Making the Most out of your Year-End Bonus

It’s that time of year when many companies are paying out their year-end bonuses.  Hopefully “congratulations” are in order and all that hard work from the last year paid off.  Now the real decisions begin.

In some fields, like energy trading, your bonus can vary widely from year to year and are only maximized when the stars align -- you have a great year, your group meets their goals, and the company hits their profit targets.  Even the most successful may only get a dozen or so of these big paydays in a career, so it is critical to be thoughtful about how you allocate your bonus.   These are the payments that ought to support you and your family’s hopes and dreams for a lifetime. 

What is your plan?  Upgrade the house, pay off an existing mortgage, invest in the market or just sit in cash?  How much should you save versus spend?

 

·         Working through the hierarchy of how to allocate new capital can be challenging.  A good place to start is making sure to maximize your employer’s matching 401-K plans, Health Savings Accounts and any other tax advantaged account that is underfunded, like an education 529 Plan.

·         While it is tempting to ratchet up your lifestyle with a big payday.  Be careful when adjusting your spending habits that even when there are years when the bonus is sub-par, you can handle your bills.  One way to keep your spending in check is to imagine: what if I had to find a new job?  What kind of salary could I earn in the current job market?

·         Finally, as there are no one-size fits-all decision-making tools, consider working with an independent Register Investment Advisor.  RIAs typically do not market products or have outside pressures as to where these funds go plus as your fiduciary, have an obligation to put the client first and develop solutions that align with your risk appetite and long-term goals.  Even when an advisor’s pay is a function of the amount of assets they manage, your advisor should acknowledge this and determine the best course, regardless of this conflict.

 

We hear of athletes or actors going from rags to riches and end up having financial problems later in life.  Many other careers can have volatile earnings streams. Careful and thoughtful planning during the heady years can help to minimize the impact of the lean years.

Three Reasons Why Traders Should Hire an Advisor

Why would a commodity trader, a master of buying and selling some of the most volatile markets need to hire someone to help manage their wealth? Actually, there are some very good reasons an independent advisor can benefit you and your family in the long run:

Focus on What You Know: With a demanding profession, the burden of managing your assets may be a secondary concern. With an independent advisor, you are hiring a fiduciary who is looking out for your best interests.  An effective advisor will construct and manage a portfolio consistent with your objectives, allowing you to focus on the markets that should matter most—the ones you are trading—without worrying that your long term goals are at risk.

Harmful Myopia and Impulse Trading: While you are focused on your particular market, it is easy to extrapolate the fundamentals of your niche to the broader markets, even when that correlation may not exist, thus clouding your judgment. This may lead to rash “dump it all” or “buy everything” moves in your portfolio. Instinctual moves may be appropriate for your trading book, but may do irreparable harm to your longer term goals of paying for your children’s college and funding your retirement.

Make Lemonade from Lemons: With a volatile-earnings profession, there are tactics you can employ to take advantage of your lumpy income. For example, during low earnings years, consider Roth IRA conversions or opportunistically take long term capital gains on appreciated assets. On the flip-side, in high income years consider contributing to a Donor Advised Fund to lower your taxable income.

Separating the goals and risk profile of your job from that of your general overall wealth is critically important. Hiring a professional wealth manager for the bulk of your nest egg makes a lot of sense, for both your peace of mind and your wallet.

 

Advisory services offered through APG Capital Asset Management, a Member of Advisory Services Network, LLC.

Phone: 713-446-3233  Website: www.apgcap.com