The Power of a Well-Timed Investment Rebalancing Strategy by Eric Biddle

 by Eric Biddle (Lego men on teeter totter staged with the help of Miss Ava Biddle)

by Eric Biddle (Lego men on teeter totter staged with the help of Miss Ava Biddle)

To rebalance your investment account means to sell off the stocks, ETF’s, or Mutual Funds that have increased in value in order to purchase the ones that have decreased in value.  Let’s create a simple example: we’ll say your portfolio is designed to be comprised of 50% international stocks and 50% U.S. stocks.  Furthermore, let’s assume that the U.S. stocks have rallied over the last year and the international stocks are now depressed.  Because of the change in value, let’s say your portfolio is now comprised of 35% international stocks and 65% U.S. stocks.  Your portfolio is now out of balance.  To rebalance this portfolio means to take this portfolio back to a 50/50 split.  By doing this, you are naturally selling the U.S. stocks at a higher value and purchasing the international stocks that are currently lower in value.  In essence, you are buying low and selling high. 

The power of this well-timed investment strategy is probably obvious but if once or twice a year (or after big swings in the market) you can rebalance, you will theoretically always be selling investments after they’ve rallied and purchasing them when they have potential to rally.  Please understand that this is the theory behind rebalancing but it does not always work out this neatly.  The possibility certainly exists that you could sell off investments before the rally is over and that you could purchase investments that continue to decline in value for a long period of time.  There is always a bit of guesswork involved in making this move.

All this to say, in light of the current market volatility, it may be a good time to discuss with your financial advisor whether or not it makes sense for you to rebalance all or part of your investments.

The ideas, strategies and thoughts expressed in this article do not constitute advice for your personal situation.  Please seek the advice of a financial advisor, tax advisor, or attorney.  We, of course would be happy to dialogue with you about anything that interests you.

 

This Will Make You Feel Truly Wealthy by Eric Biddle

 by Eric Biddle

by Eric Biddle

Measuring a person’s wealth can be done with a simple formula.  You simply add up his or her assets (real estate, bank accounts, IRA’s, Roth IRA’s, 401(k)’s, etc.).  Next, you subtract the liabilities (mortgages, loans, debt.)  This gives you a persons Net Worth or Net Wealth statement.

Does a high net worth number make a person wealthy, though?  If so, what is the magic number that borders between "non-wealthy" and "wealthy?"  Is it $1 million?  Is it $5 million? $1 billion?  We at Fisher Wealth Management contend that the feeling of being wealthy is really not measured by a magic number.  The problem with having a number in mind is that once you arrive there, you realize that you can always have more.  When you always think in terms if wanting more, you find yourself living with feelings that are quite contrary to feelings of being wealthy.

Here are 5 things that we have found will actually make a person truly feel wealthy:

1.  Give your money away!  Yes, you read that correctly.  If you want to feel wealthy, give at least 10% of your income away.  This timeless, seemingly backwards principle works because you are giving out of the overflow.  This is money that you declare you do not need.  The only people that have “overflow” are people that are wealthy.  However, we cannot give for the selfish purposes of feeling wealthy, joyful, or simply good about ourselves (though, these are certainly welcomed side effects.)  We give because it is an opportunity to make the world a better place; to live beyond ourselves; to serve others.  Whether you give to your church, to an orphanage, to your favorite university, or to the Biddle Family vacation fund, you’ll find that to live as a giver is the better way to live.

2. Live within your means!  If you are still working, here is the formula: Begin with your total income.  Subtract 10% for giving, subtract taxes, and subtract what you need to save.  Now, simply live on what is left.  This is what it means to live within your means during your working years.  If you are retired, set realistic boundaries for your spending.  If you have net worth of $2 million and you are spending a total of $70,000 per year, with proper planning you should have plenty.  If on the other hand you are retiring with $2 million but you are spending $400,000 per year, chances are you’ll be in trouble in about 5 years.  Whether you are living the retired life or living the life of a young parent, spending a reasonable amount relative to your income is key to feeling wealthy.

3. Have a plan!  I have noticed a big difference in my life and in the lives of others when a plan is implemented.  There is something about telling our money where to go that is so empowering.  The alternative is to look at your checking account at the end of each month and have no idea where the money went.  You can either learn to master your money or you just need to get use to being mastered by it.  

4. Have an amount of money set aside!  Let’s face it. . . a recent college grad just beginning his or her career is going to (or certainly should) have a different net worth than the person at the end of his or her career that is nearing retirement.  Though this sounds like I’m suggesting there is a magic number, I’m not.  You should have an amount set aside that is appropriate for your age, your spending habits, your timeline, your goals, and emergency situations.  If you are retiring or retired, you should have an appropriate amount set aside to fund the golden years and the advanced years of your life.  This is not a random number.  It is a number very specific to you at any given stage of life.

5.  Appropriately manage your risks!  Part of feeling wealthy is having peace of mind.  If a premature death, disability, or long term nursing care would derail your family’s financial plan, then you will lack the security that wealthy people experience.  We cannot perfectly manage risk because life is unpredictable.  However, we can do better than “nothing” by planning for some of the more common risks.

There you have it.  I have met millionaires who seem poor and I've met people who have very little to their names who seem to feel wealthy.  It should not be your goal to be a millionaire or a billionaire.  If this is your goal, you will never feel like you have enough because once you reach it you’ll realize there is more to be had.  To feel truly wealthy you need to give, live within your means, have a plan, have money set aside, and appropriately manage your risks.  Oh yeah . . . and if you really don’t know who to give to and if giving to the Biddle Family vacation fund really lights your heart on fire, those checks can be made out to Eric Biddle.  However, you should know that we are not a 501(c)(3) entity.

What Drives Your Financial Decisions? by Eric Biddle

 by Eric Biddle, Financial Planner

by Eric Biddle, Financial Planner

Money does funny things to people.  Even with small doses of an inappropriate drive for money, we can dissolve business relations, friendships, family relationships, and even marriages.  It can lead to white knuckles as we hoard and protect.  It can drive us to the love of power, prestige, and possessions.  If we make money the master of our lives, it can quickly lead us to complete and utter ruin.  The very currency we sought to gain will become the handcuffs and shackles that make us a prisoner to greed, materialism, and selfishness.  I know this to be true because I myself am in a constant battle to overcome this misplaced devotion.  I cannot stand in judgement when I share in the struggle.

I have also experienced glimpses of a better way!   I find that I hold the seat of power over money when I love others more than my need for financial security.  For those that profess faith, this includes and even begins with the love of a greater master.  By placing one’s own dominion under the authority of another, freedom can be rescued from that which has been called the root of all evil.  Even if faith is not a factor in your life, this concept of loving others more than things still makes pretty good sense.

Here’s why love breaks the chains.  If I value my business relations, my friendships, my family relationships, and my marriage over money, my love compels me to be selfless, caring, and generous.  These relationships become a greater priority to me than the hope of accumulating more or protecting what I have.  The same principle is true for those who place trust in a Higher Power.  With an appropriate attitude toward wealth, we find ourselves living for love rather than living for stuff.  

It is not morally wrong to have great wealth.  I have met poor people who are greedy and rich people who are loving.  I’ve also met rich people who “need” more and poor people who are content with what they have.  The difference between the greedy and the loving is not the size of their net worth but their relationship with it.  Ask yourself, would you rather a. be materially rich and unhappy or b. be poor and content? (Ok.  Let’s be honest, most of us would choose option c. rich and content.)

Here are a few more questions for self-reflection:  What is your attitude toward and your relationship with money?  To whom or what is your love directed?  What drives your financial decisions?

5 Major Reasons to Review Your Financial Plan by Eric Biddle

 by Eric Biddle

by Eric Biddle

Is it time to review your financial plan?  This assumes, of course, that you have a plan.

I've always loved Zig Ziglar's quote, "If you aim at nothing, you will hit it every time."  By reviewing your plan at least annually, you can make course corrections along the way to make sure you are going to hit your target.  It also gives you an opportunity to reevaluate the target.  Planning for your financial future can be more like skeet shooting or hunting than shooting at a stationary object.  Sometimes the desired destination moves and changes.  That's life!  It is necessary to re-calibrate.

We reanalyze our financial planning clients' plans on an annual basis.  Sometimes we even need to make course corrections in between the annual reviews.  Here are some major reasons to review your financial plan:

1. Change of Job.  With job changes come more than the obvious change in salary.  Every employer has a different 401(k) matching program, life insurance opportunity, short-term and long-term disability insurance, and health insurance.  These items significantly impact your overall savings strategy and risk exposure.  Sometimes a change in job simply means you've received a promotion with increased income.  Still, it is a good idea to review your plan.  As your standard of living changes, so does your need for retirement savings.

2. Retirement Timeline.  Some employers offer early retirement.  Some people, upon evaluating their lives, decide they want to retire earlier or later.  Sometimes life happens and you don't get to choose but retirement is happening now whether you like it or not.  A change in your retirement timeline means a change in your overall plan.  You need to be asking questions like: Do I need to make changes to my spending habits?  Will my savings last a lifetime?  Should I work part time?

3. New Baby.  Congrats, you have a new little bundle of joy!  Now it is time to explore whether or not you have enough life insurance.  It is time to think about paying for college or dare I say, a wedding. 

4. Loss of a Loved One.  Whether you've lost a loved one and received an inheritance or you've lost a spouse and therefore some family income, it is time to evaluate how these changes affect your overall plan.

5. Market Fluctuations.  When the market swings drastically, especially if it heads south, it might be time to rethink some plans.  Primarily, this is true if you needed the money soon.  A market crash can tragically impact your goals.  (However, if you have planned properly, the funds you need the soonest should be positioned for zero to conservative losses.)  Regardless, it is time to re-calibrate. 

Even if major shifts in your life have not occurred recently, it is still important to review your investment choices, your spending, your savings strategy, and your risk exposure at least annually.  Of course, we at Fisher Wealth Management stand ready to help!

5 questions you should be asking as we approach year's end by Eric Biddle

 by Eric Biddle, Financial Planner

by Eric Biddle, Financial Planner

We've been busy getting in touch with many of our clients as we approach the end of 2015.  If you are not a client of Fisher Wealth Management, here are some things you might want to be considering as the year comes to a close.

  1. Should I convert a Traditional IRA to a Roth IRA?  You will need to weigh whether or not the tax ramifications for this tax year will be outweighed by the opportunity for long-term, tax-free growth.  Some of our clients who earn above the income threshold for contributing to a Roth IRA are using a "backdoor" strategy to save in a Roth IRA.  Our clients that are using this strategy need to convert their Traditional IRA's to their Roth IRA's each year around this time.
  2. Should I take capital losses in my investment account to decrease my tax liability?  If 2015 has been a good year for you and you want to post some losses to decrease your taxes, you can sell off some of your investments that have had losses in order to reduce your tax liability.  You are limited to $3,000 in losses each year.
  3. Is my overall plan on track?  Our Financial Planning clients all receive annual reviews.  We spread those reviews throughout the year to fall near the month the client established the initial plan.  I've heard it said that a financial plan is outdated the moment it has been written.  This certainly does not negate the importance of the process for planning, but it does highlight the importance of reviewing it.  Take this month to review your plan to make sure you are inching closer to your goals.
  4. Can I save anything else?  For many, this is the time of year that bonuses are received.  Often times these bonuses disappear without much thought.  Though you have until April to contribute to your IRA's, this still might be a good time to look at the contribution limits and save a little toward retirement.  Likewise, consider whether or not you can make an extra contribution to your 401(k) or make an extra premium payment to a cash value life insurance policy (just be sure you do not create a MEC).
  5. Do I need to take an RMD?  With the exception of the first year in which you turn 70 1/2, you must take your Required Minimum Distribution by December 31st. (In the first year, you must take it by April 1st of the following year.)  There are steep penalties if you do not take your RMD on time, so it is always a good idea to review this before the year ends.  If you have a beneficiary IRA, you also might be subject to taking an RMD.