Fort Pitt, which joined Focus as a partner firm in 2015, has a team that has been dedicated to delivering comprehensive financial advice to clients for nearly three decades. Fort Pitt has a holistic approach to fiduciary wealth management and is committed to providing clients with outstanding service and tailored portfolio management solutions.

Through this transaction, Fort Pitt will gain access to Kovitz’s extensive suite of tools and expanded investment capabilities. Kovitz will be joined by Fort Pitt’s talented leadership team and growth-oriented advisors. Upon completion of this transaction, Fort Pitt is expected to add approximately $5.9 billion, measured as of June 30, 2024, to Kovitz’s regulatory assets under management.

“Since 1995, our team has grown tremendously in both the employees we support and the clients we are fortunate to serve,” said Theodore Bovard, Founding Partner and CEO of Fort Pitt. “Becoming a part of Kovitz will be the latest milestone in our ongoing mission to expand and enhance our capabilities, which will enable us to better meet the complex and evolving needs of our clients.”

“At its core, Fort Pitt is a firm committed to putting its clients first; and this key tenet of their business has helped them attract top talent that excels in delivering meaningful investment and financial planning services,” said Mitchell Kovitz, CEO of Kovitz and Vice Chairman of Focus. “We are thrilled to have this talented team join our firm and look forward to gaining access to even more capabilities and expertise for our own clients.”

“Fort Pitt and Kovitz are two firms that have long, proven track records of client service excellence,” said Michael Nathanson, CEO of Focus. “We are excited about what their teams will accomplish together as they expand Kovitz’s presence nationally and into the Pennsylvania wealth market.”

# # #

About Focus Financial Partners Inc.

Focus is a leading partnership of fiduciary wealth management firms and related financial services firms. Focus provides access to best practices, resources, and continuity planning for its affiliated firms, which serve individuals, families, employers, and institutions with comprehensive financial services. Focus firms benefit from the synergies, scale, economics, and best practices offered by Focus to achieve their business objectives. For more information about Focus, please visit www.focusfinancialpartners.com.

About Kovitz Investment Group Partners, LLC

Kovitz is an investment adviser headquartered in Chicago, IL. Kovitz provides investment and wealth management solutions to high net worth individuals, institutions, and private funds. Kovitz has been part of Focus since 2016. For more information about Kovitz, please visit www.kovitz.com.

About Fort Pitt Capital Group, LLC

Fort Pitt is an investment adviser that provides trusted, strategic investment and wealth management solutions to both individuals and institutions. Tracing its origins back to 1995, Fort Pitt’s philosophy has remained steadfast: preserve capital while maximizing growth and income. Earning and keeping their clients’ trust is central to the Fort Pitt team. For more information about Fort Pitt, please visit www.orchid-ibex-388317.hostingersite.com.

Media Contact

Prosek Partners pro-focusfinancial@prosek.com

The post Fort Pitt Capital Group to Join Kovitz appeared first on Fort Pitt Capital Group.

Ginsburg was instrumental in making it illegal for colleges to discriminate against women on the basis of gender for admittance. Colleges used to be able to decline female applicants, which inhibited a woman’s ability to advance their career by getting an education. Now, we as women aren’t subject to this ripple effect of gender discrimination for education, starting and advancing a career, and meeting the full earning potential like our male counterparts.

From an employment and earning potential standpoint, employers can no longer discriminate against women if they are pregnant or if they have children. This prevents discrimination against females for having kids or being within “child bearing ages,” which used to be a real issue. Before RBG, women could be fired for being pregnant or having children, which inhibited their earning potential. With this anti-discrimination legislation in place, women don’t have to worry about losing their earning potential or not being hired for a position because of their desire to expand their family.

Finally, before RBG, a woman needed a man – usually a father or husband – to sign off on having a bank account, credit card, or loan in their name. This is something we take for granted today, but women didn’t always have the ability to obtain a line of credit on their own. Now, women have the ability to access credit, get a mortgage, and maintain their financial independence.

These are just a few of RBG’s noteworthy accomplishments for creating equality in personal finances, and we should all be very thankful for how revolutionary she was for women.

The post Ruth Bader Ginsburg’s legacy & historic impact on personal finance appeared first on Fort Pitt Capital Group.

Successful investment strategies are less about capturing 100% of the market’s upside and more about missing the potholes.

Avoid the Most Significant Investing Mistakes

The extreme volatility from the 2008 – 2009 financial crisis provided one of the most severe environments to illustrate this concept; while most investors have recovered their losses, the wild ride they took has left a lasting impression.  More recently, the volatility that we have seen in 2018 has reminded us that we don’t like to see significant fluctuations in our portfolios.

Although you will never be able to eliminate the volatility associated with the journey, you can certainly make the journey more enjoyable with some preparation and smart investment strategies before you start.

How Will You Get There?

The first step is to gain an understanding of your propensity to accept volatility, or your risk tolerance.  It is common to feel more comfortable with risk when discussing it or thinking about it conceptually versus when you are experiencing it first-hand.

As a point of reference, many people who in 2007 indicated that they would be able to handle a significant decrease in portfolio values because they had time to recover, had very different feelings in 2008 when they experienced substantial declines.  Putting dollar figures to percentage declines will aid you in having more real-life conversations about volatility – talking about a 10% decline on a one-million-dollar portfolio is very different from talking about losing $100,000.

Risk-Adjusted Return

This concept deals with absolute returns versus relative returns or said another way, how much risk was assumed to generate the return during any given period.  As you compare different portfolio structures or investment strategies, it becomes very apparent that not all 10% returns are created equal.  If Portfolio A took twice as much risk as Portfolio B for the same 10% return, you can see how Portfolio A significantly underperformed Portfolio B; with two times as much risk, you should expect a 20% return.  The result is that Portfolio A substantially underperforms on a risk-adjusted basis.

Focus on What You Need

The best way to avoid taking more risk than is prudent is to focus on what you need, not what you can get.  By structuring your portfolio to earn the returns that you need to meet your goals and not the highest absolute returns that you can get, you will increase your ability to keep volatility in check.

There is no substitute for detailed retirement planning and projections when you quantify your needs.  The myriad of rules-of-thumb and basic online calculators will be fine for most people in their 20’s or 30’s, but as your income and portfolio grow there are nuances and variables specific to your circumstances that need to be considered.

When Is It Time to Change Course?

Rest assured that the course you start on today will need to be changed, or at least be adapted, over time.  Your comfort level with risk will change over time.  Your need to accept risk will change over time, and the risk environment will change over time.  Each of these variables needs to be considered as you reevaluate the level of risk in your portfolio.  This macro decision needs to be revisited at least once a year.

Assess Your Situation

No single approach will be appropriate for everyone’s investment strategies.  Do your analysis to determine what makes sense for you and keep in mind that your plan will need to adapt.  Quantify the risk you are currently accepting and make decisions accordingly.

One of the most fundamental and significant investing mistakes that you can make is taking risk that you don’t need to take.

The post Critical Investment Strategies For Downside Protection appeared first on Fort Pitt Capital Group.

Different stages of life have their unique challenges and distractions when saving for retirement.

The typical issues for those most investors in their 40’s are:

1. Dealing with competing interests, which are most typically saving for retirement and children’s education.
2. Creating a unified and coordinated strategy for meeting these goals simultaneously.

Don’t let yourself get distracted and/or overwhelmed, let’s walk through what you need to know.

Retirement Strategies for 40-something investors:

The lynchpin is creating a detailed financial plan that will quantify where you currently are in relationship to your goals (how much you have saved presently vs. how much you need to retire) and what needs to be done to get there (to meet that goal, you must save XX per month.) If the savings rate(s) are necessary to reach your goals are not realistic today, a plan of action for building to that rate needs to be created, or the goals need to be reevaluated.

Some common themes across prioritizing your goals or your next steps are:

• creating an emergency fund (or cash reserves)
• addressing debt issues
• capturing ‘free money’ from 401(k) matching
• incorporating Roth IRAs &/or after-tax savings as appropriate

How to get started saving for retirement when it’s already late in the game:

In almost every situation there is the opportunity for some level of saving for retirement (no matter how small) and the most important thing is to start the habit of regularly investing. The decision to forgo that investment typically revolves around the concept that saving money is not fun; however, the actions required to make up for the missed opportunity are not fun either. Notably, taking on more risk than you might otherwise be comfortable with, more drastically cutting your current cost of living or delaying your retirement in an attempt to catch up.

Creative ways for people to start saving if you work in an office:

The most critical decision to make is to be confident that you are capturing all of the ‘free-money’ provided by an employer’s matching. Matched contributions will typically provide a return that cannot be matched by the stock market; for example, 25%, 50% or 100% match on each dollar you save up to the stated limit. Beyond that, you can evaluate if your company’s retirement plan is the most appropriate vehicle for you use.

Creative ways for people to save if they work for themselves or a small employer:

If you own your own company and have good cash-flow, there are numerous strategies to save for retirement that can be utilized to tilt the number of company dollars allocated to your account. The specifics of your situation will dictate what is available to you, but things like your age and income relative to the rest of the company will be factors.

Potential problems to consider:

In addition to overcompensating for the late start by loading up on risk, you can become your own biggest problem by not facing the reality of your situation or, as noted above, rationalizing why you don’t have the magnitude of an issue that you do. A primary benefit of an independent advisor is genuinely holding you accountable to the reality of your situation and can be an invaluable tool.

What types of tax-deferred, non-tax deferred accounts are useful?
Depending on current income levels relative to anticipated future income levels, Roth accounts (IRAs or 401(k)s) can be extremely attractive. If it makes sense to give up the upfront tax savings of a traditional IRA or 401(k), the long-term tax benefits are significant. At this point, most 401(k) plans will offer a Roth option.

Dealing with youthful indiscretions:

Learn from your past mistakes and applying/adapting those lessons to your current set of circumstance. For example, allocating an excessive portion of disposable income in your 20’s to clothing (or something that does not create long-term value for you) can be applied to the amount you plan to allocate towards a new automobile if you desire luxury models versus practical transportation.

Relying on generic retirement calculators:

Rules of thumb can be dangerous things, and the results of online calculators are only as good as the quality of the inputs. When considering your plan for saving for retirement, paying an independent advisor for their expertise in setting realistic assumptions/parameters is the best method. Overlooking critical data points, concepts, or themes can be disastrous. Utilizing unrealistic assumptions for things like rate of return, inflation or taxation will lead to erroneous results that may provide a false sense of security.

The post Savings For Retirement – Your No-Panic Guide For Those Late to the Game appeared first on Fort Pitt Capital Group.

Algorithms create a rule-based investment strategy but have no protocols to analyze intangibles such as human emotion. Robo Advisors are artificial intelligence, and cannot comprehend, nor compute, human concerns such as fear during periods of markets turmoil, greed when markets set new all-time highs or envy when friends brag about higher returns.

Think back to June of 2016. Britain’s decision to leave the European Union rattled global financial markets, sending numerous stock markets into downward spirals. In fact, both the Dow Jones Industrial Average and the S&P 500 stock market indices declined into negative territory.

As is the case with most market corrections, many investors sold stocks in favor of cash’s safety. With concerns of widespread contagion, some investors sought additional remedies to avoid further losses in their portfolio such as reducing their withdrawal rates.

The real danger of a Robo Advisor is the lack of protection from poor investor behavior. In the previous example, a Robo Advisor would not question a client’s rationale for reducing monthly distributions for living expenses; the demand is implemented immediately. Upon hearing the request, a human advisor would seek to learn more about the client’s situation by asking questions to determine the client’s concern. Is there too much risk in the portfolio, making the client uncomfortable and does the investment policy need to be altered? Is the client concerned about their current withdrawal rate and potentially outliving their money? This two-way dialog provides the needed input for the advisor to make a tailored recommendation given the client’s unique circumstances.

While online calculators and Robo Advisors often use the same formulas to project retirement funding, the benefit of a human advisor is determining the correct assumption. Making minor tweaks to your retirement plan is easy. If left to our own devices, as humans we tend to have recency bias. The S&P 500 and Dow Jones Industrial Average recently peaked at all-time highs, yet we forget the major events such as the Tech Bubble in the early 2000s, the Financial Crisis in 2008/2009, the Flash Crash, the US Debt Downgrade, September 11, 2001, etc. It’s easy to shift the assumed rate of return from 6% to 7% and decrease the assumed inflation rate from 3% to 2.5%. Maybe the $90,000/yr income need was a bit more than you need, it’s probably closer to $80,000/yr. While making these incremental changes doesn’t seem significant, you’ve drastically altered your financial plan. Essentially, you have squinted hard enough to turn a bleak financial picture into sunshine and rainbows.

The decision to retire is not a binary answer; it’s not a simple yes/no calculation. As humans, we do not think in relatively simple terms, “yes/no,” we think in “how/why” or in the case of a client retiring, “are you sure?”. Until computers can understand empathy, compassion, and provide comfort in times of uncertainty, clients will continue to benefit from a human advisor relationship. In 2008/2009 when the stock markets dropped nearly 40% who is better capable of providing comfort, a computer touting historical averages or a human asking questions and giving comfort and discernment?

The post What Human Advisors Do That Robo Advisors Can’t appeared first on Fort Pitt Capital Group.

The majority of the media coverage surrounding a corporate merger tends to focus on the broad economic impact of things like corporate efficiencies, quarterly earnings, the effect on the local tax base, etc. Unfortunately, there is little consideration given to the impact on the local employees and the things that they should be concentrating on as they contemplate their post-merger lives.

For example:

• How will the corporate merger impact their long-term retirement goal?
• What changes, if any, need to be made to their corporate benefits packages?
• How do they appropriately make decisions about company stock and stock options?
• Is their overall investment strategy still appropriate?

At the most basic level, there are four phases to the action plan that should be created and executed.  Addressing each phase in a disciplined and measured manner is the best way to allow for the prudent decision making that will ultimately deliver peace of mind during an uncertain period of time.

1. Quantify

While the initial reaction to the news of a corporate merger, or a non-merger-related downsizing, is often fear, understanding the real impact is necessary and critical to decision making.  Although the ultimate impact may be negative, quantifying the situation provides a baseline from which informed decisions can be made.

The quantification needs to be done in a pragmatic manner, utilizing realistic assumptions for variables such as investment returns, inflation, Social Security, taxation, life expectancy, etc. Unreasonable assumptions will lead to inaccurate planning results.  Being overly optimistic about assumptions will provide a false sense of security that will lead to unpleasant surprises down the road while using unnecessarily conservative assumptions will prevent reasonable solutions from being considered.

2. Evaluate options

Considering only a single option will rarely lead to the best decision.  The evaluation process should begin with a brainstorming phase where the goal is to consider all of the scenarios that are possible going forward.  This can range from the dream of moving directly into full-retirement in a matter of weeks to exploring the various iterations of continuing in traditional employment until conventional retirement age or anywhere in between.

This is the point where trade-offs begin to be considered; for example, to what is the right mix of reducing income expectations versus leaving the workforce early versus working at a reduced pace.  A growing trend is an interest in working beyond traditional retirement ages, but for less money, in a career that is more fulfilling.

Done properly, the planning process should fully explore multiple scenarios to provide a sense of perspective for what is both reasonable and achievable under realistic assumptions.  The purpose of this step is to provide the data that will allow for more informed decisions to be made and have fewer surprises occur.

3. Implement and monitor

Once a course of action has been selected a methodology for implementation and monitoring should be established.  The implementation should be well thought out before it is executed and the plan should be put into action in a diligent and disciplined fashion; don’t allow a red herring to derail the plans.

It will be important to review the planning on a regular basis to verify that the goals have not changed and that everything remains on track.  A high- level review should be done annually and a comprehensive review should be done every three to five years, or as notable changes occur.  Adjustments will need to be made for changing assumptions or changing conditions to investment markets.

4. Keep it in perspective

It is doubtful that there is anyone in an organization that will escape the impact of the announcement of a corporate merger, some positively and others negatively.  The key to successfully navigating through the experience is to proactively quantify the impact, assess and evaluate the options that exist going forward and to make educated decisions.

The post 4 Steps to Dealing with a Corporate Merger That Impacts You appeared first on Fort Pitt Capital Group.

You have accumulated assets, and your retirement date is rapidly approaching, now you ponder the appropriate steps to transition your investment portfolio into a predictable retirement income stream. How do you coordinate various investment accounts to effectively recreate a paycheck in retirement? Where do you generate income in a low yield environment? Are your dollars in qualified retirement accounts or do you have after-tax savings and what are the tax implications for accessing the dollars in each account? Albeit benign by historical standards, inflation will creep back into the picture; is your retirement income strategy designed to protect purchasing power? Check out certified financial advisor advice to these questions and more below.

Common Approaches To Retirement

Retirees are commonly advised to purchase annuities, sell assets as they need income or the universal rule of thumb, simply withdrawal 4% of your assets each year. Not only are annuities extremely expensive, but they also provide you little, if any, flexibility to access additional funds beyond your monthly payment. Lacking the ability to utilize your wealth during unexpected circumstances – without adding costly riders to the policy – can be detrimental to your financial security. Unforeseen hospitalizations, financially supporting children, and housing maintenance are a few unplanned events that could require an off-cycle distribution. Additionally, without adding costly riders, typically, annuity payments are not adjusted for inflation.

If you are like most people, neither a haphazard, nor a regimented distribution strategy will make sense. At the one extreme, liquidating shares of an investment as distributions are required is not prudent nor is it a sustainable strategy. Life moves independent of the financial markets and expenditures such as mortgage payments, do not decrease during market downturns; why subject yourself to the volatility? At the other end of the spectrum, a set withdrawal rate of 4% could make sense, as long as your investments are returning a minimum of 4% per year; unfortunately, the investment markets are neither consistent nor linear. Based on Morningstar data, the S&P 500 increased 10.61% in the first quarter of 2013; the impact of drawing 4% during this time frame is far less impactful compared to accessing money in the 4th quarter of 2008 when the S&P 500 plummeted -28.90%. A disciplined and well-executed strategy to create a regular cash-flow from a prudently managed portfolio of individual bonds and dividend-paying stocks can provide consistent income and limit the need to sell investments at inopportune times.

The Quest for Predictable Retirement Income

The current low-interest-rate environment is advantageous for anyone looking to refinance a mortgage, but it is problematic for investors seeking yield without incurring too much credit risk or duration risk. Investors typically view the fixed income market, or bonds, as safer than the stock market; however, with the pending rising interest rate environment, bond valuations are poised to decrease at some point. Though your portfolio will need a growth component, a primary focus of a retirement portfolio should be towards generating income; and many of the defensive sectors within the market are currently producing high dividend yields. Be mindful that not all income returned from an investment is created equally. Income generated from bond positions is taxed as ordinary income whereas dividends from stocks are taxed at capital gains rates, a much lower bracket in many cases.

A Coordinated Strategy

Before determining the best methodology for generating income, take a step back to quantify your income needs, after all, how can you devise an appropriate income strategy if you do not know the end objective? Constructing an independent and objective financial plan allows you to create a suitable Investment Policy – a clearly defined investment approach based on your income needs, your time horizon and your risk tolerance. The challenge is determining the appropriate balance of growth to income, equities to fixed income and selection of the appropriate underlying investments. A common mistake we see when discussing these concerns with new clients is the amount of risk they are taking – often unknowingly – to reach their goals. At the other extreme, holding large amounts in cash in an attempt to protect yourself from market volatility, results in guaranteed losses from a steady reduction of purchasing power.

The post Certified Financial Advisor Tip- How Do I Recreate a Paycheck in Retirement? appeared first on Fort Pitt Capital Group.

The market volatility of the past two years combined with a healthy sense of uncertainty going forward has left almost everyone feeling a bit anxious about their financial futures. While the recent financial crisis and the ensuing recession has made it both more difficult and more important to save adequately for retirement, it has also made it even more critical for those approaching retirement to effectively plan for that transition and to manage their portfolios appropriately.  As retirement approaches, there are several steps involved in answering the most common question: “How do I turn my current savings into an income stream?”

Determine Your Income Needs

From a planning perspective, the very first question that needs to be answered is “What will my retirement income needs be?”  Generating an accurate and detailed assessment of your post-retirement income needs and expectations is a critical, but often neglected step in the process.  Too often people will rely on rule-of-thumb estimates that rarely correspond to their specific situation.

The other essential element to the planning process is utilizing realistic assumptions for variables such as investment returns, inflation, Social Security, taxation, life expectancy, etc.

Too often unreasonable assumptions will lead to inaccurate planning results.  Being overly optimistic about assumptions can lull you into a false sense of security that will lead to unpleasant surprises down the road while using unnecessarily conservative assumptions can indicate that you need to work longer than is actually required.

Done properly, the planning process should explore multiple scenarios to provide a sense of perspective for what is both reasonable and achievable under realistic assumptions.

There are numerous cautionary tales of people forced to postpone their retirement plans or to rejoin the workforce because they failed to prudently create a detailed plan for the transition into retirement that will meet their specific needs.

Is Your Portfolio Structured To Generate Income?

Assuming your savings (asset base) is sufficient to meet your ongoing income needs, the next issue to be addressed is structuring your portfolio appropriately to produce the required income.

As you prepare for retirement, maximizing portfolio growth will become secondary to steady and consistent income generation.  Unfortunately, very few people transition their investment portfolios for income generation soon enough, if ever at all.  This transition should be carefully planned 10 years prior to retirement with implementation beginning 5 – 7 years prior to retirement.

The ubiquitous option of using an annuity to produce an ongoing income stream is often sold for its guarantees; however, the high expenses, steep surrender charges and general lack of flexibility will preclude this from being the ideal solution for most people.

Create A Sustainable Strategy

As you begin to rely on your portfolio for current living expenses, it is important that the majority of planned distributions are based on ongoing income versus appreciation.

The commonplace methodology of selling investments as cash is required to meet distribution needs will eventually cause you to sell investments at an inopportune time.  By contrast, a well developed and well-executed strategy to create a regular income flow via sources like prudently managed individual bonds or the regular dividend payments from income-oriented stocks can provide the required income without having to sell an investment prematurely.  Most typically, this is where the benefits of professional portfolio management become most evident.

Control Your Taxation

In addition to utilizing a reasonable tax rate assumption in your planning, there are several opportunities to create a lower and more consistent tax rate throughout your retirement.

The most basic technique is to structure pre-retirement savings in a fashion that creates an appropriate mix of Qualified (pre-tax) and Non-Qualified (post-tax) savings.  While Qualified savings are attractive for deferring current taxation, eventual distributions from these plans typically offer little tax flexibility and are fully taxed at ordinary income rates.

Accumulating an appropriate mix between Qualified and Non-Qualified dollars will allow you to examine your tax situation each year of retirement and manage distributions in the proportion that is most advantageous for that year’s circumstances.  Each year’s decision should involve the counsel of both your accountant and your investment advisor.

Seize The Opportunity

Although the past two years have created a difficult environment for both planning and investing, the end result is a heightened sense of awareness for addressing each issue with a disciplined process.  While you cannot control the economic and market-driven environments; having a detailed understanding of your situation, an appropriate strategy to implement and the discipline to implement it will ensure your ultimate success.

The post How Do I Turn My Savings Into An Income Stream? appeared first on Fort Pitt Capital Group.

Caveat emptor. Prudently adhering to the Latin phrase, “Let the buyer beware”, while shopping the financial marketplace will save you both money and disappointment. To meet your long-term objectives, clearly understanding what you’re getting when you purchase a particular investment, product or service is critical. But easy it is not.

There will be financial scams and rip-offs deliberately perpetrated on gullible investors. These can range from the New Era Foundation’s bilking of huge sums from several Pennsylvania colleges, schools, and charities with supposedly sophisticated investment committees to the recently uncovered Omega Trust fraud where thousands of individuals sent millions of dollars in cash for an “investment” promising a 50-1 return on their money in less than a year.

By keeping greed and stupidity in check, these overt ploys can often easily be identified for what they truly are. Far more difficult to discern are the choices of investment products and services offered by legitimate firms and which of these might work best for you. While the dollars lost due to outright financial swindles are large and well-publicized, it probably pales in comparison to the collective cost of investors making inappropriate or inefficient investment decisions. Here are three general precautions you should take to assure your investments are working to your best advantage.

Look Beneath the Covers.

Know the financial foundation of the securities you are investing in. This is particularly important when your investment actually is comprised of multiple securities, as with mutual funds and annuities. For example, at a client’s request, I recently reviewed the spectrum of mutual funds specifically focusing on utility companies. Utility stocks are traditionally viewed as rather stable investments that typically pay higher than average dividends. One of this year’s top performers in the ‘utility fund’ category was the Van Kampen Utility Fund.

Upon closer examination, some of the companies held by that fund were the electric and natural gas utilities you might expect, such as PECO and Enron. But the fund’s second-largest holding was a whopping 7% position in China Telecom, a rather speculative firm pro-viding cellular phone service to several Chinese provinces. While the stock may not necessarily be a bad investment, it certainly is not what many investors would be looking for when choosing to invest in a “utility fund”.

Know the Terms of Your Investment.

Thoroughly understand the ins and outs of any investment you plan to make. At times, investors just may not know how a particular investment vehicle works. For example, Ginnie Mae bonds periodically return portions of invested principal to investors as the underlying mortgages of that bond are repaid. However, you will occasionally hear of investors inadvertently spending these principal distributions because they mistakenly assumed the checks were periodic interest payments.

However, not all mistaken assumptions are simply investor error. It’s prudent to remember that truth in advertising often begins with a small “t” in the financial marketplace. For instance, several recent articles have been written about some investment firms selling high-rate certificates of deposit (CDs) that, at first glance, may appear to mature in one year. In actuality, many of these apparent short-term vehicles are long-term certificates of deposit with a maturity date twenty to thirty years away. Phrases such as, ‘callable after one year’ or ‘yielding 8% the first year’ are used to deceptively market these securities to unsuspecting investors who anticipate they’re the principal will be returned in twelve months. Take the time to read all the fine print and clearly understand the terminology used be-fore making any commitment.

Is this a Proper Fit?

Make sure the investment solution you are considering is the most appropriate choice for your specific need. Many times investment vehicles are ideally suited for one purpose but are marketed for other applications as well. For the individual investor, the result can often be inefficient, if not ineffective, the solution to their problem.

For instance, most annuities have certain tax deferral benefits that can potentially be attractive in the right situation. However, because an annuity has this ‘built-in’ tax benefit, using it as an investment vehicle within your IRA or retirement plan is typically redundant and usually makes little sense. What additional steps can you take?

Think critically.

Yes, you’ve heard it before but ‘if it sounds too good to be true, it usually is’. Ignore the hype and look for the negative side of an investment as well as the potential. Be wary of any investment whose premise is not supported by good business practice or common sense. Likewise, an investment built on a very narrow foundation or based solely on the current tax code is particularly susceptible to downside risk. A prime example is the tax-sheltered limited partnerships that were so popular in the early 1980s.

Do Your Homework.

Contrary to the media ads of several online brokerage firms, investing should not be a ‘hold your breath and jump’ proposition. Thoroughly research whatever investment you are considering. Even more important, understand your financial goals and true risk tolerance. Clearly identify what factors are most critical for your future success. Then make sure your investment portfolio is designed to complement these. Making specific investment decisions without knowing your fundamental objectives is putting the cart before the horse.

Consider a Professional.

As with most projects, there are times when a do-it-yourself approach can work just fine. However, at some point, hiring a professional financial advisor to assist with your financial planning and portfolio management process maybe your best alternative. Your financial well-being should not be a hit or miss proposition. When your situation is of sufficient size, complexity, or importance, working with an expert just makes sense. Assure any advisor you consider has your best interest at heart.

Risk of some sort is an inherent part of any investment decision; from buying Internet IPOs to putting money in a jar. Judiciously determining what risk a particular investment has and whether that risk is appropriate for you will help assure your hard-earned dollars keep working hard for you.

The post In the Financial Marketplace, Let the Buyer Beware! appeared first on Fort Pitt Capital Group.

Consider Benchmarks in Building Any Portfolio

    Investing requires decisions to be made within an ever-changing environment.  The general economy, interest rates, corporate earnings, investor sentiment, Federal Reserve Board policy, housing starts, retail sales, the strength of the dollar, and productivity are just a few of the regularly watched indicators whose only constant is they will continually change.

A seemingly endless array of factors influences the investment markets and, consequently, your portfolio.  How do you make good investment decisions when what you’re deciding on is constantly in flux?  Where do you begin?

First, ongoing portfolio management needs to be based on the framework defined by your personal investment policy.  And that policy should quantify the expectations and parameters of your investment portfolio.

For example, what is the purpose of the portfolio?  An annual stream of income or long-term capital appreciation?  Or perhaps a combination of both.  What is the maximum and minimum equity exposure desired?

What percentage of your investments should remain in stable, short term vehicles, such as money market funds? Are there any types of securities, industry sectors, or asset classes you wish to limit in your portfolio?

Your investment policy provides the foundation upon which future portfolio management decisions will be based.  When built upon a defined investment policy, a portfolio becomes more than just a random collection of stocks, bonds, mutual funds, or other investments.  Assets become building blocks designed to accomplish specific goals, and selections are made because they match defined objectives in the investment policy.  The focus of the portfolio becomes clear.

But that’s just the beginning.

As noted previously, the investment environment is truly dynamic. Consequently, successful portfolio management needs to discern which changes present a possible opportunity or concern and which are merely distractions.

Proper management identifies and reduces the number of external variables potentially affecting portfolio assets while controlling the impact of those variables that can’t be eliminated.

To accomplish this, appropriate points of reference must be defined for the portfolio and used as comparisons.  Using comparative benchmarks provides objectivity in portfolio decision-making and adds a degree of discipline.  The saying, “It’s all relative” is particularly true for investing.

As an illustration, I jointly ask the question with my clients, “Compared to what?”  For example, “Is XYZ investment performing well?”  Compared to what?  The Standard & Poor’s 500 index?  Industry peers?  Last year’s performance?  Other investments in the portfolio?

It’s important to know what criteria you are using when making critical judgments.  Without benchmarks, decision-making is reduced to guessing, choices become reactionary and the achievement of long-term objectives is left to chance.

Suppose your large-cap stocks were down 10 percent from their 52-week highs, as of the end of September.  Sad day?  No, consider yourself fortunate because more than 61% of all S&P 500 stocks were off their 52-week zenith by 20 percent or more.  In fact, nearly a third of the entire S & P 500 universe declined 30 percent or more from their one-year high water marks as of the end of the third quarter.

Relatively speaking, your equity portfolio was unscathed.

Such comparisons are particularly important when assessing the efficiency and effectiveness of your overall portfolio structure.  Decisions regarding the management of an investment portfolio typically involve three key interrelated factors– risk, return, and cost.  Collectively, these factors define a portfolio’s performance.

Again, relative measures are critical in accurately comparing a portfolio’s risk, return and cost.  Several standard portfolio measurements can be useful in your portfolio or fund decision-making process.

Some measures are relatively simple and easy to obtain or calculate.  Others are more complex and best delegated to an investment professional with supporting data and software.

One often-used statistical measure of risk is the standard deviation.  This compares a portfolio’s variability in return versus its average of returns.  A portfolio with a high standard deviation implies more risk because the investor is less certain of subsequent returns.

As a simple example, suppose two portfolios each had a 10 percent average annual return.  Portfolio A achieved this average with annual returns of zero and 20 percent, while Portfolio B had returns of 8 percent and 12 percent.  Portfolio A’s standard deviation would be notably higher.  This high deviation is not necessarily bad because variability can also have an upside.

But if these two portfolios continue to have a similar average returns for similar timeframes, Portfolio B is a better choice because the investors in Portfolio A are not being rewarded for their increased risk.

Another benchmark that compares relative risk to return is a portfolio’s beta coefficient, often simply referred to as “beta”.  While standard deviation measures a portfolio’s range of returns versus its average of returns (variability), beta compares its return with the return of a comparable market index (volatility), such as the S & P 500 index or the Lehman Brothers Government/ Corporate Bond Index.

A beta of “1” indicates portfolio volatility is equivalent to the benchmark index appropriate for that portfolio.  A portfolio with a beta higher than the comparable index (higher than 1) but with annual returns consistently below index level indicates the investor is again not being adequately compensated for the additional risk.

Other measures used in assessing relative portfolio performance emphasize comparative costs, such as expense ratio and tax efficiency.  For instance, suppose Portfolio A’s management style results in hefty taxable gains and has operating expenses that are 30 percent higher than Portfolio B.

Even if A’s gross return significantly exceeds B, a comparison of returns net of cost could indicate B is the better performer.

These are just a few of the comparative measures that can be used to effectively monitor and improve your portfolio’s relative performance.  Understanding these benchmarks will provide solid points of reference and add discipline to your portfolio decision-making process.

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