Investment Notes:
From Ken Ferrone, Vice President, First Savings Financial Services

The measurement or fraction of one-half gets talked about in many different ways.  A glass ½ full or empty of course brings images of a person who is either an optimist or a pessimist.  Certainly growing up getting ½ the questions right on a test would produce a grade of 50%, or an F, which is not something any student should strive for or be proud of.

Within the investment world a ½ decision can be a very costly mistake.  When one purchases an investment (whether it be a stock, bond, mutual fund, or any other type of security or commodity), they MUST keep in mind that they have only fulfilled ½ of their responsibility.  The other half of their responsibility is the SELL decision.  In a lot of cases this Sell decision can actually be more important than their initial buy decision.

After purchasing an investment (lets say 100 shares of an individual stock), the investor must decide at what price is that stock fully valued (monitoring the fundamentals and earnings, etc. of the company will not be discussed at this time, although this definitely needs to be factored into the equation to have the most updated picture and price target).  The investor must decide at what price(s) they will either sell their full investment or a piece of their investment.

In an example, to watch a stock earn 100% and subsequently lose 60% means a 20% loss from their initial investment (assuming no sales along the way).  On the other hand a person who sells ½ their position after making 100% can then look at the 60% drop as an opportunity to possibly more than double their shares (assuming they still like the fundamentals of the stock).  Even if the stock never corrects by that 60%, the sell decision still means that the investor is ‘playing with house money’ and has nothing to lose (so to say).  Think of all the people who invested in Enron or Lehman Brothers (to name just two) and never sold any shares as they went up and up!

By no means are we advocating short-term trading and getting in and out of positions quickly (remember this is market timing and studies show you must be correct over 80% of the time to break even).  However, we are advocating monitoring your price target for your investment (adjust as necessary), and sell all or a part of the investment over time.  This will be a form of rebalancing (sell high) that will allow you to purchase another investment (buy low).

Keep in mind any investment purchased or sold should also be looked at in view of each investor’s asset allocation strategy and their personal risk tolerance.

Securities and products offered through First Savings Securities, Inc.  Member FINRA / SIPC

NOT FDIC INSURED – MAY LOSE VALUE – NO BANK GUARANTEE – NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations.  To determine which investment(s) are right for you, consult your financial advisor before investing.

Investment Notes from Ken Ferrone, Vice President, First Savings Financial Services

As we approach that infamous day – April 15 – also known as tax day, many investors always wonder and sometimes question, should I invest in an IRA?  What type do I choose?  What about my 401(k)?  These questions of course come up more prevalently around this time of year as investors prepare their taxes and look for all possible deductions.

Although this is far too short to give specifics about all the options, we wanted to take the time to give some brief descriptions on the ‘main’ retirement savings vehicles.

Let’s start with your employer’s 401(k).  First and foremost the answer should be YES!  Most employers offer a 401(k) as a means for their employees to help them prepare for retirement.  Your contributions to a 401(k) come out before Federal taxes (essentially lowering your Adjusted Gross Income – and thus taxes).  Depending on the state you live in, your contributions may come out pre or post state tax (for example, Pennsylvania taxes your contributions whereas in NJ your contributions are treated similar to how the Federal Government treats them).  Not only do you receive a deduction off your income for your contributions (I repeat tax savings!) – but also, in many cases employers offer a match to the employee.  For example your employer may contribute $0.25 for every dollar you contribute up to $6.00 thus giving you an instant 25% return on your first $6.00 of investments!  Let me make this very clear, there is nothing I, nor any other financial professional can tell you that is going to give you an instant return like your employers match, so take advantage of this before anything else (before investing in any other vehicle make sure you have your 401(k) contributions to a point where you receive your companies full match).  Make sure you not only review your investment options frequently, but also your contribution levels.

For those that do not have a 401(k) available to them, a good alternative may be to invest in an IRA.  IRA’s can even be good choices for those who have maxed out their employer match in the 401(k), as almost always, you will have many more investment choices in an IRA than you do within your companies 401(k) plan.  Many times, you can contribute to an IRA up until April 15^th and still receive a deduction on your previous year’s tax return.  Although you will not get that instant match, you may still benefit from the tax reductions.  Don’t forget to put in IRA contributions for a stay at home spouse as well!

A Roth IRA does not give you a deduction on your current or future tax return.  Like your ‘normal’ IRA, a Roth IRA’s earnings will grow tax deferred however.  The big benefit to the Roth IRA is if and when you deduct money from this (unlike normal IRA’s where you have to start taking distributions, which then get taxed), a Roth IRA’s distributions are presently tax free (as long as you meet certain requirements such as holding it at least five years).  Also, unlike the normal IRA / 401(k), one does not have to start taking distributions on a Roth IRA, and it can continue to grow tax-deferred.

Which one is right for you and should you consider a Roth conversion?  These are all great questions that you should not only consider, but talk further about with you tax professional and financial consultant.

Securities and products offered through First Savings Securities, Inc.  Member FINRA/SIPC

 

NOT FDIC INSURED – MAY LOSE VALUE – NO BANK GUARANTEE – NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations.  To determine which investment(s) are right for you, consult your financial advisor before investing.

If you listen to very successful investors, a recurring theme is that people can make money in down markets. Although at first this may seem foolish, when you understand the reasoning, you can see that it is not only very insightful, but also very true.

What these investors are really talking about are two distinct methods to make a fact from their hypothesis. First, money can be made when the investor’s account declines less than the general markets do when they fall. Although this is not a direct gain in an investors account, preserving capital changes the “starting” value when markets start to rise. For example, if the markets go down 40% and the investor’s portfolio drops by 15%, then the markets climb by 40% and the investor’s portfolio increases by 25%, the end result is that while the markets are still down 16%, the investor’s portfolio is up 6.25%. By avoiding the broader market decline, the investor does not have to capture the full upside of the market to end up ahead!

Second, and more obvious, is that money can be made by taking advantage of investments (whether they be stocks, bonds, or other instruments) while they are on sale. Successful investors not only find, but invest in these bargains when others are fearful to do so. Think of Warren Buffet investing in Goldman Sachs and General Electric at the peak of the crisis. Investor psychology is driven by the two emotions of fear and greed. Unfortunately, this psychology typically has investors sell and buy at the wrong times.

One way to help an investor make money during the down markets is to ensure that portfolio risk level is evaluated properly and updated frequently. Investors should review their risk level at least once per year and during any significant life changing event (getting married, purchasing a home, having a child, retiring, et cetera). Since the answers to risk questions should change over time, especially in connection with a significant life event, an investor’s risk level should not remain static over time. A risk questionnaire can be a useful tool in this evaluation. Specific factors such as the investor’s age, or the time horizon until the money will be used, are important, but the key element in a good questionnaire is that it should help the investor put aside emotions about risk – it should assist the investor to clarify risk by taking out the fear and greed factors.

Once an investor’s risk level is properly assessed, the resulting portfolio should help the investor avoid making irrational decisions at inopportune times. During the past crisis, an investor whose risk level was on the mark, most likely was able to sleep better at night and take advantage of making money during down markets.

Securities and products offered through First Savings Securities, Inc. Member FINRA / SIPC.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE * NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations. To determine which investment(s) are right for you, consult your financial advisor before investing.