4-Minute Money Ideas

How to Safely Boost Returns in a Low Interest Rate Environment
By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel

To the dismay of yield-seeking investors, interest rates remain at historic lows. Although rates on long-term bonds may begin to inch up, analysts generally expect that we may remain in a low-interest-rate environment for a while longer. So, what are income investors to do? It is important to understand the risks of reaching for higher yields and realize there may be less risky ways to increase income.

It’s all about the Risk-Reward Relationship
When investing for any purpose, returns always boil down to the risk-reward relationship. The laws of investing dictate that it is very difficult to increase your return without also increasing your risk. While you can increase your yield by investing in lower-grade or longer-term bonds, you also increase your risk should interest rates suddenly rise. To learn more about how bonds react to interest rates, watch a short video at: profile-financial.com/bonds.

Income investors, especially retirees, want to generate cash. However, they also need to preserve their capital. By focusing on yield without regard to capital preservation, you increase your overall risk. In a low-interest-rate environment, the better strategy is to broaden your sources of income through total returns.

Forget about yields – look to total returns
“Total returns” is a strategy that invests in a combination of income and appreciation investments that, when allocated among different asset classes, can increase income while minimizing portfolio volatility. The goal is to generate sufficient current income while growing enough capital to keep up with inflation. A well-diversified portfolio of high-quality dividend stocks and investment-grade bonds can generate higher risk-adjusted returns more safely than a portfolio of the highest yielding, below investment-grade bonds.

Income investors do not have to suffer through an extended low-interest-rate environment. However, it does require a strategic approach tied directly to your specific risk-return profile. Working with a well-qualified investment advisor, just about any risk-return profile can be matched with a balanced and diversified total return portfolio strategy.

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.

Secrets to a Financially Strong Marriage
By Douglas Goldstein, CFP® - helping you handle your American investments

Displayed prominently in our living room is a list titled, “Abba’s Secrets to Success” Now, as my oldest daughter is about to get married, I’ve compiled “Abba’s Secrets to a Financially Secure Marriage” for her and her groom. With their permission, I’d like to share it with you:

1. Be completely honest – Open communication is better than financial infidelity. Hidden spending not only damages your future goals but erodes trust. Discuss money regularly, not just when you have a big bill to pay.
2. Work on joint financial goals – Don’t fall into roles of good cop/bad cop where one of you wants to spend and the other wants to save. You’re merging your lives; now merge your money. There is no such thing as “my” money – no matter who brings home the paycheck, consider it “ours.”
3. Live below your means – Accumulating “stuff” is expensive. Create a budget and stick to it. Review your spending/saving goals regularly. And most importantly, ignore financial peer pressure to spend.
4. Make charity a priority –Get involved in tzedaka and make the world a better place.
5. Pay yourself first – You’ll grow old together; begin planning for it now. Compound interest and time are your new best friends. Make sure your savings is divided into three pots: an emergency fund, short-term, and long-term savings. Having an emergency fund is the best way to ensure that an unexpected problem won’t turn into a crisis.
6. Avoid debt – Make sure you have enough money saved before you buy. Avoid tashlumim! The only exception is taking on a mortgage (and then be careful not to buy a house that is too expensive.)
7. Find a financial advisor that you trust – Though I would be honored if you choose me, read the article at Profile-Financial.com/pick-advisor to make sure you select wisely.
8. Be detail-oriented - Pay your bills on time, file taxes, make sure you have insurance and healthcare directives.
Remember money is a tool to help you achieve great things, not an end in and of itself. Use it carefully and build well. And Mazel Tov!

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.

Do You Have to Stop Working When You Reach Retirement Age?

By Douglas Goldstein CFP® - helping olim handle their U.S. investments from Israel

Does reaching retirement age mean you have to stop working?

In Israel, the official retirement age for a man is 67. For women, it fluctuates between 60 and 62, depending on date of birth. Retirees until the age of 70 (or 69 for a woman born before 1950), are eligible for a state pension, but entitlement is affected by additional sources of income. From 70 onwards, a state pension is given regardless of other income.

So what is the best age to retire? Before making a decision, ask yourself the following questions:

Are you physically able?

As you age, your regular routine may become tiring. You may also develop health issues that make working full time difficult. So before you decide to keep on working, make sure that it’s realistic. In your retirement plan, make provisions for the possibility that future health problems may affect how long you can work.

Why do you want to keep working?

Do you want to keep working because you fear outliving your savings? If so, working as long as possible lets you amass more savings, and have fewer years of withdrawals.

But what if you don’t have to keep working for income? If your desire to keep working is based on factors such as wanting to maintain routine or enjoying the contact with your colleagues, there are other solutions. Perhaps you could work part-time or find a hobby that will provide a social life.

It’s not only about money

Before making your decision, meet with your financial planner, tax advisor, and pension planner to discuss your estimated streams of retirement income. At the same time take all relevant issues into account, and make your final decision after considering both the financial and emotional factors.

For more information about how to decide when to retire, read chapter 5 of The Retirement Planning Book.  Click here for a free download.

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.

How to Prepare for the Next Stock Market Crash

By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel

Over the past several years, the market has climbed to historic highs, prompting analysts to sound the alarm over the next stock market crash. While I can’t say when the next crash will occur, I can say it’s reasonable to assume that there will be another stock market drop at some point. How can you prepare for it?

Market crashes are inevitable
Crashes are more about the speed of decline than its depth or duration. The Flash Crash of 2010 saw the market plunge 1,000 points in minutes. In the 2008 crash, the market fell more than 20% within days. The good news is that each time the market crashed, it fully recovered and went on to greater gains. In 2010, it took a couple of days to recover, while in 2008 it took about 17 months. Past performance is no guarantee of future returns.

Every bull market (market rally) leads to some sort of correction. Corrections are defined as declines of 10% to 20%, and they are very common during extended stock market rallies. They may last from a few weeks to a few months. A bear market is when stocks decline more than 20%, with a duration of more than 15 months.

Patience and discipline beat fear and panic
The key takeaway is that crashes, corrections, and bear markets are all parts of market cycles. These events are even healthy for the long-term trajectory of the market. So while it’s scary to watch your portfolio lose a significant portion of its value, keep in mind that these are only paper losses. These losses don’t become real until you sell. (That’s why it is important to move out of the market if you need your money in the short term, and don’t have time to recoup potential paper losses.)

If you have a solid, long-term investment strategy, your patience and discipline should pay off over the long-term. A properly diversified portfolio should be able to weather most storms, given enough time. For more on how to prepare your portfolio for a market crash, see: Profile-Financial.com/stocks

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.

Debunking 3 Myths About Not Needing an Emergency Fund
By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel

One of the most fundamental principles of financial planning is to prepare for the unexpected by keeping three to six months’ worth of living expenses in an emergency fund. The trouble is many people succumb to the myth that emergency funds aren’t necessary because you can always withdraw from savings. Here are 3 myths about emergency funds and why they are wrong:

The best place to keep an emergency fund is in your investment portfolio
Yes, an investment account is technically marketable; and it can provide you with access to cash should you need it. However, you can lose real money if you are forced to sell assets at the wrong time. Imagine selling off $5,000 of your equities to cover an emergency expense after the market has declined 25%. It could take you years to gain that back. Better to have that money sitting in a low-yielding money market fund. Read this blog post to learn more about why investing your emergency fund is a bad idea: www.profileperspectives.com/emergencyfund.

Once I turn 59½ I can use my retirement plan
Yes, once you reach age 59½, the 10% penalty in your Individual Retirement Account (IRA) goes away. However, when you access your retirement account, the withdrawal is taxed as ordinary income. But the real issue is that it could put you into a higher tax bracket, which would be even more costly. Covering a $10,000 expense could require you to withdraw as much as $15,000 to cover taxes. While I do not give tax advice, it is important to keep tax considerations in mind when withdrawing funds.

It’s better to pay down debt than to save for an emergency fund

While paying down debt may be the best use of your excess cash flow in most situations, few would argue that it should be done at the expense of building an emergency fund. Without an emergency fund, you could end up taking on even more debt, which just compounds the problem. The better approach is to apply a portion of your cash flow to both eliminating debt and building an emergency fund.

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.

Short on Retirement Savings? Here’s What You Need to Do

By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel

More than 10,000 baby boomers cross the retirement threshold every day, and nearly one in four of them of haven’t saved enough to retire comfortably. If you’ve reached that point and realize your retirement savings won’t last your lifetime, it’s time to have an uncomfortable conversation with a financial advisor because there are several things that need to be done. But it all starts with having a plan.

Create a realistic plan
Establish realistic goals based on what you expect to happen. That should include a new time line for critical milestones, such as when you expect to stop working, when to start Social Security and Bituach Leumi, and when (or if) you will need to begin digging into your capital. Crunch the numbers to come up with a pre- and post-retirement spending plan as well as an investment strategy to maximize your income and capital growth.

Start living like a retiree now
By adjusting your lifestyle you can lower spending to make a significant difference in how much you can save. Reducing your budget now can also prepare you for the transition of living with a lower income as you move into retirement. The pre-retirement years may be the ideal time to downsize your home, your car, and your lifestyle.

Delay retirement to the “new 65”

For many people, regardless of where they stand financially, 70 is the “new 65” when it comes to retirement age. There are several advantages to working longer:

• You can maximize your Social Security and Bituach Leumi benefits.
• It will reduce the number of years you’ll actually live in retirement.
• It will give you more time to build your nest egg.

If you delay retirement, reduce your spending, and increase your savings, you gain the huge benefit of time to allow your money to work for you. It may not be the retirement you envisioned, but it doesn’t have to be the disaster many are facing today. Learn more about improving your retirement income by watching a short video here.

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.

How to Keep Financial Harmony in Your Marriage

By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel

What’s the best way to achieve financial harmony in a marriage?

When two people get married, they don’t only join their lives together, but also their money. If differences in money attitudes and practices are not addressed early on, people can become set in their ways, making it more difficult to overcome any disagreements. However, where there is love, there are also ways to heal the financial divide.

Find shared values and purpose
Couples need to come together with a shared vision of their future based on joint values. If they share a mission and purpose, their decisions will have greater clarity and conviction and it should be easier to maintain financial harmony. Shared goals can provide the motivation to spend/save according to an agreed-upon plan.

Create a plan
At the core of any successful enterprise – be it a business or marriage – is a spending plan or budget. With shared goals and purpose, couples can better prioritize their spending and find it easier to agree on financial decisions. Budgets should be created as a couple and tracked together monthly.

Keep separate finances
When finances are merged, it can sometimes lead to a struggle for control. Make sure that money doesn’t become a power issue. While both partners don’t need to balance the checkbook or pay the bills, everyone needs to be happy with the division of labor.

Making joint spending/saving decisions is important. However, not every financial decision needs to be approved by your spouse. Allowing some individual control over a personal spending budget can go a long way to relieving the stress of having to account for every shekel spent as a couple. Decide on an amount where each person can spend without having to “check in” with the other.

Read my blog, ProfilePerspectives.com/sharedsavings, for an in-depth discussion of the pros and cons of maintaining a shared savings account.

Communicate!
As with any other issue in marriage, open and honest communication is the key to finding financial harmony. Couples who make time to discuss money issues regularly usually achieve a financial consensus.

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.

What You Should Know About Low-Risk Investments

By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel

Recently, a new client told me that his portfolio mostly contained low-risk investments. When I saw that the majority of his investments were mutual funds, I asked him why he believed mutual funds were “low-risk,” as his funds contained stocks. What he was missing was the mutual funds contained stocks which are risky, so even though the funds were diversified, he was exposed to a lot of risk.

What is a low-risk investment?

An example of a low-risk investment is a bank deposit, or CD (certificate of deposit). A CD pays a fixed interest rate and matures on a specific date. It is “safer” than a stock, the value of which can fluctuate dramatically, since if the CD investor holds the CD until maturity, he knows he’ll get his principal and interest paid in full. Investors looking for a low-risk investment that produces income choose CDs because they pay interest on the original deposit.

Furthermore, CDs are normally insured by the FDIC for up to $250,000 if the bank fails and doesn’t pay back the initial deposit on maturity.

However, though a CD carries a low level of risk, you can still lose money if you sell it before its maturity date. Moreover, if rates of inflation are higher than interest rates, the real value of your money diminishes compared to the original purchase. Additionally, CDs also include an element of liquidity risk, especially if you invest in a long-term CD.

What to think about if you want to invest in CDs

There are many reasons to invest in a CD. It may be worth forfeiting the possibility of higher returns in the stock market for relative peace of mind in preserving your principal.

If so, consider buying CDs through your broker, as CDs purchased through a brokerage account can offer higher returns than if you buy them as an individual through a retail bank.

To learn more about CDs and other low-risk investments, listen to my podcast at: GoldsteinOnGelt.com/low-risk

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.

Can I Safely Withdraw My Principal in Retirement?

By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel

As a cross-border financial advisor, one question I hear nearly every day is, “Can I afford to withdraw my principal in retirement?” For most of my clients, the short answer is, yes, but it is important to know how much and from which accounts you can dip into your principal.

When withdrawal is part of a strategy
The financial planning industry’s “4 Percent Rule” is commonly applied in determining how much principal you can draw down annually without risking outliving your money. Based on historical worst-case scenarios for a portfolio allocation of 60% stocks and 40% bonds over the last 100 years, 4% is considered a safe withdrawal rate in most situations. However, since each person’s situation is different, don’t rely on a rule of thumb as customized financial plan.

A simple calculation to determine how much capital would be needed to generate a desired level of income using the 4% strategy is to multiply your income need by 25. For example, if you need $100,000/year in retirement, you would need $2.5 million of capital at a withdrawal rate of 4%.

When withdrawal can be done conservatively
According to a survey by AARP, only a quarter of retirees dip into their principal, largely due to their fear of outliving their assets. Many retirees simply adjust their spending to be able to live off their income, even though they may have adequate principal to use. However, if withdrawing principal is done properly, with caution and attention to tax efficiency, retirees should have nothing to fear.

Determining how much principal you can safely withdraw each year should be an annual calculation. Factors such as your living needs, interest rates, market performance, inflation, and your general outlook on the future will affect the calculation. Work with your financial advisor to review your retirement income plan throughout your retirement. To learn more about income planning, download the Retirement Planning Book (for free) at Profile-Financial.com/rpb

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.

How to Invest When You Can’t Predict Market Direction
By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel

If you’re thinking of investing in stocks but you’re concerned about which direction the stock market will move, here’s what you need to know:

If you are a new investor with a long-term perspective, it shouldn’t matter which direction the stock market moves in the short term. What you should know is that a bull market (up market) generally follows a bear (down) market. On average, bear markets in the United States last about 11 months, while bull markets average 32 months. In the past, the average bear market decline was 27%, while the average bull market gain was 119%, though past performance is no guarantee of future returns.

Remember that historically down markets were temporary. More importantly, not only does a bull market erase declines, but in the past, the gains of the previous bull market were extended significantly. Will it always be that way? Unfortunately, no one knows.

Diversification is key to long-term performance

The key to capturing the upside returns of the stock market while minimizing downside risk is diversification. Diversification is a strategy that recognizes the uncertainty in how stocks from various sectors will perform at any time and it tries to balance your portfolio by spreading out risk among various assets. Instead of buying dozens of individual stocks, you can diversify with index funds and exchange-traded funds (ETFs).

With ETFs and index funds, your investments can be allocated among different types of stock indexes to achieve a risk/return profile that matches your own risk tolerance.

If you work with a licensed financial advisor who understands your objectives and risk profile, you can create a diversified portfolio that is tailored to your needs. Learn more about investing in stocks by watching this 10-minute video. 

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.