Planning: Is a Living Trust Right for You?

Some companies use fear-mongering tactics to sell living trusts to people who don’t need them.

So how do you know if you’re really a candidate for a living trust?

The primary advantage of a living trust – which is a legal entity that holds legal title to certain of your assets – is that assets in the trust do not go through probate, the lengthy and often -expensive court-supervised process of distributing your property to your heirs upon your death.

But you may not need the probate benefits, because there are a number of other ways to avoid probate, such as making gifts before death and adding a payable-on-death designation to an account. Plus, living trusts can be time-consuming and costly to set up and involve ongoing maintenance.

So, what should you think about when considering if you need a living trust? Age, wealth and marital status are three things to consider.

Living trusts often don’t make sense for middle-aged people in good health, because people at this stage in life don’t need to worry about probate for many years. The less wealthy you are, the less sense a living trust makes, because if you don’t have significant assets you won’t save much by avoiding probate. Finally, if you’re married, and you and your spouse plan to leave your property to one another, probate won’t be necessary for those assets.

A living trust may be helpful if you have children or grandchildren with special needs, if you own your own business or if you own real estate in more than one state (regardless of your age).

But if you want to know if a living trust is for you, it’s best to consult a financial advisor or estate-planning attorney.

Don’t trust any one-size-fits-all estate-planning product.

The legal and tax information contained in this article is merely a summary of our understanding and interpretation of some current provisions of tax law and is not exhaustive. Consult your legal or tax counsel for advice and information concerning your particular circumstances. Neither we nor our representatives may give legal or tax advice.

Dividend-Paying Stocks: A Good Option?

Dividend-paying stocks may have been left behind by this year’s stampede toward higher-risk investments – making them a potentially good option for investors seeking income.

Today, many investors seeking income invest in cash equivalents such as bank accounts, certificates of deposit or longer-term bonds. These vehicles often pay little interest, leaving investors at the mercy of inflation.

Dividend-paying stocks may be a tempting alternative to cash or bonds. They’re certainly riskier than cash or bonds, but they may be less risky than the high-flying growth stocks that dominated the 2009 market recovery. If you’re a pre-retiree or a retiree seeking income, you may be willing to sacrifice return potential for more income potential.

Where can you find dividend-paying stocks?

Try looking at established companies in stabler industries, also called defensive sectors.

These include food and beverages, health care, household goods and even telecommunications.

To make the job easier, you might consider an equity income mutual fund.

These funds tend to seek dividend-paying stocks, thereby doing the legwork for you.

Of course, no single investment is appropriate for everyone.

To determine if dividend-paying stocks are right for you – and to help locate them – it’s best to consult a professional.

Where to Put Your Money When the Dollar Declines

The decline of the greenback has captured the attention of newscasters around the globe.

Its effect on the economy is a mix of positives and negatives.

If you’re an investor, though, there are a number of ways to potentially profit from the falling dollar – if you’re up to speed on what’s out there.

Following are a few things you should consider:


Commodities are hard assets that tend to hold their value over a period of time. Gold is a commodity considered by many to be a safe haven in times of currency devaluation. You can purchase commodity- and gold-related securities through mutual funds and exchange-traded funds (ETFs).

Domestic Large-Cap Stocks

Because large companies often generate substantial revenue overseas, they have income in other currencies that can be converted into a greater number of dollars. Many large companies have departments dedicated to currency management.

Foreign Stocks and Bonds

When the dollar falls, prices of securities denominated in other currencies tend to rise. Adding such securities to your portfolio can help cushion it against a drop in the dollar.


Investing in the currency you believe will show the greatest strength against the dollar is a way to profit from a falling dollar. You can use this strategy by investing in currency-focused ETFs.

Are ‘Slow Money’ Investments Right for You?

You might have heard of the so-called slow food movement.

It’s a strategy that encourages consumers to take the time to cook meals at home.

But the slow food movement has also spurred a new concept.

It’s called the slow money investing strategy.

The premise of the ‘slow money’ strategy is that investors should consider putting some of their assets into local businesses.

The belief behind the strategy is that consumers need to really rethink how they look at the growth of their investments.

Instead of measuring that growth by the flashing numbers on a stock ticker, it should be likened to a slow ripening.

Much of the slow money investing strategy focuses on investing in local farms.

An example is farmer Martin Ping of New York.

He lets customers invest in certain projects, such as a cheese processing plant.

In exchange, customers can expect a return of around 3%.

They also get a source of fresh cheese, not to mention the good feeling that comes from knowing they’re helping a local business.

Despite this idealism, there’s plenty to be wary of when it comes to the slow money investing strategy.

Spending money to buy food at a farmers’ market is one thing, but putting your retirement money into a cheese processing plant is another.

Most investors don’t have the skills, time or interest level necessary to evaluate the soundness of a local business.

As a result, regional funds have been created in many communities to broker the interaction between investors and local businesses.

However, it’s still advisable to be wary of such investments.

Should Retirees Consider High-Yield Bonds?

High-yield bonds are a potential option for a retiree’s portfolio.

They have the potential to generate solid income.

It’s also important to note, however, that high-yield bonds doesn’t come with risks.

High-yield bonds are also referred to as junk bonds.

That’s because they’re rated below investment grade, or “junk” in Wall Street jargon.

A bond receives a below-investment-grade rating because the company that issued the bond is believed to have a higher chance of defaulting on its obligation to make timely interest and principal payments, thus resulting in more risk.

But even if the company doesn’t default, the prices of high-yield bonds can be volatile because the fact that a default could occur affects the price that investors are willing to pay for such bonds.

So how do you determine if high-yield bonds are suitable for you?

You need to look at more than the income potential.

Since it’s the combination of the income generated by the bond and any changes in the market value of the bond that determines the true return on your investment, you should consider “total return,”, a figure that combines both of these important factors.

If you look at the total return figure, you’ll soon see that in 2008, high-yield bonds took quite the pummeling.

The Credit Suisse High Yield Index lost 26.2% that year.

However, the index returned 37.43% between the beginning of 2009 and Aug. 31.

These swings show that high-yield bonds can fluctuate significantly.

In general, high-yield bonds can play a part in the portfolios of suitable retirees who understand what they’re getting into – but it should probably be a minor part.

Is Gold a Shining Investment?

With the stock market near record volatility levels, many investors have turned to physical gold, referred to as bullion.

But is it right for your investment portfolio?

Bullion is acquired in small bars or coins, and investors seem to be enamored with the shiny metal.

Bullion purchases by individuals nearly doubled last year, to 862 metric tons.

In fact, the U.S. Mint, the federal agency that manufactures gold coins for the nation, has had to step up its production this year, with coin sales through June just shy of the 794,000 sold in all of 2008.

But many financial advisers are wary of owning bullion. Why?

First, safekeeping is a risk.

Second, bullion is hard to use.

If the world falls into chaos, you can’t easily chip off a piece of your gold bar to buy, say, milk.

Third, gold can rise and fall in value like any other investment.

Finally, unlike stocks and bonds, gold pays no interest or dividends.

Instead of buying bullion, some investors might want to consider putting around 10% of their portfolios into gold-related investments.

These might include mutual funds that invest in gold-mining stocks or exchange-traded funds that invest in physical gold.

In the end, the decision must be based on your individual circumstances.

Plan to Ensure You Don’t Outlive Your Nest Egg

At age 65, the average life expectancy is 81.8 years for a man and 84.8 years for a woman.

Those were the figures as of March 2006 from the National Center for Health Statistics.

But with advances in medical science, it’s no longer a stretch to think that you could live to be 100. That’s great news – unless you run out of money.

Consider the following hypothetical example, which assumes:
•    You’re 64 years old and earn $60,000 per year.
•    You plan to retire at age 65.
•    You’ve accumulated $1,000,000, which you think will return 6% per year.
•    You’ll need $60,000 a year in retirement, excluding Social Security.

The good news is that if you have a 15-year retirement, from age 65 to 80, you’ll end up with almost $696,000 to pass on to your heirs.
The bad news is that if you have a 30-year retirement, from age 65 to 95, you’ll run out of money at age 88. (See footnote.)

But don’t worry.

With careful planning, you can recover, even after a downturn such as that of the past year.

You can save more, invest more aggressively or work longer. In fact, working longer might be the best option. According to Financial Engines, 50-to-60-year-olds can get their retirement savings on track after recent stock market losses without any additional savings if they work just two or three more years.

(Footnote) Assumes $1,000,000 in retirement savings has already been accumulated; another $60,000 is added. The money grows at a hypothetical 6% per year; $60,000 (in today’s dollars) is withdrawn each year. The example cited is hypothetical and for illustrative purposes only. It is not meant to represent performance of any particular product.

The Pros and Cons of Lifecycle Mutual Funds

Lifecycle mutual funds are designed to be easy, but if you don’t use them correctly they can throw your portfolio off balance.

Lifecycle funds offer a mix of assets designed to fit a particular investor’s time horizon. The asset allocation is changed over time as a certain goal, or “target date,” gets closer.

As a result, lifecycle funds can be good options for investors who want to take a hands-off approach to investing. But there are two potential pitfalls.

First, a one-size-fits-all approach seldom works in investing.

You may have the same expected retirement or withdrawal date as your neighbor, but you probably have different financial goals and different tolerances for risk.

The same fund, then, is probably not right for both of you.

Second, many investors don’t use lifecycle funds in the hands-off manner for which they were intended. Instead, they also own other mutual funds, stocks and bonds. This can open investors up to more risk. For example, if your desired asset allocation is 50% stocks and 50% cash, and your lifecycle fund achieves that, buying more bonds in addition to the fund will throw your portfolio off balance.

If you like the idea of a lifecycle fund’s simplicity but also want to invest elsewhere, you may want to put the bulk of your assets in a lifecycle fund and then allocate a smaller amount to other investments that aren’t likely to be represented in the lifecycle fund – such as sector-specific stocks.

One Way to Rebuild Your Battered 401(k)

A year ago, at about the time many investors would normally have done a regular reassessment of their 401(k) plans’ asset allocations, the markets were in too much chaos to make the exercise practical. But now it’s time to face reality. How can you rebuild your 401(k)?

The good news is that you can recover from sizable losses, even if you’re approaching retirement.

The bad news is that you only have a few options for recovering. You can save more, invest more aggressively or work longer. The easiest option is to work longer.

Savings certainly matter – but for many of us, saving more isn’t a viable option because we’re strapped as it is.

If you plug figures into the Fidelity Financial Engines model, you’ll find that working longer is the best way for a 50-year-old Average Joe to get a 401(k) back on track.

If Average Joe had a $500,000 portfolio, was contributing $1,000 a month to his 401(k), and was planning to retire at age 65, the model determined that increasing his savings by $100 a month or changing his investment mix from 70% stocks and 30% bonds to 60% stocks and 40% bonds helped only a little.

But if Average Joe worked until age 67 instead of 65, it would have a dramatic effect.

According to the analysis, 50-to 60-year-olds can get their 401(k) plans back on track after recent stock market losses without any additional savings if they work just two or three more years.

The Pros and Cons of Investing in an Index Fund

Popular investing wisdom holds that index funds generally perform as well as the market and have lower expenses than traditional mutual funds – but is that true?

An index fund seeks to match the returns of a specific index by holding all – or in the case of very large indices, a representative sample – of its securities.

Since the stocks in an index change infrequently, the stocks in the index fund also change infrequently.

Why do people use index funds?

For the past 50 years ending on December 31, 2008, the U.S. stock market, as represented by the S&P 500 Index, provided investors with an average return of 9.19% per year.

Some investors earned more than 9.19%, while others didn’t fare as well.

So some investors figure that it’s better to imitate the index – and hopefully obtain similar returns – than it is to try to beat the index.

The downside to index funds, however, is that they perform similarly to the market not just when the market is up but also when the market is on a downswing.

They can also underperform the market due to expenses and the percentage of their portfolios held in cash.

For some investors, index funds may be a good choice.

They often have lower expense ratios and less portfolio turnover – and thus fewer capital gains taxes – than do traditional actively managed funds.

And because they imitate the market, they usually perform similarly to it.

One thing to keep in mind, though, is that past performance is no guarantee of future results.

Index returns assume reinvestment of all distributions and do not reflect any fees or expenses.

What type of fund is best for you?

The best course of action is to consult a financial advisor who is familiar with your circumstances and goals and who can give you more personal guidance.