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

529 College Savings Plans — Your 30-Second Primer

529 plans are the best college savings option for most families.  Here’s a 30-second primer on how to choose the right one for your family:

  • 529s are funded with after-tax contributions; growth and distributions taken for higher-ed are tax free.
  • Essentially every state has its own 529 program.  You’re free to select whichever state’s plan you like.
  • If your state gives you a significant tax deduction on contributions (dark green in the map below), it’s worth reviewing your state’s 529 first.
  • If you don’t get a state tax deduction OR if it’s <5% OR your state offers tax parity (any color except dark green in the map below), go with the best plan available nationally.
  • Utah’s 529 is NorthStar’s favorite in the nation because of low fees, great investment choices, no contribution minimums, and very easy setup.

Need help making the best 529 choice for your kids’ future?
Give us a call at 704-350-5028 for a free consultation. 

“You need to judge us over a full cycle”

The standard argument that active investment managers make when challenged by their clients on why their portfolios underperformed the market is, “you need to judge us over a full cycle.”

Robust results published in today’s Wall Street Journal blow a hole through active managers’ favorite defense.  Over the 15 years that ended in December 2016, 82% of all U.S. funds trailed their respective benchmarks.  That long time period is more than enough to encompass the active managers’ “full cycle”, boom-bust-boom argument.  The findings are noteworthy because it’s the first time 15-year results have become available for this very comprehensive analysis.

The results are even worse when you looks at popular assets classes:

  • 92.2% of U.S. large-cap active funds trailed their respective benchmarks
  • 93.2% of U.S. small-cap active funds trailed their respective benchmarks
  • 95.4% of U.S. mid-cap active funds trailed their respective benchmarks

That elusive 8% of all U.S. fund managers that did beat the market 2002-2016 is a slippery target for investors.  Most of them did not persistently outperform throughout those 15 years.  So you can’t just take today’s top performers and go with them.  Said another way, the likelihood of you finding one of these funds ahead of time is very, very small.

You have a key decision — a choice that will materially impact your future life.  How will you choose to invest the bulk of your portfolio?  Will you go with the 92% odds in your favor (passive management), or the 8% odds in your favor (active management)?

Source: WSJ – Indexes Beat Stock Pickers Even Over 15 Years

10 Most Common Behavior Biases of Investors

Robert Seawright with Madison Avenue Securities assembled this list of the ten most common behavioral biases that hinder investors:

  1. Confirmation bias – we gather facts and see those facts in a way that supports our pre-conceived conclusions
  2. Optimism bias – our confidence in our judgement is usually greater than our objective accuracy
  3. Loss aversion – the pain of losing $100 is at least twice as impactful as the pleasure of gaining $100 (causes investors to hold onto their losing stocks too long)
  4. Self-serving bias – the good stuff that happens is my doing while the bad stuff is somebody else’s fault
  5. Planning fallacy – overrate our own capacities and exaggerate our abilities to shape the future
  6. Choice paralysis – we are readily paralyzed when there are too many choices
  7. Herding – we run in herds, latching onto the group think and moving in lock step
  8. We Prefer Stories to Analysis – people love a good narrative and prefer to be swept up by the story rather than work through the definitive numbers
  9. Recency bias – we tend to extrapolate recent events into the future indefinitely
  10. Bias blind-spot – the inability to recognize that we suffer from the aforementioned cognitive distortions!
ABOUT US

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Investment advice can only be provided through a formal investment advisory relationship.