What is the Business Cycle?

The Definition of a Business Cycle

Over time an economy will grow and shrink. That growing and shrinking sequence will then repeat itself ad infinitum. That cycle is called the Business Cycle. There are four main stages of the Business Cycle, which are Expansion, Peak, Contraction, and Trough.

Expansion

Expansion as the name implies is a growing economy. During this time GDP is growing, unemployment is falling, etc. People’s optimism about the future is growing very day. Therefore, people will bid up stock prices much higher as they expect the companies to make a lot of money in the favorable business environment.

Peak

Peak refers to an economy that is at the end of the expansion. GDP value and unemployment values are very favorable but are not changing in either direction. Similarly, all the people who had the inclination to bid up stock prices have already done so, therefore stock prices (while high) are not getting any higher.

Contraction

Contraction is a shrinking economy. During this time GDP is shrinking, unemployment is rising, etc. People’s pessimism about the future is growing very day. Therefore, people will force stock prices much lower (via selling) as they expect the companies to lose money in the bad business environment.

Trough

Trough refers to an economy that is at the end of the Contraction. GDP value and unemployment values are very bad but are not changing in either direction. Similarly, all the people who had the inclination to sell and thus force down stock prices have already done so, therefore stock prices (while low) are not getting any lower. After the trough is another expansion and the cycle continues.


Investment Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate. 


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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A Deeper Look at Threats within the Context of a SWOT Analysis

Definition of Threats

Threats are the ways that a company could theoretically be damaged in the future. What could happen in the future that hurts their profits and business? Let’s take a hypothetical restaurant (R). Possible Threats for R are a new restaurant in town (they might take away some of R’s business), a health inspector (might shut the restaurant down), a change in dining habits (people may not eat at restaurants as much as before) etc.


Investment Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate. 


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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Investment Newsletter for the end of August, 2017

The market was flat/very slightly down this month. Nothing exciting. Today, I want to discuss what happens to your money after you are gone. How does it transfer to your heirs?

First, let’s separate your accounts between tax deferred and after tax. Tax deferred is money that you have never paid income tax on. IRA’s, 401k’s, 403b’s, annuities, contract receivables on the sale of a building, etc. are examples of tax deferred. After tax is your real estate, portfolios in personal name, etc.

When you die, all your AFTER TAX assets revalue to fair market value. It is called step up in basis. You paid $100 for the lot 50 years ago. On your death, it is worth $500,000 (it is a nice piece of dirt). Your heirs list their cost as $500,000. They sell it for $500,000. No capital gain or loss. If you give the lot before death, no step up. The heirs keep your $100 cost and get burned on their tax returns. Step up is only for inherited property.

Tax deferred assets do not have step up. The income tax you did not pay has to be paid by your heirs. It is also at ordinary income tax rates not capital gain rates. Annuities are bad tax planning for this reason. If your spouse is your heir, the accounts can be rolled over into their names without tax (spouses are an exception to what I just said). Your children do not get that exception. They have to pay income tax on this money. The IRA type accounts are rolled into an inherited IRA. There is a minimum amount they have to take into income each year based on an age based formula.

A tax planning step is to see whose tax rates are higher. My mother is 93 and has a small IRA. She is going strong but obviously not forever. Because of medical expenses and limited income, she has a tiny tax rate. She also is a Washington resident which has no state income tax. My siblings and I are all in higher tax brackets than her. Three out of the four are in Oregon and California, both of which love to collect tax. I am accelerating her IRA distributions. I want the income on her return not her childrens’.

Tax deferred assets (IRA’s and the like) and life insurance normally have a contractual listing for beneficiaries. These HAVE TO BE RIGHT. These designations override the will. They override the trust. Your will/trust can say ‘I give equally to my three children’. If the IRA says the name of your ex-wife from 40 years ago, she gets the money. Same thing with life insurance. The beneficiary is contractual and is more important than the will/trust. Major ugly stuff happens here.

Personal accounts also can have designated beneficiaries. I set them up for clients all the time. I have them set up for my accounts.

Giving money to your children, grandchildren, your friends, whatever is not taxable income. If you give any amount, even millions, it does not become income to them. The $14,000 per year per person limitation is to avoid inheritance tax when you die. This tax is on your estate, not on your children. You have a lifetime federal exclusion of over $5 million. Oregon has a state exclusion of $1 million. For my Washington clients, over $2 million. For my Arizona, California, and Mississippi clients, no state inheritance tax. If you have less than these exclusion amounts, do not worry about the $14,000 per year. If you have more, call me for better tax planning.

 

Thanks

Dan


Investment Fee Schedule

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the whole account. Compared to my old fee structure, under the new fee structure the cost for a $1 million account would be $500 lower per year and the cost for a $1.5 million account would be $1,500 lower per year. I will still waive personal tax return fees for accounts over $1 million. All services stay the same. I am just lowering my upper end fees. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my newsletter make sense? Do you agree or disagree with what I said?

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A Deeper Look at Opportunities within the Context of a SWOT Analysis

Definition of Opportunities

Opportunities are the ways that a company can improve itself. How can they make themselves more profitable? Let’s take a hypothetical restaurant (R). Possible Opportunities for R (chances for improvement) are trying a new recipe, opening another location, trying a new supplier etc.


Investment Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate. 


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

Learn About My Business

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A Deeper Look at Weaknesses within the Context of a SWOT Analysis

Definition

Weaknesses are what a company does worse than their competition. It is what makes them different in the marketplace. Let’s take a hypothetical restaurant (R). Possible Weaknesses for R (disadvantages they have versus their competition) are worse food, more expensive food, poor service, etc. The reasons could be a bad supplier, a unmotivated work force, etc.


Investment Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate. 


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

Learn About My Business

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A Deeper Look at Strengths within the Context of a SWOT Analysis

Introduction

Strengths are what a company does better than their competition. It is what makes them special in the marketplace. Let’s take a hypothetical restaurant (R). Possible Strengths for R (advantages they have over their competition) are better food, cheaper food, better service, etc. The reasons could be a better supplier, a more motivated work force, etc.

Example

Let’s look at a company like Coca-Cola. A significant Strength that the company has is brand loyalty. There are many people who have a strong attachment to the brand. They will continue Coca-Cola products regardless of cost. This is a big advantage to the company for it grants them essentially monopoly status for those consumers.


Investment Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate. 


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

Learn About My Business

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What is a SWOT Analysis?

Introduction

A SWOT analysis is a way of analyzing a business according to four different dimensions. Those dimensions are Strengths, Weaknesses, Opportunities, and Threats. This framework is often essential in the decision-making process.

Strengths

What advantages do the company have over its competition? What does it do better than anyone else? Note that strengths are a relative measurement. A company being good at something is not relevant, it has to be better than its competition.

Weaknesses

What disadvantages do the company have in comparison to its competition? What does it do worse than anyone else? Note that weaknesses are a relative measurement. A company being bad at something is not relevant, it has to be worse than its competition.

Opportunities

What are the aspects of the business environment or market that the company can exploit in the future to make themselves better and more profitable?

Threats

What are the aspects of the business environment or market that could make the company worse and less profitable in the future?


Investment Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate. 


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

Learn About My Business

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Investment Newsletter for the end of July, 2017

The market continued to be nice to you this month. I am likely going to rebalance again within the next few days or so. Selling various stock categories and buying more short-term bonds (in mutual fund format). The market has increased so much that the stock allocations are over target and fixed (bond) allocations are below target. As a result, you are exposed to more risk than we agreed. The rebalancing reduces your risk.

But why short-term bonds?

Bonds are very much not risk free. A bond has a coupon (your income amount), a maturity amount, a maturity date, and a price on the market. The income, maturity amounts, and dates are fixed. I will receive $500 per half year and a payoff of $15,000 on December 31, 2022. Notice that I did not mention interest rate. That rate is determined by the market. The bond issuer has no control over that number. The market also has complete control over the price of the bond.

For example, ignoring maturity amounts/dates, a bond paying $1,000 per year when general interest rates are 3% is going to be worth $33,333. $1,000 divided by $33,333 is 3%. You may have paid much more or much less than $33,333. Maybe you bought the bond when interest rates were at 5%. You paid, therefore, $20,000 ($1,000 divided by $20,000 is 5%). You lucky soul, you have a $13,333 profit from interest rate fluctuations. Of course, you could have bought the bond when interest rates were at 1%. You paid $100,000 for a bond now worth $33,333. I will pay for your next cocktail, you probably will need it.

My point here is that interest rates can cause drastic changes in bond prices. But not all bond prices. Remember In the last paragraph, I ignored maturity amounts/dates. That assumption is wrong. Maturity information matters. If the maturity amount is $10,000 and it pays off tomorrow, today’s price will be darn close to $10,000 regardless of interest rate. There will be almost no fluctuation. If it matures instead in ten years, the maturity information is of little importance. Only interest rate matters. Pricing is a discounted cash flow calculation for those who are interested. Distant cash flows matter less than closer flows.

I rebalance in and out of short term bonds so as to avoid the risk of bonds. Short term in my mind is no more than one to two years. If you want the risk, I would rather have the risk in stocks than bonds. The reward is greater. I rebalance to reduce risk.

An additional factor is the extraordinarily low interest rates right now. When interest rates go up, bond prices come down. Of course, the opposite is also true, when interest rates go down, bond prices go up. Obviously, we do not know the future of interest rates. But what do you think is more likely? Are rates likely to go up or likely to go down? Me too.

Sincerely,

Dan


Investment Fee Schedule

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the whole account. Compared to my old fee structure, under the new fee structure the cost for a $1 million account would be $500 lower per year and the cost for a $1.5 million account would be $1,500 lower per year. I will still waive personal tax return fees for accounts over $1 million. All services stay the same. I am just lowering my upper end fees. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my newsletter make sense? Do you agree or disagree with what I said?

Learn About My Business

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Wealth vs. Income

Introduction

A topic that many people are confused about is the difference between wealth and income. In short, wealth is what you have, income is how what you have is changing.

What is Wealth?

Your wealth is your cash, your real estate, your books, etc. If you imagine a giant bucket that is filled with all your stuff, the bucket’s contents are your wealth.

What is Income?

Your income is the cash, property, etc. that is added or subtracted from your wealth. If you imagine a giant bucket that is filled with all your stuff, the bucket’s contents are your wealth, and the stuff added or removed from the bucket is your income.

Relevance

The two concepts are completely disconnected. It is possible to have a lot of wealth and to have a low income, or vice versa. When creating a personal financial plan, it is very important to not conflate the two ideas.  


Investment Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate. 


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

Learn About My Business

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Investing vs Speculating

Introduction

At its core, both investing and speculating consists of taking a position on an equity. You think it will go down in price or you think it will go up in price. The difference is the reason they took the position.

What is Investing?

The investor takes a position because they believe the company will succeed or fail.

What is Speculating?

The speculator takes a position because they believe the stock price will rise or fall.

What is the Difference?

In the long run, the stock price and the company’s success will match. However, in the short run, price movements within a stock are completely meaningless. The price randomly moves around like a drunk stumbling their way home. To speculate is to see meaning in that stumbling and to take a position based on how you think the price will change. For example, if the price of a stock has been rapidly going up, a speculator buys the stock purely because they think the price will continue to go up. They are buying according to the Greater Fool Theory. They buy the stock at a high price because they think an even bigger fool will buy it from them at an even higher price. It is very important to be able to make the distinction between the two terms.


Investment Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate. 


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

Learn About My Business

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