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Bonds, do I still need them?

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Bonds, do I still need them?

One word, yes. Here is why…

A great article from Morningstar (here) pointed out that since 1974, the US stock market, as measured by the S&P 500, has recorded 10 years with a loss. Not bad when considering that those 10 years with a loss occurred over a 50-year period. How much would you have invested knowing that you could make money 80% of the time? But, alas, hindsight is 20/20 and no one owns a crystal ball - such is the risk/reward paradigm.

However, since 1974, did you know there was an asset category with a positive rate of return in 9 of those 10 negative stock years? Yep, you probably guessed it, bonds. Bonds, as measured by the US Aggregate Index, produced a positive rate of return 90% of the time when stocks lost value. Can you guess the one aberration? See the table below from Morningstar (article link here) for your answer.

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Dividends - when should you reinvest?

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Dividends - when should you reinvest?

Amy Arnott of Morningstar wrote a really nice article (found here) about when to reinvest your dividends.

The thing I like about it, is she kept it rather simple. While there may be a fistful of other reasons for or against reinvesting dividends, there is something to be said for general principles or maxims that cut through the noise of too much information. We have all suffered the effects of too much data or information, i.e., inertia, analysis paralysis, or whatever you would like to call it - too much information causes us to do nothing.

So, when should you reinvest your dividends:

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Working past age 65? Do you need to sign up for Medicare?

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This is a common question that many folks have:

“[I]f I am working, do I need to sign up for Medicare when I turn 65?”

And, yep, you guessed it, the natural follow-up question is, what parts do I need to sign up for, Part A, Part B, Part D, Part C, Part G…some, none, or all of the preceding?

Despite the alphabet soup of Parts A, B, C, D, and G of Medicare coverage, Medicare.gov has done a good job of providing an interactive tool for helping one determine when they need to sign up for Medicare if working past age 65. Please find Medicare’s interactive tool here (https://www.medicare.gov/basics/get-started-with-medicare/medicare-basics/working-past-65).

If you have questions about your particular retirement planning needs or your investment portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about your Medicare options, please click on the link here.

Author
David L. Hogans
David L. Hogans

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM. He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton. Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar. For more information about Mr. Hogans and his firm please see his ADV filing with the Securities and Exchange Commission (SEC) .

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Financial advice boiled down to fit on an index card…

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This PBS news report (https://youtube.com/watch?v=JdUKhgW1gOo&feature=shared) resurfaced again the other day on one of my news feeds - “All the financial advice you’ll ever need fits on a single index card.” It’s an oldie but a goodie. Sure, finances can be more complicated, but, do they really need to be? The precept proposed here makes me think of a quote often attributed to Albert Einstein, “If you can’t explain it simply, you don’t understand it well enough.” Thank you Harold Pollack for your contribution, “[A]s simplicity is the ultimate sophistication” - Leonardo da Vinci.

Author
David L. Hogans
David L. Hogans

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM. He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton. Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar. For more information about Mr. Hogans and his firm please see his ADV filing with the Securities and Exchange Commission (SEC) .

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Time in the market versus timing the market…

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Time in the market versus timing the market…

It’s an old saw, but time in the market is hard to beat.

As the above image from Venture Capitalist shows, $10,000 invested in the S&P 500 index between January 1, 2003, and December 30, 2022, can have various outcomes. As I am not typically one to bury a lead, “stay invested” or “hold the course” is today’s message (some may recognize the Jack Bogle verbiage of “hold the course”).

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A “hawkish pause” by the Fed...

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A “hawkish pause” by the Fed...

What does a “hawkish pause” by the Fed mean?

Simply put, the Fed decided not to raise interest rates in June of 2023 but reserved (or threatened with) the right to do so later in the year. “Hawkish” and “threatened” are pretty provocative words, so why are folks brandishing such terms?

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Is diversification dead?

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Is diversification dead?

In one word, no.

But, hey, wait a minute, I can hear folks saying…I own a broad mix of stocks and bonds and I lost money in 2022; ergo, diversification seems to no longer work. And, that is a completely understandable feeling/interpretation; albeit (potentially) a little premature I offer. Why? Because one data point does not a trend make and, rationally, as investors, we must expect to lose sometimes on the risks we take (the operative word here being “sometimes,” hopefully). Additionally, the following two thought points might help reestablish your recently shaken belief in diversification.

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2022 has come to a close...

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2022 has come to a close...

2022 has come to a close and it has been a tough year for investors.  For example, by some measures (https://www.morningstar.com/articles/1129526/where-to-invest-in-bonds-in-2023), bonds (including investment-grade core bond funds) have never performed this poorly – down approximately 13% for the year.  Compound this with a stock market that is contemporaneously off by over 19% and the unease of paper losses becomes palpable.  Rationally, investors must expect to lose occasionally on the risks we take.  Without intent to diminish such losses, this does not (and should not) alter your investing plan of employing broadly diversified low-cost index funds, that generally own the entire US and International stock and bond markets.  Arguably, the exception (i.e., 2022), proves the general rule (i.e., that diversification works).

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When is the Right Time for You to Start Social Security Benefits?

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We always hear that you should delay Social Security benefits as long as possible.  But the right time to take Social Security benefits will be different for each person. The one thing that is the same for each person is the formula used to determine your benefit.  By determining your benefit, you can then run the numbers to determine when the best time is for you to start taking your benefit, based on your specific situation.

Your Social Security benefit is based on your primary insurance amount (PIA). PIA is the amount a person would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age (NRA – also known as Full Retirement Age (FRA)).  The NRA varies by year of birth for retirees.  Currently, most retirees have an NRA ranging from 66 to 67 years of age.

To calculate your PIA, the government uses your average indexed monthly earnings (AIME), which is the sum of the 35 highest-earning years divided by the total number of months in those years.  The formula also has two dollar amounts that are called “bend points.” The bend points change annually and are based on the changes in the national average wage index.  For 2022, the bend points are $1,024 and $6,172. The table with these annual changes can be found here on the Social Security Administration website (link here).  The year of eligibility is the year in which the worker turns 62 years of age. 

Now that we have all the pieces, we can plug them into the PIA formula:

a)       90% of the first $1,024 of his/her AIME (multiply $1,024 x .90), plus

b)      32% of his/her AIME over $1,024 up to $6,172 (multiple this amount x .32), plus

c)       15% of his/her AIME over $6,172 (multiply this number x .15).

The sum of these three numbers rounded down to the nearest dollar is your PIA.

The amount of the PIA that you receive depends on when you retire.  See the table below for how much you receive depending on when you start your benefit.

Age You Start Your Benefit Percentage of PIA You Receive

62 (NRA of 66) 75%

62 (NRA of 67) 70%

66 (NRA of 66) 100%

67 (NRA of 67) 100%

70 (NRA of 66) 132%

70 (NRA of 67) 124%

With all this information, you can now run the numbers to see how much you are leaving on the table by taking your benefit early, or gaining by holding off.

As an example, if your NRA is 66 and your PIA is $1,000 per month or $12,000 per year, by starting your benefit at 62, your PIA will be $750 per month or $9,000 per year.  By delaying until you are 70, your PIA will be $1320 per month or $15,840 per year.  You can now compare the numbers to determine what works best for you.  For example, at Intelligent Investing we commonly discuss with clients when their break-even points occur for different Social Security claiming strategies.

But the numbers should not be your only consideration.  Life expectancy is important.  If you are ill and have a short life expectancy, then it would be best to start your benefits earlier.  Sometimes your work situation or lack of one may require you to start your benefits at 62.  On the other hand, if you have a long life expectancy, then it may behoove you to delay until 70 to begin your benefits.

Now that you have these formulas, you can work with the numbers to see when the best time for you to start your retirement benefits is.

The following links give more details about the topics in this blog.

https://www.ssa.gov/oact/progdata/nra.html

https://www.ssa.gov/oact/cola/piaformula.html

https://www.fool.com/investing/2022/03/31/how-much-will-starting-social-security-early-cost/Age You


Author
David L. Hogans
David L. Hogans

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM. He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton. Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar. For more information about Mr. Hogans and his firm please see his ADV filing with the Securities and Exchange Commission (SEC) .

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Where is inflation going (Part 2)???

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Where is inflation going (Part 2)???

Back in May, I wrote an article about the potential path of inflation going forward into 2021 and the near-term beyond. Generally, the belief back then by the Fed and by pundits (such as myself) was that inflation was “transitory,” especially when compared against “base effects.” Where do we stand almost three months later…

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Where is inflation going???

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Where is inflation going???

Lately, all we seem to hear is that inflation is going up.

However, I just read an interesting article by Preston Caldwell (a Morningstar contributor), wherein he noted that inflation (notably the Consumer Price Index (CPI)) jumped 0.6% in March and 0.8% in April. Ostensibly, these large monthly jumps seem to imply inflation is coming down the pike. Yet, when one looks slightly deeper into the numbers, Preston noted that a lot of March’s and April’s monthly inflation jumps can be attributed to new/used car sales and food price inflation.

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Best state to retire in...

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Looking for the best state to retire in the U.S., then click on this Yahoo article link: here.

Author
David L. Hogans
David L. Hogans

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM. He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton. Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar. For more information about Mr. Hogans and his firm please see his ADV filing with the Securities and Exchange Commission (SEC) .

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Should I be paying my student loans right now?

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Should I be paying my student loans right now?

As a financial advisor, I frequently have the preceding question posed to me quite often about how best to pay off student loan debt. For example, should I be paying extra on my school loans, or should I be doing something else with my money? Like many things, it depends on several factors. This is not a coy or flippant response, read on to see why…

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What are market analysts predicting for 2021 with a blue “mini-wave”???

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What are market analysts predicting for 2021 with a blue “mini-wave”???

With a Democratic House, Senate, and White House, pundits are making their predictions about possible market outcomes for 2021. What equity styles and/or sectors will prevail under a blue “mini-wave”? No one truly knows with 100% conviction what markets will do prospectively, but (fortunately or unfortunately) this will not stop the multitudes of market analysts from making their predictions.

Against the above backdrop, some analysts are recommending the following style, sector, and/or bond investments as Democrats take control of Congress and the White House:

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Has COVID-19 changed your retirement plans? Begin with this 3 step process to find out if/when you can retire...

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Has COVID-19 changed your retirement plans? Begin with this 3 step process to find out if/when you can retire...

COVID-19 HAS CHANGED A LOT OF PLANS

On the macro level, it has changed many federal, state, county, and city plans. On the micro level, COVID-19 has also changed many companies’ plans, as well as many individuals’ retirement plans. Companies have fought the pandemic with furloughs, work from home (WFH) and, unfortunately, via outright closures. The true economic impact of COVID is yet to be determined, as many companies (and their employees) may whither on the vine as consumer spending recovers too slowly for their benefit. If the impending economic malaise is leaving you uncertain about your future employment/retirement situation, then you might want to run this quick three (3) step analysis prior to taking the retirement plunge or before embarking on your next job search.

Are you looking to put money to work in the market?

Are you looking to put money to work in the market?

Vanguard research shows that time “in” the market is better than time “out” of the market. This is not a glib statement, as it is very difficult to time the market and significant market downturns (i.e., a potential buying opportunity) have been relatively scarce these last seven years. Additionally, with the market having already recovered the vast majority of its losses from the March 2020 COVID-19 selloff, not many fairly valued opportunities remain. Nevertheless, purchasing a broadly diversified low-cost index fund, even at recent market valuations, should remit a handsome gain over a long-term investment horizon. It’s hard to beat “stay the course and invest steadily.”

To rebalance, or not to rebalance...

To rebalance, or not to rebalance...

That is the question. Most financial planners or financial advisors will highlight that rebalancing (at least annually) typically reduces portfolio risk while concomitantly lowering your portfolio’s volatility. Both being a pretty good thing! Yes, it is true, that the potential for greater portfolio gains will be lower with periodic rebalancing because of your lower equity exposure. But, if you are one of those folks that feels the roller coaster ride of the stock market is already wild enough, then rebalancing may be the ticket for tamer rides/returns.

How so, you may ask? Well, let’s first get the assumptions out of the way.

Should I liquidate my portfolio into CASH? Not so fast...

As a financial planner or financial advisor, I often hear the question of “Should I move everything to cash”? Generally, the answer is an emphatic “NO,” provided you are invested correctly. However, I will grant you that it does beg the question of “Are you invested correctly?”, if you are contemplating a move to an all cash position. But, for the purposes of this article, let’s assume you are invested according to your appropriate individual risk profile, age profile, and overall retirement income source profile. Then, why NOT move to cash?

Three quick reasons:

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