Smart Money InsightsOctober 2012 Vol. No. 1 Investment Updates in mind that active trading increases both taxes andShould Your Asset Allocation Be transaction costs.More Tactical? The bottom line: Pick a strategic portfolio plan with an appropriate asset allocation for your time horizon. Your individual portfolio should address both your The market downturn of 2008-2009 was hard for all immediate and intermediate needs. With the right investors, especially retirees, many of whom plan in place, your portfolio will be better equipped to questioned their game plan amid huge losses. Investors handle volatility, allowing time to smooth out the questioned the value of long-term strategic asset choppy returns. allocation, in particular the buy-and-hold strategy. Many investors also began thinking about being more tactical. Market volatility tests buy-and-hold investors There is no guarantee that strategic or tactical asset and in many cases increases the appeal of tactical asset allocation will protect against market risk. These allocation. investment strategies do not ensure a profit or protect against loss in a declining market. Please keep in mind that diversification does not eliminate the risk of Tactical asset allocation is an active portfolio experiencing investment losses. Please consult with a management strategy by which portfolio composition financial professional for advice specific to your and weighting are altered in the short-term to take situation. advantage of perceived differences in relative values of various asset classes. While tactical asset allocation may look appealing on the surface, it is best left to investors who understand its complexity. Otherwise, this strategy could leave investors stuck with an asset allocation that may be unsuitable for their goals, risk, and liquidity requirements. It is also important to keep Personal Note from Steve Stanganelli Fall is in the air. I want to help you make sense of your money. Soon the elections will be behind us and the holidays will be Please call me and we can set up coming on fast. a time for a no pressure chat to explore the ways that we may be If you feel unnerved by potential able to work together. economic or political events or theres been a recent life- Let’s make a plan together to Steve Stanganelli, MSF, CFP® changing event in your family, improve your bottom line. Fee Only Planner & Tax Coach then arrange some time to get firstname.lastname@example.org your financial plans on track and 978-388-0020 prepared for the changes ahead. www.ClearViewWealthAdvisors.com
Clear View Wealth Advisors LLC Investment Updates October 2012 2 Q: Can you roll your 401(k) over into an IRA?Retirement Investing Q&A A: Yes. You can move 401(k) balances into a “rollover” IRA account without penalty. This option enables you to keep your money tax deferred, and can potentially increase your investment options, as IRAs are self- Q: Under current law, at what age can you begin directed and 401(k) plans have investment options receiving Social Security benefits? that are decided by the plan administrator. A: The earliest age at which you can begin receiving Q: How can I begin saving for retirement? Social Security benefits is 62. However, you will receive a reduced benefit if you retire before your full retirement age. A: Little changes can make huge differences. For instance, have a regular coffee ($1.75) instead of a latte ($3.50) every morning before work. Invest the savings Q: What are some big mistakes that people make each month ($1.75 X 22 workdays = $38.50), and you concerning their retirement? could end up with quite a hill of beans! A: Not contributing to an IRA, a 401(k), or both is Sources: Employee Benefit Research Institute, 2012 probably the single biggest mistake that is made. 45% Retirement Confidence Survey. of current retirees utilize their personal savings for retirement income; 62% of current workers anticipate personal savings to play a role during retirement. Q: What is the maximum contribution to IRAs (both regular and Roth) and 401(k) plans in 2012? A: If you are age 49 or younger, the maximum contribution is $5,000 for both regular and Roth IRAs, and $17,000 for a 401(k) plan. If you are age 50 or more, the maximum contribution is $6,000 for both regular and Roth IRAs, and $22,500 for a 401(k) plan. Q: Are distributions (payouts) taxed on regular IRAs, Roth IRAs, and 401(k)s? A: The short answer is that if you got a tax break on the contribution, you will pay taxes on the subsequent distribution. Contributions to regular IRAs and 401(k)s are generally made with pre-tax dollars (pre- tax contributions reduce your taxable income for the year in which they are made), so distributions are taxed. Roth IRA contributions, however, are made with after-tax dollars, so distributions are generally not taxed. Q: At what age can you generally begin taking distributions from an IRA or 401(k)? A: You can begin taking distributions from your regular IRA, Roth IRA, or 401(k) plan at age 59 ½.
Clear View Wealth Advisors LLC Investment Updates October 2012 3 effects of inflation on your portfolio.Risk Calibration for Retiree Portfolios Higher Taxes: Massive government spending and unfunded liabilities could translate into higher taxes across the board. Investors may be able to reduce tax liabilities by including tax-loss selling, Roth Managing risk during retirement has changed a lot conversions, and municipal bonds. Roth 401(k)s and during the past few decades. In the past, retirees IRAs are also good options for tax-conscious investors enjoyed the luxury of much higher interest rates as seeking at least some tax-free treatment of their well as pensions, which meant they could lower their retirement assets. equity holdings during retirement. For todays retirees, however, staying invested in low-return assets is a luxury they may not be able to afford. Instead, they *Report cited: “Genworth 2012 Cost of Care Survey, should keep their eyes on the following risks. Home Care Providers, Adult Day Health Care Facilities, Assisted Living Facilities and Nursing Homes,” April 2012. Longevity: Longevity risk is the risk of outliving your assets. Given a long portfolio life span, retirees need more growth from their portfolios than cash and Diversification does not eliminte the risk of bonds can afford. Holding stocks is important for experiencing investment losses. Government bonds are growth; however, the question remains: what’s the guaranteed by the full faith and credit of the U.S. right amount? In addition to considering a higher government as to the timely payment of principal and equity weighting, pre-retirees and retirees can also interest, while stocks are not guaranteed and have been consider options such as deferring Social Security, more volatile than other asset classes. Dividends are working longer or part-time, and decreasing in- not guaranteed and are paid solely at a company’s retirement spending, particularly after market discretion. Municipal bonds may be subject to the downturns. alternative minimum tax (AMT) and state or local taxes, and federal taxes would apply to any capital gains distributions. TIPS are subject to risks which Long-Term Care: A year in a private room in a include, but are not limited to, liquidity risk, credit nursing facility now averages $78,000, according to a risk, income risk, and interest-rate risk. Funds in a Genworth survey*, and long-term care in urban traditional IRA grow tax-deferred and are taxed at settings can be far more costly than that. If you are ordinary income tax rates when withdrawn. concerned that long-term care could eat away your Contributions to a Roth IRA are not tax-deductible, retirement nest egg, you may want to consider but funds grow tax-free, and can be withdrawn tax free purchasing a long-term care insurance policy. These if assets are held for five years. A 10% federal tax policies are pricey, particularly if you buy one with an penalty may apply for withdrawals prior to age 59 1/2. inflation component and/or if youre over 65, but they Please consult with a financial or tax professional for can provide invaluable peace of mind, too. advice specific to your situation. Insurance guarantees are based on the claims paying ability of the insurance Inflation: Retirees living off of their investments dont company. receive cost-of-living adjustments (except for their Social Security and possibly their pension income), so inflation can readily translate into declining purchasing power and a reduced standard of living. Treasury Inflation-Protected Securities (TIPS) are the most direct way to hedge against an unexpected increase in inflation, providing an adjustment to an investors principal to keep pace with inflation. Stocks are another, indirect way to guard your portfolio against the threat of inflation. They have the potential for higher returns than bonds, and inflation will take a smaller bite out of your future purchasing power. Owning companies with a demonstrated history of dividend growth is another way to help offset the
Clear View Wealth Advisors LLC Investment Updates October 2012 4 report and free access to the Dashboard to update your10 Minutes to a Better Retirement: plan.New Planning Tools YOUR RETIREMENT HEALTH CHECK: Go directly to www.FreeRetirementMap.com and youll be able to create your own personalized retirement We all lead very busy lives. Finding time to get assessment. Youll be able to answer the important through the daily commute and all lifes priorities on questions about funding your retirement lifestyle and the work and home fronts can sometimes be savings goals. challenging - overwhelming sometimes. But every now and then you need to stop, take a deep breath and assess where you are in order to get to where youre SOCIAL SECURITY TIMING REPORT: Most going. folks are unaware of the many choices they have when electing to receive Social Security benefits. Choosing the wrong option may be worth thousands of dollars a This is why Clear View Wealth Advisors has added year - perhaps a million over a couples lifetime. You two new online Do-It-Yourself tools to help you can find out how various claiming strategies will determine if you are on track for your goals. impact you personally by clicking on the "Social Security Timing" icon found at my company website. YOUR PERSONAL ROAD MAP and DASHBOARD: Go to www.ClearViewWealthAdvisors.com and click on the Starter Road Map icon. Youll be able to choose your own goals, input some data about your income and investments and the online dashboard will show you if you are on track. Youll also receive a personalized Dividend-Paying Stocks (VHDYX), Real EstateMarketFlex Portfolio Update from (VGRSX) and International Stocks (VTSGX).Steve Stanganelli CFP This broadly diversified, global portfolio is correlated with the Russell 3000 index. At Clear View, we focus on building portfolios that are low-cost, global and tax-efficient. Portfolios are This core portfolio illustrates the value of based on a core of passive investments offering diversification. Over the past three years (thru exposure to broad asset classes like international and 10/3/12), this portfolio would have returned two- domestic stocks, bonds, and real estate. thirds the return of the index (10% versus 15% annualized) but with half of the risk of its index (standard deviation of 8.2% versus 16.4%). With a TACTICAL IS PRACTICAL: Tactical positions are 0.50 Beta, it responds to market moves by half versus added to take advantage of market conditions or the index. The maximum drawdown during the time provide some way to mitigate the risk of loss or period would have been half the index (less than 10% volatility. Positions may include defensive asset classes versus more than 20%). or conservative covered call income strategies. The annualized returns for the MarketFlex portfolio SIMPLE INVESTING RULES: We operate under a averaged 10% assuming advisory and trading fees of simple rule: Clients win by not losing 0.75% per year. The index each returned close to 15%. While the total return of the MarketFlex portfolio was THE MARKETFLEX CORE 4+ PORTFOLIO: less, it did it with a much less bumpy ride. To that end, our MarketFlex Core 4+ portfolios include several low-cost Vanguard Exchange Traded Funds for US Stocks (VTSSX), US Bonds (VBTSX),