One of the Biggest Investing Mistakes for Women

There is so much information out there for women about investing … news stories, case studies, research reports, white papers and books try to answer common investment questions.  But this well-intentioned information should come with a warning label: Lumping women investors together in one big category is a cliché’ to be avoided at all costs. 

Similar But Not the Same

While the similarities among women investors can be significant, cookie cutter advice is not specific enough to rely on over the long term. Over the last 20 years I have had the pleasure of working with many women with backgrounds as diverse as snowflakes. A couple of common themes I see working with women investors is a high degree of importance placed on the personal connection with an advisor, and an intuitive sense that links investment decisions to heartfelt priorities including family and charitable causes.

Differences Abound

Differences are also abundant and unique to each individual.  For example, a woman in her 50’s who is immersed in her career and has launched children is in a different place than a woman who is recently widowed or divorced.  Even women who have achieved similar career goals cannot be lumped together.  Some have built investment savvy along the way and some have not.  The real work begins with the discovery of how each woman investor is different from other women even when they share general characteristics.   

Creating Your Vision

Discovery starts with a personal vision that is linked to your unique financial life planning.   Vision implies you have a view of exactly where you want to go and you chart a course accordingly. It’s like plotting a journey on a map – straightforward with no distractions or alternate routes.  The reality is that, for many women, the vision diverges into quite a lot of directions.  It is at these points where the advisor you work with really can make a difference.

Hitting mile markers where life and money intersect including career changes, divorce, loss of a spouse or retirement are all opportunities to regroup resources, refocus on the vision, and move forward with plans for the future.  Avoiding clichés associated with being a woman investor is an important part of the process. 

Laurie Renchik, CFP®, MBA is a Senior Financial Planner at Center for Financial Planning, Inc. In addition to working with women who are in the midst of a transition (career change, receiving an inheritance, losing a life partner, divorce or remarriage), Laurie works with clients who are planning for retirement. Laurie was named to the 2013 Five Star Wealth Managers list in Detroit Hour magazine, is a member of the Leadership Oakland Alumni Association and in addition to her frequent contributions to Money Centered, she manages and is a frequent contributor to Center Connections at The Center.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Any opinions are those of Center for Financial Planning, Inc., and not necessary those of Raymond James. #C13-002513

How to Make Net Unrealized Appreciation Work for You

The financial planning profession is full of acronyms such as RMD, IRA, TSA and NUA.  One acronym making a comeback due to the increase in the US Equity market is “NUA”.  NUA stands for net unrealized appreciation and anyone with a 401k account containing stock might want to better understand it.  NUA comes into play when a person retires or otherwise leaves an employer sponsored 401k plan.  In many cases, 401k funds are rolled over to an IRA.  However, if you hold company stock in the 401k plan, you might be best served by rolling the company stock out separately. 

Before getting to an example, here are the gory details: The net unrealized appreciation in securities is the excess of the fair market value over the cost basis and may be excluded from the participant's income. Further, it is not subject to the 10% penalty tax even though the participant is under age 59-1/2, since, with limited exceptions; the 10% tax only applies to amounts included in income.  The cost basis is added to income and subject to the 10% penalty, if the participant is under 59.5 and the securities are not rolled over to an IRA.

Suppose Mary age 62 works for a large company that offers a 401k plan.  Over the years she has purchased $50,000 of XYZ company stock and it has appreciated over the years with a current value of $150,000.  Therefore, Mary has a basis of $50,000 and net unrealized appreciation of $100,000. 

If Mary rolls XYZ stock over to an IRA at retirement or termination, the full $150,000 will be taxed like the other funds at ordinary income tax rates when distributed.  However, if Mary rolls XYZ stock out separately the tax rules are different and potentially more favorable.  In the example above, if Mary rolls XYZ out she will pay ordinary income tax immediately on $50,000 but may obtain long term capital treatment on the $100,000 appreciation when the stock is sold; thus potentially saving several thousand dollars in income tax.

A NUA transaction is complex so care and professional guidance is encouraged.   

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material, is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  You should discuss any tax or legal matters with the appropriate professional.

A Well-timed Time-out

 Growing up, my sport of choice through high school and college – or at least the sport I didn’t get cut from in tryouts -- was Golf.  The term sport is, I think, loosely applied to the game of golf.  Anything you can do while eating, drinking and socializing sounded like my kind of sport.  While golf isn’t the type of sport you take a time-out in, I still learned to recognize the value a time-out can offer.  A time-out gives you a chance to catch your breath, look around and assess the situation.

Recently I took a time-out from my daily duties at The Center to attend a conference in Chicago that gathered some excellent investment managers in one place to discuss current investing themes. One presentation summarized cleanly a theme our investment committee has been working on for the past several months…investing around the world (especially in Europe).  It has been compelling to us because the EU recovery lags behind the rebound the United States has enjoyed.  With headlines as seen below it appears there could be an excellent investment opportunity for certain investors.

Source: Harris Associates L.P.

When headlines are at their worst, investment opportunity is usually at its greatest. Europe emerging from their recession could have a strong positive impact on international equities in general.  So take a time-out to notice what is happening on the international front. While other investors aren’t slowing their game, take a moment to step back and assess. A time-out can be an excellent tool to uncover investment opportunities.

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

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The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.  Investing involves risk and investors may incur a profit or loss.

An Economic Perspective: Housing on the Mend with Little Sign of Concern

 Housing, as an industry, during the last down cycle beginning in 2007 went through the mother of all housing bear markets. We all know the problems that relaxed lending standards and cheap money caused. Many are wondering if it will happen again.

New housing permits and housing starts are moving strongly upward again (as shown below). But it took a while to work through the overhead supply that was sitting on the marketplace. In 2007, there were 4.3 million homes on the market in the US.  That number has dropped to 2.3 million homes over the last 6 years.

The US economy requires about 1.4 million new units a year for:

1. New home owners (demographics)
2. Demolitions (replacement of old homes) 

But only about 900,000 new homes are being built annually.  We are continuing to cut through that supply in the market place.  At this rate there will not be a home left to purchase in America in about 5 years.

So, I would say that we are already at what historically looks like a tight supply market (which usually impact prices). As shown on the “Home Prices” chart below, we are seeing that as prices go up all across the country.  Over the last 12 months prices have increased some 20% nationally according to the Case-Shiller index.

Furthermore take into consideration the still encouraging “affordability index” which indicates that it’s still cheaper to buy than rent (as shown above). We believe All signs indicate we have a bull market in housing underway without the same ominous signs we saw at the end of the last housing bull market.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information contained in this report does not purport to be a complete description of the markets or developments referred to in this material, and is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Past performance may not be indicative of future results.  Be sure to contact a qualified professional regarding your particular situation before making an investment decision.

Is Too Much Success a Penalty at Tax Time?

Many investors have been so successful they may face a potentially hefty tax bill for 2013.  This bull market we are experiencing in the U.S. has had such strong legs for a long period of time many investors have few, if any, capital losses to harvest to help offset the gains they have accumulated in their equity investments. In some ways this is a great problem to have. 

Tax Increases

This year there were a couple of noteworthy tax increases to keep in mind.  The maximum tax rate on capital gains has increased from 15% to 20%.  Taxpayers with taxable income north of $400,000 ($450,000 for couples) will be affected by this increase.  There is also the new Medicare investment income “surtax” affecting taxpayers with modified adjusted gross income over $200,000 ($250,000 for couples).  This tax is an additional 3.8% on investment income (interest, capital gains, dividends etc.).

Look for Bond Losses

Some taxpayers may still have tax losses from 2008-2009 to help offset gains, but for many these have run out during the successful run the markets have enjoyed for the past 4 ½ years.  One place to look for some losses this year may be in the bond portion of your portfolio (if applicable).  There may be an opportunity to swap to a similar investment for a short period of time, at least 31 days, to harvest those losses to help offset other gains you may have. 

Harvesting Losses

Make sure you are reviewing your portfolio throughout the year for tax losses to harvest.  Bond losses were at their peak during late summer and into the fall, but if you wait until December to harvest those losses, they could be much diminished from what they were.  The end of the year is rarely the best time of the year to harvest tax losses.  Personal circumstances vary widely so it is critical to work with your tax professional and financial advisor today to prepare for the risk of higher taxes in your future.

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  You should discuss any tax or legal matters with the appropriate professional.

Oil Trends Could Free U.S.

 Have you noticed the price at the pump lately? The cost of gas has gone down and we very well could be at an energy cost plateau for some time.  This stability in energy prices removes one of the many potential shocks that can combat the economic system.

According to the Energy Information Administration, the United States will consume total of 7 billion barrels a year (22 Million barrels a day) -- about 22% of total world petroleum consumption -- in 2013. An analyst that I spoke with recently, who has spent his entire career of over 40 years in the energy space, believes that America could be energy independent by 2020 and prices could remain fairly stable until 2040.  But there are so many moving parts it’s really too difficult to tell exactly.   

On the supply side of the equation, at current market prices the US (in blue below) has just become the second largest global producer surpassing Russia (tracked in brown) for total liquid fuel production in the world.

Consider some other positive outcomes:

1. Chemical plants are being built in the US again for the first time in 25 years because of oil shale.  They are building them with cheap financing, cheap energy and cheap labor right near the shale. US Chemical companies are the low cost producers in the world now. 
2. The International Energy Agency said recently that the US is on track to becoming the leading global producer within the next decade.  
3. Demand has waned as well due to higher prices and efficiencies as people grow more conscientious.
4. The best outcome of all would be if the US becomes less dependent on OPEC and their “Oil Weapon” which has been dangled ominously over us for 3 decades.  We very well could be in greater control of our supply shocks for a decade or two, maybe much longer if we use this time to develop alternative energy sources that could sustain us after the shale runs out.

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information contained in this report does not purport to be a complete description of the markets or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of Raymond James.  Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.

Energy's Shock Absorbers to the Economy

 Know much about the natural gas trapped in shale? You don’t need to, but the abundance of this natural resource may be one of the things our economy needs. The US economy could very well have shock absorbers for a while.  These colored areas on the map below are energy resources that could lead to our energy independence for decades to come.

None of us at The Center are environmentalist, geologist or oil experts; we are also are not economists.  But we’ve been doing our homework on shale as we try to understand what is going on in the economy. With oil prices at much higher levels than most of history, shale gas can allow for a less conventional technology to be used to recover energy. 

Horizontal drilling and hydrofracking technology breaks open shale rock by pumping high-pressure fluids into the ground, making shale gas abundantly accessible. According to some experts, the United States alone has over a 100-year supply of this unconventional energy source.

Remember all of the buzz about running out of natural resources on the planet? Just a decade ago we were consumed by the fact that we would be out of energy to move us around the planet and heat our homes in the not too distant future.  But when you move the dial in price up a few notches all kinds of things came on line meeting demand with new supply.     

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information contained in this report does not purport to be a complete description of the markets or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.

Compartmentalize Your Finances

 Love Starbucks? A lot of us do, but try answering this question I recently heard posed by a behavioral finance professor:  “Would you be more inclined to order a latte that was advertised as 95% fat free, or one labeled 5% fat?”  The two $5 drinks are the exact same, however, I would venture to say 99.9% of people (including me) would choose the drink that was advertised as 95% fat free.  Perception is as powerful force in the coffee world as it is in the investment world. Perception can work against you when it comes to savings or it can fuel you. Much of that depends on how you compartmentalize.

The Behavioral Finance of Compartmentalizing

So what does it mean to compartmentalize?  Simply put it is separating two or more things from each other.  In personal finance, separating certain accounts to have individual goals can have a tremendous effect on the likelihood of savings and overall success of the individual’s financial plan.  For instance, one of the most important pieces of a financial plan is maintaining an adequate emergency fund for the dreaded unknowns – such as job loss, unexpected home improvements, medical expenses, etc. (The Center team usually recommends that clients maintain 3 – 12 months of living expenses in a cash account that is not subject to market risk). 

Establish Separate Accounts

If you find yourself constantly transferring funds from your savings to your checking account each month because they are at the same institution and the ease of the transfer is just to easy to resist, consider making a change!  Why not open a savings account at a completely different financial institution and maintain your emergency fund there, knowing this money cannot be touched except for an emergency. 

Give it a Label

Many banks now allow you to name an account and personalize it.  So instead of seeing your account being titled as “Savings” each time you log in, it would read “Emergency fund – don’t touch!”  Adding that “name” or “purpose” to the account has been proven to dramatically increase savings levels and decrease the likelihood of spending out of the account. 

Keep it Simple

Separating accounts for each individual goal in retirement, however, is pretty unrealistic.  Who wants to have 20 different IRA accounts?  At The Center, we like to keep things simple to stay organized and on track.  However, our advisors do encourage clients to compartmentalize in their minds when looking at their overall stock/bond/cash allocation to stay focused and not lose track of the purpose of each type of asset that is held within the portfolio.  Each “bucket” of funds has a purpose and impact on the total portfolio and it is The Center’s job as your trusted advisor team to help you fill each one and utilize them to their maximum potential.  

Nick Defenthaler, CFP® is a Support Associate at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

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The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Deducting Investment Management Fees & Medicare Surtax: Note for Higher Income Earners

 High earners beware! Thanks to the new Medicare Surtax deducting investment management fees becomes even more complicated.

This potentially applies if you are:

• Single earning more than $200,000
• Married filing jointly earning more than $250,000

In a blog last year I explained the grey area of deductibility of investment management fees. In general, investment management fees paid in taxable accounts (such as single, joint or living trust accounts) are a tax deductible expense and reported as a Miscellaneous Itemized deduction on Schedule A of Form 1040. However, this only benefits taxpayers whose Miscellaneous Itemized deductions exceed 2% of their Adjusted Gross Income.

But the new Medicare Surtax further fogs up this grey area. The basic rule is that investment management fees are deductible against the 3.8% Medicare surtax on net investment income.  However, the 2% “rule” still applies, and to further complicate the issue, the deduction amount must be prorated if you have other miscellaneous deductions. 

The good news is that for those working with a professional tax preparer you may not even notice the fog. You will want to continue to provide your tax preparer your yearend tax report from your brokerage firm (such as Raymond James) which contains the necessary information on investment management fees. For those preparing their own tax return, the IRS has stated that they will be providing special IRS forms to assist in the calculation early next year.

As always, if you need help getting through the maze, give us a call. 

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Please note, changes in tax laws may occur at any time and could have substantial impact upon each person’s situation.  While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters.  You should discuss tax or legal matters with the appropriate professional.

Is This What A Secular Bull Market Feels Like?

 Fall is a wonderful time in Michigan.  The leaves are turning, the Tigers gave us some playoff excitement and football season is in full swing.  Economists and money managers must agree as many have been visiting the state giving us the opportunity to sit down with various experts over the past couple of weeks here at the Center.  One theme kept coming up while I was listening to a couple of these individuals and it was a welcome distraction from the typical debt ceiling/government shutdown conversations…the secular bull market.

The chart below shows the long-term secular trends for the Dow Jones over the past 100 or so years.  You can see that the markets go through long periods of stagnation, in essence going nowhere fast; followed by periods of steady increases.  These periods of stedily rising markets (indicated below in green) are referred to as secular bull markets.  You can see that this year the Dow has finally broken out of the sideways trading range of the past 12 years. 

The U.S. equity markets have been in a positive trend for four years now, yet one expert stated this is the least trusted, least believed bull market he has ever witnessed.  Most investors erroneously believe that the environment has to feel good before it is the right time to invest.   Unfortunately, once it feels good to invest it is usually the wrong time, think buying technology stocks in 1999.

Whether or not we are in a secular bull market remains to be seen, but once we can say for certain that we are it is usually too late.  Having a financial plan and staying disciplined with your investments, I think, is the most important key to successfully meeting your goals.  

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

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The information contained in this report does not purport to be a complete dexcription of the securities, markets, or developments referred to in this material.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.  Expressions of opinion are as of this date and are subject to change without notice.  Past performance may not be indicative of future results.  Holding stocks for the long-term does not insure a profitable outcome.  Investing in stocks always involves risk, including the possibility of losing one’s entire investment.