Permanent Value Inc. - Registered Investment Advisor

Finish Strong

FINISH STRONG…

On April 3rd, I completed my first triathlon, the Lavaman Triathlon in Hawaii and learned a few lessons that I want to share with you.    The first one is that a strong start and especially a strong finish are the key to not only races but many endeavors (particularly financial) in life.   At the start of the triathlon, I was determined to get into a good early rhythm and make sure that things were working as smoothly as possible.   This was all made possible by our coach who prepared us for every possible scenario based on his 30 years of coaching and participation in over 280 triathlons himself during the past 50 years.   We spent five months preparing for the race where I made sure I could complete all three distances but the three days prior to the race on location were by far the most valuable.  I tested swimming in the bay that would be our race course (with and without a wetsuit); biking and running on the actual course as well as what nutrition I would take prior to the race itself.  I was thus fully prepared and had gotten all my mistakes out of the way before the gun (actually a conch shell) sounded for the main event.  This helped me to have a mistake-free race and I even had an unexpected but pleasant surprise when my son Jordan ran with me the last quarter mile to the finish. 

Now how does this apply to my finances you might ask?   Being prepared and getting sound coaching is essential to having a successful financial strategy.  You can take simple steps like making retirement plan contributions automatic and on time, keeping a working budget and establishing a healthy surplus every month.   While I had a head coach and a nutritionist, I also had a separate run, swim and bike coach for each event in the triathlon.  I asked them a lot of questions and always consulted them when I was not getting the results I wanted in training.  You have us, your financial advisor, as your head coach; you also have coaches in estate planning, taxes, and risk management.   You need to see all of them when appropriate, test their advice on your own financial situation and take their advice in a timely fashion to make your strategy the most effective it can be.  Finishing strong is critical in planning because that is when mistakes can have the biggest impact.  If you tested your strategy early in your financial life and are confident in the race you are running you are likely to finish strong.  Having someone to help run you in to the finish and encourage you (like your financial advisor) certainly helps make it more worry-free and pleasant as well. 

SPRINGING INTO SUMMER…

We look forward to meeting with you in the next few months to discuss your strategy so we can help you make all the critical adjustments necessary for you to be successful.  We would like to review all your finances two to three times per year depending on your schedule and will be calling to get your help in gathering the information we need so the meeting can be as efficient and effective for you as possible.   Thank you in advance for your cooperation and have an enjoyable spring and summer.  We look forward to seeing you soon.

New Year, New Possibilities

NEW YEAR, NEW POSSIBILITIES…

2011 is here and the elections are over.  We last talked about how the elections were a referendum on how the new administration is guiding our economy and judging by the huge Republican shift in Congress, the voters expressed that they want the government to go in a different direction.    Congress will be trying to enact those changes that will take the government in a different direction but will have to work with the administration to do so.  As a result, there has already been a significant tax deal which we will detail below. 

THE NEW TAX DEAL…

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.   The Bush tax cuts are thus extended for all income levels through year-end 2012.   As a result, the dividend and capital gains tax rates remain at 15% through 2012.   The AMT is “patched” through 2011, mitigating its consequences for middle-income taxpayers in the same manner as in prior years.  The employee’s share of Social Security tax is reduced by two percentage points in 2011.  As a result, working taxpayers will pay Social Security tax in 2011 at a 4.2% rate (rather than the prevailing 6.2% rate). A worker with compensation in excess of the Social Security wage base maximum of $106,000 will save $2,120 in Social Security tax in 2011.    Most expired or expiring tax provisions are extended through 2011.   Of particular note, investors may move up to $100,000 from an IRA to a charity in each of 2010 and 2011 to satisfy their RMD requirement without incurring tax.  To provide investors with additional time to arrange this transfer, the legislation treats transfers from IRAs to charities made during January 2011 as if they were made in 2010.   Perhaps most surprising was that the compromise included estate and gift tax provisions more generous than any past estate tax change. These new rules remain in effect through year-end 2012:  a $5 million estate tax exemption and a 35% estate tax rate and reinstatement of stepped-up basis at death.  One thing is clear: eventually, taxes must go up. Whether higher taxes occur through further stratification of upper-income tax rates or through tax reform that eliminates many of the deductions we’ve come to expect, mathematically the budget deficit simply demands greater revenues. We have a two-year reprieve, but we are likely to be paying back our tax refunds with interest. *(source The Washington Update Jan 2011)    Now you might be thinking, “How do you stay up on all these changes and make the best recommendations for me?”  The same answer applies to executing the strategy as it does to designing it.   We know how to identify the issues that need addressing and then we rely on tax and legal experts to help us analyze your situation and make recommendations that best fit your financial situation.

EXECUTING THE STRATEGY…

In our last letter we discussed how to design a strong financial game plan.  As you may have seen or heard while watching the college bowl season or the NFL playoffs, executing the game plan is even more important than designing it.   Every coach knows that without proper execution and adjustments, the best plan is useless.   That is why open communication between you and your advisor to discuss implementation of action items and ongoing changes is so important.  We are the offensive and defensive coordinator that helps design how to grow and how to protect.   You are the head coach who helps set the strategy and then we make sure it gets executed properly.  Luckily we have unlimited timeouts to discuss strategy but the clock is ticking and we want to have a sense of urgency.    As always, we are continuing to work on your investment and financial game plan on a regular basis and look forward to our “huddle” with you to discuss it.  

Have a Happy New Year from all of us.

A Time of Transition

A TIME OF TRANSITION… 

When October comes around in even numbered years that means one thing… November elections are around the corner.  Exercising our duty as citizens to elect our representatives brings out the best in us and is one of the key freedoms we enjoy as Americans.   While this isn’t a presidential election with the increase in media coverage that goes with it, there is a lot on the line for how our country and economy are going to fare for the next few years.   It is a referendum on how the new administration is guiding our economy as well as the effectiveness Congress has had in allocating our hard-earned taxpayer dollars.   It is our job as your financial advisors to make sure we keep up on the law changes in the tax codes and financial system.   We can thus make recommendations that will save you money based on these changes so that you can put more of your money towards the goals that are most important to you.

HEALTHCARE, FINANCIAL REFORM, AND TAX LAW…

These are the major new federal law changes that have taken place during the past few months and that will continue to phase in over the next couple of years.   We have gone into depth about healthcare in previous letters and the financial reforms that mainly affect large financial companies, so we will focus more on the tax law changes that will occur come January 1st.  The most notable change will come from the phase out of tax cuts from 2000, which are scheduled to expire in 2011.  This includes both income tax and estate tax (which this year is waived but will go up significantly in 2011).    So your question to us might be: “how do you stay up on all these changes and make the best recommendations for me?”  The answer is that we know how to identify the issues that need addressing and then we rely on tax, legal and healthcare experts to help us analyze your situation and make recommendations that best fit your financial situation.   We are the coordinator or financial quarterback to organize and direct what needs to be done.  You are the coach who helps set the strategy and then we make sure it gets done as efficiently and effectively as possible. 

REVIEWS AND GAMEPLANS…

As anyone who has watched a team sport knows, a game lasts only a few hours but the pre-planning that goes into it takes hours and days to construct.  After each game, there is a review to discuss what worked and what didn’t work so the gameplan for the next game can be adjusted accordingly.   That is why we feel financial reviews are so important.  You would never see a quarterback developing and reviewing a gameplan without significant input from the coach, and we don’t want to change your financial strategy without significant input from you on a regular basis.  It is very challenging to write and implement a tax-efficient, growth-oriented, risk-managed, long-term gameplan (aka financial plan).  It is especially difficult to make sure that it is implemented and followed consistently.  Thus having a qualified Certified Financial Planner™ is invaluable in helping you to implement a great gameplan that takes into account all contingencies.  It is especially important to update your plan at year-end since any last minute changes that need to be made can still affect what you save, pay, or get refunded in taxes in 2011.   Once January 1st comes around, however, we have to wait until 2012 to see the results.

Please set aside some time for a review with us before the year-end so we can help you have the best gameplan possible and that we can make sure you are doing what is best for you, no matter what is going on in our government, economy or our country.