Investing

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How To Find The Right Financial Advisor

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Q: My wife and I are in our early fifties and have been without a financial advisor for 18 months. The majority of our liquid assets are in a Fidelity account. Should we contact an advisor from Fidelity? How do you find the “right” financial advisor in their local office to work with?

I don’t think that you need to specifically have an adviser from Fidelity just because most of your liquid assets are in Fidelity accounts.

In fact, it’s a good idea to have a financial adviser who is independent and doesn’t necessarily favor or exclusively recommend his/her own proprietary products. (Not saying that a Fidelity rep would automatically “push” their own funds, but you need to be aware of the potential for a conflict of interest).

Having said that, if you want to have an adviser from the same brokerage anyway, there are some ways to go about picking the right one. It boils down to doing a detailed interview of a few prospects in the Fidelity office of your choosing.

As it turns out, I recently wrote an article for AARP about getting the most value out of your financial adviser and what questions you should ask of a potential adviser.

Here is a link to How To Get The Most From Your Financial Advisor

5 Tips for Investors During Stock Market Volatility

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Author: The Money Coach

If the recent stock market volatility has rattled you, it’s time to get a game plan for how you will survive this latest financial crisis.

In mid August 2011, the U.S. stock market lost about 2,000 points in three weeks, wiping out roughly $2 trillion in wealth. Unfortunately, the near-term outlook for stocks isn’t particularly rosy.

Investors are going to have to face a painful truth: It’s ugly and it’s going to get uglier. Obviously there’s a ton of volatility in the stock market right now, but that’s just one headache.

The bigger long-term concern is that there’s just way too much uncertainty in the overall economy right now. Even if the stock market miraculously made a comeback, we’ve got a boatload of other economic issues to contend with:

- in the job market, we still have 14 million Americans out of work and unemployment above 9%

- in the housing market, it’s still a mess with rampant foreclosures and falling prices

- in the currency market, there’s a lot of worries about the dollar losing value against other currencies and about the prospect of the dollar ultimately losing its status as the world’s reserve currency

- in the global market, many traders and analysts are fretting over debt problems in Europe and a general slowdown in international growth

I expect all of these challenges to continue to weigh on the stock market – and the U.S. economy in general – for many months, if not years, to come.

WHAT SHOULD INVESTORS DO?

I wish “experts” would stop telling people – “sit tight,” or “do nothing” – all while just watching people’s investments go up in smoke. It’s crazy!

And placating investors about the market, by telling them about how stocks historically have performed, doesn’t address people’s real life concerns and needs. Besides, many things happening now have no historical precedent whatsoever.

In the month of August 2011 alone, at least four unprecedented things happened:

* the U.S. lost its AAA credit rating, when S&P downgraded America’s status to AA+

* the Dow Jones Industrial Average went completely Dr. Jekyll-Mr. Hyde, logging four consecutive trading days that saw stocks swing up and down by more than 400 points daily

* the Fed guaranteed that it would keep interest rates low for at least two years

* the price of gold shot past $1,800 an ounce, indicating tremendous financial worries among investors

All of this volatility and uncertainty makes the conventional advice to “just ride it out” an especially tough pill to swallow — particularly for folks who hope to retire soon.

Think about it this way: if you were caught in the middle of a 7.0 earthquake, are you going to listen to some fool who tells you “just ride it out”? Of course not!

If you stand there like a deer caught in the headlights, you’re liable to get crushed. The smart move is to take cover; move into a doorway or get under a chair. Don’t panic, of course, but don’t just stand there either.

The same logic applies when dealing with the earthquake we’re all experiencing on Wall Street. It

My advice: I think people should respond to all the craziness on Wall Street. It’s a wake up call for everyone.

Again, don’t panic or act rashly. But you can take these 5 smart steps:

Step 1: Tweak your portfolio if you can’t sleep at night. (Translation: Sell!!!)

Forget about all the experts saying: “stay put” and “don’t sell.” I don’t care how much money you could potentially make in the stock market – or elsewhere. And who cares about long term, historical trends if you’re practically getting an ulcer over the stock market’s wild swings? If an investment is keeping you up at night, you should dump it. It’s not the right choice for you.

Step 2: Focus on asset allocation

Stop worrying about the individual stocks or bonds you own. 90% of your portfolio’s performance is based on having the right balance of investments. So concern yourself with creating the proper mix of investments – and don’t fret over the individual investments themselves. Getting the right asset allocation is all about making sure you’ve got the right percentage of stocks, bonds, cash and other investments in your portfolio.

Step 3: Shift more assets into cash and safer investments if retirement is less than 5 years away

What’s safe in times like these? Examples include Treasuries, municipal bonds and money market accounts/CDs. Nevertheless, even pre-retirees and retirees need to keep a healthy dose of stocks for growth. My recommendation for those age 50+: shoot for 30% to 50% in stocks, depending on your age. But dial back some of the risk in your portfolio if you need to preserve cash for your Golden Years.

The reason you still need at least some stocks is because even the top-yielding 1-year CDs are now paying only about 1.2%. 5-year CDs are yielding 2.4% on the high end. But inflation is running at about 3.6% a year, so these CDs alone won’t even keep up with the cost of living.

Step 4: Educate yourself to make better decisions

Here’s one reality check: I know that when many people see huge moves in the Dow, they think “everyone is selling” or “everyone is buying.” But that’s not really the case. So much of trading on Wall Street nowadays is generated by computerized trading systems. These electronic, high-frequency trading programs account for about half of all trades on a routine trading day. And they make up about 70% of the trading action on a really volatile day. Knowing this can keep you from making impulsive decisions based on emotions, misinformation or assumptions.

Step 5: Get a financial checkup

Take the time (and yes, the money) to get a financial checkup with an investment advisor or financial planner who can look at your unique situation and tell you whether you’re on track to meet your financial goals. Getting a quarterly or annual review of your investment portfolio can also help you know what’s working – and potentially what’s not.

By taking these steps, you can help build a financial fortress around yourself. You obviously can’t control what happens on Wall Street. But you can control how you respond to it.

Hopefully you won’t later regret what you did – or didn’t do – amid these troubling, tumultuous times.

Lynnette Khalfani-Cox, The Money Coach is not a registered investment advisor and the information provided on this web site should be considered educational in nature, but it is not a substitute for legal or professional financial advice. If you believe you need the help of a Certified Financial Planner or other investment counselor, please seek a qualified professional.

Six Tips on How to Avoid Squandering a Financial Windfall

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Author: The Money Coach

What would you do if you received a sudden financial windfall, like winning the lottery, getting a big inheritance or coming into an unexpected pile of cash?
Unfortunately, many windfall recipients squander their money, going on reckless spending sprees or mismanaging their finances. Jennifer E*. of California is determined not to let that happen to her. She just won $100,000 from Capital One in the bank’s Big Payoff Sweepstakes.

I partnered with Capital One to provide financial literacy education to participants in the Sweepstakes, as well as to offer some one-on-one coaching to the winner of the Big Payoff. So I had an opportunity to coach Jennifer and give her some tips on what to do with her winnings, based on her unique circumstances.

To her credit, Jennifer also consulted her accountant — which is always a wise move when a lot of money falls into your lap. Based on all the guidance she’s received thus far, Jennifer plans to:

set aside money to pay the taxes on her winnings;
pay off her credit card debt;
increase her savings;
and perhaps use some of her windfall as a down payment on new home

Smart strategies all around, I’d say. Read the rest of Lynnette’s article - Six Tips on How to Avoid Squandering a Financial Windfall

Read: The Money Coach’s Guide To Your First Million – Now in paperback and Kindle edition

Why Was I Taxed On An Early IRA Distribution?

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Author: The Money Coach

Q: My husband and I each took $10,000 early IRA distributions to help pay for a construction loan on a new house. The amount is exempt from the 10% penalty but I do not understand, when it comes to taxes, why it is considered taxable income when I paid income taxes on that money before I put it into an IRA?

A: IRA rules are tricky because there are really two types of IRAs. With the traditional IRA, you put in money and get an upfront tax deduction (provided you meet certain income guidelines, and other requirements). Then, when you take the money out during retirement, you’re taxed on that withdrawal. The point of having a traditional IRA is, of course that you’ll save for your Golden Years. And the government gives you a tax break for doing so – in the form of letting your capital gains go untaxed until you start to withdraw money. As a saver/investor, the hope that the traditional IRA is a good deal based on the assumption that once you are in your post-working years, you’ll be in a lower tax bracket than you were when you were generating an earned income.

But with a ROTH IRA, it works differently. You make contributions and get no upfront tax deduction. Instead, the money grows in your account and those capital gains aren’t taxed — even once you take them out. So while a traditional IRA gives you an upfront tax break, the ROTH gives you a tax break on the back end.I suppose the reason your IRA withdrawal, and all such withdrawals, are taxable is because you did get the benefit of having that money grow tax free within the IRA. In other words, the funds appreciated (or had the potential to appreciate) and collect interest and/or dividends. Such appreciation is considered capital gains and is taxable under current law.

Ask The Money Coach

Archive for the ‘Investing’ Category

How To Find The Right Financial Advisor

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5 Tips for Investors During Stock Market Volatility

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Six Tips on How to Avoid Squandering a Financial Windfall

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Why Was I Taxed On An Early IRA Distribution?

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