My suggestion is to keep going forward focusing on the basics....saving more than you spend, diversifying into "non-correlating" assets and being well protected.
I've read Kiplinger's for years. It's a great magazine.
Great question Cliff, and one we have been getting from clients often. As it looks like taxes for earners under $250k may have little change, we are not advising much change from a tax standpoint. However for upper income earners, we may advise them (once this gets figured out) before years end to capture some capital gains. This is only if rates for these income holders are raised. We may also advise keeping dividend paying stocks and mutual funds in retirement accounts, as qualified dividends for upper earners may jump to ordinary income rates (from currently 15%). As for your portfolio and re-balancing, it depends on your age and life stage. If you are near retirement and have too high a stock allocation, it may not be a bad idea to pare down. However this is a tough question to answer without all of your information.
As we approach the end of the year, there may be tax planning opportunities to employ, in cooperation with the advice of your tax advisor. Possible actions to consider include realizing capital gains in your portfolio, paying your state income tax and property tax in 2012 rather than waiting until January 2013 and paying medical-insurance premiums or other deductible costs in 2012, if they are large enough to surmount the 7.5% hurdle.
Some solid, actionable advice. Thanks, Wendy and Rich.
You should always consider rebalancing once a year, I would not hold off on stocks as a general rule, most clients will be invested somewhat their entire lives, and doing nothing is closer to the right thing until we get more clarification. I do think it's prudent though to bring more income into 2012 while we know the rates are low.
I think Randy's point is important. It's not too exciting to say, but most of the time, the basics work out really really well. One reason they don't work out as often as we'd like is the discipline of following the basics is challenging!
Alright, let's go ahead and move on to our next question from Ben
Assuming this is long-term money...consider a little of both. If one zigs, the other may zag. Overall, they could compliment each other.
Hi Ben, I hope my answer doesn't frustrate you. I am assuming that you need to take possession of money within 30 days and perhaps do not have to 'do something' with it in that time period. If that's true, then take all the time you need to evaluate a decision in the context of your overall investment and life goals. Put the money in a savings account until you are comfortable with a decision. Precious metals can be a good addition to a portfolio but without knowing much, much more, that's all I can add.
Ben, I am not sure why you have to do something withing 30 days, but precious metals are not what we would recommend, you should try to balance this new money with your current investment allocation. If you need time, but it in a short term bond fund while you sort it out.
Depending on your other assets, holding a small portion of your assets in precious metals is a good idea. This adds an extra asset class to your portfolio. However, I would advise not
letting that percentage get more than 5% or so. For long term investing we recommend a buy and hold strategy with stocks and bonds. An allocation that mirrors your risk profile and life stage.
Thanks, all. Good advice about not rushing too much
Alright, here's our next question from Mark.
Hi Mark, did you happen to use software to complete the return? If so, it should have alerted you to the threshold. If not, take your return to a competent local CPA who can review it for you and while you're there, get any other tax questions answered that may be on your mind. This kind of time spent with a professional can be worth much more than you pay for.
Mark, The ability to contribute to a Roth IRA depends on modified adjusted gross income, which I believe is adjusted gross income adding IRA deductions, student loan deductions, exclude foreign income, etc. For 2011 if this number is below $169,000 you can contribute fully.
Mark - I agree with Bonnie, but in the meantime, I believe the limit was $179,000 for no contribution, $169,000 for partial contribution allowed. It would be your MAGI (Modified Adjusted Gross Income) on page one of your return.
Thanks, Randy and Mark. That should give Mark a good starting point.
Ouch. I'm sorry the paid professional failed you. I quickly did a search at www.irs.gov and see that publication 590 should have the forms and worksheets for you to calculate this. You would then complete the associated paperwork. I would seek recourse with your CPA - they usually pay the interest and fees on something that is their error and you would simply pay the taxes that would have been due anyway. Good luck.
Here's our next question from Lee
Lee, If this is normal retirement age, we would recommend investing in a balanced portfolio, leaning more towards bonds, probably short term. Try to figure out how much you will be needing from your retirement accounts monthly and keep that amount in cash for one year worth of needs. Stock funds not individual stocks to answer your specific question. With all that is going on in our economy now, you might feel more comfortable with a managed fund vs and index fund. There are lots of terrific managers out there, try using Morningstar to pick a few.
Hi Lee, it's a good question. I encourage clients to invest in stock funds throughout their lives primarily in an effort to overcome inflation. The percentage of your assets that you would put in stock funds however is an individual judgment. Most of my retired clients have a 50% income/50% stock fund allocation. I also encourage low cost stock funds over individual stocks simply to reduce exposure of a particular stock. Many of my clients do keep an account on their own that is less than 5% of their overall wealth where they try their hand with individual stocks. By relying totally on cash or bond investments, you run a good risk of losing purchasing power to inflation. Remember from the earlier conversation, however, that managing your cash on an annual basis is critical to good retirement planning.
Lee - If your question is just whether to invest in individual stocks or stock funds, unless you have the time and ability to pick stocks really well, consider going with allocation funds (a little of everything). In any case, go to the website of the firm you have your account with and run their retirement calculator. It may help with your overall picture rather than just the question re stocks.
Hi Lee, Congratulations on your pending retirement. Diversification is important at this stage in your life, and investing in individual stocks may not provide sufficient diversification for your portfolio. You may want to consider Exchange Traded Funds, which can provide the timing and liquidity of stocks, as well as diversification of mutual funds, but with lower expenses. Be sure to review your overall asset allocation in the context of your cash flow needs and risk tolerance. Bonds and other fixed income investments may need to play a role in your portfolio.
Thanks, all. Sounds like Lee has several good options. But in general, steer away from individual stocks?
Yes, for one thing, the portfolio is not the right size to absorb a bad pick as well as commissions
Absolutely, Debbie. Thanks.
On individual stocks it sometimes seems like there's an itch there that needs to be scratched. If that's an issue for an investor, then address it by taking a teeny amount of $$ and trying your hand at it. That cures most folks and never harms their ability to preserve and grow wealth.
I like that idea. Thanks, Bonnie.
Alright advisors, ready for the next one from Ben?
Are referring to buying the tangible metal itself?
If so, you can have gold in an IRA but it's a pain. If not, consider just keeping the money in your IRA and buying a precious metals ETF.
Hi Ben, not sure how to type a sigh :), but here goes. Try not to hurry any investment decisions. Most clients of advisors never have financial emergencies of an investing nature. Do you have a plan you are working off of where there is an open spot after covering the basics and you are looking for something to fill it? If so, then researching and learning about precious metals is a good place to start. The best protection against a market crash is having adequate cash, living below your means, and continuing to save under all economic conditions.