4 Minute Money

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.

Why You Need to Talk to Your Adult Children about Your Finances By Douglas Goldstein CFP® - helping olim handle their U.S. investments from Israel

Do you find it difficult to discuss with your adult children what should happen with your finances towards the end of your life?

If so, you're not alone.

People don't like thinking about their own mortality or losing control. Moreover, as family relationships aren't always easy, discussing issues such as power of attorney, healthcare proxies, and estate planning can get very complicated. For these reasons, many families push off this conversation for as long as possible.

If you don't speak with your adult children about your finances, they may have difficulty picking up the pieces and taking care of you and your affairs if you become too infirm to take care of yourself. The emotional and monetary effects of taking care of an elderly parent without any direction can be very hard, especially if your adult children are raising families of their own at the same time.

How to have "the talk"

The best way to let your adult children into your finances is to talk with them. If you can't physically do that for any reason, compose a list of all your assets, where they are, what you want to happen when you're no longer able to look after yourself, who would take care of you, and other important issues. Make sure to sign the appropriate documents so your children have the legal means to make financial decisions on your behalf (Power of Attorney, Trading Authorization, etc.)

If you have a financial advisor, invite your adult children to the attend meetings. Let them know who helps you with your finances and who to ask for reliable, objective advice when necessary. While you can't ever know exactly how long you will live or stay healthy, taking a disciplined approach and sharing your financial situation, goals, and strategies can save a lot of heartache for everyone down the road.

For more about why sharing your finances with your adult children is so important, listen to Tim Prosch, author of The Other Talk, on The Goldstein on Gelt Show at 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.

Steps You Need to Take 5 Years before Retirement

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

Will you have "enough" money to live comfortably? The months and years before retirement may be filled with trepidation and financial worries. In order to minimize financial concerns before retirement, here are some steps you should take in the five years leading up to it:

Organize your assets for tax efficiency Most retirees underestimate the impact taxes will have on their retirement income. If you have an idea of what your retirement tax bracket will be, work with your advisor to arrange your assets in a way to create the greatest tax efficiency when you start withdrawing. Selling assets might trigger large capital gains taxes, and there may be additional taxes on pension payments.

Know your pension options For some people, delaying taking Social Security or other pensions until as late as possible might make sense. Learn more about timing claiming benefits at: Profileperspectives.com/social-security. Be sure to check with your Israeli pension advisor in Israel about taking Bituach Leumi and withdrawing your work pension as a lump sum or in monthly payments.

Don't be too conservative While it may be tempting to reduce your exposure to risk-based investments pre-retirement, if you get too conservative, you could inadvertently diminish your portfolio's capacity to generate enough income to meet your needs. A balanced and diversified portfolio of both stocks and bonds may be your best strategy for maintaining capital growth while reducing portfolio volatility. But beware of taking risks without consulting with a licensed advisor first.

Find your retirement ambition Studies show that retirees who stay engaged and productive are happier in all aspects of their lives. Explore new interests that can be enjoyed now and more fully developed as you cross the retirement threshold. These might include volunteering, mentoring, or starting a new hobby or business.

The five years before retirement is a critical period for ensuring a smooth transition into your next stage of life. Get in touch if you're concerned about how to handle your investments for retirement: [email protected].

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 Choose the Right Financial Advisor for You

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

Choosing the right financial advisor can be like seeking the right life partner. Your financial advisor needs to be the perfect match for you and your situation. Your advisor must be knowledgeable, honest, reliable, and, most importantly, have your best interests in mind.

There are many financial professionals, who all offer a range of services and expertise. How should you choose? When considering whether to work with a prospective advisor, ask yourself these questions:

Is this financial advisor qualified?

Before you set foot inside a financial advisor's office, make sure that he is licensed and has expertise with the types of investments that interest you. You can check out his qualifications, background, and experience through the online checking facilities provided by FINRA (Financial Industry Regulatory Authority) in the United States and ISA (Israel Securities Authority) in Israel.

Who is the topic of your first meeting?

If your prospective financial advisor spends a lot of time talking about himself and his credentials, but doesn't ask you about your investment goals and current financial situation, then choose someone else. The main subject of your first meeting should be you. A financial advisor needs to learn about you, your specific needs, goals, and the ultimate purpose of your investments.

Talking with you or at you?

When a financial advisor speaks with you about investments, make sure you understand how these investments work and why he suggested them. Not everyone understands financial jargon, so make sure everything is explained clearly. If you don't feel comfortable asking questions, interview another advisor. During your conversation (and yes, it should be a conversation and not a monologue!), make sure that you feel comfortable. You should leave the meeting with a sense that your finances are in good hands.

What else do you need to know about finding the perfect (financial) match? For more ideas, read this: Profile-Financial.com/pick-advisor

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.