Wednesday, November 8, 2017

4 Reasons Everyone Should Have A Roth IRA

Over the past few years I've been noticing more and more financial professionals and internet "gurus" give the blanket recommendation to all readers that they should have a Roth IRA. Unfortunately, very few of them provide meaningful evidence as to why they've chosen to give this advice. 

Roth IRA's are an imperative tool for retirement planning and come with a plethora of benefits. After reading this, I believe you'll have a better understanding as to why I feel this way and why I see them as such a powerful tool for mapping out your retirement.

#1 Roth IRA Accounts Are Tax Free After Age 59 1/2

Alright, alright this may not come as an absolute shocker to anyone out there but it is by and large the most important and well-known feature of Roth IRA's. So long as you have had your Roth IRA opened for at least 5 years and you are at least age 59 1/2 all your distributions from your Roth IRA are free of tax. 

Another feature that further distinguishes Roth IRA's from Traditional IRA's is the fact that you may pull the contributions you have made into the account back out of your Roth IRA at any time - tax and penalty free. The earnings must remain but the amount that you personally put in is available to you if needed. 

#2 Roth IRA Distributions Do Not Count As Income For Your Taxes

In my opinion, this is quite possibly the most important feature of Roth IRA's. When you take a distribution from your Roth IRA in retirement it is not counted against you as taxable income for that year. Meaning, if you built up a large enough Roth IRA to retire with you could potentially be taking out tens of thousands of dollars every year and still have a taxable income of nearly nothing. 

Having less income in retirement also decreases the odds that you'll have to pay taxes on your social security. The more income you have to claim the more likely it is that you'll have to pay taxes on your social security money - and who likes to pay more in taxes? NO ONE! 

#3 Roth IRA Accounts Give You Tax Diversification 

We all should be aware of the importance of diversification when it comes to the asset classes you invest in but diversity can be equally as important when it comes to how your investments are taxed as well. Let's say you have 3 different types of investment accounts: a 401k, a Roth IRA, and a regular taxable investment account. 

You may not realize this but you actually have three different buckets of taxable money; pre-tax (the 401k), tax free (Roth IRA) and post-tax (taxable investment account). This allows you to create a distribution strategy for retirement assets and take money out of specific accounts when tax conditions are most favorable. Why? Because it's not about how much you make but about how much you keep!

#4 Roth IRA's Have No Required Minimum Distributions (RMD's)

Last, but certainly not least, is the fact that Roth IRA's do not require you to begin taking distributions at age 70 1/2 like a traditional IRA does. You see, in a Traditional IRA Uncle Sam steps in once you've turned 70 1/2 and forces you to begin taking withdrawals from your account to ensure they receive their tax money before you die. How sweet, right?

Being that a Roth IRA uses money that has already been taxed and your earnings grow tax free the government has no incentive to impose these required distributions. So you can continue to let your money grow tax free until YOU decide that you would like to withdraw it. 

Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRASIPC FINRA, SIPC and Registered Investment Advisor.  Insurance services offered through SAI Financial which is not affiliated with Woodbury Financial Services, Inc. Service offered only where licensed to do business. A Roth IRA distribution is qualified if you've had the account for at least five years and/or the distribution is made after you've reached age 59½, because of your total and permanent disability, in the event of your death or for first-time homebuyer expenses.  Distributions made prior to age 59 1/2 may be subject to a federal income tax penalty.  If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings.  We suggest that you discuss tax issues with a qualified tax advisor.

Thursday, September 7, 2017

Should I Buy An Annuity? 3 Questions To Ask Yourself

When considering purchasing an annuity you should be looking to do so for one (or more) of 3 reasons. Annuities are primarily used for; guaranteed income, accumulation with some form of protection and tax-deferred growth. Think of these as three legs to a stool. While I do not believe that an annuity is right for everyone they can certainly play a vital role in the financial planning process.

Do You Want Guaranteed Income?

To begin, lets look at the guaranteed income leg. Guaranteed income in retirement sounds like utopia, doesn't it?? Well it certainly can be! However, you do have to pay for those guarantees. It's these costs that tend to give all annuities a bad rap. What is every investors number one fear in retirement? RUNNING OUT OF MONEY! This type of annuity can ensure that never happens.

Fortunately for you, not all annuity products come with egregious fees. In fact, in recent years I've seen more annuity companies come out with solutions that are quite competitively priced compared to other traditional investment options. 

Don't let a television commercial or something you overheard at a party ruin your outlook on annuities. Annuities, like investments, are not created equal - there are some great ones and there are some not-so-great ones. As a financial planner, we must look at all the options available and decide which ones are the most suitable for you and the goals you're trying to accomplish.

If you're someone who is worried about the markets and you prefer less volatility in your investment portfolio this may be a solution for you. Not to mention, many annuities allow you to see exactly how much guaranteed income you will receive based on what age you begin your withdrawals. No surprises! 

Curious to see how much guaranteed income you could receive? Click below and I will send you a report letting you know how much lifetime guaranteed income could be waiting for you. We don't need any personal information just answer 3 quick questions!

Would You Like Some Accumulation With The Potential For Downside Protection?

Potential for downside protection, not to be confused with total protection from loss! Another reason someone may consider an annuity is to still have the ability to participate in the market while knowing some of their losses may be covered by the insurance company. What do you need to give up to receive this? You must give up some of your potential upside. 

For example, let's say there's a solution that says, you can select a market index (S&P 500, Dow Jones, NASDAQ) and receive all of the annual returns up to 10% from when you invested. Now, any of the returns over 10% for that year the insurance company keeps. However, for that they agree to cover the first 10% of your losses if the market is negative for your contract year. 

Once again, this an example of the insurance company willing to accept some risk, however, they must be compensated accordingly for doing so. You may be beginning to see that these solutions are not as awful as the mainstream media and financial pundits makes them out to be. There are many cases when an annuity makes a great deal of sense. 

Would You Like Tax Deferred Growth?

Last but not least I'd like to cover annuities that are used for their tax deferred growth benefits. If someone is using an annuity for this benefit they are assuming that they will be in a lower tax bracket when it comes time to take distributions. 

Now, if you're investing with retirement money (think IRA, Roth IRA, 401K) then you would not need to use an annuity for tax-deferred growth because IRA and 401K assets already grow tax-deferred and Roth IRA assets grow tax-free. So, this is only an advantage for what we call "non-qualified money" - think money that has already been taxed (i.e. money in the bank).

Once again, if you're an individual in a relatively high tax bracket and presume it will be much lower in your retirement years then this strategy would make perfect sense for you. One thing to watch though, like IRA's and 401K's if you invest your after-tax dollars into an annuity you will still receive a 10% penalty for withdrawing it before age 59 1/2.

If you are in a situation where you are facing a steep tax bill, using an annuity for some of your investment portfolio could be a great way to help reduce this tax burden. Every case is unique so what works for one person may not work for another but that's why we believe no investment tool should be completely ruled out solely because there are a few bad apples in the bunch.

Annuities are long-term investments suitable for retirement funding and are subject to
market fluctuations and investment risk, including the possibility of loss of principal. Annuities
generally contain fees and charges which include, but are not limited to, mortality and expense risk
charges, sales and surrender charges, administrative fees, charges for optional benefits and riders,
and annual contract fees. Annuity guarantees, including guarantees associated with benefit riders
are subject to the claims-paying ability of the insurance company. Surrender charges may apply if
money is withdrawn before the end of the contract. Additionally, if purchased within a qualified plan,
an annuity will provide no further tax deferral features. The contract, when redeemed, may be worth
more or less than the total amount invested.

Thursday, August 17, 2017

2 Things Buffet & Gates Know That You Don't

If you're friends with me, or even an acquaintance you've probably heard me talk about a regular investment account at one time or another. Some of you who are close to me may have heard me reference it a few hundred times at this point - and for that I do not apologize ;) 

Rest assured, I do this out of love because I believe so strongly in this strategy. To clear up any confusion, these accounts go by different names; brokerage accounts, after-tax investment account, individual investment account so on and so forth. Much of what is going to be discussed in the 2 points below will focus on this type of account so I wanted to give a brief preface on them. 

I'm giving an exclusive offer to my blog readers for FREE access to my guide for building a million-dollar retirement account. If interested, click below:

So, what's the first thing that Warren Buffet and Bill Gates know and you don't?

#1 You're not getting anything for keeping your money in the bank. IN FACT, YOU'RE LOSING MONEY TO INFLATION! 

Banks make money from us loaning them our hard-earned dollars so they can loan it for mortgages, business loans and a plethora of other reasons. They then charge some hefty interest on those loans and essentially cut us out of the deal even though they're loaning out our money! 

You see, IRA's, Roth IRA's, 401k's and other retirement accounts are controlled by the government because they tell you how much you may contribute each year. What's the one account that you may invest as much money in as you'd like to and never need to worry about 10% early withdrawal penalties? Yep, you guessed it - regular investment accounts. 

Now, I know what you're thinking; "Yeah Michael, I know I'm not earning any money by leaving my cash in the bank, that's not news". To which I would response something like, "Well then why is most, if not all of your money sitting there...?" 

Oh, one more thing before I tell you what number two is, if I may? Would anyone care to guess what industry has created more of the world's billionaires than any other? No, it's not real estate. Technology? Nope. Oh, I know it must be fashion! Sorry, nope. However, this question is the perfect segue into our next point...

#2 Investing Has Created More Billionaire's Than Any Other Industry, EVER!

Alright, there's a chance you may have known this one beforehand but I'd venture to guess that many of you went through a similar conversation in your head as the fictional one above. 

Prior to reading that statistic I would have guessed that real estate or oil produced the most billionaires but Forbes said otherwise. Fortunately for you though it was investing and everyone is more than capable of investing on some scale. 

Therefore, as I mentioned above I think regular investment accounts are just as important of a tool as any retirement account. Because it allows you to invest the money that you'd otherwise let sit in a bank account earning you next-to-nothing and make some investment returns on it. 

Regardless of what industry any billionaire made their fortune in, THEY ARE ALL INVESTORS. This is because when you look at historical returns in the markets the data shows you that this is where you should be putting excess money that isn't immediately needed. 

So, make sure you're making it a habit from a young age to pay yourself first in the form of investments. These are gifts to yourself that can pay you for the rest of your life. In the words of Warren Buffet:
"If you don't find a way to make money while you sleep, you will work until you die"

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.  Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.

Monday, July 17, 2017

3 Investments Ideas For The Second Half of 2017

Wow, hard to believe we're already half way through 2017! I'd venture to guess that very few of you would have expected the markets to be up 9% already this year. I vaguely remember most analyst expectations saying the markets won't return more than mid-single digits for 2017.

The words of Warren Buffet are ringing ever true right now, "We've long felt that the only value of stock forecasters is to make fortune tellers look good". Remember these guys are paid to have differing opinions and they tend to fixate their predictions on short-term mattes - ones of little relevance to you because you're playing the long game!

First and foremost, if you haven't gotten your free copy of 5 Point Financial Plan click the button below and request a copy - you'll thank me later. 

#1 Mid-Cap Value

This is one area I've been liking more and more lately and it's because the passive investing revolution has been dominating this 8 year bull market and what that's done is pumped a lot of capital into large cap index funds (S&P 500 index funds/ETF's). Allowing many great companies that fall in this market capitalization to fly under the radar.

Remember publicly traded companies will fall into one of three market capitalization groupings. Small, mid and large caps. All this does is define them based on their total market capitalization or their total value as a company.

Mid-cap companies range between $2 billion and $10 billion in total market capitalization. I think with the recent phenomena of index investing everyone and their mother are blindly dumping money into the S&P 500 index which is comprised mostly of large cap stocks.

Opening the door for many opportunities in the mid-cap space. We are looking for strong companies with nice balance sheets and plenty of free cash flow. Making this one area that we believe every investor should be paying attention to.

#2 Developed International

Here's another area of the market that we have liked and will continue to like for some time. Developed European markets are in much earlier stages of their growth cycle than the United States is. Not to say I don't like the opportunities that the US markets present, I just happen to like the European markets a bit more for the time being.

To put it into perspective you can look at it like this; the US equity markets are in the 9th inning of their growth cycle but the developed European markets are still in the 5th inning giving them far more time to grow.

One precaution though, the European markets can be a bit trickier than our domestic markets so make sure you're working with someone who understands these overseas markets and can help you put your money to work in the best areas. Buying a developed European index fund may not be your best choice in a situation like this. I want to emphasize quality over quantity here.

#3 Emerging Markets

For anyone who knows emerging markets you'll know that this option is by and large the most aggressive. Which isn't a bad thing, aggressive investing done at the right time can yield excellent results. When you hear "emerging" think countries such as; China & Hong Kong, India, Taiwan, Brazil and others. 

Again, this is a play based on the idea that our domestic markets have seen a healthy run up since bottoming out in 2009 - a run up that many of these overseas markets haven't had much participation in. Thus presenting the opportunity to take some of the profits made in the US equity markets and diversify them into other areas who potentially have more room for growth. 

Advances in technology could very well allow these emerging countries to grow at a much faster pace than what we're used to.  A great example of this is India's immediate installation of a smart grid instead of installing an archaic system such as the one we have in the US. 

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. Foreign investments involve special risks including greater economic, political, and currency fluctuation risks, which may be even greater in emerging markets. Indices cannot be invested in directly, are unmanaged and do not incur management fees, costs or expenses. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.

Friday, June 30, 2017

4 Things Millennials Need To Know For Retirement

As a financial planner in the Chicago suburbs I work with millennials every day and make sure that they're capitalizing on these important ideas for planning:

Max Out Employer Matches

If someone offers you free money will you slap their hand away and turn it down? Of course, not! So, make sure this isn't what you're doing with your employer match in your 401K. Not everyone has the luxury of a 401K plan that offers a match so if you're someone who does make sure you're contributing enough to take full advantage of the match they offer. If your company doesn't offer any sort of match or retirement plan, then make sure you're utilizing a Roth IRA and maxing it out if possible too ($5500/year). 

Buy When The Markets On Sale!

If you walk into your favorite store and find out they're having a 20% off everything sale what are you likely to do? Pick up all your favorite items at the bargain price! Now, why is it that when the stock market goes on sale we all have the reverse instinct? Instead of buying while many great companies are selling for a discount we tend to panic and consider selling the great companies we already own. Don't be that person! When there's a correction or even a bear market look at it as opportunity knocking at your door. Smart investors know this may be their chance to buy some great companies at a steep discount. Investors who are nearing retirement have a much shorter investment horizon and therefore will be affected more significantly by a bear market. If they are in that category, then their portfolio should have already been adjusted so that they are taking on far less risk. Being that millennials are much further away from retirement we should salivate at the first sign of a market correction because it could be a great opportunity for us to buy.

Use Monthly Deposits

I wish I could sit down with every millennial investor and talk to them about monthly deposits. I feel many millennials don't realize they can contribute to a Roth IRA the same way that they contribute to a 401K. You can set up a monthly deposit from your bank account directly into your Roth or regular investment account on the day you get paid. The reason I love monthly purchases is because it allows you to buy pieces of the market at several different prices. It's certainly easier to make one annual Roth IRA contribution right in the beginning of the year (according to Morningstar you'll end up with more by investing an annual lump sum as opposed to monthly deposits) but not everyone can afford to do that which makes this an excellent alternative strategy.

Invest For Other Reasons Than Retirement

Remember, investing is not for retirement only. The smartest investors know that any major purchase or expense they have 5 years or more down the road may be reached far quicker through investing. Home purchases, vacations and college are all common investing goals that may be reached through investing instead of holding the money in a savings account that earns you nothing. Establish different buckets of money such as; short, intermediate and long-term buckets and adjust the risk on each bucket of investments to your comfort. As your goal nears you can adjust the risk and begin implementing more conservative investments to prepare for that major purchase or expense. 

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!

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. A Roth IRA is not appropriate for every investor. Distributions made prior to age 59 1/2 may be subject to a federal income tax penalty. If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings. We suggest that you discuss tax issues with a qualified tax advisor.

Friday, June 9, 2017

How To Turn $50 A Week Into $500K

Earlier this afternoon I sat down for the first time with a client who was just beginning her investment journey. She, like many that I've sat down with before, came in full of questions and eager to learn more about investing and our strategy to ensure that she can reach all her goals and enjoy a comfortable life.

Before we go further - take a second and grab my 5 Point Financial Plan completely free for being a blog reader. Trust me, you'll thank me after you do. It's loaded with useful information to make sure you have all the best tools for planning your future!

After listening intently to all the goals and plans that she had for herself I asked this simple question, "Are you able to commit $50 a week to aid you in reaching these goals?". She of course responded with a quick "Yes", going on to say $50 a week would be no problem at all. The reason I asked for $50 a week is because that $50 is what we will use to build you a half million-dollar retirement account. Yes, that's all it takes is $50 a week placed into an account earning an average return of 7% a year. In other words, $200 a month for 40 years at a rate of 7% would leave you with just a touch under $500K. I'll illustrate this below:

As you can see, the beginning balance is zero, being that she was 25 years old we set the years to save at 40, we assumed a 7% annual rate of return on her investments and last we set the monthly contributions at $200.

I also asked her to make me one more promise, to promise me that when she gets that annual raise or a bonus check that we'll sit down again just like this and increase these monthly contributions so that as she climbs her way up the corporate ladder her investment accounts climb with her. For example, let's assume that in 15 years she is now making considerably more money than she was when we began her investment journey. She is now making right around $100K per year and we'll assume that after a 20% tax rate her take home pay is about $80K per year or a little more than $3K a month. That being the case, I would then say to her let's kick this retirement savings into overdrive and start contributing $100 per week now. All other things equal, for the last 20 years leading into her retirement she'll continue to contribute the $100 a week. Bumping that up for those last 20 years now gives her an additional $100K bringing her to a retirement account of about $600K. Couple that money with her employer sponsored plan, add in any other money she may have in the bank and suddenly she's put together a pretty nice retirement number.

I tell this story because these results are far from unrealistic and can be duplicated by anyone. If you have the discipline to set money aside each month and pay yourself first you will be rewarded handsomely later in life. So please use her story as a blueprint to write your own story because there are very few things about the future that we can control but this we can control and the smart investors are doing just that.

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, May 19, 2017

Remember 2008? Use This Strategy To Help Protect Your Money

Our financial markets have made a gargantuan move higher since the presidential election results back in November. If you have an IRA, 401K or other investment account you've more than likely heeded some substantial gains over the past 7 months. President Trump, like him or not, has made some bold claims for boosting our economy and up until now that has all seemed to have gone quite well. Unfortunately, as we've seen of late, he's having a difficult time adjusting to this new position thus making the markets increasingly weary of the future. 

Where do investors turn for help with their investments in times like this? My team went to the drawing board and asked a handful of our clients what type of option they would need to feel confident and put them in a position to succeed given the current state of the market. 

Here's what we were told:
  • They wanted the ability to participate in a market rally if it continued to rise from here
  • They wanted a downside buffer to protect them against some losses if the market slips
  • And lastly, they wanted it to be a low cost, affordable option
  • Basically, they wanted all the good of the market while having some protection against the bad
We worked with our partners and established a new investment strategy that provided our clients with the solutions they desired.   

This new solution allows our investors to:
  • Participate in a rally if the market continues higher.
  • Have the ability to chose what level of protection or how much of a buffer they would like against a downturn in the market.
  • As for cost, how much does this solution set them back? This solution has NO fees. 

Over the past 30 years, the S&P 500 has seen a total of 7 negative return years. We wanted to find a solution to help with the downside of the market. 

Upon seeing seeing the reaction from our clients, I knew this was the right solution for many of our clients both large and small. If you would like to take advantage of this opportunity please feel free to reach out to me so we can determine how to incorporate this into your current investment strategy.

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!

*The views expressed are not necessarily the opinion of Woodbury Financial Services, Inc., and should not be construed directly or indirectly, as n 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. Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs and expenses. 

Tuesday, May 9, 2017

The Real Cost of Index Funds: 3 Ways You've Been Fooled

It's truly fascinating to see what a multi-million dollar budget can do.  The large low cost providers have used their war chests of money to manipulate and brainwash an entire generation. Before we get into that I want to start by saying I have nothing against index funds and I do use them when appropriate. I believe that index funds have a place in a portfolio, however, I do not believe they should comprise the entire portfolio. 

By only investing in index funds you're saying that you are satisfied with average. You would never like the opportunity to do better than the general market nor are you interested in having a manager who can make adjustments to hedge some of the downside risk in a correction or bear market.

Word Manipulation

I can already hear the objections now, "But XYZ low-cost provider says that the average mutual fund doesn't beat the benchmark 80% of the time, so why use them?". To which I always reply, "Can you please define the term 'average' for me?" and I ask this because no one knows what they're comparing their low-cost funds against. 

I can tell you one thing for certain, there is a large number of actively managed mutual funds out there that are poor, with unacceptable performance. So, when you include these funds in the comparison, suddenly these providers are able to paint the precise picture they need to convince the investing public their method is superior. 

Here's the catch, my clients are not investing in the "average" actively managed mutual fund. If we decide that an active manager is the right fit then we are using funds with long track records of stellar performance. Of course, any fund will have a few years that this doesn't occur but this doesn't mean the strategy should be abandoned.

One-Sided Comparisons

One thing you will never see the low-cost providers do is make comparisons in real dollar figures. Meaning, they focus on the year-to-year returns when what truly matters is how much money did you start with and how much money did you end with over a period of time. 

They won't show you these statistics because in doing so their strategy suddenly looks far less appealing. For example, I have an actively managed mutual fund that I've been recommending to clients for years now. 

When you look at a $10K investment over a 10-year time span my fund appreciated to $21,570 (NET OF FEES). Meanwhile an S&P 500 ETF from one of the leading low cost providers has only grown to $19,600. So regardless of what the funds expenses are all that it comes down to is; which pile of cash would you prefer? 

Once a client sees that our active managers have returned more real dollars, net of fees, to it's investors over a given time frame the decision becomes obvious. Now you understand why they will never make comparisons in real dollars even though this type of analysis is far more relevant than what an active fund did in one specific year.

Hidden Agendas

Once again, the goal of this blog was not to beat up on these low cost providers but instead  it was to give the other side of the story. Hearing both sides makes you a more informed investor and prevents you from relying on the headlines that these huge marketing budgets can afford to put in your face.

 They trick you into believing they are doing you a service by giving you a fund that costs less, when as you can see from my previous examples, this isn't true whatsoever. Remember, all these low-cost providers have a hidden agenda, they aren't trying to cut your fees because they're your friend. They make their money similar to how a bank does, by having your money in their accounts and being able to do other things with it. These companies spend BIG dollars to make sure their ads are seen all over google and other places that investors frequent and there's a reason for it.

One thing I hope you all take away from this, regardless of your age or investment experience, is that what truly matters is how much money you end up with in the long run. Year-to-year calendar returns are meaningless if these low-cost funds aren't making you as much money over time as the active funds are net of their fees. Fees are only an issue in the absence of value, so long as your advisor is using active funds that bring real value the fees associated with them are an irrelevant issue. 

 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 in mutual funds involves risk, including the potential loss of principal invested.  Risks vary depending upon the strategy used by the fund as well as the sectors in which the fund invests.  When redeemed, shares may be worth more or less than the original amount invested. 

Friday, April 21, 2017

Traditional vs. Roth IRA - 5 Points To Consider

I was recently asked by a client how to determine whether they should contribute to a Roth IRA or a Traditional IRA. It's a great question and one that many people must consider when deciding which option is most suitable for them and their situation.

Before we begin, allow me to set one thing straight, a traditional IRA invests PRE-TAX dollars and a Roth IRA invests POST-TAX dollars. Meaning in a traditional IRA you are choosing to pay the taxes in retirement but in a Roth you have already paid the taxes prior to investing the money.

It all comes down to taxes! Everyone has their opinions; pay the tax now, defer the taxes until retirement, split the money up into a little bit of each. Arguments can be made for these views but you came here in search of my opinion so that's what I'm going to give you.

Where Are Taxes Headed?

Contrary to popular belief current taxes are actually quite low when you look at the historical landscape. Couple that fact with the fact that our national debt is climbing at a substantial rate and you have a recipe for one thing: higher future taxes! This isn't to say that in the short-term taxes can't go slightly lower than where they are now but when deciding for retirement the short term should have little relevance. In my opinion, it's safe to assume that future income taxes will be higher than what we currently have in place. If that's the case, then it makes even more sense to pay the tax on your earnings now instead of pushing that tax bill (which will grow to be quite large over 30/40 years) off until you begin taking money out in retirement. The one advantage you do receive by contributing to a Traditional IRA is that you can deduct your contribution from your earned income for that year (assuming your income doesn't fall into the phase out limits). This is advantageous to you because that means you'll be able to pay slightly less tax for that year because you can report less earned income.

Income Limits

There is one unfortunate drawback to a Roth IRA; making a lot of money may prevent you from contributing to one. The IRS sets phase out limits that will dictate how much you may contribute to a Roth if your income falls within the established thresholds. If you're a single tax filer the phase outs begin at $118K of income per year and end at $133K per year. Meaning, if you make between $118K and $133K you will not be able to make a full Roth IRA contribution ($5500/year under age 50 and $6500/year ages 50 and above). If you are married, your combined income thresholds are $186K to $196K. If your income falls between the upper and lower limits, you'll be permitted to make a partial contribution. The closer you come to the higher threshold the smaller of a contribution you'll be permitted to make.

Avoid An Inflated Retirement Nest Egg!

Many baby boomer clients I work with now have a substantial amount of money saved in Traditional IRA accounts. Say you're in your early 60's and have roughly a million dollars in a traditional IRA. This number looks pretty on paper but most don't take into account the effect taxes will have on that number. Assume you have an effective tax rate of 25% when you retire, a very likely possibility. All those years of hard work to build up your retirement nest egg and little did you know that you're going to end up having to give 1/4 of it back to Uncle Sam in taxes. Yep, a quarter of a million dollars will be taken from you because you decided it was better to pay your tax bill in retirement. That's a harsh reality for someone who's been banking on this million-dollar account to last them through retirement.

Maintain Control Of Your Money

One thing people fail to consider when making this decision is that there are required minimum distributions or RMD's in a traditional IRA. What this means is, at age 70.5 the government will begin forcing you to take distributions from your Traditional IRA account because they want their tax money! This is not a requirement if you own a Roth IRA. If you have a Roth and do not need to take money out of your account at age 70.5 you can continue to let that money grow tax free until YOU decide to take withdrawals.


As you can see, there are a lot of factors that come into play when facing this decision. It's for this reason I always recommend sitting down or speaking with an advisor to make sure all your unique circumstances are accounted for when deciding. Also, there are strategies involved in working around the government mandated income limits. In some cases, there are ways you can contribute to a Roth even if your income exceeds the thresholds. You can also consider utilizing other investment vehicles that mimic the tax-free growth features offered in a Roth IRA. Lastly, if your income is coming in close to the limits set by the IRS your advisor should be discussing some of the ways you can reduce your income so that you fall under the lower threshold. This is a planning tool I've been using quite a bit lately with my young, high earning clients. We find deductions that can offset their income enough so that they fall under the income limits and can take advantage of a Roth.

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!

Neither Woodbury Financial Services, Inc. nor its representatives or employees provide legal or tax
advice. IRA strategies implementing various tax strategies or tax codes may not be appropriate for
all investors. Please consult your investment and tax professional prior to implementing a strategy.

Wednesday, April 5, 2017

401K Plans - The Ugly Truth

Employer sponsored plans such as; 401k's, 403b's and 457's can be a great idea for people looking to stash away as much money as possible for their retirement. The question of whether your plan is right for you and your goals can be highly subjective both to you and the plan in question. For this blog, I will predominately use 401K's as the umbrella term for all company/government sponsored plans since they tend to be the most commonly known. However, these characteristics, good or bad, can be applied to any company plan.

The most important question you need to determine is whether your employer will offer any sort of matching contributions. As I've said on numerous occasions an employer match is a must because they're giving you free money. If they do offer a match, then it would be a good idea to find out how much and whether there is a vesting schedule for the plan. A vesting schedule is the employer’s way of "handcuffing" you for lack of a better term, meaning for you to receive the employer match you must stay for a specified time. So, this is one variable to consider if you're in the fortunate position of choosing between two different job offers with virtually identical pay and benefits. Going a step further, unless you're maxing out an IRA there's no reason you should be contributing anything more than what is required to receive your employers match. If you're already maxing out your Roth or Traditional IRA, then you can add additional money to your 401K more than the match.

Fees seem to be a priority for everyone lately and a recent survey found 92% of people believed their 401K plan had no fees. That means, 9 out of every 10 employees contributing money from their hard-earned paychecks thought they weren't paying any fees to be a part of their company plan. Unfortunately, this couldn't be any further from the truth because most 401k's are loaded with fees and have extremely poor investments choices. In fact, many people don't know how the funds in a 401K plan are chosen. The plan selects the mutual fund company who is willing to pay the most to have their funds represented in the investment lineup. A little-known secret is that these fund companies typically try and offer their most unattractive funds because they know there's a greater probability that they will be selected with limited investment options available. I ran into one client who found that if they wanted to select the lowest cost investments offered in their plan they were subject to a 3.5% initial sales charge for each purchase. 3.5% just so they can take advantage of the lowest cost option in their plan!

BUT WAIT, THERE'S MORE! Not only can the fund expenses be outrageous but the plan will also apply a handful of useless fees and give them an important sounding name so that you'll never question their legitimacy. Plan administration fees, asset management fees and individual service fees are just a few of the ones I typically see but I know there are many others. I've heard the fee hurdle can be as high as 3-4% in some plans meaning you need to earn that much of a return before you even start making money. Now, if you're contributing to a plan that offers a match these returns (or lack thereof) can be hidden behind the match you receive from your employer. You may not notice your subpar returns because your employer is making contributions and it's bumping up your balance each year. It's for this reason that I recommend investors only contribute enough to get the match and then allocate the rest of their money into an IRA. If you have plan that has no match, then you should be utilizing an IRA first and only use your 401K if you've maxed out your IRA and still have additional money to invest.

Would you like to know who has the most to lose when it comes to company sponsored plans? Teachers, nurses and anyone else involved in a 403b plan. 403b plans are not subject to the ERISA requirements and therefore their plans tend to be even more excessive with their fees and expenses. Wouldn't you know it, the people educating the next generation and taking care of us when we need it most are left out in the cold when it comes to their retirement plans.

My intention for this blog was not to scare people away from utilizing their 401K's. As I've said before, these can be extremely useful tools in building up assets for retirement but please stay informed and ask your plan sponsor questions. Company plans always seem to slip under the radar when it comes to discussions regarding fees and I think it's because the investor is gravely uninformed. This can be seen quite clearly when you hear of studies that show more than 90% of people believe they pay no fees in their company plan. An advisor can give you comprehensive advice tailored specifically to your unique goals but you don't get that from a company plan so I think it's time these plans start justifying their fees and expenses.

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, March 24, 2017

Invest or Pay Down Debt?

As a financial planner in the Chicago suburbs I've sat down with many new clients who are unsure about how to balance student loans with investing for their future. The ask me whether they should be investing now or waiting and start by paying off their loans. Of course, each person has a unique situation and that will certainly play a role in my advice but more often than not my answer is you should do both.
I understand my advice may sound a little counter intuitive at first but if you take a step back and look at the question from another angle it's quite logical. As we know, and I've discussed many times before, time is your most valuable asset when it comes to your investments. When you elect to forgo investing early on you're squandering the benefits of compound interest when they matter most. I've given many examples in the past depicting the astounding differences of investing early or waiting until your late 20's or early 30's and the results speak for themselves. It's for this reason that I always recommend my younger clients begin investing as early as possible but still pay down their student loans along the way.

I can already hear the groans and excuses now, "But I don't have enough coming in to be able to do both". Of course you do, but you're choosing to do other things with your money instead. Far too many people would rather go out to dinner 3-5 times a week, buy a new outfit or waste their money partying with friends. One night out or a new outfit can easily cost you $100 and that's being modest. If you're not willing to give up one night of going out or one new outfit, then you're going to face the harsh reality later in life that you wasted the most important years for compounding all because you considered these material things a higher priority.

Look at your student loans and investment contributions as a tax placed on you by the government. If the government placed this tax on you, you'd moan, you'd groan and you would complain but inevitably you would pay it because you have to. Set up automatic payments for your loans and automatic deposits into your investment account so that you never see the money sitting in your bank or have the opportunity to spend it. I'd venture to guess that your lifestyle won't change all too much because you'll get creative and find alternative ways to continue doing the things you enjoy. I promise a little discipline and self-control now will pay huge dividends in the future, pun intended!

Would you like to discuss this idea further or find the best places to invest your money while you're paying off those student loans? Click below to schedule a phone call, in person or virtual meeting with me so we can determine what solution works best for you!

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!

Tuesday, March 14, 2017

2 Steps To Pay Down Credit Card Debt FAST

Credit card debt is an ugly beast that can be quite difficult to deal with especially when the average interest rate for people with good credit is a whopping 21%! Now I understand that things happen and every now and then you make a late payment or fall a month behind. So long as you make good on that the following month it should be a non-issue and have little relevance overall, but if you let those balances accumulate for a few extra months you'll be drowning in debt quicker than you can say annual percentage rate.
I don't want you or anyone else out there to fall into this vicious cycle but it does happen and if its happened to you then I'm going to give you two quick ways to climb out of that debt and get back on solid ground.
#1 Stop The Bleeding
Yeah, alright that sounds great in theory but what exactly does "stop the bleeding" mean? Look at like you've just been admitted to the hospital with a serious injury the first thing they'll want to do is stop that bleeding. In our situation though, it means use the credit card companies own marketing techniques against them. What's a well known strategy for attracting new card users? Offering them 0% interest for a specified period of time. So objective number one is to find one of these cards, open them and then transfer the balance to this new card offering 0% interest. This is so crucial and an idea that very few people consider when they're drowning in credit card debt. Most people in this situation hate the idea of credit cards so the last thing they're thinking is to open more of them. However, this is exactly what they should do and once they've done so it leads us into step number two.
#2 Go Into Overdrive During the 0% Period
So you established your new credit card and transferred the balance over but now comes the hard part, paying it down in the allotted time for the 0% interest. This is when your self discipline and ability to say no will need to prevail. Do an assessment on your current spending habits and decide where you can make adjustments that will free up more money for you to spend down on your debt. Forcing yourself to live slightly more frugally than you're used to during this time will be expected but keep in mind this is only temporary. This time of living on less than what you're used to should also serve as a good reminder of why you'll never let yourself get into this situation again.

I'd be more than happy to send you a spreadsheet I designed to help keep track of all your spending and cash flows. This spreadsheet will act as a tool for you to utilize and enhance your chances for success. It will also aid in preventing you from falling back into this awful situation again in the future. You can email me at

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!

Sunday, March 5, 2017

4 Things You May Not Know About Roth IRA's

1.) You Don't Need Much To Start One

One of the most common misconceptions I run into when working with someone is that they think they need to invest $5k or more to get their Roth started. While many of your larger banks or wire houses may require you to have 10/25/50k to get started this is not the case when working with me. I work with many baby boomer clients who this blog may not apply to but I also work with millennials who have questions or would like to know more but are under the impression they need to come to me with a few thousand dollars to ask their questions or discuss their situation. This couldn't be further from the truth. I have many meetings where we both agree that waiting until they have more free cash flow is the best option for their situation. That being said, I have many options for younger clients who know they can't max out their Roth IRA but they at least want to start putting a little something  away every month. In my investment arsenal I have companies who will allow my millennial clients to get started with as little as $250-$1000 and going forward they can contribute as little as $50/month after that. While that may seem like an insignificant amount of money to begin investing with I can certainly show you data compiled over 30-40 years suggesting quite the contrary.

2.) The Government Won't Force You To Take Distributions

As I'm sure many of you know, the earnings in a Roth IRA grow tax free until distributions are taken in retirement. This is the single greatest benefit of a Roth IRA over a traditional IRA who's earnings grow tax-deferred and not tax free. Another excellent benefit of a Roth IRA is the fact that Uncle Sam is not going to force you to begin withdrawing your money at the age of 70 1/2. You may or may not know that if you have a traditional IRA and have reached age 70 1/2 you will need to begin taking Required Minimum Distributions (RMD's). Fortunately for you though this is not a requirement if your money was invested in a Roth. In what situations would this feature be beneficial you may ask? Suppose you retire at 65 and start taking social security as well as receiving a pension from your previous employer. Many people in this situation may not need to take distributions from their IRA accounts but once they've reached the age of 70 1/2 they will be forced to. Traditional IRA's have this mandate, Roth IRA's DO NOT. This means your money can continue to accumulate tax free until YOU choose when is the best time to start using it. I enjoy being in control of my money so I strongly prefer having the ability to decide when is best for me to take my money out as opposed to having the government force my hand.

3.) Income Limits May Not Stop You
Yes, one unfortunate feature of Roth IRA's is that they have income limits attached to them which could prevent you from contributing to one if your income exceeds the thresholds set by the government. This is when working with a knowledgeable financial professional can bring real value. There are ways to convert money into a Roth IRA even when it seems as if you cannot. If you fall into this category, which certainly isn't a bad problem to have, seek a financial advisor who can show you ways to work around  this rule.

4.) You Can Still Make A 2016 Contribution
Yes, it's not too late! Even though it's 2017 you still have until April 15th of this year to make a backdated Roth IRA contribution. It's a little known secret and many people don't even realize it but this allows you to make a contribution now and it doesn't go against your contribution limit for 2017. Meaning you can actually contribute $11,000 this year but you only have about a month to get your 2016 contribution in, so time is of the essence.

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!

Tuesday, February 21, 2017

3 Reasons A Big Tax Refund Is NOT Your Friend

So April 15th is nearing and you've been diligently collecting your W2's, 1099's, K-1's and all other tax-related documents. You sent them off to your accountant or did the return on your own at home and are now anticipating that big refund check. Then it finally comes and not only is it what you were hoping for, it was even more than you anticipated! Great right? Wrong! Many people believe getting a large refund on their taxes is the best when actually quite the opposite is true.

So why is a large tax refund a bad thing?

    It's A Tax Free Loan To Uncle Sam
You establish how much money you would like to withhold on your paycheck each year and people often withhold far more than necessary to ensure that they will not owe money come tax time. All that you're doing by withholding more money than you actually need to is allowing the government to use your money all year in the form of an interest-free loan. If you elected to withhold a smaller percentage from your paychecks you'd have more money to spend each month and less would be held by the government.  Think of it like this, if you are paying down credit card or student loan debts throughout the year you would have the ability to pay off more of those high interest loans sooner instead of lending the government your hard earned money for free. This is why it is imperative for you to discuss proper withholding and/or estimated payments with your tax advisor.

    Inflation / Purchasing Power Risk
Inflation can be explained with a simple phrase, a dollar today is going to worth less than a dollar one year from now. In other words, if you bought something for $1000 today, in theory, it will cost you $1,011.80 to purchase that same item one year from now. So when that big refund check finally does come your money has less purchasing power now than it would've had in the previous year. The Bureau of Labor Statistics has a great inflation calculator that you can try for yourself here: BLS Purchasing Power

    The Urge to Overspend
More often than not when someone gets a large tax refund they can't help themselves and end up spending most, if not all of it all on something they really don't need. If your withholdings are adjusted properly each year you'll receive a modest return if you get anything back at all. For example, if your return amounted to say, $2400. You would've had an additional $200 a month throughout the year to pay off student loan debt, credit card bills, a car loan, your mortgage, so on and so forth. Instead however, you get your tax refund of $2400 at one time and instead of using all of it to pay down various debt obligations you succumb to the urge to spend it frivolously.

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!