• Little Things That May Help Your Retirement Saving

     

    Over time, these seemingly small factors could make a major difference.

     

    Provided by MidAmerica Financial Resources

     

    Saving for retirement takes decades and demands the investment of significant amounts of your income. As this major effort unfolds, you should recognize that some subtle factors and seemingly minor decisions could end up making a sizable and positive impact on your financial future.  

       

    Your investment yield may be less important than the amount you save. Beating the S&P 500 feels great, but outperforming the market is not your foremost goal. Your real retirement saving objective is to accumulate sufficient assets – enough to provide adequate income in the “second act” of your life.

     

    How much control do you have over your investment returns? The short answer is very little; market cycles, macroeconomic factors, and the behavior of institutional investors influence them profoundly. On the other hand, you have direct control over your savings rate. The more you pour into your retirement accounts, the more dollars you are giving a chance to compound.

     

    As a hypothetical example, say two people have balances of $100,000 in their respective retirement accounts. Ariel earns a 10% annual return and puts $10,000 into the account at the start of every year for 20 years. David gets a 12% annual return from his account, but he never adds to its $100,000 principal during those 20 years. After 10 years, Ariel’s account balance is $434,638, while David’s is $310,585. After 20 years, Ariel has $1,302,775, while David has $964,629. Result: David falls behind, even while achieving a 2% greater return.1

     

    Investment account fees can take a toll. Account fees are little things, but their impact over the years can be enormous on a retirement saver. This is why you may want to place your invested assets into accounts with minimal fees, annual fees of well under 1%.

     

    Everyone talks about the several hundred dollars a year you can save (and invest) by swapping out your daily, flavored latte for a regular cup of joe, but you might as well keep ordering lattes. The money lost to lattes pales next to the money you could potentially lose to account fees. Demos, a public policy think tank, estimates that high expense ratios and administration fees on investments in a typical workplace retirement plan may cost a middle-class, dual-income household as much as $155,000 in retirement assets over a lifetime.2

         

    What you avoid doing may help your effort as well. Resist the impulse to deviate from your long-term retirement planning and investing strategy without careful examination. Be wary of the emotional reactions to headlines or market disruptions, those little voices urging you to get out of the market or tilt your portfolio one way or another. Refrain from siphoning down the money in your retirement accounts and using those dollars for another purpose. Stick to your plan, ride through the turbulence, and avoid making a quick, impetuous decision that might do your retirement funds more harm than good.

     

    On that note, remember that tuning out the noise is okay. The financial world is a noisy place, a place of non-stop trading and information flows. Any notable news development becomes a front page (or home page) item. It may seem risky to accept so much of this breaking news passively, with no reaction on your part as an investor or a saver – but passivity has its virtues. A little passivity – in your temperament, in your investment approach – may leave your retirement savings in surprisingly good shape over the long run, compared to the savings of someone who reacts to every temperature shift in the market climate.

     

    Pay attention to these little things as you pursue big financial objectives. In hindsight, you will likely be glad you did.

     

    MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com. www.mid-america.us

     

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

      

    Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser.
    MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to NPC.

        

    Citations.

    1 - bankrate.com/finance/investing/saving-money-or-investing-more-important-over-time.aspx [6/25/16]

    2 - forbes.com/sites/arielleoshea/2016/08/08/3-common-saving-mistakes-you-can-fix-right-now/ [8/8/16]

     

  • Robo-Advisors vs. Human Advisors

     

    If an investor chooses a non-human financial advisor, what price could they end up paying?

     

    Provided by MidAmerica Financial Resources

     

    Investors have a choice today that they did not have a decade ago. They can seek investing and retirement planning guidance from a human financial advisor or put their invested assets in the hands of a robo-advisor – a software program that maintains their portfolio.

       

    Why would an investor want to leave all that decision making up to a computer? In this era of cybercrime and “flash crashes” on Wall Street, doesn’t that seem a little chancy?

     

    No, not to the financial firms touting robo-advisors. They are wooing millennials, in particular. Some robo-advisor accounts offer very low minimums and fees, and younger investors who want to “set it and forget it” or have their asset allocations gradually adjusted with time represent the prime market. In the 12 months between July 2014 and July 2015 alone, invested assets under management by robo-advisors more than doubled.1

     

    Even so, only 5% of investors responding to a recent Wells Fargo/Gallup survey said they had used a robo-advisor, and fewer than half those polled even knew what a robo-advisor was.2

     

    A cost-conscious investor may ask, “What’s so bad about using a robo-advisor?” After all, taxpayers and tax preparers use tax prep software to fill out 1040 forms each year, and that seems to work well. Why shouldn’t investors rely on investment software?

         

    The problem is the lack of a human element. Investors at all stages of life appreciate when a financial professional takes time to understand them, to know their goals and their story. A software program cannot gain that understanding, even with input from a questionnaire.

          

    The closer you get to retirement age, the less appealing a robo-advisor becomes. The software they use can’t yet perform retirement planning – and after 50, people have financial concerns far beyond investment yields. Investment management does not equal retirement planning, estate planning, or risk management.2

     

    Additionally, robo-advisors have never faced a bear market. They first appeared in 2010. Passive investment management is one of their hallmarks. How adroitly will their algorithms respond and rebalance a portfolio when the bears come out? That has yet to be seen.2 

     

    Does a robo-advisor have a fiduciary duty? Many investment and retirement planning professionals assume a fiduciary role for their clients. They have an ethical and legal duty to provide advice that is in the client’s best interest. How many robo-advisors have developed the discernment to do this?3 

      

    The robo-advisor “revolution” may be fleeting. Why, exactly? The whole robo-advisor business model may invite the demise of many of these firms. Robo-advisors pride themselves on low account fees, but as CNBC reports, those fees are now so minimal that many robo-advisors are having a hard time making back their client acquisition costs. Ultimately, robo-advisors may be remembered for the way they stimulated the financial services giants to offer low-minimum, low-cost investment tools.4

     

    In fact, hybrid platforms have also emerged. Some robos now offer investors the chance to talk to a real, live financial advisor as well as actual financial planning services when an account balance surpasses a certain threshold. At the same time, some of the major brokerages have introduced robo-advisor investment platforms with potential human interaction to compete with the upstart investment firms that challenged their old-school approach.5

     

    It appears the traditional approach of working with a human financial advisor may be hard to disrupt. The opportunity to draw on experience, to have a conversation with a professional who has seen his or her clients go through the whole arc of retirement, is so essential.

     

    Some investors will never talk to a financial advisor in their lives. Just why is that? TIAA (formerly TIAA-CREF) surveyed 2,000 adults online and found some answers. Of those who hadn’t consulted financial advisors: 55% feared it would be too expensive, and 49% said it was “hard to know which sources or whom I can trust.” Forty percent were unsure of what questions to ask a financial professional, and 38% said that it would be awkward discussing their finances with someone else.1

     

    These responses point to uncertainty about the process of financial and retirement planning. The process is really quite worthwhile, quite illuminating, and quite helpful. It is not just about planning to improve “the numbers,” it is also about planning ways to sustain and improve your quality of life.

      

    MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com. www.mid-america.us

     

    This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

    Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser.
    MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to NPC.

         

    Citations.

    1 - tinyurl.com/hso3ahk [2/28/16]

    2 - time.com/money/4616753/robo-advisor-online-financial-planning-advice/ [1/18/17]

    3 - investopedia.com/terms/f/fiduciary.asp [2/21/17]

    4 - cnbc.com/2016/06/14/is-the-twilight-of-the-robo-advisor-already-at-hand.html [6/14/16]

    5 - forbes.com/sites/katherynthayer/2017/02/15/why-betterment-added-a-human-touch-to-its-roboadvisor-tool/ [2/15/17]