Articles for April 2019

Your Financial Co-Pilot

If anything happens to you, your family has someone to consult. 

If you weren’t around, what would happen to your investments? In many families, one person handles investment decisions, and spouses or children have little comprehension of what happens each week, month, or year with a portfolio.

In an emergency, this lack of knowledge can become financially paralyzing. Just as small business owners risk problems by “keeping it all in their heads,” families risk problems when only one person understands investments. 

A trusted relationship with a financial professional can be so vital. If the primary individual handling investment and portfolio management responsibilities in a family passes away, the family has a professional to consult – not a stranger they have to explain their priorities to at length, but someone who has built a bond with mom or dad and perhaps their adult children.   

You want a professional who can play a fiduciary role. Look for a financial professional who upholds a fiduciary standard. Professionals who build their businesses on a fiduciary standard tend to work on a fee basis or entirely for fees. Other financial services industry professionals earn much of their compensation from commissions linked to trades or product sales.1

Commission-based financial professionals don’t necessarily have to abide by a fiduciary standard. Sometimes, only a suitability standard must be met. The difference may seem minor, but it really isn’t. The suitability standard, which hails back to the days of cold-calling stock brokers, dictates that you should recommend investments that are “suitable” to a client. Think about the leeway that can potentially provide to a commission-based professional. In contrast, a financial professional working by a fiduciary standard always has an ethical requirement to act in a client’s best interest and to recommend investments or products that clearly correspond to that best interest. The client comes first.1

You want a professional who looks out for you. The best financial professionals earn trust through their character, ability, and candor. In handling portfolios for myriad clients, they have learned to watch for certain concerns and to be aware of certain issues that may get in the way of wealth building or wealth retention.

Many investors have built impressive and varied portfolios, but lack long-term wealth management strategies. Money has been made, but little attention has been given to tax efficiency or risk exposure.

As you near retirement age, playing defense becomes more and more important. A trusted financial professional could help you determine a risk and tax management approach with the potential to preserve your portfolio assets and your estate.

Your family will want nothing less. With a skilled financial professional around to act as a “co-pilot” for your portfolio, your loved ones will have someone to contact should the unexpected happen. When you have a professional who can step up and play a fiduciary role for you, today and tomorrow, you have a financial professional whose service and guidance can potentially add value to your financial life.

If you’re the family member in charge of investments and crucial financial matters, don’t let that knowledge disappear at your passing. A will or a trust can transfer assets, but not the acumen by which they have been accumulated. A relationship with a trusted financial professional may help to convey it to others.


Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website:  www.cfgiowa.com    

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – kiplinger.com/article/retirement/T023-C032-S014-choosing-a-financial-adviser-fiduciary-dimension.html [3/22/19]

 

The Cost of Procrastination

Don’t let procrastination keep you from pursuing your financial goals.

Some of us share a common experience. You’re driving along when a police cruiser pulls up behind you with its lights flashing. You pull over, the officer gets out, and your heart drops.

“Are you aware the registration on your car has expired?”

You’d been meaning to take care of it for some time. For weeks, you had told yourself that you’d go to renew your registration tomorrow, and then, when the morning comes, you repeat it again.

Procrastination is avoiding a task that needs to be done – postponing until tomorrow what could be done, today. Procrastinators can sabotage themselves. They often put obstacles in their own path. They may choose paths that hurt their performance.

Though Mark Twain famously quipped, “Never put off until tomorrow what you can do the day after tomorrow.” We know that procrastination can be detrimental, both in our personal and professional lives. From the college paper that gets put off to the end of the semester to that important sales presentation that waits until the end of the week for the attention it deserves, we’ve all procrastinated on something.

Problems with procrastination in the business world have led to a sizable industry in books, articles, workshops, videos, and other products created to deal with the issue. There are a number of theories about why people procrastinate, but whatever the psychology behind it, procrastination may, potentially, cost money – particularly, when investments and financial decisions are put off.

As the example below shows, putting off investing may put off potential returns.

Early Bird. Let’s look at the case of Cindy and Charlie, who each invest a hypothetical $10,000 to start. One of them begins immediately, but the other puts investing off.

Charlie begins depositing $10,000 a year in an account that earns a hypothetical 6% rate of return. Then, after 10 years, he stops making deposits. His invested assets, however, are free to keep growing and compounding.

While Charlie fills his account, Cindy waits 10 years before getting started. She then starts to invest a hypothetical $10,000 a year for 10 years into an account that also earns a hypothetical 6% rate of return.

Cindy and Charlie have both invested the same $100,000, but procrastination costs Cindy, as Charlie’s balance is much higher at the end of 20 years. Over 20 years, his account has grown to $237,863, while Cindy’s account has only grown to $132,822. Charlie’s account has not only put the power of compound interest to work, it has also allowed the investment returns more time to compound.1

This is a hypothetical example of mathematical compounding. It’s used for comparison purposes only and is not intended to represent the past or future performance of any investment. Taxes and investment costs were not considered in this example. The results are not a guarantee of performance or specific investment advice. The rate of return on investments will vary over time, particularly for longer-term investments. Investments that offer the potential for high returns also carry a high degree of risk. Actual returns will fluctuate. The types of securities and strategies illustrated may not be suitable for everyone.

Mike Moffitt may be reached at ph#: 641-782-5577 or email: mikem@cfgiowa.com

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

 Citations.

1 – nerdwallet.com/banking/calculator/compound-interest-calculator [12/13/18]

 

Where Will Your Retirement Money Come From?

Retirement income may come from a variety of sources. 

For many people, retirement income may come from a variety of sources. Here’s a quick review of the six main sources:

Social Security. Social Security is the government-administered retirement income program. Workers become eligible after paying Social Security taxes for 10 years. Benefits are based on each worker’s 35 highest earning years. (If there are fewer than 35 years of earnings, non-earning years may be counted in the calculation.) In mid-2018, the average monthly benefit was $1,413.1,2

Personal Savings and Investments. These resources can also provide income during retirement. Personally, you may want investments that offer steady monthly income over vehicles giving you the potential for double-digit returns. But remember, a realistic understanding of your ability and willingness to stomach large swings in the value of your investments is a must. A quick chat with a financial professional can help you understand your risk tolerance as you approach retirement.

Individual Retirement Accounts. Traditional IRAs have been around since 1974. Contributions you make to a traditional IRA are commonly deductible. Distributions from a traditional IRA are taxed as ordinary income, and if taken before age 59½, may be subject to a federal income tax penalty. Once you reach age 70½, these accounts require mandatory withdrawals.3

Roth IRAs were created in 1997. Contributions you make to a Roth IRA are non-deductible, as they are made using money that has already been taxed. Sometimes, only partial Roth IRA contributions can be made by taxpayers with six-figure incomes; some especially high-earning individuals and couples cannot direct money into Roth IRAs at all. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Contributions may be withdrawn penalty-free at any time. Roth IRAs do not have any required minimum distribution rules.3

Defined Contribution Plans. Many workers are eligible to participate in a defined-contribution plan such as a 401(k), 403(b), or 457 plan. Eligible workers can set aside a portion of their pre-tax income into an account, and the invested assets may accumulate with taxes deferred, year after year. (Some of these accounts are Roth accounts, funded with after-tax dollars.) Generally, once you reach age 70½, you must begin taking required minimum distributions from these workplace plans.4

Defined Benefit Plans. Defined benefit plans are “traditional” pensions – employer-sponsored plans under which benefits, rather than contributions, are defined. Benefits are normally based on specific factors, such as salary history and duration of employment. Relatively few employers offer these kinds of plans today.5

Continued Employment. In a recent survey, 68% of workers stated that they planned to keep working in retirement. In contrast, only 26% of retirees reported that continued employment was a major or minor source of retirement income. Many retirees choose to continue working as a way to stay active and socially engaged. Choosing to work during retirement, however, is a deeply personal decision that should be made after considering your finances and personal goals.6

Mike Moffitt may be reached at Ph#641-782-5577 or email:  mikem@cfgiowa.com.

Website:  mikem@cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – waddell.com/explore-insights/market-news-and-guidance/planning/9-facts-about-social-security  [2018]

2 – cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security [8/14/18]

3 – cnbc.com/2018/07/30/roth-vs-traditional-iras-how-to-decide-where-to-put-your-money.html [7/30/18]

4 – fool.com/retirement/2018/11/21/the-most-important-401k-rules-for-maximizing-your.aspx [11/21/18]

5 – investopedia.com/terms/d/definedbenefitpensionplan.asp [1/26/18]

6 – investopedia.com/articles/personal-finance/101515/planning-retiring-later-think-again.asp [10/25/18]

 

 

 

 

Do Our Biases Affect Our Financial Choices?

Even the most seasoned investors are prone to their influence.

Investors are routinely warned about allowing their emotions to influence their decisions.  They are less routinely cautioned about letting their preconceptions and biases color their financial choices.

In a battle between the facts & our preconceptions, our preconceptions may win. If we acknowledge this tendency, we may be able to avoid some unexamined choices when it comes to personal finance; it may actually “pay” us to recognize our biases as we invest. Here are some common examples of bias creeping into our financial lives.1

Valuing outcomes of investment decisions more than the quality of those decisions. An investor thinks, “I got a great return from that decision,” instead of thinking, “that was a good decision because ______.”

How many investment decisions do we make that have a predictable outcome? Hardly any. In retrospect, it is all too easy to prize the gain from a decision over the wisdom of the decision, and to, therefore, believe that the decisions with the best outcomes were in fact the best decisions (not necessarily true).

Valuing facts we “know” & “see” more than “abstract” facts. Information that seems abstract may seem less valid or valuable than information that relates to personal experience. This is true when we consider different types of investments, the state of the markets, and the health of the economy.

Valuing the latest information most. In the investment world, the latest news is often more valuable than old news, but when the latest news is consistently good (or consistently bad), memories of previous market climate(s) may become too distant. If we are not careful, our minds may subconsciously dismiss the eventual emergence of the next bear (or bull) market.

Being overconfident. The more experienced we are at investing, the more confidence we have about our investment choices. When the market is going up and a clear majority of our investment choices work out well, this reinforces our confidence, sometimes to a point where we may start to feel we can do little wrong, thanks to the state of the market, our investing acumen, or both. This can be dangerous.

The herd mentality. You know how this goes: if everyone is doing something, they must be doing it for sound and logical reasons. The herd mentality is what leads many investors to buy high (and sell low). It can also promote panic selling. Above all, it encourages market timing – and when investors try to time the market, they frequently realize subpar returns.

Sometimes, asking ourselves what our certainty is based on and what it reflects about ourselves can be a helpful and informative step. Examining our preconceptions may help us as we invest.


Mike Moffitt may be reached at 641-782-5577 or mikem@cfgiowa.com.

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – forbes.com/sites/theyec/2018/12/14/three-psychological-biases-that-prevent-effective-financial-management [12/14/18]

 

Could Social Security Really Go Away?

That may be unlikely, but the program does face definite financial challenges. 

Will Social Security run out of money in the 2030s? You may have heard warnings about this dire scenario coming true. These warnings, however, assume that no action will be taken to address Social Security’s financial challenges between now and then.

It is true that Social Security is being strained by a gradual demographic shift. The Census Bureau says that in 2035, America will have more senior citizens than children for the first time. In that year, 21% of us will be age 65 or older.1

As this shift occurs, the ratio of workers to retirees is also changing. There were three working adults for every Social Security recipient in 1995. The ratio is projected to be 2.2 to 1 in 2035.2

Since Social Security is largely funded with payroll taxes, this presents a major dilemma.

Social Security may soon pay out more money than it takes in. That has not happened since 1982. This could become a “new normal” given the above-mentioned population and labor force changes.3

When you read a sentence stating, “Social Security could run out of money by 2035,” it is really referring to the potential depletion of the Social Security Administration’s Old Age, Survivors, and Disability Insurance (OASDI) trust funds – the twin trust funds from which monthly retiree and disability payments are disbursed. Should Social Security’s net cash outflow continue unchecked, these trust funds may actually be exhausted around that time.4

Social Security is currently authorized to pay full benefits to retirees through the mid-2030s. If its shortfall continues, it will have to ask Congress for greater spending authority in order to sustain benefit payments to meet retiree expectations.4

What if Congress fails to address Social Security’s cash flow problem? If no action is taken, Social Security could elect to reduce retirement benefits at some point in the future. Its board of trustees notes one option in its latest annual report: benefits could be cut by 21%. That could help payouts continue steadily through 2092.2

No one wants to see benefits cut, so what might Congress do to address the crisis? A few ideas have emerged.

*Expose all wages to the Social Security tax or increase it at certain levels. Right now, the Social Security tax only applies to income above $132,900. Lifting this wage cap on the tax or boosting the tax above a particular income threshold would bring Social Security more revenue, specifically from higher-earning Americans.5

*Raise Social Security’s full retirement age (FRA). This is the age when people become eligible to receive unreduced retirement benefits. The Social Security reforms passed in 1983 have gradually increased the FRA from 65 to 67. Should it be reset to 69 or 70? Healthier, wealthier seniors might tolerate such a decision, but poorer and less-healthy ones might not.5

*Calculate COLAs differently. Social Security could figure its cost-of-living adjustments (COLAs) using the “chained” version of the Consumer Price Index, which some economists believe more accurately measures inflation than the standard CPI. Its COLAs could be smaller as a result.5

*Stop paying Social Security benefits to the richest retirees. This would help to address a cash flow imbalance.5

Social Security could be restructured in the coming decades. Significant reforms may or may not fix its revenue problem. In the future, Social Security might not be able to offer retirees exactly what it does now, and with that in mind, you might want to reevaluate your potential sources of retirement income today.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak Securities, Inc. and Cornerstone Financial Group are separate entities.

Citations.

1 – denverpost.com/2019/03/01/ageism-colorado-tight-labor-market/ [3/1/19]

2 – fool.com/retirement/2018/09/29/social-securitys-fast-facts-and-figures-report-hig.aspx [9/29/18]

3 – fool.com/retirement/2019/03/03/why-2019-is-the-social-security-year-weve-all-fear.aspx [3/3/19]

4 – taxfoundation.org/social-security-deficit/ [6/12/18]

5 – morningstar.com/articles/918591/will-the-big-social-security-fix-include-expansion.html [3/14/19]