Lakeside Financial Planning – Advisor Insights

5 Ways to Turbo Boost Your Savings in 2017

MONEY TALKS – Achieving your goals and aspirations may be closer than you think. Saving is the foundation to any good financial plan. Follow these five steps to boost your savings to the next level!

  1. Max Out Your Retirement Plans – In 2017 you can defer up to $18,000 of your salary into an employer sponsored retirement plan such as a 401(k), 403(b), or 457 plan. If you are age 50 or older, the IRS has a special “catch-up” provision which allows you to contribute an additional $6,000 for a total contribution limit of $24,000. If your employer doesn’t offer a retirement plan you may still be eligible to contribute to a Traditional or Roth IRA. The IRA contributions limits for 2017 are $5,500 or $6,500 for those age 50 or older. If you didn’t maximize your IRA last year there is still time. The Internal Revenue Code has a special provision permitting you to make a 2016 contribution up until April 17th of 2017.
  1. Know How Much You Are Spending – Most people have no idea what they are actually spending. While some bold participants may blurt out a response when asked, in my experience what people say they are spending and what they are actually spending are two very different numbers. A good back of the envelop approach to calculate your spending is to look at your final pay check for 2016. Take your year to date gross pay and subtract any taxes paid as well as any employee benefits such as medical, dental, and retirement contributions. This in effect is your take home pay. From there subtract any additions you made to long term savings accounts throughout the year and you have calculated your annual spending. Most people are surprised by how much they are spending. Now that you know how much you’re spending, keep any eye on major outflows and set up an automatic transfer to your savings account to ensure some money is put away before hitting your pocket.
  1. Review Your Investment Portfolio – When it comes to determining an appropriate asset allocation, most people take the set it and forget it approach. Meaning they randomly picked some stock and/or bond mutual funds when they enrolled in their employer retirement plan, and they have not looked at it since. For many of us this could be 5, 10, or even 20+ years. Review your most recent portfolio statement to see if your current allocation is still appropriate for your age. Traditionally younger investors can be more aggressive and allocate a higher percentage of their portfolio towards equities. On the other hand, seasoned investors whom are approaching retirement may want to reduce their risk by diversifying into more bond funds and less stocks. If your current asset allocation is appropriate for your age, be sure to rebalance your accounts annually to make sure your portfolio stays properly aligned.
  1. Take Responsibility – The glamorization and/or demonization of politics and economics by the media can be hard to ignore because they are on the face of every TV station, newspaper, and social media site. Nonetheless, it’s essential to remember that for the most part these situations are out of your control. However, that doesn’t mean you should sit idly by and hope for the best. To use a weather analogy, while you don’t have control over when the next snow storm will hit, you do have the ability to buy snow tires for your car, a new shovel, and salt for your driveway. By personally managing the internal factors in your life such as; how much you save, your consumer loan balance, and the size of the home you purchase, you are taking responsibility over the aspects in your life that allow you to control your own financial destiny rather than taking a back seat to external factors over which you are powerless.
  1. Invest in Yourself – Many people don’t realize that the greatest financial asset they have is themselves; i.e. their ability to earn a living. Investing in post-secondary education, technical training programs, and advanced degrees go a long way toward building a complete resume. Combine these skills with quality work experience and you have just positioned yourself for a financially rewarding career.    

Presidential Elections and Your Portfolio

MONEY TALKS – The 2016 presidential race may be the most tumultuous election the country has ever seen. Americans have been voicing their opinions now more than ever and the polls are expecting to see a record numbers of voters next Tuesday. Unfortunately, much like the national debates, the lead topics of conversation at the dinner table have not revolved around political policies. Rather than discuss the economy, foreign policy, immigration, or the Supreme Court, many Americans have been following the candidates’ leads and talking about email scandals and sexual misconduct. The result of these lewd conversations has left a negative taste in the mouths of democrats, republicans, and independents from Maine to Hawaii.

Much of the negative energy from the presidential candidates themselves, political advertisements on television, and conversations with friends and family has transformed into fear and mistrust. In fact, a recent poll by the Washington Post and ABC News showed that 59% of registered voters have an unfavorable impression of Hillary Clinton, while 60% had and unfavorable impression of Donald Trump. It’s clear that regardless of whether Trump or Clinton win the election, the nation is in fear of what the future holds. With more cynicism now than ever, investors are anxiously waiting to see how the stock market reacts to the announcement of the nation’s 45th president.

Unfortunately, the uncertainty surrounding this year’s election has prompted many investors to make dangerous predictions about which presidential candidate will be better for the stock market. Rather than rely on patience and portfolio allocation, many investors are trying to outguess the market based on who they think will win the election. For example, some investors are selling off their investments now, and rather than reinvesting in the market, they are waiting for the election results to determine when or if they’re going to get back in. While enticing, this hasty strategy could lead to costly mistakes and is unlikely to provide any significant advantage. The following illustrative information was compiled by Dimensional Fund Advisors. Exhibit 1 shows the growth of one dollar invested in the S&P 500 over the last 15 presidencies which span just over 90 years.

Exhibit 1: Growth of a Dollar Invested in the S&P 500 January 1926 – June 2016


Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor’s Index Services Group.

The data clearly shows that there is one key trend; over long periods of time, the market has consistently grown regardless of whether a democrat or republican was in office. Contrary to popular belief, there is no clear pattern that one party or the other will result in better market performance. As a matter of fact, from an investor’s standpoint, staying out of the market is a much more dangerous proposition than either Hillary Clinton or Donald Trump winning the election. By removing oneself from the market, an investor is eliminating any real chance of long-term appreciation within their portfolio.

At Lakeside, we counsel our clients to stick to a long-term investment plan and avoid the temptation of trying to time or outguess the market. Academic research has shown that it is very unlikely that investors can gain an edge by predicting how the stock market will perform based on the outcome of a presidential election. To capitalize in the equity markets, investors should develop a long-term investment policy and stick to the strategy regardless of the latest political headlines.

A Beginners Guide to Maximizing Your 401(k) Plan

MONEY TALKS – In today’s workplace environment, unless you are working as a teacher, police officer, firefighter, or state/federal employee, the chances are you do not have a pension plan. In other words, when it comes to funding your retirement YOYO (you’re on your own). For most private sector employees, defined contribution (DC) retirement plans are their primary savings vehicle. DC plans are a type of retirement plan where an employer and/or employee make regular contributions. They differ from a pension plan in that there is no guaranteed income stream at retirement. Instead, both the employer and employee contributions, plus any investment earnings, grow together in an account where the employee has control over the cash distributions during their retirement. The most common DC plan is the 401(k) plan which has grown to become America’s de facto retirement savings plan since its inception in the late 1970’s.

A 401(k) plan is a great savings vehicle for a number of reasons. First and foremost any contributions made by the employee are tax deductible. Secondly, any earnings in the account grow tax free until they are withdrawn. Unfortunately many Americans are not taking full advantage of the benefits a 401(k) plan has to offer. There are two primary culprits behind this underutilization; lack of participation and low contribution rates. In order to ensure you are getting the most out of your 401(k) plan, make sure to follow these guidelines.

Start Contributing Early
During your first week of work you will likely be given a large packet of information listing everything from your vacation accrual to your medical benefits. Included in this packet should be an enrollment form for your employer’s 401(k) plan. You should sign up for your 401(k) plan immediately. Some employers may have restrictions on when you can start contributing or an elimination period before the employer themselves match any contributions; however, these restrictions typically do not prevent you from enrolling in the plan.

If you have already been working but have yet to sign up, there is no time like the present. To borrow a line from a colleague of mine, “You will never be younger than you are today.” When it comes to investing, the longer the time horizon, the greater the growth potential.

Maximize Your Employer Match
Most employers will make a modest contribution to your 401(k) plan presuming you do one thing; contribute to the plan yourself. While there is a wide range of company match levels, a typical employer match policy might read something like this: XYZ agrees to match 50% of employee contributions for the first 6%-of-salary that an employee contributes. In this scenario, in order for an employee to maximize their employer match, they would need to contribute 6% or more of their salary into their 401(k) plan. Any contribution below 6% means the employer is not obligated to contribute the full match.

Maximizing your employer match is critical to building your retirement nest egg. Not contributing or under contributing to your own plan means you are essentially throwing money out the window. An employer match is a guaranteed return on investment which is rare if not impossible to find in this day and age.

Take It to the Limit
The most common way to contribute to a 401(k) plan is through automatic payroll deductions. Many plans allow you to designate a percentage of your gross income to be allocated to your 401(k) plan. A good rule of thumb is to contribute 10% or more of your salary into your 401(k) plan. Unfortunately, for many young or underpaid employees this figure is simply unrealistic. For those who can’t save 10% or more, start off by saving the minimum allowable contribution that enables you to maximize your employer match. Most employer plans require employee contributions between 4% and 8% to receive the maximum match.

Automatic contribution increases are another great way to get the most of your 401(k) plan. As the name infers, an automatic contribution increase is simply an election you make to annually increase your contribution percentage (typically by 1%). The beauty of this election is it forces you to save more each year and they typically coincide with a merit increase so the effects are negligible. If your company doesn’t offer this election then remember to manually adjust your contribution percentage each time you get a raise.

Keep in mind that the Internal Revenue Service regulates how much an employee can contribute to their 401(k) plan. In 2016 the contribution limit is $18,000. If you are lucky enough to be age 50 or older, the IRS has a special “catch-up” provision which allows you to contribute an additional $6,000 for a total contribution limit of $24,000.

10 Habits of the Healthy, Wealthy, & Wise


1. Save – Saving more than you spend is a key concept to accumulating wealth. The extra money saved can then be invested to grow and compound over the years. Given enough time, your investment earnings may one day actually exceed the money you are saving!

2. Build a Reserve – Establishing a cash reserve or long term savings account can give you the security you need in the event of an emergency. Having liquid funds available may allow you to weather the storm without having to deplete other investments that are subject to market conditions.

3. Organize Spending – Creating separate bank accounts for your personal spending, household bills, and long term savings can go a long way towards balancing your budget. Start by funding your household checking with enough money to pay your monthly bills. Next, create a dedicated savings account funded based on a percentage of your income, say five or ten percent. The remaining money should be deposited into your personal checking and can be used for whatever you desire.

4. Buy Used Things – No one thinks twice about buying a “used” home; however, when it comes to buying a car, furniture, or children’s toy, the concept suddenly becomes taboo. Before making your next large purchase consider what alternatives exist in the secondary market. You may walk away with a lot more than you think along with some extra change in your pocket.

5. Don’t Procrastinate – Not paying your bills on time can lead to late fees and interest penalties. Over time these can accumulate to the point where the majority of your payment is going towards interest and penalties rather than paying down principal. Avoid getting stuck in this rut by paying your bills on time and in full.

6. Ditch Bad Habits – Daily stops for coffee and weekday lunches out with your colleagues can accumulate into some serious spending over time. Drinking your employer provided coffee and bringing last night’s leftover dinner for lunch are easy alternatives to help curb those bad habits. Don’t be afraid of treating yourself to the occasional iced coffee or Friday lunch to celebrate your accomplishments.

7. Know Your Limits – Most investors lose money because they overestimate their risk tolerance. When the market goes down they panic, sell their holdings, and suffer catastrophic losses. Choosing a more conservative portfolio and staying the course will get you far ahead of the typical investor who changes direction based on current market conditions.

8. Eat Healthy – Small changes can make a big difference in your overall health. Drinking water instead of sugary drinks is a great way to cut calories and reduce your sugar intake. Adding color to your meal is an easy way to improve your plate appearance and get more essential vitamins, minerals, and fibers into your body. Choose red, orange, and dark green fruits and vegetables when preparing dishes.

9. Exercise – Heart disease has risen to become the leading cause of death in the United States. Regular exercise can help combat disease and prevent a wide range of health problems. Not to mention, exercise and physical activity can also help you to maintain weight loss, improve your mood, boost your energy, and promote better sleep.

10. Wear Your Seat Belt – Each year about 33,000 people are killed in motor vehicle crashes. Tragically many of these fatalities could have been prevented. Seat belt use is the most effective way to save lives and reduce injuries in motor vehicle crashes. Make sure that you and your passengers buckle up every time you get into a vehicle no matter how short the trip.

Protect Your Retirement Nest Egg

MONEY TALKS – Retirement planning can be a stressful time for many baby boomers because there are so many questions that cannot be answered; how long will I live, what will my health be like in twenty years, will my spouse or I need long term care, and the elephant in the room; how much money do I need? Scientific advances in the medical community have made it not only possible but likely that a healthy retiree in their sixties could live well into their nineties. While it’s great that retirees are living longer, healthier, and more active lifestyles than ever, on the flip side of the coin, there is a vast amount of time their retirement savings must last. Pulling funds out of a portfolio for thirty plus years creates tremendous strain on the portfolio. To further compound things, factors such as the retiree’s age, withdrawal rate, and current market conditions have a paramount impact on the longevity of the portfolio. Perhaps most frightening, even a modest loss in the early stages retirement, regardless of the size of an investment portfolio, can derail an otherwise solid investment plan leaving a retiree in a precarious position.

Sequential Risk

Sequential risk is not a term that is used in everyday conversation; however, anyone who has recently retired or has retirement on the horizon should make sure they have a basic understanding of the concept. In essence, sequential risk is the notion of making withdrawals from an investment portfolio during or immediately after periods of poor performance. A retiree who begins taking withdrawals from their portfolio following a market downturn is at a much higher risk to deplete their portfolio. To demonstrate the magnitude of sequential risk let’s look at two similar scenarios with drastically different endings.

Early Retirement Losses

John & Lisa have accumulated a million dollars and decide to retire at age 65. They determine that they will need $90,000 to live on of which $25,000 will come in the form of Social Security and the remaining $65,000 will be withdrawn from their portfolio annually (adjusted for inflation). Unfortunately for John & Lisa, during the first year of their retirement the market falls and has a 20% loss. In years two through fourteen their luck changes and the market remains stable returning 7% annually. In year fifteen they are hit with even more luck as the market surges and they receive a 30% return on their investment. The good news for John & Lisa is that they’ve had a healthy and active retirement and maintained their same standard of living for the last fifteen years. The bad news is at age 81 they can no longer support themselves financially because they have less than $25,000 remaining in their portfolio. To make matters worse, the recent financial stress has caused John & Lisa’s health to take a turn for the worse and now they are considering moving into a state subsidized nursing home.

Losses Down the Road

John & Lisa’s neighbors, Bruce and Diane, have also accumulated a million dollars and decide to retire at age 65. They too will need $90,000 in living expenses and will receive $25,000 from Social Security. Fortunately for Bruce and Diane in their first year of retirement the market spikes and returns 30%. In years two through fourteen the market remains unprecedentedly stable and returns 7% annually. Unfortunately in year fifteen their string of good luck changes and the market drops 20%. Fortunately for Bruce and Diane, due to the positive early returns, their portfolio was large enough to withstand the latest market downturn. Despite losing over $229,000 in their portfolio over the last year, they still have over $900,000 dollars remaining. Like John & Lisa, Bruce and Diane have lived a healthy and active retirement. However, instead of looking for nursing homes, Bruce and Diane are looking at independent living villas in Costa Rica because the winters in Florida are just too cold for them.

Similar Story – Different Ending

While the facts remain strikingly similar, the end of their stories is vastly different. Unfortunately no one can predict what the stock market is going to do tomorrow, let alone next month, year, or ten years from now. Unless you have a flux capacitor, trying to plan your retirement date around future market forecasts is a futile and will not get you far. So what can be done to mitigate sequential risk?

Mitigate Sequential Risk

There are a multitude of different strategies that work well to help reduce the risk associated with early retirement withdrawals. However, regardless of the specific strategy chosen, they all centrally revolve around two main concepts; minimizing volatility and monitoring withdrawal rates. Strategies that focused on minimizing volatility may be a more appropriate approach as changing your withdrawal rate in retirement is not feasible for many retirees, especially for those living on a fixed income.

Ultra-Conservative Portfolio

Rather than taking a traditional approach of starting at 60% stocks (40% bonds) and reducing the weight as you age, consider taking a road less traveled. In order to minimize volatility during the onset of retirement, switch to an ultra-conservative portfolio. Dropping to a 30% stock allocation in early retirement has historically kept losses, even during the worst bear markets, to single digits. Minimizing the effects of market crashes protects your nest egg during the most critical stage of your retirement. As you get further along into retirement, gradually increase your equity exposure to as much as 60%.

Dedicated Cash Flow Stream

Another hybrid approach to minimize an early retiree’s volatility involves creating a dedicated cash flow stream to fund withdrawals. Using this approach, the amount of the withdrawal would be the same; however, a dedicated portion of the portfolio would be specifically set aside to fund the withdrawals. The simplest approach to create a dedicated cash flow stream is through the use of a laddered Certificate of Deposit. A ladder is sequential series of maturing term CD’s. For example purchasing a 12 month, 24 month, 36 month, 48 month, and 60 month CD. The maturing CD’s give a retiree a guaranteed cash flow without having to worry about current market conditions because the portion subject to withdrawals has already been prefunded and cannot lose value. The volatility in the remaining portion of their portfolio is mitigated because no funds are being withdrawn from this portion.

Fundamental Philosophy

Both approaches are based on the fundamental philosophy that an early retiree is at a greater risk from a market downturn than a mature retiree due to the number of withdrawal years. Consider reducing your sequential risk by transitioning to a more conservative portfolio at the onset of retirement or by creating a dedicated cash flow stream to eliminate or minimize early withdrawals from your portfolio.

International Investing – How a Diversified Portfolio can Mitigate Risk


Often times when I review a prospective client’s portfolio it’s heavily tilted toward U.S. equities and contains little to no internationally based stocks. Many of us will readily admit to having a hometown bias when it comes to our favorite sports teams; however, we may be unaware that these same biases carry over to our own investment philosophy. The reality is, many investors are selling themselves short by not fully utilizing the global equities market, often resulting in higher risk portfolios with lower returns. In fact since 1970; international stocks from developed regions have outperformed the U.S. stock market about half of the time.

The most common example of these “hometown” biases is in portfolios that are heavily invested in U.S. based, multinational corporations such as Apple, Exxon Mobil, or Coca-Cola. While it’s human nature for people to avoid things that are unfamiliar to them and take comfort in what they know, this can lead to a false sense of security. The brand recognition of these conglomerates, along with their international presence, leads investors into thinking that they don’t need to diversify their portfolios with any international stock. In truth, while they are gaining some international exposure, it is very limited and lacks exposure to major asset classes such as small-cap and emerging markets.

Academic research has shown that investors have better outcomes when their portfolios are diversified among different asset classes because each responds differently to various market cycles and events. Although international funds are historically more volatile than similar domestic funds, adding international funds to a portfolio can provide greater diversification while potentially lowering the volatility of the entire portfolio. By seeking investments that are not highly correlated with one another you are increasing the potential for gains in one part of your portfolio to offset losses in another part. In other words, a well balanced portfolio with international exposure can help to reduce large swings and keep you cruising in the center lane of performance.

Diversification aside, international markets offer growth opportunities that the United States simply cannot compete with. International economies, benefiting from less mature markets, attractive demographics, and availability of natural resources are growing at higher rates than developed-market economies. In the last fifteen years international emerging market stocks have outperformed the S&P 500 10 times. In fact, over that same period the Morgan Stanley Capital International Index has been the top performing major asset class 7 times, with an average return of nearly 13%. This is not to say that international stocks are not without risk, but an investor without any international exposure over that time period would have missed out on a tremendous opportunity to grow their portfolio.

Most of us are unaware that the United States accounts for just over half of the global equity market. However, if recent trends continue the international equity markets will gain the majority of the market share before long. So before you purchase your next stock or equity fund, remember that investing internationally can help to diversify your portfolio, mitigate risk, and maybe even increase your return!

It’s All about Your Asset Allocation


Asset allocation is the concept of diversifying a portfolio across several asset classes to reduce the portfolio’s exposure to risk. Your asset allocation is critical to the success of your portfolio because it is the driving factor that determines both risk and return. While the specific investment selections you make are important, they are far less crucial than the amount of money you commit to each asset class.

Creating a proper portfolio is a two-step process. The first step is selecting an asset allocation that is aligned with your needs. The second step is selecting the specific investments that fit into the asset classes you selected. Identifying your personal and financial needs is an essential step towards selecting your asset allocation. Traditionally a young investor can be more aggressive than an investor in their sixties because they have time on their side to overcome a market downturn. However, that is not always the case. Your health, job security, cash flow needs, and risk tolerance are all important factors that should be considered when selecting an appropriate asset allocation. The point is, your portfolio should be unique to you and your situation. Just because you and your neighbor are the same age doesn’t mean that you should have the same allocation. Likewise, your allocation at 25 will likely be inappropriate for you at 55. Find an asset allocation that works for you and your current situation and update it as your circumstances change.

Selecting specific investments that fit into an asset class can be a challenge because of the level of detail involved. Asset classes are broad categories of dissimilar investments such as stocks, bonds, real estate, and money market funds. Each asset class can then be divided into specific categories. For example stocks can be divided into U.S. stocks and foreign stocks, while bonds can be divided into taxable or tax-exempt. These specific categories can then be divided again into different styles. U.S. stocks can be divided into small, medium, and large cap. Bonds can be divided into investment-grade or below-investment-grade. This division can go on and on until you have narrowed down a broad asset class into a specific category, style, and sector such as U.S. small cap health care stocks. With thousands of investments to choose from one might ask; how can I possibly select investments that represent all these asset classes, categories, styles, and sectors?

Thankfully there are investments out there that allow an individual investor to create a broadly diversified portfolio at a reasonable costs. Index mutual funds and exchange traded funds (ETFs) are an excellent tool to build a portfolio that has an appropriate allocation where the specific investments fit into the appropriate asset class, category and style. The nature of these funds allow an investor exposure across broad market segments without the time, energy, and cost of purchasing individual securities. In fact, most investors can create a fully diversified portfolio by purchasing 5 or 10 of the right index funds or ETFs.

The question remaining is, how do I select the appropriate funds to create a successful portfolio that is diversified among different asset classes? Start by looking at the investment objective of the fund. For example, a fund designed to track the performance of the Standard & Poor’s 500 Index would be a good fit for the U.S. large cap portion of your portfolio. Next examine the strategy of the fund. Typically passive funds that are designed to match the benchmark index have much lower cost associated with them than do actively managed funds where the manager is trying to beat a particular market. Finally be sure to check the expense ratio which includes management fees, marketing fees, other expenses, and annual operating expenses of the fund. Two funds may be managed identically to one another, yet, one could have significantly higher fees.

Regardless of your investment strategy, it’s essential that you reduce your risk exposure by diversifying among different asset classes. Develop a strategy that is aligned with you and your future, and stick to it. Having said that, don’t be afraid to make changes as you mature and your responsibilities change. Review you asset allocation annually and rebalance as necessary, but avoid trying to build the perfect portfolio. Barring any major life changes, most of us should only need to overhaul their asset allocation every 5 or 10 years.

Tip of the Week – Keep College Savings in Your Name

Keep College Savings in Your Name

Parents often start a college savings account in their child’s name because it’s the intuitive thing to do. After all, it’s the child that will be attending college, not the parent. Unfortunately there can be adverse consequences to this arrangement particularly as it relates to financial aid. When applying for financial aid, 20% of the assets in the student’s name are taken into consideration, however only 5.6% of the parental assets are considered. This means that an account with $3,500 in the child’s name will reduce the students financial aid the by same amount as a parental account with $12,500 would. Take the time to properly title college savings assets under your name, it could result in your college bound child receiving a much larger financial aid award.

Tip of the Week – Invest in Mutual Funds

Invest in Mutual Funds

A mutual fund is professionally managed investment vehicle that pools money from individual investors to purchase securities. Mutual funds have several major advantages over individual stocks. First off, they are professionally managed. Most of us barely have time to eat breakfast, let alone dissect individual stocks. But fund managers have the time and expertise to properly research and analyze securities. Second, they are a low cost way of creating a balanced portfolio. The transaction cost alone of creating a balanced portfolio using individual stocks make mutual funds a much more attractive option. Third, they simplify the process for individual investors. With one single purchase, an individual can create a diversified portfolio. Creating a diversified portfolio using individual stocks could take hundreds of transactions.