By Craig D. Price, Certified Financial Planner®, CEO of Price Wealth Management, Stuart Florida

Focus on What You Can Control – Don’t Stress About the Rest

Hold Your Own Year End Review

Organize a Net Worth Statement and compare it to last year

  • Total assets minus total debts

Will you owe taxes on your 2016 investment returns?

  • Capital gains or interest income rates?
  • Do you own your “most” taxable investments in your IRA or 401K?

Review the investment fees you paid last year

  • Check expense ratios on your mutual funds or exchange traded funds (ETFs)
  • Check the advisory fee you paid is competitive

Review the performance for each account

  • Do different accounts have distinct goals and different return goals?
  • Compare your returns to something objective like a market index or the rate of inflation or to your expectations Prepare for Higher Interest Rates

Prepare for Higher Interest Rates

Rising Rates Hurt Certain Investments More Than Others

  • Federal Reserve predicts a few rate increases in 2017, data dependent

Do you own Interest Rate sensitive bonds, stocks or funds & ETFs?

  • Such as utility stocks, REITs, Energy MLPs, Mortgage companies
  • Bonds with >10 years to maturity, bond funds/ETFs with a duration >5 years

Reduce Your Exposure to Rising Interest Rates

  • Own floating rate bonds or loans in a low fee fund
  • Own some high yield bonds in a low fee fund
  • Reduce exposure to utilities, REITs, MLPs, etc
  • Own bank and insurance company stocks or a low fee fund in this sector

Lower Your Cost of Investing

Since starting PWM, we have reduced clients’ product-level fees by an average of 0.50% annually versus their previous firms.

How?

  • By using low fee Vanguard and Schwab index funds that average 0.05-0.10%
  • By replacing actively-managed funds that average 0.97% (Morningstar, 2016)
  • By rolling over high fee annuities (>3%) to Vanguard annuity (<1%)

Example of product-level fee savings:

  • A $1,000,000 account saving 0.50% per year will save $50,000 in 10 years

If you are employed, check the fees on your 401k plan

  • Ask your employer for the fee disclosure they are required to share

Lower Your Income Taxes Several Ways

Save more where you can deduct the savings from your W-2 income

  • If working, max out your company retirement plan
  • If under age 65 and not on Medicare, open a Health Savings Account
  • If you own a family business, add family members to your payroll and fund their 401k plan or SEP or SIMPLE IRA

Buy tax efficient investments such as:

  • Municipal bonds (if you are > 25% tax bracket)
  • Stock ETFs which seldom pay out capital gains distributions

If required to withdraw from your IRA (>70 ½), donate a portion of your RMD to charity. The donation is excluded from income.

Master your Emotions Around Investing

 A large Behavioral Finance study found investors’ returns were usually worse than the investments they bought.

Why?

  • Human nature makes us Buy High and Sell Low
  • Pleasure of making profits is outweighed by the Pain of losing money 3:1
  • Fear makes people sell when they “can’t take it” anymore
  • Greed makes you invest when you feel increasingly confident the market is going higher and you feel left out if you don’t “buy in”

How to Combat Emotions Around Investing

  • Expect yourself to feel uncomfortable at times, but talk about it with someone more experienced than you
  • Focus on long term annual results, not daily weekly or monthly results
  • Don’t check your investments too frequently or you’ll react incorrectly

Summary Tips for 2017

  • Objectively Review How You Did in 2016

  • Prepare for Higher Interest Rates

  • Lower your Cost of Investing

  • Lower your Taxes using available deductions

  • Manage your Emotions around Investments

HAVE FUN!

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