Tag Archives: financial advice

Don’t Fall for These 7 Social Security Myths

SSA-image-3My Comments: It must be Tuesday because here is something about Social Security. It’s an incredibly valuable and complex system, started over 80 years ago to provide a financial safety net for Americans who reach an age when working is/was not really an option. Today, society has evolved to where it’s a critical piece of the financial pie for almost everyone.

Many myths have surfaced during the years that influence are acceptance of it and how we should avail ourselves of the safety net. Here are seven.

BTW my next series of workshops on Social Security starts on October 11. Go here to see what it’s about and how to register. http://www.myafea.org/chapters/gainesvillefl

By Jane Bennett Clark – Kiplinger, September 2016

Social Security provides critical benefits to more than 50 million people a year; almost 170 million workers contribute a chunk of their paycheck, to the tune of $900 billion annually, to keep those benefits flowing. You’d think with all the people and money involved that we’d all understand exactly how the program works.

Not so. The complexity of the system, its evolution and a shift in demographics that threatens its solvency have created confusion over what Social Security can and will deliver . . . and even whether it will continue to exist. Here are seven of the most common myths and misconceptions, along with explanations that set the record straight.

Social Security Will Go Broke Within the Next 20 Years

Social Security is essentially a pay-as-you-go system. Most everyone contributes 6.2% of each paycheck, and employers kick in an equal amount (self-employed folks pay the full 12.4%). As long as payroll taxes exist, Social Security will never go broke.

Until 2010, payroll taxes brought in more than enough to cover benefits for retirees and other recipients. The surplus went into a trust fund, which is invested in special Treasury securities. The fund also reaps interest on the securities plus taxes on the benefits of some beneficiaries.

Problem: In recent years, more money has gone out in benefits than has come in from payroll taxes. The government has been using the interest on the securities to cover the shortfall but will have to start redeeming the securities themselves by 2020. Failing a fix by Congress to raise taxes or cut benefits, or both, the trust fund will run out of money in 2034.

That doesn’t mean benefits will disappear altogether. Payroll taxes will still be enough to cover 79% of promised benefits. Will a 21% reduction in benefits really happen? Probably not. Much as Congress dislikes confronting hard choices, it is not likely to risk the reaction of millions of Social Security beneficiaries (read voters) to the idea of such a cut. Expect a solution to be pounded out long before 2034.

You Don’t Have to Pay Taxes on Social Security Benefits

For millions of beneficiaries, that’s wishful thinking. If your combined income—that is, adjusted gross income not including any Social Security benefits plus any nontaxable interest plus half your benefits—is between $25,000 and $34,000 for singles and $32,000 to $44,000 for couples filing jointly, you’ll owe taxes on up to 50% of your Social Security benefits. If your combined income exceeds the $34,000 limit for singles or the $44,000 limit for couples, you’ll owe tax on up to 85% of your benefits. Just over half of all beneficiaries paid federal tax on Social Security benefits in 2015.

You may also have to pay state taxes on part of your benefits. Four states—Minnesota, North Dakota, Vermont and West Virginia—tax up to 85% of Social Security benefits. Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island and Utah also tax a portion of Social Security benefits but provide exemptions based on income or age.

Due to Social Security’s Shortfall, You Won’t Get Back the Dollars You Contributed to the System

Reality check: You don’t get back exactly what you put into the system anyway. Benefits are based on your 35 highest-earning years. But Social Security uses a progressive formula that replaces a higher portion of income for lower earners than for high earners—not a dollar-for-dollar match of what each worker pays in. Whether you’ll recoup more or less than the amount of tax you paid into the system depends on your earnings and how much tax you paid during your career, your age when you claim benefits, whether you’re married, and how long you (and your spouse) live to collect benefits.

Even if Social Security did pay a dollar-for-dollar match, the dollars you contributed are not stowed in your personal lock box, awaiting you at retirement. In fact, the money you paid went to fund someone else’s retirement; your benefits come from the payroll taxes of current workers.

Raising the Bar on Earnings Subject to Payroll Taxes Would Fix the System’s Shortfall

Under the current system, workers pay 6.2% of their wages, up to $118,500 in 2016, to fund Social Security benefits; employers kick in another 6.2%. If you’re self-employed, you pay the whole 12.4%, up to $118,500. (You and your employer also pay 1.45% each to fund Medicare Part A, which covers hospital stays. That tax has no income cap.) Some policymakers maintain that raising or eliminating the cap on payroll taxes would generate enough money to get the system back on track.

Not so, according to the Committee for a Responsible Federal Budget, a bipartisan policy group. Although removing the cap would significantly improve Social Security’s finances, it wouldn’t cover the shortfall altogether, partly because benefits are keyed to income. The higher the income subject to payroll tax, the higher the benefits paid out later to high earners (although not as much as the extra amount they put in), reducing the potential savings to the system.

If You Don’t Claim Benefits Early, You Risk Not Getting Your Fair Share

If you claim benefits as soon as you’re eligible, at 62, you get a 25% to 30% reduction in your benefit compared with what you’d get at full retirement age (66 for people born between 1943 and 1954; 67 for those born in 1960 and later). For every year you wait to take it after full retirement age, until you reach age 70, you get an 8% boost in benefits. Social Security actuaries calculate benefits with the goal of equalizing the total amount you get over your life expectancy whether you take benefits early, at full retirement age or at age 70. If you die before you reach your life expectancy, you won’t get your “fair” share regardless of when you claim Social Security. If you live longer than your life expectancy, you’ll get more than your allotted amount.

Fair or not, if you have reason to believe you won’t reach your life expectancy, you might as well take the benefit early and enjoy the money. If you think you’ll live well beyond your expected lifetime, you may be better off waiting until 70 because the bigger benefits over time will add up to much more than if you collected earlier, for a lower amount.

If You Take Social Security and Keep Working, You Must Give Back Most of Your Benefits

It’s true that Social Security beneficiaries younger than full retirement (currently 66) who keep working and earn more than the cap—$15,720 in 2016—lose $1 in benefits for every $2 they earn over that cap. But this rule, known as the earnings test, eases in the year you reach full retirement age. In that year, you give up $1 for every $3 you earn over a much larger cap—$41,880 in 2016—before the month you reach your full retirement age. Starting in the month of your birthday, there’s no limit on how much you can earn. Better yet, Social Security will adjust your benefits going forward with the goal of insuring that, over your life expectancy, you’ll be repaid every dime you lost to the earnings test.

Once You Start Taking Social Security, You Can’t Change Your Mind

Actually, you can, in a couple of circumstances.

Here’s the first scenario. Say you file for benefits at 62, when you first become eligible. Because you’re claiming before full retirement age (now 66), you get a 25% lifetime reduction in benefits. Then you get a windfall and no longer need the money. If you withdraw your application within the first 12 months of filing, you can pay back the benefits you’ve received, interest-free, and erase the 25% reduction. When you finally do claim benefits, you get whatever you’re due at the age you apply.

The second scenario: After claiming benefits early, you can ask Social Security to suspend your benefits once you reach full retirement age, up to age 70. You don’t have to pay back the benefits, but neither do you erase the fact you claimed early. Your future benefits will still start from a lower base, but that base can be pumped up by the 8%-a-year delayed-retirement credits you earn after age 66. So, while claiming at 62 cuts your benefits to 75% of the age 66 level, adding four years’ worth of delayed-retirement credits (32%) puts your age 70 benefit at 99% of your full retirement age check.

To learn more about either strategy, contact your local Social Security office and ask how to withdraw your application or suspend your benefit. Be aware that if you’re already enrolled in Medicare Part B, you’ll be billed for premiums that otherwise would have been subtracted from your Social Security paycheck.

Get ready for the mother of all stock market corrections once central banks cease their money printing

dow-2007-2016My Comments: The evidence is almost compelling. Compare this chart with the one I posted yesterday. If you are not on the sidelines, or positioned to go short at a moments notice, prepare for some pain.

by Jeremy Warner | September 20, 2016 | The Telegraph

Global stock and bond markets have been all over the place of late. Rarely have investors been so lacking in conviction. Confusion as to future direction reigns, and with good reason after the spectacular returns of recent years.

For how much longer can stock markets keep delivering? Is there another recession on the way, or to the contrary, is growth likely to surprise positively, underpinning current valuations? Economic turning points are never easy to spot, but right now it’s proving harder than ever.

The immediate cause of all this uncertainty is, however, fairly obvious. It’s the US Federal Reserve again, and quite how far it is prepared to go with the present tightening cycle. Few expect policy makers to act at this week’s meeting of the Federal Open Market Committee.

Even so, a number of its members have once again been making hawkish noises, and another rise in rates by the end of the year is widely anticipated.

Indeed, it is on the face of it quite hard to see how the Fed can avoid such action. Already at 2.3pc, core inflation in the US is trending higher. The US labour market continues to tighten, and money growth, for some a key lead indicator, is strong.

On the stitch in time principle, the Fed ought to be acting now to head off the possibility of over heating further down the line. Policymakers are also desperate to return to some semblance of “normality” after the long, post financial crisis aberration in rates, if only to give themselves room for monetary stimulus when the next downturn does eventually materialise. If there were a recession now, there’s not a lot in the armoury to throw at it.

None the less, the “R” word is once again on many people’s lips. No policymaker would want to raise rates into an impending downturn, even if, historically, they quite frequently seem to make precisely this mistake. Is the Fed about to conform to type, and tip the economy back into recession?

According to Chris Watling, chief market strategist at Longview Economics, a wide range of indicators confirm the message: recession risks are rising. And if a recession is indeed looming, it almost certainly means a bear market in equities. Looking at all the US recessions of the last 77 years, Mr Watling finds that there is only one (1945) which has not been accompanied by a stock market correction.

Complicating matters further is an ever more worrisome phenomenon – that both bond and equity markets are being artificially propped up by central bank money printing. Further easing this week from the Bank of Japan would only deepen the problem. Yet eventually it must end, and when it does, share prices globally will return to earth with a bump. Only lack of alternatives for today’s ever rising wall of money seems to hold them aloft.

Over the last year, central bank manipulation of markets has reached ludicrous levels, far beyond the “quantitative easing” used to mitigate the early stages of the crisis. Through long use, “unconventional monetary policy” of the original sort has become ineffective, and, well, simply conventional in nature.

To get pushback, central banks have been straying ever further onto the wild-west frontiers of monetary policy. Today it’s not just government bonds which are being bought up by the lorry load, but corporate debt, and in the case of the Bank of Japan and the Swiss National Bank (SNB), even high risk equities.

Never mind the national debt, much of which is already on the Bank of Japan’s (BoJ) balance sheet, the Japanese central bank is steadily nationalising the Japanese stock market too. According to estimates compiled by Bloomberg from the central bank’s exchange traded fund holdings, the BoJ is on course to become the top shareholder in 55 of Japan’s biggest companies by the end of next year.

From the sublime to the ridiculous, the SNB now owns $1.5bn of shares in Facebook and is one of the biggest shareholders in Apple. Meanwhile, both the Bank of England and the European Central Bank have announced massive corporate bond buying programmes, including, in the BoE’s case the sterling bonds of the aforementioned Apple. Quite how that’s meant to benefit the UK economy is anyone’s guess.

For global corporations at least, credit has never been so free and easy, encouraging aggressive share buy-back programmes. This in turn further inflates valuations already in danger of losing all touch with underlying fundamentals. By the by, it also helps trigger lucrative executive bonus awards.

Where’s the real earnings and productivity growth to justify the present state of stock markets? As long as the central bank is there to do the dirty work, it scarcely seems to matter.

In any case, the situation seems ever more precarious and unsustainable. Conventional pricing signals have all but disappeared, swept away by a tsunami of newly created money. Globally, the misallocation of capital must already be on a par with what happened in the run-up to the financial crisis, and possibly worse given the continued build-up of debt since then.

So what could come along to upset this already highly unstable apple cart? Too hasty a monetary tightening by the Fed would certain do it. The Fed doesn’t want to risk a repeat of the so-called “taper tantrum” of 2013, when it was forced into retreat from monetary tightening by an adverse market reaction.

Something similar may already be underway today. Financial conditions have tightened considerably since the summer; the dollar has strengthened, stocks have sold off, at least in the US, and bond yields have risen.

The pattern is a familiar one, in which markets tighten by just enough to deter central bankers from actually going through with the deed and lifting rates. It proved hard enough for the Fed to cease QE. Raising rates by a quarter of a point from zero proved equally long winded and traumatic.

Raising them further may be just as taxing. Every time the Fed hints at doing so, markets counter by threatening to tip the economy back into recession. It’s a brutal tread mill that policy makers have made for themselves; getting off without breaking a leg is proving hard to impossible.

Both main US presidential candidates promise fiscal stimulus should they win. China is also set on a path of fiscal easing, at least for now, while even in Britain there is some possibility of fiscal expansion in response to the Brexit vote. This may ease the path of future interest rate increases somewhat. Unwise to count on it, though.

5 Tips to Increase Your Social Security Check

SSA-image-3My Comments: It may be too late to make changes, but if signing up for Social Security benefits is still on your horizon, some of this WILL help you. (Are you listening Eric?)


By Richard Best | August 16, 2016

When Social Security was introduced in 1935, it was never intended to be a primary income source that could support people in retirement. Rather, its sole purpose was to provide a safety net for people who were unable to accumulate sufficient retirement savings. For the next seven decades, the majority of Americans never gave much thought to their Social Security because of shorter life spans and a reliance on guaranteed pensions. Today, an increasing number of people are starting to pay attention to their benefits, and Social Security planning is becoming a vital element in securing lifetime income sufficiency. Although there are many planning options for receiving Social Security benefits, they can be complex and only apply to certain circumstances. At a minimum, these are some planning tips that everyone should follow in order to increase the size of their Social Security checks.

Work the Full 35 Years

The Social Security Administration (SSA) calculates your final benefit amount based on your lifetime earnings covering your highest 35 years of work history. The SSA totals your earnings of your highest 35 years and averages them by using an average indexed monthly earnings (AIME) formula. If you entered the workforce late, or had periods of unemployment, those years will count as zeroes, which will be included in the formula, bringing down the average. Once you have worked 35 years, each additional year of earnings, will replace an earlier year of lower earnings, which will increase the average.

Max Out Earnings Through Full Retirement Age

The SSA calculates your benefit amount based on your earnings, so that the more you earn, the higher your benefit amount will be. Earnings above the annual cap ($118,500 in 2016 and indexed to inflation each year), are left out of the calculation. Your goal should be to maximize your peak earning years, striving to earn at or above the cap. Some pre-retirees look for ways to increase their income, such as taking on part-time work or generating business income. Unaware of the impact on benefits, some pre-retirees scale back on their work or semi-retire, which can lower their Social Security income.

Delay Benefits

Most people know their full retirement age (FRA) – the Social Security age at which they can receive their full Social Security benefits. For most people retiring today, the FRA age is 66. But very few people know that if they delay their Social Security benefits until after they reach FRA, they can effectively earn an 8% annual return on their available benefits. The benefit amount increases by 8% each year that it is delayed until age 70. That is based on the delayed retirement credits (DRCs) earned for each year that you delay your Social Security benefits.

For example, if you are eligible for a primary insurance amount (PIA) of $2,000, or $24,000, at age 66, then by waiting until age 70, your annual benefit would increase to $31,680. In cumulative terms, you would increase your total benefits from $378,000 received by your life expectancy at age 82 to $411,000.

This example doesn’t account for cost of living adjustments (COLAs). Assuming a 2.5% COLA, your delayed benefit would grow to $38,599 and your total benefit amount would increase to $584,000 by age 82.

Claim Spousal Benefits Early

If you and your spouse are 62 years of age or over, one of you can claim spousal benefits while the other delays benefits until age 70. The spouse receiving spousal benefits can then switch to full benefits after attaining FRA. To be eligible, you must have been married for at least 10 years to your spouse or ex-spouse (whoever is to receive the benefit). This option works best where one spouse earned more money than the other, because the spousal benefit amount is based on half of the full benefit amount of the higher-earning spouse.

Avoid Social Security Tax

If you are planning on supplementing your retirement income by working after you start receiving Social Security benefits, then you need to be aware of the tax consequences. Anywhere from 50 to 85% of benefit payment can be subject to federal taxes. To determine how much of your benefits will be taxed, the Internal Revenue Service (IRS) will add your nontaxable interest and half of your Social Security income to your adjusted gross income (AGI). If that total amounts to $25,000 to $34,000 for single filers, or $32,000 to $44,000 for joint filers, up to 50% of your Social Security income is subject to tax. When that amount exceeds $34,000 for a single filer or $44,000 for joint filers, up to 85% of your benefits is subject to taxes. You can possibly avoid paying taxes on your Social Security income by considering ways to spread out your income from various sources so as to prevent any increases that could trigger a higher tax.

Extremely Rare Volatility Signal Says A Big S&P 500 Move May Be Coming

bear-market--My Comments: More potential woe and gloom for those with money in the markets. Will it happen today? It may have started last Friday, but who knows.

There are a lot of charts shown which I’ve elected not to include here. Instead I’m giving you a link at the bottom so you can follow it yourself and see what the author is talking about.

There are competing metrics for guessing the markets; fundamental and technical. Neither is right all the time; it is instead a different philosophy of choosing how best to respond to changes on any given day. This one is from the technical camp.

I’m encouraging all clients to put their investments either in cash or on a platform that allows an inverse position that typically makes money in a downturn. It’s your call.

Big Moves Often Follow

Regular viewers of CCM’s weekly videos may be familiar with the expression “the longer a market goes sideways, the bigger the move you tend to get after a breakout or breakdown”, which aligns with the concept of periods of low volatility often being followed by big moves in asset prices.

Lowest Level Dating Back To 1982

Bollinger band width is one way to track relative volatility. When Bollinger band width readings hit extremely low levels, it tells us to be open to a big move. The S&P 500’s daily Bollinger Band width has never been lower than it is today, using data back to 1982, which means a big move could be coming soon in stocks.


The Stock Market Is About To Have A ‘Final Melt Up’

roller coaster2My Comments: Anyone who suggests they know what is likely to happen to the markets in the coming days is probably just hoping they will be right. And that includes me.

A high percentage of significant market downturns have happened in August and September. This article suggests there is an event planned for the end of August that might be the trigger that starts the next one. Obviously we are now in September but the danger level is still high.

My suggestion is to either be in cash, or in a program designed to make money when the markets tump.

Bob Bryan – August 16, 2016

The market has one last run left.

Stocks could get a huge boost as investors worry about missing gains, according to Michael Hartnett, the chief investment strategist at Bank of America Merrill Lynch.

According to a note from Hartnett titled “The Final Melt Up,” the shift of investors from defensive stocks (such as industrials and telecoms) to more cyclical companies (retail, tech, and consumer goods) shows that investors’ appetite for risk is growing.

This will create demand for stocks and drive the market upward.

“Likelihood of melt up in risk assets into Jackson Hole growing … likely followed by jump in yields,” he wrote.

The chart below illustrates the rotation that Hartnett is noticing:

Essentially, a melt up by definition is a sudden leap in the market caused by investors rushing in because they fear missing out. It’s not a sign of improved fundamentals.

In other words, these companies and markets may not have higher earnings or be stronger investment opportunities.

Hartnett doesn’t go into the details of the end of the melt up, but the speech by Federal Reserve Chair Janet Yellen at the Jackson Hole conference at the end of the month appears to be the catalyst that will stop the stampede.

Here’s How You Know The Stock Market Is Hugely Overvalued

roller coaster2My Comments: Worrying about your money is a normal activity. At least it is for me.

That being said, to the extent you have money somewhere where your principal is not guaranteed, I think there is a high probability you will soon suffer some losses.

Actually, unless you sell at a loss, you really haven’t ‘lost’ anything. But if your account value drops, and you are old like I am, you may not have the necessary time to wait for it to recover. That’s because you may be using it to pay your bills, and chances are those bills will continue. Unless of course you die, which means it becomes someone else’s problem.

Mark Hulbert – August 16, 2016

The U.S. stock market currently is more overvalued than it was at almost every bull market peak over the past 100 years.

That’s crucial, since it undercuts one of the arguments some exuberant investors currently are using to try to wriggle out from underneath the otherwise bearish message of various valuation indicators. Their argument in effect is “of course current valuation is high; what would you expect when the market is at an all-time high?”

Unfortunately, an equally sobering picture is painted when we compare the current market not to historical averages but to just those past occasions when equities were at the top of a bull market.

In fact, as you can see from the chart (not shown), the current stock market is more overvalued, in terms of the following metrics, than it was at most of the past bull market peaks dating back to 1900.

Giving credence to this message is that it comes from six different ways of measuring valuation. That should make it harder for the bulls to dismiss the data:
1. The price/book ratio, which stands at 2.8 to 1: The book value dataset I was able to obtain extends only back to the 1920s rather than to the beginning of the century, but at 23 of the 29 major market tops since then, the price/book ratio was lower than it is today.

2. The price/sales ratio, which stands at an estimated 1.9 to 1: I was able to access per-share sales data back to the mid 1950s; at 18 of the 19 market tops since, the price/sales ratio was lower than where it stands now.

3. The dividend yield, which currently is 2.1% for the S&P 500: SPX, -0.33% . At 31 of the 36 bull-market peaks since 1900, the dividend yield was higher. (high is good; low is bad)

4. The cyclically adjusted price/earnings ratio, which currently stands at 27.2: This is the ratio championed by Yale University’s Robert Shiller. It was lower than where it is today at 31 of the 36 bull-market highs since 1900.

5. The so-called “q” ratio: Based on research conducted by the late James Tobin, the 1981 Nobel laureate in economics, the ratio is calculated by dividing market value by the replacement cost of assets. According to data compiled by Stephen Wright, an economics professor at the University of London, and Andrew Smithers, founder of the U.K.-based economics-consulting firm Smithers & Co., the market currently is more overvalued than it was at 30 of the 36 bull-market tops since 1900.

6. P/E ratio: This is the valuation indicator that is perhaps most-often quoted in the financial media. Nevertheless, according to data on as-reported earnings compiled by Yale’s Shiller, and based on S&P estimates for the second quarter, this ratio currently stands at 25.2 to 1. That’s higher than at 89% of past bull-market peaks.

To be sure, valuation indicators are not helpful guides to the market’s shorter-term direction. Overvalued markets can stay overvalued for some time, and even become more overvalued. But value eventually wins out.

For example, it was in December 1996 that Yale’s Professor Shiller gave his now-famous lecture to the Federal Reserve about irrational exuberance. His analysis struck many as silly during the subsequent three years in which stocks continued to soar; when the dot-com bubble hit he looked like a genius — and he eventually was awarded the Nobel prize.

A timely analogy comes from Ben Inker, co-head of the asset-allocation team at Boston-based money management firm GMO. He likens the market to a leaf in a hurricane: “You have no idea where the leaf will be a minute or an hour from now. But eventually gravity will win out and it will land on the ground.”

So enjoy the market’s strength — while it lasts.

The case for ETFs in 3 charts

My Comments: As is true in all life, evolution happens. This includes investing your money for the future. A major evolutionary step was the introduction of ETFs. They are as significant a step as was the introduction of mutual funds in the early years of the 20th Century. It’s in your best interest to understand them and employ them when you can.

Source: http://qz.com/720236

You’re probably familiar with the concept of mutual funds, and may even own at least a few in your 401(k) or other accounts. Yet, you may be less informed about another investment vehicle that has become widely used by many types of investors: exchange-traded funds (ETFs). You may even own them and wonder what they are.

First, a basic definition. ETFs combine familiar features of mutual funds and individual stocks. Like mutual funds, most ETFs are made up of many stocks, bonds or other assets. Like an index fund, an ETF aims to track the performance of a specific market benchmark, like the S&P 500 or the Russell 2000. And like shares of stock, ETFs are traded on an exchange throughout the day.

Want to get grounded in ETFs? Here are three facts to get started.

One: ETFs are not niche products

ETFs have been around for more than two decades, but they’ve really taken off in the past five years or so. Today, investors of all types — from individuals to sophisticated institutions — have helped increase ETF assets to more than $3.1 trillion globally. And while that’s still a fraction of the $21 trillion invested in mutual funds, ETFs are growing at a faster pace, more than doubling in size over the past five years.

Part of the appeal of ETFs is their flexibility. Unlike mutual funds, which can only be bought or sold once a day, at a price established at the market close, ETFs can be traded whenever the market is open, just like stocks. Investors can also trade them in the same way they do stocks, including selling short, or buying on margin, and there is no minimum investment amount required. Learn more about the differences between ETFs and mutual funds here.

Two: Lower costs help you keep more of what you earn

An even bigger draw of ETFs is the bottom line—reducing costs. The fees for most ETFs tend to be much lower than mutual funds, which means more money gets put to work for you.

In fact, iShares Core ETFs average about one-tenth the net expense ratio of most mutual funds.² The impact of these cost savings can be meaningful, particularly over time or when market returns are sluggish.

Here’s another potential benefit. ETFs tend to be relatively tax efficient and incur fewer undesirable capital gains distributions. So you can save up front, over time and on your tax bill.

Source: Chart reflects the hypothetical growth of a fictional investment of $250,000 with an 8% return and assumes the reinvestment of dividends and capital gains. Fund expenses, including management fees and other expenses have been deducted. The graph is for illustrative purposes only and is not indicative of the performance of any actual fund or investment portfolio.

Three: ETFs make it easy to get in—and stay in—the market

Ultimately, of course, pursuing your financial goals is about staying invested. Timing market ups and downs is nearly impossible to get right, and missing out on the rebounds can be costly. In the example here, missing just the five top-performing days over the past 20 years would have cost more than $160,000; missing the top 25 days would have nipped nearly 75% of potential gains.

So instead of trying to outsmart the market, it may make more sense to simply be in the market, smartly.

The graph above shows how a hypothetical $100,000 investment in stocks would have been affected by missing the market’s top-performing days over the 20-year period from January 1, 1996 to December 31, 2015.