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A Monthly Newsletter Source of Financial Sources • Impatient with money market rates of return, investors are looking for higher yields • Young Couple Errs in Putting all Savings and Inheritance into Kids 529 Plan and Nothing into their own Retirement • Carry An Emergency Medical Identification Card • UP REITs – a new twist to established 1031 strategy provides greater flexibility, diversification, and more estate planning options than previously allowed • Should You Rollover your 401(k) into an IRA? • Middle Class Homeowners Must Demand that “Making Home Affordable” Loan Modification Programs Be Allowed to Work • NS Capital's Launch Puts Investors First ---------------------------------------------------------------------------------------------------------------------------- Impatient with money market rates of return, investors are looking for higher yields. Money market rates are extremely low. It doesn't look like the Federal Reserve is going to increase rates any time soon. Investors are becoming impatient with earning next to nothing on their cash. Money market investors should review near term cash needs and consider whether a short term bond fund is appropriate as an investment for cash they are currently holding. One option is finding a short duration bond fund. Holdings in these funds are generally of one to three years in length. Bonds that mature in less than three years carry much less interest rate risk than bonds maturing in 10 to 30 years. Short-term bonds can still carry a great deal of quality risk. If the company issuing debt hasa low rating (meaning a higher risk of default), it will have to offer people a higher yield to get them to accept the additional default risk. Combining high quality with short duration necessarily leads to a lower yield, but the yield will be significantly higher than the yields of money markets and CDs with the added risk of a loss of capital. Investors may be tempted by the higher yields fromlower quality bonds. Investors can get a very high yield, but must be aware of the risk they are taking on when investing. Yield means nothing if the debtor defaults on the payments. Risk is a key element of investing. Without it, you can't expect to earn any rate of return on your money. However, investors must be be prudent in the risk taken e. If cash is designated the cashfor a near team goal, it is imprudent to expose that money to risk. 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. Young Couple Errs in Putting all Savings and Inheritance into Kids 529 Plan, and Nothing into their Own Retirement. A shift in thinking is vitally necessary for James and Irene Doane, a forty-year-old couple whose only saving emphasis has been on preparing for their children’s education. Missing nearly two decades of retirement savings already means this couple is significantly behind in preparing for life after work. James declined to participate in his 401(k) because the company did not offer a match. While that is more common these days than ever before, an indication of cost cutting on the part of many corporations, it is really a very bad excuse not to save. James and Irene have two major long term goals in their lives: giving their kids a good education, and retiring comfortably. Like all good parents, they want their children to have the best education possible. And both James and Irene enjoyed attending private – and fairly pricy – colleges. They feel it’s important to do the same thing for their children that their parents did for them. They also want a comfortable retirement, but they’ve always seen saving for college as the first priority to fund, since it would be needed before they retired. James and Irene have made the mistake of focusing on achieving one goal without examining whether they were leaving a gap in the funding of the other. As a result, they have underfunded their retirement so significantly that they will have to “play catch up” with their retirement savings. And by funneling the majority of their savings into 529 plans, they have missed out on some important opportunities for saving for retirement. Over time, money in a retirement plan such as a 401(k) or 403(b) accrues without any taxes, allowing this tax deferred pot of cash to grow faster than a taxable account. And in James and Irene’s case, they are both eligible to contribute to a Roth IRA. This is a particularly valuable way for young people to save for retirement, since all the growth in it will be tax-free in retirement, and they have missed out on this opportunity since 1997 when it was created. James and Irene now need to shift their priorities. They need to look at their goals as part of a total picture, instead of taking them sequentially. And they need to recognize, as the financial planning rule of thumb says, that while there are safety nets in the form of financial aid for college, there are no loans or financial aid for retirement. Susan Moore, CFPÆ, Moore Financial Advisors, Ltd., Watertown, MA, (www.mooreadvisors.com) provides fee-only financial planning and investment management services for individuals and families. She can be reached at moore@mooreadvisors.com or 617-393-9999. Carry An Emergency Medical Identification Card. The U.S. Department of Health & Human Services recommends that everyone carry the following information on a card in their wallet or purse: doctor’s name and telephone number, list of the medicines you take, including prescriptions and over-the-counter drugs, and emergency contact names and telephone numbers. Store the card behind your driver's license in your purse or wallet so it will be easily found in case of an emergency. The card will also be useful at your next doctor's appointment since the card lists your current medications and other medical information needed to update your medical chart. Your medical identification card will be invaluable in the event you have a medical emergency requiring assistance as you will be asked for a list of your current medications by EMTs, emergency room staff, nurses, and doctors. Having a card with this important information can literally save your life. You can create a free medical identification card on the HealthView Services, Inc. web site at the following link: http://www.healthviewservices.com/medicalcard. HealthView Services, Inc. provides health care cost analysis tools to financial advisors. HealthView tools provide investors with accurate out-of-pocket medical expense projections based on the investor's current health, lifestyle and medical history. All financial illustrations can be generated with product specific information based on a clients' investment profiles and needs. The financial institution can customize their illustrations to include educational information on appropriate investment vehicles (e.g., fixed annuities, index annuities, mutual funds) based on a client's liquidity needs, risk tolerance level and other criteria. For more information contact Joanna Gates at (617) 875-4063 or jgates@healthviewservices.com. Check out the HealthView Blog at www.healthviewretirementplanning.com UP REITs – a new twist to established 1031 strategy provides greater flexibility, diversification, and more estate planning options than previously allowed Section 1031 exchanges have become significantly more attractive for owners of real estate investments seeking more stability and certainty in their portfolio with the introduction of the game changing 1031-721 (UP REIT). Until recently, investors seeking to exchange their property for greener pastures were generally limited by a host of guidelines established by the IRS. Many seeking a greater number of properties to reduce risk ended up with one or two. Those seeking geographic asset allocation, or greater allocation by property type, were impacted by the same limitations. Those seeking a shorter holding period were largely denied by the illiquid nature of investment real estate. And those seeking a clean split of assets to beneficiaries at their death were forced to split the property among beneficiaries, creating a different set of planning issues. The introduction of the 1031-721 (UP REIT) has changed the playing field. While the 1031 exchange has been in the tax code since 1921, its limitations have frustrated investors. In the last few years, a 721 (UP REIT) strategy was introduced to investors to help address many of the limitations of the classic 1031 exchange. It generally works like this: Like a traditional 1031 exchange, an investor exchanges an investment property into a single commercial property operated by an institutional-quality investment firm. During this time, the investment firm signs a master lease agreement, and contractually guarantees lease payments on the investment. That guarantee is an excellent feature, but it is in the exit strategy that distinguishes the 721. In accordance with the investment’s objectives, the investment holding is exchanged four or five years later from a “fractional ownership” in the single commercial property to “operating partnership units” in a real estate investment trust (REIT). Investors still defer taxes because according to section 721 the exchange for units under these circumstances would not trigger capital-gains taxes. The story gets better for investors: the single property is exchanged into several dozen properties, achieving the broader property type and geographic diversification originally sought by the investor. The cash flow comes from a variety of properties and tenants, which helps reduce the risk of a tenant default or building performing poorly. The investor maintains the deferral on capital gains tax. And when the REIT becomes marketable either through an acquisition or initial public offering, the investor can sell of units at a timeframe that is most suitable for her/him without being required to sell off an entire building. Capital gains taxes are due only on the sold units, not the entire exchange. And for the kids keeping score at home, the partnership units provide an easy division of assets and cash flow. And for those with taxable estates: because of the illiquid nature of the real estate and the fractional ownership issues while it is held in the original 1031 exchange, strong rationale can be made for discounting the value of that asset for estate tax purposes. If this is something worth exploring, then it is best done working collaboratively with a real-estate focused financial advisor and real-estate savvy CPA. Rich Arzaga is Founder and President, Cornerstone Wealth Management, San Ramon, California, a life planning company specializing in providing options and solutions for residential and commercial real estate investors. He is also an instructor in the nationally-recognized financial planning certification program at U.C. Berkeley, and teaches the highly-acclaimed Real Estate Investments course at U.C. Santa Cruz and U.C. Berkeley. Rich can be reached at rich@consultrich.com or toll free (888) 290-9900. Securities and Investment advice through Associated Securities Corp. (ASC), Member FINRA/SIPC and a registered investment advisor. Additional Advisory and Investment Services offered through Cornerstone Wealth Management Inc., a registered investment advisor not affiliated with ASC. CA Insurance License No. 0D92796 Ink&Air --Editor: Lisbeth Wiley Chapman, beth_chapman@inkair.com , 508-479-1033 Should You Rollover your 401(k) into an IRA? Leaving your job, getting laid off, or retiring can all be stressful situations. There are many lifestyle and other issues to think about, but few decisions are as important as what to do with your 401(k) plan money with your former employer. In most cases, job-changers have at least two, and up to four, different options:
Taking the money now. Generally speaking, this should be the choice of last resort. If you are younger than age 55 (in the case of a “separation from service”), you will generally be subject to income taxes at your ordinary rates, plus a 10% “early withdrawal” penalty. There are some circumstances under which the penalty can be waived, but if you are seriously considering a withdrawal it would be best to seek a qualified professional for advice. In most cases, the penalties plus tax will take a very large piece of the nest egg. The investor will not only be left with very little principal, but will also have lost the opportunity to benefit from continued, compounded tax deferrals. Rolling the money into the plan of your new employer. Clearly, this option assumes there is a new employer – so this is not an option for those who are unemployed, have become self-employed, or are retiring completely. And the new employer has to have 401(k) plan that accepts rollovers. Beyond that, your funds are subject to many of the same drawbacks of keeping it where it is, and there are very few cases where there is any compelling benefit to rollover your assets into the new employer’s plan. More typically, the choice most ex-employees face is leaving the money where it is vs. a rollover to an Individual Retirement Account (IRA). Here are the pros and cons: The Pro’s: Reasons to rollover to an IRA:
The Cons: Caveats to consider if you are thinking of rolling over your 401(k):
Deciding whether, how and when to rollover 401(k) funds into an IRA is complicated. In many cases, there are significant advantages to doing an IRA rollover. However, as with any significant financial decision, consult a professional financial adviser before making any moves. Darlene Murphy, CFP, Sudbury Wealth Management, Sudbury, Mass.,is a registered investment advisor focusing on holistic financial planning and investing. She can be reached at Darlene@SudburyWealth.com or 978-440-8776. Middle Class Homeowners Must Demand that “ Making Home Affordable” Loan Modification Programs Be Allowed to Work A new wave of foreclosures is moving across the country. This time the problem is with middle class borrowers who are earning less or have lost their jobs. These are NOT sub-prime borrowers. It is absolutely critical that the “Making Home Affordable” program work. For every three houses that have been foreclosed, there are six waiting to happen. In areas with higher unemployment rates such as the 12% unemployment rate in Lee County Florida, the median price of a house has dropped from $320,000 to $87,500 today. On June 10th, RealtyTrac reported that 342,000 households received at least one foreclosure-related notice during April. That’s a 32 percent increase compared with last April and marks the second consecutive month when at least 300,000 households received a foreclosure filing. There is new evidence that major servicers and lenders are implementing new rules to modify home mortgages. However, much of the information available to the public from the lenders’ administration conflicts with the message and threats delivered to the homeowner by the banks. This presents conflicting, stressful, and confusing messages to the homeowner. A Lee County, Florida family moved to Fort Myers and purchased a very nice condo in 2005 for $600,000. They financed the condo purchase with a $465,000 1st mortgage from a Midwestern bank. Their family income was $250,000 per year when they purchased the condo and now the family income is $60,000. Their payments, homeowner fees and taxes are $4,000 per month and going up as hurricane insurance rates increase. The current market value of the condo is approximately $275,000. If the bank forecloses, they must pay the homeowners association, tax, and insurance payments of $1,200 per month until they sell the condo as well as some of the past due condo fees. If the bank sells the condo at today’s market value they lose $185,000 plus legal and other costs. After several months of denying that the bank even had a loan modification program under consideration, the bank sent the homeowner a letter offering to reduce the interest rate on the loan to 1% for 36 months with interest only payments of about $400 per month. In addition, the bank agreed to forgive past due payments and fees and to extend the term of the mortgage to 2039; all in exchange for a _ point fee financed by the bank over the term of the loan. They also agreed to report that the loan was current. This may be is an indication that other banks are coming to the conclusion that modifying loans is good for their own financial health as well as the homeowner’s financial well being. In this case the bank will win when the family gets back on their financial feet or if the Lee County market improves. It is really a no brainer for the bank. There is no magic bullet at play here. The homeowner stayed in touch with the lender. They sent the lender written notice that their situation had changed for the worse and that they wanted to modify their loan. At the same time, the bank was gathering facts and determining its policy. The bank’s investigation finally indicated that the bank’s best policy for its own economic benefit was to modify this and similarly situated loans rather than foreclose. What Consumers and Homeowners Should Demand
It is important for America that the Making Home Affordable Program works. We think that these steps are needed to make the program work for both homeowners and lenders. William G. Campbell, President of RPC Group, Little Rock, AR, has spent his career structuring real estate projects for financial planning and brokerage firms, and serving as the chief financial officer at corporations. He has worked on hundreds of projects that required debt negotiation and debt modification for highly complex real estate transactions. In these roles he helped corporations stabilize their financial relationship with their major shareholders and lenders, and directed the reorganization of the accounting and legal divisions of businesses. He has helped high net worth individuals organize their real estate holdings to preserve income, save taxes, and reduce their debt. In work with a major international bank, Campbell analyzed the financial statements of the banks holdings, particularly its REIT portfolio, to enable the firm to build a defensive portfolio of high yielding securities with strong balance sheets for clients seeking income and safety. Given the current mortgage turmoil, Campbell has turned his energy to assisting homeowners with home mortgage refinancing or modification under the "Making Home Affordable" program. He can be reached at 501-225-1211 or wgc@therpcgroup.com. Stadion Money Management Added as Enhancement to Genworth Financial Wealth Management (GFWM) Investment Management Platform WATKINSVILLE, GA – Stadion Money Management (formerly PMFM, Inc/401kToolbox), has been selected to join the Genworth Financial Wealth Management (GFWM) Investment Management Platform, one of the most comprehensive fee-based investment management platforms in the industry, serving more than 8000 financial advisors. According to Gurinder S. Ahluwalia, President and CEO of GFWM, “Trying to navigate the recent volatility by using asset allocation strategies developed during the powerful bull market of the 1980s and 90s has resulted in steep losses for many investors. Unfortunately, many portfolios lacked a more active, tactical component that may have helped reduce volatility over the last year or two.” Since the inception of the firm in 1991, Stadion has used an unconstrained tactical asset allocation strategy. This strategy removes the limits on the extent and frequency of allocation shifts, allowing Stadion to move completely from equities to cash or from cash to equities in response to the risk level of the market. Employing this approach over the last 14 years has allowed Stadion to produce solid market-like returns with significant reductions in all risk measures. Stadion’s president, Jud Doherty stated, “We are excited about partnering with GFWM. We believe Stadion’s approach to asset allocation offers an outstanding complement to GFWM’s investment platform and that we can play a key role in helping their advisors customize investment plans that meet their clients’ financial needs. About Stadion Money Management About Genworth Financial Wealth Management, Inc. About Genworth Financial For further information: NS Capital's Launch Puts Investors First STAMFORD, CT -- For Immediate Release -- NS Capital, (nscapllc.com) a newly launched, independent, privately-owned registered investment advisor†(RIA) brings a new standard of value to affluent investors. † President Louis Cameron Day is sensitive to the past decade of performance disappointment that has dogged most retail investment portfolios. NS Capital was created to offer a new and higher standard of investment advisory and asset management services to affluent investors, small pensions and endowments. The firm launches with a series of eight seminars in Fairfield County from July 1 to August 1. The seminar, “The Truth About the Investment Marketplace,” will cover reasons for the confusion investors are feeling about their investment portfolios. The presentation will also uncover what retail investors need to know about how brokerage firms and mutual funds manage assets and the way they charge for their services, and how what you don’t know can negatively impact your investment results. “Investors must run a difficult and expensive retail gauntlet,” says Day. “They pay fees to the mutual fund company, to the distributor of the mutual fund, and to the advisor suggesting the funds as investments. The affluent investor can benefit greatly with direct access to high quality money managers with as few middle-men as possible. NS Capital offers that direct access to this underserved segment of investors,” he says. Day says NS Capital brings a proprietary investment analysis technology to the table that is not available to other RIAs or brokerage firms. “An existing firm could not offer what we offer because they are locked into a legacy technology jail and they can’t break out,” he says. “This technology combined with our independent research creates an offering that cannot be matched.” NS Capital’s research analysts have selected some of the industry’s best performing money managers while eliminating both conflicts and intermediary fees. As a result, NS Capital is in position to offer a better portfolio at a lower cost than what is typically available to affluent investors. For further information: |
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