Dollar Cost Averaging - A Potentially Good Option in Times Like These

Investment Loss Harvesting May Save You on Your 2008 Tax Bill

Building IRA Assets Using Real Estate

We had a client call the other day and ask if he could put a house into his IRA.  Generally, when someone thinks of individual retirement accounts (IRA’s), the last idea that likely comes to mind is that of an account holding a house, rental property, or office building.
 
In short, under certain circumstances, investors can use IRA funds to invest in real estate - a much overlooked and underutilized opportunity.  While the brokerage, mutual fund, and banking industries have fully exploited the IRA concept, the real estate industry seems to be an area worthy of further exploration - and even more so these days as real estate values have fallen so dramatically.
 
An IRA investor maybe able to mortgage real estate purchased in an IRA if the transaction is carefully structured through an IRA Trust.  IRA real estate should be purchased so the IRA Trust holds title to the asset.  It is interesting to note that property may be held in conjunction with other owners, as long as the deed to the property reflects the appropriate portion owned by the investor’s IRA account as an undivided interest.
 
Rental property may be permissible as long as there is no personal use of the property involved.  All real estate must be solely used as an investment - meaning the investor, his or her family, or business cannot use it in any way.  
 
Although some of the tax advantages of holding real estate (deductible interest or depreciation) are lost in an IRA, qualified assets themselves are already tax-advantaged. In addition, deductions offset income, which helps in complying with the unrelated business income tax rules applying to leveraged real estate.  All gains are tax-deferred in an IRA - nothing is taxed until it is distributed, and with a Roth IRA, even distributions are tax-free.  This allows investment-oriented real estate to fulfill its growth potential unfettered by federal and state taxes.
 
The most practical type of real estate investment for an IRA is the cash purchase of a property, specialized real estate mutual fund, or real estate investment trust (REIT) using a lump-sum pension distribution or 401(k) rollover.
 
IRA real estate investing can be a slippery slope, so the investor is well advised to consult with a Certified Financial Planner, as well as a Certified Public Accountant, prior to making any such investment decisions.

Take Back Control of Your Financial Life

It’s getting more and more difficult these days to avoid hearing some bit of negative news about the financial markets.  The Dow is down 30+% this year.  Stocks are up big one day and down big the next.  We are feeling the impacts of being in a recession.  Corporate profits are down, layoffs are up, a bailout here, a failure there - so what are we to do? 
 
Stick to your plan.  Fight the urge to let emotion drive your financial strategy.  Consider this the perfect opportunity to take a long-term view, beyond today’s economic issues, and get back on track with a disciplined approach to managing your financial life. 
 
So, turn off CNBC’s “Mad Money” long enough to do the following:  revisit your financial goals.  If you don’t have any, it’s probably a good time to start coming up with some.  Write them down.  Do some basic math.  Are you on track?  How has the current market impacted your portfolio this year - and your stomach?  Is your risk tolerance the same as it used to be? 
 
Your financial plan, along with everyone else’s, likely needs a checkup.  Now is the time to start thinking strategically about the future - again.  It’s likely that your portfolio allocation been affected by the market this year.  Take the time to rebalance your investment allocation to make certain it is in line with your financial goals.  If you’re close to retirement, you should revisit your retirement income needs - and how much you must accumulate to support them.
 
Is there room for hope in the markets?  Well, no one has a crystal ball, but historically, the best US stock returns have come after troubled times, and stocks still offer you the best shot at long-term growth and inflation protection.  For the 5-year period after the Great Depression (1932), it was +367%.  After the worst recession in 25 years (1982), it was +267%.  And, after the most dramatic Fed tightening in 25 years (1994), it was +251%. 
 
Don’t get caught on the sidelines.  Revisit your goals, financial plan, and investment allocation.  Setting your long term financial strategy for the future is critical - and given the volatile year we’ve had so far, everyone’s plan could likely use some “recalibration”.
 
If you already have a financial planner, it would probably be worth your time to go talk to them about your future.  If you don’t have one, now is a good time to find one you trust to take care of you and your family.  
 
It’s time to take back control of your financial life.

Your Retirement Savings Goal - If you’re not there yet, you’re too broke to stop saving

When the economy is tough, we all look for ways to cut our expenses. And when the costs of bare necessities like food, heat, and fuel leap through the roof — like they’re doing now — anything that’s not absolutely critical is a candidate for the chopping block.

When times are tight, it’s tempting to consider the money you’re investing for your future as a non-critical expense. After all, every penny you invest today is money you can’t spend on groceries, gas, or other bills.

If it’s a choice between putting food on the table right now and saving for groceries several decades from now, the choice is obvious: Eat, so you’ll be around to enjoy that future! But if the choice you face isn’t quite so dire, those same rising prices make it all the more critical that you keep saving — now.

High Prices Are Robbing You Blind

Unfortunately, those same outrageously high prices that are making it so tough to make ends meet right now are also threatening your comfortable retirement. Inflation robs you blind today, tomorrow, and whenever it rears its ugly head. Not only does it cost you more to live today, but it also increases the amount you need to save to meet your needs during retirement.

Say, for instance, you have a goal of retiring with $1 million. That may look like a decent target today. Thanks to inflation, though, by the time you hit a normal retirement age, you’ll need a lot more socked away to have the equivalent of today’s $1 million in spending power. This chart shows just how much you’ll need at age 70 to replace $1 million of today’s dollars:

The farther away your retirement — and the worse inflation turns out to be — the more you’ll need to save to have the earning power you expect.

Are You There Yet?

But all is not lost. Whether or not you can keep saving now, whatever money you have already invested will keep growing between now and retirement, too — and it may be enough to reach your goal.

Assume, for instance, that you expect an average annualized 8% total return between now and age 70. The following table shows you how much you’d need to have invested today to meet that goal — without adding another dime.

If you’re not there yet, you’re too broke to stop investing. Inflation keeps pushing your target farther away, and the only way to successfully fight it is to keep on investing, even when it’s tough.

Identity Theft - Phishing & Vishing on Your Personal Accounts

Holistic Financial Management

You’ve always got your eye out for a good stock tip, and why not? You’ve done pretty well for yourself. You have a nice home, a sedan and SUV, a time-share at the beach.

There are four brokerage accounts: you and your spouse have IRAs, a joint account, and that individual account you opened on a whim with the fellow that you met at the country club. He sold you some tech stock. The accounts all doing fairly well, you think, except for the tech. You hear from your broker whenever they have a new issue to sell and it’s always a different voice on the other end of the phone. The guy from the country club has moved to Jersey. You’ve managed to put two kids through college, though the student loans are strangling you financially. Then there’s some annuity you bought years ago from an insurance agent that came knocking. You were in a good mood that day. The contract is somewhere in a drawer. You’re contributing to your 401K at work, 100 percent in equities (No guts, no glory, you tell your co-workers around the water cooler as you swallow hard), and your spouse has a small SIMPLE IRA.

Your employer takes care of your health and disability insurance and you have a $100 thousand life insurance policy. Whole life you think. It did appear to have some cash value the last time you looked at a premium notice. You carry a small term policy on your spouse–just in case. You know you need to review that situation and it might be time to think about a trust. Another bit advice you received on the 16^th green.

And, oh, yes, there’s that little bit of money you left in a pension two employers ago. You just saw a statement. It’s with all the other paper in the cardboard box in the hall closet.

Then last week your spouse asked when you were going to retire. You didn’t have an answer.

Still looking for a good stock tip? In what context?

The American Heritage^® Dictionary of the English Language, fourth Edition, defines ho·lis·tic [ h? lístik ]as emphasizing the importance of the whole and the interdependence of its parts, as in holistic medicine.

Your financial health is a sum of its parts as well. Liquidity, income, risk management, retirement and college savings, discretionary investments, and estate succession, are but a sample of the parts that must be added together to represent your financial health. Investing in isolation and out of context of your “whole” financial situation is like buying hardware without knowing what’s being built. Yet, as a practice, most individuals, as well as professionals in our industry, take the segregated view of the problem. Lip service is paid to retirement and estate planning. Trusts are written and go un-funded. Retirement accounts are opened

but contributions are never made. Dreams go unfulfilled.

Why? There’s no plan, no road map to follow. But to draw a map you have to know the destination. What is it you want to accomplish? What are your financial goals? Do you want to pass wealth on to your children? Do you have a charity you wish to help? Do you want to travel or build a retirement home? Is there a business to pass on or sell?

Once you know the destination you can pack for the trip. You can determine the need for estate planning, health and long term care insurance. Income and liquidity needs will be easily calculated and in the end you’ll know what preparations to be make in building investments and implementing tax strategies.

The journey takes a team of professionals, lead by a certified financial planner who understands your entire financial circumstance, who embraces your goals and objectives, providing the advice and assistance, and discipline, to get you to your destination.

So, are you looking for a good stock tip, or a good “holistic” advisor?

Welcome to Perspectives on Finance by Deckert Leahy

Welcome to Perspectives on Finance!