The Gambler

While I’m not a big country music fan, one of the few country songs I can sing along to is “The Gambler” by Kenny Rogers.  While Kenny certainly knew how to make money, he also had a pretty good idea of how to keep it:  “You gotta know when to hold ‘em, know when to fold ‘em, know when to walk away and know when to run.”  There’s a valuable lesson for investors in those lyrics. 

When investing most people (and professionals too), spend a lot of time deciding which investments to buy and little time understanding when to sell.  Having a security selection process and understanding what you own and why you own it is important to the investment process, as you can read about here, but it may be even more important to successful investing to have a proper sell discipline.  

Part of your process, even before buying a security, should be to outline reasons you would hold the investment even, perhaps, through periods of underperformance and also to establish factors that would cause you to sell it in the future.  At The Center for Financial Planning, Inc. some of our potential sell reasons include: 

  • Key personnel departure
  • Attainment of your price target
  • Increased correlation to other investments; and so on.

Having these points in mind makes it easier and much less emotional when thinking about selling a position.  

While it is usually best to buy and hold over longer periods of time, it is a good idea to play devil’s advocate with your portfolio.  Have you heard of the endowment effect?  Simply put the endowment effect states that once you own something you start to place a higher value on it than others would.  A way to potentially mitigate the endowment effect is to ask yourself, “If I were to build a portfolio today would this security be part of it?”  If the answer is “no” then it may be time to sell the investment and purchase something with greater growth potential from this point forward. 

Knowing when to hold ‘em and fold ‘em doesn’t come easily. But with some thought, you can successfully time when you buy and when you sell, because you never want to have to walk away … or worse yet … have to run!

James Montier.  Little Book of Behavioral Investing.  2010

The information contained in this report does not purport to be a complete description of the 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.  Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.  Investing involves risk and you may incur a profit or loss regardless or strategy selected.  Consult a Financial Advisor before implementing any investment strategy.  Links are being provided for information purposes only.  Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.  Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

Matt Chope Glimpses the Future in Texas

Center Planner Matt Chope recently traveled to Texas to attend a Raymond James Regional Conference. Matt returned with a full plate of ideas and information to share with Center team members. According to him, “Attending the conference gave me a chance to sit with industry experts for 3 days and learn about the latest nuances in many areas of financial planning for 2012.”

Key conference highlights included:
  • Listening to some of the best money managers in the business share ideas about where the economy is headed and the state of the investment environment.
  • Social security experts presented ideas on the best strategies to incorporate for clients (hint hint: signing up isn’t as easy as it sounds so talk to a financial planning CFP(r) specialist first).
  • Introduction of new developments in technology that foster effective use of data and help create efficient resources to serve the needs of clients. At The Center, this will mean state-of-the-art changes that will help us better plan for our clients’ futures.

Matt came back energized and excited to share what he learned with his counterparts at The Center. Luckily, he did not come back saying “y’all.” 

,

Why Age Matters with Michigan's New Pension Tax: Updated

,

Originally posted December 26, 2011

Michigan held out...they protected people collecting pensions for as long as possible. But the tax breaks are over, as Michigan follows suit with many other states in the nation by taxing pensions. It all begins January 1, 2012. Not all retirees with pension income are affected. However, if your pension income is subject to Michigan tax, under the new rules, you will need to withhold Michigan tax in the amount of 4.35%.

Here’s how the new law may affect you --

1.  IF YOU WERE BORN BEFORE 1946

No change in current law

  • Social Security is exempt
  • Senior citizen subtraction for interest, dividends and capital gains is unchanged
  • Public pension is exempt
  • For 2012 private pensions subtract up to $47,309 for single filers and $94,618 for joint filers.    

What will happen:  No Michigan tax is withheld from pension payments unless you request it. 

 2.   IF YOU WERE BORN BETWEEN 1946 AND 1952

Before the taxpayer reaches age 67

  • Social Security is exempt
  • Railroad and Military pensions are exempt
  • Not eligible for the senior citizen subtraction for interest, dividends and capital gains.
  • Public and private pension limited subtraction of $20,000 for single filers or $40,000 for joint filers. 

After the taxpayer reaches age 67 (**Will first occur in 2013**)

  • Social Security is exempt
  • Railroad and Military pensions are exempt (but see below)
  • Not eligible for senior citizen subtraction for interest, dividends and capital gains
  • Subtraction against all income of $20,000 for single filers and $40,000 for joint filers.
    • Not eligible for this income subtraction if choosing to claim a military or railroad pension exemption.

What will happen:  Michigan tax will be withheld from your January 2012 pension payment based on the number of exemptions you requested for your federal income tax. 

TAXPAYER EXAMPLE:

Tom and Nancy Jones are a married couple. Tom was born in 1947, is retired and collects social security and a pension.  Nancy was born in 1951, and is still working.

Tom’s Pension = $30,000

Tom’s Social Security = $20,000

Nancy’s wages = $40,000 

Will the Jones' be subject to pension tax in this scenario? 

Not under current tax law

  • Pension subtraction = $30,000
  • No withholding necessary on pension
  • Social security is exempt   

3.  IF YOU WERE BORN AFTER 1952

Your pension will be subject to Michigan income tax until you reach age 67. 

Before the taxpayer reaches age 67

  • Social Security is exempt
  • Railroad and military pensions are exempt
  • Not eligible for the senior citizen subtraction for interest, dividends and capital gains
  • Not eligible for public or private pension subtraction

After taxpayer reaches age 67 (**Will first occur in 2020)

  • Not eligible for senior citizen subtraction for interest, dividends and capital gains
  • Not eligible for public or private pension subtraction
  • Income exemption election:
    • ELECT exemption against all income of $20,000 for single filers or $40,000 for joint filers
      • No exemption for Social Security, military or railroad retirement
      • No personal exemptions

**OR**

  •   ELECT to exempt Social Security, military and railroad pension.  May claim personal exemptions.

What will happen:  Michigan tax will be withheld from your January 2012 pension payment based on the number of exemptions you requested for your federal income tax. 

As always, our advice is to work with your professional advisors if you have any questions about the tax law changes and your pension income. Laurie.Renchik@Centerfinplan.com or Julie.Hall@Centerfinplan.com

Note:  Changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation.  While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors with RJFS, we are not qualified to render advice on tax matters.  You should discuss tax matters with the appropriate professional.

Source:  www.michigan.gov

,

Aging in Lansing

,

Sandy Adams and Laurie Renchik weren’t seeking the fountain of youth on a recent trip to Lansing, rather they went in search of important information on aging. The two met with State of Michigan officials in the Office of Services to the Aging (OSA). As representatives for the MI Financial Planning Association (FPA), Sandy and Laurie were fact-finding in a couple of key areas:

Talking about senior financial fraud and abuse issues

  •  Learning how the Government Relations Committee of Michigan’s FPA can support legislation designed to protect seniors from financial fraud and abuse
  • Exploring what non-legislative opportunities exist to assist OSA staff and their senior resource hotline

Finding out what our State Agencies know about the FPA, the financial planning profession and the Certified Financial Planner™ designation (CFP®)

  • The meeting helped Sandy and Laurie understand the opportunity to provide education about licensing and the meaning of credentials advisors use in the financial planning industry
  • We also provided Michigan OSA officials with information about the full extent of the relationships and services we provide to our clients

Sandy found the trip was very enlightening. “I feel good knowing that we started the process of educating the OSA about our industry and that we will be providing important input to them as they propose and support legislation to protect seniors in our state.”  

Laurie agreed that the trip was an eye-opener. “The dialogue was open and confirmed that we can be a resource to elected officials, state government and the citizens of Michigan.”  She added that it takes a collaborative effort to understand how everyone can work together to protect at-risk seniors from financial fraud and abuse. 

A Busy February for Our Health & Wellness Team

Our crew kicked the month off with a Go Red for Women week by recognizing a GO RED activity each day.  The week’s festivities included:

Monday:           Pin Day – We handed out pins to wear all week in support.

Tuesday:          Smoothie Day – A donation was given for each smoothie.

Wednesday:    Red Snack Day – Enjoyed strawberries and chocolate dip.

Thursday:         Appreciation Day – Gave a heart to someone you appreciate at work & told them why.

Friday:              Wear Red Day – Wore red and a smile. 

Center staff continues to log their health and wellness activities on the American Heart Association ® Start! website.   Julie Hall won a gift card to Starbucks for logging the most activities this month with Sandy Adams right behind winning a gift card for Subway.

Guest speaker, Venette Hysmith from Affordable Wellness Massage spoke to The Center about the importance of deep breathing, proper stretching, and ergonomics for the workplace.  We all came away with some new and simple to use health nuggets to put into practice.

Souper Thursdays continues to produce delicious feast and donations to the Cystinosis Research Network.   Here’s a look at one of our favorites!

,

Governor Delivers Bright Forecast

,

Calling for the people of Michigan to take “relentless positive action,” Governor Rick Snyder delivered the keynote address for the Birmingham Bloomfield Chamber’s Annual Government Forecast.  Five Center team members and their guests were on hand, along with about 300 attendees to hear Governor Snyder share an inspiring and positive message that focused on common-sense solutions for Michigan’s future and politics. 

Instead of putting the focus on divisive issues, he wants to find ways, during times of economic unrest, to move the state and its economy forward. After Governor Synder delivered his “the year of Good Government” themed message, attendees had ample opportunity to participate in a lively question and answer period.  Please visit Birmingham Patch for additional event highlights and news.

Center team members in attendance were Tim Wyman, Laurie Renchik, Dan Boyce, Melissa Joy and Troy Wyman.

The Ups and Downs of a Dropping Unemployment Rate

In College Economics 101 (which I’ll admit was one of my favorite classes despite the risk of sounding like a nerd), one of the first things that we learned was that unemployment is a lagging indicator of a recession.  So generally speaking, it is one of the last aspects of the economy to recover after going through a recession like we did in 2008 and 2009.  We also learned that lower unemployment is good, which is pretty logical.  The reason looks like this to me:

So when I saw a headline that unemployment falling is having a negative impact on our state, it made me stop and scratch my head.

While the unemployment line in Michigan getting shorter is good news for many, about 10%, or 30,000 of the states’ long-term unemployed have lost their benefits because of this.  Wait, how can people going back to work cause others to lose their benefits?  It’s all in the fine print.

For new initial unemployment claims regular state unemployment benefits run for 20 weeks.  In addition, those who still have not found a job after 20 weeks can receive an extension from the federal government’s Emergency Unemployment Compensation fund for up to an additional 33 weeks.  The federal extended benefits program then provides another 20 weeks of unemployment benefits to those that exhaust even the 53 weeks of benefits without finding a job.

But (and there’s always a “but”) the state needs to meet a couple of requirements for their residents to qualify for those final 20 weeks of benefits.  First, the unemployment rate of the state has to be above 6.5% (Michigan is at 9.3% so no problem there).  However, the unemployment rate also needs to be 10% higher than the average total jobless rate for the same period in any of the last three years, or above 9.9% now.  As of January 28th Michigan does not meet the second requirement, resulting in this loss of aid to those people.

So, forget your textbook definitions.  Falling unemployment can be good in a lot of ways, but there is a downside too.  And when it comes to the jobless, that downside means the difference between getting some much-needed help and going it alone.

Source: Michigan.gov
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.

,

Three Legged Stool Strategy

,

Generating income in retirement is one of the most common financial goals for retirees and soon to be retirees.  The good news is that there are a variety of ways to “recreate your paycheck”. Retirement income might be visualized using a “Three Legged Stool”.  The first two sources or legs of retirement income are generally social security and pensions (although fewer and fewer retirees are covered by a pension these days). The third leg for most retirees will come from personal investments (there is a potential fourth leg – part time work – but that’s for another day).  It is this leg of the stool, the investment leg, that requires preparation, planning and analysis. The most effective plan for you depends on your individual circumstances, but here are some common methods for your consideration:  

  1. Dividends and Interest
  2. 3 – 5 Year Income Cushion or Bucket
  3. The Annuity Cushion
  4. Systematic Withdrawal or Total Return Approach 

Dividends & Interest:

Usually a balanced portfolio is constructed so your investment income – dividends and interest – is sufficient to meet your living expenses.  Principal is used only for major discretionary capital purchases.  This method is used only when there is sufficient investment capital available to meet your income need after social security and pension, if any. 

3-5   Year Income Cushion or Bucket Approach:

This method might be appropriate when your investment portfolio is not large enough to generate sufficient dividends and interest. Preferably 5 (but no less than 3) years of your income shortfall is held in lower risk fixed income investments and are available as needed. The balance of the portfolio is usually invested in a balanced portfolio. The Income Cushion or Bucket is replenished periodically.  For example, if the stock market is up, liquidate sufficient stock to maintain the 3-5 year cushion. If stock market is down, draw on the fixed income cushion while you anticipate the market to recover.  If fixed income is exhausted, review your income requirements, which may lead to at least a temporary reduction in income. 

The Annuity Cushion

This method is very similar to the 3-5 year income cushion. A portion of the fixed income portfolio is placed into a fixed-period immediate annuity with at least a 5-year income stream.  This method might work well when a bridge is needed to a future income stream such as social security or pension. 

Systematic Withdrawal or Total Return Approach

Consider this method again if your portfolio does not generate sufficient interest and dividends to meet your income shortfall. Generally speaking, a balanced or equity-tilted portfolio in which the income shortfall (after interest income) is met at least partially from equity withdrawals.  Lastly, set a reasonably conservative systematic withdrawal rate, which studies suggest near 4% of the initial portfolio value adjusted annually for inflation. 

After helping retirees for the last 27 years create workable retirement income, we have found that many times one of the above methods (and even a combination) works in re-creating your paycheck in retirement.  The key is to provide a strong foundation – or in this case – a sturdy stool. 

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. Investments mentioned may not be suitable for all investors.  Dividends are not guaranteed and must be authorized by the company’s board of directors.  There is an inverse relationship between interest rate movements and fixed income prices.  Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices generally rise.  Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Live YOUR Plan™

Newsletter Signup