Are You Ready to Retire?

by | Mar 14, 2019 | Learning

In the United States, we have a potential crisis on the horizon.  The majority of Americans are not financially prepared for their retirement.

Some future retirees are completely unprepared. The Employee Benefits Research Institute (EBRI)’s 2017 Retirement Confidence Survey found almost half (47 percent) of workers have less than $25,000 in personal investments and savings, and about one-quarter has less than $1,000.1

But many are better prepared. Slightly more than half of survey participants were actively saving for retirement. However, not many had taken other steps to prepare such as:1

  • Gauging monthly retirement income needs (38 percent)
  • Preparing a formal, written financial plan for retirement (11 percent)
  • Estimating Social Security benefits at a planned retirement age (38 percent)
  • Thinking about moving or downsizing (38 percent)
  • Determining expenses in retirement (34 percent)
  • Talking with a financial advisor about retirement planning (23 percent)

It is relatively unsurprising to learn people who are most confident about retiring have spoken with a professional financial advisor about retirement planning.1

While working with financial advisors may improve retirement outcomes, saving is critical for anyone who wants to retire from working full-time. In fact, the majority of workers and retirees participating in a recent Wells Fargo survey wish they had begun saving for retirement sooner than they did.2

Factoring in the healthcare variable
No matter when individuals begin to save or how much they’re setting aside, even sound retirement plans can be disrupted by rising healthcare costs and catastrophic illness. There is evidence Americans are concerned about healthcare issues. However, few have factored healthcare expenses into their retirement plans.2

According to a recent Wells Fargo survey, “Nearly half of workers (45 percent) have not actively considered health care expenses for retirement planning, and even among workers age 60+ nearly a quarter (23 percent) have failed to take healthcare expenses into account.”2

It’s daunting to consider health expenses have increased faster than inflation in recent years. In addition, patients are being asked to pay a larger share of the expense. U.S. government figures show spending on healthcare rose by 5.8 percent in 2015. From 2016 through 2025, spending was expected to grow by 5.6 percent a year, on average.3

Retirees feel the effects of higher healthcare costs more than younger Americans do. The Centers for Medicare and Medicaid Services reported, “Per person, personal healthcare spending for the 65 and older population was $18,988 in 2012, over 5 times higher than spending per child ($3,552) and approximately 3 times the spending per working-age person ($6,632).”3

So, how much is healthcare likely to cost during retirement? An expert cited by Morgan Stanley suggested the average retired couple “will spend somewhere between $259,000 and $395,000 over the course of their retirement, depending on their lifespan and health conditions.”4

The news may shock people who believe they’ll need less than $500,000 to retire comfortably (about one-third of those participating in the EBRI RCS).1 Even for people who plan to save more, adding healthcare expenses to retirement calculations may significantly increase savings goals.

Moving toward a comfortable retirement
If thinking about retirement makes you a bit queasy, it’s likely you haven’t prepared as well as you should. The good news is developing and implementing a retirement plan is fairly straightforward. Here are a few steps that can help boost retirement confidence:

  • Create a retirement budget. A retirement budget is no different than a current household budget. Write down (item by item, line by line) how much you expect to spend in retirement. Obviously these estimates will become more accurate as retirement nears.
  • Save for retirement. For many people, a successful retirement strategy means saving at least 15 percent of their income.5 Those who have the good fortune to participate in an employer’s retirement plan may benefit from employer-matching contributions. If you don’t have a retirement plan at work, open an IRA and set-up automatic contributions each pay period.
  • Choose an asset allocation strategy. Asset allocation is dividing your savings among different investments, such as stocks, bonds, and other options. The way people invest their savings is often determined by their age, risk tolerance, and retirement goals.5
  • Prepare for long-term care. Three-of-four retirees will need extended long-term care. If you haven’t planned for it, the cost can really put a dent in your retirement savings. Medicare Part A covers skilled nursing care in a skilled nursing facility for a specific period of time after hospitalization. It does not pay for custodial care for Alzheimer’s or other cognitive illnesses. Consequently, it may be wise to purchase long-term care insurance or add a long-term care rider to a life insurance policy.6
  • Review your plan every year. Retirement planning is not a static activity. Retirement goals may change significantly over a lifetime. As a result, it’s important to review retirement plans often and make any changes needed.

Will you be able to retire comfortably?  It’s a complicated question.  The answer can be equally complicated. If you would like help figuring it out, or want to review your current plan, contact us for a no-obligation consultation.

Sources:

1 https://www.ebri.org/pdf/surveys/rcs/2017/RCS_17.FS-3_Preps.Final.pdf
2 https://www08.wellsfargomedia.com/assets/pdf/commercial/retirement-employee-benefits/perspectives/2017-retirement-study.pdf
3 https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html
4 http://www.morganstanley.com/ideas/healthcare-costs?subscribed=true&et_mid=27146&et_mkid=05dcda3fc149857c3a3cc45c1c6dc98b
5 https://www3.troweprice.com/usis/personal-investing/planning-and-research/t-rowe-price-insights/retirement-and-planning/retirement-savings/are-you-on-track-for-a-successful-retirement-.html
6 https://longtermcare.acl.gov/the-basics/who-needs-care.html

A Financial Advisor’s Blueprint To Making Solid Financial Decisions

by | Mar 7, 2019 | Learning

Decide What Is Most Important To You

A common mistake people make is to give up what they want most for what they only want right now. Pick which goals in your life are most important to you, and make achieving those goals your utmost priority. Then…

Always Ask Yourself, “Will This Decision Bring Me Closer To My Goals, Or Take Me Further Away?”

People commonly prioritize the short-term over the long-term. But a great way to determine if the decision is a good one is to ask yourself if you are mortgaging your future to pay for your present.

Don’t Rush. Take Your Time And Study Your Options

Financial Decisions rarely need to be made in a hurry. In fact, fast decisions tend to be poor decisions!  Get all the facts and learn your option, so that your decision is at least an informed one.

That Said, Focus On Making “Good” Decisions Over “Perfect” Decisions.

Volaire once said, “perfect is the enemy of the good.”  When making a financial decision, don'[t stress so much over whether your decision is perfect that you end up paralyzing yourself and missing out on opportunities. A lot of small, good decisions tend to weigh more than one perfect decision.

Ask Questions!

The most important thing you can do to make good financial decisions is to ask questions first. Talk to qualified experts. Chat with people who’ve been in the same situation as you. As the saying goes, “He who asks a question is confused for a minute. He who does not is confused forever.”

We are here to help you design a financial strategy that is molded specifically for you. One that changes as your life changes. Financial investments to help you live worry-free now and in the future.

Advised Brokerage Accounts Are Better Diversified, Reports Schwab

by | Feb 20, 2019 | Learning

Charles Schwab’s has published its’ latest SDBA Indicators Report, a highly regarded, industry-leading benchmark on retirement plan participant investment activity within approximately 137,000 self-directed brokerage accounts (SDBAs).  The report stated that participants who worked with an advisor had a more diversified asset allocation mix, higher balances, and less exposure to individual stocks compared to non-advised participants.

While only 19 percent of SBDA participants chose to use an advisor, they reported an average balance of $449,552 – nearly twice as much as the $234,643 reported by non-advised participants.  SDBAs are brokerage accounts within retirement plans. These include 401Ks and other types of retirement plans, which participants can use to invest in exchange-traded funds, stocks, bonds, mutual funds and other securities that are not part of their retirement plan’s core investment offerings. 

“The report highlights the benefits of working with an advisor. In general, participants who had professional help were more diversified across all of their holdings. In addition, advisors typically rebalance a portfolio more often and keep their clients invested”
-Schwab

Allocation Trends
In advised accounts, mutual funds continued to hold the highest percentage of participant assets at approximately 50 percent. ETFs were the second-largest allocation, followed by equities, cash and fixed income.

Conversely, non-advised participants allocated nearly 35 percent of their portfolio to individual equities. This was followed by mutual funds, cash, ETFs and fixed income.

When comparing equity holdings, both advised and non-advised participants held Apple, Amazon and Berkshire Hathaway as their top three holdings; however, non-advised participants’ positions in Apple and Amazon were nearly double compared to participants who used an advisor. Additionally, advised participants invested in more blue-chip, value companies, whereas self-directed investors allocated to more growth stocks.

“The report highlights the benefits of working with an advisor. In general, participants who had professional help were more diversified across all of their holdings. In addition, advisors typically rebalance a portfolio more often and keep their clients invested,” said Larry Bohrer, vice president, Corporate Brokerage Retirement Services at Charles Schwab. Generally, payroll contributions into SDBAs are allocated to cash. From there, it is up to the participant or advisor to invest. As the report shows, advisors kept clients’ cash allocations low, while individual investors left more of their SDBA in cash pending investment decisions.

Other Highlights

  • The average SDBA account balance for all participants in the third quarter of 2018 was $265,902, up 3.5 percent from the second quarter of 2018 and up 24 percent from the third quarter of 2017;
  • Advised accounts averaged 9.5 trades in the third quarter compared to 5.5 trades by non-advised participants;
  • Baby Boomers represented the majority of advised accounts (45.4%), followed by Gen X (42.2%) and Millennials (8.5%).

About the SDBA Indicators Report

The SDBA Indicators Report includes data collected from approximately 137,000 retirement plan participants who currently have balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Account. Data is extracted quarterly on all accounts that are open as of quarter-end and meet the balance criteria.

Active Portfolio Management – How We Do It!

by | Feb 14, 2019 | Learning, Most Popular

Research Financial Strategies specializes in providing financial advice using a proprietary investment methodology that leverages technical analysis to identify and protect our clients against stock market risk.

Our Approach to Investing

Research Financial Strategies provides our clients with a reproducible, non-emotional investment process using technical analysis to monitor market risk within the industries, sectors, and our actual investment decisions. It starts first with understanding our client’s financial goals & needs and helping them plan for the future. Below is an overview of RFS’s investment process.

Technical analysis is an emotionless investment decision making process that does not allow for getting caught up in the company or industry story. Investments are made through a series of technical factors. The most notable factor is one called “relative strength.” When a security price shows a recognizable pattern of higher highs and higher lows it demonstrates that there is higher demand than supply for that security. This means that the “buyers” are in control and not the “sellers.” While we cannot guarantee investment performance, securities that demonstrate this technical behavior have a higher probably increasing in value.

Determining Investor Suitability

As investment advisors it is our fiduciary responsibility to make sure we understand each of our client’s investment tolerance and risk profile. Research Financial Strategies has the unique capability to create unlimited customized asset allocation blends for our diverse client base. 

Determining When to Invest

The oldest law of economics is supply and demand. At Research Financial Strategies, we place a premium on when to make an investment decision based on price movements using technical analysis. Technical analysis is an emotionless investment decision making process that does not allow for getting caught up in the company or industry story. Investments are made through a series of technical factors. The most notable factor is one called relative strength. When a security price shows a recognizable pattern of higher highs and higher lows it demonstrates that there is higher demand than supply for that security. This means that the buyers are in control and not the sellers.

Determining When to Exit an Investment

Our ability to minimize portfolio risk for our client is a result of having a Sell-Side Discipline. Prior to investing in a security we establish an exit point based on the % of loss or price our investment advisors determine is acceptable. If the security price is violated then it is sold. This ensures that profits are protected for our clients, or worst case, risk to principle is minimized. Only through having an investment approach that has a pre-determined exit strategy for each investment position, can you mitigate portfolio risk during market corrections.

What makes us different from the other investment advisors – click here

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Make Sure Your Smart Home is Safe from Cyber Attack

by | Jan 30, 2019 | Learning

Whether you own a house or rent an apartment, building a smart home is easier than it has ever been. Homeowners and renters can purchase kits that integrate specific smart items or they can select smart home products, such as light bulbs, crockpots, coffee makers, thermostats, vacuums, ovens, doorbells, mailboxes, window shades, and security cameras. After downloading the appropriate apps, anyone can connect everything together through a Wi-Fi network.1, 2

Smart digital assistants (SDAs) are the handy commanders of the smart home. Analysts estimated, by the end of 2018, SDAs would be active in almost one-half of American homes.3

These devices won’t take down the holiday decorations, but they will instruct the dishwasher to wash the dishes, tell the sound system what you want to hear, and inform the smart feeder it’s time for Fido’s supper. If you’re a road warrior, you can connect your automobile. If you work long hours, you can connect your office, too.4

Here’s the thing.

While smart homes offer tremendous convenience – and can be a lot of fun – they also have the potential to make Americans vulnerable to cybercrime. According to research published by ScienceDirect, security experts anticipate smart homes will become targets for cybercriminals because they are easy to infiltrate.5 For example, hackers could:

  • Access your smart thermostat and determine when you’re on vacation6
  • Retrieve information (passwords and financial or personal data) shared through a digital assistant6
  • Unlock your smart door with no sign of forced entry7
  • Hijack security cameras to spy on your home7

Just about everything in a smart home can be hacked, and criminals try all the time. Norton reported, “At times of peak activity, the average IoT [Internet of Things] device was attacked once every two minutes, according to the 2017 Internet Security Threat Report, published by Symantec.”6

Securing your smart home
When building a smart home, it’s critical to look beyond cutting-edge gadgetry and give serious thought to system security. Here are six tips for securing your smart home:

Build a strong foundation. Your router is the front door to your smart home and it should be solid and equipped with strong locks – it is your smart home’s foundational item. It connects all of your devices to the Internet. When you move money from one account to another using a home computer or smartphone, the data flows through your router. When you stream shows and movies, this data also flows through your router. You can’t afford to ignore it.6   The first thing to do is make sure your router is encrypting data. Norton suggests selecting Wi-Fi Protected Access 2 (WPA2) to protect your data. Choose a router that supports WPA2, and then take a few extra minutes to set it up.6 

Consumer Reports suggested several steps that can help keep data private. First, ensure your router software is up-to-date. Second, choose strong passwords. Typically, routers will have two passwords, one to control the router’s settings and a second one to provide access to smart devices. Third, turn off any router features you don’t use.4

Set your network to private. Smart devices have default settings. Some devices default to optimize privacy and security, others do not. Instead of assuming manufacturers have your best interests in mind, review the privacy settings for devices as you connect them.6

Choose 2FA. If the app for your smart device offers two-factor authentication (2FA), use it. In order to make changes, you will have to log in and then confirm your log in by entering a code that’s sent via text or email. If you get a code and didn’t try to log in, you know someone is trying to access your system.6

Give guests a network of their own. If you have a smart home, Norton suggests setting up a separate network for visitors. You cannot be certain whether someone else’s devices are secure. By having guests log on to a separate network, you protect your home and connected devices.6

Upgrade your devices. You probably won’t be passing smart devices from one generation of the family to the next. In fact, you shouldn’t.6

Prepare for a power outage. Many smart devices work when the power goes out. Make sure you know which of yours will and which won’t. For example, did your smart thermostat or smart door lock come with regular or rechargeable batteries or some other type of backup?8

It’s particularly important to understand how your home security system will respond. Systems that rely on Voice-over-Internet-Protocol (VoIP) and the Internet must have online connections or they don’t work. Your security cameras may also have issues during power outages, although a battery bank backup could solve the problem, according to MakeUseOf.com.8

Don’t let the excitement of building a smart home cause you to lose sight of the importance of home security. When your household devices communicate with one another, keeping your data safe presents a whole new set of challenges.

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Sources:
1 https://www.the-ambient.com/reviews/best-smart-kitchen-devices-469
2 https://arstechnica.com/gadgets/2016/08/the-connected-renter-how-to-make-your-apartment-smarter/
3 https://www.marketwatch.com/story/nearly-half-of-us-homes-will-have-a-smart-speaker-by-years-end-adobe-says-2018-09-10
4 https://www.ecnmag.com/article/2018/08/connected-cars-key-smart-homes-future
5 https://www.sciencedirect.com/science/article/pii/S1877050915030318?via%3Dihub (or go to https://s3-us-west-2.amazonaws.com/peakcontent/Peak+Documents/Feb_2019_ScienceDirect-Cyber_Security_Challenges_within_the_Connected_Home_Ecosystem_Futures-Footnote_5.pdf)
6 https://us.norton.com/internetsecurity-iot-smart-home-security-core.html
7 https://www.marketwatch.com/story/7-ways-to-keep-your-smart-home-from-being-hacked-2016-10-17
8 https://www.makeuseof.com/tag/power-outages-smart-home/

Investment Risk Management

by | Jan 16, 2019 | Learning

Financial Advisor, Financial Planner, Adviser, Rockville, Retirement Advisor, Potomac, Retirement Planner, Bethesda, Money Manager, Maryland, Advisor, Retirement, Virginia

Risk Management

Safeguarding Assets

There are more financial advisors than ever before in the US.  The most important difference is whether they have an independent and unaffiliated custodian. We do. The investment advisor initiates transactions as part of its portfolio management responsibility. The custodian then clears transactions as part of its safekeeping responsibility. The custodian has no investment authority (unless assigned for overnight excess cash balance sweep management). They serve to provide an audit trail of all the activity within a client’s investment account. We partner with Schwab as our custodian. They manage over $3.5 trillion in assets, have online account access and reporting and some of the strongest credit ratings in the industry.

Getting Out Of The Stock Market

Over the last several years and even decades, there have been periods of time when all asset classes are under negative pressure and cash is your best investment choice. Although the financial implications of bear markets can vary, typically, bear markets are marked by a 20% downturn or more in stock prices over at least a two-month time frame. Some bear markets have suffered a 40-60% decline in stock prices and have taken many years after to recover losses. In those instances where downside risks significantly outweigh upside potential, we have often chosen to sell investment positions and move to safer cash equivalents.

Using ETFs (Exchange Traded Funds) with very low trading costs has made that defensive play cost-effective for families seeking to preserve wealth. Plus, ETFs can be sold at any time during the trading day, whereas mutual funds can only be sold at the end of the day.

Investment Decisions

The oldest law of economics is supply and demand. At Research Financial Strategies, we place a premium on when to make an investment decision based on price movements using technical analysis. Technical analysis is an emotionless investment decision making process. It does not allow for getting caught up in the company or industry story. Investments are made through a series of technical factors.

The most notable factor is one called relative strength. When a security price shows a recognizable pattern of higher highs and higher lows, it demonstrates that there is higher demand than supply for that security.  Given that reality, we continually evaluate the current market environment to take advantage of opportunistic investments being presented. Research Financial Strategies has the unique capability to create unlimited customized asset allocation blends for our diverse client base.

Principal Protection

Our ability to minimize portfolio risk for our clients is a result of having a Sell-Side Discipline. Prior to investing in a security, we establish an exit point based on the % of loss or price our investment advisors determine is acceptable. If the security price is violated, then it is sold. This ensures that profits are protected for our clients. Or worst case, risk to principal is minimized. Only through having an investment approach that has a pre-determined exit strategy for each investment position, can you mitigate portfolio risk during market corrections.

For many clients, allocating a portion of their assets to a strategy that has limited the downside risk is critical to achieving their investment objectives.  However, there is no free lunch in investing or in life. There are numerous financial institutions pitching an array of products that are often not suitable to the client’s needs. Some are just loaded with fees. As independent advisors, we help our clients sift through the noise to find the right solution that works within their larger financial plan.

Liquidity

We invest in ETFs ( Exchange Traded Funds) and bonds funds that provide daily liquidity. Our firm is built on the belief that clients should have access to their money when they want it! And these investments allow us to quickly make decisions to help protect your assets should the stock market start to rapidly decline.

It's All About You!

Our focus is on your life and priorities. Not just your portfolio. That’s why we start by listening and learning about you. Each individual client has different needs and concerns that need to be addressed. We carefully listen to those concerns and we will gain important information that will help us to best serve our clients and help protect their financial futures.

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