Market summary: October 2018.

Volatility returns to the stock market.

Back in September, the S&P 500 didn’t move by more than 1% on any given day. But during October, the S&P 500 gained or lost more than 1% on 10 of the trading days in the month. Read more to find out why volatility returned to the stock market during October and what it may mean for you.

What happened.

After reaching new all-time highs in September, the stock market pulled back in October. Volatility returned to most markets, similar to the episode that unfolded earlier this year. Stocks and bonds, at home and abroad, generally ended lower for the month, but a rally at the end of the month helped to ease some of the uncertainty.

Large cap stocks, represented by the S&P 500, dropped 6.84%. The MSCI EAFE Index, which tracks developed market international stocks, dropped 7.96%. The bond market experienced some bumps, too, as the Bloomberg Barclays Aggregate Bond Index fell by 0.79%.

The historically riskier investments like U.S. small-cap and emerging-market stocks experienced some of the most extreme volatility during the month. The U.S. small-cap S&P 600 fell by 10.48% and emerging-market stocks, as defined by the MSCI Emerging Markets Index, dropped by 8.71%.

This past month was similar to the phase that the stock market went through back in February and March. While both periods saw the stock market trend lower, the nature of the day-to-day gyrations were extreme. The S&P 500, for instance, moved up or down by more than 1% on 10 out of the 23 trading days in October

Why it happened.

Trying to understand the specific causes of short-term fluctuations is often an exercise in futility. But in October, there seemed to be two major stories that may have influenced markets.

Ongoing worries about trade tensions with China, and the impact this conflict might have on economics and corporate profits, might have been one of the main drivers of volatility in October. The impact of the trade tensions on corporate profits came into focus this past month as companies began reporting financial results for the third-quarter.

Generally, corporate earnings reports were positive with many companies exceeding expectations. But some major firms, such as Amazon and Caterpillar, reported disappointing revenues and, perhaps more importantly, lowered expectations for the coming quarter. Part of this might have been attributed to the escalating trade tensions between the U.S. and China.

A second story that might have contributed to volatility during the month was the continued rise in interest rates. The U.S. economy grew by +3.5% in the third quarter, but this strong growth contributed to concerns about the Federal Reserve raising interest. The worry is the Fed could raise rates faster than had been previously expected.

Volatile phases in the markets, like this last month, can feel unsettling. During these stretches, it can be helpful to keep your sights set on your long-term goals and to remember that risk is part of investing.

It might also be helpful to remember that just a few months ago, the market reached a new all-time high. Of course, this was during the recovery through the summer, after the last stretch of volatility this past spring. In this month’s sidebar, we offer some perspective on dealing with volatile markets.

What this means for you.

It’s likely that your portfolio experienced a negative return in October. If you’re worried or feeling anxious about your portfolio, now might be a good time to revisit your risk tolerance. This is a measure of how comfortable you are with the risk in your portfolio.

If you don’t know what your risk tolerance is, we can help you determine your comfort level and build a personalized portfolio from the investment options in your employer’s 401(k) retirement plan. Along with finding a comfortable risk level, we can consider when you want to retire and with how much, along with other information that you provide about your situation.

The more you can share about what you want to achieve, the better we can help with a personalized financial plan to help you reach your goals. Please log into your Financial Engines account or call one of our planners to make sure we have the information we need to help you stay on track and find a risk tolerance that you’re comfortable with.

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©2018 Edelman Financial Engines. This publication is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Future market movements may differ significantly from the expectations expressed herein, and past performance is no guarantee of future results. Financial Engines assumes no liability in connection with the use of the information and makes no warranties as to accuracy or completeness. Future results are not guaranteed by any party. Financial Engines® is a trademark of Edelman Financial Engines, LLC. Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. All other intellectual property belongs to their respective owners. Index data other than Bloomberg is derived from information provided by Standard and Poor’s and MSCI. The S&P 500 index and the S&P SmallCap 600 Index are proprietary to and are calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P®, S&P 500® and S&P SmallCap 600®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. ©2018 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.

Coping with medical bills.

A trip to the hospital can fill your mailbox with stacks of bills from the doctor, pharmacy, labs, emergency room, and more. Handling this paperwork can add stress to an already trying situation.

Here are some things you can do to keep your medical bills from piling up faster than you can pay them.

Know before you go.

  • Understand your policy’s rules and benefits before you have any medical procedures performed, if possible.
  • Make sure you know why all procedures or tests are being done.

Get organized.

Keep everything. Hang on to all receipts, insurance forms, bills, and anything else related to your medical care.

Organize. Keep track of your bills by making a file for each provider, arranged by service date.

Itemize. If you don’t receive itemized bills, request them. Errors are common, so review every bill when you receive it. A simple mistake, like an incorrect computer code, can be costly.

Review. Ask these questions when you get your bill:

  • Is your personal and insurance information correct?
  • Were you charged more than once for the same service?
  • Were you charged for something you refused or didn’t receive?
  • Is there anything that seems unreasonably high or questionable?

Don’t ignore the explanation of benefits form. This paperwork comes from your insurance company. It shows your medical services and dates provided. It also shows how much you and your plan will pay. If you don’t understand what you owe and why, call your insurance company and find out.

What if you think there’s a mistake?

Medical bills and the payment process can be complicated — services provided by different departments may be billed at different times, and insurance claims can lag behind the statements you receive from your provider. This is why it’s so important to keep your bills organized and review them for mistakes. Depending on the type of error you find, here’s what you should do:

Charged twice or billed for services you didn’t receive? Contact the medical billing office. Explain why you believe there has been a mistake, and ask them to correct the error. Give them a reasonable amount of time to correct the mistake, but be sure to follow up and make sure it was in fact fixed. Ask for the name of the person you talk to, and, if possible, get their direct extension so you can follow up with them personally.

Insurance not paying your bills, or covering less than you expected? Review the claim with your insurance company. Explain why you think they are wrong and what actions are needed to get it fixed. If they did make a mistake, find out when the claim will be updated, and when the hospital will receive payment. If you have to take action (for example, if they need more information from you in order to make a determination), understand exactly what it is that they need you to do and when you have to do it. Confirm the conversation with your insurance company representative through a letter or e-mail, and keep copies for your files.

Insurance claim denied? Get a written explanation of denial. If your claim is denied, make sure your insurance company explains in writing exactly why they won’t cover your costs. Then, use the insurance company’s appeal process as soon as possible to dispute it if you think you’ve been wrongly denied.

What if you just can’t pay?

First and foremost, don’t stick your head in the sand! Ignoring bills won’t make them go away — and can cause more problems you’ll need to deal with down the road. If you can’t pay your medical bills, contact your medical provider to work out a payment plan.  Many providers also have financial counselors on staff who can help you understand your options. If you find yourself behind on bill payments, keep the following tips in mind as well:

Maintain your credit rating. Try to keep the bill from being turned over to a collections agency to avoid damage to your credit. Don’t expect an agency to call your insurance company or vice versa. You’ll need to stay in contact with both, and keep them updated. If you have a past-due bill in collections because your claim was denied, keep working with your insurance company until it’s settled — the collection agency won’t do this for you. You should, however, write to the collections agency and explain the situation so that it’s documented with your account. Try setting up a long-term payment plan with the agency. That may stop them from reporting negative information about you to the credit bureaus.

Don’t let your health insurance coverage lapse. You may think you’re better off redirecting your monthly premium payments to cover your medical bills, but if something happens again, your financial problems will only get worse. Also, your recent illness may be considered a pre-existing condition that prevents you from getting coverage when you apply for a new policy.

Look for ways to save on your health insurance premiums. Talk to your insurance agent about increasing your deductible or co-payment amount. If you have a child in college, see if it has a low-cost health insurance plan that would allow you to take your child off your plan. Finally, a secondary plan might pay medical bills not covered by your primary plan. For example, your spouse’s group plan may give you some benefits. Or, if Medicare is your primary insurance, you may have a secondary policy through a retirement plan, another group plan, or an individual plan.

Managing your health can be challenging, and managing the bills that come along with it can seem overwhelming. If you take the actions above, however, you can improve your chances of staying financially fit.

 

Disclosure:
Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.
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Celebrating open enrollment season.

It’s the most wonderful time of the year – open enrollment season! While it may not necessarily produce as many warm and fuzzy memories as Thanksgiving or other holidays, open enrollment season is still something to look forward to. Setting up your benefits correctly can help you make the most out of your money in the coming year.

If you’re enrolling through your employer, find out their open enrollment timeframe, as many employers’ open enrollment seasons come to a close well before the end of the year.

Understand your plan.

Don’t just look at the total price of each plan – be sure you understand all the details of what it covers. Some less-expensive plans might seem like a good idea based on the price, but could ultimately backfire if you end up getting sick or injured and need care. That’s not to say those plans can’t make sense. These types of plans might be the right choice for healthy people who rarely need medical treatment. Before you sign up for anything, look at more than the price to make sure you’re clear on what is and isn’t covered.

Remember doctors and prescriptions.

Do you regularly see any specific doctors or other specialists? Similarly, do you take any brand-name prescription drugs? If so, you’ll want to double-check the policy you’re considering to see whether these doctors and medications are covered. If they’re not, you could end up paying quite a hefty price out of your own pocket.

Know your options.

Even if your employer offers insurance policies, you don’t necessarily have to purchase coverage through them. Under the Patient Protection and Affordable Care Act, if your coverage is deemed “unaffordable,” which means you’re paying more than 9.5% of your adjusted gross income for your policy, you can purchase coverage through a healthcare exchange instead. In addition, depending on your wages, you may be eligible for Medicaid.

If the deadlines pass and you don’t have coverage, you’ll pay a penalty. In 2017 and 2018, it was $695 for each adult over the age of 18 without coverage, with fees for households that include children under the age of 18 maxed at $2,085, or 2.5% of taxable income, whichever is more.[1]

The penalty will be eliminated beginning in 2019; however, if you weren’t covered in 2018, you’ll still pay a fee when you file your taxes in 2019.

Open enrollment season with healthcare exchanges is already underway.

Be aware of deadlines.

Open enrollment for all healthcare exchanges, where you can purchase health insurance policies made available by the Patient Protection and Affordable Care Act, runs from Nov. 1 to Jan. 31. If you want your coverage to begin right on Jan. 1, experts recommend you sign up no later than Dec. 15.[2] Of course, there are circumstances that allow you to file outside of this time window, such as having a baby or moving to a new state, but in general, be sure to get your paperwork in before the deadline passes.

If you really want to make the most of the season, talk with an expert about your options, such as a human resources professional at your company or an insurance agent — and use it as a time to think about other financial festivities as well, such as retirement investments. Cheers to the season — happy planning!

 

[1] https://www.healthcare.gov/fees/

[2] https://www.healthcare.gov/quick-guide/dates-and-deadlines/

Market update, Q3 2018: Another solid quarter.

Despite continuing political tensions and bitter disagreements over trade policy, equity markets delivered strong performance in the third quarter of 2018. At the macro level, economic conditions remain excellent, with growing earnings, improved sentiment, and robust job growth. Large-cap stocks in the S&P 500 gained +7.7% for the quarter and are up +10.6% year to date. Small-cap stocks, represented by the S&P 600, gained +4.7% in the third quarter. As expected, the Federal Reserve (Fed) continued its policy of gradual short-term interest-rate hikes, but this did little to dampen equity-market enthusiasm.

Unlike the second quarter, developed-market international stocks also had positive returns. The MSCI Europe, Australasia, and Far East (EAFE) Index gained +1.4% for the third quarter but was still modestly negative for the year. Emerging-market stocks were down 1.1% for the quarter.

Bonds were again flat for the quarter, despite additional rate hikes by the Fed. The Bloomberg Barclays U.S. Aggregate Bond Index finished where it started three months ago. For the year, bonds remained down 1.6%. The yield curve remains relatively flat as inflation expectations continued to be muted.

The Financial Engines perspective.

The third quarter had no shortage of newsworthy events. An escalating trade war with China dominated economic headlines, although its effect on the economy has been modest so far. The record bull market in equities continues, but for how long, no one can be sure. A contentious midterm election is on the horizon, and any number of events could trigger new market volatility. Maintaining a broadly diversified portfolio is crucial to achieving your long-term goals and protecting against unexpected market moves.

Have questions?

Our advisors are here to help.

 

©2018 Financial Engines. All rights reserved. This publication is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Future market movements may differ significantly from the expectations expressed herein, and past performance is no guarantee of future results. Financial Engines assumes no liability in connection with the use of the information and makes no warranties as to accuracy or completeness. Future results are not guaranteed by any party. Financial Engines® is a trademark of Financial Engines, LLC. Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. All other intellectual property belongs to their respective owners. Index data other than Bloomberg is derived from information provided by Standard and Poor’s and MSCI. The S&P 500 index and the S&P SmallCap 600 Index are proprietary to and are calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P®, S&P 500® and S&P SmallCap 600®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. ©2018 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.
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Market summary: September 2018.

Markets are mixed while the U.S. economy stays strong.

We saw mixed returns from stocks here at home and abroad, with foreign stocks performing a bit better than domestic. Bonds were down slightly in what turned out to be a rather calm month — the S&P 500 didn’t move by more than 1% on any day in September. Read more to find out why markets behaved as they did last month and what it may mean for you.

What happened.

September was a mixed month for stocks both at home and abroad. Foreign equities fared better: Developed-market stocks were up +0.87% and emerging-market stocks were down 0.53% (MSCI EAFE Index and MSCI Emerging Markets Index), while at home, large-cap stocks were up +0.57% and small caps were down 3.17% (S&P 500 and 600). With interest rates creeping up, bonds were down 0.64% (Bloomberg Barclays Aggregate Bond Index). In U.S. markets, September was another calm month: The S&P 500 didn’t move up or down by more than 1% on any day.

Why it happened.

Once again, saber rattling over trade affected markets, primarily in emerging markets that are more trade dependent. Those stocks fell sharply several times early in September as the U.S. threatened more tariffs. Some big up days followed when the tariffs were imposed at lower-than-expected rates.

The Federal Reserve raised short-term interest rates by 0.25% in September — the third increase this year — and signaled further rises are on the way. The federal funds rate is now at a range of 2% to 2.25%. As this hike was widely anticipated, it didn’t seem to unsettle markets.

We also saw more good news about the job market, with wages rising at the strongest rate since the Great Recession and the unemployment rate sticking at 3.9%.

Having reached the end of the third quarter, this is a good time to look back at the year so far. The big winner has been U.S. small caps, up +14.54% this year; the biggest detractor is international emerging-market stocks, down 7.68% year to date. In 2017, which was a banner year for all major classes of stocks, it was the reverse: Small caps returned the least (+13.23%) and emerging markets the most (+37.28%). This reversal illustrates the relative risk, generally speaking, of these types of stocks in comparison to U.S. large caps and international developed-market stocks. Their inherent risk is why we tend to include relatively small amounts of U.S. small caps and international emerging-markets in the portfolios we build.

As always, we emphasize the importance of investing for the long term. It’s been 10 years since Lehman Brothers went bankrupt, which was a key moment in the financial crisis. In this month’s sidebar, we look at what’s happened since and the lessons we may learn.

What it means for you.

In September, different markets moved in different directions, so your diversified portfolio is likely to be only slightly up or down. We build your personalized portfolio from the investment options in your employer’s 401(k) retirement plan. In addition to evaluating the available investments, we consider your risk preference, how long you have until retirement, and the other information you give us about your situation.

The more you tell us about yourself — your goals, other retirement assets, and how comfortable you are with risk — the better we can tailor your investments to your unique situation. Please log into your Financial Engines account or call one of our advisors to make sure we have the information we need.

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©2018 Financial Engines. All rights reserved. This publication is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Future market movements may differ significantly from the expectations expressed herein, and past performance is no guarantee of future results. Financial Engines assumes no liability in connection with the use of the information and makes no warranties as to accuracy or completeness. Future results are not guaranteed by any party. Financial Engines® is a trademark of Financial Engines, LLC. Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. All other intellectual property belongs to their respective owners. Index data other than Bloomberg is derived from information provided by Standard and Poor’s and MSCI. The S&P 500 index and the S&P SmallCap 600 Index are proprietary to and are calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P®, S&P 500® and S&P SmallCap 600®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. ©2018 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.

Healthcare costs in retirement.

Retirement is a life phase rooted in the American psyche — it’s something we work toward our whole lives. After decades of the daily grind on the job, when retirement rolls around, we want to be able to relax and do what we’ve always dreamed of doing — be it traveling the world, taking up new hobbies, or simply enjoying time with family.

When we dream about retirement, we don’t typically envision those golden years dominated by steep medical bills and financial stress. Yet, whether you realize it or not, medical care can consume a large portion of your retirement budget.

Most people think that they can rely on Medicare to take care of their medical expenses during retirement, but that’s not the case. In fact, a recent report1 by the Employee Benefit Research Institute (EBRI) showed that Medicare beneficiaries will need substantial savings to make up for gaps in the coverage.

Here are a few important takeaways from the report;

  • In 2017, a 65-year-old man needs $73,000 in savings and a 65-year-old woman needs $95,000 if each have a goal of having a 50 percent chance of having enough savings to cover premiums and median prescription drug expenses in retirement. If they want a 90 percent chance of having enough savings, the man needs $131,000 and the woman needs $147,000.  
  • A couple with median prescription drug expenses needs $169,000 if they have a goal of having a 50 percent chance of having enough savings to cover health care expenses in retirement. If the couple wants a 90 percent chance of having enough savings, they need $273,000. 
  • For a couple with drug expenses at the 90th percentile throughout retirement who want a 90 percent chance of having enough money saved for health care expenses in retirement by age 65, targeted savings is $368,000 in 2017. 

And with the retiree share of healthcare costs likely to go up in the future, it’s more important than ever to plan for these expenses in retirement.

If you are planning for or approaching retirement, be sure you understand the impact of healthcare expenses on your retirement strategy. If you don’t know how paying for health care could affect your retirement or whether you’re saving enough for your future needs, try talking to a financial professional. You need a plan to help you afford future medical expenses and thus help limit the negative impact those costs can have on the retirement you’ve been dreaming about.

1 Employee Benefit Research Institute, Notes, December 20th – Vol. 38, No. 10
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Long-term goals.

There are short-term goals, long-term goals, and some goals that fall in between. Usually, the differences can be boiled down to time and money. Short-term goals are achievable sooner while intermediate goals take longer and are more of a financial commitment.

Long-term goals usually take more than five years to reach.

If they involve money, they need a disciplined saving and investing strategy. The most important long-term financial goal for almost everyone is to save for retirement. For most people, this is a priority over saving for anything else.

The first step to reaching your retirement goal is to develop good saving and investing habits. Establishing a financial plan when you’re young can help with this. Also, start contributing to an employer’s 401(k) plan, an IRA, or a Roth IRA as soon as you start working. Consistently save, and you’ll be on the right track to gain enough money for your retirement years.

You can become a disciplined saver and investor several ways:

  • Set up automatic contributions to your retirement plans and investment portfolio from each paycheck. When you don’t see money in your bank account, you won’t spend it. Instead, you’ll save for your goals and your investment account will grow over time.
  • Try not to be emotional about your investments. Don’t jump in and out of your holdings based on what’s going on in the markets.
  • Watch your investments and risk tolerance, and adjust your portfolio when needed.

Time value of money.

The time value of money, a key concept in finance, is the increase in the amount of money because of interest earned over time. Basically, the earlier a person starts to invest, the greater the chance is for the money to grow and for interest to compound.

Think about it this way: With as little as $50 from each paycheck ($100 a month, $1,200 a year), you can save $48,000 after 40 years. Assuming a 7% annualized rate of return, you would have almost $260,000.

The bottom line? Start investing as soon as you can — even if it’s a small amount — to get the most bang for your buck. Reinvesting dividends and interest over time buys more shares in your account, which can help increase the value of your portfolio, especially for long-term goals like retirement. 

Track your investments.

It’s important to check in on your investments. We recommend reviewing your portfolio quarterly. Manage your risks by making sure your asset allocation is still in line with your goals — but adjust your investments only when needed. Also, remember to revise your financial plan if your goals change or you identify new goals.

What to do next.

Here’s a recap, in case we lost you at “time value:”

  • The most important long-term goal is saving for retirement. After saving for retirement, you can earmark extra money for other goals.
  • Reach long-term goals by being a disciplined saver and investor.
  • Consider the time value of money. Starting to invest when you’re in your 20s will produce a larger nest egg than if you start saving at age 30 or later — but it’s never too late to start.
  • Review your portfolio quarterly. Adjust your investments only when needed. If your goals change, revise your financial plan.

 

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Target date funds: Is your TDF working for you?

When it comes to investment products, target date funds (TDFs) can seem like the simple and safe “set it and forget it” option. For some that may be true, but if used incorrectly, they can work against you.

Sometimes called “life cycle funds,” a TDF is a fund that holds a mix of stock, bonds, and other investments. They are designed to be long-term investments for a future target retirement date.

Anybody can invest in a TDF, but they are generally most effective for younger investors and those who have less complex financial needs.

Generally speaking, the farther away a TDF is from its target date, the higher the ratio of stocks it holds. And as it gets closer to its target date, the fund automatically shifts more towards bonds.

Our research shows us that people who eventually decide to move away from TDFs are looking to:1

  • Diversify their investments
  • Personalize their portfolios
  • Get investment help from an advisor

Most people who have TDFs allocate money into additional funds to try to achieve greater diversification or more personalized risk levels. But remember, a TDF is already diversified, and using one for only part of your retirement assets can result in lower returns. 

Talk to an Advisor

Our advisors are happy to speak with you to make sure your TDF is working for you and to answer other questions you may have. We can help:

  • Evaluate and make recommendations on the investments in your plan
  • Help you think about how much to save
  • Look ahead at your retirement goals to see if you’re on track

 

1 Not so simple: Why target-date funds are widely misused by retirement investors, March 2016. Available at https://financialengines.com/~/media/files/financial-engines-tdf-report-022916.pdf
2 Aon Hewitt and Financial Engines joint research, Help in Defined Contribution Plans: 2006 Through 2012, May 2014. To show the returns impact, the potential outcomes were compared of a participant fully invested in a target date fund versus a participant partially invested in a target date fund after 20 years, where each invests a lump sum of $10,000 at age 45. For a complete copy of the research study at https://financialengines.com/~/media/files/financial-engines-tdf-report-022916.pdf

5 ways to kick your retirement savings up a notch.

Ever get the feeling you’re not saving enough to meet your retirement income needs? You’re not alone. The Employee Benefit Research Institute’s 2018 Retirement Confidence Survey found that only half of workers are confident they know how much income they’ll need in retirement, and just one in eight is very confident.1

So how much should you be saving in your retirement accounts?

There’s no one-size-fits-all answer and there’s a lot to think about. For example:

  • How much you’ve already saved.
  • How many years before you’ll need your savings.
  • Your income before retirement.
  • Your income goals in retirement.
  • How much risk you can tolerate in your retirement portfolio.

But the short answer for most people is this: Save as much as you can.

Here are five money-management tips that can give you a better chance of hitting a realistic retirement savings target.

Ramp up contributions.

Increasing retirement plan contributions — even 1% a year — can help get you into double-digit savings territory before you know it. If your employer’s plan offers matching contributions, start by saving to the match. Adding 1% a year to your savings rate after that can help you get to a healthy savings rate. The year that you turn 50, you can ramp up even faster by making catch-up contributions.

Redirect extra income.

Put a percentage of every salary raise, bonus, tax refund, and monetary gift or prize into your retirement plan.

Spend less.

Create a household budget to track where your money is going. Cut out unnecessary expenses, like a gym membership you don’t use, and move the found money into savings. A budget can also help you reduce your debt. Carrying balances on high-interest credit cards eats into your monthly income. Pay down those cards or consider consolidating several debts into one lower-interest loan. Once you pay off a credit card or loan, keep making those payments — but direct them to your retirement plan instead.

Negotiate expenses.

A phone call to customer service can often lower service contracts like cable TV or annual fees and interest rates on credit cards. You can usually reduce insurance premiums by consolidating insurance policies such as auto and home with one company.

Pay the doctor with pre-tax dollars.

Does your employer offer a Flexible Spending Account (FSA) or Health Savings Account (HSA)? You may be able to direct pre-tax dollars to help pay for qualified medical expenses like co-payments and prescriptions. Just make sure you plan your yearly expenses carefully because in some cases, any unspent money in these accounts at the end of the year may not roll over into the next year.

Make a commitment to save.

Once you make saving for retirement a priority, you can approach these tactics almost like a game. You may have to make a few sacrifices, but several small changes in how you manage your money now can help you reach your savings goals later.

 

1 Greenwald, L., Copeland, C. and VanDerhei, J. (24 April 2018). The 2018 Retirement Confidence Survey. Employee Benefit Research Institute Issue Brief, no. 431.  Retrieved Sept. 6, 2018, from https://www.ebri.org/pdf/surveys/rcs/2018/2018RCS_Report_V5MGAchecked.pdf
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Market summary: August 2018.

Records and regrets: U.S. stocks reach new highs while international stocks retreat.

August was another record-setting month for stocks here at home, as domestic equity returns hit new highs. It was a different story overseas, however, as international equity markets were somewhat unsettled by economic news abroad. On the fixed-equity front, bond markets were noticeably calmer last month.

What happened.

Equity markets diverged sharply in August. Domestic equities produced strong returns, hitting new highs. Large-cap stocks, represented by the S&P 500, climbed +3.26% for the month. Small-cap stocks (represented by the S&P 600) did even better, rising +4.83%.

While domestic stocks were climbing, the international equity markets slipped. Developed-market stocks (MSCI EAFE Index) fell 1.93% in August and emerging markets struggled, with the MSCI Emerging Markets Index dropping 2.70%.

Bond markets were noticeably calmer in August. The yield on 10-year Treasury bonds declined from 2.96% at the beginning of the month to 2.84% at month-end. That helped the Bloomberg Barclays Aggregate Bond Index rise +0.64%.

Events in August.

Domestically, strong U.S. equity returns reflected positive economic news that included the recent sky-high valuations of Apple and Amazon (see sidebar). U.S. GDP (gross domestic product) growth for the second quarter was revised upward to 4.2%, the fastest pace since 2014. The unemployment rate ticked down to just 3.9%. And corporate earnings continued their strong showing. Per FactSet, a financial data company, 79% of companies reported a positive earnings surprise in the second quarter.

Disappointing international equity markets reflected less-positive economic news overseas in August. Markets in Asia and Europe were unsettled because of speculation that the U.S. was considering raising tariffs from 10% to 25% on select Chinese goods. Overseas markets were further unsettled by volatility in emerging-market currencies. The Turkish lira fell significantly against the U.S. dollar after calls to double tariffs on Turkish steel and aluminum mid-month. Argentina’s currency suffered a similar dip, and its central bank raised interest rates by +15% to an eye-watering 60%.

Unsurprisingly, such economic news brought uncommon volatility to emerging-market equities. In August, over a third of trading days produced swings up or down of greater than 1%.

What it means for you.

Most personalized Financial Engines portfolios are weighted slightly more to domestic stocks than to international. This, along with our allocation to bonds, means your portfolio will likely have been up a fraction over the month.

But the troubled international markets of August serve as a reminder that all investing comes with risk. And risk is personal. Because we build your portfolio specifically for you, the more you tell us about yourself — your goals, other retirement assets, and how comfortable you are with risk — the better we can tailor your investments to your unique situation. Please log into your Financial Engines account or call one of our advisors to make sure we have the information we need.

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