Ohio National Financial Services suggests three routes for managing assets with no cash flow:

1. Keep the Asset

Indefinitely keeping collectibles, antiques, land and other assets with high fair market value but no cash flow, has its risks. Keeping such assets for life may force heirs to later sell the assets at an unfavorable time in order to pay the estate taxes it generates.

2. Sell the Asset

Selling an asset with high fair market value creates an opportunity to reinvest the proceeds toward higher rates of return; keeping in mind that capital gains rates can shrink the asset’s value.

3. Give the Asset to Charity

Giving an asset to charity opens up many opportunities for cash flow. Consider your options: Do you desire an income stream in return for the gift? Do you prefer one large up-front tax deduction, or would you rather allocate the deduction over multiple years? The type of asset being donated is also an important consideration.

4. Outright gifts

Know what types of gifts are appropriate for each asset donation. A no-strings-attached gift is appropriate when giving smaller gifts. When making sizeable gifts, especially large cash amounts by check, alternative assets may be more beneficial. Outright gifts of appreciated marketable securities reduce the cost of the gift by offering the dual savings of a tax deduction while avoiding capital gains tax.

Gifts of IRA assets

Contributing IRA assets to a qualified charity can be considered a charitable contribution. Another example of a taxable distribution from an IRA is a “qualified charitable distribution”, or QCD*:

• To qualify for a QCD, an IRA owner must be at least 70 ½ years old and must pay directly from the IRA to a qualified charity.
• Up to $100,000 of a QCD made in a year may be excluded from the gross income of the IRA owner
• QCDs may be used to satisfy IRA required minimum distributions (RMDs) for the year
• The IRA owner can avoid tax on a RMD by giving it directly to a non-profit entity
*The QCD has been a temporary part of the tax code since 2006

Source: Ohio National Financial Services

Charitable giving is a sensible tax strategy for amplifying tax advantages. Deciding which type of tax deduction to pursue (gift, estate, or income tax deductions) determines the availability of a tax deduction for a charitable gift.

Charitable gifts must be given to a qualified charitable organization, also known as 501(c)(3) organizations, to be eligible for a tax deduction. A rule of thumb in finding qualifying charities is to look for religious, scientific, literary, educational, and governmental organizations.

Income-tax deductions
During your lifetime, income tax deductions for charitable gifts are limited to a percentage of your adjusted growth income, also known as your AGI. The percentage for tax deductions ranges from about 20 to 50 percent of the AGI, and itemizing deductions is required to be eligible. The percentage varies depending on the type of charitable organization receiving the gift, the format of the gift, and the gift’s nature (i.e. ordinary income, capital gain, or appreciated property).

Avoiding taxes on capital gains
Charitable giving can be utilized to avoid taxes due on highly appreciated assets, thus preserving the asset’s value. When an appreciated asset is given to a non-taxpaying charitable organization, the organization is exempt from tax due on capital gains. Charitable remainder trusts are ideal for appreciated stock or real estate.

Assets held after death
When assets are held until death, the asset rises to fair market value, also known as the FMV, for the recipient. Also, the donor’s basis is replaced with the FMV and the FMV becomes the basis of the asset for the recipient. In addition, any gain recognition for the recipient is extinguished.

Estate-tax deduction
Any bequest given to a charitable organization entitles an estate to an estate-tax deduction. When a charitable contribution is made by will, it is fully deductible to the estate as long as the taxpayer’s gross estate valuation lists the value of the property given. ?

Source: Ohio Nationial Financial Services, Inc.

1. Diversify

Spreading the risk around in a portfolio over multiple asset classes can make it less vulnerable to the market’s unpredictability. This can be done by diversifying investments within asset classes. This keeps a portfolio balanced and less vulnerable to fluctuations in the market.

2. Keep Costs Down

Working with a financial advisor helps avoid investments with high costs that reduce returns. Also, setting aside money for investments before planning personal budgets is an essential part of being a successful investor.

3. Pay Attention to Taxes

In addition to investment costs and inflation, taxes frequently reduce returns. Know what types of accounts are right for different types of portfolios.

4. Buy & Hold for the Long Run

Using market timing as an investment strategy is not reliable as a consistently winning strategy. Frequently buying and selling investments increases taxes as gains are taken. Investing for the long term can help increase overall returns by reducing the number of transactions.

5. Know Yourself

Everyone has different investment temperaments. Some people are not as affected by market swings as others. Take a look at your portfolio and see if it fits you and your investment temperament.

Source: Vanguard Marketing Corporation

Although growth is estimated to slow in the second quarter of this year, improvements in the labor market and retail sales foreshadow continuing recovery. “We’re still definitely on the recovery path. We expect that this is going to be a very long and gradual recovery,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida. “Most economists are looking for stronger growth in the second half of the year and into next year.”

Consumer sentiment rose from 76.4 to 83.7 in April, its highest level since July 2007, exceeding economist’s expectations. In addition, Americans reported a favorable view of their personal finances, especially households in the upper third income levels. Upper income households reported having less debt and higher asset values, but did not estimate a higher income within the next year.

Households with investments are reaping the benefits of the stock market rally, which caused the market to reach record highs this year. Following the expiration of the payroll tax holiday, consumers are finding the rise in stocks offsets the additional tax. “For (upper income) people, the payroll tax and gasoline prices didn’t really matter much, but stock prices and home prices rising, that’s a big, big plus,” said Brown.

Currently, economic conditions are improving, consumer expectations are positive, and buying attitudes are optimistic. A report from Conference Board showed its Leading Economic Index increased 0.6 percent to 95.0 last month, the highest level since June 2008. “Changes in confidence don’t always filter through into changes in spending, but the omens are good,” said Amna Asaf, economist at Capital Economics.
Source: Yahoo Finance

Cincinnati, Cleveland and Dayton, Ohio

According to the U.S. Bureau of Labor Statistics, since November 2007 Cleveland has lost approximately 5% of its labor force (59,200 workers), while since May 2009, Cincinnati lost 4% of its labor force (39,000 workers). Job growth has dwindled in Ohio’s main industry-manufacturing. Amy Hanauer, executive director of Policy Matters Ohio, believes this is happening because people are getting discouraged and leaving the labor market. Since the financial crisis, only one fifth of the 388,000 jobs lost in Ohio have been regained.

Phoenix and Tucson, Arizona

The effects of the housing bust still linger in Arizona. In the crisis the construction sector cut over half of its jobs, and as a result progress is down to a trickle. However, there are other factors beside construction that play a role in the decline-although Nevada was the epicenter of the housing bust, their labor force was not hit as hard as Arizona’s.
The crisis caused Phoenix to lose 3% of its labor force (64,000 workers), and cause Tucson to lost 6% of its labor force (29,000 workers). The decline has hit men ages 25-34 and women ages 45-59 the hardest. In addition, stricter immigration laws have cause the Latino labor force to decline.

Hartford, Bridgeport and New Haven, Connecticut

According to Alissa DeJonge, director of research at the Connecticut Economic Resource center, as the recession ended and the stock market began improving, the number of retiring Baby Boomers began rising. Meanwhile, the unemployment rate among young minorities has increased in Connecticut’s urban centers. Orlando Rodriguez, senior policy fellow at Connecticut Voices for Children believes that this is happening because the younger minority workers are waiting until the state’s economy improves before they attempt to reenter the labor force.
Detroit and Kalamazoo, Michigan and Milwaukee, Wisconsin

Michigan’s population was declining even before the recession because of the auto industry’s relocation of jobs. Three years ago, Detroit’s population fell to its lowest level since 1920, according to the U.S. Census.
Manufacturing cities in the Midwest are also facing declines. For example, Milwaukee lost 2% of its labor force (16,000 workers) since June 2009, while Kalamazoo lost 10% of its labor force (17,500 workers) since January 2007.

Source: CNN Money

First Quarter 2013: Review

The United State’s economic growth and market performance was fostered by the ongoing housing recovery, pliant consumption, and strong earnings growth.

• January and February 2013 equity flows were 20% higher than the first two months of 2012, 2011 and 2010

• The U.S. GDP grew at a 0.4% annualized pace in the fourth quarter, thus increasing from an earlier prediction of 0.1%

• Unemployment rates fell to 7.6% in March while inflation stood at 2.0% at the end of February

• Public sector jobs decreased by 7,000 after an increase of 14,000 in the month before

• Retail sales decreased in March by 0.4%-the lowest since June 2012

WHAT IS AN INVESTMENT?

This is actually an important question to answer because the range of “investments” available today goes far beyond traditional stocks and bonds. Understanding the unique characteristics of these “alternative investments” may help you avoid a negative surprise sometime down the road.

According to Investopedia, an investment is defined as “An asset or item that is purchased with the hope that it will generate income or appreciate in the future.” Sounds simple enough yet, ironically, investment professionals don’t necessarily agree on what constitutes an investment. For example, some disagree on whether gold and other commodities should be considered an investment.

On one side, some pros argue gold is an investment because it has been traded for thousands of years and has an established market where it can be bought and sold. On the other side, some say gold is not an investment because it does not generate cash flow, has no “earnings” that can be valued, and has little economic use.

Let’s contrast gold with stocks. Stocks represent a claim on a company’s assets and earnings. Using established norms of financial analysis, investment pros can place a value on those assets and earnings and come up with an estimated “fair value” for the stock (which may or may not be close to its actual trading price). However, with gold, there’s no underlying productive asset to value or earnings to capitalize so determining “fair value” is really not even possible.

Where does this leave us?

Successful investors need to know the difference between a traditional investment that consists of underlying assets and potential earnings versus an alternative investment like gold that may look like an investment, but is difficult to value using traditional financial analysis. This doesn’t mean these non-traditional “investments” are a bad idea. It means they bear close monitoring… which we try to do.

WEEKLY FOCUS – THINK ABOUT IT WHAT ARE BABY BOOMERS’ LATEST THOUGHTS ABOUT RETIREMENT? Here are some highlights from a survey released by MFS Investment Management®: •59% of non-retired Boomers agree with the statement, “I’m more concerned than ever about being able to retire when I thought I would.” •50% agreed that they have lowered their expectations about what life would be like in retirement. •30% of Boomers reported a net decrease in the risk they were willing to take to achieve higher returns over the last 12 months; only 12% reported a net increase. •Boomers are approximately evenly split when describing their primary investing goal: 34% reported it to be growing assets/increasing portfolio value as much as possible while 33% reported protecting principal/not losing money as their primary goal. •Nearly four times as many Boomers would describe themselves as protective investors (37%) vs. opportunistic investors (10%). •Only 13% of Boomers surveyed reported having $1 million or more in median household investable assets, while, on average, retirement was within 10 years. If you’re a Baby Boomer, do these survey results surprise you?

]]> http://permanentvalue.com/2013/week-in-review-2413/feed/ 0 http://permanentvalue.com/2013/week-in-review-jan-28th/ http://permanentvalue.com/2013/week-in-review-jan-28th/#comments Mon, 28 Jan 2013 19:04:19 +0000 Bruce Doole http://permanentvalue.com/?p=2013 THE MARKETS

THE WEATHER AND THE STOCK MARKET HAVE A LOT IN COMMON!

They’re both very unpredictable! The stock market has a habit of surprising investors with its ability to rise or fall dramatically in short periods of time. For example, remember the “Flash Crash?” On May 6, 2010, the U.S. stock market plunged for no apparent reason and briefly erased $862 billion from stock values in less than 20 minutes, according to Bloomberg. It then quickly rebounded.

As it relates to weather, we always know what season we’re in. One look at the calendar tells us whether its winter, spring, summer, or fall. And, depending on where you live, you have a pretty good idea – based on history – of what to expect for each day’s temperature. But, just like the Northeast experienced, you can have an “out of season” experience that messes up your best-laid plans.

The stock market doesn’t have four seasons, but it does have bull and bear markets, which are further divided into secular and cyclical. Market analysts have some general criteria that they use to categorize the markets into these buckets. Yet, like the weather, you could be in a bull market, but still have a nasty market drop that temporarily derails the path of the bull.

Bottom line, just like weather forecasters, market analysts may have a sense for general conditions in the market, but surprises still happen.

Though you may have already made up your mind about who you are voting for on November 6th, the debates and political ads will continue to increase in urgency and frequency. This election will affect this country economically for years to come so we thought it might be helpful to give a rundown of the economic issues you will be deciding on:

Barack Obama:
• Focus on key areas in rural communities to help businesses access capital and expand rural job search and training
• Double exports to foster job creation
• Provide tax cuts for middle class and working class Americans
• Set and enforce clear, consistent rules for the financial marketplace to protect American families from manipulation
• Support bipartisan plan to reduce national debt

Mitt Romney:
• Ensure the long-term solvency of Social Security without raising taxes and encourage individuals to create private accounts
• Return fiscal power to states and the people
• Expand the tax deduction to also include those who buy their own health insurance to empower individuals to purchase their own health insurance, 
• Make American businesses competitive in the global economy
• Cut federal spending and bring reforms to entitlement programs
• Balance the budget by reducing the size and reach of the federal government.
• Open markets abroad, on fair terms, for American goods and services

Whether you are Republican or Democrat, we hope you and your families are enjoying the autumn season and we look forward to seeing and talking to you as we review your 2012 budgets and plans for 2013.
 
Sincerely,
Bruce W. Doole, President

It’s back. Volatility, that is.

Like a yo-yo, the market bounced around and the S&P 500 index ultimately ended down 2.0 percent for the week and 3.4 percent from this year’s closing high, according to Reuters. Despite the drop, the market is still showing a solid 9.0 percent gain for the year.

Once again, debt issues in Europe made headlines as Spain became the latest problem country. That, along with some disappointing economic growth data from China, helped spark the volatile week. Because of its massive size, any slowdown in China is closely watched by market participants.

As a sign of the big swings this week, the Dow Jones Industrial closed the day up or down by at least 100 points on four out of the five days last week, according to Barron’s.

Highlights from the week included:

•  China’s economy expanded at the weakest pace in over three years last quarter, missing consensus economic forecasts.
• Yields on debt in Spain jumped due to a weak debt auction, renewing fears that the European debt crisis could start affecting the global markets again.
• Several U.S. banks reported earnings that underwhelmed investors, resulting in weakness in financial stocks.
• U.S. inflation remained under control which may leave open the possibility for further Federal Reserve intervention should economic data deteriorate.

 Sources: The Wall Street Journal, Yahoo! Finance

The quarterly corporate earnings season is now underway so we wouldn’t be surprised to see more market volatility as investors digest the latest read on the health of corporate America.

RETURNS

Notes: * This newsletter was prepared by Peak Advisor Alliance. * The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. * The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. * The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. * The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.* Past performance does not guarantee future results.* You cannot invest directly in an index.* Consult your financial professional before making any investment decision.

THE “SHOVE IT” INDICATOR…

…as highlighted by CNBC made a noteworthy gain in February suggesting consumer confidence may be increasing. You’re probably wondering, “What in the world is the ‘shove it’ indicator?” Well, every month the government conducts a Job Openings and Labor Turnover Survey, or “JOLTS” for short. One of the data points in the JOLTS report is the number of workers who quit their job as opposed to being laid off. And, in February, for the first time since September 2008, the quitters were in the majority.

What does this mean? Generally speaking, people who quit their job are typically more confident that there is another job waiting for them when they voluntarily leave a position. Nicholas Colas, chief market strategist at ConvergEx Group says, “Quits go hand-in-hand with consumer confidence.”

This positive JOLTS data point follows a disappointing government jobs report for the month of March where only 120,000 new jobs were created. Also, the preliminary March reading of the University of Michigan’s consumer confidence survey showed a decline from the previous month. Analysts had expected confidence to stay flat, according to International Business Times.

This conflicting economic data gave the bulls and the bears ample ammunition to bolster their respective case. And, conflicting data like this may lead to a continuation of the yo-yo as investors try to predict which direction the economy is headed.

Weekly Focus – Think About It

“Expectation is the root of all heartache.”

–William Shakespeare