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Articles by Alan & Akemi

Don't Let Fear Keep You on the Sidelines

Fear is a powerful emotion and market losses can be fear inducing. But history shows that emotion is a poor compass for charting your investment course.

While the U.S. stock market, as represented by the S&P 500 Index, has risen a stunning 205.66% as of March 31, 2015, since its low on March 9, 2009, some investors are still reluctant to participate after the turbulence that accompanied the 2007-2008 "Great Recession".¹

Fleeing the market certainly may have felt like the right thing to do in the depths of the financial crisis. However, history shows that making investment decisions based on emotion has rarely proven successful. Greed may have led an investor to own too many technology stocks when the bubble burst on that industry in 2000. Earlier, fear may have caused investors to cash out of stocks following the crash of 1987 and miss some or all of the subsequent rebound.

Fast forward to 2015. The reality is that investors who missed the extraordinary rally that has occurred since March 2009 may have helped to put their long-term accumulation goals at risk. This is especially true for investors with shorter time horizons, such as those approaching retirement.

Consider the following: From 2010 through 2014, U.S. stocks recorded an average annualized return of 15.5%, compared to 0.1% for money market securities.² The nearly nonexistent returns associated with cash-like investments could have a powerful impact on your purchasing power over time.

 

Maintain Balance to Manage Risk

One of the key determinants to investment success over the long term is having a disciplined approach to balancing short-term risk (stock price volatility) with long-term risk (loss of purchasing power). Finding a "middle ground" in your investment philosophy -- and portfolio allocation -- may go far toward helping you manage overall risk and realize your investment goals. Your Certified Financial Planner™ can help you to determine the correct balance between your risk tolerance and lifetime goals.

History indicates that stocks have tended to outperform other asset classes as well as inflation over long periods of time.³ However, investors who are too focused on the long term may over-allocate their portfolios to stocks -- and over-expose themselves to short-term volatility risk. Alternatively, investors who are extremely averse to short-term risk may do the opposite and face increased risk of not meeting long-term objectives.

 

Easy Does It

How might this balanced approach to risk be used to get investors back in the market? One of the best ways to take emotion out of investing is to create an investment plan (called an Investment Policy Statement) and stick with it.  

One of the best ways to ease into investing during a period of high market volatility is through a systematic investment plan called Dollar Cost Averaging (DCA).³ Dollar Cost Averaging is a process that allows investors to slowly feed set amounts of money into the market at regular intervals.

Although DCA does not assure a profit or protect against a loss in declining markets, it can help achieve some important objectives. First, it gives investors a measure of control while eliminating much of the guesswork -- and emotion -- associated with investing. Second, DCA can help investors take advantage of the market's short-term price fluctuations in a systematic way -- by automatically buying more shares when prices are low, and buying fewer when prices are high.

It is important to remember that periods of falling prices are a natural part of investing in the stock market. By maintaining a long-term focus and following a balanced approach to managing investment risk, you may better position yourself to meet your financial goals. Your Certified Financial Planner™ can help you identify which strategies may be best for your situation.

¹ Wealth Management Systems Inc. Stocks are represented by the daily closing price of Standard & Poor's Composite Index of 500 Stocks (the S&P 500), an unmanaged index that is generally considered representative of the U.S. stock market. The percentage increase represents the gain through March 31, 2015. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.

² Wealth Management Systems Inc. For the five years ended December 31, 2014. U.S. stocks are represented by the S&P 500 Index. Money market securities are represented by Barclay's 3-Month Treasury Bill rate. Example does not include commissions or taxes. Past performance is no guarantee of future results.

³ Dollar cost averaging involves regular, periodic investments in securities regardless of price levels. You should consider your financial ability to continue purchasing shares through periods of high and low prices. This plan does not assure a profit and does not protect against loss in any markets.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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The Greek Debt Crisis and Your Long-Term Investment Strategy

By Alan Kondo

You have probably seen the news coverage about the Greek debt crisis, and have wondered what impact it may have on your investment portfolio. As with previous global events, the media is quite good at stirring up fear, because their goal is to capture your attention. However, when it comes to long-term decisions about your financial future, you need as much sound and objective information as possible.

Greece missed the International Monetary Fund debt payment of nearly $2 billion. Its nationwide referendum July 5thconfirmed that 61% of Greeks reject creditors' austerity demands that would require pension cuts and an increase in the value-added tax. This could pave the way towards Greece exiting from the Euro Zone, but a compromise between the country and the International Monetary Fund is still possible. Many Greek citizens have been making runs on the bank to withdraw their deposits. In response, the Greek government has closed the banks and stock market, and have limited ATM withdrawals to 60 Euros ($66) per day.

The reaction of the European stock market has been relatively modest. Economists have mixed opinions on whether losing the weakest country in the European Union would help or hurt the currency.

How do these events affect your investment, if you have a broadly-diversified portfolio? To put things in perspective --

* Because globally-diversified portfolios spread their risk to all parts of the market (just the opposite of putting all your eggs in one basket), your direct investment in Greece would probably be very low, about 1/100thof 1%. For example, if you had a $1 million investment, your exposure to Greece might be about $85.

* Greece historically has been a fragile economy. Greece has been either in the process of rescheduling its debt or been in default 51% of the time since 1800. This is one of the reasons diversification is so important, to avoid losses due to a single country, sector or industry.

* The media are often wrong. Back in 2012, many media analysts considered Europe the worst place to invest because of the severe debt crisis, the potential breakup of the European Union, and the potential collapse of the Euro. Nevertheless, the MSCI Euro Index posted a stunning 23% return for 2012.

The reality is that we live in an uncertain world. Uncertainty (while uncomfortable) is a natural part of investing, and is why we receive such good long-term returns from the market.

In our quest for certainty, some of us may be tempted to make changes to our portfolios based on headlines or market forecasts. In most cases, however, you would be better-served to stay focused on your long-term investment strategy and avoid impulsive moves based on hunches about the future.

The global and U.S. economies are very resilient. Even if Greece returns to the Drachma, we believe that any fallout can be contained to Greece.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Bull or Bear Market? Plan Both Ways

by Akemi K. Dalvi

After another good year on Wall Street in 2014, some stock market prognosticators are predicting a reversal of fortunes for 2015, while others expect another good year for investors. However, no one really knows what will happen next, and the best thing you can do is to plan for all possibilities. You also can learn from stock market history, while recognizing that past performance is not a guarantee of future results.

These days we keep hearing word that the Fed is going to raise interest rates and the market will respond with a temporary pull-back. The timing of rising interest rates is a topic up for discussion weekly that causes the market to sway back and forth, hanging on indicative words like “patient” by Fed Chairman Janet Yellen. Then there’s the other school of thought that market valuations are too high and a pullback of sorts is in order. However, such talk was said at after each new market high in 2013 and 2014. Nevertheless, the market kept marching upwards, making the bears sound like Debbie-downers and convincing sidelined investors to re-enter the market and chase returns at dangerous market highs.

The stock market is known as a leading economic indicator -- that is, it tends to rise or fall in advance of economic gains or losses. That's what happened when the most recent bear market bottomed out in March 2009. Finally, several months later, the U.S. economy, too, moved into positive territory, although the recovery has been painfully slow by historical standards. During most bull markets, the economy is strong and unemployment low. Consumers feel relatively confident, and their outlays help fuel economic growth. Additionally, because times are good, people usually are more than willing to take the risk of owning stocks.

Conversely, worries about the economy may make investors sell their stocks, and that drop in demand can lead to a bear market. Usually, prices will begin rising again after a fall of 40% or so. However, in a particularly bad bear market, such as during the Great Depression, that percentage drop can be significantly greater before things turn around. In such a situation, as the economy sputters and unemployment rises, investors shy away from taking risks in the market.

Some investors try to gauge what market sector is going to do well and move assets there ahead of everyone else to get in early and capture growth. However, it’s easy to be wrong or “buy high” after everyone has already realized this is the hot market sector and pumped up the prices.

Conversely, in a bear market, some investors consider tactics like "selling short" -- borrowing stock you don't own, selling it, and waiting for the price to drop. Then if you're able to buy back the stock at a lower price, you'll profit. However, this is a lot like betting in Vegas. You could be right and turn a pretty penny, but there’s a 50-50 chance you’re wrong and you end up buying to stock higher than you anticipated to pay back a loan at twice the cost. Market timing is hard because greed can make you hold out longer for your profit margin to grow larger. But if you’re too greedy, you end up trying to reduce your losses rather than maximize your profit.

The best strategy to use in any market is to diversify your portfolio of investments so that in a good market, you are capturing market growth in measured way, and in a declining market, you have assets that protect you on the downside to offset equity volatility. Modern Portfolio Theory has been a tried and true strategy that builds on this philosophy of balancing asset classes. Under this approach, if small US companies have a good month, you have some money invested in that asset class so you benefit. If the US economy is slow but the international market takes off, you’re happy too because you have a proportionate share of money invested in that international funds too. This strategy is the opposite of putting all your eggs in one basket. You can avoid the volatility of holding just one stock or one sector of the market and that helps many investors sleep better at night.

A Certified Financial Planner or investment advisor can guide you on how to implement a strategy of diversification for you. Each portfolio should be tailored to your risk tolerance and personal financial goals to help you be the most successful. For example, a person who is saving for retirement in 30 years can take a lot more risk than a person who plans to retire in 5 years. Your portfolio should recommend who you are and where you’re going.

The main thing to learn from stock market history is that you have a better chance of succeeding by maintaining a long-term approach. Over time, the stock market bounces back from bear markets, and it's advisable to not buy or sell stock just because the market is bullish or bearish. Being informed and methodical will serve you better than selling stocks in a panic or trying to jump on a bandwagon.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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How Well Do You Know Your 401(k)?

by Akemi K. Dalvi

The old saying "knowledge is power" applies to many situations in life, including retirement planning. The more you know about the benefits your plan offers, the more likely you'll be to make the most of them and come out ahead financially when it's time to retire. Here are some questions to test your knowledge about your plan.

How much can I contribute?

The maximum contribution permitted by the IRS for 2015 is $18,000, although your plan may impose lower limits. Further, if you are age 50 or older, you may be able to make an additional $6,000 "catch-up" contribution as long as you first contribute the annual maximum. Check with your benefits representative to find out how much you can save.

What investments are available to me?

Recent research indicated that a third of retirement plan participants were "not at all familiar" or "not that familiar" with the investment options offered by their employer's plan.1 The study went on to reveal that individuals who were familiar with their retirement plan investments were nearly twice as likely to save 10% or more of their annual income, compared with those who report having little-to-no knowledge about such investments.1

Understanding your investment options is essential when building a portfolio that matches your risk tolerance and time horizon. Generally speaking, the shorter your time horizon, the more conservative you may want your investments to be, while a longer time horizon may enable you to take on slightly more risk. For example, a person in their 30’s has many years until retirement and can ride the ups and downs of a more volatile asset allocation with the goal of long-term growth in mind. However, someone in their 60’s may not want to take as much risk. They’ve worked hard to save and don’t want a risky portfolio allocation to take a dive the year in which they planned to retire. For more advice on portfolio allocation, reach out to a Certified Financial Planner or qualified investment representative for guidance and a custom plan that suits your risk tolerance and long-term goals.

What are the tax benefits?

Contributing to your employer's retirement plan offers two significant tax benefits. First, since your contributions are taken out of your paycheck before taxes are withheld, you get the up-front benefit of lowering your current taxable income. Plus, since you don't pay taxes on the money you contribute or on any investment earnings until you make withdrawals, more goes toward building your retirement nest egg.2

Will my employer make contributions to my account on my behalf?

Many companies try to encourage participation in their retirement plans by matching workers' contributions up to a certain percentage of each worker's salary. Defined contribution benchmarking studies indicate that the average company contribution in 401(k) plans is now 2.7% of pay.3 The most common type of fixed match reported by 40% of plan sponsors is $.50 per $1.00 up to a specified percentage of pay (commonly 6%).3 For their part, employees interviewed recently cited "taking advantage of the company match" as the top reason for participating in their company's retirement plan.4

How long before the money in the plan is mine?

Any money you contribute to your retirement account is yours, period. However, any matching contributions made by your employer may be on a "vesting schedule," where your percentage of ownership increases based on years of service. Current research indicates that 40.6% of employers now offer immediate vesting of matching contributions.3 Because vesting schedules vary from plan to plan, be sure you know the specifics of yours.

Your Certified Financial Planner or company benefits representative can help you answer these and other questions about your employer-sponsored plan. Being "in the know" may help you avoid missteps and make as much progress as possible on the road to retirement

Source/Disclaimer:

1 Pensions & Investments, "TIAA-CREF: Participants with knowledge of investment options more likely to save," February 26, 2014.

2 Withdrawals from tax-deferred retirement accounts will be taxed at then-current rates. Withdrawals made prior to age 59½ may be subject to a 10% additional federal tax.

3 401(k) Help Center.com, "Benchmark Your 401(k) Plan, 2015."

4 Deloitte Development LLC, "Annual Defined Contribution Benchmarking Survey," 2013-2014 Edition. 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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Retirement Health Care Costs

by Alan

The issue of health care costs in retirement -- and planning for them well in advance of retirement -- is becoming key to any retirement planning discussion.

A recent study by Employee Benefit Research Institute (EBRI) sheds light on different types of health care costs to consider in retirement. It projected that in 2014, men and women who wanted a 90% chance of having enough money to cover out-of-pocket health care expenses in retirement would need to have saved $116,000 and $131,000 respectively by age 65.¹ This is a sobering goal when you consider that just 42% of workers in their 50s and 60s report total savings and investments in excess of $100,000.²

Part of the problem with putting a price tag on retiree health care expenses is that every situation will vary depending on an individual's health, the type of health care coverage they carry, and when they hope to retire. That said, EBRI has identified some "recurring expenses," or standard elements of cost that can be estimated and planned for in advance as well as "non-recurring" expenses that are less predictable but tend to increase with age.

Recurring vs. Non-Recurring Expenses

EBRI was able to categorize utilization patterns and expenses into these two separate types of health care services using data gleaned from the Health and Retirement Study (HRS). HRS is a longstanding, highly respected study of representative U.S. households evaluating individuals over age 50.

● Recurring services -- These include doctor visits, prescription drug usage, and dentist services. Since these services tend to remain stable throughout retirement, it is possible to calculate an average out-of-pocket expense among individuals age 65 and older of $1,885 annually.³ EBRI's study projected forward, and factored in the following assumptions: a 2% inflation rate, a 3% rate of return on investments, and a life expectancy of 90 years. The study estimated that one would need $40,798 at age 65 to cover the average out-of-pocket expenses for recurring health care needs throughout retirement. It should be noted that this calculation does not include expenses for any insurance premiums or over-the-counter medications.

● Non-recurring expenses -- This category includes overnight hospital stays, overnight nursing home stays, home health care, outpatient surgery, and special facilities. Unlike recurring expenses, the cost of most non-recurring services increases with age. For example, average annual out-of-pocket expenses for nursing home stays are estimated at $8,902 for those in the 65 to 74 age group, $16,948 for those aged 75 to 84, and $24,185 for individuals aged 85 and up.³

Because the likelihood of utilizing these services and the degree to which they will be needed is largely unknown, projecting the savings needed to cover these costs throughout retirement is an elusive exercise. One way to estimate expenses for yourself is to start with the total out-of-pocket health care savings goals of $116,000 for men and $131,000 for women cited earlier. Then, divide these estimated expenses into recurring and non-recurring costs.

Bigger Picture Planning

Certified Financial Planners™ often recommend taking a holistic approach to calculating income needs in retirement, by factoring in such costs as taxes and debt payments along with other typical expenses including health care. In addition to the out-of-pocket health care calculations discussed above, consider what you think you might have to pay in annual premiums if you were to apply for health insurance today. Lastly, and perhaps most important, add in an allowance for inflation -- both general and health care inflation.

Your Certified Financial Planner™ can help you get started by creating a Comprehensive Financial Plan that includes a projection for health care costs in retirement. This is especially useful just before you "pull the trigger" on your decision to retire, and give notice to your employer. Knowing that your plan will work can give you the confidence to move forward.

This article offers only an outline; it is not a definitive guide to all possible consequences and implications of any specific saving or investment strategy. For this reason, be sure to seek advice from your CPA and Certified Financial Planner™.

¹ Employee Benefit Research Institute, news release, "Needed Savings for Health Care in Retirement Continue to Fall," October 28, 2014.

² Employee Benefit Research Institute, 2014 Retirement Confidence Survey, March 2014. (Not including the value of a primary residence or defined benefit plans.)

³ Employee Benefit Research Institute, "Utilization Patterns and Out-of-Pocket Expenses for Different Health Care Services Among American Retirees," February 2015.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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EDUCATIONAL WORKSHOPS

2019 TENTATIVE SCHEDULE 

YOUR 2019 INVESTMENT STRATEGY

Saturday, March 16, 2019

10:00 a.m. - 12:00 p.m.

South Pasadena Public Library Community Room**

1115 El Centro St.

South Pasadena, CA  91030

**This activity is not sponsored by the City of South Pasadena or the South Pasadena Public Library

 

 

YOUR 2019 INVESTMENT STRATEGY

Saturday, March 23, 2019

9:00 a.m. - 11:00 a.m.

Ken Nakaoka Center*

1670 W. 162nd St.,

Gardena, CA  90247

*not sponsored by the City of Gardena

 

 

Contact Us

300 North Lake Avenue, Suite 920
Pasadena, California 91101
Phone: (626) 449-7783
Fax: (626) 449-7785
Email: info@kondowealthadvisors.com

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