Start Your Estate Plan with These 4 Tips

One area many investors overlook is estate planning. Proper estate planning is an essential component of your financial plan because it can help your loved ones avoid a difficult and expensive process once you pass away. Here are four easy steps to help you plan for the distribution of your assets by creating and maintaining an estate plan that provides your heirs with financial confidence.
1. Make an Inventory
Before you can make a plan, you have to know exactly what you have. Take some time to document your holdings. This will include your home, other real estate you may own, vehicles, jewelry, and any other personal property that has monetary value. Make a list of your bank, brokerage, and retirement accounts, noting the funds held by each. Also document all insurance policies, and note their cash values and death benefits. It’s also important to list all your liabilities, such as mortgages and any lines of credit or other debt that needs to be resolved.
2. Conceptualize Your Plan
It’s always best to work with an experienced professional such as a financial planner or attorney. Be prepared for your first meeting by knowing the answers to these important questions:
a. If you become incapacitated or pass away, who do you want to manage your estate or its distribution?
b. Who do you select as your heir or heirs, and what do you want them to receive?
c. How would you care for your minor children, if applicable?
3. Create Your Plan
Your financial advisor or attorney will draft an estate plan that incorporates your information and is in accordance with state and federal law. Your plan will include a will that assigns how your assets will be distributed after you pass away, and will include powers of attorney documents that specify who will make financial and health decisions if you are unable.
You and your financial advisor or attorney should also conduct a professional review to make sure your paperwork is updated, and your investment account beneficiary designations properly identify your intentions.
4. Review and Modify Your Plan Periodically
Because circumstances change, your estate plan should be reviewed at least once a year as you acquire or divest assets, or as your beneficiaries increase or change. The key purpose is to make sure your estate plan truly reflects your intentions. You may purchase new property, or sell property you’ve owned, and as time goes by your family may be affected by births, deaths, marriages and divorces. Remember also that tax laws evolve and you may need to adjust your plan to accommodate these changes.
A good estate plan is likely to reassure you and your loved ones that the wealth you’ve gathered over the course of your lifetime will be properly distributed to support the people or organizations you feel deserve your final support.
We hope this article about estate planning was informative. Synergy Financial Management can help with developing and managing your estate plan, and with a variety of other financial planning services. Please contact us so we can discuss ways to increase and protect your personal wealth, and enhance your retirement. Thank you!
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
Synergy Financial Management, LLC
701 Fifth Avenue Suite 3520
Seattle, Washington  98104
ph: 206.386.5455
fx: 206.386-5452
www.sfmadvisors.com

The Blueprint for Your Investment Success

Being a successful investor is not an easy accomplishment, requiring knowledge, experience, and the wisdom to know when to enter a trade, how the trade will affect the rest of your portfolio, and when to exit. This is simplistic, of course, but one sign of a successful investor is having a plan of what to do and when. Plans that achieve the best results have an underlying structure. We call this the Investment Policy Statement.

Imagine yourself building a house without a set of blueprints. On a section of barren land you would dig a foundation for a house whose square footage you didn’t know, pour concrete and set studs for the wooden framework you haven’t designed, add walls with windows and doors … all according to a mental plan in your head. Can it be done? Yes, but can it be done well? Would results be more compatible if you had first created blueprints?
Similarly, investing your financial resources can be greatly expedited and more secure once you’ve developed your investment policy statement (IPS). The main purpose of your IPS is to help serve your financial analysis process with a specific set of rules that guide your decision-making. Here are the components of a good investment policy statement:
1. Identify the person responsible for creating the investment policy, executing the policy, monitoring the policy’s results, and making changes as necessary. This could be you or your financial advisor.
2. Describe your investment philosophy. You may choose to invest conservatively, moderately, aggressively, or some combination based on a weighting of asset allocation. Your investment philosophy guides you with identifying your current situation, determining your goals, and measuring the gap between. This is sometimes referred to as a “GAP” analysis.
3. State your investment objective as a monetary sum. Most investors want to acquire as much as they can, but this does not lead to a carefully organized and measured plan of growth. It’s much better to know at the outset the amount of money you need so you can structure the steady advance of your investments toward an achievable goal. Most investors want sufficient wealth for a comfortable retirement lifestyle. If you’re not certain what your retirement lifestyle will be, now is a good time to consult with an advisor to figure this out.
4. State your return objective. Your return objective is the amount of return you must earn annually on your investment to achieve your investment goal. Known as the required rate of return (RRR), this return rate is different for everyone. You might need to earn 5% to achieve your investment goal over a 20-year period, or you might need 9% over the 20 years. Consulting with your financial planner should provide you with a rate of return that is reasonable and protects you from undue risk.
5. State your risk objectives. Every investment carries risk, and knowing how much risk you can accept is an important part of building your portfolio. Your financial advisor can help you diversify your vulnerability among assets that have a likelihood of achieving your return objective.
6. Examine your constraints. The amount of time you have to invest before retiring is an important variable, as are the impact of taxes, inflation, and investment fees on your wealth accumulation. Again, your financial advisor can assist you with identifying constraints and planning for them.
Clearly, having an investment policy statement as the underlying structure and plan of action for selecting, managing, and exiting investments brings structure to the steady acquisition of wealth and serves as a neutral guide for making decisions about your investments, keeping you emotionally impartial during storms so your investment decisions for entry and exit are based on previously approved decision points and not the caprice of fear and greed.
We hope this article about creating an investment policy statement was informative. Synergy Financial Management can assist with developing and managing your IPS so you achieve your financial goals as quickly and safely as possible.
Please contact us so we can discuss ways to increase your personal wealth and enhance your retirement. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

701 Fifth Avenue Suite 3520

Seattle, Washington 98104

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

Eye On Retirement? Focus On Your Exit Plan!

If you’re thinking about someday selling your business, as most owners are, you need to plan ahead and start your process early. It often takes a long time to find the right buyer for your business.

You should always be thinking about exit planning. Some owners think they can sell their business within a few months, but the chance of that happening would be miraculous. Other business owners think a 3 – 5 year window is a reasonable range of time to plan the exit of their business, but this is also very shortsighted. What’s even more astonishing is that about 70% of business owners surveyed do not have an exit plan.
Instead of getting a sales check, business owners may be getting a reality check.
As early as possible, business owners should begin picturing exactly what they want when it comes time to exit their business. Do they plan to close their business, sell it to a third-party, sell it to an insider, or stay in business part-time or remain as an advisor? Owners should also bring together their team of professionals…their accountant, attorney, and business broker, quarterbacked by their financial planner, to make sure everyone is focused on the same outcome.
If you want to sell your business, you should be looking to maximize the value of your business years ahead…in fact, as soon as you purchase or start your new business. Time is your ally, giving you the opportunity to build and shape your business for sale.
Just as a homeowner tries to optimize the value of their home by adding an extra bedroom, or putting on a new roof, installing a few windows or building a deck near the flower garden, so also should you be developing the facets of your business by adding to your product line, increasing sales, building goodwill, etc., so more value is constantly being created.
Remember that the marketplace will assess the true value of your business according to legal standards of value that can be represented and reviewed in a court of law, so having your business assessed through the process of a business valuation is a serious event. You may think you know the value of your business through your own estimations of EBITDA or other arbitrary assumptions, but the market will rely on the official valuation of your business’s worth.
Rather than be severely surprised by a dismal valuation, it will pay you royally to know ahead of time how the market will weigh the worth of your business so you can prepare now, with years you can use, to build your business in ways the market will appreciate and reward.
It is also always a good time to begin identifying possible buyers because the sooner you begin, the more likely you are to find one! With Baby Boomers turning 65 at the rate of 250,000 per month, many businesses will go unsold and simply shutter because there is a lack of buyers and a lack of salable businesses. As a business owner, your future buyer could be very close by, and you might think about nurturing your relationship with an interested family member, an employee, a customer, a vendor, or even a nearby competitor who may wish to expand their market reach. Finding a buyer takes a lot longer than most owners realize, and the process of selling your business is more complicated than selling your home, especially when selling a larger business.
Remember to start your exit planning process immediately so you can use time to your advantage and have the opportunity to build your business in ways the market values. Having an exit plan is essential to good business practices so you can create the future you want through clear and careful planning that helps you transition out of your business with less anxiety and a lot more money.
We hope this article about exit planning was informative. Synergy Financial Management can help with developing, managing and achieving your exit plan goals and the sale of your business. Please contact us so we can discuss ways to increase your personal wealth and enhance your retirement. Thank you!
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
Synergy Financial Management, LLC
701 Fifth Avenue Suite 3520
Seattle, Washington   98104
ph: 206.386.5455
fx: 206.386-5452
www.sfmadvisors.com

 https://www.cnbc.com/2015/04/13/ew-small-biz-have-an-exit-plan.html 

4 Important Retirement Savings Tips for Women

Women face additional challenges when planning for retirement. By being aware of these concerns, women can take steps to overcome them.

1. Longer Retirement

Women usually have a longer retirement than men because they outlive their husbands by about five years, according to the National Center for Health. This means women must save more because they will have more years in retirement due to their increased lifespans.

As people age, they typically reduce the ratio of stocks to bonds in their investments; women should discuss with their financial advisor how much of their resources should stay in stock investments during retirement to diminish the effect of inflation.

2. A Woman’s Retirement Is More Expensive

Because women live longer, it is wise to expect higher expenses such as additional medical costs, or the increased possibility of having to stay in a nursing home, an assisted living community, or employing home-care which can be very expensive. While Medicare may cover some of these expenses, now is a good time to look into long-term care insurance or other forms of insurance protection.

3. Women Earn Less so They Must Save More

It is well-known that women do not earn as much as their male counterparts. According to the U.S. Census Bureau, a woman earns about 80 cents for every $1 a man earns. In addition, women sometimes miss some of their working years caring for children. This significant discrepancy in earnings translates to less savings. Women can, however, catch up by increasing their contributions to their 401(k) and using automatic deposits from their paychecks. Contributing additional funds to an IRA is another way to speed up savings.

4. Social Security Contributions Are Less

Since women earn less with smaller salaries and less years in the workplace, their SS contributions are also smaller. The Social Security Administration reported in 2015 that women average approximately 20% less in social security benefits than men. Care must be taken when planning Social Security payouts so these benefits can be maximized. If possible, this planning should be done in conjunction with their spouse so survivor benefits can be coordinated to the best advantage.

We hope this article about retirement tips for women was informative. Synergy Financial Management can help with your retirement planning…please contact us so we can discuss ways to increase your personal wealth and enhance your retirement. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

701 Fifth Avenue Suite 3520

Seattle, Washington   98104

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

Are Financial Advisors Worth the Money?

Low-fee investing can be a two-edged sword because while no one likes to pay fees that compromise their portfolio’s continued growth, there is also wisdom with having an experienced and trained financial advisor. The money you spend in fees could very well result in returns that replace your good investments with great investments and change your retirement lifestyle from sufficient to comfortable.
When it comes to deciding whether or not to hire a financial advisor, there are two main factors to consider.

1. First, you have to decide on the kind of financial advice you need.
Research shows that advisors can add value in two different ways: they can be very helpful with managing your investments, and they can provide expertise with financial planning. Of course, the value of these benefits depends largely on each investor’s individual situation, experience, and knowledge.  The quality of the advisor you select is critical because there are a wide range of abilities, qualifications, and costs.

 

 

Working with an investment advisor makes sense if any of these fit your circumstances:
·         You have a large amount of money in your investment portfolio
·         Your finances are complicated in the areas of retirement, taxes, and estate issues
·         You lack a sophisticated knowledge of investing
·         Your time is limited or you prefer to spend your time on other tasks and pleasures
2. Secondly, you must measure the value of the financial advice you’re receiving.
There is a wide variety of ability among financial advisors, and you will have to identify the difference between poor advice, mediocre advice, and good advice. Experience, training, and knowledge vary greatly, and the expertise of financial advisors may range from mutual fund salespeople with minimal qualifications to highly-trained experts with advanced designations such as certified financial planner (CFP) and chartered financial analyst (CFA).
Should you choose to be a do-it-yourself investor you will need to have, at the minimum, basic investment knowledge and a strong sense of confidence in being your own resource. You will have to be fairly well-read with asset allocation and know how to conduct periodic portfolio rebalancing, and you will need to have the time to regularly review and manage your investments. Having convictions for staying the course when markets are moving rapidly up and down is also a necessity because vacating your investment positions prematurely could have a significantly deleterious effect on your long-term returns.
As a do-it-yourself investor choosing a passive investment approach, you’ll need to be able to select individual ETFs to satisfy the requirements of your asset allocations. You will also need to know how to select the investment strategies that will work best for your future, such as “value” or “momentum” ETFs, and be aware of avoiding investments in fads or opportunities too risky for wealth preservation.
If your investing will take an active approach, you will need to be even more educated with selecting investments and knowing how your selections work together in synergy, protecting your downside risk while also giving you a trading edge with wealth appreciation. As you can imagine, this will take a great deal of time and there are very few individual investors capable of this level of ability and commitment. Relying on the media for investment insight may often be misleading, so a solo investor really needs to know what he or she is doing because the pain of making a serious mistake can be so huge.
When it comes to financial planning, a CFA can provide you with information you don’t even know you don’t know, and can be that critical advisor making the difference between having to work into your retirement years to create the wealth you need, or securing your financial future in a reasonable time so you can enjoy the life you’re working so hard to attain.
Ultimately you’ll have to decide whether a financial advisor is worth the cost or not. Think of it in terms of having a personal trainer helping you when you work-out at the gym. Almost everyone would benefit from having a fitness advisor guiding them to health. Similarly, you can have a financial advisor guiding you to wealth.
Please contact us so we can review the possibilities for securing and increasing your personal wealth while enhancing your retirement. Thank you!
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
Synergy Financial Management, LLC
701 Fifth Avenue Suite 3520
Seattle, Washington   98104
ph: 206.386.5455

 

Aggressively Monitor Your Investments…

…Or Pay Someone Skilled To Do So

When markets are rising and amateur investors are doing very well, it’s easy to forget that protecting your assets during declining markets requires skill, discipline and constant attention. Investors need to expect and be prepared to react to fast-moving markets. No market rally is permanent and no decline lasts forever, meaning there are no investments you can buy and forget about, which many amateur investors tend to do. The pace of change in today’s markets is too great for investors to be complacent.

The list of 30 individual companies that compose the Dow Jones Industrials, which are some of the largest publicly traded companies in the U.S., has changed numerous times since the Dow’s inception in 1896. Companies were removed as they declined, were acquired, went private, or simply went bankrupt, and others took their place. This is an example of the constant state of change in the markets, even among giant companies.

Investing with long-term assets is not child’s play since most investors can ill-afford to lose part of their nest egg. Today’s markets are no place for dabblers that lack the time, patience, training, discipline, and diligence to do the research and invest properly. If you aren’t completely sure you have the time, expertise and experience to manage your investments clearly and with a defined purpose, it may be wise to find a Certified Financial Planner® who will create your financial plan with you, and then monitor and manage it for you.

Understand the Difference between Average Annual Returns and Compound Average Annual Returns

A common mistake investors make is assuming a certain rate of return and the impact it has on their portfolio growth. Because many investment rates of return are calculated on a simple average basis, investors are often overconfident about what their portfolio will grow to become. Most retirement planning programs used by financial planners work on this premise; i.e., a simple average return is assumed in the calculation of the growth of a portfolio.

Big mistake!

If you don’t know the actual compound rate of return of your investments, or if you are assuming a high rate of return, you may not be taking into account the effect volatility could have on the actual growth rate of your investments.

How can you determine the success of your investments if the basic data you’re using is incorrectly assumed to be legitimate? At Synergetic Finance, we take great care in calculating the potential growth of your portfolio, guiding you with our personalized service so your investments have the greatest likelihood of realistic growth with the most reasonable amount of risk for your unique circumstances.

Know Exactly What You Pay in Fees

Remember that every dollar spent on fees is a dollar which won’t be appreciating in your account. It is important to know the cost of these fees, their impact on your portfolio’s earnings, and what you are receiving in return.

Many investors work with a broker or financial advisor, which technically are registered securities representatives but not independent Certified Financial Planners®. This is normal and acceptable as long as you understand exactly what your chosen professional is doing for you, how they get compensated for their activity, and for whom they are actually working…which is not you.

A lot of investment fund brokers are compensated solely through the transactions they solicit and are not required to represent the clients’ best interest in these transactions.  The commissions are not always fully disclosed and certain transactions will carry continuous fees that are also not fully disclosed.

This could be quite costly to you, and though these costs should be fully disclosed, don’t be surprised if you own investments right now that have costs you are not aware exist or are higher than you think. Costs are good…so long as you are receiving an equivalent economic value that is agreeable. Too often, investors are paying high fees, and in some instances are unaware they are even paying them. These fees can be substantial and may erode your returns.

Investors should be careful to ask detailed questions of every cost and exactly how much compensation will be received by the broker prior to agreeing to any transactions. A better decision might be to select an independent fee-based Certified Financial Planner® (CFP®) whose first priority is your best interests. A fee-based CFP® is paid by you, not by agencies or investment companies that pay commissions to representatives.

At Synergetic Financial, your financial goals are our priority. We start by listening to your plans for the future, and then set your dreams into short, midterm, and long-term goals.

We then create a financial plan to achieve your goals, and monitor and manage your customized financial plan for steady but cautious growth, loss protection, limited taxes, controlled fees, and estate preservation … assuring your financial future.

Please contact us so we can review the possibilities for securing and increasing your personal wealth while enhancing your retirement. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

701 Fifth Avenue Suite 3520

Seattle, Washington   98104

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

Learn From Your Mistakes

One of the key differences between successful long-term investors and those who aren’t is that successful investors learn from their mistakes and make a commitment to never making the same mistake again. Even when a mistake results in a large and painful loss, it’s necessary to take a step back and review the actions that led to your loss. Learning what went wrong in your thinking or your planning must be reviewed so you can educate yourself on what to do better next time.

Also, never compound the errors you made by taking bigger risks in an effort to recover your money. This is addictive gambler’s behavior, not rational and emotionless investing, which is the best way to make decisions. Determine where you went astray and ensure you avoid the same mistake in the future.

Many common investing mistakes can be attributed to emotional decision-making. Whenever you make financial or investment decisions, you will have the challenge of overcoming fear and greed. Fear can cause you to run for the exits when markets decline or your portfolio starts taking losses. Greed can encourage you to chase fads and take on too much risk in the pursuit of a big score. By recognizing your emotional triggers and engaging your rational mind, you can overcome your impulses and cultivate discipline. Taking unnecessary risks can quickly destroy your portfolio.

In today’s markets, a successful long-term investment strategy can often benefit from flexibility and proper diversification. Diversification is one of the pillars of modern investment theory and can be a powerful tool for reducing certain types of risk in your portfolio. Be sure your overall portfolio contains a variety of quality investment types, including stocks, bonds, international securities, and a few alternative investments, but only if your risk profile and investment goals support them.

No matter how careful or prudent you are, you cannot predict or control future market movements. Investing by guessing and predicting is also likely to leave your ship beached. Much of the market’s volatility has been driven by economic events that are outside any investor’s control. Global economic events, natural disasters, and government activities can all cause large-scale market movements. While an investor can’t diversify away from all forms of risk, a flexible strategy can help you find investment opportunities in many different market conditions.

Since it’s impossible to predict these events, it’s important to implement an investment strategy that diversifies by industry, by risk level, by country, by investment type, and by other factors. While diversification can’t always protect your assets in times of widespread market declines, by spreading investment risk among a wide variety of securities, any one part of your portfolio may not have as much ability to bring down the value of your entire portfolio.

Working with a Certified Financial Planner® (CFP) can help avoid emotional decision-making and many other pitfalls commonly encountered by amateur investors. It’s the CFP’s job to remain focused on the long-term strategy and act as a voice of reason when emotions run high. In today’s world of high-tech investing, major financial decisions are only a click away and investors pay a high price for short-term thinking. A Certified Financial Planner® is often invaluable for answering questions, providing reassurance, and keeping financial strategies on track despite volatile conditions. A CFP is a trained professional with experience…hire the best fee-based one you can find to guide you with your investments. Why would you trust your financial future to chance?

At Synergy Financial Management, your financial goals are our priority. We start by listening to your plans for the future, and then set your dreams into short, midterm, and long-term goals.

We then create a financial plan to achieve your goals, and monitor and manage your customized financial plan for steady but cautious growth, loss protection, limited taxes, and estate preservation … assuring your financial future.

Please contact us so we can review the possibilities for securing and increasing your personal wealth while enhancing your retirement.

 

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

701 Fifth Avenue Suite 3520

Seattle, Washington   98104

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

 

Portfolio Performance and Measurement Reporting

Do you receive regular portfolio performance reports (not account statements) that clearly measure your performance against the appropriate benchmarks and disclose exactly what you pay for the performance of your investments?

In order to make good financial decisions, it’s important to remove emotion from the picture. The only way this can be done is to:

  1. Set clear and realistic goals
  2. Create meaningful measurement
  3. Have defined consequences for failure

Most investors do not set clear and realistic goals…so there is no meaningful measurement, and no defined failures or consequences.  This contributes to decisions being emotional in nature, which is often a potentially devastating flaw.

 

 

Set Clear and Realistic Goals; Have an Investment Policy Statement

An Investment Policy Statement (IPS) should contain at least the following information:

  • The time horizon for your investment strategy
  • The income needs from your investment amount
  • A decision-making policy for how investments will be made
  • An asset allocation (diversification) model your investment will follow
  • A provision for how frequently and how your investments will be monitored and reviewed
  • A realistic rate of return goal which is relative to an appropriate benchmark

Without an IPS, there is no clear communication about what is expected and how those expectations will be met. Investing without an IPS is like driving across a foreign country with no map, no directions, and no preferred destination. It could be an adventure…but may not have the desired results!

For Meaningful Measurement, Use Portfolio Performance Reports

Monthly statements are not adequate for most reporting. High-end private asset management firms to the very wealthy use customized performance reports, typically issued at least quarterly. They should contain detailed performance summaries so you know exactly your precise rates of return:

They should also contain detailed and simple descriptions of your asset allocation, to ensure your balance is accurate, as required by your IPS:

The reports should also show each holding in each account that composes your total investment portfolio. This way, whether you have 1 or 100 accounts, you’re always looking at the big picture and can easily determine if you are achieving your goals.

Many firms are hesitant to provide this type of service as it is both expensive to administer as well as too revealing of the true results each investor is obtaining.  Without this type of reporting, however, it is impossible to determine accountability. At Synergetic Finance, we issue these reports and provide customized service that clearly advises our clients on the true performance of their portfolios.

Consequences for Failure – Hire Slow and Fire Fast

There has never been an argument for why a company should fire slowly. If they did, many would go out of business due to lazy or dishonest employees, or simply from an economic slowdown. Investors should react no differently if their portfolios are not doing what they were intended to do.

As an example, if your Investment Policy Statement says your time horizon is 3 to 5 years and your rate of return expectation is to exceed the S&P 500; you should give your chosen investment plan three years to confirm whether or not it is reaching its stated goal.  If it is not, you need to make a change. Giving an investment strategy three years to perform is ample time to determine whether or not it is meeting most of your goals. The key is to follow through on your plan, be methodical, and not let emotion interfere with your better judgment.

We hope this article about investment principals was informative. Please contact us so we can review the possibilities for securing and increasing your personal wealth while enhancing your retirement. Thank you!

 

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

701 Fifth Avenue Suite 3520

Seattle, Washington   98104

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

How Good Are Your Investments…Really?

Most investments are not very good.  One of the more common investments today is mutual funds. As a whole, mutual funds are a great idea and can work very well…but the very rich generally don’t use them. There is good reason for this. Deferred annuities are also popular. They come in many varieties and most sound too good to be true. In this case, the most successful money managers do not use them.

John Bogle, Founder of Vanguard Funds, Explains the Costs of Mutual Funds

John Bogle was asked by an interviewer from the TV program Frontline, “What percentage of my net growth is going toward fees in a 401(k) plan?”

Bogle replied, “Well, let me give you a little longer-term example. An individual who’s 20 years old today is starting to accumulate for retirement. That person has about 45 years to go before retirement — 20 to 65 — and then, if you believe the actuarial tables, another 20 years to go before death mercifully brings his or her life to a close. So that’s 65 years of investing. If you invest $1,000 at the beginning of that time and earn 8 percent, that $1,000 will grow…to around $140,000.”

He continued: “Now the financial system — the mutual fund system in this case — will take about 2.5 percentage points out of that return, so you’ll have a net return of 5.5 percent, and your $1,000 will grow to approximately $30,000 to you, the investor.”

“Think about that. That means the financial system put up zero percent of the capital and took zero percent of the risk and got almost 80 percent of the return. And you, the investor in this long time period, an investment lifetime, put up 100 percent of the capital, took 100 percent of the risk, and got only a little bit over 20 percent of the return. That’s a financial system that’s failing investors because of those costs of financial advice and brokerage, some hidden, some out in plain sight, which investors face today. So the system has to be fixed,” said Bogle.

In other words, the longer you invest, the more the investment house makes. That’s why the financial institutions recommend you invest for the long term.

Choose the Right Advisor.

If you have an investment portfolio of $250,000 to $500,000, there are a lot of suitors for your business. If your portfolio is $500,000 to $2 million – the potential managers will line up. If your portfolio is $2 million or greater; most will practically beg. You are always in the driver’s seat even if you don’t have an 8 or 9 figure portfolio.

Here’s a short list of the professionals who will likely be offering their services to you:

Bank Money Managers – Inside the banking industry are thousands of money managers.  This would lead one to believe there should be hundreds of very suitable options, but it may actually be the contrary. Within the industry, banks have a historied reputation of paying employees less than industry standards.  In a highly competitive and lucrative field, it is hard to attract and retain high quality employees with low paying salaries…which begs the question:  If bank managers were really good, why would they be working for the bank?

Brokers and Financial Planners – There’s one obvious reason many wealthy investors look elsewhere for investment management. The reason is that most are very talented salespeople and they spend the majority of their time selling, i.e., looking for new clients.  Most would agree that the people responsible for managing your money should not consume the majority of their time selling, but thinking instead about how to better manage your money. In order for most brokers and financial planners to earn a good living, they must be well-trained at managing relationships and selling – so there is little time for portfolio management training, even for those who’ve been in the industry for many, many years.

Private Wealth Management – This is the preferred method for many wealthy investors.  When working with a private wealth management firm, the financial planning and asset management are done at the same location and done exclusively on a fee-only basis. There are multiple professionals that each have defined responsibilities, so receiving good service from someone who only focuses on good service is not an issue; yet having access to the money manager is also available. By having the varying components of the wealth management team in the same location, it is very easy for these professionals to interact and provide seamless service with a high level of customization.

We hope this blog has provided some new information that will help you become a more careful and focused investor. We also hope we have made our point about seeking substantial investment advice from a Certified Financial Planner®.

At Synergetic Financial, your financial goals are our priority. We start by listening to your plans for the future, and then set your dreams into short, midterm, and long-term goals.

We then create a financial plan to achieve your goals, and monitor and manage your customized financial plan for steady but cautious growth, loss protection, limited taxes, and estate preservation … assuring your financial future.

Please contact us so we can review the possibilities for securing and increasing your personal wealth while enhancing your retirement. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

701 Fifth Avenue Suite 3520

Seattle, Washington   98104

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

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 investment plan, you will lose your most valuable commodity…time.
After some research, you may find that an investment with a lower return may actually have a higher total return once you account for taxes, fees, and inflation.
A candy bar that cost 25 cents in 1975 costs over a dollar today, due to the effects of rising prices. That same candy bar would cost approximately $1.30 in 2020 if there is annual inflation of 4% per year. Consumer prices have risen each year in the United States. Since the U.S. Department of Labor began tracking consumer prices, the average annual inflation has been 3.22% each year, which means that what cost one dollar in 1913 costs $23.51 today.
To put these numbers in the context of investments, an assumed inflation rate of 4% will reduce the value of a $100,000 portfolio invested today to approximately $67,500 in just ten years; this means your investments would have to grow to $148,000 during that time period … a 48% gain … simply to keep pace with inflation…and this number doesn’t include the effects of taxes and fees on investment performance.
Another good axiom to remember is that it is usually wise to avoid following the herd. By the time your friends, family, neighbors and the newspaper columnists are all investing in a particular sector or security, it’s often too late to benefit you because the hype has already inflated the price. Whenever investment dollars rush in, prices soar and savvy investors usually move on. By the time the mass of average investors have caught on to a new fad, prices are often too high and investments are overvalued, making them a poor choice for investors seeking value.
The herd mentality is a well-documented pitfall among investors and it can have striking consequences for investment performance. Investment clubs, which were popular during the 1990s, were studied with regard to the dangers of group-think. These clubs, composed of amateur investors, often favored certain sectors and investment types to the exclusion of all other types. Researchers found that portfolio returns of investment clubs lagged the S&P 500 index by 3.7% per year, meaning that members did worse as part of the group than the market overall during the same period.
When you seek financial advice, select and work with a Certified Financial Planner®. A Certified Financial Planner® has the training and experience to professionally guide your investment decisions. We recommend you hire a CFP® who is independent and not associated with any investment company so you receive only unbiased recommendations. Your CFP® should also be fee-based, not commission-based, so you know your financial advisor’s priority is solely your best interests.
We hope this article provided insights about the value of reviewing your investment portfolio’s actual performance to make sure you receive the best return for your financial security and future. Please contact us so we can review the possibilities for enhancing your investments’ return.
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
Synergy Financial Management, LLC
701 Fifth Avenue Suite 3520
Seattle, Washington   98104
ph: 206.386.5455
fx: 206.386-5452
www.sfmadvisors.com

 

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