Blog - Page 38 of 70 - NorthStar Capital Advisors

Know More, Make More

A new academic study finds that more financially knowledgeable people earn a higher return on their 401(k) retirement savings.

Dr Robert Clark (NC State University), Dr. Annamaria Lusardi (George Washington University), and Dr. Olivia Mitchell (University of Pennsylvania) analyzed a unique dataset that combined 401(k) performance data for 20,000 employees plus financial literacy data for the same workers.

Investors deemed to be more financially knowledgeable than peers enjoyed an estimated 1.3% higher annual return in their 401(k)s or other defined contribution plans than those with less knowledge.

According to the study’s authors:
“We show that more financially knowledgeable employees are also significantly more likely to hold stocks in their 401(k) plan portfolios. They can also anticipate significantly higher expected excess returns, which over a 30-year working career could build a retirement fund 25% larger than that of their less-knowledgeable peers.”

Financially savvy people tend to save more and are more likely to invest those savings in the stock market. But past studies haven’t clearly demonstrated that these people necessarily make better investment decisions. The authors look at patterns in 401(k) retirement accounts and find that more sophisticated investors do indeed get better returns on their savings.

Source: “Financial Knowledge and 401(k) Investment Performance”

Your House is Not a Great Investment

Home ownership is one of the greatest financial investments you can make, right? Wrong! The chart below shows that once you adjust for inflation, home prices have been essentially unchanged over the past 100+ years except during a few spectacular bubbles.

In a recent interview, Professor Robert Shiller delved into the popular misconception that home ownership is a good “investment”. Via the Motley Fool article:

“The housing boom in the early 2000s was driven by a sense that housing is a wonderful investment. It was not informed by good history,” he said. Most people now agree on that much.

“If you look at the history of the housing market, it hasn’t been a good provider of capital gains. It is a provider of housing services,” he explained.

By that, he means a home gives you a place to live, a place to sleep, a place to store your stuff.

But that’s it. Americans believed — and still believe — that the value of their home will increase above the rate of inflation.

And that, Shiller says, is wrong.

“Capital gains have not even been positive. From 1890 to 1990, real inflation-corrected home prices were virtually unchanged.”

Source: TMF

Elite Colleges Don’t Buy Happiness or Extra Money for Graduates

Attention high school seniors that were rejected by their first-choice college

A new Gallup survey of 30,000 college graduates of all ages in all 50 states has found that graduation from an elite college provides no discernible advantage over Podunk U.

“It matters very little where you go; it’s how you do it” that counts, said Brandon Busteed, executive director of Gallup Education.

Gallup’s data demonstrate that people that feel the happiest and most engaged are the most productive. Those successful people got to that point by developing meaningful connections with professors or mentors, and made significant investments in long-term academic projects and extracurricular activities.

This new study’s results are well aligned with the existing body of academic research. For example, economist Stacy Dale published an insightful paper in 2004 that found that students who were accepted to elite schools, but attended less selective schools, went on to earn just as much money as their elite counterparts.

“Individual traits matter more than where you went,” Ms. Dale said. “It’s a lot more important what you learn later in life than where you got your undergraduate degree.”

Source: WSJ

Average U.S. Retirement Age Rises to 62

The average age at which U.S. retirees report retiring is 62, the highest Gallup has found since first asking Americans this question in 1991. Current expectations for retirement have increased to age 66, up from 63 in 2002.

Why is retirement age on the rise?

Living longer – lifespans in the U.S. have increased
Better health – Americans are in better health in their senior years than ever before and better able to work later in life
More service and office jobs – less manual labor allows folks to stay working longer
Financial needs – not having enough cash to retire is another reason people retire later

Social Security Myth #1 — Age Doesn’t Matter

Myth:
You’ll receive the same monthly Social Security benefit no matter how old you are when you start collecting.

Answer:
False. You can start your earned benefits as early as age 62 or as late as age 70. For every year you wait, your payments increase by 6-8%.

Where Your 2013 Tax Dollar Went

On April 15, 2014, millions of Americans filed their income taxes for 2013. This chart shows how each one of your income tax dollars was spent by the federal government in fiscal year 2013.

Accidental Success of the 401(k) Plan

Click for full view

Rebalancing is Important

An investment portfolio must be periodically rebalanced back to its original targets to maintain the intended risk level and asset allocations (i.e., mix of stocks and bonds).

Drifting Through Time
Say you started out with a portfolio of 50% stocks and 50% bonds at age 21. Stocks go up 2 out of 3 years on average. By the time you’re 50 your portfolio mix could drift to 90% stocks and 10% bonds. That’s quite out of balance!

In rebalancing, we would sell the “excess” of stocks and use the proceeds to purchase bonds. In doing so, we ensure that we sell investments at a relatively high prices and buy investments at a low price.

Effects of Rebalancing
In a balanced portfolio of stocks and bonds, you will typically be selling stocks and buying bonds when you rebalance. You will be removing excess volatility from the outsized stock allocation and going back to your initial combination of stocks and bonds.

Quarterly or Annually — Which is better?
In a taxable account, there is a tax benefit for waiting more than a year to rebalance. In a non-taxable account, quarterly rebalancing can have some advantages. You probably don’t want to rebalance on shorter time periods because you need to give your strong-performing investments time to run and avoid the potential costs of excess transactions.

Easy Rebalancing
Is it possible to set up automatic rebalancing? One way is to work with a professional money manager like NorthStar. We do this for our clients. Big firms like Vanguard usually don’t have an automatic option, but they say they will spend 15 to 30 minutes on the phone with customers to help walk through the process and get rebalanced.

When promised quick profits, respond with a quick “no”

Warren Buffett is one of the most successful and sage investors alive today. Students of investing anxiously await his annual letter to shareholders to glean pearls of the wisdom from this master.

Here’s one of our favorite Warren Buffett quotes from the 2014 letter:

“You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick ‘no.’”

Unfortunately there are many people that are victimized by financial fraudsters. Just this week a Charlotte, NC man, Mitchell Brian Huffman, was ordered to a pay $2.1 million civil penalty for operating a Ponzi scheme that bilked clients out of about $3.2 million.

Huffman told his 30 victims that he was generating outrageously high annual rates of return of 100% to 150% using a proprietary trading program. Huffman used their money to fund a lavish lifestyle including classic cars and luxury vacations.

3 1/2 Weeks Until an Important Deadline

Here’s an important reminder if you have an individual retirement account (IRA) or are considering opening an IRA. 2013 contributions to IRAs can still be made up through April 15, 2014.

Make it a double? If you really want to make the most of the growth potential that retirement accounts offer, you should consider making a double contribution this year: a last-minute one for the 2013 tax year and an additional one for 2014, which you’ll claim on the tax return you file next year. That strategy can add much more to your retirement nest egg than you’d think.

2013/2014 Annual IRA Contribution Limits*

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 (2013), $52,000 (2014)

*Note: The maximum contribution limit is affected by your taxable compensation for the year. Refer to IRS Publication 590 for full details.

The savings, tax deferral, and earnings opportunities of an IRA make good financial sense. The sooner you make your contributions, the more your money can grow.

If you have any questions or would like to make an IRA contribution give us a call at (704) 350-5028 or email info@nstarcaptical.com.

« First ‹ Prev 35 36 373839 40 41 Next ›Last »