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Is it Possible You Are Investing Incorrectly?

August 28, 2014

Of course!

Things change, as do investing methods and philosophies.   And, even if they don’t change, the economy changes, people change, their health can change and their needs change.

I provide a lot of advice to a lot of people and I have come to realize that every person and situation is different and can change in very unexpected ways.  It is not unusual for a client to ask why my advice today is completely different to what I told him five years ago.  Things change and we need to be sensitive to those changes.  The investment markets today are different from five years ago which was different from five years before then.  Someone that entered the stock market in the last ten years saw a different market than if they started in the mid to late 1990s.

Health care costs and availability have changed.  Bank saving rates are different.  Stock market dividend policies are different as are valuations.  Investment management methods and costs are different.  College costs, child care, special needs costs, nursing home and assisted living costs, automobile acquisition methods and home mortgage availability are different.  Job availability for recent college graduates is different with many remaining at home.  Marriage ages are being extended but couples living together and having out of wedlock children are increasing.  Things change.

So, it is important to consider that your prior “perfect” investment plan might need changes.  And it might not.  “Consider” means that you should relook at it.  Do it!


August 26, 2014

A businessman’s long-time bookkeeper is unable to provide monthly financial statements.  An investor’s portfolio has underperformed and she is overcharged by her long-time investment advisor.  A not-for-profit board of directors does not get timely information from the organization’s executive director.  A doctor’s patients have to wait three weeks for an appointment although there are blocks of unfilled time before then.  I’ll start my diet tomorrow.

Many unsatisfactory situations continue ad infinitum without thought except for an occasional annoyance at the status quo. Inertia.  Allowing the situation to continue is irresponsible. “That’s the way we always did it” is not a solution or a sensible method of confronting the status quo.

Inertia is an enemy of transparency, sound management, progress and positive change.  Reevaluate what you are doing and are willing to accept and compare it to what you need and should be accepting.  Accepting less than what you should is probably accepting what you deserve.  Don’t you deserve better?

Murphy’s Law

August 21, 2014

and other reasons why things go wrong! by Arthur Bloch ©1977 by Arthur Bloch

Murphy’s Law was published in 1977, but appears to be a takeoff of an event that occurred in 1949 when “Murphy’s Law” was first discovered.  It seems a frustrated development engineer at Edwards Air Force Base named Captain Ed Murphy remarked about a technician on his staff that “If there is any way to do it wrong, he will.”  It has since become folk lore.

Murphy’s Law is very simple: If anything can go wrong, it will.

Other laws are:

  • Nothing is as easy as it looks. 
  • Everything takes longer than you think. 
  • If there is a possibility of several things going wrong, the one that will cause the most damage will be the one to go wrong.  
  • If you perceive that there are four possibly ways in which a procedure can go wrong, and circumvent these, then a fifth way will promptly develop. 
  • Left to themselves, things tend to go from bad to worse.

The book has hundreds more, all just as true as those above.  Read it and have some fun.  If you know that sometimes you just can’t win, then maybe you won’t be so uptight!

William Shakespeare, Management Guru

August 19, 2014

Who has not read anything by William Shakespeare, has not yet learned to read.  His plays and other pieces of work are ageless.  They were written to primarily entertain and be the source of his living; but the ingeniousness of his works make much of what he wrote into mini-text books for students of management and business.

My favorite is the advice and blessing Polonius gives to his son Laertes before he goes on a trip [In Hamlet]:

And these few precepts in thy memory.

Look thou character. Give thy thoughts no tongue,

Nor any unproportion’d thought his act.

Be thou familiar, but by no means vulgar.

The friends thou hast, and their adoption tried,

Grapple them to thy soul with hooks of steel;

But do not dull thy palm with entertainment

Of each new-hatch’d, unfledg’d comrade.  Beware

Of entrance to a quarrel: but, being in,

Bear it that the opposer may beware of thee.

Give every man thine ear, but few thy voice:

Take each man’s censure, but reserve thy judgment.

Costly thy habit as thy purse can buy,

But not express’d in fancy: rich, not gaudy:

For the apparel oft proclaims the man;

And they in France, of the best rank and station,

Are most select and generous, chief in that.

Neither a borrower, nor a lender be:

For loan oft loses both itself and friend;

And borrowing dulls the edge of husbandry.

This above all, – To thine ownself be true;

And it must follow, as the night the day,

Thou canst not then be false to any man.


Following are gleanings from his great works:

  • Small things make base men proud.
  • Having nothing, nothing can he lose.
  • Every why hath a wherefore.
  • What you cannot as you would achieve, You must perforce accomplish as you may.
  • An honest tale speeds best being plainly told.
  • No profit grows where is no pleasure taken; In brief, sir, study what you most affect.
  • There’s small choice in rotten apples.
  • Tempt not a desperate man.
  • The devil can cite Scripture for his purpose.
  • I like not fair terms and a villain’s mind.
  • Who riseth from a feast with that keen appetite that he sits down?
  • The better part of valor is discretion.
  • There is a history in all men’s lives.
  • All the world’s a stage, And all the men and women merely players: They have their exits and entrances; And one man in his time plays many parts.
  • The fool doth think he is wise, but the wise man knows himself to be a fool.
  • Let me have men about me that are fat ; Sleek-headed men, and such as sleep o’nights : Yond Cassius has a lean and hungry look ; He thinks too much : Such men are dangerous.
  • The evil that men do lives after them.  The good is oft interred with their bones.
  • Words pay no debts.
  • To fear the worst oft cures the worse.
  • Good counselors lack no clients.
  • We cannot all be masters.
  • To mourn a mischief that is past and gone, is the next way to draw new mischief on.
  • I swear, ‘tis better to be much abus’d, than but to know’t a little.
  • Nothing can come of nothing.
  • Mend your speech a little, lest  it may mar your fortunes.
  • Come what come may, Time and the hour runs through the roughest day.
  • Things without all remedy should be without regard: what’s done is done.
  • I have not kept my square; but that to come shall all be done by the rule.
  • The silence of pure innocence persuades when speaking fails.
  • Misery acquaints a man with strange bedfellows.
  • Press not a falling man too far.
  • Reputation, reputation, reputation!  O, I have lost my reputation!  I have lost the immortal part of myself, and what remains is bestial.

Using Donor Advised Funds for Your Charitable Giving

August 14, 2014

A donor advised fund (DAF) permits an accelerated charitable tax deduction using appreciated stocks without being taxed on the gains while enabling you to budget distributions to the charities of your choice, conserving your cash position and possibly reducing a concentrated stock position.  And they are extremely easy to establish.

There are numerous sponsoring DAFs including commercial vendors such as Schwab, Fidelity and Vanguard and not-for-profit organizations such as the New York Community Trust, Catholic Communal Fund of the Archdiocese of NY and the Jewish Communal Fund.  These are mentioned for illustration purposes but there are many more particularly in large metropolitan centers such as Princeton and Philadelphia. Minimum contributions to open a DAF are $5,000 to $10,000 depending upon the DAF.

The way it works is for a contribution of cash or stocks to be made for which you will be entitled to a tax deduction for the year of contribution.  The funds are then segregated in a bookkeeping manner, invested in some sort of conservative way and held until eventually disbursed to the charities designated by you.  The funds transferred to the DAF cannot be returned to you, nor do you have any rights to the funds.  What you can do is make recommendations of a public charity where you want the funds distributed to.  Usually the DAF will comply with your wishes.  Before you open the account you should ascertain that they will accept recommendations to the types of charities you contemplate donating to.  Any earnings, less the DAF administrative charges, will be added to your “account” and available for future contributions.  There is usually no time limit so your contribution could be housed in the DAF for many years.  No tax forms need to be filed and there is no cost or any type of compliance actions on your part.  When the donations are made to your charity of choice you will not get a tax deduction since you received the deduction upfront in the year you contributed to the DAF.  However, your charity will receive a letter acknowledging that you are the contributor.

Contributions can be made in your or your spouse’s name or any other family member, and you can designate numerous family members that can make recommendations. You can also make contributions anonymously if you want to stop the flood of solicitations you are now getting.

The best way to utilize a DAF is to donate appreciated securities.  For those with large concentrated stock positions this is a method to reduce these holdings, not recognize the profit, use the DAF for future contributions and conserve your existing cash.  It is also beneficial for someone with a large taxable gain this year because they can accelerate what they normally would contribute over the next few or more years and get the upfront deduction.  Designations can be made on your own time table in any amounts you want. Some funds have minimum contribution amounts but these are usually quite low.  It is also something that someone that will be retiring in a few years can do to get the deductions while they are in a higher tax bracket and have their contributions continue when they are no longer receiving their salary.

Some people set up such funds for children to instill a giving attitude and use this on a test basis before setting up a private foundation which is more involved with tax filing, minimum distribution requirements and annual costs.

These contributions, like all contributions have IRS imposed maximum annual deduction amounts.  This should be checked with your tax advisor before making the contribution.


The above was adapted from three blogs my partner, Raymond Russolillo, posted on his blog site. 


Links to his blogs with much more information are:

The CPA’s Role In Helping a Client Sell Their Business

August 12, 2014

Selling a business is a one-time process for most owners.  Here is a description of the people involved in the process and particularly the CPA.

Clients wishing to sell their business will likely will need an investment banker or business broker to identify and find the buyer. Their role includes the presentation of the company in its best and most favorable position and to assist in the negotiation process as part of the team.

The lawyer is necessary to prepare and/or review the contracts, legal issues and assist in the negotiations and to put the seller in the best legal posture with the most protection.

Other professionals that might be needed will be a business appraiser, investment advisor, and an investigation service to perform a due diligence review of the buyer.

The CPA’s role would be to prepare their client for the maze of events that lead to the culmination of the transaction; and then to be there afterwards to financially ease them into their new situation or status.  The CPA would monitor the negotiations and contracts to see that they are on target with the client’s wishes and goals and to also be there to help the client and team quickly adapt to changing situations.

Accountants most likely have been the closest financial advisers to their clients over an extended period under varying business climates and conditions.  CPAs have learned how their clients think, what is important to them and what values they have. I feel that we understand best (as much as any adviser can) what our clients actually want out of a deal – not just closing the deal – but why they are doing it in the first place!

It is the CPA’s talent and role to help their clients articulate his or her thoughts, actually decide what they want and to discuss if it is realistic and practical.  Sometimes clients simply want far more than is sensible for a buyer; other times business owners sell themselves and their businesses short and underestimate their real value in the marketplace.  To that end, the CPA would assist in identifying unique and/or strategic value for a particular class of potential purchasers.

The CPA’s role is also to develop the tax plan that determines the nature of the income and assist with the allocation of the purchase price (with appropriate appraisals). Estate tax aspects are also considered. Where an earn-out or extended payment is part of the price or terms realistic provisions can be constructed, and parameters and safeguards developed for monitoring the post-sale performance.

Usually some sort of selling memorandum will have to be prepared. CPAs will work with the client’s staff to develop raw data in the financial area, assist in the preparation of any projections and help with necessary recasting of the financial statements.  Minimally sellers need to present the previous five years’ financial statements and tax returns, details of their largest customers, vendors and key employees, warranty claims, contracts, leases, methods of obtaining sales, delivery of product and services and descriptions of the day-to-day activities of the owners that would be leaving.

For many, there is only one opportunity to get it done right.  It is essential that the proper team of advisors be assembled to assist in getting it right.

Inflation: More Comments

August 7, 2014

The 1953 movie How to Marry a Millionaire was about Marilyn Monroe, Betty Grable and Lauren Bacall trying to meet and marry a millionaire.  They thought they would have it made if they did.  At that time, that was probably so, but not today.  To buy today what a million dollars would have bought in 1953 would take almost $9 million because of inflation.  Or, to put it another way, today’s buying power of 1953’s $1 million is $112,000.

A quick way to measure inflation is to look at the basic postage rate for a one ounce letter.  In 1988 it was 25¢; today it is 49¢ which is consistent with the overall inflation increase during this period.  Other ways of measuring inflation is to compare frequent items purchased between two periods.  A quart of milk, a loaf of bread, movie and theatre admissions, dinner out, a dress, suit of clothes or pair of socks or underwear.  Inflation’s sword cuts at our spending and standard of living.

Over time, some things have increased greater than the inflation rate and some less, but that is usually due to other circumstances such as changes in patterns of what we buy or aggregate quantities available or improvements in the product.  Computers, televisions, dishwashers and cell phones have all come down in price while greatly improving their benefits.  Health care, assisted living and college costs have outpaced inflation.

The same works with bequests indicated in wills.  What you leave today is not what they will get later.  Let’s assume a parent leaves $6,000,000 equally to three children – $2,000,000 each.  What do they get?  Well, if received today, then a lot of money – if received in twenty years, then not so much money (but still more than they would have had if it wasn’t left to them at all).  What does $2,000,000 mean?  Well, it can be used to eliminate debt, pay off a mortgage, buy a vacation home or fund higher education costs.  It can also be a source of cash flow that relieves some of the burdens of day–to-day living. $2,000,000 invested in long term tax free bonds can provide an $80,000 annual income – not putting someone in the lap of luxury, but not too shabby either. However, inflation will erode the spending value of this over time.

Another thing to look at is life insurance.  Many people buy the “perfect’ whole life insurance policy only to have inflation depreciate the policy’s benefit over 20, 30 or even 40+ until the death of the insured.  Premiums are paid with dear current money to provide discounted benefits at a much later time.

Those primarily depending upon income from bonds can see cash flow greatly curtailed with inflation.  Those with taxable bond interest might also have to deal with possible tax rate increases.  If you are investing to accumulate funds for a later time, then current income will compound and grow assuring a greater future cash flow.  If interest is withdrawn to live on, then the bond principal will remain static if intended and able to be held until maturity regardless of market value fluctuations.  This needs to be considered in your asset allocation.

Inflation is a stealth encumbrance on assets.  It also compounds over time with each year’s current inflation percent applied to the previous year’s inflation rate.  Inflation is a slow but accelerating growth.

Inflation is always there, but if properly factored into your planning, it does not need to put a damper on your future financial security.


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