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.

Financial planning isn't just for adults

Financial planning for your children may seem like a stretch. But not doing it can be just as dangerous as not planning when you are older and have issues and assets.

This should start as soon as you are ready to open any sort of financial account for a youngster. A common way to own savings for a minor is under the Uniform Gift to Minors Act (UGMA). Some states call it the Uniform Trust for Minors Act, or UTMA.

In both cases, assets are placed in an account for the benefit of minor children. There is a custodian who can decide how to invest the money and whether to use the assets for the maintenance and support of the minor or save them until that child reaches legal age to take custody themselves. Control cedes to the child at age 18 in UGMA states and 21 in UTMA states. This is my least favorite way to own assets for children simply because of the unsupervised access that the child legally obtains at either 18 or 21.

I don't know about you, but if someone had handed me a big pile of assets at age 18, it might have altered my behavior in college.

I recommend using a trust with stronger provisions than the "child takes all" at age 18. This fix may be critically important if the assets are valuable.

There's also the strategy regarding college savings. Look at 529 college plans. While many investors are unhappy with the performance that they've received for the last decade, a 529 still has many advantages.

The main advantage of a 529 plan is its tax-free nature if assets are used for college, a pretty good deal if you can invest and grow the money in the 529 plan.

Another advantage of a 529 plan is control. The owner of the account can be the person making the gift. A parent, grandparent or anyone else can establish a 529 plan for someone else. Unlike the UGMA, the assets stay in the control of the owner until the owner is willing to let them go to the beneficiary. If the funds come out of the plan and are not used for college expenses, taxes are due, as well as a 10 percent penalty on the gain.

The last point for your children is to be sure that they have certain legal documents in place when they are old enough to be considered adults. That means they should have a health-care proxy, durable power of attorney and maybe even a will or trust.

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.Financial planning for your children may seem like a stretch. But not doing it can be just as dangerous as not planning when you are older and have issues and assets.

Sudden riches make rational thinking a must

Just over a week ago, many people were planning how to spend the $640 million lottery jackpot that they weren't going to win. While that brief respite from the day-to-day grind may have mental health benefits, it might not be the only way that a windfall of cash can find its way to you.

Every day, people run into sudden wealth - from inheritances, employment terminations, sales of businesses or sales of assets. There are two common themes for many of these people: Much of that wealth is gone within three years, and the windfall doesn't wind up increasing their overall happiness.

What should you do if a financial windfall lands on your doorstep? The first answer is to do nothing. Do not rush out to buy a boat, a car or some other material item that will depreciate right away. Use this event to look at the entire field of what you make and spend compared to the ideal life that you may have only dreamed of before.

There are two broad categories of sudden wealth that I'd like to address. The first deals with amounts large enough to change your life forever. If you have time to plan, get professional help in advance of the event. Attention should be given to the details of how to receive the assets and whether to keep them in their current form.

For example, if you are the outright beneficiary of a large retirement account, it may be in your best interest to receive this as a decedent IRA rollover, which may preserve the tax-deferred status. If there are business interests or rental real estate included in the windfall, think about how this asset may be protected from liability or lawsuit.

Determine if the amount is actually more than you may need to live your dream to the fullest. If the answer is yes, then perhaps you can think about the next generation, some other family member in need, or your favorite charity.

If the amount is not enough to change your life forever, then you need to evaluate your current circumstances. Is your priority beefing up your retirement accounts, paying down college loans or credit cards or establishing the rainy day fund that you need?

The choice is yours. You can spend it right away or you can make a wise money move, and at least partially solve what ails you financially.

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.Financial planning for your children may seem like a stretch. But not doing it can be just as dangerous as not planning when you are older and have issues and assets.

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