May 2009


Here is a great article comparing two investment strategies. Often this is viewed as two camps your either a buy and hold or a market timer. Just remember an investment strategy for you needs to be specific to your investing timeframe, risk tolerance and need.

My view is that you need to have assets with great money managers and track records. Being open to both strategies will provide you with more opportunity. Some market cycles favor the buy and hold strategy and others the market timers. Not being open to both could have you missing out when one of the strategies falls out of favor.

http://www.investopedia.com/articles/stocks/08/passive-active-investing.asp

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated. 

Last night at an event I was asked my opinion on the whether individuals should enter retirement with no mortgage.

I am in the camp that successful retirement plans have no mortgage. It is a function of cash flow. If you have no mortgage then you do not need to have your portfolio producing that extra income. Having no mortgage in retirement has a substantial impact on managing your monthly living expenses and projecting what you will need in nest egg.

A widely used reason to keep a mortgage is to keep the interest deduction. While I believe paying taxes is not our patriotic duty and like to minimize taxes, it has to be based on financially sound calculations. Keeping a mortgage to have a deduction just doesn’t work. If you keep a mortgage for a deduction you are going to keep paying thousands of dollars in interest to pay fewer taxes. I challenge you to execute the math.  

 Here is an example with some round numbers. You pay $10,000 in mortgage interest and you are in the 25% tax bracket, which gives you a tax savings of $2,500.

 The end result is you pay $10,000 in interest to have $2,500 refund. It is trading $1 for $0.25. The only one happy about this equation is the bank!

I want to stress that paying off a mortgage is only one part of a sound financial game plan for retirement. While I like no mortgage in a retirement plan, I also do not encourage you to put all your extra income into paying off your mortgage instead of investing. Each financial plan is specific to your goals, timeframe until retirement and investment tolerance. Don’t make this decision without looking at the entire picture and developing your game plan.

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated. 

Check your withholding on your paycheck. On April 1 President Obama’s “Making Work Pay” tax credit went into effect with the goal of providing $400 tax cut to individuals and $800 to married couples. It was widely touted by the Obama Administration that the average American family will start taking home $65 more per month.

One little catch. This tax cut was delivered immediately by the IRS issuing new tax withholding tables reducing the amount of withholding from paychecks. The glitch is individuals making more $95,000 and couples making more than $190,000 are ineligible for the tax credit, but are still having their withholding reduced.

Also millions of Americans will have more withheld than they are entitled to under the credit, because the withholding tables do not take into account if you work more than one job or are a married couple where both spouses work. This extra tax credit will need to be repaid next year come tax time. So without making the choice you could be withholding less throughout the year and owe more come April 15, 2010. Surprise!

If you have nothing else to do and spend time on the IRS website like me you would find the IRS encourages using the new withholding calculator for those potentially caught in the glitch. The IRS even clearly defines who is at risk.

The following is from IRS.gov  – You should use this calculator to ensure that the reduced withholding will not result in having too little income tax withheld (possibly causing you to owe taxes next year) if:

  • You are an employee with two concurrent jobs,
  • You and your spouse both work, or
  • You can be claimed as a dependent on someone else’s tax return (since you are not eligible for this credit).

The other big impact group is those with non-government pension income, as your withholding was adjusted as well, but you are not eligible. This means you could owe more come April 15, 2010.

Here is the IRS statement for this group. From IRS.gov  – Pension income: Non-government pension income is not eligible for the Making Work Pay Credit, so we are in the process of updating the calculator to account for this. The update should be operational by late May. If you expect to receive a significant amount of pension income in 2009, you should use this calculator by early June so that you can adjust your withholding appropriately for the second half of the year.

One way to prevent this situation is to use the new IRS withholding calculator and adjust your withholding accordingly. Or call your accountant to see if you should add more withholding due to your tax bracket, job status or combined spousal income.

I guess it’s that saying is true. There is no such thing as free lunch.

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated.

No one calls the IT guy to say, “My email worked great today!” Only when are you having troubles do you squawk. As an investor it is hard to acknowledge the main fact of the markets. They go up and they go down. It is human nature to focus on the down. This is very difficult for those that had retirement on the horizon and see it slipping away.

We also know that when markets go down in a recession that we do not want to miss the market upswing. Here is a great article to provide perspective on the market recovery in the six-months and five-years after a recession. If retirement is on your horizon you need to develop a new plan of action to recovery from the market. That is where I can help.

 https://www.americanfunds.com/resources/perspectives/recessions-perspective.htm

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated. 

I realized a few weeks ago that I welcomed all the news coverage of the Swine Flu. I know this does not sound right, but it is true! Finally the economy and the economic meltdown were not the lead stories! I didn’t have to see any Project Economy or Economic Crisis logos flash across the screen.

 I have a great way to relieve your anxiety over your portfolio and pending economic doom.

 Turn off the news! Stop talking to everyone about the bad economy. You are just bringing yourself and others down. When engaged in the bad economy conversation tell people your taking a break because being negative about it will not help you move forward.

 CNBC had its best ratings in eight years during the first quarter of this year.* During the start of the downward spiral last fall CNBC also had record ratings.** The evening news programs of the big three networks are improved over the economic crisis. The better the ratings the more the negative coverage will continue.

While it is my great belief that the media needs to take an economy coverage vacation it will not happen because they are prospering during the crisis. Just like an impending snowstorm sends all of us in New England to mob the grocery store in search of bread and milk, money troubles send us to the aficionados of CNBC and Fox Business. The more you are worried the more you tune in. It is a beautiful thing, if you are in the business of selling commercials.

Be brave my friends, break the cycle and turn off the news! Negativity will not help you make the moves necessary for financial independence.

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated. 

 *www.mediabistro.com http://www.mediabistro.com/tvnewser/ratings/q1_2009_rating_cnbcs_best_in_eight_years_112775.asp

 ** http://www.nytimes.com/2009/03/09/business/media/09cnbc.html

The spending trend of the country is changing to a saving trend. It is a core reaction to tough economic times. Cutting back is now all the rage.

 A large group of families and individuals do not understand where they spend money. With juggling family responsibilities who has the time? The people that make progress on savings goals and establish wealth, they make the time. 

It is all about choices

When helping clients understand expenses the discussion often starts with “We don’t know where the money goes or where we can find more to save?”  When they really assess how money is spent, opportunities for savings appear.  This enables progress on financial goals or a bridge through a tough financial time.  

 Making better choices  – It is not about giving up everything. Choices are daily decisions and compromises on where to spend money. Changing your language to “making choices” will help change your attitude towards reducing expenses.

Reducing expenses is choosing to keep your morning Dunkin Donuts coffee, but bringing your lunch. It is the choice between keeping snacks in the car or emergency stops at McDonald’s.

  •  Eating out – Make better choices of when and where you eat. Bistros to chain restaurants are offering deals, especially during the week.
  • Google  – Search for coupons codes before online shopping. www.retailmenot.com or www.momsview.com.
  • Mortgage– If you haven’t taken advantage of low mortgage rates, check out refinancing to save each month and thousands over the life of the mortgage.
  • Cars – Keep your car 1, 2 or 3 more years than planned.
  • Insurance – Shop around for auto, home and umbrella insurance with a broker. Brokers work with multiple companies and are paid to shop around for you.
  • Entertainment, Memberships, Subscriptions & Lessons – These small items add up. Select what your family really enjoys.

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated. 

Long-term financial success for a family often includes sending the kids to college and enjoying retirement.  When you start to run the numbers it seems like achieving one will be hard enough, let alone both!

The earlier you make decisions about these joint goals the better your chances of achievement. Start by figuring out approximate savings goals. 

Retirement -Take a look at the budget to determine your sustainable monthly expenses. This includes determining what will be removed in retirement and what will be added.  If you plan to increase travel substantially in retirement, you will want to add this to your budget. Remember to approximate Social Security benefits. Engage retirement planning calculators online as well.

 College – Determining your college funding tolerance is essential. What is the type of school you would like to be ready to fund, and how much of the annual expenses would you like to pay? For example, a state university at 50% funding could be your savings goal. Again utilizing calculators to determine savings needs can be helpful.

 Move Forward with Savings – Once you understand your savings needs, determine how much you can save each month and allocate savings to your greatest need. Keep in mind that loans are not available for retirement, which makes it the priority.  Many families struggle with this fact and the desiring to not saddle children with debt.  If possible save for both.

 Alternatives to help achieve both sets of goals

  • Consider working part-time in retirement.
  • Take advantage of employer sponsored tax-deferred retirement plans ( 401k & 403b).
  • Start at community college and transfer for last two years.
  • Defer retirement a few years.
  • Alternate allocating your annual pay raise towards retirement or college savings.

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated.

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