piggy bank

Would you rather reach your personal financial goals or have your money manager beat a benchmark that they set? Read on to learn more about utilizing a “goals based” approach in order to avoid the pitfalls that come from “benchmark-it is.”

Many studies are out that show “active” money managers notoriously have a tough time beating the market. The “benchmarks” they are setting are too often fool’s gold considered to the figures they’re actually able to obtain.

What’s shocking is that most money managers are aware they won’t hit their benchmarks, but out of habit will continue to utilize the same system. This system shows customers statistics that just won’t add up. Despite rarely winning, they still set out to beat someone.

This approach is a disservice to most clients. The right approach is to utilize investments as tools to reach reasonable financial goals that are set with the client. It’s irrelevant how the money manager did, if the client didn’t reach their goals.

Here are some ways to tell if your money manager is too focused on benchmarks:

  • Do you have a Cash Flow Statement and Written Balance?
  • Have you decided on your specific financial goals for the next 3, 5 and 10 years?
  • Did you take the time to consider whether or not your goals are realistic?
  • Have you taken a deep dive into your current investments and considered making adjustments?
  • Are you reevaluating your investments at least once during any year?
  • Do your find your financial advisor rarely actually asks you about personal financial goals.

You’re at serious risk of missing your financial goals, if you answered yes to just one of these questions.   Don’t worry, there are better ways available.  Peter Culver can provide you with an approach that is focused solely on the goals that that you set together.

Don’t waste time worrying about your financial goals. Please contact Peter Culver at pculver928@gmail.com or 917.697.4156 and get the information you need.



Financial Planning

Asset allocation is the percentage of money you invest in different areas. These areas usually involve stocks, bonds and cash. Depending on your wealth level, asset location may be much more than asset allocation, but not many people understand why.

Let’s take a look at a common example. Imagine you have a couple of million in investments – half of which are in an IRA and the other half that are in a personal account. As you know, income taxes are due on stock dividends and bond interests in your personal account, as are capital gain taxes on stocks and bonds that are sold. On the flip side, no taxes on any investments in your IRA are taken during the accumulation phase of life. This phase ends at 70.

Now let’s consider an asset allocation of 60/40 stocks and bonds. You could consider corporate bonds, which pay a higher rate of interest, but with the interest being taxable, or municipal bonds that pay a lower rate of interest, but where the interest is tax free. How do you know which investments to place in the personal account and which investments to put in your IRA?

Peter Culver thinks there is a common formula for most investors. The formula is to buy municipal bonds for your personal accounts and government or corporate bonds for your IRA. The logic is this: all the interest on municipal bonds is tax free in a personal account. The interest on the government or corporate bonds will also be tax free in an IRA, because you don’t pay income taxes on investments that are placed in an IRA.

Now, let’s take a look at your bonds. With 40% invested there, you would have $800,000 to work with. When it comes to municipal bonds, there is usually a 4% interest rate and a 5% interest rate on government or corporate bonds. But here is the catch on the annual interest rates:  if you have government or corporate bonds in your personal account, all the interest is subject to tax. This tax will take out 1/3 of the income you could have been earning. Just a simple mistake like this could cost you hundreds of thousands of dollars over the years.

Knowing where to place your investments between your IRA and personal account is just as important – if not more important – than the percentages in which you allocate them. Peter Culver is excited for the opportunity to discuss asset location with you and help ensure your financial future is as lucrative as it should be.

For more information about this particular subject or any financial issue, don’t hesitate to contact Peter Culver at pculver928@gmail.com or 917.697.4156.