Best Practices Archives - Page 4 of 10 - NorthStar Capital Advisors

20 People You Don’t Want to Invest With

Identifying what does NOT work is often a great process for narrowing your list of options of what you should do. In that spirit, here’s Ben Carlson’s list of 20 people you wouldn’t want to invest with:

1. People that are unwilling or unable to admit their limitations.

2. People that are consumed by ideological or political beliefs when making investment decisions.

3. People that are unwilling to say “I don’t know.”

4. People that don’t learn from their mistakes.

5. People that blame external forces for their failures.

6. People that are unable to effectively communicate their process.

7. People that make guarantees about the markets in the future.

8. People that are more interested in selling you a product than creating a beneficial long-lasting client relationship.

9. People that try to invest in the markets as they “should be” instead of how they actually are.

10. People that are more worried about what others are doing instead of focusing on their own process and goals.

11. People that take the markets personally and let their emotions drive their decisions.

12. People that assume “trust me, I got this” is good enough in terms of explaining their strategy.

13. People that believe in conspiracy theories and think the system is out to get them.

14. People that are more worried about sounding intelligent than actually making money.

15. People that obsess over the market’s short-term movements.

16. People that would rather take you golfing than help you solve your problems.

17. People that make you feel like they’re doing you a favor by letting you invest your money with them.

18. People that try to dazzle you with 200 page pitch books.

19. People that are more worried about gathering future clients than taking care of their current ones.

20. People that tell you what you want to hear instead of what you need to hear.

Source: AWOCS

Planting a Tree

Warren Buffett once said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” It’s planting season and your deadline to act is coming up very soon!

If you have an individual retirement account (IRA) or are considering opening an IRA, 2017 contributions to IRAs can still be made up through April 17, 2018.

[Tax day falls on April 17, 2018. Usually, April 15 is the day taxes and IRA contributions are due. But in 2018, that falls on a Sunday. On Monday, the District of Columbia celebrates Emancipation Day. That affects taxes the same way federal holidays do. Therefore, the tax deadline is pushed out to the following Tuesday, April 17.]

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 2017 tax year and an additional one for 2018, 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.

2017/2018 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: $12,500 ($15,500 if you are 50 years old or older)
SEP IRA: $54,000 (2017); $55,000 (2018)

*Note: The maximum contribution limit is affected by your taxable compensation for the year.

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, and the more “shade” you’ll have to enjoy in the future.

If you have any questions about how to make the most of your IRA savings opportunity, please give us a call at 704-350-5028.

How to be a 401(k) Millionaire

Fidelity Investments, one of the largest retirement account administrators in the U.S., published a study that analyzed the characteristics of their 401(k) account holders who have amassed more than $1 million but make less than $150,000.

Here are 5 key lessons:

#1 — Start saving early
Beyond the obvious fact that the longer you save, the more you’ll potentially accumulate, contributing steadily over 30 to 40 years is especially beneficial in a tax-advantaged workplace retirement savings plan.

#2 — Contribute a minimum of 10% to 15%
Contributing 10% to 15% might sound like a lot, but that amount is meant to include contributions from your employer—such as your company match or profit sharing.

#3 — Meet your employer match
You’ve probably heard it many times, but it bears repeating that failing to contribute up to the full amount of a company match is like turning down “free” money.

#4 — Consider mutual funds that invest in stocks
Historical data suggests that a diversified portfolio of stocks can deliver higher returns than bonds or other fixed income investments over time.

#5 — Don’t cash out when changing jobs
Taking a distribution from your 401(k) account when you change jobs is hardly ever a good idea. It could trigger significant tax liability and early withdrawal penalties. When you take money out of your 401(k), you lose the opportunity for it to grow.

Source: Fidelity

What You Control

“If owning stocks is a long-term project for you, following their changes constantly is a very, very bad idea. It’s the worst possible thing you can do, because people are so sensitive to short-term losses. If you count your money every day, you’ll be miserable.” — Dr. Daniel Kahneman (psychologist and Nobel Laureate)

Source: Safalniveshak

What Assets Make Up Wealth?

This is the time of year where our office is busily updating our clients’ net worth statements. Net worth is the best measure of both your current financial health and the financial progress you’re making over time. Remember that your net worth, simply put, is the sum of all the financial assets you own minus all of the debts that you owe. Almost every good financial decision you can make serves to either grow or protect your net worth. For example, saving and investing increase your the financial assets you own, while paying off debt decreases the amount you owe.

The Visual Capitalist recently published the fascinating chart below that examines how the composition of assets varies by net worth.

It’s readily apparent that the asset mix changes greatly between lower and higher net worths:

Primary Residence:
This is by far the most important asset class for all net worth tiers up to $1 million.

Vehicle:
For the $10k net worth tier, the value of a vehicle is more than investments such as pensions, IRAs, mutual funds, stocks, etc.

Stocks:
The proportion of directly-held stock increases up the tiers, and billionaires hold a significant portion of wealth in stocks.

Business Interests:
Most multi-millionaires or billionaires are not liquid, and have most of their wealth in business interests.

Behind the Curtain: Pro vs. Amateur Advisors

For most people, it is very difficult to discern a truly good advisor from a lackluster hack — a professional versus an amateur. To help you recognize the difference, we want to highlight a deeply insightful article penned by Josh Brown, aka The Reformed Broker. Here is Josh’s wisdom reformatted and mildly edited for easy consumption:

Professionals take this opportunity to manage client expectations, pointing out that 2017’s returns were above average (by about triple) and unlikely to represent an average annual return going forward.	Amateurs use the returns of last year to raise more money. “I made you 18% in 2017, let’s talk about the assets you’re still holding away from me. And maybe some referrals.”
Professionals maintain allocations through the start of January, with perhaps some rebalancing.	Amateurs turn over positions, incurring commissions and possibly taxes, and start to talk about the “playbook” for the New Year.
Professionals point to the holdings that didn’t keep up with US and global stocks as a teachable moment and a reminder that for diversification to work, not everything can be going up at the same time.	Amateurs look for replacements for the holdings that are “disappointing” the clients, switch out managers based on last year’s performance and cut down exposure to asset classes that aren’t “working.”
Professionals review client financial plans and have uncomfortable but essential conversations with households that are falling short of their stated goals.	Amateurs traffic in “Five Hot Stocks for 2018” and send out three-year return charts for funds they want to add to portfolios.
Professionals talk to clients who are far outpacing their goals about enjoying life more now.	Amateurs talk to clients about adding new hedging strategies and more alternatives.
Professionals admit they don’t know what the new year will bring, and focus instead on the durability of what they’re doing.	Amateurs have year-end price targets and can’t-miss sector bets.
Professionals will keep clients focused on the important stuff and get the job done in 2018, come what may.	Amateurs will direct client attention to all the wrong metrics and inevitably fall short, which means more prospecting come 2019 to replace disenchanted and under-served clients.

Donate Wisely

Whether you’re contemplating a last-minute donation for 2017 or planning a major move to define 2018, we advise you to donate wisely. The awesome decision tree below from Bloomberg assembles the advice from philanthropic advisers, nonprofits, and volunteer experts to help narrow down the best method of giving for you. Download a PDF if you’re having trouble reading it below.

Simple, Bedrock Rules on Personal Finance

When financial columnist Brett Arends penned his final piece for the Wall Street Journal, it was absolutely foundational!

Ignore economic and financial forecasts. Their purpose is to keep forecasters employed. Most professional economists were blindsided in 2008 by the biggest financial collapse in 70 years—and by the stock market’s recovery.

Ignore “expert” stock picks. The stocks that Wall Street experts like most generally fare no better than those they like least—or stocks picked at random.

Keep it simple. Complicated financial strategies and investments are mostly designed to enrich managers and salesmen.

Buy individual stocks only as a gamble. Never buy fashionable investments.

Put most of your long-term portfolio into equities. While equities are volatile, they generally produce the best long-term returns—typically about 4% to 5% a year above inflation. But remember to hang on when they plummet.

Invest globally, not just in the U.S. Foreign stock markets, in the aggregate, are no riskier than U.S. markets and offer terrific diversification.

Buy Treasurys, too: In addition to stocks, own some long-term Treasury bonds and some Treasury inflation-protected securities. These are likely to hold their value, or even go up, when stocks crash.

Save early, save often. Time and patience are the investor’s best friends.

Use those free shelters. Contribute as much as possible to your company’s 401(k) plan or equivalent (such as 403(b) or 457), and at least enough to get the company match. If you can, contribute to individual retirement accounts for yourself, and a nonworking spouse, as well.

Plan for a long life. A third of your adult life could come after you’re 65. Try to pay off your mortgage, and save at least 10 times your annual salary, by the time you retire. Delay taking Social Security for as long as you can up to the age of 70, to maximize each monthly check.

Beware of buying your employer’s stock. Your job there is probably financial exposure enough.

Protect your nest egg. Don’t drain your retirement savings to pay for your child’s college education. Likewise, don’t empty your 401(k) or IRAs to start a business. You will be taxed and penalized on the withdrawals even if you lose the money.

Teach your children about money. Teach them early and often. No one else will, and they will have to make their own way.

Investing Priorities

The general rule of thumb for investing priorities is:

Invest in your company 401(k) plan up to the match
Pay off short-term, non-tax-deductible debt (e.g., credit card, car loan)
Establish an emergency fund; 6-12 months of living expenses is a good guidepost
Put the maximum allowable amount in a Roth IRA (if eligible)
Put the maximum allowable amount in your company 401(k)
Invest the remainder in taxable accounts
Pay down tax-deductible debt (e.g., home mortgage)

Source: Vanguard

Top 10 Mistakes Made with Beneficiary Designations

#1 — Not Naming a Beneficiary
By not naming a beneficiary you have most likely guaranteed that the asset will go through probate upon your death.

#2 — Not Designating Contingent Beneficiaries
If your primary beneficiary predeceases or dies at the same time as you, you’re subject to the same consequences as #1

#3 — Failing to Keep Beneficiary Designations Up-to-Date
If you get divorced, it’s essential you immediately review and update all beneficiary designations.

#4 — Naming Minors as Direct Beneficiaries
Trusts are often established to delay the time a survivor receives an asset until they are old enough to make good money decisions. However, if you designate a minor child as an account’s beneficiary and there’s also a testamentary trust, the designation trumps the trust and the child will receive the assets immediately.

#5 — Naming Special Needs Individuals as Direct Beneficiaries
Naming a “special needs” individual as the direct beneficiary could unintentionally disqualify that individual from receiving his or her valuable governmental benefits.

#6 — Naming Financially Irresponsible Beneficiaries
Often it’s better to create a lifetime “spendthrift trust” to hold the inheritance for the benefit of the individual for his or her lifetime while protecting the assets from creditors.

#7 — Naming Direct Beneficiaries on All Assets Other than Real Estate
Very often real estate will need to go through probate even if there’s a will in place. This process can take a year or longer during which the estate is responsible for paying for maintenance, taxes, etc. It’s generally advisable to allow your cash accounts and/or life insurance proceeds to go through probate so the estate will have sufficient funds to support the real estate during probate.

#8 — Naming Multiple Beneficiaries on a Transfer on Death Deed
Avoid doing because all beneficiaries must agree on the realtor, sale price, and maintenance costs until the property is sold. Getting that type of agreement is very difficult.

#9 — Naming a Child as Co-Owner of a Deposit or Investment Account
Aging parents will sometimes add a trusted adult child as the co-owner of his or her bank account. Avoid this because it can create complicated issues around gifting, creditor issues, and final expenses.

#10 — Naming One Child as the Sole Beneficiary of a Life Insurance Policy or Deposit Account
A parent with multiple adult children should avoid doing this because it can create a situation very similar to #9.

Source: AAII

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