Briefly Noted

    Be Prepared: Don’t Forget Your Finances

    No one wants to contemplate the possibility that one day you or your spouse may not be able to care for yourselves. But you can help prevent a bad situation from turning worse by making arrangements now for a family member or a close friend to take over your affairs in the event it becomes necessary.

    You may have already broached some of the more sensitive issues such as the will, long-term healthcare insurance and healthcare power of attorney. But make sure you don’t forget to consider your personal finances and investments. This short list of financial considerations can help you get started:

    • Make a financial-records inventory, including a list of key advisers, the locations and account numbers of important documents (e.g., wills and trusts, bank and brokerage accounts, pension plans and retirement accounts).

    • Consider automated deposits of recurring income and payment of standard bills, which will simplify financial affairs and ensure steady deposits and payments.

    • Consider granting a durable power of attorney to an adult relative or trusted friend, which allows the appointee to make financial decisions or take financial actions on your behalf.

    • Review your investment portfolio annually with a trusted professional adviser, and if you anticipate involving a family member or friend in managing these finances, that person should eventually be included in portfolio reviews and/or statements as an interested party.
    —Neuberger Berman, a wealth management and financial services firm based in New York, N.Y.

    Trading Away Your Profits

    The explosion of information and market access has not necessarily produced favorable results for many self-styled traders. In fact, those who actively trade their own accounts tend to pay a high price for the privilege of doing so. Studies show that the most potent drain on portfolio return is excessive trading. And the more frequently investors trade (as measured by portfolio turnover), the worse their overall return.

    Excessive trading reveals a certain mindset and approach to capturing wealth. Many of these traits contradict prudent financial rules and investment practices. Consider these negative effects of excessive buying and selling:

    • Uncontrolled costs: Frequent trading incurs higher fees, commissions and taxes.

    • Excessive risk: Investors must place more aggressive bets to cover past losses and high expenses and make such bets more often.

    • Lack of discipline and process: When looking for home runs, investors base their decisions on a stock’s recent movement, media hype, selective research and other factors that don’t advance long-term performance. Moreover, hyper-trading encourages hasty decisions.

    • The roots of temptation: Research has shown that overconfidence is the main driver of the speculative mentality. Many investors overrate their abilities to anticipate trends, recognize mispricing and outmaneuver the market, and the higher their overconfidence, the more they trade.
    The financial industry and ownership culture also encourage investors to trade more. The market exchanges and brokerages thrive on trading volume. Their marketing messages and opinions tendered through the financial media advocate stock selection, market timing and active trading.

    Whatever the cause, excessive trading stacks the odds against the investor. Only education, seasoned advice and discipline can help investors reverse this fate.

    —Eliot M. Weissberg, CFP, CFS, president, The Investors Center, a financial services firm based in Avon, Conn.

    When It Rains, It Pours:How to Protect Your Assets

    Standard homeowner, renter, and auto insurance policies protect policyholders against certain types of personal liability. However, this basic coverage often is not enough to protect your assets from a devastating lawsuit. That is why the Pennsylvania Institute of Certified Public Accountants (PICPA) recommends that you consider personal liability insurance.

    Personal liability insurance is sometimes referred to as an umbrella policy, because it sits on top of other coverage you have and provides added protection. Without personal liability coverage, any liability beyond the coverage limits on your homeowner or auto insurance comes out of your assets, and could even put future earnings at risk.

    Standard homeowner and auto policies usually provide $100,000 to $300,000 worth of basic coverage. Typically, insurance companies offer umbrella policies with coverage amounts ranging from $1 million to $10 million. There is no precise method of determining how much liability coverage you should have. But the more risk factors in your lifestyle and the higher your assets and earnings, the more you have at risk and the greater the need for additional protection.

    For the protection you get, liability coverage is not that expensive. The cost depends on a number of matters, such as the amount of coverage, the company issuing the policy, and your own personal risk. Generally, premiums range from $200 to $300 a year for $1 million worth of coverage.

    Shop carefully. These policies vary considerably from one insurance company to another. Because an umbrella policy is designed to supplement, not replace, standard coverage, you likely will need to have your homeowner and auto insurance with the company writing the policy. Insurance companies also require that you maintain certain minimum levels of liability coverage on your primary policies before you can qualify for an umbrella policy.

    —The Pennsylvania Institute of Certified Public Accountants(PICPA);

    Company Stock:How Much IsToo Much?

    Common wisdom among financial advisers is that if you are participating in a company-sponsored 401(k)-type retirement plan, in general you should have no more than 10% of your entire investment holdings invested in your employer’s stock.

    Your retirement plan at work may constitute your entire portfolio. Or it might be only a portion of a larger portfolio that includes individual retirement accounts, taxable investments, and your spouse’s retirement plan. Thus, your 401(k) account itself might hold more than 15% or 20% in company stock, or even more, as long as it doesn’t constitute more than 10% of your overall portfolio.

    Advisers further recommend the precaution of diversifying away from your employer’s industry. If you work in a high-tech company, for example, you may want to minimize your holdings in other companies in the tech industry, which may be offered through mutual funds in your retirement plan.

    —The Financial Planning Association, the membership organization for the financial planning community;