Strategies are very important to us and we think that every investor should have one – particularly when it comes to the issue of legacy.
How do you want to be remembered, and what’s most important to you? Most people want to make sure that their loved ones, favorite causes and estates are taken care of. It’s very important to have a living trust, in order to avoid a long, painful and expensive experience for your family in probate court.
You want to pass on your assets to your children and grandchildren, and you want to avoid NIGO – a financial insider’s acronym for “Not In Good Order”. If something is messed up – a signature missing, a plan out of alignment, a trust written in order to keep your legacy intact and in good standing for your heirs and loved ones.
If you’ve built up a sizable portfolio, you owe it to yourself, your loved ones and your values to have clarity about your legacy and your expected tax burdens and concerns for the future. Call us today to discuss your needs, legacy, charitable wishes and hopes for your future, at 1-800-391-1118.
This is a podcast summary. For more information, please listen to the entire broadcast here.
Commodities have all been selling off lately, and this signals a slowdown in the global economy. Gold particularly is a commodity that shows us what people are feeling emotionally. With all of the Quantitative Easing and national budget deficits, many national economies are engaging in unsustainable practices. Remember that gold is essentially “real” money, and will probably be a good investment once again in the weeks and months to come.
Wealth taxes are taxes on successful people. In the U.S., the only stated wealth tax is estate taxes. However, we think that there are some disturbing trends on the horizon for the wealthy or those who wish to be wealthy.
For example, here in California, we have a wealth tax, Proposition 30, which was voted in November. This was a retroactive tax on anyone whom the state of California deems as wealthy, and it was a significant amount. Also, as we saw in the country of Cyprus recently, depositors of banks were taxed - which is a significant wealth tax.
We are also hearing that annual asset taxes are currently being considered in Europe, meaning that you would have to round up all of your assets and be taxed on the value of those every year. In the U.S., an IRA tax was proposed by President Obama recently, on anyone who has an IRA in excess of three million dollars. That is a serious wealth tax and something that investors need to be aware of.
These wealth tax trends are disturbing to us, and this is something that high-net-worth investors must start strategizing about in the months and years to come, unfortunately.
This is a podcast summary. For more information, please listen to the entire broadcast here.
We recently read this cover story in Barron’s magazine, and we want to pass it on to you, our readers, as well:
“In his State of the Union speech last Tuesday, President Obama concluded that “the State of our Union is stronger.” The big question is: stronger than what?
Federal debt is a record $12.2 trillion, or 76% of the nation’s annual output of goods and services. While that’s still well below Greece’s 153%, we’re headed steadily in the wrong direction.
According to estimates by the Congressional Budget Office, adjusted by Barron’s to account for recent tax increases and other factors, if the U.S. doesn’t raise taxes further and cut spending dramatically, the national debt could easily reach 153% of economic output by 2035.
These are not just numbers. If the U.S. national debt continues ballooning, we can be sure of a deep, long-lasting recession — very likely a depression — sometime in the next two to three decades. The unemployment rate could easily surge to 20%.”
If you’d like to find out more about how we can help you and your money face upcoming challenges, act now by listening to the Monday Morning Market Outlook podcast, and then by giving us a call at 800-391-1118.
We recently got an email from a client that propelled us into this topic. In a nutshell, they asked – with a new tax environment and higher taxes coming, how should investors react?
Here are four strategies that we recommend for “tax advantage investing“. Keep in mind that this is not the best time to invest in these strategies, but that opportunities may present themselves later this year.
We always believe that tax-deferred accounts are the most important money you will manage. Saving and investing in those kinds of accounts are the best strategies for financial security long-term, so keep an eye on your portfolio there.
Tax-free bonds – Yields are low right now and municipal bonds will likely have some challenges this year. We might see a correction, and, if so, actively managed tax-free bonds would be a great opportunity for investors. This will likely be a tough entry year, however, since municipal bonds ended the 2012 year so high.
Dividend equities – If you own qualified dividend investment vehicles, and have less than $400,000 in income, your federal tax rate is 15%. If you make more than $400k in income per year, your tax rate is 20%. However, dividend stocks are currently earning about 3%, and are high-priced. This investment is looking a little risky right now, but might be a good investment later this year.
Long-term capital gains – This requires that an investor hold a security for 12 months. The tax rate is attractive: less than $400,000 in income, your federal tax rate is 15% – more than $400k in income per year, your tax rate is 20%. But right now, any move toward buying U.S. equities would need good stock position in order to make the 12-month investment a good one. Trying to buy today, in our opinion, would be a high-risk strategy., despite the tax advantages.
Unfortunately, tax-efficient investing is not in a good place for entry right now. However, we think that 2013 will offer much better opportunities in this area, so keep paying attention to the markets and watching for your investment opportunity.
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on this topic, and please share this information with others who might benefit from our perspective.)
In election cycles lately, we’ve heard a lot about the “middle class”. However, our concern today is what we call the “investor class”. The investor class is made up of smart savers, savvy businesspeople, and those who have been good with their money – people who have money to invest, save or protect. Typically, the investor class is very self-reliant, and your only safety net is the one you’ve built for yourself.
The investor class has to be prepared for three big changes starting this year:
There was a fascinating and eye-opening article in the Wall Street Journal recently for anyone who believed that Obamacare was going to bring healthcare prices down. We encourage you to read the whole thing here, but here’s how it begins:
“Health-insurance premiums have been rising—and consumers will experience another series of price shocks later this year when some see their premiums skyrocket thanks to the Affordable Care Act, aka ObamaCare.
The reason: The congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing. Premiums will soon reflect that disregard—indeed, premiums are already reflecting it.”
Be aware of the slow economic growth, new tax planning you’ll need to do, and higher costs coming this year – but also be prepared to use some of this bad news to create investment opportunities for your portfolio. Opportunities are on their way, so be ready to act and aware of what the risks and your goals are ahead of time.
Your financial success depends on knowledge. Calculate your net worth and write down specific goals to move forward in your financial plans. There are many ways to grow your net worth: you can pay down debt, save more or earn more, but before you embark on any of these steps, we need good information about your portfolio. Before we get too far into 2013, we encourage you to take the time to look at your assets, debts, investments and accounts.
You also need to be prepared for higher taxes, higher health insurance costs and medical expenses this year. Remember that even though taxes and costs are going up, the national deficit is not being affected. This means that politicians will be back for more tax revenue and we need to be prepared for that as we enter this new year.
Calculate your net worth at the end of the year. Look at your statements and take time to see what your complete financial picture is. How did 2012 end for you financially?
Add up these five categories:
Liquid taxable accounts and savings (bank accounts, etc.)
Real property (residence, etc.) Look at what the the fair market value is minus any outstanding loans
Illiquid assets (small businesses, loans to business partners or family members, etc.)
Personal property (jewelry, collections, cars, etc.)
Add up these five things and you will know what your estate tax situation is (our post here gives a recap on the most recent estate tax rules) and what your investing goals should be for 2013. This is an important step to take for yourself, your heirs and your spouse. Also, now is a good time to review your trusts, wills, and life insurance in order to educate your loved ones and make sure you are on track to accomplish your financial goals.
If you have questions about what this information means for your investing plans, don’t hesitate to ask by emailing us at askdoug(at)dougfabian(dot)com.
Obviously, the fiscal cliff deal was a bit complicated and will have to be revisited (there will be more debt ceiling talks in Washington by March 1, 2013) but so far, these are the highlights for investors:
Income tax rates go up on individuals earning more than $400,000, or couples making more than $450,000
Estate taxes at 40%, first $5 million exempt for individual, and $10 million for family estates
Capital gains and dividends only change for individuals earning more than $400,000, or couples making more than $450,000
Social security payroll tax cut went away (we think this is a good thing, despite it being a tax increase, since Social Security has to be paid for)
No spending cuts in this deal, and it looks like those spending negotiations are delayed until March 1, 2013. This means there will be another battle in Washington in the near future.
Unfortunately, despite a favorable reaction in the financial markets, we still have out-of-control spending on the federal level, and it seems that politicians are unable to handle these issues in a positive way. Right now, the U.S. is borrowing 40 cents of every dollar we spend, which is obviously unsustainable, and the biggest risk of 2013.
The markets are anticipating a deal on the Fiscal Cliff. It looks like any deal will mean higher taxes next year, so it’ll be interesting to see how much that affects our economy.
Central Banks around the world are using the Federal Reserve’s playbook and implementing their own versions of Quantitative Easing (printing money and buying bonds with it). These strategies are unprecedented, and so far they seem to be working. Our concern is that things can unravel quickly if confidence starts to wane, and with the lack of good economic growth, this could get unsteady.
You’d think that gold prices would be soaring with all this money-printing going on in the world, but, surprisingly, it’s not. We are watching it closely to see if it turns around, as it could be an opportunity in the weeks to come. We encourage you to have it on your investment radar as well.
No video next week, but we hope that you have a very Merry Christmas and wonderful holiday season. We will be recording a podcast as usual on Christmas Eve, so you can check in there and we will see you here on the blog and via video in the New Year.
