Will you join us in a Revolution?

Retirement in America is at a critical crossroad. Many people will be unprepared or under-prepared. Lack of savings and low returns will cause many to have to work longer, retire with less and depend on others (family and Government) for help.

Here are some key facts:

• The typical boomer is $500,000 behind on their retirement savings.
• Projections are that you will need at least $350,000 per person, to cover 90% of your retirement medical expenses.
• Retirees are living longer. A married couple at age 62 today has an 85% chance of one spouse living to at least 80 years old and a 40% chance of one spouse reaching age 90 or older.
• Your retirement plan should include the highly probable scenario that government entitlements like Social Security and Medicare will decrease benefits over time. If you have a company pension, you should also assume that it may be funded less or discontinued over time.
• Cost of nursing home care in Tampa, Florida is $86,140 per year and average length of stay is over 3 years.

As we have reviewed above, retirement can be very expensive.  You need your money to work for you both before and during retirement.  Please forward this blog to friends and family you care about for educational purposes.

Here are some ideas to help you reach your goals:

1. Hire a fee-only financial advisor who is a fiduciary for you.  This person can help you define reality, be objective about your money, and help you put together a plan of action. Find out why you need someone who is a fee-only fiduciary  – it’s the highest standard of care for clients… and rare among advisors.
2. Focus on monthly cash flow and save more money.  Focus on yearly goals. Take positive steps in the right direction and you will see results over time.
3. Say “No” to active managers.  Read the data – Most active managers fail to beat their benchmarks after fees and expenses.  Build a customized investment plan and invest in low-cost passive funds or ETF
4. Hire a DFA approved advisor.   We use DFA because we feel they give our clients better portfolio structure in key asset classes.

• DFA funds don’t follow commercial benchmarks but rather focus on asset classes. DFA funds avoid the negative effects of index reconstitution.
• DFA actively targets systematic risk factors (value companies, small cap companies and companies with direct profitability) with more precision than mutual funds like Vanguard or American Funds. Read about the “Evolution of Dimensional 2013 – DFA Matrix book“.  Thus, DFA attempts to do better than the index by targeting these risk factors.
• DFA portfolios typically have more of a tilt toward value and small cap companies than the Vanguard alternative mutual fund.
• DFA tends to be an aggressive lender of securities in their portfolios. This creates income for the fund and can reduce annual operating expenses. For example the DFA US small cap value fund has an operating expense ratio of 0.52%. In 2012, securities lending for this fund was 0.1107%. Thus, the net expenses were 0.4093% because DFA credits the lending revenue back to the shareholders.  This reduces overall expenses.

        5.  Focus on results.

• As a starting point, most portfolios I review are less than optional from an asset allocation standpoint. This means that a good advisor can add value by constructing a better portfolio based on asset class correlation and diversification. This is part of the reason why you should hire an advisor.
• Another reason to hire an advisor is access to DFA.
• Many people think they are saving money by using Vanguard. This may or may not be the case. Portfolio construction – do you have the knowledge to build an optimal portfolio and performance of small and value tilts will determine the results.
• Over the past 12 months, DFA has had a large performance advantage. This advantage also holds up over a 10 year period and after advisor fees.

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Here is a performance update regarding DFA vs. Vanguard. All DFA numbers are net of our management fee of 0.6%. Sometimes, performance may be close between DFA and Vanguard but we feel that DFA offers better exposure to the expected returns of value companies, small cap companies and companies with direct profitability over time. We feel this is important for our client’s portfolios.

Data from Morningstar 8/6/13

*Data from Morningstar 8/6/13

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Integrity Investment Advisors, LLC), will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.