IMG Wealth Management
Financial Planner, Analyst
Nathan Edwards is a CERTIFIED FINANCIAL PLANNER™ professional and CFA charterholder. He is committed to the idea that establishing clearly defined financial objectives is the keystone of the financial planning process. With these objectives as the foundation for a viable financial plan, Nathan believes that it is possible to elevate one's peace of mind and financial well-being both now and into the future.
IMG Wealth Management was created by professionals from Investment Management Group in 2017 to meet the specific needs of high net-worth individuals and institutions. Nathan and IMG Wealth Management's team of financial planners, investment managers, and support staff have developed a business model tailored to the unique requirements of their core clientele.
Assets Under Management:
Believe it or not, the “For Dummies” series actually offers two pretty good resources for brand new investors: "Investing For Dummies" and "Stock Investing For Dummies." Both are accessible to new comers, extremely readable, and provide a decent foundation of knowledge. In fact, I even recommend that folks who want to hire a professional to do their investing for them read these books if they have no other base of knowledge, just so they have some common points of reference.
If you burn through those and are yearning for more, I would recommend Benjamin Graham’s "Intelligent Investor." This book is not necessarily advanced, but it is certainly not as readable as the For Dummies books. It spells out some important concepts about the nature of investing, as well as time tested pointers about choosing investments.
If you want to begin to apply your newfound knowledge by utilizing some tools of the trade, most of the online brokerage houses now provide some really neat research functions. This is true even if you’re starting out with a small account size.
Many of the included research tools provided by online brokers now allow retail investors to perform multiple filters to scan through thousands of securities and strain out the few that meet a stated criteria. But first, of course, you have to at least know what you’re filtering for, which is where the previously mentioned resources might come in handy.
I will go ahead and throw in the typical warning, though, that investing in theory and in practice can sometimes be two very different animals, especially at the start. So, if you’re truly just starting out, I would recommend that you take it slow at first, and, if you’re fortunate enough to have some early successes, don’t let it go to your head. One of the best teachers is experience, so it’s valuable to get hands on. However, the cost of tuition for experiential education in investing can sometimes be inordinately high.
Moving averages are defined periodically. Although daily is a popular period to track, periods can be defined as seconds, minutes, days, weeks, years, and just about everything between and beyond.
This being the case, depending on the charting software and package utilized, even if something is labeled “200 day moving average” it may be a 200 period moving average. So, when you switch from a two-year chart to a five-year chart, the periods measured may automatically switch to something other than daily to fit the data within the new, longer charting span. If the periods change, then it will alter the measurement of the periodic moving average.
Try using charts where you can control the periods measured, as well as the date ranges and parameters of the moving average (such a chart can be found here). You will find that if the periods are defined as daily, the span of the chart will not affect the 200 period moving average if the end date does not change.
There are several varieties of risk that could be associated with a Roth IRA. If we’re starting from scratch, this requires some explanation.
The “IRA” portion of a Roth IRA is an acronym that stands for Individual Retirement Arrangement. Straight from the IRS, “An individual retirement arrangement (IRA) is a tax-favored personal savings arrangement, which allows you to set aside money for retirement.”
This is significant because the qualities of the “arrangement” itself are dictated by its terms. In the case of the Roth Individual Retirement Arrangement, the terms prescribe that annual contributions can be made on an after-tax basis up to specified dollar limits according to specified annual income thresholds to accounts established with entities approved by the IRS to act as trustees or custodians of IRAs. The terms also dictate that any contributions made can be withdrawn at any time without creating a taxable event. However, earnings on contributions must remain in the account until the latter of the owner having a Roth IRA open for five years and the account owner’s achievement of age 59 ½ to avoid paying taxes and a 10% penalty on the distribution of earnings. Once the latter of these events has occurred, earnings can be distributed from the account tax-free.
The terms of the Roth Individual Retirement Arrangement also dictate what types of investments can be made within the account. Approved and disapproved investments within IRAs are listed by the IRS here. With this information, we can see that the Roth IRA itself is not an interest-bearing type of investment or account, but that the types of investments made within the Roth IRA will govern the investment returns and risks associated with the Roth IRA.
So, if the question is “What are the investment risks associated with a Roth IRA?” the answer will depend on the types of investments made within a particular Roth IRA. Given the wide range of investments available to be made within a Roth IRA, one can usually establish an investment allocation within their Roth IRA to reflect their personal investment risk tolerances.
As far as some other risks that are associated with a Roth IRA, a few might, arguably, include opportunity cost, tax risk, and liquidity risk.
The opportunity cost of a Roth IRA could be appraised against literally anything else one could do with their assets other than contributing them to a Roth IRA. For our present purpose, though, we’ll stick to the opportunity cost of contributing to a Roth IRA instead of a Traditional IRA. Because, as of 2017, a total of $5,500 ($6,500 for those over age 50) can be allocated between one’s Traditional and Roth IRAs, contributing one dollar to a Roth IRA means that one less dollar can be contributed to a Traditional IRA. Because of the different tax treatments of these two types of IRAs, this limitation could be meaningful to some. Which leads to the next risk associated with a Roth IRA, tax risk.
Because Roth IRA contributions are made on an after-tax basis, and can eventually be distributed tax-free – if it is a qualified distribution – the Roth IRA can possess advantages over pre-tax contributions to accounts like a Traditional IRA if one’s taxes are lower when the contributions are made, and higher when distributions are taken. Tax rates, and even retirement income, can be tricky to forecast into the future. This being the case, those that contribute to a Roth IRA run the risk of their tax rate being lower upon eventual qualified distributions from the account than when contributions were made; potentially making those contributions less tax advantageous in hindsight if one had the ability to contribute on a pre-tax basis when the contributions to the Roth IRA were made.
We covered that there are stipulations about when tax-free distributions of the earnings within a Roth IRA can be made. Until certain conditions are met - namely, the latter of having a Roth IRA for 5 years and the owner of the Roth IRA achieving age 59 ½ - earnings within a Roth IRA would be subject to taxation and a 10% penalty. These stipulations make distributions of the earnings from this account less desirable during certain periods of time. This raises questions of liquidity in terms of barriers to access to the assets within a Roth IRA, which is a type of risk.
While risks to establishing a Roth IRA exist, they should be weighed against any potential benefits within the context of the potential owner’s personal financial situation.
If your primary goals are creditor protection and minimizing tax drag, you may have a couple of options.
You can, of course, periodically sell an appropriate proportion of your brokerage holdings, pay any capital gains taxes, and utilize proceeds to contribute to your Traditional IRA or Roth IRA up to the maximum allowable contribution. You will want to be aware of the income thresholds that stipulate the deduction limit for your Traditional IRA and contribution limit for your Roth IRA. Of course, you will also want to make sure that you fully understand the tax consequences of any asset sales.
If you are single, this method would presumably take several years to accomplish a full transition of your brokerage funds into IRAs. If enacting these transactions would take the place of contributions you are already making into your IRAs, this strategy might not make as much sense. That is, unless you decide to consume the dollars that would have otherwise been contributed to your IRAs, a proportional amount of your savings will probably still end up in taxable investment vehicles, negating the effects of the transfers.
If you are married, and your spouse is not already contributing to an IRA up to the contribution limit, you may be able to contribute to an IRA on behalf of your spouse, even if your spouse does not earn any income. On a household basis, this would potentially allow you to transition your brokerage account funds into an IRA while continuing to make your regularly scheduled IRA contributions.
If you have a retirement plan at work (like a 401k, for example), that you aren’t already maxing out – and because money is fungible – you could begin to contribute more to your retirement plan, and utilize the proceeds from the brokerage account to replace the income withheld from your paycheck to fund the retirement plan, if necessary. Depending on the type of plan, and the taxable position of the brokerage holdings, this could potentially result in a net tax wash, or better. It might also allow you to more rapidly accomplish your goal of transitioning assets in the amount of those held in brokerage to a creditor protected account with less tax drag (The zip code on your question is from CT. CT provides creditor protection to 401k assets, as they do for IRA assets.).
If you are self-employed, you could also establish your own retirement plan and potentially accomplish the same strategy as the one just described.
Really, you have some other options, too; but they, like these, will be highly dependent upon your personal circumstances. So, you might have a few different options to accomplish the goal you have described, but the best path is going to depend on several personal factors.
First, let me say how jealous I am that you have a thirst for this specific knowledge at your age.
In my opinion, it would be valuable to first build out a foundation of professional level general and technical understanding. A great way to do this is to get your hands on all three levels of the CFA® Program Curriculum. You can usually find the curriculum for previous years’ exams on popular auction websites for pennies on the dollar.
Each level builds on information from the previous level(s), so you’ll probably want to start at Level I. Each level’s curriculum also has multiple volumes, so, if you’re picking up a set, make sure you get all of the volumes.
If you find that any of the material in Level I is too advanced, please don’t get too frustrated. Understanding comes with time. It sounds like you already have self-instruction down pat, so I won’t go into too much detail; but, if the math presented is beyond your present ability, there are plenty of resources on the internet to get you up to speed.
It is not light reading, but, if you’re serious about this – and it sounds like you are – it will be worth it to spend some time getting familiar with the information presented. Even if you make it through all three levels of the material, it probably won’t cover every detail of the knowledge you thirst for. However, it will provide you with a broad enough base that you’ll at least know what you’re looking for/interested in moving forward.
If you find that you are having difficulty with any of the material, you can usually ask your questions at analystforum.com, and expect to get a reasonably helpful answer fairly quickly.