4-minute Money Ideas

What Percentage of Your Retirement Portfolio Should Be Bonds? How should you invest your retirement portfolio if you want it to both grow and have little risk? Are bonds appropriate for preparing for retirement?

Does Investor Bias Make You Underperform the Market? By Douglas Goldstein CFP® - helping olim handle their U.S. investments from Israel A friend recently had a losing streak at the casino. Instead of walking away, he played more hands of blackjack. “I was determined to win,” he lamented. In fact, he was playing to recoup his losses. He was a victim of investment biases subconsciously affecting his decision-making. Gambler’s Fallacy – the belief that after a streak of losses his luck would turn – duped him into doubling his losses. A recent study of Major League Baseball umpires showed how biases are at work in all forms of decision-making. In 1.5 million pitches, umpires were less likely to call a strike if the previous pitch was a strike. Investor bias can lead you to make bad investing decisions. Biases are shortcuts in decision-making; you may, for example, increase your position in gold stocks because you have recently made a lot of money in gold, ignoring economic news that suggests gold prices are li

Should You Follow Investment Trends or Bet against the Masses? By Douglas Goldstein CFP® - helping olim handle their U.S. investments from Israel Today, many “investment trend” websites are enticing online traders to join. Investors who follow the trend – also known as “momentum trading” – invest in stocks based on rising market prices rather than company fundamentals. The strategy of following the investment trend performs best in a bull market. However, selling before the trend reverses is a skill that eludes most investors. When many investors buy the same stock, the market price can rise above the underlying value of the company. Eventually, as investors’ emotions stabilize, rationality may return, and prices fall into line with the fundamental value of the company (based on measures of revenues, earnings, etc.). Short-term momentum players who try to time market fluctuations seldom outperform buy-and-hold investors in the long term. The trend can be a false friend Herding behavior, whereby investors irra

Do You Look at the Risk-Reward Ratio of Your Stocks and Bonds? By Douglas Goldstein CFP® - helping olim handle their U.S. investments from Israel The risk-reward ratio is an attempt to quantify the amount of risk you need to take in order to get an anticipated return from any investment. If you were to only consider past returns when deciding whether to invest in stocks or bonds, stocks would appear to be the clear winner. From 2007 to 2016, stocks had an average annual return of 9% versus about 5% for 10-year U.S. Treasury bonds. If past returns are your only measurement of performance, then perhaps you should consider high-yield corporate bonds. This year, Harvard University’s endowment fund made its largest allocation to a high-yield corporate bond exchange traded fund (ETF), which had a one-year return (through March 2017) of 13.4%. Risk vs return Prudent investors know that past performance is not a guarantee of future returns, and instead of chasing last year’s returns they start by looking at their o

Can Optimism Increase Your Investment Returns? By Douglas Goldstein CFP® - helping olim handle their U.S. investments from Israel Are your investment returns determined by your worldview? Are people hardwired to be pessimists? Millions of years ago, if an optimistic caveman dismissed a rustle in a bush as the wind blowing, our ancestor may have ended up as a tiger’s lunch. As a result of this early conditioning, the part of our brain called the amygdala scans everything we see and hear for negative news. But according to Dr. Peter Diamandis, the founder of the coveted X Prize for Technology Innovation (and guest on The Goldstein On Gelt Show), this bias is more of a short circuit rather than an intelligent system design. He claims that in life and investing, it pays to be an optimist, as humans pay ten times more attention to negative news than positive news. Why optimism outperforms Technology is changing our lives for the better. A cursory list of human accomplishments over the past 100 years shows the futu

How to Safely Boost Returns in a Low Interest Rate Environment By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel To the dismay of yield-seeking investors, interest rates remain at historic lows. Although rates on long-term bonds may begin to inch up, analysts generally expect that we may remain in a low-interest-rate environment for a while longer. So, what are income investors to do? It is important to understand the risks of reaching for higher yields and realize there may be less risky ways to increase income. It’s all about the Risk-Reward Relationship When investing for any purpose, returns always boil down to the risk-reward relationship. The laws of investing dictate that it is very difficult to increase your return without also increasing your risk. While you can increase your yield by investing in lower-grade or longer-term bonds, you also increase your risk should interest rates suddenly rise. To learn more about how bonds react to interest rates, watch a short video

Secrets to a Financially Strong Marriage By Douglas Goldstein, CFP® - helping you handle your American investments Displayed prominently in our living room is a list titled, “Abba’s Secrets to Success” Now, as my oldest daughter is about to get married, I’ve compiled “Abba’s Secrets to a Financially Secure Marriage” for her and her groom. With their permission, I’d like to share it with you: 1. Be completely honest – Open communication is better than financial infidelity. Hidden spending not only damages your future goals but erodes trust. Discuss money regularly, not just when you have a big bill to pay. 2. Work on joint financial goals – Don’t fall into roles of good cop/bad cop where one of you wants to spend and the other wants to save. You’re merging your lives; now merge your money. There is no such thing as “my” money – no matter who brings home the paycheck, consider it “ours.” 3. Live below your means – Accumulating “stuff” is expensive. Create a budget and stick to it. Review your spending/saving g

Do You Have to Stop Working When You Reach Retirement Age? By Douglas Goldstein CFP® - helping olim handle their U.S. investments from Israel Does reaching retirement age mean you have to stop working? In Israel, the official retirement age for a man is 67. For women, it fluctuates between 60 and 62, depending on date of birth. Retirees until the age of 70 (or 69 for a woman born before 1950), are eligible for a state pension, but entitlement is affected by additional sources of income. From 70 onwards, a state pension is given regardless of other income. So what is the best age to retire? Before making a decision, ask yourself the following questions: Are you physically able? As you age, your regular routine may become tiring. You may also develop health issues that make working full time difficult. So before you decide to keep on working, make sure that it’s realistic. In your retirement plan, make provisions for the possibility that future health problems may affect how long you can work. Why do you

How to Prepare for the Next Stock Market Crash By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel Over the past several years, the market has climbed to historic highs, prompting analysts to sound the alarm over the next stock market crash. While I can’t say when the next crash will occur, I can say it’s reasonable to assume that there will be another stock market drop at some point. How can you prepare for it? Market crashes are inevitable Crashes are more about the speed of decline than its depth or duration. The Flash Crash of 2010 saw the market plunge 1,000 points in minutes. In the 2008 crash, the market fell more than 20% within days. The good news is that each time the market crashed, it fully recovered and went on to greater gains. In 2010, it took a couple of days to recover, while in 2008 it took about 17 months. Past performance is no guarantee of future returns. Every bull market (market rally) leads to some sort of correction. Corrections are defined as declines o

Debunking 3 Myths About Not Needing an Emergency Fund By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel One of the most fundamental principles of financial planning is to prepare for the unexpected by keeping three to six months’ worth of living expenses in an emergency fund. The trouble is many people succumb to the myth that emergency funds aren’t necessary because you can always withdraw from savings. Here are 3 myths about emergency funds and why they are wrong: The best place to keep an emergency fund is in your investment portfolio Yes, an investment account is technically marketable; and it can provide you with access to cash should you need it. However, you can lose real money if you are forced to sell assets at the wrong time. Imagine selling off $5,000 of your equities to cover an emergency expense after the market has declined 25%. It could take you years to gain that back. Better to have that money sitting in a low-yielding money market fund. Read this blog post to

Short on Retirement Savings? Here’s What You Need to Do By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel More than 10,000 baby boomers cross the retirement threshold every day, and nearly one in four of them of haven’t saved enough to retire comfortably. If you’ve reached that point and realize your retirement savings won’t last your lifetime, it’s time to have an uncomfortable conversation with a financial advisor because there are several things that need to be done. But it all starts with having a plan. Create a realistic plan Establish realistic goals based on what you expect to happen. That should include a new time line for critical milestones, such as when you expect to stop working, when to start Social Security and Bituach Leumi, and when (or if) you will need to begin digging into your capital. Crunch the numbers to come up with a pre- and post-retirement spending plan as well as an investment strategy to maximize your income and capital growth. Start living like a r

How to Keep Financial Harmony in Your Marriage By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel What’s the best way to achieve financial harmony in a marriage? When two people get married, they don’t only join their lives together, but also their money. If differences in money attitudes and practices are not addressed early on, people can become set in their ways, making it more difficult to overcome any disagreements. However, where there is love, there are also ways to heal the financial divide. Find shared values and purpose Couples need to come together with a shared vision of their future based on joint values. If they share a mission and purpose, their decisions will have greater clarity and conviction and it should be easier to maintain financial harmony. Shared goals can provide the motivation to spend/save according to an agreed-upon plan. Create a plan At the core of any successful enterprise – be it a business or marriage – is a spending plan or budget. With shared

What You Should Know About Low-Risk Investments By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel Recently, a new client told me that his portfolio mostly contained low-risk investments. When I saw that the majority of his investments were mutual funds, I asked him why he believed mutual funds were “low-risk,” as his funds contained stocks. What he was missing was the mutual funds contained stocks which are risky, so even though the funds were diversified, he was exposed to a lot of risk. What is a low-risk investment? An example of a low-risk investment is a bank deposit, or CD (certificate of deposit). A CD pays a fixed interest rate and matures on a specific date. It is “safer” than a stock, the value of which can fluctuate dramatically, since if the CD investor holds the CD until maturity, he knows he’ll get his principal and interest paid in full. Investors looking for a low-risk investment that produces income choose CDs because they pay interest on the original deposi

Can I Safely Withdraw My Principal in Retirement? By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel As a cross-border financial advisor, one question I hear nearly every day is, “Can I afford to withdraw my principal in retirement?” For most of my clients, the short answer is, yes, but it is important to know how much and from which accounts you can dip into your principal. When withdrawal is part of a strategy The financial planning industry’s “4 Percent Rule” is commonly applied in determining how much principal you can draw down annually without risking outliving your money. Based on historical worst-case scenarios for a portfolio allocation of 60% stocks and 40% bonds over the last 100 years, 4% is considered a safe withdrawal rate in most situations. However, since each person’s situation is different, don’t rely on a rule of thumb as customized financial plan. A simple calculation to determine how much capital would be needed to generate a desired level of income using th

How to Invest When You Can’t Predict Market Direction By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel If you’re thinking of investing in stocks but you’re concerned about which direction the stock market will move, here’s what you need to know: If you are a new investor with a long-term perspective, it shouldn’t matter which direction the stock market moves in the short term. What you should know is that a bull market (up market) generally follows a bear (down) market. On average, bear markets in the United States last about 11 months, while bull markets average 32 months. In the past, the average bear market decline was 27%, while the average bull market gain was 119%, though past performance is no guarantee of future returns. Remember that historically down markets were temporary. More importantly, not only does a bull market erase declines, but in the past, the gains of the previous bull market were extended significantly. Will it always be that way? Unfortunately, no one

Why You Need to Talk to Your Adult Children about Your Finances By Douglas Goldstein CFP® - helping olim handle their U.S. investments from Israel Do you find it difficult to discuss with your adult children what should happen with your finances towards the end of your life? If so, you’re not alone. People don’t like thinking about their own mortality or losing control. Moreover, as family relationships aren’t always easy, discussing issues such as power of attorney, healthcare proxies, and estate planning can get very complicated. For these reasons, many families push off this conversation for as long as possible. If you don’t speak with your adult children about your finances, they may have difficulty picking up the pieces and taking care of you and your affairs if you become too infirm to take care of yourself. The emotional and monetary effects of taking care of an elderly parent without any direction can be very hard, especially if your adult children are raising families of their own at the same tim

Steps You Need to Take 5 Years before Retirement By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel Will you have “enough” money to live comfortably? The months and years before retirement may be filled with trepidation and financial worries. In order to minimize financial concerns before retirement, here are some steps you should take in the five years leading up to it: Organize your assets for tax efficiency Most retirees underestimate the impact taxes will have on their retirement income. If you have an idea of what your retirement tax bracket will be, work with your advisor to arrange your assets in a way to create the greatest tax efficiency when you start withdrawing. Selling assets might trigger large capital gains taxes, and there may be additional taxes on pension payments. Know your pension options For some people, delaying taking Social Security or other pensions until as late as possible might make sense. Learn more about timing claiming benefits at: Profileperspecti

How to Choose the Right Financial Advisor for You By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel Choosing the right financial advisor can be like seeking the right life partner. Your financial advisor needs to be the perfect match for you and your situation. Your advisor must be knowledgeable, honest, reliable, and, most importantly, have your best interests in mind. There are many financial professionals, who all offer a range of services and expertise. How should you choose? When considering whether to work with a prospective advisor, ask yourself these questions: Is this financial advisor qualified? Before you set foot inside a financial advisor’s office, make sure that he is licensed and has expertise with the types of investments that interest you. You can check out his qualifications, background, and experience through the online checking facilities provided by FINRA (Financial Industry Regulatory Authority) in the United States and ISA (Israel Securities Authorit

What You Need to Know About Rolling Your 401(k) to an IRA By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel When you change jobs, everything you need to take with you can be neatly packed into a box – except your retirement plan. When you leave your job, you need to think about rolling your 401(k) into an IRA (Individual Retirement Account). If you left your job to make aliya, this question becomes even more crucial, as cross-border financial regulations come into play with keeping the tax-beneficial status of American retirement accounts. What are your options? If you leave your American job to move to Israel, you have four options for your 401(k): • Keep the money with your former employer’s 401(k) plan, • Roll your funds into an IRA, • Roll your money into your new employer’s plan if it’s allowed, • Cash out your 401(k) plan by withdrawing all your money (not recommended). The best course of action depends on your financial situation, your attitude about managing your own

How to Make a Good Investment Decision By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel Since one person’s good investment choice may be a huge mistake for someone else, what factors should you consider when deciding upon a potential investment? In investing, the only hard and fast rule is that past performance never guarantees future returns. Though you should try to understand why a security acted in a specific way in the past, the most important thing you can do is make sound decisions based upon your personal situation. To help you make an even clearer decision, use an investment evaluation tool like the one available at Profile-Financial.com/investment-evaluation All too often, folks lose money as a result of not asking the right questions. So, when deciding what to invest in, ask yourself: What is your net worth? Why is knowing your net worth important? Before you invest your money, you need to know how much you really have. This doesn’t only refer to savings, but