January 2013 - NorthStar Capital Advisors

Six ways our brains make bad financial decisions

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Our brains are hard-wired to choose short-term payoff over long-term gain. Duke University professor of psychology and behavior economics Dr. Dan Ariely has a great article on this subject. Here are six common mistakes investors make – and how to avoid them.

SAVING: What’s more important: buying a new iPad nowor saving that moneyfor the future?
RETIREMENT PLANNING: How much money do you think you need for your retirement, assuming you plan on maintaining your current lifestyle?
INSURANCE: Why do we make such bad decisions when it comes to insurance?
SHOPPING: Why do we invest in extended warranties?
MORTGAGES: Why do we buy mortgages from the same old suspects?

Read Dr. Ariely’s article here and learn how to avoid these bad decisions.

Weekly Market Review ~ Friday, 01/25/13

Following the long MLK holiday weekend, the markets opened on Tuesday by continuing to push up against 5-year highs on positive earnings news from DuPont and Travelers. On Wednesday, the major indexes kept their winning streaks alive when it was announced that the US House of Representatives voted to move the debt ceiling resolution decision to May, which allows the US to at least temporarily continue to pay the bills. The Dow logged its fifth straight gain and tenth in the past eleven trading session on Thursday on encouraging job news. New US jobless benefits claims fell to a 5-year low. However, a disappointing earnings report from Apple dragged down the S&P 500 and NASDAQ. The week concluded on Friday with another uptick, as the S&P 500 crossed the 1500 mark for the first time in five years. The S&P 500 is now only 63 points from an all-time high, while the Dow is only 269 points from its all-time high.
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5 Big Retirement Mistakes

#1 Not paying for financial guidance
People who have no problem paying for the services of an accountant or lawyer often balk at the prospect of cutting a check to pay for investment advice. Instead, they rely on “free” help from retirement advisers they meet at banks, brokerage firms and retirement seminars.

#2 Investing in something you don’t understand
If your financial adviser recommends an investment you can’t explain to someone else, just say no. It will likely carry steep fees (to pay steep commissions) and be less wonderful than it is touted to be.

#3 Supporting your adult children
You might be tempted to help them with a down payment or living expenses, but unless you are certain that you have enough to ensure your own survival, don’t do it.

#4 Low-balling elder-care costs
When planning for retirement, few people think about how much they might end up spending to support elderly parents. Inflation and longevity could erase the purchasing power of the children’s pension and savings, leaving them with too little to live on, let alone cover medical expenses.

#5 Underestimating how much you will need
It is easy to underestimate the impact of inflation and longevity, or the cost of health care, supporting family members or caring for a spouse with Alzheimer’s disease or cancer.

Source: Wall Street Journal

Weekly Market Review ~ Friday, 01/18/13

The major indexes finished mixed on Monday as a lack of economic news led to little movement in stocks. On Tuesday it was much of the same, with small gains managed by the Dow and S&P 500 on positive December retail sales numbers. The Dow’s five day winning streak ended on Wednesday. Still, losses were light, and the S&P 500 and NASDAQ had small gains. On Thursday the Dow rallied close to a 5-year high on news that the House is considering a plan to not oppose a short-term increase in the debt ceiling. US housing starts for December also rose more than expected. The Dow finally set a 5-year high on Friday as debt ceiling progress encouraged investors to buy more, at least in the short-term.
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Get Your Nest Egg in Shape

Source: Wall Street Journal

Weekly Market Review ~ Friday, 01/09/13

Stocks took a breather on Monday, as investors took some profits from last week’s steep run-up. The markets slid again on Tuesday leading up to Alcoa’s kick-off of the fourth quarter earnings cycle after hours. Alcoa’s positive earnings report gave the major indexes a boost on Wednesday, as the Dow and S&P 500 recouped part of their losses from earlier in the week. On Thursday the rise continued with an 80 point gain by the Dow on positive job news. While initial unemployment claims rose more than expected, continuing jobless claims sank to their lowest level in more than four years. The S&P 500 also hit a 5-year high. The week ended on Friday with stocks essentially unchanged after a disappointing earnings report by banking giant Wells Fargo.
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Financial Planning Made Easy?

Here’s an awesome chart from BusinessWeek:

(click for gigantic flowchart)

Weekly Market Review ~ Friday, 01/04/13

The last day of 2012 was the best last day of a trading year ever, at least as far as the Dow is concerned which tacked on an additional 166 points on increasing optimism over a fiscal cliff solution. Trading resumed on Wednesday after New Years with a bang, as the markets reacted to the long-awaited, if not tardy, fiscal cliff solution from Congress. The 308 point Dow gain was its largest ever for the first trading day of a year. The rally stopped on Thursday following news that some Fed Reserve members are in favor of ending its bond-buying initiative to stimulate the economy. Still, the day’s losses were minimal. On Friday, stocks continued their upward trek on a job report that met expectations. The US unemployment rate rose marginally from 7.7% to 7.8%. The Dow finished at a 5-year high.
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IRS Raising Limits on Retirement Contributions for 2013

Good news! The Internal Revenue Service has raised the annual limit on contributions to 401(k)s and individual retirement accounts.

The new contribution limits for 2013 are the following:

401(k): $17,500 ($23,000 if you are 50 years old or older)
Traditional/IRA Rollover: $5,500 ($6,500 if you are 50 years old or older)
Roth IRA: $5,500 ($6,500 if you are 50 years old or older)
SIMPLE IRA: $12,000 ($14,500 if you are 50 years old or older)
SEP IRA: $51,000 ($51,550 if you are 50 years old or older)

Remember you can still make IRA contributions until April 15, 2013 for tax year 2012 but the old 2012 contribution limits will apply.

Why is this good news?

First, it’s always nice to have the ability to defer taking the tax hit on a bit more money. Second, these increased contribution limits give you the opportunity to put aside more money for your retirement. This accumulation is often more important than allocation, particularly when you’re first staring off as an investor. Your personal savings rate, the amount of money you’re saving and investing for the future, is just as critical as your rate of return.