Posts Taged investing

Six Keys to More Successful Investing

A successful investor maximizes gain and minimizes loss. Though there can be no guarantee that any investment strategy will be successful and all investing involves risk, including the possible loss of principal, here are six basic principles that may help you invest more successfully.

Long-term compounding can help your nest egg grow

It’s the “rolling snowball” effect. Put simply, compounding pays you earnings on your reinvested earnings. The longer you leave your money at work for you, the more exciting the numbers get. For example, imagine an investment of $10,000 at an annual rate of return of 8 percent. In 20 years, assuming no withdrawals, your $10,000 investment would grow to $46,610. In 25 years, it would grow to $68,485, a 47 percent gain over the 20-year figure. After 30 years, your account would total $100,627. (Of course, this is a hypothetical example that does not reflect the performance of any specific investment.)

This simple example also assumes that no taxes are paid along the way, so all money stays invested. That would be the case in a tax-deferred individual retirement account or qualified retirement plan. The compounded earnings of deferred tax dollars are the main reason experts recommend fully funding all tax-advantaged retirement accounts and plans available to you.

While you should review your portfolio on a regular basis, the point is that money left alone in an investment offers the potential of a significant return over time. With time on your side, you don’t have to go for investment “home runs” in order to be successful.

Endure short-term pain for long-term gain

Riding out market volatility sounds simple, doesn’t it? But what if you’ve invested $10,000 in the stock market and the price of the stock drops like a stone one day? On paper, you’ve lost a bundle, offsetting the value of compounding you’re trying to achieve. It’s tough to stand pat.

There’s no denying it–the financial marketplace can be volatile. Still, it’s important to remember two things. First, the longer you stay with a diversified portfolio of investments, the more likely you are to reduce your risk and improve your opportunities for gain. Though past performance doesn’t guarantee future results, the long-term direction of the stock market has historically been up. Take your time horizon into account when establishing your investment game plan. For assets you’ll use soon, you may not have the time to wait out the market and should consider investments designed to protect your principal. Conversely, think long-term for goals that are many years away.

Second, during any given period of market or economic turmoil, some asset categories and some individual investments historically have been less volatile than others. Bond price swings, for example, have generally been less dramatic than stock prices. Though diversification alone cannot guarantee a profit or ensure against the possibility of loss, you can minimize your risk somewhat by diversifying your holdings among various classes of assets, as well as different types of assets within each class.

Spread your wealth through asset allocation

Asset allocation is the process by which you spread your dollars over several categories of investments, usually referred to as asset classes. These classes include stocks, bonds, cash (and cash alternatives), real estate, precious metals, collectibles, and in some cases, insurance products. You’ll also see the term “asset classes” used to refer to subcategories, such as aggressive growth stocks, long-term growth stocks, international stocks, government bonds (U.S., state, and local), high-quality corporate bonds, low-quality corporate bonds, and tax-free municipal bonds. A basic asset allocation would likely include at least stocks, bonds (or mutual funds of stocks and bonds), and cash or cash alternatives.

There are two main reasons why asset allocation is important. First, the mix of asset classes you own is a large factor–some say the biggest factor by far–in determining your overall investment portfolio performance. In other words, the basic decision about how to divide your money between stocks, bonds, and cash is probably more important than your subsequent decisions over exactly which companies to invest in, for example.

Second, by dividing your investment dollars among asset classes that do not respond to the same market forces in the same way at the same time, you can help minimize the effects of market volatility while maximizing your chances of return in the long term. Ideally, if your investments in one class are performing poorly, assets in another class may be doing better. Any gains in the latter can help offset the losses in the former and help minimize their overall impact on your portfolio.

Consider liquidity in your investment choices

Liquidity refers to how quickly you can convert an investment into cash without loss of principal (your initial investment). Generally speaking, the sooner you’ll need your money, the wiser it is to keep it in investments with comparatively less volatile price movements. You want to avoid a situation, for example, where you need to write a tuition check next Tuesday, but the money is tied up in an investment whose price is currently down.

Therefore, your liquidity needs should affect your investment choices. If you’ll need the money within the next one to three years, you may want to consider certificates of deposit or a savings account, which are insured by the FDIC, or short-term bonds or a money market account, which are neither insured or guaranteed by the FDIC or any other governmental agency. Your rate of return will likely be lower than that possible with more volatile investments such as stocks, but you’ll breathe easier knowing that the principal you invested is relatively safe and quickly available, without concern over market conditions on a given day.

Note: If you’re considering a mutual fund, consider its investment objectives, risks, charges, and expenses, all of which are outlined in the prospectus, available from the fund. Consider the information carefully before investing.

Dollar cost averaging: investing consistently and often

Dollar cost averaging is a method of accumulating shares of stock or a mutual fund by purchasing a fixed dollar amount of these securities at regularly scheduled intervals over an extended time. When the price is high, your fixed-dollar investment buys less; when prices are low, the same dollar investment will buy more shares. A regular, fixed-dollar investment should result in a lower average price per share than you would get buying a fixed number of shares at each investment interval.

Remember that, just as with any investment strategy, dollar cost averaging can’t guarantee you a profit or protect you against a loss if the market is declining. To maximize the potential effects of dollar cost averaging, you should also assess your ability to keep investing even when the market is down.

An alternative to dollar cost averaging would be trying to “time the market,” in an effort to predict how the price of the shares will fluctuate in the months ahead so you can make your full investment at the absolute lowest point. However, market timing is generally unprofitable guesswork. The discipline of regular investing is a much more manageable strategy, and it has the added benefit of automating the process.

Buy and hold, don’t buy and forget

Unless you plan to rely on luck, your portfolio’s long-term success will depend on periodically reviewing it. Maybe your uncle’s hot stock tip has frozen over. Maybe economic conditions have changed the prospects for a particular investment, or an entire asset class.

Even if nothing bad at all happens, your various investments will likely appreciate at different rates, which will alter your asset allocation without any action on your part. For example, if you initially decided on an 80 percent to 20 percent mix of stocks to bonds, you might find that after several years the total value of your portfolio has become divided 88 percent to 12 percent (conversely, if stocks haven’t done well, you might have a 70-30 ratio of stocks to bonds in this hypothetical example). You need to review your portfolio periodically to see if you need to return to your original allocation. To rebalance your portfolio, you would buy more of the asset class that’s lower than desired, possibly using some of the proceeds of the asset class that is now larger than you intended.

Another reason for periodic portfolio review: your circumstances change over time, and your asset allocation will need to reflect those changes. For example, as you get closer to retirement, you might decide to increase your allocation to less volatile investments, or those that can provide a steady stream of income.


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5 Tips for Saving and Investing as a Small-Business Owner

As a business owner, putting all your profits back into the business may be tempting, especially during the lean years. However, when it comes to saving and investing as a business owner, there are other paths you could consider for the long run without so much emphasis on the short term.

Maintain Liquid Assets

Everyone needs to have savings. For small business owners, savings are critical. Liquid assets may help you weather challenging times and make you a more attractive candidate for a loan. When times are tough, cash may help carry you through.

Engage a Financial Professional

You may assume you do not have enough money to make paying a financial professional a worthwhile investment. You may believe you cannot afford one. However, as a small business owner, you may benefit from getting help from a financial professional. A financial professional may help manage your tax burden and your operating expenses, with a focus on cash flow.

Do Not Overinvest in Physical Space and Equipment

It may be tempting to purchase or rent a storefront for your new business. However, it may help to avoid falling into the trap that hurts many business owners—the urge to quickly invest in a brand-new office, buy a company car, or otherwise overcommit to physical overhead as soon as the money starts coming in. By expanding at a more reasonable pace as your business growth demands, you may be able to maintain a more sustainable level of growth.

Avoid Ultra-Risky Stocks

Running a business is a gamble in and of itself, so adding a risky stock portfolio on top of this may expose you to extraordinary risk. Investing in individual stocks may be too risky. Instead, consider index funds that track one of the major market indices that might be less risky. However, be aware that no investment is risk-free.

Plan Your Succession

One frequently overlooked part of a successful small business strategy is having a contingency plan for transferring ownership at the time of your retirement or demise. As a business owner, you should have, at minimum, a last will and testament and life insurance in place.

Your will might include instructions to keep things running in your absence (like managing payroll), while life insurance may provide funds for the loved ones you leave behind. A succession plan is a strategy worth pursuing rather than leaving this issue unmanaged.



Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or insurance product(s) may be appropriate for you, consult your financial professional prior to investing or purchasing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

All indexes are unmanaged and cannot be invested into directly.

Although index funds are designed to provide investment results that generally correspond to the price and yield performance of their respective underlying indexes, the trusts may not be able to exactly replicate the performance of the indexes because of trust expenses and other factors.

Please keep in mind that insurance companies alone determine insurability and some people may be deemed uninsurable because of health reasons, occupation, and lifestyle choices.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

This article was prepared by WriterAccess.

LPL Tracking #1-05372579

Luck of the Investor: Making Your Own Luck on St. Patrick’s Day 

As Samuel Goldwyn once said, “The harder I work…the luckier I get!” 1 But when it comes to investing, luck may play a huge role in outcomes—no matter how hard you work.2 Below, we discuss some ways that luck may impact your investing, as well as some steps you may wish to take to try to make your own good luck this St. Patrick’s Day.

The Impact of Luck on Investment Returns

One reason so many financial professionals advise against market timing for long-term investors involves the distribution of days with major gains and days with major losses. Historically, and particularly seen during the earliest days of the COVID-19 pandemic, some of the market’s best days were followed by some of its worst, and vice versa.3

Trying to sell at the top and buy at the bottom may require a great deal of luck. You may need to trust that a day with a 2 or 3 percent loss may not be immediately followed by a day with a 2 or 3 percent gain. However, over the course of a long investing horizon, these single-digit gains and dips aren’t likely to have a major impact unless you make a habit of buying and selling during volatile periods.

Focus On Process, Not Prior Results

How can you take advantage of good luck and avoid the impact of bad luck when choosing your investments? The answer may be complicated and may depend on your personal circumstances. However, by focusing on the investment process—rather than chasing returns by buying into funds that have recently had a good run—you may be more likely to pick a future winner.

Having a solid process may increase your probability of investment success over time. With your financial professional, consider focusing on these three steps:

  • Discuss your financial professional’s analytical process. How does your financial professional choose funds? How does he or she know whether it’s time to dump underperforming funds or stick around for a future rally? By having some insight into the process your financial professional uses to choose their investments, you may determine whether this approach fits your risk tolerance and desired asset allocation.
  • Ask whether this process is designed to manage and mitigate some of the behavioral biases that may send investments off-course. Some of these biases include overconfidence, sunk cost fallacy, and anchoring of sources. Ensure that your financial professional is reading and absorbing information from a variety of solid sources.
  • Once an investment or set of investments has been chosen, evaluate it with an eye toward its end user. Is this investment intended to provide high commissions that enrich the investment company more than the shareholders? Or does it provide an excess return that more than accounts for its fees? Compare the investments to their benchmarks to see how they’ve performed over the years.

Sifting through which successes are attributable to luck and which to skill may be tricky. But by firming up your investment selection process, you may improve your own luck and increase your likelihood of success.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Asset allocation does not ensure a profit or protect against a loss.

Past performance is no guarantee of future results.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess

LPL Tracking # 1-05233581


Tax Considerations for the Working Individual Reviewing 2018 Returns – Investments, Income, and Other Issues

Investments and income are typically the two biggest players in your tax plan. After all, these are likely to be your primary sources of personal revenue.

When it comes to planning your tax strategy, you need to consider a variety of factors related to your income and investments, as well as some various issues that are related to these categories. Here are the top considerations to make for income, investments, and other issues.

This article is second in a series on Tax Considerations for the Working Individual. Read of the series here:

  1. Tax Considerations for the Working Individual – Family and Filing Issues
  2. Tax Considerations for the Working Individual – Investment Income and Other Issues
  3. Tax Considerations for the Working Individual – Qualified Plan Issues


Investment Income Issues

Depending on your specific investments, there are a few areas on your 2018 return to check and ensure whether you’re on the right path for your 2019 tax strategy.



Are your investments earning interest? (Review From 1040, Lines 2a and 2b) Did you receive any dividends? (1040, Lines 3a and 3b) If you answered “yes” to either of these questions, you need to reference Schedule B for more information about which accounts are generating interest and whether dividends earned are qualified or ordinary.


Income and Investments

If you’re self-employed and your income is greater than $200,000 ($250,000 married, filing jointly), you may be required to pay and additional Medicare tax at 0.9% (consult Form 8959). For all working individuals, if your income is greater than $200,000 ($250,000 MFJ), and you have high Net Investment Income (see Form 8960), your income may be subject to a Net Investment Income Tax at 3.8%.



Capital Gains

Remember, your capital gains and losses also count toward your income and make a difference at tax time. For capital gains distributions, consult Schedule D, Line 13; for losses look at Schedule D, Lines 6 and 14. Verify whether short- or long-term loss carryovers are properly accounted for.


Income Issues

While you’re probably already making notes of income changes from 2018 to 2019, here are some specifics to focus on during your review.


W-2 Employees

If you’re a W-2 employee, you’ll want to review your W-2 for any HSA and FSA contributions from both your employer and your pre-tax income. Additionally, you need to review your retirement plan contributions and employer matching.


Stock Options

If you are part of an employee stock option or have any other type of equity compensation, you will need to consult your 2018 return to see how this impacted your tax strategy during the last year. Look at your W-2 and Schedule D to learn more about how your get a better understanding of your tax responsibility for exercising or selling your option. If you filed an 83(b) election, ensure that you prepare one this year as well.


Other Issues

There are, of course, some odds and ends issues that are difficult to classify with other categories. However, when you’re filing your taxes, it’s important to account for all of your financial activities. Here are some additional issues you want to watch out for.


State-Specific Issues

You will want to take a look at your state return, in addition to your federal one, to look for specific issues unique to your locale. If you have recently moved or earned income in another state during the calendar year, consult a financial professional to learn about the tax laws that apply to your situation.


Real Estate

If you have real estate investments, consult Schedule E to see how to properly claim your rental income.


Student Loans

You may be able to claim interest paid from student loans if you paid any this year. Look at Schedule 1, Line 33 to see whether the deduction applies to your situation.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the working individual, consult our resources on family and filing issues.

This article is second in a series on Tax Considerations for the Working Individual. Read of the series here:

  1. Tax Considerations for the Working Individual – Family and Filing Issues
  2. Tax Considerations for the Working Individual – Investment Income and Other Issues
  3. Tax Considerations for the Working Individual – Qualified Plan Issues


This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor. 

What Is Sustainable Investing?

Financial notebook, plan, and coffee

Whether you’re looking to build, protect, or grow your investment portfolio, you need to base your investment decisions around a variety of factors in order to find investments which have the potential to meet your financial goals. You might consider factors like a company’s past performance, a colleague’s advice, market trends, or portfolio diversification.

Each investor makes unique judgement calls every time they make a decision to build or update their portfolio. And while it’s important to not make these judgements for emotional reasons, is it possible that there are other considerations you should take into account?

For example, how important is it to you that companies you invest in uphold certain ethical standards? Does it make a difference whether Company A has greater carbon offsets than Company B? Or whether Company C is committed to sourcing only organic inputs?

Sustainable investing is a component of investing that is related to investors finding companies that align with their moral and ethical standards. After all, if you’re going to invest your money with an organization, you may enjoy the confidence that comes with knowing your dollars are doing work you agree with.

Lead with Your Values

You know it’s important to bring your values to the table when you build your financial portfolio. After all, it’s your values, rather than your emotions, that should shape your priorities and investing behavior.

When it comes to sustainable investing, your values will take an even more obvious lead in guiding your investment behavior. If, for example, you’re concerned with environmental issues, you might want to learn more about green investment options.

The concept of sustainable investing makes it possible to make sound investment decisions that fit your personal values and long-term financial goals. In fact, many investors find that companies that are committed to doing societal and environmental good may well have a similar commitment to financial responsibility, meaning that they might perform better over time.

Find Companies Committed to Doing Good

Sustainable business practices are becoming more and more popular, which means that it’s even easier to learn whether companies you want to invest in operate in a way that you agree with. In fact, many companies have started to include sustainability reports along with their annual financial reports.

If you want to find companies that are making the kind of difference that you want to see, you can talk to your financial advisor about finding information on companies’ sustainability and corporate social responsibility reporting.

Balance Your Portfolio

If you choose to go the sustainable investing route, you can balance your portfolio with sustainable investment options in a number of ways. Maybe you want to dip your toes into sustainable investing by choosing one or two companies to add to your portfolio. Or perhaps you’d like your portfolio to boast a larger percentage of sustainable companies.

Whatever your feelings on sustainable investing, your financial advisor can provide direction to finding brands that align with your personal values. If you’d like to learn more about how sustainable investing can help pursue your investment goals contact Jacob Sturgill today.

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