Retirement often signifies the end to certain forms of income; but it also signifies the cessation of certain types of expenses.  For example, the best thing about a mortgage is that it eventually gets paid off.  The removal of this expense is a huge weight lifted off of your shoulders, and can mean the difference between positive and negative cash flow in your retirement.  Of all debts, this is a big one; you should speak with a financial adviser about devising a realistic plan to have your mortgage paid off before you retire.

Houses aren’t the only thing that are eventually paid off.  If you aren’t one of those people who trades their car in every couple years or leases, this debt will also eventually be eliminated from your budget.  Upon entering retirement, you will have to determine if your savings and income will allow for you to continue to make car payments or lease payments throughout your retirement or if you must buy a car and hang onto it throughout.

During your working years you probably will either opt to put 15% of your earnings away in some sort of employee sponsored retirement plan, such as a 401(k), or allocate your money each month into a traditional or Roth IRA, whether it be through an investment manager or yourself.   All of these qualified plan contributions will cease upon retirement, although you can continue to contribute to an IRA to age 70 1/2 and beyond.  All of your income from retirement forward will be entirely yours and you will no longer be expected to take a portion of it out for saving.

Another key savings you will see in retirement is life insurance.  For those of you that have cash value policies, there is a very good chance that you will have it paid off by the time you retire.  For those of you with term policies, you may no longer need them and it may become too expensive to continue the coverage.  In either case, it means an end to monthly payments and/or annual premiums.  This can free up thousands of dollars, depending on the amount of coverage involved.

The biggest goal you and your financial adviser should have prior to retirement is to pay off any and all miscellaneous debts.  Student loans, credit cards, and other consumer debts constitute  a large portion of most household budgets.  The removal of credit card debt in particular allows retirees to get out from under obscene interest rates and direct their monthly payments toward other obligations.

So what’s the bottom line?  The elimination of some or all of the debts listed above can make a huge difference in the amount of income that is required to make ends meet.  Many retirees are able to live on Social Security plus their retirement savings with relative ease if their major debts are paid off.  Make sure you are one of these people and Happy Retirement!

Both mutual funds and hedge funds are managed portfolios, meaning that an investment manager picks the securities he or she thinks will perform well and groups them into a single portfolio.   Portions of the fund are then sold to investors who can participate in the gains/losses of the holdings.  The main advantage to investors is that they get instant diversification and professional financial management of their money.

Hedge funds, however, are managed much more aggressively than mutual funds.  They are able to take speculative positions in derivative securities such as options and have the ability to short sell stocks.  This will typically increase the leverage, therefor increasing the risk.  This also means that hedge funds have the ability to continue to make money when the market is failing.  Mutual funds, on the other hand, are not permitted to take these highly leveraged positions and are typically safer as a result.

Another big difference between these two funds is their availability.  Hedge funds are only available to a specific group of sophisticated investors with high net worth.  The government deems this group as “accredited investors”, and the criteria for becoming an accredited investor are quite lengthy and restrictive.  Mutual funds are very easy to purchase with any amount of money though.

Having shaken off the jitters of recent stock market downturns, many investors are beginning to re-emerge and re-enter the stock market, or at least become more active with current investments.  Many of these people are simply looking to recoup their retirement losses.  Entering into the stock market without the proper information or assistance of an investment manager can be a recipe for disaster though.

If you choose to venture into the investment marketplace on your own, however, there are a few things to keep in mind.  First, you should consider favoring large company stocks over those of smaller firms.  If anything were to happen in the future, heaven forbid, larger companies can recover a lot faster than smaller companies.  You must also remember that bear markets do happen, and even though we have just gone through 2 terrible ones in the past decade making it seem easiest to just jump ship and bail, you need to hold out in order to beat inflation and reel in returns.

Another thing to keep in mind is to steer clear of long-term bonds.  If inflation escalates, which, lets be honest, is very possible because of the Federal deficit, you won’t want to be stuck in an investment where the market will demand higher yields than your bond is paying.  If you’re in a higher tax bracket, a good choice would be municipal bonds, which are generally tax free.  Those in lower tax brackets may want to invest in taxable bonds, which generally have a higher yield.  A financial adviser can help choose the best bonds for you.

When hiring a financial planner or investment manager, past performance is one of the most important factors to consider.  For this reason, many investment managers and financial planners maintain a composite, which is an aggregation of portfolios they manage that represents a specific investment mandate.  Composite presentations will give you insight into the past performance of an investment manager’s strategy.  With an influx in direct marketing for investment management and financial planning services it is very important that you familiarize yourself with the ins and outs of these composite presentations so you can analyze them for yourself.

Composite presentations will typically display both gross-of-fee and net-of-fee total returns.  A copy of the financial planner’s fee schedule should be requested if the composite displays gross-of-fee returns only.  You should be wary of a composite that only show net-of-fee returns because that is a sign that it may only include one large portfolio that pays little or no management fees.

Another thing to look for in the presentation is the total number of portfolios and the total assets invested.  You can use this information to figure out the composite’s average portfolio size by dividing the number of portfolios into the total composite assets.  Sporadic changes in the number of portfolios could signal that the investment manager has a high client turnover.

Looking at the investment manager’s past performance numbers is not always enough.  The true quality of the financial planner’s performance lies in the details of the composite presentation and their investment philosophy.  It is important to speak with them about how they go about investing and the types of funds and annuities they tend to favor to determine if they are the best fit for your goals as a client.