Articles instructing us how to trim our budgets often target the coffee shop specialty coffees: $3.00 a day, compounds to $15 a week, $60 a month, and so on through your working career. I recently heard a compelling rebuttal to the instruction that we do without our morning caffeine stop. “I’m not expecting any great inheritance,” the twenty-something employee declared. “I figure the money I spend in the morning to fuel my day is a great investment in my own productivity.” That statement got me to thinking that more than ever today’s young workers rely on themselves, not their parents or fabulous market gains to achieve their goals. Accordingly, their salary is more important that ever.
With high unemployment making it a hirer’s market, it’s more important than ever not to sell yourself short when it comes to salary negotiations. A recent article by Greg Robb for Market Watch offered some stellar advice for those about to tackle salary negotiations.
Set your expectations, says Don Hurzeler, author of the book The Way Up: How to Keep Your Career Moving in the Right Direction. If you are unemployed and applying for work, he says to expect to earn approximately what your old salary was or slightly less. However, if you are being hired away from an existing position, look for a 20% salary increase.
Charlotte Weeks, a Chicago-based career coach advises clients to avoid answering questions about expected salary early in the interview process. She says to deflect money questions by turning the tables and talking about what you can offer the company. Later in the interview process, you might offer an acceptable salary range based on your research into what others in the field earn, says Karen Lawson, a management consultant.
Finally, before you accept an offer, be sure to calculate the value if a company’s benefits, including health insurance, 401(k) plan, deferred compensation program, and even vacation and sick leave.
Monday, August 29, 2011
Monday, August 22, 2011
Should Your Small Foundation Convert to a Donor-Advised Fund?
In an investment environment that’s seen endowment assets drop and administrative costs climb, many families nationwide are eschewing the cache of small foundations for donor-advised funds. Why? Lower administrative costs and flexibility mean that more money goes to their charitable causes.
According to a recent article in Investment News, Fidelity Investments' Charitable Gift Fund, the largest donor-advised fund with $5.6 billion in assets, took in about $30 million from foundations in the one-year period ended June 30, 2011, up from $16 million a year before. Similarly, Schwab Charitable, the second-largest donor-advised fund with $3.1 billion in assets, saw roughly $28 million converted from foundations to donor-advised funds, double the amount from last year.
A donor-advised fund is an account established at a sponsoring charity. You make irrevocable contributions of cash, securities, or other assets to the giving account and receive an immediate tax deduction. As the account advisor, you then make distributions from the account to other operating non-profits, such as hospitals, schools, environmental organizations, or the Red Cross. The fund handles all the due diligence, tax filing, compliance, and administration. Approval of your grant recommendations is essentially automatic as long as your designated charity is a 501(c)3 in good standing.
The benefits of donor-advised funds I’ve long stressed for individuals also hold true for foundations. For example, whether an individual directs funds to a foundation or a donor-advised fund, they qualify for the charitable deduction that year, and can disperse the funds later, on their own timetable. (Note: There are some limitations on securities so be sure to check with your tax advisor.) Donor advised funds also facilitate donations of stock and other assets, allow donors to maintain privacy, and deliver the benefits of professional recordkeeping at a lower cost that a foundation can.
Of course, you need to consider your foundation’s goals before making the move to a donor-advised fund. Although you may realize tax and administrative benefits with a donor-advised fund, foundations do offer greater grant-making flexibility, allowing you, for example, to establish an endowed scholarship.
According to a recent article in Investment News, Fidelity Investments' Charitable Gift Fund, the largest donor-advised fund with $5.6 billion in assets, took in about $30 million from foundations in the one-year period ended June 30, 2011, up from $16 million a year before. Similarly, Schwab Charitable, the second-largest donor-advised fund with $3.1 billion in assets, saw roughly $28 million converted from foundations to donor-advised funds, double the amount from last year.
A donor-advised fund is an account established at a sponsoring charity. You make irrevocable contributions of cash, securities, or other assets to the giving account and receive an immediate tax deduction. As the account advisor, you then make distributions from the account to other operating non-profits, such as hospitals, schools, environmental organizations, or the Red Cross. The fund handles all the due diligence, tax filing, compliance, and administration. Approval of your grant recommendations is essentially automatic as long as your designated charity is a 501(c)3 in good standing.
The benefits of donor-advised funds I’ve long stressed for individuals also hold true for foundations. For example, whether an individual directs funds to a foundation or a donor-advised fund, they qualify for the charitable deduction that year, and can disperse the funds later, on their own timetable. (Note: There are some limitations on securities so be sure to check with your tax advisor.) Donor advised funds also facilitate donations of stock and other assets, allow donors to maintain privacy, and deliver the benefits of professional recordkeeping at a lower cost that a foundation can.
Of course, you need to consider your foundation’s goals before making the move to a donor-advised fund. Although you may realize tax and administrative benefits with a donor-advised fund, foundations do offer greater grant-making flexibility, allowing you, for example, to establish an endowed scholarship.
Monday, August 15, 2011
Brokerage Firms Must Report Investment Gains; Plus S&P Downgrade
In an effort to ensure everyone pays their fair share of taxes, on January 1st of this year, the Federal government began requiring brokerage firms and other custodians to calculate and report gains or losses on certain customer trades to the IRS. This requires knowing not only the cost basis (the amount paid for the security), but also establishing the method to calculate gains. Most custodians use the “first-in, first-out” method for equities and the average cost method for mutual funds to determine cost basis.
You should consult your custodian to determine what methods are available to you and to determine how your portfolio is setup. For our clients we utilize a hybrid of the "high cost" method. We first try to determine if there are any trade lots that can be sold at a loss. Once that has been done we sell the lots with the highest cost basis that are over 12 months old first. This gives us the maximum tax efficiency on any trading in our client accounts.
Our portfolios’ tax-efficiency has always been a major concern. While many give up on tax loss harvesting in years when investors have not registered significant gains, the exercise is never a waste of time. Remember, harvested losses can offset any gains and up to $3,000 of net capital losses can be deducted from their ordinary income on their tax return for the year. Net losses above that $3,000 can be carried over to future years until they've all been used up by future portfolio gains.
As we expect capital gains tax rates to increase in the future, the tax loss harvesting approach makes even more sense. Simply, losses you book today mean gains that are otherwise likely to be taxed at a higher tax rate in the future could be tax free.
Utilizing “tax swaps” whereby we sell a losing position and simultaneously purchase a similar security (mindful of wash sales rules which prohibit selling and then buying the same security within 30 days) allows us to maintain exposure to the asset class while we harvest losses.
S&P Debt Downgrade:
Unrelated to this blog topic is the subject of Standard & Poor's downgrade of the U.S. credit rating from AAA to AA+. This will be brief but as I mentioned to many, I felt investors and the media made more of this matter than what it deserved. The U.S. dollar is still the global reserve currency and Standard & Poor's and others don't exactly have a pristine record when it comes to making accurate credit ratings.
On the lighter side, I wanted to share the formula below that a friend shared with me. I don't know where he got it, and I am unable to give credit to the person who created it. If someone knows who created it, I will gladly give them credit. In the meantime, I hope you can enjoy the humor of it:
No offense is intended to be directed at the POTUS, Senate Democrats, House Republicans, Tea Party or Wall Street. Just enjoy it!
You should consult your custodian to determine what methods are available to you and to determine how your portfolio is setup. For our clients we utilize a hybrid of the "high cost" method. We first try to determine if there are any trade lots that can be sold at a loss. Once that has been done we sell the lots with the highest cost basis that are over 12 months old first. This gives us the maximum tax efficiency on any trading in our client accounts.
Our portfolios’ tax-efficiency has always been a major concern. While many give up on tax loss harvesting in years when investors have not registered significant gains, the exercise is never a waste of time. Remember, harvested losses can offset any gains and up to $3,000 of net capital losses can be deducted from their ordinary income on their tax return for the year. Net losses above that $3,000 can be carried over to future years until they've all been used up by future portfolio gains.
As we expect capital gains tax rates to increase in the future, the tax loss harvesting approach makes even more sense. Simply, losses you book today mean gains that are otherwise likely to be taxed at a higher tax rate in the future could be tax free.
Utilizing “tax swaps” whereby we sell a losing position and simultaneously purchase a similar security (mindful of wash sales rules which prohibit selling and then buying the same security within 30 days) allows us to maintain exposure to the asset class while we harvest losses.
S&P Debt Downgrade:
Unrelated to this blog topic is the subject of Standard & Poor's downgrade of the U.S. credit rating from AAA to AA+. This will be brief but as I mentioned to many, I felt investors and the media made more of this matter than what it deserved. The U.S. dollar is still the global reserve currency and Standard & Poor's and others don't exactly have a pristine record when it comes to making accurate credit ratings.
On the lighter side, I wanted to share the formula below that a friend shared with me. I don't know where he got it, and I am unable to give credit to the person who created it. If someone knows who created it, I will gladly give them credit. In the meantime, I hope you can enjoy the humor of it:
No offense is intended to be directed at the POTUS, Senate Democrats, House Republicans, Tea Party or Wall Street. Just enjoy it!
Monday, August 8, 2011
Protecting Seniors from Financial Scams
We’ve all received emails riddled with misspellings from scam artists notifying us that a vast amount of cash is just waiting for us to claim, or that something’s amiss with our bank account. All we need to do is enter our bank information and money will be wired immediately and we’ll live happily ever after. Many of these scams are targeted at older people.
A recent MetLife study found older Americans are financially abused by family members, strangers and businesses to the tune of $2.9 billion a year. Alarmingly, despite increased efforts to educate seniors about the dangers of sharing their financial information, the sum of swindled funds is 12% higher than in 2008. The real tragedy, of course, is that both numbers may grossly under-estimate the thefts as experts figure that more than 80% of cases are not reported because the victims are too embarrassed to report the thefts to their children or authorities.
Why are our seniors so vulnerable? A recent Investment News article mentions research from behavioral economist David Laibson that found that people tend to make poorer financial decisions as they age. Laibson’s take on this sad reality is that because seniors are often lonely, they may be more willing to talk to strangers.
To protect your older relatives, I suggest sharing two simple investment adages: If it sounds too good to be true, it probably is a scam. And if you don’t understand it, you should not own it.
If you’re charged with reviewing the bank accounts of a loved one, any large withdrawal should prompt questions. Of course, seniors working with an independent financial advisor who is a fiduciary (i.e., a firm like Bernhardt Wealth Management) have the added assurance of a trusted professional reviewing their financial accounts and activities in their accounts.
A recent MetLife study found older Americans are financially abused by family members, strangers and businesses to the tune of $2.9 billion a year. Alarmingly, despite increased efforts to educate seniors about the dangers of sharing their financial information, the sum of swindled funds is 12% higher than in 2008. The real tragedy, of course, is that both numbers may grossly under-estimate the thefts as experts figure that more than 80% of cases are not reported because the victims are too embarrassed to report the thefts to their children or authorities.
Why are our seniors so vulnerable? A recent Investment News article mentions research from behavioral economist David Laibson that found that people tend to make poorer financial decisions as they age. Laibson’s take on this sad reality is that because seniors are often lonely, they may be more willing to talk to strangers.
To protect your older relatives, I suggest sharing two simple investment adages: If it sounds too good to be true, it probably is a scam. And if you don’t understand it, you should not own it.
If you’re charged with reviewing the bank accounts of a loved one, any large withdrawal should prompt questions. Of course, seniors working with an independent financial advisor who is a fiduciary (i.e., a firm like Bernhardt Wealth Management) have the added assurance of a trusted professional reviewing their financial accounts and activities in their accounts.
Monday, August 1, 2011
Credit-Report Firms to Face Scrutiny
On July 21st, the newly formed Consumer Financial Protection Bureau (CFPB) took over a range of consumer-product regulatory functions from bank regulators. In addition to mortgages and other credit products, the CFPB also is now responsible for the oversight of the three major consumer credit-reporting companies, Equifax, Experian PLC, and TransUnion. In spite of this new level of fresh oversight, presumably to do something about the high rate of errors in credit reporting, my advice still holds: It is wise to request a copy of your credit report at least once a year to make sure that a mistake isn’t damaging your credit score and resulting in your having to pay high interest rates. You can go to AnnualCreditReport.com to request a copy of your credit report.
It will be interesting to see whether this new agency will be able to do anything about the high rate of credit report errors. I would hope that the credit reporting companies would have to open up their own books and processes for thorough examinations.
July 21st was also the year anniversary of the passage of the Dodd-Frank Act. And Securities and Exchange Commission (SEC) Chairman Mary Schapiro, speaking before Congress, used the occasion to warn that the SEC needs “significant additional resources” in order to fully address their new responsibilities under Dodd-Frank. “There’s only so much you can achieve by wringing funds out of the existing budget,” she said. Over time, she says, “full implementation of the Dodd-Frank Act will require a total of approximately 770 new staff,” including experts in derivatives, hedge funds, data analytics, and credit ratings. She also noted that the SEC “also will need to invest in technology to facilitate the registration of additional entities and capture and analyze data on these new markets.”
Let’s hope the SEC gets the resources it needs to fulfill its broader responsibilities under Dodd-Frank.
It will be interesting to see whether this new agency will be able to do anything about the high rate of credit report errors. I would hope that the credit reporting companies would have to open up their own books and processes for thorough examinations.
July 21st was also the year anniversary of the passage of the Dodd-Frank Act. And Securities and Exchange Commission (SEC) Chairman Mary Schapiro, speaking before Congress, used the occasion to warn that the SEC needs “significant additional resources” in order to fully address their new responsibilities under Dodd-Frank. “There’s only so much you can achieve by wringing funds out of the existing budget,” she said. Over time, she says, “full implementation of the Dodd-Frank Act will require a total of approximately 770 new staff,” including experts in derivatives, hedge funds, data analytics, and credit ratings. She also noted that the SEC “also will need to invest in technology to facilitate the registration of additional entities and capture and analyze data on these new markets.”
Let’s hope the SEC gets the resources it needs to fulfill its broader responsibilities under Dodd-Frank.
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