Reverse Mortgages help retired homeowners access a portion of their equity during retirement. The principle can be drawn in a lump sum, by receiving monthly payments over a specified term or over their lifetimes (if the mortgage is joint), or a revolving line of credit. The obligation to repay the loan is then deferred until the owner (or survivor of the two in joint cases) dies. They can also be required to repay the loan if they no longer live in the home or fail to meet any provisions within the mortgage contract.

United States Reverse Mortgages Provisions

• Borrower MUST be at least 62 years of age
• MUST occupy their property as their principle residence
• NO minimum income/credit requirements
• Proceeds NOT subject to income tax payment
• Applicants MUST take an FHA approved counseling class (ensures the applicants completely know what a reverse mortgage is)
• Maximum lending limit CAN NOT exceed $625,000 (varies by county)

The loan size is determined by the borrower’s age, the home/county lending limit, and interest rate of the program selected. The program selected can range anywhere from a line of credit (maximizes money available), lump sum (provides cash immediately), or monthly payments (set up by the Department of Housing and Urban Development or HUD).

When is the Loan Due?

The loan is due when one of three scenarios occurs; either the borrower dies, sells the property, or moves out for an extended period of over 1 year. The borrower or heirs of the property then have the option to refinance and keep the property, sell and cash out the equity, or turn the home over to the lender. If the home is turned over, the borrower/heirs have no further claim to the property or any equity associated with it.

What Does Your Loan Amount Cover?

A lot of people don’t realize that before you even get your money, your loan amount is being cut into with fees and hidden costs. The principle loan amount you take out goes towards:

• Pays off any pre-existing mortgages on your home
• Origination fees or commissions (as high as 2% of the loan amount)
• Mortgage insurance premiums (as high as 2% of the loan amount)
• Service release premiums and loan correspondent fees
• Recording fees, appraisal fees, and other closing costs
• Repair rider fees and set-asides

Also note, just because you’re taking a loan based off the equity in your house (and you could argue you’re no longer the sole owner), you are STILL required to cover property taxes, homeowner’s insurance, HOA fees, and any repairs to the property.

How To Use Reverse Mortgages

Currently I have no clients utilizing a reverse mortgage. Generally clients want to leave their homes to their heirs. I have found however, that for certain clients assuming a reverse mortgage is a “fall-back” can make sense.

For example, Clients John & Jane Doe have certain monthly obligations during retirement which are a strain on their financial plan (i.e. they’re spending more than they really should). They also plan on reducing those expenses over the next 5 to 10 years as they travel less and purchase fewer new vehicles.

While their current plan may have a lower level of “confidence factor” that the Doe’s won’t run out of money, assuming the implementation of a reverse mortgage if investment results are worse than expected can help them enjoy – or “front-load” – their retirement now while they’re still young. It often helps clients enjoy life now while they’re younger and more healthy by knowing a reverse mortgage can be a fall-back.

As with any financial or investment planning strategy, careful consideration must be given to the downsides of such events. In this case, the Doe’s may very well end up leaving their children nothing or very little. For some clients this is perfectly acceptable, for others it’s not.

For the most part, reverse mortgages are tools which should only be used in an emergency situation and every effort should be taken to avoid using what is most clients largest asset – their home.

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For example, TD Ameritrade has a deadline of February 15th to have their 1099s available to clients.  This means TD Ameritrade is dedicated to delivering you your 1099′s by 2/15.

However, certain holdings that may be in your account may not have that same deadline.  Specific holdings such as certain partnerships, REITs, and non standard assets may or may not have a later deadline than that of your custodian.  If they have a later deadline, TD Ameritrade doesn’t get 100% accurate information from the investments themselves by 2/15.

Because of these varying dates, brokers such as TD Ameritrade have to amend the affected 1099s for certain clients.  This can be a frustrating reality for clients whose 1099s are amended multiple times, and often after they’ve already submitted their taxes for the year.

The reality is however that this can happen to any custodian and there really is nothing any custodian can do about it.  In fact I know for certain this happens to Schwab as well as TD Ameritrade – and most likely every custodian.

The only suggestion custodians can make is to hold off as long as possible to file your taxes.  This way an ample amount of time is given for all of your holdings to be reflected correctly in your 1099.

By Greg Phelps

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I can’t think of one single article Weston has ever written that isn’t a hard hitting, right to the point masterpiece! If you’ve followed me for any length of time at all you’re well aware he’s by far my favorite financial writer/presenter!

It’s New Year’s Day 2012. In addition to overdosing on televised college football, you’re spending part of the holiday working on the family finances. Armed with a laptop and various online financial tools, you’re on the hunt for appealing stock market opportunities. To prune the list of candidates to a manageable size, you decide to focus on firms that are leaders in their respective industries and exhibit above-average scores on various measures of financial strength. As you work your way through the alphabet, you come to the “P” stocks, and another candidate appears. It’s a prominent player in a major industry (good), but operates in a notoriously cyclical industry (not so good), is currently losing money (definitely not good), pays no dividend, and has a junk-bond credit rating of BB-minus. Next! You push the “delete” key and move on.

Congratulations. You just passed up the best-performing stock in the entire S&P 500 Index for 2012.

Shares of PulteGroup Inc., a Michigan-based homebuilder with a 60-year history, jumped 187.8% last year amid strong performance for the entire industry. For the year ending December 31, 2012, all 13 homebuilding firms listed on the New York Stock Exchange outperformed the S&P 500 Index by a wide margin, with total returns ranging from 34.1% for NVR, Inc. to 382.8% for Hovnanian Enterprises, Inc. The Standard & Poor’s SuperComposite Homebuilding Sub-Index rose 84.1% in 2012 compared to 13.4% for the S&P 500 Index.

The point? For those seeking to outperform the market through stock selection, underweighting the market’s biggest winners can be just as painful as overweighting the biggest losers. Investors are often caught flat-footed by stocks that do much better or much worse than the broad market, and the problem is not limited to individuals. Not one of the 10 seasoned professionals participating in Barron’s annual Roundtable stock-picking panel in early January 2012 mentioned homebuilding stocks or any housing-related firms.

The recent surge in housing shares also serves as a reminder that stock prices are forward-looking and tend to rise or fall well in advance of clear changes in company fundamentals.

Investors who insist on waiting for evidence of healthy profits before investing are often frustrated to find that a firm’s stock price has appreciated dramatically by the time the firm begins to report cheery financial results. Shares of Hovnanian Enterprises, for example, rose 580% between October 7, 2011, and December 31, 2012, even though it continued to report losses. Similarly, it is not unusual for a firm’s stock price to decline long before signs of trouble become obvious.

The behavior of the S&P Homebuilding Sub-Index in recent years illustrates the challenge of relying on industry characteristics to provide a reliable guide to the direction of stock prices. (Note: Index inception was December 31, 1994, at 100.)

Many observers in recent years predicted that a recovery in the housing industry would be agonizingly slow, and they were right. Many investors in recent years have avoided housing stocks as a consequence, and they’ve been wrong: Housing stocks have outperformed the broad US stock market by a healthy margin from the market low in March 2009 to the present day.

Bottom Line: Markets have 101 ways to remind us of Nobel laureate Merton Miller’s observation: Diversification is the investor’s best friend

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A simplified employee pension, more commonly known as a SEP plan, is an employer sponsored plan where the employer makes contributions on behalf of it’s employee’s.  Employee’s can also make contributions to their SEP IRA.  If you’re a self employed individual and want to sock away a good amount of money, the SEP may be a great alternative – especially if you have none or only a few employees.

If you’re an unincorporated employer the contribution comes from “earned income”.  There are some special calculations to determining just what that earned income amounts too, but for our purposes we’ll just call the earned income what you make in a year.  You should always consult with a professional tax advisor for the exact calculations.

All contributions are made pre-tax and excluded from the employees gross income.  Contributions are limited to the lesser of 1) 25% of the participants compensation (compensation is limited to $250,000 for 2012) or 2) $50,000.  Compensation includes bonuses and overtime.  Sep contributions exceeding the maximum amounts are included in taxable income.

Employees making contributions to their SEP have limits also.  Those limits apply to their traditional IRA, ROTH IRA, and SEP IRA combined.  The yearly maximum is $5,000 for 2012, or $6,000 if the individual is over 50 years old and catch up contributions are permitted.

The employees making such a contribution must realize that their gross income and filing status determine whether such a contribution is deductible, and their respective contribution limits (referring to the phase out ranges).

To establish a SEP plan, you need to complete form 5305-SEP.  You can do this by opening up a SEP plan account with a brokerage firm – they’ll usually have all of the forms necessary.  The form 5305-SEP is known as the Simplified Employee Pension individual Retirement Accounts Contribution Agreement.  You don’t need to file that form with the IRS, but instead you retain it for your records and evidence the SEP Plan has been established.

You must also give all eligible employees a copy of that form 5305 SEP.

DEADLINE for SEP Plan creation and contributions - An employer may establish a SEP Plan for a particular year (i.e. 2013) as late as their tax filing due date, plus extensions.  SEP Plan contributions must also be made by the employer’s tax filing due date, plus extensions for that particular year.

So calendar year corporations have a tax filing deadline of March 15, but if they elect to have their return extended they can actually “push back” opening the SEP and funding it until September 15 of that same year.

So, employer deductions can’t exceed 25% of the respective employee’s compensation, and there is a $250,000 limit on includable compensation for SEP plan purposes (as well as other types of retirement plans).  There’s also an annual limit imposed if the employer has other types of retirement plans – the IRS does this to keep employers from funding massive amounts of money into several different types of retirement plans.

Nondiscriminatory employer contributions under a SEP MUST be made for each employee who is 21 or older, has worked for the employer at least 3 of the immediately preceding 5 years, and received at least a specific minimal dollar amount of compensation (for 2011 and 2012 it’s only $550).

Distributions from a SEP Plan fall under the same rules for IRA distributions, basically they are taxed as ordinary income and the same 10% penalty applies for distributions before age 59.5.

TOP HEAVY SEP – if the SEP is top heavy (meaning too much of the plan’s funding is going to the owners of the corporation – there are separate calculations to determine if this is the case and you should consult with your plan administrator and tax advisor/accountant for these calculations) the employer MUST MAKE contributions to the employee’s accounts NOT LESS THAN 3% of his/her compensation.

If the rate for the key employee receiving the largest contribution is less than 3%, the contribution rate for that employee is used to determine the minimum contribution for non-key employees.

ALL SEP PLAN CONTRIBUTIONS are vested immediately.  This means that once the employer, or you in this case, makes a contribution to an employee that money is theirs to keep in their own account regardless of whether they quit tomorrow or not!

Contributions by the employer are also considered a business expense – so the contributions made by an employer on behalf of an employee reduce the amount of income that employer has.

The SEP Plan – Simplified Employee Pension – is a great plan for small companies who want to build retirement dollars for the owners and employees of the company.  It’s easy to implement and manage, and super easy to set up.

Each individual manages his or her own investment accounts.  So you as an employer can open your SEP Plan and invest in stocks, bonds, and mutual funds – you name it!  Anything your brokerage firm can invest in essentially.

The SEP Plan contributions also grow on a tax deferred basis – so you don’t pay taxes until you take the money out, and get a deduction on your income tax return now!

You may also want to look into a profit sharing plan, 401k plan, individual 401k plan, defined benefit plan and the like as potential alternatives for your retirement savings – but a SEP Plan may just be the way to go!

The post SEP Plans – Simplified Employee Pension Plans appeared first on Las Vegas Financial Advisor | Investment Management & Financial Planning.

• Increases the top tax rate to 39.6% for taxpayers earning $400,000 or more; $450,000 or more if married.  (Amounts indexed for inflation)
• Increases the long-term capital gains and qualifying dividends tax rate 5% from 15% to 20% for taxpayers in the above 39.6% tax bracket for regular and AMT.
• Permanently extends Bush-era tax cuts from 2001 and 2003 for all other taxpayers.
• Phase-out of personal exemptions and overall limitation on itemized deductions reinstated for taxpayers earning over $250,000; $300,000 for married coupes filing jointly.
• Maximum estate tax raised to 40% while keeping the exemption amount at $5 million.  (Adjusted for inflation)
• 5 year extension (through 2018) on the American Opportunity Tax Credit to pay for higher education, and special relief for families with 3 or more children for the refundable portion of the child tax credit and increased percentage for the earned income tax credit.
• Patches the AMT for 2012 and adjusts the exemption for inflation going forward.
• The following individual tax benefits have been extended through 2013:
  • Above the line deduction for teacher expenses
  • Relief from cancellation of debt income for principal residences
  • Parity for employer-provided mass transit benefits
  • Deduction for mortgage insurance premiums as interest
  • Election to deduct state and local sales taxes in lieu of income taxes
  • Above the line deduction for qualified educations expenses
  • Tax-free distributions from IRA accounts for charitable purposes
• The following business tax provisions that expired at the end of 2011 have been extended through 2013:
  • The research credit
  • The new markets tax credit
  • Railroad track maintenance credit
  • Mine rescue team training credit
  • Work opportunity credit
  • Section 179 asset expensing at $500,000
  • Section 1202 stock exclusion at 100%
  • Empowerment zone incentives
• Extends 50% bonus depreciation through 2013
• The following energy tax provisions that expired at the end of 2011 have been extended through 2013:
  • Energy efficient credit for existing homes
  • Alternative fuel vehicle refueling property credit
  • Biodiesel and renewable diesel incentives
  • Wind credit
  • Energy efficient credit for new homes
  • Credit for manufacture of energy efficient appliances

The post 2013 Tax Law Changes appeared first on Las Vegas Financial Advisor | Investment Management & Financial Planning.

It took nearly 4½ years, but the cumulative wealth of an S&P 500 strategy with dividends reinvested finally reached an all-time record (measured on a month-end basis) in March 2012, and finished the year 3.3% above the previous high-water mark set in October 2007. Results were slightly better for a small-company Russell 2000 strategy: As of December 2012, cumulative wealth was 8.5% higher than the previous peak in May 2007.

The table below shows how many years were required to achieve a new high in terminal wealth during some of the major market cycles in the past. Although many investors have expressed frustration with stock market fluctuations in recent years, the time required to recover losses from the peak in October 2007 appears broadly consistent with past cycles. We can draw some measure of solace in acknowledging that past generations of investors often found their patience sorely tested, as well.

Market Cycles Based on Month-End Value of S&P 500 Index with Reinvested Dividends

Every year brings its share of surprises. Perhaps the biggest surprise of 2012 was the strength in stock and bond prices around the world despite a steady stream of discouraging news events. Individual investors and professionals alike were often flummoxed by markets that failed to behave in accordance with their pessimistic assessment of the future. A few examples are listed below.

(Index performance data represents total return for each respective three-month period.)

First Quarter 2012

S&P 500 Index: 12.59%

MSCI World ex-USA Index: 11.34%

“Investors go into 2012 hunkered down, frustrated, and skeptical. … If there is a common theme among analysts’ forecasts for stocks, commodities, and currencies, it is to brace for more of the wild swings that were the hallmark of 2011.”

Tom Lauricella, “World’s Woes Leave Lasting Scars,” Wall Street Journal, January 3, 2012.

“Morgan Stanley’s chief US equity strategist is the most bearish market strategist at any major Wall Street firm when it comes to forecasting the outlook for stocks in 2012. He took the same pessimistic view last year—and it turned out to be the most accurate.”

Jonathan Cheng, “A New Year But the Same Ol’ Pessimism,” Wall Street Journal, January 7, 2012.

“Clearly we are in a cycle of reaching pinnacle earnings, and at some point we are going to drop.”

Quotation attributed to John Butters, senior analyst, FactSet. Michael Mackenzie and Ed Crooks, “Earnings Growth Falters for S&P 500,” Financial Times, January 9, 2012.

“The world economy will experience a brutal slowdown. … Every European country will be in recession in 2012, and probably in 2013. … Equity markets around the world will top out during this quarter and then enter the next down leg in the cyclical bear market that started last spring.”

Quotation attributed to Felix Zulauf, Zulauf Asset Management. Lauren R. Rublin, “Barron’s 2012 Roundtable, Part One,”Barron’s, January 16, 2012.

“Unemployment in the euro zone jumped to a 15-year high Thursday, while inflation unexpectedly accelerated.”

Brian Blackstone, “Poor Economic Data Slam Europe,” Wall Street Journal, March 2, 2012.

Second Quarter 2012

S&P 500 Index: -2.75%

MSCI World ex-USA Index: -7.38%

“Nearly one Spaniard in four is unemployed, according to data released yesterday, as the country’s financial predicament prompted a government minister to talk of a ‘crisis of enormous proportions.’ ”

Victor Mallet and Robin Wigglesworth, “Spain Jobless Rate Nears One in Four,” Financial Times, April 28, 2012.

“Suddenly it has become easy to see how the euro—that grand, flawed experiment in monetary union without political union—could come apart at the seams. We’re not talking about a distant prospect, either. Things could fall apart with stunning speed in a matter of months, not years.”

Paul Krugman, “Apocalypse Soon,” New York Times, May 18, 2012.

“Feeble hiring by US employers in May roiled markets and dimmed the already cloudy outlook for an economy that appears to be following Europe and Asia into a slowdown.”

Josh Mitchell, “Grim Jobs Report Sinks Markets,” Wall Street Journal, June 2, 2012.

“Greece will be forced to return to the drachma and devalue, and the default will cause bank runs and money flowing into Germany and the United States as the only viable safe haven bet.”

Quotation attributed to Mark J. Grant, managing director, Southwest Securities. Andrew Ross Sorkin, “One Wall Street Seer Says the Greek Tragedy Is Near,” New York Times, June 18, 2012.

“With leading investors shunning shares, a six-decade passion for equities has come to an end—leading to a less flexible, more conservative model of corporate financing.”

John Authers and Kate Burgess, “Out of Stock,” Financial Times, June 24, 2012.

“There is no natural flow into equities for the next five to 10 years. The rules of the game have changed.”

Quotation attributed to Andreas Uttermann, Allianz Investment Management. John Authers and Kate Burgess, “Out of Stock,”Financial Times, June 24, 2012.

“The quarterly rite known as earnings ‘preannouncement’ season is under way—and so far it isn’t boding well for stocks. … The downward revision in [earnings] guidance could portend a long slog for stocks and the overall economy, say analysts.”

Joe Light, “Earnings Bode Ill for Stocks,” Wall Street Journal, June 30, 2012.

Third Quarter 2012

S&P 500 Index: 6.35%

MSCI World ex-USA Index: 7.49%

“Investors already fretting about the health of the world’s biggest economies now face another worry: disappointing earnings. ‘The pillar of strength is US corporate earnings, and now we’re seeing signs that that is cracking,’ [says Morgan Stanley’s chief stock analyst].”

Jonathan Cheng, “New Jolt Looms for Investors: Earnings,” Wall Street Journal, July 9, 2012.

“The US economy slowed sharply in the second quarter, growing just 1.5% as consumers slashed spending and businesses grew more cautious about hiring and investing, underscoring that an already wobbly recovery is losing even more steam.”

Neil Shah, “Weak Economy Heads Lower,” Wall Street Journal, July 28, 2012.

“If small investors needed any more reason to be disgusted with the stock market, they got it Wednesday.”

Neil Shah, “Weak Economy Heads Lower,” Wall Street Journal, July 28, 2012.

“Wednesday’s tumble wasn’t quite as scary as the nearly $1 trillion drop of May 6, 2010, but it conveyed the same sense of markets spinning out of control and trading machinery gone mad.”

Jason Zweig, “When Will Retail Investors Call it Quits?” Wall Street Journal, August 2, 2012.

“The global slowdown in demand is hitting the manufacturing sector in the world’s largest economies, with activity sinking to its lowest level since June 2009, when most industrialized countries were mired in recession.”

Norma Cohen, “Manufacturing Hits Three-Year Low,” Financial Times, August 2, 2012.

“Activity in China’s manufacturing sector—the engine for much of Asia’s economy—shrank at the fastest pace since the depth of the global financial crisis.”

Arran Scott and Alex Brittain, “Manufacturing Downturn Spreads Gloom across Asia, Europe,” Wall Street Journal, September 4, 2012.

Fourth Quarter 2012

S&P 500 Index: -0.38%

MSCI World ex-USA Index: 5.89%

“The slowdown in the global economy and anemic US recovery are expected to result in one of the worst US quarterly earnings seasons since late 2009.”

Mahmudova and Michael Mackenzie, “Slowdown Set to Take Toll on US Earnings,” Financial Times, October 8, 2012.

“This is unquestionably the worst earnings season relative to expectations that we’ve had in two or three years.”

Quotation attributed to Chris Jones, J.P. Morgan Asset Management. Jonathan Cheng and Kate Linebaugh, “Weak Earnings Spark Selloff,” Wall Street Journal, October 24, 2012.

“Wall Street’s post-election stupor is turning into a real headache for some stocks, as many well-known and even ballyhooed names fall into bear market territory. … Nearly a quarter of the stocks in the Standard & Poor’s 500—122—are in a bear market, unofficially defined as a 20% decline from a recent high.”

Matt Krantz, “Big Name Stocks Hit Bear Markets,” USA Today, November 9, 2012.

“China’s main stock index closed at its lowest level in almost four years Tuesday and slipped below a key psychological level, indicating investor worries over the health of the nation’s public equity market.”

Shen Hong, “Shares Hit 4-Year Low in China,” Wall Street Journal, November 11, 2012.

“Fears that Washington will prove unable to avoid looming tax increases and spending cuts have eclipsed concerns about Europe’s debt crisis, top business executives said Tuesday, and they worry that political gridlock might tip the economy into recession next year.”

Damian Palette and Sudeep Reddy, “Business Leaders Spooked by Fiscal Cliff,” Wall Street Journal, November 14, 2012.

“Moody’s downgrades France sovereign debt rating, citing its ‘persistent structural economic challenges.’ ”

William Horobin, “France Loses Another Top Rating,” Wall Street Journal, November 20, 2012.

The post 2012 – Stock Market Year In Review appeared first on Las Vegas Financial Advisor | Investment Management & Financial Planning.

Enjoy!

2012: The Year Pessimism Got Skunked… Again

The post 2012: The Year Pessimism Got Skunked… Again appeared first on Las Vegas Financial Advisor | Investment Management & Financial Planning.

It always helps to reduce your tax burden as much as possible. Fortunately the IRS does allow investors to deduct some of the investment management fees they pay. The tax treatment of investment fees isn’t as good as it could be – or should be – however it is something that should be taken into consideration.

The tax code on the deduction of investment fees is found in section 212. It defines expenses for the production of income associated with an individuals money and financial issues as a potentially deductible investment fee. I say “potentially” because the amount deductible is subject to the 2% miscellaneous itemized deduction floor.

IRS section 212 cites three categories of deductible costs:

• for the production or collection of income
• for the management, conservation, or maintenance of property held for the production of income
• or in connection with the determination, collection, or refund of any tax

The “production of income” part is important. The “income” must be taxable so the IRS can get their portion. Muni bonds generate tax free income (sometimes at the state, federal and local level), and therefore fees paid for managing a municipal bond portfolio are not deductible.

Qualifying investment fees are tax deductible as a miscellaneous itemized deduction. Miscellaneous itemized deductions are subject to the 2% of AGI (adjusted gross income) floor, and an AMT or alternative minimum tax adjustment if applicable. In an era of massive budget deficits and out of control spending, at least the IRS allows investors some sort of tax benefit to hire professional investment management and financial planning help.

The tax deductible treatment of IRA and 401k fees is a bit different. The IRS also allows for deductibility of investment advisor fees for those tax preferenced accounts, and if investment fees are deducted directly from the IRA the fees are effectively paid with 100% pre-tax dollars.  There’s a downside to this however. Paying investment fees from an IRA means reducing the amount IN the IRA and reducing the long term benefits of tax deferral.

It’s important to note you cannot pay investment fees or financial planning fees from an IRA or 401k account for anything BUT the specific IRA or 401k. For example, if you have 4 accounts and only two are IRA’s, you can’t pay the investment fees for all four accounts from one or both IRA’s. That may constitute an IRA withdrawal and possibly even generate early withdrawal penalties. In a worst case scenario doing so may even deem the IRA disqualified.

Paying investment fees from a taxable account means leaving more IRA and 401k assets to grow tax deferred. For most clients, this is the best solution even though it means taking whatever tax deduction they can get as a miscellaneous itemized deduction.

Investment fees paid FROM an IRA or 401k on behalf OF the IRA or 401k itself are paid with pre-tax dollars (generally speaking). For this reason the IRS does not allow a deduction of those investment fees. This makes logical sense as the fees paid for an IRA or 401k from the IRA or 401k have never been taxed in the first place. Keep in mind the IRA or 401k CANNOT pay investment fees for taxable accounts – that would be a taxable distribution.

In our private client practice we generally use taxable accounts to pay investment fees. Clients keep their tax deferred account growing tax deferred, and some clients can take the fees as a miscellaneous itemized deduction. There are other clients which we deduct their investment fees proportionally across any taxable accounts and IRA’s we manage. Which is right for you?

If you have both taxable and IRA accounts, it’s hard to say which method of paying investment fees is best. It really depends on how your accounts are structured as well as your time horizon, and also IF you can benefit from any portion of the miscellaneous itemized deductions.

For retirees (shorter time horizons than a young investor) who are invested more moderately or even somewhat conservatively, the power of tax deferral doesn’t benefit them quite as much over the long run because their returns are lower. In this case it may make sense to spread the fees over all accounts proportionately.

For younger investors with long time horizons – especially if they’re more aggressive in nature – paying investment fees from taxable accounts and leaving the tax deferred assets alone as long as possible may make the most sense. Younger investors with more moderate or aggressive investment plans should consider paying the fees from taxable accounts especially if they get any benefit from any sort of miscellaneous itemized deduction.

The post Are Investment Fees Tax Deductible? appeared first on Las Vegas Financial Advisor | Investment Management & Financial Planning.

Among other things (like risk and volatility, tax efficiency etc.), a key component to investment success is the returns or interest rates we receive on specific investments. Stocks generate growth from capital appreciation and income from dividends. Bonds generate interest income (and also experience principal fluctuations). Each investment you hold should work in concert to generate a total return commensurate with your risk profile and financial plan.

But when we’re talking about the returns and rates on these holdings, what is the difference between “nominal” and “real” interest rates. It’s really quite simple with the main difference being the actual inflation rates.

Real interest rates are nothing more than nominal rates adjusted for inflation. For example, if a CD pays you 2% per year, its nominal rate would be 2%. If inflation was calculated as 1%, you’d have a real interest rate return of 1% (2% – 1%). The real interest can also be a negative number. If in the above example, the inflation rate was 3%, we’d have a real interest rate return of -1% even though technically our investment states a return of 2%.

The formula for calculating real interest rates is:

r is the real interest rate, i is the expected inflation rate and R is the nominal interest rate. Basically the real interest rate is equal to the nominal interest rate minus expected inflation.

A major concern with calculating the real interest rate is that inflation isn’t a concrete number. It’s constantly adjusting itself based (as measured by the CPI or consumer price index) but thats another article in itself. The main takeaway is that in the long run if your real interest rate returns are consistently negative, you’ve got to change your investment strategy to keep up inflation. If your returns can’t outpace inflation you’re far more likely to outlive your money!

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This project has been 6 months in the making. A clean, new, fresh look at www.REDROCKWEALTH.COM including some awesome new goodies!

Dear Clients, Friends and Colleagues,

Here in the office Jeremy and I have been feverishly working on our new website. I’m thrilled to announce it’s launch! And it’s not just any ‘ol website, it’s a completely new and bold presentation of what we do here at REDROCK!

Some of the highlights and additions:

• New Investment Management Video, Introduction Video, Financial and Retirement Planning Video, and ”Why REDROCK?” Video
• New 3 Point Pledge for our clients
• New page emphasizing our employee stock options planning services
• A New cleaner Client Account Access area
• An updated “Meet Greg” page
• And much, much more.

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