What is the role of asset allocation in my investments?
The single best control mechanism over the performance of your investments is the maintenance of an asset allocation strategy. When testing various methods of predicting and controlling returns in a portfolio, researchers found that having and maintaining an asset allocation strategy was the method that reaped the most predictable returns – with 80-90% accuracy. Asset allocation is the distribution of various asset classes and investments into a portfolio mix in a deliberate way to gain specific amounts of exposure to each investment. It is a practice used to diversify and manage risk. Asset Allocation is a dynamic process; it’s not something you do once and forget about. Continue reading...
What are Bear Market Funds?
Bear market funds are designed to profit when the market or sector they follow declines. Bear Market Funds make money in declining markets, as opposed to Bull Market Funds. If you’re bearish on a sector, industry, commodity, the market, or anything else that’s tradable, rest assured that you’ll find a Bear Market Fund for it. There are also 2X Bear Market Funds, 3X Bear Market Funds, etc…, which use margin, short-selling, and derivative instruments to acquire large leveraged positions. Continue reading...
What are Sector ETFs?
Sector ETFs hold a portfolio of stocks and other securities that represent a specific sector of the market. Sector ETFS are managed portfolios of securities which are representative of a specific industry or market sector. They might passively track a sector index or be actively seeking alpha over the sector benchmark. The word “sector” is a broad term for a grouping of companies in the market, but the word “industry” is sometimes used interchangeably. There are 10 sectors in the S&P 500: healthcare, financials, energy, consumer staples, consumer discretionary, utilities, materials, industrials, information technology, and telecommunications (telecom) services. Continue reading...
What are the Withdrawal Rules for My SEP IRA?
SEP IRAs are subject to the same withdrawal rules as Traditional IRAs. SEP IRA contributions and earnings may be withdrawn at any time, but there are penalties that may apply, using the same rules as those applied to Traditional IRA withdrawals. If you are under the age of 59½, you must pay a 10% penalty fee in addition to income taxes on your withdrawal. Of course, there are certain exceptions to the penalties: first time home-buyers expenses up to $10,000, medical bills, educational expenses, and a few others. Continue reading...
What Happens If I Withdraw Money From my Cash-Balance Plan After I Retire?
You may not be able to make non-recurring withdrawals of various amounts from a Cash Balance plan. After you retire, you’ll typically have two options: a fixed monthly payment for the rest of your life, or a lump-sum payment. Cash balance plans generally do not allow random, non-recurring withdrawals because the individual account was always a hypothetical account. The administrative work of fetching various sums for everyone and keeping up with the total pool of plan assets is not the administrator’s prerogative with these plans. Continue reading...
How Much Will Long-Term Care Insurance Cost?
The cost of long-term care insurance varies depending on the policy and the age of the insured. Generally speaking, however, the insured can expect to pay between a hundred to several hundred dollars a month. Typically the total cost adds up to at least a few thousand dollars per year. Furthermore, you will be required to continue paying the premium through your retirement (until you begin using the insurance), and if you fail to pay the annual fee, you might lose some or all of your coverage (regardless of how much you have paid up to that point). Continue reading...
What Does Market Risk Premium mean?
Market Risk Premium refers to the expected return on a risk asset, minus the risk-free rate. A good barometer for the risk-free rate is using a U.S. Treasury bond, which is largely considered a risk-less asset if held to maturity. To give an example, let’s say the annual expected return on Stock ABC is 11%, and a 1-year U.S. Treasury pays 2%. In this case, the market risk premium is the difference between the two, or 9%. Continue reading...
What is a Stop Order?
A stop order is like putting a lure out on a pond but having a robot there to cut the line or reel in the lure if the conditions are not met, such as a fish too small to bother with, to stick with the metaphor, so that the fisher-person (investor) can take a nap or attend to the many other lines he may have in the water. A stop order names a price which serves as a trigger point, and once the security price has crossed this trigger point, a market order is entered to buy or sell at the next available price. It might be called a buy-stop or sell-stop depending on which action it pertains to. Continue reading...
What is a Federally Covered Advisor?
The Investment Advisers Supervision Coordination Act of 1996 sought to delegate the responsibility of monitoring investment advisors between the states and the federal government. It amended the Investment Advisors Act of 1940, which required all advisors to register with the SEC. The Dodd-Frank Act further amended the IAA, such that only advisors with assets under management exceeding $100 million had to register with the SEC. The IASC was part of the NSMIA legislation passed in 1996. Up until that point, all advisors were regulated and monitored by the SEC. Continue reading...
What is Form 706: Estate Tax and Generation-Skipping Transfer Tax?
IRS Link to Form — Found Here The Form 706 is required not only if there is a tax implication for an estate, but also to claim exclusions. Each person has an exclusion of 5.49 Million as of 2017. For married couples, that goes double, such that heirs to an estate under $11 million probably will not owe any estate taxes. A surviving spouse should still report the inherited portion of the deceased spouse’s estate up to the exclusion amount, otherwise the exclusion will be lost. There are also lines for the lifetime gift exclusion amount and the generation skipping transfer tax. Continue reading...