How To Retire Early and Wealthy

by Todd R. Tresidder
visit Financial Mentor to view the complete article

Retirement Planning Tip #5: Put Your Wealth Building On Auto-Pilot

The easiest, least painful way to save your way to wealth is automatically. Arrange you finances so that every month certain actions take place that automatically grow your assets without any decisions or extra effort on your part. This creates an enforced discipline to keep you on track. Below are a few examples:

1. Own Your Home
2. Rental Real Estate
3. Tax Deferred Retirement Plans: Maximize your contributions to your tax deferred retirement plans so that the money comes out of your paycheck automatically before you ever see it.
4. Automatic Savings Plans
5. Join An Investment Club: the social support, regular learning, and forced savings will assist putting your wealth building and financial intelligence on auto-pilot.
6. Subscribe to Educational Investment Newsletters

You can either choose to arrange your life so that growing your wealth and financial intelligence is an automatic habit, or you can let time slip away and allow procrastination to win the day.

Retirement Planning Tip #6: Responsibility For All Your Investment Result

Unless you are a trust fund baby or win the lottery, the way you will become wealthy is by owning full responsibility for every aspect of your wealth. This causes you to get into action and correct and adjust your plans until you reach your goal. You must build your wealth like an entrepreneur builds a business. “If it’s got to be, then it is up to me.”

You are solely responsible for organizing your life so that wealth accumulation is a habit. Nobody else will do it for you. You are the one that determines the priority of your spending habits and whether your lifestyle lags your income or not. You are the one who determines whether you start today or procrastinate until tomorrow. When you take the right actions with consistency it will get you the desired result. Early retirement and financial security becomes a question of “when” - not “if”.

Your financial bottom line is you make the decisions: you are responsible. You own the results. That is the only way to achieve true financial security.

Retirement Planning Tip #7: Commit What Is Necessary To Succeed

Successful retirement planning requires you to provide the necessary resources to reach the goal. Don’t set yourself up for failure by under-committing.

In short, you must set yourself up to win by designing your retirement plan consistent with the time, money, and energy required for success, and you must be willing to commit those resources to the process. Every person’s situation is different and successful retirement planning must reflect that. One size does not fit all.

Is your wealth plan uniquely fitted to you?

Retirement Planning Tip #8: Make Your Money Hard To Reach

A pile of savings that is easy and pain free to reach is an easy solution to life’s troubles. Your car breaks and you use your savings to buy a new one. You get laid off and use your savings to carry you through until the perfect job arrives. Life throws you curve balls and savings without barriers to protect them are an easy target for solution.

That is why I love the government sponsored retirement plans with all the difficult rules and penalties you must overcome to access your money prior to retiring. These obstacles provide a measure of discipline for those who inherently lack this life skill. Even if you have the discipline of a celibate monk the rules and penalties provide a formidable barrier for your inevitable moments of human weakness.

The rule is simple: when you build a nest egg, don’t raid it.

Retirement Planning Tip #9: Risk Management Is Essential

The mathematics of compounding wealth prove that avoiding large losses is equally as important to the growth of your wealth as pursuing large gains. They are mathematical flip-sides to the same coin - growing money. For that reason smart investment strategy manages risk of loss and volatility risk using a variety of tools including diversification, careful asset selection, valuation, and a sell discipline to create a defensive investment plan.

While it is essential to practice defensive investing through risk management it does not mean you should avoid risk altogether by hiding out in Treasury Bills or other so-called “safe assets”. You must have an aggressive, offensive investment strategy to build wealth because your objective is to grow your assets faster than inflation erodes them so that you increase purchasing power. Hiding out in safe investments won’t achieve that goal

Retirement Planning Tip #10: Use Your Common Sense

Investing is really about business. You can avoid most of the speculative manias and frauds that can rob your retirement plan of valuable principle by following this simple rule: the price you pay for any investment must make economic sense consistent with the earning capacity of the underlying business that you invest in. In other words, valuation matters - it is a primary risk management tool.

It is just business common sense to only pay for investment services that put more money in your pocket than they take out. They must be value added. For example, a broker or money manager’s fees can only be justified when his insights and services add more profit than they cost when compared to a passive index investment strategy that could be easily implemented on your own. Again, it is just business common sense. You need to get what you pay for.

Retirement Planning Tip #11: Basic Estate Planning

It is irresponsible to leave a burden for those you leave behind. The fact is you will die with 100% certainty. Your loved ones will be distraught over your passing, busy with their own lives, and will not want to clean up a messy financial legacy.

Get your affairs in order and make all the decisions about who gets what now. Depending on your particular circumstances this might include:

• Powers of Attorney
• Will
• Living Trust
• Life insurance
• Much more depending on your circumstances and desires

Retirement Planning Tip #12: Get A Life

There’s more to retirement planning than just money. What about relationships? What about your health? What activities engage your interest?

Money is just a lubricant to life, but it is not life. Happy retirees have fulfilling lives with the health and money to enjoy them. Make sure you have plenty to live for when your work no longer fills your days, and make sure you take care of your health so that you have the energy and vitality to pursue whatever brings you joy.

Protect and enhance your health by investing daily in proper nutrition, regular exercise, and preventative health care to reduce the risk of catastrophic illness. Get adequate sleep, avoid stress, and counteract the stress you do incur with proper exercise and recreation. We never realize the value of our health until we lose it.

In Summary:

Financial planning for retirement is simple to understand and hard to live. That is why so few succeed at it. It all boils down to prudent, routine management of your investments and personal finances - not exactly rocket science. The principles are not complex.

The only question now is “are you walking the talk?” You may know most or even all of these principles, but how many are you actually living right now? That is the key question.

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.

Building wealth for retirement requires a disciplined yet simple strategy.  The following article outlines 12 tips to build your portfolio and be able to retire early.

How To Retire Early and Wealthy

by Todd R. Tresidder
visit Financial Mentor to view the complete article

Believe it or not, building wealth for a secure, early retirement is actually very simple - in theory. The equation for financial success is a function of just three easy-to-understand principles:

1: The amount of money you invest.

2: The growth rate of your money.

3: The amount of time it has to grow.

Unfortunately, few people succeed in building wealth because it has little to do with understanding simple principles - and everything to do with taking effective action. The challenge is not in knowledge, but in translating that knowledge into meaningful results. Why? Building wealth requires you to overcome the following two hurdles:

First, you must translate the wealth building principles into actionable rules that will take you to your goal.

Second, you must actually live according to those rules.

You probably already know the three principles for compounding and building wealth. Most people do; yet, few people actually live according to them. To know and not do is to not know at all. This is critical. Most people fail to succeed financially because the rules are easy to understand but surprisingly hard to live by. Living them is the key - and also the problem.

As you read this article ask yourself, “Are my daily retirement planning practices honoring each and every one of these financial truths?’ Judging by results will tell you what you really know, and an honest assessment should be a little uncomfortable for most readers.

Retirement Planning Tip #1: Have A Plan

The first mistake most people make is they have no written plan to build financial security. You can’t put the formula for financial success to work for you if you have no plan to accomplish it. It may be a simple process, but it won’t happen randomly. You must make it happen by taking action. A written plan with goals provides the road map and is a necessary first step.

Financial success is a choice. It results from the many small decisions you make each and every day. Without a plan and goals to achieve wealth your life is like a sailboat without a rudder: it just spins in circles without definite direction. Plans and goals provide the necessary context to focus each and every decision in your life with purpose.

Retirement Planning Tip #2: Lifestyle Lags Income

Most people prefer the trappings and illusion of wealth over the freedom of actual wealth. They want to look wealthy rather than be wealthy. If you aren’t certain of this truth then just look around you at how many people are in debt compared to how many people are wealthy. Most people choose lifestyle over financial freedom and violate the first principle in the wealth building equation - accumulate assets. They spend instead.

The problem is you will never become rich by spending money. You must control your spending so that your lifestyle lags your income because this will create available capital for your investment activities.

Whether you own your business or work as an employee, you must think of each dollar as a little soldier on the battlefield of your wealth. Every time you spend that dollar on consumption instead of investment the soldier dies. However, when the soldier is invested he produces new soldiers and creates an ever growing army working for your financial security. The bigger your army the greater your financial security.

The rule is simple for principle #1 in our wealth building formula - save money and build assets. The sooner you begin and the more you save each month the sooner you will retire early and wealthy.

Every day you are making choices between lifestyle now and wealth accumulation for tomorrow. You can either invest those soldiers for freedom tomorrow or slaughter them for goodies today. This rule is simple to understand, but hard to live. Are you walking the talk?

Retirement Planning Tip #3: Invest In Your Financial Education

The second principle in wealth accumulation is the rate at which your capital grows. This is largely a function of your financial intelligence. You must learn before you can earn. It is possible to profit from any market condition if you know what you are doing (although, admittedly, some market environments are easier than others).

Every investment in your financial intelligence will pay dividends for a lifetime. I recommend that clients regularly contribute to their financial intelligence by taking courses, reading and research so that their financial intelligence grows faster than their wealth.

There is nothing more financially dangerous than an investor making a million dollars worth of decisions with a thousand dollars worth of financial intelligence. When it comes to investing, a little knowledge can be a dangerous thing, and a lot of knowledge can be a profitable thing. Get a lot of knowledge.

Retirement Planning Tip #4: Don’t Procrastinate - Start Today

The third variable in the wealth accumulation equation is the amount of time your wealth compounds and grows. If you wait just six years to get started and your assets grow at 12% annually you will have half as much money when you retire compared to starting today (assuming equal contributions over working lifetime). If you wait just twelve years you will have only a quarter as much. That’s a dramatic change in wealth for just a little procrastination.  Just getting this one idea into your bones early enough in life can change your financial future. It is that important.

The power of compounding is an invaluable wealth building tool because money grows geometrically instead of arithmetically - but only when you give it time to work. Procrastination kills time, and as a result it kills more plans for retirement security than all other culprits combined. It is wealth suicide on the installment plan. Every day you delay is another day where opportunity is thrown away.

Intermission

Up to this point we have summarized the tried and proven wealth building formula for most self-made millionaires as follows:

(1) Spend less than you earn and save the difference.

(2) Build your financial intelligence while building your wealth so that you can make wiser, more profitable decisions to grow your assets.

(3) Start early because time is the most important factor in compounding wealth.

To be continued…

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.

 

Written by Dave Young, President of Paragon Wealth Management 

Step 4 - Avoid Unnecessary Debt

Debt can be useful if used properly. A few years ago I went to Africa. While I was on the trip I noticed buildings that were half built everywhere. Projects were at different levels of completion and then abandoned. When I asked my guide why the structures were halfway done, he responded, there is no banking system. There is no way for the common man to borrow money. People can only complete part of the building because they lack the funds to pay for building supplies right away. They build what they can pay for now, and then come back and build more next year when they have more money. 

If debt is used sparingly, for assets that appreciate or allow you to make more money, then debt makes sense. For example, a house, a car, or an education all make sense.

Using debts for consumables or things that go down in value makes no sense. Impulse buying or buying on emotion are a recipe for financial disaster. Before you make any major purchase, it is important to decide whether it is a “need” or a “want”. It is amazing how few purchases actually fall into the “need” category. If it is a “want” then a conscious decision should be made as to whether or not you can afford it. Generally, there is no reason to go into debt for “wants”.    

For example, most credit card debt is for things that hurt rather than help your financial situation. My definition of a credit card is, “A means of buying something unneeded, at a price you can’t afford, with funds you don’t have.”

Set a goal to live debt free. Put a plan in place to reduce and then eliminate your debts.  With 1.5 billion credit cards in circulation, an average household credit card balance of $8,562 and an average interest rate of 19%, it’s no wonder that one out of every 50 households filed for bankruptcy in 2005.

Accumulating debt is the exact opposite of accumulating wealth. If you are paying debts, you are helping someone else accumulate wealth. With the few exceptions mentioned above, avoid debt like the plague.

Step 5 - Follow a Sound, Long-Term Strategy 

Research has shown that most investors do not follow a strategy.  In other words, they do not have a disciplined, systematic process they follow to make investments.  Their portfolio of investments often represents a patchwork of uncorrelated ideas that were sold to them by various salesmen over their lifetime.

The first step to an effective strategy is to properly select your risk tolerance.  This means that you identify in advance how much risk or volatility you are willing to subject your account to.  For some investors that means taking no risk at all and being willing to accept low returns in exchange for zero volatility.  For others, it means to attempt to generate returns in excess of twenty percent and be willing to endure the necessary roller coaster ride to get them.  Most investors end up somewhere in between those two extremes. 

Identifying your individual risk tolerance is the single most important step to achieving long term investment success.  If it is set too low, you won’t generate the returns you should. If it is set too high, should market conditions become difficult, you will likely change strategies at just the wrong time and miss out on superior long-term returns.

Once your risk tolerance is set then you must follow a proven investment strategy that doesn’t simply involve “gut feelings.” Emotional investing is a recipe for failure.

What makes investing so difficult is that it is counter-intuitive. Usually, doing what “feels good”, doesn’t work.  This is why you must have a systematic investment process that you follow.

At Paragon, we follow an investment discipline that is designed to remove emotion from the investment process.  For example, one of the models that we use is based on investor sentiment.  This model measures how what percentage of investors are optimistic versus pessimistic at any point in time. Interestingly, when most investors are optimistic and think the market is going to go up….it goes down. Likewise, when most investors think the market is going to go down… it goes up. We measure this statistically and the model is extremely accurate.  The market usually does the opposite of what most investors hope, think or feel that it is going to do.  I have always said that once you begin to “hope” an investment will move in your favor, you are usually in trouble.

Our strategies are driven by quantitative models that seek to proactively position our accounts for the most benefit in ever-changing market environments.  For the past twenty years, we have developed and relied on rigid models to point us to the areas of the market to invest in.  These models identify the sectors of the market that rank in the top twenty percent over the past three, six, nine and twelve months.  Our portfolios are constantly adjusted as positions move in or out of the top twenty percent. 

We use five other models to determine how conservative or aggressive we should be positioned at any point in time. These models measure an array of fundamental and technical data that constantly compare what is happening in the market today to what has happened historically.  Following these systems and processes does not guarantee that we will always be positioned perfectly.  Historically, we expect to be wrong 20% to 30% of the time.  Even still, following this methodology has enabled us to significantly reduce risk and generate excess returns for our clients.  (See our ten year track record at www.paragonwealth.com )

When comparing investment alternatives we believe that you should measure whether or not the strategy you are considering meets the following, time tested criteria.  Your strategy should:

• ¨ Work over different time frames
• ¨ Provide effective rather than traditional diversification
• ¨ Work in both bull and bear markets
• ¨ Be disciplined yet flexible and evolving
• ¨ Reduce risk and provide downside protection
• ¨ Generate better returns than traditional stock indexes
• ¨ Have a proven long-term track record

Step 6 - Avoid Large Losses

Unfortunately, it has always been much easier to lose money than to make it.  In my business, I am constantly presented opportunities to invest in.  For every twenty proposals I see, I may invest in one.  Even with complete due diligence, some of the investments are losers.  My experience is that there are ten ways to lose money for each way there is to make it.  Money is slippery and hard to hold on to.

It’s not uncommon for money to come in large lump sums-in the form of a retirement plan distribution, an inheritance or a life insurance settlement.  People are expected to manage these large chunks of cash wisely, but there is no real training available on how to manage or invest large sums of money. To make matters worse, most people simply don’t have the time, resources, expertise or desire to manage their assets, and there are plenty of incompetent advisors, relatives requesting loans and scam artists ready to step in and take advantage. It’s no surprise, then, that most recipients of life insurance settlements in the United States completely lose their money within three years. 

Some investment losses are unavoidable. They come with the territory. The key is to minimize large losses that can quickly reverse the benefits of compound interest. Even though it can be time consuming, you should research thoroughly before turning over your money to someone else. This will increase your odds of avoiding investment scams and subpar money managers. 

For example, if you lose 25% of your account, you need to make 33% to get back to even, which is workable. If you lose 50% of your portfolio, you have to make 100% to get back to even, obviously a much more difficult task. A loss of 90% of your portfolio requires a gain of 900% to get back to even. Forget about it. A much better scenario is to follow a sound investment strategy that seeks to avoid those big, dramatic losses in the first place.

Step 7 - Be Patient

“A man watches his pear tree day after day, impatient for the ripening of the fruit. Let him attempt to force the process, and he may spoil both the fruit and the tree. But let him patiently wait, and the ripe fruit at length falls into his lap.” -Abraham Lincoln

It has been said that patience is the greatest of all the virtues.  We live in a world where it seems that patience has been forgotten.  In our instant everything world people want it all and they want it now.  They don’t think in terms of paying the price or investing for the long term.  They act on a whim rather than follow a long term plan.

Mountain View High School has a very successful track team with several runners being nationally ranked.  I asked their coach why his runners are so successful.  He told me that much of their success comes because they are taught to have the patience to pace themselves and wait for the right time to make their move to win the race.  Even with runners, exercising patience is one of the keys to success.    

In the fall I spend some of my spare time hunting for big game.  I focus my efforts on finding animals that have record book potential.  In order to locate them I have to backpack into places that rarely traveled and often I come back empty handed.  In my quest to find trophies I have traveled to some very dangerous parts of the world.  In order to succeed I have had to hunt in ways that differ from the traditional.  While there are several factors that contribute to my success, I believe that extreme patience has been the most significant.         

Patience is a key attribute for successful investors, but it can only work if you adopt the kind of smart investment strategy that we previously discussed.  Without the right strategy, all the patience in the world is essentially worthless. As soon as you put a solid strategy in place, it’s all about patience, self-control, patience and of course more patience.   

This is one of the most difficult steps for most investors, and it’s an issue we have to constantly reinforce with our clients. Patience goes against human nature, and a lack of patience has ruined many sound investment plans.  

We are constantly positioning our funds to take advantage of whatever the markets will give us. We never know in advance when we’re going to be rewarded. Sometimes, we spend months waiting. But we do know that following this process in the past has yielded tremendous rewards.  

The portfolios we manage, Managed Income and Top Flight, have both tested our patience during periods of underperformance. By exercising patience and staying invested, Managed Income has met its conservative objectives since its inception in 2001. Paragon’s growth portfolio, Top Flight has also generated outstanding returns and met its performance objectives since its inception in 1998. (See www.paragonwealth.com for more details regarding our performance). 

Clients who exercised patience during periods when our portfolios returns went flat or negative still received outstanding returns over time. It seems like the market does its best to make investors give up at the worst possible time.  For example, when you review our track record you see that our best returns almost always follow the years we have lackluster performance. Unfortunately, the investors that did not exercise patience and stay invested missed out on those returns, even though the overall strategy was good. As you can see, patience keeps you focused on the long term.  Patience is critical to long term investment success.

These seven rules apply whether you have a large or small amount of money. Building wealth is possible-if you follow the rules.

About the Author

Dave Young started his career as an entrepreneur. He successfully started 12 businesses in the early 1980s. In 1986, he decided to sell his businesses and invest the proceeds, but he was unable to find an investment company that met his needs. As a result, later that year he began managing his own portfolios.

Dave continued to research to find the best methods to invest that would produce most profitable returns. He believed in his methods so much that he invested his life savings and started Paragon Wealth Management. Over 20 years later, Dave continues to invest and research ways he can improve his business to serve his clients better. His methods have attracted national and local attention. He has been interviewed by BusinessWeek, CNBC, the Wall Street Journal, the Deseret Morning News and other national and local media. Visit www.paragonwealth.com to learn more about Dave Young and Paragon.

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.

Written by Dave Young, President of Paragon Wealth Management 

Many people believe that accumulating wealth is a random event. Or it is pure luck that determines who is wealthy and who isn’t. 

It is true that occasionally someone wins the lottery or receives an inheritance and becomes wealthy. Usually immediate wealth is temporary however. Studies have shown repeatedly that most widows who receive a life insurance death settlement either spend, loan out, or lose the money they received within three years of receiving it.

In order to build wealth you must follow certain rules. In order to keep wealth you must follow those same rules. If you never learn the rules or don’t have the discipline to follow them, you will not build or keep wealth. 

I’d like to offer you seven sound steps for building wealth:

• Step 1- Start Now
• Step 2- Spend Less than you Earn
• Step 3- Hire a Competent Financial Adviser
• Step 4- Avoid Unnecessary Debt
• Step 5- Avoid Large Losses
• Step 6- Follow a Sound, Long-Term Strategy
• Step 7- Be Patient

Step 1 - Start Now 

Albert Einstein said, “The most powerful force in the universe is compound interest.”

For compound interest to be truly powerful, it must have the benefit of time. The more time the better.

For example, compare two investors who each put away $2,000 a year and earn 10% annually. The first investor starts at age 19 and puts away $2,000 per year for eight years in a row and then holds it there. The second investor waits eight years before investing $2,000 per year for 38 years. At the end of the 38 years, the first investor’s account will have grown to $941,054. The second investor’s account will be at $800,896. The first investor invested $60,000 less but ended up with $140,158 more. 

The other factor affecting compound interest is the rate of return. Everyone knows that a higher rate is better than a lower rate. What most people don’t realize is that the benefit is exponential. A 15 percent rate of return is not merely three times more than a 5 percent rate of return. It can actually be anywhere from seven times to 70 times more depending on how long you’re investing it for. Small increases in rates of return make an enormous difference in the long run.

Unfortunately, there are always plenty of reasons not to begin saving.  When you are young, you don’t have much money and don’t really ever really believe that you will reach retirement.  In the next phase of life, you are finishing college or newlywed, with lots of expenses and limited extra income to put away in savings.  That period of life is followed by young children and all of their expenses.  Finally, comes the time that you have to pay to put those kids through college and before you know it you are heading into retirement.  There is never a “good” time to start saving.

Saving requires discipline.  You must “pay yourself first” by putting aside at least ten percent of your income.  After you are “paid” then pay the rest of your bills. The sooner you implement this habit in your life the sooner you will see your savings become a reality.  Otherwise it will likely just be a great idea that never becomes a reality. The sooner you start, the greater the effect of compound interest.

Step 2 - Spend Less Than You Earn

This seems like obvious advice, but it is often ignored. According to a recent article in Smart Money, Americans collectively spent more than they earned after taxes for the past two years in row. This bad habit afflicts people at all income levels-those with less may feel as if the extra expenses are a necessary evil, while those with more may assume their high income protects them from any future financial trouble. This mentality must be changed in order to build wealth.

I’ve known individuals who earn $40,000 a year but have the discipline to save $5,000 of that for the future. Although it may seem like a small annual amount, that money, over time, adds up to future wealth and security.

In contrast, I have met others who earn $200,000 a year and spend $220,000. This lack of discipline is a quick way to be constantly broke, even though you have a very good income.  Often, people assume that because someone drives an expensive car and lives in a luxury neighborhood that they must be financially well off.  My experience is that this assumption is only accurate about half the time.  In the other half of cases, there is no savings and the individual’s net worth is actually negative.  This group is spending their money faster than it is being earned; appear to be successful, before ultimately crashing.  

On the extreme side, I have known people that earned about $4,000,000 a year but still regularly spent more than that.  Over the years they destroyed their net worth.  This further makes the point that a successful saving plan isn’t the result of earning more money.  It is about having the discipline to spend less than you earn.  Like the previous step, the critical element is “having the  discipline” to spend less than you earn, regardless of how much you earn.

While it may sound simplistic, in order to build wealth you must spend less than you earn.

Step 3 - Hire A Competent Financial Adviser

For some reason, it has always been easier to lose money than it is to make it and keep it.  According to the Utah Division of Securities, during 2007 alone, they filed enforcement action on 63 cases. Within those cases, 727 investors lost over $77 million dollars. 

Managing your own investments can be done successfully, but it is not easy.  First, it requires a commitment of time researching and tracking your investments. Second, it requires discipline to stick with your strategy through challenging times. Third, and most difficult, it requires you to remove emotion from your investment process. 

Most successful people recognize the need for a relationship with an accountant and lawyer. Many haven’t yet discovered the benefits of working with a financial adviser. Based on the variety of investment options and the myriad of people that call themselves financial advisers, it is easy to understand why. Often figuring out who to work with is so confusing that people give up and opt to manage their money themselves.

Studies have shown that most investors would be better off with the help of a financial adviser. Unfortunately, finding the “right” adviser is much more difficult than most people realize. Most investors hire someone they “trust”. However, “trust” is very intangible and difficult to quantify. Also, contrary to popular belief, the size of the firm or familiarity of the brand name does not indicate the quality of the advice provided.

Part of the problem is that titles for financial sales reps are completely unregulated. This means that brokers, annuity salesmen and insurance agents are all free to call themselves advisors, financial consultants, financial planners or whatever else they prefer.

To make sure you don’t get stuck with a salesperson when you are really looking for an advisor, make sure you ask these five questions:

• Fiduciary? Fiduciary advisers have a legal obligation to put your interests ahead of their own. Sales reps selling insurance, mutual funds or other financial products are most likely not fiduciaries. A minority of all financial advisers actually meet the fiduciary requirement. Registered Investment Advisors and Investment Advisor Representatives are fiduciaries.
• Experience? How many years have they been managing money? Markets are difficult to navigate and constantly changing. Ideally, your adviser has experience investing in both good markets and bad markets. In the final analysis, you are paying an adviser for their experience.
• Track record? Legitimate advisers will be able to show you a clear report of what they’ve done for their clients over the years. Showing you the track record of a mutual fund, a hypothetical model, or anything else that they have recently started selling does not count. They need to show you their own track record which would be a composite of the results of their previous clients’ investments. Any adviser who refuses to show you at least a five year track record of their performance should be crossed off your list.
• Conflict of interest? Many commission based salespeople are honest individuals. However, in the financial services industry, the worse the product the higher the commission. The easiest way to avoid those “bad products” and to eliminate potential conflicts of interest is to avoid salespeople who receive commissions. By working only with advisers who are paid through management fees and not commissions you can make sure their interests are aligned with yours.
• Surrender charge? If there is a surrender charge then that means there was a commission. If there is a commission then you are not dealing with a fiduciary adviser. You should be free to move your money out of an investment if you are dissatisfied. This means you should never own a product with a surrender charge.

As I mentioned at the beginning… It has always been easier to lose money than it is to make. Implementing these tips will help you keep your money and find a great adviser.

To be continued…

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 from Wall Street Journal online

 The following article was taken from the Wall Street Journal online article on August 16, 2011. This article discusses some investing strategies that are used by one of the richest families in America: The Walton’s.

 Smart investing tips from Sam Walton

To view full article, please visit Wall Street Journal online.

After the stock market lost 20% of its value in October 1987, Sam Walton, then one of America’s richest men, was unfazed.

In less than a week, the value of his Wal-Mart stores stock had dropped almost $3 billion, reducing his wealth to a mere $4.8 billion. It’s paper anyway,” he told the Associated Press. “It was paper when we started and it’s paper afterward.”

Given the wrenching swings of the past two weeks, many of us may wish we could be so sanguine about our own losses. But even without a few extra billion dollars in the bank, there are useful lessons to be gleaned from the way the Waltons and other ultrarich families cope with investments and market volatility.

Just like us, the rich want to maintain their lifestyle, preserve wealth and hyave money for their heirs or philanthropy. And when it comes to investing, there are several ways the rest of us should take a cue from them:

The very wealthy have a plan. Sam Walton’s plan started in the early 1950s, when, on the advice of his father-in-law, he set up a family partnership, made up of him, his wife, Helen, and their four children, to own his two variety stores. By doing that, he began planning his estate and building family wealth years before he opened the first Wal-Mart in 1962.

Nowadays, most very wealthy people have a team of advisers and an investing strategy in place that should work even when the worst imaginary case becomes real. Small investors, too, should have a comfortable investment process that works in good times and bad.

A financial adviser can be invaluable in helping you with this, but so can a trusted family member or friend who will help you stick to your plan when you start to doubt it.

The very wealthy live below their means. Walton, who died in 1992, was famously frugal, driving an old pickup truck and flying coach. Many very wealthy people spend much more extravagantly, but even so, “most of our ultrawealthy clients have a lifestyle that is well below their means,” says Craig Rawlins, president of Harris myCFO Investment Advisory Services, which serves wealthy families.

When you don’t spend everything, he says, “you have a better opportunity to weather this volatility because you know there’s a cushion there.”

The very wealthy focus on risk, not return. Larry Palmer, managing director, private wealth management, at Morgan Stanley Smith Barney, said he has never had a client says, “My objective is to have my family wealth beat the S&P 500.” Rather, he says, clients focus on what kinds of risks they are taking with their portfolio.

The Walton family weatlh long has been tied to its Wal-Mart stock, now valued at $83.6 billion. But Sam also bought the tiny Bank of Bentonville in 1961, and it is now part of the family-owned Arvest Bank, an $11.5 billion banking company. Walton Enterprises also owns a chain of small newspapers that, along with other interests, offer diversification and push the family’s estimated combined wealth close to $100 billion.

Small investors need to similarly manage their portfolios, making sure that their holdings of stock and other volatile investments aren’t so great that they are putting more at risk than they intended to.

The very wealthy hang on. The super-rich don’t sell because they are fearful-though some may be selling right now for investment reasons, such as cutting the tax bite on holdings with big gains. The Walton family ownerships of Wal-Mart stock hasn’t changed since late 2002, when some shares were transferred to charitable funds.

In that sense, Sam was spot on. Though the Walton family’s Wal-Mart shares have dropped by more than $10 billion since mid-May, until the stock is actually sold, the losses really are nothing more than paper.

 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.

Many people have a difficult time selecting a financial adviser or firm to manage their hard-earned money. It can be a very confusing and long process. In the following video, David Young, founder and owner of Paragon Wealth Management, discusses the advantages and benefits of investing with a smaller investment firm rather than a larger investment firm.

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.

The following article discusses when a non-deductible IRA contribution makes sense for investors depending on their individual situations and goals.

Does a Non-Deductible IRA Make Sense For Your Situation?

To view full article, visit Figuide

If you find yourself in the position of having too high of an income to make a deductible contribution to your IRA for the year ($110,000 for joint filers in 2011, $66,000 for Single and Head of Household), you may be wondering if it’s a good idea to make a non-deductible contribution to your IRA.

There are two opposing camps on this issue, and the deciding factor is how you’re intending to use the funds in the near term.

When It’s a Good Idea

If you’re intending to convert your IRA to a Roth and your income is too high to just make the contribution directly to the Roth account, the non-deductible IRA may be the right choice for you. This way you’re effectively working around the income limitations of the Roth contribution ($179,000 for joint filers in 2011 or $122,000 for single or head of household filers).

You also have more funds available in your IRA account, which provides you with the ability to take advantage of economies of scale - certain mutual funds have higher minimum purchase amounts, for example. Since the money is in an IRA you don’t have to track holding periods, non-qualified dividends versus qualified dividends, and your paperwork is reduced.

In addition, depending upon your state laws your money may be protected against creditors since it’s part of an IRA.

When It’s a Bad Idea

If you’re not planning to convert this IRA to Roth, you’re effectively increasing the tax cost of your investment gains (under today’s law). Since withdrawals of investment gains from your IRA are taxed at ordinary income tax rates (up to 35% under today’s rates), you’re effectively giving yourself a tax increase over the capital gains rate which is 15% maximum these days.

Instead of making a non-deductible contribution to your IRA, you could just make your investment in a taxable account. Then within this account you could make investments geared toward long-term gains rather than income or dividends, therefore deferring tax until you sell the investment. And when you do sell the investment it will be taxed at the currently much lower capital gains rate versus the ordinary income tax rate (which would be applied if you made your contribution in the IRA).

Conclusion

So- depending on what you’re planning to do with the account, a non-deductible contribution could be a good idea or a bad idea. You will have to make that call. Hopefully the information above will help you with your decision.

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.

The following article discusses what a custodial IRA is and how it can be beneficial in helping your children learn about investing. The knowing what a custodial IRA is, your can help your children start a nest-egg of their own for retirement.

The Benefits of Custodial IRAs for Your Children

To view full article, please visit Military Money.

Would you like to help your children accumulate more than $1 million in tax-free retirement assets with a relatively small investment?

You can do exactly that with a highly effective but often overlooked financial strategy: Open a Roth IRA for your child!

The Rules

A child can open an IRA (traditional or Roth) only if he or she has legitimate “earned income” through self-employment or W-2 wages. This money can come from typical jobs such as cutting grass, delivering newspapers, bagging groceries or working at a fast-food restaurant.  A child that performs real work or duties in a family business- data entry, filing, cleaning the office-also qualifies. (It is a good idea to pay any children working for the family business periodically- say, monthly- by check and to keep a time sheet.)

A child, regardless of age, can use this income to fund an IRA subject to the lesser of $5,000 or 100 percent of earned income. As with all IRAs, you have until April 15 of the following year to put the money into the account.

Some children may be reluctant to turn over their hard-earned babysitting or life guarding money to mom and dad to fund an investment they won’t be able to use for many years. Fortunately, parents and grandparents can give kids some or all of the IRA funding money as gifts, allowing the children to keep and/or spend what they make. Any money gifted in this manner must be aggregated with any other gifts and are subject to the $11,000 annual gift exclusion.

If the child is a minor, the account must be set up as a “custodial IRA” with the child’s social security number on the account but an adult parent or guardian shown as the custodian. Once the child turns 18, the custodial feature may be removed.

The Benefits

How powerful is this savings tool? Let’s look at two examples:

Example #1: Johnny, age 13, has a part-time paper route and earns $1,400 per year. His parents open a custodial Roth IRA for Johnny and fund it through gifts limited to the amount of his earned income each year. If Johnny keeps the paper route until age 18 (five years of funding), continues to earn $1,400 per year and never puts another dime into the Roth IRA, it will grow to $305,787 by the time he turns age 65(assuming an eight percent annual rate of return). Not bad for a total investment amount of only $7,000!

Example #2: Sarah, age 15, works for her mother, a real estate agent. She helps her mother with data entry and promotional fliers. Her mother can pay her what she would reasonably pay an outside employee for the same duties (say, $15 per hour). Sarah works 300 hours each year until age 18, earning $4,500 per year. Sarah contributes $2,000 to a custodial Roth IRA and her mother matches that with a $2,000 gift for the total of $4,000 per year. In four years, she will accumulate $18,024 in her Roth IRA (assuming an annual eight percent average annual rate of return). If Sarah continues to work for her mother through college (an additional four years) and make additional contributions, the account will grow to $42,546. If she stopes and lets the money grow tax-free until age 65, she will have amassed $1,164,341. If she continues to contribute $4,000 per year after college until age 65, she will have a whopping $2,482,673-all available tax-free!

The Caveats

First, remember that the money must come from legitimate earned income, so it will be difficult for a very young child to qualify unless he or she is a child actor or model.

Second, some financial institutions are unfamiliar with these rules and may be hesistant to open a custodial IRA or ask for verifiable W-2 income. If the bank, brokerage house or mutual fund company seems reluctant, as to speak with a manager to resolve the issue. If they still refuse, take your business to another institution, since there are plenty that will help you.

Third, since the time frame is so long on this investment, use a growth-oriented stock mutual funds for maximum long-term appreciation.

Roth IRAs for working children are an immensely powerful wealth-building tool and an excellent way to teach kids about money and investing. If your situation qualifies, open one today!

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 taken from Wall Street Journal Online

Fiduciary responsibility, in simple terms, is the legal responsibility to put your clients’ needs ahead of your own. Some estimates claim that only 15 percent of investment advisers have this responsibility. Paragon Wealth Management has fiduciary responsibility, and we recommend that you only work with advisers who do.

Below are excerpts from an article taken from the Wall Street Journal Online. In the past investment advisers were the only ones to have fiduciary responsibility, but Wall Street has agreed to put its brokers under the same criterion.

Fiduciary Duty Hits the Street- Sort of
August 31, 2009

Written by Jane J. Kim

For years, most investment advisers have been deemed fiduciaries under the Investment Advisers Act of 1940.

Investor groups say the existing fiduciary standard has been defined and upheld by over four decades of legal precedence, including a 1963 U.S. Supreme Court case, Securities and Exchange Commission v. Capital Gains Research Bureau.

“If you have a precise definition of fiduciary duty, what that does is exclude a number of features of fiduciary,” said Rex Staples, general counsel at the North American Securities Administrators Association Inc., which represents state securities regulators.

Trying to define what constitutes a fiduciary duty is like trying to define the duty not to commit fraud – any application of it depends on the client’s particular facts and circumstances, say adviser groups. Proponents say a fiduciary standard can’t be defined given the complexity and changing nature of the business.

“For years, they’ve opposed the fiduciary duty,” said Barbara Roper, director of investor protection at the Consumer Federation of America, a consumer-advocacy group. “Now they’ve embraced it in order to gut it.”

Still, Wall Street’s support of a fiduciary standard boosts the odds that it will eventually apply to brokers. Now, the fight is over the standard itself.

Investment advisers want to extend the current standard under the Investment Advisers Act to all financial professionals who give investment advice, while the brokerage industry wants a new, federal standard to apply to any broker-dealer or investment adviser that provides personalized investment advice to clients.

Under the Treasury’s proposed Investor Protection Act of 2009, the SEC would have the authority to “promulgate rules” establishing a fiduciary duty. SEC Chairman Mary Schapiro said she favors a fiduciary standard that would that would be applied uniformly to all financial professionals.

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.

The following article discusses the important duties and responsibilities of financial fiduciaries related to Employee benefits plans in the workplace.

The Significance of Being a Fiduciary

For the entire article, visit U.S. Department of Labor

Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries.

These responsibilities include:

Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them

Carrying out their duties prudently

Following the plan documents (unless inconsistent with ERISA)

Diversifying plan investments

Paying only reasonable plan expenses

The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. For instance, in hiring any plan service provider, a fiduciary may want to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, a fiduciary can document the process and make a meaningful comparison and selection.

Following the terms of the plan document is also an important responsibility. The document serves as the foundation for plan operations. Employers will want to be familiar with their plan document, especially when it is drawn up by a third-party service provider, and periodically review the document to make sure it remains current. For example, if a plan official named in the document changes, the plan document must be updated to reflect that change.

Diversification

Another key fiduciary duty – helps to minimize the risk of large investment losses to the plan. Fiduciaries should consider each plan investment as part of the plan’s entire portfolio. Once again, fiduciaries will want to document their evaluation and investment decision.

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.