Categories for Blog
February 10, 2015 3:50 pm
Published by dylan
The first 5 weeks of the New Year have been pretty volatile for most markets; clearly, last year’s news has brought volatility back. Many strategists have been “pounding the table” on stocks and declaring that the Large Cap US Equity Market will continue to lead the way in 2015. Although possible, we believe that broad diversification is still the key to long-term success. This philosophy means we will continue to have exposure to small cap, mid cap and international securities, even though they trailed US Large Cap equities last year. We just received an interesting piece from Louis Navellier of Navellier & Associates. A long-time market analyst and portfolio manager, he notes:
The biggest news last week was crude oil rallying 19% from its lows in just four days, which sparked a big rally in some beaten-down energy stocks and other stocks that have been beaten down by a strong U.S. dollar. By Friday, most major market indexes had made up for all of January's declines. But here is the real conundrum the stock market now faces…of the 20 stocks that account for approximately 30% of the S&P 500's total value, too many — like Caterpillar, Chevron, Coca-Cola, DuPont, ExxonMobil, IBM, McDonalds, Microsoft, General Electric, Goldman Sachs, JPMorgan & Co, Pfizer, Procter & Gamble, and even Google have all missed analyst estimates and/or issued cautious guidance below analyst estimates… essentially what is happening is that a strong U.S. dollar is squelching sales of large multinational companies and squeezing their underlying earnings. A massive flight to more domestic stocks with real sales and earnings growth is now underway, so I expect the stock market will get increasingly narrow in the upcoming weeks.
Since the brief U.S. market correction last fall, investors have had to adjust to new information and possibly reposition portfolios with respect to:
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The increasing strength of the U.S. dollar
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A precipitous decline in crude-oil prices and gasoline, followed by a brief but sharp rally in 2015
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Changes in European Central Bank policy that are expected to lead to expansionary moves similar to those taken by the U.S. Federal Reserve Open Market Committee following the financial crisis.
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A repricing of some commodities that react to changes in inflation expectations and the dollar such as gold.
Navellier also noted that the previous time a ‘leadership change’ occurred in the U.S. markets was a mega-cap retreat in the early 2000s following the Tech Bubble. He goes on to say:
The S&P 500 has gotten too top-heavy once again…the bottom line is that we are now unquestionably in an increasingly narrow stock picking market, and the "sweet spot" in the stock market is moving down the capitalization ladder to the mid-capitalization area.
Time will tell if this analysis is correct. However, we agree with the thesis, and think this is a good time for rethinking exposure to international stocks as well, which might expect a boost in revenues and favorable exchange rates against the U.S. dollar. The best news, however, is that many of our clients are in portfolios that are diversified across the U.S. market-cap spectrum (including mid- and small-cap stocks), and have international exposure as well. We appreciate that 2014 was a trying year for many investors, but we’re pleased that we already have many of the security exposures that might prevail going forward. For more on the markets over the last two years and how some investors fared, please see our 2014 year-end review.
December 19, 2014 12:35 pm
Published by dylan
Certain situations in life are governed by what I call ‘ the playbook.’ In economics, the playbook says that falling interest rates will always stimulate growth and inflation, which are necessary for countries to grow GDP and spending. It also says that falling oil prices are generally a great boost to the global economy. Experience, however, tells us the playbook isn’t always right. Falling oil prices aren’t shaping up as the cure we would normally expect in a weak global economy.
The article below addresses risks and opportunities and offers a quick brief on what lower oil prices mean to investors, producers and consumers around the globe.
Financial Times: Winners and Losers of Oil Price Plunge
October 17, 2014 12:13 pm
Published by dylan
The past six weeks or so, since the beginning of September, have been pretty unsettling for stock market investors. After three years of annualized price returns between 18% to 19% per year for U.S. large-cap and small-cap stocks through the end of August, the period from Sept. 1 to yesterday’s close has seen declines of about 7% for stocks of all types. That matches the worst multi-month decline over those three years for most stocks. (Small-cap stocks had a maximum decline of about 11% in the fall of 2011). International stocks didn’t fare as well over that three-year period, and have performed worse than U.S. stocks over the past six weeks. Does this mean the bull market is over and people should sell stocks? Far from it.
All markets need some volatility to make price discovery and investment research viable. No market – bonds, stocks, gold, oil or real estate – goes up year after year without some reversals. Markets are also wired to accept bad news more than good; by that, I mean traders and investors always look for a dark cloud, even when news or data releases are good. For example, U.S. investors have had to digest the following events and issues over the past few months: an Ebola virus outbreak, economic weakness in Europe, slowing growth in China, continued tensions between Europe and Russia over Ukraine, multiple wars in the Middle East and the ongoing dissatisfaction with the state of U.S. domestic affairs topped off by a looming mid-term election. But if we examine the facts, here’s what we see:
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U.S. household net worth has rebounded to a level 20% higher than the peak prior to the decline in 2007.
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Total debt for households and nonprofit organizations equaled 77% of gross domestic product, the lowest level since 2002. Declines in household liabilities are mostly due to lower mortgage debt.
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The federal budget deficit is falling.
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Oil declined to a near four-year low, and average gasoline prices are down 13% from a high in April, potentially putting more money in consumers’ pockets right before the holiday season.
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Predictions now are for a milder winter this year compared to last; with potentially lower heating fuel prices, that’s good news, too.
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The dollar has climbed 5% since June, making imported goods look more attractive.
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Unemployment is lower, more people are working and wages are beginning to rise in some sectors.
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Interest rates are low and have declined in spite of constant predictions of a rise over the past 5 years.
There are always a broad range of views about any event, positive or negative, that offer likely outcomes and their potential impact on the financial markets. Investment professionals struggle to consistently add value for clients by correctly analyzing the result of all of these constantly changing macroeconomic events. History, however, suggests that those looking for certainty around such events before investing could be setting themselves up for a long wait. There is always something to worry about. Is risk being appropriately priced? Are prices being kept too high and is volatility being unnaturally suppressed by the central banks? Will Europe rebound, and when? Who will triumph in all the military struggles we’re watching? Will China really manage a ‘soft landing’ for its overheated economy? Will there be an Ebola epidemic in the U.S.? What is the average investor supposed to make of all this conjecture?
We believe there is a much simpler approach. It begins by accepting that the market price for an investment is a fair reflection of the collective opinions of millions of market participants. This means we do not bet against the market, we work with the market. We build diversified portfolios around what is known of expected returns according to your particular circumstances and risk profile. It does not mean constantly reacting to the opinions of market pundits about what might happen tomorrow, next week or next year. Nobody – repeat, nobody – knows what will happen. Staying disciplined and focusing on the things that you can control, which are asset allocation, regular portfolio rebalancing and investment expenses, are the key ingredients for long-term success. Our signal for rebalancing your portfolio is the need to maintain or adjust YOUR asset allocation, not media speculation and fear-mongering. Remaining calm and focused on this strategy allows us to benefit during periods of volatility.
Is volatility back? Yes. Are we worried? No.
October 10, 2014 6:14 am
Published by dylan
The stock market is reminding everyone that progress is always made in fits and starts. While the market overall is higher for the year, the Dow Jones Industrial Average was off 1.4% in September and has slipped more than 3% since peaking on Sept. 19; the Nasdaq Composite Index off more than 4% since early September.
There's been a lot of handwringing over the small-cap Russell 2000 Index's 10% decline since peaking in July -- which means it's in a correction. The Wall Street Journal noted there’s concern that the Dow hasn't suffered a sustained fall of 10% or more in over 700 trading days, the fourth-longest streak since 1945. Furthermore, Europe is showing more signs of weakness as the dollar is increasing in value.
We suggest everyone relax a little though; here's why:
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The stock market usually experiences at least one big pullback a year. So what's happening now isn't out of the ordinary and isn't that big. For example, the Dow fell 5.3% in January.
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Pullbacks end. The fourth quarter has shown decent gains in 11 of the last 14 years.
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The economy is stronger, no matter what you hear. A stronger economy should mean better profits for corporations, which means stocks should rise.
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There are more jobs and a higher “quit rate” which signifies workers are confident they’ll get better employment as more jobs are available.
We at JJ Burns & Co. believe short-term trading is gambling, pure and simple, and we're not gamblers. We don't believe investors should worry about the market's daily gyrations except to look for long-term bargains. As the Dow was falling 238 points last Wednesday, Berkshire Hathaway's Warren Buffett told CNBC on Thursday he bought stocks.
While it is true the stock market is not having a big year, remember that 2013 was a home-run-year, with the Dow up 26.5% and the Standard & Poor's 500 Index up 29.6%. Moreover, the Dow has risen more than 155% since March 2009, the low of the financial crisis, and the S&P 500 is up more than 185%.
It's the long run that's key for us and should be for you. Stocks (and capitalism) are the best long-term inflation and growth vehicles. Period.
We think the economy's long-run prospects are good, and we're about helping our clients tailor their investments to be long-term winners. If you worry too much about what the stock market does day-to-day, you probably don’t have the right asset mix and you're letting your emotions dictate your investment decisions. So take a little time to examine your position critically. Try to understand how the components of your portfolio will perform if the downturn turns into a broad correction. Then make sure your investments are diversified enough to weather the storm and set up to generate long-term growth.
Finally, it's OK to be tactical, like Warren Buffett, and periodically look for bargains that will pay off over the long-term. That’s what good investing and strong wealth management is all about.
August 8, 2014 9:29 am
Published by dylan
In early August, the stock market has looked a bit rocky. The major averages fell in July and have begun this month by moving lower again. Not a lot, but enough to get your attention. The fact is the Dow Jones Industrials Average, the Standard & Poor's 500 Index and the Nasdaq Composite haven't fallen together for two straight months since the summer of 2011.
There is talk that Russia's escalating tensions with the Ukraine and the battle between Israel and Hamas in Gaza will push oil, gasoline and winter heating costs higher. There's also been increased chatter about when the Federal Reserve may start to raise interest rates due to a seemingly improving U.S. economy.
Does This Mean The Bull Market Is Over and You Should Sell?
Smart, disciplined thinking and planning can get you through this unsettled market. What we know, and research confirms, is that investors who make buy and sell decisions based on emotions are regularly wrong.
According to research from the Investment Company Institute (http://www.ici.org) and Fidelity Investments, starting in the late 1990s, too many individual investors bought stocks when prices were rapidly rising and then lost a bundle when the market crashed in 2000-2002; this process was basically repeated, but for different reasons, again in 2008-2009. They then shied away from stocks when panic selling was clearly evident, especially in early 2009, and missed one of the great rallies of all time. The S&P 500, even after a recent pullback, is up 180% since the March 2009 bottom.
To look at the data below showing investors constantly selling equity funds and buying into bond funds, is really shocking. Many investors who need stocks in their portfolios have missed out on a great rebound, only to start to put money to work again at a new market inflection. In fact, the smart play is to think like a contrarian and trim back on equities when the market is booming and start to buy when it's clear that a correction, or, in the worst case, panic selling has set in.
Historical Pattern of Flows Interrupted
When markets have more volatility the graph clearly shows how the flow of funds enter and exit stock and bond investments. The behavior of most investors shows a herd mentality that reflects a lack of discipline in sticking to a well-thought-out plan representative of their goals.
Fundamentally, this data tells us that great investors are:
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Contrarian
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Disciplined
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Long term in focus
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Seek value, not trading, to grow wealth
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Don't panic or move too far from strategic targets
Be a Natural Contrarian
It’s important to understand the consequences of making emotional decisions and not maintaining a disciplined plan. When fear or frustration set in, emotions tend to guide decisions. This is how most investors wind up taking on more portfolio risk than they may need.
At JJ Burns we encourage you to revisit what you want your future to be and make certain your plan will help you achieve that goal. The fundamental core of successful financial planning is to always keep your goals in mind and allocate your investments to the best level of expected return and risk that's right for you. We're here to guide you with a customized plan that should be regularly reviewed when "cooler heads" prevail in irrationally exuberant or depressed markets.
July 7, 2014 11:27 am
Published by dylan
Building the wealth you need to meet life's challenges requires imagination, focus, discipline and time. The process is more complex than ever before because the economy has become so volatile. The task can look daunting, but your odds of success are better if you follow these ten steps:
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Develop a plan. What are the results you want to achieve? Identify your values, priorities and dreams. Then work backwards so that you have a plan with the ultimate goal firmly in focus. Make sure your goals are realistic and attainable, and that you’ve identified the potential challenges, consequences and risks.
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Execute YOUR plan. Creating a plan is one thing, executing the plan is something else. Your investments should be customized to your needs, so don’t compare your portfolio to those of your friends. Wanting what other people have will never get you what you ultimately need.
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Pay yourself first. Yes, it's a cliché, but it is also true. If you have the opportunity to participate in a workplace savings plan, maximize your contributions before you take any pay for yourself. There are good reasons for paying yourself:
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Employers often match a percentage of your contributions. It’s free money, so take advantage of it.
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By contributing to a savings plan, you get used to not having the money – and not spending it. It gives your funds the opportunity to reap the benefits of compound interest.
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Contributing to a workplace savings plan allows you the benefits of dollar-cost averaging. That means you’re making regular contributions to your plan, regardless of what may be going on in the financial markets, and reducing your exposure to market volatility.
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Don’t be too conservative. With today's low interest rates, it makes no sense to invest all of your money in a bank account or in savings bonds. You simply won't be able to build true wealth. You have to take some risks and learn to be comfortable with them. Investing in a properly diversified portfolio can help you strive for higher returns while also limiting some of the risk of markets. When market drawdowns occur, take advantage of rebalancing your portfolio.
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Don’t swing for the fences either. Get-rich-quick schemes are just ways to lose money quickly. For every great business investment, there are five that fail. If you hear someone say he has a "can't fail" investment, be skeptical. Be very skeptical. Look for experts who can vet the idea and help you decide if it's real or a delusion.
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Pay attention to the little things. Over time they add up. Make your own coffee instead of stopping at the gourmet coffee shop. Prepare your lunch at home and bring it to work. You can have fun and still limit your spending. Invite your friends over instead of going out. A special romantic dinner can be more meaningful when you make it together, at home.
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Make saving a family affair. Educate your children and create a legacy by saving for things that are meaningful. Share the plan with your family and have everyone participate in the success of hitting a financial goal together.
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Get professional advice. A Certified Financial Planner professional can help you clarify your goals and identify any gaps in your financial life. He or she will help you construct your personalized, comprehensive plan that takes into account your cash flow, assets, savings and insurance needs, while keeping in mind your goals for retirement, your estate and the legacy you hope to pass on. Expert help can involve costs, but good advice more than pays for itself.
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Revisit your plan. Of course life isn’t static – and neither is your plan. Your needs and goals may change over time. There will be inevitable bumps in the road and unexpected developments and detours. At times you’ll need to reevaluate your financial strategy and make adjustments.
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Remember, wealth is not just about money. Wealth is much more than your net worth. It’s about family security, meaning and purpose. It’s about living life on your terms.
The economy may be volatile, just like the ocean. Your plan will help you navigate safely and allow for course corrections along the way. The challenges apparent in the global economy may very well end up being opportunities to build your wealth.
May 22, 2014 12:09 pm
Published by dylan
Long-term care insurance policies are a valuable resource for many people. They provide funds to pay for home care and nursing home expenses for an extended period of time. As our baby boomer clients and their parents age, we have witnessed how the benefits have protected the assets and lifestyle of families.
In the last few years, insurance companies have been asking regulators to approve premium increases for older-issued (8 to 10 year old) policies. Simply stated, the insurance companies are not collecting enough in premiums to cover their expected future liabilities to provide care. As a result, an increasing number of policyholders are receiving notifications of significant premium rate increases.
The 3 main factors behind these premium increases:
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Insurers overestimated the number of policyholders that would drop their coverage
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Costs of home health care and nursing home care has significantly increased in recent years
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The low interest rate environment has reduced insurers’ ability to earn income on investments backing their policies
Your Options When Faced With A Premium Increase
Look for new coverage. Your first reaction may be a desire to drop your coverage and try and find a new carrier. However, often times it is unlikely that you will be able to purchase a new policy at a better rate, especially if you are much older or your health has deteriorated. Additionally, new policies being issued today are being done so at much higher premium rates than they were even 5 years ago.
Change your coverage. If you do not want to pay the increased premium cost, you may want to consider modifying your coverage by lowering your benefits, decreasing your inflation protection, or shortening the years of coverage. It is important to note however, that once you reduce your benefits, you cannot re-establish the original benefit.
Pay the increase. Depending on the size of premium increase and your ability to absorb the cost, it may be advisable to pay the new higher premium because the coverage is quite valuable. This becomes an individual decision for each policy holder based upon current assets they have saved, income available to pay the additional cost and their current health.
Drop your coverage: If your wealth has grown beyond the need for coverage, it may be time to eliminate the insurance. It's important to determine if your assets can support a home or nursing care expense.
Insuring Your Future
Planning for long term care involves more than just insurance. I was recently interviewed for a segment of On The Money with Sharon Epperson of CNBC to discuss long term care insurance and whether the price is worth the protection. Whether you’re faced with an increase in premium or evaluating the benefits and costs of long term care insurance for the first time, it is important to start by looking at your overall financial plan. Once you understand all of the wealth management gaps in your life, you can then do a thorough analysis and make an informed decision. How your assets are owned is a key component to planning and should always be part of the process. The last thing you want to do is add an unnecessary expense without a thoughtful plan.
If you have any questions about the gaps in your wealth management plan, contact our office at 631-390-0500.
April 24, 2014 6:18 am
Published by dylan
If you think about Puerto Rico, maybe you imagine sun, surf and palm trees. When I think about Puerto Rico, I see an economic mess.
The commonwealth's economy is shrinking. It has an unemployment rate of nearly 15%. It is losing population. It has $70 billion in debt outstanding -- more governmental debt per capita than any of the 50 states. There's a huge worry that the commonwealth ultimately will default. This is a big problem. Some 370 municipal bond funds hold Puerto Rican bonds, which are exempt from federal, state and local taxes. Of these, 28 funds had 10% or more of their assets in Puerto Rican bonds*. Puerto Rico is emblematic of a larger issue.
Some of the debt has been building up to meet the commonwealth's pension obligations. Puerto Rico, like Detroit and a host of state and local governments, isn't taking in enough money to make good on its pension plans for much longer. So, something will have to give. Either benefits will be cut or taxes increased. Either way, the medicine will be painful. So far, the medicine for many states and municipalities has been to cut benefits, which has devastated pensioners but on a fairly limited basis. It's not clear to me that this can go on forever because if the elderly see drastically reduced incomes, the drag on the economy may be quite large.
Business is coping with the problem as they see it by converting pensions to 401(k) plans, where retirees contribute to a self-managed plan and hope to generate enough income later on. The problem with 401 (k) plans is that investors treat them more like savings accounts and take money out for non-retirement-related purposes. You can buy a house. You can pay for surgery if you don't have health insurance. You can finance your lifestyle if you lose a job. The long-run result, however, is that retirees won't have the assets and income they'd hoped for. So, they must cut personal spending drastically or forego retirement. The problem isn't limited to government employees. They're just the first to realize there's a big problem. The risk posed by converting corporate defined benefit plans to 401(k) plans is growing. Just a few weeks ago, the Boeing Co. announced it is freezing benefits for 68,000 workers and converting those workers to 401(k) plans starting in 2016. I understand that businesses want to limit their risks. That's prudent. I wish governments had had the foresight to see the risks of their decisions on granting pension benefits, and underfunding plans, or had the courage to be honest with their employees.
This issue highlights the quandary facing many older Americans. To have a decent retirement, it's beginning to look like individuals will have to save more, possibly much more. That means they will have less to spend on food, health care, golf, travel. If they can't save, they face real hardship -- unless the rest of us agree to boost their incomes somehow. It's becoming clear to me that, as a nation, we need to have a frank discussion about how we're going to finance retirement for all Americans so that we don't find ourselves with situations similar to Puerto Rico or Detroit everywhere we look.
I'll start the conversation with this idea. We need a new retirement scheme that requires individuals to start saving for retirement early with tax-sheltered money and with employers making contributions as well. It would limit the ability to take money out. The plan might replace or supplement Social Security in a more comprehensive way than the 401(k) plan ever was intended. The money would be invested in funds that are prudently managed and then converted into annuities immediately on retirement. The retiree would know in advance what his income would be and would be able to plan accordingly. Employers would know what their risks are and can use that information for long-term planning.
Yes, the mechanics would be tricky because the new system would need a management structure that's accountable and rigorously efficient. We know that the idea of privatizing Social Security went nowhere. And it may be that we're not talking privatizing. It's a word that generates lots of controversy. Fair enough. But we need to talk about retirement financing seriously. That's one of the things that Puerto Rico is telling us.
*Source data from Morningstar
March 29, 2014 12:42 pm
Published by dylan
There's reason to be concerned about Russia and the situation in Crimea; perhaps not so much in the short-run, but over the longer-run, we may see some challenges.
The concern stems from Russia's decision basically to steal the Crimean Peninsula from Ukraine. The move creates two important questions: How will Russia's reawakened nationalism affect economies in Europe as a whole and potentially the global economy, and what happens if tensions spin out of control?
In the short run, Russia’s move should not have much effect on the United States. True, grain and energy prices have moved higher in recent weeks. The odds are, however, that tensions won't escalate enough to disrupt the economic interests of the Russians or the West. Here's why.
Russia and Ukraine are major exporters of wheat and grains and this year should supply 17% of global wheat exports and 18% of coarse grain exports: corn, sorghum and the like: however, the United States is still the world's largest grain exporter -- 20% of wheat and 30% of coarse grains. It has ample stocks to limit domestic shortfalls. Add Australia, Canada and Argentina and Brazil to the mix, and world supplies are covered.
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Russia is also a major exporter of oil: 13.5% of global crude oil output. Thanks to vast reserves of natural gas, the state-owned Gazprom supplies about 30% of Europe's gas needs.
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The U.S. is not a major importer of Russian oil or gas. Our imports come mostly from Canada, Mexico and the Persian Gulf. Russian oil imports are just 2% of the U.S. total. Natural gas imports represent about 12.4% of consumption, but most come from Canada and Mexico. Russian gas imports are negligible.
It's the longer run situation that's concerning, in part because European and American companies have made big investments in Russia. Growing tensions could lead to more economic stresses on Europe in particular and the global economy as well. Here's what we mean:
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If sanctions result in disruptions in Russian grain exports, you can bet grain prices will jump globally and even boost food prices here at home. On the positive side, farmers could see profits rise.
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Europe's dependence on Russian natural gas, oil and coal makes its economies vulnerable. The problems would be most acute in places such as Finland, which depends on Russia for 100% of its gas supplies and two-thirds of its oil. Germany gets a fifth of its coal and 25% of its oil from Russia. If supplies to the West are halted, Europe could see its nascent recovery abruptly halted.
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Trade relationships might deteriorate. With Russian partners, McDonald's operates more than 400 restaurants across Russia and 73 in Ukraine. It has developed a sizable network of local suppliers to provide meat, buns and French fries.
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American manufacturers could be disrupted. Boeing Co. obtains about 35% of its titanium, the light but hyper-strong metal used to build airliners, from Russian sources. Russia is General Motors' fifth-largest market, representing about 2.8% of global sales. Ford Motor Co. has sold more than 1 million vehicles in Russian. Both have plants in the country.
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Exxon Mobil, Chevron and other oil companies have formed joint ventures to explore for more oil and gas. Sanctions could expose both to significant losses.
It is true that problems create opportunities. The most obvious is this: Let's say Russia stops shipping natural gas to central and western Europe; Russia is the region's biggest natural gas supplier. That could create a large market for liquid natural gas exports from the U.S. Already, companies are working on developing liquid natural gas terminals on the Gulf Coast.
Our team at JJ Burns is closely following events and we are assessing how other countries in greater Europe, India, and Asian economies are behaving. Many of these regions could decline sympathetically from Russia’s moves thereby creating investment opportunities. It may be a bit too early to jump on board or add to existing positions but not too early to understand the potential longer term benefits as they could enhance returns.
February 19, 2014 1:45 pm
Published by dylan
There's been a lot of talk about raising minimum wage levels in this country. In fact, there are efforts to raise the minimum wage going on in 34 states. Supporters of a higher minimum wage say the issue is that no one can live on minimum wages anywhere. Boosting it, they say, will give the economy some extra juice.
We’re all for giving the economy more juice. The recovery that started in 2009 has been among the weakest on record. Housing activity is still depressed compared with pre-crash levels. More than half of all residential construction jobs disappeared during the crash and only five percent of them have been recovered. News reports say there's a recovery in manufacturing, but it's hard to see. Employment in auto manufacturing is still 38% below the June 2000 level.
The unemployment rate fell to 6.7% in December and held at that level in January. But no one is cheering. One reason the rate is falling is that workers are leaving the work force.
So, yes, there's a problem. Yet, when I listen to all the talk about raising the minimum wage or instituting what some call a living wage -- enough for a family of four to get by on, I find myself thinking about what I hear from many clients who are small business owners. If the minimum wage goes up, they say, they'll be forced to cut jobs or reduce hours.
Small business owners are always thinking about labor costs. I often talk to owners of fast-food restaurants; some 88% of McDonald's restaurants are owned by franchisees. Fast-food operators are ahead of the talk about rising minimum wage rates. They're already looking for ways they can automate their processes. What does it mean? Fewer jobs, fewer hours, reduced or no benefits.
I can't blame them. Business people are in business to make money. If you squeeze profits, something will give. This is especially true for publicly held companies, where a stock can be crushed if results miss Wall Street estimates.
Check out this Bloomberg graphic to see how minimum wage levels vary from state to state:
So, if minimum wages are raised, there will be short-term benefits: more spending, more fuel for the economy. That's good. But proprietors find ways to cut costs. In the long run, then, nothing will change. I admit it's a vicious circle.
The fact is our economy has undergone profound changes in the last, say, 20 or 30 years. Manufacturing is a shadow of its old self. Whole industries are shrinking fast, like newspapers, even banking. Uncertainty rules, especially for those without a job or facing a job loss and, ultimately, seeing their incomes cut substantially. Income inequality is rising.
I don't think simply raising the minimum wage will solve these issues. The government can't create long-lasting income gains, and it shouldn't be in the job-creation business. I understand the need for safety nets. In times of major economic stress, they're very important. A stronger recovery will help mitigate some of the issues. Most importantly, I believe new opportunities will emerge when people are willing to take the time to get more education and improve their job skills. This can help an employer grow his business faster, boosting profits, and subsequently boosting benefits and wages for all.
January 15, 2014 11:00 am
Published by dylan
Uniquely successful people succeed because of the structures that govern how they think, how they work, how they play, how they interact with family, friends and colleagues. Here are five traits we see regularly. I hope you can use some of these concepts to get more out of your lives and achieve a more successful 2014.
Uniquely successful people never start the day after 9 a.m. They start much earlier. They get to work early because they want alone time -- time without interruptions of meetings, phone calls, email or staff wanting answers. They use their alone time to think about the challenges of the day or to contemplate plans for the future. Alone time is good for you.
Uniquely successful people never see problems; they see opportunities. Problems are challenges, to be sure. However, successful people see them as great tools to expand their success. A problem within a group at a company could be resolved with better communication. Or a business problem properly debated could lead to higher order thinking. Often times it can mean the idea doesn't work, but a tweak can turn it into a far better result.
Uniquely successful people never go it alone. They assemble experts and trusted advisors to share ideas, pare problems to the essentials and delegate instructions that will equally save time and solve challenges. Uniquely successful people -- and this is important -- are never defensive. They thrive on constructive criticism; it leads to better decisions. Richard Branson, the great English entrepreneur, has said he's succeeded because of the spirited give-and-take between himself and his team.
Uniquely successful people never do anything without a written plan. A plan can be as all-encompassing as the steps it will take to become CEO of a large company or as basic as tackling a home improvement project. Plans should be written with as many specifics as possible, including potential obstacles, solutions to consider and necessary action steps. The writing forces you to first articulate a goal and then the steps needed to achieve the goal. The most successful people take the plan a step further. They use their written plans to review and measure their progress and stay focused on the most important task. Furthermore, they understand the consequences of failing and the rewards of achievement.
Uniquely successful people never forget their loved ones. Balancing the passion in business with the loved ones in our lives is no easy task. Time with family opens yourself to new ideas. Last week I had a phone call with a client who took a small skiing trip over the holidays. He was excited to share his stories with me of getting the little ones into skiing gear, watching them have fun on the slopes, cooking meals together, the laughter and the stories. But what he appreciated most was the opportunity to see how his life fits in with the bigger picture. Not a bad thing.
December 19, 2013 5:45 pm
Published by dylan
Decisions you make between now and Dec. 31 will directly affect what you pay on your income taxes on April 15. Here are six ideas to trim your taxes.
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Make those charitable deductions by Dec. 31. To the United Way, to your college, your child's college or school, the local Humane Society, your church or synagogue, the local non-profit theatre company. Basically, any group that qualifies as a 501 (c)(3) organization. You can contribute cash. You can also contribute stock, mutual funds or other securities that you've held for more than a year.
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Fund your retirement plan and, if you're a business owner, overfund your company's pension plans. If you have a 401(k) plan, try to max out your contributions. That reduces adjusted gross income. The 2013 limit is $17,500. If you're 50 or older, you can add an additional $5,000. A business owner should look at making contributions to Keogh, SEP-IRAs, IRAs and the like. (For more, check this Internal Revenue Service release. Yes, sometimes the government IS here to help.)
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Defer income. Got a big bonus coming? Tell your company to defer the payment until next year so it's not 2013 income. If you're self-employed, send out invoices on Jan. 1. Have a big stock gain? Don't sell and defer the gain until next year.
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Pay next month's mortgage and 2014 property taxes now. Mortgage interest is deductible. Make your January payment on Dec. 31, and that month's interest is deductible. Pay your property taxes for 2014 on Dec. 31.
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Buy that new equipment. Are you expecting to add a new machine to your factory, put a new printer or buy a new dental or medical equipment? Buy it before Dec. 31, and you may be able to take advantage of the bonus depreciation and section 179 deductions available in 2013.
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Don't forget the AMT. This alternative -- and dreaded -- method of computing an income-tax bill is supposed to ensure everyone pays some tax. In New York, Connecticut and other high-tax states, too many deductions can trigger the AMT. Go through your income and expenses to see if these could trigger the AMT. You may want to push some deductions into 2014.
One last tip. Start thinking about your 2014 tax bill. Your income tax return for 2013 offers a guide to what your 2014 taxes may look like. Planning now can keep your taxes under control. Here's what we mean. If you need surgery and expect big-out-pocket expenses, maybe wait until next year. You can only deduct the expenses that exceed 10 percent of adjusted gross income.
On behalf of our team we wish you health and happiness this holiday season!
