Just recently the Securities and Exchange Commission (SEC) granted money managers and advisors the right to feature third-party reviews on their marketing materials. Meaning: Your advisor can now use your dazzling Facebook review (of him) to boost his business. I asked WalletHub CEO Odysseas Papadimitriou for the run down – why you should care and what this means for the advisory industry? Here’s what he had to say:
JC: What finally sparked the SEC to allow this?
OP: Not sure, but we hope that sites like Yelp & WalletHub that have allowed reviews on financial advisors irrespective of financial gain had something to do with this.
JC: What does this mean for consumers/investors?
OP: This represents a major breakthrough for consumers and investors. In a world where everyone relies heavily on the internet for fast-paced information, this will allow investors to react faster. Additionally, consumers/investors are now free to compare the professionals who manage our money with the same level of discernment and transparency that has long been available in other segments of the market – from hotels to restaurants and consumer electronics. In other words, the SEC is making ground breaking strides to level the playing field.
I recently came out from under the mess of the recession but I still have minimal yet manageable credit card debt. I want to start rebuilding my savings and retirement plans so I took your advice and looked up certified financial planners in my area. Unfortunately, a couple of them never got back to me and the one who did said he deals with wealth management and since I have no wealth, I’m not a candidate for his services. He recommended that I seek help from companies like Fidelity Investments and TD Ameritrade but aren’t they biased to their own products? If so, how will I know my money is being invested in the right place? What should I do?
Hi Kelly. It sounds as if you’d prefer an advisor not affiliated with a particular firm. Take a look at the Garrett Planning Network. Sheryl Garrett, a fine planner in her own right, has built a network of planners willing to work with customers by the hour. So you can spend just the time you need to get the plan or information you need, then execute the recommendations yourself. This will save you a considerable amount of money. Then, once a year, I’d go back to the planner for a check-up to make sure you’re moving in the right direction.
If you’ve been following me for a while now, then you might already know my take on target-date funds (TDFs). I’m a proponent — especially if you’re aiming to rebalance your portfolio — and need some help along the way. In this week’s column, I take you through what you need to know about TDFs when it comes to retirement.
FORTUNE – More than 51 million Americans have an active 401(k) retirement account, according to the Investment Company Institute. And if recent statistics from Vanguard hold across the category – more than half have at least some of their money in a target-date fund. That’s a lot of dough and it’s growing fast. According to BrightScope, target-date fund balances overall hit $500 billion in assets in 2012. The company is estimating them to reach $2 trillion by 2020.
In many ways, that’s a good thing. That shift has tempered the bi-polar tendencies of many 401(k) investors. According to Vanguard, 10 years ago, 13% of their self-directed 401(k) investors held no stocks and 22% held only stocks. No matter how you slice it, those investors were taking too little or too much risk. Last year those numbers dropped to 10% and 13%, respectively – a result, at least in part, of making TDFs the default option on many retirement plans.
I’ve been a proponent of TDFs over the years. I like the way they help humans who say they are going to rebalance their portfolios but never seem to get around to it stay at least in the vicinity of the track. Which is not to say I think they’re perfect.
For the full column, head over to Fortune.com
Hi Dave. Generally, no. There are a few exceptions — alimony and scholarships, for example. But perhaps the biggest is spousal income. If you have a spouse who works, you (and your spouse) can both make contributions based on that income.
Not being able to qualify for an IRA, however, doesn’t mean you shouldn’t save. Invest your money in a discretionary account just as you would an IRA, based on your age and your risk tolerance – and let the time value of money work on your behalf.
You can open a discretionary account at any major brokerage.
Merrill Edge has a new mobile app, Merrill Edge’s Face Retirement. In response to research from Stanford University that found that being able to see yourself older may encourage you to save more and focus on your retirement planning, the app (and coordinating web version) encourages you to “meet the future you” by aging a picture of yourself. See my aged photo below — while I can’t say the results made me want to save more, they did make me want to buy anti-aging cream.
FORTUNE — The most frightening billboard I saw in recent months ran along the Westside Highway in Manhattan. From the good folks at Prudential, it read: The First Person To Live To 150 Is Alive Today, with the subhead, Plan For A Longer Retirement. A few weeks later, our sister publication, Time Magazine, followed in tandem, asking the question on its cover: Can Google Solve Death?
We get it. From a financial (as well as, of course, a medical) perspective, longevity is very likely the issue of the century. What can you do about that? Saving more never hurts, the folks behind America Saves Week, which happens to be now, nudge us to remember on an annual basis. (If you need help saving more, check out the resources here.)
But, the longer your time horizon, the more you may also want to think about socking away in stocks. A new paper from Morningstar Head of Retirement Research David Blanchett along with Michael Finke of Texas Tech University and Wade Pfau of The American College looks at the issue of time diversification, defined as “the anomaly where equities become less risky longer investment periods.” The researchers look at 113 years of data from 20 countries and found that, yes, the longer your time horizon, the more you may want to allocate your investments to equities.
For more, head over to Fortune.
In going through my 88-year-old father’s papers, I came across several capital stock certificates for 100 shares each for “Central Wyoming Oil and Uranium Corporation” dated 1954. I have tried Google searches to find out if they are indeed worth anything but have had no luck. Can you tell me if they are worth anything or what the process would be to find out? I tried the sec.gov website to no avail. Thank you in advance for any help you can give me.
Marie, you’re right — a google search of that company name turns very little up. But there are ways to research the value of paper stock certificates, which were common during your father’s time but are now largely a thing of the past.
First, you want to look at the certificate itself. Does it say cancelled on it, or contain punch holes through the paper? That likely means the certificate has already been cashed in. If you can’t find any signs of cancellation, check to see if your father’s name is on it it — if so, that’s a good start.
Often, though — as seems to be the case in this instance — the company issuing the stock no longer exists. This is common — companies frequently merge with other entities, are purchased, go out of business or end up bankrupt. But the certificate may be printed with the name of the transfer agent, which the SEC says is the best place to start your research. If no agent is listed, or that agency also no longer exists, you can contact the agency that incorporates businesses in the state where the company was located. In your case, that would be Wyoming, and the state has a handy guide to tracing old stock here. They may be able to tell you who the new transfer agent is.
There are also companies who will do this for you, though you should be aware that you’ll likely be charged a fee and you may be chasing something that has little or no value. The Wyoming document referenced above suggests a company called America West Archives, which has a subsidiary, OldStockResearch.com. They charge a research fee of $35 to $45 per company and claim a 95% success rate (keep in mind, that means they’ve turned up results — not necessarily of value — 95% of the time). If they come up with no information, you’ll receive a full refund.
Another option is Scripophily.com, which researches, buys and sells original stock and bond certificates. They charge a flat research fee of $39.95 per company, and again, if no information is turned up, you won’t be charged.
Finally, if you have a brokerage account, you may be able to get your broker to research this for you.
Keep in mind that even if you find that these certificates hold value, if your father isn’t alive anymore, you’ll need to prove that you’re the legal heir to the security. And if the certificate doesn’t have cash value, it may still have collector value, based on condition, age, design, industry and other factors. One of the services above can help you determine if this might apply in your case.
I’m excited to have John Schmoll as today’s guest poster. I met him when I spoke at FINCON — a financial bloggers conference — last year, and have enjoyed reading his blog Frugal Rules since. Today, he’s sharing his tips for saving for retirement when you’re self employed.
I have learned a lot about myself in the 18 months or so that I’ve been self-employed. I’ve learned about what truly motivates me, what I do in the face of a challenge, and how easy it can be to let things slide by.
One particular area that I’ve been guilty of letting slide by over the past year is actively saving for retirement. Gone is the 401k and the ability of getting that nice employer match – it all rests on my wife and I now. I’ve learned that even with the ups and downs of self-employment it is possible to have balance and put away money for retirement, though it takes action on your part.
Months Turn in to Years
If you run your own business, you know better than most that time is precious and there never seems to be enough of it in a day. As a result, time passes and things get delayed as you implement an “I’ll take care of it tomorrow” mindset.
The problem with this mindset, as it relates to retirement investing, is those days turn into months and thus you lose that precious time needed to grow your portfolio. This temptation to delay happens to the best of us and the best thing you can do is take the bull by the horns and actively engage with your retirement investing now.
Know Your Options
Many employers offer a solid framework you can use to save for retirement in a 401k. Often, entrepreneurs allow this lack of framework to hold them back from saving for retirement. If you’re self-employed, there are many retirement saving options you can use to create your own framework:
- SEP IRAs
- SIMPLE IRAs
- Solo 401ks
Most brokerages offer all of these options, but make sure you find the one that works best for you and has either no fees or low fees so you can have more of your money working for you.
One nice added feature is that you can invest in virtually anything in these retirement accounts vs. restrictions you might face in an employer-sponsored 401k. Thus, you have access to lower-fee index funds as opposed to being forced to choose between several higher-fee funds – which means more of your money can work for you.
Look at Your Priorities
The problem many face in their self-employment journey is fluctuating income. You could have a stellar month followed by one that is barely enough to get by. When dealing with this fluctuating income there are a number of things to look at:
- What are you spending money on each month that can be cut?
- What is your rolling average of income over a longer period of time?
- Are you sitting on too much cash?
Taking a serious look at some of these things can not only reveal what your priorities are, but it can also show you that you do have money you could set aside each month or quarter for retirement. Of course you still want to be able to live life, but you don’t want to do it at the expense of sacrificing your future for the present.
Saving for retirement while running your own business does present some unique challenges, but it’s not impossible. Making it a priority and knowing your options will set you up to succeed in the long run.
About John: John Schmoll is the founder of Frugal Rules, a blog created to help people experience financial freedom through frugality. John is passionate about budgeting, saving and investing and enjoys sharing his knowledge and experience with others so they can avoid making some of the mistakes that he made. A veteran of the financial services industry, John has an MBA in Finance and experience as a licensed stockbroker. You can find John online at frugalrules.com and follow him on Twitter at @frugalrules.
A: Thanks Tracy. (Note to anyone who isn’t a subscriber, my weekly newsletter is fun and free! You can sign up here.) As for me, Tracy, I own real estate and have some in my portfolio, but other than telling you how to get the very best rate on a mortgage, it’s not my prime focus. Check out BiggerPockets.com run by Joshua Dorkin. I met him at a recent conference and spent some time afterward chatting with him about his work. If you’re looking to buy properties relatively cheap, spruce them up, and either own or flip them, he’s built a vibrant community with a lot of information – some of which you can access for free.
Buck: I am considering taking money out of my 401(k) and paying off my mortgage. I am 60 and have no other debt. That would mean I would need significantly less income in retirement without a mortgage. Otherwise I have 15 more years on the mortgage. I will work for another 5-7 years so why shouldn’t I do this?
A: Buck, if you know me at all you know I like the idea of entering retirement mortgage-free. But I wouldn’t do this and here’s why: When you prepay a mortgage you have to weigh the return you get from making that prepayment (your mortgage rate minus the tax deduction) against the return you’d otherwise get on your money. If you’ve got a diversified portfolio in that 401(k) earning even a conservative 6% a year (tax-deferred) and your mortgage is at, say 4%, or even 5% pre-deduction, it just doesn’t make sense. Plus, pulling money you don’t need to pull out of your 401(k) before you absolutely have to robs you of the ability to rack up even more of that tax-deferred growth. What I might consider is, while you’re working for the next 5 to 7 years, figuring out a schedule of pre-payments that would help you time the end of your loan to roughly the time you exit the workforce. Try to figure out a way to come up with that money without robbing your 401(k).
That would be nice, but unfortunately that’s not how this works. You can’t convert just the contributions and not the earnings. All IRA money is considered one cup of money: Contributions and earnings are not kept separate, so you can’t convert one without the other.
You can, however, convert only a portion of your account, but you’ll still be taxed on the percentage that is considered earnings. One smart way to handle this is to convert only an amount on which you can afford to pay taxes. You want to be able to foot the tax bill out of money you have set aside that isn’t in retirement accounts, not from the proceeds of the conversion (otherwise, you’ll not only be pulling money away from retirement, but if you’re under age 59 1/2, you may penalized 10% for taking an early distribution). If you work with a tax advisor, he or she may also be able to help you settle on an amount to convert that will still allow you to keep your income within your current tax bracket. An advisor may suggest converting in small amounts over a few years, for example.
The benefit of a Roth IRA conversion comes if you think your tax rate will be higher in retirement than it is now — either because you expect taxes overall to increase or you think your individual tax rate will go up. Money in a Roth IRA grows tax free. It also isn’t subject to required minimum distributions, which means you can leave your money in a Roth indefinitely and use it as a tool to pass that money on to your heirs.