Day: October 19, 2018

A Portfolio MRI Could Be Just What the Doctor Ordered

By Robert A.Stabile, EA, ABA

A man walks into a doctor’s office, complaining of some minor chest pain. Without missing a beat the doctor says,” OK, we’ll do open heart surgery first thing tomorrow morning.” If the man wasn’t having a heart attack before, he is now. “But aren’t going to doing any kind of tests, x-rays, lab work… maybe even an MRI,” he asks nervously. “Shouldn’t we first find out what the issues are before we try to fix it?”

The funny thing is that most people take the time to make sure their personal health is in order, but remarkably few take the time to make sure their financial situation is just as healthy. The truth is that without a Portfolio MRI, a detailed look at the various variables that make up your financial portfolio, you really have no idea of which of these components are under-achieving, over-achieving, or simply sitting stagnant.

A Portfolio MRI starts with some basic questions:

  1. What amount of your savings is being lost every year to investment fees, both implicit and explicit?
  2. If you own mutual funds, how many of your funds are buying the same companies? Are you diversified or simply redundant?
  3. Do you know your expected return for any one year, five years, or 20 years?
  4. Do you know how much your portfolio is likely to lose in any given year?
  5. If your portfolio adequately diversified in a way you can measure?
  6. Would it be possible for you to get the same return with less risk?

Very few people are equipped to answer these questions, which can really only be answered with a highly analytical and detailed synopsis of where you are doing well and where you might need an investment jump-start. Fortunately, there are ways to discover problems that may be lurking below the surface, problems you never knew you had and that can be brought to the surface using extensive expertise in all matters financial and a firm grasp of the technology needed to come up with viable solutions.

According to WebMD, an MRI is a test that takes detailed pictures inside your body, used by doctors to see how well you are doing and what can be done differently to ensure you stay healthy.

A Portfolio MRI works on the same principal; to make sure you stay financially healthy.

For more information contact Robert Stabile, a registered Investment Advisor and Investment Coach and CEO of HIgbie Advisory, LLC. He can be reached at 631-878-6195

The Portfolio MRI is a proprietary analytical tool of Matson Money and is authorized for use by Robert A. Stabile, CEO of Higbie Advisory. LLC a Registered Investment Advisor in the State of New York. Fee based Investment Management and Advisory Services are offered through Higbie Advisory, LLC. The material presented in this article shall in no way be considered a solicitation to sell or offer investment advisory services to any residents of any other State other than the State of New York or where otherwise legally permitted.

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What’s Your Retirement Number?….Why this may be the wrong question to ask!

By Robert A. Stabile, EA, ABA

The Simple Way to Find Your Retirement Number — The Motley Fool

What’s Your Retirement Number? – The Balance

The One Retirement Number You Need To Know – Forbes

What’s the magic number for your retirement savings? – CNBC.com

What’s my ‘number’? Figuring out a retirement target – CNN Money

…..These are all web links that lead you to an article describing on how you can find the right number, amount of money that is, to help you live a successful retirement! But is this really the correct way to approach retirement? That’s the focus of this month’s discussion.

As I reflect on the financial view of our clients ages 30 to 50, the way they think about retirement is fascinating. It’s been said before in national magazines that we should “retire” the word retirement. Why is that? Because it really doesn’t mean much anymore as the landscape of work, family and the economy are constantly changing. There was a recent study done in USA Today, (www.usatoday.com), that suggested 68% of individuals working today said that they would continue working into retirement. In fact, I myself, will live what I call a “hybrid retirement,” meaning that I will work in some part time capacity to keep me busy and my mind limber.

You can see from the web links above, it has been the trend to concentrate on the approach to retirement as seeking the appropriate “number” where it comes to retirement. This financial planning notion centers on the concept of figuring out how much money you will need in your investment portfolio, (whatever that is), on the day you stop working in order to provide you with enough income for the rest of your life. It’s the magic number you will need so you will never run out of money. In retrospect, I am absolutely convinced that this approach to planning retirement is severely flawed. In addition, reaching this number, if you are so fortunate, may in many cases put retirees in the state of paranoia as they age through retirement.

I believe that a better approach would be to search for “what’s my paycheck” not “what’s my number.” This is a very different direction from which traditional planners may take. Tom Hegna discusses in his book, “Paychecks and Playchecks Retirement Solutions for Life,” that we should seek paychecks first and then plan for our Playchecks.

Think about this for a minute. You work hard and begin to earn more and more income as you grow your career. You are quite successful in that you save the maximum in your 401(k) plan,

take the company match, you may even be showered with stock options for twenty to thirty years. You invest your money wisely and achieve a reasonable rate of return on the money. Your financial advisor runs a detailed analysis and now you have a goal of $2,000,000. They tell you upon hitting that $2,000,000 that you will never run out of money if you use a certain withdrawal rate, earn a certain interest rate, and the variable assumptions like inflation and tax rates stay in line.

What’s wrong with this analysis? The item that nobody discusses is that by achieving this level of success, you are guaranteed to spend down your money. So, what happens psychologically is that the first few years of retirement you hit a sensation of jubilation. You start living your “Go- Go” years and you spend more money than you would in normal years living out some of your bucket list. After all every day is a Saturday in retirement. Isn’t that traditionally when you spent the most money in your pre-retirement years? So, after you come down to planet Earth from your couple of years of travel and vacation, you start to withdraw money at the reasonable spend down rate.

The problem is that when some people spend their lives building up a capital base, it makes them emotionally sick to their stomach to see the balances in their investment accounts begin to go down. While intellectually they understand that this money was built up for this very purpose, it is impossible for them to sit by idly and watch the capital base dissipate because they spent their whole lives building it up.

This is why you’ll often hear that people who have a lot of money in retirement are often some of the cheapest people in the world. The reason is the massive fear of the treasured money slipping out of their hands. I call this living a just in case retirement. “I can’t do this or can’t do that just in case… ” I am sure you know a few of these people. The result… the result is they begin to shrink their lifestyle to the point that their investment account balances stabilize or wont’ go down. This is counter intuitive to what should be happening.

Therefore, for those of you in your 30’s, 40’s, and 50’s who are planning now for retirement should understand that the discussion should be around ‘what’s my paycheck’ and not ‘what’s my number’. Some of the happiest retired people I have seen throughout my career are teachers, government workers, and clients who receive steady pensions from their former employers and have a substantial nest egg to spend as well. They don’t think emotionally as much about the market, the economy, or the Government around their future or their investments.

All they know is that a check comes in the mail each month. Month after month after month for the rest of their life. In other words, they keep getting a “paycheck” for life! That means as you plan your family finances, you should have a really strong consideration on what percentage of your assets that you are willing to allocate to a real pension like paycheck in retirement. There are many types of products that can solve this part of the equation. You should ask your financial advisor about how these types of instruments work within the framework of your retirement plan.

Should someone ask the question, “if you had 2 or 3 million dollars in the bank when you retire, do you think you would be happy?” Most of you would unequivocally say yes, but 10 years into retirement you would discover that your emotions would take over and you would be worried about your capital base every single day.

Therefore you should about the new notion of retirement being about a paycheck and not just a lump sum. If you knew the check was in the mail every month, how much fun could you have and not worry about the ups and downs of the economy every day. Isn’t it time you figured out what your paycheck should be in retirement?

Next month discussion will focus on the “playchecks” part of the “Paycheck and Playchecks.” This is where you should count on your investment portfolio to help you “play” and combat inflation during your retirement years!

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