Who Knew…

It’s that time of the year when the investment media trots out its predictions for 2018, seemingly coming to our aid with headlines of “What you need to know in 2018” and “Invest in ____ if you want to be successful.”

We’re not big on investment prognostications or reactionary investing based on a change in the calendar. We prefer an investment philosophy that works consistently under any set of conditions.  With that in mind, we offer up the Woodward Financial Advisors reactions to some fairly common investment headlines making the rounds this time of the year:

Hedge fund “X” is moving into currency trading.

Better them than us. We’ll just focus on investing globally and letting currencies do what they will. That will most likely lead to long term success without over-complicating our investments and costing more than it should.

The Federal Reserve may raise rates this year.

Got it. They may, but they may not, and it doesn’t matter. Even if they do raise rates, we’re not going to alter our bond investments or our stock investments.  Did you know the Federal Reserve meets about every six weeks? That’s a lot of meetings to follow and worry about over an investment lifetime.

Company “A” beat earnings and its stock is rising

Okay. We probably own it since we invest in mutual funds with thousands of holdings. If so, great. If not, we own plenty of other stocks that are advancing.

Company “B” missed on earnings and its stock is falling

Okay. We probably own this one too. If we don’t, then we dodged one. And even if we own it, it will be a very small portion of our balanced portfolio, so we’re not going to get bent out of shape over it.

Here’s how to play the upcoming earnings season.

We don’t need or want to do this. This is our long-term money we’re talking about. It’s not something to play around with. We have a well thought out and diversified portfolio built for the long haul.

Big changes in health care are on the way, invest in this…

We might consider changing our health care plan, but we’re not going to change our investments.

Some bank or famous investor is betting big on…

Let them make bets of whatever size they wish. We’re not making bets on a stock or sector regardless of who else is.  We’re not going to be swayed from our strategy by some famous person(s) who made a media appearance.

These red-hot tech stocks delivered triple digit returns – buy them now.

We’re not going to chase performance. And besides, shouldn’t we have bought them before they went through the roof?

First quarter profits are up for company “ABC” – buy it.

Noted. Although, this seems like a pretty short time frame over which to evaluate a company, no? Ideally, we like to measure performance over multiple years or even decades.

Some stock market indicator says that it’s time to sell.

And we say that it’s time to stay invested, rebalance and think long term. We’re not going to try to dodge the next downturn by jumping in and out of the markets. Plus, that indicator has said “sell” for five years and been wrong.

The portfolio you should have in an uncertain market is the…

Same one that we should have in any other type of market.


Posted in Uncategorized

Buyer’s Remorse – Financial Products Edition

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We’ve all had that feeling after a relatively large purchase decision that maybe we should never have bought the product in the first place, right? Maybe we feel that it was pushed upon us, or that it’s overly complicated, or that we just don’t really understand how it works. Well, the purchase of financial “products” are no different.

But, just because we regret buying it, doesn’t mean we should always rush out and sell it. Here’s why:

# 1 We might have to pay surrender fees

These are fees charged if we surrender, sell, or cancel our product within a certain number of years after the purchase date. That means we might not even get back the product’s current account value, but rather some lower dollar amount. In that case, it might make more sense to wait until the surrender period is over before we make any moves. Our firm has even seen products that had an indefinite surrender period, and the only way to get a client’s full account value was to have the product distributed over a multi-year period.

If there are no surrender fees, then we’ll want to understand if…

#2 We might incur significant taxes

If we are surrendering cash value life insurance policies or annuities that are worth more than what we’ve put in, then we’ll probably owe taxes on that gain. The IRS usually classifies this kind of gain as ordinary income, which will be taxed at our highest marginal bracket. Even if we’re selling a product that will be taxed at more favorable capital gains rates, we’ll still want to carefully evaluate the tax consequences.

If there are no adverse tax consequences, then we will have cleared our second hurdle. We still, however, need to research if…

#3 We might have a product with advantageous “secondary benefits”

Depending on when we obtained our product, there may be some generous contract provisions that we don’t want to give up. For example, some variable annuity contracts issued between 2006 – 2008 contained guaranteed income provisions that may have worked out in our favor.

Depending on the purchase date and provisions of the product, it may make more sense to simply keep the product or consider other allowable options, such as annuitization (which converts our product into an annual income stream).

In Summary

The easiest thing to do when we have second thoughts about a financial product that we’ve purchased is simply to unload it.  But “easiest” isn’t always “best.” Even if we regret our initial purchase, we still want to get as much out of the product that we can, by not leaving any benefits on the table and by avoiding excessive taxes and fees.

Let us know if you find yourself with buyer’s remorse, or if a friend or family member finds themselves in that position. We may be able to help you make a more informed decision.

Posted in Financial Planning, Investing, Retirement Planning, Taxes

Medicare’s IRMAA

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It’s that time of year! The Medicare enrollment period recently began on October 15th and will stay open until December 7th. While the baseline premiums for Medicare Part B aren’t expected to change for 2018, there will be some changes related to income-based surcharges that could impact you.

What Is IRMAA?
Income-Related Monthly Adjustment Amounts (IRMAA) are surcharges that are applied to Medicare Part B and Part D Premiums for higher-income Medicare recipients. There are 4 different “brackets” of surcharges, each corresponding to a specified range of income.

How is Eligibility Determined? IRMAA eligibility is determined by looking at your tax return from two years prior. In other words, information from your 2016 tax return will determine your IRMAA eligibility and any potential surcharge for 2018.

How Is the IRMAA Calculated? IRMAA surcharges and the income bracket structure have been in place since 2007. But in 2018, three brackets will be defined by a lower income threshold, which means the same level of income may now lead to a higher surcharge than in previous years. We’ve noted the changes below:
IRMAA Blog Post Table

What Can You Do About It? If you have experienced a “life-changing” event in the last two years, you may be able to request that Social Security revisit the surcharge determination. Marriage, divorce, death of a spouse, reduced work hours/retirement, and loss of a pension are all considered life-changing events and may help you qualify for a lower IRMAA determination. To request a new initial determination, you can schedule an appointment with Social Security, or submit a Medicare IRMAA Life-Changing Event form, which can be found here: https://www.ssa.gov/forms/ssa-44.pdf.

If you think the new IRMAA surcharge income brackets may impact you, or if you have questions, Woodward Financial Advisors is here to help.

Posted in Uncategorized

Woodward Financial Advisors to Teach Retirement Planning Class: October/November, 2017

Woodward Financial Advisors will once again teach a retirement planning class on the UNC-Chapel Hill campus. Several clients and blog readers are graduates of this course, and reviews have been consistently positive.

Our next course offering will be in October/November, 2017. If you know someone who might be interested in the course, please forward this on to them.

(Please note that this course is not intended for current clients of Woodward Financial Advisors since the material covered is already part of the advice given to current clients.)

Classes will be held on Wednesdays (October 25, November 1 and November 8) from 7 PM – 9 PM

Location: UNC-Chapel Hill Friday Center (100 Friday Center Drive, Chapel Hill, NC  27517)

Course Description: Retirement Planning Today Course Description

Instructor: Benjamin Birken, CFP®

Tuition is $49, which includes the 224-page textbook.

To register, please complete the online registration form  and use Course ID: 5955421, or call our registration hotline at (984) 960-1985

Posted in Uncategorized