Aaron Katsman 58.
(photo credit: Courtesy)
I recently met with a prospective client who came to discuss his retirement
planning. He had clearly done his research, and he brought printouts of
personal finance articles that he had come across in his many online
The articles all were of the same bent: Buy index funds and
never sell them; be wary of investing outside of the United States; and keep
your eye on the very, very long term.
I mentioned that it’s easy for
these “experts” to sit in their ivory towers and tell you what to do, knowing
that: No. 1, they will never actually sit across the table from a retiree; and
No. 2, they will not have to clean up the mess if they are wrong.
someone who actually has the responsibility of advising investors on their
retirement, I just shake my head when I read another one of these articles. They
tend to prescribe “one-size-fits-all” retirement solutions, when by definition,
retirement solutions need to be personalized. What may work for you in terms of
lifestyle and paying for that lifestyle has no relevance for your next-door
neighbor and his retirement plan.
In a future column I will discuss
defining retirement goals and needs and how to set up an investment portfolio to
achieve those goals. Here I would like to give three tips – what I call the
“LID” – to help you get your retirement plan on track.LOSERS
stress enough how important it is to have a portfolio that is tax efficient. A
problem of long term buy-and-hold strategies is that they leave you with a huge
tax bill due to capital gains. There is a term used for selling positions at a
loss in your portfolio: it’s called “tax-loss selling.” It’s a process of
selling securities at a loss to offset a capital-gains tax
Tax-loss selling may be the most important way to reduce your
tax bill. For example, let’s say you have a gain in IBM stock and decide to sell
it; you will be taxed on that gain in full. But if you have a loss in Bank of
America and sell the stock, the amount of the loss may offset the gain in IBM,
reducing the sum of the taxes owed.
Being smart with offsetting gains and
losses can literally save you thousands of dollars a year. It’s important to
speak with your accountant before moving ahead with the selling, so that you
understand all the rules and restrictions that apply to tax-loss
In a recent interview with The Wall Street Journal
Vanguard founder Jack Bogle came out against the need to diversify
Many US-based corporations profit from these markets, he
said, which means that by investing in large US corporations you already have
I respectfully disagree. If that were the case,
why haven’t these big multinationals seen a significant rise in their stock
prices? As I have mentioned in the past, while the last 10 years have led back
to where you started from in the US (“the lost decade”), the Asia-Pacific region
(excluding Japan) returned more than 200 percent, and Latin America came in with
a whopping 550% return.
That stellar performance includes a drop of 60%
during the middle of 2008. Many of the fastest-growing companies and economies
are located internationally, so why not try and profit from that? DIVIDENDS
appeared in a report by Lebel Harriman: “According to S&P, the portion of
total return attributable to dividends has ranged from a high of 53% during the
1940s – in other words, more than half that decade’s return resulted from
dividends – to a low of 14% during the 1990s, when investors tended to focus on
“If dividends are reinvested, their impact over time becomes even
more dramatic. S&P calculates that $1 invested in the Standard and Poor’s
500 in December 1929 would have grown to $57 over the following 75 years.
However, when coupled with reinvested dividends, that same $1 investment would
have resulted in $1,353. (Bear in mind that past performance is no guarantee of
future results, and taxes were not factored into the calculations.)” Enough
said? The solid dividend payers with decades of consistent dividend growth, such
as Chevron or Johnson and Johnson, now yield twice what you can get on an
investment-grade corporate bond – and you have an even more attractive
Blow the “LID” off your retirement, and hopefully you will be
able to enjoy your golden firstname.lastname@example.org Aaron
Katsman is a licensed financial adviser in Israel and the United States who
helps people with US investment accounts.