Home→Blog - Page 8 << 1 2 … 6 7 8 9 10 … 19 20 >>

Newsletter for the End of November, 2017

Posted on December 4, 2017 by Daniel DollingerDecember 4, 2017

The market continued upward this month and almost all of you have significant gains.

I have two main points to discuss. The Dow is not the market and don’t sweat the tax bill.

Over the last two months the Dow Jones Industrial Average (the “Dow”) has gone up 8.3%. It is now at an all-time high. The S&P 500 average went up just over 5% and the small cap indexes went up 3% plus change. The Dow is made up of only 30 big stocks. If three or four have big wins, the whole index is distorted up. The S&P 500 has 500 companies. One or two or ten big companies cannot influence the average as much. The S&P still has primarily big companies, just not as big.

So, what happened right now. A tax bill is being pushed through that benefits big corporations. The Dow is made up of big corporations. In hindsight, we should have all switched to Dow type investments two months ago. But then again, if the tax bill fails, the Dow will plummet. No one can predict what will happen with the tax bill. It still could fail to pass after conference. Risk is real. Also, timing is a very dangerous game.

It is fun and easy to look at the Dow every day and see how the market is doing. Just remember the Dow is a very small sample of the thousands of stocks available.

As for the tax bill, it is too soon to reach conclusions. My world is about the little fine print, the footnotes at the back. The senate bill is 478 pages and has many moving pieces. I have read every summary I can find and the longest has been 2 pages. My organizations will be sponsoring 8-hour seminars with 300-page handouts by this summer.

It also does not matter yet. The senate bill has to go to conference with the house bill (also some 500 pages or so). The differences have to be resolved and then everything has to be voted on again by both the senate and the house. I would rather wait until the final legislation to puzzle out what it means. Also, both bills are not effective until January 1, 2018. This coming tax season, where I complete the 2017 returns, is under the old rules.

There will be winners and losers with the new tax rules, if they pass. The political arguments are starker than is warranted. It will not be a complete give away to the rich on the backs of the middle class. It will also not be the cause of a huge and sudden economic boom. Those are both political exaggerations to score points. The reality will be in between on both arguments. Stick to the plan and you will be fine.

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

Investment Newsletter for the end of October, 2017

Posted on November 7, 2017 by Daniel DollingerNovember 13, 2017

The market continues to go up. This month’s results were great. Obviously, the market will at some point turn back down. No telling when that will be. I am watching.

My topic today is sudden money. Sudden money is inheritances, life insurance proceeds, divorce settlements, legal settlements, sales of property or businesses, etc. The common element is a large amount of cash that you did not previously have.

Everyone wants a piece of that money. You put that money into the bank. The teller then asks you if you want to speak to the bank’s financial planners. The teller IS ON COMMISSION. I have seen an insurance agent testify at an open casket funeral about how the deceased was his best friend (which was false. They only met two weeks before) and then sell an annuity to the widow. There is a big incentive to grabbing the money when it is fresh.

Everyone wants to manage the money and most are on commission.
Annuities are extremely high commission. Most of the time, they are the wrong choice. They convert capital gain to ordinary income (bad tax planning). They lock up your money for years unless you pay a big surrender charge.
Do not make financial decisions while your head is cloudy. The insurance agent above sold the grieving widow with words similar to “I am sorry to bring this up now but this deal is too good to wait.”
Resist the temptation to pay off your mortgage. I have seen widows take the entire life insurance proceeds and pay off most of the mortgage and then have nothing to live on. First, make sure you have enough money to live, then pay off credit cards, then cars, then mortgages.
Sit down and plan out your situation. How much do you have? What is still to come in (wages, social security, future sudden cash, etc.)? What are your expected expenses? Think about how much risk you want. Start with a disciplined process and you will get a better result. I can help you put together a plan.
Do not assume the stock market will always go up. Likewise, do not assume real estate prices will always go up. Every asset class has an up and down cycle. Real estate will go back down and has many times in the past. The stock market also can and will go down. There is no such thing as a sure investment. There is always risk.
Be careful about sudden big spending. The money has to last your life. The market will go up and down. Real estate will go up and down. Your expenses will only go up.
Sometimes, this money is taxable at ordinary rates (expensive tax). Sometimes it is taxable at capital gains rates (cheap tax). Sometimes, it is not taxable at all (my favorite kind). It depends on the situation. Rather than guess, call me and ask.
If you know ahead of time that the money is coming, you can plan in advance. Sometimes, we might be able to change the terms so that it is better for you tax wise.

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

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

What is Internal Rate of Return?

Posted on October 31, 2017 by Daniel DollingerOctober 31, 2017

Definition of Internal Rate of Return

Internal Rate of Return is a way of determining the value of a project. It is simply the discount rate that makes the Future Value of a series of cash flows equal to the Present Value. If you remember the piece I wrote about Net Present Value, we are looking for the discount rate the makes Net Present Value equal to zero. See here for a definition of Present Value, Future Value, and discount rates.

Calculation Example

Let’s say a project lasts for 3 years. To initiate the project, you have to pay $20,000. Each year after that the project earns $10,000. The required rate of return (the minimum return you need to do a project) is 15%, should you do this project? The equation would be 0 = -20,000 + (10,000 / discount rate) + (10,000 / (discount rate squared)) + (10,000 / (discount rate cubed)). When you solve this equation with a financial calculator, excel or some other piece of software, the discount rate equals 23%. 23% is larger than 15%, therefore you should do the project.

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.

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

What is Net Present Value?

Posted on October 14, 2017 by Daniel DollingerOctober 14, 2017

Definition of Net Present Value

Net Present Value is a way of determining the value of a project. It is simply the Present Value of a series of cash flows. Before we talk more about that, we should review the concepts of the time value of money, Present Value, Future Value, and the Discount Rate.

Time Value of Money

One dollar today is more valuable than one dollar in a year. The reason is due to inflation. The reason is also due to the fact that a dollar today can be invested, therefore you earn additional money on that dollar. The idea that money in the present is more valuable than money in the future is the time value of money.

Present Value and Future Value

If someone offers you the choice of getting a dollar now or a dollar a year from now, people will always take the dollar now. In order for someone to take the money the money in the future, they have to offer more than a dollar. That one dollar in the present is the Present Value. The dollar amount in the future is the Future Value.

The Discount Rate

The Discount Rate is the multiplier used to turn the Present value to the Future value. For example, if the discount rate is 5% per year, that means $1.00 today is worth $1.05 in one year. The formula to express this idea is Future Value = Present Value * (1+Discount Rate)^{Number of years}. If you wish to calculate things in the other direction it’s Present Value = Future Value * (1+Discount Rate)^{-Number of Years}. The Net Present Value is simply what amount of cash now is equal to the sum of all the cash that you receive in the future.

Calculation Example:

Let’s say a project lasts for 3 years. Each year the project earns $10,000. The discount rate is 10%. You want to know what the Present Value is of the project. The first year you make $10,000, which has a Present Value of $10,000/1.1 or $9090.91. The second year you make you make $10,000, which has Present Value of $10,000/(1.1²) or $8264.46. The third year you make $10,000, which has a present value of $10,000/(1.1³) or $7513.15. The Net Present Value is $9090.91 + $8264.46 + $7513.15, or $24,868,52.

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

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

Investment Newsletter for the end of September, 2017

Posted on October 2, 2017 by Daniel DollingerOctober 9, 2017

The market was up both this month and this quarter. Everyones’ portfolios have done well.

Today I wish to write about the new tax proposal President Trump is suggesting. I am not discussing whether it is a good idea or not, i.e. the political side of a major tax bill. I wish to explore what we know so far and what we don’t know.

The president gave only an outline of what he wanted. He left out many of the key numbers and percentages. His comment was that Congress needed to add these specifics. The appropriate Congressional Committee is scheduled to release details this Wednesday. Some of you may not read this newsletter before then. Of course, as you all know, my world is all about the details. Outlines don’t mean much.

Furthermore, what the committee comes up with will have very little resemblance to what comes out of the political meat grinder in a few months. Washington is swarming with lobbyists who need to protect their special program. In the name of “fairness,” congress will put in many exceptions and changes. All of these special programs, changes, etc. add complexity. That is how a few page proposal turns into a 2000 page tax legislation. It was exactly what happened in 1986 with President Reagan’s tax simplification bill. The initial argument was that most people would be able to file on postcards and accountants would not be necessary. I am still here and my tax practice is doing quite well, thank-you.

This year, I expect a major tax revision to be passed. I am certain it will be retroactive to include 2017 (meaning the returns that are about to be completed this next season). In my career, they have always made the changes to include the current year. Normally, I get my first version of tax software by the end of November. Since the software has to be programmed and then approved by the IRS, it takes 4-6 weeks after legislation to be released. I doubt I will see software before year end. One year it was the end of January.

As it stands now, there are a lot of changes. Affecting investments would be an elimination of estate tax (federal elimination only. Oregon and Washington have not eliminated it. California, Nevada, and Arizona do not have it) and a change in tax rates. We do not know where the boundary lines between the tax brackets will be. Non- investment changes include elimination of the Alternative Minimum Tax, elimination of the deductions for state tax and property tax, eliminating exemptions, and doubling the Standard Deductions. Oregon and California are high tax states. Eliminating the state tax deduction will likely hurt more than doubling the standard deduction helps. Washington and Nevada have no state income tax and Arizona has very low state income tax. These latter states will likely make out ok. The final provisions are a steep reduction in business taxes. They do not apply to any of you in regard to your investments. They may be very important to my accounting clients.

I am not changing any tax planning, financial planning, or portfolios because of this proposal. I may in the future want to talk to you about changes but not yet on the small information we have.

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

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

What is the Business Cycle?

Posted on September 21, 2017 by Daniel DollingerSeptember 21, 2017

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

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

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

Posted on September 14, 2017 by Daniel DollingerSeptember 14, 2017

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

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

Investment Newsletter for the end of August, 2017

Posted on September 5, 2017 by Daniel DollingerSeptember 5, 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

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

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

Posted on September 1, 2017 by Daniel DollingerSeptember 1, 2017

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

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

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

Posted on August 24, 2017 by Daniel DollingerAugust 27, 2017

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

E-Book Download

Questions for the comments

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