What's the Worst Could Happen?

Ever ask yourself what is the Worst that Could Happen? No matter how bad things are there are always new technologies and medical solustions being created ever day. The Covid Virus was bad but the Vaccines were better. Think about life before Penicillin. More soldiers died from infections than bullets. Penicillin the miracle drug saved many lives here and abroad during the second world war. It was 1928 when Penicillin was discovered but it wasn't until 1941 that is was being widely produced. The Covid 19 vaccines were produced in under a year. That is something to celebrate. So whether it is mapping the human genome or getting your food delivered by GrubHub there are always new solutions to everyday problems.

THE ABC's Of INVESTING...”ALWAYS BUY CHEAP”

It might be urban myth but someone famous said “Buy Low and Sell High”. I prefer the ABC's of investing “always buy cheap”. Imagine if Costco raised prices instead of lowering them, would you buy more? Would you buy at all?

Well we have a sale going on in commodities these days. And if these things were sold at Costco we would have shopping carts full. On Maui where I live there are gas lines at the Costco pumps while other gasoline sellers are empty. And why not? The other stations prices are almost a dollar a gallon higher. But what about the commodities you don't buy a tank at a time?

Remember when gold was all the rage? Five years ago December 2009 gold was 1135ish an ounce. That was already a three fold rise off the lows. From there, just two years later, it went to a new high near 1920. Today it is 1128 an ounce a 40 percent decline. You don't see many “We will buy your gold” commercials on TV like you did back then.

Catching up to gold is crude oil. As 2014 winds down we have seen the price of a barrel of Oil decline 40 percent this year. It was in100 area and today is in the 55 dollar area for a barrel of oil. I saw a headline the other day calling this an oil “GLUT”. I kept looking for the articles that mentioned the recent dinosaur sitings. I mean how can you go from worrying about the low stock piles of oil to an oil glut without dinosaur sitings? Which gets me back to the ABC's of investing.

The ABC's of investing “Always Buy Cheap” is more about when not to buy than a value discussion. Let me explain. People are almost 100 percent emotional. And when it comes to investing they need that crowd pleasing security of something that is constantly talked about and seemingly can only go up. In my opinion that is today's stock market.

The Dow at this writing is above 18000, a new all time high. Almost 250 percent higher than the lows in 2009. Anyone remember the financial crisis? It's as much a distant memory as the dinosaur sitings. But if you had to sell during the crisis you remember it like it was yesterday. Why? Because the Dow and the S and P declined 50 percent in less than 24 months...Now that's a blue light special.

My point to this long treatise is that while we may have reached Nirvana, history tells us probably not. It gets harder to lower interest rates and pump up asset values as you reach zero percent. Eventually you have to have real growth (profits too) to support the debt load. Otherwise markets implode.

At this time of year where we financial types are thinking tax loss selling, I am taking money off the table. Remember what you see in your statement are “UNREALIZED” gains and can evaporate faster than you can analyze the reasons why. Those gains that make you smile today are never cash in your pocket until you go to the cashiers window. Harvesting some (taxable) gains after the 250 percent rally from the 2009 financial crisis lows is what this prudent man would do...Merry Christmas to everyone. May there be peace on earth...Yours Truly...Steve

So which is Best?... INCOME OR GROWTH?

Actually, what's most important, and many people lose sight of this, is the total return that an investment produces over a period of time: The net return after taxes.

If you can't afford to have your money tied up without generating much of an income, you'll want to lean towards high income returns. On the other hand, if you can afford to invest for the long term without taking income today, you might earn more after-tax money by keeping a larger percentage of your nest-egg in tax-favored accounts.

As John D. Rockefeller said almost a hundred years ago “Don't pay taxes on income you don't need now.

Of course, you also have to consider the "bird-in-hand" principle. Your income accounts are cold hard currency rustling in your pocket. No current income tax on the reinvested accounts, but you lose the right to spend the interest immediately!

The most important consideration is this: Do you want or need a regular income to cover your living expenses?

Tax-favored reinvestment plans compound your interest and principal. If you don't need the income today tax-favored reinvestment plans are worth considering.

The one thing that matters most:

Yours (not your neighbors or beneficiaries but your) income and tax needs. We now need to consider what a high and low interest rate. Is 5 percent a good rate? How about 10 percent? And what about inflation?

There's no way of knowing what rates will be when you renew. It depends on the economy and the federal reserve. We need some kind of yardstick to measure today's rates by. In other words, are today's 6.7 to 8.87 rates high in relation to today's unpredictable and variable growth accounts?

My answer is this: “A bird in the hand is worth more than two in the bush”.

The Dow Jones Industrial Average closed at 17,055 near the all time highs. It might go higher but it is not cheap in relation to history...These heights make me feel queasy.

Rates will vary according to the length of time you sign up for. But, while one maturity might be higher than another you deserve the most generous rates I can find. Is the desire for generous rates inside you too?

For now, we can say that the rates you are receiving are quite good and should continue. They are in fact linked to the one thing that matters most – A bird in the hand is worth more than two in the bush.

When you are ready to add to your income accounts, just let me know. I will find you the most generous rates available. It's a promise...Yours Truly...Steve

PS. We like to reward you when you refer your friends and relatives. So send them an invite to the blog. Afterall they may want to make more money and pay less taxes...simply email swoodard77@gmail.com

WHERE SHOULD YOU KEEP YOUR ESTATE PLANNING DOCUMENTS?

"Where should I keep my original estate planning documents?" The answer is really simple - in a safe and accessible place. But what does that mean?

What About Your Safe Deposit Box?

Many people think that their safe deposit box is the best place to store their original estate planning documents. But in many states, if the box is just in your name without any other joint owner, then your family will need a court order to open up the box and remove your estate planning documents. Thus, if you become disabled or after you die, then your loved ones won't have immediate access to your estate plan.

In this situation, consider placing the box in the name of your Revocable Living Trust so that the successor trustee of the your trust will be able to gain immediate access to your box, or add a joint owner who you can trust to carry out all of your estate planning wishes.

Other Safe But Readily Accessible Places

Where are some other safe but readily accessible places to store your original estate planning documents?

The most logical place is somewhere in your home or office that's protected from fire and floods, such as your very own fire and water-proof safe. But if you do decide to use a personal safe, be sure to let someone you know and trust the combination to the lock. And at a very minimum you should keep your original estate planning documents on a high shelf in your home or office.

Especially in Hawaii where Hurricanes and tsumami's are possible I have heard of other advisor 's clients lose their original estate planning documents because they were stored on the bottom shelf of a bookcase.

Leaving Copies With Your Estate Planning Attorney

Aside from this, your estate planning attorney should retain signed copies of all of your estate planning documents. Then, if the original documents are destroyed inadvertently, your estate planning attorney can recreate your documents and everything can be resigned.

If the original documents can't be found at the time of your death, then the presumption will be that you intended to destroy them. You don't want anyone to think that you died without a will or other estate plan

I hope that this was helpful. As always if you have questions about your estate plan or the best way to avoid estate taxes for your IRA's give me a call. We can go over the details of your estate and holdings...Yours Truly...Steve

PS. Estate & Tax Law changes often. An annual review can save thousands and sometimes millions in a large estate. Setting up a review is easy and FREE...simply call or email me...Talk to you soon...Steve

                                     “TO THINE OWN SELF BE TRUE”

(as if you could do anything else)
 

Shakespeare's quote, “To thine own self be true, and it must follow, as the night the day, thou canst not then be false to any man “ was written over 400 years ago. He knew too that investors should accept who they are.
 

I probably answer a 100 different financial questions every week. Clients like you and future clients have concerns that prompt questions. Important questions. My answers are always economic in nature but most clients need more than an economic answer. The headlines make us believe that opportunity knocks every day. I wish that were true. After 33 years of financial planning I would say it's more like four or five times a year. Most times it is terribly inconvenient.
 

The latest example was October 15^th (my birthday) when the Dow Jones Industrial average hit a low of 15,827. For a week all of the years gains were erased and investors found them selves at a loss. If it were a scene from Shakespeare's Hamlet the Dow would be seen falling on a sword. A slow down in China's economy, the end of the Fed's quantitative easing and gold down almost 35 percent. Falling to the same price it was five years ago in November 2009.
 

Miraculously, by the 23rd the DOW was even on the year and today just a few points from new all time highs. Yes terribly inconvenient.

I had a mentor who was famous for saying “If you were going to do it you would just do it”. It is the same reason all of those exam prep courses (and your spouse), tells you the first answer is the true answer. No matter what an adviser, friend or mentor tells you you will never commit a large percentage of your net worth to something that clashes with your investment personality. My advice?... Quit torturing yourself.

The hardest thing to do is “To thine own self be true”. Whether you want income, growth or are desperate to insure your principal your investment personality is in control. We all feel the clock (well anyone over 45). It pushes us to compare ourselves to people we know or play woulda shoulda coulda till the wee hours of the morning.
 

If you want income ask about the best income alternatives. If you want your net worth insured ask about the best principal guarantee options. If you want growth and have visions of owning your own jet then ask about that. Everyone wants to make more money and pay less taxes. But that is where the similarity ends...Here is what I know for sure...You won't stay with the plan and hit your goals if it clashes with your investment personality.
 

We all speculate and go outside our comfort zone with small percentages of our net worth. But if we are asked what we would do with 50 percent or even 20 percent of our net worth the answer is not the latest investing fad.
 

Hoards of officials both public and private want warning labels printed on everything everywhere (As if a warning label could tell the future). My point to this ridiculous practice is that what you do with the bulk of your net worth, whether at risk or not has everything to do with 2 things. And only two things: Your personal view of the future and your worry over missing out on the next great run.
 

So if opportunity knocks only four or five times a year and is terribly inconvenient how can you be ready? By knowing and believing in your own investment personality. It might be a blend of the three but like your own personality you will be dominant in one of these three. You will either want Income or want Growth. Or be desperate to insure what you've got. Your investment personality is dominant in one of the three.

No matter what, when the question is What to do with a large percentage of your net worth? The solution will always match your investment personality. How will you know when it doesn't? You will obsess over the decision. If you do go off the reservation it will be with an amount so small that it won't affect your life. My advice... stop playing woulda shoulda coulda and start looking at the best opportunities that match your investment personality.
 

Opportunity knocks 4 or five times a year. Spend the time now so you won't be shocked.

Yours Truly, Steve...PS. Need more personal one on one time to explore your investment personality? Just email me. We can do it in person or on the phone...Steve

THE TOP 5 THINGS YOUR ACCOUNTANT WOULD SAY

“ If you would just talk to them calmly in November”

INSTEAD of PANICKED IN APRIL.

I know that thinking about next years taxes in November is met with the same disgust as Christmas decorations before Halloween. Still if you want your accountant to do more than just keep score on this years 1040 you have to do something different before New Years Day.

As a favor to you and your holiday spirit here is a quick review of what they would say...

ONE: Beware End-of-Year Mutual Fund Purchases

Sometime in December, many funds pay out dividends and capital gains that have built up during the year, and the payout goes to investors who own shares on what's known as the ex-dividend date. It might sound like a savvy move to buy just before that day so you get a whole year's worth of income.

That's not how it works, though. Yes, you'd get the payout, but at the time of the payout, the share price falls by exactly the same amount. If you get $2 a share in dividends, for example, the share price drops by two bucks. In effect, the fund is simply refunding part of your purchase price.

But the IRS doesn't see it that way. You have to report the payouts as income on your 2014 return—and pay taxes on them—even if the money is automatically reinvested in extra shares. (The tax threat does not apply to mutual funds held in 401(k) plans or other tax-deferred retirement accounts.)

Before you buy shares for a non-retirement account in December, check the fund company's Web site to find out exactly when the dividend will be paid.

TWO: Give Really Big to Charity

If you plan to make a significant gift to charity this year, consider giving appreciated stocks or mutual fund shares that you've owned for more than one year. Doing so boosts the savings on your tax return. Your charitable-contribution deduction is the fair-market value of the securities on the date of the gift, not the amount you paid for the asset, and you never have to pay tax on the profit.

If your favorite cause can't accept donations of appreciated securities, consider opening a donor-advised fund instead. The fund administrator will sell the securities for you and add the proceeds to your account. You can deduct the value of the securities on your 2014 tax return and decide later where you want to donate the money.

THREE: Penalty-Proof Your Return

If you expect that you'll owe money when you file your 2014 tax return next spring, you can avoid an underpayment penalty by boosting your withholding now.

You needn't pay every penny of the tax you expect to owe. As long as you prepay 90% of this year's tax bill, you're off the hook for the penalty. Or you can escape its reach, in most cases, by prepaying 100% of last year's tax liability. However, note that if your 2013 adjusted gross income topped $150,000, you'll have to prepay 110% of last year's tax liability to avoid a penalty.

Taking these steps to boost your withholding at year-end will shield you from an underpayment penalty on your 2014 return, no matter how much you actually owe when you file your return.

If you have both wage and consulting income and expect to owe money on your tax return, you'll do better by boosting the taxes withheld from your last few paychecks rather than trying to make up the shortfall with your final estimated quarterly payment, due January 15, 2015.

FOUR: Prepay Deductible Expenditures

If you itemize deductions, accelerating some deductible expenditures into this year to produce higher 2014 write-offs makes sense if you expect to be in the same or lower tax bracket next year.

Accelerating the house payment that is due in January will give you 13 month’s worth of deductible interest in 2014 (unless you’ve already been following the prepayment drill). You can use the same strategy with a vacation home.

Prepaying state and local income and property taxes that are due early next year can reduced your 2014 federal income tax bill, because your total itemized deductions will be that much higher.

Miscellaneous deductions for investment expenses, job-hunting expenses, fees for tax preparation and advice, and un-reimbursed employee business expenses count only to the extent they exceed 2% of AGI. If you can bunch these kinds of expenditures into a single calendar year, you’ll have a fighting chance of clearing the 2% of AGI hurdle and getting some tax savings.

FIVE: Prepay Medical expenses

Medical costs are deductible only to the extent they exceed 10% of AGI for most people. However, if you or your spouse will be 65 or older as of year end, the deduction threshold is a more-manageable 7.5% of AGI.

The prepayment strategy can backfire if you will owe the alternative minimum tax (AMT) for this year. Solution: Ask your tax adviser if you’re in the AMT mode before prepaying taxes or miscellaneous deduction items.

You’ll feel happier at the end of the year if you’re able to cut your tax bill.

Yours Truly, Steve

 

IT'S THE GREAT PUMPKIN CHARLIE BROWN!

Dear Future Millionaire,

It's the day before Halloween and Linus is writing a letter to the Great Pumpkin. All the while his sister Lucy is berating him about how insane it is to believe in the Great Pumpkin. Not to mention write to him. “How you gonna mail that letter anyway?” she says. The next day he talks Sally (Charlie Brown's sister) into missing out on Trick or Treating and the Halloween party to sit in the pumpkin patch and wait for the Great Pumpkin. A figure that will fly through the air and bring toys to all the girls and boys.

Well as you know the Great Pumpkin never shows up and Sally is so upset. She has defended Linus to their friends risking her reputation. Missing trick or treating and the Halloween Party. All the while Linus is convinced that the Great Pumpkin will appear because his pumpkin patch is the most sincere. Still no Great pumpkin. Refinancing your mortgage is a lot like waiting for the Great Pumpkin.

The promise of monthly savings and a bigger bank account. Then reality sets in. “Hmmm...Our mortgage balance is higher than before and our bank account is smaller. Did we make a mistake?” Let me say for the record most refinances are a mistake.

To make a refinancing work you need two full percentage points difference. Most borrowers are shocked by this but that's only because they didn't do the math. The fees alone are typically two years of what ever they saved on the monthly payment. The worst part is starting the 30 year clock over again.

I know an extra 100 or 200 dollars a month is a blessing to the budget, but what's the real cost? Maybe the problem is not the mortgage. Maybe the problem is the personal spending or a lack of income. Remember this...The generation that retired before us had their houses paid off when they retired. It is biggest reason the majority of the WW2 generation retired well.

The second biggest reason that refinancing your mortgage is usually a mistake, is the lack of principal pay down. It takes five years of payments before there is any significant principal pay down in your new mortgage. I rarely see someone refinancing into a 15 year mortgage. And I never see anyone continue to make the same payment as they did before they refinanced. I agree that using the lower rate to accelerate the principal pay down makes a lot of sense. But I never see it. The supposedly huge savings from the refinancing evaporates and all that is left is a larger mortgage balance and an extra five years of payments.

Now I am not against refinancing a mortgage when it makes economic sense and increases your net worth. If you can get a two percent reduction in your interest rate. Great do it! Sometimes... there are other economic advantages. I recently did a refinance where the mortgage was covering two properties. We were able to get a new mortgage to cover one property. Making the second property free and clear. A tremendous net worth boost.

You may not have a mortgage but I know you have these discussions. Your friends and relatives look to you for advice and recommendations. I only ask that when the subject comes up that you encourage them to do the math. Even encouraging them to eat at home two extra nights a month and use those funds to pay down principal. They could save 7 years of payments on the average mortgage. What a blessing!

Encourage them to do the math before they refinance. It will keep them from refinancing the pumpkin patch waiting and hoping in vane for the Great Pumpkin to appear.

At the end of the story Charlie Brown tries to console Linus by saying that he did a lot of stupid things too. Linus turns red and says “Stupid what do you mean Stupid?...Just wait till next year. You'll see! The Great pumpkin will appear and I will be waiting for him!”

Likewise the refi-advertising continues.

Thank you very much for your continued support and confidence!

Yours Truly,

Steve

PS. For those that don't do this every day the math can be hard. Feel free to have your friends and relatives call me. I would be happy to do the math for them...Thank you...Steve

Steven K. Woodard Sr.

Financial Planner

Morganwood Ltd.

1578 S. Kihei Road

Kihei, HI 96753

Office 808-875-9887

Direct 808-298-4647