Category Archives: Investment Planning

Things to Consider If You Have Over-Contributed to an IRA

A 60-second read by Victor Cannillo:

#1 – We highly recommend you hire a Certified Public Accountant to help you resolve the issue.

Here are some points to consider:

  • There are limitations on the total amount that may be contributed to an IRA. Currently, it’s the greater of either $5,500 ($6,500 if the person is 50 or older) or your taxable compensation for the year.

  • The IRS considers each individual person to have a single IRA.  The maximum contribution limits apply to all of your IRA accounts.  If you have more than one IRA account open, you can contribute to one account or all of your accounts as long as the total contributions meet the yearly limit.

  • If there are excess contributions to your IRAs, there is an annual additional 6% tax penalty (paid with the filing of Form 5329) on those excess contributions until you withdraw them from your account.

  • Normally, if the excess contribution for the tax year is withdrawn with any related earnings before the tax return deadline (including extensions), you are not subject to the 6% additional tax. Also the earnings on the excess IRA contributions as determined by the custodian will be subject to tax for the year the excess contribution was made. Those earnings are also subject to a 10% early withdrawal penalty if the person’s age is under 59 and a half for the year of the contribution.

  • You will need to consult a Certified Public Accountant to determine what tax returns need to be filed.

If you have more specific questions on this matter, we recommend speaking with a tax professional.

For any other questions, please reach out to your Baron Team.

Class of 2018: It Isn’t Too Early to Start Thinking about Your Retirement

A 60-second read by the Baron Team:  Congratulations 2018 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 a minimum of 10% of your annual income for retirement. This will ensure that you invest in yourself first.  You should plan on saving this much or more for the rest of your working career.

Here is a behavior trick to help you accumulate savings: have money taken out of your paycheck automatically and deposited into a 401(k), 403(b), thrift savings plan, or other retirement account. Read our previous post on “What is the Best IRA for a Young Investor?”. Almost all employers offer retirement investment vehicles like these, where you can contribute a certain percentage of your salary for the future. What you put into the account will grow tax deferred and be earmarked specifically for retirement. Because your contributions are automatically saved, it forces you to invest, which you might not otherwise do, and the money will be spent. Consider the IRS’s system of collecting taxes throughout the year through tax withholding. They know that if it was up to us to save and pay them one big check at the end of the year, we would have already spent the money.  The same is true with investing. If a percent is taken out of every check directly, you won’t miss it. This is all part of behavioral finance, or the study of human behavior in financial decision-making. A fascinating field that we wealth advisors see play out on a daily basis.

Another behavioral finance mental trick is to keep three to six months of living expenses in a separate account from your checkbook, also known as an emergency fund. This will provide you with peace-of-mind to always know that no matter what bills come in or what happens in your career, you’ve got this safety-net of cash at your disposal that you can tap into. Keep the money liquid by putting it in a savings account or money market mutual fund. This will help protect you from those potential future financial downturns.

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

Baron Financial Group is an Independent, Fee-Only Fiduciary

Fee-Only, Fiduciary, Independent: Three Important Criteria to Consider When Choosing a Financial Advisor.

Click on the video below to learn more.

For more information on Fee-Only Advisors, read our “What Does Working with a Fee-Only Advisor Mean for You?” blog post.

For more information on NAPFA (National Association of Personal Financial Advisors), click here.

If you are looking for an independent, Fee-Only Advisor, that acts as a fiduciary,  reach out to the Baron Financial Group Team.

 

Taking a Closer Look at ETFs – the Importance of Liquidity when Investing

A 30-second read by Nicholas Scheibner: You may have heard about low- or no-expense-ratio Exchange-Traded Funds (ETFs), but cost is not the most important factor when investing in an ETF – it’s liquidity. You want to make sure that the ETF you’re investing in has a high daily volume of trading. Everything can seem great with an ETF when markets are going up, but when things are going down, and you want to sell out of your fund, you may take a big loss.

To illustrate this, picture a room with 100 people, and a door that can only fit one person at a time.  Imagine everyone wanting to leave the room at the same time.  As you can imagine, there would be a rush to the door, and it would be difficult for everyone to get out – a similar theory applies to ETFs.  If there are very few people trading an ETF on a daily basis, it can be difficult to sell at the price you would like. You want to invest in an ETF that has a lot of activity, (a large door), so that when you want to exit, you can at a reasonable price. 

For more information on ETFs, you can read our “What are some differences between Exchange-Traded Funds and Index Mutual Funds? ” article.

For any other questions, please reach out to your Baron Team

Does Your Advisor Offer Institutional Pricing?

This post originally appeared in April, 2016.  For more information on institutional pricing, visit our Investment Management page.

A 60-second read by Anthony Benante: Baron Financial Group is an institutional investor.  As an independent RIA (Registered Investment Advisor) with no allegiance to any investment company, we seek the most attractively-priced investments for our clients. We look at every situation, and when we have the opportunity to invest in institutionally-priced mutual funds that make sense for our clients, we take advantage of the opportunity. The result of this is a direct benefit to the clients’ bottom line. And here’s why:

In the world of mutual funds (which are pools of assets such as stocks and/or bonds), there can be different pricing for the same underlying investments.  For simplification, you could think about these different pricing levels as institutional and retail. Whether you buy institutional-class shares or retail-priced shares from a mutual fund, the investment itself will be exactly the same. The major difference between the two is their fees and this can directly impact investor performance. For example, retail-priced shares can have higher expense ratios, while institutional-class shares have ongoing lower expense ratios (an expense ratio is a measurement of what an investment company charges to run a mutual fund). Retail customers may experience the effects of higher expense ratios because they typically have lower purchasing power.  Retail investors may also be subjected to upfront fees (fees when you purchase shares) as well as back-end fees (fees when you decide to sell your shares). There can also be yearly marketing fees called “12b-1” fees that you might have to pay. Finally, there may be a minimum to what you have to buy.

Institutional-class shares, on the other hand, tend to offer 25 to 50 basis points (a basis point is 1/100th of 1%) of pricing advantage because of their lower fees. There are no initial upfront percentage fees (note that there can be a small nominal transactional fee to purchase these funds) and no maximum sales fees are allowed. With lower expense ratios, more of your money is actually being invested. The result of this can be better performance and better returns for longer periods. 

Ask an advisor at Baron Financial Group to find out if institutional-class mutual funds are right for you. 

Recent Market Volatility

A 60-second read by Anthony Benante: The US Stock market is experiencing something that historically happens about once per year, a market correction.

Our Clients’ Perspective is Important to Us
Our client portfolios are constructed in a risk-appropriate strategy, based on ability and willingness.  When clients complete a financial-planning workbook, we are able to present analysis showing their financial position in different market environments, including markets like we are currently experiencing

Market Activity
Starting January 30th, market volatility has significantly increased.  Explaining the exact reasons for the current moves at this point is difficult.  Fundamentally, not much has changed from an economic growth, corporate profit or employment standpoint.  These are all showing stability and improvement.  However, on Friday, as part of the unemployment report, it indicated that wage inflation is starting to surface.  This created some questions and concerns around inflation and interest rates.  Markets responded aggressively to these concerns.  We have seen popular equity benchmarks trade significantly lower than where they were in mid-to-late January.

Though the numericalpoint moves you hear about may sound alarming, keep in mind that the index levels themselves are higher.  In reality, the percentage moves are not that uncharacteristic.  As investors, you should expect to experience periods of market weakness.  Corrections of 5% – 10% are not that uncommon historically.  We just have not seen these types of moves recently. 

What Baron is Doing – Controlling the Controllable 
The development of Baron Strategies for clients considers different market environments.  That is why we have assets that are built for Growth, for Stability and for Diversification.  We are paying attention to the performance of our investment choices.  We continue to review our investment choices versus peers and benchmarks, and seek rebalancing opportunities.

Baron follows the four pillars of disciplined investing:

  1.  Create a globally-diversified portfolio
  2.  Control the quality of investments
  3.  Rebalance when needed
  4.  Keep emotions out of investing

With the recent Stock Market turbulence, there are THREE questions you should be asking yourself:

  1. Do I have a strategy in place for all market conditions?
  2. Am I receiving proactive communication from my advisor?
  3. Have I been given financial guidance to help answer “Am I OK”?

We gladly offer a second-opinion phone call to help review your financial situation or to answer any questions you may be having at this time.  Please feel free to reach out to the Baron Team.

Click here to learn about our comprehensive Financial Planning and Investment Management service

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.

Why Choose Fiduciaries?

A 30-second read by the Baron Team:  Registered Investment Advisers (RIAs) are fiduciaries. We are legally bound to put our clients’ interests above our own.  As a fiduciary, we are required to act with undivided loyalty to the client, which includes disclosure of compensation.

Not all advisors have the same legal responsibilities as a fiduciary, but can still call themselves financial planners, advisers, or consultants. Those who aren’t RIAs are not subject to the same fiduciary standard of care and are not required by law to put the client’s interests above their own. You have to ask – and should, so you’ll understand what possible conflicts of interest may arise when their real allegiance is to their firm, rather than to you.

At Baron Financial Group, we don’t accept commissions or incentives to sell investment vehicles. We provide fee-only financial planning and investment advice to serve your best interests. As fiduciaries, we are required by law to place your interests above our own.

To learn more about what a fiduciary is, click here to view our “What is a Fiduciary?” blog post.

If you have any questions about our role as fiduciaries or our services, please feel free to reach out to your Baron Team.

What is Your Tolerance for Risk?

Are you risky or conservative? Or somewhere in between?

A 30-second read by the Baron Team: When it comes to your portfolio, it is important that you are invested in a strategy that aligns with your ability and willingness to take risk. Baron Financial Group is pleased to provide a free, scientific assessment of your financial risk-tolerance*. The questionnaire will provide you with a risk score, a crucial component when developing a long-term investment strategy.

How does it work?

To access the Risk Tolerance Questionnaire, you can either click here, or press on the “Are you risky or conservative?” button on the footer of our website.

You will be asked to provide your name and email address. Please note that we will only use your email to contact you regarding your score.

You will then be directed to the FinaMetrica website, where you will be prompted to answer 12 questions that will help to determine your risk tolerance score. At the time of this writing, the questionnaire can only be accessed via computer – tablet/phone capability is currently not available.

If you have any questions about the process or would like further information or instruction, please contact a member of our Baron Team.

* The risk tolerance calculator is intended to serve as an informational tool only, and should not be construed as legal, investment or tax advice.  Every investment strategy has the potential for profit or loss.

5 Financial Actions to Consider at Year-End – 2017 version

A 90-second read by Anthony Benante:  What 5 things should you be thinking about at the end of the year when it comes to your finances?

1. Review your personal budget and commit to a savings plan for 2018

a. On January 1, write down the balance in your checking account. Do this on the first of the month for the next three months. After you incorporate your income for the period, as well as take note of any cash withdrawals from other accounts, you can get a general sense of what your monthly spending is.

b. We work directly with our clients at Baron to help understand how their budget and all of their financial assets work together.  If you would like a budget sheet (either electronic or hard-copy), let us know. 

2. Review your long-term investment strategy

a. Is the long-term strategy in place for you still right for your specific circumstance? Are you going to be making any large purchases coming up in the New Year? Are you thinking about revisiting your risk tolerance – becoming more aggressive or conservative?

b. At Baron, we use a customized approach to design client portfolios.  We not only consider potential return, but also risk, as well as how the investments complement each other.  Having a long-term investment strategy is critical for investing success and provides a guide for when markets act unexpectedly or make a major directional move.

3. Rebalance your investment accounts

a. Rebalancing brings the portfolio into alignment with the original target weights of each asset class. It also helps to reduce long-term portfolio volatility.

b. Client portfolios at Baron are rebalanced on a contingent basis.  This means the actual holdings are regularly compared to the recommended strategy.  Triggers are in place to help identify when investments deviate too far from strategy and trades are placed. This keeps client portfolios close to their strategy.  Most individuals do not follow this disciplined approach. 

4. Review your tax situation for the year and take advantage of tax trading in your investment accounts, if possible

a. Understanding how your investments may impact your tax circumstance is important.  The last trading day for 2017 is Friday December 29th.  That is the last day you can make any changes to your portfolio for your 2017 tax return.

b. Throughout the year, we review Baron clients’ tax situations and see if any strategic trades can be made to help reduce tax burdens.  As year-end approaches, we look to minimize tax impacts when possible.  However, our main focus is adhering to portfolio strategy, while minimizing taxes when possible.

c. A new tax  bill has been passed and there will be changes for 2018.  Check in with your accountant or tax preparer to see if they recommend any changes prior to year-end or to your tax plan for 2018.

5. If you are 70 ½ or older, or if you have inherited a tax-deferred account, make sure you understand how required minimum distributions (RMDs) apply to you

a. If either of the above applies to you, you will need to take an RMD.  Contact your advisor or custodian to help understand the amount and how to take your RMD.  It is important to take your required minimum distribution in order to prevent any penalties from the IRS.

b. At Baron, we advise our clients on the timing, the structure (lump sum or regular distributions throughout the year) and the correct dollar amount needed to be withdrawn from retirement accounts requiring RMDs.

If you have any questions, don’t hesitate to contact the Baron Financial Group team.

 

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