20 IRA Mistakes to Avoid




1) Waiting Until the 11th Hour to Contribute

Investors have until their tax-filing deadline–usually April 15–to make an IRA contribution if they want it to count for the year prior. Perhaps not surprisingly, many investors take it down to the wire, according to a study from Vanguard, squeaking in their contributions right before the deadline rather than investing when they’re first eligible (Jan. 1 of the year before). Those last-minute IRA contributions have less time to compound–even if it’s only 15 months at a time–and that can add up to some serious money over time. Investors who don’t have the full contribution amount at the start of the year are better off initiating an auto-investment plan with their IRAs, investing fixed installments per month until they hit the limit.

2) Assuming Roth Contributions Are Always Best
Investors have heard so much about the virtues of Roth IRAs–tax-free compounding and withdrawals, no mandatory withdrawals in retirement–that they might assume that funding a Roth instead of a Traditional IRA is always the right answer. It’s not. For investors who can deduct their Traditional IRA contribution on their taxes–their income must fall below the limits outlined here–and who haven’t yet save much for retirement, a Traditional deductible IRA may, in fact, be the better answer. That’s because their in-retirement tax rate is apt to be lower than it is when they make the contribution, so the tax break is more valuable to them now.

3) Thinking of It As an Either/Or Decision
Deciding whether to contribute to a Roth or Traditional IRA depends on your tax bracket today versus where it will be in retirement. If you have no idea, it’s reasonable to split the difference: Invest half of your contribution in a Traditional IRA (deductible now, taxable in retirement) and steer the other half to a Roth (aftertax dollars in, tax-free on the way out).

4) Making a Nondeductible IRA Contribution for the Long Haul

If you earn too much to contribute to a Roth IRA, you also earn too much to make a Traditional IRA contribution that’s deductible on your tax return. The only option open to taxpayers at all income levels is a Traditional nondeductible IRA. While investing in such an account and leaving it there might make sense in a few instances, investors subject themselves to two big drawbacks: required minimum distributions and ordinary income tax on withdrawals. The main virtue of a Traditional nondeductible IRA, in my view, is as a conduit to a Roth IRA via the “backdoor Roth IRA maneuver.” The investor simply makes a contribution to a nondeductible IRA and then converts those monies to a Roth shortly thereafter. (No income limits apply to conversions.)

5) Assuming a Backdoor Roth IRA Will Be Tax-Free
The backdoor Roth IRA should be a tax-free maneuver in many instances. After all, the investor has contributed money that has already been taxed, and if the conversion is executed promptly (and the money is left in cash until it is), those assets won’t have generated any investment earnings, either. For investors with substantial Traditional IRA assets that have never been taxed, however, the maneuver may, in fact, be partially–even mostly–taxable, as outlined here.

6) Assuming a Backdoor Roth IRA Is Off-Limits Due to Substantial Traditional IRA Assets
Investors with substantial Traditional IRA assets that have never been taxed shouldn’t automatically rule out the backdoor IRA idea, however. If they have the opportunity to roll their IRA into their employer’s 401(k), they can effectively remove those 401(k) assets from the calculation used to determine whether their backdoor IRA is taxable.

7) Not Contributing Later in Life
True, investors can’t make Traditional IRA contributions post-age 70 1/2. They can, however, make Roth contributions, assuming they or their spouse have enough earned income (from working, not from Social Security or their portfolios) to cover the amount of their contribution. Making Roth IRA contributions later in life can be particularly attractive for investors who don’t expect to need the money in their own retirements but instead plan to pass it on to their heirs, who in turn will be able to take tax-free withdrawals.

8) Not Gifting With IRAs
Speaking of earned income, as long as a kid in your life has some, making a Roth contribution on his or her behalf (up to the amount of the child’s income) is a great way to kick-start a lifetime of investing. Per the IRS’ guidelines, it doesn’t matter whether the child actually puts his or her own money into the IRA (there are, after all, movie tickets and Starbucks beverages to be purchased). What matters is that the child’s income was equal to or greater than the amount that went into the account.

9) Forgetting About Spousal Contributions
Couples with a non-earning spouse may tend to short-shrift retirement planning for the one who’s not earning a paycheck. That’s a missed opportunity. As long as the earning spouse has enough earned income to cover the total amount contributed for the two of them, the couple can make IRA contributions for both individuals each calendar year. Maxing out both spouses’ IRA contributions is, in fact, going to be preferable to maxing out contributions to the earning partner’s company retirement plan if it’s subpar.

10) Delaying Contributions Because of Short-Term Considerations
Investors–especially younger ones–might put off making IRA contributions, assuming they’ll be tying their money up until retirement. Not necessarily. Roth IRA contributions are especially liquid and can be withdrawn at any time and for any reason without taxes or penalty, and investors may also withdraw their IRA money without taxes and/or penalty under very specific circumstances, outlined here. While it’s not ideal to raid an IRA prematurely, doing so is better than not contributing in the first place.

11) Running Afoul of the 5-Year Rule
The ability to take tax-free withdrawals in retirement is the key advantage of having a Roth IRA. But even investors who are age 59 1/2 have to satisfy what’s called the five-year rule, meaning that the assets must be in the Roth for at least five years before they begin withdrawing them. That’s straightforward enough, but things get more complicated if your money is in a Roth because you converted Traditional IRA assets. This article describes the five-year rule in detail.

12) Thinking of an IRA As ‘Mad Money’
Many investors begin saving in their 401(k)s and start to amass sizable sums there before they turn to an IRA. Thus, it might be tempting to think of the IRA as “mad money,” suitable for investing in niche investments such an ETF that is set up to capitalize on falling energy prices or Brazilian inflation-protected securities. Don’t fall into that trap. While an IRA can indeed be a good way to capture asset classes that aren’t offered in a company retirement plan, ongoing contributions to the account, plus investment appreciation, mean that an IRA can grow into a nice chunk of change over time. Thus, it makes sense to populate it with core investment types from the start, such as diversified stock, bond, and balanced funds, rather than dabbling in narrow investment types that don’t add up to a cohesive whole.

13) Doubling Up on Tax Shelters
In addition to avoiding niche investments for an IRA, it also makes sense to avoid any investment type that offers tax-sheltering features itself. That’s because you’re usually paying some kind of a toll for those tax-saving features, but you don’t need them because the money is inside of an IRA. Municipal bonds are the perfect example of what not to put in an IRA; their yields are usually lower than taxable bonds’ because that income isn’t subject to federal–and in some cases, state–income taxes. Master limited partnerships are also generally a good fit for a taxable account, not inside of an IRA.

14) Not Paying Enough Attention to Asset Location
Because an IRA gives you some form of a tax break, depending on whether you choose a Traditional or Roth IRA, it’s valuable to make sure you’re taking full advantage of it. Higher-yielding securities such as high-yield bonds and REITs, the income from which is taxed at investors’ ordinary income tax rates, are a perfect fit for a Traditional IRA, in that those tax-deferred distributions take good advantage of what a Traditional IRA has to offer. Meanwhile, stocks, which have the best long-run appreciation potential, are a good fit for a Roth IRA , which offers tax-free withdrawals. This article details the basics of “asset location.”

15) Triggering a Tax Bill on an IRA Rollover
A rollover from a 401(k) to an IRA–or from one IRA to another–isn’t complicated, and it should be a tax-free event. However, it’s possible to trigger a tax bill and an early withdrawal penalty if you take money out of the 401(k), with the intent to do a rollover, and the money doesn’t make it into the new IRA within 60 days. This article discusses how to ensure that rollovers are simple and tax-free.

16) Not Being Strategic About Required Minimum Distributions
Required minimum distributions from Traditional IRAs, which start post-age 70 1/2, are the bane of many affluent retirees’ existences, triggering tax bills they’d rather not pay. But such investors can, at a minimum, take advantage of RMD season to get their portfolios back into line, selling highly appreciated shares to meet the RMDs and reducing their portfolios’ risk levels at the same time. This article discusses how to tie RMDs in with year-end portfolio maintenance.

17) Not Reinvesting Unneeded RMDs
In a related vein, retired investors might worry that those distributions will take them over their planned spending rate from their portfolios. (Required minimum distributions start well below 4% but escalate well above 6% for investors who are in their 80s.) The workaround? Invest in a Roth IRA if you have earned income or–more likely–in tax-efficient assets inside of a taxable account. This video provides tips on how to invest RMDs you don’t need.

18) Not Taking Advantage of Qualified Charitable Distributions
RMD-subject investors also miss an opportunity if they make deductible charitable contributions rather than directing their RMDs (or a portion of them) directly to charity. That’s because a qualified charitable distribution–telling your financial provider to send a portion of your RMD to the charity of your choice–reduces adjusted gross income, and that tends to have a more beneficial tax effect than taking the deduction. The hitch is that Congress typically only renews the provision that allows qualified charitable distributions at the very end of the year, so interested investors have to delay their distributions until then.

19) Not Paying Enough Attention to Beneficiary Designations
Beneficiary designations supersede expensive, carefully drawn-up estate plans, but many investors scratch them out with barely a thought, or make them once but don’t revisit them ever again. IRA expert Ed Slott discusses considerations to bear in mind when deciding who should inherit your IRA in this video.

20) Not Seeking Advice on an Inherited IRA
Inheriting an IRA can be a wonderful thing, but it’s not as simple as it sounds. The inheritor will have different options for what to do with the assets depending on his or relationship to the deceased, and can inadvertently trigger a big tax bill by tapping the IRA assets without exploring all of the options. This video includes tips for inherited IRAs, as does this article.

By Christine Benz

Monthly Portfolio Update and Forecast


Please view below our monthly update from Jason Wenk, Chief Investment Strategist at FormulaFolio Investments.

We are starting the year off well and will be actively watching the markets as the year progresses.  If you have any questions about your accounts, or would like to learn more about our strategies, contact the office today!

Remember it wasn’t raining when Noah built the ark!

Take the time now to build the best portfolio for YOU.

When underperforming the S&P 500 is a good thing

pie chartCopyright Investment News

Matching the index last year would have involved too much risk

As financial advisers roll through annual client reviews, many will face the task of having to explain how their portfolio strategies so badly lagged the 13.7% gain by the S&P 500 Index last year.

Fact is, a truly diversified investment portfolio should have returned less than 5% in 2014. It was that kind of year. Any adviser who generated returns close to the S&P was taking on way too much risk, and should probably be fired.

Blame the ever-expanding financial media or the increased awareness among investors, but there is no getting around the reality that clients have become programmed to dwell on the performance of a few high-profile benchmarks.

“Sure, the S&P 500 had a good 2014, and if you had all or most of your money invested in [that index], you did, too,” said Ed Butowsky, managing partner at Chapwood Capital Investment Management. “But what were you doing with most of your money in a single index?”

Most years, a globally diversified portfolio that spans multiple asset classes can hold its own relative to something like the S&P. But when a year like 2014 happens and the S&P essentially laps the field, financial advisers who have done their job might suddenly feel as if they have to make excuses for doing the right thing.

“Periods like 2014 are why people think they should just go buy the index,” said David Schneider, founder of Schneider Wealth Strategies.

“Investors tend to fixate on the S&P because it’s the most famous index out there, and when it outperforms everything, it just makes the case for passive investing for all the wrong reasons,” he added. “People think they can just get rid of foreign stocks.”

While long-dated U.S. Treasuries emerged as a surprise outperformer last year with a 27.4% gain, most risk assets around the world didn’t even show up for the game.

Developed markets, as represented by the MSCI EAFE Index, fell 4.9% last year, and the MSCI Emerging Markets Index fell 2.2%.


Midsize companies, as tracked by the Russell Midcap Index, generated a 13.2% gain last year and almost kept pace with the larger companies that make up the S&P 500. But the 4.9% gain by the Russell 2000 small-cap index shows that smaller companies were not really participating.

With everything packaged into a diversified portfolio, it would have been near impossible to generate anything eye-popping last year.

Applying allocations based on Morningstar Inc.‘s five main target risk indexes, ranging from conservative to aggressive, the best performance last year would have been 5.23%, which includes a 1.51% decline during the second half of the year.

To get that full-year return would have required a 91% allocation to stocks, divided between 59% in U.S. stocks and 32% in foreign stocks.

That portfolio, Morningstar’s most aggressive, also included 4% in domestic bonds, 1% in foreign bonds and 4% in commodities, as an inflation hedge.

On the other end of the spectrum, the most conservative Morningstar portfolio had just an 18% allocation to stocks, including 13% domestic and 5% foreign. The 61% fixed-income weighting had 50.5% in domestic bonds and 10.5% in foreign bonds. The 10.5% inflation hedge included 2% in commodities and 8.5% in Treasury inflation-protected securities.


That portfolio gained just 3.38% last year but fell 0.73% during the second half of the year.

“History has taught us that at the beginning of any 12-month period, stocks have as good a chance of gaining 44% as they do of losing 25%,” Mr. Butowsky said.

The onus is always on advisers to turn years like 2014 into teachable moments with clients, and a lot of advisers are doing exactly that.

Thomas Balcom, founder of 1650 Wealth Management, took a proactive approach in December by addressing the issue in his holiday greeting card message, which focused on “not putting all your eggs in one basket.”

“My clients were definitely surprised they weren’t up as much as the S&P, because everyone uses the S&P as their personal benchmark,” he said. “But we had things like commodity exposure and international stocks that were both down last year, and that doesn’t help when clients see the S&P reaching record highs.”

Veteran advisers recognize 2014 as a truly unique year for the global financial markets.

In 2013, for example, when the S&P gained 32.4%, developed international stocks gained 22.8%. But domestically, the S&P was outpaced by both mid- and small-cap indexes, meaning a diversified portfolio was riding on more than just the S&P’s positive numbers.

Prior to 2013, the S&P had outperformed international developed- and emerging-market stocks on only three other occasions since 2000. Domestically, the S&P has outperformed midcap and small-cap stocks only one other time since 2000, in 2011, with a 2.1% gain.

“It’s tough dealing with clients, because the S&P is the benchmark you can turn on the TV and hear about, and everybody wants to know why they aren’t experiencing the same returns as the S&P,” said Michael Baker, a partner at Vertex Capital Advisors.

“The S&P 500 really just represents one asset class — large-cap stocks,” he added. “And most investors only have about 15% allocated to large-cap stocks.”

By:  Jeff Benjamin

New IRA Rules That May Cost You

a11e0_ostrich-burying-headAs though retirement accounts were not complicated enough, two recent court rulings threw monkey wrenches into the works. All IRA owners will want to know about these new IRA rules before planning their estate or transferring money between IRAs.

One rule came out of tax court: IRA owners are limited to one 60-day rollover between IRAs in a 12-month period across all of their IRA accounts. The rule went into effect on Jan. 1, 2015.

The Supreme Court handed down the second rule from on high. Spendthrift heirs take heed: Inherited IRAs are not retirement accounts. That means that inherited IRAs are treated like all other inherited assets and it’s open season for creditors.

Once-per-year transfers

In January 2014, Alvan and Elisa Bobrow made an appearance in the U.S. Tax Court to plead their case regarding a string of 60-day rollovers among their IRA accounts. With the 60-day rollover, or once-per-year transfer, a check is cut directly to the account owner with the understanding that the funds must be back in an IRA within 60 days or the funds will become subject to taxes and penalties. Before the 2014 decision, the understanding was that one transfer could be done in a 12-month period for each IRA owned.

You can see how this could be tempting, under the right circumstances.

People would basically use this — not commonly, but occasionally — as basically a form of personal loans, like you could sort of borrow money from your IRA without tax consequences by sequencing together a bunch of 60-day rollovers and actually get a pretty long use of the money.

Death of a loophole

That’s what the Bobrows tried to do, but one of the rollovers didn’t quite make the 60-day deadline. They went to tax court anyway to plead the case.

The conclusion of the tax court was that not only had (they) clearly just botched one of the rollovers on timing, but the tax court’s interpretation was that this shouldn’t just apply to one IRA at a time, this should apply in the aggregate across all of the IRAs.

So the Bobrows ruined it for everyone. Now all IRA owners are limited to doing one of these 60-day transfers annually, no matter how many IRAs they happen to own.

But once a year — that’s not the calendar year. The rule is it’s a fiscal year; in other words, 12 months or 365 days. So, if you did one today, you couldn’t do another one until next July 23 or whatever today is.

Be sure to note

In November 2014, the IRS published a notice clarifying how the new rule works for those who have multiple IRAs. No matter how many IRAs a person may own — a SEP IRA, a SIMPLE IRA, five Roth IRAs and three traditional IRAs — they will get one once-per-year IRA rollover every 365 days.

It’s important to note that the rule doesn’t apply to trustee-to-trustee transfers, the type of transfer that is done between brokerages. If a check is involved, it will be made payable to the brokerage or bank, for benefit of the client’s account, but the client won’t access the funds. “You can do those all day long. You can do 15 a day if you wanted,” Slott says.

Inherited IRAs

Since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the status of inherited IRAs with regard to creditors has been as clear as swamp mud. The Supreme Court’s decision this year clarified matters.

In this 2005 law, limits were stated. Basically, any ‘real’ retirement plan — employer qualified retirement plan, or QRP — was fully exempt, plus SEPs, SIMPLEs and 403(b) plans.

Generally, owners of workplace retirement plans enjoy federal protection from creditors, and states determine if a person’s IRA is creditor-protected.

But what happens if you bequeath your IRA to your kid? No one was really sure if inherited IRAs counted as retirement plans or piles of money. The question ended up in front of the Supreme Court in 2014. The court decided that inherited IRAs are piles of money, not retirement accounts.

An exception to the rule

There is one exception: the spousal rollover. When spouses inherit an IRA, they can take the account and use it as their own retirement account.

Some are arguing this could be construed as an illegal transfer or conveyance. My personal feeling is that this argument fills up a lot of seminars on the subject, but it is a stretch to assume or predict that the IRS, or any bankruptcy court, could easily challenge a spouse who took over his or her deceased partner’s retirement plan and treated it as their own.

In other words, a spousal rollover could be challenged by creditors, but the law seems to favor spouses.

Protecting spendthrift heirs

There are some ways to protect heirs from themselves: for instance, by leaving assets to a trust. Leaving an IRA to a trust is more complicated than leaving regular money.

Another option skips the hassle and uncertainty of leaving an IRA to a trust: Take the money out of the IRA and buy life insurance.

You could leave the IRA to a trust, but that’s complicated because the IRA has distribution rules. So it gets complicated to throw that into a trust; life insurance is a much easier asset to go to a trust. Spend down some of your IRA, put the rest in a life insurance policy. Leave that to a trust for the kids.

That way, the kids will end up with tax-free money with no distribution rules attached. Plus the money would be creditor-protected.

Contact a professional advisor that will protect you and you money from these new rules.  The government is waiting for you to make a mistake.


2014 Market Recap

Trust Dale CFGPlease watch the video below from FormulaFolios Chief Investment Strategist, Jason Wenk.  If you have any questions about your specific investment accounts or would like to learn more about how we utilize FormulaFolios give us a call.



Phil Calandra

Dear Santa, Please Make The Stock Market Go Up Forever…

Santa at NYSEThe infamous Santa Claus Rally may be in question this year after the first half of December.  Please read and watch below as Formula Folios Chief Investment Strategist, Jason Wenk, gives a recap of the current market gifts.

It was a rather tough week for the stock market, with Friday closing with a 315 point drop in the Dow and a 33 point drop in the S&P 500.

Ouch! Bad week for Stock Investors.


The other big news is that the 2 year uptrend in the S&P 500 now appears to be changing. For better or worse, we do not know just yet.

In today’s market update video I show this trend, draw in some key points, and illustrate where I think some of the next moves may take us. More to come in the next few weeks.]

As always, if you have questions, comments, or observations you’d like to share; feel welcome to use the Comment area below this post. If you know others who might benefit from this post, please help spread the word by using the Facebook, Twitter, or LinkedIn buttons below too!

Happy Holidays!



Be Financially Successful

Blue Financial AdviceYou have questions and concerns.  Everyone does when it comes to their financial future.  Perhaps today you will take action.  If you choose to, follow this outline.

The cornerstone to great financial results is a great financial plan.

There are many financial advisors that offer financial plans, but most are just complicated compilations of charts, graphs, and data…all really just designed to sell high commission products.

It’s no wonder many people who’ve explored financial planning have a sour taste in their mouths.  Be financially successful.  Create financially successful plan that are:  Low Cost, Objective, Flexible, and Customized.

Step 1:  Focus on  You & Your Goals

Start by first analyzing your current financial situation. Your current assets, liabilities, savings or spending habits; and most importantly, what your financial goals are.  Why are you investing?  What is important about money to you?

Step 2:  Portfolio Analysis

Using professional third-party analytics from Morningstar analyze your portfolio to determine what realistic risk you are taking and return you are currently getting.

Step 3:  Stress Test

With today’s technology run a 1,000 scenario stress test that gives you an accurate best case, worst case, and average case scenario of what might happen should you continue doing just as you are right now.

Step 4:  Optimization

If you learn through this stress test and planning process that you are not currently positioned for success, optimize your investment allocation to show you what steps are needed in order to reach your goals, with the minimum in risk and cost.

Step 5:  Action Steps

Once you’ve worked to determine the best planning scenario for your goals, draft a simple “Financial Implementation Plan” document that tells you precisely what needs to be done to get your plan in action and start realizing the benefits.

If you need assistance with this type of planning, we can help.  Our results driven planning process is 100% satisfaction guaranteed.  You pay nothing upfront.  Once our process is complete and you are completely satisfied, you pay only $600.  Upon completion, if you are not 100% satisfied with our entire process, pay nothing.  That is an irresistible offer for someone who is serious about their money and who wants a second opinion on the path they are currently on.

Protect Your Sensitive Financial Information

Flat Phil-revised for webNow more than ever, you must be protecting your financial information!  In October, hackers accessed the personal information of over 83 million JP Morgan Chase customers. Fortunately, the hackers weren’t able to access financial information or gain access to client accounts. However, they were able to access the names, phone numbers, addresses, and email addresses of any current or past customer who logged into Chase.com, JPMorganOnline, Chase Mobile or JPMorgan Mobile. [i],[ii] This unprecedented cyber-attack on a major American financial company naturally raises questions about the state of security in the financial services industry.

While there are a lot of questions still being answered, there is some good news to take away from this incident:[iii]

  •  No money was taken from client accounts and it doesn’t appear that financial databases were accessed at all. No fraudulent transactions have yet occurred using client information.
  • S. law enforcement and intelligence services are working closely with financial institutions to glean information and prevent future attacks.
  • This serious attack is a wake-up call for the whole industry that a coordinated hacking attack, possibly with the tacit support of foreign governments, can have a major impact on financial institutions. This realization will likely result in some major changes to security protocols at financial institutions.

Financial data theft is a major problem that can affect anyone. Though statistics on this type of data breach are scarce, it’s safe to say that millions of Americans are at risk. Fortunately, there are many ways that you can protect yourself from identity theft and fraud. Most of these actions are common sense, but they’re worth passing along to your loved ones:

  1.  Be wary of emails or social media messages asking you to log into a financial account. Your bank, mortgage company, investment account, or the IRS will never request personal information by email. Never click on links embedded in those emails; instead, always log into your accounts by manually typing the web address into your browser.
  2. Never give out personal information in response to a phone call from someone claiming to represent the IRS or a financial institution. If you get a suspicious phone call, hang up and call the organization directly for more information.
  3. Protect your sensitive information by collecting mail promptly and shredding documents containing account numbers, credit card numbers, or your Social Security number.
  4. Never use the same PIN or password for multiple accounts or websites. Doing so increases the risk that a single attack could compromise your identity or result in fraud.
  5. Monitor your financial and credit card statements carefully to identify suspicious activity. If you find fraudulent transactions, report them to the relevant institution immediately to reduce your financial liability.
  6. Check your credit report each year at each of the three reporting agencies. You can check your report for free at AnnualCreditReport.com. If you find fraudulent accounts or activity that you don’t recognize, immediately file a report with all three agencies and place a security freeze on your account to prevent more accounts from being opened.

We take security very seriously and are committed to protecting our clients’ personal information in the following ways:

  • We partner with major financial institutions that use industry-recommended encryption to protect your data;
  • We never share any personal or financial information without your explicit knowledge and consent;
  • We regularly participate in audits of our internal procedures to help ensure that we are always following industry best practices;
  • We regularly update our knowledge and attend specialized training about security.

If you’re worried about protecting your sensitive financial information and how you may have been affected by a data breach or have questions about protecting your sensitive personal information, please give our office a call. We are happy to be a reassuring source of information and assistance.

[i] http://www.nytimes.com/2014/10/04/your-money/jpmorgan-chase-hack-ways-to-protect-yourself.html

[ii] https://www.chase.com/services/customer-notice-faq

[iii] http://www.nytimes.com/2014/10/04/your-money/jpmorgan-chase-hack-ways-to-protect-yourself.html

Market Update – The market is like a ride at the fair.

Stock Market  RollercoasterWelcome to October and the most volatile time of year for the stock market (historically)!

The market swings this week have been the most volatile in the past 17 years.  As of this post the Dow Jones is poised to give back all of its year to date gains.  The S&P 500 is looking at its 200-day moving average, which we haven’t been near in recent years.  That may prove to be a technically important juncture.  Now is not the time to panic, as a solid plan and mechanical, rules-based decision process will once again prevail.

In short, the uptrend is partially broken, so there’s a few things we’ll be watching very closely. All is not lost, however, as there’s still a 50/50 likelihood the market can resume its positive ways.

The video below is from the Calandra Financial – FormualFolios Chief Investment Strategist, Jason Wenk.  Please view this video for his current synopsis.

Please contact the office if we can be of assistance or answer any further concerns.



Phil C.

How has the Recent Market Drop Impacted FormulaFolios?


An excellent perspective from FormulaFolios Chief Investment Strategist.
This week’s market drop may have caught your attention, if you would like to learn more about how this investment process could benefit you, contact Calandra Financial Group…

Here at FormulaFolios we’re having a great year of firm growth. As a result, we have many new clients that are getting their first experience with our investment philosophy.

Any time you’re doing something new with your portfolio, it’s perfectly natural to pay special attention, and even feel a little bit anxious. Especially if the first month is less than you expected. For many of our new clients, this might be exactly how you feel. And it’s okay, we completely understand!

The Past 6 Years Have Been Great

The past few years have been very good to investors, with many growth oriented asset classes up more than 100%. There has been minimal volatility too, with the largest drawdowns in US Stocks mostly less than 5%. This has probably gotten a lot of us to forget what a real correction feels like – as it is fairly normal for US Stocks to have intra-year drawdowns greater than 10%.

The past 30 days have been interesting. Stocks have mostly been flat to slightly down, with every few percent rally seeming to be followed by a few percent drawdown. Bonds have also been down, real estate down a lot, as well as non-US stocks. In a nutshell, every major asset class is either flat, slightly down, or down a few percent.

As this relates to FormulaFolios, we believe in following non-emotional formulas to help us make sound investment decisions. Part of our formulaic process is using well defined asset allocation for each client. This ensures we properly spread risk amongst many asset classes, while emphasizing the asset classes our models calculate to be the most desirable for current market conditions.

It’s a sound philosophy that has served us well for many years. But, it’s not without flaws and certainly doesn’t mean we’ll avoid all short term market downturns.

Case in point would be the last 30 days.

There’s More to the Market than Just the Dow and S&P 500

Below is a chart that shows my (Jason Wenk – FormulaFolios Chief Investment Strategist) SEP IRA. This is invested in what we call an MM80 portfolio.  The MM80 invests 80% for growth and 20% for income (hence the 80), and uses Multiple Managers (hence the MM) in the allocation. Since I’m 20+ years from retirement and have a moderately aggressive personal risk tolerance, I feel it’s appropriate for my financial goals.

FFI vs the markets

Along with the last 30 days of performance for my personal investment account, I’ve also mapped the results of quite a few major investment asset classes. This helps us see visually how my account compares to the general volatility of financial markets.

For those not familiar with all the market proxies in my chart, this might help a little:

– Orange represents Small Cap US Stocks

– Yellow represents the Total Bond Market

– Green represents International Stocks

– Light Blue represents Commodities

– Dark Blue represents Real Estate

– Pink represents the S&P 500 (Large Cap US Stocks)

When we look at how all these market proxies have done over the past 30 days, we realize that our portfolios are doing just fine. We’re behind just Large Cap US Stocks and the Total Bond Market, but equal or better than all other major asset classes. Since my particular account is down just less than 2%, I’m not worried at all.

Avoid the Big Drops, Ride Through the Small Ones

FormulaFolios are designed to help us avoid “The Big” losses, not necessarily the small ones. A 2% decline isn’t fun, but it’s a far cry from losing 10%, 20%, or more. As investors, we always need to do our best to remain emotionally strong, in spite of the natural fears we experience when it comes to seeing the value of our money go down (even if just a small percentage).

This patience is really important to investor’s long term success because more often than not, small losses are recovered easily by patient investors. In just the past 12 months, for example, the S&P 500 has dropped 2% or more 9 times (including twice in the past 30 days). Over that 12 month time period the S&P 500 is up approximately 12%, and has reached a new all time high 8 times after these 2% or greater declines.

When our models see major market risk on the horizon they’re designed to move to safer asset classes. It’s not always a perfect science, and no investment model can guarantee against experiencing some risk. At this time the models are cautious about the future, with many parts already moving to more defensive asset classes. Overall though, a few percent correction after years of booming markets, is perfectly natural and nothing to panic about.

Hopefully this post helps all our clients and friends, and especially helps those that are new to our firm feel confident and comfortable with your decision.

Best Regards,

Jason Wenk
Chief Investment Strategist
FormulaFolio Investments, LLC