Viewpoint Newsletter for October 2010


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Viewpoint Newsletter by Steve Stanganelli, CFP (R) and Clear View Wealth Advisors, LLC, a fee for service financial planning firm that helps individuals with college aid, divorce planning and retirement income planning. In this issue, there is a discussion about using convertible bonds to reduce portfolio volatility and increase income and how to avoid minefields when getting a divorce.

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Viewpoint Newsletter for October 2010

  1. 1. V IEWPOINT Convertibles - For More Than Driving Fun Volume 1 Issue 3 Hybrid Bond Investment Increases Income and Reduces Some Risks. By Steve Stanganelli, CFP® October 2010 While the summer season has come and gone, Convertible Bonds are always in fashion as part of any all-weather investment portfolio. Hybrids are all the rage with auto buyers. And convertibles are a perennial favorite of auto enthusiasts. Both can be part of a long-term investment portfolio, too. Convertible Bonds may be unfamiliar to most investors but they are a great tool for helping to minimize risk in any investment portfolio. Convertible Bonds are hybrid investment vehi- cles that offer the best of both worlds — income now like a bond and the potential to cap- ture appreciation later like a stock. Get Paid While You WaitSteve Stanganelli, CFP®, CRPC® Convertible Bonds offer investors a fixed yield like any other bond. This regular income offers better downside protection than simply holding the stock. They also have a feature that allows the bondholder to trade in the bond for a certain amount of stock on a predeter- About Clear View mined date. This feature makes CBs advantageous during inflationary times when stock prices might be increasing and other bonds drop in value. During market corrections or bear markets, investors receive interest while waiting for the next recovery or bull market.Clear View Wealth Advisors, LLCis an independent Registered In- Like any other bond, there is underlying credit risk of the issuer. The opportunity to convertvestment Advisor providing finan- also means that the CB may track the stock more closely and have higher volatility thancial planning, tax consulting, andinvestment advisory services to straight bonds. Yet the hybrid nature of this investment provides corresponding benefits.individuals and couples throughout (Continued on Page 2)Massachusetts. your Expected Family Contribution (EFC) Find Free Money for which may increase the potential for moreClear View works on a FEEONLY/FEE-for-SERVICE basis. College financial aid. by Steve Stanganelli, CFP® Scholarship Lotteries. In an effort to drive If you are a business owner or traffic to their websites, some are offering self-employed, consider this free scholarships. These include: strategy to help pay for college   and lower your income tax bill.  Publisher’s Clearinghouse Offer an employer education program. As noted in Section 127 of the Free Scholarship Databases. There are a Internal Revenue Code, an employer can number of options available: pay up to $5,250 per year per employee to  FastWeb Scholarship Search Free Rollover Helpline cover tuition, fees, books and equipment.  FUND FINDER 978-388-0020 If you employ a child in your business, this  Call for Your Free Guide is one way to lower your business income,“Six Best & Worst IRA Rollover NOTE: Avoid sites that may require an ap- lower your personal taxes and decrease Decisions” plication fee.
  2. 2. Page 2 V o lu m e 1 , I s s u e 3 Clear View Wealth Advisors, LLC 978-388-0020 or 617-398-7494 SPOTLIGHT on MarketFlex Portfolios (Morningstar Advisor, Oct/Nov 2010, page 14). by Steve Stanganelli, CFP® Through Clear View’s MarketFlex model portfolios, an in- Clear View’s risk-controlled investment style is based on a vestor has access to a core (example: 60% stocks/40% multi-bucket approach: safety net, core allocation and tacti- bonds and cash) but the actual components (mutual funds, cal opportunity (or satellite). stocks, bonds and ETFs) are monitored and substitutions made based on review criteria that includes the economic Core buckets are based on asset allocation and Modern Big Picture. Portfolio Theory (MPT). Commentators in the financial press have said that MPT is dead because the concept Market View “failed” as all asset classes went down in value during the Great Recession. But to paraphrase Mark Twain, the de- It is my belief that the economy will continue to grow but mise of MPT is “greatly exaggerated.” slowly. Real estate will continue to struggle - office vacan- cies continue to rise and there remains a huge inventory of MPT is a way to organize a portfolio to minimize risk but it bank-owned property that will continue to depress prices. doesn’t eliminate it. The theory is based on the premise of asset allocation and finding the right mix producing the best Inflation in the near-term (1 to 3 years) is not a threat de- return for the least risk: When one asset zigs another zags. spite doomsayers on TV. A recent briefing by a Boston Fed economist to the Financial Planning Association further To be effective, MPT does its job when you move beyond convinces me that the Fed’s market operations are in check simply “buy and hold.” To properly manage risk, Clear and will not contribute to “run-away” inflation. View builds core allocations, reviews market conditions and then either over-weights or under-weights certain assets. US Treasury bonds and gold show signs of a bubble. The asset allocations are not static because the world is dynamic. Tactical Investing Strategies Reduce Risk The Great Recession has taught us to look at risks of cer- Based on my reading of the tea leaves, I have modeled the tain assets differently. Most investors would have thought portfolios to increase alternative assets and include more that bonds from developing countries or stocks in emerging tactical bond strategies by proven local money managers. markets would be riskier than those from large companies in developed countries. But that kind of conventional think- This means that there will be an increased allocation to ing would have proven dangerous, nearly fatal, to a portfo- convertible bonds and managed futures which tend not to lio and future retirement income hopes. Just think about move in tandem with the S&P 500. Dividend-paying stocks Fannie Mae, GM or Greece compared to the stocks and will continue to have a significant role in all models. bonds of companies in the MSCI Emerging Markets Index. These moves will provide a hedge against market volatility. The key to successful investing is flexibility of thought and execution. Times like these also offer opportunities for increased merger activity by larger companies that are flush with Morningstar research shows that emerging-market bonds cash. So there will also be an allocation to mutual funds have outperformed US corporate and government bonds that specialize in M&A as a way to benefit from this near- for every time period: One through 15 year periods. term trend.Convertibles for Driving & Investing During Fed tightening, CBs have performed well. It is inevita-By Steve Stanganelli, CFP® ble that interest rates will rise from their historically low rates with or without inflation. While the value of other governmentConvertible Bond Advantages and high-quality corporate bonds will suffer when interestAs an asset class, Convertible Bonds have been around for rates rise, CBs will likely hold their value, continue to pay outmore than 150 years. Since December 1973 through mid- interest and offer the potential of greater return when con-2010, the CB index has had total returns (interest plus appre- verted to stock. [For a whitepaper detailing this, please call].ciation) of 2736%, outpacing the government/corporate bondindex by 943% and hi-yield (aka junk) bond index of 1585% 1. Higher yield than most equities (presently > 3.5%)(BofA/Merrill Lynch Convertible Research, 6/30/10). 2. Potential to capture appreciationCBs have evolved. In the past, many were issued by smaller 3. Enhanced diversification and lower potential risk resultingcompanies that did not have other means of accessing capi- from low correlation with stocks and bondstal. Over the past 15 years, CBs have become more preva-lent among larger brand name firms as well. Many now offer 4. Track record of preserving capitalwindows to convert to stock that are relatively short: 3 to 5years, reducing the CB investor’s needed holding period to 5. Unlike other bonds, Convertible Bonds have generallycash out and get his money back with interest or a stock gain. performed well during periods of increasing interest rates or inflationary periods. Viewpoint is produced by Clear View Wealth Advisors, LLC for the benefit of its clients and allied professionals. Although the information here is gathered from reliable sources, readers should not act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Clear View Wealth Advisors, LLC 12 Amidon Ave., Amesbury, MA 01913 & 25 Lowell St., Wilmington, MA 01887 Tel: 978 388-0020 Email:
  3. 3. Page 3 Clear View Wealth Advisors, LLC 978-388-0020 or 617-398-7494 V o lu m e 1 , I s s u e 3BREAKING UP IS HARD TO DO: MISTAKES TO AVOID IN DIVORCE (continued from page 4) least the beneficiary/owner will receive notice and can take legalSpecial points of interest: Common Mistakes steps to deal with the breach. Producing an inaccurate budget of how you live now Don’t keep the marital home if it’s not affordable. Too often Being too emotionally attached to assets during settlement negotiations couples will fight over who keeps the marital home. While there Disregarding the impact of taxes on divorce may be sentimental value or legitimate concerns about uprooting kids from schools, it may not make financial sense to keep the Forgetting to update estate documents or beneficiary designations house. After all, real estate is a low return asset (and has in fact Failure to adequately model a post-divorce financial plan been negative in recent history) while the mortgage, taxes and maintenance expenses can be a drain on post-divorce budgets. Not insuring the settlement against death or disability It usually makes more sense to sell the property while still tech- Call the Clear View Divorce Planning Helpline for a FREE copy of nically a couple to get the maximum exemption of capital gains ($500,000 above cost basis) and split the proceeds to buy or “Divorce Financial Planning Fact Sheet and Checklist” at rent another place. 978-388-0020 or 617-398-7494. Don’t forget to change beneficiaries. Forgetting to delete andDon’t become a financial victim. If you suspect a spouse change one’s spouse from qualified plans or insurance policies,is planning a divorce, make copies of important records and unless required by the settlement agreement, could result innotify creditors, banks and investment companies in writing. benefits or assets passing to someone the divorcing couple does not want to receive them.Don’t prepare an inaccurate budget. Individuals are usu-ally required to produce a budget for temporary maintenance Don’t forget to close or cancel joint credit cards. To avoid(aka Pendente Lite). But through oversight or inaccurate problems its best to close credit cards to any new charges pend-record-keeping, this invariably leads to problems when they ing the final divorce. This will avoid the temptation of onefind that they are having trouble making ends meet with the spouse running up charges.court-approved maintenance based on the budget provided.It makes more sense to bring in a qualified financial profes- Don’t agree to a settlement without having a QDRO in place.sional at this stage to help in preparing the budget. Whenever a spouse has a qualified plan (ex. 401k or pension) a Qualified Domestic Relations Order will inform the plan adminis-Don’t try to use the courts to punish a spouse. In most trator who is entitled to the asset and when. This is sometimesstates, equitable distribution is the basis of settlements. Hir- an afterthought but is critical. It’s a good idea to watch the lan-ing a combative attorney or ignoring other options like me- guage in these orders. If not worded correctly, it could delaydiation or Collaborative Practice will be costly and toxic to when a spouse will be eligible to start receiving benefits or itpost-divorce family relationships especially with children. could lead to investment decisions that may be reckless or detri- mental to the spouse’s retirement interests.Don’t forget the common enemy: the IRS. As the proverbsays: the enemy of my enemy is my friend. Both parties will Don’t underestimate the impact of inflation. Without properbe impacted by taxes. With careful planning ahead of time, help in reviewing settlement options or preparing a post-divorcethis can be minimized. If assets need to be sold or qualified plan, it is easy to forget that the lump sum received today mayplans prematurely withdrawn, this may increase the tax bill look like a huge sum but may be inadequate for inflation.while reducing assets to live on post-divorce. Whether for college tuition, medical care or housing, inflation can take a big bite out of one’s budget and resources.A 50/50 split may sound fair. But the bottom line is the shareof marital assets each gets net of the tax man. For more tips and help, consider using a qualified Divorce Fi- nancial Planner. Call Steve at Clear View Wealth Advisors forDon’t use a divorce lawyer as a financial planner, ac- more details and a personalized plan.countant or therapist. At rates in excess of $300 per hour,it’s easy to rack up big bills and not get the specialized ad-vice that other professionals can offer.Don’t forget to insure the settlement. The premature “Using Convertibles to Protect & Grow Wealth”death or disability of a spouse means lost support, mainte-nance or help paying for college tuitions and health insur-ance. FREE e-ReportMake sure that life insurance names the spouse receiving Clear View Wealth Advisors, LLCsupport as the owner of the policy. This way if the spouse Amesbury * Wilmington * Woburnwho’s paying for the policies stops paying the premium at Expiration Date: 11/26/2010 Viewpoint is produced by Clear View Wealth Advisors, LLC for the benefit of its clients and allied professionals. Although the information here is gathered from reliable sources, readers should not act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Clear View Wealth Advisors, LLC 12 Amidon Ave., Amesbury, MA 01913 & 25 Lowell St., Wilmington, MA 01887 Tel: 978 388-0020 Email:
  4. 4. Page 4 V o lu m e 1 , I s s u e 3 Clear View Wealth Advisors, LLC 978-388-0020 or 617-398-7494 About Clear View Wealth Advisors, LLC Clear View is a Registered Investment Advisor providing fee-only / fee-for-service financial planning, consulting and investment management services.Primary Business Address Our Mission:12 Amidon AvenueAmesbury, MA 01913 Guiding individuals to better financial decisions through all of life’s transitions by planning well and investingBranch Offices: smart so that clients can live better.Woburn & Wilmington THE BOTTOM-LINEPhone: 978-388-0020 or 617-398-7494Fax: 866-654-4301 When your life savings are at stake, you want advice youEmail: can trust and someone you can count on. You need a trusted advisor that is objective, an advisor that is notVisit us on the Web! paid more to sell you one product over another. You need a relationship with a firm and an advisor that prom-More Financial Tools: ises to always put your interest first, a firm with provenFREE Road Map Tool: experience and the right professional credentials.Our Blog: To explore how Clear View and Steve Stanganelli, CFP®Visit our website to find out more about our approach and services. can help you, call 978-388-0020 today to schedule an exploratory meeting (via phone or in-person). There is no charge or obligation. Breaking Up is Hard to Do: 11 Critical Financial Mistakes to Avoid in Divorce By Steve Stanganelli, CFP®, CRPC® Steve Stanganelli and Clear View Long after the wedding bells have faded, you may know someone who has come to a specialize in the following services: fork in the road and has decided to go in a different direction than his or her partner.  Retirement Income Planning Building a life with someone involves many things. There are the memories, friend-  IRA Rollovers ships, family relationships and possibly children and pets. Love plants a seed that  Roth IRA Conversion Analysis eventually grows deep roots as a family is born and grows. And while love is not al-  College Funding Strategies & ways about money, divorce certainly can be. 529 Plans  Divorce Settlement Analysis Whether there’s just a house and a retirement account or something more complex  Qualified Plans for Businesses like business ownership, other investments and stock options, unraveling a lifetime of  One-to-One Money Coaching work is tough and complicated by emotional issues.  Periodic or One-Time Invest- Although escaping the emotional toll that a divorce can have is not possible, it is not ment Advice in a person’s best long-term interests to make or avoid decisions that will impact the  On-Going Investment Manage- future well-being because of emotion. ment & Monitoring  Financial Education Programs Individuals considering a divorce should assemble a team of qualified professionals for Groups who can advise on the legal, tax and financial impact of various proposed divorce settlements. Here are some tips to consider and mistakes to avoid: FREE Online Planning Tool (Continued on Page 3) “The Money Coach Road Map Series:” FREE Webinars Live on the 2nd Thursday Each Month Get Yours at Check the Clear View Site Viewpoint is produced by Clear View Wealth Advisors, LLC for the benefit of its clients and allied professionals. Although the information here is gathered from reliable sources, readers should not act upon it without professional advice. Past performance is no guarantee of future results. Examples with hypothetical returns illustrated are not representative of a specific investment. Clear View Wealth Advisors, LLC 12 Amidon Ave., Amesbury, MA 01913 & 25 Lowell St., Wilmington, MA 01887 Tel: 978 388-0020 Email: