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Finding Advice for More Modest Retirement Investments

The New York Times recently published an article about the various ways people are using the web for retirement planning.  More and more companies are trying to find solutions to help people with less than $500k in assets manage money in a similar fashion to large pension funds.

At Rockbridge, we have cost effectively been doing this for 20 years, with real service, and not just software.  We are also able to provide judgment and credibility that the online platforms are still lacking.  With financial decisions, a face-to-face personal interaction cannot be overlooked!

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Impressive Growth of Fee-Only Advisors

As we start a new year filled with promise, I would like to share our story with you.  We view Rockbridge Investment Management as a community of talented professionals and clients who value our services.  Working together with our clients we hope to fulfill our collective goals of financial independence and well being.

Our Vision
Our vision continues to be the foundation of our success:

Rockbridge Investment Management is a group of like-minded professionals working with a select group of clients with whom we can have a significant impact.  Everything we do is focused on building and preserving wealth for our clients.  We help remove complexity so clients can focus on the simple but often difficult process of successful investing.

 

Firm Growth
Our growth over the past three years has been steady and significant.  At the end of 2009 we served 457 clients.  Today we have 562 clients and an annualized growth rate of 8% per year.  The leadership team is committed to growing the firm by adding professionals who are passionate about our philosophy and vision.  We want the firm to endure for the long run and we have the capacity for steady growth.  Our succession plan is designed to include our younger advisors in the ownership of the firm over time.

Strategic Plan
Our firm continues to grow organically through referrals from our existing clients and professional relationships.  As a team we meet twice a year to evaluate and discuss our strategic goals for the business.  While investment management remains the focus of the firm, we recognize the need for risk management, tax and estate planning, so we continue to build our network of referable professionals to address the varied needs of our clients.

New Advisors
In 2012 we added two advisors to our team of professionals.  Geoff Wells started in October after relocating back to Central NY from Texas.  Geoff completed the Certified Financial Planning coursework and passed the CFP exam last year.

Scott Poppleton, a Manlius resident, joined us in November after several years in the military and the defense industry.  Scott has a passion for financial planning and is developing a second career helping others achieve their financial goals.

To learn more about Geoff and Scott, visit www.rockbridgeinvest.com/who-we-are/

Communications
New technologies have given us more opportunities to tell our story and add valuable services.  We invested heavily in our website as a way to communicate important information to our clients in a more timely manner.  The website also tells the story of our firm and attracts people who are literally searching for fee-only objective advice.  We have no plans to advertise our services and rely on our community of clients to refer others in their own personal or professional networks.

The need for objective advice and professional investment management has never been greater in our history.  We are well positioned to serve our clients and help more people who turn to us for advice in the future.  We truly appreciate your trust in us and we all look forward to building our community together.  Happy New Year!

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It’s a New Year: Get Your Retirement Back On Track

In a recent WSJ article, Seven Resolutions to Get Your Nest Egg in Shape, the author points out that many Americans are behind on their preparations for retirement.

 

 

Below are some eye-opening stats:

– 67% of workers say they are behind schedule in planning and saving for retirement!

– Less that 60% of families are currently saving for a later life.

–  Only 40% of workers over 55 years old, have accumulated more than $100,000 in retirement savings.

 

It’s not too late to get your financial ducks in a row!  Take control of your retirement, and if you want a partner to help you do so; give us a call!

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What Grade Does Your Retirement Account Get?

Schools and parents have always taught students to strive for A’s and B’s.  In fact, it would be hard to do well in school without using grades as goals or milestones.  Unfortunately after school, grades fall off the radar.  By translating retirement savings into something as simple as a letter grade, retirement preparation can be seen in a new light.

The current rule of thumb is to save 10-15% of your salary throughout a career for retirement.  This general guideline often gets trumped by real life events:  kids, a new house, emergencies, etc.  In addition, television commercials are now touting a very large “retirement number” that often looks extremely intimidating and confusing.  With these generalized recommendations, it is often too vague to figure out if you are really on track for retirement.

Applying a letter grade to your savings will provide a new way to look at your retirement preparedness. This article’s model uses a simplified grading scale with each letter grade assigned a level of spending in retirement.  A grade of “A” means you have enough savings to replace 100% of your pre-retirement spending for the rest of your life when factoring in other income sources such as Social Security.  A grade of “B” would correspond to 90% of pre-retirement spending on down to a grade of “F” which would represent only 60% of pre-retirement spending.

What’s Your Grade?

To find your personal savings grade, you first need to calculate your savings multiplier.   For example, if you have $250K in savings and $90K in spending ($100K salary minus $10K yearly savings), then the savings multiplier will be 2.8 ($250K savings ÷ $90K spending = 2.8).   The table is broken down by 5-year age brackets and letter grades of A through F.  For a 45 year old, this savings level would be equal to a grade of B.

“A”

“B”

“C”

“D”

“F”

30 yrs old

1.6

1.4

1.1

0.8

0.5

35 yrs old

2.1

1.7

1.4

1.0

0.7

40 yrs old

2.7

2.2

1.8

1.3

0.9

45 yrs old

3.4

2.8

2.3

1.7

1.1

50 yrs old

4.3

3.6

2.9

2.2

1.4

55 yrs old

5.5

4.6

3.7

2.8

1.8

60 yrs old

7.1

5.9

4.7

3.5

2.4

65 yrs old

9.0

7.5

6.0

4.5

3.0

Now that your retirement savings have been graded, is it better or worse than expected?  If you received a poor grade, the easiest way to fix this would be to increase your employee retirement plan contribution percentage.  In addition, yearly contributions to an Individual Retirement Accounts (IRAs) would also improve your grade over time.

Our motto here at Rockbridge is “Building Wealth with Simple Disciplines” and we have been doing that for clients for the past 20 years.  Grading your retirement picture is just another way that Rockbridge can help you simplify and achieve your financial goals.

Assumptions/Customization

  • Married couple earning $100K/year and saving $10K/year  ($90K/year spending)
  • A real market return rate of 5%, which takes into account inflation
  • Upon retirement, all assets are converted into a paycheck for life via an immediate annuity paying 6%
  • Social Security makes up $36K/year of retirement income needs for this couple

To customize this table for your personal situation, compare your spending level to the model.  If expenses are greater than $90K/year, then you will need to save more than the table lists.  In contrast, if you have a company pension, you will be able to save slightly less.

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Diversify your 401(k)

If you currently work for a publicly traded company, there is a good chance that you own some of their stock in your 401(k).  You may even have incentives from the company to own more of it.  In fact, some companies make their matches or profit sharing contributions in their own stock which just increases your exposure.

So, is owning your company stock a good thing?

The short answer is NO. Your salary is already a huge personal exposure you have with that one company; do you really need to double down

 

In a recent post, Josh Brown highlighted the fact that since leaving Microsoft, Bill Gates has steadily decreased his holdings in the company down to 20%.

“….here the second richest man in the world shows us the value of knowing when to walk away, no matter how sentimental or close to you an investment once was. To say nothing of the value of spreading out the chips just in case a once-great investment turns into a mess on someone else’s watch.”

We as investors cant control the directions of the market or any individual company; however we can control the amount of risk we are taking.  So, take a look at your next 401(k) statement and make sure you aren’t taking any unnecessary risks.  The future “retired you” will thank you for it!

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Market Commentary January 2013

Financial markets did very well in 2012, with stocks returning 16%-18%, which is significantly above long-term averages. During the fourth quarter markets seemed to cling to an assumption that the fiscal cliff would be averted, or at least end in something less than a catastrophe. Domestic stocks ended the quarter very close to where they started, despite a bumpy ride on the hopes and fears related to the fiscal cliff and other issues. International stocks, on the other hand, had a great quarter as bad news about the Euro crisis gave way to cautious optimism. So after lagging for the first three quarters of the year, international stocks’ 2012 performance slightly exceeded that of the broad U.S. market.

Bonds had another surprising year, showing that low interest rates can go even lower. The broad bond market had returns exceeding 4% with yields under 2%, meaning bond values appreciated as rates came down. Someday this process will reverse itself. When interest rates rise, depreciating bond values will easily overwhelm low yields producing negative bond market returns. A reasonable predictor of bond market returns over the next decade is the current interest yield, making 2% annualized returns a realistic expectation.

Balancing the Doom and Gloom
Stories about a “new normal” and near-zero growth expectations for the U.S. economy have circulated widely in the financial press. Some of these stories are based on complicated economic analyses, but many, in the end, extrapolate our recent experience and conclude that our economic future will be disappointing.

If we are really in so much trouble, why does the market not reflect this expectation of gloom? The media loves doom and gloom. In fact “good news” seldom makes the news. Unless it is coverage of SU’s bowl victory, or Coach Boeheim’s 900th win, the 11 o’clock news is generally about things we wish never to happen.

So to provide some balance, I am pleased to report that at least a few people hold contrary viewpoints.

In a recent article, Laurence B. Siegel writes, “We have heard concerns about the permanent slowing or stopping of global growth after every depression or severe recession. In the 1890s, the idea was circulated that everything worth inventing had already been invented. In the 1930s, it was popular to say that capitalism had created the mechanism of its own destruction. In the 1970s, concerns focused on foreign competition and resource constraints, and some people forecast mass starvation. Today’s concerns are no different in principle, and they are no more realistic.”

In a video and transcript recently posted by Vanguard Chief Economist Joe Davis, he makes a strong case for optimism about the future (https://advisors.vanguard.com/VGApp/iip/site/advisor/research/article/ArticleTemplate.xhtml?iigbundle=IWE_VideoEcoOutlook&oeaut=TsqRFpiuAY). In a theme shared with the Siegel article, he talks about the three industrial revolutions experienced in the U.S. The first started with the invention of the steam engine, which changed manufacturing and revolutionized transportation. The second started with the invention of the light bulb, which led to wide-ranging innovations that revolutionized many aspects of American life. The third revolution he attributes to the invention of the microprocessor in the early 1970s.

As happened in the first two industrial revolutions, Davis argues that we are now in a lull of the third, which is likely to be followed by a resurgence of innovation and investment, based on the global application of still evolving technology. He makes a strong argument for optimism.

We could experience more of the recent past, with sluggish growth and high unemployment, or we could see a return to more normal growth rates, driven by innovation and investment as suggested by Joe Davis. Neither scenario is certain. When markets seem inconsistent with the drumbeat of media, remember to listen for the whispered viewpoint of the contrarian. The future is never certain, but the better we can understand that a range of outcomes is possible, the less likely we are to be caught by surprise, and be unprepared for a future that is different than the recent past.

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Top Ten Money Excuses

Human beings have an astounding facility for self-deception when it comes to our own money. We tend to rationalize our own fears.  So instead of just recognizing how we feel and reflecting on the thoughts that creates, we cut out the middle man and construct the façade of a logical-sounding argument over a vague feeling.  These arguments are often elaborate, short-term excuses that we use to justify behavior that runs counter to our own long-term interests.

Dimensional Fund Advisors, recently posted the “Top Ten Money Excuses” in their 4th quarter market review.  See if you fall victim to using any of these!

1) “I just want to wait till things become clearer.”
It’s understandable to feel unnerved by volatile markets. But waiting for volatility to “clear” before investing often results in missing the return that can accompany the risk.

2) “I just can’t take the risk anymore.”
By focusing exclusively on the risk of losing money and paying a premium for safety, we can end up with insufficient funds for retirement. Avoiding risk can also mean missing an upside.

3) “I want to live today. Tomorrow can look after itself.”
Often used to justify a reckless purchase, it’s not either/or. You can live today and mind your savings. You just need to keep to your budget.

4) “I don’t care about capital gain. I just need the income.”
Income is fine. But making income your sole focus can lead you down a dangerous road.  Just ask anyone who recently invested in collateralized debt obligations.

5) “I want to get some of those losses back.”
It’s human nature to be emotionally attached to past bets, even losing ones. But, as the song says, you have to know when to fold ’em.

6) “But this stock/fund/strategy has been good to me.”
We all have a tendency to hold on to winners too long. But without disciplined rebalancing, your portfolio can end up carrying much more risk than you bargained for.

7) “But the newspaper said…”
Investing by the headlines is like dressing based on yesterday’s weather report. The market has usually reacted already and moved on to worrying about something else.

8) “The guy at the bar/my uncle/my boss told me…”
The world is full of experts; many recycle stuff they’ve heard elsewhere. But even if their tips are right, this kind of advice rarely takes your circumstances into account.

9) “I just want certainty.”
Wanting confidence in your investments is fine. But certainty? You can spend a lot of money trying to insure yourself against every possible outcome. While it cannot guard against every risk, it’s cheaper to diversify your investments.

10) “I’m too busy to think about this.”
We often try to control things we can’t change—like market and media noise—and neglect areas where our actions can make a difference—like the costs of investments. That’s worth the effort.

Given how easy it is to pull the wool over our own eyes, it can pay to seek independent advice from someone who understands your needs and circumstances and who holds you to the promises you made to yourself in your most lucid moments.

Call it the “no more excuses” strategy.

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Top Retirement Mistake

The Wall Street Journal recently published a great article called “Five Big Retirement Mistakes”.  The top mistake listed was not paying for financial guidance.

“People who have no problem paying for the services of an accountant or lawyer often balk at the prospect of cutting a check to pay for investment advice. Instead, they rely on “free” help from retirement advisers they meet at banks, brokerage firms and retirement seminars.

But there is no free lunch. You might not be paying an hourly fee for financial advice, but you still are compensating the adviser. The fees are built into the investment, so people don’t realize how much they are paying and how these fees drag down investment returns.”

So as the new year begins, please make sure your financial ducks are in a row and you are not paying hidden costs for “free” financial advice!

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