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text 2017-12-02 15:40
7 Investing Moves You Need to Make by December 31

 

Whenever things are going really well — as is the case right now on Wall Street and probably in your retirement portfolio — it's only natural to want to leave things be. Why try to fix what's not broken? But even the most patient buy-and-hold investors understand that you must revisit your strategy from time to time to make sure things are unfolding as you originally envisioned. The end of the year, when your thoughts are naturally focused on family, the coming year, and to-do lists, is a perfect time to do just that. To make this process easier, MONEY has put together a checklist of seven important steps to take now before the year ends to set your investment portfolio up for 2018 and beyond.

 

  1. Remember to give yourself a raise.

 

Chances are, you got a slight bump in pay this year—perhaps a modest cost-of-living adjustment or a merit raise. Average pay for American workers rose a little over 2% over the past 12 months.

 

If you can, boost your 401(k) savings rate by that amount in the New Year.

 

The beauty of an employer-sponsored 401(k)—especially one where you're automatically enrolled—is that inertia works for you. You don't have to keep remembering to sock away money into your retirement account. Your company automatically does that for you with each paycheck.

 

But inertia cuts both ways. If you simply stay the course and fail to raise your contribution rate periodically, you're leaving money on the table. That's because over time, being an aggressive saver and mediocre investor beats being a good investor with just average saving habits.

 

Case in point: A 35-year-old making $75,000 a year, putting 7% of pay in a 401(k) and earning a better-than-average 10% annual return would have nearly $1.2 million after 30 years. That same worker who socks away the recommended 15% of pay while earning more-typical 7% annual gains winds up with $1.4 million. "Your goal should be maxing out your retirement contributions. If you can't do it all at once, adjust your savings rate gradually over time," says Jan Blakeley Holman, director of adviser education at Thornburg Investment Management.

 

And if you're 50 or older, remember to play catch-up. The IRS allows older workers to stuff an added $6,000 into their 401(k) s. The 2018 cap for workers under 50 is $18,500.

 

Case in point: A 35-year-old making $75,000 a year, putting 7% of pay in a 401(k) and earning a better-than-average 10% annual return would have nearly $1.2 million after 30 years. That same worker who socks away the recommended 15% of pay while earning more-typical 7% annual gains winds up with $1.4 million. "Your goal should be maxing out your retirement contributions. If you can't do it all at once, adjust your savings rate gradually over time," says Jan Blakeley Holman, director of adviser education at Thornburg Investment Management.

 

And if you're 50 or older, remember to play catch-up. The IRS allows older workers to stuff an added $6,000 into their 401(k)s. The 2018 cap for workers under 50 is $18,500.

 

  1. Fix your mix of stocks and bonds.

 

"We're entering the ninth year of a bull market, and we've hit more than 45 new highs just this year alone," says Francis Kinniry, a principal in Vanguard's investment strategy group. "Chances are, rebalancing will be an issue."

 

So take care of it now, to set your portfolio up for success in the coming year.

 

If you started out with a moderate 60% stock/40% bond portfolio five years ago—and neglected to routinely reset that mix back to your original strategy—your portfolio would have drifted into a far more aggressive 75% equity/25% fixed-income strategy. That may seem harmless, but in the event of a market downturn, having 75% of your nest egg in stocks will lead to far greater losses than a moderate 60% equity stake.

 

Research shows it actually makes little difference when you rebalance—at year-end, on your birthday, or whenever your allocation drifts slightly. So now is just as good a time any.

 

But if you are resetting your allocation, remember "that the best way to rebalance is the most tax-efficient way," says Kinniry.

 

Before you start selling your winning investments—which will trigger a tax bill—start by redirecting new contributions for the following year into lagging investments. In other words, since your stocks have been outperforming your bonds by a wide margin, use most of your new contributions to pad your fixed-income exposure. Also, rather than reinvesting dividends and gains back into the same funds; use those distributions to add to your weakest-performing asset class.

 

  1. Maximize your other tax shelters.

 

As you "top off" the contributions you're making to your 401(k), don't forget to fund all your other tax-sheltered investment accounts that often get overlooked.

 

Start with your IRAs. While most Americans with income have access to at least one type of individual retirement account—a traditional IRA, a Roth, a spousal IRA, or even a nondeductible account—only 33% of Americans currently contribute to these accounts. You can save up to $5,500 in 2018 or $6,500 if you're 50 or older.

 

Though you have until April 15, 2019, to make your 2018 IRA contribution, don't delay. By immediately contributing when you're eligible on Jan. 1, you'll maximize the impact of that tax-deferral.

 

In addition to IRAs, don't overlook health savings accounts. "HSAs are kind of a stealth retirement savings vehicle," says Rob Williams, director of income planning for the Schwab Center for Financial Research. That's because HSAs are triple tax advantaged: Money goes in tax deferred, grows tax sheltered, and, if withdrawn for qualified medical expenses, comes out tax-free.

 

You're likely to have plenty of those costs in retirement, which, if not addressed, can eat into your nest egg. A recent Fidelity analysis found that a typical 65-year-old couple retiring this year can expect to spend $275,000 in health-related expenses throughout the course of their retirement.

 

To qualify, you have to be covered by a high-deductible health plan. In 2018 the maximum contribution for an eligible individual is $3,450. For families, it's $6,900. As with other tax-deferred accounts, it's important to max out if you can, yet only 15% of HSA users actually do.

 

  1. Make sure your hatches are battened down.

 

Diversification serves many purposes. In addition to ensuring that some of your money is held in assets that outperform when times are good, you're also making sure that you have some exposure at all times to investments that are likely to hold up in a market storm.

 

But how sure are you that you have enough defensive investments heading into the New Year?

 

"Everyone should look at their accounts now and make sure they have some ballast," says financial planner Lewis Altfest.

 

What steps should you take? After a spectacular year for equities in 2017—with the Dow Jones industrial average up more than 20%—now's the time to "trim some of the high-flying stocks with high P/Es," he says, referring to companies sporting lofty price/earnings ratios. That's because in a market downturn, stocks with high P/E ratios tend to fall more.

 

Altfest says you can replace those holdings with exposure to defensive stocks, such as shares of consumer-staples companies that make things people need, not want, like toothpaste and soap. You can also look to economically insensitive companies such as drug makers that aren't reliant on a robust economy to thrive.

 

And if you're worried about market turmoil in the coming year, now is a good time to trim some of your holdings in non-investment-grade "junk" bonds. This is debt issued by companies with less-than-pristine balance sheets and financials.

 

Because of that risk, junk bonds have historically acted more like stocks than bonds. In 2008, for instance, the typical junk-bond fund lost nearly 30% of its value, according to Morningstar, which was on par with the 37% decline for the S&P 500 index of blue-chip stocks.

 

  1. Make your wish list.

 

If the goal of investing is to buy low and sell high, at some point you have to commit to investing in assets that are beaten down or unloved. Alas, after nearly nine years of rallying, stocks are pretty expensive across the board.

 

But just as you put together a Christmas shopping list well before the holidays, investors ought to list the stocks they'd like to own before the next downturn comes around so they'll know what to buy once the price is right. Among highly profitable companies that will trade at single-digit price/earnings ratios if their shares fall by a third (which is typical in a bear market): Apple (ticker: AAPL), Intel (INTC), HP (HPQ), and Applied Materials (AMAT).

 

Meanwhile, as you wait for buying opportunities to open up after a downturn, you can start putting new money to work now in the one place that's relatively cheap: foreign stocks.

 

"We have a significant position—40% if you X-ray our funds—in international securities," says Altfest. "They're all cheaper than the U.S.," he says, adding that not only is Europe growing faster than the U.S. now, many foreign economies, including the emerging markets, aren't as far along in their recoveries as is America.

 

In our MONEY 50 recommended list, you can go with Vanguard Total International Stock Index (VGTSX) for broad exposure or T. Rowe Price Emerging Markets Stock (PRMSX), focusing on the fast-growing emerging markets, which trade at a P/E ratio half that of the U.S.

 

  1. Harvest your tax losses.

 

Admit it: You hate it when the government takes a cut of your profits every time you sell any investment that has gone up in price. But you can get Uncle Sam back by making him share your pain when you sell investments that have lost value. It's called tax-loss harvesting, and "now's the time to be looking at that strategically," says Schwab's Williams.

 

Isn't selling at a loss admitting defeat? It doesn't have to be. When you sell a stock or fund at a loss, you are realizing the loss for tax purposes. And you can use that loss to reduce your taxes—by offsetting gains elsewhere in your portfolio or reducing ordinary income up to $3,000.

 

But you can turn around and reinvest in the same type of asset, as long as it's not "substantially identical." Or wait 30 days and step back into the exact same investment.

 

  1. Check your automated settings.

 

When in doubt, put it on autopilot. In most situations, that's wise financial advice. "There's a huge benefit to having your accounts automated, so that contributions are automatically deducted into your 401(k) and invested for you without requiring you to think about it," says Holman.

 

It goes well beyond putting money into a 401(k), though. Automation now allows for savings rates to be increased over time, or for your portfolio to be rebalanced at periodic intervals, or even for tax losses to be realized.

 

Still, "you need to check on your autopilots annually to see what's being deducted and how it's being invested," says Holman.

 

Start by making sure your 401(k) contribution increases aren't too conservative. Many plans allow for savings rates to rise by one or two percentage points a year. If you can afford more, override the autopilot to put your portfolio on a faster path. Also, make sure the stock-and-bond mix that you are being automatically rebalanced into is still appropriate for you. Chances are, you set up your allocation strategy several years ago and may have forgotten about it. But as the end of the year should remind you, time marches on quickly. And things change.

Source: irwinconsulting.over-blog.com/2017/12/7-investing-moves-you-need-to-make-by-december-31.html
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text 2017-12-02 14:25
Five financial tips to get your year off to the right start

Writing down financial goals may not mean you’ll actually achieve them, but it increases your chances of doing so.

 

New Year’s resolutions don’t all have to be about giving up chocolate and alcohol

 

It’s only the second day of the New Year and you’re probably fed up with reading about resolutions. However, they don’t all have to be about giving up chocolate or alcohol, or rising before the sun to exercise.

 

These tips for 2018 don’t have to be done with any great urgency; rather, think about the following advice as something you can check in on over the year as your appetite for financial management ebbs and flows.

 

1: Decide on your goals

 

An obvious one, but how many of us have ever taken out life insurance, or embarked on a renovation without thinking of the wider impact of such a move?

 

Writing down your financial goals may not mean you’ll actually achieve them (sorry fans of The Secret) but it will probably increase your chances of doing so.

 

2: Get your mortgage into shape

 

If you already have a mortgage, there are three things you should be thinking about this year. The first is checking you’re on the right rate; after all, one thing we’ve learned from the tracker scandal is we can’t rely on the banks to get it right for us.

 

The second is to consider a switch to another product or competitor. With house prices continuing to rise, your loan-to-value (LTV) ratio will have fallen which should make you liable for a cheaper mortgage.

 

Thirdly, pay more than the minimum. While you could be doing something else with your money, for most of us, the peace of mind that comes with inching away at your mortgage is hard to beat. A little effort can, over time, produce substantial returns.

 

By overpaying each month you’ll reduce what you owe the bank and cut the term of your mortgage. It also means you’ll cut your interest bill. As you’ll be enhancing your LTV ratio, the bank may offer you a keener interest rate which will have another cost-reducing impact.

 

Consider someone on a €250,000 mortgage with 17 years left to go paying interest at a rate of 3.7 per cent. They are currently making repayments of €1,653 a month. If they increased their repayments by €100 each month it would knock 16 months off the mortgage term, saving them €7,302 (based on interest rates staying where they are).

 

If they bumped up payments to €200 a month, they would cut the term by 30 months and save themselves €13,454 in interest.

 

Bank of Ireland has a calculator which can help you work out your savings.

 

3: Review your pension

 

You may not do it this week or next week, but at some point this year take the time to read your annual pension benefit statement and figure out how your retirement is shaping up. You owe it to yourself.

 

And if you don’t have a pension, is it time to think about getting one?

 

If you have spare cash you can simply bump up your contributions. But if your pension is going nowhere, why reward your non-performing fund manager even more?

 

So how do you go about that?

 

You’ll need to figure out a couple of things. How much will you need in retirement? Will you have a mortgage? Will you get a full state pension of €12,300 or so a year? What if you don’t?

 

Armed with this information, you can see where you’re headed by examining the “statement of reasonable projections” in the pension documents that should be sent to you annually. This will show what income your current pot, plus future contributions, will generate.

 

If you’re falling short of your goal outlined in the first step, you may have time to rectify this. Typically, to get a pension worth half your salary, you’ll need to be saving at least 15 per cent (ideally 20 per cent) of your salary. Any employer contributions will count towards this, and making additional voluntary contributions (AVCs) will boost it.

 

Don’t ignore your pension fund’s performance. Is your manager returning as much as you’d expect given market conditions? If not, think about switching. If you’re in a group scheme and can’t, bring your concerns to the funds’ trustees.

 

Fees and charges are also a factor. Are they too high? If you’re losing too big a chunk on fees, it may be time to switch or renegotiate. After all, as figures from the Pensions Authority show, an annual management charge of 1 per cent depletes a fund worth €136,700 by 10 per cent, or €14,500, over 20 years.

 

4: Bump up your savings

 

Deposit rates may be on the floor (the best 1-year fixed rate is currently just 0.75 per cent from KBC Bank), but so too is inflation. This means it may make as much sense to save today as it did when these indicators were much higher.

 

You won’t regret upping the amount that goes into your savings each month, even if it’s a small bit such as the amount you’ll save this year thanks to Budget 2018 changes.

 

You could also consider investing in a stock market fund. Doing so on a monthly basis lowers the risks and could offer better returns; saving €200 in an account paying 2 per cent will give you €4,893 in a regular savings account, while a stock market fund returning 8 per cent a year will give you €5,186 after two years (assuming markets continue to rise).

 

Of course while headline inflation is stagnant, rental and house price inflation is rampant. This undoubtedly makes it more challenging to try and save. But, if you’re seriously considering trying to buy your first home, look at other factors which might help you seal the deal. Help to buy (5 per cent tax rebate on purchase price up to €20,000) can help you get your deposit on a new home purchase.

 

The rent a room scheme, which allows you earn €14,000 a year tax free by renting out rooms in your home, may convince a lender to take a chance on you. It could make you a more attractive candidate for a mortgage and will also make repaying it much cheaper.

 

Consider a three-bed home with a mortgage of €350,000. Monthly repayments at 3 per cent will be €1,500, or €18,000 a year. If you earn the maximum €14,000 allowable under the scheme, you will be left with a shortfall of just €333 (plus bills) each month. Certainly cheaper than renting in the current market.

 

5: Take control of your debt

 

As a nation, our outstanding consumer debt may be falling but figures from the Central Bank show we are the fourth most indebted in Europe. Average debt per household is €83,941.

 

While mortgages may account for most of this, expensive, short-term debt is also a factor. In August 2017, for example, more than one-third (36 per cent) of credit cards had balances of between 75 and 100 per cent of their limits.

 

If you have too much debt weighing on your credit card, try and make some inroads this year.

 

For example, if you have €2,000 sitting on your credit card at a rate of 20 per cent and you are repaying just 2 per cent a month (€40), it will take you nine years to clear your debt. And it will cost you an extra €2,336 in interest!

 

If you repay an extra €5 a month, you’ll cut the time to 6.6 years and your interest bill to €1,635. If you bring the monthly repayment up to €60, your cost of funds will drop to less than €1,000 and you’ll repay it in about four years.

Source: matzwils07.edublogs.org/2017/12/02/five-financial-tips-to-get-your-year-off-to-the-right-start
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text 2017-11-10 14:11
Make Your Investing Resolutions Reality in 2018

2018 Investing Resolutions

 

These six New Year's resolutions will give your investment portfolio a boost in 2018, deliver long-lasting rewards and require neither spandex nor excessive amounts of kale.

 

It’ll be nearly impossible to find an open treadmill at your local gym come January. By March? Everything’s back to normal again.

 

Welcome to the season of good intentions. Many people will start 2018 with a New Year’s resolution like exercising more or losing weight, only to abandon it within weeks.

 

Sound familiar? Even if you haven’t succeeded in the past, 2018 can be different. (No, really!) If you’re unsure where to begin and would like to start with some quick wins, how about your investment portfolio?

 

Investing resolutions can reap long-lasting rewards and require neither spandex nor excessive amounts of kale. Pick and choose from the following investing resolutions, or go ahead and tackle the entire list.

 

Save more (and invest it)

 

Spending less and saving more is a noble resolution, but here’s some bad news: Saving money won’t adequately prepare you for retirement unless you invest it.

 

First, some ground rules. Don’t invest in the market unless you’ve established a rainy-day fund with enough money to cover three to six months of expenses. Generally speaking, you shouldn’t invest money you’ll need within the next three years.

 

Once you have some short-term savings accumulated, work toward contributing 15% of your income to your retirement accounts. Everyone can make (and keep) this resolution, whether your nest egg has cracked the six-figure mark or it looks more like, well, an egg. Even an extra $20 each week will add up to nearly $40,000 in 30 years, thanks to compounding interest.

 

Exercise more (than just your 401(k))

 

Think of saving for retirement like exercising. A routine workout may get the job done, but your body (or nest egg) won’t radically transform until you switch things up.

 

If you’ve been contributing to your 401(k) — congratulations, by the way, as it’s an important first step — resolve to open an IRA in 2018. These accounts carry a maximum contribution of $5,500 for people under age 50 ($6,500 for those 50 and up) and offer a broader array of assets that often have lower fees than employer-sponsored plans.

 

First, decide whether you prefer the Roth or traditional variety. (The difference comes down to when you’ll be taxed, now with a Roth or later with a traditional when you take distributions.) Once that’s settled, you can open an IRA in a matter of minutes. You may not burn a lot of calories in the process, but you’ll appreciate this move someday — maybe even as soon as tax season if you open a traditional IRA.

 

Lose weight (from excess fees)

 

The U.S. stock market has had a tremendous year, but if your portfolio’s performance is a bit sluggish, it’s time to take action. Costly fees may be weighing down your portfolio and hampering its future potential. A NerdWallet study found that a millennial paying 1% more in investment fees than his peers will sacrifice nearly $600,000 in returns over 40 years.

 

Don’t be that person. Here’s how to trim the fat: Take note of the expense ratios for each investment in your portfolio and then research whether less costly alternatives will let you achieve the same goal. Have an account with an online broker or robo-advisor? Many of these providers offer access to financial advisors who can assist with this process. Or you can consult with one directly.

 

Eat healthier (in your portfolio)

 

This time of year, it’s easy to overindulge on sweets, whether at the dessert table or within your portfolio.

 

With U.S. stocks up about 20% in 2017, your once-healthy portfolio probably has gotten out of whack. It’s time to restore your intended allocations to stocks and bonds. Experts recommend at least 5% to 10% of your portfolio be allocated to bonds, but your strategy may vary depending on your risk tolerance or age.

 

In 2018, resolve to rebalance your portfolio and set up automatic rebalancing, a feature offered by many providers or inherent to target-date funds you may have in your 401(k). Sometimes that’s as simple as a click of a button.

 

Get (your accounts) organized

 

So you’ve packed up old clothes and donated them to charity. But that 401(k) from your first job? Somehow it’s still hanging around.

 

Let 2018 be the year you finally roll over your old 401(k) into an IRA. Why? You’ll most likely pay lower fees than with that old employer’s plan, plus you’ll gain access to a broader selection of investments and possibly more guidance from your new broker.

 

A rollover will require you to fill out some paperwork and funnel money into new investments, but it’s time well-spent. Lower fees, greater flexibility and more money at retirement? You can probably spare a couple of afternoons for that.

 

Learn a new (investing) skill

 

While your friends learn French, Parlez-vous investing? If you answered no, your burgeoning interest is calling. (We know it’s there; you’re reading this list.)

 

It’s easy, and often wise, to take the set-it-and-forget-it approach to investing. But that may not be enough to satisfy a curious mind. Becoming “invested” will make you more engaged in the lifelong pursuit of managing your finances. Gravitate to what interests you, be it reading an investing book, researching how options work (hint: they’re not as difficult as they seem) or trying your hand at trading stocks.

 

Just be sure to keep your newfound hobby in check. Reading a few books does not the next Warren Buffett make, nor should you overhaul your portfolio to chase the latest investment du jour.

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