PWM - Financial & Investment Advisors in New Jersey | Private Wealth Management - Registered Investment Advisor, RIA | NJ, NY, PA, FL http://www.pwm-nj.com Thu, 20 Aug 2015 00:03:42 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.4 In-Retirement Withdrawal Strategies http://www.pwm-nj.com/knowledge/investment/in-retirement-withdrawal-strategies http://www.pwm-nj.com/knowledge/investment/in-retirement-withdrawal-strategies#comments Wed, 19 Aug 2015 13:00:00 +0000 http://www.pwm-nj.com/?p=10381 more]]> image of beach

 

Sequencing Your Retirement-Portfolio Withdrawals

The standard sequence for a tax-efficient portfolio drawdown is required minimum distributions first. Taxable accounts next, followed by Traditional IRAs and 401(k)s. Roth IRAs and 401(k)s last. The overarching thesis is to be sure to tap those accounts where you’ll face a tax penalty for not doing so (RMDs) while hanging on to the benefits of tax-sheltered vehicles for as long as possible. Because Roth assets enjoy the biggest tax benefits–tax-free compounding and withdrawals–and may also be the most advantageous for heirs to receive upon your death, they generally go last in the withdrawal-sequencing queue.

That’s a helpful starting point for sequencing retirement-portfolio withdrawals, and it goes without saying that you should always take your RMDs on time. That said it may be a mistake to always follow this strategy. The reason is that your tax picture will change from year to year based on your expenses, your available deductions, your investment performance, and your RMDs.

In order to keep your total tax outlay down during your retirement years, it may be worthwhile to maintain holdings in the three major tax categories throughout retirement: taxable, tax-deferred, and Roth. Armed with exposure to investments with those three types of tax treatment, retirees can consider withdrawal sequencing on a year-by-year basis, staying flexible about where they draw their income bases on their tax picture at large. They can help limit the pain of an otherwise high-tax year by favoring taxable and Roth distributions, for example, while giving preference to tax-deferred distributions in lower-tax years.

For example, in a year in which they have high medical deductions that push them into a lower tax bracket, they might actually give preference to withdrawals from their Traditional IRA accounts, even though they have plenty of taxable assets on hand, too. The reason is that it may be preferable to take the tax hit associated with that distribution when they’re paying the lowest possible rate on that distribution. Moreover, aggressively tapping tax-deferred accounts like Traditional IRAs in low-tax years will mean that fewer assets will be left behind to be subject to RMDs.

On the flip side, in a high-tax year–for example, when RMDs are bigger than usual due to market appreciation–a retiree might reasonably turn to her Roth accounts for any additional income needed. Although those Roth assets usually go in the “save for later” column under the standard rules of withdrawal sequencing, those tax-free Roth withdrawals (versus, say, paying capital gains on distributions from a taxable account or paying ordinary income tax on tax-deferred withdrawals) may help the retiree avoid getting pushed into a higher tax bracket than would otherwise be the case.

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax 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. Funds in a traditional IRA grow tax-deferred and are taxed at ordinary income tax rates when withdrawn. Contributions to a Roth IRA are not tax-deductible, but funds grow tax-free, and can be withdrawn tax free if assets are held for five years. A 10% federal tax penalty may apply for withdrawals prior to age 59 1/2. Please consult with a financial or tax professional for advice specific to your situation.

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. This article contributed by Christine Benz, Director of Personal Finance with Morningstar.

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Add Up The Pluses And Minuses Of A Living Trust http://www.pwm-nj.com/knowledge/investment/add-up-the-pluses-and-minuses-of-a-living-trust http://www.pwm-nj.com/knowledge/investment/add-up-the-pluses-and-minuses-of-a-living-trust#comments Tue, 18 Aug 2015 13:00:46 +0000 http://www.pwm-nj.com/?p=10378 more]]> image of a basket of eggs - Wickerfurniture

How Well a Living Trust Will Work Often Depends on State Laws

The basic premise is relatively simple: You establish a living trust, transfer assets to it, and name a trustee to handle its administration. If you designate yourself as the initial beneficiary, you’re entitled to receive income from the trust for the rest of your life. But you also need to designate secondary beneficiaries — typically, your spouse, your children, or your spouse and your children — who will be entitled to receive the assets in the trust when it terminates.

Unlike with other kinds of trusts, you retain some measure of control of a living trust while you’re alive. You may be able to sell trust assets and keep the cash, amend the terms of the trust (for example, by changing secondary beneficiaries), or revoke it entirely if you wish. The trust only becomes irrevocable when you die.

With that basic framework in mind, consider the pluses and minuses of a revocable living trust.

Pluses of a Living Trust

  • It avoids probate. This is the main reason for using a living trust. Normally, if someone dies with a will in place, surviving family members will need to go through the probate process. Probate can be lengthy or short depending on the circumstances and state law. However, probate doesn’t apply to the assets you’ve transferred to a living trust, so your beneficiaries have immediate access to cash. (Assets transferred by joint rights of survivorship also are exempt from probate.)
  • It avoids guardianships and conservatorships. This benefit often is overlooked, but a fully funded living trust can sidestep restrictive rules relating to guardianships and conservatorships. If the trust is structured properly, beneficiaries will have access to assets without interference from a judge if you are incapacitated. Otherwise, a guardianship or conservatorship can last much longer than probate.
  • It provides privacy. As opposed to probate, which is open to the public, the provisions of a living trust are protected from prying eyes. A will has to be filed with the appropriate court but a living trust does not. This can be a major advantage if you treasure your privacy.
  • It helps you plan ahead. When you contemplate using a living trust, you’ll need to examine your current assets to determine what to transfer to the trust. Sorting through your files can provide a snapshot of your financial picture that should have other benefits, too.

Minuses of a Living Trust

  • It costs money. You’ll need to use an experienced professional to set up a living trust, and in addition to that initial cost, you’ll also pay annual fees if you use the professional as your trustee. (But you can be the sole trustee during your lifetime.) Generally, it costs more to create a living trust than to establish a will, but the living trust may be less expensive over the long run.
  • It can be time-consuming. You’re not done when you put your John Hancock on the living trust documents. You’ll still need to contact financial institutions and transfer agents to change ownership of accounts; issue new stock certificates; revise business interests; sign and record real estate deeds; and re-title cars and other property.
  • It isn’t a panacea. Don’t expect a living trust to address all of your estate-planning issues. Having an up-to-date will often is still central to an estate plan. Also, if you devise a “pour-over will” to catch the assets that don’t go into the trust when you die, that will still has to be probated. For some people, these issues cancel out the benefits of using a living trust in the first place.
  • It can be contested just as a will can. In fact, state laws generally allow a longer time to challenge a living trust than they do for a will. And creditors still can make claims against the assets included in a living trust.

Finally, whatever you may have heard, there are no estate tax benefits for transferring assets to a living trust.

In the end, the decision whether to a use a living trust is a purely personal one. Obtain all the information and guidance you need.

 

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Investment Outlook – Second Quarter (Summer 2015) http://www.pwm-nj.com/knowledge/quarterly/investment-outlook-2-2015 http://www.pwm-nj.com/knowledge/quarterly/investment-outlook-2-2015#comments Wed, 05 Aug 2015 13:00:12 +0000 http://www.pwm-nj.com/?p=10355 more]]> mtns-2015

Key Points

• Despite elevated volatility, the global economy has not deviated too far from the positive trend set in the first quarter of 2015.
• The Federal Reserve seems to be closer to their first rate hike since 2006. The prospect of higher rates should continue to create increased market volatility, P/E multiple contraction, and the potential for price corrections in the capital markets.
• We believe that the international arena offers opportunities but will remain fragmented and volatile. Escalating global risks including economic deceleration in China coupled with increasing market intervention and, to a lesser degree, the Eurozone crisis, are some of the issues that warrant investor attention.

q2-15-quarter in numbers

 The Quarter in Numbers

Markets and the global economy are not too far from the trajectory they were on at the beginning of the year, despite all the international drama. Growth continues to be for the most part positive (albeit slow), inflation remains subdued, the U.S. dollar is strengthening and global interest rates are modestly higher.

A Fed Rate Hike On the Horizon?

With the first Federal Reserve rate hike on the horizon, we thought it would be timely to analyze the performance of the U.S. equity market during previous rate hikes. As Table 1 illustrates, the immediate reaction to the first rate hike of each cycle, dating back to 1983, has typically produced a mixed market reaction, followed by positive returns 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 surprise to the upside. Investors who try to time the market by waiting in cash may miss out on a recovering market.

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 very low levels. To put this in perspective, the Fed Funds rate is currently between 0 – 0.25% while the average starting point from the previous six cycles was 5% (see Table 2). The Federal Reserve has indicated its intention of fed-rate-cycle-beginning-2moving carefully and at a measured pace. If the Federal Reserve were to institute five quarterly increases at 0.25%, the Fed Funds rate would only 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.

Bottom Line: 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 and the potential for price corrections in the capital market. Typically during periods of increasing rates, price earnings multiples for equities tend not to expand or may even contract – which means earnings growth is likely to become the main driver of stock returns.

Read our latest post “How Do Stocks React to Interest Rate Hikes?

International Shenanigans

Let’s begin with Greece, where the Eurozone drama continues. After more than two weeks of an economy almost at a standstill the Greek government and the leaders of the European Union (EU) agreed on terms for a third Greek bailout. Creditors’ demands call for tough austerity measures that include tax increases and pension overhauls along with broader economic reform. The implementation of these new measures will probably translate into more years of high unemployment and recession for the Greek economy but will also mean that Greece remains in the European Union for the time being. In the long run, exiting the Euro might be the lesser of two evils as Greece can devalue its new currency and regain competitiveness in global markets. We view the risk of spillover effects into other peripheral members of the European Union as being further reduced as a result of this new bailout deal. In addition, it is important to note that European officials indicate they remain committed to the European Union and the European Central Bank stands ready to act as a backstop for the European economy.

What concerns us more is the recent selloff in Chinese markets and continuing economic deceleration in the country. Chinese equities witnessed a dramatic selloff before staging a modest comeback. To stem the selloff, Chinese officials have enacted several measures including interest rate cuts, restrictions on short selling, and a suspension of initial public offerings. They have also asked pension funds and brokers to invest in equities to support the market. It is difficult to predict how an increased level of market intervention by the Chinese government may affect the broader global economy and financial markets. As the largest consumer of commodities, the weakness in China has also fueled a commodity selloff. Most commodities have fallen near the lows hit in the wake of the 2008 financial crisis and may be approaching levels deemed fairly valued by investors and end users. Given the size of the Chinese economy, any significant slowdown should be taken seriously.

Bottom Line: We believe international markets will remain fragmented and volatile. While the Greece crisis does not appear to be a major concern, we remain wary of the Chinese economic deceleration and recent market volatility. In our opinion, it is still unclear what the effects the increasing market intervention by government officials will be in the local and foreign markets. For the time being, they appear to have stopped the bleeding but in the long run the Chinese markets could fall further as smart money sells into the market mirage. In addition, any hard landing by the Chinese economy could have global repercussions, particularly in the commodity markets. Despite all the turmoil overseas, we believe there are still relatively attractive and compelling investment opportunities in the international space. As evidenced in the graph below, international markets have significantly underperformed their main US counterpart over the past 5 years. We believe there is a strong likelihood this performance differential will narrow over the next few years.

q2-2015-chart

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 and risk tolerance.

 

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: cowins
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5 Tips for Millennial Investors http://www.pwm-nj.com/knowledge/investment/5-tips-for-millennial-investors http://www.pwm-nj.com/knowledge/investment/5-tips-for-millennial-investors#comments Mon, 03 Aug 2015 13:00:53 +0000 http://www.pwm-nj.com/?p=10371 more]]> gummy-bears

| Featured Authors: Laura Ferguson & Michael Muschello* |

Taking a Long-Term Perspective

Millennials are often referred to as the generation of young people drowning in debt from student loans and credit cards. However, taking a longer-term perspective, this is also the generation that will inherit money from the baby boomers. While paying down debt should be a high priority, saving for retirement should be of importance as well. Here are 5 tips to get young investors started on the path toward financial security:

1. Choose the Right Investment Solution

It is important to understand your options when it comes to investing. You may prefer to invest on your own, or you may prefer to seek advice from an advisor. If you decide to use an advisor, it is important that he or she understands your personal needs and goals. You may feel overwhelmed with your investments, so you need someone who can offer unbiased, rational, and professional advice. It is best to find an advisor who is familiar with your age demographic and how your investment strategy differs from someone nearing retirement.

2. Have an Investment Objective

Most likely, this is the time in your life where you can afford to be aggressive with your investments. However, that does not mean to invest on whims or gut-feelings. Millennials are known to be among the most progressive in society, so investing in new technology or in services that bring about social or environmental change may be what you know best. Develop a strategy for yourself, or make sure your advisor understands your views and helps develop the best strategy for you.

3. Be Proactive With Your Investments

After doing your homework and investing in stocks and funds you believe in, monitor them. If you have an advisor, set up a plan for revisiting your portfolio, and be sure to keep him or her informed about your lifestyle changes such as getting a new job, buying a home, and getting married. These changes may require a portfolio adjustment, so make sure your advisor understands your situation.

4. Take Advantage of Technology

One of Millennials’ biggest advantages over older generations is their ability to use technology. Millennials are comfortable using their smartphones for anything from making calls and sending e-mails to buying groceries and booking flights. Why not use this ability to learn more about investing and keep track of your investments? Websites like Mint.com allow you to create a budget and track your expenses for free, and also have an app to keep you connected wherever you may go. Nearly all brokerage firms, such as Charles Schwab and TD Ameritrade, also have free apps to help you stay connected. You can use these tools to stay on top of your investments throughout the day.

5. Invest in Your Future, Starting Now

The best time to start investing is right now, and that includes saving for retirement. If your employer offers a 401(k) plan, consider contributing the maximum amount now, before home and family expenses take up more of your budget. It is also important to know the differences between a traditional and Roth IRA. Choose which is best for you, and contribute as much as you can. A study done by Forbes demonstrates the power of investing early and how compounding can work to your advantage. Although there can be no guarantee to the return of stocks in the future, someone who invested $1,000 per month starting at age 20 would have had an account value of about $5 million by age 60. If that same person waited until they were 40 to start investing, their account value at age 60 would only be about $469,000 – over 10 times less.**

By using these 5 tips as a guideline, you can avoid the millennial stereotype and be on your way to financial prosperity.

*Michael Muschello is a 2015 summer-intern at PWM Advisory Group. He is a second year student at Boston University studying economics.

**Fisher, Gregg S. Forbes, “Saving: Start Early”, A Case of Compounding. http://www.forbes.com/sites/greggfisher/2013/03/11/savings-start-early/
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: Hans

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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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