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Category: Private Finance

Understanding Your Own Investment Risk Tolerance

[ 0 ] April 9, 2014

Spectrum Financial Solutions, FL, RisksMost people, once they get safely past their teenage years, have a pretty concrete list of risks they don’t care to take.

Skydiving, for instance, is either on your bucket list or not. After a certain age, you’re either itching to do it or itching to avoid it.

While we tend to get better at assessing risk as we get older, we don’t seem to learn as much about financial risk. In the markets, we seem to be perpetual teenagers, always stepping in too deep for our own good.

Unless the market moves against us once, hard. Then the opposite tends to happen. We get over-concerned about risk to the point that we stop investing completely.

Understanding where you are on this curve is important. If you take too little risk as a young investor, you might leave a lot of money on the table. Failing to realize the advantage of time means your money compounds at a lower rate or not at all. That’s very hard to overcome later in life.

The late saver then tries to do exactly that — to turn back the clock and make up for missing time. That investor then tends to take on too much risk for his or her own good, always pushing the envelope on their investments.

A few early successes is even worse. It’s easy to become convinced of your own investing acumen and to then confuse skill with blind luck. Until, of course, the luck runs out. Even then, we tend to blame the markets, or the government, or the banks, anyone but the person making the actual investments — ourselves.

How can you learn your own risk tolerance? It’s not that hard, really. Here are four basic questions any financial advisor would ask:

1.      How long until you need this money?

If you have 30 years to save and invest, it’s likely that you can handle a few market setbacks along the way. This assumption changes a lot if you are just five years away from retirement.

2.      How long do you expect to work? To live in retirement?

Many people get to retirement age unready to quit working or unable to do so, having saved too little. If work is part of your retirement plan, you might be able to take on a little more risk than most investors your age. Also, consider how long you might live in retirement. Running out of money in your later years is an avoidable outcome.

3.      How do you react when markets go up?

Joy? Champagne? Shopping sprees in celebration? Remember that you haven’t actually made any money until you sell those assets, and that might not be for decades to come. Likewise, some investors take a rising market as a sign to invest more heavily, even if stocks seem expensive.

4.      How do you react when markets go down?

Dread? Depression? Fear? Remember, you also haven’t lost any money unless you sell at a bottom. Likewise, investors tend to avoid investing as stock prices fall, which is contrary to the whole concept of “buy low and sell high.”

Correctly measuring investment risk tolerance is an important part of the any long-term retirement plan. Get it right, and you can insulate yourself from the kinds of emotional trading mistakes that plague retirement savers.

Content provided by http://www.forbes.com/sites/mitchelltuchman/2014/03/14/understanding-your-own-investment-risk-tolerance/

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Investment Alternatives: Basics of investing in mutual funds

[ 0 ] March 19, 2014

Spectrum Financial, FL, Mutual fundsBetter understand and learn how to invest in mutual funds with these informative tips.

1. What exactly is a mutual fund?

A mutual fund pools money from hundreds and thousands of investors to construct a portfolio of stocks, bonds, real estate, or other securities, according to its charter.  Each investor in the fund gets a slice of the total pie.

2. Mutual funds make it easy to diversify.

Most funds require only moderate minimum investments, from a few hundred to a few thousand dollars, enabling investors to construct a diversified portfolio much more cheaply than they could on their own.

3. There are many kinds of stock funds.

The number of categories is dizzying.  Some examples: growth funds, which buy shares of burgeoning companies; sector funds, which buy shares of companies in a particular sector, such as technology or health care; and index funds, which buy shares of every stock in a particular index, such as the S&P 500.

4. Bond funds come in many different flavors too.

There are bond funds for every taste.  If you want safe investments, consider government bond funds; if you’re willing to gamble on high-risk investments, try high-yield bond funds; and if you want to keep down your tax bill, try municipal bond funds.

5. Returns aren’t everything – also consider the risk taken to achieve those returns.

Before buying a fund, look at how risky its investments are.  Can you tolerate big market swings for a shot at higher returns?  If not, stick with low-risk funds.  To assess risk level, check these three factors: the fund’s biggest quarterly loss, which will help you brace for the worst; its beta, which measures a fund’s volatility against the S&P 500; and the standard deviation, which shows how much a fund bounces around its average returns.

6. Low expenses are crucial.

In order to cover their expenses – and to make a profit – funds charge a percentage of total assets.  At no more than a few percentage points a year, expenses may not sound substantial, but they create a serious drag on performance over time.

7. Taxes take a big bite out of performance.

Even if you don’t sell your fund shares, you could still end up stuck with a big tax bite.  If a fund owns dividend-paying stocks, or if a fund manager sells some big winners, shareholders will owe their share of Uncle Sam’s bill. Investors are often surprised to learn they owe taxes – both for dividends and for capital gains – even for funds that have declined in value. Tax-efficient funds avoid rapid trading (and high short-term capital gains taxes) and match winning trades with losing trades.

8. Don’t chase winners.

Funds that rank very highly over one period rarely finish on top in later ones. When choosing a fund, look for consistent long-term results.

9. Index funds should be a core component of your portfolio.

Index funds track the performance of market benchmarks, such as the S&P 500.  Such “passive” funds offer a number of advantages over “active” funds: Index funds tend to charge lower expenses and be more tax efficient, and there’s no risk the fund manager will make sudden changes that throw off your portfolio’s allocation.  What’s more, most active mutual funds underperform the S&P index.

10. Don’t be too quick to dump a fund.

Any fund can – and probably will – have an off year.  Though you may be tempted to sell a losing fund, first check to see whether it has trailed comparable funds for more than two years.  If it hasn’t, sit tight. But if earnings have been consistently below par, it may be time to move on.

Content provided by http://money.cnn.com/magazines/moneymag/money101/lesson6/

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How Inflation Will Cut Your Taxes in 2014

[ 0 ] March 12, 2014

Spectrum Financial Solutions, NJ, FL, Inflation will help taxesMost of the time, inflation is one of the most serious financial threats people face, propelling slow but steady price increases that erode the purchasing power of your savings and make it harder to make ends meet.

But when it comes to your taxes, inflation’s bite need not be too painful: The government makes annual adjustments to the tax code to reflect the higher cost of living, which should help you save on your taxes in 2014.

1. Higher Standard Deductions

The standard deduction allows taxpayers to earn income up to a certain amount without paying any taxes — and without going to the trouble of itemizing deductions. For 2014, the figure for single filers will rise by $100 to $6,200, with joint filers getting a $200 increase to $12,400. Those who qualify as heads of household split the difference, with their standard deduction jumping $150 to $9,100. Depending on your filing status and tax bracket, these increases could save you anywhere from $10 to $80 on your 2014 tax return.

2. Higher Personal Exemptions

Most taxpayers get to take a personal exemption for each member of their families, including dependents. The personal exemption amount will climb by $50 to $3,950 in 2014. The increase could boost tax savings anywhere from $5 to $20 per person depending on your tax bracket, although high-income taxpayers begin to have personal exemptions phased out once their income goes above certain levels.

3. Higher Tax Brackets

The boundaries of the various tax brackets get an inflation adjustment in 2014, allowing taxpayers to earn more money while getting taxed at a lower rate.

For instance, single filers will see the upper end of the 10 percent tax bracket rise from $8,925 to $9,075, while the top of the 15 percent tax bracket will rise from $36,250 to $36,900. By taxing more of your income at lower rates, these shifts will produce tax savings of $72.50 for a single filer earning $40,000 in taxable income. Higher-end earners will reap more substantial savings: Joint filers with taxable income of $250,000 will see a drop of more than $400 in their taxes.

4. Higher Earned Income Tax Credits

Millions of working low-income taxpayers are eligible to receive the Earned Income Tax Credit. The maximum credit amount rises $99 in 2014 for joint filers with three or more qualifying children, with an $88 increase for those with two children, $54 for one-child families, and $9 for eligible individuals with no children.

5. Higher Exclusions for Foreign Workers

If you work abroad, you’re entitled to exclude money you earn in wages or salaries from your foreign job. The amount of money you’re able to exclude will rise in 2014 by $1,600 to $99,200, producing savings of $160 to $640 depending on your tax bracket. The exclusion is designed to offset the taxes that foreign workers typically pay in the countries in which they work.

6. Higher Exemptions for Alternative Minimum Tax

The Alternative Minimum Tax was originally designed to apply only to the richest taxpayers — its purpose being to prevent the wealthy from gaming the system and paying no taxes at all. But over time, thanks to inflation, the tax gradually started capturing more upper-middle-class taxpayers, especially in states that have high taxes that aren’t deductible for AMT purposes. In 2014, the exemption amount of AMT will rise by $900 to $52,800 for single filers and by $1,300 to $82,100 for joint filers. With AMT rates at 26 percent and 28 percent, those increases can save between $234 and $364 in potential AMT liability.

These are just a sampling of the many ways that cost-of-living inflation adjustments will lower taxes for millions of Americans. For more information, be sure to visit the IRS website and get the comprehensive list of inflation adjustments for 2014.

Content provided by:  http://www.dailyfinance.com/2014/01/02/taxes-inflation-adjustment-2014/

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Privately Financed Graded Premium Universal Life

[ 0 ] February 5, 2014

Spectrum Financial Solutions, NJ, Life InsuranceCurrently, an arbitrage opportunity presents itself to sophisticated investors whereby interest bearing loans (interest paid currently and loans retired in less than ten years) made to a trust for the benefit of family members can create guaranteed Internal Rates of Return (IRR) that far exceed those available from most portfolio assets.  As the accompanying study illustrates, if trust assets grow at a modest 6% annual rate, the underlying trust will have grown terminal value to in excess of $16,145,000 in year 27 (the joint life expectancy of the hypothetical couple used in the study).

That equates to a 12.5% tax-free IRR for the trust assets (19.3% pre-tax).

This program is not a risk-less arbitrage.  Risk may be associated only with the trust’s ability to achieve annual growth of 6% during the loan period and longevity of the investors.  To the degree that growth rates fall below 6%, loans may be extended beyond 9 years and, correspondingly, IRR’s will not be as high as illustrated.  Additionally, because the trust matures upon the death of the investors, if the trust outlasts actuarial assumptions, IRR’s may be less than indicated above (see accompanying schedules).

This program is Internal Revenue Code (IRC) compliant.  Rates of interest charged to and paid by trusts using program are based on the Applicable Federal Rate (AFR) for mid-term loans and are published monthly.  Once established, loans will bear that AFR for the term of the loan.

Perhaps a successful individual is not interested in further estate planning. This approach understands that position and posits that the Privately Financed Guaranteed UL Program, aside from offering a superior investment experience, may enable investors’ unique opportunities to expand both charitable and non-charitable goals that previously weren’t possible or were deferred.

To Summarize:

Privately Financed Graded Premium Universal Life may be a solution to issues facing many successful investors and families today.  Through the use of a minimal risk arbitrage technique, estates can be secured, charitable gifts accelerated and a variety of other planning and/or investment goals satisfied very efficiently.

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Here we are!

[ 0 ] January 22, 2014

Spectrum Financial has made it more convenient for you to to reach us!  You can find us on our blog  LinkedIn page,  Facebook page, and of course our website.

Check us out!

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Applicable Federal Rates

[ 0 ] January 15, 2014

Cheap Money is Still Here but It’s Getting More Expensive

Spectrum Financial Solutions, LLC Applicable Federal Rates

I sure hope that everyone is looking at the recent rise in the mid and long-term Applicable Federal Rates (AFR).  After languishing at historically low levels since October, 2011, these benchmark rates have finally started a northern movement over the past few months.  Where they will stop, I wouldn’t hazard a guess but I know that the opportunities that these low rates represent, while still very favorable, more than likely won’t see recent levels any time soon.

I have been preaching the advocacy of Intra-family lending at the mid and long-term rates for years.  It may be better than gifting of assets to children and heirs.  Consider these points:

  • No gift tax returns to file or gift taxes to pay
  • An income stream albeit marginal (mid-term rate for August = 1.63% and long-term= 3.16%)
  • An element of control
  • An interim freeze on asset growth for loaned funds
  • Return of your money at some later date
  • Retention of any unused unified credit
  • Flexibility

While intra-family lending is a potent wealth transfer tool, rising AFR’s also affect many other planning tools.  One such program that I use extensively is the charitable lead unitrust, which employs the mid-term AFR to calculate the Section 7520 rates and charitable lead income tax deductions.

The planning opportunity afforded by these rates remains formidable.  If the client has the financial wherewithal, desire to transfer wealth efficiently and/or has charitable goals, there is no time better than now to explore the options created by low AFR rates.

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I am Rich!?

[ 0 ] September 4, 2013

Spectrum Financial Solutions, LLC I am rich?

Written by George Klahre

In a recent TIME Magazine article, it was reported that UBS had surveyed thousands of investors to come to the conclusion that if you own investible assets of $5,000,000 or more, you likely feel that you are wealthy.  Great news, right?

On closer inspection of the numbers, of those polled, fully 40% of the respondents felt that they weren’t rich with $5,000,000 of investible funds in their accounts.  And what about those with lesser balances in their accounts?

Clearly, wealth is a relative term and not only applies to financial assets, but also to other forms of wealth…health, family relationships, meaningful work or service, philanthropy, etc.  Today, let’s just focus on boring old money.

It has become staggeringly clear to this writer that most of us don’t feel nearly as financially comfortable as we would like to be.  Further, us baby boomers are approaching that time in our lives when, if we haven’t done so already, we start thinking about retirement years, life expectancies well into our 80’s and how are we going to afford us for the next 25-30 years…or longer.

And then there’s that thing called a legacy….

Don’t despair.  Planning now can alleviate fears and concerns.  I have worked with clients and their advisors over the years and the opportunities that the legal, investment and financial communities can access may work wonders in addressing the questions of the future.  Maybe time spent with your advisors now can enhance your “wealth”…both financial and otherwise.

 I would love to chat with you if you or your client thinks it makes sense.

George Klahre

Spectrum Financial Solutions, LLC

Spectrum Financial Solutions, LLC located in New Jersey and Spectrum Financial Solutions, LLC located in FL have been assisting individuals and businesses with their financial challenges for over 30 years.  With an emphasis on partnering with the right professional, we offer technical help and  specializations to meet your every need. Retirement Planning in FL, Tax Planning in NJ and Estate Planning in NJ are our successful hallmarks.

Need to know about Privately Financed Universal Life Insurance in FL? Call us today. Family Legacy Unitrust Edge in NJ has been created to help families establish lifetime legacies in a unique manner that simultaneously addresses social and family needs. We’d like to make sure you know more. Applicable Federal Rates in FL affect many of your planning tools.

732-450-9530

George Klahre

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Our Core Services

[ 0 ] August 21, 2013

Spectrum Financial LLC

Privately Financed Graded Premium Universal Life

Family Legacy Unitrust Edge

Applicable Federal Rates

 

Spectrum Financial Solutions, LLC located in New Jersey and Spectrum Financial Solutions, LLC located in FL have been assisting individuals and businesses with their financial challenges for over 30 years. With an emphasis on partnering with the right professional, we offer technical help and specializations to meet your every need. Retirement Planning in FL, Tax Planning in NJ and Estate Planning in NJ are our successful hallmarks.

Need to know about Privately Financed Universal Life Insurance in FL? Call us today. Family Legacy Unitrust Edge in NJ has been created to help families establish lifetime legacies in a unique manner that simultaneously addresses social and family needs. We’d like to make sure you know more. Applicable Federal Rates in FL affect many of your planning tools.

732-450-9530

George Klahre

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