Most people do not have the same job over the course of their career. When they switch jobs, they will most likely need to look into IRA Rollovers. In the article below, you will learn about IRA Rollovers and if they are something that might benefit you in the future.

IRA Rollovers

Article From: Money-Zine.com

In this article we are going to discuss IRA rollovers.  We’ll going to start off by briefly discussing why an IRA rollover might be necessary, as well as provide you with a definition of a rollover.  We’re then going to explain the difference between a rollover and a transfer, and finish up with some of the rollover rules you need to be aware of to prevent you from encountering any income tax penalties.

What is an IRA Rollover?

Lifetime employment is a thing of the past, and so there are two things you can be pretty sure of:

• You’ll reach a point where retirement planning becomes a priority.
• There is a good chance that you won’t finish your career with the same employer that you started your career with.

Additional Resources

IRA Rollover IRA Withdrawals IRA Contribution Limits IRA Contribution Limits 2004 and 2005

While some companies will allow you to keep anyretirement savings you have with them in their plan’s account until you reach retirement age, there is a very good chance you’ll lose some flexibility in how that money is invested.

You may also wish to consolidate your retirement plans so that you don’t need to worry about managing several accounts.  If that’s true, then one day you may need to make a decision concerning an IRA rollover.

IRA Rollover Defined

An IRA rollover is a tax-free distribution from one retirement account that is contributed to an IRA.  There are several kinds of retirement accounts that can be rolled-over into a traditional IRA, including another traditional IRA, an employer’s qualified plan such as a 401(k) plan, deferred compensation plans (section 457 plan), and a tax-sheltered annuity plan such as a 403(b).

You should always check with your plan administrator to make sure you can take a rollover from your account.

IRA Rollovers versus Transfers

There are two ways of moving money between financial institutions - performing a transfer or doing a rollover.  Most of the time, it is far easier to do a transfer than a rollover - especially if your existing plan will accommodate the request.

With a transfer you would make arrangements with another financial institution to receive funds from your current institution.  The receiving institution then sends a request to the disbursing institution requesting a transfer of funds.  This is usually accomplished via a physical check.

This type of transaction does not have to be reported to the IRS, and requires very little work on behalf of the account holder’s part.  Transfers are sometimes referred to as direct rollovers, and are not subject to the 20% IRS withholding tax - which we discuss later on.

With a rollover, the retirement funds are distributed from the disbursing institution directly to the former account holder.  This means a check is sent directly to an individual, not another institution.

Unlike a transfer, a rollover is reported to the IRS.  This is to ensure that the individual receiving this money abides by the rollover rules, and deposits the money into another qualifying retirement account in a timely manner.

60-Day Rollover Rule

In general, you have 60 days to make the rollover contribution after receiving the distribution from your traditional IRA or an employer’s qualifying plan such as a 401k or 403b.  The IRS might waive the 60-day requirement if you can demonstrate that a significant hardship or event occurred that was beyond your control.  If you want to try and get a waiver, a request for a ruling must be made and a $90 fee may apply.

Rollover Extensions

You can qualify for an extension of the 60-day rule if the deposit becomes frozen at any time during the 60 days.  There are two specific rules that extend the rollover timeline.  Both of these rules have to do with frozen deposits - deposits that are held with banks that become insolvent or bankrupt.If the distribution becomes a frozen deposit, then the time during which the money is frozen does not count towards the 60 day timeframe.  Also, the 60 days cannot expire less than 10 days after the deposit is no longer frozen.

Rollover Withholding

If an eligible rollover is paid directly to you, then the distribution may be subject to 20% withholding. This rule applies even if you are merely rolling it over into a traditional IRA.  To avoid any tax penalties, you need to rollover 100% of your account money withdrawn into the receiving account

Rollover Withholding Example

Let’s take a closer look at this withholding rule.  Let’s say that you have $10,000 in an account that you want to move to a new retirement account.  If the money is sent directly to you, then you’ll receive $8,000 (20% will be withheld).  To avoid any tax penalties, you will have to send $10,000 to the receiving account.  That means you need to make sure you have access to funds to make up for the 20% withheld.  In this example, that amount is $2,000.

You can avoid the 20% withholding by have the distribution set up as a direct rollover, or transfer, as mentioned above.  This means that the money goes directly from the withdrawal account to the receiving account.  Retirement plan administrators do this all the time, and they can help walk you through the process.

Future Contributions and Rollover IRAs

There are some benefits of keeping a rollover IRA separate from any other IRAs you’ve been funding in the past, or would consider funding in the future.  That’s because once you make personal contributions to a rollover that is not from a company-sponsored plan then you will very likely lose the ability to move that rollover to a new company’s sponsored plan.

Rollover IRA Withdrawal Rules

The withdrawal rules for a rollover IRA are exactly the same as the rules for a traditional IRA.  The contributions and earnings are taxed when withdrawn after age 59 1/2.  Any withdrawals before the age 59 1/2 are taxable and subject to a 10% tax penalty.  Withdrawals from a rollover IRA must begin by the year after you reach 70 1/2.

For more information these types of distributions, including allowed exceptions to these rules, see our publication on IRA Withdrawals.

Roth IRA Rollovers

Finally, we’d like to mention that there really is no such thing as a Roth IRA rollover.  That’s because the IRS refers to the process of rolling-over a traditional IRA to a Roth IRA a conversion.  Unfortunately, the topic of converting a traditional IRA into a Roth IRA is far too complex to discuss here.

There are worksheets involved to figure out if you qualify; there are tax and withholding implications too.  Although we attempt to take fairly complex subject and explain them in plain English, this subject is best discussed with a tax professional.  For the ambitious readers out there, you can take a look at this 100 page publication put out by the IRS - Publication 590, which thoroughly discusses the topic of IRA conversions.

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.

It is important to understand the value of a Roth IRA when you are planning for your retirement. Below is an article that will give you more information about Roth IRAs to help you in your decision making.

Roth:  Four Little Letters Leading to Financial Security

Written by James Lange, JD, CFP
Roth IRA Advisor

Roth IRAs and their more recent cousins, the Roth 401(k) and Roth 403(b), offer outstanding retirement and estate planning opportunities to most readers who qualify. Further, the chance to benefit from a Roth account does not end when employment ends, as Roth IRA conversions are favorable for many retirees. A significant change to the tax law effective in 2010 has the potential to significantly enhance the benefits of your retirement savings. The change which is now effective is that there is no income cap for Roth IRA eligibility for 2010. This means regardless of income, all IRA owners will be eligible for a Roth IRA conversion. Previously, only those with incomes under $100,000 could do a conversion.

If you are unsure about using a Roth plan, read on and discover how a Roth retirement plan can help provide you and your family with long-term financial security. In most cases, you will be better off and in many cases, you could start the foundation for a tax-free dynasty.

Roth IRA Contributions - Rules and Recommendations

In most cases, we recommend that you make a $5,000 Roth IRA contribution for yourself and (if applicable) a $5,000 contribution for your spouse for 2010. If either you or your spouse is over age 50, these amounts are increased to $6,000.

According to Roth IRA rules, to qualify for the maximum contribution, married taxpayers filing a joint return must have combined Adjusted Gross Income (AGI) of less than $166,000 (for 2009) or less than $167,000 (for 2010) and your earned income must be at least as much as the amount you want to contribute to the Roth IRA. For singles, you must have an AGI of less than $105,000 and an earned income of an amount at least equal to the contribution amount.

If you are wealthy and have qualifying children or grandchildren (i.e., the children are earning at least $5,000), please consider giving any eligible child or grandchild a gift of $5,000-with the stipulation that he or she should put the money into a Roth IRA for themselves.

Why is a Roth IRA Better than a Regular IRA?

Roth IRAs, with a few exceptions, grow income-tax free and owners are not required to begin taking minimum distributions at age 70½. Your Roth IRA can continue to grow tax-free for as long as you, or possibly your children or grandchildren, own it.

Regular IRAs grow tax-deferred, and both the original investment and the growth will be taxed when the money is withdrawn.

The disadvantage of the Roth IRA is that you do not receive a tax deduction when you make a contribution. In effect, Congress is taxing the seed (your contribution), but you reap the harvest (your withdrawals) tax free. In contrast, with a traditional IRA, you are not taxed on the seed, but your harvest is taxed.

The exception to our preference for the Roth over the regular IRA would be when you can anticipate that your income tax bracket will be lower later. However, even with a lower tax brackets in retirement, the Roth IRA can still be a better choice unless a short investment period is anticipated.

Roth IRA Conversion

Now that the $100,000 income limit is gone, you should give serious consideration to converting at least a portion of your current regular IRA to a Roth IRA. For most clients, we generally recommend a partial conversion. Making the conversion does require paying taxes on the converted amount to the extent it produces taxable income and larger conversions can result in taxes at higher rates. But, taking that tax payment into account, a strategic amount of conversion provides a dramatic increase in long-term benefits to your family.

How much better off are you? In the simple example graphed below using consistent tax rates, if you convert $100,000 today, then in 20 years, you are $51,227 ahead (using reasonable assumptions too lengthy to list).

But, then please consider this scenario: what if you die 20 years after you make the conversion and you opt to leave the Roth IRA to your 55-year-old child?

How much better off is your child? $1,537,493. To be fair, that is in future dollars. The present value of the benefit to your child or children in today’s dollars is $260,963 adjusted for 3% inflation.

But, what if you instead decide to leave the Roth IRA to your 25-year-old grandchild?

How much better off is your grandchild? $2,555,058. Again, to be fair, that is in future dollars. The present value of the benefit to your grandchild or grandchildren in today’s dollars is $433,678 adjusted for 3% inflation. This is a greater advantage than for the children because the younger grandchildren have lower required minimum distributions and thus more tax-free growth than do the children.

What if the Tax Rates Go Up?

You will be ecstatic that you made the conversion. If you convert when taxes are lower and cut taxable income when taxes are higher, the benefits of the conversion will be much better than the graphs indicate.

What if We Abolish the Income Tax?

Oops, your hot air balloon will be deflated. You would have paid income tax for nothing.

Estate Planning for Roth and Regular IRAs

While conducting your estate planning, please keep in mind that it is not your will or living trust that establishes who will inherit your IRAs, Roth IRAs and retirement plans. Those determinations are controlled by the beneficiary designations that you have chosen for each of these specific plans. Many readers have complicated wills, but they make the mistake of not doing the same depth of planning when specifying their IRA and retirement plan beneficiaries. IRA owners and retirement plan participants should consider whether they need sophisticated IRA and retirement plan beneficiary designations, in addition to sophisticated wills or living trusts. An integrated tax-savvy approach including wills, trusts and retirement plan beneficiary designations will dramatically increase the amount of the funds retained by the family.

Discover the wealth-building power of a Roth IRA!

James Lange, CPA, JD, is a nationally recognized tax and retirement and estate planning attorneywith a thriving practice in Pittsburgh, Pennsylvania.  He is also the author of the bestselling book Retire Secure! Pay Taxes Later:  The Key to Making Your Money Last as Long as You Do. He offers well researched, time tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans.  His plans include tax-savvy advice, will and trust preparation, and intricate beneficiary designations for IRAs and other retirement plans.  Jim’s advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendation frequently appear in the Wall Street Journal,  and his articles have been published in Financial Planning, Kiplinger’s Retirement Report and The Tax Adviser.

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.

 

As a follow up to last week’s brief overview of custodial IRAs, the following article gives additional details on how custodial IRAs work and the benefits of setting one up for your child.

Start Good Saving And Investing Habits Early

from CharlesSchwab

If your child works and has earned income, he or she may be eligible for a Custodial IRA. As a parent, you can open a Custodial IRA for your child. There are lots of great reasons to consider this, including:

Opening a Custodial IRA for your child can be a great way to teach important lessons about the value of saving and investing.

As with all IRAs, funds invested in a Custodial IRA qualify for special tax treatment. With an early head-start, your child’s earnings could potentially benefit from many years of tax-deferred compounding.

A Custodial IRA can also provide an additional source of funds for your child’s college education-or even help them to buy their first home.

How It Works

• A Custodial IRA account can be opened as either a traditional IRA or a Roth IRA.
• The account is managed by a parent or guardian for the benefit of the child.
• Funds in the account belong to the child and must be turned over to the child at the age of majority. Although the general principles for custodial accounts are the same across the country, the age of majority when the child is entitled to control the account and take the assets varies from age 18 to 21 depending on the state. Some states allow the designation of a higher age under certain circumstances.¹
• Assets placed in the account are considered an irrevocable gift and immediately become the property of the child. In other words, you aren’t allowed to change your mind and take the assets back, and the money in the account must be turned over to the child once the custodianship ends, usually at age 18 or 21, depending on your state.
• While the objective of an IRA is to save for retirement, the child may be able to use funds earlier for qualified higher education expenses, first-time home purchases or other qualified reasons.

Investment Choices

Custodial IRAs give you the same investment choices as our regular IRA accounts. With a Custodial IRA, you will have the freedom to:

• Invest in stocks, bonds, mutual funds, and more. 
• Trade online, by phone, or in a branch. 
• Use online research and planning tools.

Visit CharlesSchwab for answers to frequently asked  questions about custodial IRAs.

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 josipbroz

Understanding your options to save for retirement can be daunting. The following article gives basic information about the different types of individual retirement accounts (IRAs) to help you prepare for your financial future.

Invest in an IRA to build your savings and get tax benefits

Provided by Charles Schwab 

An IRA is an easy way to save for retirement. You get to choose the investments you want, your earnings can grow tax-deferred and withdrawals you take at retirement may be tax-free. Select your IRA from the list below or use the Schwab IRA Analyzer to help you decide.

Traditional IRA

A traditional IRA is a great way to build your retirement nest egg while enjoying tax benefits. You won’t pay tax on your earnings until you make withdrawals, and your contributions may be tax-deductible. This could be the right choice for you if you are under 70 ½ and have earned income.

Roth IRA

With a Roth IRA, your contributions aren’t tax-deductible- but your earnings grow tax-deferred and withdrawals can be made tax-free. Unlike a traditional IRA, you don’t have to make annual withdrawals at a certain age. A Roth IRA could be the right choice for you if you expect to be in a higher tax bracket in the future.

Rollover IRA

If you have assets in an old employer-sponsored retirement plan, it’s easy to move them into a Schwab Rollover IRA. You keep the tax benefits and get to choose how your money is invested. This could be the right choice for you if you’ve changed jobs or retired.

Inherited IRA

If you’re the beneficiary of an IRA, opening an inherited IRA will preserve the tax-deferred status of the account. This could be the right choice for you if you don’t have an immediate need for the cash and you want to avoid taxes that would be due if you were to take the assets as a lump sum.

Custodial IRA

A custodial IRA makes it possible to set up a retirement account for a minor so that he or she can benefit from tax-free or tax-deferred growth. Custodial IRAs require that an adult be named as custodian of the account until the minor reaches the age when he or she can take control of the assets. This could be the right choice for you if you’re the parent of a child under 18 who has earned income.

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.

There are a number of questions that need to be answered in order to put together a long-term investment strategy that will align your risk tolerance with your portfolio. We invite you to watch this short video that discusses these questions.

You can schedule a complimentary portfolio review with one of Paragon’s financial advisors if you have additional questions about aligning your portfolio with your risk tolerance.

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.

Your investment risk tolerance is the amount of stress you experience when your account declines. If you invest too aggressively for your risk tolerance, then at some level of decline you may reach a breaking point. When that point is hit, many investors feel the need to sell their investments in order to protect themselves. As a result, they make the classic mistake of selling out right at the market bottom just before the market rebounds. This causes them to lock in their losses and miss out on future gains.

We invite you to watch this video and then take a short 10-question survey to determine your risk tolerance.

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 E l u s i v e E y E

Finding a financial advisor can be daunting. This is because the title “financial advisor” is not regulated, and advisors range the gamut from annuity sales people to insurance agents to registered money managers.

Who you select to be your financial advisor is largely dependant upon your goals, financial situation, state of life and investment style. If you are just looking to buy insurance, there are certainly no problems buying from an insurance agent. But, if you are interseted in investing in your 401k or other funds for long-term growth, it is crucial that you understand how to select the top money managers that will help you grow your instement portfolio over time.

You should ask the following 7 questions before you select a financial advisor. We also invite you to watch a short video for additional information on How To Select A Financial Advisor.

#1 - Is the advisor a fiduciary advisor? Do they have the legal obligation to put your interest ahead of their own?

#2 - Does the advisor have at least 10 years of experience? 

#3 - Can the advisor produce a clear report that shows exactly what their track record has been over the years?

#4 - Does the advisor have a conflict of interest? Are they paid based on a commission for selling you a product you may not need?

#5 - Do they have a surrender charge? Are you free to move your money out of an investment if you are not satisfied?

#6 - How will your funds be protected? 

#7 - Will the advisor work with you to determine your risk tolerance and make sure your investments are in line with your ability to tolerate risk? 

To download the complete article visit paragonwealth.com. 

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 Nicolas Valentin

Although saving for retirement is always important, the way you approach it will vary depending on your age. The following excerpt discusses how to best save for retirement in your 40s and 50s.   

Saving For Retirement At Any Age

by Scott Reeves.  To view the complete article visit Forbes.com

Investing In Your 40s

You’re Not Immortal
That sound you hear is time whistling in your ears. Ahead are the first foothills of middle age, not to mention a double chin, thinning hair and teenage kids who drive you nuts. But relax, Old Timer, because there’s still time for aggressive investments in your retirement portfolio.

Up The Allocation
By now, you’re established in your career and should consider setting aside 15% or 20% of your salary for retirement. You’re also an experienced investor and can make wise decisions with the help of your financial advisor. Set up a meeting. It’s time to get serious.

Pencil It Out
How do you want to spend your retirement? What will it cost? Crank up the spreadsheets and match your projected retirement income with estimated expenses. This is a good reality check. There’s still plenty of time to make needed adjustments.

Trappings Of Success
Yeah, yeah–a BMW, Lexus or Mercedes is nifty. But remember that the life cycle of a car involves boobs backing into it in parking lots, crazies crunching it in traffic and birds bombing it. Moral: Don’t let the trappings of success smother your retirement plans.

Update Plans
The numbers in the early draft of your retirement plan may have been yanked out of the air. You’ve now got years of experience to draw on. Update the plan and make needed adjustments.

Review Performance
Sit down with your adviser and review the performance of your investments. What did you do right? Wrong? What could you do better? Differently?

You Haven’t Started?
Duh! If you haven’t started planning for retirement, remember that it won’t get any easier with age. If you’re just starting, consider setting aside as much as possible. Talk to a financial adviser about where to put your money–don’t exceed your risk tolerance.

Investing In Your 50s

Switch On The Turbocharger
If the calendar doesn’t focus the mind, your eyes aren’t open. If you haven’t started saving and investing for retirement, it’s time to get busy. You probably won’t be able to retire at 65, but with careful planning and shrewd investments, you can call it a career in your 70s.

Check The Actuarial Tables
The average life span is increasing. What was a sufficient retirement plan in the past may not cover the additional years many are expected to live in the future. This means setting aside more money now.

Be Realistic
A late start limits your options. Focus on what can be done. Be realistic. Don’t expect too much. If you’ve been investing for years, check your portfolio and think what you can do with what you’ve set aside.

Get An Adviser
If you’re late to the game, meet with an adviser ASAP who specializes in retirement planning. Don’t panic. Make a plan. Set aside as much money as possible. If you don’t develop a plan and stick to it, you’ll have to develop a taste for dog food and ketchup in retirement.

Stay The Course
If you’ve been investing for years, review your plan and make needed adjustments. Now may be the time to start moving into less risky investments such as bonds and maybe some real estate. The closer you come to retirement, the more conservative your investments should become.

Redefine Your Needs
Some say you should have at least 70% of your income in retirement. Sounds reasonable, if you can live comfortably on 30% less. If you can’t or simply don’t want to cut way back, get busy on rustling up additional money for retirement.

The Non-Traditionalist
Retirement is changing. It’s no longer just a matter of moving to warmer climes to play golf. Many people are doing consulting or part-time work. The extra income and additional years in retirement may alter your plans. This is an opportunity. Check it out.

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 { nic }

Written by Nathan White, CFA, Paragon Wealth Management

INDUSTRY BARRIERS

The financial services industry exists to assist people with investing by facilitating trades, providing advice, and investment management. It is a multi-billion dollar industry.

Unfortunately, much of what the industry does actually hinders investors rather than help them. Here’s how (source:  SecondeOpinions.ca):

Conflict of Interest- Most advisors and brokers provide advice to investors and get paid on the basis of selling certain investment products rather than the quality of the advice they provide.

Commissions- Most advisors and brokers are compensated by selling products. Often the riskier a product, the higher the commission.

Fees- High fees can impede investor performance. Many fees are built in or hidden making it difficult to determine the true cost and their effect on performance.

Poor Knowlege- Many advisors and brokers are professional sales people and do not have the necessary understanding of basic principles of investment and risk management.

No Performance Measurement- Most financial advisors have no record of their actual performance for client accounts. Without measurement, it is impossible to compare against alternatives such as other investment managers or a benchmark. Performance measurement determines the quality of the advice.

Lack of Accountability- Most financial advisors and brokers do not accept fiduciary responsibility over their clients. They are not accountable for the quality of advice provided or to the adherence of proper investment management principles.

MARKET MOVEMENT

The stock market is an uncertain and volatile place. Recent market activity has reinforced that view. Due to the uncertainty, many people think that investing in the markets is a no win game and either refrain from investing altogether or place their money in low yielding instruments such as savings accounts, money markets, or CD’s which don’t provide them the return needed to attain their financial goals.

People also tend to refrain from investing or sell their investments during extended down periods in the market — right at the wrong time!

The best defense against a bad market is to hire a good active manager or change to a more conservative allocation that will keep you invested through the difficult times.

Don’t be discouraged by the barriers to investing. If you are aware and understand, you will overcome them. Those who can successfully navigate them will succeed financially and set themselves apart from the masses!

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 schwong

Written by Nathan White, CFA, Paragon Wealth Management

People often wonder how they can be successful investors and build wealth.

To reach these goals we have outlined seven steps (also known as the Seven Steps to Building Wealth):

1. Start investing now

2. Spend less than you earn

3. Avoid unnecessary debt

4. Hire a competent financial advisor

5. Follow a sound, long-term strategy

6. Avoid large losses

7. Be patient

These steps can help you avoid and overcome the multitude of barriers that prevent people from becoming successful investors. In fact, these barriers are so significant they prevent most people from investing profitable or deter them from investing altogether.

My goal is to help you recognize and understand these barriers in order to beat them.

Consider the following quote attributed to Alexander Graham Bell,

“The most successful men in the end are those whose success is the result of steady accretion. It is the man who carefully advances step by step, with his mind becoming wider and wider — and progressively better able to grasp any theme or situation — preserving in what he knows to be practical, and concentrating his thought upon it, who is bound to succeed in the greatest degree.”

In order to assist you in your investing endeavors, I would like to identify three main barriers to successful investing:

1. Behavioral barriers

2. Industry barriers

3. Market movement

BEHAVIORAL BARRIERS

Psychological and behavioral traits affect individuals’ investment decisions. Unrecognized, these behaviors can lead to poor investment performance and/or financial disaster. The following are some behavioral barriers that individuals create (source: SecondOpinions.ca):

Expectations- Many individual investors have unrealistic expectations about returns in the market and long and short term risk.

Emotional- The fear and greed many investors experience often clouds their judgment and leads to poor investment decisions. Many investors sell when or after the market has gone down and only buy after or when it is moving up (Does buy high, sell low sound familiar?).

Overconfidence- Many investors overestimate their ability to outperform the market and thereby take on too much risk.

Lack of Knowledge- Many investors believe the key to successful investing is simply buying and selling the right stock or mutual fund. This demonstrates a lack of basic understanding of investment and risk management techniques.

To be continued next week…

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.