The Diversified Blog

A wealth management blog dedicated to creating a long lasting sustainable retirement.

Budget Deal Curbs Social Security Claiming Options

On Monday, November 2, President Obama signed into law H.R. 1314, the "Bipartisan Budget Act of 2015." One significant byproduct of the legislation is the elimination and/or curbing of two Social Security filing strategies that two-income married couples may have been using -- or counting on -- to increase their lifetime Social Security payouts. The two programs, referred to in the bill as "unintended loopholes," generally involve one of the following strategies: file and suspend and restricted application for spousal benefits. As with most things related to federal programs, there's complexity in the details.

Here are a few key points of explanation about the strategies and how the new law will change and/or eliminate them, along with some takeaways you may want to discuss with your advisor.

What's at Stake?

Very generally, the strategies in question allowed both spouses who had reached full retirement age (currently 66 for most claimants) to delay claiming benefits on their own earnings records -- and, thus, increase their individual annual payouts -- while, depending on the tactic used, also allowing one spouse to claim a so-called spousal benefit based on the other's earnings.

Under file and suspend, for instance, typically the higher earning spouse would start receiving Social Security payments and then suspend them, allowing the lower earning spouse to claim spousal benefits. Under restricted application for spousal benefits, typically the higher earning spouse would delay filing for his or her own benefit but claim the spousal benefit on the lower earning spouse's benefit.

In both scenarios, the end game for couples was to delay receiving benefits, perhaps until as late as age 70, and thereby increase Social Security payments by 6% to 8% per year -- potentially adding thousands of dollars more in income over their lifetimes.

What's Changing?

While dual-earner couples will still be able to suspend their payments and start up again at a higher rate no later than age 70, under the new rules they generally can no longer "double dip" -- that is, first collect one type of payment (i.e., spousal benefits) and then switch to payments based on their own earnings record, which would have grown due to delayed retirement credits. Similarly, in most cases, if you suspend payments, the new law will prohibit spouses or other dependents from claiming Social Security benefits on your work record until you resume payments again.1

Windows of Opportunity

Note that there is a four-month window in which these strategies will still be in effect in their current iterations. So if you are 66 now, or will turn 66 within the next four months, you may want to speak with your advisor about taking advantage of these claiming options before you lose the option to do so.

Also keep in mind that your age plays a key role in how the new rules may impact you. For instance, individuals who will be 62 or older as of December 31, 2015, may still be able to take advantage of some of these strategies once they reach full retirement age.2

In addition, those who are already employing these strategies are generally "grandfathered," and their benefits will not be eliminated or changed by the new laws. Similarly, widows and widowers generally won't be affected, while divorced persons and same-sex married couples may be among the groups most adversely affected by the changes.

While determining when and how to claim Social Security benefits has always been a challenging task, these new rules create even more complexity for those nearing retirement. If you need help navigating the changing Social Security landscape, speak with your financial advisor.

Source(s):

1.  U.S. News & World Report, "How the Budget Deal Changes Social Security," November 13, 2015.

2.  MarketWatch, "Millions of Americans just lost a key Social Security strategy," November 7, 2015.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 Wealth Management Systems Inc. All rights reserved.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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Mutual Funds and Taxes: A Primer to Help Lighten the Load

Filling out your tax return is like compiling the index of a book -- the book is complete, but you have to rummage (sometimes painfully) through your work again, assuring accuracy and factual content, in order to make the book easier for someone else to read. If you're a mutual fund investor trying to determine your taxable gain or loss for the past year, your tax return will entail additional work.

 

But if you've kept good records and understand some basic guidelines, the process can be relatively painless.

 

Tax Treatment of Mutual Funds

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Managing a Disability or Chronic Illness

Create a financial plan that can help you make the best of any circumstance. Here's a checklist for financial preparedness.

 

Lay a secure foundation

 

Consider disability insurance to replace income that you may no longer receive if you become disabled by illness or injury. Some employers offer free or discounted disability insurance policies to their employees. Many insurance companies sell individual policies.

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Make the Most of Your 401(k)

As more Americans shoulder the responsibility of funding their own retirement, many rely increasingly on their 401(k) retirement plans to provide the means to pursue their investment goals. That's because 401(k) plans offer a variety of attractive features that make investing for the future easy and potentially profitable.

 

What is a 401(k) plan?

 

A 401(k) plan is an employee-funded savings plan for retirement. For 2015, a 401(k) plan allows you to contribute up to $18,000 of your salary to a special account set up by your company, although individual plans may have lower limits on the amount you can contribute. Individuals aged 50 and older can contribute an additional $6,000 in 2015, so-called "catch up" contributions.

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Maintain a Good Credit Rating

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Unhealthy Attachments

Here is a nice article provided by Jim Parker of Dimensional Fund Advisors:

 

Have you ever made yourself suffer through a bad movie because, having paid for the ticket, you felt you had to get your money's worth? Some people treat investment the same way.  CLICK HERE TO READ MORE: Unhealthy Attachments.pdf

 

 

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Under the Surface

Here is a nice article written by Dimensional Fund Advisors:

 

Sophisticated systems and highly skilled people working with great efficiency and precision underpin every Dimensional fund.  This Issue Brief provides an overview of our operations.  CLICK HERE TO READ MORE:  Under the Surface.pdf

 

 

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Which Hat Are You Wearing?

Here is a nice article provided by Jim Parker of Dimensional Fund Advisors:

 

Most of us have multiple roles—as business owners, professionals, workers, consumers, citizens, students, parents and investors. So our views of the world can differ according to whatever hat we're wearing at any one time.  CLICK HERE TO READ:  Which Hat Are You Wearing.pdf

 

 

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Introduction to Dimensional’s Advisor Byline 2015 Review

Here is a nice article provided by Bryan Harris of Dimensional Fund Advisors:

To counteract some of the stress that the markets have been putting us through lately, we’d like to share a short, upbeat tale with you about risks and expected rewards.

Once upon a time in 1981, there were two young men in Brooklyn who created a fund management company based on a set of ideas that were “bigger than the firm itself.” Its funds would be new and groundbreaking, but they would be guided by evidence-based insights that had been decades in the making. It would be the first fund manager (and still one of the few) with scientific discipline and academic oversight built into its strategies.

The firm has since flourished, with a global family of funds structured to efficiently capture worldwide dimensions of market returns. But during its early years, success was far from guaranteed. Its first fund was designed to isolate U.S. small-cap returns, which frequently defied expectations by under-performing U.S. large-caps for multiple, multiyear periods. During these trials by fire, its founders didn’t know when – or even if – their confidence in the science of investing would be rewarded.

But there was one thing they did know. If they abandoned their well-reasoned plan without giving it the test of time it deserved, failure would be certain. So they stuck to their evidence-based guns; the rest, as they say, is history.

As you might have guessed, this is the tale of Dimensional Fund Advisors. It’s a tale to take to heart for your own resolve. In that context, we are pleased to share Dimensional’s freshly released 2015 Market Review.pdf.

With an evidence-based rigor, the data is the data. We don’t attempt to whitewash it. At a quick take, 2015 was marred by nearly universal negative-to-low returns, especially from small-cap and value stocks; continued declines in the world oil market; and weak economic growth in China and elsewhere. Investors who held globally diversified portfolios tilted toward riskier sources of market returns were not rewarded. Not last year, anyway. 

The stage-setting in 2015 may or may not also explain the rough ride we’re experiencing so far in 2016. But if you add Dimensional’s current annual review to the ones it has been publishing since 2011, the sensible take-home becomes clear: Markets have been on an overall uphill trajectory for as long as anyone has been tracking them. But they’ve also exhibited wild unpredictably nearly every step of the way. In that respect, the current climate is no exception to our evidence-based expectations. It’s the “risk” part of the risk/reward equation.

We invite you to use Dimensional’s 2015 Market Review to better understand some of the global forces that are shaping the markets today. For shaping your own financial course, two sources remain your best guides: (1) the tenets of evidence-based investing, which give you your best odds for investment success over time; and (2) your personal relationship with Diversified Asset Management, Inc., to keep you from playing too many of your own emotional wild cards during the heat of the pursuit.

If we can help strengthen your resolve or answer any questions during these challenging times, please be in touch.

Robert J. Pyle, CFP, CFA
Diversified Asset Management, Inc


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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A Global Movement

Here is a nice article provided by Dave Butler of Dimensional Fund Advisors:

 

Dave Butler discusses his summer 2015 visits to Dimensional’s regional offices and explains why he thinks the independent financial advice model is advancing worldwide.  CLICK HERE TO READ MORE:  A Global Movement.pdf

 

 

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The Rise of Short-Term Rates

Here is a nice article written by Dimensional Fund Advisors:

 

While many market participants wait for the “inevitable” rise in short-term interest rates expected when the Federal Reserve tightens its monetary policy, some investors may have missed the increase in short-term rates already underway as a result of market forces.  CLICK HERE TO READ MORE:  The Rise of Short Term Rates.pdf

 

 

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What Happens to My Retirement Assets in the Event of a Divorce?

Federal law requires that participants in employer-sponsored retirement plans designate their spouse as their beneficiary unless the spouse waives this right in writing. Assuming that you and your spouse adhered to this practice, a document known as a Qualified Domestic Relations Order (QDRO), which is part of a divorce settlement, specifies how retirement assets are divided.

 

A QDRO specifies the amount or portion of a plan participant's benefits that are paid to a spouse, former spouse, child, or other party. A QDRO typically governs assets within a retirement plan such as a pension, profit-sharing plan, or a tax-sheltered annuity. Benefits paid to a former spouse typically are considered income for tax purposes. If you contributed to your retirement plan, a prorated share of your investment is used to determine the taxable amount.

 

Former spouses on the receiving end of a lump-sum distribution mandated by a QDRO may be able to roll over the money tax free to a traditional individual retirement account or to another qualified retirement plan. Following such a transfer, assets within the plan are subject to rules that would normally apply to the retirement plan. If you transfer assets within a traditional IRA to your spouse as part of a divorce decree, the transfer is not considered taxable and the assets are treated as your former spouse's IRA.

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FAQs About Investing In 529 Plans

In a recent post, we addressed a frequently asked question about determining where you stand with your overall investing. Today, let’s focus in on a subject near and dear to many investors’ heartfelt goals: funding their children’s higher education. 

 

To help families save and invest for college, Congress created the tax-advantaged 529 plan in 1996, named after Section 529 of the Internal Revenue Code. Today, you’ll find that most states and some educational institutions offer 529 plans. 

 

While there are often good reasons to establish a 529 plan for college savings, there also are many factors to be weighed and choices to be made along the way. Savingforcollege.com is a great resource to learn more, but here are two of the biggest questions we regularly encounter. 

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What Are the Tax Issues Associated With a Gain or Loss on a Primary Residence?

For U.S. federal income tax purposes, you may be able to exclude from income any gain up to $250,000 for a single taxpayer and $500,000 for a married couple filing a joint return. Generally, to exclude the gain, you must have owned and lived in the property as your main home for two of the five years prior to the date of the sale. If you lose money on a sale, the loss is not tax deductible.

 

Your Adjusted Basis

 

A dollar amount known as your adjusted basis determines whether you experience a gain or a loss. If you purchased or built your home, your initial cost basis typically is the cost to you at the time of purchase. If you inherit a home, the cost basis is the fair market value on the date of the decedent's death or on a later valuation date selected by a representative of the estate.

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Choosing the Right Benchmarks for Your Mutual Fund

Community school boards use standardized tests to gauge how their students perform in relation to national averages. On an even more basic level, your local weather forecasters can check the accuracy of their predictions by measuring temperatures and rainfall. As a mutual fund investor, you also have tools available to gauge the performance of your investments. Such tools are known as market benchmarks. The challenge, however, is choosing the tool that most accurately serves your purpose.

 

What Are Investment Benchmarks?

 

The dictionary defines a benchmark as "a point of reference for measurement." Market benchmarks are used by individual investors, portfolio managers, and market researchers to determine how a particular market or market sector performs. Often cited in news reports, market indexes can be especially helpful to mutual fund investors by offering market "standards" to help them evaluate the risk and the return history of their own investments. However, investors should remember to compare their mutual fund to the index that best tracks securities comparable to the fund's holdings, and to use an appropriate time frame.

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Coping With Market Volatility

Global market volatility ramped up last summer as worries about the tenuous state of the Chinese economy shook virtually all major financial benchmarks, indicating once again how interrelated the world's economies and investment markets have become.

 

Widespread uncertainty has not only heightened anxiety among investors, it was also a likely contributor to the Federal Reserve's decision to leave interest rates near zero when the Central Bank's decision-makers met in September. Indeed, despite the continued strengthening of the U.S. economy, there are many signs that indicate that this turbulent period for stocks may linger indefinitely.

 

Five Investing Strategies for a Volatile Market

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When Changing Jobs, It Pays to Keep Track of Your 401(k)

Americans are on the move, not only in their leisure pursuits, but in their jobs as well. According to the Bureau of Labor Statistics, about 38% of U.S. workers change jobs every year. If your employment situation changes, do you know what your choices are for managing the money in your 401(k) account?

 

Generally, workers have four options available to them: leave the money in their former employer's plan, transfer the money into their new employer's 401(k) (if allowed), roll the money into an IRA, or take a cash distribution. What many individuals don't realize is that if they fail to choose one of those options -- and their account balance is small enough -- the decision can be made for them. Specifically, current law allows employers to force participants with vested balances of $5,000 or less out of their 401(k) plans into an IRA without their consent. Further, if the account balance is less than $1,000 when the participant separates from the employer, the plan is allowed to cash out the account, triggering taxes and penalties if the participant does not take action in a timely manner to redeposit the money in another retirement account.

 

How prevalent are these practices? According to the Plan Sponsor Council of America, more than half (57%) of 401(k) plans transfer account balances of between $1,000 and $5,000 to an IRA when a participant leaves the company and/or cash out those accounts with balances of less than $1,000.1

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Common Estate Planning Mistakes -- and How to Avoid Them

Estate planning can be a minefield of potential missteps, some of which could have far-reaching consequences. Many of the poor choices individuals make when planning for their own future or passing assets to their families are caused by "one-size-fits-all" planning strategies or well-intended advice from family or friends. Following are some common and potentially costly mistakes along with suggestions for avoiding them.

 

Failing to plan. Whether drafting a basic will or crafting an elaborate strategy involving trusts and tax planning, an estate plan can help reduce estate taxes, save on estate administrative costs and specify how your assets are to be distributed. Today, the majority of Americans have no will. If you die without one, your estate will be divided according to the intestacy laws of your state -- not according to your wishes. This could create problems if your intended beneficiary is a minor child, a child with special needs, a favorite charity, or a combination of the above. In these cases, you need a will that details each contingency and a trust or multiple trusts to accomplish your goals.

 

Not maximizing your marital estate exemptions. Perhaps one of the most important pieces of tax legislation passed recently is referred to as the "portability" provision. This means that if one spouse dies without using up his or her federal estate tax exemption -- $5.43 million in 2015 -- the unused portion may be transferred to the surviving spouse without incurring any federal estate tax.

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Large-Cap Stocks: Why They Could Be a Building Block for Your Portfolio

Stocks and stock mutual funds are often grouped according to size, or "market cap," a term that represents the total dollar value of a company's shares.1 Market cap is calculated by multiplying a stock's price by the number of shares outstanding. For instance, if XYZ Corp. had a price of $25 per share and had 10 million shares outstanding, it would have a market cap of $250 million.

 

Large-Cap Defined

 

Most stocks can be categorized as small-cap, mid-cap, or large-cap. Large-cap stocks tend to be the stocks of well-established companies. They may have long track records and hold dominant positions in their industry. These companies often employee thousands of people and may provide some of the world's best-known products and services.

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DFA’s Disciplined Approach Earns It a Top Mark

Here is a nice article provided by Morningstar:

 

Morningstar recently issued a new Stewardship Grade for Dimensional. The firm’s overall grade is an A. The report is available as a PDF that can be downloaded and distributed by email, and hard copy reprints are available through your regional director.  CLICK HERE TO READ MORE:  DFAs Disciplined Approach Earns Its a Top Mark.pdf

 

 

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Why Is One of My Investment Accounts Underperforming?

Welcome to 2016. In this new year, let’s explore some of the questions we hear most often when speaking with clients. We’ll lead with one that may be top of mind as you’re reviewing your year-end reports and considering where you stand in the roller coaster markets we’re enduring at the moment: 

 

Why is one of my investment accounts underperforming?

 

We hear this question a lot, especially when the market is particularly moody (which, let’s face it, is quite often). For example, clients will come to us after noticing that their Roth IRA seems to be steaming ahead of their Traditional IRA; they wonder if something needs to be adjusted. We sometimes hear a similar question about why one account’s returns are more volatile (swinging up and down more wildly) than another. 

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The Patience Principle

Here is a nice article provided by Jim Parker of Dimensional Fund Advisors:

 

Global markets are providing investors a rough ride at the moment, as the focus turns to China's economic outlook. But while falling markets can be worrisome, maintaining a longer-term perspective makes the volatility easier to handle.  CLICK HERE TO READ MORE:  The Patience Principle.pdf

 

 

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Taking Stock

Here is a nice article provided by David Butler of Dimensional Fund Advisors:

 

Dave Butler shares an essay by David Goetsch, who explains how his long-term view of investing helped him avoid the emotional rollercoaster during the market’s recent volatility.  CLICK HERE TO READ MORE: Taking Stock.pdf

 

 

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Should Investors Sell After a "Correction"?

Here is a nice article provided by Weston Wellington of Dimensional Fund Advisors:

 

Financial professionals generally describe any decline of 10% or more from a previous peak as a “correction.” Should investors seek to protect themselves from further declines by selling, or should they consider it an opportunity to purchase stocks at more favorable prices? CLICK HERE TO READ MORE: Should Investors Sell After a "Correction"?.pdf

 

 

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Considering Central Bank Influence on Yields

Here is a nice article written by Dimensional Fund Advisors:

 

Many market participants presume that long-term interest rates will rise when a Fed tightening policy begins. However, history shows that short-term rates and long-term rates do not move in lockstep.  CLICK HERE TO READ MORE:  Considering Central Bank Influence on Yields.pdf

 

 

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Investing in Stocks

Shares of common stock play a role in just about every investment portfolio. This article is for those who'd like to know more about where their savings might be invested. Here are the basics:

 

•  Stock (sometimes called equity) represents ownership of a company, divided among the company's shareholders.

 

•  While any company can issue stock, only companies that meet legal requirements can issue shares for trading on U.S. stock exchanges where they can be bought and sold by any member of the public.

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Consider Prepaid Tuition Plans for College Savings

For parents planning for their children's college education, there are several investment options to consider. One option that seems appealing is state-sponsored prepaid tuition plans available in several states. These plans allow parents to pay today's tuition rates with the assurance that the child will have the money to go to college when the time comes. They also allow participants to defer paying federal income tax on earnings until money is withdrawn for college.

 

These plans sound very attractive because of their guarantee as well as relative simplicity. Prepaid tuition plans differ from college savings plans that seek higher returns not tied to the increase in tuition. College savings plans do offer the potential for higher returns than the rate of tuition inflation, but there is a risk that your investment could lose value.

 

How Do the Plans Work?

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Money Management for a Single Parent

As a single parent, you're probably familiar with the dual challenges of managing a household and planning for the future on your own. But are you as familiar with the financial strategies that can stretch your income and help you get ahead? Consider the following lessons to help improve your family's bottom line.

 

Lesson #1: Identify Your Goals

 

You can't have a financial plan without first defining your financial goals. Start by recording all of your short-, medium-, and long-term goals.

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Millennials: The "Slow and Steady" Generation of Investors

With some $30 trillion poised to change hands over the next several decades from parents and grandparents to so-called Millennials -- those 90-million-plus Americans aged 18 to 33 -- the financial services industry will have its work cut out for it. Popular investing wisdom states that the younger you are, the more time you have to ride out market cycles and therefore the more aggressive and growth-oriented you may be in your investment choices. Yet Millennials are hearing none of it.

 

As Investors: Wary and Conservative

 

Indeed living through the Great Recession and watching their parents and other older family members suffer financial losses may have taken a toll on these young investors -- and made them wary of investing in general and conservative in their investment choices. For instance, according to Wealthfront, an online financial services start-up that caters to this demographic group, Millennials "have lived through two market crashes … " and … "value simple, transparent, low-cost services," typically favoring index-based fund options over more exotic investment fare.1

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Plan Ahead for Gift Giving

Special occasions often call for gift giving: a graduation in May, a wedding in June, an anniversary in July, and birthdays throughout the year. Each event seems to sneak up on us -- and our budgets. Retailers plan for holidays and seasonal sales, so why not do a little gift planning of your own?

 

Here are a few tips for your planning list:

 

•  Save now. Gift buying will seem more manageable if you've been saving for it a little at a time. Whether you set up a formal gift account and contribute to it regularly or just stash away a few extra dollars here and there, it's good to accumulate cash that is earmarked for gift giving.

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Calculating Taxes on Mutual Funds

For mutual fund investors, earnings come from two sources: fund distributions -- dividends or capital gains -- and the sale of fund shares.1 Income from these sources may be taxable. Fund companies typically send year-end statements to shareholders that summarize the information used to report investment gains or losses to the IRS. Here's a look at how taxes on your mutual funds are calculated.

 

Taxable Distributions: Dividends and Capital Gains

 

As a shareholder, you must pay taxes on dividends or capital gains passed on to you in the year they were received, even if they were automatically reinvested to buy additional fund shares. In general, dividends and capital gains attributable to a fund's underlying investments are taxed as follows:

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When More Risk Equals Less Risk

If I asked you to name the most risky asset class, which would you pick?

 

•  Emerging markets 1

 

•  Commodities 2

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Same Sex Marriage Ruling Raises New Tax Issues

In a move that reinforces the rapid shift in public sentiment regarding same-sex unions, the Supreme Court ruled earlier this year that all marriages -- and "the constellation of benefits" that are linked to marriage -- must be recognized and enforced in all 50 states.1

 

While the law brings happiness and relief to those affected, it also introduces new legal, tax, and financial issues that must be navigated. On the matter of income taxes alone, there is much that needs to be reviewed and acted upon. Here is a quick summary of some of the major tax planning issues to consider.

 

Factoring Taxes

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Searching for Yield in Today's Market

Income-oriented investors have had a tough go of it for the past several years. Persistently low interest rates have curtailed traditional sources of yield. Yet, by broadening their search criteria, investors may uncover new ways to diversify their income portfolios with potentially more attractive options.

 

Consider Total Return

 

When evaluating income-generating opportunities investors need to consider total return -- income plus price appreciation, while maintaining a consistent focus on risk reduction. When you think in these terms, certain asset classes can emerge as relatively more attractive. Given these parameters, here are a few equity and fixed-income investments to consider.

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Should You "Fix" Variable Rate Debt?

While investors are keeping a close watch on the Federal Reserve for indications of when it will start raising interest rates, the consensus among economists is that it will begin its credit-tightening cycle at some point this year.

 

Of course there are two sides to the interest rate coin: the investor and the borrower. Rising rates are generally good news for savers and investors, but they represent an expense for borrowers and increase the cost of taking out loans and mortgages.

 

In the current environment, individuals may be evaluating the potential benefits of converting variable-rate loans, including adjustable rate mortgages (ARMs), home equity lines of credit, and student loans, to a fixed rate.

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Understanding Taxable Equivalent Yields

Here is a nice article written by Wealth Management Systems Inc:

 

Municipal bonds have long been considered a haven for high-net-worth investors because their income returns are generally free from federal income taxes and, in some cases, state and local income taxes. However, it would be a mistake to assume that only high-net-worth investors may benefit from investing in municipal bonds or municipal bond funds.  Click here to read more: Understanding Taxable Equivalent Yields.pdf

 

Required Attribution

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Lessons Learned: Staying Invested in the Stock Market

Here is a nice article provided by Wealth Management Systems Inc.:

 

Many investors have learned that stock returns can swing dramatically over the short term. But if you’re investing for the long term, you may want to look at the bigger picture. CLICK HERE to learn more:  Lessons Learned Staying Invested in the Stock Market.pdf

 

Required Attribution

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What Is a Custodial IRA?

A custodial IRA is an IRA managed by a parent or guardian for the benefit of a minor child, as long as that child works and has earned income. As with other types of IRAs, the maximum annual contribution for 2015 is $5,500 (indexed annually for inflation) and the underlying investments can be determined by the person managing the account, in this case the parent or guardian, prior to the child reaching majority age. A custodial IRA can be either a traditional IRA or a Roth IRA. 

 

Although an adult typically oversees the account, the funds belong to the minor child and must be turned over at the age of majority, which varies depending on the state. IRAs present tax benefits, and opening an account when a child is relatively young may enhance these advantages. As long as the money remains invested, contributions and investment earnings may potentially compound free of taxation. The longer the time period when contributions are made and the money can compound, the greater is the opportunity to build wealth. Required minimum distributions (RMDs) from traditional IRAs, which are taxed as ordinary income, are mandatory after age 70½. For Roth IRAs, RMDs are not required, and the assets could potentially compound for a lifetime. Restrictions, penalties, and taxes may apply. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

 

Withdrawals

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Understanding Market Capitalization

If you're creating an investment strategy designed to help you pursue long-term financial goals, understanding the relationship between company size, return potential, and risk is crucial. With that knowledge, you'll be better prepared to build a balanced stock portfolio that comprises a mix of "market caps."

 

Market cap -- or market capitalization -- refers to the total value of all a company's shares of stock. It is calculated by multiplying the price of a stock by its total number of outstanding shares. For example, a company with 20 million shares selling at $50 a share would have a market cap of $1 billion.

 

Why is market capitalization such an important concept? It allows investors to understand the relative size of one company versus another. Market cap measures what a company is worth on the open market, as well as the market's perception of its future prospects, because it reflects what investors are willing to pay for its stock.

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Hedge of Darkness

Here is a nice article provided by Jim Parker of Dimensional Fund Advisors.

 

It’s true. Big money can be made from hedge funds. If you run one, that is.  To read the full article CLICK HERE: Hedge of Darkness.pdf

 

 

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Beneficiary of a Trust? What You Need to Know

If you have been named as a beneficiary of a trust, you probably have many questions about what comes next. Trusts can take many forms and may be governed by unique provisions established by the creator of the trust or "grantor." As a trust beneficiary, you have certain rights. But to ensure that your financial and other interests are fully protected, you need some basic information about different trust structures and their management.

 

Trust Basics

 

At their most basic, trusts can be grouped into two broad categories -- living trusts and testamentary trusts. A living trust is created by an individual during his or her lifetime. The grantor transfers property to a trust that is managed for the trust beneficiaries by a trustee. The grantor may act as trustee, or he or she may appoint another family member or family advisor, such as an attorney or accountant to be the trustee. A testamentary trust is established by will upon the death of the person whose assets it represents. Testamentary trusts can be used for many purposes; chief among them to provide for current and future beneficiaries.

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Home Equity Loans Versus Lines of Credit: What's the Difference?

Thinking of tapping the equity in your home to do a renovation, buy a second home, or consolidate debt? Before you decide which borrowing option is right for you, it's important to understand the main differences between the two options.

 

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Comparison Shop

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Funding Challenges of Women-Owned Businesses

Female entrepreneurs are an undeniable force in the global economy. Yet businesses owned by women have historically attracted much less capital than those of their male-owned counterparts.

 

Facing Challenges

 

Although the number of women who apply for and obtain equity capital has increased in the past few years, progress has been slow. According to the U.S. Department of Commerce, women are less likely than men to use venture capital as a source of business funding.* Why this disparity exists isn't entirely clear. Experts have suggested various possible reasons.

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Earn Tax-Free Income With Municipal Bonds

Nobody likes to pay taxes. That's why investors naturally are interested in earning tax-free income. Municipal bond issues are a very popular way to earn tax-free income and, if income is reinvested, achieve tax-free compounding of returns.

 

Municipal bonds (also known as "munis") are fixed-income investments that can provide higher after-tax returns than similar taxable corporate or government issues. In general, the interest paid on municipal issues is exempt from federal taxes and sometimes state and local taxes as well.

 

Municipal Bonds Defined

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Can Investors Predict

Here is a nice video provided by Dimensional Fund Advisors:

 

This is just one in a series of videos which explain the reasons why we choose Dimensional Funds.

 

Can Investors Predict when to buy and sell securities? Jim Davis, PhD, of Dimensional runs more than 780 tests on data from 15 stock markets to test this theory.

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Making the Grade: Test Your Knowledge of Key College Planning Facts

The latest report on college costs published by the College Board brought some good news: The increases in tuition and fees for the 2014-2015 academic year were lower than the average annual increases in the past 30 years across all sectors included in the study.

 

Yet even though college price increases are not accelerating, the report's authors affirmed that, in real terms, college costs have been rising for decades. For instance, the report, "Trends in College Pricing 2014," revealed that the inflation-adjusted average published price for in-state students at public four-year universities is 42% higher than it was 10 years ago and more than twice as high as it was 20 years ago. In the private nonprofit four-year sector, the increases were 24% over 10 years and 66% over 20 years.

 

Given this reality, it is easy to see why devising a plan to pay for college is a major stressor for many American families. Underlying that anxiety are numerous misconceptions about the financial aid process and how a family's savings might affect a student's eligibility to receive aid.

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The Financial Crisis in Greece

Here is a nice video provided by Dimensional Fund Advisors:

 

This is just one in a series of videos which explain the reasons why we choose Dimensional Funds.

 

The Financial Crisis in Greece - Weston Wellington of Dimensional offers useful perspectives on the financial crisis in Greece in this video.

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Brush Up on Your IRA Facts

If you are opening an IRA for the first time or need a refresher course on the specifics of IRA ownership, here are some facts for your consideration.

 

IRAs in America

 

IRAs continue to play an increasingly prominent role in the retirement saving strategies of Americans. According to the Investment Company Institute (ICI), the U.S. retirement market had $24.7 trillion in assets at the end of 2014, with $7.3 trillion of that sum attributable to IRAs.1 Today, some 41 million -- or 34% -- of U.S. households report owning IRAs.2

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Make Sure It Isn't An Old Idea in Disguise

Here is a nice video provided by Dimensional Fund Advisors:

 

This is just one in a series of videos which explain the reasons why we choose Dimensional Funds.

 

Make Sure It Isn't an Old Idea in Disguise - Eugene Fama and David Booth describe how Dimensional scrutinizes new research to ensure that it is robust, sensible, and applicable in real world portfolios. They point out that the addition of new dimensions to a portfolio brings higher constraints on implementation, which is why Dimensional carefully weighs how the application of new research may impact expected returns or risk management of a portfolio.

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Definitions and Explanations of Services - Investment Management vs Wealth Management

In our most recent blog post, we covered the Services We Offer.   In this post we would like to review the Definitions and Explanations of those services. 

 

Definitions and Explanations of Services

 

We are a fiduciary for all clients which means we act in the best interests of the client. 

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Contact us to schedule a no-cost no-obligation consultation and receive a free special report called Finding the Right Financial Advisor - Seven Questions to Help You Discover Whether a Financial Advisor Is the Right Match for You and Your Family.