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Rebalancing, according to Wikipedia, is “the action of bringing a portfolio of investments that has deviated away from one’s target asset allocation back into line.” How to do that optimally is the subject of this post. Below is a sample allocation to facilitate the following discussion of rebalancing. It should not be construed as a …

I try (I really do) not to be the grammar police, but there are three terms routinely – and improperly – used by financial professionals. I can’t sit idly by when even Warren Buffet (who I greatly respect) is getting it wrong. Now, after you read this, in at least one aspect you can be …

What spending order is optimal for a retiree who is older than 59½ having three types of accounts: a taxable account, a Roth IRA, and a traditional IRA with no basis? The default order is: Taxable (preserves tax deferral in the other accounts) IRA (no RMDs on the Roth, so this reduces future RMDs by …

What is the optimal mortgage an investor should have on their home? Should investments be liquidated to reduce the mortgage? Or, should the mortgage kept or even increased in order to increase the investment portfolio? Though these are common straightforward questions, the answers provided are often simplistic and incorrect. I would like to discuss this …

Retirement spending rates are very important. Even for those not yet retired, this report should be useful because it indicates how to set an appropriate goal to enable comfortable retirement. We generally try to use the phrase “achieve financial independence” rather than “retirement” since some folks don’t plan to retire; but, for the purposes of …

Periodically, the financial press discusses costs imbedded in various financial products, especially mutual funds. Some costs are explicit and fully disclosed, but many are not. We fully support disclosure of all costs so investors have information upon which to make good decisions. Quality financial professionals do not try to make less than their competitors, but …

The title of this post may be surprising considering one would rarely call term insurance an investment. I don’t sell insurance; however, I think there is investment opportunity in certain situations using a term policy with a return of premium rider (ROPR). Essentially, this is a normal 20- or 30-year level-term life insurance product, but …

The possibility of suddenly coming in to a large sum of money may be pleasant in our daydreams, but in reality, sudden wealth can cause a great deal of stress. The source of sudden wealth doesn’t necessarily have to be winning a lottery or receiving an unexpected inheritance. Many people face adjustment issues even from …

I have posted on How to Evaluate an Investment Advisor but thought it was worth another, somewhat different take on it focused more on recent investment performance. There are many things that we do that we believe will add value to the portfolio performance over time, but the big two are: Broad diversification across a …

Many people, familiar with the widely-accepted notion that risk and return go together, are unaware that this formulation is both incomplete and misleading. Let me restate it thus: “Return equals risk which doesn’t equal return.” Obviously, an explanation is in order. Return equals risk. Almost certainly, someone earning very high returns has run very high …

I have observed over the years that many people have serious financial issues seemingly impervious to “financial planning.” They appear to go through life from one financial crisis to another, repeatedly putting “unexpected” expenses on credit cards, not saving for retirement, and generally living from paycheck to paycheck. We are fortunate that our clients do …

We don’t sell insurance, but we do work with insurance professionals to ensure that risks of all types are adequately addressed for our clients. We have found that many people use insurance improperly, and some financial professionals recommend it inappropriately. It is important to understand that on average (a very important caveat) absent government interference …

The investment process can be a very complex topic, but I will cover it here in abbreviated form. The main steps are as follows: Determine your Goals and the Available Resources. The first step is to determine what you want to accomplish. For example, many people have retirement as one of their goals (which we …

A post about the federal budget sounds excruciatingly boring, but I hope this will be helpful in putting the putting the federal budget in perspective, because perspective, when numbers get into the billions or trillions, is difficult. We simply can’t comprehend such large figures so below I will show federal taxes, spending, and debt broken …

It is difficult to compare gift vs. estate vs. generation skipping tax rates and how they are computed, especially considering the “inclusive” vs. “exclusive” treatment of various pieces. So I did a calculation that “normalizes” them to equivalent terms. Assuming a taxpayer has already used up all of their exemptions and exclusions, and ignoring the …

Short selling is selling a security (typically a stock) one doesn’t own in hopes of buying it back later at a lower price. It is just the reverse of the normal practice of buying first then selling (which is called being “long” the security). Because short sellers are predicting a price decline, and will profit …

We frequently find circumstances in which a financial advisor’s lack of knowledge of some specific tax-related techniques may have cost the client money. Upon asking a number of financial advisors and CPAs about these situations, the unawareness on these points in particular appears to be widespread: Net Unrealized Appreciation or NUA. Assume that you have …

One of our newer clients asked a question a while back that comes up occasionally, “How do I know if you are doing a good job?” It is a great question. I’m not sure I have a great answer, but this is my attempt at it. First, I will give eight tips for finding an …

We are all prone to a variety of mental mistakes including (but not limited to) anchoring on irrelevant information, searching for confirming evidence rather than disconfirming data, extrapolating from small and recent data sets, etc. Some time ago I created a checklist of things to think about when making a decision – particularly an investment …

Many of our clients make regular charitable contributions.  The tax laws can be fairly complicated in this area, but there are ways to give more efficiently that are worth knowing if you have charitable inclinations.  While these strategies apply to most of our clients, please contact us or an appropriate tax professional before taking action as there …