Financial Articles

Tips on Rebalancing Your Portfolio in Your 30's, 40's, and 50's

 Rebalancing your account serves as a wellness check-up for your investments. Typically comprised of US and foreign Stocks and Bonds, REITS, and cash reserves, your portfolio’s asset allocation determines your overall exposure to risk and has the largest impact on your returns.

Stocks are generally viewed as a high-risk, high-return asset. Bonds and treasury funds, on the other hand, are typically less volatile; meaning they’re less risky, more “safe”, and will thus likely produce smaller returns.

It’s vital to rebalance your account at least once a year. Our clients’ accounts are generally rebalanced quarterly. Rebalancing realigns your portfolio to match your investment targets; an unchecked portfolio can seriously impact your overall portfolio risk volatility and long-term returns.

Automatic rebalancing is a great opportunity to stay emotionally disconnected from your portfolio and allow your account to thrive by process. Rebalancing requires you sell high, and buy low. Thus, when a particular investment performs well and becomes a larger part of the portfolio, you sell part of it while it is favorably priced and buy assets that have become cheaper.

Leading investment research firm Morningstar suggests setting parameters for when to rebalance. Perhaps resetting when core asset classes shift as much as 3-5 percent.

The larger portion is sold to realign the portfolio and with the proceeds you purchase the part of the portfolio that has done the worst or become proportionally smaller.

To show you just how much rebalancing can affect your overall portfolio value, take a look at the graph below. With the same $10,000 investment, a rebalanced account ends at $97,000 while an unbalanced account ends at $88,000. All else equal, that’s a nearly $10,000 difference.

Just as your needs, wants, and goals shift with each passing decade, so should your asset allocation. Your investment strategy in your 30’s will likely be significantly different than in your late 50’s. The goal is to adjust your allocation accordingly.

The older you get the less attractive high-risk, potentially high-reward stocks are and the more attractive bonds, with stable returns, seem. The last thing you want is to be a few years away from retirement and have your portfolio lose substantial value due to swings in the stock market.

The key is to ensure you don’t become overexposed or underexposed to either equities or bonds prematurely. As equities likely increase in value over time while bonds stay relatively fixed, your account holdings will naturally shift if left unchecked.

In your 30’s: it’s advised to invest fairly aggressively to use time and the power of compound interest to grow your account. You still have 20+ years to weather market downfalls.

In your early 50’s, pay close attention to how markets are performing. Your 40’s are often considered your “peak” earning years, therefore it’s important to keep investing aggressively but to begin shifting asset allocation to a 60/40 split of equities to bonds.

In your late 50’s/early 60’s, Assess where you are. How close are you to retirement and how much volatility can you tolerate? This may be a wise time to think about starting to shift your portfolio to hold relatively higher percentage of short-term bonds as you will have less time to recover from big falls in the global stock market.

Martin Watkins is the CEO and Certified Financial Planner® at the Salt Lake City based wealth management firm, TrueNorth Wealth.
His team directly manages $350 million and are Investment Fiduciaries on over $10 billion.  

TrueNorth Wealth is a financial and wealth management firm specializing in personalized financial guidance to individuals and businesses.

For a free financial consultation, please call TrueNorth Wealth: 801-274-1820 or  

Expect the Unexpected

 The need for different strategies behind managing your wealth and investments.

The strategies behind managing your wealth and investments require vigorous planning. With the help of a good wealth manager, investors can finally understand the complex jargon that can make finance feel like rocket science. .

“Our goal is to explain financial markets to clients in layman’s terms and break down a lot of walls to teach them strategies and costs to use their wealth for the client’s wanted purpose,” explained Mark Axmacher, managing partner and founder of Capella Wealth Management.

Axmacher brings sophisticated advisory services to individuals, families, and institutions through holistic financial planning and investment management. This is accomplished through broker-dealer LPL Financial and a strategic alliance with SEI to keep clients up to date on their investments and protect their portfolio.

Axmacher noted that client financial literacy remains a challenge, and he works to aid investors by finding the optimal strategy in case of any unexpected issues.

A new way of getting the public educated is through online advisories, with more online tools such as educational apps available to help develop a more savvy investor.

“Robo-advisors can give people the ability to learn, and help people become more aware and confident with managing finances before and while they work with an advisor,” Axmacher told The Suit Magazine. “It’s a great way for someone to learn the ropes and build up confidence.”

Axmacher said the goal is to make his clients feel comfortable; he looks to build relationships over profitable investments. And he believes empathizing with clients and understanding their needs is the best way to start a relationship that will survive unexpected events and down markets. Also, any plan will go off course, and knowing the client makes correction in crisis that much easier.

The future may be unpredictable and investors must prepare for the most choppy market conditions to still meet their financial goals. Axmacher and those at Capella Wealth Management prioritize educating and aiding clients in their investments, as well as how to stay afloat when the market seas are the most volatile.

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No strategy assures success or protects against loss. Investing involves risk including loss of principal. Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Capella Wealth Management and Great Valley Advisor Group are separate entities from LPL Financial. 

Growing Old Is Inevitable, Growing Up Is Optional

 Garnering the wisdom and knowledge for developing a solid retirement plan doesn’t automatically come with age. The planning process requires the good advice of a wealth advisor. Eventually the client and the advisor must work hard together to chisel out a well-tailored retirement plan.

Investors also don’t grow savvy when they reach retirement unless they put in the time to understand how their money works. The market can be chaotic, investment products can present unexpected complexity for lay investors, and a trained advisor often is needed to guide newcomers in getting started.

“The 401(k) plan is also one of those investment tools that isn’t set-in-stone for clients who need to be savvy in order to save for retirement” exerted Brian Lockhart Chief Investment Officer of Peak Capital Management, LLC.

Peak Capital Management, LLC, is a Denver-based firm that provides a research-driven and team approach to portfolio management. The company believes effective portfolio management begins with understanding each client's goals and integrating this into every investment decision.

“A lot more work needs to be done on creating plain English disclosures to 401(k) participants, and really all investors in general,” Lockhart said. “We should be treating anyone with an IRA or a brokerage account in the same way as a 401k participant.”

Case in point for market complexity – 401(k) disclosures. Many investors think the current disclosures require everything to be in black and white, but it’s not as straightforward as they assume.

Lockhart believes there is too much interpretation needed within a 401(k)’s rules and regulations, and not enough people know how to interpret it. Advisors such as those in Peak Capital Management have the proficiency needed to decipher these rules.

“The disclosures are not written in plain English that allows the general public to understand. There remain a lot of hidden costs that are not disclosed in a manner in which the average client can comprehend,” Lockhart told The Suit Magazine.

With many Americans relying on a 401(k) as their primary investment tool, disclosure changes will be necessary in coming years. Until then, investors will need a trustworthy advisor like Lockhart, who knows the ins and outs of retirement savings, 401(k), and other worthwhile products that can help clients make it across the finish line and enjoy their golden years. It’s easy to be lead astray by confusing disclosures and advisors driven by self-interest, conveying the need for a trained advisor.

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Having dreams of Living Large

 Spending and bankrolling hard currency like you're a member of the seven-figure club has inspired investors to live with the highest hopes, big dreams and ambitious goals of striking it big in Corporate America. Oftentimes, a client hungers to roll the dice and land that golden piece real estate property so they can retire early and trek around the world in 80-days.

But, sometimes, the voice of wisdom kicks in. And their stoic wealth advisor says, “no,” urging them to squirrel their money away in a safe portfolio investment and save those grandiose dreams of great riches for another day.

“As advisors, it’s not always ‘You can do this,’” said James V. Petitpren II, CEO of Green Stone Belt Wealth Advisors, an Illinois-based wealth management firm. “Often you have to step up and say, ‘Listen I understand you want to do this, but here’s the reality of where your finances are.’”

Green Stone Belt Wealth Advisors provides retirement, investment, and estate planning services to high-worth clients and their families. The firm doesn’t want hundreds of clients, but instead cultivates strong relationships and develops customized solutions for a core group of investors who trust Petitpren and his team to grow their wealth and help them achieve their goals. Helping clients achieve their goals often means being candid, Petitpren said, and his firm looks for clients who want advice.

“As an advisor it’s very easy to agree with the clients and tell them what they want to hear,” Petitpren told The Suit Magazine during a recent interview. “I think a lot of advisors out there over-promise in an effort to gain business as opposed to being true advisors.”

Advice becomes even more crucial for clients moving up the wealth curve. Investment choices become more numerous, fees can be more complex, and many advisors might not be up to the job of handling a high-net-worth investor’s finances. Green Stone Belt Wealth Advisors is there for investors who feel like they have outgrown their existing wealth management platform, often working with clients who left the financial giants to get a more personal experience.

“For us, it’s providing the right value to the family,” he said. “We’ve been doing this long enough that we really appreciate families that really appreciate advice.”

Part of providing that personal experience is breaking down the complex industry jargon into language clients can understand.

Navigating the new technological landscape with clients is vital as well, Petitpren said. Unlike in the past, today’s investor is bombarded with a constant stream of information. He believes that the relationship between the advisor and client must ultimately meld to the old way of doing things with the new technological changes occurring in modern-day America.

“Somewhere between the old way and the new way is where advisors and clients (must find new methods) to be successful,” Petitpren said, noting that clients can benefit from access to more information. “The massive amount of information that’s out there—is ultimately helpful.”

Those investors who turn to Petitpren because they’re entering the seven-figure club and need the best advice can rest assured that he wants to cut to the chase, find what works for them, and work toward building them a sustainable future. Keeping money safe is more than about caution – it’s about comfort, preparing for the future, and getting from point A to point B successfully.

“Ultimately our job is to manage money, but to also make sure they have comfort,” Petitpren said, adding that financial terms often muddy the waters and don’t get at what matters to the client. “People care about how much they are starting with, what the returns are … and is it appropriate to them?”

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The Changing Financial Landscape

 While most investors factor inflation into their retirement plans, many of today’s retirees fail to realize that their money won’t last as long as their parents’ did.  Extended periods of lower growth and lower yields combined with rapidly increasing healthcare costs can shorten the lifespan of a $1 million portfolio—assuming it’s constructed using the standard 60 percent stocks and 40 percent bonds formula—by 5 years. That means retirees run out of money in 25 years, not the 30 they planned for.

With life expectancy rising and more people pushing the upper-90s, this is bad news for investors. Investors can expect to live longer, but their hard-earned savings will be consumed sooner—so what’s the solution?

Marguerita Cheng, CEO of Blue Ocean Global Wealth, said investors need to take charge of their retirement planning long before they turn 65. The best time to discuss housing, longevity, long-term care plans, and stretching Social Security checks is long before retirement, when there’s still time for proactive, corrective action.

Sometimes, postponing retirement is often the smartest choice. Just two additional years earning income stretches retirement funds by four years, Cheng explained, adding that previous generations could usually rely on a pension to provide income, even when long-term care costs were needed.

“Things have changed,” Cheng said. “People are assuming more responsibility for their retirements.”

This fundamental shift away from employer pensions toward self-funded retirements has also created a vacuum for regulators.

Cheng explained that since today’s 401(k) plans did not exist at the time the original DOL rule was issued forty years ago, the changing tide toward IRA investing equates to implications throughout the industry, including a push for fee disclosures and mandated fiduciary standards.

“Today, more than 40 million Americans have a lot of their savings—more than $7 trillion—in IRAs,” Cheng added. While fee disclosures have helped, Cheng would like to take them a step further by adding context, including risk measures, so investors could evaluate investment options more effectively.

“An index fund has the lowest expenses, but you will earn index returns,” she said. “A managed fund may have higher expenses, but in certain market conditions may offer more downside protection.” 

The DOL rule essentially toughens fiduciary standards to include knowing a client’s overall financial situation, including individual needs, risks and goals. According to Cheng, a financial planning relationship is the best way to meet the new DOL requirements while enabling clients to realize more favorable retirement outcomes.

Cheng enjoys sharing knowledge with all her clients, but is passionate about helping women and members of the diverse and multi-cultural who often feel overlooked by traditional financial services companies.

As the financial services landscape becomes more complex and overwhelming, Cheng fears the people who most need to be protected and helped are the ones with the least access to sound advice.

Cheng, who also mentors minority women entering the financial services profession, said, “We spend a lot of time with the foundation so clients can gain clarity, confidence and control of their finances.”

Clarity empowers them, confidence gives them the ability to act, and control enables clients to make decisions about how and where they invest in an otherwise uncontrollable market. Ultimately, Cheng wants to help clients see how decisions made in one area of their financial life can affect another.

Her philosophy is to teach people the importance of saving with the knowledge to invest. Saving, she said, builds good habits and helps people stay out of debt, but building wealth comes with investing.

“If we really want people to build wealth, they have to invest in their future,” Cheng said. “They aren’t going to invest if they don’t feel comfortable. They aren’t going to feel comfortable if they don’t understand anything.” Cheng works to continuously educate her clients to have a greater breadth of financial literacy for investing, saving and managing cash flow.

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Millennial Generation Tech- Savvy and Smart

 After witnessing multiple economic tsunami’s in Corporate America, the millennial generation seems more apprehensive today than ever before about the stock market. In fact, they will benefit from the largest inheritance any American generation has ever received after the economic dust settles. Yet, millennials –who are the nation’s biggest generation ever— still remain skittish about investing, with many admitting that they fear the market.

Older millennials born in the early 1980s have lived through three major market crashes in their lifetimes: 1987, 2001, and 2008. Younger millennials, meanwhile, watched the 2008 financial crisis and resulting market chaos in real-time, and many likely saw their parents foreclose on homes, lose a job, or postpone retirement. A recent Capital One Share Builder study captured the results of this troubled financial upbringing in stark numbers, an overwhelming 93 percent of millennials responded that they either distrust or know nothing about the stock market, both of which were cited by respondents as reasons for not investing.

Still, many market watchers are bullish on the millennials, who are set to inherit more money than any previous generation. Additionally, the millennials quickly adapt to new technologies and rapidly become savvy when pushed.

But tech-savvy or not, millennials might want to reconsider letting an app manage their financial future.

“I don’t know that financial planning … should be considered a game, although Monopoly has been around for many years,” Jim McCarthy (CFP®, ChFC®), founder of Directional Wealth Management, LLC, a fee-based wealth management and financial planning firm based in Rockaway, New Jersey.

Millennials might be playing games with their money regardless of what the professionals think. A Wells Fargo study found that only 16 percent of millennials work with a wealth manager, and robo-advisors, meanwhile, held $5 billion in assets as of 2014, a number that has surely swelled by now. But is it wise to trust software to handle your finances?

“Basically, they’re a highly efficient assembly line approach to investing, and I’m not sure that’s the best thing,” McCarthy said.

Directional Wealth Management, LLC, takes a “real educational approach” to working with clients who want to improve their financial situation. There’s no firm minimum to invest, and McCarthy noted that Directional Wealth structures their fees based on the clients’ income and net worth. McCarthy said his goal is to guide clients by helping them define their goals and how to work toward them.

To help clients get there, Directional Wealth Management uses the “FORM” model, which stands for family, occupation, recreation, and money.

“We need to understand what’s really important in the client’s life … Money is just a tool that helps them live life abundantly,” McCarthy said. The firm uses an integrated process of educational resources, collaborative tools, and one-on-one advice to move clients through the FORM process and on their way to achieving their financial goals. The result is a “written roadmap” that McCarthy said helps clients understand their financial plan without being hassled with difficult-to-understand jargon.

The need for simplicity is part of what pushed McCarthy into wealth advising. His father died when he was young, leaving his mother alone to manage family finances.
“My mom struggled with the finances at that time, and that’s what lead me to a career in finance,” he said.

McCarthy began his financial services working in a “more traditional” Wall Street environment. He left that world in 2010 to start Directional Wealth Management, LLC, and has built up his client-base to 105 families – a number he intends to grow in 2017.

McCarthy described founding his own firm as giving him the freedom to serve clients the way he believes is in their best interest. The 2008 financial crisis left many of McCarthy’s clients reeling; he worked to salvage his clients’ financial plans, but corporate insistence on constant growth – as opposed to focusing on protecting existing clients – restricted his options.

“Most of my clients came through that and recovered fully, in excess of fully, but I felt that I didn’t do as good of a job as I could have given the pressure I was under … working in a corporate environment,” he said. 

Directional Wealth Management, LLC, operates as a fiduciary, meaning that the firm puts clients’ interests first. As an independent firm, McCarthy has the freedom to make decisions aimed at improving his clients’ financial position without any red-tape. McCarthy said it also means that he discusses fees upfront with clients and provides the highest level of transparency.

And while the younger crowd might be more accepting of automated solutions, a real advisor with the investors’ best interest at heart remains vital.

“Every client is unique. I deal with more than 100 families and, while there are some similarities, we treat every client uniquely,” McCarthy said. 

That’s something robo-advisors can’t do yet. The automated advisor might be able to slice and dice investments according to an optimal asset allocation formula, but it can’t take account of the nuances between clients.

“Robo-advisors might be lower in cost, but can’t develop personalized long-term solutions for clients,” McCarthy said. “Automation is great for making a billion widgets or a billion hubcaps, but not for managing tens of thousands of peoples’ financial situations.”

“As the father of 3 millennials, I can appreciate the appeal of robo-advisor solutions but to get a financial plan for a lifetime you need to work with a personal advisor”

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Directional Wealth Management, LLC and Securities America are separate entities. They are independently owned and operated. Securities offered through Securities America, Inc.,  Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc.