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Impact Investing

Planning to grow your money with causes in mind. Provided by Rotz & Stonesifer Financial Services, LLC Can investing change the world? Some millennials, Gen Xers, baby boomers and elders hope the answer is “yes.” Billionaires, like Bill Gates and Richard Branson, are pouring money into green business ventures and projects intended to improve education and the quality of life, and millions of other households are directing portions of their portfolios into socially responsible investments. Impact investing, which was once largely ignored by Wall Street, has gone mainstream. Ethical investing has evolved since the 1960s. At first, it was about not investing in certain companies – such as firms that effectively profited from South Africa’s policy of apartheid, and corporations whose products were environmentally destructive or morally objectionable. During the 1990s, the goal of simply screening portfolio choices gave way to a new focus on making socially responsible investments. A new sector of investment products emerged, created with the dual purpose of effecting positive change and generating significant yields. In 2005, there were about 200 such investment vehicles; less than a decade later, investors could choose from nearly 1,000.1 A generation ago, socially responsible investments had their share of critics. Couldn’t their money managers see that corporate profits came first, and environmental stewardship, second? Surely these investment vehicles were destined for substandard returns. Looking at the performance of two key benchmarks, it appears those critics were wrong. Impact investments actually outgained the S&P 500 during a 25-year period. From 1990 through 2014, the Domini 400 – the benchmark index for the socially responsible investment sector – yielded an average yearly total return of 10.46%. The S&P’s average annual total return across the same time frame [...]

Impact Investing2016-08-02T10:55:53-04:00

Stocks & Presidential Elections

What does history tell us – and should we value it? Provided by Rotz & Stonesifer Financial Services, LLC As an investor, you know that past performance is no guarantee of future success. Expanding that truth, history has no bearing on the future of Wall Street. That said, stock market historians have repeatedly analyzed market behavior in presidential election years, and what stocks do when different parties hold the reins of power in Washington. They have noticed some interesting patterns through the years, which may or may not prove true for 2016. Do stocks really go through an “election cycle” every four years? The numbers really don’t point to any kind of pattern. (Some analysts contend that stocks follow a common pattern during an election year; more about that in a bit.) In price return terms, the S&P 500 has gained an average of 6.1% in election years, going back to 1948, compared to 8.8% in any given year. The index has posted a yearly gain in 76% of presidential election years starting in 1948, however, as opposed to 71% in other years. Of course, much of this performance could be chalked up to macroeconomic factors having nothing to do with a presidential race.1 Overall, election years have been decent for the blue chips. Opening a very wide historical window, the Dow has averaged nearly a 6% gain in election years since 1833. Across that same time frame, it has averaged a 10.4% gain in “year three” – years preceding election years.2 Many election years have seen solid advances for the small caps. The average price return of the Russell 2000 is 10.9% in election years going back to 1980, with a yearly gain occurring [...]

Stocks & Presidential Elections2016-08-02T10:54:35-04:00

Why Aren’t You Maxing Out Your 401(k)?

It may be the best retirement planning tool you have. Provided by Rotz & Stonesifer Financial Services, LLC Do you have a million dollars? At the moment, probably not. But if you invest and save diligently and let your assets compound, who knows? You may be a millionaire someday. In fact, you may need to be a millionaire someday. If you stay retired for twenty or thirty years, it could take well over $1 million to fund that retirement. In fact, Andrés Cardenal, CFA and financial analyst, recommends $1.25 million if you plan to match inflation over a three-decade retirement. This is one reason why you should contribute the maximum to your 401(k) plan. 1 Your 401(k) is your friend. For years, employers have wondered: why don’t people contribute more to their 401(k)s? At many large companies, the majority of employees contribute too little, and some find it a hassle to even fill out the paperwork. Most people don’t speak “financial” and don’t look at financial magazines or websites. It’s “boring.” So they mentally file “401(k)” under “boring.” But the advantages of a 401(k) should not bore you; they should motivate you. Tax-deferred growth and compounding. The money in your 401(k) compounds year after year without tax penalties. The earlier you start, the more compounding you get. Let’s say you put $2,400 annually in a 401(k) starting at age 30, and for the sake of example, let’s assume you get an 8% annual return. How much money would you have at 65? You would have a retirement nest egg of $437,148 from putting in $200 per month. But if you started putting in that $200 a month five years later, you would have only $285,588. [...]

Why Aren’t You Maxing Out Your 401(k)?2016-05-03T15:19:44-04:00

Smart Financial Moves in Your 20s, 30s, 40s & 50s

What might you think of doing when? Provided by Rotz & Stonesifer Financial Services, LLC If you had a timeline of the financial steps you should probably take in life, what would it look like? Answers to that question will vary, but certain times of life do call for certain financial moves. Some should be made out of caution, others out of opportunity. What might you want to do in your twenties? First and foremost, you should start saving for retirement – preferably using tax-advantaged retirement accounts that let you direct money into equities. Through equity investing, your money may grow and compound profoundly with time – and you have time on your side. As a hypothetical example, suppose you are 25 and direct $5,000 annually for 10 years into a retirement account earning a consistent 7%. You stop contributing to the account at age 35 – in fact, you never contribute a dollar to it again. Under such conditions, that $50,000 you have directed into that account over ten years grows to $562,683 by the time you are age 65 with no further action from you. If you contribute $5,000 annually to the account for 40 years starting at 25, you end up with $1,068,048 at 65.1 Aside from equity investment, you will want to try and build your savings – an emergency fund equal to six months of salary. That may seem unnecessarily large, or just too grand a goal, but it is worth pursuing, particularly if you are married or a parent. You could suffer a disability – not necessarily a permanent one, but an illness or injury that might prevent you from earning income. About 25% of people will contend with [...]

Smart Financial Moves in Your 20s, 30s, 40s & 50s2017-02-20T15:37:44-04:00

Should You Downsize for Retirement?

Some retirees save a great deal of money by doing so; others do not. Provided by Rotz & Stonesifer Financial Services, LLC You want to retire, and you own a large home that is nearly or fully paid off. The kids are gone, but the upkeep costs haven’t fallen. Should you retire and keep your home? Or sell your home and retire? Maybe it’s time to downsize. Lower housing expenses could put more cash in your pocket. If your home isn’t paid off yet, have you considered how much money is going toward the home loan? When you took out your mortgage, your lender likely wanted your monthly payment to amount to no more than 28% of your total gross income, or no more than 36% of your total monthly debt repayments. Those are pretty standard metrics in the mortgage industry.1 What percentage of your gross income are you devoting to your mortgage payments today? Even if your home loan is 15 or 20 years old, you still may be devoting a significant part of your gross income to it. When you move to a smaller home, your mortgage expenses may lessen (or disappear) and your cash flow may greatly increase. You might even be able to buy a smaller home with cash (if finances permit) and cut your tax liability. Optionally, that smaller home could be in a state or region with lower income taxes and a lower cost of living. You could capitalize on some home equity. Why not convert some home equity into retirement income? If you were forced into early retirement by some corporate downsizing, you might have a sudden and pressing need for retirement capital, another reason to sell that [...]

Should You Downsize for Retirement?2017-02-20T15:37:44-04:00

Wisdom from Warren Buffett

One of the world’s most heralded investors simply keeps calm and carries on. Provided by Rotz & Stonesifer Financial Services, LLC If you ask someone who the "world’s greatest investor" is, the answer more often than not may be "Warren Buffett." That honor has never formally been awarded to him, and many other names might be in the running for that hypothetical title, but one thing is certain: the "Oracle of Omaha" is greatly admired in investing circles. Warren Buffett is often a voice of reason in volatile times. Through the years, the Berkshire Hathaway CEO has dispensed many nuggets of investing wisdom. Like Ben Franklin's aphorisms in Poor Richard's Almanac, they are grounded in common sense and memorable. Here are some particularly good ones, culled from recent articles posted at Bloomberg, TheStreet, and Zacks Investment Research: "The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd." 2 "Games are won by players who focus on the playing field -- not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays." 2 "If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes." 1 "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage." 1 "Price is what you pay. Value is what you get." 1 "The cemetery for seers [...]

Wisdom from Warren Buffett2017-02-20T15:37:44-04:00

Retirement Now vs. Retirement Then

Today’s retirees must be more self-reliant than their predecessors. Decades ago, retirement was fairly predictable: Social Security and a pension provided much of your income, you moved to the Sun Belt, played tennis or golf, and you lived to age 70 or 75. To varying degrees, this was the American retirement experience during the last few decades of the previous century. Those days are gone; retirees must now assume greater degrees of financial self-reliance. There is no private-pension safety net today. At one time, when Social Security was paired with a pension from a lifelong employer, a retiree could potentially enjoy a middle-class lifestyle. In January, the average monthly Social Security benefit was $1,341. The highest possible monthly benefit for someone retiring at Social Security’s full retirement age in 2016 is $2,787.80, or $33,453.60 a year. So in many areas of this country, living only on Social Security does not afford you the same lifestyle you may have had when you were working. Elders who thought they could rely on Social Security to get by have learned a bitter truth, one we should note. We must supplement Social Security with other income streams or sources.1,2,3,4 We carry more debt than our parents and grandparents did. It is much easier to borrow money (and live on margin) than it was decades ago. Some people face the prospect of retiring with outstanding student loans, car loans, and business loans, in addition to home loans.3 Some of us are retiring unmarried. With the divorce rate being where it is, some baby boomers will retire alone. Perhaps they will share a residence with a sibling, child, or friends; that may give them something of an economic cushion in terms [...]

Retirement Now vs. Retirement Then2017-02-20T15:37:44-04:00

Building a College Fund

Do it smartly, without the all-too-common missteps. According to Sallie Mae, U.S. families with one or more college students spent an average of $24,164 on tuition, housing, and linked expenses in 2015. That was 16% more than in 2014.1 Statistics like these underline the importance of saving and investing to fund a university education, but that effort has become optional to many. In its annual How America Saves for College survey, Sallie Mae found that only 48% of U.S. families with at least one child younger than age 18 were saving for college at all. Among those that were saving, the average 2015 amount was $10,040 – the lowest figure in the 7-year history of the survey. It is little wonder that 22% of college costs are covered by either parent or student borrowing.1,2 If you want to build a college fund, what should you keep in mind? What should you do? What should you avoid doing? First, save with realistic assumptions. Outdated perceptions of college expenses can linger, so be sure to replace them with current data and future projections. Consider a tax-advantaged account. Remarkably, Sallie Mae’s 2015 survey found that just 27% of households saving for higher education had chosen 529 plans or similar vehicles. Nearly half of the households building college funds were simply directing the money into common savings accounts, giving those dollars no chance to grow or compound through equity investment.2 If you open a tax-advantaged account, fund it adequately. Some states have established very low contribution minimums for their college savings plans. That does not mean your contribution should be at or near that level.3 Explore your options with regard to these accounts. You can participate in any number [...]

Building a College Fund2017-02-20T15:37:44-04:00

The Annual Financial Check-Up

Don’t ignore it. Here’s why. Here’s the scenario ... you get a card in the mail, one of those little reminders that tells you it’s time for your annual financial checkup. Your reaction: I’ll take care of that later. Here’s why you should look forward to it. Why do I need an annual review? Because things change, and during the course of the last 12 months, you may have … changed jobs, made major purchases, welcomed a new child, retired, bought or sold a residence, decided upon new goals. These developments can change your financial objectives. Also, it is just sensible to measure your financial progress. If you are not making progress in accumulating assets, or if you are assuming too much risk as a result of your current portfolio or financial decisions, it’s time for change. The annual review is a "deep breath" where you can get away from daily distractions and think clearly about financial planning. Just imagine. Imagine letting your investments go for five or ten years, assuming that they’re doing okay while you wonder what the quarterly statements mean. Imagine being a few years from retirement only to find you have less than a year’s salary in savings. Imagine passing away and leaving unresolved money issues for your loved ones, or subjecting them to a contentious probate process. These scenarios are all too real; people run to financial advisors for help with them every day. If they had only reviewed what was happening with their lives financially, they could have planned to avoid these issues in advance. Putting things off can be dangerous. This is an ideal time to take a look under the hood – financially speaking. During your annual [...]

The Annual Financial Check-Up2017-02-20T15:37:44-04:00

Who Needs Estate Planning?

Why estate planning is so important, and not just for the rich. You have an estate. It doesn’t matter how limited (or unlimited) your means may be, and it doesn’t matter if you own a mansion or a motor home. Rich or poor, when you die, you leave behind an estate. For some, this can mean real property, cash, an investment portfolio and more. For others, it could be as straightforward as the $10 bill in their wallet and the clothes on their back. Either way, what you leave behind when you die is considered to be your “estate”. "But, I don’t need estate planning...do I?" Let’s think about that. If the estate is small, should you still plan? Well, even if you’re just leaving behind the $10 bill in your wallet, who will inherit it? Do you have a spouse? Children? Is it theirs? Should it go to just one of them, or be split between them? If you don’t decide, you could potentially be leaving behind a legacy of legal headaches to your survivors. This, quite simply, is what estate planning is all about – deciding how what you have now (money and assets) will be distributed after your lifetime. Do you HAVE to create an estate plan? While it is absolutely possible to die without planning your estate, I wouldn’t say that it is advisable. If you don’t leave behind an estate plan, your family could face major legal issues and (possibly) bitter disputes. So in my opinion, everyone should do some form of estate planning. Your estate plan could include wills and trusts, life insurance, disability insurance, a living will, a pre- or post-nuptial agreement, long-term care insurance, power of attorney [...]

Who Needs Estate Planning?2016-02-24T12:52:47-04:00