September
2005
Don't miss this month's timely story ideas, direct dial phone
numbers, and E-mail addresses of these accessible experts!
INVESTMENT MANAGEMENT & RETIREMENT
• PMFM, Inc. Portfolio Manager Publishes New Technical Analysis Book. Press Copies for The Complete Guide to Market Breadth Indicators Available After October 1.
• Suspension of Bill to Eliminate Estate Taxes Permanently
-- in View of Katrina -- Means Families Absolutely Must Focus on Estate Planning Issues.
REAL ESTATE STRATEGIES
• Pushing Land Rich and Cash Poor Clients To Face Unpleasant Truths and Take Action is a Delicate Task.
• Mortgage & Cash Flow Strategies for Baby Boomers Nearing Retirement.
PERSONAL FINANCE
• Financial Benefits of Staying Unmarried Are Often Overlooked.
NEW BOOK "MONEY WITHOUT MATRIMONY: The
Unmarried Couple's Guide to Financial Security."
Co-authored by Debra Neiman, CFP. Media copies available.
• An Investor’s Opportunity for a Meaningful Life and Generational Influence is Driven by an Advisor’s Ability to Educate about Risk.
E-COMMERCE
• Make Sure Your Spam and Junk Processing Works.
PLEASE VISIT THE NEW INK&AIR WEBSITE AT:
http://www.inkair.com.
INVESTMENT MANAGEMENT & RETIREMENT
PMFM, Inc. Portfolio Manager Publishes New Technical Analysis Book Press Copies Available After
October 1.
Greg Morris, lead manager of PMFM Core Advantage Portfolio Trust, announces publication of a new book, The Complete Guide to Market Breadth Indicators, published by McGraw-Hill introducing market breadth for investors. To to read details about the book and view the Preface, Forward, and Chapter One, go to
http://store.yahoo.com/stockcharts/cogutomabrin.html
Media interested in receiving a review copy, available after October 1, please e-mail Beth_Chapman@inkair.com with "Analysis Review Copy " in the subject line.
Morris is one of the lead managers of PMFM Core Advantage Portfolio Trust that utilizes a core and satellite investment strategy, seeking to blend the benefits of market exposure in broad market indexes with the benefits of an actively-managed market-sector rotation investing strategy. Morris is also the author of the best selling Candlestick Charting Explained. He was formerly trustee and advisor to the MurphyMorris ETF Fund, whose assets were incorporated into the new fund.
"The evidence that certain market sectors outperform others at various times during a market cycle is irrefutable. This fund will take advantage of sector rotation, using efficient and low cost ETFs," says Morris.
Reviewers are enthusiastic about this overview of technical indicators:
Praise for The Complete Guide to Market Breadth Indicators:
"This book should be called the Encyclopedia of Market Breadth because it includes every form of market breadth known to man. A must for any serious student of this important and overlooked subject."
--Martin Pring, Author, Technical Analysis Explained
"In The Complete Guide to Market Breadth Indicators, Greg Morris passes along his many years of experience, describing the market breadth indicators that he finds most effective."
--Sherman McClellan, Publisher, The McClellan Market Report
"The most comprehensive study of breadth I've ever seen. Here, in one place, you get, literally, all the indicators that study the market's innards. All serious technicians will want this book on their shelves."
--John Sweeney, Former Technical Editor, Technical Analysis of Stocks & Commodities
"This is clearly the definitive work on breadth. From basic to advanced applications, Greg Morris has included it all in this book--including thoughts on the continuing validity of the data."
--Larry McMillan, Author of Options as a Strategic Investment, McMillan on Options, and Profit with Options
Greg Morris, PMFM, Inc., can be reached at 706-579-1392. PMFM, Inc, Athens, Georgia has $711 million in assets under management. The firm provides tactical asset allocation money management services for its own clients, for assets held by 401(k) plan participants, and for other asset managers' clients. PMFM has a lengthy history of good risk-adjusted performance, preserving the value of client accounts in uncertain markets, posting positive returns in each of their investment strategy composites every calendar year since inception.
Suspension of Bill to Eliminate Estate Taxes Permanently, in View of Katrina, Means Families Absolutely Must Focus on Estate Planning Issues.
The estimated cost for Katrina will increase the Federal deficit by over $140 billion. As a result, Congress has decided to suspend any plans to eliminate estate taxes permanently.
As a result of this, people should once again pay attention to the exemptions and credits under the existing tax law. Without planning, huge tax and asset protection advantages are lost.
In the U.S., we have two tax systems. One for "Those Who Plan" and one for "Those Who Don't Plan". With planning, you and your spouse can pass on a little more than one million dollars per spouse to your family, without taxes, using the generation-skipping tax exemption. The catch is that you need to prepare to use this exemption by understanding everything there is to know about Dynasty Trusts, also known as Generation Skipping Trusts.
You can protect your assets and their appreciation from both lawsuits and transfer taxation. You can help your family retain access to and control over your money for ninety-nine years after your death -- or longer.
Significantly, if you do not use this exemption, you lose it when your assets pass to the next generation. Also, your family stands to lose 50 % of the value of your assets every time ownership transfers to the next generation. So, it's not only when your children inherit your estate that you lose 50%, but when their
children inherit, and so on, until your "legacy" has been whittled away within a few generations.
The U.S. government levies estate taxes at death when assets change ownership through inheritance. Congress has traditionally used estate taxes to pay for wars. While estate taxes have been abolished numerous times, they keep coming back, as do the wars. You can protect your wealth from this greedy estate tax by understanding and creating a Dynasty Trust. Create security for your family's assets during your lifetime, extend that protection into perpetuity.
Provide your family with privacy -- trusts are not probated and do not become public record. Trusts help sustain family values because explaining your trust to your children requires an open discussion of your plans for your money. Proper trust development and administration helps family members who are not trained in the investment, legal, or accounting fields.
Trusts are all too often ignored by families who believe their assets are too insignificant to warrant such a legal hassle. Keep in mind, that even if you do not have $1 million in assets, your appreciated home, a life insurance policy, pension account, and savings could add up to a significant sum. Don't ignore the possibilities of a Generation-Skipping Trust and related tax exemption. Be one of "Those Who Plan." For most investors, it is the right thing to do.
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
REAL ESTATE STRATEGIES
Pushing Land Rich and Cash Poor Clients To Face Unpleasant Truths and Take Action is a Delicate Task.
Sometimes it is necessary to tell your client the unpleasant truth that their goal is unrealistic. Sometimes it is also necessary to push your client hard to overcome their own inertia about a major planning issue.
An elderly couple, longtime clients, have been facing the issue of being land rich and cash poor for many years. Although the situation has had a minimal impact on their quality of life, it has been a source of contention for their estate planning. They own a large home and a sizable vacation property. The wife did not want to sell the home and move into a smaller place and the husband wanted to keep the vacation property in the family for their adult children after their deaths.
We reviewed several possible alternatives for the couple. The one solution that offered the most promise was to subdivide the vacation property and sell off a section. While imperfect, and resisted by one of the children, this solution had the benefit of providing the couple with ample cash to improve their quality of life, relieve stress by allowing them to take care of some neglected spending issues, give them more flexibility in their estate planning and the strategy 7provided the best shot at allowing the family to keep the vacation home after the deaths of our clients.
The key is that as financial planners, we kept bringing a major planning issue to the attention of our clients even though they were predisposed to letting the problem lie. Once the clients agreed to face the problem, we didn't just look at their stated goals. We examined the impact of one of their goals (keeping the vacation property fully intact) on the remainder of their estate planning. The goal was unrealistic and invited disaster for the children once the parents were dead. The real world has a nasty habit of intruding on our plans.
We also didn't try to force any one solution on them, but reviewed many different options with them. Their involvement in the process allowed them to own their decision and to then take action to implement the decision. The final decision wasn't exactly what the clients had initially envisioned; however, at the end of the process, the clients were happy that their quality of life would be higher, and relieved that the stress of the issue had been faced and dealt with.
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.
Mortgage & Cash Flow Strategies for Baby Boomers Nearing Retirement
Many baby-boomers are facing the prospect of entering their golden years house rich and cash poor. This is due to the fact that most Americans are emotionally prepared and financially trained to pay off their mortgages at all costs before retirement – even if means saving less in their retirement and other investment accounts.
Consider the following case study:
1. Boomer clients are 55 years old, they live in a $500,000 home and they have a $100,000 15-year mortgage with an interest rate of 5.5% and a payment of $817 a month. They are contributing an extra $268 a month toward their mortgage in order to pay it off by the time they retire at age 65 (in 10 years); therefore their total outgoing cash flow is $1,085/month.
2. They have investment and retirement assets of $250,000, they have two more years of college expenses to pay for their children and they are also contributing funds to support their elderly parents. They are feeling financially pressured to meet all their financial obligations while increasing their retirement savings.
3. They plan to retire at age 65.
Rather than continuing on this path to becoming house rich and cash poor in 10 years when they retire, assume the homeowners in this example bump up their mortgage balance to $275,000 with the lower cost interest only mortgage. They would then make interest-only mortgage payments for the next 10 years. The after-tax monthly payments would be equivalent to their current after-tax monthly payments; therefore, their cash flow situation would not change. Next, assume the clients place the $175,000 in cash-out proceeds into a safe and liquid investment to generate compound interest of 4.5% throughout this 10-year time frame. The result would be that in 10 years the clients would have:
• $609,000 Home Value (assuming 2% annual appreciation)
• $275,000 Mortgage Balance
• $274,000 Cash in their side investment account
Next, assume the clients begin drawing down on the side investment account at that time in order to continue making the mortgage payments and produce an additional $700 a month in additional cash flow to live on during their retirement:
Investment Balance |
| Balance in Year 10: |
$274,000 |
| After Tax Investment Yield: |
4.5% |
| Monthly Draw: |
$1,731 |
| Funds Will Last For: |
20 Years |
Mortgage |
| Balance in Year 10: |
$275,000 |
| Mortgage Interest Rate: |
6% |
| Monthly Payment |
$1,375 |
After Tax Payment
(25% Tax Bracket) |
$1,031 |
In this scenario, the funds should last for 20 years, or until the clients are 80 years old. At that time, the home would be worth $905,000 (assuming 2% annual appreciation) with $630,000 in remaining equity and the strategy could be repeated as needed. This strategy allows baby boomers to better prepare for a prosperous retirement without feeling pressured financially. Furthermore, this strategy eliminates the need for seniors to take out reverse mortgages which often carry very high fees and are limited in the amount of cash flow that they can generate – especially for young retirees.
Gibran Nicholas is the CEO and founder of Nicholas & Co. Mortgage Planners, a private mortgage brokerage and mortgage planning firm based in Ann Arbor, MI. Nicholas & Co. specializes in helping affluent families manage the equity in their home, vacation homes and investment properties to enhance wealth. Gibran serves on the board of directors of the Financial Planning Association (FPA) of Michigan, and he is Chairman and founder of the CMPS Institute, a national training and certifying organization that helps mortgage professionals integrate financial planning concepts into the mortgage process. Gibran has also authored Wealth Equity, a 5 1/2 hour educational DVD course designed to help consumers transform real estate equity into true wealth through various real estate investment strategies and mortgage planning techniques. Gibran has been featured in various national publications including AARP Magazine, the Wall Street Journal, Investor’s Business Daily, Investment News, Financial Advisor Magazine, National Underwriter Magazine, Builder Magazine, Mortgage Originator and Broker Magazine. Phone: 888-608-9800; Email: Gibran@WealthEquity.com.
PERSONAL FINANCE
Financial Benefits of Staying Unmarried
Are Often Overlooked
Marriage is not necessarily a perfect financial solution for some couples whether the partners are heterosexual or same sex. It very much depends on individual circumstances. Often, couples are not aware of the advantages of staying unmarried, including the following:
• Liability: Unmarried couples can keep separate encumbrances such as tax liens and debts. They don't risk loss of everything in the event of a lawsuit or other legal problems. That's not the case with married couples
because, as spouses, you also marry your partner's debts.
• Credit: Unmarried partners don't have to merge credit woes. If one partner has bad credit, the other partner's credit can remain unscathed.
• Inheritance: If companions don't marry, partners aren't automatically entitled to any inheritance from each other. That can be advantageous, for example, to preserve an intact inheritance for a child
from a previous marriage. That can be a big issue with older couples. Adult children often resent their widowed mom or dad taking up with another person because they're afraid that person will take away their inheritance.
• Social Security and pension survivor's benefits: By remaining
unmarried, partners who are widows and widowers remain eligible for these benefits that come from former spouses who now are deceased.
• Financial aid for education: A single parent may qualify his or her child for greater financial aid for education, whereas if the parent is married, the child may not be eligible.
• Adoption: Many countries outside the U.S. don't allow an openly gay or lesbian couple to adopt, so if a same=sex couples is considering adoption, marriage or a Civil Union (in those states that recognize it) may
only complicate, and in some cases even prevent, the adoption from going forward.
• Previously executed documentation: In many cases, long-term couples have done the complex and expensive work to create the legal documents that allow them to see one another as life partners due all the rights and privileges of inheritance and property should one of the partners die. Getting married to create the more than 1100 protections that accrue to married couples may not be necessary if their documentation creates the protections that they deem appropriate.
• Income tax planning: Unmarried partners' aggregate tax liability may be
lower if they plan properly.
Debra Neiman, CFP®, Neiman & Associates Financial Services, LLC, Watertown, Mass., helps traditional and non-traditional couples and families make smarter financial decisions so that they can achieve peace of mind and pursue their life dreams. SHE IS THE CO-AUTHOR OF “MONEY WITHOUT MATRIMONY: THE UNMARRIED COUPLE'S GUIDE TO FINANCIAL SECURITY.” Neiman provides fee-only financial planning, tax preparation and investment advisory services. deb@neimanonline.com 617-744-1816.
NEW BOOK "MONEY WITHOUT MATRIMONY: The
Unmarried Couple's Guide to Financial Security" co-authored
by Debra Neiman, CFP. Media copies available.
An Investor’s Opportunity for a Meaningful Life and Generational Influence is Driven by an Advisor’s Ability to Educate about Risk.
Meeting clients for the first time, it is not uncommon for advisors to discover that client’s reaction to the risk tolerance questionnaire becomes far more conservative than they are currently invested. In many cases, they stuck it out with volatile investments and sat on the sidelines because they did not know what else to do. Or they sold into a declining market and have sat on the sidelines missing the recent good stock market years. Their takeaway is that risk hurts emotionally and financially. Period. This flies in the face of what advisors know – that some risk is necessary to achieve portfolio growth. Yet, the first question many prospective clients ask is how you, their financial advisor, intend to help them reach their financial goals. They have had little education on how to quantify risk and return.
Without some risk, investing for a meaningful life that allows families to achieve influence on future generations will not happen. Ultra conservative prospects are not likely to meet their goals unless their attitudes toward equity investments and risk can be changed. There is certainly no single answer. The portfolio suggestions can and should range from the very conservative to the less conservative, depending on the risk tolerance of the client.
The suggestion that retirees should be in a 100% growth portfolio until death died in the tech wreck of 2000 – 2003, when safety became more important than growth. However, for the last four years, growth portfolios have suffered significantly as value investments have gained. Secure investments with little or no risk such as money market funds and certificates of deposits have not even kept up with inflation, nor can they provide an income stream.
It is the advisor’s job, now, to educate these prospective clients and discuss portfolio strategies that help clients meet their financial goals. A stable income stream is necessary for every family to achieve their goals and support their legacy ambitions.
The Grunden Ten-Year Risk Return Filter sm* is an educational tool developed with data from Dimensional Fund Advisors’ statistical returns program (see chart). It allows clients to see a graphic representation of what loss looks like. The comparisons offer clients an opportunity to visually and viscerally experience what the loss might look and feel like. In order to sort the strategies that will work for the client, the Risk/Return Filter shows the likelihood of positive annual returns on a 100% equity structured portfolio, and a 60% equity/40% bond structured portfolio, when compared to the S&P 500 returns.
Discussing the different graphs (representing results that occur 68%, 95%, or 99% of the time) with clients will allow the advisor to gauge their risk tolerance for the probabilities of return. Through this process, they may discover that they feel comfortable accurately estimating rates of returns 9 out of ten times which equates to 95% of the time as it relates to the graph.
The question for the advisor to ask the client becomes, “How much total portfolio loss could you bear in any one year unconditionally?” If the advisor explains the differences between the expected performances shown on the graph and elicits questions from the clients, the advisor has determined the maximum amount of loss acceptable to the client, as well as the total maximum amount of loss that the client can bear -- two very important variables. If our hypothetical client responds to the second question by saying the maximum loss they can bear is 6% loss in any given year, then automatically the advisor will look to the investments that fit their risk tolerance. In this scenario that equates to recommending an investment portfolio that will return above 6% for 95% of the time. Using the two portfolio choices above you can rule out the Structured 100 portfolio and recommend the Structured 60 portfolio. The rates of returns for the Structured 60 portfolio have been between -5.86% and 27.11% in any given year 95% of the time over the last ten years.
This tool and the dialogue that it makes possible with clients opens eyes and minds to the possibility of risk in the context of what can be accepted, rather than avoiding risk altogether and never reaching financial goals. Many people "feel" loss and only understand gains as something expected.
The Grunden Ten-Year Risk/Return Filter SM puts investment track records into perspective allowing investors to move ahead with their choices expecting the same good result as the track record they are evaluating. When sudden short term losses occur, the advisor can point to the Risk/Return Filter SM and show the client that this loss is normal for this specific investment or portfolio and is not something to be feared.
Grunden Financial Advisory, Inc., Denton, TX, is a full service investment management and financial planning firm specializing in offering financial strategies that support a high net family's meaningful life and generational influence. Ricky Grunden, CFP, 940.591.9007 or e-mail at rgrunden@grunden.com.
E-COMMERCE
Make Sure Your Spam and Junk Processing Works.
Today – it is a requirement that you have some sort of system to filter your junk mail. I know you desperately wish it wasn't so . . . I know you are ready to change your email address daily . . . I know you promise not to sign up for anything ever – it doesn't matter anymore; receiving email with no junk processing system is like having no anti-virus on your machine, and it qualifies as just plain dumb.
The thing of it is that most folks are just so darn proud they have something at all they don't know much about the different types of systems and their pros and cons.
It is likely – almost certain – that your ISP filters your mail at least twice. The first time they filter it through their own corporate system designed to catch things that are very obvious – like, it should nab messages when they are getting tens of thousands of copies of the same thing. The second level of filtration might – but often does not – offer you some level of control , and this is the one that's supposed to get most of the garbage before it gets to you.
Important – you should know that as a result of all this filtering, email communication is fundamentally less reliable today than it was a year ago, and a year from now it will be worse.
What You Really Need
Good junk processing systems all have some features in common, and you should be sure to use one that has what you need.
1. Whitelisting – a list of email addresses that are “known good” , and no mail from them is ever junk. Wildcards should be supported here: example, *@kisscomputing.com is anyone from the domain kisscomputing.com
2. Blacklisting – a list of email addresses that are “known bad” , like *@sex.com for instance. This is the simple way to ensure you never again receive another message from a particular sender.
3. Capture System – no matter how good they are, all of these systems make errors (even if they happen only one out of ten thousand times, and that means about six errors a week for me). Your junk processing system should have a way for you to search a junk box for messages that were processed incorrectly – when your client says he/she sent you an email last week and you didn't reply, you want to be able to check for it.
4. Flexible Control and Test Specifics – The way all of these systems work is to read your email and then “score” it on the basis of content. If it says Viagra, that's 2 points; anything related to home financing, that's 1.5 points; and so on. Click here http://spamassassin.apache.org/tests_2_6x.html
for the list of tests KISS uses, as there are several hundred of them). If the total score is above a certain level, it's junk. The best systems allow you to adjust the score. My mailbox currently is running 6.5 but if I find that too much junk is ending up in my inbox, I'll adjust the score. If certain tests are always problematic – for instance, when you're in the real estate business all of those messages you get about low mortgage rates are valid and there should be a way to adjust specific tests.
A great junk processing system is actually the most important feature of your email system today – your time is valuable and no matter what you do, you'll be spending some time with your delete key. How much time is up to you.
KISS Computing is a full-service web strategy firm, providing the “best of breed" in advanced junk filtration. Questions should be directed to Desiree@kisscomputing.com 508-255-9550. Ross Lasley wrote this story.
BACK TO TOP |
