When market disruptions drive decisions

Investment markets do not behave in a linear fashion or in concert with how they've behaved in similar circumstances. This time will be no different.

On one hand, a case can be made for rising stock values. Companies in America are sitting on historically high levels of cash, they have less debt and profits have risen to a respectable level in general. These sound like signs of strength.

On the other hand, a case can be built that the world is falling into chaos. Europe is on the brink of collapse, the Middle East may be one bomb away from creating World War III and U.S. deficits continue to grow without a plan on repayment or sustainability.

The answer will unfold, and we may get clarity by the end of this year as the Eurozone is trying to get its act together and the elections in the U.S. get behind us. But there will be new concerns. There is always something different that gives investors a chance to worry and then use those fears to drive their investment decisions.

There are two sides to every coin. Some look at these concerns and cite them as the reason to avoid investing. Others know that most investments go up and down, and that an investment that has performed poorly may become an asset to own again.

As new situations unfold, there are two major considerations for investors.

The first is to ask if that event or situation that disrupted the markets is temporary. If it is permanent, such as the automobile making horse carriages obsolete, then you would be wise to avoid an investment in horse carriages. If it is temporary, such as a credit crisis that stalls auto and home sales, there is likely to come a time when the disruption is so severe that a buying opportunity presents itself.

The second major consideration is that of diversification. Of course, diversification is no guarantee that losses will be mitigated or that gains may be better. But proper diversification will give you exposure to other asset classes that may behave differently during similar circumstances.

They say that history repeats itself because nobody remembers what happened last time. And while markets will always have some sort of irrational behavior, they are no more irrational than the decisions made by investors when markets are in disarray.


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

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.

Planning for succession of the business

Small businesses are often credited as being a strong driver of our economy, and many are owned by one person. You may own one yourself, or have at least one solely owned business as a supplier of products or services for your home or business. In my experience, very few of these have a plan to deal with the succession of the business in the event that they can't come to work some day.

The concept of succession planning is commonly discussed among businesses with partners. But when a small business owner has no partners, the discussion rarely occurs. This can be a problem for people depending on that business. They may be employees, customers, family and dependents of the owner or the landlord who counts on a monthly rent check.

To have a successful transition to a new owner, certain matters must be addressed.

First would be a contingent service agreement. This is an arrangement with someone to temporarily serve the business. If your clients must go somewhere else during your disability, you may never see them again.

The best contingent service partner may be an employee. If there are key employees, perhaps there should be some bonus structure for their additional service or effort. If there are no key employees, then the best bet may be a friendly competitor.

An individual disability income policy for the business owner may relieve financial stress.
The next consideration is a contingent buyout agreement. This would provide for a new owner to run the business in the event of a permanent disability or premature death. Two sides of the succession planning equation need to be solved. Customers need to receive uninterrupted service. And, in exchange for the business owner's thoughtfulness with a thorough succession plan, the heirs should be rewarded with a business that is worth more than one with no succession plan.

The last matter is that of voluntary succession on your own terms.

Experts suggest that an owner begin planning for an orderly exit of a business five years before a desired exit date. During those five years, the owner should find, groom and plan the details of succession.

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

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.

Resident status and state taxes

As states continue to be under financial pressure, they are looking for ways to make sure that each resident is paying their fair share of income taxes. As a result, state tax audits challenging domiciles and places of business are on the rise. This applies to people who spend a significant amount of time out of state and those who earn income while performing their trade or business in other states.

The most common group of people who spend a lot of time out of state is snowbirds, who frequent places like Florida or Arizona for the colder months, and sooner or later consider making their winter destination their permanent residence. Often the desire to avoid state income and/or estate taxes in their former home state is a major factor in the decision process. In Massachusetts, the migratory route to Florida is well populated with retirees who eventually learn the rules about what it takes to be a permanent Florida resident.

The answer is fairly easy: You need to spend six months and a day in your "permanent" resident state, as shown by your driver's license and voter registration. The audit process to test your state of domicile is very easy. An auditor will look at a few things that you may not have considered. They'll look at ATM withdrawals, restaurant and credit card charges, telephone usage and other electronic transaction methods.

The six months-and-a-day rule doesn't mean that you are quarantined in the snowbird state just to prove that you are a permanent resident of that state. Vacations or business travel from your snowbird destination may count as time in your resident snowbird state. I wouldn't count a two-month trip to Boston from Thanksgiving through early January a temporary visit; that feels more like living away from the snowbird state.

But a short trip to visit family in your former home state for the holidays, even if it may be your summer or second home, may still be considered merely a visit from your home state. Of course, this is a gray area where prudence and the advice of a tax professional can help you make a better decision.

If you offer services or sell goods in other states, you may also be exposed to taxation in those jurisdictions. Check with your tax professional to ask if your activities leave you exposed in any other states.


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


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.