Warren Wealth Article Archive
Articles Posted During 02/2009
Diversification Isn't Just About Market Risk
Friday 02/27/2009 - 6:29:40 pm
There are other risks we sometimes don't think about.
Presented by Jacob Warren
Content provided by Peter Montoya, Inc.
When an investor or financial professional thinks about diversification, it is generally with market risk in mind. It's worth remembering that there are other potential risks to your money and diversification can be valuable in helping you cope with them.
Business risk. Even today, there are people who have worked for one company for many years and who own great amounts of corporate stock, perhaps as a significant portion of their 401(k) investments or overall portfolio. Are you one of them? Here's a word for you: Enron. It is risky to link your financial future to the health and viability of one company.
Investment advisor risk. We can be thankful, as investors and as a society, that Bernie Madoff represents an unfortunate aberration in the financial services industry. Financial advisors, investment advisors, money managers - hundreds of thousands of them work by strict legal, ethical, and moral standards. If they don't, they risk losing their livelihoods, or worse. But, very rarely, you do read stories of financial services professionals who have proved charlatans. One way to combat this risk is to check out the advisor. You can do it through the free Broker Check record search offered by the Financial Industry Regulatory Authority (finra.org/brokercheck), and through your state securities administrator. This risk, although thankfully rare, does give one pause to think about the value of having a strong cash position and diversification beyond the standard investment vehicles.
Brokerage risk. At mid-decade, if you had walked around Manhattan saying Lehman Brothers would go bankrupt, few would have paid you any mind. But it happened not just because of the financial climate, but because of decisions management made.
Of course, brokerages only handle your investments; they are prohibited from tapping into your assets or lending them out when they get in a jam. The Securities Investor Protection Corporation protects up to $500,000 of your assets at a brokerage - including stocks, bonds, money market funds, and cash up to $100,000.1 In the 39-year history of the SIPC, just 349 brokerage account holders have failed to get their entire portfolios back.2 But SIPC coverage doesn't cover everything - fixed annuity contracts, commodity futures contracts, and certain investment contracts such as limited partnerships aren't protected.1 Additionally, there have been a few brokerages that have lost their SIPC membership, for a variety of reasons. Again, it pays to be vigilant, and to diversify.
Political risk. Americans don't always link politics and financial pressures, except when it comes to oil and gas prices. Yet earlier this decade - I don't have to tell you the date - the financial markets were rocked by an unimaginable human tragedy and a new kind of global threat. The plunge was temporary, and it was a bear market at the time. But the DJIA fell 685 points in a day and 14.26% across the succeeding week.3 These risks, too, make you think about the value of diversification.
Currency risk. Many investors don't incorporate this factor into risk assumptions. But fluctuating exchange rates do present a risk element. If you have stocks in Canada that gain 6% but the Canadian dollar loses 6% of its value relative to the U.S. dollar, so much for that return.
Inflation risk. Inflation - even moderate inflation - effectively reduces your purchasing power over time. This is why growth investing is a priority in retirement.
Bottom line: be diversified. Have many baskets, not one. Speak to a qualified financial professional to examine the financial options before you. There may be many more ways to invest your assets than you realize.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 sipc.org/pdf/SIPC_English_2008.pdf [2008]
2 money.cnn.com/2008/09/15/pf/broker_leak.moneymag/index.htm?postversion=2008091513 [9/15/08]
3 the-privateer.com/chart/dow-long.html [12/31/08]
[Permalink]
Presented by Jacob Warren
Content provided by Peter Montoya, Inc.
When an investor or financial professional thinks about diversification, it is generally with market risk in mind. It's worth remembering that there are other potential risks to your money and diversification can be valuable in helping you cope with them.
Business risk. Even today, there are people who have worked for one company for many years and who own great amounts of corporate stock, perhaps as a significant portion of their 401(k) investments or overall portfolio. Are you one of them? Here's a word for you: Enron. It is risky to link your financial future to the health and viability of one company.
Investment advisor risk. We can be thankful, as investors and as a society, that Bernie Madoff represents an unfortunate aberration in the financial services industry. Financial advisors, investment advisors, money managers - hundreds of thousands of them work by strict legal, ethical, and moral standards. If they don't, they risk losing their livelihoods, or worse. But, very rarely, you do read stories of financial services professionals who have proved charlatans. One way to combat this risk is to check out the advisor. You can do it through the free Broker Check record search offered by the Financial Industry Regulatory Authority (finra.org/brokercheck), and through your state securities administrator. This risk, although thankfully rare, does give one pause to think about the value of having a strong cash position and diversification beyond the standard investment vehicles.
Brokerage risk. At mid-decade, if you had walked around Manhattan saying Lehman Brothers would go bankrupt, few would have paid you any mind. But it happened not just because of the financial climate, but because of decisions management made.
Of course, brokerages only handle your investments; they are prohibited from tapping into your assets or lending them out when they get in a jam. The Securities Investor Protection Corporation protects up to $500,000 of your assets at a brokerage - including stocks, bonds, money market funds, and cash up to $100,000.1 In the 39-year history of the SIPC, just 349 brokerage account holders have failed to get their entire portfolios back.2 But SIPC coverage doesn't cover everything - fixed annuity contracts, commodity futures contracts, and certain investment contracts such as limited partnerships aren't protected.1 Additionally, there have been a few brokerages that have lost their SIPC membership, for a variety of reasons. Again, it pays to be vigilant, and to diversify.
Political risk. Americans don't always link politics and financial pressures, except when it comes to oil and gas prices. Yet earlier this decade - I don't have to tell you the date - the financial markets were rocked by an unimaginable human tragedy and a new kind of global threat. The plunge was temporary, and it was a bear market at the time. But the DJIA fell 685 points in a day and 14.26% across the succeeding week.3 These risks, too, make you think about the value of diversification.
Currency risk. Many investors don't incorporate this factor into risk assumptions. But fluctuating exchange rates do present a risk element. If you have stocks in Canada that gain 6% but the Canadian dollar loses 6% of its value relative to the U.S. dollar, so much for that return.
Inflation risk. Inflation - even moderate inflation - effectively reduces your purchasing power over time. This is why growth investing is a priority in retirement.
Bottom line: be diversified. Have many baskets, not one. Speak to a qualified financial professional to examine the financial options before you. There may be many more ways to invest your assets than you realize.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 sipc.org/pdf/SIPC_English_2008.pdf [2008]
2 money.cnn.com/2008/09/15/pf/broker_leak.moneymag/index.htm?postversion=2008091513 [9/15/08]
3 the-privateer.com/chart/dow-long.html [12/31/08]
[Permalink]
Layoffs, 401(k) Freezes, & 401(k) Rollovers
Wednesday 02/25/2009 - 6:28:36 pm
What do you do when you leave work or your company stops matching?
Presented by Jacob Warren
Content provided by Peter Montoya, Inc.
If you're laid off, what happens to your retirement money? Well, you have three basic choices with your 401(k). One gives you more freedom and control than the other two. You could just leave your 401(k) alone. The money will remain invested, and the financial firm handling your 401(k) will keep mailing you quarterly statements telling you how it is doing. Any future growth will be tax-deferred.1
But this passive choice comes with an opportunity cost. If you just leave the 401(k) assets in the plan, you're giving up control and flexibility. Your investment choices may be limited, the plan fees may be high, and you may not be able to quickly access your money or do what you want with it. If you have a trail of old 401(k)s left with a bunch of former employers, things can get really complicated when you retire, especially when you have to take Required Minimum Distributions (RMDs). Leaving the money in the plan may not be the wisest choice.
You could withdraw the money. This is a terrible choice, a last resort. It comes with a severe financial penalty. You will not get all the money you have invested back, far from it. You will lose 20% of your 401(k) assets to withholding taxes, and if you are under 55 on the day you leave your employer, the IRS will levy an additional 10% penalty for early withdrawal of the assets. By the way, distributions from a 401(k) are considered taxable income, so expect a big tax bill in the year you cash out.1 The federal government does not want to see you wipe out your retirement savings. Neither does your financial professional.
If you really need money, you could consider borrowing from your 401(k). The problem here is that most companies want the loan balance paid off when you leave, whether you leave work by choice or not.
You could roll it over into an IRA. This is the choice that usually makes the most sense. You can move the money into an IRA through a rollover or trustee-to-trustee transfer. Or, you could direct the money into a so-called "conduit IRA," a traditional IRA created to hold your old 401(k) assets until you move the money into another qualified retirement plan. (You can't contribute to a conduit IRA.)2
There's no tax penalty when you do an IRA rollover or trustee-to-trustee transfer. After you do it, you have total control of the money, continued tax-deferred growth, expanded investment choices, and possibly lower account management fees.1
Rolling over the money into a Roth IRA might be a great move, provided you can meet two conditions. First, your adjusted gross income has to be less than $100,000 for the year in which you make the rollover. Second, you'll have to pay taxes on the assets you convert.1 The upside is considerable: you get tax-free compounding, tax-free withdrawals if you are older than age 59, and have owned your account for at least five years, and the potential to make contributions to your IRA after age 70, without having to take RMDs. Contributions to a Roth IRA are not tax-deductible, but there are fewer restrictions on withdrawals.3,4
In 2009, you can fund a Roth IRA with after-tax contributions to a 401(k), 403(b) or 457 retirement savings plan, you can take those contributions and convert them to a Roth IRA tax-free, provided your AGI is $100,000 or lower. There is no limit on the conversion amount. Incidentally, in 2010, anyone can convert a traditional IRA to a Roth IRA, the AGI restriction on such conversions disappears.5
What if you have to shiver through a 401(k) freeze? A "freeze" is when your employer reduces or suspends matching contributions to your retirement plan. FedEx, General Motors and Motorola have all recently chosen to do this.6 The answer: don't let up on your personal contributions. If you can manage it, adjust your 401(k) contribution to a level where you effectively replace what your employer contributed. Saving for retirement should remain one of your highest priorities.
How is your money positioned? How are you invested today? Are you doing things designed to preserve and enhance your retirement money? A chat with a financial professional you trust may give you more confidence and direction for the future.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 articles.moneycentral.msn.com/RetirementandWills/InvestForRetirement/jobless-what-to-do-with-your-401k.aspx [2/13/09]
2 investopedia.com/terms/c/conduitira.asp [2/13/09]
3 fool.com/Money/AllAboutIRAs/allaboutiras03.htm [11/19/08]
4 irs.gov/publications/p590/ch02.html#d0e9236 [11/19/08]
5 kiplinger.com/magazine/archives/2009/01/sweet-deal-on-roth-ira-conversion.html [1/09]
6 biz.yahoo.com/ibd/090102/funds.html?.v=1 [1/2/09]
[Permalink]
Presented by Jacob Warren
Content provided by Peter Montoya, Inc.
If you're laid off, what happens to your retirement money? Well, you have three basic choices with your 401(k). One gives you more freedom and control than the other two. You could just leave your 401(k) alone. The money will remain invested, and the financial firm handling your 401(k) will keep mailing you quarterly statements telling you how it is doing. Any future growth will be tax-deferred.1
But this passive choice comes with an opportunity cost. If you just leave the 401(k) assets in the plan, you're giving up control and flexibility. Your investment choices may be limited, the plan fees may be high, and you may not be able to quickly access your money or do what you want with it. If you have a trail of old 401(k)s left with a bunch of former employers, things can get really complicated when you retire, especially when you have to take Required Minimum Distributions (RMDs). Leaving the money in the plan may not be the wisest choice.
You could withdraw the money. This is a terrible choice, a last resort. It comes with a severe financial penalty. You will not get all the money you have invested back, far from it. You will lose 20% of your 401(k) assets to withholding taxes, and if you are under 55 on the day you leave your employer, the IRS will levy an additional 10% penalty for early withdrawal of the assets. By the way, distributions from a 401(k) are considered taxable income, so expect a big tax bill in the year you cash out.1 The federal government does not want to see you wipe out your retirement savings. Neither does your financial professional.
If you really need money, you could consider borrowing from your 401(k). The problem here is that most companies want the loan balance paid off when you leave, whether you leave work by choice or not.
You could roll it over into an IRA. This is the choice that usually makes the most sense. You can move the money into an IRA through a rollover or trustee-to-trustee transfer. Or, you could direct the money into a so-called "conduit IRA," a traditional IRA created to hold your old 401(k) assets until you move the money into another qualified retirement plan. (You can't contribute to a conduit IRA.)2
There's no tax penalty when you do an IRA rollover or trustee-to-trustee transfer. After you do it, you have total control of the money, continued tax-deferred growth, expanded investment choices, and possibly lower account management fees.1
Rolling over the money into a Roth IRA might be a great move, provided you can meet two conditions. First, your adjusted gross income has to be less than $100,000 for the year in which you make the rollover. Second, you'll have to pay taxes on the assets you convert.1 The upside is considerable: you get tax-free compounding, tax-free withdrawals if you are older than age 59, and have owned your account for at least five years, and the potential to make contributions to your IRA after age 70, without having to take RMDs. Contributions to a Roth IRA are not tax-deductible, but there are fewer restrictions on withdrawals.3,4
In 2009, you can fund a Roth IRA with after-tax contributions to a 401(k), 403(b) or 457 retirement savings plan, you can take those contributions and convert them to a Roth IRA tax-free, provided your AGI is $100,000 or lower. There is no limit on the conversion amount. Incidentally, in 2010, anyone can convert a traditional IRA to a Roth IRA, the AGI restriction on such conversions disappears.5
What if you have to shiver through a 401(k) freeze? A "freeze" is when your employer reduces or suspends matching contributions to your retirement plan. FedEx, General Motors and Motorola have all recently chosen to do this.6 The answer: don't let up on your personal contributions. If you can manage it, adjust your 401(k) contribution to a level where you effectively replace what your employer contributed. Saving for retirement should remain one of your highest priorities.
How is your money positioned? How are you invested today? Are you doing things designed to preserve and enhance your retirement money? A chat with a financial professional you trust may give you more confidence and direction for the future.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 articles.moneycentral.msn.com/RetirementandWills/InvestForRetirement/jobless-what-to-do-with-your-401k.aspx [2/13/09]
2 investopedia.com/terms/c/conduitira.asp [2/13/09]
3 fool.com/Money/AllAboutIRAs/allaboutiras03.htm [11/19/08]
4 irs.gov/publications/p590/ch02.html#d0e9236 [11/19/08]
5 kiplinger.com/magazine/archives/2009/01/sweet-deal-on-roth-ira-conversion.html [1/09]
6 biz.yahoo.com/ibd/090102/funds.html?.v=1 [1/2/09]
[Permalink]
Roth IRA Conversions in a Down Market
Tuesday 02/24/2009 - 6:26:34 pm
Presented by Jacob Warren
Content provided by Peter Montoya, Inc.
Is it time for a break, that is, a tax break? With the stock market down 25-40% from its fall 2007 highs, it's certainly a time to consider converting your traditional IRA to a Roth IRA, especially if you're not planning on retiring soon. You will pay a one-time tax on the conversion, but with the market down, that tax will be less than you would have paid last year. As a result of the conversion, you will have more flexibility with your money when you are ready to use it.
The pros of a Roth conversion. A Roth IRA gives you two huge benefits: tax-free growth and tax-free income distributions in retirement (providing you are age 59 or older and have held your Roth IRA account for 5 or more years).1 Additionally, you can still contribute to a Roth IRA after age 70 - and you don't have to take mandatory withdrawals from it.2 These facts alone might motivate you, especially if you are in your thirties or forties.
A Roth IRA conversion can also be useful for older investors who don't need their IRA assets. If you don't think you'll need to tap your IRA, you might consider doing a Roth conversion and leaving the Roth IRA to your heirs. Untouched, the Roth IRA assets can keep compounding tax-free across the rest of your life (and subsequently, the rest of your surviving spouse's life). Another advantage: converting that untapped traditional IRA to a Roth will reduce your taxable estate.3
All 2008 Roth IRA conversions, by the way, will have a 1/1/08 start date, so you get the full year credit toward the 5+ years you need to own the account before taking income distributions.4
The cons of a Roth conversion. On the downside, the conversion does trigger a tax, and you'll need the money to pay it. You will pay tax on any earnings and pretax contributions in lieu of paying taxes upon subsequent withdrawals from the Roth IRA.
Don't think about using your current IRA assets to pay the conversion tax if you're younger than 59, you're looking at a 10% penalty on the amount you withdraw, and you'll throw away the chance for tax-free Roth IRA compounding of those assets. (If the amount you want to convert might send you into a higher tax bracket, you could simply do a partial Roth IRA conversion.)
You also don't want to do this if you think you'll drop into a much lower tax bracket when you retire. For example, if you're in the 25% federal tax bracket now and the numbers seem to indicate you'll be moving into the 15% bracket after you retire, you'll be paying income tax on the conversion at your current 25% rate. If you're moving down only a handful of percentage points (from, say, the 28% bracket to the 25% bracket), then it's a different story.
For the record, contributions to a Roth IRA aren't tax-deductible.2
Do you qualify for a Roth conversion? You can make the conversion if your modified adjusted gross income (MAGI) is less than $100,000 in the year you convert the IRA. By the way, that includes income that would result from the conversion.1
The income limits determining eligibility for Roth IRA contributions are higher than $100,000 - for 2008, eligibility is phased out between MAGI of $159,000 and $169,000 for joint filers and between $101,000 and $116,000 for singles.5
How about a recharacterization? Okay, if you're a glass-half-empty type who thinks the market will go lower in coming quarters, you could opt to convert your traditional IRA to a Roth sometime in the remainder of 2008 and then reverse (or "re-characterize") the decision prior to Oct. 15, 2009. If you recharacterize, you will get the taxes back that you paid on the Roth conversion.6
The deadline & timeline. You need to withdraw funds from your IRA before 2009 to make sure a conversion counts as a 2008 Roth conversion. After that, you have 60 days to make the rollover.4
Talk to your CPA or tax advisor before you make a move. Keep in mind that the tax code isn't exactly set in stone right now, and who knows what will happen with parts of the tax code after 2010. So consult your CPA or tax advisor before arranging any rollover, trustee-to-trustee transfer, or same-trustee transfer of your IRA assets.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 smartmoney.com/personal-finance/retirement/roth-iras-you-wanted-to-know-7967/ [1/9/08]
2 irs.gov/publications/p590/ch02.html#d0e9214 [10/31/08]
3 smartmoney.com/personal-finance/retirement/roth-iras-to-convert-or-not-7965/ [1/10/08]
4 marketwatch.com/news/story/ira-savers-dont-have-wait/story.aspx?guid={A300B5D3-200C-4312-93CA-3B81B4170A9C}&dist=msr_1 [10/30/08]
5 irs.gov/publications/p590/ch02.html#d0e9252 [10/31/08]
6 marketwatch.com/news/story/ira-savers-dont-have-wait/story.aspx?guid={A300B5D3-200C-4312-93CA-3B81B4170A9C}&dist=msr_1 [10/30/08]
[Permalink]
Content provided by Peter Montoya, Inc.
Is it time for a break, that is, a tax break? With the stock market down 25-40% from its fall 2007 highs, it's certainly a time to consider converting your traditional IRA to a Roth IRA, especially if you're not planning on retiring soon. You will pay a one-time tax on the conversion, but with the market down, that tax will be less than you would have paid last year. As a result of the conversion, you will have more flexibility with your money when you are ready to use it.
The pros of a Roth conversion. A Roth IRA gives you two huge benefits: tax-free growth and tax-free income distributions in retirement (providing you are age 59 or older and have held your Roth IRA account for 5 or more years).1 Additionally, you can still contribute to a Roth IRA after age 70 - and you don't have to take mandatory withdrawals from it.2 These facts alone might motivate you, especially if you are in your thirties or forties.
A Roth IRA conversion can also be useful for older investors who don't need their IRA assets. If you don't think you'll need to tap your IRA, you might consider doing a Roth conversion and leaving the Roth IRA to your heirs. Untouched, the Roth IRA assets can keep compounding tax-free across the rest of your life (and subsequently, the rest of your surviving spouse's life). Another advantage: converting that untapped traditional IRA to a Roth will reduce your taxable estate.3
All 2008 Roth IRA conversions, by the way, will have a 1/1/08 start date, so you get the full year credit toward the 5+ years you need to own the account before taking income distributions.4
The cons of a Roth conversion. On the downside, the conversion does trigger a tax, and you'll need the money to pay it. You will pay tax on any earnings and pretax contributions in lieu of paying taxes upon subsequent withdrawals from the Roth IRA.
Don't think about using your current IRA assets to pay the conversion tax if you're younger than 59, you're looking at a 10% penalty on the amount you withdraw, and you'll throw away the chance for tax-free Roth IRA compounding of those assets. (If the amount you want to convert might send you into a higher tax bracket, you could simply do a partial Roth IRA conversion.)
You also don't want to do this if you think you'll drop into a much lower tax bracket when you retire. For example, if you're in the 25% federal tax bracket now and the numbers seem to indicate you'll be moving into the 15% bracket after you retire, you'll be paying income tax on the conversion at your current 25% rate. If you're moving down only a handful of percentage points (from, say, the 28% bracket to the 25% bracket), then it's a different story.
For the record, contributions to a Roth IRA aren't tax-deductible.2
Do you qualify for a Roth conversion? You can make the conversion if your modified adjusted gross income (MAGI) is less than $100,000 in the year you convert the IRA. By the way, that includes income that would result from the conversion.1
The income limits determining eligibility for Roth IRA contributions are higher than $100,000 - for 2008, eligibility is phased out between MAGI of $159,000 and $169,000 for joint filers and between $101,000 and $116,000 for singles.5
How about a recharacterization? Okay, if you're a glass-half-empty type who thinks the market will go lower in coming quarters, you could opt to convert your traditional IRA to a Roth sometime in the remainder of 2008 and then reverse (or "re-characterize") the decision prior to Oct. 15, 2009. If you recharacterize, you will get the taxes back that you paid on the Roth conversion.6
The deadline & timeline. You need to withdraw funds from your IRA before 2009 to make sure a conversion counts as a 2008 Roth conversion. After that, you have 60 days to make the rollover.4
Talk to your CPA or tax advisor before you make a move. Keep in mind that the tax code isn't exactly set in stone right now, and who knows what will happen with parts of the tax code after 2010. So consult your CPA or tax advisor before arranging any rollover, trustee-to-trustee transfer, or same-trustee transfer of your IRA assets.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 smartmoney.com/personal-finance/retirement/roth-iras-you-wanted-to-know-7967/ [1/9/08]
2 irs.gov/publications/p590/ch02.html#d0e9214 [10/31/08]
3 smartmoney.com/personal-finance/retirement/roth-iras-to-convert-or-not-7965/ [1/10/08]
4 marketwatch.com/news/story/ira-savers-dont-have-wait/story.aspx?guid={A300B5D3-200C-4312-93CA-3B81B4170A9C}&dist=msr_1 [10/30/08]
5 irs.gov/publications/p590/ch02.html#d0e9252 [10/31/08]
6 marketwatch.com/news/story/ira-savers-dont-have-wait/story.aspx?guid={A300B5D3-200C-4312-93CA-3B81B4170A9C}&dist=msr_1 [10/30/08]
[Permalink]
An Investor's Best Friend
Friday 02/20/2009 - 6:25:25 pm
Meet diversification, patience and consistency.
Presented by Jacob Warren
Content provided by Peter Montoya, Inc.
Any investor would do well to call on three friends during the course of his or her financial life: diversification, patience and consistency. Regardless of how the markets perform, they should be a part of your investment philosophy.
Diversification. The saying "don't put all your eggs in one basket" has real value when it comes to investing. In a bear market, certain asset classes may perform better than others. Ditto for a bull market. If your assets are mostly held in one kind of investment (say, mostly in mutual funds, or mostly in CDs or money market accounts), you could be hit hard by stock market losses, or alternately lose out on potential gains that other kinds of investments may be experiencing. So there is an opportunity cost as well as risk.
This is why asset allocation strategies are used in portfolio management. A financial advisor can ask you about your goals and tolerance for risk and assign percentages of your assets to different classes of investments. This diversification is designed to suit your preferred investment style and your objectives.
Patience. Impatient investors obsess on the day-to-day doings of the stock market. Have you ever heard of "stock picking"? How about "day trading"? These are all attempts to exploit short-term fluctuations in value. These investing methods might seem fun and exciting if you like to micromanage, but they will add stress and anxiety to your life, and they are a poor alternative to a long-range investment strategy built around your life goals.
Consistency. Most people invest a little at a time, within their budget, and with regularity. They invest $50 or $100 or more per month in their 401(k) and similar investments through payroll deduction or automatic withdrawal. In essence, they are investing on "autopilot" to help themselves build wealth for retirement and for long-range goals. Investing regularly (and earlier in life) helps you to take advantage of the power of compounding as well.
Are diversification, patience and consistency part of your investing approach? Make sure they are. If you don't have a long-range investment strategy, talk to a qualified financial advisor today.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
[Permalink]
Presented by Jacob Warren
Content provided by Peter Montoya, Inc.
Any investor would do well to call on three friends during the course of his or her financial life: diversification, patience and consistency. Regardless of how the markets perform, they should be a part of your investment philosophy.
Diversification. The saying "don't put all your eggs in one basket" has real value when it comes to investing. In a bear market, certain asset classes may perform better than others. Ditto for a bull market. If your assets are mostly held in one kind of investment (say, mostly in mutual funds, or mostly in CDs or money market accounts), you could be hit hard by stock market losses, or alternately lose out on potential gains that other kinds of investments may be experiencing. So there is an opportunity cost as well as risk.
This is why asset allocation strategies are used in portfolio management. A financial advisor can ask you about your goals and tolerance for risk and assign percentages of your assets to different classes of investments. This diversification is designed to suit your preferred investment style and your objectives.
Patience. Impatient investors obsess on the day-to-day doings of the stock market. Have you ever heard of "stock picking"? How about "day trading"? These are all attempts to exploit short-term fluctuations in value. These investing methods might seem fun and exciting if you like to micromanage, but they will add stress and anxiety to your life, and they are a poor alternative to a long-range investment strategy built around your life goals.
Consistency. Most people invest a little at a time, within their budget, and with regularity. They invest $50 or $100 or more per month in their 401(k) and similar investments through payroll deduction or automatic withdrawal. In essence, they are investing on "autopilot" to help themselves build wealth for retirement and for long-range goals. Investing regularly (and earlier in life) helps you to take advantage of the power of compounding as well.
Are diversification, patience and consistency part of your investing approach? Make sure they are. If you don't have a long-range investment strategy, talk to a qualified financial advisor today.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
[Permalink]
Four Words You Shouldn't Believe
Thursday 02/19/2009 - 6:23:47 pm
These are the words that make investors irrational.
presented by Jacob Warren
content provided by Peter Montoya, Inc.
"This time is different." Beware those four little words. They are perhaps the most dangerous words an investor can believe in. If you believe "this time is different," you are mentally positioning yourself to exit the stock market and make impulsive, short-sighted decisions with your money. This is the belief that has made too many investors miss out on the best market days, and scramble to catch up with stock market recoveries.
Stock market investing is a long-term proposition which is true for most forms of investing. Any form of long-range investing requires a certain temperament. You must be patient, you must be dedicated to realizing your objectives, and you can't let short-term headlines deter you from your long-term quest.
But wait - isn't this time different? Well, it is unusual. We are seeing a level of government intervention in the financial markets that we haven't seen since the 1930s. We've also seen banks, insurers and brokerages seized or rescued. So when headlines say "bank failure" and "government bailout", and media outlets conduct "man on the street" interviews, you are going to get a sound byte or two of someone - not an economist - wondering aloud about a second Great Depression. (In every recession, some news story inevitably appears weighing how the current economic situation stacks up against the 1930s.)
But you know what? This time is different. Today, the federal government is able to intervene in the financial markets in a way it couldn't then. When the Bank of the United States (one of the bigger private banks of that time) collapsed in 1930, the Federal Reserve lacked the power to rescue it. It was an event that gravely wounded the banking system and aggravated the Depression.1
Today, by contrast, the U.S. government has pulled out all the stops. You have $700+ billion assigned to mop up bad debt and ease a credit squeeze. You have the Treasury taking stakes in banks and the Fed issuing loans and helping to engineer bank mergers. You have economic stimulus packages and federal government efforts to stem foreclosures. Yes, this is different - and welcome.
What happens when investors believe those four little words? It's called panic. In early October, we all saw it. And yes, the potential for panic still exists - witness the morning of October 24, when index futures declined so fast that "circuit breakers" had to be enacted to halt selling on Wall Street.2
The silver lining here is that recently, the market has begun to move in response to standard indicators again - earnings reports, economic releases from the federal government, news from the housing sector, etc. - rather than fear. The news hasn't been great, but investors have shifted their attention from credit market concerns (inspiring panic) to economic concerns (resulting in more predictable behavior).
Look at the good news we're getting. No kidding, there really is some. As of Friday, the overnight LIBOR rate (the interest rate banks charge each other for loans) was 1.28% - below the benchmark U.S. interest rate of 1.5%, well below the high of 4.82% reached on October 10.3 Existing home sales increased 5.5% in September, as a result of a buyer's market - and by the way, year-over-year sales were up 1.4%.4 The average rate on a 30-year fixed mortgage fell to 6.04% this week, down from 6.46% last week.5 Remember when oil prices were $147 a barrel? On October 24, they settled at $64.22 per barrel (56% lower).6 The Treasury Department may soon move to shore up more than 20 financial companies through cash injections, according to Bloomberg; PNC Financial Services Group announced Friday that it would use Treasury funds to buy National City Corporation, effectively creating one of the larger banks in the U.S.7
This is the time to stay in the market. Withdrawing money from a retirement savings account (and the investment funds within it) might feel rational in the short term, but it can be hazardous for the long term - especially since many Americans haven't saved enough for retirement to start with. We're looking at a turbulent stock market right now, and the market may fall a bit further before a recovery builds momentum. The key is to remember that a recession is a few quarters long, not the length of your retirement. If you have questions about your money, turn to the financial professional you count on as a resource.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
[Permalink]
presented by Jacob Warren
content provided by Peter Montoya, Inc.
"This time is different." Beware those four little words. They are perhaps the most dangerous words an investor can believe in. If you believe "this time is different," you are mentally positioning yourself to exit the stock market and make impulsive, short-sighted decisions with your money. This is the belief that has made too many investors miss out on the best market days, and scramble to catch up with stock market recoveries.
Stock market investing is a long-term proposition which is true for most forms of investing. Any form of long-range investing requires a certain temperament. You must be patient, you must be dedicated to realizing your objectives, and you can't let short-term headlines deter you from your long-term quest.
But wait - isn't this time different? Well, it is unusual. We are seeing a level of government intervention in the financial markets that we haven't seen since the 1930s. We've also seen banks, insurers and brokerages seized or rescued. So when headlines say "bank failure" and "government bailout", and media outlets conduct "man on the street" interviews, you are going to get a sound byte or two of someone - not an economist - wondering aloud about a second Great Depression. (In every recession, some news story inevitably appears weighing how the current economic situation stacks up against the 1930s.)
But you know what? This time is different. Today, the federal government is able to intervene in the financial markets in a way it couldn't then. When the Bank of the United States (one of the bigger private banks of that time) collapsed in 1930, the Federal Reserve lacked the power to rescue it. It was an event that gravely wounded the banking system and aggravated the Depression.1
Today, by contrast, the U.S. government has pulled out all the stops. You have $700+ billion assigned to mop up bad debt and ease a credit squeeze. You have the Treasury taking stakes in banks and the Fed issuing loans and helping to engineer bank mergers. You have economic stimulus packages and federal government efforts to stem foreclosures. Yes, this is different - and welcome.
What happens when investors believe those four little words? It's called panic. In early October, we all saw it. And yes, the potential for panic still exists - witness the morning of October 24, when index futures declined so fast that "circuit breakers" had to be enacted to halt selling on Wall Street.2
The silver lining here is that recently, the market has begun to move in response to standard indicators again - earnings reports, economic releases from the federal government, news from the housing sector, etc. - rather than fear. The news hasn't been great, but investors have shifted their attention from credit market concerns (inspiring panic) to economic concerns (resulting in more predictable behavior).
Look at the good news we're getting. No kidding, there really is some. As of Friday, the overnight LIBOR rate (the interest rate banks charge each other for loans) was 1.28% - below the benchmark U.S. interest rate of 1.5%, well below the high of 4.82% reached on October 10.3 Existing home sales increased 5.5% in September, as a result of a buyer's market - and by the way, year-over-year sales were up 1.4%.4 The average rate on a 30-year fixed mortgage fell to 6.04% this week, down from 6.46% last week.5 Remember when oil prices were $147 a barrel? On October 24, they settled at $64.22 per barrel (56% lower).6 The Treasury Department may soon move to shore up more than 20 financial companies through cash injections, according to Bloomberg; PNC Financial Services Group announced Friday that it would use Treasury funds to buy National City Corporation, effectively creating one of the larger banks in the U.S.7
This is the time to stay in the market. Withdrawing money from a retirement savings account (and the investment funds within it) might feel rational in the short term, but it can be hazardous for the long term - especially since many Americans haven't saved enough for retirement to start with. We're looking at a turbulent stock market right now, and the market may fall a bit further before a recovery builds momentum. The key is to remember that a recession is a few quarters long, not the length of your retirement. If you have questions about your money, turn to the financial professional you count on as a resource.
Jacob Warren
Warren Wealth Management
2300 Main Street, Suite 947
Kansas City, MO 64108
(816) 286-1810
-------------------------------------------------------------------------------
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
[Permalink]
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