Tuesday, December 13, 2016

IRA, 401k, or Both?

A common question I'm asked is whether someone should be contributing to their IRA, employer 401k/403b, or should they do both?

Here are a few of the questions you should ask yourself first:
  • Does your 401k plan make matching contributions?
  • Up to how much of your contribution will they match?
  • After all expenses are paid how much money do you have to invest each month?
  • How long do you expect to be at your current job?

The first question that needs to be answered when determining where you should be investing your money is whether or not your employer is matching your 401k contributions. If they are, you want to contribute up to the amount that they match you and not a penny more. If your employer does not match your contributions then you would want to be contributing to your IRA/Roth IRA instead. When an employer matches your contributions that means they're giving you FREE money and you'd be a fool to pass up on that! When you receive no employer match on contributions in your 401k there's really no reason for you to invest your money there. It limits your investment selection to what's offered in the plan. An IRA gives you the freedom and flexibility of investing in many different financial instruments.

Now, if you're maxing out your IRA contributions each year ($5500 under age 50 and $6500 over age 50) then you would look to your 401k for additional means of investing for retirement. Again, there are far more benefits to an IRA than a 401k in my opinion, so unless you're making a full contribution to your IRA there's no reason to be contributing to a non-match 401k/403b plan. However, if you are currently maxing out your IRA contributions and looking for additional areas to save for retirement you can save as much as $18,000/year in a 401k/403b

Many employer plans that do offer a match incentive also carry a vesting element. Simply put, they require you to be employed with the company for 'X' years in order to receive the full value of your 401k. Any contributions you have made will always be taken with you if you decide to leave, but they can elect to withhold the portion they have contributed if you don't meet their vesting requirements. This is why the length of time you plan on being with a company is a factor when considering whether or not you should invest in their 401k. If you don't plan to stay with the company long enough to meet their vesting requirements, there's no sense in contributing to it, even if there is a match option.

In closing, the most ideal situation for anyone is to have the ability to make full contributions to their IRA each year while also contributing to their 401k. Unfortunately, not everyone has this luxury. Working with a financial planner allows you to budget your monthly expenses, determine the amount of match your  company plan offers and then decide how much, if any, amount should be allocated to an IRA.

I'm giving my blog readers exclusive access to my 5 Point Financial Plan completely FREE. The concepts in this plan are one's that I utilize in every new client meeting and set the foundation for proper financial planning. It's loaded with value and not something you'll want to pass up on. Click below to get  your own PDF version!

Friday, December 2, 2016

Who Said You Need To Be Rich To Build Wealth?

Perhaps the most common misconception I've encountered when working with new clients, particularly younger ones, is that investing requires a large amount of capital to begin. This couldn't be any further from the truth. I think most millennials (born 1980-2000) or Gen Xers (born 1960-1980) see the financial industry as a bunch of old men with grey hair in outdated suits. Furthermore, I believe these generations get the impression that advisors will never give them the time of day because they don't have nearly enough money to be considered relevant. While this attitude can certainly hold true in many firms, I've taken it upon myself to ensure that my firm doesn't fit this stereotype.
Not only do I think it is important for people to begin investing early but also that they're given the best advice whether they're investing $100,000 or $1,000. Establishing strong investing habits early on is extremely important to ensure investors reach their financial goals. Unfortunately, I can't say that many other firms in my industry share this belief. I've been to many conferences where I've heard older advisors say that they refuse to work with younger clients because of their lack of assets. While I think this grave mistake is going to cost them dearly later on, I see opportunity in their shortsighted vision.
I've worked with many clients in establishing an investment plan where they have begun by putting away small amounts each time they get paid. As an example, the maximum amount you may contribute to an IRA is $5500 per year (at age 50 it's raised to $6500/year). Let us assume you make an initial investment in your IRA of $700. If you can have an automatic deposit of $200 taken from your bank and put into your IRA every two weeks you'll stash away an additional $4800 per year, putting you right up to that maximum contribution limit. Or, suppose someone can only put $300 away monthly, this still gets them to $3600 a year, not bad! I have some clients who prefer to make a larger up front deposit and others that prefer a smaller one. Regardless of your preference the result is the same.
Sure, life would be a lot nicer if you could afford to make a one-time $5500 deposit each year but not everyone has that luxury and that's okay. We all have our expenses and financial priorities but building long term wealth should not be one that gets pushed to the back burner. Current investors are placed in a unique conundrum being that pensions are nearly extinct and many are questioning if social security will be around when it's their turn to collect. All the more reason why starting an IRA early and contributing to it regularly has become so vital to your financial health.
My firm has built a remarkable team complete with; CFP's, CPA's, attorneys, and insurance experts all in our network. I truly believe that in this day and age everyone deserves a comprehensive, all-inclusive team to service them and all their financial needs regardless of how much they're able to contribute to their accounts. With that said, I urge you, if you haven't done so already, to evaluate your current spending habits and find areas where you can redirect money into investments that will aid in building your wealth.

Monday, November 21, 2016

Goals Based Investing - What Is It & Why You Should Be Using It

Today I wanted to discuss a topic that I feel very strongly about and one that I do not believe enough advisors are offering their clients - Goals Based Investing or GBI for reference purposes.

Remember when you were young and that new had-to-have item came out but your parents told you it was too expensive and you'd have to save your own money to buy it? I take my clients through a similar process during our initial meeting discussing their goals and aspirations. Too often I see advisors wanting to categorize their clients as a 60/40, 80/20, or 50/50 model (stocks/bonds ratio) but the problem is this is an archaic method of determining a clients' needs. Which is why I've chosen to establish goals first, and then offer an investment recommendation (if any) last.

Typically people have 3 or 4 goals or buckets of money that are of utmost importance to them. These include, but are not limited to; an emergency fund, retirement fund, down payment fund, college fund, vacation fund etc. The idea behind utilizing this approach as opposed to grouping all of your assets into one large portfolio is that it allows us to set different risk tolerances for different goals. Instead of looking at all your investments as one large account we separate them into different goals and address each on a case by case basis.

Furthermore, this new investing style is not concerned with benchmarks. What relevance will it have on your life if you're able to say that your investments outperformed the S&P 500 75% of the time? None. However, what will have relevance to your life is the security of knowing you'll be able to put your kids through college, fund the retirement lifestyle that you desire, or be able to purchase that new home you've been investing for. Those are real-life goals that will be measured in terms of how close you are to achieving that goal and not an arbitrary benchmark with no significance to your situation.

Model portfolio allocations are ancient and don't address the things that investors care most about. Investing for a specific purpose and seeing how close you are to achieving each goal is a far more efficient style. Always be sure to work with someone who listens to your goals and then creates an action plan to reach them.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary.

Friday, November 11, 2016

3 Sectors Poised to Rise Under a Trump Presidency

Well, the election has come and gone and we've all had time to digest the results. Regardless of your political stance, Donald Trump will be the 45th president of the United States. My job is not to argue whether I think this is a positive or negative, but rather to show you where I see potential opportunities with Donald Trump now entering the White House.
Financial: The financial sector was going through major regulation during the Obama administration and perhaps it's only shinning light was going to be the eventual rise in interest rates. Upon finding out Trump was going to be our next president the financial sector has taken off with no plans of looking back. Why is this some may ask? We assume, given his prior statements and stances, that regulation on the financial industry will be loosened under President Trump. Pair that assumption with a rise in interest rates and you have a recipe for growth. That being said, look to the banking industry and other financial organizations to do particularly well with Trump in the White House.
Biotech/Pharmaceutical: Next we'll take a look at the biotech/pharmaceutical industry. Perhaps no industry feared a Hillary Clinton win more than biotech/pharmaceutical. In fact, many of the stocks in this sector had already began pricing in a Hillary presidency. Clinton had every intention of attacking drug makers going as far as saying she would appoint a task force that would monitor price-gouging. Trump didn't lay out any specifics in regard to his plan, he did make mention however of giving Americans the ability to buy their drugs in other countries such as Canada where they could find them cheaper. Trump doesn't have nearly as strong of a stance on this industry as Clinton did, leading me to believe they'll do far better with him in the oval. 
Defense: There was no possible way I could write this without including the defense industry. I'm not arguing Clinton would have decreased defense spending drastically but I am saying that Donald Trump has made it his prerogative to enhance our military and enforce our second amendment rights. Trump has taken the traditional republican stance that defense is not only good for the economy and jobs but for national safety as well. Meaning investors in defense contractor companies such as; Lockheed Martin, Boeing, Northrup Grummam and others appear to be bullish under a Trump presidency.  
The views expressed are not necessarily the opinion of Woodbury Financial Services, Inc., and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Individual circumstances vary. Investing is subject to risks including loss of principal invested. No strategy can assure a profit against loss.

Wednesday, October 26, 2016

Protecting Your Digital Assets

We live in an age where technology is evolving at such a rapid pace that it makes Usain Bolt look slow. Alright, perhaps that's an exaggeration but you understand the comparison I'm trying to draw. If you don't know who Usain Bolt is, google him.
Technology is changing everything we do in our daily lives and it's disrupting many of the norms that have long prevailed across all industries. An area I would like to address today is your online presence, including but not limited to; your Facebook profile, your Twitter, Instagram, Snapchat, PayPal, Amazon, Ebay so on and so forth. This is an issue I've rarely heard brought up by clients or by anyone for that matter. What happens to these profiles/accounts when you pass away? Who has access to them? Who can login and claim any assets that were left behind? These are all very real questions in a world where your online presence is nearly, if not, just as important as your physical presence. Hence the reason I chose this topic to blog about today; it seems quite relevant and I think people should give this idea more thought.
Through research, I've come up with three ways to consider: 
  • For starters, and perhaps the easiest way of handling this situation is to ask a provider if they offer an online option to indicate how the account is to be handled upon your death. Google for example, has an "Inactive Account Manager" that allows the owner to determine how their account should be handled if they pass away.
  • If that is not an option my next recommendation would be to put your instructions into a legal document such as a will, trust agreement, or power of attorney. Having precise instructions written out in a legal document will always hold up in court so this could very likely be your best method of ensuring your wishes are met. Some states have a document called "My 5 Wishes" which is essentially a shortened version of a will which can be used to record your instructions.
  • Finally, if the previous two options are unavailable to you for whatever reason, then it will fall on the terms of service for each individual website to determine how the account or assets will be managed. Clearly, this is a worst case scenario and utilizing one of the previous suggestions would be a far superior plan. However, deaths do occur unexpectedly and truthfully I can see how these accounts would be some of the last that people would ever think to take care of.
My firm has recently introduced a relatively new product in the financial industry called eMoney. This program allows our clients access to an online vault that has data encryption up to the same level that the FBI uses. We urge clients to keep copies of all their important records such as passwords, online account logins, drivers license, passports etcetera in this vault so that they have access to it through their mobile app or client website from anywhere in the world.
If you have any questions about how I can help better protect your online presence or about eMoney and all of it's wonderful features I encourage you to reach out to me. My email is Mcirelli@saifinancial.com
Invest On & Prosper
The services, tools and information, as well as privacy and security measures, offered herein are provided by eMoney Advisor, LLC. For more information on eMoney’s privacy policy and security safeguards, please
visit www.eMoneyadvisor.com. Woodbury Financial and Michael Cirelli
make no representations or warranties of any kind about the information, products or services contained herein.

Wednesday, October 12, 2016

Time: Your Most Important Investment Tool

I've been fortunate enough to be featured in many different financial articles lately and a common question when being asked for my opinion is, what's an investor's most valuable tool? To which I always respond with the same one word answer: time.
Time is the most precious finite asset we have as human beings and time is undoubtedly an investor's most important tool to leverage when it comes to: saving for retirement, a new home purchase, or any other major life event for that matter. While I started investing at a very young age, I didn't start saving for retirement until my mid twenties. While this may seem early to any baby boomer readers, this is in fact considered late by today's standards. So, why is time more important than things like; asset allocation, investment selection, technology and more? Because time, unlike money, technology, and new investments is irreplaceable. By using a simple interest rate calculator online you can see just how valuable the concept of time can be in real dollars. For example, I conducted a basic compound interest example where you put away $5,000 a year for 25 years earning a very modest 5% annual interest rate (modest considering the S&P 500 has averaged close to 10% over its lifetime). That $5,000 each year earning just 5% on average will give you $267,499 by the 25th year. That's over a quarter of a million dollars saved in 25 years and you're only putting away $5K a year! However, if you take only one year away and save for 24 years, your return quickly falls below that $250k threshold. The greatest part about the initial example is that interest makes up a whopping $137,499 of that total amount. That's more than you contributed yourself, but none of this could even be possible without the time allowed for this investment to grow.
Examples such as these are evidence of how important the concept of time is especially when it relates investing. While I always advocate people start early I also reassure clients that it's never too late either. Older clients may feel that they've missed the boat but I've helped clients in their sixties make minor adjustments that allow them to take advantage of the time they still have even if that time is in their retirement. I do hope that this post was able to highlight the importance of this asset. If you're interested in hearing what specific investment solutions I use to maximize the effect time has on retirement savings I invite you to reach out to me via email at Mcirelli@saifinancial.com or by phone at 630-221-1112.
Invest Long & Prosper

Friday, October 7, 2016

Are The Financial Markets Preparing For A Big Move?

The financial markets have seen a considerable move to the upside since recovering from the initial shock of Britain voting to leave the EU earlier this year. While every analyst and financial guru is trying to call the top I think they're ignoring the silent giant. Both the S&P and Dow Jones indexes have become eerily stable over the past few weeks now with very little movement in either direction. The term used to describe this type of price action is "coiling". The markets seem to be coiling up for what has the potential to be a very significant move but the question that remains to be answered is in what direction will that move be? Logic tells us that 7 years into a bull run with markets sitting at all-time highs that move should be to pull back. Unfortunately, logic doesn't always prevail and that truism can be especially accurate when being applied to financial markets. My belief is that corporate earnings and low interest rates are the only factors that can continue to push our markets higher if that's the direction the move inevitably ends up being. Whereas there is a plethora of reasons for why this market could correct; terrorist attacks, the presidential race, fallout from Brexit, uncertainty in foreign markets, among countless other reasons.
So what do you do as an investor? Where do you go for returns on your money? I've noticed a disheartening trend among retail investors lately in that they're taking on undue risk for returns that are less than satisfactory. In baseball they often tell a batter not to chase after a bad pitch, but instead to wait for the right pitch to come to you. I like that analogy as it relates to our current market state. Don't go out chasing after high risk investments that are yielding average returns. Instead, find a safer play to hold onto for the interim while we sit at these all-time highs and watch how everything unfolds. There's no penalty in taking a little risk out of your portfolio but there can be grave penalties for people pursuing undue risk when the market decides it's time to pullback and correct. 
Don't let the fact that your IRA, 401k, or brokerage account is at the highest it's ever been blind you from realizing now is as good a time as ever to reach out to your advisor and reevaluate your situation. Cross all the t's and dot all the i's because you can always put a little more money to work if the general trend turns positive, but once the trend goes against you and your account values fall there's nothing you can do to recover those lost assets. I started the process of placing clients into lower risk alternatives weeks ago to ensure they don't bear the brunt of a potential sell off. Something to certainly consider for yourself if you feel that your accounts may be overextended or facing unnecessary risk.
I wish, like everyone else I'm sure, that the markets could continue in a straight line upward but we all know that's not realistic. By no means am I out here preaching impending doom. I just hope people are aware of where we are and prepared for the different outcomes we could face going forward. Do yourself a favor and don't roll the dice when it comes to your hard earned money; speak with a professional and ensure that your investments are ready for anything that may lie ahead. Thanks for stopping by and I wish you good luck in all your current and future investing.

Invest Long & Prosper

Disclaimer: The views expressed are not necessarily the opinion of Woodbury Financial Services Inc, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Individual circumstances vary. Investing is subject to risks including loss of principal invested. No strategy can assure a profit against loss.

Thursday, October 6, 2016

5 Tips To Get Your Financial House In Order

Hi there and thanks for stopping by my blog! We could all benefit from a little direction when it comes to getting our financial house in order. Here's a short list of ideas that I hope will help you get the ball rolling, enjoy!

#1  Meet with a planner: Most planners will provide a free initial consultation to introduce themselves and if you like what they have to offer you can meet with them again for an information gathering meeting. Planners tend to give more holistic advice and look at your total financial picture as opposed to an investment-only advisor.
#2  Pay yourself first: This is one of, if not the most overlooked rule in personal finance. Always set a little money aside into an investment account or at least into a bank account and pay yourself a little bit each pay period. Some will say, “I don’t make enough to do that” but what they’re really saying is they don’t care enough about their financial health to stop making excess purchases that they don’t really need. We all have expenses we could trim down on to pay ourselves, it’s a matter of priority.
#3  Set SPECIFIC short & long term financial goals: Tell yourself that you want to have X dollars saved in your pay myself account by the end of 2016. Or, I want to contribute the maximum amount to my IRA this year. Setting specific goals and writing them down or saying them to yourself daily, subconsciously makes you accountable for achieving them. 
#4  Create a personal cash flow chart: Seeing where your money is being allocated each week/month can be very powerful in helping you redirect that money to better use. You’ll begin to recognize spending habits that may have gone unnoticed prior to creating this flow chart. This task can be made much easier through the use of various mobile apps that will help you track your expenses.

#5 Check your credit report: There are a plethora of websites now (and even credit card companies) that will provide you with your credit score and information related to it, free of charge. Begin by fixing any major issues you see in your credit and if your credit score isn't where you'd like it to be then pick a target number and set that as one of your financial goals.