MAKING CENTS: Cliff walking with your portfolio

Whether we jump off the cliff or have a soft landing because of a compromise that Wall Street and employers both like is yet to be seen. The short-term reactions to the cliff and any deal are just that, short-term reactions that may be more heavily influenced by emotions rather than fundamental valuation standards.


pic credit: blog.ecivis.com

If you have the vision to see beyond the changes that are sure to stick with tax policy and spending cuts, you too shall realize that life, and investing for that matter, must go on. Most of us will still be seeking returns in excess of inflation, and unfortunately, we also know that this choice carries some risk of loss.

The two ends of the spectrum include a second recession caused by the 4-percent GDP cost from a full cliff jump or a slowdown from a compromise that also reduces the nation’s output, but not enough of a slowdown to throw us into another recession. At this point, it is difficult to see how 2013 will be a banner year for investors in the U. S. compared to other great years we have witnessed. But this slow-to-fair forecast doesn’t eliminate your need for investments gains; it just forces you to look elsewhere for your investment returns.

Elsewhere could be in a different asset class or industry. For example, an asset class that has been in the dumps for quite a while is real estate. Most see prices in their neighborhoods still far below their 2007 peaks. Certain markets, such as prime downtown residential space, have appreciated considerably over the past few years. But others, like suburban single-family or residential property in the Sunbelt have not appreciated considerably over the past few years, and may be worth a look for the handy person who doesn’t mind a second job.

What about Europe? Sure they’ve still got issues to deal with, but did you realize that European equity markets were generally up in 2012? Most people wouldn’t think of investing in European assets this past year because of all the headline scares about their own fiscal crisis. Germany, which appeared to have the most to lose from a European meltdown, appears to have been one of the economic champions in the equity markets from a strong rally in the second half of 2012.

For you hard-asset buffs – get more diversified. Sure, gold grabs the headlines and you see it nearly every day on the neck of a friend or co-worker, so it is always on your mind. But there are many more precious metals and resources to own other than gold. If you are looking for an inflation hedge, it would be wise to spread your risk over more than one or two metals.

Some of you will choose to stick your head in the sand and hunker down. This guarantee of principal may feel good in the short term, but the loss of purchasing power to inflation is hard to make up over extended periods.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

MAKING CENTS: Guidance on last-minute contributions

Many have spent the last month racking their brains thinking about gifts for their loved ones, friends or service providers. Yet when it comes to charitable contributions, many simply give at the end of the year without much thought about the tax consequences.

Cash works great, and is most sought after by charitable organizations with tight operating budgets. But try not to use greenbacks, the IRS will disallow contributions made with cash unless there is substantial other documentation available to prove the contribution.

If you give clothing and household items, you may generally take a deduction up to the fair market value of the property. The property must be in good used condition or better, and supported by documentation from the charity about what was received. For substantial deductions, keep a list and maybe even a few photos of what was given to support your deduction.

Cars, boats and planes have their own special rules. A few years back the rules were changed from looking at the wholesale book value to the actual cash proceeds. Your deduction is limited to the actual cash sale proceeds from that asset, which could be much lower than the book value. The charity will send you a form 1098-C which must be attached to your return stating the sale proceeds.

If you donated a week of use in your vacation home for the local church auction you will not get a deduction. The person who steps up at the auction and writes the check for the weekly rental typically gets no deduction either. The only way for the buyer of the week to receive any tax benefit would be if the price paid for the rental was in excess of the fair market value. And in that case, it would be only the excess payment over fair market value that would have any tax benefit.

I frequently get asked about deducting the value of services provided to a qualified charitable organization. The general answer is that you receive no deduction for the value of services contributed to a charitable organization.

Own a business and have excess inventory, gift it. As long as the inventory was valued on the books at the beginning of the year, you may receive a deduction in the year of the gift.

Gifting rules get tricky if you use anything other than cash. Be sure to check with IRS publication 526, your CPA or qualified tax advisor before making any contributions that you are not sure about.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

MAKING CENTS: A gift to last a lifetime

 

With holiday shopping nearing its peak, maybe you can skip the lines and set your sights on a gift that will last a lifetime. Of course, I’m talking financial gifts that go beyond an envelope with a little hole in it to show the face of one of our past presidents.

A gift to a child that is likely to go beyond your lifetime could be a contribution to an IRA. Anyone can put money into an IRA, from a newborn to a retiree. The amount, however, may be limited to the earned income of the IRA account holder. This may be a little tough for a two-year-old, but for a child who is old enough to generate earned income from any type of job, an IRA would make a great gift. You may contribute 100 percent of their earnings up to $5,000 into an IRA account. This amount goes up to $5,500 in 2013. If your gift is for someone over age 50, the IRA contribution goes up to $6,000, and rises to $6,500 next year.

For a child, this IRA account would be best as a Roth IRA. It is likely that the child would not benefit from the deduction available for a traditional IRA, so why set the child up for required minimum distributions and future taxation at age 701/2? As a Roth, the child would never face required minimum distributions under today’s law. Don’t get hung up on the amount. If you can afford $100, then give $100. If you can afford, and the child has earned income at or above $5,000, contribute the maximum.

You are not likely to see the eventual long-term benefit of this gift. To help you understand just how great this gift is, get out a calculator* and figure out what this account could be worth if invested. Forecast it growing at 2 percent, then 4 percent then 6 percent or higher, and you’ll feel the power of just how meaningful this gift will be in the hands of any child 50 or 60 years from now. It is also a reminder of the power of compound interest or gains.

If this IRA is for someone who is not a child and has earned income, but not enough to save and advance their lifestyle, perhaps a deductible IRA would be better. But that choice would be best left up to the recipient and their advisor. Reality, however, is that this person probably does not have an advisor, so you may have to dig a little or involve your financial advisor to make this happen in the most efficient manner.

The mechanics of this can matter. I’d suggest that the gift actually be made outright to the recipient, and that they either write their own check or do a transfer into the IRA account. Remember, the purpose is to make a gift that can last a lifetime, and not send your brother-in-law to Cancun. So your actual involvement in the mechanics of this strategy may be important to seeing this transaction through completion.

 

*Roth IRA calculator: http://www.dinkytown.net/java/RothIRA.html#calc

 

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

MAKING CENTS: Active or passive investing requires attention

When building an investment portfolio, there are two considerations regarding how you may construct and monitor that portfolio. One is with active management and the other is passive management. Neither is right or wrong, and the current condition of financial markets may favor one over the other from time to time, yet some investors are passionate about their methodology to a fault.

Receiving a lot of attention over the past decade or so is passive investing. The primary argument that indexers raise is that few investors actually outperform indices and they are often a lower cost alternative than their actively managed counterparts.

The premise with passive investing is kind of like a set it and forget it style. Passive investors typically invest in index based products. Some are broad based indices such as the Standard and Poor’s 500 index while others may represent a specific sector, industry or region. Within the indexed investment product of your choice, the manager will frequently own literally every single stock that makes up the particular index.

This means that you will participate in the gains from that index as well as the losses. This feels great in good times, but when your index is not performing, you’ll also receive 100 percent of the down side of that index.

When a passive approach is utilized, most investors would benefit from actively managing their basket of indices held in the portfolio. Your active management may be as simple as regular re-balancing or as sophisticated as altering your allocations based on market conditions within the particular market, sector or region that you hold. This is particularly important if your index selection has you owning very specific and volatile sectors such as energy or emerging markets.

Active management, on the other hand, is when you or a fund manager is actively trying to manage the holdings within a portfolio to select what the manager feels are the best choices for appreciation and the least probability of losses. While the statistics for individual investors do indicate that do it yourselfers have not often fared well with their actively managed choices, the same is true for passive do it yourselfers.

In any economic environment, some choices will win and some will lose. Even during tough economic times, certain companies will out compete others, and gain market share and profitability – the underpinnings of value. Consequently, one would expect these out-competers to also out-perform over the long haul.

What investors should care about is net results. Are your net results meeting your needs and goals? Do you even know what you need to earn on your investments to meet your life’s goals and dreams? Managing your investments to meet your required rate of return is what you should be focused on and not benchmarking to a specific index. In fact, benchmarking to a broad index such as the S & P 500 or the Dow 30 is inappropriate for most investors because most investors do not, and should not own all U. S. large cap stocks.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member  FINRA/SIPC. He can be reached at 781-849-9200.

Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

Market Outlook 2013

In 2013, many different forces will combine to influence the direction of the markets to follow the path of least resistance leading to modest single-digit returns in the U.S. stock and bond markets.* The path for the year may be set at the end of 2012, or in early 2013, as critical decisions are implemented: Details here.

(Produced by LPL Research)

Outlook 2013 from JP Marketing

MAKING CENTS: Do your homeworking when picking a financial advisor

If part of your plan for the New Year is to hire or change financial advisors, it is never too early to start that process. Many people do not ask enough questions when vetting out a new advisor, and simply hope for the best.

Ask is what the prospective planner feels is his or her most helpful service for their clients. This will give you a glimpse into what that particular advisor also favors. If the answer is investment dominated, then you know that investing is likely to be a big part of the deliverable. If the answer is insurance oriented, it would be reasonable to assume that the advisor sells insurance. There may be no right or wrong answer to this question, but make sure that it is an answer that suits you and matches what you are looking for.

Ask about the resources beyond those of the advisor that you are interviewing. Some clients prefer the large brand name behind the advisor and others may prefer a smaller independent practice. Some like a specific expertise, such as investments, estate planning or insurance while others will want a deep bench of subject matter experts across a wide range of expertise within one firm. Ask who specifically will be assigned to your situation besides the person you are interviewing.

Inquire about how the advisor gets paid. There are two parts to this question. The first part may be about the method of compensation. Advisors may get paid in a variety of ways ranging from flat fees to commissions, and all combinations in-between. You should understand how your advisor will be paid. The second part you want to know is what percentage of their overall revenue comes from what sources. If you have an advisor who receives commissions, ask what the breakdown of commission income is from investments, insurance, annuities etc. Also ask about the companies whose products they sell and whether any one company occupies more than 25 to 50 percent of their commission income in a given area. For advisors who are fee-only advisors, ask what percentage of their income comes from the financial planning and what percentage comes from asset management. Also ask if there are any related parties who they regularly use for insurance or other services.

Learn about the disciplinary history of the firm, the advisor, and anyone else on that advisory team who will work with you. This information is readily available from the state, the SEC or FINRA online.

Ask the advisor to describe their best clients to you. Force the advisor to be detailed about the income, net worth, age and fee ranges that these best clients pay. From there, decide if you fit that profile and feel believe that they can meet your needs.

Evaluate whether you can feel comfortable enough to let the possible advisor know about your most private personal and financial matters. Do they speak in plain English, listen carefully to your needs and answer in a language that you can understand? If not, keep shopping.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

Securities offered through LPL Financial, Member FINRA/SIPC.

Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.

The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.