Skip's Thoughts on Trade War

Can I Afford To Retire? Part 2

Retiree Cash Flow
20 Year vs Current

Can I Afford to Retire?

Retiree Stress Test

Charity Assessment

Quiz

 
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Skip's Thoughts on Fiduciary Regulations (1)

http://helmswealthmanagement.blogspot.com/2017/03/what-to-ask-prospective-advisors_9.html

Life Insurance Reviews

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Be Careful Out There

Talking to Your Parents (or Kids) About Money

I got a great question the other day.   A client asked how to talk to her parents about their money.  I’m writing this as an answer for her but the message applies to both generations.

Some parents readily share their financial and succession planning.  Some don’t – either because they keep it to themselves or because they don’t have a plan.  

That puts you in a bind.  What your parents want but don’t say, they probably don’t get.  You could be asked for significant personal time and financial commitments.  Resentments arise from guessing on short notice when you could have had facts years before.

I recommend you ask forcefully enough to get their attention – maybe something like, “Mom, have you thought about what you might need from us down the road?”  Be tactful but let him/her/they know this isn’t idle chat.

Responses vary widely.  Sometimes, parents open-up and the family gets closer. Other times, dad just won’t talk.  Keep working at it.

This isn’t just about helping them.  It’s about protecting yourself.  Together, we crafted a plan for you to retire, educate your kids and meet your commitments.  It didn’t include ending your career to rummage through your parents’ basement for old tax records.  It’s hard on siblings too.  Usually the closest and/or best-heeled bear most of the load and they will resent it if nobody asked first.

These are sensitive conversations but you have to have them.  A botched succession can wipe-out years of careful investing and do irreparable damage to your family.  I’ve seen it more times than I’ve liked.

Let me help.  I can act as a facilitator with your family since I know a lot of the things you need to discuss.  I can also introduce you and your parents to legal and tax advisors when you decide who does what.  

Just call if you need me.  Skip 

PS  Ask me about a “Family Love Letter”.  sh   

Bonus blog:

Family succession is a business.  There are things of value.  There are things you need to keep going.  Personnel skills are not uniform.  Neither are expectations.  Some of the kids might benefit from remedial training before they inherit a multiple of their current net worth.  There may also be ambitious third husbands to manage.

You won’t get all of the answers in a day but start the process.  sh

As always, the opinions expressed here are mine and don’t necessarily represent the views of LPL Financial or anyone else. 

Gratitude

Every working day I switch-on the computer to check my tasks, schedule and what’s happening in the world.  Before I even get to those, I look at my Gratitude List.

Gratitude is a powerful, positive emotion.  Reminding myself of all my blessings is the perfect way to start the day.  In this season of gratitude, I’d like share some of the things for which I’m so grateful:

• For the courage, kindness and patience of the woman I love,

• For a job I enjoy and the ability to help people who like me,

• To live in a country where I can be as much as I can make of myself and

• To benefit from others who made the most of their opportunities,

• To live in a time of health where things that would have killed me in previous generations were better in a week (although slightly less grateful for the cost of insuring care lately 😊),

• For dear friends and family, both here and gone, who lit my way and

• Parents who taught me to love learning.

There are others.  Thanks so much for the chance to reaffirm just how much I appreciate being right here right now.  

Enjoy all the blessings of the season with the ones you love, sh  

The Qualifying Charitable Distribution

Using the Qualifying Charitable Distribution (QCD) for IRA’s

There is a tax provision that allows people over 70 ½ to transfer up to $100,000 a year from their IRA to a qualifying charity as a direct pass-through.  It usually doesn’t affect your other taxes and can be used to satisfy your Required Minimum Distributions.  In other words – the state and federal governments never see a dime.  

I’d like to come at the opportunity from two different angles.  The first is for people who are both generous to charity and to their family.  The second is for leaders (or soon-to-be leaders) in those charities.

For families: think of this more as succession planning than current tax planning.  

Your family inherits your assets in three buckets.  Bucket one has things like real estate, securities and personal possessions.  Your heirs may get a step-up in the cost basis so all capital gains are forgiven.  Assets pass at 100 cents on the dollar.

Bucket two has life insurance.  Structured correctly, your family gets those benefits income tax free.

Bucket three has assets that are always taxable like annuities and retirement accounts.  If you don’t pay the tax, your heirs will.  Your children (the employed ones) could lose up to 40% of the value to the government.

Bucket three is the low-hanging fruit for charitable giving.  If you want to do right by your church or cause, give them assets with limited value to your taxable heirs.  Leave your family the assets they can keep.  The QCD is a good start.

At your annual financial planning review, make a list of what’s in your three buckets.  You may also find things in the first two you can do without now and enjoy the deduction.  Some gifts are best given from a warm hand.

For inspiring charitable leaders:  This isn’t about using the QCD – it’s about selling it.

You know people who could contribute a lot more than they have.  Next time you ask for a donation, DO NOT ask for cash!

Try this instead:

Hello Jeff, It’s campaign time again.  Will you be using the new IRA direct transfer this year?

Huh?

It’s a loophole that allows folks to transfer money directly from their IRA to charities like us without paying any taxes.  You can use it to avoid taxes on your required distributions too.  It’s limited to a hundred thousand dollars a year – but we can work around that.  Handy estate gift too …

Er, uh ….

Why don’t you and Helen join us for lunch next Thursday?  I can tell you how we’re taking advantage of the opportunity.

See you then.

Let’s break this down:  In a few sentences, you significantly raised the bar, brought new assets into the conversation, broached death and taxes tactfully, let him know he’s not alone and closed for the “ask” appointment.

Does it matter if he isn’t 70 ½ yet?  No.  Taking money from an IRA and deducting it works about the same as the pass-through for most people in their sixties.

Does it matter if he doesn’t even have an IRA?  No. There may be things in buckets one and two that offer nice write-offs.  

What does matter is you just started a peer-to-peer conversation about his serious money.  Cash is a byproduct of assets.  Go for the source!

BTW, big checks like this make nice challenge grants to help other contributors find their wallets.  Leverage them.  Maybe Jeff can make a couple calls.

Your pancake breakfast isn’t going to restore the chapel.  Be inspirational!  

If I can help explain this to friends who serve, just say when and where and I’ll be there.

As always, the opinions expressed here are mine and don’t necessarily reflect the views of LPL Financial or anyone else.  This is generic information so definitely run this by your tax and legal advisors for your specific situation.  They may have even better ways to have your cake and eat it too.  sh   

On Market Timing - Part One

“Buy Low, Sell High.”

Perhaps the most persistent fantasy in all of investing is selling a profitable position at the very top of its market cycle and buying it back at the bottom.  You keep all the profits, avoid all of the losses and look really smart. 

I can’t time the markets like that.  I feel a little better that some great investors have said the same thing.  There are people who can time broad financial markets but none of them have ever called to tell me how they do it.  When someone does offer to share their proprietary market timing strategy, we count the silverware.

Over the next three blogs I’m going to explore market timing; why it’s so hard, why we keep trying and what the average investor should know.  These are just my experiences and not the definitive work on the subject.  I hope you enjoy them and share them with recovering market timers.

Even I call tops and bottoms once in a while. 

Once doesn’t count.  You have to get the “buys” lower than the “sells” and you have to do it more than half the time.  The shorter the cycle you’re timing, the less you can be wrong. 

This is a chart I created that tracks two elements of the S&P 500 index.[1]

The blue line shows the earnings of the index going back to 1980.  Since this index represents about 80% of the US stock market, it’s a good proxy for our economy.  The bumpy ride reflects rough and smooth patches in our national financial health.

On the positive side, earnings in 1980 were about $15 a share.  Last year they topped $85.  That’s better than a five-fold increase and doesn’t include some handsome annual dividends.

Look at the blue line as a child with a yo-yo climbing stairs.  She drops and returns it with every step. 

If you measure yo-yo volatility by the step, the swings from high to low are huge.  If you measure it by the whole staircase, the yo-yo is much higher at the top than the bottom – even from the high on the first step to the low on the last.

The blue line was the easy one.  The red line is the price/earnings (P/E) ratio.  That’s the blue line divided by the price of the index. 

Over the long-haul, stock prices reflect earnings.  Day-to-day, prices are whatever investors are willing to pay for those unknown earnings, or the economy, or politics or their mother-in-law or whatever else consumes them at the time.  Their actions range from disciplined to blind panic.

To be a successful timer using only those two variables means correctly anticipating future earnings and understanding how investors will feel about them when they happen.  You also need nerves of steel and the discipline to take gains and losses without emotion.

A very famous continuous study by the Dalbar Company[2] called the “Quantitave Analysis of Investor Behavior” (QUIB) shows most investors do anything but “buy low and sell high”. 

They buy at tops.  They sell in panics.  They chase what’s hot.  They listen to their brother-in-law or, lately, internet gurus.  Then they do it all over again.

Ego plays a part.

Men always think they are great poker players and stock pickers.  I’m reminded of the old saying, “if you are playing poker and can’t spot the sucker in five minutes, it’s you.”

Individuals playing against institutional traders are up against formidable resources. 

We offer complimentary 12-step market timing withdrawal therapy with every new account.  I’m serious.  You know how you’ve done.

Next week I’ll talk about why we still try to time the markets anyway.  Thanks for visiting and I’ll see you then, sh

The opinions expressed here are those of Skip Helms and do not necessarily reflect those of LPL Financial or anyone else. It is not possible to determine the top or the bottom of the market. Investing involves risks, including the loss of principal. Past performance does not guarantee future results. Please consider potential transactions carefully and read all appropriate materials before investing or sending money. No strategy, such as asset allocation or diversification assures a profit or protects against loss. Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA / SIPC

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[1] The S&P 500 index is an unmanaged index of 500 US stocks.  You cannot buy an index.  Indexes do not reflect fees, commissions or other costs.

[2] See Dalbar.com for their findings and methodology.