Pros & Cons to Getting Involved

Sandy thinks her friend Danny has a great business idea—an exciting, almost revolutionary new service. Now he wants her to make a significant investment in the corporation he’s starting in exchange for a 10% ownership stake.

Sandy is tempted. Why not help a friend see his vision to fruition, claim partial credit for launching the wave of the future, and potentially earn extremely handsome returns?

Though such opportunities may feel like the chance of a lifetime, there’s plenty that can go wrong. If there’s any rule of thumb for investing in a private venture as a minority owner, it’s that you should do it only with money you can live without.

Consider Danny’s corporation. With no market for its stock, Sandy’s capital is likely to be tied up for five to 10 years. That’s how long it may take to build a company that can go public or attract an acquirer. During the incubation period, Sandy must be prepared to rely solely on other assets to meet her financial commitments.

Then there’s the failure scenario. Unlike stock in a deteriorating public company that can usually be sold for something on the way down, private shares’ lack of marketability means the investor is strapped in for the full ride to zero.

There’s also the matter of taxes. Owners of S corporations as well as partnerships and most limited liability companies pay income tax on their share of the business’s earnings, even when those profits aren’t distributed. While she’s waiting to get her investment back, Sandy might have to spend more money on taxes.

Still another concern is share of ownership. Assume things go swimmingly and the company seeks to expand. Can Sandy remain a 10% owner? Depending on the laws of her state and the articles of incorporation, she and other shareholders may, or may not, be entitled to first crack at any new shares the corporation issues, in the same proportion as current ownership. (Partnership and LLC operating agreements, when properly drafted, indicate whether owners have the right to maintain their original percentage of ownership.) Without that promise, Sandy’s interest could be diluted and her take of the profits compromised.

Not just money but also relationships may be at risk. If the venture bombs, will Sandy blame Danny? Will their friendship suffer? If it does, will she mind? Even with a successful venture, resentment can arise if some of those involved feel others are prospering more than their contribution merits.

For all of these reasons, investing in a friend or relative’s business can present problems from the get-go. Sandy should obviously research the investment before diving in. But her friendship with Danny could hinder her ability to objectively analyze his business plan and his ability to execute it, and could make it awkward to quiz him about the plan’s marketing or financial assumptions.

Dream deals do sometimes come along. But what often separates successful capitalists from dreamers is finding the right reason to say “yes” or “no.” Before you make an investment in a friend or relative’s company, talk to us. We can help you analyze the numbers and evaluate the opportunity.

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: ajgayner

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Funding Your Future

You already pay your bills on time. So why not add one more really important obligation to your monthly budget. If you begin treating your retirement needs as a future liability that you must fund now, you’ll likely put away more money than if you pretend retirement saving is optional.

It’s easy to fund your retirement account last. You know you should save, but there are competing priorities. The kids want to go to college, and you would like a new boat. And often, retirement saving loses out. But if you treat your retirement saving as another bill you have to pay, it will stay at the front of your mind. You won’t miss payments, because—just as when you’re paying the mortgage or the electric bill—getting behind has consequences.

While this solution to retirement planning sounds pretty simple, it comes from the sophisticated world of institutional investing. Pension fund managers, for example, have to treat future obligations—payments to pensioners—as liabilities, and that forces them to deal now with something that may be years or decades off. Using actuarial tables, they calculate the cost of future obligations to determine what return they require on their investments and whether the pension fund is adequate.

While you may not use actuarial tables, you can manage your retirement account like a pension fund. The first step is to determine the savings you need to support the lifestyle you want during retirement, keeping in mind that you probably want to fund retirement through age 90 or 95. Next, determine how many years you have to reach your savings goal. If you are 45 and plan to retire at 62, for example, you have 17 years to fund your retirement account. Finally, determine how much you must save each year and make projections about returns on your investments.

If you’re already funding your retirement goal by contributing to a 401(k) or other plan at work, treating that money along with all of your other retirement savings as a liability, may provide you with a more realistic picture about how much you need to put away and the retirement you should expect. It may make you save more.

A simple way to establish a monthly liability for your retirement obligation is to divide your goal into equal installments. So if you have 17 years to save $500,000, you can divide that obligation into 204 monthly payments of just over $2,450 apiece. Given the expected growth of your investments, you’re likely to “over-fund” your retirement obligation.

If you would like us to calculate your payments more precisely, we will estimate the impact of inflation, investment returns, and taxes. That may give you a realistic number for your monthly liability. By thinking of your retirement account as a liability, you’re paying yourself along with your other debts. It’s a great way of funding retirement. Of course, making calculations about how much you need to save today to fund a debt in the future, while also making judgments about inflation and taxes and selecting the right investments, requires the help of a professional. We’re here to assist you with any aspect of this and help you create a disciplined system for planning your retirement.

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: SOMBILON ART, MEDIA and PHOTOGRAPHY

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The Good and the Bad

So you’ve finally sat down with your financial advisor and answered important questions, such as do you need life insurance, how big of a policy do you need, and what type makes the most sense for you. One thing you don’t want to happen after purchasing your life insurance policy is to find out the company that sold you the policy has run into financial trouble. If your insurer went out of business, not only would you be uninsured, but you would also have to reapply for a new policy at a potentially more expensive rate due to your age and health.

Fortunately, there is a system in place to ensure that policies remain in force even after the issuing companies become insolvent. All 50 states, plus the District of Columbia and Puerto Rico, have life and health insurance guaranty associations that step in to make sure that policyholders aren’t left holding the bag if their insurance company becomes insolvent. In nearly all states, the limits of coverage are $300,000 for life insurance death benefits and $100,000 for the net cash value of the policy. Some states even have limits as high as $500,000 for both. Coverage is provided by the guaranty association in the state in which the policyholder resides, even if he or she purchased the policy elsewhere.

For customers who hold policies worth more than their state guaranty limits, one option is to buy multiple policies within those limits from different companies to reach the desired total amount. So, instead of buying a $1 million policy from a single company, you could buy $250,000 policies from four different companies. The downside is that not only is this somewhat inconvenient, but it also might result in paying more than you would for a single policy because of the additional fees involved, not to mention different premium rates. Consult your financial advisor to explore all your options.

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:  DJ Bass

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Monthly Market Update

Despite some bumps along the way, both the S&P 500 and the Dow industrials soared to new all-time records, and the Nasdaq set a new closing high for the year. The Dow followed its best week of 2013 with its worst week of 2013, while the S&P surpassed its previous record close on the last day of the month. The small caps of the Russell 2000 saw their worst week since June 2012, which contributed to the index’s first monthly loss since October. The announcement of fresh monetary stimulus in Japan and hints that the eurozone might begin to refocus on growth as well as austerity helped the Global Dow beat the domestic indices decisively, though it continued to lag them for the year.

A one-day loss of $140 an ounce sent gold to lows not seen since early 2011, though it subsequently regained more than half of the month’s loss to end at almost $1,470 an ounce. Silver also lost roughly 14% during the month, while oil prices fell below $90 a barrel. Demand for Treasuries sent the 10-year yield down as prices rose.

The Month in Review

• The U.S. economy grew 2.5% during the first quarter of 2013, according to the Bureau of Economic Analysis. However, that pace was weaker than expected, and growth for the previous quarter was revised downward to a paltry 0.4%. Gains in consumer spending, business inventories and capital investments, exports, and residential investment were partly offset by higher imports and government spending cuts at federal, state, and local levels.
• The unemployment rate fell slightly to 7.6%, according to the Bureau of Labor Statistics’ April report for March. However, the 88,000 new jobs represented the slowest job growth in almost a year, and much of the decline in the unemployment rate resulted from half a million people leaving the workforce.
• The housing market continued to be a cornerstone of economic recovery. The 20 cities of the S&P/Case-Shiller index saw home prices that were 9.3% higher than a year earlier. New home sales were up 1.5% in March, and 18.5% higher than the same time last year, according to the Commerce Department. The National Association of Realtors® said sales of existing homes were up 10.3% from a year ago, though tight inventories cut sales by 0.6% for the month. And a 7% increase for the month put new residential construction at its highest level since 2008; the Commerce Department said that’s almost 47% higher than a year earlier.
• Lower energy costs after a sharp run-up the month before helped cut inflation at both the consumer and wholesale levels. The Bureau of Labor Statistics said a 0.2% monthly decline cut the annual consumer inflation rate to 1.5%. Wholesale prices were down 0.6% for the month, and the 1.1% year-over-year increase was the smallest since last July.
• Lower gas prices also affected U.S. retail sales, which the Commerce Department said were down 0.4% for the month but 2.8% higher than a year earlier. Consumer spending also rose 0.2% during the month, though it was the smallest increase in three months and higher utility bills were responsible for much of it.
• Manufacturing data was mixed. The Fed said Q1 industrial production saw its biggest gain in a year. However, the Empire State and Philly Fed manufacturing surveys saw monthly declines, and the Institute for Supply Management found growth slowing in both the manufacturing and services sectors. Also, the Commerce Department said a drop in spending on commercial aircraft cut durable goods orders 5.7%; it was the second monthly dip in three months.
• The Bank of Japan announced a massive expansion of its quantitative easing efforts to try to drag the country out of the deflation that has plagued it for years. Meanwhile, there were signals that Europe might be easing its push for austerity as Ireland, Portugal, and Spain were granted more time to meet deficit reduction targets.
• The Chinese economy showed weaker-than-expected growth during the first quarter. According to China’s National Bureau of Statistics, gross domestic product rose 7.7% rather than the 7.9% the quarter before.

Eye on the Month Ahead

The equities rally could face a challenge from any “sell in May, go away” sentiment and/or potential economic fallout from the sequester’s budget cuts. Any fresh clarity from the Fed about the timing of quantitative easing’s end also could have an impact.

Key dates and data releases: FOMC announcement, U.S. manufacturing, construction spending, auto sales (5/1); balance of trade, business productivity/labor costs (5/2); unemployment/payrolls, U.S. services sector, factory orders (5/3); retail sales, business inventories (5/13); import/export prices (5/14); wholesale prices, industrial production, Empire State manufacturing survey, international capital flows (5/15); consumer prices, housing starts, Philly Fed manufacturing survey (5/16); leading economic indicators, options expiration (5/17); home resales, FOMC minutes (5/22); new home sales (5/23); durable goods orders (5/24); home prices, Dallas Fed manufacturing survey (5/28); revised estimate of Q1 GDP (5/30); personal income/spending (5/31).

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. Broadridge Investor Communication Solutions, Inc. Copyright 2013. Photo Credit (in order of appearance) : blmiers2

What is the Best Way to Chip in for Your Grandchild’s Education?

If your grandchildren are fortunate enough to have you chip in with their college costs, there are a few things you need to be aware of before you start writing checks.

Cash Gift

The most straightforward way for a non-parent to help a student pay for college is with a cash gift. Gift tax rules in 2013 allow any individual to give another individual up to $14,000 per year ($28,000 from a couple) without the gift counting against the lifetime estate tax exemption. A problem with this approach is that your contribution will be taken into consideration when the student applies for need-based financial aid. Cash given directly to a student the year before he or she applies may be considered student income, reducing need-based aid by as much as 50% of the amount given. Furthermore, money held in the student’s name is treated as a student asset, reducing aid by another 20%. Cash given to the parents also counts against financial aid, albeit at a much lower rate of up to 5.64%. To potentially avoid any financial aid impact with a cash gift, keep in mind that the Free Application for Federal Student Aid takes into account income from the prior year in determining need-based aid. Hence, consider giving the money when you know the student will not be applying for aid next year.

Help Pay Back Student Loans

Another approach is to offer to help pay back the student’s loans. By waiting until the student is done with school, you avoid financial aid concerns and help ease his or her debt burden as the student enters the workforce. This strategy may be particularly useful for students with subsidized loans, which don’t begin to accrue interest until after graduation.

529 College Savings Account

Grandparents may also open a 529 college-savings account in the name of a student. One of the advantages of this approach for the account owner (the grandparent) is that many states offer income tax deductions on 529 contributions, though you must typically make the contribution to your home state’s plan in order to earn the deduction. Another benefit is that the IRS allows a five-year acceleration of the gift tax exclusion for such contributions, allowing an individual to contribute as much as $70,000 in a single year to a 529 in a student’s name. A disadvantage to this approach is that distributions from a 529 owned by someone other than the student or his or her parents are counted as student income and may reduce the amount of need-based financial aid available by $0.50 for every dollar distribution. Waiting to use 529 distributions from a grandparent-owned account until the student’s final year is one way to avoid this problem.

Pay Tuition Directly

One final option that some grandparents might consider is paying tuition directly to the university on the student’s behalf. This has special appeal for those who want to give large amounts but who are worried about gift tax consequences. The good news is that payments made directly to the university to cover tuition are exempt from the gift tax, although additional costs such as room and board are not. Unfortunately, direct tuition payments may be counted as either income against the student’s financial aid allocation (reducing it by 50%), or as a financial resource available to the student (reducing financial aid dollar-for-dollar). Hence, this only makes sense for students who are not concerned about need-based aid or if the payment is made during the final year of school.

Tax law is ever-changing and can be quite complex. It is highly recommended that you consult with a financial or tax professional with any tax-related questions or concerns. An investor should consider the investment objectives, risks, and charges and expenses associated with municipal fund securities before investing. More information about municipal fund securities is available in the issuer’s official statement, and the official statement should be read carefully before investing. 529 plans are tax-deferred college savings vehicles. Any unqualified distribution of earnings will be subject to ordinary income tax and subject to a 10% federal penalty tax.

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:  University of Denver

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What is Modern Portfolio Theory?

Modern portfolio theory (MPT), introduced more than half a century ago by Nobel-laureate Harry Markowitz, is all about diversification. It’s based on the notion that over the long term, a properly balanced group of investments will perform better than any single holding would do on its own. MPT looks at the historical returns and volatility of stocks, bonds, and other assets to create a portfolio mix that can maximize expected returns based on how much risk an investor is willing to take. The riskier a portfolio is, the higher its potential return may be.

And is it Still Effective?

For decades, MPT has been a bedrock principle for creating investment portfolios. Asset managers have used it for the mutual funds they run, and financial advisors have put it to work in choosing investments for their clients. But in recent years, particularly since the economic crisis and market meltdown that began in 2008, MPT has come under fire. Many people contend that it no longer works. They point to the fact that in 2008 and 2009, almost every kind of investment lost value, and that even perfectly diversified portfolios let investors down.

Yet the idea that MPT has outlived its usefulness—and that it failed during the recent financial crisis—ignores the reality that an analysis of market history confirms, says independent economist Fritz Meyer. Modern portfolio theory remains “the best mousetrap yet devised” for managing investments, Meyer says, and he analyzes 40 years of market performance data, from 1970 to 2010, to prove his point.

Meyer looked at what would have happened to a portfolio, created in 1970, that was divided evenly among seven kinds of assets: cash; large-cap U.S. stocks; small-cap U.S. stocks; non U.S. stocks; U.S. bonds; real estate; and commodities. Maintaining an equal exposure to those asset classes would have yielded an average annual return of more than 10% during the subsequent 40 years, compared with just under 10% a year for the Standard & Poor’s 500. Yet the diversified portfolio would have had half the volatility of the S&P, according to Meyer.

So why are so many people convinced that MPT doesn’t work in today’s markets? Meyer suggests that in many cases, it may be because investors succumbed to the natural human tendency to stop the pain during a bear market and sold their holdings at what turned out to be the worst possible time. “Our generation has learned a very important investment truth the hard way,” says Meyer. And many of those who got out of the market in 2008 or 2009 remain on the sidelines, he says, waiting until they regain their confidence. In the meantime, of course, they have missed out on several years of strong market gains.

Another problem, Meyer says, is the tendency to confuse modern portfolio theory with “buy and hold”—the idea that simply staying the course with investment choices will produce the best results over the long haul. MPT may indeed resemble a buy-and-hold strategy, Meyer notes, because an investor who subscribes to MPT will remain fully invested. But that doesn’t mean that a portfolio will sit there unmanaged no matter what occurs in financial markets.

Even an investment portfolio run according to the principles of MPT will need periodic changes, Meyer says. Rebalancing holdings to keep them in line with their original portfolio percentages is especially important, and ought to be done either quarterly or annually, according to Meyer. Without such adjustments, assets that were performing well would soon make up an outsized proportion of overall holdings, and the portfolio’s returns could suffer when stocks, for example, then lose ground during an investment cycle. Beyond rebalancing, other kinds of shifts may also be made to MPT portfolios based on an analysis of economic or industry factors.

Meyer is skeptical of the alternatives to MPT that many advisors and investors have turned to recently. Absolute return strategies, tactical asset allocation, and attempting to time the market simply don’t work, he says, and though fleeing stocks and other comparatively risky assets during market swings may seem like a good idea, it can put investors in a hole that it will be difficult to dig themselves out of. Meyer notes that some who sold out during the worst of the recent bear market may have had to postpone retirement or permanently reduce their standard of living.

With a disciplined MPT approach, on the other hand, you’re taking advantage of a powerful tool that has long proven is ability to maximize returns and minimize risks, Meyer concludes.

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:  MrsQuek

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The Best Gift You Can Give 

In the 2006 film, The Ultimate Gift, spoiled young Jason Stevens expects a large inheritance from his eccentric grandfather. But when the man passes away, his will stipulates that Jason will get the money only after he accomplishes 12 unusual, demanding tasks. Each is designed to change the way the young man views wealth, human relationships, and the meaning of life.

You’re not likely to demand that kind of quest from your heirs. These days, though, it’s not unusual to include provisions in a will or estate plan that go beyond financial wealth and relate to personal or social values. It may be possible to encourage your children or grandchildren to continue a family tradition of philanthropy, for example, or to understand the important role your ethnic heritage has played in your life.

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But it’s tough to pass along your values if your heirs don’t know who you really are. Whereas we once routinely gained wisdom and perspective from our elders, that opportunity often gets lost in the shuffle of fast-paced contemporary life. Yet young people still long to comprehend what their families stand for and to feel a sense of belonging and purpose.

Family storytelling is the most natural and direct means of imparting essential elements of your identity. Around the family table, young people can share in the evolution of your attitudes, traditions, and values. When were you happiest? How did you first experience kindness, self-sacrifice, ambition, and generosity? What were the things that mattered to you as a young person, and how have your views changed? What were the turning points in your life, and what do you wish you’d done differently? Though you may worry young people will be bored by your stories, chances are they’ll be engaged, especially when the conversation involves them, too. Listening carefully as they relate their own experiences can help you gauge their values and ambitions.

Of course, just helping your heirs get to know you doesn’t ensure they’ll carry on your passions. Yet there are ways to expose your children and grandchildren to organizations that matter to you, and to get them involved in your cherished causes. You can take them along when you attend meetings and events, and make sure they connect with key people. Your estate plan can help too:

• Set aside assets to help heirs visit your family’s country of origin or places significant to your family’s heritage
• Provide funding for family members’ business or educational development
• Launch a 501(c)(3) nonprofit organization (or establish a community foundation “support organization”) and name family members to the board of directors
• Establish a charitable remainder or lead trust that links philanthropic and financial interests. This can become a donor advised fund upon your death.
• Create a donor-advised fund and let younger family members recommend grant recipients

Discussions with your family can form the foundation of a values-based blueprint. We can help you start these conversations and work with you and your attorneys to create an estate plan that incorporates your goals.

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: RW PhotoBug

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Are You a Long-Term Investor?

It’s easy to follow a long-term investment strategy in good times; the hard part is sticking with it during bad times. What should you do if you are a long-term investor sitting in the midst of a bear market? If you are holding a well-diversified portfolio, the answer is rather straightforward: stay the course.

Volatile markets can cause investors to abandon their long-term goals for risky short-term investment strategies. Volatility can range from a single-day market crash to extended periods of jagged performance. The market has undergone cycles with high and low annual returns from 38% (1995) to -37% (2008) over the past 50 years. It can be tough to stay the course in the face of such fluctuations.

The graph illustrates annual stock market performance since 1963. The bull market from 1991 to 1999 lasted the longest, with an average annual return of 21%. In contrast, a majority of the downturns shown in the image have lasted for shorter periods of time. Despite the ups and downs over the years, the stock market generated a compound annual return of 9.8% over this historical time period.

It goes without saying that the market will head south at times, but history shows that despite this, the market’s long-term trend is upward. Consequently, the sooner an individual implements an investment plan, the better. By contributing early and as often as possible to such a plan, an investor’s money compounds over time. Compounding is the ability of an asset to generate earnings from previous earnings, which serves to accelerate the growth of your assets as time moves on.

A disciplined investment approach is still the best strategy for handling market downturns. This includes maintaining a well-diversified portfolio and using dollar-cost averaging, instead of lump-sum purchases, to ease into new investments. Dollar-cost averaging involves the purchase of securities, usually mutual funds, in fixed dollar amounts at regular intervals. This strategy is maintained no matter what direction the market is moving. Finally, staying focused on a long-term investment plan may enable you to participate in recoveries.

Overall, the stock market has exhibited positive performance in the past, but be prepared for periods of under performance. The fact is no one can predict market declines with any type of certainty. As a result, a portfolio consisting of both stocks and bonds can serve as a good strategy for short-term diversification. On the contrary, investors who have a larger appetite for risk may want to consider long-term investments in stocks. With a disciplined approach to investing, one may be able to take advantage of market rebounds and may enjoy superior returns in the long run. Don’t be sidelined by market expansions and contractions.

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:  CIMMYT

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]]> http://www.pwm-nj.com/knowledge/investment/invest-long-term/feed 0 http://www.pwm-nj.com/knowledge/quarterly/spring-quarter-13?utm_source=rss&utm_medium=rss&utm_campaign=spring-quarter-13 http://www.pwm-nj.com/knowledge/quarterly/spring-quarter-13#comments Wed, 24 Apr 2013 13:00:38 +0000 admin http://www.pwm-nj.com/?p=7845 more]]>

The Quarter in Review: Off to a good start

Developed equity markets around the globe moved higher to start the New Year, with U.S. stock markets enjoying particularly strong performance and reaching new highs.  On March 5th, the Dow Jones Industrial Average index surpassed its previous record close of 14,165, last seen on October 9th, 2007, and continued its ascent with a series of record breaking sessions.  The S&P 500 index also reached a new all-time high, surpassing its pre-crisis level of 1,565 on the last trading day of the first quarter.  All told, it was quite a start for stock markets around the world with the S&P 500 index gaining 10.6% and the MSCI World ex- US index increasing by 4.8% during the first three months of 2013.

US Economy: Jobs growth may be slowing

Uncertainty surrounding the “fiscal cliff” dampened economic activity in the final months of 2012.  This was evident in 4th quarter GDP data, which showed the economy expanded by a meager 0.4% during that period.  The labor markets were clearly impacted as the unemployment rate ticked higher to 7.9%.  With some uncertainty removed by Congress’ last-second resolution on tax rates, employers apparently became comfortable enough to begin hiring more workers.  The February jobs report showed payrolls increased by 336,000 and the unemployment rate decreased to 7.7%, which was much better than most economists expected.  In March, the unemployment rate dropped to 7.6% but this was largely attributable to a decline in the participation rate, and therefore should not be viewed favorably. While improvement in the job market has been positive, growth in payrolls may be losing momentum which would be cause for concern.

The housing market continues to show signs of a broadening recovery.  The latest S&P Case-Shiller Index of home prices grew by 8% year over year. If broad based improvements in the housing market and the labor markets continue, consumer and business confidence should continue to rise which would have positive implications for the overall economy and equity markets.

Also worth noting is the recent pick-up in mergers and acquisitions.  Merger and acquisition activity took off during the first quarter, with several “super deals” being announced early in the year. Dell partnered with private equity firm Silver Lake to announce a $24 billion leveraged buyout to take the computer company private – though successful completion of the deal remains in doubt.  A couple more deals followed suit, like the $23.3 billion take-over of Virgin Media by Liberty Global, the $23 billion acquisition of Heinz by Warren Buffet and Brazilian company 3G Capital, and $11b merger of American Airlines and US Airways. According to Dealogic, there has been $219 billion spent in mergers and acquisitions so far this year.  In our view, this merger activity does not represent a concern as it has been lead by a host of smart, strategic buyers and, despite relatively inexpensive borrowing costs, deals are occurring at reasonable prices.  Should deals become overvalued or mispriced in the future we would re-evaluate our position on equities.

International: Foreign Economies Muddle Through

On the European front, the tiny island nation of Cyprus emerged as the newest recipient of bailout funds. While Cyprus’ economy represents a minuscule portion of Europe’s GDP (0.2%), it highlights the still fragile nature of the European Banking system. What also stands out from Cyprus’ situation is the fact that the Troika (the European commission, the IMF and the European Central Bank) demanded a tax on bank deposits above €100,000 in order to disburse the funds.  This stipulation shook confidence in the European banking system, causing concern that it could set a precedent for how the European Union may deal with other economies in trouble.  Overall, the Eurozone continues to move slowly towards fiscal and monetary integration.

Emerging economies as a group have not participated in the global stock market rally this year.  The feared “hard landing” in China did not materialize and while still erratic, growth will likely stabilize at around 7% to 8% for this year. On the other hand, fears of a property bubble continue to take hold, as evidenced by China’s latest move to curb the property market by instituting a 20% tax on property sales. On the other side of the globe, economic growth in Brazil and the performance of its equity markets have been disappointing.  It is our belief the massive infrastructure spending taking place in preparation for the World Cup and the Olympics should act as a catalyst to boost growth rates in the coming months.  While emerging market concerns remain, we view the balance between risk and reward attractive for long-term investors.

The US Political Landscape: Budget Battle at its Peak

On March 1st, the $85B in spending cuts known as sequestration took place. The effects of deep across the board spending cuts should not be felt immediately, but will become more evident during the second quarter and as the year progresses.

Also during March, Congress approved a “continuing resolution” that allows the federal government to continue operating until September 30th. While we view this as a short term positive, we believe the debt ceiling negotiations that need to take place in May will be of a more contentious nature. Both the House and the Senate have passed budgets for the current year but the differences between the two are significant and, not surprisingly, there seems to be very little room for compromise since each political party stands firm in their positions.  While these negotiations continue, and we await a budget with the potential to make a significant dent in our national deficit, we remain on an unsustainable fiscal path.

A Look Ahead: Liquidity Fueled Rally Could Continue

Tensions in the Middle East (Syria), threats from North Korea, and the recent acts of terror in Boston are obvious concerns to us as investors. However, record low interest rates, improving auto and housing sectors, and the accommodative stance of central banks around the world cannot be ignored.

Massive amounts of liquidity continue to be pumped into the global monetary system (i.e. Japan being the latest example of aggressive monetary policy).  As long as these policies stay in place, some analysts believe equities will continue to be driven by what research firm Strategas Partners has dubbed the “TINA” factor –  There Is No Alternative.

We believe, even with markets at record highs, global market valuations look attractive, and in particular, we continue to favor high quality, dividend-paying stocks. We remain encouraged by the collective actions of Corporate America and their ability to increase shareholder value. The number of S&P 500 companies issuing dividends to shareholders has reached a 14-year high and we expect dividend payouts to increase overtime.

We thank you for your continued support and, as always, we welcome your questions and comments.

 This quarterly letter was brought to you by the financial advisors at PWM Advisory Group – Private Wealth Management

This article 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. Photo Credit:  Petur

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It’s Never Too Late to Prepare for a Natural Disaster

As residents of areas affected by Hurricane Sandy found out, a natural disaster can bring about not only emotional hardship, but financial hardship, as well. From keeping important documents safe and accessible to having enough cash on hand to get by until things return to normal, being prepared for a disaster is an important part of protecting your home and your family. It could be a natural disaster like a hurricane, tornado, flood, fire, mudslide, or earthquake. Or it could be something on a more limited scale like a power outage. Whatever the crisis, taking the steps below will help you better handle whatever might come your way.

Get Organized Before a Disaster Strikes: Chances are that’s not at the top of your to-do list for the weekend, so it’s very easy to procrastinate. But think of it this way: You buy insurance to protect you from catastrophes; disaster preparedness is just another kind of insurance that you prepare yourself. It doesn’t have to cost a lot, but it could really save time and added frustration should something happen to you. Once you’ve got a plan, you only need to update it periodically.

Keep Important Papers and Documents Safe and Easily Accessible: You might need to gather your most important papers in a hurry. Do you know where they are? Can you grab them quickly and leave the house immediately if you need to? Here are some of the documents to which you may need access: IDs (driver’s license, Social Security card, passport, birth certificate), financial documents (checkbooks, investment account numbers, passwords, and phone numbers, retirement account information, estate documents, insurance policies), and medical records. Most importantly, you’ll need cash (at least enough to cover one to two weeks’ emergency expenses).

You might also want to have a list of key contacts/phone numbers, which may include family cell-phone numbers and e-mail addresses, police, fire, and ambulance numbers, Red Cross and emergency response center local numbers, as well as your company’s human resources department number.

Keep all these important papers in a plastic bag in your home safe, or in any safe place from where you can grab them quickly if you need to leave your home in a hurry. Also, it may be a good idea to leave copies of everything with your attorney and/or financial advisor, in case the original documents get lost or damaged.

Prepare for a Medical Emergency: What if you or a family member suffer an injury (or worse) when disaster strikes? Check your health-insurance coverage to determine out-of-pocket costs in case surgery or emergency treatment is needed, and try to set aside enough money to cover these costs. Designate a family member or close friend as your primary contact, and prepare a living will and power of attorney for health care (documents that specify your wishes in case you’re incapacitated).

Create an Emergency Fund: Most experts recommend setting aside enough money to cover about six months of living expenses. But it is equally important that this money be easily accessible. It may be a good idea to keep about half in cash, ready to use (what if it’s impossible to get to a bank in the aftermath of the disaster?), and the other half in liquid investments that you can cash out easily.

What to Do if Disaster Strikes: If your house has been damaged, you may need emergency shelter. The Red Cross or your local emergency response center should be able to help. Your property insurance agent can help you file a claim on your homeowners or other types of insurance policies. If your area has been declared a federal disaster area, you may qualify for financial relief. If you have been injured, you might need to file for disability benefits. If you are healthy but a family member needs your care, you may be able to take as many as 12 weeks of unpaid leave under the Family and Medical Leave Act without losing your job.

Keep your finances in order with our FREE Personal Wealth Organizer.

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:  spleeness

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