Thoughts, ideas, suggestions and education from financial adviser Jim Ludwick, Founder of MainStreet Financial Planning, Inc. of Odenton, MD; Washington, DC; New York City, and Santa Barbara, CA

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Wednesday, December 14, 2011

Last Minute Tax Planning: Low Taxable Income

If your 2011 taxable income (line 43 IRS 1040) is going to be below $69,000 married or $34,500 single then you need to look at your taxable investment accounts and maybe sell and buy back (if prudent) to enable you to “recognize” long term gains this year. (This is not about short term, less than one year, gains.)

Why? No long term capital gains tax is due if your taxable income puts you in the 10 or 15 percent tax bracket. The law changed in 2008 and expires at the end of 2012 when long term gains tax rates go back to 20%.  This will increase your “basis” in the holding and allow for fewer taxes on future gains than if you just continued holding these securities (assets).  This does suppose they continue to go up in value.

At this time of year we advisers are looking to “harvest” long term gains and offsetting losses to increase the “basis” of holdings. This is good tax planning in most years.  It may not be that good this year, but for reasons not germane to this missive. Call or write to ask about this.

For the past couple of years and for the next year (2012), those taxpayers finding themselves in lower brackets should take advantage of this incentive to sell long term holdings that have increased in value.  If prudent, they can buy them back immediately without a waiting period which involves selling long term capital losses (wash-sale rule).

Your tax advisor or financial planner should always be consulted before implementing this kind of strategy. Why? Just selling for tax reasons, may not be the best strategic move for your portfolio. That’s why this discussion is for education and not actual advice. “Your mileage may vary” YMMV as they say in the text world.

A special thank you to Michael Kitces, author of the Kitces Report, for reminding us planners to highlight this issue again this year.

Wednesday, December 7, 2011

Our Predictions for 2012

It’s that time of year again - prediction time.

What’s going to happen next year?  As usual, I don’t know.  How about you?  I just finished reading Forbes Magazine’s end of year Investment Issue and it didn’t help me come to any new conclusions. Rats.
Now for some breaking news. For the first time this year, I’ll be sending out a separate survey to those that frequently open my emails to see what you (they) say to some speculative questions I intend to offer for their response.  Of course, I’ll publish the results.

As we finish up this year going over many of our clients investment portfolios for the second or more frequent times, we have come to the conclusion, as we often do, that less is better -  less changes, less explanation, less understanding, and less acknowledgement that we can predict the future. Less is better. How unique?

So how are our clients, collectively doing?  Not bad.  Our clients are putting away more money since the two great dips of 2001-2 and 2008-early 2009.  They are also lamenting the continued softness of the stock and bond markets and the continued sinking of housing values. I feel the same emotions. 

By the way, our current favorite economic guru, Anirban Basu of the Sage Group, says that housing deleveraging will take a decade, until 2017.  (Sigh)

On the other hand, as a group our clients remain optimistic for the long run.  They are optimistic that we can do it – whatever “it” might be. (Mr. Minick, my 8th grade English teacher, please forgive the dangling participle.)

This is the point that I should now report that our clients who retired during 2008-2010 have stated that they are doing “OK”.  That surpassed our expectations.  But the way, we can’t recall one client having told us it was mistake to retire when they did these past three years. (However, we acknowledge if they do regret it they may not have told us.)

It’s an election year coming up – surprise! You think 2011 was an up and down year?  You just wait.  The media loves a horse race and we will be having lots of them.  We have some international horse races going on too.  We predict the markets will over react in both directions. Don’t pay much attention.
What can a long term saver and investor do?  As I said in my first ever (August 2011) urgent email, “turn off the TV”.  You might recall this was the first time in 9 years I felt compelled to send out an “all hands on deck” email.

If you do want to ponder some thoughtful ideas and research on the subject of why we do what we do and why we make so many mistakes, I’d recommend Jason Zwieg’s “Your Money and Your Brain”, and Meir Statman’s “What Investors Really Want”.  Both of these books have to do with our behavior as investors.  

Many of you will recall, I’ve been recommending Charles Ellis’ “Winning the Loser’s Game” 5th edition, for the past year or so. If you buy, borrow or beg one of these books and don’t think it’s of value after reading it, I’ll reimburse you whatever it cost. No time limit on this offer to regular readers of this blog.

So that brings me to my list of concepts I’d like you to consider exploring as we enter 2012:
·        The illusion of control
·        Confirmation
·        Hind sightedness
·        Patterns
·        Availability

You’ll find these concepts and more in the three books we’ve just recommended.

So for 2012, we suggest you follow Warren Buffet’s advice to just invest in index funds as much as you can.  I think John Bogle, founder of Vanguard, said that too.  If you must invest in a limited number of active funds in your work retirement plan, then try to find low cost and diversity.

My wish for this holiday season is for both you and me to have more family time and count our blessings each day. Thanksgiving was a good start. Keep it up. I predict it will improve our year 2012.

Sunday, October 30, 2011

Time to introduce a little change, for the better

Helping people make informed financial decisions can be tough.  Now don’t fret, this isn’t a pity party kind of blog coming up.  These are just some thoughts on how to get people to act in their own best interest.  I think my doctor might have the same kind of thoughts sometimes, but not about me.

Being a financial advisor that only gives advice and doesn’t sell or manage stuff, has its advantages.  We don’t get a lot of phone calls or emails asking why we screwed up.  Now, both my partner Anna and I screw up plenty, but we try to catch each other’s mistakes before we foist them on the public.  However, when we do give advice whether in person, on the phone, on Skype or via email, we are never really sure what’s going to happen.  We usually find out later.

In our business model, we also don’t have to do quarterly reports or publish newsletters to explain what’s going right or wrong.  Who reads those?  I’m sure some folks do, but in past lives we hoped 5% took a look.  Only engineers, who found every addition error or typo, seemed willing to communicate about our offerings.

How late we hear from someone usually relates directly whether they are following our advice.  If we get phone or email soon after the delivery, then we know the client is doing something with our recommendations – thinking about them and, or trying to implement them and needs our assistance or further explanation.

It’s not unusual to see clients a year later and find that most of the work we recommended is yet to be completed. How were we to know? That’s where my doctor comes in.  He makes a follow on appointment right then when I’m sitting there.  Funny how the prescription runs out just about the time our next meeting is to take place.

OK, so Doctor of Financial Advice Ludwick is going to change his ways and book follow up appointments right away and also have the office staff follow up a week later to see how things are going. Yes nurse, I’m taking my pills and exercising.  I get the sense their interested in my welfare.  I can take a hint.

So after nine years of operating in a certain way, Doctors Ludwick and Sergunina will alter their practice and help their clients move forward in their financial lives. Yes it means more phone calls for us, but we expect to see more accomplishments because of our efforts.  Yes, it might mean we have to switch more appointments that need to be altered, but I think we can handle it.

So if you’re a client of ours, what do you think?  If you’re a colleague, what do you think? And if you’re a prospective client, what do you think?

Saturday, September 17, 2011

10 things not to do on your overseas vacation

10 things not to do on your vacation overseas

1.       Don’t fret about leaving something at home.  If it’s important enough, they’ll have one for you to buy at the airport. If it’s clothes, then all the better reason for shopping. (Does not count for passport or driver’s license)
2.       Don’t take work folders with you. Electronic might work if you need something, but these days you can get someone to transmit it to you.
3.       Don’t expect everything to work on schedule. Plan for alternative transportation in case your plans are disrupted. Think strike or reservation failure.
4.       Don’t forget to turn off your smartphone data plan. By the time to realize it’s on in a foreign country your bill make already be in the stratosphere.
5.       Don’t expect your bank or credit card companies to approve all your withdrawals and purchases. Call your bank and credit card companies and let them know your departure and return dates.
6.       Don’t think you won’t lose your wallet or purse. Make a scan of all your credit cards, passports, driver’s license and email it to yourself. That way you can bring them up at the hotel or police station in case of loss or other emergency.
7.       Don’t think there’s no risk getting money out of any ATM you find. Get your money out of ATMs located in or next to a bank branch or in the airport secure area. Less opportunity for someone altering the machine and grabbing your information.
8.       Don’t think your US phone will work in another country without planning ahead. Get a local sim card for an international capable phone so you can make and receive local country calls.
9.       Don’t just use the hotel telephone system to call home. Use a Skype account to talk to others around the world at no cost, or very little cost if they don’t have a Skype account.
10.   Don’t help others and assume it’s every man or woman for themselves. Pass these suggestions onward to others and add your own recommendations. Send me a copy.  Jim at AdviceOnly Dot Net

Saturday, August 20, 2011

Important Message to Clients and Other Correspondents

Saturday morning August 20, 2011
Starbucks, Monroeville, PA

I don’t want to be sending out “Important Messages” very often. However, our 24/7 media, which most of us access to some extent or other, leaves me no choice. Volatility in the markets (stock, bond and housing) leads to angst. I feel your pain and my pain.

Thursday was another bad day in the stock market. What did yours truly do? Most of you know the answer. I was a buyer. Sold nothing and bought more index funds. Put excess cash to work. If it was a good by at X, then it’s a better buy at X minus 9 percent.

Remember the three buckets of money? (If you don’t, email me for my chart and explanation)

I have more than three years cash in bucket one. How about you? I have another 2-3 years of expenses in bond index funds and a balanced index fund for mid-range bucket two. The asset allocation for my wife and I is 75/25 in bucket three. This is long term money, at least five years away from need.

Am I concerned about our economy and our country? You bet.  Rumors in Washington are forecasting draconian budget cuts beginning Oct. 1st.  Could a recession in the DC metro area be in the offing for the first time since the end of the Vietnam War? One missive I got yesterday played up that outcome.

For those of you in CA, NV, and FL, it looks like housing and affiliated industries will keep economies there in a longer recession that I ever figured.

So what can we do? 1. Live beneath your means and prepare for cuts in social security, medicare, and other federal and state government services. 2. Don’t take on more debt. 3. Pay down current debt. 4. Understand the big picture from several viewpoints (not just your favorite outlet) 5. Communicate with your elected representatives and/or help new ones get elected.

Thanks for listening. Jim at advice only dot net.

Wednesday, July 27, 2011

Important Message from Jim Ludwick

Wednesday evening, July 27, 2011

Dear clients, prospective clients, colleagues, friends and relatives:

My friend and fellow advisor Rob Oliver said I could pass along his advice to his clients today since it mirrors our feelings and recommendations:

"You may be wondering what all the debt ceiling hubbub is all about. I've heard from some of you with questions about its implications for your planning and investments.

I hate to sound like broken record, but I encourage you to keep your sights set on the long-term and ignore the short-term buzz. In my opinion, the debt ceiling issue will get resolved and any fluctuations in the market due to the debate surrounding it will be short-lived. My advice is to stand pat with your portfolio and turn off your television.

Having said that, I believe that the debt ceiling debate represents deeper rooted budget issues that the US needs to resolve. Some form of higher taxes and lower spending is coming. What should you do about it? Continue down the prudent path:

- Rebalance your portfolio at least semi-annually.
- Pay yourself first through automatic savings.
- Avoid unnecessary debt.
- Mitigate risk with insurance and estate planning.

If you would like to learn about the debt ceiling, I suggest you check out
the US Dept of Treasury's description and Vanguard's analysis:

-- Jim Ludwick  jim@adviceonly dot net  (740) LUDWICK 

Saturday, July 23, 2011

Keep close eye on credit card charges

Woke up this morning and was viewing my personal emails via iPhone. Noticed a 1am email from a "former" anti virus vendor charging my credit card on a renewal. Been over a year since I've used that service. Made a mental note to object to the vendor which uses a third party to sell its goods.

After sending a form objecting to this charge I went online to my account where both my business and personal credit cards reside. I did note that the third party vendor customer service was only open Monday through Friday. Am I too cynical that the charge was rendered at 1am Saturday morning?

My online session included looking over the pending charges on my business card where this soon to be disputed charge resided to see what else was going on. I picked up the phone to call Chase and complain about the charge when I got the fast beeps that alerted me to a call on voice mail.

Guess who? Chase fraud department wants to talk to me. I call. It's about my personal credit card. Some charges in Georgia. One was approved and one was declined. We go over my transactions and there is one a few days prior for 9.95 for something called Publications Development. Seems that's how it got started.

The bad guys put through a small charge after duplicating your credit card number on a fake card. No objection after a few days? Then they move on to bigger charges. The first for $229 when through. Then they tried $319 several hours later. Bells went off at Chase.  The call was made. The purchase declined.

Two results and two thank yous.

Got an email back within an hour from the third party that they had received my disputed virus monitoring renewal charge. Moments later the vendor sent an email asking to confirm my request for a refund which I did and they acknowledged immediately. Thank you.

Chase cancelled my personal credit card. OK. No big deal. I have to notify three businesses that automatically charge my card monthly that there is a new number.  It is Saturday and Chase said my new card would be here on Monday via UPS. After I get my new cards, I will notify my three business partners of the change. Thank you.

What did I learn? Both my wife and I have agreed to check online at least once a week to review our charges. We charge almost everything for airline points so we must be more vigilant about checking for bogus charges, even little ones.

Will it become a habit? I'm making it a weekly task on my automated to do list. We'll see.

If readers have one more ideas for us, we're open.  Email Jim at advice only dot net and forget about the open spaces. Just trying to keep those bad guys away too.


Thursday, July 7, 2011

Why are you so smart, or are you just lucky?

The headline on this article is a nice question to ponder.  Although no client or prospect has outright asked me this question in my nine years of private practice, I suspect it was on their mind.

In reflecting on my own implementation of my personal financial decisions over this same time period, I have mixed results. In many cases, our clients have outperformed my own portfolios.  In fact, my wife takes great pride in the fact that her investment performance exceeds mine by several percentage points, and I manage her investments!

This piece seems to be taking on a confessional direction, but my purpose is to let readers know how I prepare to help them make better financial decisions. I would like to answer the question about being smart.  Answer: I have lots of smart help.

Having a mentor or mentors is very important. In our industry of personal financial advice, it’s relatively easy to have one since we tend to be a very giving profession. I found mine in Kansas via the internet. She wrote a book, formed a group and offered people like me the opportunity to put our experience and desire to work in a new delivery mechanism of personal financial advice by the hour, on an as-needed basis. Then she added consultants to our group to help us on a periodic basis via conference calls, and now webinars, along with an annual in-person retreat.
Consultants help me in marketing, compliance, and business planning. No man is an island. I’m wise to the ways of others though these experienced and focused experts who see the best of the best and pass it along to those of us who want to improve. I owe them a lot.

Money managers help me help our clients. Over the years we have helped clients select several top notch money managers since investment management is not a service we deliver directly. We watch what they do, read what they write, and pay attention to their advice, their decisions and their rationale.  It helps us develop a more dynamic perspective of active or passive investment management by seeing it happen in real time.  Real time to us is usually quarterly or annually, by the way.

Clients have ideas for us too. Over the years we have used several clients as sounding boards for new ideas and tools to deliver or expand our service.  They have been invaluable. In many cases, clients helped us avoid a mistake since we were enamored with an idea that had no place to go in our world.  They told us that in no uncertain terms. Thank you. You know you who are.

Colleagues have added to our tool chest in many different ways. We participate in two national discussion groups as part of our association memberships. Here no man is an island pops up again. We can’t possibly know it all, but a simple posting usually brings several suggestions in hours, if not minutes. Only yesterday, as I write this, I posted the referral need for a specialized business appraiser in the mid-Atlantic region. Within two hours, I had three potential providers as a solution to a client request.  I was in communication with two of the three referred providers before the end of the day.
Colleagues also write a lot of articles on the myriad of topics, close to a hundred, that certified financial planner practioners are expected to know and understand. They write magazine articles, blogs, and tweets. I pass along a lot of their ideas and suggestions by re-tweeting them to colleagues, clients, prospects and others who follow me on this social media platform called Twitter.

The financial news media is also a good source of information and ideas for me since they frequently report on what other advisors and consumers are doing and saying on all sorts of financial topics. I always seem to be looking at a stack of magazines on the bookshelf and emails in my inbox. I’m guilty of information overload and look forward to airplane and train rides to try and catch up.

Lastly, but by no means least, is my long time associate Anna Sergunina, and our relatively new assistant Holly, who lovingly bombard me with error correction suggestions, along with articles and tools they found to help our clients and our practice.

So now you know the answer. I’m smart because I associate with a lot of smart people who are willing to help me deliver the very best recommendations to our clients so they can make the best possible decisions about their financial lives, and sometimes just about their lives in general.

I’m also lucky to have the best wife, Carol,  family, friends, clients and colleagues imaginable.  Thanks for being in my life.

(Now, if you have an interest in what I read on a daily or periodic basis, I’ve posted an non-exhaustive list. Many can be viewed without a subscription. View the list by clicking here: )

Jim Ludwick's Reading List 7.7.2011

1. Google
2. Yahoo Finance
3. (free and premium subscription)
4. (subscription)
5. (subscription)
6., Fidelity,com,,,,,
11. (subscription)
12. Twitter (follow a number of financial advisors and consultants which leads to their blogs)
13. The Simple Dollar (blog)
14. Seeking Alpha (blog)
15. (subscription)
18. Investment News (subscription email and weekly periodical)
19. Investment Advisor magazine
20. Financial Planning magazine
21. Journal of Financial Planning magazine
22. Kiplinger Personal Finance magazine
23. Money magazine
25. (online and magazine)
28. (subscription for computer, iPhone app and paper version)
29. Journal of Indexes
30. Research magazine
31. Registered Rep. (subscription)
32. Life Insurance Selling (subscription)
33. Forbes magazine (subscription)
34. Bloomberg BusinessWeek magazine (subscription)
35. NewYorkTimes iPhone app and daily email summary
36. Time Magazine iPhone app
37. (subscription online and paper)
38. Vanguard Independent Advisor newsletter (Dan Weiner by subscription)
39. Fidelity Independent Advisor newsletter (Don Dion, by subscription)
40. ETF Report (Don Dion, by subscription)
41. ETFconnect, now something else, look it up!!! For closed end funds
42. (business)
43. (business)
44. (business)
45. Institutional Investor ETF Daily by email
46. Advisor Perspectives by email
47. Financial Planning (online and magazine)
48. Accountants World News by email
50. LinkedIn special interest groups (5)
This list is not all inclusive. 7.7.2011

Sunday, April 17, 2011

As Compared To What?

Many times we financial planners are approached for advice, with the “one quick question” routine.

The question usually goes like this: “I just have a quick question on whether I should rollover my old 401k into an IRA.” Sometimes it sounds like: “I’ve lost my job and need money. Should I cash in my 401k?” Other times it could be: “I have too many accounts and just want to consolidate them.” All these conversations come with the underlying unspoken question, “I just want to pay little or nothing for what I think is a simple question.”

They might be thinking that in the past, teachers, parents, and 401k sales people have answered these kind of questions for no charge. Why should it be any different now?

Expectations are funny things. We all have them and in different roles we act just a silly as the folks that are calling financial planners. For example, why does my dentist have to come in and check my mouth each time I get my teeth cleaned? I see a boat payment each time. Not the annual visit mind you, it’s every time. What are my expectations? The dentist checks once, hygienist three times, and I pay less. That’s my expectation. Now, I’m not going to let my dentist make a defense of this practice here, but I continue to rely on her professional judgment to look around in spite of how I feel. We go to a professional for advice, and we need to let them practice in our best interest in spite of our expectations based on previous experience or wishful thinking.

So, how do I as a Certified Financial Planner practitioner, get the question out in the open. Well, my primary care doctor is a good example and I use her method too. “How long have you had this cold (401k)? Let me listen to your lungs and your heart. I see the RN has taken your blood pressure and temperature. Let me look at your history here.”

So it goes in the doctor’s office, and so it goes at MainStreet Financial Planning. “We might expect our doctor to give us a quick prescription for antibiotics for our cold, but it just doesn’t happen and if it did it might be classified as malpractice. It’s the same issue here at MainStreet Financial Planning. Just giving you a quick and low cost prescription (since we charge by the hour) might do more damage than good in the long run, even if it meets your immediate need (expectation). Maybe you should keep your 401k with your former employer until you get your next position. Maybe we need to explore several other options and for that we will need more information and understanding of what you are trying to achieve in the long run. That takes time and will cost more in the short run, but could make a major difference in the long run.

Here’s where I usually tell a story about someone who makes a quick decision not knowing all the ramifications because it was expedient and cheap (allegedly) and paid for it in the long run. Stories help people understand complex issues. The bible is full of stories (parables) for good reason.

Invariably, the question will be asked, “What will this cost?” The answer is usually much higher than they thought (The same with my last dentist bill). Here’s where my previous questioning about the cost of losses or mistakes in their past now pays off. “Wow, that’s more than I thought”, they exclaim. “As compared to what?” I ask immediately. Pause.

I hope they are reflecting on the dollar value of past mistakes and see the light. (My dentist has to tell me about surgery or teeth extraction.) The value of not making a big mistake is worth something, isn’t it?

The moral of this tale, is to be prepared to answer the underlying cost question frequently tossed at financial planners. When the prospective client understands the need and value of more detailed analysis and alternative treatment consideration before coming to an optimal recommendation for their situation now, and in the future, they will be more inclined to pay your fee. If not, well then that’s a constitutional right.