The Importance of Strong Financial Defense

The great Alabama coach “Bear” Bryant once said, “Defense wins championships,” and you can bet every great coach in every sport has shared that same philosophy. Just think about some of the great sports dynasties, teams that won championships year after year: The Green Bay
Packers under Vince Lombardi, the Boston Celtics under Red Auerbech, the Yankees under Joe Torre…you could go on and on. All of these teams knew how to score, yes, but they all started with the premise that a strong defense made their offense better. Strategically, they knew how to win games, but they focused first on strategies that ensured they wouldn’t lose games.

Why is that same approach so critical when it comes to your finances and, in particular,
saving and investing for retirement? Well, it’s simply because when you’re talking about your “life savings”, losses can potentially have a huge impact on your life! How huge? Well, consider the fact that if you have all or most of your investments in the stock market and your portfolio loses 50 percent of its value, you need to regain 100 percent of it in order to break even; that takes time, and depends on the market not dropping again…

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Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. McCartin and Associates and Sound Income Strategies, LLC are not associated entities.

IRA Conversions

The Roth IRA offers a number of advantages over its traditional counterpart. These include:

  • Tax-free distributions at retirement
  • Ability to continue making contributions beyond age 70-1/2
  • No required minimum distributions beginning in the year you turn 70-1/2
  • Leaving assets to survivors that are free from income taxes


Details on eligibility to convert a traditional IRA to a Roth IRA.

  • For years before 2010, if your filing status is married filing separately, you don’t qualify unless you lived apart from your spouse for the entire year.
  • For years before 2010, if your modified adjusted gross income is greater than $100,000, you can’t convert a traditional IRA to a Roth IRA.
  • For years before 2008, direct conversions from an employer plan to a Roth IRA were not permitted. You can do that now, but in some situations it may be preferable to roll to a traditional IRA and then convert to a Roth IRA.
  • If you inherited a traditional IRA from a person other than your spouse, you can’t convert it to a Roth IRA.
  • You can convert a traditional IRA to a Roth IRA even if you made a rollover within the previous 12 months.
  • If you’re otherwise eligible, you can convert part of a traditional IRA to a Roth IRA. But you can’t convert only the nontaxable part.

Assets converted to a Roth IRA must remain in the account for at least five years before any distributions are taken. Otherwise, a significant tax penalty may apply.

You’ll maximize the potential for tax-free income later if you pay conversion taxes out of pocket, rather than withdrawal them from your IRA. If you can’t pay conversion taxes without using part of your IRA funds, you probably shouldn’t convert unless you are certain you will be in a high tax bracket during retirement.

Non-Stock Market Income Generating Alternatives

There are three basic categories of investments: conservative, moderate and

alternative investment types

Aggressive instruments are those primarily invested in for growth. As the chart shows, they include things such as common stock, stock mutual funds, speculative real estate and commodities. Again, these are typically invested in for growth or capital appreciation, not income. They’re considered “aggressive” in part because it’s a simple fact that sometimes when you invest for gains you get losses instead – or that growth sometimes ends up being shrinkage.

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The Hard Lessons of Stock Market History

If you’re like most people, you believe there’s a great deal of truth in the old adage that
history tends to repeat itself more often than not. That’s an important adage to keep in mind
when it comes to saving and investing for retirement because it allows you to get a glimpse into
the future by knowing something about the past. The fact is, the stock market has been repeating
itself consistently enough throughout its history to allow us to see in it predictable and repeatable
long-term patterns, or market “biorhythms,” which are important to recognize and understand
when it comes to building a smart, defensive investment strategy.

First, you need to understand something about what particular “version of the truth” Wall
Street and most brokers like to tell when talking about the stock market. Most people have
probably been told that the market averages about a 9 percent return over the very long run. The
way that actually breaks down is that 2 to 3 percent of this return comes from stock dividends,
and 6 to 7 percent comes from capital appreciation; in other words a 6 to 7 percent average
growth rate over the very long run….

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Market Math Made Simple

Have you ever bought a pair of pants for your child or grandchild that were too big? It’s a common occurrence, and when it happens you basically have two options: One, you can throw the pants in the wash and try to shrink them. Or two, you can just sit back knowing that child or grandchild will eventually grow into them. In essence, this same phenomenon applies when the price of stocks get overinflated in relationship to annual corporate profits, and if you can learn to recognize when it’s happening, that knowledge can go a long way toward helping you make smart, safe savings and investment decisions.

I first observed this phenomenon back in 1998. What I was seeing, and what was starting to worry me, was that the overall price of stocks in the market was becoming overinflated – like a baggy pair of pants – relative to actual corporate profits. I understood from my knowledge of market history and my grasp of the basic financial ratios that one of two things had to happen to correct this growing imbalance: that overall stock prices had to shrink by 75 percent, resulting in a Dow Jones Industrial average below 3,000, or we had to slip into a significant and prolonged period of market volatility while we waited for corporate profits to grow into these baggy price levels.

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