advisor likes to say, "Short Term thinking is very murky, but Long Term is crystal clear."
Walter Updegrave mentions this in his article "Don't Miss Out on 401(k) Bargains" in Money Magazine. http://finance.yahoo.com/focus-retirement/article/106833/Don't-Miss-Out-on-401k-Bargains;_ylt=Ajq2DWlNpxka9nV4LwU8Qf.VBa1_?mod=fidelity-readytoretire
The best time to invest is when prices are low, and you don't want to take money out if you don't have to. It has the same effect as uprooting a plant - You are killing your money tree, in addition to paying taxes and a 10% penalty.
When would you prefer to buy groceries - at regular price or on sale?
Treat your investing the same way.
Want to lower your risk? How diversified are you?
The one thing missing in most 401(k) plans is professional advice & education for the employees. It's not enough for the guy (or lady) to come out a couple of times a year and ask if anyone has questions. My job as a professional must be to sit down with you and help you with a road map. We need to see where you are now, and where you need to be. The 401(k) is a vehicle which can (and should) be used to help you get there.
Don't miss out on 401(k) bargains!
For more information, please contact me at www.deanvoelker.com .
We need to remember that while the market goes up and also goes down, over time IT GOES UP. Putting money into your 401(k) now (while prices are low) can only help, especially if your employer matches your contribution. We MUST get back to thinking big picture, not just what is happening today. As one advisor likes to say, "Short Term thinking is very murky, but Long Term is crystal clear."
Walter Updegrave mentions this in his article "Don't Miss Out on 401(k) Bargains" in Money Magazine. http://finance.yahoo.com/focus-retirement/article/106833/Don't-Miss-Out-on-401k-Bargains;_ylt=Ajq2DWlNpxka9nV4LwU8Qf.VBa1_?mod=fidelity-readytoretire
The best time to invest is when prices are low, and you don't want to take money out if you don't have to. It has the same effect as uprooting a plant - You are killing your money tree, in addition to paying taxes and a 10% penalty.
When would you prefer to buy groceries - at regular price or on sale?
Treat your investing the same way.
Want to lower your risk? How diversified are you?
The one thing missing in most 401(k) plans is professional advice & education for the employees. It's not enough for the guy (or lady) to come out a couple of times a year and ask if anyone has questions. My job as a professional must be to sit down with you and help you with a road map. We need to see where you are now, and where you need to be. The 401(k) is a vehicle which can (and should) be used to help you get there.
Don't miss out on 401(k) bargains!
For more information, please contact me at www.deanvoelker.com .
Wednesday, April 22, 2009
How Should I Invest?
Everyone has beeen asking lately - "How should I be investing my money?" or "What's Good Right Now"?
The answers to those questions should provoke several other questions from your advisor.
I could say "Depends", which doesn't mean to invest in adult diapers, but you should give your advisor more information.
How you should invest your money really does depend on you.
* What are your goals?
Is it to be 'debt free'? Is it to own a 60 foot yacht? Golf everyday? Spend time with grandkids?
What does having money mean to YOU? Once you figure that out and communicate that with an advisor, he or she can help to give you the right place to put your money.
* What are your financial circumstances?
Someone with $100,000 in savings and no debt is in a different place in their life than someone who has $500 to "play with", but no other savings. As an advisor, I do not want to "gamble" with anyone's money. I look to provide appropriate long term solutions to help you reach your goals.
My job is to give you the "Map" you need to get from where you are now, to where you want to be - and make sure you are happily involved every step of the way.
* What is your tolerance for Risk?
OK I said it - the "R" word. To which you may say "I don't want any risk."
It's important to understand that ALL investments have risk. Even your savings account which
is FDIC insured has risk.
"How is that?" you ask.
Savings & CDs have "inflation risk", which means they are not good long term vehicles to keep up with the rising cost of living - inflation.
The best way to minimize risk is to use a mix of different investments that have different purposes - like different clothes in your closet - or "Diversification". There are also questions which your advisor may ask you to help you understand what risk means.
It all boils down to one question - Money means different things to different people.
What is important about money to you?
For more information, or to contact me directly, please visit www.deanvoelker.com
The answers to those questions should provoke several other questions from your advisor.
I could say "Depends", which doesn't mean to invest in adult diapers, but you should give your advisor more information.
How you should invest your money really does depend on you.
* What are your goals?
Is it to be 'debt free'? Is it to own a 60 foot yacht? Golf everyday? Spend time with grandkids?
What does having money mean to YOU? Once you figure that out and communicate that with an advisor, he or she can help to give you the right place to put your money.
* What are your financial circumstances?
Someone with $100,000 in savings and no debt is in a different place in their life than someone who has $500 to "play with", but no other savings. As an advisor, I do not want to "gamble" with anyone's money. I look to provide appropriate long term solutions to help you reach your goals.
My job is to give you the "Map" you need to get from where you are now, to where you want to be - and make sure you are happily involved every step of the way.
* What is your tolerance for Risk?
OK I said it - the "R" word. To which you may say "I don't want any risk."
It's important to understand that ALL investments have risk. Even your savings account which
is FDIC insured has risk.
"How is that?" you ask.
Savings & CDs have "inflation risk", which means they are not good long term vehicles to keep up with the rising cost of living - inflation.
The best way to minimize risk is to use a mix of different investments that have different purposes - like different clothes in your closet - or "Diversification". There are also questions which your advisor may ask you to help you understand what risk means.
It all boils down to one question - Money means different things to different people.
What is important about money to you?
For more information, or to contact me directly, please visit www.deanvoelker.com
Tuesday, April 14, 2009
Single Bonds or Mutual Funds?
What's the best way to buy municipal bonds? Should I buy single bonds or mutual funds?
Like most decisions, there are pros & cons with both methods. You should talk with you advisor about which method is right for you - possibly a mix of both.
One of the advantages of owning a single bond is that you have a fixed rate of return - you know exactly what you are getting. For example, on a $100,000 muni bond paying a 5% coupon, you will get $5000 per year in interest income. Because you don't have to pay federal taxes and you may not need to pay state taxes, that may be similar to getting 7% or more, depending on your tax bracket.
Interest from a single bond is usually paid ever; 6 months, so you would get $2500 with each installment. You may also ask your advisor to structure your bonds in such a way that you are able to receive income every month.
Another advantage it that while your advisor does get paid, his or her commission is built into the price of the bond when you buy it. This is a common question I am asked.
Think of buying soup at your local grocery store. The grocer buys soup in large bulk quantities, with all brand names & flavors. Because they buy so much soup at once, they can buy at a wholesale price. When a customer buys soup, they pay a retail price and may only buy 1 can, or a few cans at a time.
Bonds work the same way. If you buy a bond worth $10000, you will get $10000 when it comes due. Along the way, you have gotten a great tax free rate of return every 6 months. If you are fortunate enough to be working with a great advisor, you may have even been able to buy the bond at a discount, so that when it does come due, you even had a small gain. (Woo-Hoo!)
Its great when everyone wins!
One more thing about a single bond - You know exactly which project you are supporting.
(Example - St. Joseph Regional Medical Center Bond)
A big disadvantage is that a single bond is not diversified. This is where mutual funds are better. Going back to the "soup" example, a mutual fund allows you to carry all the "flavors" in one investment, which is managed by professionals at a mutual fund family.
Most bond mutual funds also pay interest monthly, because they own hundreds of bonds. This can be helpful if you are counting on monthly income from your investments, and a huge advantage over CDs.
Also, it is much easier to invest a smaller amount. For those who don't have the 5000 or 10000 minimums required by many single bonds, you can establish a mutual fund for as little as 1000.
Once you have a fund, you can add to it or even withdraw money easily.
Sales charges on bond funds purchased through your advisor may be as high as 4.25%, although you may qualify for volume discounts, also known as "breakpoints" if you are able to invest large amounts of money.
For more information on municipal bonds or other investing, please contact me at www.deanvoelker.com
Like most decisions, there are pros & cons with both methods. You should talk with you advisor about which method is right for you - possibly a mix of both.
One of the advantages of owning a single bond is that you have a fixed rate of return - you know exactly what you are getting. For example, on a $100,000 muni bond paying a 5% coupon, you will get $5000 per year in interest income. Because you don't have to pay federal taxes and you may not need to pay state taxes, that may be similar to getting 7% or more, depending on your tax bracket.
Interest from a single bond is usually paid ever; 6 months, so you would get $2500 with each installment. You may also ask your advisor to structure your bonds in such a way that you are able to receive income every month.
Another advantage it that while your advisor does get paid, his or her commission is built into the price of the bond when you buy it. This is a common question I am asked.
Think of buying soup at your local grocery store. The grocer buys soup in large bulk quantities, with all brand names & flavors. Because they buy so much soup at once, they can buy at a wholesale price. When a customer buys soup, they pay a retail price and may only buy 1 can, or a few cans at a time.
Bonds work the same way. If you buy a bond worth $10000, you will get $10000 when it comes due. Along the way, you have gotten a great tax free rate of return every 6 months. If you are fortunate enough to be working with a great advisor, you may have even been able to buy the bond at a discount, so that when it does come due, you even had a small gain. (Woo-Hoo!)
Its great when everyone wins!
One more thing about a single bond - You know exactly which project you are supporting.
(Example - St. Joseph Regional Medical Center Bond)
A big disadvantage is that a single bond is not diversified. This is where mutual funds are better. Going back to the "soup" example, a mutual fund allows you to carry all the "flavors" in one investment, which is managed by professionals at a mutual fund family.
Most bond mutual funds also pay interest monthly, because they own hundreds of bonds. This can be helpful if you are counting on monthly income from your investments, and a huge advantage over CDs.
Also, it is much easier to invest a smaller amount. For those who don't have the 5000 or 10000 minimums required by many single bonds, you can establish a mutual fund for as little as 1000.
Once you have a fund, you can add to it or even withdraw money easily.
Sales charges on bond funds purchased through your advisor may be as high as 4.25%, although you may qualify for volume discounts, also known as "breakpoints" if you are able to invest large amounts of money.
For more information on municipal bonds or other investing, please contact me at www.deanvoelker.com
Monday, April 13, 2009
Tax-Free Bonds - - Are They Safe?
On Friday, we talked about how a municipal bond can pay higher interest then a CD, and its even better when you consider you don't pay Federal taxes on the interest you earn. You may also be free from State & Local taxes depending on where you live, and where the bond(s) was issued.
A common question which I am asked is - "How safe are they?"
Muni bonds are very safe investments. They are backed by the taxing power of the state which issued the bond. Bonds are given ratings based on the credit quality of the issuer.
AAA - Very High Credit Quality
AA - High Quality
A - Good Quality
BBB - Investment Grade (still a safe investment)
For obvious reasons, I would not advise buying bonds with less than a BBB rating. For my clients, I generally prefer at least an A rating or above.
When we say 'safe', it means that you should have a reasonable expectation of receiving your interest payments on time and also receiving your principal investment repaid on time. Think of your car. When you go to start your car, you would have a reasonable expectation that it would start when you turn the key.
On the very slim chance it didn't, of course you would take steps (i.e. jump start, battery change) if needed to get it started, and return to having a 'reasonable expectation' for it to start when you need it. Bonds work much the same way, even if you are worried about the ability of a certain state to repay its loan, the state may simply levy a tax to pay back the bond.
You can also buy muni bonds which are insured for that extra layer of safety. Common insurers are MBIA (Municipal Bond Insurance Association) www.mbia.com, AMBAC (American Municipal Bond Assurance Corporation) www.ambac.com, and FSA (Financial Security Assurance) www.fsa.com .
Tomorrow, we can talk about the 2 main ways to buy muni bonds - individual bonds or mutual funds.
For more information on muni bonds, you may contact me at www.deanvoelker.com .
A common question which I am asked is - "How safe are they?"
Muni bonds are very safe investments. They are backed by the taxing power of the state which issued the bond. Bonds are given ratings based on the credit quality of the issuer.
AAA - Very High Credit Quality
AA - High Quality
A - Good Quality
BBB - Investment Grade (still a safe investment)
For obvious reasons, I would not advise buying bonds with less than a BBB rating. For my clients, I generally prefer at least an A rating or above.
When we say 'safe', it means that you should have a reasonable expectation of receiving your interest payments on time and also receiving your principal investment repaid on time. Think of your car. When you go to start your car, you would have a reasonable expectation that it would start when you turn the key.
On the very slim chance it didn't, of course you would take steps (i.e. jump start, battery change) if needed to get it started, and return to having a 'reasonable expectation' for it to start when you need it. Bonds work much the same way, even if you are worried about the ability of a certain state to repay its loan, the state may simply levy a tax to pay back the bond.
You can also buy muni bonds which are insured for that extra layer of safety. Common insurers are MBIA (Municipal Bond Insurance Association) www.mbia.com, AMBAC (American Municipal Bond Assurance Corporation) www.ambac.com, and FSA (Financial Security Assurance) www.fsa.com .
Tomorrow, we can talk about the 2 main ways to buy muni bonds - individual bonds or mutual funds.
For more information on muni bonds, you may contact me at www.deanvoelker.com .
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