Categories for Blog
September 29, 2015 11:05 am
Published by dylan
What does the recent market correction say about where the economy is headed?
U.S. stocks experienced sharp sell-offs in the third quarter of 2015, stoked by global fears about China’s slowdown and falling commodity prices. How will this volatility impact your portfolio?
Join JJ Burns & Company on Wednesday, October 7th at 1:00 pm EST for a free webinar to discuss the Q3 2015 Economic & Market Outlook. During this live presentation, CEO JJ Burns, Managing Director Anthony LaGiglia, and Chief Investment Officer Steven Mula will review our outlook for today’s markets.
Bonus: All registrants will receive a link to the on-demand version of the webinar following its completion.
In this 30-minute webinar we'll talk about:
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The recent market volatility and what might lie ahead
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China’s slowdown and declining energy prices
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When the Federal Reserve might raise interest rates
Plus we’ll also answer questions from attendees.
Don't miss this informative event! Reserve your spot today.
[Update: For those who couldn't attend, you can watch the webinar video here.]
September 16, 2015 7:09 am
Published by dylan
World stock prices have been volatile lately, and China’s crashing stock market has been in the front seat of the roller coaster. Many investors are worried that China’s economy is slowing down significantly faster than reported, and that a hard landing in the world’s second-largest economy will pull the global economy into recession with it.
For years, China has been the main economic-growth engine for many developed and emerging markets around the world. Latin America, most of Asia, parts of Africa and beyond have supplied the raw materials needed to fuel the economic boom in China. Mega-cap multi-national companies from developed economies have also prospered by tapping into China’s industrial revolution. Despite China’s impressive economic growth over the years and its impact on countries around the world, investing in China has been unconventional and guarded.
With the support of the central government, local investors swiftly bid the market up this year. The Shanghai market was up nearly 60% during the first six months of 2015 alone. Yet, the explosive growth had almost no impact on U.S. stocks. The S&P 500 traded sideways during the period. Moreover, when the Shanghai market tanked in July, U.S. stocks continued to be flat. The chart below is a terrific pictorial on what a classic bubble looks like; happily, it didn’t involve U.S. stocks.
Source: CNNMoney, For Informational Purposes Only
U.S. stocks didn’t react to China’s news and markets until recently. We believe the recent correlation to China’s stock market is temporary, and that U.S. investors have become more sensitive to other risks as we approach a key Federal Reserve meeting on interest rates. The Fed has indicated that it plans to raise rates at some point this year, and the September meeting has been targeted by many analysts as the date of the first increase in over a decade.
The potential of raising interest rates in the U.S., while China is retrenching and pulling many emerging markets down with it, has become a reason to take profits for many investors. However, the recent volatility has also spurred a wave of new money entering the markets. U.S. stocks have avoided a correction (a drop of at least 10%) since 2011. A four-year run without a correction is unusual for the U.S., and there seems to be pent up demand on the sidelines that has been waiting for entry points.
The Chinese Transition Redux
The points below are a few basic elements to summarize the ongoing dialogue we will see about China over the coming year. The media will likely focus on these issues:
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Chinese economy moving from export based economy to a balanced economy – “a consumer driven economy.”
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The transitional changes will be challenging and investments in China will be volatile.
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China’s attempts to stabilize markets have not been as effective as hoped.
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Reduced appetite for commodities and thus lower worldwide inflation is likely.
The U.S. Federal Reserve may be on hold for a while longer. Low inflation is good, but deflation is not. If the Fed raises rates in September, it could be taking a big risk of tipping prices into a deflationary zone and strengthening the U.S. dollar. If the Fed leaves interest rates unchanged, Fed members will have more time to analyze data and let the economy further develop some employment and price trends.
We know volatility can be unsettling; regardless, our long-term outlook is still positive. We believe investors who have sufficient diversification and flexibility in their portfolios should be able to successfully navigate these choppy waters. To see if your portfolio is properly balanced based on your long-term goals, contact our team to assess your needs. Now is the time to review your situation and make adjustments accordingly to help mitigate your downside risks.
August 19, 2015 12:40 pm
Published by dylan
Everyone remembers the Financial Crisis. The passage of time makes it seem like a bad dream now, but its lessons should still resonate with all of us. Since the markets and the economy have substantially recovered from this terrible time, we’ve shifted our focus to following U.S. stocks for the past few years, and this shift has lulled many investors into complacency about double-digit returns.
We focus on the S&P 500 Index because it is a very popular market barometer. However, it is a benchmark for ONLY U.S. stocks, which are just one component of a properly diversified portfolio. The S&P 500 should not be the sole index that we follow. Non-U.S. stocks, bonds and real estate are a few of the asset classes we invest in, and they have decidedly different characteristics and performance compared to the S&P 500. That said, what’s ahead for prospective returns for the S&P 500?
The S&P 500 has grown an average of 16.24% per year for the past 5 years, according to Morningstar data (through 7/31/2015, including dividends). At that rate, the S&P is doubling every 4.4 years. That’s unusually fast. Since 1926, the S&P 500 has doubled every 7.1 years, with an average return of about 10.09% per year (including dividends but not adjusted for inflation). It’s unlikely that an investor has his/her entire portfolio invested in an S&P 500-like investment, but it is a good proxy for what the large-cap sleeve of a diversified portfolio might have done.
At this point in the recovery, a 16% annual growth rate is most likely not sustainable for the S&P 500 index, but many investors are now expecting at least that. Some are also thinking they should be able to beat the index regularly even if it’s growing at 15%. This expectation can produce complacency or excessive risk-taking, more commonly called greed. Both mindsets typically lead to disappointment and costly lessons.
We firmly believe that investor behavior, not analysis, is what drives markets. Yes, short-term decisions are based on some data review, but look at the recent market volatility around earnings releases. We’ve seen some sharp sell-offs in individual U.S. stocks because they didn’t meet already lowered expectations for quarterly earnings. Markets are being driven by bad news and fear. In this uncertain environment with so much going on in the global financial world, we urge everyone to remember what happened in 2008-09 and prepare for more realistic returns in the years ahead, including some potential down years. As a refresher, here’s a brief market review ‘by the numbers’:
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-53%: That’s the amount the S&P 500 declined during the heart of the crisis. It’s measured by the drop in prices (without dividends) in the index value from its high on May 19, 2008 to its low on March 9, 2009. It was one of the worst declines in market history.
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3.2 years: Based on the S&P price index, that’s how long it took to recover from that gut-wrenching drop in value. The S&P price index exceeded its pre-crash high on May 12, 2012.
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+211%: The growth in prices from the low to the end of July 2015. If we include reinvested dividends, the return jumps to +256%. On an annualized basis, the S&P 500 grew at a 19.42% rate for prices, and 21.96% with dividends. That’s a very strong bull.
To put all this in perspective, here’s a brief table with S&P 500 returns across three different periods:
We’re happy U.S. stocks have done so well over the past few years, but we need to remember that stocks don’t just go straight up. Without the periodic ups and downs in the market, prices and values would be meaningless. Let’s add a little more perspective and review the types of declines the S&P 500 has had since the end of World War II.
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There have been 75 declines in the 5%-10% range since 12/31/1945. That’s an average of about one per year since 1946. These types of declines are common and typically speed bumps in the market.
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There have been 25 declines in the 10%-20% range, or about one every 2.75 years. These declines are more serious, but manageable for investors who are prepared and appropriately positioned for long-term targets.
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There have been 8 declines in the 20%-40% range and 3 declines over 40%. These big drops mean that you shouldn’t be surprised to see a decline of at least 20% in the S&P 500 every 6.27 years. Realistically, you should be prepared for a 30% drop in the S&P at some point as a long-term investor.
It shouldn’t be a surprise that the U.S. equity market is volatile and sometimes drops in value. The good news is long-term investors have recovered from most of these declines in a relatively short period of time. The 5%-10% declines took an average of just one month to recover; 10%-20% declines took just 3 months to recover; 20%-40% declines took a little more than a year to recover, and 40%+ declines needed almost 5 years to recover. The key concern we have is that investors might be getting a little ‘fat and happy.’ Recent returns have promoted this mindset and are skewing decisions by causing people to don rose-colored glasses. At this point, assuming that this level of returns will continue, or that ‘taking risk’ and investing in the market now will provide immediate growth, is a dangerous fallacy.
At JJ Burns & Company, we believe that a well-managed portfolio mitigates risk while also recognizing that risk and volatility are not synonymous. A single index is NOT an appropriate portfolio benchmark; your long-term goals are, and one year is a small time period in your investing life. Properly managed portfolios are diversified and help clients avoid behavioral-finance traps that have been proven to produce unappealing returns.
If you’re concerned about risk in your portfolio, feel free to schedule an appointment with our team. Investors who review their long-term goals now and make adjustments for increasing volatility are more likely to reach their benchmarks and sleep better at night.
Unless otherwise stated, performance numbers refer to indexes, which cannot be invested in directly and have no fees or trading expenses associated with them. All index data provided by Morningstar, Inc. S&P data provided by Standard & Poor’s Index Services Group. © Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio.
Past performance is no guarantee of future results. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities. Investing risks include loss of principal and fluctuating value. Small cap securities are subject to greater volatility than those in other asset categories. International investing involves special risks such as currency fluctuation and political instability. Investing in emerging markets may accentuate these risks. Sector-specific investments can also increase these risks.
July 29, 2015 9:58 am
Published by dylan
We’ve all heard of the celebrity divorces—and payouts. Remember Tiger Woods’ massive divorce settlement from Elin Nordegren that was reportedly between $200 to $500 million dollars? Years ago, Amy Irving negotiated her prenup with director Steven Spielberg and also walked away with a substantial sum.
Over many years of experience, we’ve found that prenuptials have been a positive planning vehicle to help create a happy and healthy marriage.
A Prenup Makes All the Difference
You don’t have to be a celebrity, athlete or a business mogul to benefit from the financial protections of a prenup. They’re recommended for everyone.
If you’re like most people, you’ve worked hard to save for retirement, invest wisely and perhaps own a property or two. When you think about it collectively, your assets can be worth quite a bit. And you also may not want to take on your spouse’s existing debts or other financial issues if your marriage dissolves. This is where a prenup can help protect your assets.
Now, if you live in any of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), if you should divorce, you will be required to divide equally all the assets that you acquired during the marriage. In non-community property states, a judge will decide how to divide the property equitably.
Protecting Your Finances
A prenuptial agreement, where properly negotiated, can protect you:
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If you have greater assets than your spouse. A prenuptial agreement can protect your savings and investments in case of divorce. Many people may have accumulated retirement or education funds, or life insurance policies before marriage. They may also independently own property or have an inheritance that they wish to keep intact. A prenup can help give you peace of mind that these funds stay where you have intended.
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If you are less affluent than your spouse. Prenups are not just for the wealthy. If you happen to have a smaller portfolio than your potential spouse, then you will want to ensure that you are financially protected in case of divorce. The same applies if one spouse plans to stay at home and raise any children. This time out of the workforce impacts the spouse’s earning ability and Social Security contributions for several years. A prenup can compensate the stay-at-home spouse for lost earnings.
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If you are remarrying. If you have children from a previous marriage, you may have child support payments, college funding, a home, business or other obligations that you wish to keep within your “first” family. You may also want to include your new spouse and any children in your wishes. Like a will, a prenup can help ensure that you are able to provide for your families in the manner you intend.
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If your potential spouse has a lot of debt. Marriage merges many financial obligations. So if you do not want to be responsible for your spouse’s student loans, credit card or car loan debt if your marriage should end, then a prenuptial agreement can help protect your individual assets.
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If you are a business owner. Your business may be a significant asset. Without a prenuptial agreement, if your marriage ends, your spouse may end up owning a part of the business. If you have business partners, they may not be too pleased to have the ex as part of the deal. A prenup can ensure that your spouse stays out of the business equation.
What a Prenuptial Agreement Can’t Do
While prenuptial agreements are very useful for financial planning, they cannot be used to resolve general divorce issues such as:
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Determining child support and custodial arrangements.
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Determining who has the right to live or sell the marital home.
Helping You Navigate the Financial Waters
Getting married—or remarried—is an exciting, happy time. We want to help take the financial stress out of the equation. Some may not see a prenup as the most romantic step toward their future union, however, it can be a useful tool to protect everyone.
Contact us to learn more about how we can advise you with a range of financial planning situations and help you plan for a new life together.
July 12, 2015 4:23 am
Published by dylan
The Greeks have delivered a resounding “no” vote to continued austerity. Several polls estimated ‘a too-close-to-call’ outcome, but more than 60% of Greece’s citizens voted against proposed reforms. Now that the emotional vote is over, reality for voters has been sinking in this week. Images of pensioners waiting for severely reduced funds and talk of humanitarian aid offer a stark picture of the severity of the situation for the average Greek citizen. Many Greeks want to avoid austerity but keep the euro. That’s probably not going to happen.
Some Europeans do not have sympathetic opinions about the Greeks. Last week while in Italy, I dined with some Belgian and German businessmen. One of them is a c-suite executive for Union Carbide. They are a straight-talking group. Their opinion is that Greece is a black-market economy that has never had proper accounting, and Greece’s numbers were incorrect entering into the euro. As such, most Euroland business-people and high-end taxpayers understand the costs of a Greece exit, which is estimated at 700 euros per person, according to the Belgian businessmen. In fact, many citizens outside Greece don't see Greece continuing as part of the euro. It’s a forgone conclusion, from their perspective.
The “no” vote increases the gap between Greece and the rest of the eurozone. As a result, the future costs for Greece to stay in the euro could be higher than previous solutions. The logic is simple: the eurozone cannot allow members to break rules and get preferential treatment because other peripheral nations would try to get similar workouts. Anti-euro voices in Italy, Spain and Portugal might then come to the negotiating table and the currency would get very wobbly.
One other key point: Greece doesn’t have as much bargaining power as it did a few years ago. The last time Greece was at the negotiating table, eurozone leaders were concerned that the country would become a “Lehman moment” (i.e. a meltdown) and spread contagion in Europe and beyond. At the time, European banks owned most of Greece’s debt and the ECB had not yet started its QE program.
The eurozone today is in much better shape to handle a so-called Grexit. The IMF, ECB and other governments own about 80% of Greece’s debt. As such, the banks are healthier and it’s unlikely that Greece would cause a domino effect in the eurozone. There have also been key changes in the derivatives markets to help prevent Lehman moments around the world.
Nonetheless, the improved financial structure doesn’t mean a Grexit would be risk-free for investors. The euro periphery will continue to have some challenges, and there are political issues brewing in France and Italy that are anti-euro. As a result, there is some downside pressure on the euro, but a weaker — and united — euro is good for exports. In fact, a Grexit may set the stage for a future strengthening of the currency.
Overall, we believe Greece’s near-term economic impact on the eurozone and the rest of the world is contained, regardless of whether they stay in the eurozone or not. Greece’s GDP is a tiny fraction of the world GDP (about 0.03%) and the ECB and IMF are prepared to backstop eurozone banks and try to prevent contagion. Volatility could pick up during the adjustment period, but we don’t foresee any meaningful portfolio impacts. Longer-term, however, simmering political issues may push the idea of structured exits to the fore, and negative currency impacts will be more resounding and far-reaching. We’ll be watching closely.
June 26, 2015 12:28 pm
Published by dylan
Investors and consumers alike are understandably interested in the ups and downs of interest rate cycles. The Federal Reserve, in addition to managing U.S. monetary policies, apparently has a new hobby: art.
Investors are focusing on the Fed’s “dot plots,” which are forecasts for the central bank’s key interest rates. The dots seem to be going up, indicating that Fed officials predict the interest rate will be rising in the coming years. Here’s how it currently looks:
Researching Beyond the Dots
At JJ Burns & Company, we take the fact that the Fed’s rather simplistic dot plot has become a focus point for investors with a bit of a grain of salt. An oft-repeated axiom is that the markets like certainty, despite the fact that we live in an uncertain world. So we’d like to suggest the Fed provides us with a more detailed dot plot that may look something like this:
Georges Seurat, and his fellow Pointillist artists, composed their works with thousands of dots or very fine brushstrokes. The artists would carefully blend many dots to create images that become clearer as the viewer steped back to look at the complete work.
Investors may want to take a page from the Pointillist approach into their individual investing strategy—considering the range of economic data, such as inflation (or deflation), GDP and employment statistics—and looking at the bigger picture in making their financial decisions.
So while the possibility of rising interest rates can be unsettling at times, they can also bring on positive projections. These include:
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Higher nominal rates on fixed-income instruments, particular shorter-term paper
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Generally stronger economic activity
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Better earning environments for financial institutions as loan volume and rates increase
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Potentially stronger equity market returns
Acting on Varying Interest Rates
Overall, the Fed is still being cautious about hiking interest rates. The Fed appears to be committed to a slow and measured increase in the cycles, with the intent to raise interest rates to a level where they will be able to lower rates again to stimulate the economy. They must also take into consideration the impact of pushing the dollar’s strength higher in an environment where many other central banks are pursuing expansionary policies, as that may negatively impact revenues and earnings for U.S. stocks.
Almost certainly, stock and bond volatility will be higher given the many swirling headwinds and tailwinds in the current global economy. We believe that past correlations between stocks and bonds (specifically with relation to credit spreads) will hold despite the low rate environment, and that the Fed rate increases will be quickly absorbed by the markets.
Making Investment Decisions
All of these events mean that investors may find themselves in difficult places. The Fed’s various stimulus programs (QE and Operation Twist) have helped reflate asset prices pummeled during the financial crisis. However, a lighter touch may have led to fewer rounds of QE or a modest rate hike earlier in this recovery, when more data pointed to less precarious circumstances.
Planning for the Future
Whether you make decisions based on dot plans or choose to step back, it’s important to gather key information and look at the bigger picture. JJ Burns & Company can help you connect the dots with a financial plan that addresses your—and your family’s—needs. Learn more about how we can work with you to plan for your financial future.
May 22, 2015 9:01 am
Published by dylan
Should you be worried about an interest rate hike?
The Federal Reserve is expected to begin raising interest rates at some point this year. How will this impact the market and your retirement portfolio?
Join JJ Burns & Company on Thursday, May 28th at 1:00 pm EST for a free webinar to discuss the 2015 Economic & Market Outlook. During this live presentation, CEO JJ Burns and Managing Director Anthony LaGiglia will review our outlook and strategy for today’s markets.
In this 30-minute webinar we'll talk about:
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How various asset classes have performed year-to-date
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Whether interest rate hikes are bad for the stock market
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How rising rates may affect your bonds
Plus we’ll also answer questions from attendees.
Don't miss this informative event! Reserve your spot today.
[Update: For those who couldn't attend, you can watch the webinar video here.]
May 15, 2015 11:30 am
Published by dylan
For some people—especially those with considerable wealth—talking about money is difficult. Some families believe it’s inappropriate to talk about money, or that it’s simply not the kids’ business to know what the family’s assets are. For children with wealth, it’s important to understand the various ways money functions in today’s society.
As trusted advisers we encourage having a well-crafted approach to the “money talk”. In our experience this provides the foundation that will sustain a families wealth and legacy for future generations.
Where to Start: Developing Family Values
Every family’s values are different. Some may be dedicated to philanthropy while others may be about working as hard as you can. The first step is taking a good look at your own behaviors and values:
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Are you consistent about spending, investing, and giving money away?
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Do you tell your kids to spend judiciously but are extravagant on yourself?
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Do you demonstrate the difference between wants and needs?
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Do you have your own written financial plan?
The goal is to help your kids create a purposeful life that reflects what’s important to the family. Additionally, you want to be able to protect your children—and eventually grown adults—from people who might take advantage. The more you know about finance, the less likely your children will be manipulated into investing all their money in a dubious scheme or engaging in illegal activities.
The 5 Key Financial Traits
Financial professionals identify 5 key traits that will help children with wealth succeed now—and in the future.
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Learn how to save. If your kids and grandkids don’t know how to put off instant gratification and save for something meaningful—whether it’s a car or a donation to charity—then there is the potential to squander their inheritance.
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Learn how to manage money. What do you do when you have an inheritance, investment income, perhaps a salary, and possibly employees? What can you do to maximize your funds rather than deplete them? Sure, you can hire financial advisors, tax experts, and staff to manage your wealth. However, hands-on knowledge will help your children to understand the power of compounding interest, how mortgages and loans work, and how to leverage other investments, such as property, to continue to build their wealth.
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How to be paid your true value. Most people enjoy contributing to something useful, whether it’s the family business, a start-up they helped create, or a foundation. Understanding money gives you negotiating skills and insight into the value of your contributions.
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How to handle credit. As a wealth generation and business tool, credit can help you build a financial empire. Used inappropriately, credit can decimate even large estates.
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How to speak the language. Just like other industries, finance, investing, and money management have their own distinct languages. Identifying financial mentors who can present age-appropriate concepts throughout the years will give your children a significant advantage as they begin to spend and invest their wealth.
We believe that families who devote time and effort to understanding and defining their financial heritage will sustain their wealth for generations.
Through heritage planning, we ensure that your family members are prepared to receive their inheritance. We mentor and train your loved ones in money management, leadership, and other key skills. We also encourage communication across all generations, so your family is united in its mission and goals. Find out how talking to your kids now can make a difference for your family for generations to come.
May 5, 2015 10:07 am
Published by dylan
It’s almost graduation time—or possibly the time you’re starting your college search. Given the skyrocketing costs of a four-year college education, some parents and students are wondering if a higher education is really worth the investment. According to employers, it is. Although what one decides to study seems to be less important to businesses than what he or she can bring to the table.
The Association of American Colleges & Universities recently conducted a study that highlighted the five attributes that employers look for in newly minted graduates:*
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Possesses innovation. This is a bit tricky as sometimes “innovation” is more of a buzzword than it is a skill. However, 95% of employers say they give hiring preferences to college graduates with capabilities that enable them to contribute to innovation in the workplace. It’s up to the job candidate to figure out how to add innovation to a project, department, or company. Researching online and conducting informational interviews can provide insight into what innovation means to a specific organization.
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Has critical thinking, communication, and problem solving skills. It doesn’t really matter if a student majored in French or literature, or excelled in math or science. According to the study, 93% of employers said that a demonstrated capacity to think critically, communicate clearly, and solve complex problems is more important than a job candidate’s undergraduate major.
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Has a broad learning background. Also, regardless of major, 80% of employers think that broad knowledge in the liberal arts and sciences is essential. To employers, this shows the broad-based perspective and integrative thinking skills they are seeking for a variety of positions.
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Has an e-portfolio. In the study, 83% of employers said an electronic portfolio goes a long way in exhibiting a job candidate’s talents. Post papers, a senior project, a portfolio, blog or videos—whatever is relevant to the desired position to indicate a student’s skill and proficiency.
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Has real-life experience. Work study, internships, and community service all showcase an ability to add value, prioritize commitments, and work within a team. Classroom learning is beneficial, however, it can be passive and 86% of employers agree that active hands-on learning gives students an opportunity to apply critical thinking, develop team skills and ethical judgment, and further hone their education.
Whether a student decides on pursuing a higher education or not, the bottom line is that it’s more important to focus on knowledge and skills than a specific field of study. Employers want students who can be flexible and adapt quickly to changing demands. The ability to think creatively, solve complex problems, communicate clearly, manage multiple priorities, and work as a team will help students to thrive in a 21st century environment and be successful in their life and careers.
April 15, 2015 8:22 am
Published by dylan
The decline in investors' retirement funds during the economic downturn has made everyone less certain about their future. Now that we've had some time to replenish savings, it's a good time to think about the role Social Security plays in retirement income. It's never too early to plan properly to maximize your benefits.
For many of us, we’ve worked since we were teenagers—at a movie theater, grocery store, restaurant or in a family business. Then we went on to develop careers. All the while contributing to the Social Security system. Still, Social Security remains a bit of a financial mystery for most people.
Here are four main issues to understand about Social Security—and how not to make the most common mistakes:
Mistake #1: Not recognizing how much you may receive. The good news is you may receive more than you anticipated from Social Security. You can receive an annual statement of benefits and plan your benefits here.
Mistake #2: Taking your Social Security benefits too early. “Full retirement age” is an important term. If you were born in 1954 or before, the full retirement age is 66 years old; it gradually rises to 67 for those born after. Of course, you can still work and collect Social Security no matter what your age. However, in the year you reach full retirement age, the government deducts $1 in benefits for every $3 you earn above the limit ($41,880 in 2015).
Mistake #3: Misunderstanding how Social Security can affect you (and your spouse). Whether you are still married, divorced or widowed, you may be entitled to Social Security benefits that are based on:
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Your own earnings record;
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A spouse or ex-spouse’s earnings record;
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A deceased spouse’s or deceased ex-spouse’s earnings record; or
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Whether you are disabled.
It’s complicated to say the least given the wide range of relationships and situations that people experience—coupled with the fact that laws regularly change.
There’s a strategy called “file and suspend” that you can use if you have reached full retirement age, but are not yet age 70. You can ask Social Security to suspend your retirement benefit payments. This way you can receive delayed retirement credits, which can increase your benefits from 5.5 percent to 8 percent per year depending upon when you were born.
Another tactic is to use the “restricted application.” If you are married, or eligible for a benefit on an ex-spouse’s record, once you have reached full retirement age but have not yet claimed your Social Security benefits, you can use the restricted application to claim a spousal benefit. This allows your own benefits to continue to grow up to age 70.
Or, you can combine both strategies. If you and your spouse are of full retirement age, but one wants to work until age 70, a spouse can file for retirement benefits now and have the payments suspended, while the other files a restricted application for only the spousal benefits. This strategy allows both of you to delay receiving Social Security benefits on your own records so you can earn delayed retirement credits. Note that the IRS requires that, in order to file for spousal benefits, the other spouse must have established a filing date.
Because everyone’s situation is different, we suggest that you consult a qualified advisor to help you plan your Social Security strategy.
Mistake #4: Not realizing how Social Security may impact your taxes. In a perfect world, being eligible for Social Security would exempt you from taxes. Think again. Some people may have to pay federal income taxes on their Social Security benefits if they have qualifying income, such as wages, self-employment, interest, dividends and other taxable income.
What’s important to know is that you can lose up to 85 percent of your Social Security benefits if you don’t plan ahead. It’s called the “tax torpedo,” and it can eat up a significant portion of your hard-earned money.
You don’t have to be making a substantial income to be subjected to this tax torpedo – even those with modest incomes can take the hit. Once a low-income threshold is met ($25,000 for singles and $32,000 for married couples), up to 50 percent of Social Security benefits will be taxed. At a second threshold ($34,000 for singles and $44,000 for married couples), up to 85 percent of Social Security benefits will become taxable.
Depending on your situation, there’s a high likelihood that your Social Security benefits will be taxed. However, delaying your Social Security benefits may help avoid the tax torpedo. You will also gain from building a substantially larger Social Security fund for yourself, as well as your spouse. This may mean relying more heavily on your retirement investments, though. A qualified financial advisor can help you determine how taxes may impact your Social Security benefits and when is the best time to take them.
We’ve all paid into Social Security and it can be a substantial income resource in your retirement years. You can choose to live off the proceeds, invest your Social Security income, or help fund an educational or other type of trust. Navigating the Social Security landscape—in addition to your other investments—can be a challenge, but with proper financial planning it doesn’t have to be.
March 6, 2015 10:29 am
Published by dylan
The last time the Nasdaq Composite Index was at 5,000 (in March 2000), global stock prices peaked and subsequently unraveled very rapidly. Just one year after the peak, the Nasdaq was trading 60% lower. By October 2002, the index hit bottom with a nearly 80% loss. It was a spectacular fall. Portfolios suffered around the world and it would take years to rebuild them.
Fast-forward 15 years and here we are again. The Nasdaq is at the 5,000 milestone and investors want to know if we’re at a new market top and if they should sell to protect capital. At JJ Burns & Co., we don’t believe today’s Nasdaq will travel the same road it did in 2000. There are many big differences between 2000 and 2015.
2000 vs. 2015
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In 2000, earnings did not matter. Back then the 20 largest companies in the Nasdaq had an average price/earnings ratio of 395 (trailing 12 mos. earnings). In 2015, the top 20’s average is 108. Remove Amazon and eBay from the equation and 2015’s average drops to 27. Still pricey, but based on some real earnings figures.
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In March 2000, the top 20 stocks earned a collective $26 billion in the trailing 12 months. In March 2015, they earned $167 billion.
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In 2000, the Nasdaq’s average company age was 15 years. In 2015, the average is 25 years.
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Nasdaq 5,000 in 2000 is not the same as 5,000 in 2015. Sure, they’re both at the 5,000 level, but you have to adjust for inflation to make an “apples-to-apples” comparison. When doing so, the Nasdaq would have to be at 7,000 today to be equal to 5,000 in 2000.
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The Nasdaq’s top 10 stocks are different. In 2000, Microsoft was the biggest stock in the Nasdaq, sporting a frothy P/E ratio of 57. In 2015, Apple is the biggest with a significantly more reasonable P/E ratio of 15.
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In 2015, Apple, Cisco, Google and Microsoft have more than $360 billion in cash combined. That’s nearly 25% of all U.S. corporate cash reserves.
The Big Picture
The Nasdaq is a popular, technology-focused index (about 42% is tech). As such, it’s not a good representation of the overall market, due to its lack of industry diversification. That’s why professional money managers and we at JJ Burns & Co. don’t use it as a benchmark for performance comparisons, and why you shouldn’t use it as a buy/sell barometer for your overall portfolio.
This doesn’t mean we should ignore the Nasdaq altogether. The index is pricier than the more widely followed S&P 500, and there are sectors of the Nasdaq that are arguably approaching risky levels. Also, Apple is the largest stock positon in the S&P 500 and the Russell 3000; the social media sector has been on a tear, and biotechs have been a leadership group for a long time.
Nonetheless, we are not worried about the Nasdaq revisiting 5,000. The level today has a different risk profile than it did in 2000, so investors should focus on why they own stocks in their portfolios and stay disciplined with their allocations.
February 22, 2015 7:39 am
Published by dylan
Joan Rivers, Robin Williams, Philip Seymour Hoffman and Mike Nichols. They’re all industry legends. We’ve been entertained by them for many years and miss their unique talents, wit and spirit.
They were incredibly talented, creative—and most would assume financially successful. However while bringing home or being nominated for that elusive Oscar—some may not have won an award for their financial planning.
The old adage about death and taxes rings true—and no matter what your profession or income, life can be complicated. Whether you’ve had a long-enduring relationship, kids, several spouses, just as many houses and businesses (and did we say grandkids), without a solid estate plan in place, all your hard work can be for naught without some financial forecasting.
Time is On Your Side
The earlier you plan and the earlier you save, the better you are able to face financial downturns. Joan Rivers and Mike Nichols had time on their sides to build their incomes over long careers, as well as solid financial plans in place. They created strategically designed business and estate plans (not to mention having adult children) which made the transfer of assets at their deaths that much easier. Philip Seymour Hoffman and Robin Williams had different family situations that may have made their estates a bit more complicated.
Of course, no one wants to think about what happens “when I die.” However, planning for the expected—as well as the unexpected—will help give you a greater peace of mind.
Ways to Take Action Now
So what can you do now to help secure your financial future? Here are five suggestions to shape your strategy.
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Leave a legacy that reflects your values and priorities. This is usually created in the form of a trust, and is an opportunity to tell your story. There are a number of ways to have your wishes heard and directed through financial planning. Also, homes and businesses owned within a trust may be protected from certain liabilities and can be afforded tax advantages.
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Consider the differing needs and situations of your loved ones. Every family is different. You may wish to pass on your business to your children, set up educational funds or care for a special needs relative.
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Streamline your estate management. Estate taxes, plus federal and state taxes can eat up your assets quickly if you don’t plan ahead. In 2015, personal estate tax exemptions are $5.43 million per individual. With professional financial planning, you can avoid the hassle of probate and the time it would take for your heirs to resolve your estate.
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Maximize your charitable giving. Many people wish to leave a legacy for their families as well as to community organizations. From donor-advised funds to charitable planning, you can maximize the impact of your donations.
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Make plans for the unexpected. An important part of financial planning is to specify your end-of-life preferences. While some people may find this a bit morbid, it’s good to know that you can have control over your estate, your medical treatments, who can help make decisions and other vital issues before you need them. A living will combined with an advanced health care directive can take care of most of these basics.
Enjoy the Academy Awards—and give yourself an award for whatever you do best. Everyone’s situation changes throughout the years—marriage, divorce, death, birth, new job—and that’s just the first level of what to consider. Now is the time for a quick financial planning checkup to learn more about how to make your plans for the future a reality and create the legacy you wish to leave.
