|
A Monthly Newsletter Source of Financial Sources INVESTMENT MANAGEMENT & RETIREMENT • Highly Disciplined Research is Key to Successful Green Investing. • Protecting Your Portfolio Against Loss
May Be More Important Than You Think • Complex Career Arcs That Now Include Leaving Work and Staying Home with Children Require Advisors to Pay Attention to Opportunities and Pitfalls of Such Choices • It is Always a Bad Idea to Loan Money to Your Children. Plan to Give it Away, and then, Only if You Can Afford To Give it Away. • VEBA Trusts are Little-Used Option
With Big Benefits for Small Business • Teaching Teens About Saving For and Buying a Car Requires that Parents Adopt Flexible Thinking. NEW BOOK: The Ultimate Parenting Map for Money Smart Kids. Media Copies Available. • Certified Mortgage Planning Specialist (CMPS) Designation Raises Awareness of the Importance of Managing Mortgages, Debt, and Home Equity as part of an Overall Financial Strategy. INVESTMENT MANAGEMENT & RETIREMENT Highly Disciplined Research is Key to Successful Green Investing. Many in the green investing and Socially Responsible Investing world believe that a company's profitability can be predicted through in-depth, rigorous research methods not used by mainstream investors. For those mainstream investors, the concept that there are other factors than financial that are predictors of sustainable stock value comes as something of a surprise. Numerous studies over the past 30 years have demonstrated that companies with high environmental standards - or green standards --- are profitable companies (www.sristudies.org). Green standards and socially responsible business practices directly correlate to out-performance on the part of some stocks and companies in these areas such as Whole Foods Market (WFMI), United Natural Foods (UNFI), Green Mountain Coffee Roasters (GMCR), Herbalife, Ltd. (HLF) and others. The digging to find such companies is worth it. In order to find a strong investment candidate for a sustainable portfolio, the following are considered:
The demand for socially responsible investment (SRI) portfolios almost always is driven by an investor's personal interest to find investments that meet health and longevity concerns, and moral and ethical standards. It is the client who often drives the financial advisor to help them evaluate portfolio options that meet their desire to invest in this manner. More clients are doing so and the dollars invested in this medium are growing. The Social Investment Forum's 2003 Trends Report shows that $2.16 trillion dollars was invested in 2003 using SRI techniques. Of this, $1.99 million represented separately managed accounts and $151 billion was placed in mutual funds. Jackson W. Robinson is founder and portfolio manager for the Winslow Green Growth Fund (WGGFX), Winslow Management Company LLC, Boston, MA. Winslow focuses on small growth companies with big, new ideas. The media can reach Jack Robinson by calling Nicolé Keane, director of marketing, at 617-788-1608 Protecting Your Portfolio Against Loss The Delta pilots, as a cadre, are a good example of why preserving your accumulated retirement assets before and during retirement is vital. These men and women had both a defined benefit plan and a reasonable 401(k) plan. They were allowed to take their defined benefit plan one-half in a lump sum and one half in an annuity to be paid monthly by the company. The recent bankruptcy filings of Delta have changed things dramatically. The reason -- their promised annuities have disappeared almost completely, due to the corporate difficulties. This could mean as much as $5000 to $7000 a month loss, depending on the pilot's salary level and length of service. Even though many pilot accounts are more than $1.5 million (including half of their DB and all of their 401(k) accounts) the amount they can withdraw every month is sobering. A 5% withdrawal on $1.5 million is only $75,000 a year, not enough to maintain their previous lifestyles. Reality has many of these pilots now looking for work after they retire, and the available jobs are primarily for freight companies. As a result, these pilots, and other Delta employees whose retirement expectations have been cruelly changed because of corporate failure, must focus on managing their retirement assets for the future. That future means no losses in the 401(k) portfolios even though the portfolios must be drawn down for living expenses. A buy and hold investing strategy is akin to keeping the pedal to the metal with no regard for stopping or turning. "Slow" returns are not necessarily a bad thing. If there is trouble in the road, or if you are headed straight for the wall, traveling more slowly offers the portfolio manager the opportunity to maneuver around trouble. In investing, a good set of brakes is just as important as a powerful engine. Portfolio managers practicing tactical asset allocation will not hit all the highs, but they work diligently to avoid the lows to smooth out your portfolio performance. You are in trouble when your investment strategy is great for markets going up, but offers no protection when it goes sideways or down. Look for a manager who did not sustain major losses between 2000 and 2004 because they kept a balance between safety and return. The Delta pilots who did not sustain large losses in the tech wreck are better off than their colleagues who sustained large losses. Investors enjoy racking up nice gains as much as the next person, but need to realize that the key to long-term wealth is in not losing. And yet, the very model that allows investors to grow their portfolios in the long-term can create short-term frustrations in a sideways markets. No market goes up forever, down forever or sideways forever. Regardless of the direction, find a manager whose first goal is to protect your assets, while garnering the best possible result. It is worth the search. PMFM, Inc. manages $680 million as of June 30, 2005. The firm has increased its assets under management by nearly 40% in each of the last three years. Principals Tim Chapman and Don Beasley, experienced investment advisors with offices just outside Athens, Georgia, have worked with thousands of clients and now offer their services to plan sponsors through 401k Toolbox. Jud Doherty, CFA, is the chief financial officer for the firm, and Tim McCabe is national marketing director. Tim Chapman -- 800-222-7636. Tim.Chapman@pmfm.com Complex Career Arcs That Now Include Leaving Work and Staying Home with Children Require Advisors to Pay Attention to Opportunities and Pitfalls of Such Choices Successful women professionals with portable skills who married later in life are choosing to take time out from their careers for family time. In most cases, these women are planning to re-engage with their professions at a later date and are able to keep their skills updated while out of the workforce. Dropping out to raise young children is only possible when the women have been diligent savers and investors before children and have income sources (marital or their own) that allow them to take time off in the middle of their careers. Tired of the 80-hour work weeks and capable, financially, of choosing not to work for a time, these professionals need careful financial planning before they send in their resignations. Here are the issues advisors face when counseling such clients: • There is no tolerance for losing invested assets. If the client’s portfolios were largely growth, the portfolios may need to be restructured to more conservative investments that lose no ground during their time off and during a time when they will not be contributing to a retirement plan. Some women choose to take time off when their children are very small. Others choose to be more of a presence when their children are in high school, on the way to college. For this cadre, mostly professional women, who think differently about work, how they invest their money before time off, and during their time away from the work world is the major issue. Many will plan to live for four or five years with no paychecks, but cannot tolerate portfolio losses as well. Advisors can assist by presenting hypothetical scenarios of portfolio composition that protect against loss. Advisors can also calculate the real costs of working and the benefits that may accrue when of one of a dual-earner couple stops working. • When transportation, clothing, spending money, and state and federal taxes on the woman’s income are calculated, the true cost of work may help families make the decision for one parent to take time off Jeff Lancaster, CFP, is a principal with San-Francisco-based Bingham, Osborn & Scarborough LLC (BOS), a registered investment advisor with $1.4 billion in assets under management. BOS has provided investment management and comprehensive financial planning for individuals and endowments since 1985. All revenues are fee only. BOS has eight principals and a total staff of 26 working on behalf of their clients, plus an administration, finance and systems staff with direct client contact and responsibilities related to client accounts. 415-781-8535 or jeff.lancaster@bosinvest.com It is Always a Bad Idea to Loan Money to Your Children. Plan to Give it Away, and then, Only if You Can Afford To Give it Away. If you can't gift, don't lend. Children are still children no matter what professional expertise they acquire as they mature. Eighty percent of all parents whose children are up to fifty-years old, still want to help them financially. Parents who need the money to be repaid should never lend it with the assumption that it will be returned. One couple loaned an adult son $250,000 for an investment. Then the mother developed Alzheimer's. The father needed his loan to be repaid, but the child could not borrow from the bank to repay the loan, the proceeds of which he had invested in a business. At the worst possible time of stress for the family, money became a contentious and stressful issue. The first obligation when asked for a loan is to determine whether or not you can afford to give money away. If the answer is no, then the answer to your children must be no. If the answer is yes, the parents have enough money to loan, their first instinct is to attach strings dealing with repayment so their adult children will not develop a sense of entitlement. Whether the loan is for a down payment for a new house, specialty camp or elementary school for the grandchildren, or help with the mortgage during a period of unemployment. don't assume these loans will ever be repaid. The kids think, not without cause, "Dad won't miss the payment this month, I'll catch up next." Sometimes adult children put the loan on hold indefinitely an action that can guarantee rancor of some kind and generally muddy up family relationships. A better strategy is to gift money to your children on a regular basis. The key factor in gifting is to make your children understand that the gift is an early distribution of their inheritance. Under Federal law, each parent can gift up to $12,000 annually to as many individuals as they choose. If the adult children need $36.000 a year to defray the costs of private Montesorri School for their child both Mom or Dad can gift their child, his or her spouse, and child $12,000. The gifts are not income to the children and help reduce the estate of Mom and Dad. Parents can gift to one child as needed, with a clear understanding that the other children in the family who did not need gifts will receive equalized distributions of the family's trust that take into account all previous gifts. Very wealthy families establish a family bank, also known as a dynasty trust.. One couple funded a trust with a $2 million deposit to the trust (each parent can give $1 million each). Access to this trust by their children is considered a loan from their inheritance and lack of payment of the loan reduces their proceeds from the trust after their parents deaths. The adult children can access the money for pre-determined reasons from such a trust. The message is "You are spending your inheritance." The brother's and sisters can be helped in different ways. When it becomes lopsided, an attorney can equalize the distributions from the trust. Don't loan money you can't spare, but if you can help your children, make it a clearly defined gift. Family relationships will benefit from your generosity. Pearson Financial Services, Dennis, MA, is the author of "The Million Dollar Gift: Dynasty Trusts. Why Leave Your Assets Any Other Way", written for his clients, their families, and his own family. He offers a fully integrated wealth management process, incorporating investment, retirement, financial and estate planning specialists under one roof, serving clients as their family's office, designing and implementing strategies to protect and distribute their wealth and highly appreciated property. Seth Pearson, CFP, 800-385-7925 VEBA Trusts are Little-Used Option With Big Benefits for Small Business Owners of small businesses and consultants would do well to investigate the benefits of establishing a VEBA Trust (Voluntary Employee Benefit Association). It is a flexible employee benefit plan that has been in existence since 1928, but is not popularly known even in financial circles. One of its least used provisions is the ability to cover only a single individual and his or her spouse. A VEBA Trust is a tax-exempt association formed under IRS Section 501(c)(9). Establishing a VEBA Trust requires receiving a tax-exempt letter ruling from the IRS. The need for this letter increases the cost of establishing a VEBA Trust. Contributions to a VEBA Trust are tax deductible. Assets in a VEBA Trust may be withdrawn by members tax-free for a variety of purposes allowed under the Trust documents. Some of these purposes include educational expenses, medical reimbursement, salary continuation benefits, long-term care premiums and life insurance premiums. Members can also borrow assets from a VEBA Trust without incurring a tax liability. There is no annual limit on contributions. The IRS will determine whether the tax deduction for a VEBA contribution is "reasonable" for that organization. You are not required to make annual contributions. You can have a VEBA Trust in addition to a pension plan. VEBA Trusts are governed in part by ERISA and in part by the Taft-Hartley Act. VEBA Trusts allow financial planning to be highly customized and tax smart for self-employed consultants, and particularly useful as they age. In an age when many employees are looking for ways to continue working for their corporations, but as consultants, the VEBA Trusts are an excellent way to pay for many benefits formerly paid for by the corporation. When deciding whether or not to establish a VEBA Trust, you should seek advice from a financial advisor or tax specialist with specific knowledge about VEBA Trusts. Donald L. McCoy, J.D., CMFC -- Planners Financial Services, Inc., 952-835-9000. Minneapolis, Minnesota. Registered investment adviser and subsidiary company Montgomery Investment Management, specialize in the management of no-load mutual fund portfolios for individuals and retirement plans designed to protect capital by reducing risk. pfshim@usinternet.com. Teaching Teens About Saving For and Buying a Car Many people life “hand to mouth” virtually all of their lives. When money comes in, it goes right back out Even worse, it is committed in advance of receiving it. For far too many, it's a formula that guarantees that money is literally gone before it is received. Helping teens research, save for, and manage insurance, gas, and maintenance on a car without sacrificing their scholastic and extra-curricular life allows them to become the kind of adults who understand that long term goals take work. For starters, you can insist that your son or daughter research a vehicle before they buy and you can hold veto power on the car of choice if it doesn't meet with your safety requirements. You and they need to know the following: • What is the car's safety rating? If you believe, as many parents do, that your children need transportation for their activities and providing a car is the best way to keep a child from sacrificing their teen years to paying for and maintaining a car, you may set parameters for who drives a provided car and the acceptable places and activities that might include the car. This may seem like a cop-out on making your child responsible for his own finances, but there are several reasons this may be a better learning experience. 1. The vehicle should not be a higher priority than solid academic achievement and non-school activities that will provide growth opportunities for your child. If a child chooses to get a job to support a car, he might not have that extracurricular activity that could lead to a rewarding career. There may be better uses of your child's time than a summer job, such as travel abroad or study with a mentor in his chosen field. Ultimately, think flexibly about your child's long-term growth when you figure out the equation of financial responsibility for a car for transportation and who pays for what. Linda Leitz, CFP, Pinnacle Financial Concepts, Inc., Colorado Springs, Colorado, is author of “The Ultimate Parenting Map to Money Smart Kids,” as a book or as a CD. She specializes in helping families and individuals meet their long- term financial goals. She also helps those in the midst of divorce resolve financial issues through her company Divorce Solutions, Inc. She can be reached at 719-260-9800 or Linda@brightleitz.com. Certified Mortgage Planning Specialist (CMPS) Designation Raises Awareness of the Importance of Managing Mortgages, Debt, and Home Equity as part of an Overall Financial Strategy. The CMPS Institute, Ann Arbor, Michigan, a training and certifying organization created to help mortgage professionals integrate financial planning concepts into the mortgage process, announces its 600th enrollee is on track to earn the Certified Mortgage Planning Specialist (CMPS) designation. The Institute, which opened its doors in mid-August with the establishment of its educational programs for mortgage brokers, is a joint effort by leaders in the mortgage and financial planning industries to raise professional standards among mortgage professionals and integrate sound financial planning advice into the mortgage process. "Our CMPS members can differentiate themselves in the mortgage planning industry by helping their clients better manage their liabilities as part of their total balance sheet management," says Gibran Nicholas, Chairman and CEO of the CMPS Institute. Trends in the mortgage industry parallel trends in the investment industry. Some investors look for the least expensive trades, just as some homeowners shop diligently for the lowest mortgage rate. In both instances, the cost of the stock trades and the mortgage interest rate have become commodities. On the other hand, high net worth investors have always sought the help of a professional money manager for their complex investment needs, and now the same investors have the opportunity to seek the help of a Certified Mortgage Planning Specialist for assistance with their mortgage, debt, and home equity strategy as part of an overall financial plan. The CMPS curriculum incorporates five essential skill sets including:
"A good mortgage planner with the CMPS certification can recognize when their clients should see a financial advisor, investment manager, CPA, or other professional," says Nicholas. "A CMPS cannot help manage investments, but they can certainly be of assistance in managing liabilities. We encourage our members to join their local chapters of the Financial Planning Association (FPA) to find financial advisors and investment managers who can provide services to their clients. Likewise, financial advisors need to take a serious look at working with a CMPS as an important part of the financial planning process," says Nicholas. For more information go to http://www.cmpsinstitute.org, or call Gibran Nicholas, Chairman and CEO, CMPS Institute, 888-608-9800
|