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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Monday, November 18, 2013

Plan Ahead. Did I say plan ahead?

October 15th has come and gone.  If that wasn’t an important date for you this year - congratulations.  Your lack of focus on October 15th probably means your 2012 taxes were not filed at the last minute deadline this year.  But look out.

Next year could be different.  That wonderfully misnamed “Taxpayer RELIEF Act of 2012”, actually passed and signed into law January 2, 2013, is waiting to surprise you.  A previous tome ridiculed the 1984ish naming of things (double speak) to mean something other than what it really is, but we can’t help ourselves from
pointing it out once again.

The point of this message is that now is the time to start learning and calculating your tax consequences for this year while you can still do something about them.  I hope you desire to reduce your taxes to the lowest allowed by law.  That’s going to take some work this year as a lot of rules and limits have changed.

So what can you do between now and the end of the year to lower your 2013 tax bite?  Here’s my three simple suggestions:

1.     Take your tax preparer out for breakfast or lunch.  Tell him or her you’d really like to pay the lowest amount possible this year and that you’d appreciate any suggestions.  If you don’t ask, you don’t get, my father frequently reminded me.   It applies here.

2.     Look at your taxable securities investments and see what your gain/loss position is at the moment.   Do you have any “carryover” losses from last year?  Could you sell something now at a loss and buy it back 31 days later to offset some gain you might recognize if you sold one of your big winners and then bought it back again.  This is a technique we call raising your basis, or increasing the number that you have to report to the IRS as your purchase price.  Sound confusing? Well, a short reminder that your author gives advice by the hour on this particular topic.

3.     Charitable gifts.  How about gifting some stock or mutal funds to your church or other favorite charity?  Instead of giving cash, giving appreciated stock helps you avoid the capital gains tax and moves your tax bill slightly lower versus gifting cash and then claiming a deduction.

So there you go.  Wake up and take some action today.  It will be 2014 before you know it and one of these ideas takes you 31 days or longer to fully implement. Get moving.

Are you planning ahead this year? Comments?

Tuesday, November 12, 2013

United WiFi: First Report: #Fail


In a word: SLOW

Came on at 24,000 feet, not 10,000 feet as advertised.

Sign up pretty easy, just slow.

Browsers: Works ok in Safari, Firefox and Chrome

Too slow to download files from SugarSync or use Morningstar’s Advisor WorkStation (analysis tool for investments if you’re not in the business)

OK for Gmail chat when it’s working

Twitter: blocked

Favorite error phrases I saw again and again in the first 90 minutes while trying to use email:

not connected
still working
unable to reach
Oops... a server error occurred and your email was not sent. (#1)
Unable to reach MainStreet Financial Planning, Inc. Mail. Please check your internet connection or company's network settings. Help
Oops…the system encountered a problem (#502)
An error occurred while trying to save or publish your post. Please try again. Dismiss (Blogger post)
This webpage not available

There was a problem completing this action, try again (Google+ post)

Is it worth $14.99.  In another word: NO

Yes, emails will come in and I’ll face 100 upon landing, but the frustration at this early stage is just not worth it.  Dial up was better.

Sunday, November 3, 2013

Answer to a frequent question that invokes market timing

Jim: Should we stop contributing to our retirement accounts for a couple of years since the market is so high and save for a car instead?

This is a version of a question we frequently receive intimating the writer thinks the market is about ready to take a big dump and they want to miss it.  Notice they didn't say sell everything and go to cash but it's close to the same question.

My answer:

One' person's too high is another person's opportunity.  It's all supply and demand.  If people want to own more companies the market prices go up. If people want to own less companies the market prices go down.  No one, and I repeat no one, including Warren Buffet can time the market.  WB has done the best of any widely known person in America and he says "be fearful when others are greedy and be greedy when others are fearful". 
My former boss Ken Fisher, said the market climbs a wall of worry.  Seems to me we're in a time period like he describes.  Who would have thought the market would go up with the government shutdown and fiscal cliff happening at the same time? Not me. I did change my asset allocation a few weeks ago as I get nearer to retirement and announced that in last month's tweet summary going from 90/10 to 60/40 in my pension plan to reflect that change. Anna Sergunina, my partner,  remains at 90/10. Anna is 30 years old.
As for your specific question, unless you are changing your time for retirement, you'll most likely have to save more after the car diversion is over. Then again, you might find a great deal at 0% financing like others, and regret saving into cash for a couple of years making nothing.  If the market goes down like it did  in late 2008-early 2009, you can say I told you so. Only congress could drive us there. OMG, it could be bad in January and February!
Frankly, I have no idea what the market will do in the next two years, but moving some of your savings from Bucket 3 (long term) to  Bucket 1 (short term)  for a car purchase in less than two years, and continuing to dollar cost average into your retirement savings, will help you in a market turn down to recover quicker.  Otherwise, you'll just have to wait a longer time period for your long term savings to recover. That's what retired people have to do because they've stopped dollar cost averaging.
Hopefully, you've read the book we recommend, "Winning the Loser's Game" by Charles Ellis, 6th edition and follow Rick Ferri on his blog, along with The White Coat Investor.  Those resources will reinforce my comments today.

That's my position and I'm sticking to it.  Comments?

Thursday, October 3, 2013

Market Timing or Recognition of Change in Timeline?

The US stock market high in mid September prompted a discussion with my partner Anna Sergunina the following day.  “So what does that mean to us? “, I asked as the topic came up.

“Nothing to me”, replied my younger partner.  “Well, I was just thinking my timeline to retirement is less than ten years.  Maybe it’s time for me to become a ‘pre-retiree’ and change my asset allocation to reflect that,” I remarked.

The next day I changed my early 2009 set asset allocation (90/10 stocks to bonds) to the more timeline and age appropriate 60/40.  Why? Was this market timing? No, it was a time horizon re-setting to a mix more reflective of my situation and prepares my investment portfolio for distributions in the not too distant future (think 8 or 9 years).

If you’ve known me as a client or colleague you probably know, or should know, I’m a big fan of Rick Ferri’s book, “All About Asset Allocation”.  It is my second most recommended book next to Charles Ellis’ “Winning the Losers Game”.  I routinely show clients the appropriate page from Rick’s book.  The one I’m now following is the Pre-Retiree asset allocation.  Thank you Rick.

The reason for financial planning is to have a roadmap and then follow that road map.  Eleven years ago I developed my own financial plan.  I submitted it to the National Association of Personal Financial Advisors (NAPFA) as part of the requirements to become a NAPFA member and demonstrate my proficiency in this field.  I didn’t have to submit my own plan but I figured any comments or suggestions by the reviewer would help me and my family is a great way. 

That plan, subject to a few comments by my reviewer and subsequent changes, is in effect today.  Every January 1st I review my progress and look over my plan elements.  I share it with Carol, my life partner of 40 years.  If she’s happy, I’m happy.  Note: We are happy.

Bottom line: Each of us needs to have a plan, review our plan, and adjust our plan as our goals or timelines change.  Please don’t join or remain in the “Woulda, Coulda, Shoulda Club”.  To again quote Nike, “Just do it”.


Sunday, September 22, 2013

Why did summer end so fast?

Why did summer end so fast?

In the old days, summer seemed to last a lot longer.  I think it was only weeks ago that we were celebrating Memorial Day and then the Fourth of July.  Now Labor Day has come and gone and my 
“To Do” list didn’t shrink much.

“To Do” lists always seem like a good idea so we can see progress in accomplishing tasks and preparing for events.  My mother made us kids create a “To Do” list, but it was mostly chores.  Maybe that’s where I learned to rebel at “the list”.

In my Air Force days, we lived and slept with checklists -one to do list for work, one to do list for home, and two dozen Air Force checklists for critical tasks so we experienced “Zero Defects”.  It was the making of many nightmares for me since lives were at stake.

So what does have to do with financial planning, now that summer is over? A lot. 

Now is the time to plan on re-balancing your portfolio since the stock market, especially the US stock market, has been going up for the last four and a half years since March 2009.  Now is the time to take some losses, if you have any, to offset some of those gains embedded in your taxable accounts that you can take lower your future taxable amounts.  Now is the time to see if you’re on track to save enough this year.  Kick it up a notch and increase your regular savings if you need it.  Now is the time to reduce long term bond funds what will shrink when interest rates go up.

There is still time. However, don’t put it on your “To Do” list.  Put it on your calendar for a specific date and time you will do this. This is how I do things these days when I can see the value in accomplishing certain tasks.  Think of how much an hour you’re making when you save $500 or $1,000 on your taxes.  And it doesn’t take an hour folks.

Still want to put these critical tasks on a “To Do” list?  Well, it’s time to burst your bubble with a Harvard Business Review article that says they don’t work:

Nike is right. Just do it.

Sunday, August 11, 2013

Umbrella Liability Policy: NOT

Umbrella Liability Policy: NOT
Why doesn’t anyone ever tell you NOT to buy an umbrella liability policy? Hold on for just a minute while I get prepared to answer this question. But first this discussion:

Now we’re in the business of helping people make good financial decisions.  That includes looking at what kind of protection you need for what you’ve accumulated over the years or are about to accumulate.
To those ends, an umbrella liability policy adds another layer of insurance protection to your home and auto liability coverage.  It usually comes in increments of one million dollars and it doesn’t cost too much, maybe $200 or so dollars a year for the first million, less for additional millions.

Now if you’re like most middle class folks you might have $100,000 equity in a home, $100,000 in retirement accounts and $25,000 in savings.

If your auto and home liability coverage is $300,000 or more, then why would you need this additional coverage? In many cases you wouldn’t need this protection under the condition I just outlined.  First of all, most retirement accounts offer creditor protection (think of OJ Simpson avoiding the Goldman family lawsuit awarding them $30 million, but not collecting anything since OJ’s money was in the NFL pension plan). So now you only need protection for your $125,000 of equity and savings, right?
Well maybe. That’s where the rub comes in. In doing my research for this missive, I saw the scare tactic of gigantic lawsuits that award the plaintiff millions of dollars, leaving you or some other defendant destitute. If you don’t have enough assets they can get to, they might GARNISH your wages. Oh heavens! But it’s only 25% (federal), or even less in some states, that they can take away your from you wage income through further court action.

So, what does an umbrella liability policy cover?

Bodily Injury Liability – covers the cost of damages to another person's body. Examples include the cost of medical bills and/or liability claims as a result of:
  • injuries to other parties due to a serious auto accident where you are at fault,
  • harm caused to others as a result of your dog (yeah, you probably should have taken him to obedience school),
  • injuries sustained by a guest in your home due to a fall, or
  • injuries sustained by a neighbor's child who falls while playing in your yard.
Property Damage Liability – covers the cost of damage or loss to another person's tangible property. Examples include the cost associated with:
  • damage to vehicles and other property as a result of an auto accident where you are at fault,
  • damage claims incurred when your pet rips a friend's priceless oriental rug to shreds, or
  • accidental damage to school property caused by your child (hey, you can't disown them).
Owners of Rental Units – helps protect against liability that you may face as a landlord. Examples include the cost of liability claims as a result of:
  • someone tripping over a crack in the sidewalk of your rental property and suing you for damages, or
  • your tenant's dog biting someone and you being held responsible for the injuries.
Coverage is also provided should you be sued for:
  • slander – injurious spoken statement,
  • libel – injurious written statement,
  • false arrest, detention, or imprisonment,
  • malicious prosecution,
  • shock/mental anguish, and
  • other personal liability situations.
Source: GEICO

Ok. So here’s my answer. Now that you know many of the facts, you can make an informed decision about whether you need an umbrella liability policy. In many cases you are better protected by having one.  Remember, I didn’t tell you NOT to get one. That will make lawyer happy, but not that happy.