The Aftermath of Brexit

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The Aftermath of Brexit Pros and Cons: What Options Do Individual Investors Have? On June 23, 2016, a majority of British citizens voted to leave the 28-member European Union – an action referred to as the “Brexit”.  The following day, … Continue reading

Unhealthy Investment Attachments

Have you ever made yourself suffer through a bad movie because, having paid for the ticket, you felt you had to get your money’s worth? Some people treat investments the same way.

Behavioral economists have a name for this tendency of people and organizations to stick with a losing strategy purely on the basis that they have put so much time and money into it already. It’s called the “sunk cost fallacy.”

Let’s say a couple buys a property next to a freeway, believing that planting trees and double-glazing will block out the noise. Thousands of dollars later, the place is still
unlivable, but they won’t sell because “that would be a waste of money.”

This is an example of a sunk cost. Despite the strong likelihood that you’ll never get your money back, regardless of outcomes, you are reluctant to cut your losses and sell
because that would involve an admission of defeat.

It works like this in the equity market too. People will often speculate on a particular stock on the basis of newspaper articles about prospects for the company or industry.
When those forecasts don’t come to pass, they hold on regardless.

It might be a mining stock that is hyped based on bullish projections for a new tenement. Later, when it becomes clear the prospect is not what its promoters claimed, some
investors will still hold on, based on the erroneous view that they can make their money back.

James Lange, Lange Financial Group, Pittsburgh, Investment

The motivations behind the sunk cost fallacy are understandable. We want our investments to do well, and we don’t want to believe our efforts have been in vain. But there are ways of dealing with this challenge. Here are seven simple rules:

  1. Accept that not every investment will be a winner. Stocks rise and fall based on news and on the markets’ collective view of their prospects. That there is risk around outcomes is why there is the prospect of a return.
  2. While risk and return are related, not every risk is worth taking. Taking big bets on individual stocks or industries leaves you open to idiosyncratic influences like changing technology.
  3. Diversification can help wash away these individual influences. Over time, we know there is a capital market rate of return. But it is not divided equally among stocks or uniformly across time. So spread your risk.
  4. Understand how markets work. If you hear on the news about the great prospects for a particular company or sector, chances are the market already knows that and has priced the security accordingly.
  5. Look to the future, not to the past. The financial news is interesting, but it is about what has already happened, and there is nothing much you can do about that. Investment is about what happens next.
  6. Don’t fall in love with your investments. People often go wrong by sinking emotional capital into a losing stock that they just can’t let go of. It’s easier to maintain discipline if you maintain a little distance from your portfolio. This is one of the huge values a fiduciary advisor can add to your portfolio.
  7. Rebalance regularly. This is another way of staying disciplined. If the equity part of your portfolio has risen in value, you might sell down the winners and put the money into bonds to maintain your desired allocation.

These are simple rules. But they are all practical ways of taking your ego out of the investment process and avoiding the sunk cost fallacy.

There is no single perfect portfolio, by the way. There is, in fact, an infinite number of possibilities, but based on the needs and risk profile of each individual, not on “hot tips” or the views of high-profile financial commentators.

This approach may not be as interesting. But by keeping an emotional distance between yourself and your portfolio, you can avoid some unhealthy attachments.

4 Reasons Why We’re Excited that Retire Secure! is Interactive on the Web!

If you haven’t made your way to www.langeretirementbook.com yet, now is the time!

Here at the Lange Financial Group, LLC, we are very excited to bring you an interactive version of Retire Secure! A Guide to Getting the Most Out of What You’ve Got. 

Reason #1 – The entire book is on this website. Yes, all 420 pages of the book, including the front and back covers, all about the best strategies for retirement and estate planning. 
James Lange, Retire Secure, Lange Retirement Book, Interactive
Reason #2 – The book is divided into chapters for ease of reading. Meaning, you don’t have to flip through 400-some pages to get to Chapter 11 – The Best Ways to Transfer Wealth and Cut Taxes for the Next Generation.
James Lange, Retire Secure, Lange Retirement Book, Interactive
Reason #3 – We honestly haven’t seen anything like this before. Granted, I’ve read magazines on viewers where you can flip the pages as you read. But not a website for a book that includes a viewer, as well as a forum where readers can engage with each other.
The comments are moderated by the Lange Financial Group, LLC staff and myself. One of us will reply to your comment as soon as we can. To leave a comment, all you need to do is connect with your Amazon, Facebook, or LinkedIn account. This measure is for your protection, as well as ours. We don’t want spammers posting comments or incorrect information about such an important topic. 
James Lange, Retire Secure, Lange Retirement Book, Interactive
 
Reason #4 – We are hoping this interactive website encourages you to purchase the book! Retire Secure! is available from Amazon and JamesLange.com. Once you’ve read the book, feel free to return to LangeRetirementBook.com to ask questions, as well as Amazon and Goodreads to review the book for the benefit of others.

 

Back Door IRA, The Conclusion

Roth-IRA-conversions,James-LangeRecharacterizations

Converting to a Roth IRA also comes with another very unique advantage. The IRS allows you a one-time opportunity to recharacterize or “undo” this conversion by October 15th of the following tax year. IRS publication 590 states that, “a recharacterization allows you to ‘undo’ or ‘reverse’ a rollover or conversion to a Roth IRA. To recharacterize, you generally instruct the trustee of the financial institution holding your Roth IRA to transfer the amount back to a traditional IRA (in a trustee-to-trustee or within the same trustee). If you do this by the due date for your tax return (including extensions), you can treat the contribution as made to the traditional IRA for that year (effectively ignoring the Roth IRA contribution)”. In the case of a Backdoor Roth IRA, you probably won’t think about recharacterizing. However, if you want to explore this option, we are here to help assist you, because like many of the other rules involved this can be complicated.

Conclusion

While Backdoor Roth IRAs can be beneficial to many investors, they aren’t for everyone. They come with their limitations and complications. There are precautions that need to be taken to reap the full benefits of any financial decision. This is an area where a highly informed financial advisor can help you make an educated and calculated decision. You should always consult with your financial advisor and tax professional to help avoid tax ramifications.

As always, we are here to help and can look at your specific financial situation and chart the right path for you. If you are interested in learning more about whether or not a Backdoor Roth would be right for you and your specific situation, please call us and we would be happy to discuss this with you. As always, we enjoy the opportunity to assist you in addressing your financial matters.

Financial Check-Up

 

Complimentary Financial Check-up

If you are currently not a client of The Lange Financial Group, we would like to offer you a complimentary, one-hour, private consultation with one of our professionals at absolutely no cost or obligation to you.

To schedule your financial check-up, please call 412-521-2732 or fill out our Pre-Qualification Form here.

Thank you,
James Lange

 

 

This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Roth IRA account owners should consider the potential tax ramifications, age and contribution deductibility limits in regard to executing a re-characterization of a Roth IRA to a Traditional IRA.

The views stated in this letter are not necessarily the opinion of The Lange Financial Group, LLC, and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. © Academy of Preferred Financial Advisors, 2014

 

John C. Bogle – A Financial Industry Giant Addresses Congress

John Bogle, The Lange Money Hour, James Lange, Pittsburgh, PA Wednesday, October 1, 2014Join us this Wednesday, October 1 at 7:05 p.m. on KQV 1410 AM for The Lange Money Hour, Where Smart Money Talks.

Program also streams live at www.kqv.com

Encore presentations air on KQV EVERY SUNDAY at 9:00 a.m.

The three legs of America’s retirement system are shaky, neither structurally efficient nor fiscally stable. That’s what the U.S. Senate Finance Committee heard on September 16, during testimony by a man Fortune Magazine labeled one of four giants of American Finance: John C. Bogle, founder and now retired CEO of the Vanguard Group, the world’s largest mutual fund company, with more than 3 trillion dollars under management.

To hear why Mr. Bogle believes the situation is so precarious, tune in tomorrow evening at 7:05, as The Lange Money Hour welcomes him back to the show.

Over the course of his 63-year career, Mr. Bogle has changed the face of investing. A pioneer in the concept of index mutual funds, collective portfolios of stocks that mimic the movement of a defined market sector rather than a selection of individual companies, he is credited with creating the first index fund available to individual investors, the Vanguard 500.

Mr. Bogle has written a dozen books, including his 1994 bestseller Bogle on Mutual Funds to most recently The Clash of the Cultures: Investment vs. Speculation. At 85, he remains an active industry observer, appearing regularly on national financial media outlets. He recently described the personal mission he has set for himself in his retirement – “to speak out for truth and integrity and character in the world of finance, striving to build a better world for investors—honest-to-God, down-to-earth human beings who deserve a fair shake.”

You can watch his 6-minute Congressional testimony here:

http://johncbogle.com/wordpress/2014/09/17/testimony-before-the-senate-finance-committee-september-16-2014/

We’re honored to have Mr. Bogle back as a guest on The Lange Money Hour. Please plan to join us Wednesday, Oct. 1, 2014 at 7:05 on KQV 1410 for an interesting and informative hour. The program will also stream live at www.kqv.com.

If you can’t tune in October 1, 2104, KQV will rebroadcast the show at 9:00 a.m. this Sunday. You can also access the audio archive of past programs including written transcripts on the Lange Financial Group website, www.paytaxeslater.com. Click on RADIO.

Finally, mark your calendar for Wednesday, October 15th at 7:05 p.m., when Pittsburgh City Controller Michael Lamb will join us for the next new edition of The Lange Money Hour.

 

Tomorrow’s Radio Show: Supporting the Four Corners of your Financial House

Join us tomorrow evening at 7:05 pm on KQV 1410 AM. Program also streams live at www.kqv.com. Encore presentations air EVERY SUNDAY at 9:05 am.

Most people recognize that proper asset allocation is essential to the long-term financial success of their retirement planning, but too many investors fail to consider all the factors of their situation.

For perspectives on making sure all four corners of your financial house are supported with leading edge solutions, tune in tomorrow evening, Wednesday, June 18th, at 7:05 p.m. when The Lange Money Hour welcomes P.J. DiNuzzo, CPA, PFS®, AIF®, MBA, MSTx back to the show.

A nationally recognized expert in investment management, P.J. has been featured in numerous business publications and TV shows. Approved as one of the first 100 Dimensional Fund Advisors (DFA), he is rated a 5-Star Advisor by Paladin Registry/Investor WatchDog, ranking in the top 1% of America’s more than 800,000 investment advisors. Based in the Pittsburgh area, his firm, DiNuzzo Index Advisors, also consistently ranks among the county’s top 500 investment companies.

Among other topics, Jim and P.J. will discuss are the “Advisor Alpha” and the benefits of “one stop shopping.”

Since tomorrow’s show will be live, you can join the conversation by calling the KQV studios at 412-333-9385 after 7:05 p.m. Email questions in advance by clicking here.

In addition to being broadcast at KQV 1410 AM, the show will be simultaneously live-streamed at www.kqv.com.  KQV will also rebroadcast the show this Sunday, June 22nd, at 9:05 a.m. The audio will also be archived on our web site at www.paytaxeslater.com/radioshow.php, along with a written transcript.

Finally mark your calendar for Wednesday, July 2nd at 7:05 p.m., when Jim will welcome back Larry Kotlikoff, a nationally recognized Social Security expert, to the next new edition of The Lange Money Hour.

 

Congratulations Eugene Fama of Dimensional Funds Advisors on Winning the 2013 Nobel Prize in Economics!

Eugene Fama, whose ideas and research, along with Kenneth French helped to form Dimensional Funds Advisors (DFA) has been annouced as the 2013 winner of the Nobel Prize in Economics.

He won based on the concept that he came up with decades ago and has gone about proving ever since “Stock prices reflect all available information.” Meaning that overall, it’s impossible to beat the market on a consistent, long-term basis. Eugene Fama, along with Professor French have identified seven risk factors that explain the vast majority of stock market returns.

This Prize comes after 40 years of proof that his theories were correct. Tune in to the Lange Money Hour on 1410 AM KQV tonight at 7:05pm EST (streaming live on www.kqv.com) to hear what PJ DiNuzzo, our DFA money manager has to say about this well-deserved and historic award.

(taken from press release from DIA, Inc.)

Government Shutdown a Concern for Investors, but No Need to Panic

A partial government shutdown began today, leaving plenty of federal employees out of work and unpaid. National Parks are closed, FAA safety inspectors are out of work, NASA is all but closed, even The Smithsonian Museums are shut down. Many Americans worry during this time how the shutdown will effect them, their taxes, and the economy as a whole. @MacroScope Reuters tweeted an interesting chart this morning on the performance of the S&P 500 prior to, during, and after the previous government shutdowns.

While we could be facing a bumpy time during the shutdown and immediately after, it looks alike in most cases the S&P 500 didn’t fair so badly in shutdown situations. The shutdown is going to be an aggrevation, but there is no need to start panicking about investments. Contact your advisor before making any hasty buying/selling decisions during this time. An over-reaction could end up costing you!

Announcing the ASK Campaign for John Bogle

 

What Would You Ask Vanguard’s Founder and former CEO John C. Bogle If You Had the Chance?

Jim Lange is pleased to offer you the opportunity to ask industry giant, John Bogle, your most pressing investment and retirement questions!

This is an unprecedented opportunity to get advice and recommendations from the founder of the largest mutual fund company in the world.

The Lange Money Hour welcomes Mr. John C. Bogle, of The Vanguard Group, as our special guest, November 28, 2012, at 7:05 p.m. on KQV 1410AM, re-airing the following Sunday, December 2nd at 9:05 a.m.

We are issuing an open invitation to submit your most imperative, difficult, and fretful questions to be posed by Jim, to Mr. Bogle.

Just go to the home page of our website, www.paytaxeslater.com and click the ASK John Bogle button.

As a thank you for participating in our campaign, we will email you a link to the sound file of the interview as soon as it is available.  In addition, our office will transcribe the interview and provide you with the written transcript that you can refer to at your convenience.

Born in Montclair, New Jersey in May 1929, to a family heavily affected by the Great Depression, John C. Bogle had humble beginnings.  Even as a graduate of Princeton University, he could not have known that one day he would be touted by Fortune magazine as one of the investment industries four “Giants of the 20th Century.” (Warren Buffet, Peter Lynch, and George Soros are the other three.)

Mr. Bogle is the founder of The Vanguard Group, Inc. which started operations in 1974.  From the beginning until 1996 he served as Chairman and Chief Executive Officer.  From 1997 until 2000 he served as Senior Chairman.  In 2004, Time magazine named Mr. Bogle one of the world’s 100 most powerful and influential people.  The Vanguard Group is the largest mutual fund organization in the world and it is headquartered in Malvern, PA.  It’s Vanguard 500 Index Fund, founded by Mr. Bogle in 1975, was the first index mutual fund available to the public.

Don’t miss this once in a lifetime opportunity.

As this particular show will be recorded in advance and not aired live, we encourage you to go to our website www.paytaxeslater.com and submit your questions to Mr. Bogle, by Wednesday, November 14, 2012. Just click on the ASK John Bogle button to submit your question. Then tune in Wednesday evening, November 28th, to hear your questions answered by one of the industry’s most influential thinkers.

If you can’t tune in Wednesday evening, KQV will broadcast the show Sunday morning, December 2nd, at 9:05 a.m., and it will be available shortly after at www.paytaxeslater.com, along with the full library of The Lange Money Hour presentations.