PWM - Financial & Investment Advisors in New Jersey | Private Wealth Management - Registered Investment Advisor, RIA | NJ, NY, PA, FL http://www.pwm-nj.com Thu, 18 Jun 2015 17:20:24 +0000 en-US hourly 1 http://wordpress.org/?v=4.1.5 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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Investment Outlook – First Quarter in Review (Spring 2015) http://www.pwm-nj.com/knowledge/quarterly/investment-outlook-first-quarter-in-review-spring-2015 http://www.pwm-nj.com/knowledge/quarterly/investment-outlook-first-quarter-in-review-spring-2015#comments Wed, 15 Apr 2015 13:42:05 +0000 http://www.pwm-nj.com/?p=10280 more]]> q115-mtn

Key Points

• Equity markets around the world continue to be driven by diverging monetary policies and a stronger dollar. Overall, global monetary policy remains supportive for equities.
• A stronger dollar should help keep inflation tame and commodity prices low which are net positives for the US economy, but will have negative implications for domestic exporters and large cap multinational companies.
• Volatility is expected to remain elevated as uncertainty about the timing of the first rate hike continues.
• Commodity investments look interesting as prices have fallen back to levels last seen in 2001 and 2009.

A Tale of Two Trends

It appears the leadership in global equity markets is slowly shifting from US markets to international markets:

chart1-q115

The European Central Bank, Bank of Japan and People’s Bank of China have taken the quantitative easing baton, along with Australia, Denmark, Korea and Russia which have also cut interest rates in response to sluggish domestic economic growth. The resulting currency depreciation and lower bond yields should push investors in these countries out in the risk spectrum, providing support for equity investments. Since the beginning of the year equity and bond prices in Europe have risen, inflation expectations have increased and the euro has depreciated.

In today’s bond market, it is not unusual for global bonds to have negative or only marginally positive yields. Investors abroad seem to be so concerned about their return of principal that they are willing to pay the issuing government for the privilege of investing in their bonds. Another way to see it is that investors are more concerned with their return of principal versus their return on principal. Against this backdrop, we believe US treasury yields will remain low as investors understandably find the 1.895% yield on the US 10 year Treasury more attractive than a 10 year German Bund at 0.179% or the Japanese 10 year bond at 0.38%.

Bottom Line: Global monetary policy remains extremely accommodative. In the United States, even as the Federal Reserve prepares to raise rates for the first time since 2006, interest rates are at such a low level that monetary policy should remain supportive of equities for some time. We also do not anticipate a large sell off in US bonds given the unattractive yields abroad. Barring a major misstep by the Federal Reserve, any sharp decline would most likely be attributable to a short-term overreaction rather than market fundamentals.

A Surge in the Dollar

Year to date, the US dollar has risen about 11.6% vs. the Euro. As mentioned previously, this is due to a divergence in monetary policies. While the European Central Bank is embarking on a quantitative easing strategy that should lower interest rates in Europe, the Federal Reserve is widely anticipated to raise rates in the US sometime in the near future. Broadly speaking, the US Dollar index, an index tracking the value of the United States dollar relative to a basket of six major foreign currencies, has increased nearly 23% over the twelve months ending March 31, 2015.

chart2-q115

An appreciating dollar can have two major effects on the US economy. It should keep both inflation and raw material prices (which are mostly priced in dollars) low, which would be a net positive for US equities. On the other hand, US multinational companies will face negative headwinds as the value of revenues generated overseas will decline when translated back into the stronger US dollar. It also makes exports of US produced goods more expensive compared to those produced overseas.

It is still unclear when the first Fed interest rate hike will occur. We believe the Federal Reserve wants to remain flexible in with its timing, as it is cautious about the strengthening dollar, lack of wage growth in the labor markets and recent data that indicated a slowing US economy. If a rate hike occurs in 2015, we do not believe it will be in the first half of the year. At any rate (pun intended), we expect elevated volatility to continue as investors try to determine the timing and magnitude of the initial interest rate increase.

Bottom Line: We anticipate that the first rate hike could happen during the second half of the year, which should continue to fuel dollar strength albeit at a slower pace. Companies that are less impacted by a stronger dollar, namely those that generate a high portion of revenues domestically should perform well in this environment.

Commodities Hit a Rough Patch

Although the media has focused on the more than 50% drop in oil prices in 2014, it was not a good year for commodities in general. The Goldman Sachs Commodity Index TR, an index that tracks a diversified group of commodities, lost over 33% for the year. Moreover, the index dropped an additional 8% in the first quarter of 2015. Slower global growth accompanied by decreased demand and a stronger dollar have contributed to this drop.

chart3-q115

After years of underperformance, could we be nearing a bottom in commodities? It’s hard to tell. One thing that we know for certain is market conditions are not the same for all commodities. For example, iron ore seems to be in free fall while oil seems to be looking for a bottom. Many oil producers have announced cuts to capital expenditures and are shutting down drilling rigs which should eventually lower output and alleviate some of the downward pressure on oil prices. However, oversupply is likely to keep oil low over the next few months and could potentially result in further declines. Other commodities, such as precious metals including gold and silver are flat to positive for the year. Gold, in particular, could have a positive year as the inflationary based monetary policies undertaken by the European Central Bank and Bank of Japan increase demand. While not perfectly correlated, silver tends to benefit from an improvement in gold prices and also from increased demand for its industrial uses.

Taking a long term view, we anticipate that commodity prices will recover as demand/supply factors find equilibrium through increased demand, primarily from standard of living improvements in the emerging markets and reduced supply from producers who are curtailing their production in response to lower prices.

Bottom Line: The recent decrease in most commodity prices, we believe suggests attractive relative value against other assets (namely equities and bonds). Adding exposure to this asset class should be judged in accordance with your long-term goals, risk tolerance, and overall portfolio strategy.

Considerations for exposure to commodities include:

• The commodity complex has fallen to relatively inexpensive levels.
• Commodities are often viewed as investments that will perform well during periods of inflation.
• Historically, commodities have helped diversify balanced portfolios without sacrificing long-term performance.

 

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: danfador

 

 

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6 Common Estate Planning Myths http://www.pwm-nj.com/knowledge/investment/estate-planning-myths http://www.pwm-nj.com/knowledge/investment/estate-planning-myths#comments Wed, 01 Apr 2015 13:00:27 +0000 http://www.pwm-nj.com/?p=10187 more]]> image of seagulls

Here’s the Reality

Some people avoid estate planning at all costs. But putting aside the inevitable emotions involved in looking ahead to your own demise, it’s crucial to understand the process. A good place to start is by debunking these six common but potentially damaging myths:

Myth #1: My estate is too small to need an estate plan.

Reality: You don’t need a small fortune for your heirs to benefit from estate planning. For instance, what if you decide to divide your assets among several beneficiaries, instead of designating just your spouse or another person? That could be very important if you’re in a second or third marriage and have children from a previous marriage. In addition, you might want to leave some of your estate to charity. Wanting to help your family avoid the delays of probate, seeking to reduce estate taxes, and choosing who will administer your estate also call for estate planning.

Myth #2: I don’t need an estate plan because my spouse will inherit everything.

Reality: This is closely related to the first myth. Just because you have left everything to your spouse under your will — and your spouse has returned the favor — doesn’t mean you won’t benefit from estate planning. What happens if your spouse dies first at a relatively early age, or if you die together in an accident? What then? There might be complications because of how assets are titled, who are named as beneficiaries of your life insurance policies and your retirement plans, or the estate laws of your state.

Myth #3: If you’re wealthy, there’s no way to avoid estate taxes.

Reality: That’s simply not true. On the federal level, your estate can benefit from a generous $5.43 million exemption for those dying in 2015 (and that amount is indexed for inflation and will rise in future years). What’s more, because you or your spouse can use the other’s leftover exemption, the effective amount the two of you can shield from estate taxes is almost $11 million. Trusts and other tax-saving vehicles can further reduce estate tax exposure. Although state inheritance tax rules aren’t always as generous, professional guidance may help there, too.

Myth #4: Everything is covered in my will so estate planning isn’t necessary.

Reality: While a will is a good starting place for an estate plan, it’s not likely to be enough on its own. There may be numerous other loose ends to tie up. In addition, depending on your state’s laws, your heirs may have to go through a lengthy probate process that can be even more drawn out if you owned property in several states. A revocable living trust can help you pass some assets to your heirs without probate, and your will probably also should be accompanied by a durable power of attorney authorizing a family member or a professional to act on your behalf if you’re incapacitated.

Myth #5: I don’t have to worry about life insurance and retirement plan designations.

Reality: This is overstating the case. Although the beneficiary designations you’ve made for life insurance and retirement plans, as well as for your IRAs, are a good start, you still need to coordinate those choices with other aspects of your estate plan. You might want to revise your designations, for example if you get divorced or a spouse dies, or you could need to add secondary or contingent beneficiaries. Also, while the proceeds from life insurance generally are excluded from estate tax, there are exceptions that could direct that money back into your taxable estate.

Myth #6: Once my estate plan is complete, I don’t have to do anything else.

Reality: Nothing could be further from the truth. Your family and financial circumstances almost certainly will continue to evolve, and your estate plan needs to reflect significant changes. Marriage, divorce, or the birth of children or grandchildren all could have an impact. And the best-laid plans could be affected by a disability or unexpected death of a spouse. Finally, your plan may have to be fine-tuned to take other events into account, especially if the estate tax laws are revised again. So be sure to review your plan periodically and revise it when necessary.

 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 CreditScreamenteagle

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When Should Millennials Start Retirement Saving? http://www.pwm-nj.com/knowledge/investment/millennials-retirement-saving http://www.pwm-nj.com/knowledge/investment/millennials-retirement-saving#comments Tue, 31 Mar 2015 13:00:55 +0000 http://www.pwm-nj.com/?p=10200 more]]> image of converse

Better Late Than Never.

This is a true story about Jane X, who graduated from a prestigious university five years ago. She’s on her third job, but she’s now communications director at a private foundation and finally earning decent money.

Jane’s student loans are paid off, and her good salary leaves her some money to invest. However, like many of her millennial friends, she doesn’t know a lot about investments or the differences between various retirement plans. But she is thinking about her future and wonders when she should start saving for retirement.

There’s a short, simple answer: NOW.

The best time to begin saving for retirement is as soon as you can. Granted, relaxing on the deck of a retirement cottage overlooking the ninth green isn’t first and foremost in the minds of most 20-somethings. But you can’t ignore the sheer weight of the saving numbers. Let’s go back to Jane, who’s 27. If she manages to save $5,000 a year in a 401(k) for the next 40 years – until she’s 67, the Social Security full retirement age for her generation – and she earns an average annual return of 7%, she will end up with $1,035,632. But if she waits 10 years to start saving, when she’s 37, her accumulated savings will be just $490,027.

If you’re convinced that now would be a good time to get started, consider these seven steps that could help you reach your goals:

1. Budget and save. It’s difficult to be diligent about setting aside money for retirement when you’re young and have a million things you’d rather do with your money. But if you’re able to set objectives for saving and you do your best to stick to them, it could pay off beautifully down the road. Try to train yourself to live within your means while you move ahead in your career and your personal life.

2. Take advantage of employer retirement plans. Your company probably offers a tax-deferred retirement plan – a 401(k) or a 403(b) – and your employer may provide matching contributions (for example, up to 3% of your compensation) to go alongside the pre-tax earnings you put into the plan. With all of that money invested for the long haul, it can grow and compound and you won’t be taxed on the growth until you pull out funds during retirement.

Interested in opening a 401(k) today? Contact Carmine D’Avino at 609-987-2223.

3. Don’t forget about IRAs. Regardless of whether you participate in an employer-sponsored retirement plan, you also can set up an IRA. With a traditional IRA, the money you put in may be partly or wholly tax-deductible, if your salary is relatively low. But here, too, you’ll be taxed on withdrawals during retirement. Another option, a Roth IRA, doesn’t give you a tax deduction on money going in but may provide 100% tax-free distributions in retirement.

4. Invest wisely. This is good advice not only for money in tax-advantaged retirement accounts but also for money you invest in taxable brokerage accounts. We can help you find the investment balance that best suits your personal needs, objectives, risk tolerance, and other circumstances. Although there’s no foolproof method, you should have more leeway to be aggressive now than you would when you’re nearing retirement or already retired. Of course, past performance is no guarantee of future results, but you can use historical stock market trends to help shape your investment strategies.

5. Expect the unexpected. Even the best-laid plans of retirement saving can be derailed by an emergency such as a hospital stay or the loss of a job. Try to leave enough wiggle room within your budget to account for some unforeseen financial trouble. Rather than put yourself in a position to have to skip or slash retirement plan contributions, remember to put aside cash in a “rainy day” fund. Most experts recommend building up enough to sustain you for at least half a year during which you may have no other income.

6. Avoid debt like the plague. One of the biggest impediments to retirement saving is a crushing debt load. You’re not doing yourself any favor by deferring part of your salary to an employer plan at the same time that you’re charging luxury items on a credit card with sky-high interest rates. That’s not to say that borrowing isn’t warranted at times – perhaps to help buy a home or car – but make sure it fits into your overall plan.

7. Educate yourself. Finally, you can improve the chances for a secure, comfortable retirement by learning all of the rules of the road, including the nuances of investments and the tax differences between various accounts. Knowledge is your friend. Rely on us to give you a solid foundation for going forward.

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: Greyerbaby

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Seven Steps After A Spouse’s Sudden Death http://www.pwm-nj.com/knowledge/investment/steps-after-a-spouses-sudden-death http://www.pwm-nj.com/knowledge/investment/steps-after-a-spouses-sudden-death#comments Wed, 11 Mar 2015 12:51:35 +0000 http://www.pwm-nj.com/?p=10153 more]]> image of woodland road

What To Do Now?

The funeral is over, the mourners are gone, and now you’re left with the rest of your life after the unexpected death of your beloved spouse. What’s a devastated widow or widower to do? For starters, DON’T do anything rash, such as selling the homestead or cashing in all of your stock holdings right away. It may be difficult, especially from an emotional standpoint, but you can pick up the pieces slowly and get your finances in order. Here are seven steps for moving forward:

1. Meet with your professional advisors. One of the first steps – if not the absolute first – should be to contact your attorney, accountant, and financial advisor. These professionals can provide guidance for handling all of the legal, tax, and financial matters relating to you and your deceased spouse. Their counsel will be valuable as you work your way through the remaining six steps on this list.

2. Get the will probated. Assuming your spouse had a valid will and you’re the executor – typically the case with married couples – you must begin to probate the will by filing a petition with the appropriate county office. Depending on the particulars, it can take as little as a few weeks or as long as a few years for the process to be completed. Keep your attorney in the loop the entire way.

3. Apply for benefits. Normally, you’ll be entitled to Social Security benefits, including a one-time death benefit, plus Veteran’s Administration (VA) benefits if your spouse was a military veteran. A surviving spouse over age 60 at the time of the other spouse’s death may claim survivor benefits from Social Security. But don’t continue to cash Social Security checks for a deceased spouse; you’ll likely have to pay those back. It may be necessary to visit the local Social Security office and to contact the VA when appropriate. Also, don’t forget to inquire about benefits from your spouse’s employer if your spouse was still working.

4. Collect life insurance proceeds. Once reality sets in, you have to go about the regular business of making payments on the mortgage, the car loan, and other debts. Life insurance proceeds could be needed sooner rather than later. Examine your records to determine what you’re entitled to receive through any private and employment-based policies. Your insurance agent can help, and your financial advisor can consult with you on how best to deploy any insurance benefit.

5. Review the books. Once you’ve had a chance to catch your breath, make a comprehensive review of your financial affairs. Go over your checkbooks, files, and online ledgers covering living expenses, loans, and other financial obligations. Separate accounts according to whether they’re in your spouse’s name, your name, or were held jointly. Then let banks, insurance companies, and other entities know about your spouse’s death. And keep copies of these communications and verifications.

6. Change account titles. Begin the tedious process of re-titling accounts at banks, brokerage houses, and the like. Generally, you automatically will be granted a change on accounts owned as joint tenants with rights of survivorship (JTWROS), but the financial institution may require documentation. Contact each institution and comply with its procedures. Make sure you have enough death certificates to meet all of the obligations.

7. Start planning for the long term. Last, but not least, after you’ve addressed all of the issues requiring prompt attention, look to the future. It’s time to circle back to the advisors who helped you at the outset. Reevaluate your investment portfolio, taking your evolving circumstances into account. Update your estate plan with an emphasis on passing wealth to your heirs, such as children and grandchildren, with minimum tax erosion. An estate tax return generally has to be filed within nine months of death. Finally, make those lifestyle choices – perhaps selling a home, heading off on extended travel, or both – that suit your changing needs.

Also make cancellation notices. Your review may reveal gym and club memberships and magazine and journal subscriptions that you can cancel right away. Re-titling your financial accounts will take precedence over this type of bookkeeping, but try not to let this linger, either. Usually, a phone call or a quick note will be enough to take care of things.

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: uniquedesign52

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