Category Archives: Investing

July 25, 2018

The Importance of Rebalancing Your Portfolio

401k advisor annapolis in maryland at SCM

The Importance of Rebalancing Your Portfolio

By Joshua P. Goldsmith, Vice President of Investments, CERTIFIED FINANCIAL PLANNER®, CRPC®,   Scarborough Capital Management

Do you rebalance your portfolio?
Rebalancing is an important part of managing the performance of your portfolio. Are you ready to rebalance your portfolio?

When the market takes a downturn, what do you do?

You probably know better than to panic and start selling. Selling when values start to fall goes against the basic premise of trading, “buy low, sell high.” But holding tight during a downturn can be a nerve-wracking experience.

That’s why most experts suggest a strategy of regularly rebalancing your portfolio to help minimize vulnerability if things take an unexpected turn. There’s evidence to back it up—a study  published in May 2014  found that rebalancing is a far safer strategy than selling during a downturn, and can even outperform portfolios that demonstrate “hands-off” patience.

What it Means to Rebalance Your Portfolio

Rebalancing is where you evaluate your portfolio and make adjustments to your investments. When rebalancing, essentially, you’re looking to sell high and buy low on a small scale. You’ll divest from assets that are over-performing, and invest in items that are underperforming. This puts you in a position to potentially minimize risk and maximize gains if those assets’ performances correct themselves.

So if rebalancing is shown to work, why is it even an option? Why wouldn’t everyone do it?

The answer is that rebalancing requires you to be a little counterintuitive. Yes you’re selling high and buying low, but you’re also selling gains and buying investments. Remember, you’re looking to rebalance outliers, meaning that you’ll be selling stocks that are outperforming their expectations in favor of picking up ones that are underperforming.

And for some investors, that’s just plain silly.

But that’s an emotional decision, not a rational one. Statistically, rebalancing works. Which is why it’s best advice to remove emotional attachment to investments and enlist the help of a certified professional to help manage your assets!

Rebalancing in Three Simple Steps

While actually rebalancing your portfolio is best left to a professional, it’s important that you understand the steps they’ll take when moving your money around. After all, it’s your money—you should know what’s happening with it.

Rebalancing, on a basic level, involves three steps:

Record

Rebalancing relies on comparing the performance of individual assets against their history, so the first step is recording that history. Your portfolio manager will look at the values of your assets when you acquired them, and divide that value by the total value of your portfolio to determine a weight for the asset. The idea is that, going forward, you’ll maintain these asset weights by making adjustments to individual assets.

Compare

Your portfolio manager will look at how each asset class is performing, compared to its historical record. They’ll come up with new weights for your asset classes and compare them to the original weights. If there’s a significant change (positive or negative) it may be time to make a change.

Adjust

If there are any major changes to your portfolio, your financial manager will use a formula to figure out how to readjust your investments to reduce your exposure to risk. This will involve getting rid of assets that have grown too large in your portfolio, and using that money to reinvest in underperforming assets.

When to Rebalance Your Portfolio

You have two main options for determining when to rebalance your portfolio: Time and Performance. Both of these strategies have some merit.

If you choose to rebalance based on time, you’ll set annual, semi-annual, or quarterly dates where you revisit your portfolio and make adjustments to your asset classes. The benefit of this approach is that it lets you control exactly how often you’ll be rebalancing your portfolio—and paying the fees associated with it.

Rebalancing based on performance thresholds means that your financial manager will constantly monitor your portfolio, and make adjustments any time an asset class is off by a certain percentage (which you’ll pick based on your risk tolerance). This makes sure your portfolio is always optimally balanced, but it could be costly to maintain.

But there’s a third path, one recommended by a number of experts, that combines time and performance into a hybrid approach. You set one or two dates each year to check your portfolio, but only make adjustments to assets that have hit a certain performance threshold. This approach optimizes maintenance costs with performance gains.

Are You Ready to Rebalance Your Portfolio?

Rebalancing is an important part of managing the performance of your portfolio and being prepared for unexpected downturns in the market. Even though it involves selling assets that are outperforming your expectations, rebalancing has been shown to help minimize risk and maximize potential gains.

If you don’t have a rebalancing plan in place, we highly recommend meeting with a financial professional to get one set up!

August 21, 2017

Millennials Turning 30 – Here’s The Why and How To Save Now

401k advisor annapolis in maryland at SCM

Millennials turning 30 – here’s the why and how to save now

By Ryan Ansted, Managing Partner, CRPC®,  Scarborough Capital Management   

Worried about your current financial situation? We can help.
Worried about your current financial situation? We can help.

For those that graduated college about eight to 12 years ago, you may have landed a great job and have no student loan debt. Maybe you’re even putting away a lot in your 401(k) and found a place to live in a low cost neighborhood where you’ll rent for a few years until you decide to buy a home.

Or maybe not.

Chances are that for Millennials either entering or in their early 30s, the last decade plus has been a bit shall we say, unsettled? And maybe your financial picture isn’t quite as solid as you’d like.

How then can we use the lessons of the past combined with the current situation you may be faced with to put together a solid financial plan for your peak earning years?

First, let’s take a step back and ask a question. Is it even important to start early? Can’t someone just save more later?

Why saving early is key

Here’s an example. Bob is 20 and wants to retire at 67. He has about $200 per month he could invest, and can currently get a 5 percent return annually on his 401(k). If Bob started today from zero, he’d retire with close to $450,000.

But instead, Bob decides he wants to buy a new car when his current car is just fine. The car costs $24,000, which is what he could invest for the next 10 years. He figures he can make up the difference down the road when he starts earning more.

Fast forward 10 years. Now Bob is 30, and he decides he wants to spend this next decade’s $24k to buy a boat.

Here’s a chart on how Bob’s lack of savings has impacted his 401(k) account, and what it would look like if he only started saving at 40…

Saving 200 v2
What does this mean? Well, every 10 years Bob could be putting in $24,000 in principal to this fund. That means Bob would need to invest $48,000 to make up the principal that he didn’t fund earlier.

But the main consideration here is what happens to that principal if you allow the interest to compound over a longer timeframe.

If someone could talk Bob out of buying that boat and instead starting to invest at 30 as opposed to 40, his $24k is able to generate about $95k in added interest.

And as you can see, the earlier Bob starts the more his funds will grow. Even starting at 30, Bob can still accumulate more than $250k with only $200 per month.

If you’re seeing this and feel like you’ve missed an opportunity in your 20s to fund your retirement account, use that as motivation to start today.

So, now that we know why it’s important to get serious about your finances, how do we do this?

  1. Figure out what you make – after taxes, healthcare and investments.

This is the key number to work with – what’s actually left in your account after you pay Uncle Sam, your healthcare and your future self.

  1. Figure out what you’re spending on – and be brutally honest.

If you’re finding that you’re short each month, or staying on budget but not really making any headway with your student loans, it might be time to take a closer look at what you are actually spending money on. Thinking about it in terms of how much this money could grow to be worth in the future can make an impact here. Look at items such as your phone plan or any streaming service or memberships you have. You’d be surprised what you can cut.

 3. Using promotions, raises or other opportunities to increase your contribution.

Here’s the upside. If you’re working hard and doing a good job, there’s a possibility that you could soon get a promotion, raise or even a better paying opportunity at another organization.

And with the digital tools we have available to connect to others you can pick up some extra income freelancing on the side as well in a wide array of fields. Take this extra money and roll it into your 401(k) or finish paying off loans.

  1. Determine your investing IQ

How much do you need or want to know about investing? At a very basic level, everyone should have a good idea of the points above.

You’ll also have to decide what investment options to choose and how to allocate those funds, as well as how aggressive you want to be, what age you want to retire and how market fluctuation is going to impact your investments. The good news though is if you’re just getting started investing and could use a little guidance, we can help.

Our 401(k) management is easy to use and comes at as little as a dollar a day. The best part is you can keep your funds in your current 401(k) and use the tools your current employer has for you. We’ll monitor and adjust based on your goals.

If this sounds like the right type of financial planning assistance for you, give us a call or send us an email today. We’re here to help you save money for that boat – and still have plenty left for other fun retirement activities.

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

December 13, 2016

3 Reasons DIY Investors Should Seek Regular Advice

401k advisor annapolis in maryland at SCM

Three Reasons DIY Investors Should Seek Regular Advice

By Jonathan W. Szostek, Vice President of Investments, CERTIFIED FINANCIAL PLANNER®, CRPC®,  Scarborough Capital Management

investment advisors annapolis at SCM
The advice of a CERTIFIED FINANCIAL PLANNER™ professional to help make sure your finances are in good health.

If you’re a DIY investor, it stands to reason that you have some pretty good technical knowledge about how the markets work and why it’s a good idea to build a diversified portfolio. You also probably understand how to rebalance your assets, and whether you’d be better off with a traditional or Roth 401(k).

If you’ve been making money and protecting your assets this way, does it still pay to talk to a financial planner?

In short, absolutely.

First, let’s be honest. At least part of the reason that many DIY investors go this route is to save on fees that advisors would charge. And while there’s certainly nothing wrong with that, what I can say is that there are times when paying for a little advice or guidance can go a long way towards better financial stability in the long run.

To put it another way, you certainly could try to figure out what malady you may have by researching online and talking to friends and family members. But at the end of the day, getting the input of a trained physician will give you the answers you need to either take next steps or rest easy knowing you’re healthy.

If you are a DIY investor toying with the idea of getting some help, or someone new to the investment world who is trying to decide between paying for advice or going it alone, read on for a few reasons why the benefit of talking to a professional could make a positive impact.

Your goals can change

When you’re 20, you may have a pile of student loan debt and think getting it paid off is the largest financial obstacle you’ll ever have. But by the time you hit 40, you’re trying to figure out how to get your children’s education paid for.

Additionally, your time constraints and priorities may change. What was once easy for you to review and manage becomes more time consuming. Would you rather sit for a couple of hours reviewing financial statements and trends on a Saturday morning or would you rather go to your child’s soccer game? The ability to have a regular meeting with a financial advisor frees up your time so you can spend it elsewhere.

By talking to a CERTIFIED FINANCIAL PLANNER™ professional, you can discuss your needs and wants and he or she can help you map out a plan that can get you there. These discussions can give you the confidence that what you’re thinking is on track but also be a safety net in case one of your ideas may not be the best course of action. Also, with the experience that this person has, they can ask questions that you may not have considered or pose topics that you hadn’t built into your plan, such as long-term care planning or contingencies if something unforeseen happens.

Your income can change

Money management is a lot like calories from food. It’s not so much the math behind it, but the execution of getting to the numbers that we want.

For example, our doctor tells us to aim for a maximum of about, say 2,000 per day. That on the surface is easy. The hard part is making sure that we get the nutrients that we need at or under that calorie number.

This is where a good physician can work with someone to make sure they are eating the proper food and working in some exercise to their health plan.

Investing is no different. To retire with a certain income goal, we know we have to put away a certain amount per year and earn a certain amount of interest. The math is easy to work through. It’s the decisions we make with the income we earn that can sometimes get us in trouble.

By working with a CERTIFIED FINANCIAL PLANNER™ professional, we can better see where our spending is going and if the investment vehicles we’ve chosen are working as they should.

Even if you only have an employer-sponsored 401(k) plan, your financial advisor can help you rebalance your contributions and expense plan based on any raises or bonuses you receive.

Markets can change

One last reason to consider a CERTIFIED FINANCIAL PLANNER™ professional is because just like going for a test to confirm that there’s nothing seriously wrong with you, financial advisors can keep you calm during market volatility. Hearing from someone who has been there and understands market nuances as well as the big picture can ease your worries when turbulence sets in.

Additionally, there may be several alternative routes that you never considered delving into which may be a better fit for your goals at the time. It really depends on your situation and what the overall market is doing.

Relying on a CERTIFIED FINANCIAL PLANNER™ professional can take much of the worry out of this process by allowing you to not second guess yourself since you’re working with someone who does this type of work for a living.

The bottom line

Can people manage their money completely without the help of a CERTIFIED FINANCIAL PLANNER™ professional? Yes, of course. However, seeking out professional advice could be the difference between a comfortable retirement on your own terms and having to keep coming to the office.

Much like consulting a physician for any physical issues you may have, it’s probably a good idea to seek out the advice of a CERTIFIED FINANCIAL PLANNER™ professional to help make sure your finances are in good health as well.

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

 

 

November 8, 2016

How Socially Responsible Investing Can Fit in Your Portfolio

responsible investing
October 18, 2016

Why saving early on in life is underrated

401k advisor annapolis in maryland at SCM

Why saving early on in life is underrated

By Joshua P. Goldsmith, Vice President of Investments, CERTIFIED FINANCIAL PLANNER®, CRPC®,  Scarborough Capital Management

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Compound interest can really be a benefit if you have the idea, planning, and discipline to start early.

For many young people, knowing to avoid paying excess interest on a credit card or other loan is not anything new. It’s also not a newsflash that earning interest through savings accounts, 401k or IRA plans, and other investments is a plus.

What may come as a surprise to some though is how much of a difference several years can make in terms of how interest grows over time if left untouched in an  account.

To illustrate exactly what we’re talking about here, we’ll look at the difference between simple interest and compound interest, then go through an example of each. (Also note that in each example interest is paid at the end of the given time period.)

Simple interest

This is interest that’s paid out at a given percentage once a period, and only takes the original principal value into consideration. No matter how much interest you earn over time, this interest can never earn interest itself. While it certainly earns us money, this isn’t the type that’s going to be exactly what we’re looking for in savings.

For example, let’s say you sign a lease to rent an apartment, and the conditions require you to put down a security deposit of $1,500. At the end of your time in the residence, provided all goes smoothly, you get this money back. With this security deposit though, you also earn simple interest on the $1,500.

If you earn 3% simple interest every year you live there, and you stay for five years, it would look like the following:

  • Year 1 – $1500 x 3% = $45
  • Year 2 – $1500 x 3% = $45
  • Year 3 – $1500 x 3% = $45
  • Year 4 – $1500 x 3% = $45
  • Year 5 – $1500 x 3% = $45

So each year you earn $45, or $225 over five years. At the end of your stay, you would receive a check for $1,725, which is your $1,500 security deposit, plus interest earned of $225.

You could stay in the same place for 50 years and earn 3% off of this security deposit, however you’ll never earn more than $45 per year, since the interest is calculated from the initial deposit only…and that is not going to earn you all that much over time.

Compound interest

There is however, another way to look at interest, and that’s compound interest. With this type, the interest is paid on the sum of money in the account regardless of if the money is principle or interest that was earned off of that principle.

Here’s an example: You invest in an account that over several decades earns you an average of 5% annually. (While there are certainly investments that can earn more or less, 5% is the number that will be used for illustrative purposes.)

Also, why several decades? Because compounding interest works best when stretched out in many, many years, not just a few of them.

Here’s the breakdown: Let’s say you start investing $200 per month in this account when you’re 45 and retire at 65, which is when you stop actively contributing to this particular fund.

Your total principle invested is $48,000, which earns you $31,358.29 in interest, or $79,358.29 total.

Now, let’s say that instead of starting at 45, you start at 35. What happens there?

Your total principle invested is $72,000, which earns you $87,453.23 in interest, or $159,453.23 total. In essence, for an additional $24,000 in principle that you’re investing, you’re earning an additional $56,094.94 in interest. Not too bad.

Let’s look at one more to see how compound interest can really be a benefit if you have the idea, planning, and discipline to start early.

Instead of 35, you start at 25. This allows for 40 total years of growth, which yields the following:

Your total principle invested is $96,000, which earns you $193,919.46 in interest, or $289,919.46 total. So just by starting 10 years earlier, you’re able to generate over double your principle in interest. That’s really amazing.

Here’s a breakdown on a table which can illustrate the same point to the more visually inclined…

Years of investing Principle invested Interest earned Total saved
45 – 65 y/o, 20 years $48,000 $31,358.29 $79,358.29
35 – 65 y/o, 30 years $72,000 $87,453.23 $159,453.23
25 – 65 y/o, 40 years $96,000 $193,919.46 $289,919.46

 

This also uses only $200 per month in our example. While that number may be all that you can afford now, increasing it as soon as you can would enable these funds to grow even more rapidly. Add in an employer match in a 401k plan, comprehensive care plan, and a little bit of Social Security, and you could be well on your way to a very comfortable retirement.

Compound interest. Learn how it works early on in life and it can be one of your best friends on your road to a financially prosperous future. Lastly, if you have any questions on investing for the long-term and how to best get started, be sure to contact a CERTIFIED FINANCIAL PLANNER™.

 

 

 

Securities through Independent Financial Group, LLC (IFG), a registered broker-dealer. Member FINRA/SIPC. Advisory services offered through Scarborough Capital Management, a registered investment advisor. IFG and Scarborough Capital Management are unaffiliated entities. Neither IFG nor SCM provide tax or legal advice.

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

This is a hypothetical example for illustrative purposes only. It is not intended to reflect the actual performance of any security. All investments involve risk and you may incur a gain or a loss. Your results will vary from those listed here.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

 

January 12, 2015

Investing vs. Paying Off Debt: Millennial Edition

US News & World Report Scarborough Capital Management

How much you should invest depends on how much debt you have and vice versa.

By Gregory S. Ostrowski, Managing Partner, CERTIFIED FINANCIAL PLANNER®, CRPC®,  Scarborough Capital Management  / Previously appeared on US News & World Report and has been updated for clarity

debt advisors in annapolis release update Scarborough Capital Management
Although these loans financed your education, helping to propel you on your career track, it doesn’t take away from the fact that they are still loans that need to be paid back.

If you’re in your early 20s, and graduated college within the last few years, you’re probably filled with a lot of optimism about your future, looking forward to starting your career, and are generally excited about your new independence. But with this independence comes responsibility, because you’ll also have some decisions to make. Some of the biggest financial questions you’ll have to answer concern paying off student loans and starting to save for all of your life events to come.

The upside to your situation is that you have a college degree, and hopefully a decent job in your field of study. A potential issue, however, could be the fact that you have upwards of $30,000 (or more) worth of student loans you need to pay.

Although these loans financed your education, helping to propel you on your career track, it doesn’t take away from the fact that they are still loans that need to be paid back, and at a time when you may not be making all that much. So how do you approach the question of shedding debt while building investments, when your income may be spread a bit thin?

Considerations. All graduates will face different situations with regards to how much they owe, not only in terms of student loans, but debt on other items as well. Your situation is a unique one in terms of debt and financial goals, so there isn’t a one-size-fits-all approach that will work. Since you really need to invest and pay off debt, it’s not an either-or question. That said, here are some things to think about before formulating a post-graduate financial plan.

Interest rates. While some federal student loans may have low, manageable interest rates, other loans do not. That’s why it’s important to figure out what the interest rates for all of your loans look like. Do you have multiple loans with varying rates? Or did you recently consolidate to a moderate-to-low rate?

If you have rates that are on the higher side, more than 6 percent for example, it may not be a bad idea to try to pay these off first. The reason is that what you’d owe on a higher percentage may be equal, if not more than what you could get in terms of a return from an investment.

But if the rates are lower, paying off the minimum on student loans and investing the rest could let you build your investments, and give you a tax advantage. Although your student loans take longer to pay off with this strategy, interest from them may be tax-deductible, which is a big benefit come April 15.

And lastly, be careful with loan consolidation. It may be tempting to take all of your loans and consolidate them, thus lowering your overall monthly payment and locking in a lower fixed interest rate. But in this case, chances are the terms of your loan were extended significantly. This will increase the amount of payments you’ll have, and cause you to owe much more in interest over the years.

What to put your money in. What investment vehicle would appeal to you? Remember, the greater the return potential, the greater the risk you take on. Would the risk needed to make an investment worth it outweigh the benefit of the interest you’d make on other types of investments? If you want to invest in stocks, the return may be greater than your student loan interest rate at times, but this volatility may not make it as smart of a decision, since these returns could drop significantly at a moment’s notice.

A certificate of deposit would give you greater stability, but the potential for return will not be as great. This really depends on your level of comfort. How much are you willing to put out there? Know the difference in your student loan interest rate and the rate you could gain from your investments.

Also, if your employer offers a 401(k), are you taking advantage of the company match? If not, while it may be a struggle at times, it’s almost imperative you’re investing enough to at least get the full match. Compounding interest from this “free money” can greatly outweigh the amount saved if you took the same money and paid off your student loans earlier.

How much are you making? In some cases, starting-level salaries may not allow for extra funds to be allocated for investing after paying the minimum on student loan payments. If this is the case for you, be sure you understand what’s coming in and what’s going out for not only student loans, but all of your expenses. Sometimes spending can be restructured so you can use that “found money” to invest or pay off other high-interest loans.

For example, if you’re going to put that concert ticket or long weekend away on a credit card, how much are they actually going to cost after interest is added before you can pay it off? These are hard decisions to make, but the more you can realistically see what things cost and where you can save, the better financial shape you’ll be in later.

Hopefully these considerations have given you some ideas on what to look for and how to structure some of your preliminary savings strategies. If you still need help getting started though, it’s never a bad idea to talk to a financial planner. You’ll be able to get the help you need, while at the same time maintaining that newfound independence.

 

 

Securities through Independent Financial Group, LLC (IFG), a registered broker-dealer. Member FINRA/SIPC. Advisory services offered through Scarborough Capital Management, a registered investment advisor. IFG and Scarborough Capital Management are unaffiliated entities.

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

Updated as of March 2017.