Three Investing Mistakes To Avoid During Uncertain Times

November 23, 2020 by admin

Investing in the stock market provides you with an opportunity to put your money to work. Historically, the Standard and Poor’s 500 Index has returned close to 10 percent on an average annual return.¹Of course, past performance is no guarantee of future results. But most investors fail to take full advantage of this opportunity. In fact, they often earn considerably less than the average market return.

A recent report from DALBAR Inc. showed that the average investor in 2018 lost twice the amount of money compared to the S&P. For example, the average investor lost 9.42% in the S&P 500 index which only was down 4.38%. Even during positive months like August of 2018 when the S&P was up 3.26%, the average investor could not beat the market.²

Why does this happen? There are three big mistakes investors tend to make—over and over again.

Mistake #1: Trying to time the market.
It’s impossible to predict when you should sell ahead of a downturn or start buying before a resurgence. When investors try to time the market, they often miss the mark, buying high or selling low — or both. In the process, they negatively affect their potential return.

People who think they know that the market is about to drop (or make a comeback) may be kidding themselves. No one knows for certain what will happen next. What is predictable is that the market will experience periodic volatility.

So instead of trying to time the market, you can plan for volatility by engaging in a long-term investment strategy and using dollar-cost averaging — purchasing a certain amount of an investment on a set schedule. That way, you’ll be purchasing more stock when the price is low, less when the price is high. Of course, a program of systematic investing does not ensure a profit or protect against losses in declining markets. An investor should consider his or her ability to continue purchases during periods of declining prices, when the value of their investment may be falling.

Mistake #2: Reacting emotionally.
Warren Buffett, one of the most successful investors ever, famously advised against letting emotions sway investment decisions when he said, “Be fearful when others are greedy and greedy when others are fearful.”³

It’s easy to feel confident and excited about investing when markets go up. It’s also natural to experience panic when markets drop and you start seeing losses in your portfolio.

But giving in to these emotions leads most investors to sell low (when the market goes

down, and people are worried about “losing” money) and buy high (when the market goes up, and securities are more expensive).

Mistake #3: Believing you know more than the market.
Most economists and financial experts believe the stock market is efficient. This means the prices of securities in the market reflect their actual value.

But some investors act on hunches and predictions about what the market (or specific securities within it) will do next. Remember that professional investors and fund managers have access to an incredible amount of information that they use to make investment decisions, and that information is not readily available to the average investor.

The bottom line.
You can avoid these three common mistakes by contributing consistently to your investment accounts each month (regardless of what the market is doing), assuming that you can afford to do so, working with a financial professional who can keep you calm and thinking rationally when you want to react emotionally, and sticking to your overall financial plan and investment strategy — instead of trying to guess the next hot stock.

This educational, third-party article is provided as a courtesy by Josh Ervasti, Agent, New York Life Insurance Company and Registered Representative for NYLIFE Securities (member FINRA/SIPC), a Licensed Insurance Agency. NYLIFE Securities is a New York Life company. I am located at 4855 Mills Civic Parkway, Suite 200, West Des Moines, IA 50265. To learn more about the information or topics discussed, please contact Josh Ervasti at (515) 518-1632 or Josh@R2FinancialStrategies.com.

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¹Eric Reed, “What is the S&P 500 Average Annual Return?” Yahoo Finance, November 2019

²DALBAR Inc, “Average Investor blown away by market turmoil,” March 2019. https://www.dalbar.com/Portals/dalbar/Cache/News/PressReleases/QAIBPressRelease_2019.pdf

³Adam Brownlee, “Warren Buffett: Be Fearful When Others Are Greedy, ” Investopedia, April 5 2019. https://www.investopedia.com/articles/investing/012116/warren-buffett-be-fearful-when-others-are-greedy.asp

Smart Uses for Your Tax Refund From American Trust

December 28, 2015 by admin

Nearly eight out of ten U.S. tax filers will receive a federal tax refund this year. Instead of spending it hastily, take a moment to evaluate your financial situation and decide where those dollars will make the most difference. Here are some ideas for making the most of your tax refund:

Save for emergencies. An emergency fund should be able to cover three to six months’ worth of living expenses in the case of sudden financial hardship like losing your job or needing to replace your car.

Pay off debt. Pay down existing balances by chipping away at the loan with the highest interest rate or by eliminating smaller debt first.

Save for retirement. Open or increase contributions to a taxdeferred savings plan like a 401(k) or an IRA. American Trust can put you in touch with a retirement expert to discuss which options would work best for you.

Put it toward a down payment. The biggest challenge most firsttime home buyers face is coming up with enough money for a down payment. Putting your tax refund toward a down payment is a smart move. When you’re ready to start shopping, see your American Trust mortgage lender to get preapproved. Pre-approval allows you to know exactly what size of monthly payment you can afford.

Invest in your current home. Use your refund to make home improvements that will pay you back in the long run by increasing the value of your home. If you’re planning an extensive remodel, more than your tax refund will cover, see American Trust for a home equity line of credit.

See your American Trust banker for other smart ideas on how to manage your money. They have the banking tools and expertise to help you begin the new year with a financially healthy start.

American Trust has been a community pillar since 1911. We have grown to strengthen the products, services, and financial management we can provide to our clients while retaining the integrity and commitment that can only be found through a community bank.

Your Biggest Investment Enemy: Yourself

November 3, 2015 by admin

Don’t Be Your Own Worst Enemy

One of the most well-known investors of the 20th Century, Benjamin Graham, said, “The investor’s chief problem—and even his worst enemy—is likely to be himself.”

What Graham understood—and what modern research is catching up to—is the idea that we all have emotions and biases that affect our decision making. The innate wiring built to survive pre-modern times can be counterproductive in our modern world, especially when it comes to investing.

Let’s look at a few of the human emotions and biases that can adversely impact sound investment decision making.

Fear and Greed: These are the two of the most powerful emotions that move investors and investment markets. Each emotion clouds our capability for rational and dispassionate decision making. They are the emotions that lead us to believe that prices may continue to rise (think tulip price bubble of 1636) or that everything has gone so wrong that prices may not recover (think credit crisis of 2008-2009).

Some investors have found ways to conquer these emotions and to be brave when everyone else is fearful, and to resist the temptations of a too-exuberant market.

Overconfidence: Peter Bernstein, a noted economic historian, argued that the riskiest moment may be when we feel we are right. It is at that precise moment that we tend to disregard all information that may conflict with our beliefs, setting ourselves up for investment surprise.

Selective Memory: Human nature is such that we tend to recast history in the manner that emphasizes our successes and downplays our failures. As a result, we may not benefit from the valuable lessons failure can teach. Indeed, failure may be your most valuable investment.

Prediction Fallacy: Humans have an innate desire to recognize patterns and apply these patterns to predicting the future. We erroneously believe that because “A” occurred and “B” happened, that if “A” happens again, we can profit by anticipating “B” will repeat. Market history is littered with examples of “rules of thumb” that worked—until they no longer worked.

Financial markets are complex and unpredictable. Our endeavors to tap their opportunities to pursue our financial goals are best realized when we don’t burden the enterprise by blindness to the inherent behavioral obstacles we all share.

www.actiswealth.com

How To Protect Against Identity Theft

November 3, 2015 by admin

Identity theft is the act of taking someone’s personal information and using it to impersonate a victim, steal from bank accounts, establish phony insurance policies, open unauthorized credit cards, or obtain unauthorized bank loans. In some more elaborate schemes, criminals use the stolen personal information to get a job, rent a home, or take out a mortgage in the victim’s name.

Close to half of identity theft cases are the result of a lost or stolen wallet, checkbook, credit card, or other physical document, but online shopping can also pose a security risk.

Victims of identity theft are often left with lower credit scores and spend months or even years getting credit records corrected. They frequently have difficulty getting credit, obtaining loans, and even finding employment. Victims of identity theft fraud often travel a long and frustrating road to recovery; depending on the severity of the identity theft fraud damage, the recovery process can take anywhere from a few weeks to several years.

Most homeowners’ and renters’ policies provide coverage for theft of money or credit cards; however, the amount of coverage is limited (usually $200 in cash and $50 on credit cards). Once you have reported the loss or theft of your credit card to the issuing company, you are responsible for only $50 of unauthorized use.

Some companies now include coverage for identity theft as part of their homeowners’ insurance policy. Check your policy to find out. Others sell it as either a stand-alone policy or as an endorsement to a homeowners’ or renters’ insurance policy which can run about $25-$50 annually.

Identity theft insurance provides reimbursement to crime victims for the cost of restoring their identity and repairing credit reports. It generally covers expenses such as phone bills, lost wages, notary, and certified mailing costs, and sometimes attorney fees (with the prior consent of the insurer). Some companies also offer restoration or resolution services that will guide you through the process of recovering your identity.

Use of stolen credit card numbers is among the most common forms of identity theft, but some schemes use electronic means, including online scams like ‘phishing,’ in which thieves use email inquiries purporting to be from financial or other online organizations, to obtain sensitive account information. Others might use more old-fashioned methods, such as ‘dumpster diving’—rooting around in people’s garbage to collect financial information.

Many credit card companies are now using radio-frequency identification (RFID) chips in their credit cards instead of magnetic stripes. The advantage is quicker, more efficient transactions—especially those carried out at traditionally cash-only retail outlets, such as fast-food restaurants or convenience stores. However, in some cases, radio frequency identification may make it possible for identity thieves to use a simple electronic device to capture the information. The scariest part is that it can happen right in your presence, without your even knowing it.

Source: Independent Insurance Agents of Nebraska
www.insproins.com

Steps To Creating A Household Budget

November 3, 2015 by admin

Steps To Creating A Household Budget

In these tough economic times, it’s more important than ever for families to develop a budget and stick to it. Rainy-day funds, savings for college, or just making your rent payment can all be made easier with a budget. American Trust supports its clients’ efforts to budget and save by offering expert guidance.

“A financial goal can be very motivating,” said Sara Larson, Vice President and Branch Manager at American Trust. “Whether you’re saving for a family vacation, a down payment for a house, or a new car, if you stick to a plan, you’re likely to achieve your goal.”

Putting together a household budget requires time and effort. American Trust offers the following steps to help you get started:

Track every penny you spend for a month. Keep receipts and write everything down. This will be an eye-opening experience and will help you see where you can cut back.
Determine the total amount of money coming in. Include only your take-home pay (your salary minus taxes and deductions). Your income may also include tips, child support, investment income, etc.
Review the records and receipts you collected over the last month. Categorize your spending using a budget.
Set a realistic financial goal and develop your budget to achieve that goal. Subtract your monthly expenses from your monthly income. Find ways to cut spending and set limits on things like entertainment expenses.
Make one of your financial goals to save a certain dollar amount each month. Start an emergency fund if you don’t already have one. You never know when you may need it.
Keep track of your spending every month. Update your budget as expenses or incomes change. Once you achieve your financial goal, set another.
Make life more rewarding with RewardChecking and RewardSavings from American Trust. Save more with two great rates and ATM rebates up to $25. Each month, your checking interest and ATM rebates are automatically transferred to your savings where you earn interest again. See ad on page ?…

A community pillar since 1911, American Trust has continuously strengthened its products and services while maintaining the integrity and commitment that can only be found in a community bank.

Eight Mistakes That Can Upend Your Retirement

November 3, 2015 by admin

Eight Mistakes That Can Upend Your Retirement

Pursuing your retirement dreams can be very challenging. To give yourself the best possible chance of reaching your retirement goals, steer clear of the following eight big blunders whenever possible.

Having no strategy. Yes, the biggest mistake is having no strategy at all. Without a strategy, you may have no goals, leaving you no way of knowing how you’ll get there—or whether you’ve arrived. Creating a strategy will likely increase your potential for success, both before and after retirement.
Frequent trading. Chasing “hot” investments often leads to despair. Create an asset allocation strategy that is properly diversified to reflect your objective, risk tolerance, and time horizon; then make adjustments based on changes in your personal situation, not due to ups and downs in the market.
Failing to maximize tax-deferred savings. Workers have tax-advantaged ways to save for retirement. Not participating in your employer’s 401(k) may be a mistake, especially when you’re passing up free money in the form of employer-matching contributions.
Prioritizing college funding over retirement. Your kids’ college education is important, but you may not want to sacrifice your retirement for it. Remember, you can get loans and grants for college, but you can’t do so for your retirement.
Overlooking health care costs. Extended care expenses can undermine your financial strategy for retirement if you don’t prepare for it.
Failing to adjust your investment approach well before retirement. The last thing your retirement portfolio can afford is a sharp fall in stock prices and a sustained bear market at the moment you’re ready to stop working. Consider adjusting your asset allocation in advance of tapping your savings so you’re not selling stocks when prices are depressed.
Retiring with too much debt. If too much debt is bad when you’re making money, it can be deadly when you’re living in retirement. Consider managing or reducing your debt level before you retire.
Neglecting your overall well-being. It’s not all about money. Above all, a rewarding retirement requires good health, so be sure to maintain a healthy diet, exercise regularly, stay socially involved, and remain intellectually active.

Actis Wealth Management
www.actiswealth.com

What is the Value of Your Business?

April 1, 2015 by admin

Only 30 percent of all businesses put on the market for sale are actually sold, according to the National Federation of Independent Business.

As a business owner, ascertaining the value of your business is important for a variety of reasons, including business succession, estate tax estimates and loan qualification. There are a number of valuation techniques, ranging from the simple to the very complex. Outlined below are three different methods to placing a value on a business.

Asset-Based Method
This approach calculates the value of all tangible and intangible assets held by the business. It ignores the future earning potential of the company. Thus, a pure asset-based valuation model is often used for companies that are bankrupt or looking to liquidate.

Earnings-Based Method
This approach seeks to arrive at a business value by applying a multiple to normalized earnings – for example, earnings adjusted to subtract the owner’s compensation and related expenses. The multiplier can vary substantially, depending on the industry and the outlook for the business.

Market-Based Method
This approach compares the business to similar businesses that have recently been sold.

Business valuation is not simply a formulaic exercise. For instance, there is value in the business being a “going concern” as opposed to the start-up alternative. Ownership percentage also matters, and purchasing a minority share that has limited control may result in a discount to the actual value. The prospects for the business also impact its value. A greater premium will likely apply to a company engaged in a leading-edge technology than one involved in a mature market.

Placing a value on a small business is not an exact science. Some aspect of the valuation may be debatable (such as the remaining life expectancy of a machine), while other aspects may be positively subjective (such as the value of the company’s reputation).

The true value of anything can only be determined when a willing seller and a willing buyer agree on a price of exchange. As a consequence, any valuation exercise may yield only a rough estimate.

Before moving forward with a business valuation, consider working with legal and tax professionals who are familiar with the process. A qualified business appraiser may also be able to offer some
valuable insight.

Actis Wealth Management
www.actiswealth.com

Planning for Special Needs Children

April 1, 2015 by admin

It’s been said that the best inheritance we can give our children is a few minutes of our time every day. It’s also true, though, that our children will not always have us in their lives.

Children with special needs may require lifetime assistance, which can necessitate that parents prepare for their child’s care after they are gone, or are unable to care for him or her any longer.

Envisioning a Life Without You

Parents have to think about the potential needs of their surviving child. Will he or she require daily custodial care? Ongoing medical treatments? Will your child live alone or in a group home? Can family assume some of the care? Answers to these and other questions can help form the vision of what may need to be done to plan for your child’s care.

Planning Your Estate

Supporting lifetime needs can outstrip your resources. One funding resource is government benefits, which your child may qualify for when he or she becomes an adult, e.g., Supplemental Security Income (SSI) and Medicaid. Because such government programs have low asset thresholds for qualification, you may want to consider whether to make property transfers to your special needs child.

Ensure you have an up-to-date will that reflects your wishes. Consider creating a special needs trust, the assets of which can be structured to fund your child’s care without disqualifying him or her from government assistance.

Involve the Family

All affected family members should be involved in the decision-making process. You will want a united front of surviving family members to care for your child after you’ve passed.

Identify a Caregiver

In order for a caregiver to make financial and healthcare decisions after your child reaches adulthood, the caregiver must be appointed as guardian. This can take time, so contemplate starting early. Consider a “Letter of Intent” to the caregiver and family to express your wishes, along with information about your child’s care. This isn’t a legal document, but it may help to communicate your desires. Store this letter alongside your will in a safe place.

Planning for a special needs child can be complicated, confusing, and even overwhelming. Be sure to work with qualified professionals to help you navigate the myriad of considerations that are part of this challenge.

Actis Wealth Management
www.actiswealth.com

Orchestrating Your Retirement Accounts

April 1, 2015 by admin

An orchestra is merely a collection of instruments, each of which brings a unique sound.

It is only when a conductor leads them that they create the beautiful music imagined by the composer. The same can be said about your retirement strategy. The typical retirement strategy is a built on the pillars of a 401(k) plan, an IRA and taxable savings. When the instruments of your retirement planning work in concert, they have much greater potential to create the retirement you desire.

Hierarchy of Savings

Maximizing the effectiveness of your retirement strategy begins with understanding the hierarchy of savings. If you’re like most Americans, the amount you can save for retirement is limited. Consequently, you may want to make sure that your savings are directed to the highest-priority retirement funding options first. For many, that hierarchy begins with a 401(k), followed by an IRA, and after that, taxable savings.

You will then want to consider how to invest each of these savings pools. One strategy is to simply mirror your desired asset allocation in all retirement accounts.

Another approach is to implement the income-generating portion of the allocation (e.g., bonds) in the tax-deferred accounts, while investing in assets whose gains will be from capital appreciation (e.g., stocks) in the taxable accounts.

Withdrawal Strategy

When it comes to living off your savings, you’ll want to coordinate your withdrawals. One school of thought recommends that you tap your taxable account savings first so that your tax-deferred savings will be afforded more time for potential growth. Another school of thought suggests taking distributions first from your poorer-performing retirement accounts since this money is not working as hard for you.

Finally, because many individuals have both traditional and Roth accounts, your expectations of future tax rates may affect what account you withdraw from first. If you think tax rates are going higher, then you might want to withdraw from the traditional before the Roth. If you’re uncertain, you may want to consider withdrawing from the traditional up to the lowest tax bracket, and then withdrawing from the Roth
after that.

In any case, each person’s circumstances are unique and any strategy should reflect your particular risk tolerance, time horizon and goals.

Actis Wealth Management
www.actiswealth.com

Planning for the Future — What Motivates You?

April 1, 2015 by admin

The truth is there is ample motivation to make the most of retirement planning opportunities.

Reality Check

It used to be that Americans could count on a pension plus Social Security to get them through their Golden Years. But traditional pensions only account for an estimated 18% of the total aggregate income of today’s retirees, and Social Security accounts for only about 38%. Alas, the responsibility for the bulk of your nest egg now rests with you.

As you begin thinking about a comfortable retirement, consider that by most estimates you’ll need at least 60% to 80% of your final working year’s income to maintain your lifestyle after retiring. And don’t forget that your annual income will need to increase each year — even during retirement — in order to keep up with inflation. At an average annual inflation rate of more than 3%, your cost of living would double every 24 years.

You’ll also have to consider the likelihood of increased medical costs and health insurance premiums as you grow older. The average cost of a year’s stay in a semi-private room in a nursing home, for instance, is now over $80,000 a year and could rise more than $130,000 per year by 2030, assuming an annual inflation rate of 3%.

Getting a Leg Up

If this dose of reality makes you glum, cheer up — you have some allies. Investment vehicles, such as your employer-sponsored retirement plan and individual retirement accounts (IRAs), allow you to put off paying taxes on your earnings until you begin taking withdrawals, typically during retirement when you may be in a lower tax bracket.

Additionally, time can be an ally — or an enemy. Delaying the process of investing can significantly reduce your results. Consider this example: Jane begins investing $100 a month in her employer-sponsored retirement plan when she’s 25. Mark begins investing the same amount when he’s 35. Assuming an 8% annual rate of return compounded monthly, when Mark retires at 65, he’ll have $150,030. Jane will
have $351,428.

While this is only a hypothetical scenario and there are no guarantees any investment will provide the same results, you can see the remarkable difference starting early may make. But no matter what your age, contributing the maximum amount to your employer-sponsored retirement plan and IRA each year could help you achieve the comfortable retirement that each of us desires.

Actis Wealth Management
www.actiswealth.com