Investment Risk Management

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Risk Management

Safeguarding Assets

There are more financial advisors than ever before in the US.  The most important difference is whether they have an independent and unaffiliated custodian. We do. The investment advisor initiates transactions as part of its portfolio management responsibility. The custodian then clears transactions as part of its safekeeping responsibility. The custodian has no investment authority (unless assigned for overnight excess cash balance sweep management). They serve to provide an audit trail of all the activity within a client’s investment account. We partner with Schwab as our custodian. They manage over $3.5 trillion in assets, have online account access and reporting and some of the strongest credit ratings in the industry.

Getting Out Of The Stock Market

Over the last several years and even decades, there have been periods of time when all asset classes are under negative pressure and cash is your best investment choice. Although the financial implications of bear markets can vary, typically, bear markets are marked by a 20% downturn or more in stock prices over at least a two-month time frame. Some bear markets have suffered a 40-60% decline in stock prices and have taken many years after to recover losses. In those instances where downside risks significantly outweigh upside potential, we have often chosen to sell investment positions and move to safer cash equivalents.

Using ETFs (Exchange Traded Funds) with very low trading costs has made that defensive play cost-effective for families seeking to preserve wealth. Plus, ETFs can be sold at any time during the trading day, whereas mutual funds can only be sold at the end of the day.

Investment Decisions

The oldest law of economics is supply and demand. At Research Financial Strategies, we place a premium on when to make an investment decision based on price movements using technical analysis. Technical analysis is an emotionless investment decision making process. It does not allow for getting caught up in the company or industry story. Investments are made through a series of technical factors.

The most notable factor is one called relative strength. When a security price shows a recognizable pattern of higher highs and higher lows, it demonstrates that there is higher demand than supply for that security.  Given that reality, we continually evaluate the current market environment to take advantage of opportunistic investments being presented. Research Financial Strategies has the unique capability to create unlimited customized asset allocation blends for our diverse client base.

Principal Protection

Our ability to minimize portfolio risk for our clients is a result of having a Sell-Side Discipline. Prior to investing in a security, we establish an exit point based on the % of loss or price our investment advisors determine is acceptable. If the security price is violated, then it is sold. This ensures that profits are protected for our clients. Or worst case, risk to principal is minimized. Only through having an investment approach that has a pre-determined exit strategy for each investment position, can you mitigate portfolio risk during market corrections.

For many clients, allocating a portion of their assets to a strategy that has limited the downside risk is critical to achieving their investment objectives.  However, there is no free lunch in investing or in life. There are numerous financial institutions pitching an array of products that are often not suitable to the client’s needs. Some are just loaded with fees. As independent advisors, we help our clients sift through the noise to find the right solution that works within their larger financial plan.


We invest in ETFs ( Exchange Traded Funds) and bonds funds that provide daily liquidity. Our firm is built on the belief that clients should have access to their money when they want it! And these investments allow us to quickly make decisions to help protect your assets should the stock market start to rapidly decline.

It's All About You!

Our focus is on your life and priorities. Not just your portfolio. That’s why we start by listening and learning about you. Each individual client has different needs and concerns that need to be addressed. We carefully listen to those concerns and we will gain important information that will help us to best serve our clients and help protect their financial futures.

2018: The Year in Review

Every January, it’s customary to look back at the year that was. What were the highlights? What were the “lowlights”? What were the events we’ll always remember? Most importantly, what did we learn?
Before we get into that, though, let’s take a brief jaunt back to the 1800s.
The famous 19th century composer, Robert Schumann, used to moonlight as a music critic when he wasn’t writing his own work. What’s notable about his reviews is that instead of writing from his perspective, he often wrote from the perspective of two imaginary characters, Florestan and Eusebius. Florestan represented Schumann’s passionate, witty side; Eusebius, his thoughtful and introspective side. These two characters would debate a piece of music, each bringing a different perspective to the table because their personalities were so different. Was a composition ardent and exciting – or merely flashy and melodramatic? Sincere and thought-provoking, or dull and trite? Both characters had their own opinions, proving that two people can experience the same thing very differently depending on their personality – or in the case of Schumann, that one person can.

Why am I telling you all this? Because when you look back on the year that was, it’s possible to draw very different conclusions. If you were to Google “2018 year in review in the markets”, you’d find wildly varying opinions from analysts, pundits, bankers, economists, and others. They’re all reviewing the same year – but their interpretations tend to be very different.
So, with that in mind, let’s review the year the way Schumann would. I present to you two characters: Volatilis and Tranquillitas, the Latin words for volatile and calm.

The Markets
Volatilis: “Look, it was a volatile year. The Dow, S&P 500, and Nasdaq all ended the year lower than they started – the first time that’s happened since 2008.1 The S&P and Nasdaq are in or near bear market territory, and the Dow had its worst December since the Great Depression.”2
Tranquillitas: “Oh, come now, the year wasn’t so bad as all that. In fact, the markets spent most of 2018 climbing rather than falling. The Dow soared to never-before-seen heights, and at one point, the Nasdaq was up 17.5% for the year!1 A few down months can’t erase all the good that came before.”
Volatilis: “Quite the contrary. When it comes to the markets, losses can quite literally wipe out gains! In fact, since October, the markets have lost all they gained and more. And even earlier in the year, we still saw dramatic peaks and valleys. The markets shot out of the gate in January after the new tax law went into effect, but then quickly plunged in February. The same pattern occurred in March and April. We’ve already covered what happened in summer and autumn – a tremendous rise, followed by a tremendous fall. My dear Tranquillitas, don’t you know that’s what volatility means?”

The Economy
Tranquillitas: “But the markets are not the same as the economy, and the economy soared in 2018. Observe these numbers:

“Those numbers paint a picture of a strong economy – and it’s a beautiful picture, indeed!”
Volatilis: “A lovely chart, but it doesn’t tell the whole story – which is that the economy is likely slowing down. The economic expansion has been driven for years by historically low interest rates – rates the Federal Reserve continues to raise. This, in turn, has affected the housing market and the stock market. Oil prices have plummeted, too, which is good for consumers at the gas pump, but bad for the energy industry. Meanwhile, many of the world’s largest economies are also slowing down, especially in China and Europe. In this ever-more connected global economy we all participate in, that spells trouble. “I don’t need to tell you that if these trends continue, 2019 could be more volatile still.”

The Future
Tranquillitas: “Slowing is not the same as stopping. Interest rates are rising but are still relatively low. Corporate profits remain steady, consumer spending is thriving, as is the labor market. These are all indicators of a healthy economy in 2019, even if it’s not quite producing at the same pace it was before.”
Volatilis: “I see your indicators and raise a few of my own. There’s a ceasefire in the trade war with China, but it could pick up again at any time. The federal government is experiencing another shutdown. Furthermore, a large portion of the economy’s growth over the last decade has been prompted by fiscal stimulus from the government – stimulus that will be harder and harder to provide as the nation’s deficit climbs and climbs.6 Take away that prop, and what happens to growth? “The fact is, investors often tend to be both irrational and impatient – a volatile combination. While the economy may be technically strong, trends are what anxious investors pay attention to. And if the economy looks like it’s trending down, it’s quite possible the markets will follow.”
Tranquillitas: “Yes, Volatilis, but have you considered –”


Okay, you get it. In many of Schumann’s reviews, it was at this point that a third character would appear: Master Raro, a teacher who through pure logic and reason would serve as a final arbiter over Florestan’s and Eusebius’ debates. I’ll try to do the same – though I certainly don’t claim to be more capable of “pure logic” than other people!

If you look at all the points and counterpoints made above, though, the logical conclusion is that 2018 was neither a “good” year or a “bad” year. It was…a year! The markets were volatile, but the economy was strong. Similarly, there are indicators of economic strength for 2019, as well as signs that market volatility may continue. Both our fictional characters, Volatilis and Tranquillitus, made good points based on actual facts. But their interpretations of those facts were very different – and that says more about them than anything else. Here’s why that’s important. When we form an opinion about something, it’s often colored by which facts we value more than others. For example, think about when someone asks, “How was your day?” Most days are usually a mixture of good and bad things, aren’t they?

This is a trivial example, but the point is, whether you saw your day as good or bad would depend largely on which events mattered more to you. If you’re someone who thrives off praise and accomplishment, it was probably a great day! If you’re someone who is extremely schedule-oriented, the fact you got stuck in traffic and worked extra late would probably make it a bad day – or at least, not one you’d remember with any fondness. Either way, the facts didn’t change – only your interpretation of them.

Similarly, what we expect of 2019 largely depends on which facts we value more than others. As investors, it’s critical that we remind ourselves about this tendency. Whenever we select an investment, formulate a plan, or make a decision, it’s useful to ask ourselves, “Which facts are causing me to think this way? Which facts am I overemphasizing more than others?” By doing this, we can avoid both undue optimism and overt pessimism – becoming more balanced, less emotional investors in the process!

Whatever 2019 has in store, rest assured there will be both obstacles to avoid and opportunities to seize. But whatever happens, we here at Research Financial Strategies will continue analyzing all the facts and data to help you make smart, unbiased, unemotional financial decisions – music to any investor’s ears. As always, please let me know if there is anything I can do for you in 2019.
Happy New Year!

1 “Investors Find Few Places to Hide,” The Wall Street Journal, December 18, 2018.
2 “Dow closes lower, ending a volatile week on Wall Street,” CNBC, December 27, 2018.
3 “Let the Good Times…Stay a Little Longer?” The Wall Street Journal, December 16, 2018.
4 “U.S. workers see fastest wage growth in a decade,” The Washington Post, October 31, 2018. dc85-11e8-85df-7a6b4d25cfbb_story.html
5 “U.S. Economy at a Glance,” Bureau of Economic Analysis, September 19, 2018.
6 “U.S. deficits and the debt in 5 charts,” Politifact, November 2, 2018.

Market Volatility – Precautions are useless after a crisis!

As you probably know, there has been a lot of market volatility in recent months. Being a financial advisor, I get asked a lot of questions, even from people who aren’t my clients! Some ask if it’s a good time to invest in the markets, or if they should be sticking their money under a mattress. Others ask me about what the future holds for the economy. But the most common question I get is this:
“What,” they say, “is the number one financial tip you can give me?”
Here’s my answer:

Precautions are useless after a crisis!

You’re probably wondering what I mean. It’s simple. When is the worst time to buy a home security system? After a break-in. When’s the worst time to check your tire pressure? After you’ve already had a blowout. When’s the worst time to put your seatbelt on?
You get the idea.
It’s a fundamental fact of life, and it extends to your finances, too. I can’t say for sure when the next bear market will come – and the recent volatility is not necessarily an indication that a bear is just around the corner. What I can say, however, is that a bear market is inevitable, because the markets can take hits just like everything else.

Whether the next bear market comes this year or next, there’s only one thing to do about it, and that’s to have a plan. But a plan is nearly useless after the fact.
We’ve known this lesson since we were kids. Aesop, that ancient master of common sense, says it better than I can in his story, “The Caged Bird and the Bat.”

A singing bird was confined in a cage which hung outside a window and had a way of singing at night when all other birds were asleep. One night, a bat came and clung to the bars of the cage. The bat asked the bird why she was silent by day and sang only at night.
“I have a very good reason for doing so,” said the bird. “It was once when I was singing in the daytime that a fowler was attracted by my voice. He set his nets for me and caught me. Since then, I have never sung except by night.” The bat replied, “It is no use your doing that now when you are a prisoner. If only you had done so before you were caught, you might still have been free.”

As your financial advisor, one of my most important responsibilities is to help you do now what people in the future will wish they had done earlier. That includes preparing for more market volatility.

By reviewing your portfolio, your goals, your current vulnerability to risk, and your overall finances, we can do what needs to be done now rather than waiting until it’s too late. We can plan for the future before the future becomes the present. We can take precautions before the next market crisis. Please fill the questionnaire out and return it to me as soon as possible. By doing this, we can determine:
• Whether it’s time to focus on preserving your money over growing your money.
• Whether you currently own investments not under my management that are unsuitable for your financial goals – especially with more volatility knocking on the door.
• How the recent volatility may be affecting you and what we can do about it.

Market volatility is on the rise. By taking suitable precautions with your money, you’ll find that it’s always there to support you.
Because, after all… Precautions are useless after a crisis.

As always, thank you for your business! We look forward to hearing from you soon.

2019 Tax & Financial Planning Guide

Keep up to date on what’s new for 2019. Check out our handy-dandy tax and financial guide! There were many tax changes made in the Tax Cuts and Jobs Act of 2017.  The House Committees and IRS have been navigating these changes for most of 2018.  Everyone will be impacted and everyone has questions about how these changes affect them.
Click here>>

Year-End Tax Tips That Will Trim Your Tax Bill

  • December 31 is an essential deadline for taxpayers who want to lower their tax bill and build up their savings.
  • There is no better time than now to start to make gifts to loved ones, maximize your 401K contributions, save for college or donate your required minimum distribution

The new tax law has put a whole new spin on year-end tax planning, though it hasn’t eliminated the need to do it altogether. t has been a busy year for taxpayers and accountants, as the end of 2018 signals the first year under the Tax Cuts and Jobs Act.

In all, the tax overhaul roughly doubled the standard deduction to $12,000 for single filers ($24,000 for married-filing-jointly), eliminated personal exemptions and limited itemized deductions.

Despite the changes to the tax law, there are still opportunities to shore up your 2018 finances. Here’s what to consider.

1) Maximize retirement savings
Reduce your taxable income dollar-for-dollar by contributing as much as you can to your 401K or employer’s retirement plan by Dec. 31.

If you are 18 or older, you can save up to $18,500 to your 401(k), and if you are over 50 you can kick in an extra $6,000. With IRAs you can contribute $5,500, and if you are over 50, an additional $1,000. (You have until the April deadline to make those IRA contributions.)

Additionally, if you are self-employed and contribute to SEP IRAs, you can deduct up to 25 percent of compensation or $55,000 for 2018.

Make sure you’ve taken advantage of your employer’s match to your 401K plan. Better yet, make sure you’ve maxed out how much you can contribute. Leaving this benefit underutilized is the same as leaving money on the table.

(If you contribute to a Roth 401K or Roth IRA, you won’t get a tax break, but your money can grow tax-free and generally be withdrawn tax-free in retirement.)

2) Make an extra mortgage payment
Although the number of homeowners who can benefit from the mortgage tax break fell significantly under the new tax law, about 13.8 million taxpayers will still be able to claim the mortgage-interest deduction in 2018.

If you own a home and get a mortgage interest deduction, make an extra mortgage payment on Dec. 31 to get that additional deduction on this year’s taxes.

For new homeowners (or those who bought a home after Dec. 15, 2017) who will still be able to take advantage of the tax break, the interest they can write off is limited to $750,000 in loans, down from the previous $1 million.

3) Unload losers
After this week’s market downturn, chances are you have some investments that lost value this year.

You can use those losses to zero out capital gains, and then deduct up to $3,000 a year against ordinary income. Losses in excess of that can be carried forward to future tax years until the balance is used up.

For example, if you have $10,000 of losses and $5,000 of gains, you have an overall loss of $5,000 — and up to $3,000 of that loss can be used to offset your ordinary income. The additional $2,000 in losses can be shifted to next year’s return.

For just that reason, tax-loss harvesting is a popular tool for maximizing after-tax returns, most commonly in the fourth quarter of the year, when investors aim to lower their tax liability. (But this strategy only works on taxable accounts, not your 401(k) or IRA.)

Be aware that if you sell a security at a loss and buy the same or similar security within 30 days before or after the sale, the IRS won’t allow you to claim the loss on your tax return.  This is known as a wash sale.

4) Deduct health-care expenses
If your health-care costs exceed 7.5 percent of your adjusted gross income in 2018, you may be able to deduct those expenses.

Tally up how much you spent on health insurance, Medicare premiums, long-term health insurance premiums, nursing home costs, orthodontics and other out-of-pocket expenses to see if the total exceeds the medical expense threshold.

You can deduct everything you spend over that amount (but you can’t double dip and count expenses paid for with tax-advantaged flexible spending or health savings account dollars).

You also can’t take this tax break if you opt for the standard deduction – it only applies if you itemize all of your deductions.

5) Bundle charitable donations
If you want to lower your tax bill by making donations to charity, you have until Dec. 31 to do so.

Even though the deduction for donations is unchanged, you still need to itemize to claim it, and that’s a much higher bar this year.

One way to surpass the new, higher standard deduction is to save money over time and donate every two or three years instead of every year — a strategy called “bunching.”

For example, instead of giving $5,000 to charity annually, accelerate the gift by giving $10,000 every two years. This way, you may get your itemized deductions over the limit one year and take the standard deduction the next.

Maximize your contribution — and the amount you can deduct if you’re able to itemize in 2018 — by stuffing multiple years’ worth of donations into one year.  This move is known as “bunching” your charitable contributions.

6) Defer your bonus
If you get a year-end bonus at work, it could bump you up to another tax bracket and increase the taxes you owe.

See if your employer will pay you your bonus in January. You will still receive it close to year-end, but you won’t have to pay taxes on it when you file your tax return.

You don’t want to defer your bonus for too long, but a few weeks might make sense.

7) Donate Your RMD to Charity
If you’re 70½ or older, you have until Dec. 31 to take your Required Minimum Distribution from your IRAs and retirement plans.

Failure to do so could mean you’re on the hook for a 50 percent penalty on the amount you should have taken.

If you’re lucky enough that you won’t need the RMD, consider donating the money directly from your retirement account to your qualifying charity of choice. This is known as a qualified charitable distribution.

You don’t need to itemize deductions on your tax return in order to do this.

The bonus: Your RMDs are normally taxable distributions, but qualified charitable distributions are not, according to the IRS.

8) Give to Heirs
You have until Dec. 31 to make gifts to your loved ones for the tax year. You can give up to $15,000 per recipient to an unlimited number of beneficiaries without paying a gift tax. This is known as the annual gift exclusion.

If you’d like to share even more wealth with your grandkids without being subject to gift taxes, consider paying for their tuition or medical expenses.

All of these payments must be made directly to the provider of these services.

9) Talk to Your Tax Preparer
The single best move anyone can take before the end of the year to cut their tax bill is to consult a licensed tax professional and seek advice for their specific situation. Waiting until January will be too late. Each taxpayer’s situation and each tax year is unique. This year, there are new laws and new forms that will affect everyone. Waiting until the return is calculated is likely to produce a few surprises. The new tax law also changed the way employers withhold taxes, and the IRS is concerned that many taxpayers will be surprised by their refunds or balance due because of the new withholding rules.

The Three Key Challenges of Retirement

The Three Key Challenges of Retirement

Planning for your retirement can be challenging. It can be scary, and it can be frustrating. I have seen many clients who felt their plan was a disaster waiting to happen. As an advisor, I am here to say that you can handle it. Planning for retirement doesn’t have to be difficult—in fact, it can be fun! But in order to achieve the retirement of your dreams, you must prepare for three major challenges that every retiree is likely to face.

Challenge #1: Ensuring a Long Retirement Savings Lifespan

One of the greatest fears people have in retirement is that they will outlive their savings. Fortunately, by taking steps now, you can ensure this doesn’t happen to you.

The first step is to budget your expected expenses based on your normal day-to-day costs and any activities you want to pursue during retirement. Things like travel, hobbies, remodeling your home, etc.
Next, take a hard look at your current savings and level of income. How much are you setting aside for retirement? How much more do you need to be saving or investing in order to meet your expected budget? This is where working with a financial advisor can come in handy, because an advisor can help you determine
• how much your savings need to grow to meet your needs;
• how long you can expect your savings to last, based on when you plan on retiring, your general health, and activities;
• how to maximize your income opportunities after retirement; and
• what the ideal rate of withdrawal will be from any retirement accounts you have so you don’t run out of savings.

Once you have a plan for your retirement savings, you can move onto the next challenge:

Challenge #2: Planning for Health Care Expenses

As we age, health care becomes a bigger concern, and a more difficult one to deal with. It can be hard to find a plan that provides the coverage you need at a price you can afford. All the politics and legislation affecting the healthcare industry don’t make it easier, either.
The answer, again, is to plan ahead.

Here are a few things you can do:
1. Learn about your various Medicare options. If you are one of the lucky few who will have employer-provided health care coverage even after retirement, congratulations. But if not, start familiarizing yourself with the intricacies of Medicare now. The Federal government’s health insurance program for seniors is often referred to as a single plan, but in reality, it’s many types of plans rolled into one. From the basic level of coverage (Part A), to “Medicare medical insurance” (Part B) which covers outpatient hospital care, physical therapy, and home health care, to the more elaborate “Medicare Advantage” plans, most retirees are confronted with too many options, some of which are more appropriate than others. Choosing the best type of coverage for you will be crucial when it comes to paying for your medical expenses.
2. Look at Medigap. Medigap supplemental insurance is sold by private insurance companies, and is designed to help pay those costs not covered by Medicare. Medigap isn’t free, and certain criteria must be met before you can purchase it, but it’s definitely a route to consider.
3. Consider long-term care insurance. Important disclaimer: not everyone will need long-term care or assisted living in their lives. That said, many people do, and long-term care (LTC) insurance is one of the best ways to pay for it. It can be beneficial to purchase LTC insurance sooner rather than later, as premiums often grow higher as you grow older. However, LTC is expensive in and of itself, so give the subject a lot of careful consideration before making a decision. As you can see, paying for health care expenses is a huge part of retirement. As you create your retirement plan, make sure you give the subject all the attention it deserves.

Challenge #3: Planning for Unexpected Expenses

While health concerns are a major source of unexpected costs, there are many other types of expenses that could impact your retirement. For instance
• Car repairs. You know it will happen one day: the strange clunk-clunk sound you start hearing from your engine ends up being a problem that will cost hundreds, maybe even thousands, to fix. And if it happens more than once …
• Your bills keep going up. What goes up does not necessarily go down. Anyone who has ever paid for an internet connection or satellite TV knows that prices tend to rise over the years. Your basic utilities are prone to price fluctuation as well. A really cold winter means your gas bill will go up. If you have children in the house who keep leaving the lights on, your electricity bill will go up. You get the picture
• Household repairs. When the toilet clogs or the faucet leaks; when a window breaks or the roof starts to degrade; when wood-boring beetles infest the tree in the backyard; unless you really like to DIY, that means paying for a professional … who usually aren’t cheap.

The point of all this is to show that unexpected expenses can come at any time, in many different forms. What’s more, they can really pile up.
So, what’s the solution? Start a rainy-day fund! When most people save, they tend to just throw everything into one savings account and withdraw money whenever they either need or want to. Instead, I suggest creating a separate type of savings account: one that can only be touched whenever the unexpected happens. Every month, devote a set percentage of your income to the rainy-day fund in addition to your regular savings. Then, when your car inevitably breaks down, you won’t have to worry about it interfering with that vacation you’ve been dreaming about for years, because you’ve already set aside the funds to deal with it.

The key to starting a rainy-day fund is to do it now. If you wait until after retirement, you’ll probably have waited too long. Plus, once you’re retired, you’ll likely have less to set aside for those unexpected expenses.
Which brings us to the single most important thing you can do to meet these three key challenges of retirement. Have you guessed what it is yet?
That’s right: plan ahead.
By being proactive, by starting now, you can mitigate these challenges and prevent them from derailing your dream retirement.

As always, if you’d like any assistance with creating a retirement plan, or if you have questions about how to maximize your savings and cover your expenses, feel free to contact us.