Categories
Stocks

Trading Psychology – The Number One Goal-Setting Mistake Traders Make in Trading

The number one goal-setting mistake traders make is setting goals related to money.  Active traders will often tell me that they have a goal of making X-dollars a day or X-points a day.  That’s just not a good way to structure a goal.  

Trading Goals Related to Money 

What happens when the market trades in a very narrow range?  Typically, price movement will remain within the first hour’s range throughout the day.  That range might only be 5 or 6 points — too narrow to offer much trading opportunity.  It is very difficult to make money on such narrow range days.

So, if you goal was to make X dollars a day how do you do that on a narrow range day?  Since it is nearly impossible to make good trades on such a day, you would have failed to achieve your goal.  And, if you couldn’t read that the market has narrowed its range and instead tried to reach your money goal, you would have likely been trying to trade at every little turn and wound up over trading a choppy, range-bound day.  At best your money goal had set you up for failure because you couldn’t achieve it.  Worse, your money goal caused you to force trades in a choppy market, and maybe you lost money.  Goals that promote failure, poor trading habits, and losses are not useful goals.

A Better Trading Goal

A better goal focuses on your development as a trader.  It will help you improve your trading knowledge, skills, or abilities.  Rather than thinking about money, think instead about the process of trading.  The process of trading simply refers to the skillful actions a trader takes in trading effectively.  A useful question to ask is:

What trading process, if I were to improve and develop in this area, would add to my ability as a trader? 

Example of a Better Trading Goal

An example will help to illustrate how to do this.  Let’s say you want to improve your ability in trading trends.  You have done a self-assessment of your trading on trending days and find that your greatest limitation is that you tend to counter trade the trend.  A simple solution might be to notice whether the market is moving with momentum and making higher lows and higher highs (for a bullish trend).  A useful process goal then becomes:

Prior to taking a trade that fades a move, I will assess whether the market is moving with momentum and making higher highs and higher lows.  If it is trending, I will not take the trade.  I will execute this process on at least 85% of all trades considered over the next 20 trading days.

Note that this goal is useful because it builds skills and ability in assessing market movement.  It also keeps the trader from taking poor quality trades.  The next step for this trader would be to develop a goal to execute trades consistent with the trend – again, a process goal.

Trading goals should be designed to help you achieve.  Goals related to money, points, or other ‘stats’ won’t help you do that.  Work on trading goals that are related to achievement by helping you to develop your trading skills.

Categories
Wealth Building

Don't Make the Great Estate Mistake

"Daddy, what happens to your guitars when you die?"

My daughter has a habit of asking jarring questions like these, especially when she's unable to overcome the urge – inscribed in our house rules – not to bother me in my office during working hours, unless it's an emergency.

That's pretty much always. The first time she asked that question I didn't have a ready answer. After all, it's hard to explain the concept of "probate" to a 7-year-old.

But I have an answer for her now … one so simple that even a child can understand it.

The Probate Pit

Probate is the compulsory legal process when a person dies. It inventories your assets, ensures that all your debts are settled and distributes the rest to the heirs designated in your will.

If you didn't leave a will, however, each state has its own rules defining who is entitled to receive your property, and how much. This "intestate" probate process can be lengthy, during which time your heirs have nothing – sometimes, not even access to your life insurance proceeds. Most states have minimum periods that creditors are allowed to respond, during which your estate can't be distributed.

Probate is also costly. There are attorney's fees, executor's fees, court filing fees and other costs. Many states set these fees as a percentage of the value of your estate. Others allow attorneys to charge an hourly fee, subject to court approval of its "reasonableness." That can spell big trouble if the probate judge is a golfing buddy of your parents' attorney.

Do You Need a Will?

You've probably heard that musician Prince recently died intestate. Many people are incredulous that he neglected to draw up a will, especially since the bulk of his estate is publishing rights to his music, valued at around $ 300 million.

Prince's reluctance probably had something to do with his almost irrational dislike of contracts – even a will, which is basically a contract with your future deceased self. But Prince was part of the 55% of Americans who die without a will.

In some cases, that makes economic sense. If you have little to leave behind, a will could cost more than probate would. If you have no instructions for your remains or messages to deliver to your heirs – another role of a will – then maybe you can do without.

On the other hand, anyone smart enough to sign up probably needs a will. That's because it's not just the size of your estate that matters … it's also what's in it that's critical.

If you have more than a bank account, a home and a few personal possessions, a will is critical to ensure some control over how those assets are handled after you're gone. For example, if you own a business and your heirs can't agree on whether to keep it running or cash it in, a probate judge may order it sold so it can be divided according to state law.

In my case, ownership of properties in more than one country, various investments and a collection of valuable musical instruments makes a will a no-brainer.

Is a Will Enough?

Here's a simple rule: If the value of your and your spouse's estate is more than the combined gift / estate tax exemption – currently $ 10.86 million ($ 5.43 million x 2) – then you need more than a will. In that case, you need to move some of your assets out of your estate … but still make them available to your heirs.

For example, the death benefit of a multimillion-dollar life insurance policy will be included in the value of your estate. Plenty of people are shocked to discover that their parents' insurance, investments, property and other assets put them into estate tax territory … which is expensive and complicated.

If you have long-term investments with unrealized capital gains, for example, on your death, the appreciation on those investments from the date of purchase will be considered income for estate tax purposes, even if they aren't actually liquidated. That could mean that your heirs have to liquidate something else – say, the family house – to avoid having to sell valuable stock.

In such cases, you would benefit from an irrevocable trust to receive certain assets (either before or at your death). Those assets are excluded from the calculation of your estate. Such a trust could even be the beneficiary of your life insurance policy, keeping it, too, out of your estate … and out of probate, since trust assets aren't yours.

Prosperity in the Hereafter

Some folks rely on faith to meet their wishes for the future. I'm not one of them. Faith always has a part to play, but when it comes to your heirs, nothing beats a good old-fashioned contract with yourself – a will.

After all, we know not the day nor the hour …

Categories
Wealth Building

The Number One Estate Planning Mistake to Avoid

The topic of estate planning is misunderstood and wrapped in mystery for most individuals. Easy to understand why. Pop culture has evolved to label estate planning as something only the wealthy need. After all, what images pop into your head when you hear the term estate planning? Rolling estates, mansions and huge bank accounts.

Estate planning at its core is a simple idea. Yes, there are tactics that might seem complicated. However, when you boil down estate planning, it is planning for how the things you own pass on after your death.

What is the number one mistake you can make relating to your estate? Failing to have a plan.

There are many important issues to consider when developing a plan. The least of which is how your assets (your property) will pass on after your death and who will receive them.

The goal of a plan is control. Without a plan, you give up control how your property will be distributed. Without a Will, you shift the decision how your estate will transfer from you to the state.

What can you do to ensure this does not happen? Takes steps today and start a conversation with you and family.

There are professionals who make up a typical estate planning team.

Insurance Agent: An agent might seem an odd place to start. However, your insurance agent is commonly the person who starts the conversation. An agent can also help if products such as life insurance, long-term care or annuities could benefit your plan.

Attorney: An attorney is responsible for developing the legal documents and transfer strategies for your estate. An attorney will draft a will, trust or other estate documents.

Accountant: An accountant aids with potential tax issues. If an individual’s estate is large, there may be tax issues such as federal estate and income taxes. If you plan to give to family or charity, an accountant can help develop a plan that is tax compliant.

Broker: If you own securities, involving your broker in the planning process helps ensure your plan is consistent with your investing strategies.

The process: Once you meet with a professional. They will complete a financial profile. A financial profile lists your assets and offers a snapshot of where you are financially. Next, is discussing how you want your estate to transfer.

Next is involving the other members of the estate planning team. The cost to develop a plan will depend on the level of planning needed. Having a will drafted is the simplest estate plan you can have. A living trust or advanced legal documents will likely increase the cost.

Cost is often the concern that impedes individuals from starting the estate planning process. However, when you consider the cost and complication to your family.

A plan can be complicated or simple. Conversing with a professional can help evaluate potential issues and start the process.

Neither Barry Taylor, Integrated Planning Solutions nor its representatives offer legal or tax advice. The information contained on this page is for informational purposes only and should not be relied upon for tax or legal advice. Consult with your legal or tax adviser regarding your individual situation before making any tax or legal related decisions.

Categories
Mortgage

Do You Know When Home Mortgage Refinancing Can Be a Mistake?

Many homeowners fall into the trap of reasoning that home mortgage refinancing is a great option no matter what. But the truth is, many property owners may actually create a substantial monetary blunder by redoing their loan at the improper moment. On that point, there several illustrations of how this move is often an error in judgment.

For example, if the homeowner has not lived in or owned the home long enough in order to recover the expense of going through with the refinance. It’s also a mistake to go through home mortgage refinancing when the property owner has experienced a drop in their credit score after taking out the initial home loan. Additional factors that can make a refi a bad decision are how the closing costs will impact the deal.

To decide if the process is worth it, a property owner must figure out how much time they will have to hold on to the home in order to recover the expenses of the closing costs. This is certainly critical, particularly in the event that property owner plans to sell off the home within the not too distant future. Property owners can use home mortgage refinancing calculators to determine the length of time they will have to keep the home in order to make this move advantageous. These calculators assist homeowners in determining if a refi is a good idea or a bad mistake.

The majority of property owners are convinced that when they see a reduction in interest rates; it’s a sign for them to start the refi paperwork. But, whenever lower interest rates are coupled with a lowered FICO credit score, the net result makes it a bad idea for the homeowner to proceed forward. That is why it is crucially important for homeowners to utilize home mortgage refinancing calculators to assist them in making the right decisions.

Yet another frequent error property owners frequently make in regards to redoing their home loan is automatically starting the paperwork the minute they spot a noticeable drop in the interest rates. Again, this is often a blunder, considering that the homeowner did not thoroughly assess if the reduced interest rate was sufficient to net an overall financial savings.

Property owners generally fall into this trap because they fail to factor in the actual closing expenses associated with a refi. These particular expenses may include but not be limited to: attorney’s fees, prepayment penalties, points and loan origin fees, survey cost, appraisal fees, homeowner and title insurance, home inspection fees and title search fees.

By the time the average borrower adds these fees up, they can anticipate paying anywhere from about three to six percent of the borrowed amount. Those percentages don’t include clearing a second or third mortgage, if they are included in the refi. It is not uncommon for the closing costs to exceed the projected financial savings resulting from reduced interest rates.

The truth is, applying for a home mortgage refinancing isn’t always the best option. Unfortunately, quite a few property owners proceed forward although it is a financial blunder to go for it. Never go against conventional wisdom when the numbers don’t add up because you will pay more for home mortgage refinancing in the long run.

Categories
Student Loans

Do Not Make This Mistake If You Use an Income-Driven Student Loan Repayment Program

Income-driven repayment plans are enormously helpful if you are struggling to make payments on your federal student loans. These plans base monthly payments on a percentage of your discretionary income and family size. However, the Department of Education and your servicer require you to send your income and family size information each year so they can recalculate your monthly payments (if needed).

Failing to recertify your income-driven repayment plan by the deadline can lead to disastrous consequences. Depending on the amount of student debt you carry, your monthly payments could jump by hundreds of dollars.

What Can Happen if You Forget to Certify Your Income-Driven Repayment Plan?

A hypothetical example can explain further:

Let’s say you carry $95,000 in federal Direct loans and reported an adjusted gross income of $35,000 in 2016. For 2017, you have decided to utilize the classic income-based repayment (IBR) program. Starting in April, your monthly payments dropped to $200 per month from $1,100 per month (what they were under your 10-year repayment plan). To make repayment even easier, you set up your monthly payments to pull directly from your checking account by the due date.

Let’s jump ahead a few months. In December of 2017, your loan servicer sends you an email warning that you must recertify by February 24th of 2018 or your loan payments will increase to $1,100 per month by April 3rd. However, you have changed your email and phone number. You never receive the warning. February 24th rolls around and you miss the deadline. Once April 3rd arrives, you are horrified to discover your checking account is overdrawn by more than $500, overdraft fees included. You are unable to pay your rent, utilities, and credit card bill.

Although this is a worst-case scenario, many people do not recertify their income-driven repayment plans on time each year. In 2015, the Consumer Financial Protection Bureau reported that 57 percent of borrowers using these plans failed to recertify by the deadline. This is not always the fault of the borrower. Loan servicers may not file recertification paperwork on time. Borrowers who sent in their updated information on time may be frustrated by higher payments, even when they did nothing wrong.

The good news is that the Department of Education does not “kick you out” of your income-driven repayment program. You can still recertify, although late. Unfortunately, you may be out several hundred dollars. What is likely to happen is that your loans will be placed into an administrative forbearance while your updated information is processed. This can temporarily halt your unaffordable payments.

It is crucial to remember the recertification deadline. Ask your servicer if they can provide you with this deadline. Always make sure your servicer has up-to-date and accurate contact information. If possible, try to recertify months before the deadline. This may help avoid any holdups with your recertification.