Category Archives: Investment Planning

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?

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.

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.

 

Should politics affect your decision to include international investments in your portfolio?

A 45-second read by Anthony Benante:  For your specific portfolio, you need to evaluate your ability and willingness to take risk to help determine your personal profile. Without knowing about your entire financial situation, we would not make a specific recommendation for any asset. Typically, including globally-diversified assets in your investment strategy offers statistical benefits. We encourage you to think about the long-term nature of investing and validate your investment strategy with a comprehensive financial plan.  The plan should show outcomes based on different market environments and cycles.

Given the expectation that you could live into your 90s, it would probably not be best to look at your portfolio through a political lens.  In the short-term, breaking news is constantly occurring and it would be difficult to react correctly to each new development as it relates to your investments.  Over the long-term, there is the possibility for change in political parties and history suggests that the political party in charge in the United States has little impact on long-term market performance.  The decision to include international investments should not be directed by current political situations, but rather based on which investment strategy can help you achieve long-term success.

Reach out to our Baron team if you have any questions…

An Overview of myRA

Editor’s Note: As of July, 2017, the Treasury Department has announced that the myRA program will no longer continue.  For more information,  read our update to this post.

A 45-second read by Victoria Cannillo: You have most likely heard of a Roth IRA or a Traditional IRA, but what about myRA? myRA was introduced in 2014 as an option for people who don’t have access to an employer-sponsored retirement savings plan or other retirement savings options. According to the myRA website, you can contribute up to $5,500/year into the account ($6,500/year for those older than 50). Once the account reaches an account balance of $15,000, or when the account is 30 years old, the savings will be transferred or rolled-over into a private-sector Roth IRA.

For 2016, the maximum income allowable to participate in the program was $132,000 for single-tax filers and $193,000 for couples filing together. Read more specifics about the program, here.

Some pros and cons of myRA to consider:

Pros:

  • No cost to open an account and no fees
  • Flexible contribution amounts (a traditional IRA has a $1,000 minimum)
  • Investments are backed by the United States Treasury
  • Tax benefits are similar to a Roth IRA, such as earning interest tax-free

Cons:

  • There is only one investment option – a treasury bond (accounts are invested solely in Government Savings Bonds)
  • Once the account balance reaches $15,000, it stops accumulating interest, so your maximum for savings is limited
  • Doesn’t seem to offer many long-term options at this time

Reach out to your Baron team if you want help in understanding what kind of IRA would be best for you.

Baron Financial Group Attends CFA Institute Conference

Anthony Benante, CFA and Nicholas Scheibner, CFP® of Baron Financial Group recently attended the 70th CFA Institute Annual (four-day) Conference in Philadelphia, to keep updated on financial industry topics and trends. The CFA (Chartered Financial Analyst) Institute’s mission is to lead the investment profession globally by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society.

According to the CFA Institute, it’s imperative that investment professionals remain current in this changing and complex climate to best serve their clients’ interests.

Read more about the CFA Institute at cfainstitue.org.

To learn more about Baron Financial’s investment management service, visit our services pages on our website.

Class of 2017: It Isn’t Too Early to Start Thinking about Your Retirement

A 60-second read by the Baron Team:  Congratulations 2017 college graduates! Throw that mortarboard as high in the air as you can and before it circles back down to earth, start thinking about saving for your retirement. You are most likely going to be responsible for setting yourself up for a successful retirement, so your best bet is to invest early and often.

Invest in yourself first. Most people think investing is the key to wealth, but while certainly important, you have to have some money first to invest. So as soon as you begin your first job out of school, start saving as much as you can for retirement.

Continue reading Class of 2017: It Isn’t Too Early to Start Thinking about Your Retirement