Worker, Homeownership and Business Assistance Act of 2009

We have another tax bill! This was signed by Pres Obama on 11/6/2009 in order to help stimulate the housing market. This bill has huge opportunities for first time homebuyers and existing long term homeowners. Even if it doesn't apply to you, chances are someone in your family, workplace or network of friends will definitely be able to qualify and utilize these generous tax credits. Here are the nuts and bolts:



1. FIRST TIME HOMEBUYERS---the credit of $8000 is extended for purchases made before 5/1/2010. The defintion of first time homebuyer is a taxpayer who has not owned a principal residence at any time during the previous 3 years. Taxpayers must have entered into a written binding contract by 5/1/2010 and close escrow before 7/1/2010.



2. EXISTING HOMEOWNERS--A taxpayer is eligible for a credit up to $6500 ($3250 if single) if they purchase a personal residence AFTER 11/6/2009 and before 5/1/2010. The same rule applies in that the taxpayer must enter into a written binding contract by 5/1/2010 and close escrow before 7/1/2010. The taxpayer must have owned the same principal residence for any five consecutive years during the 8 year period ending on the date of purchase. In addition, the maximum purchase price of the home is $800,000 or less. The taxpayer also needs to attach the closing statement to his/her tax return for either 2009 (purchase home after 11/6/2009) or 2010 return (purchase home before 5/1/2010 and close before 7/1/2010).

Bottom line is that if you are thinking of buying a first time home or changing residences, this is the time to start looking around and do it. Home prices have fallen 30-60% in the past two years and the time may never be better!

Being Overconfident

This is part 7 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Our ancient ancestors needed to be overconfident in order to survive because life was short and food was scarce. That served them well then but today, it can cause us costly investment mistakes. Because overconfident investors often forget past mistakes yet always remember past successes.

Remember the bull market of the 90's. It was almost impossible to have not made money in the stock market, especially the technology sector. Investors got overconfident and thought they were geniuses. Many shifted all of their stock portfolio to tech stocks and then got burned when that sector tanked in early 2000.

Also, investors may invest heavily in their own employer stock because they think they have insider knowledge of the company. Think Enron!

To create true wealth and avoid being overconfident, investors must be non-emotional and disciplined investors. Having a little humility helps.

Bottom line: Don't make the mistake of being overconfident in your investing skills.

Information Overload

This is part 6 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

What sources of information do you use when considering an investment? Most people make investments based on emotion--a hot tip from a co-worker, family member or friend. They jump in to buy the stock because they think they have "inside information".

Or they listen to all the cable news shows like MSNBC or Fox money reports. Many of these so called money and finance commentators are nothing more than theatrical performers.

Some people read several of the many trade publications that tout the latest and greatest. The problem with all the information out there is that it is way too much information for any one person to absorb. There is simply too much white noise.

Trying to accumulate vast amounts of information in order to make intelligent and rational investment decisions is way beyond the time and resources of most people.

An astute investor is careful to limit the amount of information he/she uses to make decisions or they hire out this important work to a trusted advisor.

Bottom line is that basing your investment decisions on tons of information is not the best way to generate wealth.

Relief for Struggling Small Businesses

The Small Business Administration (SBA) has announced a new loan program as part of the American Recovery and Reinvestment Act of 2009 (ARC). ARC loans are available to small businesses that need short term assistance to make principal and interest payments on existing qualifying debt.

The loans are interest free and carry no fees. The maximum amount of the loan is $35,000. Business owners can defer loan payments for up to one year after the loan is received. And the loan can be repaid over 5 years.

Get more information at www.sba.gov and type ARC in the search field.

Truly Diversifying Your Portfolio

This is part 5 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Most investors know that it's smart to diversify. However, most investors are not nearly as diversified as they should be. Investing in the S&P 500 (the 500 largest stocks in the US) is not a diversified portfolio. Did you know that the US represents less than 50% of the developed global markets in the world??? By avoiding international stocks, an investor is missing out on a lot of opportunities.

From 1993 through 2008, if you examine the countries with the best equity returns each year, the US was only a top-five performer three times in the last 16 years.

Bottom Line: Don't make the mistake of focusing solely on US securities!

Understanding the Difference between Income and Cash Flow

This is part 4 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Income and cash flow are not the same thing even though most people think they are.

Most people think in terms of how much they can safely take from their portfolio for living expenses. The correct way to think is how much they can safely spend from their portfolio for living expenses.

It is a big mistake to think that you should get the cash flow that you need only from portfolio income (dividends and interest) without ever touching your principal. This is an emotional issue that is sometimes hard for folks to overcome. By doing this, you can pay more taxes than necessary.

Investors need to focus on the total after-tax return of their portfolios. Selling stocks when they are have appreciated and using that money for living expenses is a far more tax advantageous way of creating the cash necessary for lifestyle.

Bottom line: The way in which you generate income can have a tangible effect on the growth of your assets as well as on the taxes you pay.

Managing and Judging Risk

This is part 3 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Many investors do not understand risk when investing. Generally, the longer the time horizon, the more risk you can take.

If you need money in the next 5 years, you should not be taking on long term risk. Best to keep the money in CDs and bonds so that it will be there when you need it. Don't put your financial future at risk by "betting the house"

Conversely, many investors also take too little risk. They focus on the short term volatility of the market rather than the long term growth potential. These folks typically invest in only money markets, CDS, short term Treasuries etc... even thought their time horizon is 20 or 30 years out. The result is that their portfolios may not even keep up with inflation so their purchasing power is greatly eroded. They will not achieve their desired lifestyle.

A good financial advisor can help you evaluate the risks in your life and design an asset allocation strategy based on your goals, time horizon and the amount of risk that is needed to achieve your desired outcome.

Bottom Line: Understanding your exposure to risk---as well as your time horizon and goals---can help you better protect your portfolio and make better investment decisions.

Clear Investment Objectives

This is part 2 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.


Most people invest their money with no clear investment objectives. Your personal portfolio must be in sync with your financial goals.


Specific strategies can be tailored to meet a single objective of a combination of several objectives.


For example.....If the goal is to grow your assets.....then your objective would be to have X number of dollars at a certain time point in your life.


If your goal is to have cash flow for your lifestyle and grow your assets .....then your objective is to have X number of dollars per year and have X number of dollars at then end of the time horizon


If a goal is to partially fund a child's college....then your objective is to save X number of dollars per year for that goal.


If your goal is to buy a house.....then your objective is to determine the down payment and have X number of dollars saved in the time frame.



Bottom Line: You can significantly increase your chances of investment success by starting with clear investment objectives

Time Horizon for Your Assets

This is part 1 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Many people simply underestimate the length of time that a portfolio is needed to carry them through their life. A person can work hard all his earnings years and then end up running out of money in his/her retirement years. The National Institutes of Health have shown that someone born in 1952 had a life expectancy of 68.6 years at birth. By 2006, that figure has risen to 77.9 years. My mom is 87 years old and according to the US Total Population Life Table 2007, she is expected to live to 93!

This trend towards longer life spans will only continue with rapid advances in health care and nutrition. There is no question that we will most likely live much longer than our parents and grandparents.

A Time Horizon should be thought of as the amount of time that your assets need to be working for you and generating the cash flow needed for your lifestyle. This will vary from investor to investor. For example, some people want their assets to last only for their lifetime and their spouse as well. Other investors have a strong desire to leave a legacy for their kids, in addition to meeting their own cash flow needs and some investors want all of the above as well as a vacation home, interesting vacations etc....

Bottom line: Don't put your retirement at risk by planning for too short a time horizon.

Help for Folks who cannot pay Taxes

What if you have prepared your taxes and owe money but have no money to pay your taxes? This is a common problem right now as many folks have lost their jobs. The IRS indicates it is willing to work with you. Please view the attached video from CNN interviewing the IRS Commissioner. Help is on the way!

http://www.cnn.com/video/#/video/business/2009/04/13/dcl.gw.pay.taxes.cnn

Who Will Guard Your Nest Egg

By JASON ZWEIG

A power struggle in Washington will shape how investors get the advice they need.
On one side are stockbrokers and other securities salespeople who work for Wall Street firms, banks and insurance companies. On the other are financial planners or investment advisers who often work for themselves or smaller firms.
Heath Hinegardner
Brokers are largely regulated by the Financial Industry Regulatory Authority, which is funded by the brokerage business itself and inspects firms every one or two years. Under Finra's rules, brokers must recommend only investments that are "suitable" for clients.
Advisers are regulated by the states or the Securities and Exchange Commission, which examines firms every six to 10 years on average. Advisers act out of "fiduciary duty," or the obligation to put their clients' interests first.
Most investors don't understand this key distinction. A report by Rand Corp. last year found that 63% of investors think brokers are legally required to act in the best interest of the client; 70% believe that brokers must disclose any conflicts of interest. Advisers always have those duties, but brokers often don't. The confusion is understandable, because a lot of stock brokers these days call themselves financial planners.
Brokers can sell you any investment they have "reasonable grounds for believing" is suitable for you. Only since 1990 have they been required to base that suitability judgment on your risk tolerance, investing objectives, tax status and financial position.
A key factor still is missing from Finra's suitability requirements: cost. Let's say you tell your broker that you want to simplify your stock portfolio into an index fund. He then tells you that his firm manages an S&P-500 Index fund that is "suitable' for you. He is under no obligation to tell you that the annual expenses that his firm charges on the fund are 10 times higher than an essentially identical fund from Vanguard. An adviser acting under fiduciary duty would have to disclose the conflict of interest and tell you that cheaper alternatives are available.
If brokers had to take cost and conflicts of interest into account in order to honor a fiduciary duty to their clients, their firms might hesitate before producing the kind of garbage that has blighted the portfolios of investors over the years.
Richard G. Ketchum, chairman of Finra, has begun openly using the F-word: fiduciary. "It's time to get to one standard, a fiduciary standard that works for both broker-dealers and advisers," he told me. "Both should have a fundamental first responsibility to their customers."
When I asked whether Finra should be that single regulator, Mr. Ketchum replied: "Do we have the infrastructure and would we do a good job? We think yes."
Others disagree. "It would be lethal if Finra becomes the only regulator," retorts Tamar Frankel, a professor of securities law at Boston University. "Finra has an inherent conflict of interest, because it's the same people regulating themselves."
In testimony to the Senate in the past week, SEC Chairwoman Mary Schapiro said the agency is considering "whether to recommend legislation to break down the statutory barriers" that impose different regulations on brokers and advisers.
Ms. Schapiro stepped down earlier this year as head of Finra to lead the SEC. In 2005, when she was vice chairwoman of Finra's predecessor, Ms. Schapiro wrote a scathing letter to the SEC calling "this much-vaunted fiduciary duty ... imprecise and indeterminate."
When I asked her now if she still held that view, Ms. Schapiro replied: "I wear a new hat now. I completely get that I work for America's investors, so my perspective has changed. I think investors would rationally say that they prefer fiduciary duty as the standard of care. And they are entitled to have their interests come first, always."
Ms. Schapiro said it is too early to say who should be the lead regulator if brokers and advisers are brought under the same set of rules.
Ms. Schapiro sounds sincere, and they say there is no zeal like that of the convert. Here is hoping she means what she now is saying, and that Congress -- and the investing public -- will hold her to it. It is high time for everyone who says "Trust me" to be held to the highest standard.
Write to Jason Zweig at intelligentinvestor@wsj.com

The Madoff Madness

As I read the headlines on the internet today, I see that Bernard Madoff, former NASDAQ Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC, will most likely plead guilty and be sentenced to life in prison.

What did he do? He allegedly collected money to invest from clients, made up false statements to show that they were doing well, and used new clients' money to pay interest and withdrawals to existing clients. This is known as a Ponzi scheme and is estimated to involve more than a $50 billion loss for his investors.

His clients didn't see this coming. Could they have? Let's look at three key safety tips that would have prevented this from happening.

Know what you own. Stick to stocks, bonds, ETFs, and mutual funds that are publicly traded and listed on major exchanges like the New York Stock Exchange. They are valued independently at least daily, if not minute-by-minute, while the exchange is open. You can check their reported returns against your own portfolio. If you can't look up the prices and performance in the newspaper or on the Internet - that's a red flag - ask a lot more questions.

Use an independent custodian. Madoff held his client assets, managed them, and priced them, too. See the conflicts of interest? Investment performance can look better if the prices reported to clients are manipulated, which is allegedly how Madoff showed winning year after winning year despite market turmoil. At our firm, our clients have an independent third party, either TD Ameritrade, Vanguard or American Funds (for the College America accounts) pricing each investment they own. We have no input on investment pricing, and that separation is a very good thing. Clients also get an independent statement directly from TD Ameritrade, Vanguard or American Funds.

Check on insurance. Our clients benefit from fraud insurance. The first part is Securities Investor Protection Corporation (SIPC) coverage for $500,000 per account. Then, at TD Ameritrade Institutional, there is an additional aggregate amount of $250 million of additional securities protection.

Fraud insurance does not protect against market declines; but it does protect against theft of securities and/or related fraudulent transactions.

One final thought - if an investment sounds too good to be true, it probably is. Reportedly Madoff claimed consistent annual returns of 10-12% with little volatility and no annual losses. Can you name any legitimate investor who can make that claim in recent years?

IRA Contribution Deadlines

IRA Contribution Deadline


Don’t miss the IRA contribution deadline! Make sure you make your 2008 IRA contribution before April 15! With share prices at historic lows, fully funding your IRA for 2008 (and 2009) could mean a tremendous boost toward saving for retirement. Times are tough, but remember: the goal is to buy low and sell high! Anyone with an IRA should use this opportunity to fully fund it.If you’ve been contributing $50 or $100 to an IRA each month, there’s room to contribute a lot more. Putting $600 or $1,200 in your IRA annually is nice, but you can direct up to $5,000 into your IRAs for tax year 2008, and up to $6,000 if you turn 50 in 2008. (These limits apply whether you have one IRA or 21 IRAs – they represent the total amount an individual may contribute to one or more IRAs for 2008. If your modified adjusted gross income, or MAGI, is really high, then you may have to contribute less.)

As for your 2009 contribution...You have until April 15, 2010 to make that one, but you can also make it during 2009 and cross it off your to-do list. Again, with stock prices so low, a lot of amazing values are available. This recession will not last forever; looking back years from now, chances are you will be very glad you contributed what you did when you did.



Please call us if we can help you with your contributions.