Diversified Investment Management

Excerpts written by Bill Valentine: VALENTINE VENTURES (Bend, Oregon).

MYTH #1:

ASSETS THAT AREN’T APPRECIATING ARE BAD AND SHOULD BE SOLD. 

This oversimplification represents several levels of flawed thinking.  First, while most investors will tell you, “Buy Low / Sell High,” many financial advisors and investors alike, really do the opposite.  They sell assets into periods like Fall 2008, and buy in periods like Summer 2009. They dump falling assets and pile into those that have already gone up. Secondly, many investors confuse impairment with price fluctuation.  That’s very understandable, and is an outgrowth of the long standing practice of stock-picking.  Stocks that become worthless fall notably in price first.  Therefore, when something declines in price, it triggers the “emotional response” that the chance of permanent impairment is growing, and thus the idea of purging to prevent a total loss.  BUT… what if the chances of a total loss are virtually non-existent?  Like a portfolio (ETF) of all the big REITs in the country, spanning thousands of investment properties?  The only way this basket becomes worthless is if all investment properties become worth $0.  That will only happen at the end of the world.  There are many other examples too.  Commodities for one.  The same is true for any basket of assets–you’ve diversified away the chance or impairment, thus there’s no need to purge.

Diversification of assets is one of the most important risk reduction tools at the disposal of financial advisors, investment managers and investors alike.  Financial advisors should take this tact more often than they actually do.

To Be Continued…

 * * * Many of our advisors are members of the Financial Planning Association (FPA) and also the National Association of Personal Financial Advisors (NAPFA: the nation’s leading organization promoting Fee-Only comprehensive financial planning). Using the services of a qualified financial advisor (to help you identify the strengths and weaknesses in your financial picture) will ensure you can retire comfortably! NOTE: Experts recommend contacting 2-3 financial advisory firms, so that one may compare/contrast each firm, thus making the best-qualified choice.

Written by Jeff Camarda: Camarda Financial Advisors (Jacksonville, FL).

Control Over Estate Taxes 

There can be no doubt that the estate tax is here to stay, and will apply in some form – likely the same exemptions and rates on the books for this year – for 2010, the previously-legislated year of the long-awaited appeal. After that, all bets are off, but my hunch is the tax will become much more oppressive, to feed massive Federal deficits, and because higher taxes have become “fashionable” again.

However things break, there are some basic rules we’d do well to remember:

1) Each of us gets to gift or pass on a limited amount tax-free

2) While each of us gets our own exemption amount, if the first spouse to die does the natural thing and leaves everything to the other spouse, their exemption is completely wasted.

3) Life insurance, which, if owned by you or your spouse, can cause some pretty big numbers to be needlessly pulled into your taxable estate. Another special type of trust, called an “ILIT”, can help solve this problem.

4) The last tax issue involves “stretching” IRA-type accounts, so that heirs pay tax as they pull money out, instead of up front in a big lump sum. Many clients want to have their kids be able to stretch the taxes, but still benefit from the protections of trust planning. For this, so-called “conduit” provisions are needed in the trust document.

* * *

Many of our advisors are members of the Financial Planning Association (FPA) and also the National Association of Personal Financial Advisors (NAPFA: the nation’s leading organization promoting Fee-Only comprehensive financial planning).

Using the services of a qualified financial advisor (to help you identify the strengths and weaknesses in your financial picture) will ensure you can retire comfortably! 

NOTE: Experts recommend contacting 2-3 financial advisory firms, so that one may compare/contrast each firm, thus making the best-qualified choice.