Backing Into A Dead End

Posted July 27, 2012 by admin. tags:Tags: , , ,
Dead End

photo by bennylin0724

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management

Backing into a dead end is the way I feel about much of the bond market right now.  It might keep you off the risky streets, so to speak, but eventually gets you nowhere.  Just when you think rates couldn’t go any lower bond yields continue to hit record lows.  The 30-year Treasury hit a record low of 2.47% and the 10-year is around 1.42%.  Yields are getting compressed across the board.  Simply amazing to put it plainly.

Prudence would dictate to take profits on bonds but where would you put the money if you’re a conservative investor?  In order to get a real yield on any bond investment it must either be in the high yield (junk) space or you must go to the long end of the curve.  That means you’re taking on significant risk.   The alternative is to put your money in cash and get nothing and hope that inflation stays low so your purchasing power doesn’t erode.

Bonds seem to be entering what could be their final blow-off phase.  There is so much money that continues to flood into bonds due to many factors but there is not much road left at this point.  We are starting to hedge our bond exposure (almost all corporate) from this point on as the reward is just not worth the risk.  For example, as of 7/25 the iShares Barclays 7-10 year Treasury Bond ETF (IEF) has an average yield to maturity of 1.15% with an effective duration of 7.51.  What this basically means is that the price appreciation potential from this point is barely over 7.5% and the 10-year would have to drop to zero for that to occur.  Just a year ago the 10-year Treasury was in the high 2% range which was still amazingly low.  If the yield returned to that level the holder of IEF would lose 7.5% and it would take 6 – 7 years with its measly interest rate to get back to even.  That’s not the kind of trade-off I like but one that large numbers of investors are currently taking.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Leave A Legacy By Planning For Retirement

Posted July 19, 2012 by admin. tags:Tags: , , , ,
Family


Written by Dave Young, President of Paragon Wealth Management

On a recent trip, I recognized the value of leaving a legacy. My trip reminded me of the sacrifice, hard work, vision and commitment made by others that have benefited me immensely. The gift of my ancestors has enriched my life and provided amenities for which I am grateful.

As I reflected on the greatness of leaving a legacy, it brought to mind the importance of leaving a financial legacy and the benefit of creating a nest egg for progeny and future generations.

It is prudent to not only prepare for retirement, but to keep in mind the beneficiaries of residual retirement and other savings and the enriched lifestyle it affords to them. I have one client in particular who communicated how important it is to him that his spouse and his children and their children are financially taken care of upon his death. His top priority for investing prudently and wisely is for the benefit of his family. In choosing Paragon as his financial advisor, it was important to him that his priorities were equally important to us.

The value of leaving a financial legacy is priceless for both you and your family. First, your financial preparation allows you to be self-sufficient during retirement. Your preparation contributes to your peace of mind knowing your family will have increased financial ease. And in some cases, a monetary gift now to family members translates into tax benefits to you now. Most importantly, the simple act of giving is empowering and fulfilling for you.

Your progeny, of course, also benefits from you gift and preparation in countless ways. First, your monetary gift continues its growth possibly for years after death. Your gift enriches the lives and lifestyle of its beneficiaries– college education paid for, down payment for your newly married son or daughter, unforeseen financial strains eased etc. etc. Your preparation also sets a precedent and begins the pattern and habit of financial intelligence and education for years to come. Your gift opens doors and opportunities to financial success that otherwise may not have been available. Most importantly, your forethought, sacrifice and commitment will be remembered, appreciated and emulated by the next generation.

I am a big proponent of retirement planning, and planning now. One way to give to our families is by naming spouses and/or children as beneficiaries of IRA’s, 401(k)s, etc. Not only designating beneficiaries, but apprising family members that they are the recipients of such a gift. And then follow up with education on prudent investing when the funds transfer to their possession. Several different retirement options allow significant contributions, tax deductions, and ample time for growth and compounding. Of course, it is always important to consider risk, inflation, tax bracket, and investment time horizon, etc. when considering how to invest retirement monies.

Another option to ensure future generations benefit from your financial success is to establish trust. Trusts specify to whom assets are to be allocated and of course, are legally binding. Trusts also aid in estate planning and reconciling this aspect of financial planning. Most importantly, as my client did, make it a priority to leave a financial legacy.

My trip was enlightening as it reminded me that it isn’t all about me or us, but about what we give to others and the principle this instills in ourselves and in our families. Leaving a financial legacy to our families and future generations is empowering to both the giver and the recipient, and it is a gift that can grow for years to come.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Money And Happiness

Posted July 5, 2012 by admin. tags:Tags: , ,
Happy Family

Written by Dave Young, President of Paragon Wealth Management

A friend of mine, Steve Moeller, did research on the science of happiness. He gathered information to write a book about what really makes people happy. He gave me permission to share some excerpts with you from an article he wrote for Investment Advisor magazine. I found his thoughts very interesting, and hope you will too.

The assumption that more money will make us happier is etched into our consciousness. Happiness is something we all want; it’s the holy grail of Western civilization. Biologists have recently proven that all higher species from lizards up to humans are biologically programmed to pursue pleasure and positive emotions. It’s a basic subconscious drive that all creatures have. Everything we do, we do because we consciously or unconsciously believe that it will make us happy.

That more money will lead directly to more happiness is such a basic assumption that most people never stop to question it. When researchers at the University of Michigan asked research subjects what would improve the quality of their lives, the majority of the respondents said “more money.”

The assumption that more money will bring us more happiness is etched into our consciousness, championed by our culture, promoted with billions of dollars of advertising each year, and institutionalized in our public policy. And it is still the primary promise of benefits that many investment advisors focus on. But is it true?

“Happiness” researchers have conducted more than 150 surveys all over the world with more than a 1 million participants. Let’s take a look at what they have learned.

Since the end of WWII the purchasing power of American households has tripled. New homes are now twice as big as they were after the war, we have twice as many cars per person, and we eat out more often. The average American now lives much better than most of the kings and queens throughout history.

So are we happier? No!!

This spectacular increase in wealth has had almost no positive effective on our society’s happiness. In fact, from 1957 to 1996 the proportion of people telling the University of Chicago’s National Opinion Research Center that they are “very happy” declined slightly (from 35% to 30%.) Over the same time period; divorce doubled, the prison population quintupled and major depression rose tenfold, turning it into the fourth most common debilitating disease. America’s not alone; Europe and Japan have experienced the same basic trends.

One of the happiness researchers’ more noteworthy findings came from a survey of Forbe’s 400 wealthiest Americans. These cent millionaires and billionaires were asked to rate their life satisfaction from “extremely dissatisfied” (1) to “extremely satisfied” (7). Surprisingly, the respondents’ average rating was 5.7, only slightly above the average rating.

But here’s the really interesting part. Masai tribesmen from Kenya in East Africa also participated in the life satisfaction survey. Although they live in huts made out of dirt and cow dung, herd cattle for a living, have no electricity or running water, and don’t have any money, they also rated themselves a 5.7 in the life satisfaction scale.

Quite a few studies now show that believing that money is more important than other values—like relationships with loved ones, spirituality, a feeling that your life is contributing to the greater good—is actually detrimental to happiness. Clearly there’s more to happiness than wealth, luxury and material comforts.

So, how much is the right amount of money to maximize our happiness? Here’s the bottom line from the scientific research on happiness—once we have enough money to pay for life’s basics like food, clothing and housing, more money has very little impact on our happiness.

More money does buy more happiness and well-being if you are poor, and increases fairly quickly until you achieve a solid middle class income. But research shows once your household income reaches the middle class range, increased income has a diminishing positive impact on your happiness and well-being.

The point is, above a certain income level, which isn’t by any means “wealthy”, additional income alone has almost no impact on our happiness. And depending on the price you pay to earn it, more income could even reduce your quality of life.

In fact, a large and growing number of studies support happiness researcher Ed Diener’s comment that, “Materialism is toxic for happiness.” But most Americans don’t seem to believe this.

Why, if we tell researchers that more money doesn’t make us happier, do we chase it so hard? We could blame it on advertisers and the media, two giant institutions that have a vested interest in having us consume more and more stuff each year. But there is another, more subtle villain; the subconscious workings of our brain.

Psychologists have developed a term “hedonic treadmill” to describe humans adaptation to more wealth and material goods. So if you get a new car, you will be happier for a while, but then you will adapt, and so think it’s normal. In order to maintain the same level of happiness through consumption, you must continually buy new things. This is what the concept of “retail therapy” is all about. Adaptation is great for the economy, but bad for you and your financial security.

As an investment advisor, I often work with people who believe that more money will buy them more happiness. As evidenced by this article, in reality, I should help clients determine what will really make them happy and then determine how much income their ideal life will require. It may be a lot less than they originally thought.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

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