Archives for January 4, 2019

If you’re planning a financial overhaul in 2019, one of the first things you need to do is figure out where you stand. And as advised by Kiplinger, one of the easiest ways to do that—and potentially discover possible cracks in your foundation in the process—is to create a balance sheet.

“Make a list of all your assets and liabilities,” writes Jaime Eckels, a Certified Financial Planner. “List each asset or liability as it’s titled, with account numbers, the interest rate charged and current beneficiary designations. Provide as much or as little detail as you want.”

How you choose to do so is up to you. You can use a spread sheet, plain Google doc or good ol’ paper and pencil. There are tons of examples online if you search “personal finance balance sheet.”

What you’re getting at here is your net worth (assets minus liabilities). It’s a useful number to have on hand, but it’s a good practice to have all of your financial information organized one place, and truly know where you stand in relation to debts and assets. Then you can form realistic money goals.

And it has another morbid but practical value. “If you don’t have a balance sheet and something happens to you, the search for your assets will become a buried treasure hunt,” writes Eckels.

Doing this once a year is probably an accurate enough gauge of financial fitness for most people, though Simple Dollar’s Trent Hamm takes it further:

Once a month, I sit down, figure up every number that might be a good indication of my financial state, jot down some explanations, and save that document for later. Whenever I want to look at any aspect of my personal finance growth, I just need to pull out a few of these statements.

Here’s how to do it.

Pull Together Your Paperwork

Assets are what you own: Cash (including money markets and CDs), retirement funds, investments, home value, car value, and personal property like jewelry, tech, furniture, appliances, etc.

Liabilities are what you owe: Rent/mortgage payments, student loan debt, credit card debt, personal loans, etc.

If you have all of your financial information together as advised here, this should be an easy process. Otherwise you’ll need to pull together your bank statements, investment login information, debt repayment plans, etc.

The goal, of course, is for your assets to steadily increase and your liabilities to decrease over time, but it’s ok if your net worth is negative for now. By putting the number down and planning how you can start increasing or decreasing the right column, you put yourself on sound financial footing.

Once you can see all of your assets and liabilities, you can make a plan to tackle the latter while inflating the former. You can set a calendar reminder to check back in once a year, once a month like Hamm or however often you think is necessary.

Because of stock market volatility — and likely the start of a downturn — Jeff Janus, a 59-year-old word processor in Chicago, won’t be able to retire when he hoped.

Janus was planning to retire soon. His goal was to do so when his 401(k) plan reached $1 million, and he was close, until October. In the last two months, his account balance dropped about $100,000, and as a result, his retirement date has been pushed back a few years. “Now it just seems like somewhere in the indefinite future,” he said.

Though disappointed, Janus made some changes to his portfolio, and tweaked his investing philosophy as well. He used to try to time the market with his 401(k) assets, which he controlled and were heavily invested in equities, but he’s diversified his plan since then and is looking to recoup his losses — however long it takes. Janus remembers a point during the market crash in 2008 when his retirement account had less money than he invested, but he rode it out. “That subsequent bull market has fueled my hopes and dreams,” he said.

More than three-quarters (77%) of advisers expect a market downturn sometime in the next two years, according to a survey by Oak, Pa.-based financial services firm SEI Investments Company.

Typically, word of a market downturn has many investors panicking about losing their money and many advisers telling those investors to remain calm and do nothing — after all, market volatility is normal, and what goes up must come down (and vice versa).

But that advice doesn’t work for near-retirees, who will soon be leaning on their investments and returns to fund their lifestyles and financial obligations. When people enter retirement at the start of a downturn, they face a “sequence of returns risk,” where they may be withdrawing from their portfolios’ principles because their investments are seeing low, no or negative returns (thus diminishing potential returns of the future).

Janus is one of these near-retirees. About 10,000 baby boomers retire a day, a rough estimate used by the Social Security Administration and from a Pew Research Center report (the actual figure is hard to pin down, because older Americans may begin claiming Social Security benefits while still working, a Pew Charitable Trusts spokesman said). Baby boomers, born between 1946 and 1964, expect they’ll need $658,000 in their 401(k) plans by retirement, though the average amount in those plans is only $263,000, according to a survey of 900 investors by financial services firm Legg Mason. This also does not account for what they’ll actually need, which could be significantly more, especially with rising health care costs in retirement.

The recent bumpiness of the stock market has near-retirees wondering what to do: should they take all their money out and keep it in cash? How can they reap the benefits of investing without the risk of losing their nest egg? Some are even taking to social media sites, like Reddit, for advice. One user posted on Reddit’s self-investing thread, saying he plans to retire in five years, and was wondering if he should pull out of his 401(k) plan so he doesn’t “lose a lot in this upcoming bear market.” Fellow Reddit users advised him that going all-cash wasn’t a good option either, as one would not survive in retirement that way. Others said he shouldn’t be too heavily invested in equities, while still others said there needs to be a better balance between stocks and bonds (to avoid being too conservative and losing out on future investment returns).

Cash will play an important role for those planning to retire in the next five years. Near-retirees should consider having two to three years worth of cash on hand when going into retirement so that they don’t have to worry about paying for their everyday living expenses, said Steven Brett, president of Marcum Financial Services in Melville, N.Y. One to two years could also be enough, or investors may want to put their money into a Certificate of Deposit, which will earn them a higher interest rate than most savings or checkings accounts, said Thomas Rindahl, a financial adviser at TruWest Wealth Management Services in Phoenix, Az. “Have additional funds in cash so that the rest of the assets don’t necessarily have to be liquidated at an inopportune time,” Rindahl said.

After putting cash aside, investors nearing retirement may choose to rebalance their portfolios to be more conservative, at least for the interim — eventually retirees may want to adjust their portfolios so their assets continue to grow through retirement, Brett said.

Traditional advice may have suggested retirees move more of their investments to bonds, but since people are living longer and spending more time in retirement, they’ll need their money to stretch for those years. “The adage that once you retire you should be 80% in bonds and 20% in stocks is all gone,” said Ed Gjertsen, vice president of Mack Investment Securities in Northfield, Ill. and Janus’s adviser. “The way a portfolio is allocated is more personal than it is broad.”

Near-retirees should begin planning for and calculating the expenses in retirement, including basic costs of living (housing and food), medical bills, lifestyle choices (including vacation and gifts), taxes, charitable giving and the unexpected, said James Schwarz, a financial adviser at CLEAR Retirement Advice in San Mateo, Calif. “I look at the next five years and say what are the actual withdrawals we are planning?” he said. Then make sure there’s enough cash and conservative investments to cover that — he likes to have about five years’ worth, though some may want to be even more cautious and have eight to 10 years.

At the same time, it’s important to keep up contributions to retirement and health savings accounts, when eligible. New contributions are especially important during a downturn because equities tend to be “on sale,” meaning their less expensive than during an upswing. “To help minimize worry, take action now regardless of what may or may not happen in the future,” he said, “and think of a downturn as an opportunity instead of a disaster.”

Age 65 is a major milestone, and one worth celebrating. If you’re turning 65 in the coming year, here are a few important things to be aware of.

1. You can enroll in Medicare — but doing so might not make sense

Medicare eligibility kicks in at age 65, and your initial enrollment period begins three months before the month of your 65th birthday and ends three months after the month in which you turn 65. But if you’re still working at age 65 and have health insurance through your employer, signing up for Medicare might not pay.

Though Medicare Part A, which covers hospital care, is free for most enrollees, Part B, which covers doctor visits and diagnostics, charges enrollees a premium. And that premium could end up being more expensive than the premium you pay for private insurance through your employer, particularly if you get a generous subsidy.

The insurance plan you get through your job might also offer a better or wider range of coverage than what you’d get under Medicare, so if you have access to a great group health plan, there’s no rush to enroll in Medicare the moment you become eligible.

Rather, wait for your special enrollment period, which will begin the month after you leave your job, or the month after your group health coverage ends — whichever is sooner. That special enrollment period will last for eight months, though you’ll probably want to sign up for Medicare as soon as your coverage under your former plan ceases.

2. You’ll take a hit on benefits if you file for Social Security

Though you’re allowed to file for Social Security at age 65 (in fact, you can do so as early as age 62), don’t assume that it makes sense to sign up for benefits just because you’re eligible for Medicare. You’re not entitled to your full monthly Social Security benefits until you reach what’s known as full retirement age. Depending on your year of birth, that age is either 66, 67, or 66 and a certain number of months. Which means that if you file for benefits at 65, you’ll automatically reduce them by anywhere from about 6.67% to 13.34% a year, depending on your actual full retirement age.

Here’s the kicker: Unless you withdraw your benefit application within a year and repay all the money you received to the Social Security Administration, the aforementioned reduction will remain in effect for the rest of your life. And that could seriously diminish one of your largest retirement income streams. Therefore, unless you’re desperate for money come age 65, you might be better off waiting a year or two to claim your benefits. You can still, however, sign up for Medicare — you don’t need to be on Social Security to get health coverage under it.

3. You might be eligible for a host of senior discounts

Even if you’re still working at age 65, once you reach that milestone, you’re often eligible for a variety of senior discounts. These can include reduced-price meals at restaurants, lower rates at hotels, and cheaper tickets to museums and movies. It pays to research what senior discounts are available, whether you’re retired or not. And if you are still working at 65, you can use your savings to boost your retirement fund, thereby securing a higher income stream for yourself later in life.

Turning 65 is something to celebrate, but while you’re busy blowing out the candles on what’s hopefully an impressive cake, keep the above points in mind. This way, you’ll be well positioned to make some smart financial decisions in the coming year.

These are the best Fidelity funds by performance for your Fidelity 401(k).

Fidelity Investments is a powerhouse in retirement planning. Investors put $6.8 trillion in Fidelity 401(k)s, or more than Japan’s $5.4 trillion gross domestic product. Although stock funds are usually your best bet for high returns, investing entirely in stock may not be the best retirement strategy, so keep an eye on risk as you evaluate these Fidelity retirement funds. What follows are 10 of the best Fidelity funds for retirement that are available inside and outside of Fidelity 401(k)s, based on their 10-year performance as of December 2018. (Note: You’ll probably see the K Class version inside your 401(k).)

Fidelity OTC Portfolio (ticker: FOCPX)

The Fidelity OTC fund invests 80-plus percent of its portfolio in stocks trading in the Nasdaq composite index or over-the-counter markets. OTC markets have more small- and medium-sized companies, which generally offer more growth opportunities (hence the high returns of this fund), but also more risk. Add lower transparency and regulation on OTC markets and it’s easy to see why FOCPX gets a high-risk rating. Investors should also note the fund’s top 10 holdings top 47 percent of the portfolio, which is more than 25 percent in the technology sector. High-performing this one may be, but diversified it is not.

10-year returns: 19 percent
Net expense ratio: 0.88 percent
Risk: high versus large growth category

Fidelity Nasdaq Composite Index Fund (FNCMX)

If you favor index funds, the best performing Fidelity fund for retirement is FNCMX. The fund aims to track the performance of the Nasdaq, which includes more than 3,000 stocks. FNCMX holds 2,010 of them. As with FOCPX, it’s heavily weighted toward information technology. It also carries a lot of its weight in its top 10 holdings (32 percent of the portfolio), which include familiar names like Apple (AAPL), Amazon.com (AMZN), Microsoft Corp. (MSFT), and two classes of Google’s parent company, Alphabet, (GOOG, GOOGL). So while another high performer, order this one with a side of diversification for a less volatile retirement.

10-year returns: 16.8 percent
Net expense ratio: 0.30 percent
Risk: average versus large growth category

Fidelity Blue Chip Growth Fund (FBGRX)

FBGRX is a front-runner in the large-cap growth category, a tough category to master. (Giants can only grow so much more, after all.) Ranked the third-best large growth fund by U.S. News & World Report with an overall fund score of 9.7 out of 10, this may be the best Fidelity fund for large growth investors. It targets large blue-chip companies in the S&P 500 and Dow Jones Industrial Average. From those criteria, management takes only the ones it feels offer above-average growth potential. Bear in mind this means the fund is heavily invested in IT and consumer discretionary.

10-year returns: 17 percent
Net expense ratio: 0.72 percent
Risk: average versus large growth category

Fidelity Extended Market Index Fund (FSMAX)

While the Fidelity Nasdaq Composite Index Fund may be the best performing Fidelity index fund, FSMAX is almost as high-performing for one-sixth the cost and far more diversification. Formerly FSEMX, FSMAX is a good Fidelity retirement fund for those who want mid- to small-cap exposure. It holds smaller U.S. companies not included in the S&P 500 like Tesla (TSLA) and Square (SQ). This can make it a nice complement to a large-cap or S&P 500 index fund. It’s well-balanced among all 3,154 holdings and has representation in every stock sector.

10-year returns: 14 percent
Net expense ratio: 0.05 percent
Risk: average versus mid-cap blend category

Fidelity Contrafund (FCNTX)

Contrarians and value investors rejoice: FCNTX is a fund after your heart. It invests in companies management believes to be undervalued relative to revenue or earnings growth prospects. These companies are largely in tech and financial services, and include Amazon, Facebook (FB), and Berkshire Hathaway A shares (BRK.A) as its top three holdings. Contrafund is the largest actively managed fund. It ranks No. 85 in the Large Growth category and 7.1 overall, according to U.S. News & World Report. With more than 40 percent of its portfolio in the top 10 holdings, it’s not the most diversified, either.

10-year returns: 14.1 percent
Net expense ratio: 0.74 percent
Risk: low versus large growth category

Fidelity 500 Index Fund (FXAIX)

With a tidy expense ratio of only 0.02 percent, the Fidelity 500 Index fund is the lowest-cost fund of these 10 best performing Fidelity funds for retirement. Formerly FUSEX, the fund replicates the S&P 500, making it a nice option for index investors or those looking for large blend exposure. U.S. News & World Report ranks it No. 5 in the large-blend category and scores it 9.5 out of 10. You won’t get international exposure with FXAIX, but you will get representation across all 11 sectors (albeit a heavy concentration in technology at nearly one-quarter of the portfolio).

10-year returns: 13.4 percent
Net expense ratio: 0.62 percent
Risk: average versus large blend category

Fidelity Low-Priced Stock Fund (FLPSX)

Another value investing fund, FLPSX began as a way of investing in out-of-favor smaller companies. Today it invests primarily in stocks trading for $35 or less and is more mid-cap than small. U.S. News & World Report ranks it the fifth-best mid-cap value fund. With 37 percent of its almost 900 holdings being foreign stocks, FLPSX is one of the most diversified of the best performing fidelity funds for retirement. It has representation in all sectors, although it favors consumer cyclicals (23 percent of the portfolio) and has token representation in communication services (0.43 percent of the portfolio).

10-year returns: 13.2 percent
Net expense ratio: 0.62 percent
Risk: low versus mid-cap value category

Fidelity Puritan Fund (FPURX)

More conservative retirement investors might prefer the Fidelity Puritan fund to some of the other on this list. With an objective to obtain income and growth without taking unreasonable risk, FPURX invests at least 25 percent of its portfolio in fixed income like bonds and about 60 percent in stocks or other equities. It’s the best performing Fidelity fund for retirement that holds any bonds. U.S. News & World Report ranks it No. 1 with an allocation goal of 50 to 70 percent equity and gives it an overall score of 9 out of 10.

10-year returns: 10.55 percent
Net expense ratio: 0.54 percent
Risk: average versus allocation 50 to 70 percent equity category

Fidelity Balanced Fund (FBALX)

Another top-ranking balanced fund, FBALX is No. 3 in the 50 to 70 percent equity allocation category with a score of 8.9, according to U.S. News & World Report. Like Fidelity Puritan, FBALX invests at least 25 percent of its portfolio in fixed income and about 60 percent in stocks or other equities. FBALX differentiates itself from Puritan by favoring information technology over health care and bonds with a higher interest-rate sensitivity. While the two funds are matched point-for-point in 10-year performance, FBALX fractionally outperformed its compatriot over the past three years.

10-year returns: 10.5 percent
Net expense ratio: 0.53 percent
Risk: average versus allocation 50 to 70 percent equity category

Fidelity Freedom Index Funds

Fidelity’s Freedom Funds are target-date funds. They’re among the most popular Fidelity retirement funds, and for good reason: Target-date funds are your one-stop shop. They adjust their allocation to become more conservative as the target year approaches. With an eye toward proper allocation, these won’t be your best performing Fidelity retirement funds, but they may be the best to reach your retirement goals. Of the 48 Freedom Funds on offer, the index variety are the least expensive and beat 81 percent of their peers on average over the past five years.

Five-year performance: beat 81 percent of peers, on average
Expense ratio: 0.14 percent
Risk: above average versus respective target date category

The best performing Fidelity funds for retirement.

These are the 10 of the best performing Fidelity funds for retirement that you can use inside or outside your Fidelity 401(k):

• Fidelity OTC Portfolio (FOCPX)
• Fidelity Nasdaq Composite Index Fund (FNCMX)
• Fidelity Blue Chip Growth Fund (FBGRX)
• Fidelity Extended Market Index Fund (FSMAX)
• Fidelity Contrafund (FCNTX)
• Fidelity 500 Index Fund (FXAIX)
• Fidelity Low-Priced Stock Fund (FLPSX)
• Fidelity Puritan Fund (FPURX)
• Fidelity Balanced (FBALX)
• Fidelity Freedom Index Funds