Taxes and Alternatives to Shape Your Investment Planning


Published on

Published in: Economy & Finance, Business
  • Be the first to comment

  • Be the first to like this

No Downloads
Total Views
On Slideshare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Taxes and Alternatives to Shape Your Investment Planning

  1. 1. Taxes & Alternatives to Shape Your Investment Planning<br />What do you do now?<br />April 10, 2010<br />
  2. 2. Understanding where we are today in investments <br />—Lewis Carroll<br />Why did God create economists?<br />To make weathermen feel good about themselves! <br />
  3. 3. Where are we today on investments?<br />Starting the decade Started with $100<br />Jan 2000 – Sept 2002 Down 42% $58<br />Oct 2002 – Dec 2006 Up 88% $109<br />Jan 2007 – March 2009 Down 45% $60<br />March 2009 – Dec 2009 Up 55% $92<br />Jan 2010 – Mar 2010 Up 5? $96<br />Net return really stinks (technical term)<br />We are expecting a 20% pullback from 1/1/2010<br />
  4. 4. The issues in the economy<br />Ballooning federal deficits<br />Overheated China<br />Inflation and higher interest rates<br />High unemployment and debt-laden populace<br />Poor administration policies<br />Hostile business environment<br />Nuclear Iran – continued issues in Afghanistan and Iraq<br />
  5. 5. What the economy is telling us<br />Economy is growing – very slowly off the bottom <br />Job growth is starting – really slowly<br />Earnings – stabilized and are growing <br />Possibility of explosive growth in recovery<br />Inflation – low and likely to stay low for a long time<br />Wages are two-thirds of costs and there is excess<br />Interest rates – long-term rates are not low (only short-term rates are low) … they will be kept that way for two years to support the housing market mortgage reset, but then they will rise in the long-term <br />Risks are still high – see prior slide<br />
  6. 6. Thoughts on future economic news: My 1/17/09 predictions from last year <br />The jobless rate will increase to over 10% – right<br />Home real estate prices will continue to go down 30-40%overall – right<br />Commercial real estate will tank in 2009 and 2010 – starting<br />There will be 15-25% bankruptcy in retail businesses – too high<br />Oil will drop below $30 a barrel – got to $37<br />Commodities will continue to decline – correct (except gold)<br />Credit default swaps are a $30 trillion hidden risk – being worked out – structural weaknesses saved by gov’t too big to fail <br />There will be more national bankruptcy issues – right <br />
  7. 7. Current Income Tax Update and What is Going to Happenin the Future<br />
  8. 8. Current tax issues and expected changes<br />The estate tax has phased out for 2010, but it might come back with more of a vengeance than anyone ever guessed<br />More taxes on business; bank tax is first of many<br />Healthcare reform will fail (thankfully) – guess I was wrong<br />Stimulus will keep backing automotive industry and the housing market <br />State taxes fees, etc. are likely to increase further<br />
  9. 9. Convert regular IRA to a Roth IRA: Opportunity or trap? The rules …<br />100% of growth is tax-exempt<br />No required minimum distributions (RMD) at age 70½<br />RMDs on inherited Roth IRAs<br />$100,000 modified adjusted gross income (MAGI) limit<br />Starting in 2010, the $100,000 MAGI no longer applies<br />The taxable income recognized on a Roth IRA conversion in 2010 may be spread over the following two tax years (i.e. 2011 and 2012)<br />
  10. 10. Convert regular IRA to a Roth IRA: Opportunity or trap?<br />Good idea <br />Have excess assets to pass without ever needing to spend the money<br />Have a large estate tax liability – estates over $10MM <br />Have a net loss or other deductions you can use up<br />Must be able to pay the tax from non-Roth funds<br />
  11. 11. Convert regular IRA to a Roth IRA: Opportunity or trap?<br />Bad idea … for most people, despite what you might hear<br />If your income is going to decrease in retirement<br />If you need to use the IRA in retirement<br />Question: Can you trust the government to never tax a Roth IRA?<br />Planning – option to recharacterization back to regular IRA<br />If values go down or you just change your mind<br />
  12. 12. Ideas on “Savvy” Investing <br />
  13. 13. What you should buy now:Last year’s recommendations<br />Nuveen Premium Income Fund (NYM) <br /> 2009 return – 48.37%<br />ING Managed Risk Nat Resources (IRR)<br /> 2009 return – 43.84%<br />ING Global Equity Dividend Fund (IGD)<br /> 2009 return – 48.35%<br />Overall, we were correctly conservative through the crash and too conservative coming out of it.<br />
  14. 14. Your asset allocation<br /><ul><li>Conservative investor who historically invested 60% in stocks and 40% in bonds
  15. 15. Last year, recommended you should be 20% stocks, 70% higher-quality corporate or muni bonds or alternative strategies and 10% in short-term CDs (good place to park)
  16. 16. When you see the light at the end of the tunnel (and you are sure it is not a train coming your way), move stocks up to 40%, reduce high-quality bonds to 30% and increase lower-quality bonds to 30%
  17. 17. Today … high-quality short-term bonds 30%, mortgage REITs 10%, equities 30%, alternatives 30% </li></li></ul><li>Fixed income investment thoughts<br />Get your money our of money market funds – no return<br />MMF had grown from $7B to $10B during drop and decreased by $300MM over last 9 months <br />Invest in high-quality short-term corporate bond fund or similar quality short-term municipal bond fund <br />Yields are 3%+ in tax free and 4%+ in taxable funds<br />Do the income tax rate analysis; don’t be lazy<br />Risk spreads have returned to below long-term averages and the economy is not yet fixed <br />Examples: FPNIX, IPFIX, STSMX, EMUNX<br />
  18. 18. Fixed income investment thoughts <br />Credit spreads back to normal … WHY????<br />Sell junk/low-quality bonds; 2200 spread now 600, below LT average <br />Defaults are increasing but have not hit a high<br />Sell long-term bonds; rising interest rates within the next 2 years<br />Sell closed-end bond funds where the discounts have closed <br />International bonds being hit by sovereign risk – stay away for now; watch out for continuing run in dollar off its lows <br />Buy municipal bonds – ratio of muni yield to Treasury is at 92%<br />Stay away from Florida and California <br />Use national funds, not MD <br />
  19. 19. Fixed income investment thoughts <br />For the aggressive portion of your portfolio<br />Buy residential mortgage REITs<br />Yields are very high and leverage is low vs. historical averages <br />The companies mostly own gov’t guaranteed mortgages <br />Look for rising short-term interest rates as the signal to sell<br />Ex: Annaly (NLY), MFA, Anworth (ANH) Chimera (CIM)<br />Look for increasing spreads in closed-end funds during market pullbacks and times of stress <br />
  20. 20. Equity investment thoughts<br />All equity market classes move together – lowest correlation is 73%, meaning you get little protection from diversification, but the right sector does add return; international stocks are no different<br />Valuations are high but not expensive; the problem is no growth<br />
  21. 21. Equity investment thoughts<br />Where are we from the low and the high in the market & where are they valuation wise (current P/E 20 yr avg., PE & %)<br />As of December 31 <br />Large Growth up 66% net down 18 % 18.6/24.1 78%<br />Large Value up 73 net down 30 16.9/15.4 109%<br />Small Growth up 81 net down 23 19.0/21.4 89%<br />Small Value up 88 net down 23 15.4/15.4 100%<br />International up 74 net down 27 on historic averages <br />Emerging Markets up 109 net down 27 on historic averages<br />
  22. 22. Equity investment thoughts<br />Wait to buy half at 10% drop and second half at next 10% <br />Buy high-quality large cap high-quality companies<br />Energy, healthcare, consumer staples, technology<br />Buy emerging markets funds<br />Buy small growth companies<br />Buy healthcare closed-end funds <br />H&Q Healthcare Investors (HQH) & Gabelli (CRX) <br />Buy business development companies<br />First Street Capital (FSC) & Ares Capital Corp (ARCC)<br />
  23. 23. Alternative investment thoughts<br />Includes REITs, commodities, long/short, hedged equity, merger funds, arbitrage, gold, option and multi-strategy approaches <br />Alternatives are the only non-equity correlated class of investment – correlation factor of .35<br />Goal: make 8-12% a year with much less risk than traditional long equity<br />
  24. 24. Alternative investment thoughts<br />Gateway Fund (GATEX) options strategy<br />Merger Fund (MERFX) and Arb Fund (ARBFX) invests in spreads in traditional corporate acquisitions<br />Diamond Hill Long Short Fund (DHLSX) uses the long short approach to control market risk<br />Calamos Market Neutral Fund (CVSIX) is a multi-strategy fund<br />Osterweis Strategic Income Fund (OSTIX) is a multi-strategy income and appreciation fund <br />I hate gold and think oil is high right now <br />
  25. 25. Questions?<br />David Goldner, CPA, CFP, CVA<br /> | 410.685.5512 |<br /><br /><br />
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.