PWM - Financial & Investment Advisors in New Jersey | Private Wealth Management - Registered Investment Advisor, RIA | NJ, NY, PA, FL http://www.pwm-nj.com Fri, 24 Jul 2015 18:30:04 +0000 en-US hourly 1 http://wordpress.org/?v=4.1.6 How Do Stocks React to Interest Rate Hikes? http://www.pwm-nj.com/knowledge/investment/how-do-stocks-react-to-interest-rate-hikes http://www.pwm-nj.com/knowledge/investment/how-do-stocks-react-to-interest-rate-hikes#comments Wed, 22 Jul 2015 12:58:37 +0000 http://www.pwm-nj.com/?p=10334 more]]> image of buildings - Michael Aston

| Featured Author: Monica Jalife, CFA, CFP, MBA |

During 2007-2009 the United States suffered the worst financial crisis since the Great Depression, what we now refer to as the Great Recession. During this period, gross domestic product contracted significantly, the jobless rate almost doubled and the S&P 500 Index dropped more than 50% from peak to trough. To stimulate the economy, the Federal Reserve lowered interest rates to near zero and has kept them at those levels. The pace of economic recovery has been one of the weakest compared to previous Monica Jalife's pencil headshot | PWMrecoveries, which helps explain why rates have been so low for such a prolonged period of time. The economy seems to be reaching an inflection point, however, and many are bracing for the Federal Reserve to begin raising interest rates in the near future. Understandably, the uncertainty surrounding the timing and magnitude of this first rate hike has created additional volatility in the markets.

Given this backdrop, we thought it would be timely to analyze the historical performance of equity markets in response to rate hikes. Using the S&P 500 as our market proxy we studied the behavior of stocks during six rate hike cycles going back to 1980. While we saw increased volatility and pockets of weakness surrounding rate hikes, equities generally weathered the storm. As Table 1 illustrates, the immediate reaction to the first rate hike of the cycle has typically been a mild short-term equity correction, followed by a relatively quick recovery and subsequent additional gains as the market digested higher rates and corporations continued to benefit from a recovering economy. While history doesn’t always repeat itself it often rhymes which leads us to believe that once the anticipated rate hike cycle gets underway, equities could continue to do well.

fed-rate-cycle-beginning

While the current economic backdrop is similar to previous periods of rising rates, there are key differences. Unlike previous rate hike cycles, interest rates and the 10 Year Treasury yield are starting at a very low levels. To put this in perspective let’s compare what the starting point for the current cycle will be versus the average starting point for the other six cycles. The Fed Funds rate is currently between 0 – 0.25%. In comparison, the average starting point for the Fed Funds rate from the previous six cycles was 5%. The Federal Reserve has indicated its intention of moving carefully and at a measured pace. For instance, if the Federal Reserve were to institute five 0.25% increases, the Fed Funds rate would increase to 1.25% (hardly a punitive level by any measure) which is why we believe the Fed Funds rate has some room to grow before it becomes a drag on economic growth. Moreover, equities tend to do well in an environment of low and upward moving rates and not so well in an environment where yields are high and moving higher. At 2.4%*, the 10 year Treasury yield is also significantly lower than the other six rate cycles analyzed where yields ranged from 4.6% to as high as 10.3%, with an average starting yield of 7%:

fed-rate-cycle-beginning-2

Conversely, one factor in which we see similarities with other periods of rising rates is price to earnings multiples (P/E). The S&P 500 is currently trading at an 18.0 P/E multiple which is close to the average P/E of the other six cycles at the time when rates started to increase.

 

fed-rate-cycle-beginning-3

 

Periods of rising rates typically accompany an accelerating economy, climbing inflation or both. While we view this as a positive, the prospect of higher rates does create increased market volatility, price corrections and consolidations in the equity markets. Moreover, during periods of increasing rates, price earnings multiples for equities tend not to expand – which means the main driver of stock returns becomes earnings growth. As a result, the likelihood of a correction has increased but equities could still have some room to rise.  In this volatile market environment, we want to remind our readers that we do not believe market timing is a reliable strategy. We find that investors who continuously let fear, greed and the short term movements of the market dictate investment decisions often end up doing more harm than good in the long run. We continue to advocate a disciplined investment approach that is consistent with your long term goals, time horizon and risk tolerance.

*As of June 29, 2015
Important Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PWM Advisory Group. [“PWM”] ), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from PWM. Please remember to contact PWM in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. PWM is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the PWM current written disclosure statement discussing our advisory services and fees is available for review upon request. Photo Credit: Unsplash

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5 Tips That Can Help Get Your Kids Into College http://www.pwm-nj.com/knowledge/investment/getting-into-college http://www.pwm-nj.com/knowledge/investment/getting-into-college#comments Tue, 21 Jul 2015 13:00:42 +0000 http://www.pwm-nj.com/?p=9810 more]]> image of a light bulb

The Preliminary Steps 

Saving money for college is a daunting proposition. But there’s another big challenge—making sure your high school sophomore or junior is doing the right things to improve the odds of being admitted to college. Here are five tips for helping bolster your children’s academic standing:

1. Selecting the right classes. The courses your child chooses do make a difference, particularly if the goal is to get into a top-flight college or a particular field of study. For instance, if your child wants to enter one of the top U.S. engineering programs—at Georgia Tech, Purdue, MIT, or another leading school—he or she will need to have taken at least trigonometry and pre-calculus.

College admissions counselors base acceptance decisions on high school coursework completed through the junior year. They’ll also want to see a list of classes a student will be taking as a senior. You can help by finding out what courses are required, or preferred, by the colleges on your child’s wish list.

2. Test preparation. Whether your child is taking the SAT, the ACT, or both, doing well on these tests is likely to require considerable preparation.

Getting ready can take many forms, from buying a guide that walks kids though the exam and gives test-taking strategies, to completing online SAT practice tests from the College Board, to signing up for a formal SAT/ACT preparation course. At the very least, the published guides and online samples can be a good way for students to become familiar and comfortable with the test format.

If you think your child will need more intensive help to ace the test—many bright, talented students aren’t great test-takers—you may find that coursework, tutors, and anxiety-coping strategies can be effective.

3. Summer experience. For many high school students, the summer between their junior year and senior year is their last opportunity to gain real-life experience that is relevant to their career interests. It also can provide excellent material for college essays and personal statements that students may be asked to explain why they’re interested in a particular college or area of study.

Students might gain experience through a job, an internship (paid or unpaid), or they might interview people in fields that interest them.

4. Vacation with a purpose. A summertime family trip could be a great time to visit prospective colleges. While you’re there:

  • Pick up copies of the student newspaper to find out what’s going on at the school.
  • Ask questions of students and residents to learn what the climate will be like when it’s not summer.
  • Seek out the professors in your child’s areas of interest. Faculty schedules in the summer are often less frantic than during the academic year. his is also an ideal time to make a positive, lasting connection with an admissions counselor. The summer pace is slower for the admissions staff, too, and they have more time to spend with families.
  • While visits are important, it’s easy to fall in love with the campus of a college that may be out of reach for a particular student. On the other hand, there’s nothing wrong with aiming high, and working harder to get into a dream school could be a benefit no matter what.

5. Advance planning for the application process. The more students can find out about the colleges they want to attend, including application requirements, the better prepared they may be to throw themselves into a very selective application process. Two of the most intensive aspects of that process are essays and letters of recommendation.

There’s no “one-size-fits-all” essay. Many colleges now require essays of various lengths and topics in addition to the essay prompts on the Common Application. Here, too, preparation can be very helpful, with students thinking about what they want to write and taking the time to develop an effective essay.

As far as recommendations go, keep in mind that the best teachers are likely to be in great demand, and it’s important to get a request in early.

Of course, your part in this process, beyond helping your student prepare and not miss important deadlines, is to make sure you’re financially ready to foot part or all of the college tab. Good preparation isn’t just for the kids.

Please note that various factors such as changes in tax laws, inflation, and the uncertainty of social security can have a significant impact on the results of the study discussed in this section.This presentation was designed for educational purposes only and is not intended for specific legal, accounting, investment, income tax or other professional advice. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PWM Advisory Group, LLC [“PWM”]), or any non-investment related content, made reference to directly or indirectly in the presented material(s) will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from PWM. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. PWM is neither a law firm nor a certified public accounting firm and no portion of the presented material(s) should be construed as legal, accounting or consulting advice. A copy of the PWM’s current written disclosure statement discussing our advisory services and fees is available for review upon request. To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. ©2012 Advisor Products Inc. All Rights Reserved. Photo Credit: Josch13

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]]> http://www.pwm-nj.com/knowledge/investment/getting-into-college/feed 0 Greek Crisis Update http://www.pwm-nj.com/knowledge/investment/greek-crisis-update http://www.pwm-nj.com/knowledge/investment/greek-crisis-update#comments Wed, 08 Jul 2015 13:00:35 +0000 http://www.pwm-nj.com/?p=10314 more]]> greece

| Featured Author: Monica Jalife, CFA, CFP, MBA |

All Eyes on Greece…

In a referendum conducted over the weekend, Greek voters rejected the proposed bailout terms which call for additional austerity measures on the Greek Economy. Several questions arise: What are the implications of this vote? Will Greece be forced out of the euro-zone? What course of action will the ECB take? What about the IMF and the other members of the European Union? The situation remains fluid, and while there is still a chance for a last second deal, we believe the likelihood of a Grexit (Greek exit) has increased.

Crisis has been brewing for so long that policy makers and financial markets should not be caught by surprise. So far initial responses in the markets have been fairly muted. European equities are falling between 1-3%, the Euro dropped to $1.10, and safe haven government bond yields have only fallen a few basis points. One of the bigger casualties is oil which dropped over 5%. That said we believe volatility in the markets, in the event of a near term Grexit, will remain elevated.

In the Case of a Grexit, what is the Spillover Risk?

We believe spillover risks are limited. European officials have indicated their commitment to preserving the integrity and stability of the Euro Zone and that firewalls have been put in place to prevent contagion. Private sector exposure has decreased and Greece’s main creditors are official institutions and governments. In addition, Greece accounts for only 0.3% of world GDP and Greek exports to the EU as a whole last year represent just 1.5% of US GDP last year¹. Nonetheless, there are reasons to remain cautious. Bonds of some other highly indebted peripheral economies continue to be vulnerable since their yields are at low levels and there might be a re-pricing of risk. We think that European equities will also suffer initially. One positive is that we expect the Euro to remain low which helps support expectations for economic growth in the area.

At current levels, we believe Greece’s debt burden is simply unsustainable without substantial fresh capital from international creditors or a Grexit. Remaining in the Euro zone means more years of tough austerity measures (higher taxes, pension cuts) and an economy mired in recession and high unemployment. In the long run, exiting the Euro might be the lesser of two evils. A return to the Drachma and subsequent devaluation could boost competitiveness in the Greek economy. Either way, the Greeks have a tough road ahead.

So What Now?

We believe that the international arena will remain fragile and volatile. While so far US markets have remained resilient and the economy continues to improve, the uncertainty regarding the first rate hike by the Federal Reserve could also increase volatility in the near term. We continue to advocate a disciplined investment approach that is consistent with long term goals, time horizon and risk tolerance. We share the view of Joe Davis, Vanguard’s chief economist when he states: “Periodic flare-ups in the markets are not unusual in the course of a year. However, with economies growing slowly and the great financial crisis still fresh in many investors’ minds, market reactions to world events tend to be more sensitive. Staying calm and disciplined in a volatile market can be hard, but keeping a broadly diversified and balanced portfolio can help investors stay on track to meet their long-term goals.”

¹Capital Economics – Global Economics Chart book

About the Author:Monica Jalife, CFA, MBA

Monica Jalife, CFA, CFP, MBA

Monica Jalife is an Investment Advisor and Principal at PWM. She has nearly 15 years of finance experience and holds the Charted Financial Analyst (CFA) and CERTIFIED FINANCIAL PLANNER (CFP®) designations. Monica received her Master of Business Administration (MBA) in Finance and Global Business from NYU Stern’s School of Business and her undergraduate degree in Industrial Engineering from Universidad Iberoamericana in Mexico City, where she graduated with honors. She is a member of the New York Society of Security Analysts (NYSSA) and the CFA Institute, and the Financial Planning Association of New York (FPANY). Monica co-manages a dividend focused equity portfolio and conducts attribution analysis for client portfolios. (read more about Monica)

Important Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PWM Advisory Group. [“PWM”] ), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from PWM. Please remember to contact PWM in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. PWM is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the PWM current written disclosure statement discussing our advisory services and fees is available for review upon request. Photo Credit: Mariamichelle

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Key Reasons Why a Taxable Account May Be Underrated, Part 2 http://www.pwm-nj.com/knowledge/tax/key-reasons-why-a-taxable-account-may-be-underrated-part-2 http://www.pwm-nj.com/knowledge/tax/key-reasons-why-a-taxable-account-may-be-underrated-part-2#comments Tue, 07 Jul 2015 13:00:35 +0000 http://www.pwm-nj.com/?p=10329 more]]>

image of inside a computer

Tax Tips Continued

In a year like 2008, when stocks were badly in the dumps, the ability to engage in tax-loss selling was a rare silver lining.

Reason 4: You may be able to enjoy no- or low-tax withdrawals.

In addition to being able to keep your tax costs down while you own the securities in a taxable account, currently low capital gains rates also help you limit your tax costs when you eventually sell them. As recently as the late 1990s, a 20% long-term capital gains rate applied to investors in the 28% income tax bracket and above. Now, only investors in the very highest income tax bracket (39.6%) pay a 20% long-term capital gains rate; investors in the 25% to 35% brackets pay 15% and investors in the 10% and 15% brackets currently owe no taxes on long-term capital gains.

Reason 5: You’ll have more control over your tax bill in retirement.

The ability to pull your money out with limited tax liability (because capital gains rates are pretty benign right now) can prove particularly beneficial when you begin taking money out of your accounts during retirement. You’ll owe ordinary income tax on distributions from traditional 401(k)s and IRAs during retirement, and the timing and size of those distributions will be out of your control once you have to begin taking required minimum distributions (RMDs). By diversifying your asset mix across taxable and Roth accounts, you’ll help ensure that at least some of your distributions will come out with low or no tax ramifications.

Holding taxable assets in addition to tax-deferred and Roth also helps ensure that, if you determine that you want to convert some of your Traditional IRA or 401(k) assets to Roth, you’ll be able to pay the conversion-related taxes without having to dip into your IRA/401(k) funds, thereby sidestepping further taxes.

Reason 6: Your heirs will receive a step-up in basis.

Another key advantage to investing inside of a taxable account is that your heirs will be able to take advantage of a step-up in cost basis, essentially wiping out any capital gains tax liability that you racked up over your own holding period. That means that when they inherit assets from you, the taxes they’ll eventually owe when they sell will be calculated by looking not at your purchase price but what they were worth at the time of your death. Even if your heirs end up selling the inherited assets shortly thereafter, you’ve still reduced the drag of taxes on your overall estate.

401(k) and IRA plans are long-term retirement-savings vehicles. Withdrawal of pretax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Direct contributions to a Roth IRA are not tax-deductible but may be withdrawn free of tax at any time. Earnings may be withdrawn tax and penalty free after a 5 year holding period if the age of 59 1/2 (or other qualifying condition) is met. Otherwise, a 10% federal tax penalty may apply. This is for informational purposes only and should not be considered tax or financial planning advice. Please consult with a financial or tax professional for advice specific to your situation.

A municipal bond investor is a creditor of the issuing municipality and the bond is subject to default risk. Municipal bonds may be subject to the alternative minimum tax (AMT) and state and local taxes, and federal taxes would apply to any capital gains distributions.

Investing does not ensure a profitable outcome and always involves risk of loss. There is no guarantee that diversification or asset allocation will protect against market risk. These investment strategies do not ensure a profit or protect against loss in a declining market.

This presentation was designed for educational purposes only and is not intended for specific legal, accounting, investment, income tax or other professional advice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PWM Advisory Group, LLC [“PWM”]), or any non-investment related content, made reference to directly or indirectly in the presented material(s) will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from PWM. PWM is neither a law firm nor a certified public accounting firm and no portion of the presented material(s) should be construed as legal, accounting or consulting advice. A copy of the PWM’s current written disclosure statement discussing our advisory services and fees is available for review upon request. ©2012 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is intended solely for informational purposes; (2) is proprietary to Morningstar and/or the content providers; (3) is not warranted to be accurate, complete, or timely; and (4) does not constitute investment advice of any kind. Neither Morningstar nor the content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. “Morningstar” and the Morningstar logo are registered trademarks of Morningstar, Inc. Morningstar Market Commentary originally published by Robert Johnson, CFA, Director of Economic Analysis with Morningstar and has been modified for Morningstar Newsletter Builder. To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. 

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Home Prices on the Rise Amid Low Inventory Levels and High Demand http://www.pwm-nj.com/knowledge/investment/home-prices-on-the-rise http://www.pwm-nj.com/knowledge/investment/home-prices-on-the-rise#comments Wed, 17 Jun 2015 13:00:25 +0000 http://www.pwm-nj.com/?p=10296 more]]> image of house

Faster-Growing Prices are Both Good and Bad News

The latest report from CoreLogic showed that home prices continued to rise at a much faster pace than previously expected, growing 2.0% in March. On a year-over-year basis, the growth stood at 5.9%, the fastest pace since last July. CoreLogic predicts that prices will rise 0.8% in April, and that the year-over-year growth will tick down to 5.4%.

Unusually low inventory levels and a coinciding increase in demand are driving the prices of existing homes higher. Faster-growing prices are both good and bad news. The bad news is that the higher pace of home price increases may put a dent in the affordability of existing homes, which is something that has the potential of slowing down the housing recovery. The good news is that it is reassuring to see many new buyers who feel financially secure and confident enough to buy a home, even at higher prices. Faster price growth also helps existing homeowners to emerge from their underwater mortgages. According to CoreLogic, current home prices are still 11% below their April 2006 peak. More important, as faster-growing prices hurt the affordability of existing homes, the demand might shift toward new homes. The gap between existing-home prices and new home prices had grown unusually wide and declines in that gap could bolster the construction sector. That, in turn, could provide a direct boost to the GDP and employment. CoreLogic predicts that the price growth of existing homes may moderate later this year and that the prices may increase by about 5.1% from March 2015 to March 2016.

This article contains certain forward-looking statements which involve known and unknown risks, uncertainties, and other factors that may cause the actual results to differ materially from any future results expressed or implied by those projected statements. Past performance does not guarantee future results.

 

This presentation was designed for educational purposes only and is not intended for specific legal, accounting, investment, income tax or other professional advice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PWM Advisory Group, LLC [“PWM”]), or any non-investment related content, made reference to directly or indirectly in the presented material(s) will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from PWM. PWM is neither a law firm nor a certified public accounting firm and no portion of the presented material(s) should be construed as legal, accounting or consulting advice. A copy of the PWM’s current written disclosure statement discussing our advisory services and fees is available for review upon request. ©2012 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is intended solely for informational purposes; (2) is proprietary to Morningstar and/or the content providers; (3) is not warranted to be accurate, complete, or timely; and (4) does not constitute investment advice of any kind. Neither Morningstar nor the content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. “Morningstar” and the Morningstar logo are registered trademarks of Morningstar, Inc. Morningstar Market Commentary originally published by Robert Johnson, CFA, Director of Economic Analysis with Morningstar and has been modified for Morningstar Newsletter Builder. To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Photo Credit: psaudio

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]]> http://www.pwm-nj.com/knowledge/investment/home-prices-on-the-rise/feed 0 Key Reasons Why a Taxable Account May Be Underrated, Part 1 http://www.pwm-nj.com/knowledge/tax/why-a-taxable-account-may-be-underrated-part-1 http://www.pwm-nj.com/knowledge/tax/why-a-taxable-account-may-be-underrated-part-1#comments Tue, 16 Jun 2015 13:00:29 +0000 http://www.pwm-nj.com/?p=10304 more]]> image of tax papers

 Help Enhance Your Take-Home Return

Tax-sheltered savings vehicles offer tax-deferred compounding, meaning investors won’t pay any taxes on a year-to-year basis as long as they don’t withdraw any assets. And depending on the vehicle, they may also receive a tax break on contributions and/or withdrawals, too. Those tax breaks can help enhance take-home return.

With all the attention paid to accumulating money in those tax-sheltered accounts, many investors see saving in a taxable account as a last resort—something to be considered only after they’ve fully funded their tax-sheltered accounts.

But investing via a taxable account can be a sensible maneuver, and not just if you’re running out of tax-sheltered receptacles for your money. In fact, investors may want to consider simultaneously funding their taxable and tax-sheltered accounts, and the current tax and interest-rate environment make saving in a taxable account particularly sensible. Here are six key reasons why.

Reason 1: Flexibility.

Investing via a taxable account carries two key advantages, both of which make the taxable account more flexible.

First, liquidity: If you have near-term income needs or are simply building an emergency fund, a taxable account will allow you access to your money without any strings attached (though you may owe taxes if your investments have appreciated). True, a Roth IRA allows you to tap your contributions (not your investment earnings) at any time and for any reason, which is one reason it’s a suitable vehicle for younger investors who are conflicted between saving for near-term financial goals and retirement. But for higher-income folks who need to use their tax-advantaged options for retirement savings, putting money for liquidity needs into a taxable account may be the way to go.

The other reason investing in a taxable account is so flexible is that you can invest in literally anything. You’ll have to choose from a preset menu if you’re investing in a company retirement plan, for example. And while you may have more leeway when investing in an IRA, there are still a few investment types that are off limits. A taxable account is the one account type that gives you carte blanche. (Of course, it also gives you more opportunity to make mistakes!)

Reason 2: Compounding and potentially minimizing taxes if you plan carefully.

When investing inside of a taxable account, it may not be all that difficult to simulate the tax-deferred compounding you get with many tax-sheltered vehicles. The key is to choose investments that kick off limited taxable income and capital gains distributions. For example, income from municipal bonds is exempt from federal and in some cases state income taxes. Choosing tax-efficient securities can make it possible to buy and hold a basket of securities for years inside a taxable account while owing very little in taxes on that portfolio during your holding period.

It’s also worth noting that income is low on an absolute basis right now, so the tax hit associated with owning securities that produce income that is taxed at your ordinary income tax rate is also going to be pretty low, at least in dollar terms. (That will change if yields go up, though.)

Reason 3: You can use tax losses to reduce your tax bill.

In addition to the ability to have your assets grow without owing a lot in taxes, investing in a taxable account also gives you the ability to harvest losses, something that is not easy to do with investments held inside tax-sheltered accounts. You can sell securities that are trading below your purchase price and use your loss (the difference between your purchase price and your sale price) to offset capital gains or, if you still have excess losses, up to $3,000 in ordinary income.

This presentation was designed for educational purposes only and is not intended for specific legal, accounting, investment, income tax or other professional advice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PWM Advisory Group, LLC [“PWM”]), or any non-investment related content, made reference to directly or indirectly in the presented material(s) will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from PWM. PWM is neither a law firm nor a certified public accounting firm and no portion of the presented material(s) should be construed as legal, accounting or consulting advice. A copy of the PWM’s current written disclosure statement discussing our advisory services and fees is available for review upon request. ©2012 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is intended solely for informational purposes; (2) is proprietary to Morningstar and/or the content providers; (3) is not warranted to be accurate, complete, or timely; and (4) does not constitute investment advice of any kind. Neither Morningstar nor the content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. “Morningstar” and the Morningstar logo are registered trademarks of Morningstar, Inc. Morningstar Market Commentary originally published by Robert Johnson, CFA, Director of Economic Analysis with Morningstar and has been modified for Morningstar Newsletter Builder. To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Photo Credit: stevepb

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]]> http://www.pwm-nj.com/knowledge/tax/why-a-taxable-account-may-be-underrated-part-1/feed 0 Business Owners: It’s Time to Rethink Your 401(k) http://www.pwm-nj.com/knowledge/investment/business-owners-rethink-your-401k http://www.pwm-nj.com/knowledge/investment/business-owners-rethink-your-401k#comments Wed, 13 May 2015 12:52:23 +0000 http://www.pwm-nj.com/?p=10258 more]]> image of flowers

| Featured Author: Carmine D’Avino |

What’s Your Plan?

As a business owner, the success of your company’s retirement plan is important to you and your employees.  401(k) plans now represent the main source of retirement savings for millions of American employees.  More than 50 million Americans have 401k accounts and the balance of those accounts has exceeded $4 trillion*.

Yet despite their popularity, most 401(k) plans remain saddled with high administrative fees and costly mutual funds as investment options.  This has certainly served the brokerage firms and insurance companies that sell 401k plans well, but at the expense of plan sponsors and participants.  High fees are a drag on performance and often contribute to mutual funds failing to meet their benchmarks.

Having managed portfolios utitlizing Exchange Traded Funds (ETFs) for over a decade, we couldn’t help but recognize there must be a better approach.  Thus, we began to rethink how 401(k)s for small businesses are structured and set out to create retirement plans that incorporate low-cost ETFs and index funds.

Initially we faced some hurdles because the 401(k) marketplace has been dominated by mutual fund companies and was not set up to support ETFs.  Through effort and perserverence, we successfully identified leading plan administrators, software, technology and a custodian that can handle index funds and ETFs.

The result is an innovative approach to managing 401(k)s through low cost investment vehicles.  We believe this ultimatley helps all plan participants save more for retirement, keep more of what their investments earn and enhances your ability to retain valuable employees.  PWM’s  401(k) plan solution brings together everything you need as a plan sponsor and gives your employees confidence in the quality of their retirement plan.

To learn more about how we may potentially lower the costs and enhance the performance of your company’s 401(k) plan, please contact Carmine D’Avino, 609-987-2223.

*Investment Company Institute, Frequently Asked Questions About 401(k) Plans, March 2014

 

Important Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PWM Advisory Group. [“PWM”] ), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from PWM. Please remember to contact PWM in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. PWM is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the PWM current written disclosure statement discussing our advisory services and fees is available for review upon request. Photo Credit: Bessi

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]]> http://www.pwm-nj.com/knowledge/investment/business-owners-rethink-your-401k/feed 0 Should You Roll Over Or Play Dead? 7 Factors http://www.pwm-nj.com/knowledge/investment/roll-over http://www.pwm-nj.com/knowledge/investment/roll-over#comments Tue, 12 May 2015 13:00:46 +0000 http://www.pwm-nj.com/?p=10272 more]]> image of green

Which One is Best For You? 

If you’re changing jobs and you have accumulated assets in a 401(k) or another tax-favored company plan, there are several things you can do. You might roll over the funds to an IRA or to a retirement plan with your new employer, spend the money, or leave the money where it is. If you meet all of the legal requirements for a rollover, the transfer is completely tax-free.

Assuming that you do not need the money right away, this decision often boils down to choosing between an IRA rollover and keeping the status quo. Which one is best for you? Every situation is different, but here are seven criteria to help you make up your mind:

1. Investment options. Most IRAs offer a wider range of investments than you’ll find in a typical 401(k) or other company plan. However, in some cases, an employer-based plan may provide more flexibility than you will have as an investor in an IRA. The key question is how well your choice matches up with your retirement planning objectives.

2. Fees and expenses. Don’t overlook the importance fees can play. Even paying a relatively modest 1 percentage point more can reduce your retirement nest egg by tens of thousands of dollars over time. Frequently, employer plans have lower fees than IRAs because the company has a lot of assets with a provider and is able to negotiate a better price. Or your company may shoulder some of the cost.

3. Services. The flip side of what you pay in fees is what you get for your money. Sometimes, higher fees may be justified if you’re receiving good value. That might include access to investment guidance, educational materials, full brokerage services, or financial planning tools.

4. Fiduciary protections. Here, there’s an apparent edge for employer-based plans. Such plans are covered by ERISA (Employee Retirement Income Security Act). Under ERISA, fiduciaries are required to act in your best interest and adhere to a laundry list of regulations. That’s not always the case with a rollover IRA. While a Registered Investment Adviser must also uphold a fiduciary standard, brokerage firms are held to a lesser, suitability, standard.

5. Distribution rules. Because a 401(k) plan can restrict withdrawals, you may have to satisfy the plan’s definition of “financial hardship” to get access to your funds before retirement. But you don’t have to jump through any hoops to obtain an IRA distribution. Just be aware that withdrawals from an IRA, as well as from a 401(k) or other plan, are generally taxable as income. In addition, a 10% penalty tax is imposed on withdrawals from IRAs and 401(k)s before you reach age 59(1/2), unless one of a handful of special exceptions applies. With both kinds of plans, you generally have to begin taking withdrawals after age 70(1/2).

6. Borrowing power. If you have a dire need for cash, you generally can borrow from a 401(k) plan within generous limits. Also, when you repay the loan, the interest and principal go back into your account. (But not all 401(k) plans permit loans.) Technically, you cannot borrow from an IRA, although you can get 60 days of interest-free use of funds by taking a withdrawal and then making a timely deposit back into the IRA. That technique can be used only once a year.

7. Estate planning. If you’re fortunate enough not to need the money in your 401(k), you might roll over the funds to an IRA, which would enable your heirs to “stretch” out payments over a longer period of time than you’re allowed with a 401(k). A 401(k) plan requires a spouse to be the primary beneficiary (unless the spouse agrees to an alternative), but with an IRA you can name your children as beneficiaries if you prefer. Thus, the IRA may offer greater flexibility for estate planning purposes.

Are those the only considerations? Not by a long shot. This brief article covers only a few of the basic factors that may influence your decision. And there’s another option that may be available to you-to transfer the funds into a Roth IRA, rather than into a traditional IRA. Although you’ll pay income tax on the conversion, future payouts from a Roth IRA are usually tax-free, plus you’re not required to take distributions during your lifetime.

Please note that various factors such as changes in tax laws, inflation, and the uncertainty of social security can have a significant impact on the results of the study discussed in this section.This presentation was designed for educational purposes only and is not intended for specific legal, accounting, investment, income tax or other professional advice. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PWM Advisory Group, LLC [“PWM”]), or any non-investment related content, made reference to directly or indirectly in the presented material(s) will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from PWM. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. PWM is neither a law firm nor a certified public accounting firm and no portion of the presented material(s) should be construed as legal, accounting or consulting advice. A copy of the PWM’s current written disclosure statement discussing our advisory services and fees is available for review upon request. To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. ©2012 Advisor Products Inc. All Rights Reserved. Photo Credit: Hans

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]]> http://www.pwm-nj.com/knowledge/investment/roll-over/feed 0 Part III: A Closer Look at Several Strategies to Hedge Concentrated/Low Cost Basis Positions http://www.pwm-nj.com/knowledge/investment/a-closer-look-at-several-strategies-to-hedge-concentratedlow-cost-basis-positions http://www.pwm-nj.com/knowledge/investment/a-closer-look-at-several-strategies-to-hedge-concentratedlow-cost-basis-positions#comments Wed, 22 Apr 2015 13:00:52 +0000 http://www.pwm-nj.com/?p=10236 more]]> image of clouds

| Featured Author: Monica Jalife and Jim Ferrare |

Part III: A Closer Look at Several Strategies to Hedge Concentrated/Low Cost Basis Positions

Let’s continue our series of articles on several strategies to hedge concentrated (low costs basis) positions by focusing on covered call writing strategies.

Covered Calls

Many people like to say there is no free lunch when it comes to investing. True. However, a covered call strategy can be appealing if you would like additional portfolio income and have a concentrated position that you would not mind selling for the right price.

First, let’s look at what a covered call strategy is and is not. From an execution standpoint an investor sells a call option on a security he owns. Think of this strategy as granting someone the right to purchase one of your investments at a predetermined price. In exchange, the seller of the call option receives a payment and assumes a potential obligation to deliver the stock at an established strike price sometime in the future.

The income received for granting an “option buyer” this right is referred to as the option premium. There are many factors that influence the price of premiums received, most notably the time until expiry and the implied volatility of the underlying stock: longer time periods and more volatile stocks typically generate higher premiums.

It is important to note that the covered call strategy offers investors only minimal downside protection-to the level of the premium received from the call sale-and is primarily meant to generate supplemental portfolio income.

There are three possible outcomes associated with selling covered calls which will be described later. Keep in mind under all scenarios you “pocket” the income derived from the premiums sold.

As an illustration lets use Pear Corp as the underlying security in which covered calls are written against. While this is a fictitious company, these numbers are meant to highlight how the strategy could enhance portfolio income for investors.

The following is an example of a covered call strategy for a concentrated holding:
For the entire article, we will use Pear Corp shares as our example. Assume today is April 15th and the current Pear Corp price is $100.

An investor currently own 5000 shares of Pear in a portfolio valued at $1 million (about half of the portfolio value is in Pear Corp stock).

The investor sells ten option contracts granting the buyer the right to purchase 1000 shares of Pear Corp, at any time until option expiration, at $105 (the strike price) per share.

The option expires in 60 days.

For illustration purposes we assume the theoretical probability of the stock trading above $105 in 60 days is 30% (numerous factors impact this calculation including time to option expiration and implied volatility of the underlying security).

Assumed premium paid to the option seller is $2.17 per share.

Option contracts trade in units of 100 shares. Therefore the premium received for selling 10 covered call contracts on Pear stock is $2,170 ($2.17 premium x 100 shares x 10 contracts). This amount is collected on the day the option is sold.

The annualized return on this transaction is slightly above 13%* and is in addition to any potential capital appreciation/depreciation associated with owning this position up to the strike price of the option, provided the position is not called away prior to expiry.
Covered calls can be continuously “rolled” depending on market conditions. Each time subject to one of the three outcomes reviewed below.

Let’s go back to our example. Three things can happen:

1) The shares of Pear trade in a relatively flat zone and settle near the current price of $100.The option expires worthless and the investor “pockets” the premium (minus any transaction related costs). In this scenario income has been successfully generated and the long Pear Corp position maintained.

2) The shares of Pear fall and settle below the current price.
Once again the option expires worthless and the investor receives the option premium. Covered calls are not downside protection vehicles but do serve to reduce the breakeven point of the position, in this case by $2.17 per share or $2,170.

3) Pear Corp shares settle above the strike price of $105.
The option would most likely be exercised and the upside potential would be capped at $105, plus the option premium of $2.17. Under this scenario it is very possible the strategy underperformed a straight long position. It is important to note the call option can be repurchased in the open market at any point prior to expiration and could allow the investor to realize a short-term loss (based on the value of the options) instead of a taxable gain.

If an investor wrote covered calls on a select group of securities with varying expiration dates they could potentially increase income, which is particularly attractive in today’s low rate environment. To the extent positions are called away it would be at prices higher than current market values.

This investment approach can be labor intensive but could also be a good complimentary strategy for investors with one or more large concentrated positions.
Before implementing any investment strategy consideration must be given to many factors, including those not mentioned in the above article, such as life expectancy and risk tolerance which can meaningfully impact the merits of such a strategy.

Stay tuned for our next article on this series that will focus on puts, collars and prepaid variable forward contracts.

*Calculation for determining annualized return:
Premium ($2.17) is divided by the current price ($100) and then multiplying by the number of days in the year divided by number of days to expiration: $2.17/$100 = 0.0217x 365/60 = 13.2% annualized return

 

Important Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PWM Advisory Group. [“PWM”] ), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from PWM. Please remember to contact PWM in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. PWM is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the PWM current written disclosure statement discussing our advisory services and fees is available for review upon request. Photo Credit: Unsplash

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Austin Hagaman on The Tim McLoone Radio Show http://www.pwm-nj.com/knowledge/pwm/austin-hagaman-on-mcloone-radio-show http://www.pwm-nj.com/knowledge/pwm/austin-hagaman-on-mcloone-radio-show#comments Wed, 22 Apr 2015 13:00:27 +0000 http://www.pwm-nj.com/?p=10210 more]]> image of young girl

The Tim McLoone Radio Show 

Austin Hagaman recently appeared on The Tim McLoone Radio Show , AM970 to promote Covenant House, a multi-national charitable organization serving homeless youth, and their local Associates Board. Hagaman, who was newly appointed to Chair Of The Board, spoke about the boards growth over the past year and their recent success with a fundraiser that raised just under a half a million dollars. The fundraiser, coined “Sleep Out: Young Professional Edition”, included over 270 professionals between the ages of 22 and 39 who slept out on a street in New York City for a night in March to raise money and awareness for Covenant House’s mission.

The show was taped in front of a live audience at Tim McLoone’s Supper Club in Asbury Park, New Jersey. The day of taping also included interviews with Mario Gallucci from the USA reality series “Partners in Crime”, Quincy Mumford, a contestant on NBC’s “The Voice”, and local artist, Bob Bandiera.

Listen to the show: https://soundcloud.com/tim-mcloone-radio-show/sunday-4-5-15-show

Learn more about Covenant House: https://www.covenanthouse.org/

image of Austin and Tim McLoone

Photo Credit: Pezibear

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