Better Ways to Catch Up on Retirement Savings

By Christine Benz, Morningstar

Many Americans find themselves playing catch-up when it comes to saving for their own retirements.

So, let's talk about the levers that people can pull when they find themselves in this situation. I think some people might be naturally inclined to just make their asset allocation really aggressive and hope that that will pick up the slack for them, but there are some better ways to go about it.

We do tend to think of the asset allocation first, and that can be, more generalized, somewhere between 40% and 60% in equities as you approach retirement, but that's really not the key.

The key is saving. So, if you're afraid that you're not going to achieve the goal that you want, then the first thing you should do is try to increase the amount you're saving, the percent of salary.

So a lot of people today are contributing around 10%. They really ought to be contributing 15%, and if they're behind, then definitely see if you can inch your way up to 20%, so that will make a big difference long term.

So savings rate, and pushing retirement dates out further into the future--can impact. So you pick up dollars on a couple of different fronts: You are deferring your Social Security receipt date, you are continuing to contribute to those retirement plans, and probably most importantly you are not dipping into your nest egg.

Putting time on your side is the most important concept for folks who are in their 50s, for example, to realize and understand. Some who have just had their children go through college say, "Now it's our turn," and so they start to take those trips, perhaps a little prematurely.

What makes more sense is to accelerate the savings while you are still in your 50s. That puts some more time on your side for those contributions to compound. If you wait until your 60s, now the contributions will mean less. They will have less of an effect because they have fewer years to compound. So if it's going to be a trade-off, and you try to catch up in your 50s or 60s, front-load it in your 50s.

So tighten your belt sooner.

That's going to make such a difference, because it's going to take the pressure off when you hit your 60s, and you are still in great shape to go have those trips.

Also with 40k(k) plans, leaving [employer] matches on the table is unconscionable. Absolutely, that's free money. So if your employer is offering you a [retirement plan] match, you always should contribute up to that point, so that you get the full match.

One thing that's kind of interesting--is to put more time on your side for your nest egg to compound. As you are working longer, I start to think of that as a match. If I work one extra year, and I was making $75,000, one extra year is $75,000 that I hadn't saved that I can spend, so that's almost a 100% match, if you think about it in the same terms.

So we must not look a gift horse in the mouth. If you have a good job and you're not at risk, even if you are not enjoying it quite as much, think about sticking with it, because the benefits for you will be tremendous long term.

 9951 Atlantic Blvd, Suite 323, Jacksonville FL

The New 401(k) Laws

In August, the 401(k) laws will change.  The new 401(k) laws will provide transparency for plan participants. Although the law makes your 401(k) plan more transparent, it won't fix all of the problems you have with your retirement plan.

How It Works

Imagine going to your local grocery store and not finding prices on the shelves, and when checking out, the clerk gives you a total without itemizing your purchases. How about if you purchased a home and prior to the closing, you were given the total closing costs, but nothing that detailed each of the fees?

You might be shocked to know that your 401(k) operates similarly. You can view the expenses you're paying for each of the funds you choose, but do you know how much you're paying for the operation of the fund itself? In reality, not only are you paying people to manage the mutual funds, but you're also paying people to administer the actual plan.

This will soon change. The new laws require 401(k) administrators to disclose the fees paid to the administrators of the fund. Once these laws take effect, you will know exactly what you're paying in fees and expenses, but it may change very little about your current plan.

The Person in Charge May Be Ill-Equipped

Few of the company administrators have the comprehensive knowledge required to construct a fee-efficient plan for their employees. Much like purchasing an automobile, lack of knowledge and experience may lead to overpaying for services which drives up the fees charged to participants.

Size Matters

Disclosing fees will likely make the investment and insurance companies that provide 401(k) services more competitive in their fees, but that won't change the scalability factor. Larger companies with more participants have more negotiating power when designing their plan than smaller businesses. Larger companies pay less 401(k) administrative fees, making their plans more efficient than smaller companies with less employees.

It Doesn't Fix the Second Biggest Problem

Paying just 1% extra in fees is enough to reduce your retirement plan balance by 17% after 20 years. This is the largest problem faced by participants, but other problems exist as well. The next largest issue may be the lack of suitable investment options in the plan.Too many plan administrators take the advice of advisors who have a financial interest in recommending high fee, low performing investment options.

It's Going to Be Confusing

Remember those pamphlets you received when you opened your 401(k)? They're each called a prospectus and if you're like most, you didn't read them because you didn't understand the language. The statement of fees that you receive because of this new law might not be much better.

You'll Pay It Anyway

Even with more transparency, other than putting pressure on their company representatives, participants will still have to pay the fees. Because most companies match a certain percentage of employee contributions, paying higher-than-necessary fees makes more sense than turning down free money from the company.

The Bottom Line

The new 401(k) laws will go into effect August, 2012. More transparency is likely to have a positive effect on the 401(k) fee structure going forward, but participants still have to take an active interest in their retirement accounts.

Read more: http://www.investopedia.com/financial-edge/0512/Clearing-Up-Misconceptions-About-The-New-401k-Laws.aspx#ixzz1wN7BWyPB

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Is Social Media Slowing Down?

Everything is about social media right now, but it may not be quite as new as you think. The first e-mail was sent in 1971 and just seven years later in 1978, the BBS, or bulletin board system, was available. Many of the modern day Facebook users may not remember the BBS systems, where people could enter a text-based cyber community similar to Facebook today.

From the BBS came sites like Geocities, software like AOL instant messenger and later, in 2003, MySpace. One year later, on the campus of Harvard, a small site was launched as a way to give college students a way to communicate. This site was Facebook. In 2006, Twitter was born and from there, sites like Foursquare, LinkedIn and the newest, Pinterest, have changed the way many of us go about our daily lives.

As of April 2012, Facebook has 901 million registered users and Twitter has 175 million. For the investing community, this social media craze is a recipe for profit. Our social media profiles contain an abundance of valuable information for advertisers, including our favorite music, movies and shops. However, recent signs are emerging that suggest that social media may not have much long-term staying power.

The Problem

Investors learned in the days of the dotcom bubble that technology startups know how to burn through cash, and that is no exception with social media. LinkedIn may have doubled its 2011 revenue to $522 million, but it tripled its sales staff, resulting in a net profit of only $26 million.

In 2011, Business Insider reported that the online game company Zynga had a profit margin of 47%, much higher than technology giants Google and Apple. However, upon the release of their IPO priced at $10, the company's share price fell to $9.50, a 5% drop. Five months later, Zynga has continued to trade lower, closing on May 23 at $7.07. Investors remain concerned that Zynga is so highly levered to social media giant Facebook that any change in Facebook's business model could affect Zynga severely.

Facebook and Groupon

Recently, Facebook received some negative flak in the wake of their May 18 IPO, the most notable being the withholding of revenue forecasts published by underwriter Morgan Stanley. Since then, its share price has dropped nearly $10 below its initial offering price of $42.

Groupon, one of the most sought-after IPOs of its time, has largely disappointed investors. Originally pricing their IPO at $20 per share, Groupon has lost over 45% of its value since going public. Investors believe this is due to other tech giants, such as Google, offering services similar to Groupon, as well as repeated media reports of internal struggles within the company.

The Future of Social Media 

To evaluate the health of a sector, investors often look to sector exchange traded funds. However, for ETFs, the social media sector only has Global X Social Media Index ETF (SOCL). This thinly traded ETF has an average daily volume of only 58,000 shares, making it an unreliable proxy for the health of the social media sector. In the past three months, SOCL has traded in a tight range, indicating to investors that social media was in a holding pattern until the Facebook IPO hit the market.

The Bottom Line

Although companies like Zillow and LinkedIn have seen their stock prices rise, many other social media stocks have failed to live up to the hype. Time will tell whether social media companies will see longevity, but for now, companies like Apple, Intel and Google still own the technology space.

Read more: http://www.investopedia.com/financial-edge/0512/Is-Social-Media-Slowing-Down.aspx#ixzz1wH9zKIdn

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Avoid the Fee-ing Frenzy

Let’s say you’re planning on rolling over your 401k, so you ask a financial advisor for assistance. Sounds innocent enough. You’re then advised to purchase a fund that has a five star rating and stellar past performance. What could be wrong? Almost everything, so far. Yet, this scenario repeats itself daily.

First, you’re chasing past performance, which is completely the wrong way to start out.  And secondly, the costs associated with this can be startling.

Let’s start by the commission your financial advisor will make from pushing this product. If you weren’t aware of this, you’re not alone. Many investors don’t realize that hefty commissions are attached to their financial products. Isn’t this a conflict of interest? Yes, but unless you are dealing with a registered investment firm that is fee-only, that’s what you’ll run into with investments. The majority of financial advisors earn their living by “advising” you to purchase products that pay them to do so.  In the end, that fund you purchased may have a front-end load sales charge, which means it’s going to cost you quite a sum just to open the account. For example, an individual who is investing $100,000 into a fund with a 5% front-end load will be losing $5,000 just for the privilege of making the investment.

 9951 Atlantic Blvd, Suite 323, Jacksonville FL

Are financial advisers failing the 99%?

Commentary by Tim Parker

It appears that middle-class Americans would be grateful to have affordable, professional and ethical advice for managing their retirement accounts.

The average American has no access to quality, non-biased financial advisers. The 99% can find one who will be quick to sell you a fee-heavy mutual fund, annuity or life insurance policy, but what about the advisers who don't receive commissions? Fee-only advisers can't make a living on small accounts, so many won't even talk to you over the phone unless you have $100,000 or more to invest.

Average, working Americans need help with their investments. Recently, I spent some time with family members and some of their friends. After I told them what I did and offered to look at one person's 401k, it turned into looking at and adjusting seven people's retirement accounts.

They were in fee-heavy actively managed funds when they should have been predominantly in low-fee index funds. Their 401k's were bleeding money away in fees not because they chose to do it that way but because it was one of the prebuilt options that their employers recommended.

As of the time of this writing, 81% of Americans are worried that they won't have enough money for retirement, 78% of middle-class Americans don't have a financial adviser, 88% report little or no investment knowledge and 82% claim that they have little or no confidence in their ability to pick the right mutual funds for their 401k.

If that doesn't sound like a whole lot of people who desperately need the help of stand-up, ethical financial advisers, I don't know what does.

63% said that having an unbiased professional to help them with their 401k would be extremely or highly beneficial, and another 23% said it would be moderately beneficial.

About one in four people are postponing retirement because they don't have enough savings. We as advisers can't let this happen. People work hard and sacrifice time with their family throughout their working lives. They should be able to make up for that time once they retire.

9951 Atlantic Blvd, Suite 323, Jacksonville FL

10 hazards of buying individual stocks

By John Gerard Lewis

It is a seldom heard and even more seldom heeded maxim: In general, people should not buy individual stocks.

Of course, you'd never know it today as an abiding investing principle, what with the paucity of personal finance acumen—exacerbated by frenetic financial TV shows .

There rarely appears a story about, say, the more levelheaded notion of mutual fund investing, unless it is to capitalize on the star power of an engagingly punctilious Jack Bogle, founder of the Vanguard Funds. But even the master's index-funds-only mantra recedes into a charming anachronism once his interview ends and the trading types reappear with their yelping about this or that particular stock.

Oh, I know. It is good TV. It is sexy, exciting, fast. But for the nonprofessional watching from home, it falsely teaches that speculating is tantamount to proper investing.

Now, some readers may reply, "Well, I don't speculate. I watch these shows to get ideas, and then I do my research." That is great for those individual investors who understand balance sheets, income statements, cash flow statements and their embedded metrics.

But those people are the exception to the rule, and you shouldn't fool yourself if you truly aren't in their number. And even if you're convinced that you are, no nonprofessional is capable of having professional-level analytical proficiency in every industry.

Speculating with anything other than "mad money" is simply irresponsible, though the TV producers know that issuing such caution deadens the arousal factor—and that is not good TV. But even a reasoned, judicious approach to buying individual stocks is ill-advised if it is not a disciplined, top-down strategy.

Proper personal investing begins with an allocation of assets among stocks, fixed-income securities, real estate, commodities (commonly gold and/or silver) and cash. This allocation depends on a variety of personal factors, but especially within the allocation to stocks one rule should override all others: diversification.

Why? It is because of an insidious investing peril called specific-stock risk. It lurks beneath every company you buy, and you never know when it will rise up to bite you. That is why investors need to spread their risk by not investing too much in any single stock.

If you want to own an individual stock, as opposed to simply investing in good mutual funds (that, by the way, provide diversification and professional management), a good rule of thumb is to limit your investment to a maximum of 4% of your equity holdings.

That means, of course, that if your stock portfolio consists of individual stocks and no mutual funds or exchange-traded funds, then you should hold at least 25 stocks. That is an unmanageable prospect for most people, because it simply would require too much time to research and then winnow the candidates to 25, all apart from the ensuing daily portfolio management that would be required.

That is right, daily management. Business news happens every day, and it is often unexpected news that can suddenly wreck your entire portfolio if it isn't constructed properly. Here are 10 such hazards that can devastate a stock (price declines cited are approximate over the past 10 years):

1. Economic Risk: The recession decimated the stock prices of companies as diverse as YRC Worldwide (trucking), Micron Technology (semiconductors), Gannett GCI (media) and Office Depot .

2. Industry-Specific Risk: The financial crisis that accompanied the aforementioned recession clobbered the share prices at some of the nation's largest financial institutions, including AIG, Citigroup  and Bank of America.

3. Government Policy Risk: President Clinton used Fannie Mae FNMA and Freddie Mac to ensure that unqualified people were able to buy homes that they couldn't afford. The shares of each have declined by more than 40% over the past decade.

4. Material Cost Risk: High fuel prices are one reason that American Airlines is bankrupt. And Alcoa's stock has dropped by 11% partly because the price of aluminum has been so unpredictable.

5. Technological Risk: A decade ago, who would have thought that the august Eastman Kodak Company , eclipsed by the digital age, would be bankrupt, foundering aimlessly, and down 30% in share value?

6. Competitive Risk: Sprint Nextel, which has long struggled for telecom market share, is the poster child for competitive risk. Down 17% over 10 years.

7. Legal Risk: Tenet Healthcare has had legal problems since 2007 and in April agreed to pay the government almost $43 million to settle alleged violations of the False Claims Act. 10-year decline: 18%.

8. Key Executive Risk: Until the Facebook IPO mania set in, the looming question in Silicon Valley was what will become of Apple now that Steve Jobs is gone? And sometimes CEOs die more suddenly, as Micron Technology's Steve Appleton did when the plane he was piloting crashed in February.

9. Management Risk: Company managers can make big mistakes. Jamie Dimon and his crew at J.P. Morgan Chase, revered for deftly managing through the financial crisis, stunned Wall Street earlier this month by announcing a $2 billion blunder. Shareholders lost 15% of their money in the days following the news.

10. Management Corruption Risk: Tyco International's ex-CEO Dennis Kozlowski was convicted in 2005 for looting millions from the company. The shares were pummeled. Kozlowski was denied parole last month and could remain in prison for another 18 years.

This commentary doesn't constitute individualized investment advice. The opinions offered herein aren't personalized recommendations to buy, sell or hold securities.

9951 Atlantic Blvd, Suite 323, Jacksonville FL

Retirement Planning Tips For Women

The retirement income needs for women are similar to those that apply to men; however, there are some factors that make it more challenging for some women to achieve their retirement planning goals and objectives, particularly in the area of finance.

Longer Life Expectancies

While living longer is definitely a plus for many individuals, it adds to the risk of outliving one's retirement savings. This is of a greater concern for women, who statistically live longer than men. According to a report by the National Center for Health Statistics, the life expectancy at birth for a man is 75 years, whereas it is 80.9 years for women. The same report indicates that the life expectancy for men at age 65, which is a generally accepted retirement age, is 17.6 years for men and 20.3 for women.

A three to four year difference in life expectancy may not seem like much, but when the cost of medical expenses during retirement is considered, along with other living expenses, the cost of living for a few years can be relatively high. According to a recent Fidelity report, "A 65-year-old couple retiring in 2012 is estimated to need $240,000 to cover medical expenses

Women can manage these and other retirement living expenses by planning ahead and implementing practical solutions to saving for retirement.

Determine How Much Is Needed to Finance Your Retirement

While there are no guarantees on how long you will live. Your health status and the lifestyle that you will actually live during retirement can be used to make reasonable assumptions about how much you will need to finance your retirement years. Ideally, you should work with a financial advisor who is able to prepare a comprehensive analysis, which takes into consideration factors such as:

•     Your life expectancy: This is usually based on factors which include your age, health status, life-style and medical history, as well as that of your parents.
•     Your planned retirement lifestyle: This includes where you plan to live and the cost of living in that area, the type of home in which you want to live and your planned activities.
•     Your need for medical coverage and longterm care: If you are not eligible for Medicaid and may need longterm care, your financial advisor can help you determine if you may need to purchase longterm care insurance to help cover the cost of any longterm care needs;
•     Your sources of retirement income: This includes pension payments, social security and your personal retirement savings;
•     Whether your retirement expenses and income will be shared: If you have a spouse or partner, your retirement planning goals and objectives should include that person's retirement planning profile, and where necessary, compromises should be made;
•     Your accumulated and projected savings: This includes the tax-deferred nature of your savings and whether withdrawals will be subject to income tax and
•     Your current and projected future tax rate: This will help to determine the net amount you could receive from your accumulated savings.

These and other factors that affect the financial aspect of your planned retirement will help determine how much you will need to save.

Determine How Much You Can Save

Ideally, you want to save the amount needed to ensure that you meet your retirement savings goal. However, from a practical perspective, the amount that you can afford to add to your retirement nest egg should be limited to what you can afford.

For example
Assume that you are 30 years old, you plan to retire at age 65 and your financial advisor projects that you will need $1 million, in addition to what you have already saved, to finance your retirement. Assuming a rate of return of 4% and an inflation rate of 3.1%, you will need to save about $1,100 per month in order to reach your goal.

However, the question becomes whether you can afford to save $1,100 per month. If you find that saving $1,100 per month causes financial challenges, including causing you to increase your amount of debt, it may be practical to reduce your savings amount and/or revise your retirement goals and objectives.

The Bottom Line

When it is time for you to retire, additional financial analysis should be done to help ensure that you do not outlive your retirement savings. If necessary, modifications should be made to that end. This can include continuing to work if necessary, even on a part time basis, postponing your retirement date and investing in financial products that provide guaranteed income for as long as you live. Planning for retirement is not a 'do it yourself job' for amateurs. If you are not an expert in the area, and/or have the time to do the required research, consider engaging the services of a competent financial advisor.

Read more: http://www.investopedia.com/financial-edge/0512/Retirement-Planning-Tips-For-Women.aspx#ixzz1viHq2vUT

9951 Atlantic Blvd, Suite 323, Jacksonville FL

How To Tell If You're Cheap Or Frugal

There's a fine line between frugal and cheap. Frugal people understand that paying more doesn't necessarily mean a better value. People labeled as cheap wouldn't pay a premium price regardless of the value. Billionaire investor Warren Buffett is often labeled as frugal. Your neighbor, whose claim to fame is the fact that of all of his or her belongings were purchased at a garage sale, is probably cheap. Here's how to avoid being labeled cheap.

Frugal People Know When to Pay up

Cheap people only look at price. They believe that the only way to achieve value is to pay less but they fail to take in to account other factors. Frugal people know that sometimes, it's best to pay up. A quality mattress may cost more, but the added support and ergonomics may help somebody with back pain. Paying the extra money for a pair of timeless jeans from a premium store may result in longer life and less signs of wear.

Cheap people may not be skilled at managing their money as frugal people are. Let's assume that a cheap person and a frugal person head into an appliance store to purchase a dryer. The cheap person would look for the lowest priced model where the frugal person would evaluate the energy efficiency and compare gas versus electric. He or she may research the model and read customer reviews Before a purchase is made, he or she will look for rebates and sales at other stores. The better use of his or her money may be a higher-priced model, but the cheap person may not see a need to research when the lowest price, basic model is in front of them.

Cheap People Think Everything Is Overpriced

You've been with this person. This is the person that complains to everybody about the cost of everything. If you go to a restaurant, they don't understand why a burger is $10, if you take them to a baseball game, they complain about the price of the ticket. Even the candy bar at the gas station is too much. Frugal people may be thinking the same thing but they understand that voicing it makes them sound cheap. Instead, frugal people don't purchase the candy bar.

Frugal People Put People Above Savings

Have you ever gone out with somebody who uses coupons to save on the price of a dinner? That's frugal and most people wouldn't see that as cheap, but how about the person who uses the coupon and then tips based on the amount after the coupon instead of the original price? Frugal people love to save a buck, but they won't take money away from others to do it.

Cheap People Don't Buy Necessities

Have you ever met somebody who won't go to the doctor because it costs too much? How about somebody who doesn't plan to help their child with college expenses because of the price? Those may be extreme examples, but cheap people may not even pay for the basics of of life where frugal people look to get the best price they can.

Frugal People See the Higher Purpose

Frugal people love to save a buck, but that doesn't mean that they aren't generous with their money. They believe in giving to worthy causes, but will exhaustively research charities to find ones that don't have high administrative costs. Or they might forgo organized charity and give only to family and friends with a real need. Warren Buffett believes that giving kids too much money does more harm than good and because of that, has promised most of his fortune to the Bill and Melinda Gates Foundation instead of his children.

Cheap people may have a different mindset. They see their money as theirs and they may hold it for the rest of their life. Their children may speak of them as somebody who would rarely gave a gift or helped when help was needed. This may lead to a strained relationship with that parent. Money appears to mean more than the relationship with others.

The Bottom Line

We admit, there is no scientific way to distinguish between cheap and frugal people. There are cheap people we love and frugal people we dislike, but perhaps the best distinction comes from understanding value. Just because something is less expensive in price doesn't necessarily make it cheaper once other costs are included.

Read more: http://www.investopedia.com/financial-edge/0412/How-To-Tell-If-Youre-Cheap-Or-Frugal.aspx#ixzz1vbvCNYMk

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Preparing for the End of the Bush Tax Cuts

By Bill Bishoff, Wall Street Journal

The Bush-era tax cuts—enacted in 2001 and 2003—are scheduled to expire at the end of this year. Unless Congress acts, most taxpayers will see rate and other increases.

Here is what taxpayers should expect if it doesn't—with the caveat that anything could happen as the presidential election season heats up.

Higher Tax Rates for All

You might think only individuals in the top two brackets will face higher federal income taxes if the Bush cuts evaporate as scheduled on Jan. 1, 2013. But unless Congress takes action and the president (whoever that is) goes along, rates will go up for everyone. 

Specifically, the existing 10% bracket will go away, and the lowest "new" bracket will be 15%. The existing 25% bracket will be replaced by the new 28% bracket; the existing 28% bracket will be replaced by the new 31% bracket; the existing 33% bracket will be replaced by the 36% bracket; and the existing 35% bracket will be replaced by the 39.6% bracket.

Higher Capital Gains and Dividend Taxes

Right now, the maximum federal rate on long-term capital gains and dividends is 15%. Starting next year, the maximum rate on long-term gains is scheduled to increase to 20% (or 18% on gains from assets acquired after Dec. 31, 2000, and held for over five years). The maximum rate on dividends will skyrocket to 39.6%.
People in the lowest two rate brackets of 10% and 15% currently pay 0% on long-term gains and dividends. Starting next year, they will pay 10% on long-term gains (or 8% on gains from assets acquired after Dec. 31, 2000, and held for over five years) and 15% and 28%, respectively, on dividends.

Harsher Marriage Penalty

The Bush tax cuts included several provisions to ease the so-called marriage penalty, which can cause a married couple to pay more in taxes than when they were single.

Right now, the bottom two tax brackets for married joint-filing couples are twice as wide as those for singles. This helps keep the marriage penalty from biting lower- and middle-income couples. Starting next year, the joint-filer tax brackets will contract, causing higher tax bills for many couples.

Currently, the standard deduction for married joint-filing couples is double the amount for singles. Starting next year, the joint-filer standard deduction will fall back to about 167% of the amount for singles.
All this means that many lower- and middle-income couples are facing higher tax bills due to a harsher marriage penalty.

Return of Phase-Out Rules for Itemized Deductions

Before the Bush tax cuts, a phaseout rule could eliminate up to 80% of a higher-income individual's itemized deductions for mortgage interest, state and local taxes and charitable donations. The rule was gradually eased and finally eliminated in 2010.

Next year, the phaseout will be back in full force unless Congress takes action and the president approves. So, if you itemize and have 2013 adjusted gross income above about $175,000 (or about $87,500 if you use married-filing-separate status), get ready for this phaseout rule to take a bite out of your wallet.

Return of Phase-Out Rule for Personal Exemptions

Another pre-Bush phaseout rule could eliminate some or all of a higher-income individual's personal-exemption deductions. (For 2012, such deductions are $3,800 each.) The rule was gradually cut back and finally eliminated in 2010. But it will be back next year barring action in Washington.

So you need to be ready for yet another bite out of your wallet if you are a married joint-filer with 2013 adjusted gross income above about $265,000.

If you are single, the magic number will be about $175,000. If you use head-of-household filing status, watch out if your 2013 adjusted gross income exceeds about $220,000.

Some Bush Tax Cuts Are Likely to Be Continued

Some elements of the Bush tax cuts have bipartisan support and will likely be continued beyond this year.  Examples include inflation-indexed alternative minimum tax, or AMT, exemption amounts, the ability to use nonrefundable personal tax credits to offset your AMT bill and the deduction for qualified higher-education tuition and fees.

The current versions of the child tax credit, earned-income credit, dependent-care credit and adoption credit also are more likely than not to be continued. The Bush tax-cut legislation liberalized these credits, and later legislation liberalized them even more.

9951 Atlantic Blvd, Suite 323, Jacksonville FL

SEC Cautions Against Facebook Stock Tips

By Glenn Ruffenach, Smart Money

If you’re using social media to help make decisions regarding investments and retirement finances, place a sign next to your computer: Proceed With Caution.

That’s the message in a new report from the Securities and Exchange Commission and its Office of Investor Education and Advocacy. In a recent Investor Bulletin, the agency notes that growing numbers of older adults are turning to web-based platforms that allow interactive communication – like Facebook, LinkedIn, bulletin boards and chat rooms – to research stocks, discuss the markets and gather news.

The problem: While social media offer a number of benefits, they “also present opportunities for fraudsters targeting older Americans,” the report notes.

With that in mind, the new report – “Social Media and Investing: Tips for Seniors” – discusses common investment scams using social media and the Internet, and urges older investors to watch for the following:

Red flags.  Investment recommendations online may include words like “breakout stock pick,” or carry claims of “guaranteed” returns with “little or no risk.” Such descriptions and phrasings should be a warning to would-be investors. Another red flag: offers to invest outside the U.S. Many con artists set up operations overseas “to make it more difficult for regulators to stop their fraudulent activity and recover their victims’ money,” the SEC notes.

Unsolicited offers. If you see a post or a tweet, or receive an email, with your name – and if you didn’t ask for the communication or don’t know the sender – “exercise extreme caution,” the report states. An unsolicited sales pitch “may be part of a fraudulent investment scheme.”

“Affinity fraud.” Some investment pitches – and scams – can reach you through trusted sources online: a religious community, a professional group. You’re apt to let down your guard if you hear about an offer from such a source – but the group or person making the offer might not know the investment is a scam.

Privacy and security settings. Sure, you enjoy sharing information online with friends and family. But unless you guard your personal information, such details could be available to anyone with access to the Internet, including fraudsters. The point: If you’re using social media as a tool for investing, “be mindful of the various features on these websites that can help protect privacy,” the SEC states.

 

9951 Atlantic Blvd, Jacksonville FL

Give your financial adviser clear goals

By Chuck Jaffe, MarketWatch

BOSTON (MarketWatch) — Investors say investment performance is not what drives them to work with a financial adviser. But when performance sours, the investing results — supposedly a secondary factor in the hiring decision — typically lead to the adviser being fired.

A new study helps show why that is, and leaves investors and consumers a lesson to consider about hiring a broker or financial planner.

The 2012 U.S. Full Service Investor Satisfaction study released Thursday by J.D. Power & Associates found that the public’s overall satisfaction with full-service investment firms is basically back to the levels of 2008, before the market tanked during the financial crisis.

But investors are less happy in the three categories which are most critical to their satisfaction — their financial adviser, investment performance, and commission/fee structure.

Where things actually have gotten better — bringing the overall study numbers in line with the pre-recession levels — are in categories like account information and an investment firm’s Web site.

Advice and consent

“When you just look at the numbers, you think everything has returned to normal, that people are as satisfied with their investment firm as they were in 2008,” said David Lo, director of investment services at J.D. Power. “When you look at the factors individually, you find that’s not really true. People are more satisfied with the little things, but not as happy with the factors they consider the most important.”

Part of what is interesting in the J.D. Power research is that the top firms have more customers attributing performance to the adviser.

Good advisers don’t actually promise performance. Their job is to develop a plan, to equip customers with the right tools so that they can execute the plan, and to provide the emotional discipline necessary to see the whole thing through when market conditions are nerve-wracking and make the average person want to cut and run.

“An adviser who is promising people ‘Switch to me and I will make you 15% more than before or 20% more than the other guy’ is going to have problems, because the customer is going to be unhappy the first time performance doesn’t reach that level,” Lo said. “So a good adviser tells you what they can do for you, the services they can provide, and they help you determine the performance you need and how to go about getting it.”

But Lo noted that when people leave their adviser, the top reason is almost always that the counselor “didn’t make me enough money.”

Some of that, he believes, is a survey bias. Ask people the most important factor in a decision, he noted, and they almost always will come up with results or price.

He thinks the bigger issue is that the investors who are firing their advisers are the ones who attribute their results to something besides the advice they are getting. It might be that the adviser is executing their suggestions, or that the market simply is rewarding everyone, but the customer doesn’t feel that whatever they are getting is the result of the adviser’s work.

That’s a key lesson for shareholders because it highlights the importance of knowing why you are going to an adviser in the first place.

Let’s be clear on this: There is nothing so special in the financial planning business that a consumer can’t do it themselves. If you want to go learn the right things, educate yourself, make use of free resources and take responsibility for the outcome, a planner or broker is not necessary.

But think of this like hiring an auto mechanic or a plumber. You don’t need those pros either; you can learn what’s necessary to fix your own car — and get the supplies at the local auto-parts store — and you can take care of a leaky faucet or toilet, and get a do-it-yourself video to help you do it right, but the majority of people want or need help precisely because they lack the skill set to be comfortable that they will do the job right.

With everything they have invested in a home or a car, they worry that their own deficiencies in doing the basic maintenance and repair jobs will damage the value of what they’ve got.

Investor, know thyself

It’s the same with financial advisers. The fact that we live in a time where there is plenty of information available for people to do it themselves doesn’t mean that most people will take the time and do what is necessary to be good at it.

So when someone makes the decision to work with an adviser, they should know what they are getting, that they are looking for an action plan — helping them determine where they are, what the financial destination is — and then guidance to get from today to their goals.

“If you know what you are looking for — and that it’s about more than performance — when you start looking to work with an adviser, I suspect you will be much happier with what you get,” Lo said.

For anyone working with an adviser, setting expectations is crucial, not only on performance but as to how often there will be contact, how investment ideas will be pitched and more. Ultimately, the idea isn’t to be satisfied just on performance — although the survey numbers show that is essential — but to be satisfied on all factors.

“The best relationships,” said Lo, “are the ones where the customer is satisfied with everything, and they are out there, in all market conditions. … If someone is managing your money, what they are doing for you is too important to leave much to chance, so working with the adviser to make sure they know what you expect — and holding to those expectations – will be what leads to a good relationship.”

Chuck Jaffe is a senior MarketWatch columnist. His work appears in many U.S. newspapers.

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So You've Decided To Invest ...

By Greg McFarlane

So You've Decided To Invest ... Congratulations! When you take the formal steps to becoming an investor, you're becoming that much more self-determined. You start life relying on your parents to make your financial decisions, and by the time many of us advance to young adulthood, we might go so far as having someone at our employer's accounting department recommend a 401(k) for us. Sure, this is technically the desirable "passive income" under some definition, but with too much emphasis on the adjective and not enough on the noun.

What It Means to Invest

Many people get intimidated at the idea of buying their own investments, and thus never commit to doing so. On the other end of the continuum are people who are only interested in buying Google at its initial public offering price ($100) and selling it four years later at its $714 peak.

You can do that - somebody must have - but the chances of succeeding at it are tiny. It's important to remember that investing is not defined as "trying to build wealth with as little effort as possible." That's not investing, that's speculating. We have lotteries for that. Investing is deferring spending in the hopes of a greater return. Get a dollar today, by whatever means, and you can either exchange that dollar for something or hold onto it. In that way, investing is analogous to saving.

In fact, it doesn't hurt to think of "save" and "invest" as synonyms. Put your money in a hollowed-out tomato can instead of spending it on something perishable, and you're investing. Granted, you're investing with a zero rate of return, but you're still investing, instead of consuming. (Also, in the event that the currency deflates, you'll actually enjoy a real rate of return, when you store your money in said tomato can, instead of investing in the conventional way.)

There's no general-purpose form of investing for everyone, just as we all require different diets, or different wardrobes, depending on where we are and what we're trying to achieve. The Upper West Side society matron can probably forgo a pair of steel-toed work boots, just like she doesn't need a portfolio heavy on growth-company stocks. The 22-year old unmarried coal miner could get tremendous use out of both.

What Happens Next?

When you contact an investment professional, the first thing you'll be asked is, "What are your objectives?" Most people will respond to that by sitting there agape and trying to formulate an answer, without betraying their naiveté. To be fair, it's a complicated and overarching question that you need to have spent time figuring out the answer to, long before someone asks you.

Before you meet with an investment professional, step back. Schedule the meeting at least a couple of weeks down the road, because you're going to need to do your homework with regard to answering the above question. You do that by asking yourself, and giving frank responses to, some other questions:

How's your financial situation right now?

Your investment advisor is going to lay your financial life bare in ways you might find uncomfortable. That universal taboo about never discussing money? Money is all that investment advisors discuss.

If you're already drowning in consumer debt affixed to high interest rates, then you're not ready for formal investing yet. Say you have a $13,000 credit card balance that you're making minimum monthly payments on, on a card that charges 17.9% per annum. The best investment you can make at this point is living like a Paris underground dweller for as long as it takes to pay the debt off. Unless you know of some investment that can guarantee you an 18% return, and if you do, please tell us about it.

If you're paying your bills with room to spare, and are building a savings account balance every month without knowing what to do with it (a good problem to have), proceed.

What are your objectives?

"Making money" isn't descriptive enough. Will you be satisfied with just a house and a car? Do you want to eventually buy multiple houses, rent them out and have your tenants make your mortgage payments? Or do you want to spend a year traveling the world? Fortunately, we live in a time where it's possible to do so, but you need to build and earmark the funds before you buy a plane ticket, and confirm that you'll have a way to earn money upon your return.

Other Considerations

How old are you? What is your marital status? Do you have kids? How much do you make? How secure is your job?

The actual questions on an investment questionnaire are a little more nuanced, even loaded. They ask things like, "If your investments perform poorly, would you sell them immediately?" A question such as that isn't asked to gather information, but rather to provide cover for the investment firm.

The younger you are and the fewer dependents there are relying on you, the more margin you have for error and the less conservative you can afford to be. A retiree who's just looking to run out of heartbeats before running out of dollars, doesn't have that same luxury (and it is a luxury.) If you're married and childless, and both you and your spouse make well over the amount required to cover expenses, you can take steps to retire all the faster.

The Bottom Line

You really do have to examine yourself starkly and objectively. When forced to give straight answers to a stranger, you'll find facets of your personality that you never thought existed, both positive and negative. There's nothing wrong with being more cautious than you'd imagined, or more venturesome. Just understand that you implement an investment strategy to mesh with your personality, rather than the other way around.

Read more: http://www.investopedia.com/financial-edge/0512/So-Youve-Decided-To-Invest-....aspx#ixzz1uxiTUJUp

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Low Vs. High-Risk Investments For Beginners

By Stephen D. Simpson, CFA

Risk is absolutely fundamental to investing; no discussion of returns or performance is meaningful without at least some mention of the risk involved. The trouble for new investors, though, is figuring out just where risk really lies and what the differences are between low risk and high risk.

What Is Risk?

Given how fundamental risk is to investments, many new investors assume that it is a well-defined and quantifiable idea. Unfortunately, it is not. Bizarre as it may sound, there is still no real agreement on what "risk" means or how it should be measured.

Academics have often tried to use volatility as a proxy for risk. To a certain extent, this makes perfect sense. Volatility is a measure of how much a given number can vary over time and the wider the range of possibilities, the more likely some of those possibilities will be bad. Better yet, volatility is relatively easy to measure.

Unfortunately, volatility is flawed as a measure of risk. While it is true that a more volatile stock or bond exposes the owner to a wider range of possible outcomes, it doesn't necessarily impact the likelihood of those outcomes. In many respects, volatility is more like the turbulence a passenger experiences on an airplane – unpleasant, perhaps, but not really bearing much relationship to the likelihood of a crash.

A better way to think of risk is as the possibility or probability of an asset experiencing a permanent loss of value or below-expectation performance. If an investor buys an asset expecting a 10% return, the likelihood that the return will be below 10% is the risk of that investment. What this also means is that underperformance relative to an index is not necessarily risk - if an investor buys an asset with the expectation that it will return 7% and it returns 8%, the fact that the S&P 500 returned 10% is largely irrelevant.

What Is a Low or High-Risk Investment?

If investors accept the notion that investment risk is defined by a loss of capital and/or underperformance relative to expectations, it makes defining low risk and high-risk investments substantially easier.

A high-risk investment is one where there is either a large percentage chance of loss of capital or underperformance, or a relatively small chance of a devastating loss. The first of these is intuitive, if subjective - if you were told there's a 50/50 chance that your investment will earn your expected return, you may find that quite risky. If you were told that there is a 95% chance that the investment will not earn your expected return, almost everybody will agree that that is risky.

The second half, though, is the one that many investors neglect to consider. To illustrate it, take for example car and airplane crashes. The odds of any driver experiencing a car crash in their lifetime is quite high (25%), but the odds of death are relatively low (less than 1%). By comparison, the odds of experiencing a plane crash are quite low (one-hundredth of 1%), but the odds of dying in a plane crash are quite high (about 67%).

What this means for investors is that they must consider both the likelihood and the magnitude of bad outcomes. Low-risk investing not only means protecting against the chance of any loss, but it also means making sure that none of the potential losses will be devastating.

A Few Examples

Let us consider a few examples to further illustrate the difference between high risk and low-risk investments.

Biotechnology stocks are notoriously risky. Between 85 and 90% of all new experimental drugs will fail, and not surprisingly most biotech stocks will also, eventually, fail. In the case of biotech stocks, there is both a high percentage chance of underperformance (most will fail), AND a large amount of potential underperformance (when biotech stocks fail, they usually lose 95% or more of their value).

In comparison, a United States Treasury bond offers a very different risk profile. There is almost no chance that an investor holding a Treasury bond will fail to receive the stated interest and principal payments, and even if there were delays in payment (extremely rare in the history of the U.S.), investors would likely recoup a large portion of the investment.

It is also important to consider the impact that diversification can have on the risk of an investment portfolio. Generally speaking, the dividend-paying stocks of major Fortune 100 corporations are quite safe, and investors can expected to earn mid-to-high single-digit returns over the course of many years.

That said, there is always a risk that an individual company will fail; companies like Eastman Kodak and Woolworth's are famous examples of one-time success stories that eventually failed. What's more, a randomly chosen stock held for a decade has about a 20% chance of losing money. If an investor holds all of their money in one stock, the odds of a bad event happening may still be relatively low, but the potential severity is quite high. Hold a portfolio of 10 such stocks, though, and not only does the risk of portfolio underperformance decline, but so too does the magnitude of the potential overall portfolio decline.

A Few More Thoughts on Risk

Investors need to be willing to look at risk in comprehensive and flexible ways. For instance, diversification is an important part of risk. Holding a portfolio of investments that all have low risk, but all have the same risk, can be quite dangerous. Going back to the airplane example, the odds of an individual plane crashing are low, but virtually every large airline has (or will) experience a crash. Holding a portfolio of low-risk Treasury bonds may seem like very low-risk investing, but they all share the same risks and the occurrence of a very low probability event (like a U.S. government default) would be devastating.

Investors also have to include factors like time horizon, expected returns and knowledge when thinking about risk. On the whole, the longer an investor can wait for their returns, the more likely they are to achieve their expected returns. There is certainly some correlation between risk and return, and investors expecting huge returns are going to have to accept a much larger risk of underperformance. Knowledge is also important, not only in identifying those investments most likely to achieve their expected return (or better), but also in correctly identifying the likelihood and magnitude of what can go wrong.

The Bottom Line

There are no perfect definitions or measurements of risk, but inexperienced investors would do well to think of risk in terms of the odds that a given investment (or portfolio of investments) will fail to achieve the expected return, and the magnitude by which it will miss that target. By better understanding what risk is, and where it can come from, investors can work to build portfolios that not only have a lower probability of loss, but a lower maximum potential loss as well.

Read more: http://www.investopedia.com/financial-edge/0512/Low-Vs.-High-Risk-Investments-For-Beginners.aspx#ixzz1uxcOoTDj

 

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Tips for Returning Troops

By Jaime Levy Pessin, Wall Street Journal

For U.S. troops returning from overseas, personal-finance issues can be a sobering part of homecoming.

Nearly 150,000 service members returned from Iraq and Afghanistan last year, and 35,000 more came home from Afghanistan in the first two months of 2012, according to the Defense Department.

"It's a feel-good moment, but it's also a time of adjustment," says Brenda Linnington, director of the Better Business Bureau's Military Line, a program covering consumer issues for service members. For reunited families, and young couples especially, desires to celebrate or make a big purchase can collide with realities such as reduced income and increased expenses.

Recognizing the challenges its personnel face, the military provides financial counseling for troops both before and after deployment in combat, though it doesn't say how many service members seek such assistance.

What follows is a look at some of the issues, and advice from experts in the field.

Time to Adjust the Budget

Perhaps the most important challenge has to do with budgeting. Service members get extra pay for the time they spend in a combat zone; that hazardous-duty pay bump—and associated tax benefits—can significantly boost troops' incomes.

So when they return from a deployment in Iraq, Afghanistan or other countries with the combat-zone designation, troops often see a decline in income. At the same time, they're also faced with paying bills that they were able to put on hold while they were away—the soldier's car insurance, for example.

"If you relied on the additional money, you have to change your lifestyle to accommodate the change in pay," says Gerri Walsh, president of the Finra Investor Education Foundation. The foundation, based in Washington, D.C., is affiliated with the Financial Industry Regulatory Authority, a self-funded industry watchdog group, and is a co-sponsor, along with the Defense Department, of the website www.SaveandInvest.org/MilitaryCenter, a resource center for military families. 

Avoid the Feel-Good Splurge

Robert Gerstemeier, a Chicago financial adviser and a commander in the U.S. Navy Reserve, says that when troops return from deployments, many are eager to enjoy themselves and pamper their families. Mr. Gerstemeier, who has provided financial counseling through the military and has clients who are service members, advises returning troops to not "go blowing all your hard-earned money. Treat yourself to something, but don't do it so that in six months you're still paying for it."

Ms. Linnington, who is married to an active-duty soldier who has been deployed three times, says she and her husband don't make any big-ticket purchases while still in the "honeymoon phase" after a deployment. "We know decisions need to be made when we're calmer and less emotional," she says.

Don't Raid Your Thrift Savings Plan

Although the military does provide a pension for career service members, it's important to set aside money for retirement anyway. Service members have to stay in the military for 20 years to qualify for a pension, Mr. Gerstemeier notes—and that doesn't always happen.

While serving in combat zones, soldiers can put extra money into their Thrift Savings Plan accounts, which are essentially 401(k)s for government employees. Troops serving in combat zones this year can deposit as much as $50,000 in a thrift account, far more than the $17,000 that civilians can put into a 401(k). But thrift plans have the same early-withdrawal penalties as 401(k)s. Taxes and a 10% penalty apply in most cases if withdrawals are made before the investor turns 59½.

Civilians Face More Decisions, Fewer Benefits

For those who leave the service when they return from a deployment, the potential financial obstacles can be even more complicated. For many young people, it's the first time they have to find a job and make other important financial decisions.

"A lot haven't had to fend for themselves—they haven't had to choose a health-care plan or life insurance," says June Walbert, a lieutenant colonel in the Army Reserve and a financial planner with USAA, a financial-services firm that provides insurance, banking and financial advice to service members, veterans and their families. "They're starting from ground zero with huge decisions," Ms. Walbert says.

Another big challenge for many: A person who made $50,000 in the military can find that the same salary in a civilian job doesn't stretch as far, considering that the military provides a housing allowance, subsidized health care, cheap life insurance and other perks.

The Better Business Bureau recommends that soldiers considering leaving the service take advantage of some resources available to them, like the Army Career and Alumni Program and the Labor Department's Veterans' Employment Training Services (www.dol.gov/vets), to help smooth the transition.

Beware of Scams Aimed At the Recently Returned

Regardless of whether a soldier stays in the military or leaves, financial experts warn them to beware of schemes targeting members of the armed forces coming home from deployments. In particular, Finra and the Better Business Bureau advise service members to be wary of payday loans, identity theft and investment schemes touted by scam artists who claim to have ties to the military.

"There will be a slew of people waiting for you to spend money, whether it's a motorcycle salesman or a financial-services professional," says Ms. Walsh, adding that investors can check out financial-services professionals through BrokerCheck, a tool on Finra's website. "You will be surrounded by people who want a piece of that pie."