Financial Planning Tip of the Month

Save more / Spend less

It's a new year and great time to look for ways to increase your personal savings rate.

Cutting expenses can lead to an opportunity to save more.  Just dropping the daily Grande Americano can add as much as $1000 to your annual disposable income.

Here is another idea:  Take some time this month and shop around for less expensive property and casualty insurance.  Premiums on your home and car insurance can vary greatly from company to company.  We have all seen the commercials.  Go ahead and do some research.  You may find some substantial savings.

Many of you get bonuses from work in the first quarter.  Be sure to "pay yourself first" and stash some cash away for retirement or college or pay off that credit card balance from all the Christmas gifts.

Rethinking Retirement Income Planning 

The 4% Rule

Historically, a common theory to limit the risk of running out of money in retirement has been the 4% rule.  You may have heard of it.  Very simply here’s how the theory works.  It was traditionally thought that a properly structured portfolio could allow for 4% of that portfolio’s value to be distributed annually in order to alleviate the concern of running out of money. Recent studies have tested this theory and found that it doesn’t necessarily hold true anymore. One study conducted even found that if you had retired January 1, 2000 with a mixed portfolio of 55% stocks and 45% bonds rebalanced each month and annual increases of 3% to account for inflation, this strategy could have as high as a 71% failure rate over a 30-year retirement! A 71% failure rate.

Another study found that for a 30-year retirement, a safer withdrawal rate would be 2.1%, and that’s IF a 10% chance of failure is acceptable.  Keep in mind that many people are living longer these days. If we look at a 40-year retirement, that same study found that a safer withdrawal rate is just 1.49%, again IF a 10% chance of failure is acceptable.

This study has been spearheaded by Wade D. Pfau, Ph.D., CFA, a Professor of Retirement Income at The American College for Financial Services in Bryn Mawr, PA.

At RAA, we are taking this very seriously.  It has long been our belief that one should have a reliable and predictable source of income to cover essential expenses in retirement.  We have been following this maxim throughout the course of our collective 40 years of practical experience.   Recently, we have spent time studying this data and looking for ways to offer better solutions to our clients.  We are in the process of becoming experts on a new financial planning process called "Income Allocation".  Simply stated, Income Allocation is a process used to provide solutions that address the growing concerns about "Sequence of Returns" and "Longevity Risk" 

Stay tuned for more discussion about Income Allocation, Sequence of Returns and Longevity Risk.  

Asset Allocation Update

International outlook: Seek exposure to growth

In 2017, consider diversification, exposure to U.S. and secular growth, and big divergences.

FIDELITY VIEWPOINTS – 01/11/2017

While U.S. markets rallied in 2016, with the S&P 500 up roughly 11%, the story for international stocks was more mixed. Emerging markets were up about 6%, but developed markets were down more than 2%, as measured by the MSCI Emerging Markets and Europe, Australasia, Far East (EAFE) indexes.

While questions abound about the outlook for growth in foreign economies, the global impact of monetary policy, and the political path for Europe, stock valuations remain lower for international stocks than the U.S. index.

What are some of the risks and opportunities ahead in international stock markets? For investors interested in exposure to foreign stock markets, it is worth exploring professional fund management. Stock and company information can be harder for individual investors to obtain in a timely manner in many foreign markets, and investing in foreign markets may have more complex economic, political, and monetary risks than investing in the U.S.

Viewpoints checked in with two international fund managers, Sammy Simnegar, manager of Fidelity® Total International Equity Fund and Fidelity International Capital Appreciation, and Bill Bower, manager of Fidelity Diversified International Fund, for their thoughts about the trends they are watching in 2017. They stressed that a dedicated international equity allocation continues to play an essential role in a diversified portfolio, and discussed a few themes they’re watching in the coming year:

•Foreign companies that can benefit from U.S. growth;

•Companies that can grow despite potentially muted domestic GDP;

•Emerging markets instituting market-friendly policies.

At RAA, we believe it is very important to maintain a globally diversified stock and bond portfolio.  We also believe there is great value in professional active management when investing overseas.   Currently, we maintain a blend of actively managed mutual funds and passively managed exchange traded funds. 

To read the original article in its entirety, please click here >>>  https://www.fidelity.com/viewpoints/investing-ideas/2017-international-outlook

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