Category Archives: Articles

Keeping Your Portfolio “Balanced”

A 60-second read by Victor Cannillo:  If your goal is to invest over the long-term, totally avoiding a sector solely on the basis that it has recently performed well would not be prudent.  Long-term investors should identify a globally-diversified strategy, spread across many sectors, that is risk appropriate and helps them achieve their goals.  

At Baron, our objective is to find the appropriate balance of globally-diversified assets for our clients’ portfolio, while producing as little volatility as possible to achieve their desired results. Using a rebalancing strategy can help smooth out volatility in the portfolio and prevent overweighting to any one sector or asset class while still allowing the investor to remain invested.

A rebalancing strategy aims to divest the relative gains from strong-performing asset classes and invest the proceeds in non-correlated asset classes that may be underperforming at the present time. By purchasing securities within sectors that may be trading at severe discounts due to their lackluster recent performance, our clients can both reap the reward of the recent market surge, while simultaneously strengthening the long-term stability of their portfolio. Furthermore, if the sectors that have been performing well recently were to take a severe and unexpected downturn, a rebalancing strategy would look to assure that the portfolio is not overinvested in those asset classes and exposed to an unwarranted amount of risk at any given time.

For any questions on your portfolio, please don’t hesitate to contact your Baron Team

 

Converting your IRA to a Roth IRA – What to Know

A 60-second read by Nicholas Scheibner:  The main difference between a Traditional Individual Retirement Account (IRA) and a Roth IRA is that with a Roth IRA, you pay taxes upfront, so that when you are in retirement, you can make withdrawals tax-free.

If you are considering converting your IRA to a Roth, here are a few things to consider:

Taxes: If you convert money from a traditional IRA to a Roth, your tax rate for the year you convert could go up.  If you decide to explore the conversion, please review with your accountant when to convert, as ideally, you would want to convert in a year that you expect your taxes to be lower.

RMDs: If you do decide to convert, this does provide a greater tax diversification to your overall portfolio, since you will potentially be reducing the required minimum distribution (RMD) amount from your IRA by converting IRA assets to Roth IRA assets.

The financial breakeven: The financial breakeven for a Roth is different for everyone, however, there are some general principles for the calculation – If tax rates increase in the future, this conversion may be worth more. If tax rates stay the same, or go lower, there may be less of a benefit. You may want to consider the opportunity cost of investing all monies today as opposed to using a portion for taxes.  The longer you live the more you may benefit from having the Roth assets grow tax-free.

Please review this information with your accountant and consult with your financial planner prior to converting.

For any further questions, please reach out to your Baron team.

What are some differences between Exchange-Traded Funds and Index Mutual Funds?

A 45-second read by Anthony Benante: There are many factors to consider when comparing an exchange-traded fund (ETF) and an index mutual fund.  An ETF is a marketable security that tracks an index, like an index fund.  A Mutual Fund is an investment company that pools money from shareholders and invests in a variety of securities, including stocks, bonds and money market funds. A main difference between an ETF and an index mutual fund is an ETF trades continuously while the market is open, while the index mutual fund trades one time a day at market close. 

For ETFs, investors should be aware of the spread between the bid and the ask price.  The larger the spread, the higher the implied cost is for investing in the ETF.  Also, investors need to understand the strength and depth of the ETF to make sure there is ample liquidity during volatile markets.  Investors can research the daily volume traded, the overall size of the ETF and other factors to better understand the strength of the ETF.  All these factors can lead to the ETF performing differently than its benchmark.

Index mutual fund performance will not perfectly match its benchmark either.  The costs to run the fund, which are paid by the investor and identified as an expense ratio (ETFs have similar costs) negatively impact performance compared to a benchmark index.  Also, index mutual funds may be required to hold a portion of the fund in cash to meet investor redemptions, which could contribute to lower relative performance when the benchmark’s performance is positive. 

Investors may experience different costs for the same product, meaning you have to do your homework.  Some ETFs can have transaction costs, however, some brokerages allow for free trading for certain ETFs.  For index mutual funds, you may be able to go direct to a mutual fund company and invest with no transaction cost, but you could pay transaction charges in a brokerage account for that same fund, depending on where the account is held.

In general, active investors may prefer the trading flexibility offered from ETFs, while long-term buy and hold investors may prefer using a straight index mutual fund to gain exposure to a specific benchmark.  We encourage investors to do their research and seek help in areas outside of their expertise. 

If you have any further questions on the subject, please reach out to your Baron team.

Disclosure: Past performance is no guarantee of future results.  Every investment strategy has the potential for profit or loss. This material is not intended to be relied upon as a forecast, research or investment advice.

What Does Working with a Fee-Only Advisor Mean for You?

An Advisor who is compensated by only YOU, the client:

Working with a Fee-Only advisor means that the advisor is only compensated by the fee that they charge, not by any commissions. The fee could be charged hourly, or it could be calculated as a percentage of a client’s assets under management (AUM), or even a retainer model. The National Association of Personal Financial Advisors (NAFPA) is the country’s leading professional association of Fee-Only financial advisors and they define a Fee-Only financial advisor as “one who is compensated solely by the client with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a financial product.” 

Working with a Fee-Only advisor means that the advice you receive is not motivated by the need to sell any products or influence from outside interests. The advice is objective and tailored to meet your specific needs.

An Advisor who works in YOUR Best Interest:

Continue reading What Does Working with a Fee-Only Advisor Mean for You?

Important information regarding Equifax data breach

You may have read that hackers broke into the Equifax database and stole personal information tied to 143 million people.  Ongoing updates from Equifax about this incident are available at equifaxsecurity2017.com

Baron Financial does not use Equifax for any services, but we are sharing this information for educational purposes.

Equifax is one of the three main credit reporting agencies.  They collect and maintain individual credit information and sell it to lenders, creditors, and consumers in the form of a credit report.   

What you should consider doing now:

  1. Order a Credit Report at www.annualcreditreport.com.
  2. Freeze Your Credit Reports (after ordering a copy).  A freeze stops thieves from opening new credit cards or loans in your name, but it also prevents you from opening new accounts. So each time you apply for a credit card, mortgage or loan, you need to lift the freeze a few days beforehand.  Equifax said it will waive all fees until Nov. 21 for people who want to freeze their Equifax credit files. 
  3. Regularly Monitor Your Financial Accounts, Credit Cards and Loan Accounts for any suspicious activity

Something else to consider: Sign up by November 21 for the free Credit Monitoring offer from Equifax (equifaxsecurity2017.com). Some experts have offered differing opinions on taking advantage of this service.  However, we did want to make you aware of the offer.

Continue reading Important information regarding Equifax data breach

The Dow Jones Industrial Average is Making Record Highs – What About My Portfolio?

A 60-second read by Anthony Benante: Comparing the Dow Jones Industrial Average (DJIA) to a specific investor’s globally-diversified portfolio is like comparing apples and oranges. Though there may be many more differences, we highlight a few here to consider. The DJIA consists of 30 large U.S.-based companies representing all industries except transportation and utilities.  A globally-diversified portfolio should be tailored to a specific investor’s profile, and may have exposure to well over 500 different companies (through Exchange Traded Funds and mutual funds) in all industries, as well as possible exposure to fixed income and other financial instruments. The DJIA is a price-weighted index, not market-cap weighted. This means that the index is constructed with companies with higher stock prices, such as those in August of 2017, like Boeing (BA), Goldman Sachs (GS) and 3M Co. (MMM). These companies carry more weight than those with lower stock prices, like Pfizer (PFE), Cisco (CSCO) and General Electric (GE), regardless of the total market value of each company.  So, if a few of the high-priced stocks are doing well, the index can do well compared to a diversified strategy. A good globally-diversified strategy is typically constructed for a specific investor with a unique profile.  The strategy should identify a risk profile and attempt to maximize return within that risk profile, while helping the investor achieve their financial goals. Finally, the DJIA typically only makes changes based on corporate actions and market developments while a globally-diversified strategy should make changes specific to the investor – when investments move outside of targets (rebalance), underperform (choose a better performing peer investment) or if there is a change in the investors specific profile (change the risk profile).

So when you hear about the performance of the DJIA, know that you are hearing about the performance of a few “popular” U.S. equities.  For a more personal understanding of your investments, you should understand the risk profile of your strategy and understand how your investments are helping you to achieve your long-term financial goals.

Please reach out to your Baron Team if you have any questions.

Treasury Ends myRA Retirement Savings Program

A 30-second read by Victoria Cannillo: In a previous post, we provided an overview of myRA, a retirement savings option, backed by the U.S. Treasury, for those who didn’t have access to an employer-sponsored retirement savings plan. The program was introduced in 2014 to enable participants to contribute to a retirement plan with flexible contribution amounts and no fees to open an account. The Treasury Department has recently announced that the myRA program will no longer continue, stating the demand for the program did not warrant the expense.

On the myRA website it states, “The U.S. Department of the Treasury has decided to phase out the myRA® retirement savings program and the program is no longer accepting new enrollments…” According to a July 28, 2017 article in The New York Times by reporter Tara Siegel Bernard, in the few years that the program was in existence, there were roughly thirty thousand participants. Participants of the program have the opportunity to rollover the savings that they accumulated through myRA into a Roth IRA. The myRA website provides participants information about selecting a new Roth IRA provider so that they can continue saving.

Please reach out to your Baron Team for any further questions.

Dealing with Market Volatility – A Long-Term Perspective Helps Manage Short-Term Actions

A 60-second read by Anthony Benante: If staying up-to-date on market events is a part of your regular routine, that is fine, but remember that volatility is a constant factor when it comes to investing. It’s best to have a plan established before you invest, so that you know what to do when markets make unexpected short-term moves.  For the assets you are investing for the long-term, the day-to-day fluctuations you experience now may not seem as significant over time. However, there are actions you want to take. 

At Baron Financial Group, we review our investment choices versus peer investments, to determine if any individual investment choices need to be changed.  Also, we review client portfolios versus their specific long-term strategy and rebalance them if needed.  These actions are part of working towards our main objective, which is to help our clients achieve their financial goals.  Volatile markets are incorporated in our financial plans for clients and we keep clients informed about their chances for achieving those goals in different market environments.  This helps give our clients a clear perspective of where they stand and what it will take to achieve their long-term financial goals, even after incorporating recent market moves.

As always, if you have any further questions, don’t hesitate to contact the Baron Financial Group team.

 

Spotlight on Baron Team Member James Jacob Suazo

James Suazo

James is a valued team member at Baron Financial Group. As an Associate Financial Planner, James performs research and assists the advisors with the creation and updating of financial plans for clients. In addition, James is our technology expert, researching and implementing technological advances within the field of financial planning to help enhance the service we provide to you. 

Founding partner, Victor Cannillo, enjoys mentoring James and the other members of the firm.  “James is knowledgeable and enthusiastic, and is a great support to the team, whether he is assisting the investment committee with fund research or aiding the firm with the important software we use.”

James is a member of both NAPFA (National Association of Personal Financial Advisors) and FPA (Financial Planning Association). NAPFA is the country’s leading professional association of Fee-Only financial advisors, committed to working in the best interests of those they serve.  Like NAPFA, the FPA aids in the professional development of its members and adheres to “a code of ethics that reflects their commitment to help clients achieve their life goals”.

Continue reading Spotlight on Baron Team Member James Jacob Suazo