ARK Wealth Insights

Monte Carlo Analysis

Posted by Matthew_Hanshaw-CFP on Apr 10, 2018 8:00:00 AM

Monte Carlo Analysis

When you sit down with a financial professional to update your retirement plan, you may encounter a Monte Carlo simulation, a financial forecasting method that has become more prevalent in the last few years. Monte Carlo financial simulations project and illustrate the probability that you'll reach your financial goals, and might help you make a more informed investment decision.

Estimating investment returns

All financial forecasts must account for variables like inflation rates and investment returns. The catch is that these variables have to be estimated, and the estimate used is key to a forecast's results. For example, a forecast that assumes stocks will earn an average of 4% each year for the next 20 years will differ significantly from a forecast that assumes an average annual return of 8% over the same period.

Estimating investment returns is particularly difficult. For example, the volatility of stock returns can make short-term projections almost meaningless. Multiple factors influence investment returns, including events such as natural disasters and terrorist attacks, which are unpredictable. So, it's important to understand how different forecasting methods handle uncertainty.

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Topics: Economy & Investing, Financial Planning

Monitoring Your Portfolio

Posted by Matthew_Hanshaw-CFP on Apr 5, 2018 8:00:00 AM

Monitoring Your Portfolio

You probably already know you need to monitor your investment portfolio and update it periodically. Even if you've chosen an asset allocation, market forces may quickly begin to tweak it. For example, if stock prices go up, you may eventually find yourself with a greater percentage of stocks in your portfolio than you want. If stock prices go down, you might worry that you won't be able to reach your financial goals. The same is true for bonds and other investments.

Do you have a strategy for dealing with those changes? You'll probably want to take a look at your individual investments, but you'll also want to think about your asset allocation. Just like your initial investing strategy, your game plan for fine-tuning your portfolio periodically should reflect your investing personality.

The simplest choice is to set it and forget it — to make no changes and let whatever happens happen. If you've allocated wisely and chosen good investments, you could simply sit back and do nothing. But even if you're happy with your overall returns and tell yourself, "if it's not broken, don't fix it," remember that your circumstances will change over time. Those changes may affect how well your investments match your goals, especially if they're unexpected. At a minimum, you should periodically review the reasons for your initial choices to make sure they're still valid.

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Topics: Financial Planning, Economy & Investing

Unit Investment Trusts

Posted by Matthew_Hanshaw-CFP on Mar 22, 2018 8:49:59 AM

Unit Investment Trusts

Despite offering certain distinct advantages for an investor, unit investment trusts (UITs) are not nearly as familiar to most people as, say, mutual funds. According to data compiled by the Investment Company Institute (ICI), in 2016 mutual funds held nearly 192 times as much money as all UITs did. But as a greater diversity of UITs have been introduced, they have become more popular as an investment vehicle.

Historically, most unit investment trusts have invested in bonds, especially municipal bonds. However, in recent years, equity UITs have taken the lead.

What is a unit investment trust?

Like a mutual fund, a UIT represents a collection of individual securities. However, unlike a mutual fund, it has a specified termination date. A UIT can last as little as a year, or 30 years or more. A bond UIT's termination date coincides with the maturity dates of the bonds it holds; an equity UIT specifies its termination date. Once that date is reached, the proceeds are either distributed to investors or, in some cases, reinvested in another trust.

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Topics: Economy & Investing

Should You Pay Off Your Mortgage or Invest?

Posted by Matthew_Hanshaw-CFP on Feb 20, 2018 8:00:00 AM

Should You Pay Off Your Mortgage or Invest?

Owning a home outright is a dream that many Americans share. Having a mortgage can be a huge burden, and paying it off may be the first item on your financial to-do list. But competing with the desire to own your home free and clear is your need to invest for retirement, your child's college education, or some other goal. Putting extra cash toward one of these goals may mean sacrificing another. So how do you choose?

Evaluating the opportunity cost

Deciding between prepaying your mortgage and investing your extra cash isn't easy, because each option has advantages and disadvantages. But you can start by weighing what you'll gain financially by choosing one option against what you'll give up. In economic terms, this is known as evaluating the opportunity cost.

Here's an example. Let's assume that you have a $300,000 balance and 20 years remaining on your 30-year mortgage, and you're paying 6.25% interest. If you were to put an extra $400 toward your mortgage each month, you would save approximately $62,000 in interest, and pay off your loan almost 6 years early.

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Topics: Financial Planning, Economy & Investing

Setting and Targeting Investment Goals for Retirement

Posted by Matthew_Hanshaw-CFP on Jan 30, 2018 8:00:00 AM

Setting and Targeting Investment Goals

Go out into your yard and dig a big hole. Every month, throw $50 into it, but don't take any money out until you're ready to buy a house, send your child to college, or retire.

It sounds a little crazy, doesn't it? But that's what investing without setting clear-cut goals is like. If you're lucky, you may end up with enough money to meet your needs, but you have no way to know for sure.

How do you set investment goals?

Setting investment goals means defining your dreams for the future. When you're setting goals, it's best to be as specific as possible. For instance, you know you want to retire, but when? You know you want to send your child to college, but to an Ivy League school or to the community college down the street? Writing down and prioritizing your investment goals is an important first step toward developing an investment plan.

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Topics: Retirement, Economy & Investing

Eleven Ways to Help Yourself Stay Sane in a Crazy Market

Posted by Matthew_Hanshaw-CFP on Dec 12, 2017 8:00:00 AM

Eleven Ways to Help Yourself Stay Sane in a Crazy Market

Keeping your cool can be hard to do when the market goes on one of its periodic roller-coaster rides. It's useful to have strategies in place that prepare you both financially and psychologically to handle market volatility. Here are 11 ways to help keep yourself from making hasty decisions that could have a long-term impact on your ability to achieve your financial goals.

  1. Have a game plan

Having predetermined guidelines that recognize the potential for turbulent times can help prevent emotion from dictating your decisions. For example, you might take a core-and-satellite approach, combining the use of buy-and-hold principles for the bulk of your portfolio with tactical investing based on a shorter-term market outlook. You also can use diversification to try to offset the risks of certain holdings with those of others. Diversification may not ensure a profit or guarantee against a loss, but it can help you understand and balance

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Topics: Economy & Investing

Active vs. Passive Portfolio Management

Posted by Matthew_Hanshaw-CFP on Nov 21, 2017 8:00:00 AM

Active vs. Passive Portfolio Management

One of the longest-standing debates in investing is over the relative merits of active portfolio management versus passive management. With an actively managed portfolio, a manager tries to beat the performance of a given benchmark index by using his or her judgment in selecting individual securities and deciding when to buy and sell them. A passively managed portfolio attempts to match that benchmark performance, and in the process, minimize expenses that can reduce an investor's net return.

Each camp has strong advocates who argue that the advantages of its approach outweigh those for the opposite side.

Active investing: attempting to add value

Proponents of active management believe that by picking the right investments, taking advantage of market trends, and attempting to manage risk, a skilled investment manager can generate returns that outperform a benchmark index. For example, an active manager whose benchmark is the Standard & Poor's 500 Index (S&P 500)

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Topics: Economy & Investing, Financial Planning

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