Archive for December, 2007
December 31st, 2007
Brian P. Conroy, CFP®
Did you ever notice how every time the stock market and/or economy hiccups, all eyes and ears go to the Federal Reserve? What will they do? What is the Fed chairman Ben Bernanke saying? Will they lower rates enough? Will they trigger inflation? What is the former Fed chairman Alan Greenspan saying today? Too much in my opinion! For some perspective I suggest having a look at renowned economist Milton Friedman’s classic 1980 PBS TV series “Free to Choose.” You can see it for free (how’s that for Economical ?) at http://www.ideachannel.tv/
As we enter another election season remember, many believe the FED has a bigger impact on the economy than the person sitting in the White House. Before his death last year, Friedman spoke often of the dangers of an intrusive government and the key role that a free competitive economy plays in making a free society possible. Watch volume 3 of the classic 1980 series “Free to Choose” to learn more about how the federal reserve attempts to “gently guide” our economy. You might be surprised how not boring it is.
December 28th, 2007
Brian P. Conroy, CFP®
Did you see a big dip in your mutual fund values this month? This was either an actual market drop (things HAVE been bouncy lately), or not. Likely, at least one of this month’s dips was due to your mutual fund distributing capital gains and dividends. These mutual funds are really just a collection of stocks. When stock shares (held inside the fund) are sold for a profit, the funds must distribute 90 percent of realized capital gains and dividends each year. This event occurs annually in December.
If your mutual fund’s share value is $20 and it makes a $6 distribution - you will see the share price dip to $14 and you will receive a $6 cash distribution. If this happens in your taxable account you will owe taxes on these distributions. If the fund is in a tax deferred IRA or 401(k), no worries! In a year when some mutual fund share values are down for the year, this year end taxable distribution can be VERY frustrating. This sometimes happens because the mutual funds sold appreciated shares of a stock at the beginning of the year (realizing a gain), but other stock values in the fund declined later in the year. Before you get too frustrated though, remember that only stocks that have APPRECIATED will result in gains when sold. Don’t allow yourself to become so tax averse that you forget the goal is to buy stocks that gain! In this season of giving and thanksgiving remember:
“A person doesn’t know how much he has to be thankful for until he has to pay taxes on it.” ~author unknown
December 26th, 2007
Wendy M. Blair, CFSC
With only a couple of weeks remaining in 2007, a check list of things to consider may be helpful for year-end planning.
- Investments: Do you have your cost basis records updated on your non-retirement accounts? If so, is there any tax-loss harvesting that is available to you in your portfolio? Tax-loss harvesting is realizing losses to offset realized gains. Consider re-balancing the investments in all of your portfolios (both retirement and non-retirement accounts). Simplistically, rebalancing forces you to sell high and buy low. Do you have children between the magical ages of 18 and 23, then? If so, their capital gain tax rate is going up in 2008, so consider taking gains for this age group in 2007.
- Planning: When was the last time you reviewed your last will & testament and trust? When was the last time you made up a current list of all of your assets with current values? How are your assets titled? Is it time that you updated your estate plan?
- Gifting: Would you and others benefit financially and emotionally by making gifts for 2007? Annual exclusion gifts or charitable gifts?
- Retirement Accounts: Are you maximizing your contributions? If not, could your contributions be increased for 2008? Are you already retired and over 71? Have you taken your required minimum distribution for 2007? This must be done by December 31st.
- Clean-up: While you are getting all of the above in order, are there records and papers that could be thrown out? Reorganized?
Enjoy what you have accomplished and look forward to a prosperous 2008!
December 21st, 2007
Wendy M. Blair, CFSC
Stimulating the economy during the Christmas season seems to be a patriotic duty! But alas, even after some have stimulated the economy to the extent of their credit limits – there is still not satisfaction and joy. Too much money spent, too much SNOW & ICE and not nearly enough peace and tranquility. Nor really do the bearers of the fruits of our generosity seem all that satisfied or content with the results of this economic stimulation. Yet year after year we continue to attempt to out stimulate the last until at some point it occurs to us that we can no longer even enjoy the Holiday Season. So, my recommendation and wish to everyone is this: Keep your focus. Don’t give too much to those who really only need your love, time, and support. Give more to those who really need your financial gifts and who will really appreciate them. This will give others a chance to truly enjoy the Holiday Season.
December 19th, 2007
Wendy M. Blair, CFSC
There are only a few more weeks left in 2007 – Yikes! If you are currently enrolled in Medicare Part D you have until December 31st to review your current plan and possibly change to a new plan. This annual review is critical! Unfortunately, there are major changes in the Medicare drug plans for 2008, including some significant movements in premiums as well as major changes to the structure of the drug formularies. According to Avalere Health, the Centers for Medicare & Medicaid Services decided to drop more than 1500 drug codes from last year’s list of formulary-approval drugs. So, for example AARP’s top plan (AARP Medicare Rx Preferred) is reducing its drug formulary by 30.2%. Obviously this reduction in drug coverage could have a significant impact on your total out of pocket costs for 2008.
In addition to AARP, two of Humana’s top plans are also reducing the number of drugs on their formularies for 2008 by over 30%. We would like to think that once we get our loved one signed up for this program we won’t have to worry about its fair and adequate coverage in the future – but this is not the case. Many local senior centers will assist with the annual enrollment and review. Access to the Medicare website is available at www.medicare.gov or if you are patient, you can call 1-800-633-4227. For other important issues facing seniors, I would encourage you to visit www.seniorjournal.com – this website has a wealth of information for seniors including Money & Investments, Health-Fitness, Government Issues, and Enjoying Life.
December 17th, 2007
Brent R. Brodeski, MBA,CPA,CFP,CFA, AIFA
People seem to be asking this question more lately. This is not surprising given the recent market volatility. Interesting though, stock prices are actually fundamentally quite inexpensive relative to recent years. Globally, P/E ratios globally are in the 16 range as indicated by the chart below. Of course, in the short-term, this does not mean much. Stocks can drop when valuations are low (i.e. November). Furthermore, stocks can still rally strong even if stocks are overvalued (think late 1990’s). Why is this? Because in the short-term, markets are 80% emotional. And emotion essentially ignores fundamental valuations. In contrast, in the long-term, markets are 90% logical. Said differently, valuations actually do matter over long periods. The good news is that the reasonable current valuations may imply the market has quite a bit of long-term upside potential versus recent years. What should an investor do? Probably nothing. Since no one has a crystal ball, just stick your long-term strategy, ignore the market commentators, and read a book or watch a show completely unrelated to finance.
December 14th, 2007
Tracy S. Beard, CFP®
Are most charitable gifts tax motivated? While we generally associate charitable gifts with tax deductions, the answer is no. After all, when an investor makes a gift to a charity, they are generally giving away 100% of the asset. This is the equivalent of a 100% “tax.” Now for the good news… In most cases, investors do get a tax deduction for making a gift to a qualified charity. Taking advantage of the tax benefit requires a general understanding of charitable gift rules. I had the opportunity last week to speak with Dan Loescher of Loescher & Associates regarding the charitable gift rules.
SAVANT – What are the general rules for deducting gifts made to a qualified charity?
Loescher - Individuals, who itemize their deductions, are able to obtain an income tax deduction and benefit by making a charitable contribution of cash or property. Under new rules for 2007, each contribution must be evidenced by a receipt or other contemporaneous record in order to claim the deduction. The amount of the deduction for gifts of property is the fair market value of the property at the time of the gift. A letter evidencing a contribution is required to be provided to a donor who makes a contribution of $250 or more.
SAVANT – Are certain assets better to gift to a charity?
Loescher - We encourage our clients to consider gifts of appreciated securities in lieu of cash for larger gifts. In this manner, the donor does not have to sell the security or pay the income tax on the gain to raise the money for the contribution. The appreciation is not taxable on the direct transfer.
In addition, you may have read that individuals who are older than 70 1/2 may transfer funds directly from an IRA account directly to charity. The amount transferred is not includible in the donor’s income nor is an income tax deduction obtained.
SAVANT – What are the most common mistakes made by individuals making charitable gifts?
Loescher - For 2007, the new rules require a receipt for every gift. This means that cash dropped in the Salvation Army kettles may not be claimed as a tax deduction nor may the cash pulled out of your pocket in church. This will be a surprise for many.
Certainly, one of the other big areas of confusion is the value of the household items given to Goodwill or the Salvation Army. The value for the income tax deduction is not what the donor paid for the item but rather the garage sale price or the price that the charity obtains on sale.
Finally, significant gifts made in cash forfeit the opportunity to utilize the capacity to transfer appreciated securities.
* Dan is a Certified Public Accountant specializing in working with charitable organizations and estate & taxation matters.
December 12th, 2007
Tracy S. Beard, CFP®
Do you want to simplify your charitable giving plan? Do you want the benefits of a family foundation without all of the complicated regulations? If you answered yes, you may want to consider using a Donor Advised Fund (DAF).
DAFs have become very popular in recent years. The concept is quite simple. An investor (donor) can open an account at a sponsoring company. Fidelity and Vanguard each offer DAF accounts. Our local community foundation also offers a DAF. Once the donor opens and names the account, they can fund it with cash or appreciated securities. Some companies allow other assets to be donated into the account. Since the gift fund itself is a qualified charity, the donor gets a tax deduction when money funds the account. Later, when the donor identifies a cause they would like to support, they request a grant be made from their account. The sponsoring company researches the charity to make sure it is an approved charity. As the name indicates, the fund is only donor advised. The donor of the account advises the sponsoring company to make the grant. Technically the sponsoring company is not required to accept the donor’s recommendation. However, they usually make the recommended grants as long as the charity is qualified. There are a number of advantages offered by a DAF. They include:
- Easy to make donations. Most firms accept grant requests online.
- Donors can fund the accounts with appreciated securities. This reduces the need to transfer appreciated securities to each separate charity.
- Grant histories are available online to track gifts.
- Costs are significantly less than family foundations.
- Donors can add money at any time. This allows for additional contributions during higher tax years.
Want to learn more? For further reference, please review the attached article on donor advised funds at the following link:
http://finance.yahoo.com/expert/article/moneyhappy/55741;_ylt=AmyX75Uo2WtqtJHN__l_W29O7sMF
December 10th, 2007
Tracy S. Beard, CFP®
I will never forget the year Mom received “Buttercup.” She had religiously collected every ornament from Hallmark’s Mary’s Angels Collection. But she missed Buttercup one year. She had come to accept the fact her collection would never be complete. When she opened her gift and identified the lost treasure, she cried tears of joy.
Ask any child if they would prefer to get a gift or give a gift, the answer becomes abundantly clear. However, as we mature into young adults and develop our own unique value systems, only then do we truly begin to understand the value of gift-giving.
For many of us, the holiday season reminds us of our desire to help those around us who are truly less fortunate. Here are a few tips if you plan on elevating your gift-giving during the holiday season:
- Consider giving to organizations or institutions that have had a positive impact on your life.
- Giving is not just about opening your pocketbook. Offer your talents or skills to a needy cause. Teaching a class or volunteering at a soup kitchen can add tremendous value to a community.
- Consider including your children in your gift-giving plan. Have them pick out a present for a needy child.
Mom received Buttercup and completed her collection, however, we received a gift far greater than the price of the ornament. We received the joy of our mother’s smile.
As you enter this holiday season, go ahead and be selfish. Give back to your community and warm your heart.
This is the first part of a series on charitable giving. Stay tuned for next blog that will identify a unique tool to simplify your charitable giving.
December 7th, 2007
Richard A. Bennett, CFSC, CFP®, AIF®
Having spent 22 plus years in the financial services industry, one of my greatest challenges has been to get clients to complete their estate plan. The development of an estate plan usually involves an attorney drafting a will or living trust to direct the disposition of individual’s assets upon death. I don’t know if it is the cost of having a plan drafted (usually between $500 -$1,000 for a will or $2,000-$5,000 for a living trust) or that it forces us to consider our own final demise but most people are reluctant to get the plan done.
The problem is that if we die without a will, the State of Illinois will make one for us. Often the State’s version does not direct the inherited assets to the people or places that we might have wished. An example would be for a married couple with two children where one of the spouses dies. Any assets that were held in the deceased spouses name alone will be divided one half to the surviving spouse and one half being split among the couple’s children. Most attorney-drafted estate plans pass all the assets to the surviving spouse directly or to the spouse using a trust. Then the kids would receive the assets at the second spouse’s death. This structure helps insure the financial security of the surviving spouse.
You spend a lifetime accumulating your personal wealth. It is extremely important to make sure you have a plan in place that will carry out your final wishes. Make getting your estate plan done your new year’s resolution.
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Brian P. Conroy, CFP® 
