Category Archives: Why

Why almost EVERYONE needs Bonds in their Portfolios

In true Tortoise and the Hare like fashion from the old school fable …..rabbit-2414356__480

There’s a tug-of-war that goes on between the turtle and the hare…..

We all know the ending, although some endings have changed over the years, but stay with us for just a second, as we bring a financial parallel to our fable.

In our interesting story, bonds are the Tortoise and the Hare are Equities/stocks.

Why most need Tortoise/Bonds in their portfoliosturtle-863336__480

Bonds are truly like the Tortoise as they’re more slow running, BUT also importantly, slow to lose value. 

Equities/stocks carry Hare like returns that generally, over the longer term are faster,  but in true Hare like fashion, can get really sidetracked at times (think October – December of 2018 Amateur hour time.)

Here is the Great News in our Story – You can do both!

The good news about investing, unlike the fable is that you don’t just have to be one or the other, but you can mix.

We would argue that mature (larger or for more mature folks) portfolios need a Tortoise for stability during bad times as well as the yummy income that bonds produce!

As the portfolio grows or the income needs rise, more Tortoise may be needed.

Early portfolios that have heavy contributions can frequently be all Hare/Equities/Stocks as the contributions making up a great percentage of the portfolio act like a stabilizing Tortoise.

Normal progressions may be 75% Hare, then 50% then 40% and 25% or less Hare are frequently ok …. with the remaining portions being Tortoise of course….

One of our favorites are 50/50 Hare to Tortoise ….

Another great part of having both in a portfolio is they tend to offset themselves naturally during bad times – when Hare/Equity/Stocks get smacked, almost inevitably Tortoise/Bonds have a field day – multiple reasons such as interest rates dropping when Equities rise and visa versa, as well as a Tortoise safe haven…

There are always unique situations such as all Tortoise due to immediate need or just dislike of volatility and all Hare when there are no needs for the future.

Look for a greater depth information in our coming Newsletter with possible follow up items and details here.

Needless to say we are fond of both the Hare and Tortoise.

Thanks for accommodating our juvenile humor!

Have a Great “Tortoise and the Hare” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents

 

Why you should Be Careful before taking that Lump Sum offer of your Pension, especially if your are receiving a monthly benefit already – Careful analysis is needed with ANY Pension decision

We have seen pensions that actually give you less money on a monthly basis if you wait longer! Not Kidding…

We have seen pensions dramatically lose money on their present value lump sum benefit over time (very short time in a few cases) monitoring is needed.

We have seen pensions that never break even, if you take them early versus waiting (similar to first point mentioned.)

We have seen offers to buy out monthly pension benefits in the form of a lump sum that are horrible.

We have seen lump sum offers that are too good to pass up (fewer times, but it happens)

We have run into pensions that if the participant passed away before the pension commenced, the spouse received NOTHING, but once the pension commenced the spouse was a full 100% beneficiary.

We have seen random offers from outside companies to buy pensions off – out of no where- usually not a good deal.

Be Careful with Pension DecisionsTrade - handshake-2056023_960_720

Most pension decisions are irrevocable, due to the actuary calculations that are put into place once a decision (contractually binding the company) is made.

While our favorite pension benefit decision (Jt survivor- as mentioned here) in great detail) is fairly straight forward, little else about pension decisions are easily understandable, compound that with the irrevocable nature of the decision, caution and analysis is warranted.

Recently we have run across a few buy out offers from different sources, reminding us of the complexity of pensions and bringing our thoughts to you in this post.

By reverse engineering these offers, a very complex situation can be turned into black and white.

Use caution when deciding on pension decisions as they are mostly irrevocable and frequently offers and changes, may not always be in the participants’ favor.

Have a Great “Clear Pension Benefit” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents

Why we like 30 year mortgages over shorter terms!

The American Dream of owning a home …

It comes with a Liability in most cases …

With lots of term options, we wanted to discuss our favorite, and why!

The 30 Year Mortgage – Our Favoritedebt-1500774__480

When most purchase a home, especially the first home, a Mortgage is the norm. In most cases the 30 year mortgage will be the most costly from a rate only standpoint –

Here is why it is our favorite:

  1. You can easily make a 30 year mortgage a shorter term by paying it faster/extra.
  2. You cannot pay less on a scheduled shorter term loan if life’s curve ball comes around.
  3. While likely the higher rate, the monthly cost will be the lowest due to the extended term.

There are always exceptions to the situation, but for the above reasons, our starting place is usually the 30 year mortgage!

Have a Great “Understanding Mortgages” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents