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Your Risk Tolerance and Retirement

Posted by Frank McKinley on
 May 26, 2020

To gain a better understanding of how we’re affected by risk when building a retirement portfolio, it’s important to learn about risk tolerance and what it means for you as an investor.

What Is Risk Tolerance?

Risk tolerance essentially refers to an investor’s ability — both emotionally and financially — to deal with major upswings and downswings in the market.  If a person is said to have high risk tolerance, he or she likely tends not to worry so much about the potential risk of certain stocks or having a large amount of stocks in a portfolio. Those with low risk tolerance are on the other end of spectrum, often too cautious to deal with volatile stocks or the market in general.

Risk Tolerance and Age

While plenty of factors must be taken into consideration when considering your own risk tolerance, age is an important anchor to help risk-takers avoid getting in over their heads. This is especially true of those who are working toward building an effective retirement plan. When people are young, it makes more sense to take risks with investments than when they reach retirement age. What’s important to recognize is that risk tolerance must shift with age to avoid making costly mistakes at a time when it may be potentially too late to recover.

Adjusting Risk Tolerance

Adjusting risk tolerance means taking a realistic approach to your investments. Many successful investors find moving away from stocks to bonds is an effective later-in-life  strategy.

Once you have a general percentage figured out, take a moment to determine how many stocks will actually make up that portion of your portfolio. This can vary significantly in terms of personal preference, but often 10 stocks are mentioned as a reasonable number to hold in your portfolio. Keeping your investments to 10 or less allows you to pay closer attention to what’s actually happening with your investments.

The Importance of Working with a Financial Planner

The best way to get a better sense of what is a realistic risk tolerance for you to have at this point in life is to work closely with your financial planner.

Please call 973-515-5184 or contact me
if you’d like to discuss this in more detail.

Developing a Plan Is Not Enough

You have your investment plan in place, and you’re feeling good about it. But your job doesn’t stop there. You need to establish
regular reviews to ensure that plan is meeting your goals. Here are some steps to follow:

Review Your Asset Allocation — Begin by making sure the asset allocation you have selected still aligns with your goals, risk tolerance, and time horizon. If your allocation
in any one asset class has shifted more than 10% from your strategy, you may want to get it back into balance.

Review Your Holdings — Revisit your positions by using a variety of resources, such as analyst opinions, credit ratings, stock valuation measurements, and benchmarks. Consider whether your stock
and fund holdings still make sense for your investment strategy and still meet your expectations.

Assess Performance — If your portfolio’s performance has fallen short of expectations or your stomach can’t handle the volatility of your investment mix, it may be time to revisit your asset allocation strategy. You also want to see how your
individual investments have performed.

Financial Thoughts

Of those who filed as of late May 2019, the average federal tax refund that taxpayers received from 2018 taxes was $2,879 compared to $2,908 as of late May 2018 for 2017 taxes. However, two-thirds of households received tax cuts under the Tax Cuts and Jobs Act, while 6% paid more taxes (Source: The Wall Street Journal, 2019).

Approximately 10% of tax filers itemized deductions in tax year 2018 compared to 30% in tax year 2017 (Source: Tax Foundation, 2019).

The average inheritance is gone within five years, unless invested in financial assets or housing equity (Source: Lund University, 2019).

The average net wealth retired adults leave behind when they die by age bracket is $296,000 in their 60s, $313,000 in their 70s, $315,000 in their 80s,
and $283,000 in their 90s (Source: United Income, 2019).

Approximately 63% of affluent Americans said they were very or somewhat likely to change their personal financial plans based on the new federal
tax law (Source: AICPA, 2019).

Representatives are registered through, and securities are sold through Nationwide Planning Associates, Inc., Member FINRA/SIPC, located at 115 West Century Road, Suite 360, Paramus, NJ 07652. Investment advisory services are offered through NPA Asset Management, LLC. Insurance sold through licensed NPA Insurance Agency, Inc. agents. Frank is registered in NJ, NY, PA, FL, CT, CO, NC, OH and RI. He is also licensed for life and health insurance in NJ, NY, FL, OH and RI. The presence of this web site on the Internet shall in no direct or indirect way be construed or interpreted as a solicitation to sell advisory services to residents of any state other than those listed above and shall not be deemed to be a solicitation of advisory clients living in any state other than those listed above. Nationwide Planning Associates, Inc. and Frankly Financial are non-affiliated entities.
Copyright © 2020. Some articles in this newsletter were prepared by Integrated Concepts, a separate, non-affiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

Categories : Blog, financial planning, Financial Services, Investing, Retirement

When Stocks Drop That’s NOT The Problem

Posted by Frank McKinley on
 May 19, 2020

Sometimes, when it comes to investing, volatile markets aren’t your worse enemy. You are.  Unfortunately, our brains often play tricks on us, causing even the savviest of investors to make decisions that don’t really make a lot of sense, such as panic selling or ignoring opportunities.

The problem of psychological investing traps is so pervasive, in fact, that there’s a whole field dedicated to studying it called behavioral finance. Researchers in this discipline look at the way psychology affects how we make financial decisions. Knowing about these traps can help you avoid them and make you a better investor. Here are seven psychological traps to keep in
mind.

Sunk Costs Bias — The sunk costs bias has to do with the all-too common tendency to stick with
something, whether a bad boyfriend or a bad investment, long after it’s clear that it’s not worth it anymore. Still, because you’ve invested a certain
amount of time or money, you’re reluctant to give it up. In investing, you might end up hanging on to a stock long after you should sell it in the vain hope that you’ll eventually come out ahead. But in
these cases, it’s better to cut your losses rather than to hang on to a loser.

Familiarity Bias — Most of us are biased toward what is familiar to us. We head to restaurants we’ve been to before and follow the same roads to work because we know what to expect. With  investing, familiarity bias involves favoring investments that are familiar to you. You might prefer to invest in the company you work for or big-name businesses that are in the news. That
could cause you to overlook important opportunities you don’t know as much about.

Anchoring — Anchoring is the process of getting attached to a particular reference point – such as the price you paid for a stock — and using that to guide future decisions. Or you might fixate on a stock’s previous high, even though that price was an anomaly. Anchoring is why buyers think they got a great deal when buying a car for $50,000 when the initial price was $60,000, even though the car’s really worth $40,000.

Whether buying stocks or cars, anchoring involves using a single piece of information to determine what a stock or other investment
should be worth while also discounting more relevant information, such as a company’s fundamentals or broader economic trends. Unfortunately, avoiding anchoring is difficult,
but considering all available information before choosing an investment can help.

Focusing Too Much on the Recent Past —  Recency bias is the tendency to make decisions or judgments based on relatively new or recent information. For example, during times when the market is up, people may ignore or discount the
possibility of a market decline. Or, if a certain category of stocks has done poorly recently, people may conclude that those stocks always have negative returns, even if the dip is an anomaly. You can avoid this mistake by doing your best to consider the entire universe of information at your fingertips, not just what happened yesterday.

Following the Herd – While following trends might be fine for fashionistas, it’s not always a smart investing move. Yet herd investing

is an all-too-easy trap to fall into. If everyone is telling you that now’s the time to get into a certain hot investment, you may feel you need to act fast so you don’t miss out. But just because something is popular doesn’t make it a good investment. Blindly following the herd without first consulting your own financial goals and plan doesn’t make you a smart investor.

Overconfidence — Most of us like to think we’re smarter than the average person. If you hit it big
with a certain investment, you may over-attribute that success to your skill rather than what it really is — luck. That can cause you to repeat
the same behavior again.

Panic — Investing isn’t for the faint of heart. When the market takes a sudden dip, it’s easy to
panic, which can lead you to make bad decisions, such as selling at a big loss, rather than riding out the natural hills and valleys of investing.
Making these emotionally driven choices costs you a lot of money. When making investing decisions,  make sure they’re based on evidence, not your initial gut reaction to the day’s events.
Avoiding psychological investing traps on your own can be difficult. 

phychological traps when watching the stock market

Please call me at 973-515-5184 or contact me
if you’d like to discuss this in more detail.

Click here to view our latest newsletter.

Copyright © 2020. Some articles in this newsletter were prepared by Integrated Concepts, a separate, non-affiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

Categories : Blog, financial planning, Financial Services, Investments, Stocks

Answers to Important Financial Questions

Posted by Frank McKinley on
 May 4, 2020

Although every person has specific questions regarding their personal financial situation, there are several that are pretty universal when it comes to finances. Following are answers to these important financial questions. When should I start saving and investing? This is probably the most frequently asked question about personal finances. And it has a very simple answer — it is never too soon to start saving. The minute you begin making money is also the time when you should start saving for both short- and long-term goals by making them part of your budget.  If your employer offers a retirement plan such as a 401(k), contribute as much as you can up to $19,500 in 2020. If you can’t manage to contribute that much, at least contribute enough to get matching funds if your employer offers them.

You should also save money for emergencies, such as medical bills, a job loss, or a major house repair.  Most experts agree that you should have six months of income saved to cover unexpected expenses.

If you have additional cash, you should then develop an investment plan with an asset allocation strategy to help meet both short- and long-term goals.

Financial planning takes careful consideration of many financial questionsHow much debt is acceptable?

It depends on the type of debt you are carrying. If you have debt that is paying for valuable things such as a home or a college education, this is the type of debt that can help further your progress in life. If you have high interest debt, such as credit cards, then you need to be more cautious.

You should know what your debt-to-income ratio is for this riskier type of debt. Excluding your mortgage, calculate how much debt you have compared to your income. Most experts agree that if it is 15% or less, it is an affordable amount of debt. If it is over 15%, you should act to reduce the amount of higher risk debt you are carrying.

How much house can I afford?

Whether you rent or own your home, it is most likely your largest monthly expense. The general rule of thumb is your housing costs should not exceed 30% of your pretax income. For example, if you make $75,000 per year, you are making $6,250 per month prior to taxes.  Using the 30% rule, you should not spend more than $1,875 a month on
housing.

Financial planning includes considering your present and future requirementsAm I earning enough money?

It really depends on your goals, but to reach a comfortable retirement takes a lot of money. You can only cut expenses so much to save for retirement and other goals. At some point, you will most likely need to make more money. This may mean you need to change jobs or embark on a new career. It may be as simple as asking for a raise.

If your company does not schedule an annual review in conjunction with a raise, then you should ask. Be prepared to justify why you deserve to earn more money. If the answer is no, you’ll know that looking for another job is a priority.

What if something happens to me?

Preparing for the unexpected is imperative to your financial health. Ask yourself some important questions:

  • How would I pay the bills if I lost my job?
  • How would I pay the bills if I could no longer work?
  • How will I replace things if they are stolen or there is a fire?

The first place to start is to develop an emergency fund. You will want to have cash on hand so that your credit cards become your last source for paying unexpected expenses. You should also look at developing an insurance plan to help cover bigger emergencies. This may include life insurance, renter’s insurance, or disability insurance.

To protect your loved ones, you should also have a healthcare proxy, a living will, and updated beneficiaries on all of your financial accounts.

Please call 973-515-5184 or contact me
if you’d like to discuss your financial questions in more detail.

Click here to view our latest newsletter.

Representatives are registered through, and securities are sold through Nationwide Planning Associates, Inc., Member FINRA/SIPC, located at 115 West Century Road, Suite 360, Paramus, NJ 07652. Investment advisory services are offered through NPA Asset Management, LLC. Insurance sold through licensed NPA Insurance Agency, Inc. agents. Frank is registered in NJ, NY, PA, FL, CT, CO, NC, OH and RI. He is also licensed for life and health insurance in NJ, NY, FL, OH and RI. The presence of this web site on the Internet shall in no direct or indirect way be construed or interpreted as a solicitation to sell advisory services to residents of any state other than those listed above and shall not be deemed to be a solicitation of advisory clients living in any state other than those listed above. Nationwide Planning Associates, Inc. and Frankly Financial are non-affiliated entities.
Copyright © 2020. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.
Categories : Blog, financial planning, Financial Services

So What CAN We Do?

Posted by Frank McKinley on
 April 20, 2020

Be prepared for a bear market

“There are decades where nothing happens; and there are weeks when decades happen.”-Vladimir Lenin

“The last leg of a bull market always ends in hysteria; the last leg of a bear market always ends in panic.” – Jim  Rogers

We are all aware of the pandemic but…do you remember the previous 14 over the last 40 years? Probably not. We recovered from them and we’ll recover from this.

But what CAN we DO?

  • Minimize contact with groups; work & do schoolwork online.
  • Go for walks, read a good book or The Good Book.
  • Watch a favorite movie, VHS, DVD or online.
  • If you play an instrument- practice. If you don’t, listen to music as it soothes the savage beast.
  • Work on your taxes (returns may have been extended to July 15, but payment is still due April 15).
  • If you’re eligible and haven’t made any ‘19 or ‘20 IRA contributions, consider doing so now.
  • If possible, invest cash in a brokerage account and ‘buy low’.
  • Take advantage of the warmer weather and start a vegetable garden.
  • Don’t watch any more ‘news’ than usual- it’s not going to be real good for a while.

And PLEASE contact me with any concerns!

Categories : Blog, Financial Services

Bear Markets Happen

Posted by Frank McKinley on
 April 15, 2020
At least annually, you should review your portfolio’s performance, comparing it to relevant benchmarks and determining whether you are making progress toward accomplishing your financial goals. Consider these steps in the process:
  • Measure the performance of each investment in your portfolio. Many investments and investment managers will provide you with periodic performance information.
When reviewing this information, keep in mind the following points:
  • Often, an investment’s return is reported on a time-weighted basis, which does not consider when you invested.
  • Information that reports your portfolio’s return is generally expressed on a dollar-weighted basis, which measures the investment return based on when cash inflows and out-flows occurred. While this is a more relevant measure when evaluating your portfolio, time-weighted returns can make it easier to compare the returns of different investments.
  • Investments often report cumu-lative annualized returns over a period of time, representing the aver-age annual performance over that

Continued on page 2

Frankly Speaking

Bear Markets HAPPEN!

The Black Death killed 20 million Europeans in the 14th century. Venice, a major trade port, grew nervous. If a ship was suspected of harboring the plague, it had to wait 40 days before any passengers or goods could come ashore. Venice built a quarantine center on an island off its coast, where sailors from plague-infested ships were sent either to get better or, more likely, to die. This 40-day waiting period became known as quarantinario, from the Italian word for 40. – –  NPR January 26, 2020

“The shortest period of time known to mankind is the time between when it is too soon to buy stocks and when it is too late.” – Mark Zinder

“Never let a good crisis go to waste.” – Winston Churchill

You may notice slight differences in this edition of Financial Success from my old newsletter. The latter was relatively generic while the former includes financial planning topics, from establishing goals and following economic trends to retirement, estate and tax planning, insurance and investments. A longer ‘sidebar’ will appear in the hard copy version and as an introduction to the HTML version. If you would like to see specific topics addressed, please let me know.

By now the Covid-19 or Wuhan virus has become as much a part of daily life as was the 10+ year stock market bull run in January. Did we really think it would last forever; that trees grew to the sky or that we had become so brilliant as to be impervious to the inevitability of periodic setbacks? Question is — did you re-balance your portfolio, shift some high performers to more conservative, fixed income-oriented positions or ‘guaranteed lifetime income accounts’*? Or has this ‘Black Swan’ event caught you entirely by surprise?

You may think there is no ‘getting back’ what you feel are losses, but if you haven’t sold or cashed out for CDs (Certificates of Depreciation), which offer less than the current rate of inflation.

PLEASE call or email me for a FREE no-cost, no-obligation consultation to see what we can do to improve your situation and create a brighter financial future for you and your family.

Click here to read the full article

*Based on the claims paying ability of the issuing company

Copyright © 2020. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

Categories : Blog, Financial Services

Some Short-Term Advice

Posted by Frank McKinley on
 April 15, 2020

First, let me thank all medical professionals, EMTs, Police, Fire, Safety and Essential Service workers for their efforts to help the public.

 Some asked me about the reference in my last email regarding the ‘number of epidemics over the last 40 years’, – they appear below.  My point simply is, we’ve seen tragic illness affect many over the centuries, not just in our times. Yet the financial markets have recovered, often in as little as six to 12 months and if it took longer, it was rare.

Not to make light of any illness, my picture appeared on the front page of the Herald News of Passaic, NJ in ‘55 wailing my eyes out having just received my Salk vaccine for polio. Remember, it crippled FDR, perhaps the greatest modern POTUS and killed many.

 

The best short-term advice I can offer is stop watching the news, especially financial news, take a short dose daily if you must just don’t leave it on all day! Practice social distancing and follow the rules to prevent the spread. Maintain PERSPECTIVE and things will get better- just look at history.

“To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.”-Sir John Templeton

Going back to 1930, if an investor missed the S&P 500’s 10 best days in each decade, total returns would be just 91%, significantly below the 14,962% returns for investors who held steady through the downturns. – CNBC, March 7, 2020

 

If you are concerned with the current crisis or have questions,
PLEASE call or email me and I will reply expeditiously.
MY JOB IS TO BE HERE WHEN THINGS ARE BAD!

 

Categories : Blog, Financial Services, Investments
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