Friday, July 12, 2019

Avoid the market panic

Avoid a market downturn panic
We are now in the longest positive market period. But there will be pain in the future. We just can’t know when. Our best defense is a Target-Date or ‘balanced’ fund. Because we don’t know when the market will fall, we can’t time the market to get out at the right time. People who try this strategy usually lose. In fact, over time, they usually earn just 3.79% versus 11% for the buy-hold folks. Inflation of nearly 3% reduces their buying power even further. Why does this happen? Most of us take the short view; not the long view with our savings/investing dollar. If our statement account could show a loss, we opt out of the long-term 11% return. We can prepare for market falls by using a balanced fund like the low-cost Wellesley Income Fund. Its allocation of 60% bonds/40% stocks has provided nearly 10% a year since 1970. So even when stocks fell 37% in 2008, this fund had less of a ‘statement’ loss to overcome. Also, some folks seem to think that when the market falls 37% they actually lose 37% of their money. If you don’t sell, your fund holds the same number of shares so when the shares rose 27% and 32% as in 2009 and 2013, your account value still rose about 10% a year over time. No panic investing.

Are you planning to retire early?
If this is your dream, here are the lessons that will make it happen. Any goal requires changing your habits and not necessarily making hard sacrifices. When I wanted that Chevelle SS 396 at age 18, I had no problem giving up stuff I usually wasted money on. If you are going to retire from the daily grind, you need a plan and you need to stick with it. The goal is financial security and independence: freedom and flexibility. First, start early. “Saving becomes ingrained in everything” you do. It makes you feel better—in control. Second, reaching the goal takes time but investing 29% of your income (vs 6% for others) makes you proud of your annual statement. Third, spending smart does not mean you must become a hermit. It means getting your money’s worth—especially when it comes to investment products. Why waste 1-3% of your ballooning account by sharing it with a salesperson. Today, a low-cost ETF or fund in the most aggressive sectors is all you need. According to Warren Buffett, the smart money just keeps buying the best stock market sectors. Trading and timing just defeat your best friends—compounding and tax- FREE accounts. About 53% of savings overachievers have Roth IRA accounts, versus 29% of other savers. Taxed money goes in and tax-FREE money is what you live on later, when you have escaped the GRIND. Change habits: used car vs new car—just $350 a month in a simple index can compound to $1 million in 30 years.

Which IRA withdrawal plan is best for you?
At 70.5 years we must start taking out our life-long accumulations. If you have already taken money out and paid your tax and/or penalty, you need to re-examine how much you will take out going forward. Taking out too much can cause serious problems down the line. This is the number one fear of retirees—not having enough to last your whole life. Since we don’t know how many years we will need this income, it is good to review. Your advisor may have mentioned the classic 4% rule: take 4% your first year and increase it by the cost of inflation each year. But the rule was made when the average retiree was earning 8-10%. Your money was still growing each year to beat inflation. Back then, the average retirement last to age 75 or so. Things have changed: we will need income for longer and our money may not be earning as much. You must design a plan for your special situation. Since the IRS has a required percentage based on our age each year, we can start with their table. Since the IRS design assumes we will live to age 115, it’s ratio is less than 4%. Our benefits are recalculated each year so that if our account increases, we spend more and if it decreases we spend less. This makes sense for most of us and has the benefit of complying with the regs each year.

DIY financial services and save every year
When you buy any electronics, appliances or even a vehicle, don’t you shop around for the best quality at lowest price? How much can you save by buying direct from low-cost providers? Example: this saver was using a brokerage IRA. However, the company had chosen to use an expensive record keeper and investment option. Their costs were hidden in the plan document given when the saver Tom began. Tom is conservative and put his contributions in the fixed accumulation option. Tom was paying 1.5% a year but earning only 5% so his net was 3.5%. By the time he retires, Tom will have $159,000 instead of $208,000. The brokerage will have the other $67,000 for little work. Tom does not change options or call his broker often. Tom could have chosen Vanguard, Schwab or other low-cost company. Save $67,000 or more!


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Steven Pagartanis, Cadaret caught misrepresenting, omission, etc $2.7 million. No jail.
Kyung Soo Kim caught trading crypto outside Merrill: fine no jail

Freedom Debt Relief caught charging fees, misleading clients of rights: fine, no jail
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Google Assistant taping your statements, incl names, addresses, details, all. Fed crime?
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Marriott caught misleading overcharging deception fraud for years: warnings ignored

CNN to emulate FoxNews on selected stories: which news do you want? Pick your bias.

Where to retire: Make a list of what you like and don’t like and try it out for a month.

Who owns your account now?

Woman needed food but got caught shoplifting: Cops pay for food--no arrest.

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