New York Financial Planner - NYC Financial Advisor

Organize Your Financial Life Using MoneyCapsules

Thu, 11 Mar 2010 15:41:27 -0500

In the financial planning profession, many advisors focus on investment management. The focus is often so strongly on managing investments that all the other components of financial planning which people want and need are ignored. In today’s post I’d like to discuss MoneyCapsules, a process-oriented strategy devised by an advisor in my office which focuses on careful management of one’s entire financial life. It’s a service many people want but don’t explain clearly enough to their financial advisor to get it right. I’ve seen it first hand: once people get a handle on their full financial picture, anxiety levels decrease and decision making becomes much easier.

Organize Your Financial Life Using MoneyCapsules

Thu, 11 Mar 2010 15:41:27 -0500

Fundamental Indexing Shines in Volatile Markets

Fri, 26 Feb 2010 12:15:13 -0500

If you’re a client of mine, or have ever engaged in a conversation with me about managing investments, then you know I’m a big fan of indexes and low-cost investing. I’m still a fan of the occasional manager who consistently outperforms his/her benchmark but I’m still skeptical that it’s worth the added expense over a long period of time. Today’s post is specifically about fundamental indexing. For those of you out of the loop about fundamental indexing, it’s a strategy which equal-weights the stocks in an index instead of weighting the index holdings based on market capitalization. When you weight based on market cap the way major indexes such as the S&P 500 do, your index inevitably invests the majority of its money in the top holdings. For example, the 20 largest companies in the S&P 500 comprise just over 32% of the index. The other 480 stocks comprise just under 68% of the index. While these market-cap indexes may be more accurately reflecting the economy, they may not be helping your portfolio…

A Closer Look at the Roth Conversion

Thu, 18 Feb 2010 15:53:47 -0500

Roth IRAs are very trendy right now. “Trendy” isn’t a word I usually use to describe financial products and services but in this case I think it applies. Many investors are so concerned about upcoming tax rate hikes that they are more than willing to forego a tax deduction today if it means not having to worry about rising rates in the future. Starting in 2010, anyone can convert a traditional IRA to a Roth. SEP and SIMPLE IRAs can be converted as well. Before 2010, only individuals with adjusted gross incomes below 100K could do the Roth conversion. So, this opens the door for lots of wealthier Americans to make this switch. No surprise the government is looking for new sources of tax revenue now as they have plenty of fiscal problems to deal with. Below is a list of questions I’ve been fielding regarding IRAs and the Roth conversion.

Bringing Real Reform to the 401(k) Industry: H.R. 2989

Fri, 05 Feb 2010 13:28:11 -0500

I’ve written at length about problems within the retirement plan system here in America. Perhaps the biggest drawback for employees is that those secure pensions of the 80’s and 90’s are, for the most part, being replaced by employee-funded 401(k) and 403(b) plans. While it may seem like only an operational switch, it’s actually a huge downgrade for most employees. Instead of having definite figures to rely on for future financial security, workers have to rely on themselves to save and the markets to make their savings grow. As we’ve seen over the past decade, the markets don’t always do us favors. Most investors, especially those nearing retirement, would have been better off putting that money into a bank account with little or no interest from 2000 to now. That would at least have eliminated the panic and emotional madness which most investors have been experiencing. Since we can’t predict what the markets will do in the future and trillions of dollars remain in retirement plan investments, the best we can do is hope for some real and genuine reform:

Tax Season: Tips & Changes for 2009

Mon, 25 Jan 2010 15:59:19 -0500

Welcome to my annual tax post. I’m feeling pretty confident heading into this year’s tax season as it appears the average person will pay less tax and have more credits/deductions than last year. I wish I could say that trend is likely to continue in the future but it’s quite clear at this point that tax rates will be rising in 2010. The government must take action to counter the massive spending binge it’s been on of late. With Obama in the hot seat its pretty clear tax rates will be moving up, particularly for higher income earners. Combine that with the expiration of Bush’s tax cuts and future tax seasons start to look real ugly. In light of that, let’s focus on the positive for now.

Avoiding Losses over Capturing Gains: New Money Management Strategies for 2010

Tue, 19 Jan 2010 13:03:30 -0500

Some baby boomers still think of smart investing as buying and holding a portfolio of blue chip stocks. Such investors, lost in their memories of stable dividends and low volatility, cringe at the idea of trading in their blue chips for index investments. They also cringe at the inclusion of commodities in newer, diversified portfolio models. The reality is that the past decade, plagued by high volatility and market scandals, has changed the investment landscape, quite possibly forever. The recession of 2008-2009 has also caused a major attitude change for investors. Whereas capturing big gains was the priority during most of the past decade, many investors I’ve been speaking with are now more focused on asset conservation and risk avoidance.

Is Holiday Gift-Giving a Waste of Money?

Tue, 22 Dec 2009 11:27:21 -0500

When I do budgets with my clients, I’m frequently shocked at the annual outlay for gifts. After housing and food, gifting is one of the larger annual expenses for individuals in terms of percentage of income dedicated to it. For one of my clients who earns around $100,000 per year gifts accounted for roughly $3,500 (3.5%) of her gross income. For another client who only earns around $60,000 gifts accounted for almost $2,400 (4%) of her annual income. And that’s after taxes! The percentage of income dedicated to gifts was noticeably higher for people in their late 20’s and early 30’s when wedding season tends to hit hardest. So the question begs itself: does gift giving come back to reward you, or bite you?

The Dollar: Too Big to Fail?

Thu, 17 Dec 2009 16:55:12 -0500

There is an interesting article in this month’s Financial Planning Magazine which questions how realistic it is for the dollar to “fail” on a global scale. These sorts of articles aren’t unusual these days as much debate takes place over US debt, continued foreign investment, rising gold prices, etc. The article’s main contributor, Frank Wei of FundQuest, argues that the dollar is too important to both the global economy and the financial system for it to experience a sudden collapse. Any further declines, he argues, will be gradual.

Fixing the 401k Problem

Fri, 04 Dec 2009 14:24:52 -0500

The 401k industry is in a pretty sweet spot. Corporate pensions are quickly becoming obsolete and now more than ever employees need to rely on their own ability to save money. What could be easier than an automatic payroll deduction plan such as a 401k or 403b which provides tax-deferred growth and in some cases an employer match? Many people I know who really don’t have much investment savvy accept the 401k as one of those investment programs which they need to sign up for and that’s all there is to it. Sounds a little hasty, right? Well, according to a 2008 survey discussed in the November, 2009 issue of Registered Rep magazine (Introducing 401k 2.0), about 77% of 401k plan participants claim to have little, basic or no level of investment understanding. And despite Department of Labor requirements regarding improved efforts to educate participants, the reality is that many people simply don’t have the time or energy or desire to educate themselves about stock and bond investments. What they really need is good advice—a person or team of people whom they can reach out to on short notice to provide specific advice relevant to each participant’s situation.

The Roth IRA Conversion Opportunity in 2010

Tue, 17 Nov 2009 15:15:15 -0500

I’ve been fielding a lot of inquiries lately about Roth IRA tax planning for the future. Let me do my best to explain who should be doing what in terms of Roth conversions for 2010. Let me preface this by saying none of this is an exact science. There are all sorts of moving parts in the tax code and naturally we have no clue where tax rates are going after 2010. We do know they are not changing for 2010 so any planning we do over the next 12 months or so should be for 2011 and beyond.

Stability of Principal vs. Stability of Income - CDs vs. Variable Annuities

Tue, 10 Nov 2009 14:18:24 -0500

Many conservative investors like Certificates of Deposit (CDs) because of their stability. It is true that your principal rarely fluctuates with a CD. However, the rate you get is variable, volatile and highly unpredictable as has been evidenced by interest rates in the economy over the past 15 years. As a result, if you were rolling over one-year CDs from the late 90’s until now, your income would have fluctuated dramatically. From 1996-1999, one-year rates ranged from about 4.5% - 6.5%: a respectable return for a conservative investor. Keep in mind that the stock market in those years was on fire, so that 5% CD rate may not have felt as warm and fuzzy as it would today. After year 2000, interest rates plunged and you were lucky to get 2% on a one-year CD. The same applies today as interest rates are low and CD investors find themselves scrambling for a ‘good rate’ such as 3% or maybe 4% if you lock in for years. So the new important question becomes, what is more important: stability of principal or stability of income?

My Issue with Mutual Funds

Tue, 03 Nov 2009 16:26:34 -0500

There has been much debate over the past decade about the value proposition of actively-managed mutual funds to the average investor. The potential advantage which you’re really paying for with mutual funds is the possibility of choosing a brilliant portfolio manager who can beat their benchmark year after year. I’ll only break out one statistic here among the many which convey the same unfortunate message about the mutual fund industry: six out of ten actively managed stock funds underperformed their indices in 2008, primarily due to fees, according to the Center for Institutional Investment Management at the University of Albany. Besides the fact that actively managed mutual funds, on average, cost investors more to own than index and exchange-traded funds, they are also generally less transparent than index and exchange-traded funds. This isn’t necessarily a criticism of mutual funds, but an inherent operational difference between two very different investment products: mutual funds and exchange-traded funds.

Will the Bull March On?

Wed, 28 Oct 2009 14:08:22 -0500

I’ve gotta say—I was a bit surprised by the opening life of Evan Simonoff’s column in the October Financial Advisor magazine. He said “Who among us (referring to the financial advisor community) really takes this 60% rally in equity prices seriously.” He then goes on to say its “remarkable” how many observers are convinced this rebound is for real. Evan’s column, The Long View, which I read most months, usually provides careful analysis to its arguments. However, this month I was a bit disappointed. Simonoff cites Liz Ann Sonders throughout the article who, it turns out, is actually pretty optimistic about the big market bounce. I didn’t find much if any of the solid data I would expect from an article which looks to support an overall bearish sentiment amongst advisors. Based on what I’ve been hearing at recent financial advisor conferences around New York City, the sentiment is anything but bearish. So let’s take a look at why some advisors might actually take this rally in equity prices seriously.

Money Management Decisions for High Net-Worth Individuals

Mon, 26 Oct 2009 13:54:12 -0500

When I have new potential clients in my office, I’m always interested to see what their current financial advisor is doing for them. Needless to say, I’m frequently disappointed with the level of service standards (many differing markedly from my own) which some advisors display with multi-million dollar accounts. For example, mutual fund ‘wrap’ programs are very popular with the big brokerage firms. These are basically portfolios of mutual funds wrapped up in advisory platforms with annual fees. As popular as this platform is, I’ve shown clients how to reproduce a similar portfolio which strips out many of the fees and the actively-managed mutual funds. In my opinion, these wrap account platforms are often convenient and provide adequate diversification for many clients, but may not be the most cost effective way to invest. Obviously the money management business is competitive and for me, showing clients a potential method for reducing their costs and creating more efficient portfolios has generated considerable interest.