The tax aspect of planning is an essential component of wealth management. Ideally, the wealth manager discusses and coordinates tax questions with the client’s tax advisor. In order to do a good job, however, the wealth manager needs to have a healthy understanding of how the client’s tax situation affects their financial plan and their investments. I will cover just three ways a wealth manager can add value in this area.
One, by reviewing the client’s 1040 the wealth manager can look for inefficiencies such as municipal bond interest that is subject to the Alternative Minimum Tax. Reviewing the 1040 is an important part of just about every client relationship.
Two, the types of investments (municipal bonds versus taxable bonds) a client has and where they are located (taxable account or tax-deferred or tax-free) should be influenced by the marginal tax bracket of the client.
Third, tax loss harvesting can be a valuable component of wealth management. Let’s say I have a client with a $5000 unrealized loss in one investment in an account that has $3000 of realized capital gains. By selling the investment with the loss and purchasing a similar investment (or waiting to repurchase the same investment after the wash-sale period) the client is in the same essential investment position, but now we have eliminated the $3000 capital gain and she has a $2000 loss to deduct. (Of course there could be other factors that dictate a different course of action.)
So if you have or are interviewing a financial advisor who doesn’t bring up the tax aspect of wealth management in your discussions, you may want to get a second opinion.
*The opinions in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. We suggest that you discuss specific tax issues with a qualified tax advisor.
Half way through the year and investors remain fearful and frustrated. They are fearful due to the issues with the Euro, the recent Supreme Court decision on health care, and the upcoming election. They are frustrated because adjustments made to portfolios to reduce risk exposure also have limited returns. This quarter I would like to review our basic current economic and market assumptions and our perceived risks.
US Gross Domestic Product will likely be around 2% for 2012. This is very anemic. Europe is in a deepening recession, while Asian and Latin American economies are still growing, but slowing down. We are unlikely to be in a global recession this year.
Stocks valuations are cheap historically. US stocks seem to have decoupled from foreign stocks. This has led to our WealthProtect System triggering for us to exit developed and emerging foreign markets, as well as natural resource stocks, but staying in domestic and real estate stocks. The US Treasury market is quite overvalued. Better yields are available in other parts of the credit market.
There are a number of risks to our economic assumptions. If gas prices were to surge suddenly to $5 per gallon or more due to an Israeli-Iranian conflict, this would likely lead to consumers curtailing their expenditures quickly, which then would likely lead to a recession. European debt issues spiraling out of control continues to be front and center. Less talked about is what if China, which has its own housing bubble (lots of unoccupied new high rises), begins to falter economically? What about the fiscal and tax “cliff” of January 1, 2013? Most analyses show a 3.5% to 4% hit to GDP. With only 2% growth, this seems to indicate recession next year. Of course, Congress and the President will likely make adjustments.
Please remember that 80% of what we worry about never happens. This is why I believe that having a strategically diversified portfolio, while making tactical adjustments based on our WealthProtect System, is more effective than either buy and hold investing or emotional investing.
Thank you for your continued trust. Call us any time.
Click here to read the entire Newsletter.
*The opinions in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. All performance referenced is historical and is no guarantee of future results. Stock investing involves risk including loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. No strategy assures success or protects against loss.
Due to the very low interest rate environment we are in, long term care insurance providers are finding it necessary to increase their premiums for new policies, reduce benefits, or both. For example, one major carrier has announced that effective the end of June they will no longer provide lifetime coverage and the couples' discount will drop from 40% to 20%.
As a result, I believe that individuals and couples contemplating long term care insurance should consider submitting an application sooner versus later if they find the coverage appropriate for their situation.
Our firm has access to most of the top providers; call at 843.292.9997 or email us today at firstname.lastname@example.org to discuss or to get your customized quotes with no pressure to purchase.
The latest buzz from Facebook’s initial public offering, or IPO, has raised many questions for investors. I can’t tell you how many calls I received from individuals wanting information in regards to purchasing Facebook stock. Several people even claimed investing in Facebook’s IPO was a sure way to make a lot of money. There are several misconceptions about IPOs and hopefully we can outline some of the basic facts.
What exactly is an IPO? An IPO is the first sale of stock by a company to the public in order to raise money. Going public allows a company to tap a vast range of investors creating the ability to quickly raise large amounts of capital. There are significant legal and accounting costs due to the continuous requirement to disclose financial and business information. This increased scrutiny and transparency usually allows companies to borrow money or issue debt at favorable interest rates. A company can also gain prestige and exposure being listed on a public exchange. Management and employees of publicly traded companies often have the ability to participate in stock option programs therefore helping retain talent.
Should I invest in an IPO? The answer to this question depends on your individual goals and should be discussed with your wealth manager. In some cases, investing in an individual stock can add substantial risk to your overall portfolio. Keep in mind, it is wise to maintain a diversified portfolio that fits your risk tolerance and is built to address your future goals. Maintaining a long term perspective is a key variable to investing and increases the chances of earning positive returns. Short term traders trying to make a quick buck often get burned. Facebook (FB), Groupon (GRPN), and Zynga (ZNGA) are recent notable IPOs. As of June 13th, 2012, all three company stock prices are trading significantly lower than their IPO price. Remember Warren Buffett’s famous quote if you consider investing in an IPO, “Be fearful when others are greedy.”
*The opinions in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does no protect against market risk. Stock investing involves risk including loss of principal.
Our WealthProtect System (a valuation-modified moving average crossover system) in early June indicated for us to liquidate large foreign, emerging market, and natural resource equities across our portfolios. In lieu of leaving all the proceeds in cash, we reinvested the majority of the proceeds. Let me explain which asset classes and why.
First, I believe that due to the uncertainties surrounding Europe it is unlikely we will have a reentry signal any time soon. I also believe that it may take major equity market pain to force the European leaders to make real progress. Additionally, this will likely spill over to US markets to a lesser extent.
Still, US markets seem to have decoupled from foreign markets for the time being. Election years also tend to have positive returns. It is entirely possible that US markets have a fairly good second half while foreign equities languish.
Consequently, we reinvested in an S&P 500 index investment, an investment grade corporate bond investment and a global macro investment to give our portfolios a combination of downside risk reduction and some upside capture opportunity. The latter two, for example, had positive returns in the month of May when equities suffered.
So how has this altered our Growth with Income model, for instance? The normal portfolio has 56% equities (including real estate and natural resources), 29% fixed income, 10% non-traditional, and 5% cash. It currently sits at 40% equities, 34% fixed income, 15% non-traditional, and 11% cash.
While this portfolio will likely underperform if the markets take off for a tremendous bull run, it is designed to help protect in a sideways to down market. With the existing risks in Europe, potential economic slowdown in China, and weakening economic numbers here at home, I believe the portfolio to be appropriately positioned.
Another way we are dedicated to growing and protecting your wealth.
*The opinions in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. No strategy can guarantee a profit or protect against a loss. Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and changes in price. S&P 500 is am unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results. Nontraditional investments may not be suitable for all investors and involve special risks such as leveraging the investment, potential adverse market forces, regulatory changes and potentially illiquidity. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.