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Monday, March 18, 2013
Monday, March 11, 2013
Do You Have An Estate Plan?
As
copywriters well know, when you reference learning in a headline, readers’
interest tends to perk up. Add a mention to the “rich and famous,” and you really
generate interest. So, “Lessons
of the Rich and Famous . . . in Death” about estate planning caught my
attention.
Given so many stories of family feuds and financial disasters, it’s surprising that most Americans don’t have an estate plan. In fact, the article notes that many of our past Presidents died without estate plans, including Presidents Lincoln, Johnson, Grant and Garfield. Notably, President Lincoln, although he was a practicing attorney, left such a financial mess that it took two years to settle his estate.
The article also addresses perhaps the most famous case of a celebrity dying intestate. When the handwritten will of Howard Hughes was determined to be forged, it took 34 years to divide Hughes’ $2.5 billion estate among 22 cousins. And then there was James Brown, who tried to leave his $100 million fortune to a special trust set up to benefit needy children. However, because he never addressed the plan with his family or updated his will after his fourth marriage, much of his wealth was lost in legal battles.
The article closes by praising Elvis for leaving the building with a solid estate plan. Elvis Presley had not only a will, but testamentary trusts to provide for his family long after his passing. You can improve on The King’s handling of his affairs by having the appropriate documents drafted – and discussing your wishes with your heirs.
As a side note to our peak into the lives of the rich and famous, I read recently where Mick Jagger’s former financial advisor, Prince Rupert Loewenstein, has written a book, A Prince Among Stones. Apparently, Loewenstein, who is credited for having a hand at keeping the Rolling Stones together for 40 years, divulges more of Mick Jagger’s personal finances than the Stones’ front man likes. Commented Jagger to The Mail Online, “Call me old fashioned, but I don’t think your ex-bank manager should be discussing your financial dealings and personal information in public.” The book hits the shelves in a few weeks.
Given so many stories of family feuds and financial disasters, it’s surprising that most Americans don’t have an estate plan. In fact, the article notes that many of our past Presidents died without estate plans, including Presidents Lincoln, Johnson, Grant and Garfield. Notably, President Lincoln, although he was a practicing attorney, left such a financial mess that it took two years to settle his estate.
The article also addresses perhaps the most famous case of a celebrity dying intestate. When the handwritten will of Howard Hughes was determined to be forged, it took 34 years to divide Hughes’ $2.5 billion estate among 22 cousins. And then there was James Brown, who tried to leave his $100 million fortune to a special trust set up to benefit needy children. However, because he never addressed the plan with his family or updated his will after his fourth marriage, much of his wealth was lost in legal battles.
The article closes by praising Elvis for leaving the building with a solid estate plan. Elvis Presley had not only a will, but testamentary trusts to provide for his family long after his passing. You can improve on The King’s handling of his affairs by having the appropriate documents drafted – and discussing your wishes with your heirs.
As a side note to our peak into the lives of the rich and famous, I read recently where Mick Jagger’s former financial advisor, Prince Rupert Loewenstein, has written a book, A Prince Among Stones. Apparently, Loewenstein, who is credited for having a hand at keeping the Rolling Stones together for 40 years, divulges more of Mick Jagger’s personal finances than the Stones’ front man likes. Commented Jagger to The Mail Online, “Call me old fashioned, but I don’t think your ex-bank manager should be discussing your financial dealings and personal information in public.” The book hits the shelves in a few weeks.
Monday, March 4, 2013
Does the Pope Need Financial Advice?
Saving for retirement is hard work – and that’s why it helps to have a good
laugh about it every once in a while. A few weeks ago “Saturday Night Live”
capitalized on Pope Benedict XVI’s resignation from the Vatican with a commercial for “Papal Securities,” the ultimate niche market firm dedicated to only serving
popes.
Pope Benedict is the only living pope to have abdicated his position, so it makes the question from SNL’s .Jason Sudeikis relevant:“What will you do when you retire? What will you do after you’re pope?”
Luckily, the Pope has a financial plan, and declares, “Papal Securities made sure my future was bright.”
Pope Benedict is the only living pope to have abdicated his position, so it makes the question from SNL’s .Jason Sudeikis relevant:“What will you do when you retire? What will you do after you’re pope?”
Luckily, the Pope has a financial plan, and declares, “Papal Securities made sure my future was bright.”
This skit reminded me of another SNL skit
I enjoyed years ago, which hit on one of my favorite topics: How investors cannot trust big brokerage firms
to act in their best interests.
Have a quick laugh at
these skits, and know that we take planning for your retirement very seriously.
One of My Favorite Days
Several years ago one of my sisters sent me the following poem. It meant a lot to me, and I wanted to share it with you today:
We all love Christmas. Halloween is scary sweet.
I'm thankful for Thanksgiving, boy how we eat!
Then there's our birthday which is really fun.
New Year's Eve is festive but we're a little tired come January One.
Easter is delightful! Fourth of July fireworks are great!
There is St. Patrick's, Presidents, Valentines, Veterans, Labor,
Columbus, Flag, Father's, Mother's, Martin Luther King, . . .
How do we keep track of all of these darn dates?
When I look at my one year calendar,
March Fourth is one of my favorite days.
Nothing much happened in history.
It's just what the day has to say!
When you have problems, March Forth!
When things don't work out, March Forth!
When bad things happen, March Forth!
When you lose, March Forth!
When anything can happen, March Forth says it all.
When something does happen,
Get up, Brush off, and March Forth,
Because we're all bound to fall.
--Anders Rasmussen
One of My Favorite Days
(March Fourth)
We all love Christmas. Halloween is scary sweet.
I'm thankful for Thanksgiving, boy how we eat!
Then there's our birthday which is really fun.
New Year's Eve is festive but we're a little tired come January One.
Easter is delightful! Fourth of July fireworks are great!
There is St. Patrick's, Presidents, Valentines, Veterans, Labor,
Columbus, Flag, Father's, Mother's, Martin Luther King, . . .
How do we keep track of all of these darn dates?
When I look at my one year calendar,
March Fourth is one of my favorite days.
Nothing much happened in history.
It's just what the day has to say!
When you have problems, March Forth!
When things don't work out, March Forth!
When bad things happen, March Forth!
When you lose, March Forth!
When anything can happen, March Forth says it all.
When something does happen,
Get up, Brush off, and March Forth,
Because we're all bound to fall.
--Anders Rasmussen
Monday, February 25, 2013
Did You Resolve to be More Productive in 2013?
After a distinguished career in financial services and public service, Robert Pozen, is now a senior lecturer at Harvard Business School. In his new book, Extreme Productivity: Boost Your Results, Reduce Your Hours, Pozen shares insights on a range topics, from how to sleep on an overnight business flight to how to effectively deal with employees’ mistakes.
However, at the heart of this businessperson’s handbook is Pozen’s belief that it “takes a lot more than organizing your schedule to be productive.” Explained Pozen in a Harvard Business School interview, “I wanted to discuss skills that have been critical in my own career. Communication is one—reading, writing, and speaking. Another is how you operate within your organization and deal with both those above you and those who report to you. I also wanted people to think about how they are managing their careers in the evolving context of their own professional and personal lives.”
The book offers a number of practical takeaways. Pozen suggests improving business meetings by allocating adequate time in advance for everyone to prepare for a thoughtful discussion and limiting the meeting to an hour, or 90 minutes at the most. He notes, “There are tremendous diminishing returns in lengthier meetings. When you only have an hour, you don't waste time on nonproductive tangents.” He also advises that all meetings should have an effective close, summing up the to-dos, and who's going to do them. He notes, “Senior executives tend to think that they can accomplish this by just telling people what to do. But there's a big difference between assigning a task to be completed by next Tuesday vs. introducing a challenge, getting buy-in on addressing that challenge, and having everyone come together on a way it can get done by a mutually agreed deadline.”
Pozen also offers his advice on how to manage work obligations when they pose conflicts with family life. “Many managers insist that their jobs routinely require them to stay late at the office, but when you press them, they admit that isn't true,” he observed in the Harvard Business School interview. “Some occasional emergencies need to take precedence over everything else, but unless you work in a hospital, those situations are rare. Even if you have to catch up with work after dinner, take a couple of hours every day to connect with the people in your life who should matter most.”
Now, that’s food for thought.
However, at the heart of this businessperson’s handbook is Pozen’s belief that it “takes a lot more than organizing your schedule to be productive.” Explained Pozen in a Harvard Business School interview, “I wanted to discuss skills that have been critical in my own career. Communication is one—reading, writing, and speaking. Another is how you operate within your organization and deal with both those above you and those who report to you. I also wanted people to think about how they are managing their careers in the evolving context of their own professional and personal lives.”
The book offers a number of practical takeaways. Pozen suggests improving business meetings by allocating adequate time in advance for everyone to prepare for a thoughtful discussion and limiting the meeting to an hour, or 90 minutes at the most. He notes, “There are tremendous diminishing returns in lengthier meetings. When you only have an hour, you don't waste time on nonproductive tangents.” He also advises that all meetings should have an effective close, summing up the to-dos, and who's going to do them. He notes, “Senior executives tend to think that they can accomplish this by just telling people what to do. But there's a big difference between assigning a task to be completed by next Tuesday vs. introducing a challenge, getting buy-in on addressing that challenge, and having everyone come together on a way it can get done by a mutually agreed deadline.”
Pozen also offers his advice on how to manage work obligations when they pose conflicts with family life. “Many managers insist that their jobs routinely require them to stay late at the office, but when you press them, they admit that isn't true,” he observed in the Harvard Business School interview. “Some occasional emergencies need to take precedence over everything else, but unless you work in a hospital, those situations are rare. Even if you have to catch up with work after dinner, take a couple of hours every day to connect with the people in your life who should matter most.”
Now, that’s food for thought.
Monday, February 18, 2013
Boutique Wealth Management Firms Are Tops
Investors with at least $5 million in assets and minimum annual income of $200,000 prefer smaller boutiques over the large Wall Street firms. So says a recent survey by the New York-based Luxury Institute.
While the survey measured factors from brand quality and exclusivity to the firms’ ability to deliver special client experiences, Luxury Institute CEO Milton Pedraza said “reputations for honesty and superior client service” made the smaller boutique firms stand out for investors surveyed.
That’s our focus at Bernhardt Wealth Management. We understand the specific needs of high-net-worth clients and, as a boutique wealth management firm, deliver a level and breadth of service that far surpasses a large brokerage firm’s cookie-cutter approach to wealth management. Our holistic approach integrates portfolio construction, tax planning risk management, estate planning and philanthropic planning. And we offer expert, unbiased advice to help our clients make informed decisions about their money. In all instances, we put our clients’ best interests first and no conflicts of interest ever cloud the advisory relationship. With our help to define and achieve their financial goals, our clients gain peace of mind and the freedom to focus on what is most important in their life.
Interestingly, it seems the some of the largest broker dealers are catching on that their myopic client service model is broken. I read recently where Wells Fargo launched Abbot Downing, a wealth management firm that will merge with Wells Fargo Family Wealth and their legacy wealth management business to try to compete with boutique wealth management firms.
The catch, however, is that you need to have $50 million in assets to qualify for this model that Wells Fargo celebrates as having “greater capabilities” than their other wealth management services. At Bernhardt Wealth Management, we can certainly manage your $50 million, but you don’t need to have $50 million to qualify for our comprehensive, holistic, top-of-the-line wealth management services!
While the survey measured factors from brand quality and exclusivity to the firms’ ability to deliver special client experiences, Luxury Institute CEO Milton Pedraza said “reputations for honesty and superior client service” made the smaller boutique firms stand out for investors surveyed.
That’s our focus at Bernhardt Wealth Management. We understand the specific needs of high-net-worth clients and, as a boutique wealth management firm, deliver a level and breadth of service that far surpasses a large brokerage firm’s cookie-cutter approach to wealth management. Our holistic approach integrates portfolio construction, tax planning risk management, estate planning and philanthropic planning. And we offer expert, unbiased advice to help our clients make informed decisions about their money. In all instances, we put our clients’ best interests first and no conflicts of interest ever cloud the advisory relationship. With our help to define and achieve their financial goals, our clients gain peace of mind and the freedom to focus on what is most important in their life.
Interestingly, it seems the some of the largest broker dealers are catching on that their myopic client service model is broken. I read recently where Wells Fargo launched Abbot Downing, a wealth management firm that will merge with Wells Fargo Family Wealth and their legacy wealth management business to try to compete with boutique wealth management firms.
The catch, however, is that you need to have $50 million in assets to qualify for this model that Wells Fargo celebrates as having “greater capabilities” than their other wealth management services. At Bernhardt Wealth Management, we can certainly manage your $50 million, but you don’t need to have $50 million to qualify for our comprehensive, holistic, top-of-the-line wealth management services!
Monday, February 11, 2013
EBRI Reports on the State of 401(k) Plans
They’ve only been part of the investment landscape for three decades, but 401(k) plans have grown to be the most widespread private-sector employer-sponsored retirement plan in the United States. In 2011, an estimated 51 million American workers were active 401(k) plan participants – and the $3.2 trillion in 401(k) plan assets represented 18% of all retirement assets.
If you’ve ever wondered how your 401(k) investment decisions compare to other investors’ approaches, the Employee Benefit Research Institute (EBRI) provides all the detail you need in the recently published 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2011. It’s a report EBRI publishes each year in collaboration with the Investment Company Institute (ICI).
On average, at year-end 2011, 61 percent of 401(k) participants’ assets was invested in equity securities, including equity funds, the equity portion of balanced funds, and company stock. Fixed-income securities, including stable-value investments and bond and money funds accounted for 34 percent.
As in previous years, participants’ asset allocation varied considerably with age. Younger participants tended to favor equity funds and balanced funds, while older participants were invested more heavily in fixed-income securities such as bond funds, GICs and other stable-value funds, or money funds. Among participants in their 20s, the average allocation to equity and balanced funds was 75 percent of assets, compared with 50 percent of assets among participants in their 60s.
Younger participants also favored target-date funds that pursue a long-term investment strategy using a mix of asset classes that follow a predetermined reallocation, typically shifting in focus from growth to income over time. At year-end 2011,13 percent of 401(k) assets in the database was invested in target-date funds. Participants in their 20s had 31 percent of their 401(k) assets invested in target-date funds, compared to just 11 percent for participants in their 60s.
Balanced funds have also become increasingly popular with younger investors. At year-end 2011, 51 percent of the account balances of recently hired participants in their 20s was invested in balanced funds, compared with 44 percent in 2010, and just 7 percent in 1998.
In another ongoing trend, company stock continued to represent a small plan allocation, remaining at an average of 8 percent in 2011, across all age groups. This share has fallen by more than half since 1999.
To make the most of your 401(k), contribute enough to secure your company’s match and increase your savings as your salary increases. Also, take advantage of catch-up provisions if you are over age 50 and, if you change jobs, rollover your account.
If you’ve ever wondered how your 401(k) investment decisions compare to other investors’ approaches, the Employee Benefit Research Institute (EBRI) provides all the detail you need in the recently published 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2011. It’s a report EBRI publishes each year in collaboration with the Investment Company Institute (ICI).
On average, at year-end 2011, 61 percent of 401(k) participants’ assets was invested in equity securities, including equity funds, the equity portion of balanced funds, and company stock. Fixed-income securities, including stable-value investments and bond and money funds accounted for 34 percent.
As in previous years, participants’ asset allocation varied considerably with age. Younger participants tended to favor equity funds and balanced funds, while older participants were invested more heavily in fixed-income securities such as bond funds, GICs and other stable-value funds, or money funds. Among participants in their 20s, the average allocation to equity and balanced funds was 75 percent of assets, compared with 50 percent of assets among participants in their 60s.
Younger participants also favored target-date funds that pursue a long-term investment strategy using a mix of asset classes that follow a predetermined reallocation, typically shifting in focus from growth to income over time. At year-end 2011,13 percent of 401(k) assets in the database was invested in target-date funds. Participants in their 20s had 31 percent of their 401(k) assets invested in target-date funds, compared to just 11 percent for participants in their 60s.
Balanced funds have also become increasingly popular with younger investors. At year-end 2011, 51 percent of the account balances of recently hired participants in their 20s was invested in balanced funds, compared with 44 percent in 2010, and just 7 percent in 1998.
In another ongoing trend, company stock continued to represent a small plan allocation, remaining at an average of 8 percent in 2011, across all age groups. This share has fallen by more than half since 1999.
To make the most of your 401(k), contribute enough to secure your company’s match and increase your savings as your salary increases. Also, take advantage of catch-up provisions if you are over age 50 and, if you change jobs, rollover your account.
Monday, February 4, 2013
Is Uncle Sam's Debt Higher Than We Thought?
In A Proper Accounting: The Real Cost of Government Loans and Credit Guarantees, the editors of the online newsletter Knowledge@Wharton point out that while our attention has been focused like a laser beam on the U.S. government’s enormous debt and the danger of falling off the Fiscal Cliff, we’ve ignored the massive costs and risks embedded in the government’s lending programs.
The article notes that “flaws in the way the government accounts for its loans and credit guarantees” underestimate the costs for student loans and other credit programs totaling more than $2.5 trillion, plus more than $5 trillion in mortgages backed by the federally owned companies Fannie Mae and Freddie Mac. According to the Financial Economists Roundtable (FER), a group administered by the Wharton Financial Institutions Center, if the government used accounting methods accepted by most businesses, our budget deficit would be even larger.
Said Deborah J. Lucas, finance professor at MIT's Sloan School of Management and FER member, “The federal government is the world's largest financial institution, but policymakers and [government] managers are handicapped by an accounting system that is seriously deficient. The accounting standards that the government sets for private financial institutions require far greater transparency than the rules that it imposes on itself.”
According to the FER, the 2008 collapse of Fannie Mae and Freddie Mac, private companies that operated as government-sponsored enterprises, is a “recent and costly example where the government treated its implicit loan guarantees as having no cost.” When the federal government stepped in and took over Fannie and Freddie, the price tag for taxpayers was more than $120 billion.
The roundtable insists that government accounting practices create the “budgetary illusion that government credit programs reduce the government deficit.” They point to a group of lending programs that includes student loans and mortgages guaranteed by the Federal Housing Administration that the Congressional Budget Office projects to reduce the federal deficit by about $45 billion in 2013, while an accurate accounting would show them likely to cost $11 billion.
Imagine if you ran your household finances like that? The article concludes with some good news. H.R. 3581 addresses necessary accounting adjustments has passed in the House, and awaits action in the Senate.
The article notes that “flaws in the way the government accounts for its loans and credit guarantees” underestimate the costs for student loans and other credit programs totaling more than $2.5 trillion, plus more than $5 trillion in mortgages backed by the federally owned companies Fannie Mae and Freddie Mac. According to the Financial Economists Roundtable (FER), a group administered by the Wharton Financial Institutions Center, if the government used accounting methods accepted by most businesses, our budget deficit would be even larger.
Said Deborah J. Lucas, finance professor at MIT's Sloan School of Management and FER member, “The federal government is the world's largest financial institution, but policymakers and [government] managers are handicapped by an accounting system that is seriously deficient. The accounting standards that the government sets for private financial institutions require far greater transparency than the rules that it imposes on itself.”
According to the FER, the 2008 collapse of Fannie Mae and Freddie Mac, private companies that operated as government-sponsored enterprises, is a “recent and costly example where the government treated its implicit loan guarantees as having no cost.” When the federal government stepped in and took over Fannie and Freddie, the price tag for taxpayers was more than $120 billion.
The roundtable insists that government accounting practices create the “budgetary illusion that government credit programs reduce the government deficit.” They point to a group of lending programs that includes student loans and mortgages guaranteed by the Federal Housing Administration that the Congressional Budget Office projects to reduce the federal deficit by about $45 billion in 2013, while an accurate accounting would show them likely to cost $11 billion.
Imagine if you ran your household finances like that? The article concludes with some good news. H.R. 3581 addresses necessary accounting adjustments has passed in the House, and awaits action in the Senate.
Monday, January 28, 2013
A Consultative Financial Advisor
There are a variety of characteristics a successful client-advisor relationship should have. Chief among them is that the relationship must be consultative. In my practice, that involves much more than simply working together with clients in an open and honest partnership to meet their goals. Importantly, we also work hand-in-hand with our clients’ estate planning attorneys, accountants and other financial professionals. This is our expansive professional network--a talented team of trusted advisors who offer specific expertise and objective counsel when necessary.
Notably, our consultative approach isn’t limited to professionals. Although many times one spouse functions as the point person when it comes to finances, it’s imperative that both partners understand and participate in the management of the family finances. In fact, many of our clients broaden their family’s involvement by bringing their children into the planning process. Even very young children can learn something about managing the household finances, and sharing the estate planning process with adult children can be especially fulfilling.
While there’s no question that in today’s challenging market you may require the expertise and counsel of a range of financial professionals, it’s crucial that when you assemble such a team, you designate a quarterback or your personal chief financial officer. In fact, recent research from State Street Global Advisors and the Wharton School at the University of Pennsylvania found that many investors who work with multiple financial advisors without a lead advisor shoulder additional portfolio risk.
How so? Think about it. Without a consultative quarterback to foster communication and coordinate your financial plan, multiple advisors could cloud your financial picture. For example, without communication between advisors, overlapping exposures could create an unintentional overexposure to a single stock or asset class that increases your overall portfolio risk. Or, if you worked with two advisors and one underweighted small cap, while the other overweighted the asset class, you’d have an unintended market neutral exposure. Additionally, over time, your portfolio would be prone to style drift, or a critical need to rebalance might go unmet.
If you work with multiple financial professionals, we recommend designating someone like us as your quarterback or personal chief financial officer.
(Note: For a discussion of the six core characteristics--Six Cs--an advisor should have, read What Makes a Great Financial Advisor? and the Six Cs blogs on this topic.)
Notably, our consultative approach isn’t limited to professionals. Although many times one spouse functions as the point person when it comes to finances, it’s imperative that both partners understand and participate in the management of the family finances. In fact, many of our clients broaden their family’s involvement by bringing their children into the planning process. Even very young children can learn something about managing the household finances, and sharing the estate planning process with adult children can be especially fulfilling.
While there’s no question that in today’s challenging market you may require the expertise and counsel of a range of financial professionals, it’s crucial that when you assemble such a team, you designate a quarterback or your personal chief financial officer. In fact, recent research from State Street Global Advisors and the Wharton School at the University of Pennsylvania found that many investors who work with multiple financial advisors without a lead advisor shoulder additional portfolio risk.
How so? Think about it. Without a consultative quarterback to foster communication and coordinate your financial plan, multiple advisors could cloud your financial picture. For example, without communication between advisors, overlapping exposures could create an unintentional overexposure to a single stock or asset class that increases your overall portfolio risk. Or, if you worked with two advisors and one underweighted small cap, while the other overweighted the asset class, you’d have an unintended market neutral exposure. Additionally, over time, your portfolio would be prone to style drift, or a critical need to rebalance might go unmet.
If you work with multiple financial professionals, we recommend designating someone like us as your quarterback or personal chief financial officer.
(Note: For a discussion of the six core characteristics--Six Cs--an advisor should have, read What Makes a Great Financial Advisor? and the Six Cs blogs on this topic.)
Monday, January 21, 2013
Good News for IRA Owners
On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 also known as the Fiscal Cliff Bill into law. While tax rates grabbed all the headlines, the bill also included some good news for charities – and for philanthropically inclined Individual Retirement Plan (IRA) owners.
You might remember the Qualified Charitable Distribution (QCD) provision. Well, this tax-free distribution of otherwise taxable dollars from your IRA to a qualified charitable organization is back! As established in 2011, individuals ages 70½ and older can give direct gifts up to $100,000 to qualified public charities from their Individual Retirement Accounts (IRAs) -- without paying taxes on the distribution.
In fact, the newly-dubbed “IRA Rollover provision” allows IRA gifts made between December 31, 2012 and February 1, 2013 to be counted for the 2012 tax year. It also permits people who made qualifying transfers from their IRAs to charities in December of 2012 to treat the transfers retroactively as eligible rollovers. Finally, it extends the IRA charitable rollover provision through December 31, 2013, when it will sunset.
And, yes, these gifts will count toward your Required Minimum Distribution (RMD).
Who benefits the most? Charities benefit, of course, but this strategy can make sense for both donors who itemize deductions and whose charitable contributions would be reduced by the percentage of income limitation or by the itemized deduction reduction. This is beneficial since the QCD is not included in the taxpayer's Adjusted Gross Income.
You might remember the Qualified Charitable Distribution (QCD) provision. Well, this tax-free distribution of otherwise taxable dollars from your IRA to a qualified charitable organization is back! As established in 2011, individuals ages 70½ and older can give direct gifts up to $100,000 to qualified public charities from their Individual Retirement Accounts (IRAs) -- without paying taxes on the distribution.
In fact, the newly-dubbed “IRA Rollover provision” allows IRA gifts made between December 31, 2012 and February 1, 2013 to be counted for the 2012 tax year. It also permits people who made qualifying transfers from their IRAs to charities in December of 2012 to treat the transfers retroactively as eligible rollovers. Finally, it extends the IRA charitable rollover provision through December 31, 2013, when it will sunset.
And, yes, these gifts will count toward your Required Minimum Distribution (RMD).
Who benefits the most? Charities benefit, of course, but this strategy can make sense for both donors who itemize deductions and whose charitable contributions would be reduced by the percentage of income limitation or by the itemized deduction reduction. This is beneficial since the QCD is not included in the taxpayer's Adjusted Gross Income.
Monday, January 14, 2013
Learning from Successful People
It’s a new year and we’ve likely all made resolutions to improve ourselves. If you’re striving to do better in the workplace, you’ll find the observations and advice offered in 8 Things Remarkably Successful People Do interesting and useful.
The author Jeff Haden insists that successful business people work differently, putting in more hours than most and viewing an achieved goal as a “launching pad for achieving another huge goal.” Those are certainly admirable traits, but a few of Haden’s other observations really resonated with me.
Hade writes, for example, that successful business people “avoid the crowds.” “Joining the crowd--no matter how trendy the crowd or ‘hot’ the opportunity--is a recipe for mediocrity.” Of course, the same is true of investing. Jump on the hot stock bandwagon and you’re sure to be in for a disappointing ride.
Haden also observes that successful business people “start at the end.” He writes, “Aim for the ultimate. Decide where you want to end up. That is your goal. Then you can work backwards and lay out every step along the way.” Of course, these instructions are encapsulated by the financial planning process. And research shows that investors with a written plan and specific goals not only make better decisions, but have the fortitude to stay invested in choppy markets.
Of course, if you read the article, you will likely find other observations that relate more directly to your own work. However, Haden’s final point about successful business people applies across all lines of work: “They are never too proud to admit they made a mistake…say they are sorry…have big dreams…admit they owe their success to others…poke fun at themselves..ask for help.” No matter how hard we work, it’s impossible to know all the answers--and the best and the brightest always seem to know when to ask for help.
The author Jeff Haden insists that successful business people work differently, putting in more hours than most and viewing an achieved goal as a “launching pad for achieving another huge goal.” Those are certainly admirable traits, but a few of Haden’s other observations really resonated with me.
Hade writes, for example, that successful business people “avoid the crowds.” “Joining the crowd--no matter how trendy the crowd or ‘hot’ the opportunity--is a recipe for mediocrity.” Of course, the same is true of investing. Jump on the hot stock bandwagon and you’re sure to be in for a disappointing ride.
Haden also observes that successful business people “start at the end.” He writes, “Aim for the ultimate. Decide where you want to end up. That is your goal. Then you can work backwards and lay out every step along the way.” Of course, these instructions are encapsulated by the financial planning process. And research shows that investors with a written plan and specific goals not only make better decisions, but have the fortitude to stay invested in choppy markets.
Of course, if you read the article, you will likely find other observations that relate more directly to your own work. However, Haden’s final point about successful business people applies across all lines of work: “They are never too proud to admit they made a mistake…say they are sorry…have big dreams…admit they owe their success to others…poke fun at themselves..ask for help.” No matter how hard we work, it’s impossible to know all the answers--and the best and the brightest always seem to know when to ask for help.
Monday, January 7, 2013
2012: The Year Pessimism Got Skunked...Again
The election. The fiscal cliff. The national debt. The federal deficit. Slow
(to nonexistent) economic growth. Chronically high unemployment. Superstorm
Sandy, the east coast's Katrina. Impending tax increases. The euro plague,
leapfrogging from Greece to Spain, next perhaps to Italy and even France. The
weak dollar. The Federal Reserve continuing to push on a string. The China
slowdown. The LIBOR scandal. The Facebook IPO fiasco. Yet another new strain of
flu virus. The end of the world foretold by the Mayan calendar. Two thousand
twelve was certainly a banner year for catastrophe, was it not?
How very odd, then, that the broad equity market—which started the year at 1277 on the S&P 500 and has flirted with 1450 as I write on the winter solstice—so signally failed to get the message. With dividends, it seems to be on track to have returned something like fourteen percent in this seemingly most relentlessly dismal of years. How shall we account to ourselves for this dichotomy, which seems on its face not merely inexplicable but downright weird? Well, I can think of two possible explanations.
The first and most obvious is that the stock market is just dead wrong: that it has recklessly ignored the plethora of real and impending disasters that are bearing down on us with each passing day, and which will surely swamp our economy and precipitate a market meltdown…any day now. For simplicity's sake, let's call this Door Number One: Pessimists Right, Market Wrong.
But then there's that other possibility. Which is, of course, that the pessimists have not just been momentarily wrong: they've been fundamentally—and perhaps fatally—wrong about the whole equation. They have, in short, been focusing entirely on the fiscal, monetary and economic mistakes of countries. But the equity market—as is its wont—has been much more narrowly focused on the variables which always ultimately drive it: the healthy, growing (and by some measures record-breaking) earnings, cash flows, dividends and cash positions of companies. We'll call this, as I'm sure you've already anticipated, Door Number Two: Market Right, Pessimists Wrong.
This is just one armchair observer's opinion, you understand, but—as I have all along—I'm going with Door Number Two. And thereby hangs a tale.
It is fashionable in pessimist circles to note that the equity market as denominated in the Standard & Poor's 500-Stock Index is closing out 2012 just about exactly where it ended 1999, in the mid 1400s—having all these years “done nothing.” This observation, narrowly correct as it clearly is, misses a couple of important things.
The first of these is, of course, that at the close of 1999 the market was within weeks of the bitter end of its greatest two-decade run of all time, during which the Index had gone up quite a bit more than ten times. It was at that point, by any and perhaps every measure, way ahead of itself.
The second and to me even more telling point is that while the Index has been, on net, treading water for these unlucky thirteen years, the earnings and dividends of its five hundred component companies have essentially doubled. (As the late American philosopher Charles Dillon Stengel always said: “You could look it up.”) OK, technically the earnings have a tad more than doubled, and the dividends a tad less, but the point is made: the prices of the great companies in America and the world relative to their earnings and dividends have to all intents and purposes halved, lo these thirteen years past.
One may therefore suggest, not unreasonably, the possibility that the market may in these thirteen years have gotten almost as far behind itself as it was ahead of itself in 1999. And that what it has been doing in 2012 is playing catch-up.
And there is perhaps more to this thesis than most investors may suspect. At the end of 1999, the S&P 500 was completing a year in which it earned about $50. Dividing those earnings by 1450, the Index's earnings yield stood at 3.5%—at a moment when the yield on the 10-year U.S. Treasury bond (though falling rapidly) was still around 5%. It could have been argued (and in fact this thesis turned out to be the correct one) that the bond was a better value, or at least a very competitive safe haven.
Today near 1450, with earnings in excess of $100, the S&P 500's earnings yield is about 6.7%, while the 10-year Treasury's is 1.8%, suggesting that the relative values of stocks and bonds have very sharply reversed since 1999. And that's not all.
Dig a little deeper, and we discover a couple of very intriguing facts about dividends. The more obvious of these is that—for only the second time since 1958—the current dividend yield of the S&P 500, at slightly higher than 2%, is greater than that of the 10-year Treasury. (The only other time this has happened was during the Great Panic of 2008-09.)
More obscurely but perhaps more importantly in the longer run, since 1871 the average dividend payout ratio—the percentage of their earnings that companies paid to shareholders as dividends—has been 53%. It's currently 29%. This certainly doesn't insure that companies will be significantly raising their dividends anytime soon. But it tells us that, at least historically, they have a lot of room to do so—or to buy back stock, which is simply enhancing shareholder value by another means.
Set aside the staggering economic progress of the developing world—China, India, Brazil and the like—in these thirteen years. Set aside the fact that the cost of computing has fallen by something like 98% since 1999, thereby empowering the rise of a billion global smartphone users. Set aside the stunning reality that the United States has gone from the most abject dependence on foreign oil to a point where it will emerge as the world's leading oil producer by 2020.
And set aside, if you can, the inarguable fact that the fiscal conditions of the West's democracies are an unholy mess. Tocqueville said it 170 years ago, and it's never been truer than it is today: “A democracy will always vote itself more benefits than it is prepared to produce.” Set this aside, I say, because as they become almost daily more genuinely global, the great companies become progressively less dependent on the economies of the older democracies on both sides of the Atlantic. At his confirmation hearings in 1953, President Eisenhower's nominee for secretary of defense could opine (if not in so many words) that what was good for General Motors was good for this country. In 2013, General Motors will sell as many cars in China as it does in the United States. This is not your father's Oldsmobile, and it isn't his stock market, either.
Especially if you have a personal predilection to pessimism, the turn of the year might be a good time to ask yourself—or, even better, to ask your financial advisor—whether, in fact, it might be the market that's right and the pessimists who are wrong. In terms of your own financial planning, and especially of your retirement income planning, this could turn out to be the single most important financial question you ask in 2013.
© January 2013 Nick Murray. All rights reserved. Reprinted by permission.
How very odd, then, that the broad equity market—which started the year at 1277 on the S&P 500 and has flirted with 1450 as I write on the winter solstice—so signally failed to get the message. With dividends, it seems to be on track to have returned something like fourteen percent in this seemingly most relentlessly dismal of years. How shall we account to ourselves for this dichotomy, which seems on its face not merely inexplicable but downright weird? Well, I can think of two possible explanations.
The first and most obvious is that the stock market is just dead wrong: that it has recklessly ignored the plethora of real and impending disasters that are bearing down on us with each passing day, and which will surely swamp our economy and precipitate a market meltdown…any day now. For simplicity's sake, let's call this Door Number One: Pessimists Right, Market Wrong.
But then there's that other possibility. Which is, of course, that the pessimists have not just been momentarily wrong: they've been fundamentally—and perhaps fatally—wrong about the whole equation. They have, in short, been focusing entirely on the fiscal, monetary and economic mistakes of countries. But the equity market—as is its wont—has been much more narrowly focused on the variables which always ultimately drive it: the healthy, growing (and by some measures record-breaking) earnings, cash flows, dividends and cash positions of companies. We'll call this, as I'm sure you've already anticipated, Door Number Two: Market Right, Pessimists Wrong.
This is just one armchair observer's opinion, you understand, but—as I have all along—I'm going with Door Number Two. And thereby hangs a tale.
It is fashionable in pessimist circles to note that the equity market as denominated in the Standard & Poor's 500-Stock Index is closing out 2012 just about exactly where it ended 1999, in the mid 1400s—having all these years “done nothing.” This observation, narrowly correct as it clearly is, misses a couple of important things.
The first of these is, of course, that at the close of 1999 the market was within weeks of the bitter end of its greatest two-decade run of all time, during which the Index had gone up quite a bit more than ten times. It was at that point, by any and perhaps every measure, way ahead of itself.
The second and to me even more telling point is that while the Index has been, on net, treading water for these unlucky thirteen years, the earnings and dividends of its five hundred component companies have essentially doubled. (As the late American philosopher Charles Dillon Stengel always said: “You could look it up.”) OK, technically the earnings have a tad more than doubled, and the dividends a tad less, but the point is made: the prices of the great companies in America and the world relative to their earnings and dividends have to all intents and purposes halved, lo these thirteen years past.
One may therefore suggest, not unreasonably, the possibility that the market may in these thirteen years have gotten almost as far behind itself as it was ahead of itself in 1999. And that what it has been doing in 2012 is playing catch-up.
And there is perhaps more to this thesis than most investors may suspect. At the end of 1999, the S&P 500 was completing a year in which it earned about $50. Dividing those earnings by 1450, the Index's earnings yield stood at 3.5%—at a moment when the yield on the 10-year U.S. Treasury bond (though falling rapidly) was still around 5%. It could have been argued (and in fact this thesis turned out to be the correct one) that the bond was a better value, or at least a very competitive safe haven.
Today near 1450, with earnings in excess of $100, the S&P 500's earnings yield is about 6.7%, while the 10-year Treasury's is 1.8%, suggesting that the relative values of stocks and bonds have very sharply reversed since 1999. And that's not all.
Dig a little deeper, and we discover a couple of very intriguing facts about dividends. The more obvious of these is that—for only the second time since 1958—the current dividend yield of the S&P 500, at slightly higher than 2%, is greater than that of the 10-year Treasury. (The only other time this has happened was during the Great Panic of 2008-09.)
More obscurely but perhaps more importantly in the longer run, since 1871 the average dividend payout ratio—the percentage of their earnings that companies paid to shareholders as dividends—has been 53%. It's currently 29%. This certainly doesn't insure that companies will be significantly raising their dividends anytime soon. But it tells us that, at least historically, they have a lot of room to do so—or to buy back stock, which is simply enhancing shareholder value by another means.
Set aside the staggering economic progress of the developing world—China, India, Brazil and the like—in these thirteen years. Set aside the fact that the cost of computing has fallen by something like 98% since 1999, thereby empowering the rise of a billion global smartphone users. Set aside the stunning reality that the United States has gone from the most abject dependence on foreign oil to a point where it will emerge as the world's leading oil producer by 2020.
And set aside, if you can, the inarguable fact that the fiscal conditions of the West's democracies are an unholy mess. Tocqueville said it 170 years ago, and it's never been truer than it is today: “A democracy will always vote itself more benefits than it is prepared to produce.” Set this aside, I say, because as they become almost daily more genuinely global, the great companies become progressively less dependent on the economies of the older democracies on both sides of the Atlantic. At his confirmation hearings in 1953, President Eisenhower's nominee for secretary of defense could opine (if not in so many words) that what was good for General Motors was good for this country. In 2013, General Motors will sell as many cars in China as it does in the United States. This is not your father's Oldsmobile, and it isn't his stock market, either.
Especially if you have a personal predilection to pessimism, the turn of the year might be a good time to ask yourself—or, even better, to ask your financial advisor—whether, in fact, it might be the market that's right and the pessimists who are wrong. In terms of your own financial planning, and especially of your retirement income planning, this could turn out to be the single most important financial question you ask in 2013.
© January 2013 Nick Murray. All rights reserved. Reprinted by permission.
Saturday, January 5, 2013
Happy New Year! The Cliff was Averted
Amid intense political drama, Congress passed the American Taxpayer Relief Act on New Year’s Day to avert massive tax increases for nearly all earners that were slated for January 1st. The best comment I’ve read thus far on the legislation comes from David Lifson, an accountant at Crowe Horwath in New York. He says that the new law “replaces uncertainty with confusion.” Lifson goes on to say that, “Only tax wizards can understand the entirety, especially for people earning between $200,000 and $450,000.”
In fact, the American Taxpayer Relief Act is not as simple as it’s been billed. Yes, the top 1% of taxpayers will bear the biggest burden when the 35% bracket increases to 39.6% for individuals with at least $400,000 of taxable income or couples with at least $450,000. However, many other families will pay more, too. For instance, the most immediate change affects nearly all workers: Congress allowed a two-percentage-point cut for the employee portion of the Social Security tax to expire.
Another major change is with the personal exemption, the amount of money a taxpayer can deduct for him or herself and dependents. In 2013, this exemption is expected to be $3,900, so a couple with three children could deduct $19,500. However, this year the exemption will phase out for people starting at the $250,000/$300,000 income thresholds, and disappear completely for couples with $422,500 of adjusted gross income. So, a couple with three children and adjusted gross income of more than $300,000 will lose some or all of their $19,500 exemption.
Another curve ball is the Pease provision, named after former Rep. Donald Pease (D-Ohio) which could significantly limit charitable donations and mortgage interest for taxpayers above the $250,000/$300,000 taxable income thresholds.
And, there’s plenty more to digest and keep us busy planning as we wait for the Internal Revenue Service to release the new inflation-adjusted tax brackets for 2013…
In fact, the American Taxpayer Relief Act is not as simple as it’s been billed. Yes, the top 1% of taxpayers will bear the biggest burden when the 35% bracket increases to 39.6% for individuals with at least $400,000 of taxable income or couples with at least $450,000. However, many other families will pay more, too. For instance, the most immediate change affects nearly all workers: Congress allowed a two-percentage-point cut for the employee portion of the Social Security tax to expire.
Another major change is with the personal exemption, the amount of money a taxpayer can deduct for him or herself and dependents. In 2013, this exemption is expected to be $3,900, so a couple with three children could deduct $19,500. However, this year the exemption will phase out for people starting at the $250,000/$300,000 income thresholds, and disappear completely for couples with $422,500 of adjusted gross income. So, a couple with three children and adjusted gross income of more than $300,000 will lose some or all of their $19,500 exemption.
Another curve ball is the Pease provision, named after former Rep. Donald Pease (D-Ohio) which could significantly limit charitable donations and mortgage interest for taxpayers above the $250,000/$300,000 taxable income thresholds.
And, there’s plenty more to digest and keep us busy planning as we wait for the Internal Revenue Service to release the new inflation-adjusted tax brackets for 2013…
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