The Diversified Blog

A wealth management blog dedicated to creating a long lasting sustainable retirement.

Dimensional Origins

Here is a nice video provided by Dimensional Fund Advisors:

 

This is just one in a series of videos which explain the reasons why we choose Dimensional Funds.

 

Dimensional Origins - Chairman and Co-CEO David Booth and others talk about the firm's founding and its close ties to the academic community.

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Shielding Retirement Assets From Taxes

As hard as it is to believe, today's tax-advantaged plans -- including individual retirement accounts IRAs, 401(k)s, and rollover IRAs -- have the potential to make many employees millionaires. A 401(k) contribution of $433 per month, at 8% compounded monthly, would be worth more than $1 million after 35 years.1

 

These plans are also highly vulnerable to tax losses, if they are not bequeathed properly. For instance, a $1 million IRA inheritance could be whittled to almost nothing under worst-possible circumstances, such as a combination of estate taxes, top income tax brackets, and missed withdrawal deadlines.

Saving your heirs thousands of tax dollars on your retirement money often hinges on the decisions you make before you retire. Therefore, it's important to take a look now at how to save heirs tax headaches later on.

 

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Dimensional Introduction

Here is a nice video provided by Dimensional Fund Advisors:

 

This is just one in a series of videos which explain the reasons why we choose Dimensional Funds.

 

Dimensional Introduction - A brief introduction to Dimensional, this video highlights the firm's academic roots and unique offering to clients. 

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Business Succession Issues: Understanding Buy-Sell Agreements

Running into financial troubles isn't the only reason that some closely held businesses fail to succeed. Their untimely demise may result from the lack of a formal plan providing for the orderly succession of management and ownership of the business. Such a plan frequently incorporates a buy-sell agreement as the tool for ensuring that the business will continue even after the departure, death, or disability of an owner.

 

To head off future problems, it pays to understand the uses and structures of these agreements. Although they can be adopted at any time, it is best to decide whether to put a buy-sell agreement in place as early as possible in the life of a business.

 

Legal Blueprint 

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I'm a Single Parent. How Can I Get Ahead Financially?

As a single parent, you need to understand the financial strategies that can stretch your income and help you lay the groundwork for a secure future. Consider the following lessons to help improve your family's bottom line:

 

Identify Your Goals

 

You can't have a financial plan without first defining your financial goals. Start by recording all of your short-, medium-, and long-term financial goals.

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Investors: Don't Let Fear Keep You on the Sidelines

While the U.S. stock market, as represented by the S&P 500 Index, has risen a stunning 205.66% as of March 31, 2015, since its low on March 9, 2009, some investors are still reluctant to participate after the near market collapse that accompanied the 2007-2008 financial crisis.1

 

Fleeing the market certainly may have felt like the right thing to do at the height of the financial crisis. But history shows that making investment decisions based on emotion has never proven successful. For instance, greed may have led an investor to own too many technology stocks when the bubble burst on that industry in 2000. Alternatively, fear may have caused investors to cash out of stocks following the crash of 1987 and miss some or all of the subsequent rebound.

 

Fast forward to 2015, and the reality is that investors who missed the extraordinary rally that has occurred since March 2009 may have helped to put their long-term accumulation goals at risk. This is especially true for investors with shorter time horizons, such as those approaching retirement. Consider this: From 2010 through 2014, U.S. stocks recorded an average annualized return of 15.5%, compared to 0.1% for money market securities.2 The nearly nonexistent returns associated with cash-like investments could have a powerful impact on investors' purchasing power over time.

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Financial Wellness Programs: Taking Employee Benefits to the Next Level

Financial wellness. On the surface, it sounds like an elusive "trend du jour." But when it is considered in relation to the workplace, the idea takes hold. Employees are asked to make important financial decisions about retirement plans and health, life, and other insurance coverages as well as other benefits -- all of which may have a lasting impact on their overall financial outlook. Yet often workers make these decisions "on the fly" without fully understanding their options or how their choices may affect their financial life today and into the future.

 

For their part, employers invest considerable resources in benefits programs, and while many provide educational support to employees, such support is typically targeted to a specific planning need -- such as retirement -- and often lacks the holistic approach that financial wellness programs seek to achieve.

 

Documenting the Need

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Intergenerational Wealth Planning: A Win-Win for the Whole Family

Discussing the transfer of wealth from parents to children can be uncomfortable for both parties. Yet by introducing children to the wealth management process from a young age, affluent families may be able to reduce family tensions later in life and help ensure that the planning tradition passes intact to future generations.

 

Closing the Communication Gap

 

Opening the dialogue about wealth transfer is a complicated, personal decision that is influenced largely by how wealth holders themselves have been brought up to view money and the responsibilities that come with it. For instance, some individuals may fear that discussing wealth with their children will lead to feelings of expectation and entitlement. Others may simply prefer to control all money issues themselves. Still others with young children may be uncertain about their future wealth and reluctant to discuss it until their children are older and have proven how well -- or poorly -- they handle money.

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Your Credit Report: Can You Afford to Ignore It?

When was the last time you obtained a copy of your credit report? If your answer is "never" you are not alone. A recent survey found that one in four Americans have never checked their credit report. The simple reason? They don't think it is important.1

 

Credit reports ARE important to every consumer. They typically are a major factor in determining if you will be approved for a loan, be able to rent an apartment, or even get hired at a new job. They qualify your creditworthiness and are one of the first places to detect whether you have become the victim of identity fraud.

 

If all of those reasons are not enough to convince you that monitoring your credit report is a good idea, the no-brainer fact you can't deny is: It's free and has been for more than a decade!

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Retirement Confidence: It's All in the Plan

Americans' confidence in the ability to afford a comfortable retirement continues to rebound from the lows reported between 2009 and 2013. The increasing optimism is coming largely from workers who indicate they and/or their spouse have a retirement plan, such as a defined contribution (401(k)-type) plan, defined benefit (pension) plan, or individual retirement account (IRA). This is one of the key takeaways from the 25th annual Retirement Confidence Survey (RCS) -- the longest-running survey of its kind, conducted by the nonpartisan Employee Benefit Research Institute (EBRI) and Greenwald & Associates.

 

According to the 2015 RCS, among workers with access to some type of retirement plan, more than one in five (22%) are "very confident" they will have enough money to live comfortably in retirement, up from 13% in 2009 -- a time when devastating losses to retirement plan assets caused by the financial crisis of 2007-2008 crushed investor confidence. This year an additional 36% reported being "somewhat confident" in their ability to live comfortably in their later years, while 24% are "not at all confident" in their retirement prospects. This percentage has remained statistically the same for the past two years.

 

Paying the Bills

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Tips for Retooling Your Portfolio

Like a closet that isn't reorganized from time to time, a portfolio that isn't reviewed regularly can leave you feeling like the pieces no longer fit. Last year, for example, stocks, as measured by the S&P 500 had annualized returns of 13.69%.1  U.S. investment grade bonds gained 5.97%, while international stocks declined -4.49%.1  Given this diverse composite of returns, a portfolio than began 2014 carefully allocated between stocks and bonds could now have shifted away from your intended asset allocation.2

 

Getting your portfolio back on track is critical because studies have confirmed that asset allocation is the single most important determinant of investment success.

 

Restoring Balance

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Where You Live Matters: Counting the Cost of Long-Term Care

It probably comes as no surprise that the cost of long-term care services -- including nursing homes, assisted-living facilities, and home-based care -- continues to rise steadily across the country.

 

Among the various services tracked by Genworth's annual Cost of Care Survey, home-based care costs are rising at a slower pace than other forms of care. Specifically, Genworth's most recent report found that, on a national basis, home-based care rose just 1% to 1.5% over the last five years, while costs at nursing homes and assisted-living facilities have increased 2.5% to 4% over the same five-year period.1

 

Genworth also tracks long-term care cost data on a regional and state-by-state basis. For planning purposes -- either your own or for an aging parent or other loved one -- this is vital information to know and discuss with your financial professional when forecasting retirement income scenarios.

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It's 2015: Do You Know Who Your Beneficiaries Are?

Many investors have taken advantage of pretax contributions to their company's employer-sponsored retirement plan and/or make annual contributions to an IRA. If you participate in a qualified plan program you may be overlooking an important housekeeping issue: beneficiary designations.

 

An improper designation could make life difficult for your family in the event of your untimely death by putting assets out of reach of those you had hoped to provide for and possibly increasing their tax burdens. Further, if you have switched jobs, become a new parent, been divorced, or survived a spouse or even a child, your current beneficiary designations may need to be updated.

 

Consider the "What Ifs"

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Advanced Strategies for Managing Volatility

Investors are exposed to financial risk in two ways: company-specific risk or market risk. Long-term investors can virtually eliminate exposure to company-specific risk by diversifying among many different securities in the same asset class.1 Market risk is managed -- but not eliminated -- by holding investments in several different asset classes. Both types of risk may also be reduced by employing "hedge" strategies that provide temporary protection against market volatility.

 

Managing Single-Security Risk

 

Modern portfolio theory is founded on the assumption that investment markets do not reward investors for taking on risks that could be eliminated through diversification. In the 1970s, a landmark study by University of Chicago researchers found that more than 90% of company-specific risk could be diversified away by holding a broad basket of 15 to 20 stocks. However, a subsequent analysis of stock market data found that at least 50 stocks may now be required for adequate diversification.2

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Are There Any Disadvantages Associated With Paying off a Mortgage Early?

The disadvantages, if any, may stem from the financial trade-offs that a mortgage holder needs to make when paying off the mortgage. Paying it off typically requires a cash outlay equal to the amount of the principal. If the principal is sizeable, this payment could potentially jeopardize a middle-income family's ability to save for retirement, invest for college, maintain an emergency fund, and take care of other financial needs.

 

If you have the financial means to pay off a mortgage, consider the following:

 

• Your feelings about debt -- Some homeowners like the feeling of security that comes with owning a home free and clear. If this describes you, it may be to your benefit to pay off or reduce the size of your mortgage. Should conditions in your local real estate market decline, there's less of a chance of owing more than you own.

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Is a Health Care Flexible Spending Account a Good Idea?

A flexible spending account (FSA), offered as an elective benefit by many employers, permits workers to contribute, through payroll deduction, to accounts that are designated for specific qualifying medical or dental expenses. If your employer makes an FSA available, the account typically is used in conjunction with your employer-sponsored medical plan for out-of-pocket costs not covered under the plan. All amounts contributed are pretax and funds are not taxed when spent on qualifying health care costs.

 

Eligibility

 

FSAs are employer-based; Self-employed individuals are not eligible. To participate, you usually must enroll through your employer each year, even if you do not want your deduction amounts to change from year to year. (Some plans vary.) Employers generally offer enrollment during open enrollment periods when you enroll for the entire plan year. If you want to change or revoke your election before the end of the plan year, you typically can do so only if your plan permits a change due to circumstances in your employment or family status.

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The Role of Bond Funds in Your Portfolio

Bonds are popular investment vehicles because they pay interest income with a promise to pay back the initial investment after an agreed-upon period of time. Bond mutual funds may be even more popular among those seeking an income component in their portfolio because they offer a lower-cost, professionally managed, diversified alternative to individual bonds. However, before determining whether bond funds will help meet your income needs, compare the goals, similarities, differences, and risks of bonds and bond funds.

 

What Is a Bond?

 

A bond is an "IOU" for money loaned by an investor to the bond's issuer. In return for the use of that money, the issuer agrees to pay interest to the investor at a stated rate, known as the "coupon rate." When the loan is paid back at the end of that time period -- when the bond "matures" -- the issuer repays the investor's principal.

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The Seven Roles of an Advisor

Here is a nice article provided by Jim Parker of Dimensional Fund Advisors:

 

What is a financial advisor for? One view is that advisors have unique insights into market direction that give their clients an advantage. But of the many roles a professional advisor should play, soothsayer is not one of them.  Click here to read the full article:  The Seven Roles of an Advisor.pdf

 

 

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Gravel Road Investing

Here is a nice article provided by Jim Parker of Dimensional Fund Advisors:

 

Owners of all-purpose motor vehicles often appreciate their cars most when they leave smooth city freeways for rough gravel country roads.  In investment, highly diversified portfolios can provide similar reassurance.  Click here to read the full article:  Gravel Road Investing.pdf

 

 

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US Mutual Fund Landscape 2015

US Mutual Fund Landscape Updated

 

Here is a nice article written by Dimensional Fund Advisors:

 

Dimensional’s Research group has updated its annual US mutual fund analysis to reflect fund industry performance through 2014. The analysis is based on data from the CRSP Survivor-Bias-Free US Mutual Fund Database. “The US Mutual Fund Landscape 2015” features graphics and narrative describing a fund manager’s challenge to survive and outperform over time. The research reveals that few mutual funds have delivered benchmark-beating returns and quantifies an investor’s challenge to identify outperforming managers in advance. The content also shows the impact of fees and turnover on fund returns. Click here to read the full report:  US Mutual Fund Landscape 2015.pdf

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Coverdell, Custodial Account, or 529? How to Choose

First the bad news: The cost of a college education has skyrocketed, increasing at a rates well above the general inflation rate in recent years. Now the good news: Your options for setting aside college money in tax-efficient investment accounts have increased as well. For example, in 2001 Congress enhanced 529 plans and Coverdell Education Savings Accounts (formerly known as Education IRAs). Other time-tested strategies, such as contributing to a minors custodial account (UGMA/UTMA accounts), continue to offer potential benefits as well.

 

The Lowdown on 529 Plans

 

Created in 1996 and named after the section of the federal tax code that governs them, 529 plans are generally sponsored by individual states, but in some cases may also be sponsored by qualified educational institutions. They are administered by investment companies, which also oversee the underlying investments. There are two types of 529 plans:

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Choosing a Retirement Location

Baby boomers are going to retire differently than their parents did. Americans are living longer, healthier lives -- a fact that is reflected in our notions of what it means to retire. Now, instead of a complete cessation of work, Americans view retirement as a gradual transition into another lifestyle.

 

Some retirees may go back to school, start their own businesses, or work part time. Others will tackle those home improvement projects they've been putting off for decades or volunteer their time and talent for causes they care about. Still others will fulfill a lifelong dream of seeing what the world has to offer. Whatever the coming generation of retirees decides to do, where they decide to do it will be of the utmost importance.

 

Deciding whether to relocate or to stay rooted in your own hometown -- and your own home -- or to "trade down" to a smaller easier-to-maintain home involves a host of issues that you will need to weigh carefully. In making the decision, give yourself plenty of time, do as much research as possible and try to focus your thinking on your needs and those of your spouse or others close to you.

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Charitable Giving Opportunities for Affluent Investors

Affluent investors who are charitably inclined may have specific philanthropic and estate planning goals in mind, but may not be familiar with the many vehicles and trust structures available to help them implement their goals.

 

In order to choose the most advantageous charitable giving strategy, individuals must evaluate a number of factors, such as their need for current income, their desire to control and preserve assets during life and after death, their specific charitable intent, as well as important tax management issues. Charitable estate planning techniques can help achieve most if not all of these objectives. Donor-advised funds, family foundations, gift annuities, and CRTs/CLTs round out the field of essential options that are available to individuals and their families.

 

Donor-Advised Funds -- Offer Convenience and Flexibility

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Changing Jobs or Retiring? Don’t Forget Your Retirement Savings!

Choosing a distribution method from your retirement plan when you change jobs or retire can have significant tax implications.

 

Your retirement savings plan offers you several choices when you decide to change jobs or when you retire. This report explains some of the options you may be able to choose from in deciding how you want the money in your plan treated when one of these events occurs.

 

What Is a Distribution?

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Art and Collectibles: Planning for the Transfer of Your Treasured Property

For many individuals collecting artwork, jewelry, antiques, and other vintage treasures is a lifelong passion. Deciding what is to become of your valuable personal assets when you are no longer around to care for them is not something to take lightly, particularly when it comes to planning for the distribution of your estate.

 

Let's say over the years you have accumulated several valuable oil paintings. Ask yourself: Do I want to pass my collection on to family members? Do they have the expertise to manage valuable or fragile assets? Would a museum be a better home? Is it economically feasible to keep my collection intact, or will I need to sell some pieces to cover various expenses?

 

If you don't address these questions while you are here and able to do so, it is likely that your estate executor or attorney -- who may not have your passion for art -- will do so for you when you're gone. Deciding what to do with a treasured collection generally involves three tasks: assessing value, naming beneficiaries, and communicating your intentions.

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Planning for Known -- and Unknown -- Health Care Costs in Retirement

The issue of health care costs in retirement -- and planning for them well in advance of retirement -- is becoming a centerpiece of any retirement planning discussion.

 

A recent study by Employee Benefit Research Institute (EBRI) projected that in 2014, men and women who wanted a 90% chance of having enough money to cover out-of-pocket health care expenses in retirement would need to have saved $116,000 and $131,000 respectively by age 65. 1 This is a sobering goal when you consider that just 42% of workers in their 50s and 60s report total savings and investments in excess of $100,000. 2

 

Part of the problem with putting a price tag on retiree health care expenses is that every situation will vary depending on an individual's health, the type of health care coverage they carry, and when they hope to retire. That said, EBRI has identified some "recurring expenses," or standard elements of cost that can be estimated and planned for in advance as well as "non-recurring" expenses that are less predictable but tend to increase with age.

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How Well Do You Know Your 401(k)?

The old saying "knowledge is power" applies to many situations in life, including retirement planning. The more you know about the benefits your plan offers, the more likely you'll be to make the most of them and come out ahead financially when it's time to retire. Here are some questions to test your knowledge about your plan.

 

How much can I contribute?

 

The maximum contribution permitted by the IRS for 2015 is $18,000, although your plan may impose lower limits. Further, if you are age 50 or older, you may be able to make an additional $6,000 "catch-up" contribution as long as you first contribute the annual maximum. Check with your benefits representative to find out how much you can save.

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Cast in Iron?

Here is a nice article provided by Jim Parker of Dimensional Fund Advisors:

 

The media occasionally locks in on a particular “hot” sector. In the late 1990s, it was technology. In the mid-2000s, it was mining. Writing headlines about fashionable sectors is one thing. Building investment strategies around them is another.  Click here to read the full article: Cast in Iron.pdf

 

 

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Rethinking Risk - Common Barometers for Measuring Portfolio Performance

If you are researching new investment avenues, chances are "evaluating risk" tops your checklist. Financial experts have developed many methods for measuring risk, but beta and standard deviation are two of the most popular and useful options.

 

Beta calculates how much (or how little) an investment's price varies relative to a specific benchmark. For stocks, the S&P 500 is often used. 1 For bonds, it might be the Barclays U.S. Aggregate Bond Index. 2 The mechanics of beta are fairly simple: The benchmark is always assigned a risk rating of 1.0. So, if a stock has a beta of 1.1, for example, it has been 10% more volatile than the general market. If the market has a return of 10%, an investment with a beta of 1.1 would be expected to return 11%.

 

Similarly, if the market declines 10%, the investment would be expected to drop by 11%. Since it is calculated in relation to a benchmark, beta may provide a more accurate risk reading for specific asset classes and certain types of mutual funds than for individual securities. 3

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Delaying Retirement May Provide the Financial Boost You Need

Americans are living longer, healthier lives, and this trend is affecting how they think about and plan for retirement. For instance, according to the Employee Benefit Research Institute, the age at which workers expect to retire has been rising slowly over the past couple of decades. In 1991, just 11% of workers expected to retire after age 65. Fast forward to 2014, and that percentage has tripled to 33% -- and 10% don't plan to retire at all. 1

 

Working later in life can offer a number of advantages. Many people welcome the opportunity to extend an enjoyable career, maintain professional contacts, and continue to learn new skills.

 

A Financial Boost

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What Is a Stretch IRA?

A stretch IRA is a traditional IRA that passes from the account owner to a younger beneficiary at the time of the account owner's death. Since the younger beneficiary has a longer life expectancy than the original IRA owner, he or she will be able to "stretch" the life of the IRA by receiving smaller required minimum distributions (RMDs) each year over his or her life span. More money can then remain in the IRA with the potential for continued tax-deferred growth.

 

Creating a stretch IRA has no effect on the account owner's RMD requirements, which continue to be based on his or her life expectancy. Once the account owner dies, however, beneficiaries begin taking RMDs based on their own life expectancies. Whereas the owner of a stretch IRA must begin receiving RMDs after reaching age 70 1/2, beneficiaries of a stretch IRA begin receiving RMDs after the account owner's death. In either scenario, distributions are taxable to the payee at then-current income tax rates.

 

It's worth noting that beneficiaries also have the right to receive the full value of their inherited IRA assets by the end of the fifth year following the year of the account owner's death. However, by opting to take only the required minimum amount instead, a beneficiary can theoretically stretch the IRA and tax-deferred growth throughout his or her lifetime.

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How Do I Know If My IRA Contributions Are Tax Deductible?

Contributions to a traditional IRA are tax deductible if you don't already participate in an employer-sponsored retirement plan. For 2015, the maximum you can contribute to an IRA is $5,500. If you are age 50 or over, you can make an additional "catch-up contribution" of $1,000.

 

If you do participate in an employer-sponsored plan, your contributions still can be fully or partially deductible, up to certain income thresholds. For 2015, those limits are between $61,000 and $71,000 for single filers and $98,000 and $118,000 for married couples filing joint returns.

 

If you are ineligible to make deductible contributions to a traditional IRA, you may want to investigate a Roth IRA. Contributions to a Roth IRA are made with after-tax dollars and are not tax deductible, but distributions are tax free. Be aware that there are income thresholds to contribute to a Roth. For 2015, those limits are between $116,000 and $131,000 for single filers and $183,000 and $193,000 for married couples filing joint returns.

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Making Sense of Mutual Fund Lingo

The jargon of investing may seem designed to confuse, but understanding a few of the terms can help you navigate your way more easily through the maze of financial information.

 

Measuring Performance

 

The NAV -- or net asset value -- of a fund is the price to buy or sell one share of the fund. It is calculated on a regular basis by the fund company using the closing price of each security held in the fund. In some retirement plans, the actual unit value of shares may differ from the NAV.

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Interest Rates: What's the Connection to Your Portfolio?

When it comes to interest rates, one thing's for certain: What goes down will eventually come up.

 

The federal funds rate -- the rate on which short-term interest rates are based -- has varied significantly over time. It's a cycle of ups and downs that can affect your personal finances -- your credit card rates, for example. But what about less familiar effects, like those that interest rate changes can have on your investments? Understanding the relationship between bonds, stocks, and interest rates could help you better cope with inevitable changes in our economy and your portfolio.

 

Bond Market Mechanics

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Dimensional's Flexible Trading Approach

Dimensional's Flexible Trading Approach

Here is a nice video provided by Dave Twardowski, PhD of Dimensional Fund Advisors:

 

In this client-ready video the pricing advantage that investors can get from Dimensional’s patient and flexible approach to trading is examined.  CLICK HERE to watch.

 

 

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Deferral Rates Trump Fund Performance, Rebalancing as Key to Retirement Plan Success

A study by the Putnam Institute, "Defined Contribution Plans: Missing the forest for the trees?" contends that while a number of variables, such as fund selection, asset allocation, portfolio rebalancing, and deferral rates all contribute to a defined contribution plan's effectiveness -- or lack thereof -- it is deferral rates that should be placed near the top of the hierarchy when considering ways to boost retirement saving success.1

 

As part of its analysis, the research team created a hypothetical scenario in which an individual's contribution rate increased from 3% of income to 4%, 6%, and 8%. After 29 years, the final balance jumped from $138,000, to $181,000, $272,000, and $334,000, respectively.

 

Even with a just a 1% increase -- to a 4% deferral rate -- the participant's final accumulation would have been 30% greater than it would have been using a fund selection strategy defined as the "Crystal Ball" strategy, in which the plan sponsor uses a predefined formula to predict which funds may potentially perform well for the next three-year period. Further, the 1% boost in income deferral would have had a wealth accumulation effect nearly 100% larger than a growth asset allocation strategy, and 2,000% greater than rebalancing. Of course these results are hypothetical and past performance does not guarantee future results.

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How (and Why) to Read a Fund Prospectus

When you're in search of a definitive source of information for a particular mutual fund, all you need to do is take a look at a publication known as the fund's prospectus.

 

Each fund prospectus is issued by the fund provider and contains all the details investors need when choosing an investment. For example, prospectuses answer questions such as:

 

•In what types of securities does this fund invest?

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MasterChef of Investing

Here is a nice article provided by Jim Parker of Dimensional Fund Advisors:

In the popular TV program MasterChef, contestants face a series of cooking challenges. From low quality ingredients to inadequate preparation and poor implementation, so many things can, and do, go wrong. It’s a bit like investing.  To read the full article click here:

MasterChef of Investing.pdf

 

 

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Weather vs. Climate

Here is a nice article provided by Jim Parker of Dimensional Fund Advisors: 

Notice how TV news bulletins put finance next to the weather report? In each, talking heads point at charts and intone about intraday events that are quickly forgotten. Meanwhile, the long-term wealth building story gets overlooked.  Read the full article by clicking here:

 Weather vs. Climate.pdf

 

  

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How Much Health Insurance Do I Need?

The answer is simple: enough to ensure that if you (or a covered family member) get sick or injured, you're not footing the entire medical bill on your own.

 

If you receive health insurance through your employer, your choices are limited. Some employers will offer plans from multiple health insurance providers, but most limit their offerings to one provider. Additionally, most employers offer one or more of the following: an HMO, a PPO or a traditional plan. 

 

•An HMO (or health maintenance organization) is usually the lowest-cost alternative. As a result, enrollees are limited to doctors and treatment facilities within a limited "network." These plans usually have no deductibles. Enrollees are required to make copayments when seeing a physician.

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Investor Know Thyself

In an ideal world, emotions would play a very small role in the way people invest and manage their money. Everyone would thoroughly research their options, maintain realistic expectations, and keep counterproductive habits under control.

 

But in the real world, even well-informed investors sometimes make emotionally charged decisions that may threaten their ability to stay focused on important financial goals, such as accumulating enough money for retirement. In fact, such missteps are so common that many academics have done extensive research on "investor psychology" or "behavioral finance" to explain why some people tend to keep encountering the same obstacles in their financial lives.

 

As you might imagine, different financial attitudes can result in very different consequences. For example, the behavior known as "anchoring" is the tendency for investors to hold on to a belief based on their own limited experience, despite the availability of contradictory information.

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I'm Self-Employed. How Can I Get Health Insurance?

Self-employment is an important career choice for many people, and it is an option elected by many seniors and baby boomers. But with this choice comes the need to provide your own health insurance, which can be a formidable expense. And, thanks to the Affordable Care Act, a necessary one starting in 2014. If you are self employed and are seeking health care coverage, here are your major options.

 

If you have a spouse or partner who is or can be enrolled in an employer-sponsored plan, joining this plan is usually the simplest and least expensive way to maintain coverage. Nearly all employer-based plans offer coverage to spouses and children, and many provide coverage to domestic partners as well.

 

If you formerly were employed by an organization that employed 20 or more people and made a group health plan available to employees, you may be able to obtain medical coverage through the federal Consolidated Omnibus Budget Reconciliation Act, known as COBRA. COBRA requires employers to make available to departing employees the option of continuing membership in an employer-sponsored group medical plan at the employee's expense. You can continue your health insurance under COBRA for yourself and your dependents for 18 months, during which time you can search for the best option as a self-employed person.

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2014: Patience Pays Off

Here is a nice article provided by Weston Wellington of Dimensional Fund Advisors:

In 2014 the broad US stock market surprised many investors with above average returns.  Click here to read more:  

2014 Patience Pays Off.pdf

 

 

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2014 Review: Economy & Markets

Here is a nice article provided by Bryan Harris of Dimensional Fund Advisors: 

Despite a bumpy ride throughout 2014, the US economy gained pace while the US equity and fixed income markets outperformed most markets around the world.  Click here to read more in this article:

 2014 Review Economy and Markets.pdf

 

 

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Heat of the Fire

Here is a nice article written by Brad Steiman of Dimensional Fund Advisers:

Investors can prepare for future market volatility by revisiting their experience from past market declines. In Heat of the Fire Brad Steiman of Dimensional Fund Advisors discusses the value of conducting a “financial fire drill” and offers portfolio illustrations to help set client expectations. Click here to read this article:

Heat of the Fire.pdf

 

 

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Annual Report Shows College Cost Increases Slowing

The latest report on college costs published by the College Board indicted that, although college costs still increased more than general inflation in the past year, the increase in tuition and fees for the 2014-2015 academic year will be lower than the average annual increases in the past five years, the past 10 years, and the past 30 years across all sectors included in the study.1

 

Specific increases, as published in "Trends in College Pricing 2014," are as follows:1

 

•Public, in-state, four-year institutions: Average tuition and fees increased by $254 (2.9%), from $8,885 in 2013-2014 to $9,139 in 2014-2015. Room and board charges are $9,804.

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Case Study: How to Save Money Through a Financial Crisis - Defined Benefit Plan

Scenario: 

Six years before retirement, a couple, one of which was a corporate executive and the spouse, a self-employed entrepreneur, came to me because they wanted to save the maximum before they retired. When a client says they want to save the maximum that can range from up to the company match in their 401k (4% of salary) to 100k plus per year. 

 

Challenge: 

It was the mid 2008 the financial crisis was just gaining momentum, only we didn’t know it yet. 

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I'm Getting Married. How Could Marriage Potentially Affect My Finances?

Marriage affects your finances in many ways, including your ability to build wealth, plan for retirement, plan your estate, and capitalize on tax and insurance-related benefits. There are, however, two important caveats. First, same-sex marriages are recognized for federal income and estate tax reporting purposes. However, each state determines its own rules for state taxes, inheritance rights, and probate, so the legal standing of same-sex couples in financial planning issues may still vary from state to state. Second, a prenuptial agreement, a legal document, can permit a couple to keep their finances separate, protect each other from debts, and take other actions that could limit the rights of either partner.

 

If both you and your spouse are employed, two salaries can be a considerable benefit in building long-term wealth. For example, if both of you have access to employer-sponsored retirement plans and each contributes $17,500 a year, as a couple you are contributing $35,000, far in excess of the maximum annual contribution for an individual ($17,500 for 2014). Similarly, a working couple may be able to pay a mortgage more easily than a single person can, which may make it possible for a couple to apply a portion of their combined paychecks for family savings or investments.

 

Some (but not all) pensions provide benefits to widows or widowers following a pensioner's death. When participating in an employer-sponsored retirement plan, married workers are required to name their spouse as beneficiary unless the spouse waives this right in writing. Qualifying widows or widowers may collect Social Security benefits up to a maximum of 50% of the benefit earned by a deceased spouse.

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Prepare for Retirement…Consolidate!

If you are preparing for retirement and have multiple investments spread among a number of accounts and institutions, you may want to consider making your life easier and possibly saving yourself money by consolidating your accounts. Here’s why:

 

1.  Managing multiple accounts that are similar such as Joint accounts, IRAs, and 401(k)s can become pretty confusing and very time consuming. If, in addition, you own individual or company stock, tracking cost basis can be a nightmare. Do you really want to spend so much of your time managing all these investments once you retire? 

 

2.  Having 401(k)s from current or former employers and individual retirement accounts (IRAs)  in a number of financial institutions makes it difficult to track portfolio performance, asset allocation, and diversification. You’ll at least need to rebalance your portfolio periodically.  This would be much easier if your retirement funds were all in one place.

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Is Your Portfolio "In Style" or Making a Bad Fashion Statement?

It is fairly common knowledge that a retirement portfolio's carefully constructed asset allocation can become unbalanced in two cases: When you alter your investment strategy and when market performance causes the value of some funds in your portfolio to rise or fall more dramatically than others. But did you know there is also a third scenario? Your portfolio can become unbalanced due to unexpected changes in the funds' holdings.

 

The phenomenon known as "style drift" generally occurs when a fund's manager or management team strays beyond the parameters of the fund's stated objective in pursuit of better returns. For example, this may occur when a growth fund begins investing significantly in value stocks or when a large-company fund begins investing in the stocks of small and mid-sized companies. As a result, the fund's name may not accurately reflect its strategy.

 

If style drift occurs within the funds held in your portfolio, it could alter your overall risk and return potential, which may influence your ability to effectively pursue your financial goals.

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