Perspective on
Market High Fears

Now that markets have bounced back and the S&P 500 Index has crossed another significant threshold (3,000 points), the financial media is, once again, doing what it does best: subtly distorting facts to perpetuate a well-crafted narrative in order to create doubt and unrest so you will continue to tune in.

As we have discussed on numerous occasions, being a successful long-term investor at this critical stage in your life is not easy.  Understanding markets and history is certainly part of the job.  However, proactively filtering and putting the daily deluge of misinformation into proper perspective is of equal or greater importance to your success because of its impact on your mindset and potential actions.

Here are two very important examples we are hearing over and over right now that you have to be aware of:

1)“The market is at an all-time high: How many times have you seen this in the news, or heard it from friends or colleagues? In nominal terms, i.e. 3,000 points vs. 2,500 points, etc., it is true. However, like any financial number, the nominal figure itself  is of zero significance or value to you unless it’s compared with one or many other numbers for perspective.

As I shared with you in my book, The Relaxing Retirement Formula, in October of 1987, the Dow Jones Industrial average fell 508 points in one day.  Back then, 508 points represented a 22.6% drop, a very significant number!

Today, 508 points represents only a 1.8% drop which is Twelve and a Half Times LESS significant than a 22.6% drop.

However, the financial media continues to report “points” on the news each day.  Why do they do this instead using percentages which would be a far more accurate way to report the true significance of the drop?

You and I both know why intellectually: reporting points has a much larger impact on you emotionally!  And, the more emotion they can stir up, the more likely you are to tune in and remain tuned in for the next dose, thus increasing their ratings and the amount they can charge their advertisers.

Now, let’s go back to the market’s at an all-time highfear messaging and place it in proper perspective by comparing it to another relevant number.  The S&P 500 Index (as I write this) is at 3,085.  The consensus forward 12-month earnings estimate for the S&P 500 is 176 (per Yardeni).  Dividing this earnings estimate by the market price provides us with a 12-month P/E (Price-to-Earnings) estimate of 17.5.

For perspective, at the peak of the dot com bubble back in 2000, the 12-month forward P/E estimate of the S&P 500 Index was 29.0 (i.e. 66% higher than it is today)!

By any rational evaluation, that was an all-time high, and it doesn’t even take into consideration two other crucial variables as a backdrop to current market valuations, i.e. our current historically low inflation and interest rates.

The bottom line is the nominal figure of the market’s price (i.e. 3,000) is irrelevant without placing it into proper perspective.  However, the media will continue to tout the phrase, “the market’s at an all-time high” because it stirs up the fearful emotion they want to instill in you that the shoe is about to fall at any moment…so stay tuned.

2)  “The longest bull market of all time”:  The corollary to my first example is the continued storyline that we’re experiencing the longest uninterrupted bull market run of all time dating back to the financial crisis when the market bottomed out on March 9, 2009 after a 57% peak-to-trough drop.

To continue that narrative, the financial media has strategically chosen not to acknowledge two significant events.

You may recall that in 2011, we experienced a bear market brought on by the Eurozone meltdown, the debt ceiling crisis, and Standard & Poor’s downgrade of U.S. government debt.

(For reference, the pure definition of a “bear” market is a peak-to-trough fall in market prices of 20% on a closing basis, i.e. not intra-day.)

Between April 29th and October 2nd of 2011, market prices fell 19.4% on a closing basis, just shy of the 20% threshold. Although it didn’t close down 20%, if you measure the fall by the level of hysteria and equity fund redemptions, it certainly would have qualified as a bear market.

The same holds true for last year between September 20th and Christmas Eve when the value of the S&P 500 Index fell 19.8% on a closing basis, again just a hair shy of the 20% bear market threshold.

Ask all of those who panicked and sold out over $100 billion of equity mutual funds in just a two week period in December if they thought it was a bear market.

The financial media’s decision not to acknowledge these two large market downturns as “bear” markets allows them to strategically continue calling this the “longest running bull market of all time”, thus perpetuating the emotionally charged underlying fear that the market is long overdue for a large correction and it will do so at any moment.

None of this is in any way a prediction of what markets will do tomorrow, next week, or even next year.  Any honest person will readily admit that they don’t know either.

What’s so important to take away from this is to begin each day consciously aware of all attempts to strategically manipulate your emotions.  Don’t just take everything you read and hear at face value.  Always try to put it into proper perspective.

Protect your confidence by filtering all dispensed information for the truth so that you can make decisions based on fact instead of opinion.

 

Retirement Coach Jack Phelps Publishes New Article Explaining Why Stock Market Volatility Should Be Completely Irrelevant For You

Jack Phelps, founder of The Relaxing Retirement Coach, provides a perfect case study over the last 8 months to illustrate this classic mistake most retirees make

Wellesley, MA – April 19, 2016Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) clarifying exactly why stock market volatility is nothing to be feared.

In his article titled “Why Market Volatility is Irrelevant for You, Jack Phelps writes, “In the last eight months, you have experienced firsthand why stock market price volatility is completely irrelevant. Yes, after 28 years of careful study and hands-on work with hundreds of Relaxing Retirement members, I can unequivocally say that volatility is irrelevant for you.

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/why-market-price-volatility-is-irrelevant-for-you-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

 

 

 

Why Market Price Volatility is Irrelevant for You

In the last eight months, you have experienced firsthand why stock market price volatility is completely irrelevant.

Yes, after 28 years of careful study and hands-on work with hundreds of Relaxing Retirement members, I can unequivocally say that volatility is irrelevant for you.

So that we don’t confuse the issue, and jump to the conclusion that I’ve gone off the deep end, let’s first define volatility.

Volatility simply means price movement, down and up. You may expand that to mean unstable and unpredictable.

Please note that nowhere in the definition of volatility is the word loss or permanent.

The Last Eight Months

Time has a way of healing all wounds/memories, so let’s recall the journey of market price movements over the last eight months to beautifully illustrate just how irrelevant market price volatility is:

Episode #1 of particular interest was the last days of August, 2015.

In a matter of 5 trading days, the price of the broad market S&P 500 index fell more than 11% down to 1,867. (We could examine the price of other indexes, but to keep the incredible lesson simple, we’ll stick with the S&P for now)

You may recall the hysteria created by the financial media. During the week following this drop, an all-time record $29.5 billion was withdrawn from stock funds by investors with $19 billion coming on one day!

As they always have, market prices then corrected right back up through November.

Episode #2 was the price slide that began in late December and picked up steam in early January leading financial journalists to pronounce the beginning of January 2016 as:

“The Worst Five Days to Begin Any Year”,
“The Worst First Two Weeks of Any Year”, and
“The Worst 12 Days of Any Year Since 1929!”

Attaching numbers to this “catastrophe”, the price of the S&P 500 Index fell 6.1% in the first 8 days of 2016, and bottomed out on February 11th at 1,815 down 10.5% for the year, and down 13.2% from early November.

The End of the World was pronounced once again by the financial media and more and more Americans began to buy into the belief that the bottom was officially falling out this time.

As you now know, market prices once again rebounded back up again to close out on March 31st at 2,051.

That not only means that the “worst start to any year in history” was erased. It was erased in less than two months! And, the S&P 500 Index ended the first quarter of 2016 up 1.13%.

What We Can Learn From This

Experience is a wonderful tool….if we use it.

Every life event, good and bad, is just that unless we pause for a moment to document and learn from it so we can better prepare ourselves for the future.

Expectation Level: If you enter the game with a proper expectation level, you won’t be spooked into making a cataclysmic mistake. By expectation level, I’m referring to the fact that since 1980, the average intra-year peak to trough drop in the price of the S&P 500 Index is 14.2%.

Translation: On average, market prices have temporarily fallen 14.2% at some point in the middle of the year over the last 36 years. I don’t think the importance of that fact can be stated enough times.

What this means is that you should expect market prices to temporarily fall, and fall sharply at times each and every year. That’s what market prices have always done. Why would they no longer do so in the future?

The two corrections detailed above that you have just lived through and experienced first-hand are perfect examples of this. Their effect on your long term goals is zero because they were temporary, not permanent.

A Plan: If you enter the game with a carefully thought out and detailed plan based on your long term goals, you can sleep like a baby at night with total confidence.

If you know your level of Retirement Bucket™ dependence (how much you need to withdraw each year to maintain your lifestyle).

If you keep sufficient balances in money markets and short term instruments to support your withdrawals without being forced to sell your ownership stake in companies in a temporary down market.

And, if you maintain disciplined asset allocation and an “ownership” mindset with the rest, market price volatility is 100% irrelevant for you.

The Financial Media: The goals of the financial media are not your goals. Their goal is to keep you tuned in so they can sell higher and higher priced advertising space.

Next to a good old fashioned hurricane or blizzard, the O.J. slow speed Bronco chase, or a real national catastrophe like the events of 9/11, the greatest tool ever invented to assist the mainstream press with capturing your attention is the volatility of stock market prices.

Up…down….up….down…up!

They absolutely love it because it’s a great tool to scare the living daylights out of the average American who does not understand that market price volatility is 100% irrelevant for those with a plan.

If you didn’t panic out and you maintained your focus and discipline over the last eight months, take a bow! I sincerely congratulate you. Well done!

Know that you are in the minority.

While you’re taking your bow, don’t miss the opportunity to internalize what just occurred so you will be even more prepared the next time market prices correct and the mainstream press proclaims “this time it’s different!”

You will better prepared to laugh it off the same way Lamont laughed off his father, Fred Sanford’s, weekly proclamation while grabbing his heart, “I’m comin’ Elizabeth….this is the BIG one” in the hilarious sitcom Sanford and Son.

Do You Have Time?

While watching the news last week at the end of a day in which broad stock market prices fell 1.2%, the reporter interviewed three retirees to get their reaction to the day’s events.

Each person interviewed echoed a similar problem they believe they had: “I’m worried. At my age, I don’t have time to make it back.”

The next morning, a leading headline and story on Wall Street Journal’s Market Watch website echoed the exact same sentiment spelled out by those three retirees who were interviewed:

 Stock Prices in Free Fall Again:

Retirees Worried They Don’t Have Time

The story then captured a quote from a retiree I’ve heard too many times to count:

Investing for the long term sounds great when you’re in your 30s, 40s, or 50s, but I’m 70 years old. I don’t have time to make up for any losses.”  

Does this sound familiar? Have you ever had a similar thought?

If you have, I can assure you that you’re not alone.   I can also tell you that it is unnecessarily in the way of you enjoying the Relaxing Retirement you deserve.

Whenever markets correct, as they recently have, the investment time horizon for the majority of retirees in America quickly shrinks.

While increases in market prices over their lifetimes are typically met with reservation, i.e. “it can’t or won’t last”, decreases in market prices are greeted with the gut feeling of permanence, i.e. “it sounds really bad this time. I don’t think it will ever come back in my lifetime!

If you study financial news reporting, you will find a version of this story during every market correction.   So much so that the “we don’t have time to make it back” mantra is treated as an indisputable fact, one which governs investment decisions for the majority of Americans during their retirement years.

I’ve heard it so many times that I decided to do a little research for you to see if this dominant sentiment is supported by facts.

Our Shared Problem

As we review some critical facts, it’s important that our shared problem is at the forefront of our minds since it is the reason we all choose to invest and subject ourselves to market volatility in the first place. As we’ve alluded to many times in the past, our shared problem is two-fold: rising costs and longevity.

We live in a rising cost world. In order for us to maintain our chosen lifestyle, our income must increase substantially over our lifetime. And, our lifetime is a lot longer than it was a generation ago as you’re about to discover.

This is not a “want”. This is a “need”. Our income must increase. And, in order for our income to increase (to offset inflationary costs over our lifetime), the assets we own in our Retirement Bucket™ must increase in value over the course of our lives to generate that lifestyle sustaining income.

In short, our shared problem is a long term problem, not a short term one. If our lifespan truly is that short as the quote suggests, market corrections are of no significance.

First, we wouldn’t own equities because equities solve a long term problem.

And second, although potentially uncomfortable to think about, if we did own equities and market prices temporarily dropped right before our demise, our beneficiaries would inherit and maintain ownership of them while prices corrected back.

How Long is Long Term?

With all of this talk about time, i.e. “I don’t have time to make it back”, let’s examine the facts about just how long is “long term” using Average Life Expectancy information from mortality tables used by life insurance companies and social security.

For clarity, a few highlights:

  • Life expectancy for a 60 year old male is 44 years, and 24.37 years for a female. However, their joint life expectancy, i.e. the average life expectancy for the survivor in a 60 year old couple is 31.8 years, i.e. just shy of 92 years of age.
  • For a 70 year old couple, their joint life expectancy is 6 years.
  • For an 80 year old couple, their joint life expectancy is 5 years.
  • For an 85 year old couple, their joint life expectancy is 1 years.
  • At age 75, the average life expectancy for a male is 94 years, and 12.76 years for a female.

Take a moment to let these facts sink in.

Assuming for a moment that you are just “average” (I know that our members are well above average in many respects), where are you in these numbers?

For example, if you’re a 70 year old couple, your number is 22.6 years, so your personal investment time horizon is 22.6 years!

Stock Market Corrections

With your investment time horizon firmly in your mind, now let’s examine historical market corrections.

Since 1928, market prices have fallen 10% or more (the definition of a correction) on 87 separate occasions, and 20% or more (the definition of a ‘bear market’) on 23 separate occasions.

The average length of time for market prices to return from their bottom back to their pre-correction price level is 111 days. Since those are trading days, that means 5 months.

Yes, you read that correctly. 5 months!

 Investment Time Horizon

With these historical facts, let’s now return to those Average Life Expectancy facts and your investment time horizon to determine if the often heard quote, “Investing for the long term sounds great when you’re in your 30s, 40s, or 50s, but I’m 70 years old. I don’t have time to make up for any losses” is valid for you.  

Let’s assume for a moment that you have followed The Relaxing Retirement Formula™, i.e. you have determined what it costs to support your lifestyle, and how much of that must be withdrawn each year from your Retirement Bucket™. You have set aside multiple years worth (5 is a very safe number) of your anticipated withdrawals in money markets and short term income instruments, and properly diversified the rest across a spectrum of equity asset classes.

If you are that 70 year old man and you are single, your investment time horizon is 14.13 years. If you are a woman, it’s 16.33 years.   If married, it’s 22.6 years. In either case, is the “I don’t have time to make it back” mantra factually valid? No!

Even if it took five years for market prices to return, which is twelve times longer than the historical average, you would not have had to sell any of your equity holdings at a loss to free up funds to support your needed withdrawals because you already had those funds set aside outside of equities.

The reality is that your investment time horizon is a lot longer than you may think, and if you follow The Relaxing Retirement Formula™, you do have time!

Knowing this should give you enormous confidence to spend what you have planned to spend no matter what the current market conditions are at the moment.

 

Retirement Coach Jack Phelps Publishes New Article Illustrating How To Determine if You Have Enough

Jack Phelps, founder of The Relaxing Retirement Coach, uses a case study to uncover the missing answer

Wellesley, MA – January 26, 2016Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) demonstrating why two couples with the same assets and income levels can have drastically different needs.

In his article titled “Do We Have Enough, Jack Phelps writes, “When I meet with someone for the first time, one of the things they want to know very early in our conversation is “do you think we have enough?” That’s the question on the tip of everyone’s tongue. My answer is always the same.”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/do-we-have-enough-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

 

 

 

Retirement Coach Jack Phelps Publishes New Article Revealing a Startling Analogy Between the Leading Causes of Death and Financial Dependence

Jack Phelps, founder of The Relaxing Retirement Coach, shares the revelation he had after a dinner conversation with friends and his ensuing research with the World Health Organization

Wellesley, MA – August 11, 2015Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) illustrating the incredible similarities between the perception and reality of poor physical and financial health.

In his article titled “Playing the Odds, Jack Phelps writes, “Our dinner conversation kicked into high gear when our friend said something I’ve heard so many times, ‘All your exercise and attention to healthy eating is great, but there’s no guarantee you won’t still drop dead of a heart attack if it’s in your genes. My father and grandfather both died of a heart attack before they were 62.’”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/play-the-odds-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

 

 

 

Play The Odds

While having dinner with friends in Chatham last week, we had a long conversation about health.

The “spirited” debate essentially boiled down to the leading causes of death and the role that ‘luck’ and genetics play vs. the choices we make.

I’d like to share parts of that conversation with you, and the revelation I arrived at about the remarkable similarities to ‘financial health’.

This will take a few moments, but I promise you this extended discussion and research on health has an extremely important lesson in it for all of us about the financial health you and your family members will experience.

Our dinner conversation kicked into high gear when our friend said something I’ve heard so many times, “All your exercise and attention to healthy eating is great, but there’s no guarantee you won’t still drop dead of a heart attack if it’s in your genes. My father and grandfather both died of a heart attack before they were 62.”

I’m sure you’ve heard some version of this comment before. Ultimately, it’s the same as, “you can do everything right and still get hit by a bus!” Or, “I know a guy who was ‘healthy’ who collapsed and died while running.”

Driving home from dinner, I made a mental note to do some research before seeing them again.

 World Health Organization

My ‘fact finding’ mission brought me to The World Health Organization website. (www.who.int)

Here are some very important facts about the four leading causes of death (The italicizing and bolding is mine for emphasis):

Non-communicable diseases (NCD) were responsible for 68% of all deaths globally in 2012, up from 60% in 2000. The 4 main NCDs are cardiovascular diseases, cancers, diabetes and chronic lung diseases. Communicable, maternal, neonatal and nutrition conditions collectively were responsible for 23% of global deaths, and injuries caused 9% of all deaths.

  1. Cardiovascular Diseases (CVDs)

 CVDs are the number one cause of death globally: more people die annually from CVDs than from any other cause.

An estimated 17.5 million people died from CVDs in 2012, representing 31% of all global deaths.

Most cardiovascular diseases can be prevented by addressing behavioral risk factors such as tobacco use, unhealthy diet and obesity, physical inactivity and harmful use of alcohol using population-wide strategies. 

  1. Cancer

Cancers figure among the leading causes of morbidity and mortality worldwide, with approximately 14 million new cases and 8.2 million cancer related deaths in 2012.

Around one third of cancer deaths are due to the 5 leading behavioral and dietary risks: high body mass index, low fruit and vegetable intake, lack of physical activity, tobacco use, alcohol use.

Tobacco use is the most important risk factor for cancer causing around 20% of global cancer deaths and around 70% of global lung cancer deaths.

  1. Diabetes

In 2012, an estimated 1.5 million deaths were directly caused by diabetes.

Type 2 diabetes comprises 90% of people with diabetes around the world and is largely the result of excess body weight and physical inactivity.

Healthy diet, regular physical activity, maintaining a normal body weight and avoiding tobacco use can prevent or delay the onset of type 2 diabetes.

  1. Chronic Obstructive Pulmonary Disease (COPD)

More than 3 million people died of COPD in 2012, which is equal to 6% of all deaths globally that year.

The primary cause of COPD is tobacco smoke (through tobacco use or second-hand smoke).

What’s the Commonality?

As you read through all of this, do you notice any commonalities?

First, two thirds of all deaths are related to non-communicable diseases (NCDs), i.e. not an epidemic and not an accident.

Among the four leading NCDs, the startling commonality is that they are not random, and not genetic. They’re primarily brought on by lifestyle choices and the physical effects these choices have on our body:

  • Eating: what do we eat, when do we eat, and how much do we eat?
  • Drinking: how much alcohol do we consume? How much water do we consume?
  • Smoking
  • Exercise: how often, and what type
  • Stress
  • Sleep: how much do you get, and what’s the quality of your sleep?

There’s No Guarantee

Armed with these facts, let’s now go back to my dinner conversation with our friend and her comment: “All your exercise and attention to healthy eating is great, but there’s no guarantee you won’t still drop dead of a heart attack if it’s in your genes. My father and grandfather both died of a heart attack before they were 62.”

I sympathize with the loss of her father and grandfather because I lost my mother to cancer at age 57, but the fact that they both died of a heart attack before age 62 doesn’t necessarily suggest that it was genetic. What are the chances that their lifestyle choices, and the negative long term effects they had on their bodies, were similar?

More important, however, was our friend’s choice of the word “guarantee”. It’s a very, very important word and one that led to my “revelation”.

Everyone yearns for certainty in their lives. In other words, they desire and would much prefer guarantees with everything (health, finances, etc.)

Unfortunately for those who seek it, life is not a straight line. There are no guaranteed results in anything.

Given this, to achieve whatever it is that you want, use your freedom to choose.

Research and play the odds at every turn!

In health, it’s 100% true that you could get hit by a bus and die. It’s also true that genetics plays a role in your longevity.

However, as The World Health Organization statistics suggest, your lifestyle choices (a nicer word than behavior) have a far, far greater impact on your health, vitality, and ultimately, your longevity.

If you have a sincere desire to be healthy and live a long life, why would you not study how to eat better, drink much more water and less alcohol, stop smoking cigarettes, exercise rigorously on a daily basis, etc.

Those like our friend who choose to focus on the role that genetics or accidents play in our long term health, etc. prefer believing it’s out of their control because it absolves them of any responsibility or role in the outcome. After all, “there’s no guarantee”.

What they’re really saying is they prefer not to make the proper choices and just do whatever feels good in the moment without any regard to the long term ramifications.

It’s easier to say it’s out of our control, it’s random, or it’s predetermined.

However, that’s a rejection of the reality that we all have the freedom to make the choice to play the odds at every turn and reap the rewards the statistics demonstrate.

My Revelation:

The Analogy to Financial Health

 At this point, you’re probably wondering what this has to do with financial health!

In short….everything!

When you step outside of our Relaxing Retirement membership community, and you read or listen to the majority of individuals (and, by extension, the financial media) talk about those who have achieved financial success, what do you hear?

  • Right Place, Right Time, Luck: Those who have done well had the luck of good timing, choosing to work for many years for company X vs. Y, the business they created benefitted from outside events, etc. and they earned a large income,
  • Trust fund kid, i.e. they inherited it (despite Forbes annual statistics of the remotely small minority to have sustained wealth coming from inheritance),
  • Magic Investment: they somehow obtained information, probably unethically or unfairly, that lead to a great investing outcome,
  • Education: they went to X school

Do you see the commonality in all of this?

It all adds up to the belief that financial independence is all random, luck, and good fortune, and you have very little influence over the financial outcomes in your life.

As potentially mean spirited as this may sound, just as it is with the health examples I gave, it’s easy and convenient to believe that financial independence is all random, luck, and good fortune.

Believing that absolves them of the responsibility of focusing on the long term, and making the necessary choices you have made which have generated your financial independence!

It’s easier to just block all of that out and focus on what brings instant, short term pleasure today, i.e. a new car I can’t afford, a 60 inch flat screen television, eating out five nights a week and running up the balance on my credits cards, or investing in a new “can’t miss hitting a home run” venture I heard about with money borrowed from my home equity line of credit.

Stark Contrast

The reality that I have witnessed amongst our members over the last 26 years is that almost none of you inherited anything. The majority did not earn extraordinarily large incomes during your working years. And, very, very few of you went to Harvard or Yale!

The reason you’re in the top 6% club has nothing to do with any of the traditional dogma most folks conveniently buy into.

You made decisions long ago that you stuck with over your lifetime to spend much less than you made, i.e. live within your means, and save and intelligently invest the difference.

You took 100% responsibility for the outcome you’ve experienced. You didn’t look for a mystical guarantee, or a magic pill (investment). You never panicked. And, you stuck with your plan.

In short, you played the odds.

And, this is what it all boils down to. There are no guarantees and no magic pills, so you may alert anyone and everyone you know to call off the search.

There are, however, successful formulas built on highly probable odds in both health and finance that are in plain view for all of us to see.

I’ve often said that if I fail, it’s certainly not going to be because I wasn’t prepared or I wasn’t willing to accept 100% responsibility for whatever outcome I realized.

In health, and in finance, we should all welcome our wonderful freedom to exercise control and choose our actions. And, happily do whatever is necessary to play the odds at every turn.

Retirement Coach Jack Phelps Publishes New Article answering the question of why we would want to ‘invest internationally’

Jack Phelps, founder of The Relaxing Retirement Coach, shows why demographic changes should play a major part in your investment decisions

Wellesley, MA – July 3, 2015Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) clarifying international investing misconceptions, and how to evaluate a company in today’s world.

In his article titled “Part II – International Investing”, Jack Phelps writes, “Whether it’s an American based company like Apple increasing sales in China or India, or a Swiss based pharmaceutical company selling insulin in the United States and abroad, who they’re selling to and the potential that brings is the critical factor.”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/part-ii-international-investing-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

 

 

 

Part II: International Investing

In my last article, we examined the misconception that international investing equals investing in the “economy” of the country or region in which the company is headquartered.

In short, there were two important distinctions:

  1. When we all invest, we’re investing in companies, not countries or the “economy” of a country,
  2. Where a company’s headquarters is located has become much less relevant when evaluating their potential success. A more accurate method of evaluating a company’s opportunities is through a “revenue lens”, i.e.  where their revenue comes from.

However, this stopped short of answering the question of why we would want to ‘invest internationally’.

The answer to that question lies in demographics. The United States, and the model in which it was built with free enterprise and the protection of personal property rights, has spawned the greatest advancement of living conditions and individual wealth in human history.

Unfortunately, many other nations took a longer period of time to institute and protect the personal freedoms which led to this explosion of improvements.

Slowly but surely, however, this is all changing. The living conditions and wealth of billions of individuals all over the world are rising rapidly, especially in developing market nations.

By the end of the decade, it is estimated that 440 million individuals will move into the middle class in Brazil, Russia, and China alone! (For reference, the United States has approximately 330 million total citizens.)

As you might imagine, this move up the wealth ladder has led to a rapid change in consumption patterns, and an increased need and desire for upscale goods and services including luxury apparel, health care, automobiles, and travel.

Health Care

In health care, for example, Novo Nordisk has a 50% share of the global insulin market. Just think about controlling half the world’s supply of insulin! Currently, 40% of their revenue comes from sales in the United States.

Now, let’s look into the future for Novo Nordisk. With the rapid movement into the middle class in so many developing nations that I noted above, the ‘westernization’ of diets has led to increased levels of diabetes. Increased diabetes leads to increased demand for insulin.

Just imagine what their marketplace will look like in 20 years.

Consumer Products

On the heels of the announcement that Apple’s cash reserves alone would make it the 17th largest company, many have questioned CEO Tim Cook’s plan to continue their stellar growth.

Cook talked about two major markets in which he thinks Apple has potential to sell many more iPhones.

The first is China. Apple is already doing well there, but Cook believes there’s an opportunity to do even more.

The next major market for Apple to attack, Cook said, is India. “We’ve started making investments in India, we’re growing rapidly in India, but we’re on a very small base there. But in some number of years, you could envision India being really significant, too, and should be.”

Air Travel

Another example is air travel. As the lifestyles of these upwardly mobile millions of people begin to increase, so will their desire to travel for pleasure, and for business in order to actively participate in global trade.

Companies who create the infrastructure necessary will also benefit, including roads, railroads, electricity, and telecommunications. All of these are crucial to the movement of goods and services to this growing group of individuals.

Takeaway and Strategy

The marketplace for all companies today has expanded rapidly, and will continue to expand based on these demographic shifts and future trade agreements.

The key point to grasp is that the location of the headquarters of a company is less and less important in evaluating their future.

Whether it’s an American based company like Apple increasing sales in China or India, or a Swiss based pharmaceutical company selling insulin in the United States and abroad, who they’re selling to and the potential that brings is the critical factor.

When you’re building your diversified Retirement Bucket™ of investments, it would be very shortsighted to limit your holdings to companies headquartered in the United States alone.

By doing so, you’re missing out on the opportunity to own companies headquartered outside the United States who not only sell to individuals in these rapidly expanding developing market countries, but also right here in the United States.

That would be the equivalent to fighting the heavyweight champ with one arm tied behind your back!

In your never ending battle to have your Retirement Bucket™ keep pace with your rising lifestyle costs, you want to stockpile and own as many good companies as you can who are positioned to take advantage of these growth patterns all over the world.

 

Retirement Coach Jack Phelps Publishes New Article Clarifying Common Misconceptions Surrounding International Investing

Jack Phelps, founder of The Relaxing Retirement Coach, provides a very simple method to understand international investing

Wellesley, MA – June 4, 2015 – Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) exposing common misconceptions about international investing and how you can understand the critical topic more easily.

In his article titled “International Investing”, Jack Phelps writes, “There is a lot of confusion over the issue of international (or global) investing so I’d like to clarify a few misconceptions so you can be a more educated investor in your retirement years.”
The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money. Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/international-or-global-investing-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program™ back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

International (or Global) Investing

When you hear the phrase “investing overseas”, what is the first thought that comes into your mind?

If you’re like many Americans, you might respond by saying:

“Isn’t investing overseas risky?”, or

“Why would anyone want to invest overseas?  Isn’t Europe’s ‘economy’ struggling?”

There is a lot of confusion over the issue of international (or global) investing so I’d like to clarify a few misconceptions so you can be the most educated investor.

Let’s begin by taking a big step back for a moment and clarifying why we all invest in the first place.  We all choose to invest in order to accomplish multiple goals, but in the big picture, they all fall under two main goals:

  1. Build our Retirement Bucket™ large enough to achieve complete financial independence so we don’t have to depend on the income from work in order to support our desired lifestyles.
  2. Maintain our purchasing power into the future in a world which has witnessed staggering levels of price increases throughout history.

In order to accomplish these goals, we all must own assets (investing) which have the potential to grow fast enough to keep pace with our rising lifestyle costs.

The $64,000 question is then always, “what should we invest in”?

A better way of stating that is “what companies should we own” since owning is what investing is all about?

One way of distinguishing one company from another is where the company is headquartered, i.e. in the United States vs. anywhere else around the world.

International investing simply means owning pieces of a company (or companies) who has their headquarters located outside the United States.

That’s it.

An example of this would be owing companies like Toyota (automobile manufacturer headquartered in Japan), Novartis (pharmaceuticals company headquartered in Switzerland), or Burberry (luxury apparel headquartered in the United Kingdom).

Companies vs. Countries

One big misconception is that international investing equals investing in the economy of a certain country.

If that was true, owning shares of Toyota would mean investing in Japan.

Owning shares of Novartis would mean investing in Switzerland, or Switzerland’s economy.

Clearly, this is off base given that each company is a truly global doing business all over the world.

Toyota derives a very large percentage of their revenue from buyers located outside of Japan, predominantly in North America.  I’m one of them!

In contrast, McDonalds, which is based in the United States, has locations in more than 100 countries around the world.

When we all invest, we’re investing in companies, not countries.

Headquarter Location vs. Revenue Location

Before the liberalization of trade policies throughout the world, companies did the overwhelming majority of their business in their home region.

Today, this is no longer true.  Large multinational companies now earn the majority of their revenue outside of their original geographic boundaries.

For this reason, where a company’s headquarters is located has become much less relevant when evaluating their potential success, and thus the trajectory of their stock price.

A more accurate method of evaluating a company’s opportunities is through a “revenue lens”.

Companies now report where their revenue comes from so we can get a much more accurate picture of where their business is generated.

This critical piece of information tells you so much more about a company’s prospects than where it is headquartered.

When you hear the term “international investing”, always keep these points in mind.

Stay tuned as we now delve into why we want to invest in companies located outside the United States.  This is a very important issue.

Retirement Coach Jack Phelps Publishes New Article Revealing Warren Buffett’s Unique Thoughts on Risk and Volatility

Wellesley, MA –April 22, 2015Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) sharing Warren Buffett’s critical thoughts on volatility and risk for retirees.

In his article titled “Warren Buffett’s Annual Report”, Jack Phelps writes, “While I strongly disagree with Warren on many national policy issues, his investment philosophy and process are sensational and worthy of careful attention by all of us.”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/warren-buffett%E2%80%99s-annual-report-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

Warren Buffett’s Annual Report

If you’ve never taken the opportunity to read Warren Buffett’s annual letter to Berkshire Hathaway shareholders, I highly recommend it.

While I strongly disagree with Warren on many national policy issues, his investment philosophy and process are sensational and worthy of careful attention by all of us.

In his 42 page letter, he dissects the performance of all of the Berkshire’s companies which is fascinating.  You can’t help but marvel at the depth of thinking that goes into each of their holdings.

Warren is also refreshingly forthcoming about his mistakes.  While his overall long term investment track record is spectacular, he has made his share of mistakes and he spells several of them out for his shareholders with brutal honesty.

Rather than summarize the entire letter, which is well worth reading, I want to provide you with an excerpt from page 18 on risk and volatility that says it all.

I strongly recommend having a yellow highlighter in hand while you read this:

“Our investment results have been helped by a terrific tailwind.  During the 1964-2014 period, the S&P 500 rose from 84 to 2,059, with reinvested dividends, generated an overall return of 11,196%.  Concurrently, the purchasing power of the dollar declined a staggering 87%.  That decrease means that it now takes $1 to buy what would be bought for 13 cents in 1965 (as measured by The Consumer Price Index).

There is an important message for investors in that disparate performance between stocks and dollars.  Think back to our 2011 annual report, in which we defined investing as “the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future.”

The unconventional, but inescapable conclusion to be drawn from the past 50 years is that is has been far safer to invest in a diversified collection of American businesses than to invest in securities – Treasuries for example – whose value has been tied to American currency.  That was also true in the preceding half-century, a period including the Great Depression and two world wars.  Investors should heed this history.  To one degree or another, it is almost certain to be repeated during the next century.

Stock prices will always be far more volatile than cash equivalent holdings.  Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions.  That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk.  Though this pedagogic assumption makes for easy teaching, it is dead wrong.  Volatility is far from synonymous with risk.  Popular formulas that equate the two terms lead students, investors, and CEOs astray.

It is true, of course, that owning equities for a day or a week or a year is far riskier (in both nominal and purchasing power terms) than leaving funds in cash equivalents.  That is relevant to certain investors – …..any party that may have meaningful near-term needs for funds should keep appropriate sums in Treasuries or insured bank deposits.

For the great majority of investors, however, who can – and should – invest with a multi-decade horizon, quotational declines are unimportant.  Their focus should remain fixed on attaining significant gains in purchasing power over their lifetimes.  For them, a diversified equity portfolio, bought over time, will prove far less risky than dollar-based securities.

If the investor, instead, fears price volatility, erroneously viewing it as a measure of risk, he may, ironically end up doing some very risky things.  Recall, if you will, the pundits who six  years ago bemoaned falling stock prices and advised investing in “safe” Treasury bills or bank certificates of deposit.   People who heeded this sermon are now earning a pittance on sums they had previously expected would finance a pleasant retirement.  (The S&P 500 was then below 700; now it is about 2,100.)  If not for their fear of meaningless price volatility, these investors could have assured themselves of a good income for life by simply buying a low cost index fund whose dividends would trend upward over the years and whose principal would grow as well (with many ups and downs, to be sure).

Investors, of course, can, by their own behavior, make stock ownership highly risky.  And many do.  Active trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy.  Indeed, borrowed money has no place in the investors’ tool kit; Anything can happen anytime in markets.  And, no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur.  Market forecasters will fill your ear but will never fill your wallet.”

As shampoo bottle instructions have always said: “Shampoo, Rinse, Repeat.”

My recommendation for this excerpt: “Read, Pause for Reflection, Read again!”

This is bulletin board material for all of us to read almost on a daily basis!

Did You Hear The Bell?

Did you hear the bell ring this past Tuesday?

If you didn’t, don’t feel cheated!

A bell didn’t exactly ring, but there are those who believe that significant market movements should be preceded by the ringing of a bell.  (More on that in a minute)

Tuesday was the six year anniversary of the “bottom” of the bear market when prices reached their lowest point.

On March 9, 2009, the value of the S&P 500 Index bottomed out at 677.

Now fast forward to the end of February, 2015 (last Friday): the value of the same S&P 500 Index stood at 2,105!

That represents a price increase of over 210% over that six year span.  And, this doesn’t include the dividends you would have received for maintaining ownership during those years which represented approximately 2% more in return per year.

Over that same time frame, the price of the small cap Russell 2000 Index grew from 343 to 1,233 (almost 260%)!

Remarkable, but why is all of this significant?

It’s enormously significant because of the lesson and reminder that it provides us all.

Six years removed, it may be difficult to recall the exact feelings you had had during the crisis.  But, I’m sure you can recall that it wasn’t peaches and cream!

The media had a field day and relentlessly pounded the message that “this time is different”, and that it would take “decades” to climb out of this mess.

How wrong they were, and how wrong they always are about bear markets.

What We Know About Bear Markets

1)    While they don’t feel very good while we’re in the middle of one, bear markets are a “normal” part of our investing experience.
Yes, normal!

In the last 70 years, there have been 14 of them, and the average peak to trough price drop was 31%.

That’s an average of once every 5 years.

And, every one of them was treated as if it was the end of the world while it was occurring.

The last drop of 19.4% came in 2011 when the euro imploded, the U.S. government was threatening shutdown, and the S&P downgraded sovereign debt for the first time in history.

If history is any indicator, what this tells us is that another one of these “bears” is coming.

However, please don’t take this as a predication that one is upon us or even approaching.

Neither I nor anyone else has any idea when the next one will come.

A bell will NOT ring indicating a bear market is about to kick in.  There never has been a bell and there never will be. We simply want to be emotionally prepared.

2)    The good news about bear markets, which we’ve all just lived through, is that they have all been temporary declines wedged into the permanent historical advancement of stock market prices.

The average “peak to peak again” timeframe of bear markets has been 40 months (3.3 years).  This represents the time it took for market prices to rise back up to its previous high after a significant drop.

3)    During the next bear market, there will be pressure and temptation to forget this lesson and “sell” when signs of a bear market are in place.

However, by the time it officially becomes a bear market, an average of two thirds of the total decline will have already occurred.

In other words, by the time you decide to “get out”, you will likely have already suffered the worst.

4)    Here’s a recent example to illustrate all of this.  In addition to cash you set aside in money markets and short term instruments to fund your spending needs over the coming years, let’s assume that you had an even $1 million invested in an S&P 500 Index fund back at the last market peak on October 9, 2007.

(The example is easiest to follow using round numbers and one investment in an index fund.  You would never have everything invested in one fund.)

Because you intelligently set aside funds to take care of your spending needs, you didn’t need to sell or even feel compelled to sell your S&P 500 Index fund shares over the following 17 months when the value fell to almost $440,000 on March 9, 2009 when the market reached bottom.

This represented a 57% peak to trough drop, the largest broad market drop since 1929!

You were tempted because the news was bleak, but you stayed with your plan and maintained your ownership of all your shares.

Six years later, on February 28, 2015, your shares are now worth just shy of $1,350,000!

Keep in mind that this was what took place after the worst broad market price decline since 1929!

What can we learn from this about bear markets?

  • Bear markets are psychologically challenging, but only to the degree that you believe they’re permanent (which they never have been).
  • Trying to “time” bear markets, i.e. when they will begin and when they will end so you can “be out” at the precisely the right time, insures that you will end up worse than if you had just stayed the course.
  • At any point in a bear market, it’s easy to “get out” and sell.  The hard part is attempting to determine when to get back in.

Decisions to buy and sell are not made looking through a rear view mirror.  They’re made at individual points in time without any definitive knowledge about what’s about to occur next.

  • A “bell” doesn’t ring indicating it’s time to sell, and then again when it’s time to buy.
  • Finally, if you’re investing in the first place, you’re doing so because you need the investment returns provided by equity markets.

Getting the full returns that equities provide is entirely predicated on our ability to ride out temporary bear market declines.

The key lesson and strategy is that if (and only if) you’ve done your homework and prepared properly, then you have the structure in place to weather bear markets like we all experienced together back in 2008-2009, and maintain your financial confidence.

I can’t begin to tell you the number of Relaxing Retirement members who have confided in me that they would never have been able to stick it out if they weren’t involved in our program.

Doing your homework and adhering to a plan like The Relaxing Retirement Formula doesn’t insure that you will never experience temporary price declines.

What it does is allow you to do is completely ignore the dominant media culture who will pronounce that “it’s completely different this time”, and respond to bear markets with full confidence that they’re normal and temporary, and not an event that leads you to abandon and dismantle your ownership of what you’ve carefully planned to provide the lifestyle sustaining income you need for the rest of your life.

Retirement Coach Jack Phelps Publishes New Article Highlighting Lessons Learned By Observing “The Patriot Way”

Wellesley, MA –February 11, 2015 – Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) illustrating four key points of the New England Patriots “winning formula” that every retiree can apply to achieve long term financial independence.

In his article titled “Lessons From The Patriot Way”, Jack Phelps writes, “Not only did the New England Patriots provide us with the thrill of another Super Bowl victory, but they also provided us with lessons from their winning formula that we can all apply and benefit from.”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money. Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found here.

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program™ back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

The Dilemma of “Paying Attention”

As I stated in my recent interview with Moving America Forward host Doug Llewelyn, one of the biggest challenges in anyone’s life is to go from working, receiving a paycheck, and saving money your whole life….to no longer receiving that paycheck for the work you do.

And, to make matters worse, you then have to begin “spending” the money you’ve taken your entire life to save.  That just doesn’t feel “normal” to anyone.  In fact, it feels strange!

What I’ve witnessed coaching retirees over the last 25 years is that in order for you to begin spending the money you’ve saved over your lifetime, and truly enjoy yourself, it requires a lot of financial confidence.

In years past, when guaranteed monthly pensions were the norm, you could retire confidently knowing the precise amount of monthly income you could count on for the rest of your life.

In today’s world, however, guaranteed monthly pensions are almost nonexistent in the private sector.   401(k)s and 403(b)s are the norm today, and it’s your job to determine if you’ve enough saved to provide the income you need for the rest of your life.

It’s then your daily job to manage your money to provide the lifestyle sustaining income you need without running out.

That’s quite a daunting task!

What To Pay Attention To?

In light of this daunting lifelong task, one of the questions I receive a lot as The Retirement Coach is “what should I be paying attention to?”

It’s a very good question that has become more and more prevalent today given 24/7 media coverage of financial markets.

It has become harder and harder to determine what’s relevant, what to pay attention to, and who’s correct!

Let’s say, for example, that you want to “stay on top of things”, a valid desire that many feel they should be doing as a responsible retiree in today’s day and age.

And, in order to do that you read the financial newspapers.  You listen to market updates.  You watch the news on television, and you click in and follow financial websites like Yahoo Finance, Market Watch, and MSN Money.

Had you done this on the random morning of Tuesday, October 28, 2014 and were on The Wall Street Journal’s MarketWatch.com home page, here are the exact headlines and bullet points you would have come across in your quest to satisfy your desire to “stay on top of things”:

  • Stock Futures Up on Hopes for Fed, European Gains

  • S&P to Gain 10% in 12 Months: Goldman Sachs

  • Pursche: After a Drop, Stocks are Going Up

  • What To Make of This Roller Coaster Market

  • 3 Reasons to Expect a 30% Market Meltdown

  • European Stocks Rebound

  • What’s Next for China’s Foreign Reserve Fall?

  • Protect Your Portfolio with These 5 Basic Hedging Strategies

  • Elon Musk Warns of our ‘Biggest Existential Threat’

  • Home Prices See Largest Annual Jump Since 2005

  • Fed Will Hold Market’s Hand as it Ends QE3

  • Don’t Let a Downturn Undermine Retirement

  • Buffet Still Optimistic About America

  • Hulbert: Be Ready for a June Swoon in the Markets

  • Why Dow Transports Index is a Crystal Ball

  • How to Retire Early – 35 Years early

  • 10 Stocks to Buy

  • Best Performing Mutual Funds

Please take a moment to go back and re-read those again.

These are the exact headlines that appeared that morning.  I couldn’t make them up if I tried!

Do you notice a pattern?  If so, what is it?

Pattern #1

If you step back and remove any sense of emotion, and objectively read them for a moment, the first thing you’ll notice is that they’re not facts.

They’re ALL opinions.

Even the first one which states that stock futures are up.  That may be a fact, but suggesting that all stock futures prices are up due to hopes for Fed and European gains is an opinion.

Are there only two potential reasons why millions and millions of investors all around the world have driven up demand for stocks before the day’s trading session begins?

Of course not!  But, they can’t list dozens of potential reasons and fit them into a concise headline as their editors require.

This is a very important point.  Due to space and time limitations, and of course our limited attention spans, all forms of media have to severely condense the information they put in front of you.

By definition, that means they either have to generalize to provide the broadest possible view, or be very subjective and only isolate one facet of the story.

This is a really important point to internalize.  Without giving it much thought, writers’ subjective opinions are interpreted as “fact”.

Because they’re “in print”, we’re conditioned to acknowledge them as fact.

Pattern #2

The second pattern you can’t help but notice is that these headlines are written, individually and collectively, to conjure up a visceral feeling inside of you that the world is completely out of control, that financial markets could come crashing down at any moment without notice, and that, in turn, your financial future is on thin ice.

And, the only rational conclusion you should come to is to continuously “tune in” and pay attention so you don’t miss out and get burned.

Try to read this selection of headlines again without feeling this way:

  • What To Make of This Roller Coaster Market

  • 3 Reasons to Expect a 30% Market Meltdown

  • What’s Next for China’s Foreign Reserve Fall?

  • Protect Your Portfolio with These 5 Basic Hedging Strategies

  • Elon Musk Warns of our ‘Biggest Existential Threat’

  • Don’t Let a Downturn Undermine Your Retirement

  • Hulbert: Be Ready for a June Swoon in the Markets

  • Why Dow Transports Index is a Crystal Ball

Remember that the financial media can choose to say anything they want to say.  Within very broad guidelines, they have total freedom.

If that’s true, why would they choose to write THESE headlines and bullet points over every other possible alternative?

With no disrespect to their way of making a living, the reason is because they’re not in the business of managing money or providing advice.

That’s not how they’re compensated.

All forms of media are compensated through advertising revenue.  Companies around the world pay billions of dollars to run advertisements to market their businesses.  And, they have an infinite amount of choices these days.

How do all of these companies determine where to spend their advertising dollars?

They spend it where they believe they can reach the largest audience.

So, the goal of every financial media organization is to have the largest audience in order to entice every potential advertising customer (company) that they have the largest audience for the advertising customer to reach with their message.

Given this, they pay professional copywriters (not money managers) very, very well to write headlines and “teaser copy” that will continuously capture and maintain your attention.

And, they do a brilliant job of it.  Go back and read the list of headlines again and rate them on a scale of 1 to 10 on their ability to capture your attention.

I think you’ll agree that most of them score a 10!

Next Three Questions

1. As a result of reading these headlines, do you feel as though your desire to “stay on top of things” has been satisfied?

2. Did you reach any financial conclusions that you were able to act on?

3. Have any or all of them helped increase your financial confidence?

I think it’s safe to say that your answers are No, No, and a resounding No!

(If that’s true for you, then you have to really question why you’re paying attention in the first place.)

You have to remember that having you answer “YES” to these questions is not the financial media’s goal.

Their goal is viewership, period!

Increased and sustained viewership means higher ratings.  Higher ratings mean higher advertising revenue.  Higher advertising revenue means higher profit.

I don’t discredit the financial media as a business venture, nor do I question their right to do what they do to make a living as long as they don’t use force or fraud to get their results.

My interests are in helping you develop and maintain the highest possible level of financial confidence so you can do everything you’ve always wanted to do in your retirement years without worrying about money.

Unfortunately, the financial media’s goals are not aligned with your goals.

You have to really ingrain that in your mind at all times if you want to be effective.

The Solution

For maximum effectiveness, the solution to this ‘dilemma’ we’ve been pondering is one I learned from Dr. Maxwell Maltz many years ago.  He summarizes it in the description of his book, Psycho-Cybernetics :

“What we’re striving for is the accurate, calm, and ultimately automatic separation of fact from fiction, fact from opinion, actual circumstance from magnified obstacle, so that our actions and reactions are solidly based on truth, not our own or others’ opinions.”

Take a moment to go back and read that again very slowly.

I couldn’t have said it better if I worked at it for ten years!

The key is to have our actions and reactions 100% based on truth, and not our own or someone else’s opinions.

That’s not always easy to do.  We have to work at it.

When we see someone on television, or hear them on the radio, our conditioning has taught us to blindly believe whatever comes out of their mouth as fact.

In reality, it’s likely just an opinion just like anyone else’s opinion you might hear.

It’s similar to medicine.  When the ‘man in the white coat’ speaks, we’re conditioned not to question it.  He must know.  After all, he’s a doctor!

Protect Your Confidence

As you might have guessed, I’m giving this topic extended time and coverage due to how incredibly important I believe it is to your financial confidence, and in turn, the quality of the rest of your life.

When it all comes down to it, all the money in the world is of no value to you unless you have the financial confidence to spend it without the constant fear that you’re going to run out.

Unfortunately, my experience over the last 25 years continues to demonstrate that most individuals are simply not financially confident enough at this critical stage in their lives.

And, that lack of confidence severely limits their lifestyle, and the quality of their lives.

There is a direct correlation between the amount of time individuals spend immersed in all forms of financial media and their level of financial confidence.

However, the correlation is inverted; the more immersed they are in financial media, the less confident they are.

The less confident they are, the lower their quality of life.

It’s a gigantic Catch 22!

In an attempt to feel more confident, most turn to the financial media.

Unfortunately, this only decreases their confidence due to everything we’ve outlined.

Be very protective of your confidence.  If you’re going to tune into financial media, go right ahead, but do so with your antennae standing straight up!

Retirement Coach Jack Phelps Publishes New Article Celebrating a Very Important 5 Year Anniversary

Jack Phelps, founder of The Relaxing Retirement Coach, takes us back to March 9, 2009

Wellesley, MA –April 8, 2014Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) contrasting two different realities experienced since March 9, 2009.

In his article titled “Happy Anniversary”, Jack Phelps writes, “If you follow and adhere to this Relaxing Retirement Formula™, then the ugly events that took place leading up to March 9, 2009 are a short term annoyance, but not something that causes you to abandon and dismantle your ownership of what you’ve carefully planned to provide the lifestyle sustaining income you need for the rest of your life.”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found here.

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

Retirement Coach Jack Phelps Publishes New Article Revealing the #1 Success Secret He’s Witnessed Over the Last 25 Years

Jack Phelps, founder of The Relaxing Retirement Coach, answers the question on everyone’s mind: “Do We Have Enough?”

Wellesley, MA –Feb 25, 2014Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) displaying a case study of two couples and WHY they need to invest so differently to be successful.

In his article titled “Discover YOUR Number”, Jack Phelps writes, “This is why it’s so critically important for you to have a clear handle on what it costs you to live the way you want.  Otherwise, you will have unnecessary anxiety and you will “pull your punches” by restricting your spending for the rest of your life because you don’t know if you have enough.”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at here.

To learn more about The Relaxing Retirement Coach, Inc., please visit celebritysites.com/beta/jackphelps.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

Discover YOUR Number

If you’ve done any reading on the topic of retirement, there’s a term that is used in many circles known as THE NUMBER.  In other words, “what’s your number”?

What this refers to is the amount of money you need in order to support your lifestyle without working.

In most instances, when I meet someone for the first time, one of the things they want to know very early in our conversation is “do you think we have enough?”

That’s the question on the tip of everyone’s tongue, but the answer is very different for everyone.

Why Is Everyone’s Number So Different?

Let’s take a look at two couples, John and Mary, and Ron and Rose, both age 65.

Each couple has:

  • $2 million dollars in investments,
  • the same social security retirement income, and
  • the same pensions.

Beyond that, here’s what else we know about them:

John and Mary have no mortgage or home equity line of credit, and they’ve recently completed many of the major upgrades to their home, i.e. a new roof, vinyl siding, a new furnace, and new bathrooms.  They have always lived a very modest lifestyle with little or no debt.

Ron and Rose, on the other hand, still have a $300,000 balance on their home equity line of credit that they took out to pay for their kids’ college tuitions and weddings, and a condo down in Florida they bought a few years back.  They each drive high end cars.  And, while their home is very nice, after 31 years, it’s starting to look “tired” and could use some upgrades.

Can you see how each couple’s “number” is drastically different?

What’s the difference?

Even though both couples have the exact same amount of investments, and the same amount of income coming in from social security and pensions, their “number” is drastically different because they spend so differently.

In short, Ron and Rose are a lot more dependent on their retirement savings than John and Mary.

The income that will be required by Ron and Rose will be much greater than John and Mary.  As such, Ron and Rose will need to withdraw a much bigger amount each year from their investments, thus requiring a bigger “number”.

But, Have They Reached Their “Number”?

With that said, however, have Ron and Rose reached their “number”?

How about John and Mary?

At this point, we don’t know.  And, that’s a very important point!

Most people make their decisions based on their perception of how they “measure up” to others.  Based on what they hear on television, or on what a friend or colleague tells them.

The reason we don’t know if Ron and Rose or John and Mary have reached their “number” is that we haven’t thoroughly quantified what it costs them to support their lifestyle yet.

And, that’s the key.  Yes, it’s true that John and Mary are more likely to have reached their “number”.  But, Ron and Rose may have as well.

It’s ALL in the Numbers

This is why it’s so critically important for you to have a clear handle on what it costs you to live the way you want.  Otherwise, you will have unnecessary anxiety and you will “pull your punches” by restricting your spending for the rest of your life because you don’t know if you have enough.

Or, you will continue to work because you think you “have” to, when in fact you may not “have” to.

So the first critical step in The Relaxing Retirement Formula™ is to get a really good grasp on just how dependent you are on your retirement savings.

Become infatuated with knowing your numbers cold!

Retirement Coach Jack Phelps Publishes New Article Explaining Tax Saving Year End Withdrawal Strategies

Jack Phelps, founder of The Relaxing Retirement Coach, answers the question: when we need money from our investments, how do you determine where we should draw it from?

Wellesley, MA –December 26, 2013Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) outlining ways to free up funds in the most tax efficient manner, i.e. have you pay the least amount of taxes you’re legally obligated to pay in the process.

In his article titled “Year End Withdrawal Strategies”, Jack Phelps writes, “This is something that’s possible for you, but only if you follow the formula and you have all the necessary information in front of you. Paying more taxes than you’re legally obligated to pay is not an act of patriotism.  It’s laziness!  Take control in places where you still can!”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found here.

To learn more about The Relaxing Retirement Coach, Inc., please visit celebritysites.com/beta/jackphelps.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

Year End Withdrawal Strategies

One of the questions I receive quite often is, ‘when we need money from our investments, how do you determine where we should draw it from’?

It’s a very important question and answer that I’d like to share with you because it ties into a year-end tax strategy that I recommend you pay close attention to.

All other variables held constant for a moment, I’m always looking to ‘free up’ funds in the most tax efficient way, i.e. have you pay the least amount of taxes you’re legally obligated to pay in the process.

And, when all is said and done, I recommend maintaining the same prescribed investment allocation post withdrawal.  This is a very important point.

Funds Held Inside IRAs

If you only have funds held “inside” of IRAs, the only variable is ‘when’ you’ll withdraw the money.  For example, one of our Relaxing Retirement members, who has all funds in IRAs, just asked me to free up $60,000 to handle a family issue.

He hadn’t given it much thought, but I asked if he needed to have ALL $60,000 today, or could get $30,000 right now and wait until January 2nd for the second $30,000?

I asked because I know where all of their taxable income comes from each year and withdrawing $60,000 from their IRA in one year (or more to cover taxes) would cause a chunk of that withdrawal to be taxed at a higher marginal tax bracket.

If they were able to withdraw half here at the end of 2013 and the other half in January 2014 instead of all of it in 2013, that would save them a minimum of $3,000 in federal income taxes in the process.

I call this strategy “Income Tax Straddling”.

As it turned out, it made no difference, so they were able to save that $3,000 which will now go toward their upcoming vacation!

Home Equity Line of Credit

Had this couple needed all of the money in 2013, I may have recommended that they withdraw half from their IRAs in 2013 and half from a home equity line of credit.

Then, in early 2014, they could withdraw the 2nd half from IRAs to pay off the line of credit.  This would have the same effect as my first recommendation.

Had the funds only been needed on a short term basis, I may very well have recommended utilizing a home equity line of credit, especially during times like these when interest rates are so low.

Funds Held Outside of IRAs

If you also have funds held outside of IRAs, you have more options available to you because you may be able to pay lower capital gains tax rates, or nothing at all, if you have some current or prior losses to put to use.

As a quick refresher, for investments you currently own outside of IRAs (you don’t pay capital gains when you buy and sell investments inside your IRA), all “realized” gains are taxed at capital gains tax rates.

For example, if you purchased a stock or stock mutual fund for $100,000 and later sold it for $150,000, you would owe capital gains taxes on the growth, i.e. $50,000.

On the flip side, however, if you purchased a stock or stock mutual fund for $100,000 and later sold it for $75,000, you can declare a capital loss of $25,000.

That $25,000 capital loss, while painful to realize, has significant value if handled properly.  For example:

1. You may use it to offset $25,000 of capital gains you realized in the same year, thus eliminating taxes on $25,000 of capital gains.  This saves you between $3,750 and $5,950 in federal taxes in 2013, not to mention state taxes here in MA.

2. If you don’t have $25,000 of capital gains to offset, you can use $3,000 of the loss to offset $3,000 of ordinary income you have this year.  That would save you between $750 and $1,284 in federal taxes this year.

3. You can then carry the unused portion ($22,000) over to next year and continue the same strategy.

  • If you have a $22,000 gain next year, you can offset the entire tax due.  If not, you can offset another $3,000 of ordinary income tax and carry the remaining $19,000 over to the following year.

Tax Efficient Withdrawal Strategy

So that you can determine the most tax efficient withdrawal strategy, here’s the information you want to have in front of you:

1Your 2012 Federal income tax return.  Take a look at the bottom of Schedule D to determine if you have any unused capital losses carrying forward into 2013.  And, if so, how much?

2Current Non-IRA Statements:

  • Realized Gains/Losses: Have you sold anything this year thus creating a realized gain in your non-IRA accounts?
  • Unrealized Gains/Losses: What’s the current positioning of each of your current holdings?
  • It’s unlikely that you have many holdings that are worth less than you paid for them, but it’s very possible that you have some, i.e. municipal bonds purchased in the last two years where you haven’t been reinvesting dividends. **Look for any unrealized losses.

3.  Mutual Funds: If you own stock mutual funds, go to your fund company website and you will typically find year-end “internal” capital gains distribution estimates.  Do your best to determine what your short and long term gains will look like.

Armed with this information, look for the combination of holdings you can now sell in your non-IRA accounts that will create the least income tax obligation.

For example, a recent Relaxing Retirement member with balances in IRA and non-IRA accounts needed $85,000.

All of their equity holdings had very large gains attached to them if we sold them except for a municipal bond ETF that was worth slightly less than what they paid for it.  While that’s not necessarily good news, it was for them because we were able to sell it and purchase another quality municipal bond ETF thus creating a ‘capital loss’ to offset some of the gains from selling two equity holdings with large gains.

Because we had copies of their tax return, we knew they some capital losses carried forward from the sale of a rental property several years back, so we were able to use those to offset the rest of the gains realized from sale of those two holdings.

The net effect was we were able to free up $85,000 for their spending needs with no income taxes incurred.  And, we were able to reallocate holdings inside their IRAs in order to bring their investment matrix back to our prescribed mix. (very important as I mentioned earlier)

This is something that’s possible for you, but only if you follow the formula and you have all the necessary information in front of you.

Paying more taxes than you’re legally obligated to pay is not an act of patriotism.  It’s laziness!

Take control in places where you still can!

They Can Afford To Retire, But…

Over the last 24 years of coaching individuals and couples to a make a seamless transition to retirement, I’ve witnessed many similarities among those I’ve worked with.

Some of those were good such as the tremendous discipline employed by so many to diligently save and accumulate the necessary resources to be able to stop working and retire if they chose to.

On the flip side, however, I’ve also witnessed far too many who have no system in place for their decision making, and it costs them dearly.

I’ve recently had the pleasure to work with a terrific couple who was referred to us by one of our Relaxing Retirement members.

Their ‘story’ is one I’ve witnessed far too many times, but there’s a great lesson for everyone, so I’d like to share it with you.

In order to protect their privacy, I’m going to refer to this couple as Ron and Rita.

Ron and Rita are both 65 years old and they now find themselves in the same place as many of our Relaxing Retirement members today.

They’ve hit threshold!  While they’ve enjoyed working up until now, they’re now emotionally ready to retire.

Can We?

What Ron and Rita want to know from me is if they can afford to retire.

And, if they can, how do they generate lifestyle sustaining income because they’ve never done this before.

This is a key commonality that I see so much. They’ve never done this before and they’re just not confident.

One of the big reasons why they lacked 100% confidence is their investment performance over the last few years.

During their Retirement Confidence Preparation System™ meeting that we had, in addition to having an extensive conversation about their experiences and their priorities, I also had the opportunity to review their investment holdings going back a few years as Ron was a “spreadsheet guy”.

While reviewing their spreadsheets during our meeting, I noticed that there was a lot of activity (buying and selling) at random times, so I asked what triggered all of that movement.

Ron’s answer was one that I hear far too often: “I evaluate what’s doing well and what’s not and I reallocate.”

My response was, “how do you determine what to sell and then what to buy?”

Ron’s answer: “I sell what wasn’t performing well and buy what was performing better.”  (His answer was so matter of fact suggesting he thought that’s obviously what everyone should be doing.)

Yes They Can

Before I comment on Ron’s answer, let me share with you what our analysis showed them.

When we designed their Retirement Blueprint™ and ran their Retirement Resource Forecasters™, taking into account all of their priorities and all their resources, we discovered that they had enough money to make it all work!

Enough money and income to continue living the way they wanted without running out of money over their expected lifetime.

Now, as you can imagine, this was huge relief for them.  And, something they did not realize before we met and designed their Retirement Blueprint™.

As you can imagine, they were on a real high at this point.  However, that soon simmered as I alerted them that there was a gigantic “BUT”.

But…

After carefully evaluating Ron’s spreadsheet of their investment activity, the gigantic “BUT” I had to report to them was if they continued doing what they had been doing, there was a high likelihood that they’d run out of money within 8 or 9  years!

I know…ouch!

Now, why did I have to tell Ron and Rita this when I just told them that they had enough money to support their lifestyle for the duration of their life expectancy?

The reason I had to tell them this was their Retirement Resource Forecasters™ had some assumptions built into them.

First, we have to account for the fact that they’ll need more and more income each year just to remain in the same position due to inflation.

And, second, we have to assume that they can earn the investment rate of return that they need to earn in order to keep pace with inflation, which, for them, is not a very high return.

However, given Ron and Rita’s “system” of investing, they had little or no chance of accomplishing that.

What they actually employed was not a system, but random selection and timing.

Their allocation actually wasn’t that bad three years ago.  It was actually fairly well diversified.

However, they continuously killed that diversification by trying to shift out of what just performed poorly over to what had performed better.

What Ron and Rita Were Missing

Unfortunately, Ron and Rita’s investment “system”, or better stated: “behavior” is not unusual.

Statistics tell us that it’s the norm.

As you’ve heard me report before, there’s a financial research firm located here in Boston by the name of DALBAR.  And, every year, DALBAR performs a Quantitative Analysis of Investor Behavior.

Here’s what the 2013 DALBAR report reveals about the 20 year period from 1993 through 2012:

  • The Average annual return of the S&P 500 Stock Market Index from 1993 – 2012 was 8.21% (including dividends reinvested)
  • However, over the same 20 year period, the average annual return of the “average” equity mutual fund investor (not investment, but an investor, i.e. a person) was 4.25%

Take a moment to stop and re-read those two numbers for a moment and let them sink in.

What these numbers tell us is that, while the S&P 500 Market Index delivered a strong average annual return over those 20 years of 8.21%, the average stock mutual fund investor (a person, not an investment) only achieved 4.25%!

That means that the average stock mutual fund investor’s return was 48.3% less than the market barometer of “average” returns, not above average, each and every year!

Stop and think about that for a moment. That means, over the last 20 years, the actual returns received by investors was HALF of what markets provided!

How incredible is that!

It’s mind boggling, but it doesn’t surprise me after what I’ve witnessed over the last 24 years in this business.

Just think about Ron and Rita’s story that I just shared with you!

The Wrong Battle

What you can’t help but take away from those statistics is that, while it makes all the news, markets (or bad investments) are not our biggest problem.

The BIG problem is investor behavior, which is driven by their “strategy” or lack thereof.

Forget for a moment about trying to “beat the market” which is what everybody loves to talk about and talk shows are built on.

The average stock mutual fund investor earned 48% less each and every year than the S&P 500 market index.  Again, the market barometer of “average” returns, not above average!

Think about that for a moment.  Something that we all can control is what our biggest problem is.

It’s uncomfortable, but it’s the only logical and rational conclusion we can reach given the results of this research report.  What else could possibly explain the massive difference in real life returns that people receive?

The obvious question is why, and what can we do to close this performance gap?

Well, there are several easily correctable “strategic mistakes” that I’ve personally witnessed over the last 24 years that I’d like to share with you.

Stay tuned.  I’m not sure there’s anything more important about investing during your retirement years than what I’m going to reveal to you in the coming weeks.

Will Your Kids Lose 45% of Your IRA??

Having to deal with the emotional and psychological effects of losing a spouse or parent is always difficult.

Having to also deal with their financial affairs and the tax implications is enough to put you over the edge.  The consequences of making a wrong decision are enormous.

Landmines are everywhere, especially when your family inherits your IRA and/or 401(k).

If they’re not informed, almost half of your IRA could get lost to taxes in one fell swoop!

Doesn’t  sound too inviting!

Let’s walk through an example of how your children and grandchildren can make an “informed” decision when they inherit the IRA that you’ve taken your entire lifetime to build.

Ron and Rose

Ron and Rose been married for 40 years, and have 3 children who are all out of college and in the workforce.

After Ron retired, he rolled over his 401(k) and pension plan to an IRA where he named his wife Rose as his primary beneficiary and his 3 children as secondary (or contingent) beneficiaries in equal shares.

Two years into retirement, Ron suffers a heart attack and passes away.  (Sorry for the blunt shock value of the story, but it’s necessary to make the point)

When Ron passes away, as Ron’s spouse and beneficiary, Rose may transfer the money that was in Ron’s IRA into her IRA without paying any taxes.  (Key point: ONLY spouses can do this.)

Now, let’s fast forward ahead 3 more years.  Rose gets sick, and after a long battle, she passes away.

At this point, Rose’s children have some decisions to make as the beneficiaries of their deceased mother’s IRA.

In far too many situations, here’s what happens:

They call the institution where the IRA was held (bank, investment firm, insurance company, etc.) to inform them that their mother has passed away and to find out what their options are.

Depending on who receives that phone call, here’s the answer that they’re likely to hear:

“We’re very sorry to hear about your loss.  We’re going to send you out an IRA distribution request form.  Please each sign the form and return it to us along with a certified death certificate and we’ll get the checks out to you within 7 to 10 business days.”

Sounds simple enough, right?

Wrong!

What just happened?

Income Taxes Now Due on the ENTIRE IRA

The children just paid income taxes on the entire balance of the money in the IRA!

Depending on their own personal tax brackets, it’s likely that they gave up 40-50% of their share in federal and state income taxes in one fell swoop!

Let’s suppose that each of their shares in their mother’s IRA was $500,000.  That means that as much as $225,000 would instantly go to pay federal and state income taxes!

Imagine that.  You work your entire life.  You diligently save your money.  You select sound investments.  You do everything right and with one phone call to an uninformed company representative, 40-50% of your hard-earned savings is gone in one shot!

Depressing!

What Should They Have Done?

Each of the kids actually had another option with their share of their mother’s IRA.  One option was to just cash it all out.  But, as I mentioned, that has enormous tax consequences.

The second option, which is all too often omitted from the discussion, is to “re-title” their portion to an Inherited IRA, leaving their deceased mother as the deceased owner of the IRA and them as the beneficiary.

By doing this, they are only required to withdraw and pay taxes on a small amount of the money from the IRA each year, leaving the rest to grow tax deferred for the rest of their lives if they wish!

The amount of money saved in the short term and the long term is staggering.

Now, in order to qualify for this “Inherited IRA” tax deferral plan, there are certain IRS requirements that they have to fulfill in order to make it work.

Stay tuned to discover the steps required by the IRS that your children and grandchildren have to follow perfectly in order to qualify.

Retirement Coach Jack Phelps Publishes New Article Revealing The Common Tax Tragedy That Occurs When Inheriting an IRA

Jack Phelps, founder of The Relaxing Retirement Coach, shares a real life case study where kids lose 45% of their father’s IRA to taxes.

Wellesley, MA– August 29, 2013  – Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) illustrating the consequences of your children being uninformed when they inherit your IRA.

In his article titled “Will Your Kids Lose 45% of Your IRA”, Jack Phelps writes, “Depending on their own personal tax brackets, it’s likely that they gave up 40-50% of their share in federal and state income taxes in one fell swoop!”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found here.

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

Retirement Coach Jack Phelps Publishes New Blog Clarifying How to Calculate Your Capital Gains Tax Burden When Selling Your Home

Jack Phelps, founder of The Relaxing Retirement Coach, walks you through a case study so you don’t overpay your tax bill.

Wellesley, MA –August 26, 2013Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published a blog on his website (https://www.theretirementcoach.com) demonstrating the step-by-step process you’ll need to use when selling your home so you don’t overpay your taxes.

Jack Phelps writes, “This is a question that’s in the forefront of many of our Relaxing Retirement members’ minds whom I speak with every day.  One of their stumbling blocks is in not knowing what the tax implications will be if and when they sell their home vs. keeping it and passing it on to their children.”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire blog can be found here.

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.