How to Get Ahead in a Low Rate, Low Growth Environment
I don’t like to give in to negative thinking, but it’s hard to argue that the “new normal” of low growth and low interest rates are here to stay for an extended period of time. Which means that, for savers and investors alike, it takes more careful planning to experience the same returns that history told us we could expect. Here are four things to consider that will help you squeeze the most out of the assets you own:
1) Put cash to work. J.P. Morgan’s Guide to the Markets estimates that as of the 3rd Quarter of 2015 that the money supply was 67% of GDP which is 14 percentage points above the historical average, while annual income generated by $100,000 in a 6-month CD was $370 in 2015. In 2006, that amount was $5,240. Numerous alternatives exist to holding cash that don’t involve the same risks as investing in stocks. Find out what they are.
2) Reduce taxes. There are lots of ways to make sure you don’t pay more in taxes than you need to. A few are tax loss harvesting, maximizing deductions, using health savings accounts and other voluntary benefits to reduce taxable income. Take advantage of the tax deferral features of 401(k) plans, IRAs, life insurance and annuities.
3) Use Professional Management and Advice. Research firm Dalbar estimated that the average individual investor experienced investment returns of 3.49% at the same time the S&P 500 grew at a rate of 7.81%. In a 2012 study, Morningstar estimated that the added value of a financial advisor is 1.82% per year. Having professional advice doesn’t mean you don’t need to be engaged. The services of professionals are not free and you need to know what you are paying for the advice, products and services you are getting.
4) Manage your risk. This refers to portfolio risk and also the risks we choose or choose not to insure like our income, our lives, health, the risk of needing long term care and the risk of outliving our assets. Careful analysis of these risks and thoughtful decisions about how we choose manage these risks can make a difference.
If you would like know more, please give me a call.
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