This free financial information site publishes articles on how to develop a self-directed personal financial planning program strategy

The financial and investment planning articles on this free website supply important ideas to families and individuals about personal finance plan issues that they should take into consideration. These essays help in developing a lifetime family financial planning strategy. A fully personalized lifetime financial plan also depends upon using the best financial planning tool you can get. On our front page, you to find the best all-in-one lifetime financial planning calculator, including the top financial retirement plan program, a high quality personal budget planner, and the leading investment projection calculators for your personal finance planning.

Post-financial crisis commentary on tactical versus strategic asset allocation

The best individual financial planning and investment rules and practices are enduring and should not change due to market cycles or a financial crisis. This article looks at asset allocation strategy in light of the recent credit crisis.

The credit crisis was a systemic, global financial event that impacted any financial or securities instrument influenced by debt and borrower credit worthiness. In short, the credit crisis affected everything. So many investors sought liquidity at the same time, because they either had to do so to meet their cash flow obligations and/or they feared greater losses and sought “safer” places for their money. Presto — the result was a global valuation downdraft that affected all asset classes. While some — but not all — classes of bonds did better relative to other asset classes, the real beneficiaries were those who already held bond positions before broader groups of investors got into a panic.

Whenever you are already there and invested in an asset class, it means that you probably were already following a passive asset allocation strategy. While tactical asset allocation strategy advocates will suggest that you can anticipate the crowd, this is not verified by studies of flows-of-funds into and out of investment mutual funds. While a very narrow segment of investors might have some skill in anticipating trends and does actively pre-position their investments relative to the movement of the crowds, most people already have their money invested in an asset class, because they have chosen strategically to be invested in that asset class for the long-term as a buy-and-hold investor. Flow-of-funds studies show that almost all tactical asset allocation fund flows are late money flows that chase performance after valuations have already moved. On average, this tactical asset allocation money is late money and these investors get inferior returns.

At the end of the first decade of the new millennium, huge cash flows into bond funds still continued relative to flows into other asset classes, such as stocks. This is a trend that was almost three years in the making. We have not seen similar disproportionate fund flows into bonds since the 1984 to 1987 period, when interest rates were much higher than today’s paltry yields. In succession during the past decade, we have experienced a technology bubble market crash, a housing bubble crash, a credit crunch, and a resulting global economic/business cycle crash. Barring a total global economic depression, which we seem to have skirted but avoided, what will happen to the bond markets when interest rates inevitably rise? Stay tuned for the next sector bubble crash.

Recently, there has been more advocacy of “tactical” asset allocation strategies by certain financial advisors. The logic goes as follows. Broad passively-managed asset class diversification strategies seemingly did not work during the credit crisis. Even broadly diversified investor portfolios went down, although not as much as portfolios that were more exposed to particular asset classes that had suffered the worst percentage declines. Therefore, buy-and-hold strategic asset allocation apparently did not work and should be thrown out. As a replacement, these financial advisors advocate that it is time to employ tactical asset allocation strategies that ‘could’ get better risk-adjusted portfolio returns in the future. You know, start moving things around to get ahead of the crowd and be there before the crowd arrives to drive up valuations.

Unfortunately, tactical asset allocation strategy advocates do not offer anything to back up their claims that tactical investment activity would actually be superior to a passive asset allocation strategy in the future. Tactical asset allocation strategies have not been superior in the past. Advocacy for tactical asset allocation strategies flies in the face of the broad body of investment research that consistently has shown that low-cost, broadly diversified, passive buy-and-hold asset allocation strategies tend to yield superior long-term risk-adjusted portfolio returns.

Broad portfolio diversification has never meant that a portfolio could not and would not experience short-term losses at the portfolio level. When you have an investment banking industry that finds clever ways to repackage smelly sub-prime mortgages as gilt-edged investment grade derivative mortgage securities and resells these stinkers in vast quantities to other “smart money” financial professionals across the banking and investment world, then we just might all have a problem. When doing this over and over gets a lot of clever investment banking types some very large bonuses, then there is a lot of motivation to keep that gravy train moving along.

While you might question the ethics of these clever investment bankers, you should not forget that they sold these toxic mortgage securities to other willing professional buyers in the global banking industry. Those professional banker purchasers, in turn, tucked these gilt-edged derivative securities into their banks’ capital asset portfolios — the very capital portfolios upon which the banks ran their leveraged loan operations. When the music stopped and all the emperors had no clothes, bank capital evaporated and so did their ability and willingness to make loans. Of course, this was all compounded by tens of trillions of dollars in CDOs (credit default swaps) that tried to pass the ultimate repayment responsibility for bad debt hot potatoes around. Did the investment bankers also make some sweet bonuses on the multi-trillion dollar CDO market? You betcha!

Without your taxpayer dollars via the TARP bank bailout, the US and the rest of the world would all be in the financial black hole of a long-term global financial depression. In that event, most people would not have had to worry about short-term paper losses on their investment portfolios. Instead, many would have liquidated their portfolio holdings at cents on the dollar to meet living expenses after their jobs vanished.

If you have been following the chatter, you might remember hearing that most TARP funds have been paid back and some TARP loans to the banking industry have been reasonably profitable. Of course, this supposed profitability is only positive from a very narrow perspective. Taypayers are not normally in the business of making bailout loans to the financial industry. While unfortunately necessary, it is difficult to argue that TARP loans were profitable to taxpayers, when you consider the vast global economic destruction that resulted; the job losses and the millions unemployed and under-employed; and the unreimbursed hole that many still have in their personal investment portfolios.

So, when a huge and systemic toxic asset problem exists in the financial system, and the credit house of cards begins to fall, why would or should a diversified strategic asset allocation strategy prevent a short-term loss at the portfolio level? And, why would tactical asset allocation be a superior replacement strategy? To the contrary, higher cost, less diversified, active investment strategies will do what they always do, which is lead on average to inferior risk-adusted returns at the porfolio level. Even in a dire financial crisis, you should not lose sight of the long-term and forget the lessons of financial history. Broadly diversified, passive, low-cost, buy-and-hold strategies have been superior in the past, and they are much more likely to beat tactical asset allocation strategies in the future.

Click here for a more extensive article on personal Investment Asset Allocation

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Our free “financial freedom guide” personal financial planning website publishes write-ups on how to produce do-it-yourself personal financial plans

The financial and investment planning postings on this free information site supply important ideas to households about personal finance plan topics that they should consider. These essays help in establishing a lifelong personal finance planning strategy. Furthermore, to generate a fully comprehensive plan for financial success requires that you use a first-rate financial planning calculator with the top investment calculator and the top financial calculators.

Furthermore, this free financial freedom web site helps you to find a superior ALL-IN-ONE home financial software home software product with the leading financial retirement planning program, a high quality home budget planner, and a superior investment planner for your personally customized life time family financial planning.

Gauge the level of your portfolio’s overall diversification with this free on-line tool

Whenever you invest in multiple mutual funds and ETFs, you may wonder how broadly and appropriately diversified your aggregate portfolio might be. Have your investment holdings and mutual funds that you have chosen increased the global diversification of your personal financial asset portfolio? Do they just duplicate what you already own?

There is a free on-line tool that you can use to measure your portfolio diversification, and better understand the relative contribution that each of your investments makes to your goal of holding a broadly diversified global investment portfolio. On the Morningstar website, you can find their “Instant X-Ray” tool. Go to the Morningstar site at http://www.morningstar.com/

Click the “Tools” tab in the horizontal bar, select the “Morningstar Tools” pull down menu, and then choose “Instant X-Ray.” To go directly to this tool, use this URL:
http://portfolio.morningstar.com/NewPort/Free/InstantXRayDEntry.aspx

To use the Instant X-Ray Tool, just enter the ticker symbols for all of the mutual funds, ETFs, and individual securities that you own or intend to own with the dollar value of each holding. Then, click “Show Instant X-Ray” to see a summary of your overall portfolio.

Note that when you enter only one mutual fund or ETF ticker symbol or only one stock or bond holding into the Instant X-Ray Tool, the summary provides data for that single fund or security. This can be very useful, as you evaluate individual investment funds and investment securities. When you enter multiple funds, you will get an overview that blends all the funds and securities in proportion to the dollar values that you enter for each holding.

This free Instant X-Ray summary provides a variety of data about your overall portfolio. The overview allows you to evaluate how diversified your portfolio is on a variety of dimensions, including the major dimensions that are summarized in the other articles on this website about selecting a broadly diversified investment portfolio. (See the Sitemap for these articles.)

Incidentally, if you click on the other views that are offered with the Instant X-Ray tool, then Morningstar will try to get you to sign up for a “Premium” subscription. The information provided by this free summary overview in the Instant X-Ray tool is sufficient, and you are not required to pay for a premium subscription.

Note that there is no relationship between this website and Morningstar, and this website did not receive any form of consideration, financial or otherwise, to write this article. The “Instant X-Ray” is a useful financial tool for individual investors, and that is why we have provided this article.

Investment software is needed to establish a much more reasonable long-term money management strategy

This free “achieve financial freedom” site provides essays on how to develop a self-directed personal financial plan

The financial and investment planning articles on this free site supply important considerations to households about personal finance plan issues that they should take into consideration. These publications help in establishing a life time personal finance planning strategy. In addition, to make a really useful long-term money management strategy requires that you use the leading financial planning tool with the top financial investment software and an excellent home financial software.

Furthermore, this free financial freedom guide web site helps you find a leading ALL-IN-ONE home financial software home computer application with an excellent retirement planning calculator, the leading personal budget software, and an excellent investment planning software for your self-directed full life personal financial planning.

The Only Real Protector of Your Financial Security Is You!

Reduce the Chances of Mail Theft

Never leave any outgoing financial letters containing checks or sensitive information outside in public for the postman. To receive mail, you should have a mail drop slot rather than a mailbox on the outside of the house. Always mail your financial letters inside of a reliable US Post Office. Theft of checks in the mail – from outside your home happens more often than you may think. And, you are the one who suffers when your payment is not received in time; you credit rating gets dinged; your check is stolen, washed, and cashed; you lose your money; and you waste a huge amount of time puting your financial identity theft Humpty Dumpty back together again.

Stolen checks can be chemically washed to remove ink. To do this criminals tape over your signature on both sides, and then remove the tape. The end result is a blank check with your signature. To avoid check washing, you can purchase certain gel pens with ink that cannot be washed in this manner. Several vendors offer gel pens that claim not to be washable. You can research them on the web with Google. For example, Sanford distributes the Uniball Signo line of gel pens with gel ink that supposedly cannot be washed. These pens may be found in local stores.

Review ALL Bills and Financial Statements Promptly and Handle Significant Problems in Writing Within 60 Days

Review your credit card bills and other financial account statements carefully and respond to any problems promptly. Unfortunately, after 60 days the few consumer protections that are available to you under the Fair Credit Reporting Act will cease. Thereafter, you are at the mercy of the goodwill of banks and other financial institutions, which all too often is sorely lacking. Never count on the goodwill of any financial institution after 60 days has passed. This is particularly the case, with financial services companies that you cannot visit locally in person. Over the telephone, financial services companies — particularly credit card companies — have mastered the art of (usually) politely telling you that they are sorry, but there is nothing that can be done to fix a problem without, of course, it costing you a lot of money!

Check every financial statement that you receive in a timely manner and report any problems. If the dollar amount in question is significant, read the instructions on your statement or on the financial institution’s website about how to make a report in writing. Only when you follow these procedures in writing within 60 days are you protected under this law.

If you attempt to resolve a problem over the telephone, take careful notes including who, when, and what was stated, etc. Nevertheless, telephone conversations do not protect your legal rights, so when the amounts in question are significant to you, you must put it in writing.

Dispose of Financial Records Properly

Be careful in disposing of all financial records and statements. Do not simply discard them in the trash or recycling. Use a crosscut shredder, which makes small confetti and not strips. Alternatively, you can keep a bag of discarded financial records, which you burn periodically. These financial records disposal recommendations also apply to preprinted credit card and other debt applications that you might receive in the mail. Do not throw these applications in the trash without first tearing off your name and address from the application.

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Financial planning calculators are needed to develop a much more reasonable family financial strategy

This free financial freedom website publishes documents on how to produce a do-it-yourself family financial plan

The personal finance plan articles on this free information site give important considerations to families and individuals about personal financial plan topics that they should think about. These write-ups help in developing a lifelong personal finance planning strategy. In addition, to develop a really useful plan for financial success depends upon you using an excellent financial planning tool with superior home financial software and a sophisticated lifetime investment calculator. This free “create financial freedom” website enables you to find the top ALL-IN-ONE personal finance software tool home PC program with the best retirement savings calculator, the top family budget software, and the top investment financial calculator for your do-it-yourself lifelong financial planning.

Financial Planning Security and Identity Theft Prevention

You should take the potential for financial identity theft very seriously, as a threat to your financial security. Identity theft can sometimes entail loss of your financial assets, whether small or large. However, very often it requires taking a very large amount of your time to rectify an identity theft breach. Given the interconnectedness of the personal asset and personal credit system, any breech of your financial identity can have very time consuming ramifications, and the value of your time can many times exceed the value of the money that might have been stolen from you or from some firm through your stolen identity. Furthermore, once your identity is “out on the black market” you are more vulnerable to subsequent attacks. Taking certain steps to prevent an occurrence of identity theft in the first place is prudent. This is why identity theft prevention is a key, but often overlooked, component of a prudent financial plan.

Protection Practices for Sensitive Information and Passwords on Banking, Mutual Fund, Investment, and other Financial Websites

As you set up Internet accessible financial accounts, be very careful with your financial information. Furthermore, as you utilize the Internet it is important that you use what are known as “strong” passwords with more characters (combinations of letters, numbers, special symbols, upper and lower cases). Vary your passwords from one account to another. Never use the same password across your important financial sites. It is much better to maintain list of different passwords that you carefully protect at home, rather than to use a single weak or even strong password across various financial websites. Furthermore, it is a good practice to vary your user name from one account to another. In effect, different user names and different passwords in combination make your identity on any single site much more secure.

Therefore, it is recommended by security authorites that all your financial passwords for your on-line accounts be both strong and different. Many identity thieves are clever and sophisticated. Furthermore, there is a cyber underground and internet black market where compromised identity information is shared, bought, and sold. This cyber crime underground stretches around the world. When your user names and passwords are both strong and different, you could avoid a single identity breach from cascading across your other financial accounts.

Avoid using more sensitive information, such as mother’s maiden name or your city/state/date of birth, for example, as your answer to security challenge questions on any ordinary, non-financial website.  Reserve this information only for those sites that hold your financial accounts and your financially sensitive information. Simply assume that the vast majority of websites have absolute amateurs in charge of their website systems architecture and security. While this may not be true of any given website that attempts to collect sensitive information from you, assuming that the site security is poor is a wiser assumption, because you never know which site could be the weak link. Systems administrators of financial web sites tend to be much more sophisticated concerning security affairs, but they certainly are not infallible. Furthermore, all it takes is one corrupt employee at firm with strong or weak web systems security, to circumvent any protections that are in place.

Deal with Financial Services Company and Non-Financial Websites

With less important and non-financial web sites that require registration, you could use the same username and the same easily remembered strong password. However, it would be very wise never provide these sites with any additional information that is accurate about your name, address, phones, the security challenge answers above and other potentially sensitive information. Always assume that security on any of these “unimportant” web sites could be breached and that your password information could be used to access other accounts elsewhere. By drawing a strong distinction between the user names and passwords that you use on financial and other sites that are important to you versus those unimportant sites requiring registration information, you can in part firewall yourself from security breaches in the less well managed part of the Internet. Why supply via perhaps a forum registration to some hobby web site your actual name, address, etc. And, certainly do not supply your date of birth or mother’s maiden name as the answer to the security challenge questions. If that forum website’s membership database is breached you will have supplied key information needed to breach the financial accounts that are really important to you.

Access to your personal email system or systems should require a strong and different password. Stored email messages can contain passwords for which a thief could search. Furthermore, on your home computer systems, you should always have a fully functioning firewall and up-to-date anti-virus/anti-spyware software that is always on.

Take these issues seriously. Cyber crime is worldwide, cooperative, and increasing sophisticated. Since it is highly profitable and risks of criminal prosecution are low, do you think this problem is going to go away. The prudent thing to do is to keep identity theft away from your door, if you can.

Avoid Phishing and Other Impersonation Attacks

Avoid phishing of all kinds. For example, never provide any personal data of any kind in response to a link provided to you via email. Always ensure that the URL of the site you are using is the correct URL. If you are ever in doubt, type in the URL yourself or search for the site on Google and then enter the site with the link from Google.

Furthermore, never enter any financial information or other sensitive information into any website that does not use the secure “https” protocol (note the “s” added to “http”). When buying over the Internet with a credit card or otherwise, if a site does not use https, do not use it. Use only one credit card when buying on the web. If that credit card is compromised, you can close that credit account number and replace the card.

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This free financial freedom website publishes documents regarding how to make a personally customized personal financial planning program strategy

The personal financial planning program strategy postings on this free website give individuals and families important ideas about family financial planning issues that they should think about. Our publications help in establishing a life time personal finance planning strategy. In addition, to make a fully personalized lifetime financial plan requires that you use a leading financial planning tool with a superior investment calculator and the top financial planning worksheets.

This free financial freedom online site also helps you find an excellent ALL-IN-ONE financial planning tools with the top early retirement calculator tool, the leading personal budget software, and the best investment planning software for your self-directed full life financial planning.

Roth IRA and Roth 401k Accounts and Roth Estate Planning Strategies

There are trade-offs in deciding how to set the proportion to contribute into Roth retirement savings accounts versus making contributions to traditional retirement accounts with tax deferral advantages. Please use the links at the bottom of this article to read our previous articles on the subject of an optimal Roth retirement account contribution strategy.

In many senses for some people, an optimal Roth retirement account contribution strategy also becomes an estate planning question. In the majority of personal finance situations, making 100% of allowable Roth contributions may not yield the greatest total estate at age 80, 90, or 100, when compared to the opportunity to make currently tax deductible contributions traditional personal IRA and traditional 401k, 403b, KEOGH, and other retirement plan accounts that reduce current taxable income.

However, when you expand your total present value analysis to include the long-term value to a multi-generational family, then Roth assets can have significantly greater value. If Roth assets remain at death, there are very significant long-term multi-generational tax avoidance advantages. In such circumstances where it is likely that a person’s assets will be adequate to cover retirement expenses even with a very long life, then it can be advantageous to live off of traditional retirement plan assets, which are subject to mandatory withdrawals and associated income taxation in retirement anyway. This means that over ones lifespan, when retirement assets are adequate for the long-term, then a larger and increasing proportion of ones future financial asset portfolio could consist of Roth assets.

For estate planning purposes, Roth retirement accounts can have some very significant advantages over traditional tax-advantaged retirement accounts.

If a family’s financial model indicates that there is a strong possibility that they will still have some tax-advantaged account assets at death, then those should be Roth tax-advantaged account assets, when feasible. Roth assets can be inherited by children and other designated beneficiaries, and these inherited Roth assets can also grow tax-free over the expected life of the person inheriting with certain mandatory withdrawal requirements.

For example, this means that a child inheriting from a very elderly senior citizen parent Roth retirement account assets, when that child is age 50, could perhaps enjoy another 40 years of tax-free investment growth with an income stream along the way. Under current law the child would face from mandatory, but non-taxable withdrawals. Only when withdrawn asset have appreciated in taxable accounts, would the fruit of these inherited Roth assets be subject to short-term or long-term capital gains taxes. Traditional tax-advantaged retirement accounts do not provide these very significant and valuable estate planning benefits.

You should note that the rules regarding Roth retirement plan accounts are in flux.

It is not clear what they might be over the course of your life. However, income limitations have changed and traditional to Roth asset conversions seem to be possible without income restrictions during 2010. These year-to-year changes are the reason why it makes a lot of sense to download from the IRS website and read the relevant US income tax publications, including IRS Publication 560 and IRS Publication 590. Again, consulting a knowledgeable certified public accountant may help you with current rules strategy.

Furthermore, you should also use the top retirement investment planning calculator to better understand the potential size of your projected Roth retirement nest egg assets in the future. You should find out whether you could be one of the minority of the US taxpaying population that could mass significant Roth retirement account assets and be able to pass them to your heirs with the associated tax advantages to your beneficiaries.

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