Month: February 2016

Value stocks and growth stocks tend to take turns leading the market. It’s easy to get caught up in the vagaries of the market, but investing is not about which asset class is ahead at one point in time; it’s about the long-term ride.

You may recall that in the late 1990s and early 2000s, growth stocks-particularly technology – and Internet-related issues-dominated the market. Value stock managers were considered to be dinosaurs by pundits shouting that a “new paradigm” had replaced long-standing investment valuation techniques. In March 2000, however, the bubble burst, and value stocks began outperforming their growth counterparts.

Value and growth are countercyclical

We see this time and time again, as value and growth are typically countercyclical. That means they tend to outperform during different phases of an economic cycle: In a struggling economy and in the early stages of recovery, value stocks have historically outperformed growth stocks. It isn’t until late in the recovery cycle that growth has typically dominated.

Knowing this, many investors try to time the market, shifting their assets from value to growth and back again when they think the time is right. But timing the market this way is difficult. A better option may be ensuring that your equity portfolio is balanced. Investing in a combination of both value and growth stocks gives you the best odds of success. This is because a portfolio containing investments in both stock types weathers the ups and downs of the markets better than an all-growth or an all-value portfolio does.

If the income from your individual retirement accounts (IRAs) turns out to be more than you actually require in retirement, and you’re looking for ways to pass on some or all of your IRA assets to your heirs, you’ll need to make some choices.

The first required minimum distribution from your traditional IRA must be taken by April 1 of the year following the year you reach age 70½, and annual distributions must continue to be made by December 31 of that year and in each following year.

The calculation to determine the required minimum distribution can be based on your single life expectancy or the joint life expectancy of you and your beneficiary (either spouse or non-spouse). So first, consider and designate a beneficiary.

The single life expectancy method generally provides for the largest distributions and highest potential taxable income. In general, it is most appropriate if you plan to withdraw most of your IRA during retirement, because it increases the potential that you will deplete the account during your lifetime.

The joint life expectancy with a spouse beneficiary method can reduce your required minimum distribution and current taxable income, and can increase the potential for tax-deferred growth. Also, when you die, your spouse generally has more options for timing distributions.

The joint life expectancy with a non-spouse beneficiary method may reduce your required minimum distributions even more than when your beneficiary is a spouse-but because the beneficiary may be a child or grandchild, it may be most appropriate if you wish to maximize tax-deferred growth and leave a legacy for your heirs.

The choice you make will affect the size of the distributions, your taxable income, the amount left in the account to continue growing tax-deferred, and the amount the IRA holder or beneficiary may leave to heirs. Your advisor can help you decide which choice is best for you.

NOTE: The legal and tax information contained in this article is merely a summary of our understanding and an interpretation of some of the current tax laws, and is not exhaustive.