DECEMBER 2016

Your Objectives Drive Stock Strategies

N o matter the activity you’reengaging in, your strategyhas to be driven by your end

goals — what you want to achieve.In investing, of course, there aremyriad objectives — short-termobjectives like a trip to Hawaii,medium-term objectives like send-ing the kids to college, and long-term objectives like a comfortableretirement. Here, we’ll take threeobjectives that are very different butalso very common among investors.We’ll show how based on these dif-ferent objectives, your investmentstrategy may need to change.Objective: Retire Comfortably in 25+ Years

If you’re young and your primary investment objective isretirement, then your first strategyshould be to take full advantage ofthe power of compounding. Com-pounding means you are earningreturns on both your principal

investment and accumulated inter-est. It’s what allows your money towork for you — to really grow overtime.

But taking full advantage of the power of compounding requiresthat you start investing early, youstay invested for the long term, andyou maximize the returns yourinvestments generate. In otherwords, it requires that you invest in the stock market.

Remember, while the stock market has experienced some dra-

Your 401(k) Plan Contribution Amounts

B efore deciding how much to contribute to your 401(k) plan, find outthree key figures:What is the maximum percentage of your pay that can be con-

tributed? The maximum legal limit that can be contributed in 2016 is$18,000, plus an additional $6,000 catch-up contribution for participantsage 50 and over, if permitted by the plan. However, most employers setlimits to comply with government regulations.

How much of your contribution is matched by your employer?Employers are not required to provide matching contributions, but manydo. A common match is 50 cents for every dollar contributed.

Up to what percentage of your pay does your employer match?Most plans only match contributions up to a certain percentage of yourpay. For instance, the plan may only match contributions up to a maxi-mum of 6% of your pay.

If at all possible, contribute the maximum to your plan. At a mini-mum, contribute enough to receive the maximum employer-matchingcontribution. mmm

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U C C E S S

matic swings in the last century,over time, returns have been quiterobust. The key is over time. WhenJeremy Siegel, a professor of financeat Wharton, analyzed stock marketreturns over the 200 years ending in2001, he found that stocks werevery volatile, but only in the shortterm. The longer the term, thegreater the return and lower the riskstocks posed. Over every 30-yearperiod, stocks always made money.Why? Because the longer term gives

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Copyright © 2016. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. Thisnewsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis ofthese subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any lossor damage resulting from errors or omissions or reliance on or use of this material.

Private Wealth Management200 Public Square, Suite 1650Cleveland, OH 44114Toll-free (888) 792-9821Fax (216) 737-7370www.rwbaird.com

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John KraftSenior Vice PresidentFinancial Advisor216-737-7337jkraft@rwbaird.comwww.bairdfinancialadvisor.com/kraft

Diane DawsonClient Specialist216-737-7333ddawson@rwbaird.com

David BrownFinancial Advisor216-737-7332dgbrown@rwbaird.com

Robert W. Baird & Co. does not provide tax or legal services.

stocks sufficient time to recoverfrom downturns.Objective: Retire Comfortably in 5–10 Years

While stocks have always mademoney over any 30-year period,over shorter time periods, returnswere more volatile. No one knowsthat better than investors who wereclose to retirement when the finan-cial system imploded in 2008.According to research by theEmployee Benefits Research Insti-tute, “many 401(k) participants nearretirement had exceptionally highexposure to equities: Nearly 1 in 4between ages 56 –65 had more than90% of their account balances inequities at year-end 2007, and morethan 2 in 5 had more than 70%.”Those investors suffered outsizedlosses as the stock market declined.

So as you get closer to retire-ment, it’s important to move intoless-risky investments — in otherwords, fewer stocks, more bonds,and cash equivalents. (Though justas a long-term portfolio should notinclude only stocks, a shorter-termportfolio should not be completelydevoid of stocks.) Increasinglyprevalent are lifecycle or target-datefunds, which automatically adjust aportfolio’s asset allocation depend-ing on the investor’s age or yearsuntil retirement (typically, automati-cally shifting from stocks to bondsand cash as the investor agesand/or approaches retirement).Objective: GenerateIncome

Many investors plan to useinvestment returns (and perhapseven draw down principal) asincome during retirement. Onceyou’ve reached that phase, yourstrategy should change again, differ-ent than the strategy you employedwhen you were 5 –10 years fromretirement. At this point, you’ll

Your ObjectivesContinued from page 1

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have to balance the dual goals ofgenerating enough returns so thatyour investments are not eroded by inflation and, at the same time,lasting your lifetime as you aremaking withdrawals. Inflationvaries, but plan for a rate of about3% a year, meaning that yourinvestments must generate at least3% to maintain an even level of

purchasing power.If you’re going to also be draw-

ing down the principal of yourinvestments (rather than just usingthe returns), how much can youwithdraw? The answer, of course,depends on the size of your portfo-lio, your age, and how long youmight live. mmm

Retirement Planning for Stay-at-Home Spouses

M illions of Americans arestay-at-home spouses.While they may not get

paid a regular salary, they performvital work caring for children andmanaging the household. A spousewho doesn’t work is going to havea tougher time preparing for retire-ment. Obviously, no income meanssaving for the future is difficult.Plus, a person who doesn’t workisn’t paying into the Social Securitysystem. But staying home doesn’thave to mean jeopardizing yourfinancial future, provided youhave a plan.

Don’t Neglect Your 401(k)Plan — Many spouses work out-side the home for a time beforethey decide to stay home. If youhad a 401(k) plan before you leftthe workforce, don’t forget aboutthose funds when you take timeoff. Depending on your plan’srequirements and the investmentoptions available, you may be ableto keep your money where it is, oryou might want to roll over yoursavings to an IRA. Whatever youdo, don’t cash out your savings.  

Set Up a Spousal IRA — Usu-ally, you must have earned incometo contribute to an IRA. But theIRS has created a special exceptionto help nonworking spouses calleda spousal IRA. The husband orwife who works can contribute$5,500 a year to an IRA on behalfof his/her spouse ($6,500 if you’reover age 50).  The money can gointo either a traditional or RothIRA, provided you meet all the

other requirements. However, youdo need to file a joint tax return tobe eligible for a spousal IRA. Oneother benefit of a spousal IRA isthe assets are held in the nonwork-ing spouse’s name. That means ifyou eventually divorce, the spousewho doesn’t work has retirementassets that are already his/herown.  

Set Up a SEP IRA or Individ-ual 401(k) Plan — You may be astay-at-home mom or dad, but that doesn’t necessarily meanyou’re not working in some fash-ion. Many people who don’t havecareers outside the home earnmoney through consulting, free-lance work, or home-based busi-nesses. If this applies to you, youmight want to consider setting upa SEP IRA or an individual 401(k)plan to help you save for retire-ment. Assuming you earn enoughmoney, you’ll be able to save morethan you would in a spousal IRA.

Don’t Stop Saving — What-ever you do, don’t forget aboutretirement saving just becauseyou’re out of the workforce for awhile. Set aside what you can forthe future, even if it’s just a fewdollars a month. That can be hardto do when your income is limited,but it’s still important. You can alsoencourage your spouse to maxi-mize their own retirement savingsso that you are both on track forretirement.

Please call to discuss this inmore detail. mmm

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plan should address how much youneed to be saving for retirementand how to invest that money. What Will Happen to MyMoney When I Die?

Your financial plan and yourestate plan go hand in hand. Part of comprehensive financial plan-ning involves checking to makesure that the beneficiaries on yourretirement accounts and insurancepolicies match with your overallestate-planning goals. A financialadvisor can also work with yourestate-planning attorney to makesure your assets aren’t lost tounnecessary taxes and addressother issues related to how yourwealth is distributed after yourdeath.Who Can Help Me AchieveMy Money Goals?

Finally, your plan should clearly identify who is in charge of helping you achieve your mostimportant financial goals. Yourfinancial advisor is a critical partner in your financial life, guiding you to make smart deci-sions that will put you on the path to achieving your goals.

Please call if you would like to discuss this in more detail.mmm

8 Questions Your Financial Plan Should Answer

Y ou may have a financialplan, but is it really workingfor you? The fact is not all

financial plans are created equal. If your financial plan is going to get you to where you want to befinancially, make sure it answersthese eight questions. How Much Do I Have, andHow Much Do I Owe?

Before you complete any otherfinancial planning task, you need totake stock of where you currentlystand. That means taking a com-plete inventory of your assets aswell as assessing how much youowe. Subtracting the second fromthe first will tell you your networth. Your financial plan shouldmake it easy to determine your networth at a glance.What Do I Want toAchieve with My Money?

We all have personal and finan-cial goals. Perhaps you want to buya bigger house in a nicer neighbor-hood. Maybe you want to be able tosend your kids to college debt free.You might be dreaming of owning asecond home someday, retiring at55, or starting your own business.Your financial plan should specifi-cally identify your goals and outlinesteps you need to take to turn thosedreams into reality.Are My Investments Appropriate for My Goals?

You know what your goals are,but is your money invested in away that will help you get there?Your financial plan should pointyou toward investments that areappropriate for both your goals andyour risk tolerance. That meanscarefully balancing the risk youneed to take to achieve acceptableinvestment returns with the amountof risk you’re comfortable takingbased on your personality (some ofus are natural risk takers, whilesome are more risk averse).

Am I Protected in Case ofa Disaster or Emergency?

One of the main reasons to havea financial plan is to protect your-self and your family in the event theunexpected happens. Part of beingprepared is having an emergencyfund, and your financial plan willtell you how much savings youshould have. But that’s just thebeginning. You’ll also want to pro-tect your income with disabilityinsurance and safeguard your assetsby having proper insurance.  Am I Paying the RightAmount in Taxes?

Thinking about taxes is no fun,but what’s depressing is realizingyou’ve been paying the governmentmore than you needed to. A com-prehensive financial plan willinclude an evaluation of your taxsituation. If necessary, your advisorwill make suggestions for steps you can take to better manage yourtax burden and keep more of themoney you earn.What’s My Plan for Retirement?

Whether you’re a few years or afew decades away from retirement,your financial plan should includeknowing what will happen afteryou stop working full-time. Your

Required MinimumDistributions

Financial Thoughts

Financial Planning for Married Couples

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M ost holders of retirementaccounts must start withdraw-

ing money at age 70½. The amountyou are required to withdraw iscalled a required minimum distribu-tion (RMD). Generally speaking, the RMD applies to all retirementfunds except Roth IRAs and employ-er plans like a 401(k) plan for thosestill working at age 70½. Once youretire after age 70½, you must begintaking your RMD from those plansas well.

If you fail to withdraw yourRMD, the IRS will impose an excessaccumulation tax, which equals 50%of the RMD you failed to withdraw.To avoid the excess accumulationtax, follow these steps:

4Determine whether you’rerequired to take an RMD.

4 Identify all your retirementaccounts.

4Calculate your RMD. Yourtotal account balance as of the

preceding year is divided by yourlife expectancy.

4Create a withdrawal plan. Youcan group your retirement

plans by account type and take a single distribution.

4Perform a year-end checkup.Make sure you’ve identified all

your accounts, calculated your RMDaccurately, and distributions havebeen taken. mmm

M arriage is a partnership.You and your spouse are ateam both personally and

financially. But sometimes, thatpartnership needs a little work.Here are six financial moves mar-ried couples should make.

Start Talking — Some couplesavoid having conversations aboutfinances because they’re boring,while others skip the talk becauseof money anxiety or conflicts. Butyour financial lives are deeply inter-twined, through both good timesand bad. You and your spouse needto be able to sit down with eachother and talk honestly about yourfinances.

Get on the Same Page — No,you’re not going to agree on every-thing money-wise. But when itcomes to major financial moves,you should be roughly on the same page. If you’re both workingtogether for the same things, you’remuch more likely to get where youwant to be.

Be Willing to Compromise —Ideally, you and your spouse willbe of one mind when it comes tomoney matters; but in reality, youmight not always agree. That’swhere compromise comes in.

Put It in Writing — Don’t letinertia lead you and your spouse to

skip key financial- and estate -planning tasks. Even if you want all your money and personal effectsto go to your spouse, a will is stillhelpful in clarifying your wishesshould you die unexpectedly. Youmay also want to set up a financialpower of attorney to ensure thatyour spouse can make financialdecisions on your behalf if you’reincapacitated.

Share Information — If theworst happens, will your spousehave the information he/she needsto keep the household running?Make sure each of you knows howto access the bank and investmentaccounts. You each should alsoknow how to locate important documents. 

Meet with an Advisor —Together — It’s not unusual for one spouse to take on a bigger rolein the day-to-day financial-planningprocess, either out of choice ornecessity. But even if one spousetakes a hands-off approach tomoney, both of you should still bepresent at meetings with your financial advisor. That’s becauseyou’re a team, and your advisor will be better able to provide appro-priate advice if he/she can hearfrom both of you. mmm

T he number of Americans age65 and older will grow from

45 million today to 80 million by2050. Of those 80 million seniorcitizens in 2050, 27 million willlikely require long-term care. Cur-rently, however, only 3% of U.S.adults carry long-term-care insur-ance (Source: U.S. Census Bureau,2016).

It is estimated that a healthy65-year-old couple will need$245,000 to cover healthcare costs

in retirement (Source: Fidelity,2016).

So far, 20% of baby boomershave retired. By 2020, 44% willhave retired (Source: A.T. Kear-ney, 2016).

The average amount spent ona wedding gift is $65 for a co-worker, $80 for a friend, $120 for aclose friend, and $180 for a closefamily member (Source: Money,June 2016).

In 2012, the number of

retirees who said they were verysatisfied fell to 48.6%, down from60.5% in 1998. It is unclear whythere is such a drastic decrease inoverall retirement happiness.Studies have found that stayingbusy with a hobby, at work, orsocializing correlated with beinghappier. Yet retirees who livedwithin 10 miles of their childrenwere less happy (Source: Employ-ee Benefit Research Institute,2016). mmm