photo by Steve Punter

Below are excerpts from an interview with Dave Young, President and Founder of Paragon Wealth Management.

Question:

The media is a great source of information. Why shouldn’t you invest based on what you hear in the media?

Answer:

Media sources are paid by advertising revenue. Advertising revenue is driven by ratings. High ratings are created by sensationalism. Most of what you see is sensationalized.

This creates a dangerous situation for investors because they will make decisions based on inaccurate information.

Question:

Can you give me an example?

Answer:

For example, last year as the economy weakened, it would have been normal for the stock market to sell off. A normal sell off would have been a decline of 25-30 percent. Instead, the market went into an extreme sell off, losing 56 percent of its value. Much of that sell off was driven by a media created frenzy coupled with political uncertainty.

Question:

How can you say with certainty that the market sell off was caused by investors following what they saw in the media?

Answer:

To understand the power of the media, let’s look at the swine flu media frenzy.

Normally, each year, the flu kills about 30,000 Americans. Since April, when this started, there have been only 550 American deaths.

After the media hype began:

-My doctor told me that everyone he treats thinks they have the swine flu.
-Egypt ordered the killing of 400,000 pigs, even though the disease is mostly transmitted human to human.
-Russia banned pork imports from Spain and Canada.
-Joe Biden recommend that no one travel in confined places during this time.

The difference with the stock market…

-With swine flu you can convince yourself you are sick or might get sick, but you can’t make yourself die.
-With investments, when following the media, you can scare yourself silly and sell all of your investments.
-Selling at the wrong time kills your chance for long-term investment success.

Question:

If you can’t make investment decisions from what you see and hear in the media, then what can you use?

Answer:

It is important to follow a proven disciplined investment strategy that doesn’t follow emotion. At Paragon Wealth Management, we create customized investment strategies for every client. Each strategy follows this criteria:

• Provides effective diversification
• Works in different markets and time frames
• Is flexible and stable
• Fits clients’ personal needs and goals

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

photo by anthonyimages

In difficult economic times you might be wondering if you should continue contributing to your 401k or if it would be better to have a cash reserve instead. The following article addresses this concern while outlining the reasons to continue or even increase your contributions.

Excerpts taken from indystar.com on September 13, 2009.

When making decisions about saving, the first question to ask is, “For what purpose is the money earmarked?”

If this savings is for retirement, favor the 401(k) plan. It offers many significant advantages, even during a difficult recession.

First, there are tax advantages. If the dollars you deposit are pre-tax deposits, you’ll save on taxes this year by making deposits. If you choose a Roth 401(k) plan deposit option, you will create tax-free income in your retirement.

Second, you may pick up some free retirement funds from your employer. Although some employers have suspended or reduced their profit-sharing and matching deposits, most haven’t. These deposits come to you without current taxation requirements, which further maximizes their value in growing your retirement nest egg. At a minimum, always deposit the amount your employer will match.

Third, deposits are made through payroll deduction, so saving happens automatically. You’ll buy when prices are low as well as high, which can lower your average cost over the long term.

Despite the discouraging investment results in 401(k) plans for the past few years, they are still a good place to save for the retirement you hope for.

It is in times like these that it is most difficult to remain disciplined with your investments. However, it is also in times like these that it is most important to remain disciplined.

If you still plan to retire someday, you should continue your 401(k) contributions regardless of short-term market or economic conditions. In fact, it is probably a great time to increase your contribution level, as the equity markets are still well off their highs.

One possible reason you might temporarily reduce your contributions is if you don’t have an adequate emergency fund of three to six months’ worth of living expenses. In this case, reducing 401(k) contributions should be only temporary until you build a sufficient emergency fund.

However, if your employer matches your contributions, you don’t want to reduce your contributions below the level that is matched.

If you are within three years of retirement, it might be wise to accumulate some additional “cash” savings that could be drawn upon in retirement to meet your living expenses. If the equity markets happen to be down in the year you retire, you could draw upon those cash reserves instead of having to liquidate investments.

But this cash savings can be done within the 401(k), so it doesn’t justify discontinuing your contributions. Instead, a reallocation of the way those contributions are invested may be in order.

Investing in your 401(k) versus saving cash should never be dictated by the current market conditions. Investing in a 401(k) or other “pretax” account is most prudent when savings are needed to fund your retirement and if your current tax rate is higher than your forecast rate in retirement. One exception is taking advantage of an employer’s matching contributions whenever possible.

Also, if you’re in a cash crunch, don’t cancel your 401(k) contributions. Instead, reduce them to the minimum amount. Otherwise, you may have to wait for the next open-enrollment period.

Last, you should review your portfolio and retirement plan. Ensure you are allocated according to your risk tolerance and time horizon, and double-check to make sure you’re on track to reach your retirement-funding goal.

Visit indystar.com to read the entire article.

photo by LegalAssistance

Industry estimates show that approximately 85% of financial advisors do not have fiduciary responsibility. This includes stockbrokers, insurance agents or simple sales representatives. They may hold various licenses, but since they are not fiduciaries, they are often more interested in selling insurance and investment products than managing your portfolio.

An advisor with fiduciary responsibility is held to a higher ethical standard and should have the knowledge to provide sophisticated wealth management services and advice.

Below are excerpts from an article that discusses common misconceptions about what it means to be a financial advisor.

Personal Finance 101: What is A Financial Advisor

A common misconception about financial advisors is what one must do to be able to be called a financial advisor, financial consultant, or similar term. To most people’s surprise there is no legal, educational, or licensure requirement to be a financial advisor-anyone can call oneself a financial advisor. . .almost.   This applies to financial advice in general, however, advice about securities (stocks, bonds, et cetera) and insurance are a little different.

There are also different types of financial advisors, and as a consumer, you should know which type you are working with, and what the pitfalls can be from working with each type.

There are three main types of financial advisors out there: those who get paid commission, those who are only paid a consulting fee, and those who are paid both. An advisor who is paid any type of commission is a salesman. If you ask your financial advisor how he or she gets paid, they should tell you.

To help identify which type of advisor you are working with, here are a couple different sources where you can find financial advisors:

-Life insurance agents: love to call themselves financial advisors, however, ALL life insurance agents are trying to sell a product (life insurance). Some insurance agents are more honest than others, and some even give out great advice, while some love to pretend they are unbiased financial advisors. fundamentally, their interests lie in being able to support their family by selling you a product, and you should be cautious of the advice they give out.

-A Person working at your bank: may offer investment advice about bank products, including CD’s, money markets, or opening up an IRA or Roth IRA. Know that this person works for the bank, and that his (or her) loyalties in the end lie with the bank.

-Securities brokerage agents: work for a company that primarily sells securities. These agents may also offer insurance products (but usually through another company). Securities agents are paid commissions, and are usually offering advice about which investment you should buy-you have probably already made the decision to invest by the time you have called these people.  As a consumer, know that commissions on various securities differ, so you should put the agent on the spot and find out if they have an incentive to push a certain product at you.

-Financial planning firms: have two basis structures-fee-based and fee-only. Fee only means the advisor will not charge you a commission-even if you purchase a product. Fee-based means they charge a fee and also get paid commissions. These firms are often smaller and locally-owned. Even though fee-only advisors charge you a fee, the advice they give out is often far superior to what you would get elsewhere, and, in the end can SAVE you money from by steering you with the right services (rather than shove you into a product

In the end, it is up to you to find someone you believe is giving you appropriate financial advice. Financial advisors do have a duty of care to their clients-fiduciary responsibility.

Visit examiner.com to read the entire article.

photo by MargoLuc

There are many factors to take into consideration when rolling over your 401k.  Whether you have recently retired, or have simply switched employers, the following article outlines six questions to ask when determining what is best for you.

A Step by Step Guide to Your 401k Rollover or Retirement Consolidation - Understand Your Rollover Choices

Excerpts taken from Insider’s Investment Guide on August 24, 2009

Rollover Choice One - Figure Out Your Retirement Needs and How You Should Use Your Retirement Funds

Retirement planning is not easy. It is a budgeting process for the rest of your life for which you must account for many unknowns like inflation, stock fluctuations, changes in real estate prices, personal health costs, taxes and your own longevity.

When deciding what to do with your 401k, the most important consideration is your retirement plan and how it may need bolstering. This is a big and important question and many retirees choose to work with a Financial Planner who can help them create a strong plan.

Rollover Choice Two - Decide to Rollover or Keep Funds in Company Plan or with Existing Institution

Once you have a better idea of how you need to use your savings for retirement, you can better decide if you require a rollover.

Rolling Over from a Company Plan: Some 401k plans require that you rollover the funds at retirement. Others do not. However, if your retirement funds are in a company plan, most financial planners advise that you rollover.

The advantages of rolling over your 401k into an IRA at retirement include:

• Rollovers provide more flexibility in how you can allocate and use the money. You can rollover your funds into a vehicle suited to your particular situation.
• Security against your employer going out of business, merging with another company or other event that could potentially impact your 401k funds.
• More control over when and how you can withdraw money and manage your account. (Employer sponsored 401ks often have limits on when you can do this.)
• Ability to consolidate all of your 401k accounts into one IRA. Many retirees have 401ks at various companies. This money will be easier to manage in retirement if you consolidate it in one place - even if it is invested in different types of financial products.
• Puts you in charge of your account. Even if you like your current 401k plan, there are no guarantees that your employer will stick with that platform.

While there is no requirement to rollover your retirement funds, most believe it to be a good idea.

Rolling Over from Existing Financial Institution: If you have already transferred your funds out of your company plan or if you have various accounts with different institutions, you may want to consolidate with a single financial institution that offers the type of investment vehicles and financial advice that you really need in retirement.

Rollover Choice Three - Choose Between an IRA and a Roth IRA

There are two main types of 401k rollover accounts - IRA and Roth IRA. The IRA is also sometimes referred to as a traditional IRA.

The main differences between the two accounts are related to taxes and the rules surrounding withdrawals.

Rollover Choice Four: Decide How Much Rollover Advice and Service You Need and Understand Fees and Minimum Balances

When opening an IRA at retirement, there are two buckets of fees and costs that you will want to consider:

• IRA and Account Maintenance Fees: There can be fees associated with opening and maintaining an IRA. Before opening a Rollover IRA, be sure you understand any setup fees, maintenance fees, trading commissions and minimum balance requirements.

While you may automatically think that you would like a “no fee IRA,” you are actually likely to find significant costs associated with them when you read the fine print.

• Financial Planning Fees: There are two main routes to opening an IRA. You can be self directed or you can work with a Financial Advisor.

Rollover Choice Five - Find a Financial Institution that Offers Qualified Investments that Suit Your Retirement Goals

Depending on your retirement goal - guaranteed income, adequate insurance, estate planning or a combination of these objectives - you will want to choose an investment strategy for your 401k rollover.

The good news is that you have an ever growing number of tax friendly - “qualified” options. These options include:

• CDs
• Bonds and Bond Ladders
• Stocks
• Dividend Yielding Stocks
• Exchange Traded Funds (ETFs)
• Money Market Accounts
• Mutual Funds
• Annuities
• Insurance
• Managed Accounts
• Hybrid Products - offering benefits of many of the above products

Rollover Choice Six - Respect the Distribution Rules!

The final step when conducting a Rollover is to respect the Distribution rules.

• Respect Distribution Rules with Rollover: When rolling over 401k funds or consolidating IRAs, it is very important that you follow the distribution rules. In most cases you should probably do a Direct Rollover. With a Direct Rollover, a check for your retirement funds is made payable to the new IRA custodian or financial institution. This is the preferred way to conduct a rollover since there is no chance of there being tax consequences as is possible with an Indirect Rollover.

With an Indirect Rollover the check for your funds is made payable to you. And you must forward the money yourself within the allotted time period.

• Respect the Plan’s Distribution Rules for Withdrawals: This is particularly important if you rollover your funds into a Traditional IRA. Withdrawals on a Traditional IRA (also known as distributions) can begin at age 59 1/2 and are mandatory by 70 1/2. (Withdrawals before age 59 and a half are usually subject to a 10 percent penalty.)

With a Roth IRA, withdrawals may be taken at any time without penalty and there is no mandatory distribution age.

Visit Insider’s Investment Guide online to read the entire article.