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eMagazine – November 2016

November 22nd, 2016 | No Comments | Posted in eMagazine

November 2016

Mind Over Money

November 18th, 2016 | No Comments | Posted in Financial News

Emotion often drives our financial decisions, even when logic should.

imagesWhen we go to the grocery store, we seldom shop on logic alone. We may not even buy on price. We buy one type of yogurt over another because of brand loyalty, or because one brand has more appealing packaging than another. We buy five bananas because they are on sale for 29 cents this week – the bargain is right there; why not seize the opportunity? We pick up that gourmet ice cream that everyone gets – if everyone buys it, it must be a winner.

As casual and arbitrary as these decisions may be, they are remarkably like the decisions many investors make in the financial markets.

A degree of emotion also factors into many of our financial choices. There is even a discipline devoted to how our emotions affect our financial decisions: behavioral finance. Examples of emotionally driven financial behaviors are all around us, especially in the investment markets.

Behavior #1: Believing future performance relates to past performance. In truth, there is no relation. If an investment yields 8-10% for six consecutive years, that does not mean it will yield 8-10% next year. Still, we may be lulled into expecting such performance – how can you go wrong with such a “rock solid” investment? In behavioral finance, this is called recency bias. Bullish investors tend to harbor it, and it may lead to irrational exuberance.1

Similarly, investors adjust risk tolerance in light of past performance. If their portfolio returned spectacularly last year, they may be tempted to accept more risk this year. If they took major losses in the equity markets last year, they may become very risk-averse and get out of equities. Both behaviors assume the future will be like the past, when the future is really unknown.1

Behavior #2: Investing on familiarity. Familiarity bias encourages you to make investment or consumer choices that are “friendly” and comfortable to you, even when they may be illogical. You go with what you know, without investigating what you don’t know or looking at other options. Another example of familiarity bias is when you invest in a company or a sector largely because you are attracted to or familiar with its “story” – its history, its reputation.2

Behavior #3: Ignoring negative trends. This is known as the ostrich effect. We can ignore the reality of a correction or a bear market; we can ignore the fact that our credit card debt is increasing. Studies suggest that investors check in on their portfolios with less frequency during market slumps – they would rather not know the degree of damage.3

Behavior #4: Wanting decisions to pay off now. Patience tends to be a virtue in both equity investing and real estate investing, but we may suffer from hyperbolic discounting – a bias in which we want a quick payoff today rather than an even larger one that might result someday if we buy and hold.3

Behavior #5: Falling for a decoy. When given a third consumer choice, instead of two consumer choices, we may choose a different product than we originally would, and perhaps make a choice we would not have otherwise considered. Once, an ad in The Economist offered three kinds of subscriptions: $59 for online only, $159 for print only, and $159 for online + print. The $159 print-only option was an illustration of the decoy effect – the choice existed seemingly just to make the $159 online + print option look like a better deal.3

Behavior #6: Seeing patterns where none exist. This is called the clustering illusion. You see it in casinos where a slot machine pays out twice an hour, and people line up to play that “lucky” machine, which has, in fact, just paid out randomly. Some investors fall prey to it in the markets.3

Behavior #7: Following the herd. The more consumers or investors that subscribe to a particular belief, the greater the chance of other consumers or investors to join the herd, or “jump on the bandwagon,” for good or bad. This is the bandwagon effect.3

Behavior #8: Buying the amount of something that we are marketed. In our minds, we believe that there is an optimal amount of something per purchase. This is called unit bias, and when marketing suggests the ideal amount should be larger, we buy more of that product or service.3

There are dozens of biases we may harbor, temporarily or regularly, all subjects of study in the discipline of behavioral finance. Recognizing them may help us to become a better consumer, and even a better investor.

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/a-financial-plan-to-help-you-simplify-and-succeed-2016-09-23 [9/23/16]
2 – abcnews.go.com/Business/stock-stories-fairy-tales/story?id=42529959 [10/3/16]
3 – businessinsider.com/cognitive-biases-2015-10 [10/29/15]

Your Year-End Financial Checklist

November 18th, 2016 | No Comments | Posted in Financial News

Seven aspects of your financial life to review as the year draws to a close.

accountant-accounting-adviser-advisor-159804The end of a year makes us think about last-minute things we need to address and good habits we want to start keeping. To that end, here are seven aspects of your financial life to think about as this year leads into the next…

Your investments. Review your approach to investing and make sure it suits your objectives. Look over your portfolio positions and revisit your asset allocation.

Your retirement planning strategy. Does it seem as practical as it did a few years ago? Are you able to max out contributions to IRAs and workplace retirement plans like 401(k)s? Is it time to make catch-up contributions? Finally, consider Roth IRA conversion scenarios, and whether the potential tax-free retirement distributions tomorrow seem worth the taxes you may incur today. If you are at the age when a Required Minimum Distribution (RMD) is required from your traditional IRA(s), be sure to take your RMD by December 31. If you don’t, the IRS will assess a penalty of 50% of the RMD amount on top of the taxes you will already pay on that income. (While you can postpone your very first IRA RMD until April 1, 2017, that forces you into taking two RMDs next year, both taxable events.)1

Your tax situation. How many potential credits and/or deductions can you and your accountant find before the year ends? Have your CPA craft a year-end projection including Alternative Minimum Tax (AMT). In years past, some business owners and executives didn’t really look into deductions and credits because they just assumed they would be hit by the AMT. The recent rise in the top marginal tax bracket (to 39.6%) made fewer high-earning executives and business owners subject to the AMT – their ordinary income tax liabilities grew. That calls for a closer look at accelerated depreciation, R&D credits, the Work Opportunity Tax Credit, incentive stock options, and certain types of tax-advantaged investments.2

Review any sales of appreciated property and both realized and unrealized losses and gains. Take a look back at last year’s loss carry-forwards. If you’ve sold securities, gather up cost-basis information. Look for any transactions that could potentially enhance your circumstances.

Your charitable gifting goals. Plan charitable contributions or contributions to education accounts, and make any desired cash gifts to family members. The annual federal gift tax exclusion is $14,000 per individual for 2016, meaning you can gift as much as $14,000 to as many individuals as you like this year tax-free. A married couple can gift up to $28,000 tax-free to as many individuals as they like. The gifts do count against the lifetime estate tax exemption amount, which is $5.45 million per individual and $10.9 million per married couple for 2016.3

You could also gift appreciated securities to a charity. If you have owned them for more than a year, you can deduct 100% of their fair market value and legally avoid capital gains tax you would normally incur from selling them.4

Besides outright gifts, you can plan other financial moves on behalf of your family – you can create and fund trusts, for example. The end of the year is a good time to review any trusts you have in place.

Your life insurance coverage. Are your policies and beneficiaries up-to-date? Review premium costs, beneficiaries, and any and all life events that may have altered your coverage needs.

Speaking of life events…did you happen to get married or divorced in 2016? Did you move or change jobs? Buy a home or business? Did you lose a family member, or see a severe illness or ailment affect a loved one? Did you reach the point at which Mom or Dad needed assisted living? Was there a new addition to your family this year? Did you receive an inheritance or a gift? All of these circumstances can have a financial impact on your life, the way you invest and plan for retirement, and how you wind down your career or business. They are worth discussing with the financial or tax professional you know and trust.

Lastly, did you reach any of these financially important ages in 2016? If so, act accordingly.

Did you turn 70½ this year? If so, you must now take Required Minimum Distributions (RMDs) from your IRA(s).

Did you turn 65 this year? If so, you are likely now eligible to apply for Medicare.

Did you turn 62 this year? If so, you can choose to apply for Social Security benefits.

Did you turn 59½ this year? If so, you may take IRA distributions without a 10% penalty.

Did you turn 55 this year? If so, you may be allowed to take distributions from your 401(k) account without penalty, provided you no longer work for that employer.

Did you turn 50 this year? If so, you can make “catch-up” contributions to IRAs (and certain qualified retirement plans).1,5

The end of the year is a key time to review your financial “health” & well-being. If you feel you need to address any of the items above, please feel free to give me a call.

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 – fool.com/retirement/general/2016/04/11/required-minimum-distributions-common-questions-ab.aspx [4/11/16]
2 – nerdwallet.com/blog/taxes/income-taxes/federal-income-tax-brackets/ [9/8/16]
3 – turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html [11/7/16]
4 – marketwatch.com/story/what-to-know-when-deducting-charitable-donations-2016-02-23 [2/23/16]
5 – merrilledge.com/Publish/Content/application/pdf/GWMOL/retirement-deadlines-checklist.pdf [11/7/16]

Should You Care What the Market Does Each Day?

November 18th, 2016 | No Comments | Posted in Financial News

A calm investor may realize better long-term returns than an overly concerned one.

moving-moneyInvestors are people, and people are often impatient. No one likes to wait in line or wait longer than they have to for something, especially today when so much is just a click or two away.

This impatience also manifests itself in the equities markets. When the S&P 500, Dow, or Nasdaq take a tumble, some investors grow uneasy. Their impulse is to sell, get out, and get back in later. If they give into that impulse, they may effectively pay a price.1

Across the twenty years ending in 2015, the annual return of the S&P 500 averaged 9.85%. During this same period, the average retail investor realized a yearly return of just 5.19%. (These numbers come from Dalbar, a respected investment analytics firm.) Why the difference? It could partly stem from impatience.1

Some investors may be worrying too much – and acting on those worries to their detriment. An investor who glances at a portfolio once per quarter may end up making more progress toward his or her goals than one who anxiously pores over financial websites every day.1

Too many investors make quick, emotional moves when the market dips. Logic often goes out the window when this happens, along with long-term perspective.1,2

Some long-term investors focus on buying shares of respected companies. Warren Buffett does. He has famously said that an investor should buy shares of a firm to own a piece of it, not merely in hopes that its share price will rise.2

Certain companies are so strong, their brands so renowned, that their shares weather downturns better than shares of other firms. In a raging bull market, “all boats rise” and many types of shares may perform well. Buffett often tries to invest in companies whose shares may perform well in both up and down markets. In especially bullish times, his returns have sometimes lagged the market, but chasing the return is not his objective.2

In contrast with Buffett’s patient long-term approach, investors who care too much about day-to-day market behavior may practice market timing, which is as much hope as strategy.2

To make market timing work, an investor has to be right twice. Ideally, he or she sells high, takes profit, and buys back in at some point of capitulation – a moment when bears throw in the towel and the market rallies off a bottom. How many investors can pull this off? This is hard even for Wall Street professionals. Mostly, retail investors buy high and sell low. Picture a shopper only buying an item at a department store when the price rises, then returning it when it goes on sale – but only getting the sale price back.1

Investors who alter their strategy in response to the headlines may end up changing it again after further headlines. While they may feel on top of things by doing this, their returns may suffer from their emotional and impatient responses.1

Nobel Laureate economist Gene Fama, Jr. once commented: “Your money is like soap. The more you handle it, the less you’ll have.” Anyone who has invested some of their money in equities would do well to keep his gentle warning in mind, especially at times when markets grow turbulent.1

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 – thebalance.com/why-average-investors-earn-below-average-market-returns-2388519 [8/28/16]
2 – usatoday.com/story/money/personalfinance/2016/01/30/3-reasons-you-shouldnt-worry-stock-market-2016/79304046/ [11/9/16]

November, 2016 – Monthly Economic Update

November 18th, 2016 | No Comments | Posted in Monthly Economic Update

november2016-monthly_economic_update

5 Tips to Celebrating Your First Holidays After a Divorce

November 18th, 2016 | No Comments | Posted in Lifestyle

pexels-photo-225768The first holiday season after a divorce or separation can place tremendous emotional strain on the best of us. Now that you and your ex have parted ways, the holiday parties and family gatherings you have been celebrating for years as a couple suddenly seem daunting and complicated. Who gets to go to which parties? How do you “share custody” of friendships? What do you say when someone asks why your better half is no longer at your side? It’s enough to make an already emotionally fraught season barely tolerable.

But fear not. Celebrating the holidays alone can be a great joy, but it requires good planning, a positive attitude and most importantly, realistic expectations. Here is our short list of tips to help you have a joyful holiday season solo:

1. Don’t Stay Home Alone!

What’s the worst thing you can do to yourself during the holidays? Spending time alone with your thoughts. Even worse? Avoiding your family and friends. Your first holidays after a break up can be an emotional roller coaster, so don’t try to ride it solo. Make plans with close friends and loved ones to avoid spending time alone. Don’t be shy. Extend invitations to others: co-workers, old friends, other divorcees. Find a support group or, better yet, volunteer. Filling the holidays with people will leave you with no free time to ponder the last year’s would of, should of, could ofs.

2. Avoid the Ghosts of Holidays Past.

The holidays are a time to make memories: wild office parties, quiet crisp winter landscapes, romantic New Year’s nights. When recently going through a divorce or separation, don’t visit places where you have created holiday memories with your ex. And if you happen upon that bistro or bar that you and your ex once frequented for years and years, don’t let the past haunt your future. So just pop in, say your hellos and merry Christmases and leave. This isn’t the time to reminisce on old memories; it’s the time to begin building fresh, fun, brand new ones.

3. Share the Joy (and the Kids).

Nothing makes the holidays better than the sounds of children: laughing, shouting, tearing open gifts. Don’t be selfish. Share this joy with your ex. Plan for the kids to spend time with both you and your ex. A well-planned visitation schedule will make all the difference. Know each other’s schedules; nothing is worse than miscommunication. Find a holiday place like a mall for to pick up and drop off your children. Seeing your children’s smiles against the holiday decorations will help you leave them for a few days. And, when you have to see your ex, remember the most important gift of all: Don’t put you children in the crossfire. The holidays are harder for them than they are for you!

4. Take your own Holiday Vacation, You Earned it!

Get away from all the people and places that remind you of your previous
life. Taking a vacation will give you the opportunity to relax and forget about all the drama and difficulty that came with your divorce and separation. And if your stockings aren’t full enough for a flight, take a vacation in your hometown. Visit a museum. Go to a holiday market. Rent a hotel. Shop. You’d be surprised how much a few days away can give you some perspective.

5. Make a New Year’s Resolution — Or Several.

Leave last year — the disappointments, the fights, the court dates, the tears — behind you.

Remember: It’s a new year and a new you! So make a resolution: Take up a new sport, join a new club, meet new people and put yourself back out there. And, most importantly, count your blessings. Always remember that things could be worse. No matter how bad the divorce and or break up was, you still have something to be thankful for. Be optimistic, you never know what the holiday and New Year may bring to you.

A divorce or separation doesn’t mean the end; it means a new beginning. In our decades of experience, we have seen hundreds of clients recover from their divorce to find love again. Embrace the spirit of the season — of hope, joy, and renewal. Have a happy and healthy holidays.

Holiday Health and Safety Tips

November 18th, 2016 | No Comments | Posted in Lifestyle

The holidays are a great opportunity to enjoy time with family and friends, celebrate life, to be grateful, and reflect on what’s important. They are also a time to appreciate the gift of health. Here are some holiday tips to support your efforts for health and safety this season.

Wash your hands often.

 Keeping hands clean is one of the most important steps you can take to avoid getting sick and spreading germs to others. Wash your hands with soap and clean running water, and rub them together for at least 20 seconds. Cover your mouth and nose with a tissue when you cough or sneeze. If you don’t have tissue, cough or sneeze into your upper sleeve or elbow, not your hands.

Stay warm.

 Cold temperatures can cause serious health problems, especially in infants and older adults. Stay dry, and dress warmly in several layers.

Manage stress.

 The holidays don’t need to take a toll on your health and pocketbook. Keep your commitments and spending in check. Balance work, home, and play. Get support from family and friends. Keep a relaxed and positive outlook. Make sure to get proper sleep.

Travel safely.

 Whether you’re traveling across town or around the world, help ensure your trip is safe. Don’t drink and drive, and don’t let someone else drink and drive. Wear a seat belt every time you drive or ride in a motor vehicle. Always buckle your child in the car using a child safety seat, booster seat, or seat belt appropriate for his/her height, weight, and age.

Be smoke-free.

 Avoid smoking and breathing other people’s smoke. If you smoke, quit today! Call 1-800-QUIT-NOW or talk to your health care provider for help.

Get check-ups and vaccinations.

 Exams and screenings can help find potential problems early, when the chances for treatment and cure are often better. Vaccinations help prevent diseases and save lives. Schedule a visit with your health care provider for needed exams and screenings. Ask what vaccinations and tests you should get based on your age, lifestyle, travel plans, medical history, and family health history. Get health insurance through healthcare.gov if needed.

Watch the kids.

 Children are at high risk for injuries. Keep a watchful eye on your kids when they’re eating and playing. Keep potentially dangerous toys, food, drinks, household items, choking hazards (like coins and hard candy), and other objects out of kids’ reach. Learn how to provide early treatment for children who are choking. Make sure toys are used properly. Develop rules about acceptable and safe behaviors, including using electronic media.

Prevent injuries.

 Injuries can happen anywhere, and some often occur around the holidays. Use step stools instead of climbing on furniture when hanging decorations. Leave the fireworks to the professionals. Wear a helmet when riding a bicycle or skateboarding to help prevent head injuries. Keep vaccinations up to date.

Most residential fires occur during the winter months. Keep candles away from children, pets, walkways, trees, and curtains. Never leave fireplaces, stoves, or candles unattended. Don’t use generators, grills, or other gasoline- or charcoal-burning devices inside your home or garage. Install a smoke detector and carbon monoxide detector in your home. Test them once a month, and replace batteries twice a year.

Handle and prepare food safely.

 As you prepare holiday meals, keep yourself and your family safe from food-related illness. Wash hands and surfaces often. Avoid cross-contamination by keeping raw meat, poultry, seafood, and eggs (including their juices) away from ready-to-eat foods and eating surfaces. Cook foods to the proper temperature. Refrigerate promptly. Do not leave perishable foods out for more than two hours.

Eat healthy, and be active.

 With balance and moderation, you can enjoy the holidays the healthy way. Choose With balance and moderation, you can enjoy the holidays the healthy way. Choose fresh fruit as a festive and sweet substitute for candy. Limit fats, salt, and sugary foods. Find fun ways to stay active, such as dancing to your favorite holiday music. Be active for at least 2½ hours a week. Help kids and teens be active for at least 1 hour a day.

Source: cdc.gov

8 Early Holiday Tips To Keep You Sane — And Less Stressed

November 18th, 2016 | No Comments | Posted in Lifestyle

shutterstock_510773551What’s that famous quote about the definition of insanity? The one that had something to do with epeating the same actions and expecting a different outcome? Well, there’s probably no better example of insanity than what happens to us around the holiday time. Year after year we do the same things that result in us being miserable, stressed out and mad at ourselves for knowing better. And so, in following the lead of retailers everywhere who insist on putting up their Christmas items before Halloween, here goes our list of eight things we hope we don’t do (again) this holiday season.

1) Don’t spend too much.
Who among us hasn’t had the January hangover that comes from over-spending? As much as we’d like to see the economy stimulated from a robust shopping season, we just know in our gut that we can’t afford it. More than that, spending feels more like gluttony in a season that is supposed to be about something more joyous.

Instead, why not agree in advance that you won’t be exchanging gifts with every office co-worker, every relative, every one who you know? All those small gifts start to add up and before you know it, you’ve wracked up a credit card bill that makes your stomach do flip-flops. Now is a great time to have that “let’s not exchange gifts” conversation because as we know, the holiday shopping season officially begins in July nowadays.

2) Don’t entertain in a way that is more work than fun.
We love to cook and have people over. But boy is it ever work to shop, clean, cook and clean up again. The re-emergence of the potluck dinner was probably the one good thing that came out of the recession, so don’t be afraid to ask people to bring a side dish or dessert — or even a main course. And as for the clean-up, learn to say “yes” when your guests offer to help. Four hands in the kitchen gets the job done twice as fast as two.

Also stick to your own entertaining schedule and lifestyle. If what you enjoy most is Sunday brunch, then don’t throw a Saturday night cocktails and dinner party. We have a friend who says she won’t enjoy herself if her feet hurt so she refuses to wear anything but her comfy UGGs; when we go there for dinner, I know it will be casual dress — Saturday night or otherwise.

3) Don’t have inflated family expectations.
Yes, your great-aunt is going to say your turkey is dry because that’s what she says every year. Someone else will ask if you’ve put on some weight or want to know why you are still in that job you hate so much. Take deep breathes and remember they mean well. And for the ones who don’t, well, where is it written that you have to invite them next year?

Ridding your life of the people who suck the air out of the room for you is the best gift you can give yourself. Sorry if that sounds like something you’d read on Facebook. It happens to be true.

Last year, someone we know decided to sit out Christmas week on a beach in Hawaii. They skipped the gift-giving and surfed on Christmas Eve. Best holiday ever, they said after. When it comes to fight or flight, sometimes fleeing works best.

4) Don’t say “yes” to everyone.
You can’t please everyone, so why try? This is the season when people tend to throw more parties, arrange more events, make more demands on your time. Just say no. Get real. Not every “group” in your life — carpool moms, soccer team moms, bridge club, book club, golfing buds — needs to have a special holiday gathering. You see half these people on a regular basis anyway, so can’t you just say “happy holidays” at your next pilates class and skip the group lunch after?

5) Don’t exempt your employer from #4.
Many of us secretly wish that the money the company spends on the office holiday banquet was instead deposited in our paychecks. If you feel this way, urge your company to think “holiday bonus” instead of party. We already spend more time each week with our co-workers than we do with our spouses and children. Or, if an employer really insists on giving workers a holiday treat, how about at least doing it on the work-clock instead of after-hours?

6) Don’t stay up past your bedtime if doing so leaves you a wreck the next day.
If you love your synagogue’s Chanukah concert, by all means go. But if the idea of staying out until 11 p.m. on a Tuesday night when you have work the next day means you’ll be a basket case, then sit by the exit and leave by 9:30 p.m.

The older we get, the more we appreciate early week-nights. We are happy to put on our dancing shoes on weekends, but we know some folks who just flat out say ‘No” to all things during the week.

7) Don’t follow the crowds.
This is just common sense: Fighting for parking spots, waiting in long lines, feeling suffocated by the in-a-hurry masses — none of that is good stuff. It raises your stress level, wastes your time, and in general zaps your soul. Don’t hit the mall at peak shopping hours. Shop online, patronize small local merchants who gift wrap for free. And instead of seeing the “Nutcracker” at the big arts center in the city, maybe the local community version would be more enjoyable, not to mention convenient.

8) Don’t forget to add a little spirituality in the holiday experience.
Whether it be in a church, mosque, synagogue or your favorite easy chair, stop and smell the roses. Be grateful for what you have; be generous with what you share.

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