Securities markets are in a constant state of change. In the broad view, half of the pressure is upward and half is downward. Half of the money is bet on upward movement and half on downward movement in prices. Half of the 'experts' think the markets will go lower and half think it will go higher in the short term. Just listen to the daily shows and you can see the very best financial minds take the opposite view of that days information as they are interviewed from one to the next. Prices are where they are because of this "tug of war" balancing act.
Money is made most surely by owning a well diversified portfolio for a long period of time. Very little is gained by attempting to 'time' investments. Studies show perhaps as little as 3% of gains are the result of timing.
Most important in considering when to invest is when the time is right for the investor. As only long-term stock market profits can be a safe assumption, money should be invested with the intention to stay the course for a long period of time. From my perspective, the meaning of "long term" has changed over the years. It used to be a year. The federal government still uses a year holding period for long term capital gain treatment. Our investing lives can be thought of as extending from when we first have the cash to invest until we use up the last of our savings. We should think of long term as many decades. For many, things will happen along the way that, unfortunately, will put investing on hold. Investing on a regular basis is a good long term plan. Dollar Cost Averaging- investing the same dollar amount regularly, ensures that the investor will buy more shares at low prices and fewer at high prices.
To sum it up, invest now, and for the "long term". The longer you stay invested, the better off you are likely to be- long term.
2014/2015 Winter Newsletter Now Available
Posted on December 30, 2014
We wish you and your family a Happy Holidays and New Year! Hopefully you are staying warm in this cold weather! The 30th issue of the North Lake Tahoe Financial Services, LLC Newsletter is now available for download. Current clients may see the newsletter made available to them through e-mail. Have a joyous and prosperous new year!
Click the link above to download the newsletter (pdf.)
What’s In Your Portfolio?
Posted on November 3, 2014
In September I attended the Annual Morningstar ETF Conference in Chicago, and had the opportunity to listen to 2013 Economic Sciences Noble Prize Laureate Eugene Fama, one of the speakers. He is sometimes referred to as the “Father of Efficient Markets Theory”, and is well known for exhaustively studying the securities markets. The room turned silent when Mr. Fama told the gathering of 700 or so, made up of predominately money managers and mutual fund sales force employees, that active management in the stock market simply does not pay for itself. Only 3% of active management funds cover the additional costs compared to average market performance each year. The rest do not.
There is a long standing argument about the value of active management of securities, and the studies, for the most part, show that it is simply not worth the price.
The Vanguard family of mutual funds started the practice of offering index funds, which simply mimic the contents of the various stock market indexes such as the Standard and Poors 500 index, by buying the same securities that the index uses in tracking the ups and downs of a particular segment of the market. Recently there has been an unusual public debate between Vanguard’s Founder, Jack Bogle and PIMCO, the large investment firm. PIMCO argues that, particularly with respect to bond funds, active management does help, and in fact can lead to very good results. Mr Bogle’s most recent reply was that betting on red or black on a Las Vegas casino roulette wheel also can lead to very good results, but that in the long run the Gambler (Investor) will lose.
An index fund does not need to do extensive research and can keep its costs very low- something Vanguard is famous for. Vanguard does not charge sales charges except, within a few mutual funds, to discourage rampant buying and selling so as to keep its costs low for all of its investors. There are no shareholders. Invest with Vanguard and you are in effect an ‘owner’ of the firm.
In the early 1970s, when I started to invest, sales loads (charges) were around 9%. That’s historically a pretty good annual return for an investment, so why pay that in the form of a sales commission? I was able to find a no-load fund even back then, but there were very few.
Stories about the high cost of advice seem to be increasing in frequency. At the June 2014 Morningstar Investment Conference, Cliff Asness, the manager of a 100 billion dollar hedge fund, said that when his family has asked him about investing, he has referred them to Vanguard.
Having invested with Vanguard for decades, I am very comfortable assisting my clients in investing with Vanguard as well. As one of the largest of fund families, Vanguard has an excellent array of funds, meeting almost any portfolio need. There are an amazing number of Americans whose investment management expenses are very high and whose investments are sub-par. I prepare tax returns and know that fancy names are not a good alternative for lower operating expenses and no, or low, sales loads.
Contact us if you would like to see the comparison between the mutual funds in your portfolio and similar Vanguard funds. We do charge something for running the reports. We also charge for our time for assisting clients in opening Vanguard accounts, shifting assets to Vanguard, and providing advice in selecting which Vanguard fund investments and in what amounts would be appropriate for their portfolios. We can advise on a one time or on an ongoing basis. We recommend a written financial plan first in order for us to know what is most appropriate for the client. No two client situations are the same. Vanguard also offers these services for a fee- or, if the amount of assets meet certain minimums, for free, but we feel that we can better tailor the portfolio to each client’s special situation.
Feel welcome to contact us for more information. 775-831-8511. firstname.lastname@example.org
Happy Tax season to all! We look forward to a productive year. Check out the links on our website, we provide helpful forms for organizing for the tax season. Merchant Mariners and Travel Nurses tend to have more complicated tax returns and North Lake Tahoe Financial Services, LLC is adequately equipped to assist you in all 50 states.
Don’t forget the tax filing deadline is April 15th, 2014.
Most Americans, to at least some extent, will be relying on this Federal program in their later years. Many Americans are not saving enough for retirement, and will be working, either full or part time, several years into what used to be considered the “retirement years”.
For 2013 the Social Security retirement system provides a maximum benefit of $2,533 at full retirement age (for those attaining age 66 in 2013), for someone with 35 years of maximum contributions. For 2012 the maximum contribution is made for someone with $113,700 in Social Security taxable income. The annual report is sent only to those over 60 and the rest can only find it online now. It shows estimates of our SS income based on starting benefits at several different ages. Be aware that it assumes we continue to earn the same amount each year that we did last year until we start drawing the benefit. It will use our best 35 years adjusted for inflation. The computation of benefits is complex. Part of the 35 year average is multiplied by .9 percent to arrive at a base amount of about $700 per month for most workers. The next two portions are multiplied by different percentages, and the sum is the monthly benefit.
Social Security income can provide a very safe, but basic source of income for our retirement years. It can be considered to be an automatic conservative diversification investment device used in conjunction with supplementary investment strategies. When to begin receiving benefits depends on many factors. Each year that the benefit is delayed between 62 and 70 results in an increased monthly amount of 8 percent. See a CFP, for retirement planning, for the best result.
Health insurance coverage is important at any age, but average Americans largest health costs come after attaining the age of 65.
At age 65 we need to enroll in the Medicare health insurance system. We have several choices to make at that time. We can get a Medicare Advantage plan that takes over for Medicare and can provide a total package for healthcare insurance purposes. Medicare Supplemental plans use Medicare for some coverage, but add coverage above the basic. Your Union or other retiree health plan might add coverage/reduce your cost.
Part D is strictly for prescription drug coverage, which is not part of basic Medicare or Supplemental plan coverage. You should at least consider a very basic Part D plan at 65 in order not to be penalized when you decide to pay for it later in life. The penalty is one percent per month of the average Medicare Part D rate (around $30 per month) that you wait until you begin to pay for coverage. Ten months would mean 10%, or about $3 per month would be added to your bill for part D when you sign up for it later.
It is good to review your Medicare insurance each year during the special enrollment period. This is especially important for Part D coverage as the premium, and the costs and insurance coverage for various drugs can vary widely. There are programs in every state called SHIPs (State Health Insurance Counseling and Assistance Programs) that have volunteers to help seniors, with the help of special online software, to choose from possibly dozens of health insurance company policies in order to get the best coverage depending on which drugs they are buying.