The Rise of Bitcoin

The Rise of Bitcoin

Is the virtual currency a fad, or the future?

   

Provided by Michael Fassi CLU, ChFC

 

Mention “bitcoin” to assorted economists or investors, and you may trigger all kinds of associations. To some, it signifies an exciting new reality – a digital currency with a payment system that could revolutionize finance. To others, it is still a volatile commodity – propped up by hype, fraught with risk. It also refers to an open source software system, and a financially startling concept – currency production through the Internet.  

You can’t talk about bitcoin without talking about Bitcoin. Bitcoin with a capital “B” references the Bitcoin network that creates the digital currency; bitcoin with a lower-case “b” refers to the currency itself. 

Where is bitcoin made? Online. All bitcoin is generated in cyberspace, and the process is interesting to say the least. The first step in making bitcoin is “mining,” and mining takes math skills. A bitcoin “miner” (a computer user) tries to solve one or more math problems, with success resulting in shares of bitcoin. The more miners there are, however, the smaller fractional bitcoin shares become as no more than 21 million bitcoins will ever be created.1,2 

Once mined, a bitcoin can be sent to a miner’s digital “wallet.” (If the digital wallet is hacked, the bitcoin within it is forever lost.)  Today, more than 100,000 businesses and organizations worldwide accept bitcoin payments, including PayPal, Expedia, Microsoft, Dell, Wikipedia, and Greenpeace.2,3

What is a bitcoin worth? Ask the free market – specifically, the commodities market. Looking at the bitcoin charts at CoinDesk.com on August 19, 2016, a single bitcoin was worth $575.27 on the CoinDesk Bitcoin Price Index. On February 14, 2011, a lone bitcoin was worth only $0.99; by November 25, 2013, that value had soared to $979.45. On January 12, 2015, it bottomed out at $214.08 before rebounding to its present level.4 

Volatility & bitcoin go hand in hand. Since no central bank in the world issues bitcoin, it is only worth what investors are willing to pay for it. In the worst-case scenario, bitcoin plays out like the tulip bulb mania of the 1600s and investors eventually pay little or nothing for it. In the blue-sky scenario, bitcoin becomes a component of daily global commerce. The currency certainly seems to be growing from its infancy into a kind of adolescence. 

Who created bitcoin? A mysterious person or entity going by the name of Satoshi Nakamoto. In the spring of 2016, an Australian entrepreneur named Craig Steven Wright announced that he was actually “Satoshi Nakamoto” – but his claim was met with some skepticism. In 2014, Newsweek profiled a Southern California retiree named Dorian Satoshi Nakamoto, claiming he was the father of Bitcoin – a claim Nakamoto emphatically repudiated. Other possibilities include an American cryptographer named Michael Clear and a respected American computer scientist named Nick Szabo, but they have also denied creating the currency and its network.5

For bitcoin to steal gold’s shine, it has to lose its dark side. If the preceding paragraph sounded like something out of a dystopian science fiction novel to you, you aren’t alone in your skepticism. There is much that is exciting about bitcoin and its potential to streamline global finance, but there are also big question marks. Some traders are leery of investing in a so-called “cryptocurrency,” which has the characteristics of a commodity. Also, the digitized anonymity of bitcoin transactions beckons to cybercriminals expert in hacking, phishing, and malware.  

Where bitcoin has really taken off is China. In fact, 90% of bitcoin trading and 70% of bitcoin mining occurs there, even though China’s government has stated that bitcoin is not a legitimate currency. Bitcoin prices are up about 50% YTD in 2016, and they could fall just as dramatically through a variety of factors (hackers raiding exchanges, crackdowns in China, imitators stealing its thunder).6

Will bitcoin ever make the leap to the forex markets? Bitcoin doubters, such as JPMorgan Chase CEO Jamie Dimon, argue that a cryptocurrency has no place there. While its critics regard bitcoin as a speculative play for the long run, the total market value of bitcoin reached $11 billion this year with about $120 million in transactions proceeding through the Bitcoin network each day.6

 

Mike Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Financial Educators Network, 800-320-3012 or mike@financialeducatorsnetwork.org

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

Citations.

1 – forbes.com/sites/peterdetwiler/2016/07/21/mining-bitcoins-is-a-surprisingly-energy-intensive-endeavor [7/21/16]

2 – bitcoin.org/en/faq [8/19/16]

3 – ibtimes.co.uk/bitcoin-now-accepted-by-100000-merchants-worldwide-1486613 [2/4/15]

4 – coindesk.com/price/ [8/19/16]

5 – cbsnews.com/news/who-created-digital-currency-bitcoin-satoshi-nakamoto-craig-wright-long-mystery-not-solved/ [5/3/16]

6 – bloomberg.com/news/articles/2016-07-06/after-4-400-surge-bitcoin-s-fate-hinges-on-huge-chinese-miners [7/6/16]

 

Posted in Uncategorized

The Trump and Clinton Tax Plans

The Trump & Clinton Tax Plans

How do they differ?

 

Provided by Michael Fassi CLU, ChFC

 

Seemingly every presidential candidate offers a plan for tax reform. You can add Donald Trump and Hillary Clinton to that long list. Here is a look at their plans, and the key reforms to federal tax law that might result if they were enacted.

 

Donald Trump revised his tax plan this summer. The latest plan put forth by Trump and his advisors contains the key features of the one introduced last year.

 

Under Trump’s plan, the standard deduction would rise. It would rise from the current level of $6,300 to $25,000 for single filers. Joint filers could claim a $50,000 standard deduction. (The GOP plan proposes respective standard deductions of $12,000 and $24,000.) Instead of seven federal income tax rates, there would just be three – 12%, 25%, and 33%. (In his original tax reform blueprint, the rates were 10%, 20%, and 25%.)1

 

The estate tax would vanish entirely under Trump’s plan. Taxes on capital gains and dividends would top out at 20%.2,3

 

Trump wants to reduce the corporate tax rate from 35% to 15%. The new lower rate would apply to partnerships, LLCs, and S corps as well as C corps. (With a proposed corporate tax ceiling of 15% and a proposed individual tax ceiling of 33%, some economists have wondered if a Trump presidency might generate a wave of individuals incorporating themselves.) Full expensing would also be allowed for business investments under Trump’s plan.1

 

Notably, Trump’s reforms would do away with the deferral of taxes on foreign profits. As it stands now, corporate taxes on foreign profits are deferred until overseas affiliates repatriate them. It can take years for those inbound dividends to arrive. The Trump plan would tax domestic and foreign profits on the same current-year basis.1

 

Trump has also publicly spoken of greater tax relief for families raising children. This would likely not be an expansion of the Child and Dependent Care Credit, but something new – either a deduction, a credit, or an exclusion. Given the high standard deductions that would be offered if Trump’s tax plan becomes law, higher-income households might be most interested in such an expanded child care deduction. If the Trump plan applies a child care deduction to payroll taxes rather than income taxes, many lower-income households could, theoretically, claim it. Less payroll tax revenue would mean less revenue for some key government programs.1

 

Hillary Clinton’s tax plan would lower some taxes & raise others. As the non-partisan Tax Policy Center has noted, only around 5% of Americans would see any real change to their taxes under the Clinton reforms – but the richest Americans would pay higher income taxes under her plan. Clinton’s corporate tax reforms would encourage firms to do more business in America, while her estate tax reforms could prompt changes in wealth transfer planning for some families.2,3

 

High-earning households could see marginal rates rise. Under Clinton’s plan, taxpayers with adjusted gross incomes greater than $5 million would pay a 4% surtax, effectively setting their marginal tax rate at 43.6%. Anyone earning more than $1 million would face an effective tax rate of 30%. Investors would have to buy and hold for longer intervals to take advantage of long-term capital gains tax rates. The current long-term rate of 20% would only apply if an investor owned an investment for six years; in preceding years, it would be incrementally higher.2,3,4

 

The federal estate tax would also rise to 45% through Clinton’s reforms. The current $5.45 million individual exemption would be reduced to $3.5 million ($7 million for married couples).2

 

Clinton’s plan would adjust corporate taxation. U.S. firms would find it harder to make tax inversions, whereby they merge with an overseas competitor and move their headquarters to another country to exploit that nation’s lower corporate tax rate. Earnings stripping – in which U.S. affiliates of multinational corporations “strip” profits from their stateside taxable income and send them to overseas parent companies in pursuit of tax savings – would cease. Companies would also face limits on deducting interest payments on their debt. While she has talked of a tax on the biggest financial institutions, Clinton has also expressed a desire to make the process of estimating, filing, and paying taxes less involved for small business owners.2,3

 

Like Trump, Clinton wants tax relief for families. She wants a new kind of tax credit for child care; the details have yet to emerge at this writing.2

 

These plans have one destination. That is Congress, and there is no telling how many or how few of these reforms may become law if Clinton or Trump are elected.

 

Michael Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Financial Educators Network, 800-320-3012 or mike@financialeducatorsnetwork.org

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – taxanalysts.org/tax-analysts-blog/trump-s-tax-plan-version-20/2016/08/12/194511 [8/12/16]

2 – nytimes.com/2016/08/13/upshot/how-hillary-clinton-and-donald-trump-differ-on-taxes.html [8/13/16]

3 – cbsnews.com/news/hillary-clinton-donald-trump-taxes-presidential-campaign-2016/ [8/3/16]

4 – fool.com/investing/2016/06/19/how-would-hillary-clinton-change-your-taxes.aspx [6/19/16]

 

 

Posted in economy, Finance, Investing, Taxes

Stocks and Presidential Elections

Stocks & Presidential Elections

 What does history tell us – and should we value it? 

 

Provided by Michael Fassi CLU, ChFC

 

As an investor, you know that past performance is no guarantee of future success. Expanding that truth, history has no bearing on the future of Wall Street.

That said, stock market historians have repeatedly analyzed market behavior in presidential election years, and what stocks do when different parties hold the reins of power in Washington. They have noticed some interesting patterns through the years, which may or may not prove true for 2016.

Do stocks really go through an “election cycle” every four years? The numbers really don’t point to any kind of pattern. (Some analysts contend that stocks follow a common pattern during an election year; more about that in a bit.)

In price return terms, the S&P 500 has gained an average of 6.1% in election years, going back to 1948, compared to 8.8% in any given year. The index has posted a yearly gain in 76% of presidential election years starting in 1948, however, as opposed to 71% in other years. Of course, much of this performance could be chalked up to macroeconomic factors having nothing to do with a presidential race.1 

Overall, election years have been decent for the blue chips. Opening a very wide historical window, the Dow has averaged nearly a 6% gain in election years since 1833. Across that same time frame, it has averaged a 10.4% gain in “year three” – years preceding election years.2

Many election years have seen solid advances for the small caps. The average price return of the Russell 2000 is 10.9% in election years going back to 1980, with a yearly gain occurring 78% of the time.1

Do stocks respond if a particular party has control of Congress? A little data from InvesTech Research will help to answer that.

InvesTech studied S&P 500 yearly returns since 1928 and found that the S&P returned an average of 16.9% in the two years after a presidential election when the White House and Congress were controlled by the same party. In the 2-year stretches after a presidential election, when Congress was controlled by the party that didn’t occupy the White House, the price return of the S&P averaged 15.6%. When control of Congress was split – regardless of who was President – the S&P only returned an average of 5.5% in those 2-year periods.2  

Could stock market performance actually influence the election? An InvesTech analysis seems to draw a correlation, however mysterious, between S&P 500 performance and whether the incumbent party retains control of the White House.

There have been 22 presidential elections since 1928. In those 22 years, the incumbent party won the White House 86% of the time when the S&P advanced during the three months preceding Election Day. When the S&P lost ground in the three months prior to the election, the incumbent party lost the White House 88% of the time. Of course, other factors may have been considerably more influential in these elections, such as a given president’s approval rating and the unemployment rate.2  

Annual returns aside, is there a mini-cycle that hits stocks in the typical election year? Some analysts insist so, with the cycle unfolding like this: stocks gain momentum during primary season, rally strongly as the presumptive nominees appear and party conventions occur, and then go sideways or south in November and December.3

There might be something to this assertion, at least in terms of S&P 500 performance. A FactSet/Wall Street Journal analysis shows that, in election years starting in 1980, the S&P has advanced an average of 4.9% in the period between when a presumptive nominee is declared and Election Day. After Election Day in these nine years, it declined about half a percent on average.3   

How much weight does history ultimately hold? Perhaps not much. It is intriguing, and some analysts would instruct you to pay more attention to it rather than less. Historical “norms” are easily upended, though. Take 2008, the election year that brought us a bear market disaster. The year 2000 also brought an S&P 500 loss. While a presidential election undoubtedly affects Wall Street every four years, it is just one of many factors in determining a year’s market performance.1

   

Michael Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Financial Educators Network, 800-320-3012 or mike@financialeducatorsnetwork.org

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

  

Citations.

1 – marketwatch.com/story/2016-predictions-what-presidential-election-years-mean-for-stocks-2015-12-29 [12/29/15]

2 – kiplinger.com/article/investing/T043-C008-S003-how-presidential-elections-affect-the-stock-market.html [2/16]

3 – tinyurl.com/j82mg4c [6/12/16]

 

Posted in economy, Finance, Investing

The Perfect Storm_Introduction – Mike Fassi

Posted in Finance

Cash Flow Management

Cash Flow Management

An underappreciated fundamental in financial planning.

 

Provided by Michael Fassi CLU, ChFC

                       

You’ve probably heard the saying that “cash is king,” and whether you own a business or not, it is a truth that applies. Most discussions of business and personal “financial planning” involve tomorrow’s goals, but those goals may not be realized without attention to cash flow today.

Management of available cash flow is a key in any kind of financial planning. Ignore it, and you may inadvertently sabotage your efforts to grow your company or build personal wealth. 

Cash flow statements are important for any small business. They can reveal so much to the owner(s) and/or CFO, because as they track inflows and outflows, they bring non-cash items and expenditures to light. They denote your sources and uses of cash, per month and per year. Income statements and P&L statements may provide inadequate clues about that, even though they help you forecast cash flow trends.

Cash flow statements can tell you what P&L statements won’t. Are you profitable, but cash-poor? If your company is growing by leaps and bounds, that can happen. Are you personally taking too much cash out of the business and unintentionally letting your growth company morph into a lifestyle company? Are your receivables getting out of hand? Is inventory growth a concern? If you’ve arranged a loan, how much is your principal payment each month and to what degree is that eating up cash in your business? How much money are you spending on capital equipment?

A good CFS tracks your operating, investing and financing activities. Hopefully, the sum of these activities results in a positive number at the bottom of the CFS. If not, the business may need to change to survive.

In what ways can a small business improve cash flow management? There are some fairly simple ways to do it, and your CFS can typically identify the factors that may be sapping your cash flow. You may find that your suppliers or vendors are too costly; maybe you can negotiate (or even barter) with them. Like many companies, you may find your cash flow surges during some quarters or seasons of the year and wanes during others. What steps could you take to improve it outside of the peak season or quarter?

What kind of recurring, predictable sales can your business generate? You might want to work on the art of continuity sales – turning your customers into something like subscribers to your services. Perhaps price points need adjusting. As for lingering receivables, swiftly preparing and delivering invoices tends to speed up cash collection. Another way to get clients to pay faster: offer a slight discount if they pay up, say, within a week (and/or a slight penalty to those that don’t). Think about asking for some cash up front, before you go to work for a client or customer (if you don’t do this already).

While the Small Business Association states that only about 10% of entrepreneurs draw entirely on their credit cards for startup capital, there is still a temptation for an owner of a new venture to go out and get a high-limit business credit card. It might be better to shop for one with cash back possibilities or business rewards in mind. If your business isn’t set up to receive credit card payments, consider it – the potential for added cash flow could render the processing fees utterly trivial.1

How can a household better its cash flow? One quick way to do it is to lessen or reduce your fixed expenses, specifically loan and rent payments. Another step is to impose a ceiling on your variable expenses (ranging from food to entertainment), and you may also save some money in separating some or all those expenses from credit card use. Refinancing – if you can do it – and downsizing can certainly help. There are many, many free cash flow statement tools online where you can track family inflows and outflows. (Your outflows may include bugaboos like long-term service contracts and installment payment plans.) Selling things you don’t want can make you money in the short term; converting a hobby into an income source or business venture could help in the long term.

Better cash flow boosts your potential to reach your financial goals. A positive cash flow can contribute to investment, compounding, savings – all the good things that tend to happen when you pay yourself first.

 

Michael Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Financial Educators Network, 800-320-3012 or mike@financialeducatorsnetwork.org

 

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – smallbusinesscomputing.com/tipsforsmallbusiness/5-tips-for-a-smoother-small-business-cash-flow.html [11/19/12]

Posted in Finance, Investing

Wisdom from Warren Buffett

Wisdom from Warren Buffett

One of the world’s most heralded investors simply keeps calm and carries on.

 

Provided by Michael Fassi CLU, ChFC

 

If you ask someone who the “world’s greatest investor” is, the answer more often than not may be “Warren Buffett.” That honor has never formally been awarded to him, and many other names might be in the running for that hypothetical title, but one thing is certain: the “Oracle of Omaha” is greatly admired in investing circles.

Warren Buffett is often a voice of reason in volatile times. Through the years, the Berkshire Hathaway CEO has dispensed many nuggets of investing wisdom. Like Ben Franklin’s aphorisms in Poor Richard’s Almanac, they are grounded in common sense and memorable. Here are some particularly good ones, culled from recent articles posted at Bloomberg, TheStreet, and Zacks Investment Research:

“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”1

“Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.”2

“If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”1

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”1

“Price is what you pay. Value is what you get.”1

“The cemetery for seers has a huge section set aside for macro forecasters.”2

A business with terrific economics can be a bad investment if it is bought at too high a price.”3

“Risk comes from not knowing what you’re doing.”1

Buffett’s clarity and candor stand out in a financial world marked by jargon. Some of the quotes above are from his annual letters to Berkshire Hathaway shareholders, and show his genius for distilling investment lessons into plain English.

A classic value investor (if not a strict one), Buffett is also a great optimist. He has never stopped being bullish on America. “America is great now. It’s never been better,” Buffett told the audience at Fortune Magazine’s 2015 Most Powerful Women summit. “The stock market does wonderfully over time because American business does wonderfully over time.” He remains bullish on China, as well; he thinks Chinese stock benchmarks will sustain their momentum at least through 2017 because businesses and consumers in China have “found a way to unlock their potential.”4,5

Buffett’s blend of optimism and pragmatism have helped make him the world’s third-richest person, and the average investor might do very well to keep some of his maxims in mind, day after day.5

 

Michael Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Financial Educators Network, 800-320-3012 or mike@financialeducatorsnetwork.org

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – zacks.com/stock/news/181853/15-memorable-investing-quotes-from-warren-buffett [7/15/15]

2 – bloomberg.com/news/articles/2016-02-24/here-s-what-buffett-wouldn-t-do-and-maybe-you-shouldn-t-either [2/24/16]

3 – thestreet.com/story/13494470/1/3-new-warren-buffett-quotes-you-can-t-live-without.html [3/20/16]

4 – fortune.com/2015/10/16/why-the-most-powerful-women-and-warren-buffett-are-bullish-on-the-economy/ [10/16/15]

5 – globaltimes.cn/content/919951.shtml [5/4/15]

Posted in Finance, Investing

Long-Term Investment Truths

Long-Term Investment Truths

Key lessons for retirement savers.

 

Provided by Michael Fassi CLU, ChFC

 

You learn lessons as you invest in pursuit of long-run goals. Some of these lessons are conveyed and reinforced when you begin saving for retirement, and others you glean along the way.

First & foremost, you learn to shut out much of the “noise.” News outlets take the temperature of global markets five days a week (and even on the weekends), and fundamental indicators serve as barometers of the economy each month. The longer you invest, the more you learn to ride through the turbulence caused by all the breaking news alerts and short-term statistical variations. While the day trader sells or buys in reaction to immediate economic or market news, the buy-and-hold investor waits for selloffs, corrections and bear markets to pass.

You learn how much volatility you can stomach. Volatility (also known as market risk) is measured in shorthand as the standard deviation for the S&P 500. Across 1926-2014, the yearly total return for the S&P averaged 10.2%. If you want to be very casual about it, you could simply say that stocks go up about 10% a year – but that discounts some pronounced volatility. The S&P had a standard deviation of 20.2 from its mean total return in this time frame, which means that if you add or subtract 20.2 from 10.2, you get the range of the index’s yearly total return that could be expected 67% of the time. So in any given year from 1926-2014, there was a 67% chance that the yearly total return of the S&P might vary from +30.4% to -10.0%. Some investors dislike putting up with that kind of volatility, others more or less embrace it.1

You learn why liquidity matters. The older you get, the more you appreciate being able to quickly access your money. A family emergency might require you to tap into your investment accounts. An early retirement might prompt you to withdraw from retirement funds sooner than you anticipate. If you have a fair amount of your savings in illiquid investments, you have a problem – those dollars are “locked up” and you cannot access those assets without paying penalties. In a similar vein, there are some investments that are harder to sell than others.

Should you misgauge your need for liquidity, you can end up selling at the wrong time as a consequence. It hurts to let go of an investment when the expected gain is high and the P/E ratio is low.

You learn the merits of rebalancing your portfolio. To the neophyte investor, rebalancing when the market is hot may seem illogical. If your portfolio is disproportionately weighted in equities, is that a problem? It could be.

Across a sustained bull market, it is common to see your level of risk rise parallel to your return. When equities return more than other asset classes, they end up representing an increasingly large percentage of your portfolio’s total assets. Correspondingly, your cash allocation shrinks as well.

The closer you get to retirement, the less risk you will likely want to assume. Even if you are strongly committed to growth investing, approaching retirement while taking on more risk than you feel comfortable with is problematic, as is approaching retirement with an inadequate cash position. Rebalancing a portfolio restores the original asset allocation, realigning it with your long-term risk tolerance and investment strategy. It may seem counterproductive to sell “winners” and buy “losers” as an effect of rebalancing, but as you do so, remember that you are also saying goodbye to some assets that may have peaked while saying hello to others that you may be buying at the right time.

You learn not to get too attached to certain types of investments. Sometimes an investor will succumb to familiarity bias, which is the rejection of diversification for familiar investments. Why does he or she have 13% of the portfolio invested in just two Dow components? The investor just likes what those firms stand for, or has worked for them. The inherent problem is that the performance of those companies exerts a measurable influence on the overall portfolio performance.

Sometimes you see people invest heavily in sectors that include their own industry or career field. An investor works for an oil company, so he or she gets heavily into the energy sector. When energy companies go through a rough patch, that investor’s portfolio may be in for a rough ride. Correspondingly, that investor has less capacity to tolerate stock market risk than a faculty surgeon at a university hospital, a federal prosecutor, or someone else whose career field or industry will be less buffeted by the winds of economic change.

You learn to be patient. Even if you prefer a tactical asset allocation strategy over the standard buy-and-hold approach, time teaches you how quickly the markets rebound from downturns and why you should stay invested even through systemic shocks. The pursuit of your long-term financial objectives should not falter – your future and your quality of life may depend on realizing them.

 

Michael Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Financial Educators Network, 800-320-3012 or mike@financialeducatorsnetwork.org

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 – fc.standardandpoors.com/sites/client/generic/axa/axa4/Article.vm?topic=5991&siteContent=8088 [6/4/15]

 

 

Posted in Finance, Investing, retirement

Dollar Cost Averaging in a Down Market

Dollar Cost Averaging in a Down Market

This investment technique may help you take advantage of the downturn.

 

Provided by Michael Fassi CLU, ChFC

 

Buying low and selling high is the oldest stock market adage. How does one put it into practice? Dollar cost averaging may give you a method to capture lower prices today and come out ahead tomorrow.

How it works. Dollar cost averaging is a long-term investment strategy. It means investing in small increments. Through scheduled investments of as little as $50 or $100 per month, you buy investment shares over time, as opposed to pouring a big lump sum into the market. The method is often recommended to younger investors with longer time horizons, as well as investors who don’t yet have great wealth.

Why it is worthwhile in a bear market. First of all, when the market drops, the investor practicing dollar cost averaging isn’t hurt as much as the lump sum investor, as the lump sum investor holds many more shares of the declining fund or stock.

Second, a stock market downturn produces a kind of “clearance sale” environment. Picture Wall Street as a department store, with signs everywhere announcing 20% or 30% off. You have a chance to buy into some top-quality companies “on sale.” As a consequence of dollar cost averaging, you can now buy in at a lower price, obtaining more shares for your money.

So what happens when the market recovers? As the market rebounds, you can pat yourself on the back. You were able to buy big at the bottom of the market; as the market rises, you will have a lower cost basis and you can enjoy the associated gains. All the while, you continue contributing to a winning fund or stock. (Of course, the fact is that a lump sum investor may profit even more from a market rebound, as he or she may hold comparatively more shares than you.)

Perhaps most importantly, you stay invested. Dollar cost averaging gives you a regular, passive investment strategy as opposed to market timing. In a volatile market, the active investor can quickly become a frustrated casualty of his or her impulses and foolishly “abandon ship.”

You might call this a tortoise-and-the-hare analogy. The active investor sprinting all over the place for spectacular gains is the hare; you, through dollar cost averaging, emulate the tortoise.

Learn more. How are you positioning yourself to take advantage of the markets? This is a good time to meet with a financial advisor to review or rebalance your portfolio and look toward your long-term objectives. If you’re not currently practicing dollar cost averaging, you may want to talk about the concept with your advisor.

 

Michael Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Financial Educators Network, 800-320-3012 or mike@financialeducatorsnetwork.org

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Posted in economy, Finance

Putting Your Tax Refund to Work

Putting Your Tax Refund to Work

Where could that money go besides a bank account?

Provided by Michael Fassi CLU, ChFC

 

Should your refund be saved? According to a TD Ameritrade poll, 47% of U.S. taxpayers expect a refund this year. What do they plan to do with the money?1

The answers may surprise you. While 15% of the survey respondents indicated they would spend their refunds on discretionary purchases, 47% said they would save the money and 44% indicated they would use some or all of it to whittle away some debt. Just 15% said they would invest it, and only 6% said they would direct it to a charity.1

Besides deposit accounts, consider other destinations. Putting your refund into your savings or checking account is sensible enough – but with the interest rates most bank accounts earn today, you may be wondering about alternatives. Here are some other options.

Your refund could let you put more money into your workplace retirement plan. Does your employer offer to match your retirement plan contributions? If so, you might want to think about contacting your plan administrator or human resources officer and increasing your elective salary deferrals into the retirement plan this year by the same amount as the refund. If you deposit those refund dollars in a checking or savings account, you can offset the increase in the amount of salary you defer by distributing the refund dollars from the bank account to yourself. Hopefully, that checking or savings account generates at least some interest on those deposited funds as well.2

It could help you increase your 2015 (or 2016) IRA contribution. If you didn’t make the maximum allowable IRA contribution for 2015 – $5,500 across all of your traditional and Roth IRAs, $6,500 for those 50 or older – you could boost that contribution as a byproduct of your refund.2

Assuming you haven’t sent your 2015 federal return to the IRS yet, you can redo your taxes to show your 2015 IRA contribution(s) raised by the amount of the refund you will be getting. As the deadline for 2015 contributions is April 15, 2016, you could either make your additional 2015 IRA contribution using your refund (if you file early and get your refund back nice and early) or with equivalent cash from your savings or checking account, knowing that you will then use the refund to reimburse yourself. Whatever way you choose, please make sure that you earmark your additional contribution for the year 2015; otherwise, the IRA custodian will interpret it as a contribution for this year. (If you’ve already sent your 2015 taxes to the IRS, you could still pull this off with the help of a 1040X form to amend your return).2

Another option: use the refund you get from your 2015 taxes to increase your 2016 IRA contribution.

You could tell the IRS to put the money in bonds. Starting in 2011, the IRS gave taxpayers who received refunds a third option: in addition to a direct deposit or a check in the mail, their refunds could be redirected into U.S. Series I Savings Bonds. Up to $5,000 of refund dollars can be invested this way (in multiples of $50).3

You could use the dollars for home improvement. If you want to go green (or even greener) and you have the time, initiative and patience to tackle an energy-efficient home improvement project, here is another option. You could get as much as a $500 tax credit for your effort.2

You could make an additional mortgage payment or pay property tax. Assuming your home isn’t underwater, you may want to use the refund dollars to reduce mortgage principal. Also, mortgage companies often keep a few thousand bucks in escrow to pay various tax and insurance expenses linked to your home, and some of them will actually let a borrower’s savings account stand in for their escrow account. If they permit, you could make such payments out of an account of your own while it earns a (tiny) bit of interest.2

Lastly, think about avoiding a refund in 2016. In figurative terms, your federal tax refund amounts to an interest-free loan to Uncle Sam. If you don’t particularly want to make that “loan” again, see if your W-4 can be tweaked to decrease that possibility this year.

Michael Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Financial Educators Network, 800-320-3012 or mike@financialeducatorsnetwork.org

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – files.shareholder.com/downloads/AMTD/2319508826x0x633008/9024d25b-97d6-410e-bc67-f7e1bcf7f17c/Tax_Refund_Release_Final_2013.pdf [2/6/13]

2 – www.cnbc.com/id/100457342 [2/13/13]

3 – www.irs.gov/uac/Ten-Things-to-Know-About-Tax-Refunds [4/11/13]

Posted in Finance

China’s Stock Market Turmoil

China’s Stock Market Turmoil

Can U.S. shares hold up in the wake of January’s shocks?

Provided by Michael Fassi CLU, ChFC

 

On January 7, China halted stock trading for the second time in four days. The benchmark Shanghai Composite sank 7.0% on January 4 and dropped 7.3% three days later, both times activating a new circuit-breaker rule that stopped the trading session.1

Markets worldwide fell in reaction to these dramatic plunges. On January 7 alone, Japan’s Nikkei 225 and Germany’s DAX both suffered selloffs of 2.3%. On the same day, the Dow Jones Industrial Average dropped below the 17,000 level and the S&P 500 closed below 2,000.1,2,3

While the Dow and S&P respectively lost 2.3% and 2.4% Thursday, the Nasdaq Composite lost 3% and actually corrected from its July record settlement of 5,218.86.3

Why is China’s stock market slipping? You can cite several reasons. You have the well-noted slowdown of the country’s manufacturing sector, its rocky credit markets, and the instability in its exchange rate. You have Chinese concerns about the slide in oil prices, heightened at the beginning of January by the erosion of diplomatic ties between Iran and Saudi Arabia. You have China’s neighbor, North Korea, proclaiming that its arsenal now includes the hydrogen bomb. Finally, you have a wave of small investors caught up in margin trading and playing the market “like visitors to the dog track,” as reporter Evan Osnos wrote in the New Yorker. More than 38 million new retail brokerage accounts opened in China in a three-month period in 2015, shortly after the Communist Party spurred households to invest in stocks. Less than 10 million new brokerage accounts had opened in China in all of 2014.1,4      

In trying to calm its markets, China may have done more harm than good. Chinese officials spent more than $1 trillion in 2015 to try and reassure investors, and right now they have little to show for it. Interest rates have been lowered; the yuan has been devalued again and again. The government has also made two abrupt (and to some observers, questionable) moves.2

Last July, they barred all shareholders owning 5% or more of a company from selling their stock for six months. That ban was set to expire on January 8, and that deadline stirred up bearish sentiment in the market this week. The prohibition was just renewed, with modifications, for three more months.4

On January 4, the China Securities Regulatory Commission instituted a circuit-breaker rule that would pause trading for 15 minutes upon a 5% market dive and end the trading day when stocks slumped 7% or more. On January 7, the CSRC scrapped the rule amid criticism that it was being triggered too easily; Thursday ended up being the shortest trading day in the history of China’s stock market. In the view of Hao Hong, chief China strategist at Bocom International Holdings, the circuit-breaker rule clearly backfired: it produced a “magnet effect,” with selloffs accelerating and liquidity evaporating as prices approached the breaker.1,2

As Peking University HSBC Business School economics professor Christopher Balding commented to Quartz, the CSRC seems to lack sufficient understanding of “what markets are, how they work or how they are going to react.” Quite possibly, China will make further dramatic moves to try and reduce stock market volatility this month. Will U.S. stocks rally upon such measures? Possibly, possibly not.2

Wall Street is contending with other headwinds. The oversupply of oil continues: according to Yardeni Research, world crude oil output rose 2.4% in the 12 months ending in November to a new record of 95.2 million barrels a day.1

Additionally, the pace of American manufacturing is a worldwide concern. In December, the Institute for Supply Management’s manufacturing PMI showed sector contraction (a reading under 50) for a second straight month. Factory orders were down for a thirteenth consecutive month in November (the first time a streak of declines that long has occurred outside of a recession) and the November durable goods orders report also disappointed investors.1,5

Citigroup maintains an Economic Surprise Index – a measure of the distance between analyst forecasts and actual numbers for various economic indicators. It just touched lows unseen since early last year, which is not a good sign as equities tend to react the most to surprises.1

If the Labor Department’s December employment report and the upcoming earnings season live up to expectations, stocks might recover from this descent even if China does little to stem the volatility in its market. The greater probability is that more market turmoil lies ahead. That short-term probability should not dissuade an investor from the long-run potential of stocks.

 

Michael Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Financial Educators Network, 800-320-3012 or mike@financialeducatorsnetwork.org

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – cbsnews.com/news/7-reasons-the-dow-lost-17000/ [1/7/16]

2 – qz.com/588386/chinas-new-stock-market-circuit-breaker-is-broken-and-it-is-panicking-investors/ [1/7/16]

3 – usatoday.com/story/money/markets/2016/01/06/china-stocks/78390650/ [1/7/16]

4 – latimes.com/business/hiltzik/la-fi-mh-a-reminder-china-s-stock-market-is-a-clown-show-20160107-column.html# [1/7/16]

5 – briefing.com/investor/calendars/economic/2016/01/04-08 [1/7/16]

Posted in economy, Finance