A Popular re-broadcast of “Conservative Money Talk”-featuring Bruce B. Hailstone.

Is Your House An Investment?

Tim Rosen’s Podcast

If you’re thinking, “Disenchanted” and “Defeated”, I hope to bring some “Hope” to you.

We CAN see our investments grow if we properly apply these two “D’s”:

Diversification

Real diversification is not having three or four mutual funds in your portfolio, but owning different Asset Classes that have dissimilar price movements. Consider the S&P500 index. This index tracks the change in values in the top 500 U.S. Large Cap companies. Sounds like quite a bit of diversity- 500 different companies right? Not so much. This index actually falls under one asset class- U.S. Large Cap. So when there is negative news in the media (rare, I know), and the US stock market dips, this index will dip.

One simple example of diversification would be to own some US and some emerging markets . When one “class” dips, the other has a good chance of rising or staying the same, thus lowering the volatility (risk) in your portfolio. Now this is an over-simplified example, but the concept when carried out properly, is quite effective.

I see time and time again, investors whose holdings typically are far over-weighted in the S&P500; generally 60%-80% of their portfolio. In recommending a maximum of 7.5% allocated to the S&P500, and the balance distributed between US small cap, International small value, International Large value, 1-5 yr Government Bonds, etc., we bring greater expected returns while reducing volatility in the portfolio. It takes some careful planning and avoidance of being “sold” to build an appropriate portfolio that is also in line with your individual risk tolerence.

Discipline

Let’s face it, most investors do not have the intestinal fortitude to do the right thing at the right time, and not give in to the emotional decision-making. The Dalbar study reveals that over the past 20 years, the average individual equity investor experienced an annual return of 1.8%, while the S&P500 index during the same time period had a 9.2% return!

Why the great disparity in returns? Imprudent Investor behavior! Selling when the markets go down, out of fear. “Switching” funds after experiencing a downturn in hopes that the next fund will do better; believing that they, or someone else can pick the winning stocks; and trying to “time” the market , are all examples of imprudent behavior which resulted in such bleak returns.

An unbiased investor coach will help you build a properly diversified portfolio and will provide the discipline assistance when you start “feeling” insecure or fearful to prevent the “imprudent” behavior that costs you so much in losses and fees. There is a lot of evidence and data supporting the rewards for creating a plan and sticking to it!

Permanent Tax Reduction vs. Temporary

Have you ever been notified that your contribution to your IRA or 401(k) is only temporary? Yes, you do get to deduct those dollars off of your earned income for that year, but is this a permanent savings? Or will this “tax reduction” come back to haunt you later?

First let’s define what I mean by a permanent tax savings.

If you have a mortgage one your primary residence, under current tax laws you are able to deduct that interest off of your income for that year, and every year that you pay interest on your mortgage. This is a true deduction; saving you tax dollars, period. The interest that you “write off” does not resurface later in a life as taxable income or anything of that nature, its done!

The same is true for acceptable business deductions such as mileage, advertising, office supplies, etc. Once they are written off, you save money, end of story.

Now let’s go back to “tax savings” from contributing to your IRA. While you enjoy some form of tax reduction the year you contribute, will it come back to tax you later? Yes! When its time to access your IRA funds (typically as income during retirement), those dollars come back in the form of Taxable Income. Statistically, you may pay more in taxes on this money than you “saved” putting it in!

Conclusion: IRA and 401(k) contributions are temporary deductions, not permanent. Consider contributing to a Roth IRA or a non-retirement account, in which you will not receive a “tax deduction” today, but will enjoy tax-free or mostly tax free income when you need it the most- at Retirement!

Have you ever been notified that your contribution to your IRA or 401(k) is only temporary? Yes, you do get to deduct those dollars off of your earned income for that year, but is this a permanent savings? Or will this “tax reduction” come back to haunt you later?

First let’s define what I mean by a permanent tax savings.

If you have a mortgage one your primary residence, under current tax laws you are able to deduct that interest off of your income for that year, and every year that you pay interest on your mortgage. This is a true deduction; saving you tax dollars, period. The interest that you “write off” does not resurface later in a life as taxable income or anything of that nature, its done!

The same is true for acceptable business deductions such as mileage, advertising, office supplies, etc. Once they are written off, you save money, end of story.

Now let’s go back to “tax savings” from contributing to your IRA. While you enjoy some form of tax reduction the year you contribute, will it come back to tax you later? Yes! When its time to access your IRA funds (typically as income during retirement), those dollars come back in the form of Taxable Income. Statistically, you may pay more in taxes on this money than you “saved” putting it in!

Conclusion: IRA and 401(k) contributions are temporary deductions, not permanent. Consider contributing to a Roth IRA or a non-retirement account, in which you will not receive a “tax deduction” today, but will enjoy tax-free or mostly tax free income when you need it the most- at Retirement!

What “They” say the solution to this Recession is.