May 17, 2012
Going for the Gold—Conservatively
Because ETFs are market-traded, you can use limit orders for increased trading control.
That’s the approach taken by John McAvoy, CFP with Waterstone Retirement Services in Canton, Mass. He works with both direct-investment ETFs like GLD and iShares Silver Trust (SLV) and ETFs that invest in mining stocks such as Market Vectors Gold Miners (GDX) and Market Vectors Junior Gold Miners (GDXJ).
After establishing a client’s position, McAvoy places a sell-stop order between 5 and 10% below the purchase price, depending on how much volatility the client is willing accept.
As the ETF’s price moves higher, he moves the sell-stop higher to lock in the gains. It’s a simple strategy to implement, but McAvoy says clients understand the mechanics and appreciate the downside protection.
April 30, 2012
The Five Year Retirement Plan
Want to retire soon? Certified financial planner
John F. McAvoy took readers’ retirement planning questions
http://www.boston.com/business/personalfinance/gallery/retirefiveyears
April 26, 2012
Reasons People Fail to Plan for Retirement
#10: “I’m too busy”
So many people want to plan for a better retirement, but they don’t have time. They think they’ll take care of it tomorrow or the day after that…and before they know it, several years have gone by. Inertia is the hardest thing for most people to overcome. Stop procrastinating and start planning today.
#9: “It’s too soon”
It is never too soon! Retirement planning is about making decisions to help you become financially secure. That means that you need to make a conscious decision to spend less than you earn and limit your debt. This is the surest way to financial independence and it is never too soon to start that process.
#8: “It’s too late”
It is never too late! There might be options available to you of which you are unaware. Income generating strategies are constantly evolving and there might be a strategy which you have not yet considered. Even if you have a plan in place, it is prudent to review it on a regular basis.
#7: “I don’t need to”
“If you fail to plan, you plan to fail.” The financial planning process can uncover many potential problems of which one may be unaware. For example, a proper financial plan will examine your cash flow, your insurance coverage, your investments, your estate plan and how taxes effect your financial decisions in all of these areas. The future is always uncertain, but a good financial plan enables one to examine their financial security and develop a contingent plan for those unexpected events.
#6: “My goals are too big”
Many people set goals that are way over their head. This can overwhelm them and prevent them from taking action. Break your big goals into smaller ones. It’s like walking up a set of stairs. There is no way you can leap to the top! Each step you take, however, gets you to the top of the stairs. A financial plan can work best when you implement it incrementally over time.
#5: “My finances are a mess”
This is one of the hardest things for many people to face — being in denial and wishing that one’s financial situation will solve itself. There are many Americans who have had several jobs over the last decade and have two, three or more 401(k) accounts. Taking the first step to simplifying your financial life may help eliminate some of this stress. A proper financial plan helps you organize your finances and also provides a track for you to follow.
#4: “The Government will take care of me”
Many Americans, especially younger Americans, already recognize that this is not a viable solution. No one knows what government benefits will be available or if they will be modified compared to today. Once again, a prudent solution is to plan for the worst case and then enjoy the benefits of your planning if it does not occur.
#3: “I have enough saved in my 401(k), I’ll be fine”
Many Americans have not considered the next step for their retirement program. That is, how will one generate income without running out of assets during retirement? Consideration must be given to the potential effects of inflation, taxes and individual longevity in comparison to your retirement income.
#2: “I don’t want to think about it”
The biggest obstacle to financial success is our own behavior. Ignoring the reality of the situation won’t solve the problem. Taking the first step toward financial security starts with the gathering and analyzing the facts. It is not easy, but the rewards can be satisfying.
#1: “I don’t know how”
There are people who love the tiny details of their financial situation and are not intimidated by the prospect of delving into those details. Most people, however, don’t have the time or temperament to understand their financial situation. That is why an objective analysis by a financial planner can provide a window into your financial life that will help you to achieve the goal of financial independence, also known as a successful retirement.
FPA member John F. McAvoy, CFP®, is a principal with Waterstone Retirement Services in Canton, Mass. Securities offered through Investors Capital Corporation, Member FINRA/SIPC.
April 24, 2012
Certified financial planner John F. McAvoy takes questions on Tuesday, April 24.
Take a moment and look at the great questions that were asked and John’s answers
Financial Planning Chat with John F. McAvoy on Boston.com
April 16, 2012
Are Your Beneficiary Designations Up to Date?
Designating a beneficiary for these accounts allows for the assets to avoid probate and go directly to the named beneficiary. There are some important points to keep in mind.
401(k) plans are governed by federal law which states that the primary beneficiary of a married person is their spouse. If a married person dies, their spouse is entitled to 50 percent of the account balance unless the surviving spouse has signed a Spousal Waiver.
These rules can cause complications if not understood. For example, an owner of a 401(k) divorces and changes the beneficiary designation to her children. She remarries and soon thereafter dies. Despite her children being named beneficiaries, her new husband is entitled to half of the account balance under the law even though he was not named as a beneficiary.
IRAs are governed by state law and spouses are not automatically entitled to half of the account. There is much more flexibility in naming a beneficiary. In fact, the owner of an IRA can name anyone a beneficiary. However, there are cases in which a long divorced spouse forgot to change the beneficiary designation removing his ex-spouse before he died. The result was that the assets passed directly to the ex-spouse. Once the owner of a retirement account dies, the designation is written in stone and cannot be changed. In fact, many people mistakenly think that their will supersedes a beneficiary designation. However, this is not true. Beneficiary designations trump the instructions left in one’s will.
As we head into year-end:
•Check your beneficiary designations and update them as needed.
•Use the proper forms issued by the custodian of the account so there are no mistakes or misunderstandings.
•Consult with a financial planner, tax professional or attorney to see how these rules may apply to your situation.
FPA member John F. McAvoy, CFP®, is a principal with Waterstone Retirement Services in Canton, MA. Securities offered through Investors Capital Corporation, Member FINRA/SIPC.
April 9, 2012
Retirement Planning
Retirement planning chat with John F. McAvoy
Certified financial planner John F. McAvoy takes questions on Tuesday, March 1, about how to overcome financial challenges if you’re at of near retirement.
http://www.boston.com/business/specials/livinglonger/2011winter/mcavoy_chat030111
October 14, 2010
News You Can Use
This month let’s step back from the ongoing fray in the global economy and look at some of the basics of financial planning. The fact is that it doesn’t matter what investment strategy you use if you don’t first have some money to invest. With that in mind, here are some ideas which I hope you find helpful.
Most people have three major financial goals:
1. Retirement
2. Education
3. Primary Residence
I encourage people to think about these goals are as unfunded liabilities. An unfunded liability means that you have a financial goal for which you don’t have the money currently to pay for that goal. How does one reach those goals? For most people, it is saving a portion of their income regularly. OK, you are saying to yourself right now, I get it John – what’s your point? Well, my experience has been that most people have never thought about the savings process.
Saving is the conscious act of postponing the consumption (spending) of a portion of your income until some future time when it will be consumed, hopefully, on the appropriate goal for which it was intended. The reward which you receive for saving is the interest and/or capital gains from the savings program.
Credit, on the other hand, is the consumption of FUTURE income today and the penalty for doing so is the interest charged on the loan. It makes one pause to think how a college student could get a credit card without any income!
So, the first step on the journey to being financially successful is to postpone consuming a portion of your income. This will help to reduce that unfunded liability which so many Americans face today. Make your savings as automatic as possible. Consider automatically increasing your 401k contribution by 1% annually. Make sure you are at least contributing enough to receive the maximum matching contribution. The more automatic your savings program is – the more successful you will be.
The National Endowment for Financial Education (NEFE) is a non-profit foundation dedicated to helping you make sound financial decisions. They have a terrific website with lots of free information and worksheets: http://www.smartaboutmoney.org You will find practical articles, worksheets, tips and valuable resources to help you understand and manage your money. Whether you are a savvy long time investor or someone just starting on their financial journey, you will find lots of helpful financial information.
Please be in touch with any questions and, as always, thank you for your continued trust!
July 12, 2010
Rowing and Sailing Markets
Over the last several years, I have written on the global economic situation and how the historic events unfolding every day impact your investments and what strategies one might consider to mitigate these headwinds. I still believe that investors need to be mindful of the potential downside risks vs. the potential of capital gains for many years to come. PIMCO Investments have dubbed this time “The New Normal” and they expect slow growth for many years until the excesses of the past have been unwound. The New Normal means continued volatility while the markets and economy resets.
How should one approach asset allocation if the New Economic Normal is correct? Proponents of the conventional wisdom would have you believe that the only way to manage risk for your investments is by buying and holding a portfolio of stocks, bonds and cash. Unfortunately, this approach has not worked well over the last decade. Is there another way to look at one’s investments and asset allocation? The answer is yes – Rowing and Sailing Strategies.
Instead of just one approach to asset allocation, consider that there are four approaches with different strengths for varying markets. For “sailing” markets, or markets where the prevailing economic winds are driving strong bull market returns, an investor might consider Strategic Asset Allocation (buy and hold) which is designed to capture broad market returns, or, Tactical Constrained which is also designed to capture broad market returns but might mitigate risk through moderate allocation shifts.
For “rowing” markets, or market where the bear market headwinds and choppy waters require more active management, a Tactical Unconstrained approach allows the mangers to be aggressive in allocation shifts depending on market conditions. An Absolute Return approach is for risk adverse investors who look for positive returns and protection of capital no matter which way the market winds blow. Or, it may make sense to have multiple asset allocation approaches at the same time as part of a long term investment plan.
Readers of this newsletter know I fall firmly into the New Normal camp as described above. If we are in the midst of a long term “Rowing Market” does it make sense for all investors to follow the same strategy which worked well in the previous “Sailing Market”? I’ll let you answer that question but my clients who are reading this note know well that our approach has incorporated these different strategies at different times.
All of us are sailing to our financial destinations. Sometime you have the wind at your back and sometimes there is a headwind. There is no one right solution for every investor. This simple yet elegant idea, that risk management should involve different investment approaches not just one, is powerful. Please be in touch if you would like to discuss how this investment program might help you manage the risk in your portfolio. To my clients, I never get tired of saying thank you!
On a personal note, I think I may be one of the proudest parents in the country. My son, Russel, was named a U.S. Presidential Scholar. He was one of only 141 students in the entire country chosen. Several weeks ago, he and his fellow scholars were honored at the White House and met the President! My wife and I are incredibly proud and deeply humbled by the honor. The community we live in, the Boy Scouts and our church community all contributed to Russel’s success. Despite the “rowing” environment we find ourselves in today, the future looks very bright with this generation of young men and women on the horizon!
April 8, 2010
It has been over a year since the market bottomed at the ominous level of 666 on the S&P 500. Hopefully, this will be a generational low for the markets. This last year has been a gift to for investors helping them to repair their 401k plans and other investment accounts. The rebound in the economy has been extremely strong and corporate profits have rebounded. We can thank the governments and central banks. It is possible that a Great Depression II would be underway without the enormous fiscal and monetary stimulus injected into the global economy.
Where are we today and where might we be going? The facts are that this recovery is on track to be one of the most powerful in history. Profits for the S&P 500 continue to surge and the consensus for growth in the U.S. this year is about 4%. According to International Strategy and Investment (ISI), an economics research group, it is now projected that profits will hit a new high in 2010, which is just four years from their prior peak. Profits could hit $1.86 trillion by the third quarter of this year which would be a record by a wide margin. Why is this important? ISI reports that in the 1930s it took U.S. profits 12 years to hit a new high after crashing in the early part of the decade. In Japan’s lost decades, this type of recovery took 16 years.
Many investors are still scarred by the events of 2008 and expect the current rally to end any day now. Often, it is difficult after such a shock to get back into the market - fear is the overriding emotion. But, barring some outside political shock, it is possible that this market could continue to rally. As long as interest rates stay low and government spending continues at the current pace the economy will continue to grow and the forward looking markets will reflect that growth.
Certainly, on a cyclical basis this is all good news.
However, the economy still has structural issues which must be dealt with at some time. The biggest is debt. Much of the pain of readjusting to spending less and higher taxes has been pushed to the future. It is possible that market volatility will return when the stimulus runs its course and the government’s unfunded liabilities will need to be addressed.
For investors, the risk you should consider for your assets depends on when you will use the assets you have been accumulating. If you are close to retirement, college or other significant milestones, it is important to consider the impact that short term volatility will have on your portfolio. On the other hand, this is likely to be a good time to add to your retirement savings if you are many years from using the money. There is likely to be some terrific opportunities to buy the market while it is “on sale”.
On a personal note, my wife and I have successfully navigated the college process. My son was accepted to the engineering program at the University of Pennsylvania. College applications and the waiting were way more stressful that we anticipated. Fortunately, Russel will be going back to my home town and matriculating at the school which Ben Franklin founded 270 years ago!
Thank you to all who have referred friends and family. I am most grateful. Please pass this newsletter onto someone who you think might benefit from sound financial advice.
Welcome to 2010! The past decade is one that most investors want to forget. Historically, it was the second worse decade for the Dow behind only the 1930s. And like the 1930s, the Dow finished worse than it started. Good riddance to the twenty oughts!
Professor Paul Krugman in his New York Times column called it “The Big Zero”:
Zero job creation
Zero economic gains for the typical family
Zero gains for homeowners, even if they bought early. (Almost a quarter of all mortgages in America, and 45% of mortgages in Florida, are underwater, with owners owing more than their houses are worth.)
Zero gains for stocks.
So what might we expect in the decade ahead? No one knows but history can be a guide as we navigate these treacherous markets. “History doesn’t repeat but it does rhyme”, said Mark Twain.
Today’s markets look very much like other long term bear markets which have huge rallies and equally powerful downturns. Most people are aware of the market crash in 1929 but the late thirties were very cruel to investors. From 1937 to 1942 markets went on a roller coaster ride until finally reaching a bottom.
More than ever, it is important to be tactical with the equity part of your investment portfolio. No one knows when this market will start to turn but based on historical research from Morgan Stanley the average rally after a crash lasts for about eighteen months. If this holds this time, this market rally would run out of steam at the end of the summer or early fall before a correction ensues. Again, according to Morgan Stanley, that correction has averaged about -25%.
Other things to keep an eye on:
• Sovereign debt defaults – Professor Kenneth Rogoff of Harvard in his book “This Time is Different”, presents eight hundred years of economic follies. Unfortunately, his conclusions on our present day situation are not cheerful:
• Taxes are going up to pay off the debt we have amassed.
o If it is likely that taxes will increase, you should take full advantage of your 401k, IRA, 529 plans and other tax shelters.
• If Professor Rogoff is correct, we are probably going to see a lot of inflation, eventually. It is the easiest way to reduce the value of our debts. “The way rich countries default is through inflation”.
Gold, commodities and other hard assets historically have provided a hedge against inflation; one might consider these assets in their portfolio. This can be accomplished through ETFs and mutual funds which invest in these asset classes.
This is bad for bonds and interest rates are likely to increase over time.
Reading this, you would think that I think the end of the world is coming. Nothing could be further from the truth. We have some economic pain to go through but we will get through it. There is a technology revolution in nano-technology, robotics and bio-technology in the next few years. These new industries will produce new jobs and wealth. We don’t know where the jobs will come from but they will come.
*The opinions expressed are those of John McAvoy as of 1/14/10 and are subject to change based on market and other conditions.
