Dear ,
Welcome to the March edition of the Brighton Bulletin. Spring is just around the corner! Several interesting topics this month which I hope you'll find beneficial. As always, if you find this Bulletin useful and informative, please feel free to forward to anyone you believe would be interested.
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Brighton Perspective
Introducing our New Blog!
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 News decays quickly these days. Monthly bulletins such as this one, provide the opportunity to summarize activity and to drill down on relevant topics but the need for brevity is paramount. Yet, with so many good topics to discuss and so much useful information to relate a monthly conversation just isn't enough.
Thus, I've introduced the Brighton Perspective blog. I'll cover any topic related to economics, financial markets, investments, 401k and other defined contribution, endowment, foundation and portfolio management issues. It will be wide ranging and current. I hope you'll make it a part of your daily required reading. I welcome any thoughts anyone has on content - for example, a Q&A session. E-mail questions you'd like answered and I'll provide answers. One caveat is that I will not make specific investment or financial planning recommendations. Without full knowledge of an individual's financial health, it would be irresponsible of me. That said, the raison d'etre of Brighton Perspective is to inform, engage and benefit the reader. I won't be successful without your support! Again, as I noted in my intro, if you find the blog meets its intended purpose, by all means, tell everyone you know! The more readers, the more engagement, the better it will become.
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Is it Time to Refinance?
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Mortgage interest rates have fallen significantly in recent months as a result of the economic recession and decline in the housing market. Challenges do remain regarding refinancing. For example, while interest rates are low, housing prices have fallen, in some area dramatically. Further, while money is available from mortgage lenders, standards have returned to the more stringent requirements of the pre-2000 era. That means, among other criteria, strong credit scores and lower loan-to-value ratios. I'm hearing and reading that very few banks are willing to lend with an LTV greater than 80%. Finally, even if you meet these standards, you should consider how much you still owe on your current mortgage and how many years remain on that mortgage. If you're nearly done paying it off or your balance is very low and it's the only mortgage you have, you might consider retiring rather than refinancing it.
Conversely, if you have time, a higher balance and/or more than one mortgage, it might be beneficial to pursue refinancing. Consider the following example, let's assume you have one 30 year mortgage with an original balance of $475,000. You bought your house, a really nice house, in 1999, the interest rate was 6.75% (about what it was in February 1999) so you have 10 years remaining on a mortgage with a monthly payment of $3,081 (excluding insurance and taxes). The remaining balance is now $405,180. Over 10 years, thanks to the 30 year amortization schedule, you've succeeded in paying down only $70,000 (15%). However, the good news is you now have a loan balance that qualifies for the conforming loan category, so you can refinance using a conforming loan (better rates). The objective here is to match or shorten the term of the loan so don't take a mortgage with a term greater than 20 years. A 15 year mortgage with an initial balance of $405,000 at 4.5% (prevailing rate today) would be a monthly payment of $3,098. For effectively the same payment, you've cut 5 years off the original loan and, most importantly, saved over $182,000 in future interest. Imagine what you can do in retirement with an additional $182,000! This scenario can be reworked in several ways - you can refinance 2 mortgages so that both fit the conforming loan category, refinance to 20 years and reduce your current payment, etc. The bottom line is it makes sense now to review your options. If you can reduce the term at the same payment or matching the remaining term but cut your monthly payment you're benefiting by taking action. You'll reduce future interest paid, and potentially free up current income. Either way, you win. Remember, this discussion is not applicable to everyone - consider your personal situation before pursuing any changes. The link below is to an online mortgage amortization calculator that can help you model potential loans. Consider your options in light of your personal financial position; this won't work for everyone. By the way, this calculator is good for any amortizing loan, such as a car loan, so its a good bookmark for future needs. |
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Featured Article
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2008 401k Account Performance
The Employee Benefit Research Institute released its 08 survey on 401k performance - Here - that highlights several items of interest. Performance was impacted by:
1) Account balance size - individuals with larger account balances suffered larger % declines
2)
Tenure with firm - longer tenured employees suffered larger % declines
(I'm sure account balance & tenure are highly correlated)
3) Equity concentration - clearly higher equity concentrations lead to larger declines
On
average, 401k accounts were down roughly 25% compared to (37%) for the
S&P 500 and +5% for the Barclays Aggregate Bond Index. At issue for
many is an excessive allocation to equities regardless of age.
Remember, the "rule of thumb", a starting point, is that you hold a %
equal to your age in fixed income. So a 60 year old will have 60% of
their assets in fixed income. That number can be adjusted to fit your
personal situation.
The report also notes however, that thanks
to consistent contributions and employer matches, account balances are
significantly higher than in 2000. Those aged 36-45 for example, saw
their account balances increase by more than 100% on average despite
the 2000-2002 and 2008 bear markets.
Going forward, the report
recognizes that new rules which promote automatic enrollment and QDIAs
(qualified default investment alternative) will help plan participants
recover and move forward toward their retirement goals. Why? Auto
enrollment ensures participation and QDIAs such as life-cycle funds and
target date funds help improve participant asset allocations because
fund management makes the asset allocation decision rather than the participant.
Plan sponsors should review their existing plans annually to ensure they have an appropriate lineup of investment options including QDIAs. They should also review their Investment Policy Statement (assuming they one!). Changes should be made when warranted - fund management changes, poor performance relative to peers (seek an explanation from management before replacing the fund), etc. It is always in the plan sponsor's best interests to provide a strong retirement plan. I've noted before its a beneficial recruiting and retention tool.
Plan participants should review their asset allocation periodically as well. Take into consideration market performance, company profile - avoid overweighting your company's sector or style, if possible, and personal situation - age, proximity to retirement, etc. Take control of your account and strive to maximize it's potential.
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Thank you for your continued support. As always, if you enjoy this bulletin please forward on to anyone you believe may have interest. As well, please jump over and bookmark Brighton Perspective. Pass the blog on to anyone who may have interest. Finally, if I can be of service, don't hestitate to contact me.
Sincerely,
John Middleton, CFA, CAIA
Brighton Financial Planning, Inc.
908-730-7000
908-892-5958
john@brightonfinancial.com
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Solo 401k
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You're self-employed and have no other employees. You want to save for retirement but aren't sure of your options. Start with the Solo 401k. In most cases you can save more with this plan than with other options.
For More Information
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