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Nobody Needs an Estate Plan, Exit Plan or a Buy-Sell Agreement

December 18, 2014

But their families and survivors do.

Estate plans are done so that the remaining family members can have liquidity, minor children will have guardians of your choosing with a dependable cash flow, children won’t fight [much] over the money, people of your choice will collect and distribute assets and make transfers in an orderly manner and estate and inheritance taxes can be minimized as can the costs of settling the estate.

Succession or transition plans don’t matter for the person that drops dead, but not having things in order is very unfair to your family or those that work in the business or who depend on it.  There also can be mucho costs to wind down a business and close it up.  And, possibly the owner won’t drop dead, but will become disabled and would need cash flow from the business. Then, they would be really be screwed and by their own doing!

A buy-sell agreement is a will for a business.  If an owner drops dead or suddenly is disabled, the lack of an agreement will cause fights between the remaining owners and the dead owner’s family.  Not “may” cause, but “will” cause. 

Selfish self-centered boors don’t protect their families by setting things up so that there will be a minimum disruption during a usually upsetting period.

You are getting ready to start a new year… start it right.  Get your affairs in order.

Updated Income Tax, Estate Tax and Retirement Plan Amounts

December 16, 2014

Here is a quick guide to increases in some tax-related amounts in 2015 compared to 2014.

Gift and GST tax annual exclusion – remains at $14,000.

Estate, gift tax and GST lifetime exclusion – increases to $5,430,000 from $5,340,000.

FICA wage base – increases to $118,500 from $117,000.

Auto standard mileage rate – $.575 up from $.56.

Compensation limit for defined compensation plans – Increases to $265,000 from $260,000

Defined contribution plan annual contribution limit – $53,000 up from $52,000

401k, 403b, SARSEP, and 475 plan annual deferral limit – $18,000 up from $17,500

“ catch up contribution – increases to $6,000 from $5,500

SIMPLE Plan – up to $12,500 from $12,000

“ catch up contributions – up to $3,000 from $2,500

IRA and catch up – remains at $5,500 and $1,000


There are others, but these are some of the more popular amounts that affect our clients.  If you email me your postal mailing address, I’ll send you a handy chart with all the changed amounts.  My email:

Stocks Go Up, Down and Never Stay the Same

December 11, 2014

Every day every stock value changes.  On balance, there is a gradual overall increase in stock values but that occurs over long periods such as ten or fifteen years.

There is a but!  A big but!  The gradual increase doesn’t apply to every stock or even every group or sector.  Witness the change since 2000 in the values of the three largest indexes.  The Dow Jones Industrial Average and S&P 500 are at all-time highs while the NASDAQ is still 17% lower than its March 2000 high.  Also as I pointed out in a previous blog, some of the DJIA components are still lower than their highs in 2000.

It is now time to repeat myself:  Buying individual stocks is risky.  Buying the funds that track the large indexes is less risky.  Neither method will insulate you from an overall market drop or meltdown, but we’ve seen eventual bounce backs and recoveries. 

A recent article indicated that this year 85% of the large mutual funds that do not track the indexes [referred to as actively managed funds] did not do better than their appropriate index.  85% of the best professionals in the business did not beat the market, and when you buy individual stocks, do you expect to?  Not likely.  At best, you have a 15% chance based on what happened this year.

Simple advice: If you want to invest in the stock market, consider the funds tracking the large indexes rather than actively managed mutual funds or individual stocks.

Caveat for all my blogs which represent my opinions:  Individual situations require personalized attention based on your circumstances.  Before you act on any general advice consult with a financial advisor.

Bond Funds Hoarding Cash

December 9, 2014

Bond funds were loading up with cash anticipating volatility and rate increases according to a recent article in the Wall Street Journal.  This should spark some serious thinking about investing in bond funds.

Bond funds are very popular because they are easy to buy or sell and create the illusion that their investors are ensconced in a safe fixed income investment.  This headline has to prove the opposite.  They are not safe and in many cases do not provide a fixed reasonable cash flow.

The value of bond funds fluctuate widely based on continuously changing interest rates.  When rates decrease, the value of the funds increase, and when rates increase, the value of the funds decrease.  We have seen an extended period when rates have dropped causing many bond funds to increase in value.  Many of the fund promoters advertised their high “total return” on their funds during this period.  The total return is a combination of the current interest payments plus the increase (or decrease) in the value of the fund.  If the total returns were high then what will happen when rates increase?  The value of the funds will eventually drop.  And that is what is on the horizon for every bond fund, thus the flight to cash by some of the managers.

Another reason for the cash is to have funds available to meet redemptions of investors abandoning their bond funds.  When investors leave a mutual fund quicker than new investors come in, the fund needs to sell some of its portfolio to raise the cash to pay the redeeming owners.  This causes an influx of bonds on the market further causing a drop in the prices [more supply than demand means lower prices – Economics 101] exacerbating the situation.  To try to offset this, some funds are using greater leverage, loading up on lower rated bonds or trading in derivatives.  In a volatile market all of these strategies can backfire potentially magnifying losses.  Bond fund liquidity now has become a great concern by the SEC and very large financial institutions such as Citigroup.  Further, many funds invested in low yielding treasuries chasing the increases in value to boost up their total return, so the annual interest check wasn’t even that great.  Some changes in bond fund managers also played a role in the recent volatility.  This is getting very confusing, especially when the typical investor (based on my client base) invests in bond funds for a “safe” fixed return.

My suggestion is for you to consider not investing in bond funds but to buy individual bonds.  I’ve explained this in a few previous blogs and while I continuously reconsider my thoughts and recommendations, this has not changed since I’ve been posting these blogs.

You don’t have to believe me, just look at what the bond fund managers are doing.

Most Ambitious CEO in the Universe

December 4, 2014

Google’s Larry Page has been designated in the Dec. 1, 2014 Fortune as the most ambitious CEO in the Universe.  Congrats to him, but what I want to talk about is the makeup of the Top 20.

The CEOs are from Google, Apple, Gilead Sciences, Chipotle, ITT, Disney, Foot Locker, Ulta Beauty, Biogen, Alibaba, FedEx, TJX Cos, Facebook, Theranos, Under Armour, Intuit, Southwest Airlines, Tesla, Charles Schwab and Williams-Sonoma.

Some of these companies are among the best known and a few are not so well-known.  Some, like ITT, Disney and Foot Locker (the former Woolworth) are long established while some are not even a generation old.  What they all have in common are that they have taken their companies forward using new business models and strategic initiatives while evidencing superb financial performance and personal influence and leadership.

A common thread is the ability of these companies to adopt and adapt to the new way business is done.  Agility, innovation, buy-in and quick change are not traits we usually ascribe to super large companies, but these all did it.  This, alone, makes them remarkable, especially with their great success.

CEOs get ideas, develop visions, need to get buy-in from their Board and those under them who will execute the plan in a way that doesn’t disrupt continuing operations.  In effect, they are creating new ventures alongside existing business.  Some of the companies started out at a very fast pace from the beginning like Google, Facebook and Alibaba, but they never stopped innovating, growing and focusing on the bottom line.  Tim Cook built upon Steve Jobs’ creations adding enhancements and new products.  Gilead, Biogen and Theranos created drugs and health systems that prolong and make life more comfortable for millions.  Chipotle gave us fast food that is also healthy and high-quality.  Disney creates fun and has found new ways of delivering it.  Foot Locker, Under Armour, Ulta Beauty, Williams-Sonoma and TJX have changed retailing and expanded their markets in physical locations and web based presence.  Charles Schwab added personalized services to their very low-cost computerized model.  Tesla and Southwest are both renegades in their industry with a growing customer base.  Intuit practicality owns the markets they are in, and yet have made tremendous changes during the last two years.  ITT is the only diversified manufacturer in the group and is not the company it was 20 years ago.  FedEx delivers the things we buy in an amazingly quick and efficient way.

The article has a descriptive paragraph explaining why each CEO was chosen.  I suggest reading it and comparing it to you and your company.  Opportunities exist for innovation, enhancements, different marketing and distribution models and new product development.  The CEOs selected cover many industries indicating the universal benefits of creative, informed and tuned-in management at the top.

The article and these remarkable people prove that opportunities still exist.  They just need ambition, imagination, focus and buy-in.

Love Your Accountant

December 2, 2014

“5 Ways to Build Up Your Business” is the title of a short article in the Dec. 1, 2014 Fortune.

The 5 ways are:

  1. Don’t be myopic about marketing
  2. Fight process paralysis
  3. Love your accountant
  4. Teach your people well
  5. Invest in systems

These are the right things to do and each is explained briefly and right on point.  However, I want to single out the one about loving your accountant.  The article says “the accounting function should not be undervalued or understaffed and you should hire a sophisticated pro that can provide you with the data to determine if you’re making money by product, customer, location or salesperson.”  The right information at the right time can lead you to the quickest way to increase profits and cash flow.

Accountants are generally the closest advisers to their clients offering knowledgeable, informed and sensitive counsel.  They also bring experience from exposure to the many critical decisions their other clients faced and made.  CPAs are part of a strong profession with mandatory continuing education, solid undergraduate and graduate programs, stringent ethics requirements, self-regulating mechanisms and public institution licensing and oversight.  Personally, CPAs are comprised of some of the nicest people you could deal with and who are usually super concerned with their clients’ issues.  They also devote substantial hours serving on boards of charitable organizations and otherwise contributing to the public wellbeing.

The article was written by Verne Harnish, CEO of Gazelles Inc. and should be read in its entirety…and then followed.

And, love your accountant!

Happy Thanksgiving

November 27, 2014

Today, we celebrate Thanksgiving, a day of being thankful for the gifts and blessings we have.  It is a national holiday and a true Holy Day regardless of your religious preference.  We celebrate the day with our families and loved ones.

The Pilgrims set aside a day of Thanksgiving in 1621 by sharing festivities and prayer with their Native American neighbors. George Washington established Thanksgiving Day as a national holiday in 1789 for “grateful and heartfelt acknowledgement of the many favors of Almighty God.”  In 1863 Abraham Lincoln designated the last Thursday in November as a day of national observance for Thanksgiving.  In 1941 it was changed to the fourth Thursday in November.

This day should be accompanied with a solemn recognition of the great blessings we have and share with each other.  We should also say a special prayer for our service men and women who are in harm’s way protecting and defending the liberty and freedom we many times take for granted.  May God continue to bless America!

Have a Happy Thanksgiving!


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