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%.
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.
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.
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.
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*
*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.
A three-year study involving 10,000 millennials (born 1981-2000) reveals an overwhelmingly negative sentiment toward banks:
Source: FastCo
Americans’ wealth hit the highest level ever last year reflecting a surge in the value of stocks and homes. A record-setting rally of +30% in the U.S. stock market drove most of the past year’s gains.
According to a Federal Reserve report released today, the net worth of U.S. households and nonprofit organizations rose 14% last year.
The Fed’s report shows that Americans have made good progress on repairing the damage caused by the housing crash and the recession (Dec 2007 – Jun 2009). Americans have been reducing their debt loads and regaining equity in their homes.
Source: Wall Street Journal
Oklahoma high school students, effective this May, now must demonstrate an understanding in banking, taxes, investing, loans, insurance, identity theft and eight other areas to graduate.
The intent of personal financial literacy education is to inform students how individual choices directly influence occupational goals and future earnings potential. Successful money management is a disciplined behavior and much easier when learned earlier in life.
Real world topics covered by the Oklahoma standards include the following:
Most Americans need to save more to assure a financially secure retirement.
But many people struggle with key retirement questions like “how much do I need to save?”
You should save 22 times the annual income you want to have in retirement.
For example, if you want $100,000 in annual income (not including Social Security), then you need to have $2.2 million in total retirement savings.
(22 x $100,000 = $2.2 million)
See this recent article in the Wall Street Journal on how researchers arrived at this magic number of 22.
