Don’t forget to sign up for our next teleseminar, titled: Strategies for Growth in Uncertain Times, and will be presented by Doug Fabian, on Tuesday May 8th at 1:00 p.m. Pacific (4:00 p.m. Eastern).
While this teleconference is FREE, attendance is limited, so please be sure to register HERE and reserve your spot today.
Politics are swinging between left and right as the European Union tries to deal with their debt crisis. Watching this news unfold is important for investors – we think it’s important to know how austerity, deficit spending, taxation and other economic news affects your portfolio.
That said, here’s some of the news we’ve been following about the political and economic climate in the Eurozone:
Just to bring this a bit closer to home, local politics affects our portfolios as well. Here in our home state of California, we have similar deficit, taxation and spending issues to the EU. Here’s a few of those news stories:
Be careful in the markets and stay aware of how politics affects your portfolio – listen to our podcast every week for up-to-date details and analysis, or call us today for a personalized consultation at 1-800-391-1118
Here on the Fabian Wealth Strategies blog and podcast, we’ve talked frequently about the European debt crisis so you might be sick of hearing about it. However, while our listeners and readers might have been hearing a lot about this topic, many mainstream news-readers probably hadn’t before this week’s 60 Minutes special “An Imperfect Union – Europe’s Debt Crisis” aired.
This debt crisis discussion is important to pay attention to, not just because Europe is an important economy in the world, but because the U.S. is headed for a similar problem if we don’t get our deficit spending under control. Deficit spending is usually 2-4% of the economy, but right now the U.S. is spending at 9%, and coming up against the limits of our credit lines. Plus, there is currently a lot of artificial stimulus from the federal government in the economy, and taxes are going up next year – both aspects which are causing some anxiety in the markets.
We think that the European debt crisis will be a critical player in the next few year’s investing plans. Markets, internationally, tend to move together, meaning that the European markets can’t falter without impacting other regions in the world.
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)
So why are we talking about the next three years, when so much is changing this year?
The answer is realistic, if not optimistic. We believe that our national habit of deficit spending will have to be dealt with in 2013 and beyond. If we don’t see sufficient austerity from the federal level, we think that interest rates will go up.
It’s important to note that debt-related troubles are coming from more than just Washington D.C.. Deficit spending gets a lot of attention at the federal level, but many people don’t notice or know how much trouble local counties, cities and states are in as well. There are many places in the U.S. which are simply running out of money, which means austerity that is on its way.
Austerity doesn’t just mean lower income, it also means higher taxes. We are seeing the effects of high unemployment and austerity in Europe, and those problems (and with them, civil unrest) might be coming to the U.S. in the next couple of years.
You need to be aware and prepared for these challenges. It’s going to be very tough for any politicians to make good decisions on our behalf, and it’s critical that investors understand the risks in the market and what might soon be coming.
So, how do we achieve financial goals over the next three years? Our three-step plan is:
Capital preservation should be your highest priority
Monitoring and analyzing your portfolio positions in light of these risks
Know your exit strategy
Despite rising markets, risk is extraordinarily high, and investors need to avoid getting lulled into complacency by a seemingly safe market.
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)
Please click below to access this recording in either WMA or MP3 format: Listen in Windows Media
Download the MP3 (right click and choose “save as”)
Note: The opinions expressed in this interview should not be considered personal investment or tax advice. Everyone’s situation is unique. You should consult a professional Certified Public Accountant (CPA) for further clarification on your personal tax questions.
President Obama just submitted a new 10-year federal budget that has me very worried. The primary reason for my concern is tax hikes. As I expected, the mammoth $3.8 trillion budget for the next fiscal year raises taxes on businesses and upper-income households by $2 trillion over 10 years. And after what could be called very minor spending cuts, the country still will face $8.5 trillion in added debt over the next decade.
The budget for fiscal 2011 imposes nearly $1 trillion in tax increases on families with income above $250,000 over the next 10 years, and it does so by allowing the Bush tax cuts to expire. That’s income, mind you, and not take-home pay or profits. That means a small businessperson with income of $250,000 or more would pay a much bigger portion of that income to Uncle Sam. And because most of the jobs created in this country are created by small business penalized by the new taxes, I think we can safely say that this budget is not conducive to job growth.
How much will taxes go up? Well, the two top income-tax brackets would rise to 36% and 39.6%, from 33% and 35% respectively. For families earning more than that what the president thinks is a mystical sum of $250,000 per year, capital gains and dividend tax rates would rise to 20% from 15%. According to the Wall Street Journal, upper-income families would face $969 billion in higher taxes between 2011 and 2020.
To put it quite simply—the taxes are coming, the taxes are coming, and it’s your job as a smart citizen to make sure you take steps to keep your tax liabilities as low as legally possible.
If you don’t already have a good CPA, then I highly recommend you consult with one soon, especially now that tax season is here.
Today is tax day, a dreary day for most Americans—especially if you have the skills, ability and fortitude to earn a substantial amount of money each year. Yes, this is the day the government says, in essence, pay up, sucker!
Now you’ve probably heard about the many tax “tea parties” being held today throughout our nation. I’ve read that there were going to be well over 1,500 tax protests held around the country, with at least one taking place in all 50 states.
Where I live in Orange County, California, I’ve heard there will be over 50 separate local tax protests. Honestly, I can’t say that I blame anyone for feeling the need to protest the high tax burden imposed by not just the federal government, but also by state and local governments.
The fact is that the total tax burden American’s face each year is just way too overbearing, and with the new presidential administration’s philosophy clearly on the side of more federal spending that tax burden isn’t likely to go down for at least another four years.
Depending on where you are on the economic scale, the combination of state, local and federal taxes can add up to well over 50% or more of your annual income. This means that you effectively work only six months of the year for yourself, and the other six months you are basically relegated to the servitude of the collective.
I know that may sound extreme, but I really don’t think a rational person can look at it any other way.
Fortunately, there are steps you can take to help reduce your overall tax burden. First off, you have to make sure you are spending the time, energy and money that it takes to keep your overall tax liability to a minimum.
One way to do this is to meet with your CPA or tax professional on a regular basis. I make it a point to meet with my CPA four times a year. By doing this I can plan for my tax liability well in advance of April 15, and I can also make sure I have the investment vehicles and proper deductions in place that help ameliorate my overall tax liability.
Yes, this process involves some of your time and some of your money. But believe me, it is well worth it. You see, as long as our tax code remains ever bloated and ultra complicated, having a tax professional on your financial team is just an absolute must.
Now even if you feel no pangs when it comes to paying taxes, think of the situation this way. You owe it to yourself and your loved ones to protect yourselves from fiscal mismanagement. You wouldn’t just throw your money away in any other walk of life, so why do it when it comes to paying Uncle Sam.
The fact is that the more successful you are in life, the more pounds of flesh the government extracts from you.
I wish I had better news for you on this April 15, but the reality is that the more you make the more you pay. This reality dictates that you do everything you can to reduce your tax burden, and therein lays the value of a good tax professional.
Oh, and for those of you taking part in a local tax tea party, well, know that you have a sympathetic ear right here with me.
Doug was recently quoted in a Forbes article outlining the efficiency of exchange traded funds. In an effort to continue educating investors about both the advantages and missteps in the ETF community we have linked the story below.
Consider taking cover if you hold any mutual funds in taxable accounts. Many mutual funds that absorbed big losses still will incur significant capital gains for the 2008 tax year. Those capital gains are caused by mutual funds buying and selling stocks during the year – even if a fund racked up huge losses.
Investors looking to limit their tax liabilities from capital gains may want to move money out of mutual funds during the very near future. The record date for when mutual funds assign capital gains to their account holders usually comes as soon as early December. This doesn’t leave you much time to take action. If you delay, expect to owe Uncle Sam more in taxes that you otherwise may have anticipated.
The lesson of incurring capital gains from a money-losing mutual fund may come as a bit of a shock if you are a young investor who largely has only known bull markets. This year’s market turmoil likely caused the stock mutual funds that you own to sell heavily as other investors bailed out and caused the fund companies to redeem their shares.
Keep in mind that you still will incur a one-time tax liability if you sell any mutual fund shares for a profit that were held in a taxable account. If you invest in mutual funds through a 401(k) or a similar retirement account, you escape the tax liability this year. The benefit of selling mutual funds before the record date is that you will avoid incurring capital gains not only this year but each year in the future that you otherwise would stay invested in the funds.
I checked with a couple of the leading mutual fund companies, Vanguard and T. Rowe Price, and learned that the capital gains of some of their mutual funds will be significant. The Vanguard Health Care Fund is estimated to incur capital gains of $8.03 a share, with a record date of Dec. 15. T. Rowe Price posted an announcement on its Web site to inform investors that “unprecedented market fluctuations” in the second half of 2008 are causing potentially “substantial” revisions to its previous capital gains estimates. The record date begins Dec. 10 for T. Rowe Price’s stock mutual funds and Dec. 4 for its bond and money market funds.
My favorite investment vehicle, exchange traded funds, typically minimize capital gains to shareholders because of their index structure. Consider rotating out of your under performing mutual funds into ETFs for a more tax-efficient and low-cost investment alternative.
