Skip the Fake News and Choose Boring Investments

When it comes to investing, most who are successful use a simple formula to achieve results. For starters, successful investors actually research different investment strategies before moving ahead—and this is after they study their strategy’s fees and historical data. Lastly, successful investors typically pick a single strategy and stick with it for the long haul—that is, they don’t flip and flop as the markets go up and down.

Unfortunately, far too many investors fail to master each of these steps. While most investors are great at picking an investment, too many are awful when it comes to research and execution. And, you know what they say about failing to plan? Failing to plan is akin to planning to fail. Because they fail to plan, many investors unnecessarily lose money over time.

Investing Success Requires Discipline

If you’re feeling like this blog post is boring so far, you’re absolutely right. I made it boring for a reason. Why? Because of this simple truth: To become successful in investing, your strategy must be absolutely boring. Let’s put it this way—your investing strategy should be less exciting than watching paint dry.

Unfortunately, many investors (including financial planners) aren’t that great at being bored. So, they skip the boring stuff (research and planning) and wax poetic about the latest investment strategy they’ve just landed upon. Is it gold? How about dividend investing? Bitcoin? Marijuana?

Why do people do this? Why do they jump from one investment strategy to another—never even bothering to see through (or even measure) the merit of their idea? Because the alternative approach is hard work—and it’s very boring. 

After all, exclaiming, “I believe in Jeff Bezos!” (the CEO of Amazon) and proceeding to purchase shares of AMZN at any price is a lot less boring than sifting through the financial statements of a company to measure their profitability.

What Happens When You Apply Discipline (and Boredom) to Investing?

If you’ve ever done research on investing (no, reading Forbes articles on the latest and greatest investing ideas don’t count), you’ll quickly come to the conclusion that low-cost, buy-and-hold investing trumps every other investment idea. Moreover, diversification reduces risk. But, reading such research takes time and focus—both of which are finite. And of course, too much research can become especially boring. (For related reading, see: The Importance of Diversification.)

But, as with most things in life, discipline is required for success. Looking to shed a few pounds? You’ll likely need some discipline in your diet. Looking to complete a marathon? You’ll likely need to stick with a training regimen. Are you looking to connect with a special someone in your life? You’re going to need to put some effort into finding your ideal mate.

Financial Media Is Fake News

All of the above explains why so much of the financial media is fake news. Real financial advice is boring and repetitive, and that doesn’t make for good media content.

Consumers don’t want to hear the same boring advice over and over again. They want to hear something new and exciting. If they don’t, they’ll change the channel. (For related reading, see: Fake News Is a Real Problem Among Teens.)

How long do you think Forbes or CNBC would stay in business if Monday’s headline on the value of low-cost, buy-and-hold investing was followed by Tuesday’s headline that low-cost, buy-and-hold investing outperforms? Not very long, unfortunately. As a result, the only way these media outlets can continue to exist is if they scream about the latest (interesting and sexy) investing trends—things like marijuana, bitcoin, gold or dividend investing.

Let’s face it: real financial advice is very, very boring. But, it works. 

Financial Success in Itself Is Not Entertaining

Perhaps this is the real crux of the problem. Because financial entertainment is sometimes portrayed as news, it’s easy for people to get confused.

But, as we’ve outlined, financial entertainment is not the same thing as news. Is paying your utility bill on time fun and entertaining? Of course not. It’s super boring. But it works. It saves you fees for late payment and prevents the water from being shut off.

Are you going to hear about that on the nightly news? Of course not.

So, here’s my advice: Make sure your financial plan and your financial entertainment lead separate lives. If you insist on subjecting yourself to the financial mass media, know that you are consuming it for entertainment purposes only. Jim Cramer is very entertaining, but he is a terrible investor. If you want to be successful, don’t follow the crowd or listen to blow-hard media investing gurus who are paid for clicks.

Make sure your investments are boring instead, and you’ll almost always end up ahead.

CR: https://www.investopedia.com/advisor-network/articles/skip-fake-news-and-choose-boring-investments/

Health Savings Account: Your Extra Retirement Funds

What if I told you there was a way to save $2.5 million tax-free forever? Interested?

By now you’ve probably heard about the health savings account (HSA). It was invented by Congress in 2003 as a way to give people more control over how their money was spent on healthcare. The idea was simple: if we can get more people to spend less on healthcare premiums and take the difference and stick it in an account, then we will lower healthcare costs over time. Why? Because individuals will be “voting with their dollars” on healthcare services, thereby increasing competition and lowering costs.

Whether or not the theory has panned out is open to debate, and not really the point of this post. So I’ll spare you the political pontification. Instead, let’s talk about a way to use an HSA more as a retirement plan than as a savings account for healthcare expenses. (For related reading, see: How and When to Use Your HSA Funds.)

How Health Savings Accounts Work

Let’s start with the basics. First, it’s important to remember that an HSA can only be funded by someone covered by a high-deductible health plan (HDHP). HDHPs are health insurance plans with lower premiums but higher out-of-pocket costs, and with the rise of healthcare costs in the United States over the last decade, they have grown significantly in popularity. Generally speaking, someone with an HDHP will pay for their own expenses to the tune of several thousand dollars before the insurance plan will kick in.

Now while paying out-of-pocket for healthcare is annoying, especially for those used to the more traditional health insurance plans with low deductibles and co-pays, the tradeoff is a lower monthly premium for the HDHP. And for catastrophic situations involving tens of thousands of dollars in medical bills, HDHPs offer full protection once the patient’s share of the costs reach the plan’s maximum out-of-pocket limit. For younger folks in good health, they usually come out even or slightly ahead with an HDHP due to the lower monthly premiums.

Second, the HSA is simply an account where you can contribute funds tax-deferred (i.e. untaxed) to be used in case of medical expenses that have to be paid out-of-pocket. If no healthcare expenses are incurred, then the funds in the account can be rolled over from year to year, all the way to retirement age and beyond. Some health savings account providers allow you to invest the funds in stock mutual funds, thereby allowing the account to compound over time. More on that in a minute… (For more from this author, see: How Much Does Frivolous Spending Cost You?)

The Tax Benefits of a Health Savings Account

HSAs are unique in that they are the only account that gets a tax deduction on the contributions, can grow completely tax-free for years, and, if used for medical costs, are tax-free when withdrawn. There is absolutely no other account in existence that has this triple tax benefit!

Now, if you open and use a health savings account every year as intended, it’s a pretty sweet deal. Triple tax bang for your buck, you can’t beat that, right? Well, actually you can. I don’t use an HSA as intended; instead, I fund my HSA every year and never take a withdrawal, even if I have qualifying medical expenses. Why? Because to really maximize the tax benefits you want to delay withdrawals to enhance the tax-deferral effect. So I use my HSA as a supplemental retirement plan and plan to not take any withdrawals until age 65 or later.

At age 65, the health savings account allows me to take withdrawals for anything, whether medical expenses or not, without penalty. (Before age 65, non-medical withdrawals are penalized at 20%). You pay ordinary income tax after 65 on non-medical withdrawals, but that’s just like a 401(k) or IRA. Since you’ll probably be in a lower tax bracket in retirement because you won't be working, even that scenario is not a bad deal. (For related reading, see: Should Parents Save Towards College or Retirement?)

But that’s still not the best way to get the money out.

Tax-Free Withdrawals from an HSA in Retirement

Again, any withdrawals for qualified healthcare expenses are tax-free, whether they happen in retirement or not. Now obviously, healthcare expenses tend to increase in one’s golden years, but it’s also easy to underestimate how much money one could accumulate in an HSA if you contribute the maximum every year and never take a withdrawal.

If we assume a hypothetical person starts at age 25, and contributes the maximum amount into a health savings account every year without taking a withdrawal before retirement, that account could grow to a surprisingly large amount. Let’s just use a 10% return over that time period, which is approximately the long-term average return of the U.S. stock market. By doing this, I get a whopping $2.5 million account to be enjoyed in retirement! (For related reading, see: Using Your HSA as a Retirement Savings Tool.)

Now even though healthcare costs are certain to be expensive in old age, there is obviously a chance that our hypothetical person will not incur enough expenses to withdraw everything from the account on a tax-free basis. That’s why there’s one more wonderful feature of the HSA to know about.

Health savings accounts also allow you to take withdrawals for medical expenses that happened in the past. Therefore, you could save up hundreds of receipts for expenses you paid decades earlier, and withdraw those funds tax-free in retirement. As long as you have the documentation and you weren’t reimbursed for these expenses by your insurance or your employer, you should be good in the eyes of the IRS.

The Bottom Line

The health savings account presents a marvelous opportunity for the savvy investor to shelter money from taxes. He or she just has to follow a few rules, and avail himself of thousands (even millions!) in tax savings. For more information, please consult IRS publication 969. (For more from this author, see: The Big Difference Between Good Debt and Bad Debt.)

CR: https://www.investopedia.com/advisor-network/articles/020817/health-savings-account-your-extra-retirement-funds/

20 Financial Facts You Should Know by Age 35

You’ve heard numerous financial terms by the time you are in your 30s. But how many of them have stuck, and which ones are relevant to you? Here are some important financial terms you’ll need to know to manage your finances. These 20 questions and answers will give you essential knowledge about financial topics that directly affect your decisions and your life. 

1. What Do I Include in My Budget?

Your budget should contain your essential monthly expenses such as your rent or mortgage, utility bills, credit cards, student loans, food and childcare expenses. After your obligations are met, your budget should also include money you save for emergencies, retirement or any other financial goal, as well as money to pay down any debt you have (student loans, credit cards, private loans etc.). You will also want to add in some extra cash under a miscellaneous or discretionary category for entertainment, a weekend trip or other activity you enjoy so you have built-in funds for pleasure and relaxation as well.

2. How Much Should I Have in My Emergency Fund?

Typically, an emergency fund containing enough cash for three to six months’ living expenses is recommended. This will help you if you get sick, lose your job or suffer some unexpected bigger expense. (For related reading, see: How to Build an Emergency Fund.)

3. What’s My Net Worth?

Net worth in financial terms is equivalent to the value of your assets (such as your cash, property, checking and savings accounts balances, and any investments you have) after you have subtracted your liabilities (such as your debt and any other bills and financial obligations you have. Knowing your net worth can help you gain comprehensive insight into your financial well-being. You can see where you can improve and what strengths you have already.

4. What’s the Difference Between a Money Market and a Savings Account?

Both savings and money market accounts (MMAs) offer you ways to grow your money. They are also both government-insured and limit you to six withdrawals per month or you incur a penalty. MMAs usually have higher interest rates, but they also have higher minimum balance requirements. They also typically offer check-writing capabilities and ATM cards.

5. What’s a CD?

A certificate of deposit (CD) is a way of putting aside money at a guaranteed interest rate over a certain amount of time. CDs are usually bought from banks. CDs usually offer higher interest rates than savings accounts. You cannot access the cash during that period of time without paying a large penalty. CDs are useful for short-term growth. Stocks and bonds are typically considered longer term investments for cash you do not need to use within the next year or two.

6. What’s a Credit Score and What Is It Based on?

A credit score is a three-digit number indicating the likelihood you will pay back any debt you owe. The higher the score, the higher your credit, which in turn means lenders will offer you better rates as you are more likely to pay back your debt and thus pose a lower risk. FICO scores are used most often, ranging from 300 to 850.

Credit scores are based on five factors: payment history, length of credit history, credit utilization ratio, mix of credit types and number of credit inquiries.

An excellent FICO score is 750 and up. 700 to 749 is considered good credit. Having a good score can give you access to a variety of loans and credit cards. Having an excellent score will give you a better deal as you will have a lower interest rate.

7. How Do I Improve My Credit Score?

Paying your bills on time is the number one way to improve your credit score, as this accounts for as much as 35% of the score calculation. You can also increase your score by paying down your existing debt, such as your credit cards or loans, so your credit utilization ratio improves (the less available credit you use, the better). Paying down a credit card significantly can dramatically increase your credit score. (For more from this author, see: Why You Should Improve Your Credit Score and How to do It.)

8. How Can I See My Credit Report?

You can order a credit report from any of the credit bureaus: Equifax, Experian or TransUnion. You can also get a free report once a year from all three through AnnualCreditReport.com.

9. How Much Debt Do I Owe?

This is an important question to know the answer to as an adult to be in control of your money and your life. This figure is personal to you and can include student loans, credit cards, personal loans, car loans, mortgages and more. You will also need to know the interest rate for each debt payment as well and an estimate of how long it will take you to pay off your debt.

10. What Is APR?

APR, or annual percentage rate, is the interest rate that your credit card company charges you for your unpaid balance. This can vary based on the prime rate determined by the Federal Reserve and the fee your lender adds. APR can also vary depending on whether it is used for a purchase, balance transfer or cash advance.

The following terms are related specifically to investing and retirement:

11. How Are Stocks and Bonds Different?

Stocks give you shares in a public company’s assets and earnings. Your shares go up and down in value according to the company’s financial well-being and performance. Bonds are similar to loans that you give to an institution, such as the government or a corporation, where you lend money and expect to be paid back with interest at a specific time. Bonds are typically considered safer than stocks but also have a lower growth rate. Look at a bond’s rating before buying.

12. What Is a dividend?

A dividend is a payment of earnings a company gives shareholders periodically via cash or more stock. This can be a good way to receive income while investing. Dividends are taxable. (For related reading, see: Put Dividends to Work in Your Portfolio.)

13. What’s the Difference Between Passive and Active Funds?

Both of these terms refer to how an investment fund is managed. Passive funds are minimally managed and have lower fees. Actively managed funds have active management aimed to beat standard index returns.

14. What’s the Difference Between Mutual Funds and ETFs?

Mutual funds are based on the net asset value (NAV) determined daily at the close of trading. They generally cost more than exchange-traded funds (ETFs). An ETF tracks indices, are passively managed and have lower fees. They also are traded at different prices throughout the day. (For more from this author, see: Exchange-Traded Funds: Diversified and Affordable.)

15. What Is an Expense Ratio?

An expense ratio helps you figure out how much it costs you to run a fund. This includes all the fees you pay for management, keeping records, taxes and custodial services. You calculate the expense ratio by dividing operating expenses by the average dollar value of the fund’s assets. Expenses can really add up, so look for funds with lower expense ratios.

16. What Is Diversification in Investing?

Diversification simply means having a variety of investments spread across different assets such as stocks and bonds, CDs and cash.

17. What Is Compounding and How Does It Work?

While with simple interest you only have interest applied to the principal, compounding occurs when your interest earns interest. Compounding helps you grow your money faster. Money you invest in the stock market enjoys the benefits of compound interest. (For related reading, see: The Effect of Compounding.)

18. What’s a 401(k)?

A 401(k) plan is a retirement account sponsored by an employer that lets you contribute money pre-tax. Some employers offer matching contributions. Taking out money before the age of 59.5  incurs a 10% penalty. In 2017 you could contribute up to $18,000 in pre-tax dollars.

19. How Do Roth and Traditional IRAs Differ?

An IRA is an individual retirement account with tax advantages. While a traditional IRA lets you stock away cash pre-tax, you have to pay tax when you withdraw. Roth IRAs require tax payment up front but then you can grow your money tax-free.

20. How Should I Save for Retirement If I Am Self-Employed?

If you are self-employed, you can still use IRAs (max of $5,500 a year as of 2017). You can also consider doing a solo 401(k) plan, a SEP IRA or SIMPLE IRA (savings incentive match plan). With a solo 401(k), you can contribute the annual amount of $18,000 (in 2017) plus an employer match, allowing for even bigger savings.

(For more from this author, see: Buying a House? Here are 6 Things You Need to Do.)

CR: https://www.investopedia.com/advisor-network/articles/20-questions-you-should-know-how-answer-age-35-part-1/ 

5 Factors to Consider Before Picking Stocks

Although it must be clear that what happens to prices of stocks over short periods of time is largely a reflection of changes in investor psychology, there is more than enough information readily available to assist in the process of identifying issues that have a better-than-average chance of outperforming the market. Understanding the importance of this information is the difference between the astute investor and one who is awash in incomprehensible data.

In my early training as an analyst at the prestigious Value Line organization, I was part of a group of dozens of researchers who assembled and published a comprehensive range of data on well over 1,000 of the most actively traded companies. Each single-page report contained numerous data points as well as concise commentary about the companies covered. Yet the reality was there were only a handful of key factors that told the tale of where things stood. Things have not changed in today's world of information overload.

However you go about this process, it's essential to be aware that stock selection must lead to portfolio selection. By analogy, the task is that of picking a team with a dozen or more well-chosen players. It is most certainly not an effort aimed at coming up with only one or two superstars.

1. Price-Earnings Growth Ratio

The price-earnings growth ratio (PEG) is a good starting point. Just because a company is growing quickly doesn't mean it's a great investment. Yes, more rapid growth generally leads to high valuations (price-earnings ratios) and there are ranges of past valuation that can be helpful in evaluating the richness of the current valuation. Even so, there are guidelines worth paying attention to. That's where the PEG comes in.

The PEG is calculated by dividing the price-earnings ratio (P/E) by the prospective rate of growth. So if the P/E is 20 and the growth rate is 10%, the PEG would be 2.0. Although there's no strict rule of thumb, the typical range for a PEG would be between 1.0 and 2.0, so in this example, the PEG would be considered to be stretched. (For more from this author, see: Understanding Stock Valuations: Price-Earnings Ratio.)

At a time when overall market valuations are rich, as they are now, there will be fewer stocks with low PEG ratios, but most of the time there will be an adequate supply to choose from.

2. Relative Strength Index

The relative strength index (RSI) is a measure of a stock's price performance compared to that of the market generally. For most stocks, this index will range between 30 and 70, the latter being the strongest performers at a point in time. The majority will be somewhere in the middle, between 40 and 60.

The RSI is more of a check than a positive indicator. If all of the fundamental criteria are pointing toward a favorable finding, it's important to confirm that the RSI is not pointing strongly in an opposite direction. That may well be the case if the RSI number is toward 30 or lower. When that happens, there is an increased likelihood that some part of the fundamental evaluation is flawed.

3. Consistent Earnings Growth

There's nothing like consistency of earnings growth to help expand stock valuations. If over time earnings have grown steadily and without interruption, there will be good reason for investors to be confident that more of the same lies ahead. Always check at least the latest three years. (For related reading, see: Steady Growth Stocks Win the Race.)

The flip-side is that if prospects for the period ahead are for a pullback, it's likely the price action of the stock will suffer. The market looks ahead and needs to like what it's seeing.

4. Coefficient Variance

The coefficient of variance (CV) is a scary-sounding term, but it's really quite simple. It's a measure of the consistency of analysts' earnings estimates. The CV generally ranges from zero to about 15. A low CV would be up to 4.0, suggesting there's a reasonable consensus among analysts. As the CV climbs above 4.0, there is increasing reason to believe that the analysts really have little confidence in their estimates.

The upshot of a high CV is that there's a good chance of a significant earnings surprise. If the surprise is on the upside, that will probably help the stock. If it's a disappointment, it could be timber-r-r. Where to find the CV? Marketwatch.

5. Free Cash Flow

Free cash flow (FCF) is another variable that can have a disproportionate effect on the price of a stock. FCF is the cash that's left over after taxes, capital expenditures and debt repayments. When there's free cash flow, there's capital available for further company expansion.

A growing company with consistent free cash flow is worth watching, especially because available funds are often constrained during the early years. Excess funds being generated on a regular basis is one of the more powerful factors in fueling a good future stock performance.

When these five factors come together, it's often a good indication of a stock worth considering for addition to one's portfolio. Still, a qualitative assessment should follow before pulling the trigger.

(For more from this author, see: Stock Picking: Keys to Successful Investments.)

CR: https://www.investopedia.com/advisor-network/articles/5-factors-consider-picking-stocks/

The 3 Unbreakable Rules for Financial Success

I recently had a friend ask me what the three most important pieces of advice you could give someone about their finances. I thought this was an excellent question and one that many others likely had as well. This really made me think, “If I could only provide three pieces of advice, what would they be?"

When it comes to your overall financial success, mastering these financial rules can provide the sturdy foundation needed to build your wealth. And the steps to financial success are probably far less complicated than you imagined. What is the most impactful information I could pass on? (For more, see: 10 Common Traits of Wealthy Investors.)

First, let’s define good financial health as being that you have the means to achieve all of your goals (whatever they may be). So how can you reach your goals consistently over the course of your lifetime? Here are the three unbreakable rules everyone should follow to set themselves up for financial success:

1. Live Within Your Means

It might seem like stating the obvious, but living within your means is so fundamental to financial success that it can't be repeated often enough. In fact, never mind something as lofty as financial success. Common sense tells us that if we spend more than we make, our overall net worth will drop.

But what exactly are we trying to say when we insist you that live within your means? Simply put, living within your means entails having enough left over each month to invest, save and contribute to your retirement fund goals. Ideally, you should save and invest 20% of your net income. Seems high? Being committed to your future financial success means you have the discipline and willingness to put your money to work for you.
Remember, time is your greatest asset to growing your wealth if you start early because of the compound interest your money earns when you are a consistent saver over a long period of time. Also, if it was easy everyone would be financially successful.

So now we know what it means to live within in your means. How do we do it? Check out this article to learn how truly successful people prioritize their finances.

2. Keep it Simple

No matter what area of your financial life we are talking about, the simpler the better. How do we keep it simple? For example, when it comes to cash management you can:

• Reduce the number of checking, savings and investing accounts you have.
• Automate as much of your bill paying as you can.
• Automate your savings and investing so money comes directly out of your paycheck or checking account into your savings account every time you are paid.
• Don’t carry around your credit cards with you so you won’t be tempted to use them.

On the investing side, if you don’t understand an investment and someone can’t explain it to you simply in a few minutes, walk away. Financial services is one area in life where complexity does not mean “better.”

3. Don’t Chase the Next Big Thing and Be Patient

The third unbreakable rule has two parts. It's imperative that you keep your investment strategy simple. Here are two ways to accomplish this:

• Don't chase the next big thing (see my article on Bitcoin). You don’t need to hit a home run to grow wealth. You do need average market returns. You also can’t afford to strike out. No matter how tempting it becomes to invest in a suddenly flourishing sector, you must keep your portfolio diverse at all costs.
• Be patient. Don't succumb to the whims of the market when things get volatile because they will. If you are invested properly (in line with your risk tolerance and goals) you shouldn’t have to make any drastic changes.

Conclusion

While it's true that every investor is different, there are some rules that the most successful ones always follow. Some people say that investing is little more than a refined form of gambling, but this is only true in an extremely limited sense. Yes, investing does involve risk and a small amount of what some might call chance. But anyone in the investment game for the long haul must understand that success and failure depend entirely upon your temperament habits and decision behaviors. Following these three unbreakable rules will help you improve both and achieve financial success. (For more from this author, see: Tips for Talking to Your Partner About Budgets.)

CR: https://www.investopedia.com/advisor-network/articles/3-unbreakable-rules-financial-success/

7 Things Widows Wished They Knew About Finances

One of the fastest growing groups of people in poverty is widows over the age of 65. That is a very scary statistic. Most widows confront financial illiteracy at the same time they have to deal with the emotional upheaval of one of the most stressful human experiences. Truly a double whammy.

Our culture does very little to derail this disaster since the women who are now widowed are the same ones who left everything up to their husbands. Becoming financially literate and taking an active role in their family’s finances was not considered a wife’s role. Given the high rate of divorce and the subsequent higher rates of second and later marriages, this norm must be abandoned and fast. (For related reading, see: What Happens to Retirement Accounts if a Spouse Dies?)

In my experience with women who were never enlightened to their family’s finances and those who relied solely on their husbands’ financial acumen or his advisors, they had several comments to make on the subject. The comments most often came under the things they wished they knew before they became widows.They are:

1. How Much Life Insurance Did My Husband Have and Where Are the Policies?

Her husband was an employee who had counted on the group policies the business had on his life. And when he retired, they soon discovered the life insurance they counted on was gone. It left once his retirement began. And the policies they bought while they were a young family also expired at age 65 and her insurance also went away. But she did not know that.

Her friend’s husband owned a business and he used the insurance policies to protect the borrowings he did while he owned the business. But once the debt of the business was paid off, the insurance also terminated. And the new owners of the business no longer needed to keep his life insurance or to pay its high premiums.

The large insurance policies they bought while their children were at home or still dependent also ended after a certain number of years (10 or 20) when the college education commitments were over. 

She wished she had the insurance policies somewhere in a box and if his advisor had included her in the conversation about it, she would have known that she was not going to receive any life insurance benefits. (For more, see: How Women in Transition Should Mind Their Finances.)

2. What Is the Balance (If Any) of the Mortgage on Home?

She wanted to believe the mortgage was paid off long ago but without an updated bank statement or even which bank it would be owed to, she knew nothing about a monthly mortgage payment or worse yet, money being put aside to pay the property taxes. What a huge bill that was. If she knew about this, she might have been able to put something aside to pay it.

And if there was a remaining mortgage balance, what should she do about it? Should she pay it off or keep paying on it monthly? Did she have a choice?

3. Where Should She Live?

She wished they had discussed this before he passed. She would love to move to the townhome they bought in Hilton Head, but what should she do with the big house they had in New Jersey? She had so many friends and colleagues in New Jersey and her life had been built around that social circle they had so intentionally cultivated. She loved their home in Hilton Head, but she knew very few people. That was supposed to be a place they would move to when he sold his business.Her children wanted her to move closer to them, each of the four of them. How should she handle this one?

4. Who Are Our Advisors?

Golfing buddies and county club friends were fine to get to know on a first-name basis but who are the ones she should trust? Her husband had introduced her to many lawyers, CPAs and investment guys but she didn’t really feel comfortable going to any of them for advice. She felt very intimidated by their whole presence - big conference tables, dark foreboding rooms, speaking in languages she did not understand. Maybe it was time to find someone she liked and trusted? She knew some of the bank names on the mailings but mostly she just put them in a pile for her husband to review.

5. Where Can She Find Their Paperwork?

She knew her husband did most of the financial stuff online and now she realized she had no idea what his user names and passwords were. She thought she might be able to get this info if she went to one of the bank sites he had as favorites, but most of these investment firms were nowhere near her home. Many of them were in large cities and with names she did not recognize. Maybe if she presented them with his death certificate that would be enough? (For related reading, see: How do Social Security Benefits for Widows or Widowers Work?)

She also knew he had a safe deposit box at home but again, no idea what the combination is to get into it. Maybe one of her sons might know?

How could she get some money if she needs some? Her name is on one of the bank accounts which she has used for her own personal needs including food shopping and doctor’s office visits. But that was a debit card and she had no idea how much was in the account.

He talked about a will but which law firm did the last one after their son’s marriage ended in divorce? She remembered signing the new will but doesn’t remember where a copy is.

6. How Much Can She Get in Social Security Benefits As a Widow?

She was already receiving Social Security benefits as his wife, but now that he is gone, is his Social Security check going as well? How will she survive without that check? Can she get a larger check if she reapplies under his benefits? This will make a big difference in her income either way, but she did not understand that she would lose his monthly check when he died. And where does she go to talk to someone about this? The funeral director told her he would do the paperwork to stop this, but will she have to pay back the check she got last week?

7. What Investments Do We Have?

She knew they had some investments with several of his friends who were in the business, but she does not know who they are or where to find them. She thinks there were business cards in the top shelf of his desk in the study. Maybe if she can find those cards, she might be able to get a hold of someone who can help her.

She remembered he was talking about the investments he put in some kind of trust which would help her if she died before him, but she knew nothing about that stuff. And it would be very helpful to her now if she knew something about what income she might get from that trust. And maybe there were other investment accounts she could use at this time?

She thought he had some retirement accounts at the business but once they sold that, she didn’t know where it went. Perhaps his former secretary at the office might have some direction for her but she was not sure. The human resources department was now out of state since the business sale happened so his former secretary might be able to help her get that contact info.

These are actual conversations I have had with women who came to see me well after the fact. Working with financial advisors who are sensitive to the needs of the less financially literate spouse (wife and husband) would have enabled each of them to have a better sense of confidence that they would know what will be available to them and their family members. (For more from this author, see: Deciding Where to Live After Losing Your Spouse.)

CR: https://www.investopedia.com/advisor-network/articles/7-things-widows-wished-they-knew-about-finances/

How Financial Wellness Benefits Employees

Dealing with personal finances can be stressful. Stress can have a negative impact on employee performance, in addition to other areas of life like personal relationships and overall health. Whether it is worrying about debt, paying bills or planning for retirement, financial concerns are at the forefront of our psyche. One way that employers or business owners can alleviate some of that stress is helping their employees work toward gaining financial wellness.

A Lack of Financial Wellness

Unfortunately, many of us lack the knowledge, skill set or inclination to tackle the many aspects of financial wellness. A survey by the American Psychological Association found money was the top source of stress for American adults. From an employer's perspective, a financial wellness program can lead to a more productive, engaged and happier workforce. A strong financial wellness program can help employees develop skills to manage money, effectively budget, set short- and long-term goals and plan for retirement. (For more, see: Employee Financial Wellness Programs.)

According to a 2017 PricewaterhouseCoopers (PwC) survey, 53% of employees feel stressed when dealing with their personal financial situation and 46% say financial challenges cause the most stress in their lives. Twenty-two percent of those surveyed said financial worries have impacted their productivity at work, and 12% said they have occasionally missed work due to financial worries.

Financial concerns can include worrying about retirement, maintaining a certain lifestyle, paying off debt, being able to cover monthly expenses and not having adequate emergency savings. These concerns don’t only apply to employees with lower incomes. Forty-four percent of workers making more than $75,000 per year listed not having enough emergency savings as their top financial concern. For workers making less than $75,000, 54% had the same concern.

In a 2011 study, Aon Hewitt reported 28% of workers participating in a 401(k) plan through their employer had a loan outstanding. While usually a better option than withdrawing funds or cashing out the plan, taking a 401(k) loan can ultimately prove to be a retirement setback if the employee is younger than 59½ years old and can’t repay the loan for whatever reason. That money will then be treated as a taxable distribution with a penalty and won’t be available for retirement in the future.

Implementing a Plan

Implementing a financial wellness program to address these types of topics and concerns can help combat your employees’ stress levels and help make them more confident in their financial decisions. Starting a financial wellness program doesn’t necessarily mean it needs to becomplex and expensive plan. Oftentimes, simple suggestions on cash management, debt reduction and retirement planning can have a large positive impact for employees. 

A successful financial wellness program not only focuses on the broader financial wellness topics, it also focuses on the simple but effective techniques that can make all the difference including training to help your employees build skills in budgeting, saving, debt reduction, retirement planning and helping them better prepare for unexpected financial emergencies. This approach can be beneficial to all employees and can be particularly useful to employees in their 30s and 40s who have many years to go before retirement.

Employees in their 50s and 60s who are closer to retirement can also benefit from these budgeting skills, and they will likely see value in retirement planning that can help them map out the next stage of their lives. The goal is to help your employees feel confident they are making the right financial decisions for the short- and long-term. Implementing a financial wellness program as part of your firm’s existing employee benefits program can help your firm and employees plan for a prosperous future together. (For more, see: Starting a Business? Embrace the Discomfort.)

CR: https://www.investopedia.com/advisor-network/articles/stop-employee-stress-through-financial-wellness/

7 Common Medicare Mistakes and How to Avoid Them

It’s that time of year, Medicare Open Enrollment is available again but you need to act fast as it ends December 7. Simply put, Medicare Open Enrollment is the period of time, once a year, when you can reevaluate the plan options you want. Knowing which plans options to choose is not so simple, as Medicare can be complicated. Unless you take the time to learn about Medicare’s various rules and deadlines, which is uncharted territory for many people, costly missteps and oversights can occur. (For related reading, see: The Costs of Medicare You Need to Know.)

To help protect yourself and your loved ones, make sure you are aware of the most common Medicare mistakes people make and how best to avoid them:

1. Making Medicare decisions without a basic understanding of how all of Medicare – Part A, Part B, Part C, and Part D – works. Medicare.gov offers the booklet titled “Medicare and You”, and your state SHIIP (Senior Health Insurance Information Program) can help you learn the basics about Medicare.
2. Using the sales pitch of just one insurance company or one sales person to make your Medicare decisions. Find an independent insurance agent who represents several companies. Make sure the agent shows you Medicare Advantage options and Medicare Supplement options.
3. Paying a Part D late enrollment penalty for life because of failure to sign up for it when first eligible. If you are taking few or no prescription drugs, if may be best to sign up for the least expensive Part D plan now to avoid high penalties later.
4. Paying the higher income beneficiary Part B and Part D surcharge IRMAA without trying to appeal it. Medicare uses your two prior years of tax returns to calculate IRMAA (Income-Related Monthly Adjustment Amount) and will consider appeals for reducing income.
5. Assuming all Medicare enrollment decisions are limited to open enrollment season (October 15 to December 7). Special enrollment periods are available throughout the year if you move, have a change in life circumstances, and/or qualify for LIS (Low-Income Subsidy, also called "Extra Help"). Medicare supplements can be changed 365 days per year.
6. Assuming Medicare and supplemental insurance pay for long-term care. Medicare pays very little for long-term care. Consider private long-term care insurance options.
7. Veterans choosing Part D without considering obtaining their prescription drugs through the VA. If later you are not happy with the VA, Medicare considers VA “creditable coverage,” and you can avoid the Part D late enrollment penalty.

While these mistakes are the most common, there are hundreds of mistakes that can be made when planning for Medicare. Make sure to contact a licensed independent insurance agent or your state SHIIP office with any other questions or problems that arise. This is important, as a wrong decision can cost you in the long–run. (For related reading, see: It's Time to Review Your Medicare Policy Coverage.)

CR: https://www.investopedia.com/advisor-network/articles/120116/7-common-medicare-mistakes-and-how-avoid-them/

The Four Key Principles to Investing in a Stock

For the past 20 years we have been learning the science of picking stocks to buy. Our methodology has improved dramatically since the early days of our firm and it continues to improve each year. Like every investor, when we first started in this industry we searched and searched for the one “system” that would produce the results we were looking for. The easier this system is the better it is for us. If we could find an easy system to make money for our clients–great!

In our attempt to find a system we soon learned that there was nothing simple about finding the ultimate stock-picking method. In fact, we soon found out the work that needed to be done to analyze a stock was long and exhausting, but well worth it. (For more, see: 5 Financial Strategies to Last a Lifetime)

Here are the four keys that we believe every stock investment should have. We did not invent these four things. They are core principles that investors, including Warren Buffett, have been following for decades.

1. Invest in sectors and industries that we understand.
2. Find companies that have long-term competitive advantages.
3. Look for companies with excellent management.
4. Buy when the stock is available at a good price, discounted to intrinsic value.

Let’s break these down one by one so you understand the methodology. 

Invest in Sectors and Industries We Understand

It would be naive and flat out risky for us to pretend that we know everything about every sector and industry. That’s impossible. You’ve heard the phrase, “Jack of all trades, master of none.” Well that’s what happens when you think you can be an expert in every sector and industry. Being the “jack of all trades” doesn’t work in the world of investing. In fact, more often than not it ends up as a losing proposition.

Becoming experts in certain areas of the market is the foundation for the next three steps in our process. Without the first step it wouldn’t matter how proficient we are in the next three. (For related reading, see: Don't Let Fear of Losing Keep You Out of Stocks)

Find Companies With Long-Term Competitive Advantages

Imagine in your mind a castle in the Middle Ages. Surrounding this castle is a big wide moat with the only access across being a draw bridge. Now think about that moat for a minute. Why in the world would they build a moat around a castle? The answer is simple: protection. 

Warren Buffett refers to “long-term competitive advantage” being an “economic moat” for a company. These are companies that have one or more of the following:

• A recognizable brand.
• The ability to produce products cheaper than anyone else.
• The ability to sell their product cheaper than anyone else.
• The opportunity to grow at a cheaper cost than anyone else.
• Barriers to entry that make it difficult for competitors or new companies to compete.
• Networking effect where the users of the product or service make the business more valuable. (Think Google or eBay)
• A duopoly situation where two companies dominate the industry. (Think Boeing and Airbus)

These are just a few of the advantages that we look for and a few that make up the “economic moat” that Warren Buffett discusses. (For more, see: The Greatest Investors: Warren Buffett.)

"I try to buy stock in businesses that are so wonderful that an idiot can run them... because sooner or later, one will." - Warren Buffett

Look for Companies With Excellent Management

The principle of looking for companies with excellent management is not an easy thing to do. We listen to hours of conference calls, read annual and quarterly reports and study the history of a company’s current management all in an attempt to understand what management is currently doing and what they may do in the future. A few of the things we look for include:

• Management’s history of decision making. Do they have the track record of someone that we would actually hire if given the choice?
• Ensuring that management is shareholder friendly. Do they do things that have the best interest of shareholders in mind?
• Understanding how management is compensated. Is their compensation based upon the success of the firm?

These questions and more allow us to answer the question as to whether or not we trust management enough to purchase the stock.

"Whether we're talking about socks or stocks, I like buying quality merchandise when it's marked down." - Warren Buffett

Buy When the Stock Is at a Good Price, Discounted to Intrinsic Value

Think of the final principle this way. Let’s say you’re heading to the car dealership to buy a new car. As you walk out onto the lot you know that the price you may have to pay is the sticker price on the car. The sticker price is what the market is currently valuing the car for. Now, if you were buying this car would you rather pay above sticker price, at sticker price or below sticker price? The answer should be a no brainer. You would want to pay below sticker price. The lower the better. (For more, see: Don’t Buy What You Don’t Understand.)

That is what principle four is all about. Finding stocks that are currently trading below what the sticker price (market price) says they are worth. If we’re able to find stocks that are trading below their intrinsic value (sticker price) that have the other three core principles, then we would have the formula for a sound stock investment.

If we find a stock that has the first three principles that we are looking for but is not trading below its “sticker price” then we will wait. Investors must know that the price at which you pay is a critical piece of investing. If you get this wrong then the investment will have a hard time making money.

Putting It All Together

Here at Iron Gate Global we call ourselves probability investors. We want to make investments that have a higher probability of making money than losing money. When all four of those principles align then the probabilities of making money increase. That’s not to say that it guarantees we will make money, but the probability of making money increases. It may take us hours, days, weeks or sometimes months to ensure that these probabilities are on our side. But when they are, that's the time to take advantage. (For related reading, see: Why You Should Diversify and Rebalance.)

CR: https://www.investopedia.com/advisor-network/articles/081216/four-key-principles-investing-stock/