How do you know if you’re ready to retire early? Wouldn’t you like to know? There are many people that may be able to retire early but don’t know it. They just assume that they will be working until or past normal retirement age. Come on a journey with me and listen to the podcast today to discover if you are on track for an early retirement. 5 Signs to Tell if You Are Ready to Retire

5 Signs You Are Ready to Retire Early

Early retirement sounds pretty good when you’re stuck in a cubicle counting down the hours until the weekend. If you don’t enjoy your job anymore and are looking forward to spending more time pursuing your own agenda, early retirement can be ideal. The challenge is that you need to save up for it and make that money last for several decades. Here are the financial milestones you should achieve before taking early retirement:

You have retirement cash flow

You need to calculate how much income you will have after leaving your job. Social Security benefits typically can’t be started until age 62 at the earliest. If you retire before that, you will need income from somewhere else. You can withdraw from your 401(k) or Roth IRA, but you need to decide how much to withdraw per year and make sure you don’t deplete your retirement fund too quickly. Get into the habit of tracking your cash flow while you’re working, and practice living on your retirement budget for 12 months. It’s even more important to control your spending in retirement because you'll have a fixed income. Monitoring your spending will allow you to understand where your money is going and help control lifestyle inflation as the years go by.

You know how your expenses will change

Certain expenses can be eliminated when you retire such as commuting costs. But some retirees end up spending more money annually after they quit working. Many people want to travel now that they have the time, and that will significantly increase your expenses unless you travel creatively. Other people spend money on hobbies they have been putting off for many years. A retirement budget needs to take into account all the activities that you would like to do as well as the usual bills. You have retirement health insurance Medicare won’t kick in until you’re 65, and you'll need to fund your own healthcare until then. You can keep your employer-sponsored health insurance for up to 18 months under COBRA, but you will probably have to pay a lot more than you used to while working. If your spouse is still working, then it’s usually a much more affordable option to get coverage through his or her employer. The Affordable Care Act provides another option for early retirees, and you can shop for health insurance at your state’s health insurance exchange. After retirement, your income will probably be lower, so you might qualify for tax credits to help cover the premiums. However, health insurance isn’t cheap, and you might get sticker shock if you don’t do your research before retiring.

You have no debt

If you have consumer debt, then you’re probably not ready to retire early. It’s also a good idea to pay off your mortgage before retirement so your monthly expenses will be reduced. Downsizing or relocating to a more affordable area can be a good option to reduce or get rid of a mortgage.

You have adjusted your portfolio

You need to make sure your asset allocation is properly targeted to meet your risk tolerance. Some early retirees have all their assets in stocks. That might be fine when you’re still working because you can add money when the market is down. But that asset allocation probably needs to be adjusted after retirement. An early retiree also needs to be careful not to shift too much money into bonds because you need stocks for growth. When you’re nearing retirement, reassess your risk tolerance and update your asset allocation accordingly.

You have achieved financial freedom

We have all made money mistakes. The first step is admitting that you have made mistakes when it comes to your money. You spend too much, save too little, are under insured, over insured…. the list goes on and on. There are financial concerns that we all need to be aware of in each stage of our lives. In your 20’s Spending more than you make and not saving enough for retirement. This is the one that gets most of us. We graduate from college in debt, but we just can’t help ourselves. We go buy a nice car and apartment because that is what everyone else is doing. Instead, create a budget based on your current income and get in the habit of saving for retirement. If you can start the habit in your 20’s you have a great chance of keeping it up through your working years. In your 30’s Delaying buying insurance. Let’s face it, insurance is the last thing we want to pay for. We know we need health insurance, car insurance and home insurance but life insurance is most often overlooked. I think the main reason is that life insurance is not easy to understand and it is often sold so we just don’t do anything. But life insurance is vitally important, especially when you are young and are starting a family. Waiting can often be your worst mistake because life insurance is so cheap when you are young. Go to websites like www.quotacy.com or www.policygenius.com to shop for policy’s before buying. I like these sites because you can shop for insurance without putting in any of your contact information, which means there will not be a salesperson calling you to try and sell you something. That is the key to figuring out how much insurance you need before you start shopping for it. Otherwise, the likelihood of an insurance salesperson selling you something you don’t need increases. Once you know how much you need then you can just find the best price and not be sold something you don’t need. In your 40’s Spending money on kid’s college while ignoring saving for retirement. At this age people are still buying things that they want; a new house, a new car and family vacations. If you have not started getting serious it is time to start. Even worse, parents are spending money on kid’s college while not saving enough for retirement. This is the time to wake up and smell the coffee because there is still time to get a jumpstart on your retirement savings. Compounding interest is such a beautiful thing and we need to leverage this phenomenon in order to save enough for retirement. In your 40’s there is still time to save for retirement. The key is to figure out how much to save and then get on a schedule. In your 50’s Getting too defensive with retirement savings This is the time when we look at our retirement accounts and the balance is getting higher than we imagined. In our 30’s and the market went down 30% it was not easy to look at but losing 30% of not much in the first place does not hurt when the balance is low. But in our 50’s the balance is much higher and we cannot stomach large losses. Because of this, we tend to get really conservative with our money. This can really hurt in the long run and our money may not grow like it should ensuring a retirement that we dreamed of. We all need to remember that our time horizon doesn’t end the day we retire; it goes on until we are no longer living. While it is true that our risk capacity gets lower as we age we still need to allow our money to grow so we don’t run out. A lot of us are living 30 plus years in retirement and this means that our time horizon is still a very long time. In your 60’s No plan on how you will withdraw your retirement savings A lot of people get to retirement and they have one big bucket of money. They start to draw down on their nest egg without a particular plan. Retirees withdrawal 40k for a renovation on the house and buy their dream car a few months later. What seems like a large amount of money starts to dwindle down much sooner than expected,

There are five key decisions every investor needs to make:

1. The Do-It-Yourself Decision – Should you try to invest on your own or seek help from an investment professional? And if so, which type of advisor is best?

2. The Asset Allocation Decision – How should you allocate your investments among stocks, bonds and cash?

3. The Diversification Decision – Which specific asset classes within these broad categories should you include in your portfolio, and in what proportions?

4. The Active Versus Passive Decision – should you favor an actively managed approach to investing that seeks to outsmart the market, or a more passive approach that delivers market-like returns?

5. The Rebalancing Decision – When should you sell certain assets in your portfolio and when should you buy more?

Find out the answers to these questions in this episode of Best In Wealth…….

I want to chat with you a bit today about recent market performance, which as you know has been historically weak. If you are a long time listener you are well aware of two facts: 1. Investment in equities carries risk; a risk that prices decline, sometimes more severely than others and second, that over a long term investment horizon, equities have had net positive returns; returns that are far greater than those from riskless investments. What we’ve been experiencing during the past 3 weeks is the risk of owning equities. How long this downturn will last is unknowable but we do know that at some point, prices will recover. What history has shown is that the steeper a decline, the more sudden and violent the recovery. What is immediately apparent is that the track of stock prices is higher over time. It’s also clear that over a short period of time, anything can happen. It’s fair to say that long term gains are built upon short term volatility. We’re in one of those volatile periods right now.

If you’ve been listening to TV or radio or reading papers or following financial news on the Internet, and who hasn’t?!, you’ve likely heard assertions that January’s performance is a harbinger of full year results. The fact is that there is no demonstrable correlation between what happens at the beginning of the year and the rest of that year. And as you’ve heard us say over and over, no one can predict the future. What’s behind the equity selloff may or may not be what the press is blaming; in our investment philosophy, it just doesn’t matter what causes a market decline or advance. Prices represent the collective opinions and expectations of all market participants at any given time and even more importantly, current action is not a predictor of future performance. While watching values decline is far from a pleasant experience, the fact that we have a consistent investment philosophy that doesn’t change because the markets go down helps us to endure and look beyond uncomfortable times.

Most investors don’t have a consistent investment philosophy; they react to news or their interpretation of events and anticipation of good or bad influences on equity prices. In addition, a truly fully diversified portfolio is somewhat of a rarity outside those who share our investment philosophy. An inconsistent approach to investing can lead to two of the least desirable outcomes for any investor: first, selling out when prices decline and thereby failing to participate in the inevitable rebound or second, staying invested through a selloff but then watching the markets recover while their concentrated portfolio fails to fully participate. What we can be certain of is that as markets recover we’ll be on board.

Book Review: 'The Investment Answer'

A Wall Street veteran with terminal cancer shares his secrets.

What kind of investment book would a person write who was a Wall Street insider for over 25 years? If you're thinking something like How I Became a Master of the Universe in Ten Easy Steps, you would be wrong. At least if you're talking about Gordon Murray who, with co-author Dan Goldie, has given investors a real gift: the inside story of what investing truly is and how those who follow the prescriptions in their book, The Investment Answer, can have a successful and positive investment experience. The Investment Answer is also the kind of investment book that Murray, who has terminal cancer, chose to co-write in the time left remaining to him. That makes this book truly unique because Murray, who I met in 2005, has no axes to grind and so is entirely free to bring to the field of investing the kind of focus and clarity one gains when faced with such a condition. (Murray's paper on the interplay between Wall Street and Main Street, written five years before the market meltdown in 2008, is by far the most clear and concise that I have ever read.

What kind of predictions did you make in 2015? Did they come true? Do you listen to certain "experts" and act on their predictions? Do you know the track record of the "expert" that you listen to?

The New Year is a customary time to speculate. In a digital age, when past forecasts are available online, market and media professionals find it harder to hide their blushes when their financial predictions go awry. But there are ways around that.

The ignominy that goes with making bold forecasts was highlighted in a recent newspaper article, which listed many bad calls US economists had made about 2015. These included getting the timing of the Federal Reserve’s interest rate increase wrong, incorrectly calling for a rise in long-term bond yields, and assuming an end to the commodity rout.1

For the broad US equity market, 22 strategists polled by the Wall Street Journal2 estimated an average increase for the S&P 500 of 8.2% for 2015. The most optimistic individual forecast was for a rise of 14%. The least optimistic was 2%. No one picked a fall. As it turned out, the benchmark ended marginally lower for the year.

In the UK, a poll of 49 fund managers, traders, and strategists published in early January 2015 forecast that the FTSE 100 index would be at 6,800 by midyear and 7,000 points by year-end. As it turned out, the FTSE surpassed that year-end target by late April to hit a record high of 7,103 before retracing to 6,242 by year-end.3

Australian economists were little better. The consensus view, according to a January 2015 Fairfax Media poll, was that local official interest rates would stay on hold all year. The Reserve Bank of Australia proved that wrong a month later, before cutting rates again in May.

It shouldn’t be a surprise that if economists can’t get the broad variables right, it must be tough for stock analysts to pick winners. Even a stock like Apple, which for so many years surprised on the upside, disappointed some forecasters last year with a 4.6% decline.4

In Australia, the “Top Picks for 2015” published by one media outlet a year ago included such names as Woodside Petroleum, BHP Billiton, Origin Energy, and Slater & Gordon, all of which suffered double-digit losses in the past year.5

It should be evident by now that setting your investment course based on someone’s stock picks or expectations for interest rates, the economy, or currencies is not a viable way of building wealth in the long term. Markets have a way of confounding your expectations. So a better option is to stay broadly diversified and, with the help of an advisor, set an asset allocation that matches your own risk appetite, goals, and circumstances.

Of course, this approach doesn’t stop you or anyone else from having or expressing an opinion about the future. We are all free to speculate about what might happen in the economy and markets. The danger comes when you base your investment strategy on such opinions. In the meantime, if you insist on following forecasts, here is a list of 10 predictions you can count on coming true in 2016:

Markets will go up some of the time and down some of the time.

There will be unexpected news. Some of this will move prices.

Acres of newsprint will be devoted to the likely path of interest rates.

Acres more will speculate on China’s growth outlook.

TV pundits will frequently and loudly debate short-term market direction.

Some economies will strengthen. Others will weaken. These change year to year.

Some companies will prosper. Others will falter. These change year to year.

Parts of your portfolio will do better than other parts. We don’t know which.

A new book will say the rules no longer work and everything has changed.

Do you need to make a money resolution?  Tune in today as Scott suggests five New Year’s money resolutions. He wants you to pick one and show you how to set it as a SMART goal.

Get out of debt

Start an emergency fund

Increase your savings rate

Get investing right

Get an estate plan

To help you finish out 2015 with a flourish, here's a list of top 10 year-end financial to dos.

 

1. Max out retirement contributionsMake sure you're on target for retirement—and save on taxes, too—by contributing the maximum to your tax-advantaged retirement accounts, whether you have an IRA, a 401(k) or both. For 2015, you can contribute $5,500 to a traditional IRA, plus a $1,000 catch-up contribution if you're 50 or older. Hopefully, you're already contributing enough to your 401(k) to capture any company match. If you can do more, you can contribute up to $18,000, plus a $6,000 catch up for 50-plusers. Even if you have a Roth IRA or Roth 401(k) with no upfront tax deduction, max out your contributions. It's a yearly opportunity you don't want to give up.

2. Take advantage of an HSAIf you have a health savings account (HSA) tied to your high-deductible health insurance plan, now's the time to max it out. An HSA lets you make tax-deductible contributions that you can later withdraw tax-free for qualified medical expenses. HSA contribution limits for 2015 are $3,350 for singles, $6,650 for a family, with a $1,000 catch-up for age 55 and up. And if you're lucky enough not to need the money immediately, you can save it for future use. 

3. Harvest capital losses to balance gains As you consider your year-end portfolio rebalancing, see if it makes sense to take some capital losses to cancel out capital gains. Not only will it save you money on capital gains taxes, it will give you the chance to clear out some of the losers, reset your asset allocation, and reinvest in areas that you think may have more potential for gain.

4. Prepay where possibleIf you have the means, prepaying things such as property taxes, medical bills or estimated state taxes can give you added deductions to further reduce your taxable income.

5. Use—don't lose—the money in your Flexible Savings Account (FSA)Unlike an HSA, with an FSA you generally have to use the money you put into it during the calendar year or lose it. While new rules allow an employer to let you carry over $500 or give you an extra two and a half months to use the funds, it's not required. Either way, now's the time to check the balance in your FSA and put those funds to work. 

6. Take your required minimum distribution (RMD)This won't save you on taxes, but it will save you a hefty penalty. You must take RMDs from traditional IRAs and 401(k)s by December 31. The only exception is your very first RMD, which you can delay until April 1of the year following the year you turn 70½. This isn't to be treated lightly. Miss the deadline and the penalty is 50 percent of the amount that should have been withdrawn.

7. Get a jump on tuitionWill you be facing a big college tuition bill this spring? If you can pay it before the end of the year, you might be able to ease the pain a bit with up to a $4,000 tax deduction. There are income limits ($80,000 for single filers/$160,000 for married filing jointly; not available if married filing separately), but if it works for you, it's worth considering.

8. Give your health insurance a checkupMake sure you have the most complete and cost-effective coverage available. Open enrollment for 2016 coverage on the Health Insurance Marketplace is from November 1, 2015 to January 31, 2016, so now's the time to do some comparison-shopping.

9. Make tax-free giftsIf you can afford to be generous, Uncle Sam makes it even easier to give gifts to special people on your list. In 2015, you can give up to $14,000 each to any number of individuals with no gift tax or reporting requirements. And there's no tax for the recipient.

10. Be charitableGiving to charity not only feels good, it has tax advantages as well. Consider opening a Charitable Gift Account (also called a donor advised fund) and get an upfront tax deduction for your charitable contribution.

Are you a millionaire next door?  Do you want to be the next millionaire next door?  Follow these 7 traits from the book “The Millionaire Next Door” to find out how.

They live well below their means.In their research, Stanley and Danko found most millionaires weren’t heavy spenders. The majority spent less than $200 on shoes and only half could justify paying more than $235 for a wristwatch. Another surprising finding: two-thirds of the millionaires they surveyed said they followed a household budget.

They allocate their time, energy and money efficiently, in ways conducive to building wealth.For example, the authors found that millionaires were more likely to invest time planning their household finances than, say, shopping for a car. On the flipside, most people would have a lot more fun allocating time comparing car prices than sitting down with a financial planner and figuring out how much more money they have to save to be able to stop working at a certain age.

They believe that financial independence is more important than displaying high social status.“They inoculate themselves from heavy spending by constantly reminding themselves that many people who have high-status artifacts, such as expensive clothing, jewelry, cars, and pools, have little wealth,” the authors wrote. 

Their parents did not provide “economic outpatient care.”Millionaires rarely become millionaires in their own right if their parents are constantly financing their lives. Otherwise, they risk becoming too financially dependent to make their own way.

Their adult children are financially self-sufficient.Teaching kids to be self-sufficient not only encourages them to create their own financial security but ensures that they won’t be draining their parents’ finances later on.

They are proficient in targeting market opportunities--Essentially, the wealthy become wealthy often by targeting occupations that serve other wealthy people (that’s their “market”). That’s where the real money is, Stanley and Danko argue. Jobs that serve the wealthy — for example, estate planning, law, accounting — often come with bigger paychecks.

They chose the right occupation.The authors found that roughly half of the millionaires they interviewed owned a business of some sort, but the vast majority said they would not encourage their children to follow in their footsteps. Millionaire couples with children were five times more likely to send their children to medical school than other parents in America and four times more likely to send them to law school, according to their findings.

Via Yahoo by Mandi Woodruff

You Should Care About Value Stocks....Even if you Don't Like Talking About the Stock Market

Before even talking about Value vs. Growth we need to take a step back and define what an efficient market looks like.  As a family steward I believe that the markets are efficient. Prices reflect all available information about a company.  There are millions of stock market participants every day that try to guess if a certain company is under or overvalued.  No one actually knows the true intrinsic value of the company but these market forces of all of this trading is driving the price towards some intrinsic value.  The price of the stock may not be right but it is fair. 

When you believe in the efficient market you can turn to other ways to beat the market using the scientific approach to investing.  Are there other ways to beat the market?  When looking at any research or data set you cannot bend or twist the research to fit what you believe.  In order to seriously consider research, it first must be persistent (continuing to exist for a long period of time), Pervasive (spreading widely throughout the group) and robust (strong and healthy).  We look to the Center for Research on Security Prices (CRSP) for this research.

Scientific data found four dimensions of return that pass this test in the stock market.  Academic research has identified these dimensions, which are well documented in markets around the world and across different time periods.

 These four are the equity premium, value premium, size premium and profitability premium.  Today we are going to talk about the value premium and how to capture this premium to potentially add value to your portfolio.

First – what the heck is the value premium?  The value premium means that over the long run value stocks outperform growth stocks. 

What is a value stock?  Value stocks are those that generally have fallen out of favor in the marketplace and are considered bargain-priced compared with book value, replacement value, or liquidation value. Typically, value stocks are priced much lower than stocks of similar companies in the same industry. This lower price may reflect investor reaction to recent company problems, such as disappointing earnings, negative publicity, or legal problems, all of which may raise doubts about the companies' long-term prospects.

The primary measures used to define growth and value stocks are the price-to-earnings ratio (the price of a stock divided by the current year's earnings per share) and the price-to-book ratio (share price divided by book value per share). Growth stocks usually have high price-to-earnings and price-to-book ratios, which means that these stocks are relatively high-priced in comparison with the companies' net asset values. In contrast, value stocks have relatively low price-to-earnings and price-to-book ratios.

If you had a choice to go work for a growth company or a value company, you would probably want to work for the growth company.  Think of Apple as a growth company.  However, if you were to go buy a stock on the stock market you may rather own a value stock to capture the premium.

How do you know if it is a value stock?  I use the price to book ratio to measure whether a particular company is a growth or value company.

The price-to-book ratio, or P/B ratio, is a financial ratio used to compare a company's current market price to its book value.  The calculation can be performed in two ways, but the result should be the same each way. In the first way, the company's market capitalization can be divided by the company's total book value from its balance sheet. A balance sheet is a Statement of financial condition or a snapshot of a company’s health.  If the company needed to liquidate what would the company, be worth.

What is market capitalization?  Market capitalization (market cap) is the total market value of the shares outstanding of a publicly...

Can money buy happiness? According to the old adage: No.

But a Harvard Business School professor says yes. But how much happiness you can buy depends on how you spend your money.

"We're really underspending on the things that make us most happy," says Michael Norton, a Harvard Business School professor, who has researched the science of spending.

With the holiday shopping season around the corner, Black Friday buyers may want to reconsider their wish list.

It turns out people generally get more happiness spending their money on experiences than on stuff. That's even though experiences are temporary -- dinner with a friend or a vacation -- while stuff like TVs, computers and smart phones last longer.

"It seems odd that things that disappear could make you happier than things that stay," Norton said at the New York Times Dealbook conference earlier in November.

When we spend on things like a TV or a phone, it often leads to activities that are typically done in silence such as watching shows alone or using apps to play solitary games, Norton says.

But on a vacation, people bond with friends and family, see new places, learn new things and create memories. The same holds true with relatively inexpensive experiences like going out for dinner with friends.

Experiences make you happier before they even happen

Even the anticipation for both is different.

Buying a big ticket item sometimes involves waiting that feels stressful. People may worry about whether they bought the best kind of TV or phone for the price, whether it will arrive on time or will it be damaged when it arrives.

So even before the purchase arrives, it can be filled with anxiety.

After it arrives, there is the stress of configuring the TV or phone, and the fact that it has already lost some of its value.

On the other hand, waiting for an experience -- such as a vacation or dinner date -- can feel exciting. In fact, the happiest day for people going on vacation is the day before the trip, not the time on the trip itself, Norton says.

"Even before they happen, experiences make us happier than stuff," Norton says.

He uses honeymooners as an example. Before their honeymoon, couples often say they will be "on the beach with wine, intertwined, looking into each others' eyes."

But the experience may not live up to the hype. A plane is delayed, the hotel disappoints, or worse for honeymooners, "maybe you find out about some exes you weren't aware of."

But after the experience is over, people often tend to remember the happy moments, creating a rosy recollection of memories. Years later, the ex-girlfriend or -boyfriend that irritated during the honeymoon is long forgotten, says Norton.

"Because experiences disappear, they let us make up a reality that was amazing and wonderful, and they make us happier," than stuff, Norton said.

Standford School of Business Research:  Can money Buy Happiness?

 

In his quarterly column, Francis J. Flynn looks at research that examines how to spend your way to a more satisfying life.

What inspires people to act selflessly, help others, and make personal sacrifices? Each quarter, this column features one piece of scholarly research that provides insight on what motivates people to engage in what psychologists call "prosocial behavior" — things like making charitable contributions, buying gifts, volunteering one‘s time, and so forth. In short, it looks at the work of some of our finest researchers on what spurs people to do something on behalf of someone else.

In this column I explore the idea that many of the ways we spend money are prosocial acts — and prosocial expenditures may, in fact, make us happier than personal expenditures. Authors Elizabeth Dunn and Michael Norton discuss evidence for this in their new book, Happy Money: The Science of Smarter Spending.