Author: Dr. Daniel Levine

What Is Your Portfolio’s REAL Return?

To maximize investment growth over time, it’s critical to factor in the effects of fees, taxes and inflation on your returns. Many posted investment returns explicitly exclude the effects of fees, which come right off the top of each year’s gains. It’s important to dig deeper and find out how much that performance is costing you each year so you can decide which investments will serve you best. Taxes can also take a serious bite out of your investment gains each year so it’s important to structure your investments to account for taxes on capital gains, dividends, and income. Taxes should not be the primary driver of an investment strategy, but incorporating tax efficiency into your overall plan will help you keep more of what you earn. If taxes are a problem for you, structuring your investments so that taxable investments can grow in a tax-deferred account may be an option. Synergy Financial Advisors can help you with this. Inflation, which is the erosion of your purchasing power over time from increases in the cost of goods, is another insidious force that can eat away at investment growth each year. An investment strategy that fails to account for the effects of fees, taxes and inflation on overall return will severely handicap your ability to increase your wealth over time because if you do not build these factors into your...

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Know the Right Amount of Risk

Wise investors focus on value when evaluating investment options. Too many investors focus on buying market trends and economic outlook, not realizing that trends can be deceiving and markets often perform very differently from the economy. Individual stocks can easily surprise you – rising in a down market, and falling during a rally – making it important for long-term investors to focus on buying quality investments with good fundamentals. While economic trends can exert a powerful effect on market movements, the stock market and the economy do not move with perfect correlation and there are many occasions in which markets rally in spite of poor economic fundamentals or declining corporate earnings. This is not to say that economic outlook is unimportant. A smart investor keeps an eye on the economy and factors economic outlook into investment decisions, but ultimately seeks high-quality individual investments. Investors do best when they take on the right amount of risk for their individual goals and tolerance. Too many investors focus strictly on generating returns while ignoring the importance of managing risk properly. Too much risk can leave your nest egg vulnerable to market swings with too little time to recover before you must start withdrawing money and locking in the losses. Too little risk in your portfolio will reduce your potential for capital appreciation and allow inflation to eat away at the long-term value...

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Wish Your 401(k) Was Bigger?

The secret is consistent saving. By starting your savings early and regularly adding to your investment, your results will be spectacular. The Data Is In Based on data from Fidelity Investment, the 547,000 401(k) account holders who maintained their 401(k) with the same employer since 2001 presently have an average account balance of just over $331,000, up from an average of $43,900 fifteen years ago. Now, compare their success with the investment results of the entire group of Fidelity Investment’s 14.5 million 401(k) account holders whose average account is only $90,600. Clearly, this $240,400 difference makes the case for early and steady retirement investment. “The lesson is to get in when you start your career and save over time,” says Jeanne Thompson, one of Fidelity Investment’s senior VPs who tracks 401(k) trends. “The market and your contributions together will drive the growth.”   Even More Data The Investment Company Institute and the Employee Benefit Research Institute reported similar findings in their study, What Does Consistent Participation in 401(k) Plans Generate? (EBRI Issue Brief #426, September 2016.) Their results concluded that consistent contributions are the essential key to building a large 401(k). Their study researched 3.5 million 401(k) account holders who held 401(k) accounts for a seven-year period, from the end of 2007 through the end of 2014. The group that consistently contributed to their account achieved much higher results...

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Buy-Sell Agreement: Calamity or Certainty?

Is there a way to protect your business from the effects of the death, disability, or divorce of a co-owner? When you went into business with a co-owner or co-owners, you entered into a legal arrangement that combined your resources and skill sets…and also, to some degree, your fortunes and misfortunes. We can’t always plan for the surprises that lie on our life’s path, but there is a brilliant legal tool which can help your business avoid disruption when calamity strikes your life, or the life of one of your co-owners. A buy-sell agreement performs three essential functions with efficiency when disaster strikes: Identifies how the departing co-owner’s interest in the business will be reassigned; Converts the ownership interest into a liquid asset for easy transference; Resolves legal inquiry about the true dollar value of your business. Let’s consider each: Reassignment of a co-owner’s interest: When a co-owner leaves the business for whatever reason, a decision must be made about the redistribution of the co-owner’s share. The interest may be divided equitably or by percentage among the remaining co-owners, or it may be transferred to the co-owner’s heirs, or it could be offered for purchase to a third-party. Unless you like thrills and chills, knowing what will happen to the co-owner’s interest will go a long way toward relieving anxieties! Establishing the liquidity of the business interest: When the...

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Synergy: Holding Real Estate in Your IRA: Limited Liability Companies, Part 4 of 4

The limited liability company is another flexible option if your IRA does not provide sufficient funds for the purchase, and neither loans nor tenancy-in-common ownership provides a solution for which you are looking. I am going to skip the long version of what an LLC is and leave that to your attorney, but, briefly defined, an LLC is a form of business entity that offers both limited liability for its owners and certain tax benefits. When using LLCs, it is similar to investing in a real estate investment trust (REIT) in that your IRA may be invested in limited interests which is kind of like investing in shares of stock. The difference here is that LLCs are private, and there are usually only a few investors that are limited members and a developer that is the managing member. Here is one way an LLC may be used. You know a developer who is getting ready to start a new project in your local area. He has used $1,000,000 of his own money to purchase the land and now is trying to raise capital to develop the property. Once the project is finished and the condos are sold, he expects to realize a large profit. He is willing to give up some of his profit in exchange for the needed capital. The name of his company is ABC Construction Company,...

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