What’s worrying investors? Risk, rates and health costs (www.futurityfirst.com)


As the major stock market indexes push new highs, financial advisors are fielding more phone calls from clients anxious about volatility and how their investment portfolios could be affected by rising interest rates.

“The dynamic of perpetually low interest rates and rising stock prices hasn’t changed for a long time,” said Ed Gjertsen, a certified financial planner, vice president at Mack Investment Securities and current president of the Financial Planning Association. “We’re trying to prepare clients for the one to four quarters when their bond portfolios decline and so do their stocks.” He added, “We tell them that if rates are going to rise, they’ll lose money.”

It may still be a while before that happens. Several weak economic reports and an apparent first-quarter slowdown in the U.S. economy could cause the Federal Reserve to delay raising short-term interest rates. The bond market is now expecting the Fed to wait until at least September before hiking rates for the first time since 2006. The yield on the 10-year Treasury bond, up more than 50 basis points during February and early March, has fallen back below 2 percent, and rates across the credit spectrum have generally followed suit. “It’s the clients close to retirement that are most nervous,” Gjertsen said.

He feels their pain. With no real precedent for the current monetary situation, Gjertsen, too, has concerns about what will happen when the Fed finally moves to raise interest rates and normalize monetary policy. “We’ve never experienced a market with this amount of liquidity; no one knows how it ends,” Gjertsen said. “When rates start rising, hopefully it doesn’t unwind and we have another 2008.”

Joel Isaacson, financial advisor and CEO of wealth management firm Joel Isaacson & Co., also hears client concerns about rising interest rates, but he doesn’t try to handicap where the market is headed. “Forecasting interest rates is a minefield,” he said. “I don’t see a lot of upside to the bond market, but when the Fed stopped quantitative easing, it didn’t play out too badly.”

Isaacson thinks that weak economic growth and low interest rates globally will likely keep long-term rates in the U.S. down and expects the yield curve to flatten when the Fed starts raising short-term rates. He nevertheless favors short-term and intermediate bonds with limited credit risk.

Isaacson said that his clients are expressing concern about global political stability and how it could affect the financial markets. “Things are very different from the cold war period,” he said. “People don’t get the sense that governments know how to deal with problems anymore.

“The Middle East is festering, and it’s spilling over to Europe,” Isaacson added. “Everyone is watching and worrying about what’s going on around the world.”

The challenge for financial advisors is getting clients to stick to their financial plans and to rebalance their investment portfolios to target allocations. “Historically, globally balanced portfolios provide higher returns with lower volatility,” said Michael Ward, founder and president of Wealth Management Partners. “It’s a good time to ramp up the education process with clients.”

With the U.S. large-cap stock indexes crushing most other asset classes, some of Ward’s clients are asking why they aren’t invested more heavily in U.S. stocks. “I worry when clients start asking why we don’t have more SPY [S&P 500 Index ETF] exposure in the portfolio,” Ward said. “In 2000, everyone wanted the QQQ [Nasdaq 100 Index ETF tracker], and it took 15 years for it to reach those levels again.”

“Most of my clients are retired and they’re concerned about volatility. They’ve lived through it twice, and they don’t want to do it a third time.”-Michael Ward, president of Wealth Management Partners

The majority of Ward’s clients, however, are less concerned about missing out on gains than they are in avoiding a market meltdown. “Most of my clients are retired, and they’re concerned about volatility,” Ward said. “They’ve lived through it twice, and they don’t want to do it a third time.”

With the broad increase in the stock market, one downside of portfolio rebalancing is the taxable capital gains it generates for investors. And other than in the energy sector and possibly emerging markets, there aren’t a lot of places to find capital losses to offset those gains. That, of course, is good news, but it does mean people will have more significant tax bills. “A rebalancing is going to sell from the positions that have gone up the most, and it’s hard to find losses in a portfolio that’s been invested since 2009,” Ward said.

Apart from the investment markets, the rising cost of health care continues to be one of the chief concerns of middle-class Americans, and many people are looking to their financial advisors for help.

“I think people are becoming much more aware of the high cost of health care, particularly in retirement,” Ward said. “We have a separate budget line item of $1,000 per month for additional retirement health-care costs for our clients, and that doesn’t even include long-term care or nursing care.”

Long-term care and the difficulty in financing it remains a huge problem for middle-class families. The cost of insurance has skyrocketed over the last five years as insurers have repriced policies and slashed benefits. For most people, the cost is prohibitive, and they choose to self-insure, hoping that they have enough assets to sustain themselves if they do require long-term care in the future.

Many baby boomers nearing retirement aren’t just worried about themselves, either. Gjertsen and other advisors at Mack Investment Securities have been helping clients find home health-care providers for their aging parents. “They may think they have enough for themselves, but all of a sudden we’re having more conversations about how they’re going to take care of elderly parents,” he said.

—By Andrew Osterland, special to CNBC.com

Osterland, Andrew. “What’s Worrying Investors? Risk, Rates and Health Costs.” Web log post. CNBC. N.p., n.d. Web. 30 Apr. 2015.

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How ‘Safe’ Investments Could Destroy Your Portfolio (www.futurityfirst.com)


If you want a consistent stream of income when you retire, you’ve probably heard about a few familiar investment strategies. A dividend-paying stock gets you a regular cash payout from a company while letting you participate in the stock market’s upside. Municipal bonds are safely backed by governments, and their income usually isn’t taxable.

But after years of low interest rates and rising stock markets, these once-conservative strategies might actually be putting investors in risky situations. Here’s where these income investors are going wrong:

They invest too narrowly

When online investment firm SigFig analyzed 300,000 investors’ portfolios, it found that people who are focused on income — rather than growth — are getting most of that income from just a few sources. Of income investors over the age of 40, 52 percent are getting their income entirely from three or fewer dividend-paying stocks. Thirty-one percent are relying on only one dividend-paying stock.

“Being so concentrated in a few income-generating stocks is dangerous,” says Jason Hsu, co-founder and vice chairman of Research Affiliates. With only a few stocks, investors are violating an important rule of investing: Spread money around to lower the risk of big losses and make one’s portfolio less volatile. Advisers typically put clients in funds owning hundreds of stocks and bonds in a variety of categories. SigFig in October created a “diversified income” portfolio that produces income from eight different exchange-traded funds, or ETFs, with exposure to U.S. and international stocks, U.S.preferred stocks, and five types of bonds.

They’re falling for sales pitches

With interest rates so low, many older investors are desperate for income. Some brokers are taking advantage of that desperation to sell investors products that are expensive, overly complicated, and wrong for their particular situations. That’s the conclusion of a new report from the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority. Regulators found that “broker-dealers may be recommending unsuitable transactions” that seniors don’t understand. The most worrisome investments were in structured products, variable annuities, and alternative investments including leverage-inverse ETFs. Investors, some over age 90, found their money locked up in these highly risky investments. They also ended up paying big fees, which ate up any income the products might have yielded.

They’re betting on overvalued investments

Pinning your retirement on just a few companies is risky enough. But the current state of the stock market adds to the risks: By historical valuation standards, U.S. stocks that pay a dividend are looking expensive, Hsu says. The Dow Jones U.S. Dividend 100 Index is up 181 percent over the past six years. Those prices reflect high expectations that could be dashed if profits or the economy stumble. If people are willing to invest in companies based outside the U.S., Hsu says, they can find companies paying healthy dividends at more reasonable valuations.

Municipal bonds — debt backed by cities, states, and other local governments — have also had a great run lately, with the S&P Municipal Bond Index returning 5.8 percent in the past year. Muni bonds can be tax-free, and that’s made them popular after recent tax increases on wealthy Americans, says Marilyn Cohen, president and chief executive officer of Envision Capital Management. While Cohen thinks munis will keep doing well, she says investors need to diversify, spreading their exposure over bonds with shorter durations.

They’re taking risks

Unfortunately, investors are drawn to the riskiest bonds because they also offer the biggest payouts. The riskiest muni bonds, for example, are issued by governments with fiscal trouble, including Chicago, Puerto Rico, and New Jersey, Cohen says. “You can tiptoe around those land mines.”

High-yielding stocks, which Hsu calls “junk stocks,” have the same risks. Dividend payouts at troubled companies may look generous, but there’s a good chance those companies won’t be able to keep paying them. “You’re picking up a lot of risk,” Hsu says.

Income investors may not be able to avoid risk entirely. With stocks at record highs and interest rates at record lows, it’s harder and harder to find an income that’s perfectly safe. To get the income they need, investors need to protect themselves by spreading their assets among as many income-producing investments as possible. And they should beware of any investment that promises a big payout — it’s almost certainly too good to be true.

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For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

Steverman, Ben. “Photographer: Meronn/Getty Images How ‘Safe’ Investments Could Destroy Your Portfolio.” Web log post. Bloomberg. N.p., n.d. Web. 29 Apr. 2015.

Wall Street Breakfast: Where’s The Value These Days? (www.futurityfirst.com)



China’s factory activity declined at its fastest pace in a year, according to HSBC/Markit’s Purchasing Managers Index. PMI fell to 49.2 (est. 49.6) in April, beneath the 50-point watermark that separates growth from a contraction. In Japan, manufacturing fell to 49.7 (est. 50.8), dropping below 50 for the first time since July 2014.

Stocks ended higher Wednesday after a steady advance, with the Nasdaq finishing fewer than 15 points away from its all-time high, lifted by better than expected earnings and an upbeat report on the housing market. All 10 S&P sectors registered gains, with tech (+1.1%) leading the way.

Gold tumbled to its sharpest single-session loss in more than six weeks Wednesday after strong U.S. existing home sales raised expectations for a Fed interest rate hike in June. Gold futures fell $16.20 (-1.4%) to settle at $1,186.90/oz., while silver fell 1.3% to $15.77. Metal miners fell in sympathy:ABX -3.4%, AU -4%, GG -2.8%, SBGL -6.8%, GOLD -1.5%, AUY -3.7%, NG-1.9%, GFI -5%, SLW -2.1%, PAAS -3.5%, NEM -3.1%, EGO -1.4%, RGLD-2.1%, FNV -3.4%, KGC -1.7%, IAG -4.1%, BTG -2.5%, HL -3.8%, AGI-5.4%, AUQ -4.4%.

Boston Fed chief Eric Rosengren cautioned that weak growth data could delay interest rate hikes. “There has definitely been a weakness to the tone of the data. The employment report was weak. That was little bit of a surprise… Certainly what is happening globally with Greece and China would indicate that there may be more softness elsewhere in the world than we might have anticipated a few months ago. That is not a particularly positive development.”

Now might be a good time for U.S. investors to pick up relatively cheap overseas assets, Research Associates’ Michele Mazzoleni says. People are buying dollars in anticipation of higher U.S. rates, but there is no certainty, and some Fed officials appear to be having misgivings about tightening policy too soon, in part due to the strong dollar.

Existing homes sold at the fastest pace in 18 months in March – a seasonally adjusted annualized rate of 5.19M, up 6.1% from February and 10.4% from a year ago. The median existing-home price of $212.1K is up 7.8% Y/Y.

22% of hybrid and electric car owners trading in this year opted to go for a SUV, up from 18.8% a year ago and 11.9% three years ago, as lower gas prices shift the breakeven point. The rate at which hybrid and EV car owners bought another green car fell below 50%.

What’s value these days? “We have consumer staples (NYSEARCA:XLP) and healthcare stocks (NYSEARCA:XLV) trading on average at 20x earnings and five times book value – while these stocks aren’t often thought of as value, they actually comprise 20% of the Russell 1000 Value (NYSEARCA:IWB) index,” Richard Pzena said on the company’s (NYSE:PZN) earnings call yesterday. Add REITs and utilities to the mix and it’s pretty hard to call that value index “value” anymore. “The natural question: Is it different this time? Does this era of low interest rates presage something permanently different… We believe that the odds of such an outcome are low.” Pzena presumably remains bullish on the large-cap financial sector names (NYSEARCA:XLF) which continue to be weighed down by ZIRP.


The FCC recommended that the proposed Comcast (NASDAQ:CMCSA)/Time Warner Cable (NYSE:TWC) merger undergo a hearing, seen by some as a “deal-killer.” A hearing would put the merger in the hands of an administrative law judge, a strong sign the FCC doesn’t see the merger to be in the public interest.

Shares of NCR jumped 6% in post-market trading following a report it (NYSE:NCR) is exploring strategic alternatives such as asset divestitures, buybacks, and a dividend; a full sale of the company is a less likely option. The report comes two months after activist Jana Partners disclosed a 7.1% stake and ahead of NCR’s April 28 Q1 report.

Less than three years after striking a deal to buy Motorola Home for $2.35B, Arris (NASDAQ:ARRS) announced it’s buying U.K. set-top hardware/software provider Pace (OTC:PCMXF) for $2.1B in cash and stock. Pace shareholders will own 24% of the post-merger company. The fragmented nature of the global set-top industry could help secure regulatory approval. The deal is expected to close in late 2015. ARRS +28% AH.

China said it will open up bank card processing to foreign firms, sending shares of Visa (NYSE:V) +4.3% and MasterCard (NYSE:MA) +3.9% higher. Morgan Stanley thinks the firms could begin operations in China in late 2016 or early 2017, which could add $336M to $360M in revenue for Visa and $224M to $240M for MasterCard by 2021.

China said Thursday it will scrap export duties on rare earths and some metal products, including molybdenum, tungsten and some aluminum products, effective May 1. Beijing is attempting to boost exports, which fell 15% Y/Y in March. Currently, China levies export duties of 15-20% on rare earth products, while molybdenum products carry export duties of 5-20%. Stocks: MCP, REE, AVL, GSM, GMO, OSN, REMX.

The gulf coast will see $100B in new industrial projects, leading to “tremendous growth in the use of natural gas,” Kinder Morgan (NYSE:KMI) CEO Richard Kinder predicts. The growth of gas production in the Marcellus and Utica shales has profoundly affected the flow of gas, which has historically flowed from the producing regions of Louisiana and Texas to markets in the northeast. Separately, Nomura was bullish Wednesday on the E&P sector, issuing Buy ratings for MRO, PXD, EOG, CLR, APC, NFX, RRC, CNQ, CXO, ECAand SU, while not predicting a V-shaped rebound in crude oil prices.

Embattled Associated Estates agreed to sell itself to a property fund managed by Brookfield Asset Management (NYSE:BAM) for $28.75/share in cash. The deal is expected to close in H2. AEC closed +16.3%.

McDonald’s rose 3.1% as investors focused on the May 4 unveiling of a turnaround plan. Restaurant analysts think MCD, channeling Ray Kroc’s “take risks” mantra, could tip a more dramatic transition for the company than originally forecast.

ASML signed an agreement with “a major U.S. customer” to deliver a minimum of 15 ASML EUV lithography systems, sending ASML up 10.3%. The client is most likely Intel (NASDAQ:INTC), which invested $4.1B in ASML in 2012 to bolster its EUV efforts but has been non-committal on when it will begin using EUV for commercial production.

Google launched its U.S. mobile service Wednesday with the help of network partners Sprint (NYSE:S) and T-Mobile (NYSE:TMUS). Google (NASDAQ:GOOG) (NASDAQ:GOOGL) is pricing aggressively and providing free roaming for the service, which is known as Project Fi. Google charges $20/month for voice, SMS, Wi-Fi tethering, and international roaming in 120+ countries; each GB of data (incl. roaming) costs an extra $10/month, and unused data is refunded. For now, Fi is only available via Motorola Mobility’s huge Nexus 6 phablet, limiting the near-term threat posed to U.S. carriers.

Omnicare closed +9.1% after gaining as much as 18% on reports OCR is reportedly working with financial advisors seeking a buyer.

Petrobras wrote down $2.1B in corruption-related charges during Q4 in the much-anticipated release of its first audited financial results since August. In addition, Petrobras (NYSE:PBR) booked a $14.8B impairment charge for 2014 after determining that assets were overvalued on its balance sheet. The company says it is still unable to complete and present Q3 audited results. PBR is struggling to avert a potential acceleration of debt payments, hoping to unlock Brazil’s corporate bond market. No Brazilian companies have sold debt overseas since Nov. 14.

There seems to be healthy interest in Nokia’s (NYSE:NOK) HERE mapping/navigation services unit. Potential buyers include Facebook (NASDAQ:FB), Uber, a consortium of German automakers, and a P-E firm. Nokia has also reached out to Apple (NASDAQ:AAPL), Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU), Amazon (NASDAQ:AMZN), Sirius (NASDAQ:SIRI), and Harman (NYSE:HAR). First-round bids are reportedly due at the end of next week.

Iron ore prices enjoyed their biggest one-day jump since October 2012, rising 5.9% to more than $54/metric ton – still near 10-year lows – after BHP Billiton (NYSE:BHP) announced it is slowing the pace of its expansion program. Analysts say the decision will lower BHP’s capex profile over the next few years to preserve free cash flow to support the dividend and balance sheet, and could deflect some of the negative public commentary about surplus supply.

Uranium stocks surged Wednesday after Japan approved the reopening of nuclear reactors. CCJ +3.6%, DNN +8.3%, LEU +11.4%, URRE +10.45%, UEC+20%, URZ +6%, URG +9.7%, UUUU +6.9%.

Trinity Industries plunged 8.4% following a report that TRN‘s ET-Plus guardrail system is involved in a federal criminal investigation.

Vitamin Shoppe spiked 12.6% after activist investor Carlson Capital disclosed a 5.3% stake in VSI.

Deutsche Bank said it expects to be profitable in Q1 despite non-tax-deductible litigation costs of about €1.5B. Shares (NYSE:DB) were +0.4% on the day.

Wednesday’s key earnings

ABT +4% after beating on earnings and revenue. (link)
ANGI +4.9% after trading up 18% on strong sales guidance. (link)
BA -0.5% despite strong Q1 earnings on cash flow concerns. (link)
DHI -5.6% after strong FQ2 results but weak operating margin guidance. (link)
EBAY +6% AH after blowing past estimates. (link)
EMC +5.5% despite Q1 miss, light guidance. (link)
FB flat AH after falling 2.1%. Ad sales were hurt by a strong dollar. (link)
KO +1.2% after Q1 EPS and revenue beat expectations. (link)
LVS -4.7% AH on worse-than-forecast revenue decline. (link)
NVS +1.6% premarket after EPS beat and revenue came in soft. (link)
SKX +6.4% AH after a blowout Q1. (link)
T rose 1.2% AH after beating on EPS, posting best-ever churn. (link)
TXN -5.5% AH on Q1 miss, Q2 guidance. (link)
QCOM fell 1.6% AH after weak FQ3 guidance. (link)

Today’s Markets:
Asia: Japan +0.3%. Hong Kong -0.4%. China +0.4%.
Europe at midday: London +0.2%. Paris -0.5%. Frankfurt -0.6%.
Futures at 6:10: S&P -0.2%. Dow -0.2%. Nasdaq -0.2%. Crude -0.3%. Gold+0.1%.



“Wall Street Breakfast: Where’s The Value These Days?” Web log post.Seeking Alpha. N.p., 23 Apr. 2015. Web. 27 Apr. 2015.

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For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

Honoring SMA Managers Who Shine in Rainy and Sunny Times (www.futurityfirst.com)


When advisors outsource their investment management, the strategists they want to employ should post healthy performance numbers. More important, however, is that they can clearly articulate the strategy that yields that performance and then can repeat that strategy regardless of how the overall market or sectors or subsectors within the market are performing.

This will be the 11th year that Investment Advisor has partnered with Envestnet | PMC to research and honor investment strategists working in the separately managed account space with the Seperately Managed Account Managers of the Year awards. The process begins with a look at SMA managers in the standard categories that have been consistent since the first awards were given in 2004: U.S. equity large cap; U.S. equity small-, mid- and SMID-cap; fixed income; global or international equity and a specialty category whose candidates differ each year much as the market’s top and bottom performs differ from year to year.

For the first time in the awards program, we are adding two new categories of winners, reflecting trends in the SMA industry which themselves reflect trends among advisors and their end clients. The Impact award winner recognizes a portfolio manager who has achieved sustained success in impact investing—the notion that an investor’s investment portfolio should reflect their personal beliefs and preferences, whether it concerns corporate governance, sustainable investing or other social or religious beliefs. Since model portfolios are attracting so much attention from advisors and their clients as opposed to traditional SMAs where the manager builds a portfolio for each investor one security at a time, we also thought it appropriate to name a Strategist of the Year.

Finally, from among the individual winners the awards committee chooses an overall SMA Manager of the Year, which can be considered as a first among equals who nevertheless is worthy of particular honors.

So why care about SMAs? Why honor managers in this space? First, there’s the size of the overall market, and the growing involvement of non-wirehouse advisors in the space. Tim Clift, CIO of Envestnet | PMC (which includes the intellectual capital of researchers from the former Prima Capital, which Envestnet acquired), says that by Cerulli’s reckoning, as of year-end 2014 there was $838 billion invested in some form of SMA, or about 20% of the $4 trillion invested in managed money. While Clift notes that there’s been a decline in overall in SMA assets since 2008, when SMAs accounted for 35% of all managed money, over that same time there’s been a big shift toward model SMAs.

Rather than traditional SMAs where the portfolio manager “opens the account, then trades it, targeted at the HNW client who owns individual stocks and bonds,” Clift says, now “the managers are providing their intellectual capital to a platform.” It’s advisors, Clift points out, who “are using the platform, so they need to know the [end] customer,” and are thus “responsible for risk profiling them and making changes when necessary.”

This has resulted in model SMAs delivered often through a unified managed account (UMA), which now comprises 11% of the assets in the SMA universe, up from 4% over the last seven years, Clift says. “The UMA business is $138 billion,” he says, making it “one of the fastest growing areas” in separately managed accounts. So if model portfolios in UMAs are increasingly the wrapper for SMAs, what are the traits of SMAs that make them appealing to advisors and their clients? Is it portfolio transparency or tax efficiency or the ability to customize the portfolio to individual client’s needs and preferences.

“It’s all of the above,” says Clift, but “probably the number one is tax efficiency.” That’s because the client owns individually the underlying shares or securities in the account, “so it’s much more efficient to conduct tax loss harvesting,” he says. “Second would be that customization,” so an advisor or manager can “work the portfolio” to accommodate an existing high-basis position in the portfolio, or a client’s interest in “socially responsible investing, for example; which “ties into the Impact award” being launched this year. “There’s more interest in doing good while doing well in the markets,” Clift says, and while not wanting to stereotype, he says that kind of impact investing strategy is particularly strong among women.

So where do the assets flow in SMAs? “Municipal bonds have the most assets,” Clift says, reflecting the importance of tax-aware investing among SMA end-clients and the ability to “take advantage of residency” among state-specific muni bonds. The second most popular would be large cap strategies in general, especially among the “higher yield, higher dividend” portfolio strategies, where income is important.” But the biggest growth, Clift says, is in “all-cap, multi-discipline strategies,” where managers are less constrained by needing to hew to a benchmark, and thus “not forcing them into a box.” Here are the finalists, in alphabetical order, for the 2015 Envestnet/Investment Advisor SMA Managers of the Year:

Award Category
U.S. Equity Large Cap (two awards)
Alley Company – Dividend Portfolio
Dana Investment Advisors – Large Cap Equity
Golden Capital Management – Large Cap Core
Raub Brock Capital Management – Dividend Growth
U.S. Equity Small or Mid Cap (two awards)
Chartwell Investment Partners – Small Cap Value
Congress Asset Management – Mid Cap Growth
Kayne Anderson Rudnick – Small Cap Core
PNC Capital Advisors – Small Cap Portfolio
International or Global Equity (one award)
Epoch Investment Partners – Global Equity Shareholder Yield
Harding Loevner – Global Equity ADR
Fixed Income (one award)
GW&K Investment Management – Enhanced Core Bond
Reinhart Partners – Active Intermediate Fixed Income
Specialty (one award)
Cornerstone Real Estate Advisers – US REIT
Cushing Asset Management – Cushing MLP Core Strategy
Strategist (one award)
Frontier Asset Management
S&P Investment Advisory Services
Impact (one award)
Dana Investment Advisors – Socially Responsible Equity
Breckinridge Capital Advisors –  Intermediate-Term Tax-Efficient Sustainable Bond Strategy
Manager of the Year (one award)

All of the winners in each category are finalists for this award

The winners of the 11th annual SMA Managers of the Year awards will be revealed on May 7 in a ceremony during the Envestnet Advisor Summit in Chicago. Look for onsite reporting inInvestment Advisor magazine and ThinkAdvisor on the winners, a free webinar in June with two of the winning managers, and additional content in text and in video on the winners and the process.

Green, James. “Honoring SMA Managers Who Shine in Rainy and Sunny Times.” Web log post. Thinkadvisor. N.p., n.d. Web. 23 Apr. 2015.

FFIG grow your practice

For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

Pay Lower Taxes on Your Investments (www.futurityfirst.com)


Taxes are inevitable. But a number of new online investment firms, or “robo-advisers,” are touting a method of chipping away at your tax burden.

Wealthfront, Betterment, and FutureAdvisor now offer “tax-loss harvesting” as an automatic feature on investment accounts. Charles Schwab does, too, on its new, automated Intelligent Porfolios advisory service.

As Bloomberg View’s Noah Smith explainedTuesday, April 21, tax-loss harvesting is a complicated method of delaying the tax bill on investment gains. By selling losing investments now, you can lower this year’s tax bill.

But experts disagree on how much extra return you can squeeze out of tax-loss harvesting over the long term. Some of it depends on your circumstances. If you’re in a high tax bracket, it makes sense to lower your tax bill now and pay taxes on your investment gains in future years. It makes even more sense if you’re planning to donate your fortune or pass it on to heirs. If you’re in a low tax bracket, it might not make sense to push your taxable investment gains off, when tax rates could be higher.

And if all that gives you a headache? Welcome to the world of tax law.

Luckily, there are other ways to lower your taxes while investing. And these methods don’t ask you to predict the future or rely on complicated computer algorithms.

Take full advantage of 401(k)s, IRAs, and other tax breaks

Individual retirement accounts (IRAs) and workplace 401(k) retirement plans let you invest without thinking about the tax consequences of every trade you make. Traditional IRAs and 401(k)s defer all taxes until money is withdrawn from the accounts. And any withdrawals from Roth IRAs and Roth 401(k)s aren’t taxed at all once you turn 59½. A 529 college savings account’s benefits are similar to those of Roth accounts—investment gains are never taxed if they’re used for educational expenses.

It often makes sense to take full advantage of these sorts of accounts before you open a regular, taxable account. In a taxable account, there’s nowhere to hide from the IRS. All dividends and capital gains will be taxed as soon as they’re realized.

Hold on to investments for more than a year

The Internal Revenue Service distinguishes between long-term capital gains—on investments held for more than a year—and short-term gains. If you’re a wealthy investor who held on to a stock for more than a year before selling it, the most you’ll pay is a capital gains tax of 20 percent, plus a 3.8 percent tax on investment income. If you sell the stock before the year is up, you’ll pay ordinary income tax rates, which go as high as 39.6 percent.

Put tax-inefficient investments in 401(k)s and IRAs first

Some investments will put you in a higher tax bracket by their very nature. If you own an equity fund and the manager is constantly buying and selling for short-term gains, you’ll probably end up paying a high tax rate on those gains each year. Also inefficient for tax purposes are high-yield corporate bonds, real estate, and real estate investment trusts, or REITs.

But the tax disadvantages of these investments don’t matter if they’re held in 401(k)s and IRAs. So it usually makes sense to put tax-inefficient investments in tax-advantaged accounts first. When your options for 401(k)s, IRAs, or 529 plans are exhausted, it’s best to put more efficient investments—such as most index mutual funds and exchange-traded funds—into taxable accounts.

Meanwhile, some investments really make sense only in a taxable account. Municipal bonds, for example, pay out relatively low interest rates—it’s often barely enough to beat inflation. But that interest income is often exempt from federal tax. If you hold a muni bond fund in an 401(k) or IRA, you’re not taking advantage of the investment’s main appeal.

Weigh your withdrawal strategies

When an investor gets to retirement, her nest egg is often spread across three kinds of accounts: taxable accounts, tax-free accounts such as Roth IRAs, and traditional tax-deferred IRAs and 401(k)s. That allows several strategies that can end up lowering tax bills, if you choose carefully when you tap the income.

Planning the right strategy may require an accountant and some math. But there are obvious moves to consider. In a year when your income is abnormally low—maybe you’re between jobs, or you just retired and you’re living off savings—it can make sense to tap a traditional IRA and convert it to a Roth IRA.

According to a new paper in the Financial Analysts Journal, the most tax-efficient strategy can make a portfolio last six years longer than an inefficient strategy would.

FFIG Objectivity.Innovation.Support

For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

Steverman, Ben. “Pay Lower Taxes on Your Investments.” Web log post.Bloomberg. N.p., n.d. Web. 23 Apr. 2015.

Top 10 Mistakes To Make On Your IRA (www.futurityfirst.com)


Traditional IRAs can be an excellent way to save for retirement and get a tax break at the same time. You will need to pay taxes on the money eventually when you take it out at retirement, but many people are in a lower tax bracket at that time so taking the tax break earlier can be a benefit.

The tax break also makes it easier to put more money into the IRA. For example, if you deposit the maximum allowed at age 40, which is $5,500 in 2015, and you are in the 25% tax bracket, the tax break can be worth $1,375 ($5,500 x 25%) in reduced taxes. So your out-of-pocket expense for that $5,500 is just $4,125.

In this story we focus on the top ten mistakes you can make with a traditional IRA.

1. Earning Too Much

Not everyone can contribute to a traditional IRA. If you are covered by a qualified retirement plan – such as a 401(k) – at work, the tax-deductible amount you can contribute to a traditional IRA may be limited. As long as your income is less than $61,000 as a person who is single or head of household, you can contribute up $5,500 under the age of 50 and $6,500 at age 50 and over. If your income is between $61,000 and $71,000, your allowable contribution is reduced. Earn more than $71,000 and you cannot contribute to the traditional IRA and take a tax deduction.

Married couples with retirement plans at work can still contribute tax-free to a traditional IRA as long as their income is below $98,000. Between $98,000 and $118,000, tax-deductible contributions are reduced. When joint earnings top $118,000, you cannot contribute tax free to a traditional IRA.

If your spouse is covered by a retirement plan at work – but you are not – then you can make a tax-deductible contribution if your joint income is up to $183,000, but less than $193,000.

2. Contributing Too Much

As discussed above, the maximum amount you can contribute to all your combined IRAs is $5,500 for people under 50. An additional $1,000 in catch-up contributions is allowed for people 50 and older. If you have more than one IRA, such as one traditional IRA and one Roth IRA, be careful to manage your contributions so they do not total more than the allowable limits in any one year.

If you make a mistake, there can be a 6% IRS penalty on the excess amounts for each year that they remain in the IRA. If you realize your mistake, in time (prior to filing your taxes) you can take out the excess amount. Or you can amend your taxes and indicate that the excess will be moved to the next tax year. Just be sure you let the IRS know in writing how you are handling the excess contribution to avoid a penalty.

3. Taking Out Money Too Early

Generally money deposited in an IRA cannot be taken out before the age of 59½. If you do take money out of a traditional IRA prior to that time you will likely have to pay a 10% penalty, plus pay taxes on the amount withdrawn at your current tax rate. That tax rate can jump significantly if you take a lot of money out. For example suppose you earn $35,000 and are in the 15% tax bracket. You decide to withdraw $10,000. That means your income will now be in the 25% tax bracket. So if you do want to withdraw funds early, always be sure to look at the tax consequences.

You can take out money and avoid the 10% penalty for a number of reasons, such as a hardship withdrawal, medical expenses, qualified education expenses or buying your first home. You will still need to pay taxes on the money withdrawn at your current tax rate. If you do need to take money out before 59½, be sure to contact a tax advisor before taking the withdrawal so you understand the potential tax impact.

If you are age 55 or older and lose your job, there also options you can consider to avoid the 10% penalty for early withdrawal of IRA money.

4. Missing Your RMD (Or Taking Out Too Little)

Once you get to “April 1 of the year following the calendar year in which you reach 70½,”according to the IRS, you must start taking money out of your traditional IRA or face stiff penalties. This is known as the required minimum distribution (RMD) and the penalty for ignoring it can be as high as 50% of the amount that should have been withdrawn.

Figuring out your RMD is not hard. The IRS provides tables: Joint and Last Survivor Table (if your sole beneficiary is a spouse more than 10 years younger than you), Uniform Lifetime Table (if your spouse is sole beneficiary and not more than 10 years younger than you), and Single Life Expectancy Table (for beneficiaries of an account).

5. Investing in Prohibited Transactions

You can’t invest in just anything as part of your traditional IRA. Some things are prohibited. These can included buying collectibles, borrowing from it, selling property to it or buying property for personal use. If you engage in any of these activities, the IRA is no longer qualified and the account is treated as a distribution.

6. Not Opening an IRA for Your Spouse

If you or your spouse does not work, you should open a traditional IRA for the non-working spouse. You can fund the Spousal IRA up to the limits allowed based on your spouse’s age, provided that the money you deposit is earned income from salaries, wages or commissions.

7. Not Realizing You Can Contribute Until April 15

You may think you missed out on making a contribution if you didn’t do so by December 31 of the tax year for which you are filing. But that’s not true. You have until April 15 of the next year, the tax-filing deadline, to make your IRA contribution. If tax day falls on the weekend, you have until the following Monday.

While you do have until April 15 of the next year to make a contribution, the earlier in the year you can make that contribution, the better. Your money will have more time to earn money for retirement the earlier you can make the deposit.

8. Contributing After Age 70½

You must stop contributing to a traditional IRA after age 70½, even if you are still working. No contributions are allowed in a traditional IRA after age 70½. One reason to be especially careful about this: Any money you did contribute would be considered excess contributions and would be penalized 6% per year for as long as they are in the account.

9. Making More than One Rollover in 365 Days

Beginning in 2015, only one rollover of any type of traditional IRA to another type of traditional IRA is allowed in a 365-day period. There are no limits on certain other types of transactions, however:

– Rollovers from traditional IRAs to Roth IRAs (conversions)

– Trustee-to-trustee transfers to another IRA (not considered a rollover by the IRS)

– IRA-to-plan rollovers

– Plan-to-IRA rollovers

– Plan-to-plan rollovers

10. Not Managing Your IRA Assets

The biggest mistake you can make is not paying attention to the assets held within your IRA. It’s a good idea to review your asset allocation once or twice a year (not more frequently because you don’t want to react to short-term market swings). For help with this, see The Best Portfolio Balance.

Remember this is a long-term investment and the market will go up and down. Decide on an allocation that fits your tolerance level for the ups and downs. Generally, advisors today recommend that the growth portion of your portfolio should be 110 or 120 minus your age. So if you are 30, the percentage of your portfolio in growth stocks should be 80% or 90%. Stock portfolios should also be allocated among large cap stocks (big companies), mid cap stocks (mid-size companies) and small cap stocks (small companies). You also should have a good mix of industries in your portfolio. Mutual funds can help you get the proper mix if you have a small portfolio or you don’t have the time to research and pick stocks.

The Bottom Line

Be sure to start investing in an IRA early and regularly. It definitely is not something that should be put off until you are nearer to retirement.

Start by deciding whether to open a traditional IRA or a Roth. If you don’t need the tax break – or have a 401(k) – then a Roth IRA may be the better option if you meet the income requirements.

Follow the rules of whichever tax-advantaged retirement plan you choose and you can start saving your way toward a financially healthy retirement.

FFIG Objectivity.Innovation.Support

For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

Epstein, Lita. “Top 10 Mistakes To Avoid On Your IRA.” Web log post.Investopedia. N.p., n.d. Web. 22 Apr. 2015.

Social Security Tax Facts You Need To Know (www.futurityfirst.com)


The Social Security Act has established numerous programs which provide supplemental income for insured individuals and their families in the event of disability, when they retire, or at death. This supplemental income acts as a safety net — especially in old age — and keeps an estimated 43 percent of elderly American out of the poverty.

Congress passed the Social Security Act in 1935 and the retirement benefits program went into effect on January 1, 1937. The law has been amended many times since its original enactment.

With all these amendments, the taxation policy is complex for employers and individuals alike. Keep reading to find answers to 20 questions that are likely top of mind as your clients navigate tax season.

1. Are Social Security benefits subject to federal income taxation? 

Social Security retirement, survivor, and disability benefits may be subject to federal income taxes in some cases. The person who has the legal right to receive the benefits must determine if the benefits are taxable. For example, if a parent and child both receive benefits, but the payment for the child is made to the parent’s account, the parent must use only the parent’s portion of the benefits in figuring if benefits are taxable. The portion of the benefits that belongs to the child must be added to the child’s other income to see if any of those benefits are taxable.

If the only income a person receives is Social Security benefits, the benefits generally are not taxable and he probably does not need to file a tax return. However, if a person has other income in addition to benefits, he may have to file a return (even if none of the benefits are taxable).

If the total of a person’s income plus half of his or her benefits is more than the base amount, some of the benefits are taxable. Included in the person’s total income is any tax-exempt interest income, excludable interest from United States savings bonds, and excludable income earned in a foreign country, United States possession, or Puerto Rico. 

Voluntary federal income tax withholding is allowed on Social Security benefits. Recipients may submit a Form W-4V if they want federal income tax withheld from their benefits. Beneficiaries are able to choose withholding at 7 percent, 10 percent, 15 percent, or 25 percent of their total benefit payment.

2. What are the base amounts? 

The base amount is as follows, depending upon a person’s filing status:[1]

  • $32,000 for married couples filing jointly
  • $0 for married couples filing separately and who lived together at any time during the year
  • $25,000 for other taxpayers

If a person is married and files a joint return, the person and his spouse must combine their incomes and their Social Security benefits when figuring if any of their combined benefits are taxable. Even if the spouse did not receive any benefits, the person must add the spouse’s income to his when figuring if any of his benefits are taxable.

Example. Jim and Julie Smith are filing a joint return for 2013 and both received Social Security benefits during the year. Jim received net benefits of $6,600, while Julie received net benefits of $2,400. Jim also received a taxable pension of $10,000 and interest income of $500. Jim did not have any tax-exempt interest income. Jim and Julie’s Social Security benefits are not taxable for 2013 because the sum of their income ($10,500) and one-half of their benefits ($9,000 ÷ 2 = $4,500) is not more than their base amount ($32,000).

Any repayment of Social Security benefits a person made during the year must be subtracted from the gross benefits received. It does not matter whether the repayment was for a benefit the person received in that year or in an earlier year.

3. What portion of Social Security benefits are subject to income taxes?

The amount of benefits to be included in taxable income depends on the person’s total income plus half his or her Social Security benefits. The higher the total, the more benefits a person must include in taxable income. Depending upon a person’s income, he or she may be required to include either up to 50 percent or up to 85 percent of benefits in income.

50 Percent Taxable

If a person’s income plus half of his Social Security benefits is more than the following base amount for his filing status, up to 50 percent of his or her benefits will be included in his or her gross income:[1]

  • $32,000 for married couples filing jointly
  • $0 for married couples filing separately and who lived together at any time during the year
  • $25,000 for all other taxpayers

85 Percent Taxable

If a person’s income plus half of his or her Social Security benefits is more than the following adjusted base amountfor his or her filing status, up to 85 percent of his or her benefits will be included in his or her gross income:[2]

  • $44,000 for married couples filing jointly
  • $0 for married couples filing separately and who lived together at any time during the year
  • $34,000 for other taxpayers

If a person is married filing separately and lived with his or her spouse at any time during the year, up to 85 percent of his or her benefits will be included in his or her gross income.

Stenken, Joseph. “20 Social Security Tax Facts You Need to Know.” Web log post. LifeHealthPro. N.p., 7 Apr. 2015. Web. 20 Apr. 2015.

FFIG grow your practice

For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

Does your job make you a stock or a bond in life? (www.futurityfirst.com)


For those who are still of working age, the most valuable asset is often not a retirement portfolio or even a residence; it’s one’s own ability to continue to earn income through employment.

In fact, for those who are relatively young, the cumulative fruits of labor are a form of “human capital” that overwhelmingly trumps the value of everything else combined.

The reason why this is significant is that the value of human capital is one’s largest asset. So it’s crucial to effectively manage the risk that it may rise and fall over time. For some people, the value of their human capital can be quite volatile, especially those in corporate and/or entrepreneurial positions, where their personal income can bounce around just like the stock of the company they work for.

By contrast, jobs in more stable industries and professions—such as being a tenured professor or working for the government—produce a consistent employment income, not unlike the ongoing payments from a bond.

Read MoreTop tips for job seekers

Ultimately, given both the size of the human capital asset and the fact that some careers are more bondlike while others are more stocklike, effective diversification of your entire household balance sheet might even require you to use your financial capital just to counterbalance the risks of human capital.

For instance, those with stocklike careers might own more bonds, while those with bondlike careers can afford to own more stocks. Similarly, decisions about savings should recognize that sometimes, investing in human capital can actually produce a greater return on investment than saving—even better than buying stocks in a Roth individual retirement account for the long run.

So the next time you’re considering your portfolio allocation, remember to consider whether your human capital behaves more like a stock or a bond, and diversify your portfolio against it accordingly.

What human capital’s worth

The concept of “human capital” draws primarily from research in lifecycle finance. The basic principle is relatively straightforward: Your future earning potential over your lifetime is a significant asset, and over time, that asset pays out its value as a series of employment paychecks.

To the extent those human capital payments support your lifestyle, they are spent; any remainder is allocated to savings and becomes financial capital to fund your future lifestyle instead.

Over time, as we go through our working years, our human capital is slowly depleted, until the point that we reach the end of our working career, transition into retirement and no longer have employment earnings. At that point—for better or for worse—we rely on the financial capital we accumulated from prior earnings to sustain our lifestyle going forward into retirement.

However, the reality is that the conversion of our human capital into consumption, and financial capital for future consumption, is not always a smooth process. Instead, the economic value of our human capital itself is volatile over time.

Its value ebbs and flows—sometimes quite dramatically—as our employment situation changes; while we can project regular cost-of-living (or perhaps additional real) increases in income over time, it’s hard to clearly model bonuses, promotions, layoffs, new business ventures, etc.

And the reality is that some career paths—and their associated economic value—are much more volatile than others.

Stock or bond?

The idea of viewing one’s human capital as being analogous to either a stock or a bond is a concept that Zvi Bodie, an economist and lifecycle finance researcher, has advocated (this is where I first heard the concept expressed). Retirement researcher Moshe Milevsky has actually published a book on the principle, entitled “Are You a Stock or a Bond?” as well. The concept is tied to the recognition that when looking at human capital, not all careers experience the same kind of volatility, risks and returns.

For instance, those with jobs like working for the government, or perhaps Bodie’s own position as a tenured professor, might be considered “bondlike” positions. Their long-term value is stable, with little income fluctuation from year to year outside of cost-of-living inflation adjustments and an extremely low risk of being terminated.

Income generally continues in a stable manner until the individual decides he/she would like to retire and no longer work or perhaps is forced into such a transition due to a change in health.

By contrast, those climbing the corporate ladder, and many self-employed individuals and entrepreneurs launching their businesses, have a human capital value that behaves much more like a volatile stock.

It can go through abrupt changes up or down as “news” occurs (such as a big job promotion or landing a key new client or, alternatively, being demoted or getting fired).

In fact, because many of these changes in human capital may be tied to the overall economic environment—which impacts the business, whether hiring or layoffs are occurring, etc.—the reality is that your estimated human capital value in such stocklike careers may literally show a high correlation to the stock market itself. Or viewed another way, some careers may have a very high market beta.

Similarly, just as it’s much more difficult than a bond to accurately value a stock—where the future cash flows and therefore their associated present value are so uncertain—so, too, it is much more difficult to accurately estimate the human capital value of a stocklike career than a bondlike career.

Financial and human capital meet

Given the difficulty of valuing human capital in the first place—especially for stocklike career paths—with both the volatility that it faces (e.g., due to the business/economic cycle, big career promotions, potential layoffs, etc.) and also the sheer uncertainty of when/whether any of those events will happen, planning for the risks of human capital should be crucial to the financial-planning process.

That applies especially to Gen Y and younger members of Gen X, who have many career years ahead. Some strategies, such as disability insurance, are fairly straightforward. But recognizing and managing the risks to human capital are about more than just effective insurance.

From the perspective of a holistic balance sheet, which incorporates both financial and human capital, effective diversification implies that if your human capital is stocklike with a high beta, the actual financial portfolio should be more lower beta, more conservative and bondlike (or perhaps even with a large outright cash allocation) to diversify and manage the aggregate volatility of the household balance sheet.

Conversely, those whose human capital is more bondlike have more of a career and human capital buffer against financial uncertainty and can afford to take more portfolio risk.

By contrast, in practice it seems that those who have a higher level of risk tolerance tend to choose both high-beta stocklike careers and high-beta stocklike portfolios, while more conservative low-beta-oriented people often have bondlike careers and bondlike portfolios. That suggests that many or most of us are diversifying improperly, because we are failing to view our personal balance sheet holistically.

Conservative career seekers choose conservative portfolios, and those more aggressive with their careers tend to be aggressive with their portfolios; in both cases, the portfolio is just extended in the direction of the career risks rather than diversifying against them.

Similarly, the fact that stocklike careers may have far more uncertainty about the end date—when human capital may cease and the newly unemployed/retired have to rely solely on financial capital—than bondlike careers suggests that investing toward a goal like retirement in particular might be conducted differently.

Given that more volatile, equity-centric portfolios have greater “retirement date” risk—and therefore a greater risk of being misaligned with an involuntary retirement transition—it again appears crucial to ensure that human and financial capital are properly diversified and complement/counterbalance risks rather than amplifying them.

“Making effective decisions about whether to invest in human capital, how to best ‘convert’ it to financial capital and how much risk to take with financial capital given your risks of human capital should be key financial planning decisions.”

Another important distinction of stocklike vs. bondlike careers is the relative value of making investments in human capital—i.e., spending money in ways that might advance a career, such as additional education, training, certifications, etc.

This is especially true for those who are younger and in the earlier stages of their career, where even if money spent on training and education doesn’t yield an immediate return, if it increases the overall upward trajectory of income, the “return on [human capital] investment” can be significant.

In fact, modest investments in human capital for those in their early careers can create dramatically more economic value than even long-term compounding of savings in a Roth IRA, implying that a more careful analysis of where/whether to “save early” in retirement accounts is really appropriate.

The bottom line, though, is simply this: Human capital is a key asset for those still working, and for younger workers in particular, it may represent 50 percent, 75 percent or even 95 percent-plus of their entire net worth.

As a result, making effective decisions about whether to invest in human capital, how to best “convert” it to financial capital and how much risk to take with financial capital given your risks of human capital should be key financial planning decisions.

Perhaps as a starting point, though, we should at least begin to make an attempt to look at human capital on our household balance sheet, to recognize the prospective economic value that is there, and be sure it is managed—and diversified—appropriately.

Kitces, Michael. “Does Your Job Make You a Stock or a Bond in Life?” Web log post. CNBC. N.p., n.d. Web. 17 Apr. 2015.

FFIG grow your practice

For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

How You Can Best Invest In 401(k)s, IRAs (www.futurityfirst.com)


Most workplace retirement plans offer a variety of investment options, ranging from low risk—such as money market funds—to high risk, like stock funds, with many flavors in between.

Knowing which of these offers you the best chance to earn a decent return can be confusing and daunting. Here I’ll explain how to invest in a way that can help you reach your retirement goals.

Your current contributions: Simply put, the best way to invest the money that’s regularly deducted from your paycheck is to invest in stock funds.

Too risky, you say? That might appear to be the case when we recall that, during the 2008 credit crisis, the Dow Jones Industrial Average fell 54 percent in just 18 months.

However, I’m not talking about investing a lump sum in the market at once. Instead, you’re putting in only a small amount from each paycheck, a strategy known as dollar cost averaging. If the market happens to be down at the time your contribution goes in, it simply buys more stocks—as if buying them on sale! Later, when the market bounces back, you will enjoy a greater profit.

I often espouse the importance of having a well-diversified portfolio, owning a wide range of asset classes for the long term. That’s diversification by asset class. Dollar cost averaging is simply diversification by time.

Here’s an example of how this might have worked during the 2008 crisis: If you invested at the market high on Oct. 9, 2007, and stopped there, your balance would have been down 54 percent at the low on March 9, 2009, and you wouldn’t have returned to the break-even point until March 5, 2013.

But if you were contributing regularly all that time—say, $1,000 a month—your loss on March 9, 2009, would have been about a third less than the Dow’s, and you would have recovered your losses by January 2011—more than two years before the Dow itself did.

What’s wrong with the other choices available in your plan? Some, including bonds, cash and other types of assets, might be appropriate later, when you’re ready to diversify the money you’ve accumulated, but stock funds deliver the best returns for your new contributions.

Instead of trying to choose which individual stock funds will perform best, invest in as many stocks as possible that vary by style (growth and value), cap (large, medium and small), sector (type of industry or geographical location) and so on.

You’ll invest in all of these through mutual funds or—preferably, if you can—exchange-traded funds, which offer many advantages, including much lower cost.

If, instead of a 401(k), your employer offers another type of retirement plan—such as a 401(b) or 457—stock funds are still your best option. Fixed annuities usually provide low returns. Variable annuities are just mutual funds wrapped in insurance, making them far costlier, unless your company offers groups of annuities, which can be lower in cost.

Edelman, Ric. “How to Best Invest in 401(k)s, IRAs.” Web log post. CNBC. N.p., 2 June 2014. Web. 16 Apr. 2015.

FFIG grow your practice

For more information, contact our Recruiting Manager Allie Vossoughi at allievossoughi@ffig.com & 602-314-7580, or Thomas Shultz, Managing Director  at thomasshultz@ffig.com & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at nancymonaco@ffig.com & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at thomasbugbee@ffig.com & 602-314-7580.

Thomas Bugbee

Futurity First Insurance Group

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