BREAKING NEWS: MAINSTREET SOLD TO NEXT GEN. PLANNER

Dear Clients, Friends and Colleagues:

For several years, you’ve probably known that Anna Sergunina was my exit strategy.  In 2008, we developed a plan to transition to the next generation slowly or, worst case scenario, immediately in a crisis.  Well, the crisis has not happened (thank you very much), but phase two is being implemented slowly, but not too slowly.

On January 1^st Anna purchased all the remaining 95% of the shares in our corporation that she did not own and is now the owner of the business.  I’m the only employee.

We outsourced some of our detail work to registered paraplanner Kathy Watkins in Chicago and some of the administration, including initial client contact, appointment setting and follow-up to The Intelligent Office (IO) in Washington, DC.  Karen and Kyna are the two most common contacts you are dealing with at IO.

Anna is actively searching for CFP® planners to join us both here on the east and west coasts.  I will be the trainer.

My plans are to work full time for the next few years, but at some point I will stop taking on new clients and just help the new planners with their new clients.  I will continue to service existing clients as long as they have confidence in my skills and I’m able to provide answers to their questions and help them make good financial decisions.

I will continue my blog and my radio show and my tweets. Thank you for a wonderful 12 years as the founder and owner of MainStreet Financial Planning. I couldn’t have done it without Anna, and now she can’t do it without me (or at least that’s what I’m telling myself).

Sincerely, Jim Ludwick                               

Watch Anna's video announcement: http://goo.gl/KXby0E

Press Release: http://t.co/KJKn61TrPV

Why didn't I do that good? Investors want to know...

It's a new year and all the investment results are in.  I keep seeing 30+ percentage point increases for several assets classes and mutual funds for the year just past.  You probably do too.  Now everyone is wondering why their accounts didn't go up 30 percent and why some of the funds, namely bond funds, went down in value.

Attention: An account or total holdings is NOT an asset class. That's all your eggs in one basket.  Today's big winner is liable to become a big loser in a correction mode.

Bonds and bond funds got repriced lower by the market last year just like houses did a few years ago.  Everyday, custodians must mark securities as if they were sold at the end of the day, what price would they fetch.

When interest rates rise, then the value of the bond or bond funds currently held are not worth as much to a buyer since new bonds just being issued pay more that the bonds or bond funds you hold that feature a lower interest rate.  I know that's a long sentence. Sorry.

The same holds true for other asset classes or mutual funds that weren't as popular last year.  Gold funds, mining funds, energy funds didn't do as well and were sometimes worth less at the end of the year.

My old boss, Ken Fisher, said it best: If investors want more of a stock (mutual fund) then the price goes up.  If they want less of a stock or mutual fund, then the price goes down.  Investors have alternatives to where their money is currently deployed.

Remember the sage adage, "Buy low, sell high"?  Well now might be the time to implement by re-balancing.  I know its hard to sell last year's winner since we assume it will continue to go up, and buy last year's loser assuming it will go down some more.  Both opinions could be correct.

However, over time, it appears that the market is self correcting and usually does it at some surprise point no one can predict in advance.  Re-balancing to a target percentage has proved to be soundest strategy over longer periods of time, say five to ten years.

If you'd like to read up more on this philosophy, then we recommend Charles Ellis' "Winning the Loser's Game" 6th edition, and William Bernstein's "The Four Pillars of Investing" second edition.

So be happy that a lot of your holdings went way up last year and that you are ahead of your target percentages for the past five years.  Don't dwell on the losers so much that you miss an opportunity to dollar cost average a bargain if it still is a viable asset class.

Good luck.  We all will need it this year.

Plan Ahead. Did I say plan ahead?

October 15^th has come and gone.  If that wasn’t an important date for you this year - congratulations.  Your lack of focus on October 15^th 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?

United WiFi: First Report: #Fail

FIRST REPORT – United WiFi

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

trying

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)

Loading....

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.

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?

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 1^st 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”.

 

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: http://goo.gl/wGd2m6

Nike is right. Just do it.