Stick With Bonds

We have been receiving many client inquiries concerning our recommended holdings in bonds. Our general answer is don’t panic; bonds are not meant to be the earnings generator in your portfolio. They are meant to provide stability and diversification and provide some sort of insurance for your portfolio in a severely down market.

Example: When stocks went down from 2007 to 2009 by -50.8%, Bonds went up by 6.2%, during the same time. This is a differential of 57%. (Resource: Having the proper balance of bonds in your portfolio at that time, would have basically saved your portfolio a bunch.

Bill Gross, the founder of PIMCO, the largest bond fund in the world, gives his perspective: “A significant portion of an institutional or individual’s portfolio will always require bonds.”

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Smart Strategies for 401(k) Rollovers to IRAs

Here’s how to keep your nest egg intact when you change jobs

When you leave a job, there are three ways to preserve your retirement account balance: leave it in the existing 401(k) plan, roll the money over to an IRA, or transfer the balance to another 401(k) plan at your new job. The hard part is choosing the option that preserves as much of your retirement savings as possible. Here are some strategies to minimize taxes and fees on your retirement account when changing jobs:
Wait until you are vested.
You don’t get to keep employer contributions to your 401(k) until you are vested in the plan. If you leave the company before you are fully vested, you could forfeit some or all of your 401(k) match. If you have control over when you leave the company and are close to becoming vested, staying with the firm for a few more months could add thousands of dollars to your nest egg. “Look at how much you would get if you vest and how much you are going to make at this other employer and also the new match or profit-sharing contribution,” says Barbara Camaglia, a certified financial planner for Legacy Financial Advisors in Beachwood, Ohio.

To continue reading, click here.

Posted in Advisor Insights, Financial Planning, Investing, Retirement, Taxes

Individual Retirement Accounts (IRA) Contributions

Start planning now.  Tax deadline, April 15th, 2013 is just around the corner.  Do not wait.

Traditional IRA (Individual Retirement Account), ROTH IRAs and SEP (Simplified Employee Pension) plans do not require that contributions be made by the end of the year.

To read more about the Individual Retirement Accounts and their contribution amounts and deadlines, click here.


Posted in Advisor Insights, Financial Planning, Investing, Retirement

10 End-of-Year Planning Suggestions

As we approach the busy holiday season, it’s easy to let attention slip from personal finance. If you find yourself heading toward the end of the year without checking in on your finances, set aside a few minutes to complete this financial checkup.

1. Use investment losses to offset capital gains: You can use some of your losses to offset capital gains taxes. This can help you reduce your capital gains, and lower the taxes you pay. You have to sell though; paper losses don’t count when it comes to tax filing. You have to sell – and clear – the stocks by the end of the year. If you have $15,000 in losses and $10,000 in gains, you can offset the gains, and still have $5,000 “left.”

2. You can reduce your taxable income by up to $3,000 (if married filing jointly, $1,500 if single) with investment losses: So don’t get too carried away and sell everything.  Carefully consider which investments to sell, and consider how they match up with your capital gains.

3. Carry your losses forward to another year: Since you still have $2,000 “left”, you can actually carry it forward to another year. This way you “bank” your losses for use another year. However, you should be careful; you are still limited on the amount you can reduce your taxable income by, so piling up too many losses can start to lose its luster. Carefully plan out how you will do this. It can be wise to sell investments you think are unlikely to recover in the future.

4. Use up expiring funds: If you have a Flexible Spending Account (FSA) for dependent care, healthcare, or transportation expenses, the funds may be expiring at the end of the year. If they’re not expiring on December 31, they will almost certainly expire by March or April. Purchase additional over the counter medicines if necessary to use up funds in your healthcare FSA.

5. Maximize insurance benefits: If you have to meet an annual insurance deductible and know you have medical (or dental or vision) expenses coming up, try to schedule the appointments before December 31st. If you’ve met your deductible for the year, they’ll cost you less now than they will at the beginning of next year when your deductible resets.

6. Review your tax situation: If you want to reduce your tax owed, you can:

If you own a home, you can make your January mortgage payment early to be able to deduct the interest paid on your mortgage.

If you freelance and want to defer income so as to not owe tax on it, delay your invoicing or extend your due date until January.

7. Start a SEP – If you are self-employed and have extra income, open a self-employed retirement plan so that you can defer taxes on that money until retirement.

If you’re not self-employed and can afford it, consider increasing your 401(k) or IRA contribution through the end of the year. Then think about how to plan to minimize taxes for next year.

8. Keep holiday spending in check: Even if some of the tips above put extra money in your pocket, do your best to control holiday spending. You don’t want to find yourself short on cash come next year.

9. Check your credit reports: You are entitled to a free credit report from each of
the three major bureaus every 12 months. If you haven’t checked one in the last year, pull a copy at and dispute any items that are not correct. You can also check your credit scores and see if there is anything that jumps out at you.

10. Review your Estate Documents

Living Trust
Pour over Will
Advanced Health Care Directive
Power of Attorney for Healthcare
Power of Attorney for Finance

If you have these in place, great! — You are already ahead of the game. End of the year is a good time to review these documents and make updates.

These are a few ways I’m making sure my finances are on track as near the end of the year. What did I miss? Tell us in the comments!

Much of the content for this blog was gleaned from the website .  It is a great source for a multitude of financial topics.

Posted in Advisor Insights

Mutual Funds vs Stocks; Which is Better for You?

With all the financial and money programs on TV talking about stocks, how do you know which ones to have in your portfolio?  There are two main options to think about when making these choices; purchasing individual stocks or purchasing mutual funds.

Individual stocks can be bought by any investor through a brokerage, and it becomes the responsibility of the individual investor to maintain their own portfolio. Mutual funds come in two basic types; actively managed and passively managed, called index funds.  Mutual funds are widely regarded as a lower risk form of investing, while investing in individual stocks is a more active, riskier form.  Both carry inherent advantages and risks, and it is important for you to understand the differences between them.

Actively managed mutual funds are baskets of stocks, which try to beat the market with the assistance of a fund manager. An index fund is a type of mutual fund whose primary investment objective is to mimic the performance of a specified market index, such as the S&P 500 Index or the Wilshire 5000 Index.

Mutual Funds

Most beginner investors start with mutual funds, since they are automatically diversified, and present investors with a large variety of flavors – from sector based funds such as tech, financial, retail or energy to commodities or foreign indexes. Mutual funds generally hold a large number of stocks, with each stock only comprising a small percentage of the portfolio. This is both its strength and weakness.

When purchasing mutual funds, investors usually don’t define the exact number of shares to purchase; rather, they request a set dollar amount from a broker, and the broker calculates the number of shares to be purchase based on that day’s closing price.

Each mutual fund has its own set of fees and expenses. These can include, but are not limited to, the fund manager’s fee, called an expense ratio, a front-end load upon initial purchase, a back-end load upon sale, as well as early redemption charges. It is important to understand the complex fees of mutual funds in the prospectus before purchasing any shares, as the purchase equals a binding agreement to pay these extra charges.

For investors who favor mutual funds, one way to avoid the majority of fees, is to use index funds, which are passively managed mutual funds that simply mirror a set market index, such as the S&P 500. This may be a better lower-cost alternative for you. Working with an experienced Certified Financial Planner™ will help you navigate through these fees and avoid most of them.

Individual Stocks 

For the more adventurous investor who is not satisfied with the lower return on mutual or index funds, picking individual stocks for your personal portfolio is the preferred choice. Purchasing individual stocks can be done directly through any broker, with the only fees being the commission paid upon the purchase of the shares and the capital gains tax paid upon their sale. Investors can define the exact amount of shares to purchase, and the desired price. Dividends from individual stocks can also be reinvested into the company.

So, Which is Better for You?

For the average investor, in most cases, mutual funds and specifically index funds, are the best way to go.  However, remember to work closely with your financial planner to choose the proper balance of your funds; the most critical part of your portfolio.

By giving us a call at Compass Rose we can help you get your portfolio in order.

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Should I Keep My Old 401(k) or Roll it over to an IRA?

Whenever you leave a job, you often have to decide what do do with your 401k.  In many cases, you may have several 401(k) or 403(b) accounts that you have accumulated over the years.  Should you roll them over to an IRA or just leave them where they are?

Remember that 401(k) participants, who are still working, can roll over funds into an IRA. This strategy can increase investment choices and benefit older investors who are still employed.

Typically, most people will initiate a 401k rollover to a traditional IRA.  Rolling your 401(k) into an IRA will give you more control over the assets, because you can pretty much invest it how you see fit. The range of investment choices available through a 401(k) plan is an important factor to consider when contemplating an IRA rollover.  There are many good mutual funds to choose from, while the average 401(k) plan has a handful of investment options.  This is usually the biggest reason to rollover the 401(k).

By determining how you want to invest your retirement money, you can choose the 401k or IRA that allows you to do it in a way you’d like. And, if you’re not sure, using professional help to decide how best to invest your retirement funds, can often help you determine which vehicle is best.

Another big reason to rollover your 401(k), is simplicity.  It’s much easier to manage fewer investment accounts.  Change jobs a few times, throw in an IRA for good measure, and you’ll find yourself managing more retirement accounts than you can handle.  And rebalancing your investments across multiple accounts is a real chore.

Potentially high 401(k) fees can also be a concern.  While fees for IRAs are clearly outlined, they often are difficult to assess in 401(k) plans because they are generally factored into the overall return.  Fees tend to be higher if an insurance company, rather than a mutual fund company, is administering the 401(k).  This may now change as a new law requires plan administrators to disclose all 401(k) fees. On your 2012 401(k) statements, you can expect to see these fees.

Second marriages and marital problems may be among other reasons to consider an IRA rollover.

Surviving spouses are automatically entitled to 401(k) funds if an account holder dies.  That could be a problem if you have children from a prior marriage and want them to share in your retirement savings. You can only change the 401(k) beneficiary if your spouse notarizes their consent. On the other hand, IRAs provide greater range of flexibility in terms of beneficiary designations, so you can have as many as you need.

If you decide that an IRA is a better option for your retirement savings than a 401(k). be sure to transfer the funds correctly.  Set up the IRA first and then transfer the funds directly to that account through your plan administrator.  Don’t transfer funds to a non-retirement account. You have 60 days to roll funds back into an IRA in the event of a deposit into the wrong account.  However, if you fail to do so in a timely manner, you will have to pay taxes and a penalty on the withdrawal.

Please keep in mind, that rules about IRAs or 401(k)s are constantly changing, so always be aware of latest changes to federal regulation and policies.

If you have any specific questions about your IRA or 401(k) accounts, call us at Compass Rose Financial Planning and we will work with you in helping you decide how best to transfer your retirement funds.

Posted in Advisor Insights, Estate Planning, Financial Planning, Investing, Retirement, Taxes | Tagged , , , , , , ,

Should I Pay Off My Mortgage?

Most of us that live in our home have a mortgage. The decision as to whether to use available funds for investing or paying down your mortgage is a question that is often asked.

That is not a simple question.  The answer to this question is different depending on your situation should be based on a number of factors:

  • The interest rate on your mortgage.
  • Expected investment earnings, based on your risk tolerance and investment horizon.
  • Your income tax bracket.
  • If any large purchases are anticipated in the near future.
  • Balance in your emergency fund.
  • Amount of your retirement savings

Make sure you take all of the above into consideration before using any available funds to pay down your mortgage.

Taking out a lump sum from your 401(k) to pay off a mortgage is a particularly bad idea. Accelerating payment on your mortgage at the expense of maxing out your 401(k) tax-advantaged retirement account is almost always a mistake.

However, if you decide not to pay off your mortgage, you won’t be alone, says Jennie Phipps in a recent article on  In 2004, 32 percent of households headed by someone age 65 to 74 were carrying home mortgage debt and nearly 20 percent of households headed by those 75 and older had a mortgage, according to the triennial Federal Reserve Survey of Consumer Finances conducted in 2004.  About 25 percent of those of any age who considered themselves retired had a mortgage.

All that said, there are benefits to paying off your mortgage.

  1. It’s not a bad idea to pay off your mortgage prematurely, if you can swing adding an extra payment every month toward the principal without sacrificing your retirement savings.  That might be the ideal approach.
  2. If you want to leave your home to your heirs, do them a favor and pay off the mortgage. Otherwise, they may be faced with selling the house whether they want to or not.
  3. Make a sure bet. Gillette Edmunds, author of “Retire on the House,” a book about real estate investing, pooh-poohs the notion that it is smarter to keep a mortgage and invest at a higher interest rate. “The problem is that mortgage interest is a sure thing and the investment isn’t,” he says. “You could lose everything you invested and still have to pay the mortgage.”
  4. Peace of mind. For many people, paying off the mortgage has intangible advantages. “You would never believe how fabulous and freeing it feels to pay off a mortgage,” Garrett says. “The psychological benefits are enormous.”
  5. If a reverse mortgage is your financial fallback position and you owe money on your home, you must take at least that amount as a lump sum advance at closing and use it to pay off your debt at that time. Therefore, having a paid-off mortgage increases the amount of cash available to you in a single lump sum, credit line or monthly advance.

So the answer is different for everyone.  If you are thinking about paying off your mortgage, call us at (760) 321-5305 to help you weigh all of the pros and cons before doing so.

Posted in Advisor Insights, Estate Planning, Financial Planning, Industry Statistics, Retirement, Taxes | Tagged , ,

NY Times Special Section – Retirement Sept. 16th, 2011

The New York Times has a Special Section on Retirement today (Friday, Sept 16th, 2011). This is the lead article, but it has a total of 10 articles on various aspects of Retirement from Long-Term Care Insurance, lowering fees on IRAs and 401(k)s, to cautions about annuities.  If you get a chance, buy todays paper; Section F or go to  Have a Great weekend!

Posted in Advisor Insights, Financial Planning, Insurance, Investing, Resources, Retirement, Taxes

Vanguard Now the Nations Largest Mutual Fund Provider

I receive many publications every week, both on-line and hard copy, such as newsletters, blogs and magazines.  I scan for interesting and compelling articles and pass them on to you with commentary.

Last week the Kiplinger’s Personal Finance magazine had an in-depth article about Vanguard’s rise to the top.  I couldn’t agree more with their analysis and insights.

There are hundreds of Mutual Fund companies out there.  So how do you know which ones, what specific funds or how many to use?  You can search and search and analyze and analyze, but I have a way to simplify that task significantly.

Start your search with Vanguard first.  Just give me a call and I’ll help you.  I’m a virtual wiz at using their on-line site and research tools.  I have an advisor-exclusive access, which is available to all advisors everywhere, through and have all the necessary information about funds, at my fingertips.

Last year Vanguard became the largest, and in my opinion the best, mutual fund provider, surpassing Fidelity Investments.  I have used Vanguard accounts and Vanguard funds for many years and encourage all of my clients to at least consider using Vanguard.  As I see it, the reason that Vanguard is succeeding is that they have super-low fees,  expense ratios and no-load/no-fee funds, that are consistently competitively ranked against their peers and they have a toll-free client phone support service, called Vanguard Concierge Services, that is superb; no long waits, it’s here in America and they actually are experts AND actually are people; no recorded phone trees!

Until next time, Watch Your Expenses!

Posted in Advisor Insights, Financial Planning, Industry Statistics, Investing, Resources, Retirement

Interesting Financial Planning Statistics

Fun Statistics to see how you compare to rest of the U.S.

Financial Planning can sometimes be a pretty dry topic for some of us (not me of course), so here are some very interesting statistics about Americans, their savings habits, retirement plans, credit card use and other fascinating pieces of trivia.  What are the percentages of:

  • U.S. wealth owned by women?
  • Workers 45-54 that have less than $25,000 saved for retirement?
  • Workers 45-54 (that same group that has less than $25,000 saved) who plan to retire at 65?
  • Household debt as a percentage of personal disposable income?
  • Homes worth at least $1,000,000?
  • Average credit card balance in dollars?
  • Eligible participants who made use of the age catch-up provision for their employer-sponsored retirement plan?
  • Average amount American personally saved in June 2005?
  • Decline in Long-Term care policies purchased by Americans?
  • Number of companies selling Long-Term Care Insurance in 2005 versus 2001?

Here is the article that gives you the answers to these topics. There are a couple of other pieces of interesting information and fun tidbits about how emotions affect investment decisions and statistics about Registered Investment Advisors.

Posted in Advisor Insights