Central Penn Business Journal
Along with salaries, company benefits play a key role in attracting, retaining and motivating employees. But all too often, business owners fail to recognize what might be the weakest part of their benefit packages — their 401(k) plans. Among the most desirable prospective employees are those who, looking to the future, pay close attention to the strengths and weaknesses of these plans. And existing employees may become restless if they don’t see enough growth in their retirement nest eggs, especially if they contribute the maximum amount each year.
Many factors of 401(k) plans can be subjective. But there are some objective criteria that define whether these plans are a desirable employee benefit, compared with those available from your business’s competitors.
Feared on first sight, robo-advisers win fans
Fear struck the wealth management industry when robo-advisers--automated, online financial planners--first came on the scene a few years ago. "It was like Godzilla," said Thomas J. Terhaar, an investment consultant with Conrad Siegel Investment Advisors Inc. in Susquehanna Township, Dauphin County. "It would gobble us up and we'd all be out of the business."
Flash forward, and a tool poised to take the investment world by storm still might, but not in the way it was once feared.
Wealth management advisers now see robo-advisers as a useful tool—to an extent—and some firms have embraced the technology by integrating it into their work. A robo-adviser is a web-based tool that relies on a computer algorithm to decide how to invest a client's money without any input from a financial manager.
If you own a business, you probably run it according to a set of principles that you've developed over the years. Though these principles may not be set in stone, you try to abide by them, making exceptions only where justified.
Adhering to certain principles — and rules based on them — is also wise when it comes to investing. But the financial markets are so intricate, vast and, at times, counter-intuitive that there are few hard-and-fast rules you can go by.
But there are some rules and principles that almost always apply, without exception.
After more or less a flat year in 2015, the broad U.S. stock market is down, as of mid-March in 2016. But that's no reason to throw up your hands in despair. Instead, this is a time to remember that disciplined investing is what matters most.
It's easy to stay invested when the market's going great guns. What takes discipline is staying the course when things get rough—instead of making rash moves that may actually cut into your long-term investment returns.
Here are some tips to help you weather the storm:
- Stick to your plan. If you don't have a financial plan, develop a sound one that protects you against unnecessary risk, the bogeyman of long-term average returns. However, if you have a solid plan, remain committed to it. Don't let a down market change what you're doing. A sound plan can help protect you against the risk of substantial loss in a down market by expecting these inevitable downturns and spreading your portfolio over different types of assets to avoid too much damage in any one of them. If the current market tempts you to invest in ways that are at odds with this plan, you will be thwarting the intent of the plan you set up. A good way to bolster your discipline to stick to your plan is to keep in mind the investing goals you used in setting it up and think about how acting rashly could throw a monkey wrench into your odds of success in the long term.
- Depending on your personal situation, tax bracket and expectations of future use of taxable investments, consider taking what the IRS gives you by realizing losses when selling certain investments. By doing this, you can help offset taxable gains on other investments, and thus defer taxes into the future. If you have taxable investments that you anticipate passing on to your heirs, this is a strategy that may be worth considering.
- Rebalance your portfolio. When you set up a portfolio, you want exposure to different asset classes in different amounts in keeping with your goals, risk tolerance and time horizon. Over time, these proportions drift outside their target ranges as some asset classes increase in value and others decrease. If you started out with 60 percent of the dollar value of your stock portfolio in large companies and 40 percent in small ones, in a year or two you could find those percentages reversed if large companies do poorly and small companies do better than large ones during that period. So the idea is to rebalance your portfolio to restore it to the original 60-40 allocation of large company stocks to small. You want to consider doing this no matter how well or poorly the market is performing. The whole idea of a balanced portfolio is to reduce risk. To stay in balance, you have to rebalance.
- Spend wisely. The wisest spending move is not to spend too much. Sure, you want to spend money on experiences that make you happy, but be wise when spending. For retirees living off investments, this is all the more important in a down market, when returns are lower. Do you really need that new car you're thinking about buying or could that wait another year or two? Is it really important that you remodel your kitchen this year instead of waiting? These are the kinds of decisions that can make a huge difference in your spending and, when you invest this money wisely, significantly increase the likelihood that you won't outlive your money.
By keeping these important points in mind and acting accordingly, you can make it through inevitable, temporary declines without damaging your portfolio. And, unlike the day-to-day movements of the markets, these all are actions you can control.
This content is based upon information believed to be accurate by ISI Financial Group, Inc. However, it should not be relied upon for legal or accounting purposes. You should always use the custodian's brokerage statements as an accurate reflection of your portfolio. Past performance is not indicative of future performance. Investments involve risk, including the possible loss of principal. Always seek professional advice before making any financial or legal decisions.