How to Maximize Your Social Security

Posted On July 14, 2014 By Admin In Retirement Planning /

When should I start my Social Security benefits? I am asked this question frequently and find that many otherwise rational individuals don’t actually look at any data or analysis when making this important decision. As a financial planner, I have the tools to help you take a closer look at all your options to make an informed choice, rather than relying on heuristic biases. The first step, though, is to understand what happens when you start at age 62, 66, or 70. And that’s what today’s post aims to accomplish.

74% of Americans start their Social Security benefits early, before the Full Retirement Age (FRA) of 66 (for individuals born between 1943-1954). Starting at age 62 will result in a reduction in benefits to 75% of your primary insurance amount (PIA). If you wait past age 66, you will receive Delayed Retirement Credits (DRCs), equal to 8% a year, or a 32% increase for individuals who wait until age 70. Many of the individuals who wait until age 70 do so because they are still working. However, even for individuals who retire at age 62, it may make sense to delay benefits to age 66 or 70 and live off other sources of income, in order to receive a higher future Social Security benefit.

Delaying from age 62 to 70 offers a 76% increase in benefits. For example, someone with a PIA of $1000 a month would receive this amount at age 66, but would receive $750 at 62 or $1320 at 70. While COLAs or additional earnings will increase your benefits regardless of when you start, a 2% COLA is obviously going to produce a higher dollar increase if your benefit amount is $1320 rather than $750. So in nominal dollars, the difference between 62 and 70 typically exceeds 76%.

For single individuals, the decision is relatively straightforward. Social Security was designed so that a person with average life expectancy will receive the same benefits regardless of whether they start at age 62, 66, or 70. On an individual level, if your life expectancy is above average, you will receive greater total lifetime payments by delaying benefits until age 70. And if your life expectancy is below average, you will not have enough years of higher benefits to make up for the lost years, so you should start benefits earlier. The breakeven for delaying from age 66 to age 70 is between age 83 and 84. Delaying from 62 to 70 creates a breakeven between age 80 and 81.

Since 74% of recipients start benefits early, the behavioral bias is that people are underestimating their life expectancy. It should be 50% – half of us will live shorter than average and half will live longer. Unfortunately, many of the 74% will live longer than average and their choice means they will receive lower lifetime benefits than if they had delayed to age 66 or 70.

In addition to life expectancy, the other consideration for a single individual is if they have other sources of income. If he or she can get by with withdrawals of 4% or less from their portfolio from age 62 or 66 to age 70, then I would encourage them to delay the Social Security benefits.

Delaying benefits will reduce the future withdrawals required from their portfolio and increase the likelihood that their portfolio will be able to provide lifetime income. When I run Monte Carlo analyses for clients, those who fund a larger percentage of their needs from guaranteed payments like Social Security (or a Pension) have a greater probability of success than retirees who are more dependent on portfolio withdrawals. A larger Social Security benefit reduces the impact from poor potential outcomes in the stock and bond markets, or from an initial drop in the market, called Sequence of Returns Risk.

For married couples, the decision to delay benefits becomes more complex. Neither your Social Security statements nor the calculators on the SSA.gov website help with coordinating spousal benefits. Often, it may make sense to delay for one spouse but not for the other.

A general rule for couples is that you should consider maximizing the higher earning spouse’s SS benefit amount by delaying to age 70. The larger benefit will become the survivor’s benefit, so in effect, the higher earner can consider his or her benefit to be a joint and survivor benefit. And if the spouse is younger or has a high life expectancy, than delaying to age 70 for the higher earner may be an even better idea, in terms of actuarial odds.

Social Security is a good hedge for portfolio performance and an 8% guaranteed increase for delaying one year is a valuable benefit. I looked at quotes this month for immediate single-life annuities and for a 66-yr old male versus a 67-yr old, the rate increase was only 2.2%. Delaying from 66 to age 70 increased the annuity benefit by 12.2%. That gives you an idea of how exceptionally valuable the 8% annual increase is (or 32% for waiting four years), given the low interest rate environment we face today.

Aside from the principle of delaying the higher earning spouse, it is difficult to make other generalizations about delaying to age 70 as the details of a couple’s specific situation typically determine the best course of action. I use financial planning software to analyze your options and suggest an approach to coordinate your benefits into your overall financial plan. There are two tools which married couples might consider to provide some often-missed benefits as one or both defer to age 70.

The first tool is the ability to file and suspend. At full retirement age (66), you can file for benefits but immediately suspend the payments. This enables your spouse to be eligible to receive a spousal benefit, while you can continue to receive deferred credits for delaying to age 70. This is typically used if the spouse does not have any SS benefit based on their own earnings, or if the spouse’s individual benefit is less than the spousal benefit amount (half of the first spouse’s PIA, if the second spouse is at FRA).

If a spousal benefit applies, it is important to know that DRCs are not added to a spousal benefit. While the primary spouse will receive the 8% increase after age 66, the spousal benefit does not increase. So, if the spouse is the same age or older than the higher earning spouse, it is important to not delay the spousal benefit once both are age 66.

The second tool is a restricted application. At FRA, a spouse may restrict their application to receive only their spousal benefit amount and still earn Deferred Retirement Credits on their own benefit. Then they can switch to their own benefit at age 70. However, to receive any spousal benefit, the other spouse must be currently receiving benefits. This works if you want to delay from age 66 to 70 and if your spouse is already receiving benefits (or has filed and suspended).

These two tools provide a benefit from age 66-70 which many people miss. Both techniques will allow one spouse to defer their individual benefit to age 70 to maximize their payment amount (and potentially, the survivor’s benefit amount), while receiving an additional benefit for those four years. If you might benefit from either of those tools, don’t expect the Social Security Administration to tell you. And if you miss those benefits, you’ll lose free money that you can’t get later.

10 Questions Grandparents Ask About 529 Plans (Updated for 2026)

Posted On July 7, 2014 By Scott Stratton, CFP(R), CFA In College Savings / 1 Comment

1) What are the tax benefits of 529 plans?

529 plans grow tax-free, and qualified withdrawals for educational expenses are not subject to federal income tax. Some states also offer state income tax deductions or credits for contributions. There are no federal tax deductions for contributions, but tax-free growth and withdrawals for qualified purposes remain a core benefit.

2) Which 529 plan should I choose?

Some states offer a state tax incentive for residents who participate in their 529 plan (e.g., a state deduction), while other states do not. Even in states without income tax, you can choose low-cost plans from any state. Compare fees, investment options, and state tax benefits before selecting a plan.

3) What expenses can you use a 529 plan for?

Qualified expenses include tuition, fees, books, supplies, computers, and room and board (up to certain limits). You can also use up to $10,000 lifetime from a 529 plan to repay student loans for the beneficiary. Each state plan may vary slightly in how it treats various qualified costs.

4) Are there limits to 529 contributions?

Contributions are treated as gifts for gift tax purposes. There’s an annual gift tax exclusion, but you can elect to “superfund” five years of contributions in one year without consuming gift tax exemption. High contributions may require filing a gift tax return and count against your lifetime gift/estate tax exemption.

For 2026, the gift tax exclusion is $19,000 per beneficiary. For a married couple, they could give $38,000 ($19,000 each). Front loading contributions for 5 years is $95,000 from one person or $190,000 from a married couple.

5) How do assets in a 529 plan impact estate planning and eligibility for Medicaid?

529 plan assets are generally excluded from your taxable estate, which can reduce potential estate tax exposure. For Medicaid eligibility, states vary on how they treat 529 assets — some include them in asset tests. Always check rules for your state’s programs.

6) How do 529 plans affect students’ eligibility for financial aid?

Money in a grandparent-owned 529 plan isn’t reported on the federal financial aid application (FAFSA) as an asset, which can improve eligibility for need-based aid relative to assets in the parent’s or student’s name. However, distributions from a grandparent plan may count as student income when received, which can impact aid in subsequent years. It may be preferable, if possible, to save a grandparent 529 for the last year of college.

7) What if my student doesn’t need all the 529 plan funds?

There are multiple options for unused 529 funds:

Change the beneficiary to another qualifying family member (including siblings or cousins).
Use up to $10,000 for student loan repayment.
Leave the funds for future education costs, including for future children of the current beneficiary.
Take a non-qualified withdrawal (subject to tax on earnings and a penalty) if other options aren’t suitable.

8) Can leftover 529 funds be rolled into a Roth IRA?

Yes — under rules effective starting in 2024 through SECURE Act 2.0, families now have the option to move unused 529 plan funds to the Roth IRA of the plan beneficiary on a tax-free, penalty-free basis, subject to specific conditions:

Key points of this rollover option:

The 529 plan must have been open for the same beneficiary for at least 15 years.
Amounts rolled over are limited to lifetime total of $35,000 per beneficiary.
Annual rollovers can’t exceed the current Roth IRA annual contribution limit (e.g., $7,500 for 2026, higher if the beneficiary is age 50+).
The beneficiary must have earned income at least equal to the amount rolled over in the year of transfer.
Funds must transfer trustee-to-trustee directly into a Roth IRA to qualify.

This rollover option does not allow contributions into a Roth IRA for someone other than the beneficiary, and contributions (or earnings on them) made within the past 5 years may be ineligible.

This change offers a valuable way to repurpose leftover education savings into retirement savings — but the rules are technical and should be reviewed carefully with a planner or advisor.

9) How do 529 plans affect my own access to the money?

You, as the plan owner, can withdraw funds at any time. If used for non-qualified expenses, earnings are subject to income tax and a 10% penalty (except in certain exceptions). When withdrawing non-qualified amounts, the distribution is treated proportionally between contributions and earnings.

10) When does it make sense to pay tuition directly instead of using a 529 plan?

If a student is close to college age and account growth would be limited before spending, it may make sense to pay costs directly. Giving money directly to a student or grandchild can count against gift tax exclusion amounts and may affect financial aid eligibility. Establishing a 529 early in life typically offers the greatest tax-free growth potential.

529 plans remain a powerful tool for college savings — and the new Roth IRA rollover option adds flexibility for leftover funds when education expenses are covered. If you’d like a planning-first look at how 529 plans fit into your broader retirement and legacy goals, you’re welcome to Request an Introductory Conversation.

Why Alan Didn’t Rollover his 401(k)

Posted On July 1, 2014 By Admin In Retirement Planning /

Alan and Lois began investing in the 1990’s when their tax preparer suggested the young couple establish a Roth IRA to begin saving for retirement. They each deposited $2,000 into a Roth, the maximum contribution back then. As the contribution limits increased, they continued to fund their Roth IRAs, and as their careers flourished, they were able to contribute to their 401(k) plans at work as well.

This worked for more than a decade, until 2006, when their joint income exceeded the income limitations to contribute to a Roth IRA. At that point, they ceased making contributions. They could have funded a Traditional IRA, but it would have been non-deductible. Luckily, I met Alan and Lois two years ago and I was able to determine they were eligible for a Back Door Roth IRA.

Prior to 2010, in order to convert a Traditional IRA into a Roth, you had to have a joint income under $100,000. When this income restriction was abolished in 2010, it created a new opportunity. Now, anyone can contribute to a Traditional IRA – which does not have income limits – and convert those funds into a Roth IRA. If you fund the Traditional IRA with a non-deductible contribution and immediately convert the account, you will have zero taxable gains and the conversion will be tax-free. The strategy is called the “Back Door Roth” since it bypasses the Roth’s income restrictions.

Here’s the crucial piece to understand: the IRS considers you to have one Traditional IRA, regardless of the number of accounts or types of IRAs you own (Traditional, Rollover, SEP, or SIMPLE). This means that you cannot convert just the new non-deductible contributions. If you have multiple accounts or multiple contributions, the IRS will consider any conversion to bepro rata, meaning proportional from all sources.

Luckily for Alan and Lois, their retirement accounts consisted solely of 401(k) accounts and Roth IRAs, so they were eligible fund the “Back Door Roth IRAs” and pay no taxes. We deposited $5,500 into a Traditional IRA for each of them and converted the account into their existing Roth IRA. It’s a great way to add $11,000 a year to tax-free account, and yet many people don’t realize they are eligible for the Back Door account.

This spring, Alan changed jobs and asked me about rolling over his 401(k) into an IRA. If we did rollover his $350,000 account into an IRA, he would be giving up the ability to do the tax-free Roth conversion in the future. The IRS will look at his accounts as of December 31, so if he did rollover his 401(k) this year, the Roth conversion we did in January would now be more than 95% taxable.

After explaining this to Alan and Lois, we decided that it did not make sense to rollover the 401(k) into his IRA and give up the opportunity to fund the Back Door Roth for the next 15 to 20 years. He could leave his 401(k) in its current location or roll it to his new 401(k), which is acceptable because it is not going to an IRA. The rules on Roth conversions apply only to your IRAs, and not to 401(k), 403(b), 457, or other ERISA-type plans. Alan’s new 401(k) plan had extremely low fees and access to institutional share classes of mutual funds. So, we rolled his old 401(k) to the new plan and will still be able to take advantage of the Back Door Roth IRA each year.

There are a number of reasons to not roll a 401(k) into an IRA, and that’s why it can be highly valuable to have a financial planner who is completely familiar with your individual situation. If you’re looking for this kind of personalized advice, please give me a call.

Who’s Going to Pay for Your Retirement, Freelancer?

Posted On June 26, 2014 By Admin In Retirement Planning /

A regular employee has a steady paycheck which makes planning and budgeting easy. For a freelancer, your income may fluctuate greatly from month to month and be very difficult to predict from year to year. You may not know what work you will be doing six months from now and that’s likely to be a more immediate concern than retirement which could be 20 or 30 years away.

It’s often impractical for a freelancer to save up a large lump sum investment each year. What does work for freelancers is to “pay yourself first” by setting up a monthly automatic investment program into an Individual Retirement Account (IRA). This forces you to budget for retirement savings just as you would do for any other bill, such as your car payment or rent. It is easier to plan for smaller monthly contributions and this creates the same regular investment plan as an employee who is participating in a 401(k).

The maximum annual contribution for an IRA in 2014 is $5,500, which works out to $458 per month. If you aren’t able to contribute the maximum, that’s okay, there are mutual funds that will let you invest with as little as $100 a month. The most important thing is to get started and not put it off for another year. You can always increase your contributions in the future as you are able. If you are over the age of 50, you can contribute an additional $1,000 a year into an IRA, a total of $6,500 a year, or $541 per month.

If you can use a tax deduction, open a Traditional IRA. If you don’t need the tax deduction, and meet the income limitations, select a Roth IRA. Additionally, there is another reason the Roth IRA is very popular with freelancers. Many freelancers worry about hitting a slow patch in their business and needing to tap into their savings. A nice benefit of the Roth IRA – which may help you sleep well at night – is that you can access your principal without tax or penalty at any time. So if you do have an emergency in the future, you would be able to withdraw funds from your Roth IRA. (Principal is the amount you contributed; if you withdraw your earnings (the gains), the earnings portion would be subject to income tax and a 10% penalty if you are under age 59 1/2.)

If you are able to contribute more than $5,500 (or $6,500 if over age 50), the SEP-IRA is your best choice. You could contribute as much as $52,000 into a SEP this year, if your net income is over $260,000. The contribution for a SEP is roughly 20% of your net profit each year, so it works great for freelancers who want to save as much as possible. Why not just recommend a SEP for all freelancers? The challenge with a SEP is that it is impossible to know the exact dollar amount you can contribute until you actually prepare your tax return each year. That’s why most SEP contributions are not made until March or April of the following year. For freelancers who are getting started with saving for retirement, your best bet is to first maximize your contributions to a Traditional or Roth IRA through automatic monthly deposits. Then if you want to make an additional investment, you can also fund a SEP at tax time. A lot of investors assume that you cannot do a SEP if you do a Roth or Traditional IRA, but that is not the case, you can do both.

Being a freelancer can be very rewarding and fulfilling, but it does carry some additional financial responsibilities. You don’t have an employer to pay half of your social security taxes or to provide any retirement or insurance benefits. Unlike traditional employees, however, many freelancers don’t go from working full-time one day to completely retired the next day. What I often see is that many freelancers choose to keep working but reduce their schedule and select only the projects which really interest them. In this manner, they are never fully retired, but still stay active and have multiple sources of income. Regardless of your plans or intentions for retirement, my job is to help you become financially independent, so you work because you want to and not because you have to.

6 Steps to Save on Investment Taxes

Posted On June 17, 2014 By Admin In Portfolio Management / 1 Comment

For new investors, taxes are often an afterthought. Chances are good that your initial investments were in an IRA or 401(k) account that is tax deferred. If you had a “taxable” account, the gains and dividends were likely small and had a negligible impact on your income taxes. Over time, as your portfolio grows and you have more assets outside of your retirement accounts, taxes become a bigger and bigger problem. Eventually, you may find yourself paying $10,000 a year or more in taxes on your interest, dividends, and capital gains.

A high level of portfolio income may be a good problem to have, but taxes can become a real drag on the performance of your portfolio and eat up cash flow that you could use for better purposes. Luckily, there are a number of ways to reduce the taxes generated from your investment portfolio and we make this a special focus of our process at Good Life Wealth Management. We will discuss six of the ways that we work with each of our clients to create a portfolio that is tax optimized for their personal situation.

1) Maximize contributions to tax-favored accounts. While the 401(k) is the obvious starting place, investors may miss other opportunities for investing in a tax advantaged account. Since these have annual contribution limits, every year you don’t participate is a lost opportunity you cannot get back later. In addition to your 401(k) account, you may be eligible to contribute to a:

Roth or Traditional IRA;
SEP-IRA if you have self-employment or 1099 income;
“Back-door” Roth IRA;
Health Savings Account (HSA).

Also, don’t forget that investors over age 50 are eligible for a catch-up contribution to their retirement accounts. For 2014, the catch-up provision increases your maximum 401(k) contribution from $17,500 to $23,000.

2) Use tax-efficient vehicles. Actively managed mutual funds create capital gains distributions as managers buy and sell securities. These capital gains are taxable to fund shareholders, even if you just bought the fund one day before the distribution occurs. These distributions are irrelevant in a retirement account, but can be sizable when the fund is held in a taxable account.

To reduce these capital gains distributions, we use Exchange Traded Funds (ETFs) as a core component of our equity holdings. ETFs typically use passive strategies which are low-turnover and they may be able to avoid capital gains distributions altogether. It used to be difficult to estimate the after-tax returns of mutual funds, but thankfully, Morningstar now has a tool to evaluate both pre-tax and after-tax returns. Go to Morningstar.com to get a quote on your mutual fund, then click on the “Tax” tab to compare any ETF or fund to your fund. I find that even when a fund and ETF have similar pre-tax returns, the ETF often has a clear advantage when we compare after-tax returns.

One last factor to consider: many mutual funds had loss carry-forwards from 2008 and 2009. So you may not have seen a lot of capital gains distributions in the 2010-2012 time period. By 2013, however, most funds had used up their losses and resumed distributing gains, some of which were substantial.

3) Avoid Short-Term Capital Gains. Short-term gains, from positions held less than one year, are taxed as ordinary income, whereas long-term gains receive a lower tax rate of 15% (or 20% if you are in the top bracket). We try to avoid creating short-term capital gains whenever possible, and for this reason, we rebalance only once per year. We do our rebalancing on a client-by-client basis to avoid realizing short-term gains.

4) Harvest Losses Annually. From time to time, a category will have a down year. We will selectively harvest those losses and replace the position with a different ETF or mutual fund in the same category. The losses may be used to offset any gains harvested that year. Additionally, with any unused losses, you may offset $3,000 of ordinary income, and the rest will carry forward to future years.

A benefit of using the loss against other income is the tax arbitrage of the difference between capital gains and ordinary income. For example, if you pay 33% ordinary tax and 15% capital gains, using a $3,000 long-term capital loss to offset $3,000 of ordinary income is a $540 benefit ($3,000 X (.33-.15)).

5) Consider Municipal Bonds. We calculate the tax-equivalent rates of return on tax-free municipal bonds versus taxable bonds (i.e. corporate bonds, treasuries, etc.) for your income tax bracket. With the new 3.8% Medicare tax on families making over $250,000, tax-free munis are now even more attractive for investors with mid to high incomes.

6) Asset Location. This is a key step. Not to be confused with Asset Allocation, Asset Location refers to placing investments that generate interest or ordinary income into tax-deferred accounts and placing investments that do not have taxable distributions into taxable accounts. For example, we would place high yield bonds or REITs into an IRA, and place equity ETFs and municipal bonds into taxable accounts. This means that each account does not have identical holdings, so performance will vary from account to account. However, we are concerned about the performance of the entire portfolio and reducing the taxes due on your annual return.

If these six steps seem like a lot of work to reduce taxes, that may be, but for us it is second-nature to look for opportunities to help clients keep more of their hard-earned dollars. The actual benefits of our portfolio tax optimization process will vary based on your individual situation and can be difficult to predict. However, a 2010 study by Parametric Portfolio Associates calculates that a tax-managed portfolio process can improve net performance by an average of 1.25% per year.

Tax management is a valuable part of our process. And even if, today, your portfolio doesn’t generate significant taxes, I’d encourage you to think ahead. Prepare for having a large portfolio, and take the steps now to create a tax-efficient investment process.

Three Studies for Smart Investors

Posted On June 1, 2014 By Admin In Portfolio Management /

Over the last several years, my investment approach has become more systematic and disciplined. In place of stock picking or manager selection, I believe clients are better served by a focus on strategic asset allocation. Today, we offer investors a series of 5 portfolio models, using ETFs (Exchange Traded Funds) and mutual funds. This approach offers a number of benefits, including diversification, low cost, transparency, and tax efficiency.

This evolution in approach occurred gradually as a result of continued research, personal experience, and pursuing the goal of a consistent client experience. In my previous position, I managed $375 million in client portfolios, performing investment research, designing asset allocation models, rebalancing and implementing trades. I am grateful for having this experience and want to share the reasons why I believe investors are best served by the approach we’re using today.

My investment approach is underpinned by three academic studies. These studies look at long-term investment performance, are updated annually, and offer great insight into what is actually working or not working for investors. As an analyst, I am very interested in what data tells us, and how this may differ from what we think will work or what should work in theory. But even if you aren’t a numbers geek like me, these studies instruct us about investor behavior and where you should focus your efforts and energy. I’m going to give a very brief summary of each study and include a link if you’d like to read more.

1) Standard & Poors Index Versus Active (SPIVA)

Published semi-annually, SPIVA looks at all actively managed mutual funds and calculates how many active managers outperform their benchmarks. The long-term results are consistently disappointing. As of December 31, 2013, 72.72% of all large cap funds lagged the S&P 500 Index over the previous five years.

Sometimes, I hear that Small Cap or Emerging Market funds are better suited for active management because they invest in smaller, less efficient markets. This sounds plausible, but the numbers do not confirm this. The data from SPIVA shows that 66.77% of small cap funds lagged their benchmark and 80.00% (!) of Emerging Market funds under performed over the past five years.

The lesson from SPIVA is that using an index fund or ETF to track a benchmark is a sensible long-term approach. Indexing may not be exciting or produce the best performance in any given year, but it has produced good results over time and reduces the risk that we select the wrong fund or manager. Our approach is to use Index funds as a core component to our portfolio models.

The other conclusion I draw from SPIVA is that if large mutual fund companies, with hundreds of analysts, cannot consistently beat the benchmark, it would be foolish to think that a lone financial advisor picking individual stocks could do better.

2) S&P Persistence Scorecard

After looking at SPIVA, it may occur to investors that 20-35% of funds actually did beat their benchmarks over 5 years. Why not just pick those funds? Why settle for average when you can be in a top-performing fund?

The S&P Persistence Scorecard looks at mutual funds over the past 10 years. At the 5-year mark, the scorecard ranks funds in quartiles by performance and looks at how the funds’ returns were in the subsequent five years. This tells us if a top performing fund is likely to remain a leader.

Looking at all US Equity funds, we start with the funds which were in the top quartile in September 2008. Below is breakdown of how those top quartile funds ranked in the subsequent five years, through September 30, 2013:

1st Quartile: 22.43%

2nd Quartile 27.92%

3rd Quartile: 20.53%

4th Quartile: 16.71%

Merged/Liquidated: 12.41%

Of the funds in the 1st Quartile in 2008, only 22% remained in the top category in the following 5 years. 29%, however, fell to the bottom quartile or were merged or liquidated in the following 5 years. So, if your method is to go to Morningstar and find the best performing fund, please be warned,past performance is no guarantee of future results. In fact, the Persistence Scorecard tells us that not only is past performance not a guarantee, it isn’t even a good indicator of future results. The results above aren’t much different than a random chance of 1 in 4 (25%). Albeit disappointing and counter-intuitive, the reality is that past performance offers virtually no predictive information.

3) Dalbar Quantitative Analysis of Investor Behavior (QAIB)

Now in its 20th year, QAIB compares mutual fund returns to investor returns. The reason why they differ is because of the timing of investors’ contributions and withdrawals from mutual funds. For example, people may think that it is safer to invest when the market is doing well and they buy at a high. Or, investors chase last year’s hot sector and sell out of a fund that is at a low and just about to turn around. Investor decisions are consistently so poor that we can actually measure the gap between the average investor’s return and the benchmark. You might want to sit down for this one – over the 20 year period through 2013, the S&P 500 Index returned 9.22% annually, but the average investor return from equity mutual funds was only 5.02%. The behavior gap cost investors 4.20% a year over two decades.

We can draw three very important conclusions from QAIB:

– We should avoid trying to time the market (buy/sell);

– Chasing performance is more likely to hurt returns than improve returns;

– Without a disciplined approach, including a target asset allocation and monitoring/rebalancing process, what may feel like a good investment decision at the time may ultimately prove to be a poor choice in hindsight.

These three studies are so important that I carry excerpts from the reports with me to discuss with investors. They’re fundamental to my investment approach, and hopefully, their significance can easily be grasped and appreciated by all our clients.

While we’ve focused exclusively on investment philosophy in this post, I would be remiss to not add that the benefits of working with a CFP(R) practitioner are not limited to portfolio management. A comprehensive financial plan includes many elements, such as savings/debt analysis, risk management, tax strategies, and estate planning. The investment management component tends to get the greatest attention, but the other elements of a personal financial plan are equally important in creating a foundation for your financial security.

Introducing Good Life Wealth Management

Posted On May 22, 2014 By Admin In Uncategorized /

After working on two terrific teams over the past 10 years, I have made the leap to start a new Registered Investment Advisor firm, Good Life Wealth Management. I’m sure a lot of things have changed for you in the last two years, as they have for me, but I’d welcome the opportunity to catch up with you and learn what is new with you and your family.

Over the past couple of years, I’ve learned about running a top-notch Wealth Management practice and thought about how to design a firm specifically for you, the investor, and how to best address your needs. Now, I have the chance to build a client-centered practice from the ground up. I’ve got some interesting and timely topics planned for upcoming newsletters, as well as information on our unique Good Life Wealth Management Process, so please stay tuned!