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Ask Ed: Financial Planning Questions And Answers



Ask Ed: Financial Planning Questions And Answers

Once I read Ed Mahaffy’s book titled “How To Select A Financial Advisor: The Least You Should Know”, interviewed him, reviewed his video library, I knew we had the right person for this special financial planning series. On Fridays, TaxConnections presents questions often asked of a Financial Planner.

Ask Ed:  Special Financial Questions 

Question: The financial challenges of Covid 19 can no doubt cause reductions in retirement contributions. This makes cutting retirement plan expenses even more important. Let’s assume Annual expenses amounting to 0.75%. This may not sound like much but cutting this expense can make a huge difference over time. How much?

Answer: Assume $10,000 annual contributions for 40 years earning a 6 % annual return. Reducing fees by 0.50% could save this participant well over $100,000. It pays to stay on top of your plan expenses.

Question: Is the 60/40 (stock/bond) portfolio asset allocation portfolio still viable with interest rates so low?

Answer: Until interest rates dropped to the near record lows investors and savers now face, the 40% of the portfolio allocated to bonds served as a stabilizer, a safety net that not only generated income with safety but played an important role in behavioral finance. As stocks fell in value, money sought the relative safety of bonds, which cushioned the blow and made investors less likely to panic -sell stocks at just the wrong time.

Now however, the bond allocation of the 60/40 portfolio represents significant interest rate risk should rates rise-the nemesis of a bond portfolio. I realize nobody is worried about rising rates, but the contrarian in me says that’s the time to keep a watchful eye. Consider shorter term bonds, which have less interest rate risk than their longer term counterparts. You will not have to sacrifice too terribly much in yield given the flat yield curve. Thus could prove to be cheap insurance.

Question: How can Interest rates rise when the federal reserve has made it clear that it will not raise rates for the foreseeable future?

Answer: The Fed has a great deal more influence on short -term rates than it does on longer term bonds, 10 years and longer, for instance.

A whiff of inflation could be the trigger for a sell off in bond prices. This could accompany an improving economy.

It’s a good idea to review  the “duration” your fixed-income holdings with your advisor. They should provide a stress test that models what to expect given various interest rate environments.

Contact Ed Mahaffy

(How To Select A Financial Advisor – Ed Mahaffy)

Request Copy of eBook In Its Entirety With Charts

Ed Mahaffy

Our first priority is helping you take care of yourself and your family. We want to learn more about your personal situation, identify your dreams and goals, and understand your tolerance for risk. Long-term relationships that encourage open and honest communication have been the cornerstone of my foundation of success.

Our approach is cost-effective and tax-efficient. As an independent investment advisor, we can offer you a personalized financial strategy, not a generic investment program. Your individual portfolio will be based on your unique situation, your values, your preferences and your goals. It will be designed to account for change, in the markets and in your circumstances.

As your professional partner, we’ll work hard to earn your trust and confidence, and provide the advice and service you deserve. Send me a note regarding any questions you may have about any particular investment concepts or products. We’ll get back to you quickly with a thoughtful answer.

Request A Copy of “How To Select A Financial Advisor” at

https://www.clientfirstwm.com/download-my-book

You can reach me directly at ed@clientfirstwm.com or call 501.603.0406

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