Are There Blind Spots in Your Insurance Plan?

Deficient coverage may cost you someday.

Many households and businesses are insufficiently insured. The problem is not necessarily the quality of coverage, but the breadth and depth of it. Your own business or household may be more vulnerable than you realize.

  

Too many people go without disability insurance. If you work in a physically demanding field, your employer may provide short-term disability coverage – but many companies do not. According to the Bureau of Labor Statistics, just 39% of workplaces offer employees short-term coverage, and only 33% offer long-term coverage.¹

If you are disabled and cannot work, your income soon disappears. Short-term disability insurance, which may last anywhere from 10-26 weeks, commonly replaces around 60% of it. Not ideal, but better than 0%. About 8% of the time, however, a short-term disability lasts more than six months and extends into a long-term disability. Long-term disability coverage can replace 50-70% of your salary for a period of 2-10 years, perhaps even until you turn 65.^1,2

   

More people ought to have earthquake and flood coverage. You may think that earthquake insurance is only for those living right on top of fault lines. If your home sustains quake damage that you must repair with tens of thousands of dollars of your hard-earned money, or if your business is forced to close for two weeks after a major quake hits your area, your opinion will change.

 

Recent hurricanes and flood surges have underlined the value of flood insurance for those living in low-lying areas. Just 12% of U.S. homeowners have this coverage. A typical homeowner policy will cover minor water damage, but not flood damage.³

   

If you finance a car and it is stolen or totaled, will you have to pay for it? Not if you have GAP (Guaranteed Auto Protection) insurance. If you are going to finance a car, SUV, or truck, ask about this coverage – especially if you intend to use that vehicle for work or business. The coverage is cheap – payments are usually $10-15 more each month (over the life of the loan).⁴

If you buy a new truck for $25,000 and it is totaled a year later, the insurer providing GAP coverage will determine the current value of the vehicle and write a check for that amount minus your deductible. You may want GAP coverage if you are buying a vehicle with less than 30% down. Without it, you may risk owing more than the current market value of your vehicle if it is stolen or wrecked.⁴

Is your sewer line insured? Cities usually require homeowners to maintain the sewer lateral running onto their property – the “branch” of the main sewer system on the street that connects to their house. If that sewer lateral backs up, it could cost you thousands and create a health problem for your neighbors. (Businesses have the same responsibility.) Tree roots and even improper disposal of paper products and grease can lead to this problem. Coverage against it is relatively cheap – it just adds about $40-50 to the annual premium on a homeowner policy.⁵

Address the weaknesses in your personal or business coverage, today. You certainly do not want to look back with regret on “what you should have done.” Be prepared, and put coverage for some or all of these potential crises in place.

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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.

Citations.

1 - time.com/money/4428179/short-term-disability-pay/ [6/19/17]

2 - thebalance.com/what-is-long-term-disability-insurance-1918178 [7/9/17]

3 - cnbc.com/2017/09/11/navigating-insurance-claims-post-hurricane-irma.html [9/11/17]

4 - chron.com/cars/article/Financing-a-car-GAP-insurance-can-keep-drivers-12200736.php [9/15/17]

5 - wnins.com/resources/personal/features/sewerbackup.shtml [9/15/17]

Retirement Plan Trusts

These tools can shield inherited IRA assets from lawyers and creditors.

Inherited IRA assets are vulnerable in bankruptcy proceedings. Many older IRA owners and their beneficiaries do not realize this, but it is true.

 

In Clark, et ux v. Rameker (2014), the Supreme Court ruled 9-0 that inherited IRAs cannot be defined as “retirement funds” under federal bankruptcy law. They now lack the protection that retirement savings accounts commonly get in bankruptcy courts.¹

So today, a longstanding estate planning dictum is being reevaluated. If you have non-spousal heirs who seem at risk for bankruptcy, you might want to leave your IRA to a trust.

 

When IRA owners make this move, it is usually because they want a legal and financial firewall in place, i.e., the potential heir to the IRA is a minor or someone who is bad with money. Add protecting inherited IRA assets against creditors and lawyers to the list of objectives. Spouses can inherit IRA assets and receive creditor protection for those assets when they roll them into IRAs of their own, but federal tax law does not yet give other heirs that perk.²

 

Two types of retirement plan trusts exist to help shield inherited IRA assets. The first is the conduit trust. True to its name, the trust is a means to an end. The conduit trust is designated as the IRA beneficiary, and an individual is named as the beneficiary of the trust.²

When the original IRA owner passes away, the (inherited) IRA goes into the conduit trust, and a series of yearly Required Minimum Distributions (RMDs) to the trust beneficiary begin. The trustee calculates and authorizes these RMDs; like other RMDs, they are characterized as regular income. The IRA assets held within the trust are protected from creditors, as the trust legally owns them (the RMDs out of the trust, however, are not).²

Do you want to stretch IRA assets out for future generations? Think about an accumulation trust. An accumulation trust requires no RMDs. It does require a separate trustee and beneficiary, just like a conduit trust does; the trustee can distribute the assets out of the trust as preferred. Those invested IRA assets can keep growing within the accumulation trust, but the trust will be taxed at the top marginal income tax rate if it earns more than $12,150 in a year.²

 

If the person in line to inherit your IRA faces a high risk of litigation or has poor financial habits, an accumulation trust may be worth exploring. As with a conduit trust, assets held inside an accumulation trust are out of reach of creditors and attorneys – and the trustee can hold back the money from being distributed until the lawyers disappear or the beneficiary is ready to handle it responsibly.²

IRA assets must be transferred into a retirement plan trust carefully. A trustee-to-trustee transfer (direct rollover) needs to be made, and the involved financial and legal professionals and IRA custodian all need to be on the same page.³

You should not attempt to create a retirement plan trust without an attorney’s help. As an example of what can go wrong for do-it-yourselfers, the 60-day rule applying to indirect rollovers of qualified retirement plan assets does not apply for inherited IRAs. If you make an indirect rollover of such assets and take possession of them on the way to setting up the trust, you will be considered to have received taxable income, even if you complete the rollover process within the 60-day window. To do this knowledgeably, seek those with the right knowledge.³

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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.

Citations.

1 - wealthmanagement.com/estate-planning/retirement-plan-trusts-headline-ira-forecast [7/15/14]

2 - nerdwallet.com/blog/finance/how-to-protect-inherited-ira-assets-from-creditors/ [1/26/16]

3 - marketwatch.com/story/dont-make-this-mistake-with-an-inherited-ira-2017-09-29/ [9/29/17]

Actively Managed 401(k)s

An option that may help your retirement efforts.

How should your 401(k) be invested? While some investors manage their 401(k)s themselves, others may seek a different kind of “hands-on” approach: having their retirement plan assets actively and professionally managed.

Why should a 401(k) be actively managed? In a volatile stock market climate, there are potential drawbacks to leaving a 401(k) alone. If 401(k) participants don’t adjust asset allocations in response to market conditions or don’t adjust their investment mix for years, they can potentially lose on their investment. While “buy and hold” can be a successful investment strategy at times, passivity can be equally problematic.

Passive and reactive management can backfire. After years without adjustments, employees may change their 401(k) investment preferences following a bad stock market quarter – but months later, they might miss out on big gains by sitting on the sidelines during a Wall Street rally.

There are two central problems with a DIY management approach: 1) the average employee doesn’t have the knowledge base of a financial professional; 2) the stock market does not move once every three months, but is constantly moving. Investing without monitoring and acting upon changes in the market can have an undesirable result, to say the least.

Many funds offered to 401(k) participants can move with the market; target funds and asset allocation funds may be quite diversified. The problem is that their performance may simply emulate that of the broad market. In addition, passive investing will seldom outperform the market, because the investments involved are directly linked to the performance of stock market indices. In a healthy bull market, many investors can live with that limitation; in a sideways or bear market, many can’t.¹

Is there another way? If your goals are to make money in a down or volatile market or to reduce the losses brought on by volatility, an actively managed 401(k) may be appealing. Active investment management uses technical analysis with the twin goals of buying near support levels and selling at resistance levels.

Buy-and-hold investors often prosper in lengthy bull markets, in which the major indices tend to make steady incremental gains punctuated by occasional corrections. Bull markets are characterized by long periods of subdued volatility. Bear markets are another animal: many emerge through significant ups and downs, with institutional investors finally deciding to sell off steadily rather than buy.

A passive, buy-and-hold approach can hurt a 401(k) participant when stocks do sell off; waiting too long to respond to a market slump might be disastrous for a retirement saver, depending on that investor’s goals and time horizon. In contrast, active professional management of 401(k) assets may uncover opportunities for gains amid the volatility and help mitigate losses stemming from sector or asset class downturns.

  

If you are interested in having some or all of your 401(k) assets actively managed, you may explore this choice without having to obtain permission from your employer or plan administrator. Active 401(k) management can mean higher plan fees, but the fees may be a very small price to pay if the performance of the 401(k) improves.  

Ask about this option. While past performance is no guarantee of future results, an actively managed 401(k) may offer you the potential to outperform the market during volatile times. 

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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.

Citations.

1 - investopedia.com/news/active-vs-passive-investing/ [4/22/17]

Minimizing Probate When Setting Up Your Estate

What can you do to lessen its impact for your heirs?

Probate subtly reduces the value of many estates. It can take more than a year in some cases, and attorney’s fees, appraiser’s fees, and court costs may eat up as much as 5% of a decedent’s accumulated assets.¹

  

What do those fees pay for? In many cases, routine clerical work. Few estates require more than that. Heirs of small, five-figure estates may be allowed to claim property through affidavit, but this convenience isn’t extended for larger estates.

 

So, how you can exempt more of your assets from probate and its costs? Here are some ideas.

  

Joint accounts. Married couples may hold property as a joint tenancy. Jointly titled property includes a right of survivorship and is not subject to probate. It simply goes to the surviving spouse when one spouse passes. Some states allow a variation called tenancy by the entirety, in which married spouses each own an undivided interest in property with the right of survivorship (they need consent from the other spouse to transfer their ownership interest in the property). A few states allow community property with right of survivorship; assets titled in this way also skip the probate process.^2,3

  

Joint accounts can still face legal challenges. A potential heir to assets in a jointly held bank account may claim that it is not a “true” joint account, but a “convenience account” where a second accountholder was added just for financial expediency (an adult child able to make deposits and pay bills for a mom or dad with dementia, for example). Also, a joint account with right of survivorship may be found inconsistent with language in a will.⁴

  

POD & TOD accounts. Payable-on-death and transfer-on-death forms are used to permit easy transfer of bank accounts and securities (and even motor vehicles, in a few states). As long as the original owner lives, the named beneficiary has no rights to claim the account funds or the security. When the original owner passes away, all the named beneficiary has to do is bring his or her I.D. and valid proof of the original owner’s death to claim the assets or securities.⁵

    

Gifts. For 2017, the I.R.S. allows you to give up to $14,000 each to as many different people as you like, tax free. By doing so, you reduce the size of your taxable estate. Gifts over $14,000 may be subject to federal gift tax (which tops out at 40%) and count against the lifetime gift tax exclusion. The lifetime gift tax exclusion is currently set at $5.49 million per individual (and correspondingly, $10.98 million per married couple).⁶

  

Revocable living trusts. In a sense, these estate planning vehicles allow people to do much of their own probate while living. The grantor – the person who establishes the trust – funds it while alive with up to 100% of his or her assets, designating the beneficiaries of those assets at his or her death. (A pour-over will can be used to add subsequently accumulated assets to the trust at your death; yet, those assets “poured into” the trust at that time will still be probated.)⁷

 

The trust owns assets that the grantor once did, yet the grantor can invest, spend, and manage these assets while living. When the grantor dies, the trust lives on – it becomes irrevocable, and its assets should be able to be distributed by a successor trustee without having to be probated. The distribution is private (as opposed to the completely public process of probate) and it can save heirs court costs and time.⁷

   

Are there assets probate doesn’t touch? Yes, there are all kinds of non-probate assets. The common denominator of a non-probate asset is a beneficiary designation. By law, these assets must pass either to a designated beneficiary or a joint tenant, regardless of what a will states. Examples: jointly titled real property, jointly held bank accounts with right of survivorship, POD and “in trust for” accounts, life insurance policies, and IRA, 401(k), and 403(b) accounts.⁸   

  

Make sure to list/update retirement account beneficiaries. When you open a retirement savings account (such as an IRA), you are asked to designate eventual beneficiaries of that account on a form. This beneficiary form stipulates where these assets will go when you die. A beneficiary form commonly takes precedence over a will.⁹

  

Your beneficiary designations need to be reviewed, and they may need to be updated. You don’t want your IRA assets, for example, going to someone you no longer trust or love.

  

If you are married and have a workplace retirement plan account, your spouse is the default beneficiary of the account under federal law, unless he or she declines to be in writing. Your spouse is automatically entitled to receive 50% of the account assets should you die, even if you designate another person as the account’s primary beneficiary. In contrast, a married IRA owner may name anyone as a primary or secondary beneficiary, without spousal consent.¹⁰   

  

To learn more about strategies to avoid probate, consult an attorney or a financial professional with solid knowledge of estate planning.

WenJing He may be reached at 800-916-9860 or hew@wenadvisory.com.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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

Citations.

1 - nolo.com/legal-encyclopedia/why-avoid-probate-29861.html [9/26/17]

2 - info.legalzoom.com/difference-between-community-property-rights-survivorship-vs-joint-tenancy-21133.html [9/26/17]

3 - law.cornell.edu/wex/tenancy_by_the_entirety [9/26/17]

4 - jpfirm.com/news-resources/survivorship-rights-in-joint-bank-accounts/ [1/15]

5 - nolo.com/legal-encyclopedia/avoid-probate-transfer-on-death-accounts-29544.html [9/26/17]

6 - tinyurl.com/y7rf2ayh [9/6/17]

7 - thebalance.com/how-does-a-revocable-living-trust-avoid-probate-3505224 [11/14/16]  

8 - thebalance.com/what-are-non-probate-assets-3505237 [6/21/17]

9 - marketwatch.com/story/make-this-estate-planning-move-right-now-check-your-beneficiary-designations-2017-06-29/ [6/29/17]

10 - connorsandsullivan.com/Articles/Beneficiary-Designations-Getting-the-Right-Assets-to-the-Right-People.shtml [9/27/17] 

The Pros & Cons of Roth IRA Conversions

What are the potential benefits? What are the drawbacks?

Provided by WenJing He

If you own a traditional IRA, perhaps you have thought about converting it to a Roth IRA. Going Roth makes sense for some traditional IRA owners, but not all. 

 

Why go Roth? There is an assumption behind every Roth IRA conversion – a belief that income tax rates will be higher in future years than they are today. If you think that will happen, then you may be compelled to go Roth. After all, once you are age 59½ and have owned a Roth IRA for five years (i.e., once five calendar years have passed), withdrawals of the earnings from the IRA are tax free. You can withdraw Roth IRA contributions tax free and penalty free at any time.^1,2

 

Additionally, you never have to make mandatory withdrawals from a Roth IRA, and you are allowed to make contributions to a Roth IRA as long as you live.³

 

For 2017, the contribution limits are $133,000 for single filers and $196,000 for joint filers and qualifying widow(er)s, with phase-outs respectively kicking in at $118,000 and $186,000. (These numbers represent modified adjusted gross income.)^1,4

 

While you may make too much to contribute to a Roth IRA, anyone may convert a traditional IRA to a Roth. Imagine never having to draw down your IRA each year. Imagine having a reservoir of tax-free income for retirement (provided you follow I.R.S. rules). Imagine the possibility of those assets passing tax free to your heirs. Sounds great, right? It certainly does – but the question is: can you handle the taxes that would result from a Roth conversion?⁵    

 

Why not go Roth? Two reasons: the tax hit could be substantial, and time may not be on your side.

 

A Roth IRA conversion is a taxable event. When you convert a traditional IRA (which is funded with pre-tax dollars) into a Roth IRA (which is funded with after-tax dollars), all the pre-tax contributions and earnings for the former traditional IRA become taxable. When you add the taxable income from the conversion into your total for a given year, you could find yourself in a higher tax bracket.¹

 

If you are nearing retirement age, going Roth may not be worth it. If you convert a sizable, traditional IRA to a Roth when you are in your fifties or sixties, it could take a decade (or longer) for the IRA to recapture the dollars lost to taxes on the conversion. Model scenarios considering “what ifs” should be mapped out.

 

In many respects, the earlier in life you convert a regular IRA to a Roth, the better. Your income should rise as you get older; you will likely finish your career in a higher tax bracket than you were in when you were first employed. Those conditions relate to a key argument for going Roth: it is better to pay taxes on IRA contributions today than on IRA withdrawals tomorrow.

 

On the other hand, since many retirees have lower income levels than their end salaries, they may retire to a lower tax rate. That is a key argument against Roth conversion.   

 

If you aren’t sure which argument to believe, it may be reassuring to know that you can go Roth without converting your whole IRA.

  

You could do a partial conversion. Is your traditional IRA sizable? You could make multiple partial Roth conversions over time. This could be a good idea if you are in one of the lower tax brackets and like to itemize deductions.⁶

 

You could even undo the conversion. It is possible to “recharacterize” (that is, reverse) Roth IRA conversions. If a newly minted Roth IRA loses value due to poor market performance, you may want to do it. The I.R.S. gives you until October 15 of the year following the initial conversion to “reconvert’’ the Roth back into a traditional IRA and avoid the related tax liability.⁶  

  

You could “have it both ways.” As no one can fully predict the future of American taxation, some people contribute to both Roth and traditional IRAs – figuring that they can be at least “half right” regardless of whether taxes increase or decrease.

  

If you do go Roth, your heirs might receive a tax-free inheritance. Lastly, Roth IRAs can prove to be very useful estate planning tools. If I.R.S. rules are followed, Roth IRA heirs may end up with a tax-free inheritance, paid out either annually or as a lump sum. In contrast, distributions of inherited assets from a traditional IRA are routinely taxed.⁷

We may be reached at 800-916-9860 

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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.

Citations.

1 - cnbc.com/2017/07/05/three-retirement-savings-strategies-to-use-if-you-plan-to-retire-early.html [7/5/17]

2 - bankrate.com/investing/ira/roth-ira-5-year-rule-the-tax-free-earnings-clock-starts-ticking-at-different-times/ [3/25/16]

3 - nerdwallet.com/blog/investing/roth-or-traditional-ira-account/ [5/15/17]

4 - chicagotribune.com/business/success/kiplinger/tca-contributing-to-solo-401-k-and-roth-ira-20170614-story.html [6/14/17]
5 - fool.com/retirement/iras/2017/05/27/should-i-convert-my-ira-to-a-roth-ira.aspx [5/27/17]

6 - tinyurl.com/y8x5lztu [6/23/17]

7 - time.com/money/4642690/roth-ira-conversion-heirs-estate-planning/ [1/27/17]

Is Your Company’s Retirement Plan as Good as It Could Be?

Many plans need refining. Others need to avoid conflicts with Department of Labor rules.

At times, running your business takes every ounce of energy you have. Whether you have a human resources officer at your company or not, creating and overseeing a workplace retirement plan takes significant effort. These plans demand periodic attention.

As a plan sponsor, you assume a fiduciary role. You accept a legal responsibility to act with the best financial interests of others in mind – your retirement plan participants and their beneficiaries. You are obligated to create an investment policy statement (IPS) for the plan, educate your employees about how the plan works, and choose the investments involved. That is just the beginning.¹

You must demonstrate the value of the plan. Your employees should not merely shrug at what you are offering – a great opportunity to save, invest, and build wealth for the future. Financial professionals know how to communicate the importance of the plan in a user-friendly way, and they can provide the education that “flips the switch” and encourages worker participation. If this does not happen, your employees may view the plan as just an option instead of a necessity as they save for retirement.

You must monitor and benchmark investment performance and investment fees. Some plans leave their investment selections unchanged for decades. If the menu of choices lacks diversity, if the investment vehicles underperform the S&P 500 year after year and have high fees, how can this be in the best interest of the plan participants? 

You must provide enrollment paperwork and plan notices in a timely way. Often, this duty falls to a person that has many other job tasks, so these matters get short shrift. The plan can easily fall out of compliance with Department of Labor rules if these priorities are neglected.

You must know the difference between 3(21) and 3(38) investment fiduciary services. The numbers refer to sections of ERISA, the Employment Retirement Income Security Act. Most investment advisors are 3(21) – they advise the employer about investment selection, but the employer makes the final call. A 3(38) investment advisor has carte blanche to choose and adjust the plan’s investments – and he or she needs to be overseen by the plan sponsor.²

To avoid conflicts with the Department of Labor, you should understand and respect these requirements and responsibilities. Beyond the basics, you should see that your company’s retirement plan is living up to its potential.

  

We can help you review your plan and suggest ways to improve it. An attractive retirement plan could help you hire and hang onto the high-quality employees you need. Ask us about a review, today – you need to be aware of your plan’s mechanics, fees, and performance, and you could face litigation, fines, and penalties if your plan fails to meet Department of Labor and Internal Revenue Service requirements.

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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.

Citations.

1 - cnbc.com/2017/08/23/qualified-retirement-plan-sponsors-are-fiduciaries.html [8/23/17]

2 - tinyurl.com/ycrqheey [4/7/17]

Millennials, Do Not Imitate Your Parents

They invested heavily in what was “hot” and got burned.

Provided by WenJing He

A new generation of investors is coming to the forefront: your generation. Millennials have witnessed a fantastic bull market, one of the longest on record. Any given week, scary headlines may generate some volatility, but the bulls just keep on running.

It is easy to be lulled into a false sense of security in this market climate. Bearish arguments can be effortlessly dismissed. Innovation, consumer-friendly technologies, and new social media platforms are turning heads and sending share prices higher. TD Ameritrade says that the five most-owned stocks among its millennial accountholders are Apple, Netflix, Amazon, Tesla, and Facebook. Snap and Twitter are also on the radar. Trading shares via phone is routine. So what if these stocks pay no dividends? (Currently, only Apple does.) These companies seem invincible.¹

    

Twenty years ago, another generation of investors worshipped tech stocks. In the Web 1.0 era, baby boomers and Gen Xers salivated over the potential of Yahoo, Cisco, Lycos, Broadcast.com, E*TRADE, GeoCities, and other emerging tech firms. They were all so hot. Then came the dot-com crash of 2000.

Ever hear of a company called CMGI? It owned the search engine AltaVista. It sold GeoCities to Yahoo. Between the end of 1994 and the end of 1999, its shares rose more than 4,900%. They peaked at $163.50 at the start of 2000. By August 2002, CMGI shares were trading for $0.44.^2,3

How about Pets.com? Remember its slogan, “Because pets can’t drive?” Buy pet food online, and have it delivered? That was a revolutionary e-commerce idea, but it may have been ahead of its time. Pets.com went public in February 2000 at $11 a share (an IPO complemented by a Super Bowl commercial). It shut down nine months later, with its shares down at $0.22.⁴

What is the lesson here? Diversify your holdings. Back in 2000, too many young investors fell in love with the tech sector; their portfolios were heavy with tech shares. The Nasdaq Composite hit a historic peak of 5,048 on March 10, 2000; on October 9, 2002, it was 78% lower at 1,114. Other sectors are not impervious to such hard falls. Between May 2007 and March 2009, the S&P 500’s financials sector dropped more than 84%. If you think stocks may never slide that much again, keep in mind that the Nasdaq and S&P were at or near record highs when these shocking downturns started, just like today. Diversification could provide some degree of insulation for your portfolio when, not if, the market drops.⁵

WenJing He may be reached at 800-916-9860 or hew@wenadvisory.com.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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.

Citations.

1 - cnbc.com/2017/07/10/millennials-are-making-long-term-investments-in-big-tech-stocks.html [7/10/17]

2 - nytimes.com/2000/12/10/business/cmgi-can-defy-gravity-only-so-long.html [12/10/00]

3 - bizjournals.com/boston/blog/techflash/2014/06/waltham-company-moduslink-still-paying-for-cmgis.html [6/13/14]

4 - nytimes.com/2000/11/08/business/technology-petscom-sock-puppet-s-home-will-close.html [11/8/00]

5 - seekingalpha.com/article/4082567-danger-another-tech-stock-bubble [6/20/17]

Beware of Emotions Affecting Your Money Decisions

Today’s impulsive moves could breed tomorrow’s regrets.

When emotions and money intersect, the effects can be financially injurious. Emotions can cause us to overreact – or not act at all when we should.  

  

Think of the investors who always respond to sudden Wall Street volatility. That emotional response may not be warranted, and they may come to regret it.

In a typical market year, Wall Street can see big waves of volatility. This year, it has been easy to forget that truth. During the first third of 2017, the S&P 500 saw only 3 trading days with a 1% or greater swing – or to put it another way, 1% swings occurred just 3.5% of the time. Compare that to 2015, when the S&P moved 1% or more in 29% of its trading sessions.¹

 

The 1.80% May 17 drop of the S&P stirred up fear in some investors. The plunge felt earthshaking to some, given the placid climate on the Street this year. Daily retreats of this magnitude have been seen before, will be seen again, and should be taken in stride.²

   

Fear and anxiety can also cause stubbornness. Some people have looked at money one way all their lives. Others have always seen investing from one perspective. Then, something happens that does not mesh with their outlook or perspective. In the face of such an event, they refuse to change or admit that their opinion may be wrong. To lose faith in their entrenched point of view would make them feel uneasy or lost. So, they doggedly cling to that point of view and do things the same way as they always have, even though it no longer makes any sense for their financial present or future. In this case, emotion is simply overriding logic.

    

What about those who treat revolving debt nonchalantly? Some people treat a credit card purchase like a cash purchase – or worse yet, they adopt a psychology in which buying something with a credit card feels like they are “getting it for free.” A kind of euphoria can set in: they have that dining room set or that ATV in their possession now; they can deal with paying it off tomorrow. This blissful ignorance (or dismissal) of the real cost of borrowing can dig a household deeper and deeper into debt, to the point where drawing down savings may be the only way to wipe it out.

 

How about those who put off important financial decisions? Postponing a retirement or estate planning decision does not always reflect caution or contemplation. Sometimes, it reflects a lack of knowledge or confidence. Worry and fear are the emotions clouding the picture. What clears things up? What makes these decisions easier? Communication with professionals. When the investor or saver recognizes a lack of understanding, shares his or her need to know with a financial professional, and asks for assistance, certainty can replace ambiguity.

  

Emotions can keep people from doing the right things with their money – or lead them to keep doing the wrong things. As you save, invest, and plan for your future, try to let logic rule. Years from now, you may be thankful you did. 

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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.

Citations.

1 - nytimes.com/2017/05/09/upshot/the-stock-market-is-weirdly-calm-heres-a-theory-of-why.html [5/9/17]

2 - google.com/finance?q=INDEXSP:.INX&ei=6RMeWfG_JMO7euKQkagG [5/18/17]