Saying Thanks

Let me start by saying Thank You to all of my readers, clients, and business partners for our relationship. Like many people, it is a sentiment that I believe and feel but don't say enough.

As the holiday season approaches, people often have several different things to think about.  Some are focused on Thanksgiving dinner, others on finding the best deal in certain stores, and others on how they can help their favorite charity one last time for the calendar year.

I often advise people that charitable giving is part of the estate planning process, and can follow a similar thought process.  It comes down to two main concepts:  control and taxes.

Control

Ask yourself some questions initially to determine what you are really trying to accomplish.

• Is there a specific organization you're trying to help?  If not, take a look at sites like GlobalGiving or Donors Choose to identify potential recipients.
• Are you trying to help in a specific way, or just provide general assistance?
• What are you comfortable doing?
• What does the organization need?
• Do your interests match what they're asking for?
• What values do you want to teach your heirs?  What legacy do you want to leave?

Introspection, along with a conversation with someone from the organization, can help clarify what the best fit is, what you want to donate (time, talent, treasure), and how the gift should be structured.  For example, let's say your favorite 501c3 organization has a particular project that piques your interest.  Do you want to volunteer for the organization, participate on a board, or provide funds to be used only for that project (and not for salaries, overhead, etc.)?

Taxes

While most are aware that charitable contributions are potentially deductible, many don't realize that the amount you can deduct may depend on the amount, type of gift, and type of organization.  Be sure to have your financial team on one accord here, as your accountant, financial advisor, and attorney(s) - (estate planning, business, etc.) could all have duties to fulfill depending on the strategy you pursue, especially if one of your goals is to reduce the size of your taxable estate.

• Does the 501c3 organization have a foundation?  Look it up on Guidestar.org or a similar site.
• If so, is the foundation, public or private, operating or non-operating?  This is critical to determining how much of a deduction you can take (up to 20%, 30%, or 50% of AGI).
• How well is the organization managed?  Review Charity Navigator or similar sites.
• Do you want to make a donation now a choose an organization later?

The right solution depends on your particular situation such as: donating cash or property; establishing a donor-advised fund; creating a charitable trust; or creating a private foundation.  Each has different potential benefits, drawbacks, and costs associated.

One thing is clear:  it's best for you to make the decision while you can instead of it being made for you.  If you want more information, visit "Our Website" above to contact us and discuss your situation more in depth.  

One Size Does Not Fit All...and That's OK

Image courtesy of zole4/Freedigitalphotos.net

Have you noticed all of the advertisements that essentially say, "We know the answer... the one way you should invest"?  It's a good line for selling something, but could be questionable if you dig deeper.

Given the multitude of perspectives and investor preferences that exist, how can one approach fit everyone?  The answer is simple.  IT CAN'T.

If one approach were deemed to be correct, then logically, it still couldn't work in a marketplace.  For example, if you assume all investors want to be correct, and the correct action were to buy something, there would be no one to buy it from.  If the correct action were to sell something, there would be no one to sell it to.

Solutions are not absolute.  They are relative to your situation.  In my opinion, your success rests in having a plan that helps you understand what tactics you may need to take while being flexible and nimble enough to change as needed. In the beginning of Sun Tzu's The Art of War, he explains that one must understand:

• Your Belief System - what you want to accomplish and how you want to do it;
• The Environment  - what uncontrollable factors may help or hinder you;
• The Situation - where you are now and what it will take to get you to your goal;
• Leadership - confidence in your/the decision maker's abilities;
• Management - the proper use of resources at the appropriate time.

The solutions you choose may change over time due to uncontrollable, changing conditions.  No one solution will fit everything, but you can increase your odds of success by utilizing them properly.

Form Follows Function

Image provided courtesy of Grant Cochrane/
FreeDigitalPhotos.net

Architecture is one area that makes Chicago a world-class city.  One lasting principle of architecture & design that many are familiar with is "Form follows function."  In other words, as Wikipedia puts it, " that the shape of a building or object should be primarily based upon its intended function or purpose."

So, let's talk about this mantra in the context of a four-letter "F" word - fees- as it pertains to both brokerage accounts and advisory relationships.

Brokerage Accounts

A broker is an entity that arranges a transaction between parties and receives a commission for the transaction.  In this scenario, brokers are often motivated to encourage a transaction, as long as it is "suitable."  However, a broker's obligation is primarily to their employer.  Brokers also have lesser requirements for disclosing conflicts of interest that investment advisors.  You may or may not know the costs of a transaction beforehand.  Some firms offer fixed rate transactions (ex., $15 per trade), others may charge based on the number of shares and liquidity of the investment.  In other cases, costs are layered inside the expense ratio of the investment product.

Advisory Relationships

Investment advisors, by definition, provide advice.  They have a fiduciary responsibility; in other words, their primary obligation is to the client, and they must put the client's interest in front of their own.  In this type of relationship, you may be charged a retainer, a flat fee for planning, or a percentage of the account.  The fee structure is agreed to up front, before services are provided, and in writing.  Any potential conflicts of interests must be disclosed.

In short, how you pay your representative may depend on what you are paying them for.  Ask yourself a few questions in advance of engaging in either type of relationship.  

• Do you have the time, desire, or experience to manage a portfolio by yourself?
• Do you just want help with transactions, or are you looking for advice?
• Are you comfortable working with someone whose obligation is to their employer rather than to you as a client?
• Do you want to know your cost structure upfront, or would you rather pay-as-you-go?

If you would like to discuss your situation more in depth, click on "Our Website" above and go to the Appointments section to schedule a phone consultation.

The Agony of a Football Fan

Football has taken over this time of year for many sports fans (including me).  As I watched my team lose a game and listened to the post-game TV commentary, it made me think of how we often react to the stock markets.  Every game provides a roller-coaster of emotions.  Win a game & you're buying Super Bowl tickets.  Lose a game & you want everyone fired or traded. Your legacy is based on 4% of days during a 5 month period, and every week you get a 6-day performance review from self-proclaimed bosses despite the fact they are largely unqualified to do so.  It's even more noticeable because you only get 16 chances per season, as opposed to 82 in basketball or 162 in baseball.

Would you invest this way?  If so, STOP!  Focus on the "season", not the "session".  It's your life, not fantasy football!  Remember, your enemy is RISK, not another person, institution, or index. Try this instead as your new "roster".

• Owner = You (after all, it's your money);
• General Manager & Head Coach = Your financial advisor (Get the right people in the right positions with the right strategy);
• Assistant General Managers = Tax, legal, & other business advisors;
• Position Coaches = Money managers or mutual fund managers;
• Players = Individual securities;
• Offense = Stocks (Appreciation is how you move forwards)
• Defense = Bonds, Cash, & Insurance (Protect your position as much as possible)
• Special Teams = Alternative Investments, IPOs, & strategies with higher risk

The "plays" that are called will vary based on the condition of the markets, the economy, as well as your personal situation and preferences.  Most coaches have a sheet with plays for given situations that they've developed ahead of time.  In other words, they know what their choices are before the scenario arises.

Perhaps it's time for you to consider us as your new General Manger.  Visit "Our Website" above to learn more and schedule a phone consultation.

"Video Killed the Radio Star"

In August 1981, a new channel called MTV made its debut appearance.  Those of a certain age remember that MTV showed primarily music videos instead of reality TV.  The first video was called "Video Killed the Radio Star" by a British group called The Buggles.  The song lamented the end of the good-old days of radio due to the evolution of TV.

Changes in technology and regulation have also disrupted the brokerage industry's "good-old days" just as TV impacted radio, online media impacted newspapers, or the wheel impacted travel.  Some brokerage firms find themselves struggling with the changes society is imposing.  It used to be that you had to go to a large, "wirehouse" firm to get information about investments, or wait for the next day's newspaper (remember those?).  You may not have an idea of how much a transaction would cost; the number of investment options was dramatically less than what exists today.  Today, information is available online for free, and trades can be made for under $10 at some firms.  So why have an advisor?  See this link from the Certified Financial Planner Board of Standards for a few reasons.

Those that work with an advisors essentially want the same thing:  achieving a goal or avoiding various risks based on a trusting relationship. Unfortunately, that is not always the case, and a hodgepodge of titles with alphabet soup designations confuses the issue (Registered Representative, CFM, CLU, CFP®, Financial Advisor, Financial Consultant, etc.).

In upcoming posts, I'll discuss a few steps you can take to suppress the noise, create clarity, and make better decisions for your financial situation.