rjcap http://www.rjcap.com RJCapital Fri, 18 May 2012 14:03:36 +0000 en hourly 1 http://wordpress.org/?v=3.3 Forward Thinking http://www.rjcap.com/forward-thinking http://www.rjcap.com/forward-thinking#comments Fri, 18 May 2012 14:03:00 +0000 Thomas Brown http://www.rjcap.com/?guid=cd1f22a287ba2307c2f02e2d8c1ae0f5 Continue reading →]]>
When you graduate from high school you will only go to college if you see the long term benefits. Certainly, most high school graduates make more money over the next four years than their college bound peers. Ten years from high school the balance has shifted to college graduates.

People who live paycheck to paycheck would be just fine if their expenses were the same each paycheck. The problem comes in when the car breaks down or their child becomes sick, expenses that were not in the budget and throw off their pattern. Someone with a longer term perspective might understand that the car will need work each year and the family will have some health expenses.

Small businesses that are structured to generate a profit, profit that will be used to grow, will not grow as fast as small businesses that create the infrastructure for growth on day one. Thinking forward to envision the business you want to create speeds the process of getting there.

Career growth will be sped by understanding where you are going. It is often stated that you should dress at work for the position you want, not the position you have. That is also true with education, experience and attitude. Get the education, get the experience and demonstrate the attitude you need to reach your career goals.

It is not easy to shift from a paycheck to paycheck focus to a financial independence focus. You can begin by shifting the focus from the next paycheck to the second one. If you already have a year-long focus, start to make a five year plan. If you have a five year plan, consider planning your legacy.

This forward thinking process can help you become wealthier but it can help you achieve other goals as well. Your vacation will be better planned, your hobbies more smoothly enjoyed, your retirement less fretful if you apply forward thinking to start sooner and consider the opportunities and potential obstacles more carefully.


Source: John Comer
]]> http://www.rjcap.com/forward-thinking/feed 0 Why You Need Disability Insurance http://www.rjcap.com/why-you-need-disability-insurance http://www.rjcap.com/why-you-need-disability-insurance#comments Fri, 11 May 2012 14:23:00 +0000 Thomas Brown http://www.rjcap.com/?guid=b0a5f5cf7055b593b41a25d3e6c4dbda Continue reading →]]> If you are injured or ill, it could help you keep afloat financially.

If you can't work and pay your bills, how are you going to cope? Let's say an injury or illness prevents you from doing your job. How do you deal with the lost income?
Disability income insurance provides an answer. Few of us opt for such coverage, even though it may help us maintain our income (and quality of life) in a crisis.

A case in point: the non-profit Consumer Federation of America just polled 1,200 private-sector U.S. workers and found that two-thirds of them had no such coverage.
Mention that to most employees, and they may just shrug. Who cares, who wants to buy more insurance, especially coverage you don't think you'll need?

The skepticism is understandable, because we never believe we will be disabled. We don't dare think about it. Additionally, few of us comprehend the varieties of "disability" that we could end up experiencing.

The non-profit Council of Disability Awareness notes that 90% of disability claims in the U.S. are unrelated to workplace injury. Rather, they are filed for acute or chronic illnesses or health conditions. Musculoskeletal disorders (such as arthritis, spine and joint disorders, fibromytis and back pain) represent the largest percentage of disability claims, more than any other condition.

Do you think you don't need disability coverage? Think again. It may shock you how little of your wages you can replace. You can only get workers compensation if your injury or illness is job-related - but less than 5% of disabling illnesses or injuries are. Social Security disability benefits typically provide about $1,100 per month - not exactly the income you want. Additionally, it might take a year or more for you to get your first check. In 2009 (the midst of the Great Recession), the SSA denied 65% of initial SSDI claim applications.

This is why disability income insurance can be so useful. Some of these policies allow payments to start just a week after an employee stops working, and many of them will provide coverage in the neighborhood of 60% of a worker's salary.

What are your chances of becoming disabled during your working years? As a 2011 Social Security Administration Fact Sheet notes, just over 25% of today's 20-year-olds are projected to become disabled before they retire. More than 5% of U.S. wage earners - 8.3 million people - were getting SSDI in 2011.

The Society of Actuaries finds that once someone is disabled for 90 days, the average length of disability is two years. The CDA reports that the average long-term disability claim has a duration of 31.2 months.

If your income drops, your stress level could soar. Do you know someone who has had to quit their job or walk away from their profession due to a disability? Then you've seen the financial stress that can result.

Even if you don't know someone facing such financial pressure, you have probably read stories that touched your heart, stories of economic hardship that can be traced back to a disability. A hard-working man or woman loses a home to foreclosure; a couple separates or divorces under economically trying circumstances; a single parent with children has to accept charity from a food bank or becomes homeless. In too many of these stories, a sudden disability is an underlying cause. 

If you die, your income stops and so do your expenses. If you are disabled and can't work, your income stops ... but your expenses keep piling up. In fact, with the cost of medical treatment, your expenses may balloon.

It's time to start thinking about disability insurance. We'd all like to believe that we'll never be disabled. But the reality is ... it could happen to you. If it does, how will your family manage? Are you prepared?

May is Disability Income Insurance Awareness Month - a good time to make people aware of this coverage. If your employer doesn't offer or provide you with disability income insurance, take some time to look at some of the options available. You don't always know what the future holds; if you become disabled, this insurance may give you added economic stability.



Source: Jay Peroni
]]> http://www.rjcap.com/why-you-need-disability-insurance/feed 0 Alternative Investments At a Glance http://www.rjcap.com/alternative-investments-at-a-glance http://www.rjcap.com/alternative-investments-at-a-glance#comments Fri, 27 Apr 2012 16:02:00 +0000 Thomas Brown http://www.rjcap.com/?guid=94cd88a287e2df1a6bc1a8f7cfab0806 Continue reading →]]>
If you're seeking a different investment path and have a large amount of money to invest, you may already be considering an alternative investment.  Alternative investments sidestep the traditional investment paradigm, such as real estate, cash, stocks, and bonds; they seek a greater return from a more complex (and, it must be said, riskier) set of circumstances. Here is a brief overview of some investment options within a vast and complex financial arena.
  
Hedge funds, private equity funds and venture capital funds. These distant cousins of mutual funds are not for the average investor and offer the possibility of superb returns at considerable risk. Generally speaking, it takes a lot of money to get into one of these funds and they are not for the skittish.
 
Oil and natural gas programs. Direct participation oil and gas investments can produce great returns, or miserable ones - depending on the temperament of the energy markets. Oil and gas investment programs often have high minimums, and navigating these programs can require a veteran eye.
 
Timber investing. Timber REITs (real estate investment trusts) allow the small investor to participate in this asset class. Timber has historically had very low correlation with the stock, bond, and commercial real estate markets and inflation.
 
REITs. Real estate investment trusts (which can be private or publicly traded) allow the small investor a way to participate in the commercial real estate sector without the burden of property management. REITs must pay out about 90% of their annual income, so they are encouraged to pay high dividends to unitholders. The drawback is that the IRS regards that annual dividend as taxable income.

Options and LEAPS. Options contracts give the holder an option to buy (a call) or sell (a put) a specific amount of a stock, ETF, currency, debt instrument or commodity at a specific price within a specific period of time. High net worth investors consider option contracts because of the potential income from covered calls, the possibility of locking in some profits as a consequence of buying puts, the chance to hedge by selling covered calls and buying puts simultaneously, and the opportunity for added portfolio diversification. Long Term Equity Anticipation Securities (LEAPS) are long-term options contracts (commonly 2-year options).
 
Futures and E-mini futures contracts. Retail futures traders try to speculate on price movements of all manner of commodities and even gauges of volatility. A small investment of thousands of dollars may allow an investor to control a futures contract worth many times more, so the leverage is really significant. But losses can be significant as well. E-mini futures are smaller versions of larger futures contracts. They generally have a lower minimum than standard futures contracts, but are also potentially subject to the well-publicized shocks of electronic trading rather than the action in the old-school trading pit.
  
Managed futures. Investing in managed futures means selecting a rigorously regulated professional money manager - a commodity trading advisor, or (CTA) - that invests in commodity, currency and even equity index futures on your behalf. Most CTAs do this through proprietary trading systems. It generally takes $50,000 or more (sometimes much more) to invest in a managed futures account. As this is commodities trading, substantial and sudden losses may occur, as well as substantial and sudden gains.
 
Real-return securities. Also known as inflation-indexed securities, these are typically notes or bonds with coupon payments linked to inflation rates. The issuer guarantees that the security's return will outperform inflation if the security is held to maturity.
 
Market-neutral funds. Cautious investors have looked into these vehicles, which are sometimes called long-short funds. Their money managers commonly work with a goal of buying call options to capture some upside and buying put options and derivatives to hedge on the downside. Unsurprisingly, some of your potential for gains may be tempered as a result, and returns may be underwhelming when the bulls are running.
 
Global macro funds. These are actually hedge funds that seek to take positions in the markets according to macroeconomic principles.
 
Business development companies (BDCs). These corporations are cousins to venture capital funds. BDCs have to invest 70% of their assets in private or public corporations and pay out 90% or more of their taxable income as dividends.

Currency funds. Mutual funds and ETFs that invest in foreign currencies gain allure when the dollar weakens. These funds are run by an investment manager and employ some tactics of hedge funds, yet are available to the small retail investor.
 
Collectibles. By acquiring seasoned knowledge of supply and demand forces and trends in the coin, stamp, art and hobby markets, profit can be made far from Wall Street; it may take years of insight (and great instincts) to truly come out ahead. 
 
Who can explore these "alternatives"? Those who meet account minimums are eligible to invest in managed futures and some other forms of alternative investments thanks to niche mutual funds, REITs and ETFs. However, in many cases individuals and investment companies have to meet strict criteria demanding proof of assets in the millions and/or income in the hundreds of thousands to qualify.
 
This is but an overview. Anyone wishing to enter the alternative investment arena should speak with financial, legal and tax professionals familiar with its nuances.



Source: Jay Peroni
]]> http://www.rjcap.com/alternative-investments-at-a-glance/feed 0 It’s Never Too Late (Well, Almost Never) http://www.rjcap.com/its-never-too-late-well-almost-never http://www.rjcap.com/its-never-too-late-well-almost-never#comments Fri, 20 Apr 2012 13:53:00 +0000 Thomas Brown http://www.rjcap.com/?guid=ddcddab79c3d0c31c1967c3798c69b0d Continue reading →]]>
While you would think this is a conversation for the 20-something crowd, you’d be amazed at how many entrepreneurs and others who are well into their 30s and 40s have saved very little or nothing at all for retirement. One statistic I’ve seen indicated that 60% of Americans had less than $25,000 saved for retirement.1 And that is up from 56% the year before.2 This is a trend that clearly is going in the wrong direction.

So what are your options? First, you can spend less and save more. Pretty simple. Second, you can utilize tax-advantage savings plans that may be available through your employer such as a 401(k) or 403(b) plan. Try to target saving 10% or more because these plans allow you to contribute with pre-tax dollars directly from your paycheck. The investment will grow tax-deferred until you withdraw funds in your retirement years.

A third option is to use a traditional IRA. This type of savings account allows you to contribute tax-deductible contributions each year and like the employer plans above, grow tax-deferred. The maximum contribution allowed is significantly less than under the employer plans, but at least you gain some benefit in deferring taxes. If you are self-employed, you have additional options with varying benefits and rules including solo 401(k), simplified employee pension (SEP), savings incentive match plan for employees (SIMPLE) and Keogh plans. You can learn more about these plans on the IRS website, www.irs.gov.

I know in recent years, many have been forced to take early distributions from their retirement savings and these come at a heavy price. Not only are you required to pay the tax that was previously deferred, but you also incur a substantial penalty unless you qualify for an exemption. Others have fallen victim to changes in their employment while they had a 401(k) loan outstanding. When you take out a loan against your retirement savings and then change employers or lose your job altogether, the loan usually must be paid back and if you can’t, then it becomes an early distribution subject to the taxes and penalties already mentioned. That is one reason why employer plan loans should only be used as a last resort.

No matter how much you have saved today, you can start saving more and improve on your retirement picture. A consideration happening more often is to continue saving but also work later in life. Those at or approaching retirement age are looking at ways to continue earning income either in their chosen career or perhaps through a new business venture. In any case, your decision to save more now will give you more flexibility about what the retirement picture looks like for you.




Source: Andy Van Ore


1 2012 Retirement Confidence Survey, Employee Benefit Research Institute, March 2012
2 2011 Retirement Confidence Survey, Employee Benefit Research Institute, March 2011
]]> http://www.rjcap.com/its-never-too-late-well-almost-never/feed 0 Planning Basics for New and Expecting Parents http://www.rjcap.com/planning-basics-for-new-and-expecting-parents http://www.rjcap.com/planning-basics-for-new-and-expecting-parents#comments Fri, 13 Apr 2012 14:29:00 +0000 Thomas Brown http://www.rjcap.com/?guid=d017767b3115172c5be7001cc57efa41 Continue reading →]]> When budgeting for a baby, the below are just a few of the items you need to consider within your spending plan:
  • Emergency Funding: Do you have an emergency fund of at least 3-6 months of living expenses in place?
  • Groceries: How much will items such as diapers, formula and baby foods affect your grocery bill?
  • Transportation: Does your current car provide safe and adequate space for a car seat? Will you need a second or replacement vehicle?
  • Medical Costs: How much will your costs for medical premiums and co-pays increase when adding a child?
  • Childcare: What are the costs of child care in your area? Will you or your spouse stay home from work as opposed to paying for daycare? If so, how does that affect your income situation?
  • College Funding: Consider the costs of a college education for your children and start saving as early as possible. Even the smallest amount today can help trim future out-of-pocket costs.
  • Overall Cost: According to the U.S. Department of Agriculture, in 2010, the average cost of raising a child to age 18 was $226,920 for middle income parents. This includes costs for housing, food, transportation, clothing, health care, child care, education, personal care and entertainment expenses. Keep in mind that extracurricular activities such as sports, dance classes, and more can add up over the years.
In addition to evaluating your spending, it’s imperative that you update or implement an estate plan. Although no one likes to think about the possibility of not being around for long, it is in your (and your future children’s) best interest that you begin to prepare for the unknown.
  • If you don’t have a will in place, now is the time to create one. Not only will this ensure that your assets are distributed in line with your wishes, but it will allow you to appoint an executor for your estate and select a guardian for your children.
  • When choosing a guardian for your children, take time to reflect upon with whom your children would feel most comfortable. Who do you believe could support them emotionally? Ask yourself who shares your same values and beliefs around parenting. Remember to have a discussion with the person you select and to also nominate a contingent guardian should your primary choice be unwilling or unable.
  • Consider creating a trust. A trust document can spell out how you want funds left to your children to be managed and spent. In addition, you can appoint a trustee to manage the funds.
Along with the need for an estate plan comes the need for increased insurance coverage to ensure your family is adequately protected in case the unexpected happens. Evaluate your existing life, health and disability coverage. Be sure to consider the below in your review:
  • Life Insurance: You’ll likely need to increase your death benefit on any existing life insurance policies, or look into obtaining a policy if you don’t have one. By purchasing life insurance, you can ensure that should your family be faced with your premature death, they will have enough money to cover their living expenses and sustain their lifestyle. Be sure to consult with your agent on what type of policy and how much coverage is appropriate for you.
  • Disability Insurance: Purchasing a disability income insurance policy will ensure that you are paid a percentage of your current income should you become disabled for a short or long term period, and are unable to work. This will safeguard your family against a complete loss in income.
  • Health Insurance: Ensure that you have adequate coverage for routine check-ups and prescriptions. Make sure you understand the amount of your premium, deductibles, coverage for catastrophic events, and co-pays.
The above are a few of the basics to consider when starting a family of your own. Parenting is a “learn as you go” system, and while you may not have all the answers all of the time, you can ensure that you and your family are adequately prepared and protected for the financial unknown.



Source: Mary Beth Storjohann
]]> http://www.rjcap.com/planning-basics-for-new-and-expecting-parents/feed 0 April is Financial Literacy Month http://www.rjcap.com/april-is-financial-literacy-month http://www.rjcap.com/april-is-financial-literacy-month#comments Thu, 05 Apr 2012 20:52:00 +0000 Thomas Brown http://www.rjcap.com/?guid=6b2b91356cd2f4aba4133fcaa37dd355 Continue reading →]]>
A good place to start is www.mymoney.gov. There are 22 Federal Agencies that have collaborated to create and provide unbiased information about any financial area starting with creating a simple budget or spending plan. I too, recommend that financial literacy start with the basics. Even in the most comprehensive financial plans, it is first important to find out about your money – where it comes from, and how you spend it. How you spend it, most often times leads to the area of credit and debt. Irresponsible use or lack of understanding credit and debt can derail any future goals you may have, such as planning for retirement or obtaining a future mortgage. And knowing your credit score is essential.

With the launch of the Consumer Financial Protection Bureau, www.cfpb.gov consumers now have a resource to learn more about credit. The bureau’s Know Before You Owe program allows you to learn about credit cards, mortgages and student loans. The bureau also offers consumers the opportunity to file a complaint should you need assistance on a financial issue. The Office of the Comptroller of the Currency is also a good source through the website’s Financial Literacy Resource Directory.

Getting a good understanding of your money and how you spend it is an important first step to your own personal financial literacy, but don’t forget your own “personal” resources of information. Take this month to review and get a good understanding of your own bank statements and the fees associated with your accounts. Review you retirement plan statements or online resources and get educated about the investment options available to you. Finally a good source for all things financial is the Financial Planning Association’s own consumer website, www.FPAnet.org. There you can ask a financial question that is specific to your own personal situation.

There is a treasure trove of information available to the consumer who is committed to being financially educated. As we begin Financial Literacy Month 2012, start at the beginning and fully learn about your own personal finances. Improving your financial literacy is a good investment in yourself and your financial future.



Source: Pamela Sandy, CONFIANCE, LLC, Financial & Investment Advisors
]]> http://www.rjcap.com/april-is-financial-literacy-month/feed 0 Dangers of Market Timing http://www.rjcap.com/dangers-of-market-timing http://www.rjcap.com/dangers-of-market-timing#comments Fri, 30 Mar 2012 14:34:00 +0000 Thomas Brown http://www.rjcap.com/?guid=a7c3647b49d50df27ce540c7f188dd89 Continue reading →]]>
Opponents of Market Timing: Most investors and academics believe it is impossible to forecast market movements. Such a technique amounts to gambling when compared with a sound investment approach. It fails far more than it works, and market timers often end up buying high and selling low. Furthermore, you run the risk of missing periods of exceptional returns. For example, over the past 20 years, a $1 investment in stocks, as represented by the Standard & Poor’s 500®, would have grown to $4.50. If that same $1 investment happened to miss the best 11 months of stock returns over the past 20 years, the ending value would have equaled only $1.79. This would have been less than the value for an investor in a 30-day Treasury bill, a.k.a. cash, $1.87. Only those who remained invested in stocks throughout the entire period were sure to get market exposure during the crucial hot months.

Advocates of Market Timing: On the contrary, a number of websites, newsletters, and other trading services boast they can time the market. While their returns may have in fact beaten the market by a considerable margin, it’s safe to assume that these systems can’t consistently hold up over the long term. On some occasions and during some stretches of time, market timing can help generate impressive profits. However, you must be familiar with the dangers behind such an approach.


Source: Morningstar, Inc.
]]> http://www.rjcap.com/dangers-of-market-timing/feed 0 Stress Test Your Financial Health http://www.rjcap.com/stress-test-your-financial-health http://www.rjcap.com/stress-test-your-financial-health#comments Fri, 23 Mar 2012 16:22:00 +0000 Thomas Brown http://www.rjcap.com/?guid=b63936aa11e155c5d2d65eac9a7932ab Continue reading →]]>
Choose the answer that best fits your situation and tally up the total at the end. Ready, set, go!

Goals:
  • 10 Points: I know my goals, and their estimated cost and timeline.
  • 5 Points: I have goals, but don’t know the details yet.
  • 1 Point: The future looks really fuzzy and it’s too hard to set goals.

Income:
  • 10 Points: My income, from sources like my job, investments, pension, Social Security etc. is reliable and grows each year, and is more than enough to pay the bills.
  • 5 Points: My income is enough to pay the bills, but I’m worried that my income may not be enough in the future.
  • 1 Point: There’s barely enough to pay the bills.

Job/Career:
  • 10 Points: My job is secure, and my skills are in high demand.
  • 5 Points: My job is pretty secure, but it could be difficult to find another job at the same pay.
  • 1 Point: I need new skills to find a decent job in today’s economy.

Cash Reserves:
  • 10 Points: I have cash savings equal to at least half of my annual income or expenses.
  • 5 Points: I have cash savings equal to less than half of my annual income or expenses.
  • 1 Point: Cash in the bank? I wish.

Saving:
  1. 10 Points: I’m saving 10% or more of my annual income.
  2. 5 Points: I’m saving 1 – 9% of my annual income.
  3. 1 Point: Saving? No can do.

Debt:
  • 10 Points: I pay all my debts on time and in full. (Or, I have no debt at all.)
  • 5 Points: I can afford the monthly minimum payments on my debts, and sometimes a little more.
  • 1 Point: I don’t know how I’m going to repay my debts.

FICO Score:
  • 10 Points: My FICO score is good enough to get the credit I need without paying a premium.
  • 5 Points: My FICO score isn’t as good as I want it to be, but I’m working on a plan to improve it.
  • 1 Point: My FICO score makes it difficult for me to buy a home, buy or lease a car, rent an apartment, or get a cell phone.

Health Insurance:
  • 10 Points: I have health insurance and use it.
  • 5 Points: I have health insurance but hesitate to use it because it costs too much to get medical care.
  • 1 Point: I don’t have health insurance right now.

Life Insurance:
  • 10 Points: People (like a spouse and children) depend on me financially, and I have life insurance equal to at least four times my income. Or, no one is financially dependent on me, and I have life insurance equal to at least one year’s income.
  • 5 Points: People depend on me financially, and I have life insurance equal to at least 2 times my income.
  • 1 Point: People are dependent on me financially, and I have insurance equal to less than 2 times my income.

Estate Plan:
  • 10 Points: My will, durable power of attorney, and healthcare power of attorney are up to date.
  • 5 Points: I have an up to date will, but not a durable or healthcare power of attorney.
  • 1 Point: I just haven’t gotten around to updating or completing my estate plan.

My Total Score: _____________

Your Financial Health Assessment:

Score

  
85 – 100

Congratulations! Keep up your healthy financial habits and decisions to maintain your financial strength. With a healthy financial base, you have strength and resiliency to cope with the ups and downs of the investment markets. You can consider having some, but not all, of your investments in risky assets, like stocks and stock mutual funds.

50 – 84

Good start! You’ve made some progress towards financial health, but don’t stop here. With expert help or on your own, address one essential area at a time, and work on making it stronger. Until you improve your overall financial health, play it safe with your investments, with little to no risky assets, so that you don’t put the savings you do have at risk of loss.

Under 50

Get help now, and avoid the stock market completely. It’s never too late to improve your financial health. It’s not easy to make changes in your financial situation, habits, or mindset, but it is possible to take one step at a time to create a new financial future. Do it for yourself, and for the people you love.



Source: Karin Maloney Stifler, True Wealth Advisors
]]> http://www.rjcap.com/stress-test-your-financial-health/feed 0 Six Reasons Why Boomers’ Retirement Is Different From Their Parents’ http://www.rjcap.com/six-reasons-why-boomers-retirement-is-different-from-their-parents http://www.rjcap.com/six-reasons-why-boomers-retirement-is-different-from-their-parents#comments Fri, 16 Mar 2012 14:30:00 +0000 Thomas Brown http://www.rjcap.com/?guid=f269e92716547b7231e32b52fcd4f513 Continue reading →]]> Much Longer Retirement: Many people in previous generations worked as long as they could and very few were fortunate enough to have a retirement that would be considered “golden” by today’s standards. How many spent the last third (or more) of their lives pursuing hobbies and leisure instead of working? Boomers retiring in their 60s can expect to live about 30 years in retirement, which is a lot longer than their parents did.

2. Higher Expectations: Not considering tours of duty in Europe or the Pacific, how much traveling did past generations of retirees do? Boomers’ parents were Depression-era babies who practiced frugality and continued to pinch pennies throughout retirement. In stark contrast, boomers want their retirement to include travel, vacation homes, new cars, dining out, etc. This is fine, but it is expensive. Therefore, boomers need to plan for a much more expensive retirement than their parents ever would have expected.

3. Personal Savings Instead of Pensions: The greatest generation might have had a lower per capita income but many also had corporate pensions. Boomers wanted higher salaries, freedom to change employers and the ability to save independently. Corporate pensions were largely phased out, giving way to the 401(k). However, when given the option, most boomers didn't start saving enough or early enough. Today, many boomers haven’t amassed enough in personal savings, and most don’t have meaningful pensions compared to their parents.

4. Rising Instead of Declining Interest Rates: In the 1980s, when the greatest generation started to retire, interest rates were much higher than they are today. The long decline in interest rates provided a great return to bond investors. The boomers are facing the very opposite situation. Instead of an ever-declining interest rate, they are facing the likelihood of steadily increasing interest rates during their retirement.

5. Exotic Investment Options: The greatest generation had relatively few investment options; mostly ordinary bonds and certificates of deposit. Today’s boomers, on the other hand, are being offered an ever-expanding universe of income securities. The investment industry has provided a lot of rope, and a lot of new and exciting ways to lose it all.

6. Deregulations: If they felt like taking risk, the boomers’ parents might buy some dividend-paying stocks. At the time, most of the dividend-paying industries, such as finance and utilities, were highly regulated. Decades of deregulation have caused these industries to become less predictable and more risky; hence, the certainty of previously assumed dividends is now extremely uncertain.

What Boomers Really Need: As boomers give up on stock gains, they tend to focus on income investing, and are always on the hunt for higher yields. There is no secret to finding higher yielding securities. In one way or the other, a higher yield just means higher risk: either term risk, credit risk or price risk. Higher-yielding securities always have more risk than lower-yielding securities. And some high-yield securities can even be riskier than a simple basket of stocks, but with a lower expected return. For these reasons, you may want to ask your advisor to establish a sustainable withdrawal rate and build a diversified portfolio focusing on total return rather than focusing on dividend-producing, interest-paying securities.

Diversification does not ensure a profit or protect against a loss in a declining market. The opinions herein are those of Morningstar, Inc. and should not be viewed as investment advice.



Source: Morningstar, Inc.
]]> http://www.rjcap.com/six-reasons-why-boomers-retirement-is-different-from-their-parents/feed 0 Six Reasons Why Boomers’ Retirement Is Different From Their Parents’ http://www.rjcap.com/six-reasons-why-boomers-retirement-is-different-from-their-parents http://www.rjcap.com/six-reasons-why-boomers-retirement-is-different-from-their-parents#comments Fri, 16 Mar 2012 14:30:00 +0000 Thomas Brown http://www.rjcap.com/?guid=f269e92716547b7231e32b52fcd4f513 Continue reading →]]> Much Longer Retirement: Many people in previous generations worked as long as they could and very few were fortunate enough to have a retirement that would be considered “golden” by today’s standards. How many spent the last third (or more) of their lives pursuing hobbies and leisure instead of working? Boomers retiring in their 60s can expect to live about 30 years in retirement, which is a lot longer than their parents did.

2. Higher Expectations: Not considering tours of duty in Europe or the Pacific, how much traveling did past generations of retirees do? Boomers’ parents were Depression-era babies who practiced frugality and continued to pinch pennies throughout retirement. In stark contrast, boomers want their retirement to include travel, vacation homes, new cars, dining out, etc. This is fine, but it is expensive. Therefore, boomers need to plan for a much more expensive retirement than their parents ever would have expected.

3. Personal Savings Instead of Pensions: The greatest generation might have had a lower per capita income but many also had corporate pensions. Boomers wanted higher salaries, freedom to change employers and the ability to save independently. Corporate pensions were largely phased out, giving way to the 401(k). However, when given the option, most boomers didn't start saving enough or early enough. Today, many boomers haven’t amassed enough in personal savings, and most don’t have meaningful pensions compared to their parents.

4. Rising Instead of Declining Interest Rates: In the 1980s, when the greatest generation started to retire, interest rates were much higher than they are today. The long decline in interest rates provided a great return to bond investors. The boomers are facing the very opposite situation. Instead of an ever-declining interest rate, they are facing the likelihood of steadily increasing interest rates during their retirement.

5. Exotic Investment Options: The greatest generation had relatively few investment options; mostly ordinary bonds and certificates of deposit. Today’s boomers, on the other hand, are being offered an ever-expanding universe of income securities. The investment industry has provided a lot of rope, and a lot of new and exciting ways to lose it all.

6. Deregulations: If they felt like taking risk, the boomers’ parents might buy some dividend-paying stocks. At the time, most of the dividend-paying industries, such as finance and utilities, were highly regulated. Decades of deregulation have caused these industries to become less predictable and more risky; hence, the certainty of previously assumed dividends is now extremely uncertain.

What Boomers Really Need: As boomers give up on stock gains, they tend to focus on income investing, and are always on the hunt for higher yields. There is no secret to finding higher yielding securities. In one way or the other, a higher yield just means higher risk: either term risk, credit risk or price risk. Higher-yielding securities always have more risk than lower-yielding securities. And some high-yield securities can even be riskier than a simple basket of stocks, but with a lower expected return. For these reasons, you may want to ask your advisor to establish a sustainable withdrawal rate and build a diversified portfolio focusing on total return rather than focusing on dividend-producing, interest-paying securities.

Diversification does not ensure a profit or protect against a loss in a declining market. The opinions herein are those of Morningstar, Inc. and should not be viewed as investment advice.



Source: Morningstar, Inc.
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