This got me to thinking about how many “mud holes” are out there slowing down investor’s retirement plans.  This would include things like excessive fees & commissions, low returns, poor investment decisions, inflation, market volatility and unnecessary taxes.

If fact, I just had a conversation the other day with one of my clients who told me about a mud hole that another adviser had created for her.  The adviser had been managing some money for her invested in dividend paying stocks that were supposed to reduce her risk and generate income.  In 2011, the account lost over 16%!  I was shocked!  How’s that for low risk?!  When we compared that to the way her portfolio with me was performing, which actually made money this year, her comment really hit me.  She said, “I will think long and hard before I ever let anyone but you manage money for me.”  I really makes me feel good to know that I’m helping my clients make money AND take less risk than the market.  With the difficult times ahead that this country is going to be facing, no one can afford to be losing money like that.

How did we do it you ask?  Well it doesn’t happen by accident.  Over the last 16 years I’ve developed a strategic method of investing designed to lower volatility and protect against inflation.  I don’t use any kind of risky derivatives or options or anything like that.  And my clients money is liquid, easily accessible if they ever want or need it.

If you would like to discuss how I can help you protect your assets from the wild swings of the market, and stay ahead of inflation (which is likely to get ugly), then please call me.  My toll free number is 1- 866-983-4222. I will offer you a complimentary review of your current portfolio and show you how we can help you eliminate and avoid the worst proverbial “mud holes” that face investors like you.  Don’t live with retirement plan “mud holes”.  These can be fixed with a little time and effort.  Some are much easier to get rid of than others.  And chances are, it won’t COST you anything to fix these problems in your retirement plan, it will likely SAVE you money and increase your retirement assets in the end.

In a recent survey:

• 58% of investors believed both stockbrokers and Independent Registered Investment Advisors have a responsibility to act in their best interest.
• 63% believed that stockbrokers and Independent Registered Investment Advisors were both required to disclose all conflicts of interest before providing financial advice.

Some of the key differences between Investment Advisors and Stockbrokers

• Investment advisors have a fiduciary duty to act in the best interests of their clients at all times.  Brokerage firms generally are not fiduciaries to their customers adn therefore do not make decisions that are soley in their customers’ best interest.
• Investment advisors provide their clients with a Form ADV that describes exactly how the investment advisor does business and obtains the client’s consent to any conflicts of interest that do exist in the investment advisor’s business.  Brokerage firms are not required to provide customers with any comparable type of disclosure.
• Investment advisors cannot trade with their clients as principal expect in extremely limited circumstances.  Brokerage firms often earn significant undisclosed profits by trading as principal with their customers.
• Investment advisors charge clients a fee negotiated in advance adn cannot earn any other profits from their clients without the clients’ prior consent.  Most investment advisors are paid an asset-based fee, so their interests are aligned with their clients.  Brokerage firms’ revenues may increase even if the customer’s assets shrink.
• Investment advisors manage money in the best interests of their clients.  They do not engage in other business activities like investment banking or underwriting, which brokerage firms do.  These other businesses may cause a brokerage firm’s interest or attention to focus on other areas of the firm outside of their retail brokerage business and customers.

A Higher Standard

Independent Registered Investment Advisors (RIAs) are held to a higher standard than stockbrokers when it comes to putting investors’ interests first and doing the right thing for their clients.  Independent RIAs have a fiduciary duty to their clients which means they must:

• Act in the best interest of thier client
• Identify and monitor illiquid securities
• Observe procedures regarding the allocation of investment opportunities: including new issues and aggregate orders
• Monitor for best execution of trades
• Have policies regarding affiliated broker-dealers and maintenance of brokerage accounts
• Disclose conflicts of interest
• Have policies on use of brokerage commissions for the use of research
• Have policies regarding directed brokerage, including step-out trades and payment for order flow
• Adopt and adminster a code of ethics

Stockbrokers are held to suitability obligations on the part of their broker-dealer:

• Reasonable Basis Suitability – the broker-dealer must believe that the recommended security is suitable for any investor
• Customer-Specific Suitability – the broker-dealer must believe that its recommendation is suitable for that particular investor.

What have you been putting off for a while?  Maybe you need to renovate part of your house, fix your car, or plan that party you’ve been wanting to host.  Maybe you still need to pull together your paperwork for filing taxes, get your estate planning documents updated, review your investments, or get an overall financial plan together.

Whatever it is that you need to do, today is a great day to start working on it.  Big things can be accomplished by taking many small steps, one at a time.  You don’t have to get it all done today, but why not start?  Take the first steps today and begin to MARCH FORTH!

Jim Rohn – “The major reason for setting a goal is for what it makes of you to accomplish it.  What it makes of you will always be the far greater value than what you get.”

Have a great “get it done” day!

We all want to retire early. Rule 72t may be the answer.

Some of you out there may be interested in how to retire early using Rule 72t, or 72(t) of the internal revenue code. As you all know, if you take money out of your 401k or other tax-deferred retirement accounts prior to age 59 1/2, you will not only be taxed on that distribution as ordinary income, but you’ll also pay an additional 10% penalty tax on top of that.  After you add on state taxes, you could end up losing more than 1/2 of your withdrawal to taxes.

Rule 72t provides an exception to the 10% penalty tax so that you can avoid it, as long as you follow some straitforward guidelines in taking these early withdrawals.  Another name for Rule 72t is “substantially equal periodic payments (SEPPs).

The requirements for taking SEPPs are fairly simple.  You can begin taking SEPPs out at any age, but you have to continue taking out the same amount (at least annually) for at least 5 years, or till age 59 1/2, whichever comes later.  You have to make sure you do the following things:

• You need to take out the payments at least once per year
• The payments much be calculated according to one of the IRS-approved methods for determining SEPPs
• You cannot make contributions, transfers (in or out) or rollover into the account from which you are taking SEPPs, nor can you take extra withdrawals from that account.

While these 72t rules are fairly simple, the penalties for not following them are severe.  If you don’t follow these rules, the entire amount that you take out prior to age 59 1/2 may be subject to a retroactive application of the 10% early withdrawal penalty, plus interest.

What are the IRS-approved calculation methods?

There are 3 IRS-approved methods for calculating SEPPs, or 72t distributions.  Keep in mind that once you choose a method of calculation and determine a payment, you cannot change that withdrawal amount for 5 years, or until age 59 1/2, whichever comes later.

Amortization method

The amortization method requires that a “reasonable” rate of interest* be used in the calculation.  Using your retirement account balance (generally as of 12/31 of the year before you start the 72t plan) and the account owners single life expectancy (or joint life expectancy of the account owner and a beneficiary) taken from IRS life expectancy tables, this method calculates the equal payments that can be taken.

Annuity method

Using the annuity method, distribution amounts are calculated by dividing the retirement account balances by an annuity factor based on the account owner’s single life expectancy and a reasonable rate of interest*.  This method essentially turns your retirement account into a lifetime stream of income payments.  Like the amortization method, these 72t payments must remain the same from year to year.

MRD method

The MRD method recalculates your payment every year.  The annual payment is generally the 12/31 account balance divided by the life expectancy from the applicable IRS Life Expectancy Table, based on your age or the age of your beneficiary.  Because the MRD method recalculates the distribution amount every year, this method reacts to teh changes in your overall account balance, so you are less likely to rapidly deplete your account if the balance has dropped due to market decline.

*Note:  IRS guidance provides that the interest rate that may be used is one that is not more than 120% of the federal mid-term rate for either of the two months immediately preceding the month in which payments begin.

If you think you might like to use a Rule 72t distribution to help you retire prior to age 59 1/2, it is very important that you consult a professional financial planner.  You don’t want to make a mistake in how you set this up, the IRS will punish you for it.  Call us today at 1-866-943-4222 for assistance in setting up a 72t plan.

Recent financial reform has forced them to charge a little less on some fees, but it seems that they’ve already found other ways to offset that in areas that the reform didn’t address.

The answer may be as simple as joining a credit union.  Credit unions do offer some distinct advantages over banks that most credit union members love.  Here’s what’s different about them:

Not-for-Profit

Credit unions have a non-profit status since President Franklin D. Roosevelt signed the Federal Credit Union Act into law in 1934.  The purpose of them was to “promote thrift and thwart usury.”   Because of this, credit unions are exempt from most state and Federal taxes.  This tax-exempt status allows them to pay a little more interest on your savings accounts, checking accounts & CD’s.  It also gives them room to offer lower interest rates on money they loan to you.  Banks are not very fond of this tax advantage that credit unions have (understandable so), and have been lobbying hard to get this changed.  Now keep in mind that not-for-profit doesn’t mean that they don’t try and make a profit.  It just means that they need to pay out all their profits each year to either employees or members.  This leads to the next advantage of credit unions.

Member Owned

Credit unions are owned by it’s members.  If you belong to a credit union, you actually own a small piece of the operation.  This doesn’t mean that you get a private parking space (credit unions probably don’t have those).  But it does mean that they are more likely to treat you like a real person, not just a number.  It also means that they will often distribute some of their profits each year in the form of dividends to all their members.  When is the last time your bank did that?

Lower Fees

One thing that most credit unions do for their members is charge lower fees or no fees for various services.  For example, most offer free checking accounts, and the fee for overdrafting them is usually $20 – $25 vs. most banks charging around $35 a pop.  The nation’s credit unions have over 90 million members now, and their trade association (Credit Union National Association) estimates that members save over $8 billion a year thanks to better interest rates and lower fees.  That’s pretty significant!

So if you’re tired of being ‘fee-d’ to death, and treated poorly by your bank, check out your local credit union and see if you can join.  Not all credit unions will let anyone join (you might have to work for a certain employer or belong to a certain association).  But chances are you can find one close by that you can join.  Then you’ll have one more thing to be thankful for next year.

If you have a favorite credit union, or you’ve had a good experience with one, please share it with us using the form below.

To take advantage of tax perks and avoid tax penalties, you need to meet IRS deadlines. Some retirement savings accounts must be utilized by Dec. 31, 2010, to get a tax break this year, while with others you have until April 15, 2011, to make your 2010 tax year deposits. Here are five important retirement tax deadlines to keep in mind:

December 31, 2010. Many retirement tax moves must be made by the end of the calendar year. Contributions to 401(k) and 403(b) plans need to be deposited by Dec. 31, 2010, to qualify for a tax break this year. Workers can defer taxes on up to $16,500 in an employer-sponsored retirement account in 2010, a limit that jumps to $22,000 for employees age 50 or older this year.

Seniors were able to skip taking required minimum distributions from retirement accounts in 2009. But retirees over age 70 1/2 must take distributions from their pre-tax IRAs and 401(k)s this year by Dec. 31, 2010. Those who fail to withdraw the correct amount must pay a 50 percent tax penalty and regular income tax on the amount that should have been withdrawn.

Investors who wish to convert a pre-tax IRA to a Roth IRA or a traditional 401(k) to a Roth 401(k) in tax year 2010 must initiate the conversion by Dec. 31, 2010. Those who convert to a Roth in 2010 have the option to pay the income tax on the transfer this year or pay tax on 50 percent of the conversion amount in 2011 and the second half in 2012. In future years, all of the income tax will be due in the year of the transfer. Many people have already begun to utilize this one-time tax perk. Financial services firms including Bank of America Merrill Lynch and Vanguard have reported a significant uptick in conversions this year. Nearly 100,000 retirement savers converted traditional IRAs to Fidelity Roth IRAs in the first half of 2010, four times more than were rolled over during the same time period in 2009. The removal of income limits for Roth IRA conversions this year also contributed to the increase in transfers.

March 1, 2011. The simplest way to convert a traditional IRA to a Roth IRA is to have the trustee of your current account roll it directly into the new account. However, if you have an IRA distribution made out to you, you have about two months to deposit the full amount withdrawn into a Roth IRA before you will incur any early withdrawal penalties. “The money doesn’t necessarily have to go in the Roth in 2010, but you need to convert it within 60 days of the withdrawal,” says IRA expert Ed Slott, founder of irahelp.com and author of “Stay Rich for Life!: Growing & Protecting Your Money in Turbulent Times.” If you receive the distribution on Dec. 31, 2010, you have until March 1, 2011, to deposit your money in a Roth IRA and have the transfer qualify as a 2010 conversion.

April 1, 2011. Seniors who turn 70 1/2 in 2010 have the option to delay their first required distribution until April 1, 2011. However, retirees who delay the 2010 distribution until next year must take two IRA withdrawals in 2011: the 2010 withdrawal by April 1, 2011, and the 2011 withdrawal by Dec. 31, 2011.

April 15, 2011. IRA contributions for the 2010 tax year must be made by April 15, 2011. Many people wait until the last minute to make their deposits. Almost half (45 percent) of all IRA contributions are made in the 28 days leading up to the tax deadline, and a quarter of new IRAs are opened in April, according to Fidelity IRA data. If you make a contribution between January 1 and April 15, 2010, you should tell the financial institution whether you want the contribution to apply to the 2010 or 2011 tax year. “I actually tell my accountant that I want to make my contributions count as deferred income for 2010,” says Bedda D’Angelo, a certified financial planner and president of Fiduciary Solutions in Durham, N.C., about her typically last-minute April IRA contributions. If you do not specify which tax year you want the contribution to apply to, the bank can assume the contribution is for the current year. Early tax filers can claim a traditional IRA contribution before the deposit is actually made, but the money must be there by the due date of your return.

October 17, 2011. If you wish to undo a 2010 Roth IRA conversion, you have until Oct. 17, 2011, to move your money back to a traditional IRA. To do this you will need to amend your 2010 tax return and subtract the amount that you put back in the pre-tax account from your 2010 gross income. Says Slott: “If you convert any time in 2010, you will have until October 17, 2011, to change your mind for any reason.”

I saw a look of relief similar to the miners families as these clients realized the position that they were in.  Neither one was being forced to retire, but both were at that stage in life where they were getting real tired of having to go to work every day (wait a minute, aren’t most people at that point?).  Other things were now more important to them than pursuing that career.  These meetings are a real pay day for a financial planner when you can look a client in the eye and tell them with confidence that they can say goodbye to the corporate whenever they are ready.

What do they have in common?

I always like to ask my clients what their secret to success is.  I pretty much hear the same things over and over.  What I often hear are the following:

• they consistently spend less than they earn (not easy to do, requires a lot of sacrifice)
• they try to get out of debt as soon as possible (again, not easy to do)
• they started investing at a fairly early age (takes discipline to develop this habit)
• they save up and pay cash for things like cars, boats, etc. (more discipline and sacrifice)
• most of them make the majority of their money in the last 10 yrs of their career (didn’t happen overnight)

Hats off to the Chilean miners, to their families who have been living on edge for two months, and to the rescue team that brought them home.  And hats off to anyone who has been living disciplined enough to be able to retire and stay retired.  If you’re not there yet, don’t worry, you will be if you will follow the example of those who have done it.  It’s not easy, it takes discipline, it takes time to get to that point, but it can be done.  I love a story that has a happy ending like that.

Fear of inflation

Many investors have been moving their assets into gold for some time now based on a fear of looming inflation.  Historically, when inflation rises and your dollar buys you less and less, gold will become more valuable.  Many people have been expecting infation to rear its ugly head for some time, but it hasn’t happened yet.  For inflation to occur, you normally need to have housing prices on the rise, household income on the rise, and commodity prices on the rise.  Currently we only have commodity prices rising.  If these three factors hold true, it could be another year or two before we get some real inflation.  Fear of inflation is one reason why the price of gold is so high.

Currency devaluation

If paper money is being devalued (it’s not worth as much as it used to be), then gold prices would be forced higher.  This is happening all over the world right now.  Many countries are devaluing their own currencies, not just the United States.  Here in the U.S., our dollar has been declining in value for some time (although right now it is on the rise).  Some experts believe that this has made it cheaper for people in other countries to invest their money into gold.  People seem to have lost faith in dollar based assets, and that’s another reason why the price of gold is so high.  Buying gold is similar to buying insurance on your house.  You own your house because you believe that it’s a good investment in the long run.  But you buy insurance on it just in case something bad happens to it.  Owning gold does the same thing for your U.S. dollar based portfolio.

Overall instability

Most people are pretty uneasy right now about the instability of our political situation, our economy, and our interest rates.  This nervousness is causing a lot of investors to place part of their assets into gold-based investments.  If things ever do settle down and become more stable, you would expect investors to start to back away from gold.  When that happens, people will no longer be asking, “Why is the price of gold so high?”

How can I invest in gold?

If you don’t already have a part of your portfolio in gold, it would probably be a good idea to look for an opportunity to get some.  Some experts say that “the trend is your friend”.  In other words, buying something that is on its way up will help you achieve better than average returns.  But many studies show that buying near a high can be a recipe for disaster.  Prices are very high right now, and I wouldn’t be surprised at all to see a pullback in the price of gold soon.  When the price of gold dips down, that might be a good time to get some exposure.

GLD – This is an exchange traded fund, or ETF that gives you good exposure to the price of gold.  You can buy and sell shares of this fund (symbol GLD) through any brokerage firm, and the only trading costs are the same commissions you would pay to buy any other stock.  

SPDR Gold Shares offer investors an innovative, relatively cost efficient and secure way to access the gold market. SPDR Gold Shares are intended to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that interest through the trading of a security on a regulated stock exchange. The introduction of SPDR Gold Shares was intended to lower many of the barriers, such as access, custody, and transaction costs, that have prevented some investors from investing in gold.

 SPDR Gold Shares represent fractional, undivided beneficial ownership interests in the Trust, the sole assets of which are gold bullion, and, from time to time, cash. SPDR Gold Shares are intended to lower a large number of the barriers preventing investors from using gold as an asset allocation and trading tool. These barriers have included the logistics of buying, storing and insuring gold. In addition, certain pension funds and mutual funds do not or cannot hold physical commodities, such as gold, or the derivatives.

GDX – Market Vectors Gold Miners ETF.  This is another ETF that will give you exposure to the price of gold, without actually owning gold bullion.  The investment seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the AMEX Gold Miners index. The fund generally normally invests at least 80% of its total assets in common stocks and American depositary receipts of companies involved in the gold mining industry. The fund is nondiversified.

Hopefully this article has helped answer the question, “why is the price of gold so high?”  Additionally, I’ve tried to give you a few ideas about how to invest in gold.  The question I have not addressed is, “How much gold should I own?”  This question can only be answered after evaluating an investors overall situation because every person is unique.  Talk to your financial advisor or give us a call at 1-866-983-4222 for a complimentary review of your portfolio.  Financial planning is about diversification, and looking at the big picture.  Only after looking at a client’s total situation could a financial planner make a recommendation like that.

If you shave your own hair at home vs. going to the hair salon/barber each month, you’ll save at least $15 (assuming your a man).  Add to that the cost of shampoo, gel, hair spray, mouse, hair dye or whatever other hair products you use, that’s another $5.  So if you save an extra $20 per month for 20 years, and it grows at 7% per year, that adds up to $10, 418.  That’s nothing to laugh at, even if you do have a funny shaped noggin.

So maybe the shaved head is not for you (although your wife might like it).  But there are tons of little ways we can all save extra each month.  And little bits of savings add up to big numbers over time.  Here’s a chart showing what you could accumulate if you save these amounts, and grow them at 7% per year:

HTML Tables

OK, so I don’t REALLY think that everyone should shave their heads.  I just wanted to get your attention.  What I do think is that everyone can find one or two ways to save a little extra money each month.  And whether you put it towards retirement, or college, or that ski condo you’ve always wanted, you’ll be glad you made the sacrifice in the end.  It’s never too late to start saving!

But in case you are interested in joining the hair-free ranks, there are some cool specialty razors out there like the HeadBlade from www.headblade.com

If you have a money saving tip that others might enjoy, please submit it below in the Reply section.

Have a great day!

The Bush tax cuts involved more than just marginal tax rates.  They included many deductions and credits that helped to reduce taxes for people in every bracket.

There are currently a lot of different ideas for the Bush tax cuts floating around Congress.  As of right now, they are all set to expire at the end of this year.  However, there is a chance that at least part of the Bush tax cuts could be extended into next year.  Many in Congress are calling for this to happen.  But there are many others who want to let them expire.  So we’ll just have to wait and see what happens.

I found a great website that will show you what your new tax bill could look like in 2011.  It shows you a side-by-side comparison of your 2011 tax bill under the following three scenarios:  1.  Bush cuts expire.  2.  Bush cuts extended.  3.  Congressional Democrats plan.  It’s pretty interesting:  www.mytaxburden.org

I would welcome your questions or comments below.