Why I Believe in the Flat Fee or Hourly Compensation Model for Financial Advisors
There are several different ways that financial advisors are compensated. In this post I will walk through the various business models and give you my somewhat biased opinion on the pros and cons of each. Let me start by stating that my belief is that the primary value of working with a financial advisor comes from the insights gained by going through the financial planning process, and the discipline that is provided by having an unbiased and knowledgeable third party help guide decision making. By ‘financial planning process’ I’m...
read moreHSA’s – The Underappreciated Tax Free Investment
For those not familiar with Health Saving Accounts (HSA’s), they are tax- advantaged accounts that Congress authorized in 2004. HSA’s are available to those who enroll in “High Deductible” health insurance plans. Employee contributions made to HSA’s are made on a pre-tax basis (or are tax deductible for those on individual health insurance plans not provided by an employer). Unlike the dollars in Flexible Spending Accounts, the amounts in an HSA can carry over into future years. If withdrawals from an HSA are used for approved medical...
read morePlanning for Long Term Care – An Innovative Approach
One of the most difficult aspects (both financial and emotional) of planning for your retirement is how to prepare for the possibility of eventually needing long term care assistance. Anyone who has gone through this with their own parents can attest to how wrenching the process can be for all involved. An individual needing Long Term Care is generally defined as someone that needs assistance with certain “activities of daily living” (ADLs) The ADLs include (1) bathing; (2) continence; (3) dressing; (4) eating; (5) toileting and...
read moreStrategies to Maximize After Tax Returns in Taxable Accounts
Asset allocation decisions are quite a bit more complex when you have a sizable amount of money in taxable accounts versus having almost your entire retirement portfolio invested in tax deferred accounts (401K’s IRA’s etc.). The reason is two-fold. First, the placement of your various asset classes across your accounts is much more important when one or more taxable accounts are involved since the gains (or losses) generated have different tax treatments (interest income, dividend income, capital gains etc.). In tax deferred accounts...
read moreThe True Cost of Investment Fees
One of the best ways to maximize the returns of your portfolio over the long term is to minimize investment fees. The impact over time of these fees is much greater than many realize. For example, a $500,000 portfolio with an average fund fee of 1% equates to $5,000 per year which compounded over forty years would ultimately cost almost $800,000 (assuming a 6% portfolio return and a 3% withdrawal rate in retirement). To make matters worse, many clients use advisors who charge a 1% fee and then invest the client’s assets in mutual funds...
read moreInvesting in Municipal Bonds – Issues to Consider
Many investors consider municipal bonds (munis) to be a very safe and straightforward way to obtain tax free income and a good option for conservative investors with taxable accounts. But the issues involved in muni investing are more complex than most realize. For those not familiar with munis, these are bonds that are issued primarily by state and local governments and interest income is not taxed at the Federal level. In addition, if you buy a bond from an entity in your own state, the income is not taxed at the state level either....
read moreHow The Shift to 401K’s Changes the Retirement Equation
Up until relatively recently most folks retiring were covered under defined benefit pension plans where a pension payment was received each month usually based on some percentage of their salary during their final few years of work and their life expectancy through retirement. These pension payments, supplemented by Social Security, would continue for the rest of the retiree’s life (or their spouse’s life it they opted for a reduced joint survivor benefit). The work and risk of managing the investment portfolio needed to fund these...
read moreAsset Allocation During Retirement – When it might be better to buck conventional wisdom
One of the most vexing issues facing retirees is deciding on an asset allocation and withdrawal rate that minimize risk of eventually running out of money. Conventional wisdom suggests that over time you should steadily decrease the percentage stocks in your portfolio. A well-known rule of thumb is to subtract your age from 100 and that is the percentage to allocate to stocks (i.e. a 30 year-old would invest 70% in stocks and 30% in bonds while an 80 Year Old would invest 20% in stocks and 80% in bonds). However a recent study by Wade...
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